UPM Annual Report 2016

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UPM Annual Report 2016 UPM Annual Report 2016 8 9
Strategy Businesses Stakeholders Governance Accounts In brief
Transformation
Over the past years, UPM has been transforming its business model, business portfolio
and business performance. The change process started in 2008, and 2016 showed
many of the benefits achieved. UPM’s transformation continues.
Disciplined capital allocation
• UPM aims to pay an attractive dividend
• UPM aims to maintain a strong balance sheet to mitigate
risks and enable strategic opportunities to be captured
• UPM invests in projects with attractive and sustainable
returns, supported by clear competitive advantage
• In UPMPaper ENA, UPM aims for strong cash flow
and releasing capital
Business model
Six separate business areas
UPMhas changed its business model from a vertically integrated forest
industry model into a company with six separate business areas.
The business areas are competitive, with strong market positions.
Five of them are operating on healthily growing markets.
The business model change has yielded benefits:
1. Transparency and accountability – commercial strategies,
benchmarking, target setting, incentives
2. Cost competitiveness – agility, improved efficiency, optimised
sourcing
3. Growth – focused investments with attractive returns and clear
competitive advantage
Capturing corporate benefits
UPM group aims to add value to its separate businesses and thereby
to its stakeholders with:
• Competitive and responsible wood sourcing, forestry and
plantation operations
• Value adding, efficient and responsible global functions, compliance
• Continuous improvement (Smart) programmes
• Global platform to build on
• Disciplined capital allocation
Transforming the business portfolio
UPM’s top-line has been nearly constant at EUR 10 billion over recent
years. However, sales in the graphic paper business UPMPaper ENA
have decreased, while the five other business areas have grown
significantly through focused investments.
INCREASING SHARE OF BUSINESSES WITH STRONG LONG-TERM
FUNDAMENTALS FOR PROFITABILITY AND GROWTH
Group
Portfolio strategy
Capital allocation
Business targets
Code of Conduct
Responsibility targets
Businesses
Business area strategies
Commercial excellence
Operational excellence
Cost efficiency measures
Focused growth projects
Innovation
Outcomes
Top performance
Competitive advantage
Value creation
Stakeholder and
societal value
License to operate
CLEAR ROLES AND RESPONSIBILITIES
+280% +13pp +18pp
INNOVATION AND
PRODUCT STEWARDSHIP
Patent
applications
Share of
ecolabelled
products
Share of
certified fibre
5-year average delivery
growth (CAGR)
3–4%
excluding UPM Energy
-83% +20pp +34%
IMPROVED SOCIAL
PERFORMANCE
Safety: LTAF Employee
engagement
Productivity:
Sales/employee
CAPACITY CLOSURESAND DIVESTMENTS
FOCUSED
INVESTMENTS
–14% –13% –19%
IMPROVED RESOURCE
EFFICIENCY
Electricity
consumption/
tonne of paper
Effluent flow/
product
Waste to landfills
+123% +7.4pp –74%
IMPROVED FINANCIAL
PERFORMANCE
Comparable EBIT Comparable ROE Net debt / EBITDA
2016 COMPARED WITH 2008
Transforming performance
UPMhas achieved a clear improvement in its financial
performance. Profitability has improved, shareholder returns
have increased and the balance sheet has strengthened. At the
same time, social and environmental performance has also
improved. Read more on long-term financial and responsibility
targets on pages 17-19.
SALES 2016, %
Label stock
expansion
Plywood
+40,000 m3
280,000t
news
305,000t
magazine
195,000t magazine
460,000t
magazine
345,000t news
420,000t magazine
160,000t fine
Pulp
+170,000t
Pulp mill efficiency
improvement
Pulp +170,000t
Pulp
+100,000t
Pulp
+70,000t
Specialty
papers
+360,000t
Renewable
diesel
+120m litres
17 16 15 14 13 18
Label stock
expansions
Decision making on the right level
Each business area is responsible for executing its own strategy
and achieving targets. Group direction and support from global
functions enable the businesses to capture benefits fromUPM’s
brand, scale and integration, while navigating the complex
operating environment. Capital allocation decisions take place
on the group level.
SUSTAINABLE EARNINGS
GROWTH
• UPM Biorefining
• UPM Raflatac
• UPM Specialty Papers
• UPM Plywood
• UPM Energy
New business:
Biofuels
4-year average annual
operating cash flow
EUR 321m
MAINTAIN STRONG
CASH FLOW
• UPM Paper ENA
CONTENTS
Business portfolio, sales %
Vertically integrated
paper company
100
80
60
40
20
0
■ Paper
■ Plywood
■ Raflatac
■ Sawmilling
08 16
Business portfolio, sales %
Six separate
businesses
100
80
60
40
20
0
■ Paper ENA
■ Plywood
■ Energy
■ Specialty Papers
■ Raflatac
■ Biorefining
■ Other operations
14 15 16 13
EURm
Combined comparable EBIT
% of sales
1,000
800
600
400
200
0
20
16
12
8
4
0
14 15 16 13
EURm
UPM Paper ENA
operating cash flow
600
500
400
300
200
100
0
UPM Biorefining
UPM Raflatac
UPM Specialty
Papers
UPM Plywood
UPM Energy
UPM Paper ENA
100
75
50
25
0