​ Review by Jussi Pesonen, President and CEO

Performance improvement and transformation
continued in 2015​

UPM aims to generate value based on forest biomass in multiple ways: cost efficient operations, selected growth projects, innovations and reshaping the business portfolio to increase the long-term value of the company.

 

 

In 2015, we made good progress with our strategy. All business areas sharpened their operations, our profit improvement programme exceeded its target and our growth projects started to deliver earnings. Our strong cash flow drove net debt down to a new record-low level. All in all, UPM’s transformation progressed well and our business model showed its capability to deliver.

We were able to successfully implement the short term profitability improvement programme. By the end of the year, target savings were exceeded by 10 % with the annualised variable and fixed cost reduction impact totalling EUR 165 million.

Key growth projects were completed during the year and I am very pleased to see that they already contribute to our cash flow.

The Lappeenranta biorefinery started commercial production of advanced renewable diesel in Finland in January. UPM Biofuels picked up steam as the year went on and reached a break-even level during the last quarter. The UPM Kymi pulp mill expansion was a success and we achieved record-high pulp production in December. UPM Raflatac’s investments in Poland, Malaysia and China were already visible in our earnings during the second half of the year. Also the UPM Changshu’s speciality paper machine ramp-up got off to a good start in December.

We will reap the benefits of these projects in 2016 and beyond.

UPM China, investment
UPM people
UPM Biofuels, Lappeenranta

​Good earnings momentum

UPM showed good performance throughout 2015. Much of the good performance was driven by our own actions. Out of our six business areas, UPM Biorefining, UPM Plywood and UPM Energy exceeded their long-term return targets, and UPM Raflatac showed good improvement, getting very close to its target. Both UPM Paper ENA and UPM Paper Asia were able to offset the pressures of the challenging market environment with their own actions.

Our operating profit improved by 37% year-on-year thanks to the successful profit improvement actions. Return on equity excluding special items was 12.1 % for the full year and cash flow per share was EUR 2.22.

I am especially pleased with the reduction of our net debt. Following the consistently strong cash flow, our balance sheet at the end of 2015 was the strongest ever in the company’s history. We were able to reduce our net debt by EUR 301 million throughout the course of the year.

UPM’s Board of Directors has proposed an increased dividend for 2015 of EUR
0.75 per share which is 34% of the operating cash flow per share. The Board´s proposal
reflects confidence in UPM’s ability to generate growth in earnings and cash flow.

Overall, the company performance has progressed as planned and I would like to thank all UPM employees for an excellent 2015.

UPM performance graphicTop performance lays foundation for strategy execution. 

Responsibility is good business

We believe that customers, investors and other stakeholders value responsible operations that keep risks under control and add to our business opportunities, thereby increasing the company value.

Over the course of the year we paid special attention to the implementation of UPM’s Code of Conduct in our businesses. The Code has also been updated to better reflect the current operating environment.

To enhance transparency for our stakeholders, we use the Global Reporting Initiative (GRI) reporting framework. With this report, we also want to highlight the value our businesses create in terms of the economic, social and environmental success of the company and throughout the value chain.

Furthermore in 2015, UPM’s consistent work in the area of corporate responsibility received third-party recognition. The company was listed in the Dow Jones Sustainability Indices for the fourth time in a row. The companies that perform better against sustainability criteria than their competitors are selected in the indices. United Nations invited UPM to participate in the Global Compact LEAD forum. LEAD members include the 50 most advanced companies in terms of sustainability across geographical regions and industry sectors. UPM is the first forest industry company and also the first Finnish company ever to receive such an invitation.

Responsibility logos
 

Outlook

 UPM has a versatile business portfolio and five growing business areas. UPM’s profitability improved in 2015 and the improvement is expected to continue in 2016. The business performance is underpinned by the company’s growth projects and continuous cost-efficiency measures.

Despite the somewhat uncertain environment in the beginning of the year, we are confident about our prospects for 2016. We are starting the year with a stronger balance sheet than ever. Our investment levels are decreasing and earnings and cash flow from growth projects are starting to materialise. We will maintain cost competitiveness and strive to achieve top performance in our businesses. The versatile use of forest biomass and focus on competitiveness and being at the forefront of developments will also continue to advance UPM’s Biofore strategy this year.

With good performance in our businesses, strong cash flow and leading balance sheet in the industry, we are in a unique position to simultaneously distribute an attractive dividend, implement focused growth projects and act on strategic opportunities.

Jussi Pesonen
President and CEO

UPM Annual Report 2015

Annual Report 2015

Grow with Biofore – In 2015, UPM made good progress with our strategy. All business areas sharpened their operations, our profit improvement programme exceeded its target and our growth projects started to deliver earnings.
UPM Story

UPM Story

The UPM story describes our transformation process, how we at UPM ensure growth and sustainable value creation in the future.

Responsibility

For us responsibility is about protecting and creating value – protecting nature and providing smart and sustainable products and solutions. They create economical value and other benefits for all our stakeholders and the society.
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Investor Relations: +358 (0)20 415 0236 ir@upm.com