Review by Jussi Pesonen, President and CEO


 

Creating shareholder value is at the core of our strategy

 

2016 demonstrated the results of our transformation and set the stage for our future. It is fair to say that the foundations for our success were laid a decade ago when UPM stated that the graphic paper markets had permanently changed and that we needed to find a new focus and new ways of working to be competitive. 

In 2008, we started to turn pulp and energy into market-driven businesses, and in 2009 we introduced UPM as the future-oriented Biofore Company with an increasing focus on innovation. 

In 2013, we changed our business structure to ensure agile and marketdriven operations. At the same time, we further sharpened our capital allocation strategy. With this model we have been able to ensure topperforming businesses, strong cash flow, industry-leading balance sheet and good returns from our targeted growth investments. 

Through these steps, we have achieved something that we set out to do – create a new kind of UPM. Today’s UPM is earnings- and growth-oriented, capable and financially strong, and now we have the opportunity to seek new horizons and aim higher. 

2016 making way for future growth

During the year, our comparable EBIT increased by 25% and our operating cash flow was record strong at EUR 1,686 million. Our net debt was EUR 969 million lower than a year ago, a reduction of 46%, reaching an industryleading level. 

We grew with our customers in many markets and our growth projects contributed significantly to our earnings. The first wave of pulp investments was very successful and the UPM Lappeenranta Biorefinery had a solid year. The ramp-up of the specialty paper machine at UPM Changshu proceeded as planned. The UPM Otepää plywood mill and UPM Kaukas pulp mill expansions started successfully towards the end of the year.

Further investments are ongoing ensuring future growth. Construction of the second UPM Kymi pulp mill expansion and investment in the UPM Raflatac factory in Poland are in full swing. Our negotiations with the Government of Uruguay on the prerequisites for long-term industrial development in the country have progressed in positive spirit and are continuing. We also continue to study new opportunities in biofuels and biochemicals. 

At the same time, our continuous improvement programmes delivered results in terms of significant savings in variable and fixed costs. The restructuring of UPM's graphic paper business continued in order to adjust capacity to profitable demand. This was particularly reflected in the form of a strong earnings development at UPM Paper ENA.

All this is a significant achievement in a complex and competitive environment and I want to take this opportunity to thank all our business partners, employees and stakeholders for their engagement and co-operation, which made 2016 a success. 

UPM China, investment
UPM people
UPM Biofuels, Lappeenranta

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, increasing the company's value.

The revision and launch of our Code of Conduct was a group-wide 
effort during the year. The Code now better reflects our current operating environment. As many as 97% of UPMers completed the training for the new Code. 

We were also able to make good progress in 25 of our 34 measurable 
responsibility targets for 2030. Supplier responsibility was one of the key focus areas in 2016. 

The company received recognitions from several third parties. To 
name but a few, UPM was listed in the Dow Jones Sustainability Index Europe and participated in the United Nations Global Compact LEAD forum of the 50 most advanced companies in terms of sustainability across geographic regions and industry sectors.

Responsibility logos
 

Shareholder value at the core

Creating shareholder value is at the core of our strategy and we believe that this also benefits our other stakeholders in the long term. 

Our transformation and 
the continued improvement in terms of financial and responsibility performance were reflected in positive share price performance. Our share price increased by 35% during the year. 

UPM’s Board of Directors proposed a dividend of EUR 0.95 per 
share, which is 27% higher than in the previous year. The proposal reflects confidence in UPM’s future.


Looking forward

UPM has a versatile business portfolio, good geographic spread and five growing business areas. The versatile use of forest biomass and focus on competitiveness and innovation will continue to advance our Biofore strategy. 

We will invest in projects with attractive and sustainable returns. 
We will also continue measures to manage our costs. 
Our new long-term financial targets reflect our increased ambition for business performance. They are credible and sustainable in the long term, over business and investment cycles. 

We look confidently to the future. Our competitive position and 
market demand enable us to expand our growth businesses further and aim higher with our long-term earnings.

Jussi Pesonen
President and CEO

UPM Annual Report 2016

Annual Report 2016

Aiming Higher with Biofore - 2016 was financially a record year, demonstrating the results of UPM transformation. Growth projects contributed significantly and cost efficiency measures continued on a strong track.
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