Review by Jussi Pesonen, President and CEO
2017 was a record year for UPM
Seizing the limitless potential of bioeconomy
Shareholder value at the core
Since the introduction of UPM's current business model in 2013, we have achieved a clear improvement in business performance, attractive returns for our growth investments and a truly industry-leading balance sheet. At the same time, we have seen a consistent improvement in employee engagement. Going forward, our businesses provide us with a wealth of future opportunities.
2017 was a great year for UPM. Once again, our business model, performance culture and effectiveness in capital expenditure delivered excellent results. Our comparable EBIT grew by EUR 149 million or 13% in 2017. Our cash flow was consistently strong, and we reduced our net debt by EUR 957 million over the course of the year, ending at a record low of EUR 174 million. We also made good progress in our non-financial performance — for example, our fossil CO2 emissions decreased by 419,000 tonnes or 6%.
Our strategic guidance remained unchanged: Our portfolio consists of six competitive businesses with strong market positions and high barriers to entry. Performance, growth, innovation and responsibility continue to be the four cornerstones we build on.
With such a strong foundation, we are now aiming higher. In 2017, we revised our purpose and vision statements. These statements crystallise the why and what of our company direction. Our purpose is to create value by seizing the limitless potential of bioeconomy. It means numerous profitable business opportunities, be it products or services, which are providing safe and sustainable solutions for growing global consumer demand.
We are building a more sustainable future by replacing oil-based and other non-renewable materials with renewable ones, by using them efficiently and creating entirely new kinds of products and services. Through innovation, we have the possibility to expand into completely new business areas.
Our people are what set UPM apart and enable our success. UPMers are accountable and performance oriented. I have every reason to be proud of our employees. To reach the next level, we seek to be more outward looking and experimental in everyday matters, agile in our implementation and build on people's diversity.
Foundation for the future growth
Going forward, we will maintain our focus on performance supported by our culture of continuous improvement and innovation. We will also continue to grow our businesses with attractive focused growth investments.
Furthermore, we are now well-positioned for new transformative projects. I am pleased that we have reached a cornerstone agreement with the Government of Uruguay, outlining the local prerequisites for a potential pulp mill investment. The infrastructure projects and the pre-engineering of the mill are in progress. For UPM's pulp business, the potential mill would imply a change in business size and earnings.
Another opportunity for transformation comes with the emerging biomolecules businesses, biofuels and biochemicals. During the fourth quarter, we started a basic engineering study regarding a potential industrial-scale biochemical refinery in Germany. Biochemicals business could provide UPM with significant growth platform for decades to come.
Our objective is earnings growth, and we will therefore maintain our high standards when it comes to return requirements for growth investments.
Responsibility is good business
In the coming decades, changing consumer requirements and new consumers in Asian emerging economies will mean both significant new demand but also raised bar for businesses, when it comes to responsibility and integrity.
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 value.
For the first time, the Report of UPM's Board of Directors includes comprehensive non-financial report indicating our progress in the most material responsibility targets.
Over the course of the year, UPM received recognitions from several third parties. UPM was listed in the global Dow Jones Sustainability Index as an industry leader and was invited to the United Nations Global Compact LEAD forum as the only representative of forest industry, and the only Finnish participant.
Shareholder value at the core
Creating shareholder value is at the core of our strategy, and we believe this also benefits other stakeholders and society on the long term. Our transformation continued and the progress in financial and responsibility performance was reflected by a positive share price performance. Our share price increased by 11% during the year.
UPM's Board of Directors has proposed a dividend of EUR 1.15 (0.95) per share for 2017, up 21% from last year.
UPM is in better standing than ever. Our renewed vision and purpose guide our ambition and what kind of a company we are aiming to be.
Over the next few years, we can allocate more capital to growing and transforming the company while simultaneously increasing the distribution to our shareholders and maintaining headroom in our strong balance sheet. We will also ensure that our employees have the competence, integrity and drive to make our strategy come true.
All in all, UPM is well-positioned for 2018 and beyond. UPM businesses provide sustainable and safe solutions for the growing global consumer demand, both today and in the future. Bioeconomy offers us limitless opportunities for value creation and growth.
President and CEO