Annual Report 2012
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The Biofore Company ANNUAL REPORT 2012 CONTENTS Contents UPM GROUP Key financial information 2012 2 Review by the President and CEO 4 Strategic direction for UPM´s businesses 6 UPM as an investment 9 Financial targets and earnings sensitivities 10 Risk management 11 Vision UPM in the energy markets 14 UPM in the pulp markets 18 UPM in the wood markets 22 UPM as a business partner 32 UPM – The Biofore Company As the frontrunner of the new forest industry BUSINESS AREAS UPM leads the integration of bio and forest industries MORE WITH BIOFORE into a new, sustainable and innovation-driven future. Energy 12 Pulp 16 More with Biofore 5 Cost leadership, change readiness, engagement Forest and Timber 20 UPM’s Biofore strategy recognised externally 8 Verified renewable energy 13 and safety of our people form the foundation Paper 24 Clean Run focuses on environmental performance 17 of our success. Label 28 UPM promotes jointly owned forests 21 Plywood 30 UPM uses recovered paper efficiently 25 Economist does more with less 27 Labels specialise 29 UPM AS A RESPONSIBLE COMPANY UPM Plywood’s superior customer promise 31 From residue to renewable diesel 35 Purpose Innovations in new and existing businesses 34 Safety starts with me 37 UPM as an employer 36 Dialogue with employees 38 We create value from renewable Sustainable innovations with design students 39 UPM as a responsible company 40 UPM’s Supplier Code is the basis for responsible sourcing 40 and recyclable materials by combining Active and transparent dialogue Promoting rural education in China 42 expertise and technologies within with stakeholders 44 Multi-stakeholder approach through the Forests Dialogue 43 fibre-based, energy-related and Environmental solutions in collaboration Supporting social development in Uruguay 45 with stakeholders 46 Transparency brings competitive edge 47 engineered materials businesses. UPM’s material balance 2012 50 Focus on water 48 GRI content index 52 Further discussions with WWF on sustainable plantations 49 Independent assurance report 54 CORPORATE GOVERNANCE Values page 34 Corporate governance 55 Trust and be trusted biofibrils Board of Directors 60 Group Executive Board and Achieve together page 34 Group Executive Team 62 Renew with courage biochemicals Corporate Governance Statement 141 biofuels for transport page 34 AccOUNTS FOR 2012 bioenergy – heat and electricity page 14 Contents 65 UPM does not publish a separate environmental and corporate responsibility Key financial information 2003–2012 144 report but has integrated the contents into this annual report. Various pages 28 and 34 Production plants and sales network 146 highlights from the year 2012 can be found under the sections for each labels and composites Addresses 148 business area. The GRI content index is on pages 52–53. To find out more Annual General Meeting 149 about UPM’s responsibility agenda, please visit www.upm.com/responsibility. pages 16–27 pulp, paper, plywood, wood products and 30–31 Fibre-based businesses continue to form the foundation for UPM’s strategy. In the long term, UPM aims to complement its existing businesses with innovative products with high added value. They will broaden UPM’s product scope and offer opportunities for further growth. 1 UPM Annual Report 2012 UPM Key financial information Key financial information 2012 UPM is the Biofore Company and creates value SALES, OPERATING CASH FLOW, • The Energy business area generates from renewable and recyclable materials. EUR MILLION EUR MILLION ENErgy AND PULP low-emission energy and operates on the Nordic and Central European energy In 2012, UPM’s sales totalled EUR 10.4 billion. markets. UPM’s energy generation capacity UPM has production plants in 17 countries and 2012 10,438 2012 1,014 consists of hydropower, nuclear power, a global sales network. UPM employs approxi- 2011 10,068 +4% 2011 1,041 –3% Energy 2012 2011 2010 Sales, EURm 480 452 567 condensing power and wind power. mately 22,000 employees worldwide. Sales grew mainly due to higher external Consistently solid cash flow. sales in Pulp and Energy business areas. Operating profit excl. special items, EURm 210 192 237 • The Pulp business area produces high UPM shares are listed on the NASDAQ OMX Capital employed on 31 Dec., EURm 901 1,022 886 quality chemical pulp for the global market. Helsinki stock exchange. At the end of 2012, Personnel on 31 Dec. 101 96 72 Four modern, efficient mills in Finland and UPM had 97,255 shareholders. EBITDA, NET DEBT, Uruguay, sustainable wood sourcing Pulp 2012 2011 2010 EUR MILLION EUR MILLION and plantation operations form the basis of Sales, EURm 1,624 1,648 1,698 UPM’s reliable and competitive pulp busi- 2012 1,269 2012 3,010 Operating profit, excl. special items, EURm 296 423 577 ness. SALES BY BUSINESS AREA 2011 1,383 –8% 2011 3,592 –16% Capital employed on 31 Dec., EURm 2,536 2,558 2,455 (Sales % represents share of external sales) • The Forest and Timber business area Personnel on 31 Dec. 1,504 1,441 1,413 Stable financial performance. Pulp prices Solid cash flow enabled significant reduction EURm comprises Wood Sourcing, Forestry and decreased from 2011 historically high levels. in net debt. Biomass businesses as well as UPM Timber. ENERGY 2% Forest and Timber 2012 2011 2010 Wood Sourcing secures competitive wood Sales, EURm 1,691 1,651 1,521 and biomass for all UPM businesses. The PULP 8% OPERAtiNG prOFit, MARKET CAPITALISATION, Operating profit, excl. special items, EURm 27 50 181 Biomass business sells wood and biomass to FOREST AND EUR MILLION* EUR MILLION Capital employed on 31 Dec., EURm 1,709 1,841 1,799 external customers and the Forestry business TIMBER 7% ) Personnel on 31 Dec. 2,059 2,638 2,735 provides private forest owners with forest PAPER 67% 2012 530 2012 4,633 services and manages UPM-owned forests. UPM Timber provides sawn timber 2011 682 –22% 2011 4,466 LABEL 12% +4% and further processed wood products for *) excluding special items advanced building applications. PLYWOOD 4% • UPM is the world’s leading producer OTHER 0% PAPER of graphic papers, with 21 modern and 0 2,000 4,000 6,000 8,000 EPS, DividEND, EUR*) EUR*) sustainable paper mills in Europe, China ■ Sales, external 2012 and the United States. In addition to paper ■ Paper 2012 2011 2010 Sales, internal 2012 2012 0.70 2012 0.60 manufacturers, many of the mills are large Sales, EURm 7,150 7,184 6,269 bioenergy producers and recycling centres. ■ Sales, external 2011 2011 0.93 –25% 2011 0.60 0% ■ Sales, internal 2011 Operating profit, excl. special items, EURm 2 –16 –254 UPM’s Paper business aims for competitive *) excluding special items *) 2012: Board’s proposal Capital employed on 31 Dec., EURm 3,375 5,735 5,284 advantage and growth in developing markets with cost efficiency, sustainable products, Personnel on 31 Dec. 12,627 13,877 11,901 reliability and professional customer services. OPERATING PROFIT BY BUSINESS AREA (excluding special items) EURm ENERGY • UPM Raflatac, the Label business of KEY FIGURES 2010–2012 ENgiNEERED MATEriALS UPM, provides self-adhesive label materials PULP 2012 2011 2010 for product and information labelling for Sales, EURm 10,438 10,068 8,924 both high-volume and specialised end-use FOREST AND TIMBER Operating profit, EURm –1,350 459 755 Label 2012 2011 2010 applications. UPM Raflatac has 15 factories and 21 slitting and distribution terminals PAPER excl. special items, EURm 530 682 731 Sales, EURm 1,202 1,150 1,100 covering all main markets. UPM is the sec- Profit (loss) before tax, EURm –1,406 417 635 Operating profit, excl. special items, EURm 81 68 87 LABEL ond-largest producer of self-adhesive label Earnings per share, EUR –2.39 0.88 1.08 Capital employed on 31 Dec., EURm 525 513 504 materials worldwide. PLYWOOD excl. special items, EUR 0.70 0.93 0.99 Personnel on 31 Dec. 2,873 2,629 2,543 Operating cash flow per share, EUR 1.93 1.99 1.89 • The UPM Plywood business offers OTHER Return on equity, % neg. 6.3 8.2 Plywood 2012 2011 2010 plywood and veneer, mainly for construc- -200 0 200 400 600 800 excl. special items, % 5.0 6.7 7.5 Sales, EURm 387 376 347 tion, transport and other manufacturing industries. UPM develops new plywood ■ 2012 Dividend per share (2012: Board’s proposal), EUR 0.60 0.60 0.55 Operating profit, excl. special items, EURm 3 0 –18 solutions and products, including UPM ■ 2011 Shareholders’ equity per share at end of period, EUR 11.23 14.22 13.64 Capital employed on 31 Dec., EURm 261 258 242 Grada, formable wood material. UPM is Gearing ratio at end of period, % 51 48 46 Personnel on 31 Dec. 2,445 2,586 2,737 a leading plywood supplier in Europe. Capital expenditure, EURm 352 1,179 257 UPM Annual Report 2012 CONTENTS 2 3 UPM Annual Report 2012 UPM Review by the President and CEO Dear shareholder, renewable diesel from crude tall oil in Lappeen- ness in Europe, but also the importance of the It is impressive how UPMers have commit- ranta, Finland. Energy business as a growth area for the com- ted to shared targets both in safety and in other Renewable diesel is a new opportunity for pany. development initiatives. I wish to thank our the company’s growth prospects. In the longer management and employees for renewing with In 2012, UPM’s financial position remained stable, term, biocomposites, biofibrills and biochemi- Recognised responsibility courage and working well together. and by the end of the year the company’s balance cals will complement UPM’s range of innova- Sustainability and responsibility are at the core sheet was stronger than it was a year before.