UPM’s Bio Strategy – exclusive interview with Jussi Pesonen

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UPM’s Bio Strategy – exclusive interview with Jussi Pesonen

September 03, 2013 - 16:46
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Finnish company UPM can be considered one of the leading innovators in the global pulp and paper industry, but in the “biosphere” area of the business it is seemingly streets ahead of its rivals. The company has very recently announced a new business structure that has been designed to simplify and harness its burgeoning business portfolio, as well as to drive a clear change in profitability. Jussi Pesonen, CEO of UPM told PPI “The new business structure will sharpen our operational focus in different business areas. Together with the new business structure, we are implementing performance improvement actions and focused growth initiatives. Our target is to achieve EUR 400 million profit improvement with these activities.”

UPM’s new structure will consist of the following Business Areas and reporting segments: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper Europe and UPM Plywood. Forests and wood procurement will be reported in Other operations. The new structure will be valid as of 1 November 2013.

PPI recently interviewed Pesonen about the company’s trailblazing ideas and concepts towards the Bio Economy

PPI: The Biofore concept came into being around 4 or 5 years ago now, and is widely known as your interpretation of how a forest products company should go forward. How do you perceive the concept now it seems to have taken root? Has it been a success in your eyes?

Pesonen: The Biofore Company was launched in October 2009. It has been well perceived by our stakeholders, both internal and external. It gives a name for UPM’s transformation and shows that the company

is future oriented, innovative, efficient and sustainable.

What is the bio business share of UPM total business today and what do you think it will be in three/five years’ time?

Actually, we consider all our business to be biobusinesses. Our main raw material is renewable, recyclable forest fiber and we use and generate low emission energy. In five years’ time the situation will be the same.

If we talk about the share of our profitable growth businesses, like pulp, energy, renewable fuels, label or Asian paper, our target is that more than 50 % of our top line would derive from those businesses by the end of this decade.

Is there anything you can see coming along that might threaten or slow down progress, for instance the emergence of shale gas?

The European economy has a major impact on our ability to implement any investment plans. We need the cash flow from our mature businesses to finance our future opportunities. If the European economy continues to be slow, it is clear that it may also slow down our transformation process, as of course we are a predominantly European company.

Can you give us an update on the progress of construction at Lappeenranta, and how UPM BioVerno is being received so far? Can you tell us about the trials with Volkswagen and how they went?

The Lappeenranta biorefinery is proceeding on schedule and the installation of the main equipment is currently on-going. The interest in BioVerno has been great. The fleet testing has just started in May and at this early stage there is nothing to report on the trials as yet.

Can you give us an update on the Biomass to Liquid (BTL) project in Europe?

The European Union has granted UPM new technology grant worth EUR 170 million for a BTL project in Strasbourg. Our focus is at the moment, however, in completing the Lappeenranta biorefinery and decisions on the Strasbourg project can be expected only in 2014.

And what about the projects with Andritz/Carbona in the US and the power and heating development with Metso, Fortum and VTT?

We have completed the BTL related gasification testing with Andritz/Carbona in the US.

Pyrolysis development project with Metso, Fortum and VTT has proceeded to the stage where Fortum is investing Euro 20 million ($27.5 million) in the commercialization of a new technology by building a biooil plant connected to the Joensuu power plant, located in Eastern Finland. It will start operating this autumn and will produce 50,000 tonnes of bio-oil per year.

In biocomposites, UPM Formi, we already have a small scale pilot production in Lahti, Finland and some customers, like the high end audio manufacturer Genelec, have already tested UPM Formi in their commercial products with good results.

The” bioworld” is an important element in our existing products, where we aim to reduce waste, emission and optimise the materials efficiency.

Any plans to get into Bio chemicals or any other areas of advanced products derived from wood?

In many of the development areas we seek partnerships in order to accelerate the learning and development.

In the development side we have four main focus areas: biofuels, biochemicals, biocomposites and biofibrils. These are already offering a forest of opportunities.

One example is our collaboration with Renmatix, where we will use their water-based PlantroseTM process to convert woody biomass into low-cost sugar intermediates for subsequent downstream processing into biochemicals. In the long term our goal is to offer cost-competitive bio-alternatives for select petrochemicals on an industrial scale.

UPM it seems is also into other imaginative projects, for example the automotive industry (I understand a car is being made out UPM Formi and Grada) Can you give us an update on that and any further developments in that area?

UPM Profi, as well as our Timber and Plywood products are excellent sustainable products, but bioconstruction is not an area where we plan major growth steps. We are involved in developing a Biofore Concept Car together with Metropolia University of Applied Sciences, where UPM’s role is to introduce new sustainable materials for car manufacturing. E.g. UPM Formi and UPM Grada, heat formable plywood, are interesting opportunities for the automobile industry which is actively seeking sustainable materials.

Have the bio areas UPM has been concentration on been a steep learning curve for the company?

In our new business initiatives we are surely on a big learning curve. After all we are trying out things nobody else has done before. On the other hand we also have plenty of competencies e.g. in biomass sourcing and industrial processes which some other players might not have.

Can you talk about opportunities in Energy on the commercial front, in Finland or elsewhere?

Our Energy business is one of our six reporting segments and works on open markets just like any of our businesses.We generate energy in our own bioenergy and hydropower plants and we are shareholders in further hydropower plants and nuclear energy assets. We trade in both physical and derivatives markets and our market area consist of Nordic, German, French, British and Austrian energy markets. Energy is one of our growing and profitable businesses.

PULP AND PAPER

How is the general health of UPM in the pulp and paper sector? What are the challenging areas, and what are the areas that are still showing potential growth?

Starting from Pulp, the market is healthy and growing and UPM’s pulp assets are modern and efficient. The business has been very profitable for us.

In Paper, the challenges are in Europe and in graphic papers. We have modern assets but Paper is underperforming due to the overcapacity and weak European economy.

On a positive note demand in emerging markets e.g. in Asia or Russia is growing and special grades like label papers have a growing demand even in the traditional markets.

Europe seems to be an area of stagnation. Any comments on the economic situation in the region?

The European economy is probably the biggest concern for the entire industry. There are few signs of quick recovery. Europe is clearly on a different track than North America or the BRIC countries which should be a major concern for every European politician.

In Uruguay, there has been talk about expanding Fray Bentos, any news on that?

We have applied for an expansion in our permits. The matter is in the hands of Uruguayan authorities but we do not have any news on the matter. The mill has had an excellent track record, both in terms of financial and environmental performance.

Update on plans for Russia and China?

In Russia we are currently in the process of selling our Pestovo sawmill. As a commercial market Russia is very interesting for many of our businesses.

In China we are expanding our Changshu site with a new swing paper machine which will produce label paper and uncoated woodfree paper. The Government and environmental permits are clear and site preparation works on-going. Equipment tendering process is on-going and we have already started up a new sheeting line.

The investment supports the good profitability of UPM’s growing paper business in Asia Pacific.