The path to continuous innovation cannot be travelled alone; “co-creation” is a must.
Although still the world’s largest producer of graphic papers, Finland’s UPM is perhaps now known more for its development of innovative bio-based products derived from wood biomass. Thus, UPM has become UPM—The Biofore Company.
During a press tour of Finland organized by the Finnish Pulp and Paper Technology group, editors had a chance to meet with Jyrki Ovaska, executive vice president, who shared his insights into how and why the company has evolved and where it is going.
He noted that the company has dropped five million metric tons of graphic paper capacity since 2008, yet still ranks number one in capacity. Therefore, it found a way to integrate the growing bio-field with the forest to create a new, high-quality alternative to non-renewable materials profitably and responsibly.
Nowadays, most R&D spending goes into new businesses or those designated as growth businesses. “We create value by seizing the limitless potential of the bio-economy,” Ovaska said. “More and more opportunities are arising as we go along this route. It’s not just about sustainability, but also innovation.”
UPM believes its policies fit nicely with what it has identified as global megatrends, e.g., digitalization, climate change, responsibility and compliance, urbanization, and population increase. Its strategic focus is on: performance (social and environmental as well as financial); growth; portfolio (i.e., a business portfolio that creates development and value); and innovation.
Thus far, the strategy is working. In 2017, the company realized record results. With a good cash flow and low debt, UPM is in a good position if potential M&A opportunities arise or if it wants to invest in existing facilities.
There are six business areas in UPM:
• Biorefining (wood, pulp and saw mills, biofuels);
• Energy, including hydro, nuclear and condensing biopower;
• Raflatac—label products;
• Specialty paper—fine and specialty papers in China and Asia Pacific, as well as labelling materials globally;
• Communication papers—magazine papers, newsprint, fine paper;
• Plywood—Wisa plywood and veneer products; Grada wood material.
Complementing these six are two new businesses: biocomposites and biochemicals. In biocomposites, the Biofore Concept Car that UPM helped develop with some components made of cellulose-derived material is perhaps the most well-known product. Now, it even has tires that contain some lignin.
In biochemicals, a feasibility study is being finalized in Germany for production based on wood fiber. From the sugars, the chemical building blocks are obtained. “It took six years to develop the technology to get this far,” Ovaska explained.
In Kotka, Finland, a pre-feasibility study has been done for a large biofuel plant that would be built near the harbor. “We are studying various feedstocks,” Ovaska added. “It will not necessarily be the same technology as that used in Lappeenranta.”
At Lappeenranta, UPM uses pulp residues—crude tall oil—as a feedstock. It also purchases crude tall oil. It converts it to renewable diesel fuel (100,000 metric tpy) and naptha. The naptha is used in gasoline or converted for chemical or plastic production. Other side products include turpentine.
Since UPM’s first biorefinery opened three years ago, product acceptance has been very good, Ovaska said. “The next one will be much larger and we will get economies of scale since the investment will be larger if it happens.”
In the future, he noted, there is the possibility of exporting the technology to the UPM mill in Uruguay, where there is also a good possibility UPM will be making a major investment to greatly increase its pulp capacity.
As Ovaska said, “It’s still important to develop our existing businesses. We can’t get carried away with new technology. Our cash flow comes from existing businesses.”
Make no mistake, though, innovation is driving UPM’s transformation. Ovaska compared the “old innovation game” with the new one. Previously, a company could innovate or stand still. Doing nothing probably meant a decline, albeit a slow one. These days, in the “new game,” a company can innovate for its core business, but also create new sources of growth. Do nothing in the present business environment and “Your company could be toast in three to five years,” Ovaska said.
Biofuels and biochemicals are natural evolutionary steps in wood-based value creation. Ovaska said UPM has taken that extra step from fiber to the biomolecules and, therefore, biochemicals and biofuels. The industry has only taken the first steps in this area, but “UPM is a leader,” he added.
The chemical value chain is worth six times that of the pulp value chain—that is, three trillion EUR. “Just finding an attractive niche in this chain would mean very significant size in business,” Ovaska stated.
Ovaska looked at new business opportunities for UPM. It already has entered the biofuel and biocomposite markets. He split biochemicals into three areas: chemical building blocks, lignin, and biofibrils (nanocellulose). For biofibrils, UPM has developed lots of intellectual property. The first application was two years ago in the biomedical field. He added that this type of development is better suited to a publicly traded company that can afford to work toward a goal that is still six or seven years out.
Ovaska said UPM “has its eye” on various issues/technologies, such as energy, new uses for fiber, industrial biotechnology, digitalization, 3D printing, and the circular economy. However, these sectors could change year-over-year depending on how they evolve and fit with UPM’s strategy.
Of course, UPM is still looking at growth in fiber: packaging materials, medical supplies, special fiber/textiles, composite materials, and cellulose-based films. “From these developments, we need to find commercial applications/markets,” Ovaska said.
In looking at biotechnology, Ovaska said UPM must have the mindset of a startup company because in this sector, UPM is just that.
How will UPM accomplish all it wants to do in innovating? Ovaska was blunt. “It is a network; we can’t do it alone. It is not like developing new paper grades. We call it co-creation or open innovation.”
This means working with universities and research institutes, technology providers and suppliers, customers, venture funds, and innovation platforms. Ovaska added this sort of cooperation is not typical for the forest products industry; it is more commonly found in the high-tech sector. The benefits include risk sharing, advanced speed of development, and more available funding.
Often, Ovaska added, R&D and innovation needs to be a sort of private/public partnership. UPM is part of the Finnish innovation platform (CLIC Innovation), which has 30 partners from nine industrial sectors and counts every Finnish university as a partner. UPM is also a partner in the Bio-based Industries Consortium, which was established by the European Union. Other members include such well-known names as BASF, Solvay, Sappi, Mondi, Total, Cargill, Elf, Unilever, and SCA.
With pulp and paper demand still growing annually, how will this search for innovation and subsequent new cellulose-based products affect the forest? Ovaska was quick to downplay any doubts about the fiber basket. “In Europe, many countries have excess forest, much more than what is consumed. Sustainability is not a problem for these innovations. They will not jeopardize the carbon sink of the forest as the need for fiber in communication papers is steadily declining.”
Graeme Rodden is senior editor, North and South America for Paper360°. You can reach him at grodde[email protected]