UPM Annual Report 2016

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

BUSINESS AREA

STRATEGIC TARGETS

ACTIONS IN 2016

ACTIONS PLANNED FOR 2017 *)

UPM BIOREFINING

Capture benefits of pulp expansions Complete UPM Kymi pulp mill investment

Investment completed at UPM Kaukas pulp mill UPM Kymi pulp mill investment decision, discussions with the Government of Uruguay started Developed forest plantations in Uruguay Production ramp-up continued at UPM Lappeenranta Biorefinery, evaluation of scaling up the biofuels business started Measures to improve production efficiency at sawmills Reduction in variable costs Start-up of new turbine and continued refurbishment of existing two turbines at Harjavalta hydropower plant Continued OL3 construction

Grow as a responsible and cost competitive pulp producer providing the most versatile pulp product offering Provide unique wood-based advanced biofuels, achieve top performance and evaluate opportunities for scaling up biofuels business Enhance profitability through efficient use of wood supply, integrated full-production at sawmills and sharpened commercial strategy Create value in electricity generation and physical and financial trading Profitable growth on the Nordic electricity market with CO 2 emission-free generation Profitable organic growth, potentially complemented with acquisitions Widen product portfolio especially in high value-added films and special label products Expand customer reach through increased distribution and sales & service coverage Profitable growth in labelling materials globally and in high quality office papers in Asia Widen product offering in specialities and through new product development, seek opportunities in existing and new end uses Maximise cash flow through differentiated commercial strategies and a disciplined performance management Make use of optimisation opportunities in the extensive low-cost operations Profitable growth through superior customer experience and operational excellence Strengthen market position in selected businesses by increasing value and service offering

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Continue discussions with the Government of Uruguay Further optimisation of the UPM Lappeenranta Biorefinery, continue evaluate growth opportunities in biofuels Continuous cost efficiency improvement

Performance improvement and transformation continued in 2016

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UPM ENERGY

Complete refurbishment of Harjavalta hydropower plant Continue OL3 construction

2

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UPM RAFLATAC

Construction of the factory expansion in Poland Capture growth opportunities and develop product portfolio Expand distribution coverage in attractive markets Continuous cost efficiency improvement Continue optimisation of the third production line at UPM Changshu, China Develop more value added specialty products segments Continuous cost efficiency improvement Strengthen customer relationships Taking opportunities in certain end uses and segments Continuous cost efficiency improvement Closure of two paper machines in Germany and Austria Production ramp-up at UPM Otepää mill in Estonia Continuous process efficiency improvement programmes Strengthening the supply chain service models

Improved cost and capital efficiency Strengthened product portfolio in films and special products Improved sales capabilities and logistics solutions

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UPM SPECIALTY PAPERS

Ramp-up of the new production line at UPM Changshu, China Reduction in variable costs

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PERFORMANCE

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GROWTH

UPM PAPER ENA

Continued systematic performance management Closure of Madison Paper Industries and sale of Schwedt Reduction in variable and fixed costs Plan to close two paper machines in Germany and Austria Increased deliveries to demanding end-use segments Investment completed at UPM Otepää mill in Estonia Competitiveness improvement programme at the Finnish birch plywood mills continued

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PORTFOLIO

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INNOVATION

UPM PLYWOOD

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WOOD SOURCING AND FORESTRY

Secure competitive wood

Sold 63,000 hectares of forest land in Finland Reduction in wood costs

Continue forest land sales Continuous cost efficiency improvement

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BUSINESS PORTFOLIO DEVELOPMENT AND VALUE CREATION

Grow with synergistic acquisitions Simplify with best value realisation for UPM

Studied M&A opportunities, no significant transactions materialised

Continue to look for value enhancing M&A opportunities

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3

NEW BUSINESS DEVELOPMENT

Industrial concept development proceeded in biochemicals. An innovation unit was established at the Biomedicum research and educational centre Active management of patent portfolio, attractive partnerships with start-up companies enhanced

Continue to expand UPM ProFi product portfolio Continue to commercialise UPM Formi Continue to develop biochemicals towards commercial phase Continue technology and IPR commercialisation, search collaboration opportunities in bioeconomy/circular economy Supplier and Third Party Code implementation and training Continue internal human right assessment Resource efficiency and work safety further improved Proceed with selected key responsibility projects such as the China More with Biofore (p. 38)

UPM Biocomposites: business creation and continued growth UPM Biochemicals: further application development and piloting Commercialise technology and IPR innovations

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RESPONSIBILITY

UPM Code of Conduct renewed New 2030 responsibility targets established Resource efficiency and work safety improved Responsible sourcing management strengthened

Legal compliance; responsible and ethical practices Mitigate risks and capture opportunities

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Enhance competitiveness Continuous improvement

*) not a complete list

CONTENTS

12 UPM Annual Report 2016

UPM Annual Report 2016 13