UPM Annual Report 2016

Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

CLEANER PUBLIC TRANSPORT

UPM’s wood-based UPM BioVerno biofuel has been proven to reduce carbon dioxide and particle emissions in both urban and maritime transport. UPM has been testing UPM BioVerno diesel fuel in Helsinki region buses in collaboration with the Helsinki Region Transport (HSL) for a year. Traffic is the main source of emissions in cities affecting air quality. According to the test results, using UPM BioVerno in the current bus fleet instead of fossil diesel would significantly reduce emissions resulting from public transport. By using wood-based fuel, air quality in the Helsinki region could be improved quickly. The tailpipe emissions of UPM BioVerno, such as nitrogen oxides and particulate matter, were significantly lower than those of the commercial grade fossil diesel in laboratory testing. Maritime transport is looking for new ways to reduce carbon dioxide and sulphur emissions. In the beginning of 2017, the Marine Environment Protection Committee of the International Maritime Organization (IMO) agreed that the sulphur content limit of ships’ fuel will be lowered to 0.5% starting from 2020 in all maritime transport. Increasing the use of biofuels in ships is a cost- effective alternative. In 2016, UPM BioVerno was tested for the first time in a marine vessel in the diesel engine of a dredger. Biofuels offer ship operators a way to reduce ships’ carbon dioxide emissions by 80-90% and eliminate sulphur emissions.

• Capital intensive process industry • Engaged high performing people • Responsible raw material sourcing • Integration to internal raw-material

CAPITALS

• Intellectual property rights • Community engagement

furniture and joinery markets in Europe and Asia. Sawn timber is a versatile and sustainable material, it is strong and can be reused and recycled. Long-term demand prospects are promising for pulp Demand for sustainably produced chemical pulp continues to increase globally. UPM’s four world-class pulp mills serve customers in the growing consumer and industrial end-uses such as tissue, board and specialty papers as well as graphic paper end-uses. Longer term chemical pulp demand is expected to be further underpinned by a declining supply of white recycled fibre. Supply of white fibre will become restricted, in part due to lower graphic paper production and in part as mixed recovered paper crowds out white recycled fibre in the collection process. UPMPulp offers its customers a multi-fibre product range with direct sales to the global market. Through its own production or through the Fibre United co-operation, UPMprovides pulp customers with the most versatile range of northern softwood, birch, eucalyptus and semi- chemical pulp. UPMPulp’s own sales and technical service experts are located close to customers in the main markets and in each mill working in close co-operation with UPM’s global research and development network. In July, UPM started discussions with the Government of Uruguay regarding the development of logistics infrastructure in the country. Railroad and road connections are a critical challenge for establishing a large scale industrial operation in the Uruguayan inland and connecting it to a deep sea port. UPMhas consistently increased its plantation base in Uruguay. Significant improvement in biofuel production efficiency UPMhas been producing UPMBioVerno renewable drop-in diesel fromwood-based residues since early 2015. UPMBioVerno is a unique, competitive and sustainable alternative to fossil fuels or first-generation biofuels, and is well positioned among the few existing biofuel alternatives available on the market. UPMBioVerno significantly reduces greenhouse gas and tail-pipe emissions. Demand is predicted to be strong for sustainable, high-quality advanced biofuels. The UPMLappeenranta Biorefinery is the first of its kind in the world. Production is based on a hydrotreatment process developed by UPM, and the capacity is approximately 120 million litres, which is 100,000 tonnes. In terms of profitability, UPMBiofuels reached the break-even point already in the fourth quarter of 2015. In 2016, the production efficiency improved significantly and production reached a record level. Strong biofuels markets, in particular towards the end of 2016, also contributed positively to the sales and profitability of UPMBioVerno compared to 2015. To expand target markets, field tests progressed with dedicated fleets, public transportation and shipping. The field tests focused on fuel functionality, emissions and fuel consumption compared to fossil diesel. UPMBioVerno diesel tests in both marine transportation and public buses provided good results —UPM’s renewable diesel is well-suited for both end uses even as 100% pure renewable diesel, and functions as well as the best quality fossil-based diesels.

UPM BIOFUELS VALUE CREATED

Advanced renewable diesel and naphtha Competitive and sustainable non-food feedstock Infrastructure synergies Sustainability leader in biofuel solutions in Europe Intellectual property rights

Read more: www.upmbiofuels.com

• Oil majors • Distributors and retailers • Dedicated heavy-duty fleets • Marine fleets

CUSTOMERS

The UPMLappeenranta Biorefinery is the first significant invest­ ment in a new and innovative production facility. Having proven that the technology and business case work, UPMhas started evaluating future growth opportunities. The planning includes new alternatives in sustainable liquid feedstocks, newmarkets and customer segments as well as applications and product development. UPMwill continue developing new process technologies using solid wood biomass. Efficient use of renewable materials and energy UPMhas leading competencies both in plantation and industrial operations as well as in environmental and social responsibility. UPM’s modern pulp mills have certified environmental manage­ ment systems in place and the production technology enables efficient use of rawmaterials, chemicals, energy and water. In wood sourcing, UPMmeets the highest sustainability demands in the industry. UPMBioVerno is a sustainable alternative that helps mitigate climate change. Demand for advanced biofuels is being driven by stricter environmental standards and sustainability. UPM brings life to the whole community. It plays an active role in the local community as an employer fostering safety and healthy living, and as a business partner. Communities and businesses have grown around UPMpulp and timber operations over the years. Responsibility offer both competitive advantages and growth opportunities for UPMBiorefining.

• Employment • Work safety • Community wellbeing

SOCIAL IMPACT

• Low-emission

OUTCOMES

transportation fuels • Renewable energy • Sustainable products

ENVIRONMENTAL IMPACT

• ROCE • Growth • Best available technology

ECONOMIC IMPACT

CONTENTS

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UPM Annual Report 2016

UPM Annual Report 2016