UPM Annual Report 2017

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

BUSINESS AREA

STRATEGIC TARGETS

ACTIONS IN 2017

ACTIONS PLANNED FOR 2018 * )

1 3 4

1 3 4

Continuous improvement of financial, social and environmental performance Maintain strong balance sheet and capability for future opportunities Developing winning culture for business success

Continuous improvement programmes on safety, environment, variable costs, working capital, site optimisation, maintenance and commercial strategies in all businesses Disciplined capital allocation, net debt reduction Renewed purpose and vision and aiming higher culture Renewed financial targets and revised several other targets Strengthening of compliance framework Human rights due diligence Investment completed at the UPM Kymi pulp mill UPM Kaukas pulp mill investment decision Agreement signed with the Government of Uruguay on local prerequisites for a possible new pulp mill UPM Lappeenranta Biorefinery reached designed capacity, evaluation of biofuels growth opportunities and feedstocks continued Measures to improve production efficiency at sawmills Completed refurbishment of existing two turbines at Harjavalta hydropower plant Continued OL3 construction Launched a new service offering to industrial-scale electricity consumers Commenced production at the new coating line at the Wroclaw factory in Poland Investment in special label capacity in Tampere, Finland Strengthened product and service offering Improved sales and logistic capability Launched RafCycle ® recycling solution in China Product mix development at UPM Changshu, China Growth in the Asian, European and North American markets Introduced Responsible Fibre concept in Asian markets China More with Biofore research programme Launched new paper products Three paper machines were closed Measures to reduce fixed costs, plan to optimise operations in Germany Sale of hydropower facilities Production ramp up at the Otepää mill in Estonia Decision to expand Chudovo plywood mill capacity in Russia Completed the peeling investment at the UPM Kalso veneer mill Introduction of WISA BioBond gluing technology

Continuous improvement programmes Disciplined and effective capital allocation Continue change in the corporate culture Actions to reach targets and materiality analysis to keep the responsibility targets up-to-date Further steps in compliance management Implementation of the findings Capture benefits of pulp capacity expansions Complete UPM Kaukas pulp mill investment Engineering study and permitting process for a possible pulp mill in Uruguay Evaluate growth opportunities and feedstocks in biofuels An environmental impact assessment (EIA) for a possible biorefinery in Kotka, Finland

UPM GROUP AND ALL BUSINESSES

12 3 4 5 12 4 5 12 4 5

12 3 4 5 12 4 5 12 4 5

Performance improvement and transformation continued in 2017

Compliance with laws and regulation Mitigate risks and capture opportunities Enhance competitiveness

1 4 1 4

1 4 1 4 2

2

Grow as a responsible and cost-efficient pulp producer with the most versatile product offering Provide sustainable, advanced biofuels, achieve top performance and evaluate opportunities for scaling up biofuels business Enhance profitability through efficient use of wood supply, integrated full-production and focused commercial strategy Create value in electricity generation and physical and financial markets Ensure competitiveness through cost efficiency and high asset utilisation rate in hydro and nuclear 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 products Expand customer reach through increased distribution, sales and service coverage Growth to maintain global leadership positioning in labelling materials Growth as one of the most preferred office paper suppliers in Asia Widen product offering in specialities and through new product development Maximise cash flow and leverage optimisation opportunities in extensive, highly performant operations Strengthen market position through differentiated commercial strategies, business development and targeted product development Increase efficiency of operations and foster digitalisation and robotics Profitable growth through superior customer experience and operational excellence Strengthen market position in selected businesses by increasing value and service offering

UPM BIOREFINING

2 12 4 5 2 3 4 5 2 3 4 5

2

12 5 2 3 5

2 1

2 3 4

Continue OL3 project Developing the service offering further

UPM ENERGY

2 3 4

2 3 4 12 2

12 12 3 4 12 12 2 3 4 3 4 4

Capture growth opportunities and develop product portfolio Complete specialty label investment in Tampere, Finland Expand distribution coverage in attractive markets Open a new terminal in Santiago, Chile

UPM RAFLATAC

1 2 3 4 5 PORTFOLIO GROWTH

PERFORMANCE

12

2 12 3 3 4

Expand release liner capacity at UPM Jämsänkoski, Finland Feasibility study on Nordland PM2 conversion from fine papers to release liners in Germany Develop new value added specialty products segments China More with Biofore research programme Capture opportunities in certain end-uses and segments Implement new sustainability agenda Complete optimisation at UPM Nordland Papier, Germany Implement digitalisation roadmap Production optimisation at Otepää mill in Estonia Proceed with Chudovo mill expansion in Russia Enhance in-depth understanding of the market drivers in selected businesses Strengthening the supply chain service models Continue forest land sales Continuous cost efficiency improvement Study availability and quality of competitive wood for UPM’s growth projects Proceed with the engineering study to verify attractiveness of the potential biochemicals refinery

UPM SPECIALTY PAPERS

INNOVATION

2 3

2 3 4 5

UPM PAPER ENA

4 1

1 1

RESPONSIBILITY

1 3

15

2

2

UPM PLYWOOD

2 4 12

2 4

1

3 4

1 3

5 4

5

Secure competitive wood sustainably

Sold 73,000 hectares of forest land in Finland Global partnership with FSC International

WOOD SOURCING AND FORESTRY

12 3 4 1 3

2 3 5

2 3 5

Further application development and piloting, product commercialisation

Started a basic engineering study regarding a potential industrial-scale biochemicals refinery in Germany

UPM BIOCHEMICALS

2 3

2 3 2 3

Business creation and continued growth

Developed new UPM Profi products

Launch of new UPM ProFi products Continue to commercialise UPM Formi

UPM BIOCOMPOSITES

*) not a complete list

CONTENTS

UPM Annual Report 2017 24

25 UPM Annual Report 2017