UPM Annual Report 2017

Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

UPM EVALUATES BUILDING A BIOREFINERY IN GERMANY In 2018, UPM will evaluate the potential of building a biorefinery in the Frankfurt-Höchst Chemical Park in Germany. This brand new biorefinery would combine novel technologies and utilise sustainable wood raw material in an innovative way. This opportunity is the outcome of more than five years of extensive technology development and piloting. Production would be based on hardwood from sustainably managed forests in Central Europe. If executed, the biorefinery’s renewable bio-based products would replace fossil-based materials and would enable significant reduction of the CO 2 footprint compared to fossil-based products. Application areas for bio-monoethylene glycol include textiles, bottles, packaging and de-icing fluids. Bio-monopropylene glycol is used, for example, in composites, pharmaceutical products, cosmetics and detergents. Lignin can be used, for example, in wood resins, plastics, foams and coatings (see below). UPM will now proceed with both a detailed commercial study and a basic engineering study to verify the attractiveness of the business opportunity. If all preparation phases are concluded successfully, UPM will initiate the company’s standard procedure of analysing and preparing an investment decision.

Innovations Growth and competitive edge

OUR DIRECTION • Value creation and limitless opportunities of bioeconomy • Research and development, bioeconomy innovations and new technologies support UPM’s transformation and extend its future business portfolio • Replacement of non-renewable materials by alternatives that are renewable, recyclable and environmentally sound OUR STRENGTHS • Strong expertise in forest biomass processing • Circular economy, resource efficiency, product stewardship and an ecodesign concept that covers the entire value chain • Technological development • Leading responsibility position in the entire value chain • Partnerships, networking GROWTH DRIVERS • Global megatrends create a growing need for bioeconomy innovations • Growing middle class in the emerging markets • Changing consumer behaviours and preferences • Growing demand for renewable and biodegradable materials and renewable energy

UPM ’ s new wood-based businesses are based on the company ’ s extensive know-how and strong position in forest biomass processing. Biofuels and biochemicals are natural evolutionary steps in wood-based value creation.

Innovations and R&D programmes are essential in the development of new products. These development programmes aim to create new technologies and products and to ensure the competitiveness of UPM's businesses. In 2017, UPM spent EUR 58 million (46 million) on research and development, making up approximately 3.7% (2.7%) of UPM’s operating cash flow. The focus was on new technologies and developing businesses. On top of the direct R&D expenditure of approximately EUR 51 million (40 million), the figures include negative operating cash flow and capital expenditure in developing businesses. A global network of research centres supports UPM's new and existing businesses. Progress in sustainable biochemical business UPMBiochemicals focuses on three product categories: biochemicals, biomedical products and lignin products. Biochemicals can replace oil-based chemicals. The products using UPM's biochemicals can be converted into various industrial products and everyday consumer goods. In 2017, UPM announced that it was going to evaluate the potential of building a biorefinery in the Frankfurt-Höchst Chemical Park in Germany. This brand new industrial-scale biorefinery would produce 150,000 tons of bMEG (bio-monoethylene glycol), bMPG (bio-monopropylene glycol) and lignin from hardwood (page 41).

BIOCHEMICALS PRODUCTS ARE SUSTAINABLE AND COMPETITIVE DROP-IN ALTERNATIVES

Evolution of wood usage

WOOD COMPONENTS

40% Cellulose 30% Hemicellulose 25% Lignin

Biofuels Biochemicals

Biomolecules

Monoethylene Glycol

Monopropylene Glycol

Lignin

Existing fossil-based market Market demand >26 mio tons Annual growth (CAGR) >3%

Existing fossil-based market Market demand >2 mio tons Annual growth (CAGR) >5%

Performance chemical Application driven Strong IP position

Pulp Paper Packaging Tissue Labelling materials Biocomposites

Fibres

APPLICATION EXAMPLES:

Textiles Bottles & Packaging Deicing fluids

Composites Pharma & Cosmetics Detergents

Wood resins Plastics Foams & Coatings

Logs

Sawn timber Plywood

Trees

Energy

Read more: www.upm.com/innovations www.upm.com/circulareconomy

CONTENTS

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UPM Annual Report 2017

UPM Annual Report 2017