UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

Megatrends drive demand for renewable and responsible solutions

Our innovations create value and business opportunities beyond fossils. We aim to replace non-renewable materials with renewable, recyclable and low-impact alternatives.

POPULATION GROWTH, URBANISATION, DEMOGRAPHIC CHANGE Value creation by providing sustainable solutions for consumers Reduce the use of non-renewable materials Positive contribution to society Significant growth in global consumer demand Growing consumer demand for sustainable and safe solutions New business opportunities with ecodesign Large business opportunities with bioeconomy, molecular bioproducts in chemical and fuel value chains in particular Cost-efficient and responsible supply chains

RESOURCE SCARCITY AND ROLE OF RENEWABLES

CLIMATE CHANGE

DIGITALISATION

RESPONSIBILITY AND COMPLIANCE

MEGATRENDS

Support the increasing demand for sustainable alternatives Competitive forest industry platform and access to sustainable feedstock enable business success Sustainable land use

Forests and wood-based products have a unique role in climate change mitigation Business opportunities by decarbonisation of traffic and energy Transition to low-carbon economy Competitive advantages and growth opportunities with sustainability Growing demand for competitive alternatives to replace fossil materials and energy Prioritising use of low-emission and renewable energy Strong demand growth for renewable fuels to decarbonise traffic Circular economy Forests as carbon sinks Increased forest growth in Northern Europe and new plantations in Uruguay Unpredictable regulation and subsidies may distort markets Cost of greenhouse gas emissions Political instability Increasingly common and more severe storms, floods and droughts Unpredictable wood-harvesting conditions

Digital innovations to support value creation and growth Customer focus Transforming processes and technology

Responsible operations and value chain Long-term business success, mitigating risks and capturing opportunities High-performing people

SIGNIFICANCE TO UPM

Growing demand for renewable and biodegradable materials and low-emission energy Competitive advantage from resource efficiency and new circular economy products Healthy forests and safeguarded wood availability Increased forest growth in Northern Europe, sustainable plantations Sustainable land use and ecosystem services Responsible water use and safeguard the natural water cycle in forests

Growing e-commerce drives growth in demand for labelling, packaging, pulp and transport Increasing efficiency, productivity and change agility Industrial Internet, big data, data analytics, forecasting, robotics and automation Demand trends for different paper end uses and geographical areas UPM’s production platform provides continuous optimisation opportunities

Regulation may drive markets for sustainable products Product stewardship Transparency as competitive advantage Cost-efficient and responsible value chains Engaged and diverse workforce, talent attraction Sustainable returns and risk mitigation

OPPORTUNITIES FOR UPM

Fit of UPM’s product mix and geographical presence to the future growth outlook Unpredictable regulation and subsidies may distort markets General economic development

Unpredictable raw material costs and availability Unpredictable regulation and subsidies may distort markets Competition for renewable raw materials Competition for land use Threat of deforestation and biodiversity loss globally

Fit of UPM’s product mix and geographical presence to future growth outlook Declining graphic paper consumption New forms of competition Changing needs for skills and competencies Cyber security

Unpredictable regulation and subsidies may distort markets Reputation and financial risks in the event of non-compliance Unpredictable changes in the operating environment Uncertainties regarding global trade, protectionism, tariffs and sanctions

CHALLENGES FOR UPM

GROWTH DRIVERS

Fibre products • Global demand growth of consumer goods • Growth of e-commerce • Population growth, increasing income levels • Urbanisation and demographic change • Environmental consciousness • Legislation • Brands and product innovations

Molecular bioproducts • Climate change mitigation • Sustainability • Pressure to reduce greenhouse gas emissions and tailpipe emissions in transport • Replacement of fossil raw materials and fossil fuels with renewables

Wood products • Building and construction • The role of sustainable renewable materials in construction • Road transportation • LNG carrier and terminal investments globally

Low-emission energy • Climate change mitigation • Pressure to replace fossil fuels with renewables • Reduction of greenhouse gas emissions • Regulating the electricity grid as weather- dependent generation increases • Sustainable consumer choices

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CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018