UPM Annual Report 2018

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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

UPM BIOREFINING

RECORD YEAR

UPM FRAY BENTOS MILL STRENGTHENS COMMUNITY When the UPM Fray Bentos pulp mill opened, UPM asked Equipos Consultores to study the site’s social impact on the community. The ten-year study fulfills a request from DINAMA, Uruguay’s national environmental agency, and provides valuable information on the changes in Fray Bentos since then. The direct and indirect employment impact of the mill accelerated the town’s economic growth. As more people moved to the town, new houses were built and neighbourhoods developed. Families with school-aged children increased the student population, and this in turn led to more schools. When the initial need for workers had subsided, people turned to entrepreneur ship. Locals took advantage of the town’s location near the bridge, which links Uruguay and Argentina, and of the improved infrastructure and services now available. The most impactful change has been to the educational sector. The Universidad de la República has opened a campus. Uruguay’s new UNESCO World Heritage site, a former meatpacking plant, is home to the regional campus of the University of Labor of Uruguay (the largest by the student population in the country). Fray Bentos hosts the Regional Technological Institute under The Uruguay Technical University (UTEC). The locals appreciate the improvement of the educational sector and collaboration with the private and

UPM PULP AND UPM TIMBER

OUR STRENGTHS • Versatile range of sustainably produced pulp grades suitable for a wide range of end uses • Modern, efficient mills and business committed to growth • Responsibility integrated into all operations from wood sourcing to logistics • Competitive sawmills with dedicated skilled global sales and logistics network

Benefits of integrated production In the UPMBiorefining business area, UPM combines the integrated production of pulp, timber and biofuels with a synergistic supply chain of wood rawmaterials. Timber residues and side streams are used as pulp rawmaterial. 90% of the rawmaterial that goes from sawmill to pulp mill is wood chips; the rest is sawdust. Pulp mills produce renewable energy in their recovery boilers, provide CO 2 -neutral biomass-based electricity and generate useful side streams and residues used for bioenergy and sustainable materials. Crude tall oil, a residue of pulp production, is the rawmaterial used for renewable UPMBioVerno diesel and naphtha. Long-term commitment to high value fibre Megatrends such as urbanisation, growing middle class in emerging markets and e-commerce drive pulp demand for tissue, speciality papers and packaging. Customer preferences increasingly tend towards more sustainable, renewable and recyclable products and alternatives to plastics. As well as solid end-use growth, demand for market pulp is increasing due to the declining supply of white recycled fibre. The global demand-supply balance for market pulp is tight, due to increased demand, 1–3 million tonnes of annual capacity closures and the lack of decided pulp projects. Our annual production capacity of 3.7 million tonnes is produced in Finland and in Uruguay. InMay 2018, UPM concluded its latest focused growth investment to improve the efficiency and competitive ness of the UPMKaukas pulp mill in Finland. The annual production capacity of the mill increased by 30,000 tonnes to 770,000 tonnes. As an integral part of the value chain, efforts to enhance wood supply continued in 2018. In Finland, UPM sources wood from private landowners, company-owned forests and import wood mainly OUR DIRECTION • In Pulp: Provide customers with direct access to the most versatile pulp range and advanced technical service. Maintain cost competitiveness through continuous operational improvement. Grow as a trusted and responsible pulp supplier. • In Timber: Enhance profitability through efficient use of wood supply, integrated full production and focused commercial strategy. Take consistent steps towards a streamlined business model to secure position in chosen key markets and end-use segments.

fromRussia and the Baltics. UPM is seeking further improvement in the wood sourcing value chain to secure long-term profitability. In Uruguay, wood is sourced from sustainably managed local eucalyptus plantations that are owned by UPM and third-party land owners as part of the Fomento Programme. UPM is studying the potential of building a new world-class pulp mill near the city of Paso de los Toros in central Uruguay. The possible pulp mill would have an annual capacity of approximately 2 million tonnes of eucalyptus market pulp. The preliminary estimate for a pulp mill investment on site is approximately EUR 2 billion. This transformative prospect is explained in more detail on page 19. Sustainability offers competitive advantages Our pulp mills have certified environmental management systems in place and are operated based on the best available techniques (BAT). This ensures that the production technology enables the efficient use of rawmaterials, chemicals, energy and water. Our pulp mills have turned from energy buyers to energy sellers and 95% of the energy used in pulp production is renewable. The global pulp industry must meet the standards of a responsible business when it comes to sourcing rawmaterial, mill technologies and processes, as well as business practices in general. For wood sourcing, we meet the highest sustainability demands in the industry. We continue to engage with our pulp customers to promote sustainability and drive transparent business practices across the value chain. Over the years, communities and businesses have grown around UPM’s industrial operations. UPMplays an active role in the local communities in which it operates, as an employer and business partner, and supporting sustainability, safety and healthy living.

public sector and the expansion of technical education in particular.