UPM Annual Report 2018

First page Table of contents Previous page 40-41 Next page Last page

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 SPECIALTY PAPERS CONFIDENCE DELIVERED

BARRIER PAPERS OFFER A MUCH NEEDED ALTERNATIVE TO PLASTIC One solution to the current plastic waste problem is found in packaging materials made from renewable raw materials that, even when they end up in nature, do not produce plastic waste but break down as part of the natural cycle. Biodegradable papers will be in strong demand in the future. UPM Specialty Papers is actively developing recyclable and renewable barrier papers for wrapping and packaging. These specialty papers can, among other uses, replace plastic-coated disposable papers in packaging food. Plastic-coated papers have been challenging to recycle. Consumers encounter these papers for example wrapped around sandwiches at cafés or when buying a hot dog while rushing to catch the train. Food wrapped up in these papers stay fresh and the papers can be recycled in exactly the same way as a newspaper.

OUR DIRECTION • Global innovation leader in labelling materials • The preferred fine paper supplier in Asia-Pacific • Growth in flexible packaging

OUR STRENGTHS • Recognised and awarded industry leader in sustainability • Strong market position, competitive products and world-class assets • Consistency in the quality of our products, services and performance • Innovations that broaden our product offering • Expert partner for our customers, recognised for exceptional service and technical expertise

Innovation driven opportunities for future growth UPM Specialty Papers grows through its existing product offerings, innovating new applications and investing in new capacity. Presence in Asia is strong, accounting for over 50% of sales. We offer a wide range of sustainable and high-quality labelling materials, release liners, office papers and packaging grades for labelling, commercial siliconizing, flexible packaging, wrapping and printing. Our key focus in the label value chain is offering high-quality release liner base papers and face papers. Label stock accounts for about 50% of various end-use applications in release liner base paper. Our strategy in labelling is to grow in high-quality labelling materials and innovative release liner applications. Recent innovations include our reactive surface for release liners, new lightweight products with industry-leading material efficiency and recycling based release liners launched in 2018. In packaging papers, we are a niche player in the growing consumer packaging segment, which is driven by e-commerce and changing consumer trends, such as interest in replacing fossil-based materials. To capture growth, we are developing new innovative packaging solutions. With our barrier reamwrapping products, for example, we can replace traditional packaging materials that are based on fossil rawmaterials (read more on the next page). For fine papers, our main markets are office papers in Asia-Pacific, with strong positioning of our brands. In this segment, our growth strategy builds on our strong track record in sustainability. Growth investments for long-term value creation In 2018, we announced three new focused growth investments. At UPM Jämsänkoski in Finland, a calender was rebuilt with 40,000 tonnes of additional finishing capacity to serve higher value end uses. This investment was completed in October. At UPMNordland in

Germany, we are converting PM2 for release liner production, with 110,000 tonnes annual impact. This investment will change our product offering and improve our service concept for customers in Europe and the Americas. We expect the investment to be finalised in Q4 2019. At UPMChangshu in China, we are investing in PM3 release liner expansion, with an additional capacity of 40,000 tonnes. This investment is expected to be completed in Q1 2020. To strengthen our position in office paper, in December 2018, we completed the new cut-size line at UPMChangshu in China, which will increase our capacity to serve growing demand in Asia-Pacific. Recognised industry leader in sustainability UPM Specialty Papers products comply with the most demanding responsibility criteria in the industry. Our long record of sustainability at the UPMChangshu mill provides a unique competitive advantage in Asian markets. In 2018, UPMChangshu receivedWater Efficiency Frontrunner recognition in China, the first and only company in Jiangsu Province. The Water Efficiency Frontrunner is one of the key initiatives launched by the Chinese government to reduce industrial emissions. Read more about the More with Biofore in China research programme at UPMChangshu on page 72. In Singapore, we were one of the first companies to receive the enhanced Singapore Green Label, which recognises sustainable manufacturing, the product value chain and environmental practices. This enables our customers to choose green labelled products as part of climate action efforts. Product safety is a key requirement for customers and our papers are safe to use throughout their entire product lifecycles. Papers with food contact certificates can be in direct contact with dry and non- fatty food.