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

BUSINESS AREA

STRATEGIC TARGETS

ACTIONS 2018

ACTIONS PLANNED FOR 2019 * )

Strategic actions for future growth In 2018, we focused on improving our performance supported by culture of aiming higher, innovation and responsibility. We continued to grow our current businesses and laid the groundwork for continued transformation in the future.

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

Continuous improvement programmes Strong cash flow and balance sheet

Continuous improvement programmes Disciplined and effective capital allocation Strengthen "UPM Biofore – Beyond fossils" mindset Developing Aiming Higher culture further Continue to foster enabling performance approach Promote engaging safety culture and global health concept Renew UPM Code of Conduct and train employees Enhance counterparty risk management Stronger climate change response Uruguay phase 2: pre-engineering study, permitting process and development of infrastructure Continue evaluation of growth opportunities and new sustainable feedstocks in biofuels Enhance wood supply solutions to improve efficiency and reliability Continue developing the service offering to industrial-scale electricity consumers Refurbishment of the Kuusankoski hydropower plant The commissioning tests of OL3 to continue, the first connection to the grid planned Expand distribution coverage in attractive markets Capture growth opportunities and develop product portfolio and service offering Continue to develop new sustainability and circular economy concepts Growth in the Asian, European and American markets Complete release liner conversion at UPM Nordland in Germany Continue release liner expansion at UPM Changshu in China Continue to develop new products to replace fossil-based materials Cost efficiency improvement actions Continue strengthening of market role Capture opportunities in additional end uses and segments Strengthen customer interface Further explore digitalisation opportunities, focusing on customer interface Continue cost efficiency improvement Further enhance effective raw material usage and agile supply chain capabilities Complete Chudovo mill expansion and new boiler Complete boiler and proceed with scarf-jointing line replacement project at UPM Joensuu Leadership skills development and mapping of commercial competence development needs Study availability and quality of competitive wood for UPM's growth projects Develop new methodology to monitor biodiversity Complete the engineering study, conclude the commercial feasibility and assess the attractiveness of the business growth opportunities Continue to commercialise and search collaboration opportunities for biomedicals Continue to commercialise new UPM ProFi products Expand UPM Formi product portfolio and continue commercialisation

GROUP AND ALL BUSINESSES

Disciplined capital allocation on focused growth projects Launched a new promise "UPM Biofore – Beyond fossils" Continued building a culture of Aiming Higher A new enabling performance approach adopted Further steps in compliance management Implementation of human rights assessment findings Joined Together for Sustainability (TfS) initiative

Compliance with laws and regulation Mitigate risks and capture opportunities

Grow as a responsible and cost-efficient pulp supplier Provide sustainable, advanced biofuels and biomaterials, evaluate opportunities for scaling up biofuels business Enhance profitability through efficient use of wood supply, integrated full-production and focused commercial strategy

UPM Kaukas pulp mill investment completed Uruguay phase 2: pre-engineering study, permitting process and development of infrastructure for a potential new pulp mill in Uruguay New production level of biofuels reached after the turnaround shutdown at UPM Lappeenranta Biorefinery, entering bioplastics market An environmental impact assessment (EIA) for a possible biorefinery in Kotka, Finland submitted to the authorities Measures to improve efficiency in wood supply chain Development of the service offering to industrial-scale electricity consumers continued Continued OL3 project, started the commissioning tests of OL3 Taking over PVO’s hydro planning, regulation and power plant dispatching operations Migratory fish programme continued Expand service coverage in the North-West US with an acquisition in Seattle Opened new terminals in Santiago, Chile and in Seoul, South Korea Development of product portfolio continued, several ecodesigned products launched The Biofore Site™ concept piloted New innovative release liner products launched Release liner expansion at UPM Jämsänkoski in Finland completed Decision of UPMNordland PM2 conversion to release liner in Germany Decision on release liner expansion at UPM Changshu in China The new cut-size line expansion at UPM Changshu in China completed More with Biofore in China research programme continued Focus on capacity optimisation at all mills Targeted growth in certain end uses and segments Automation development programme at UPM Nordland in Germany implemented Digitalisation roadmap extended and implementation continued The supply chain service model strengthened Proceeded with Chudovo mill expansion in Russia Production optimisation at Otepää mill in Estonia Boiler and scarf-jointing line replacement project at UPM Joensuu in Finland started Share of WISA BioBond gluing technology in plywood production increased Commercialisation of fire-retardant structural plywood continued Sold 55,880 hectares of forest land in Finland Study availability and quality of competitive wood for UPM’s growth projects New biodiversity target (COP14) Proceeded with an engineering study and a commercial assessment to assess attractiveness of the potential biochemicals refinery in Germany Commercialisation of biomedicals products New sustainability agenda implemented Cost management programmes continued RafCycle ® recycling solution continued its geographic expansion Joined Ellen MacArthur foundation circular economy programme

UPM BIOREFINING

Profitable growth in low-emission energy generation in the Nordic market Attractive solutions to support decarbonisation of the energy system Exploring opportunities of the new wave of electrinification in society Profitable organic growth potentially complemented with acquisitions Expanding customer reach through increased distribution, sales and service coverage and sustainable partnerships Widening product portfolio, especially in high value-added products Innovating new products and solutions to meet the increasing need for sustainable products

UPM ENERGY

UPM RAFLATAC

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

UPM SPECIALTY PAPERS

Maintain a strong, profitable market position Evolve business through increasing the efficiency of operations and the relevance and quality of portfolio Drive digitalisation with focus on optimisation building on analytics and robotics solutions, and by extending digital solutions for customer interface

UPM COMMUNICATION PAPERS

Profitable growth through superior customer experience and operational excellence Strengthen market position in selected businesses

UPM PLYWOOD

Secure competitive wood sustainably

WOOD SOURCING AND FORESTRY

Evaluate and implement a path towards sustainable biochemicals business Further application development and piloting, product commercialisation

UPM BIOCHEMICALS

Business creation and continued growth

New UPM ProFi products launched Commercialisation of UPM Formi and UPM Formi 3D continued

UPM BIOCOMPOSITES

* ) Not a complete list

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CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018