UPM Annual Report 2019

Biochemicals offer renewable alternatives UPM Biochemicals offers and develops innovative, sustainable and competitive wood-based biochemicals. These are segmented into glycol and lignin products. Strong growth is expected for the market in the coming years as biochemicals mainly replace chemicals made from fossil raw materials. UPM Biochemicals is actively developing and testing industrial applications to create industrial-scale mill concepts and meet the market demand. In 2019, basic engineering studies on the potential biorefinery in Germany were completed. The investment decision was made in January 2020. The industrial scale biorefinery will convert solid wood into next generation biochemicals: bio-monoethylene glycol (BioMEG) and lignin-based renewable functional fillers. The biorefinery will also produce bio-monopropylene glycol (BioMPG) and industrial sugars. End-use segments include textiles, PET-bottles, packaging, de-icing products, composites, resins and fillers. UPM introduced a wood-based renewable functional fillers concept to rubber market in 2019. The biomedical product range is expanding UPM works with global partners to develop new biomedical products and applications. GrowDex ® , a nanocellulose hydrogel, is suitable for use in 3D cell culturing and related applications, such as medical development and research. The product has been on the market since 2017. GrowDex -T hydrogel with advanced features, launched in 2019, is the latest addition to the GrowDex product range. In 2019, UPM launched FibDex ® , a new wound care dressing made from nanofibrillar cellulose. It is the third biomedical product made from wood-based raw materials that UPM has commercialised. Based on clinical trial results, FibDex was awarded the CE mark as it fulfils the standards and legislative requirements set for medical devices.

Circular economy is the basis of growth for biocomposites

R&D’s role in different businesses

UPM Biocomposites offers smart and sustainable composite products for various uses in outdoor building material and consumer products. Target is to increase the use of recycled materials in products. For example, UPM ProFi Piazza decking contains 75% recycled materials. UPM Formi composite material, made from cellulose fibres and polymers, is suitable for use in both the industrial and consumer applications, from furniture to consumer electronics. It complies with the requirements set by the EU for reinforced plastics in relation to the circular economy and its carbon footprint is 30–60% smaller than traditional plastics. A new Formi EcoAce product range, launched in 2019, has signification lower carbon footprint compared to virgin plastic solutions. UPM Formi became ISCC (International Sustainability and Carbon Certification) certified, which guarantees that the product meets environmental and social standards along the supply chain. UPM Biocomposites has continued developing the new UPM Formi 3D biocomposite, which was launched in 2018. The focus has been on large-scale industrial 3D printing with end user applications that include casting moulds, concept models for architecture and prototypes for consumer products. New solutions in specialty packaging Made from renewable and responsibly sourced wood fibres, UPM UniqueBarr™ is a non-plastic material for wrapping. Without the plastic coating, the paper can be recycled with regular paper waste. Improved recyclability means a smaller carbon footprint thanks to prolonged material lifecycle and a reduction in landfill waste. UPM unique concept for release liner recycling allows value chain members to reach their sustainability targets. Collected release liners are desiliconised and used to produce new release liner base papers.

BUSINESS AREA UPM Biorefining UPM Pulp

DESCRIPTION

In 2019, the focus was on Quality to Trust based on the work carried out into understanding the effects that wood raw material, pulp production processes and pulp quality have on a customer’s ability to achieve high production efficiency and good product quality. As part of the technical customer service process, Pulp R&D teams worked seamlessly with Uruguay and Finland operation teams and, with customers, were involved in several added-value and needs-based projects. Systematic improvements to product quality and production cost efficiency and reductions in solid waste amounts were successful thanks to the work of UPM’s researchers and development experts, both in Research Centres and at mills. Work into reaching the target of having zero solid waste before 2030 by using waste streams from pulp mills were successfully tested and evaluated. In supporting UPM’s growth strategy, special effort was put into finding the right concept when building the new state-of-the- art mill in Uruguay, which is set to be ready by the end of 2022. Collaboration and product development across the whole value chain allowed UPM Biofuels to enter the petrochemicals market with UPM BioVerno naphtha as a raw material for bioplastics. The first application is a wood-based plastic coating for liquid cartons that reduces both the fossil raw materials used and the carbon footprint. Operational efficiency at UPM’s Lappeenranta Biorefinery was improved by means of targeted development projects during this turnaround. Piloting, research and process development continued at the UPM Biorefinery Development Center (BRDC), where UPM’s biofuels development started 10 years ago. In sustainability development, UPM Biofuels came a step closer to gaining the world’s first Roundtable of Sustainable Biomaterials (RSB) low indirect land use change (ILUC) risk certification for crude tall oil-the feedstock used for UPM BioVerno renewable fuels production-and for UPM’s cultivation of the Brassica carinata oil crop in Uruguay. RSB is one of the world’s most trusted, valued and peer-reviewed standards for biomaterials. UPM Biofuels completed the Environmental Impact Assessment for a potential new Kotka Biorefinery in Finland. UPM is also studying and testing the use of several new feedstocks that fulfil sustainability criteria, such as wood residues and cultivation of Brassica carinata as possible raw materials for this Kotka Biorefinery. The focus was on improving the cost-competitiveness and environmental performance of hydropower production assets and on developing competencies and business operations related to the optimisation of industrial energy consumption and demand-side flexibility. UPM Energy participated in several research programmes and undertook development work with the aim of improving UPM’s power generation and consumption operations in a changing electricity market. Research centres at four sites (Finland, Poland, China, USA) support the product range expansion of paper, film and special products in global self-adhesive labelling business operations. Cost efficiency and product customisation requirements for various end-use segments were taken into account during the customer and market-orientated development phase. Product safety and sustainable alternatives, i.e. Forest Film and RAFNXT+, increased their role alongside these requirements. Continuous quality improvement still remains an essential part of product and process development. Together with UPM Communication Papers and UPM’s central European Research Centre, UPM Raflatac developed a new type of adhesive, promising considerable improvements in the recyclability of paper labels. R&D and product development initiatives aim to enable high performance and efficiency in the value chain and to develop fibre- based alternatives for non-renewable materials. These initiatives also support growth targets by driving the innovation of products for new applications. R&D centres in Finland and China work in close co-operation with local production, customer service and global business operations. In 2019 several new base paper grades were introduced for release liners, including a product portfolio for tapes and industrial applications and a tailor-made solution for logistics labels. At the end of 2019, UPM Specialty Papers also introduced a family of kraft products for the packaging segment. Moving forward, the focus for product development is to develop sustainable packaging papers for increasingly demanding end-uses. UPM Specialty Papers continues to develop release liner base papers to further improve efficiency and minimise the environmental impact of the value chain. UPM Specialty Papers also works to enhance the sustainability and efficiency of operations. The More with Biofore in China research programme at the Changshu mill met key targets, including obtaining ISO 50001 Energy Management System certification and improving energy efficiency. It was also the first year that the Changshu mill has operated under China’s ultra- low emission standard, one of the strictest in the world. In order to meet these emission requirements, UPM Specialty Papers has invested approximately EUR 13 million to comprehensively upgrade the existing desulphurisation, denitrification and dust removal systems. Several rounds of water recycling trials have been completed with promising results; water consumption will be further reduced once the upgrades are completed. Development in UPM Communication Papers’ product offering focused on key target segments and their needs, as well as extending the approach to address new and profitable end uses. R&D centres in Lappeenranta, Finland, and in Augsburg, Germany, focused on investigating new fibre concepts for various paper grades. Together with UPM Raflatac and UPM’s central European Research Centre, UPM Communication Papers developed a new type of adhesive, promising considerable improvements in the recyclability of paper labels. In the area of energy, the focus was on technological innovations that help minimise energy needs at the production sites. Efficiency was increased through own-process development, asset optimisation and digitalised maintenance concepts. Contributions from the R&D teams were valuable in helping meet the 2030 targets in the areas of energy, water consumption, effluent treatment and resource efficiency. UPM Plywood product management and development provides competitive products within selected end-use areas in tight collaboration with our customers, superior technical expertise and support for customers, and support for the commercialisation of newly developed products and applications. One example of new functional products is WISA¨-Spruce FR , a fire-retardant plywood panel that enables designers and architects to design simpler structures that meet building code requirements in relation to fire properties, saving both material costs and construction time.

UPM Biofuels

UPM Energy

UPM Raflatac

UPM Specialty Papers

UPM Communication Papers

UPM Plywood

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UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

ACCOUNTS

REPORT OF THE BOARD OF DIRECTORS

REPORT OF THE BOARD OF DIRECTORS