UPM Annual Report 2019

OUR DIRECTION • In Pulp: Provide 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. Streamlined business model to secure position in chosen key markets and end-use segments. OUR STRENGTHS • Versatile range of sustainably produced pulp grades for a wide range of end uses • Modern and efficient mills in a business committed to growth • Responsibility integrated into all operations from wood sourcing to logistics • Competitive sawmills with a dedicated global sales and logistics network

WORLD CLASS COMPETITIVENESS UPM Biorefining | Pulp and Timber

Responsibly produced pulp is one of the most sustainable materials – and it is everywhere.

UPM combines the integrated production of pulp, timber and biofuels with a synergistic supply chain of wood raw materials.

Pulp is a versatile material meeting global demand for responsible and renewable products. Pulp mills generate renewable energy in their recovery boilers as well as useful side streams and residues used for biofuels, biochemicals and bioplastics. Crude tall oil, a residue of pulp production, is the rawmaterial used for renewable UPMBioVerno diesel and naphtha. UPM sells most of its sawn timber to industrial customers in the furniture, construction and packaging sectors. Wood chips, sawdust and other by-products are used for pulp, paper and energy production. (Read more below.) The world class pulp mill investment In July 2019, UPM decided to invest in the new world class pulp mill in Uruguay. The USD 2.7 billion investment in a 2.1 million tonnes eucalyptus pulp mill will raise our pulp production capacity by more than 50%. The mill is scheduled to start up in the second half of 2022. During the past decade UPMhas developed additional plantation areas in Uruguay. With a combination of competitive wood supply, scale, best available techniques and efficient logistics the mill is expected to reach a highly competitive cash cost level, approximately USD 280 per delivered tonne of pulp. The business fundamentals for the investment are positive given the healthy long-term demand outlook of pulp,

operations. Throughout the year only two deviations from our performance target levels took place – in comparison to eight in the previous year (read more about Clean run on page 93). In Finland several measures were implemented at our three pulp mills to improve environmental performance. In Uruguay, several improvements were carried out in effluent treatment units of the UPMFray Bentos mill. Also modifications in the medium voltage network were implemented in order to improve reliability and response against contingencies in power supply. In 2019, Uruguay River Executive Commission's (CARU) scientific committee made its 100th joint inspection with Uruguayan authorities at the mill. The inspections have been taking place every month for more than eight years. The results published by CARU are in line with those published by UPM and the Uruguayan authorities. The UPMFray Bentos mill continues to be among the best in environmental performance. UPMTimber together with Finnish sawmillers published an Environmental Product Declaration that makes it possible for customers, such as builders, to differentiate and calculate the environmental impacts of different building materials. UPMTimber achieved the zero solid waste to landfill target for the third consecutive year.

especially in Asia. The annual trend growth of global market pulp demand is estimated to be about 3%. (Read more on pages 38–39). Focus on productivity Productivity improvement was one of the main targets of UPMBiorefining in 2019. The organisational set-up was renewed to strengthen the strategic focus on the pulp and biofuels businesses, and further build long term competitiveness. Our pulp mills made new production records and timber production continued to run at full capacity. Efficiency of all mills was improved. There has been specific focus on equipment lifecycle analysis and reliability centered maintenance (RCM) methodology. Digitalisation, data analytics and visualisation tools were developed to increase productivity. As an integral part of the value chain, efforts to enhance wood supply continued in 2019. In Finland UPM sources wood from private landowners, company-owned forests and import markets. In Uruguay wood is sourced from sustainably managed local eucalyptus plantations that are owned by UPM and third-party landowners as part of the Fomento Programme. Continuously improving environmental performance We continued to improve the environmental performance in our pulp

KEY FIGURES

2019

2018

2,712

Sales, EURm

2,892

544

Comparable EBIT, EURm

847

3,469

Capital employed (average), EURm

3,180 26.6 2,636

15.7

Comparable ROCE, % Personnel on 31 Dec.

2,739

Comparable EBIT decreased due to lower pulp sales prices. Delivery volumes were higher. Global chemical pulp demand continued to grow. Demand for advanced renewable diesel and naphtha remained strong. Demand growth for sawn timber continued albeit at lower levels.

CASE

A BUILDING MATERIAL THAT STORES CARBON Timber is the only building material to have a positive effect on the environment. The trees that UPM use for timber take 60 to 80 years to reach maturity. During all that time, they store carbon dioxide from the atmosphere. This continues far beyond timber processing – a wooden house binds up to 50 tonnes of CO 2 through its lifetime. Yet timber’s potential goes far beyond domestic homes – an office building with 16,000 m² of timber framing stores over 3,600 metric tonnes of CO 2 . That is the equivalent of taking nearly 1,000 petrol cars off the road. Studies have even shown that constructing a high-rise building from wood may reduce the structure’s carbon footprint by up to 75%.

Benefits reach those inside timber buildings, too. As a ‘living’ material, wood buffers against major fluctuations in humidity, to the point where mechanical ventilation can be redundant. Timber as a building material means creating a safe and healthy environment to thrive. Nothing is left to waste in the production: chips and sawdust are used as raw materials for pulp while other by-products are burned to create energy. Sustainable forest management practices have helped forest growth double in Finland in the past 50 years.

36

37

OUR BUSINESSES

OUR BUSINESSES

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS