UPM Annual Report 2019

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 OUR DIRECTION Global eader in lab lling materia s The prefer ed partner for fine aper in Asia-Pacific Growth in sel ct fl xible packaging end-uses OUR STRENGTHS Sustainabl altern tives to non-renew bl materi ls Value adding products and serv ces • Ease of doing business Trusted growth partner KEY FIGURES 2019 2018 Sales, EURm 1,412 1,429

UPM Specialty Papers

CREATING SUSTAINABLE ALTERNATIVES UPM Specialty Papers offers high-quality papers for labelling, commercial siliconising, packaging, office use and printing. Growing Asia Pacific markets account for over 50% of UPM Specialty Papers sales.

120

Comparable EBIT, EURm

90

2018 904 13.3 1,429

Capital employed (average), EURm

2017 889 10.1 1,336

KEY FIGURES Comparable ROCE, % Personnel on 31 Dec. Sales, EURm Comparable EBIT, EURm

1,99

2,000

90

152 885 17.2

Capital employed (average), EURm Comparable EBIT increased due to lower input costs more than offsetting the negative impact of lower fine paper sales prices and unfavourable changes in currencies. Fixed costs decreased. Demand growth for label, rel ase and packaging papers was healthy in 2019. After a slow start in the Asia-Pacific region, demand for fine paper was good. 889 10.1 Comparable ROCE, % Personnel on 31 Dec. 2,000 1,949 Profitability weakened due to higher pulp costs more than offsetting the positive impact of higher sales prices. Market demand for label and release paper was good. Increased competition in China had an impact on office paper pricing.

In fine papers, we build our presence in Asia by leveraging our strong track record in sustainability. We have also broadened our offering through new innovations. We introduced a new office paper brand with the market’s first wrap without a plastic-coating. In China, we continued to strengthen our own brands and to grow our presence in a major e-commerce platform. Investments in long-term value creation UPM rebuilt paper machine 2 at UPMNordland in Germany fromfine paper to specialty paper production. The ramp-up of the converted paper machine started in Q4.The planned capacity after the rebuild is 110,000 tonnes. The investment will improve the availability of our most recent innovations including UPM’s unique concept for release liner recycling. At UPMChangshumill in China we expanded our release liner base paper capacity with an additional 40,000 tonnes. This additional capacity makes us well-positioned to support our customers' growth ambitions.

Our strategy is to grow through innovative value-adding solutions. UPM’s consistently high-quality papers enable high performance and efficiency in the value chain, while minimising environmental impact. As the search for solutions for a circular economy grows, UPM’s unique concept for release liner recycling allows value chain members to reach their sustainability targets and close the loop. Collected release liners are desiliconised and used to produce new release liner base papers. Our fibre-based release liner base papers offer alternatives to non-renewable materials. In 2019, we expanded our product portfolio for tape and industrial applications and successfully launched a new logistics label product in APAC, which opens a new segment for us. In flexible packaging papers, we are growing in select packaging end-uses. Our renewable and recyclable solutions address demand for sustainable packaging, replacing fossil-based materials. We are developing our barrier grades for new and more demanding applications, such as food packaging. In late 2019, we also introduced a portfolio of kraft papers.

which are recognised for fulfilling high responsibility criteria. In 2019, we were recognised with the FSC® Asia-Pacific Leadership Award for our work to promote FSC® forest certification in the region. During the year, UPMChangshu mill achieved ISO 50001 Energy Management System certification, which is a voluntary standard to help us manage our energy efficiency. It was also the first year that we operated under China’s ultra-low emission standard. UPMChangshu mill is used as a benchmark in environmental issues for other local companies. In late 2019, UPM Changshu mill was licensed to produce papers for food contact. In UPMTervasaari and UPM Jämsänkoski mills in Finland our focus continues in sustainable labelling and packaging solutions which are renewable and recyclable. In 2019, we joined 4evergreen which is a new initiative by CEPI, the Confederation of European Paper Industries. The initiative aims to boost the contribution of fibre-based packaging in a circular and sustainable economy. We also chair one of the working streams.

Sustainability as a competitive advantage

We help our customers make sustainability a competitive advantage through our products

CASE

CHINA E-COMMERCE C I LEADS THE E-TAIL REVOLUTION China’s online shopping market, which is the world’s largest and most innovative, offers a glimpse into the future of e-commerce globally. Internet shopping has transformed daily life in China. People shop whenever they want, wherever they are, and have it express-delivered at minimum cost. In 2019, over 63 billion packages were delivered across China by express delivery. Lan Qing lives in Chongqing, a major city in Southwest China. She admits that online shopping is a major part of her life. She uses e-commerce platforms for buying food, clothes, daily necessities, travel packages, hotels, all kinds of tickets – in fact, for purchasing almost everything she needs. “I don’t really go out shopping anymore these days,” she says with a laugh.

Lorem ipsum bea nis ressime nimpor rem que occulparum estinul lanihil et exeritatem sim sit voluptione velibus, consectus. Our papers offer renewable and recyclable alternatives to non- renewable materials.

READ MORE: UPM.com/responsibility The Chinese government recently issued new standards promoting the use of sustainable packaging materials, and consumers are showing a preference for sustainably packaged products. We believe that our sustainability credentials can create more value for our customers in this sizeable and growing market. The e-commerce boom in China will create demand for label and packaging materials. Labels are needed to ensure efficiency in the logistics chain. To capture this opportunity, UPM Specialty Papers has developed a tailor-made release liner base paper specifically for this end-use.

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OUR BUSINESSES

OUR BUSINESSES

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

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