UPM Annual Report 2019

OUR DIRECTION • Maintain a profitable market position while actively managing capacity in line with market developments • Increase operational efficiency and quality of our portfolio • Drive digitalisation by focusing on optimisation and extending digital solutions to our customer interface • Increase focus on sustainability and our footprint to secure future relevance of the paper business OUR STRENGTHS • Long-term commitment to paper and reliability of supply • Broad portfolio and strong geographical presence • High quality of products and services • Extensive, thoroughly optimised production • Responsible operations, strong ethical values and a fully traceable supply chain

UPM Communication Papers

EFFICIENT AND COMMITTED Our strategic focus is on safeguarding long-term competitiveness while evolving our business through targeted innovation, uncompromising performance and a strong commitment to reliability and quality.

KEY FIGURES

2019

2018

4,552

Sales, EURm

4,690

383

Comparable EBIT, EURm

267

1,647 23.2 39.0 7,673

Capital employed (average), EURm

1,602

The development of the demand for graphic papers has been weak, especially in Europe, due to slower economic growth in 2019. To ensure our long-term success, we continued to implement measures to adapt capacity to the profitable customer demand. We closed PM10 at UPMPlattling, Germany, in July and PM2 at UPMRauma in November. We also announced plans to sell or close UPMChapelle Darblay newsprint mill in France. UPM rebuilt PM2 at UPMNordland in Germany from fine paper to specialty paper production. The ramp-up of the converted paper machine started in Q4. Our work in fixed and variable cost management also continued. Through an optimal use of digital solutions, we improved efficiency throughout our operations. Reducing the environmental footprint of our operations is a strategic cornerstone for making our business future-proof. We place strong emphasis on reducing CO 2 emissions, both for purchased and self- generated energy. In 2019, we made energy investment at Nordland and Hürth paper

and the value we generate for our stakeholders and customers. We provide our customers with EU Ecolabel-certified products from all our European mills and offer the most comprehensive range of papers carrying the EU Ecolabel mark in the industry. Our mills also have PEFC™ and FSC® Chain of Custody certification to promote sustainable forestry. Recycled fibre accounts for nearly one third of all fibre used in UPM’s paper production, and we are the world’s largest user of recovered paper in graphic paper production. In 2019, we continued our development work with UPMRaflatac and UPM’s R&D to improve the recyclability of paper labels. UPM aims to become a zero solid waste company by 2030. Together with on-site partner SMI, we have developed a new process for producing precipitated calcium carbonate fromresidue ash at UPMSchongau mill. This offers us a new way to use residue ash and save energy and is an example of our corporate culture of setting ambitious goals to build a sustainable future.

mills in Germany and entered into a wind power purchase agreement In Finland. (Read more below). Committed to paper We are committed to the graphic paper industry and are convinced that graphic papers will remain a reliable and trusted communication channel, even over the long-term. Print adds value to the wider media mix in terms of engagement and contact time with the content and communicates a sense of trustworthiness and quality. In our rapidly changing world, reading and literacy are fundamental to human development and a prerequisite for a full participation in today’s fast-paced and culturally diverse society. We stay on top of publishing trends and offer innovative solutions to ensure that our customers’ needs can be met quickly and effectively.

Comparable ROCE, %

16.7 15.3

FCF/CE, %

Personnel on 31 Dec.

7,929

Comparable EBIT increased due to higher sales prices more than offsetting the negative impact of lower volumes. Variable and fixed costs were lower. Demand for graphic papers in Europe was 9% lower than in the previous year.

Recycling intensified We take a holistic approach to

sustainability, focusing on rawmaterial sourcing, production, our role in society

CASE

INVESTING TO REDUCE CO 2 EMISSIONS UPM invests in Germany to reduce costs and emissions while increasing flexibility to participate in electricity markets. In Dörpen, we plan to build a natural gas-based combined heat and power (CHP) plant at the Nordland paper mill. This investment will reduce our annual CO 2 emissions by 5%. The plant, which is set to be connected to the grid in Q3 2022, supports Germany’s move away from coal power and aligns with the government’s goal of generating 65% of its electricity from renewable sources by 2030. In Hürth, we partner with E.ON, one of Europe’s largest energy companies, to build a biomass fired boiler providing steam for our paper mill. The plant is expected to go online in Q1 2022 and will also feed renewable energy into the grid. The investment makes our production process, which is already based on 100% recovered paper, even more sustainable.

These new plants will provide a stable and economically predictable supply of power and heat, increasing the competitiveness of our mills. By providing flexible generation capacity, the CHP plant at UPM Nordland will increase the overall stability of the grid and the integration of growing renewable power generation. The wind power purchase agreement with German wind park development company wpd will help reduce UPM’s CO 2 emissions by 5%. The projects support UPM’s target to reduce CO 2 emissions by 65% by 2030. They are also in line with energy policies in Germany, or Energiewende. As part of the transition to low-carbon and sustainable energy sources, coal- and nuclear-powered plants will be phased out.

We focus on technology innovations that help minimise energy needs at the mills.

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OUR BUSINESSES

OUR BUSINESSES

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

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