UPM Annual Report 2020

First page Table of contents Previous page 124-125 Next page Last page

Outlook for 2021 The global economy is expected to start recovering in 2021 from the deep downturn experienced in 2020. World regions will progress at different pace, and China is leading this development. Demand for most UPM products is influenced by overall economic activity and hence, depends on the shape and rate of the economic recovery. The COVID-19 pandemic continues to cause significant uncertainty in 2021. In 2020, lockdowns had a significant negative impact on graphic paper demand but supported the strong demand for self adhesive labelling materials and specialty papers. Opening of the economies are likely to allow for some normalisation of these demand impacts. However, further waves of the pandemic and related lockdowns remain possible. In the beginning of 2021, pulp prices are expected to increase compared with Q4 2020. Paper prices are expected to decrease moderately, compared with Q4 2020. UPM will continue to implement measures to decrease fixed and variable costs. UPM’s comparable EBIT in H1 2021 is expected to be lower than in H1 2020, due to lower paper prices and higher maintenance activity. Comparable EBIT is expected to recover in H2 2021.

Business area reviews UPM Biorefining UPM Biorefining consists of pulp, timber and Biofuels businesses. UPM Pulp offers a versatile range of pulp grades suitable for a wide range of end uses. UPM Timber offers certified sawn timber and UPM Biofuels produces wood-based renewable diesel for all diesel engines and renewable naphtha that can be used as a biocomponent for gasoline or for replacing fossil raw materials in the petrochemical industry.

On 18 November UPM announced that it has applied for listing of a EUR 750 million Green Bond under its EMTN programme to Irish Stock Exchange plc, trading as Euronext Dublin. On 2 December UPM announced that it has completed the employee consultation process in global functions and decrease the number of positions by 67. UPM has also concluded the consultations regarding the reorganisation and restructuring at the Finnish pulp mills and UPM Forest and reduce 135 positions. On 8 December UPM announced that is has been recognised with CDP’s Triple A score for tackling climate change and taking actions to ensure sustainable forest management and water security. Events after the balance sheet date On 19 January, UPM announced that it would invest EUR 13 million in UPM Raflatac’s new production line in Nowa Wie ś , Poland. The investment will increase UPM Raflatac’s Direct Thermal (DT) Linerless annual production capacity by 100 million m2. The new production line is expected to be operational at the end of 2021. On 28 January, UPM announced that it moves forward with biofuels growth plans and starts the basic engineering phase of a next generation biorefinery.

UPM Energy

Comparable EBIT EURm

0 10 20 30 40 50

120 160 200

UPM Energy generates cost competitive, zero-carbon electricity. Operations also include physical electricity and financial portfolio management as well as services to industrial electricity consumers and producers.

0 150 300 450 600

20 30

% of sales

0 40 80

19 20

2020 2019

2,183

2,712

379 178 47.0

417 195 46.7

Sales, EURm

348 15.9

724 26.7

Comparable EBITDA, EURm

% of sales

Change in fair value of forest assets and wood harvested, EURm Share of results of associates and joint ventures, EURm Depreciation, amortisation and impairment charges, EURm

-10

-9

Depreciation, amortisation and impairment charges, EURm

-8

-11

184 48.7

184 44.2

Operating profit, EURm

% of sales

-1

Items affecting comparability in operating profit, EURm 1)

-176 166

-171 544 20.1

171 45.0

185 44.4

Comparable EBIT, EURm

Operating profit, EURm

% of sales

7.6

% of sales

2,313 2,454

Capital employed (average), EURm

—

Items affecting comparability in operating profit, EURm

7.4

7.5

Comparable ROCE, % Electricity deliveries, GWh

166

544 20.1

Comparable EBIT, EURm

9,168 8,619 1) 2020 items affecting comparability include EUR 3 million charges related to restructuring of ownership in Alholmens Kraft power plant, EUR 12 million gain on sale of group's share in Kainuun Voima Oy and EUR 5 million income relating to reversal of unused restructuring provisions. 2019 items affecting comparability relate to restructuring of ownership in Meri-Pori power plant. 2020 compared with 2019 Comparable EBIT for UPM Energy decreased due to lower electricity sales prices. Hydropower generation was higher. Fixed costs for nuclear were higher due to the low comparison period. UPM’s average electricity sales price decreased by 13% to EUR 36.5/MWh (41.9/MWh). Market environment • In Finland, Sweden and Norway, 2020 was the warmest year on record. The Nordic hydrological balance was above normal at the end of December. In Finland, the hydrological situation was good. • The CO 2 emission allowance price of EUR 32.7/tonne at the end of 2020 was higher than at the end of 2019 (EUR 24.6/tonne). • The average Finnish area spot price on the Nordic electricity exchange in 2020 was EUR 28.0/MWh, 36% lower than in 2019 (44.0/MWh). Sources: The Norwegian Water Resources and Energy Directorate, Svensk Energi, Finnish Environment Institute, Nord Pool, NASDAQ OMX, Bloomberg, UPM

7.6

% of sales

3,620

3,469

Capital employed (average), EURm

4.6

15.7

Comparable ROCE, % Pulp deliveries, 1,000 t

3,664

3,715

2020 compared with 2019 Comparable EBIT for UPM Biorefining decreased due to lower pulp sales prices. Wood and other variable costs were lower. Fixed costs were higher due to the more expensive scheduled maintenance shutdowns in 2020. The strike in Finland in the first quarter of 2020 impacted delivery volumes. The average price in euro for UPM’s pulp deliveries decreased by 24%. Market environment • Global chemical pulp demand was good in 2020. Demand growth was mainly driven by China. Global shipments of market pulp improved from the weak year 2019. • In 2020, the average European market price in euro was 16% lower for NBSK and 22% lower for BHKP, compared to 2019. In China the average market price in US dollars was 7% lower for NBSK and 19% lower for BHKP, compared to 2019. • Good demand for advanced renewable diesel and naphtha. • Demand for sawn timber was strong in Q4 2020. Market prices remained stable. Sources: FOEX, UPM