based biochemicals, e.g. monoethylene glycol, monopropylene glycol and renewa- ble functional fillers. The EUR 550 million investment will open a new attractive market for us and is expected to meet our ROCE target of 14% once fully ramped up and optimised. The biorefinery is scheduled to start production by the end of 2022. Speciality packaging materials — focused growth projects and product innovation Global consumer megatrends are driving demand for appealing and functional, but at the same time sustainable and safe, label- ling and packaging solutions. We continue to grow in the speciality paper and self-adhesive label materials segments. Our focus is on expanding their UPM Biofuels on page 46 UPM Biochemicals on page 58
current production units and customer reach, and on continuously developing their product portfolio. Our strong position and innovations in these technically demanding and fast-growing niche segments of the packaging value chain provide attractive growth opportunities. In 2020, demand for our self-adhesive label materials and speciality papers was fur- ther strengthened by growth in e-commerce and changes in consumer behaviour during the pandemic. UPMSpeciality Papers’ capacity expansion at the UPMChangshu mill in China at the end of 2019 was well timed. The conversion of paper machine 2 at UPMNordland, Germany, was ramping up in 2020 and its products launched among cus- tomers. The new capacity provides further growth opportunities for 2021.
We have selected three focus areas for significant growth in the coming years. Our transformative growth projects progressed on budget and on schedule in 2020, with strict health and safety measures.
SIGNIFICANCE • Significant growth potential, driven by global megatrends • New large growth markets for sustainable solutions to replace fossils TARGETS • Earnings growth • Attractive returns OUR WAY • Clear focus areas for growth • Well-prepared transformative projects • Clear return targets • Talent attraction
The mill will have an annual capacity of 2.1 million tonnes of eucalyptus mar- ket pulp. The USD 2.7 billion investment will raise our pulp production capacity by more than 50%. Given the expected highly competitive cash costs and the large scale of the mill, the investment is expected to significantly contribute to our future earn- ings. The mill is scheduled to start up in the second half of 2022. Molecular bioproducts — transformative new businesses beyond fossils Significant new business opportunities lie in decarbonising traffic with renew- able fuels and providing sustainable alternatives for fossil-based chemicals in consumer products. Access to sustain- Uruguay growth project on page 44
able feedstocks, proprietary technology concepts and high-quality, high-impact products are expected to provide a lasting competitive advantage. UPMBiofuels has successfully entered the market with its renewable diesel and naphtha UPMBioVerno. The biorefinery has proven its proprietary technology, product quality and sustainability, and has achieved commercial success. We are now preparing opportunities to scale up the business. In January 2021, we proceeded into the basic engineering phase of a poten- tial larger next generation biorefinery. UPMBiochemicals is preparing for a commercial scale market entry. In Jan- uary 2020, we decided to invest in a next generation biochemicals refinery in Leuna, Germany. The biorefinery will have an annual capacity of 220,000 tonnes of wood-
High-value fibre — strategic growth project in Uruguay Global consumer megatrends and the need to find more sustainable alternatives for fossil-based materials support demand growth for market pulp. The requirements for competitive greenfield pulp operations are difficult to meet and provide a lasting competitive advantage. We are currently constructing a world- class pulp mill in Paso de los Toros in Uruguay and a highly efficient pulp terminal at the Montevideo port. The project and related plantation operations and logistics solutions have been carefully designed and prepared over the past decade to ensure that the pulp operation is competitive and sustainable, and in order to mitigate risks — both during the project and during the operation of the mill.
UPM Raflatac on page 50 UPM Specialty Papers on page 52
VALUE-CREATION OPPORTUNITIES IN THE COMING YEARS
SPECIALTY PACKAGING MATERIALS HIGH-VALUE FIBRE
UPM Raflatac UPM Specialty Papers
UPM Biofuels UPM Biochemicals
Climate commitments and replacing fossil materials open large growing markets
Demand growth driven by global consumer megatrends
Demand growth driven by global con- sumer megatrends
Strong long-term fundamentals
Sustainable products for global consumer demand (e.g. labelling and packaging)
Fibre-based products provide sustainable solutions for global consumer demand (e.g. tissue, hygiene, packaging, specialty)
Unique solutions to decarbonise traffic and provide consumers with bio-based prod- ucts
HIGH VALUE FIBRE
SPECIALTY PACKAGING MATERIALS
Strong growth potential
Technically demanding segments, where UPM has a leading market position, expertise and innovation
Competitive greenfield pulp operations have high requirements (wood supply, location, infrastructure, capital) A new world-scale pulp mill in Uruguay, capacity of 2.1 million tonnes, investment of USD 2.7 billion
Unique value chain position with sustainable feedstocks, the right technology and IPR
The key factors the spearheads have in common are significant growth potential and UPM’s competitive advantage based on deep knowhow and high barrier to entry. UPM is investing also in UPM Plywood and UPM Energy, while maintaining consistently strong cash flow and earnings in UPM Communication Papers.
Focused growth investment in Poland Product portfolio development
Basic engineering of a biorefinery; potential investment in Finland or in the Netherlands Entering to wood-based biochemicals business by building a biorefinery in Germany