UPM Annual Report 2020

RESILIENT AND COMMITTED UPM COMMUNICATION PAPERS

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

Our strategic focus is on safeguarding long term competitiveness. We evolve our business through targeted innovation, uncompromising performance and a strong commitment to reliability, quality and sustainability.

As the world’s leading producer of graphic papers, we are committed to the paper business and serving our customers. We offer an extensive product range for adver- tising and publishing, as well as for home and office use. While the graphic paper market has been declining at a steady pace over the past years, in 2020, the COVID-19 pandemic and related lockdown measures caused an unexpected and severe temporary disrup- tion to demand. Thanks to our deep-rooted safety culture, we effectively protected the health

and safety of our employees. We managed to run our operations uninterrupted at every mill, throughout the supply chain, and have continuously served our customers across all markets. At the same time, we took measures to ensure an overall posi- tive commercial performance during the challenging year. Today, the global market for graphic papers exceeds 70 million tonnes, with approximately 20 million tonnes in Europe alone. Even when in decline, these markets continue to offer profitable business and good cash flow for mills with a competitive

cost position. We have seized this opportu- nity, by building on our proven long-term track record of cost discipline, reliable profits and strong cash flow. Our cumu- lative free cash flow from 2016-2020 was EUR 2.0 billion. Achieving sustainable performance Continued long-term decline in graphic paper demand, combined with the weak- ened economic outlook, requires prompt actions to ensure long term performance. We continue to deliver according to our strategy and we are committed to maintain-

KEY FIGURES

2020 3,333

2019 4,552

Sales, EURm

180

Comparable EBIT, EURm

383

1,446

Capital employed (average), EURm

1,647

12.4 19.1

Comparable ROCE, %

23.2 39.1

FCF/CE, %

7,281

7,673

Personnel on 31 Dec.

Coming from renewable resources and recycled after use, paper is the blueprint of circular economy.

Comparable EBIT decreased due to lower delivery volumes. The COVID-19 pandemic and the related lockdown measures impacted graphic papers demand. Sales prices were lower and more than offset the positive impact of lower variable costs. Fixed costs decreased. Demand for graphic papers in Europe was 18% lower than in the previous year.

PLANNED CO 2 REDUCTION MEASURES, fossil CO 2 emissions, index 100% in 2015

UPM Communication Papers has committed to a clear CO 2 reduction path and will reduce its fossil CO 2 emissions (Scope 1 an 2) by 65% by 2030

100

Biomass boiler at UPM Hürth

Wind power purchase agreement (PPA)

Gas-fired CHP plant at UPM Nordland

Potential 2 nd PPA

ing competitive operations under any cir- cumstance. This means adapting capacity to profitable customer demand and continu- ously increasing our operational efficiency. As a consequence, the UPMChapelle newsprint mill in France was permanently closed in July. The UPMKaipola mill pro- ducing newsprint and coated mechanical paper in Finland was permanently closed in January 2021. We also announced a plan for the sale of the UPM Shotton paper mill in Wales for conversion purposes and the streamlining of our global business function teams. At the same time we took action and adapted our business functions to the changing requirements of the market.

sheets. We have also expanded our product portfolio to cover newsprint paper at the UPM Jämsänkoski mill in Finland, to be able to serve customers reliably in Finland and the Nordics. Applying digital technologies is rele- vant for future success. At our customer interface we have built new digital chan- nels to strengthen commercial focus. To ensure high quality regarding planning and delivery, we have increased the effective- ness of our planning, supply and delivery processes.

Mitigating climate change Future success requires decisive actions to mitigate climate change. In addition to serving our customers with circular and sustainable products, we have taken tan- gible actions to reduce our environmental footprint. We are committed to reducing our CO 2 emissions by 65%, by 2030 (page 16). Strengthening commercial focus In 2020, we also responded to the chang- ing needs of paper markets by strength- ening our offering of graphic paper. At the UPMKymi paper mill in Finland, we have invested in a fourth sheeting line to strengthen our position in graphic paper

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69

63

55

49

Reductions from climate projects Reductions from annual efficiency gains, technology and grid mix improvements

35

Responsible product lifecycle on page 82 www.upmpaper.com

2015

2018

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2030

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UPM ANNUAL REPORT 2020

UPM ANNUAL REPORT 2020

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