UPM Annual Report 2021

BUSINESSES

UPM

BEYOND FOSSILS

STRATEGY

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2021

FIBRES FOR THE FUTURE UPM FIBRES - PULP & TIMBER Versatile, renewable and recyclable — pulp and timber are the fuel of the modern bioeconomy.

OUR DIRECTION • For pulp: to grow with our customers. To provide the most versatile pulp range, advanced technical service and a reliable long-term supply with undisputed commitment to sustainability. To maintain cost-competitiveness through continuous operational improvement. • For timber: to enhance profitability through efficient wood supply, integrated full-production and focused commercial strategy. To have a streamlined business model that secures our position in chosen key markets and end-use segments. OUR STRENGTHS • Broad selection of sustainably produced pulp grades for a wide range of end uses • Modern, efficient pulp mills and expert teams committed to grow with customers • Industry-leading forest management and sustainable eucalyptus plantations • Fossil-free timber production with a dedicated global sales and logistics network

KEY FIGURES

2021 2020

Sales, EURm

2,945

2,183

Comparable EBIT, EURm

817

166

Capital employed (average), EURm

4,437

3,620

Comparable ROCE, % Personnel on 31 Dec.

18.4

4.6

2,692

2,695

Comparable EBIT increased due to significantly higher pulp and timber sales prices. In China, chemical pulp demand growth was slowing down in 2021 though showing some improvement at the end of the year. In Europe, demand was good. Demand for advanced renewable diesel and naphtha was strong. Also, demand for sawn timber was strong. The figures include UPM Biofuels business until the end of 2021.

CASE

Pulp is a material that perfectly matches the growing global demand for responsible and renewable products. We serve our custom ers with sustainably produced eucalyptus, birch and softwood pulp grades for a wide range of end uses such as tissue, specialty papers, graphic papers, board and packag ing. In addition to high-quality pulp, our modern pulp mills produce renewable ener gy, and by-products and residues, which are used for innovative bioproducts. In our timber business, we serve our industrial customers in the furniture, join ery, planing, construction and packaging sectors. Capturing benefits from efficient operations In 2021, the strong demand for tissue and hygiene products as well as for packaging

and specialty paper products supported the global pulp demand. Pulp consumption in graphic paper end-use segment recov ered from 2020. In China, pulp demand growth slowed down due to lower economic activity, customers’ temporary capacity curtailments and inventory reduction in the customer value chain. In Europe, the overall markets remained strong with high demand and a tight demand and supply balance. Pulp sales prices increased to re cord levels in the first half of the year until the summer in both main markets, after which sales prices decreased in China while remaining at high level in Europe. UPMTimber benefitted from improved economic activity and a high demand of wood-based construction materials. Strong demand of sawn timber raised the market prices to a high level. Our committed and

experienced team successfully managed to secure our customer deliveries in the thriving markets. Thanks to the strong markets and ex cellent operational efficiency, UPM Fibres had a strong financial performance in 2021. The scheduled maintenance shutdowns at the pulp mills in Uruguay and Finland were successfully carried out with strict COVID-19 protocols. In addition to the preventive COVID-19 measures, contin uous improvement of safety measures continued in all operations. Strong fundamentals for growth Long-term demand for pulp remains strong, driven by global megatrends. Growth in demand is strongest in China and the rest of the Asia-Pacific region. The increasing Asian middle-class and rise

CHINA DRIVES GROWTH

pulp production capacity will grow by more than 50%, which means a significant increase in delivery volumes and the strengthening of the Asian sales team. Along with the growth we will take a more leading role as a pulp supplier in the market. The prerequisites for success include the right sales strategy and solid customer relationships. This means trust in the products, delivery reli ability, sustainability promises and trust in the organisation and the people in it. Co-operation with customers especially in technical and sustainability projects has also contributed to the sustainable development of the paper industry in China.

China is the strongest growing market for pulp and one of UPM Pulp’s main markets. The grow ing Chinese middle-class and the increasing use of paper packaging materials, tissue paper and specialty paper push the demand for pulp. We have gained a strong foothold in the Chinese and European pulp markets and have a good reputation, especially in sustainability. The importance of the Chinese market will continue to grow for years to come as the new pulp mill in Paso de los Toros will be complet ed by the end of Q1 2023. UPM Pulp's Asia-Pacific (APAC) sales team has been operating in China for 10 years and has broken many sales volume records. Cur rently the team employs 15 professionals. Our

www.upmpulp.com

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021