UPM Annual Report 2021

BUSINESSES

UPM

BEYOND FOSSILS

STRATEGY

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2021

SPECIAL BY NATURE UPM SPECIALTY PAPERS We are co-creating a future beyond fossils with renewable and recyclable fibre-based label, packaging and fine papers.

OUR DIRECTION • A global leader in labelling materials • The preferred partner for fine paper in the Asia-Pacific region • Growth in selected flexible packaging applications OUR STRENGTHS • Sustainable alternatives to fossil-based materials • Extensive expertise in technically demanding papers

KEY FIGURES

2020 1,324

2021 1,482

Sales, EURm

Comparable EBIT, EURm

135 864 15.6

199 897 22.2

Capital employed (average), EURm

Comparable ROCE, % Personnel on 31 Dec.

1,918

1,932

Comparable EBIT decreased due to higher input costs. Sales prices increased and delivery volumes were higher. Global demand for label, release and pack aging paper was good in 2021. Demand was driven by fast moving consumer goods and e-commerce.

• Recognised by customers as a reliable partner • The ability to serve customers on a global scale

CASE

UPMSpecialty Papers responds to the world’s need for sustainable products with high-per forming, fibre-basedmaterials for labelling and packaging. It also produces sustainable office and graphic papers available in the Asia-Pacific region. We help customers co-create solutions to their business chal lenges. UPMSpecialty Papers’ global team andmills across China, Finland andGermany serve customers consistently and reliably. Delivering profitable growth Our performance continued at the good level in 2021. Themarket situation, however, was twofold. On the one hand, demand for label papers, release base papers and packaging papers remained strong across all markets, and sales prices increased significantly compared to the previous year. On the other hand, in the second half of the year, the APAC fine paper supply-demand balance proved challenging, and sales prices decreased. Higher input costs and the exceptional circumstances surrounding the energy market also impacted our performance.

However, in China for example, we managed the challenging situation very well, with the help of our own on-site power plant. The availability of rawmaterials was secured successfully, and we were able to run our operations without interruption, despite global logistical challenges. Our focused growth investments over the past five years have strengthened our operational excellence and flexible operating platform. In 2021, our ROCEwas 15.6%, which was above our long-termreturn target. Sales continued to grow in line with our strategy. Over the past few years, commer cialisation of our specialty grades has been a success and in 2021, we launched a new, enhanced barrier paper that offers a fi bre-based alternative for dry, greasy and fro zen foods. We also launched new packaging grades for the Asian market. Our packaging grades are certified as fit for food contact. The new barrier paper and our kraft paper for packaging received an award in China for being an innovative and sustainable solution for reducing fossil-based packaging.

Customer value from sustainability Many megatrends that are driving the market demand for our products are strongly linked to sustainability. Global brand owners have set ambitious targets to increase the share of packaging that is both recyclable and made using renewable raw materials. Our flexible packaging papers can help meet these targets, providing us with co-creation opportunities to develop new solutions for fibre-based packaging. In China, we have a proven track record for being leaders in sustainable operations. In 2021, the UPMChangshu paper mill was recognised as a frontrunner in sustainable development within the Jiangsu province. The mill’s water management and pollution control were the particular processes for which this recognition was received.

Megatrends drive demand Megatrends support our business and healthy market demand is expected to continue. Certain trends driven by con sumer behaviour have even grown during the COVID-19 pandemic, but volatility and unpredictability have also increased (right). As the global market leader in release base papers and label papers, and as a well-positioned player in the growing pack aging and Asian fine paper markets, we are well prepared for growth. The co-creation of our packaging papers and services continues to be one of the cornerstones of our strategy. We aim to strengthen value chain synergy through co-operation and innovation. We offer recyclable fibre-based alternatives to non- renewable materials. We have several new product development projects ongoing with our customers and we are also continuously developing our understanding of end uses with growth potential.

CONSUMER CHOICES HAVE A BIG IMPACT

Changes in consumer behaviour, such as the growth of e-commerce and growing aware ness of sustainability, have a positive impact on the demand for specialty papers, also after the pandemic. In 2020, 1.3 billion e-commerce parcels shipped worldwide but forecasts estimate that this number will exceed 2.7 billion by 2026. E-commerce was a popular way to shop in Chi na even before the pandemic, but COVID-19 has boosted e-commerce growth even more, especially in Europe and in the USA. E-com merce accounted for 18% of global retail sales in 2020, really outlining the growth potential. The growth of e-commerce has an impact on the need for both packaging material and logistics labels. The packaging business is mainly driven by the growth of the middle class, and urbanisa tion resulting in smaller households and grow ing consumer spending power. It is particularly a trend in strong developing markets, such as

many Asian countries. The Chinese consumer market alone is expected to double by 2030. When people move to cities, their consump tion habits also change. In China, for example, it is estimated that more than 60% of food is sold at markets, mostly without packaging. This is rapidly changing. Packaged food increases the need for packaging material and labels. As the demand for packaging grows, fibre-based materials offer easy-to-recycle packaging based on renewable raw materials.

www.upmspecialtypapers.com

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021