UPM Annual Report 2021

BUSINESSES

UPM

BEYOND FOSSILS

STRATEGY

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2021

CAPTURING READERS UPM COMMUNICATION PAPERS Our strategic focus is on safeguarding long-term competitiveness through targeted product development, uncompromising performance and a strong commitment to reliability, quality and sustainability.

OUR DIRECTION • Maintain a profitable leading market position while managing capacity • Increase operational efficiency and ensure the quality of our products • Focus on operational and supply chain optimisation and enhancing digital solutions at the customer interface • Secure the future relevance of the paper business, focusing on sustainability OUR STRENGTHS • Long-term commitment to paper and the reliability of our supply • The high quality of our products and services • Extensive, thoroughly optimised production • Responsible operations, strong ethical values and traceable supply chain

KEY FIGURES

2021 2020

Sales, EURm

3,577

3,333

Comparable EBIT, EURm

-79

180

Capital employed (average), EURm

1,275

1,446

Comparable ROCE, %

-6.2 10.1

12.4 19.1

FCF/CE, %

Personnel on 31 Dec.

6,422

7 281

Comparable EBIT decreased due to higher variable costs, especially for fibre and energy, and lower sales prices. Delivery volumes were higher. Fixed costs decreased. In 2021, demand for graphic papers in Europe was 4% higher than in 2020.

CASE

THE NEW PAPER PORTFOLIO IS A WIN-WIN FOR EVERYONE UPM is committed to maintaining competitive operations. Long-term success in graphic paper production is much more than merely adapting capacity to customer demand. Even if declining in the long term, the markets offer profitable business for products with a compet itive cost structure. We offer an extensive product range for all major printing methods. In 2021, we renewed our offering of coated mechanical papers with a non-glossy finish and reduced the number of paper grades to five. This way, we can meet our customers’ needs and ensure a high level of service capability and supply chain security. These coated mechanical papers are mostly used in magazines, catalogues and advertisements. The main advantage for our customers is that we can supply our paper grades from multiple mills. All of these papers are also large volume products, which presents a cost benefit to customers. For UPM, this improved

As the world’s leading producer of graphic papers, we are committed to the paper busi ness and serving our customers. We offer an extensive product range of graphic papers for advertising and publishing, as well as for home and office use. In 2021, consumers spent more time with magazines, books and newspapers, and subscribed to a higher number of printed publications. Consequently, paper demand recovered well from the previous year when the COVID-19 pandemic and its associated lockdown measures caused, although tem porary, an unexpected and severe disrup tion to demand. Despite good demand and successful price increases, our profitability was weak due to significant cost increases in pulp, recycled fibre and logistics. Furthermore, despite hedging, the energy crisis in Europe resulted in unforeseen cost increases. Good market demand and significant cost increases

consumption and CO 2 emissions provides a consistent, more transparent, and simple to-use reporting system for us. The data is of added value to our customers due to the customer-specific carbon footprint report ing (page 95). Production-related CO 2 emissions are our chief means of reducing our overall carbon footprint. Our emissions reduction plan includes modern power generation, environmentally sound power purchas ing and innovative energy management solutions. Based on our long-termwind power pur chase agreement, the use of renewable wind power will reduce UPM’s total annual CO 2 emissions (Scope 1 and 2) by 5% as of 2022. We are also evaluating further sustainable power purchase agreements in Europe. At the UPMNordland mill, we are currently constructing a natural gas-fired combined heat and power (CHP) plant, and at the UPMHürth mill we are building a new biomass-fired plant.

safeguarding long-termcompetitiveness. Another key area is that of strengthening our customer focus. We’re constantly aim ing to renew our product offering, as well as increase the effectiveness of our planning, supply and delivery processes (right). Reducing our carbon footprint We have set high sustainability standards for our products, safety and environmental performance. Paper is a renewable material and can be recycled efficiently. We are committed to reducing our CO 2 emissions by 65% by 2030 and aim to lower the carbon footprint of our products and supply chain activities. In 2021, we added carbon-neutral paper to our portfolio so that our customers can reduce carbon emissions in their supply chains. We also established a carbon offset service, certified by Gold Standard, to compensate for the remaining carbon footprint generated by our paper products. UPM’s new tool for reporting our energy

The demand and supply balance in Eu rope was tight and our ability to serve our customers reliably was highly prioritised. Our operating rates were good. However, global bottlenecks in the supply chain and challenges in rawmaterial availability somewhat impacted our operations and supply security. Our focus on active capacity manage ment and cost competitiveness continued. The UPMKaipola paper mill was perma nently closed in January and the UPM Shot ton newsprint mill was sold in September. We also took further action to streamline our organisation. Ensuring performance Today, the global market for graphic papers exceeds 70million tonnes, with approximate ly 19million tonnes in Europe alone. Even when in decline, thesemarkets continue to offer profitable business and good cash flow for mills with a competitive cost position and high efficiency. Our strategic focus is on

offering aligns with our asset capabilities, which results in increased operational efficiency. The renewal project was carried out in close collaboration with customers. The feedback has been so positive that the same assessment will also be carried out on improved newsprint and SC papers in 2022. Our target is also to secure the cost competitive graphic paper offering in the future.

www.upmpaper.com

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021