UPM Annual Report 2023

ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Focus on market fundamentals In 2023, demand for advanced biofuels was good and markets continued to benefit from a dedicated and compulsory mandate for advanced biofuels based on EU-wide rules. Simultaneously, European biofuels markets faced uncertainties due to economic slowdown and increased imports of biofuels labelled as advanced from China. The longer term effect of Chinese imports remains uncertain. Input costs remained at a high level. Crude tall oil (CTO) markets continued to tighten due to the increased replacement of fossil fuels and stronger competition. In the first half of the year, the turnaround shut down impacted production rates at the UPM Lappeenranta Biorefinery. In the second half of the year, production levels were good and production efficiency improved after the shutdown. Green growth opportunities UPM aims to become a major European player in the production of advanced biofuels. Markets con-tinue to grow and be driven by climate targets. According to estimates, around 30% of fossil-derived fuels used for transportation in the EU could be replaced with advanced biofuels by 2050. Further growth in advanced biofuels plays an important role in UPM’s Biofore strategy. We are currently conducting the commercial and basic engineering study for a next-generation biofuels refinery in Rotterdam, the Netherlands. The new potential biorefinery would produce high quality renewable fuels, including sustainable aviation fuels, and raw materials for the petrochemical sector, for example in bioplastic applications. In 2023, UPM Biofuels initiated proceedings to qualify its renewable fuel as sustainable aviation fuel. Our current feedstock for biofuels in the UPM Lappeenranta Biorefinery is crude tall oil, which is a residue from pulp production. In our plans to increase production of advanced biofuels, we are also considering other residue streams and by-products of the forest industry. The planned biorefinery would enhance material efficiency without compromising global food production. In the future, the path to defossilisation in different transport sectors will increasingly rely on renewable synthetic fuels. Our extensive know how and experience in biorefinery operations not only gives us a competitive edge but also opens up growth opportunities in the realm of green hydrogen solutions. Towards 2030 UPM’s advanced biofuels belong to the most demanding sustainability category of the Renewable Energy Directive (RED II and forthcoming RED III), which includes residues from agricultural and forest-ry activities. Our UPM Lappeenranta Biorefinery, with an annual capacity of 130,000 tonnes, is the largest advanced biofuels-only refinery in the EU. The newly adopted RED III Directive includes an increased target for advanced biofuels in the transport energy mix in Europe by 2030, reflecting a considerable increase on today’s production capacity and Global brands deepen their sustainability promises to consumers and market CO 2 -optimised products while embracing increased supply chain sustainability. UPM Biochemicals will be well positioned to provide renewable chemicals made from sustainable wood with a CO 2 - product footprint that is considerably below that of fossil-based chemical products and credibly documented by our third-party-reviewed LCA. Our proposition to help brands defossilise their products has gained further traction in the market and has triggered wide-spread support across our key markets. creating significant opportunities for new investments. UPM Biochemicals - Ramping up new business

and agreed the relevant partnerships to enable efficient production and distribution of our products. UPM Biomedicals - Advancing innovations UPM Biomedicals develops and supplies innovative and sustainable wood-based products for medical and life science applications. The main component of our products is nanocellulose, refined from birch wood, which encourages the trend to reduce animal-based materials in the field. We actively collaborate with universities, research centres and key industrial partners in the fields of high-throughput drug screening, personalised medicine, cell therapies, 3D bioprinting, tissue engineering and advanced wound care. In life sciences, our main products are GrowDex®, a range of hydrogels for 3D cell culturing, GrowInk™ a range of bioinks for 3D bioprinting and GrowDase™, an enzyme to release living cells from the gel. The nanocellulose ensures excellent compatibility with even the most demanding cells, such as stem cells and patient-derived cells. We continued to study the use of GrowDex®in a cell-based model of a liver. Cell-based liver models (mini-livers) are used to test the toxicity of almost every new pharmaceutical candidate. We continue to develop Grow-Dex based mini-livers and other mini-organs in our own cell laboratory in Helsinki. In 2023, we opened a new sales office and cell laboratory in the Switzerland Innovation Park in Basel. This allows us to be close to our customers and support the use of our products in central Europe. In 2023, we continued to supply nanocellulose to Cellink and signed a distribution agreement for GrowInk™ bioinks with Brinter. GrowInk™ is a range of bioinks for 3D bioprinting used in areas such as cancer research, where models of tumours can be printed to test their response to different treatments. The ultimate goal is to print organs or tissues that could, in the future, be transplanted into patients. In the clinical field, many Finnish healthcare professionals and hospitals in the Nordic countries already use our CE-marked FibDex® wound dressings for skin graft donor sites. These one-time applicable wound dressings were also successfully piloted with good healing results in selected university hospitals in Germany. In 2023, we started the clinical investigation for superficial dermal burns at Uppsala University Hospital in Sweden. UPM Biocomposites – Best in class UPM ProFi uses European post-consumer plastic waste and post industrial label waste to manufacture high-quality composite decking. The label production side streams come from UPM Raflatac and its customers, with the waste being collected and delivered to Germany where the composite decking is manufactured. The UPM ProFi Piazza product range is made with up to 75% recycled materials and offers best-in-class performance. We are a member of the EU Circular Plastics Alliance, which aims to increase the EU market for recycled plastics to 10 million tonnes by 2025. UPM Formi creates and manufactures wood-based biocomposites, enabling the carbon footprint of the end product to be reduced by up to 80% compared with similar products made from fossil-based materials. The composite materials are suitable for various end uses, including kitchenware, personal care and acoustic devices. Products comply with food safety standards and other similar quality requirements. In 2023, the new organ's facade pipes are made of wood-based UPM Formi 3D biocomposite at the Helsinki Music Centre (page 63). As an example of material efficiency, we introduced new trays made of UPM Formi composite to Finnish ABC service stations. The trays can be recycled into new trays after use (page 100). In 2023, the European Food Safety Authority re-evaluated the safety of wood-based fibres in

The main civil works of the world’s first industrial-scale wood-to chemicals biorefinery in Leuna, Germany were completed in 2023 and commissioning will be gradually concluded during 2024. The relevant German authorities granted the preliminary licence to operate in 2023 — a big milestone towards start-up. The total cost of the biochemicals investment project is estimated at EUR 1,180 million. The biorefinery will convert solid wood into next-generation biochemicals: bio-monoethylene glycol (BioMEG) and Renewable Functional Fillers (RFF). The biorefinery will also produce bio monopropylene glycols (BioMPG) and industrial sugars. The total annual capacity of the biorefinery will be 220,000 tonnes. The feedstock sourcing network has grown further, and we are continuing to close strategic partnerships to secure a stable flow of certified sustainable beechwood. Our active role in shaping the German and European policies on biomass-based materials has triggered government endorsement and is actively enabling commercial opportunities. Positive market response and first product sales Markets are responding very positively to our new products as we have further stepped up our sales and marketing. This shows in proactive endorsement through global consumer brands and a series of development partnerships in globally lead markets for sustainable chemicals. We finalised distribution agreements for our lignin-based Renewable Functional Filler (RFF) and advanced application development to qualify RFF for applications in the automotive, fashion, building and plastics industry. With the acquisition of German-based SunCoal Industries, we strengthened our technology portfolio for lignin-based rubber solutions and increased our process and product know-how by adding an innovative team of experts. European Rubber Journal renewed their endorsement of UPM BioMotion™ Renewable Functional Fillers as the most important sustainability project in the elastomers and rubber industry. For our renewable bio-monoethylene glycols (BioMEG), UPM BioPura™, we extended our development partnership with Dongsung, the leading glycols manufacturer and seller in the Korean market and one of the region’s biggest materials suppliers of global footwear brands. We also realised the first product sales with Dongsung and Brenntag, the world’s leading chemicals distributor, confirming the value expectations in our BioMEG. A successful co-operation partnership with the German outdoor and performance wear brand VAUDE was met with significant public and consumer interest. We jointly launched the world’s first polyester fleece jacket, containing 30% renewable content with our BioPura™ BioMEG. The transformative character of our investment was highlighted by UPM Biochemicals winning the prestigious Independent Commodity Intelligence Services (ICIS) Best Process Innovation from a Large Company Award and the International Textile Manufacturers Forum’s (ITMF) Sustainability and Innovation Award. Towards production start and commercial ramp-up The building site is busy with more than 1,400 contractors finalising the project, with a heavy focus on piping and electrification and automation. The future operations team is trained and starts taking ownership of the processes, actively driving commissioning and start-up preparations. With all critical materials sourced, contractor relationships tested and proven, and a firm grip on the timeline, we are confident to start up the first units of the Leuna biorefinery. To support a ramp-up from 2025 onwards, we put in place efficient sourcing and supply chain operations

contact with food and made its criteria more stringent. UPM takes the safety of its products seriously and is compliant with the updated regulatory requirements.

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UPM ANNUAL REPORT 2023

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UPM FINANCIAL REPORT 2023

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