UPM Annual Report 2023

BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

NEARLY 50% GROWTH IN CO 2 -FREE ELECTRICITY GENERATION

electricity generation by nearly 50%. It has also significantly improved the self-sufficiency, supply security and climate performance of Finland’s electricity system.

Climate change mitigation requires the further electrification of society and the rapid reduction of the use of fossil-based fuels. Russia’s war in Ukraine and the resulting turbulence in the European energy markets also emphasised the importance of supply security and energy competitiveness. UPM is a shareholder in the new OL3 nu clear power plant unit, which started regular commercial production in May 2023. The new unit increased UPM Energy’s CO 2 -free Demand for sustainable alternatives to fossil-based chemicals in consumer products and decarbonising traffic and aviation with renewable fuels create significant new business opportunities. Access to sustainable feedstocks, proprietary technology concepts and providing high-quality products to demanding customer segments are expected to provide a lasting competitive advantage for UPM. UPM Biochemicals is preparing for a com mercial-scale market entry. Our next generation biochemicals refinery in Leuna, Germany is due to start production by the end of 2024. The EUR 1,180 million investment will provide a first-of its-kind biorefinery with an annual capacity of 220,000 tonnes of wood-based biochemicals. UPM Biochemicals is also proceeding with the commercialisation of its products and signed the Global consumer megatrends are driving demand for sustainable and safe labelling and packaging solutions. Even though market deliv eries were low in 2023, the long-term funda mentals for growth are appealing and intact. We are still seeking growth in the special ty paper and self-adhesive label materials segments. Our focus is on expanding customer reach and continuously developing our product portfolio. Our strong position and innovations in these technically demanding and fast-growing niche segments of the pack aging value chain provide attractive growth opportunities.

UPM Energy on page 42

ACCELERATING GROWTH

TRANSFORMATIVE NEW BUSINESSES BEYOND FOSSILS

first customer contracts in 2023. Application ar eas include wood-based recyclable PET bottles, coolants for electrical vehicles, raw materials for textiles and renewable functional fillers to signif icantly reduce the carbon footprint and weight of rubber and plastic applications. UPM Biofuels already supplies the markets with UPM BioVerno renewable diesel and naphtha. UPM Biofuels initiated proceedings to qualify its renewable fuels as sustainable aviation fuel. What’s more, we are currently in the basic engineering phase of a potentially larger next-generation biorefinery, located in Rotterdam in the Netherlands, which would scale up the business.

Our transformation is in an intensive phase, with growth investments totalling EUR 4.2 billion either starting production in 2023, or scheduled to be completed by the end of 2024.

IMPACT • We create a future beyond fossils • We enable our customers and consumers to make more sustainable choices

OUR WAY • Sustainable and safe solutions • Strong long-term fundamentals for demand growth • High barriers to entry and a competitive advantage • Strict return requirements • Talent attraction

TARGETS • Earnings growth • Attractive returns • Successful commercialisation

UPM Biochemicals on page 54 UPM Biofuels on page 52

GROWTH AND PRODUCT INNOVATION IN SPECIALTY PACKAGING MATERIALS

OVER 50% GROWTH IN THE PULP BUSINESS

In 2023, UPM Raflatac successfully integrated AMC AG, a German self-adhesive label mate rials company, to speed up its growth strategy. The acquisition opens up new attractive product segments and further strengthens UPM Raflatac’s position in the filmic products segment in Central Europe. UPM Specialty Papers has also made further progress with its barrier paper products, which provide a sustainable and recyclable alternative for flexible packaging applications, for example.

Global consumer megatrends and the need to find more sustainable alternatives to fossil-based materials support demand growth for market pulp. The requirements for competitive greenfield pulp operations, such as highly productive plantation operations, good mill location and efficient logis tics, are difficult to meet and thus provide a lasting competitive advantage. Production in our world-class pulp mill in UPM Paso de los Toros in Uruguay started in April 2023 and customer deliveries began in May. The produc tion reached about 850,000 tonnes in 2023 and this is expected to more than double in 2024. The mill was EBITDA positive in H2 2023, and is expected

to turn EBIT positive during H1 2024. The new pulp deliveries have been well received by our customers. The mill has an annual capacity of 2.1 million tonnes of eucalyptus market pulp. The USD 3.47 billion investment has raised our pulp production capacity by more than 50%. Given the highly competitive cash costs expected and the large scale of the mill, the investment is expected to significantly contribute to our future earnings, and the compet itive business platform in Uruguay will offer further growth opportunities in the future.

UPM Raflatac on page 44 UPM Specialty Papers on page 46

UPM Pulp on page 38 UPM Paso de los Toros on page 24

22

23

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023