UPM Annual Report 2023

BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

UPM PASO DE LOS TOROS Our new world-class pulp mill is a significant step for UPM’s future earnings and shareholder value.

Our unique plantation based business platform offers further opportunities in various biomaterials.

port terminal in Montevideo. Public infra structure investments improve the competi tiveness of all export sectors in Uruguay. The mill generates an annual surplus of around one TWh of renewable wood-based electricity. It provides a stable source of revenue and strengthens Uruguay’s energy balance. The mill meets strict Uruguayan environmental regulations, international standards and recommendations for mod ern mills. Our extensive environmental monitoring programme covers water and biota, air, soil, noise and socio-economic aspects. Despite our high standards of pro cess control, sodium hydroxide, a chemical commonly used in pulp production, leaked from the chemical storage area to the envi ronment in August (page 93). Sustainable plantations Our eucalyptus plantations in Uruguay have established a new renewable raw material base for growing global fibre needs. Euca lyptus availability for the mill is secured through plantations owned or leased by UPM, as well as through wood sourcing agreements with private partners. Planta tions are a significant carbon sink, the size of which is calculated annually by the Nat ural Resources Institute Finland. They do not compete with food production or affect natural forests. Our world-class tree nursery opera tions with three nurseries in Uruguay are producing more than 40 million eucalyptus seedlings a year. The third nursery in Sa randí del Yí began its operations in Q1 2022 and ensures the required annual planting capacity to supply the new mill. R&D plays a crucial role in optimising our plantation operations in Uruguay but also selecting materials with the best characteristics for pulp production and fibre properties for our customers. Our forestry research centre in Paysandú, which has been operating since May 2022, focuses on developing the best possible genetic materials for tree plantations. The centre is also part of several research streams related to the sustainability of eucalyptus produc tion including, for example, water usage on plantations and biodiversity surveys.

SPOTLIGHT

PROTECTING BIODIVERSITY IN URUGUAY

The three kilometres of footpaths on two trails in the Esteros y Algarrobales del Río Uruguay (EARU) biodiver sity reserve allow you to see many native plant and animal species and ecosystems. More than 900 species have been identified in the area during the monitoring sessions UPM carries out annually. As the landowner of this reserve and the surrounding forest plantations, UPM actively promotes the protection of the wildlife living in this area. This reserve located in the Río Negro prov ince has four different environments: the Chaco open forest, sandbanks, wetlands and the riverine forest, each with its unique group of species generating a considerable biodiversity richness. We aim to protect the most important species and ecosystems in the areas through the global biodiversity pro gramme. In Uruguay, we have a net work of 33 biodiversity reserves aimed at preserving sensitive ecosystems including grasslands, native forests, wetlands and other natural ecosystems. These areas cover 14,500 hectares. Each reserve has its own management and monitoring plan, drawn up in col laboration with the Uruguayan NGO Vida Silvestre. In 2023, we opened a new visitor centre in the biodiversity reserve, including facilities and equipment for researchers. The visitor centre plays a major role in teaching children and young people about Uruguayan nature.

way. The targeted cash cost level of USD 280 per delivered tonne of pulp enables the mill to make attractive returns for the invest ment in various market scenarios. Making an impact The new mill is estimated to increase Uru guay’s GDP by about 2%. The central and north-eastern regions of Uruguay repre sent the relatively less developed regions in the country considering the number of households below the poverty line, regional competitiveness, social and financial measurements as well as road network and infrastructure. The pulp mill, together with forestry, wood and pulp logistics and other related activities, is creating around 10,000 new permanent jobs, of which 4,000 are direct

contracts with UPM and its subcontractors. More than 600 small and medium-sized companies are estimated to be working in the value chain, spreading from tree seedling nurseries to pulp logistics. In ad dition, regional development will improve wellbeing in central Uruguay through improved infrastructure generating new opportunities for education, employment and entrepreneurship as well as improved access to services. The mill is a key milestone in the devel opment of the sustainable Uruguayan forest industry and at present, pulp is Uruguay’s largest export sector. Alongside UPM's investment in the new pulp mill, the Uru guayan government has invested in logistics infrastructure, including a renovated railway connection from Paso de los Toros to UPM's

Turning point for the future The UPM Paso de los Toros pulp mill in Uruguay is a major milestone in UPM’s transformation. The mill began its opera tions in April 2023 and the first customer deliveries were shipped in May. The focus is now on increasing the overall stability and production output on a continuous basis. The new mill will grow UPM’s pulp capacity by more than 50% and places UPM among the leading eucalyptus pulp suppliers in the world. The outlook for long-term pulp demand is positive and supported by global megatrends like urbanisation, population growth and the need for renew able materials. With the new capacity and stronger global customer reach, UPM is well positioned to capture the opportunities of growing end-use markets in a competitive

IN SHORT • Annual production capacity of 2.1 million tonnes of eucalyptus pulp • Total investment of USD 3.47 billion • Expected cash cost level of USD 280 per delivered tonne of pulp once in full production and optimised • Competitive wood supply, best available techniques and efficient logistics • The new deep sea pulp terminal and port operations in Montevideo • High safety and sustainability standards • The mill was EBITDA positive in H2 2023, and is expected to turn EBIT positive during H1 2024.

Enhancing biodiversity on page 84 Railroad safety programme on page 73

www.upm.uy/earu (esp)

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023