UPM Annual Report 2023

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

UPM BIOREFINING - UPM BIOCHEMICALS RAMPING UP NEW BUSINESS The world’s first industrial-scale wood-based biochemicals biorefinery has moved into the commissioning phase, while commercial success is building towards a successful start-up at the end of 2024.

TRANSFORMATION STORY

OUR DIRECTION • Establish biochemicals as a widely accepted category of renewable solutions • Open new end-use markets for UPM, with large growth potential for the future • Successfully launch the business to scale • Leverage the unrivalled sustainability value to generate strong results

OUR STRENGTHS • Unique and innovative technology concept • Sustainable, certified feedstock • High-quality products for plastics, textile and rubber applications, as well as industrial liquids, with a sustainability focus that sets us apart • Very positive brand image for many consumer products in packaging, automotive, textiles and other industrial segments • A robust, scalable business platform

development partnerships in globally lead markets for sustainable chemicals. We finalised distribution agreements for our lignin-based Renewable Functional Filler (RFF) and advanced application de velopment 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 rub ber 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 PLANNED ACTIONS FOR 2024 • Site completion and gradual start-up of the biorefinery • Complete team set-up and training to ensure a safe and effective start-up • Close commercial agreements to sell production • Develop additional RFF product applications and build commercial pipeline • Optimise the sustainability performance of the product portfolio • Further strengthen feedstock sustainability

THE FUTURE OF FABRICS

UPM Biochemicals and German outdoor apparel supplier VAUDE will produce outerwear made from bio based chemicals. The textile industry has long been looking for more sustainable solutions for producing polyester and polyure thane, as around 60% of all materials used in the fashion industry are made from fossil-based polymers. Polyester is the world’s most widely used fibre. Yet only 15% is currently derived from recycled feedstock. In the partnership, the fossil-based MEG component of the resin used to make polyester is replaced with UPM BioPura™ bio-monoethylene glycol. The material can be used directly in the existing production process. Sustainable innovations require collaboration across the value chain. In Germany, chemical company Indorama Ventures first polymerises and spins the polyester yarn, then in Prato, Italy, textile manufacturer Pontetorto processes the yarn into a new polyester fabric that VAUDE uses to make the final garment.

with a heavy focus on piping and electrifica tion and automation. The future operations team is trained and starts taking ownership of the processes, actively driving commis sioning and start-up preparations. With all critical materials sourced, con tractor relationships tested and proven, and a firm grip on the timeline, we are confi dent 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 and agreed the relevant partnerships to enable efficient production and distribution of our products. We accelerate the transition to a circular bioeconomy with our products.

global footwear brands. We also realised the first product sales with Dongsung and Brenn tag, 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 (on the left). The transformative character of our investment was highlighted by UPM Bio chemicals winning the prestigious Inde pendent Commodity Intelligence Services (ICIS) Best Process Innovation from a Large Company Award and the Internation al 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,

Global brands deepen their sustainabil ity 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-par ty-reviewed LCA. Our proposition to help brands defossilise their products has gained further traction in the market and has triggered widespread support across our key markets. 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-mo noethylene glycol (BioMEG) and Renewa ble Functional Fillers (RFF). The biorefin ery 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 sta ble flow of certified sustainable beechwood. Our active role in shaping the German and European policies on biomass-based ma terials has triggered government endorse ment 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

www.upmbiochemicals.com

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023