UPM Annual Report 2024

WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Our strategy

Our businesses

Sustainability

Executing our growth strategy

DECARBONISATION SOLUTIONS Decarbonisation solutions offer innovative and sustainable options to meet the urgent need to decarbonise society. With the launch of the biochemicals business, the preparations for the expansion of the biofuels business and by capturing the value of the energy market transformation, UPM is addressing key sectors that are critical for decarbonisation. Minimising the use of fossil fuels is the most important way to mitigate climate change. We will contribute to the decarbon isation of the electricity system by increas ing the supply of reliable and renewable CO 2 -free electricity. Demand for electricity is expected to grow significantly in the coming years, driven by the electrification of heating, traffic, the industry’s green transi tion, and the digitalisation and AI that will require more and more data centres. With our 12 TWh of CO 2 -free generation, we are well-positioned to capture a fair share of the growing demand for reliable CO 2 -free electricity. We will continue to optimise our production and maximise value creation in the electricity market. In Biochemicals, the start-up of the UPM Leuna refinery marks a significant milestone (page 14). While we are expecting a long ramp-up process due to the first-of-its-kind nature of this facility, we are confident that it will establish a robust competitive position in a completely new market. This strategic initiative underlines our commitment to innovation and market leadership in sustain able solutions.

WE EXPLORE THE POSSIBILITIES OF ENERGY TRANSFORMATION

Moving away from fossil fuels means increasing the electrification of society. However, since it is impossible to electrify the entire economy, we also need other solutions to mitigate climate change. UPM Biofuels supplies renewable fuels for decarbonising traffic. We are also explor ing the use of clean and green hydrogen and biogenic CO 2 to produce synthetic fuels and chemicals in the future. The biogenic CO 2 generated as a by-product of pulp production and energy generation processes can serve as a raw material for new carbon-neutral synthetic fuels and materials. The energy crisis has driven up energy prices in Europe. It has also increased the risks as sociated with political intervention and changes in energy market regulation and taxation. It is crucial that such measures do not reduce the incentives for energy investments that drive the transition to a low-carbon economy. Regulatory measures should not interfere with the market price signals, which are necessary to balance the electricity market in all circumstances.

We are well positioned to seek growth with our broad portfolio in growth geographies. Our business portfolio is based on sustainable and renewable feedstocks and fossil-free energy sources. This foundation outlines our focus areas for sustainable, profitable growth.

We aim to accelerate our growth in the com ing five years. Our business portfolio offers robust growth opportunities in renewable fibres – namely, pulp; in advanced mate rials such as adhesive materials, specialty papers and plywood; and in decarbonisation solutions such as biochemicals, biofuels and CO 2 -free energy. RENEWABLE FIBRES In renewable fibres, we aim to optimise our production and realise the full potential of the world-class, low-cost business platform in Uruguay (page 15). Q3 2024 was the first quarter of full production at our two pulp mills, paving the way for the next phase of cost optimisation. Full utilisation of the railway connection between the UPM Paso de los Toros mill and the port terminal in Montevideo will reduce logistics costs. As with UPM Fray Bentos, we expect the UPM Paso de los Toros

mill to produce more than its current nomi nal capacity. In Finland, we have large well-main tained mills. To manage the increased wood costs, we have taken measures to optimise production to ensure profitability. In addi tion to the temporary shutdowns, we have taken efficiency measures in our pulp, forest and timber operations to streamline the organisation. ADVANCED MATERIALS We see attractive growth prospects in advanced materials in the medium to long term. We already have strong positions in fast-growing product markets and geogra phies, and we aim to grow in both current and adjacent markets. In UPM Raflatac, we are taking the actions to be in the best position to capture these growth opportunities. These actions include simplifying the organisation and

reducing fixed and variable costs. UPM Raflatac strengthened its position in the attractive graphics solutions busi ness with the acquisition of Belgium-based Grafityp in 2024. We will continue to explore targeted M&A opportunities to further strengthen our presence. The advanced materials businesses – UPM Raflatac and UPM Specialty Papers in par ticular – experienced significant volatility, with an unusually low cycle in 2023 and an inconsistent recovery in 2024. The extended value chains in these businesses mean that inventory levels play a crucial role, ampli fying fluctuations in demand and leading to greater volume fluctuations than actual changes in consumer demand. Despite these short-term cycles, the me dium- to long-term demand outlook remains strong. The fundamental drivers of demand are robust, and growth is expected to exceed GDP growth over time.

COMMUNICATION PAPERS Communication papers is expected to contin ue strong cash flow generation. In 2024, UPM Communication Papers generated free cash flow of EUR 254 million, which corresponds to a free cash flow return on capital employed of 22%. In 2024, market demand in Europe was stable after the sharp decline in the previous year, but the market decline is expected to continue in the medium to long term.

In Biofuels, our current plans for the po tential biofuels refinery in Rotterdam in the Netherlands are based on an annual capacity of up to 500,000 tonnes of high-quality re newable fuels, including advanced biofuels and possibly jet fuels, as well as renewable chemicals. Most of the basic engineering has been completed, and the chosen technolo gy has been validated at a demonstration scale. The focus is now on testing the novel proprietary technology at a larger scale and on flexible feedstock options. This work is expected to take approximately two years, until 2026.

UPM comparable EBIT*

UPM Sales*

Decarbonisation solutions

Europe

Advanced solutions Renewable fibres

Americas

Asia

Communication papers

RoW

*) This is illustrative, not a forecast

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UPM ANNUAL REPORT 2024

UPM ANNUAL REPORT 2024