UPM Annual Report 2024

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WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Research and development Innovating for the future

UPM continuously develops its competences for the future needs of its businesses. Competence development is essential for the entire organisation, including both technical capabilities and ways of working. UPM focuses especially on chemical safety and behavioural safety at work, noting both safe and at-risk behaviours. The company's R&D and piloting teams have also become more international thanks to successful recruitments and onboarding. In addition to internal competence development, UPM collaborates with universities and vocational schools in order to enhance mutual learning. In recent years, UPM has significantly enhanced its chemical expertise, leading to substantial advancements in chemical processing. This progress has also paved the way for the successful commercialisation of future products. By continuously raising the bar, the company is well-positioned to innovate and bring cutting-edge biochemical solutions to the market. UPM's focus in 2024 Innovating climate-positive products Decarbonisation solutions offer innovative and sustainable options to meet the urgent need to decarbonise society. With the launch of the biochemicals business, UPM's customers will become able to switch from fossil raw materials to wood-based alternatives in textiles, plastics, PET bottles, packaging and pharma. To accelerate product development, UPM Biochemicals announced several commercial partnerships in 2024. UPM Biochemicals and Nokian Tyres, a leading developer and manufacturer of premium tires, introduced the industry-first concept tire partly based on UPM BioMotion™ Renewable Functional Fillers (RFF). The partnership will launch UPM’s CO ₂ -negative RFFs into a new market segment and highlights the possibilities to use a lighter weight, 100% renewable alternative to traditional CO ₂ -intensive fillers. Another commercial partnership announced in 2024 is the cooperation between UPM Biochemicals, Selenis and Bormioli Pharma. The companies have partnered to produce the world’s first pharmaceutical bottles made of partially wood-based PET. Since the high regulatory and performance requirements for pharmaceutical packaging may limit the use of new or recycled materials, this bottle uses standard PET which is made with UPM BioPura™, UPM’s world first wood-based BioMEG. Sustainable packaging The demand for sustainable packaging continues to grow rapidly. In food packaging, barrier protection is one of the key features that ensures that food reaches the consumer in perfect condition. Traditionally, plastic packaging has been widely used to provide this protection. Packaging requirements vary greatly, depending on a number of factors: the characteristics of the food itself, the surrounding climate conditions, the size and format of the package – and the logistics route used. For example, sugar-coated confectionery, dark chocolate and cereals are well preserved with lower barrier protection. UPM's existing barrier paper portfolio is well-suited for these types of end-uses. However, the majority of packaging end-uses require much higher barrier protection. Through co-creation with its partners in the packaging value chain, UPM Specialty Papers aims to enhance the performance of fibre-based packaging and enable brand owners and converters to make the transition to fibre-based packaging. UPM's barrier papers are also optimal for further converting, and co creation projects have resulted in innovative packaging solutions that combine high barrier properties, sealability and runnability on high speed packaging machines. These solutions are typically designed for

demanding end-uses, including food packaging for items such as coffee, chocolate and confectionery, thus offering recyclable alternatives to traditional plastic packaging. Shifting gears in AI AI is expected to transform the global economy, leading to productivity gains and a faster discovery of new ideas. UPM has launched an AI programme to develop a comprehensive AI strategy and implement the selected transformations. The programme assesses opportunities, sets directions and accelerates AI adoption and learning across the company. It provides clear, agile governance to ensure that AI delivers value. The AI strategy has been developed with contributions from more than 150 employees across multiple businesses and functions. The strategy identifies high-impact AI transformations such as increased sales, optimised supply chains and improved processes. AI principles include ensuring the ethical, secure and transparent use of AI, with human oversight and the consideration of cybersecurity, privacy and data quality. AI is expected to significantly increase efficiency and streamline workflows. UPM is working to bring the benefits to its customers, employees and business development. Implementing sustainable product design concept The UPM Sustainable Product Design concept supports and steers company's product development projects, promotes a sustainable product lifecycle approach and ensures that every new product and service the company designs has a proven sustainability value proposition. The concept also ensures that UPM supports the UN Sustainable Development Goals (SDGs). The concept is used in the early stages of new product development, using a tool that UPM has developed to map its impact on the SDGs. As key tools in the concept, the company have also used Life Cycle Assessment (LCA) and carbon footprint to provide credible environmental data over the lifecycle. The concept has been used in existing business areas, and in the development of lignin and fibre based products. Joint workshops were held to support the implementation of the concept in all business areas. As a result of sustainable product design, UPM Biochemicals launched UPM Solargo™, a new range of bio-based plant stimulants. They support plant growth by improving the quality of the soil microbiome and increase drought stress tolerance of the plants. UPM has entered the large agrochemical market with an innovative, sustainable alternative to fossil-based products. UPM Biochemicals - Ramping up new business 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 the third-party-reviewed LCA. UPM's proposition to help brands defossilise its products has gained further traction in the market and has triggered wide-spread support across the key markets. In January 2020, UPM announced that it would invest in a 220,000 tonnes next-generation biochemicals refinery in Leuna, Germany. The estimated investment is EUR 1,275 million. The commissioning and start up was initiated in late 2024, and good progress has been made in most units. However, in the quality assurance checks, certain corrective works required in the sugars-to-chemicals process were identified. These works have been arranged and will take a few months. Meanwhile, the sequential start-up in the other units continues. The integrated commercial production of the site is expected to start in H2 2025. The

biorefinery is expected to reach full production and positive EBIT in 2027. The biorefinery will produce a range of 100% wood-based biochemicals, which will enable a switch from fossil raw materials to sustainable alternatives in various consumer-driven end-uses. The investment opens up totally new markets for UPM, with large growth potential for the future. The industrial scale biorefinery will convert solid wood into next generation biochemicals: bio-monoethylene glycol (BioMEG) and renewable functional fillers (RFF). In addition, the biorefinery will also produce bio-monopropylene glycol (BioMPG) and industrial sugars. The overall business readiness is ensured All teams, business processes and systems are operational. UPM has secured the required materials to start and run the refinery as well as the infrastructure and capacity to ship its products. The biorefinery is the first of its kind and the process design as well as some of the technologies used are new to the world. The combination of a sustainable wood supply, a unique technology concept, integration into existing infrastructure at Leuna and the proximity to customers will ensure the competitiveness of operations. The safety and sustainability of the value chain will be based on UPM’s high standards. Markets are responding very positively to company's new products as it has further stepped up our sales and marketing. This is visible in proactive endorsements through global consumer brands and a series of development partnerships in globally leading markets for sustainable chemicals. UPM has made strong progress in qualifying its products for key end-uses and has successfully launched commercial partnerships both for UPM BioMotion™ Renewable Functional Fillers (RFF) products and UPM BioPura™ renewable bio-monoethylene glycols (BioMEG). UPM Biofuels - Growth with advanced biofuels UPM’s renewable and sustainable biofuels help to mitigate climate change. Advanced biofuels reduce greenhouse gas emissions by more than 80% when compared to fossil fuels. In addition to decarbonising road transportation, UPM helps to defossilise various other industries by offering wood-based naphtha. Naphtha is the major raw material for most chemicals and plastics. UPM BioVerno™ naphtha is a drop-in solution for replacing fossil-based naphtha, thus allowing the production of sustainable chemicals and plastics. UPM's strategy is based on proprietary technology and UPM’s integrated feedstocks. Green growth opportunities UPM aims to become a major European player in the production of advanced biofuels. Markets continue 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 strategy. In January 2021, UPM started the basic engineering phase of a next-generation biofuels refinery. The planning for the potential biorefinery in Rotterdam, the Netherlands, is based on an annual capacity of up to 500,000 tonnes of high-quality renewable fuels including advanced biofuels and, possibly, sustainable jet fuels, as well as renewable chemicals. The products would significantly reduce the carbon footprint of road transport and aviation, as well as replace fossil raw materials with renewable alternatives in chemicals and bioplastics. UPM Biofuels initiated proceedings to qualify its renewable fuel as sustainable aviation fuel in 2023. The certification proceedings continued in 2024.

Innovation and R&D programmes are essential in the development of new products and technologies. Research and development expenses cover the development of new technologies, businesses and processes. In 2024, UPM spent EUR 488 million (EUR 538) million) on research and development, which accounted for 36.1% (23.7%) of the operating cash flow. In addition to direct R&D expenditure of EUR 70 (66) million, the figure includes negative operating cash flow and capital expenditure in developing businesses, transformative business prospects and digitalisation projects. The patents, trademarks and rights protecting UPM's innovations support the journey from innovation to business. The company has more than 3,700 patents and patent applications, and more than 1,900 trademarks globally. The licensing of innovations and technologies provides an excellent basis for value creation with customers and technology partners. Extensive partner network UPM's close-knit global partner network includes customers, universities, research organisations, suppliers and start-up companies. Collaboration speeds up the development and launch of new business solutions. The company's network includes the Circular Bio-based Europe Joint Undertaking (CBE JU), the European Chemical Industry Council (Cefic) and the Renewable Carbon Initiative (RCI). UPM is a member of the 4evergreen alliance, an initiative created by the Confederation of European Paper Industries (Cepi) to raise the overall recycling rate of fibre-based packaging to 90% by 2030. UPM is also a member of EUROPEN, the European association that strives towards achieving carbon neutrality in the packaging value chain. UPM wants to take part in the developments that reduce greenhouse gas and CO ₂ emissions. In 2024, the company participated in Hydrogen Cluster Finland in order to create new technologies, business opportunities and climate benefits throughout the network. It also joined a 5-year research programme led by VTT and RISE Research Institutes of Sweden on emission free pulping. The programme aims to significantly reduce biomass burning and increase the product yield from wood from UPM’s three research centres in Finland, China and Germany accelerate the development of bio-based products. The centres focus on research, piloting and analytics, enabling seamless collaboration with customers, value chain partners and research organisations such as universities. They work closely with UPM’s mills, businesses and business-specific research centres in various countries. In Germany, UPM has intensified biochemical R&D and piloting in several of its laboratories in connection with the biochemicals refinery. In Finland, the company's research centre in Lappeenranta concentrates on developing biomolecular businesses and advanced materials. In Uruguay, the focus is on piloting future pulp end-uses in close collaboration with UPM's forestry research centre specialising in eucalyptus plantations. Developing R&D competencies R&D supports UPM's growth and sustainability targets globally, enhances technology-triggered business opportunities and protects company's performance in existing businesses. UPM places a strong focus on the growth businesses and close collaboration with customers and production. approximately 50% to around 70%. Expanding R&D infrastructure