UPM General Brochure EN

AIMING HIGHER WITH BIOFORE

ENG

New middle class consumers in emerging economies and developing consumer behaviour globally will create significant new demand in the coming decades. This will raise the bar for businesses when it comes to responsibility, integrity and use of resources. Answering the consumer demand growth with sustainable and safe solutions provides limitless opportunities for UPM’s businesses today and in the future. Limitless opportunities of bioeconomy

Responsible operations and value chain

Purpose We create value by seizing the limitless potential of bioeconomy.

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Sustainable and safe solutions for global consumer demand

2030

2020

Innovation

High performing people

Sustainable forestry

Vision We lead the forest- based bioindustry into

Values

a sustainable, innovation- driven, and exciting future. The competence, integrity and drive of our people make us unique.

Trust and be trusted Achieve together Renew with courage

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UPM leads the forest-based bioindustry into a sustainable, innovation-driven, and exciting future across six business areas. We provide sustainable and safe solutions to the growing global consumer demand. Our products are made of renewable and biodegradable raw materials and are recyclable.

Biofore Company

UPM BIOREFINING

UPM ENERGY

UPM RAFLATAC

SELF-ADHESIVE LABELS 4%

PULP 3%

TIMBER 2%

ELECTRICITY 1%

MARKET DEMAND GROWTH, % PA

BIOFUELS

STRONG GROWTH

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UPM’s sales by market 2017 EUR 10,010 million

13% North America

62% Europe

20% Asia

5% Rest of the world

19,100 employees in 46 countries

12,000 customers in 120 countries 54 production plants in 12 countries

90,000 shareholders in 35 countries 25,000 b-to-b suppliers in 75 countries

UPM SPECIALTY PAPERS

UPM PAPER ENA

UPM PLYWOOD

OTHER OPERATIONS

LABEL PAPERS 4%

OFFICE PAPERS 4%

PLYWOOD, VENEER 3%

WOOD SOURCING AND FORESTRY BIOCHEMICALS BIOCOMPOSITES

GRAPHIC PAPERS –4%

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UPM Strategy – Aiming higher

We create value by seizing …

Performance

Growth

> Continuous improvement

> Earnings growth

• Sustainable and

• Commercial excellence • Cost efficiency • High-performing people • Efficient use of assets and capital

safe solutions for growing global consumer demand

• Growth projects

with attractive and sustainable returns

• Talent attraction

Portfolio

> Develop businesses with strong long-term fundamentals and sustainable competitive advantage

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… the limitless potential of bioeconomy

Innovation

Responsibility

> Continuous improvement

> Growth and competitiveness

• New businesses,

• Renewable, recyclable and safe products • Responsible operations and value chain • Value-based leadership • Compliance

products and technologies • Product, service and process development • Development of capabilities

• Transformative projects, synergistic M&A if opportunity and timing are right • Capitalise on corporate benefits and synergies • Disciplined and effective capital allocation and strong balance sheet

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Moving forward

Focused growth projects Completed by the end of 2017 • Kymi pulp mill expansion, Finland • Raflatac expansion, Poland Construction stage • Kaukas pulp mill expansion, Finland • Raflatac expansion, Finland • Jämsänkoski label papers expansion, Finland • Chudovo plywood mill expansion, Russia Feasibility study • Nordland PM2 conversion from fine papers to label papers, Germany

UPM aims higher with continued transformation and earnings growth.

Increasing share of businesses with strong long-term fundamentals for profitability and growth

Specialty papers +360,000 t

Pulp +70,000 t

Pulp +100,000 t

Pulp +170,000 t

Label stock expansions

Renewable diesel +120m litres

FOCUSED

INVESTMENTS

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14

15

420,000 t magazine 160,000 t fine

460,000 t magazine 345,000 t news

CAPACITY CLOSURES AND DIVESTMENTS

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Transformative prospects

Possible new pulp mill, Uruguay • UPM and the Government of Uruguay signed an agreement on local prerequisites for a possible new pulp mill. Infrastructure

Biomolecules businesses • Basic engineering study started regarding a potential industrial-scale biochemicals refinery, Germany • Exploring next steps in biofuels

projects and the pre- engineering of the mill in progress.

Pulp mill efficiency improvement

Specialty labels expansion

Pulp +170,000 t

Specialty papers +40,000 t

Plywood +40,000 m 3

Label stock expansion

Pulp +30,000 t

Plywood +45,000 m 3

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17

18

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280,000 t news

305,000 t magazine

195,000 t magazine

128,000 t magazine

Hydropower

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Key performance indicators

Top performance Comparable EBIT EUR 1,292m +13% Comparable ROE 11.9% +1.0pp

Five years of cumulative cash flow — disciplined capital allocation.

5/6 business areas achieved their financial targets

Group earnings growth The aim is to grow comparable EBIT over the long term. Strong cash flow Enables focused growth investments and focused M&A, new business development and attractive dividends to UPM shareholders. Industry leading balance sheet Mitigates risks and enables UPM to develop its business portfolio, when the opportunities and timing are right. Responsibility is good business Good governance, industry leading environmental performance, responsible sourcing and a safe working environment are important sources of competitive advantage. Attractive dividend UPM aims to pay an attractive dividend, 30–40% of the company’s annual operating cash flow per share.

www.upm.com/investors

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Strong cash flow Operating cash flow EUR 1,558m –8%

Attractive dividend Dividend (proposal) EUR 613m +21%

Net debt reduction EUR 957m –85%

Industry-leading balance sheet

Net debt/EBITDA 0.11x

Focused investments Capital expenditure EUR 329m attractive returns with disciplined and effective investments

% Comparable ROE Target: 10%

EURm Comparable EBIT

12 10

1,500

Target: EBIT growth

1,200

8 6 4 2 0

900

600

300

0

12 13 14 15 11 Comparable figures for 2014–2017, excluding special items for earlier years

17 16

11

12 13 14 15

17 16

Net debt and net debt to EBITDA

EUR per share Cash flow-based dividend

%

EURm

1.15 *)

1.2 1.0 0.8 0.6 0.4 0.2 0

120 100

5,000

5

4,000

4

80 60 40 20 0

3,000

3

2,000

2

1,000

1

0

0

11

12 13 14 15

17 16

08

11 10 09

12 13 14 15 16 17

% of operating cash flow per share * ) 2017: Board’s proposal

■ Net debt Net debt to EBITDA

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UPM’s business portfolio in figures

Comparable EBIT 2017 EUR 1,292 million

Other operations 3%

UPM Plywood 5%

UPM Paper ENA 18%

UPM Biorefining 45%

UPM Specialty Papers 12%

UPM Raflatac 10%

UPM Energy 7%

Capital employed 31 Dec 2017 EUR 9,777 million

Other operations 12% UPM Plywood 3%

UPM Biorefining 32%

UPM Paper ENA 16%

UPM Specialty

Papers 9%

UPM Raflatac 5%

UPM Energy 23%

UPM’s personnel by business area 2017

Other operations 3%

UPM Biorefining 14%

UPM Plywood 13%

UPM Energy 0%

UPM Raflatac 17%

UPM Paper ENA 43%

UPM Specialty

Papers 10%

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Business area returns and long-term targets

ROCE %* ) UPM Biorefining

ROCE %* ) UPM Energy*** )

18.2

14.6

12.6

10.6

7.6

6.9 6.5 6.7

5.0 4.0

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14 15 16 17

13

14 15 16 17

■ Long-term return target

■ Long-term return target

UPM Specialty Papers * ) ROCE % = Return of capital employed excluding items affecting comparability. ** ) Free cash flow after investing activities (investments and/or divestments) and restru *** ) Shareholdings in UPM Energy valued at fair value. FCF/CE %** ) UPM Paper ENA ROCE %* ) 31.0

24.3

17.2

12.9

12.6

12.1

9.1

5.5

4.6

4.7

13

14 15 16 17

13

14 15 16 17

■ Long-term return target

■ Long-term return target

UPM Plywood ROCE %* )

UPM Raflatac ROCE %* )

27.2

25.5

23.1

22.6

20.9

17.6

16.5

15.0 14.1

7.3

13

14 15 16 17

13

14 15 16 17

■ Long-term return target

■ Long-term return target

■ Pitkän aikavälin tuottotavoite * ) ROCE % = Return of capital employed excluding items affecting comparability. ** ) Free cash flow after investing activities (investments and/or divestments) and restructuring costs. *** ) Shareholdings in UPM Energy valued at fair value. Long-term retur target

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UPM Biorefining

In the UPM Biorefining business area, UPM combines integrated production of pulp, sawn timber and biofuels with a supply chain for wood raw material. The pulp business also includes plantations in Uruguay.

UPM PULP AND TIMBER VALUE CREATED

Multi-fibre pulp product offering Certified stable quality timber offering Reliable deliveries World-class technical service close to customer

Best-in-class sustainability offering Responsible and competitive sourcing Modern and efficient production

PULP • Tissue, board, speciality and graphic paper producers TIMBER • Furniture, joinery industries, construction, planing and packaging

CUSTOMERS

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www.upmpulp.com www.upmbiofuels.com www.upmtimber.com

UPM BIOFUELS VALUE CREATED Advanced renewable diesel and naphtha Competitive and sustainable non-food feedstock Infrastructure synergies

Sustainability leader in biofuel solutions

• Oil refiners and blenders • Distributors and retailers • Dedicated heavy-duty fleets • Marine fleets

CUSTOMERS

• Traffic fuels (diesel, gasoline) • Petrochemicals (bioplastics)

OUTCOMES

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UPM Energy

UPM Energy creates value through cost competitive, low-emission electricity generation and through physical electricity, financial trading and optimisation services for industrial consumers.

www.upmenergy.com

UPM ENERGY VALUE CREATED

HYDROPOWER Renewable Flexible Low cost Low emissions

NUCLEAR POWER Reliable baseload Cost competitive Low emissions

Electricity sales for day-ahead and intraday markets

Hedging activities in financial markets Active owner in co-owned companies

Centre of excellence for energy services

WHOLESALE MARKET

• Electricity and services to industrial-scale power consumers • Electricity to small and

medium-sized enterprises • Electricity to households

END USES

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UPM Raflatac

UPM Raflatac manufactures self-adhesive label materials for product and information labelling in the food, beverage, personal care, pharmaceutical and retail segments, for example.

www.upmraflatac.com

UPM RAFLATAC VALUE CREATED

Global customer reach with sales and service Efficient and accurate supply chain, responsive distribution network Modern, efficient and strategically located label stock factories

Technical know-how, product development

• Label printers • Brand owners

END USES CUSTOMERS

• Home and personal care • Food and beverages • E-commerce and retail • Transport and logistics • Pharmaceutical • Industrial, durables

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UPM Specialty Papers

UPM Specialty Papers manufactures label papers, release liners, office papers and flexible packaging for labelling, packing, wrapping and printing.

www.upmspecialtypapers.com

UPM SPECIALTY PAPERS VALUE CREATED Reliable supplier Extensive experience and insight in labelling materials Global market leader in labelling materials Leading office paper brands in China Recognised leader in sustainability Extensive distribution network in Asia-Pacific Cost-efficient production

• Label stock manufacturers, commercial siliconisers • Converters • Merchants and distributors

• Printers and publishers CUSTOMERS

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UPM Paper ENA

UPM Paper ENA offers an extensive product range of graphic papers for advertising and publishing as well as home and office uses.

www.upmpaper.com

UPM PAPER ENA VALUE CREATED Industry-leading, wide product range Customer focus and services Leading, reliable and committed supplier Market-based, global sales World-class technical service Common operational platform for production, supply chain and sales Efficient and cost-competitive production

Environmental and technical expertise

• Direct marketing • Advertising

• Magazine publishing • Newspaper publishing • Home and office

END USES

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UPM Plywood

UPM Plywood offers plywood and veneer products, mainly for construction, vehicle flooring and LNG shipbuilding as well as other manufacturing industries.

www.wisaplywood.com www.upmgrada.com www.wisabiobond.com

UPM PLYWOOD VALUE CREATED Thorough customer insight Professional technical services, supply chain services High-quality, reliable supplier Wide distribution and customer service network Leading supplier in demanding end uses Strong brand Efficient and competitive production Renewable energy production

• Construction • Vehicle flooring • LNG shipbuilding • Parquet • Other industrial manufacturing

END USES

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Wood Sourcing and Forestry

UPM Wood Sourcing and Forestry sources wood raw material for use in sustainable and recyclable UPM products. The company owns 570,000 hectares of forestry land in Finland and 75,000 hectares in the USA. All of UPM’s forests are certified according to the FSC ® and/or PEFC™ certification schemes.

www.upmmetsa.fi (fin) www.uusimetsanomistaja.fi (fin)

VALUE CREATED Responsibility Supply chain management Principles of sustainable forest management Professional management of over a million hectares of private forests Safeguarding forest biodiversity

• Wood trade and selling wood • Forest regeneration • Seedling stand management • Forest plan • New generations in forest estates

SERVICES

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Evolution of wood usage

Trees

UPM’s new wood-based businesses are based on the company’s extensive know-how and strong position in forest biomass processing. Biofuels and biochemicals are natural evolutionary steps in wood-based value creation.

www.upm.com/innovation www.upmbiofuels.com www.upmbiochemicals.com www.wisabiobond.com

www.upmprofi.com www.upmformi.com

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Biofuels Biochemicals

Biomolecules

Pulp Paper Packaging Tissue Labelling materials Biocomposites

Fibres

Sawn timber Plywood

Logs

Energy

BIOFUELS Significantly reduce fossil greenhouse gas and tailpipe emissions • Renewable diesel fuel suitable for all diesel engines • Renewable naphtha that can be used as a biocomponent for gasoline or as a raw material for bioplastics BIOCHEMICALS • Biochemicals replace oil-based products. Applications include: Textiles, bottles, packaging, anti-freeze agents, composites, cosmetics, pharmaceutical products and detergents • Medical products, such as GrowDex, a wood-based hydrogel for 3D cell culturing and other biomedical applications • Lignin products replace oil-based products and can be used in, e.g., resins, plastics, foams and coatings BIOCOMPOSITES replace oil-based materials • UPM ProFi outdoor products for building and construction • UPM Formi granulates

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Sustainable and safe products to increase global consumer demand

Value for all stakeholders through products and innovations • New businesses, products and operating methods • Product stewardship • A diverse and inclusive working environment • Local commitment

Competitive advantage through resource efficiency • Safe working conditions • Learning and development • Efficient use of materials and reducing the amount of waste

Responsible leadership • Ethical business practices • Responsible sourcing • Respect for human rights • Sustainable land use and diversity

UPM Code of Conduct and UN’s Sustainable Development Goals (SDGs) as guidelines

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Our way of operating • Renewable and biodegradable raw materials and recyclable materials • New wood-based businesses • Engaged and high-performing people • Value-based leadership • Community involvement • Local presence • Circular economy solutions • Resource efficiency • Low emission energy • Ecodesign • Material efficiency • Governance and compliance • Environmental labels • Sustainable forest management • Responsible water use • Recycling solutions

www.upm.com/responsibility www.upmbiofore.com

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Responsibility consists of values, commitment and actions

• Sustainable and safe products • Responsible operations and value chain • Value-based leadership • Compliance

Industry leader in responsibility Our consistent efforts regarding responsibility issues have received recognition from several third parties and have made us one of the industry leaders in several fields.

UN Global Compact LEAD: UPM is the only forest-industry company and Finnish company participating in the UN Global Compact LEAD. Dow Jones Sustainability Index: UPM has been listed as the industry leader in the forest and paper sector in the Dow Jones Sustainability World and Europe Indices (DJSI) for 2017–2018. CDP Programs: UPM has been recognised with a global leadership position in the 2017 Forest A List and Water A List. UPM received an A- leadership position in the CDP Climate programme. UPM Biofuels won the Industry Leadership category in Bioenergy at the 2017 Platts Global Energy Awards — often described as the Oscars of the energy industry.

Global Compact LEAD

The Nordic Bioeconomy Panel included UPM BioVerno renewable diesel and GrowDex ® 3D cell hydrogel in the Nordic Bioeconomy 25 Cases for Sustainable Change catalogue.

UPM’s Zero Solid Waste to Landfill initiative received the Gold Award in the Midwest Region Sustainability competition.

Water Efficiency Frontrunner: UPM has been recognised as a Water Efficiency Frontrunner in China, in one of the key initiatives launched by the government to reduce industrial emissions.

www.upm.com/responsibility

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Forests are full of life and opportunities

TAVOITTEET 2030

Renewable and recyclable solutions

Conducting business responsibly

Respecting and engaging people

Thinking circular is thinking smart

Safe and sustainable solutions

Follow us online at www.upm.com, www.upmbiofore.com

Twitter: @UPMGlobal, www.twitter.com/UPMGlobal Facebook : UPMGlobal Youtube : upmdotcom WeChat: upmgroup Instagram : upmbiofore LinkedIn: UPM-Kymmene Subscribe to our press release: www.upm.com/media

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www.upm.com www.upmbiofore.com

Cover: UPM Finesse silk 250 g/m², pages: UPM Finesse silk 130 g/m². Printed 03/2018. Copyright: UPM-Kymmene Corporation.