UPM annual report 2014

UPM Biorefining

WOOD-BASED UPM BIOVERNO IS SUITABLE FOR ALL DIESEL ENGINES

BUSINESSES 15–30

UPM’s renewable diesel fuel, UPM BioVerno, is an exceptional innovation. It is produced from crude tall oil, a residue of UPM’s own pulp production. The high quality wood-based renewable diesel reduces greenhouse gas emissions significantly compared to fossil diesel fuel, and does not compete with food production. UPM BioVerno is manufactured in Lappeenranta, Finland. The production supports the local economy and improves self-sufficiency in traffic fuels. UPM BioVerno is compatible with all diesel engines in passenger cars, buses and trucks – without modification. In Finland, UPM BioVerno is available in St1 and ABC service stations. UPM BioVerno has been granted the Finnish Key Flag Symbol, which guarantees the Finnish origins of a product. It has also received international awards, such as the EU Sustainable Energy Europe 2014 Award, granted by European Commission. UPM BioVerno diesel has been granted certificates for sustainable sourcing, production and product safety. The certifications verify that the fuel has been produced according to the EU directive on renewable energy, taking into account environmental, social and transparency aspects.

FIBRE UNITED, UNIQUE COLLABORATION

In June, UPM received an increased produc- tion permit for the UPM Fray Bentos pulp mill in Uruguay, entitling the mill to increase its production from 1,200,000 tonnes to 1,300,000 tonnes. To achieve this, minor investments were carried out during Q4 2014. Debottlenecking potential has also been identified at the UPM Kaukas mill. UPM has consistently developed its pulp business with a unique sales and marketing network providing customers with a multi-fibre pulp product range directly from producers to the global market. Pulp has a wide range of end uses with different features and quality require- ments, and selecting the most suitable fibres provides clear benefits. UPM’s own pulp sales and technical service experts locate strategically close to customers and in each mill. This model provides the customer with fast service and support. UPM Pulp and Canadian-based Canfor Pulp’s sales and marketing co-operation started strongly in all its markets in 2014. Customers are able to choose from the most versatile range of pulp available on the global market in combination with world-class technical service. As of the beginning of 2014, UPM’s sales network has represented and co-marketed Canfor Pulp’s products in Europe and China, while Canfor Pulp’s sales network has represented and co-marketed UPM Pulp in North America and Japan. Based on customer feedback, customers have benefited from direct access to a broader product offering for every end use, enhanced product quality and improved business planning. During the first year of co-operation, former sales channels were replaced, sales personnel were trained and product information was shared. Further benefits are expected to achieve from the technical and logistics co-operation. The co-operation includes six pulp grades and approxi- mately one million tonnes of pulp sales from eight mills on three continents. Read more: www.upmpulp.com

Risto Kotilainen (left), Hannu Kykkänen and Thomas Björklöf cheer after the start-up of the UPM Lappeenranta Biorefinery.

role in the wood supply chain, as their by-products are used in the production of pulp and energy. In UPM Biorefining, UPM benefits from efficient use of sustainable wood raw materi- als and integrated production. Business development In 2014, UPM proceeded with efforts to increase pulp capacity through debottlenecking invest- ments, and to improve the efficiency of mill integrates in order to release the full poten- tial of production assets. As part of UPM’s growth

Read more: www.upmbiofuels.com

Markets and drivers • Chemical pulp demand is growing globally by approximately 2-3% annually, driven by growth in private consumption. In 2014, global market shipments increased by 2% compared to the previous year. • In mature markets, consumption is driven by an increasing use of hygiene, packaging and speciality products. In developing markets, growth is also underpinned by middle class expansion and fast urbanisation. • Demand for hardwood pulp grows faster than for softwood pulp due its end-use qualities and lower production costs. • The global hardwood pulp production capac- ity is growing, primarily through new produc- tion line installations entering the market. The softwood pulp market has remained in balance thanks to limited capacity additions. • Chemical pulp demand is also supported structurally as the graphic paper segment supplies fewer white recycled fibres for the growing tissue and speciality segments. Older pulp capacity has been closed down for finan- cial and environmental reasons. • Demand for biofuels is growing due to stricter environmental standards and sustainability requirements. The share of advanced biofuels in increasing.

In January 2014, UPM strengthened its fibre offering through a strategic sales and marketing co-operation with Canfor Pulp Products Inc. This co-operation provides customers with the most versatile range of northern softwood, birch, euca- lyptus and mechanical pulp available on the global market, in

As a product, UPM BioVerno has been extensively tested in engine tests and fleet tests, and has been found to function like any regular diesel. Due to the high quality, there are no technical blending limits. UPM BioVerno is also a sustainable alternative – it ensures a considerable reduction in greenhouse gas emis- sions, and is refined from a sustainable raw material, a residue from pulp production. UPM BioVerno is a competitive alternative to provide the renewable component in traffic fuels, and is well-positioned among the few existing advanced biofuel alternatives available on the market. In sawn timber, UPM proceeded with meas- ures targeting improved operational efficiency, and focused sales and supply chain manage- ment. As an example, the modernisation of the sticking machine at the Alholma sawmill increased production efficiency.

projects, it is targeting a 340,000 tonne increase in existing pulp production capacity with invest- ments of approximately EUR 200 million. These projects are primarily production debottle- necking investments and estimated to be value enhancing at low risk. The modernisation of one fibre line at the UPM Pietarsaari pulp mill was completed in June. The investment of EUR 13 million increased the mill’s production flexibility in terms of the use of wood raw materials, as well as the mill’s capacity to gradually grow by 70,000 tonnes. In February, UPM announced EUR 160 million investment in its Kymi pulp mill, com- prising a new pulp drying machine, modernisa- tion of the softwood fibre line, a new barking line, as well as improvements to the energy balance of the Kymi integrate. The investment will increase the mill’s production capacity by 170,000 tonnes and advance the decoupling of UPM’s pulp and paper operations. The invest- ment is expected to be completed by the end of 2015.

combination with world-class technical service. As part of UPM’s growth projects, commis- sioning of the UPM Lappeenranta Biorefinery proceeded well during the second half of 2014 and commercial production of UPM BioVerno, its advanced renewable diesel, started in Janu- ary 2015. The focus is on commercialising the investment and developing UPM’s proprietary technologies for broader raw material use. In June, UPM published a sales agreement for UPM BioVerno renewable diesel with NEOT (North European Oil Trade). NEOT specialises in oil and biofuels wholesale to service stations such as St1 and ABC. UPM BioVerno is distributed to Finnish service stations and the annual production of UPM BioVerno will cover nearly a quarter of Fin- land’s 20% renewable energy target for trans- port in 2020.

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UPM Annual Report 2014

UPM Annual Report 2014