UPM – the Biofore Company Investor Presentation, May 2019

UPM – The Biofore Company Investor Presentation, May 2019

1 | © UPM UPM UPM UPM UPM UPM UPM UPM BIOREFINING ENERGY RAFLATAC SPECIALTY COMMUNICA- PLYWOOD BIOCOMPOSITES PAPERS TION PAPERS UPM ProFi ® UPM Formi ® Pulp Hydro-, nuclear- Label materials Fine and specialty Extensive product WISA® Plywood UPM Formi 3D® Plantations and condensing power for product and papers in China range of graphic and veneer products (incl. shares in energy information labelling and APAC papers for advertising ® Biofuels UPM Grada UPM companies) Labelling material and publishing wood material BIOCHEMICALS Sawmills Electricity production globally as well as home Wood-based biochemicals Wood Sourcing and trading and office uses Packaging papers for variety of industrial uses

and Forestry Optimisation services mainly in Europe UPM BUSINESSES UPM UPM BIOMEDICALS GrowDex®

2 | © UPM Global businesses – local presence

UPM’s sales by market EUR 10,483 million production 54 plants in 12 countries

62% 19,000 employees in 46 countries 12% Europe North America 20% Asia 12,600 customers in 110 countries

99,600 shareholders in 32 countries 6% b-to-b- Rest of the world 24,000 suppliers in 75 countries

3 | © UPM Sustainable and safe products for everyday use PULP AND BIOFUEL BASED MATERIALS TIMBER ELECTRICITY for packaging, transport, PUBLICATION PAPERS for construction everywhere storage and hygiene for reading and products advertising

LABEL MATERIALS for food packaging, LABELS drink bottles and for for food products communicating information

SPECIALTY PAPERS for food packaging

WOOD MATERIALS for construction and design features OFFICE PAPERS WOOD for printing MATERIALS for furniture and the home

4 | © UPM Driven by sustainable solutions for a future beyond fossils

PLYWOOD GRAPHIC AND ELECTRICITY AND SAWN TIMBER OFFICE PAPERS everywhere for construction and for advertising and industrial applications home and office uses

PLYWOOD for vehicle flooring BIOCOMPOSITES for various outdoor and building material uses PULP AND RENEWABLE BIOFUELS SPECIALTY PAPERS for all diesel engines for packing materials LABEL MATERIALS for information and product labelling

5 | © UPM Operating on healthily growing markets

UPM PLYWOOD Comparable EBIT by Plywood, veneer ~3% business area 2018 EUR 1,513m UPM COMMUNICATION PAPERS Graphic papers ~ –5%

UPM SPECIALTY PAPERS UPM BIOREFINING Label papers, high-end Pulp ~3% office papers ~4% Biofuels strong Timber ~2% UPM RAFLATAC Self-adhesive labels ~4%

UPM ENERGY Electricity ~1% Market demand trend growth, %

6 | © UPM 2030 Limitless opportunities Sustainable and safe solutions of bioeconomy for global consumer demand

2020

Innovation

Responsible operations and Circular economy A FUTURE BEYOND FOSSILS value chain

High performing people

Sustainable forestry Biofore strategy

WE CREATE VALUE BY SEIZING THE LIMITLESS POTENTIAL OF BIOECONOMY

PERFORMANCE GROWTH INNOVATION RESPONSIBILITY

STRONG LONG-TERM FUNDAMENTALS FOR DEMAND GROWTH AND HIGH BARRIERS TO ENTRY

8 | © UPM Spearheads for growth

9 | © UPM UPM in transformation

2008 2018 Operating model vertically integrated six separate Promotes value creation paper company businesses

100 % 100 % Sales Communication Business portfolio Papers 80 % 80 % Plywood Increasing share of businesses with Paper Energy strong long-term fundamentals for 60 % 60 % profitability and growth Plywood Specialty Papers 40 % 40 % Raflatac Raflatac 20 % 20 % Sawmilling Biorefining Others 0 % 0 %

Sales EUR 9.5bn EUR 10.5bn Business performance EBIT *) EUR 513m EUR 1,513m Continuous improvement in financial, ROE *) 3.5% 12.9% social and environmental performance

Net debt EUR 4.3bn EUR -0.3bn Disciplined capital allocation Market cap EUR 4.7bn EUR 11.8bn Driving value creation *) excluding special items for 2008, comparable figures for 2018

10 | © UPM UPM current investment portfolio for earnings growth

Focused growth projects Transformative prospects • Chudovo plywood mill expansion Possible new 2mt pulp mill, Uruguay +45k m3 in Q3 2019, Russia • Second preparation phase ongoing: the port concession awarded, mill engineering, design, • Nordland PM2 conversion to release tendering and permitting processes proceeding, liner free-trade zone granted. • Pending: Central Railway PPP project, labour +110kt in Q4 2019, Germany protocols and conflict mitigation regulation and • Changshu release liner expansion certain material outstanding items specified in the IA. +40kt in Q1 2020, China Molecular bioproducts, possible biorefineries • Basic engineering completed for a potential 150kt • Kuusankoski hydropower refurbishment biochemicals refinery in Germany. Final site in Q4 2022, Finland assessment and commercial studies ongoing. • Environmental impact study completed for a potential 500kt biofuels refinery in Finland. Ambition to scale-up with a next generation biorefinery, development ongoing into next year. 11 | © UPM Business area returns and long-term targets

UPM UPM UPM UPM Communication UPM Energy Biorefining Specialty Papers Papers Plywood UPM Raflatac 30 30 30 30 30 30 ROCE % *) ROCE % ROCE% FCF/CE % ROCE % ROCE % 28 28 28 28 28 28 26 26 26 26 26 26 24 24 24 24 24 24 22 22 22 22 22 22 20 20 20 20 20 20 18 18 18 18 18 18 16 16 16 16 16 16 14 14 14 14 14 14 12 12 12 12 12 12 10 10 10 10 10 10 8 8 8 8 8 8 6 6 6 6 6 6 4 4 4 4 4 4 2 2 2 2 2 2 0 0 0 0 0 0

) * shareholdings in UPM Energy Long-term return target valued at fair value

12 | © UPM Group financial performance

EURm Comparable EBIT % Comparable ROE Net debt Net debt Net debt/ EURm and leverage EBITDA (x) 1 600 14 4 500 3,0

1 400 12 Target: EBIT growth 3 750 2,5 Target: 10% 1 200 10 3 000 2,0 1 000 Policy: ≤ 2x 8 800 2 250 1,5 6 600 1 500 1,0 4 400 750 0,5 200 2

0 0 0 0,0 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

-750 -0,5

13 | © UPM 5-year cumulative cash flow (2014–2018) – efficient capital allocation in action

Attractive dividend Strong operating cash flow EUR 2.2bn EUR 6.9bn Industry-leading Deleveraging balance sheet EUR 2.8bn Net debt/ EBITDA ~ 0x

Focused investments EUR 1.9bn

14 | © UPM Illustrative capital allocation *) for the next 5 years, assuming the Uruguay pulp mill investment

Performance focus Attractive dividend Strong cash flow EUR ~3–4bn Industry-leading balance sheet

Net debt/ EBITDA High return < 2x investments EUR ~3–4bn Maintain headroom

*) This is not a forecast

15 | © UPM Dividend for 2018: 13% increase

EUR % of operating per share cash flow per share 1,60 80 Long term dividend policy 1,40 70 • UPM aims to pay an attractive dividend, 1,20 60 30–40% of operating cash flow per share

1,00 50 Dividend for 2018 0,80 40 • EUR 1.30 (1.15) per share,

0,60 30 totalling EUR 693m • 50% of 2018 operating cash flow 0,40 20

0,20 10

0,00 0 2013 2014 2015 2016 2017 2018

16 | © UPM Low investment needs in existing assets allow growth projects with modest total capex

Capital expenditure EURm Estimate Focused growth investments 1 200 ✓ High returns and fast payback

1 000 Myllykoski ✓ Low implementation risk acquisition ✓ Financed from operating cash flow 800 Low replacement investments 600 Uruguay Depreciation acquisition ✓ Asset quality in all businesses, e.g. large competitive pulp mills 400 Strategic investments 350*) 303 ✓ UPM Communication Papers 200 Operational investments Modest total capex 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E and attractive returns

*) Excluding potential transformative prospects 17 | © UPM Value from responsibility

Compliance Renewable, recyclable and safe products • Responsible business practises • Renewable and biodegradable raw • Decision making, management and materials and recyclable products operations guided by our values and UPM Code of Conduct • Product stewardship • Reliable, credible and • Open and transparent product transparent reporting communications

Responsible operations Value based leadership and value chain • Safe and healthy working environment • Material efficiency and and wellbeing of employees circular economy thinking • Value-based and inspiring leadership • Climate solutions and working • Diversity and inclusion towards carbon neutrality • High performance and continuous • Diversity and inclusion professional development of employees • Responsible water use • Local commitment • Sustainable land use • Respecting human rights

18 | © UPM Our consistent efforts on responsibility have received recognition globally

• UN Global Compact LEAD

• Dow Jones Sustainability Index

• RobecoSAM’s Sustainability Yearbook

• CDP Programs

19 | © UPM Q1 2019: UPM continues to grow sales and earnings

Comparable EBIT EURm 450 • Sales grew by 7% to EUR 2,693 million 400 374 (2,512 million in Q1 2018) 355 350 • Comparable EBIT increased by 5% to 300 EUR 374m (355m) 250 • Sales prices were higher, outweighing the 200 impact of increased variable costs 150

• Operating cash flow was EUR 320m (214m) 100

• Net debt decreased to EUR –5m (41m) 50

20 | © UPM Comparable EBIT in Q1 2019

Sales prices higher, outweighing the impact of Lower increase in fair value of forests, depreciation higher. increased variable costs. Deliveries increased. Fixed costs lower and variable costs higher, partly due to seasonal factors.

600 600

Deliveries Fixed Currency, 500 500 costs net Fixed Currency, impact net 404 costs 374 14.8% Deliveries 374 impact Variable 400 355 13.9% 400 13.9% 14.1% Prices costs Variable Depreciation, Depreciation, costs Prices forests, forests, 300 plantations, 300 plantations, other other

200 200

100 100

0 0 Q1/18 Q1/19 Q4/18 Q1/19

21 | © UPM Comparable EBIT by business area

EURm UPM Biorefining % of sales EURm UPM Communication Papers % of sales EURm UPM Specialty Papers % of sales 280 35 60 15 120 15 240 30 50 12,5 100 12,5 200 25 40 10 80 10 160 20 30 7,5 120 15 60 7,5 20 5 80 10 40 5 10 2,5 40 5 20 2,5 0 0 0 0 0 0

-20 -2,5

EURm UPM Plywood % of sales EURm UPM Energy % of sales EURm UPM Raflatac % of sales 60 18 60 60 60 15

50 15 50 50 50 12,5

40 12 40 40 40 10

30 9 30 30 30 7,5

20 6 20 20 20 5

10 3 10 10 10 2,5

0 0 0 0 0 0

22 | © UPM Q1 2019: favourable demand in most businesses, operationally a successful quarter

UPM BIOREFINING UPM SPECIALTY PAPERS • Average pulp prices in euros +6% • Deliveries +2% • Pulp deliveries +8% • Good customer demand for label materials, • Good customer demand for pulp, biofuels, timber solid customer demand for fine papers in Asia • Operationally a successful quarter • Cost reduction, growth and product development initiatives to restore profitability

UPM COMMUNICATION PAPERS UPM RAFLATAC • Average paper price +14% • Sales grew by 15%, driven by increased • Deliveries -6% sales prices and higher deliveries vs. low • Measures to continuously improve cost comparison base competitiveness and adapt capacity to the • Customer demand growth continued profitable customer demand • Fixed cost reduction programme started

UPM ENERGY UPM PLYWOOD • Average electricity sales price +16% • Price increases offset the higher variable costs • Electricity deliveries -8% • Deliveries -6% • Dry weather limited hydropower generation • Solid market demand continued

Comparisons y-o-y 23 | © UPM Outlook for 2019

The global economic growth is estimated to continue in 2019, albeit at a slower pace than in 2018. There are, however, significant uncertainties related to this, including trade negotiations between China and the US, growth in China, the undefined nature of Brexit and political uncertainties in several countries. These issues may have an impact on the global economic growth and on UPM’s product and raw material markets during 2019. UPM reached record earnings in 2018. UPM’s business performance is expected to continue at a good level in 2019. In 2019, favorable demand is expected to continue for most UPM businesses. Demand decline is expected to continue for UPM Communication Papers. In the early part of 2019, pulp prices are expected to be lower and graphic paper prices in Europe higher than in Q4 2018. Input costs are expected to stabilise after the significant increases seen in 2018. UPM will continue measures to reduce both variable and fixed costs. Fair value increases of forest assets are not expected to contribute materially to comparable EBIT in 2019.

24 | © UPM Developing our forest assets

• Investing in strategic forest assets, e.g. in Uruguay • Releasing capital from forests far from our mills • Productivity with active management and nurseries • Strong commitment to sustainability

UPM forests and plantations 2008 2018 Area distribution Forest and plantation land (own and rented) (1,000 ha) 1,012 971 8% 8% US

Forest growth (million m3) 4.3 8.8 90% 53% Finland Wood sourced from UPM forests and plantations (million m3) 2.2 4.6 39% Uruguay Value of forests and plantations, including land (EURm) 1,270 2,514

2008 2018

25 | © UPM UPM Biorefining Market pulp consumed in growing end-uses – supply of alternative white fibres declines

Growing end-uses of white fibre

Based on Tissue & fluff white fibre Graphic papers 10 % 29 % Based on Specialty Other 11 % 60% white fibre 40% brown fibre Based on Containerboard brown fibre 38 % Cartonboard 12 %

Total fibre consumption (2016): 423 million tonnes

26 | © UPM UPM Biorefining Demand-supply drivers of pulp market

Short term Long term Sustainable, renewable and recyclable Food product safety End use Population growth demand Replacing plastics Urbanisation Middle class expansion Regulation Aging demography Demand and product Re- and E-commerce standards destocking of Decline of e.g. RCP inventories graphic paper production and scarcity of recycled fibre Capacity Availability of Supply closures competitive Maintenance Conversions mill locations stoppages Consolidation Plantations, sustainable Production wood raw material issues Water availability New mill Infrastructure starts Debottleneck investments

27 | © UPM UPM Biorefining Pulp demand outlook

Global consumption of end-uses Global consumption of fibres in million tonnes in million tonnes

500 500 Growing white Graphic Decline in graphic White papers papers virgin fibre end-uses 400 400 virgin overcome decline fibre Tissue & in graphic paper fluff Growth in tissue, 300 300 White Dwindling white RCP Specialty hygiene, specialties RCP availability Brown Carton- and packaging virgin 200 board 200

Brown Strong demand for 100 Container Strong growth 100 -board in containerboards RCP brown fibre

0 0 2005 2015 2025 2005 2015 2025

28 | © UPM UPM Biorefining Few decided projects coming on stream in the short-term

Entry of market bleached pulp capacity ’000 t/a Completed projects Decided projects 7 000 Min. construction 6 000 time span 5 000 4 000 Lack of decided 3 000 pulp projects 2 000 1 000 0 -1 000 ? ? ? -2 000 5-year-average Exits take place -3 000 exit rate -4 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Exits New mill/line Other expansion Decided projects

Note: including BHKP, BSKP, PG-sulfites and non-wood grades, excluding fluff and dissolving

Source: Pöyry, UPM 29 | © UPM UPM Biorefining Establishing a competitive operating platform in Uruguay – we are now in preparation phase II

Current operations Uruguay prospect

• Plantation base • Plantation base in Central in West Uruguay and North Eastern Uruguay

• Fray Bentos pulp mill • Potential new pulp mill about 1.3 million tonnes 2 million tonnes, on-site investment estimate EUR 2bn • ~100 km of river barging for outbound logistics • Railway with high technical standards • Sea port in Nueva Palmira loading half vessels • Deep sea port in Montevideo loading full vessels • Ocean vessels to pulp markets • Ocean vessels to pulp markets

30 | © UPM UPM Biorefining Second preparation phase for the potential new pulp mill in Uruguay ongoing

Phase I Phase II Phase III Completed in Q4/17 Expected to take 1.5–2 years

Discussions with the Permitting Government of Uruguay Investment Pre-engineering Potential Investment project agreement Development UPM Development Prerequisites for a possible signed in investment Q4/17 of infrastructure decision of infrastructure pulp mill investment Necessary conditions

Main items in preparation phase II: • Mill permitting, pre-engineering • Labour protocols, regulation • Rail permitting, tendering, start construction • Investment regimes • Port permitting, tendering, concession • Regional planning and development • Roads • Energy and complementary items

31 | © UPM UPM Biorefining Chemical pulp market prices

Pulp market prices, EUR Pulp market prices, USD EUR/tonne USD/tonne 1200 1300

1100 1200

1000 1100 1000 900 900 800 800 700 700 600 600 500 500

400 400

300 300

BHKP, Europe NBSK, Europe BHKP, Europe, EUR NBSK, Europe, EUR BHKP, China NBSK, China BHKP, China, EUR NBSK, China, EUR Source: FOEX Indexes Ltd

32 | © UPM UPM Energy UPM’s power generation – competitive in all market conditions

UPM’s power generation assets UPM in Finland UPM in Nordics UPM Condensing UPM # 2

Hydro

Nuclear Others Others

33 | © UPM UPM Energy UPM Energy

UPM Energy’s power generation MW EURm Cost of sourced electricity from Illustration Hydropower holdings 551 740 shareholdings Nuclear power OL1 and OL2 588 1,185 Nuclear power OL3 under construction (494) 226 Condensing power 95 1 UPM Energy’s shareholdings in total, 1,234 2,152 valued at fair value UPM own hydropower assets 160 UPM Energy’s in total (excl. OL3) 1,394 UPM Energy capital employed 2,419

UPM Energy sources electricity from part owned energy companies at full cost (cost-price principle, mankala principle)

34 | © UPM UPM Energy Cost efficient generation enables robust profitability in changing market environment

Market electricity prices vs UPM sales price EUR/MWh 60

0 2014 2015 2016 2017 2018 2019

Helsinki Front Year System Front Year UPM average sales price

UPM Energy 2014 2015 2016 2017 2018 Q119 profitability Comparable EBIT, 202 181 116 91 123 39 EURm

% of sales 43.5 43.6 32.7 28.8 31.5 34.2

35 | © UPM UPM Energy UPM Energy ROCE

• In UPM balance sheet, UPM Energy shareholdings are valued at fair value • Energy market transformation is ongoing • UPM Energy assets are competitive

% UPM Energy ROCE vs. Nordic peers 20 UPM Energy comparable ROCE: shareholdings at fair value 16% 15 11% UPM Energy ROCE if calculated based on acquisition cost 10 5% 4% Fortum Vattenfall Statkraft 5

Source: Companies’ financial reports, UPM 0 2017 2018 36 | © UPM UPM Raflatac Self-adhesive labels in end-use

PHARMACEUTICALS WINE, SPIRITS & CRAFT FOOD HOME & PERSONAL CARE DURABLES BEVERAGE

TRANSPORT & LOGISTICS RETAIL, OIL & INDUSTRIAL A4 & CUT-SIZE SECURITY & BRAND TYRE PROTECTION

37 | © UPM UPM Raflatac The self-adhesive labelstock market

• >EUR 8bn global market • ~4% p.a. growth • Private consumption driven • Largest of the labelling technologies • ~1/5 of total self adhesive materials markets

Self-adhesive labelstock market All labelling technologies All self adhesive materials

UPM Raflatac UPM Raflatac UPM Raflatac

Self adhesive Self adhesive labelstock labelstock Other producers Other Other self Other labelling Other producers adhesive producers technologies materials

38 | © UPM UPM Raflatac Strategy for profitable growth

Increased customer reach

Wider product portfolio

Winning operations

Enabled by strong common capabilities and global operating model Potentially accelerated with M&A if feasible

39 | © UPM UPM Specialty Papers Focus on global Labelling materials, Packaging in Europe and Office paper in APAC

LABELLING MATERIAL PACKAGING OFFICE PAPER APAC

40 | © UPM UPM Specialty Papers Strong position in growing end use markets

LEADERSHIP POSITION IN NICHE PLAYER IN CONSUMER MAJOR SUPPLIER OF OFFICE LABELLING MATERIALS PACKAGING PAPER IN ASIA

CASE: Siliconized release CAGR Paper flexpack, CAGR Asian cutsize market, CAGR 2 liner market, 51 Bn m 5% million tonnes 2% million tonnes 2–3%

6.1 63.5 2,1 5.3 1,9 51.0 7% 2% 1–2% Other Asia

1–3% 2–3% 5% China

2017 2022E 2017E 2022E 2017 2022E

Asia North America Europe South America MEA Source: AWA; Pira, UPM

Others Medical Envelope 2 % Product functions 3 % 3 %

Release liner carries the adhesive and face Graphic film material: 5 % • Prevents the adhesive from sticking permanently Food & bakery 5 % • Important and often critical feature of a layered construction Hygiene 8 % Globally Labelstock 48.7 Bn m2 50 %

Industrial 11 %

Tapes 13 % Source: AWA

• Cost competitiveness • Growth • Growth • Capacity investment • Responsible Fibre & Nordic Origin Face paper Office papers

LABELLING FINE PAPERS • Growth in high quality label papers Release liner base paper • Innovations in other Publication papers applications

• Capacity investments PACKAGING Packaging papers

• Growth • Innovations

–13% –20% –12% –21% –49% 100 100 100 100 100 87 80 88 79 51

Paper Demand Production Capacity Deliveries Fixed Costs OHS (LTA’s)

2013 2017

UPM Communication Papers … building the basis for continued profitable performance What does it take to perform in challenging markets? Efficient and modern assets Tight grip on costs Broad portfolio Strong geographical footprint Well-defended market position

Source: UPM, Euro-Graph, Pöyry

We do not anticipate disruptive changes, but accept market reality: • Direct Marketing continues to develop with variations from market to market, e.g. increasing in Germany while dropping in the UK • Catalogues remain a means of consumer activation, cases of pure online-retailers and specialist stores investing in printed catalogues increase • Magazine publishers continue to build on printed editions, decreasing circulations are partly offset by a continuous flow of new titles in niche segments • Newspaper circulation is declining fast in main markets, with Germany being relatively resilient • Fine papers continue playing an important role in private and office uses resulting in a relatively slow decline, regulatory changes remain a risk-factor

Uncompromising Targeted Commercial 1 performance 2 innovation 3 excellence

Continued focus on stringent Targeted investments in innovation Optimize and evolve commercial capacity management and to drive performance, increase interface and supporting processes performance improvement. efficiencies and extend our position to ensure supply security and in the market. customer value add.

Zero accidents Leadership Focused on sustainability

EUR/t

Price

Cash cost of a marginal producer

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sources: PPI, RISI, Pöyry

Europe North America China EUR/t USD/t USD/t 1100 1300 1300

1000 1200 1200

1100 1100 900 1000 1000 800 900 900 700 800 800 600 700 700

500 600 600

400 500 500

WFC r (100% chemical pulp) News SC LWC News SC LWC Uncoated Woodfree Reels (100% chemical WFC WFU WFC WFU pulp) Sources: PPI, RISI

Construction Vehicle flooring LNG shipbuilding

UPM’s position and direction UPM’s position and direction UPM’s position and direction • Leading position in high and medium • Leading position in Europe • Global leader in LNG plywood range standard products in Europe • Competitive edge built on smoothly • Competitive edge based on right quality through well established distribution running operations and needs-based and accurate on-time deliveries network providing easy access to product design creating value to both ® • Long term commitment and benchmark WISA plywood vehicle manufacturers and operators service level • Uncompromised sustainability, certified • Growth sought by expanding to new • Focus to secure leading position in LNG products and operations markets and related end use segments carriers and to extend offering into • New growth sought by strengthening related applications using the same position in selected emerging markets technologies (e.g. land storage tanks)

Strategic choices Sales Relevant market Low-end EMEA market Non-footprint by category ~5.1Mm3 market ~12Mm3 market 1. Demanding industrial applications Industrial 2. High and medium range applications standard products 0.8 12 90 3. Selected customers Construction / 4. EMEA region and Panel Trading LNG business globally UPM Plywood EMEA plywood Global plywood sales ~811tm3 market ~12Mm3 market ~90Mm3

Biomass use is not increasing Use of fossil resources Use of fossils has increased increases CO amount CO2 to carbon cycle 2 global CO2 -emissions

40 Fossil fuels, cement and 35 flaring Forestry and other land Biofuels and 30 use biochemicals 25

Wood for /year energy 2 20

Wood fiber for GtCO 15 pulp and paper production 10

Timber and 5 plywood

1854 1890 1845 1863 1872 1881 1899 1908 1917 1926 1935 1944 1953 1962 1971 1980 1989 1998 2007 Energy from Source: IPCC AR5 fossil resources 51 | © UPM UPM Biofuels Strong renewable diesel demand growth, as markets evolve from rural development to decarbonisation

THE NORDICS Market driver: Norway, Sweden, Transport decarbonisation Finland (ESR) E15 USA (RFS, RFS 2) EUROPE E10 Market driver: (RED, RED II) CHINA E10 Rural development B7 PACIFIC NORTHWEST Market driver: California, Oregon, Washington, Market driver: RED II A IX a (EU excl. ESR, Energy security British Columbia (LCFS) Shifting to transport +20Mt RD, ref. -30% GHG) decarbonisation

Market driver: BRAZIL, INDONESIA, Market driver: Shifting to transport ARGENTINA Rural development decarbonisation MALAYSIA B20 E15 Market driver: Rural development

Global market driver: E27 AVIATION Transport decarbonisation B10 Huge market potential in the 2020s Ethanol, 2020 Renewable diesel 2020 Biodiesel, 2020 Renewable diesel growth, 2030 = 1 Mt Source: UPM

✓ Competitive and ✓ Low-carbon fuels for sustainable feedstocks road, aviation, shipping Lappeenranta Biorefinery and petrochemicals 100kt

Residual oils

Residues, Carbon farming saw dust, bark (Carinata oil)

UPM feedstocks Potential Kotka Biorefinery UPM renewable fuels 500kt ✓ World-scale biorefinery leveraging UPM ecosystem ✓ Significant efficiency gains enabled by economy of scale and synergies with Lappeenranta

53 | © UPM UPM Biochemicals Biochemicals products are sustainable and competitive alternatives to replace fossil materials

BIOREFINERY PROCESS

FIXED TECHNOLOGY PLATFORM VARIABLE FOR EACH BIOREFINERY

STEP 1: SUGAR PULPING STEP 2: CHEMICAL CONVERSION 40% Disintegrating wood into sugars, Conversion of sugars into targeted Cellulose lignin and green energy biochemicals Biochemical A . . . 30% Biochemical N Hemi- BIOMASS SUGARS cellulose

2 %

25% Lignin Lignin

GREEN ENERGY 54 | © UPM UPM Biochemicals Biochemicals biorefinery targeting to produce bio-MEG, bio-MPG and lignin from hardwood

bMEG bMPG Lignin Monoethylene glycol Monopropylene glycol Biorefinery lignin

Existing fossil-based market Existing fossil-based market Performance chemical Market demand > 26 m tonnes Market demand > 2 m tonnes Application driven CAGR > 3% MonopropyleneCAGR > 5% glycol Strong IP position Application examples: Application examples: Application examples:

Textiles Composites Wood resins

Bottles & packaging Pharma & cosmetics Plastics

Deicing fluids Detergents Foams & coatings