Metsäteollisuuden Erityispiirteet

Metsäteollisuuden erityispiirteet

Stefan Sundman Johtaja, yhteiskunta- ja mediasuhteet 6.3.2019 | © UPM | © UPM UPM Kaukas, Lappeenranta, Finland. Established 1892 IndustrialUPM Kaukas evolution Mill Integrate, of the world’s most versatile forest industryLappeenranta integrate

| © UPM Mikä metsäteollisuus?

5 Sustainable and safe products ELECTRICITY for everyday use everywhere PULP-BASED MATERIALS for packaging, transport, LABEL MATERIALS storage and hygiene products for food packaging, drinks bottles and for communicating PUBLICATION information PAPERS for reading and advertising SPECIALTY PAPERS for food packaging

WOOD MATERIALS for construction and design OFFICE PAPERS features for printing

WOOD MATERIALS LABELS for furniture and the home for food products 6 | © UPM 7

Forest industry production in Finland Milion tonnes/m3 16

14 Paper

Board 12 Chemical pulp

10 Sawn Softwood

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: Finnish Forest Industries | © UPM 25.1.2019 SOURCE: Finnish Forest Industries, Finnish Customs Gross value of Finnish forest industries

Billion EUR 2018 25 Production Wood products industry (incl. furniture) Paper 6 750 Paperboard 1000 t 3 800 Pulp and paper industry Chemical Pulp 1000 t 8 150 Sawn softwood* 1000 m3 11 800 20 Change from prev. year Paper 1,1 % Paperboard 5,4 % Chemical Pulp 5,8 % 15 Sawn Softwood 0,9 % * estimate

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

8 | © UPM 10.5.2019 SOURCE: Finnish Forest Industries Federation, Statistics Finland Suomi on avoimessa globaalissa kilpailussa

| © UPM | © UPM Biggest0 forest 5 industry 10 companies 15 20 globally 25 Turnover, Bn. EUR 2017 %change International Paper International Paper 19,2 1,1 % Procter & Gamble* 16,7 0,4 % Kimberly-Clark 16,2 -1,7 % Procter & Gamble WestRock* 13,5 5,4 % Oji Paper 12,1 12,1 % Kimberly-Clark Top 5 Total 77,7 4,5 % %change from previous year WestRock

Oji Paper

4/2017 SCA splitted into two listed Essity companies; the forest products company SCA and the hygienie and health products company Essity Stora Enso 2017 2016 UPM-Kymmene

Smurfit Kappa Group

Nippon Paper Group Billion Euros

| © UPM 10 SOURCE:10.4.2019 Pöyry Export markets for Finnish forest industry products

EU-28 Euro

countries Exports, billion euro 12,0 EU-28 Non-euro 37% Biggest export markets: EU countries Germany 15 % UK 9 % 18% USA 7 % China 6 % Belgium 5 %

Other Europe Latin America 8% 3% North America 6% Oceania 1% Africa Asia 5% 22%

Source: Finnish Forest Industries | © UPM 11 26.11.2018 SOURCE: Finnish Customs Forest industries production and exports 2018 1000 tonnes Share of exports

14 000 120 % Production Export Export share

12 000 100 % 94 % 96 %

10 000 82 % 80 % 74 %

8 000

60 %

6 000 46 % 40 % 4 000

20 % 2 000

0 0 % Paper Paperboard Pulp Sawn softwood Plywood 12 | © UPM 10.5.2019 SOURCE: Finnish Forest Industries, Finnish Customs Metsäteollisuus luo paljon myös epäsuoraa arvonlisää

Yrityksen itse tuottama arvonlisä Ostoista syntyvä arvonlisä

UPM 1507 2577 OP Nordea Finland Nokia Metsä Group Stora Enso Neste Kesko

Elisa Arvonlisä = jalostusarvo Kaikkien yritysten tuottamat Supercell arvonlisät yhteensä = BKT 0 1 000 2 000 3 000 4 000 Lähde: ETLA, luvut 2015 | © UPM Metsät ja puut toiminnan perustana The climate is changing We need more materials Resources are running out

= SERIOUS CHALLENGES

| © UPM OUR BUSINESS IS BASED ON THE CONTINUOUS GROWTH OF FORESTS,

ONE OF EARTH’S MOST VALUABLE RESOURCES GROWING FORESTS CAPTURE CO2

AND CREATE CARBON SINKS ECONOMIC INTERETS GO HAND IN HAND WITH CLIMATE INTERESTS

Renewable raw material

HEALTHY Sustainable solutions, alternatives FOREST GROWTH to fossil based materials Carbon sinks

Planting new trees Economic interest for the for every cut one industry and forest owners to ensure forest growth | © UPM SUSTAINABLE FORESTRY ENSURES FOREST GROWTH

Facts on forest growth Million ha Million 1 000 150 In Europe, forest 750 100 = area has grown 500 50 17.5 million ha 0 1990 2018 0 1968 2018 in 25 years

In Finland alone Doubled growth 150 million in 50 years new trees grow every year WE TAKE CONCRETE ACTION TO ENSURE FOREST GROWTH

100 new trees New carbon every minute storages ha 200 000 150 000 100 000 = 50 000 0 1990 2018

We plant 100 trees UPM plantations 50 million trees per minute In Uruguay a new carbon storage of every year 24M tonnes in 25 years with no effect on food production or natural forests – plantations established on former grasslands THE WIDE RANGE OF PRODUCTS WE MAKE ENSURES NOTHING GOES TO WASTE

Fibres to pulp and paper Fibres to biofibrils and biocomposites Logs for sawn goods and plywood Extractives to renewable diesel and naphtha or biochemicals Lignin, cellulose and hemicellulose to biochemicals

Bark and branches to energy UPM esimerkkinä toimialan kehityksestä Global businesses – local presence

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

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

100,400 shareholders in 32 countries 6% b-to-b- Rest of the world 24,000suppliers in 75 countries

23 | © UPM UPM in transformation

2017 Beyond Fossils 2013 New operating model 2008 Biofore direction

2005 Fixinng the foundation

24 24 | © 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

25 | © 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 BUSINESSESUPM UPM BIOMEDICALS GrowDex®

26 | © 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 Target: EBIT growth 12 Target: 10% 3 750 2,5 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 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

-750 -0,5

27 | © 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 | © UPM 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

29 | © UPM Our consistent commitment to responsibility has received recognition globally

• One of the 36 UN Global Compact LEAD Participants

• Industry leader on global and European Dow Jones Sustainability Indices

• AAA in CDP Forests, Climate and Water programs

• AAA in MSCI ESG ratings

• Committed to UN Business Ambition for 1.5°C

30 | © UPM Bioeconomy offers a sustainable alternative to fossil-based economy

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 0 1845 1854 1863 1872 1881 1890 1899 1908 1917 1926 1935 1944 1953 1962 1971 1980 1989 1998 2007 Energy from Source: IPCC AR5 fossil resources 31 | © UPM Mitigating climate change – driving long-term value creation

We act through FORESTS We act through EMISSIONS We act through PRODUCTS

Climate-positive forestry 65% less CO2 emissions Innovate novel products

32 | © 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, %

33 | © UPM Liiketoimintojen erityispiirteitä SELLU Global megatrends drive demand for tissue, hygiene, packaging and specialty paper end-uses

Tissue

Population growth, urbanization Market pulp Packaging paper and board Resource scarcity, role of renewables

Digitalisation,e-commerce Specialty paper

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

Global paper and board production

Market pulp consumption Tissue Specialty and in growing end-uses fluff

Cartonboard

Stressed supply of white recycled fibre Graphic papers

Containerboard Growing demand absorbing recycled fibre from all sources

36 | © UPM Produce pulp by the forest resource and paper close to customers

Most paper products are tailor-made to the customer needs. Hence paper mills are located close to customers

PAPER MILL

PULP MILL

4-5 tons of 1 ton of wood chips OR pulp

Producing one ton of pulp requires 4-5 tons of wood . Hence pulp is more cost efficient to transport than wood chips.

| © UPM Demand-supply drivers of pulp market

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

38 | © 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 and packaging Brown Carton- 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

39 | © UPM Liiketoimintojen erityispiirteitä ERIKOISPAPERIT ja TARRAT UPM Specialty Papers Labelling materials, packaging and office papers in APAC

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%

41 | © UPM UPM Raflatac Label materials for a wide variety of product and information labelling

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

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

42 42 | © 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 All labelling technologies All self adhesive materials labelstock market

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

43 | © UPM Underlying trends supporting market growth

LABEL MATERIAL MANUFACTURING LABEL PRINTING & PRODUCT RAW MATERIALS & DISTRIBUTION CONVERSION LABELING CONSUMPTION

• Papers & films • Lamination • Companies • All companies • Private & • Adhesives • Roughly dozen specialized in with labeling industrial usage • Silicones suppliers per label converting needs of labeled • Typically large continent • >10.000 globally, • Mainly packaged products companies • Typically, delivery mainly SME's goods companies • UPM Label papers to the customer (end-users / brand within 24 / 48 hours owners)

> 7,000 buying customers > 5,000 selling Stock keeping units

Sales distribution by customer Sales distribution by product

25 45

35 TOP 10 account for ~10% of total sales TOP 10 account for ~15% of total sales 30

15 TOP 100 account for ~30% of total sales TOP 100 account for ~50% of total sales 25 TOP 1,000 account for ~80% of total sales TOP 1,000 account for ~90% of total sales

0 0 1 1 232 463 694 925 159 317 475 633 791 949 1156 1387 1618 1849 2080 2311 2542 2773 3004 3235 3466 3697 3928 4159 4390 4621 4852 5083 5314 5545 5776 6007 6238 6469 6700 6931 7162 1107 1265 1423 1581 1739 1897 2055 2213 2371 2529 2687 2845 3003 3161 3319 3477 3635 3793 3951 4109 4267 4425 4583 4741 4899

Average monthly order intake 2016-18

70000 On average ~2,500 orders received per day

60000

50000

40000

30000

20000

10000

47 | © UPM Liiketoimintojen erityispiirteitä BIOMOLEKYYLIT 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

450 Required fossil oil displacement in EU road transport to meet GHG-targets

Engine 300 efficiency

Electric vehicles

Mton(oilequivalent) 150 Renewable 2020 fuels -6% in GHG 2030 (FQD) 2040 -30% in GHG -50% in GHG Fossil (ESR) (projection) fuels 0 2015 2020 2025 2030 2035 2040

GHG-reduction targets calculated vs. reference year 2005 (2020 -6% FQD, 2030 -30% ESR, 2040 -50% proj.) Source: UPM analysis based on Bloomberg and WoodMackenzie

| © UPM UPM Lappeenranta Biorefinery 179M€ The world’s first biorefinery UPM Over producing wood-based investment -80% renewable diesel and naphtha 100,000 CO2 t/a production 250 capacity Direct and indirect employees

200 UPM patents and applications

 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 52 52 | © 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 5353 | © UPM UPM Biochemicals Biochemicals biorefinery targeting to produce bio-MEG, bio-MPG and lignin from hardwood

bMEGbMPG 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

54 | © UPM | © UPM BIOMETSÄTEOLLISUUDEN NYKY- JA UUDET TUOTTEET VASTAAVAT GLOBAALEIHIN HAASTEISIIN JA TARPEISIIN VÄESTÖN KASVU

URBANISAATIO

ILMASTON MUUTOS SUSTAINABLE BIOALTERNATIVES & RESURSSI NEW BIOINNOVATIONS NIUKKUUS

VÄESTÖN IKÄÄNTYMINENLONGER LIFE EXPECTANCY ELINTASON NOUSU TERVEYS & HYVINVOINTI

Haavanhoito Solukasvatus Uusiutuva diesel Hartsiliimat

Kohti uusia arvoketjuja! Tulostettava 3D komposiitti Kemianteollisuuden materiaalit

Lämpömuo- Erikoispakkaus- Lääketieteelliset vattava puulevy materiaalit sovellukset Puu- Uudet selluloosatuotteet komposiitti Kemikaalit eri sovelluksiin

Kierrätysmateriaali- Liikennepolttoaineet komposiitti Tarrat, pakkaukset ja komposiitit Sellu, paperi, vaneri ja sahatavara Energia – lämpö ja sähkö