UPM the Biofore Company

UPM The Biofore Company

Investor Presentation December 2018 Competitive businesses with strong market positions

UPM UPM UPM UPM UPM UPM BIOCHEMICALS BIOREFINING ENERGY RAFLATAC SPECIALTY COMMUNICA- PLYWOOD BIOCOMPOSITES PAPERS TION PAPERS Pulp Electricity Label Label papers, Magazine Plywood WOOD SOURCING Biofuels generation materials for release liners, papers, and veneer AND FORESTRY Timber and trading product and office papers newsprint and products information and flexible fine papers labelling packaging

2 | © UPM – The Biofore Company Global businesses – local presence

UPM’s sales by market 2017 EUR 10,010 million 12,000 customers in 120 countries 54 62% production plants 13% Europe 20% in 12 countries 90,000 North America Asia shareholders in 35 countries

19,100 25,000 employees b-to-b suppliers 5% in 46 countries in 75 countries Rest of the world

3 | © UPM – The Biofore Company Operating on healthily growing markets

UPM PLYWOOD Comparable EBIT by Plywood, veneer ~3% business area 2017 EUR 1,292m

UPM COMMUNICATION PAPERS Graphic papers ~ –4% UPM BIOREFINING Pulp ~3% Biofuels strong UPM SPECIALTY PAPERS Timber ~2% Label papers ~4% High-end office papers ~4%

UPM RAFLATAC Self-adhesive labels ~4% UPM ENERGY Demand trend growth, % pa 4 | © UPM – The Biofore Company Electricity ~1% 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 5 || ©© UPMUPM – The Biofore Company Inspired by the Delivering renewable Innovating for limitless opportunities and responsible a future beyond of bioeconomy solutions fossils

6 || ©© UPMUPM Biofore – Beyond Fossils Sustainable and We create value by seizing 2030 safe solutions for global the limitless potential of bioeconomy consumer demand 2020

Innovation

Responsible operations and Circular economy value chain

High performing people

Sustainable

7 | © UPM – The Biofore Company forestry UPM strategic focus areas

We create value by seizing… …the limitless potential of bioeconomy

Performance Growth Innovation Responsibility > Continuous > Earnings growth > Growth and > Continuous improvement competitiveness improvement

Portfolio

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

8 | © UPM – The Biofore Company Spearheads for growth

High value fibre Specialty packaging Molecular materials bioproducts

Raflatac Specialty papers Forests Pulp Biofuels Biochemicals

Communication Plywood Energy papers

9 | © UPM – The Biofore Company UPM in transformation

2008 2017 Operating model vertically integrated six separate Promotes value creation paper company businesses

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

Sales EUR 9.5bn EUR 10.0bn Business performance EBIT *) EUR 513m EUR 1,292m Continuous improvement in financial, ROE *) 3.5% 11.9% social and environmental performance

Net debt EUR 4.3bn EUR 0.2bn Disciplined capital allocation Market cap EUR 4.7bn EUR 13.8bn Driving value creation *) excluding special items for 2008, comparable figures for 2017

10 | © UPM – The Biofore Company UPM current investment portfolio for earnings growth

Focused growth projects Transformative prospects • Raflatac speciality label expansion, • Possible new 2mt pulp mill, Uruguay in Q4 2018, Finland – Second preparation phase proceeding: • Chudovo plywood mill expansion, The rail tendering process in final stages, port +45k m3 in Q3 2019, Russia concession tendering started. Environmental and social impact study for the mill submitted. • Jämsänkoski release liner expansion, +40kt in Q4 2018, Finland • Molecular bioproducts, possible biorefineries • Nordland PM2 conversion to release – Basic engineering work continues regarding a liner, +110kt in Q4 2019, Germany potential 150kt biochemicals refinery, Germany • Changshu release liner expansion, – Exploring next steps in biofuels, environmental +40kt in Q1 2020, China impact study submitted for a potential 500kt biorefinery, Finland

11 | © UPM – The Biofore Company Business area long-term return targets apply over investment and business cycles

UPM UPM UPM UPM UPM UPM Energy Biorefining Specialty Papers Communication Papers Plywood Raflatac 30 30 30 30 30 30 ROCE % *) ROCE % ROCE % FCF/ ROCE % ROCE % 28 28 28 28 28 28 CE % 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 – The Biofore Company Group financial performance

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

1 400 12 3 750 2,5 Target: EBIT growth 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 LTM 2013 2014 2015 2016 2017 LTM 2013 2014 2015 2016 2017 Q3/18 LTM

13 | © UPM – The Biofore Company 5-year cumulative cash flow (2013–2017) – disciplined capital allocation in action

Attractive dividend EUR 1.9bn Strong operating cash flow EUR 6.4bn Industry-leading balance sheet Deleveraging EUR 2.6bn Net debt /EBITDA ~ 0x Focused investments EUR 1.9bn

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

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

Net debt /EBITDA < 2x

High return investments Maintain headroom EUR ~3–4bn

*) This is not a forecast

15 | © UPM – The Biofore Company Dividend

EUR % of operating per share cash flow per share 1,40 70 Dividend policy 1,20 60 • UPM aims to pay an attractive dividend, 30–40% of operating cash flow per share 1,00 50

0,80 40 Dividend for 2017

0,60 30 • EUR 1.15 (0.95) per share, totalling EUR 613m 0,40 20 • 39% of 2017 operating cash flow 0,20 10

0,00 0 2012 2013 2014 2015 2016 2017

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

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

1 000 Myllykoski ✓ Low implementation risk acquisition ✓ Financed from operating cash flow 800

Uruguay Low replacement investments 600 acquisition Depreciation ✓ Asset quality in486 all businesses, Strategic investments e.g. large competitive pulp mills 400 303 300 ✓ UPM Communication Papers

200 Modest total capex and Operational investments attractive returns 0 2009 2010 2011 2012 2013 2014 2015 2016 20172018E

17 | © UPM – The Biofore Company Value from responsibility

We create value by seizing… …the limitless potential of bioeconomy

Renewable, recyclable Responsible operations Value based leadership Compliance and safe products and value chain • Renewable and • Material efficiency and • Value-based and inspiring • Decision making, biodegradable raw circular economy leadership management and materials and thinking • Safe and healthy working operations guided by recyclable products • Climate solutions and environment and wellbeing our values and UPM • Product stewardship working towards carbon of employees Code of Conduct • Open and transparent neutrality • Diversity and inclusion • Responsible business product • Responsible water use • High performance and practises communications • Sustainable land use continuous professional • Reliable, credible and • Respecting human development of employees transparent reporting rights • Local commitment

18 | © UPM – The Biofore Company Industry leader in responsibility

19 | © UPM – The Biofore Company Q3 2018: strong quarter sets a new benchmark for UPM’s performance

Comparable EBIT • Sales grew by 6% to EUR 2,650 million EURm (2,493m) 450 420 400 • Comparable EBIT increased by 20% to 351 EUR 420m (351m) 350 300 • Sales prices increased in all business areas, 250 outweighing the impact of higher input costs 200 • Temporary operational issues in UPM 150 Communication Papers and UPM Biorefining 100 had a EUR 30 million negative impact 50 • Operating cash flow was EUR 434m (486m), 0 net debt decreased to EUR 4m (623m)

20 | © UPM – The Biofore Company Comparable EBIT in Q3 2018 vs. Q3 2017

Prices increased in all businesses, input costs higher Record quarter in Biorefining, improvement Deliveries impacted by temporary production issues in Energy and Communication Papers. Specialty Papers weaker. EURm 700 EURm 700

Prices Fixed 600 costs 600

Deliveries Currency, 500 500 Energy net 420 Communication 420 Biorefining impact 15.9% Papers 15.9% 351 351 Raflatac 400 400 Plywood Variable 14.1% Specialty 14.1% Depr., Other costs Papers forests, operations 300 plantations 300 and eliminations

200 200

100 100

0 0 Q3/17 Q3/18 Q3/17 Q3/18

21 | © UPM – The Biofore Company Q3 2018: Sales prices increased in all business areas, outweighing the impact of higher input costs

UPM BIOREFINING UPM SPECIALTY PAPERS • Average pulp prices in euros +27% • Price increases offset only part of the variable • Pulp deliveries -2%, held back by temporary costs increases production issues at UPM Fray Bentos • Solid demand, deliveries +1% • New production level in Biofuels

UPM COMMUNICATION PAPERS UPM RAFLATAC • Average paper price +10%, more than • Price increases more than offset the offset the higher variable costs higher variable costs • Tight market sentiment, deliveries -8% • Stable demand growth, deliveries -3% • Turbine damage in UPM Plattling

UPM ENERGY UPM PLYWOOD • Average electricity sales price +19% • Price increases offset the higher variable costs • Electricity deliveries +2% • Good demand, deliveries -2% • Dry weather limited hydropower generation

22 | © UPM – The Biofore Company Comparable EBIT by business area

EURm UPM Biorefining % of sales EURm UPM Communication Papers % of sales EURm UPM Specialty Papers % of sales 280 35 120 15 60 15

240 30 100 12,5 50 12,5 200 25 80 10 40 10 160 20 60 7,5 30 7,5 120 15 40 5 20 5 80 10 40 5 20 2,5 10 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

23 | © UPM – The Biofore Company Outlook for 2018 unchanged

• UPM’s comparable EBIT is expected to continue growing in 2018 compared with 2017. H2 2018 comparable EBIT is expected to be significantly higher compared with H1 2018.

• The fundamentals for UPM businesses in 2018 are favourable. Sales price increases in 2018 are expected to outweigh the increase in variable cost, compared with 2017.

24 | © UPM – The Biofore Company 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 2017 Area distribution Forest and plantation land (own and rented) (1,000 ha) 1,012 970 8% 8% US Forest growth (million m3) 4.3 8.6 90% 59% Finland Wood sourced from UPM forests and plantations (million m3) 2.2 4.7 % of UPM wood sourcing 9% 17% 33% Uruguay Value of forests and plantations, including land (EURm) 1,270 2,149

25 | © UPM – The Biofore Company 2008 2017 UPM Biorefining 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

26 | © UPM – The Biofore Company UPM Biorefining 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

27 | © UPM – The Biofore Company UPM Biorefining Pulp demand outlook

Increase in end use … … will drive fibre demand

Mt/a Paper and board consumption Mt/a Fibre consumption 600 600

500 500 Growth in market pulp vs. Decline in graphic papers decline in Integrated pulp 400 400 Healthy growth in Declining white RCP 300 tissue, hygiene, 300 availability specialties and 200 packaging 200 Strong demand for brown Strong growth fibre 100 in containerboards 100 (brown fibre) 0 0 2000 2015 2030 2000 2015 2030 Containerboard Cartonboard RCP Brown Unbleached pulp Specialty Tissue & fluff Non-wood Mechanical pulp Fine paper News & mags RCP White Integrated pulp Market pulp

Source: UPM, Pöyry, RISI

28 | © UPM – The Biofore Company 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 2 000 pulp projects 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

Exits New mill/line Other expansion Shipment increase

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

29 | © UPM – The Biofore Company 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 – The Biofore Company UPM Biorefining Second preparation phase for the potential new pulp mill in Uruguay proceeding

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 UPM Development of Prerequisites for a possible signed in Development of investment Q4/17 decision pulp mill investment infrastructure infrastructure 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 – The Biofore Company UPM Biorefining Chemical pulp market prices

Pulp market prices, EUR Pulp market prices, USD EUR/tonne USD/tonne 1100 1300

1200 1000 1100 900 1000 800 900

700 800

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 Sources: FOEX Indexes Ltd, ECB

32 | © UPM – The Biofore Company 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 – The Biofore Company UPM Energy UPM Energy

UPM Energy’s power generation MW EURm Cost of sourced Hydropower holdings 551 705 electricity from Illustration shareholdings Nuclear power OL1 and OL2 584 1,082

Nuclear power OL3 under construction (494) 215

Condensing power 191 2

UPM Energy’s shareholdings in total, 1,327 2,004 valued at fair value

UPM own hydropower assets 160

Sales Opex Depreciation Interest and Contribution to EBITDA from UPM EBITDA finance costs EBITDA from UPM ow n UPM Energy’s in total (excl. OL3) 1,487 shareholdings hydropow er assets UPM Energy capital employed 2,322

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

34 | © UPM – The Biofore Company UPM Energy Cost efficient generation enables robust profitability in challenging market environment

MWh Market electricity prices vs UPM sales price

0 2013 2014 2015 2016 2017 2018

Helsinki Front Year System Front Year UPM average sales price

UPM Energy 2013 2014 2015 2016 2017 9M/18 profitability Comparable EBIT, 186 202 181 116 91 91 EURm

% of sales 39.9 43.5 43.6 32.7 28.8 31.4

35 | © UPM – The Biofore Company 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: 15% Fortum 15 shareholdings at fair value 11% Vattenfall 10 UPM Energy ROCE if calculated Statkraft 5% 4% based on acquisition cost 5

Source: Companies’ financial reports, UPM 0 2016 2017 36 | © UPM – The Biofore Company UPM Raflatac Self-adhesive labels in end-use

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

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

37 | © UPM – The Biofore Company 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

38 | © UPM – The Biofore Company 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 – The Biofore Company UPM Specialty Papers Focus on global Labelling materials, Packaging in Europe and Office paper in APAC

LABELLING MATERIAL PACKAGING OFFICE PAPER APAC

40 | © UPM – The Biofore Company 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 Product functions: Medical Envelope 2 % Release liner carries the adhesive and face material: 3 % 3 % • Prevents the adhesive from sticking permanently Graphic film • Important and often critical feature of a layered 5 % construction Food & bakery 5 %

Hygiene 8 % Globally Labelstock 48.7 Bn m2 50 %

Industrial 11 %

Tapes 13 % Source: AWA

• 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 44 | © UPM – The Biofore Company UPM Communication Papers We expect a predictable market development in an economically stable environment

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

Europe North America China EUR/t USD/t USD/t 1000 1200 1300

1100 1200 900

1000 1100 800

900 1000 700 800 900

600 700 800

500 600 700

400 500 600

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

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

Biofuels Biomolecules Biochemicals

Pulp Paper Fibres Packaging Tissue Labelling materials Biocomposites

Logs Sawn timber Plywood

Trees Energy

51 | © UPM – The Biofore Company 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

52 | © UPM – The Biofore Company UPM Biofuels The possible Kotka Biorefinery: an innovative and robust concept to scale up the business

✓ 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 – The Biofore Company 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 – The Biofore Company 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