UPM THE BIOFORE COMPANY. Investor presentation September 2016

Transcription

1 UPM THE BIOFORE COMPANY Investor presentation September 216

2 UPM in transformation 28 vertically integrated paper company 215 six separate businesses Business model Promotes value creation Sales 1 % 8 % 6 % 4 % 2 % Paper Plywood Raflatac Sawmilling 1 % 8 % 6 % 4 % 2 % Paper ENA Plywood Energy Paper Asia Raflatac Biorefining Muut Business portfolio Increasing share of businesses with strong long-term fundamentals for profitability and growth % % Sales EBIT *) ROE *) EUR 9.5bn EUR 513m 3.5% EUR 1.1bn EUR 916m 9.5% Business performance Continuous improvement in financial, social and environmental performance Net debt Market cap EUR 4.3bn EUR 4.7bn EUR EUR 2.1bn 9.2bn Disciplined capital allocation Driving value creation *) excluding special items for 28, comparable figures for 215 2

3 UPM business portfolio today *) Competitive businesses with strong market positions Operating on healthily growing markets UPM PLYWOOD Plywood, veneer ~3% UPM PAPER ENA Graphic papers ~ -4% Growth drivers: Private consumption Sustainability Population growth Urbanisation E-commerce Construction Transportation UPM PAPER ASIA Label papers ~4% High-end office papers ~4% UPM BIOREFINING Pulp ~3% Biofuels strong Timber ~2% 3 UPM RAFLATAC Self-adhesive labels ~4% UPM ENERGY Electricity ~1% * ) by EBITDA 215. Demand trend growth, % pa

4 Portfolio development: increase long-term shareholder value Developing each business Increase their value by driving profitability, growth UPM Plywood UPM Biorefining UPM Paper Asia and cash flow Commercial strategies, focused growth investments, cost efficiency measures Developing the business portfolio Increasing share of businesses with strong long-term fundamentals for profitability and growth Growth investments, synergistic M&A UPM Paper ENA UPM Energy UPM Raflatac Portfolio changes If it would be the best way to increase long-term shareholder value 4

5 Clear roles and decision making on right level Group Portfolio strategy Capital allocation Business targets Code of conduct Responsibility targets Businesses Business area strategies Commercial excellence Operational excellence Cost efficiency measures Focused growth projects Innovation Outcomes Top performance Competitive advantage Value creation Stakeholder value License to operate 5

6 Business model case: market-driven value creation in the labelling value chain Customers Customers Tissue Traditional integrated forest Labels products model Spec. papers Board, etc. Low transparency Production push insensitive Ato customer B C needs A B C Release Packaging, etc. Inflexible in terms of operations and raw materials Customers Paper-based Film-based Speciality, etc. A B C Growing markets and end-uses, diverse customer needs Focused growth investments P&L P&L P&L Commercial strategies, product and mix development, R&D Paper-based label Transparency, customers benchmarking, targets, incentives Pulp UPM Biorefining Label materials UPM Paper Asia Self-adhesive labels UPM Raflatac Agility, improved efficiency Optimised sourcing, R&D A B C Forest, Other 6 A B C Fibre, Other A B C Paper, Films, Other + Growing sales + Increased EBIT, CF + Higher ROCE

7 Business model case: market-driven value creation at UPM Kymi pulp and paper mill Growing pulp markets and end-uses Customers Tissue Spec. papers Board, etc. Customers Advertisers Printers Mechants, etc. A B C A B C Different paper end-use trends Commercial strategies, product mix and service development P&L Maintain synergies P&L Transparency, benchmarking, targets, incentives Agility, improved efficiency Focused growth investments Pulp Pulp mill mill = 53kt 87kt UPM UPM Biorefining Biorefining Paper mill 8kt UPM Paper ENA A B C A B C Forest, Other Fibre, Other Optimised sourcing, raw material mix + Growing sales + Increased EBIT, CF + Higher ROCE 7

8 Disciplined capital allocation Focused growth projects and attractive dividends financed from operating cash flow Attractive dividend Consistently strong balance sheet Focused investments Strong cash flow Top performance Industry-leading balance sheet 8

9 Continuous free cash flow generation opens value creation options EURm Illustrative: LTM operating cash flow EUR 1,528m Robust cash flow Operating cash flow in 214 LTM EUR 1.2bn 1.5bn Capital allocation Dividend policy: 3 4% of operating cash flow Low operational capex needs Focused growth investments Additional capital generation EUR 4 65m per annum 9

10 Attractive dividend supported by increasing operating cash flow EUR per share Dividend,9 Dividend policy,8, UPM aims to pay an attractive dividend, 3 4% of operating cash flow per share,6,5, Dividend for 215 EUR.75 (.7) per share, totalling EUR 4m,3 34% of 215 operating cash flow,2 (EUR 1,185m),1,

11 UPM will continue to invest on growth through focused growth projects with modest total capex Capital expenditure Focused growth investments 1 2 Good returns and fast payback 1 Myllykoski acquisition Low implementation risk Financed from operating cash flow 8 6 Uruguay acquisition Depreciation Low replacement investments Asset quality in all businesses, e.g. large competitive pulp mills 4 Strategic investments UPM Paper ENA 2 Operational investments E Modest total capex, attractive returns and continuously strengthening balance sheet 11

12 UPM aims to maintain strong balance sheet Net debt EURm Net debt / EBITDA (trailing 12 months) Net debt EURm Gearing % 4 3, , Net debt / EBITDA 3 2, 3 4 Gearing 2 5 1, , 2 2 Net debt Net debt 1 5, Q2/16 LTM, Q2/16 LTM 12

13 Value creating capital allocation options Annual cash flow Focused growth investments, focused M&A Distribution to shareholders Debt reduction Balance sheet M&A, when the opportunity and timing are right Continues the business portfolio transformation Synergistic with attractive returns In the businesses where UPM is investing on growth Next step in pulp, if the prerequisites are in place and the opportunity and timing are right In all cases, UPM aims to maintain strong balance sheet 13

14 Current focused growth investments targeting to exceed EUR 2m in additional EBITDA Fully contributing in H1 216 Pietarsaari pulp mill expansion Fray Bentos pulp mill expansion Kymi pulp mill expansion Raflatac expansion in APAC, Poland Ramp-up progressing well Lappeenranta biorefinery Changshu speciality papers Under construction, in schedule and budget Otepää plywood mill expansion Kaukas pulp mill efficiency Kymi pulp mill expansion 14

15 Focused investments are delivering growth Sales 215 Average delivery growth 211 LTM Q % 8 % 6 % 4 % 2 % % UPM Biorefining UPM Raflatac UPM Paper Asia UPM Plywood Pulp CAGR +2% Biofuels New business Standard products CAGR +4% Films and specials CAGR +7% Label materials CAGR +4% Cut-size CAGR +6% Plywood CAGR +3% 15

16 Portfolio of opportunities within UPM s disciplined capital allocation Pulp Focused growth investments, major investments, M&A Decisions and timing based on the merits of each case Raflatac Speciality papers Plywood Energy Biofuels Biochemicals Focused growth investments, M&A Decisions and timing based on the merits of each case Focused growth investments, M&A, new business creation Decisions and timing based on the merits of each case Paper ENA Cash flow and release of capital Efficient and competitive business system 16

17 Business area returns and targets UPM Energy UPM Biorefining UPM Paper Asia UPM Paper ENA UPM Plywood UPM Raflatac 22 2 ROCE % * ) 22 2 ROCE % 22 2 ROCE % 22 2 CF/CE % 22 2 ROCE % 22 2 ROCE % Each business targets top relative performance in their respective markets * ) shareholdings in UPM Energy valued at fair value Long-term return target 17

18 Group financial performance % of sales EBIT* ) % ROE* ) EURm Operating cash flow Net debt and gearing EURm % Min target Gearing Net Debt 15 * ) comparable figures for 215 and 214, excluding special items for earlier years 18

19 Consistent improvement Productivity Capital turnover Fixed costs Variable costs Sales / employee Sales / CE Fixed cost / sales Variable cost / sales 1, EUR % % ,8,83,9,87,9,92,96 21,9 21,4 21,7 21,3 21,1 2,9 2,8 64,1 65, 66,2 67,1 66,1 65,4 64, LTM LTM LTM LTM Commercial strategies Efficient use of assets Focused investments Capital allocation Focused investments Efficient use of assets WOC management Commercial strategies Efficient use of assets Restructuring Maintenance Variable cost measures Materials efficiency Energy efficiency Efficient use of assets 19

20 Drivers for the improved financial performance Business actions Commercial strategies Operational system efficiency Focused growth investments Efficient use of assets, including restructuring Group-wide initiatives implemented in businesses Variable cost reduction measures SmartSpend Maintenance and site management SmartMaint, SmartSite Working capital management SmartCash 2

21 Comparable EBIT by business area EURm 15 UPM Biorefining % of sales 25 EURm 8 UPM Energy % of sales 6 EURm 5 UPM Raflatac % of sales Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 EURm 5 UPM Paper Asia EURm UPM Paper ENA % of sales EURm UPM Plywood % of sales % of sales 12, , ,5 5 4 Q1 14 Q3 14 Q1 15 Q3 15 Q Q1 14 Q3 14 Q1 15 Q3 15 Q Q1 14 Q3 14 Q1 15 Q3 15 Q

22 Comparable EBITDA in Q2 216 vs. Q2 215 EURm 5 UPM benefited from cost efficiency measures in a deflationary business environment EURm 5 Cost efficiency improved in all businesses. Biorefining, Raflatac and Paper Asia showed growth in deliveries % Prices Deliveries Fixed costs Variable costs Currency, net impact % % Biorefining Energy Raflatac Paper Asia Paper ENA Plywood Other operations and eliminations % EBITDA Q2/15 EBITDA Q2/16 EBITDA Q2/15 EBITDA Q2/16 22

23 Outlook for 216 is unchanged UPM s profitability improved in 215 and the improvement is expected to continue in 216. UPM s growth projects are expected to contribute positively to the company s earnings in 216, compared with 215. UPM continues its measures to reduce variable and fixed costs in 216. Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at about the same level as at the end of

24 Responsibility is good business Creating value through products and innovation Creating competitive advantage and long-term value by efficiency "We believe that customers, investors and other stakeholders value responsible operations that keep risks under control and add to our business opportunities, thereby increasing the company value. Risk mitigation by responsible value chain and production UPM Annual Report

25 Creating competitive advantage and long-term value by engagement Per million hours Safety Index Employee engagement EUR million Productivity 25 9, Lost-time accident frequency 8 7 Manager effectiveness,55,5,45 Sales per employee Employee engagement,4,35 5 4,3,25 3,2 5-year change: 77% 5-year change: year CAGR: +5% 25

26 Creating competitive advantage and long-term value by efficiency Case: UPM Changshu mill in China Water 6% Per tonne of paper COD in effluent 75% Per tonne of paper water intake water discharge Energy SO 2 emission 3% Per tonne of paper 9% Per tonne of paper Waste to landfill 6% Per tonne of paper Certified fibre 85% In compared to 25 Source: UPM 26

27 Consistent long-term work receives external recognition UPM in sustainability indices Sustainable and Responsible (SRI) investors form a significant part of UPM s shareholders 3 SRI, % of total institutional shareholders UPM Industrials & Materials Europe Source: Nasdaq, October

28 UPM Biorefining Pulp is used in products we all use daily 28

29 UPM Biorefining Market pulp consumed in growing end-uses supply of alternative white fibres declines Global paper and board production Specialty Tissue Market pulp consumption in growing end-uses Cartonboard Stressed supply of white recycled fibre Graphic papers Containerboard Mixed collection crowding out white recycled fibre 29

30 UPM Biorefining Case: Market pulp consumption in growing end-uses Fibre consumption in tissue, cartonboard and specialty end-uses White integrated pulp White market pulp % demand increase in tissue, cartonboard and specialty end-uses Increase in market pulp consumption Other fibres (RCP, mechanical pulps ) 85 Million tonnes Source: Pöyry, Hawkins Wright, UPM 3

31 UPM Biorefining Case: Stressed supply of white recycled paper 5% fall in global graphic paper production Fall in market pulp demand Market pulp to replace fall in white recycled paper supply Net increase in market pulp demand 125 Million tonnes Source: Pöyry, UPM 31

32 UPM Biorefining Case: Mixed collection crowding out white recycled fibre White RCP grades 75 5%-point increase in mixed collection share Mixed RCP Market pulp to replace fall in white recycled paper Old corrugated boxes 135 Million tonnes Source: Pöyry, UPM 32

33 UPM Biorefining Summary of pulp demand outlook Increase in end use will drive fibre demand in coming decades Mt 6 Mt Decline in Graphic papers Healthy growth in other White Papers & Boards Growth in Market pulp vs. decline in Integrated pulp Declining White RCP Strong growth in Containerboards (brown fibre) Demand of Brown fibre may overwhelm the supply Newsprint WF Spec. & other Container-boards WC Tissue & fluff Carton-boards WF: Wood-free graphical papers WC: Wood-containing graphical papers (magazine grades) RCP Brown Non-wood RCP White Market pulp Unbleached pulp Mechanical pulp Integrated pulp Estimated growth of White RCP + Integrated Pulp + Market Pulp is still conservative (~1 Mt/a) Source: UPM, Pöyry, RISI 33

34 Total Capacity Exits Net Capacity Change UPM Biorefining White fibres in different stages of life-cycle; 64 Mt capacity closed within Mt/a, cumulative Mt/a, cumulative Hardwood pulp capacity has experienced strong net growth after 2 and is expected to continue growing. Softwood has faced closures as much as hardwood. New demand in China is turning decline into a slow growth. White RCP was the fastest-growing fibre in Europe and NA in early 199 s. After recession capacity has been in decline due to very high collection rates and diminishing supply of graphic paper. Mechanical pulp continues to decline along with graphic papers. Non-wood pulps consumed mostly in China are under pressure due to environmental reasons. Sulphite has been in decline for decades. Note: Including both market and integrated pulp Source: Pöyry 34

35 UPM Biorefining Chemical pulp market Q2 NBSK pulp price increased 1% from Q1 Q2 BHKP pulp price decreased 5% from Q1 USD/tonne 1 1 Days of supply 65 Pulp inventories 1 9 NBSK Hardwood inventories 8 7 BHKP Softwood inventories Source: FOEX Indexes Ltd. Source: PPPC World-2 statistics 35

36 Commodity Product Added services UPM Biorefining UPM Pulp s commercial strategy is based on multi-fibre product strategy and technical support Single product Multi-product Broad pulp grade offering combined with technical service strengthens UPM s customer relations and enhances regular business * UPM is large in specialty end-use segments where quality, product range and technical support matters the most Trusted business partner with own sales and marketing network, advanced technical service offering and outstanding environmental performance as well as stable quality pulp Modern and cost efficient assets, committed to grow with the customers Source: UPM 36

37 Stakeholder relations* UPM Biorefining Sustainability and environmental performance are increasingly important differentiators Poor / Basic Good/ Outstanding Performance of wood supply & mill operations Poor / Basic Good/ Outstanding * Including certificates, eco-labels, footprint analyses etc. Source: UPM Sustainability principles for UPM pulp Wood supply Legal and certified Biodiversity integrated in operations Net positive environmental gain Mill operations BAT and continuous improvement Eco-label criteria fulfilled Stakeholders Active dialogue and engagement of local, national and international stakeholders Proof Verified for internationally recognized eco-label Footprint analysis; carbon, water Recognized in Dow Jones sustainability index 37

38 UPM Biorefining Large modern assets allow growth through debottlenecking with high pay-off at low risk Pietarsaari pulp mill expansion 7,t Kymi pulp mill expansion 17,t Kaukas pulp mill efficiency improvement, paper and pulp decoupling completed Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Fray Bentos pulp mill expansion 1,t Capacity increase since 213 more than 5, tonnes with investments of ~ EUR 35m Kymi pulp mill expansion 17,t 38

39 UPM Biorefining Uruguay could be a competitive alternative time schedule is several years UPM Investment Decision Phase I Phase II Phase III 39

40 UPM Biorefining UPM Biofuels in existing and future end-use Fuel retail Dedicated green fleets Marine/Aviation 4

41 UPM Biorefining UPM Biofuels business evolving Technology and Business case proven Commercial start 215 UPM enters Biofuels Investment decision 212 Biocrude concept shaping Evaluate technologies, define business case Build Lappeenranta Biorefinery and Biofuels organization Establish Bioverno as a benchmark product and brand in biofuels Start evaluation of future growth opportunities

42 UPM Biorefining Significant emission cuts needed in transportation sector EU s greenhouse gas reduction targets cannot be met without significant emission cuts in transport actions needed in all sectors 8% by 25 EU s overall GHG reduction targets 4% by 23 25% of total emissions in Europe from transport Marine 14% Aviation 13% Road transport, heavy-duty 18% Road transport, light-duty 55% Drop-in biofuels are a solution for GHG reduction in all transport sectors Electric vehicles can be applied in light-duty road transport 6% by 24 Transport emissions by sector 42

43 UPM Biorefining All energy and technology options needed Decarbonizing European transport requires effective use of all energy and technology options renewable drop-in fuels a fast-lane solution GHG reduction gained by projected fuel economy improvement** GHG reduction by high electric vehicle adoption* GHG emissions %, reference year 25 Fossil share in fuel pool 22 mandated biofuel volume 4% reduction in road transport emissions vs. reference year 25 Additional need of sustainable drop-in biofuels by B7 E * Calculated based on Global EV sales outlook to 24 by Bloomberg New Energy Finance * Assuming EV s represent 38% of new car sales in Europe by 24 + EV s are fully emission free ** Assuming annual energy efficiency improvement of 2% in light-duty,,5% in heavy-duty

44 UPM Energy Cost competitive and flexible asset base Power generation breakdown 215 Condensing power Flexible hydro production with optimisation opportunities Nuclear as reliable base load with worldclass availability performance 44

45 UPM Energy Cost efficient generation enable robust profitability also in challenging market environment MWh 5 Market electricity prices vs UPM sales price Helsinki Front Year System Front Year UPM average sales price Profitability H1 216 Comparable EBIT, EURm as % of sales

46 UPM Raflatac Self-adhesive labels in end-use 46

47 UPM Raflatac Leading position in a growing market The self adhesive labelstock market > EUR 8bn global market ~ 4% p.a. growth Private consumption driven UPM Raflatac market shares EMEIA Americas APAC 15 % 1 % 25 % UPM Raflatac 75 % 85 % 9 % #2 globally Business in 12 countries > 8, customers 3, people in six continents 47

48 UPM Raflatac Versatile growth drivers in both developed and developing markets Brands & product innovations Constant drive to attract consumers Legislation Increased mandatory information Technology Self adhesive gaining share, E-commerce Population growth Total consumption growth Higher standard of living Expanding middle class Urbanisation Rapid development of retail, packaged foods & goods growth 48

49 UPM Raflatac Continuing growth 1. Capturing the market growth in the current markets and product areas 2. Increased distribution coverage and customer reach 3. Wider product portfolio 4. M&A when opportunities emerge Enabled by scalable operating platform & efficient investments Tailored marketing Producitivity Single households Reliability Population growth Consumerism Packaged food Ease of use Private consumption Label demand Urbanisation E-commerce Sustainablity Retailing changes Higher standard of living Product safety Differentation Regulation Shelf-appeal 49

50 UPM Paper Asia Focus on Labeling materials, Packaging and Office paper in Asia LABELING MATERIAL PACKAGING OFFICE PAPER ASIA 5

51 UPM Paper Asia Our end use markets are growing LABELING MATERIAL PACKAGING OFFICE PAPER ASIA CASE: Siliconized release liner market, 44 Bn m CAGR 5% 9% 3% Paper flexpack, k tonnes CAGR 2% 5% % Asian cut size market, million tonnes OTH AUS SEA KOR JPN CAGR 2.5% 6% -2% 3% 1%.6% -,5% E 2.5% 4% 4% E 3% 2% CHN E 5% ~$12 Bn ~$4 Bn ~$58 Bn Mkt value 51 Asia North America Europe South America MEA

52 UPM Paper Asia Global release liner market: Applications Medical 3 % Graphic film 5 % Food & bakery 5 % Envelope 2 % Others 3 % Hyiene 9 % 45.9 Bn m 2 Label 49 % Product functions: Release liner carries the adhesive and face material Prevents the adhesive from sticking permanently Important and often critical feature of a layered construction Industrial 11 % Tapes 13 % Source: AWA 52

53 Assets Go-to-market UPM Paper Asia UPM strengths in Release liner competitive assets and global customer base Deep customer relationships Focus on key accounts has significantly increased customer satisfaction UPM Capacity Global sales network Salesforce concentrating on LP&R products supporting local and global customers Superior product quality Quality stability and performance in low basis weight papers, comprehensive portfolio, and innovative products Manufacturing cost curve Operational efficiency Extensive production experience with a strong cost focus Competitive production platform Cost competitive machines and distribution network CSU PM3 TER PM8 TER PM5 53 Source: RISI, Poyry, UPM

54 UPM Paper Asia China is the main office paper market in Asia Consumption increase supported by UPM Paper Asia: position Economic growth is driving establishment of new enterprises UPM Establishment of new enterprises increases installation of new copiers China Other Asia Growing economy drives the need for more documentation, and increase in personal printer population UPM Paper Asia: sales growth CAGR +11% Urbanization supports demand for specialized business services

55 UPM Paper Asia Changshu mill: focus on growing end uses with a flexible swing production line Illustration: UPM Changshu Mill Quarterly Capacity Business plan 35 1, tons Accelerate growth of glassine 3 25 WFU spec Glassine WFC WFU spec Glassine Invest in the development of specialty grades end-use segments in packaging 2 15 WFU graphic WFU graphic WFC Service existing long-term customers with graphic paper grades (WFU and WFC) 1 Cut size Cut size Continue to grow in the quality copy paper segment primarily in China 55 WFU: wood free uncoated WFC: wood free coated Source: UPM

56 UPM Paper ENA Paper demand by end use different trends Million tonnes 2 Mt 6 Mt Book & Directories Home & Office Historically Home & Office end-use has been the most resilient to structural changes Despite the digital alternatives personal preferences (way of working and learning), regulation (archiving) and lack of common standards have mitigated the change 1 Mt Direct marketing A moderate decline has taken place in Direct marketing end-use Paper based marketing is still recognized to be the most effective medium for retailers and cataloguers 7 Mt Magazine publishing Steady decline in Magazine Publishing circulation and pagination, however number of titles increasing Publishers still rely heavily on the revenues from print 6 Mt Newspaper publishing Newspaper publishing being historically the most vulnerable to structural changes but remarkable differences between countries Source: Euro-Graph Monetizing digital circulation for Magazines and Newspapers continue to be challenging 56

57 UPM Paper ENA What does it take to perform in challenging markets? 1 Assets 2 Sales 3 Cost base 4 Cash flow stringent capacity management profound customerand market understanding smart initiatives in push mode performance management and discipline 57

58 UPM Paper ENA Key messages EUR million Cash flow Paper ENA has proven the ability to generate good results Strong focus on performance at all fronts resulting in attractive cash flow Not only WHAT we do matters, but also HOW we do matters Granular understanding of end use trends combined with an efficient use of a large operative platform continues to offer optimization opportunities LTM Q216 Cash flow from operating activities 58

59 UPM Paper ENA Demand-supply balance in European graphic paper is visible in margins EUR/t Price Cash cost of a marginal producer Sources: PPI, RISI, Pöyry 59

60 UPM Paper ENA Graphic paper prices EUR/t 1 Europe USD/t 11 North America USD/t 11 China News SC LWC WFC WFU News SC LWC WFC WFU Uncoated Woodfree Reels (1% chemical pulp) WFC r (1% chemical pulp) 6 Sources: PPI, RISI

61 UPM Plywood UPM Plywood in end-use Construction Vehicle flooring LNG shipbuilding 61

62 UPM Plywood Relevant high-end market offers meaningful growth potential Low-end markets EMEA market 12 Mm 3 Relevant market ~5 million m 3 High-end demanding applications & customers Medium range standard products EMEA region Global LNG business Europe is net importer of plywood Global plywood market ~84 Mm 3 Imports focus mainly on standard products in mid-low ranges Non-footprint markets Source: FEIC; FAOSTAT; UPM 62

63 UPM Plywood Selected focus end-uses provide further growth potential Share of sales 215 The recovery of the European construction sector is driving demand (annual growth 2 3% p.a.) Industrial applications Building and constructio n end-uses The financial crisis created a backlog for trailers driving the current replacement need (average growth 4% p.a.) The LNG market is expected to remain solid as countries secure energy availability, thereby supporting the demand for LNG vessels (existing orderbook for plywood based LNGC ~1 vessels) 63 Sources: Euroconstruct, West European trailer registrations for Big 7 Countries ( ), LNG World Shipping

64 UPM Plywood The way forward Otepää mill expansion Responding to market and customer demand in key segments Increase capacity to 9, m 3, representing 1% of UPM Plywood s capacity New bio-boiler to improve overall material efficiency and to lower environmental footprint The way forward Focused investments in existing production sites to maximise returns at low risk Continue with the proven commercial approach to further improve customer engagement 64

65 New business opportunities for UPM Biochemicals Biofuels Biorefinery Chemicals Biofibrils Lignin Biocomposites High volume products Economies of scale Drop-in applications Auxiliary for pharma R&D Industrial Applications Performance chemical New applications New material End-user product 1 kt renewable diesel Market entry 2 prod. sites 65

66 New separation technologies ensure best overall value capture Wood-to-Sugar-Process Sugar-to-Chemical-Process Glucose Chemical A Woody Biomass Xylose Chemical B Lignin 66

67 Petrochemical feedstocks Partial overlap with fossil-based value chains in chemicals Feedstocks Key Intermediates Chemical Building Blocks Final products Oil C1: Syngas C2: Ethylene Refinery C3: Propylene Gas Cracker Coal-toolefins C4: Butadiene C6: Benzene 6 Mtons Coal C7: Toluene C8: Xylene Biomass C5 Xylose C6 Glucose 1 Mtons 67

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