• Transformation journey since 2009: In 2009, sales comprised 60% Communication Papers (EBIT margin: 5%) and in 2019, Growing businesses are now 60% (EBIT margin: 16%). This has been driven by fixing the balance sheet, driving performance and preparing for growth. Focus has been on LT fundamentals for demand growth and high barriers to entry, with strict return requirements. New growth projects likely to comprise up to 70% of revenue with ROCE targets > 20% (group ROCE hurdle: 10%). This will be supported by an industry leading balance sheet (net debt/EBITDA < 0.5x).  
  • Future beyond fossil fuels is a key driver for UPM and its investment case: Not only does UPM have firm commitments to tackle climate change, but they have also factored climate change into their asset portfolio optimisation by reducing their reliance on Finland and adding Uruguay to the mix. Site risks mostly relate to more frequent and severe extreme weather events locally. This means forests will grow faster in Finland, although this may be partly offset by increasing disturbances. In contrast, projected changes impacting Uruguay are limited to a slight increase in rainfall, continuing to support forestry and industrial operations. UPM has carbon storage of 390mt in Finland with an carbon sink of 1.3mtpa. UPM Uruguay is expected to have a 40mt carbon storage (in 30 years) and carbon sink of 3.5mtpa.
  • UPM Biofuels has proven track record in renewable fuels & naphtha: Their existing Lappeenranta biorefinery (130ktpa) has an EBIT margin of 20% and ROCE of 26%. It was the world’s 1st bio refinery producing renewable diesel & naphtha from wood-based residues. Now, UPM has an innovative refinery (500ktpa) planned using saw dust & bark residues (means no increase in harvesting or land use & is outside food value chain). Now prepping for basic engineering phase & optimal site selection.
  • Barriers of entry high in Biochemicals & strong pull to replace fossil-based chemicals: UPM’s new Biochemicals business has been 8 years in the making by assessing sites, technologies, chemical markets & chemicals. UPM is investing EUR 550m on an industrial scale biorefinery with a total capacity of 220ktpa at their Leuna facility. Key products: BioMEG (packaging, textiles & films: global demand c.30mtpa and growing at 1.3mtpa/CAGR: 3.7%) & Renewable functional fillers (various rubber & plastic end uses: global market 15mtpa & growing at 0.5mtpa/CAGR: 3% pa).   
  • UPM Raflatac Labelling to benefit from LT demand growth of 3-4% pa: 70% of their business is focussed on food, beverages, homecare and pharma, with 15% from logistics and the remaining 15% from durables, tyres and luxury goods.  
  • UPM Specialty Papers: Leading position in growing label & release paper markets (market growth: 3-4% pa), while having selective approach in consumer pack. (global flexible pack. growth: 2-4% pa), with opportunity for paper to take plastic share.
  • Pulp fundamentals remain robust supported by virgin pulp replacing recycled fibre in growing end uses (tissue, board and specialty): UPM Biorefining to benefit from Pulp after establishing forestry operations to FID, which took 30 years. Their USD 3bn investment in Uruguay (2.1mt eucalyptus pulp mill: 424k ha of sustainably managed plantations) is supported by efficient logistics (deep sea pulp terminal with direct rail access). The mill will have an impressive cash cost of USD 280/t delivered.
  • Uncertainties for paper demand recovery remain and drivers in demand decline trend: UPM remains committed to their Communication Papers segment but highlighted the need to actively manage capacity and cost competitiveness. They have 7mt capacity (1.8mt newsprint; 3.5mt magazine papers & 1.7mt fine paper).

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