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UPM-Kymmene: Reinventing a 150-Year Forest Giant for the Post-Fossil Era
I. Introduction: The Griffin Awakens
In the depths of a Finnish winter, when frost clings to the birch forests and the pale sun barely crests the horizon, a mythical creature watches over the green gold of the north. The griffin—half-eagle, half-lion—has guarded UPM-Kymmene's destiny since 1899, making it Finland's oldest continuous corporate logo. But this is no ordinary business emblem. Depicted as half-lion, half-eagle, the griffin is the oldest mythical creature found on European coats of arms, dating back to the Middle Ages. In Finnish, the word griffin translates as 'aarnikotka', which refers to a protector or guardian of treasures. The griffin is over 5,000 years old, with roots in ancient Egyptian and Babylonian mythology.
Today, UPM-Kymmene stands at the intersection of industrial history and post-fossil innovation. The company operates globally and employs approximately 15,800 people worldwide, with annual sales of approximately EUR 10.3 billion. But the numbers only begin to tell the story.
The central question that defines UPM's modern era is deceptively simple: How did a 150-year-old paper company staring at secular decline become a leader in the bio-based economy? The answer involves existential crisis, visionary leadership, and one of the most audacious corporate transformations in European industrial history.
Consider the magnitude of the challenge. About half of UPM's revenue used to come from graphic paper—the magazine papers and newsprint that once dominated the company's sales. Yet readers migrated to digital screens, companies slashed print marketing budgets, and environmental consciousness grew. From 2006 through 2012, European and North American demand for these products declined by an average of 5% annually. For a traditional paper company, this was an extinction-level event.
As Henrik Ehrnrooth, Chair of the Board, noted when announcing the 2024 CEO transition: "Jussi has had a long and successful tenure as the President and CEO, almost 20 years. He took over a traditional, Finland-focused printing paper company and transformed it to an innovative, renewable materials company with international growth."
This article traces UPM's journey from its origins in the sawmills and paper mills of 1870s Finland, through the mega-mergers of the 1990s, the existential reckoning with digital disruption, and into its current incarnation as a diversified bio-economy pioneer. Along the way, the company built the world's first wood-based biodiesel refinery, invested $3.47 billion in a single pulp mill in Uruguay, and bet over €1 billion on a first-of-its-kind biochemicals facility in Germany.
The themes that emerge are universal to any industry facing secular decline: capital discipline in shrinking markets, the courage to cannibalize existing businesses, and the strategic patience to plant seeds that may take decades to harvest. For investors, the question is whether UPM's transformation represents a durable competitive advantage or an expensive bet on an uncertain future.
II. Origins: Finland's Forest Industrial Roots (1870s–1995)
To understand UPM-Kymmene, one must first understand Finland itself—a nation whose identity is inextricably linked to its forests. When Finland's earliest industrial pioneers built sawmills along the rushing rivers of the 1870s, they weren't just establishing businesses. They were creating the economic foundation for a nation that would gain independence from Russia in 1917.
UPM-Kymmene Corporation was established in the fall of 1995, but the company's history dates back to the beginnings of the Finnish forest industry in the 1870s. Those founding years saw the construction of the company's first paper mills and sawmills. The companies that form UPM's oldest roots are the water-driven sawmills that started operating in the 1760s in Ylitornio, Rovaniemi and Karelia. The number of sawmills multiplied in the late 1800s following the construction of the Saimaa Canal and the first rail connections. At the same time, the first paper mills appeared, established in Valkeakoski, Kuusankoski, Voikkaa and Jämsänkoski.
The first pulp mill began operations in Valkeakoski in 1880. Paper converting followed in the 1920s, and plywood manufacturing began in the 1930s. Each technology built upon the last, extracting ever more value from Finland's abundant timber resources.
The family tree of modern UPM reads like a history of Finnish industrialization itself. The UPM-Kymmene family tree consists of over one hundred sawmill, pulp, paper, plywood and wood product companies. The company's main roots are Rauma-Repola, United Paper Mills and Kymmene, with main branches including Rosenlew, Kaukas and Schauman.
The Griffin Is Born
By the late 19th century, competition was intensifying, particularly in the crucial Russian export market. The story starts at the end of the 19th century in Finland, when a considerable amount of the country's paper exports went to Russia. Eventually, growing competition and tighter trade customs required new business tactics. UPM's predecessor, Kymmene Aktiebolag, decided it needed to develop a distinctive logo for the export market.
The company hosted a competition for artists to create a new logo. Hugo Simberg, a Finnish painter and symbolist, won the competition with his griffin illustration. Kymmene Aktiebolag purchased the drawing in 1899, and it was officially accepted as the company logo in 1901.
It is now 150 years since the birth of the Finnish painter and graphic artist Hugo Simberg (1873-1917). The UPM logo has been in use for over 120 years. Simberg was a master of the symbolic and macabre—his most famous work, The Wounded Angel (1903), depicts two young boys carrying a wounded angel through a Finnish landscape. Simberg is known for his gloomy style and macabre, supernatural topics. He was encouraged to follow his symbolistic themes by his mentor, Akseli Gallen-Kallela, a visual artist known for his interpretations of Kalevala, the Finnish national mythology.
Why did Simberg choose the griffin? First and foremost, the griffin was the guardian of gold. This could explain why Hugo Simberg most likely chose the mythical creature who, in this case, is guarding the green gold of the forests.
The Waves of Consolidation
Finnish forest companies understood early that scale mattered. To succeed in the fierce competition of western markets, Kymmene, Kuusankoski and Voikkaa merged in 1904 to form Kymi Oy—the largest paper company in the Nordic region at the time of its birth.
The pattern repeated across decades: 1920 saw the merger that created the original United Paper Mills from the Simpele, Myllykoski and Jämsänkoski mills. Later, in 1934, the Valkeakoski mill also joined the new company.
The next wave of structural changes came during the post-war period in the 1950s. In 1952 Rauma-Raahe, Repola-Viipuri and Lahti company merged into the country's biggest industrial company, Rauma-Repola.
The 1960s was a decade of strong expansion. Within a decade, 26 paper machines had been built in Finland, and annual paper production capacity rose from 1.4 to 3.5 million tonnes.
By the early 1990s, Finland's forest industry had consolidated into approximately thirty companies. But the country was emerging from a severe economic depression, and the logic of further consolidation was irresistible.
III. The 1996 Mega-Merger: Creation of UPM-Kymmene
The announcement came in autumn 1995, rippling through Helsinki's business community like a cold front sweeping in from the Baltic. One of the biggest structural changes in a nation recovering from the depression of the early 1990s took place in autumn 1995 as Kymmene and Repola Ltd. struck a deal: United Paper Mills and Kymmene were merged to UPM-Kymmene and metal industries were cut off to Rauma Oy. The new company began operations in the beginning of May of the following year under the iconic griffin logo.
UPM-Kymmene Oyj is a Finnish forest industry company. UPM-Kymmene was formed by the merger of Kymmene Corporation with Repola Oy and its subsidiary United Paper Mills Ltd in 1996.
The merger created a European paper powerhouse with immediate global implications. The combined entity became the largest paper producer in Europe, with capacity exceeding 7 million metric tons per year. Management projected eventual savings of up to 2 billion Finnish marks (approximately €336 million at the time) in transportation, logistics, timber procurement, and sales.
Leadership Dynamics
Shareholders selected Juha Niemalä as UPM-Kymmene's first President and CEO. His appointment was notable for its strategic implications: Niemalä came from a marketing background rather than the operations-heavy forestry tradition. This signaled a recognition that the new mega-company would need to compete globally on commercial agility, not just production efficiency.
A strategic committee of three forest-industry veterans—Tauno Matomäki, Yrjö Niskanen, and Casimir Ehrnrooth—was initially formed to act as a spending watchdog. But shareholders took much of this committee's power away at their annual meeting in April 1997, expressing confidence in Niemalä's leadership. Despite this vote of confidence, Niemalä governed with restraint, putting several large investments on hold while continuing necessary plant upgrades.
At the beginning of the millennium, there were only four large forest industry groups in Finland, whereas a decade earlier there were approximately thirty. Finland was too small for these big groups, which in addition to strengthening their positions in Central Europe began going global by acquiring portions of the North American and Asian paper markets.
The newly formed UPM-Kymmene inherited an extraordinary industrial heritage. UPM is the owner and maintainer of the Verla mill, which has been a museum since 1972 and a UNESCO World Heritage Site since 1996. The company's oldest mill was Papeteries de Docelles located in northeastern France, which produced traditional handpaper at the end of 15th century.
For investors at the time, the merger thesis was straightforward: scale would drive efficiency, and a diversified product portfolio would weather cyclical downturns. What few anticipated was that the fundamental demand for the company's core product—graphic paper—would soon enter permanent decline.
IV. Growth by Acquisition: The Paper Empire Expands (1997–2005)
The late 1990s and early 2000s represented UPM's imperial era in graphic papers. Management believed that scale could overcome any challenge, and they pursued it with relentless focus.
In 1997, UPM acquired Blandin Paper Company in the United States, establishing a significant North American foothold. But the defining transaction of this era came in 2001: the acquisition of Haindl Papier in Germany.
The Haindl deal was a study in the complexities of mega-scale consolidation. UPM-Kymmene purchased all shares of G. Haindl'sche Papier Fabriken KgaA, a transaction that would have created potential monopoly concerns in European publication papers. The merger was finalized in November 2001 after scrutiny by EU regulatory authorities. To address competition concerns, UPM-Kymmene agreed to sell two of the six Haindl mills to competitor Norske Skog.
Through bigger acquisitions, like the German Haindl Group (2001) and the Myllykoski Group (2011), UPM further strengthened its position in the European market for graphic papers and reinforced its portfolio in the area of recycled fibres.
In 2002, the company expanded beyond paper through the €420 million acquisition of Morgan Adhesives Company (MACtac), entering the label materials business. This acquisition would prove prescient—label materials would become one of UPM's growth engines when paper volumes declined.
Early Sustainability Signals
Even during this expansion phase, signs of changing priorities emerged. In 2001, UPM joined forces with competitor Stora Enso and Tampere University of Technology to research biodegradable barrier-coated paper products and recycling strategies. The forest industry was beginning to recognize that sustainability wasn't just good ethics—it was becoming a competitive requirement.
The company also made its first moves into South American pulp during this period. Metsä Botnia, a part of Metsä Group, opened Fray Bentos factory in Uruguay in 2007. Until the end of 2009 the owners of Metsä-Botnia were M-real 30%, Metsä Group 23% and UPM-Kymmene (UPM) 47%, and since the end of 2009, UPM 91% and Metsä Group 9%.
This Uruguayan footprint—initially a minority investment—would later become the foundation for UPM's largest-ever capital project.
V. The Reckoning: Digital Disruption Hits Paper (2006–2012)
The tipping point came quietly at first—a slight decline in magazine advertising pages here, a newspaper circulation drop there. But by 2006, the pattern was unmistakable. The digital revolution was rewriting the rules of media consumption, and paper manufacturers were on the wrong side of history.
The forces of decline converged from multiple directions. Readers migrated to screens. The 2008 financial crisis accelerated the shift as companies slashed print marketing budgets. Environmental consciousness added another headwind as consumers in developed markets sought to reduce paper consumption.
The numbers were brutal. From 2006 through 2012, graphic paper demand in Europe and North America declined by an average of 5% annually. Worse, excess capacity across the entire paper industry pushed down prices even as costs remained sticky.
The Painful Response
Due to worldwide overproduction of paper UPM announced a cost reduction program in 2006. Voikkaa paper mill in Kuusankoski was closed. Nearly 3,000 employees in Finland were laid off.
For a company deeply embedded in Finnish industrial identity, these cuts were agonizing. The Voikkaa mill had operated since the late 19th century. After the closure the area has been transformed into Voikkaa business area.
The Miramichi paper mill in New Brunswick, which UPM acquired in 2000, was closed in 2007. Also a number of plywood mills and sawmills were closed during the years. In December 2008 UPM closed Kajaani paper mill and Tervasaari pulp mill in Valkeakoski. 1,100 employees were laid off. The former premises of the Kajaani mill were turned into a business park called Renforsin Ranta.
The Counterintuitive Move: Buying More Paper
In a move that seemed paradoxical to observers, UPM doubled down on paper assets in 2011. The overcapacity continued in graphic paper business and in 2011, UPM acquired Myllykoski Corporation and Rhein Papier GmbH, which consists of seven publication paper mills in Germany, Finland and the United States.
The logic was counterintuitive but defensible: in a declining market with inevitable consolidation, the strongest players would inherit market share as competitors exited. By acquiring Myllykoski, UPM positioned itself to be the last one standing—and to harvest cash from the declining business to fund investments in growth areas.
In France, UPM closed Stracel paper mill in 2013 and Docelles paper mill in 2014. Madison paper mill in the USA was closed in 2016. The Schwedt paper mill in Germany was sold in 2017. Kaipola paper mill in Finland was closed in 2020.
The strategic message was clear: UPM would manage the paper business for maximum cash generation while systematically redeploying that capital into growth businesses. This approach—simultaneously aggressive consolidation and managed decline—became a template for capital allocation that would define the Pesonen era.
VI. The Biofore Strategy: A Bold Pivot (2012–2015)
January 2004 marked a turning point that would only become apparent with hindsight. Jussi Pesonen became the President and CEO of UPM-Kymmene Corporation in January 2004. He is also a member of the company's Board of Directors since March 2007.
Pesonen inherited a company already in transition but accelerated the transformation with a coherence and ambition that distinguished his tenure. The crystallization of this vision came in 2012 with the formal articulation of the "Biofore" strategy—a portmanteau combining "bio" and "forest" that encapsulated UPM's aspiration to transcend traditional paper.
"Lappeenranta is the first step on UPM's way in becoming a significant producer of advanced second generation biofuels. This is also a focal part in the realisation of our Biofore strategy," said UPM President and CEO Jussi Pesonen.
The Lappeenranta Biorefinery
The first tangible expression of the Biofore strategy came in Lappeenranta, Finland. In February 2012, UPM announced it would invest in a biorefinery producing biofuels from crude tall oil in Lappeenranta, Finland. The industrial scale investment was the first of its kind globally. The biorefinery would produce annually approximately 100,000 tonnes of advanced second generation biodiesel for transport. Construction would begin in the summer of 2012 at UPM's Kaukas mill site and be completed in 2014. UPM's total investment would amount to approximately EUR 150 million.
The biorefinery produces annually approximately 130,000 tonnes of advanced second generation biodiesel for transport. Construction of the biorefinery began in the summer of 2012 at UPM's Kaukas mill site and was completed in 2014. UPM's total investment amounted to approximately EUR 179 million.
UPM built a €175 million biorefinery without any public investment grants. Construction of the UPM Lappeenranta Biorefinery started in summer 2012 and the foundation stone was laid in November of the same year. The construction employed nearly 200 people for approximately two years.
In 2015, the production of wood-based biofuels started at the biorefinery in Lappeenranta, Finland.
Since 2015, the refinery has been at the forefront of developing renewable alternatives to fossil-based fuels and materials, driving the decarbonisation of the transport and petrochemical industries.
UPM produces a cost-competitive high quality transport fuel that truly decreases emissions. The biorefinery started in commercial scale in January 2015, reached break-even at the end of 2015, and improved profitability further in 2016.
The Innovation Push
Beyond biofuels, UPM accelerated innovation across multiple fronts. The company increased its annual patent applications by 280% from 2008 levels, signaling a fundamental shift from production-focused to innovation-driven strategy.
UPM ProFi composite is a Biofore material that combines the characteristics of cellulose fibres and plastic. Manufactured mainly from recycled raw material, the composite is suitable for use in patios, terraces, piers and playgrounds. The material does not require polishing, lacquer finishing or other surface finishing.
The Biofore concept extended to radical partnerships. UPM established a source of renewable sugars through a partnership with Renmatix. In June 2013, UPM and Renmatix signed a non-exclusive joint development agreement to further develop Renmatix's water-based Plantrose process, which converts woody biomass into low-cost sugar intermediates for biofuels.
The Portfolio Transformation
The results of this strategic pivot became measurable within a few years. Revenue from declining paper markets fell from approximately 70% in 2006 to below 50% by 2016. The company was systematically reshaping its portfolio while competitors struggled to articulate a vision beyond cost-cutting.
"UPM is in a unique position today," Pesonen said in 2020. "We have truly transformative growth projects in Uruguay and in Germany under construction, proceeding at full speed. These will have a significant impact on our future earnings and returns, as well as the positioning of the whole company."
VII. The Uruguay Play: A $3.5 Billion Bet on Global Pulp
If the Lappeenranta biorefinery was a strategic proof of concept, the Uruguay investment was transformation at scale. In July 2019, UPM announced that it will invest US$2.7 billion in a eucalyptus pulp mill near Paso de los Toros in central Uruguay. The new pulp mill was started up in April 2023 with a total investment of US$3.47 billion and has a production capacity of 2.1 million tonnes of pulp per year.
This wasn't just a large investment—it was transformative. With an increase of more than 50% in UPM's current pulp capacity, this growth investment creates a step change in the scale of UPM's pulp business and future earnings.
The Uruguayan Platform
UPM's Uruguay story began much earlier. For a long time now the Uruguayan forest industry and UPM have been able to advance hand-in-hand, largely thanks to the national Forestry Law which was enacted in 1987. The aim of the law was to diversify the country's industrial portfolio, ensuring sustainable land use and protection for its natural forests. UPM was integrated into this transition almost from the beginning, planting its first eucalyptus seedlings in 1990.
UPM Uruguay's Vice President, Pulp and Forestry Operations, Marcos Battegazzore, noted that the company now has 16 years' experience running the UPM Fray Bentos mill and more than 30 years' experience in sustainable forestry in Uruguay.
The Paso de los Toros Mill
With a capacity to produce 2.1 million tons of eucalyptus pulp per year, the Paso de los Toros mill is the biggest in Uruguay and the world's biggest single line mill in operation.
The total USD 3.47 billion project—covering the mill and Montevideo port terminal as well as investments in the local infrastructure—marks the largest investment in UPM's history.
The inauguration event was attended by the President of Uruguay Luis Lacalle Pou, several ministers and representatives of other stakeholders who have participated in the successful execution of UPM's growth project in Uruguay.
The Economics
The investment thesis rested on a crucial competitive advantage: plantation-based eucalyptus pulp at world-leading costs. With the expected cash cost level of approximately USD 280 per delivered tonne of pulp that UPM confirmed, the UPM Paso de los Toros will be one of the most competitive mills in the world and enables attractive returns for the investment in various market scenarios.
The mill reached its nominal annual production capacity of 2.1 million tonnes of eucalyptus pulp in the spring of 2024.
Taken together, UPM's total value chain in Uruguay—eucalyptus plantation operations, the Fray Bentos and Paso de los Toros pulp mills and related logistics—combined with its contractors creates approximately 7,000 direct and 10,000 induced jobs in the country.
The mill will also contribute around 1 TWh of surplus green electricity per year to the Uruguayan power supply.
Full Production Achieved
The UPM Paso de los Toros pulp mill reached full production in 2024. The railway from UPM Paso de los Toros to the port of Montevideo was in full use by the end of 2024 and, thus, the new platform is now in complete operation.
In renewable fibres, 2025 will be the first year of full production at the Paso de los Toros pulp mill in Uruguay. This will add approximately 300,000 tonnes of pulp production compared with 2024 and unlock further potential in the highly competitive Uruguayan platform. UPM expects a reduction in production costs in Uruguay in 2025 and plans for debottlenecking opportunities at the mills to increase production further in the medium term.
VIII. The Next Frontier: Biochemicals & Beyond Fossils (2020–2025)
If Uruguay represented scale in a proven business model, the Leuna biochemicals project represented something more audacious: an attempt to pioneer an entirely new industry.
UPM is investing EUR 1,180 million to build the world's first industrial scale biorefinery in Leuna that will convert sustainably sourced, certified hardwood into next generation biochemicals—enabling the vital shift away from fossil-based to renewable materials across a wide range of industries.
UPM's biorefinery will convert solid wood into next generation biochemicals: bio-monoethylene glycol (BioMEG) and lignin-based renewable functional fillers. In addition, the biorefinery will produce bio-monopropylene glycol (BioMPG) and industrial sugars.
The Applications
The potential applications span industries: Renewable Bio-Monoethylene Glycol (BioMEG) will serve as a base material for various industrial products and consumer goods, such as PET bottles, packaging materials, polyester textiles and engine & battery coolants. Renewable Bio-Monopropylene Glycol (BioMPG) will be ready to be converted into cleaning agents, deicing fluids, fragrances, and cosmetics. As they can be fully integrated into existing production and recycling processes, they enable the transformation of the entire chemicals value chain towards renewable circularity.
The Challenging Construction
Building a first-of-its-kind facility is inherently risky, and UPM's Leuna project encountered significant headwinds. The Leuna Biorefinery is a first-of-its-kind project, which has been implemented during a series of external crises, such as the COVID-19 pandemic and the war in Ukraine with subsequent resource and supply chain challenges.
As the project approached completion, UPM made an impairment of EUR 373 million on the biorefinery assets resulting from the cost overruns and construction delays during the project. The book value of the refinery now reflects the estimated cost to construct a similar plant.
At the Leuna Biorefinery, UPM initiated the commissioning and start-up in late 2024 and has made good progress in most units. However, during the quality assurance checks they identified certain corrective works required in the sugars-to-chemicals process. These works have been arranged and will take a few months. Meanwhile, the sequential start-up in the other units continues. The integrated commercial production of the site is expected to start in H2 2025.
Customer Validation
Despite the construction challenges, commercial interest has validated the strategic thesis. Commercial interest for UPM's biochemical products and side streams has been confirmed with customer agreements. UPM is managing a sales and customer qualification pipeline that is multiple times the annual capacity. This allows the company to optimize the product mix.
Commercial production at the Leuna site is expected to begin in the second half of 2025. Commercial interest in the products and side streams is confirmed with an opportunity pipeline multiple times the annual capacity of the refinery.
UPM Biochemicals expects the biorefinery to reach full capacity and positive earnings before interest and taxation in 2027.
IX. The Business Model Today: Six Pillars
UPM consists of six business areas: UPM Fibres, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood.
UPM Fibres (Pulp & Timber)
UPM Fibres consists of pulp and timber businesses. UPM has five modern pulp mills: three in Finland and two in Uruguay, and also four sawmills in Finland. The pulp mills produce 5.8 million tons of high quality pulp annually. 27% of the company's comparable EBIT came from UPM Fibres in 2022.
The geographic diversification is strategically significant. Finnish mills produce softwood and birch pulp, while Uruguayan mills produce eucalyptus pulp. This dual-hemisphere platform provides supply security and market flexibility that few competitors can match.
UPM Energy
UPM Energy's power generation capacity consists of hydropower, nuclear power and thermal power. UPM Energy is the second largest electricity producer in Finland. UPM owns 47.69% of Pohjolan Voima Oyj, which is a majority shareholder (58.5%) in Teollisuuden Voima Oyj (TVO). UPM also owns 9 hydropower plants in Finland.
The energy business provides a natural hedge against electricity price volatility that affects UPM's other operations, while generating CO2-free power that supports the company's sustainability credentials.
UPM Raflatac (Label Materials)
UPM Raflatac has a strong number two position in the global labelling markets. The business manufactures labelling materials for branding and promotion and information labelling in the food, beverage, personal care, pharmaceutical and retail segments. With the acquisition of Metamark, combined with the recent acquisitions of Grafityp and AMC, UPM is expanding the graphics solutions business further, gaining a significant position in the attractive market.
UPM Specialty Papers & UPM Communication Papers
The specialty papers business aims to capture growth in faster-growing geographies and flexible packaging. Communication Papers—the legacy graphic paper business—operates under managed decline, optimizing for cash generation while systematically reducing the fixed cost base.
The UPM Group has sharpened the corporation's strategic focus by envisioning a future beyond fossils. Paper as a product is ideally embedded within this strategic approach—it serves as the blueprint for a bio-based circular economy, made from renewable materials and efficiently recyclable.
UPM Plywood
UPM Plywood offers high-quality WISA® plywood and veneer products for construction, vehicle flooring, LNG shipbuilding, parquet manufacturing and other industrial applications with annual production capacity of 805,000 cubic metres.
Emerging Businesses (Biofuels & Biochemicals)
The decarbonization solutions segment includes both the Lappeenranta biofuels operation (now with 10 years of commercial track record) and the emerging Leuna biochemicals business.
X. Recent Performance & 2024 Financial Results
Comparable EBIT increased by 21% to EUR 1,224 million (from 1,013 million in 2023), representing 11.8% of sales (versus 9.7% in 2023). Operating cash flow was EUR 1,352 million. Net debt increased to EUR 2,869 million and the net debt to EBITDA ratio was 1.66.
President and CEO Massimo Reynaudo commented on the results: "Our performance in 2024 improved from the previous year, supported by a good contribution from the new pulp mill in Uruguay and modestly improved volumes in the advanced materials businesses."
However, the recovery in our product markets slowed down in the second half of the year.
UPM implemented decisive measures to improve performance and was able to reduce fixed costs by EUR 103 million during the year.
Capital Returns
The Board proposed a dividend of EUR 1.50 per share for 2024, and commenced UPM's first share buy-back program of approximately 1.1% of total number of shares.
The initiation of share buybacks marked a significant milestone—signaling management's confidence that the major capital investment cycle (Uruguay and Leuna) is substantially complete and the company can return excess capital to shareholders.
Segment Performance Dynamics
In decarbonisation solutions, UPM Biofuels had a clear negative impact on the 2024 result throughout the year due to the significant downturn in the renewable fuels market. The performance is now expected to improve with decreasing variable costs and somewhat improved market conditions.
In 2024, nearly three quarters of the company's sales came from its product range in renewable fibres, advanced materials and decarbonisation solutions. Geographically, already 46% of sales originated from outside Europe.
Earnings Sensitivity
The company's earnings remain highly sensitive to pulp and electricity prices. UPM is a large producer and consumer of chemical pulp. A EUR 50/tonne change in average pulp price would impact annual comparable EBIT by approximately EUR 170 million (net impact: assuming no correlation between pulp and paper prices) to approximately EUR 270 million (gross impact: assuming paper pricing would match changes in pulp costs).
Based on UPM's estimated unhedged net electricity sales position in Finland in 2025, a EUR 10/MWh change in average electricity market price in Finland would impact annual comparable EBIT by approximately EUR 30 million.
XI. Playbook: Strategic Analysis & Investment Considerations
The Leadership Transition
Massimo Reynaudo was appointed President and CEO of UPM-Kymmene Corporation as of 1 January 2024. Jussi Pesonen continued as President and CEO until 31 December 2023, after which he worked as an advisor to the Company until he retired from UPM on 30 April, 2024.
Reynaudo has been with UPM since 2017. An Italian citizen born in 1969, he served as Executive Vice President, UPM Communication Papers prior to the CEO role. Before that, he served as Senior Vice President of UPM Raflatac from 2017 to 2021. Earlier in his career, between 1995 and 2017, he held several senior positions at Kimberly-Clark Corporation. He has a master's degree in engineering from Politecnico di Torino and additional studies in business administration and management. The Board characterized him as having "an excellent international background and a very solid track record at UPM as an engaging change leader."
Jussi Pesonen retired from UPM after 37 years of service. His twenty-year motto—"From promise to performance and profits"—encapsulated an era when UPM transformed from a declining paper company into a diversified bio-economy leader.
Competitive Landscape
UPM operates across multiple competitive arenas. In pulp, the company faces global competitors including: Suzano S.A., Empresas CMPC SA, APRIL, Metsä Group, Georgia-Pacific LLC among others.
Suzano is among the largest pulp producers in the world and is considered the largest paper manufacturer in Latin America. The company boasts a pulp production capacity of 13.45 million tonnes per year.
Other companies also operate in this market, such as Finland's UPM, which supplies around 5 million tons of pulp.
The Finnish competitive dynamic is particularly intense. China's economic slowdown is echoing through global markets, hitting sectors heavily reliant on it, including Nordic forestry firms like UPM-Kymmene and Stora Enso. These companies struggle with decreased demand and lower pricing power in China, crucial for their operational strategies.
Porter's Five Forces Analysis
Supplier Power (Moderate): Wood supply in Finland remains structurally tight. In Finland, the wood market continued to be structurally tight, keeping wood costs high and availability limited. UPM has mitigated this through the Uruguayan platform with plantation-based supply.
Buyer Power (Moderate to High): Pulp is a commodity, giving buyers significant leverage. However, UPM's diversification into specialty papers and label materials provides pockets of differentiation.
Threat of Substitutes (High in Paper, Low in Pulp): Digital substitution decimated graphic papers. Pulp faces lower substitution risk as tissue, packaging, and hygiene products remain physical necessities.
Threat of New Entry (Low): Capital intensity, forest access requirements, and scale economics create high barriers. The Uruguay platform required $3.47 billion and decades of forestry infrastructure development.
Competitive Rivalry (High): Major players compete intensely on cost, scale, and sustainability credentials. UPM is the only paper company listed in the global Dow Jones Sustainability Index.
Hamilton Helmer's 7 Powers Framework
Scale Economies: The Paso de los Toros mill exemplifies scale advantages with industry-leading cost positions. Expected cash cost of approximately USD 280 per delivered tonne ranks among the lowest globally.
Network Effects: Limited. This is primarily a physical goods business.
Cornered Resource: UPM's Uruguayan plantation base—decades of cultivation, logistics infrastructure, and government relationships—represents a difficult-to-replicate resource.
Counter-Positioning: The Biofore strategy positions UPM for a post-fossil economy that traditional competitors may be slow to pursue due to incumbent business model conflicts.
Switching Costs: Moderate in pulp (commodity); higher in specialty papers and label materials where customer qualification processes create friction.
Branding: The sustainability credentials (Dow Jones Sustainability Index, EcoVadis Platinum) create differentiation with environmentally-conscious customers.
Process Power: Operational excellence in managing the transition from declining paper to growth businesses represents accumulated organizational capability.
Myth vs. Reality
| Consensus View | Reality Check |
|---|---|
| "Paper is dead" | Paper is declining but remains a substantial cash generator; the managed decline approach has proven effective |
| "Biofuels are profitable" | UPM Biofuels had a clear negative impact on 2024 results due to renewable fuels market downturn |
| "Uruguay provides guaranteed returns" | Mill is cost-competitive but pulp prices remain cyclical; weak demand and falling prices in China affect profitability |
| "Biochemicals will transform the company" | Technology is promising but EUR 373 million impairment reflects execution challenges and path to profitability extends to 2027 |
Key Risks & Regulatory Considerations
Pulp Price Cyclicality: The company's earnings are highly sensitive to pulp prices, which are driven by global supply/demand dynamics and Chinese economic conditions.
Execution Risk on Biochemicals: The Leuna project represents first-of-its-kind technology with no proven commercial track record at scale.
Energy Price Exposure: Finnish electricity prices affect both costs (in paper/pulp production) and revenues (through the Energy segment).
Regulatory/ESG Evolution: Sustainability regulations in Europe continue to evolve. While UPM is well-positioned, changing requirements could affect competitive dynamics.
Finnish Wood Supply: Structurally tight wood markets in Finland constrain domestic pulp production economics.
Key Performance Indicators to Monitor
For investors tracking UPM's ongoing performance, three KPIs stand out as most critical:
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Pulp Cash Cost per Tonne (Uruguay): The targeted ~USD 280/tonne delivery cost is central to the Uruguay investment thesis. Deviations would significantly affect returns on the $3.47 billion investment.
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Comparable EBIT Margin by Segment: The portfolio transformation thesis depends on growth businesses (Fibres, Raflatac) outpacing the decline in Communication Papers. Segment margins reveal whether the transition is creating or destroying value.
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Net Debt to EBITDA Ratio: Currently at 1.66, this metric reflects the company's capacity to weather cyclical downturns and fund future growth. Management targets below 2x, and the trajectory will indicate capital allocation flexibility.
Valuation Context
The UPM-Kymmene PE ratio based on its reported earnings over the past 12 months is 12.97. The shares last closed at €22.27.
The analyst consensus target price for shares in UPM-Kymmene is €27.70, which is 24.38% above the last closing price.
The UPM-Kymmene dividend yield is 6.41%.
The average 12-month price target for UPM-Kymmene is EUR 25.91, with a high estimate of EUR 32 and a low estimate of EUR 21. 8 analysts recommend buying the stock, while 4 suggest selling.
XII. Bull Case & Bear Case
Bull Case
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Transformed Portfolio with Structural Tailwinds: Nearly three-quarters of sales now come from renewable fibres, advanced materials, and decarbonization solutions—all aligned with global sustainability megatrends.
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Uruguay Platform Economics: With industry-leading cash costs and further debottlenecking potential, the Uruguayan pulp platform provides durable competitive advantage in the growing global pulp market.
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Biochemicals Optionality: If Leuna succeeds, it pioneers a new high-margin industry at the intersection of chemistry and forestry. The impairment has already reset expectations, creating potential for positive surprises.
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Capital Return Capacity: Major investment cycle substantially complete; first-ever buyback program signals confidence in free cash flow generation.
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Sustainability Leadership: UPM was listed as the only forest and paper industry company in the Dow Jones Global and European Sustainability Indices for 2024–2025. EcoVadis awarded UPM the highest possible Platinum level for sustainability performance for which only 1% of over 100,000 companies assessed globally attain.
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Energy Segment Value: Second-largest electricity producer in Finland with CO2-free generation provides natural hedge and earnings stability.
Bear Case
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Pulp Price Cyclicality: Global pulp markets remain volatile. Chinese economic weakness directly impacts UPM's largest pulp market, as China contributed €1.53 billion, or 15% of UPM's 2023 net sales.
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Biochemicals Execution Risk: Cost overruns and delays at Leuna may foreshadow ongoing operational challenges. First-of-its-kind technology carries inherent uncertainty about commercial scalability.
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Biofuels Market Headwinds: The renewable fuels market experienced significant downturn in 2024. Regulatory uncertainty around biofuels mandates could affect long-term economics.
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Finnish Cost Position: In Finland, the wood market continued to be structurally tight, keeping wood costs high and availability limited. UPM established a new operating model in H2 2024 that optimises the profitability of the Finnish Fibres platform to operate pulp mills profitably despite unsustainably high wood costs.
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Communication Papers Terminal Decline: While managed for cash, the core paper business continues to shrink. Any acceleration in decline or competitive pressure could squeeze cash flows faster than expected.
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Leadership Transition Risk: Massimo Reynaudo assumed the CEO role in January 2024, bringing a different background than his predecessor. The company's strategic direction depends on successful continuation of the transformation.
XIII. Conclusion: The Guardian Reimagined
One hundred and twenty-five years after Hugo Simberg first sketched a mythical guardian of treasures, the griffin still watches over UPM's destiny. But the treasure it guards has fundamentally changed.
The company that began as sawmills along Finnish rivers, consolidated through a century of mergers, and faced extinction when digital technology rendered its core product obsolete has emerged as something entirely new: a bio-economy platform spanning continents, technologies, and industries.
The transformation wasn't preordained. It required the vision to see opportunity in existential threat, the discipline to harvest cash from declining businesses rather than chase lost glory, and the courage to commit billions to unproven technologies and distant geographies.
As Jussi Pesonen said upon his retirement: "Together, we have come a long way and reinvented UPM to the benefit of all our stakeholders. I am extremely proud of all that we have achieved during the last twenty years."
The transformation continues under new leadership. Massimo Reynaudo stated: "UPM has a good operating model and very committed employees. Together we will continue to implement our strategy and create a future beyond fossils."
For investors, UPM-Kymmene represents a bet on multiple hypotheses: that global demand for sustainable materials will continue growing, that plantation-based pulp can maintain cost advantages over boreal competitors, that first-mover advantages in biochemicals will materialize, and that the transition from old economy to new can be managed profitably.
The griffin—that ancient guardian born of Hugo Simberg's imagination in 1899—now watches over not just forests, but over the more complex treasure of a transformed company navigating an uncertain future. Whether it will continue to guard that treasure successfully for another century remains the open question that every investor must answer for themselves.
Material Legal/Regulatory Considerations: - The European Commission has conducted investigations into potential cartel behavior in the pulp sector, with UPM stating it supports the Commission in its investigation. - Evolving EU sustainability regulations may affect competitive dynamics in the forest products industry. - The Leuna biochemicals project received German state support; regulatory changes could affect economics.
Accounting Considerations: - EUR 373 million impairment on Leuna biorefinery reflects management judgment on future cash flows - Fair value adjustments on Finnish forest assets (EUR 105 million in Q4 2024) affect reported earnings - Pulp price sensitivity creates earnings volatility that may obscure underlying operational trends
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