Welcome everyone to UPM's 2020 Capital Markets Day. My name is Mika Mikkola. I'm the head of investor relations at UPM, and I will be your host today.
My name is Ken Råman. I'm the group treasurer of UPM.
Safety is top priority at UPM. That's why, given the situation in the world today, we have also decided to hold this event purely in virtual format.
For the same reason, we have also decided to combine our traditional Bankers Day with the Capital Markets Day. I also want to wish all representatives for the UPM banking group welcome, and hope you will find the day interesting and informing.
Our agenda today will focus on three main topics. We will cover our spearheads for growth, we will discuss sustainability as a value driver for our businesses, and then we will also discuss actions to ensure performance at UPM. Let's take a look at our agenda. As you saw from the agenda, we have two Q&A sessions during the day. The first one covers our growth businesses and the spearheads for growth. The second Q&A at the end of the event will cover UPM strategy, sustainability, and performance. Please note that you can write your questions at any time during the event. When you have a question to ask, just write it under the video screen in the webcast platform. Write your name and then your question and it will be notified. You can write your questions throughout the event.
Now I would like to kick off the event, and invite Jussi Pesonen, our CEO, to talk about UPM strategy.
Ladies and gentlemen, it is my great pleasure and to actually warmly welcome you to this event. We do have three hours time to discuss where UPM is heading, what is our strategy, what is our current performance, how do we actually see the future. Hopefully, this will trigger a lot of questions, which, like Mika Mikkola just a few minutes ago was presenting, that we will have an opportunity for 40 minutes to discuss about and answer questions as well. More so what I want you to be convinced is the future of UPM, where we are heading, what is the future of UPM, and how UPM is a good investment. UPM is currently having a very unique position in this industry. We have truly transformative growth projects ongoing, full speed ahead, both in Uruguay and in Germany.
These projects will have a significant impact into our earnings or returns. Even more so, they will position UPM to the future differently than what we have been, what we are today, and therefore, it is quite interesting to talk about these things. Most of our businesses are having very good long-term fundamentals when it concerns demand, but also profitable outlook for the business. Even the COVID-19, the corona, has not changed that view. In many cases, it has strengthened our position. In fact, sustainability, climate change, are strengthening during these times, and therefore, I think that UPM is well-positioned for that. UPM's transformation has entered a new era. We are now turning the page. Our chapter one, I will come back to that, is now done. We are moving to chapter number two.
This is absolutely exciting moment of having you here to discuss about the future of UPM. UPM's portfolio is following. We do have sustainable solutions to offer in various product areas. It is materials that are sustainable fiber products. Very interesting molecular bioproducts, which is growing fast now. Obviously, with our Leuna investment, they are growing even faster in the coming years. Wood products, i.e., our timber and plywood businesses, are forming very solid, good foundation for today and for tomorrow, and then low-emission energy, as UPM is having a lot of hydro and nuclear power. This picture is showing the system where we are in. We obviously use renewable, recyclable materials, and low-emission energy. The system, the operating model of the UPM is actually the core of the activity for the future.
It opens a lot of opportunities. If we think about the businesses where we are participating, first of all, one being tissue hygiene type of end uses, communication, packaging, bioplastics, textiles, biochemicals, even biomedicals, where we have just recently launched a new commercial product called FibDex . Traffic, transportation, construction, and electrification. UPM is having very wide opportunities to actually participate in sustainable renewable materials businesses. Foremost, our number one priority is shareholder return. It is superior shareholder return to add value to the company. This is a great picture of where we are today. UPM's market cap is today EUR 13.9 billion, and this is the history of 2008 to 2020 second quarter. As you can see that all what we do has improved our value of the company.
I hope that what we will present today, and I know that all of those projects that we are running through will improve our competitiveness, will improve our earnings and returns, and thus, the value of the company should target to higher than even today. This picture is quite illustrative where we are, where we are heading, and where we are coming from. In the middle you see words of operating model, performance, balance sheet, focused growth, and innovation. It's showing what we have been doing in the transformation phase 1. Operating model was renewed in two phases, 2008 and 2013. Today six businesses global functions is operating smoothly with high efficiencies and synergies internal of the company. Performance, performance has been the culture of UPM during the last 10 years or even more than 10 years, and still exists.
This is something that we believe in, and therefore it is actually enabling us to perform in the future as well. Balance sheet is enabler as well. With this strong balance sheet, UPM is really able to run through these big projects. We are having a investment portfolio of close to EUR 3 billion. Focused growth investment and innovation are such a things that we have been developing over the last 10 years. Last year, 2019, was the year when we started to make big decisions, i.e., the Uruguay pulp mill decision, then followed by this biochemicals final investment decisions, and more to come. On the right-hand side, you see the 16% EBIT margin for the 60% of the business, which is 2019. Our communication paper is still 40% of the business being on the five-year average, yielding a 5% EBIT margin.
I will come back to this slide in the end of the presentation, and you will see where we are. UPM strategy is pretty clear in what we do, and this has not changed. We of course create value by seizing the limitless potential of the biomaterials, i.e., the forest biomass. Key cornerstones of the success is performance, earnings growth, responsibility, and innovation. Everything that we do, of course, is strongly relying on long-term demand fundamentals, that demand outlook is solid for many of our businesses. One topic that we have been repeatedly putting into our decision-making process is entry barrier. This is the reason why UPM is today making patent applications more than 300 a year, to protect also the future of UPM earnings pool.
Next slide is all about driving for long-term value creation, mitigating the climate change. Why this industry is so good at this one? This picture is actually telling the story. Many of the industries are having only one actually opportunity to participate on climate change and trying to improve the emissions, and it is in the middle, the direct emissions of the production. In this industry, and especially in UPM, where we have a lot of forest land ourselves, and then we have a lot of innovation to new products. We act through forestry, we act through emissions, and we act through the new products. We do have three sources of opportunities to take opportunity and build new businesses. This is the reason why we have committed to UN Business Ambition for 1.5°C.
It is the future, and we are in the middle of the possibilities of going forward. Coming back to the facts. The portfolio, what are the criteria for investing? Of course, the sustainable and safe solutions are combined with strong long-term fundamentals for demand, no doubt, and then high entry barrier, which is UPM competitive advantage. It could be raw materials, it could be patents, technology, or it could be even market position, or then how we run the business. There's plentiful barriers that we are building on our future. Obviously, last but not least at all, it is strict return requirements for everything that we do.
Ladies and gentlemen, UPM spearhead of growth is based on this picture, which I think that we have been repeating now two and a half years since we last time met in here in the Capital Markets Day. Two years ago, we launched this. At that time, this was a direction where we are heading. There were no single decision made at that point of time. Now we have quite many decisions that we have been taken. Starting from the right-hand side, the molecular bioproducts, Biofuels business, and Biochemicals business, where obviously Lappeenranta is already operating in Biofuels. Jyrki Ovaska, our Head of Technology, will talk about Biofuels and Biochemicals later today. Then Biochemicals, the Leuna investment that we made a decision only seven, eight months ago. In the middle, obviously the Uruguay pulp mill project is a key core of the growth in that.
In label papers and label materials, which is our specialty packaging materials businesses, we have made a conversion of one of the paper machines in Nordland to produce specialty papers supporting the value chain of the packaging grades and labeling business. Also that we have been improving, increasing our product portfolio in our Raflatac business. Also, we have built a new facility in Poland in recent years. These are the spearhead of growth, but on the base, we have all the enablers. Communication paper is key core of UPM's success today and success tomorrow, enabling us to have a strong balance sheet, enabling us to invest in the high-growth areas. Plywood, leading company in the top category plywoods. UPM is definitely having a very solid position, even if the business is smaller than many others.
In the energy, hydro-based, nuclear bio-based, very efficient energy is key basement and key business for UPM. Ladies and gentlemen, only short summary of these projects where there will be more deep dive later today. I would only highlight that Uruguay is now moving as planned. We have been able to really proceed with the full speed ahead on all of what we have been planning, and I would like to only highlight the cash cost level. I have been talking to many of you and always stated $280. $280 was a important figure for me during the last 10 years to achieve one of the lowest cash cost pulp mill in this world. That was a kind of a long development of plantations technology and of course, the transportation value chain to the mill. This is what it is all about.
We will hear that later today. Next-generation biochemicals, where UPM is making a very unique project today giving a value for our customers from high performance on unmatched sustainability, typically replacing gas, oil, and coal with recyclable, renewable materials. Cost position is good. I promise you, the high barrier of entry is protected with a lot of patents and technology. UPM is combining forest biomass to a chemical business where the typical use of raw materials is fossil. Today, these are in the build phase, I mean the Uruguay and the biochemicals business in Germany, but we are also developing. UPM is planning a next-generation biorefinery, which will actually have a very unique feedstock value chain. The technology concept will be more than what we have in Lappeenranta, and then high-quality carbon-neutral fuel and naphtha will be the product out of the mill.
What happens next is as following: we are preparing for the basic engineering phase now. That final decision for basic engineering will happen in the near future. When we have then made the decision of the basic engineering, it means that the basic engineering will last more or less 12 months or more to prepare ourselves for the final investment decision. Within one year, the window of making the final investment decision opens in that timeframe. During this basic engineering, we will finalize the location for the mill. Currently, where we have been building the business case has been in Finland. Obviously like in biochemicals, when we are entering into basic engineering, that will reopen the location discussion. During that period of time, it will be then finally decided whether it is in Finland or somewhere in Europe.
Communication Papers. UPM is very committed to communication papers. We do have a very strong track record of how we perform, how we actually run the business. We have a very clear strategy, which has been in place for several years. Leading capabilities, whether they are human capabilities or coming from the assets itself, and then a sizable market. The market is still in Europe, 20 million tons, and globally more than 70 million tons. It is a competitive game. Therefore we take actions when it needs to be taken. Ladies and gentlemen, our focus areas are as following: ensuring performance and then transformative growth projects. These two things are focused on in UPM. It is run, build, and develop. We have two facilities under build, which is once again repeating Uruguay and Germany, and then this biorefinery is in the development phase.
Run efficiently, build efficiently, and develop the concept for the future. Back to slide number two or three, where I was explaining the fundamentals, the transformation phase number one, which was operating model performance, balance sheet, focused growth, and innovation. UPM has been very diligent on operating in all of these three areas. What will the future look like? Spearhead of growth investments will be, when in full run, bringing more than EUR 2 billion of sales to UPM, and as stated here, EBIT margin will be, as an illustration, more or less 20% or more. Once again, the future sales will be most probably we are having a declining market, which is our paper business, but on the other hand, we are building a new future with high profitability and growing businesses.
UPM is in a unique position to really perform and deliver and be a great partner to investors, to our own people, to society, to add value. Sustainable and responsible company. With these words, I stop here, and we move on.
Thank you, Jussi. I'm sure you have plenty of questions following this, please remember, you can throughout the day write your questions under the video screen in your webcast platform, and we will return to these more strategic group-level questions at the end of the day in the second Q&A session.
Now we will move on. Kari Ståhlberg will come and talk about sustainability as a value driver for UPM, and before letting Kari loose, we will start from the forest.
Forests are dear to many. They are a home, a wild and vital, mysterious source of wellbeing and recreation, stories, spirituality, and inspiration. Forests are far more than a resource, and that is a fact. This creates a tension that we feel in our everyday reality. This is us, Earth and humanity, in an inseparable symbiosis. The changing color is a simulation of the continuous ebb and flow of CO2. The planet is breathing in. It's a beautiful thing. It's awe-inspiring, but it's out of balance. We humans have been living on CO2 credit for far too long. We are releasing greenhouse gases in quantities that the planet just simply cannot breathe in. The situation is dire, and we cannot wish it away. This is sustainable business. Yes, we know that this isn't how it's usually presented. This is actually how it is.
There can be no future beyond fossils without sustainable forestry. We grow the forest to cut it. We cut it, but we grow it again and again to develop all kinds of renewable products and the innovations that humanity needs to steer a course to avoid climate catastrophe. To do this better, we need climate-positive forestry. This is something that we are committed to, and we challenge the rest of the industry to do the same. Whether we like it or not, this is what hope looks like. This, and this, and this.
Hello. Next, we will talk about sustainability as a driver for value for our business and for UPM as a whole. We talk about the trends that you see on the picture and how they drive opportunities and value creation for UPM as a whole. What we believe is that these renewable-based raw materials, our efficient production platform, and the recyclable products that we produce will benefit UPM through increased demand in our products and offerings, the premium pricing that we will be able to gain because of our sustainability, the improved competitiveness that our efficient operations will gain as the world moves on in the sustainability topics, but also with our unique access to the raw material base that we traditionally already have had for a long time with our wood products businesses. Biomass is a really good raw material.
It's available in large quantities in many places of the world, and in this cycle, it does not contribute to the increase in the CO2 content in the Earth's atmosphere as the fossil resources used through the extraction. As we grow wood and forest, that will tie in carbon dioxide from the atmosphere. It will store part of that permanently underground. As in the video, it will renew itself after it's utilized. This is very different from the fossil-based raw material cycles, where after extraction, CO2 will go into the atmosphere and cause further climate change and warming because of that. We believe that the biomass-based businesses will offer a sustainable alternative in the long term for the fossil-based industries.
As the societies and people tackle the challenge of climate change, especially in Europe, but also in other parts of the developed world, we will experience a lot of change. However, this change cannot take place with sacrificing economic growth or impacting the progress in the wellbeing of people. We need to have that as well. The renewable products, renewable raw material-based products, and recyclable products are actually an answer to much of this challenge. During the last years, we have worked through the different scenarios in terms of climate change and warming. We have assessed the risks and opportunities that arise in these different scenarios. With this continuing climate change, increasing emissions, and the consequent high warming will have an impact to many operations and businesses.
For UPM, the principal effects are through climatological changes, where, for example, in the northern hemisphere, our forests and the forests in the Nordic area will grow more. There will be some negative impact from biological events or changes, for example, through pests, but the net impact will be positive. In our operating areas in the southern hemisphere, the precipitation patterns will change and the temperatures will change. In Uruguay, that will mean improved growth in our plantations, especially in Uruguay. That is different from many other places, for example, in Latin America or Southeast Asia, where the climate change actually would be negative effect to the plantation-based activities. We have also assessed meteorological risks, but in the locations where we are based, there is actually a low level of risk change in that respect.
On the other side, in this low-carbon transition scenario with the consequent lower warming, we believe that the businesses of UPM with our renewable-based raw materials and the efficiency of our businesses and the change in consumer behavior, will actually benefit in terms of the top line, many, if not all, of our businesses. Of this scenario work, earlier this year in January, we decided to commit into UN's Business Ambition for low 1.5°C warming scenario. As stated earlier, we believe that we are uniquely positioned to act through our climate positive forestry. We know exactly what we can and will do in terms of the Scope 1 and 2 emission reduction to achieve the 65% emission reduction. Also, we know that we will have a lot of opportunities in terms of sustainable and climate-friendly products for many of our businesses. First, forests.
Sustainably and commercially managed forests will create and sustain a renewable raw material base for our industrial operations. At the same time, they will also act as a significant carbon sink to help mitigate the climate change challenge. In Finland, we already have seen that during the last cycle or 60 years, the productivity of the forests in Finland have increased by more than 100%, from 50 million cubic meters to more than 100 million cubic meters a year. This has been enabled by the commercial management of the forestry here in Finland. Another good example is what has happened in Uruguay during the last 30 years. From the 1990, the plantation base in Uruguay has increased from nothing to approximately 1 million hectares. All of that has been achieved by turning former grassland and pastures to plantation in an economically and environmentally sustainable way.
This has enabled us to create a significant raw material base in Uruguay. We think that the commercial use of forestry and wood is a way to create a carbon sink and to create the carbon storage that helps mitigate the climate change. We know that the forestry, and especially the plantation-based forestry, is actually the cheapest way for carbon sequestration, also as a business or as a business opportunity. We think it is an efficient and useful tool in case the societies wish to tackle the challenge of climate change. That business opportunity can take place for UPM either in terms of a private market or through changes in the public or regulated marketplace for carbon sequestration.
Commercial use of the forestry is not in conflict with other goals, for example, goal to increase the biodiversity in our forest land and plantations. We actually launched a revolving credit facility earlier this year where the pricing of that financial product is tied into improvement in biodiversity and also progress in our emission reduction development towards that 65% target. In terms of the emissions, we know exactly what we need to do to reduce the Scope 1 and 2, or manufacturing and purchased electricity emissions by 65% up to year 2030. Part of that will be investments, but they will also benefit economically the operations through efficiency increases. We will also have the tools and the pathway for 30% reduction in our Scope 3 or logistics and supply chain emissions by 30% to 2030.
In terms of products, the sustainability actually drives business opportunities and growth opportunities for UPM. Many of the products that we today produce and market, also on the basis of the sustainability merits, will actually attract premium pricing. That is driven by the consumer goods commercial strategies by our customers or their customers. Also, we think, and we know and have experience in certain segments that are opened up because of the sustainability. In many of these new markets, we can see that the existing incumbents based on fossil fuels and fossil fuel-based raw materials, they find it difficult to enter into that new market segment, and that creates a barrier for entry for them and a competitive advantage for us. In our specialty packaging value chain, we differentiate also through recyclability of our products and also recycling of those products as a service offering.
This recyclability and recycling actually also creates, often in these segments, a competitive advantage to UPM. The sustainability, we think it drives commercial opportunities for UPM. We believe it drives investment opportunities for UPM. Companies like UPM, which are based on renewable raw materials, efficient production, and high-quality, sustainable products, will benefit and have room to invest, perform profitably, and grow because also of the merits in the sustainability. Thank you.
Now we will take a short break so that everybody can take a short break to get some refreshments or stretch your legs, and then we will come back and continue with our spearheads for growth. Please remember that you can always write your questions to the platform so that they will be notified for the Q&A sessions later today. We will be back in five minutes. Thank you.
[Break]
Welcome back to UPM Capital Markets Day 2020. Now we are starting the session covering UPM's spearheads for growth. Before the break, in the sustainability presentation, Kari Ståhlberg already touched upon the molecular bioproducts business's role as a sustainable solution, but also as a very promising business opportunity for UPM. We will start on these topics. Jyrki Ovaska will now discuss UPM Biofuels and UPM Biochemicals.
The UPM Lappeenranta Biorefinery has been ranked world number one several times. It is the first commercial facility to produce wood-based advanced biofuels and raw materials for plastics. They replace fossil-based materials in transport fuels, packaging, and construction materials. Our biorefinery remains unique in the world today. We started commercial production in Lappeenranta, Finland, in January 2015, and reached break-even profitability by the end of 2015.
Today, it produces 160 million liters of advanced biofuels and biomaterials each year.
Reducing annual greenhouse gas emissions equivalent to roughly 150,000 cars, genuinely decreasing emissions and mitigating climate change. Our clients can reduce their carbon footprint by replacing fossil-based raw materials with low-emission products. The greenhouse gas emissions of UPM BioVerno Diesel are over 80% lower than those of fossil-based diesel fuels. When used to produce plastics, one ton of UPM BioVerno naphtha saves about 3 tons of CO2 emissions compared to fossil-based raw materials. The UPM Lappeenranta Biorefinery has played a key role in UPM's Biofore strategy to integrate the bio and forest industries. Years of investment in technology and product development have really paid off, and advanced biofuels continue to play an important role in UPM's ambition to go beyond fossils by offering sustainable alternatives.
Ladies and gentlemen, hello from my side as well. Driving cleaner traffic is the tagline for UPM Biofuels business, and we believe, as the video also showed, that that's a really good success case so far, and it looks very promising for the future. We are also giving you some numbers, not only the traditional capacity, but also greenhouse gas emission reductions, 80% down. Also financials as a one-timer for last year, so that as we are aiming to grow in this business area, so that you know more what kind of profitability we have been able to achieve. 20% EBIT margin, return on capital employed at 26% last year. We have ambitions for growth, and let's start from the markets, and how do they look like going forward.
On the left-hand side, you can see how, let's say, traffic-related or transport-related CO2 emissions have evolved over the decades. It's been a pretty steep curve. These emissions constitute roughly 25% of global CO2 emissions. The transport sector is responsible for roughly one-fourth of global emissions in that respect. It's mainly driven by road transport so far. When we are aiming actually to tackle the global warming, the transport sector has to play ball. They have to also participate in decarbonization efforts, and I plotted here the below 2% warming curve on the right-hand side. This shows what kind of a tall order the CO2 reduction in the transport sector is going to be.
It means in practice that the global transport emissions need to come down to the level where they were sometime in the 1970s in order to stop the global warming from that part. We believe at UPM that we need all types of actions, as we did already two years ago in the last Capital Markets Day. Also now it's the same. We need engine improvements going forward in petrol engines. We need as much EVs, electric vehicles, as possible. There's plenty of room, at least for several decades still, for all types of renewable fuels, especially renewable liquid fuels, also green hydrogen and maybe synthetic fuels as well. On the right-hand side, you can see how this challenge is related to different sectors.
Even if the passenger vehicles would be turned EVs by the mid-2030s, we still have a lot to do in the commercial vehicle sector and in aviation, where we do not believe that actually electrification will solve the issue in a short to medium-term. Maybe long-term, there might be possibilities. This similar challenge, if we look at, think about the regulated markets of fuels. Here you can see how regulation and mandates have been growing. They have been growing, of course, because the challenge is a big one. On the other hand, it's also growing in line with the global capacities, especially from HVO capacities, because the first-generation biofuel production is hitting a blend wall. As we know, as consumers of gasoline, we know 5%, 10% limits, and in diesel it is 7% levels. That will hit a limit.
On the other hand, I mind you, also first-generation biofuel generation is generating quite a lot of CO2 as well. We feel that especially advanced renewable fuels is one of the major solution for this transport decarbonization sector in years to come. Now, let's then move on to the UPM concept of how are we developing the next-generation biorefinery, because we don't want it to be a copy of a typical HVO plant, which is based on liquid market raw materials only. We also don't want that it will be a copy of our Lappeenranta biorefinery. We are developing, once again, something leading-edge concept, which is aiming for maximum greenhouse gas reduction, because in this business, that can be directly related and converted into the selling price and the profitability of the business.
We are looking at also new sustainable biomasses as part of our feedstock, which will then also help widen the raw material base and have access to the future growth of our business, but it also ensures that we have excellent CO2 reduction. We talk about even climate positive fuels in that sense, and I'll come back to that in a moment, what do we mean by those. Also designing a plant like this need to be taken into account that we can use all the side streams as effectively as possible to maximize the output, and especially profitability. It's also, if we do this, then we will be also able to select the markets where we operate, be they in passenger traffic aviation or in naphtha-derived, for instance, biochemicals or plastics. A little bit more about this feedstock pool.
We are aiming at more than half of the feedstock of the new plant, which you can see is about four times, five times larger than the Lappeenranta biorefinery. More than half of the feedstock should be UPM integrated feedstocks. We are more upstream integrated, which we can also manage to our benefit. Residues, sawdust, and also bark could be utilized. Carbon farming through our Brassica carinata crops, which I will also briefly touch upon in a moment. There will be, of course, flexibility with some market-based waste feedstocks, which are there, but we aim not to utilize palm oil in the mix. The multi-feedstock biorefinery, once again, if we talk about the biomass, we are not eyeing on roundwood sources. We are eyeing on residues, which are coming from the other processes, sawdust, bark, et cetera.
We don't aim to increase harvesting or land use either. We want to keep outside of the food value chain. Those are the guiding principles for us to maximize the sustainability of our feedstock base. We have been practicing in Uruguay a winter crops based on this Brassica carinata already for a couple of years. Cumulatively, 50,000 hectares have been cultivated there as a winter crop. This is a picture from a field, where farmers there in Uruguay normally cultivate soybeans, actually, as a main crop. During their wintertime, the second crop is then, in this particular case, Brassica carinata. The good thing with this development and this raw material base is that it not only actually the product itself is then turned into CO2-reducing fuels, but also then, it increases how it's going to be farmed. We call it carbon farming.
It's farmed in a fashion which increases carbon binding into the soil, that can be counted for the benefit of this product and raw material. That's also been certified by the third-party certification bodies. Interesting development also as a new oil plant, as a winter crop. Jussi Pesonen already mentioned about what is our status for the potential biorefinery. We are soon, in the foreseeable future, going to enter into this basic engineering phase, which will take then at least a year, and the location part will be decided ultimately during that basic engineering process. Of course, we are also closely looking how the regulation in the EU and also in individual member states in Europe, as well as in North America, for instance, is going to develop.
I'm good to report that there haven't been any negative developments in the regulation space during the COVID-19 times. I'd like to move on to UPM Biochemicals. It's a business, a new industry vertical that we have already decided to enter into earlier part of this year. That basically is a result of a 10 years work stream. In that sense, it all started in 2012. Quite a lot of development of technologies, chemicals, selection of molecules, finding out right technologies, ending up in then shortlisting concepts and also making basic engineering and ultimately then the final investment decision January this year for our Leuna mill, which is going to be located close to cities of Dresden and Halle in Germany. Maybe one point that I'd like to also mention here, sorry for slipping back.
This is a platform base for our further growth in the years to come. The next stages then, which would follow then Leuna in the biochemical field would not require each 10 years. It will be much quicker development if we so wish, going to the market. Status of this Leuna investment project is such that detailed engineering and procurement activities are ongoing and quite well. Our team has established itself on the site, and construction works have started there, in that industrial park. Permitting, as customary in Germany, runs parallel to the building the plant, and of course, all the safety, sustainability measures as well as COVID actions are based on UPM's high standards. In that sense, we're moving ahead with full steam.
Once again, the main products of this plant will be, when it starts up at the end of 2022, will be BioMEG, monoethylene glycol, lignin-derived renewable functional fillers, some industrial sugars, and also Bio-MPG, monopropylene glycol. Those products are very much drop-in solutions, especially MEG, MPG, to their fossil counterparts, so they can be utilized as such. Renewable functional fillers are more like performance-designed fillers, which are then used in our future customers' processes. Normally, these bio-based products, they trade at a premium, and a bio premium is also steering our customer selection as we work on the commercial piece of this project in the next months and years to come. Of course, we are in the middle of the process of working with several future customers, brand owners, partners who share our vision, actually, of bringing these innovative new bio-based alternatives into the market.
Maybe some words about monoethylene glycol. It's a big global market, one of the biggest, largest chemicals out there, 30 million tons per annum growing yearly by roughly 4%. Goes for packaging, textiles, and films. Packaging PET bottles is a good example. It's also the main precursor for polyester fibers. Films could be utilized, for instance, in our Raflatac business, as an example. That's our main product. The other large product which we are producing is lignin, and that is converted into renewable functional fillers. More than 15 million ton market growing roughly 3% per annum. They can be used in various types of uses in the automotive industry, in the mechanical rubber goods, and also thermoplastic elastomers in other industries. The benefit that we offer is that these materials are primarily replacing carbon black and silica.
Environmental performance and also lightness are really some of the major benefits that we do. The Leuna plant is based on wood, which is, as we know, renewable. It's non-food, it's climate-neutral feedstock, with existing certification schemes. We aim to utilize forest thinnings and residues of regional sawmills as well. The primary species of wood that we aim to use is beech, which is amply available in Germany. Only beech logs are used currently in the furniture industry. Actually, the thinnings are primarily incinerated in private households for heat, and that's something that is going to be limited in Germany as well. We talk about entirely European value chain, in terms of wood handling and also wood procurement. The investment is in line with both Germany's and also the State of Saxony-Anhalt's bioeconomy strategy. In that sense, it fulfills also the German ambitions to grow in the field.
Cost position of such a plant, which is first of a kind in the world, is consisting of three parts. Basically, we are building a totally new bio route, which is a simpler route actually for these main products than the fossil refinery route would be. In that sense, we also are value-chain integrated towards the raw materials ourselves. The middle piece technology concept is something that UPM is orchestrating. This is something that you cannot buy from any one supplier. It consists of various technologies. It's a high-yield process. It's also designed, UPM together with engineering companies. That also raises the barrier of entry in that respect. Of course, the central location for wood sourcing as well as the close proximity to customers is a given matter.
This is a picture of the Leuna site. You will see a little bit more of that in the moment. Entry barrier to biochemicals is a multi-piece puzzle. I already touched upon it. It took us 10 years to get this far. It certainly is not a walk in the park for anybody else to enter into this. It certainly will require good balance sheet, readiness to invest. Also R&D activities and money that you need to put upfront is significant over several years. You need to have access to wood biomass. IPR rights need to be in place as well. This is, as I mentioned, a platform base for UPM to grow into the future. It's the first building block of this platform. Very strong market pull is from the markets.
Customers are excited about these opportunities, this opens totally new markets for unique customer value. It's a scalable concept, it's also a strong and synergistic fit with UPM platform. I would also like to mention that actually, UPM Biofuels and UPM Biochemicals are, when it comes to markets, also quite synergistic here in the future. With these words, I would like to welcome you to have a short video of our biochemicals and the Leuna site, I thank you for your attention.
We will now shift our focus from the molecular bioproducts to a second spearhead for growth. This is the specialty packaging materials businesses. Antti Jääskeläinen will start with the presentation on UPM Raflatac.
Good afternoon, everyone. UPM Raflatac is a downstream converting business, packaging business of UPM, and due to our value chain position, we are either an indirect or even direct customer of many other UPM businesses. Our product is the self-adhesive label stock. Here you can see examples of our end uses. Some of the big end uses are food, beverage, logistics, and also personal care. Labels are in many places, almost everywhere, and a big portion of them are self-adhesive. The label stock markets are overall healthy, even though there can be some volatility in the short term. If we start from the left, the long-term demand growth we believe is solid in this industry, 3%-4% volume growth per year, driven by several trends. There's expected to be unit growth in many packaged goods categories.
We have the continuing fast growth of e-commerce and related parcel logistics, and we have technology and market trends such as substitution of wet glue labels, as well as the sustainability trend in packaging, which we believe is a net positive contributor to long-term label stock demand growth. In the short term, the markets can be more dynamic, as we have seen lately. During the COVID-19 pandemic, during the early stages, we all experienced the lockdowns, and these lockdowns had an immediate boost to the demand of packaged food and many household items. People stockpiled, and also food consumption moved from restaurants and the service industry to homes, and this has boosted the retail sell-through of packages and labeling. These kind of effects are temporary, and logically there can be other sequential impacts in the short term.
The inventory cycle all along the value chain can reverse, and maybe more importantly the general economic development, private consumption changes. These can have a relatively direct correlation with the label stock demand. In these turbulent times, what can bring some stability then is that our mix, our end-use portfolio is weighted towards segments where the demand is relatively resilient. For example, food and home care and pharma, and our mix is less geared towards segments such as automotive, luxury goods, or durables, which can be more impacted if times are tough. Just a reminder, our global footprint. We operate in six continents and in more than 40 countries. We sell to over 100 countries, and we have more than 8,000 customers.
This brings opportunities, but it is also a source of resilience, because we are not dependent on any single market, country, or customer, but we have a rather broad and diversified market access. Our strategy to achieve profitable growth is simple. We want to broaden our product portfolio. We want to improve our customer reach, and do that more effectively, and we want to continuously improve our productivity and efficiency in our operations and supply chain. Out of these overall strategic priorities, I want to select a few key initiatives that we are focusing on right now to develop our business. The first one is sustainability leadership in our products and solutions. Our commercial excellence and digital reach, and the third one, a multi-year productivity program that we run in our factories and operations. I'll go these through one by one, starting with the sustainability leadership.
The overall packaging markets, the big trend there is the need for more sustainability and recycling. Many studies indicate that packaging has a very big impact to what kind of perception consumers have of different products. After all, packaging is typically the first thing a consumer sees and touches in a product. We hear this trend or the need for more sustainability in packaging loud and clear anecdotally from our customers and end users. In addition to anecdotes, we have here a good data set. This is a summary of public commitments by some 350 large leading consumer packaged goods and packaging companies. This is part of the Ellen MacArthur Foundation's 2025 Plastic Pact, where big companies make commitments to reduce unnecessary plastic packaging, increase recycling, and these kind of activities. A clear pattern emerges from these publicly made commitments.
First, the market needs solutions for recycling to make it easier. Secondly, there's a need for more recycled content in packages, post-consumer recycled content. Thirdly, there's a clear need for renewable alternatives and climate-friendly alternatives and overall better resource efficiency and material utilization. Labels have a very important role in this wider packaging market. Labels are part of many kind of packages, and labels impact the recyclability and sustainability of the whole package, not only the label material itself. We in Raflatac that we provide solutions to all parts of this circular loop, starting from design and material choice to the end of cycle enabling recycling. Like UPM as a whole, we in Raflatac we are going beyond fossils, and we are doing that with a wide portfolio.
You remember a moment ago, I mentioned that the packaging market needs are better resource efficiency, more recycling and recycled products, and then renewable alternatives. Here we have the three Rs, our reduce, recycle, renew. These are the buckets that we classify our offering of our products to help our customers be more sustainable and do better business. Some of the spearheads that are unique to us are, for example, the RAFNXT+ range. This is a product that is the first label stock material verified by The Carbon Trust, and there we can provide CO2 reduction and climate change mitigation in a quantified, verifiable way compared to standard label materials, and we can give certificates to our customers. The other one is Forest Film, and this is a unique product.
It is a transparent polypropylene film made out of wood, and it has exactly the same functional properties as traditional plastic film. This is all enabled by the UPM Biofuels as a feedstock. Truly a unique product and something that only UPM can do. In addition to those positive differentiation opportunities, we believe that the sustainability and recycling trends can also have a positive impact to the overall demand growth, market growth. If we only look at the consumer packaged goods categories, which are of course only a portion of the label stock demand, there the increased recycling and sustainability needs may favor packaging types that require labeling. Typically, earlier, the traditional plastic and multilayer flexible packaging has been the fastest-growing packaging type. We are not saying that that wouldn't grow also in the future.
However, due to the recycling needs, some of the packaging types, other packaging types could take some part of the growth, and these types of packages also require labeling. Creating sustainable products and solutions is not the only thing we do. Our second development area and part of our strategy is commercial excellence. We want to reach more customers and do it more effectively. Lately, we have been increasing our sales capacity measured by the number of customer interactions we have, and we have been changing the way we work in our go-to market. Some years ago, we only used to have the traditional field sales force visiting face-to-face customers. Now we also have remote sales or inside sales, as we call it, a very efficient resource pool to serve, especially some of our, the many smaller customers that we have.
Then we have our renewed digital platform that can enable most of the sales and service functions to our customers. In the last couple of years, we have effectively doubled our sales capacity and customer interactions without any increase in net headcount or costs, but rather by shifting resources and working smarter. During the COVID lockdowns, we never missed a beat. In a very rapid pace, transformed our global sales organization to be virtual. All the time we have increased our customer contact, so enabled by the earlier hard work in developing these commercial excellence and processes. Last but not least, our third pillar in our strategy is continuous productivity improvement. Often we start from factories, operation, supply chain, but actually we want to see productivity improvement as something we do in all our activities. There are some measures here.
Our sales has been growing, our mix is trending to the right direction, our sales efficiency has been increasing. OpEx for volume and the quality costs, these we track very carefully and want to keep improving. Capital efficiency we want to improve. After all, together with our margin, that brings the return to our capital and ultimately shareholder value. This productivity improvement it's not one project, it is not one tool, but we want it rather to be a part of our culture. Sometimes our KPI curves are not smooth, and we may get even setbacks if circumstances change. However, then we just need to get back to improvement track and keep improving. To summarize, we operate in rather resilient markets. Our end-use portfolio and our global footprint brings further resilience to our business.
The long-term demand growth prospects in our industry are solid, even though can be some volatility in the short term. We are also a bit counter-cyclical, compared to some other businesses. The raw material cycle treats us somewhat differently at different times. Sustainability is the major trend in packaging, we are leading the developments there, we continue our performance drive through commercial excellence, digital reach, and productivity improvement in everything we do. This concludes my presentation. As a final thing, we have a short video of our unique Forest Film concept and product. Thank you.
How could we make a beautifully transparent label, like this one, in a more sustainable way? What if we could make it from wood? We already did. UPM Raflatac Forest Film is the first of its kind as a 100% wood-based film label material. It's versatile, durable, transparent, and sustainable. Forest Film is born out of the circular economy. When wood from sustainably managed forests is processed for pulp, the resin is used to make UPM BioVerno, the raw material in Forest Film. Be smart and choose labels made from renewable materials. Join us on the journey towards labeling a smarter future beyond fossils.
All right. Let's continue on the same value chain, at least partly, and Jaakko Nikkilä will present us UPM Specialty Papers.
Hello on my behalf also. I will now go through what is topical in UPM Specialty Papers. Our business is divided into three areas. We have this label and release part of the business, which is a global business. The packaging papers part is more focused in Europe area, focusing especially on flexible packaging papers. This APAC fine paper business is mainly concentrating on Asian market, China and Asia in general, including office and graphic papers. From the graph, you can see how the performance has been, the EBIT and EBIT margin in past years. As for this last 12-month period, it has been quite favorable for Specialty Papers. As for the business, the long-term trends clearly are supporting our growth.
This year has been exceptional, this increasing sustainability awareness clearly plays a big role when we are looking into the future development of our packaging business. Similarly, in Asia, for the fine paper business, it has an increasing importance, and it really makes a difference when UPM is operating in that market. As for the e-commerce in general this year, has been quite exceptional because of this pandemic, and we are really benefiting from that growth in the label business. Aging population, single households also affecting especially the packaging business, label business. Asian economic growth, that has been benefiting our business for many years already, and we expect that to continue, especially in China and Southeast Asia. This urbanization and growing middle class. It's more about moving from fresh markets to supermarkets, and this will surely have an impact on the packaging materials and labeling business.
UPM Specialty Papers is well-positioned for growth. As said, label and release is a global business where we are a global market leader, especially in the release-based papers. Globally, we have a market share of more than 25%. It is roughly 1.6 million ton market, which we expect to continue to grow some 3%-4% per year based on these megatrends explained earlier. Similarly, for the packaging papers, we have already a strong foothold in Europe, that's a good basis for future growth. In flexible packaging, it's so much about the material that, as you can see from the other graph on the bottom, that still plastics play a major role in this application, it's estimated that paper share would be only about 10% at the moment.
Even if global flexible packaging, whatever the growth number will be, we are estimating that to be in the range of 2%-4%. This replacement especially plays a big role in how well can paper be introduced into this business more wider than earlier, replacing these fossil-based materials. For the APAC fine papers, there we have it's a 35-million-ton market where UPM operates with less than 1 million ton capacity. Still we have been able to build a more than 10% share in the office papers in Asia based on our own brands, UPM brands, and also these OEM brands. We are a very selective niche player in the graphic papers. That has also been a good strategy for UPM Specialty Papers in fine grades. For the growth strategy, starting from the APAC fine papers.
There it's more about the balance between the office papers and graphic papers. As said, we have strong UPM brands. We have been investing in past years in new capacity in office papers, and that growth will continue. At the same time, in graphic papers, it's being very selective with the markets, with the customers, with the distributors, with the end users, and applications where we operate. Similarly there, the entry barrier is something we are focusing on and trying to select end users and products where it would be a bit more demanding to enter. Moving into label and release. In face papers, it's a lot about the value creation and making sure that we are competitive in the standard grades.
Recently, we have been able to develop cooperation models with Communication Papers within UPM, so that we are able to utilize also their assets in order to make sure that we stay in the game with the kind of standard grades. At the same time being able to utilize our own Specialty Papers assets for these more demanding, higher demand papers, and creating more value that way also. For the release-based papers, that's the area where we have been investing a lot recently, or in recent years also. There, it's also about expanding the product portfolio so that we now have a full range of products for different applications, whether it's in self-adhesive label or whether it's in more industrial or tape applications, and covering, as said, the whole globe with these regional features also. The packaging part of the business.
There, that's a lot about co-creation, and it's cooperation with the suppliers, with the converters, with the machine suppliers, with brand owners also. There is historical pull in the market so that we have never experienced such an interest in fiber-based materials earlier, with the target to replace these fossil-based materials. This development is still shaping, and nobody really knows what are the kind of winning formulas. What we have already seen and experienced and learned is that we need good partners, we need good networks, and often it's between at least three different parties when we are developing these successful solutions. Moving into the competitive advantages, what is the customer value when dealing with UPM Specialty Papers.
The edge from sustainability is in the core of all of our businesses, whether it's fine papers in Asia, whether it's the packaging, or whether it's the label and release. UPM as a company is recognized industry leader. We can bring all that to the table for the benefit of our customers. One example from these unique sustainable products within our business is newly launched recycled release liner, meaning that we are collecting the used material, de-siliconizing it, and then reusing that fiber. In Asia, we are known for these FSC certificates and only using sustainably managed fiber. That really is a differentiator in the APAC market, and has been the foundation of our reputation over there. As for trust and commitment, so whether it's existing businesses or whether it's the new businesses what we are developing.
Clearly based on this expertise, what we have in Specialty Papers, we have been developing this production platform by investments and by cooperation models with Communication Papers. This co-creation, which is quite an exciting new way of developing solutions for the future. UPM is a financially solid company, and we have shown that we have ability to grow and invest. Ease of doing business. It's all about the reliability and keeping your promises. We are one of the few companies in Specialty Papers who really can reach and serve the customers globally. Surely we have a good team to do that. This slide is illustrating how the platform has been developing. Currently we are operating in China, in Finland, and in Germany. In these recent years, the investment money has been more than EUR 400 million.
As said, it has been focusing more on these release liner base papers. These arrows in the map are showing how we can serve the global market and how we are serving the global market. As for this extraordinary year, when COVID-19 has been with us, also there, the role of specialty papers has been, whether it's in reliable logistics tracking or whether it's in labels for pharmaceuticals or medicine booklets based on UPM fine papers, offering these barrier papers for ensuring food safety and higher hygiene levels. As a summary about our strategic priorities for coming years, clearly succeeding with the recent investments, making sure that we ramp up and scale up everything what we have done.
Focusing on developing these new businesses, new products, expanding and commercializing this offering, so that we are ready for the future growth also. In the DNA of our company, that we have efficient and competitive operating model boosting this operational excellence and a lean and flexible organization. That was all from my side. Thanks for your interest.
Thank you, Jaakko. We have one more presentation before we have the first Q&A of the day. Now we will have a presentation by Bernd Eikens, and he will discuss pulp markets as well as the Paso de los Toros project in Uruguay.
Hello and good afternoon. Today I will focus on three items. First, a quick look at the long-term pulp markets relevant for our investment project in Uruguay. Secondly, I will give you an update on the project itself. How do we manage the project in these uncertain times, and how do we ensure that project schedule and investment remain on target? Thirdly, we will briefly touch on the business and commercial strategy, which ensures that we can place additional volume into the markets in a profitable way. Let's start with the pulp markets. We believe that the long-term demand for recyclable and renewable fibers will remain strong. All global mega trends continue to be valid despite the corona pandemic. The trajectories of population growth, urbanization, and middle class expansion will not change. This, in turn, will impact the consumption pattern for basic and luxury products.
Additionally, e-commerce and digitalization will be even more present in our lives. Resource scarcity and the role of renewables, one example is wood-based textiles, remain extremely important as well. During 2020, we have seen the impact of the pandemic. Stronger decline of graphic papers, high demand of tissue, especially for the at-home markets during the first half of 2020, and new sectors and markets have adopted and joined the e-commerce train. Despite these effects, we believe in strong demand for pulp in the future. Perhaps we shouldn't even say despite, but rather because of, as we are seeing also new trends emerging. For example, sanitation and cleanliness standard, which in turn will drive higher fiber consumption. In 2019, 66 million ton of market pulp were consumed. Slightly more than 50% was hardwood, while softwood made up roughly 40%.
Around 36% of the market pulp was delivered to China, roughly the same amount to Europe and North America together. If we look at the product split, the lion share of market pulp is consumed for hygiene products, where tissue is around 38% and fluff pulp 10%. The potential in tissue becomes evident by looking at the per capita consumption figures for the world. The mature world consumes tissue in the range of 12 kg-26 kg per person and year, while the world average is at around 5 kg per person and year. China is slightly higher than the average at 6.2 kg per person and year. With a growing Chinese middle class, the tissue consumption for China will be significantly higher in the future.
A question which has been raised, triggered by the decline of graphic paper, is availability of recycled fiber to produce tissue, packaging, and specialty papers. Recycled fiber is crucial for these products. For example, in tissue production, slightly more than a quarter of the total fiber amount is recycled fiber, especially in the away from home sector. Let's take a look at the following illustration comparing the effect of the decline in graphic paper in 2020 versus 2019. Let's start with graphic papers. Graphic papers declined roughly 13 million tons year-over-year. This implies that the available recycled fiber declined by 7 million. Assuming a similar split as in previous years, 3 million of RCP was utilized for graphic paper, and market pulp deteriorated by -2% due to the decline in graphic paper.
This means for the tissue, board, and specialty sector, there's roughly 4 million tons less RCP available than in the previous year. That in turn provides substitution potential for fresh fiber from market pulp because it is market pulp as the easiest available virgin fiber, which can replace RCP. All these numbers are based on RISI, Hawkins Wright, and our own pulp consumption model. Let's turn the focus now to our fascinating and impressive growth project in Paso de los Toros. Before sharing some insights how we manage the project and keep it on track despite the pandemic, let's look at the following video to get a feeling for the size and impact of the project. To ensure that the foundation of the project is strong and all prerequisites for success are in place, a lot of diligent work is required.
Between the start of the plantation expansion in 2010 and the investment decision, several milestones had to be completed. I will highlight a few of them. July 2016, start of the discussion with the government of Uruguay. The theme was the prerequisites for long-term industrial development in Uruguay. November in the following year, UPM and the government signed an investment agreement outlining local prerequisites for a potential pulp mill investment in central Uruguay. The purpose was to reach a mutual understanding when it comes to the needed infrastructure development, referring to railway, road, and port. After signing the investment agreement, the focus was on pre-engineering and permitting, which took roughly two years. In July 2019, the investment decision was achieved and the project officially started. The brief roadmap highlights the amount of work and preparation needed for a successful start of a project of this magnitude.
The foundation for the profitability of such an investment were already put in place a decade earlier. Parallel to all these activities, the project organization was finalized. Today, we have the best expertise in place with experienced global project managers and very strong local knowledge and relationships in all areas. On the supplier side, we have long-term partners involved in the project, another ingredient for successful implementation. Not to forget, we have already a very strong and competent organization in Uruguay. The Fray Bentos team is supporting the project and also the recruitment of personnel for the time afterwards. Uruguay quietly beats coronavirus, distinguishing itself from its South American neighbors once again. This was the headline in one of the online news portals. Latin America is one of the world's coronavirus epicenter.
Uruguay, a small South American nation of 3.5 million people, has so far avoided the devastation raging across the rest of the region. Uruguay's success factors in containing the effects of COVID-19 are lower people density, stronger healthcare system, and political consensus. Uruguay moved swiftly in March to enact social distancing, testing, and community tracing, though President Lacalle Pou never decreed a lockdown. Offices and shops are open for business, Uruguayan children returned to school in June, even with winter and flu season in the Southern Hemisphere. UPM has adopted very tight protocols to contain the pandemic. On top of the typical guidelines, such as the use of mask and hand sanitizers, physical distancing, I would like to highlight the temperature checks and frequent testing at the gate and the dedicated COVID-19 manager who coordinates all activities with all contractors. The following slides illustrate our site management.
The same shift works and lives together. We have dedicated buses for each shift, which are disinfected after each use. We take temperature checks at the mill site gate. Each shift works in one sector only, and we recommend avoiding social activities. We had one COVID-19 situation a few weeks ago, but could contain it very swiftly. The first diagnosed COVID-19 case in the project was identified in August. A contractor returned from Argentina, where he was tested negative before coming to Uruguay. Once he took the second test in Uruguay, he was tested positive. Immediately, the whole team who traveled together was identified and isolated and remained in quarantine. Around 43 people of the project. After the quarantine, all were tested again and cleared healthy before entering the site, and no further spreading of COVID-19 in our project was identified.
We were able to contain the virus very efficiently. Let's turn now to the business and commercial strategy, which will enable us to place additional pulp volume into the global markets. First, we start with the business strategy. The business strategy is summarized in this one slide. On the right-hand side, you can see the foundation for our growth and for our business. Starting with the customer, we have a very solid customer book, as we have seen also throughout 2020 with very strong deliveries in the first half of the year. In the Finnish platform consisting of three pulp mills, the forestry organization, and the timber business, we are driving efficiency and reducing the cost through our own measures. The Uruguay organization is focusing on supporting the growth project and at the same time reducing the cost structure of Fray Bentos pulp mill.
As business enablers on the left-hand side, we have identified four items. First of all, safe and sustainable operation, as this is the foundation for any business. Our target is to establish world-class business processes in what we are doing and how we are serving the customer. Hence, we have also made organizational realignments, and we have increased the competence in this area in our organization. Certainly, climate positive forestry and a winning team. Our commercial strategy includes the following elements, understanding customer needs and chosen end users and serving them with different pulp products from one supplier. Long-term relationship based on mutual trust, high service level when it comes to flexibility, deliveries, and technical support, and not to forget sustainability, which is at the core of our cooperation. We focus on growing end-use segments in tissue, packaging, and specialties, and additionally selected partners in printing and writing.
Far, our sales activities were concentrated in Europe and Northeast Asia, China, South Korea, and Japan. We are growing our presence in Middle East, North Africa, and Latin America. Additionally, also South and Southeast Asia. A possible entry to the North American market is currently being evaluated and will be decided next year. Out of the preparatory milestones we have completed so far, I would like to highlight the global rollout of our new ERP system despite the restriction imposed by the pandemic. The new ERP system forms the base on which we are currently developing new efficient and advanced processes and tools, whether they are in the area of business analytics, product quality tracing, or logistic tracking. To summarize my presentation, pulp demand continues to grow. The megatrends are here to stay and are supporting our business and our investment project.
Secondly, the implementation of our growth project in Uruguay is proceeding at full speed, with strong local commitment and excellent project management in place. The commercial capability ramp-up is proceeding. Thank you very much for your attention.
Thank you, Bernd. This concludes our presentation part, covering our spearheads for growth. We will now take a short break, and after the break, we will have the first of the Q&A sessions covering these presentations about the growth businesses. See you back in about five minutes.
[Break]
Welcome back. We are now ready to start the first Q&A session of the day. This session will cover the growth businesses that we have just presented before the break. We have here Jyrki Ovaska, Antti Jääskeläinen, and Jaakko Nikkilä here, and then we also have Bernd Eikens over the line ready to answer your questions. We have received quite a lot of questions regarding our biofuels, biochemicals initiatives. We'll start with those. One question is: What kind of CO2 reduction impact could we aim for in this Kotka next biofuel plant? We said that in Lappeenranta it's 80%.
Yeah, that's correct. Lappeenranta has reached actually based on crude tall oil, 80% CO2 reduction. As I told, we are aiming to grow into also other UPM integrated feedstock, that would mean especially in the biomass. We can go up to 90%, maybe even more. We're aiming actually to be carbon neutral, that might be a bit too much to promise at this stage.
Aiming for 100%. There is actually quite many questions regarding the next biofuel line size, investment, profitability. What can we say at this stage?
Well, size, we already mentioned that it's roughly five times the size of the Lappeenranta biorefinery, and I disclosed also the profitability numbers. That gives you an idea that if it's a five times larger size, and actually the investment cost was about EUR 180 million for Lappeenranta. I think that gives a pretty good indication of what is there to be expected.
Specifically, here is a question that Lappeenranta seems to be nicely profitable. Can we expect the next line to be as profitable or even more?
Well, of course it's larger size. We have some economies of scale, but it all depends, then we have new technologies as well. We have new feedstocks. How effective are we basically in managing the raw material sourcing? How effectively are we able to run the mill, the plant? That will define the cost side. I'm not that worried about the sales front and customer front. I guess that we have learned that in the past few years.
Yeah. Jaakko, how do you think, when and how do you need or plan to add capacity to support your growth in specialty papers? What's going at the moment?
We are still scaling up the existing or the most recent investments. I think we have now good capabilities to develop the new businesses based on these assets also. As I mentioned in my presentation that we are cooperating with Communication Papers, they are already producing some of the standard grades, what we need for serving the business. We are utilizing also some of their assets for developing these new, especially the barrier grades. I would say that for the time being, we are okay with the current setup, with the investments that we have made, and with the cooperation models that we have with Communication Papers. Yes, we are still in the kind of coming years, we want to be in a situation that we are talking about major investments.
Yeah. A kind of common theme in many presentations seems to be, as Jussi was raising these barriers to entry. What do you see are the barriers to entry in your business?
Barriers to entry, they are variable. If starting from this glassine type of paper, we have been producing as a company those for roughly 40 years, and there's a lot of expertise within the house. We know even from our own projects that they are not easy products to produce, and everything has to be spot on in order to succeed. It's quite a different world from publication papers or other more standard grades. When talking about these packaging grades, the barrier papers themselves, it's all about this kind of building the solution together with the brand owners or machine suppliers or converters in the value chain co-creating the solution. The product itself, the technology is needed, the chemistry needed, that's a barrier for entry. These cooperation models that you are ready to co-create.
That's quite a barrier also.
Yes. Bernd, can you hear me?
Yes, I can.
We have received the same question for you. What is the barrier of entry in the pulp business?
The barrier of entry is clearly in achieving an excellent cost structure. We have communicated for Paso de los Toros $280, and in order to achieve that, we need to have plantations, which are planned and planted 10-15 years earlier, and also the infrastructure needs to be in place. If you just look at the cost structure of a pulp mill, on average, 60% is variable costs, and thereof 75% is wood cost alone. 20% is logistics cost. By good planning, which already, like I mentioned already, that for Paso de los Toros plantation growth started in 2010, you can optimize the cost structure of 60% of the total delivered cost. This is clearly a very high entry barrier. You cannot just make a decision to invest in a pulp mill and start it up in two years from now.
What about the market growth? We have received questions about you presented quite positive long-term trends in the market that support the growth. What kind of growth rates in tons would you expect in the kind of mid to longer term?
If you look at the history between 2009 and 2019, the pulp market grew roughly by 1.5 million ton per annum. Yes, there's an impact by the pandemic, but I do believe looking at the mega trends, that once the world is able to manage and contain the pandemic, that we can also get back to the historical growth path of the last 10 years. If we then focus on eucalyptus was even the fastest-growing pulp species among all the different pulp grades, which we have.
Let's take Antti for a period. You talked about recycling trends in the packaging side. What are we doing on that front regarding plastics and plastic labels? Do you need to co-invest in waste industry or something like that?
We are mostly enabling recycling by our own products and collaborating with other stakeholders, customers, end users. We of course have our RafCycle service, which is a good service in our industry. If we look at the wider scale, the big question of plastics recycling and investing in very large capacities, that is something that we believe will probably happen. We are not considering ourselves any bigger investments into the waste industry side or this recycling side ourselves. We want to influence it, and we want to cooperate.
Jyrki, regarding biochemicals, a bit similar like the next biofuel plant, what can you say or what can we say about the profitability and returns of the biochemical side that is under construction?
We are basically missing an internal and also external reference point because nobody has done what we are aiming to do in biochemicals. As we have stated also earlier, we do believe that once that plant is up and running, we should be able to achieve a return on capital employed level of 14% or more. It's clear that when entering a new business area, we need to see a lot of business potential, not only in terms of business growth, but also on profitability as well, which is attracting us to enter into a market like biochemicals.
Yes. We have said, and you presented as well, that we expect to be in a fairly good cost position. What about the biopremiums? What do we see in the markets?
Well, as I said, biopremium will be a guiding principle in our customer selection. That might even define the split between different applications. It is clear that is necessary for us, and based on our discussions with our customers, we know that it is also available. It is too early at this stage because we have no firm contracts to give any given number in that respect, but that is clearly in our focus.
We have received several questions about the scalability of these biofuels, biochemicals lines in different kinds of questions. Is there potential in Lappeenranta to go beyond and continue to grow that site? What are the potential next steps beyond the next bigger line, which is of course, further along, or in Leuna?
In biofuels, my main focus is now on the next growth steps, that is they say the new plant, new biorefinery that we are considering. There is some debottlenecking potential in the Lappeenranta biorefinery as well, that's not in our, let's say, immediate focus at the moment. Money is already, resources are on that field. Certainly it has a platform nature as well in biofuels like in biochemicals. We have designed these biorefineries in a way that they could be then replicated in a faster pace should the markets and other outlooks and the readiness of the company so dictate.
Antti, a question for you. Raflatac's performance in the first half was also really strong. What drove that, and how much of it is sustainable?
The first half of the year with the COVID-19 lockdowns, I guess it's safe to say that it was exceptional. Our improvement, I think it was driven by both our own actions. We have been driving to improve our mix margins and cost efficiency all the time. We entered the year with a relatively good run rate in Q1. It is quite clear that, as said in the presentation, both on the top line and demand side, there was a real boost from these COVID-19 lockdowns. Also on the cost side, we, like many other businesses perhaps, have seen a lower cost level during the lockdowns as well for obvious reasons. For example, less travel and less activity. Maybe regarding how much is internal work and how much is exceptional market situation, we will see what the future brings.
We, of course, don't guide forward, but maybe I'll just quote our CFO and CEO what they said in the Q2 report that we have not established a new normal, unfortunately. There was exceptionality in the markets in the spring. We, of course, aim to continue doing all the improvement measures we want, but we will then see what is the new level.
Bernd, we have received a couple of more technical shorter-term questions. How relevant is the Shanghai Pulp Futures Exchange for the physical pulp market? What can you say?
Yes. The Shanghai Futures Exchange market was established in 2018. So far, very few deals have been done. Physical trading deals have been done in the market, and of course, they are trying to get into the RMB market in China between the traders and traders or the traders and the end user of the pulp. You have heard perhaps in the beginning of September, they have amended their warehouse policy, noticing also that with their existing nine outlets, it's not sufficient to serve all the customers. In that respect, I think they are trying further steps to become more relevant.
Another shorter-term thing, is there anything you can say about the kind of customer inventory levels? There is some questions about the kind of market balance and what's the current situation.
Let's put it this way. I don't know too many customers who are running out of pulp. I think pulp availability is good to solid. We see some initial and some perhaps weak demands that demand is picking up after the slower summer months, but it's too early to really make a clear conclusion on the status right now, whether this is real demand and also consumed or whether this is speculative buying because of, let's say, anticipated issues when it comes to the shutdown for the second half of the year.
Yes. One last question. There's a question, Jyrki, about our partnership with Dow for replacing plastic in liquid packaging. How big is the market opportunity? Perhaps it's better to frame in the kind of context of petrochemicals overall.
Yeah. There's a huge market for this naphtha stream that biofuels refineries are producing. The good thing is that actually our planned biorefinery will have a higher share of naphtha than actually our Lappeenranta plant. There we have only taken the first steps, but there's a lot of opportunity out there for various types of chemicals and plastics. Once again, I guess we will be guided by the value add that we can create for our customers, but also ourselves.
Thank you, everyone. Thank you. We conclude our first Q&A here, and we start our last part of the presentations, focusing on performance and measures to ensure performance, and we will start with a presentation by Winfried Schaur on Communication Papers.
Good afternoon, ladies and gentlemen. In the next 10 minutes, I will give an update on Communication Papers. Let's first have a short recap who we are. Communication Papers is a graphical paper supplier of UPM, with a total capacity of 7 million tons. Newsprint, magazine papers, coated and uncoated, and fine papers, coated and uncoated. We have in total 14 modern and efficient paper mills, and including 24 paper machines. Our main end users are newspapers, magazines, catalogs, supplements, inserts, books, posters, copy paper, direct mails, and promotion materials. In total, we have a bit more than 7,000 people and 1,600 customers. Looking back, we have a five-year track record of improving profits in quite a challenging business environment. Despite a high volatility in input prices and sales prices, what you can see on the left-hand side, we achieved almost stable quarterly results with an improving trend.
Some of you remember this visualization used also in the Capital Market Days 2018 and underlying the implementation of our strategy. The main cornerstones of our strategy are a high asset utilization, a stringent cost management, and a strong commercial focus. This finally did lead the last five years to a cumulative free cash flow of EUR 1.9 billion. After a solid quarter one 2020, COVID-19 pandemic significantly affected the market demand in the second quarter. As you can see from the left-hand side, the demand in the first quarter was roughly around -8% to -9% and went down to -30% to -37% compared to the previous year quarter. We have been able to keep health and safe operating conditions for our people in the mills and in the offices, and meaning that our operations did continue all the time.
Customer service and office staff partly moved to remote work, but since June, July, most offices are back. When it comes to the volumes, the most significant drops have been in commercial print, in offices, non-food retail, and for publishing in countries with a high share of free sheets, like for example, U.K., kiosk and newsstand sales like in France. Countries, of course, with the strictest lockdown measures also did have the biggest drops in volumes. Here we have drafted the demand history schematically and possible scenarios. Please note that this is not a forecast. Starting from the left-hand side, the European graphic paper demand peaked around 2007 before a certain trend decline started. Financial crisis did come 2009 with a decline of about -15%, but also with an elastic recovery of 30%-50%.
We have had quite a long time, 2010 to 2019, with roughly a trend decline of -5% per year before the COVID-19 impact popped in the quarter two, 2020. After the dip in quarter two, we see early signs of normalization. A permanent one-time adaptation of new consumption habits and use of digital technologies is likely. There are also possible changes in the demand decline trend. Trends, of course, towards digital publishing, subscription models, growth of e-commerce, also adaptation of digital records and workflows in administration, but also other trends like paper as a chill media for healthy offline time, also the continuation of trust in media effectiveness of print promotion. That does lead us to the asset utilization.
Since 2013, we have closed, sold, or converted 17 paper machines with a total capacity of more than 3 million tons to adapt our capacity to the customer demand. That went along with remarkable cost savings. The recently announced plans will actually follow this line. What I would like to highlight, the continuing units, so the remaining fleet, got stronger and more competitive. With all the changes, we are enabling good transfer possibilities, retention of the business, and finally, a good service to our customers. This business is not only about adapting. Applying digital technologies is also very relevant. This will actually improve our customer experience, productivity, and cost efficiency. Our main three fields are the customer front, where we build up new digital channels. We improve the effectiveness of our production lines, and finally, also process efficiency in our back offices. Last but not least, sustainability.
Energy supply security is a cornerstone of our business, that is of course very along our strategy, and our focus is here on strategic energy sourcing, where economically viable, building on operating efficient and sustainable generation units. We are committed to a clear CO2 reduction path and will reduce its overall CO2 emissions by 65% in 2030 compared with 2015. Therefore, we have also a couple of projects initiated, like a new biomass boiler in Hürth, a wind power purchase agreement in Finland, gas CHP boiler in Nordland, and we also think about a new or an additional power purchase agreement for renewable energies. Let's come to the summary. I think we have proven that we can deliver solid financial results. COVID-19 is primarily a demand crisis for our business, which we can address by capacity management actions and good customer care.
Our energy agenda actions will reduce emissions and also strengthen our competitiveness. With the graphic paper market of 70 million tons globally and about 20 million tons in Europe, we remain convinced that there is a profitable future for competitive players in this field. Therefore, our financial target, 14% free cash flow of capital employed, remains a good and relevant target. Thank you.
Thank you, Winfried. Now we are ready for our final presentation for today. Tapio Korpeinen, our CFO, will summarize the day in financial figures.
Dear listeners, everyone online. In my part, I will first discuss performance and cash flow, and then I will summarize the UPM investment case by talking about capital allocation and returns. First, let's look at this slide, which you saw already as part of Jussi's presentation. Jussi described the transformation that UPM has been going through during the last 10 years. This has set the stage for us for the transformative growth investments that we are implementing. Transformation has been clear in terms of the mix or the portfolio of businesses of UPM, and I would say that equally dramatic transformation has taken place in terms of financial performance and our balance sheet. Here you can see on the left-hand side, performance improvement and the change in the mix, the growth in the higher margin businesses has driven EBIT, and EBIT margins up during the years.
Therefore, returns have increased, and we have exceeded our return on equity target during the recent years. At the same time, net debt, we have been able to reduce to below zero into negative net debt. In UPM, our view already in 2009, was that if we want to consider large-scale investments such as the second pulp mill in Uruguay, we must have a debt-free balance sheet. Obviously, at that time, nobody could think about a pandemic such as the COVID-19 that we are experiencing today. We did know that it's likely that at some point in time during the investment cycle, we will experience a downturn that could be even severe. For today's exceptional circumstances coming from the COVID crisis, we are well-prepared.
Here in this slide, we have used as a proxy the level of performance of first half of this year in the current exceptional circumstances and considering the impacts that we have seen, particularly in the second quarter. Obviously, performance is down from the record levels that we saw in 2019 and 2018. Again, I would say, given the circumstances, we are performing relatively well. Both in terms of the positive and the negative short-term impacts from the crisis that we saw, particularly during the second quarter, this is not the new normal. It is the UPM business model that allows us to perform even under uncertain times. We have six cylinders to our engines. Each of the six business areas have a very clear agenda in terms of developing the business longer term and very clear focus in terms of managing performance and the bottom line operationally.
I would say that looking at the past year, each business has shown very clear record of turning around performance at times when the business environment becomes more challenging. Here in this slide, on the right-hand side, we can see the excellent result and profitability of Specialty Papers and UPM Raflatac during the first half of the year. On the other hand, in UPM Biorefining, the impact of the cycle low level of pulp price is obviously clear as well as far as the performance or the result of the first half is concerned. As said, the positives and negatives are normalizing. In the meantime, we take action.
This shows the list of actions that we are taking to improve performance, to improve competitiveness, which is key in this kind of a business environment, including the recent announcements like the plant closure of the Kaipola mill or the implemented closure of UPM Chapelle in France or of our Jyväskylä Plywood mill, the plant streamlining in UPM Biorefining in UPM Raflatac in UPM Specialty Papers. I won't go through the whole list here, obviously, but the message is, we have actions under implementation that improve our cost efficiency by EUR 120 million compared to the level of performance during the first half of this year. Robust cash flow has been and is a hallmark for UPM. Here, in this slide, you can see that the operating cash flow has been quite consistent during the recent years.
It all starts from EBITDA, obviously, and from the fact that our rate of cash conversion from EBITDA to operating cash flow is very high. It also shows that even if we do have restructuring costs affecting our cash flow, then at the same time, typically in those years and times when restructuring is necessary, we do also have release from working capital balancing out that cash flow impact. Finance tax, we are efficient there, and during this time period that we are looking at here in the recent years, the focused investments and the low level of needed maintenance CapEx has meant that free cash flow has stayed quite steady as well. A second perspective on cash flow is this one, looking at the cash generation by business. All UPM businesses strongly contribute to cash flow.
Here first, again, you can see by each business the high conversion rate from EBITDA to operating cash flow. You can see the cash performance of Communication Papers, which has been excellent, but we are not dependent on Communication Papers cash flow. Still majority of our cash flow comes from the other five business areas. On the other hand, also for the coming years, one can expect that Communication Papers will continue to generate cash flow. Here again highlighted the fact that even when restructuring is necessary, the working capital release has been able to compensate for both CapEx and the restructuring impacts to a large extent. Another hallmark for UPM has been very diligent capital allocation. This is the slide that we have shown you several times during the past couple of years, as we have been preparing for the investment decisions for Uruguay, for the Leuna biochemical plant.
I would say that as it says in the title of the slide, this picture in our view, despite the recent events, and the current uncertainty related to the COVID-19 pandemic, this view is intact. CapEx will, if we look at the next five-year period, more than double the level that we have had earlier considering Uruguay pulp mill investment, biochemicals eventually moving ahead with the biofuels investment. At the same time, it is our view that we can continue to have a consistent positive track on dividend. This is the big picture that we look at when thinking about capital allocation. As said it is in our view intact. We have built, as already mentioned, a strong financial position. We are in a comfortable situation to fund the investments and the CapEx outflow to come during the next quarters and years.
We did actually during the time when our net debt went down to zero and below, receive a challenge from many directions, "Does this really make financial sense?" I think at the moment, we are, again, quite confident and comfortable given the balance sheet, thinking about our financial position going forward. UPM has a quite strong story to tell in terms of returns from the businesses and from the investments that we have made. It all of course is built on the targets and the results of returns for each of the UPM business areas. On an LTM basis, four out of the six business areas are exceeding the return targets. In UPM Biorefining, we are currently on the LTM basis below, but there we are once again at the cyclical low point of the pulp prices.
In UPM Plywood also at the moment, we are below target. There actually already in 2019, we felt the turnaround of the investment cycle in the global markets. Again, it's all built from the business returns. Looking at the group level returns, there are two things to note or to keep in mind here. One is that looking at UPM balance sheet, almost half of our assets in our balance sheets are accounted for at fair value. Meaning our forest ownings and plantation land, and most of our assets in UPM Energy business area. The second point to note here is that obviously as net debt has gone down to zero, it means that return on capital employed and return on equity become the same.
Taking a closer look quickly on the forest assets. A question that I'm sometimes or recently actually asked is that why is it that the valuations of forest holdings have been going up? Is it because the returns are increasing or is it that the return requirements are going down? I can say that in the case of UPM, it is that the real returns from the forest assets that we own are going up, and that is driving the value of our forests. Like in this slide, we are illustrating, again, during the past about 10 years, the mix of our forest holdings or forest and plantation land holdings has changed. We have shifted our weight to the southern hemisphere, to Uruguay, which means that the productivity in terms of growth has almost doubled, and that has been driving the increase in the value of our forest assets.
Another look at the UPM Energy business area. There we have low-cost nuclear and hydro capacity, which means that even in the recent conditions, EBIT margin has been above 40%, which is driving the returns in this business. If we were to account for the assets at acquisition value, as is illustrated here on the right-hand side, the ROCE last year would've been 23%. To summarize, in the next phase of UPM transformation, we are investing in businesses where the targets and the track record for returns are higher. Here on this slide, on the left-hand side, you can see the split of our capital employed 2019 and the five-year average returns. On the forest and energy holdings or assets, we have achieved 6% return on capital employed.
On the rest, what we can call the industrial assets or industrial operations, the returns have been significantly higher, on the average 17%. Then now obviously what we are doing, we are investing in Uruguay, in biochemicals, in the specialty packaging materials, eventually biofuels. There, the return target is 14%. I think we have given you some evidence today that we can expect to clearly exceed that target on the investments that we are making in that area, as is illustrated in the middle of the chart. We can expect a steady return on our assets in forests and energy, and growth in the higher returning industrial operations in the spearheads, which will drive the group-level returns up during the coming years. I will close with this slide, which you again saw as part of Jussi's presentation. We continue the transformation.
We are growing through investments in the spearhead businesses, the spearheads of specialty packaging materials, pulp, biofuels, biochemicals. They will bring us growth in high margin, higher return business, which will also drive the UPM bottom line and the UPM value up during the coming years. Thank you.
Hello. Now we are ready for our final Q&A session of the day. We will cover questions regarding UPM strategy, sustainability, performance, and then UPM Communication Papers. We have here Jussi Pesonen, Kari Ståhlberg, Tapio Korpeinen, and we have Winfried Schaur on the line. Jussi, first of all, we have received several questions about return hurdles, return criteria. What are we looking for? It's more a portfolio question. What are we looking for when we are allocating capital?
That was in my presentation, but also Tapio was referring to that we definitely want to transfer UPM to the future. In our minds is, of course, high returns, but also new position for the whole company with the products that are having high entry barrier, long-term fundamentals for demand, sustainability being in the focus as well, and responsibility. Therefore, it's a where we think about the new future and find product areas, portfolio pieces that are really improving the performance of the company. Obviously, in Tapio's presentation, he was presenting the hurdles of each business. More capital-intensive businesses are having a somewhat lower return on capital employed target, whereas Raflatac is having 20% return on capital employed. Each business is having its own path and roadmap to grow, and our ambition is to grow with high profits.
Tapio, UPM's operating cash flow was somewhat lower in the first half. How do you think of that in the context of dividends?
Yes, I think when thinking about the dividends, obviously what is important is actually this sort of five-year view, the bigger picture that I was talking about in my part. Obviously, we have the dividend policy 30%-40% of operating cash flow, in a sense, the meaning of that dividend policy is that it gives us the fairway where we want to sort of land over time. In any given year, we can be a little bit in the rough on the left or the right-hand side, as long as the sort of big picture is intact, that is more kind of the perspective which I think we in the management, and surely the Board will consider when it comes time to think about the dividend decision.
Winfried, we have received several questions regarding the paper market. How do you see it now that there was such a sharp impact from the lockdowns during this year and the summer and the springtime? Do you foresee some kind of rebound in next year and a positive demand development, or how do you see it?
First of all, I believe we have to assume that we will have a kind of one-time permanent adaptation based on this strong lockdown and short disruption. In this respect, of course, some developments took place more in the direction of digitalization, which most probably will not come back. Afterwards, we expect a certain recovery, of course. Then the big question is, of course, how does our trend line development continue? The first investigations or studies from the market are tending more to the direction, what we have seen in the recent years.
There is also kind of another question. How do you see the paper price level? Are we close to the cash cost level of marginal producers?
If we look for the European price levels, we are currently, I would say, on the way back roughly where we are coming from in 2017, and they, of course, have been around this corner.
Let's take a totally different kind of question. Kari, do you see forest land carbon sequestration developing into a market that creates profits for UPM, and when might that be?
Maybe first that we are actually selling that service already. We are getting revenue from carbon sequestration activities already today, but that is a small-scale activity today. When we look at the world, I think the story is rather that there is a kind of big opportunity in terms of gigaton-scale carbon sequestration activity in the world at a low cost, that being kind of low double-digit USD per ton of CO2. At the same time, everybody, consumers, us, is paying for carbon abatement, i.e. emission reduction, triple-digit USD per ton. There is this opportunity to have the same impact in the world with much, much lower cost. That, I think, creates a business opportunity for companies like UPM, who actually do that activity already today for raw material sourcing and generation purposes.
Often we hit ideological or political barriers when thinking about that. It's not, let's say, today's world activity in a big scale, but I think it's evident that that will come.
Do you think that one needs to own more forests due to that? UPM has been increasing our footprint in Uruguay and rather on the decreasing side in Finland.
Yes. Obviously, owning land that you can build, say, plantations, for example, own, that helps in that activity. Yes, that's what we have been doing also in bigger scale in Uruguay, where we already own in the scale of 400,000 hectares of land today.
Yeah. There is a very kind of fundamental question. What is sustainable forestry?
Yes. That is a good question, Mika. There is no kind of exact definition for that. If we think about sustainable forestry, it has to be environmental and environmentally sustainable, economically sustainable, i.e. kind of commercial activity, but then also socially sustainable. I think in practice, many of those aspects are taken care of with today's forestry certification schemes, and that's also what we have been doing. All of our forestry activities are certified, much of that even with several certification schemes.
Jussi, there is a question here that seems that we have quite different kind of businesses. Is that okay? Could you consider spinning something off?
UPM is having six different businesses and the business logic is quite different if you compare plywood to pulp business. On the other hand, we do have a lot of corporate synergies and of course, the forest biomass is one kind of key denominator for our businesses. It is all about the question that, are we able to be an efficient operator? Are we able to be one of the best operators in the global markets? I have to say that, when I'm reviewing all of these businesses, they all are on the top of the ranking list of being efficient operators, generating excellent products, high efficiencies, efficiently using raw materials, and then ultimately making good profits. Basically, this UPM operating model is actually hosting all these businesses very well.
Tapio, we have discussed quite many different new products and businesses. Any kind of way to illustrate to people what the financial impact might be once these are up and running?
I think I had some illustrations in my part of the presentation. Jussi showed them as well. Again, in the areas where we are investing, the margins are higher. Again, you can see it from the evidence already today from the ongoing businesses, like the pulp business obviously gives us an indication of the potential in Uruguay combined with the $280 per ton for the new mill. Let's say we gave you an indication today of what the financial track record has been for our biofuel plant in Lappeenranta. Higher margin, higher return businesses, and if they, let's say, deliver EUR 2 billion +, like Jussi was sort of roughly indicating in terms of annual sales, that obviously will then impact the group level profitability quite clearly already.
Right.
It's meaningful impact, and during, let's say, relatively short period of time, five years or so, could be reality.
Yes. Winfried, quite many people have been asking about the market balance in the paper business in Europe. Of course, we have announced plans how to adjust our operations, but how do you see the kind of balance in the market? How big is the need for further actions to have a balanced market? Anything you can kind of say on that?
Of course, we don't give any guidance and also no speculations on what we are thinking about it in this respect, but just also to refer to the public announcement which have been already done, like SCA, for example. Of course, this also popped in and, let's say also combined with our planned actions currently, just taking that as an example, already LWC will get into a corridor which will be quite close to balanced, for example. Let's see how it will continue.
Tapio, there is a question that do you see it, is it acceptable to exceed our leverage target temporarily?
Well, first of all, I think we can quite comfortably manage, in a sense, with the plans that we have talked about today within that sort of leverage target or policy that we have in place. I think, of course, that is not either, in a sense, a hard ceiling, let's say, in a situation would we face a kind of a once in a lifetime acquisition opportunity. Again, with the view that we would quite quickly return back to the sort of levels below our policy of 2x.
Jussi, any thoughts about, now we are, of course, in the middle of a big project in Uruguay, is there potential beyond that Paso de los Toros or within that kind of expanding further?
I think that UPM has made that kind of proof for everybody in the last almost 15 years that there's always a plan. When we started up our biofuels plant, we already were thinking about scaling that business up, when that was actually moving ahead, we were already quite far away with the biochemicals. Just after one year that we bought Uruguay or we split the Metsä-Botnia, we were already thinking about the next step. Basically, yes, I think that's in our genes now, in our behaviors that we think about the next steps as well. Of course, we focus on current now very clearly. All things need time for development. Like Bernd Eikens was saying earlier that what's the entry barrier in pulp business? It is 280, $280 per ton, that's required, and we needed 10 years to develop that 280.
When the $280 was firmed and firm view of that, we made the decision. Yes, we need to think about the future, and that's the nature of UPM.
Right. I think we are starting to be at the end of our event. I would like to thank everybody that has participated in our event, and thank you for your interest. Jussi, would you have any final words?
Yes. First of all, thank you for coming. Thank you for being with us these three hours. It is our great honor to host this event, and for me as well. We have three things in our mind. It is run efficiently, make the company making the performance, cash flow, as Tapio was explaining, very diligent kind of operations. Run well, run fast, run efficiently, make profits. Build. This build is obviously one of the key cornerstones of the company now. We are having EUR 3 billion investment portfolio to actually then generate new cash flow, new profits, new returns on investment. Build, then finally, it is to develop. One great example is our renewable fuel business development, which I think that hopefully in the near future, we will move into the more basic engineering phase on that. Run, build, develop.
Thank you for being with us.
Thank you.