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UPM Communication PapersConsistent profitable

performance

Winfried Schaur

EVP, UPM Communication Papers

31 May 2018

| © UPM – The Biofore Company

We are a relevant global player with a stronghold in Europe

2

Source: UPM, Euro-Graph, RISI, Pöyry

UPM Communication Papers

SC LWC Wood free News/UMIO

Share of

UPM Capacity

in Europe, %20.0 39.2 31.9 12.5

World’s leading producer

of graphic papers

with 8,000 employees

4

26

11

141

15 modern

and efficient mills

in Europe and

North America

Production capacity

8,2 million t/aNews 2,1/SC 1,5/LWC 2,5/WF 2,1

Global customer service and sales


49,4 49,1 48,6 48,7 49,1

18,7 17,616,3 15,5 14,7

4,03,8

3,7 3,5 3,6

0,60,6

0,6 0,6 0,6

2013 2014 2015 2016 2017

12,9 12,4 12,0 11,6 11,1

6,6 6,0 5,3 5,0 4,5

3,43,2

2,9 2,72,5

1,91,9

1,7 1,51,4

2013 2014 2015 2016 2017

Communication paper market demand declines steadily

3


Source: UPM, Euro-Graph, RISI, Pöyry, misc. public sources

12,5 12,4 12,2 11,6 11,5

9,8 9,2 8,7 8,4 7,9

5,6 5,4 5,14,7 4,6

3,4 3,23,1

3,2 3,2

2013 2014 2015 2016 2017

Europe

-3...4% p.a.

North America Rest of UPM addressable Markets*

* Markets with UPM ComPapers sales, including: South America, ME&Africa, Asia

~ ~ ~ ~ ~

Wood Free News/Umio LWC (CMR) SC [Mt]

-5…6% p.a. -2% p.a.


10080

… building the basis for continued profitable performance

We delivered according our strategy

4


Source: UPM, Euro-Graph, Pöyry

Production CapacityPaper Demand Deliveries OHS (LTA’s)

2013 2017

Fixed Costs

Efficient and modern assets

Tight grip on costs

Broad portfolio

Strong geographical footprint

Well-defended market position

10087

-13% -20%

10088

-12%

10079

-21%

100

51

-49%


What does it take to perform in challenging markets?


We expect a predictable market development in an economically stable environment

We do not anticipate disruptive changes, but accept market reality:

• Newspaper circulation is declining fast in main markets, with Germany being relatively resilient

• Magazine publishers continue to build on printed editions, decreasing circulations

are partly offset by a continuous flow of new titles in niche segments

• Direct Marketing continues to develop with variations from market to market,

e.g. increasing in Germany while dropping in the UK

• Catalogues remain a means of consumer activation, cases of pure online-retailers

and specialist stores investing in printed catalogues increase

• Fine papers continue playing an important role in private and office uses resulting

in a relatively slow decline, regulatory changes remain a risk-factor.

5



Some end-use trends support UPM performance

6


Source: Nielsen advertising media mix Germany, 2015–2017

0

25

50

75

100

Print 87%

Digital 13%*

Print vs. digital, % share of publishers’ revenues 2017

Print retains a relevant role in today‘s media mixRetail heavily builds on print marketing

Average 2015 & 2016

Average 2016 & 2017Advertising expenditure, M€

Share of print

0

100

200

300

400

500

600

0% 20% 40% 60% 80% 100%*2015: Digital: 10%

Source: PWC media outlook


Our focus: Strengthen industry leadership role

7


1 Uncompromising

performance

Continued focus on stringent

capacity management and

performance improvement.

Zero accidents

3 Commercial

excellence

Optimize and evolve commercial

interface and supporting processes

to ensure supply security and

customer value add.

2 Targeted

innovation

Targeted investments in innovation

to drive performance, increase

efficiencies and extend our position

in the market.

Focused on sustainabilityLeadership


Deep Dive: Uncompromising PerformanceStriving for maximum asset utilization


Developing our assets for further efficiency gains

• Conscious technology investments

with clear payback focus

• Onboarding of available new technologies and digitalization

to support flexibility and process excellence

Digitalized maintenance concepts with foreseeably

positive impact on overall performance

• Better plannability increases supply security

and technical mill performance

• Positive financial impact through reduced downtimes

and overall reduction of maintenance costs

Pilot project: UPM Hürth Mill

8


Deep Dive: Targeted InnovationEliminating redundant reserves by holistic end-to-end approach

9


Digitalized End-to-End Supply Management

Customer Demand

Inventory Management

Raw MaterialConsumption Forecast

Demand based supply

Inventory level data & Consumption forecast

Suppliers

Digitalization of supply chain is a reference case

for our focus on process automation and digitalization

• Conscious investment in end-to-end planning

and forecasting systems

• Process optimization for better integration of external partners

End-to-end supply chain with positive impact on operations

• Reduction of working capital

• Streamlined processes for more efficient operations

• Strengthened supplier relationships

through improved visibility and plannability

Recipe Data

Production Plan


Deep Dive: Targeted InnovationPushing product development for new end-use areas


We invest in extending our portfolio

to address new, profitable end-uses:

• Capturing market opportunities

• Securing asset utilization

• Extending customer base

• Supporting bottom line

Successful market launches

in past years (examples):

• Thin paper for book publishing and industrial end-uses

• CSWO paper with added economic benefits for news printers

• Book paper from Germany for Central European markets

• DigiPapers to entering growing, profitable segments


eOrder usage development first 9 months after start

Deep Dive: Commercial Excellence Strengthen customer experience to support market position

11


Overall Linear (Overall)

Increased use of eCommerce solutionsStrong global presence

Sales company

Agent

UPM Sourcing, Logistics

Paper mills

Head Office

Sales/Local contact

Strengthening our customer interface

• Conscious decision to maintain strong local footprint

• Significant investment in eCommerce solutions

• Conscious development of service offering

Securing high level supply security as a competitive factor

• Extend eCommerce solutions into production

and distribution planning

• Conscious investments in process optimization

and logistics excellence


UPM Communication PapersKey messages

12


• We are committed to paper

• Communication Papers has proven

it can deliver predictable and good results

• The market reality has been firmly embedded

in the business strategy

• Performance focus remains at the heart

of everything we do

• We innovate and develop our business

to secure our strong market position

and capture emerging opportunities globally

upm communication papers...• significant investment in ecommerce solutions • conscious...

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