UPMfinancial

statements release 2018

Jussi Pesonen

President and CEO

31 January 2019

| © UPM2

Q4 2018: 23rd consecutive quarter of earnings growth

• Sales grew by 6% to EUR 2,731 million

(2,571 million in Q4 2017)

• Comparable EBIT increased by 10% to

EUR 404m (366m)

• Sales prices increased in all business areas,

outweighing the impact of higher input costs

• Operating cash flow was EUR 420m (407m),

net debt decreased to EUR -311m (174m)

0

50

100

150

200

250

300

350

400

450

EURm

Comparable EBIT

404

366

| © UPM

0

100

200

300

400

500

600

700

Q3/18 Q4/18

Comparable EBIT in Q4 2018

EURm

3

Top-line increased. Fixed costs increased due to

seasonal factors and higher maintenance activity.

Prices increased in all businesses, input costs higher.

Fixed costs increased partly due to maintenance.

0

100

200

300

400

500

600

700

Q4/17 Q4/18

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

36614.2%

40414.8%

Currency,

net

impact

Depr.,

forests,plantations

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

42015.9%

40414.8%

Currency,

net

impact

Depr.,

forests,plantations

Q4 2018 vs. Q4 2017 Q4 2018 vs. Q3 2018

3

| © UPM

Comparable EBIT by business area

4

0

2,5

5

7,5

10

12,5

15

0

10

20

30

40

50

60

0

5

10

15

20

25

30

35

0

40

80

120

160

200

240

280

0

2,5

5

7,5

10

12,5

15

0

10

20

30

40

50

60

-2,5

0

2,5

5

7,5

10

12,5

15

-20

0

20

40

60

80

100

120

EURm % of sales

UPM Specialty Papers

EURm % of sales

UPM Communication Papers

EURm % of sales

EURm % of sales

UPM Raflatac

EURm % of salesEURm % of salesUPM Biorefining

0

10

20

30

40

50

60

0

10

20

30

40

50

60UPM Energy

0

3

6

9

12

15

18

0

10

20

30

40

50

60UPM Plywood

| © UPM

UPM delivered record earnings in 2018 – in a strong position for 2019

5

Sales

EUR 10,483m 5%

EBITDA

EUR 1,823m +192m

Comparable EBIT

EUR 1,513m +221m

2018 vs. 2017:

Comparable EPS

EUR 2.24 +0.36

Net debt

EUR -311m -485m

Operating cash flow

EUR 1,391m -167m

Net debt / EBITDA

-0.17x -0.28x

Comparable ROE

12.9% +1.0pp

| © UPM6

Business area long-term return targets

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30ROCE %

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30ROCE % *)

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30ROCE %

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30ROCE %

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30ROCE %

*) shareholdings in UPM Energy

valued at fair valueLong-term return target

UPM

Specialty Papers

UPM

Communication Papers

UPM

PlywoodUPM

Raflatac

UPM

Energy

UPM

Biorefining

FCF/

CE %

| © UPM

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

-750

0

750

1 500

2 250

3 000

3 750

4 500

2013 2014 2015 2016 2017 2018

Net debtEURm

Net debt/EBITDA

(x)

Net debt and leverage

7

Group financial performance

0

200

400

600

800

1 000

1 200

1 400

1 600

2013 2014 2015 2016 2017 2018

EURm Comparable EBIT

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018

% Comparable ROE

Target: 10%Target: EBIT growth

Policy: ≤ 2x

| © UPM

Consistently strong cash flow

8

• Operating cash flow was 1,391m in 2018

(1,558m in 2017)

• Working capital increased by EUR 209m

(decreased 91m), driven by increased

prices of UPM’s products and raw

materials and higher wood inventories

• Q4/18 operating cash flow was EUR

420m (407m in Q4/17). Working capital

decreased by EUR 29m (61m)0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2013 2014 2015 2016 2017 2018

Operating cash flow

1,391

Free cash flow

Operating cash flow

EURm

1,558

| © UPM

Dividend proposal: 13% increase

9

0

10

20

30

40

50

60

70

80

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

2013 2014 2015 2016 2017 2018

EUR

per share

% of operating

cash flow per share

Long term dividend policy

• UPM aims to pay an attractive dividend,

30–40% of operating cash flow per share

Dividend proposal for 2018

• EUR 1.30 (1.15) per share, totalling

EUR 693m

• 50% of 2018 operating cash flow

The global economic growth is estimated to continue in 2019, albeit at a slower pace than in

2018. There are, however, significant uncertainties related to this, including trade negotiations

between China and the US, growth in China, the undefined nature of Brexit and political

uncertainties in several countries. These issues may have an impact on the global economic

growth and on UPM’s product and raw material markets during 2019.

UPM reached record earnings in 2018. UPM’s business performance is expected to continue at

a good level in 2019.

In 2019, favorable demand is expected to continue for most UPM businesses. Demand decline

is expected to continue for UPM Communication Papers.

In the beginning of the year 2019, pulp prices are expected to be lower and graphic paper

prices in Europe are expected to be higher than in Q4 2018.

Input costs are expected to stabilise after the significant increases seen in 2018. UPM will

continue measures to reduce both variable and fixed costs.

Fair value increases of forest assets are not expected to contribute meaningfully to comparable

EBIT in 2019.

Outlook for 2019

| © UPM

Spearheads for growth

11

| © UPM12

Second preparation phase for the potential new pulp mill in Uruguay proceeding

• Labour protocols, regulation

• Investment regimes

• Regional planning and development

• Energy and complementary items

• Mill permitting, pre-engineering

• Rail permitting, tendering, start construction

• Port permitting, tendering, concession

• Roads

Phase ICompleted in Q4/17

Phase IIExpected to take 1.5-2 years

Phase III

Discussions with the

Government of Uruguay

Prerequisites for a possible

pulp mill investment

Investment project

Development of

infrastructure

Main items in preparation phase II:

Investment agreement signed in

Q4/17

Permitting

Pre-engineering

Development of

infrastructure

Necessary conditions

Potential UPM

investment decision

| © UPM13

Transformative prospects with unique opportunities for significant long-term earnings growth

• Possible new 2mt pulp mill, Uruguay

– Second preparation phase proceeding:

The rail tendering process in final stages,

UPM is taking part in the public tendering

process in Montevideo port. Environmental and

social impact study for the mill submitted.

• Molecular bioproducts, possible biorefineries

– Basic engineering work continues regarding a

potential 150kt biochemicals refinery, Germany

– Exploring next steps in biofuels, environmental

impact study submitted for a potential 500kt

biorefinery, Finland

| © UPM14

Focused growth projects to develop market position while maintaining and growing earnings

• Completed – Kaukas pulp mill expansion

+30kt in Q2 2018, Finland

– Jämsänkoski release liner expansion+40kt in Q4 2018, Finland

– Raflatac speciality label expansionin Q1 2019, Finland

• Construction stage– Chudovo plywood mill expansion

+45k m3 in Q3 2019, Russia

– Nordland PM2 conversion to release liner +110kt in Q4 2019, Germany

– Changshu release liner expansion+40kt in Q1 2020, China

– Kuusankoski hydropower refurbishmentin Q4 2022, Finland

| © UPM

Summary

• UPM delivered record earnings in 2018, Q4 was the 23rd consecutive

quarter of earnings growth.

• UPM is in a strong position for 2019, while there are uncertainties in

the global economy.

• UPM’s business performance is expected to continue at a good level

in 2019.

• Preparations continue for UPM’s transformative prospects with unique

opportunities for significant long-term earnings growth.

• Dividend proposal +13%, reflects UPM’s exceptional financial position

and confidence in future cash generation.

15

| © UPM

Inspired by the

limitless opportunities

of bioeconomy

Delivering renewable

and responsible

solutions

Innovating for

a future beyond

fossils

16 | © UPM Biofore – Beyond Fossils

| © UPM18

5-year cumulative cash flow (2014–2018)– disciplined capital allocation in action

EUR 7.1bn

Deleveraging

Strong operating cash flow

Attractive dividend

Focused investments

EUR 1.9bn

EUR 3.0bn

EUR 2.2bnIndustry-leading

balance sheet

Net debt /EBITDA

~0x

| © UPM19

Illustrative capital allocation*) for next 5 years,assuming the Uruguay pulp mill investment

Industry-leading

balance sheet

Net debt /EBITDA

< 2x

Attractive dividend

EUR ~3–4bnPerformance focus

Strong cash flow

High return

investments

EUR ~3–4bn

Maintain headroom

*) This is not a forecast

| © UPM

Low investment needs in existing assets allow growth projects with modest total capex

0

200

400

600

800

1 000

1 200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E

EURm

Operational investments

Capital expenditure

Strategic investments

Uruguay

acquisition

Estimate

303

Myllykoski

acquisition

20

350

*) Excluding potential

transformative prospects

*)

Depreciation

| © UPM21

Maintenance shutdowns in 2018 and 2019

Maintenance shutdowns have an impact on

• Maintenance costs

• Production volumes

• Operational efficiency

Timing Unit

Q2 18 Fray Bentos pulp mill

Kaukas pulp mill

Lappeenranta biorefinery turnaround

Olkiluoto nuclear power plant

Q4 18 Pietarsaari pulp mill

Q2 19 Kymi pulp mill

Olkiluoto nuclear power plant

Q4 19 Fray Bentos pulp mill

Significant maintenance shutdowns

in 2018 and 2019

| © UPM22

UPM’s main currency exposures

• Key currency exposures USD, GBP and JPY

• Policy to hedge an average of 50% of the estimated net currency cash

flow for the next 12 months

Estimated annual foreign currency net cash flow, before hedging

USD GBP JPY Others

EURm 1,050 340 170 420

| © UPM

Maturity profile and liquidity

23

0

100

200

300

400

500

600

700

800

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Liquidity on 31 December 2018 was EUR 0.9bn

UPM has bilateral committed facility EUR 6.5 million related to joint operations maturing 2020.

Other committed bank facilities have been cancelled during H2 2018.

EUR million

| © UPM

300

400

500

600

700

800

900

1000

1100

1200

1300

USD/tonne

BHKP, Europe NBSK, Europe

BHKP, China NBSK, China

Chemical pulp market prices

24

UPM Biorefining

300

400

500

600

700

800

900

1000

1100

1200

EUR/tonne

BHKP, Europe, EUR NBSK, Europe, EUR

BHKP, China, EUR NBSK, China, EUR

Pulp market prices, USDPulp market prices, EUR

Sources: FOEX Indexes Ltd, ECB

| © UPM25

UPM Energy

profitability2013 2014 2015 2016 2017 2018

Comparable EBIT,

EURm186 202 181 116 91 123

% of sales 39.9 43.5 43.6 32.7 28.8 31.5

UPM Energy

Cost efficient generation enables robust profitability in changing market environment

0

10

20

30

40

50

2013 2014 2015 2016 2017 2018

EUR/MWhMarket electricity prices vs UPM sales price

Helsinki Front Year System Front Year UPM average sales price

| © UPM

400

500

600

700

800

900

1000

1100

News SC LWC

WFC WFU

26

UPM Communication Papers

Graphic paper prices

EUR/t

EuropeUSD/t USD/t

ChinaNorth America

500

600

700

800

900

1000

1100

1200

1300

WFC r (100% chemical pulp)

Uncoated Woodfree Reels (100% chemicalpulp)

500

600

700

800

900

1000

1100

1200

1300

News SC LWC

WFC WFU

Sources: PPI, RISI

| © UPM27

UPM Communication Papers

Paper price vs. cash cost of marginal cost producer

Sources: PPI, RISI, Pöyry

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

EUR/t

Cash cost of a marginal producer

Price