UPM RESULTS Q1 2016

Jussi PesonenPresident and CEO

26 April 2016

| © UPM

Q1 2016 – growth projects and cost efficiency

measures deliver improved earnings

EBITDA increased by 24%

+ Cost efficiency measures resulted in

significantly lower variable, fixed costs

+ Growth projects contributed to earnings

+ Realised currency hedges neutral

+ Operational efficiency on a good level

Comparable EBIT increased by 34% to

EUR 281m (210m)

Strong operating cash flow at

EUR 341m (108m)

Net debt decreased to EUR 1,873m

(2,419m)

2

0

50

100

150

200

250

300

350

400

450

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

EURm Comparable EBITDA

403

325

| © UPM

Mostly favourable market demand in Q1 2016

Growing demand

• Pulp

• Advanced biofuels

• Self-adhesive label

materials

• Label, pack and release

materials

• Office papers in Asia

• Plywood

Stable demand

• Electricity

• Fine papers in Asia

• Sawn timber

Declining demand

• Graphic papers in Europe

and North America

3 | © UPM

| © UPM

0

50

100

150

200

250

300

350

400

450

500

EBITDA

Q1/15

EBITDA

Q1/16

Comparable EBITDA in Q1 2016 vs. Q1 2015

Raflatac

Paper

AsiaOther

operations

and

eliminations

Energy

Biorefining

Paper

ENA

Plywood

0

50

100

150

200

250

300

350

400

450

500

EBITDA

Q1/15

EBITDA

Q1/16

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

UPM benefited from cost efficiency

measures in a deflationary

business environment EURm

Cost efficiency improved in all businesses.

Biorefining, Raflatac and Paper Asia

showed growth in deliveries

4

32513.1%

40316.5%

Currency,

net

impact

32513.1%

40316.5%

| © UPM

Comparable EBIT by business area

5

0

2,5

5

7,5

10

12,5

0

10

20

30

40

50

Q114

Q314

Q115

Q315

Q116

0

5

10

15

20

25

0

30

60

90

120

150

Q114

Q314

Q115

Q315

Q116

0

15

30

45

60

0

20

40

60

80

Q114

Q314

Q115

Q315

Q116

0

2

4

6

8

10

0

10

20

30

40

50

Q114

Q314

Q115

Q315

Q116

-2

0

2

4

6

-25

0

25

50

75

Q114

Q314

Q115

Q315

Q116

0

4

8

12

16

20

0

5

10

15

20

25

Q114

Q314

Q115

Q315

Q116

EURm % of salesUPM Paper Asia EURm % of salesUPM Paper ENA EURm % of salesUPM Plywood

EURm % of salesUPM RaflatacEURm % of salesUPM EnergyEURm % of salesUPM Biorefining

| © UPM

Strong cash flow

6

0

200

400

600

800

1 000

1 200

1 400

1 600

Q11

1

Q21

1

Q31

1

Q41

1

Q11

2

Q21

2

Q31

2

Q41

2

Q11

3

Q21

3

Q31

3

Q41

3

Q11

4

Q21

4

Q31

4

Q41

4

Q11

5

Q21

5

Q31

5

Q41

5

Q11

6

Operating cash flow

Cash flow

after investing

activities

EURm Cash flow, trailing 12 months

• Q1 2016 operating cash

flow was EUR 341m

(108m)

• In Q1 2016, working capital

increased seasonally by

EUR 14m (EUR 147m)

• In the latest 12 months,

operating cash flow was

EUR 1,418m (1,085m),

EUR 2.66 per share (2.03)

| © UPM

Balance sheet continued to strengthen

7

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2011

2012

2013

2014

2015

2016

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

Net debt, EURmNet debt / EBITDA(trailing 12 months)

Net debt

Net debt / EBITDA

1.3

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2011

2012

2013

2014

2015

2016

0

10

20

30

40

50

60

70

Net debt, EURm Gearing %

Net debt

Gearing

23

Liquidity was EUR 1.9bn at the end of Q1 2016

Repayments total EUR 0.2bn in 2016

| © UPM

Growth projects ramping up and contributing

to earnings in 2016 and beyond

8

Lappeenranta

biorefinery

120m litres of

renewable diesel

UPM Plywood

Otepää mill

expansion

to 90,000m3

Kymi

pulp mill

expansion

170,000t

UPM Raflatac

50% expansion in

APAC, growth in filmic

labelstock in Poland

UPM Paper Asia

Changshu

new speciality

paper machine

360,000t

Pietarsaari

pulp mill

expansion

70,000t

Fray Bentos

pulp mill

expansion

100,000t

Kaukas

pulp mill efficiency

improvement, paper and

pulp decoupling completed

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Capex so far EUR 680m Remaining EUR 90m

| © UPM

| © UPM

UPM is well positioned for 2016

UPM actions continue:

• Ramp-up at UPM Changshu PM3 and the

Lappeenranta biorefinery

• Full potential of the pulp mills

• UPM Kaukas and UPM Otepää investments

• Cost efficiency measures

• Closure of Madison Paper Industries,

sale of UPM Schwedt paper mill assets

Scheduled maintenance stops:

• Pulp (Q3, Q4) and paper mills (Q2, Q4),

Lappeenranta biorefinery (Q2) and

Olkiluoto nuclear power plant units (Q2)

9

| © UPM| © UPM10

Outlook for 2016 is unchanged

• UPM’s profitability improved in 2015 and the improvement is expected to continue in 2016.

• UPM’s growth projects are expected to contribute positively to the company’s earnings in 2016, compared with 2015.

• UPM continues its measures to reduce variable and fixed costs also in 2016.

• Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at about the same level as at the end of 2015.

| © UPM

| © UPM

Summary

Strong Q1 2016 results

• Cost efficiency measures

• Growth projects

• Strong cash flow, record-strong balance sheet

UPM is well positioned for 2016

• Ramp-up of growth projects continues

• Cost efficiency measures continue

Strong cash flow and balance sheet

• UPM is in a unique position to simultaneously

distribute attractive dividend,

implement growth projects and

act on strategic opportunities

11

| © UPM12

Performance1 Growth2 Portfolio3 Innovation4

UPM strategic focus areas

Continuous

improvement in

performance

“Cost efficiency

measures”

Focused growth

projects

“EBITDA target for

growth projects

EUR 200m”

Business portfolio

development and

value creation

“Net debt reduction

EUR 546m”

New business and

product

development

“Biofuels

commercial

ramp-up”

| © UPM

Strengths of UPM’s model

13

Top performance

Industry-leading

balance sheet

Attractive dividend

Strong cash flowFocused

investments

| © UPM

Sales

EUR 2,446m -2%

Comparable EBITDA

EUR 403m +78m

Q1 2016 – growth projects and cost efficiency

measures deliver improved earnings

15

Comparable EBIT

EUR 281m +71m

Comparable profit before tax

EUR 267m +79m

Q1 2016 vs. Q1 2015:

Comparable EPS

EUR 0.42 +0.12

Net debt

EUR 1,873m -546m

Operating cash flow

EUR 341m +233m

Gearing

23% -8pp

Net debt / EBITDA

1.31x -0.54x

Comparable ROE

11.3% +2.9pp

| © UPM

Low investment needs in existing assets allow

growth projects with modest total capex

16

0

200

400

600

800

1 000

1 200

2008 2009 2010 2011 2012 2013 2014 2015 2016e

EURm

Operational investments

329

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Myllykoski

acquisition

486

Estimate

375 350

| © UPM

Maturity profile and liquidity

17

0

100

200

300

400

500

600

700

800

900

1 000

2016

2017

2018

2019

2020

2021

2022-2

027

2028

2029

2030

EUR million

0

100

200

300

400

500

600

700

800

900

1 000

2016

2017

2018

2019

2020

2021

2022-2

027

2028

2029

2030

EUR million

Liquidity

Liquidity on 31 March 2016 was EUR 1.9bn

(cash and unused credit facilities)

Bilateral committed credit facilities EUR 1,075m

Committed credit facilities EUR 1,075m

Maturity profile of outstanding debt Committed credit facilities’ maturities

| © UPM

0

25

50

75

100

125

150

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

0

5

10

15

20

25

30

UPM Biorefining

18

Comparable EBITEURm % of salesActions

• Pulp production capacity increased

and production efficiency improved.

• Steady production was achieved at the

Lappeenranta biorefinery and a

monthly production record was

reached in January.

• Cost efficiency improved.

| © UPM

UPM Energy

19

0

20

40

60

80

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

0

20

40

60

80

Actions

• Strong hydro and nuclear electricity

production volumes.

• Average electricity sales price clearly

above Finnish area spot price due to

hedging and hydro optimisation.

Comparable EBITEURm % of sales

| © UPM

UPM Raflatac

20

0

10

20

30

40

50

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

0

2

4

6

8

10

Actions

• Improved product mix and cost-efficient

growth in films and special products

was achieved through growth

investments, supported by an

enhanced customer offering.

Comparable EBITEURm % of sales

| © UPM

UPM Paper Asia

21

0

10

20

30

40

50

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q4 16

0

3

6

9

12

15

Actions

• Production was ramped up successfully

at the new speciality paper machine at

the UPM Changshu mill in China, and

product qualification has met

customers’ high-quality requirements.

Comparable EBITEURm % of sales

| © UPM

UPM Paper ENA

22

-40

-20

0

20

40

60

80

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

-4

-2

0

2

4

6

8

Actions

• Challenging market conditions were

mitigated through a successful

commercial strategy and improved

cost efficiency.

• Announced closure of Madison Paper

Industries in the US.

Comparable EBITEURm % of sales

| © UPM

UPM Plywood

23

0

5

10

15

20

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

0

5

10

15

20

Actions

• Otepää mill expansion proceeded

according to schedule; first installations

already taken into use.

• Finnish birch mill competitiveness

improvement programme proceeded

according to plan.

• Production adjustments carried out in

Pellos spruce plywood mills to mitigate

negative impact of low-priced imports.

Comparable EBITEURm % of sales

| © UPM

Chemical pulp market

25

Source: PPPC World-20 statistics

Pulp inventories

Days of

supply

300

400

500

600

700

800

900

1 000

1 100

2008 2009 2010 2011 2012 2013 2014 2015 2016

USD/tonne

Q1 NBSK pulp price decreased 3% from Q4

Q1 BHKP pulp price decreased 5% from Q4

BHKP

NBSK

Source: FOEX Indexes Ltd.

15

20

25

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013 2014 2015

Hardwood

inventories

Softwood

inventories

| © UPM

Price development in the Nordic and Helsinki power markets

26

Source: Reuters

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EUR/MWh

Coal SRMC Front Year Helsinki Front Year System Front Year

Finnish and Nordic electricity prices

| © UPM2727

400

500

600

700

800

900

1000

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

News SC LWC

WFC WFU

EUR/t

Europe

400

500

600

700

800

900

1000

1100

1200

1300

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

Jan-

16News SC LWC

WFC WFU

USD/t USD/t

ChinaNorth America

Sources: PPI, RISI

Graphic paper prices

400

500

600

700

800

900

1000

1100

1200

1300

WFC r (100% chemical pulp)

Reels (mixedchemical/mechanical pulp)

Uncoated Woodfree Reels (100%chemical pulp)

| © UPM

Demand-supply balance in European

graphic paper is visible in margins

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

28

Cash cost of a marginal producer

Price

EUR/t

Sources: PPI, RISI, Pöyry