UPM RESULTS Q2 2016

Jussi PesonenPresident and CEO

26 July 2016

| © UPM

Q2 2016 – comparable EBIT increased by 21%,

cash flow reaching new highs

EBITDA increased by 21%

+ Cost efficiency measures resulted in

significantly lower variable, fixed costs

+ Growth projects contributed to earnings

+ Realised currency hedges neutral

Comparable EBIT increased by 21% to

EUR 264m (219m)

Strong operating cash flow at

EUR 434m (324m)

Net debt decreased by EUR 759m to

EUR 1,876m (2,635m)

2

0

50

100

150

200

250

300

350

400

450

Q113

Q313

Q114

Q314

Q115

Q315

Q116

EURm Comparable EBITDA

385

317

| © UPM

Mostly favourable market demand in Q2 2016

Growing demand

• Pulp

• Advanced biofuels

• Self-adhesive label

materials

• Label, pack and release

materials

• Office papers in Asia

• Plywood

• Sawn timber

Stable demand

• Electricity

• Fine papers in Asia

Declining demand

• Graphic papers in Europe

and North America

3 | © UPM

| © UPM

UPM continues its transformation

Actions so far in 2016

• Great ramp-up at the UPM Kymi pulp mill’s first expansion

• Ramp-up at UPM Changshu PM3 and the Lappeenranta

biorefinery continues

• Closed the Madison SC paper mill in the US

• Sold the UPM Schwedt newsprint mill in Germany

• Corporate structure changed to match the business

structure

In the pipeline

• UPM Kaukas pulp mill investment

• UPM Otepää plywood investment

• UPM Kymi pulp mill second investment

EUR 98m, 170,000 tonnes

4

| © UPM

0

50

100

150

200

250

300

350

400

450

500

EBITDA

Q2/15

EBITDA

Q2/16

Comparable EBITDA in Q2 2016 vs. Q2 2015

Raflatac

Paper

Asia

Other

operations

and

eliminations

Energy

BiorefiningPaper

ENA

Plywood

0

50

100

150

200

250

300

350

400

450

500

EBITDA

Q2/15

EBITDA

Q2/16

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

5

31712.4%

38515.8%

Currency,

net

impact

31712.4%

38515.8%

| © UPM

Comparable EBIT by business area

6

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

7

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

Q21

6

Operating cash flow

Cash flow

after investing

activities

EURm Cash flow, trailing 12 months

• Q2 2016 operating cash

flow was EUR 434m

(324m)

• In Q2 2016, working capital

decreased by EUR 10m

(EUR 31m)

• In the latest 12 months,

operating cash flow was

EUR 1,528m (1,194m),

EUR 2.86 per share (2.24)

| © UPM

Balance sheet continued to strengthen

8

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

24

Liquidity was EUR 1.5bn at the end of Q2 2016

Repayments total EUR 0.15bn in 2016

| © UPM

Growth projects ramping up and contributing

to earnings in 2016 and beyond

9

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

Kaukas

pulp mill efficiency

improvement, paper and

pulp decoupling completed

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Investments EUR 150m

| © UPM

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Kymi

pulp mill

expansion

170,000t

In operation and ramping up

| © 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 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 Q2 2016 results – further evidence of the business model

• Cost efficiency measures

• Growth projects

• Record strong cash flow and balance sheet

UPM is well positioned

• Ramp-up of growth projects continues

• Cost efficiency measures continue

• Strong business model with six agile businesses,

efficient capital allocation and an industry-leading

balance sheet

11

| © UPM

Welcome to our Capital Markets Day

in London!

12

UPM’s Capital Markets Day

August 31 dinner with a keynote speech by

the Chairman of the Board

September 1 presentations and discussion

with the CEO and the UPM

management team

More information: www.upm.com/Investors/

Register by email: ir@upm.com

“We have a strong business model with six agile businesses, efficient capital allocation

and an industry-leading balance sheet. This ensures good opportunities for focused

growth investments, continued strong cash flow and an attractive dividend.”

– Jussi Pesonen, President and CEO

| © UPM14

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 759m”

New business and

product

development

“Biofuels

commercial

ramp-up”

| © UPM

Strengths of UPM’s model

15

Top performance

Industry-leading

balance sheet

Attractive dividend

Strong cash flowFocused

investments

| © UPM

Sales

EUR 2,445m -4%

Comparable EBITDA

EUR 385m +68m

Q2 2016 – comparable EBIT increased by 21%,

cash flow reaching new highs

16

Comparable EBIT

EUR 264m +45m

Comparable profit before tax

EUR 252m +57m

Q2 2016 vs. Q2 2015:

Comparable EPS

EUR 0.37 +0.05

Net debt

EUR 1,876m -759m

Operating cash flow

EUR 434m +110m

Gearing

24% -11pp

Net debt / EBITDA

1.25x -0.75x

Comparable ROE

10.2% +1.4pp

| © UPM

Low investment needs in existing assets allow

growth projects with modest total capex

17

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

375 400

| © UPM

Maturity profile and liquidity

18

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 30 June 2016 was EUR 1.5bn

(cash and unused credit facilities)

Bilateral committed credit facilities EUR 1,075m

Committed credit facilities

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

Q2 16

0

5

10

15

20

25

30

UPM Biorefining

19

Comparable EBITEURm % of salesActions

• Pulp production capacity increased

and production efficiency improved.

• Potential for further increases in

production identified at UPM Kymi

pulp mill; investment decision

announced in July.

• Scheduled maintenance carried out at

the Lappeenranta biorefinery.

• Cost efficiency improved.

| © UPM

UPM Energy

20

0

20

40

60

80

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

Q1 16

0

20

40

60

80

Actions

• Scheduled maintenance shutdown at

Olkiluoto nuclear power plant units.

Comparable EBITEURm % of sales

| © UPM

UPM Raflatac

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

Q1 16

Q2 16

0

2

4

6

8

10

Actions

• Improved product mix and operational

efficiency enabled record strong

profitability.

Comparable EBITEURm % of sales

| © UPM

UPM Paper Asia

22

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

Q2 16

0

3

6

9

12

15

Actions

• Production ramped up successfully at

the new speciality paper machine at the

UPM Changshu mill in China,

contributing to solid growth in

deliveries.

Comparable EBITEURm % of sales

| © UPM

UPM Paper ENA

23

-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

Q2 16

-4

-2

0

2

4

6

8

Actions

• Successful cash release as a result of

profit improvement, reduction in

working capital and sale of assets.

• In line with the decision announced in

March, paper production ceased at

Madison Paper Industries in the US.

• According to the agreement

announced on 26 April 2016 the UPM

Schwedt mill site and relevant assets

were transferred from UPM to LEIPA

Georg Leinfelder GmbH on 1 July

2016.

Comparable EBITEURm % of sales

| © UPM

UPM Plywood

24

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

Q2 16

0

5

10

15

20

Actions

• Strong performance.

• Otepää mill expansion proceeded.

• UPM Pellos mills exceeded 10 million

cubic meters in all-time total

production.

Comparable EBITEURm % of sales

| © UPM

Chemical pulp market

26

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

Q2 NBSK pulp price increased 1% from Q1

Q2 BHKP pulp price decreased 5% from Q1

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 2016

Hardwood

inventories

Softwood

inventories

| © UPM

Price development in the Nordic and Helsinki power markets

27

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

| © UPM2828

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

29

Cash cost of a marginal producer

Price

EUR/t

Sources: PPI, RISI, Pöyry