UPM – FRONTRUNNERCFO SNAPSHOT

Jyrki Salo, CFOJune 2, 2008 Nordland

UPM 2

Paper segments

CFO snapshot

Proactive strategy – Financial impacts

Label Materials and Wood Products

Cash flow and investments

Balance sheet

UPM 3

6,0

6,5

7,0

7,5

8,0

8,5

9,0

9,5

10,0

10,5

11,0

2003 2004 2005* 2006 2007 Q1080

1

2

3

4

5

6

7

8

9

10

PROACTIVE STRATEGY – FINANCIAL IMPACTSContinuing operations sales CAGR 4% in 2003-07

€ billion

EBIT margin (%)

Divested businesses

Continuing operations

%Sales and organic growth 2003–2007

* Labour dispute in Finland

UPM 4

PROACTIVE STRATEGY – FINANCIAL IMPACTS EBIT excl. special items 2003–07

Vertical integration: energy and pulp self-sufficiency buffers input costs

0100200300400500600700800900

EBIT 20

03

Paper

price

s, cu

rrenc

yPap

er de

liveri

esPap

er co

stsPap

er de

precia

tion

Other o

perat

ions

Conve

rting/L

abel

Materia

lsW

ood P

roduc

tsFair

value

gains

EBIT 20

07

Q108

€ million

Paper segments and resources

Q108 vs. Q107€ -33m

Papersegments€ -14m

UPM 5

8 000

8 250

8 500

8 750

9 000

9 250

9 500

9 750

2003

Woo

d an

dfib

ers

Che

mic

als

Ene

rgy

Oth

er ra

wm

ater

ials

Del

iver

y of

own

prod

ucts

Per

sonn

elan

d ot

her

2007

PROACTIVE STRATEGY – FINANCIAL IMPACTS Cost development 2003–2007

€ million

+3.4%

NOTE: During the period, paper delivery tons have grown 11% (CAGR 2.7%)

2007

partly from disposals

Total costs excl. depreciation

UPM 6

Paper segments

Presentation outline

Proactive strategy – Financial impacts

Label Materials and Wood Products

Cash flow and investments

Balance sheet

UPM 7

70

100

130

160

190

220

250

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

PROACTIVE STRATEGY – FINANCIAL IMPACTS Raw material market prices have increased rapidly

Index 2004=100

Coating materials

Chemical pulp

Electricity (Nordpool)

Bleaching chemicals

Electricity (EEX)

Oil

Pulpwood birch (Fin)

Pulpwood spruce (Fin)

UPM 8

PROACTIVE STRATEGY – FINANCIAL IMPACTS Paper segments fixed costs per tonne have declined 14% since 2003

70

80

90

100

110

120

2003 2004 2005 2006 2007

Paper segments costs per delivered tonne (excluding depreciation)

Variable costs

Total costs

Fixed costs

+9%

+2%

-14%

2003 = 100

UPM 9

-200

-100

0

100

200

300

400

500

600

700

800

Q10

4

Q20

4

Q30

4

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

PROACTIVE STRATEGY – FINANCIAL IMPACTS High self-sufficiency in electricity and pulp reduces earnings volatility

EBIT excl. non-recurring items, trailing 12 months€ million

Paper segments

Other operations, Associated companies (excluding fair value changes)

Fair value changes of forests

Impact of the 2005 labour dispute

UPM 10

PROACTIVE STRATEGY – FINANCIAL IMPACTS Electricity self-sufficiency will pay off 1(2)

UPM's own power generation represents 79% of consumption – 87% of power generation is nuclear, hydro power and CHP– own power generation some 14 TWh, – power plants outside mills represent some 10TWh – TVO's new nuclear power plant starts in 2011, adding 3.5TWh

Case 1: own power generation

Volume 10 TWh- from 2012 14TWhProduction cost € 25/MWhMarket price € 55/MWhLife span 50 years

Case 2: attractive power contract

Volume 10 TWh

Contract price € 30/MWhMarket price € 55/MWhMaturity 10 years

HYPOTHETICAL EXAMPLES – FIGURES ARE NOT ACTUAL

UPM 11

0

250

500

2008

2011

2014

2017

2020

2023

Case 1: Own power generationCase 2: Power contractOwn generation benefit

PROACTIVE STRATEGY – FINANCIAL IMPACTS Electricity self-sufficiency will pay off 2(2)

Pre-tax profit impact, € million Little earnings difference until 2011Significant difference eventually

Value difference: NPVCase 1: € 4.0bnCase 2: € 1.4bnBenefit from owningpower plants € 2.6bn

Assumptions:Discount rate 7.5%Tax rate 26%

NOTE: HYPOTHETICAL EXAMPLES – FIGURES ARE NOT ACTUAL

UPM 12

Paper segments

Presentation outline

Proactive strategy – Financial impacts

Label Materials and Wood ProductsCash flow and investments

Balance sheet

UPM 13

0

200

400

600

800

1 000

1 200

1 400

1 600

2003 2004 2005 2006 20070

1

2

3

4

5

6

7

8€ billion

EBIT margin (%)

Sold units:Walki WisaLoparexWalki Films

UPM Raflatac

Continuing operations sales CAGR 8.5% in 2003-07

%

PROACTIVE STRATEGY – FINANCIAL IMPACTS Label Materials sales CAGR 8.5% since 2003

UPM 14

0

10

20

30

40

50

60

70

80

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

0

1

2

3

4

5

6

7

8

PROACTIVE STRATEGY – FINANCIAL IMPACTS

Label Materials - investments, raw materials and strong euro burden profits

EBIT excl. non-recurring items, trailing 12 months€ million

Label Materials EBIT

EBIT margin (%)

Strong euro, higher raw material and fixed costs (partly due to investments)Price hikes have been announced

Label MaterialsConverting

Converting EBIT

UPM 15

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008E

Depreciation Capex

PROACTIVE STRATEGY – FINANCIAL IMPACTS Label Materials investing on growth

€ million

Strategic growth investments :

Fletcher, US 2001 Fletcher, US 2005Tampere, Finland 2006Changshu, China 2007Dixon, US Q108Wroclaw, Poland Q408

Growth investments 2006-2008 exceed € 200m

No material investment decisions for 2009

Dixon, Wroclaw

UPM 16

0

200

400

600

800

1000

1200

1400

1600

1800

2003 2004 2005 2006 20070

1

2

3

4

5

6

7

8

9

PROACTIVE STRATEGY – FINANCIAL IMPACTS Wood Products continuing operations sales CAGR 3% in 2003-07

€ million

EBIT margin (%)

Sawmilling

Plywood

%

Sold units:PuukeskusBrooksAnco Trae

UPM 17

0

20

40

60

80

100

120

Q10

4

Q20

4

Q30

4

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

0

1,5

3

4,5

6

7,5

9

PROACTIVE STRATEGY – FINANCIAL IMPACTS Wood Products - sawmilling boom is over

EBIT excl. non-recurring items, trailing 12 months€ million

Wood Products

EBIT margin (%)

Sawmilling: higher wood costs, weakened timber marketPlywood: good profitability continues

UPM 18

Several divestments, no acquisitions since 2003 – Organic growth 4% pa– Investments focused on energy, efficiency and quality – not

visible in top-line – will lead to long-term advantage

Input costs (wood, RCP, energy, chemicals) have increasedProactive measures have been taken to mitigate this

– Capacity closures– More efficient use of capacity– Personnel reductions – Development for lower consumption of inputs (energy, pulp, etc.)

per tonne– Global sourcing and efficient logistics

Paper production variable costs per delivered tonne +9%, total cost per delivered tonne +2% since 2003

PROACTIVE STRATEGY – FINANCIAL IMPACTS Summary

UPM 19

Paper segments

Presentation outline

Proactive strategy – Financial impacts

Label Materials and Wood Products

Cash flow and investmentsBalance sheet

UPM 20

CASH FLOW AND INVESTMENTS Operating cash flow

0

200

400

600

800

1000

1200

1400

Q40

3

Q10

4

Q20

4

Q30

4

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Net operating cash flow, trailing 12 months€ million

Capex and acquisitions

Net operating cash flow

Cash flow after investing activities

Dividend

Q207-Q108: working capital increased €165m mainly due to wood inventory volume and priceCapex expected to be approx. € 500m in 2008, €150-200m lower than previously

UPM 21

-4 000 -2 000 0 2 000 4 000 6 000

-1,312

31

CASH FLOW AND INVESTMENTSCumulative cash flow 2003 – 2007

€, million

Cash from operations 5,190

-3,368 Capital expenditure

Shares and company acquisitions-194

Debt

Sale of fixed assets

Share repurchases and dividends paid

1,832

Other

-2,179

Cash flow priorities: 1. Maintenance investments2. Dividend3. Strategic investments4. Share buy-backs5. Reduction of debt

UPM 22

CASH FLOW AND INVESTMENTSStrategic investments since 2003 approx. € 2 billion

0

200

400

600

800

1000

1200

2003 2004 2005 2006 2007 Q108

Strategic investmentsMaintenance investmentsDepreciation

€ million

132

Maintenance investments approx. € 250-300 paCommitted strategic investments (as of 6/08) approx. € 100m for 2009-10

Energy Energy/PulpRCP Paper rebuildsChina, Labels

Strategic investments since 2003

UPM 23

Working capital increased € 165m in the past 12 months mainly due to wood inventory volume, priceCapex guidance for 2008 is € 500m– € 150-200m lower than the level seen over the past years – Depreciation approx. € 800m pa

Energy, fiber and efficiency dominate UPM's latest investments– Strategic investments €2bn since 2003

Low investment needs – Modern and well invested paper and pulp mills means lower

reinvestment needs– Committed strategic investments beyond 2008 approx.

€100m– Maintenance capex approx. € 250-300m pa

CASH FLOW AND INVESTMENTSSummary

UPM 24

Paper segments

Presentation outline

Proactive strategy – Financial impacts

Label Materials and Wood Products

Cash flow and investments

Balance sheet

UPM 25

4 1073 973

3 000

3 500

4 000

4 500

5 000

04 05 06 07 March31

2008

6459

0

20

40

60

80

100

120

04 05 06 07 March31

2008

Gearing ratio Net interest-bearing liabilities

Ratings: Moody’s Baa3 (stable), latest change February 11, 2008S&P BBB- (negative), latest change April 21, 2008

% € million

Target: maximum 100%

BALANCE SHEET Healthy balance sheet

UPM 26

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

03 04 05 06 07

Bond loans

Loans from financialinstitutions and pensionloans

Short term loans

BALANCE SHEETStructure of interest bearing debt

UPM 27

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-202

6

2027

2028

2029

2030

Other Loans EUR Bonds USD BondsGBP Bonds JPY Bonds Committed facilities

BALANCE SHEET Extended and even maturity profile of long term debt

Maturity profile average life of 6.1 years € million

UPM 28

Efficiency gains achieved

Self sufficiency in low cost energy and pulp provides long-term advantage

Low investment needs going forward

Extended maturity of debt

Healthy balance sheet

CFO snapshotSummary

UPM 29