UPM Q4 RESULTS Jussi Pesonen President and CEO 31 January 2013

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1 UPM Q4 RESULTS 212 Jussi Pesonen President and CEO 31 January 213

2 Q4 212 highlights Stable financial performance compared with Q3 212 and Q4 211 Operating cash flow continued strong at EUR 352m in Q4 212 (31m in Q4 211), net debt decreased by EUR 582m from last year Board s dividend proposal for 212 is EUR.6 per share Weak profitability continued in Paper Fixed and variable costs were clearly lower in Q4 212 than last year this was offset by lower paper prices and deliveries New restructuring plan and impairment charges in Paper Growth businesses continued overall good performance Energy asset values will be raised to fair value in Q UPM

3 Key figures Q4/212 vs. Q4/ vs. 211 Sales EUR 2,65 m -1% EBITDA EUR 31 m % Operating profit ( * EUR 139 m Profit before tax ( * EUR 116 m Operating cash flow EUR 352 m -8 m +6 m +42 m Sales EUR 1,438m +4% EBITDA EUR 1,269 m -8% EPS ( * EUR Net debt EUR 3,1 m Operating cash flow ( ** EUR 1,14 m -582 m -27 m * ) excluding special items ** ) after restructuring payments of EUR 182m in UPM

4 Second economic downturn in Europe in four years 1, % Real GDP growth, % yoy 7,5 5, 2,5, BRIC US Euro zone -2,5-5, -7,5 Source: Global Insight 4 UPM

5 Publication paper deliveries affected by the weak economy UPM Delivery volumes, indexed Q18 = 1 * ) Change in deliveries, % Q412/ Q411 Q412/ Q312 * ) publication paper development pro forma, including Myllykoski 212/ 211 Label Pulp Publication papers * ) Fine and spec. papers Timber Plywood

6 EBITDA in 212 vs. 211 Increase in Energy, Label, Paper and Plywood Pulp and other operations decreased EBITDA EURm Energy Pulp Label Paper Forest and Timber Plywood Other operations 6 UPM

7 EBITDA was stable in Q4 212 vs. Q4 211 EUR million Fixed costs decreased Volumes and prices decreased Prices, currency Deliveries Fixed costs Fibre costs Energy costs 11.2% % Other EUR million Forest 11.2% and Paper 31 Timber Plywood Energy Pulp increased Paper decreased Pulp Label Other operations 11.4% EBITDA Q4/11 EBITDA Q4/12 EBITDA Q4/11 EBITDA Q4/12 7 UPM

8 Q18 Q28 Q38 Q48 Q19 Q29 Q39 Q49 Q11 Q21 Q31 Q41 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Consistently solid cash flow EUR million Cash flow after investing activities Cash flow, trailing 12 months Operating cash flow Q4 212 operating cash flow was EUR 352m (31m) 212 operating cash flow was EUR 1,14m (1,41m), after EUR 182m restructuring payments 2 8 UPM

9 Strong balance sheet Net debt, EUR million 6 Net debt / EBITDA (trailing 12 months) 4,5 Net debt, EUR million Gearing % Net debt / EBITDA 4, ,5 5 Gearing , 2, , Net debt 1,5 3 Net debt , UPM Liquidity was EUR 1.9bn at the end of 212 Repayments total EUR 251m in 213

10 Outlook for 213 ( * Economic growth in Europe in early 213 is expected to remain very low, having a negative impact on the European graphic paper markets. The hydrological situation in the Nordic countries is normalising. Growth market economies are expected to fare better, which is supportive for the global pulp and label materials markets, paper markets in Asia and wood products markets outside Europe. In H1 213 compared with H2 212, UPM s performance will be underpinned by continued stable overall outlook for growth businesses such as Energy, Pulp and Label. Slightly lower publication paper prices, adverse currency development and lower delivery volumes are expected to have a clear negative impact on the European paper business profitability, as compared with H UPM s cost level is expected to be stable. 1 UPM ( * See complete wording of the "Outlook" in the Financial statements release 212

11 CHALLENGE IN EUROPEAN GRAPHIC PAPER

12 Overcapacity in European graphic paper is visible in margins Mill. tonnes 55 European graphic paper capacity and deliveries EUR/t Price hardly covers the cash costs of marginal producers 5 Capacity 45 Price 4 European deliveries 35 Cash cost of a marginal producer 3 Source: Euro-Graph, PPPC, JP, RISI, UPM Source: PPI, RISI, Pöyry 12 UPM

13 Myllykoski cost synergies achieved as planned EURm 1 UPM Paper EBITDA % of sales 2 Paper EBITDA increased by EUR 25m in 212 from UPM s paper deliveries in 212 decreased by 1%, prices by 1% In 212, synergy benefits reduced Paper business costs by about EUR 17m: 212 magazine paper fixed costs per tonne slightly lower than in 211, variable costs lower Full cost synergies of EUR 2m are expected to be visible in UPM

14 Planned actions subject to employee negotiations Planned capacity closures and other actions Capacity t/a and paper grade Reduction in personnel Timeline Permanent closure of the UPM Ettringen PM4 in Germany Permanent closure of the UPM Rauma PM3 in Finland Sale of the UPM Docelles mill in France or other exit from UPM Paper business 175, SC 245, SC 16, Fine 155 By the end of H1/13 9 By the end of H1/ Sales process 6 months Streamlining of Paper BG and global functions 45 End 213 Total planned actions 58, 86 Production ceased at UPM Stracel mill, mill sold 27, Coated magazine 25 January 213 Total 85, 1,11 Estimated annual fixed cost savings of EUR 9m 14 UPM

15 SOLID PORTFOLIO OF WELL PERFORMING GROWTH BUSINESSES

16 Mature businesses Growth businesses Expanding well performing growth businesses maintaining cash flow from mature businesses Sales, EURm Sales, EURm UPM 3.1bn +43% 4.4bn "5+ years" 7.6bn Energy Biofuels Pulp -11% 6.8bn Paper China, label papers Label "5+ years" Paper other Timber Plywood Average EBITDA margin 21% ROCE 13% Average EBITDA margin 5%, generating free cash flow ( * Steps in well performing growth businesses Labelstock expansion Paper machine in China Biofuel refinery Fair valuation of Energy assets * ) This is not a forecast, but one scenario from some of UPM s existing growth opportunities Challenge in European graphic papers Exit Stracel, 28kt of magazine paper capacity Plan to reduce 58kt of graphic paper capacity Planned annual fixed cost savings EUR 9m Plywood and Timber restructuring

17 Asset values changed to reflect fair values EUR million 6 Capital employed 5 4 Energy assets booked at fair value in Q113 Paper assets impaired to reflect the current profitability Energy Pulp Fortim Paper Label Plywood Other 17 UPM

18 New asset values represent UPM s EBITDA generation during the past few years Paper 32% Cumulative EBITDA Plywood 1% Forest and Timber 2% Energy 16% Capital employed 31 Dec 212, incl. changes in Q1 213 Paper 3% Other 1% Plywood 2% Forest and timber 15% Label 8% Pulp 41% Label 5% Energy 25% Pulp 22% 18 UPM

19 Capex focused on growth businesses low investment needs to maintain existing assets EUR million 1 2 Capital expenditure Estimate 1 Depreciation Myllykoski acquisition Strategic investments Uruguay acquisition Projects in 213 Biofuels China PM Schongau CHP 2 19 UPM Operational investments e Low investments in mature businesses

20 Dividend proposal for 212 Cash flow, EUR million Operational capex Cash flow after operational capex EUR per share,9,8,7,6,5,4,3 Dividend policy at least 1/3 of net cash flow from operating activities less operational capital expenditure net cash flow calculated as an average over three years Minimum dividend by the policy EUR.5 per share Actual / proposed dividend Minimum dividend by the dividend policy,2 Board s dividend proposal 212 EUR.6 (.6) per share 2 UPM

21 Summary Weak European economy is impacting UPM s business environment Financial performance in Q4 212 was stable, strong cash flow continued and balance sheet strengthened further UPM s growth businesses have continued good performance in the difficult environment expansion continues with measured steps Main challenge is in European graphic paper new plan announced to secure cash flow generation Board s dividend proposal of EUR.6 per share reflects confidence on UPM s cash flow and earnings development 21 UPM

22 BUSINESS DRIVERS

23 Second economic downturn in Europe in four years Euro zone composite leading indicator* (Y/Y %) 9, 6, 3, Paper demand growth (% trailing 3 month) Euro zone composite leading indicator , -3, -6, Graphic paper demand growth , * Changed GDP base Sources: Cepiprint, Cepifine, OECD UPM

24 Graphic papers demand in Europe decreased 6% both in Q4 12 and in 212 ' tonnes 4 5 Magazine papers demand in Europe -7% in Newsprint demand in Europe -9% in Fine papers demand in Europe -4% in % % % Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 3Q 12 Source: Cepiprint/fine, PPPC 24 UPM

25 Graphic paper prices /t 1 Europe USD/t 13 North America USD/t 12 China Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 News SC LWC WFC WFU Source: PPI, RISI 25 UPM News SC LWC WFC WFU WFC freesheet, g WFU sheet,1-3% virgin fiber WFU sheet, 1% virgin fiber

26 Chemical pulp market 4Q BHKP price almost unchanged from 3Q 4Q NBSK price almost unchanged from 3Q USD/tonne NBSK BHKP Days of supply December producer inventories at balanced levels Hardwood inventories Softwood inventories Source: FOEX Indexes Ltd. Source: PPPC World-2 statistics 26 UPM

27 Wood, RCP and electricity prices / m³ Log prices in Finland / m³ Pulpwood prices in Finland Spruce Pine Birch Spruce Pine Birch / tonne RCP prices in Europe / MWh Electricity 1-year forward prices 27 UPM Source: Metla, FOEX Indexes Ltd, NordPool, EEX EEX (Germany) NordPool (Nordic)

28 FINANCIALS Q4 212

29 Key financials Q4 212 Q Sales, m 2,65 2,686 1,438 1,68 Sales growth (%) -1% 4% EBITDA, m ,269 1,383 % of sales Operating profit, excl. special items, m EPS excl. special items, Net cash from operating activities, m 352 ( * 31 1,14 ( * 1,41 29 UPM * ) Restructuring payments in operating cash flow totalled EUR 12m in Q412 and EUR 182m in 212

30 UPM asset values changed to reflect the fair values of the businesses Impairment charge of EUR 1,771m recorded in Paper in Q EUR 783m from goodwill related to acquisitions made in EUR 988m from fixed assets related to the mature European graphic paper operations Adoption of new consolidation standards IFRS 1 and 11 results in a change in the accounting treatment of certain power generation assets as of Q The asset values in the Energy Business Area will increase by EUR 1,95m. PVO s CHP plants assets and liabilities consolidated line by line, increasing UPM s net debt by approximately EUR 2m as of Q1 213 The amendment related to accounting for pension liabilities (IAS 19) will decrease UPM s equity by approximately EUR 315m in Q1 213 The net impact of the actions on UPM s equity is estimated to be neutral, net of deferred taxes UPM 3

31 EBITDA EUR million EBITDA % of sales % % % % % UPM

32 Q4 212 EBITDA by business area EBITDA EURm Energy Pulp Label Paper Forest and Timber Plywood Other operations 32 UPM Q4 212 EUR 31m Q3 212 EUR 35m Q4 211 EUR 31m

33 Operating profit EUR million 3 Operating profit excluding special items % of sales % % % % % UPM

34 212 operating profit Increase in Energy, Label and Paper Pulp and other operations decreased Operating profit excluding special items EURm Energy Pulp Label Paper Forest and Timber Plywood Other operations 34 UPM

35 Cash flow, million Q4/12 Q4/ EBITDA ,269 1,383 Cash flow before change in working capital ,117 1,249 Change in working capital Finance costs and income taxes Net cash from operating activities ,14 1,41 Capital expenditure Asset sales and acquisitions Cash flow after investing activities UPM * ) Restructuring payments in operating cash flow totalled EUR 12m in Q412 and EUR 182m 212

36 Balance sheet Gearing ratio Net debt % EUR million 1 Target: maximum 9% , Liquidity was EUR 1.9bn repayments EUR 251m in UPM

37 FINANCIALS Maturity profile and liquidity Liquidity Liquidity on 31 December 212 was 1.9bn (cash and unused credit facilities) Committed credit facilities EUR 1.4bn syndicated credit facility EUR 5 million bilateral committed credit facilities EUR 9 million EUR million 1 Maturity profile of outstanding debt EUR million 1 Committed credit facilities maturities UPM

38 EURm 25 EBITDA by business area Energy % of sales 5 EURm 75 Pulp % of sales 5 EURm 15 Label % of sales EURm 1 Paper % of sales EURm Fortim % of sales EURm % of sales Plywood UPM

39 Energy Q4 212 vs. Q4 211 Operating profit excluding special items million % of sales Business performance The average electricity sales price increased by 2% to EUR 46.2/MWh (45.1/MWh). The positive sales price impact was offset by negative market value changes of electricity derivatives Q1 8 Sales EUR million Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q Q % Operating profit EUR million *) *) excluding special items Q Q EUR million 39 UPM

40 Pulp Q4 212 vs. Q4 211 Operating profit excluding special items million % of sales Q1 8 Q3 8 Sales EUR million Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q Q % Business performance Operating profit excluding special items increased compared with the same period last year, mainly due to favourable EUR/USD exchange rate development. Operating profit EUR million *) *) excluding special items Q Q EUR million 4 UPM

41 Forest and Timber Q4 212 vs. Q4 211 Operating profit excluding special items million % of sales Sales EUR million 41 UPM Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q Q Fair value change Business performance Fixed costs decreased in sawn timber. The increase in the fair value of biological assets net of wood harvested was EUR 23 million (increase of EUR 42 million). The increase in the fair value of biological assets (growing trees) was EUR 38 million (56 million). This was supported by profits from forestland sales. The cost of wood harvested from own forests was EUR 15 million (14 million). 3% Operating profit Q EUR million *) *) excluding special items Q EUR million

42 Paper Q4 212 vs. Q4 211 million % of sales Operating profit excluding special items Q1 8 Q3 8 Sales EUR million Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q ,815 Q , % Business performance Operating profit excluding special items decreased slightly from last year due to lower prices and deliveries. Fixed and variable costs were lower. The packaging paper operations of the Tervasaari and Pietarsaari mills were sold in June 212. The average price for paper deliveries in euros was approximately 4% lower than last year. Operating profit EUR million *) *) excluding special items Q Q EUR million 42 UPM

43 Label Q4 212 vs. Q4 211 Operating profit excluding special items million % of sales Q1 8 Sales EUR million Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q Q Q3 11 Q1 12 Q % Business performance Operating profit decreased slightly due to higher fixed costs, mainly due to expanded operations. Sales volumes and unit value added increased. Operating profit EUR million *) *) excluding special items Q Q EUR million 43 UPM

44 Plywood Q4 212 vs. Q4 211 Operating profit excluding special items million % of sales Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q Business performance Operating profit excluding special items increased slightly due to higher delivery volumes. Sales EUR million Q Q % Operating profit EUR million *) *) excluding special items Q Q EUR million 44 UPM

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