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UPM Deutsche Bank 7th European Paper Seminar
Jussi PesonenPresident and CEO
11 November, 2009
UPM 2
Contents
� Financials
� Platforms for the future
� Summary
UPM 3
5.47.81.59.26.8% of sales
25,616
-148
271
0.61
559
310
14.4
1,028
7,146
Q1-Q32008
9673455277Cash flow after investing activities, €m
23,180
889
-0.10
84
9
12.5
700
5,611
Q1-Q3 2009
23,180
309
0.14
131
96
17.5
334
1,913
Q32009
25,616
175
0.25
216
-40
16.0
378
2,358
Q32008
24,983
628
0.42
513
24
12.7
1,206
9,461
2008
EBITDA, €m
% of sales
Cash flow from operating activities, €m
Personnel at end of period
Operating profit excl. special items, €m
EPS excluding special items, €
Operating profit, €m
Sales, €m
FINANCIALSKey figures
UPM 4
FINANCIALS EBITDA by business area Q3 2009 vs. Q3 2008
-50
0
50
100
150
200
250
300
350
400
3532.4% 8
5.1%24
8.1%
2912.0% -5
-6.8%
-31
33417.5%
€ millionUPMtotal
Energy Pulp Forest and
timber
Paper Label Plywood Other operations
Q3 2009Q3 2008
27418.8%
UPM 5
FINANCIALSEBITDA development in Q3 2009 vs. Q3 2008
0
50
100
150
200
250
300
350
400
450
500
EBITDAQ308
EBITDAQ309
€ million
33417.5%
Prices, currency
DeliveriesWood costs
Energy costs
Otheritems
Fixed costs
37816.0%
UPM 6
-200
-150
-100
-50
0
50
100
150
200
250
300
Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309
FINANCIALS Operating profit by business areaexcluding special items
€ million
Plywood
Label
Paper
Forest and timber
Pulp
Energy
Other operations
UPM total
1316.8%
2169.2%
UPM 7
3 688
4 321
3 000
3 500
4 000
4 500
5 000
04 05 06 07 08 Q309
6471
0
20
40
60
80
100
120
04 05 06 07 08 Q309
Gearing ratio improved by 7pp from the beginning of the year
Net debt decreased by € 633m from the beginning of the year
% € million
Target: maximum 90%
FINANCIALS Gearing ratio and net interest-bearing liabilities
Liquidity increased to €2.2bn at the end of Q309repayments less than €0.9bn in 2009-11
UPM 8
FINANCIALSDividend policy and financial targets
0
200
400
600
800
1000
1200
1400
04 05 06 07 080,0
0,4
0,8
1,2
1,6
2,0
2,4
2,8
Cash flow€ million € per share
Minimum dividend implied by the dividend policy
Cash flow from operating activities less operational capex
Operational capex
Financial targets
� Operating profit margin to exceed 10 percent
� ROE at least five percentage points above the yield of a 10 year risk-free investment
� Gearing ratio below 90 percent
Dividend policy
� at least one third of net cash flow from operating activities less operational capital expenditure
� net cash flow calculated as an average over three years
PLATFORMS FOR THE FUTURE
UPM 10UPM 10
PURPOSE
We create value from renewable and recyclable materials by combining expertise and technologies within fibre based, energy-related and engineered materials businesses.
In the new forest industry, we reshape markets through cost leadership, change readiness and leading innovation. We develop smart, sustainable products and solutions for customers worldwide.
VISION
The front-runner of the new forest industry.
UPM 11
UPM's three business groups
� Label
� Plywood
� Development units, e.g.
RFID tags and inlays
Wood plastic composites
CAPACITIES • Electricity 1.6 GW• Pulp 2.1 million t/a • Forest 1 million hectares• Sawn timber 2.4 million m³/a
CAPACITIESPaper 11.5 million t/a• Publication 7.2 million t/a • Fine 3.4 million t/a• Speciality 0.9 million t/a
Energy and pulp Paper Engineered materials
CAPACITIES• Label 11 factories globally• Plywood 1.1 million m³/a
� Pulp mills
� Hydropower plants
� Shares of associated companies in pulp and energy
� Forests and timber
� Biofuels
� Magazine
� Newsprint
� Fine
� Speciality papers
UPM 12
STRATEGY Portfolio of choices and opportunities
Energy and pulp Paper Engineered materials
� Expand in cost competitive low emission energy, including biofuels
� Increase the share of low cost pulp
� Strengthen position in the forest biomass market
� Focus on European profitability: cost leadership, supply chain management and lean investments
� Consolidation in Europe
� Growth in China and other emerging markets
� Industry leadership in self-adhesive label materials
� Growth in Plywood
� Develop new businesses like RFID, Wood plastic composite based on proprietary know how
UPM 13
ENERGYStrategy: "expand in cost competitive low emission energy"
� Invest in biomass-based CHP at paper mills– Kaukas (with PVO) 2009– Caledonian 2009– Kymi 2008– Chapelle 2007– Rauma (with PVO) 2006– Shotton 2006
� Acquire 1.2% of PVO in 2009*
� Ongoing project TVO's nuclear reactor (OL3)
� Growth opportunities – biomass-based power, nuclear power (OL4)
– biofuels, including biodiesel in which piloting and environmental assessments ongoing
* transaction subject to final closure
UPM 14
ENERGY Strategic investments in low cost, low emission electricity generation
Hydro NuclearCHP Condensing
CO2
UPM's power generation structure and latest investm ents
Total 14.2 TWh in 2008 (85% of consumption)
€/MWh
Paper
� Cost competitive electricity generation regardless of fuel and CO2 prices– hydro, nuclear,
biofuels-based CHP
� 62% of fuels used by UPM were biofuels in 2008
CHP start-ups 2009CaledonianKaukas (PVO)
OL3 reactor start-up in 2012
UPM 15
PULPStrategy: "increase the share of low cost pulp"
� Increase the share of plantation based pulp. Restructuring Botnia's ownership* 2009
– acquire Fray Bentos 1.1 million t/a pulp mill and plantations in Uruguay
– reduce ownership in Finnish Botniato 17% from 47%
� Invest in existing capacity's competitiveness– Kymi recovery island € 360m 2008
� Close uncompetitive capacity – Tervasaari 210kt 2008
� Growth opportunities in Latin America and Russia
* Botnia transaction subject to final closure
UPM 16
3,580
400
3,180
740
800
540
1,100
1,000 tons
17% of Botnia's capacity
Total own capacity
Rebuild 2008Kymi
Rebuild 2004Pietarsaari
Rebuild 1996
Start-up 2007
Total
Chemical pulp capacity
Kaukas
Fray Bentos
PULP UPM after the Botnia transaction: share of plantation-based pulp increases to one third
Fray Bentos pulp millForestal Oriental plantations
UPM's own pulp capacity increases by 53%
Plantation-based pulp will represent 35% of total capacity
Top quality mills: low investment needs and low maintenance costs
UPM 17
LABELStrategy: "industry leadership in self-adhesive labelstock"
� Major investment programme (M€ 200 in total) completed: – Wroclaw, Poland 2008
– Dixon, U.S. 2008
– Changshu, China 2007
� Profitability turn-around achieved– European restructuring in 2009– cost leadership
� Growth – growing market
– new products and applications
UPM 18
LABELGrowing demand in labelstock end-uses
Growth drivers
� Continuous renewal of product range by using new raw materials – e.g. filmic liners and new adhesive formulas
� New applications in beverage and food segments
� Personal care segment is key growth driver in emerging markets
� About 80% of business driven by consumer demand, 20% by industrial/commercial demand
Sources: AWA, UPM Raflatac estimates
Retail
Logistics & TransportOffice
Products
Personal Care
Beverage
Pharmaceutical
Home Care
Industrial Chemical
Consumer Durables Automotive
Food
Global self-adhesive label materials demand
UPM 19
Sources: AWA. UPM Raflatac estimates
USA & Canada
Latin America
SEA
AfricaOceania
North Asia
South of Asia
Japan & Korea
4-5%
2-3%
7-9%
3-5%
12-15%
1-2%
~2%
10-12%15-20%
Europe (incl. Russia)
2009-2013 annual growth estimations:
* Asia figures include only high & medium quality segment
MiddleEast
~10%
LABELGrowing self-adhesive labelstock marketTotal worldwide demand 14 billion m² in 2008
UPM 20
UPM labelstock factories
Slitting terminals
Dixon, IL
Changshu, China
Wroclaw, Poland
LABELUPM's global platform and strong market positions
UPM RaflatacAvery Dennison
Other competitors
Other main competitor
UPM 21
LABELLabel has shown a turn-around – restructuring in Europe and focus on pricing excellence
-10
-5
0
5
10
15
20
25
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09
-5,0
-2,5
0,0
2,5
5,0
7,5
10,0
12,5
Operating profit
Operating profit margin
€ million %Operating profit excluding special items
UPM 22
PLYWOOD
Strategy: "growth in Plywood"
� Plywood hit by cyclical demand drop
� Plan to secure profitability and raise competitiveness in value added products*– plan to close Heinola plywood mill, 50,000 m³
– plan to close Kaukas plywood mill, 80,000 m³
– decrease the number of employees by 710– invest € 25 million, mostly to make Finnish
Savonlinna mill the world's most efficient unit
� Growth potential not sacrificed – can respond to returning demand
� Growth potential in solutions for demanding end uses and through new products
* subject to employee negotiations
UPM 23
PLYWOODPlywood end-uses in Europe
FlooringPackaging
Transport
Other Construction
Furniture
Source: FEIC,FAOSTAT
Plywood demand in Europe in 2008
8,5 million m³ (without Russia)
Main drivers
� Construction activity
� Industrial production
� Growth in new products and applications
UPM 24
-9,0
-7,4
-5,9
-4,3
-2,8
-1,2
0,3
1,9
3,4
5,0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-25
-20
-15
-10
-5
0
5
10
15
20
PAPEREconomic indicators have improved, but recession continues to affect paper demand
Paper demand growth (%, trailing 3 month)
Sources: Cepiprint, Cepifine, OECD
Euro zone composite leading indicator
Graphic paper demand growth
Euro zone composite leading indicator
UPM 25
PAPER
Graphic paper demand scenarios in Europe – recovery when and how much?
2003 2004 2005 2006 2007 2008 LTM
� Scenario assumptions:
- Paper demand will rebound after recession
- Demand is likely to remain below year 2007 peak level
� Value creating is possible with continuous cost and capacity management
Demand scenarios
Slow recovery
Quick recovery
Peak level 2007
UPM 26
PAPER
Strategy: "focus on European profitability"
� Closed 1.8 million t/a of uncompetitive capacity in 2006-08
� Cut fixed costs (UPM by € 300m in 2009e)
� Lean investments (UPM capex € 300m)– enabled by modern well-invested asset base
– focus on cost competitiveness
� New supply chain management implemented
� Ready for consolidation in Europe to gain- cost and investment synergies- optimal capacity through restructuring
UPM 27
PAPERPaper deliveries and prices are low…
70
75
80
85
90
95
100
105
110
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09
Q107 = 100
Publication paper deliveries
Fine and speciality paper deliveries
Average paper price
UPM's paper deliveries and average prices, indexed
UPM 28
PAPER…but margins have increased due to cost cuts and improved efficiency
-100
-50
0
50
100
150
200
250
300
350
400
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09
-5
0
5
10
15
20
Paper EBITDA
Pulp EBITDA
EBITDA margin (on Paper sales and Pulp external sales)
€ million %Paper and Pulp EBITDA and EBITDA margin
UPM 29
PAPER Strategy: Growth in China and other emerging markets
* Botnia transaction subject to final closure
Fray Bentos* pulp mill• 1,100 ktons BHKP• start-up 2007
Forestal Oriental
• 180,000 ha
Changshu fine paper mill • 900 ktons WFU, WFC• start-up 1999, 2005
Label materials factory• start-up 2007
Asia R&D centre
Modern, competitive mill operations in strategic gr owth markets*
UPM 30
Summary
� Short-term demand and pricing outlook remains weak
� UPM is coming out of the recession with a solid business platform to grow and harvest cash flow
� UPM develops its businesses through all available tools: investments, M&A, closures, cost cuts, new ways of working, R&D
� Growth opportunities in all of the businesses
� Shareholder value creation– low investment needs to maintain competitiveness
– Good cash flow makes possible to invest in growth and simultaneously to distribute part of cash flow to shareholders
UPM 31UPM 31
UPM 32
It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein including the availability and cost of production inputs, continued success of product development, acceptance of new products or services by the Group's targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group's patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group's products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group's principal geographic markets or fluctuations in exchange and interest rates.
Forward-looking statement
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