Tapio Korpeinen

CFO

September 2013

SHIFTING GEAR IN UPM

TRANSFORMATION

| © UPM

What are we targeting?

• More than 50% of sales from well performing

growth businesses in 5+ years

• Drive strong cash flow through improved margin,

release capital from mature businesses

• Maintain solid balance sheet and strong cash flow

• Increase UPM’s earnings and valuation

2

| © UPM

Actions have already started to reshape the

business portfolio

0

2 000

4 000

6 000

8 000

2007 2012 "5+ years"

3

3.1bn

4.4bn

Energy Biofuels Pulp Paper China,

label papers Label

+43%

0

2 000

4 000

6 000

8 000

2007 2012 "5+ years"

7.6bn 6.8bn -11%

Paper other Timber Plywood

Expanding the well

performing growth

businesses

Securing cash flow in

mature businesses

Sales, EURm

(*

*) one scenario from UPM’s

growth opportunities

Average

EBITDA margin 21%

ROCE 13%

Average

EBITDA margin 5%,

generating free cash flow

Gro

wth

busin

esses

Matu

re b

usin

esses

Sales, EURm

| © UPM

5,3

8,3

5,4

3,5

8,2

6,8

5,6

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 H1/13

-7,5

-5,0

-2,5

0,0

2,5

5,0

7,5

10,0

12,5

2007 2008 2009 2010 2011 2012 2013E

Operating profit excluding special items

Profitability over two economic slowdowns

Europe continues to underperform

the other major economic zones

Real GDP y-o-y growth %

Sources: Global Insight

% of sales

Euro zone

US

BRIC

4

Real GDP y-o-y growth %

| © UPM

0

200

400

600

800

1 000

1 200

1 400

2007 2008 2009 2010 2011 2012 Q2/13

Consistently strong cash flow

5

Operating cash flow

Cash flow

after investing

activities

Cash flow EUR million

LTM

| © UPM

0

200

400

600

800

1 000

1 200

2007 2008 2009 2010 2011 2012 2013e

Low investment needs in existing assets allow

growth initiatives with modest total annual capex

6

EUR million

Operational investments

350

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Estimate

Myllykoski

acquisition

340 400

| © UPM

0,20

0,30

0,40

0,50

0,60

0,70

0,80

0,90

0

200

400

600

800

1 000

1 200

1 400

2008 2009 2010 2011 2012

Cash flow-based dividend

Cash flow,

EUR million

EUR per

share

0.40

0.45

0.55

Actual / proposed dividend

7

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 0.50 per share

Dividend for 2012

• EUR 0.60 (0.60) per share

Operational capex

Minimum dividend by the dividend policy

Cash flow after operational capex

0.60 0.60

| © UPM

Solid balance sheet

8

2 500

3 000

3 500

4 000

4 500

5 000

5 500

6 000

2008

2009

2010

2011

2012

2013

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Net debt, EUR million Net debt / EBITDA (trailing 12 months)

Net debt

Net debt / EBITDA

3.0

2 500

3 000

3 500

4 000

4 500

5 000

5 500

6 000

2008

2009

2010

2011

2012

2013

20

30

40

50

60

70

80

90

Net debt, EUR million Gearing %

Net debt

Gearing

48

Liquidity was EUR 1.6bn at the end of Q2 2013

SHIFTING GEAR IN UPM

TRANSFORMATION

| © UPM

Shifting gear in UPM transformation

New business structure

Profit improvement actions in all businesses

Focused growth initiatives in biorefining and outside Europe

Seek to simplify business portfolio and uncover the value of

UPM’s assets

Profit improvement target of EUR 400m from

performance improvement and growth initiatives

10

| © UPM

New business structure and reporting

segments as of 1 November 2013

11

UPM Energy

UPM Biorefining

UU UPM Raflatac

UU

UU

UU

UPM Paper Europe

UPM Plywood

UPM Paper Asia

• Pulp (3.2 million tonnes p.a.), incl. plantation operations • Biofuels • Timber

• Self-adhesive label materials for product and information

labeling

• Fine papers in China

• Label paper operations

• Total capacity 1.5 million tonnes p.a.

• Magazine papers in Europe and NA • Newsprint and fine papers in Europe • Total capacity 10.3 million tonnes p.a.

• Plywood and veneer products (1 million m3 p.a.)

• Power generation (1,721MW), incl. UPM’s hydropower plants

and shareholdings in energy companies

• Physical and derivatives trading

Other operations: Forests (over 900,000 hectares of forests) and wood sourcing,

New Business Development and Group services

| © UPM

Profit improvement through simplified business

structure in existing businesses

• UPM has identified actions with a profit improvement impact of

EUR 200m in the existing businesses

– Each business will implement a program with simplified business model and

variable and fixed cost savings

– Planned actions include the remaining part of previously announced

programs

– Planned actions do not include additional capacity closures at this time

• Full impact of the program is expected by the end of 2014, as

compared with the Q2 2013 results

– UPM will follow and update the progress of this program in its quarterly

reporting

12

| © UPM

Growth initiatives for the next three years

• UPM targets additional EBITDA contribution of EUR 200m from

its growth initiatives when they are in full operation

– Biofuels – Lappeenranta refinery

– Woodfree speciality papers in China – Changshu PM3

– Continued growth in UPM Raflatac

– UPM plans to expand production in its existing pulp mills

• Total investment requirement in the projects is EUR 680m,

including EUR 540 million from previously announced projects

– total remaining investment EUR 620m in the coming three years

• UPM’s total capex estimate for 2013 is EUR 400m

– low investment needs in existing assets allow growth initiatives with modest

total annual capex

13

| © UPM

New business structure

Financial figures in H1 2013 (*

14

Sales

EBITDA

Capital employed

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia UPM

Paper Europe

UPM

Plywood Other

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper Europe

UPM

Plywood

Other

UPM Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper Europe

UPM Plywood

*) Preliminary figures

Sales unconsolidated

| © UPM

Profitability challenge in UPM Paper Europe

– improvement programs in all businesses,

growth initiatives in several businesses

-10

0

10

20

30

40

50

-50

0

50

100

150

200

250

UPMBiorefining

UPMEnergy

UPMRaflatac

UPMPaper Asia

UPMPaperEurope

UPMPlywood

Other

EUR million EBITDA in H1 2013 (*

15

% of sales

*) Preliminary figures

22%

44%

9%

15%

2%

10%

| © UPM | © UPM

Timetable

• The new business structure in effect as of 1 November 2013

• Historical comparison figures for the new structure published in

November

• Financial reporting according to the new structure from Q4 2013

onwards

• Profit improvement program – full EUR 200m run-rate by the

end of 2014

• Growth initiatives during the coming three years – targeted

additional EUR 200m EBITDA contribution when in full operation

• Opportunities to simplify business portfolio and

uncover the value of UPM assets will be explored

16

| © UPM

Summary of the new business structure

and actions

17

UPM

Energy

UPM

Biorefining

UPM

Paper Asia

UPM

Paper Europe

UPM

Plywood

Profit improvement program

Full EUR 200m run-rate

by the end of 2014

All businesses

UPM

Raflatac

UPM EBITDA in H1 2013 was EUR 542m

Growth initiatives

Targeted additional

EBITDA of EUR 200m

Biorefining, Paper Asia

and Raflatac

Business portfolio

Seek to simplify the

business portfolio

Uncover value of UPM

assets

| © UPM

• Supersector leader in basic materials

sector, the only forestry and paper

company worldwide listed on Dow

Jones Sustainability Indexes (DJSI)

• ‘Most Innovative Company’ award from

Ethical Corporation Awards thanks to

UPM’s ecodesign concept and overall

sustainability thinking

• Highest score for climate change

disclosure in the Nordic Carbon

Disclosure Leadership Index

• Winner of the ‘Breakthrough Innovation

in Technology’ for improving efficiency

and sustainability of biofuels production

UPM has been recognized

| © UPM 18

FOCUSED GROWTH

INITIATIVES

| © UPM

UPM creates new business in

wood-based renewable diesel

• UPM invests in wood-based renewable diesel production

− Total investment EUR 150m

− Production capacity 100,000 tonnes/a

• Technology is based on UPM’s innovation and

long-term development work

• Raw material is sustainably produced crude tall oil

– Residue from pulp production

– Outside food value chain, no indirect land use change

• Main product is unique renewable diesel

– No blend wall issues - compatible with fossil diesel EN590 quality

– 80% reduction in greenhouse gas emissions

– High energy content

20

| © UPM

UPM creates new business in

wood-based renewable diesel

• Lappeenranta biorefinery status:

– Construction, commissioning works and main

equipment installations on-going, on schedule

and budget

– Fleet tests of the product on-going

– Recruitment of operative staff on-going

• Total investment EUR 150m, start-up in

mid-2014

• Investment supports the good profitability

of UPM’s growth businesses

• Potential to grow into a significant new

business

21

| © UPM

UPM plans to expand production in its

existing pulp mills

22

Kymi

• major investment in 2008

Pietarsaari

• major investment in 2004

Kaukas

• modernisation in 1996

Fray Bentos

• started 2007

BHKP tonnes

BSKP tonnes

Total capacity

Fray Bentos

1,100,000 1,100,000

Kaukas 310,000 430,000 740,000

Kymi 370,000 190,000 560,000

Pietarsaari 320,000 480,000 800,000

Total 2,100,000 1,100,000 3,200,000

Fray Bentos

Pietarsaari

Kymi Kaukas

| © UPM

Over 80% of pulp demand is in growing

end-use segments

Bleached market pulp demand by end-use and region

*Source: Hawkins Wright. End use markets

for bleached kraft pulp, September 2011

WE NA China ROW Total

P&W 14% 5% 10% 9% 39%

Tissue 9% 6% 4% 8% 28%

Packaging 2% 1% 3% 2% 8%

Speciality 7% 2% 3% 4% 16%

Fluff 2% 3% 1% 4% 10%

35% 16% 21% 27% 100%

= declining market segment (19%)

= growing market segment (81%)

23

| © UPM

Consistent growth in label materials

0

250

500

750

1 000

1 250

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

UPM Raflatac sales EURm

24

| © UPM

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Emerging markets, all products

Growth in higher value added labelstock

products and growth markets

UPM Raflatac sales (indexed)

2003 = 100

Mature markets,

high added value

products

Mature markets, all products

25

| © UPMU

UPM Paper in APAC and China 1998-2012

26

PM2

Start-up

UPM 100%

ownership

Decision on

PM1 PM1

start-up

R&D Center

established

Decision on

PM3

UPM and APRIL

1998 2000 2002 2004 2006 2008 2009 2010 2012 2014 2016

APAC sales

volume,

tonnes

| © UPM

UPM grows in China and in the fast

developing label materials segment

Changshu expansion status:

• Government and environmental permits are

clear

• Site preparation works on-going

• Infrastructure works under preparation

• Equipment tendering process on-going

• New sheeting line started up

Total investment CNY 3,000m (approx. EUR

390m), start-up in H1 2015

Investment supports the good profitability of

UPM’s growth businesses

27

| © UPM

0

500

1 000

1 500

2 000

2 500

3 000

02 03 04 05 06 07 08 09 10 11 12 16e

Nuclear

Hydro

Biomass

+OL3

Consistent growth in low-emission

electricity generation

• During the past decade:

– 83% growth in biomass-based

electricity generation

– 16% growth in hydropower

• 81% of UPM’s power generation

is CO2 neutral

• Biggest on-going projects are

the Schongau CHP plant in

Germany and the OL3 nuclear

power plant in Finland

MW CO2 emission neutral electricity capacity

28

| © UPM

New opportunities for the future

29

BIOFIBRILS

BIOCHEMICALS

NEW AREAS

NEW BUSINESSES

BIOFUELS

First large-scale

investment on-

going

Pilot plant start-up

in Q1 2012

Pilot plant start-up

in Q3 2011

Mill scale concepts

under development

BIOCOMPOSITES

Q2 2013 RESULTS

| © UPM

Q2 2013 key figures

EUR m Q2 2013 Q2 2012 Q1 2013 H1 2013 H1 2012

Sales 2,520 2,632 2,474 4,994 5,240

sales growth, % -4% 9% -5% -5% 10%

EBITDA 258 325 284 542 682

% of sales 10.2 12.3 11.5 10.9 13.0

Operating profit (* 138 128 144 282 284

Profit before tax (* 120 101 129 249 243

Earnings per share, EUR (* 0.20 0.16 0.18 0.38 0.38

Operating cash flow 84 142 103 187 360

Net debt 3,524 3,593 3,199 3,524 3,593

Gearing % 48 38 42 48 38

31

*) excluding special items

| © UPM

Q2 2013 highlights 1(2)

Growth businesses continued to perform well

• Strong quarter in Pulp with good delivery volumes and increased prices

• Continued good profitability in Chinese and speciality paper operations

• In Label increased volumes more than offset the higher fixed costs from

expanded operations

• Energy had less hydropower than last year, but good profitability

Plywood and Timber improved in a challenging environment

Operating profit excl. special items was EUR 138m (128m in Q2 2012)

• Fixed costs decreased by EUR 36m from last year

Operating cash flow was EUR 84m (142m in Q2 2012), impacted by a

temporary increase in working capital

| © UPM 32

| © UPM

Q2 2013 highlights 2(2)

Weak quarter for Paper Europe

• Sales margins in European graphic papers and in exports from Europe

significantly lower than last year

• Unrealised energy hedges had a negative impact in Q2

Plan to reduce annual fixed costs by EUR 90 million on schedule

• Capacity closures were concluded in Rauma, Finland and Ettringen,

Germany by the end of April

• Employee negotiations have been concluded in all countries except in

France, where they started in July

• 40% of the annualised benefits were achieved in Q2 2013, full run-rate of

EUR 90m expected from the beginning of 2014

• Cost reductions offset the impact of lower delivery volumes, but could not

compensate for the lower sales margins

| © UPM 33

| © UPM

0

50

100

150

200

250

300

350

400

EBITDA

Q2/12

EBITDA

Q2/13

EBITDA affected by lower paper prices and

delivery volumes in Q2 2013 vs. Q2 2012

Pulp

Paper

Other

Forest

and

Timber

Energy

Label

Plywood

0

50

100

150

200

250

300

350

400

EBITDA

Q2/12

EBITDA

Q2/13

EUR million

Prices,

currency

Fibre

costs Other Fixed

costs

Deliveries

Energy

costs

Paper prices and volumes decreased

Savings in fixed and variable costs

EUR million

Paper impacted by

lower prices and volumes

34

325 12.3%

258 10.2%

325 12.3%

258 10.2%

| © UPM

0

50

100

150

200

250

300

350

400

EBITDA

Q1/13

EBITDA

Q2/13

EBITDA in Q2 2013 vs. Q1 2013 impacted by

unrealised energy hedges

Pulp

Paper

Other

Forest

and

Timber

Energy

Label

Plywood

0

50

100

150

200

250

300

350

400

EBITDA

Q1/13

EBITDA

Q2/13

EUR million

Prices,

currency

Fibre

costs

Other

Fixed

costs

Deliveries

Energy

costs

Deliveries, fixed costs increased seasonally

Energy costs impacted by

unrealised energy hedges EUR million

Paper impacted by unrealised energy hedges,

Pulp strong, Energy seasonally weaker

35

284 11.5% 258

10.2%

284 11.5% 258

10.2%

| © UPM

Operating profit stable

-100

-50

0

50

100

150

200

250

300

Operating profit excluding special items

36

138 5.5%

128 4.9%

EUR million

| © UPM

Outlook for 2013 (*

(* See complete wording of the "Outlook"

in the Interim Report Q2 2013

Business environment

• Economic growth in Europe in 2013 is expected to remain very low, having a negative impact on the European graphic paper markets.

• 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.

• Hydrological situation in the Nordic countries is slightly weaker than the long term average

UPM performance in H2 2013 compared with H1 2013

• Paper BA is expected to benefit from lower costs, driven partly by the ongoing cost reduction measures, and seasonally stronger demand.

• Pulp BA will be impacted by annual maintenance stops in three of the four pulp mills.

| © UPM 37

| © UPM

Cash flow impacted by temporary increase in

working capital

38

0

200

400

600

800

1 000

1 200

1 400

Q10

8

Q20

8

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

Q31

0

Q41

0

Q11

1

Q21

1

Q31

1

Q41

1

Q11

2

Q21

2

Q31

2

Q41

2

Q11

3

Q21

3

Operating cash flow

Cash flow

after investing

activities

EUR million Cash flow, trailing 12 months

• H1 2013 operating cash flow

was EUR 187m (360m),

impacted by temporary

working capital increase of

EUR 215m (77m)

APPENDIX

| © UPM

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

2006 2007 2008 2009 2010 2011 2012

Asia demand Capacity

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

2006 2007 2008 2009 2010 2011 2012

NA demand Capacity

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

2006 2007 2008 2009 2010 2011 2012

Eur demand Capacity

Asia is as big graphic paper market as

declining Europe and North America combined

Europe Asia North America

Source: Euro-Graph, PPPC, PPI

'000 tonnes '000 tonnes '000 tonnes

10 mt

10 mt

40

| © UPM

Overcapacity in European graphic paper is

visible in margins

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

41

Cash cost of a marginal producer

Price

Price hardly covers the cash costs of marginal producers EUR/t

Source: PPI, RISI, Pöyry

| © UPM

15

20

25

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013

Chemical pulp market

42

Source: PPPC World-20 statistics

Producer inventories

at balanced levels Days of

supply

300

400

500

600

700

800

900

1 000

1 100

2008 2009 2010 2011 2012 2013

USD/tonne

Q2 pulp prices increased slightly from Q1

Q2 BHKP pulp price above last year

Q2 NBSK on last year’s level

BHKP

NBSK

Hardwood

inventories

Softwood

inventories

Source: FOEX Indexes Ltd.

| © UPM

Wood, RCP and electricity prices

43

60

80

100

120

140

160

180

10

12

14

16

18

20

22

24

26

2008

2009

2010

2011

2012

2013

Spruce Pine Birch

EUR / m³ Log prices in Finland EUR / m³ Pulpwood prices in Finland

Source: Metla, FOEX Indexes Ltd, NordPool, EEX

EUR / tonne RCP prices in Europe

30

35

40

45

50

55

60

65

70

Spruce Pine Birch

20

30

40

50

60

70

80

90

100

EEX (Germany) NordPool (Nordic)

Finnish forward

Electricity 1-year forward prices EUR / MWh