UPM-Kymmene Corporation Annual General Meeting Report of the President and CEO. Jussi Pesonen March 27, 2007

UPM-Kymmene Corporation Annual General Meeting Report of the President and CEO Jussi Pesonen March 27, 2007

Contents Business drivers 2006 Financials 2006 Changed business environment UPM's strategy in the changed business environment Profitability programme Business portfolio development Summary UPM 2

BUSINESS DRIVERS 2006

BUSINESS DRIVERS 2006 Demand, capacity and prices in Europe '000 tonnes 60000 Paper capacity and demand in Europe +0,5% 900 Paper prices in Europe 55000 800 50000 45000 40000 +0,9% +6% 700 600 35000 +0% 500 30000 2002 2003 2004 2005 2006 W. Eur demand E. Eur demand Capacity 400 02 03 04 05 06 07 News 45 g/m² SC rg 56 g/m² LWC off 60 g/m² WFCr 100 g/m² WFUr 80 g/m² Source: Cepiprint, Cepifine, PPI UPM 4

BUSINESS DRIVERS 2006 Demand, capacity and prices in North America '000 tonnes 60000 55000 Paper capacity and demand in North America USD 1100 1000 Paper prices in USA 50000 45000 40000 35000 30000-4% -2% 2002 2003 2004 2005 2006 NA demand Capacity 900 800 700 600 500 400 02 03 04 05 06 07 News 48,8 g/m² SC 51,8 g/m² LWC 59,2 g/m² WFCr 88,8 g/m² WFUr off 74 g/m² Source: Cepiprint, Cepifine, PPPC, RISI UPM 5

BUSINESS DRIVERS 2006 Demand, capacity and prices in Asia '000 tonnes 60000 55000 Paper capacity and demand in Asia +5% USD 1100 Example of paper prices in China imported 50000 +4% 1000 45000 900 domestic 40000 35000 800 30000 2002 2003 2004 2005 2006 Asia demand Capacity 700 2002 2003 2004 2005 2006 WFU s 80-120 g WFC s 128-157 g Source: PPI UPM 6

BUSINESS DRIVERS 2006 Advertising in printed media * Asia North America Europe Increase -% from the previous year 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006e 2007e -2-4 *Asia excluding direct mail Source: ZenithOptimedia December 2006 North America Europe Asia UPM 7

BUSINESS DRIVERS 2006 Demand development of labelstock billion m² 10 8 6 4 Labelstock demand in Europe and North America +5% Change from 2005: Demand increased Europe about 8% North America about 3% 2 Prices increased slightly 0 2002 2003 2004 2005 2006 Europe North America Source: Finat, TLMI UPM 8

BUSINESS DRIVERS 2006 Raw material market prices vs. UPM's cost development Index 2004=100 220 Electricity (EEX) 190 160 130 100 Oil Electricity (Nordpool) Electricity (EEX) Coating materials Chemical pulp Bleaching chemicals 70 Q1/04 Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 UPM Paper divisions* * Cost/delivered paper ton (rolling 12months) UPM 9

FINANCIALS 2006

FINANCIALS 2006 Key figures 2006 2005 2004 Sales, M 10,022 9,348 9,820 EBITDA, M 1,678 1,428 1,435 % of sales 16.7 15.3 14.6 Operating profit, M 536 318 685 Non-recurring items included in operating profit, net -189-240 215 Operating profit excl. non-recurring items*, M 725 558 470 EPS excluding non-recurring items, 0.80 0.54 0.49 Net cash generated from operating activities, M 1,215 853 997 Paper deliveries, 1,000 tons 10,988 10,172 10,792 Personnel at end of period 28,704 31,522 33,433 *Includes fair value change of biological assets 2006-126 million, 2005 34 million, in 2004 15 million UPM 11

FINANCIALS 2006 Non-recurring items 2006 Non-recurring items Asset impairments relating to the profitability programme Personnel provision relating to the profitability programme Asset impairment of Miramichi production facilities Gain on sale of property and businesses Other non-recurring charges Included in operating profit, net Gain on sale of shares, included in financial items Non-recurring items included in income taxes million -135-61 -115 144-22 -189 6 26 Non-recurring items, total -157 UPM 12

FINANCIALS 2006 Balance sheet Assets, million 2006 2005 Change Non-current assets 11,355 12,321-966 Inventories 1,255 1,256-1 Other current assets 1,859 1,964-105 Total assets 14,469 15,541-1,072 Equity and liabilities, million 2006 2005 Change Equity attributable to equity holders of the parent 7,271 7,327-56 Minority interest 18 21-3 Deferred tax liabilities 790 887-97 Interest bearing liabilities 4,345 5,302-957 Other liabilities 2,045 2,004 41 Total equity and liabilities 14,469 15,541-1,072 UPM 13

FINANCIALS 2006 Magazine papers Operating profit*, % Paper deliveries, million 400 % 12 '000 tonnes 5000 350 300 250 200 150 100 5.9% 197 10 8 6 4 4900 4800 4700 4600 4500 4 761 50 2 4400 0 02 03 04 05 06 0 4300 02 03 04 05 06 Operating profit Operating profit % Deliveries * Excluding goodwill amortization and non-recurring items UPM 14

FINANCIALS 2006 Magazine papers Closures of production capacity improved the asset utilization of other production lines UPM's overall customer satisfaction index* has improved through the past three years Portfolio development Voikkaa mill closed in Q2/06 Jämsänkoski PM4 closed in Q1/07, conversion into label papers Q2/07 Schongau, PM modernizations summer 06 Jämsänkoski, SC paper quality improvement Q2/08 Caledonian, new biofuel power plant Q3/09 *Source: Customer Satisfaction study, 2004, 2005, 2006, Opticom International Research AB UPM 15

FINANCIALS 2006 Newsprint Operating profit*, % Paper deliveries, million % '000 tonnes 180 160 140 120 100 80 60 10.8% 155 12 2800 10 2700 8 2600 6 2500 4 2 677 40 20 2 2400 0 02 03 04 05 06 0 2300 02 03 04 05 06 Operating profit Operating profit % Deliveries * Excluding goodwill amortization and non-recurring items UPM 16

FINANCIALS 2006 Newsprint Profitability benefited from higher newsprint prices Self-sufficiency in energy improved and use of biofuels increased Portfolio development Kaipola, PM modernizations, increase use of biofuels summer 06 Shotton, new sludge boiler Q4/06 Chapelle Darblay, new biofuel power plant Q1/07 UPM 17

FINANCIALS 2006 Fine and speciality papers Operating profit*, % Paper deliveries, million % '000 tonnes 400 16 3700 350 14 3500 300 12 3300 250 10 3 550 200 150 5.8% 8 6 3100 2900 100 50 149 4 2 2700 0 02 03 04 05 06 0 2500 02 03 04 05 06 Operating profit Operating profit % Deliveries * Excluding goodwill amortization and non-recurring items UPM 18

FINANCIALS 2006 Fine and speciality papers Closures of production capacity improved the asset utilization of other production lines Changshu mill succeeded to increase its sales in China Portfolio development Kymi PM7 closed Q2/06 Tervasaari, PM6 and a pulp line closure H1/07 Tervasaari PM8 modernization Q1/06 Nordland Papier and Docelles mills paper quality improvement Q3/06 Tervasaari, rebuild of a pulp line, autumn 07 Kymi pulp mill, new recovery plant, summer 08 UPM 19

FINANCIALS 2006 Converting Operating profit*, % Sales, million %, million 80 10 2000 60 64 8 1500 1 274 40 5.0% 6 1000 4 20 2 500 0 02 03 04 05 06 Operating profit Operating profit % 0 0 02 03 04 05 06 Sold businesses(walki Films, Loparex) Walki Wisa UPM Raflatac * Excluding goodwill amortization and non-recurring items UPM 20

FINANCIALS 2006 Transformation of converting businesses Converting 1997 Sales: app. 840 million Businesses: Lohja Oy (Loparex) Walki Wisa Walki Can Walki Sack Walki Pack Walki Soft Walki Films Rosenlew UPM Stationary Raflatac Converting 2006 UPM Raflatac Sales (2006) app. 1 billion UPM 21

FINANCIALS 2006 Label division (Q1/07 ->) Label business has grown into a 1 billion business Portfolio development Tampere new lamination line and Changshu new factory were finalised in 2006 a new factory will be completed in USA in 2008 1200 1000 800 600 400 Sales and Operating profit %*, million % 987 6.2% 10 8 6 4 200 2 0 05 06 Sales Operating profit % 0 * Excluding non-recurring items UPM 22

FINANCIALS 2006 Wood products Operating profit*,% Sales**, million % 80 10, million 2000 60 61 8 1500 1 321 40 4.6% 6 1000 4 20 2 500 0 02 03 04 05 06 Operating profit Operating profit % 0 0 02 03 04 05 06 Sold businesses(puukeskus, Brooks, Anco) Sawmilling Plywood * Excluding goodwill amortization and non-recurring items ** Includes Other and internal sales UPM 23

FINANCIALS 2006 Wood products A clear improvement in sawmilling profitability Plywood's profitability continued to be good Portfolio development Efficiency improvements at Savonlinna and Jyväskylä plywood mills, H1/07 Chudovo, Heinola plywood production, Q4/06 Building materials merchant, Puukeskus Oy sold in Q3/06 UPM 24

FINANCIALS 2006 Value creation % 24 20 First signs of improvement: ROCE Q4/06 8.7% 16 12 8 4 8.9% 6.2% 4.7% 0 96 97 98 99 00 01 02 03 04 05 06 -- WACC pre tax -- ROCE excl. non-recurring items -- ROCE as reported UPM 25

FINANCIALS 2006 Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities %, million 120 100 80 60 Target: maximum 100% 66 56 6 000 5 000 4 000 3 000 4836 4048 40 2 000 20 1 000 0 02 03 04 05 06 0 02 03 04 05 06 Ratings: Moody s Baa2 (stable), latest change October 20, 2005 S&P BBB (stable), latest change May 16, 2003 UPM 26

FINANCIALS 2006 Capital expenditure, million 1000 800 600 631 890 New production lines and units Major rebuilds 400 200 0 02 03 04 05 06 Maintenance and replacement expenditure Depreciation excl. amortization of goodwill UPM 27

FINANCIALS 2006 Cash flow and the utilization priorities, million 1800 1500 1200 900 600 300 0 1,215 02 03 04 05 06 Net cash provided by operating activities CASH FLOW PRIORITIES: 1. Maintenance investments 2. Dividend 3. Strategic investments 4. Share buy-backs 5. Reduction of debt UPM 28

FINANCIALS 2006 Operating cash flow, earnings and dividend per share Operating cash flow per share Earnings and dividend per share 3,50 2,5 3,00 2,50 2,00 2,32 2,0 1,5 1,50 1,0 0,75 1,00 0,50 0,5 0,65 0,00 99 00 01 02 03 04 05 06 Operating cash flow per share 0,0 97 98 99 00 01 02 03 04 05 06 Dividend proposed Dividend per share Earnings per share UPM 29

FINANCIALS 2006 UPM's shareholders 100 % 80 % TOP 10 registered holders 60 % 40 % Other registered holders 20 % Nominee holders 0 % 2002 2003 2004 2005 2006 Major owners: BNP Paribas Capital Group Delaware Investments DWS Investment GmbH Franklin Templeton Group G. Serlachius (5 shareholders) Holzhey/Bischoff Group Ilmarinen Mondrian Northern Cross Investments Sv. Litteratursällskapet i Finland UBS Group Varma Mutual Pension Insurance Company UPM 30

Summary of financials 2006 Achievements in 2006 Profitability of the Group and all divisions improved clearly Prompt implementation of profitability programme improved prerequisites for sustainable profitability Markets during the first two months of 2007 In Europe, the good demand for paper has continued, and we expect that deliveries for the full year will improve from last year. We have achieved price increases in newsprint, uncoated fine papers and some speciality grades. The prices of coated fine papers have remained stable. In the current market situation, it has not been possible to raise magazine paper prices, and their price development has been clearly disappointing. UPM 31

CHANGED BUSINESS ENVIRONMENT

CHANGED BUSINESS ENVIRONMENT Business environment has fundamentally changed Structural overcapacity in Europe Traditional markets have become mature Downward trend in real paper prices Rapidly increasing cost of production inputs New competition especially in short fibre UPM 33

CHANGED BUSINESS ENVIRONMENT Demand growth is fast in emerging market also increases in capacity 49.9 41.6 39.4 N. America Mature market demand growth p.a. 39.1 W. Europe 6.3 6.5 Other Europe 41.0 36.7 2000-07: -0.2% Emerging market demand growth p.a. 2000-07: +4.6% Other Asia 16.1 15.7 Japan Capacity 163 mill. tons Demand 149 mill. tons 5.5 7.0 L. America 1.7 2.4 Africa 1.4 2.3 Oceania Graphic papers (news, magazine and fine paper grades) demand and capacity 2007 estimate Source: Cepiprint/fine, PPPC, RISI, JP, UPM UPM 34

CHANGED BUSINESS ENVIRONMENT Overcapacity gets to be addressed sustainability of exports is a challenge 25 20 mill. tons 15 Closures 2006 0,9 European capacity* 21,5 Announced closures 2007 0,7 Exports & Slack 1,5 Asia & Other 2,1 N. Am. & Lat. Am. 0,5 Supply/demand of coated magazine and fine papers Announced capacity closures will improve the market balance Large share of exports together with excess capacity imposes a threat to the market balance in Europe European demand 16,7 Part of exports is unprofitable 10 Sources: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2007 estimate UPM 35

CHANGED BUSINESS ENVIRONMENT Possible export tax from Russia will cause changes in wood procurement UPM's wood imports from Russia Wood imports from Russia 4.3 million m³ (20%) of the total 0.6 M m³ Finland Russia 4.3 M m³ In Finland total wood consumption 2006 was 21.7 million m³ Based on 2006 consumption, the announced increase of export tax would increase UPM's costs in 2007 by about 13 million UK France Germany Czech Austria Baltic 0.9 M m³ UPM 36

UPM'S STRATEGY IN THE CHANGED BUSINESS ENVIRONMENT Profitability programme

PROFITABILITY PROGRAMME # 1 target sustainable profitability % 18 15 12 9 6 3 0 17,1 13,5 16,3 14,1 7,6 9,2 6,2 4,6 4,3 4,5 7,2 4,8 6,0 4,4 00 01 02 03 04 05 06 * Operating Profit % (excl. non-recurring items) ROCE (excl. non-recurring items) *Operating profit % required to cover cost of capital is about 11-12% UPM 38

PROFITABILITY PROGRAMME Roadmap to sustainable profitability Change structure Operate differently Consolidate in mature markets Profitable growth Grow in emerging markets Development of portfolio Strengthened competitive position Efficient use of assets Close uncompetitive capacity Improved cost base Improve operating efficiency UPM 39

PROFITABILITY PROGRAMME Actions by now (1) Means Savings in fixed costs - Target 200 million Improvement in efficiency Actions Voikkaa mill closed in June Kymi PM7 closed in June Reduction of 3,600 employees. Negotiations completed in July. 2006 reduction 2,300 employees. Jämsänkoski PM4 closure in Q1/07, conversion in Q2/07 Tervasaari PM6 closure in H1/07 Customer deliveries from the closed production lines transferred to other production lines -> improved asset utilization of the other production lines UPM 40

PROFITABILITY PROGRAMME Actions by now (2) Means Investments and production portfolio development Savings in variable costs Actions Pulp mill recovery island rebuild, Kymi (325 M ) Tervasaari, pulp production line rebuild (25 M ) Jämsänkoski (in total 83 M ): - PM4 conversion to label papers production - SC paper quality upgrade Streamlining of operations Centralised sourcing Global financial service centres UPM 41

PROFITABILITY PROGRAMME Personnel Group Negotiations on streamlining and personnel reduction completed Personnel reduction in 2006 was 2,275 Finland Personnel reduction in 2006 was 1,600; 672 notices given UPM has spent and reserved EUR 61 million for costs relating to personnel reductions. Outsourcing negotiations continue UPM 42

PROFITABILITY PROGRAMME UPM's "From-Job-to-Job" programme minimizing the impact of redundancy The programme has proceeded successfully some 80 % of the 678 Voikkaa employees relocated new job (with UPM or other) 357 retraining 102 pension arrangements 79 without a relocation 140 => programme continues UPM measures support for relocation and retraining support for new start-up companies co-operation with several companies extended re-employment period for Voikkaa employees 24 months; during this period UPM's occupational health services available UPM 43

PROFITABILITY PROGRAMME After closures UPM's relative position even better European coated magazine paper machinery comparison 500 400 - Weighted average PM capacity, 1 000 t/a - Weighted average technical age 13 years STRONG After the closures average size of UPM's coated magazine paper machines is 330,000 t/a industry average is 240,000 t/a 300 200 Weighted average capacity 242 000 t/a Myllykoski Burgo-Marchi Sappi Norske Skog SCA UPM Leipa M-real Stora Enso Perlen 100 WEAK 0 30 25 20 15 10 - Technical age, years - Source: Pöyry 03/2007 5 0 UPM 44

PROFITABILITY PROGRAMME Kymi mill efficient integrate increases cost competitiveness Kymi fine paper integrate 2008 900,000 t/a paper 550,000 t/a pulp Kymi pulp mill investment One new recovery line replaces two old lines Improves energy efficiency and decreases CO2 emissions Cost 325 million Start up summer 2008 Project employs up to 900 people UPM 45

PROFITABILITY PROGRAMME Cost savings target is realistic and achievable Estimated annual savings in fixed costs 200 million at the end of the programme + + Estimate 2007 110 million + + + + Target 2009 200 million Efficiency improvements Savings in variable costs Savings in fixed costs 135 61 2006 2007 2008 2009 Asset impairment Provision for personnel costs UPM 46

PROFITABILITY PROGRAMME Roadmap to sustainable profitability Change structure Operate differently Consolidate in mature markets Profitable growth Grow in emerging markets Development of portfolio Strengthened competitive position Efficient use of assets Close uncompetitive capacity Improved cost base Improve operating efficiency UPM 47

UPM'S STRATEGY IN THE CHANGED BUSINESS ENVIRONMENT Business portfolio development - Resources

PORTFOLIO DEVELOPMENT - RESOURCES Develop diversified fibre base Chemical pulp self sufficiency about 90% Own production capacity 2,320,000 t/a Entitlement to Botnia's production 1,100,000 t/a 100 80 Fibres used in UPM's paper production, % UPM used in 2006 3.0 million tons of recovered paper in production of printing papers 60 40 20 10% of wood raw material from own forests 0 2000 2001 2002 2003 2004 2005 2006 Recycled fibre pulp Mechanical pulp Chemical pulp UPM 49

PORTFOLIO DEVELOPMENT - RESOURCES Access to low cost fibre Botnia's pulp mill project in Uruguay Capacity 1,000,000 t/a UPM's share about one half of the capacity Based on the Best Available Technology The project proceeds according to the plan - start-up in Q3 2007 Total investment: 1,100 mill. USD UPM 50

PORTFOLIO DEVELOPMENT - RESOURCES Increased energy self-sufficiency Self-sufficiency of electricity generation Finland 100% UPM in total 70% Indirect participation to PVO/TVO nuclear power plant investment UPM 51

PORTFOLIO DEVELOPMENT - RESOURCES Improved energy efficiency Current investments Sludge boiler investments at the Shotton and Chapelle Darblay paper mills Power plant investment at the Rauma mill UPM 52

UPM'S STRATEGY IN THE CHANGED BUSINESS ENVIRONMENT Business portfolio development - Labels

PORTFOLIO DEVELOPMENT LABELS UPM Label division Label business area RFID business area self-adhesive labelstock for product and information labeling for use in retail and industry radio-frequency identification (RFID) tags and inlays for wholesalers and retailers UPM 54

PORTFOLIO DEVELOPMENT LABELS UPM label business 2,500 employees Sales of 987 million in 2006 Production in 11 factories and 9 countries Terminals and sales offices worldwide UPM 55

PORTFOLIO DEVELOPMENT LABELS Self-adhesive labelstock Matrix Face material Self-adhesive label Adhesive Release coating (Silicone) Backing (release liner) UPM 56

PORTFOLIO DEVELOPMENT LABELS Demand growth for labelstock GDP x 2 Global labelstock market 2006 total demand 12.6 billion m² 4-5% 5-6% USA & Canada Europe (incl. Russia) 3% Korea 2% 7% 15-20% Japan Middle East China 20-25% India 9% SEA 9% Latin America 2% Africa 4% Oceania Labelstock factory Source: UPM Raflatac estimates; excluding 2nd quality markets UPM 57

PORTFOLIO DEVELOPMENT LABELS Sales of UPM's label business has doubled in 1996-2006 1000 Mill. EUR 800 600 Building base in Europe Acquiring global presence Polinya RFID Jyväskylä Strong organic development RFID Fletcher Dixon Fletcher Fletcher CM2 Changshu South 400 Africa Nancy Scarborough China 200 Australia Tampere Malaysia 0 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 UPM 58

PORTFOLIO DEVELOPMENT LABELS UPM's new labelstock factory in Changshu Excellent infrastructure and location at UPM's Changshu mill site State of the art coating and finishing operations Approximately USD 40 million investment Started up at the end of 2006 Ability to carry out future expansions flexibly UPM 59

PORTFOLIO DEVELOPMENT LABELS UPM's label business expands in North America UPM's investment: Self-adhesive labelstock factory in Dixon, Illinois New state-of-the-art factory Investment USD 109 million Start up: Q1 2008 New growth platform for the Midwest market Location completes service network for labelstock and RFID tag and inlays in North America UPM 60

PORTFOLIO DEVELOPMENT LABELS RFID products tags and inlays UPM 61

PORTFOLIO DEVELOPMENT - ASIA Changshu platform for growth in Asia Finished goods storage Converting plant PM 2 (1999) building PM 1 (2005) building Power plant Water treatment facility Coal yard Pier UPM Label division (2007) Pulp storage UPM 62

PORTFOLIO DEVELOPMENT BIODIESEL Sustainable optimisation of gain from biomass base adds value Logs for wood products Plywood Sawn timber Forest biomass forestry harvesting assorting on site drying Fibre wood for pulp and paper Logging residue Small wood Stumps Pulp and Paper Bio-diesel Heat On-site electricity side products Bio-diesel is a natural extension for a company whose core business is adding value to wood raw materialprimary fibres will remain in pulp and paper production UPM 63

PORTFOLIO DEVELOPMENT UPM in the future Global Profitable Renewing Low cost UPM 64

Forward-looking statement 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, 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. UPM 65

UPM 66