ANNUAL GENERAL MEETING 216 Jussi Pesonen President and CEO
UPM in transformation Business portfolio, sales 23: integrated paper company 28: towards marketdriven businesses 215: six separate businesses 1 % 1 % 1 % 8 % 8 % 8 % Paper ENA 6 % 4 % 2 % % Sold units Paper Plywood Raflatac Sawmilling 6 % 4 % 2 % % Sold units Paper Plywood Raflatac Sawmilling 6 % 4 % 2 % % Plywood Energy Paper Asia Raflatac Biorefining Other operations Sales EBIT ( * Net debt Market cap Personnel 2 UPM EUR 9.8bn EUR 429m EUR 4.9bn EUR 7.9bn 34,5 EUR 9.5bn EUR 513m EUR 4.3bn EUR 4.7bn 25, EUR 1.1bn EUR 898m EUR 2.1bn EUR 9.2bn 19,6 * ) excluding special items. EUR 265 million forest fair value increase in 215 excluded for comparability
UPM business portfolio today ( * UPM PLYWOOD Plywood, veneer #1 in Europe UPM PAPER ENA Graphic papers Leading in Europe Growth drivers: Private consumption Sustainability Population growth Urbanisation Retail, e-commerce Construction and transportation UPM PAPER ASIA Labelling materials, fine papers Label papers: #1 globally High-end office papers: #1 in China 3 UPM UPM RAFLATAC Self-adhesive label materials #2 globally UPM ENERGY Electricity #2 in Finland UPM BIOREFINING Pulp Biofuels Timber # 6 globally * ) by EBITDA
UPM transformation continues to ensure long-term sustainable value creation. UPM aims to increase profitability, growth outlook and value of its business portfolio. 4 UPM
Contents Results 215 UPM strategy in action 1. Performance 2. Growth 3. Portfolio 4. Innovation Risks and opportunities Responsibility is good business Summary 5 UPM
RESULTS 215 Performance improvement and transformation continued 6 UPM
UPM key financial indicators 1(2) EURbn 11, Sales EUR 1.1bn +3% EURm 1 4 Operating profit (* EUR 1,163m +37% EURm 1 4 Operating cash flow EUR 1,185m -5% 1,5 1 2 1 2 1, 1 ( * 1 9,5 8 6 8 6 9, 4 4 8,5 2 2 8, 211 212 213 214 215 211 212 213 214 215 211 212 213 214 215 7 UPM ( * excluding special items. The figures include the EUR 265 million increase in the fair value of the forests in Finland in 215.
Operating profit * ) by business area EURm 15 UPM Biorefining % of sales 25 EURm 8 UPM Energy % of sales 6 EURm 5 UPM Raflatac % of sales 1 12 2 6 45 4 8 9 6 15 1 4 3 3 2 6 4 3 5 2 15 1 2 13 13 14 14 15 15 13 13 14 14 15 15 13 13 14 14 15 15 EURm 5 UPM Paper Asia EURm UPM Paper ENA % of sales EURm UPM Plywood % of sales % of sales 12,5 75 6 25 2 4 1 5 4 2 16 3 7,5 25 2 15 12 2 5 1 8 1 2,5-25 -2 5 4 13 13 14 8 UPM 14 15 15 * ) excluding special items -5 13 13 14 14 15 15-4 13 13 14 14 15 15
Business area returns and long-term targets 22 2 18 16 14 12 1 8 6 4 2 UPM UPM UPM UPM UPM UPM Energy Biorefining Paper Asia Paper ENA Plywood Raflatac 22 22 22 22 22 ROCE % ( * ROCE % ROCE % CF/CE % ROCE % ROCE % 2 2 2 2 2 18 16 14 12 1 8 6 4 2 18 16 14 12 1 8 6 4 2 18 16 14 12 1 8 6 4 2 18 16 14 12 1 8 6 4 2 18 16 14 12 1 8 6 4 2 ( * shareholdings in UPM Energy valued at fair value Long-term return target 9 UPM
UPM key financial indicators 2(2) EUR 2, EPS ( * EUR 1.75 +5% % 14 ROE (* 12.1% +3.8pp Net debt EUR 2,1m Net debt EURm % 5 EUR -31m 6 1,8 1,6 1,4 1,2 1,,8 ( * 12 1 8 6 ( * 4 3 2 Gearing 26% 45 3,6,4,2 4 2 1 15, 211 212 213 214 215 211 212 213 214 215 211 212 213 214 215 1 UPM ( * excluding special items. The figures include the EUR 265 million increase in the fair value of the forests in Finland in 215.
Outlook for 216 UPM s profitability improvement is expected to continue in 216. The business performance in 216 is underpinned by the company s growth projects and continuous cost efficiency measures. 11 UPM
Dividend proposal EUR per share,9,8,7,6.55 Dividend.6.6.6.7.75 Dividend policy UPM aims to pay an attractive dividend, 3-4% of operating cash flow per share,5,4.4.45 Board s dividend proposal for 215,3 EUR.75 (.7) per share,2,1 34% of 215 operating cash flow per share, 28 29 21 211 212 213 214 215 12 UPM
UPM STRATEGY IN ACTION
Business Area strategic direction UPM PLYWOOD Profitability, growth High value products and service offering UPM PAPER ENA Profitability, cash flow Best customer offering: reliability, quality and services Low-cost operations 14 UPM UPM ENERGY Profitability, growth Nordic CO 2 -emission free electricity market UPM BIOREFINING Profitability, growth Competitive, versatile pulp offering, leading in sustainability Advanced biofuels UPM PAPER ASIA Profitability, growth Speciality and office paper offering Customer experience, leading in sustainability UPM RAFLATAC Profitability, growth High value added films and special products Fast growing markets
UPM strategic focus areas 1 Performance 2 Growth 3 Portfolio 4 Innovation Continuous improvement in performance Focused growth projects Business portfolio development and value creation New business and product development Profit improvement programme EUR 165m EBITDA target for growth projects EUR 2m Net debt reduction EUR 31m Biofuels commercial ramp-up 15 UPM
1. PERFORMANCE Continuous improvement in financial, social and environmental performance
Profit improvement programme exceeded its target by 1% the work continues in 216 EUR million 2 15 Annualised cost reduction impact EUR 165m 1 Variable cost savings 5 14 Q414 15 Q215 15 Q415 ( * 8, tonnes of publication paper capacity in Europe Fixed cost savings from closures ( * 17 UPM
Growing with Biofore engaged high-performing people Per million hours 25 2 15 1 5 Safety Lost-time accident frequency Index 9 8 7 6 5 4 Employee engagement Manager effectiveness Employee engagement EUR million,6,55,5,45,4,35,3,25 Productivity Sales per employee 3,2 18 UPM 5-year change: -77% 5-year change: +11 5-year CAGR: +5%
More with Biofore creating more with less Achievements in 25 215-16% Process wastewater per tonne of paper -65% Solid waste to landfills -17% Electricity consumption per tonne of paper Less waste Waste and sidestream utilisation Efficient technologies +5% Usage of Recovered paper Less energy Systematic energy management Energy efficient processes and technologies Less air emissions Less water usage Water management optimisation Advanced technologies Less effluent More recycling Efficient processes Product lifetime optimisation End-of-life systems 19 UPM
2. GROWTH Focused high-return growth projects
Several growth projects completed focus turns to reaping the benefits in 216 and beyond Pietarsaari pulp mill expansion 7,t Fray Bentos pulp mill expansion 1,t Lappeenranta biorefinery 12m litres of renewable diesel Kymi pulp mill expansion 17,t Kaukas pulp mill efficiency improvement, paper and pulp decoupling completed Capex so far EUR 66m Remaining capex EUR 11m Q2 214 214 Q4 214 215 Q2 215 215 Q4 215 216 Q2 216 216 Q4 216 21 UPM UPM Raflatac 5% expansion in APAC, growth in filmic labelstock in Poland UPM Paper Asia Changshu new speciality paper machine 36,t UPM Plywood Otepää mill expansion to 9,m 3
Low investment needs in existing assets allow growth projects with modest total capex EUR million 1 2 Capital expenditure Estimate 1 Myllykoski acquisition 8 Depreciation 6 Uruguay acquisition 4 Strategic investments 375 486 35 2 Operational investments 22 UPM 28 29 21 211 212 213 214 215 216e
3. PORTFOLIO Enhancing value, long-term profitability and growth outlook
Portfolio development and value creation UPM Biorefining Performance: targeting top performance in each business UPM Plywood UPM Paper Asia Grow businesses with strong long-term fundamentals: focused investments and synergistic M&A UPM Paper ENA UPM Energy UPM Raflatac Simplify: best value realisation for UPM Consolidation in European paper market, without increasing capital 24 UPM
Strengths of UPM s model Attractive dividend Focused investments Strong cash flow Top performance Industry-leading balance sheet 25 UPM
4. INNOVATION Developing new businesses and improving the competitiveness of current businesses
Innovations in new and existing businesses 27 UPM
RISKS AND OPPORTUNITIES The operating environment exposes UPM to risks and opportunities
Risks and opportunities China Risk Economic slowdown Opportunity Private consumption Urbanisation Competitive businesses Strong balance sheet 29 UPM Pulp Risk Demand/supply cycle Opportunity Competitive pulp business Versatile sustainable offering Limited net exposure Strong balance sheet Paper Risk Demand decrease pace Opportunity Competitive paper business with optimisation opportunities More attractive end-uses Best customer offering: reliability, quality and services
Outlook for 216 UPM s profitability improvement is expected to continue in 216. The business performance in 216 is underpinned by the company s growth projects and continuous cost efficiency measures. 3 UPM
RESPONSIBILITY IS GOOD BUSINESS Responsibility is a source of competitive advantage and growth
Responsibility is good business Consistent long-term work receives external recognition and attracts responsible investors UPM in sustainability indices Sustainable and Responsible (SRI) investors form a significant part of UPM s shareholders 32 UPM % 3 25 2 15 1 5 SRI, % of total institutional shareholders UPM Industrials & Materials Source: Nasdaq, October 215 Europe
SUMMARY
Key performance indicators 215 Sales EUR 1.1 billion +3% Operating profit *) EUR 1,163 million +37% Operating cash flow per share EUR 2.22-5% EPS *) EUR 1.75 +5% ROE *) 12.1% +3.8pp Gearing 26% -6pp *) excluding special items 34 UPM
Key performance indicators 215 Empl. completed Code of Conduct training 9% +2pp Employee engagement 66% +3pp LTA frequency 3.9-11% Supplier Code qualified supplier spend 79% +12pp Share of certified wood 84% +1pp Share of ecolabelled products 77% +1pp 35 UPM
UPM s enterprise value and shareholders share of it has increased EUR million 12 Enterprise value 1 % Distribution of the enterprise value 1 8 9 % 8 % 7 % 6 % Market capitalisation 6 Market capitalisation 5 % 4 % 4 3 % 2 Net debt 2 % 1 % Net debt 36 UPM 28 29 21 211 212 213 214 215 % 28 29 21 211 212 213 214 215
Strengths of UPM s model Attractive dividend Focused investments Strong cash flow Top performance Industry-leading balance sheet 37 UPM