UPM annual report 2015

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IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

UPM as an investment

performance

growth

PORTFOLIO

innovation

UPM aims to increase profitability, growth outlook and value of its business portfolio. The target is to develop the business portfolio to uncover and increase its value. With good performance in the businesses, strong cash flow, and leading balance sheet in the industry, UPM can simultaneously distribute an attractive dividend, implement focused growth projects and act on strategic opportunities.

UPM aims to increase shareholder value Drive top performance: At the business area level, UPM targets top performance in their respective markets. In 2015, out of our six business areas, UPMBiorefining, UPM Plywood and UPMEnergy exceeded their long-term return targets, and UPMRaflatac showed good improvement, getting very close to its target. (page 12). UPM is committed to continuous improvement in its financial, social and environmental performance. 1 Capture growth opportunities: To expand the well-performing businesses with promising long term fundamentals, UPM is implementing focused growth projects. In 2016, several growth projects are ramping up and focus turns to reaping the benefits from the investments. 2 Develop business portfolio: UPM is seeking to develop its business portfolio in order to uncover and increase its value. Increasing the share of highly profitable busi- nesses with good fundamentals for growth improves the company’s long-term profit ability and boosts the value of the shares. 3 Innovation: UPM’s expertise in renewable and recyclable materials, low-emission energy and resource efficiency is the key to developing new, sustainable business oppor- tunities with high added value. 4 Strong operating cash flow is important for UPM as it enables the realisation of organic growth projects and new business development, as well as paying attractive dividends to UPM shareholders. 1 2 3 4 Industry leading balance sheet: The company aims to maintain a strong balance sheet to enable portfolio changes that increase UPM’s shareholder value. 1 2 3 4 Responsibility is an integral part of UPM’s Biofore strategy. Good governance, industry-leading environmental performance, responsible sourcing practices and a safe working environment are important sources of competitive advantage. Proactive corporate responsibility work also enables business impacts and risks to be efficiently identified and mitigated. UPM’s consistent efforts in this area continued to gain external recognition in 2015. 1 Dividend policy Attractive dividend: UPM aims to pay an attractive dividend, 30-40% of the company’s annual operating cash flow per share.

Cash flow-based dividend EUR per share

5-year share performance and valuation multiples 2015 2014

2013 2012 2011 12.28 8.81 8.51 0.91 0.74 0.93 0.60 0.60 0.60 1.39 1.98 1.99

0.80

0.75 * )

Share price at 31 Dec, EUR

13.62

17.23

Earnings per share, excluding special items, EUR

1.17 0.70 2.33

1.75

0.60

Dividend per share, EUR

0.75 * )

Operating cash flow per share, EUR

2.22

0.40

4.9 6.8 7.1

Effective dividend yield, %

5.1

4.4

0.20

19.5 neg.

9.7

P/E ratio

14.2 0.97

10.0 1.16

0.87 0.62 0.60 8.3 6.0 5.8

P/BV ratio 1)

0.00

EV/EBITDA ratio 2)

7.5

8.4

% of operating cash flow per share

6,497 4,633 4,466

Market capitalisation, EUR million

7,266

9,192

*) Board’s proposal for 2015

*) 2015: Board’s proposal 1) P/BV ratio = Share price at 31.12./Equity per share 2) EV/EBITDA ratio = (Market capitalisation + Net debt)/EBITDA

UPM share price 2011–2015 compared with indices EUR

UPM share price NASDAQ OMX Helsinki (rebased) DJ STOXX 600 (rebased) 2011 2012 2013 2014 2015 0

UPM invited into UN Global Compact LEAD as the first forest industry company and the first Finnish Company as of 1 Jan 2016 Industry leader in the Dow Jones European and World Sustainability Indices for 2015–2016 RobecoSAM’s annual Sustainability Yearbook 2015 with Industry Leader and Golden Class distinctions UPM’s Biofore strategy receives external recognition

Global Compact LEAD

Driving performance and transformation

Each business area is responsible for executing its own strategy and achieving targets. Group direction and support from global functions enable the businesses to capture benefits fromUPM’s brand, scale and integration, while navigating the complex operating environment. UPM’s structure of six separate businesses enables optimal capital allocation decisions at the group level, as well as developing the busi- ness portfolio further. With the Biofore strategy (on page 5), we are committed to continue the transformation. A strong focus on performance and competitive- ness, combined with an industry leading balance sheet, demonstrate our ability to execute it.

Over the past years, UPMhas transformed from an integrated paper company into a Biofore company with six separate business areas, each striving for top performance in their respective markets. UPM has turned former internal resources such as chemical pulp and energy into customer-focused and market-driven businesses, created new business in advanced biofuels and grown in its other well-per- forming businesses. The company’s profitability has improved, share- holder returns have increased and the balance sheet has been strengthened (see page 4).

CDP Nordic Disclosure Leadership Index the 7th time in a row

Number 25 in the 2016 Global 100 Most Sustainable Corporations in the World (Global 100) Recognition by FAO for exemplary forestry in Uruguay

GROUP

Business area strategies Commercial excellence Growth projects Profitability improvement programmes Innovation IMPLEMENTATION IN BUSINESSES

OUTCOMES

Vision and values Portfolio strategy Business targets Capital allocation Code of Conduct Responsibility targets

Top performance Competitive advantage Value creation Shared value with stakeholders License to operate