UPM annual report 2014

UPM Annual Report 2014

CONTENTS

UPM aims to increase profitability, growth outlook and the value of its business

portfolio. The target is to simplify and 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 2014, UPM introduced long term return targets for the

six business areas. Four out of the six businesses reached

or exceeded their return targets (page 13). To further sup-

port the performance in 2015, UPM in November 2014

announced a profitability improvement programme target-

ing EUR 150 million in cost savings by the end of 2015

compared to Q3 2014 earnings.

Capture growth opportunities:

To expand the

well performing businesses with positive long term funda-

mentals, UPM is implementing focused growth projects

over the next two years, targeting an EBITDA impact

of EUR 200 million when all the initiatives are in full

operation.

Develop business portfolio:

UPM is seeking to

simplify and develop its business portfolio in order to

uncover and increase its value. Increasing the share of

highly profitable businesses with good fundamentals for

growth improves the company’s long term profitability

and boosts the value of the shares.

Strong operating cash flow

is important for

UPM as it enables the realisation of organic growth pro-

jects and new business development, as well as paying

attractive dividends to UPM shareholders.

Industry leading balance sheet:

The company

aims to maintain a strong balance sheet to enable portfolio

changes that increase UPM’s shareholder value.

New businesses:

UPM’s expertise in renewable and

recyclable materials, low-emission energy and resource

efficiency is the key to developing new, sustainable business

opportunities with high added value.

Responsibility

is an integral part of UPM’s Biofore

strategy. Good corporate governance, target-oriented

leadership, appropriate working conditions and commu-

nity involvement are essential to UPM’s way of working.

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 2014.

Dividend policy

Attractive dividend:

UPM aims to pay an attractive

dividend, 30-40% of the company’s annual cash flow

per share.

2014

2013 2012 2011 2010

Share price at 31 Dec, EUR

13.62

12.28 8.81 8.51 13.22

Earnings per share, excluding special items, EUR

1.17

0.91 0.74 0.93 0.99

Dividend per share, EUR

0.70

)

0.60 0.60 0.60 0.55

Operating cash flow per share, EUR

2.33

1.39 1.98 1.99 1.89

Effective dividend yield, %

5.1

4.9 6.8 7.1 4.2

P/E ratio

14.2

19.5 neg.

9.2 13.4

P/BV ratio

0.97

0.87 0.62 0.60 0.97

EV/EBITDA ratio

7.5

8.3 6.0 5.8 7.6

Market capitalisation, EUR million

7,266

6,497 4,633 4,466 6,874

2014: Board’s proposal

P/BV ratio = Share price at 31.12./Equity per share

EV/EBITDA ratio = (Market capitalisation + Net debt)/EBITDA

5-YEAR SHARE PERFORMANCE AND VALUATION MULTIPLES

UPM as an investment

UPM Energy is one of UPM’s

growing business areas, covering

electricity production and trading

in physical and financial energy

markets.

UPM share price 2010–2014 and

total shareholder return

EUR

UPM share price

Total shareholder return

)

Assuming dividends reinvested in the company

2010 2011 2012 2013 2014

UPM share price 2010–2014

compared with indices

EUR

UPM share price

NASDAQ OMX Helsinki (rebased)

DJ STOXX 600 (rebased)

2010 2011 2012 2013 2014

Industry leader in the Dow Jones

European and World Sustainability

Indices for 2014–2015

RobecoSAM’s annual Sustainability

Yearbook 2014 with a Gold Class

distinction

Top position with the highest possible

score on A list in the CDP Climate

Performance Leadership Index 2014

Sector leader for the materials industry

in CDP’s 2014 global Forests Program

UPM BioVerno – the EU’s Sustainable

Energy Europe Award 2014

Read more:

www.upm.com/responsibility

UPM’S BIOFORE STRATEGY RECEIVES

EXTERNAL RECOGNITION

Gold Class 2014

Strengths of UPM’s model

INDUSTRY LEADING

BALANCE SHEET

TOP

PERFORMANCE

Attractive

dividend

Strong

cash flow

Focused

investments

0.80

0.60

0.40

0.20

0.00

% of operating cash flow per share

Cash flow-based dividend

EUR per share

Board’s proposal for 2014

0.70

)