UPM Annual Report 2016

UPM Annual Report 2016

Strategy

Businesses

Stakeholders

Governance

Accounts

In brief

Aiming

higher

2016 was

a record-strong

year for UPM

Shareholder value

at the core

2016 demonstrated the results of our transformation and set the stage for

our future. It is fair to say that the foundations for our success were laid a

decade ago when UPM stated that the graphic paper markets had perma

nently changed and that we needed to find a new focus and new ways of

working to be competitive.

In 2008, we started to turn pulp and energy into market-driven

businesses, and in 2009 we introduced UPM as the future-oriented Biofore

Company with an increasing focus on innovation.

In 2013, we changed our business structure to ensure agile and market-

driven operations. At the same time, we further sharpened our capital

allocation strategy. With this model we have been able to ensure top-

performing businesses, strong cash flow, industry-leading balance sheet and

good returns from our targeted growth investments.

Through these steps, we have achieved something that we set out to do

– create a new kind of UPM. Today’s UPM is earnings- and growth-oriented,

capable and financially strong, and now we have the opportunity to seek

new horizons and aim higher.

2016 making way for future growth

During the year, our comparable EBIT increased by 25% and our operating

cash flow was record strong at EUR 1,686 million. Our net debt was EUR

969 million lower than a year ago, a reduction of 46%, reaching an industry-

leading level.

We grew with our customers in many markets and our growth projects

contributed significantly to our earnings. The first wave of pulp investments

was very successful and the UPMLappeenranta Biorefinery had a solid year.

The ramp-up of the specialty paper machine at UPMChangshu proceeded

as planned. The UPMOtepää plywood mill and UPMKaukas pulp mill

expansions started successfully towards the end of the year.

Further investments are ongoing ensuring future growth. Construction

of the second UPMKymi pulp mill expansion and investment in the

Shareholder value at the core

Creating shareholder value is at the core of our strategy and we

believe that this also benefits our other stakeholders in the long term.

Our transformation and the continued improvement in terms of

financial and responsibility performance were reflected in positive

share price performance. Our share price increased by 35% during

the year.

UPM’s Board of Directors proposed a dividend of EUR 0.95 per

share, which is 27% higher than in the previous year. The proposal

reflects confidence in UPM’s future.

Looking forward

UPMhas a versatile business portfolio, good geographic spread

and five growing business areas. The versatile use of forest biomass

and focus on competitiveness and innovation will continue to

advance our Biofore strategy.

We will invest in projects with attractive and sustainable returns.

We will also continue measures to manage our costs.

Our new long-term financial targets reflect our increased ambition

for business performance. They are credible and sustainable in the

long term, over business and investment cycles.

We look confidently to the future. Our competitive position and

market demand enable us to expand our growth businesses further

and aim higher with our long-term earnings.

Jussi Pesonen

President and CEO

UPMRaflatac factory in Poland are in full swing. Our negotiations with

the Government of Uruguay on the prerequisites for long-term industrial

development in the country have progressed in positive spirit and are

continuing. We also continue to study new opportunities in biofuels and

biochemicals.

At the same time, our continuous improvement programmes

delivered results in terms of significant savings in variable and fixed costs.

The restructuring of UPM's graphic paper business continued in order

to adjust capacity to profitable demand. This was particularly reflected

in the form of a strong earnings development at UPMPaper ENA.

All this is a significant achievement in a complex and competitive

environment and I want to take this opportunity to thank all our business

partners, employees and stakeholders for their engagement and

co-operation, which made 2016 a success.

Responsibility is good business

We believe that customers, investors and other stakeholders value

responsible operations that keep risks under control and add to our

business opportunities, increasing the company's value.

The revision and launch of our Code of Conduct was a group-wide

effort during the year. The Code now better reflects our current operating

environment. As many as 97% of UPMers completed the training for the

new Code.

We were also able to make good progress in 25 of our 34 measurable

responsibility targets for 2030. Supplier responsibility was one of the

key focus areas in 2016.

The company received recognitions from several third parties. To

name but a few, UPMwas listed in the Dow Jones Sustainability Index

Europe and participated in the United Nations Global Compact LEAD

forum of the 50 most advanced companies in terms of sustainability

across geographic regions and industry sectors.

Global Compact

LEAD

12 13 14 15 16

11 10 09

20,000

15,000

10,000

5,000

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Cumulative dividend

■

Market capitalisation

■

Net debt

Enterprise value and dividend

EURm

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