UPM Annual Report 2016

In brief

Strategy

Businesses

Stakeholders

Governance

Accounts

Global Compact LEAD

Enterprise value and dividend EURm

Aiming higher

20,000

15,000

10,000

5,000

0

08

11 10 09

12 13 14 15 16

■ Cumulative dividend ■ Market capitalisation ■ Net debt

Shareholder value at the core

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.

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.

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

2016 was a record-strong year for UPM

Jussi Pesonen President and CEO

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UPM Annual Report 2016

UPM Annual Report 2016