UPM Annual Report 2019

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Performance

INDUSTRY LEADER IN RESPONSIBILITY

Top performance We aim for continuous improvement in our financial performance. Top performance enables investing in value-enhancing growth, innovation and responsibility and is a key to the long-term earnings growth. A strong cash flow underpins our ability to provide attractive dividends to our shareholders. Value-enhancing growth Consumer megatrends drive demand growth for most of our products. The increasing need for sustainable and safe solutions further supports this growth. We invest in growing our businesses with strong long-term fundamentals for profitability and growth, where we have a clear competitive advantage. This enables attractive returns for invested capital both in the short and longer term. We prioritise earnings growth over sales growth. Innovating for a future beyond fossils We innovate to supply consumers with more sustainable solutions. We protect our intellectual property. Innovations create new, attractive business opportunities with high added value and a unique competitive advantage. Value from responsibility We aim to capture the opportunities presented by the increase in responsible consumer choices and tightening regulation. Sustainable and safe solutions and responsible operations throughout the value chain help to mitigate risks. Improving business portfolio Increasing our share of sustainable growth businesses with a higher profit margin improves our long-term profitability and boosts the value of our shares. UPM’s growth businesses have three times higher margins on average than the mature graphic paper business. Industry-leading balance sheet Our industry-leading balance sheet mitigates risks and enables us to accelerate the transformation of our company when the opportunity and timing are right. Attractive dividends We aim to pay an attractive dividend. Earnings growth enables increasing dividend in the long term. Our dividend policy is based on cash flow, targeting a dividend of 30–40% of the company’s annual operating cash flow per share.

Our consistent efforts on responsibility have received recognition from several third parties and have made us one of the industry leaders in various fields. UN Global Compact LEAD: UPM has been recognised as a Global Compact LEAD company for demonstrating world-class commitment to corporate responsibility. We are one of 36 global companies, and the only forest-industry company and the only Finnish company, participating in the UN Global Compact LEAD. Dow Jones Sustainability Index: UPM has been listed as the industry leader in the forest and paper sector in the Dow Jones Sustainability World and Europe Indices (DJSI) for 2019–2020. MSCI ESG ratings: UPM received a rating of AAA in the MSCI ESG Ratings assessment. MSCI ESG Research provides MSCI ESG ratings on global public companies, according to each company’s exposure to industry-specific ESG risks and its ability to manage those risks relative to its peers. CDP Programs: UPM was one of the only six Triple A List companies globally for its significant actions to mitigate climate risk, prevent deforestation and enhance water stewardship. UPM was featured on the A List for Climate, Forests and Water. RobecoSAM’s Sustainability Yearbook: UPM has been listed in the RobecoSAM’s 2019 and 2020 Sustainability Yearbook with a Gold Class distinction. We are one of the top-scoring companies in our industry and received this recognition for our excellent sustainability performance. Corporate Knights: UPM was ranked 23th in the Corporate Knights list of the world’s 100 most sustainable corporations, and was the only company listed in the Paper and Forest Products category.

Our Biofore strategy is designed to generate attractive shareholder returns. Over the coming years we can allocate more capital to growing and transforming the company, while distributing an attractive dividend and maintaining a strong balance sheet. CREATING SHAREHOLDER VALUE

Enterprise value and cumulative dividends EURm

Cash flow-based dividend EUR per share

5-YEAR SHARE PERFORMANCE AND VALUATION MULTIPLES 2019

EUR 1.30 per share Dividend proposal +40% Share price 2019

1.4

20,000

2018 2017 2016 2015

1.2

16,000

30.91

Share price at 31 Dec, EUR

22.15 25.91 23.34 17.23 2.24 1.88 1.65 1.38

1.0

2.07

Comparable EPS, EUR

12,000

0.8

1.30 *)

1.30

1.15 0.95 0.75

Dividend per share, EUR

0.6

8,000

3.46

Operating cash flow per share, EUR

2.49 2.92

3.16 2.22

0.4

4.2

Effective dividend yield, %

5.9

4.4

4.1

4.4

4,000

0.2

15.5 1.64

P/E ratio

7.9 14.2

14.1 10.0

1.21 1.60 1.51

1.16

P/BV ratio 1)

18 19 14 15 16 17 12 13 10 11

8.7

6.3

8.6

8.7

8.4

EV/EBITDA ratio 2 )

% of operating cash flow per share * ) 2019: Board’s proposal

Net debt Market capitalisation Cumulative dividend

16,485

Market capitalisation, EUR million

11,813 13,818 12,452 9,192

*) 2019: Board’s proposal 1) P/BV ratio = Share price at 31 Dec./Equity per share 2) EV/EBITDA ratio = (Market capitalisation + Net debt)/EBITDA