UPM annual report 2014

First page Previous page 14-15 Next page Last page

UPM as an investment

UPM share price 2010–2014 and total shareholder return EUR

UPM share price 2010–2014 compared with indices EUR

Cash flow-based dividend EUR per share

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.

0.80

0.70 * )

0.60

0.40

0.20

0.00

UPM share price Total shareholder return * ) *) Assuming dividends reinvested in the company 2010 2011 2012 2013 2014 0

UPM share price NASDAQ OMX Helsinki (rebased) DJ STOXX 600 (rebased) 2010 2011 2012 2013 2014 0

% of operating cash flow per share

*) Board’s proposal for 2014

Strengths of UPM’s model

Attractive dividend

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. 1 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. 2 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. 3 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. 4 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.

Strong cash flow

Focused investments

TOP PERFORMANCE

INDUSTRY LEADING BALANCE SHEET

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 UPM’S BIOFORE STRATEGY RECEIVES EXTERNAL RECOGNITION

5-YEAR SHARE PERFORMANCE AND VALUATION MULTIPLES

2013 2012 2011 2010 12.28 8.81 8.51 13.22 0.91 0.74 0.93 0.99 0.60 0.60 0.60 0.55 1.39 1.98 1.99 1.89

2014 13.62

Share price at 31 Dec, EUR

Gold Class 2014

Earnings per share, excluding special items, EUR

1.17

Dividend per share, EUR

0.70 * )

Operating cash flow per share, EUR

2.33

4.9 6.8 7.1 4.2

Effective dividend yield, %

5.1

19.5 neg.

9.2 13.4

P/E ratio

14.2 0.97

Sector leader for the materials industry in CDP’s 2014 global Forests Program

0.87 0.62 0.60 0.97 8.3 6.0 5.8 7.6

P/BV ratio 1)

EV/EBITDA ratio 2)

7.5

UPM BioVerno – the EU’s Sustainable Energy Europe Award 2014

UPM Energy is one of UPM’s growing business areas, covering electricity production and trading in physical and financial energy markets.

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

Market capitalisation, EUR million

7,266

*) 2014: Board’s proposal 1) P/BV ratio = Share price at 31.12./Equity per share 2) EV/EBITDA ratio = (Market capitalisation + Net debt)/EBITDA