SHIFTING GEAR in UPM TRANSFORMATION Tapio Korpeinen CFO November 2013 from Three European Paper Divisions

SHIFTING GEAR IN UPM TRANSFORMATION Tapio Korpeinen CFO November 2013 From three European paper divisions

to a portfolio of six Biofore businesses

2 | © UPM New business structure

• Pulp (3.3 million tonnes p.a.), incl. plantation operations UPM Biorefining • Biofuels • Timber

• Power generation (1,721MW), incl. UPM’s hydropower plants UPM Energy and shareholdings in energy companies • Physical and derivatives trading

• Self-adhesive label materials for product and information UPM RaflatacUU labeling

• Fine papers in China UPM PaperUU Asia • Label papers • Total capacity 1.5 million tonnes p.a.

• Magazine papers in Europe and NA UPM PaperUU ENA • Newsprint and fine papers in Europe • Total capacity 10.3 million tonnes p.a.

UPM PlywoodUU • Plywood and veneer products (1 million m3 p.a.)

Other operations: Forests (over 900,000 hectares of forests) and wood sourcing, 3 | © UPM New Business Development and Group services New business structure EBITDA EUR 1,170m UPM Plywood UPM UPM Biorefining Paper ENA

Sales UPM Capital employed EUR 10,123m Paper Asia EUR 11,339m UPM UPM Other Other UPM Plywood Biorefining UPM Biorefining Plywood UPM UPM Raflatac UPM Energy Energy

UPM UPM Raflatac Paper ENA

UPM UPM UPM UPM Paper Asia Paper Asia Energy Paper ENA UPM 4 | © UPM Preliminary figures Q4/2012-Q3/2013 Raflatac Shifting gear in UPM transformation with the new business structure

Biofuels: Lappeenranta biorefinery Pulp: 10% EBITDA target for capacity increase growth initiatives Business portfolio EUR 200m development and UPM value creation Biorefining UPM Woodfree speciality Paper papers in China: Asia Changshu PM3 New businesses UPM Profit Plywood BIOFUELS improvement programme Self-adhesive labels: growth in emerging BIOCHEMICALS EUR 200m markets in higher value UPM added products Paper UPM BIOCOMPOSITES ENA Raflatac UPM BIOFIBRILS Energy

5 | © UPM Profit improvement programme through simplified business structure

EURm 250 Full impact of the programme is expected by the end of 2014, as compared with the Q2/13 results 200

150 EUR 200m of 25% annualised 100 achieved fixed and in Q3/13 variable cost 50 savings

0 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115

6 | © UPM Growth initiatives for the next three years

• UPM targets additional EBITDA contribution of EUR 200m from its growth initiatives when they are in full operation – UPM Biorefining: biofuels and debottlenecking actions in all of the existing pulp mills – UPM Paper Asia: woodfree speciality papers in China – UPM Raflatac: growth in emerging markets in higher value added products

• Total investment requirement in the projects is EUR 680m – Total remaining investment EUR 584m in the coming three years

• UPM’s total capex estimate for 2013 is EUR 400m – Low investment needs in existing assets allow growth initiatives with modest total annual capex

7 | © UPM UPM Biorefining UPM creates new business in wood-based renewable diesel

• UPM invests in wood-based renewable diesel production − Total investment EUR 150m − Production capacity 100,000 tonnes/a − start-up in mid-2014

• Technology is based on UPM’s innovation and long-term development work

• Raw material is sustainably produced crude tall oil – Residue from pulp production – Outside food value chain, no indirect land use change

• Main product is unique renewable diesel – No blend wall issues - compatible with fossil diesel EN590 quality – 80% reduction in greenhouse gas emissions – High energy content

8 | © UPM UPM Biorefining UPM creates new business in wood-based renewable diesel

9 | © UPM UPM Biorefining UPM plans to expand production in its existing pulp mills by 10%

Fray Bentos Pietarsaari Kymi Kaukas - started 2007 - major investment 2004 - major investment 2008 - modernisation in 1996 - capacity 1,200,000 t. - capacity 790,000 t. of - capacity 570,000 t. of - capacity 740,000 t. of of Eucalyptus pulp birch and softwood pulp birch and softwood pulp birch and softwood pulp

10 | © UPM

UPM Biorefining 85% of pulp demand is in growing end-use segments

Bleached market pulp demand by end-use and region

WE NA China ROW Total

P&W 11% 4% 11% 8% 34% Tissue 10% 6% 6% 10% 32% Packaging 1% 0% 4% 2% 8% Speciality 6% 1% 4% 4% 16% Fluff 2% 2% 1% 4% 10% 30% 14% 27% 28% 100%

= growing market segment (85%)

*Source: Hawkins Wright. End use markets = declining market segment (15%) for bleached kraft pulp, September 2013

11 | © UPM UPM Paper Asia UPM expands in China and the global label papers market

APAC sales volume, Decision on tonnes PM3

R&D Center established

Changshu PM3: Decision on • 360,000 tonnes of PM1 PM1 woodfree speciality papers start-up UPM 100% ownership • start-up in H1 2015

PM2 • Total investment approx. Start-up EUR 390m

UPM and APRIL 1998 2000 2002 2004 2006 2008 2009 2010 2012 2014 2016

12 | © UPMU UPM Raflatac Consistent growth in label materials

EURm UPM Raflatac sales 1 250

1 000

750

500

250

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

13 | © UPM UPM Raflatac Growth in higher value added labelstock products and growth markets

UPM Raflatac sales (indexed) 350 2003 = 100 Emerging markets, all products 300

250 Mature markets, high added value products 200

150 Mature markets, all products 100

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

14 | © UPM FINANCIALS Q3/2013 in brief

• Q3/13 EBITDA was EUR 311m (Q3/12: 313m) • Growth businesses continued to perform well • Paper EBITDA recovered to the same level as last year – cost reductions offset the decrease in prices and volumes • Strong cash flow – net debt decreased

EUR m Q3/2013 Q3/2012 9M/2013 9M/2012 2012 Sales 2,472 2,595 7,466 7,835 10,492 EBITDA 311 313 853 995 1,312 % of sales 12.6 12.1 11.4 12.7 12.5 Operating profit (* 194 126 476 410 556 Profit before tax (* 173 105 422 348 471 EPS, EUR (* 0.26 0.16 0.64 0.54 0.74 Operating cash flow 286 319 473 679 1,040

16 | © UPM *) excluding special items

Profitability over two economic slowdowns

Europe continues to underperform Operating profit excluding special items the other major economic zones

RealReal GDPGDP y -yo--oy -growthy growth % % % of sales 12,5 12

10,0 10 7,5 BRIC 8,3 8,2 8 5,0 6,8 US 6,4 2,5 6 5,4 5,3

0,0 2007 2008 2009 2010 2011 2012 2013E 4 3,5 -2,5 Euro zone 2 -5,0

-7,5 0 Sources: Global Insight 2007 2008 2009 2010 2011 2012 9kk/13

17 | © UPM Profitability challenge in UPM Paper ENA – improvement programmes in all businesses

EUR million EBITDA in Q1-Q3 2013 *) EBITDA margin, % 500 50

43% 400 40

300 30

200 23% 20 15% 4% 9% 9% 100 10

0 0 UPM UPM UPM UPM UPM UPM Other Biorefining Energy Raflatac Paper Asia Paper Plywood -100 ENA -10 *) Preliminary figures 18 | © UPM Consistent cash flow

EURm Cash flow 1 400

1 200

1 000 Cash flow after investing 800 activities

600

400 Operating cash flow 200

0 2007 2008 2009 2010 2011 2012 LTM Q3/13

EUR million Capital expenditure Estimate 1 200

Myllykoski 1 000 acquisition Depreciation 800

Uruguay 600 acquisition

400 400 Strategic investments 340 350

200

Operational investments 0 2007 2008 2009 2010 2011 2012 2013e

20 | © UPM

Cash flow-based dividend

Cash flow, EUR per EUR million share 1 400 0,90 Dividend policy 1 200 Operational capex 0,80 • at least 1/3 of net cash flow from operating activities less 1 000 0,70 0.60 0.60 operational capital expenditure 800 0.55 0,60 • net cash flow calculated as an average over three years 600 0.45 0,50 0.40 400 0,40 Dividend for 2012 200 Cash flow after operational capex 0,30 • EUR 0.60 (0.60) per share

0 0,20 2008 2009 2010 2011 2012

Actual / proposed dividend Minimum dividend by the dividend policy

Net debt / EBITDA Net debt, EUR million (trailing 12 months) Net debt, EUR million Gearing % 6 000 4,5 6 000 90

5 500 4,0 5 500 80 Net debt / EBITDA 5 000 3,5 5 000 70 Gearing 2.8 4 500 3,0 4 500 60 45 4 000 2,5 4 000 50

3 500 2,0 3 500 40

3 000 Net debt 1,5 3 000 Net debt 30

2 500 1,0 2 500 20

2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Liquidity was EUR 1.7bn at the end of Q3 2013 22 | © UPM Repayments total EUR 0.8bn in 2013-14 Shifting gear in UPM transformation with the new business structure