UPM ENA DRIVING FOR CASH

Executive Vice President Bernd Eikens UPM Paper ENA UPM Paper Europe and North America

Paper products for magazine and newspaper publishers, advertising end uses as well as home and office

Large low-cost asset base and global sales network

UPM Paper ENA 2013 (EURm) Sales 5,560 EBITDA 232 EBITDA, % 4% ROCE, % 0% Cash flow/CE 5% 2 | © UPM UPM Paper ENA Large low-cost operating platform

Mills SC centers North America

Europe

Personnel 11,000 Capacity 10Mt 18 mills / 37 PMs Location: Augsburg,

3 | © UPM UPM Paper ENA The way forward

• Customer segment based structure • Leaner organization and fast decisions • Operational focus, flexibility in operations • Variable and fixed cost savings continue • Limited investments

• Capacity restructuring 850,000 tonnes • Fixed cost savings EUR 100m • Variable cost savings

• Integration of Myllykoski realized annual cost synergies of EUR 200m • Capacity restructuring of 1,020,000 tonnes • Divestment of packaging paper operations

4 | © UPM UPM Paper ENA Customer segment based structure with differentiated strategies

Common initiatives

• Variable and fixed cost saving programs • New business developments

Magazine Publishing & Newspaper Merchants, Advertising Publishing Home & Office • UPM capacity share in • UPM capacity share in • UPM capacity share in Europe: 25 – 45% Europe: ~20% Europe: ~10% • Assume industry • Grow in targeted • Customer/market leadership segments optimization to be • Differentiated go-to- continued market strategy within • Reduce value chain the segment complexity

5 | © UPM UPM Paper ENA European graphic paper market is oversupplied, industry structure is fragmented

Industry structure Million tonnes Demand and capacity (45 million tons (end of 2013) 60 89 smaller producers UPM 21 % 50

40 Palm 2 % 30 Lecta 3 % 20 IP 3 % 16 % Holmen 10 3 % Sappi 8 % Portucel 0 4 % Mondi Norske 2007 2008 2009 2010 2011 2012 2013p 4 % Burgo Skog 5 % Demand Net Exports Capacity 5 %

Sources: Euro-Graph, PPPC Sources: JP Webbmill

| © UPM 6 UPM Paper ENA North American magazine and advertising paper market somewhat better

Industry structure Million (9 million tons, end of 2013) tonnes Demand and capacity 16 12 smaller 14 producers

12

10 PH 4% NewPage 31 % 8 Irving 5%

6 UPM 6%

4

Resolute 2 Verso Forest Pr. 12 % 0 12 % Sappi 2007 2008 2009 2010 2011 2012 2013p 12 % Demand Imports Capacity

Sources: Euro-Graph, PPPC Sources: JP Webbmill 7 | © UPM UPM Paper ENA Overcapacity in European graphic paper is visible in margins

EUR/t Price hardly covers the cash costs of marginal producers

Price

Cash cost of a marginal producer

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PPI, RISI, Pöyry

8 | © UPM

UPM Paper ENA Signs of improvement in European economy – impact on paper demand too early to conclude

Euro zone composite leading indicator* (Y/Y %) Paper demand growth (% trailing 3 month) 6,0 20

Euro zone composite 15 leading indicator 3,0 10

5

0,0 0

Graphic paper -5 demand growth -3,0 -10

-15

-6,0 -20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * Changed GDP base Sources: Euro-Graph, OECD 9 | © UPM

UPM Paper ENA Optimisation opportunities for UPM Paper ENA

Optimisation Frugal capital Maximise margins WOC management Sales steering Low investment needs Sales Variable cost savings, margin energy, materials Fast pay-back investments

Cash flow Adjust to profitable demand Flexible operations Fixed Sufficient volume costs Volume Market share Fixed cost savings End-use mix Capacity closures

10 | © UPM UPM Paper ENA Maintaining cash flow even in adverse circumstances

• EBITDA decreased in H1 2013 due to lower prices and volumes • In H2 2013, internal measures offset the market headwinds

EURm EURm 500 500

400 Working 400 capital 400

300 300 232 Working Restructuring 205 capital 200 costs 200 Capex Restructuring 123 100 100 costs Capex

0 0 EBITDA Cash EBITDA Cash 2012 flow 2013 flow 11 | © UPM 2012 2013 UPM Paper ENA Key messages

• Focus on cash flow

• Profit improvement through lower variable and fixed costs, and increased flexibility

• Simplified, customer segment based business model with implementation focus

• Large, low cost operative platform continues to offer optimisation opportunities, including temporary or permanent capacity closures

12 | © UPM