BASE PROSPECTUS

UPM-KYMMENE CORPORATION

(incorporated under the laws of the Republic of Finland with limited liability) (Business Identity Code: 1041090-0)

EUR5,000,000,000 GLOBAL MEDIUM TERM NOTE PROGRAMME

Under the Global Medium Term Note Programme (the "Programme") described in this Base Prospectus (the "Base Prospectus"), UPM-Kymmene Corporation (the "Company" and the "Issuer") may, subject to compliance with all relevant laws, regulations and directives, from time to time issue debt instruments (the "Notes") denominated in any currency (including euro) agreed between the Issuer and the relevant Dealer (as defined below). The aggregate principal amount of Notes outstanding will not at any time exceed EUR5,000,000,000 (or its equivalent in other currencies), subject to any duly authorised increase.

All Notes denominated in the same currency, having the same maturity date, bearing interest, if any, on the same basis and at the same rate and the terms of which are otherwise identical, except for the issue date, interest commencement date and/or the issue price, will constitute a series (each, a "Series"). The aggregate principal amount, any interest rate or interest calculation, the issue price, and any other terms and conditions not contained herein with respect to each Series of Notes will be established at the time of issuance and set forth in the applicable Final Terms (as defined below).

The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), with any securities regulatory authority of any state or other jurisdiction of the United States and, subject to certain exceptions, may not be offered, sold or delivered directly or indirectly within the United States or to or for the account or benefit of U.S. persons (as defined in Regulation S under the Securities Act ("Regulation S")). The Notes may be offered for sale (i) in the United States only, to qualified institutional buyers ("QIBs") within the meaning of, and in reliance on, Rule 144A under the Securities Act ("Rule 144A") or another available exemption from, or pursuant to a transaction not subject to, the registration requirements of the Securities Act; or (ii) outside the United States to non-U.S. persons in reliance on, and in accordance with, Regulation S, in each case, in compliance with applicable laws. See "Subscription and Sale".

The Notes may be issued on a continuing basis to one or more of the Dealers specified herein and any additional Dealer appointed under the Programme from time to time, which appointment may be for a specific issue or on an ongoing basis (each a "Dealer" and, together, the "Dealers"). References in this Base Prospectus to the "relevant Dealer" shall, in relation to any issue of Notes, be to the Dealer agreeing to subscribe for such Notes or, in the case of each issue of Notes syndicated amongst a group of Dealers, the Lead Manager of such issue.

See "Risk Factors" beginning on page BP-5 for a discussion of certain factors to be considered in connection with an investment in the Notes. The applicable Final Terms to any series of Notes may describe additional risks to be considered in relation to that series.

Application has been made for the Notes issued under the Programme to be admitted to listing on the Official List of the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange during the period of 12 months after the date of publication of this Base Prospectus. However, Notes may also be issued under the Programme on an unlisted basis or be admitted to listing, trading and/or quotation by other stock exchanges, listing authorities and/or quotation systems, and the Final Terms applicable to a Series will specify whether or not Notes of such Series have been admitted to trading on the regulated market of the Luxembourg Stock Exchange or admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system. The Luxembourg Stock Exchange's Regulated Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC. This Base Prospectus may be used in connection with issues admitted to trading on the regulated market of the Luxembourg Stock Exchange for a period of one year from the date hereof.

This Base Prospectus should be read and construed with any Final Terms.

Arranger for the Programme

Citi

Dealers

BNP PARIBAS Bank of America Merrill Lynch Citi Commerzbank Aktiengesellschaft Crédit Agricole CIB Deutsche Bank Nordea, acting through either Nordea Bank Mitsubishi UFJ Securities International plc Danmark A/S or Nordea Bank Finland Plc The Royal Bank of Scotland

The date of this Base Prospectus is 6 May 2010.

THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND INCLUDE NOTES IN BEARER FORM THAT ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. THE NOTES MAY NOT BE OFFERED OR SOLD OR, IN THE CASE OF BEARER NOTES, DELIVERED, DIRECTLY OR INDIRECTLY WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

THE NOTES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES TO NON-US PERSONS IN RELIANCE ON REGULATION S AND WITHIN THE UNITED STATES IN RELIANCE ON RULE 144A. PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF NOTES AND DISTRIBUTION OF THIS BASE PROSPECTUS, SEE "SUBSCRIPTION AND SALE" AND "TRANSFER RESTRICTIONS".

THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR OTHER US REGULATORY AUTHORITY, AND NONE OF THE FOREGOING AUTHORITIES HAS PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF THE NOTES OR THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS BASE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

Responsibility Statement

The Issuer accepts responsibility for the information contained in this document, save for information from third party sources. The Issuer declares that, having taken all reasonable care to ensure that such is the case, the information contained in this document is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.

To the extent that information has been sourced from a third party, the Issuer declares that this information has been accurately reproduced. As far as the Issuer is aware, and able to ascertain from information published by any such third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.

* * *

Notice

This Base Prospectus has been approved by the Luxembourg Commission de Surveillance du Secteur Financier (the "CSSF"), which is the Luxembourg competent authority for the purpose of Directive 2003/71/EC (the "Prospectus Directive") and relevant implementation measures of the Prospectus Directive into Luxembourg law, as a base prospectus issued in compliance with the Prospectus Directive and relevant implementing measures in Luxembourg for the purpose of giving information with regard to the issue of Notes under the Programme during the period of twelve months after the date of publication.

This Base Prospectus constitutes a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC.

This Base Prospectus should be read and construed together with any supplements hereto and, in relation to any Tranche (as defined herein) of Notes which is the subject of the Final Terms (as defined herein), should be read and construed together with the relevant Final Terms (as defined herein).

The Issuer has confirmed to the Dealers named under "Subscription and Sale" below that this Base Prospectus (including for this purpose, all relevant Final Terms) contains all information which is (in the context of the Programme, the issue, offering and sale of the Notes) material; that such information is true and accurate in all material respects and is not misleading in any material respect; that any opinions, predictions or intentions by the Issuer expressed herein are honestly held or made and are

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not misleading in any material respect; that this Base Prospectus does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in the context of the programme, the issue, offering and sale of the Notes) not misleading in any material respect; and that all proper enquiries have been made to verify the foregoing.

Each purchaser of Notes that bear a restrictive legend which is a U.S. person (other than certain U.S. persons buying for the account of non-U.S. persons) will be deemed to (i) represent that it is purchasing the Notes for its own account or for the benefit of an account with respect to which it exercises sole investment discretion and that it or such account is a QIB, and (ii) acknowledge that the Notes have not been and will not be registered under the Securities Act and may not be reoffered, resold, pledged or otherwise transferred, except (A) in compliance with Rule 144A to a person who the seller reasonably believes is a QIB, (B) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (C) outside the United States in compliance with Rule 903 or 904 of Regulation S, or (D) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Each purchaser of Notes sold outside the United States in reliance on Regulation S will be deemed to have represented that it is not purchasing the Notes with a view to the resale, distribution or other disposition thereof to a U.S. person or in the United States prior to the end of the applicable distribution compliance period (as defined in Regulation S). Except as otherwise indicated, terms used in this paragraph have the meanings given to them in Regulation S. For a description of these and certain further restrictions on offers and sales of the Notes and distribution of this Base Prospectus, see "Subscription and Sale" and "Transfer Restrictions".

Notes offered hereby may be issued in registered form, without interest coupons ("Registered Notes"), or in bearer form, with or without interest coupons ("Bearer Notes"), as specified in the applicable Final Terms. Registered Notes sold within the United States to QIBs will, unless otherwise specified, be available only in book-entry form, and will be represented by a Registered Note in the form of a restricted global note certificate (the "Restricted Global Note Certificate") deposited on or about the issue date as specified in the applicable Final Terms with or on behalf of The Depository Trust Company ("DTC") and will be registered in the name of its nominee. Registered Notes sold outside the United States to non-U.S. persons in reliance on Regulation S will, unless otherwise specified, be available only in book-entry form and will be represented by either (i) an unrestricted global note certificate (the "Unrestricted Global Note Certificate") deposited on or about the issue date as specified in the applicable Final Terms with or on behalf of DTC for the accounts of its direct and indirect participants, including Euroclear Bank SA/NV ("Euroclear"), and Clearstream Banking, société anonyme, Luxembourg ("Clearstream, Luxembourg"), or (ii) an international global note certificate (an "International Global Note Certificate") deposited with a common depositary located outside the United States (a "Common Depositary") for Euroclear and Clearstream, Luxembourg. On or prior to the 40th day after the later of the commencement of the offering and the date of delivery of the Notes of each Series, beneficial interests in an Unrestricted Global Note Certificate or an International Global Note Certificate representing Notes of such Series may be held only through Euroclear or Clearstream, Luxembourg. Bearer Notes will, unless otherwise specified, only be sold outside the United States to non U.S. persons in reliance on Regulation S and will, unless otherwise specified, initially be represented by a temporary global Note (a "Temporary Global Note") without interest coupons, deposited with or on behalf of a Common Depositary for Euroclear and Clearstream, Luxembourg. Beneficial interests in such Temporary Global Note shall be exchangeable for beneficial interests in a Permanent Global Note (as defined herein) in bearer form in an equal aggregate principal amount, not earlier than the 40th day after the applicable closing date upon certification in the form required by U.S. tax laws. See "Book-Entry; Delivery and Form of Notes".

No person has been authorised to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other document entered into in relation to the Programme or any information supplied by the Issuer or such other information as is in the public domain and, if given or made, such information or representation should not be relied upon as having been authorised by the Issuer or any Dealer.

No representation or warranty is made or implied by the Dealers or any of their respective affiliates, and neither the Dealers nor any of their respective affiliates makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Base Prospectus. Neither the delivery of this Base Prospectus or any Final Terms nor the offering, sale or delivery of any Note shall, in any circumstances, create any implication that the information contained in this Base Prospectus is true subsequent to the date hereof or the date upon which this Base

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Prospectus has been most recently supplemented or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer since the date thereof or, if later, the date upon which this Base Prospectus has been most recently supplemented or that any other information supplied in connection with the programme is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.

This Base Prospectus does not constitute an offer to sell or an offer to buy in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction, nor does this Base Prospectus constitute an invitation to subscribe for or purchase any Notes and should not be considered as a recommendation by the Issuer or the Dealers that any recipient of this Base Prospectus should subscribe for or purchase any Notes. The distribution of this Base Prospectus and any Final Terms and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Base Prospectus or any Final Terms comes are required by the Issuer and the Dealers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of this Base Prospectus or any Final Terms and other offering material relating to the Notes, see "Subscription and Sale".

The Issuer will furnish each initial purchaser of Notes issued under the Programme with a copy of this Base Prospectus and each applicable supplement, including the relevant Final Terms describing the terms related to that Series of Notes. Unless the context otherwise requires, references to the Base Prospectus include this Base Prospectus, together with any supplements applicable to a particular Series of Notes.

Neither this Base Prospectus nor any Final Terms constitutes an offer or an invitation to subscribe for or purchase any Notes and they should not be considered as a recommendation by the Issuer, the Dealers or any of them that any recipient of this Base Prospectus or any Final Terms should subscribe for or purchase any Notes. Each recipient of this Base Prospectus or any Final Terms shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer.

The maximum aggregate principal amount of Notes outstanding at any one time under the programme will not exceed EUR5,000,000,000 (and for this purpose, any notes denominated in another currency shall be translated into euro at the date of the agreement to issue such Notes (calculated in accordance with the provisions of the Dealer Agreement)). The maximum aggregate principal amount of Notes which may be outstanding and guaranteed at any one time under the programme may be increased from time to time, subject to compliance with the relevant provisions of the Dealer Agreement as defined under "Subscription and Sale".

In the Base Prospectus, unless otherwise specified, references to a "Member State" are references to a Member State of the European Economic Area, references to "U.S.$", "U.S. dollars" or "dollars" are to United States dollars references to "£" or "British pound sterling" are to the lawful currency for the United Kingdom and references to "EUR", "€" or "euro" are to the currency introduced at the start of the third stage of European economic and monetary union, and as defined in Article 206 Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the EUR, as amended.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (THE "RSA 421-B") WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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STABILISATION

IN CONNECTION WITH THE ISSUE OF ANY TRANCHE OF NOTES, THE DEALER OR DEALERS (IF ANY) NAMED AS THE STABILISING MANAGER(S) (OR PERSONS ACTING ON BEHALF OF ANY STABILISING MANAGER(S)) IN THE APPLICABLE FINAL TERMS MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER(S) (OR PERSONS ACTING ON BEHALF OF A STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE RELEVANT TRANCHE OF NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE RELEVANT TRANCHE OF NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE RELEVANT TRANCHE OF NOTES. ANY STABILISATION ACTION OR OVER- ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER(S) (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER(S) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.

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CONTENTS

Page

SUMMARY ...... BP - 2 RISK FACTORS ...... BP - 5 OTHER INFORMATION ...... BP - 10 GENERAL DESCRIPTION OF THE PROGRAMME ...... BP - 12 TERMS AND CONDITIONS OF THE NOTES ...... BP - 17 BOOK-ENTRY; DELIVERY AND FORM OF NOTES ...... BP - 43 FORM OF FINAL TERMS ...... BP - 52 UPM-KYMMENE CORPORATION ...... BP - 63 GLOSSARY ...... BP - 123 TAXATION ...... BP - 126 SUBSCRIPTION AND SALE ...... BP - 129 TRANSFER RESTRICTIONS ...... BP - 134 GENERAL INFORMATION ...... BP - 137 INDEX TO FINANCIAL STATEMENTS ...... F - 1

SUMMARY

This summary must be read as an introduction to this Base Prospectus and any decision to invest in the Notes should be based on a consideration of the Base Prospectus as a whole. Following the implementation of the Prospectus Directive in each Member State of the European Economic Area, no civil liability will attach to the Issuer in any Member State solely on the basis of the summary, including any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Base Prospectus. Where a claim relating to the information contained in this Base Prospectus is brought before a court in a Member State of the European Economic Area, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating the Base Prospectus before the legal proceedings are initiated. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Base Prospectus have the same meanings in this summary.

Essential Characteristics and Risks Associated with the Issuer

UPM-Kymmene Corporation ("UPM") is the leading producer of graphic papers and among the largest forestry companies in the world, in terms of capacity. It is also the world’s second largest producer of label materials and Europe’s largest producer of plywood, in terms of capacity. UPM’s core businesses are energy, chemical pulp, sawn timber, graphic papers, selected speciality papers, self-adhesive label materials and plywood. In recent years, UPM has introduced several new business initiatives, which are currently under development or have been recently implemented, such as Radio Frequency Identification ("RFID") tags, wood plastic composites and biofuels. While UPM’s management believes that these business initiatives represent opportunities in the future, their financial impact has so far been limited.

In 2009, the Group had sales of EUR7.7 billion and, as of 31 December 2009, the Group’s total assets amounted to EUR13.6 billion. The main markets for the Group’s products are Europe, which accounted for 72% of sales; North America, which accounted for 11% of sales; and Asia and other countries, which accounted for 17% of sales, each in 2009.

UPM has production in 15 countries. Its paper production facilities rank among the world’s leading in terms of production efficiency. UPM’s operations are based on close integration of raw materials, energy and production. As of the date of this Base Prospectus, the Company is self-sufficient in chemical pulp and approximately 90% self-sufficient in electric power.

UPM’s operations are organised in the following three business groups: Energy and pulp, Paper, and Engineered materials.

The Energy and pulp business group consists of hydropower assets, UPM’s pulp mills in Finland and shares of associated energy companies. This business group is also responsible for forest and wood sourcing as well as UPM’s timber business. The Energy and pulp business group comprises three business areas: Energy, Pulp, and Forest and timber. UPM’s biofuel business is also included in the business group as a development unit. Biofuels are liquid or gaseous fuels for transport produced from biomass. The three business areas are managed as market driven businesses even though most of their sales are internal. The Energy business area manages and develops UPM’s non-integrated power generation assets. The Pulp business area produces chemical pulp at UPM’s three modern pulp mills in Finland and one world-class pulp mill in Uruguay. The Forest and timber business area manages UPM’s forest holdings and sawmills.

The Paper business group produces publication, fine and speciality papers. Publication paper is used in magazines, newspapers, manuals and booklets, books, catalogues, telephone directories, inserts, flyers, newspaper supplements and advertising materials. Fine paper is used in magazines, catalogues, inserts, advertising materials, copy papers, preprint applications and envelopes. Speciality paper is used for several end-uses in the labelling, packaging and mailing industries. The business group’s customers are mainly publishers and printers as well as merchants and paper converters. The Paper business group also includes UPM’s combined heat and power ("CHP") plants operating on its paper mill sites. The CHP plants represent one-third of UPM’s total power generation and are mainly fuelled by biomass. UPM’s mechanical and recycled fibre pulp production is fully integrated with its paper production with no external sales and, therefore, it is included in the Paper business group. The Paper business group’s annual production capacity is 11.5 million tonnes.

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The Engineered materials business group comprises two business areas: Label and Plywood. UPM’s RFID tags and wood plastic composites are also included in this business group as development units. The Label business area manufactures self-adhesive label materials for product and information labelling. The Plywood business area combines the unique characteristics of wood with the demanding customer focused construction and industrial end-use applications. Plywood is primarily used in the building, construction and transportation industries and in a number of special applications. The RFID tags development unit comprises the development and manufacture of tags and inlays based on RFID technology. The wood plastic composite development unit develops, manufactures, markets and sells high-quality wood plastic composite products made mainly from surplus paper and plastic left over from the production of self-adhesive label materials.

The Group faces significant competition from multinational and local competitors, which may offer competing products with more attractive prices to the customers of the Group. Although the Group’s customer base is extensive and diverse, the loss of one major customer or a group of customers could have an adverse impact on the business of the Group. In addition, shifts in consumer preferences could materially affect the demand for the Group’s products and, thereby, the business, financial condition or results of operations of the Group.

UPM’s financial performance is influenced by the cyclicality of the markets and pricing fluctuations for paper and forest products. In addition, the Group’s exposure to fluctuations in global exchange rates may have a significant effect on its business, financial condition or results of operations, as is also the case with adverse economic conditions in the markets in which the Group operates.

UPM relies on third party suppliers for significant amounts of the raw materials used by the Group. Disruptions in the supply chain of, and fluctuations in, the prices of these raw materials could materially affect the business of the Group. Similarly, natural catastrophes or sabotage could lead to a material adverse impact on the business, financial condition or results of operations of the Group. See "Risk Factors".

Essential Characteristics and Risks Associated with the Notes

The Issuer may, subject to compliance with all relevant laws, regulations and directives, from time to time issue Notes denominated in any currency (including euro) agreed between the Issuer and the relevant Dealer. The aggregate principal amount of Notes outstanding will not at any time exceed EUR5,000,000,000 (or its equivalent in other currencies), subject to any duly authorised increase.

The aggregate principal amount, any interest rate or interest calculation, the issue price, maturity and any other terms and conditions not contained herein with respect to each Series of Notes will be established at the time of issuance and set forth in the applicable Final Terms.

The Issuer has not registered the Notes under the Securities Act and, subject to certain exceptions, the Notes may not be offered or sold within the United States or to U.S persons, as defined in Regulation S. The Notes may be offered for sale only (i) in the United States to QIBs within the meaning of, and in reliance on, Rule 144A or another available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act; or (ii) outside the United States to non U.S. persons in reliance on, and in accordance with, Regulation S, in each case, in compliance with applicable laws.

Application has been made for the Notes issued under the Programme to be admitted to trading on the regulated market of the Luxembourg Stock Exchange. However, Notes may also be issued under the Programme on an unlisted basis or be admitted to listing, trading and/or quotation by other stock exchanges, listing authorities and/or quotation systems, and the Final Terms applicable to a Series will specify whether or not Notes of such Series have been admitted to trading on the regulated market of the Luxembourg Stock Exchange or admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system.

The Notes shall be accepted for clearing through one or more clearing systems as specified in the applicable Final Terms. These systems shall include, in the United States, the systems operated by DTC and, outside the United States, the systems operated by Euroclear and Clearstream, Luxembourg. Because the Global Notes are held by or on behalf of DTC, Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communications with the Issuer.

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The Notes may be issued in registered form, without interest coupons, or in bearer form, with or without interest coupons.

The Notes issued under the Programme will be unsubordinated and unsecured obligations of the Issuer and will have the benefit of a negative pledge and the events of default set out in the "Terms and Conditions of the Notes".

The Notes may be redeemed prior to maturity at par or at such other Redemption Amount as may be specified in the Final Terms.

There is no active trading market for the Notes unless, in the case of any particular Tranche, such Tranche is to be consolidated with and form a single series with a Tranche of Notes which is already issued.

Any adverse change in an applicable credit rating of the Issuer and/or the Notes (if applicable) could adversely affect the trading price for the Notes issued under the Programme.

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RISK FACTORS

Prospective investors should read the entire Base Prospectus. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Base Prospectus have the same meanings in this section. Investing in the Notes involves certain risks, including the risk that investors may lose the value of their entire investment, or a part of it. Prospective investors should consider, among other things, the risks discussed below.

UPM regards risk management as a systematic and proactive means to analyse and manage opportunities and threats relating to its business operations. UPM’s Board of Directors has approved the overall objectives of risk management for the Group and has confirmed its principles and implementation procedures. UPM’s Audit Committee has the responsibility to oversee that risk management activities are aligned with UPM’s risk management policy and that risk assessment focuses on internal audit activities. The main risk factors that have been identified as potentially having a material adverse impact on the business, financial condition or results of operations of the Group are set out below. They have been classified as strategic risks, operational risks, financial risks and hazard risks. Also set out below are certain risks relating to the Notes. The presentation of risks discussed below is not exhaustive and there can be other risks that could have a material adverse impact on the business, financial condition or results of operations of the Group.

Risks Relating to the Notes

There is no active trading market for the Notes. Notes issued under the Programme will be new securities which may not be widely distributed and for which there is currently no active trading market (unless in the case of any particular Tranche, such Tranche is to be consolidated with and form a single series with a Tranche of Notes which is already issued). If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although application has been made for the Notes issued under the Programme to be admitted to trading on the regulated market of the Luxembourg Stock Exchange, there can be no assurance that such application will be accepted, that any particular Tranche of Notes will be so admitted or that an active trading market will develop. Accordingly, there can be no assurance as to the development or liquidity of any trading market for any particular Tranche of Notes, and investors may lose the value of their entire investment or a part of it, as the case may be.

The Notes may not be freely transferred. The Issuer has not registered, and will not register, the Notes under the Securities Act or any other applicable securities laws. Accordingly, the Notes are subject to certain restrictions on resale and other transfer thereof as set forth in the section entitled "Transfer Restrictions". As a result of these restrictions, the Issuer cannot be certain of the existence of a secondary market for the Notes or the liquidity of such a market if one develops. Consequently, a holder of Notes and an owner of beneficial interests in those Notes must be able to bear the economic risk of their investment in the Notes for the term of the Notes.

The Notes may be redeemed prior to maturity. Unless in the case of any particular Tranche of Notes the relevant Final Terms specify otherwise, in the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Republic of Finland or a political subdivision thereof or any authority therein or thereof having power to tax, the Issuer may redeem all outstanding Notes in accordance with the Conditions.

In addition, if in the case of any particular Tranche of Notes the relevant Final Terms specify that the Notes are redeemable at the Issuer’s option in certain other circumstances, the Issuer may choose to redeem the Notes at times when prevailing interest rates may be relatively low. In such circumstances, an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the relevant Notes.

Because the Global Notes are held by or on behalf of Euroclear, Clearstream, Luxembourg and/or DTC investors will have to rely on their procedures for transfer, payment and communication with the Issuer. Notes issued under the Programme may be represented by one or more Global Notes. Such Global Notes will be deposited with a common depositary for Euroclear and Clearstream,

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Luxembourg or with or on behalf of DTC. Except in the circumstances described in the relevant Global Note, investors will not be entitled to receive definitive Notes. Euroclear, Clearstream, Luxembourg and/or DTC will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by one or more Global Notes, investors will be able to trade their beneficial interests only through Euroclear and/or Clearstream, Luxembourg and/or DTC.

While the Notes are represented by one or more Global Notes, the Issuer will discharge its payment obligations under the Notes by making payments to the common depositary for Euroclear and Clearstream, Luxembourg or to DTC or a nominee thereof for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear, Clearstream, Luxembourg and/or DTC to receive payments under the relevant Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.

Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear, Clearstream, Luxembourg and/or DTC to appoint appropriate proxies.

The credit ratings of the Issuer may not be reliable, and changes to the credit ratings could affect the value of the Notes. The credit ratings of the Issuer are set out under the heading "UPM- Kymmene Corporation—Operating and Financial Review and Prospects—Cash Flow—Cash Used in Financing Activities" starting on page BP-112. The credit ratings of a Tranche of Notes (if any) will be provided in the relevant Final Terms. Where a Tranche of Notes is rated, such ratings will not necessarily be the same as the ratings described herein. Moreover, the credit ratings of the Notes may not reflect the potential impact of all risks relating to the value of the Notes. In addition, real or anticipated changes in the credit ratings of the Issuer or the credit ratings of the Notes will generally affect the market value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. Any adverse change in an applicable credit rating could adversely affect the trading price for the Notes issued under the Programme.

Risks Relating to the Issuer

(i) Strategic Risks

Competition. The paper, energy, pulp, timber, label and plywood markets are highly competitive. UPM has, from time to time, experienced price pressures from competitors in its main business areas and geographic market areas and has experienced particularly large fluctuations in operating margins due to this competitive environment. UPM principally competes with a number of large multinational paper and forest products companies as well as with numerous regional or more specialised competitors. Although UPM’s management believes that UPM’s financial position is currently sound in relation to many other industry participants, there can be no assurance that UPM will have sufficient financial resources to respond to these competitive pressures in the future. UPM’s failure to do so could have a material adverse impact on the business, financial condition or results of operations of the Group.

Paper industry structure. The markets for paper and forest products are cyclical, being characterised by periods of imbalance between supply and demand during which prices of paper and forest products can fluctuate significantly. These demand/supply imbalances may be caused by such factors as economic growth and new capacity investments, inventory build-up and changes in end-use patterns. There can be no assurance that current price levels for paper and forest products will be maintained, that any additional price increases will be achieved or that the industry will not add new capacity. Structural changes in paper usage may result in decline in paper demand which, in turn, could lead to overcapacity, which may in turn lead to lower operating rates and to weaker pricing power in the industry. UPM seeks to ensure the cost efficiency of its operations also at lower operating rates and to manage its product portfolio proactively, but there can be no assurance that the potential overcapacity would not have an adverse impact on the business, financial condition or results of operations of the Group.

Consumer preferences. Over the last several decades, consumer expectations with respect to paper used for such items as magazines, newspapers, catalogues, advertising, direct mail, packaging and label materials and other similar uses have become both more demanding and more diverse. The trend

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towards a greater use of computers and electronic media is also having an effect on the current consumption patterns for paper and is expected to continue to have such effect in the future. UPM’s ability to continue to meet the shifting demands of consumers depends upon a variety of factors, including its ability to foresee and/or identify changes in consumer preferences, requiring alteration of UPM’s strategies, the technical capabilities of manufacturing facilities, the speed of, and the costs associated with, the shifting of production at such facilities and the success of various research and development programmes. There can be no assurance that UPM will be able to successfully adapt to future changes in consumer demands or that such changes will not have a material adverse impact on the business, financial condition or results of operations of the Group.

Mergers and acquisitions. The paper and forest products industry has in the past and could also in the future experience a further wave of consolidation, driven, in part, by a desire to achieve economies of scale and synergies. UPM may seek growth through mergers or acquisitions in order to stay competitive or to enter into new areas of operation. Such acquisitions may not be available to UPM, or may not be available at the times or on terms acceptable to UPM. The mergers and acquisitions, which UPM might enter into or make, could involve risks, including those concerning UPM’s ability to successfully integrate and manage acquired operations and personnel, as well as to successfully achieve the economies of scale or synergies sought. The integration of acquired businesses may also lead to a possible deterioration of UPM’s financial condition, a loss of key employees of the acquired companies or a diversion of management attention away from other ongoing business concerns. If valuation premises, in the case of a merger or acquisition, prove to be incorrect, for example, regarding demand and product pricing, UPM may be required to record material impairment charges in future periods.

Suitability of the business portfolio. Although UPM’s management believes that UPM’s product portfolio and geographic spread of operations are currently quite suited for profitable business, the demand for its main products and overall business conditions in its major markets may change. For example, changes may take place as a consequence of the changing consumer behaviour. UPM cannot, therefore, be certain that its current portfolio will ensure adequate returns in the future.

Significance of the largest customers. UPM sells a significant proportion of its products to several major customers, including certain significant printing houses and merchant distributors, which resell the products. Although UPM is not dependent on any specific customer or group of customers, the loss of one or more of its major customers, if not replaced on similar terms, could have a material adverse impact on the business, financial condition or results of operations of the Group.

Environmental regulations. UPM is subject to various environmental laws and regulations in the jurisdictions in which it operates, governing, among others, wood procurement, use of recycled material and different forms of production discharges and emissions. Its environment related processes and management are based on the goal of full compliance with such laws and regulations, and environmental investments, audits and measurements are carried out on a continuing basis. UPM is currently not involved in any major legal proceedings concerning environmental matters that could reasonably be expected to have a material adverse impact on the business, financial condition or results of operations of the Group, nor is UPM’s management aware of any claims or potential liability concerning environmental matters that could reasonably be expected to have a material adverse impact on the business, financial condition or results of operations of the Group. However, the risk of substantial environmental costs and liabilities is inherent in industrial operations, including the paper and forest products industry, and there can be no assurance that significant costs and liabilities will not be incurred in the future or that the adoption of increasingly strict environmental laws, regulations and enforcement policies could not result in substantially increased costs and liabilities in the future. See "UPM-Kymmene Corporation—Environmental and Regulatory Matters".

Political risks. UPM has manufacturing operations in certain emerging markets, including, among others, Uruguay, China and Russia. The political, economic and legal systems in emerging market countries may be less predictable than those in countries with more established and sustained institutional structures. Political or economic upheaval and changes in laws may have a material adverse impact on UPM’s operations in those countries and, in turn, the amount of income from, and the value of, the investments UPM has made in relation to its operations in such countries. Investments or procurement in those countries may also be subject to other risks and uncertainties, such as unfavourable tax treatment, trade restrictions, inflation, currency fluctuations and nationalisation. Emerging markets represented approximately EUR1.2 billion, or 16%, of UPM’s sales in 2009. In Uruguay, after the International Court of Justice published its decision on the litigation action against the government of Uruguay in relation to

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the Fray Bentos pulp mill on 20 April 2010, there are two separate litigation actions pending against the government of Uruguay related to the Fray Bentos pulp mill, and one litigation action directly against UPM and the operator of the pulp mill. See "UPM-Kymmene Corporation—Legal Proceedings".

(ii) Operational Risks

Availability and price of major production inputs. In 2009, third party suppliers accounted for approximately 90% of UPM’s wood requirements and approximately 10% of its electric power needs. Other production inputs, such as chemicals, fillers and recovered paper, are obtained from third party suppliers. Disruptions in the supply of key inputs would impact UPM’s manufacturing operations. This could result, for example, in interruption or downscaling of production or change in the product mix, or increased costs resulting from price increases for critical inputs, shifts in the availability and price of wood, especially in the Baltic Rim area, or uncertainties with respect to how the proposed policies resulting from the EU climate and energy package affect the availability and cost of fibre and energy. Shortages of roundwood could lead to weakened production efficiency and some products may not be produced profitably. See "UPM-Kymmene Corporation—Environmental and Regulatory Matters". This could, in turn, have a material adverse impact on the business, financial condition or results of operations of the Group. See "UPM-Kymmene Corporation—UPM’s Wood Procurement".

In Finland, Teollisuuden Voima Oy ("Teollisuuden Voima") is currently constructing a new nuclear power plant in Olkiluoto ("Olkiluoto 3"). UPM is participating in the building project through its associated company Pohjolan Voima Oy ("Pohjolan Voima"). The original agreed timetable for the start- up of the plant was summer 2009 but the construction of the unit has been delayed. Arbitration proceedings have been initiated by both parties. See "UPM-Kymmene Corporation—Legal Proceedings". Further delay in Olkiluoto 3 nuclear power plant start-up and consequent loss of profit could lead to material cost overruns.

Partnerships. UPM currently works with a number of partners in the area of new product development, new businesses and new growth markets, and, in view of the highly competitive market situation and, for example, new developments, such as those related to biofuels, UPM is likely to be in a position to increase the number of these partnerships in order to complement its business and seek higher efficiency. Partnerships may, however, create risks to UPM’s profitability, for example, through changes occurring within the partner company or changes in the manner a partnership operates. Partnership arrangements may also be too rigid to enable timely changes required, for example, in connection with changes in the market conditions or the particular economy. Further, UPM’s partners may have different approaches with respect to the business of the partnerships and there can be no assurance that, in such situations, UPM will be able to reach an agreement with its partners. Because UPM will not have sole control of these entities, its partners may have the right to make certain decisions on key business matters with which UPM does not agree. In some cases, strategic or joint venture partners may choose not to continue partnerships that they have with UPM. Any of these factors could affect UPM’s ability to pursue its stated strategies with respect to these entities and may have a material adverse impact on the business, financial condition or results of operations of the Group.

Ability to recruit and retain skilled employees. To meet the challenges of sustainable growth and to improve the efficiency of its operations, UPM must continue to recruit and retain skilled employees. UPM is continuously evaluating its recruitment, compensation and career development policies and taking measures to attract and retain skilled personnel. There can be no assurance that UPM will not encounter shortages of sufficient numbers of appropriately skilled personnel in the future. Such shortages could have a negative effect on UPM’s business operations, impair business planning and execution and affect long-term profitability.

(iii) Financial Risks

Changes in exchange and interest rates. As a consequence of the global nature of its business, UPM is exposed to risks associated with changes in exchange rates, which may have a material adverse impact on the business, financial condition or results of operations of the Group. Exchange rate exposure primarily affects UPM’s export operations to the extent that its sales are denominated in currencies other than those in which manufacturing costs are incurred (e.g., non-euro denominated sales by UPM’s operations based in the EU member states participating in the Economic and Monetary Union of the EU). In general, the introduction of the euro has reduced UPM’s exposure to such currency risk. Nevertheless, a part of UPM’s sales and purchases continues to be denominated in currencies (consisting primarily of

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the U.S. dollar and the British pound sterling) other than the euro. In addition, UPM’s reported earnings may be affected by fluctuations between the euro and the non-euro currencies in which UPM’s various foreign subsidiaries report their results of operations when such results of operations are translated back into euro. To manage exposure to such exchange rate fluctuations, UPM closely monitors its exposure to currency risks while simultaneously hedging a portion of such risks using certain financial instruments, including forward foreign exchange agreements and currency swaps. There can be no assurance, however, that the exchange rate fluctuations between the euro and other currencies, such as the U.S. dollar or the British pound sterling, will not have a material adverse impact on the business, financial condition or results of operations of the Group in the future. Further, changes in interest rates may have a considerable impact on the values of UPM’s assets (for example, biological assets), which are valued on a discounted cash flow model.

Financing. Securing the continuity of UPM’s operations, requires sufficient funding under all circumstances. The global financial crisis has slightly adversely impacted UPM’s debt financing. UPM’s management estimates that UPM’s financial assets and available credit facilities are sufficient to secure UPM’s liquidity. The capital tied-up in net working capital and the level of capital expenditure have a fundamental effect on the adequacy of financing. A prolonged economic downturn could adversely affect UPM’s attempts to release some of its net working capital. Currently, UPM has no particularly large scale investment schemes underway, and UPM’s management estimates that the Group is well positioned to manage its capital expenditure levels in the coming years. In February 2010, Moody’s Investors Service, Inc. ("Moody’s") confirmed UPM’s credit rating to be Ba1 with a stable outlook. In April 2009, Standard & Poor’s Rating Services, a division of The McGraw Hill Companies, Inc ("Standard & Poor’s") changed UPM’s credit rating from BBB- to BB+. On 17 February 2010, Standard & Poor’s downgraded UPM’s credit rating from BB+ to BB with a stable outlook. These adverse developments in the credit markets and in UPM’s credit ratings, as well as other future adverse developments, such as further deterioration in the global financial markets and the worsening of general economic or market conditions or the weakening of UPM’s business and/or financial performance, could negatively impact UPM’s ability to issue additional debt securities as well as the amount and terms of the debt securities it is able to issue. These factors could also negatively impact the refinancing of UPM’s two major committed revolving credit facilities that are maturing in 2012. UPM’s business, financial condition or results of operations could be adversely affected to the extent the terms of any new debt securities that UPM issues or the terms of any new revolving credit facilities that UPM enters into are less favourable than the terms of the debt securities or the terms of the revolving facilities being refinanced, thereby. The terms of such debt securities and/or new credit facilities may also give the lenders additional rights, preferences and/or privileges senior to those of UPM’s shareholders and may impose restrictions on UPM’s operations that have an adverse impact on UPM’s ability to pursue its strategic goals or may otherwise adversely impact the development of its business.

Payment defaults. There is a risk of non-payment or non-performance by UPM’s customers in connection with the sale of its products. In particular, continued weakness in the general economic environment may result in increased defaults by customers and increased losses. UPM has various programmes in place to monitor and mitigate customer credit risk and insurance policies cover most of UPM’s trade receivables but there can be no assurance that such steps will be effective in eliminating losses resulting from payment defaults or customer bankruptcies.

(iv) Hazard Risks

UPM operates a significant number of manufacturing facilities all over the world, most of which it owns, and is also the largest private owner of forestland in Finland. UPM is exposed to risks in various areas, such as occupational health and safety, environment, fire, natural events and premises security. These risks are managed through established management procedures and loss prevention programmes. However, there can be no assurance that such procedures and programmes will be effective in avoiding the realisation of such risks.

UPM also transfers insurable risks through insurance arrangements, subject to terms and conditions, if they exceed its risk tolerance. Insurance cover is subject to applicable conditions and there can be no assurance that UPM’s insurance policies would be sufficient to cover potential damages arising from such insurable risks, including those resulting from war, terrorism or natural catastrophes.

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OTHER INFORMATION

1. UPM-KYMMENE CORPORATION

In this Base Prospectus, "UPM", the "Company", the "Issuer" and the "Group" refer to UPM- Kymmene Corporation or UPM-Kymmene Corporation and its consolidated subsidiaries, as the context may require. UPM-Kymmene Corporation is incorporated as a stock corporation organised under the laws of the Republic of Finland and registered in the Trade Register maintained by the National Board of Patents and Registration of Finland, under the business identity code 104 1090-0. UPM's registered office is located at Eteläesplanadi 2, FI-00101 Helsinki, Finland, telephone +358-204-15111.

2. FORWARD-LOOKING STATEMENTS

This Base Prospectus contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe", "expect", "anticipate", "intend", "plan" "will", "would", "may", "could", "continue" and similar expressions identify forward-looking statements. These statements appear in a number of places in this Base Prospectus and include statements regarding the intent, belief or current expectations of the Issuer or its respective officers with respect to, among other things, (i) the use of proceeds of the offering of Notes; (ii) the Issuer's financing plans; (iii) trends affecting the Issuer's business, financial condition or results of operations; (iv) the impact of competition; and (v) future plans and strategies. These statements reflect the Issuer's views with respect to such matters.

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. Prospective investors are cautioned not to place undue reliance on these forward-looking statements, which in any event speak only as of the date of this Base Prospectus. The Issuer undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under "Risk Factors" beginning on page BP-5 of this Base Prospectus.

3. ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS

UPM-Kymmene Corporation is organised under the laws of Finland, with its domicile in Helsinki. Most of the directors and executive officers of UPM and certain of the experts named herein are non-residents of the United States. All or a substantial portion of the assets of such non-resident persons and of the Company are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or the Company, or to enforce against them, in U.S. courts, judgments obtained in such courts predicated upon civil liability provisions of the federal securities laws of the United States. UPM has been advised by Mr. Juha Mäkelä, General Counsel of the Company, that there is doubt as to the enforceability in Finland, in original actions or actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal securities laws of the United States.

4. AVAILABLE INFORMATION

To permit compliance with Rule 144A in connection with resales of the Notes, for so long as any Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer has agreed to furnish upon request of a holder or beneficial owner of such Notes, or to a prospective purchaser designated by such holder or beneficial owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act and will otherwise comply with the requirements of Rule 144A(d)(4) under the Securities Act if, at the time of such request, the Issuer is neither a reporting company under Section 13 or Section 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder. For so long as the Notes are admitted to trading on the Luxembourg Stock Exchange and the rules of the exchange so require, the above mentioned information will also be made available at the principal office of the Luxembourg Listing Agent in Luxembourg.

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5. FINANCIAL AND OTHER INFORMATION

UPM prepares its financial statements in accordance with International Financial Reporting Standards, as adopted by the EU ("IFRS").

UPM's consolidated financial statements under IFRS for the year ended 31 December 2009 were approved by its Board of Directors on 2 February 2010, and by its shareholders in the Annual General Meeting of the shareholders held on 22 March 2010. UPM's consolidated financial statements are audited in accordance with Finnish Standards on Auditing for statutory purposes.

Except as otherwise indicated, information regarding sales for each of the Group's divisions, as presented herein, includes inter-divisional sales.

Certain financial terms and indicators used in this Base Prospectus are calculated by UPM as follows:

• "Return on capital employed" or "ROCE" for the Group is calculated by multiplying (i) 100 by (ii) (a) the profit before tax plus interest expenses and other financial expenses, divided by (b) total equity plus interest-bearing liabilities (average).

• "Return on capital employed" for the operating segments of the Group is calculated by multiplying (i) 100 by (ii) (a) operating profit, divided by (b) non-current assets plus stocks (inventories) and trade receivables, minus trade payables (average).

• "EBITDA" for the operating segments of the Group and for the Group means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

References in this Base Prospectus to "EU countries" are to the following 27 member states of the EU: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. However, for any financial or statistical information for periods from 1 May 2004 to 31 December 2006 such references exclude Bulgaria and Romania and for periods prior to 1 May 2004 references to "EU countries" are to the following 15 EU member states that comprised the European Union prior to such date: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom. References in this Base Prospectus to "North America" are to Canada and the United States.

UPM has derived certain information contained in this Base Prospectus concerning European demand and prices for printing papers from reports prepared by Confederation of European Paper Industries Print ("CEPIPRINT") and Confederation of European Paper Industries Fine ("CEPIFINE"). Beginning from 2004, the data reported by these organisations for the European market has been revised to include the 27 current EU member states, together with an additional group of 22 European countries, which comprise mainly Eastern European countries and autonomous states. Prior to 2004, the data reported by CEPIPRINT and CEPIFINE for the European market focused solely on a group of Western European countries, which was more limited in scope than the current reporting market. Neither organisation has made available information for the revised definition of the European market for periods prior to 2004. Accordingly, the European demand and pricing information for the year 2004 and onwards provided in this Base Prospectus refers to the revised definition of the European market and for periods prior to 2004 to the previous sample group of Western European countries.

The Issuer's primary source for stating its position in the paper industry is based on the information received from the independent consulting firm Pöyry Group Oyj ("Pöyry"). For labels business and wood products, the Issuer utilises its own business intelligence expertise.

All references herein to tonnes are to metric tonnes, which are equal to 1,000 kilograms.

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GENERAL DESCRIPTION OF THE PROGRAMME

The following general description of the Programme does not purport to be complete and is qualified in its entirety by the remainder of this Base Prospectus. Words and expressions defined in "Book-Entry; Delivery and Form of Notes" or "Terms and Conditions of the Notes" below shall have the same meanings in this general description of the Programme.

Issuer: UPM-Kymmene Corporation

Arranger: Citigroup Global Markets Limited

Dealers: BNP Paribas Citigroup Global Markets Limited Commerzbank Aktiengesellschaft Crédit Agricole Corporate and Investment Bank Deutsche Bank AG, London Branch Merrill Lynch International Mitsubishi UFJ Securities International plc Nordea Bank Danmark A/S Nordea Bank Finland Plc The Royal Bank of Scotland plc

and any other Dealer appointed from time to time by the Issuer either generally in respect of the Programme or in relation to a particular Tranche of Notes.

Trustee: Citicorp Trustee Company Limited

Principal Paying Agent: Citibank, N.A., London Branch

Paying and Transfer Agents: BNP Paribas Securities Services Luxembourg Branch Citibank, N.A., London Branch

Registrar: Citibank, N.A., London Branch

Luxembourg Listing Agent: BNP Paribas Securities Services Luxembourg Branch

Listing and Trading: Application has been made for the Notes to be issued under the Programme to be admitted to listing on the Official List of the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange. However, Notes may be issued under the Programme on an unlisted basis or be admitted to listing, trading and/or quotation by other stock exchanges, listing authorities and/or quotation systems, and the Final Terms applicable to a Series will specify whether or not Notes of such Series will be admitted to trading on the regulated market of the Luxembourg Stock Exchange or admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system. This Base Prospectus may be used in connection with issues admitted to trading on the regulated market of the Luxembourg Stock Exchange for a period of one year of the date hereof. See "General Information".

Clearing Systems: Notes shall be accepted for clearing through one or more clearing systems as specified in the applicable Final Terms. These systems shall include, in the United States, the system operated by DTC and, outside the United States, the systems operated by Euroclear and Clearstream, Luxembourg.

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Notes that are intended to be sold in both the United States and the euor markets will clear through DTC. Notes that are intended to be sold primarily outside the United States will clear through Euroclear, Clearstream, Luxembourg and/or any other clearing system specified in the applicable Final Terms.

Programme Amount: Up to EUR5,000,000,000 (or its equivalent in other currencies) aggregate principal amount of Notes outstanding at any time may be issued by UPM-Kymmene Corporation.

Issuance in Series: Notes will be issued in Series. Each Series may comprise one or more Tranches issued on different issue dates. The Notes of each Series will all be subject to identical terms, except that the issue date and the amount of the first payment of interest may be different in respect of different Tranches. The Notes of each Tranche will all be subject to identical terms in all respects save that a Tranche may comprise Notes of different denominations.

Final Terms: Each Tranche will be the subject of Final Terms which, for the purposes of that Tranche only, complete the Terms and Conditions of the Notes and this Base Prospectus and must be read in conjunction with this Base Prospectus. The terms and conditions applicable to any particular Tranche of Notes are the Terms and Conditions of the Notes as supplemented, amended and/or replaced by the relevant Final Terms.

Forms of Notes: Notes may be issued in registered form, without interest coupons ("Registered Notes"), or in bearer form, with or without interest coupons ("Bearer Notes").

In the case of Registered Notes, the Issuer will deliver (i) an Unrestricted Global Note Certificate (as defined below) and a Restricted Global Note Certificate (as defined below); or (ii) an International Global Note Certificate (as defined below), as specified in the relevant Final Terms.

Registered Notes offered within the United States to QIBs in reliance on Rule 144A will, unless otherwise specified in the applicable Final Terms, be available only in book-entry form, and will be represented by a Registered Note in the form of a restricted global note certificate (a "Restricted Global Note Certificate") deposited on or about the issue date as specified in the applicable Final Terms with or on behalf of DTC and registered in the name of its nominee.

Registered Notes sold outside the United States to non-U.S. persons in reliance on Regulation S will, unless otherwise specified in the applicable Final Terms, be available only in book-entry form and will be represented by an unrestricted global note certificate (an "Unrestricted Global Note Certificate") deposited on or about the issue date as specified in the applicable Final Terms with or on behalf of DTC for the accounts of its direct or indirect participants, including Euroclear and Clearstream, Luxembourg. On or prior to the 40th day after the later of the commencement of the offering and the date of delivery of the Notes of each Series, beneficial interests in an Unrestricted Global Note Certificate representing Notes of such Series may be held only through Euroclear or Clearstream, Luxembourg.

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Beneficial interests in the Restricted Global Note Certificates and Unrestricted Global Note Certificates will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct or indirect participants (including Euroclear and Clearstream, Luxembourg). Except as described herein, Individual Note Certificates (as defined herein) will not be issued in exchange for beneficial interests in Registered Global Note Certificates. See "Book-Entry; Delivery and Form of Notes".

The Restricted Global Note Certificates will bear a legend setting forth transfer restrictions and may not be transferred except in compliance with the transfer restrictions set forth therein. Transfers of interests from an Unrestricted Global Note Certificate to Restricted Global Note Certificate are subject to certification requirements.

Registered Notes sold outside the United States in reliance on Regulation S, which are not part of a Series which is also offered in the United States, may be represented, in whole or in part, by an International Global Note Certificate that is deposited with or on behalf of the Common Depositary for Euroclear and Clearstream, Luxembourg, or a nominee thereof, outside the United States for credit to the respective accounts of beneficial owners of the Notes represented thereby.

Bearer notes will, unless otherwise specified, only be sold outside the United States to non-U.S. persons in reliance on Regulation S and will, unless otherwise specified in the applicable Final Terms, initially be represented by a Temporary Global Note without interest coupons attached, deposited with or on behalf of a Common Depositary located outside the United States for Euroclear and Clearstream, Luxembourg. Interests in a Temporary Global Note will be exchangeable (i) for interests in a permanent global Note in bearer form, without coupons (a "Permanent Global Note"); (ii) in whole but not in part for definitive Notes in bearer form (each, a "Definitive Bearer Note"); or (iii) directly for interests in a Registered Global Note Certificate, no earlier than the 40th day after the applicable closing date upon certification of non-U.S. beneficial ownership as required by U.S. Treasury regulations. Bearer Notes may be exchangeable for Registered Notes. Registered Notes will not be exchangeable for Bearer Notes. See "Terms and Conditions of the Notes—Condition 3" and "Book-Entry; Delivery and Form of Notes".

Currencies: Notes may be denominated in EUR, U.S. dollars, Australian dollars, Canadian dollars, Danish kroner, Hong Kong dollars, Japanese yen, New Zealand dollars, Norwegian kroner, pounds sterling, Swedish kronor, Swiss francs and/or in any other currency or currencies, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements. Payments in respect of Notes may, subject to such compliance, be made in and/or linked to, any currency or currencies other than the currency in which such Notes are denominated.

Status of the Notes: The Notes issued under the Programme will be unsubordinated and unsecured obligations of the Issuer.

Issue Price: Notes may be issued at any price and either on a fully or partly paid basis, as specified in the relevant Final Terms. The price and amount of Notes to be issued under the Programme will be

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determined by the Issuer and the relevant Dealer(s) at the time of the issue in accordance with prevailing market conditions.

Maturities: Any maturity, subject, in relation to specific currencies, to compliance with all applicable legal and/or regulatory and/or central bank requirements.

Redemption: Notes may be redeemable at par or at such other Redemption Amount (detailed in a formula, index or otherwise) as may be specified in the relevant Final Terms. Notes may also be redeemable in two or more instalments on such dates and in such manner as may be specified in the relevant Final Terms.

Where Notes have a maturity of less than one year and either (a) the issue proceeds are received by the Issuer in the United Kingdom or (b) the activity of issuing the Notes is carried on from an establishment maintained by the Issuer in the United Kingdom, such Notes must (a) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses or (b) be issued in other circumstances which do not constitute a contravention of section 19 of the Financial Services and Markets Act 2000 (the "FSMA") by the Issuer.

Optional Redemption: Notes may be redeemed before their stated maturity at the option of the Issuer (either in whole or in part) and/or the Noteholders to the extent (if at all) specified in the relevant Final Terms.

Tax Redemption: Except as referred to in "Optional Redemption" above, early redemption will only be permitted for tax reasons as described in Condition 10(b) (Redemption and Purchase—Redemption for tax reasons).

Interest: Notes may be interest-bearing or non-interest bearing. Interest (if any) may accrue at a fixed rate or a floating rate or other variable rate or be index-linked and the method of calculating interest may vary between the issue date and the maturity date of the relevant Series.

Denominations: Notes issued under the Programme which are to be admitted to trading on a regulated market situated or operating within a Member State or which are to be offered to the public in one or more Member States (where the terms "regulated market" and "offer to the public" are within the meaning of any measures implementing the Prospectus Directive in any relevant Member State) may not (a) have a minimum denomination of less than EUR1,000 (or nearly equivalent in another currency) or (b) carry the right to acquire shares (or transferable securities equivalent to shares) issued by the Issuer or by any entity belonging to the Issuer's group. Subject thereto, Notes will be issued in such denominations as may be specified in the relevant Final Terms, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements.

Negative Pledge: The Notes will have the benefit of a negative pledge as described in Condition 5 (Negative Pledge).

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Cross Default: The Notes will have the benefit of a cross default as described in Condition 13 (Events of Default).

Taxation: All payments in respect of Notes will be made free and clear of withholding taxes of the Republic of Finland, unless the withholding is required by law. In that event, the Issuer will (subject as provided in Condition 12 (Taxation)) pay such additional amounts as will result in the Noteholders receiving such amounts as they would have received in respect of such Notes had no such withholding been required.

Governing Law: English law.

Enforcement of Notes in Global In the case of Global Notes, individual investors' rights against the Form: Issuer will be constituted and governed by the trust deed dated 6 May 2010 (such trust deed as modified, amended and/or supplemented from time to time, the "Trust Deed") a copy of which will be available for inspection at the specified office of the Principal Paying Agent.

Selling Restrictions: The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States. The Notes may not be offered or sold or in the case of Bearer Notes, delivered, directly or indirectly within the United States or to or for the account or benefit of U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirement of the Securities Act.

For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of offering material in and under the laws of the United States of America, the European Economic Area, the United Kingdom, The Netherlands and Japan, see "Subscription and Sale" and "Transfer Restrictions".

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TERMS AND CONDITIONS OF THE NOTES

The following are the Terms and Conditions of the Notes which, as supplemented, modified or replaced by the relevant Final Terms, will be applicable to each Series of Notes:

1. Introduction

Programme: UPM-Kymmene Corporation (the "Company" and the "Issuer") has established a Global Medium Term Note Programme (the "Programme") for the issuance of up to EUR5,000,000,000 in aggregate principal amount of notes (the "Notes"), which may be issued by the Company.

(a) Final Terms: Notes issued under the Programme are issued in series (each a "Series") and each Series may comprise one or more tranches (each a "Tranche") of Notes. Each Tranche is the subject of the Final Terms (the "Final Terms") which supplement these terms and conditions (the "Conditions"). The terms and conditions applicable to any particular Tranche of Notes are these Conditions as supplemented, amended and/or replaced by the relevant Final Terms. In the event of any inconsistency between these Conditions and the relevant Final Terms, the relevant Final Terms shall prevail.

(b) Trust Deed: The Notes are constituted by an amended and restated trust deed dated 6 May 2010 (such trust deed as modified, amended and/or supplemented from time to time, the "Trust Deed") made between (the Issuer and Citicorp Trust Company Limited as trustee (the "Trustee", which expression includes any successor trustee appointed from time to time in connection with the Notes).

(c) Paying Agency Agreement: The Notes are the subject of an amended and restated paying agency agreement dated 6 May 2010 (as amended or supplemented from time to time, the "Paying Agency Agreement") between the Issuer, the Trustee, Citibank, N.A., London Branch as registrar (the "Registrar", which expression includes any successor registrar appointed from time to time in connection with the Notes), Citibank, N.A., London Branch as principal paying agent (the "Principal Paying Agent", which expression includes any successor principal paying agent appointed from time to time in connection with the Paying Agency Agreement) and as transfer agent, and BNP Paribas Securities Services Luxembourg Branch (together with the Principal Paying Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Paying Agency Agreement) and as transfer agents (together with the transfer agent mentioned above, the "Transfer Agents", which expression shall include any successor or additional transfer agents appointed from time to time in connection with the Notes).

(d) The Notes: All subsequent references in these Conditions to "Notes" are to the Notes which are the subject of the relevant Final Terms. Copies of the relevant Final Terms are available for inspection by Noteholders during normal business hours at the Specified Office of the Principal Paying Agent and are obtainable at the specified office of the Paying Agent in Luxembourg, the initial Specified Offices of which are set out below.

(e) Summaries: Certain provisions of these Conditions are summaries of the Trust Deed and the Paying Agency Agreement and are subject to their detailed provisions. The holders of the Notes (the "Noteholders") and the holders of the related interest coupons, if any, (the "Couponholders" and the "Coupons", respectively) are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Paying Agency Agreement applicable to them. Copies of the Trust Deed and the Paying Agency Agreement are available for inspection by Noteholders during normal business hours at the Specified Offices of each of the Paying Agents, the initial Specified Offices of which are set out below.

2. Interpretation

(a) Definitions: In these Conditions the following expressions have the following meanings:

"Accrual Yield" has the meaning given in the relevant Final Terms;

"Additional Business Centre(s)" means the city or cities specified as such in the relevant Final Terms;

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"Additional Financial Centre(s)" means the city or cities specified as such in the relevant Final Terms;

"Bankruptcy Law" means the Bankruptcy Act 2004 (20.02.2004/120) or any similar law, or any similar law of any other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganisation or relief of debtors or any amendment to, succession to or change in any such law;

"Business Day" means:

(i) in relation to any sum payable in euro, a TARGET Settlement Day and a day on which commercial banks and foreign exchange markets settle payments generally in each (if any) Additional Business Centre; and

(ii) in relation to any sum payable in a currency other than euro, a day on which commercial banks and foreign exchange markets settle payments generally in London, in the Principal Financial Centre of the relevant currency and in each (if any) Additional Business Centre;

"Business Day Convention", in relation to any particular date, has the meaning given in the relevant Final Terms and, if so specified in the relevant Final Terms, may have different meanings in relation to different dates and, in this context, the following expressions shall have the following meanings:

(i) "Following Business Day Convention" means that the relevant date shall be postponed to the first following day that is a Business Day;

(ii) "Modified Following Business Day Convention" or "Modified Business Day Convention" means that the relevant date shall be postponed to the first following day that is a Business Day unless that day falls in the next calendar month in which case that date will be the first preceding day that is a Business Day;

(iii) "Preceding Business Day Convention" means that the relevant date shall be brought forward to the first preceding day that is a Business Day;

(iv) "FRN Convention", "Floating Rate Convention" or "Eurodollar Convention" means that each relevant date shall be the date which numerically corresponds to the preceding such date in the calendar month which is the number of months specified in the relevant Final Terms as the Specified Period after the calendar month in which the preceding such date occurred provided, however, that:

(A) if there is no such numerically corresponding day in the calendar month in which any such date should occur, then such date will be the last day which is a Business Day in that calendar month;

(B) if any such date would otherwise fall on a day which is not a Business Day, then such date will be the first following day which is a Business Day unless that day falls in the next calendar month, in which case it will be the first preceding day which is a Business Day; and

(C) if the preceding such date occurred on the last day in a calendar month which was a Business Day, then all subsequent such dates will be the last day which is a Business Day in the calendar month which is the specified number of months after the calendar month in which the preceding such date occurred; and

(v) "No Adjustment" means that the relevant date shall not be adjusted in accordance with any Business Day Convention;

"Calculation Agent" means the Principal Paying Agent or such other Person specified in the relevant Final Terms as the party responsible for calculating the Rate(s) of Interest and Interest Amount(s) and/or such other amount(s) as may be specified in the relevant Final Terms;

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"Calculation Amount" has the meaning given in the relevant Final Terms;

"Coupon Sheet" means, in respect of a Note, a coupon sheet relating to the Note;

"Day Count Fraction" means, in respect of the calculation of an amount for any period of time (the "Calculation Period"), such day count fraction as may be specified in these Conditions or the relevant Final Terms and:

(i) if "Actual/Actual (ICMA)" is so specified, means:

(a) where the Calculation Period is equal to or shorter than the Regular Period during which it falls, the actual number of days in the Calculation Period divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year; and

(b) where the Calculation Period is longer than one Regular Period, the sum of:

(A) the actual number of days in such Calculation Period falling in the Regular Period in which it begins divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year; and

(B) the actual number of days in such Calculation Period falling in the next Regular Period divided by the product of (a) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year;

(ii) if "Actual/365" or "Actual/Actual (ISDA)" is so specified, means the actual number of days in the Calculation Period divided by 365 (or, if any portion of the Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365);

(iii) if "Actual/365 (Fixed)" is so specified, means the actual number of days in the Calculation Period divided by 365;

(iv) if "Actual/360" is so specified, means the actual number of days in the Calculation Period divided by 360;

(v) if "30/360" is so specified, means the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows:

[360x(Y2 – Y1)] + [30x(M2 – M1)] + (D2 – D1) Day Count Fraction = 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls; "Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; "M2" is the calendar month, expressed as number, in which the day immediately following the last day included in the Calculation Period falls; "D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case Dl will be 30; and "D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31 and Dl is greater than 29, in which case D2 will be 30";

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(vi) if "30E/360" or "Eurobond Basis" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows:

[360x(Y2 – Y1)] + [30x(M2 – M1)] + (D2 – D1) Day Count Fraction = 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls;

"Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;

"M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls;

"M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;

"D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case Dl will be 30; and

"D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31, in which case D2 will be 30; and

(vii) if "30E/360 (ISDA)" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows:

[360x(Y2 – Y1)] + [30x(M2 – M1)] + (D2 – D1) Day Count Fraction = 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls;

"Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;

"M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls;

"M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;

"D1" is the first calendar day, expressed as a number, of the Calculation Period, unless (i) that day is the last day of February; or (ii) such number would be 31, in which case Dl will be 30; and

"D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless (i) that day is the last day of February but not the Maturity Date; or (ii) such number would be 31, in which case D2 will be 30,

provided, however, that in each such case the number of days in the Calculation Period is calculated from and including the first day of the Calculation Period to but excluding the last day of the Calculation Period;

"Early Redemption Amount (Tax)" means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Final Terms;

"Early Termination Amount" means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, these Conditions or the relevant Final Terms;

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"Extraordinary Resolution" has the meaning given in the Trust Deed;

"Final Redemption Amount" means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Final Terms;

"Finnish GAAP" means accounting principles generally accepted in the Republic of Finland, including IFRS;

"First Interest Payment Date" means the date specified in the relevant Final Terms;

"Fixed Coupon Amount" has the meaning given in the relevant Final Terms;

"Guarantee" means, in relation to any Indebtedness of any Person, any obligation of another Person to pay such Indebtedness including (without limitation):

(i) any obligation to purchase such Indebtedness;

(ii) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness;

(iii) any indemnity against the consequences of a default in the payment of such Indebtedness; and

(iv) any other agreement to be responsible for such Indebtedness;

"IFRS" means the International Financial Reporting Standards issued by the International Accounting Standards Board as adopted by the EU from time to time and related interpretations in accordance with which the Issuer is required to prepare its consolidated accounts from 2005 at the latest, following the publication of the European Commission Regulation (EC) No. 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and Council as may be modified or supplemented, if applicable, by Finnish law in accordance with the discretionary options;

"Indebtedness" means any indebtedness of any Person for money borrowed, whether incurred, assumed or guaranteed, other than trade credit in the ordinary course of business;

"Interest Amount" means, in relation to a Note and an Interest Period, the amount of interest payable in respect of that Note for that Interest Period;

"Interest Commencement Date" means the Issue Date of the Notes or such other date as may be specified as the Interest Commencement Date in the relevant Final Terms;

"Interest Determination Date" has the meaning given in the relevant Final Terms;

"Interest Payment Date" means the First Interest Payment Date and any date or dates specified as such in, or determined in accordance with the provisions of, the relevant Final Terms and, if a Business Day Convention is specified in the relevant Final Terms:

(i) as the same may be adjusted in accordance with the relevant Business Day Convention; or

(ii) if the Business Day Convention is the FRN Convention, Floating Rate Convention or Eurodollar Convention and an interval of a number of calendar months is specified in the relevant Final Terms as being the Specified Period, each of such dates as may occur in accordance with the FRN Convention, Floating Rate Convention or Eurodollar Convention at such Specified Period of calendar months following the Interest Commencement Date (in the case of the first Interest Payment Date) or the previous Interest Payment Date (in any other case);

"Interest Period" means each period beginning on (and including) the Interest Commencement Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date;

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"ISDA Definitions" means the 2006 ISDA Definitions (as amended and updated as at the date of issue of the first Tranche of the Notes of the relevant Series (as specified in the relevant Final Terms) as published by the International Swaps and Derivatives Association, Inc.);

"Issue Date" has the meaning given in the relevant Final Terms;

"Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property;

"Margin" has the meaning given in the relevant Final Terms;

"Maturity Date" has the meaning given in the relevant Final Terms;

"Maximum Redemption Amount" has the meaning given in the relevant Final Terms;

"Minimum Redemption Amount" has the meaning given in the relevant Final Terms;

"Optional Redemption Amount (Call)" means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Final Terms;

"Optional Redemption Amount (Put)" means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Final Terms;

"Optional Redemption Date (Call)" has the meaning given in the relevant Final Terms;

"Optional Redemption Date (Put)" has the meaning given in the relevant Final Terms;

"Participating Member State" means a Member State of the European Communities which adopts the euro as its lawful currency in accordance with the Treaty;

"Payment Business Day" means:

(i) if the currency of payment is euro, any day which is:

(A) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and for dealings in foreign currencies; and

(B) in the case of payment by transfer to an account, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or

(ii) if the currency of payment is not euro, any day which is:

(A) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and fox dealings in foreign currencies; and

(B) in the case of payment by transfer to an account, a day on which dealings in foreign currencies may be carried on in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre;

"Permitted Liens" means:

(i) Liens existing as of the relevant Issue Date;

(ii) Liens on the Property of any existing entity at the time such Property was acquired by the Issuer or the relevant Subsidiary (whether by merger, consolidation, purchase of assets or otherwise) or existing at the time the entity became a Subsidiary or merged with the Issuer or the relevant Subsidiary; provided, however, that such Liens (a) are not created, incurred or assumed in connection with, or in contemplation of, such Property being acquired by the Issuer or such Subsidiary and (b) do not extend to any other Property of the Issuer or any Subsidiary;

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(iii) Liens arising in relation to any Project Finance Debt;

(iv) Liens created for the purposes of any securitisation or similar asset backed off-balance sheet financing arrangement;

"Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;

"Principal Financial Centre" means, in relation to any currency, the principal financial centre for that currency provided, however, that:

(i) in relation to euro, it means the principal financial centre of such Member State of the European Communities as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent; and

(ii) in relation to Australian dollars, it means either Sydney or Melbourne and, in relation to New Zealand dollars, it means either Wellington or Auckland; in each case as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent;

"Project Finance Debt" means any indebtedness incurred in relation to any asset solely for purposes of financing the whole or any part of the acquisition, creation, construction, improvement or development of such asset where the financial institutions to whom such indebtedness is owed have recourse solely to the applicable project borrower (where such project borrower is formed solely or principally for the purpose of the relevant project) and/or to such asset (or any derivative asset thereto) or any other similar non-recourse indebtedness which is properly regarded as project finance debt;

"Property" of any Person means all types of real, personal, tangible, intangible or mixed property (including any related contractual rights) owned by such Person whether or not included in the most recent consolidated balance sheet of such Person under Finnish GAAP;

"Put Option Notice" means a notice which must be delivered to a Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;

"Put Option Receipt" means a receipt issued by a Paying Agent to a depositing Noteholder upon deposit of a Note with such Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;

"Rate of Interest" means the rate or rates (expressed as a percentage per annum) of interest payable in respect of the Notes specified in relevant Final Terms or calculated or determined in accordance with the provisions of these Conditions and/or the relevant Final Terms;

"Redemption Amount" means, as appropriate, the Final Redemption Amount, the Early Redemption Amount (Tax), the Optional Redemption Amount (Call), the Optional Redemption Amount (Put), the Early Termination Amount or such other amount in the nature of a redemption amount as may be specified in, or determined in accordance with the provisions of, the relevant Final Terms;

"Reference Banks" has the meaning given in the relevant Final Terms or, if none, four (or if the Principal Financial Centre is Helsinki, five) major banks selected by the Calculation Agent in the market that is most closely connected with the Reference Rate;

"Reference Price" has the meaning given in the relevant Final Terms;

"Reference Rate" has the meaning given in the relevant Final Terms;

"Regular Period" means:

(i) in the case of Notes where interest is scheduled to be paid only by means of regular payments, each period from and including the Interest Commencement Date to but excluding the First Interest Payment Date and each successive period from and including one Interest Payment Date to but excluding the next Interest Payment Date;

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(ii) in the case of Notes where, apart from the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date failing in any year to but excluding the next Regular Date, where "Regular Date" means the day and month (but not the year) on which any Interest Payment Date falls; and

(iii) in the case of Notes where, apart from one Interest Period other than the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date falling in any year to but excluding the next Regular Date, where "Regular Date" means the day and month (but not the year) on which any Interest Payment Date falls other than the Interest Payment Date falling at the end of the irregular Interest Period;

"Relevant Date" means, in relation to any payment, whichever is the later of (a) the date on which the payment in question first becomes due and (b) if the full amount payable has not been received in the Principal Financial Centre of the currency of payment by the Principal Paying Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders;

"Relevant Financial Centre" has the meaning given in the relevant Final Terms;

"Relevant Indebtedness" means any Indebtedness which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is capable of being, listed, quoted or traded on any stock exchange or in any securities market (including, without limitation, any over-the-counter market) (not being a loan or a participation in a loan or a similar instrument representing an interest in a loan);

"Relevant Screen Page" means the page, section or other part of a particular information service (including, without limitation, Reuters) specified as the Relevant Screen Page in the relevant Final Terms, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate;

"Relevant Time" has the meaning given in the relevant Final Terms;

"Reserved Matter" has the meaning given in Schedule 4 of the Trust Deed;

"Significant Subsidiary" means at the relevant time any Subsidiary that, together with the Subsidiaries of such Subsidiary, is or are the owner(s) of more than 10% of the consolidated assets of the Issuer and its respective Subsidiaries as at the end of the relevant fiscal year, all as calculated in accordance with IFRS and as shown on the consolidated financial statements of the Issuer and its Subsidiaries for such fiscal year;

"Specified Currency" has the meaning given in the relevant Final Terms;

"Specified Denomination(s)" has the meaning given in the relevant Final Terms;

"Specified Office" has the meaning given in the Paying Agency Agreement;

"Specified Period" has the meaning given in the relevant Final Terms;

"Subsidiary" means, at any particular time, a company which is then directly or indirectly controlled, or more than 50% of whose issued equity share capital (or the equivalent) is beneficially owned, by the Issuer and/or one or more of its Subsidiaries. For a company to be "controlled" by another means that the other (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise) has the power to appoint and/or remove all or a majority of the members of the Board of Directors or other governing body of that company or otherwise controls or has the power to control the affairs and the policies of that company;

"Talon" means any bearer talons appertaining to the Bearer Notes (as defined below) of any Series or, as the context may require, a specific number thereof and includes any replacement Talons issued pursuant to Condition 15;

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"TARGET2" means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007;

"TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of payments in euro;

"Treaty" means the Treaty establishing the European Communities, as amended; and

"Zero Coupon Note" means a Note specified as such in the relevant Final Terms.

(b) Interpretation: In these Conditions:

(i) if the Notes are Zero Coupon Notes, references to Coupons and Couponholders are not applicable;

(ii) if Talons are specified in the relevant Final Terms as being attached to the Notes at the time of issue, references to Coupons shall be deemed to include references to Talons;

(iii) if Talons are not specified in the relevant Final Terms as being attached to the Notes at the time of issue, references to Talons are not applicable;

(iv) any reference to principal shall be deemed to include the Redemption Amount, any additional amounts in respect of principal which may be payable under Condition 10 (Redemption and Purchase) and Condition 12 (Taxation), any premium payable in respect of a Note and any other amount in the nature of principal payable pursuant to these Conditions;

(v) any reference to interest shall be deemed to include any additional amounts in respect of interest which may be payable under Condition 12 (Taxation) and any other amount in the nature of interest payable pursuant to these Conditions;

(vi) references to Notes being "outstanding" shall be construed in accordance with the Trust Deed;

(vii) if an expression is stated in Condition 2 (Interpretation) to have the meaning given in the relevant Final Terms, but the relevant Final Terms give no such meaning or specify that such expression is "not applicable" then such expression is not applicable to the Notes; and

(viii) any reference to the Paying Agency Agreement or the Trust Deed shall be construed as a reference to the Paying Agency Agreement or the Trust Deed, as the case may be, as amended and/or supplemented up to and including the Issue Date of the Notes.

3. Form, Denomination and Title

(a) Form of Notes: Notes are issued in bearer form ("Bearer Notes") or in registered form ("Registered Notes"), as specified in the Final Terms. Bearer Notes are serially numbered. Registered Notes are not exchangeable for Bearer Notes.

(b) Coupons and Receipts: Interest-bearing Bearer Notes have attached thereto at the time of their initial delivery coupons ("Coupons"), presentation of which will be a prerequisite to the payment of interest save in certain circumstances specified herein. In addition, if so specified in the Final Terms, such Notes have attached thereto at the time of their initial delivery a Talon for further coupons and the expression "Coupons" shall, where the context so requires, include Talons. Bearer Notes, the principal amount of which is repayable by instalments ("Instalment Notes") have attached thereto at the time of their initial delivery, payment receipts ("Receipts") in respect of the instalments of principal.

(c) Denomination of Bearer Notes: Bearer Notes are in the denomination or denominations (each of which denomination is integrally divisible by each smaller denomination) specified in the Final

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Terms. Bearer Notes of one denomination may not be exchanged for Bearer Notes of any other denomination.

(d) Denomination of Registered Notes: Registered Notes are in the minimum denomination specified in the Final Terms or integral multiples thereof.

(e) Title to Bearer Instruments: Title to Bearer Notes, Receipts and Coupons passes by delivery. References herein to the "Holders" of Bearer Notes or of Receipts or Coupons are to the bearers of such Bearer Notes or such Receipts or Coupons and the term "Noteholders" shall have a corresponding meaning. The Holder of any Bearer Note, Coupon or Registered Note will (except as otherwise required by applicable law or regulatory requirement) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest thereof or therein, any writing on the relevant Note or Certificate, or any theft or loss thereof) and no person shall be liable for so treating such Holder and the Issuer, the Trustee, the Paying Agents and the Registrar shall not be required to obtain proof thereof or as to the identity of the Holder.

(f) Register: The Registrar will maintain a register (the "Register") in respect of the Notes in accordance with the provisions of the Paying Agency Agreement. In these Conditions, the "Holder" of a Registered Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and "Noteholder" shall be construed accordingly. A certificate (each, a "Note Certificate") will be issued to each Noteholder in respect of its registered holding. Each Note Certificate will be numbered serially with an identifying number which will be recorded in the Register.

(g) Title to Registered Notes: The Holder of each Note shall (except as otherwise required by law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Note Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Note Certificate) and no person shall be liable for so treating such Holder.

(h) Transfers of Registered Notes: Subject to paragraphs (f) and (g) above and paragraph (n) below, a Registered Note may be transferred upon surrender of the relevant Note Certificate, with the endorsed form of transfer duly completed, at the Specified Office of the Registrar or any Transfer Agent (including the Transfer Agent located in Luxembourg), together with such evidence as the Registrar or (as the case may be) such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided, however, that a Registered Note may not be transferred unless the principal amount of Registered Notes transferred and (where not all of the Notes held by a Holder are being transferred) the principal amount of the balance of Registered Notes not transferred are authorised holdings.

(i) Exchange of Bearer Notes for Registered Notes: If so specified in the Final Terms and subject to the provisions of Conditions 3(1) (Rule 144A Legends) to 3(m) (No Transfer), the Holder of Bearer Notes may exchange the same for the same aggregate principal amount of Registered Notes upon the terms and subject to the conditions set forth in the Paying Agency Agreement. In order to exchange a Bearer Note for a Registered Note, the Holder thereof shall surrender such Bearer Note at the specified office outside the United States of the Principal Paying Agent, the Registrar or any Transfer Agent together with a written 'request for the exchange. Each Bearer Note so surrendered must be accompanied by all unmatured Receipts and Coupons appertaining thereto other than the Coupon in respect of the next payment of interest falling due after the exchange date (as defined in Condition 3(j) (New Certificate)) where the exchange date would, but for the provisions of Condition 3(j) (New Certificate), occur between the Record Date (as defined in Condition 11(b)(iii) (Payments on Registered Notes)) for such payment of interest and the date on which such payment of interest falls due.

(j) New Certificate: A Certificate representing each new Registered Note or Notes to be issued upon the transfer of a Registered Note or the exchange of a Bearer Note for a Registered Note will, within three Relevant Banking Days of the transfer date or, as the case may be, the exchange date be available for collection by each relevant Holder at the specified office of the Registrar or the Transfer Agent (including the Transfer Agent located in Luxembourg) (as the case may be) or, at the option of the Holder requesting such exchange or transfer be mailed (by uninsured post at the risk of the Holder(s) entitled thereto) to such address(es) as may be specified by such Holder. For these purposes, a form of transfer or request for exchange received by the Registrar, the Principal Paying Agent or the Transfer

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Agent (as the case may be) after the Record Date in respect of any payment due in respect of Registered Notes shall be deemed not to be effectively received by the Registrar, the Principal Paying Agent or the Transfer Agent (as the case may be) until the day following the due date for such payment. For the purposes of these Terms and Conditions:

(i) "Relevant Banking Day" means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the place where the specified office of the Registrar or the Transfer Agent is located and, in the case only of an exchange of a Bearer Note for a Registered Note where such request for exchange is made to the Principal Paying Agent, in the place where the specified office of the Principal Paying Agent is located;

(ii) the "exchange date" shall be the Relevant Banking Day following the day on which the relevant Bearer Note shall have been surrendered for exchange in accordance with Condition 3(i) (Exchange of Bearer Notes for Registered Notes); and

(iii) the "transfer date" shall be the Relevant Banking Day following the day on which the relevant Registered Note shall have been surrendered for transfer in accordance with Condition 3(h) (Transfers of Registered Notes).

(k) No charge for exchange or transfer: The issue of new Registered Notes on transfer or on the exchange of Bearer Notes for Registered Notes will be effected without charge by or on behalf of the Issuer, the Principal Paying Agent, the Registrar or the Transfer Agent, but upon payment by the applicant of (or the giving by the applicant of such indemnity as the Issuer, the Principal Paying Agent, the Registrar or the Transfer Agent may require in respect of) any tax, duty or other governmental charges which may be imposed in relation thereto.

(l) Rule 144A Legends: Upon the transfer, exchange or replacement of Registered Notes bearing the Rule 144A legend (the "Rule 144A Legend") set forth in the form of the Note Certificate scheduled to the Trust Deed, the Registrar or any Transfer Agent shall deliver only Registered Notes represented by Note Certificates that also bear such legend unless either (i) such transfer, exchange or replacement occurs one or more years after the later of (1) the original issue date of such Notes or (2) the last date on which the Issuer, or any affiliate of the Issuer as notified to the Registrar or such Transfer Agent by the Issuer as provided in the following sentence, was the beneficial owner of such Notes (or any predecessor of such Notes); or (ii) there is delivered to the Registrar of such Transfer Agent an opinion reasonably satisfactory to the Issuer of counsel experienced in giving opinions with respect to questions arising under the securities laws of the United States to the effect that neither such legend nor the restrictions on transfer set forth therein are required in order to maintain compliance with the provisions of such laws. The Issuer has covenanted in the Trust Deed that it will not acquire any beneficial interest, and will cause its "affiliates" (as defined in paragraph (a) (1) of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act")) not to acquire any beneficial interest, in any Registered Note represented by a Note Certificate bearing the Rule 144A Legend unless it notifies the Registrar and the Transfer Agents of such acquisition. The Registrar, the Transfer Agents and all Holders shall be entitled to rely without further investigation on any such notification (or lack thereof).

(m) No transfer: No Holder may require the transfer of a Registered Note to be registered or a Bearer Note to be exchanged for a Registered Note during the period of 15 days ending on the due date for the payment of any principal or interest in respect of such Note.

(n) Regulations concerning transfers and registration: All transfers of Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Paying Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Noteholder who requests in writing a copy of such regulations. A copy of such regulations are available (free of charge) from the principal office in Luxembourg of the Luxembourg Listing Agent.

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4. Status

The Notes constitute direct, general and unconditional obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.

5. Negative Pledge

So long as any Note remains outstanding, the Issuer shall not, and shall procure that none of its Subsidiaries will, create or permit to subsist any Lien (other than a Permitted Lien) upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure any Relevant Indebtedness or Guarantee of Relevant Indebtedness without (a) at the same time or prior thereto securing the Notes equally and rateably therewith to the satisfaction of the Trustee or (b) providing such other security for the Notes as the Trustee may in its absolute discretion consider to be not materially less beneficial to the interests of Noteholders or as may be approved by an Extraordinary Resolution of Noteholders.

6. Fixed Rate Note Provisions

(a) Application: This Condition 6 (Fixed Rate Note Provisions) is applicable to the Notes only if the Fixed Rate Note Provisions are specified in the relevant Final Terms as being applicable.

(b) Accrual of interest: The Notes bear interest from the Interest Commencement Date at the Rate of Interest payable in arrear on each Interest Payment Date, subject as provided in Condition 11 (Payments). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition 6 (Fixed Rate Note Provisions) (as well after as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder; and (ii) the day which is seven days after the Principal Paying Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).

(c) Fixed Coupon Amount: The amount of interest payable in respect of each Note for any Interest Period shall be the relevant Fixed Coupon Amount and, if the Notes are in more than one Specified Denomination, shall be the relevant Fixed Coupon Amount in respect of the relevant Specified Denomination.

(d) Calculation of Interest Amount: The amount of interest payable in respect of each Note for any period for which a Fixed Coupon Amount is not specified shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction and rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards) and multiplying such rounded figure by a fraction equal to the Specified Denomination of such Note divided by the Calculation Amount. For this purpose a "sub-unit" means, in the case of any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, in the case of euro, means one cent.

7. Floating Rate Note and Index-Linked Interest Note Provisions

(a) Application: This Condition 7 (Floating Rate Note and Index-Linked Interest Note Provisions) is applicable to the Notes only if the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are specified in the relevant Final Terms as being applicable.

(b) Accrual of interest: The Notes bear interest from the Interest Commencement Date at the Rate of Interest payable in arrears on each Interest Payment Date, subject as provided in Condition 11 (Payments). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition 7 (Floating Rate Note and Index-Linked Interest Note Provisions) (as well after as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder; and (ii) the day which is seven days after the Principal Paying Agent has notified the

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Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).

(c) Screen Rate Determination: If Screen Rate Determination is specified in the relevant Final Terms as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be determined by the Calculation Agent on the following basis:

(i) if the Reference Rate is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;

(ii) in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;

(iii) if, in the case of (i) above, such rate does not appear on that page or, in the case of (ii) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable, the Calculation Agent will:

(A) request the principal Relevant Financial Centre office of each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Interest Determination Date to prime banks in the Relevant Financial Centre interbank market in an amount that is representative for a single transaction in that market at that time; and

(B) determine the arithmetic mean of such quotations; and

(iv) if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates (being the nearest to the Reference Rate, as determined by the Calculation Agent) quoted by major banks in the Principal Financial Centre of the Specified Currency, selected by the Calculation Agent, at approximately 11.00 a.m. (local time in the Principal Financial Centre of the Specified Currency) on the first day of the relevant Interest Period for loans in the Specified Currency to leading European banks for a period equal to the relevant Interest Period and in an amount that is representative for a single transaction in that market at that time, and the Rate of Interest for such Interest Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Interest Period, the Rate of Interest applicable to the Notes during such Interest Period will be the sum of the Margin and the rate (or as the case may be) the arithmetic mean last determined in relation to the Notes in respect of a preceding Interest Period.

(d) ISDA Determination: If ISDA Determination is specified in the relevant Final Terms as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be the sum of the Margin and the relevant ISDA Rate where "ISDA Rate" in relation t Definitions) that would be determined by the Calculation Agent under an interest rate swap transaction if the Calculation Agent were acting as Calculation Agent for that interest rate swap transaction under the terms of an agreement incorporating the ISDA Definitions and under which:

(i) the Floating Rate Option (as defined in the ISDA Definitions) is as specified in the relevant Final Terms;

(ii) the Designated Maturity (as defined in the ISDA Definitions) is a period specified in the relevant Final Terms; and

(iii) the relevant Reset Date (as defined in the ISDA Definitions) is either (A) if the relevant Floating Rate Option is based on the London inter-bank offered rate

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(LIBOR) for a currency, the first day of that Interest Period or (B) in any other case, as specified in the relevant Final Terms.

(e) Index-Linked Interest: If the Index-Linked Interest Note Provisions are specified in the relevant Final Terms as being applicable, the Rate(s) of Interest applicable to the Notes for each Interest Period will be determined in the manner specified in the relevant Final Terms.

(f) Maximum or Minimum Rate of Interest: If any Maximum Rate of Interest or Minimum Rate of Interest is specified in the relevant Final Terms, then the Rate of Interest shall in no event be greater than the maximum or be less than the minimum so specified.

(g) Calculation of Interest Amount: The Calculation Agent will, as soon as practicable after the lime at which the Rate of Interest is to be determined in relation to each Interest Period, calculate the Interest Amount payable in respect of each Note for such Interest Period. The Interest Amount will be calculated by applying the Rate of Interest for such Interest Period to the Calculation Amount, multiplying the product by the relevant Day Count Fraction rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards) and multiplying such rounded figure by a fraction equal to the Specified Denomination of the relevant Note divided by the Calculation Amount. For this purpose, a "sub-unit" means, in the case of any currency other than EUR, the lowest amount of such currency that is available as legal tender in the country of such currency and, in the case of EUR, means one cent.

(h) Calculation of other amounts: If the relevant Final Terms specify that any other amount is to be calculated by the Calculation Agent, the Calculation Agent will, as soon as practicable after the time or times at which any such amount is to be determined, calculate the relevant amount. The relevant amount will be calculated by the Calculation Agent in the manner specified in the relevant Final Terms.

(i) Publication: The Calculation Agent will cause each Rate of Interest and Interest Amount determined by it, together with the relevant Interest Payment Date, and any other amount(s) required to be determined by it together with any relevant payment date(s) to be notified to the Paying Agents and each stock exchange (if any) on which the Notes are then listed as soon as practicable after such determination but (in the case of each Rate of Interest, Interest Amount and Interest Payment Date) in any event not later than the first day of the relevant Interest Period. Notice thereof shall also promptly be given to the Noteholders and the Luxembourg Stock Exchange. The Calculation Agent will be entitled to recalculate any Interest Amount (on the basis of the foregoing provisions) without notice in the event of an extension or shortening of the relevant Interest Period. If the Calculation Amount is less than the minimum Specified Denominations, the Calculation Agent shall not be obliged to publish each Interest Amount but instead may publish only the Calculation Amount and the Interest Amount in respect of a Note having the minimum Specified Denomination.

(j) Notifications etc: All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition by the Calculation Agent will (in the absence of manifest error) be binding on the Issuer, the Trustee, the Paying Agents, the Noteholders and the Couponholders and (subject as aforesaid) no liability to any such Person will attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes.

8. Zero Coupon Note Provisions

(a) Application: This Condition 8 (Zero Coupon Note Provisions) is applicable to the Notes only if the Zero Coupon Note Provisions are specified in the relevant Final Terms as being applicable.

(b) Late payment on Zero Coupon Notes: If the Redemption Amount payable in respect of any Zero Coupon Note is improperly withheld or refused, the Redemption Amount shall thereafter be an amount equal to the sum of:

(i) the Reference Price; and

(ii) the product of the Accrual Yield (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder; and

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(ii) the day which is seven days after the Principal Paying Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).

9. Dual Currency Note Provisions

(a) Application: This Condition 9 (Dual Currency Note Provisions) is applicable to the Notes only if the Dual Currency Note Provisions are specified in the relevant Final Terms as being applicable.

(b) Rate of Interest: If the rate or amount of interest falls to be determined by reference to an exchange rate, the rate or amount of interest payable shall be determined in the manner specified in the relevant Final Terms.

10. Redemption and Purchase

(a) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their Final Redemption Amount on the Maturity Date, subject as provided in Condition 11 (Payments).

(b) Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part:

(i) at any time (if neither the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are specified in the relevant Final Terms as being applicable); or

(ii) on any Interest Payment Date (if the Floating Rate Note Provisions or the Index- Linked Interest Note Provisions are specified in the relevant Final Terms as being applicable), on giving not less than 30 nor more than 60 days' notice to the Noteholders (which notice shall be irrevocable) and at their Early Redemption Amount (Tax), together with interest accrued (if any) to the date fixed for redemption, if:

(1) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 12 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Republic of Finland or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, (including a holding by a court of competent jurisdiction) which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes; and

(2) such obligation cannot be avoided by the Issuer taking reasonable measures available to it provided, however, that no such notice of redemption shall be given earlier than:

(1) where the Notes may be redeemed at any time, 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due; or

(2) where the Notes may be redeemed only on an Interest Payment Date, 60 days prior to the Interest Payment Date occurring immediately before the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due.

Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver or procure that there is delivered to the Trustee (1) a certificate signed by two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts

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showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (2) an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 10(b) (Redemption for tax reasons), the Issuer shall be bound to redeem the Notes in accordance with this Condition 10(b) (Redemption for tax reasons).

(c) Redemption at the option of the Issuer: If the Call Option is specified in the relevant Final Terms as being applicable, the Notes may be redeemed at the option of the Issuer in whole or, if so specified in the relevant Final Terms, in part on any Optional Redemption Date (Call) at the relevant Optional Redemption Amount (Call) on the Issuer's giving not less than 30 nor more than 60 days' notice to the Noteholders (which notice shall be irrevocable and shall oblige the Issuer to redeem the Notes or, as the case may be, the Notes specified in such notice on the relevant Optional Redemption Date (Call) at the Optional Redemption Amount (Call) plus accrued interest (if any) to such date).

(d) Partial redemption: If the Notes are to be redeemed in part only on any date in accordance with Condition 10(c) (Redemption at the option of the Issuer), the Notes to be redeemed shall be selected by the drawing of lots in such place as the Trustee in the case of Bearer Notes approves and in such manner as the Trustee considers appropriate, subject to compliance with applicable law and the rules of each stock exchange, listing authority and/or quotation system on which the Notes have then been admitted to listing, trading and/or quotation, and the notice to Noteholders referred to in Condition 10(c) (Redemption at the option of the Issuer) shall specify the serial numbers of the Notes so to be redeemed and, in the case of Registered Notes, each Note shall be redeemed in part in the proportion which the aggregate principal amount of the outstanding Notes to be redeemed on the relevant date stipulated in Condition 10(c) bears to the aggregate principal amount of outstanding Notes on such date. If any Maximum Redemption Amount or Minimum Redemption Amount is specified in the relevant Final Terms, then the Optional Redemption Amount (Call) shall in no event be greater than the maximum or be less than the minimum so specified.

(e) Redemption at the option of Noteholders: If the Put Option is specified in the relevant Final Terms as being applicable, the Issuer shall, at the option of the Holder of any Note redeem such Note on the Optional Redemption Date (Put) specified in the relevant Put Option Notice at the relevant Optional Redemption Amount (Put) together with interest (if any) accrued to such date. In order to exercise the option contained in this Condition 10(e) (Redemption at the option of Noteholders), the Holder of a Note must, not less than 30 nor more than 60 days before the relevant Optional Redemption Date (Put), deposit with any Paying Agent such Note together with all unmatured Coupons relating thereto and a duly completed Put Option Notice in the form obtainable from any Paying Agent. The Paying Agent with which a Note is so deposited shall deliver a duly completed Put Option Receipt to the depositing Noteholder. No Note, once deposited with a duly completed Put Option Notice in accordance with this Condition 10(e) (Redemption at the option of Noteholders), may be withdrawn; provided, however, that if, prior to the relevant Optional Redemption Date (Put), any such Note becomes immediately due and payable or, upon due presentation of any such Note on the relevant Optional Redemption Date (Put), payment of the redemption moneys is improperly withheld or refused, the relevant Paying Agent shall mail notification thereof to the depositing Noteholder at such address as may have been given by such Noteholder in the relevant Put Option Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Option Receipt. For so long as any outstanding Note is held by a Paying Agent in accordance with this Condition 10(e) (Redemption at the option of Noteholders), the depositor of such Note and not such Paying Agent shall be deemed to be the Holder of such Note for all purposes.

(f) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in paragraphs (a) to (e) above.

(g) Early redemption of Zero Coupon Notes: Unless otherwise specified in the relevant Final Terms, the Redemption Amount payable on redemption of a Zero Coupon Note at any time before the Maturity Date shall be an amount equal to the sum of:

(i) the Reference Price; and

(ii) the product of the Accrual Yield (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) the date

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fixed for redemption or (as the case may be) the date upon which the Note becomes due and payable.

Where such calculation is to be made for a period which is not a whole number of years, the calculation in respect of the period of less than a full year shall be made on the basis of such Day Count Fraction as may be specified in the Final Terms for the purposes of this Condition 10(g) (Early redemption of Zero Coupon Notes) or, if none is so specified, a Day Count Fraction of 30E/360.

(h) Purchase: The Issuer or any of its respective Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Coupons and Receipts are purchased therewith.

11. Payments

(a) Payments on Bearer Notes:

(i) This Condition 11(a) (Payments on Bearer Notes) is applicable in relation to Notes in bearer form.

(ii) Payment of amounts (other than interest) due in respect of Bearer Notes will be made against presentation and (save in the case of partial payment) surrender of the relevant Bearer Notes at the specified office of any of the Paying Agents.

(iii) Payment of amounts in respect of interest on Bearer Notes will be made:

(A) in the case of Notes without Coupons attached thereto at the time of their initial delivery, against presentation of the relevant Notes at the specified office of any of the Paying Agents outside (unless Condition 11(a)(iv) applies) the United States; and

(B) in the case of Notes delivered with Coupons attached thereto at the time of their initial delivery, against surrender of the relevant Coupons or, in the case of interest due otherwise than on a scheduled date for the payment of interest, against presentation of the relevant Notes, in either case at the specified office of any of the Paying Agents outside (unless Condition 11(a)(iv) applies) the United States.

(iv) Payments of amounts due in respect of interest on the Notes and exchanges of Talons for Coupon sheets in accordance with Condition 11(a)(vii) will not be made at the specified office of any Paying Agent in the United States (as defined in the United States Internal Revenue Code and Regulations thereunder) unless (A) payment in full of amounts due in respect of interest on such Notes when due or, as the case may be, the exchange of Talons at all the specified offices of the Paying Agents outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions and (B) such payment or exchange is permitted by applicable United States law without involving adverse tax consequences to the Issuer as certified to the Trustee by the Issuer. If paragraphs (A) and (B) of the previous sentence apply, the Issuer shall forthwith appoint a further Paying Agent with a specified office in New York City in respect of the relevant Series of Notes to which paragraphs (A) and (B) apply.

(v) If the due date for payment of any amount due in respect of any Note is not a Relevant Financial Centre Day and a Local Banking Day (each as defined in Condition 11(c)(iii) (Payments—General Provisions)), then the Holder thereof will not be entitled to payment thereof until the next day which is such a day, (or as otherwise specified in the Final Terms) and from that next day and thereafter will be entitled to receive payment by cheque on any Local Banking Day, and will be entitled to payment by transfer to a designated account on any day which is a Local Banking Day, a Relevant Financial Centre Day and a day on which commercial banks and foreign exchange markets settle payments in the relevant currency in the place where the relevant designated account is located and no

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further payment on account of interest or otherwise shall be due in respect of such delay or adjustment unless there is a subsequent failure to pay in accordance with these Conditions in which event interest shall continue to accrue as provided in Condition 6(b) (Fixed Rate Note Provisions— Accrual of interest) or, if appropriate, Condition 7(b) (Floating Rate Note and Index-Linked Interest Note Provisions—Accrual of Interest).

(vi) Each Note initially delivered with Coupons or Talons attached thereto should be presented and, save in the case of partial payment of the Redemption Amount, surrendered for final redemption together with all unmatured Coupons and Talons relating thereto, failing which:

(A) if the Final Terms specify that this paragraph (A) of Condition 11(a)(vi) is applicable (and, in the absence of specification, this paragraph (A) shall apply to Notes which bear interest at a fixed rate or rates, or in fixed amounts) and subject as hereinafter provided, the amount of any missing unmatured Coupons (or, in the case of a payment not being made in full, that portion of the amount of such missing Coupon which the Redemption Amount paid bears to the total Redemption Amount due) (excluding, for this purpose, but without prejudice to paragraph (C) below, Talons) will be deducted from the amount otherwise payable on such final redemption, the amount so deducted being payable against surrender of the relevant Coupon at the specified office of any of the Paying Agents at any time within ten years of the Relevant Date applicable to payment of such Redemption Amount;

(B) if the Final Terms specify that this paragraph (B) of Condition 11(a)(vi) is applicable (and, in the absence of specification, this paragraph (B) shall apply to Notes which bear interest at a floating rate or rates or in variable amounts) all unmatured Coupons (excluding, for this purpose, but without prejudice to paragraph (C) below, Talons) relating to such Notes (whether or not surrendered therewith) shall become void and no payment shall be made thereafter in respect of them; and

(C) in the case of Notes initially delivered with Talons attached thereto, all unmatured Talons (whether or not surrendered therewith) shall become void and no exchange for Coupons shall be made thereafter in respect of them.

The provisions of paragraph (A) of this Condition 11(a)(vi) (Payments on Bearer Notes) notwithstanding, if any Notes should be issued with a maturity date and an Interest Rate or Rates such that, on the presentation for payment of any such Note without any unmatured Coupons attached thereto or surrendered therewith, the amount required by paragraph (A) to be deducted would be greater than the Redemption Amount otherwise due for payment, then, upon the due date for redemption of any such Note, such unmatured Coupons (whether or not attached) shall become void (and no payment shall be made in respect thereof) as shall be required so that, upon application of the provisions of paragraph (A) in respect of such Coupons as have not so become void, the amount required by paragraph (A) to be deducted would not be greater than the Redemption Amount otherwise due for payment. Where the application of the foregoing sentence requires some but not all of the unmatured Coupons relating to a Note to become void, the relevant Paying Agent shall determine which unmatured Coupons are to become void, and shall select for such purpose Coupons maturing on later dates in preference to Coupons maturing on earlier dates.

(vii) In relation to Notes initially delivered with Talons attached thereto, on or after the due date for the payment of interest on which the final Coupon comprised in any Coupon sheet matures, the Talon comprised in the Coupon sheet may be surrendered at the specified office of any Paying Agent outside (unless

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Condition 11(a)(iv) applies) the United States in exchange for a further Coupon Sheet (including any appropriate further Talon), subject to the provisions of Condition 14 below. Each Talon shall, for the purpose of these Terms and Conditions, be deemed to mature on the Interest Payment Date on which the final Coupon comprised in the relative Coupon sheet matures.

(b) Payments on Registered Notes:

(i) This Condition 11(b) (Payments on Registered Notes) is applicable in relation to Notes in registered form.

(ii) Payment of the Redemption Amount (together with accrued interest) due in respect of Registered Notes will be made against presentation and, save in the case of partial payment of the Redemption Amount, surrender of the relevant Certificate at the specified office of the Registrar or any Transfer Agent. If the due date for payment of the Redemption Amount of any Registered Note is not a Relevant Financial Centre Day as defined in Condition 11(c)(iii) (Payments— General Provisions)), then the Holder thereof will not be entitled to payment thereof until the next day which is such a day, and from that next day and thereafter will be entitled to receive payment by cheque on any Local Banking Day, and will be entitled to payment by transfer to a designated account on any day which is a Local Banking Day, a Relevant Financial Centre Day and a day on which commercial banks and foreign exchange markets settle payment in the relevant currency in the place where the relevant designated account is located and no further payment on account of interest or otherwise shall be due in respect of such postponed payment unless there is a subsequent failure to pay in accordance with these Terms and Conditions in which event interest shall continue to accrue as provided in Condition 6(b) (Fixed Rate Note Provisions— Accrual of Interest) or, as appropriate Condition 7(b) (Floating Rate Note and Index-Linked Interest Note Provisions—Accrual of Interest).

(iii) Payment of amounts (whether principal, interest or otherwise) due (other than the Redemption Amount) in respect of Registered Notes will be paid to the Holder thereof (or, in the case of joint Holders, the first-named) as appearing in the Register as at opening of business (local time in the place of the specified office of the Registrar) on the fifteenth Relevant Banking Day (as defined in Condition 3(j) (New Certificate) before the due date for such payment (the "Record Date").

(iv) Notwithstanding the provisions of Condition 11(c)(ii) (Payments—General Provisions), payment of amounts (whether principal, interest or otherwise) due (other than the Redemption Amount) in respect of Registered Notes will be made in the currency in which such amount is due by cheque and posted to the address (as recorded in the Register) of the Holder thereof (or, in the case of joint Holders, the first-named) on the Relevant Banking Day (as defined in Condition 3(j) (New Certificate) not later than the relevant due date for payment unless prior to the relevant Record Date the Holder thereof (or, in the case of joint Holders, the first-named) has applied to the Registrar and the Registrar has acknowledged such application for payment to be made to a designated account denominated in the relevant currency (in the case of payment in Japanese Yen to a non-resident of Japan, a non-resident account) in which case payment shall be made on the relevant due date for payment by transfer to such account. In the case of payment by transfer to an account, if the due date for any such payment is not a Relevant Financial Centre Day, then the Holder thereof will not be entitled to payment thereof until the first day thereafter which is a Relevant Financial Centre Day and a day on which commercial banks and foreign exchange markets settle payment in the relevant currency in the place where the relevant designated account is located and no further payment on account of interest or otherwise shall be due in respect of such postponed payment unless there is a subsequent failure to pay in accordance with these Terms and Conditions in which event interest shall continue to accrue as provided in

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Condition 6(b) (Fixed Rate Note Provisions—Accrual of Interest) or, as appropriate, Condition 7(b) (Floating Rate Note and Index-Linked Interest Note Provisions—Accrual of Interest).

(c) Payments—General Provisions:

(i) Save as otherwise specified in these Conditions, this Condition 11(c) (Payments—General Provisions) is applicable in relation to Notes whether in bearer or in registered form.

(ii) payment of amounts due (whether principal, interest or otherwise) in respect of Notes or Coupons will be made in the currency in which such amount is due (A) by cheque or (B) at the option of the payee, by transfer to an account denominated in the relevant currency specified by the payee. Payments will, without prejudice to the provisions of Condition 12 (Taxation), be subject in all cases to any applicable fiscal or other laws and regulations.

(iii) For the purposes of these Conditions:

(A) "Relevant Financial Centre Day" means, in the case of any currency other than euro, a day on which commercial banks and foreign exchange markets settle payments in the Relevant Financial Centre and in any other Relevant Financial Centre specified in the Final Terms or, in the case of payments in euro, a TARGET Settlement Day; and

(B) "Local Banking Day" means a day (other than a Saturday or Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the place of presentation of the relevant Note or Coupon as the case may be.

(iv) No commissions or expenses shall be charged to the holders of Notes or Coupons in respect of such payments.

12. Taxation

(a) Gross up: All payments of principal and interest in respect of the Notes and the Coupons by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the Republic of Finland or any political subdivision therein or any authority thereof or therein having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. In that event, the Issuer shall pay such additional amounts as will result in the receipt by the Noteholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them if no such withholding or deduction had been required, except that no such additional amounts shall be payable in respect of any Note or Coupon:

(i) held by or on behalf of a Noteholder or Couponholder which is liable to such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of its having some connection with the jurisdiction by which such taxes, duties, assessments or charges have been imposed other than the mere holding of such Note or Coupon; or

(ii) where the relevant Note or Coupon is presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the relevant Holder of such Note or Coupon would have been entitled to such additional amounts if it had presented or surrendered such Note or Coupon for payment on the last day of such period of 30 days; or

(iii) where such withholding or deduction is imposed on a payment to an individual or an individual entity in the meaning of the European Council Directive 2003/48/EC and is required to be made pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the

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ECOFIN Council meeting of 26-27 November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive; or

(iv) held by or on behalf of a Noteholder or Couponholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in an EU country.

(b) Taxing jurisdiction: If the Issuer becomes subject at any time to any taxing jurisdiction other than the Republic of Finland, references in these Conditions to the Republic of Finland shall be construed as references to the Republic of Finland and/or such other jurisdiction.

(c) Additional Amounts: Any reference in these Terms and Conditions to "principal" and/or "interest" in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under Conditions 10, 11 and 12 or under any undertakings given in addition to or in substitution for this Condition pursuant to the Trust Deed. Unless the context otherwise requires, any reference in these Terms and Conditions to "principal" shall include any premium payable in respect of any Note, any Instalment Amount or Redemption Amount and any other amounts in the nature of principal payable pursuant to these Terms and Conditions and "interest" shall include all amounts payable pursuant to Conditions 6 and 7 and any other amounts in the nature of interest payable pursuant to these Terms and Conditions.

13. Events of Default

If any of the following events occurs and is continuing (each an "Event of Default"), then the Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in principal amount of the outstanding Notes of such Series or if so directed by an Extraordinary Resolution of the Holders of such Series shall (subject in the case of the happening of any of the events mentioned in paragraphs (b) to (f) below (inclusive) and, in relation to any Significant Subsidiary, paragraphs (b) to (h) below (inclusive) to the Trustee having certified in writing that the happening of such event is, in its opinion, materially prejudicial to the interests of the Holders of such Series and in all cases to the Trustee having been indemnified or provided with security to its satisfaction) give written notice to the Issuer that the Notes of such Series are, and they shall accordingly thereby become, immediately due and repayable at their outstanding principal amount (or as otherwise specified in the Final Terms), together with accrued interest without further action or formality:

(a) default in the payment of any instalment of principal or interest upon any of the Notes as and when the same shall become due and payable and, in the case of a default in the payment of any instalment of interest, continuance of such default for a period of 30 days; or

(b) failure or default on the part of the Issuer duly to observe or perform any other of the obligations, covenants or agreements on the part of the Issuer contained in the Trust Deed and the Conditions and where such failure has remained unremedied for a period of 45 days after the date on which the Trustee has given written notice to the Issuer specifying such failure, stating that such notice is a "Notice of Default" under the Notes and demanding that the Issuer remedy the same; or

(c) execution of an unappealable judgment or arbitral award is sought or enforced against any part of the property, assets or revenue of the Issuer or any Significant Subsidiary incorporated in the Republic of Finland; or

(d) subject to Condition 23, the Issuer or any Significant Subsidiary ceases to carry on the business it carried on at the date of issuance of such Series or enters into a new or unrelated business which is not permitted by the constitutive documents of the Issuer or its Significant Subsidiary as in effect as at the date of issuance of such Series; or

(e) at any time any act, condition or thing required to be done, fulfilled or performed in order (i) to enable the Issuer lawfully to enter into, exercise its respective rights and perform and comply with its respective obligations expressed to be assumed under the Notes; (ii) to ensure that those obligations expressed to be assumed are legal, valid and binding; and (iii) to make the Notes and the Trust Deed admissible in evidence in the Republic of Finland, and/or England is not done, fulfilled or performed; or

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(f) any Indebtedness of the Issuer or any Subsidiary in the aggregate outstanding principal amount of U.S.$20,000,000 or more or its equivalent in any other currency or currencies either (i) becoming due and payable prior to the due date for payment thereof by reason of acceleration thereof following default by the Issuer or any Subsidiary; or (ii) not being repaid at, and remaining unpaid after, maturity as extended by the period of grace, if any, applicable thereto, or any guarantee given by the Issuer or any Subsidiary in respect of Indebtedness of any other person in the aggregate outstanding principal amount of U.S.$20,000,000 or more or its equivalent in any other currency or currencies not being honoured when, and remaining dishonoured after becoming, due and called (except that, in the cases of (i) and (ii) hereof, it shall not be an Event of Default if such Indebtedness has not been paid as a result of a bona fide dispute which is being contested in good faith and by appropriate proceedings and in respect of which sufficient and proper reserves in cash or other readily recognisable liquid assets have been made in accordance with IFRS); or

(g) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Issuer or any Significant Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking reorganisation, arrangement, adjustment or composition of or in respect of the Issuer or any Significant Subsidiary under any Bankruptcy Law, or appointing a receiver, liquidator, administrator, assignee, trustee, sequestrator (or other similar official) of the Issuer or any Significant Subsidiary under any Bankruptcy Law, or appointing a receiver, liquidator, administrator, assignee, trustee, sequestrator (or other similar official) of the Issuer or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order is unstayed and in effect for a period of 60 consecutive days; or

(h) the institution by the Issuer or any Significant Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganisation or relief under any Bankruptcy Law or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Issuer or any Significant Subsidiary or of any substantial (in the opinion of the Trustee) part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due; or

(i) the Issuer is unable to pay its Indebtedness as it falls due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its Indebtedness or makes a general assignment for the benefit of a composition with its creditors.

The Trust Deed provides that, in the absence of manifest error, the Trustee is entitled to rely on a certificate of the Auditors (as defined in the Trust Deed) or a certificate signed by two Authorised Signatories (as defined in the Trust Deed) certifying that in their opinion a Subsidiary is or is not or was or was not at any particular time or during any particular period a Significant Subsidiary.

14. Prescription

Claims for principal shall become void unless the relevant Notes are presented for payment within ten years of the appropriate Relevant Date. Claims for interest shall become void unless the relevant Coupons are presented for payment within five years of the appropriate Relevant Date.

15. Replacement of Notes and Coupons

If any Note, Coupon, Receipt or Talon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Principal Paying Agent or any Paying Agents (in the case of Bearer Notes, Coupons, Receipts and Talons) or of the Registrar or any Transfer Agent (in the case of Registered Notes) (each a "Replacement Agent"), subject to all applicable laws and the requirements of any stock exchange, listing authority and/or quotation system on which the Notes have then been admitted to listing,

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trading and/or quotation, upon payment by the claimant of all expenses incurred in connection with such replacement and upon such terms as to evidence, security, indemnity and otherwise as the Issuer and the Replacement Agent may require. Mutilated or defaced Notes, Note Certificates, Coupons, Receipts and Talons must be surrendered before replacements will be delivered therefor.

16. The Paying Agents, the Registrar, the Transfer Agents and the Calculation Agent

The initial Paying Agents, Registrar and Transfer Agents and their respective initial specified offices are specified below. The Calculation Agent in respect of any Notes shall be specified in the Final Terms. The Issuer reserves the right at any time (with the prior written approval of the Trustee) to vary or terminate the appointment of any Paying Agent (including the Principal Paying Agent), the Registrar, any Transfer Agent or the Calculation Agent and to appoint additional or other Paying Agents, another Registrar, additional or other Transfer Agents or another Calculation Agent provided however that it will at all times maintain (i) a Principal Paying Agent; (ii) in the case of Registered Notes, a Registrar; (iii) so long as the Notes are admitted to listing, trading and/or quotation by any stock exchange, listing authority and/or quotation system, a Paying Agent, a Registrar and Transfer Agent each with a specified office in such place as may be required by the rules of such stock exchange, listing authority and/or quotation system; (iv) in the circumstance described in Condition 11(a)(iv) (Payments on Bearer Notes), a Paying Agent with a specified office in New York City; and (v) a Calculation Agent where required by the Conditions applicable to any Notes (in the case of (i), (ii) and (iii) with a specified office located in such place (if any) as may be required by these Conditions). The Issuer undertakes that it will ensure that it maintains a paying agent in an EU country that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive. The Paying Agents, the Registrar, the Transfer Agents and the Calculation Agent reserve the right (with the prior written approval of the Trustee) at any time to change their respective specified offices to some other specified office in the same city. Notice of all changes in the identities or specified offices of any Paying Agent, the Registrar, any Transfer Agent or the Calculation Agent will be given promptly by the Issuer to the Trustee and the Holders in accordance with Condition 21 (Notices).

The Paying Agents, the Registrar, the Transfer Agents and the Calculation Agent act solely as agents of the Issuer or, following the occurrence of an Event of Default or a Potential Event of Default (as defined in the Trust Deed), the Trustee and, save as provided in the Paying Agency Agreement or any other agreement entered into with respect to their appointment, do not assume any obligations towards or relationship of agency or trust for any Holder of any Note or Coupon and each of them shall only be responsible for the performance of the duties and obligations expressly imposed upon it in the Paying Agency Agreement or other agreement entered into with respect to its appointment or incidental thereto.

17. Enforcement

At any time after the occurrence of an Event of Default, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed and the Notes, but it need not take any such proceedings unless (i) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Holders holding at least one-quarter in principal amount of Notes outstanding; and (ii) it shall have been indemnified and/or secured to its satisfaction. No Holder, Couponholder or Receiptholder may proceed directly against the Issuer, unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

18. The Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility and to be paid its costs and expenses in priority to the claims of the Noteholders, Receiptholders or Couponholders. The Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit.

In the exercise of its powers and discretions under these Conditions and the Trust Deed, the Trustee will have regard to the interests of the Noteholders as a class and will not be responsible for any consequence for individual Noteholders or Couponholders as a result of such holders being connected in any way with a particular territory or taxing jurisdiction.

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19. Meetings of Noteholders; Modification and Waiver

(a) Meetings of Noteholders: The Trust Deed contains provisions for convening meetings of the Holders of the Notes of any Series to consider matters relating to the Notes, including the modification of any provision of these Conditions or the Trust Deed. Any such modification may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Trustee, the Issuer or by the Trustee upon the request in writing of the Holders of the Notes of any Series holding not less than one-tenth of the aggregate principal amount of such outstanding Notes. The quorum at any meeting convened to vote on an Extraordinary Resolution will be two or more persons holding or representing one more than half of the aggregate principal amount of the outstanding Notes of such Series or, at any adjourned meeting, two or more persons being or representing Holders of Notes of such Series whatever the principal amount of the Notes of such Series held or represented; provided, however, that any proposal relating to a Reserved Matter may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which two or more persons holding or representing not less than three-quarters or, at any adjourned meeting, one quarter of the aggregate principal amount of the outstanding Notes of such Series form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Holders of the Notes of such Series, whether present or not.

In addition, a resolution in writing signed by or on behalf of all Noteholders who for the time being are entitled to receive notice of a meeting of Noteholders under the Trust Deed will take effect as if it were an Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

(b) Modification: The Trustee may (subject to certain exceptions) without the consent of the Holders of the Notes or the Coupons or Receipts appertaining thereto (i) agree to any modification of these Conditions or of the Trust Deed (other than in respect of Reserved Matters (as defined in terms of the Trust Deed)) which, in any case, in the opinion of the Trustee, is not materially prejudicial to the interests of the Holders of such Notes or is of a formal, minor, or technical nature or which is made to correct a manifest error; or (ii) waive or authorise any breach or proposed breach by the Issuer of any of the provisions of these Conditions applicable to such Notes or the Trust Deed or determine that an Event of Default or a Potential Event of Default shall not be treated as such, provided that in either case, in the Trustee's opinion, the interests of the Holders of such Notes will not be materially prejudiced thereby. Any such modification, waiver, authorisation or determination shall be binding on the Holders of such Notes and, unless the Trustee agrees otherwise, shall be notified to the Holders of such Notes as soon as practicable thereafter.

In connection with the exercise of its powers, trusts, authorities or discretions (including but not limited to, those in relation to any proposed modification, waiver, authorisation or determination as aforesaid) in relation to any Series of Notes, the Trustee shall have regard to the interest of the Holders of such Notes as a class and, in particular, but without prejudice to the generality of the foregoing, shall not have regard to the consequences of such exercise for individual Holders resulting from their being, for any purpose, domiciled or resident in, or otherwise connected with, or subject to any jurisdiction of, any particular territory. No Holder of a Note, Coupon or Receipt shall be entitled to claim from the Issuer any indemnification or payment in respect of any tax consequence of any such substitution upon individual Holders except to the extent already provided for in Condition 12 (Taxation) and/or any undertaking given in addition to, or in substitution for, Condition 12 (Taxation).

20. Further Issues

The Issuer may from time to time, without the consent of the Noteholders create and issue further Notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes of the Issuer.

21. Notices

(a) To Holders of Bearer Notes: Notices to Holders of Bearer Notes will, save where another means of effective communication has been specified herein or in the Final Terms, be deemed to be validly given if (i) published in a leading daily newspaper having general circulation in London (which is expected to be the Financial Times); and (ii) in the case of any Notes which are admitted to trading on the regulated market of the Luxembourg Stock Exchange (so long as such Notes are admitted to trading on the regulated market of the Luxembourg Stock Exchange and the rules of that exchange so require), in

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a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu) or (in the case of (i) or (ii)), if such publication is not practicable in the opinion of the Trustee, if published in a leading English language daily newspaper having general circulation in Europe approved by the Trustee. The Issuer shall also ensure that notices are duly published in compliance with the requirements of each stock exchange, listing authority and/or quotation system on which the Notes have been admitted to listing, trading and/or quotation. Any notice so given will be deemed to have been validly given on the date of first such publication (or, if required to be published in more than one newspaper, on the first date on which publication shall have been made in all the required newspapers). Holders of Coupons will be deemed for all purposes to have notice of the contents of any notice given to Holders of Bearer Notes in accordance with this Condition.

(b) To Holders of Registered Notes: Notices to Holders of Registered Notes will be deemed to be validly given if sent by first class mail (or equivalent) or (if posted to an overseas address) by air mail to them (or, in the case of joint Holders, to the first-named in the Register) at their respective addresses as recorded in the Register, and will be deemed to have been validly given on the fourth weekday after the date of such mailing or, if posted from another country, on the fifth such day. If, at the relevant time, it is a requirement of applicable law or regulations and with respect to Registered Notes admitted to trading on the regulated market of the Luxembourg Stock Exchange, any notices to Holders shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu) or, in either case, if such publication is not practicable, in a leading English language newspaper having general circulation in Europe. Any such notice shall be deemed to have been validly given only after the date of such publication.

22. Rounding

For the purposes of any calculations referred to in these Conditions (unless otherwise specified in these Conditions or the relevant Final Terms), (a) all percentages resulting from such calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with 0.000005% being rounded up to 0.00001%), (b) all United States dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one half cent being rounded up), (c) all Japanese Yen amounts used in or resulting from such calculations will be rounded downwards to the next lower whole Japanese Yen amount, and (d) all amounts denominated in any other currency used in or resulting from such calculations will be rounded to the nearest two decimal places in such currency, with 0.005 being rounded upwards.

23. Consolidation, Merger and Sale of Assets

The Issuer may, without the consent of the Noteholders, consolidate with, or merge into, or sell, transfer, lease or convey its assets substantially as an entirety to any other entity, provided that the Issuer has certified to the Trustee that (i) any successor entity expressly assumes the obligations of the Issuer under the Notes and any Coupons or the Trust Deed (as applicable), including any additional amounts (as referred to in Condition 12(c)); and (ii) after giving effect to the transaction, no Event of Default (as defined in Condition 13) and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. In the case of an assumption by a successor entity of the Issuer's obligation under the Notes and any Coupons to pay such additional amounts, references in Condition 12(a) or (b) to "the Republic of Finland" shall be deemed to refer to the jurisdiction in which such successor entity is organised.

24. Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

25. Governing Law and Jurisdiction

25.1 Governing Law. The Trust Deed, the Notes and all non-contractual obligations arising out of or in connection with the Notes or the Trust Deed are governed by, and shall be construed in accordance with, English law.

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25.2 Jurisdiction: The Issuer has in the Trust Deed (i) submitted irrevocably to the exclusive jurisdiction of the courts of England for the purposes of settling any dispute (a "Dispute") arising out of or in connection with the Trust Deed or the Notes (including a dispute relating to the existence, validity, cancellation (in the case of the Notes) or termination (in the case of the Trust Deed) or any non- contractual obligation arising out of or in connection with the Notes or the Trust Deed) or the consequences of their nullity; (ii) agreed that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary; (iii) agreed that the submission to the courts of England (as described in (i) above) is for the benefit of the Trustee and the Noteholders only, as a result, nothing in the Trust Deed prevents the Trustee or any Noteholder from taking proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction and to the extent allowed by law, the Trustee and Noteholders may take concurrent Proceedings in any number of jurisdictions; (iv) designated a person in England to accept service of any process on their behalf; (v) consented to the enforcement of any judgment; and (vi) waived any immunity from any legal process it may otherwise have been afforded in any jurisdiction.

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BOOK-ENTRY; DELIVERY AND FORM OF NOTES

General

Unless otherwise specified in the applicable Final Terms, the Notes shall be represented initially by one or more global Notes (collectively, the "Global Notes"). Registered Notes shall be represented initially by one or more Global Notes in registered form, without Coupons (each, a "Global Note Certificate"), which shall be registered in the name of DTC, as depositary, or a successor or nominee thereof, and which shall be deposited on behalf of the purchasers thereof with a custodian for DTC. Beneficial interests in the Restricted Global Note Certificates and Unrestricted Global Note Certificates as such terms are defined below shall be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Purchasers of Notes may elect to hold interests in Restricted Global Note Certificates and Unrestricted Global Note Certificates through any of DTC (in the United States), Clearstream, Luxembourg or Euroclear if they are participants in such systems or indirectly through organizations which are participants in such systems. If specified in the applicable Final Terms, Registered Notes sold outside the United States pursuant to Regulation S may be represented, in whole or in part, by a Registered Global Note Certificate that is deposited with or on behalf of a Common Depositary for Euroclear and Clearstream, Luxembourg or a nominee thereof for credit to the respective accounts of beneficial owners of the Notes represented thereby (an "International Global Note Certificate"). International Global Note Certificates will be subject to special restrictions and procedures referred to under "International Global Note Certificates" below. Bearer Notes shall be represented initially by a temporary Global Note in bearer form, without Coupons (a "Temporary Global Note"), which shall be deposited with a Common Depositary for Clearstream, Luxembourg and Euroclear, unless otherwise specified in the applicable Final Terms. Beneficial interests in such Temporary Global Note shall be exchangeable for beneficial interests in a Permanent Global Note, in an equal aggregate principal amount, no earlier than the 40th day after the applicable closing date upon certification of non- U.S. ownership, as set forth in the Paying Agency Agreement. Such exchange will be made upon certification to the effect that the holder is (i) a person that is not a United States person; (ii) a United States person that is (A) a foreign branch of a United States financial institution (as defined in United States Treasury Regulations Section 1.165-12(c)(l)(iv)) subscribing for or purchasing for its own account or for resale or (B) a United States person who acquired Notes through a foreign branch of a United States financial institution and who holds the Notes through such financial institution on the date of such certification (and in each case (A) or (B), that the financial institution agrees to comply with the requirements of section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code and the United States Treasury Regulations thereunder; or (iii) a financial institution that acquired Notes for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and such financial institution certifies that it has not acquired the Notes for purposes of resale directly or indirectly within the United States or its possessions or to a United States person. A financial institution, whether or not described in (i) or (ii) above, that purchases Notes for purposes of resale during the restricted period, may only give the certification described in (iii) above. Except in the limited circumstances described below or as otherwise set forth in the applicable Final Terms, owners of beneficial interests in the Global Notes shall not be entitled to receive Notes in definitive form. For details of how Notes may be transferred see "Terms and Conditions of the Notes— Condition 3 (Form, Denomination and Title)".

It is expected that delivery of Notes will be made against payment therefor on the relevant issue date, which could be more than three business days following the date of pricing. Under Rule 15c6.1 of the Exchange Act, trades in the US secondary market generally are required to settle within three business days ("T+3"), unless the parties to any such trade expressly agree otherwise. Accordingly, in the event that an [issue date] is more than three business days following the relevant date of pricing, purchasers who wish to trade Registered Notes in the United States between the date of pricing and the date that is three business days prior to the issue date will be required, by virtue of the fact that such Notes initially will settle beyond T+3, to specify an alternative settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers of Notes may be affected by such local settlement practices and, in the event that an issue date is more than three business days following the relevant date of pricing, purchasers of Notes who wish to trade Notes between the date of pricing and the date that is three business days prior to the relevant issue date should consult their own adviser.

Registered Notes may be issued in the form of one or more Global Note Certificates in an aggregate principal amount equal to the principal amount of the Notes of such Series, which shall be

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exchangeable in the limited circumstances described below for Notes in the form of individual note certificates ("Individual Note Certificates").

Bearer Notes will initially be issued in the form of a Temporary Global Note, without Coupons, in an initial aggregate principal amount equal to the principal amount of the Notes of such Series not initially sold to U.S. persons, which shall be exchangeable as described below.

Registered Global Note Certificates

General

Unless otherwise specified in the applicable Final Terms, Registered Notes of the same Series will be represented, in whole or in part, by either (i) a Restricted Global Note Certificate or an Unrestricted Global Note Certificate that is registered in the name of a nominee of and deposited with a custodian for DTC, for credit to the respective accounts of beneficial owners of the Notes represented thereby (a "U.S. Global Note"); or (ii) an International Global Note Certificate. Restricted Global Note Certificates and Unrestricted Global Note Certificates are U.S. Global Notes sold in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. U.S. Global Notes will be subject to special restrictions and procedures referred to under "U.S. Global Notes" below.

U.S. Global Notes

Notes that are sold in reliance on Rule 144A will be represented by a restricted Global Note Certificate (a "Restricted Global Note Certificate"), unless otherwise specified in the applicable Final Terms. A Restricted Global Note Certificate (and any Notes issued in exchange therefor) will be subject to certain restrictions on transfer set forth therein and in the Paying Agency Agreement and will bear the legend regarding such restrictions described under "Transfer Restrictions". Notwithstanding Condition 21 (Notices), so long as the Restricted Global Note Certificate is held on behalf of DTC, notices to Noteholders represented by the Restricted Global Note Certificate may be given by delivery of the relevant notice to DTC; provided, however, that, so long as the Notes are admitted to trading on the regulated market of the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu).

Registered Notes that are sold outside the United States in reliance on Regulation S will be represented by an unrestricted Global Note Certificate (an "Unrestricted Global Note Certificate"), unless otherwise specified in the applicable Final Terms. On or prior to the 40th day after the later of the commencement of the offering and the date of delivery of the Notes represented by an Unrestricted Global Note Certificate, a beneficial interest therein may be transferred to a person who takes delivery in the form of an interest in a Restricted Global Note Certificate of the same Series, but only upon receipt by the Registrar of a written certification from the transferor (in the form provided in the Paying Agency Agreement) to the effect that such transfer is being made to a person who the transferor reasonably believes is purchasing for its own account or accounts as to which it exercises sole investment discretion and that such person and each such account is a QIB within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. After such 40th day, such certification requirement will no longer apply to such transfers. Beneficial interests in a Restricted Global Note Certificate may be transferred to a person who takes delivery in the form(s) of an interest in an Unrestricted Global Note Certificate of the same Series, whether before, on or after such 40th day, but only upon receipt by the Registrar of a written certification from the transferor (in the form provided in the Paying Agency Agreement) to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S or Rule 144A and that, if such transfer occurs on or prior to such 40th day, the interest transferred will be held immediately thereafter through Euroclear or Clearstream, Luxembourg. Any beneficial interest in a U.S. Global Note that is transferred to a person who takes delivery in the form of an interest in another U.S. Global Note of the same Series will, upon transfer, cease to be an interest in the former U.S. Global Note, will become an interest in the latter U.S. Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the latter U.S. Global Note for as long as it remains such an interest.

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Notwithstanding Condition 21 (Notices), so long as the Unrestricted Global Note Certificate is held on behalf of DTC, notices to Noteholders represented by the Unrestricted Global Note Certificate may be given by delivery of the relevant notice to DTC; provided, however, that, so long as the Notes are admitted to trading on the regulated market of the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu).

Book-Entry System

Upon the issuance of a U.S. Global Note, DTC or its custodian will credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such U.S. Global Note to the accounts of persons who have accounts with DTC. Ownership of beneficial interests in a U.S. Global Note will be limited to persons who have accounts with DTC (including Euroclear and Clearstream, Luxembourg), or persons who hold interests through participants. Ownership of beneficial interests in the U.S. Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants), which may include Euroclear and Clearstream, Luxembourg, as described below.

So long as DTC, or its nominee, is the registered holder of a U.S. Global Note, DTC or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such U.S. Global Note for all purposes under the Trust Deed, the Paying Agency Agreement and the Notes. Unless DTC notifies the Issuer that it is unwilling or unable to continue as depositary for such Note, or ceases to be a "Clearing Agency" registered under the Exchange Act, or an Event of Default has occurred and is continuing with respect to such Note, owners of beneficial interests in such U.S. Global Note will not be entitled to have any portions of such U.S. Global Note registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders of such U.S. Global Note (or any Notes represented thereby) under the Trust Deed, the Paying Agency Agreement or the Notes. If DTC is at any time unwilling or unable to continue as a depositary and a successor depositary is not appointed by the Issuer within 90 days, the Issuer will (i) issue Restricted Individual Note Certificates in exchange for the relevant Restricted Global Note Certificate; and/or (ii) issue an International Global Note Certificate in exchange for the relevant Unrestricted Global Note Certificates. In the case of Restricted Individual Note Certificates issued in exchange for Restricted Global Note Certificates, such Restricted Individual Note Certificates will bear, and be subject to, the legend described under "Transfer Restrictions". Except in the limited circumstances described in this paragraph, owners of beneficial interests in a U.S. Global Note will not be entitled to receive physical delivery of Individual Note Certificates. In addition, no beneficial owner of an interest in a U.S. Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures (in addition to those under the Paying Agency Agreement and, if applicable, those of Euroclear and Clearstream, Luxembourg).

Investors may hold their interests in an Unrestricted Global Note Certificate through Euroclear or Clearstream, Luxembourg, if they are participants in such systems, or indirectly through organizations which are participants in such systems. Beginning 40 days after the later of the commencement of the offering and the date of delivery of the Notes represented by such Unrestricted Global Note Certificate (but not earlier), investors may also hold such interests through organizations other than Euroclear and Clearstream, Luxembourg that are participants in the DTC system. Euroclear and Clearstream, Luxembourg will hold interests in an Unrestricted Global Note Certificate on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositaries, which in turn will hold such interests in customers' securities accounts in the depositaries' names on the books of DTC. Unless otherwise indicated in the applicable Final Terms, Citibank N.A., London Branch will initially act as common depositary for Clearstream, Luxembourg, and Euroclear.

Investors may hold their interests in a Restricted Global Note Certificate directly through DTC, if they are participants in such system, or indirectly through organizations which are participants in such system.

Payments of the principal of and any premium, interest, and other amounts on any U.S. Global Note will be made to DTC or its nominee as the registered owner thereof. Neither the Issuer, the Trustee, the Registrar, the Transfer Agent nor any Paying Agent will have any responsibility or liability for any

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aspect of the records relating to or payments made on account of beneficial ownership interests in a U.S. Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

The Issuer expects that DTC or its nominee, upon receipt of any payment in respect of a U.S. Global Note held by it or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such U.S. Global Note as shown on the records of DTC or its nominee. The Issuer also expects that payments by participants to owners of beneficial interests in a U.S. Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.

Transfers between participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. The laws of some states of the United States require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in a U.S. Global Note to such persons may be limited. Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a person having a beneficial interest in a U.S. Global Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate of such interest. Transfers between participants in Euroclear and Clearstream, Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the Notes described above, cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream, Luxembourg participants, on the other hand, will be effected by DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, Luxembourg, as the case may be, by its respective depositary; however, such crossmarket transactions will require delivery of instructions to Euroclear or Clearstream, Luxembourg, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines. Euroclear or Clearstream, Luxembourg, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in any U.S. Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream, Luxembourg participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream, Luxembourg.

Because of time zone differences, the securities account of a Euroclear or Clearstream, Luxembourg participant purchasing an interest in a U.S. Global Note from a DTC participant will be credited during the securities settlement processing day (which must be a business day for Euroclear or Clearstream, Luxembourg, as the case may be) immediately following the DTC settlement date and such credit of any transactions in interests in a U.S. Global Note settled during such processing day will be reported to the relevant Euroclear or Clearstream, Luxembourg participant on such day. Cash received in Euroclear or Clearstream, Luxembourg as a result of sales of interests in a U.S. Global Note by or through a Euroclear or Clearstream, Luxembourg participant will be received for value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream, Luxembourg cash account only as of the business day following settlement in DTC.

DTC has advised the Issuer that it will take any action permitted to be taken by a holder of a U.S. Global Note (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account with DTC interests in such U.S. Global Note are credited and only in respect of such portion of the aggregate principal amount of such U.S. Global Note as to which such participant or participants has or have given such direction. However, if there is an Event of Default under a U.S. Global Note, DTC will exchange such U.S. Global Note for legended Notes in definitive form, which it will distribute to its participants.

DTC has advised the Issuer as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, "a banking organization" under the laws of the State of New York a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the

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Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. DTC participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

Like DTC, Euroclear and Clearstream, Luxembourg hold securities for participating organizations. They also facilitate the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in the accounts of such participants. Euroclear and Clearstream, Luxembourg provide various services to their participants, including the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream, Luxembourg interface with domestic securities markets. Euroclear and Clearstream, Luxembourg participants are financial institutions, such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream, Luxembourg is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear and Clearstream, Luxembourg participant, other directly or indirectly.

Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of interests in the U.S. Global Notes among participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Issuer nor the Trustee will have any responsibility for the performance by DTC, Clearstream, Luxembourg or Euroclear or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

International Global Note Certificates

Registered Notes sold outside the United States in reliance on Regulation S, which are not part of a Series which is also offered in the United States, may be represented, in whole or in part, by an international global note certificate (an "International Global Note Certificate") that is deposited with or on behalf of the Common Depositary for Euroclear and Clearstream, Luxembourg, or a nominee thereof, outside the United States for credit to the respective accounts of beneficial owners of the Notes represented thereby. International Global Note certificates are sold in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

Investors may hold their interests in an International Global Note Certificate through Euroclear or Clearstream, Luxembourg, if they are participants in such systems, or indirectly through organizations that are participants in such systems. Euroclear and Clearstream, Luxembourg will hold interests in an International Global Note Certificate on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositaries.

So long as the Common Depositary, or its nominee, is the registered holder of an International Global Note Certificate, the Common Depositary or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such International Global Note Certificate for all purposes under the Trust Deed, the Paying Agency Agreement and such Notes. Owners of beneficial interests in an International Global Note Certificate will not be entitled to have any portion of such International Global Note Certificate registered in their names, will not receive or be entitled to receive delivery of Individual Note Certificates in exchange for their interests in an International Global Note Certificate and will not be considered the owners or holders of such International Global Note Certificate (or any Notes represented thereby) under the Trust Deed, the Paying Agency Agreement or the Notes. In addition, no beneficial owner of an interest in an International Global Note Certificate will be able to transfer that interest except in accordance with applicable procedures of Euroclear and Clearstream, Luxembourg (in addition to those under the Paying Agency Agreement referred to herein).

Payments of the principal of and any premium, interest and other amounts on any International Global Note Certificate will be made to the Common Depositary or its nominee as the registered owner thereof. Neither the Issuer, the Trustee, the Registrar, the Transfer Agent nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of

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beneficial ownership interests in an International Global Note Certificate or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests.

Notwithstanding Condition 21 (Notices), so long as the International Global Note Certificate is held on behalf of Euroclear, Clearstream, Luxembourg or any other clearing system, notices to Noteholders represented by the International Global Note Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or (as the case may be) such other clearing system; provided, however, that, so long as the Notes are admitted to trading on the regulated market of the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu).

The Issuer expects that each of Euroclear and Clearstream, Luxembourg, upon receipt of any such payment in respect of an International Global Note Certificate held by a Common Depositary or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such International Global Note Certificate as shown on the records of Euroclear or Clearstream, Luxembourg, as the case may be. The Issuer also expects that payments by participants to owners of beneficial interests in an International Global Note Certificate held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.

All Notes represented by an International Global Note Certificate will be offered and sold pursuant to Regulation S, and the restrictions on and procedures for transfer of beneficial interests in such International Global Note Certificate and any Restricted Global Note Certificate of the same Series will be the procedures applicable to Unrestricted Global Note Certificates and Restricted Global Note Certificates described above under "U.S. Global Notes", with such modifications as may be specified in such Notes and the applicable Final Terms.

Bearer Notes

Bearer Notes shall initially be issued in the form of a Temporary Global Note, without Coupons, in an initial aggregate principal amount equal to the principal amount of the Notes of such Series not initially sold to U.S. persons, which shall be exchangeable, unless otherwise specified in the Final Terms, (i) for a Permanent Global Note, without Coupons attached (together with Temporary Global Notes, "Global Bearer Notes"), which shall in turn be exchangeable (in whole, but not in part) in limited circumstances in the form of Definitive Bearer Notes, with or without Coupons attached, or for interests in a Global Note Certificate of such Series; (ii) in whole but not in part, directly for Definitive Bearer Notes, with or without Coupons attached, which shall in turn be exchangeable at the option of the Noteholder for interests in a Global Note Certificate of such Series; or (iii) directly for interests in a Global Note Certificate. Purchasers in the United States (including its territories, its possessions and other areas subject to its jurisdiction) will not be able to receive Bearer Notes.

The Principal Paying Agent shall deliver each Temporary Global Note executed and authenticated as provided in the Trust Deed to the Common Depositary for the benefit of Euroclear and Clearstream, Luxembourg for credit against payment in immediately available funds on the date of settlement to the respective accounts of the holders of the Notes of the Series represented by such Temporary Global Note.

So long as the Common Depositary, or its nominee, is the bearer of a Global Bearer Note, the Common Depositary or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such Global Bearer Note for all purposes under the Trust Deed, the Paying Agency Agreement and such Notes. Owners of beneficial interests in a Global Bearer Note will not be considered the owners or holders of such Global Bearer Note (or any Notes represented thereby) under the Trust Deed, the Paying Agency Agreement or the Notes. In addition, no beneficial owner of an interest in a Global Bearer Note will be able to transfer that interest except in accordance with applicable procedures of Euroclear and Clearstream, Luxembourg (in addition to those under the Paying Agency Agreement referred to herein).

Payments of the principal of and any premium, interest and other amounts on any Global Bearer Note will be made to the Common Depositary for Euroclear and Clearstream, Luxembourg or its

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nominees as the bearer thereof. Neither the Issuer, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Bearer Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

The Issuer expects that each of Euroclear and Clearstream, Luxembourg, upon receipt of any such payment in respect of a Global Bearer Note held by a Common Depositary or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Bearer Note as shown on the records of Euroclear or Clearstream, Luxembourg, as the case may be. The Issuer also expects that payments by participants to owners of beneficial interests in a Global Bearer Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.

On or after the date (the "Exchange Date") which is the earlier of (i) the first Business Day following the expiration of a period of 40 days after the date on which the Notes of such Series were issued; and (ii) the first day on which interest, if any, is paid on the Notes of such Series, beneficial interests in the Temporary Global Note of a Series as to which the Principal Paying Agent has received certification as to the non-U.S. beneficial ownership thereof as required by U.S. Treasury regulations and as set forth in the Paying Agency Agreement will, upon presentation thereof by the Common Depositary to the Principal Paying Agent, be exchanged (i) for interests in a Permanent Global Note of such Series; (ii) directly for interests in a Global Note Certificate of such Series; or (iii) in whole but not in part, directly for one or more Definitive Bearer Notes of the same Series, in each case pursuant to the procedures set forth in the next sentence, with respect to that portion of such Temporary Global Note; provided, however, that, if Definitive Bearer Notes and (if applicable) Coupons have already been issued in exchange for a portion of such Temporary Global Note or for all of the Notes represented for the time being by such Permanent Global Note because Euroclear and/or Clearstream, Luxembourg do not regard the Permanent Global Note to be fungible with such Definitive Bearer Notes, then such Temporary Global Note may only thereafter be exchanged for Definitive Bearer Notes and (if applicable) Coupons pursuant to the terms of the Trust Deed, the Paying Agency Agreement and of such Notes. At any time after the Exchange Date, upon 40 days' notice (which may be given at any time prior to, on or after the Exchange Date) to the Principal Paying Agent by Euroclear or Clearstream, Luxembourg, as the case may be, acting at the request of or on behalf of the beneficial owner or owners of a Global Bearer Note, and, in the case of a Temporary Global Note, upon receipt of the certifications required by U.S. Treasury regulations referred to above, and, unless otherwise agreed, upon payment by the Holder of reasonable costs, interests in the Temporary Global Note or Permanent Global Note of a Series may be exchanged, in whole but not in part, for Definitive Bearer Notes of such Series with Coupons, if applicable, attached; provided, however, that, if Definitive Bearer Notes and (if applicable) Coupons have already been issued in exchange for a portion of such Temporary Global Note or for all of the Notes represented for the time being by such Permanent Global Note because Euroclear and/or Clearstream, Luxembourg do not regard the Permanent Global Note to be fungible with such Definitive Bearer Notes, then such Temporary Global Note may only thereafter be exchanged for Definitive Bearer Notes and (if applicable) Coupons pursuant to the terms of the Trust Deed, the Paying Agency Agreement and of such Notes. Any Definitive Bearer Note delivered in exchange for a beneficial interest in a Temporary Global Note or Permanent Global Note shall bear substantially the same legends as are set forth on the face of the Temporary or Permanent Global Bearer Note for which it was exchanged. No Bearer Note may be delivered nor may any interest be paid on any Bearer Note until the person entitled to receive such Bearer Note or such interest furnishes the certifications required by U.S. Treasury Regulations referred to above.

Upon the terms and conditions set out in the Paying Agency Agreement, Permanent Global Bearer Notes and Definitive Bearer Notes may be exchanged for the same aggregate principal amount of Individual Note Certificates of the same Series in authorized denominations, or, if so indicated in the applicable Final Terms, for beneficial interests in a Global Note Certificate, at the request in writing of the Holder and, in the case of an exchange of Definitive Bearer Notes, upon surrender of such Definitive Bearer Notes to be exchanged (together with all unmatured Coupons, if any, relating to it) to the specified office of the Registrar, its duly authorized agent or any other Transfer Agent. Where, however, a Definitive Bearer Note is surrendered for exchange after the fifteenth Business Day before the due date for any payment of interest, or such other record date as may be applicable, the Coupon in respect of that payment of interest need not be surrendered with it. No holder of any Note may require a Permanent Global Note or Definitive Bearer Note to be exchanged for a Registered Note during the period of 30

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days ending on the due date for any payment of principal on that Note. Notes issued pursuant to the exchanges described above will be available from the specified office of the Registrar, its duly authorised agent or any other Transfer Agent (including the Transfer Agent located in Luxembourg).

Subject as provided below, until exchanged in full, Global Bearer Notes of a Series shall in all respects be entitled to the same benefits under the Trust Deed and the Paying Agency Agreement as Definitive Bearer Notes of such Series authenticated and delivered thereunder, except that principal of and any premium, interest, additional amounts and other amounts on a Temporary Global Note will not be payable unless a certification, as described herein, is given by the persons appearing in the records of Euroclear or Clearstream, Luxembourg as the owner of the Temporary Global Note or portions thereof being presented for payment, and unless a corresponding certification by Euroclear or Clearstream, Luxembourg shall have been delivered prior to each such date on which such amounts are to be paid.

Conditions applicable to Global Notes and Global Note Certificates

Each Global Note and Global Note Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Global Note or Global Note Certificate. The following is a summary of certain of those provisions:

Payments: All payments in respect of the Global Note or Global Note Certificate which, according to the Terms and Conditions of the Notes, require presentation and/or surrender of a Note, Note Certificate or Coupon will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Global Note or Global Note Certificate to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Notes.

Record Date: Each payment in respect of a Global Note Certificate will be made to the person shown as the Holder in the Register at the close of business (in the relevant clearing system) on the Clearing System Business Day before the due date for such payment (the "Record Date") where "Clearing System Business Day" means a day on which each clearing system for which the Global Note Certificate is being held is open for business.

Exercise of put option: In order to exercise the option contained in Condition 10(e) (Redemption at the option of Noteholders) the bearer of a Global Note or the holder of a Global Note Certificate must give notice to the Principal Paying Agent (via the relevant clearing system) within the time limits relating to the deposit of Notes with a Paying Agent set out in the Conditions substantially in the form of notice available from any Paying Agent, except that the notice shall not be required to contain the serial numbers of the Notes in respect of which the option has been exercised, stating the principal amount of the Notes in respect of which the option is exercised and at the same time presenting the Global Note or Global Note Certificate to the Principal Paying Agent, or to a Paying Agent for notation.

Exercise of call option: In connection with an exercise of the option contained in Condition 10(c) (Redemption at the option of the Issuer) in relation to some only of the Notes, the Permanent Global Note or Global Note Certificate may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Notes to be redeemed will not be selected as provided in the Conditions but in accordance with the rules and procedures of DTC, Euroclear and/or Clearstream, Luxembourg (to be reflected in the records of DTC, Euroclear and/or Clearstream, Luxembourg as either a pool factor or a reduction in principal amount, at their discretion).

Notices: Notwithstanding Condition 21 (Notices), while all the Notes are represented by a Permanent Global Note (or by a Permanent Global Note and/or a Temporary Global Note) or a Global Note Certificate and the Permanent Global Note is (or the Permanent Global Note and/or the Temporary Global Note are), or the Global Note Certificate is, registered in the name of DTC’s nominee or deposited with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system or a common safekeeper, notices to Noteholders may be given by delivery of the relevant notice to DTC and/or Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with Condition 21 (Notices) on the date of delivery to DTC and/or Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, except that, for so long as such Notes are admitted to trading on the Luxembourg Stock Exchange and it is a requirement of applicable law or regulations, such notices shall be published in a leading newspaper having general circulation in

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Luxembourg (which is expected to be Luxemburger Wort) or published on the website of the Luxembourg Stock Exchange (www.bourse.lu).

In the case of any Tranche of Notes having a maturity of more than 365 days, the following legend will appear on all Global Bearer Notes and Definitive Bearer Notes and any related Coupons or Talons:

"Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code".

The sections referred to in the above legend provide that a United States taxpayer, with certain exceptions, will not be permitted to deduct any loss, and will not be eligible for capital gains treatment with respect to any gain realized on any sale, exchange or redemption of Bearer Notes or any related Coupons.

Notwithstanding any other provision herein, Bearer Notes with maturities of one year or less may be issued as specified in the applicable Final Terms.

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FORM OF FINAL TERMS

Final Terms dated [•]

UPM-KYMMENE CORPORATION (Incorporated under the laws of the Republic of Finland with limited liability)

Issue of [Aggregate Principal Amount of Tranche] [Title of Notes]

under the EUR5,000,000,000

Global Medium Term Note Programme

The Base Prospectus referred to below (as completed by these Final Terms) has been prepared on the basis that, except as provided in sub-paragraph (ii) below, any offer of Notes in any Member State of the European Economic Area which has implemented the Prospectus Directive (2003/71/EC) (each, a "Relevant Member State") will be made pursuant to an exemption under the Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus for offers of the Notes. Accordingly any person making or intending to make an offer of the Notes may only do so:

(i) in circumstances in which no obligation arises for the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive, in each case, in relation to such offer; or

(ii) in those Public Offer Jurisdictions mentioned in Paragraph 33 of Part A below, provided such person is one of the persons mentioned in Paragraph 33 of Part A below and that such offer is made during the Offer Period specified for such purpose therein.

Neither the Issuer nor any Dealer has authorised, nor do they authorise, the making of any offer of Notes in any other circumstances.

PART A—CONTRACTUAL TERMS

Option 1: The following paragraphs should only be inserted for issues to be admitted to trading on an EU regulated market and/or offered to the public in the European Economic Area.

This document constitutes the Final Terms relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated [•] May 2010 [and the Base Prospectus Supplement dated [•]] (the "Base Prospectus") which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the "Prospectus Directive"). These Final Terms contain the final terms of the Notes for the purposes of Article 5(4) of the Prospectus Directive and must be read in conjunction with such Base Prospectus [as so supplemented].

Full information on the Issuer and the offer of the Notes described herein is only available on the basis of the combination of these Final Terms and the Base Prospectus [as supplemented]. The Base Prospectus [and the Base Prospectus Supplement] [is][are] available for viewing at the website of the regulated market of the Bourse de Luxembourg (www.bourse.lu) and copies may be obtained from the Issuer at Eteläesplanadi 2, FI-00130 Helsinki and the Paying Agents, BNP Paribas Securities Services Luxembourg Branch at 33, rue de Gasperich, Howald – Hesperange, L-2085 Luxembourg and Citibank, N.A., London Branch at Citigroup Centre, Canary Wharf, London E14 5LB.

The following alternative language applies if the first tranche of an issue which is being increased was issued under a Base Prospectus with an earlier date.

[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the "Conditions") set forth in the Base Prospectus dated [original date] [and the Base Prospectus Supplement dated [•]1] which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive

1 Only include details of a Base Prospectus Supplement in which the conditions have been amended for the purposes of all the issues under the Programme.

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(Directive 2003/71/EC) (the "Prospectus Directive"). These Final Terms contain the final terms of the Notes and must be read in conjunction with the Base Prospectus dated [current date] [and the Base Prospectus Supplement dated [•]] (together, the "Base Prospectus", save in respect of the Conditions which are extracted from the Base Prospectus dated [original date] and are attached hereto.]

Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Prospectuses dated [original date] and [current date] [and the Base Prospectuses Supplements dated [ • ] and [ • ]]. The Base Prospectuses [and the Base Prospectus Supplement] are available for viewing at the website of the regulated market of the Bourse de Luxembourg (www.bourse.lu) and copies may be obtained from the Issuer at Eteläesplanadi 2, FIN-00130 Helsinki and the Paying Agents, BNP Paribas Securities Services Luxembourg Branch at 33, rue de Gasperich, Howald – Hesperange, L-2085 Luxembourg and Citibank, N.A., London Branch at Citigroup Centre, Canary Wharf, London E14 5LB.

[Include whichever of the following apply or specify as "Not Applicable" (N/A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or subparagraphs. Italics denote guidance for completing the Final Terms. ]

[When completing final terms or adding any other final terms or information, consideration should be given as to whether such terms or information constitute "significant new factors" and consequently trigger the need for a supplement to the Prospectus under Article 16 of the Prospectus Directive.]

Option 2: (The following paragraphs should only be inserted for issues of Notes which are not to be admitted to trading on an EU regulated market and/or offered to the public in the European Economic Area):

This document constitutes the Final Terms relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated [•] May 2010. These are the Final Terms of the Notes and must be read in conjunction with such Base Prospectus.

The following alternative language applies if the first tranche of an issue which is being increased was issued under a Base Prospectus with an earlier date.

[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the "Conditions") set forth in the Base Prospectus dated [original date]. These are the Final Terms of the Notes and must be read in conjunction with the Base Prospectus dated [current date] [and the Base Prospectus Supplement dated [ • ], save in respect of the Conditions which are extracted from the Base Prospectus dated [original date] and are attached hereto.]

[End of Options]

[Include whichever of the following apply or specify as "Not Applicable" (N/A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or subparagraphs. Italics denote guidance for completing the Final Terms.]

Unless stated otherwise, include all the items listed in Part A—Contractual Terms of these Final Terms in connection with all Notes. References in the drafting notes to retail issues are to issues of Notes with a denomination of less than EUR50,000 to be admitted to trading on an EU Regulated Market and/or offered to the public in the EEA and references to wholesale issues are to issues of Notes with a denomination of at least EUR50,000 to be admitted to trading on an EU Regulated Market.

1. Issuer: [•] [•] 2. [(i)] Series Number: [•] [(ii) Tranche Number: [•] (If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible).] 3. Specified Currency or Currencies: [•]

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4. Aggregate Principal Amount [of Notes admitted [•] to trading]: [only include words in square brackets for wholesale issues] [(i)] Series: [•] [(ii) Tranche: [•]] 5. [(i)] Issue Price: [•]% of the Aggregate Principal Amount [plus accrued interest from [insert date, (if applicable)] [(ii) Dealer Commission: [•] 6. (i) Specified Denominations: [•] [EUR50,000 and integral multiples of EUR1,000 in excess thereof up to and including EUR99,000. No notes in definitive form will be issued with a denomination above [EUR99,000]] [In relation to any issue of Notes which have a denomination consisting of the minimum Specified Denomination plus a higher integral multiple of another smaller amount, it is possible that the Notes may be traded in amounts in excess of EUR50,000 (or its equivalent) that are not integral multiples of EUR50,000 (or its equivalent). In such a case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum Specified Denomination may not receive a definitive Note in respect of such holding (should Definitive Bearer Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to a Specified Denomination] [Notes issued under the programme which are to be admitted to trading on a regulated market situated or operating within a Member State or which are to be offered to the public in one or more Member States (where the terms "regulated market" and "offer to the public" are within the meaning of any measures implementing the Prospectus Directive in any relevant Member State) may not have a minimum denomination of less than EUR1,000 (or nearly equivalent in another currency)] (ii) Calculation Amount: 7. [(i)] Issue Date: [•] [(ii)] Interest Commencement Date: [Specify/Issue Date/Not Applicable] 8. Maturity Date: [specify date or (for Floating Rate Notes) Interest Payment Date falling in or nearest to the relevant month and year] [If the Maturity Date is less than one year from the Issue Date and either (a) the issue proceeds are received by the Issuer in the United Kingdom or (b) the activity of issuing the Notes is carried on from an establishment maintained by the Issuer in the United Kingdom, the Notes must (i) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be sold only to "professional investors"; or (ii) another applicable exemption from section 19 of the FSMA must be available.]

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9. Interest Basis: [% Fixed Rate] [[specify reference rate] +/—% Floating Rate] [Zero Coupon] [Index Linked Interest] [Other (specify)] (further particulars specified below) 10. Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption]' [Dual Currency] [Partly Paid] [Instalment] [Other (specify)] 11. Change of Interest or Redemption/ Payment [Specify details of any provision for Basis: convertibility of Notes into another interest or redemption/payment basis] 12. Put/Call Options: [Investor Put] [Issuer Call] [(further particulars specified below)] 13. Method of distribution: [Syndicated/Non-syndicated]*

PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 14. Fixed Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Rate[(s)] of Interest: [•]% per annum [payable [annually/semi- annually/ quarterly/monthly/ other (specify)] in arrear] (ii) Interest Payment Date(s): [•] in each year [adjusted in accordance with [specify Business Day Convention and any applicable Business Centre(s) for the definition of "Business Day"/not adjusted] (iii) Fixed Coupon Amount[(s)]: [•] Per Calculation Amount (iv) Day Count Fraction: [30/360]/[Actual/Actual(ICMA)/other] [If neither of these options applies, give details] (v) Broken Amount(s): [•] per Calculation Amount, payable on the Interest Payment Date falling [in/on] [•] (vi) Other terms relating to the method of [Not Applicable/give details] calculating interest: 15. Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Specified Period(s)/Specified Interest [•] Payment Dates: (ii) First Interest Payment Date: [•] (iii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/other (give details)] (vi) Additional Business Centre(s): [•]

(v) Manner in which the Rate(s) of Interest [Screen Rate Determination/ISDA is/are to be determined: Determination/ other (give details)] (vi) Party responsible for calculating the [•] Rate(s) of Interest and Interest Amount(s) (if not the [Agent]): (vii) Screen Rate Determination: • Reference Rate: [•]

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• Interest Determination Date(s): [•] • Relevant Screen Page: [•] • Relevant Time: [•] • Relevant Financial Centre: [•] (viii) ISDA Determination: • Floating Rate Option: [•] • Designated Maturity: [•] • Reset Date: [•] (ix) Margin(s): [+/-] [•]% per annum (x) Minimum Rate of Interest: [•]% per annum (xi) Maximum Rate of Interest: [•]% per annum (xii) Day Count Fraction: [•] (xiii) Fall back provisions, rounding [•] provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions: 16. Zero Coupon Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) [Amortisation/Accrual] Yield: [•]% per annum (ii) Reference Price: [•] (iii) Any other formula/basis of determining [•] amount payable: 17. Index-Linked Interest Note/other variable- [Applicable/Not Applicable] linked interest Note Provisions (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Index/Formula/other variable: [give or annex details] (ii) Calculation Agent responsible for [•] calculating the interest due: (iii) Provisions for determining Coupon [•] where calculated by reference to Index and/or Formula and/or other variable: (iv) Determination Date(s): [•]

(v) Provisions for determining Coupon [•] where calculation by reference to Index and/or other variable is impossible or impracticable or otherwise disrupted: (vi) Interest or calculation period(s): [•]

(vii) Specified Interest Payment Dates: [•]

(viii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/other (give details)] (ix) Additional Business Centre(s): [•] (x) Minimum Rate/Amount of Interest: [•]% per annum (xi) Maximum Rate/Amount of Interest: [•]% per annum (xii) Day Count Fraction: [•] 18. Dual Currency Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Rate of Exchange/method of calculating [give details] Rate of Exchange: (ii) Calculation Agent, if any, responsible [•] for calculating the principal and/or interest due:

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(iii) Provisions applicable where calculation [•] by reference to Rate of Exchange impossible or impracticable: (iv) Person at whose option Specified [•] Currency(ies) is/are payable: PROVISIONS RELATING TO REDEMPTION 19. Call Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [•] (ii) Optional Redemption Amount(s) of [•] per Calculation Amount each Note and method, if any, of calculation of such amount(s): (iii) If redeemable in part: (iv) Minimum Redemption Amount: [•] per Calculation Amount (v) Maximum Redemption Amount: [•] per Calculation Amount (vi) Notice period (if other than as set out in [•] the Conditions): 20. Put Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [•]

(ii) Optional Redemption Amount(s) of [•] per Calculation Amount each Note and method, if any, of calculation of such amount(s): (iii) Notice period (if other than as set out in [•] [If setting notice periods which are the Conditions): different to those in the terms and conditions, please consider the practicalities of distribution of information through intermediaries, for example, clearing systems, as well as any other notice requirements which may apply, for example, as between the Issuer and the Trustee or Agents.] 21. Final Redemption Amount of each Note [[•] per Calculation Amount] In cases where the Final Redemption Amount is Index-Linked or other variable-linked: (i) Index/Formula/variable: (give or annex details)

(ii) Calculation Agent responsible for [•] calculating the Final Redemption Amount: (iii) Provisions for determining Final [•] Redemption Amount where calculated by reference to Index and/or Formula and/or other variable: (iv) Determination Date(s): [•] (v) Provisions for determining Final [•] Redemption Amount where calculation by reference to Index and/or Formula and/or other variable is impossible or impracticable or otherwise disrupted: (vi) Payment Date: [•] (vii) Minimum Final Redemption Amount: [•] per Calculation Amount (viii) Maximum Final Redemption Amount: [•] per Calculation Amount 22. Early Redemption Amount of each Note Early Redemption Amount(s) per Calculation [•] Amount payable on redemption for taxation reasons or on event of default or other early

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redemption and/or the method of calculating the same (if required or if different from that set out in the Conditions): GENERAL PROVISIONS APPLICABLE TO THE NOTES 23. Form of Notes: [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Bearer Notes] [on [•] days' notice] [at any time] [in the limited circumstances specified in the Permanent Global Note].2 If issued in Bearer Form: [Temporary Global Note exchangeable for Definitive Bearer Notes on [•] days' notice.] If issued in Registered Form: (i) Registrar and Transfer Agents: [Name and specified offices] (ii) DTC Application: [Yes/No] [Provide details] (iii) Form of Registered Notes: [Restricted Global Note Certificate and Unrestricted Global Note Certificate] [International Global Note Certificate] (iv) Details of exchange of interests in [Specify] Registered Notes: 24. Financial Centre(s) or other special provisions [Not Applicable/give details. Note that this relating to Payment Dates: item relates to the date and place of payment, and not interest period end dates, to which items 15(ii), 16(iii) and 18(vi) relate]. 25. Talons for future Coupons or Receipts to be [Yes/No. If yes, give details] attached to Definitive Bearer Notes (and dates on which such Talons mature): 26. Details relating to Partly Paid Notes: amount of [Not Applicable/give details] each payment comprising the Issue Price and date on which each payment is to be made and [consequences (if any) of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment]: 27. Details relating to Instalment Notes: amount of [Not Applicable/give details] each instalment, date on which each payment is to be made: 28. Consolidation provisions: [Not Applicable/The provisions in Condition 23 apply] 29. Other final terms: [Not Applicable/give details]

DISTRIBUTION [In the left hand column under "Distribution" the words in the square brackets should be included in retail issues only] 30. (i) If syndicated, names [and addresses] of [Not Applicable/give names, [and for retail Managers [and underwriting issues only, addresses and underwriting commitments]: commitments and (include names and addresses of entities agreeing to underwrite the issue on a firm commitment basis and names and addresses of the entities agreeing to place the issue without a firm commitment or on a "best efforts" basis if such entities are not the same as the Managers)]] (ii) [Date of Subscription Agreement]: [•] (iii) Stabilising Manager(s) (if any): [Not Applicable/give name]

2 This option (and no other) must be selected in the case of bearer notes issued in specified denominations of EUR50,000 and integral multiples of EUR1,000 in excess thereof up to and including EUR99,000.

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31. If non-syndicated, name [and the address] of [Not Applicable/give name [and address]] Dealer: 32. [Total Commission and Concession:] [•]% of the Aggregate Nominal Amount] 33. Non-exempt Offer: [Not Applicable] [An offer of the Notes may be made by the Managers [and [specify, if applicable]] other than pursuant to Article 3(2) of the Prospectus Directive in [specify relevant Member State(s)—which must be jurisdictions where the Prospectus and any supplements have been passported] ("Public Offer Jurisdictions") during the period from [specify date] until [specify date] ("Offer Period"). See further "Terms and Conditions of the Offer" in Part B below. 34. Additional selling restrictions: [Not Applicable/give details]

PURPOSE OF FINAL TERMS

These Final Terms comprise the final terms required for the issue [and] [public offer in the Public Offer Jurisdictions] [and] [admission to trading on the regulated market of the Luxembourg Stock Exchange of the Notes described herein] pursuant to the EUR5,000,000,000 Global Medium Term Note Programme of UPM-Kymmene Corporation as Issuer.

RESPONSIBILITY

The Issuer accepts responsibility for the information contained in these Final Terms. [[• has been extracted from [ • ]. The Issuer confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by [ • ], no facts have been omitted which would render the reproduced inaccurate or misleading (not required where Notes will not be admitted to trading on an EU regulated market and/or offered to the public in the European Economic Area).]

Signed on behalf of UPM-Kymmene Corporation:

By: Duly authorised

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PART B—OTHER INFORMATION

1. LISTING AND ADMISSION TO TRADING: (i) Listing: [Official List of the Luxembourg Stock Exchange/other (specify)/None] (ii) Admission to trading: [Application has been made for the Notes to be admitted to trading on [the regulated market of the Luxembourg Stock Exchange/other (specify)] with effect from [•].] [Not Applicable.] (iii) Estimate of total expenses related [for wholesale issues only] [•] to admission to trading: 2. RATINGS Ratings: The Notes to be issued have been rated: [S & P: [•]] [Moody's: [•]] [[Other]: [•]] [for retail issues only, need to include a brief explanation of the meaning of the ratings if this has previously been published by the rating provider.] (The above disclosure should reflect the rating allocated to Notes of the type being issued under the Programme generally or, where the issue has been specifically rated, that rating.) 3. [NOTIFICATION The Commission de Surveillance du Secteur Financier [has been requested to provide/has provided—include first alternative for an issue which is contemporaneous with the establishment or update of the Programme and the second alternative for subsequent issues] the [include names of competent authorities of host Member States] with a certificate of approval attesting that the Prospectus has been drawn up in accordance with the Prospectus Directive.] 4. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE [ISSUE/OFFER] Need to include a description of any interest, including conflicting ones, that is material to the issue/ offer, detailing the persons involved and the nature of the interest. [May be satisfied by the inclusion of the following statement: "Save as discussed in ["Subscription and Sale"] so far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to the offer".] 5. REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL EXPENSES [(i) Reasons for the offer: [•] (See ["Use of Proceeds"] wording in Prospectus— if reasons for offer different from making profit and/or hedging certain risks will need to include those reasons here.)] [(ii)] Estimated net proceeds: [•] (If proceeds are intended for more than one use will need to split out and present in order of priority. If proceeds insufficient to fund all proposed uses state amount and sources of other funding.) [(iii)] Estimated total expenses: [•] [Include breakdown of expenses.] [(If the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies it is only necessary to include disclosure of net proceeds and total expenses at (ii) and (iii) above where disclosure is included at (i) above.)] 6. [Fixed Rate Notes only—YIELD Indication of yield: [•]. [Calculated as [include details of method of calculation in summary form] on the Issue Date.]

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[insert for retail issues only] [As set out above], the yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield.] 7. [Floating Rate Notes only—HISTORIC INTEREST RATES [include item 7 for retail issues only] Details of historic [LIBOR/EURIBOR/other] rates can be obtained from [Reuters].] 8. [Index-linked or other variable-linked Notes only—PERFORMANCE OF INDEX/FORMULA/OTHER VARIABLE, AND OTHER INFORMATION CONCERNING THE UNDERLYING (To be included for derivative securities to which Annex XII of the Prospectus Directive Regulation applies): Need to include details of where past and future performance and volatility of the index/formula/other variable can be obtained and a clear and comprehensive explanation of how the value of the investment is affected by the underlying and the circumstances when the risks are most evident. [Where the underlying is an index need to include the name of the index and a description if composed by the Issuer and if the index is not composed by the Issuer need to include details of where the information about the index can be obtained. Where the underlying is not an index need to include equivalent information. Include other information concerning the underlying required by Paragraph 4.2 of Annex XII of the Prospectus Directive Regulation.] The Issuer [intends to provide post-issuance information [specify what information will be reported and where it can be obtained]] [will not provide any post-issuance information, except if required by any applicable laws and regulations], 9. [Dual Currency Notes only—PERFORMANCE OF RATE[S] OF EXCHANGE [required for retail issues only] AND EXPLANATION OF EFFECT ON VALUE OF INVESTMENT] Need to include details of where past and future performance and volatility of the relevant rate[s] can be obtained [and a clear and comprehensive explanation of how the value of the investment is affected by the underlying and the circumstances when the risks are most evident] [text in square brackets required for retail issues only] OPERATIONAL INFORMATION 10. ISIN Code: [•] 11. Common Code: [•] 12. CUSIP No.: [•] [If applicable] 13. Any clearing system(s) other than the [Not Applicable/give name(s) and number(s)] Depositary Trust Company/Euroclear Bank SA/NV and Clearstream Banking, société anonyme, Luxembourg and the relevant identification number(s): 14. Delivery: Delivery [against/free of] payment 15. Names and addresses of Additional Paying [•] Agent(s) (if any): 16. Names and addresses of Calculation [•] Agent(s) (if any): 17. Applicable TEFRA Rules: [D Rules/Not Applicable] 18. Rule 144A: [Applicable/Not Applicable] TERMS AND CONDITIONS OF THE OFFER [Consider the circumstances in which the items specified below need to be completed or marked "Not Applicable" by reference to the requirements of the relevant home and/or host Member States where any non-exempt public offer is being made, in compliance with the Prospectus Directive, as implemented in such Member States.] 19. Offer Period: [[•] to [•]] 20. Offer Price: [•] 21. Conditions to which the offer is subject: [Not Applicable/give details] 22. Description of the application process: [Not Applicable/give details] 23. Description of possibility to reduce [Not Applicable/give details] subscriptions and manner for refunding excess amount paid by applicants: 24. Details of the minimum and/or maximum [Not Applicable/give details] amount of application: 25. Details of the method and time limits for [Not Applicable/give details]

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paying up and delivering the Notes: 26. Manner and date in which results of the [Not Applicable/give details] offer are to be made public: 27. Procedure for exercise of any right of pre- [Not Applicable/give details] emption, negotiability of subscription rights and treatment of subscription rights not exercised: 28. Categories of potential investors to which [Not Applicable/give details] the Notes are offered and whether tranche(s) have been reserved for certain countries: 29. Process for notification to applicants of the [Not Applicable/give details] amount allotted and the indication whether dealing may begin before notification is made: 30. Amount of any expenses and taxes [Not Applicable/give details] specifically charged to the subscriber or purchaser: 31. Name(s) and address(es), to the extent [None/give details] known to the Issuer, of the placers in the various countries where the offer takes place:

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UPM-KYMMENE CORPORATION

Company Overview

UPM is the leading producer of graphic papers and among the largest forestry companies in the world, in terms of capacity. It is also the world’s second largest producer of label materials and Europe’s largest producer of plywood, in terms of capacity. UPM’s core businesses are energy, chemical pulp, sawn timber, graphic papers, selected speciality papers, self-adhesive label materials and plywood. In recent years, UPM has introduced several new business initiatives, which are currently under development or have been recently implemented, such as RFID tags, wood plastic composites and biofuels. While UPM’s management believes that these business initiatives represent opportunities in the future, their financial impact has so far been limited.

In 2009, the Group had sales of EUR7.7 billion and, as of 31 December 2009, the Group’s total assets amounted to EUR13.6 billion. The main markets for the Group’s products are Europe, which accounted for 72% of sales; North America, which accounted for 11% of sales; and Asia and other countries, which accounted for 17% of sales, each in 2009.

UPM has production in 15 countries. Its paper production facilities rank among the world’s leading, in terms of production efficiency. UPM’s operations are based on close integration of raw materials, energy and production. As of the date of this Base Prospectus, the Company is self-sufficient in chemical pulp and approximately 90% self-sufficient in electric power.

UPM’s operations are organised in the following three business groups: Energy and pulp, Paper, and Engineered materials.

The Energy and pulp business group consists of hydropower assets, UPM’s pulp mills in Finland and shares of associated energy companies. This business group is also responsible for forest and wood sourcing as well as UPM’s timber business. The Energy and pulp business group comprises three business areas: Energy, Pulp, and Forest and timber. UPM’s biofuel business is also included in the business group as a development unit. Biofuels are liquid or gaseous fuels for transport produced from biomass. The three business areas are managed as market driven businesses, even though most of their sales are internal. The Energy business area manages and develops UPM’s non-integrated power generation assets. The Pulp business area produces chemical pulp at UPM’s three modern pulp mills in Finland and one world-class pulp mill in Uruguay. The Forest and timber business area manages UPM’s forest holdings and sawmills.

The Paper business group produces publication, fine and speciality papers. Publication paper is used in magazines, newspapers, manuals and booklets, books, catalogues, telephone directories, inserts, flyers, newspaper supplements and advertising materials. Fine paper is used in magazines, catalogues, inserts, advertising materials, copy papers, preprint applications and envelopes. Speciality paper is used for several end-uses in the labelling, packaging and mailing industries. The business group’s customers are mainly publishers and printers as well as merchants and paper converters. The Paper business group also includes UPM’s CHP plants operating on its paper mill sites. The CHP plants represent one-third of UPM’s total power generation and are mainly fuelled by biomass. UPM’s mechanical and recycled fibre pulp production is fully integrated with its paper production with no external sales and, therefore, it is included in the Paper business group. The Paper business group’s annual production capacity is 11.5 million tonnes.

The Engineered materials business group comprises two business areas: Label and Plywood. UPM’s RFID tags and wood plastic composites are also included in this business group as development units. The Label business area manufactures self-adhesive label materials for product and information labelling. The Plywood business area combines the unique characteristics of wood with the demanding customer focused construction and industrial end-use applications. Plywood is primarily used in the building, construction and transportation industries and in a number of special applications. The RFID tags development unit comprises the development and manufacture of tags and inlays based on RFID technology. The wood plastic composite development unit develops, manufactures, markets and sells high-quality wood plastic composite products made mainly from surplus paper and plastic left over from the production of self-adhesive label materials.

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Development of the Company

General

On 30 April 1996, UPM-Kymmene Corporation was incorporated in the Republic of Finland as a result of the merger of two companies, Kymmene Corporation ("Kymmene") and Repola Ltd ("Repola"), which were also incorporated in Finland. Prior to the merger, United Paper Mills Ltd ("United Paper Mills") had been a paper and forest products subsidiary of Repola.

Kymmene’s origins date back to 1872. Kymmene made its first international acquisition in 1932. In the 1960s and 1970s, Kymmene expanded its operations into Germany (Nordland Papier). In the 1980s, Kymmene merged with Oy Kaukas Ab of Finland, built a new light weight coated paper mill in Irvine in Scotland (Caledonian Paper), and acquired Oy Wilh. Schauman Ab of Finland. In the 1990s, Kymmene acquired the French newsprint producer Chapelle Darblay S.A.

The predecessor companies of Repola were founded in the late nineteenth century. In 1920, the ownership of three paper mills was consolidated to form United Paper Mills. During the decades that followed, United Paper Mills expanded its operations, reaching new markets throughout Europe. In the 1980s, United Paper Mills built a greenfield newspaper mill in Shotton, Wales, acquired the Stracel pulp mill in Strasbourg in France and built a newsprint mill on the same site. In 1989, United Paper Mills acquired Kajaani Oy in Finland. Rauma Repola Oy ("Rauma Repola") had become, over the decades, an international forest products and engineering company. Also, in the 1980s, the group acquired Rosenlew Oy in Finland and made a series of international acquisitions to strengthen its market positions in engineered products.

In 1990, United Paper Mills and Rauma Repola merged to form the international forest products and engineering group Repola. All engineering operations of the merged companies were combined to form Rauma Corporation and their forest industry operations were combined within United Paper Mills. In May 1997, Rauma Corporation became an affiliated company following a share sale and dividend payment in the form of shares. In 1999, Rauma Corporation merged with Valmet Corporation, a Finnish engineering company, to form Metso Corporation ("Metso"), giving UPM a shareholding of approximately 15% in the new company, which was sold in March 2005.

As part of its strategy to expand in areas where it is, or has the capacity to be, a leader in the industry, UPM acquired, in October 1997, Blandin Paper Company in the United States and, in October 2000, Repap Enterprises (later UPM Miramichi), Inc. in Canada (in January 2009, UPM sold its former paper mill and related assets of UPM Miramichi to Umoe Solar AS of Norway), which made the Company one of the three largest suppliers of magazine paper in North America. In March 1998, UPM acquired a 49% interest in a paper mill project at Changshu near Shanghai in China. In August 2000, UPM acquired the remaining 51% of the Changshu paper mill, providing it with a significant presence in fine paper manufacturing in China. This presence was further strengthened by the commissioning of a new fine paper machine at this mill in mid-2005. In November 2001, UPM completed the largest acquisition of its company history, when it purchased four of the six paper mills of the German G. Haindl’sche Papierfabriken KGaA for a total enterprise value of EUR2,690 million.

Besides targeted acquisitions, UPM has divested certain non-core businesses. These include the divestments of the Simpele paperboard mill in Finland and Joutseno pulp mill in Finland in 1997, Walki Films in 2002, Loparex Group in 2005 and Walki Wisa in 2007. UPM has also divested its wood-based building supplies businesses. In 2004, it divested Brooks Group and ANCO Trae A/S and, in 2006, it divested Puukeskus Oy. In 2007, UPM divested its port operators, Oy Rauma Stevedoring Ltd and Oy Botnia Shipping Ab.

In December 2009, pursuant to an agreement entered into among UPM, Metsäliitto Cooperative ("Metsäliitto"), M-real Corporation ("M-real") and Oy Metsä-Botnia Ab ("Metsä-Botnia"), UPM acquired Metsäliitto’s and Metsä-Botnia’s share of the Fray Bentos pulp mill and the eucalyptus plantation forestry company, Forestal Oriental, in Uruguay. This transaction increased UPM’s capacity of plantation-based pulp to 1.1 million tonnes annually and reduced its exposure to Northern Hemisphere pulp by 0.7 million tonnes, as its shareholding in Metsä-Botnia was reduced from 47% to 17%.

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Profit Improvement Programmes

In order to improve its profitability and cost competitiveness, UPM has implemented major profit improvement programmes over the last decade. UPM’s three-year profitability programme 2006- 2008, included the elimination of uncompetitive capacity and restructuring of operations and resulted in estimated EUR190 million annual savings in fixed costs. UPM has closed three paper mills: Voikkaa (2006) in Finland, Miramichi (2007) in Canada and Kajaani (2008) in Finland, and two pulp mills: Miramichi (2004) in Canada and Tervasaari (2008) in Finland. In June 2008, UPM closed down the Luumäki timber components and planing mill in Finland. In December 2008, UPM closed down the Leivonmäki sawmill in Finland. Altogether approximately 1.8 million tonnes of paper producing capacity and 0.4 million tonnes of chemical pulp capacity has been closed during 2004–2008. These restructurings have also led to a reduction in UPM’s workforce which, for continuing businesses, has decreased by approximately 2,500 since the end of 2003. Due to the reduced demand for paper and pulp, the closures had only minor impact on UPM’s paper and pulp deliveries for the year ended 31 December 2009.

In November 2008, UPM announced a plan to restructure the European operations of its Label business area in 2009. UPM Raflatac permanently closed a number of self-adhesive labelstock production lines and reduced slitting capacity in the United Kingdom, France, Germany, Hungary and Finland. One slitting terminal was also closed in the United States. This restructuring was completed by the end of the third quarter of 2009.

The Lahti plywood processing mill was closed in October 2009 and its production was moved to other mills in Finland. In November 2009, UPM announced a plan to improve the long-term cost efficiency and competitiveness of its plywood and timber operations. As part of this plan, UPM will invest approximately EUR25 million in the expansion of the Savonlinna plywood mill and the development of production at the Kaukas sawmill and the Aureskoski further processing mill in Finland. In Finland, UPM intends to permanently close the plywood mill and sawmill in Heinola, the Kaukas plywood mill in Lappeenranta, and the further processing mill in Parkano during the first half of 2010. These measures will reduce the number of UPM employees by approximately 830.

In UPM’s Forest and timber business area, a further processing mill in Boulogne in France was closed in August 2009 and its operations were transferred to the Aigrefeuille mill in France.

UPM’s management has considered these restructuring measures to be necessary in order to improve the Company’s cost competitiveness. The measures taken in 2009, together with measures initiated in previous years, have reduced the number of employees from 24,983 as of 31 December 2008 to 23,213 as of 31 December 2009, a reduction of 2,294 employees. The reduction of employees was partly offset by the acquisition of the Frey Bentos pulp mill and Forest Oriental plantation forestry company which increased the number of employees by 524. Of this number, 620 employees were laid off due to the closures of production units. Annual employee-related cost savings realised as a result of the restructuring amounted to approximately EUR115 million.

Structure

Until 30 November 2008, UPM’s operations were organised into three business areas: Paper Divisions, Label Division and Wood Products Division. The Paper Divisions business area was further divided into Magazine Papers Division, Newsprint Division and Fine and Speciality Papers Division. In 2008, UPM changed its business structure in order to improve UPM’s ability to leverage its competitive advantages.

Beginning in December 2008, UPM’s operations have been organised into the following three business groups:

• Energy and pulp, which comprises the following business areas:

• Energy;

• Pulp; and

• Forest and timber.

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• Paper; and

• Engineered materials, which comprises the following business areas:

• Label; and

• Plywood.

UPM’s biofuel business is included in the Energy and pulp business group as a development unit. UPM’s RFID tags and wood plastic composite businesses are included in the Engineered materials business group as development units.

Currently, UPM reports financial information for the following seven business areas: Energy, Pulp, Forest and timber, Paper, Label, Plywood and Other operations. The Other operations business area includes (i) the following development units: RFID tags, wood plastic composites; (ii) biofuels, certain logistics services; and (iii) the central administrative functions for the Group.

Business Strategy

UPM’s business portfolio consists of energy, chemical pulp, papers, self-adhesive label materials, plywood and sawn timber. In the Energy and pulp business group, UPM aims to achieve cost competitive growth. In the Forest and timber business area, UPM focuses on securing competitive biomass, in terms of, for example, cost, quality and availability for UPM. In the Paper business group, UPM drives for cost leadership, as well as growth in China and Eastern Europe. In the Engineered materials business group, UPM focuses on product renewal and the creation and development of new businesses. In the Label business area, UPM is targeting industry leadership and, in the Plywood business area, improved cost competitiveness and growth.

UPM’s aim is to add value through the use of fibre and forest biomass in its current products and to create new growth opportunities based on continuous product development and innovation. Fibre- and biomass-based businesses, recyclable raw materials and products, and competitive access to critical production inputs, are fundamental to its business strategy.

UPM seeks to create added value and cost benefits through the development of sustainable products and solutions for its customers worldwide.

UPM’s fibre-based businesses continue to form the cornerstone of its strategy while energy- related businesses, engineered materials and new markets will broaden UPM’s scope and offer opportunities for further growth.

For its employees, UPM aims to offer a high-performing culture which inspires initiatives. UPM encourages and supports its employees to develop their professional competencies and change readiness.

Corporate responsibility is an integral part of UPM’s operations. UPM is committed to continue developing its products and processes with the aim of improving environmental performance in all parts of its product lifecycle, from sourcing raw materials to recycling used products.

In terms of its long-term development targets, UPM aims to maintain a solid financial position with profitable operations, whilst delivering increasing shareholder value in a socially and ecologically sustainable way.

Strategic Steps 2009

Energy and Pulp Business Group

Expanded in Cost Competitive Low-Emission Energy

In June 2009, operations commenced at a new renewable energy biomass power plant at UPM’s Caledonian paper mill site in Scotland, the United Kingdom, and the test-run of a power plant built jointly by Pohjolan Voima and the City of Lappeenranta at UPM’s Kaukas mill site in Lappeenranta, Finland, started in December 2009.

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In December 2009, UPM acquired a 1.2% interest in the energy company Pohjolan Voima from Metsä-Botnia, increasing its shareholding in Pohjolan Voima to 43.07%.

During 2009, the initial testing programme for developing the gasification technology needed to produce biofuel from forest energy wood, was completed in the United States as planned. UPM will continue to finalise the technical concept throughout 2010.

In March 2009, UPM started to conduct a legislative environmental impact assessment (EIA) for a biorefinery, the main product of which would be second generation biodiesel, in the Kuusankoski and Rauma mill sites in Finland. The EIA programs in Rauma and Kuusankoski have been approved by the authorities and UPM can proceed to apply for the environmental permit and thereafter to the construction phase.

Increased Share in the Cost Competitive Pulp

In July 2009, UPM, Metsäliitto, M-real and Metsä-Botnia signed a letter of intent concerning the restructuring of Metsä-Botnia’s share ownership. As a result of the restructuring, the Fray Bentos pulp mill and the eucalyptus plantation forestry company Forestal Oriental in Uruguay were transferred from Metsäliitto and Metsä-Botnia to UPM and UPM’s shareholding in Metsä-Botnia was reduced from 47% to 17%. In December 2009, the transaction was completed and Metsä-Botnia’s Uruguayan operations were transferred to UPM.

In 2009, UPM and its Russian joint venture company OOO Borea ("Borea") continued a feasibility study for a planned forest industry facility in Russia and new alternative site options were included in the study.

Strengthened Position in the Forest Biomass Market

In December 2009, as part of the restructuring of Metsä-Botnia’s share ownership, UPM gained full control of the eucalyptus plantation forestry company, Forestal Oriental, in Uruguay. This increased the share of fast-growing fibre in UPM’s forest biomass sourcing and UPM’s self-sufficiency in wood fibres. Currently, eucalyptus pulp represents 35% of UPM’s chemical pulp capacity.

At the beginning of 2009, the UPM Biorefinery Development Centre for research of biofuels and biochemicals was established at UPM’s Kaukas mill site in Lappeenranta, Finland.

Paper Business Group

Focused on Customer Interface and Cost Leadership

In April 2009, UPM announced the renewal of its supply chain operations, including production planning, inventory management, order fulfilment, logistics and customer service.

During 2009, significant fixed costs savings were achieved through permanent cost-saving measures and flexible working arrangements. The new business structure, adopted in December 2008, enabled further streamlining and cost reduction.

In 2009, UPM directed its investments towards cost improvements, such as on-site biomass- based CHP-energy generation.

Evaluated Consolidation in Europe

Throughout 2009, UPM evaluated several consolidation projects.

Researched Growth in China and Other Emerging Markets

Throughout 2009, UPM carried out pre-feasibility studies in China.

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Engineered Materials Business Group

Industry Leadership in Self-Adhesive Label Materials

By the end of September 2009, UPM Raflatac completed the restructuring of its European operations.

In early 2009, production was ramped-up successfully at the new plant in Wroclaw, Poland. The plant started up in November 2008.

Growth in Plywood Business Area

In November 2009, UPM announced its plan for a major restructuring of its Finnish operations, including an investment in the expansion of the Savonlinna plywood mill, among others, in order to ensure the competitiveness of its future Finnish operations.

Product Renewal and Development of New Businesses Based on Proprietary Know-How

In 2009, the wood plastic composite unit UPM ProFi continued to launch new products and expanded its sales channels to most European countries.

Financial Targets and Dividend Policy

UPM sets internal financial targets for each business group and for the entire Group. The financial targets emphasise the importance of cash flow and UPM’s financial flexibility in steering its business groups.

UPM’s long-term target is an operating profit margin that exceeds 10%. The return on equity target is at least five percentage points above the yield of a ten-year risk-free investment, such as the Finnish government’s euro-denominated bonds. At the end of 2009, the minimum target for return on equity, as defined above, was 8.6%.

UPM’s aim is to keep its gearing ratio below 90%.

UPM intends to pay as an annual dividend at least one-third of its net cash flow from operating activities, less operational capital expenditure. To promote stability in dividends, net cash flow will be calculated as an average over a three-year period. Remaining funds are to be allocated between growth capital expenditure and debt reduction. UPM’s net cash flow from operating activities in 2009 was EUR1,259 million and operational capital expenditure was EUR148 million.

Major Shareholders

To the knowledge of UPM’s management, UPM is not, directly or indirectly, controlled by another corporation, by any government or by any other entity and there are no arrangements under which a change of control may, at a subsequent date, result.

The following table sets forth UPM’s major shareholders as of 23 April 2010, based on registered share ownership as reflected in the share register:

As of 23 April 2010 Number of Percent of Percent of Shares Shares Votes Ilmarinen Mutual Pension Insurance Company ...... 17,697,401 3.40 3.40 Varma Mutual Pension Insurance Company ...... 6,508,899 1.25 1.25 The State Pension Fund ...... 4,718,000 0.91 0.91 Gösta Serlachius Fine Arts Foundation ...... 4,218,738 0.81 0.81 The Society of Swedish Literature in Finland ...... 3,831,302 0.74 0.74 Mandatum Life Insurance Company Limited ...... 3,134,891 0.60 0.60 OP-Delta Fund ...... 3.101,728 0.60 0.60 Sellan Intressenter Oy Ab ...... 2,000,000 0.38 0.38 Kymin Osakeyhtiön 100-Vuotissäätiö ...... 1,695,976 0.33 0.33 The Social Insurance Institution of Finland ...... 1,603,690 0.31 0.31 Nominee registered and foreign shareholders ...... 304,750,493 58.61 58.61 Others ...... 166,708,970 32.06 32.06 Total ...... 519,970,088 100.00 100.00

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To the knowledge of UPM’s management, there were two holders of 5% or more of the Company’s shares as of 23 April 2010 including:

As of 23 April 2010 Number of Percent of Percent of Shares Shares Votes Norges Bank ...... 26,067,273 5.01 5.01 Black Rock Inc ...... 27,893,384 5.36 5.36

Corporate Structure

UPM is the leading producer of graphic papers and among the largest forestry companies in the world, in terms of capacity. It is also the world’s second largest producer of label materials and Europe’s largest producer of plywood, in terms of capacity. UPM’s core businesses are energy, chemical pulp, sawn timber, graphic papers, selected speciality papers, self-adhesive label materials and plywood. In recent years, UPM has introduced several new business initiatives, which are currently under development or have been recently implemented, such as RFID tags, wood plastic composites and biofuels. While UPM’s management believes that these business initiatives represent opportunities in the future, their financial impact has so far been limited.

In 2009, the Group had sales of EUR7.7 billion and, as of 31 December 2009, the Group’s total assets amounted to EUR13.6 billion. The main markets for the Group’s products are Europe, which accounted for 72% of sales; North America, which accounted for 11% of sales; and Asia and other countries, which accounted for 17% of sales, each in 2009.

The following tables set forth the percentages of UPM’s sales of EUR7.7 billion, EUR9.5 billion and EUR10.0 billion in 2009, 2008 and 2007, respectively, by business area and by geographic market area:

Year ended 31 December 2009 2008 2007 (Percentage of Group sales(1)) Business Area Energy ...... 2 1 1 Pulp ...... 1 1 0 Forest and timber ...... 8 9 10 Paper ...... 72 72 71 Label ...... 12 10 10 Plywood ...... 4 5 5 Other operations...... 1 2 3 Total ...... 100 100 100 ______

(1) Sales % represents third-party sales.

Year ended 31 December 2009 2008 2007 (Percentage of Group sales(1))

Market Area EU countries: Germany ...... 18 17 17 United Kingdom ...... 12 11 12 Finland ...... 9 10 9 France ...... 6 6 6 Other EU countries ...... 22 24 24 Total EU countries ...... 67 68 68 Other European countries ...... 5 5 5 North America ...... 11 11 12 Asia ...... 12 11 10 Other countries(1) ...... 5 5 5 Total ...... 100 100 100 ______

(1) Includes Africa, South America, Mexico, Australia and Oceania.

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Energy Business Area

General

The Energy business area manages and develops UPM’s power generation assets that are not integrated into paper mills, generating and procuring electricity for UPM and for market sales. The Energy business area is also responsible for UPM’s electricity distribution in Finland.

The following table sets forth certain financial and statistical data regarding the Energy business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Energy Sales ...... 472 478 379 EBITDA(1) ...... 190 207 118 % of sales ...... 40.3 43.3 31.1 Share of results of associated companies and joint ventures ...... (40) (26) (17) Depreciation, amortisation and impairment charges ...... (6) (6) (6) Operating profit ...... 144 175 95 % of sales ...... 30.5 36.6 25.1 Special items(2) ...... (18) — — Operating profit excluding special items ...... 162 175 95 % of sales ...... 34.3 36.6 25.1 Electricity deliveries, GWh ...... 8,865 10,167 10,349 Capital employed (average) ...... 870 951 994 ROCE (excluding special items), %(3) ...... 18.6 18.4 9.6 Personnel (as of 31 December)...... 92 39 26 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items related to impairments of associated company Pohjolan Voima’s two power plants.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

As of 31 December 2009, the Energy business area’s total electricity generating capacity was approximately 1,820 MW, all of which was located in Finland. This included UPM’s shares in energy companies, mainly in the associated company Pohjolan Voima, and in Kemijoki Oy ("Kemijoki"), as well as UPM’s own hydropower plants. UPM’s management believes that the Energy business area’s power generation structure is cost competitive and has low carbon dioxide emissions. Of the total electricity generating capacity, 673 MW (37%) consisted of hydropower, 554 MW (30%) consisted of nuclear power and 593 MW (33%) consisted of thermal condensing power.

UPM owns 43.07% of the shares in Pohjolan Voima, the second largest power generator in Finland. Annually, Pohjolan Voima generates and procures approximately 15,000 GWh of electricity for its shareholders on a cost basis. UPM’s share of Pohjolan Voima’s electricity generation covers approximately 40% of UPM’s total electricity procurement. Most of this consists of hydropower and nuclear power. UPM is free to use the electricity itself or sell it to the market.

Pohjolan Voima, in turn, owns 58.28% of the shares in Teollisuuden Voima. Teollisuuden Voima is a nuclear power producer generating electricity for its shareholders on a cost basis. Pohjolan Voima also owns 25.08% of the shares in Fingrid Oy, the Finnish electricity transmission system operator and the owner and operator of the national transmission grid.

UPM owns 19% of the hydropower shares in Kemijoki, a Finnish hydropower producer.

Currently, Teollisuuden Voima is building a new nuclear power plant with a capacity of 1,630 MW in Olkiluoto, Eurajoki in Finland. UPM’s share is 479 MW, or approximately 29% of the power capacity of the new plant through Pohjolan Voima. Once completed, this new nuclear power plant is estimated to increase the Energy business area’s electricity generating capacity by approximately 26%, or UPM’s electricity generating capacity by approximately 16%. UPM has made a EUR56 million equity

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investment in the project in the form of shares in Pohjolan Voima, including EUR16 million for shares purchased from Metsä-Botnia. The start-up of the nuclear power plant is currently scheduled to take place in 2012.

In December 2008, Teollisuuden Voima informed UPM that the supplier of the nuclear power plant in Olkiluoto had filed a request for arbitration concerning the delay of the completion of the project and related costs amounting to EUR1.0 billion. In response, Teollisuuden Voima filed a counter-claim for approximately EUR1.4 billion in April 2009 for costs and losses due to the delay and other defaults. UPM’s associated company Pohjolan Voima owns 58.28% of the shares in Teollisuuden Voima.

UPM’s Paper business area is UPM’s Energy business area’s largest customer. The Energy business area’s sales amounted to 2% of UPM’s external sales in 2009. UPM sells electricity to the Nordic Electricity wholesale market.

The following table sets forth the power generation capacity of UPM’s own power plants and the capacity generated through its shareholdings in other companies as of 31 December 2009:

As of 31 December 2009 (Nominal MW) Own hydropower ...... 175 Hydro (through shareholding) ...... 498 Nuclear (through shareholding) ...... 554 Condensing (through shareholding) ...... 593 Total in Energy business area ...... 1,820 CHP in Paper business area ...... 1,178 Total UPM ...... 2,998

UPM’s Energy Balance

UPM’s energy portfolio is versatile and cost competitive, consisting mainly of hydropower, nuclear power and biomass-based combined heat and power (CHP) on paper mill sites. Effective large- scale utilisation of biomass-based fuels is an important aspect of the Group’s energy strategy from both an economic and environmental efficiency point of view.

The Energy business area’s electricity generation capacity was 1,820 MW as of 31 December 2009. In addition, UPM had CHP plants operating on its paper mill sites, with a total electricity generating capacity of 1,178 MW as of 31 December 2009. These CHP plants are included in the Paper business area. Altogether, UPM’s total electricity generation capacity was 2,998 MW as of 31 December 2009.

For the year ended 31 December 2009, UPM’s own electricity consumption amounted to 13.2 TWh, as compared to 16.7 TWh for the year ended 31 December 2008. In 2009, UPM generated 12.1 TWh of electricity, as compared to 14.2 TWh in 2008, in its own and partly owned power plants, and hence, its electric power self-sufficiency increased to 92% in 2009 from 85% in 2008. UPM is a net seller of electricity in Finland and purchases electricity in other markets. Its net electricity purchases amounted to 1.1 TWh in 2009, as compared to 2.5 TWh in 2008.

For the year ended 31 December 2009, heat generated from fuels procured by UPM, together with purchased heat and heat generated by thermo mechanical pulping, amounted to 29.3 TWh, as compared to 33.3 TWh for the year ended 31 December 2008. Currently, carbon neutral energy sources dominate UPM’s energy portfolio and, globally, 63% of fuels used at UPM’s mills are biomass-based and carbon dioxide neutral.

The following table sets forth UPM’s electricity procurement and consumption as of 31 December 2009, 2008 and 2007:

As of 31 December 2009 2008 2007 (TWh) Procurement Hydropower shares ...... 2.8 3.9 3.2 CHP production ...... 3.7 4.3 4.7

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As of 31 December 2009 2008 2007 (TWh) Nuclear power shares ...... 4.5 4.5 4.5 Condensing energy shares ...... 1.1 1.5 1.9 Purchased electricity ...... 4.5 5.0 5.7 Total ...... 16.6 19.2 20.0 Consumption Mills in Finland...... 7.6 10.3 11.2 Mills outside Finland ...... 5.6 6.4 7.0 Sales ...... 3.4 2.5 1.8 Total ...... 16.6 19.2 20.0

The following table sets forth UPM’s sources of thermal energy as of 31 December 2009, 2008 and 2007:

As of 31 December 2009 2008 2007 (TWh) Black liquor ...... 9.4 11.1 11.3 Bark and other biofuels...... 7.7 8.0 8.0 Heat received from TMP production ...... 1.5 2.1 2.6 Peat ...... 0.9 1.3 1.7 Purchased heat ...... 0.2 0.3 0.3 Natural gas ...... 6.3 7.1 7.9 Oil ...... 0.3 0.3 1.0 Coal ...... 3.0 3.1 3.7 Total ...... 29.3 33.3 36.6

Pulp Business Area

General

The Pulp business area consists of chemical pulp production units in Finland and in Uruguay. The Pulp business area’s products range from northern softwood and hardwood pulp to eucalyptus hardwood pulp made from southern hemisphere plantation wood.

The following table sets forth certain financial and statistical data regarding the Pulp business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Pulp Sales ...... 653 944 808 EBITDA(1) ...... (18) 139 188 % of sales ...... (2.8) 14.7 23.3 Change in fair value of biological assets and wood harvested (1) - - Share of results of associated companies and joint ventures ...... (52) 86 58 Depreciation, amortisation and impairment charges ...... (85) (128) (101) Operating profit ...... (156) 89 145 % of sales ...... (23.9) 9.4 17.9 Special items(2) ...... (29) (59) (43) Operating profit excluding special items ...... (127) 148 188 % of sales ...... (19.4) 15.7 23.3 Pulp deliveries, 1,000 t ...... 1,759 1,982 1,927 Capital employed (average) ...... 1,668 1,674 1,423 ROCE (excluding special items), %(3) ...... (7.6) 8.8 13.2 Personnel (as of 31 December)...... 1,516 1,159 1,186 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

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(2) In 2009, special items of EUR29 million related to the closure of the associated company Metsä-Botnia’s Kaskinen pulp mill in Finland. In 2008, special items of EUR59 million related to the closure of the Tervasaari pulp mill in Finland.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

As of 31 December 2009, UPM had three modern and eco-efficient pulp mills in Finland with a total pulp production capacity of 2.1 million tonnes as well as the Fray Bentos pulp mill in Uruguay with a production capacity of 1.1 million tonnes of eucalyptus pulp.

UPM owns a 17% share of the pulp capacity of Metsä-Botnia. Following the closure of the Kaskinen pulp mill in March 2009, Metsä-Botnia has four pulp mills in Finland. Currently, UPM’s share ownership in Metsä-Botnia entitles it to 0.4 million tonnes of capacity annually.

The Pulp business area’s total pulp production capacity is 3.6 million tones per annum, which makes UPM the seventh largest pulp producer in the world.

In December 2009, pursuant to an agreement entered into among UPM, Metsäliitto, M-real, and Metsä-Botnia, UPM acquired Metsäliitto’s and Metsä-Botnia’s share of the Fray Bentos pulp mill and the eucalyptus plantation forestry company, Forestal Oriental, in Uruguay. This transaction increased UPM’s capacity of plantation-based pulp to 1.1 million tonnes per annum and reduced its exposure to Northern Hemisphere pulp by 0.7 million tonnes, as its share ownership in Metsä-Botnia was reduced from 47% to 17%.

UPM’s joint venture company, Borea, was founded in 2008 together with Sveza Group with the target of building an industrial complex, including a modern pulp mill, a sawmill and an OSB panel mill in Russia. In 2009, UPM and Borea conducted a feasibility study in relation to a planned forest industry facility in Russia, and as a result of this study, UPM is currently assessing alternative site options. Depending on the outcome of these assessments, UPM expects to be in a position to reach a decision on the location of the facility at the end of 2011 at the earliest.

Most of the Pulp business area’s sales are internal sales to the Paper business area. In 2009, internal sales represented 90% of the Pulp business area’s sales, as compared to 93% in 2008.

The following chart sets forth the world’s biggest producers of bleached chemical pulp as of January 2010:

World’s biggest producers of bleached chemical pulp

7,500 Hardwood Softwood 6,000

4,500

3,000

1,500

0

a s o ) c er i a 1 ifi IL br ns oup ( R ano ap i M mtar r M ac P z P F o E G P P u l D a r S inar U a- M/A na S tor o / S pe gi G i P a or R P e nat A n P G er o Int ipp N ______(1) Including share of Metsä-Botnia. Source: Pöyry (www.poyry.com) and UPM (www.upm.com).

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The following table sets forth UPM’s pulp production capacity as of January 2010:

As of January 2010 (1,000 tonnes per annum) Fray Bentos ...... 1,100 Kaukas ...... 740 Pietarsaari ...... 790 Kymi ...... 540 Own production capacity, total ...... 3,170 17% share of Metsä-Botnia’s capacity ...... 400 Total UPM ...... 3,570

UPM’s Fibre Balance

There are three principal types of pulp: chemical pulp, mechanical pulp and recycled fibre pulp. Chemical pulp is produced by cooking wood chips in solutions of caustic chemicals to separate the cellulose fibres used for pulping. Mechanical pulp is produced by grinding logs or wood chips. Recycled fibre, which is produced by de-inking recovered paper, is used as a source for recycled fibre pulp. UPM’s mechanical and recycled fibre pulp production is fully integrated with its paper production with no external sales and is therefore included in the Paper business area.

In chemical pulp, UPM is self-sufficient through its own pulp mills. In addition, UPM plans to increase its share of pulp sales. UPM also buys market pulp to optimise its logistic costs and to ensure supply security and aims to grow as a producer of cost competitive and eco-efficient pulp. In 2009, UPM's total consumption of chemical pulp was 2.9 million tonnes, as compared to 3.1 million tonnes in 2008.

In 2009, UPM’s recycled fibre consumption was 2.8 million tonnes in newsprint and magazine paper production, as compared to 3.0 million tonnes in 2008. This yielded approximately 2.1 million tonnes of recycled fibre pulp, as compared to 2.4 million tonnes in 2008. UPM’s goal in recovered paper procurement is to be involved in the value chain and to secure long-term cost competitive supplies for UPM’s own newsprint and magazine paper mills in Europe.

Mechanical pulp represents the third major source of wood fibres for UPM and is used mainly in the production of magazine papers. In 2009, UPM’s total consumption of mechanical pulp was 1.9 million tonnes, as compared to 2.6 million tonnes in 2008.

The following table sets forth UPM’s annual pulp production volumes for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (1,000 tonnes) Production(1) Chemical pulp Own production ...... 1,602 2,007 2,149 From associated companies ...... 772 561 448 Mechanical pulp...... 1,857 2,602 2,942 Recycled fibre pulp ...... 2,139 2,400 2,305 Total ...... 6,370 7,570 7,844 ______

(1) Includes the production of all of UPM’s pulp mills.

The following table sets forth UPM’s annual pulp consumption volumes for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (1,000 tonnes) Consumption Chemical pulp ...... 2,860 3,117 3,561 Mechanical pulp...... 1,889 2,648 2,983 Recycled fibre pulp ...... 2,139 2,400 2,305 Total ...... 6,888 8,165 8,849

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Forest and Timber Business Area

General

The Forest and timber business area is responsible for UPM’s roundwood and other forest biomass sourcing for UPM’s mills and biomass-based power plants. The Forest and timber business area includes UPM’s own forests, wood sourcing and procurement operations, service offering for private forest owners and wood processing in sawmills and further processing mills.

The following table sets forth certain financial and statistical data regarding the Forest and timber business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Forest and timber Sales ...... 1,337 1,920 2,039 EBITDA(1) ...... 24 (48) 159 % of sales ...... 1.8 (2.5) 7.8 Change in fair value of biological assets and wood harvested ...... 18 50 79 Share of results of associated companies and joint ventures ...... 2 — 1 Depreciation, amortisation and impairment charges ...... (34) (56) (44) Operating profit ...... (9) (59) 201 % of sales ...... (0.7) (3.1) 9.9 Special items(2) ...... (31) (36) (13) Operating profit excluding special items ...... 22 (23) 214 % of sales ...... 1.6 (1.2) 10.5 Sawn timber deliveries total, 1,000 m3 ...... 1,497 2,132 2,325 Capital employed (average) ...... 1,717 1,878 1,679 ROCE (excluding special items), %(3) ...... 1,3 (1.2) 12.7 Personnel (as of 31 December)...... 3,067 3,278 3,510 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items of EUR31 million included restructuring charges of EUR14 million of which impairment charges of EUR5 million related to timber operations in Finland. In addition, special items included impairment charges of EUR7 million related to wood procurement operations and a loss of EUR10 million on the sale of Miramichi’s forestry and sawmilling operations’ assets. Special items in 2008 included an impairment charge of EUR31 million related to fixed assets of the Finnish sawmills.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

UPM owns approximately one million hectares of forestland in Finland, the United Kingdom and the United States. These forests supply on average approximately 10% of the Group’s annual wood consumption. In addition to its own forests, UPM also manages approximately 0.7 million hectares of forest land in Finland, the United Kingdom, Russia and the United States.

UPM also owns 183,000 hectares and manages 18,000 hectares of eucalyptus plantations in Uruguay. Forestal Oriental, UPM’s own eucalyptus plantation forestry company, is an integral part of the Fray Bentos pulp mill’s operations and it is therefore reported under the Pulp business area.

Sawmills play an important dual role for UPM being an integral part of UPM’s wood procurement and the development of UPM’s timber business. The WISA product range covers both standard sawn timber and further processed products, mainly for the construction, joinery and furniture industries. Currently, UPM’s annual capacity for sawn timber is 2.4 million cubic metres, making UPM the third largest sawn timber producer in Europe. UPM has five sawmills in Finland, one in Russia and one in Austria.

In August 2009, a further processing mill in Boulogne in France was closed and the operations were centralized to the Aigrefeuille mill in France.

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In November 2009, UPM announced restructuring plans to improve the competitiveness of its timber operations in Finland. As a part of this restructuring, UPM plans to permanently close the sawmill in Heinola and the further processing mill in Parkano during the first half of 2010.

In November 2009, in order to improve its timber operations, UPM announced investments to develop production at the Kaukas sawmill and the Aureskoski further processing mill in Finland.

UPM’s principal competitors in sawn timber production include Stora Enso Corporation ("Stora Enso"), Klausner GmbH, Setra Group and Klenk Holz AG. In addition, UPM faces competition from local producers, particularly in Austria and Germany, but also from Russia, Ukraine and elsewhere in Eastern Europe, where producers recently have built new and competitive capacity aimed at serving their local markets as well as the European markets.

In 2009, 54% of the Forest and timber business area’s sales were internal sales, comprising mostly wood and forest biomass sales to the Pulp business area and the Paper business area.

The following chart sets forth Europe’s biggest sawn timber producers as of January 2010:

Europe’s biggest sawn timber producers

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

r M ra A so P t C itto usne U Se S a Klenk Södra Pfeifer ora En Kl Moelven t Metsäli S

______Source: Pöyry (www.poyry.com), UPM (www.upm.com); Stora Enso (www.storaenso.com); Klausner (www.klausner-group.com); Setra (www.setragroup.se); Klenk (www.klenk.de); SCA (www.sca.com); Södra (www.sodra.com); Metsäliitto (www.metsaliitto.fi); Moelven (www.moelven.com); and Pfeifer (www.pfeifergroup.com).

The following table sets forth the forestland owned by UPM as of 31 December 2009:

As of 31 December 2009 (1,000 hectares) Finland ...... 915 United Kingdom ...... 3 United States ...... 77 Total ...... 995

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UPM’s Wood Procurement

In 2009, UPM consumed 17.0 million cubic metres of wood raw material, as compared to 24.8 million cubic metres in 2008. Approximately 81% of UPM’s wood raw material is consumed in Finland, and approximately 16% is consumed in Central Europe and Russia with the rest being consumed in the United States.

In 2009, UPM harvested 2.4 million cubic metres of wood from its own forests, as compared to 2.2 million cubic metres in 2008. This represented 13% and 14% of UPM’s wood raw material consumption during 2009 and 2008, respectively.

UPM is reducing its dependence on wood raw material imports from Russia by utilising different domestic wood sources, other import sources and by adjusting its production.

In 2009, UPM procured forest biomass equivalent to 4.7 GWh of energy production, primarily to its own and partly owned power plants, as compared to 3.4 GWh in 2008.

UPM’s primary target in relation to renewable and recyclable wood raw material originating from sustainably managed forests is to optimise the yield.

The following table sets forth UPM’s wood deliveries to UPM mills by country for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (1,000 m3) Finland ...... 13,753 20,676 22,330 Austria ...... 936 964 1,020 Germany...... 524 655 640 France ...... 350 450 490 Russia ...... 601 859 860 United Kingdom ...... 309 303 290 Estonia ...... 70 108 90 Canada ...... - 203 650 United States ...... 501 539 520 Total ...... 17,044 24,757 26,890

Paper Business Area

The Paper business area’s product portfolio includes publication papers (coated and uncoated magazine papers, standard and speciality newsprint) and fine and speciality papers (coated and uncoated fine paper reels and sheets, label and packaging papers). Most of UPM’s paper products are sold through UPM’s own sales network. The Paper business area’s customers include mainly magazine and newspaper publishers, printers, merchants and paper converters. Publication paper is used in magazines, newspapers, manuals and booklets, books, catalogues, telephone directories, inserts, flyers, newspaper supplements and advertising materials. Fine paper is used in magazines, catalogues, inserts, advertising materials, copy papers, preprint applications and envelopes. Speciality paper is used for several end-uses of labelling, packaging and mailing industries.

The following table sets forth certain financial and statistical data regarding the Paper business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Paper Sales ...... 5,767 7,011 7,328 EBITDA(1) ...... 929 885 939 % of sales ...... 16.1 12.6 12.8 Share of results of associated companies and joint ventures ...... (1) 1 — Depreciation, amortisation and impairment charges ...... (578) (967) (995) Operating profit ...... 345 (129) (137) % of sales ...... 6.0 (1.8) (1.9) Special items(2) ...... (1) (379) (399)

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Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Operating profit excluding special items ...... 346 250 262 % of sales ...... 6.0 3.6 3.6 Deliveries, publication papers, 1,000 t ...... 5,667 7,090 7,530 Deliveries, fine and speciality papers, 1,000 t...... 3,354 3,551 3,859 Paper deliveries total, 1,000 t ...... 9,021 10,641 11,389 Capital employed (average) ...... 5,714 6,503 7,317 ROCE (excluding special items), %(3) ...... 6.1 3.8 3.6 Personnel (as of 31 December)...... 12,161 13,262 14,538 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items included an income of EUR31 million related to the sale of the assets of the former Miramichi paper mill in Canada, restructuring charges of EUR36 million in several units and impairment reversals of EUR4 million. In 2008, special items included the goodwill impairment charge of EUR230 million, impairment charges of EUR101 million and other restructuring costs of EUR42 million related to the closure of the Kajaani paper mill in Finland, and other restructuring costs, net of EUR6 million.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

UPM’s paper mills are located in Austria, China, Finland, France, Germany, the United Kingdom and the United States. UPM’s annual paper production capacity is approximately 11.5 million tonnes, with 43% of the capacity located in Finland, 46% in other EU countries, 8% in China and 3% in the United States. Papers produced by UPM are based on a renewable fibre raw material base, including various long and short fibre wood species and recycled fibre, which represented approximately 31% of UPM’s fibre raw material consumption in 2009.

In 2009, 71% of paper produced by UPM was sold to Europe and 11% to the United States and Canada. The Paper business area’s main growth market is Asia, which represented 14% of its sales in 2009. With an annual capacity of approximately 4.8 million tonnes, UPM is the world’s leading producer of magazine paper, with approximately one-fifth of the global market. Currently, UPM’s annual newsprint paper production capacity is approximately 2.5 million tonnes and its annual fine paper production capacity is over 3.4 million tonnes. Additionally, UPM’s annual speciality paper production capacity is approximately 0.9 million tonnes.

The Paper business area produces paper on 43 paper machines at 19 paper mills in Austria, China, Finland, France, Germany, the United Kingdom and the United States. In Finland, the business area’s paper mills are located in Jämsänkoski, Kaipola, Kuusankoski, Lappeenranta, Pietarsaari, Rauma and Valkeakoski. Other European paper mills are located in Augsburg, Schongau, Schwedt and Nordland in Dörpen in Germany; Caledonian in Irvine in Scotland; Shotton in Wales; Stracel in Strasbourg, Docelles and Chapelle in Grand Couronne in France as well as Steyrermühl in Austria. In the United States, UPM’s paper mill is located in Blandin in Grand Rapids, Minnesota. In China, paper is produced at Changshu, near Shanghai. The Paper business area also includes UPM’s CHP plants operating on its paper mill sites. The CHP plants represent one-third of UPM’s total power generation and are mainly fuelled by biomass.

The following table sets forth the Paper business area’s sales by geographic market area in 2009:

2009 Percent (EUR in millions) Europe ...... 4,084 71 The United States and Canada ...... 628 11 Asia ...... 801 14 Rest of the world ...... 254 4 Total ...... 5,767 100

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The following table sets forth the annual capacity and industry market position of the main products produced by the Paper business area as of 31 December 2009:

European Global Capacity position position (1,000 tonnes/year) Magazine papers ...... 4,750 1 1 Newsprint ...... 2,460 2 4 Fine papers ...... 3,415 3 5 Speciality papers ...... 850 1–4 – Papers, total ...... 11,475 – – ______Source: UPM, Pöyry. For a discussion of possible changes to the annual capacity of UPM’s paper divisions, see "—Recent Events" below.

UPM has a high level of self-sufficiency in energy and pulp production. UPM is self-sufficient in chemical pulp and approximately 92% self-sufficient in electric power. UPM’s most important raw material used in the production of uncoated and coated fine paper is chemical pulp. Chemical pulp represents approximately 42% of UPM’s total fibre consumption. Mechanical pulp represents approximately 27% of the wood fibres UPM uses in its paper production. Mechanical pulping is integrated into paper production and is used mainly in the production of magazine papers. In addition to chemical and mechanical pulp, approximately 31% of all fibre raw material used in UPM’s paper production is recovered paper. Recovered paper is used mainly for the production of newsprint, but also for uncoated and coated fine paper. The UPM mills at Chapelle Darblay in Grand Couronne in France, Schwedt in Germany and Shotton in Wales produce paper made entirely from recovered paper. UPM is one of the world’s largest users of recovered paper in its printing paper production.

At the end of 2008, UPM permanently shut down its Kajaani paper mill in Finland, with an annual capacity of 640,000 tonnes of newsprint, special newsprint and uncoated magazine papers on three paper machines. At the end of 2007, UPM permanently shut down its Miramichi mill in New Brunswick in Canada, which had an annual production capacity of 450,000 tonnes. Further, paper machine 4 at the Jämsänkoski paper mill in Finland with annual production capacity of 120,000 tonnes, ceased the production of LWC at the beginning of 2007, as it was converted to produce label papers. With these measures and other measures carried out during the last five years, UPM has reduced its uncompetitive annual paper capacity by approximately 1.8 million tonnes, thereby improving its cost competitiveness.

The paper products markets are highly competitive. Although quality considerations are a factor, the market is affected mostly by price. UPM competes with various companies in Europe in the manufacture of graphic papers, including Stora Enso, Norske Skog Industrier ASA, Myllykoski Corporation, Holmen AB, SCA Forest Products, Cartiere Burgo SpA, Sappi Limited, M-real, Portucel Soporcel Group, International Paper Company and Mondi Limited. In North America, UPM’s principal competitors are AbitibiBowater Inc., NewPage Corporation, Verso Paper Holdings LLC and Catalyst Paper Corporation. In China, UPM’s competitors include Asia Pulp & Paper Co. Ltd, Shandong Chenming Paper Holdings Limited, Sun Paper Group and Stora Enso. In other Asian markets, where fine papers are exported, UPM primarily competes with various local producers.

Sales contracts concerning publication papers, which UPM enters into with publishers and printers, generally have a term of three months, six months or 12 months. In other markets, the terms of the sales contracts are generally shorter. Typically, European publishers have had a long-term relationship with UPM. UPM negotiates supply contracts with most such publishers annually around the calendar year end. Sales of fine and speciality papers, mainly sold to merchants and paper converters, are dependent primarily on the underlying market balance and pricing, but also on the tendency of merchants to maintain, increase or reduce inventories of fine paper products that are dependent upon the relevant industry cycle. Therefore, most of the sales are based on short-term contracts.

In 2009, the Paper business area continued measures in order to improve its operating efficiency and profitability. The new business structure, adopted in December 2008, enabled further streamlining and cost reduction.

The Paper business area started implementing a new supply chain in mid-2009, aiming simultaneously at improved customer service and working capital efficiency and lower costs. Implementation of the new supply chain is scheduled to be completed by mid-2010.

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In 2009, fixed costs within the Paper business area decreased substantially. In addition to the permanent cost-saving measures, UPM’s flexible working arrangements contributed to fixed cost reduction. Despite low capacity utilisation, the Paper business area was able to maintain production efficiency.

The Paper business area’s capital expenditure excluding acquisitions and shares was reduced from EUR205 million in 2008 to EUR136 million in 2009. The focus of investments was on-site biomass-based CHP-energy generation.

In June 2009, UPM’s new renewable energy power plant at the Caledonian mill in the United Kingdom started operations. The total investment cost was £68 million. Pohjolan Voima and Lappeenrannan Energia (a power company owned by the City of Lappeenranta) have jointly built a power plant at UPM’s Kaukas mill site in Lappeenranta, Finland. The test-run of the power plant was started in December 2009 and the plant commenced operations in February 2010.

Label Business Area

In label materials, UPM shares the number one market position in Europe and has the number two market position in North America. The Label business area, which consists of UPM Raflatac, manufactures self-adhesive label materials for product and information labelling. UPM’s global market share in pressure sensitive labels is approximately 20%.

The following table sets forth certain financial and statistical data regarding the Label business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Label Sales ...... 943 959 998 EBITDA(1) ...... 78 34 85 % of sales ...... 8.3 3.5 8.5 Depreciation, amortisation and impairment charges ...... (37) (39) (29) Operating profit ...... 35 (26) 60 % of sales ...... 3.7 (2.7) 6.0 Special items(2) ...... (8) (28) 4 Operating profit excluding special items ...... 43 2 56 % of sales ...... 4.6 0.2 5.6 Capital employed (average) ...... 503 510 420 ROCE (excluding special items), %(3) ...... 8.5 0.4 13.3 Personnel (as of 31 December)...... 2,595 2,851 2,568 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items included impairment charges of EUR2 million and other restructuring charges of EUR6 million. In 2008, special items of EUR28 million related to measures to reduce coating capacity and close two slitting terminals in Europe.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

Labels are early cyclical products. Their demand growth over the economic cycle has historically exceeded GDP growth in all of UPM’s market areas. Typical customers for labels are small and medium-sized label printers doing roll-to-roll label printing. Personal care products and beverage businesses with global brand owners and other filmic materials present growth opportunities.

The Label business area has production facilities that cover all of its main markets. With the support of slitting and distribution terminals, the business area’s products are sold worldwide. In Europe, self-adhesive label materials are produced at five factories and two slitting terminals, which support the Label business area’s logistics and customer service. UPM’s new factory in Poland commenced production in November 2008. The Tampere factory in Finland is the centre for the business area’s research and development. There are two factories in the United States, one located in Fletcher in North

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Carolina, and one in Dixon in Illinois. The Dixon factory commenced production in January 2008. With the support of five slitting terminals, UPM Raflatac covers main customer markets in the Americas.

In the Asia Pacific region, UPM Raflatac has three factories, one in each of China, Malaysia and Australia. The newest factory in Changshu in China, commenced production in December 2006. The slitting terminal network consists of eight facilities. In South Africa, UPM Raflatac has one factory.

In 2009, the Label business area restructured its European operations in line with a plan announced in November 2008 in order to address the issue of the weakening economic environment and to secure profitability through streamlined operations. UPM Raflatac permanently closed a number of self-adhesive labelstock production lines and reduced slitting capacity in the United Kingdom, France, Germany, Hungary and Finland. One slitting terminal was also closed in the United States. The restructuring was completed by the end of September 2009.

UPM has recently completed an investment programme consisting of three new factories in Wroclaw, Poland (2008), Illinois, United States (2008), and Changshu, China (2006), and a series of rebuilds. These investments were made, for example, to secure cost effective production and to enable profitable growth in new markets and certain product segments which utilise hotmelt adhesives and filmic liners. As a result of this investment programme, UPM has the ability to grow in line with the label materials market, without the need for significant further investments.

UPM’s main market for pressure sensitive labelstock are the European countries and the second largest market is North America. Although other markets are smaller, UPM’s management believes that significant future growth potential exists in emerging markets, where strong annual market growth has continued. Currently, the two largest suppliers of pressure sensitive labelstock worldwide, Avery Dennison and UPM together, account for approximately one-half of the global market. In addition, UPM competes with local producers, such as Bemis Company Inc/MACTac in North America and Herma GmbH in Europe.

Plywood Business Area

Plywood is used in the building, construction and transportation industries and in a number of special applications. UPM offers a wide range of uncoated and coated plywood for various industry specific solutions that require high quality and specially treated surfaces.

The following table sets forth certain financial and statistical data regarding the Plywood business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Plywood Sales ...... 306 530 591 EBITDA(1) ...... (30) 46 71 % of sales ...... (9.8) 8.7 12.0 Depreciation, amortisation and impairment charges ...... (27) (21) (21) Operating profit ...... (82) 28 50 % of sales ...... (26.8) 5.3 8.5 Special items(2) ...... (31) 3 — Operating profit excluding special items ...... (51) 25 50 % of sales ...... (16.7) 4.7 8.5 Deliveries, plywood, 1,000 m3 ...... 567 806 945 Capital employed (average) ...... 266 307 300 ROCE (excluding special items), %(3) ...... (19.2) 8.1 16.7 Personnel (as of 31 December)...... 3,292 3,799 3,945 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items included impairment charges of EUR6 million and other restructuring charges of EUR25 million. Special items in 2008 included reversals of provisions related to the disposed Kuopio plywood mill in Finland.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

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UPM has six plywood mills: four in Finland, one in Russia and one in Estonia. The Plywood business area also includes three veneer mills: two in Finland and one in Russia. With a total capacity of approximately 1 million cubic metres, UPM is the largest plywood manufacturer in Europe.

UPM’s Plywood business area seeks growth opportunities in terms of developing solutions for more demanding end-uses and through new products. Research and development is an integral part of the Plywood business area’s operations. Business research and development combines customer needs as well as new technologies to create new solutions.

In November 2009, UPM announced a plan in order to improve the long-term cost competitiveness of its Plywood business area and increase added value in the birch plywood production in Finland. To this end, UPM intends to permanently close the Heinola and Kaukas plywood mills during the first half of 2010.

UPM plans to invest EUR25 million mostly in the expansion of the Savonlinna plywood mill in Finland. After the investment, the mill will be the world’s most efficient birch plywood unit with an annual production capacity of 120,000 cubic metres of high quality birch plywood.

In addition, the Lahti plywood processing mill in Finland was closed in October 2009 and its production was moved to other mills in Finland. At the Kalso veneer mill, a production automation project was completed in May 2009.

The restructuring measures, when combined with the investment in the Savonlinna plywood mill, will only have a marginal effect on the Plywood business area’s production capacity and UPM’s Plywood business area will be in a position to respond to customer needs when demand recovers.

UPM’s principal competitors in the plywood production industry include Finnforest, various medium sized producers, such as Latvijas Finieris, and Russian producers, such as the Russian Sveza Group, and certain South American producers, which export a part of their plywood production to the European markets.

The main buyers of plywood products are the construction and transport industries, which use plywood in the construction of trailers and truck floors. Vehicle manufacturers use plywood because it is one of the strongest conventional light weight materials available. Through the use of plywood, vehicle manufacturers are able to increase their cargo capacity and reduce fuel consumption. Other uses for plywood include scaffolding, concrete forming and shipbuilding. In shipbuilding, plywood is used to build, among other things, the interiors of liquid natural gas transport tanks because plywood withstands extremely low temperatures without contracting. UPM also manufactures veneer for, for example, the production of furniture and parquet flooring. UPM sells its plywood and veneer products under the registered WISA trademark.

Other Operations

In UPM’s financial reporting, the Other operations business area includes (i) the following development units: RFID tags, wood plastic composites and biofuels; (ii) certain logistics services; and (iii) the central administrative functions of the Group. In 2008, logistics services represented approximately one-half of the business area’s sales, of which a major part was internal.

According to the new business structure, which entered into force on 1 December 2008, RFID tags and wood plastic composite businesses are included in the Engineered materials business group and biofuels is included in the Energy and pulp business group. In financial reporting, however, these development units continue to be reported under the Other operations business area.

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The following table sets forth certain financial data regarding the Other operations business area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions, except for percentages and personnel and production data) Other Operations Sales ...... 111 200 450 EBITDA(1) ...... (111) (57) (14) % of sales ...... (100) (28.5) (3.1) Share of results of associated companies and joint ventures ...... (4) 1 1 Depreciation, amortisation and impairment charges ...... (12) (8) (28) Operating profit ...... (142) (54) 69 % of sales ...... (127.9) (27.0) 15.3 Special items(2) ...... (17) 10 99 Operating profit excluding special items ...... (125) (64) (30) % of sales ...... 112.6 (32.0) (6.7) Capital employed (average) ...... 141 137 217 ROCE (excluding special items), %(3) ...... (88.7) (46.7) (13.8) Personnel (as of 31 December)...... 490 595 579 ______

(1) EBITDA means operating profit before depreciation, amortisation and impairment excluding the change in the value of biological assets, its respective share of results of associated companies and joint ventures and special items.

(2) In 2009, special items related to terminated activities and estates of closed industrial sites in Finland. In 2008, special items included an adjustment of EUR5 million to sales of disposals of 2007 and other restructuring income net of EUR5 million.

(3) ROCE is calculated by multiplying 100 by (a) the operating profit excluding special items divided by (b) non-current assets plus inventories and trade receivables, minus trade payables (average).

Biofuels

UPM has vast experience in converting forest biomass into energy and the Company has been developing production technologies for combined heat and power plants (CHP). UPM aims to become a major participant in Europe in the production of renewable second generation biofuels that are currently in the development and piloting stage. Sustainability of operations has been one of the main criteria for the development of the biofuels business, which is the reason why UPM’s production for biofuels will not be based on materials suitable for food. Second generation biodiesel produced for transport used at UPM’s biorefinery would generate over 85% less emissions throughout the value chain, as compared to fossil fuels. Producing biofuels from renewable raw material in accordance with UPM’s plan contributes to the EU’s long-term climate and energy targets. The raw material to be used in UPM’s production of second generation biodiesel will mainly consist of energy wood, including logging residues, wood chips, stumps and bark. Locating a biorefinery adjacent to an existing UPM pulp or paper mill would enhance the ability to utilise wood raw material efficiently and minimise the need for capital investments. In addition, energy integration would offer further benefits, including cost efficiency.

In the biofuels business, the development of technologies and business models for several projects is ongoing. UPM is piloting concepts for the production of second generation biodiesel, bioethanol and bio oil. Second generation biodiesel can be used instead of mineral oil based diesel and it is well-suited for current diesel motor technology and fuel distribution infrastructure. Bioethanol can be used as a blending component in gasoline, while bio oil can be used like fuel oil in heating and power generation. In second generation biodiesel, UPM, together with Andritz/Carbona, has been developing the gasification technology needed to produce biofuel from forest energy wood. At the end of 2009, the initial testing programme was completed in the United States according to plan. Finalisation of the technical concept will continue in 2010. The environmental impact assessment for such a biorefinery producing second generation biofuels has been completed in Finland, in Kuusankoski and Rauma. In December 2009, UPM announced that it will start an environmental impact and risk assessment at the Stracel paper mill site in France. UPM has also been developing a new bioethanol and energy production concept that, for the first time, utilises commercial and industrial waste. The concept has been tested in pilot runs in co- operation with the Technical Research Centre of Finland ("VTT") and Pöyry. In addition, UPM, Metso

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and Fortum Corporation ("Fortum"), together with VTT, have developed a new concept for the production of energy wood based bio oil to replace fossil fuels in heating and power generation. In this concept, production of bio oil would be integrated into UPM’s own biomass-based power plants. The technology used in combined bio oil and renewable energy production is patented.

Currently, biofuels already have a global market of approximately EUR30 billion, which is expected to grow 10-15% per year for at least the next ten years. UPM intends to enter this attractive market with high-quality products produced from non-food sources with minimal carbon footprint. Investments in commercial-scale second generation biofuels plants depend, to a large extent, on the EU and national investment subsidies, excise tax reliefs and regulation.

Marketing

UPM sells its products primarily through its own global sales network. UPM’s management believes that maintaining UPM’s own sales organisation in its significant markets improves its ability to respond to its customers’ needs. UPM sells its products mainly to European and North American customers, but the Group also has an established customer base in Asia, South America, Australia, Middle-East and Africa.

The following table sets forth UPM’s sales by market area for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December . 2009 2008 2007 (EUR in millions) Germany...... 1,365 1,640 1,707 United Kingdom ...... 951 1,040 1,203 Finland ...... 672 946 865 France ...... 453 552 607 Other EU countries ...... 1,754 2,259 2,418 Other European countries ...... 391 467 493 United States ...... 800 940 1,140 Canada ...... 41 65 115 China ...... 367 397 382 Rest of the world ...... 925 1,155 1,105 Total ...... 7,719 9,461 10,035

Legal Proceedings

The Group is a defendant or a plaintiff in a number of legal proceedings. These legal proceedings primarily involve claims arising out of commercial law issues. UPM’s management does not expect the legal proceedings that UPM currently is involved in to have a material adverse impact on the business, financial condition or results of operations of the Group.

Certain competition authorities have investigated alleged antitrust activities with respect to various UPM products. The U.S. Department of Justice, the EU authorities and the authorities in several EU countries, Canada and certain other countries have granted UPM conditional full immunity with respect to certain conduct disclosed to the authorities. UPM was named a defendant in multiple class action lawsuits against labelstock and magazine paper manufacturers in the United States. These investigations, as well as litigation arising therefrom, have ended in all material respects.

In Finland, UPM is currently participating in a project to build a new nuclear power plant, Olkiluoto 3, through its associated company Pohjolan Voima. Pohjolan Voima is a majority shareholder of Teollisuuden Voima with a 58.28% shareholding. UPM’s indirect share of the capacity of the Olkiluoto 3 nuclear power plant is approximately 29%. The nuclear power plant was expected to commence operations in the summer of 2009. However, due to delays in the construction of the unit, operations are now expected to commence during 2012. Teollisuuden Voima has requested the plant supplier, the consortium AREVA-Siemens, to reanalyse the anticipated start-up time.

Teollisuuden Voima has informed UPM that the claims related to the arbitration proceedings started in December 2008 by AREVA Siemens, concerning the delay at Olkiluoto 3, and related costs amounted to EUR1.0 billion. In response, Teollisuuden Voima filed a counter-claim in April 2009 for

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costs and losses incurred due to the delay and other defaults on the part of the supplier. The value of Teollisuuden Voima’s counter-claim was approximately EUR1.4 billion.

In Uruguay, after the International Court of Justice published its decision on the litigation action against the government of Uruguay in relation to the Fray Bentos pulp mill on 20 April 2010, there are two separate litigation actions pending against the government of Uruguay related to the Fray Bentos pulp mill, and one litigation action directly against UPM and the operator of the pulp mill. UPM acquired the shares of the Fray Bentos pulp mill and in the eucalyptus plantation forestry company from Metsäliitto and Metsä-Botnia in 2009, and all of these litigation actions commenced before the pulp mill started its operations in November 2007.

Research and Development

In 2009, UPM adopted an innovation strategy to create new business initiatives and strengthen the competitiveness of existing businesses with new technological breakthroughs and a focus on continuous improvement. To support this, UPM has defined four key research areas for new business opportunities: biofuels, biochemicals, nanocellulose and biocomposites.

In 2009, UPM implemented its first strategic technology programme for developing new service concepts and process technologies with significant cost savings. New technologies have also been developed in filmic label materials and energy efficiency has been improved at paper mills. UPM’s direct expenditure on research and development projects was approximately EUR48 million or 0.6% of the Group’s sales in 2009.

Biofuels. In the development of second-generation biodiesel production technology, UPM, in partnership with Andritz/Carbona, completed the pilot testing of Carbona’s gasification technology at the Gas Technology Institute’s pilot plan at the end of 2009. Finalisation of the technical concept will continue in 2010. In bioethanol, UPM and Lassila & Tikanoja plc have been developing a new bioethanol and energy production concept that utilises commercial and industrial waste, such as paper, cardboard, wood and plastic. The EU has granted demonstration support for the project. In bio oil, Metso, UPM and VTT developed a new concept for the production of biomass-based bio oil to replace fossil fuels in heating and power generation. Fortum has also joined the bio oil project.

The UPM Biorefinery Development Centre researching biofuels and biochemicals was established at UPM’s Kaukas paper mill site in Lappeenranta in Finland, in the beginning of 2009.

Biochemicals. In 2009, UPM focused was on replacing oil-based chemicals with biochemicals in various UPM products. UPM continued to study the use of agro residues and other non-wood feedstocks, such as straw and reed, for the production of pulp and biochemicals.

Nanocellulose. UPM’s Finnish Centre for Nanocellulosic Technologies, established in 2008, researches new uses for cellulose as a raw material and as a substance, and ensures the launch of new products into the market. In the first phase, the focus of the centre has been on paper applications, such as special papers and paper coating.

Biocomposite. In 2009, UPM ProFi continued to launch new products and expanded its sales channels to most European countries.

Improvements in Businesses. The main focus of research and development in the paper business in 2009 was to improve the cost structure of all paper grades. New breakthrough technologies could be implemented in mechanical pulping in order to reduce operational expenses.

In 2009, UPM Raflatac developed the next generation of high-quality filmic liners with a cost- efficient process.

Environmental and Regulatory Matters

Environmental Performance

UPM considers innovation and environmental sustainability to be its key focus areas. Environmental performance is a natural part of integrating UPM’s business into the emerging bio-

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economy, where products and energy are derived from renewable, recyclable and biodegradable raw materials, such as wood fibre from sustainably managed forests.

UPM’s key areas of environmental responsibility have been defined as sustainable products, climate, water, biodiversity and minimising waste.

Providing Sustainable Products

UPM’s aim is to provide products that are sustainable over their entire lifecycle, from raw material sourcing, production, delivery and product use to recycling, reuse or disposal of the product. Good examples of sustainable product development are eco-labelled papers, low-weight plywood and UPM ProFi, a wood plastic composite produced using the surplus paper and plastic left over from UPM’s self-adhesive labelstock production.

Currently, UPM is the largest producer of copying and graphic paper to have been awarded the independently verified EU Eco-label, with over 100 labelled paper products being produced at 14 paper mills in Austria, Finland, France, Germany and the United Kingdom. The EU Eco-label, also known as the EU Flower, focuses on an overall low environmental footprint over the life-cycle of paper. UPM also uses the FSC (Forest Stewardship Council) and PEFC (Programme for Endorsement of Forest Certification) forest certification labels and offers certified products in all its business groups.

Recovered paper is an important raw material component in UPM’s paper products. In 2009, UPM used 2.8 million tonnes of recovered paper, which makes UPM the world’s largest user of recovered paper in the graphic paper industry.

UPM has made investments to ensure compliance and performance beyond environmental regulations. In 2009, environmental protection costs, including depreciation, totalled EUR87 million and consisted mainly of effluent treatment and waste management costs. Capital expenditure totalled EUR14 million.

Solutions for Climate Change

UPM is committed to providing solutions for climate change by reducing carbon dioxide emissions throughout the entire value chain of its products. This is done by investing in new mill site power plants using biomass-based fuels, by continuous improvement in energy efficiency, and by investing in biofuel production. Additional measures include the use of renewable and recyclable materials and the sustainable management of its forests so that they sequester carbon dioxide.

UPM has a very strong track record of achieving major reductions in carbon dioxide emissions due to investments in biomass-based renewable energy production totalling over EUR1 billion over the past ten years. These long-term investments have allowed the use of a renewable and carbon-neutral source of energy (such as wood). Carbon-neutral energy sources dominate UPM’s energy portfolio. Globally, over 60% of the fuels used by UPM are biomass-based and, in Finland, this figure exceeds 80%. As a result, UPM’s fossil carbon dioxide emissions have been reduced by 40% per tonne of paper since 1990.

In 2009, the new renewable energy power plant at UPM’s Caledonian paper mill in Scotland started up successfully. A fossil fuel fired boiler was replaced with a modern, fully integrated biomass CHP plant. As a consequence, the mill’s annual carbon dioxide emissions were reduced by approximately 60,000 tonnes and the mill’s carbon footprint has been significantly reduced. The project will make a significant contribution to the Scottish Government’s target of 50% of all energy consumed being generated from renewable sources by 2020.

Sustainable Forest Management

In relation to forestry operations, UPM requires that its external wood raw material suppliers implement responsible practices that are consistent with UPM policies and rules. Forest biomass is used efficiently in UPM’s products and energy generation.

UPM’s sustainable forest management programme includes measures to promote forest certification and the use of independently verified chain-of-custody systems to trace the origin of wood. Chain-of-custody and forest certification are tools used for demonstrating legal and sustainable wood

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sourcing. In 2009, approximately 78% of all wood used by UPM originated from certified forests. Based on UPM’s new multisite certification system, 76% of UPM’s paper products were produced using fibre that meets FSC and PEFC criteria. All of UPM’s fibre supplies are covered by independently verified chain-of-custody systems.

UPM has developed a global biodiversity programme for its forests in Finland, the United Kingdom and the United States. The programme aims to maintain and increase biodiversity in forests, as well as to promote best practices in sustainable forestry. In the long term, the aim of the programme is to cover all wood sourcing activities.

Recycling and Re-use

Continual reduction of landfill waste is an ongoing target for UPM. Currently, approximately 90% of UPM’s production waste is reused or recycled. Nearly all organic production residues, including bark and wood residues, as well as fibre-containing solids from de-inking and effluent treatment, are used in energy generation at UPM’s mill sites. Ash left over from energy generation at these power plants is the most significant constituent of solid waste at UPM.

In 2009, approximately 95% of the total ash volume from UPM was reused for various applications, including being used as an aggregate in road construction, as a fertiliser and as raw material for the cement and brick industries. As compared to 2008, the total volume of landfill waste decreased by 27% partly due to lower production volumes, but mainly due to UPM’s continuous efforts to find new alternative uses for waste.

UPM assesses the condition of its mill areas as soon as a site is decommissioned. Based on this assessment, a remediation plan and future site use are agreed upon and authorised by the authorities.

Responsible Use of Water Resources

UPM’s aim is to reduce the use of water and achieve a best-inclass quality of effluent, prior to discharging it to receiving waters.

In 2009, UPM’s level of water use and effluent quality improved or remained stable for the key parameters measured. In the past ten years, UPM has made the following improvements: a 40% decrease in water use per tonne of paper, 10% less per tonne of pulp; a 46% decrease in effluent organic load per tonne of paper, and 35% less per tonne of pulp (chemical oxygen demand); and a 24% decrease in AOX levels (absorbable organic halides).

UPM’s long-term target for effluent volume from its paper mills is ten cubic metres per tonne of paper and from pulp mills 30 cubic metres per tonne of pulp by 2020. In 2009, UPM joined the Water Footprint Network, which focuses on evaluating the local impact of water sourcing and the role of water throughout the paper product supply chain, and commenced a Water Footprint case study at the UPM Nordland mill in Germany.

Property, Plant and Equipment

UPM’s executive offices are located at Eteläesplanadi 2, Helsinki, Finland, in a building which UPM leases. UPM generally owns all of its manufacturing facilities. In addition to manufacturing facilities, UPM owns a number of other facilities, including warehouses, distribution centres and shipping terminals. In addition to the manufacturing facilities listed below, currently, UPM also owns nine hydropower plants, with an aggregate capacity of 197 MW, which are all located in Finland.

UPM’s manufacturing facilities include the following:

Pulp and Paper Business Areas

Location of Facility Unit Capacity Principal Products (tonnes) Austria Steyrermühl ...... Steyrermühl 510,000 magazine paper and newsprint China Changshu ...... Changshu 900,000 fine paper Finland Jämsänkoski ...... Jämsänkoski 910,000 magazine and label paper

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Location of Facility Unit Capacity Principal Products (tonnes) Kaipola ...... Kaipola 730,000 newsprint and magazine paper Kuusankoski ...... Kymi 850,000 fine paper 540,000 chemical pulp Lappeenranta ...... Kaukas 610,000 magazine paper 740,000 chemical pulp Pietarsaari ...... Wisapaper 200,000 packaging paper Wisaforest 800,000 chemical pulp Rauma ...... Rauma 1,280,000 magazine paper Valkeakoski ...... Tervasaari 370,000 label and packaging papers France Docelles ...... Docelles 155,000 fine paper Grand Couronne...... Chapelle Darblay 380,000 newsprint Strasbourg ...... Stracel 290,000 magazine paper Germany Augsburg ...... Augsburg 530,000 magazine paper Dörpen ...... Nordland 1,510,000 fine paper Schongau ...... Schongau 780,000 newsprint and magazine paper Schwedt ...... Schwedt 300,000 newsprint United Kingdom Irvine ...... Caledonian 290,000 magazine paper Shotton ...... Shotton 520,000 newsprint United States Grand Rapids, MN ...... Blandin 360,000 magazine paper Uruguay Fray Bentos ...... Fray Bentos 1,100,000 chemical pulp

Forest and Timber Business Area

Location of Facility Unit Capacity Principal Products (tonnes) Austria Steyrermühl ...... Timber 380,000 sawn timber Finland Kajaani ...... Timber 210,000 sawn timber Korkeakoski ...... Timber 310,000 sawn timber Lappeenranta ...... Timber 500,000 sawn timber Pietarsaari ...... Timber 220,000 sawn timber Pori ...... Timber 380,000 sawn timber Russia Pestovo ...... Timber 260,000 sawn timber

Label Business Area and RFID

Location of Facility Unit Capacity Principal Products (tonnes) Australia Braeside(1) ...... UPM Raflatac n/a label materials China Changshu ...... UPM Raflatac n/a label material Guangzhou ...... RFID n/a RFID tags Finland Jyväskylä ...... RFID n/a RFID tags Tampere ...... UPM Raflatac n/a label materials France Pompey (Nancy) ...... UPM Raflatac n/a label materials Malaysia Johor ...... UPM Raflatac n/a label materials Poland Wroclaw ...... UPM Raflatac n/a label materials South Africa Pinetown(1) ...... UPM Raflatac n/a label materials Spain Polinyá (Barcelona) ...... UPM Raflatac n/a label materials United Kingdom Scarborough ...... UPM Raflatac n/a label materials United States Dixon, IL ...... UPM Raflatac n/a label materials Fletcher, NC ...... UPM Raflatac n/a label materials Fletcher, NC(1) ...... RFID n/a RFID tags

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Plywood Business Area

Location of Facility Unit Capacity Principal Products (tonnes) Estonia Otepää ...... Plywood 40,000 plywood Finland Joensuu...... Plywood 65,000 plywood Lahti ...... Plywood n/a plywood processing Ristiina ...... Plywood 480,000 plywood Savonlinna ...... Plywood 80,000 plywood Jyväskylä ...... Plywood 120,000 plywood Vuohijärvi ...... Plywood 80,000 veneer Lohja ...... Plywood 10,000 veneer Russia Chudovo ...... Plywood 110,000 plywood and veneer ______

(1) Leased facility.

Employees

As of 31 December 2009, UPM employed 23,213 individuals of whom 10,682, or 46%, were employed in Finland. UPM’s human resources policy is implemented by local units, where the practices can be developed using regional synergies and local strengths. UPM has implemented bonus plans globally based on financial performance to provide incentives for all its employees and to help build a corporate culture with increased emphasis on high performance and profitability. In most cases, employee’s earnings comprise of a fixed basic salary and payments under a short-term incentive scheme that combines company and business level targets and personal and/or team performance targets. One of the key indicators is EBITDA. For the year ended 31 December 2009, payments under the short-term incentive scheme amounted to approximately to EUR36 million. In addition, UPM conducts employee engagement surveys to study engagement factors, employee satisfaction and working conditions. UPM emphasises personal performance discussions between employees and their superiors. A large number of UPM’s employees belong to trade unions. In Finland, approximately 85% of UPM’s employees belong to unions, while in other countries where UPM has principal production facilities, the proportion of unionised workers typically varies between 10% and 50%. UPM seeks to observe local practices and legislation in its labour relations matters and while it negotiates collective bargaining agreements. In Finland, the paper and wood products industries have typically concluded collective bargaining agreements with a group of trade unions, representing blue-collar workers and white collar salaried employees in the paper and wood products industries and forestry operations. The latest negotiated collective agreements (paper industry, wood products industry and forestry operations) shall be effective until 31 March 2012. The agreed wage increases for the year 2010 is 0.5%. Weight and salary increases for 2011 shall be negotiated in the beginning of 2011.

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The following table sets forth the number of UPM’s personnel by country as of 31 December 2009, 2008 and 2007:

As of 31 December 2009 2008 2007 Finland ...... 10,682 12,305 13,086 Germany...... 3,620 3,759 3,802 United Kingdom ...... 1,546 1,602 1,567 France ...... 1,321 1,392 1,437 Russia ...... 1,026 1,116 1,230 Austria ...... 619 642 657 Poland ...... 334 275 89 Spain ...... 251 266 273 Estonia ...... 191 181 176 Italy ...... 76 83 79 Belgium ...... 28 32 37 The Netherlands ...... 27 30 35 Turkey ...... 21 20 19 Sweden ...... 20 24 24 Other Europe ...... 105 137 140 China ...... 1,320 1,327 1,312 United States ...... 1,005 1,096 1,067 Uruguay ...... 524 - - Malaysia ...... 173 172 158 South Africa ...... 91 97 94 Australia ...... 88 93 94 Canada ...... 11 194 843 Rest of the world ...... 134 140 133 Total ...... 23,213 24,983 26,352

The following table sets forth the number of personnel by business area as of 31 December 2009, 2008 and 2007:

As of 31 December 2009 2008 2007 Energy ...... 92 39 26 Pulp ...... 1,516 1,159 1,186 Forest and timber ...... 3,067 3,278 3,510 Paper ...... 12,161 13,262 14,538 Label ...... 2,595 2,851 2,568 Plywood ...... 3,292 3,799 3,945 Other operations ...... 490 595 579 Total ...... 23,213 24,983 26,352

Stock Option Programmes

The Annual General Meeting of shareholders held on 31 March 2005 approved the Board of Directors’ proposal to issue share options to the Group’s key personnel. The number of share options was 9,000,000 and these can be exercised to subscribe for a maximum of 9,000,000 of the Company’s shares. A total of 3,000,000 of the share options were designated as class 2005F options, 3,000,000 were designated as class 2005G options and 3,000,000 were designated as class 2005H options. The subscription period for the class 2005F options was 1 October 2006 to 31 October 2008, the subscription period for the class 2005G options was 1 October 2007 to 31 October 2009, and the subscription period for the class 2005H options is 1 October 2008 to 31 October 2010.

The subscription price for the class 2005F options was the average trade weighted price for the Company’s share on NASDAQ OMX Helsinki Ltd ("NASDAQ OMX Helsinki") between 1 January and 28 February 2005 adding 10%, i.e., EUR18.23 per share. The subscription price for the class 2005G options was the average trade weighted share price between 1 January and 28 February 2006 adding 10%, i.e., EUR18.65 per share, and for the class 2005H options, the average trade weighted share price between 1 January and 28 February 2007 adding 10%, i.e., EUR21.65 per share. The share subscription prices will be reduced by the amount of dividend confirmed after the end of the subscription price determination period and before the date of share subscription, in each case, on the record date for dividend distribution.

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The share subscription period for the class 2005F options ended on 31 October 2008. During the share subscription period, a total of 4,000 class 2005F options were used for the subscription of 4,000 of the Company’s shares.

The share subscription period for 2005G options ended on 31 October 2009. During the share subscription period, no shares were subscribed with 2005G options. At the end of the subscription period, the subscription price was EUR16.00 per the Company’s share.

Share subscriptions based on the class 2005H options may increase the number of the Company’s shares by a maximum of 3,000,000.

The Annual General Meeting of shareholders held on 27 March 2007 approved the Board of Directors’ proposal to issue share options to the Group’s key personnel. The number of options may not exceed 15,000,000 and these can be exercised to subscribe for a maximum of 15,000,000 of the Company’s shares. Of the share options, 5,000,000 were designated as class 2007A options, 5,000,000 were designated as class 2007B and 5,000,000 were designated as class 2007C options. The subscription period for the class 2007A options is 1 October 2010 to 31 October 2012; for the class 2007B options, 1 October 2011 to 31 October 2013; and for the class 2007C options, 1 October 2012 to 31 October 2014. The subscription price is the average trade weighted price of the Company's share on NASDAQ OMX Helsinki, between 1 April and 31 May 2008 for the class 2007A options (i.e., EUR12.40 per share), between 1 April and 31 May 2009 for the class 2007B options (i.e., EUR6.24 per share), and between 1 April and 31 May 2010 for the class 2007C options.

Material Contracts

Neither UPM-Kymmene Corporation nor any of its consolidated subsidiaries has entered in the last two years into any contracts outside of the ordinary course of business that have had or may reasonably be expected to have a material effect on its business.

Selected Financial Information

The following table sets forth selected consolidated financial data as of and for each of the five years ended 31 December 2009 under IFRS. The selected consolidated financial data set forth below are derived from UPM’s audited consolidated financial statements for these periods and should be read in conjunction with these consolidated financial statements and the related notes thereto.

As of and for the year ended 31 December 2009 2008 2007 2006 2005 (EUR in millions, except per share data) INCOME STATEMENT DATA Sales ...... 7,719 9,461 10,035 10,022 9,348 Depreciation, amortisation and impairment charges ...... (779) (1,225) (1,224) (1,138) (1,130) Operating profit ...... 135 24 483 536 318 Operating profit excluding special items ...... 270 513 835 725 558 Profit before tax ...... 187 (201) 292 367 257 Net income ...... 169 (180) 81 338 261 BALANCE SHEET DATA Total assets ...... 13,605 13,781 13,953 14,469 15,541 Current liabilities ...... 1,571 1,828 2,417 2,410 2,348 Non-current liabilities ...... 5,432 5,816 4,753 4,770 5,845 Minority interest ...... 16 14 13 18 21 Share capital ...... 890 890 890 890 890 Equity attributable to equity holders of the parent company ...... 6,586 6,106 6,770 7,271 7,327 OTHER DATA Net cash provided by operating activities ...... 1,259 628 867 1,215 853 Net cash used in investing activities...... (214) (532) (425) (314) (158) Net cash used in financing activities ...... (940) (1) (402) (951) (588) Capital expenditures ...... 913 551 708 699 749 Earnings per share ...... 0.33 (0.35) 0.16 0.65 0.50 Diluted earnings per share ...... 0.33 (0.35) 0.16 0.65 0.50 Dividends per share ...... 0.45 0.40 0.75 0.75 0.75 Weighted average number of shares Basic number of shares (1,000’s) ...... 519,955 517,545 522,867 523,220 522,029 Diluted number of shares (1,000’s) ...... 519,955 517,545 525,729 526,041 523,652

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Operating and Financial Review and Prospects

General

The information in this section concerning UPM’s financial condition and results of operations refers to the consolidated financial statements included elsewhere in this Base Prospectus, which are prepared in accordance with IFRS.

Overview

UPM is the leading producer of graphic papers and among the largest forestry companies in the world, in terms of capacity. It is also the world’s second largest producer of label materials and Europe’s largest producer of plywood, in terms of capacity. UPM consists of three business groups: Energy and pulp, Paper, and Engineered materials. Under this business structure, UPM reports financial information for the following business areas: Energy, Pulp, Forest and timber, Paper, Label, Plywood, and Other operations. The third party sales of the Energy business area accounted for 2%, the Pulp business area 1%, the Forest and timber business area 8%, the Paper business area 72%, the Label business area 12%, the Plywood business area 4% and the Other operations business area 1%, in each case, of UPM’s sales in 2009, as compared to 1%, 1%, 9%, 72%, 10%, 5% and 2%, respectively, in 2008.

UPM is well-integrated in key resources, with a high degree of self-sufficiency in chemical pulp and energy, while its forest holdings serve as a strategic buffer in the Finnish wood market. UPM is still primarily a European company, as its sales to Europe represented 72%, 73% and 73% of UPM’s sales in 2009, 2008 and 2007, respectively. North America represented 11%, 11% and 12% of UPM’s sales in 2009, 2008 and 2007, respectively, and Asia represented 12%, 11% and 10% of UPM’s sales in 2009, 2008 and 2007, respectively. The geographic allocation of UPM's sales has remained similar over the past three years, but the importance of Asia, China in particular, has been growing. See "—Corporate Structure" above.

The main driving forces in the energy, paper and forest products industry include general economic performance, print media advertising, substitution of paper consumption with electronic media, changes in customer strategies, the industry’s capacity build-up through technological advancement and new investment, capacity closures, capacity utilisation, commodity pricing, cost competitiveness, construction activity and consumer consumption. Sales prices and capacity utilisation rates for UPM’s main products are strongly affected by general business conditions in the markets in which it operates. Individual suppliers, due to a relatively large number of competitors and low market shares, have very little influence on these factors and the resulting product sales cycles. As a result, the companies in the energy, paper and forest products industry compete primarily on cost effectiveness to offset downturns in the sales cycles. Efficiency of operations, manufacturing costs and the prevailing exchange rates between producer and consumer countries affect profitability in the industry. UPM’s management believes that, in order to be successful in the industry, a company should be positioned at the lower end of a cost curve in its core product areas, have a suitable, high-quality product mix and have production units located in close proximity to its key global and local customers.

In order to maintain and improve the Group’s competitive position in the new business environment, UPM’s management has been focused on achieving greater efficiency, cost-control and change readiness. UPM’s continuous cost-saving measures in recent years have reduced its manufacturing costs and supported its relative profitability.

By the end of 2008, UPM’s three-year profitability programme 2006-2008 was completed as planned. The profitability programme resulted in the reduction of approximately 4,300 employees and the annual fixed cost savings achieved through the programme were approximately EUR190 million, as compared to the cost level in 2006. UPM has reduced its capacity and streamlined its paper, pulp, label and forest and timber operations in order to mitigate the negative effects of demand decline in the mature markets, low paper prices, increasing costs and unfavourable currency rate movements.

The Kajaani paper mill and Tervasaari pulp mill closures in Finland were completed at the end of 2008. Due to the reduced demand for paper and pulp, the closures had only a minor impact on UPM’s paper and pulp deliveries.

In 2009, the Label business area restructured its European operations. UPM Raflatac permanently closed a number of self-adhesive labelstock production lines and reduced slitting capacity in

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the United Kingdom, France, Germany, Hungary and Finland. One slitting terminal was also closed in the United States. The restructuring was completed by the end of the third quarter of 2009. The Lahti plywood processing mill was closed in October 2009 and its production was moved to other mills in Finland. In the Forest and timber business area, a further processing mill in Boulogne in France was closed in August 2009 and the operations were centralised to the Aigrefeuille mill in France. In November 2009, UPM announced a plan in order to improve its plywood and timber operations long-term cost competitiveness and to increase added value of its birch plywood production in Finland. UPM intends to permanently close the plywood mill and sawmill in Heinola, the Kaukas plywood mill in Lappeenranta, and the further processing mill in Parkano during the first half of 2010. These measures are estimated to reduce the number of UPM employees by approximately 830.

Trends in UPM’s Business

General

The global economy experienced a severe recession in 2009, as the financial crisis spread into the real economy. Consumer confidence reached a historic low level both in Europe and in the United States. Declining demand led to lower industrial production, exports and investments. The global economy showed signals of stabilisation in the third quarter of 2009, supported by rebounding confidence and a pickup in global trade. This was partly driven by China, which performed exceptionally well during the recession in comparison with any other major country.

The euro strengthened against the U.S. dollar from February 2009 onwards and weakened the competitiveness of euro-area industries. The British Pound Sterling, the Russian rouble and the Swedish krona also weakened against the euro.

Prices for commodities and raw materials were declining most of the year 2009 but started to increase in the late autumn as the economy started to stabilise.

Demand for wood raw material decreased from the previous year due to exceptionally low industrial production and high wood inventories in the beginning of the year. Average market prices in Finland declined from peak years of 2007-2008.

Demand for chemical pulp declined in the first half of the year, but rebounded in the second half of the year, due to strong demand in China. Chemical pulp market prices started to increase after the second quarter of the year.

Global advertising expenditure decreased under the global economic downturn. In Europe, total advertising expenditure decreased more than 10% in 2009, while the print media spend declined by approximately 15%. Although print advertising lost some of its share, it held its place as the largest media in Europe and as the second largest media globally, after television. Global direct mail expenditure was affected to a lesser degree, as compared to total advertising expenditure, declining by 4% from 2008.

As a consequence of the decline in print advertising, the demand for graphic papers in Europe and North America declined. Market balance remained weak throughout the year.

The retail sector both in Europe and in the United States suffered from the low level of private consumption. The demand shifted towards discount stores at the expense of branded products and affected the demand for packaging materials as well as the advertising focus of the retail sector.

Exceptionally low construction activity in 2009 decreased demand for building materials, including wood-based materials. The construction confidence indicator started to improve in late 2009, but still remained at a very low level.

Market Conditions for Electricity

The Nordic electricity market prices are driven by fuel costs, carbon dioxide emission allowance prices and the availability of hydropower. In 2005, electricity market prices remained close to the previous year’s level. Fuel prices declined, but the first phase of the EU emission trading scheme ("EU ETS") started, creating a price for carbon dioxide emissions. In 2006, electricity market prices increased substantially, as the availability of hydropower was low and the Swedish nuclear power plants had production difficulties. In 2007, electricity market prices returned to the level seen in 2005-2006, as

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nuclear and hydropower supply normalised, and carbon dioxide emission allowance prices approached zero. The first phase of EU ETS turned out to be oversupplied. In 2008, the average price in the Nordic electricity exchange increased by 60% to EUR44.7/MWh, as compared to EUR27.9/MWh in 2007.

In 2009, the average electricity spot price on the Nordic electricity exchange decreased by 22% to EUR35.0/MWh, as compared to 44.7/MWh in 2008, as the consumption of electricity in the Nordic countries decreased by approximately 5% mainly due to low industrial activity. The one-year forward electricity price on the Nordic electricity exchange was EUR42.5/MWh at the end of 2009, 12% higher than the one-year forward electricity price 37.9/ MWh at the end of 2008. Lower industrial activity also impacted UPM’s share of internal sales as the Paper business group’s electricity consumption decreased from the previous year. However, this enabled an increase in sales of low-carbon electricity to the markets.

The Nordic water reservoirs were below the long-term average level throughout the year 2009. The average price for one EU Allowance Unit of carbon dioxide emission was EUR13.8/t, approximately 41% decrease from 2008. After a substantial decline in the market prices for oil and coal during the second half of 2008, coal market prices remained fairly stable in 2009. During 2009, market prices for oil increased from approximately U.S. $ 46/barrel to approximately U.S. $ 78/barrel.

The following chart sets forth one-year forward electricity prices in the Nordic countries and in Germany for the past six years:

Electricity one-year forward prices

€/MWh 100

90 80

70 60 EEX (Germany) 50 NordPool (Nordic) 40

30 20

10 0 2004 2005 2006 2007 2008 2009 2010

______Source: NordPool, EEX.

Market Conditions for Pulp

Global market pulp demand follows the paper business cycle. In recent years, the driving force has been the growing Asian paper demand, requiring increased amounts of especially imported hardwood pulp. In the area of softwood pulp, little new capacity has entered the market while major capacity reductions have taken place in North America, driven by an aging mill structure and high costs. Led by continuing strong demand from Asia, particularly China, global pulp markets continued to be in balance during 2005 and the average price of softwood pulp did not change much from the previous year. However, hardwood pulp prices increased due to strong demand in Asia for fine paper. In 2006, global pulp markets were characterised by good demand, further closures of capacity in North America and controlled inventory levels. As a result, prices increased. In 2007, pulp shipments, especially to Asia, kept the markets tight and prices increased. During the first half of 2008, chemical market pulp demand and prices increased from the previous year. Global chemical pulp market prices peaked during the second

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quarter of 2008 in U.S. dollar and, in October 2008, in euro terms. Since then, market pulp prices decreased rapidly, as the weakening global economy led to decreasing pulp demand and growing pulp inventories. Industry peers announced several temporary and permanent closures of pulp mills during the second half of 2008. Furthermore, the Latin American hardwood pulp producers announced the delay of several new pulp mill projects.

From 2008 to 2009, annual shipments of global chemical pulp increased by 2%. In the first half of 2009, pulp shipments to the global chemical market declined from the previous year, but rebounded in the second half of the year due to strong demand in China. Imports to China increased by 2,805 million tonnes to 11,295 million tonnes, representing approximately 23% of global market pulp shipments.

Chemical pulp market prices declined in the first half of 2009, but started to increase after the second quarter of the year. In 2009, the average softwood pulp (NBSK) market price was EUR471/tonne, 19% lower than in 2008. The softwood pulp market price reached a low of approximately EUR421/tonne in 2009 but reached approximately EUR555/tonne by the end of the same year. In 2009, the average hardwood pulp (BHKP) market price was EUR402/tonne, 25% lower than in 2008. In 2009, the hardwood pulp market price reached a low of approximately EUR352/tonne but reached approximately EUR486/tonne by the end of the same year.

Due to the global recession, high inventories at the beginning of the year, low prices and extensive production curtailments were taken throughout the year by various pulp producers. In Finland, high Russian export duties for wood raw material aggravated the supply of birch pulpwood.

The following chart sets forth chemical pulp prices in U.S. dollars in the last ten years:

Market pulp prices chemical pulp

USD/ton Chemical pulp prices 1 000

900

800

700

600

500

400

300 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PIX NBSK PIX BHKP (Northern Bleached Softwood Kraft) (Northern Bleached Hardwood Kraft)

______Source: FOEX Indexes Ltd.

Market Conditions for Sawn Timber

Sawn timber demand is closely correlated with construction and rebuilding activity. In 2005, the underlying demand for sawn timber was healthy in Europe, but the market continued to be oversupplied. Signs of improving sawn timber markets did, however, emerge late in the year in Europe. In 2006, sawn timber demand in Europe continued at a brisk pace as economic growth picked up. Due to restrictions in log supply and resulting production cutbacks, markets became tighter and prices increased markedly. Prices continued to increase in the first half of 2007. However, the slow-down in construction activity in North America, Japan and, to some degree, in Europe, combined with overproduction, deteriorated the pricing conditions, especially for spruce sawn timber in the second half of 2007. Also, pine sawn timber

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markets weakened at the end of 2007 due to oversupply and a full supply chain. The market balance of sawn timber continued to weaken throughout 2008. The high sawn timber supply and simultaneously weakening demand for both redwood and whitewood timber led to a significant reduction in the market price. This development intensified towards the end of 2008.

In 2009, mainly due to low construction activity, demand for both redwood and whitewood sawn timber declined substantially in Europe and in most of the other main markets in comparison to 2008. The weak market balance in sawn timber resulted in significantly lower prices. In Finland, non-integrated sawmills suffered occasionally from log shortages due to low market supply.

Significant temporary production curtailments and temporary layoffs were implemented in most of the sawmills in Finland throughout the year as a response to weak market demand.

The following chart sets forth export prices for Finnish sawn timber in the last ten years:

Export prices for Finnish sawn timber

€ /m3 300

250

200 Spruce Pine

150

100

50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

______Source: National Board of Customs.

Market Conditions for Wood Raw Material

The average prices for wood raw material remained stable in 2005. In 2006, the growth in demand led to an increase of average price. In 2007, wood raw material prices remained at a high level and the markets in Finland were affected by the mild winter that caused supply difficulties. In Finland, wood purchases in 2008 were approximately 25% lower than in 2007. A mild winter and the expectations of higher Russian wood export fees contributed to the slow market activity and persistently high prices. Fibre wood prices remained at the high level that was reached in 2007, and only started declining during the fourth quarter of 2007, as wood demand slowed down. In 2008, log prices declined, as compared to 2007, but at a slower pace than sawn timber prices. In 2008, the price of wood imported to Finland remained at a high level and was more expensive than domestic wood. In 2008, wood imports from Russia and other countries were at the same level as in 2007.

On 5 February 2007, the Russian Government announced its decision to increase the export fee on wood as a new measure under the Russian Forest Law, which came into force on 23 December 2006. As of 1 July 2007, the export fee was 20% and the minimum export fee was EUR10 per cubic meter. On 1 April 2008, the export fee was increased to 25% and the minimum export fee to EUR15 per cubic meter. On 1 January 2009, the export fee was to be increased to 80% and the minimum export fee to EUR50 per cubic meter. However, in November 2008, it was announced that the increase of the export fee on wood was postponed until October-December 2009. In December 2009, the Russian government decided that,

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in 2010, the export fee for wood will remain on the same level as in 2009, i.e., minimum export fee to EUR15 per cubic meter. From the beginning of 2011, the export fee is scheduled to be increased to 80% and the minimum export fee to EUR50 per cubic meter. In recent years, UPM has increased its efforts to procure wood, in addition to Finland, from Estonia, Latvia and Lithuania as well as from Sweden and elsewhere. The announced Russian export fees on wood may, however, eliminate as much as 20% of the conventional wood supply to the wood processing industry in Finland. In 2008, the Group’s wood imports from Russia were 5 million cubic meters. The increased export fees on wood could gradually make wood imports from Russia to Finland uneconomical and could increase the competition for, and the cost of, wood fibre for the wood processing industry in Finland.

In 2009, wood purchases in the Finnish wood market amounted to approximately 16.4 cubic metres, which was 45% lower than in 2008. The main reasons for the decrease were lower industrial production and high wood inventories at the beginning of the year. The high export duties on Russian wood decreased imports from 12 million cubic metres in 2008 to approximately 6 million cubic metres in 2009. This included a significant increase in energy wood imports, as compared to the previous year.

In 2009, average market prices returned to their normal lower level and declined by an average of approximately 20%, as compared to 2008. Market prices for wood reached their lowest level in the third quarter of 2009 and started to increase towards end of the year due to increased demand. In Central Europe, purchases of wood in 2009 were lower than in 2008. Wood market prices declined.

The following chart sets forth monthly stumpage prices for pulpwood in Finland for the last ten years:

Monthly stumpage prices for pulpwood in Finland

€/m³ 30

25

20 Spruce Pine Birch 15

10

5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

______Source: Finnish Forest Research Institute ("Metla").

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The following chart sets forth monthly stumpage prices for logs in Finland for the last ten years:

Monthly stumpage prices for logs in Finland

€/m³ 80

70

60 Spruce Pine Birch 50

40

30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

______Source: Metla.

Market Conditions for Paper

The main driving forces behind the demand for paper are economic growth, advertising in printed media, circulation of magazines and newspapers and other publishing related end-products and office technology development. Changes in readers’ habits and consumers’ media behaviour and information sourcing, with the electronic media gaining popularity, play an increasingly important role in the demand for paper.

The following tables set forth total demand and per capita demand for printing papers in 2009:

Publication Fine Papers Papers (Million tonnes per year) Europe ...... 21.6 15.0 North America ...... 14.6 13.7 Rest of the world ...... 22.4 42.7 Total ...... 58.7 71.5

Publication Fine Papers Papers (Kilograms per capita per year) Europe ...... 29.2 20.2 North America ...... 42.9 40.4 Total ...... 8.7 10.6 ______Sources: CEPIPRINT, CEPIFINE and Pulp and Paper Products Council ("PPPC").

The following table sets forth changes in demand for graphic papers in UPM’s principal markets, Europe and North America, in the last five years:

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Changes in Demand for Graphic Papers

Paper Grade 2009 2008 2007 2006 2005 (Percentage change from prior year) Europe Publication papers ...... (16) (2) 2 2 0 Fine Papers ...... (16) (3) 0 2 5 North America Publication Papers ...... (22) (10) (3) (4) (3) Fine Papers ...... (16) (9) (5) 3 (4) ______Sources: CEPIPRINT, CEPIFINE and PPPC.

The following chart sets forth the development of paper capacity and demand in Europe, North America and Asia in the last seven years:

Paper Capacity and Demand in Europe, North America and Asia

'000 tonnes Europe'000 tonnes North America '000 tonnes Asia 70,000 70,000 70,000

65,000 65,000 65,000 +4%

60,000 60,000 60,000

55,000 55,000 55,000 -5% -4% 50,000 50,000 50,000

45,000 45,000 45,000

40,000 -16% 40,000 40,000 -5% 35,000 35,000 35,000

30,000 30,000 -20% 30,000

25,000 25,000 25,000 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009

W. Eur demand E. Eur demand Capacity NA demand Capacity Asia demand Capacity

______Source: CEPIPRINT, CEPIFINE, PPPC, PPI.

In recent years, before the current global recession, paper demand growth has slowed down in the mature markets from the levels of the 1980s and 1990s while European demand figures have been boosted by increasing consumption in Eastern Europe. The demand growth in Western Europe, specifically in Germany, the United Kingdom, France, Italy and Spain, has flattened. Meanwhile, the overall development in graphic paper consumption in North America has been negative for the last four years. In 2005, European paper demand advanced by approximately 1%, but, in North America, paper demand declined by approximately 3%. During 2006, paper demand grew by more than 2% in Europe, but the decline in North America continued, at a pace of more than 1%, with newsprint again leading the decline. In 2007, magazine paper markets grew, but otherwise paper demand growth was subdued resulting in approximately 1% overall growth in Europe and 5% decline in North America. In 2008, paper demand in Europe weakened by 2%, as compared to 2007. In North America, the paper demand continued to decline and demand decreased by 10%, as compared to 2007. In 2009, the global recession had a significant impact on paper demand. In Europe, paper demand decreased by 16%, as compared to the 2008 levels, while in North America paper demand decreased by 19%.

In the fast growing Asian markets, such as China, paper demand is estimated to have increased by an annual average of approximately 10% in recent years. In 2009, however, due to the global recession, paper demand is estimated to have decreased by 4%, as compared to the 2008 levels in Asia. In those markets, paper consumption is dominated by fine paper for certain reasons, including availability of wood raw material and energy. More detailed demand analysis of the emerging markets is difficult due to statistical reasons. Speciality paper demand (not included in the table) is generally more stable than that of commodity paper grades.

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The following table sets forth changes in prices for graphic papers in UPM’s principal markets, Europe and North America, in the last five years:

Changes in Prices for Graphic Papers(1)

Paper Grade 2009 2008 2007 2006 2005 (Percentage change from prior year) Europe Newsprint ...... 2 (8) 5 5 4 SC magazine ...... 2 0 (2) 0 1 Coated magazine ...... (1) 3 (4) (1) 1 Coated fine paper ...... 0 (3) 1 (1) 0 Uncoated fine paper ...... (8) (2) 7 (2) (3) North America Newsprint ...... (19) 19 (15) 9 10 SC magazine ...... (8) 15 (5) 2 8 Coated magazine ...... (16) 22 (3) (1) 17 Coated fine paper ...... (10) 13 0 4 12 Uncoated fine paper ...... (5) 10 (2) 12 8 ______Sources: PPI and Resource Information Systems, Inc., benchmark prices.

(1) Price changes in Europe are based on prices in euros and price changes in North America are based on prices in U.S. dollars.

The following chart sets forth the development of prices for the specified paper grades in Europe, North America and China in the last seven years:

Paper Prices in Europe, North America and China

Europe North America China €/t USD/t USD/t 900 1300 1300

1200 1200 800 1100 1100 imported 700 1000 1000

900 900 600 800 800 domestic

500 700 700

600 600 400 500 500

300 400 400 '03 '04 '05 '06 '07 '08 '09 '10 '03 '04 '05 '06 '07 '08 '09 '10 '03 '04 '05 '06 '07 '08 '09

News 45 g/m² SC rg 56 g/m² News 48,8 g/m² SC 51,8 g/m² LWC off 60 g/m² WFCr 100 g/m² LWC 59,2 g/m² WFCr 88,8 g/m² WFU s 80-120 g WFC s 128-157 g WFUr 80 g/m² WFUr off 74 g/m²

______Source: PPI, RISI.

Paper prices generally fluctuate more than end-use demand, driven by demand/supply balance and inventory build-ups. Overall, paper price levels have been well below historical average levels in 2004-2009, especially in Europe. In 2005, European prices were largely similar to those of the previous year. In North America, price increases were carried out and prices increased to levels that were above their historical average. During 2006, prices for newsprint advanced in Europe, but prices for magazine and fine paper remained largely unchanged, as structural overcapacity continued to affect the market. In North America, price recovery continued due to a better demand/supply balance. In 2007, newsprint contract prices again increased in Europe and uncoated fine paper prices increased throughout the year. Magazine paper prices, however, were under pressure in Europe predominantly due to a decline in exports from Europe that resulted in oversupply. In North America, the paper market changed in late 2006, due to market readjustment,but average prices were lower in 2007 than in 2006. Prices, including newsprint, were increasing again in the latter half of 2007, however, driven by supply reductions. In 2008,

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the average market prices in Europe for magazine papers increased, but the average market price for newsprint and fine papers decreased. In North America, the average prices in all paper grades continued to increase as industry continued to manage overcapacity by reducing capacity. In 2009, average prices in Europe decreased by 1% for magazine papers and by 8% for uncoated fine paper but increased by 2% for newsprint. Coated fine paper prices remained unchanged from the previous year. In North America, the average U.S. dollar price for magazine papers was 13% lower in 2009 than in 2008. In Asia, market prices for fine papers decreased from last year but increased in the second half of 2009 from the first half of the year. In the fourth quarter, prices had risen higher than in the same period in 2008.

Market Conditions for Label Materials

Pressure sensitive labels are early cyclical products. Their demand growth over the economic cycle has historically exceeded GDP growth in all market areas. In 2005, solid market growth for pressure sensitive labels was evident in all main markets. In 2006, demand grew by approximately 8% in Europe and by approximately 3 to 4% in North America. In Asia, the market experienced growth in excess of 10%. Some price increases were carried out in North America during 2007. During 2007, demand growth in Europe was approximately one-half of the growth reached in 2006, while in North America the market environment was flat. Prices were somewhat under pressure in both markets. In Asia, the growth was robust. In 2008, demand for self-adhesive label materials decreased both in Europe and in North America by approximately 3%, as compared to 2007, due to slower demand for consumer products and customers’ drive for inventory reductions. In the Asia Pacific region, such as in China, where annual growth over the recent years has been well over 10%, demand in 2008 continued to increase, even if at a clearly slower pace towards the end of 2008. Label prices declined during 2007, but marked increases in raw material prices, especially oil related raw material prices, made manufacturers initiate price increases. During 2008, prices for label materials in local currencies increased in all markets. In the first half of 2009, demand for self-adhesive label materials was estimated a double-digit sales contraction in Europe and North America. The contraction in the Asia-Pacific region was not as strong. The global recession has lead to a weakening in demand for consumer products and shipments of goods. Consumer-demand-driven product labelling end-uses were, on the whole, less affected by the recession than end-uses related to industrial activity. Label materials demand started to improve in the third quarter of 2009 and, in the fourth quarter, demand is estimated to have exceeded 2008 levels, as the economy started to recover and year-on-year comparisons became more favourable.

Market Conditions for Plywood

Plywood markets strengthened from 2004 until the summer of 2008. Aided by the high activity level in the construction, renovation and transport equipment industries, demand for plywood was strong and, as a result, European prices increased until 2008. In 2007, especially the birch plywood market was tight and Finnish producers suffered from shortage of suitable logs, which increased log prices. In the spruce plywood market, some signs of weakening were evidenced towards the end of 2007. However, in 2008, plywood demand in Europe continued to be brisk until the summer after which demand started to decline. Activity in the building and construction industries in Europe deteriorated rapidly and the same development took place also within other industries. Plywood producers responded to the weakening demand and a number of capacity closures and production curtailments were announced. UPM reduced production at its mills. The high level demand until the summer of 2008 kept market prices stable, despite the first signs of market softening appearing early on the year. Export market prices for Finnish plywood increased. In Finland, shortage of suitable birch logs turned into oversupply, due to lower than anticipated production volumes. Log prices remained high throughout 2008.

In 2009, plywood demand in Europe fell substantially from the previous year, due to record low levels of construction activity and demand for engineered products in transportation and other industrial end-uses. In the first half of the year, inventories were reduced in all parts of the supply chain, further decreasing the demand for plywood which is shown throughout the market chain. This inventory reduction came to an end in the third quarter of 2009. Plywood producers responded to weaker demand and announced a number of capacity closures and production curtailments. UPM also reduced production at its mills. Despite production curtailments, there was oversupply in the market, which led to decreases in sales prices. Plywood demand is cyclical and is expected to gradually return to pre-recession levels when the economy recovers.

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In Finland, the birch log inventories built up in 2008 and high log prices lasted throughout 2009. This kept wood costs at a high level despite the decline in market prices for logs. In Russia, on the other hand, there was a shortage of logs towards the end of the year.

Cost Structure

UPM’s main costs and expenses are the costs of its fibre raw materials and personnel expenses. Chemicals, energy and delivery costs to customers worldwide are also major cost factors. In 2009, costs and expenses amounted to EUR6.8 billion, as compared to EUR8.4 billion in 2008.

The following table sets forth a breakdown of UPM’s cost structure (excluding depreciation) in 2009:

As percentage of total costs 2009 Delivery of own products ...... 10 Fibre 21 Energy ...... 12 Fillers, coating and chemicals ...... 14 Other variable costs 15 Personnel expenses ...... 18 Other fixed costs ...... 10 Total ...... 100

Recent Events

Results of Operations for the Three Months Ended 31 March 2010

On 28 April 2010, UPM announced its results for the three months ended 31 March 2010. The Group's sales were EUR2,039 million for the three months ended 31 March 2010, as compared to EUR1,857 million for the three months ended 31 March 2009. Sales increased due to higher deliveries across all of UPM’s business areas. The Group’s operating profit for the three months ended 31 March 2010 was EUR107 million, as compared to an operating loss of EUR95 million for the three months ended 31 March 2009. The profitability improvement was mainly due to higher delivery volumes and lower costs for wood and energy.

Acquisitions and Divestments

In December 2009, pursuant to an agreement entered into among UPM, Metsäliitto, M-real, and Metsä-Botnia, UPM acquired Metsäliitto’s and Metsä-Botnia’s share of the Fray Bentos pulp mill and the eucalyptus plantation forestry company, Forestal Oriental, in Uruguay. This transaction increased UPM’s capacity of plantation-based pulp to 1.1 million tonnes annually and reduced its exposure to Northern Hemisphere pulp by 0.7 million tonnes, as its shareholding in Metsä-Botnia was reduced from 47% to 17%.

Restructuring Activities

The Kajaani paper mill and Tervasaari pulp mill closures in Finland were completed at the end of 2008. Due to the reduced demand for paper and pulp, the closures had only minor impact on UPM’s paper and pulp deliveries.

In 2009, the Label business area restructured its European operations. The plan was announced in November 2008. UPM Raflatac permanently closed a number of self-adhesive labelstock production lines and reduced slitting capacity in the United Kingdom, France, Germany, Hungary and Finland. One slitting terminal was also closed in the United States. The restructuring was completed by the end of the third quarter of 2009.

The Lahti plywood processing mill was closed in October 2009 and its production was moved to other mills in Finland.

In the Forest and timber business area, a further processing mill in Boulogne in France was closed in August 2009 and the operations were centralised to the Aigrefeuille mill in France.

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In November 2009, UPM announced a plan in order to improve its plywood and timber operations long-term cost competitiveness and to increase added value in its birch plywood production in Finland. UPM intends to permanently close the plywood mill and sawmill in Heinola, the Kaukas plywood mill in Lappeenranta, and the further processing mill in Parkano during the first half of 2010. These measures are estimated to reduce the number of UPM employees by approximately 830.

As part of the above desribed restructuring, UPM plans to invest approximately EUR25 million in the expansion of the Savonlinna plywood mill and the development of production at the Kaukas sawmill and the Aureskoski further processing mill in Finland.

The above described restructuring has been necessary to improve UPM’s cost competitiveness. The measures taken in 2009, together with measures initiated in previous years, reduced the number of employees by 2,300 from the end of 2008. Out of these, 620 were due to closures of production. The annualised employee-related cost savings are approximately EUR115 million.

UPM’s restructuring measures have resulted in net special charges of EUR109 million for the year ended 31 December 2009, including impairment charges of EUR18 million.

Results of Operations

As a result of the organisational changes discussed above under "—Structure", UPM’s business area structure was changed as from 1 December 2008. UPM consists of three business groups, which are Energy and pulp, consisting of Energy, Pulp, and Forest and timber reportable business areas; Paper as a reportable business area, and Engineered materials, consisting of Label and Plywood reportable business areas. The Other operations reportable business area includes (i) the following development units: RFID tags, wood plastic composites and biofuels; (ii) certain logistics services; and (iii) the central administrative functions of the Group. The comparative business area information for the year ended 31 December 2007 has been revised to correspond with the new business structure.

The following tables set forth the sales, EBITDA and operating profits of UPM’s business areas in accordance with IFRS and the delivery volumes of energy, pulp, timber, paper and plywood products for the years ended 31 December 2009, 2008 and 2007:

Year ended 31 December 2009 2008 2007 (EUR in millions) Sales by Business Area Energy ...... 472 478 379 Pulp ...... 653 944 808 Forest and timber ...... 1,337 1,920 2,039 Paper ...... 5,767 7,011 7,328 Label ...... 943 959 998 Plywood ...... 306 530 591 Other operations ...... 111 200 450

Year ended 31 December 2009 2008 2007 (EUR in millions) EBITDA by Business Area Energy ...... 190 207 118 Pulp ...... (18) 139 188 Forest and timber ...... 24 (48) 159 Paper ...... 929 885 939 Label ...... 78 34 85 Plywood ...... (30) 46 71 Other operations ...... (111) (57) (14)

Year ended 31 December 2009 2008 2007 (EUR in millions) Operating Profit by Business Area Energy ...... 144 175 95 Pulp ...... (156) 89 145 Forest and timber ...... (9) (59) 201 Paper ...... 345 (129) (137) Label ...... 35 (26) 60 Plywood ...... (82) 28 50 Other operations ...... (142) (54) 69

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Year ended 31 December 2009 2008 2007 Deliveries Energy, 1,000 MWh ...... 8,865 10,167 10,349 Pulp, 1,000 t ...... 1,759 1,982 1,927 Timber, 1,000 m3 ...... 1,497 2,132 2,325 Paper, 1,000 t ...... 9,021 10,641 11,389 Plywood, 1,000 m3 ...... 567 806 945

The Year ended 31 December 2009 Compared to the Year ended 31 December 2008

Sales

General. The Group’s sales were EUR7,719 million for the year ended 31 December 2009, as compared to EUR9,461 million for the year ended 31 December 2008. Sales decreased mainly due to lower deliveries across all of UPM’s business areas. The Group’s total energy deliveries for the year ended 31 December 2009 amounted to 8.9 TWh, a decrease of 13%, as compared to 10.2 TWh in 2008. The Group’s total pulp deliveries for the year ended 31 December 2009 amounted to 1,759,000 tonnes, a decrease of 11%, as compared to 1,982,000 tonnes in 2008. The Group’s total timber deliveries for the year ended 31 December 2009 amounted to 1,497,000 cubic metres, a decrease of 30%, as compared to 2,132,000 cubic metres in 2008. The Group’s total paper deliveries for the year ended 31 December 2009 amounted to 9,021,000 tonnes, a decrease of 15%, as compared to 10,641,000 tonnes for the year ended 31 December 2008. The Group’s total plywood deliveries for the year ended 31 December 2009 amounted to 567,000 cubic metres, a decrease of 30%, as compared to 806,000 cubic metres.

Energy. Sales in the Energy business area were EUR472 million (including EUR337 million internal sales) for the year ended 31 December 2009, a decrease of 2% from the sales of EUR478 million (including EUR341 million internal sales) for the year ended 31 December 2008. The decrease was due to lower sales volumes as the annual volume of hydropower was approximately 32% lower than in 2008.

Pulp. Sales in the Pulp business area were EUR653 million for the year ended 31 December 2009, a decrease of 31% from the sales of EUR944 million for the year ended 31 December 2008. The decrease was due to approximately 23% lower average pulp prices and lower deliveries.

Forest and Timber. Sales in the Forest and timber business area were EUR1,337 million for the year ended 31 December 2009, a decrease of 30% from the sales of EUR1,920 million for the year ended 31 December 2008. The decrease was due to approximately 30% lower sawn timber deliveries for the year ended 31 December 2009, as compared to the year ended 31 December 2008.

Paper. Sales in the Paper business area were EUR5,767 million for the year ended 31 December 2009, a decrease of 18% from the sales of EUR7,011 million for the year ended 31 December 2008. The decrease was mainly due to a decrease in paper deliveries. Deliveries of publication papers (magazine papers and newsprint) decreased by 20% for the year ended 31 December 2009, as compared to the deliveries for the year ended 31 December 2008, and the deliveries of fine and speciality papers decreased by 6% for the year ended 31 December 2009, as compared to the deliveries for the year ended 31 December 2008. In EUR terms, the average price for all paper deliveries was 3% lower for the year ended 31 December 2009, as compared to the year ended 31 December 2008.

Label. Sales in the Label business area were EUR943 million for the year ended 31 December 2009, a decrease of 2 % from the sales of EUR959 million for the year ended 31 December 2008. In 2009, the average price of sales in EUR terms increased from 2008.

Plywood. Sales in the Plywood business area were EUR306 million for the year ended 31 December 2009, a decrease of 42% from the sales of EUR530 million for the year ended 31 December 2008. The decrease was due to the decrease in plywood deliveries and sales prices. Deliveries declined by 30% and average sales prices decreased for the year ended 31 December 2009, as compared to the year ended 31 December 2008.

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Other Operations. Sales in the Other operations business area were EUR111 million for the year ended 31 December 2009, a decrease of 45% from the sales of EUR200 million for the year ended 31 December 2008.

Operating Profit (loss)

General. The Group’s operating profit was EUR135 million for the year ended 31 December 2009, as compared to an operating profit of EUR24 million for the year ended 31 December 2008. The operating profit, excluding special items, was EUR270 million for the year ended 31 December 2009, as compared to EUR513 million for the year ended 31 December 2008. The main reason for weaker profitability was significantly lower deliveries in all of UPM’s business areas. Lower sales prices also impacted operating profit negatively. Changes in sales prices in euro terms reduced operating profit by approximately EUR260 million for the year ended 31 December 2009, as compared to the year ended 31 December 2008. The average paper price in EUR decreased by approximately 3% from 2008. The average price for label materials increased. Timber and plywood prices fell substantially. Due to cost- saving measures, UPM’s fixed costs decreased by EUR300 million for the year ended 31 December 2009, as compared to the fixed costs for the year ended 31 December 2008. Wood costs decreased from their earlier peak levels. Wood costs decreased by EUR190 million for the year ended 31 December 2009, as compared to the wood costs for the year ended 31 December 2008.

Energy. The operating profit of the Energy business area was EUR144 million for the year ended 31 December 2009, as compared to an operating profit of EUR175 million for the year ended 31 December 2008. The operating profit of the Energy business area, excluding special items, was EUR162 million for the year ended 31 December 2009, as compared to an operating profit of EUR175 million for the year ended 31 December 2008. Profitability weakened from the year 2008, mainly due to lower sales volumes, as the annual volume of hydropower was approximately 32% lower than in 2008. The average electricity sales price increased by 17% to EUR43.8/MWh for the year ended 31 December 2009, as compared to EUR37.5/MWh for the year ended 31 December 2008, mainly due to long-term market- based pricing formula. The average cost of procured electricity increased due to the lower share of hydro power volumes. UPM’s associated company, Pohjolan Voima, provides energy to its shareholders at cost and hence its operating profit tends to be close to zero. For the year ended 31 December 2009, UPM’s share of Pohjolan Voima’s results was a negative EUR39 million, including impairment charges of EUR18 million, as compared to a negative EUR26 million for the year ended 31 December 2008.

Pulp. The operating loss of the Pulp business area was EUR156 million for the year ended 31 December 2009, as compared to an operating profit of EUR89 million for the year ended 31 December 2008. The operating loss of the Pulp business area, excluding special items, was EUR127 million for the year ended 31 December 2009, as compared to a profit of EUR148 million for the year ended 31 December 2008. Profitability decreased from the year 2008, mainly due to a decrease in average pulp prices of approximately 23% and lower deliveries. Wood costs were at a high level until the third quarter of 2009 but started to decline towards the end of the year. The share of the results in 2009 of UPM’s associated company, Metsä-Botnia, was a loss of EUR52 million for the year ended 31 December 2009, as compared to a profit of EUR86 million for the year ended 31 December 2008. The result included special charges of EUR29 million from Metsä-Botnia’s Kaskinen mill closure. The Fray Bentos mill and Forestal Oriental eucalyptus plantation forestry company are included in the Pulp business area as of December 2009. As of the same date, Metsä-Botnia is no longer an associated company of UPM and therefore is not reported under the Pulp business area.

Forest and timber. The operating loss of the Forest and timber business area was EUR9 million for the year ended 31 December 2009, as compared to an operating loss of EUR59 million for the year ended 31 December 2008. The operating profit of the Forest and timber business area, excluding special items, was EUR22 million for the year ended 31 December 2009, as compared to an operating loss of EUR23 million for the year ended 31 December 2008. Comparison period included a wood inventory write down of EUR36 million, which was booked at the end of year 2008. The average price of delivered timber goods decreased by 7% for the year ended 31 December 2009, as compared to the year ended 31 December 2008. The increase in the fair value of biological assets (growing trees) was EUR98 million for the year ended 31 December 2009, as compared to EUR138 million for the year ended 31 December 2008. The cost of wood raw material harvested from the Group’s own forests was EUR80 million for the year ended 31 December 2009, as compared to EUR88 million for the year ended 31 December 2008. The net effect of increase in fair value and the cost of wood harvested was EUR18 million positive for the year ended 31 December 2009, as compared to EUR50 million for the year ended 31 December 2008.

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Paper. The operating profit of the Paper business area for the year ended 31 December 2009 was EUR345 million, as compared to an operating loss of EUR129 million for the year ended 31 December 2008. The operating profit of the Paper business area, excluding special items, was EUR346 million for the year ended 31 December 2009, an increase of 38% from an operating profit of EUR250 million for the year ended 31 December 2008. Profitability improved, as compared to 2008. Lower deliveries and sales prices had a significant negative impact on UPM’s profitability but this was more than offset by lower costs for fibre, mainly for chemical pulp, and decreased fixed costs. The average price for all paper deliveries in EUR terms was 3% lower for the year ended 31 December 2009, as compared to the year ended 31 December 2008.

Label. The operating profit of the Label business area was EUR35 million for the year ended 31 December 2009, as compared to an operating loss of EUR26 million for the year ended 31 December 2008. The operating profit of the Label business area, excluding special items, was EUR43 million for the year ended 31 December 2009, as compared to the operating profit of EUR2 million for the year ended 31 December 2008. Profitability improved, as compared to 2008, due to decreased costs and increased prices. Fixed costs decreased substantially and raw material costs were lower than in 2008. Average sales prices both in local currency and converted in to euro increased from 2008. Delivery volumes of self-adhesive label materials declined from last year, driven by lower economic activity. The restructuring of European operations was completed as planned by the end of the third quarter. The restructuring, combined with the new plant in Wroclaw in Poland that started up in November 2008, has improved the competitiveness of UPM's European operations.

Plywood. The operating loss of the Plywood business area was EUR82 million for the year ended 31 December 2009, as compared to the operating profit of EUR28 million for the year ended 31 December 2008. The operating loss of the Plywood business area, excluding special items, was EUR51 million for the year ended 31 December 2009, as compared to the operating profit of EUR25 million for the year ended 31 December 2008. Plywood business area reported an operating loss due to significantly lower delivery volumes and sales prices than in the comparison period. Weak market demand led to extensive production downtime at all mills. Material fixed cost reductions were achieved throughout the organisation, but these could not compensate for the adverse impact of lower deliveries and prices.

Other Operations. The operating loss of the Other operations business area, excluding special items, was EUR125 million for the year ended 31 December 2009, as compared to an operating loss of EUR64 million for the year ended 31 December 2008. The operating loss was greater, as compared to 2008, mainly due to hedging losses of EUR23 million. In 2009, development units continued to incur an operating loss.

Financial Items

UPM’s interest and other finance expenses, excluding special items, were EUR153 million net for the year ended 31 December 2009, as compared to EUR202 million for the year ended 31 December 2008. Exchange rate and fair value gains and losses resulted in a loss of EUR9 million for the year ended 31 December 2009, as compared to a loss of EUR25 million for the year ended 31 December 2008. The net losses on available-for-sale investments were EUR1 million for the year ended 31 December 2009, as compared to a gain of EUR2 million in 2008. Special items of EUR215 million reported under financial items in the year ended 31 December 2009 included a capital gain of EUR220 million on the sales of the approximately 30% share in Metsä-Botnia and a capital loss of EUR5 million related to investments in the development units. The net interest bearing liabilities as of 31 December 2009 decreased by EUR591 million to EUR3,730 million for the year ended 31 December 2009, as compared to EUR4,321 million for the year ended 31 December 2008.

Profit (loss)

UPM had a profit before tax of EUR187 million for the year ended 31 December 2009, as compared to a loss before tax of EUR201 million for the year ended 31 December 2008. Income taxes were EUR18 million negative for the year ended 31 December 2009, as compared to EUR21 million positive for the year ended 31 December 2008. The impact on taxes from special items was EUR31 million positive in the year ended 31 December 2009, as compared to EUR86 million positive in the year ended 31 December 2008.

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The profit for the year ended 31 December 2009 was EUR169 million, as compared to a loss of EUR180 million for the year ended 31 December 2008.

The Year ended 31 December 2008 Compared to the Year ended 31 December 2007

Sales

General. The Group’s sales were EUR9,461 million for the year ended 31 December 2008, as compared to EUR10,035 million for the year ended 31 December 2007. Sales decreased due to lower deliveries in most of UPM’s business areas. The Group’s total energy deliveries for the year ended 31 December 2008 amounted to 10.2 TWh, a decrease of 1.8%, as compared to 10.3 TWh for the year ended 31 December 2007. The Group’s total pulp deliveries for the year ended 31 December 2008 amounted to 1,982,000 tonnes, an increase of 2.9%, as compared to 1,927,000 tonnes for the year ended 31 December 2007. The Group’s total timber deliveries for the year ended 31 December 2008 amounted to 2,132,000 cubic metres, a decrease of 8.3%, as compared to 2,325,000 cubic metres for the year ended 31 December 2007. The Group’s total paper deliveries for the year ended 31 December 2008 amounted to 10,641,000 tonnes, a decrease of 6.6%, as compared to 11,389,000 tonnes for the year ended 31 December 2007. The Group’s total plywood deliveries for the year ended 31 December 2008 amounted to 806,000 cubic metres, a decrease of 14.7%, as compared to 945,000 cubic metres for the year ended 31 December 2007.

Energy. Sales in the Energy business area were EUR478 million (including EUR341 million internal sales) for the year ended 31 December 2008, an increase of 26.1% from the sales of EUR379 million (including EUR320 million internal sales) for the year ended 31 December 2007. The increase was due to an increase in the average price of electricity by 33% to EUR37.5/MWh for the year ended 31 December 2008, as compared to EUR28.2/MWh for the year ended 31 December 2007. The increase was partially offset by a decrease in sales volumes.

Pulp. Sales in the Pulp business area were EUR944 million for the year ended 31 December 2008, an increase of 16.8% from the sales of EUR808 million for the year ended 31 December 2007. The increase was due to an increase in pulp deliveries from UPM’s own pulp mills.

Forest and timber. Sales in the Forest and timber business area were EUR1,920 million for the year ended 31 December 2008, a decrease of 5.8% from the sales of EUR2,039 million for the year ended 31 December 2007. The decrease was due to a decrease in sawn timber deliveries. In addition, the average price of sawn timber fell by approximately 17% for the year ended 31 December 2008, as compared to the year ended 31 December 2007.

Paper. Sales in the Paper business area were EUR7,011 million for the year ended 31 December 2008, a decrease of 4.3% from the sales of EUR7,328 million for the year ended 31 December 2007. The decrease was due to a decrease in paper deliveries. Deliveries of publication papers (magazine papers and newsprint) decreased by 6% for the year ended 31 December 2008, as compared to the year ended 31 December 2007, and the deliveries of fine and speciality papers decreased by 8% for the year ended 31 December 2008, as compared to the year ended 31 December 2007. In EUR terms, the average price for all paper deliveries was over 2% higher for the year ended 31 December 2008, as compared to the year ended 31 December 2007. As of 31 December 2008, paper inventory levels were approximately 200,000 tonnes lower than as of 31 December 2007. The production at the Miramichi paper mill in Canada was ceased in August 2007. During 2008, PM4 at the Kajaani paper mill in Finland was temporarily idled from March, and PM2 at the Nordland fine paper mill in Germany production was temporarily shut down since early summer of 2008 until the end of the year. In France, Docelles mill was subject to a one month production curtailment in August 2008. In China, the Changshu fine paper mill had considerable production downtime during the fourth quarter of 2008 to meet an abrupt decline in market demand.

Label. Sales in the Label business area were EUR959 million for the year ended 31 December 2008, a decrease of 3.9% from the sales of EUR998 million for the year ended 31 December 2007. In 2008, the average price of sales in EUR terms was approximately the same as in 2007.

Plywood. Sales in the Plywood business area were EUR530 million for the year ended 31 December 2008, a decrease of 10.3% from the sales of EUR591 million for the year ended 31 December 2007. The decrease was due to the decrease in plywood deliveries. In the second half of 2008, the decline in new orders resulted in reduced production at all off UPM’s plywood mills. The average price for all

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plywood deliveries was higher for the year ended 31 December 2008, as compared to the year ended 31 December 2007 although prices started to decline in the latter part of 2008.

Other Operations. Sales in the Other operations business area were EUR200 million for the year ended 31 December 2008, a decrease of 55.6% from the sales of EUR450 million for the year ended 31 December 2007. The decrease was due to the following disposals made in 2007: the real estate company UPM-Asunnot Oy in April; Walki Wisa in June and port operators Oy Rauma Stevedoring Ltd and Oy Botnia Shipping Ab in October.

Operating Profit (loss)

General. The Group’s operating profit was EUR24 million for the year ended 31 December 2008, a decrease of 95% from an operating profit of EUR483 million for the year ended 31 December 2007. The operating profit, excluding special items, was EUR513 million for the year ended 31 December 2008, as compared to EUR835 million for the year ended 31 December 2007. The decrease was due to higher wood and energy costs. Wood costs were approximately EUR220 million higher for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The 2008 figure included a write down of EUR36 million in wood inventory made in the fourth quarter of the year. Energy costs increased by approximately EUR100 million for the year ended 31 December 2008, as compared to the year ended 31 December 2007. Fixed costs declined markedly for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The net increase in cost level was over 2% for the year ended 31 December 2008, as compared to the year ended 31 December 2007.

Energy. The operating profit of the Energy business area was EUR175 million for the year ended 31 December 2008, as compared to an operating profit of EUR95 million for the year ended 31 December 2007. Profitability improved from the year 2007, mainly due to the higher average electricity sales price. The average electricity sales price increased by 33% to EUR37.5/MWh for the year ended 31 December 2008, as compared to EUR28.2/MWh for the year ended 31 December 2007. The hydropower volume increased by 21% to 3.8 TWh for the year ended 31 December 2008, as compared to 3.1 TWh for the year ended 31 December 2007, which had a positive impact on the average cost of procuring electricity. UPM’s associated company, Pohjolan Voima, provides energy to its shareholders at cost and hence its operating profit tends to be close to zero. For the year ended 31 December 2008, UPM’s share of Pohjolan Voima’s results was a negative EUR26 million, as compared to a negative EUR14 million for the year ended 31 December 2007.

Pulp. The operating profit of the Pulp business area was EUR89 million for the year ended 31 December 2008, as compared to an operating profit of EUR145 million for the year ended 31 December 2007. The operating profit of the Pulp business area, excluding special items, was EUR148 million for the year ended 31 December 2008, as compared to EUR188 million for the year ended 31 December 2007. Profitability decreased from the year 2007, mainly due to higher wood costs and lower deliveries. The share of the results of UPM’s associated company, Metsä-Botnia, was EUR86 million for the year ended 31 December 2008, as compared to EUR58 million for the year ended 31 December 2007. The increase was due to Metsä-Botnia’s new pulp mill in Uruguay, which started up in November 2007, and more than compensated for the weakened profitability in relation to Metsä-Botnia’s Finnish operations. In December 2008, UPM closed down its Tervasaari pulp mill in Finland. As special items, UPM booked charges of EUR59 million consisting of impairment charges of EUR51 million and other costs of EUR8 million related to the closure of the mill.

Forest and timber. The operating loss of the Forest and timber business area was EUR59 million for the year ended 31 December 2008, as compared to an operating profit of EUR201 million for the year ended 31 December 2007. The operating loss of the Forest and timber business area, excluding special items, was EUR23 million for the year ended 31 December 2008, as compared to an operating profit of EUR214 million for the year ended 31 December 2007. Profitability declined for the year ended 31 December 2008, as compared to the year ended 31 December 2007, mainly due to significantly lower prices of sawn timber and higher cost of wood, including a write down of EUR36 million in wood inventory booked as of 31 December 2008. The average price of sawn timber fell by approximately 17% for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The increase in the fair value of biological assets net of wood harvested was EUR50 million for the year ended 31 December 2008, as compared to EUR79 million for the year ended 31 December 2007, including the increase of EUR138 million for the year ended 31 December 2008, as compared to EUR195 million for the year ended 31 December 2007 in the value of growing trees and the cost of EUR88 million for the

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year ended 31 December 2008, as compared to EUR116 million for the year ended 31 December 2007 for wood harvested from own forests. In June 2008, UPM closed down the Luumäki timber components and planing mill in Finland. In December 2008, UPM closed down the Leivonmäki sawmill in Finland.

Paper. The operating loss of the Paper business area for the year ended 31 December 2008 was EUR129 million, as compared to an operating loss of EUR137 million for the year ended 31 December 2007. The operating profit of the Paper business area, excluding special items, was EUR250 million for the year ended 31 December 2008, a decrease of 4.6% from an operating profit of EUR262 million for the year ended 31 December 2007. Profitability decreased from the previous year, due to the markedly higher energy and fibre costs and lower deliveries. Higher paper prices offset most of the negative impact of lower delivery volumes. The stronger EUR against both the British pound sterling and the U.S. dollar weakened the profitability of the Paper business area’s exports. In EUR terms, the average price for all paper deliveries was over 2% higher for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The fixed costs were lower for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The Kajaani paper mill in Finland was shut down permanently in December 2008. In 2008, UPM booked as a special item a EUR101 million write-off in fixed assets and made a provision for the layoff and other closure costs of EUR42 million with a cash impact, mainly in 2009. Additionally, the Paper business area recorded a EUR230 million impairment charge from the business area’s goodwill. The impairment resulted from lower-than-forecast newsprint market demand in Europe and continued overcapacity in Europe combined with increased costs.

Label. The operating loss of the Label business area was EUR26 million for the year ended 31 December 2008, as compared to an operating profit of EUR60 million for the year ended 31 December 2007. The operating profit of the Label business area, excluding special items, was EUR2 million for the year ended 31 December 2008, a decrease of 96.4% from the operating profit of EUR56 million for the year ended 31 December 2007. Profitability of the Label business area declined due to increased material costs. In addition, the increase in fixed costs related to two new production facilities and decline in sales volume had a negative effect on profitability. Sales prices continued to contract until the first quarter of 2008. The price increases initiated since the first quarter improved the label prices and the average price of sales when translated into EUR was approximately the same as the year before.

Plywood. The operating profit of the Plywood business area was EUR28 million for the year ended 31 December 2008, as compared to EUR50 million for the year ended 31 December 2007. The operating profit of the Plywood business area, excluding special items, was EUR25 million for the year ended 31 December 2008, as compared to EUR50 million for the year ended 31 December 2007. The profitability of the Plywood business area declined during the second half of 2008 due to lower deliveries. The cost of wood logs increased for the year ended 31 December 2008, as compared to the year ended 31 December 2007. The average price for all plywood deliveries was higher for the year ended 31 December 2008, as compared to the year ended 31 December 2007, although prices started to decline in the latter part of 2008. In 2008, the availability of logs improved and returned to normal, as compared to the situation in 2007.

Other Operations. The operating loss of the Other operations business area, excluding special items, was EUR64 million for the year ended 31 December 2008, as compared to an operating loss of EUR30 million for the year ended 31 December 2007. This operating loss was affected by the following disposals made in 2007: the real estate company UPM-Asunnot Oy in April, Walki Wisa in June and the port operators Oy Rauma Stevedoring Ltd and Oy Botnia Shipping Ab in October. Development units also made an operating loss. Development units continued to invest in product development. During the year 2008, UPM established a new UPM Biorefinery Development Centre for the research of biofuels and biochemicals in Lappeenranta in Finland, and opened a new state-of-the-art RFID tags and inlays manufacturing plant in Guangzhou in China, and a new wood plastic composite production plant in Bruchsal in Germany.

Financial Items

UPM’s interest and other finance expenses, net were EUR202 million for the year ended 31 December 2008, as compared to EUR191 million for the year ended 31 December 2007. Exchange rate and fair value gains and losses resulted in a loss of EUR25 million for the year ended 31 December 2008, as compared to a loss of EUR2 million for the year ended 31 December 2007. The net gains on available- for-sale investments were EUR2 million for the years ended 31 December 2008 and 2007. The net interest bearing liabilities as of 31 December 2008 increased by EUR348 million to EUR4,321 million for

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the year ended 31 December 2008, as compared to EUR3,973 million for the year ended 31 December 2007.

Profit (loss)

UPM had a loss before tax of EUR201 million for the year ended 31 December 2008, as compared to a profit before tax of EUR292 million for the year ended 31 December 2007. Income taxes were EUR21 million positive for the year ended 31 December 2008, as compared to EUR211 million negative for the year ended 31 December 2007. Income taxes for 2008 included a EUR28 million income from a decrease of deferred tax liabilities relating to an impairment of the Paper business area’s goodwill and a tax expense of EUR13 million related to change in the UK tax legislation. Income taxes for 2007 included a EUR25 million income from a decrease of deferred tax liabilities relating to an impairment of goodwill of the Paper and Pulp business areas, a tax expense of EUR25 million due to a decrease of tax rate in Canada (resulting from a decrease in the value of deferred tax assets), and a tax income from due to a decrease of tax rate changes in Germany and the United Kingdom. In addition, income taxes included a charge of EUR123 million from a reduction of deferred tax assets in Canada (of which EUR98 million from book over tax depreciation), relating to the decision to close the Miramichi paper mill.

The loss for the year ended 31 December 2008 was EUR180 million, as compared to a profit of EUR81 million for the year ended 31 December 2007.

Capital Expenditure and Investment

For the year ended 31 December 2009, UPM’s capital expenditure, excluding acquisitions and share purchases, was EUR229 million, or 3.0% of sales, as compared to EUR532 million, or 5.6% of sales, for the year ended 31 December 2008 and EUR683 million, or 6.8% of sales, for the year ended 31 December 2007. For the year ended 31 December 2009, including acquisitions and share purchases, UPM’s capital expenditure was EUR913 million, or 11.8% of sales, as compared to EUR551 million, or 5.8% of sales, for the year ended 31 December 2008 and EUR708 million, or 7.1% of sales, for the year ended 31 December 2007. For the year ended 31 December 2009, UPM’s operational capital expenditure was EUR148 million, as compared to EUR235 million for the year ended 31 December 2008, and EUR268 million for the year ended 31 December 2007.

The new renewable energy power plant at the Caledonian mill in Irvine in, Scotland started operations in June 2009. The total investment cost was £68 million.

UPM continued its tight investment discipline during 2009 and made only a few new investment decisions. Currently, the largest ongoing project is the rebuild of the debarking plant at the Pietarsaari mill in Finland. The total investment cost is estimated to be EUR25 million.

In December 2009, UPM made a decision to invest £17 million in a materials recovery facility at its Shotton paper mill in North Wales. Construction of the facility is scheduled to be completed by January 2011.

Cash Flow

UPM’s primary source of liquidity comes from its generation of operating cash flow. As of 31 December 2009, UPM had EUR438 million in cash and cash equivalents. As of 31 December 2009, UPM also had unused committed credit facilities amounting to EUR1.7 billion. UPM’s management believes that its existing cash, cash equivalents, current facilities and operating cash flow will be sufficient to satisfy its currently anticipated cash requirements through at least the next 12 months.

In order to maintain financial flexibility, UPM has further emphasised the priority of debt reduction. In January 2009, UPM announced a new dividend policy. UPM intends to pay as an annual dividend at least one-third of the net cash flow from its operating activities less operational capital expenditure. To promote stability in dividends, the net cash flow will be calculated as an average over a three year period. Remaining funds are to be allocated between growth capital expenditure and debt reduction.

The Group’s liquidity resources are subject to change as the market and general economic conditions evolve. Increases in liquidity could result from an increase in cash flow from operations or a divestment of non-core assets. Decreases in liquidity could result from a weaker than expected cash flow

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from operations caused by lower demand for or weaker prices of UPM’s products. In addition, any potential acquisitions in which all or a portion of the consideration would be payable in cash, could have a significant effect on the Group’s liquidity resources.

The Group seeks to minimise risks relating to the refinancing of its outstanding debt by ensuring that its loan portfolio has a balanced maturity profile and that its loans have sufficiently long maturities. As of 31 December 2009, the average maturity of UPM’s outstanding debt was 6.1 years, as compared to 5.7 years as of 31 December 2008 and to 6.1 years as of 31 December 2007.

The following table sets forth UPM’s main cash flows for the most recent three years:

Year ended 31 December 2009 2008 2007 (EUR in millions) Net cash flow from operating activities ...... 1,259 628 867 Net cash flow used in investing activities ...... (214) (532) (425) Net cash flow used in financing activities ...... (940) (1) (402)

Cash from Operating Activities

UPM’s net cash flow from operating activities was EUR1,259 million for the year ended 31 December 2009, as compared to EUR628 million and EUR867 million for the years ended 31 December 2008 and 31 December 2007, respectively. Changes in cash flows from operating activities are primarily subject to the amounts of paper delivered and the prices at which the paper is sold. The profit was EUR169 million for the year ended 31 December 2009, as compared to a loss of EUR180 million for the year ended 31 December 2008. Due to decrease in working capital, UPM’s operating cash flow strengthened. The improvement of operating cash flow due to decrease in working capital was EUR664 million.

UPM’s operating profit included net capital gains on sale of non-current assets of EUR15 million in 2009 and EUR28 million in 2008. In 2007, UPM’s operating profit included net capital gains on sale of non-current assets of EUR157 million. These capital gains are not included in UPM’s cash flow from operating activities for these periods. UPM’s management believes that cash available through operations is adequate to fund its current scope of operations and its capital expenditure requirements.

Cash Used in Investing Activities

UPM’s cash flows in company acquisitions, purchases of shares and investments in intangible and tangible assets were EUR822 million, EUR577 million and EUR698 million for the years ended 31 December 2009, 2008 and 2007, respectively. UPM’s management believes that the competitiveness of its paper machines is satisfactory, and therefore, during the last three years, the Group has been able to maintain its capital expenditures at a level below depreciation. After sales of businesses, shares and other assets and changes in other long-term investments amounting to EUR608 million, EUR45 million and EUR273 million, UPM’s net cash used in investing activities were EUR214 million, EUR532 million and EUR425 million, in each case, for the years ended 31 December 2009, 2008 and 2007, respectively.

The most important capital expenditure in 2009 related to the new renewable energy power plant at the Caledonian paper mill in Irvine in Scotland. The total investment cost was £68 million. The largest ongoing project was the rebuild of the debarking plant at the Pietarsaari mill in Finland at a total cost of approximately EUR25 million. Significant acquisitions in 2009 include the purchase consideration of Metsä-Botnia’s Uruguayan operations for EUR602 million (EUR508 million net of cash acquired).

In 2008, UPM’s most important capital expenditure was the new pressure sensitive label materials production plant in Dixon, Illinois in the United States that commenced production in February. The total investment cost was U.S.$100 million. Another major investment was the rebuilding of the recovery plant at the Kymi pulp mill in Finland that was completed in June 2008. The total cost of the project was EUR360 million. Also in November 2008, UPM’s pressure sensitive label materials production plant commenced operations in Wroclaw in Poland. The total investment cost was EUR94 million.

In 2007, the most important of the Group’s capital expenditures were the construction of self- adhesive label materials production facilities in Wroclaw in Poland and in Dixon, Illinois in the United

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States, the ongoing rebuild of the recovery plant at its Kymi pulp mill in Finland and the new renewable energy power plant at its Caledonian mill in Irvine in Scotland.

Cash Used in Financing Activities

UPM’s net cash used in financing activities was EUR940 million for the year ended 31 December 2009, as compared to EUR1 million and EUR402 million for the years ended 31 December 2008 and 2007, respectively. For the year ended 31 December 2009, the reduction of short-term debt was EUR6 million, as compared to reduction of EUR153 million and an increase in short-term debt of EUR66 million for the years ended 31 December 2008 and 2007, respectively.

Dividend payments of EUR208 million, EUR384 million and EUR392 million for the years ended 31 December 2008, 2007 and 2006, respectively, are included in UPM’s cash flow used in financing activities for the years ended 31 December 2009, 2008 and 2007, respectively.

Based on the decisions made at UPM’s Annual General Meeting of shareholders, UPM repurchased 16.4 million of its own shares for EUR266 million in 2007. UPM did not repurchase any of its own shares in 2009 or 2008.

As of 31 December 2009, with EUR4,164 million of long-term interest bearing debt, mainly consisting of bonds, loans from financial institutions, pension loans and EUR300 million of short-term interest bearing debt totalling EUR4,464 million and offset by a total of EUR734 million in the form of interest bearing receivables and cash and cash equivalents, UPM had a total of EUR3,730 million of net interest bearing liabilities, which represented a decrease of EUR591 million, as compared to EUR4,321 million as of 31 December 2008. As of 31 December 2007, net interest bearing liabilities amounted to EUR3,973 million.

During the last three years, the Group’s net interest bearing liabilities have not changed significantly. The acquisition of the Uruguayan operations was funded by UPM’s operating cash flow. UPM’s gearing ratio, (i.e., net interest bearing liabilities divided by equity) was 56%, 71% and 59% as of 31 December 2009, 2008 and 2007, respectively.

UPM has launched a number of issues in the capital markets to diversify its funding sources and in an effort to secure a balanced maturity structure and sufficiently long maturities. UPM’s average loan maturity was 6.1 years, 5.7 years and 6.1 years as of 31 December 2009, 2008 and 2007, respectively.

In 2009, the proceeds from non-current liabilities amounted to EUR325 million which were used for loan repayments.

UPM has two major committed revolving credit facilities, which are part of its liquidity resources. One is for a principal amount of EUR825 million, maturing in 2012. The other is for a principal amount of EUR1.0 billion, also maturing in 2012. As of 31 December 2009, a total of EUR140 million was drawn under the credit facilities.

Since 1998, UPM has repurchased an aggregate of (after adjustment for the 2003 bonus issue) approximately 95.6 million of its own shares. This equals approximately 18.6% of the Company’s present share capital. Of the total number of shares repurchased, 93.2 million have been cancelled, 2.3 million shares have been used to finance acquisitions and 0.2 million have been donated to a new cultural foundation.

During the year 2007, UPM’s credit ratings remained unchanged but both rating agencies, Standard & Poor’s and Moody’s, added negative outlook to their UPM rating. In February 2008, Moody’s downgraded UPM from Baa2 to Baa3 and revised the outlook from negative to stable. Following the review for a possible downgrade in October 2008, Moody’s rating of UPM decreased in February 2009 to Ba1 with a stable outlook. In February 2009, Standard & Poor’s placed its BBB- credit rating on review for a possible downgrade and, in April 2009, Standard & Poor’s downgraded UPM to BB+, with a negative outlook. As of 31 December 2009, the ratings for UPM’s rated bonds were BB+ with negative outlook by Standard & Poor’s and Ba1 by Moody’s with a stable outlook. In February 2010, Standard & Poor’s downgraded UPM to BB and revised its outlook to stable. Any future downgrades may increase the cost of capital on any new debt the Group may incur.

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Related Party Transactions

General

From time to time, UPM and its subsidiaries may engage in ordinary course transactions with other companies that are related to UPM. These transactions include the supply of different paper grades, pulp, wood or other products and the provision of treasury and financing transactions. Along with UPM’s subsidiaries, UPM negotiates the terms of each transaction on an arm’s length basis following management guidelines. UPM’s management believes that the terms of each transaction are generally no less favourable than would be available in transactions with third parties that are not related to UPM. UPM intends to continue to engage in transactions on a similar basis, as set forth below, with such related companies.

Associated Companies and Joint Ventures

Until 8 December 2009, the Group had a 47% shareholding in Metsä-Botnia. Other owners of Metsä-Botnia are M-real and Metsäliitto. M-real is a Finnish paper and board producer and Metsäliitto is a co-operative organisation of Finnish forest owners. Metsäliitto is also the controlling shareholder of M- real.

On 8 December 2009, UPM, Metsäliitto, M-real and Metsä-Botnia completed a transaction whereby Metsäliitto’s and Metsä-Botnia’s shares of the Fray Bentos pulp mill and the eucalyptus plantation forestry company Forestal Oriental in Uruguay were acquired by UPM and UPM sold approximately 30% share in Metsä-Botnia to Metsäliitto. Following the transaction, as of December 2009, Metsä-Botnia is no longer UPM’s associated company but accounted for as an available-for-sale- investment.

Chemical pulp produced by Metsä-Botnia has been sold to the Group and to M-real at the market price less certain transportation and other costs. In 2008, the Group’s chemical pulp annual entitlement with respect to the production of Metsä-Botnia was 1.8 million tonnes. After the transaction, UPM’s share of Metsä-Botnia’s capacity was reduced to 400,000 tonnes per annum. For the first eleven months of 2009, the total purchases of chemical pulp from associated company Metsä-Botnia amounted to EUR272 million, as compared to purchases in 2008 of EUR287 million and, in 2007, of EUR231 million.

The Group obtains most of the energy for its production units in Finland from the Group’s owned and leased power plants, as well as through share ownership in power companies which entitles it to receive electricity and heat from those companies. A significant proportion of the Group’s electricity procurement comes from Pohjolan Voima, a Finnish energy producer in which the Group holds a 43.07% equity interest, and from Kemijoki, a Finnish hydropower producer in which the Group holds a 4.13% equity interest. Pohjolan Voima is also a majority shareholder in Teollisuuden Voima, one of Finland’s two nuclear power companies. The combined total of these energy purchases in 2009 was EUR223 million, as compared to purchases of EUR222 million and EUR207 million in 2008 and in 2007, respectively. In accordance with the articles of association of the power companies and related shareholder agreements, the prices paid by the Group to the power companies are based on production costs, which are generally lower than market prices. Internal sales to the Group’s segments are based on the prevailing market price.

The Group is not currently participating in any major arrangements that involve joint control or significant influence in the field of research and development. Until January 2009, approximately 10% of the Group’s research and development activities had been conducted by Oy Keskuslaboratorio- Centrallaboratorium Ab (“KCL”). The operations with KCL were reorganised in 2009, and consequently the Group has decreased its co-operation with KCL.

The Group purchases recovered paper partially from three associated companies. LCI s.r.l. (“LCI”) is an Italian recovered paper purchasing company in which the Group has a 50% interest. In 2009, the total value of recovered paper purchases from LCI was EUR9 million as compared to EUR25 million and EUR15 million in 2008 and in 2007, respectively. In Finland, the Group has a 22.98% interest in Paperinkeräys Oy ("Paperinkeräys"), a company engaged in the procurement, processing and transport of recovered paper. In 2009, the total value of raw material purchases from Paperinkeräys was EUR10 million, as compared to EUR12 million and EUR13 million in 2008 and in 2007, respectively. Recovered paper is sold to the Group and other shareholders of Paperinkeräys at a contract-based price

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that takes into account paper recycling expenses and the world market prices for recovered paper. In Austria, the Group has a similar arrangement concerning recovered paper which is purchased from Austria Papier Recycling G.m.b.H., a company in which the Group owns a 33.3% equity interest. In 2009, the total value of recovered paper purchases was EUR11 million, as compared to EUR16 million and EUR16 million in 2008 and in 2007, respectively.

Pension Foundations and Schemes

In Finland, UPM has a pension foundation, Kymin Eläkesäätiö, which is a separate legal entity. The pensions of approximately 8% of the Group’s Finnish employees are arranged through the foundation. In 2009, the contributions paid by UPM to the foundation amounted to EUR16 million, as compared to EUR47 million and EUR50 million for 2008 and 2007, respectively. The foundation manages and invests the contributions paid to the plan. The fair value of the foundation’s assets at 31 December 2009 was EUR271 million, of which 50% was in the form of equity instruments, 35% in the form of debt instruments and 15% invested in property and money market.

The Group participates in two pension schemes in the United Kingdom which operate within two separate and independent trusts. One scheme consists of various defined benefit sections as well as a defined contribution section, and the other scheme consists of a defined benefit section only. All defined benefit sections were closed to future accrual as of 31 December 2007 and all active members as of that date became deferred members and were invited to join the Group’s single UK Defined Contribution Pension Scheme. The Group made no contributions to the defined benefit schemes in 2009, as compared to contributions of £44 million and £6 million in 2008 and in 2007, respectively. The fair value of the UK Defined Benefit funds assets at 31 December 2009 was £194 million, of which 64% was invested in equity instruments, 28% in debt instruments and 8% in property and cash.

No director or executive officer or 10% shareholder of the Company has outstanding indebtedness to UPM.

Management

Pursuant to the provisions of the Finnish Companies Act (624/2006, as amended (the "Finnish Companies Act")) and UPM’s Articles of Association, UPM’s control and governance is divided among the shareholders represented at the general meetings of shareholders, the Board of Directors and the President and Chief Executive Officer (the “President and CEO”). In addition, UPM has the Group Executive Board and the Group Executive Team, which assist the President and CEO in the daily management of the Company.

The business address for each of the members of the Board of Directors, the Group Executive Board and the Group Executive Team is Eteläesplanadi 2, P.O. Box 380, FI-00101 Helsinki, Finland.

Board of Directors

Pursuant to UPM’s Articles of Association, the Board of Directors consists of at least five and no more than twelve members. The Board of Directors currently consists of nine members, elected for a term of one year beginning at the end of the annual general meeting of shareholders at which they have been elected, held on 22 March 2010, and ending at the conclusion of the next annual general meeting of shareholders.

Members of the Board of Directors may be appointed, or removed, only by a resolution of shareholders at a general meeting of shareholders. No benefits are provided to the Board members upon termination of their service as Board members. For the year during which a specific member was elected to the Board of Directors, see the individual biographies of the members of the Board of Directors below.

Following the annual general meeting of UPM’s shareholders held on 22 March 2010, the members of the Board of Directors are as follows:

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Björn Wahlroos ...... Chairman Member since 2008, Chairman since 2008 Chairman of the Nomination and Corporate Governance Committee Independent of the Company and significant shareholders Born 1952 Ph.D.(Econ.) Chairman of the Board of Directors of Sampo Plc since 2009, President and CEO of Sampo plc 2001–2009. Chairman of the Board of Directors of Mandatum Bank plc 1998–2000, CEO and Vice Chairman of the Board of Directors of Mandatum & Co Ltd 1992–1997 and Member of the Executive Committee and Executive Vice President in Union Bank of Finland in 1985–1992. In 1979–1985, Professor of Economics. Member of the Board of Directors of Nordea Bank AB (publ). Chairman of the Board of Directors of Hanken School of Economics. Owns 218,217 of UPM's shares.

Berndt Brunow ...... Vice Chairman Member since 2002, Vice Chairman since 2005 Chairman of the Human Resources Committee Independent of the Company and significant shareholders Born 1950 B.Sc.(Econ.) President and CEO of Oy Karl Fazer Ab 2002–2007. President and CEO of Sanitec Corporation 2000–2002. Various managerial positions at Finnpap and at UPM. Chairman of the Boards of Directors of Lemminkäinen Corporation and of Oy Karl Fazer Ab. Member of the Board of Directors of Oy Nautor Ab. Owns 278,739 of UPM’s shares.

Matti Alahuhta ...... Member since 2008 Member of the Nomination and Corporate Governance Committee Independent of the Company and significant shareholders Born 1952 D.Sc.(Eng.) President and CEO of KONE Corporation since 2006 and member of the Board of Directors of KONE Corporation since 2003. President of KONE Corporation 2005–2006. Executive Vice President of Nokia Corporation 2004, President of Nokia Mobile Phones 1998–2003 and President of Nokia Telecommunications 1993–1998. Member of the Foundation Board at the International Institute for Management Development (IMD). Chairman of the Board of Directors of Aalto University Foundation. Owns 41,603 of UPM's shares.

Karl Grotenfelt ...... Member since 2004 Chairman of the Audit Committee, Member of the Nomination and Corporate Governance Committee Independent of the Company and significant shareholders Born 1944 LL.M. Chairman of the Board of Directors of Famigro Oy. Served A. Ahlstrom Corporation as lawyer, General Counsel, Administrative Director of Paper Industry and Member of the Executive Board with responsibility for the Paper Industry 1970–1986. Member of the Boards of Directors of Fiskars Corporation and of Ahlström Capital Oy. Owns 35,993 of UPM’s shares.

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Wendy E. Lane ...... Member since 2005 Member of the Audit Committee Independent of the Company and significant shareholders Born 1951 MBA, Harvard Graduate School of Business Administration Chairman of the Board of the American investment firm Lane Holdings, Inc. since 1992, Banking Associate at Goldman, Sachs & Co. 1977–1980. Managing Director and Principal at Donaldson, Lufkin & Jenrette Securities Corp. 1981–1992. Member of the Boards of Directors of Laboratory Corporation of America and of Willis Group Holdings Limited. Owns 13,261 of UPM’s shares.

Jussi Pesonen ...... Member since 2007 Non-independent member of the Company Born 1960 M.Sc.(Eng.) President and CEO of UPM since January 2004. Joined the Company in 1987 and occupied several management posts as well as Vice President of Newsprint Product Group. COO of the paper divisions and deputy to the President and CEO 2001– 2004. Member of the Board of Directors of Outokumpu Oyj. Vice Chairman of the Boards of Directors of the Confederation of European Paper Industries (CEPI) and of the Finnish Forest Industries Federation (FFIF). Owns 92,184 of UPM’s shares and holds 340,000 class B options, 300,000 class A options and 120,000 class H options.

Ursula Ranin ...... Member since 2006 Member of the Human Resources Committee Independent of the Company and significant shareholders Born 1953 LL.M., B.Sc.(Econ.) Employed by Nokia Corporation within the legal function 1984–2005; 1994–2005 Vice President and General Counsel and, since 1996, secretary of the Board of Directors. Member of the Board of Directors of Finnair Plc. Owns 12,183 of UPM’s shares.

Veli-Matti Reinikkala ...... Member since 2007 Member of the Audit Committee Independent of the Company and significant shareholders Born 1957 eMBA President of ABB Process Automation Division, Member of the Group Executive Committee ABB Inc., Switzerland since 2006. Held various positions in Rauma- Repola Group’s business control 1979–1989. CFO of Tampella Packaging Division, 1989–1991. Managing Director of Stora Enso Group’s Pac Asia Ltd. 1992–1993. Various business control and executive positions in ABB Ltd. 1993– 2005. Owns 11,183 of UPM’s shares.

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Robert J. Routs Member since 2010 Member of the Human Resources Committee Independent of the Company and significant shareholders Born 1946 Ph.D. (Tech.) Executive Director Downstream and a member of the Board of Directors of Royal Dutch Shell plc 2004–2008. Shell Group Managing Director (Oil Products, the Refining and Marketing business) and member of the Committee of Managing Directors 2003–2004. CEO of Shell Oil Products US and President of Shell Oil Company 2002–2003. President and CEO of Equilon Enterprises LLC 2000–2002. Before that, various senior management positions at Royal Dutch/Shell Group in the United States, Canada and the Netherlands since 1971. Vice Chairman of the Supervisory Board of the insurance and pension group Aegon N.V. Member of the Supervisory Board of telecommunications company KPN N.V. Member of the Boards of Directors of Canadian Utilities Ltd. and of the business school INSEAD.

President and CEO

The President and CEO is responsible for the day-to-day management of UPM. The President and CEO ensures that UPM’s accounting practices conform to the law and that UPM’s financial administration and management is reliably organised. Measures that are unusual or extensive in view of the scope and nature of UPM’s business may be taken by the President and CEO only if approved by the Board of Directors, unless the time required to obtain such approval would cause the Company to suffer a substantial disadvantage. In the latter case, the Board of Directors must be informed as soon as practicable of the measures taken. The Board of Directors has approved the service contract of UPM’s President and CEO, including financial benefits and other terms of service. The performance of the President and CEO is evaluated annually by the Board’s Human Resources Committee.

Group Executive Board and Group Executive Team

The Group Executive Board and the Group Executive Team assist the President and CEO in the operative management of UPM. The main duties of the Group Executive Board are matters relating to the preparation and implementation of the Group strategy and business group strategies, financial forecasting and performance of the Group and its business groups, investments and divestitures while the primary responsibilities of the Group Executive Team are matters pertaining to functional strategies, corporate procedures and co-ordination between the business groups and functions.

UPM’s three business groups have their own management teams, the purpose of which is to assist the presidents of the respective business groups. In addition, business areas have their own management groups. UPM also has local management groups in which UPM’s employees are represented.

Currently, the members of UPM’s Executive Board and Executive Team are as follows:

Jussi Pesonen ...... President and Chief Executive Officer M.Sc.(Eng.) Born 1960 Member of the Group Executive Team since 2001. Member of the Group Executive Board. Employed by UPM since 1987. Several management positions as well as Vice President of UPM Newsprint Product Group 1987–2001. COO of the paper divisions and deputy to the President and CEO 2001–2004. President and CEO since 2004. Member of the Board of Directors of UPM and Outokumpu Oyj. Vice Chairman of the Boards of Directors of the Confederation of European Paper Industries (CEPI) and of the Finnish Forest Industries Federation (FFIF). Owns 92,184 of UPM’s shares and holds 340,000 class B options, 300,000 class A options and 120,000 class H options.

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Pirkko Harrela ...... Executive Vice President, Corporate Communications M.A. Born 1960 Member of the Group Executive Team since 2004. Employed by UPM since 1985. Several positions in Communications with Finnpap and UPM Printing Papers Division 1985–2002. Vice President, Corporate Communications, UPM 2003. Owns 12,368 of UPM’s shares and holds 80,000 class B options, 80,000 class A options and 40,000 class H options.

Tapio Korpeinen ...... Executive Vice President and Chief Financial Officer M.Sc. (Tech.), MBA Born 1963 Member of the Group Executive Team since 2008. Member of the Group Executive Board. Employed by UPM since 2005. Several management posts at Jaakko Pöyry Consulting in Finland and North America 1991–1998 and 1999–2005. A.T. Kearney in Finland 1998–1999 and McKinsey & Company in Sweden 1988–1990. Vice President, Corporate Development and Senior Vice President, Strategy, UPM 2005–2008. Chairman of the Board of Directors of Pohjolan Voima. Member of the Boards of Directors of Teollisuuden Voima and of Kemijoki. Owns 480 of UPM's shares and holds 170,000 class B options, 120,000 class A options and 30,000 class H options.

Juha Mäkelä ...... General Counsel LL.M. University of Turku and the Northwestern Law School, Chicago, the United States. Born 1962 Member of the Group Executive Team since 2008. Employed by UPM since 2005. Several positions in business law in law firms in Finland and Germany 1991–1996. Several positions with Kone Corporation 1997–2004. General Counsel of UPM since 2005. Owns 6,448 of UPM's shares and holds 80,000 class B options, 80,000 class A options and 40,000 class H options.

Jyrki Ovaska ...... President, Paper Business Group M.Sc. (Eng.) Born 1958 Member of the Group Executive Team since 2002. Member of the Group Executive Board. Employed by UPM since 1984. Several management positions with United Paper Mills Ltd and UPM in Printing Papers Division 1984–2001. President, Fine & Speciality Papers Division 2002– 2003. President, Magazine Paper Division 2004–2008. Member of the Board of Directors of the Association of European Publication Paper Producers (CEPIPRINT). Owns 13,772 of UPM’s shares and holds 170,000 class B options, 150,000 class A options and 60,000 class H options.

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Riitta Savonlahti ...... Executive Vice President, Human Resources M.Sc. (Econ.) Born 1964 Member of the Group Executive Team since 2004. Employed by UPM since 2004. HR Specialist positions with ABB 1990–1994. Human Resources Manager with Nokia Mobile Phones, Salo Operations 1995-2000. Senior Vice President, Human Resources with Raisio Group 2000–2001. Senior Vice President, Human Resources with Elcoteq Network Corporation 2001–2004. Member of the Board of Directors of Itella Corporation. Owns 6,598 of UPM’s shares and holds 80,000 class B options, 80,000 class A options and 20,000 class H options.

Hans Sohlström ...... Executive Vice President, Corporate Relations & Development M.Sc. (Tech.), M.Sc. (Econ.) Born 1964 Member of the Group Executive Team since 2004. Employed by UPM since 1988. Several positions in marketing and business development with Kymmene Corporation, Finnpap and UPM in Finland, Germany and France 1984–1994. Mill Director, Jämsänkoski MFC and SC mills 1994–1998. Vice President in sales and marketing at UPM Publication Papers 1998–2002. Senior Vice President, Magazine Paper Division 2002–2004. Executive Vice President, Marketing 2004–2007. Executive Vice President, New Businesses and Biofuels 2007–2008. Member of the Boards of Directors of the Association of European Fine Paper Producers (CEPI Fine) and of the Finnish Forest Industries Federation (FFIF). Vice Chairman of the Board of Directors of German-Finnish Chamber of Commerce (DFHK). Owns 20,262 of UPM’s shares and holds 80,000 class B options, 80,000 class A options and 40,000 class H options.

Jussi Vanhanen ...... President, Engineered Materials Business Group LL.M., MBA Born 1971 Member of the Group Executive Team since 2008. Member of the Group Executive Board. Employed by UPM since 1997. Legal Counsel of Finnpap, Sales Manager at Samab Cia in Brazil 1995–1999. Project Manager and Head of New Ventures, UPM, Converting Division 1999– 2001. Management posts at UPM Raflatac in Finland and Spain 2003–2005. Senior Vice President, Asia Pacific and Senior Vice President, Europe, Label Division 2005–2008 Owns 480 of UPM shares and holds 170,000 class B options, 120,000 class A options and 9,000 class H options.

Heikki Vappula...... President, Energy and Pulp Business Group M.Sc (Econ.) Born 1967 Member of the Group Executive Team since May 2010. Employed by UPM–Kymmene Corporation since 2006. Senior Vice President, UPM Sourcing 2006–2010. Vice President of Nokia Mobile Phones Supply Line Management 2002–2006. Several management positions at Nokia Networks in Denmark, Hungary, Finland and UNITED KINGDOM 1996– 2002. Management Accountant, Nokia Group, Finland, 1992–1996, Sales Manager, Balance Consulting Oy 1992–1993, Management Accountant, Nokia Group, Finland 1992–1996, several management positions at Nokia Networks Corporation in Denmark, Hungary, Finland and UNITED KINGDOM 1996–2002, Vice President of Nokia Mobile Phones Supply Line Management 2002–2006, Senior Vice President, UPM Sourcing 2006–2010. Owns 40,000 class B options, 40,000 class A options and 10,000 class H options.

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Hartmut Wurster ...... Executive Vice President, Technology D.Tech. Born 1955 Member of the Group Executive Team since 2002. Employed by UPM since 1987. Several positions with Hamburger AG and Brigl & Bergmeister in Austria 1982– 1987. Head of Technology Department and Mill Director at Haindl Papier GmbH & Co. KG Augsburg mill 1987–1996. Member of the Haindl Executive Board responsible for the Magazine Paper Division 1996–2001. President, UPM, Newsprint Division 2002–2008. Member of the Board of Directors of the German Pulp and Paper Association (VDP). Chairman of the Board of Trustees of the German R&D Institute for Pulp and Paper (PTS). Member and Deputy Chairman of the Board of Directors of the German association of industrial energy users and self-generators (VIK). Owns 10,572 of UPM’s shares and holds 120,000 class A options, 50,000 class G options and 60,000 class H options.

Board Practices

Pursuant to the Finnish Companies Act, the Board of Directors is responsible for the administration and proper organisation of the operations of the Company and the appropriate arrangement of the control of the Company’s accounts and finances. In addition, the Board of Directors shall determine the Company’s dividend policy and make a proposal to the annual general meeting of shareholders for the annual payment of dividends. The Board of Directors’ other duties include, among others:

(i) establishing and evaluating the strategic direction of UPM;

(ii) approving and evaluating UPM’s business and strategic plans;

(iii) reviewing and approving UPM’s financial objectives and major corporate plans;

(iv) establishing limits for capital expenditures, investments and divestitures and financial commitments not to be exceeded without the approval of the Board of Directors;

(v) overseeing strategic and operational risks;

(vi) ensuring that UPM has defined the operating principles of internal control and monitors the function of such control; and

(vii) appointing the President and CEO and the members of the Group Executive Team and the Group Executive Board.

The Members of the Board of Directors are required to provide the Board of Directors with adequate information for the assessment of their qualifications and independence. Based on the information provided by the Board members, the Board of Directors has determined that all of the Board members are independent with the exception of Mr. Jussi Pesonen who is the President and CEO of the Company. According to the Finnish Corporate Governance Code of 2008 published by the Securities Market Association (the “Finnish Corporate Governance Code”), a member of the Board of Directors is not independent of the Company if, among other reasons, he or she has or has had an employment relationship or service contract with the Company.

The Board of Directors elects, from among its members annually, a Chairman and two Vice Chairmen. The Board of Directors is deemed to have a quorum when more than one-half of its members are present and one of the members present is either the Chairman or the Vice Chairman. The Board of Directors may consult external experts when considered necessary. In 2009, the Board of Directors met eleven times. On average, the members of the Board of Directors attended 99% of the meetings. At the date of this Base Prospectus, UPM is not aware of any conflicts of interest or potential conflicts of interest between any duties of the Company or the members of the Board of Directors, on the one hand, and the private interests of the members of the Board of Directors, on the other hand. The Board’s charter is available on UPM’s website www.upm.com.

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Committees of the Board of Directors

The Board of Directors has established an Audit Committee, a Human Resources Committee and a Nomination and Corporate Governance Committee. The Committees assist the Board of Directors by preparing matters within the competence of the Board of Directors. The Board has appointed the members of the Committees and their chairmen from among the Directors. It has also adopted charters for the Committees which are available on UPM’s website (www.upm.com). In 2009, all Committees of the Board of Directors fulfilled their respective independence requirements set out in the Finnish Corporate Governance Code. The President and CEO may not be appointed a member of these Committees. The Board Committees report on their activities to the Board of Directors on a regular basis.

Audit Committee. The Finnish Corporate Governance Code sets out requirements relating to the necessary qualifications for members of the Audit Committee. In accordance with UPM’s Audit Committee Charter, desirable qualifications for committee members include appropriate understanding of accounting practices and financial reporting through education or experience in performing or overseeing related functions.

Pursuant to its charter, the primary purpose of the Audit Committee is to oversee the financial reporting processes and the statutory audits of the financial statements as well as matters pertaining to UPM’s financial reporting, internal control and risk management. Further duties of the Audit Committee include, among others, monitoring the efficiency of UPM’s internal control, internal audit and risk management systems, evaluating the qualifications and independence of UPM’s statutory auditor and matters pertaining to the preparation of the proposal for the election of the statutory auditor as well as evaluating the performance of UPM’s internal audit. In 2009, the Audit Committee convened four times. The current members of the Audit Committee are: Karl Grotenfelt, Wendy E. Lane and Veli-Matti Reinikkala.

Human Resources Committee. Pursuant to its charter, the primary purposes of the Human Resources Committee are to assist the Board of Directors with its responsibilities relating to the appointment, assessment and the remuneration of the President and CEO, the Group Executive Team and other employees reporting to the President and CEO, to oversee UPM’s human resources policies, compensation plans and programmes and to review procedures for appropriate succession planning for senior management. In 2009, the Human Resources Committee convened seven times. The current members of the Human Resources Committee are: Berndt Brunow, Ursula Ranin and Robert J. Routs.

Nomination and Corporate Governance Committee. Pursuant to its charter, the primary purposes of the Nomination and Corporate Governance Committee are to prepare the proposal for the election of the members of the Board of Directors and their remuneration for consideration by the General Meeting of Shareholders, to develop and recommend a set of corporate governance principles to the Board of Directors, and to review the overall corporate governance of the Company. In 2009, the Nomination and Corporate Governance Committee convened four times. The current members of the Nomination and Corporate Governance Committee are: Björn Wahlroos and Matti Alahuhta.

UPM’s corporate governance practices comply with the applicable recommendations of the Finnish Corporate Governance Code.

In addition, UPM’s Board of Directors has adopted a code of conduct applicable to directors, officers, and employees. The code of conduct addresses topics, such as conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of company assets, compliance with laws, rules and regulation and encouraging the reporting of any illegal or unethical behaviour. The code of conduct contains compliance standards and procedures to facilitate its effective implementation and to ensure prompt and consistent action against violations of the code. The code of conduct is available at UPM’s website at www.upm.com by clicking “About Us”—“Corporate Responsibility”.

The Board of Directors has adopted an insider policy for the Group, which sets forth the rules governing the insiders of the Company. UPM’s permanent insiders as of 1 January 2010 included the members of the Board of Directors, the President and CEO, the auditor who has principal responsibility for auditing the Company’s financial statements and other members of the senior management who regularly receive insider information and who have the authority to make decisions affecting the Group’s future development and organisation of its business activities. Pursuant to the Finnish Auditing Act (459/2007, as amended), the auditor is not allowed to own shares of the Company. The holdings of the

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shares of the Company by the primary insiders are public information and are available at Euroclear Finland Ltd and on UPM’s website www.upm.com. The permanent insiders are subject to a number of trading restrictions and rules, including among others, prohibitions on trading in the Company’s securities during the four-week “closed window” periods preceding and, including the disclosure date of the annual or quarterly results. When necessary, insider registers will be drawn up for individual projects and trading restrictions will be imposed. Persons possessing inside information are not allowed to trade in the Company’s securities.

Additional Information

UPM’s Shares

As of 30 April, 2010, UPM’s fully paid-up share capital amounted to EUR889,572,283 comprising 519,970,088 shares. UPM has only one class of shares and the shares do not have a nominal counter value. Each share entitles its holder to one vote at any general meeting of shareholders of UPM. Pursuant to Article 12 of UPM’s Articles of Association, a shareholder who, alone or jointly with another shareholder, owns 33 1/3% or 50% or more of all of UPM’s shares or their associated voting rights shall, at the request of other shareholders, be liable to redeem their shares and any securities that, under the Finnish Companies Act, carry the right to such shares, as prescribed in more detail in Article 12. A resolution of general meeting of shareholders to amend or delete this redemption clause must be carried by shareholders representing not less than three quarters of the votes cast and shares represented at the meeting.

UPM’s shares are listed on NASDAQ OMX Helsinki. American Depositary Shares representing UPM’s shares are traded in the United States on the over-the-counter market under a Level 1 sponsored American Depositary Receipt program.

The Annual General Meeting of shareholders, held on 22 March 2010, authorized UPM’s Board of Directors to acquire no more than 51,000,000 of the Company’s own shares. The authorisation is valid for 18 months from the date of the decision. The Board of Directors was authorised to decide on the issuance of shares and/or transfer the Company’s own shares held by the Company and/or issue special rights entitling holders to shares in the Company as follows: (i) the maximum number of new shares that may be issued and the Company’s own shares held by the Company that may be transferred is, in total, 25,000,000 shares. This figure also includes the number of shares that can be received on the basis of the special rights; and (ii) the new shares and special rights entitling holders to shares in the Company may be issued and the Company’s own shares held by the Company may be transferred to the Company’s shareholders in proportion to their existing shareholdings in the Company, or in a directed share issue, deviating from the shareholder’s pre-emptive subscription right. This authorisation is valid until 22 March 2013. To date these authorisations have not been used.

Memorandum and Articles of Association

Purpose and Object

Pursuant to Section 2 of UPM’s Articles of Association, the sphere of operations UPM is to engage, either directly or through its subsidiaries, in the forest, packaging, chemical, engineering, marine technology and energy production industries as well as other business operations related to these. UPM may also own and control real estate, shares and other securities, engage in other investment activities and act as the parent company of the group that it forms.

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GLOSSARY

The following explanations are not intended as technical definitions, but to assist the general reader to understand certain terms as used in this Base Prospectus.

Agricultural residues Agricultural residues are biomass residues originating from production, harvesting and processing in farm areas. Agricultural residues or non-wood feedstocks include a number of cultivated and naturally growing plants, such as straw and reed. Agro residues can be used as raw materials for pulp and biochemicals. To audit, audit Inspection, or audit, performed by an independent external auditor, for example, the audit of a management system. Biodiesel Diesel fuel produced from biomass. Bioethanol Ethanol produced from biomass. Biofuels Liquid or gaseous fuel for transport produced from biomass. Biomass Organic material generated by the growth of micro-organisms, plants and animals. Biorefinery Facility that integrates biomass conversion processes and equipment to produce fuels, power and value-added chemicals from biomass. Carbon dioxide, C02 Combustion product of carbon. Carbon emissions arise from fossil fuels, for instance. Chain-of-Custody (CoC) A system for monitoring the origin and chain-of-custody of wood. Coated fine paper (WFC) Also known as coated wood-free paper. Coated fine paper is used for demanding printing. The amount of coating and gloss of the paper is determined by the end-use. Top quality coated fine papers are called art printing papers and due to excellent printability are used for art books, brochures, annual reports and other similar purposes. Other papers, with a lighter coating, are used for brochures, books, magazines, catalogues and other similar purposes. Coated Paper Paper that has been coated on one or both sides with a mix of clay or carbonates and latex to create a high quality printing surface. LWC Lightweight coated paper. The main characteristics of LWC paper are its higher gloss, brightness and smoothness relative to uncoated supercalendered paper. These properties are necessary for quality printing and good colour reproduction. The main uses of LWC paper are in the printing of mass circulation magazines, catalogues and direct mail advertising. MFC Machine-finished coated paper. MFC paper has high brightness, opacity, bulk and stiffness and is used in specialized magazines, catalogues, inserts, advertising materials and books. The soft-nip calendar gives a matt finish to the paper. EMAS (Eco-Management and A voluntary environmental management scheme for companies and Audit Scheme) organisations in the private and public sectors. EU ETS EU emission trading scheme. To evaluate, evaluation Evaluation, or inspection, performed by UPM's own personnel, of, for example, the operations of a subcontractor. Face papers Paper on which a label is printed in self-adhesive labelstock. Fibre The basic structural unit of paper. Fibres used in papermaking originate mainly from the stem of softwood and hardwood trees. Fine paper Also known as writing paper, free sheet or wood-free paper. Fine paper generally contains chemical pulp, with no more than 10% of mechanical pulp, and its filler content varies between 5% and 25%. Fine paper is generally highly regarded for its strength, brightness and good archiving characteristics. Fine paper may be coated or uncoated. Filmic liner Filmic backing layer with silicone release coating carrying the adhesive face material of the self-adhesive laminate. Filmic products Self-adhesive laminates with filmic face layer. Fischer-Tropsch Synthesis process in which liquid fuels are produced from synthetic

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gas. Flexography The flexography printing process is used in three variations. The systems revolve around the type of ink used to create the image and the method of drying the image once printed. The ink may be solvent-based, water-based or ultra-violet curing. Graphic paper Coated and uncoated magazine papers, standard and speciality newsprint as well as coated and uncoated fine paper reels and sheets. Gravure printing A printing process using a thin, quick-drying ink applied from a cylindrical surface that has an engraved design. Rotogravure printing is the opposite of letterpress printing, since the design areas are recessed into the cylinder instead of being in relief. HF High frequency. ISO International Organisation for Standardisation. International Organisation for Standardisation, whose ISO 9000 quality standards and 14000 environmental standards are extensively used in industry. Label paper Face and base papers suitable for self-adhesive labels. Face papers have distinct printing properties and base papers have siliconising and tear-off properties. Letterpress printing Letterpress printing, as in terms of label printing, can come in three forms. Flat-bed, semi-rotary, and rotary. Each of these applies a paste ink to a relatively hard, flat raised relief surface. This inked surface, which may be formed from polymer or metal, is then pressed against the subtrate being printed leaving a sharp edged ink film. Magazine paper Paper used in magazines, catalogues, brochures, direct mail advertising and similar printed material. Newsprint Uncoated paper manufactured mainly from mechanical pulp or recycled paper and used for newspapers and directories. Newsprint has a low basis weight. OSB Oriented Strand Board is an engineered, building panel product made of strands, flakes or wafers sliced from small diameter, round wood logs and bonded with a binder under heat and pressure. PM PM, or paper machine, is a term used when referring to individual paper manufacturing units within a paper mill. Printing paper Papers used in the graphic industry and for photocopying. Printing papers may be coated or uncoated. Preprint applications Business forms and letterheads, financial documents, such as invoices, bank statements, cheques, administrative documents, listings, shipping documents etc. Publication paper Pulp Coated and uncoated magazine papers, standard and speciality newsprint. Generic name for wood or plant-based fibre masses used as raw material in papermaking. Chemical pulp Generic name for wood-based fibres separated from each other by "cooking" wood chips or plants in hot alkaline or acidic solutions of various chemicals. Hardwood pulp Pulp obtained from deciduous trees, which have the advantage of shorter fibres, which enhance the printability of the paper. Mechanical pulp Generic name for wood-based fibres separated from each other Softwood pulp mechanically. Pulp obtained from coniferous trees which have the advantage of long fibres which enhance the strength of the paper. REACH (Registration, EU legislation on Registration, Evaluation and Authorisation of Evaluation and Authorisation Chemicals. of Chemicals) Recovered paper Paper and board recovered for secondary use. Recycled fibre Fibre extracted from recovered paper. Renewable energy Renewable non-fossil energy sources: wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases.

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RFID Radio Frequency Identification, is a technology that incorporates the use of radio waves to uniquely identify an object. A typical RFID system consists of a tag, a reader and a host system. The advantage of RFID is that it does not require direct contact or line-of-sight. Roll-to-roll printing A roll of material is unwound, the unwound web then printed and converted, and the printed material rewound into a roll. SC Supercalendered paper. Supercalendered paper is manufactured from mechanical and chemical pulp with mineral pigments as filler. This paper is used for printing magazines, especially multicolour magazines with large circulations. Traditional SC paper is made for gravure printing, but other SC paper grades have also been developed to suit offset printing. Second-generation Liquid transportation fuel produced from lignocellulosic feedstock. biodiesel/BTL (biomass-to- The process producing BTL diesel converts solid biomass into liquid liquid) diesel fuel via gasification and Fischer-Tropsch synthesis. Refined BTL diesel can be used in existing diesel engines. Self-adhesive labelstock Face and base materials laminated together for manufacturers of product and information labels. Self-adhesive labelstock is also known as pressure-sensitive labelstock. TRS Reduced sulphur compounds (e.g., sulphuric acid, methyl mercaptan), emission reported as sulphur (S; can be converted to sulphur dioxide by multiplying by 2). UHF Ultra-high frequency. UV-flexo Ultraviolet (UV) flexography, the inks are dried by ultra-violet light. UV Flexo introduces further environmental improvements and better image quality. Dot gain is greatly reduced, which gives sharper and more consistent results with higher gloss and improved contrast. Woodfree, free sheet or fine Papers used by the graphic industry for writing, including office paper papers, such as photocopying and laser printing paper. These papers may be coated or uncoated. Wood plastic composite Wood plastic composite is a composite material made of plastic and wood fibre. The technology uses recycled plastic and wood fibre to produce a composite result.

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TAXATION

The following is a general description of certain Finnish and United Kingdom tax considerations as well as certain Luxembourg withholding considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in those countries or elsewhere. Prospective purchasers of Notes should consult their own tax advisers as to which countries' tax laws could be relevant to acquiring holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of this Base Prospectus and is subject to any change in law that may take effect after such date.

Republic of Finland

Under present Finnish law, payments of the principal of, and interest (if any) on, the Notes will be exempt from all taxes, duties, fees and imposts of whatever nature, imposed or levied by or within the Republic of Finland or by any province, municipality or other political sub-division or taxing authority thereof and therein, except when the holder of the Note or Coupon to which any such payment relates is subject to such taxation thereon by reason of such holder being connected with the Republic of Finland otherwise than solely by his holding of such Note or Coupon or the receipt of income therefrom.

Non-residents of Finland are not liable to pay Finnish capital gains tax on Notes that are not connected with a permanent or a fixed base in Finland.

Transfers of Notes by a non-resident by way of a gift or by reason of the death of the holder may be subject to Finnish gift or inheritance tax, respectively.

The United Kingdom

Introduction

The following is a summary of the United Kingdom withholding taxation treatment at the date hereof in relation to payments of principal and interest in respect of the Notes. It is based on current law and practice of Her Majesty's Revenue and Customs ("HMRC") which may be subject to change, sometimes with retrospective effect. The comments are made on the assumption that the Issuer of the Notes is not resident in the United Kingdom for United Kingdom tax purposes and that the interest payments on the Notes do not have a United Kingdom source. The comments do not deal with other United Kingdom tax aspects of acquiring, holding or disposing of Notes. The comments relate only to the position of persons who are absolute beneficial owners of the Notes. Prospective Noteholders should be aware that the particular terms of issue of any series of Notes as specified in the relevant Final Terms may affect the tax treatment of that and other series of Notes. The following is a general guide and should be treated with appropriate caution. Noteholders who are in any doubt as to their tax position should consult their professional advisers. Noteholders who may be liable to taxation in jurisdictions other than the United Kingdom in respect of their acquisition, holding or disposal of the Notes are particularly advised to consult their professional advisers as to whether they are so liable (and if so under the laws of which jurisdictions), since the following comments relate only to certain United Kingdom taxation aspects of payments in respect of the Notes. In particular, Noteholders should be aware that they may be liable to taxation under the laws of other jurisdictions in relation to payments in respect of the Notes even if such payments may be made without withholding or deduction for or on account of taxation under the laws of the United Kingdom.

United Kingdom withholding taxes

Interest on the Notes may be paid without withholding or deduction for or on account of United Kingdom income tax.

Provision of information

Noteholders and Couponholders should note that where any interest on Notes is paid to them (or to any person acting on their behalf) by any person in the United Kingdom acting on behalf of the Issuer (a "paying agent"), or is received by any person in the United Kingdom acting on behalf of the relevant Noteholder or Couponholder (other than solely by clearing or arranging the clearing of a cheque) (a "collecting agent"), then the paying agent or the collecting agent (as the case may be) may, in certain

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cases, be required to supply to HMRC details of the payment and certain details relating to the Noteholder or Couponholder (including the Noteholder's or Couponholder's name and address). These provisions will apply whether or not the interest has been paid subject to withholding or deduction for or on account of United Kingdom income tax and whether or not the Noteholder or Couponholder is resident in the United Kingdom for United Kingdom taxation purposes. In certain circumstances, the details provided to HMRC may be passed by HMRC to the tax authorities of certain other jurisdictions.

The provisions referred to above may also apply, in certain circumstances, to payments made on redemption of any Notes which constitute "deeply discounted securities" for the purposes of section 18 of the Taxes Management Act 1970 (although in this regard HMRC published guidance for the year 2009/2010 indicates that HMRC will not exercise its power to obtain information in relation to such payments in that year).

Other rules relating to United Kingdom withholding tax

The references to "interest" and "principal", in this description of the United Kingdom withholding tax position, mean "interest" and "principal" as understood in United Kingdom tax law. The statements in this section do not take any account of any different definitions of "interest" or "principal" which may prevail under any other law or which may be created by the terms and conditions of the Notes or any related documentation.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, each member state of the European Union (for the purpose of this "Taxation" section, an "EU Member State") is required to provide to the tax authorities of another EU Member State details of payments of interest or other similar income (as defined by EC Council Directive 2003/48/EC) paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entities called "residual entities" (as defined by EC Council Directive 2003/48/EC) established in that other EU Member State; however, for a transitional period, Austria and Luxembourg will, subject to certain restrictions, apply a withholding tax system in relation to such payments, deducting tax at rates rising over time to 35% (unless during that transitional period they elect to provide information in accordance with the EC Council Directive 2003/48/EC which has been the case for the Belgian State which elected to abandon the transitional withholding system and provide information in accordance with the EC Council Directive 2003/48/EC as from 1 January 2010). The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.

A number of non-EU countries, including Switzerland, and certain dependent or associated territories of certain EU Member States have adopted similar measures (either provision of information or transitional withholding tax) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or a "residual entity" established in a EU Member State. In addition, the EU Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a EU Member State to, or collected by such a person for, an individual resident or "residential entity" established in one of those territories.

On 13 November 2008 the European Commission published a proposal for amendments to the EC Directive 2003/48/EC, which included a number of suggested changes which, if implemented, would broaden the scope of the requirements described above. The European Parliament approved an amended version of this proposal on 24 April 2009. Investors who are in any doubt as to their position should consult their professional advisers.

Luxembourg

Withholding Tax

(i) Non-resident holders of Notes

Under Luxembourg general tax laws currently in force and subject to the laws of 21 June 2005 (the "Laws") mentioned below, there is no withholding tax on payments of principal, premium or interest made to non-resident holders of Notes, nor on accrued but unpaid interest in respect of

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the Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of the Notes held by non-resident holders of Notes.

Under the Laws implementing the Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and ratifying the treaties entered into by Luxembourg and certain dependent and associated territories of EU Member States (the "Territories"), payments of interest or similar income (as defined by the Laws) made or ascribed by a paying agent (as defined by the Laws) established in Luxembourg to or for the immediate benefit of an individual beneficial owner (as defined by the Laws) or a "residual entity", as defined by the Laws, which are resident of, or established in, an EU Member State (other than Luxembourg) or one of the Territories will be subject to a withholding tax unless the relevant recipient has adequately instructed the relevant paying agent to provide details of the relevant payments of interest or similar income to the fiscal authorities of his/her/its country of residence or establishment, or, in the case of an individual beneficial owner, has provided a tax certificate issued by the fiscal authorities of his/her country of residence in the required format to the relevant paying agent. Where withholding tax is applied, it will be levied at a rate of 20% from 1 July 2008 to 30 June 2011 and at a rate of 35% from 1 July 2011 thereafter. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent (as defined by law) and not by the Issuer. Payments of interest under the Notes coming within the scope of the Laws would at present be subject to withholding tax of 20% (unless the beneficiary has opted for the disclosure of information described above).

(ii) Resident holders of Notes

Under Luxembourg general tax laws currency in force and subject to the law of 23 December 2005 (the "Law") mentioned below, there is no withholding tax on payments of principal, premium or interest made to Luxembourg resident holders of Notes, nor on accrued but unpaid interest in respect of Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of Notes held by Luxembourg resident holders of Notes.

Under the Law payments of interest or similar income (as defined by the Law) made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner (as defined by the Law) who is resident of Luxembourg will be subject to a withholding tax of 10%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth. The 10% withholding tax applies to interest accrued as from 1 July 2005 and paid as from 1 January 2006. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent (as defined by the Law) and not by the Issuer. Payments of interest under the Notes coming within the scope of the Law would be subject to withholding tax of 10%.

Pursuant to the Law as amended by the law of 17 July 2008, Luxembourg resident individuals can opt to self-declare and pay a 10% tax on interest payments made by paying agents located in a Member State of the European Union other than Luxembourg, a Member State of the European Economic Area or in a State or territory which has concluded an agreement directly relating to the EC Council Directive 2003/48/EC on the taxation of savings income. This 10% tax is final when Luxembourg resident individuals are acting in the context of the management of their private wealth.

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SUBSCRIPTION AND SALE

Notes may be sold from time to time by the Issuer to any one or more of BNP Paribas, Citigroup Global Markets Limited, Commerzbank Aktiengesellschaft, Crédit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch, Merrill Lynch International, Mitsubishi UFJ Securities International plc, Nordea Bank Danmark A/S, Nordea Bank Finland Plc and The Royal Bank of Scotland plc (the "Dealers"). The arrangements under which Notes may from time to time be agreed to be issued by the Issuer to, and subscribed by, Dealers are set out in an amended and restated dealer agreement dated 6 May 2010 as amended and/or supplemented from time to time (the "Dealer Agreement") and made between the Issuer and the Dealers. Any such agreement will, inter alia, make provision for the form and terms and conditions of the relevant Notes, the price at which such Notes will be subscribed by the Dealers and the commissions or other agreed deductibles (if any) payable or allowable by the Issuer in respect of such subscription. The Dealer Agreement makes provision for the resignation or termination of appointment of existing Dealers and for the appointment of additional or other Dealers either generally in respect of the Programme or in relation to a particular Tranche of Notes.

United States of America

The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered, sold, delivered or otherwise transferred directly or indirectly within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

(1) Each Dealer will represent and agree that it has not offered or sold Notes and will not offer and sell or in the case of Bearer Notes, deliver Notes of any Series (i) as part of its distribution at any time; or (ii) otherwise until 40 days after the completion of the distribution of the Notes of such Series, as determined and certified to the Paying Agent or the Issuer by the relevant Dealer (or, in the case of a sale of a Series of Notes to or through more than one Dealer, by each of such Dealers as to the Notes of such Series purchased by or through it, in which case the Paying Agent or the Issuer shall notify each such Dealer when all such Dealers have so certified), within the United States or to, or for the account or benefit of, U.S. persons (other than a sale pursuant to Rule 144A provided in paragraph (2) below).

Notes offered and sold outside the United States to non-U.S. persons will be sold in reliance on Regulation S. Each Dealer will represent and agree that neither it, its affiliates (if any) nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect to Notes, and it and they have complied and will comply with the offering restrictions requirements of Regulation S.

Each Dealer will agree that, at or prior to confirmation of sale of Notes (other than sale of Notes pursuant to Rule 144A as set forth in paragraph (2) below), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes from it during the distribution compliance period a confirmation or notice to substantially the following effect:

"The Notes covered hereby have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered sold, delivered or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time; or (ii) otherwise until 40 days after the completion of the distribution of the Series of Notes of which such Notes are a part, as determined and certified by [Name of Dealer or Dealers, as the case may be], except in either case pursuant to an exemption from, or in a transaction not subject to, the registration requirements of, the Securities Act. Terms used above have the meaning given to them by Regulation S".

Terms used in this paragraph (1) have the meanings given to them by Regulation S.

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(2) Each Dealer will represent and agree that it will not, acting either as principal or agent, offer or sell any Notes in the United States or to, or for the account or benefit of, U.S. persons other than Notes in registered form bearing a restrictive legend thereon which are offered or sold to QIBs in reliance on Rule 144A and it will not, acting either as principal or agent, offer, sell, reoffer or resell any of such Notes (or approve the resale of any of such Notes):

(a) except (A) through a U.S. broker dealer that is registered under the Exchange Act to institutional investors in accordance with Rule 144A, each of which such Dealer reasonably believes (i) is a QIB, or a fiduciary or agent purchasing Notes for the account of one or more QIBs; and (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating and bearing the risks of investing in the Notes or is represented by a fiduciary or agent with sole investment discretion having such knowledge and experience or (B) otherwise in accordance with the restrictions on transfer set forth in such Notes, the Dealer Agreement, the Base Prospectus and the relevant Final Terms; or

(b) by means of any form of general solicitation or general advertisement (as those terms are used in Rule 502(c) under the Securities Act), including but not limited to (A) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio and (B) any seminar or meeting whose attendees have been advised by any general solicitation or general advertising; or

(c) in any manner involving public offering within the meaning of Section 4(2) of the Securities Act.

Prior to the sale of any Notes in registered form bearing a restrictive legend thereon, the selling Dealer shall have provided each offeree that is a U.S. person (as defined in Regulation S) with a copy of the Base Prospectus in the form the Issuer and the Dealers shall have agreed most recently shall be used for offers and sales in the United States (the initial such form being the original Base Prospectus dated 25 August 1999).

(3) Each Dealer will represent and agree that in connection with each sale it has taken or will take reasonable steps to ensure that the purchaser is aware that the Notes have not been and will not be registered under the Securities Act and that transfers of Notes are restricted as set forth herein. See "Transfer Restrictions".

The Issuer and the Dealers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Base Prospectus does not constitute an offer to any person in the United States or to any U.S. person other than a QIB and to whom an offer has been made directly by one of the Dealers or its U.S. broker-dealer affiliate.

Bearer Notes are also subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a U.S. person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the Code and regulations thereunder.

Each Dealer (or, in the case of a sale of a Series of Notes to or through more than one Dealer, each of such Dealers, as to Notes of such Series purchased by or through it, in which case the Paying Agent or the Issuer shall notify each such Dealer when all such Dealers have certified as provided in this paragraph) who has purchased Notes of any Series in accordance with the Dealer Agreement will agree to determine and certify to the Paying Agent or the Issuer the completion of the distribution of such Series of Notes as aforesaid. In order to facilitate compliance by each Dealer with the foregoing, the Issuer will agree that, prior to such certification with respect to such Series, it will notify each relevant Dealer in writing of each acceptance by the Issuer of an offer to purchase and of any issue of Notes or other debt obligations of the Issuer which are denominated in the same currency or composite currency and which have substantially the same terms and maturity date as the Notes of such Series.

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In addition, until 40 days after the commencement of the offering of any Series of Notes, an offer or sale of Notes within the United States by any dealer whether or not participating in the offering of such Series of Notes, may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.

Public Offer Selling Restriction Under the Prospectus Directive

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme will be required to represent, warrant and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date") it has not made and will not make an offer of Notes which are the subject of the offering contemplated by the Prospectus as completed by the Final Terms in relation thereto (or are the subject of the offering contemplated by a Drawdown Prospectus, as the case may be) to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Notes to the public in that Relevant Member State:

(a) if the Final Terms or Drawdown Prospectus in relation to the Notes specify that an offer of those Notes may be made other than pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a "Non-exempt Offer"), following the date of publication of a prospectus in relation to such Notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, provided that any such prospectus which is not a Drawdown Prospectus has subsequently been completed by the Final Terms contemplating such Non-exempt Offer, in accordance with the Prospectus Directive, in the period beginning and ending on the dates specified in such prospectus or Final Terms, as applicable;

(b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(c) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR43,000,000 and (3) an annual net turnover of more than EUR50,000,000, all as shown in its last annual or consolidated accounts; or

(d) at any time to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or

(e) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Notes referred to in (b) to (e) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an "offer of Notes to the public" in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

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Selling Restrictions Addressing Additional United Kingdom Securities Laws

Each Dealer has represented, warranted and agreed that:

(a) No deposit-taking: in relation to any Notes having a maturity of less than one year:

(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and

(ii) it has not offered or sold and will not offer or sell any Notes other than to persons:

(A) whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or

(B) who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses,

where the issue of the Notes would otherwise constitute a contravention of section 19 of the Financial Services and Markets Act 2000 (the "FSMA") by the Issuer;

(b) Financial promotion: it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

(c) General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to such Notes in, from or otherwise involving the United Kingdom.

Selling Restrictions Addressing Additional Netherlands Securities Laws

Zero Coupon Notes (as defined below) in definitive form may only be transferred and accepted, directly or indirectly, within, from or into The Netherlands through the mediation of either the Issuer or an authorised admitted institution of Euronext Amsterdam N.V., admitted in a function on one or more exchanges or systems held by Euronext Amsterdam N.V. (toegelaten instelling), in accordance with the Dutch Savings Certificates Act (Wet inzake spaarbewijzen) of 21 May 1985 (as amended). No such mediation is required (a) in respect of the transfer and acceptance of Zero Coupon Notes while in the form of rights representing an interest in a Global Note, or (b) in respect of the initial issue of Zero Coupon Notes in definitive form to the first holders thereof, or (c) in respect of the transfer and acceptance of Zero Coupon Notes in definitive form between individuals not acting in the conduct of a business or profession, or (d) in respect of the transfer and acceptance of such Zero Coupon Notes within, from or into The Netherlands if all Zero Coupon Notes (either in definitive form or as rights representing an interest in a Zero Coupon Note in global form) of any particular Series/Tranche which are issued outside The Netherlands and are not distributed into The Netherlands in the course of initial distribution or immediately thereafter. In the event that the Savings Certificates Act applies, certain identification requirements in relation to the issue and transfer of, and payments on, Zero Coupon Notes have to be complied with. As used herein "Zero Coupon Notes" are Notes that are in bearer form and that constitute a claim for a fixed sum against the Issuer and on which interest does not become due during their tenor or on which no interest is due whatsoever.

Japan

The Notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, each Dealer has undertaken that it will not offer or sell any Notes directly or indirectly, in Japan or to, or for the benefit of, any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person except under circumstances which will result in compliance with all applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental and regulatory authorities and in

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effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organised under the laws of Japan.

General

Each Dealer has represented, warranted and agreed that it has and will comply with all applicable laws and regulations in each country or jurisdiction in or from which it purchases, offers, sells or delivers Notes or possesses, distributes or publishes this Base Prospectus or any Final Terms or any related offering material, in all cases at its own expense. Other persons into whose hands the Base Prospectus or any Final Terms come are required by the Issuer and the Dealers to comply with all applicable laws and regulations in each country or jurisdiction in or from which they subscribe for, purchase, offer, sell or deliver Notes or have in their possession or distribute such offering material, in all cases at their own expense.

The Dealer Agreement provides that the Dealers shall not be bound by any of the restrictions relating to any specific jurisdiction (set out above) to the extent that such restrictions shall, as a result of change(s) or change(s) in official interpretation, after the date hereof, of applicable laws and regulations, no longer be applicable but without prejudice to the obligations of the Dealers described in the paragraph headed "General" above.

Selling restrictions may be supplemented or modified with the agreement of the Issuer. Any such supplement or modification will be set out in the relevant Final Terms (in the case of a supplement or modification relevant only to a particular Tranche of Notes) or (in any other case) in a supplement to this document.

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TRANSFER RESTRICTIONS

Each prospective purchaser of Notes offered in reliance on Rule 144A by accepting delivery of this Base Prospectus will be deemed to have represented and agreed that such offeree acknowledges that this Base Prospectus is personal to such offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes other than pursuant to Rule 144A or in offshore transactions in accordance with Regulation S. Distribution of this Base Prospectus, or disclosure of any of its contents to any person other than such offeree and those persons, if any, retained to advise such offeree with respect thereto is unauthorized, and any disclosure of any of its contents, without the prior written consent of the Issuer, is prohibited.

Each purchaser of Notes offered and sold in reliance on Rule 144A will be deemed to have represented, acknowledged and agreed as follows (terms used in this paragraph that are defined in Rule 144A or in Regulation S are used herein as defined therein):

(1) The purchaser (A) is a QIB, (B) is aware that the sale to it is being made in reliance on Rule 144A, (C) is acquiring such Notes for its own account or for the account of a QIB and (D) not formed for the purpose of investing in the Notes or the Issuer. If it is acquiring any Notes for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the herein acknowledgments, representations and agreements on behalf of each such account;

(2) The Notes are being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities Act, the Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, the purchaser acknowledges that the Notes are "restricted securities" (as defined in Rule 144(a)(3) under the Securities Act), and, if in the future the purchaser decides to offer, resell, pledge or otherwise transfer such Notes, such Notes may be offered, sold, pledged, or otherwise transferred only (A) in the United States to a person who the seller reasonably believes is a QIB purchasing for its own account, or for the account of one or more QIBs in a transaction meeting the requirements of Rule 144A, (B) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, (C) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), or (D) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. No representation can be made as to the availability at any time of the exemption provided by Rule 144 for the resale of the Notes;

(3) The purchaser understands that Notes of a Series offered in reliance on Rule 144A will be represented by a Restricted Global Note Certificate. Before any interest in such Restricted Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in an Unrestricted Global Note Certificate, the seller will be required to provide the Trustee and the Registrar with a written certification (in the form provided in the Trust Deed) as to compliance with the transfer restrictions referred to in clause (2)(B) or (2)(C) above.

(4) The purchaser agrees that it will deliver to each person to whom it transfers Notes notice of any restriction on transfer of such Notes;

(5) The purchaser understands that the Restricted Global Note Certificates and any definitive note certificate issued in exchange thereof, if any, offered hereby will bear a legend to the following effect, unless the Issuer determines otherwise in accordance with applicable law:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN

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ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" ("QIB") WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) BUT ONLY UPON DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL IN FORM AND SCOPE SATISFACTORY TO THE ISSUER, (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (5) TO THE ISSUER, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALE OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS NOTE TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFERS OF RESTRICTED SECURITIES GENERALLY. BY ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.

(5) The purchaser understands that the Issuer, the Registrar and the Dealers and their affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.

Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

The Paying Agency Agreement provides that such legends will not be removed unless the Registrar is advised that the relevant Note is being transferred pursuant to Regulation S or unless there is delivered to the Issuer and the Registrar satisfactory evidence, which may include an opinion of U.S. counsel, to the effect that neither such legends nor the restrictions on transfer set forth therein are required to ensure that transfers of such Note comply with the provisions of Rule 144A, Regulation S or Rule 144 under the Securities Act or that such Note is not a "restricted security" within the meaning of Rule 144 under the Securities Act.

Each purchaser of Notes outside the United States pursuant to Regulation S by accepting delivery of this Base Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that:

(a) It is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (i) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S); and (ii) it is not an affiliate of the Issuer or a person acting on behalf of such an affiliate.

(b) It understands that such Notes have not been and will not be registered under the Securities Act and it will not offer, sell, pledge or otherwise transfer such Notes except (i) to the Issuer; (ii) in accordance with Rule 144A under the Securities Act to a person that it reasonably believes is a QIB purchasing for its own account or the account of a QIB whom it has notified, in each case, that the offer, resale, pledge or other transfer is being made in reliance on Rule 144A; (iii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S; or (iv) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) but only upon delivery to the Issuer of an opinion of counsel in form and scope satisfactory to the

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Issuer in each case in accordance with any applicable securities laws of any state of the United States.

(c) It understands that the Issuer, the Registrar, the Dealers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.

(d) It understands that the Notes offered in reliance on Regulation S will be represented by the Unrestricted Global Note Certificate. Prior to the expiration of the distribution compliance period (within the meaning of Regulation S), before any interest in the Unrestricted Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Restricted Global Note Certificate, it will be required to provide the Registrar with a written certification (in the form provided in the Paying Agency Agreement) as to compliance with applicable securities laws.

(e) None of the Issuer, the Dealers or any person representing any such entity has made any representation to it with respect to any such entity or the offering or sale of any Notes, other than the information in this Base Prospectus.

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GENERAL INFORMATION

Admission to Listing and Trading

Application has been made for the Notes issued under the Programme to be listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the regulated market of the Luxembourg Stock Exchange.

However, Notes may be issued pursuant to the Programme which will not be admitted to listing, trading and/or quotation by the regulated market of the Luxembourg Stock Exchange or any other listing authority, stock exchange and/or quotation system or which will be admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system as the Issuer and the relevant Dealer(s) may agree.

Authorisations

The Programme has been authorised by resolutions of the Board of Directors of the Issuer held on 17 June 1999, 13 June 2000, 22 March 2001, 19 March 2002, 19 March 2003, 24 March 2004, 31 March 2005, 21 March 2006, 1 February 2007, 5 February 2008, 5 February 2009 and 2 February 2010. The Issuer has obtained or will obtain from time to time all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes.

Clearing of the Notes

The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg, clearance systems. The appropriate common code, the International Securities Identification Number and the CUSIP number (if applicable) in relation to the Notes of each Series will be specified in the Final Terms relating thereto. In addition, the Issuer will (or, in relation to Notes denominated in a currency other than U.S. dollars, may) make an application with respect to each Series of Notes sold pursuant to Rule 144A for such Notes to be accepted for trading in book-entry form by DTC. All payments of principal and interest with respect to Notes denominated in any currency other than U.S. dollars and registered in the name of the nominee for DTC will be converted to U.S. dollars unless the relevant participants in DTC elect to receive such payment of principal or interest in that other currency. Acceptance of each Series of Notes for trading through DTC will be confirmed in the Final Terms relating thereto. The relevant Final Terms shall specify any other clearing system as shall have accepted the relevant Notes for clearance together with any further appropriate information. If the Put Option is specified in the applicable Final Terms as being applicable to a Series of Notes, whilst such Notes are in global form the Put Option shall be exercisable through the clearance system through which such Notes shall then be clearing.

Use of Proceeds

The net proceeds of the issue of each Tranche of Notes will be applied by the Issuer to meet part of their general financing requirements.

Litigation

Save as disclosed in this Base Prospectus, the Issuer is not or has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) during the 12 months before the date of this Base Prospectus which may have, or have had in the recent past, significant effects on the financial position or profitability of the Issuer and its subsidiaries taken as a whole.

No Material Change/No Significant Change

Save as disclosed in this Base Prospectus, there has been no material adverse change in the prospects of the Issuer since 31 December 2009, nor has there been any significant change in the financial or trading position of the Issuer and its subsidiaries, taken as a whole, which has occurred since 31 March 2010.

The Issuer has undertaken, in connection with the admission to trading of the Notes on the regulated market of the Luxembourg Stock Exchange, that if there shall occur any significant new factor

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which is not reflected in the Base Prospectus and any supplements thereto or any change in the information set out under "Terms and Conditions of the Notes", and/or there shall be any material mistake or inaccuracy relating to the information included in the Base Prospectus or any supplements thereto, in each case, which is capable of affecting the assessment of the Notes, the Issuer will prepare or procure the preparation of a supplement to this Base Prospectus or, as the case may be, publish a new Base Prospectus, for use in connection with any subsequent issue by the Issuer of Notes to be admitted to trading on the regulated market of the Luxembourg Stock Exchange.

Documents available for inspection

For so long as the Programme remains in effect or any Notes shall be outstanding, copies and, where appropriate, English translations of the following documents may be inspected during normal business hours at the specified office of the Principal Paying Agent and are obtainable at the specified office of the Paying Agent in Luxembourg, namely:

(a) the Articles of Association of the Issuer;

(b) the Paying Agency Agreement;

(c) the Trust Deed (which contains the forms of the Notes in global and definitive form);

(d) the Dealer Agreement;

(e) the Programme Manual;

(f) reports, letters, balance sheets, valuations and statements of experts included or referred to in this Base Prospectus (other than consent letters);

(g) any Final Terms, the Base Prospectus (which will also be available on the website of the Luxembourg Stock Exchange, as mentioned below) as well as any Base Prospectus Supplements relating to Notes which are admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system. (In the case of any Notes which are not admitted to listing, trading and/or quotation by any other stock exchange, listing authority and/or quotation system, copies of the relevant Final Terms will only be available for inspection by the relevant Noteholders); and

(h) the financial statements referred to under the heading below.

The Issuer will, at its registered office and at the specified offices of the Paying Agents, provide, free of charge, upon oral or written request, a copy of this Base Prospectus. Written or oral requests should be directed to the specified office of any Paying Agent. In addition, this Base Prospectus will be available in electronic form on the website of the regulated market of the Luxembourg Stock Exchange (www.bourse.lu).

Financial statements available

For so long as the Programme remains in effect or any Notes shall be outstanding, copies and, where appropriate, English translations of the following documents may be obtained during normal business hours at the specified office of the Principal Paying Agent and the Paying Agent in Luxembourg, namely, the most recent publicly available audited consolidated and unconsolidated financial statements of the Company beginning with such financial statements for the years ended 31 December 2009, 2008 and 2007.

The Issuer does not produce interim accounts on an unconsolidated basis.

The financial statements for the Company have not been reconciled to U.S. GAAP.

Statutory Auditors

PricewaterhouseCoopers Oy whose regulated address is Itämerentori 2, P.O. Box 1015, FI- 00101, Helsinki and who are supervised by the Auditing Board of the Central Chamber of Commerce of Finland are the Issuer's auditors for the period covered by the historical financial information.

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Post-issuance information

The Issuer does not intend to provide any post-issuance information in relation to any assets underlying issues of Notes constituting derivative securities.

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INDEX TO FINANCIAL STATEMENTS

Unaudited Consolidated Financial Information in respect of the three months Ended 31 March 2010 ...... F-2 Key Figures ...... F-3 Business Area Reviews ...... F-6 Consolidated Income Statement ...... F-13 Consolidated Statement of Comprehensive Income ...... F-13 Condensed Consolidated Balance Sheet ...... F-14 Consolidated Statement of Changes in Equity ...... F-15 Condensed Consolidated Cash Flow Statement ...... F-16 Quarterly Information ...... F-17 Deliveries ...... F-17 Quarterly Segment Information ...... F-18 Changes in Property, Plant and Equipment ...... F-19 Commitments and Contingencies ...... F-19 Capital Commitments ...... F-19 Notional Amounts of Derivative Financial Instruments ...... F-20 Related Party (Associated Companies and Joint Ventures) Transactions and Balances ...... F-20 Basis of Preparation ...... F-20 Calculation of Key Indicators ...... F-20 Key Exchange Rates for the Euro at End of Period ...... F-20 Audited Historical Consolidated Financial Information in respect of the Financial Year Ended 31 December 2009 under IFRS ...... F-22 Consolidated Income Statement for the Years Ended 31 December 2009 and 2008...... F-23 Consolidated Statement of Comprehensive Income for the Years Ended 31 December 2009 and 2008 ...... F-23 Consolidated Balance Sheet for the Years Ended 31 December 2009 and 2008 ...... F-24 Consolidated Statement of Changes in Equity ...... F-25 Consolidated Cash Flow Statement for the Years Ended 31 December 2009 and 2008 ...... F-26 Notes to the Consolidated Financial Statements ...... F-27 Parent Company Accounts under Finnish Accounting Standards ...... F-68 Notes to the Parent Company Financial Statements ...... F-70 Information on Shares ...... F-74 Key Figures 2000-2009 ...... F-78 Quarterly Figures 2008-2009 ...... F-80 Calculation of Key Indicators ...... F-81 Auditor's Report for the Financial Year Ended 31 December 2009 ...... F-82 Audited Historical Consolidated Financial Information in respect of the Financial Year Ended 31 December 2008 under IFRS ...... F-83 Consolidated Income Statement for the Years Ended 31 December 2008 and 2007...... F-84 Consolidated Balance Sheet for the Years Ended 31 December 2008 and 2007 ...... F-85 Consolidated Statement of Changes in Equity ...... F-86 Consolidated Cash Flow Statement for the Years Ended 31 December 2008 and 2007 ...... F-87 Notes to the Consolidated Financial Statements ...... F-88 Parent Company Accounts under Finnish Accounting Standards ...... F-126 Notes to the Parent Company Financial Statements ...... F-128 Information on Shares ...... F-132 Key Figures 1999-2008 ...... F-136 Quarterly Figures 2007-2008 ...... F-138 Calculation of Key Indicators ...... F-139 Auditor's Report for the Financial Year Ended 31 December 2008 ...... F-140 Audited Historical Consolidated Financial Information in respect of the Financial Year Ended 31 December 2007 under IFRS ...... F-141 Consolidated Income Statement for the Years Ended 31 December 2007 and 2006...... F-142 Consolidated Balance Sheet for the Years Ended 31 December 2007 and 2006 ...... F-143 Consolidated Statement of Changes in Equity ...... F-144 Consolidated Cash Flow Statement for the Years Ended 31 December 2007 and 2006 ...... F-145 Notes to the Consolidated Financial Statements ...... F-146 Parent Company Accounts under Finnish Accounting Standards ...... F-183 Notes to the Parent Company Financial Statements ...... F-185 Information on Shares ...... F-189 Key Figures 1998-2007 ...... F-193 Quarterly Figures 2006-2007 ...... F-195 Calculation of Key Indicators ...... F-196 Auditor's Report for the Financial Year Ended 31 December 2007 ...... F-197

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UPM-Kymmene Corporation Unaudited Consolidated Financial Information in respect of the three months Ended 31 March 2010

This interim report is unaudited

UPM INTERIM REPORT 1 JANUARY – 31 MARCH 2010

• Earnings per share for the fi rst quarter were EUR 0.13 (–0.30), and excluding special items EUR 0.15 (–0.27) • Operating profi t excluding special items was EUR 116 million (loss of EUR 78 million) • Operating cash fl ow was EUR 209 million (274 million) • Positive development in delivery volumes in all businesses – sales grew by 10%

Key figures Q1/2010 Q1/2009 Q1–Q4/2009 Sales, EURm 2,039 1,857 7,719 EBITDA, EURm 1) 288 128 1,062 % of sales 14.1 6.9 13.8 Operating profi t (loss), EURm 107 –95 135 excluding special items, EURm 116 –78 270 % of sales 5.7 –4.2 3.5 Profi t (loss) before tax, EURm 82 –162 187 excluding special items, EURm 91 –145 107 Net profi t (loss) for the period, EURm 70 –158 169 Earnings per share, EUR 0.13 –0.30 0.33 excluding special items, EUR 0.15 –0.27 0.11 Diluted earnings per share, EUR 0.13 –0.30 0.33 Return on equity, % 4.2 neg. 2.8 excluding special items, % 4.6 neg. 1.0 Return on capital employed, % 4.0 neg. 3.2 excluding special items, % 4.3 neg. 2.5 Operating cash fl ow per share, EUR 0.40 0.53 2.42 Shareholders’ equity per share at end of period, EUR 12.62 11.05 12.67 Gearing ratio at end of period, % 54 72 56 Net interest-bearing liabilities at end of period, EURm 3,569 4,139 3,730 Capital employed at end of period, EURm 10,953 10,501 11,066 Capital expenditure, EURm 30 67 913 Capital expenditure excluding acquisitions and shares, EURm 30 58 229 Personnel at end of period 22,840 24,039 23,213 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets, excluding the share of results of associated companies and joint ventures, and special items.

Results Q1 of 2010 compared with Q1 of 2009 business area. Sales for the fi rst quarter of 2010 were EUR 2,039 million, 10% Profi tability improved noticeably from the same period last higher than the EUR 1,857 million in the fi rst quarter of 2009. year. The main reasons for the better profi tability were higher Sales increased due to higher deliveries across all of UPM’s delivery volumes in UPM’s businesses and lower costs for wood business areas. and energy. The operations in Uruguay, acquired in December Operating profi t was EUR 107 million, 5.2% of sales (loss of 2009, contributed positively to the operating profi t. EUR 95 million, -5.1% of sales). The operating profi t excluding Due to the stevedores’ strike in Finland from 4 March to 19 special items was EUR 116 million, 5.7% of sales (loss of EUR March, the company’s production volumes have been lower in 78 million, -4.2% of sales). Operating profi t includes net charges Paper, Pulp, Timber and Plywood. The estimated loss due to of EUR 9 million (17 million) as special items, which mainly strike is approximately EUR 20 million with an impact on fi rst consist of employee-related restructuring charges in the Paper and second quarter results.

Interim report 1 January – 31 March 2010 1 This interim report is unaudited

Wood costs increased from the latter part of 2009, but Shares decreased by about EUR 40 million from the fi rst quarter of last In the fi rst quarter of 2010, UPM shares worth EUR 2,118 year. Energy costs were about EUR 30 million lower than last million (1,503 million) in total were traded on the NASDAQ year. In addition, the comparison period included wood and OMX Helsinki stock exchange. The highest quotation was EUR pulp inventory write-downs of EUR 53 million. 10.03 in March and the lowest EUR 7.37 in February. Changes in sales prices in euro terms reduced operating The company’s ADSs are traded on the US over-the-counter profi t by about EUR 100 million. The average paper price in (OTC) market under a Level 1 sponsored American Depositary euros decreased by approximately 10% from the same period last Receipt programme. year. The average price for label materials in euros was slightly The Annual General Meeting, held on 22 March 2010, lower than last year and plywood prices decreased somewhat. authorised the Board of Directors to acquire no more than Sawn timber sales prices increased by approximately 14%. The 51,000,000 of the company’s own shares. The authorisation is price for external electricity sales was noticeably higher, improv- valid for 18 months from the date of the decision. ing operating profi t. The Board was authorised to decide on the issuance of The increase in the fair value of biological assets net of shares and/or transfer the Company’s own shares held by the wood harvested was EUR 19 million compared with EUR 11 Company and/or issue special rights entitling holders to shares million a year before. in the Company as follows: (i) The maximum number of new The share of results of associated companies and joint ven- shares that may be issued and the Company’s own shares held by tures was EUR 3 million (53 million negative). the Company that may be transferred is, in total, 25,000,000 Profi t before tax was EUR 82 million (loss of EUR 162 shares. This fi gure also includes the number of shares that can be million) and excluding special items EUR 91 million (loss of received on the basis of the special rights. (ii) The new shares EUR 145 million). Interest and other fi nancing costs net were and special rights entitling holders to shares in the Company EUR 26 million (58 million). Exchange rate and fair value gains may be issued and the Company’s own shares held by the Com- and losses were EUR 1 million (loss of EUR 9 million). pany may be transferred to the Company’s shareholders in pro- Income taxes were EUR 12 million (4 million positive). The portion to their existing shareholdings in the Company, or in a impact on taxes from special items was EUR 3 million positive directed share issue, deviating from the shareholder’s pre-emp- (3 million negative). tive subscription right. This authorisation is valid until 22 Profi t for the fi rst quarter was EUR 70 million (loss of EUR March 2013. 158 million) and earnings per share were EUR 0.13 (-0.30). To date these authorisations have not been used. Earnings per share excluding special items were EUR 0.15 The company has four option series that would entitle the (-0.27). Operating cash fl ow per share was EUR 0.40 (0.53). holders to subscribe for a total of 18,000,000 shares. Share options 2005H may be subscribed for 3,000,000 shares, and Financing share options 2007A, 2007B and 2007C may be subscribed for a Cash fl ow from operating activities, before capital expenditure total of 15,000,000 shares. The 2007C options have not been and fi nancing, was EUR 209 million (274 million). Net working distributed yet. capital increased by EUR 18 million during the period (decrease Apart from the above, the Board of Directors has no current of EUR 216 million). authorisation to issue shares, convertible bonds or share options. The gearing ratio as of 31 March 2010, was 54% (72%). Net The number of shares entered in the Trade Register on 31 interest-bearing liabilities at the end of the period came to EUR March 2010 was 519,970,088. Through the issuance authorisa- 3,569 million (4,139 million). tion and share options, the number of shares may increase to a On 31 March 2010, UPM’s cash funds and unused commit- maximum of 562,970,088. ted credit facilities totalled EUR 2.2 billion. At the end of the period, the company did not hold any of its own shares. Personnel In the fi rst quarter of 2010, UPM had an average of 22,889 Dividend employees (24,199). At the beginning of the year the number of The Annual General Meeting of 22 March 2010 approved the employees was 23,213, and at the end of the fi rst quarter it was Board’s proposal to pay a dividend of EUR 0.45 per share for 22,840. the 2009 fi nancial year. The dividend of EUR 234 million was approved to be paid on 7 April 2010 and is included in the short- Capital expenditure term non-interest bearing liabilities at the end of March. During the fi rst three months of 2010, capital expenditure was EUR 30 million, 1.5% of sales (EUR 67 million, 3.6% of sales). Company directors The largest ongoing project is now the rebuild of the debark- At the Annual General Meeting, nine members were elected to ing plant at the Pietarsaari mill in Finland with total investment the Board of Directors. Mr Matti Alahuhta, President and CEO cost is estimated to be EUR 25 million. of KONE Corporation, Mr Berndt Brunow, Chairman of the Board of Oy Karl Fazer Ab, Mr Karl Grotenfelt, Chairman of the Board of Directors of Famigro Oy, Ms Wendy E. Lane,

2 Interim report 1 January – 31 March 2010 This interim report is unaudited

Chairman of the American investment fi rm Lane Holdings, Inc., Risk factors Mr Jussi Pesonen, President and CEO of UPM, Ms Ursula Expected decisions on the proposed EU Energy Package have Ranin, Board member of Finnair plc, Mr Veli-Matti Reinikkala, increased uncertainties on how the proposed policies and meas- President of ABB Process Automation Division and Mr Björn ures will impact the availability and cost of wood fi bre for wood Wahlroos, Chairman of the Board of Sampo plc were re-elected processing industries in Europe. At the same time, global compe- as members of the Board of Directors. Mr. Robert J. Routs, Vice tition for fi bres has already created disruptions in fi bre availabili- Chairman of the supervisory board of Aegon N.V. was elected ty resulting in volatile price developments. to the Board of Directors as a new member. The term of offi ce of the members of the Board of Directors Outlook for 2010 will last until the end of the next Annual General Meeting. Gradual recovery in UPM’s main markets is expected to contin- At the organisation meeting of the Board of Directors, Mr ue and demand for consumer goods is forecast to improve. Re- Björn Wahlroos was re-elected as Chairman, and Mr Berndt covery of advertising expenditure in print media is slow, and this Brunow was re-elected as Deputy Chairman. will impede growth in demand for graphic papers. Investment In addition, the Board of Directors appointed from among activity, including construction, has shown signs of recovery, its members an Audit Committee with Mr Karl Grotenfelt as and demand for construction materials such as timber and ply- Chairman, and Ms Wendy E. Lane and Mr Veli-Matti Reinik- wood is expected to pick up. Growth is expected to continue in kala as members. A Human Resources Committee was Asia, especially in China. Disruptions in supply of fi bre and appointed with Mr Berndt Brunow as Chairman, and Ms plywood from Chile continue to affect markets during the sec- Ursula Ranin and Mr Robert J. Routs as members. Further- ond quarter. more, a Nomination and Corporate Governance Committee was Low capacity utilisation rates at some of the company’s appointed with Mr Björn Wahlroos as Chairman, and Mr Matti timber, plywood and European paper mills will continue periodi- Alahuhta and Mr Karl Grotenfelt as members. cally. Necessary production curtailments will require continuing the fl exible way of working in these operations. Litigation For the rest of the year, the electricity generation volume will In Finland, UPM is participating in the building project of a be about the same as last year, assuming that a lower than aver- new nuclear power plant, Olkiluoto 3, through its associated age hydrological balance continues in Finland. Based on current company Pohjolan Voima Oy. Pohjolan Voima Oy is a majority forward sale agreements and Nordpool forward prices, the aver- shareholder of Teollisuuden Voima Oy (“TVO”) with 58.28% of age sales price for electricity is estimated to be about the same as shares. UPM’s indirect share of the capacity of the Olkiluoto 3 last year. is approximately 29%. The original agreed timetable for the Chemical pulp deliveries, on a comparable basis, are start-up was summer 2009 but the construction of the unit has expected to be higher than last year. Current prices for both been delayed. The latest anticipated start-up time is after June hardwood and softwood pulp are signifi cantly higher than last 2012. TVO has requested that the plant supplier, the AREVA- year. Siemens consortium, provide a re-analysis of the anticipated Paper demand in Europe is forecast to recover from 2009, start-up time. and UPM’s paper deliveries for 2010 are expected to be higher TVO has informed that the arbitration fi led in December than last year. Deliveries for fi ne and speciality papers are 2008 by AREVA-Siemens, concerning the delay at Olkiluoto 3 expected to increase the most. The average price in euro for all and related costs, amounted to EUR 1.0 billion. In response, paper deliveries for the second quarter is expected to improve TVO fi led a counter-claim in April 2009 for costs and losses that slightly from the fi rst quarter of this year. UPM’s target is to TVO is incurring due to the delay and other defaults on the part increase prices in all new sales agreements. of the supplier. The value of TVO’s counterclaim was approxi- Demand for self-adhesive labelstock is estimated to improve mately EUR 1.4 billion. from last year in all the main markets. Raw material costs, espe- cially in paper and oil-based raw materials, have increased. This Events after the balance sheet date puts pressure on sales margins. On 20 April 2010, the International Court of Justice published The operating profi t (excluding special items) for the year its decision on the litigation action against the government of 2010 is expected to clearly improve from last year. Variable costs Uruguay related to the Fray Bentos pulp mill in Uruguay. The are expected to increase by about 2% from last year. decision reduces the political risk related to the Fray Bentos pulp mill.

Interim report 1 January – 31 March 2010 3 This interim report is unaudited

BUSINESS AREA REVIEWS

Energy Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 174 128 108 100 136 472 EBITDA, EURm 1) 79 57 35 41 57 190 % of sales 45.4 44.5 32.4 41.0 41.9 40.3 Share of results of associated companies and joint ventures, EURm 4 –8 –24 –4 –4 –40 Depreciation, amortisation and impairment charges, EURm –2 –2 –1 –1 –2 –6 Operating profi t, EURm 81 47 10 36 51 144 % of sales 46.6 36.7 9.3 36.0 37.5 30.5 Special items, EURm 2) – –1 –17 – – –18 Operating profi t excl. special items, EURm 81 48 27 36 51 162 % of sales 46.6 37.5 25.0 36.0 37.5 34.3 Electricity deliveries, 1,000 MWh 2,411 2,277 2,103 1,999 2,486 8,865 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items relate to impairments of associated company Pohjolan Voima’s two power plants.

Q1 of 2010 compared with Q1 of 2009 Market review The operating profi t excluding special items for Energy was The average electricity spot price on the Nordic electricity ex- EUR 81 million, EUR 30 million higher than last year (51 mil- change in the fi rst quarter was EUR 59.5/MWh, 56% higher lion). Sales increased by 28% to EUR 174 million (136 million), than in the same period last year (38.2/MWh) due to a cold and of which EUR 94 million was external sales (49 million). The dry winter. electricity sales volume was 2.4 TWh in the quarter (2.5 TWh). Oil and coal prices increased compared with the same period

Profi tability improved compared with the same period last last year. CO2 emission allowance prices were higher. year, due to the higher average electricity sales price and tempo- The rest of the year electricity system forward price on the rarily higher external sales as less electricity was consumed inter- Nordic electricity exchange was EUR 42.2/MWh on 31 March, nally in the Finnish paper mills during the stevedores’ strike in 26% higher than on the same date last year (33.4/MWh). March. In the fi rst quarter of the year, the Nordic water reservoirs The average electricity sales price increased by 36% to EUR were below their long-term average at this time of the year. 61.3/MWh (45.2/MWh). Hydropower volume was 29% lower in comparison with the previous year but it was partly compen- sated with higher condensing power generation.

4 Interim report 1 January – 31 March 2010 This interim report is unaudited

Pulp Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 341 226 156 132 139 653 EBITDA, EURm 1) 120 53 8 –24 –55 –18 % of sales 35.2 23.5 5.1 –18.2 –39.6 –2.8 Change in fair value of biological assets and wood harvested, EURm ––1––––1 Share of results of associated companies and joint ventures, EURm 3) – 7 4 –16 –47 –52 Depreciation, amortisation and impairment charges, EURm –36 –24 –21 –20 –20 –85 Operating profi t, EURm 83 35 –9 –60 –122 –156 % of sales 24.3 15.5 –5.8 –45.5 –87.8 –23.9 Special items, EURm 2) –1 – – – –29 –29 Operating profi t excl. special items, EURm 84 35 –9 –60 –93 –127 % of sales 24.6 15.5 –5.8 –45.5 –66.9 –19.4 Pulp deliveries, 1,000 t 700 550 446 391 372 1,759 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items of EUR 29 million relate to the associated company Metsä-Botnia’s Kaskinen pulp mill closure. 3) In the balance sheet in the interim report for January–June, on 30 June 2009, UPM has regrouped the 30% transferable share of Botnia’s book value as assets held for sale. Consequently, from July 2009, UPM has not included the share of the transferable Botnia operations in the share of results of associated compa- nies.

Q1 of 2010 compared with Q1 of 2009 Market review The Fray Bentos pulp mill and Forestal Oriental eucalyptus In the fi rst quarter of 2010, global chemical pulp prices in- plantation forestry company in Uruguay were included in the creased substantially due to the tight market balance. The earth- Pulp business area as of December 2009. quake in Chile has reduced the global chemical market pulp The operating profi t excluding special items for Pulp was supply temporarily, whilst strong market demand, driven by EUR 84 million (loss of EUR 93 million). Sales increased by China, continued. 145% to EUR 341 million (139 million) and deliveries by 88% to The average softwood pulp (NBSK) market price in euro 700,000 tonnes (372,000). terms, at EUR 613/tonne, was almost 35% higher than in the Profi tability improved substantially from the previous year. same period last year (EUR 455/tonne). At the end of the fi rst The main reasons for the improvement were signifi cantly higher quarter, the NBSK market price was EUR 666/tonne. The aver- pulp prices and higher sales volumes than last year. Wood costs age hardwood pulp (BHKP) market price in euro terms were lower. increased by almost 33% from last year, to EUR 543/tonne Comparison period also included a wood inventory write- (EUR 409/tonne). At the end of the fi rst quarter the BHKP down of EUR 28 million and a pulp inventory write-down of market price was EUR 591/tonne. EUR 10 million.

Interim report 1 January – 31 March 2010 5 This interim report is unaudited

Forest and timber Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 339 348 295 309 385 1,337 EBITDA, EURm 1) 3 30 24 –15 –15 24 % of sales 0.9 8.6 8.1 –4.9 –3.9 1.8 Change in fair value of biological assets and wood harvested, EURm 19 10 –13 10 11 18 Share of results of associated companies and joint ventures, EURm 1 1–1112 Depreciation, amortisation and impairment charges, EURm –4 –11 –4 –14 –5 –34 Operating profi t, EURm 19 21 6 –18 –18 –9 % of sales 5.6 6.0 2.0 –5.8 –4.7 –0.7 Special items, EURm 2) – –14 1 –8 –10 –31 Operating profi t excl. special items, EURm 19 35 5 –10 –8 22 % of sales 5.6 10.1 1.7 –3.2 –2.1 1.6 Sawn timber deliveries, 1,000 m3 371 413 355 366 363 1,497 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) Special items of EUR 14 million including impairment charges of EUR 5 million, in the fourth quarter of 2009 relate to restructuring of Timber operations in Finland. Special items for the second quarter of 2009 include impairment charges of EUR 8 million related to wood procurement operations. In the fi rst quarter of 2009, special items of EUR 10 million relate to the sales loss of Miramichi’s forestry and sawmilling operations’ assets.

Q1 of 2010 compared with Q1 of 2009 Market review The operating profi t excluding special items for Forest and tim- In the fi rst quarter of 2010, Finnish wood market activity re- ber was EUR 19 million (loss of EUR 8 million). Sales de- mained at a low level, representing about half of the long term creased by 12% to EUR 339 million (385 million). Sawn timber average purchasing volumes. However, wood purchases in the deliveries increased by 2% to 371,000 cubic metres (363,000 Finnish wood market increased almost by 59% from the very cubic metres). low level in the same period last year. Profi tability improved from the same period last year, mainly Wood market prices declined by an average of about 2% due to the average sawn timber price being approximately 14% compared with the same period in last year but increased higher than last year. Wood costs were lower. slightly from the fourth quarter of 2009. The increase in the fair value of biological assets net of Log market prices for pine and spruce increased from last wood harvested was EUR 19 million (11 million). The increase year, mainly due to weakened supply of wood. Log market in the fair value of biological assets (growing trees) was EUR 33 prices for birch declined. million (21 million). The cost of wood raw material harvested In the fi rst quarter of 2010, demand for both redwood and from the Group’s own forests was EUR 14 million (10 million). whitewood sawn timber in Europe improved slightly in compari- son with last year even though the construction activity remained still very low.

6 Interim report 1 January – 31 March 2010 This interim report is unaudited

Paper Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 1,401 1,558 1,454 1,388 1,367 5,767 EBITDA, EURm 1) 75 221 274 247 187 929 % of sales 5.4 14.2 18.8 17.8 13.7 16.1 Share of results of associated companies and joint ventures, EURm – 1 ––1–1–1 Depreciation, amortisation and impairment charges, EURm –136 –140 –142 –147 –149 –578 Operating profi t, EURm –69 74 126 85 60 345 % of sales –4.9 4.7 8.7 6.1 4.4 6.0 Special items, EURm 2) –8 –8 –6 –10 23 –1 Operating profi t excl. special items, EURm –61 82 132 95 37 346 % of sales –4.4 5.3 9.1 6.8 2.7 6.0 Deliveries, publication papers, 1,000 t 1,364 1,576 1,464 1,323 1,304 5,667 Deliveries, fi ne and speciality papers, 1,000 t 937 945 872 813 724 3,354 Paper deliveries total, 1,000 t 2,301 2,521 2,336 2,136 2,028 9,021

1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2010, special items include mainly employee-related restructuring charges. In the fourth and third quarter of 2009, special items of EUR 8 million and EUR 6 million relate to restructuring charges. Special items for the second quarter of 2009 include charges of EUR 9 million related to person- nel reduction in Nordland mill, impairment reversals of EUR 4 million and other restructuring charges of EUR 5 million. In the fi rst quarter of 2009, special items include an income of EUR 31 million related to the sale of the assets of the former Miramichi paper mill and charges of EUR 8 million related to restructuring measures.

Q1 of 2010 compared with Q1 of 2009 Market review Operating loss excluding special items for Paper was EUR 61 Demand for publication papers in Europe was 3% higher, and million (profi t of EUR 37 million). Sales were EUR 1,401 mil- for fi ne papers 4% higher, than a year ago. In North America, lion (1,367 million). Paper deliveries increased by 13% to the demand for magazine papers increased by 10% from last 2,301,000 tonnes (2,028,000). Paper deliveries for publication year. In Asia, demand for fi ne papers grew. papers (magazine papers and newsprint) increased by 5%, and In Europe, magazine paper prices decreased in the fi rst quar- for fi ne and speciality papers by 29%, from last year. Delivery ter by about 4% from the previous quarter, or about 10% from growth was highest in Asia and in North America. the fi rst quarter of 2009. Newsprint prices decreased by about The Paper business area incurred an operating loss, as the 14% both compared with the previous quarter and with the same average paper price decreased signifi cantly from the same period period last year. Fine paper prices were about the same as in the last year and the cost of fi bre increased. Higher paper deliveries last quarter of 2009, but were about 5% lower than in the same had a positive impact on operating profi t, even though delivery period last year. volumes were negatively affected by the stevedores’ strike in In North America, the average US dollar price for magazine Finland. The average price for all paper deliveries when trans- papers was 2% lower than in the previous quarter, or 17% lower lated into euros was 10% lower than last year. Compared with than a year ago. In Asia, market prices for fi ne papers increased the fourth quarter of 2009, prices decreased for all publication both from last year and from the previous quarter. paper grades, but increased for fi ne papers and speciality papers.

Interim report 1 January – 31 March 2010 7 This interim report is unaudited

Label Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 260 252 242 226 223 943 EBITDA, EURm 1) 31 25 29 18 6 78 % of sales 11.9 9.9 12.0 8.0 2.7 8.3 Depreciation, amortisation and impairment charges, EURm –7 –8 –9 –11 –9 –37 Operating profi t, EURm 24 16 18 4 –3 35 % of sales 9.2 6.3 7.4 1.8 –1.3 3.7 Special items, EURm 2) 1 –1–2–5––8 Operating profi t excl. special items, EURm 23 17 20 9 –3 43 % of sales 8.8 6.7 8.3 4.0 –1.3 4.6 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2010, special items relate to impairment reversals. In the fourth and third quarter of 2009, special items relate to restructuring charges. In the second quar- ter of 2009, special items include impairment charges of EUR 2 million and other restructuring charges of EUR 3 million.

Q1 of 2010 compared with Q1 of 2009 Market review Operating profi t excluding special items for Label was EUR 23 Demand for self-adhesive label materials grew noticeably in the million (loss of EUR 3 million). Sales increased by 17% to fi rst quarter from the depressed levels seen in the same period EUR 260 million (223 million). last year. Demand growth was strongest in Asia Pacifi c, Eastern Profi tability improved mainly due to lower raw material costs Europe and Latin America, where demand is estimated to have and higher sales volumes. Delivery volumes of self-adhesive label exceeded pre-recession levels. In mature markets in Western materials increased in all regions. Volume increase was highest in Europe and North America demand recovered, but not yet to growth markets of Asia and Eastern Europe. pre-recession levels. The average price for label materials in local currencies decreased marginally from the same period last year. Prices in local currencies increased during the fi rst quarter of 2010 and on average were higher than in the fourth quarter of 2009.

8 Interim report 1 January – 31 March 2010 This interim report is unaudited

Plywood Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 76 81 73 77 75 306 EBITDA, EURm 1) –2 3 –5 –5 –23 –30 % of sales –2.6 3.7 –6.8 –6.5 –30.7 –9.8 Depreciation, amortisation and impairment charges, EURm –5 –12 –5 –5 –5 –27 Operating profi t, EURm –7 –33 –10 –10 –29 –82 % of sales –9.2 –40.7 –13.7 –13.0 –38.7 –26.8 Special items, EURm 2) – –30 – – –1 –31 Operating profi t excl. special items, EURm –7 –3 –10 –10 –28 –51 % of sales –9.2 –3.7 –13.7 –13.0 –37.3 –16.7 Deliveries, plywood, 1,000 m3 140 150 143 141 133 567 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) Special items in the fourth quarter of 2009 include impairment charges of EUR 6 million and other restructuring charges of EUR 24 million.

Q1 of 2010 compared with Q1 of 2009 Market review Operating loss excluding special items for Plywood was EUR 7 In Europe, plywood demand increased slightly from the fi rst million (loss of EUR 28 million). Sales were EUR 76 million quarter of 2009. Construction activity continued at a very low (75 million). Plywood deliveries increased by 5% to 140,000 m3. level and was further limited by the cold winter in Europe. De- Operating loss for Plywood decreased from last year due to mand for engineered end products in transportation and other lower raw material costs. Plywood sales prices were lower than industrial end-uses showed only weak signs of improvement. last year. Delivery volumes were negatively affected by the steve- The market prices of plywood were lower than in the same dores’ strike in Finland. The comparison period also included a quarter last year, but increased slightly from the fourth quarter wood inventory write-down of EUR 15 million. of 2009.

Interim report 1 January – 31 March 2010 9 This interim report is unaudited

Other operations Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Sales, EURm 40 35 21 21 34 111 EBITDA, EURm 1) –18 –27 –31 –24 –29 –111 Share of results of associated companies and joint ventures, EURm –2 – – –2 –2 –4 Depreciation, amortisation and impairment charges, EURm –3 –3 –3 –3 –3 –12 Operating profi t, EURm –24 –34 –45 –29 –34 –142 Special items, EURm 2) –1 –6 –11 – – –17 Operating profi t excl. special items, EURm –23 –28 –34 –29 –34 –125 1) EBITDA is operating profi t before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items in the fourth quarter include impairment charges of EUR 2 million and other charges of EUR 4 million both relating to terminated activities. Special items of EUR 11 million in the third quarter of 2009 relate mainly to estates of closed industrial sites in Finland.

Other operations include development units (RFID tags, the wood plastic composite unit UPM ProFi and biofuels), logistic services and corporate administration.

Q1 of 2010 compared with Q1 of 2009 Excluding special items, the operating loss for Other operations was EUR 23 million (loss of EUR 34 million). Sales amounted to EUR 40 million (34 million). The development units incurred a smaller operating loss than last year.

Helsinki, 28 April 2010

UPM-Kymmene Corporation

Board of Directors

10 Interim report 1 January – 31 March 2010 This interim report is unaudited

FINANCIAL INFORMATION

Consolidated income statement

EURm Q1/2010 Q1/2009 Q1–Q4/2009

Sales 2,039 1,857 7,719 Other operating income 91747 Costs and expenses –1,770 –1,734 –6,774 Change in fair value of biological assets and wood harvested 19 11 17 Share of results of associated companies and joint ventures 3 –53 –95 Depreciation, amortisation and impairment charges –193 –193 –779 Operating profi t (loss) 107 –95 135

Gains on available-for-sale investments, net – – –1 Exchange rate and fair value gains and losses 1 –9 –9 Interest and other fi nance costs, net –26 –58 62 Profi t (loss) before tax 82 –162 187

Income taxes –12 4 –18 Profi t (loss) for the period 70 –158 169

Attributable to: Owners of the parent company 70 –158 169 Non-controlling interests ––– 70 –158 169

Earnings per share for profi t (loss) attributable to owners of the parent company

Basic earnings per share, EUR 0.13 –0.30 0.33 Diluted earnings per share, EUR 0.13 –0.30 0.33

Consolidated statement of comprehensive income EURm Q1/2010 Q1/2009 Q1–Q4/2009

Profi t (loss) for the period 70 –158 169

Other comprehensive income for the period, net of tax:

Translation differences 217 29 165 Net investment hedge –53 –8 –56 Cash fl ow hedges –23 –18 –4 Available-for-sale investments 5 – 21 Share of other comprehensive income of associated companies –1 4 30 Other comprehensive income for the period, net of tax 145 7 156 Total comprehensive income for the period 215 –151 325

Total comprehensive income attributable to: Owners of the parent company 215 –151 325 Non-controlling interests ––– 215 –151 325

Interim report 1 January – 31 March 2010 11 This interim report is unaudited

Condensed consolidated balance sheet

EURm 31.03.2010 31.03.2009 31.12.2009

ASSETS Non-current assets Goodwill 1,025 934 1,017 Other intangible assets 452 409 423 Property, plant and equipment 6,166 5,584 6,192 Biological assets 1,324 1,144 1,293 Investments in associated companies and joint ventures 555 1,219 553 Deferred tax assets 314 260 287 Other non-current assets 865 726 816 10,701 10,276 10,581

Current assets Inventories 1,204 1,198 1,112 Trade and other receivables 1,557 1,447 1,474 Cash and cash equivalents 365 197 438 3,126 2,842 3,024 Total assets 13,827 13,118 13,605

EQUITY AND LIABILITIES Equity attributable to owners of the parent company Share capital 890 890 890 Fair value and other reserves 125 –151 –23 Reserve for invested non-restricted equity 1,145 1,145 1,145 Retained earnings 4,403 3,864 4,574 6,563 5,748 6,586 Non-controlling interests 16 14 16 Total equity 6,579 5,762 6,602

Non-current liabilities Deferred tax liabilities 589 612 608 Non-current interest-bearing liabilities 4,005 4,189 4,164 Other non-current liabilities 661 605 660 5,255 5,406 5,432

Current liabilities Current interest-bearing liabilities 369 550 365 Trade and other payables 1,624 1,400 1,206 1,993 1,950 1,571 Total liabilities 7,248 7,356 7,003 Total equity and liabilities 13,827 13,118 13,605

12 Interim report 1 January – 31 March 2010 This interim report is unaudited

Consolidated statement of changes in equity

Attributable to owners of the parent company Reserve Fair value for invested Non- Share Translation and other non-restricted Retained controlling Total EURm capital differences reserves equity earnings Total interests equity

Balance at 1 January 2009 890 –295 130 1,145 4,236 6,106 14 6,120 Profi t (loss) for the period – – – – –158 –158 – –158 Translation differences – 29 – – – 29 – 29 Net investment hedge, net of tax – –8 – – – –8 – –8 Cash fl ow hedges, net of tax – – –18 – – –18 – –18 Available-for-sale investments – – – – – – – – Share of other comprehensive income of associated companies – 10 – – –6 4 – 4 Total comprehensive income for the period – 31 –18 – –164 –151 – –151 Share-based compensation, net of tax – – 1 – – 1 – 1 Dividend paid – – – – –208 –208 – –208 Other items – – – – – – – – Total transactions with owners for the period – – 1 – –208 –207 – –207 Balance at 31 March 2009 890 –264 113 1,145 3,864 5,748 14 5,762

Balance at 1 January 2010 890 –164 141 1,145 4,574 6,586 16 6,602 Profi t (loss) for the period – – – – 70 70 – 70 Translation differences – 217 – – – 217 – 217 Net investment hedge, net of tax – –53 – – – –53 – –53 Cash fl ow hedges, net of tax – – –23 – – –23 – –23 Available-for-sale investments – – 5 – – 5 – 5 Share of other comprehensive income of associated companies – – – – –1 –1 – –1 Total comprehensive income for the period – 164 –18 – 69 215 – 215 Share-based compensation, net of tax – – 2 – – 2 – 2 Dividend paid – – – – –234 –234 – –234 Other items – – – – –6 –6 – –6 Total transactions with owners for the period – – 2 – –240 –238 – –238 Balance at 31 March 2010 890 – 125 1,145 4,403 6,563 16 6,579

Interim report 1 January – 31 March 2010 13 This interim report is unaudited

Condensed consolidated cash fl ow statement

EURm Q1/2010 Q1/2009 Q1–Q4 /2009

Cash fl ow from operating activities Profi t (loss) for the period 70 –158 169 Adjustments 180 289 772 Change in working capital –18 216 532 Cash generated from operations 232 347 1,473 Finance costs, net –13 –59 –183 Income taxes paid –10 –14 –31 Net cash generated from operating activities 209 274 1,259

Cash fl ow from investing activities Acquisitions and share purchases – – –586 Capital expenditure –49 –78 –236 Asset sales and other investing cash fl ow 9 14 608 Net cash used in investing activities –40 –64 –214

Cash fl ow from fi nancing activities Change in loans and other fi nancial items –250 –342 –732 Dividends paid – – –208 Net cash used in fi nancing activities –250 –342 –940

Change in cash and cash equivalents –81 –132 105

Cash and cash equivalents at the beginning of period 438 330 330 Foreign exchange effect on cash 8 –1 3 Change in cash and cash equivalents –81 –132 105 Cash and cash equivalents at end of period 365 197 438

14 Interim report 1 January – 31 March 2010 This interim report is unaudited

Quarterly information

EURm Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4 /09

Sales 2,039 2,108 1,913 1,841 1,857 7,719 Other operating income 918 571747 Costs and expenses –1,770 –1,810 –1,603 –1,627 –1,734 –6,774 Change in fair value of biological assets and wood harvested 19 9 –13 10 11 17 Share of results of associated companies and joint ventures 31–21 –22 –53 –95 Depreciation, amortisation and impairment charges –193 –200 –185 –201 –193 –779 Operating profi t (loss) 107 126 96 8 –95 135 Gains on available-for-sale investments, net – – –1 – – –1 Exchange rate and fair value gains and losses 1 – –3 3 –9 –9 Interest and other fi nance costs, net –26 185 –28 –37 –58 62 Profi t (loss) before tax 82 311 64 –26 –162 187 Income taxes –12 –16 –24 18 4 –18 Profi t (loss) for the period 70 295 40 –8 –158 169 Attributable to: Owners of the parent company 70 295 40 –8 –158 169 Non-controlling interests – – –––– 70 295 40 –8 –158 169 Basic earnings per share, EUR 0.13 0.57 0.08 –0.02 –0.30 0.33 Diluted earnings per share, EUR 0.13 0.57 0.08 –0.02 –0.30 0.33 Earnings per share, excluding special items, EUR 0.15 0.21 0.14 0.03 –0.27 0.11 Average number of shares basic (1,000) 519,970 519,958 519,954 519,954 519,954 519,955 Average number of shares diluted (1,000) 520,018 518,876 521,036 519,954 519,954 519,955 Special items in operating profi t (loss) –9 –60 –35 –23 –17 –135 Operating profi t (loss), excl. special items 116 186 131 31 –78 270 % of sales 5.7 8.8 6.8 1.7 –4.2 3.5 Special items before tax –9 155 –35 –23 –17 80 Profi t (loss) before tax, excl. special items 91 156 99 –3 –145 107 % of sales 4.5 7.4 5.2 –0.2 –7.8 1.4 Return on equity, excl. special items, % 4.6 7.4 5.0 0.8 neg. 1.0 Return on capital employed, excl. special items, % 4.3 7.2 4.9 1.3 neg. 2.5 EBITDA 288 362 334 238 128 1,062 % of sales 14.1 17.2 17.5 12.9 6.9 13.8

Share of results of associated companies and joint ventures Energy 4 –8 –24 –4 –4 –40 Pulp – 7 4 –16 –47 –52 Forest and timber 1 1 –1 1 1 2 Paper – 1 ––1–1–1 Other operations –2 – – –2 –2 –4 Total 3 1 –21 –22 –53 –95

Deliveries Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4/09 Electricity, 1,000 MWh 2,411 2,277 2,103 1,999 2,486 8,865 Pulp, 1,000 t 700 550 446 391 372 1,759 Sawn timber, 1,000 m3 371 413 355 366 363 1,497 Publication papers, 1,000 t 1,364 1,576 1,464 1,323 1,304 5,667 Fine and speciality papers, 1,000 t 937 945 872 813 724 3,354 Paper deliveries total, 1,000 t 2,301 2,521 2,336 2,136 2,028 9,021 Plywood, 1,000 m3 140 150 143 141 133 567

Interim report 1 January – 31 March 2010 15 This interim report is unaudited

Quarterly segment information

EURm Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4 /09

Sales Energy 174 128 108 100 136 472 Pulp 341 226 156 132 139 653 Forest and timber 339 348 295 309 385 1,337 Paper 1,401 1,558 1,454 1,388 1,367 5,767 Label 260 252 242 226 223 943 Plywood 76 81 73 77 75 306 Other operations 40 35 21 21 34 111 Internal sales –592 –520 –436 –412 –502 –1,870 Sales, total 2,039 2,108 1,913 1,841 1,857 7,719

EBITDA Energy 79 57 35 41 57 190 Pulp 120 53 8 –24 –55 –18 Forest and timber 3 30 24 –15 –15 24 Paper 75 221 274 247 187 929 Label 31 25 29 18 6 78 Plywood –2 3 –5 –5 –23 –30 Other operations –18 –27 –31 –24 –29 –111 EBITDA, total 288 362 334 238 128 1,062

Operating profi t (loss) Energy 81 47 10 36 51 144 Pulp 83 35 –9 –60 –122 –156 Forest and timber 19 21 6 –18 –18 –9 Paper –69 74 126 85 60 345 Label 24 16 18 4 –3 35 Plywood –7 –33 –10 –10 –29 –82 Other operations –24 –34 –45 –29 –34 –142 Operating profi t (loss), total 107 126 96 8 –95 135 % of sales 5.2 6.0 5.0 0.4 –5.1 1.7

Special items in operating profi t Energy – –1 –17 – – –18 Pulp –1 – – – –29 –29 Forest and timber – –14 1 –8 –10 –31 Paper –8 –8 –6 –10 23 –1 Label 1 –1–2–5––8 Plywood – –30 – – –1 –31 Other operations –1 –6 –11 – – –17 Special items in operating profi t, total –9 –60 –35 –23 –17 –135

Operating profi t (loss) excl.special items Energy 81 48 27 36 51 162 Pulp 84 35 –9 –60 –93 –127 Forest and timber 19 35 5 –10 –8 22 Paper –61 82 132 95 37 346 Label 23 17 20 9 –3 43 Plywood –7 –3 –10 –10 –28 –51 Other operations –23 –28 –34 –29 –34 –125 Operating profi t (loss) excl. special items, total 116 186 131 31 –78 270 % of sales 5.7 8.8 6.8 1.7 –4.2 3.5

16 Interim report 1 January – 31 March 2010 This interim report is unaudited

EURm Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q1–Q4 /09 External sales Energy 94 38 24 24 49 135 Pulp 86 34 9 10 10 63 Forest and timber 154 171 145 150 152 618 Paper 1,353 1,500 1,409 1,355 1,327 5,591 Label 259 252 243 225 222 942 Plywood 73 77 69 73 72 291 Other operations 20 36 14 4 25 79 External sales, total 2,039 2,108 1,913 1,841 1,857 7,719

Internal sales Energy 80 90 84 76 87 337 Pulp 255 192 147 122 129 590 Forest and timber 185 177 150 159 233 719 Paper 48 58 45 33 40 176 Label 1––1111 Plywood 3 444315 Other operations 20 –1 7 17 9 32 Internal sales, total 592 520 436 412 502 1,870

Changes in property, plant and equipment EURm Q1/2010 Q1/2009 Q1–Q4/2009 Book value at beginning of period 6,192 5,688 5,688 Capital expenditure 25 65 181 Companies acquired – – 1,013 Decreases –3 –11 –20 Depreciation –178 –178 –696 Impairment charges – – –14 Impairment reversal 1–5 Translation difference and other changes 129 20 35 Book value at end of period 6,166 5,584 6,192

Commitments and contingencies EURm 31.03.2010 31.03.2009 31.12.2009 Own commitments Mortgages 1) 1,056 760 1,043

On behalf of associated companies and joint ventures Guarantees for loans 898

On behalf of others Other guarantees 121

Other own commitments Leasing commitments for the next 12 months 26 20 24 Leasing commitments for subsequent periods 84 51 60 Other commitments 68 68 69

1) Mortgages and pledges relate mainly to Uruguayan operations, and to giving mandatory security for borrowing from Finnish pension insurance companies.

Capital commitments By After EURm Completion Total cost 31.12.2009 Q1/2010 31.03.2010 Materials recovery facility (MRF), Shotton January 2011 19 – – 19 Plywood development December 2011 18 – – 18 Energy saving TMP plant, Steyrermühl January 2011 16 – – 16 Waste water treatment plant, Blandin July 2011 19 – 6 13 Power plant rebuild, Schongau January 2011 12 – 1 11

Interim report 1 January – 31 March 2010 17 This interim report is unaudited

Notional amounts of derivative fi nancial instruments EURm 31.03.2010 31.03.2009 31.12.2009 Currency derivatives Forward contracts 3,654 3,824 3,791 Options, bought 19 – 20 Options, written 27 – 20 Swaps 527 505 514

Interest rate derivatives Forward contracts 2,110 2,718 3,259 Swaps 2,511 2,809 2,701

Other derivatives Forward contracts 119 161 25 Options, bought 41 78 73 Options, written 41 78 73 Swaps 384

Related party (associated companies and joint ventures) transactions and balances EURm Q1/2010 Q1/2009 Q1–Q4/2009

Sales to associated companies 34 27 114 Purchases from associated companies 63 103 560 Non-current receivables at end of period 2 2 2 Trade and other receivables at end of period 11 22 23 Trade and other payables at end of period 31 30 32

Basis of preparation This unaudited interim report has been prepared in accordance with the accounting policies set out in International Accounting Standard 34 on Interim Financial Reporting and in the Group’s Consolidated Financial Statements for 2009. Income tax expense is recognised based on the best estimate of the weighted average annual income tax rate expected for the full fi nancial year.

The Group has adopted the following standard:

Amendment to IAS 27 Consolidated and Separate Financial Statements requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifi es the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profi t or loss. The adoption of the amended standard has changed the name of previous minority interests to non-controlling interests, and in addition the adoption has amended the presentation of consolidated statement of changes in equity.

Calculation of key indicators

Return on equity, %: Return on capital employed, %: Earnings per share: Profi t before tax + interest expenses and Profi t for the period attributable to equity Profi t before tax – income taxes other fi nancial expenses holders of the parent company x 100 x 100 Total equity (average) Total equity + interest-bearing liabilities Adjusted average number of shares during (average) the period excluding treasury shares

Key exchange rates for the euro at end of period 31.03.2010 31.12.2009 30.09.2009 30.06.2009 31.03.2009 USD 1.3479 1.4406 1.4643 1.4134 1.3308 CAD 1.3687 1.5128 1.5709 1.6275 1.6685 JPY 125.93 133.16 131.07 135.51 131.17 GBP 0.8898 0.8881 0.9093 0.8521 0.9308 SEK 9.7135 10.2520 10.2320 10.8125 10.9400

18 Interim report 1 January – 31 March 2010 It should be noted that certain statements herein, which are not historical facts, including, without limitation, those regarding expectations for market growth and developments; expectations for growth and profi tability; and statements preceded by “believes”, “expects”, “anticipates”, “fore- sees”, or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufac- turing activities and the achievement of effi ciencies therein including the availability and cost of production inputs, continued success of product development, acceptance of new products or services by the Group’s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group’s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group’s prod- ucts and the pricing pressures thereto, fi nancial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group’s principal geo- graphic markets or fl uctuations in exchange and interest rates. For more detailed information about risk factors, see pages 87–88 of the company’s annual report 2009.

UPM-Kymmene Corporation Audited Historical Consolidated Financial Information in respect of the Financial Year Ended 31 December 2009 under IFRS

ACCOUNTS FOR 2009 group

CONSOLIDATED INCOME STATEMENT

Year ended 31 December €m Note 2009 2008

Sales 4 7, 7 19 9, 4 61 Other operating income 6 47 83 Costs and expenses 7 –6,774 –8,407 Change in fair value of biological assets and wood harvested 8 17 50 Share of results of associated companies and joint ventures 9 –95 62 Depreciation, amortisation and impairment charges 10 –779 –1,225 Operating profi t 4 135 24

Gains on available-for-sale investments, net 11 –1 2 Exchange rate and fair value gains and losses 12 –9 –25 Interest and other fi nance costs, net 12 62 –202 Profi t (loss) before tax 187 –201

Income taxes 13 –18 21 Profi t (loss) for the year 169 –180

Attributable to: Equity holders of the parent company 169 –179 Minority interest ––1 169 –180

Earnings per share for profi t (loss) attributable to the equity holders of the parent company Basic earnings per share, € 14 0.33 –0.35 Diluted earnings per share, € 14 0.33 –0.35

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December €m 2009 2008

Profi t (loss) for the year 169 –180

Other comprehensive income for the year, net of tax: Translation differences 165 –206 Net investment hedge –56 56 Cash fl ow hedges –4 –33 Available-for-sale investments 21 – Share of other comprehensive income of associated companies 30 1 Other comprehensive income for the year, net of tax 156 –182 Total comprehensive income for the year 325 –362

Total comprehensive income attributable to: Equity holders of the parent company 325 –361 Minority interest ––1 325 –362

The income tax relating to each component of other comprehensive income is disclosed in Note 13. Disclosure of components of other comprehensive income is presented in Note 27. The notes are an integral part of these fi nancial statements. group ACCOUNTS FOR 2009

CONSOLIDATED BALANCE SHEET

As at 31 December €m Note 2009 2008

ASSETS Non-current assets Goodwill 16 1,017 933 Other intangible assets 17 423 403 Property, plant and equipment 18 6,192 5,688 Investment property 19 22 19 Biological assets 20 1,293 1,133 Investments in associated companies and joint ventures 21 553 1,263 Available-for-sale investments 22 320 116 Non-current fi nancial assets 23 263 361 Deferred tax assets 28 287 258 Other non-current assets 24 211 201 10,581 10,375

Current assets Inventories 25 1,112 1,354 Trade and other receivables 26 1,446 1,686 Income tax receivables 28 24 Cash and cash equivalents 438 330 3,024 3,394 Assets classifi ed as held for sale 18 – 12 Total assets 13,605 13,781

As at 31 December €m Note 2009 2008

EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 27 890 890 Translation differences –164 –295 Fair value and other reserves 27 141 130 Reserve for invested non-restricted equity 1,145 1,145 Retained earnings 4,574 4,236 6,586 6,106 Minority interest 16 14 Total equity 6,602 6,120

Non-current liabilities Deferred tax liabilities 28 608 658 Retirement benefi t obligations 29 418 408 Provisions 30 191 191 Interest-bearing liabilities 31 4,164 4,534 Other liabilities 32 51 25 5,432 5,816

Current liabilities Current interest-bearing liabilities 31 300 537 Trade and other payables 33 1,206 1,258 Income tax payables 65 33 1,571 1,828 Liabilities related to assets classifi ed as held for sale 18 – 17 Total liabilities 7, 0 0 3 7, 6 61 Total equity and liabilities 13,605 13,781

The notes are an integral part of these fi nancial statements. ACCOUNTS FOR 2009 group

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the parent company Reserve for invested Translation Fair value non- Share differ- and other restricted Retained Minority Total €m capital ences reserves equity earnings Total interest equity

Balance at 1 January 2008 890 –158 193 1,067 4,778 6,770 13 6,783

Changes in equity for 2008 Share options exercised –––78–78–78 Share-based compensation, net of tax – – –29 – 33 4 – 4 Dividend paid ––– ––384–384––384 Acquisitions and disposals ––––––22 Other items – ––1– ––1––1 Total comprehensive income for the year – –137 –33 – –191 –361 –1 –362 Balance at 31 December 2008 890 –295 130 1,145 4,236 6,106 14 6,120

Balance at 1 January 2009 890 –295 130 1,145 4,236 6,106 14 6,120

Changes in equity for 2009 Share-based compensation, net of tax – – –6 – 12 6 – 6 Dividend paid –––––208–208––208 Acquisitions and disposals ––––3583582360 Other items –––––1–1––1 Total comprehensive income for the year – 131 17 – 177 325 – 325 Balance at 31 December 2009 890 –164 141 1,145 4,574 6,586 16 6,602

The notes are an integral part of these fi nancial statements. group ACCOUNTS FOR 2009

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December €m Note 2009 2008

Cash fl ow from operating activities Profi t (loss) for the period 169 –180 Adjustments to profi t (loss) for the period 5 772 1,232 Interest received 69 Interest paid –163 –202 Dividends received 24 18 Other fi nancial items, net –50 –41 Income taxes paid –31 –76 Change in working capital 5 532 –132 Net cash generated from operating activities 1,259 628

Cash fl ow from investing activities Acquisition of subsidiaries, net of cash acquired 5 –508 – Acquisition of shares in associated companies –78 –19 Capital expenditure –236 –558 Proceeds from disposal of subsidiary shares, net of cash 5 – 6 Proceeds from disposal of shares in associated companies 565 4 Proceeds from disposal of available-for-sale investments –2 Proceeds from sale of tangible and intangible assets 46 33 Increase in non-current receivables –3 – Net cash used in investing activities –214 –532

Cash fl ow from fi nancing activities Proceeds from non-current liabilities 325 1,083 Payments of non-current liabilities –1,051 –624 Payments of current liabilities, net –6 –153 Share options exercised –78 Dividends paid –208 –384 Other fi nancing cash fl ow ––1 Net cash used in fi nancing activities –940 –1

Change in cash and cash equivalents 105 95

Cash and cash equivalents at the beginning of year 330 237 Foreign exchange effect on cash 3–2 Change in cash and cash equivalents 105 95 Cash and cash equivalents at year-end 438 330

The notes are an integral part of these fi nancial statements. ACCOUNTS FOR 2009 group

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In the notes all amounts are shown in millions of euros unless otherwise stated.)

1 ACCOUNTING POLICIES Consolidation principles

The principal accounting policies to be adopted in the preparation Subsidiaries of the consolidated fi nancial statements are set out below: The consolidated fi nancial statements of UPM include the fi nancial statements of the parent company, UPM-Kymmene Corporation, Principal activities and its subsidiaries. Subsidiaries are those entities in which UPM-Kymmene Corporation (“the parent company” or “the com- UPM-Kymmene Corporation either owns, directly or indirectly, pany”) together with its consolidated subsidiaries (“UPM” or “the over fi fty percent of the voting rights, or otherwise has the power to Group”) is a global paper and forest products group engaged in the govern their operating and fi nancial policies. The existence and production of paper, with an emphasis on the manufacture and sale effect of potential voting rights that are currently exercisable or of printing and writing papers. The Group consists of three Busi- convertible are considered when assessing whether the Group con- ness Groups, which are Energy and pulp, Paper, and Engineered trols another entity. materials. UPM reports fi nancial information for the following Acquisitions of subsidiaries are accounted for using the pur- business areas (segments): Energy, Pulp, Forest and timber, Paper, chase method of accounting. The cost of an acquisition is meas- Label, Plywood, and Other operations. The Group’s activities are ured as the fair value of the assets given, equity instruments issued centred in the European Union countries and North and South and liabilities incurred or assumed at the date of exchange, plus America, and Asia with production facilities in 15 countries. costs directly attributable to the acquisition. Identifi able assets UPM-Kymmene Corporation is a Finnish limited liability acquired and liabilities and contingent liabilities assumed in a busi- company, domiciled in Helsinki in the Republic of Finland. The ness combination are measured initially at their fair values at the address of the company’s registered offi ce is Eteläesplanadi 2, acquisition date, irrespective of the extent of any minority interest. 00101 Helsinki, where the copy of the consolidated fi nancial state- The excess of the cost of acquisition over the fair value of the ment can be obtained. Group’s share of the identifi able net assets of the subsidiary The parent company is listed on NASDAQ OMX Helsinki Ltd. acquired is recorded as goodwill. If the cost of acquisition is less These Group consolidated fi nancial statements were authorised than the fair value of the Group’s share of the net assets of the for issue by the Board of Directors on 2 February 2010. According subsidiary acquired, the difference is recognised directly in the to the Finnish Companies Act the General Meeting of Sharehold- income statement (see “Intangible Assets” for the accounting policy ers is entitled to decide on the adoption of the company’s fi nancial on goodwill). Subsidiaries acquired during the year are included in statements. the consolidated fi nancial statements from the date on which con- trol is transferred to the Group, and subsidiaries sold are included Basis of preparation up to the date that control is relinquished. These consolidated fi nancial statements of UPM are prepared in All intercompany transactions, receivables, liabilities and unre- accordance with International Financial Reporting Standards as alised profi ts, as well as intragroup profi t distributions, are elimi- adopted by the European Union (IFRS as adopted by the EU) and nated. Unrealised losses are also eliminated unless the transaction IFRIC Interpretations. provides evidence of an impairment of the asset transferred. The consolidated fi nancial statements have been prepared under the historical cost convention as modifi ed by the revaluation of Associated companies and joint ventures biological assets, available-for-sale fi nancial assets and certain other Associated companies are entities over which the Group has signifi - fi nancial assets and fi nancial liabilities. Share-based payments are cant infl uence but no control, generally accompanying a sharehold- recognised at fair value on the grant date. ing of between 20% and 50% of the voting rights. Joint ventures are The preparation of fi nancial statements requires the use of entities over which the Group has contractually agreed to share the accounting estimates and assumptions that affect the reported power to govern the fi nancial and operating policies of that entity amounts of assets and liabilities, the disclosure of contingent assets with another venturer or venturers. and liabilities at the date of the fi nancial statements, and the Interests in associated companies and joint ventures are reported amounts of revenues and expenses during the reporting accounted for using the equity method of accounting and are ini- periods. Accounting estimates are employed in the fi nancial state- tially recorded at cost. Under this method the Group’s share of the ments to determine reported amounts, including the realisability of associated company’s and joint venture’s profi t or loss for the year certain assets, the useful lives of tangible and intangible assets, is recognised on the income statement and its share of movements income taxes and others. Although these estimates are based on in reserves is recognised in reserves. The Group’s interest in an management’s best knowledge of current events and actions, actual associated company and joint venture is carried on the balance results may ultimately differ from those estimates. The preparation sheet at an amount that refl ects its share of the net assets of the of fi nancial statements also requires management to exercise its associated company and joint venture together with goodwill on judgement in the process of applying the Group’s accounting poli- acquisition (net of any accumulated impairment loss), less any cies. The critical judgements are summarised in Note 2. impairment in the value of individual investments. Unrealised gains group ACCOUNTS FOR 2009

and losses on transactions between the Group and its associates Derivative fi nancial instruments and hedging activities and joint ventures are eliminated to the extent of the Group’s inter- Derivatives are initially recognised on the balance sheet at fair value est in the associated company and joint venture, unless the loss and thereafter remeasured at their fair value. The method of recog- provides evidence of an impairment of the asset transferred Asso- nising the resulting gain or loss is dependent on whether the deriva- ciated company and joint venture accounting policies have been tive is designated as a hedging instrument, and on the nature of the changed where necessary to ensure consistency with the policies item being hedged. On the date a derivative contract is entered into, adopted by the Group. Equity accounting is discontinued when the the Group designates certain derivatives as either hedges of the fair carrying amount of the investment in an associated company or value of a recognised asset or liability (fair value hedge), a hedge of interest in a joint venture reaches zero, unless the Group has a highly probable forecasted transaction or of a fi rm commitment incurred or guaranteed obligations in respect of the associated (cash fl ow hedge), or hedges of net investments in foreign opera- company or joint venture. tions (net investment hedge). The fair value of derivative fi nancial instrument is classifi ed as a non-current asset or liability when the Minority interests remaining maturity is more than 12 months, and as a current asset The profi t or loss attributable to the parent shareholders and or liability when the remaining maturity is less than 12 months. minority interests is presented on the face of the income statement. The Group applies fair value hedge accounting for hedging Minority interests are presented in the consolidated balance sheet fi xed interest risk on borrowings. Changes in the fair value of deriv- within equity, separately from the parent shareholders’ equity. atives that are designated and qualify as fair value hedges and that Transactions with minority interests are treated as transaction are highly effective both prospectively and retrospectively are with parties external to the Group. Disposals of minority interests recorded in the income statement under fi nancial items, along with result in gains or losses for the Group and are recorded in the any changes in the fair value of the hedged asset or liability that are income statement. Purchases of minority interests result in good- attributable to the hedged risk. The carrying amounts of the will, being the difference between any consideration paid and the hedged items and the fair values of the hedging instruments are relevant share acquired of the carrying value of net assets of the included in the interest-bearing assets or liabilities. Derivatives that subsidiary. are designated and qualify as fair value hedges mature at the same time as hedged items. If the hedge no longer meets the criteria for Foreign currency transactions hedge accounting, the adjustment to the carrying amount of a Items included in the fi nancial statements of each subsidiary in the hedged item for which the effective interest method is used is amor- Group are measured using the currency of the primary economic tised to profi t or loss over the period to maturity. environment in which the subsidiary operates (“the functional Changes in the fair value of derivatives that are designated and currency”). The consolidated fi nancial statements are presented in qualify as cash fl ow hedges and that are highly effective both pro- euros, which is the functional and presentation currency of the spectively and retrospectively are recognised in other comprehen- parent company. sive income (at the spot rate difference). The accumulated profi t or Foreign currency transactions are translated into the functional loss of the hedging instruments is recognised in equity approxi- currency using the exchange rates prevailing at the dates of the mately during the period of 12 months. Amounts deferred in equity transactions. Foreign exchange gains and losses resulting from the are transferred to the income statement and classifi ed as income or settlement of such transactions and from the translation at year- an expense in the same period during which the hedged fi rm com- end exchange rates of monetary assets and liabilities denominated mitment or forecasted transaction affects the income statement (for in foreign currencies are recognised in the income statement, except example, when the forecasted external sale to the Group that is when recognised in other comprehensive income in equity as quali- hedged takes place). The period when the hedging reserve is fying cash fl ow hedges and qualifying net investment hedges. For- released to sales after each derivative has matured is approximately eign exchange differences relating to ordinary business operations 1 month. However, when the forecast transaction that is hedged of the Group are included in the appropriate line items above oper- results in the recognition of a non-fi nancial asset (for example, fi xed ating profi t, and those relating to fi nancial items are included in a assets) the gains and losses previously deferred in equity are trans- separate line item in the income statement and as a net amount in ferred from equity and included in the initial measurement of the total fi nance costs. cost of the asset. The deferred amounts are ultimately recognised in Income and expenses for each income statement of subsidiaries depreciation of fi xed assets. that have a functional currency different from the Group’s presenta- When a hedging instrument expires or is sold, or when a hedge tion currency are translated into euros at quarterly average no longer meets the criteria for hedge accounting under IAS 39, any exchange rates. Assets and liabilities of subsidiaries for each bal- cumulative gain or loss existing in equity at that time remains in ance sheet presented are translated at the closing rate at the date of equity and is recognised when the committed or forecasted transac- that balance sheet. All resulting translation differences are recog- tion is ultimately recognised in the income statement. However, if a nised as a separate component in other comprehensive income. On committed or forecasted transaction is no longer expected to occur, consolidation, exchange differences arising from the translation of the cumulative gain or loss that was reported in equity is immedi- the net investment in foreign operations and other currency instru- ately transferred to the income statement. ments designated as hedges of such investments, are taken into Hedges of net investments in foreign operations are accounted shareholders’ equity. When a foreign entity is partially disposed of, for similarly to cash fl ow hedges. The fair value changes of the sold or liquidated, translation differences recorded in equity are forward exchange contracts that refl ect the change in spot exchange recognised in the income statement as part of the gain or loss on rates are deferred in other comprehensive income and included in sale. cumulative translation differences. Any gain or loss relating to the interest portion of the forward exchange contracts is recognised ACCOUNTS FOR 2009 group

immediately in the income statement under fi nancial items. Gains not considered to have occurred until the customer takes title and and losses accumulated in equity are included in the income state- assumes the risks and rewards of ownership and the Group has ment when the foreign operation is partially disposed of or sold. neither continuing managerial involvement with the goods, nor a Certain derivative transactions, while providing effective hedges continuing right to dispose of the goods, nor effective control of under the Group Treasury Policy, do not qualify for hedge account- those goods. The timing of revenue recognition is largely dependent ing under the specifi c rules in IAS 39. Such derivatives are classifi ed on delivery terms. Group terms of delivery are based on Incoterms held for trading, and changes in the fair value of any derivative 2000, the offi cial rules for interpretation of trade terms issued by instruments that do not qualify for hedge accounting under IAS 39 International Chamber of Commerce. Revenue is recorded when are recognised immediately in the income statement as other oper- the product is delivered to the destination point for terms desig- ating income or under fi nancial items. nated Delivered Duty Paid (“DDP”). For sales transactions desig- At the inception of the transaction the Group documents the nated Free on Board (“FOB”) or Cost, Insurance and Freight relationship between hedging instruments and hedged items, as well (“CIF”), revenue is recorded at the time of shipment. as its risk management objective and strategy for undertaking vari- Revenues from services are recorded when the service has been ous hedge transactions. This process includes linking all derivatives performed. Sales are recognised net of indirect sales taxes, dis- designated as hedges to specifi c assets and liabilities or to specifi c counts, rebates and exchange differences on sales in foreign cur- fi rm commitments or forecast transactions. The Group also docu- rency. The costs of distributing products sold are included in costs ments its assessment, both at the hedge inception and on an ongo- and expenses. ing basis, as to whether the derivatives that are used in hedging Dividend income is recognised when the right to receive a pay- transactions are highly effective in offsetting changes in fair values ment is established. or cash fl ows of hedged items. Interest income is recognised by applying the effective interest rate method. Segment reporting Business segments provide products or services that are subject to Income taxes risks and returns that are different from those of other business The Group’s income taxes include income taxes of Group compa- segments. nies based on taxable profi t for the fi nancial period, together with The accounting policies used in segment reporting are the same tax adjustments for previous periods and the change of deferred as those used in the consolidated accounts. The costs and revenues income taxes. as well as assets and liabilities are allocated to the segments on a Deferred income tax is provided in full, using the liability consistent basis. All inter-segment sales are based on market prices, method, on temporary differences arising between the tax bases of and they are eliminated on consolidation. assets and liabilities and their carrying amounts in the consolidated Operating segments are reported in a manner consistent with fi nancial statements. However, the deferred income tax is not the internal reporting provided to the chief operating decision accounted for if it arises from initial recognition of an asset or maker. The chief operating decision maker, who is responsible for liability in a transaction other than a business combination that at allocating resources and assessing performance of the operating the time of the transaction affects neither accounting nor taxable segments, has been identifi ed as the President and CEO. profi t or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Non-current assets held for sale and discontinued operations balance sheet date and are expected to apply when the related Non-current assets (or disposal groups) are classifi ed as assets held deferred income tax asset is realised or the deferred income tax for sale and stated at the lower of carrying amount and fair value liability is settled. Deferred income tax is provided on temporary less costs to sell if their carrying amount is recovered principally differences arising on investments in subsidiaries, associated com- through a sale transaction rather than through a continuing use. panies and joint ventures, except where the timing of the reversal of Non-current assets classifi ed as held for sale, or included within a the temporary difference is controlled by the Group and it is proba- disposal group that is classifi ed as held for sale, are not depreciated. ble that the temporary difference will not reverse in the foreseeable A discontinued operation is a component of an entity that future. Deferred income tax assets are recognised to the extent that either has been disposed of, or that is classifi ed as held for sale, and it is probable that future taxable profi t will be available against represents a separate major line of business or geographical area of which the temporary differences can be utilised. operations, is a part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, Intangible assets or is a subsidiary acquired exclusively with a view to resale. The Intangible assets with fi nite lives are carried at historical cost less post-tax profi t or loss from discontinued operations is shown sepa- amortisation. Amortisation is based on the following estimated rately in the consolidated income statement. useful lives:

Revenue recognition Computer software 3–5 years Sales are recognised when it is probable that future economic bene- Other intangible assets 5–10 years fi ts will fl ow to the entity, the associated costs and the amount of revenue can be measured reliably and the following criteria are met: Goodwill and other intangible assets that are deemed to have an persuasive evidence of an arrangement exists, delivery has occurred indefi nite life are not amortised, but are tested annually for impair- or services have been rendered, our price to the buyer is fi xed or ment. determinable, and collectibility is reasonably assured. Delivery is group ACCOUNTS FOR 2009

Goodwill are expensed under other operating costs and expenses in the Goodwill represents the excess of the cost of acquisition over the income statement and presented as provisio in the balance sheet. fair value of the Group’s share of the net identifi able assets of the Emission rights and associated provisions are derecognised when acquired subsidiary, associated company or joint venture at the date delivered or sold. Any profi t or loss on disposal is taken to the of acquisition. Goodwill on acquisitions of subsidiaries is included income statement. in intangible assets. Goodwill on acquisitions of associated compa- nies and joint ventures is included in investments in associated Property, plant and equipment companies and joint ventures and is tested for impairment as part Property, plant and equipment acquired by Group companies are of the overall balance. Goodwill is initially recognised as an asset at stated at historical cost. Assets of acquired subsidiaries are stated at cost and is subsequently measured at cost less any accumulated fair value at the date of acquisition. Depreciation is calculated on a impairment losses. straight-line basis and the carrying value is adjusted for impairment Cash-generating units to which goodwill has been allocated are charges, if any. The carrying value of the property, plant and equip- tested for impairment annually, or more frequently when there is an ment on the balance sheet represents the cost less accumulated indication that the unit may be impaired. If the recoverable amount depreciation and any impairment charges. of the cash-generating unit is less than the carrying amount of the Borrowing costs incurred for the construction of any qualifying unit, the difference is an impairment loss, which is allocated fi rst to assets are capitalised during the period of time that is required to reduce the carrying amount of any goodwill allocated to the unit complete and prepare the asset for its intended use. Other borrow- and then to other assets of the unit pro-rata on the basis of the ing costs are expensed. carrying amount of each asset in the unit. An impairment loss Land is not depreciated. Depreciation of other assets is based recognised for goodwill is not reversed in a subsequent period. on the following estimated useful lives:

Research and development Buildings 25–40 years Research and development costs are expensed as incurred, except Heavy machinery 15–20 years for certain development costs, which are capitalised when it is prob- Light machinery and equipment 5–15 years able that a development project will generate future economic bene- fi ts, and the cost can be measured reliably. Capitalised development Expected useful lives of assets are reviewed at each balance sheet costs are amortised on a systematic basis over their expected useful date and, where they differ signifi cantly from previous estimates, future lives, usually not exceeding fi ve years. depreciation periods are changed prospectively. Subsequent costs are included in the asset’s carrying amount or Computer software recognised as a separate asset, as appropriate, only when it is proba- Costs associated with maintaining computer software programs ble that the future economic benefi t associated with the item will and costs related to the preliminary project phase of internally fl ow to the Group and the cost of the item can be measured reliably. developed software are recognised as an expense as incurred. Devel- The carrying amount of the replaced part is derecognised. All other opment costs relating to the application development phase of repairs and maintenance are charged to the income statement dur- internally developed software are capitalised as intangible assets. ing the fi nancial period in which they are incurred. Major renova- Capitalised costs include external direct costs of material and serv- tions are depreciated over the remaining useful life of the related ices and appropriate portion of relevant overheads of the software asset or to the date of the next major renovation, whichever is development team. Computer software development costs recog- sooner. nised as assets are amortised using the straight-line method over Gains and losses on disposals are determined by comparing the their useful lives. disposal proceeds with the carrying amount and are included in operating profi t. Assets accounted under IFRS 5 that are to be Other intangible assets disposed of are reported at the lower of the carrying amount and Acquired patents, trademarks and licences with a fi nite useful life the fair value less selling costs. are recognised at cost less accumulated amortisation and impair- ment. Amortisation is calculated using the straight-line method to Government grants allocate the cost over their estimated useful lives. Other intangible Government grants relating to the purchase of property, plant and assets that are deemed to have an indefi nite life are not amortised equipment are deducted from the acquisition cost of the asset and and are tested annually for impairment. recognised as a reduction to the depreciation charge of the related asset when it is practicable to determine that the eligibility condi- Emission rights tions attached to the grant will be met and the grant will be The Group participates in government schemes aimed at reducing received. Other government grants are recognised in the income greenhouse gas emissions. Emission rights received from the gov- statement in the period necessary to match them with the costs they ernments free of charge are initially recognised as intangible assets are intended to compensate when the reimbursement is received or based on market value at the date of initial recognition. Emission when it is practicable to determine the amount and eligibility for rights are not amortised but are recognised at amount not exceed- the grant. ing the market value at the balance sheet date. Government grants are recognised as deferred income in the balance sheet at the same Investment property time as the allowances and recognised in other operating income in Investment property includes real estate investments such as fl ats the income statement systematically over the compliance period to and other premises occupied by third parties. which the corresponding emission rights relate. The emissions made Investment property is treated as a long-term investment and is ACCOUNTS FOR 2009 group

stated at historical cost. Depreciation is calculated on a straight-line Available-for-sale investments are non-derivatives that are either basis and the carrying value is adjusted for impairment charges, if designated in this category or not classifi ed in any of the other any. Useful lives are the same as for property, plant and equipment. categories. They are included in non-current assets unless they are The balance sheet value of investment property refl ects the cost less intended to be disposed of within 12 months of the balance sheet accumulated depreciation and any impairment charges. date. Purchases and sales of fi nancial investments are recognised on the settlement date, which is the date that the asset is delivered to or Biological assets by the Group. Investments are initially recognised at cost, including Biological assets (i.e. living trees) are measured at their fair value transaction costs, and subsequently carried at fair value. less estimated costs to sell. The fair value of biological assets other Unrealised gains and losses arising from changes in the fair than young seedling stands is based on discounted cash fl ows from value of securities classifi ed as available-for-sale are recognised in continuous operations. The fair value of young seedling stands is other comprehensive income. When securities classifi ed as available- the actual reforestation cost of those stands. Continuous opera- for-sale are sold or impaired, the accumulated fair value adjust- tions, the maintenance of currently existing seedling stands and the ments in equity are included in the in-come statement as gains and felling of forests during one rotation, are based on the Group’s losses from available-for-sale investments. forest management guidelines. The calculation takes into account The Group assesses at each balance sheet date whether there is the growth potential and environmental restrictions and other objective evidence that a fi nancial asset or a group of fi nancial reservations of the forests. Felling revenues and maintenance costs assets is impaired. In the case of equity securities classifi ed as avail- are calculated on the basis of actual costs and prices, taking into able for sale, a signifi cant or prolonged decline in the fair value of account the Group’s projection of future price development. the security below its cost is considered in determining whether the Periodic changes resulting from growth, felling, prices, discount securities are impaired. If any such evidence exists for available-for- rate, costs and other premise changes are included in operating sale investments, the cumulative loss – measured as the difference profi t on the income statement. between the acquisition cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in Financial assets profi t or loss – is removed from equity and recognised in the income Financial assets have been classifi ed into the following categories: statement. Impairment losses recognised in the income statement fi nancial assets at fair value through profi t or loss, loans and receiv- on equity instruments are not subsequently reversed through the ables and available-for-sale investments. The classifi cation depends income statement. on purpose for which the fi nancial assets were acquired. Manage- ment determines the classifi cation of the fi nancial assets at initial Impairment of non-fi nancial assets recognition. Assets that have an indefi nite useful life are not subject to amortisa- Financial assets are derecognised when the rights to receive tion and are tested annually for impairment. Assets that are subject cash fl ows from the investments have expired or have been trans- to depreciation (or amortisation) are reviewed for impairment ferred and the Group has transferred substantially all the risks and whenever events or changes in circumstances indicate that the car- rewards of ownership. rying amount may not be recoverable. An impairment loss is recog- Financial assets at fair value through profi t or loss are fi nancial nised for the amount by which the asset’s carrying amount exceeds assets held for trading. Derivatives are categorised as held for trad- its recoverable amount. The recoverable amount is the higher of an ing, unless they are designated as hedges. These are measured at fair asset’s fair value less costs to sell and value in use. The value in use value and any gains or losses from subsequent measurement are is determined by reference to discounted future cash fl ows expected recognised in the income statement. The Group has not used the to be generated by the asset. For the purposes of assessing impair- option of designating fi nancial assets upon initial recognition as ment, assets are grouped at the lowest levels for which there are fi nancial assets at fair value through profi t or loss. separately identifi able cash fl ows (cash-generating units). Loans and receivables are non-derivative fi nancial assets with Non-fi nancial assets other than goodwill that suffered an fi xed or determinable payments that are not quoted in an active impairment are reviewed for possible reversal of the impairment at market. They are included in non-current assets unless they mature each reporting date. Where an impairment loss subsequently within 12 months of the balance sheet date. Loan receivables that reverses, the carrying amount of the asset is increased to the revised have a fi xed maturity are measured at amortised cost using the estimate of its recoverable amount, but so that the increased carry- effective interest method. Loan receivables are impaired if the car- ing amount does not exceed the carrying amount that would have rying amount is greater than the estimated recoverable amount. been determined had no impairment loss been recognised for the Trade receivables are non-derivatives that are recognised ini- asset in prior years. tially at fair value and subsequently measured at amortised cost less provisions for impairment for doubtful accounts. Provisions for Leases impairment for doubtful accounts are charged to the income state- Leases of property, plant and equipment where the Group, as a ment when there is objective evidence that the Group will not be lessee, has substantially all the risks and rewards of ownership are able to collect all amounts due according to the original terms of classifi ed as fi nance leases. Finance leases are recognised as assets receivables. Signifi cant fi nancial diffi culties of the debtor, probabil- and liabilities in the balance sheet at the commencement of lease ity that the debtor will enter bankruptcy or default of delinquency term at the lower of the fair value of the leased property and the in payments more than 90 days overdue are considered indicators present value of the minimum lease payments. Each lease payment that the trade receivable may be irrecoverable. Subsequent recover- is apportioned between the liability and fi nance charges. The corre- ies of amounts previously written off are credited in the income sponding rental obligations, net of fi nance charges, are included in statement. other long-term interest-bearing liabilities. The interest element of group ACCOUNTS FOR 2009

the fi nance cost is charged to the income statement over the lease unless they are due to be settled within 12 months after the balance period so as to produce a constant periodic rate of interest on the sheet date. remaining balance of the liability for each period. Property, plant and equipment acquired under fi nance leases are depreciated over Employee benefi ts the shorter of the asset’s useful life and the lease term. Leases where the lessor retains substantially all the risks and Pension obligations rewards of ownership are classifi ed as operating leases. Payments The Group operates a mixture of pension schemes in accordance made under operating leases as a lessee are charged to the income with the local conditions and practices in the countries in which it statement on a straight-line basis over the period of the lease. operates. Such benefi t plans vary according to the customary bene- fi t plans prevailing in the country concerned. These programmes Inventories include defi ned benefi t pension schemes with retirement, disability Inventories are stated at the lower of cost and net realisable value. and termination benefi ts. The retirement benefi ts are generally a Cost is determined by the method most appropriate to the particu- function of years of employment and fi nal salary with the Com- lar nature of inventory, the fi rst in, fi rst out (FIFO) or weighted pany. Generally, the schemes are either funded through payments to average cost. The cost of fi nished goods and work in progress com- insurance companies or to trustee-administered funds as deter- prises raw materials, direct labour, other direct costs and related mined by periodic actuarial calculations. In addition, the Group production overheads (based on normal operating capacity) but also operates defi ned contribution pension arrangements. Most of excludes borrowing costs. Net realisable value is the estimated Finnish pension arrangements are defi ned contribution plans. selling price in the ordinary course of business, less the costs of The liability recognised in the balance sheet in respect of completion and selling expenses. defi ned benefi t pension plans is the present value of the defi ned benefi t obligation at the balance sheet date less the fair value of Cash and cash equivalents plan assets, together with adjustments for unrecognised actuarial Cash and cash equivalents comprise cash in hand, deposits held at gains or losses and past service cost. The defi ned benefi t obligation call with banks and other short-term highly liquid investments with is calculated annually by independent actuaries using the projected original maturities of three months or less. Bank overdrafts are unit credit method. The present value of the defi ned benefi t obliga- included within current interest-bearing liabilities on the balance tion is determined by discounting the estimated future cash out- sheet. fl ows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefi ts will be paid, and Treasury shares that have terms to maturity approximating to the terms of the Where any Group company purchases the parent company’s equity related pension liability. The cost of providing pensions is charged share capital (treasury shares), the consideration paid, including to the income statement so as to spread the cost over the service any directly attributable incremental costs (net of income taxes), is lives of the employees. Actuarial gains and losses arising from deducted from equity attributable to the parent company’s equity experience adjustments and changes in actuarial assumptions in holders until the shares are cancelled or reissued. Where such shares excess of the greater of 10% of the value of plan assets or 10% of are subsequently reissued, any consideration received, net of any the defi ned benefi t obligation are charged or credited to income directly attributable incremental transaction costs and the related over the expected average remaining service lives of the employees income tax effects, is included in equity attributable to the parent concerned. Past service costs are recognised immediately in income, company’s equity holders. unless the changes to the pension plan are conditional on the employees remaining in service for a specifi ed period of time (the Interest-bearing liabilities vesting period). In this case, the past service costs are amortised on Interest-bearing liabilities are recognised initially at fair value, net a straight-line basis over the vesting period. of transaction costs incurred. In subsequent periods, interest-bear- Gains or losses on the curtailments or settlements of a defi ned ing liabilities are stated at amortised cost using the effective interest benefi t plan are recognised when the curtailment or settlement method; any difference between proceeds (net of transaction costs) occurs. The gain or loss on a curtailment or settlement includes and the redemption value is recognised in the income statement possible changes in the present value of defi ned benefi t obligation, over the period of the interest-bearing liabilities. The Group has change in fair value of plan assets and any impact of actuarial not used the option of designating fi nancial liabilities upon initial gains and losses and past service costs not previously recognised. recognition as fi nancial liabilities at fair value through profi t or loss. For defi ned contribution plans, contributions are paid to pen- Most long-term interest-bearing liabilities are designated as sion insurance companies. Once the contributions have been paid, hedged items in a fair value hedge relationship. Fair value varia- there are no further payment obligations. Contributions to defi ned tions resulting from the hedged interest rate risk are recorded to contribution plans are charged to the income statement in the adjust the carrying amount of the hedged item and reported on the period to which the contributions relate. income statement under fi nance income and expenses. If the hedge accounting is discontinued, the carrying amount of the hedged item Other post-employment obligations is no longer adjusted for fair value changes attributable to the Some Group companies provide post-employment healthcare and hedged risk and the cumulative fair value adjustment recorded other benefi ts to their retirees. The entitlement to healthcare bene- during the hedge relationship is amortised based on a new effective fi ts is usually conditional on the employee remaining in service up interest recalculation through the income statement under fi nance to retirement age and the completion of a minimum service period. income and expenses. The expected costs of these benefi ts are accrued over the period of Interest-bearing liabilities are classifi ed as non-current liabilities employment, using an accounting methodology similar to that for ACCOUNTS FOR 2009 group

defi ned benefi t pension plans. Valuations of these obligations are incurred, at the market value of the emission rights at the balance carried out by independent qualifi ed actuaries. sheet date.

Share-based compensation Dividends The Group has granted share options to top management and key Dividend distribution to the parent company’s shareholders is personnel. In addition, the Group has established a share owner- recognised as a liability in the Group’s fi nancial statements in the ship plan for its executive management. These compensation plans period in which the dividends are approved by the parent company’s are recognised as equity-settled or cash-settled share-based pay- shareholders. ment transactions depending on the settlement. The fair value of the granted options and shares are recognised as indirect employee Earnings per share costs over the vesting period. The fair values of the options granted The basic earnings per share are computed using the weighted are determined using the Black- Scholes valuation model on the average number of shares outstanding during the period. Diluted grant date. Non-market vesting conditions are included in assump- earnings per share are computed using the weighted average tions about the number of options that are expected to vest. The number of shares outstanding during the period plus the dilutive estimates of the number of the exercisable options are revised quar- effect of convertible bonds and share options. terly and the impact of the revision of original estimates, if any, is recognised in the income statement and equity. Adoption of new and revised International Financial Reporting The proceeds received net of any directly attributable transac- Standards interpretations and amendments to existing standards tion costs are credited to equity when the options are exercised. Based on the share ownership plan, the executive management New and amendments and interpretations effective in 2009 is compensated with shares depending on the Group’s fi nancial In 2009, the Group has adopted the following new and amended performance. Shares are valued using the market rate on the grant standards and interpretations: date. The settlement is a combination of shares and cash. The Revised IAS 23 Borrowing Costs became effective for annual Group can obtain the necessary shares by using its treasury shares periods beginning on or after 1 January 2009. The revised standard or purchase shares from the market. requires that all borrowing costs relating to the acquisition, con- struction or production of a qualifying asset are capitalised as part Provisions of the cost of that asset. The Group’s accounting policy was Provisions are recognised when the Group has a present legal or already in accordance with revised IAS 23 so there were no changes constructive obligation as a result of past events, and it is probable in Group’s fi nancial statements. that an outfl ow of resources will be required to settle the obligation, IFRIC 13 Customer Loyalty Programmes became effective for and a reliable estimate of the amount can be made. Where the annual periods beginning on or after 1 July 2008. The interpreta- Group expects a provision to be reimbursed, for example under an tion addresses the accounting by entities that grant loyalty award insurance contract, the reimbursement is recognised as a separate credits to customers who buy other goods or services. This interpre- asset but only when the reimbursement is virtually certain. tation is not relevant for the Group and therefore has not had an impact on Group’s fi nancial statements. Restructuring provisions Revised IAS 1 Presentation of Financial Statements became Restructuring provisions are recognised in the period in which the effective 1 January 2009. The revised standard prohibits the presen- Group becomes legally or constructively committed to payment tation of items of income and expenses (that is, ‘non-owner and when the restructuring plan has been announced publicly. changes in equity’) in the statement of changes in equity, requiring Employee termination charges are recognised when the Group has ‘non-owner changes in equity’ to be presented separately from communicated the plan to the employees affected. Costs related to owner changes in equity. Entities can choose whether to present one the ongoing activities of the Group are not provisioned in advance. performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehen- Environmental remediation provisions sive income). Where entities restate or reclassify comparative infor- Expenditures that result from remediation of an existing condition mation, they will be required to present a restated balance sheet as caused by past operations and do not contribute to current or at the beginning comparative period in addition to the current future revenues are expensed. The recognition of environmental requirement to present balance sheets at the end of the current remediation provisions is based on current interpretations of envi- period and comparative period. Following the adoption of the ronmental laws and regulations. Such provisions are recognised revised standard the Group presents two separate statements (a when it is likely that the liability has been incurred and the amount separate income statement followed by a statement of comprehen- of such liability can be reasonably estimated. Amounts provisioned sive income). do not include third-party recoveries. Amendment to IFRS 2 Share-Based Payment: Vesting Condi- tions and Cancellations became effective for annual periods begin- Emission rights ning on or after 1 January 2009. The amended standard deals with Emission obligations are recognised in provisions when the liability vesting conditions and cancellations. It clarifi es that vesting condi- to deliver emission rights is incurred based on emissions made. The tions are service conditions and performance conditions only. Other liability to deliver emission rights is recognised based on the carry- features of a share-based payment are not vesting conditions. ing amount of emission rights on hand, if the liability is expected to Amendment also specifi es that all cancellations, whether by the be settled by those emission rights, or if excess emissions are entity or by other parties, should receive the same accounting treat- group ACCOUNTS FOR 2009

ment. The amendment does not have an impact on the Group’s standards for agreements in which an entity receives from a cus- fi nancial statements. tomer an item of property, plant and equipment or cash to be Amendment to IFRS 7 Financial Instruments – Disclosures invested in such an item that the entity must then use either to became effective 1 January 2009. The amendment requires connect the customer to a network or to provide the customer with enhanced disclosures about fair value measurement and liquidity ongoing access to a supply of goods or services. The interpretation risk. In particular, the amendment requires disclosure of fair value does not have an impact on the Group’s fi nancial statements. measurements by level of a fair value measurement hierarchy. The adoption of the amendment has resulted in additional disclosures New and revised standards, interpretations and amendments to in Group’s fi nancial statements. existing standards that are not yet effective and have not been Amendments to IAS 32 Financial Instruments: Presentation, early adopted by the Group and IAS 1 Presentation of Financial Statements – Puttable Financial The following standards, interpretations and amendments to exist- Instruments and Obligations Arising on Liquidation became effective ing standards have been published and are not yet effective. The for annual periods beginning on or after 1 January 2009. The Group has not early adopted any of the standards: amended standards require entities to classify puttable fi nancial Revised IFRS 3 Business Combinations is effective for annual instruments and instruments, or components of instruments that periods beginning on or after 1 July 2009. The revised standard impose on the entity an obligation to deliver to another party a pro continues to apply the acquisition method to business combina- rata share of the net assets of the entity only on liquidation as tions, with some signifi cant changes. For example, all payments to equity, provided the fi nancial instruments have particular features purchase a business are to be recorded at fair value at the acquisi- and meet specifi c conditions. The amendment does not have an tion date, with contingent payments classifi ed as debt subsequently impact on the Group’s fi nancial statements. re-measured through the income statement. There is a choice on an Amendments related to Improvements to IFRSs, (Annual acquisition-by-acquisition basis to measure the non-controlling Improvements 2008), are mainly effective for annual periods begin- interest in the acquiree either at fair vale or at the non-controlling ning on or after 1 January 2009. Through annual improvement interest’s proportionate share of the acquiree’s net assets. All acqui- projects minor changes to wordings to clarify the meaning and sition-related costs should be expensed. The revised standard will removals of unintended inconsistencies between standards are have an impact on the accounting for the Group’s future business combined and implemented annually. Annual improvements 2008 combinations. related to 34 different standards. These amendments do not have a Amendment to IAS 27 Consolidated and Separate Financial material impact on the Group’s fi nancial statements. Statements is effective for annual periods beginning on or after 1 Amendments to IAS 39 Financial Instruments: Recognition and July 2009. The amendment requires the effects of all transactions Measurement and IFRIC 9 Reassessment of Embedded Derivatives with non-controlling interests to be recorded in equity if there is no became effective for annual periods ending on or after 30 June change in control and these transactions will no longer result in 2009. The amendments require an entity to assess whether an goodwill or gains and losses. The standard also specifi es the embedded derivative must be separated from a host contract when accounting when control is lost. Any remaining interest in the entity the entity reclassifi es a hybrid fi nancial asset out of the fair value is re-measured to fair value, and a gain or loss is recognised in profi t through profi t or loss category. The amendments do not have an or loss. impact on the Group’s fi nancial statements. IFRIC 12 Service Concession Arrangements is effective for Amendments to IFRS 1 First Time Adoption of IFRS and IAS annual periods beginning on or after 30 March 2009. The interpre- 27 Consolidated and Separate Financial Statements – Cost of an tation addresses the accounting by private sector operators involved Investment in a Subsidiary, Jointly Controlled Entity or Associate in the provision of public sector infrastructure assets and services. became effective for annual periods beginning on or after 1 January This interpretation is not relevant for the Group, since it has not 2009. These amendments relate to fi rst time adoption of IFRS and had any such arrangements in current or previous periods. therefore are not relevant for the Group. Amendment to IAS 39 Financial Instruments: Recognition and IFRIC 15 Agreements for Construction of Real Estates became Measurement: Eligible Hedged Items is effective for annual periods effective for annual periods beginning on or after 1 January 2010. beginning on or after 1 July 2009. The amendment clarifi es how the The interpretation clarifi es whether IAS 18 Revenue or IAS 11 existing principles underlying hedge accounting should be applied Construction contracts should be applied to particular transac- in the designation of: a one-sided risk in a hedged item, and infl a- tions. It is likely to result in IAS 18 being applied to a wider range tion in a fi nancial hedged item. The amendment is not expected to of transactions. IFRIC 15 is not relevant to the Group’s operations. have an impact on the Group’s fi nancial statements. IFRIC 16 Hedges of a Net Investment in a Foreign Operation is IFRIC 17 Distribution of Non-Cash Assets to Owners is effective effective for annual periods beginning on or after 1 October 2008. for annual periods beginning on or after 1 July 2009. The interpre- IFRIC 16 clarifi es the accounting treatment in respect of net invest- tation clarifi es how an entity should measure the distribution of ment hedging. This includes the fact that net investment hedging assets when it distributes other assets than cash. It is not expected relates to differences in functional currency not presentation cur- that the interpretation will have an impact on the Group’s fi nancial rency, and hedging instruments may be held anywhere in the group. statements. The requirements of IAS 21 do apply to the hedged item. The Amendments related to Improvements to IFRSs published in interpretation does not have an impact on the Group’s fi nancial April 2009, (Annual Improvements 2009), are mainly effective for statements. annual periods beginning on or after 1 January 2010. Through IFRIC 18 Transfers of Assets from Customers is applied pro- annual improvement projects minor changes to wordings to clarify spectively to transfers of assets from customers received on or after the meaning and removals of unintended inconsistencies between 1 July 2009. The interpretation clarifi es the requirements of IFRS standards are combined and implemented annually. Annual ACCOUNTS FOR 2009 group

improvements 2009 related to 12 different standards. These amend- expected to have an impact on the Group’s fi nancial statements. ments are not expected to have material impacts on the Group’s This amendment is not yet endorsed by the EU. fi nancial statements. These amendments are not yet endorsed by the Amendment to IFRS 1 First-time adoption of IFRS – Limit- EU. ed Exemption from Comparative IFRS 7 Disclosures for First- Amendment to IFRS 1 First-time Adoption of IFRS – Addi- time Adopters is effective for annual periods beginning on or tional Exemptions for First-time Adopters is effective for annual after 1 July 2010. The amendment does not have an impact on periods beginning on or after 1 January 2010. The amendment does the Group’s fi nancial statements as the Group is not a fi rst time not have an impact on the Group’s fi nancial statements as the adopter of IFRSs. This amendment is not yet endorsed by the Group is not a fi rst time adopter of IFRSs. This amendment is not EU. yet endorsed by the EU. Amendment to IFRS 2 Share-based Payment – Group Cash-set- tled Share-based Payment Transactions is effective for annual peri- 2 CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING ods beginning on or after 1 January 2010. The amendment to POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY IFRS 2 clarifi es that an entity that receives goods or services from its suppliers must apply IFRS 2 even though the entity has no Impairment of non-current assets obligation to make the required share-based cash payments. The Goodwill, intangible assets not yet available for use and intangible amendment does not have an impact on the Group’s fi nancial state- assets with indefi nite useful lives are tested at least annually for ments. impairment. Other long-lived assets are reviewed when there is an Amendment to IAS 32 Financial Instruments: Presentation indication that impairment may have occurred. Estimates are made – Classifi cation of Rights Issues is effective for annual periods of the future cash fl ows expected to result from the use of the asset beginning on or after 1 February 2010. The amendment addresses and its eventual disposal. If the balance sheet carrying amount of the accounting for rights issues (rights, options or warrants) that the asset exceeds its recoverable amount, an impairment loss is are denominated in a currency other than the functional currency recognised. Actual cash fl ows could vary from estimated discounted of the issuer. Previously such rights issues were accounted for as future cash fl ows. The long useful lives of assets, changes in esti- derivative liabilities. However, the amendment requires that, pro- mated future sales prices of products, changes in product costs and vided certain conditions are met, such rights issues are classifi ed as changes in the discount rates used could lead to signifi cant impair- equity regardless of the currency in which the exercise price is ment charges. Details of the impairment tests are provided in Note denominated. The amendment is not expected to have an impact on 16. the Group’s fi nancial statements. IFRS 9 Financial Instruments, the standard is effective for Biological assets annual periods beginning on or after 1 January 2013 and it repre- The Group owns about 1.2 million hectares of forest land. Biologi- sents the fi rst milestone in the IASB’s planned replacement of IAS cal assets (i.e. living trees) are measured at their fair value at each 39. It addresses classifi cation and measurement of fi nancial assets. balance sheet date. The fair value of biological assets is determined The next steps involve reconsideration and re-exposure of the clas- based among other estimates on growth potential, harvesting, price sifi cation and measurement requirements for fi nancial liabilities, development and discount rate. Changes in any estimates could impairment testing methods for fi nancial assets, and development lead to recognition of signifi cant fair value changes in income state- of enhanced guidance on hedge accounting. The standard will have ment. impacts on accounting for Group's fi nancial instruments. This standard is not yet endorsed by the EU. Employee benefi ts Amendment to IFRIC 14 IAS 19 – The Limit on a Defi ned The Group operates a mixture of pension and other post-employ- Benefi t Asset, Minimum Funding Requirements and their Interaction ment benefi t schemes. Several statistical and other actuarial is effective for annual periods beginning on or after 1 January 2011. assumptions are used in calculating the expense and liability related This amendment corrects the unintended consequence of IFRIC 14 to the plans. These factors include, among others, assumptions in IAS 19. The amendment does not have an impact on the Group’s about the discount rate, expected return on plan assets and changes fi nancial statements. This amendment is not yet endorsed by the in future compensation. Statistical information used may differ EU. materially from actual results due to changing market and eco- Revised to IAS 24 Related Party Disclosures is effective for nomic conditions, changes in service period of plan participants or annual periods beginning on or after 1 January 2011. The revised changes in other factors. Actual results that differ from assump- standard provides a partial exemption from the disclosure require- tions and the effects of changes in assumptions are accumulated ments for government-related entities and to clarify the defi nition and charged or credited to income over the expected average of a related party. The revised standard is not expected to have an remaining service lives of the employees to the extent that these impact on the Group’s fi nancial statements. This revised standard is exceed 10% of the higher of the pension plan assets or defi ned not yet endorsed by the EU. benefi t obligation. Signifi cant differences in actual experience or IFRIC 19 Extinguishing Financial Liabilities with Equity Instru- signifi cant changes in assumptions may materially affect the future ments is effective for annual periods beginning on or after 1 July amounts of the defi ned benefi t obligation and future expense. 2010. The interpretation addresses on how to account for the extin- guishment of a fi nancial liability by the issue of equity instruments. Environmental provisions IFRIC 19 clarifi es that equity instruments issued to a creditor to Operations of the Group are based on heavy process industry extinguish a fi nancial liability are “consideration paid” in accord- which requires large production facilities. In addition to basic raw ance with paragraph 41 of IAS 39. The interpretation is not group ACCOUNTS FOR 2009

materials, considerable amount of chemicals, water and energy is balance sheet by hedging foreign exchange risk in forecasted cash used in processes. The Group’s operations are subject to several fl ows and balance sheet exposures. environmental laws and regulations. The Group aims to operate in compliance with regulations related to the treatment of waste water, Transaction exposure air emissions and landfi ll sites. The Group has provisions for nor- The Group hedges transaction exposure related to highly probable mal environmental remediation costs. Unexpected events occurred future commercial foreign currency cash fl ows on a rolling basis during production processes and waste treatment could cause mate- over the next 12-month period based on the units’ forecasts. rial losses and additional costs in the Group’s operations. According to the Group’s Treasury Policy 50% hedging is consid- ered risk neutral. Some highly probable cash fl ows have been Income taxes hedged for longer than 12 months ahead while deviating from the Management judgement is required for the calculation of provision risk neutral hedging level at the same time. Forward contracts are for income taxes and deferred tax assets and liabilities. The Group used in transaction exposure management. Most of the derivatives reviews at each balance sheet date the carrying amount of deferred entered into to hedge foreign currency cash fl ows meet the hedge tax assets. The Group considers whether it is probable that the accounting requirements set by the IFRS. 50% (52%) of the fore- subsidiaries will have suffi cient taxable profi ts against which the casted 12-month currency fl ow was hedged on 31 December 2009 unused tax losses or unused tax credits can be utilised. The factors The table below shows the nominal values of the hedging instru- used in estimates may differ from actual outcome which could lead ments at 31 December 2009 and 2008. to signifi cant adjustment to deferred tax assets recognised in the income statement. Nominal values of hedging instruments 2009 2008 Legal contingencies Currency €m €m Management judgement is required in measurement and recogni- USD 222 294 tion of provisions related to pending litigation. Provisions are GBP 196 219 recorded when the Group has a present legal or constructive obliga- JPY 177 77 tion as a result of past event, an unfavourable outcome is probable AUD 37 79 and the amount of loss can be reasonably estimated. Due to inher- CHF 22 32 ent uncertain nature of litigation, the actual losses may differ signif- DKK 25 32 icantly from the originally estimated provision. Others 35 21 Total 714 754

3 FINANCIAL RISK MANAGEMENT For segment reporting purposes, the hedges made by TRM on behalf of UPM’s subsidiaries and business units are allocated to FINANCIAL RISKS appropriate segments. External forwards are designated at group The Group’s activities expose it to a variety of fi nancial risks: mar- level as hedges of foreign exchange risk of specifi c future foreign ket risk (including foreign exchange risk, fair value interest rate currency sales on gross basis. risk, cash fl ow interest risk and other price risk), credit risk and The Group has several currency denominated assets and liabili- liquidity risk. ties in its balance sheet such as foreign currency loans and deposits, The objective of fi nancial risk management is to protect the accounts payable and receivable and cash in other currencies than Group from unfavourable changes in fi nancial markets and thus functional currency. The aim is to hedge this balance sheet exposure help to secure profi tability. The objectives and limits for fi nancing fully using fi nancial instruments. The Group might, however, within activities are defi ned in the Group Treasury Policy approved by the the limits set in the Group Treasury Policy have unhedged balance company’s Board of Directors. sheet exposures. At 31 December 2009 unhedged balance sheet In fi nancial risk management various fi nancial instruments are exposures in interest bearing assets and liabilities amounted to 9 used within the limits specifi ed in the Group Treasury Policy. Only million (45 million). In addition to this the Group has non interest such instruments whose market value and risk profi le can be contin- bearing accounts receivable and payable balances denominated in uously and reliably monitored are used for this purpose. foreign currencies. The nominal values of the hedging instruments Financial services are provided and fi nancial risk management used in accounts payable and receivable hedging were 256 million carried out by a central treasury department, Treasury and Risk (277 million). Management (TRM). The centralization of Treasury functions Translation exposure enables effi cient fi nancial risk management, cost-effi ciency and effi cient cash management. Translation exposure consists of net investments in foreign subsidi- aries. The exchange risks associated with the shareholders’ equity Foreign exchange risk of foreign subsidiaries are only hedged in Canada. The net invest- The Group is exposed to foreign exchange risk arising from various ments of all other foreign operations remain unhedged. currency exposures, primarily with respect to the USD the GBP Foreign exchange risk sensitivity and the JPY. Foreign exchange risk arises from future commercial transactions and from recognised assets and liabilities. At 31 December 2009, if Euro had weakened/strengthened by 10% The objective of foreign exchange risk management is to limit against the USD with all other variables held constant, pre-tax the uncertainty created by changes in foreign exchange rates on the profi t for the year would have been € 3 million (4 million) higher/ future value of cash fl ows and earnings as well as in the Group’s lower due to balance sheet foreign exchange exposure. The effect in ACCOUNTS FOR 2009 group

equity would have been € 31 million (39 million) lower/higher, 2009 2008 arising mainly from foreign currency forwards used to hedge fore- Currency €bn €bn casted foreign currency fl ows. EUR 3.9 4.3 As of 31 December 2009, if Euro had weakened/strengthened CNY 0.2 0.3 by 10% against the GBP with all other variables held constant, USD 0.4 0.3 pre-tax profi t for the year would have been € 0 (0) higher/lower due CAD –0.7 –0.6 to balance sheet foreign exchange exposure. The effect in equity Others –0.1 0.1 would have been € 20 million (22 million) lower/higher, arising Total 3.7 4.4 mainly from foreign currency forwards used to hedge forecasted foreign currency fl ows. Most of the long-term loans and the interest rate derivatives related As of 31 December 2009, if Euro had weakened/strengthened to them meet the IFRS hedge accounting requirements. by 10% against the JPY with all other variables held constant, pre-tax profi t for the year would have been € 5 million (1 million) Interest rate risk sensitivity lower/higher. The effect in equity would have been € 10 million At 31 December 2009, if the interest rate of net debt had been 100 (5 million) lower/higher, arising mainly from foreign currency for- basis points higher/lower with all other variables held constant, wards used to hedge forecasted foreign currency fl ows. pre-tax profi t for the year would have been € 6 million (9 million) lower/ higher, mainly as a result of higher/lower interest expense on The following assumptions were made when calculating the sensi- fl oating rate interest-bearing liabilities. There would be no effect on tivity to changes in the foreign exchange risk: equity. • The variation in exchange rates is 10%. • Major part of non-derivative fi nancial instruments (such as The following assumptions were made when calculating the sensi- cash and cash equivalents, trade receivables, interest bearing-lia- tivity to changes in interest rates: bilities and trade payables) are either directly denominated in • The variation of interest rate is assumed to be 100 basis points the functional currency or are transferred to the functional parallel shift in applicable interest rate curves. currency through the use of derivatives i.e. the balance sheet • In the case of fair value hedges designated for hedging interest position is close to zero. Exchange rate fl uctuations have there- rate risk, the changes in the fair values of the hedged items and fore minor or no effects on profi t or loss. the hedging instruments attributable to the interest rate move- • The position includes foreign currency forward contracts that ments balance out almost completely in the income statement are part of the effective cash fl ow hedge having an effect on in the same period. However, the possible ineffectiveness has an equity. effect on the profi t of the year. • The position includes also foreign currency forward contracts • Fixed rate interest-bearing liabilities that are measured at amor- that are not part of the effective cash fl ow hedge having an tised cost and which are not designated to fair value hedge effect on profi t. relationship are not subject to interest rate risk sensitivity. • The position excludes foreign currency denominated future • Variable rate interest-bearing liabilities that are measured at cash fl ows. amortised cost and which are not designated as hedged items are included in interest rate sensitivity analysis. Interest rate risk • Changes in the market interest rate of interest rate derivatives The interest-bearing debt exposes the Group to interest rate risk, (interest rate futures, swaps and cross currency swaps) that are namely repricing and fair value interest rate risk caused by interest not designated as hedging instruments under IAS 39 affect the rate movements. The objective of interest rate risk management is fi nancial income or expenses (net gains or losses from remeas- to reduce the fl uctuation of the interest expenses caused by the urement of the fi nancial assets and liabilities to fair value) and interest rate movements. are therefore included in the income-related sensitivity analysis. The management of interest rate risk is based on the 6-month average duration of the net debt portfolio as defi ned in the Group Liquidity and refi nancing risk Treasury Policy. This relatively short duration is based on the The Group seeks to maintain adequate liquidity under all circum- assumption that on average yield curves will be positive. Thus this stances by means of effi cient cash management and restricting approach reduces interest cost in the long term. The duration may investments to those that can be readily converted into cash. The deviate between 3 and 12 months. At 31 December 2009 the average Group utilises commercial paper programmes for short term duration was 6 months (6 months). The Group uses interest rate fi nancing purposes. Committed credit facilities are used to secure derivatives to change the duration of the net debt. fi nancing under all circumstances and as a backup for commercial The Group’s net debt per currency corresponds to the parent paper programmes. company’s and subsidiaries’ loan portfolios in their functional Refi nancing risks are minimised by ensuring balanced loan currencies. The nominal values of the Group’s interest-bearing net port folio maturing schedule and suffi cient long maturities. The debts including derivatives by currency at 31 December 2009 and average loan maturity at 31 December 2009 was 6.1 years (5.7 years). 2008 were as follows: Some of the fi nancing agreements concluded by UPM-Kymmene Corporation have a fi nancial covenant concerning the Group’s fi nancial position. Either 1) Gearing not to exceed 90% (31.12.2009 Gearing was 56%) or 2) Adjusted Equity ratio not to be less than 30% (31.12.2009 Adjusted Equity ratio was 47.3%) group ACCOUNTS FOR 2009

Cash funds and committed credit facilities all other variables constant, pre-tax profi t for the year would have been € 5 million (19 million) higher/lower. The sensitivity analysis €m 2009 2008 assumes a 25% parallel move in electricity prices for all maturities. Cash funds 438 330 The sensitivity analysis includes only outstanding electricity deriva- Committed facilities 1,875 2,500 tives. of which used –140 –687 Used uncommitted credit lines –87 –74 Capital risk management Long-term loan repayment –166 –344 Available liquidity 1,920 1,725 The Group’s objective in managing its capital is to ensure mainte- nance of fl exible capital structure to enable the Group to operate in capital markets. The most important fi nancial programmes in use are: To measure a satisfactory capital balance between equity inves- tors and fi nancial institutions the Group has set a target for the Uncommited: ratio of net interest-bearing liabilities and equity (gearing). To • Domestic commercial paper programme, € 1,000 million ensure suffi cient fl exibility, the aim is to keep the gearing ratio well • Belgian commercial paper programme, € 400 million below the maximum acceptable level of 90%. • Medium Term Note programme, € 5,000 million The following capitalisation table sets out the Group’s equity Commited: and interest-bearing liabilities and gearing ratios: • Revolving Credit Facility, € 825 million (matures 2012) • Revolving Credit Facility, € 1,000 million (matures 2012) As at 31 December €m 2009 2008 The contractual maturity analysis for fi nancial liabilities is pre- sented in Note 31. Equity attributable to the equity holders of the parent company 6,586 6,106 Minority interest 16 14 Financial counterparty risk Total equity 6,602 6,120 The fi nancial instruments the Group has agreed with banks and Long-term interest-bearing liabilities 4,164 4,534 fi nancial institutions contain an element of risk of the counterpar- Short-term interest-bearing liabilities 300 537 Liabilities related to assets classifi ed as held ties being unable to meet their obligations. According to the Group for sale, interest-bearing – 2 Treasury Policy derivative instruments and investments of cash Interest-bearing liabilities, total 4,464 5,073 funds may be made only with counterparties meeting certain credit- Total capitalisation 11,066 11,193 worthiness criteria. The Group minimises counterparty risk also by Interest-bearing liabilities, total 4,464 5,073 using a number of major banks and fi nancial institutions. Credit- Less: Interest-bearing receivables, total –734 –752 Net interest-bearing liabilities 3,730 4,321 worthiness of counter parties is constantly monitored by TRM. Gearing ratio, % 56 71

Credit risk Fair value estimation of fi nancial instruments With regard to operating activities, the Group has a credit policy in Fair values of derivative fi nancial instruments have been estimated place and the exposure to credit risk is monitored on an ongoing as follows: Interest forward rate agreements and futures contracts basis. Open trade receivables, days of sales outstanding (DSO) and are fair valued based on quoted market rates on the balance sheet overdue trade receivables are followed on monthly basis. date; forward foreign exchange contracts are fair valued based on Potential concentrations of credit risk with respect to trade and the contract forward rates in effect on the balance sheet date; for- other receivables are limited due to the large number and geo- eign currency options are fair valued based on quoted market rates graphic dispersion of companies that comprise the Group’s cus- on the balance sheet date; interest and currency swap agreements tomer base. Customer credit limits are established and monitored, are fair valued based on discounted cash fl ow analyses; and com- and ongoing evaluations of customers’ fi nancial condition are modity derivatives are fair valued based on quoted market rates on performed. Most of the receivables are covered by credit risk insur- the balance sheet date. ances. In certain market areas, measures to reduce credit risks In assessing the fair value of non-traded derivatives such as include letters of credit, prepayments and bank guarantees. The embedded derivatives the Group uses valuation methods and ageing analysis of trade receivables is presented in Note 26. The assumptions that are based on market quotations existing at each Group considers that no signifi cant concentration of customer balance sheet date. Embedded derivatives that are identifi ed are credit risk exists. The ten largest customers accounted for approxi- monitored by the Group and the fair value changes are reported in mately 15% (15%) of the Group’s trade receivables as at 31 Decem- other operating income in the income statement. ber 2009 – i.e., approximately € 170 million (190 million). The credit Effective 1 January 2009, the Group adopted the amendment to risk relating to the commitments is discussed in Note 39. IFRS 7 for fi nancial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measure- Derivatives related to commodity price risk management ments by level of the following fair value measurement hierarchy: The Group’s manufacturing process requires a signifi cant amount • Level 1: quoted prices (unadjusted) in active markets for identi- of electricity. The procurement and sales of electricity are managed cal assets or liabilities. and optimised by the Group. The Group manages the price risk of • Level 2: inputs other than quoted prices included within level 1 its electricity exposure with electricity forward contracts. that are observable for the asset or liability, either directly (that If all electricity prices quoted on 31 December 2009 at Nord is, as prices) or indirectly (that is, derived from prices). Pool electricity exchange would have been 25% higher/lower with ACCOUNTS FOR 2009 group

• Level 3: inputs for the asset or liability that are not based on Reportable segments observable market data (that is, unobservable inputs). Energy The fair values of listed investments are based on quoted prices. The Energy segment includes UPM’s hydropower plants and shares On 8 December 2009, the Group sold approximately 30% of its in energy companies, mainly in the associated company Pohjolan shares in the associated company Oy Metsä-Botnia Ab. The Voima Oy, and in Kemijoki Oy. Combined heat and power (CHP) remaining ownership of 16.96% was reclassifi ed as an available-for- plants operating on paper mill sites are included in the Paper seg- sale investment with a fair value increase of € 25 million, totalling ment. to € 205 million as available-for-sale investment. The fair value is based on the discounted value of the expected cash fl ows of the Pulp investment. The Pulp segment includes the Group’s pulp mills. Uruguayan Unlisted shares, for which fair values cannot be measured relia- operations, acquired in December 2009, are included in the Pulp bly, are recognised at cost. segment.

Financial assets and liabilities measured at fair value Forest and timber The Forest and timber segment includes forests, wood procurement, Fair values as at 31 December 2009 and sawmills with an annual production capacity of 2.4 million Total cubic metres. €m Level 1Level 2Level 3balance Assets Paper Trading derivatives 24 102 – 126 The Paper segment includes the Group’s paper mills, producing Derivatives used for hedging – 240 – 240 Available-for-sale instruments – – 205 205 magazine papers, newsprint, fi ne papers, and speciality papers. The At 31 Dec. 24 342 205 571 annual production capacity is approximately 11 million tonnes. This segment also includes the CHP plants at paper mill sites. Liabilities Trading derivatives 26 158 – 184 Label Other liabilities – – 4 4 The Label segment includes labelstock factories and slitting and Derivatives used for hedging – 70 – 70 distribution terminals. At 31 Dec. 26 228 4 258 Plywood The following table presents the changes in level 3 instruments The Plywood segment includes plywood mills. The segment’s for the year ended 31 December 2009 annual production capacity is 1.1 million cubic metres. Available-for- sale instru- Other Other operations €m ments liabilities Total Other operations include development units (RFID tags, the wood Opening balance – plastic composite unit UPM ProFi and biofuels) logistic services Transfers into level 3 205 –4 201 and corporate administration. Transfers from level 3 – – – Gains and losses – – – Recognised in income statement – – – The Group has not aggregated any operating segments in deter- Recognised in statement of compre- mination of the above reportable segments. hensive income ––– The information reported for each segment is the measure of Closing balance 205 –4 201 what the Group’s President and CEO uses internally for evaluating segment performance and deciding on how to allocate resources to operating segments. 4 SEGMENT INFORMATION The performance of operating segment is evaluated primarily based on segment’s operating profi t, which is measured on a basis The Group’s management has determined the operating segments consistent with consolidated fi nancial statements. Sales between the based on management reporting regularly reviewed by the Group’s segments are based on market prices. chief operating decision maker. The chief operating decision maker The amounts provided to the President and CEO in respect of has been identifi ed as the Group’s President and CEO. segments assets and liabilities are measured on a basis consistent The operating segments are organised on a basis of products. with consolidated fi nancial statements. The assets and liabilities are UPM consists of three Business Groups, which are Energy and allocated to the segments based on the segments operations. Unal- pulp comprising Energy, Pulp, and Forest and timber reportable located assets and liabilities comprises of other than energy shares segments; Paper as a reportable segment; and Engineered materials under available-for-sale investments, non-current fi nancial assets, comprising Label and Plywood reportable segments. Other opera- deferred tax assets and liabilities, other non-current assets, income tions include development units (RFID tags, the wood plastic com- tax receivables and payables, cash and cash equivalents, assets clas- posite unit UPM ProFi and biofuels), logistic services and corpo- sifi ed as held for sale and related liabilities, retirement benefi t obli- rate administration. gations, provisions, interest-bearing liabilities and other liabilities and payables. group ACCOUNTS FOR 2009

Segment information for the year ended 31 December 2009

Eliminations Forest and Ply- Other and re- €m Energy Pulp timber Paper Label wood operations conciliations Group

External sales 135 63 618 5,591 942 291 79 – 7,719 Internal sales 337 590 719 176 1 15 32 –1,870 – Total sales 472 653 1,337 5,767 943 306 111 –1,870 7,719

Share of results of associates and joint ventures –40 –52 2 –1 – – –4 – –95

Operating profi t 144 –156 –9 345 35 –82 –142 – 135 Gains on available-for-sale investments, net –1 Finance costs, net 53 Income taxes –18 Profi t (loss) for the period 169

Special items in operating profi t 1) –18 –29 –31 –1 –8 –31 –17 – –135 Operating profi t excluding special items 162 –127 22 346 43 –51 –125 – 270

Assets 2) 484 2,421 1,755 5,846 618 254 291 –165 11,504 Associates and joint ventures 2) 431 39 2 67 – 6 8 – 553 Unallocated assets 1,548 Total assets 13,605

Liabilities 3) 28 96 120 414 134 18 41 –165 686 Unallocated liabilities 6,317 Total liabilities 7, 0 0 3

Other items Depreciation and amortisation 6 85 22 583 35 21 8 – 760 Impairment charge – – 12 –5 2 6 4 – 19 Capital expenditure 4) 73 562 16 148 20 17 77 – 913 Capital expenditure, excluding acquisitions and shares 7 24 16 136 20 17 9 – 229 Capital employed, 31 December 5) 886 2,364 1,638 5,499 484 242 258 –305 11,066 Capital employed, average 870 1,668 1,717 5,714 503 266 141 –218 10,661 Return on capital employed, excluding special items % 6) 18.6 –7.6 1.3 6.1 8.5 –19.2 –88.7 – 2.5 Personnel at year end 92 1,516 3,067 12,161 2,595 3,292 490 – 23,213 Personnel, average 95 1,154 3,142 12,477 2,710 3,520 520 – 23,618

1) In 2009, special items of € 18 million in Energy segment relate to impairments of associated company Pohjolan Voima’s two power plants. In Pulp segment special items of € 29 million relate to the associated company Metsä-Botnia’s Kaskinen pulp mill closure. Special items of the Forest and timber segment of € 14 million, including impairment charges of € 5 million, Timber operations in Finland. In addition Forest and timber segment's special items include impairment charges of € 7 million related to wood procurement operations and special items of € 10 million relate to the sales loss of Miramichi’s forestry and sawmilling operations’ assets. In Paper segment special items of € 36 million relate to restructuring charges in several units. In addition, special items in Paper segment include impairment reversals of € 4 million and an income of € 31 million related to the sale of the assets of the former Miramichi paper mill. In Label segment special items € 8 million relate to restructuring charges, including impairment charges of € 2 million. In Plywood segment special items include impairment charges of € 6 million and other restructuring charges of € 25 million. In Other operations special items include impairment charges of € 2 million and other charges of € 4 million both relating to terminated activi- ties and special items of € 11 million relating mainly to estates of closed industrial sites in Finland. 2) Segment assets include goodwill, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures, available-for-sale investments, inventories and trade receivables. 3) Segment liabilities include trade payables and advances received. 4) Capital expenditure include goodwill arisen in business combinations, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures. 5) Capital employed is segment assets less segment liabilities. Eliminations include unallocated assets and unallocated non-interest bearing-liabilities. 6) The formula for calculation of the return on capital employed; segments: Operating profi t excluding special items/Capital employed (average) x 100, the Group: (Profi t before tax + interest expenses and other fi nancial expenses–special items)/(Total equity+interest bearing liabilities (average)) x 100. ACCOUNTS FOR 2009 group

Segment information for the year ended 31 December 2008

Eliminations Forest and Ply- Other and re- €m Energy Pulp timber Paper Label wood operations conciliations Group

External sales 137 63 869 6,761 956 491 184 – 9,461 Internal sales 341 881 1,051 250 3 39 16 –2,581 – Total sales 478 944 1,920 7,011 959 530 200 –2,581 9,461

Share of results of associates and joint ventures –26 86 – 1 – – 1 – 62

Operating profi t 175 89 –59 –129 –26 28 –54 – 24 Gains on available-for-sale investments, net 2 Finance costs, net –227 Income taxes 21 Profi t for the period –180

Special items in operating profi t 1) ––59–36–379–283 10––489 Operating profi t excluding special items 175 148 –23 250 2 25 –64 – 513

Assets 2) 480 1,040 1,976 6,378 661 313 161 –139 10,870 Associates and joint ventures 2) 498 745 1 15 – – 4 – 1,263 Unallocated assets 1,648 Total assets 13,781

Liabilities 3) 23 67 135 377 132 18 32 –141 643 Unallocated liabilities 7, 018 Total liabilities 7, 6 61

Other items Depreciation and amortisation 5 77 24 639 32 21 8 – 806 Impairment charge 1 51 32 328 7 – – – 419 Capital expenditure 4) 815124219962231–551 Capital expenditure, excluding acquisitions and shares 8 146 24 205 96 22 31 – 523 Capital employed, 31 December 5) 955 1,718 1,843 6,016 529 295 134 –297 11,193 Capital employed, average 951 1,674 1,878 6,503 510 307 137 –814 11,146 Return on capital employed, excluding special items %6) 18.4 8.8 –1.2 3.8 0.4 8.1 –46.7 – 4.6 Personnel at year end 39 1,159 3,278 13,262 2,851 3,799 595 – 24,983 Personnel, average 27 1,379 3,445 13,777 2,824 3,950 615 – 26,017

1) In 2008, special items of the Pulp segment of € 59 million relate to the closure of the Tervasaari pulp mill. In Forest and timber segment special items include an impairment charge of € 31 million related to fi xed assets of the Finnish sawmills. Special items of the Paper segment include the goodwill impairment charge of € 230 million, impairment charges of € 101 million and other restructuring costs of € 42 million related to the closure of the Kajaani paper mill, and other restructuring costs, net of € 6 million. In Label segment special items of € 28 million relate to measures to reduce coating capacity and close two slitting terminals in Europe. In Plywood segment special items include reversals of provisions related to the disposed Kuopio plywood mill. In Other operations special items include an adjustment of € 5 mil- lion to sales of disposals of 2007 and other restructuring income net of € 5 million. 2) Segment assets include goodwill, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures, investments in energy shares under available-for-sale investments, inventories and trade receivables. 3) Segment liabilities include trade payables and advances received. 4) Capital expenditure include goodwill arisen in business combinations, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures. 5) Capital employed is segment assets less segment liabilities. Eliminations include unallocated assets and unallocated non-interest bearing-liabilities. 6) The formula for calculation of the return on capital employed; segments: Operating profi t excluding special items/Capital employed (average) x 100, the Group: (Profi t before tax + interest expenses and other fi nancial expenses–special items)/(Total equity+interest bearing liabilities (average)) x 100. group ACCOUNTS FOR 2009

Geographical information 2009, UPM’s sales would have been € 7,923 million and profi t for the period € 219 million. External sales by destination These amounts have been calculated using the Group’s account- Year ended 31 December ing policies and by adjusting the results of the subsidiary to refl ect €m 2009 2008 the additional depreciation and amortisation that would have been Germany 1,365 1,640 charged assuming the fair value adjustments to property, plant and United Kingdom 951 1,040 equipment and intangible assets had applied from 1 January 2009, Finland 672 946 together with the consequential tax effects. France 453 552 Details of net assets acquired and goodwill are as follows: Other EU countries 1,754 2,259 Other European countries 391 467 Purchase consideration: United States 800 940 €m 2009 Canada 41 65 China 367 397 Cash paid 597 Rest of world 925 1,155 Transaction costs 5 Total 7,719 9,461 Total purchase consideration 602

The goodwill includes intangible assets (e.g. synergies, assembled Total assets by country workforce) that did not meet certain criteria for recognition under As at 31 December IFRS 3. €m 2009 2008 The assets and liabilities as of 8 December 2009 arising Germany 2,281 2,514 from the acquisition are as follows: United Kingdom 610 565 Fair value of Fair value Acquired Finland 6,414 7,547 net assets adjust- carrying France 448 521 €m acquired ments amount Other EU countries 570 592 Other European countries 118 132 Cash and cash equivalents 94 – 94 United States 538 592 Goodwill (Note 16) – –43 43 Canada 175 186 Other intangible assets (Note 17) 4 – 4 China 756 832 Customer relationships and Uruguay 1,486 108 other intangible assets (Note 17) 43 43 – Rest of world 209 192 Property, plant and equipment (Note 18) 1,013 227 786 Total 13,605 13,781 Biological assets (Note 20) 150 – 150 Investments in associated companies (Note 21) 3 – 3 Capital expenditure by country I nve n t o r ie s 121 11 110 Trade and other receivables 75 – 75 Year ended 31 December €m 2009 2008 Trade and other payables –68 – –68 Interest-bearing liabilities –359 – –359 Germany 24 33 Deferred income taxes (Note 28) –12 –10 –2 United Kingdom 35 56 Total identifi able net assets 1,064 228 836 Finland 168 280 Minority interests –2 France 10 13 Asset valuation surplus and cost of Poland 10 68 the prior ownership –542 Other European countries 17 17 Total acquired net assets 520 North America 9 23 China 2 9 Goodwill 82 Uruguay 604 5 Total purchase consideration 602 Rest of world 34 47 Total 913 551 Purchase consideration settled in cash 602 Cash and cash equivalents in subsidiary acquired –94 5 ACQUISITIONS AND DISPOSALS AND NOTES Cash outfl ow on acquisition 508 TO THE CASH FLOW STATEMENT The fair value of the acquired net assets is provisional pending on Acquisitions the fi nal valuations. On 8 December 2009, UPM, Metsäliitto Cooperative, M-Real In 2008 no acquisitions were made. corporation and Oy Metsä-Botnia Ab (Botnia) completed a trans- action whereby UPM acquired Botnia’s and Metsäliitto’s shares of Disposals Botnia South America S.A. which owns the companies operating In 2009 there were no disposals. the Uruguayan Fray Bentos pulp mill and the forestry company In 2008 disposals relate to the sale of UPM’s RFID antenna Forestal Oriental, and whereby UPM sold approximately 30% of manufacturing company Inture Circuits Ltd in July and adjust- shares in Oy Metsä-Botnia Ab to Metsäliitto. The operations ments to disposals in 2007. acquired have been consolidated in the Group's fi nancial statements None of these disposals are classifi ed as discontinued opera- as of December 2009. If the transaction had occurred on 1 January tions. ACCOUNTS FOR 2009 group

Net assets and liabilities of disposals 7 COSTS AND EXPENSES Year ended 31 December Year ended 31 December €m 2009 2008 €m 2009 2008 Cash and cash equivalents – 1 Change in inventories of fi nished goods and Other intangible assets – – work in progress 128 93 Property, plant and equipment – – Production for own use –16 –17 Investment property – – 112 76 Inventories – – Receivables – 2 Materials and services Accounts payable and other liabilities – –3 Raw materials, consumables and goods Interest-bearing liabilities – –1 Purchased during the period 3,917 5,244 ––1 Change in inventories 175 –84 Gain/loss on disposal – 8 External services 1) 478 720 Total consideration – 7 4,570 5,880

Settled in cash and cash equivalents – 7 Personnel expenses Cash and cash equivalents in subsidiary disposed – –1 Salaries and fees 933 1,079 Net cash infl ow arising from disposals – 6 Share-based payments (Note 37) 8 5

Indirect employee costs Notes to the cash fl ow statement Pension costs-defi ned benefi t plans (Note 29) 28 31 Pension costs-defi ned contribution plans 134 146 Adjustments to profi t (loss) for the period Post-employment medical benefi ts (Note 29) 1 2 Year ended 31 December Other indirect employee costs 2) 138 143 €m 2009 2008 301 322 Taxes 18 –21 Depreciation, amortisation and impairment charges 779 1,225 Other operating costs and expenses Share of results in associated companies and Rents and lease expenses 58 53 joint ventures 95 –62 Emission expenses (Note 6) 8 26 Capital gains on sale of non-current assets, net –235 –30 Losses on sale of non-current assets 10 1 Finance costs, net 167 227 Other operating expenses 3) 774 965 Settlement of restructuring charges –43 –56 850 1,045 One-time contributions to pension funds – –85 Other adjustments –9 34 Costs and expenses, total 6,774 8,407 Total 772 1,232 1) External services comprise mainly distribution costs of products sold. 2) Other indirect employee expenses include primarily other statutory social Change in working capital expenses, excluding pension expenses. 3) Year ended 31 December Other operating expenses include, among others, energy and mainte- €m 2009 2008 nance expenses as well as expenses relating to services and the company’s administration. Inventories 400 –55 Current receivables 156 138 Current non-interest bearing liabilities –24 –215 The research and development costs included in costs and expenses Total 532 –132 were € 48 million (49 million).

6 OTHER OPERATING INCOME REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF DIRECTORS AND THE GROUP EXECUTIVE TEAM Year ended 31 December €m 2009 2008 In accordance with the decision made by the 2009 Annual General Gains on sale of non-current assets 25 28 Meeting, the fees of the Board members who do not belong to the Rental income, investment property 7 6 operative management were: the Chairman of the Board of Rental income, other 5 7 Directors received a fee of € 175,000 (175,000) for the year, the Vice Emission rights received (Note 7) 22 37 Derivatives held for trading –27 2 Chairmen of the Board of Directors and the Chairman of the Exchange rate gains and losses 9 – Audit Committee a fee of € 120,000 (120,000), and the members of Other 6 3 the Board of Directors a fee of € 95,000 (95,000). Of this fee Total 47 83 in 2009 and 2008 60% was paid in cash and 40% in the form of the company shares purchased on the members’ behalf. In 2009, 9,140 company shares were paid to the Chairman, 6,267 shares to the Vice Chairmen of the Board of Directors and the Chairman of the Audit Committee respectively and 4,962 shares to the other mem- bers of the Board of Directors each, except for Jussi Pesonen. group ACCOUNTS FOR 2009

Shareholdings (no. of shares) and fees of the Board of Directors CEO's defi ned benefi t pension plan in 2009 were € 0.1 million (0.1 Shareholding Year ended 31 Dec. million), and for other members of the Group Executive Team € 0.5 € 1,000 31 Dec. 2009 2009 2008 million (0.8 million). Board members Members of the Group Executive Team have certain benefi ts in Björn Wahlroos, Chairman 218,217 175 175 the event of their service contracts being terminated prior to the Berndt Brunow, Vice Chairman 278,739 120 120 expiration date stated in them. If UPM-Kymmene Corporation Georg Holzhey, Vice Chairman 530,778 120 120 gives notice of termination to the President and CEO, Jussi Peso- Matti Alahuhta 41,603 95 95 nen, a severance compensation of 24 months’ basic salary will be Karl Grotenfelt 35,993 120 95 paid, in addition to the six months’ salary for the notice period. For Wendy E. Lane 13,261 95 95 other members of the Group Executive Team, the period for addi- Ursula Ranin 12,323 95 95 tional severance compensation is 12 months in addition to the six Veli-Matti Reinikkala 11,183 95 95 months’ salary for the notice period. Jussi Pesonen, President and CEO 92,814 – – The President and CEO is appointed by the Board of Directors. Former Board members If there is a change of control in UPM-Kymmene Corporation Michael C. Bottenheim – – 120 as defi ned in the service contracts, each member of the Group Total 1,234,911 915 1,010 Executive Team may terminate his/her service contract within one month or, in the case of Jussi Pesonen within three months, from the date of the event that triggered the change of control, and shall Group Executive Team remuneration receive compensation equivalent to 24 months’ basic salary. Year ended 31 December € 1,000 2009 2008 Audit fees President and CEO Jussi Pesonen Remuneration Year ended 31 December Salaries 1,034 1,024 €m 2009 2008 Incentives 160 90 Audit fees 2.3 2.3 Share rewards 513 443 Audit related fees 0.1 0.1 Benefi ts 22 23 Other non-audit services 0.4 0.4 Total 1,729 1,580 Tax consulting fees 0.9 1.5 Payment in pension plans Total 3.7 4.3 Finnish TyEL scheme 215 196 Voluntary pension plan 628 165 Total 843 361 8 CHANGE IN FAIR VALUE OF BIOLOGICAL ASSETS AND WOOD HARVESTED Group Executive Team (excluding the President and CEO) Year ended 31 December Remuneration €m 2009 2008 Salaries 3,435 4,278 Wood harvested –82 –88 Incentives 353 143 Change in fair value 99 138 Share rewards – 820 Total 17 50 Benefi ts 141 162 Total 3,929 5,403 Payment in pension plans 9 SHARE OF RESULTS OF ASSOCIATED COMPANIES Finnish statutory pension scheme 604 625 AND JOINT VENTURES Voluntary pension plan 219 173 Year ended 31 December Total 823 798 €m 2009 2008 Oy Metsä-Botnia Ab 1) –52 86 According to the company’s pay scheme, the President and CEO Pohjolan Voima Oy –39 –26 can be paid an 18 months’ maximum reward, and the other execu- Others –4 2 tives can be paid a performance-related reward amounting to not Total –95 62 more than twelve months’ salary. In addition, the members of the 1) In the balance sheet in the interim report for January–June, on 30 June 2009, Group Executive Team are also entitled to participate in the com- UPM has regrouped the 30% transferable share of Botnia’s book value as pany’s stock option plans. The expenses recognised in income state- assets held for sale. Consequently, from July 2009, UPM has not included the ment in respect of share-based payments were € 3.7 million (1.1 share of the transferable Botnia operations in the share of results of associ- ated companies. million) including share options of € 1.2 million (0.5 million) and share rewards of € 2.5 million (0.6 million). The retirement age of the President and CEO Jussi Pesonen is 60 years. The retirement age of the other members of the Group Executive Team is 63 years. For the President and CEO the target pension is 60% of the average indexed earnings from the last ten years of employment. The costs of lowering the retirement age or supplementing statutory pension security are generally covered by voluntary pension insurance. The expenses of the President and ACCOUNTS FOR 2009 group

10 DEPRECIATION, AMORTISATION AND paper mill and impairment charges of € 51 million in Pulp segment IMPAIRMENT CHARGES related to the closure of the Tervasaari pulp mill. Year ended 31 December €m 2009 2008 11 GAINS ON AVAILABLE-FOR-SALE INVESTMENTS, NET Depreciation on property, plant and equipment Buildings 94 98 Year ended 31 December Machinery and equipment 577 613 €m 2009 2008 Other tangible assets 32 33 Fair value gains and losses on disposals – 2 703 744 Impairment charges –1 – Depreciation on investment property Total –1 2 Buildings 1 1

Amortisation of intangible assets 12 FINANCE COSTS Intangible rights 14 16 Year ended 31 December Other intangible assets 42 45 €m 2009 2008 56 61 Exchange rate and fair value gains and losses Impairment charges on property, plant and equipment Derivatives held for trading 72 223 Fair value gains on derivatives designated Land areas – – as fair value hedges –138 337 Buildings 6 58 Fair value adjustment of borrowings attributable Machinery and equipment 10 120 to interest rate risk 140 –358 Other tangible assets 1 4 Foreign exchange gain/loss on fi nancial liabilities 17 182 measured at amortised cost 17 –248 Impairment of intangible assets Foreign exchange gain/loss on loans and receivables –100 21 Goodwill – 230 –9 –25 Intangible rights 6 – Emission allowances – 2 Interest and other fi nance costs, net Other intangible assets 1 5 Interest expense on fi nancial liabilities measured 7237at amortised cost –207 –213 Impairment reversal Interest income on derivative fi nancial instruments 60 3 Machinery and equipment –5 – Interest income on loans and receivables 5 5 Gains and losses on sale of associated companies Depreciation, amortisation and and joint ventures shares 1) 220 4 impairment charges, total 779 1,225 Gains on other non-current fi nancial assets, net –5 – Other fi nancial expenses –11 –1 In June 2009, UPM recognised an impairment charge of € 7 million 62 –202 in wood procurement operations within Forest and timber segment, Total 53 –227 as result of restructuring measures. The restructuring of Label 1) Capital gain of € 220 million on the sales of approximately 30% share in Oy segment's European operations resulted into impairment charges of Metsä-Botnia Ab. € 2 million. Net gains and losses on derivative fi nancial In November 2009, UPM recognised impairment charges of € 5 instruments included in the operating profi t million in Forest and timber segment and € 6 million in Plywood Year ended 31 December segment relating to restructuring of Timber and Plywood opera- €m 2009 2008 tions in Finland. In December 2009, impairment charges of € 2 million were Derivatives designated as cash fl ow hedges –9 82 Derivatives held for trading –27 2 recognised in Other operations in relation to terminated activities in Total –36 84 development units. Impairment reversals in 2009 relate to machinery and equip- ment in Paper segment which have been written off in prior years. The aggregate foreign exchange gains and losses In 2008, impairments include in Paper segment an impairment included in the consolidated income statement of goodwill of € 230 million. For goodwill test see Note 16. Year ended 31 December In September 2008, UPM recognised an impairment charge of €m 2009 2008 € 31 million in assets of Finnish sawmills within the Forest and Sales –9 88 timber segment, due to weakened profi tability of sawmilling. Other operating income 9 – In November 2008, UPM’s Label segment announced plans to Costs and expenses – –14 restructure its European operations, resulting into impairment Net fi nancial items –7 –7 charges of € 7 million. Total –7 67 In December 2008, UPM closed down uncompetitive paper and pulp capacity in Finland, including the Kajaani paper mill and the Tervasaari pulp mill. This resulted into impairment charges of € 101 million in Paper segment related to the closure of the Kajaani group ACCOUNTS FOR 2009

13 INCOME TAXES Year ended 31 December Year ended 31 December 2009 2008 €m 2009 2008 Profi t (loss) attributable to the equity holders of Major components of tax expenses the parent company, €m 169 –179 Current tax expense 66 60 Profi t (loss) used to determine diluted earnings Change in deferred taxes (Note 28) –48 –81 per share, €m 169 –179 Income taxes, total 18 –21 Weighted average number of shares (1,000) 519,955 517,545 Effect of options 1) –– Income tax reconciliation statement Weighted average number of shares for Profi t before tax 187 –201 diluted earnings per share (1,000) 519,955 517,545 Computed tax at Finnish statutory rate of 26% 49 –52 Diluted earnings per share, € 0.33 –0.35 Difference between Finnish and foreign rates –6 –9 Non-deductible expenses and tax exempt income –53 42 1) The dilution effect is calculated to determine the number of shares that could Tax loss with no tax benefi t36have been acquired at fair value (the average price for shares traded) based on Results of associated companies 23 –18 the monetary subscription rights of the outstanding options. The number of Change in tax legislation –2 12 shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the options. 13.0 million shares Other 4 –2 exercisable with options (6.0 million) were excluded from the calculation of Income taxes, total 18 –21 diluted earnings per share as they were not dilutive. Effective tax rate 9.6% 10.4% 15 DIVIDEND PER SHARE Profi t before taxes for 2009 include tax-exempt capital gains of € 220 million from the sale of approximately 30% of Oy Metsä- The dividends paid in 2009 were € 208 million (€ 0.40 per share) Botnia Ab's shares. and in 2008 € 384 million (€ 0.75 per share). The Board of Income taxes for 2008 include an € 28 million income from a Directors proposes to the Annual General Meeting that a dividend decrease of deferred tax liabilities relating to an impairment of of € 234 million, € 0.45 per share, will be paid in respect of 2009. Paper segments goodwill. Change in tax legislation includes a tax expense of € 13 million related to change in the UK tax legislation. 16 GOODWILL Tax effects of components of other comprehensive income As at 31 December Year ended 31 December €m 2009 2008 €m 2009 2008 Acquisition cost at 1 Jan. 1,513 1,513 Before After Before After Companies acquired 82 – tax Tax tax tax Tax tax Translation differences 2 – Translation differences 165 – 165 –206 – –206 Acquisition cost at 31 Dec. 1,597 1,513 Net investment hedge –76 20 –56 76 –20 56 Cash fl ow hedges –7 3 –4 –45 12 –33 Accumulated impairment at 1 Jan. –580 –350 Available-for-sale investments 21 – 21 – – – Impairment charges – –230 Share of other comprehensive Accumulated impairment at 31 Dec. –580 –580 income of associated companies 30 – 30 1 – 1 Other comprehensive income 133 23 156 –174 –8 –182 Carrying value at 1 Jan. 933 1,163 Carrying value at 31 Dec. 1,017 933

14 EARNINGS PER SHARE On 1 December 2008, UPM adopted a new business structure. The Year ended 31 December organisational change resulted to a reallocation of goodwill of the 2009 2008 previous Magazine Paper, Newsprint, Fine and Speciality Papers segments to Paper and Pulp reportable segments. The allocation Profi t (loss) attributable to the equity holders of was based on the proportionate value in use calculations of the new the parent company, €m 169 –179 segments. Weighted average number of shares (1,000) 519,955 517,545 The goodwill arisen from the acquisition of the Uruguayan Basic earnings per share, € 0.33 –0.35 operations in 2009 is included in Pulp segment. These operations form a separate group of cash generating units. For the diluted earnings per share the number of shares is adjusted by the effect of the share options. As at 31 December €m 2009 2008 Pulp 197 113 Forest and timber 1 2 Paper 799 798 Label 7 7 Plywood 13 13 Total 1,017 933 ACCOUNTS FOR 2009 group

Impairment tests 17 OTHER INTANGIBLE ASSETS The company prepares impairment test calculations annually. The As at 31 December key assumptions for calculations are those regarding the business €m 2009 2008 growth outlooks, product prices, cost development, and the dis- Intangible rights count rate. Acquisition cost at 1 Jan. 406 412 Business growth outlooks are based on general forecasts for the Additions 3 4 businesses in question. Ten-year forecasts are used in the calcula- Companies acquired 50 – tions as the nature of the company’s business is long-term due to its Disposals –4 –14 capital intensity, and exposed to cyclical changes. In estimates of Reclassifi cations 1 1 Translation differences 2 3 product prices and cost development, the budgets prepared by man- Acquisition cost at 31 Dec. 458 406 agement for the next year and estimates made for the following nine years are taken into consideration. In the largest group of cash Accumulated amortisation and impairment at 1 Jan. –151 –147 generating units, in Paper, a growth rate of 0 % in real terms has Amortisation –15 –16 been applied beyond the period covered by the most recent manage- Companies acquired –3 – ment’s forecasts. The company’s recent profi tability trend is taken Disposals 5 13 into account in the forecasts. In addition, when preparing estimates, Impairment charges –6 – consideration is given to the investment decisions made by the Reclassifi cations – – company as well as the profi tability programmes that the Group Translation differences – –1 Accumulated amortisation and impairment at 31 Dec. –170 –151 has implemented and the views of knowledgeable experts of the industry on the long-term development of demand and prices. Carrying value at 1 Jan. 255 265 Discount rate is estimated using the weighted average cost of capi- Carrying value at 31 Dec. 288 255 tal on the calculation date adjusted for risks specifi c to businesses in question. The pre-tax discount rate used in 2009 for Paper was Other intangible assets 1) 8.40% and for Pulp (operations in Finland) 10.00%. In 2008, the Acquisition cost at 1 Jan. 510 525 pre-tax discount rates used were for Paper and Pulp (Finland) Additions 41 19 9.00% and 9.90%, respectively. Disposals –11 –34 The recoverable amount of groups of cash generating units is Reclassifi cations 20 3 determined based on value in use calculations. Translation differences – –3 Acquisition cost at 31 Dec. 560 510 The estimated product prices are the most important assump- tions in impairment tests. As at 31 December 2009, in Paper seg- Accumulated amortisation and impairment at 1 Jan. –420 –407 ment, a hypothetic 2% decrease in product prices used in impair- Amortisation –42 –44 ment tests would lead to recognition of impairment loss against Impairment charges –1 –5 goodwill approximately by € 70 million. Other essential assump- Disposals 11 34 tions in Paper are costs for chemical pulp, delivery services and Reclassifi cations 4 – personnel. Group believes that any reasonably possible change in Translation differences – 2 these other key assumptions on which recoverable amount is based Accumulated amortisation and impairment at 31 Dec. –448 –420 would not cause the aggregate carrying amount to exceed the aggre- gate recoverable amount. Carrying value at 1 Jan. 90 118 Carrying value at 31 Dec. 112 90 In Pulp (Finland), the recoverable amount, in addition to the pulp sales price, is most sensitive to cost of wood raw material. As Advance payments and construction in progress at 31 December 2009, a decrease of 9% in pulp prices, or an Acquisition cost at 1 Jan. 27 9 increase of 15% in wood costs would result to recognition of Additions 5 22 impairment loss against goodwill. Disposals –1 – In September 2008, an impairment charge of € 230 million, Reclassifi cations –24 –4 recognised in Newsprint segment, is allocated to Paper segment. Acquisition cost at 31 Dec. 7 27 The main factors for the impairment were lower-than-forecast realised newsprint market demand in Europe and increased costs. Carrying value at 1 Jan. 27 9 Carrying value at 31 Dec. 7 27 group ACCOUNTS FOR 2009

As at 31 December As at 31 December €m 2009 2008 €m 2009 2008 Emission rights Accumulated depreciation and impairment at 1 Jan. –1,483 –1,499 Acquisition cost 1 Jan. 31 – Depreciation –94 –98 Additions 2) 33 56 Companies acquired –18 – Disposals and settlements –48 –23 Impairment charges –6 –58 Impairment charges – –2 Disposals 19 136 Acquisition cost 31 Dec. 16 31 Reclassifi cations – 12 Translation differences –10 24 Carrying value at 1 Jan. 31 – Accumulated depreciation and impairment at 31 Dec. –1,592 –1,483 Carrying value at 31 Dec. 16 31 Carrying value at 1 Jan. 1,385 1,443 Other intangible assets, total 423 403 Carrying value at 31 Dec. 1,553 1,385

1) Other intangible assests consist primarily of capitalised software assets. Machinery and equipment 2) Additions include emission rights received free of charge. Acquisition cost at 1 Jan. 12,162 12,550 Additions 99 267 Companies acquired 596 – Water rights Disposals –324 –775 Intangible rights include € 189 million (189 million) in respect of Reclassifi cations 120 254 the water rights of hydropower plants belonging to the Energy Translation differences 59 –134 segment. The water rights of power plants are deemed to have an Acquisition cost at 31 Dec. 12,712 12,162 indefi nite useful life as the company has a contractual right to exploit water resources in the energy production of power plants. Accumulated depreciation and impairment at 1 Jan. –8,541 –8,721 The values of water rights are tested annually for impairment. Depreciation –571 –617 Companies acquired –59 – Impairment charges –8 –120 Impairment reversal 5 – 18 PROPERTY, PLANT AND EQUIPMENT Disposals 315 765 As at 31 December Reclassifi cations 13 – €m 2009 2008 Translation differences –48 152 Land and water areas Accumulated depreciation and impairment at 31 Dec. –8,894 –8,541 Acquisition cost at 1 Jan. 355 350 Additions 5 4 Carrying value at 1 Jan. 3,621 3,829 Companies acquired 235 Carrying value at 31 Dec. 3,818 3,621 Disposals –5 –3 Reclassifi cations –1 5 Other tangible assets Translation differences 10 –1 Acquisition cost at 1 Jan. 865 899 Acquisition cost at 31 Dec. 599 355 Additions 7 29 Companies acquired 13 – Accumulated depreciation and impairment at 1 Jan. –8 –8 Disposals –12 –68 Impairment charges – – Reclassifi cations – 7 Accumulated depreciation and impairment at 31 Dec. –8 –8 Translation differences 3 –2 Acquisition cost at 31 Dec. 876 865 Carrying value at 1 Jan. 347 342 Carrying value at 31 Dec. 591 347 Accumulated depreciation and impairment at 1 Jan. –662 –696 Depreciation –31 –33 Buildings Companies acquired –4 – Acquisition cost at 1 Jan. 2,868 2,942 Disposals 12 66 Additions 13 57 Reclassifi cations – 2 Companies acquired 243 – Impairment charges – –4 Disposals –25 –141 Translation differences –2 3 Reclassifi cations 26 50 Accumulated depreciation and impairment at 31 Dec. –687 –662 Translation differences 20 –40 Acquisition cost at 31 Dec. 3,145 2,868 Carrying value at 1 Jan. 203 203 Carrying value at 31 Dec. 189 203 ACCOUNTS FOR 2009 group

As at 31 December As at 31 December €m 2009 2008 €m 2009 2008 Advance payments and construction in progress Land and water areas – 1 Acquisition cost at 1 Jan. 132 362 Buildings – 2 Additions 57 114 Machinery and equipment – 6 Companies acquired 7 – Biological assets – 2 Disposals – –4 Inventories – 1 Reclassifi cations –158 –334 Assets total –12 Translation differences 3 –6 Acquisition cost at 31 Dec. 41 132 Provisions – 2 Other non-current liabilities – 3 Carrying value at 1 Jan. 132 362 Trade and other payables – 11 Carrying value at 31 Dec. 41 132 Accruals and deferred income – 1 Liabilities total –17 Property, plant and equipment, total 6,192 5,688 Liabilities related to assets held for sale, interest bearing (Note 31) – 2 Finance lease arrangements Liabilities related to assets held Property, plant and equipment includes property that is acquired for sale, non-interest bearing – 15 under fi nance lease and sale and leaseback contracts: Liabilities total –17

As at 31 December €m 2009 2008 19 INVESTMENT PROPERTY Machinery and equipment As at 31 December Acquisition cost 49 53 €m 2009 2008 Accumulated depreciation –38 –39 Acquisition cost at 1 Jan. 66 46 Carrying value at 31 Dec. 11 14 Additions 2 1 Reclassifi cations 4 19 Leased assets, total 11 14 Acquisition cost at 31 Dec. 72 66

There is no property, plant and equipment leased to third parties Accumulated depreciation and impairment at 1 Jan. –47 –32 under operating lease contracts. Depreciation –1 –1 Reclassifi cations –2 –14 Accumulated depreciation and impairment at 31 Dec. –50 –47 Capitalised borrowing costs Carrying value at 1 Jan. 19 14 In 2009, the borrowing costs capitalised as part of non-current Carrying value at 31 Dec. 22 19 assets amounted to € 1 million (11 million). In 2009, amortisation of capitalised borrowing costs was € 8 million (8 million). In 2008, The fair value of investment property is determined annually on 31 impairment charges related to capitalised borrowing costs were € 2 December by the Group. Fair value is based on active market million. In 2009 and 2008 there were no capitalised borrowing costs prices, adjusted, if necessary, for any difference in the nature of the associated with sold assets. specifi c asset. The average interest rate used was 3.32% (5.52%), which repre- The fair value of investment property in Finland at 31 Decem- sents the costs of the loan used to fi nance the projects. ber 2009 was € 18 million (16 million) and the fair value of invest- ment property in other countries at 31 December 2009 was € 11 Assets classifi ed as held for sale million (11 million). As at 31 December 2008, the Miramichi paper mill and other activi- ties were classifi ed as assets held for sale and related liabilities. These operations were part of Paper, and Forest and timber seg- The amounts recognised in the income statement ments. Year ended 31 December On 15 January 2009, UPM sold its former paper mill and €m 2009 2008 related assets in Miramichi, New Brunswick, Canada to Umoe Rental income 7 6 Solar AS of Norway. The sale included also woodlands operations, Direct operating expenses arising from invest- and two sawmills located nearby in Bathurst and Blackwill. UPM ment properties that generate rental income 4 3 recorded an income of € 21 million on the sale as a special item in the fi rst quarter of 2009. There were no contractual obligations for future repair and mainte- nance or purchase of investment property. All assets under investment property are leased to third parties under operating leasing contracts. group ACCOUNTS FOR 2009

20 BIOLOGICAL ASSETS Associated companies and joint ventures As at 31 December Group holding €m 2009 2008 percentage % Carrying value At 1 Jan. 1,133 1,095 2009 2008 2009 2008 Additions 9 2 Associated companies Companies acquired 150 – Austria Papier Recycling Disposals –24 –13 Ges.m.b.H., AT 33.30 33.30 – – Wood harvested –81 –88 Oy Keskuslaboratorio- Change in fair value 99 138 Centrallaboratorium Ab, FI 38.65 38.65 1 1 Translation differences 7 –1 Botnia South America S.A., UY 2) –12.40 – 108 At 31 Dec. 1,293 1,133 Oy Metsä-Botnia Ab, FI 2) –47.00 – 637 Paperinkeräys Oy, FI 22.98 22.98 3 3 The pre-tax discount rates used in determing the fair value in 2009 Pohjolan Voima Oy, FI 43.07 41.84 514 477 1) were 7.50% (7.50%) for Finnish forests and 10% for Uruguayan Powest Oy, FI 9.98 9.98 14 15 RETS Timber Oy Ltd, FI 50.00 50.00 2 1 forests. A 1% decrease (increase) in discount rate would increase Steveco Oy, FI 34.32 34.32 6 9 (decrease) the fair value of biological assets by approximately € 150 Others 7 6 million. In addition to the discount rate, the growth of the forest At 31 Dec. 547 1,257 stock and timber prices are other essential assumptions used in the valuation. Joint ventures Kainuun Voima Oy, FI 50.00 50.00 6 6 66 21 INVESTMENTS IN ASSOCIATED COMPANIES AND JOINT VENTURES Associated companies and joint ventures at 31 Dec. 553 1,263

As at 31 December 1) The Group’s share of the voting right in Powest Oy is 0.61% (0.61%). The €m 2009 2008 Group is entitled to 51.22% (51.22%) of the respective dividends of Powest Oy. At 1 Jan. 1,263 1,193 2) Following, the transaction completed on 8 December 2009 where UPM ac- Additions 92 19 quired Metsäliitto's and Oy Metsä-Botnia Ab's shares of the Uruguayan oper- Companies acquired 3 – ations and sold approximately 30% of shares in Oy Metsä-Botnia Ab, Botnia Disposals 1) –350 –12 South America S.A. currently is UPM's subsidiary and Oy Metsä-Botnia Ab Share of results after tax –95 62 no longer is UPM's associated company but accounted for as an available-for- Dividends received –24 –18 sale investment. Reclassifi cation 1) –304 – Translation differences –32 19 Pohjolan Voima Oy (“PVO”) holds a 58.28% shareholding in Teol- At 31 Dec. 553 1,263 lisuuden Voima Oy (“TVO”), which owns and operates nuclear power plants in Olkiluoto, Finland. The operation of a nuclear 1) Disposals in 2009 include sold shares in Oy Metsä-Botnia Ab and reclas- power plant involves potential costs and liabilities related to decom- sifi cations in 2009 include the reclassifi cation of holding in Botnia South missioning and dismantling of the nuclear power plant and storage America S.A. as subsidiary and reclassifi cation of remaining holding in Oy Metsä-Botnia Ab as available-for-sale investment. and disposal of spent fuel, and is governed by international, Euro- pean Union and local nuclear regulatory regimes. Pursuant to the Investments in associated companies at 31 December 2009 include Finnish Nuclear Liability Act, the operator of a nuclear facility is goodwill of € 51 million (51 million) which relates to Pohjolan strictly liable for damage resulting from a nuclear incident at the Voima Oy’s shares. operator’s installation or occurring in the course of transporting nuclear fuels. Shareholders of power companies that own and oper- ate nuclear power plants are not subject to liability under the As at 31 December €m 2009 2008 Nuclear Liability Act. In Finland, the future costs of conditioning, storage and fi nal disposal of spent fuel, management of low and Sale and leaseback contracts included in investments in associated companies intermediate-level radioactive waste and nuclear power plant Acquisition cost 14 13 decommissioning are the responsibility of the operator. Reimburse- Accumulated increases/decreases –4 1 ments of the operators’ costs related to decommissioning and dis- Carrying value at 31 Dec. 10 14 mantling of the power plant and storage and disposal of spent fuel are provided for by state-established funds funded by annual contri- butions from nuclear power plant operators. Pursuant to PVO and TVO shareholders’ agreements, the Group bears its proportionate share of the costs related to decommissioning and dismantling of the nuclear power plant and storage and disposal of spent fuel through the price of electricity acquired from PVO. The contribu- tions to such funds are intended to be suffi cient to cover estimated future costs. If the actual costs deviate from fund provisions, the Group would be affected accordingly. Fund assets are measured at ACCOUNTS FOR 2009 group

the lower of the decommissioning obligation and provision for Transactions and balances spent fuel recognised and UPM’s share of the net assets of the fund with associates and joint ventures attributable to the contributors. Year ended 31 December €m 2009 2008 The Group’s share of the results of its principal associates and Sales to associates and joint ventures 114 138 joint ventures, all of which are unlisted, are accounted for using the Purchases from associates and joint ventures 560 592 equity method. The Group’s share of the assets, liabilities, sales and Receivables from associates and joint ventures 25 37 results are as follows: Payables to associates and joint ventures 32 27

Loan receivables from associates and 2009 Lia- Profi t/ joint ventures 1) €m Assets bilities Sales Loss At 1 Jan. 8 6 Associated companies and joint ventures Loans granted 8 2 Oy Metsä-Botnia Ab, FI – – – –52 Repayments –2 – Pohjolan Voima Oy, FI 1,344 830 366 –39 At 31 Dec. 14 8 Others 133 94 236 –4 1) Total 1,477 924 602 –95 Loans to associated companies and joint ventures include current and non- current loan receivables. 2008 Lia- Profi t/ €m Assets bilities Sales Loss 22 AVAILABLE-FOR-SALE INVESTMENTS Associated companies and joint ventures Year ended 31 December Oy Metsä-Botnia Ab, FI 1,306 561 798 86 €m 2009 2008 Pohjolan Voima Oy, FI 1,219 742 328 –26 Others 150 109 291 2 At 1 Jan. 116 116 Total 2,675 1,412 1,417 62 Changes in fair values 25 – Reclassifi cation 180 – Impairment charges –1 – The amounts representing the Group’s share of the assets and At 31 Dec. 320 116 liabilities and sales and results of the joint ventures that have been accounted for using the equity method are presented in the table At 31 December 2009, the available-for-sale investments include below. only investments in unlisted equity shares. On 8 December 2009, the Group sold approximately 30% of its As at 31 December €m 2009 2008 shares in the associated company Oy Metsä-Botnia Ab. The remaining ownership of 16.96% was reclassifi ed as an available-for- The amount of assets and liabilities sale investment with a fair value increase of € 25 million. The fair related to investments in joint ventures Non-current assets 28 29 value is based on the discounted value of the expected cash fl ows of Current assets 5 5 the investment. Non-current liabilities –19 –20 Unlisted shares, where the fair value cannot be measured relia- Current liabilities –7 –7 bly are carried at cost. The range of reasonable fair value estimates Net assets 7 7 of these shares is signifi cant and the probabilities of the various estimates cannot be reasonably assessed. The fair value of the Year ended 31 December shares in Kemijoki Oy cannot be reliably measured as the redemp- €m 2009 2008 tion clause in the articles of association of the company limits fair The income and expenses related market transactions to third parties. Currently the Group does not to investments in joint ventures have an intention to dispose of this investment. Sales 13 18 Expenses –13 –18 Profi t––Principal available-for-sale investments Group The average number of employees Number holding Carrying value in the joint ventures 43 47 of shares percentage 2009 2008 Oy Metsä-Botnia Ab 13,836 16.96 205 – Kemijoki Oy 100,797 4.13 106 106 Other 9 10 Carrying value of available-for- sale investments at 31 Dec. 320 116 group ACCOUNTS FOR 2009

23 NON-CURRENT FINANCIAL ASSETS The maximum exposure to credit risk without taking into As at 31 December account any credit enhancements is the carrying amounts of trade €m 2009 2008 and other receivables. Prepayments which are not fi nancial instru- Loan receivables from associated companies 2 – ments are not subject to credit risk as defi ned in IFRS 7. Other loan receivables 15 16 Derivative fi nancial instruments 246 345 Main items included in prepayments and accrued income At 31 Dec. 263 361 As at 31 December €m 2009 2008 The maximum exposure to credit risk in regard to other loan receivables is their carrying amount. Personnel expenses 5 3 Indirect taxes 10 16 Other items 58 35 At 31 Dec. 73 54 24 OTHER NON-CURRENT ASSETS As at 31 December €m 2009 2008 27 EQUITY AND RESERVES Defi ned benefi t plans (Note 29) 177 173 Other non-current assets 34 28 Share capital At 31 Dec. 211 201 Number of shares Share €m (1,000) capital At 1 Jan. 2008 512,569 890 25 INVENTORIES Exercise of share options 7,401 – As at 31 December At 31 Dec. 2008 519,970 890 €m 2009 2008 At 31 Dec. 2009 519,970 890 Raw materials and consumables 516 664 Work in progress 39 54 Finished products and goods 530 589 Shares Advance payments 27 47 At 31 December 2009, the number of the company’s shares was At 31 Dec. 1,112 1,354 519,970,088. Each share carries one vote. The shares do not have any nominal counter value. The shares are included within the book-entry system for securities. 26 TRADE AND OTHER RECEIVABLES As at 31 December Reserve for invested non-restricted equity €m 2009 2008 Reserve for invested non-restricted equity includes, under the Com- Trade receivables 1,124 1,235 panies’ Act, the exercise value of shareholders’ investments in the Loan receivables 14 11 company unless otherwise decided by the Company. Other receivables 115 117 Derivative fi nancial instruments 120 269 Treasury shares Prepayments and accrued income 73 54 The Annual General Meeting held on 25 March 2009 approved a At 31 Dec. 1,446 1,686 proposal to authorise the Board of Directors to decide to buy back not more than 51,000,000 own shares. The authorisation is valid for Ageing analysis of trade receivables 18 months from the date of the decision. As at 31 December As at 31 December 2009 the company did not hold any of its €m 2009 2008 own shares. Undue 999 1,067 As at 31 December 2008 the company held 15,944 of its own Past due up to 30 days 63 115 shares, 0.003% of the total number of shares, which have been Past due 31–90 days 27 31 granted under the Group’s share reward scheme in 2008 and 2007. Past due over 90 days 35 22 The average acquisition cost of these shares is € 16.42 per share. At 31 Dec. 1,124 1,235 These shares have been returned in connection with termination of service contracts. In determining the recoverability of trade receivables the Group On the basis of the decisions of the Annual General Meeting of con siders any change in the credit quality of the trade receivables. 27 March 2007, the Board has the authority to decide on a free There are no indication that the debtors will not meet their pay- issue of shares to the company itself so that the total number of ment obligations in regard to trade receivables that are neither past shares to be issued to the company combined with the number of due nor impaired at 31 December 2009. In 2009, impairment of own shares bought back under the buyback authorisation may not trade receivables amounted to € 18 million (22 million) and is exceed 1/10 of the total number of shares of the company. recorded under other costs and expenses. Impairment is recognised when there is objective evidence that the Group is not able to col- Authorisations to increase the number of shares lect the amounts due. The Annual General Meeting of 27 March 2007 has in addition In 2009, income from recoveries of trade receivables written off authorised the Board to decide to issue shares and special rights amounted to € 1 million (1 million). entitling the holder to shares of the company. The number of new ACCOUNTS FOR 2009 group

shares to be issued, including shares to be obtained under special Fair value and other reserves rights, shall be no more than 250,000,000. Of that, the maximum As at 31 December number that can be issued to the company’s shareholders based on €m 2009 2008 their pre-emptive rights is 250,000,000 shares and the maximum Fair value reserve of available -for-sale investments 21 – amount that can be issued deviating from the shareholders’ pre- Hedging reserve 9 13 emptive rights in a directed share issue is 100,000,000 shares. The Legal reserve 53 53 maximum number of new shares to be issued as part of the compa- Share premium reserve 50 50 ny’s incentive programmes is 5,000,000. Furthermore, the Board is Share-based compensation 8 14 authorised to decide on the disposal of own shares. To date, this At 31 Dec. 141 130 authorisation has not been used. These authorisations of the 2007 Annual General Meeting will remain valid for no more than three Changes in hedging reserve years from the date of the decision. Year ended 31 December The Annual General Meeting of 27 March 2007 also decided €m 2009 2008 on granting share options in connection with the company’s share- based incentive plans. In option programmes 2007A, 2007B and Hedging reserve at 1 Jan. 13 46 Gains and losses on cash fl ow hedges –19 39 2007C, the total number of share options is no more than Transfers to sales 12 –83 15,000,000, and they will entitle to subscribe for, in total, no more Transfers to initial cost of property, plant and than 15,000,000 new shares of the company. equipment – –1 Apart from the above, the Board of Directors has no current Tax on gains and losses on cash fl ow hedges 6 –10 authorisation to issue shares, convertible bonds, or share options. Tax on transfers to income statement –3 22 If all the remaining 3,000,000 2005H share options authorised Hedging reserve at 31 Dec. 9 13 in 2005 are exercised to subscribe all 3,000,000 shares, and all 15,000,000 share options issued in 2007 are fully exercised, the Components of other comprehensive income number of the company’s shares will increase by a total of 18,000,000, i.e. by 3,46%. Year ended 31 December €m 2009 2008 The shares available for subscription under the Board’s share issue authorisation and through the exercise of share options may Translation differences 165 –206 increase the total number of the company’s shares by 51.54%, i.e. Net investment hedge –56 56 Cash fl ow hedges by 268,000,000 shares, to 787,970,088 shares. gains/losses arising during the year –13 29 reclassifi cation adjustments 9 –62 Redemption clause –4 –33 Under § 12 of UPM-Kymmene Corporation’s Articles of Associa- Available-for-sale investments tion, a shareholder who alone or jointly with another shareholder gains/losses arising during the year 21 – owns 33 1/3 percent or 50 percent or more of all the company’s reclassifi cation adjustments – – shares or their associated voting rights shall, at the request of other 21 – shareholders, be liable to redeem in the manner prescribed in § 12 Share of other comprehensive income of their shares and any securities that, under the Companies Act, associated companies 28 1 carry the right to such shares. reclassifi cation adjustments 2 – 30 1 A resolution of general meeting of shareholders to amend or Other comprehensive income 156 –182 delete this redemption clause must be carried by shareholders rep- resenting not less than three-quarters of the votes cast and shares represented at the meeting. group ACCOUNTS FOR 2009

28 DEFERRED INCOME TAXES

Reconciliation of the movements of deferred tax asset and liability balances during the year 2009

As at Charged to Acquisitions As at 1 Jan. the income Charged to Translation and 31 Dec. €m 2009 statement equity differences disposals 2009 Deferred tax assets Retirement benefi t and other provisions 108 –24 – – – 84 Intercompany profi t in inventory 11 1 – – – 12 Book over tax depreciation 102 18 – – – 120 Tax losses and tax credits carried forward 206 91 – 21 – 318 Other temporary differences 6 –3 – – – 3 Deferred tax assets, total 433 83 – 21 – 537

Deferred tax liabilities Tax over book depreciation 534 –22 – 5 – 517 Fair value adjustments of net assets acquired and biological assets 267 43 – –1 12 321 Other temporary differences 32 14 –23 –3 – 20 Deferred tax liabilities, total 833 35 –23 1 12 858

The amounts recognised in the balance sheet Assets 258 8 – 21 – 287 Liabilities 658 –40 –23 1 12 608 Deferred tax liabilities, less deferred tax assets 400 –48 –23 –20 12 321

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fi scal authority.

Reconciliation of the movements of deferred tax asset and liability balances during the year 2008

As at Charged to Acquisitions As at 1 Jan. the income Charged to Translation and 31 Dec. €m 2008 statement equity differences disposals 2008 Deferred tax assets Retirement benefi t and other provisions 98 15 – –5 – 108 Intercompany profi t in inventory 9 2 – – – 11 Book over tax depreciation 127 –11 – –14 – 102 Tax losses and tax credits carried forward 195 20 – –9 – 206 Other temporary differences 4 2 – – – 6 Deferred tax assets, total 433 28 – –28 – 433

Deferred tax liabilities Tax over book depreciation 595 –45 – –16 – 534 Fair value adjustments of net assets acquired and biological assets 263 4 – – – 267 Other temporary differences 36 –12 8 – – 32 Deferred tax liabilities, total 894 –53 8 –16 – 833

The amounts recognised in the balance sheet Assets 284 2 – –28 – 258 Liabilities 745 –79 8 –16 – 658 Deferred tax liabilities, less deferred tax assets 461 –81 8 12 – 400

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fi scal authority. ACCOUNTS FOR 2009 group

Deferred income tax charged to equity during the year DEFINED BENEFIT PLANS €m 2009 2008 As at 31 December €m 2009 2008 Cash fl ow hedges –3 –12 Net investment hedge –20 20 Pension benefi ts 176 182 Total –23 8 Post-employment medical benefi ts 17 19 Net liability 193 201

At 31 December 2009, the net operating loss carry-forwards for Other long-term employee benefi ts 48 34 which the Group has recorded a deferred tax asset amounted to Overfunded plan shown as asset (Note 24) 177 173 Total liability in balance sheet 418 408 € 1,231 million (689 million), of which € 267 million (372 million) was attributable to German subsidiaries, € 700 million (203 million) to a Canadian subsidiary and € 133 million to the parent company PENSION BENEFITS and subsidiaries in Finland. In Germany net operating loss carry- forwards do not expire. In other countries net operating loss carry- The amounts recognised in the balance sheet forwards expire at various dates and in varying amounts. The net As at 31 December operating loss carry-forwards for which no deferred tax asset is €m 2009 2008 recognised due to uncertainty of their utilisation amounted to € 256 Present value of funded obligations 565 543 million in 2009 (136 million). These net operating loss carry-for- Present value of unfunded obligations 408 351 wards are mainly attributable to Canadian and Chinese subsidiar- 973 894 ies. In relation to Polish subsidiary operating in a special economic zone UPM has tax credits of € 29 million, which have not been Fair value of plan assets –540 –573 recognised due to uncertainty of their utilisation. Unrecognised actuarial gains and losses –257 –139 No deferred tax liability has been recognised for the undistrib- Net liability 176 182 uted profi ts of Finnish subsidiaries and associated companies as, in most cases, such earnings are transferred to the Group without any tax consequences. The amounts recognised in the income statement In addition the Group does not recognise a deferred tax liability Year ended 31 December €m 2009 2008 in respect of undistributed earnings of non-Finnish subsidiaries to the extent that such earnings are intended to be permanently rein- Current service cost 8 14 vested in those operations. Interest cost 47 57 Expected return on plan assets –34 –49 Actuarial gains and losses 7 12 29 RETIREMENT BENEFIT OBLIGATIONS Curtailments – –3 Total included in personnel expenses (Note 7) 28 31 The Group operates a number of defi ned benefi t and contribution plans in accordance with the local conditions and practises in the The actual return on plan assets was € 105 million (–104 million). countries in which it operates. The most signifi cant pension plan in Finland is the statutory The movement in the present value of defi ned benefi t obligations Finnish employee pension scheme (TyEL), according to which As at 31 December benefi ts are directly linked to the benefi ciary’s earnings. The TyEL €m 2009 2008 pension scheme is mainly arranged with pension insurance compa- Defi ned benefi t obligation as of beginning of the year 894 1,176 nies. Current service cost 8 14 In Finland, the pensions of approximately 8 % of employees Interest cost 47 57 are arranged through Group’s own pension funds. All schemes Actuarial gains and losses 179 –120 managed by the pension funds are classifi ed as defi ned benefi t Benefi ts paid –49 –85 plans. Curtailments – –3 Foreign plans include both defi ned contribution and defi ned Settlements –130 –59 benefi t plans. Globally approximately 25% of the employees belong Translation differences 24 –86 Defi ned benefi t obligation as of end of the year 973 894 to defi ned benefi t arrangements. In January 2009 the Group sold the non-operating assets of its former paper mill and other operations in Miramichi, Canada. The settlement of the plan assets were initiated through the purchase of long term annuities to fund the € 129 million benefi t obligations. group ACCOUNTS FOR 2009

The movement in the fair value of plan assets The amounts recognised in the balance sheet As at 31 December As at 31 December €m 2009 2008 €m 2009 2008 Fair value of plan assets as of beginning of the year 573 753 Present value of unfunded obligations 21 24 Expected return on plan assets 34 49 Unrecognised actuarial gains and losses –5 –5 Actuarial gains and losses 58 –153 Unrecognised past service cost 1 – Contributions by the employer 32 146 Net liability 17 19 Benefi ts paid –49 –85 Settlements –130 –59 Translation differences 22 –78 The amounts recognised in the income statement Fair value of plan assets as of end of the year 540 573 Year ended 31 December €m 2009 2008 The contributions to Group’s defi ned benefi t pension plans are Interest cost 1 1 expected to be € 20 million in 2010. Actuarial gains and losses – 1 Total included in personnel expenses (Note 7) 1 2

The major categories of plan assets as a percentage of total plan assets The movement in the present value of defi ned benefi t obligations As at 31 December As at 31 December 2009 2008 €m 2009 2008 Equity instruments 56% 38% Defi ned benefi t obligation as of beginning of the year 24 27 Debt instruments 32% 50% Interest cost 1 1 Property 7% 7% Contributions by plan participants 2 2 Money market 5% 5% Past service cost –1 – Total 100% 100% Benefi ts paid –4 –4 Settlements – –3 In Finland, the pension plan assets include the company’s ordinary Translation differences –1 1 shares with a fair value of € 0.4 million (1 million). Defi ned benefi t obligation as of end of the year 21 24

POST-EMPLOYMENT MEDICAL BENEFITS The movement in the fair value of plan assets As at 31 December In US the Group operates unfunded medical benefi t schemes. The €m 2009 2008 valuation methods are similar to those used for defi ned benefi t Fair value of plan assets as of beginning of the year – – pension schemes. Contributions by plan participants 2 2 Contributions by the employer 2 2 Benefi ts paid –4 –4 Fair value of plan assets as of end of the year – –

The contributions to Group’s post-employment medical benefi t plans are expected to be € 2 million in 2010.

PENSION BENEFITS AND POST-EMPLOYMENT MEDICAL BENEFITS

The principal acturial assumptions used as at 31 December Finland Germany UK Canada US Other 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 Discount rate % 4.45 5.50 4.45 5.50 5.75 6.70 6.10 4.68 5.00 6.25 4.45 5.50 Infl ation rate % 2.00 2.00 2.00 2.00 3.60 2.45 N/A N/A 3.00 3.00 2.00 2.00 Expected return on plan assets % 6.18 7.54 N/A N/A 6.67 6.96 N/A 4.81 N/A N/A 4.45 5.10 Future salar y increases % 3.25 3.75 2.50 2.50 N/A N/A N/A N/A N/A N/A 2.60 2.60 Future pension increases % 2.63 2.62 2.00 2.00 3.30 2.45 N/A N/A N/A N/A 1.59 1.12 Expected average remaining working years of participants 12.1 12.1 13.6 13.8 – 17.3 – – 8.9 9.4 11.8 12.0

The assumption for the weighted average expected return on plan 10% in 2008, 8.7% in 2009, 8.4% in 2010 and then declining 0.2% assets is based on target asset allocation of each plan, historical per year until it reaches 4.5% in 2029 and remaining at that level market performance, relevant forward-looking economic analyses, thereafter. expected returns, variances, and correlations for different asset cat- A one-percentage-point increase and decrease in assumed egories held. health care cost trend rates in the US would effect post-employment The assumed health care cost trend rate used in measuring the benefi t obligation by € 1 million and € –1 million, correspondingly. accumulated post-employment benefi t obligation for US plans was ACCOUNTS FOR 2009 group

The amounts of pension and post-employment medical benefi t plans recognised in the balance sheet as at 31 December 2009 €m Finland Germany UK Canada US Other Total Present value of funded obligations 269 – 278 3 – 15 565 Present value of unfunded obligations – 348 – 12 21 48 429 Fair value of plan assets –310 – –218 – – –12 –540 Unrecognised actuarial gains and losses –81 –55 –114 – –5 –7 –262 Unrecognised past service cost – – – – 1 – 1 Net liability –122 293 –54 15 17 44 193

The amounts of pension and post-employment medical benefi t plans recognised in the balance sheet as at 31 December 2008 €m Finland Germany UK Canada US Other Total Present value of funded obligations 227 – 166 136 – 14 543 Present value of unfunded obligations – 296 – 12 24 43 375 Fair value of plan assets –256 – –179 –127 – –11 –573 Unrecognised actuarial gains and losses –92 –6 –38 – –5 –3 –144 Net liability –121 290 –51 21 19 43 201

Funded status for pension and post-employment medical benefi t plans As at 31 December €m 2009 2008 2007 2006 2005 Present value of defi ned benefi t obligations 994 918 1,203 1,227 1,182 Fair value of plan assets 540 573 753 681 625 Defi cit 454 345 450 546 557

Experience adjustments on plan liabilities 14 –13 21 20 –13 Experience adjustments on plan assets 58 –153 8 20 21

30 PROVISIONS Restructuring Termination Environmental Emission rights Other €m provisions provisions provisions provision provisions Total At 1 Jan. 2008 18 98 21 – 34 171 Translation difference –2 –6 –1 – –3 –12 Additional provisions and increases to existing provisions 32 45 2 30 2 111 Utilised during year –14 –43 –5 – –13 –75 Unused amounts reversed – –3 –1 – – –4 At 31 Dec. 2008 34 91 16 30 20 191

At 1 Jan. 2009 34 91 16 30 20 191 Translation difference –1–––1 Additional provisions and increases to existing provisions 42 21 7 15 29 114 Utilised during year –20 –40 –3 –30 –15 –108 Unused amounts reversed –1 –4 – – –2 –7 At 31 Dec. 2009 55 69 20 15 32 191 group ACCOUNTS FOR 2009

Provisions 31 INTEREST-BEARING LIABILITIES Restructuring provisions include charges related primarily to dis- As at 31 December mantling of closed mills. Termination provisions are concerned €m 2009 2008 with operational restructuring as well as unemployment arrange- Non-current interest-bearing liabilities ments and disability pensions primarily in Finland where the unem- Bonds 1,878 2,043 ployment pension provisions have been recognised 2–3 years before Loans from fi nancial institutions 919 1,078 the grant and settlement of the pension. Pension loans 924 919 Additions in restructuring and termination provisions in 2009 Trade payables 8 9 relate mainly to the Group's plan to improve the Plywood and Finance lease liabilities 95 99 Timber businesses' competitiveness in Finland. The measures Derivative fi nancial instruments 139 147 Other liabilities 201 239 include mill closures and approximately a total of 830 employees is 4,164 4,534 estimated to become redundant. In 2008, increases in provisions relate mainly to the closures of the Kajaani paper mill and the Current Interest-bearing liabilities Tervasaari pulp mill. Current portion of long-term debt 167 352 Environmental provisions include expenses relating to old mill Short-term loans 64 50 sites and the remediation of industrial landfi lls. Derivative fi nancial instruments 46 105 The company takes part in government programmes aimed at Other liabilities 23 30 reducing greenhouse gas emissions. In 2009, the Group has recog- 300 537 nised a provision amounting to € 15 million (30 million) to cover Liabilities related to assets classifi ed the obligation to return emission rights. The company possesses as held for sale (Note 18) – 2 Total interest-bearing liabilities 4,464 5,073 emission rights worth of € 16 million (31 million) as intangible assets.

As at 31 December €m 2009 2008 Non-current provisions 107 100 Current provisions 84 91 Total 191 191

As of 31 December 2009 the contractual maturity of interest-bearing liabilities €m 2010 2011 2012 2013 2014 2015+ Total Bonds Repayments 59 – 636 – 347 814 1,856 Interests 110 109 109 71 71 389 860 169 109 745 71 418 1,203 2,716 Loans from fi nancial institutions Re p a y m e n t s 76 110 111 151 67 33 8 853 Committed facilities ––140–––140 Interests 21 24 26 24 20 27 143 97 134 277 175 87 365 1,136 Pension loans Repayments 24 157 150 150 83 333 897 Interests 39 37 30 24 18 35 184 63 194 180 174 101 368 1,081 Financial leases Repayments 484344–99 Interests 34––––7 788344–106 Other loans Repayments 34533–158211 Interests 7555579107 10 50 8 8 5 237 318 Interest rate swaps (liabilities) Repayments 33––––95128 Interests –33345871 333334153199 Current loans Repayments 87–––––87 Interests 1–––––1 88–––––88

Guarantees, repayments 8–––––8 Long term loans repayments excl. committed facilities 166 396 903 307 501 1,643 3,916 ACCOUNTS FOR 2009 group

As of 31 December 2008 the contractual maturity of interest-bearing liabilities €m 2009 2010 2011 2012 2013 2014+ Total Bonds Repayments 250 138 – 636 – 1,071 2,095 Interests 127 110 105 105 67 415 929 377 248 105 741 67 1,486 3,024 Loans from fi nancial institutions Repayments 46 29 43 37 72 211 438 Committed facilities – 253 – 434 – – 687 Interests 39 28 26 16 12 22 143 85 310 69 487 84 233 1,268 Pension loans Repayments 39 22 156 148 148 410 923 Interests 38 39 36 30 24 52 219 77 61 192 178 172 462 1,142 Financial leases Repayments 4 4 84 3 3 5 103 Interests 44411115 8888446118 Other loans Repayments 54443208228 Interests 8788893132 13 11 12 12 11 301 360 Interest rate swaps (liabilities) Repayments –––––107107 Interests 7578865100 75788172207 Current loans Repayments 74–––––74 Interests 1––––– 1 75–––––75

Guarantees, repayments 10–––––10 Long term loans repayments excl. committed facilities 344 197 287 828 226 1,905 3,787 Amounts are based on the exchange rates and interests on the reporting date. Difference between above listed cash-based repayment amounts and the respective balance sheet values mainly arise from fair value adjustments in the balance sheet items.

Bonds in interest-bearing liabilities Accordingly the positive fair value of the hedging instruments Interest Nominal As at 31 Dec. excluding accrued interest amounts to € 219 million (345 million) in rate value issued 2009 2008 assets, and negative fair value of € 44 million in liabilities (31 mil- % m €m €m lion). The effect of the fair value hedge ineffectiveness on the Fixed rate income statement was gain € 2 million (loss € 21 million). 1997–2027 7.450 USD 375 310 395 1999–2009 6.350 EUR 250 – 250 2000–2030 3.550 JPY 10,000 38 48 NET INTEREST-BEARING LIABILITIES 2002–2012 6.125 EUR 600 627 619 As at 31 December 2002–2014 5.625 USD 500 362 393 €m 2009 2008 2002–2017 6.625 GBP 250 297 284 2003–2018 5.500 USD 250 184 209 Total interest-bearing liabilities 4,464 5,073 2008–2018 7.000 USD 35 24 – 1,842 2,198 Interest-bearing fi nancial assets Non-current Floating-rate Loan receivables 9 9 2002–20101.898EUR595959Derivative fi nancial instruments 222 345 2002–2012 2.161 EUR 25 25 25 Other receivables 20 5 2002–20121.947EUR111111 251 359 95 95 Current Bonds, total 1,937 2,293 Loan receivables 13 8 Current portion –59 –250 Other receivables 4 12 Bonds, long-term portion 1,878 2,043 Derivative fi nancial instruments 28 43 Cash and cash equivalents 438 330 483 393 Fair value hedge of the long-term interest-bearing liabilities Interest-bearing fi nancial assets 734 752 Fair value hedge accounting in accordance with IAS 39 results in a cumulative fair value adjustment totalling € 134 million (275 mil- Net interest-bearing liabilities 3,730 4,321 lion), which has increased (2008 increased) the carrying amounts of the liabilities. group ACCOUNTS FOR 2009

Finance lease liabilities 32 OTHER LIABILITIES As at 31 December 2009 the Group has one power plant acquired As at 31 December under sale and leaseback agreement. The Group uses the electrical €m 2009 2008 power generated by this plant in its own production. Payments of Derivative fi nancial instruments 25 18 this power plant are due by the end of 2011. Other 26 7 In addition the Group leases certain tangible assets under long- Total 51 25 term arrangements. Other interest-bearing liabilities include a loan of € 47 million (50 million) based on a sale and leaseback arrangement, which does 33 TRADE AND OTHER PAYABLES not involve a lease in substance, of specifi ed plywood production As at 31 December machinery and equipment in Finland. The lease period is eight €m 2009 2008 years without any restrictions on the manufacturing use of the Advances received 8 14 assets. Trade payables 647 594 Amounts due to associates and joint ventures 29 25 Accrued expenses and deferred income 411 450 Finance lease liabilities – minimum lease payments Derivative fi nancial instruments 44 83 Other current liabilities 67 92 As at 31 December Total 1,206 1,258 €m 2009 2008

Not later than 1 year 7 8 Trade and other payables mature within 12 months. 1–2 years 88 8 2–3 years 3 88 3–4 years 4 4 4–5 years 4 4 Main items included in accrued expenses Later than 5 years – 6 and deferred income 106 118 As at 31 December Future fi nance charges –7 –15 €m 2009 2008 Finance lease liabilities – the present value Personnel expenses 171 194 of minimum lease payments 99 103 Interest expenses 72 79 Indirect taxes 17 11 Other items 1) 151 166 Finance lease liabilities – the present value of minimum Total 411 450 lease payments 1) Consists mainly of customer rebates. As at 31 December €m 2009 2008 Not later than 1 year 7 8 1–2 years 82 7 2–3 years 3 77 3–4 years 3 3 4–5 years 4 3 Later than 5 years – 5 Total 99 103 ACCOUNTS FOR 2009 group

34 CARRYING AMOUNTS OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORIES, AS DEFINED IN IAS 39, AND FAIR VALUES Financial Financial assets/ Available liabilities Carrying liabilities at fair for sale Derivatives measured at amounts 2009 value through Loans and fi nancial used for amortised by balance Balance sheet item profi t or loss receivables assets hedging cost sheet item Fair value Note Non-current fi nancial assets Available-for-sale investments – – 320 – – 320 320 22 Non-current fi nancial assets Loan receivables – 17 – – – 17 17 23 Derivative fi nancial instruments 28 – – 218 – 246 246 23 263 263 Current fi nancial assets Trade and other receivables Trade and other receivables – 1,253 – – – 1,253 1,253 26 Prepayments and accrued income – 73 – – – 73 73 26 Derivative fi nancial instruments 98 – – 22 – 120 120 26 1,446 1,446

Carrying amount by category 126 1,343 320 240 – 2,029 2,029

Non-current fi nancial liabilities Non-current interest-bearing liabilities Non-current interest-bearing liabilities – – – – 4,025 4,025 3,894 31 Derivative fi nancial instruments 95 – – 44 – 139 139 31 4,164 4,033 Other liabilities Other liabilities 2 – – – 24 26 26 32 Derivative fi nancial instruments25––––252532 51 51 Current fi nancial liabilities Current interest-bearing liabilities Interest-bearing liabilities – – – – 254 254 254 31 Derivative fi nancial instruments46––––464631 300 300 Trade and other payables Trade and other payables 2 – – – 749 751 751 33 Accrued expenses and deferred income – – – – 411 411 411 33 Derivative fi nancial instruments 18 – – 26 – 44 44 33 1,206 1,206

Carrying amount by category 188 – – 70 5,463 5,721 5,590 group ACCOUNTS FOR 2009

Financial Financial assets/ Available liabilities Carrying liabilities at fair for sale Derivatives measured at amounts 2008 value through Loans and fi nancial used for amortised by balance Balance sheet item profi t or loss receivables assets hedging cost sheet item Fair value Note Non-current fi nancial assets Available-for-sale investments – – 116 – – 116 116 22 Non-current fi nancial assets Loan receivables – 16 – – – 16 16 23 Derivative fi nancial instruments4––341–34534523 361 361 Current fi nancial assets Trade and other receivables Trade and other receivables–1,363–––1,3631,36326 Prepayments and accrued income–54–––545426 Derivative fi nancial instruments154––115–26926926 1,686 1,686

Carrying amount by category 158 1,433 116 456 – 2,163 2,163

Non-current fi nancial liabilities Non-current interest-bearing liabilities Non-current interest-bearing liabilities – – – – 4,387 4,387 3,867 31 Derivative fi nancial instruments 116 – – 31 – 147 147 31 4,534 4,014 Other liabilities Other liabilities – – – – 7 7 7 32 Derivative fi nancial instruments18––––181832 25 25 Current fi nancial liabilities Current interest-bearing liabilities Interest-bearing liabilities – – – – 432 432 432 31 Derivative fi nancial instruments105––––10510531 537 537 Trade and other payables Trade and other payables – – – – 725 725 725 33 Accrued expenses and deferred income – – – – 450 450 450 33 Derivative fi nancial instruments 35 – – 48 – 83 83 33 1,258 1,258

Carrying amount by category 274 – – 79 6,001 6,354 5,834

Fair values of long-term loans, have been estimated as follows: The fair value of the quoted bonds is based on the quoted market value as of 31 December. The fair value of fi xed rate and market-based fl oating rate loans is estimated using the expected future payments discounted at market interest rates. The carrying amounts of current fi nancial assets and liabilities approximate their fair value. ACCOUNTS FOR 2009 group

35 DERIVATIVE FINANCIAL INSTRUMENTS Group Name of the subsidiary, country of incorporation holding % Net fair values of derivative fi nancial instruments OOO UPM-Kymmene Forest Russia, RU 100.00 As at 31 December UPM-Kymmene France S.A.S., FR 100.00 2009 2009 2009 2008 UPM-Kymmene Inc., US 100.00 Positive Negative Net fair Net fair UPM-Kymmene India PVT Ltd, IN 100.00 €m fair values fair values values values UPM-Kymmene Japan K.K., JP 100.00 Interest rate swaps UPM-Kymmene Kagit Urunleri San. ve Tic Ltd. Sti., TR 100.00 Fair value hedges 219 – 219 322 UPM-Kymmene NV/SA, BE 99.60 Held for trading 68 – 68 48 UPM-Kymmene Otepää AS, EE 100.00 Forward foreign exchange OOO UPM-Kymmene Pestovo, RU 100.00 contracts UPM-Kymmene Sales GmbH, DE 100.00 Cash fl ow hedges 21 –14 7 18 UPM-Kymmene Seven Seas Oy, FI 100.00 Net equity hedges – –12 –12 45 UPM-Kymmene Sp.z o.o., PL 100.00 Held for trading 34 –24 10 –12 UPM-Kymmene S.A., ES 100.00 Currency options UPM-Kymmene S.r.l., IT 100.00 Held for trading – – – – UPM-Kymmene Wood Oy, FI 100.00 Cross currency swaps UPM-Kymmene Wood S.A., FR 99.99 Fair value hedges – –44 –44 –8 UPM-Kymmene (Changshu) Paper Industry Co. Ltd, CN 100.00 Held for trading – –133 –133 –142 UPM-Kymmene (UK) Ltd, GB 100.00 Commodity Contracts UPM GmbH, DE 100.00 Held for trading 24 –27 –3 –10 UPM Rafl atac Canada Inc., CA 100.00 Interest rate forward UPM Rafl atac GmbH, DE 100.00 contracts UPM Rafl atac Iberica S.A., ES 100.00 Held for trading – – – – UPM Rafl atac Inc., US 100.00 Total 366 –254 112 261 PT UPM Rafl atac Indonesia, ID 100.00 UPM Rafl atac Kft., HU 100.00 Notional amounts of derivative fi nancial instruments UPM Rafl atac Ltd, GB 100.00 As at 31 December UPM Rafl atac Mexico S.A. de C.V., ME 100.00 €m 2009 2008 UPM Rafl atac NZ Limited, NZ 100.00 Interest rate swaps 2,701 2,833 UPM Rafl atac Oy, FI 100.00 Forward foreign exchange contracts 3,791 4,598 UPM Rafl atac South Africa (Pty) Ltd, ZA 100.00 Currency options 40 – UPM Rafl atac S.A.S., FR 100.00 Cross currency swaps 514 508 UPM Rafl atac Sdn. Bhd., MY 100.00 Commodity contracts 175 258 UPM Rafl atac Pty Ltd, AU 100.00 Interest rate forward contracts 3,259 2,668 UPM Rafl atac RFID (Guangzhou) Co. Ltd, CN 100.00 UPM Rafl atac Co., Ltd, TH 100.00 UPM Rafl atac (Changshu) Co. Ltd, CN 100.00 36 PRINCIPAL SUBSIDIARIES AS AT 31 DECEMBER 2009 UPM Rafl atac (S) Pte Ltd, SG 100.00 Werla Insurance Company Ltd, GB 100.00 Group Name of the subsidiary, country of incorporation holding % The table includes subsidiaries with sales exceeding € 2 million. Blandin Paper Company, US 100.00 Botnia S.A., UY 91.00 Forestal Oriental S.A., UY 100.00 37 SHARE-BASED PAYMENTS Lignis GmbH & Co. KG, DE 74.90 Nordland Papier GmbH, DE 100.00 Share options granted to key personnel Norfolk House Management Ltd, GB 95.00 The Annual General Meeting held on 31 March 2005 approved the NorService GmbH, DE 100.00 Board of Directors’ proposal to issue share options to the Group’s nortrans Speditionsgesellschaft mbH, DE 100.00 key personnel. The number of share options was 9,000,000 and Silvesta Oy, FI 100.00 these can be exercised to subscribe a maximum total of 9,000,000 Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG, AT 100.00 UPM-Kymmene Corporation shares. A total of 3,000,000 of the ZAO Tikhvinsky Komplexny Lespromkhoz, RU 99.99 share options were designated 2005F, 3,000,000 2005G and Tilhill Forestry Ltd, GB 100.00 3,000,000 2005H. The subscription periods were 1 October 2006 to UPM Sähkönsiirto Oy, FI 100.00 31 October 2008 for 2005F options, 1 October 2007 to 31 October OOO UPM-Kymmene, RU 100.00 2009 for 2005G options, and the subscription period for 2005H UPM-Kymmene AB, SE 100.00 options is 1 October 2008 to 31 October 2010 UPM-Kymmene A/S, DK 100.00 UPM-Kymmene AS, NO 100.00 The subscription price for 2005F share options was the average UPM-Kymmene Asia Pacifi c Pte Ltd, SG 100.00 trade-weighted price for the company’s share on the Helsinki stock UPM-Kymmene Austria GmbH, AT 100.00 exchange between 1 January and 28 February 2005 plus 10%, i.e. UPM-Kymmene B.V., NL 100.00 € 18.23 per share. The subscription price for 2005G options was the OOO UPM-Kymmene Chudovo, RU 100.00 average trade-weighted share price between 1 January and 28 Feb- UPM-Kymmene Forest AS, EE 100.00 ruary 2006 plus 10%, i.e. € 18.65 per share, and that for 2005H group ACCOUNTS FOR 2009

options the average trade-weighted share price between 1 January Ltd, during 1 April to 31 May 2008 for share option 2007A i.e. and 28 February 2007 plus 10%, i.e. € 21.65 per share. The share € 12.40 per share, during 1 April to 31 May 2009 for share option subscription prices will be reduced by the amount of dividend 2007B i.e. € 6.24 per share and during 1 April to 31 May 2010 for confi rmed after the end of the subscription price determination share option 2007C. period and before the date of share subscription, in each case on the record date for dividend distribution. Share-based rewards The share subscription period for stock options 2005F ended The Board of Directors has decided on the Share Ownership Plan on 31 October 2008. During the entire share subscription period a for key personnel including three earning periods, each lasting for a total of 4,000 stock options 2005F were used for the subscription calendar year (2008, 2009 and 2010). The amount of the earned of 4,000 shares. reward will be determined based on established targets. Targets are The share subscription period for stock options 2005G ended decided separately for each individual year by the Board of on 31 October 2009. During the entire share subscription period no Directors. The maximum total reward under the Share Ownership shares were subscribed with stock options 2005G. At the end of the Plan is 1,250,000 shares and cash payment equivalent to taxes is exercise period the subscription price was € 16.00 per share. paid under the Share Ownership Plan. The amount to be paid in Share subscriptions based on 2005H options may increase the cash may not be more than the value of shares given. Shares number of shares by a total maximum of 3,000,000. awarded under the Share Ownership Plan require a two-year hold- The Annual General Meeting held on 27 March 2007 approved ing period and employment. The Share Ownership Plan also the Board of Directors’ proposal to issues share options to the includes a recommendation for the President and CEO and the Group’s key personnel. The number of options may not be more members of the Group Executive Team to hold the awarded shares than 15,000,000 and they will entitle to subscribe in total no more to the extent the aggregate value of such shares corresponds half of than 15,000,000 new shares of the company. Of the share options, their respective annual fi xed salary before taxes. 5,000,000 are marked with the symbol 2007A, 5,000,000 are In 2009, a total of 30,000 shares were given to the President marked with the symbol 2007B and 5,000,000 shall be marked with and CEO under terms and conditions of the Share Ownership the symbol 2007C. The subscription periods shall be 1 October Plan. 2010 to 31 October 2012 for share options 2007A, 1 October 2011 In 2008, a total of 57,400 shares were given to 12 key employees to 31 October 2013 for share options 2007B, and 1 October 2012 to under the terms and conditions of the share ownership rewards 31 October 2014 for share options 2007C. scheme. Of this amount, 15,800 shares were given to the President The share subscription price shall be the trade volume weighted and CEO, and a total of 26,800 shares to the other Group Execu- average quotation of the share on the NASDAQ OMX Helsinki tive Team members.

Changes in the numbers of share options granted 2009 2008 Weighted average Number of Weighted average Number of exercise price, € share options exercise price, € share options Outstanding 1 Jan. 18.28 5,738,000 15.91 12,285,750 Share options granted 9.19 9,115,000 20.15 254,500 Share options forfeited 8.74 –74,000 20.15 –124,000 Share options exercised – – 10.53 –3,691,884 Share options expired 16.00 –2,866,000 15.13 –2,986,366 Outstanding 31 Dec. 11.74 11,913,000 18.28 5,738,000 Exercisable share options 31 Dec. 2,872,000 5,738,000

Weighted average remaining contractual life was 33 and 16 months as at 31 December 2009 and 2008, respectively.

Outstanding share option plans as at 31 December 2009

Plan/Distribution Exercise price Total number of Number of share Vesting 1) of share options Class at 1 Jan. at 31 Dec. share options options granted Exercise period schedule 2007/2009 B – 6.24 5,000,000 4,743,000 1.10.2011–31.10.2013 1.10.2011 2007/2009 A – 12.40 5,000,000 4,372,000 1.10.2010–31.10.2012 1.10.2010 2005/2007 H 20.15 19.75 3,000,000 2,872,000 1.10.2008–31.10.2010 Vested 13,000,000 11,987,000

1) Vesting periods range from 21 to 25 months. ACCOUNTS FOR 2009 group

The Black-Scholes valuation model and the following weighted proportion of the Group’s electricity procurement comes from average assumptions are used in measuring the fair value of share Pohjolan Voima Oy, a Finnish energy producer in which the Group options issued in 2009 and 2008: holds a 43.07% equity interest, and from Kemijoki Oy, a Finnish 2009 2008 hydropower producer in which the Group holds a 4.13% equity Share price, € 8.14 13.99 interest. Pohjolan Voima Oy is also a majority shareholder in Teol- Exercise price, € 9.19 20.15 lisuuden Voima Oy, one of Finland’s two nuclear power companies. Volatility 1) 38% 25% The combined total of these energy purchases in 2009 was € 223 Risk-free interest rate 3% 4% million (222 million). In accordance with the articles of association Assumed annual dividend yield 5% – of the power companies and with related shareholder agreements, Expected option life, year 4 2 the prices paid by the Group to the power companies are based on 1) Volatility is a measure of price changes expressed in terms of the standard production costs, which are generally lower than market prices. deviation of the price of the security in question over the period of analysis. Internal sales to the Group’s segments are based on the prevailing In the calculations the volatility is based on three- and four-year periods. market price. Volatility is reported as an annual percentage fi gure. Relating to research and development activities, the Group is Assumed forfeiture used in 2009 was 3% and 2008 was 5%. not currently participating to any major arrangements that involve joint control or signifi cant infl uence. Until January 2009, approxi- 38 RELATED PARTY TRANSACTIONS mately 10% of the Group’s research and development work had been conducted by Oy Keskuslaboratorio-Centrallaboratorium Ab The Board of Directors and the Group Executive Team ("KCL"). The operations with KCL were reorganised in 2009, and There have not been any material transactions between UPM and consequently the Group's co-operation with KCL decreased. its members of the Board of Directors or the Group Executive The Group purchases recovered paper partially from the follow- Team or persons closely associated with these members or organisa- ing three associated companies. LCI s.r.l. is an Italian recovered tions in which these individuals have control or signifi cant infl u- paper purchasing company in which the Group has a 50% interest. ence. There are no loans granted to any members of the Board of In 2009 the total value of recovered paper purchases from LCI was Directors or the Group Executive Team at 31 December 2009 and € 9 million (25 million). In Finland the Group has a 22,98% interest 2008. Shares and share options held by the members of the Board in Paperinkeräys Oy, a company engaged in the procurement, of Directors and members of the Group Executive Team are dis- processing and transport of recovered paper. In 2009 the total value closed in page 70 and 72. Remuneration to the members of the of raw material purchases from Paperinkeräys Oy was € 10 million Board of Directors and the Group Executive Team are disclosed in (12 million). Recovered paper is sold to the Group and other share- Note 7. holders of Paperinkeräys Oy at a contract-based price that takes into account paper recycling expenses and the world market prices Associated companies and joint ventures for recovered paper. In Austria, the Group has a similar arrange- Until 8 December 2009 the Group held a 47% interest in Oy ment concerning recovered paper which is purchased from Austria Metsä-Botnia Ab, an associated company with M-real Corporation Papier Recycling G.m.b.H., a company in which the Group owns a and Metsäliitto Cooperative. M-real is a Finnish paper and board 33.3% equity interest. In 2009 the total value of recovered paper producer and Metsäliitto is a co-operative organisation of Finnish purchases was € 11 million (16 million). forest owners. Metsäliitto is also the controlling shareholder of The Group’s associated companies and joint ventures and M-real. transactions and balances with associated companies and joint On 8 December, UPM, Metsäliitto Cooperative, M-real ventures are presented in Note 21. Corporation and Metsä-Botnia completed a transaction whereby Metsäliitto's and Metsä-Botnia's shares of the Fray Bentos pulp Pension Funds mill and the eucalyptus plantation forestry company Forestal Ori- In Finland, UPM has a pension foundation, Kymin Eläkesäätiö, ental in Uruguay were acquired by UPM and UPM sold approxi- which is a separate legal entity. The pensions of about 8% of the mately 30% in Metsä-Botnia to Metsäliitto. Following the transac- Group’s Finnish employees are arranged through the foundation. tion, as of December 2009, Metsä-Botnia is no longer UPM's asso- In 2009 the contributions paid by UPM to the foundation ciated company but accounted for as an available-for-sale-investment. amounted to € 16 million (47 million). The foundation manages Chemical pulp produced by Metsä-Botnia has been sold to the and invests the contributions paid to the plan. The fair value of the Group and to M-real at the market price less certain transportation foundation’s assets at 31 December 2009 was € 271 million (222 and other costs. In 2008, the Group's chemical pulp annual entitle- million), of which 50% was in the form of equity instruments, 35% ment with respect to the production of Metsä-Botnia was 1.8 mil- in the form of debt instruments and 15% invested in property and lion tonnes. After the transaction, UPM's share of Metsä-Botnia's money market. capacity was reduced to annual 400,000 tonnes. For the fi rst eleven The Group participates in two UK Pension Schemes which months of 2009, the total purchases of chemical pulp from associ- operate within two separate and independent Trusts, both outwith ated company Metsä-Botnia amounted to € 272 million compared the Company. One scheme consists of various defi ned benefi t sec- to purchases in 2008 of € 287 million. tions plus a defi ned contribution section, and the other scheme The Group obtains most of the energy for its production units consists of a defi ned benefi t section only. All defi ned benefi t sec- in Finland from the Group’s owned and leased power plants, as well tions were closed to future accrual as at 31 December 2007 and all as through ownership in power companies which entitles it to active members as at that date became deferred members and were receive electricity and heat from those companies. A signifi cant invited to join the Group's single UK Defi ned Contribution Pen- group ACCOUNTS FOR 2009

sion Scheme. The Group made no contributions to the Defi ned In the normal course of business, certain subsidiaries of Benefi t Schemes in 2009 (GBP 44 million). The fair value of the UPM-Kymmene Corporation, especially in Germany, grant com- UK Defi ned Benefi t funds assets at 31 December 2009 was GBP mercial guarantees to their customers to help them purchase goods 194 million, of which 64% was invested in equity instruments, 28% from the subsidiary. The Group has no liability with respect to in debt instruments and 8% in property and cash. these commercial guarantees, but they are covered by its credit risk insurance. These guarantees mature within one year. The maximum Subsidiaries potential amount of future payments under these guarantees The Group’s principal subsidiaries are disclosed in Note 36. amounted to € 13 million at 31 December 2009 and € 13 million at 31 December 2008. They are included in the amounts disclosed in the table under “Other commitments”. 39 COMMITMENTS AND CONTINGENCIES Commitments Contingent liabilities As at 31 December The Group is a defendant or plaintiff in a number of legal proceed- €m 2009 2008 ings incidental to its operations. These lawsuits primarily involve On own behalf claims arising out of commercial law issues. Mortgages and pledges1) 1,043 787 The investigations of certain competition authorities into alleged antitrust activities with respect to various UPM products, as On behalf of associated companies and joint ventures well as litigation arising therefrom, have ended in all material Guarantees 8 10 respects. In Finland, UPM is participating in the building project of a On behalf of others new nuclear power plant, Olkiluoto 3, through its associated com- Guarantees 1 2 pany Pohjolan Voima Oy. Pohjolan Voima Oy is a majority share- holder of Teollisuuden Voima Oy (“TVO”) with 58.28% of shares. Other commitments, own UPM’s indirect share of the capacity of the Olkiluoto 3 is approxi- Operating leases, due within 12 months 24 17 mately 29%. The original agreed timetable for the start up was Operating leases, due after 12 months 60 56 summer 2009 but the construction of the unit is delayed. The latest Other commitments 69 62 anticipated start-up time is after June 2012. TVO has requested the Total 1,205 934 plant supplier, the consortium AREVA-Siemens to provide a re- analysis of the anticipated start-up time. Mortgages and pledges 1,043 787 Guarantees 9 12 TVO has informed UPM that the arbitration fi led in December Operating leases 84 73 2008 by AREVA-Siemens, concerning the delay at Olkiluoto 3 and Other commitments 69 62 related costs, amounted to € 1.0 billion. In response, TVO fi led a Total 1,205 934 counter-claim in April 2009 for costs and losses that TVO is incur- 1) ring due to the delay and other defaults on the part of the supplier. Mortgages and pledges relate mainly to Uruguayan operations, and to giving mandatory security for borrowing from Finnish pension insurance companies. The value of TVO’s counterclaim was approximately € 1.4 billion.

Commitments Property under mortgages given as collateral for own commitments In the normal course of business, UPM-Kymmene Corporation include property, plant and equipment, industrial estates and forest and some of its subsidiaries enter into various agreements provid- land. ing fi nancial or performance assurance to third parties on behalf of those subsidiaries. These agreements are entered into primarily to Commitments related to associated companies and joint ventures support or enhance the creditworthiness of subsidiaries so that they As at 31 December can accomplish their intended business purposes. The maximum €m 2009 2008 amount of future payments for which UPM-Kymmene Proportionate interest in joint ventures’ commitments 22 22 Corporation is liable on behalf of its subsidiaries are disclosed in Contingent liabilities relating to the Group’s interest the table below under “Other commitments”. in the joint ventures 6 8 The Group has also entered into various agreements to provide Share of associated companies contingent liabilities1) 215 239 fi nancial or performance assurance to third parties on behalf of 1) Includes mortgages and pledges of € 39 million (74 million), operating leases certain companies in which the Group has a minority interest. € 169 million (156 million) and other commitments € 7 million (9 million). These agreements are entered into primarily to support or enhance the creditworthiness of these companies. The Group has no collat- Operating lease commitments – eral or other recourse provisions related to these guarantees. The where a Group company is the lessee maximum amounts of future payments by UPM-Kymmene The Group leases offi ce, manufacturing warehouse space and ves- Corporation on behalf of its associated companies under these sels under time charter agreements under various non-cancellable guarantees are disclosed in the table below under “Guarantees on operating leases. Certain contracts contain renewal options for behalf of associated companies”. It is the Group’s policy not to various periods of time. give guarantees on behalf third parties, and the commitments included under the caption “Guarantees on behalf of others” in the table relate mainly to companies that have been sold. ACCOUNTS FOR 2009 group

The future costs for contracts exceeding one year and for Capital commitments at the balance sheet date but not recognised non-cancellable operating lease contracts in the fi nancial statements; major commitments under construction As at 31 December listed below €m 2009 2008 Commitment as at 31 December Not later than 1 year 25 17 Total €m cost 2009 2008 1–2 years 19 17 2–3 years 15 13 Materials recovery facility (MRF), Shotton 19 19 – 3–4 years 10 11 Waste water treatment plant, Blandin 19 19 19 4–5 years 4 9 Plywood development 18 18 – Later than 5 years 12 6 Rebuild of debarking plant, Wisaforest 30 16 29 Total 85 73 Energy saving TMP plant, Steyrermühl 16 16 –

40 EVENTS AFTER THE BALANCE SHEET DATE

The Group's management is not aware of any signifi cant events occurring after 31 December 2009.

parent company ACCOUNTS FOR 2009

PARENT COMPANY ACCOUNTS (Finnish Accounting Standards, FAS)

INCOME STATEMENT CASH FLOW STATEMENT Year ended 31 Dec. Year ended 31 Dec. €m Note 2009 2008 €m 2009 2008 Turnover 1) 3,535 4,738 Operating activities Change in inventories of fi nished goods and work Profi t (loss) before extraordinary items 403 –21 in progress –68 –54 Financial income and expenses –125 70 Production for own use 13 19 Adjustments to operating profi t a) 122 533 Other operating income 2) 415 55 Change in working capital b) 555 –167 Materials and services Interest paid –169 –231 Materials and consumables Dividends received 32 56 Purchases during the fi nancial period –1,845 –2,808 Interest received 20 64 Change in inventories –142 110 Other fi nancial items –58 177 External services –252 –349 Income taxes paid c) –1 –21 –2,239 –3,047 Net cash from operating activities 779 460 Personnel expenses Wages and salaries 3) –388 –479 Investing activities Social security expenses Investments in tangible and intangible assets –123 –303 Pension expenses –82 –125 Proceeds from sale of tangible and intangible assets 56 49 Other social security expenses –30 –45 Investments in shares and holdings –623 –14 –500 –649 Proceeds from sale of shares and holdings 592 185 Depreciation and value adjustments 4) Increase in other investments –29 – Depreciation according to plan –319 –342 Decrease in other investments 17 25 Value adjustments to goods held as Net cash used in investing activities –110 –58 non-current assets –3 –184 –322 –526 Financing activities Other operating costs and expenses –556 –487 Increase in non-current liabilities 148 940 Operating profi t 278 49 Decrease in non-current liabilities –941 –565 Increase or decrease in current liabilities 346 –396 Financial income and expenses Dividends paid –208 –384 Income from investments held as non-current assets Group contributions, received and paid 5 49 Dividends from Group companies 8 39 Share options exercised – 78 Dividends from participating Net cash used in fi nancing activities –650 –278 interest companies 353 18 Interest income from Group companies 2 15 Cash and cash equivalents Other interest and fi nancial income Change in cash and cash equivalents 19 124 Other interest income from Group companies 13 38 Cash and cash equivalents at the beginning of the year 277 153 Other interest income from other companies 4 7 Cash and cash equivalents at year-end 296 277 Other fi nancial income from Group companies – 137 Other fi nancial income from other companies 10 11 Notes to the cash fl ow statement Interest and other fi nancial expenses Interest expenses to Group companies –27 –38 a) Adjustments to operating profi t Interest expenses to other companies –126 –206 Depreciation 319 342 Other fi nancial expenses to Group Gains and losses on sale of non-current assets –197 –30 companies –99 – Value adjustments on non-current assets 2 184 Other fi nancial expenses to other companies –13 –91 Change in provisions –2 37 125 –70 Total 122 533 Profi t (loss) before extraordinary items 403 –21 b) Change in working capital Extraordinary items 5) Inventories 247 –46 Extraordinary income 4 19 Current receivables 359 –21 Extraordinary expenses –1 –14 Current non-interest-bearing liabilities –51 –100 35Total 555 –167 Profi t (loss) before appropriations and taxes 406 –16 c) Taxes stemming from extraordinary items and sales of non-current Appropriations assets are reported here on a net basis. Increase or decrease in accumulated depreciation difference 42 195 Income taxes 6) –3 –42 Profi t for the fi nancial period 445 137 ACCOUNTS FOR 2009 parent company

BALANCE SHEET As at 31 December As at 31 December €m Note 2009 2008 €m Note 2009 2008

ASSETS EQUITY AND LIABILITIES Non-current assets Shareholders’ equity 11) Intangible assets 7) Share capital 890 890 Intangible rights 5 8 Revaluation reserve 546 551 Other capitalised expenditure 231 198 Reserve for invested non-restricted equity 1,145 1,145 Advance payments 7 27 Retained earnings 1,678 1,748 243 233 Profi t for the fi nancial period 445 137 Total equity 4,704 4,471 Tangible assets 8) Land and water areas 1,049 1,039 Appropriations Buildings 541 565 Accumulated depreciation difference 928 969 Machinery and equipment 1,392 1,576 Other tangible assets 67 73 Provisions 12) Advance payments and construction Provisions for pensions 49 52 in progress 10 16 Other provisions 60 59 3,059 3,269 109 111

Investments 9) Non-current liabilities 13) Holdings in Group companies 4,759 4,184 Bonds 1,773 1,845 Receivables from Group companies 55 48 Loans from fi nancial institutions 451 967 Holdings in participating interest Pension loans 790 793 companies 430 648 Advances received 1 1 Receivables from participating Trade payables 1 – interest companies 2 – Payables to Group companies 21 21 Other shares and holdings 271 173 Other liabilities 158 166 Other receivables 9 10 Total non-current liabilities 3,195 3,793 5,526 5,063 Total non-current assets 8,828 8,565 Current liabilities 14) Bonds 59 250 Current assets Loans from fi nancial institutions 4 2 Inventories Pension loans 16 39 Raw materials and consumables 214 357 Advances received 5 5 Finished products and goods 241 309 Trade payables 218 231 Advance payments 24 60 Payables to Group companies 1,354 1,089 479 726 Payables to participating interest companies 29 26 Current receivables 10) Other liabilities 43 54 Trade receivables 78 80 Accruals and deferred income 242 340 Receivables from Group companies 1,158 1,578 Total current liabilities 1,970 2,036 Receivables from participating interest companies 15 30 Total liabilities 5,165 5,829 Other receivables 34 37 Prepayments and accrued income 18 87 1,303 1,812

Cash and cash equivalents 296 277 Total current assets 2,078 2,815

Total assets 10,906 11,380 Total equity and liabilities 10,906 11,380 parent company ACCOUNTS FOR 2009

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

(All amounts in millions of euros unless otherwise stated.)

Accounting policies The the parent company fi nancial statements are prepared in 5 EXTRAORDINARY ITEMS accordance with Finnish Accounting Standards. Main differences €m 2009 2008 in accounting policies between the Group and the parent company Extraordinary income relate to measurement of derivative fi nancial instruments and bio- Group contributions 1 19 logical assets and recognition of defi ned benefi t obligations, revalu- Gains on mergers 3 – ations and deferred income taxes. See Notes to the consolidated Total 4 19 fi nancial statements, Note 1. Extraordinary expenses Group contributions – –14 1 TURNOVER Losses on mergers –1 – Owing to the corporate structure of the Group, the turnover of the –1 –14 Total 35 parent company has not been divided by segment and market.

2 OTHER OPERATING INCOME 6 INCOME TAXES €m 2009 2008 €m 2009 2008 Gains on sale of non-current assets 390 35 Taxes on operating income for the fi nancial period – 44 Rental income 18 14 Income taxes from previous periods –3 –2 Gains on sale of emission rights 1) 65Total –3 42 Other 1 1 Total 415 55 Deferred tax assets and liabilities 1) Emissions trading rights are accounted for on a net basis. Deferred income tax assets and liabilities of the parent company are not recorded on the balance sheet. Deferred tax liability comprises mainly depreciation differences, 3 PERSONNEL EXPENSES for which the deferred tax liability at 31 December 2009 was € 241 €m 2009 2008 million (€ 252 million). Wages and salaries Deferred tax liability is not stated separately for revaluations. Managing director and members of The potential tax liability arising from the sale of revalued assets is the Board of Directors 2) 33€ 183 million (€ 184 million). Other wages and salaries 385 476 Total 388 479 7 INTANGIBLE ASSETS 2) See Notes to the consolidated fi nancial statements, Note 7. €m 2009 2008 2009 2008 Intangible rights Average number of personnel 8,036 9,420 Acquisition cost at 1 Jan. 18 16 Increases 19 25 Owing to the corporate structure of the Group, average number of Decreases –22 –23 Transfers between balance sheet items 1 – personnel has not been divided by segments. Acquisition cost at 31 Dec. 16 18 Accumulated depreciation at 1 Jan. –10 –9 4 DEPRECIATION ACCORDING TO PLAN AND Accumulated depreciation on decreases and transfers 5 1 VALUE ADJUSTMENTS Depreciation for the period –3 –2 Value adjustments and their cancellations –3 – €m 2009 2008 Accumulated depreciation at 31 Dec. –11 –10 Depreciation according to plan Book value at 31 Dec. 5 8 Intangible rights 3 2 Other capitalised expenditure 29 30 Buildings 39 43 Machinery and equipment 239 259 Other tangible assets 9 8 Total 319 342

Value adjustments Non-current assets 3 184 Total 322 526 ACCOUNTS FOR 2009 parent company

€m 2009 2008 €m 2009 2008 Other capitalised expenditure Other tangible assets Acquisition cost at 1 Jan. 383 395 Acquisition cost at 1 Jan. 202 186 Increases 37 8 Increases 2 13 Decreases –7 –25 Decreases –1 –8 Transfers between balance sheet items 26 5 Transfers between balance sheet items – 11 Acquisition cost at 31 Dec. 439 383 Acquisition cost at 31 Dec. 203 202 Accumulated depreciation at 1 Jan. –185 –176 Accumulated depreciation at 1 Jan. –129 –126 Accumulated depreciation on decreases and transfers 6 25 Accumulated depreciation on decreases and transfers 2 8 Depreciation for the period –29 –30 Depreciation for the period –9 –8 Value adjustments and their cancellations – –4 Value adjustments and their cancellations – –3 Accumulated depreciation at 31 Dec. –208 –185 Accumulated depreciation at 31 Dec. –136 –129 Book value at 31 Dec. 231 198 Book value at 31 Dec. 67 73

Advance payments Advance payments and construction in progress Acquisition cost at 1 Jan. 27 7 Acquisition cost at 1 Jan. 16 238 Increases 5 25 Increases 8 16 Transfers between balance sheet items –25 –5 Transfers between balance sheet items –14 –238 Book value at 31 Dec. 7 27 Book value at 31 Dec. 10 16

8 TANGIBLE ASSETS 9 INVESTMENTS €m 2009 2008 €m 2009 2008 Land and water areas Holdings in Group companies Acquisition cost at 1 Jan. 494 491 Acquisition cost at 1 Jan. 4,465 3,703 Increases 22 4 Increases 870 944 Decreases –6 –1 Decreases –102 –182 Transfers between balance sheet items –2 – Acquisition cost at 31 Dec. 5,233 4,465 Acquisition cost at 31 Dec. 508 494 Accumulated depreciation at 1 Jan. –281 –281 Revaluations at 1 Jan. 545 546 Value adjustments and their cancellations –193 – Reversal of revaluation –4 –1 Accumulated depreciation at 31 Dec. –474 –281 Revaluations at 31 Dec. 541 545 Book value at 31 Dec. 4,759 4,184 Book value at 31 Dec. 1,049 1,039 Value adjustments relate to holdings in Group companies in Fin- Buildings land and in foreign countries. The principal subsidiaries are dis- Acquisition cost at 1 Jan. 1,150 1,188 closed in the consolidated fi nancial statements, Note 36. Increases 17 27 Decreases –16 –113 €m 2009 2008 Transfers between balance sheet items 4 48 Acquisition cost at 31 Dec. 1,155 1,150 Receivables from Group companies Accumulated depreciation at 1 Jan. –585 –597 Acquisition cost at 1 Jan. 48 635 Accumulated depreciation on decreases and transfers 11 113 Increases 25 – Depreciation for the period –39 –43 Decreases –18 –587 Value adjustments and their cancellations –1 –58 Acquisition cost at 31 Dec. 55 48 Accumulated depreciation at 31 Dec. –614 –585 Accumulated depreciation on decreases and transfers – 3 Book value at 31 Dec. 541 565 Value adjustments and their cancellations – –3 Book value at 31 Dec. 55 48 Machinery and equipment Acquisition cost at 1 Jan. 5,447 5,641 Holdings in participating interest companies Increases 45 184 Acquisition cost at 1 Jan. 545 533 Decreases –292 –557 Increases 82 12 Transfers between balance sheet items 10 179 Decreases –203 – Acquisition cost at 31 Dec. 5,210 5,447 Transfers between balance sheet items –97 – Accumulated depreciation at 1 Jan. –3,871 –4,049 Acquisition cost at 31 Dec. 327 545 Accumulated depreciation on decreases and transfers 291 556 Revaluations at 1 Jan. 103 103 Depreciation for the period –239 –259 Revaluations at 31 Dec. 103 103 Value adjustments and their cancellations 1 –119 Book value at 31 Dec. 430 648 Accumulated depreciation at 31 Dec. –3,818 –3,871 Book value at 31 Dec. 1,392 1,576 Decreases and transfers relate to the sale of approximately 30% of Oy Metsä-Botnia Ab shares. parent company ACCOUNTS FOR 2009

€m 2009 2008 10 CURRENT RECEIVABLES €m 2009 2008 Receivables from participating interest companies Increases 2 – Trade receivables 537 599 Book value at 31 Dec. 2 – Loan receivables 653 953 Other receivables 34 37 Prepayments and accrued income 79 223 Other shares and holdings Total at 31 Dec. 1,303 1,812 Acquisition cost at 1 Jan. 112 112 Increases 1 – Main items included in current Transfers between balance sheet items 97 – prepayments and accrued income Acquisition cost at 31 Dec. 210 112 Personnel expenses 4 2 Revaluations at 1 Jan. 61 61 Interest income 10 11 Revaluations at 31 Dec. 61 61 Currency derivatives 59 199 Book value at 31 Dec. 271 173 Income taxes – 3 Others 6 8 Other receivables At 31 Dec. 79 223 Acquisition cost at 1 Jan. 10 10 Increases 3 – Receivables from Group companies Decreases –4 – Trade receivables 448 491 Acquisition cost at 31 Dec. 9 10 Loan receivables 649 951 Accumulated depreciation on decreases and transfers 5 – Prepayments and accrued income 61 136 Value adjustments and their cancellations –5 – At 31 Dec. 1,158 1,578 Book value at 31 Dec. 9 10

Receivables from participating interest companies There were no loans granted to the company’s Managing Director Trade receivables 11 28 and members of the Board of Directors at 31 December 2009 or Loans receivables 4 2 2008. At 31 Dec. 15 30

11 S H A R E H O L D E RS’ EQ U I T Y Reserve for invested Total Share Revaluation non-restricted Retained shareholders’ €m capital reserve equity earnings equity

Balance at 1 January 2008 890 551 1,067 2,133 4,641 Share options – – 78 – 78 Dividend paid – – – –384 –384 Other items – – – –1 –1 Profi t for the fi nancial period –––137137 Balance at 31 December 2008 890 551 1,145 1,885 4,471

Revaluations ––5–––5 Dividend paid – – – –208 –208 Other items –––11 Profi t for the fi nancial period –––445445 Balance at 31 December 2009 890 546 1,145 2,123 4,704

12 PROVISIONS €m 2009 2008 €m 2009 2008 Distributable funds at 31 Dec. Provisions for pensions 49 52 Reserve for invested non-restricted equity 1,145 1,145 Closure and restructuring provisions 30 40 Retained earnings from previous years 1,678 1,748 Environmental provisions 17 16 Profi t for the fi nancial period 445 137 Other provisions 13 3 Distributable funds at 31 Dec. 3,268 3,030 Total at 31 Dec. 109 111 ACCOUNTS FOR 2009 parent company

13 NON-CURRENT LIABILITIES 14 CURRENT LIABILITIES €m 2009 2008 €m 2009 2008 Bonds 1,773 1,845 Bonds 59 250 Loans from fi nancial institutions 451 967 Loans from fi nancial institutions 4 2 Pension loans 790 793 Pension loans 16 39 Advances received 1 1 Advances received 5 5 Trade payables 1 – Trade payables 278 301 Other liabilities 179 187 Other liabilities 1,299 1,035 Total at 31 Dec. 3,195 3,793 Accruals and deferred income 309 404 Total at 31 Dec. 1,970 2,036 Payables to Group companies Other liabilities 21 21 Main items included in current accruals and At 31 Dec. 21 21 deferred income Personnel expenses 90 101 Long-term loans and their repayment schedule Interest expenses 13 29 Repayment in 2–5 years Currency derivatives 183 248 Bonds 983 695 Others 23 26 Loans from fi nancial institutions 242 757 At 31 Dec. 309 404 Pension loans 498 437 Advances received 1 1 Payables to Group companies Trade payables 1 – Trade payables 31 45 Payables to Group companies 21 21 Other liabilities 1,256 980 1,746 1,911 Accruals and deferred income 67 64 Repayment later than 5 years At 31 Dec. 1,354 1,089 Bonds 790 1,150 Loans from fi nancial institutions 209 210 Payables to participating interest companies Pensions loans 292 356 Trade payables 29 25 Other liabilities 158 166 Other liabilities – 1 1,449 1,882 At 31 Dec. 29 26

Total at 31 Dec. 3,195 3,793 15 CONTINGENT LIABILITIES €m 2009 2008 Bonds 1) Nominal Mortgages Interest Currency value As security against own debts 764 762 rate of issued 2009 2008 % bond m €m €m Guarantees Guarantees for loans Fixed-rate On behalf of Group companies 1,419 994 1997–2027 7.450 USD 375 260 269 On behalf of participating interest companies 8 10 1999–2009 6.350 EUR 250 – 250 Other guarantees 2000–2030 3.550 JPY 10,000 75 79 On behalf of Group companies 64 67 2002–2012 6.125 EUR 600 600 600 2002–2014 5.625 USD 500 347 359 Leasing commitments2) 2002–2017 6.625 GBP 250 281 263 Commitments for next year 18 18 2003–2018 5.500 USD 250 174 180 Commitments for subsequent years 164 159 1,737 2,000 Floating-rate 1) The mortgages given relate mainly to giving mandatory security for borrowing 2002–2010 1.898 EUR 59 59 59 from Finnish pension insurance companies. 2002–20122.161EUR2525252) The commitments of long-term lease agreements relate to energy purchases 2002–2012 1.947 EUR 11 11 11 and production machinery. 95 95 Bonds, total 1,832 2,095 Current portion –59 –250 Directors’ pension commitments Bonds, long-term portion 1,773 1,845 See Notes to the consolidated fi nancial statements, Note 7.

Related party transactions See Notes to the consolidated fi nancial statements,, Note 38.

Derivate contracts Fair values and notional values are disclosed in the consolidated fi nancial statements (Notes 34 and 35). information on shares UPM

INFORMATION ON SHARES

Changes in number of shares 1 January 2005 – 31 December 2009

Number of shares 2004 Number of shares at 31 Dec. 2004 524,320,252

2005 Options exercised 6,934,878 Treasury shares cancelled –8,000,000 Number of shares at 31 Dec. 2005 523,255,130

2006 Options exercised 4,300 Number of shares at 31 Dec. 2006 523,259,430

2007 Options exercised 5,709,890 Treasury shares cancelled –16,400,000 Number of shares at 31 Dec. 2007 512,569,320

2008 Options exercised 7, 4 0 0 , 76 8 Number of shares at 31 Dec. 2008 519,970,088

2009 Options exercised – Number of shares at 31 Dec. 2009 519,970,088

Stock exchange trading Shares and options held by the Board of Directors and UPM’s shares are listed on NASDAQ OMX Helsinki Ltd. The the Group Executive Team company’s ADSs are traded on the U.S. over-the-counter (OTC) At the end of the year, the members of the Board of Directors market under a Level 1 sponsored American Depositary Receipt including President and CEO owned a total of 1,234,911 programme. (959,785) UPM-Kymmene Corporation shares, including A total of 805.9 million UPM-Kymmene Corporation shares shares held by persons closely associated with him or her or were traded on the Helsinki stock exchange in 2009 (932.1 mil- by organisations of which the person has control. These rep- lion). This represented 155.0% (180.1%) of the total number resent 0.24% of the shares (0.18%) and 0.24% of the voting of shares. The highest quotation was € 9.78 in January and the rights (0.18%). At the end of the year, President and CEO lowest € 4.33 in April. The total value of shares traded in 2009 Jussi Pesonen owned 92,814 shares and 760,000 share options. was € 5,691 million (10,549 million). Exercise of these options would increase the number of the During the year, 0.22 million 2005H share options were companys’s shares by 760,000, which at 31 December 2009 traded for € 0.03 million (0.04 million and € 0.02 million) would have represented 0.15% of the company’s shares and . voting rights. At the end of the year, the other members of the Group Executive Team owned a total of 93,058 shares and 2,627,000 share options. Exercise of these options would increase the number of the company’s shares by 2,627,000 which at 31 December 2009 would have represented 0.51% of the com- pany’s shares and voting rights. UPM information on shares

Biggest registered shareholders at 31 December 2009

Shares at 31 December 2009 % of shares % of votes

IImarinen Mutual Pension Insurance Company 15,185,401 2.92 2.92

Varma Mutual Pension Insurance Company 10,058,899 1.93 1.93

Gustaf Serlachius (representing 5 shareholders) 6,301,811 1.21 1.21

The State Pension Fund 5,500,000 1.06 1.06

Svenska litteratursällskapet i Finland 3,831,302 0.74 0.74

OP-Delta Investment Fund 3,201,7280.620.62

Mandatum Life Insurance Company 2,817,5770.540.54

Sellan Inderessenter Ab 2,000,000 0.38 0.38

Etera Mutual Pension Insurance Company 1,958,6970.380.38

The Local Government Pensions Institution 1,732,708 0.33 0.33

Nominees & registered foreign owners 304,762,302 58.61 58.61

Others 162,619,663 31.28 31.28

Total 519,970,088 100.00 100.00

The company has received the following notifi cations from shareholders: Norges Bank on 24 October 2008 held 5.01% of the share capital and the voting rights. BlackRock Inc. on 8 December 2009 held 5.36% of UPM’s shares and voting rights. Franklin Templeton on 27 July 2009 announced its ownership in UPM had declined below 5% of the company’s shares and vot- ing rights. information on shares UPM UPM information on shares

Distribution of shareholders at 31 December 2009

Number of % of share- Number of % of Size of shareholding shareholders holders shares, million shares

1 – 100 16,836 20.35 1.0 0.2 101 – 1,000 46,754 56.53 20.1 3.9 1,001 – 10,000 17,451 21.10 48.8 9.4 10,001 – 100,000 1,496 1.81 36.6 7.0 100,001 – 173 0.21 115.0 22.1 Total 82,710 100.00 221.5 42.6

Nominee-registered 298.3 57.4 Not registered as book entry units 0.2 0.0 Total 520.0 100.0

Shareholder breakdown by sector at 31 December, %

2009 2008 2007 2006 2005

Companies 3.8 2.8 2.2 1.8 2.8 Financial institutions and insurance companies 4.6 3.2 2.5 2.1 3.5 Public bodies 8.5 8.1 6.4 5.2 5.8 Non-profi t organisations 6.3 6.0 6.0 6.1 6.7 Households 17.5 14.9 14.1 13.5 15.4 Non-Finnish nationals 59.3 65.0 68.8 71.3 65.8 Total 100.0 100.0 100.0 100.0 100.0

UPM’s share option programmes

Exercise price per share Number of Number of at date of issue at 31 Dec. 2009 Options exercised Options options shares € € Subscription period 2009 2007 B 5,000,000 5,000,000 6.24 6.24 1.10.2011–31.10.2013 – 2007 A 5,000,000 5,000,000 12.40 12.40 1.10.2010–31.10.2012 – 2005 H 3,000,000 3,000,000 21.65 19.75 1.10.2008–31.10.2010 – key indicators UPM

KEY FIGURES 2000–2009

Adjusted share-related indicators 2000–2009 1)

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Earnings per share, € (diluted 2009: 0.33) 0.33 –0.35 0.16 0.65 0.50 1.76 0.60 0.96 1.93 2.38 Shareholders’ equity per share, € 12.67 11.74 13.21 13.90 14.01 14.46 13.36 13.85 13.09 11.72 Dividend per share, € 2) 0.45 0.40 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 Dividend to earnings ratio, % 136.4 neg. 468.8 115.4 150.0 42.6 125.0 78.1 39.0 31.4 Effective dividend yield, % 5.4 4.4 5.4 3.9 4.5 4.6 5.0 4.9 4.0 4.1 P/E ratio 25.2 neg. 86.4 29.4 33.1 8.9 24.8 15.9 9.7 7.7 Cash fl ow from operations per share, € 2.42 1.21 1.66 2.32 1.63 1.90 2.40 2.73 3.32 3.19 Dividend distribution, €m 2) 234 208 384 392 392 393 393 390 388 371 Share price at 31 Dec., € 8.32 9.00 13.82 19.12 16.56 16.36 15.12 15.30 18.63 18.28 Market capitalisation, €m 4,326 4,680 7,084 10,005 8,665 8,578 7,917 7,960 9,681 9,502 Shares traded, €m 3) 5,691 10,549 16,472 16,021 11,358 9,731 9,117 10,827 7,645 6,157 Shares traded (1,000s) 805,904 932,136 952,300 876,023 697,227 625,950 645,988 597,078 443,240 400,822 Shares traded, % of all shares 155.0 180.1 182.1 167.4 133.6 119.5 123.4 115.1 88.1 77.2 Lowest quotation, € 4.33 8.15 13.01 15.36 15.05 14.44 11.05 12.61 14.00 12.46 Highest quotation, € 9.78 13.87 20.59 20.91 18.15 17.13 17.10 22.25 19.93 22.45 Average quotation for the period, € 7. 0 6 11. 3 2 17. 3 0 18 . 2 9 16 . 2 9 15 . 5 5 14 .11 18 .13 17. 2 4 15 . 3 6 Number of shares, average (1,000s) 519,955 517,545 522,867 523,220 522,029 523,641 523,130 518,935 495,784 513,634 Number of shares at end of period (1,000s) 519,970 519,970 512,569 523,259 523,093 524,450 523,579 520,232 517,436 501,295

Share prices and shares traded are based on trading on the NASDAQ OMX Helsinki stock exchange.

Notes to the tables on pages 151–152 1) Figures for 2002–2008 are reported in accordance with International Financial Reporting Standards (IFRS) and for 2000–2001 in accordance with Finnish Accounting Standards (FAS). More information on the effects of the transition on the balance sheet and income statement is given in the bulletin released on 24.3.2004. The bul- letin is available on UPM’s Internet pages at www.upm-kymmene.com. 2) Proposal. 3) Trading on the NASDAQ OMX Helsinki stock exchange. Treasury shares bought by the company are included in shares traded. ACCOUNTS FOR 2009 key indicators

Financial indicators 2000–2009 1)

€m 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Sales 7,719 9,461 10,035 10,022 9,348 9,820 9,787 10,417 9,918 9,583 EBITDA 1,062 1,206 1,546 1,678 1,428 1,435 1,442 1,957 2,055 2,081 % of sales 13.8 12.7 15.4 16.7 15.3 14.6 14.7 18.8 20.7 21.7 Operating profi t, excluding special items 270 513 835 725 558 470 429 963 1,394 1,560 % of sales 3.5 5.4 8.3 7.2 6.0 4.8 4.4 9.2 14.1 16.3 Operating profi t 135 24 483 536 318 685 368 861 1,614 1,860 % of sales 1.7 0.3 4.8 5.3 3.4 7.0 3.8 8.3 16.3 19.4 Profi t (loss) before tax 187 –201 292 367 257 556 425 710 1,333 1,859 % of sales 2.4 –2.1 2.9 3.7 2.7 5.7 4.3 6.8 13.4 19.4 Profi t (loss) for the period 169 –180 81 338 261 920 312 500 955 1,366 % of sales 2.2 –1.9 0.8 3.4 2.8 9.4 3.2 4.8 9.6 14.3 Exports from Finland and foreign operations 7,054 8,515 9,170 9,102 8,397 8,791 8,697 9,475 8,948 8,563 Exports from Finland 3,442 4,371 4,546 4,644 4,006 4,301 4,539 4,759 4,635 5,216

Non-current assets 10,581 10,375 10,639 11,355 12,321 12,802 13,509 14,336 12,874 10,163 Inventories 1,112 1,354 1,342 1,255 1,256 1,138 1,144 1,224 1,289 1,184 Other current assets 1,912 2,040 1,972 1,859 1,964 1,887 1,938 2,064 2,368 1,766 Assets, total 13,605 13,781 13,953 14,469 15,541 15,827 16,591 17,624 16,431 13,113

Total equity 6,602 6,120 6,783 7,289 7,348 7,612 7,029 7,237 6,838 6,175 Non-current liabilities 5,432 5,816 4,753 4,770 5,845 5,966 7,322 8,104 5,992 4,564 Current liabilities 1,571 1,828 2,417 2,410 2,348 2,249 2,240 2,283 3,601 2,374 Total equit y and liabilities 13,605 13,781 13,953 14,469 15,541 15,827 16,591 17,624 16,431 13,113

Capital employed at year end 11,066 11,193 11,098 11,634 12,650 12,953 12,811 13,689 13,519 10,448 Return on equity, % 2.8 neg. 1.2 4.6 3.5 12.6 4.4 6.8 15.5 21.9 Return on capital employed, % 3.2 0.2 4.3 4.7 3.4 6.0 5.1 7.4 15.6 20.2 Cash fl ow from operations 1,259 628 867 1,215 853 997 1,258 1,418 1,645 1,639 Equity to assets ratio, % 48.6 44.5 48.8 50.4 47.3 48.2 42.5 41.1 41.5 46.0 Gearing ratio, % 56 71 59 56 66 61 69 71 89 69 Net interest-bearing liabilities 3,730 4,321 3,973 4,048 4,836 4,617 4,874 5,135 6,041 4,071 Gross capital expenditure 913 551 708 699 749 686 720 620 3,850 2,175 % of sales 11.8 5.8 7.1 7.0 8.0 7.0 7.4 6.0 38.8 22.7 Gross capital expenditure excluding acquisitions 229 532 683 631 705 645 703 568 827 571 % o f s a l e s 3 . 0 5 . 6 6 . 8 6 . 3 7. 5 6 . 6 7. 2 5 . 5 8 . 3 6 . 0 Personnel at year end 23,213 24,983 26,352 28,704 31,522 33,433 34,482 35,579 36,298 32,755

Formulae for calculating indicators are given on page 154.

Deliveries and production Deliveries Production (2000 – 2004) 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Electricity, (1,000) MWh 8,865 10,167 10,349 Pulp (1,000 t) 1,759 1,982 1,927 Papers, total (1,000 t) 9,021 10,641 11,389 10,988 10,172 10,886 10,232 10,046 8,298 8,285 Sawn timber (1,000 m3) 1,497 2,132 2,325 2,457 2,016 2,409 2,408 2,201 2,035 2,117 Plywood (1,000 m3) 567 806 945 931 827 969 936 905 786 793 key indicators UPM

QUARTERLY FIGURES 2008–2009

€m Q4/09 Q3/09 Q2/09 Q1/09 Q4/08 Q3/08 Q2/08 Q1/08 Q1–Q4 /09 Q1–Q4 /08 Sales 2,108 1,913 1,841 1,857 2,315 2,358 2,378 2,410 7,719 9,461 Other operating income 18 571792311404783 Costs and expenses –1,810 –1,603 –1,627 –1,734 –2,227 –1,998 –2,074 –2,108 –6,774 –8,407 Change in fair value of biological assets and wood harvested 9 –13 10 11 –2 4 20 28 17 50 Share of results of associated companies and joint ventures 1 –21 –22 –53 –16 35 21 22 –95 62 Depreciation, amortisation and impairment charges –200 –185 –201 –193 –365 –462 –199 –199 –779 –1,225 Operating profi t (loss) 126 96 8 –95 –286 –40 157 193 135 24 Gains on available-for-sale investments, net – –1 – – ––2– –12 Exchange rate and fair value gains and losses – –3 3 –9 –14 – –1 –10 –9 –25 Interest and other fi nance costs, net 185 –28 –37 –58 –60 –50 –43 –49 62 –202 Profi t (loss) before tax 311 64 –26 –162 –360 –90 115 134 187 –201 Income taxes –16 –24 18 4 74 3 –25 –31 –18 21 Profi t (loss) for the period 295 40 –8 –158 –286 –87 90 103 169 –180 Attributable to: Equity holders of the parent company 295 40 –8 –158 –287 –86 92 102 169 –179 Minority interest – –––1–1–21 – –1 295 40 –8 –158 –286 –87 90 103 169 –180 Basic earnings per share, € 0.57 0.08 –0.02 –0.30 –0.56 –0.17 0.18 0.20 0.33 –0.35 Diluted earnings per share, € 0.57 0.08 –0.02 –0.30 –0.56 –0.17 0.18 0.20 0.33 –0.35 Earnings per share, excluding special items, € 0.21 0.14 0.03 –0.27 – 0.19 0.25 0.17 0.19 0.11 0.42 Average number of shares basic (1,000) 519,958 519,954 519,954 519,954 519,979 519,999 517,622 512,581 519,955 517,545 Average number of shares diluted (1,000) 518,876 521,036 519,954 519,954 519,979 519,999 516,791 513,412 519,955 517,545 Special items in operating profi t (loss) –60 –35 –23 –17 –240 –256 2 5 –135 –489 Operating profi t (loss), excl. special items 186 131 31 –78 –46 216 155 188 270 513 % of sales 8.8 6.8 1.7 –4.2 –2.0 9.2 6.5 7.8 3.5 5.4 Special items before tax 155 –35 –23 –17 –240 –250 2 5 80 –483 Profi t (loss) before tax, excl. special items 156 99 –3 –145 –120 160 113 129 107 282 % of sales 7. 4 5.2 –0.2 –7.8 –5.2 6.8 4.8 5.4 1.4 3.0 Return on equity, excl. special items, % 7. 4 5.0 0.8 neg. neg. 7.8 5.4 5.9 1.0 3.4 Return on capital employed, excl. special items, % 7. 2 4.9 1.3 neg. neg. 7.7 5.7 6.5 2.5 4.6 EBITDA 362 334 238 128 178 378 313 337 1,062 1,206 % of sales 17.2 17.5 12.9 6.9 7.7 16.0 13.2 14.0 13.8 12.7

Sales by segment Energy 128 108 100 136 141 129 103 105 472 478 Pulp 226 156 132 139 200 228 247 269 653 944 Forest and timber 348 295 309 385 419 475 518 508 1,337 1,920 Paper 1,558 1,454 1,388 1,367 1,750 1,761 1,727 1,773 5,767 7,011 Label 252 242 226 223 233 239 245 242 943 959 Plywood 81 73 77 75 102 121 150 157 306 530 Other operations 35 21 21 34 3 4 52 66 4 8 111 20 0 Internal sales –520 –436 –412 –502 –564 –647 –678 –692 –1,870 –2,581 Sales, total 2,108 1,913 1,841 1,857 2,315 2,358 2,378 2,410 7,719 9,461

Operating profi t (loss) excl.special items by segment Energy 48 27 36 51 62 49 31 33 162 175 Pulp 35 –9 –60 –93 –17 60 38 67 –127 148 Forest and timber 35 5–10–8–61 –5 17 26 22 –23 Paper 82 132 95 37 27 113 60 50 346 250 Label 17 20 9 –3 –10183432 Plywood –3 –10 –10 –28 –10 –2 16 21 –51 25 Other operations –28 –34 –29 –34 –37 – –15 –12 –125 –64 Operating profi t (loss) excl. special items, total 186 131 31 –78 –46 216 155 188 270 513 % of sales 8.8 6.8 1.7 –4.2 –2.0 9.2 6.5 7.8 3.5 5.4 UPM key indicators

CALCULATION OF KEY INDICATORS

Formulae for calculation of financial Formulae for calculation of adjusted indicators share-related indicators

Return on equity, %: Earnings per share: Profi t before tax 2) – income taxes Profi t for the period attributable to the equity x 100 3) Total equity (average) holders of the parent company Adjusted average number of shares during the period excluding treasury shares Return on capital employed, %: Profi t before tax 2) + interest expenses and other fi nancial expenses Shareholders’ equity per share: x 100 Total equity + interest-bearing Equity attributable to the equity holders of

liabilities (average) the parent company Adjusted number of shares at end of period Equity to assets ratio, %: Dividend per share: Total equity – treasury shares 1) x 100 Balance sheet total – advances received Dividend distribution – treasury shares 1) Adjusted number of shares at end of period

Net interest-bearing liabilities: Dividend to earnings ratio, %: Dividend per share Interest-bearing liabilities – interest-bearing assets x 100 – listed shares Earnings per share

Gearing ratio, %: Effective dividend yield, %: Net interest-bearing liabilities Adjusted dividend per share x 100 x 100 Total equity – treasury shares 1) Adjusted share price at 31.12.

EBITDA: P/E ratio: Operating profi t + depreciation + amortisation Adjusted share price at 31.12. of goodwill + impairment +/– change in value of Earnings per share biological assets +/– share of results of associated companies +/– special items Market capitalisation: Total number of shares x striking price at end of Return on capital employed (ROCE) for the period segments (operating capital), %: Operating profi t x 100 Adjusted share price at end of period: Non-current assets + stocks + trade Share price at end of period receivables – trade payables (average) Share issue coeffi cient

Adjusted average share price: Total value of shares traded 1) Treasury shares were shown in the balance sheet Adjusted number of shares traded during period in 2000–2001. 2) 2000–2001: Profi t/loss before extraordinary items Cash from operating activities per share: and tax. Cash from operating activities 3) 2000–2001: Profi t/loss before extraordinary items Adjusted average number of shares during the and tax – income tax +/– minority interest. period excluding treasury shares

Key exchange rates for the euro at end of period

31.12.2009 30.09.2009 30.06.2009 31.03.2009 31.12.2008 30.09.2008 30.06.2008 31.03.2008 USD 1.4406 1.4643 1.4134 1.3308 1.3917 1.4303 1.5764 1.5812 CAD 1.5128 1.5709 1.6275 1.6685 1.6998 1.4961 1.5942 1.6226 JPY 133.16 131.07 135.51 131.17 126.14 150.47 166.44 157.37 GBP 0.8881 0.9093 0.8521 0.9308 0.9525 0.7903 0.7923 0.7958 SEK 10.2520 10.2320 10.8125 10.9400 10.8700 9.7943 9.4703 9.3970 auditor’s report ACCOUNTS FOR 2009

AUDITOR’S REPORT (Translation from the Finnish Original)

To the Annual General Meeting of UPM-Kymmene Corporation ments and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assess- We have audited the accounting records, the fi nancial statements, ment of the risks of material misstatement of the fi nancial state- the report of the Board of Directors and the administration of ments and of the report of the Board of Directors, whether due to UPM-Kymmene Corporation for the year ended on 31 December, fraud or error. In making those risk assessments, the auditor con- 2009. The fi nancial statements comprise the consolidated balance siders internal control relevant to the entity’s preparation and fair sheet, income statement, statement of comprehensive income, presentation of the fi nancial statements and the report of the statement of changes in equity, cash fl ow statement and notes to Board of Directors in order to design audit procedures that are the consolidated fi nancial statements, as well as the parent compa- appropriate in the circumstances. An audit also includes evaluat- ny's balance sheet, income statement, cash fl ow statement and ing the appropriateness of accounting policies used and the rea- notes to the fi nancial statements. sonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial state- Responsibility of the Board of Directors and ments and the report of the Board of Directors. the Managing Director The audit was performed in accordance with good auditing The Board of Directors and the Managing Director are responsi- practice in Finland. We believe that the audit evidence we have ble for the preparation of the fi nancial statements and the report obtained is suffi cient and appropriate to provide a basis for our of the Board of Directors and for the fair presentation of the audit opinion. consolidated fi nancial statements in accordance with Internation- al Financial Reporting Standards (IFRS) as adopted by the EU, Opinion on the Consolidated Financial Statements as well as for the fair presentation of the fi nancial statements and In our opinion, the consolidated fi nancial statements give a true the report of the Board of Directors in accordance with laws and and fair view of the fi nancial position, fi nancial performance and regulations governing the preparation of the fi nancial statements cash fl ows of the group in accordance with International Finan- and the report of the Board of Directors in Finland. The Board cial Reporting Standards (IFRS) as adopted by the EU. of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and fi nances, and the Manag- Opinion on the Company’s Financial Statements and ing Director shall see to it that the accounts of the company are in the Report of the Board of Directors compliance with the law and that its fi nancial affairs have been In our opinion, the fi nancial statements and the report of the arranged in a reliable manner. Board of Directors give a true and fair view of both the consoli- dated and the parent company's fi nancial performance and fi nan- Auditor’s Responsibility cial position in accordance with the laws and regulations govern- Our responsibility is to perform an audit in accordance with good ing the preparation of the fi nancial statements and the report of auditing practice in Finland, and to express an opinion on the the Board of Directors in Finland. The information in the report parent company’s fi nancial statements, on the consolidated fi nan- of the Board of Directors is consistent with the information in the cial statements and on the report of the Board of Directors based fi nancial statements. on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to ob- Other Opinions tain reasonable assurance whether the fi nancial statements and We support that the fi nancial statements should be adopted. The the report of the Board of Directors are free from material mis- proposal by the Board of Directors regarding the use of the profi t statement and whether the members of the Board of Directors of shown in the balance sheet is in compliance with the Limited the parent company and the Managing Director have complied Liability Companies Act. We support that the Members of the with the Limited Liability Companies Act. Board of Directors and the Managing Director should be dis- An audit involves performing procedures to obtain audit evi- charged from liability for the fi nancial period audited by us. dence about the amounts and disclosures in the fi nancial state-

Helsinki 17 February 2010

PricewaterhouseCoopers Oy Authorised Public Accountants

Juha Wahlroos Authorised Public Accountant

Audited Historical Consolidated Financial Information in respect of the Financial Year Ended 31 December 2008 under IFRS

Group ■ ACCOUNTS FOR 2008

Consolidated income statement

Year ended 31 December €m Note 2008 2007

Sales 4 9,461 10,035 Other operating income 6 83 200 Costs and expenses 7 –8,407 –8,650 Change in fair value of biological assets and wood harvested 8 50 79 Share of results of associated companies and joint ventures 9 62 43 Depreciation, amortisation and impairment charges 10 –1,225 –1,224 Operating profi t 4 24 483

Gains on available-for-sale investments, net 11 2 2 Exchange rate and fair value gains and losses 12 –25 –2 Interest and other fi nance costs, net 12 –202 –191 Profi t (loss) before tax –201 292

Income taxes 13 21 –211 Profi t (loss) for the period –180 81

Attributable to: Equity holders of the parent company –179 85 Minority interest –1 –4 –180 81

Earnings per share for profi t (loss) attributable to the equity holders of the parent company Basic earnings per share, € 14 –0.35 0.16 Diluted earnings per share, € 14 –0.35 0.16

The notes are an integral part of these fi nancial statements. ACCOUNTS FOR 2008 ■ Group

Consolidated balance sheet

As at 31 December €m Note 2008 2007

ASSETS Non-current assets Goodwill 16 933 1,163 Other intangible assets 17 403 392 Property, plant and equipment 18 5,688 6,179 Investment property 19 19 14 Biological assets 20 1,133 1,095 Investments in associated companies and joint ventures 21 1,263 1,193 Available-for-sale investments 22 116 116 Non-current fi nancial assets 23 361 82 Deferred tax assets 28 258 284 Other non-current assets 24 201 121 10,375 10,639 Current assets Inventories 25 1,354 1,342 Trade and other receivables 26 1,686 1,717 Income tax receivables 24 18 Cash and cash equivalents 330 237 3,394 3,314 Assets classifi ed as held for sale 18 12 – Total assets 13,781 13,953

As at 31 December €m Note 2008 2007

EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 27 890 890 Translation differences –295 –158 Fair value and other reserves 27 130 193 Reserve for invested non-restricted equity 1,145 1,067 Retained earnings 4,236 4,778 6,106 6,770 Minority interest 14 13 Total equity 6,120 6,783

Non-current liabilities Deferred tax liabilities 28 658 745 Retirement benefi t obligations 29 408 441 Provisions 30 191 171 Interest-bearing liabilities 31 4,534 3,384 Other liabilities 32 25 12 5,816 4,753 Current liabilities Current interest-bearing liabilities 31 537 931 Trade and other payables 33 1,258 1,443 Income tax payables 33 43 1,828 2,417 Liabilities related to assets classifi ed as held for sale 18 17 – Total liabilities 7,661 7,170 Total equity and liabilities 13,781 13,953

The notes are an integral part of these fi nancial statements. Group ■ ACCOUNTS FOR 2008

Consolidated statement of changes in equity

Attributable to equity holders of the parent company Reserve for invested Share Translation Fair value non- Share premium Treasury differ- and other restricted Retained Minority Total €m capital reserve shares ences reserves equity earnings Total interest equity

Balance at 1 January 2007 890 826 – –89 278 – 5,366 7,271 18 7,289

Translation differences – – – –69 – – – –69 – –69 Net investment hedge, net of tax – – – – – – – – – – Cash fl ow hedges fair value gains/losses, net of tax – – – – 68 – – 68 – 68 transfers from equity, net of tax – – – – –41 – – –41 – –41 Available-for-sale investments fair value gains/losses, net of tax – – – – – – – – – – transfers to income statement, net of tax – – – – –1 – – –1 – –1 Profi t for the period – – – – – – 85 85 –4 81 Total recognised income and expense for the period ––––6926–8542–438

Share options exercised – – – – – 104 – 104 – 104 Acquisition of treasury shares – – –266 – – – – –266 – –266 Cancellation of treasury shares – – 266 – – – –266 – – – Share-based compensation, net of tax – – – – 13 – – 13 – 13 Dividend paid – – – – – – –392 –392 – –392 Business combinations –––––––––1–1 Transfers and others – –826 – – –124 963 –15 –2 – –2 Total of other changes in equity – –826 – – –111 1,067 –673 –543 –1 –544 Balance at 31 December 2007 890 – – –158 193 1,067 4,778 6,770 13 6,783

Translation differences – – – –193 – – – –193 – –193 Net investment hedge, net of tax – – – 56 – – – 56 – 56 Cash fl ow hedges fair value gains/losses, net of tax – – – – 29 – – 29 – 29 transfers from equity, net of tax – – – – –62 – – –62 – –62 Available-for-sale investments fair value gains/losses, net of tax – – – – – – – – – – transfers to income statement, net of tax – – – – – – – – – – Other items1) – – – – – – –12 –12 – –12 Loss for the period – – – – – – –179 –179 –1 –180 Total recognised income and expense for the period – – – –137 –33 – –191 –361 –1 –362

Share options exercised – – – – – 78 – 78 – 78 Acquisition of treasury shares – – – – – – – – – – Cancellation of treasury shares –––– – ––––– Share-based compensation, net of tax – – – – –29 – 33 4 – 4 Dividend paid – – – – – – –384 –384 – –384 Business combinations ––––––––22 Other items – – – – –1 – – –1 – –1 Total of other changes in equity – – – – –30 78 –351 –303 2 –301 Balance at 31 December 2008 890 – – –295 130 1,145 4,236 6,106 14 6,120

1) The Group’s share of changes recognised directly in the associates’ equity. The notes are an integral part of these fi nancial statements. ACCOUNTS FOR 2008 ■ Group

Consolidated cash fl ow statement

Year ended 31 December €m 2008 2007

Cash fl ow from operating activities Profi t (loss) for the period –180 81 Adjustments to profi t (loss) for the period (Note 5) 1,232 1,390 Interest received 94 Interest paid –202 –191 Dividends received 18 23 Other fi nancial items, net –41 –72 Income taxes paid –76 –164 Change in working capital (Note 5) –132 –204 Net cash generated from operating activities 628 867

Cash fl ow from investing activities Acquisition of shares in associated companies –19 –25 Capital expenditure –558 –673 Proceeds from disposal of subsidiary shares, net of cash (Note 5) 6 205 Proceeds from disposal of shares in associated companies 42 Proceeds from disposal of available-for-sale investments 23 Proceeds from sale of tangible and intangible assets 33 71 Proceeds from non-current receivables –1 Increase in non-current receivables ––9 Net cash used in investing activities –532 –425

Cash fl ow from fi nancing activities Proceeds from non-current liabilities 1,083 965 Payments of non-current liabilities –624 –879 Proceeds from (payment of) current liabilities, net –153 66 Share options exercised 78 104 Dividends paid –384 –392 Purchase of treasury shares ––266 Other fi nancing cash fl ow –1 – Net cash used in fi nancing activities –1 –402

Change in cash and cash equivalents 95 40

Cash and cash equivalents at the beginning of year 237 199 Foreign exchange effect on cash –2 –2 Change in cash and cash equivalents 95 40 Cash and cash equivalents at year-end 330 237

The notes are an integral part of these fi nancial statements. Group ■ ACCOUNTS FOR 2008

Notes to the Consolidated Financial Statements

(In the notes all amounts are shown in millions of euros unless otherwise stated.)

1 ACCOUNTING POLICIES subsidiaries. Subsidiaries are those entities in which UPM-Kymmene Corporation either owns, directly or indirectly, over fi fty percent of the The principal accounting policies to be adopted in the preparation of voting rights, or otherwise has the power to govern their operating and the consolidated fi nancial statements are set out below: fi nancial policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Principal activities Acquisitions of subsidiaries are accounted for using the purchase UPM-Kymmene Corporation (“the parent company” or “the com- method of accounting. The cost of an acquisition is measured as the pany”) together with its consolidated subsidiaries (“UPM” or “the fair value of the assets given, equity instruments issued and liabilities Group”) is a global paper and forest products group engaged in the incurred or assumed at the date of exchange, plus costs directly attrib- production of paper, with an emphasis on the manufacture and sale of utable to the acquisition. Identifi able assets acquired and liabilities and printing and writing papers. The Group consists of three Business contingent liabilities assumed in a business combination are measured Groups, which are Energy and pulp, Paper, and Engineered materials. initially at their fair values at the acquisition date, irrespective of the UPM reports fi nancial information for the following segments: Energy, extent of any minority interest. The excess of the cost of acquisition Pulp, Forest and timber, Paper, Label, Plywood, and Other operations. over the fair value of the Group’s share of the identifi able net assets of The Group’s activities are centred in the European Union countries and the subsidiary acquired is recorded as goodwill. If the cost of acquisi- North America, and Asia with production facilities in 14 countries. tion is less than the fair value of the Group’s share of the net assets of UPM-Kymmene Corporation is a Finnish limited liability com- the subsidiary acquired, the difference is recognised directly in the pany, domiciled in Helsinki in the Republic of Finland. The address of income statement (see “Intangible Assets” for the accounting policy on the company’s registered offi ce is Eteläesplanadi 2, 00101 Helsinki, goodwill). Subsidiaries acquired during the year are included in the where the copy of the consolidated fi nancial statement can be obtained. consolidated fi nancial statements from the date on which control is The parent company is listed on NASDAQ OMX Helsinki Ltd. transferred to the Group, and subsidiaries sold are included up to the These Group consolidated fi nancial statements were authorised for date that control is relinquished. Where necessary, the accounting issue by the Board of Directors on 5 February 2009. policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Basis of preparation All intercompany transactions, receivables, liabilities and unreal- These consolidated fi nancial statements of UPM are prepared in ised profi ts, as well as intragroup profi t distributions, are eliminated. accordance with International Financial Reporting Standards as Unrealised losses are also eliminated unless the transaction provides adopted by the EU (IFRS). evidence of an impairment of the asset transferred. The fi nancial statements have been prepared under the historical cost convention as modifi ed by the revaluation of biological assets, Associated companies and joint ventures available-for-sale fi nancial assets and certain other fi nancial assets and Associated companies are entities over which the Group has signifi cant fi nancial liabilities. Share-based payments are recognised at fair value infl uence but no control, generally accompanying a shareholding of on the grant date. between 20% and 50% of the voting rights. Joint ventures are entities The preparation of fi nancial statements requires the use of account- over which the Group has contractually agreed to share the power to ing estimates and assumptions that affect the reported amounts of govern the fi nancial and operating policies of that entity with another assets and liabilities, the disclosure of contingent assets and liabilities venturer or venturers. at the date of the fi nancial statements, and the reported amounts of Interests in associated companies and joint ventures are accounted revenues and expenses during the reporting periods. Accounting esti- for using the equity method of accounting and are initially recorded at mates are employed in the fi nancial statements to determine reported cost. Under this method the Group’s share of the associated company’s amounts, including the realisability of certain assets, the useful lives of and joint venture’s profi t or loss for the year is recognised on the tangible and intangible assets, income taxes and others. Although these income statement and its share of movements in reserves is recognised estimates are based on management’s best knowledge of current events in reserves. The Group’s interest in an associated company and joint and actions, actual results may ultimately differ from those estimates. venture is carried on the balance sheet at an amount that refl ects its The preparation of fi nancial statements also requires management to share of the net assets of the associated company and joint venture exercise its judgement in the process of applying the Group’s account- together with goodwill on acquisition (net of any accumulated impair- ing policies. The critical judgements are summarised in Note 2. ment loss), less any impairment in the value of individual investments. Unrealised gains and losses on transactions between the Group and its Consolidation principles associates and joint ventures are eliminated to the extent of the Group’s interest in the associated company and joint venture, unless the loss Subsidiaries provides evidence of an impairment of the asset transferred Associated The consolidated fi nancial statements of UPM include the fi nancial company and joint venture accounting policies have been changed statements of the parent company, UPM-Kymmene Corporation, and its where necessary to ensure consistency with the policies adopted by the ACCOUNTS FOR 2008 ■ Group

Group. Equity accounting is discontinued when the carrying amount of months, and as a current asset or liability when the remaining maturity the investment in an associated company or interest in a joint venture is less than 12 months. reaches zero, unless the Group has incurred or guaranteed obligations The Group applies fair value hedge accounting for hedging fi xed in respect of the associated company or joint venture. interest risk on borrowings. Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly Minority interests effective both prospectively and retrospectively are recorded in the The profi t or loss attributable to the parent shareholders and minority income statement under fi nancial items, along with any changes in the interests is presented on the face of the income statement. Minority fair value of the hedged asset or liability that are attributable to the interests are presented in the consolidated balance sheet within equity, hedged risk. The carrying amounts of the hedged items and the fair separately from the parent shareholders’ equity. values of the hedging instruments are included in the interest-bearing Transactions with minority interests are treated as transaction with assets or liabilities. Derivatives that are designated and qualify as fair parties external to the Group. Disposals of minority interests result in value hedges mature at the same time as hedged items. If the hedge no gains or losses for the Group and are recorded in the income statement. longer meets the criteria for hedge accounting, the adjustment to the Purchases of minority interests result in goodwill, being the difference carrying amount of a hedged item for which the effective interest between any consideration paid and the relevant share acquired of the method is used is amortised to profi t or loss over the period to maturity. carrying value of net assets of the subsidiary. Changes in the fair value of derivatives that are designated and qualify as cash fl ow hedges and that are highly effective both prospec- Foreign currency transactions tively and retrospectively are recognised in equity (at the spot rate Items included in the fi nancial statements of each subsidiary in the difference). The accumulated profi t or loss of the hedging instruments Group are measured using the currency of the primary economic envi- is recognised in equity approximately during the period of 12 months. ronment in which the subsidiary operates (“the functional currency”). Amounts deferred in equity are transferred to the income statement and The consolidated fi nancial statements are presented in euros, which is classifi ed as income or an expense in the same period during which the the functional and presentation currency of the parent company. hedged fi rm commitment or forecasted transaction affects the income Foreign currency transactions are translated into the functional statement (for example, when the forecasted external sale to the Group currency using the exchange rates prevailing at the dates of the transac- that is hedged takes place). The period when the hedging reserve is tions. Foreign exchange gains and losses resulting from the settlement released to sales after each derivative has matured is approximately 1 of such transactions and from the translation at year-end exchange rates month. However, when the forecast transaction that is hedged results in of monetary assets and liabilities denominated in foreign currencies are the recognition of a non-fi nancial asset (for example, fi xed assets) the recognised in the income statement, except when deferred in equity as gains and losses previously deferred in equity are transferred from qualifying cash fl ow hedges and qualifying net investment hedges. equity and included in the initial measurement of the cost of the asset. Foreign exchange differences relating to ordinary business operations The deferred amounts are ultimately recognised in depreciation of fi xed of the Group are included in the appropriate line items above operating assets. profi t, and those relating to fi nancial items are included in a separate When a hedging instrument expires or is sold, or when a hedge no line item in the income statement and as a net amount in total fi nance longer meets the criteria for hedge accounting under IAS 39, any costs. cumulative gain or loss existing in equity at that time remains in equity Income and expenses for each income statement of subsidiaries and is recognised when the committed or forecasted transaction is that have a functional currency different from the Group’s presentation ultimately recognised in the income statement. However, if a commit- currency are translated into euros at quarterly average exchange rates. ted or forecasted transaction is no longer expected to occur, the cumu- Assets and liabilities of subsidiaries for each balance sheet presented lative gain or loss that was reported in equity is immediately trans- are translated at the closing rate at the date of that balance sheet. All ferred to the income statement. resulting translation differences are recognised as a separate component Hedges of net investments in foreign operations are accounted for of equity. On consolidation, exchange differences arising from the similarly to cash fl ow hedges. The fair value changes of the forward translation of the net investment in foreign operations and other cur- exchange contracts that refl ect the change in spot exchange rates are rency instruments designated as hedges of such investments, are taken deferred in equity and included in cumulative translation differences. into shareholders’ equity. When a foreign entity is partially disposed of, Any gain or loss relating to the interest portion of the forward exchange sold or liquidated, translation differences recorded in equity are recog- contracts is recognised immediately in the income statement under nised in the income statement as part of the gain or loss on sale. fi nancial items. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed Derivative fi nancial instruments and hedging activities of or sold. Derivatives are initially recognised on the balance sheet at fair value Certain derivative transactions, while providing effective hedges and thereafter remeasured at their fair value. The method of recognis- under the Group Treasury Policy, do not qualify for hedge accounting ing the resulting gain or loss is dependent on whether the derivative is under the specifi c rules in IAS 39. Such derivatives are classifi ed held designated as a hedging instrument, and on the nature of the item being for trading, and changes in the fair value of any derivative instruments hedged. On the date a derivative contract is entered into, the Group des- that do not qualify for hedge accounting under IAS 39 are recognised ignates certain derivatives as either hedges of the fair value of a recog- immediately in the income statement as other operating income or nised asset or liability (fair value hedge), a hedge of a highly probable under fi nancial items. forecasted transaction or of a fi rm commitment (cash fl ow hedge), or At the inception of the transaction the Group documents the rela- hedges of net investments in foreign operations (net investment hedge). tionship between hedging instruments and hedged items, as well as its The fair value of derivative fi nancial instrument is classifi ed as a non- risk management objective and strategy for undertaking various hedge current asset or liability when the remaining maturity is more than 12 transactions. This process includes linking all derivatives designated as Group ■ ACCOUNTS FOR 2008

hedges to specifi c assets and liabilities or to specifi c fi rm commitments involvement with the goods, nor a continuing right to dispose of the or forecast transactions. The Group also documents its assessment, both goods, nor effective control of those goods. The timing of revenue at the hedge inception and on an ongoing basis, as to whether the recognition is largely dependent on delivery terms. Group terms of derivatives that are used in hedging transactions are highly effective in delivery are based on Incoterms 2000, the offi cial rules for interpreta- offsetting changes in fair values or cash fl ows of hedged items. tion of trade terms issued by International Chamber of Commerce. Fair values of derivative fi nancial instruments have been estimated Revenue is recorded when the product is delivered to the destination as follows: Interest forward rate agreements and futures contracts are point for terms designated Delivered Duty Paid (“DDP”). For sales fair valued based on quoted market rates on the balance sheet date; transactions designated Free on Board (“FOB”) or Cost, Insurance and forward foreign exchange contracts are fair valued based on the con- Freight (“CIF”), revenue is recorded at the time of shipment. tract forward rates in effect on the balance sheet date; foreign currency Revenues from services are recorded when the service has been options are fair valued based on quoted market rates on the balance performed. Sales are recognised net of indirect sales taxes, discounts, sheet date; interest and currency swap agreements are fair valued based rebates and exchange differences on sales in foreign currency. The on discounted cash fl ow analyses; and commodity derivatives are fair costs of distributing products sold are included in costs and expenses. valued based on quoted market rates on the balance sheet date. Dividend income is recognised when the right to receive a payment In assessing the fair value of non-traded derivatives such as embed- is established. ded derivatives the Group uses valuation methods and assumptions that Interest income is recognised by applying the effective interest rate are based on market quotations existing at each balance sheet date. method. Embedded derivatives that are identifi ed and are monitored by the Group and the fair value changes are reported in other operating Income taxes income in the income statement. The Group’s income taxes include income taxes of Group companies based on taxable profi t for the fi nancial period, together with tax adjust- Segment reporting ments for previous periods and the change of deferred income taxes. Business segments provide products or services that are subject to risks Deferred income tax is provided in full, using the liability method, and returns that are different from those of other business segments. on temporary differences arising between the tax bases of assets and The accounting policies used in segment reporting are the same as liabilities and their carrying amounts in the consolidated fi nancial state- those used in the consolidated accounts. The costs and revenues as well ments. However, the deferred income tax is not accounted for if it as assets and liabilities are allocated to the segments on a consistent arises from initial recognition of an asset or liability in a transaction basis. All inter-segment sales are based on market prices, and they are other than a business combination that at the time of the transaction eliminated on consolidation. affects neither accounting nor taxable profi t or loss. Deferred income Operating segments are reported in a manner consistent with the tax is determined using tax rates (and laws) that have been enacted or internal reporting provided to the chief operating decision maker. The substantially enacted by the balance sheet date and are expected to chief operating decision maker, who is responsible for allocating apply when the related deferred income tax asset is realised or the resources and assessing performance of the operating segments, has deferred income tax liability is settled. Deferred income tax is provided been identifi ed as the President and CEO. on temporary differences arising on investments in subsidiaries, associ- ated companies and joint ventures, except where the timing of the Non-current assets held for sale and discontinued operations reversal of the temporary difference is controlled by the Group and it is Non-current assets (or disposal groups) are classifi ed as assets held for probable that the temporary difference will not reverse in the foreseea- sale and stated at the lower of carrying amount and fair value less costs ble future. Deferred income tax assets are recognised to the extent that to sell if their carrying amount is recovered principally through a sale it is probable that future taxable profi t will be available against which transaction rather than through a continuing use. Non-current assets the temporary differences can be utilised. classifi ed as held for sale, or included within a disposal group that is classifi ed as held for sale, are not depreciated. Intangible assets A discontinued operation is a component of an entity that either Intangible assets with fi nite lives are carried at historical cost less amorti- has been disposed of, or that is classifi ed as held for sale, and repre- sation. Amortisation is based on the following estimated useful lives: sents a separate major line of business or geographical area of opera- tions, is a part of a single co-ordinated plan to dispose of a separate Computer software 3–5 years major line of business or geographical area of operations, or is a sub- Other intangible assets 5–10 years sidiary acquired exclusively with a view to resale. The post-tax profi t or loss from discontinued operations is shown separately in the consoli- Goodwill and other intangible assets that are deemed to have an indefi - dated income statement. nite life are not amortised, but are tested annually for impairment.

Revenue recognition Goodwill Sales are recognised when it is probable that future economic benefi ts Goodwill represents the excess of the cost of acquisition over the fair will fl ow to the entity, the associated costs and the amount of revenue value of the Group’s share of the net identifi able assets of the acquired can be measured reliably and the following criteria are met: persuasive subsidiary, associated company or joint venture at the date of acquisi- evidence of an arrangement exists, delivery has occurred or services tion. Goodwill on acquisitions of subsidiaries is included in intangible have been rendered, our price to the buyer is fi xed or determinable, and assets. Goodwill on acquisitions of associated companies and joint collectibility is reasonably assured. Delivery is not considered to have ventures is included in investments in associated companies and joint occurred until the customer takes title and assumes the risks and ventures and is tested for impairment as part of the overall balance. rewards of ownership and the Group has neither continuing managerial Goodwill is initially recognised as an asset at cost and is subsequently ACCOUNTS FOR 2008 ■ Group

measured at cost less any accumulated impairment losses. sheet represents the cost less accumulated depreciation and any impair- Cash-generating units to which goodwill has been allocated are ment charges. tested for impairment annually, or more frequently when there is an Borrowing costs incurred for the construction of any qualifying indication that the unit may be impaired. If the recoverable amount of assets are capitalised during the period of time that is required to com- the cash-generating unit is less than the carrying amount of the unit, the plete and prepare the asset for its intended use. Other borrowing costs difference is an impairment loss, which is allocated fi rst to reduce the are expensed. carrying amount of any goodwill allocated to the unit and then to other Land is not depreciated. Depreciation of other assets is based on assets of the unit pro-rata on the basis of the carrying amount of each the following estimated useful lives: asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Buildings 25–40 years Heavy machinery 15–20 years Research and development Light machinery and equipment 5–15 years Research and development costs are expensed as incurred, except for certain development costs, which are capitalised when it is probable Expected useful lives of assets are reviewed at each balance sheet date that a development project will generate future economic benefi ts, and and, where they differ signifi cantly from previous estimates, deprecia- the cost can be measured reliably. Capitalised development costs are tion periods are changed prospectively. amortised on a systematic basis over their expected useful future lives, Subsequent costs are included in the asset’s carrying amount or usually not exceeding fi ve years. recognised as a separate asset, as appropriate, only when it is probable that the future economic benefi t associated with the item will fl ow to Computer software the Group and the cost of the item can be measured reliably. The carry- Costs associated with maintaining computer software programs and ing amount of the replaced part is derecognised. All other repairs and costs related to the preliminary project phase of internally developed maintenance are charged to the income statement during the fi nancial software are recognised as an expense as incurred. Development costs period in which they are incurred. Major renovations are depreciated relating to the application development phase of internally developed over the remaining useful life of the related asset or to the date of the software are capitalised as intangible assets. Capitalised costs include next major renovation, whichever is sooner. external direct costs of material and services and appropriate portion of Gains and losses on disposals are determined by comparing the relevant overheads of the software development team. Computer soft- disposal proceeds with the carrying amount and are included in operat- ware development costs recognised as assets are amortized using the ing profi t. Assets accounted under IFRS 5 that are to be disposed of are straight-line method over their useful lives. reported at the lower of the carrying amount and the fair value less selling costs. Other intangible assets Acquired patents, trademarks and licences with a fi nite useful life are Government grants recognised at cost less accumulated amortisation and impairment. Government grants relating to the purchase of property, plant and Amortisation is calculated using the straight-line method to allocate the equipment are deducted from the acquisition cost of the asset and cost over their estimated useful lives. Other intangible assets that are recognised as a reduction to the depreciation charge of the related asset deemed to have an indefi nite life are not amortised and are tested annu- when it is practicable to determine that the eligibility conditions ally for impairment. attached to the grant will be met and the grant will be received. Other government grants are recognised in the income statement in the period Emission allowances necessary to match them with the costs they are intended to compen- The Group participates in government schemes aimed at reducing sate when the reimbursement is received or when it is practicable to greenhouse gas emissions. Allowances received from the governments determine the amount and eligibility for the grant. free of charge are initially recognised as intangible assets based on market value at the date of initial recognition. Allowances are not Investment property amortised but are recognised at amount not exceeding the market value Investment property includes real estate investments such as fl ats and at the balance sheet date. Government grants are recognised as deferred other premises occupied by third parties. income in the balance sheet at the same time as the allowances and Investment property is treated as a long-term investment and is recognised in other operating income in the income statement system- stated at historical cost. Depreciation is calculated on a straight-line atically over the compliance period to which the corresponding emis- basis and the carrying value is adjusted for impairment charges, if any. sion rights relate. The emissions made are expensed under other operat- Useful lives are the same as for property, plant and equipment. The ing costs and expenses in the income statement and presented as provi- balance sheet value of investment property refl ects the cost less accu- sio in the balance sheet. Emission rights and associated provisions are mulated depreciation and any impairment charges. derecognised when delivered or sold. Any profi t or loss on disposal is taken to the income statement. Biological assets Biological assets (i.e. living trees) are measured at their fair value less Property, plant and equipment estimated point-of-sale costs. The fair value of biological assets other Property, plant and equipment acquired by Group companies are stated than young seedling stands is based on discounted cash fl ows from con- at historical cost. Assets of acquired subsidiaries are stated at fair value tinuous operations. The fair value of young seedling stands is the actual at the date of acquisition. Depreciation is calculated on a straight-line reforestation cost of those stands. Continuous operations, the mainte- basis and the carrying value is adjusted for impairment charges, if any. nance of currently existing seedling stands and the felling of forests The carrying value of the property, plant and equipment on the balance during one rotation, are based on the Group’s forest management Group ■ ACCOUNTS FOR 2008

guidelines. The calculation takes into account the growth potential and The Group assesses at each balance sheet date whether there is environmental restrictions and other reservations of the forests. Felling objective evidence that a fi nancial asset or a group of fi nancial assets is revenues and maintenance costs are calculated on the basis of actual impaired. In the case of equity securities classifi ed as available for sale, costs and prices, taking into account the Group’s projection of future a signifi cant or prolonged decline in the fair value of the security below price development. its cost is considered in determining whether the securities are Periodic changes resulting from growth, felling, prices, discount impaired. If any such evidence exists for available-for-sale fi nancial rate, costs and other premise changes are included in operating profi t assets, the cumulative loss – measured as the difference between the on the income statement. acquisition cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in profi t or loss – is removed Financial assets from equity and recognised in the income statement. Impairment losses Financial assets have been classifi ed into the following categories: recognised in the income statement on equity instruments are not sub- fi nancial assets at fair value through profi t or loss, loans and receivables sequently reversed through the income statement. and available-for-sale investments. The classifi cation depends on pur- pose for which the fi nancial assets were acquired. Management deter- Impairment of non-fi nancial assets mines the classifi cation of the fi nancial assets at initial recognition. Assets that have an indefi nite useful life are not subject to amortisation Financial assets are derecognised when the rights to receive cash and are tested annually for impairment. Assets that are subject to depre- fl ows from the investments have expired or have been transferred and ciation (or amortisation) are reviewed for impairment whenever events the Group has transferred substantially all the risks and rewards of or changes in circumstances indicate that the carrying amount may not ownership. be recoverable. An impairment loss is recognised for the amount by Financial assets at fair value through profi t or loss are fi nancial which the asset’s carrying amount exceeds its recoverable amount. The assets held for trading. Derivatives are categorised as held for trading, recoverable amount is the higher of an asset’s fair value less costs to unless they are designated as hedges. These are measured at fair value sell and value in use. The value in use is determined by reference to and any gains or losses from subsequent measurement are recognised discounted future cash fl ows expected to be generated by the asset. For in the income statement. The Group has not used the option of desig- the purposes of assessing impairment, assets are grouped at the lowest nating fi nancial assets upon initial recognition as fi nancial assets at fair levels for which there are separately identifi able cash fl ows (cash- value through profi t or loss. generating units). Loans and receivables are non-derivative fi nancial assets with fi xed Non-fi nancial assets other than goodwill that suffered an impair- or determinable payments that are not quoted in an active market. They ment are reviewed for possible reversal of the impairment at each are included in non-current assets unless they mature within 12 months reporting date. Where an impairment loss subsequently reverses, the of the balance sheet date. Loan receivables that have a fi xed maturity carrying amount of the asset is increased to the revised estimate of its are measured at amortised cost using the effective interest method. recoverable amount, but so that the increased carrying amount does not Loan receivables are impaired if the carrying amount is greater than the exceed the carrying amount that would have been determined had no estimated recoverable amount. impairment loss been recognised for the asset in prior years. Trade receivables are non-derivatives that are recognised initially at fair value and subsequently measured at amortised cost less provisions Leases for impairment for doubtful accounts. Provisions for impairment for Leases of property, plant and equipment where the Group, as a lessee, doubtful accounts are charged to the income statement when there is has substantially all the risks and rewards of ownership are classifi ed as objective evidence that the Group will not be able to collect all amounts fi nance leases. Finance leases are recognised as assets and liabilities in due according to the original terms of receivables. Signifi cant fi nancial the balance sheet at the commencement of lease term at the lower of diffi culties of the debtor, probability that the debtor will enter bank- the fair value of the leased property and the present value of the mini- ruptcy or default of delinquency in payments more than 90 days over- mum lease payments. Each lease payment is apportioned between the due are considered indicators that the trade receivable may be irrecov- liability and fi nance charges. The corresponding rental obligations, net erable. Subsequent recoveries of amounts previously written off are of fi nance charges, are included in other long-term interest-bearing credited in the income statement. liabilities. The interest element of the fi nance cost is charged to the Available-for-sale investments are non-derivatives that are either income statement over the lease period so as to produce a constant designated in this category or not classifi ed in any of the other catego- periodic rate of interest on the remaining balance of the liability for ries. They are included in non-current assets unless they are intended to each period. Property, plant and equipment acquired under fi nance be disposed of within 12 months of the balance sheet date. Purchases leases are depreciated over the shorter of the asset’s useful life and the and sales of fi nancial investments are recognised on the settlement date, lease term. which is the date that the asset is delivered to or by the Group. Invest- Leases where the lessor retains substantially all the risks and ments are initially recognised at cost, including transaction costs, and rewards of ownership are classifi ed as operating leases. Payments made subsequently carried at fair value. under operating leases as a lessee are charged to the income statement The fair values of listed investments are based on quoted prices. on a straight-line basis over the period of the lease. Unlisted equity securities, for which fair values cannot be measured reliably, are recognised at cost. Inventories Unrealised gains and losses arising from changes in the fair value Inventories are stated at the lower of cost and net realisable value. Cost of securities classifi ed as available-for-sale are recognised in equity. is determined by the method most appropriate to the particular nature When securities classifi ed as available-for-sale are sold or impaired, the of inventory, the fi rst in, fi rst out (FIFO) or weighted average cost. The accumulated fair value adjustments in equity are included in the in- cost of fi nished goods and work in progress comprises raw materials, come statement as gains and losses from available-for-sale investments. direct labour, other direct costs and related production overheads ACCOUNTS FOR 2008 ■ Group

(based on normal operating capacity) but excludes borrowing costs. The liability recognised in the balance sheet in respect of defi ned Net realisable value is the estimated selling price in the ordinary course benefi t pension plans is the present value of the defi ned benefi t obliga- of business, less the costs of completion and selling expenses. tion at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past Cash and cash equivalents service cost. The defi ned benefi t obligation is calculated annually by Cash and cash equivalents comprise cash in hand, deposits held at call independent actuaries using the projected unit credit method. The with banks and other short-term highly liquid investments with original present value of the defi ned benefi t obligation is determined by dis- maturities of three months or less. Bank overdrafts are included within counting the estimated future cash outfl ows using interest rates of high- current interest-bearing liabilities on the balance sheet. quality corporate bonds that are denominated in the currency in which the benefi ts will be paid, and that have terms to maturity approximating Treasury shares to the terms of the related pension liability. The cost of providing pen- Where any Group company purchases the parent company’s equity sions is charged to the income statement so as to spread the cost over share capital (treasury shares), the consideration paid, including any the service lives of the employees. Actuarial gains and losses arising directly attributable incremental costs (net of income taxes), is from experience adjustments and changes in actuarial assumptions in deducted from equity attributable to the parent company’s equity hold- excess of the greater of 10% of the value of plan assets or 10% of the ers until the shares are cancelled or reissued. Where such shares are defi ned benefi t obligation are charged or credited to income over the subsequently reissued, any consideration received, net of any directly expected average remaining service lives of the employees concerned. attributable incremental transaction costs and the related income tax Past service costs are recognised immediately in income, unless the effects, is included in equity attributable to the parent company’s equity changes to the pension plan are conditional on the employees remain- holders. ing in service for a specifi ed period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over Interest-bearing liabilities the vesting period. Interest-bearing liabilities are recognised initially at fair value, net of Gains or losses on the curtailments or settlements of a defi ned transaction costs incurred. In subsequent periods, interest-bearing benefi t plan are recognised when the curtailment or settlement occurs. liabilities are stated at amortised cost using the effective interest The gain or loss on a curtailment or settlement includes possible method; any difference between proceeds (net of transaction costs) and changes in the present value of defi ned benefi t obligation, change in the redemption value is recognised in the income statement over the fair value of plan assets and any impact of actuarial gains and losses period of the interest-bearing liabilities. The Group has not used the and past service costs not previously recognised. option of designating fi nancial liabilities upon initial recognition as For defi ned contribution plans, contributions are paid to pension fi nancial liabilities at fair value through profi t or loss. insurance companies. Once the contributions have been paid, there are Most long-term interest-bearing liabilities are designated as hedged no further payment obligations. Contributions to defi ned contribution items in a fair value hedge relationship. Fair value variations resulting plans are charged to the income statement in the period to which the from the hedged interest rate risk are recorded to adjust the carrying contributions relate. amount of the hedged item and reported on the income statement under fi nance income and expenses. If the hedge accounting is discontinued, Other post-employment obligations the carrying amount of the hedged item is no longer adjusted for fair Some Group companies provide post-employment healthcare benefi ts value changes attributable to the hedged risk and the cumulative fair to their retirees. The entitlement to these benefi ts is usually conditional value adjustment recorded during the hedge relationship is amortised on the employee remaining in service up to retirement age and the based on a new effective interest recalculation through the income completion of a minimum service period. The expected costs of these statement under fi nance income and expenses. benefi ts are accrued over the period of employment, using an account- Interest-bearing liabilities are classifi ed as non-current liabilities ing methodology similar to that for defi ned benefi t pension plans. unless they are due to be settled within 12 months after the balance Valuations of these obligations are carried out by independent qualifi ed sheet date. actuaries.

Employee benefi ts Share-based compensation The Group has granted share options to top management and key Pension obligations personnel. In addition, the Group has established a share ownership The Group operates a mixture of pension schemes in accordance with programme for its executive management. These compensation plans the local conditions and practices in the countries in which it operates. are recognised as equity-settled or cash-settled share-based payment Such benefi t plans vary according to the customary benefi t plans pre- transactions depending on the settlement. The fair value of the granted vailing in the country concerned. These programmes include defi ned options and shares are recognised as indirect employee costs over the benefi t pension schemes with retirement, disability and termination vesting period. The fair values of the options granted are determined benefi ts. The retirement benefi ts are generally a function of years of using the Black- Scholes valuation model on the grant date. Non- employment and fi nal salary with the Company. Generally, the schemes market vesting conditions are included in assumptions about the are either funded through payments to insurance companies or to trus- number of options that are expected to vest. The estimates of the tee-administered funds as determined by periodic actuarial calcula- number of the exercisable options are revised quarterly and the impact tions. In addition, the Group also operates defi ned contribution pension of the revision of original estimates, if any, is recognised in the income arrangements. Most of Finnish pension arrangements are defi ned con- statement and equity. tribution plans. Group ■ ACCOUNTS FOR 2008

The proceeds received net of any directly attributable transaction Adoption of new and revised International Financial Reporting costs are credited to equity when the options are exercised. Standards interpretations and amendments to existing standards Based on the share ownership programme, the executive manage- ment is compensated with shares depending on the Group’s fi nancial Amendments and interpretations effective in 2008 performance. Shares are valued using the market rate on the grant date. In 2008, the Group has adopted the following amendments and inter- The settlement is a combination of shares and cash. The Group can pretations: obtain the necessary shares by using its treasury shares or purchase Amendments to IAS 39 Financial Instruments: Recognition and shares from the market. Measurement and IFRS 7 Financial Instruments: Disclosures – Reclas- sifi cation of Financial Assets are effective from 1 July 2008. As respond Provisions to the credit crisis the amendments introduce a possibility of reclassifi - Provisions are recognised when the Group has a present legal or con- cation of some fi nancial instruments. Amendments do not have an structive obligation as a result of past events, and it is probable that an impact on the Group’s fi nancial statements. outfl ow of resources will be required to settle the obligation, and a IFRIC 11 IFRS 2 – Group and Treasury Share Transactions pro- reliable estimate of the amount can be made. Where the Group expects vides guidance on whether share-based transactions involving treasury a provision to be reimbursed, for example under an insurance contract, shares or involving group entities (for example, options over a parent’s the reimbursement is recognised as a separate asset but only when the shares) should be accounted for as equity-settled or cash-settled share- reimbursement is virtually certain. based payment transactions in the stand-alone accounts of the parent and group companies. This interpretation does not have an impact on Restructuring provisions the Group’s fi nancial statements. Restructuring provisions are recognised in the period in which the IFRIC 14 IAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Group becomes legally or constructively committed to payment. Funding Requirements and their Interaction provides general guidance Employee termination benefi ts are recognised only after either an on how to assess the limit in IAS 19 on the amount of the surplus that agreement has been made with the appropriate employee representa- can be recognised as an asset. It also explains how the pension asset or tives on the terms of redundancy and the numbers of employees liability may be affected by a statutory or contractual minimum funding affected, or after employees have been advised of the specifi c terms. requirement. This interpretation does not have an impact on the Group’s Costs related to the ongoing activities of the Group are not provisioned fi nancial statements, as the Group is not subject to any minimum fund- in advance. ing requirements.

Environmental remediation provisions Standards early adopted Expenditures that result from remediation of an existing condition IFRS 8 Operating Segments was early adopted from 1 January 2008. caused by past operations and do not contribute to current or future IFRS 8 replaces IAS 14 Segment Reporting and aligns segment report- revenues are expensed. The recognition of environmental remediation ing with the requirements of the US GAAP standard SFAS 131. The provisions is based on current interpretations of environmental laws new standard requires the ‘management approach’ to reporting on the and regulations. Such provisions are recognised when it is likely that fi nancial performance of operating segments. The information to be the liability has been incurred and the amount of such liability can be reported for each segment is to be the measure what chief operating reasonably estimated. Amounts provisioned do not include third-party decision maker uses internally for evaluating segment performance and recoveries. deciding how to allocate resources to operating segments. The adoption of IFRS 8 does not have a material impact on the Group’s fi nancial Emission allowances statements, since the Group has already reported segment information Emission obligations are recognised in provisions when the liability to in a manner consistent with the internal reporting. deliver emission allowances is incurred based on emissions made. The liability to deliver allowances is recognised based on the carrying New and revised standards, interpretations and amendments to amount of allowances on hand, if the liability is expected to be settled existing standards that are not yet effective and have not been by those allowances, or if excess emissions are incurred, at the market early adopted by the Group value of the allowances at the balance sheet date. The following standards, interpretations and amendments to existing standards have been published and are mandatory for accounting peri- Dividends ods beginning on 1 January 2009. The Group has not early adopted any Dividend distribution to the parent company’s shareholders is recog- of the standards: nised as a liability in the Group’s fi nancial statements in the period in Revised IAS 23 Borrowing Costs is effective for annual periods which the dividends are approved by the parent company’s shareholders. beginning on or after 1 January 2009. The revised standard requires that all borrowing costs relating to the acquisition, construction or Earnings per share production of a qualifying asset are capitalised as part of the cost of The basic earnings per share are computed using the weighted average that asset. The Group’s current accounting policy is already in accord- number of shares outstanding during the period. Diluted earnings per ance with revised IAS 23 so there will be no change for the future share are computed using the weighted average number of shares out- fi nancial statements. standing during the period plus the dilutive effect of convertible bonds IFRIC 12 Service Concession Arrangements is effective for annual and share options. periods beginning on or after 1 January 2010. The interpretation addresses the accounting by private sector operators involved in the ACCOUNTS FOR 2008 ■ Group

provision of public sector infrastructure assets and services. This inter- obligation to deliver to another party a pro rata share of the net assets pretation is not relevant for the Group, since it has not had any such of the entity only on liquidation as equity, provided the fi nancial instru- arrangements in current or previous periods. This interpretation is not ments have particular features and meet specifi c conditions. It is not yet endorsed by the EU. expected that amendments will have an impact on the Group’s fi nancial IFRIC 13 Customer Loyalty Programmes is effective for annual statements. periods beginning on or after 1 July 2008. The interpretation addresses Amendments related to Improvements to IFRSs, (Annual Improve- the accounting by entities that grant loyalty award credits to customers ments 2007), are mainly effective for annual periods beginning on or who buy other goods or services. This interpretation is not relevant for after 1 January 2009. Through annual improvement projects minor the Group. changes to wordings to clarify the meaning and removals of unintended Revised IAS 1 Presentation of Financial Statements is effective for inconsistencies between standards are combined and implemented annual periods beginning on or after 1 January 2009. The revised stand- annually. Annual improvements 2007 related to 34 different standards. ard requires items of income and expense and components of other These amendments are not expected to have a material impact on the comprehensive income to be presented either in a single statement of Group’s fi nancial statements. comprehensive income with subtotals, or in two separate statements (a Amendments to IFRS 1 First Time Adoption of IFRS and IAS 27 separate income statement followed by a statement of comprehensive Consolidated and Separate Financial Statements – Cost of an Invest- income). The revised standard will change the presentation of Group’s ment in a Subsidiary, Jointly Controlled Entity or Associate are effec- fi nancial statements. tive for annual periods beginning on or after 1 January 2009. These Revised IFRS 3 Business Combinations is effective for annual amendments relate to fi rst time adoption of IFRS and therefore are not periods beginning on or after 1 July 2009. The revised standard contin- relevant for the Group. ues to apply the acquisition method to business combinations, with IFRIC 15 Agreements for Construction of Real Estates is effective some signifi cant changes. For example, all payments to purchase a for annual periods beginning on or after 1 January 2009. The interpre- business are to be recorded at fair value at the acquisition date, with tation clarifi es whether IAS 18 Revenue or IAS 11 Construction con- contingent payments classifi ed as debt subsequently re-measured tracts should be applied to particular transactions. It is likely to result in through the income statement. There is a choice on an acquisition-by- IAS 18 being applied to a wider range of transactions. IFRIC 15 is not acquisition basis to measure the non-controlling interest in the acquiree relevant to the Group’s operations. This interpretation is not yet either at fair vale or at the non-controlling interest’s proportionate share endorsed by the EU. of the acquiree’s net assets. All acquisition-related costs should be IFRIC 16 Hedges of a Net Investment in a Foreign Operation is expensed. The revised standard will have an impact on the accounting effective for annual periods beginning on or after 1 October 2008. for the Group’s future business combinations. This amendment is not IFRIC 16 clarifi es the accounting treatment in respect of net investment yet endorsed by the EU. hedging. This includes the fact that net investment hedging relates to Amendment to IAS 27 Consolidated and Separate Financial State- differences in functional currency not presentation currency, and hedg- ments is effective for annual periods beginning on or after 1 July 2009. ing instruments may be held anywhere in the group. The requirements The amendment requires the effects of all transactions with non-con- of IAS 21 do apply to the hedged item. The interpretation is not trolling interests to be recorded in equity if there is no change in con- expected to have a material impact on the Group’s fi nancial statements. trol and these transactions will no longer result in goodwill or gains This interpretation is not yet endorsed by the EU. and losses. The standard also specifi es the accounting when control is Amendment to IAS 39 Financial Instruments: Recognition and lost. Any remaining interest in the entity is re-measured to fair value, Measurement: Eligible Hedged Items is effective for annual periods and a gain or loss is recognised in profi t or loss. This amendment is not beginning on or after 1 July 2009. The amendment clarifi es how the yet endorsed by the EU. existing principles underlying hedge accounting should be applied in Amendment to IFRS 2 Share-Based Payment: Vesting Conditions the designation of: a one-sided risk in a hedged item, and infl ation in a and Cancellations is effective for annual periods beginning on or after fi nancial hedged item. The amendment is not expected to have an 1 January 2009. The amended standard deals with vesting conditions impact on the Group’s fi nancial statements. This amendment is not yet and cancellations. It clarifi es that vesting conditions are service condi- endorsed by the EU. tions and performance conditions only. Other features of a share-based IFRIC 17 Distribution of Non-Cash Assets to Owners is effective payment are not vesting conditions. Amendment also specifi es that all for annual periods beginning on or after 1 July 2009. The interpretation cancellations, whether by the entity or by other parties, should receive clarifi es how an entity should measure the distribution of assets when it the same accounting treatment. The amendment is not expected to have distributes other assets than cash. It is not expected that the interpreta- a material impact on the Group’s fi nancial statements. tion will have a material impact on the Group’s fi nancial statements. Amendments to IAS 32 Financial Instruments: Presentation, and This interpretation is not yet endorsed by the EU. IAS 1 Presentation of Financial Statements – Puttable Financial Instru- Revised IFRS 1 First Time Adoption of IFRS is effective for entities ments and Obligations Arising on Liquidation are effective for annual applying IFRS for the fi rst time for annual periods beginning on or periods beginning on or after 1 January 2009. The amended standards after 1 July 2009. The revised standard relates to fi rst time adoption of require entities to classify puttable fi nancial instruments and instru- IFRS and therefore is not relevant for the Group. The revised standard ments, or components of instruments that impose on the entity an is not yet endorsed by the EU. Group ■ ACCOUNTS FOR 2008

2 CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING unused tax credits can be utilised. The factors used in estimates may POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY differ from actual outcome which could lead to signifi cant adjustment to deferred tax assets recognised in the income statement. Impairment of non-current assets Goodwill, intangible assets not yet available for use and intangible Legal contingencies assets with indefi nite useful lives are tested at least annually for impair- Management judgement is required in measurement and recognition of ment. Other long-lived assets are reviewed when there is an indication provisions related to pending litigation. Provisions are recorded when that impairment may have occurred. Estimates are made of the future the Group has a present legal or constructive obligation as a result of cash fl ows expected to result from the use of the asset and its eventual past event, an unfavourable outcome is probable and the amount of loss disposal. If the balance sheet carrying amount of the asset exceeds its can be reasonably estimated. Due to inherent uncertain nature of litiga- recoverable amount, an impairment loss is recognised. Actual cash tion, the actual losses may differ signifi cantly from the originally esti- fl ows could vary from estimated discounted future cash fl ows. The long mated provision. useful lives of assets, changes in estimated future sales prices of products, changes in product costs and changes in the discount rates used could lead to signifi cant impairment charges. Details of the 3 FINANCIAL RISK MANAGEMENT impairment tests are provided in Note 16. FINANCIAL RISKS Biological assets The Group’s activities expose it to a variety of fi nancial risks: market The Group owns about 1 million hectare of forest land. Biological risk (including foreign exchange risk, fair value interest rate risk, cash assets (i.e. living trees) are measured at their fair value at each balance fl ow interest risk and other price risk), credit risk and liquidity risk. sheet date. The fair value of biological assets is determined based The objective of fi nancial risk management is to protect the Group among other estimates on growth potential, harvesting, price develop- from unfavourable changes in fi nancial markets and thus help to secure ment and discount rate. Changes in any estimates could lead to recogni- profi tability. The objectives and limits for fi nancing activities are tion of signifi cant fair value changes in income statement. defi ned in the Group Treasury Policy approved by the company’s Board of Directors. Employee benefi ts In fi nancial risk management various fi nancial instruments are used The Group operates a mixture of pension and other post-employment within the limits specifi ed in the Group Treasury Policy. Only such benefi t schemes. Several statistical and other actuarial assumptions are instruments whose market value and risk profi le can be continuously used in calculating the expense and liability related to the plans. These and reliably monitored are used for this purpose. factors include, among others, assumptions about the discount rate, Financial services are provided and fi nancial risk management expected return on plan assets and changes in future compensation. carried out by a central treasury department, Treasury and Risk Man- Statistical information used may differ materially from actual results agement (TRM). The centralization of Treasury functions enables due to changing market and economic conditions, changes in service effi cient fi nancial risk management, cost-effi ciency and effi cient cash period of plan participants or changes in other factors. Actual results management. that differ from assumptions and the effects of changes in assumptions are accumulated and charged or credited to income over the expected Foreign exchange risk average remaining service lives of the employees to the extent that The Group is exposed to foreign exchange risk arising from various these exceed 10% of the higher of the pension plan assets or defi ned currency exposures, primarily with respect to the USD and the GBP. benefi t obligation. Signifi cant differences in actual experience or signif- Foreign exchange risk arises from future commercial transactions and icant changes in assumptions may materially affect the future amounts from recognised assets and liabilities. of the defi ned benefi t obligation and future expense. The objective of foreign exchange risk management is to limit the uncertainty created by changes in foreign exchange rates on the future Environmental provisions value of cash fl ows and earnings as well as in the Group’s balance sheet Operations of the Group are based on heavy process industry which by hedging foreign exchange risk in forecasted cash fl ows and balance requires large production facilities. In addition to basic raw materials, sheet exposures. considerable amount of chemicals, water and energy is used in proc- esses. The Group’s operations are subject to several environmental laws Transaction exposure and regulations. The Group aims to operate in compliance with regula- The Group hedges transaction exposure related to highly probable tions related to the treatment of waste water, air emissions and landfi ll future commercial foreign currency cash fl ows on a rolling basis over sites. The Group has provisions for normal environmental remediation the next 12-month period based on the units’ forecasts. According to costs. Unexpected events occurred during production processes and the Group’s Treasury Policy 50% hedging is considered risk neutral. waste treatment could cause material losses and additional costs in the Some confi rmed and committed transactions have been hedged for Group’s operations. longer than 12 months ahead while deviating from the risk neutral hedging level at the same time. Forward contracts are used in transac- Income taxes tion exposure management. Most of the derivatives entered into to Management judgement is required for the calculation of provision for hedge foreign currency cash fl ows meet the hedge accounting require- income taxes and deferred tax assets and liabilities. The Group reviews ments set by the IFRS. 52% of the forecasted 12-month currency fl ow at each balance sheet date the carrying amount of deferred tax assets. was hedged on 31 December 2008 (31.12.2007: 53%). The table below The Group considers whether it is probable that the subsidiaries will shows the nominal values of the hedging instruments at 31 December have suffi cient taxable profi ts against which the unused tax losses or 2008 and 2007. ACCOUNTS FOR 2008 ■ Group

Nominal values of hedging instruments • The variation in exchange rates is 10%. 2008 2007 • Major part of non-derivative fi nancial instruments (such as cash Currency €m €m and cash equivalents, trade receivables, interest bearing-liabilities USD 294 342 and trade payables) are either directly denominated in the func- GBP 219 315 tional currency or are transferred to the functional currency JPY 77 36 through the use of derivatives i.e. the balance sheet position is close AUD 79 168 to zero. Exchange rate fl uctuations have therefore minor or no CHF 32 26 effects on profi t or loss. DKK 32 44 • The position includes foreign currency forward contracts that are Others 21 128 part of the effective cash fl ow hedge having an effect on equity. Total 754 1,059 • The position includes also foreign currency forward contracts that are not part of the effective cash fl ow hedge having an effect on For segment reporting purposes, the hedges made by TRM on behalf profi t. of UPM’s subsidiaries and business units are allocated to appropriate • The position excludes foreign currency denominated future cash segments. External forwards are designated at group level as hedges of fl ows. foreign exchange risk of specifi c future foreign currency sales on gross basis. Interest rate risk The Group has several currency denominated assets and liabilities The interest-bearing debt exposes the Group to interest rate risk, namely in its balance sheet such as foreign currency loans and deposits, repricing and fair value interest rate risk caused by interest rate movements. accounts payable and receivable and cash in other currencies than The objective of interest rate risk management is to reduce the fl uctuation functional currency. The aim is to hedge this balance sheet exposure of the interest expenses caused by the interest rate movements. fully using fi nancial instruments. The Group might, however, within the The management of interest rate risk is based on the 6-month limits set in the Group Treasury Policy have unhedged balance sheet average duration of the net debt portfolio as defi ned in the Group exposures. At 31 December 2008 unhedged balance sheet exposures in Treasury Policy. This relatively short duration is based on the assump- interest bearing assets and liabilities amounted to 45 million tion that on average yield curves will be positive. Thus this approach (31.12.2007: 17 million). In addition to this the Group has non interest reduces interest cost in the long term. The duration may deviate bearing accounts receivable and payable balances denominated in between 3 and 12 months. At 31 December 2008 the average duration foreign currencies. The nominal values of the hedging instruments used was 6 months (2007: 6 months). The Group uses interest rate deriva- in accounts payable and receivable hedging were 277 million tives to change the duration of the net debt. (31.12.2007: 327 million). The Group’s net debt per currency corresponds to the parent company’s and subsidiaries’ loan portfolios in their functional curren- Translation exposure cies. The nominal values of the Group’s interest-bearing net debts Translation exposure consists of net investments in foreign subsidiar- including derivatives by currency at 31 December 2008 and 2007 were ies. The exchange risks associated with the shareholders’ equity of as follows: foreign subsidiaries are only hedged in Canada. The net investments of all other foreign operations remain unhedged. 2008 2007 Currency €bn €bn Foreign exchange risk sensitivity EUR 4.3 3.8 At 31 December 2008, if Euro had weakened/strengthened by 10% CNY 0.3 0.4 against the USD with all other variables held constant, pre-tax profi t for USD 0.3 0.3 the year would have been € 4 million (2007: € 2 million) higher/lower CAD –0.6 –0.3 due to balance sheet foreign exchange exposure. The effect in equity Others 0.1 –0.1 would have been € 39 million (2007: € 34 million) lower/higher, arising Total 4.4 4.1 mainly from foreign currency forwards used to hedge forecasted for- eign currency fl ows. Most of the long-term loans and the interest rate derivatives related to As of 31 December 2008, if Euro had weakened/strengthened by them meet the IFRS hedge accounting requirements. 10% against the GBP with all other variables held constant, pre-tax profi t for the year would have been € 0 (2007: € 0) higher/lower due to Interest rate risk sensitivity balance sheet foreign exchange exposure. The effect in equity would At 31 December 2008, if the interest rate of net debt had been 1% have been € 22 million (2007: € 31 million) lower/higher, arising higher/lower with all other variables held constant, pre-tax profi t for the mainly from foreign currency forwards used to hedge forecasted for- year would have been € 9 million (2007: € 7 million) lower/ higher, eign currency fl ows. mainly as a result of higher/lower interest expense on fl oating rate As of 31 December 2008, if Euro had weakened/strengthened by interest-bearing liabilities. There would be no effect on equity. 10% against the AUD with all other variables held constant, pre-tax profi t for the year would have been € 7 million (2007: € 16 million) The following assumptions were made when calculating the sensitivity higher/lower. The effect in equity would have been € 1 million (2007: to changes in interest rates: € 0 million) lower/higher. • The variation of interest rate is assumed to be 1% parallel shift in applicable interest rate curves. The following assumptions were made when calculating the sensitivity • In the case of fair value hedges designated for hedging interest rate to changes in the foreign exchange risk: risk, the changes in the fair values of the hedged items and the Group ■ ACCOUNTS FOR 2008

hedging instruments attributable to the interest rate movements Credit risk balance out almost completely in the income statement in the same With regard to operating activities, the Group has a credit policy in period. However, the possible ineffectiveness has an effect on the place and the exposure to credit risk is monitored on an ongoing basis. profi t of the year. Open trade receivables, days of sales outstanding (DSO) and overdue • Fixed rate interest-bearing liabilities that are measured at amortised trade receivables are followed on monthly basis. cost and which are not designated to fair value hedge relationship Potential concentrations of credit risk with respect to trade and are not subject to interest rate risk sensitivity. other receivables are limited due to the large number and geographic • Variable rate interest-bearing liabilities that are measured at amor- dispersion of companies that comprise the Group’s customer base. tised cost and which are not designated as hedged items are Customer credit limits are established and monitored, and ongoing included in interest rate sensitivity analysis. evaluations of customers’ fi nancial condition are performed. Most of • Changes in the market interest rate of interest rate derivatives the receivables are covered by credit risk insurances. In certain market (interest rate futures, swaps and cross currency swaps) that are not areas, measures to reduce credit risks include letters of credit, prepay- designated as hedging instruments under IAS 39 affect the fi nan- ments and bank guarantees. The ageing analysis of trade receivables is cial income or expenses (net gains or losses from remeasurement presented in Note 26. The Group considers that no signifi cant concen- of the fi nancial assets and liabilities to fair value) and are therefore tration of customer credit risk exists. The ten largest customers included in the income-related sensitivity analysis. accounted for approximately 15% (11%) of the Group’s trade receiva- bles as at 31 December 2008 – i.e., approximately € 190 million (150 Liquidity and refi nancing risk million). The credit risk relating to the commitments is discussed in The Group seeks to maintain adequate liquidity under all circumstances Note 39. by means of effi cient cash management and restricting investments to those that can be readily converted into cash. The Group utilises com- Derivatives related to commodity price risk management mercial paper programmes for short term fi nancing purposes. Commit- The Group’s manufacturing process requires a signifi cant amount of ted credit facilities are used to secure fi nancing under all circumstances electricity. The procurement and sales of electricity are managed and and as a backup for commercial paper programmes. optimised by the Group. The Group manages the price risk of its elec- Refi nancing risks are minimised by ensuring balanced loan port- tricity exposure with electricity forward contracts. folio maturing schedule and suffi cient long maturities. The average If all electricity prices quoted on 31 December 2008 at Nord Pool loan maturity at 31 December 2008 was 5.7 years (2007: 6.1 years). electricity exchange would have been 25% higher/lower with all other variables constant, pre-tax profi t for the year would have been € 19 Cash funds and committed credit facilities million (2007: € 0.3 million based on 15% higher/lower) higher/lower. Profi t was more sensitive to electricity price movements in 2008 than in €m 2008 2007 2007 because of the increased amount of the electricity derivatives and Cash funds 330 237 increased volatility. Committed facilities 2,500 2,500 • The sensitivity analysis assumes a 25% parallel move in electricity of which used –687 –538 Used uncommitted credit lines –74 –416 prices for all maturities. Long-term loan repayment –344 –389 • The sensitivity analysis includes only outstanding electricity Available liquidity 1,725 1,394 derivatives.

Capital risk management The most important fi nancial programmes in use are: • Domestic commercial paper programme, € 1.0 billion The Group’s objective in managing its capital is to ensure maintenance • Belgian commercial paper programme, € 400 million of fl exible capital structure to enable the Group to operate in capital • Medium Term Note programme, € 5.0 billion markets. • Revolving Credit Facility, € 1.5 billion (matures 2010) To measure a satisfactory capital balance between equity investors • Revolving Credit Facility, € 1.0 billion (matures 2012) and fi nancial institutions the Group has set a target for the ratio of net interest-bearing liabilities and equity (gearing). To ensure suffi cient The contractual maturity analysis for fi nancial liabilities is presented in fl exibility, the aim is to keep the gearing ratio well below the maximum Note 31. acceptable level of 90%. The following capitalisation table sets out the Group’s equity and Financial counterparty risk interest-bearing liabilities and gearing ratios: The fi nancial instruments the Group has agreed with banks and fi nan- cial institutions contain an element of risk of the counterparties being unable to meet their obligations. According to the Group Treasury Policy derivative instruments and investments of cash funds may be made only with counterparties meeting certain creditworthiness crite- ria. The Group minimises counterparty risk also by using a number of major banks and fi nancial institutions. Creditworthiness of counter- parties is constantly monitored by TRM. ACCOUNTS FOR 2008 ■ Group

As at 31 December Forest and timber €m 2008 2007 The Forest and timber segment includes forests, wood procurement, Equity attributable to the equity holders of and sawmills with an annual production capacity of 2.4 million cubic the parent company 6,106 6,770 metres. Minority interest 14 13 Total equity 6,120 6,783 Paper Long-term interest-bearing liabilities 4,534 3,384 The Paper segment includes the Group’s paper mills, producing maga- Short-term interest-bearing liabilities 537 931 zine papers, newsprint, fi ne papers, and speciality papers. The annual Liabilities related to assets classifi ed as held production capacity is approximately 11 million tonnes. This segment for sale, interest-bearing 2 – also includes the CHP plants at paper mill sites. Interest-bearing liabilities, total 5,073 4,315 Total capitalisation 11,193 11,098 Interest-bearing liabilities, total 5,073 4,315 Label Less: Interest-bearing receivables, total –752 –342 The Label segment includes labelstock factories and slitting and distri- Net interest-bearing liabilities 4,321 3,973 bution terminals. Gearing ratio, % 71 59 Plywood The Plywood segment includes plywood mills. The segment’s annual 4 SEGMENT INFORMATION production capacity is 1.1 million cubic metres.

As of 1 December 2008, UPM has been applying a new business struc- Other operations ture. The company consists of three Business Groups, which are Other operations include development units (the wood plastic compos- Energy and pulp comprising Energy, Pulp, and Forest and timber ite unit ProFi, RFID tags, and biofuels) logistic services and corporate reportable segments; Paper as a reportable segment; and Engineered administration. materials comprising Label and Plywood reportable segments. Other operations include development units (the wood plastic composite unit The Group has not aggregated any operating segments in determi- ProFi, RFID tags, biofuels), logistic services and corporate administra- nation of the above reportable segments. tion. The Group’s management has determined the operating segments UPM has early adopted IFRS 8 Operating Segments at 1 January based on management reporting regularly reviewed by the Group’s 2008. The adoption of IFRS 8 does not have a material impact on the chief operating decision maker. The chief operating decision maker has Group’s fi nancial statements, since the Group has already reported been identifi ed as the Group’s President and CEO. segment information in a manner consistent with the internal reporting. The information reported for each segment is the measure of what The comparative segment information for year 2007 has been the Group’s President and CEO uses internally for evaluating segment revised to correspond with the new business structure and IFRS 8 performance and deciding on how to allocate resources to operating presentation requirements. segments. The operating segments are organised on a basis of products. The performance of operating segment is evaluated primarily based Reportable segments on segment’s Operating profi t, which is measured on a basis consistent with consolidated fi nancial statements. Sales between the segments are Energy based on market prices. The Energy segment includes UPM’s hydropower plants and shares in The amounts provided to the President and CEO in respect of energy companies, mainly in the associated company Pohjolan Voima segments assets and liabilities are measured on a basis consistent with Oy, and in Kemijoki Oy. Combined heat and power (CHP) plants oper- consolidated fi nancial statements. The assets and liabilities are allo- ating on paper mill sites are included in the Paper segment. cated to the segments based on the segments operations. Unallocated assets and liabilities comprises of other than energy shares under avail- Pulp able-for-sale investments, non-current fi nancial assets, deferred tax The Pulp segment includes the Group’s pulp mills and shares in the assets and liabilities, other non-current assets, income tax receivables associated company Oy Metsä-Botnia Ab. and payables, cash and cash equivalents, assets classifi ed as held for sale and related liabilities, retirement benefi t obligations, provisions, interest-bearing liabilities and other liabilities and payables. Group ■ ACCOUNTS FOR 2008

Segment information for the year ended 31 December 2008

Eliminations Forest and Ply- Other and re- €m Energy Pulp timber Paper Label wood operations conciliations Group

External sales 137 63 869 6,761 956 491 184 – 9,461 Internal sales 341 881 1,051 250 3 39 16 –2,581 – Total sales 478 944 1,920 7,011 959 530 200 –2,581 9,461

Share of results of associates and joint ventures –26 86 – 1 – – 1 – 62

Operating profi t 175 89 –59 –129 –26 28 –54 – 24 Gains on available-for-sale investments, net 2 Finance costs, net –227 Income taxes 21 Profi t (loss) for the period –180

Special items in operating profi t 1) ––59–36–379–283 10––489 Operating profi t excluding special items 175 148 –23 250 2 25 –64 – 513

Assets 2) 480 1,040 1,976 6,378 661 313 161 –139 10,870 Associates and joint ventures 2) 498 745 1 15 – – 4 – 1,263 Unallocated assets 1,648 Total assets 13,781

Liabilities 3) 23 67 135 377 132 18 32 –141 643 Unallocated liabilities 7, 018 Total liabilities 7, 6 61

Other items Depreciation and amortisation 5 77 24 639 32 21 8 – 806 Impairment charge 1 51 32 328 7 – – – 419 Capital expenditure 4) 815124219962231–551 Capital employed, 31 December 5) 955 1,718 1,843 6,016 529 295 134 –297 11,193 Capital employed, average 951 1,674 1,878 6,503 510 307 137 –814 11,146 Return on capital employed, excluding special items % 6) 18.4 8.8 –1.2 3.8 0.4 8.1 –46.7 – 4.6 Personnel at year end 39 1,159 3,278 13,262 2,851 3,799 595 – 24,983 Personnel, average 27 1,379 3,445 13,777 2,824 3,950 615 – 26,017

1) In 2008, special items of the Pulp segment of € 59 million relate to the closure of the Tervasaari pulp mill. In Forest and timber segment special items include an impairment charge of € 31 million related to fi xed assets of the Finnish sawmills. Special items of the Paper segment include the goodwill impairment charge of € 230 million, impairment charges of € 101 million and other restructuring costs of € 42 million related to the closure of the Kajaani paper mill, and other restructuring costs, net of € 6 million. In Label segment special items of € 28 million relate to measures to reduce coating capacity and close two slitting terminals in Europe. In Plywood segment special items include revers- als of provisions related to the disposed Kuopio plywood mill. In Other operations special items include an adjustment of € 5 million to sales of disposals of 2007 and other restructuring income net of € 5 million. 2) Segment assets include goodwill, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures, investments in energy shares under available-for-sale investments, inventories and trade receivables. 3) Segment liabilities include trade payables and advances received. 4) Capital expenditure include goodwill arisen in business combinations, other intangible assets, property, plant and equipment, investment property, biological assets and invest- ments in associated companies and joint ventures. 5) Capital employed is segment assets less segment liabilities. Eliminations include unallocated assets and unallocated non-interest bearing-liabilities. 6) The formula for calculation of the return on capital employed; segments: Operating profi t excluding special items/Capital employed (average) x 100, the Group: (Profi t before tax + interest expenses and other fi nancial expenses–special items)/(Total equity+interest bearing liabilities (average)) x 100. ACCOUNTS FOR 2008 ■ Group

Segment information for the year ended 31 December 2007

Eliminations Forest and Ply- Other and re- €m Energy Pulp timber Paper Label wood operations conciliations Group

External sales 59 35 1,021 7,081 997 555 287 – 10,035 Internal sales 320 773 1,018 247 1 36 163 –2,558 – Total sales 379 808 2,039 7,328 998 591 450 –2,558 10,035

Share of results of associates and joint ventures –17 58 1 – – – 1 – 43

Operating profi t95145201–137605069–483 Gains on available-for-sale investments, net 2 Finance costs, net –193 Income taxes –211 Profi t for the period 81

Special items in operating profi t 1) ––43–13–3994 – 99––352 Operating profi t excluding special items 95 188 214 262 56 50 –30 – 835

Assets 2) 475 910 1,968 7,344 597 327 152 –123 11,650 Associates and joint ventures 2) 523 652 2 12 – – 4 – 1,193 Unallocated assets 1,110 Total assets 13,953

Liabilities 3) 23 91 195 491 149 29 23 –179 822 Unallocated liabilities 6,348 Total liabilities 7,17 0

Other items Depreciation and amortisation 5 58 25 678 29 21 15 – 831 Impairment charge 1 43 19 317 – – 13 – 393 Capital expenditure 4) 3239252961061722–708 Capital employed, 31 December 5) 975 1,472 1,774 6,865 448 299 133 –868 11,098 Capital employed, average 994 1,423 1,679 7,317 420 300 217 –984 11,366 Return on capital employed, excluding special items %6) 9.6 13.2 12.7 3.6 13.3 16.7 –13.8 – 7.4 Personnel at year end 26 1,186 3,510 14,538 2,568 3,945 579 – 26,352 Personnel, average 28 1,309 3,628 15,145 2,569 4,063 1,504 – 28,246

1) In 2007, special items of the Pulp segment comprise of a goodwill impairment charge of € 43 million. In Forest and timber segment special items include impairment charges of € 19 million related mainly to Miramichi’s forestry and sawmilling operations and a gain of € 6 million on sale of estate assets. In Paper segment special items include impair- ment charge of € 22 million, personnel expenses of € 54 million and other costs of € 36 million related to the closure of the Miramichi paper mill, and an income of € 8 million related to other restructuring measures. Special items also include a goodwill impairment charge of € 307 million, and income of € 11 million related to impairment reversals. In Label segment special items include an income of € 4 million related to restructuring measures. In Other operations special items include capital gains of € 58 million on the sale of port operators Rauma Stevedoring and Botnia Shipping, € 42 million related to the sale of UPM-Asunnot and € 29 million related to the sale of Walki Wisa. In addition special items include a compensation charge of € 12 million related to classaction lawsuits in the US, and other impairment charges and restructuring costs of € 18 million. 2) Segment assets include goodwill, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures, investments in energy shares under available-for-sale investments, inventories and trade receivables. 3) Segment liabilities include trade payables and advances received. 4) Capital expenditure include goodwill arisen in business combinations, other intangible assets, property, plant and equipment, investment property, biological assets and invest- ments in associated companies and joint ventures. 5) Capital employed is segment assets less segment liabilities. Eliminations include unallocated assets and unallocated non-interest bearing-liabilities. 6) The formula for calculation of the return on capital employed; segments: Operating profi t excluding special items/Capital employed (average) x 100, the Group: (Profi t before tax + interest expenses and other fi nancial expenses-special items)/(Total equity+interest bearing liabilities (average)) x 100. Group ■ ACCOUNTS FOR 2008

Geographical information capital gain of € 58 million was recognised on the sale. None of these disposals are classifi ed as discontinued operations. External sales by destination Year ended 31 December €m 2008 2007 Net assets and liabilities of disposals Germany 1,640 1,707 Year ended 31 December € United Kingdom 1,040 1,203 m 2008 2007 Finland 946 865 Cash and cash equivalents 1 2 France 552 607 Other intangible assets – 7 Other EU countries 2,259 2,418 Property, plant and equipment – 68 Other European countries 467 493 Investment property – 17 United States 940 1,140 Inventories – 44 Canada 65 115 Receivables 2 52 China 397 382 Accounts payable and other liabilities –3 –47 Rest of world 1,155 1,105 Interest-bearing liabilities –1 –65 Total 9,461 10,035 –1 78 Gain/loss on disposal 8 129 Total consideration 7 207 Total assets by country As at 31 December Settled in cash and cash equivalents 7 207 € m 2008 2007 Cash and cash equivalents in subsidiary disposed –1 –2 Germany 2,514 2,830 Net cash infl ow arising from disposals 6 205 United Kingdom 565 642 Finland 7,547 7,197 France 521 568 Adjustments to profi t (loss) for the period Other EU countries 592 646 Year ended 31 December Other European countries 132 145 €m 2008 2007 United States 592 620 Canada 186 233 Taxes –21 211 China 832 801 Depreciation, amortisation and impairment charges 1,225 1,224 Rest of world 300 271 Share of results in associated companies and Total 13,781 13,953 joint ventures –62 –43 Profi ts and losses on sale of non-current assets –28 –157 Gains on available-for-sale investments, net –2 –2 Capital expenditure by country Finance costs, net 227 193 Settlement of restructuring charges –56 – Year ended 31 December €m 2008 2007 One-time contributions to pension funds –85 –30 Other adjustments 34 –6 Germany 33 23 Total 1,232 1,390 United Kingdom 56 28 Finland 280 439 France 13 31 Change in working capital Poland 68 23 Year ended 31 December Other European countries 17 31 €m 2008 2007 North America 23 62 Inventories –55 –152 China 9 17 Current receivables 138 –129 Rest of world 52 54 Current non-interest bearing liabilities –215 77 Total 551 708 Total –132 –204

5 NOTES TO THE CASH FLOW STATEMENT 6 OTHER OPERATING INCOME Acquisitions and disposals Year ended 31 December In 2008 and 2007, no acquisitions were made. €m 2008 2007 In 2008 disposals relate to the sale of UPM’s RFID antenna manu- Gains on sale of non-current assets 1) 28 160 facturing company Inture Circuits Ltd in July and adjustments to dis- Rental income, investment property 6 6 posals in 2007. Rental income, other 7 7 In April 2007, UPM sold the real estate company UPM-Asunnot Emission allowances received (Note 7) 37 – Oy for € 73 million, which generated a pre-tax capital gain of € 42 Derivatives held for trading 2 22 million. In June 2007, UPM sold Walki Wisa group, a producer of Other 3 5 wrappings and composite materials for industrial applications, for € 79 Total 83 200 million. A tax exempt capital gain of € 29 million was recognised on 1) Year 2007 includes a capital gain of € 42 million on the sale of UPM-Asunnot Oy, the sale. In October 2007, UPM sold its Finnish port operators Oy a capital gain of € 29 million on the sale of Walki Wisa group and a capital gain of Rauma Stevedoring Ltd and Oy Botnia Shipping Ab. A tax exempt € 58 million on the sale of Oy Rauma Stevedoring Ltd and Oy Botnia Shpping Ab. ACCOUNTS FOR 2008 ■ Group

7 COSTS AND EXPENSES Shareholdings (no. of shares) and fees of the Board of Directors Year ended 31 December Shareholding Year ended 31 Dec. €m 2008 2007 € 1,000 31 Dec. 2008 2008 2007 Change in inventories of fi nished goods and Board members work in progress 93 –41 Björn Wahlroos, Chairman 109,077 175 – Production for own use –17 –34 Berndt Brunow, Vice Chairman 274,988 120 120 76 –75 Georg Holzhey, Vice Chairman 438,398 120 95 Matti Alahuhta 6,641 95 – Materials and services Michael C. Bottenheim 16,260 120 120 Raw materials, consumables and goods Karl Grotenfelt 29,726 95 95 Purchased during the period 5,244 5,360 Wendy E. Lane 8,299 95 95 Change in inventories –84 –52 Ursula Ranin 7,361 95 95 External services 1) 720 744 Veli-Matti Reinikkala 6,221 95 95 5,880 6,052 Jussi Pesonen, President and CEO 62,814 – –

Personnel expenses Former Board members Salaries and fees 1,079 1,163 Vesa Vainio – – 175 Jorma Ollila – – 120 Share-based payments (Note 37) 5 15 Françoise Sampermans – – 95 Total 959,785 1,010 1,105 Indirect employee costs Pension costs-defi ned benefi t plans (Note 29) 31 44 Pension costs-defi ned contribution plans 146 125 Executive Team remuneration Post-employment medical benefi ts (Note 29) 2 3 Year ended 31 December 2) Other indirect employee costs 143 159 € 1,000 2008 2007 322 331 President and CEO Jussi Pesonen Remuneration Other operating costs and expenses Salaries 1,024 984 Rents and lease expenses 53 50 Incentives 90 210 Emission expenses (Note 6) 26 –1 Share rewards 443 555 Losses on sale of non-current assets 1 4 Benefi ts 23 20 Other operating expenses 3) 965 1,111 Total 1,580 1,769 1,045 1,164 Pension costs Finnish TyEL scheme 196 206 Costs and expenses, total 8,407 8,650 Voluntary pension plan 165 123 1) External services comprise mainly distribution costs of products sold. Total 361 329 2) Other indirect employee expenses include primarily other statutory social expenses, excluding pension expenses. The 12 (2007: 13) members of the Executive Team, including President 3) Other operating expenses include, among others, energy and mainte- and CEO, were paid salaries and fringe benefi ts totalling € 7.0 (2007: nance expenses as well as expenses relating to services and the company’s € 6.2) million, of which € 1.5 (2007: € 0.7) million were paid as administration. bonuses. The remunerations paid are based on the performance of the Executive Team members in the previous year. In 2008, bonuses include The research and development costs included in costs and expenses share rewards of € 1.3 million paid under the terms and conditions of € € were 49 (2007: 50) million. the Group’s share ownership plan (2007: share rewards € 2.8 million). According to the company’s pay scheme, CEO can be paid an 18 months’ maximum reward, and the other executives can be paid a REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF performance-related reward amounting to not more than twelve DIRECTORS AND THE EXECUTIVE TEAM months’ salary. In addition, the members of the Executive Team are also entitled to participate in the company’s stock option plans. The In accordance with the decision made by the 2008 Annual General expenses recognised in income statement in respect of share-based Meeting, the fees of the Board members who do not belong to the payments were € 1.1 million (2007: € 4.6 million) including share operative management were: the Chairman of the Board of Directors options of € 0.5 million (2007: € 2.6 million) and share rewards of received a fee of € 175,000 for the year (2007: € 175,000), the Vice € 0.6 million (2007: € 2.0 million). Chairmen of the Board of Directors and the Chairman of the Audit The retirement age of President and CEO Jussi Pesonen is 60 years. Committee a fee of € 120,000 (2007: € 120,000), and the members of Depending on the service contracts, the retirement age of the other the Board of Directors a fee of € 95,000 (2007: € 95,000). Of this fee members of the Executive Team is 62–63 years. The target pension is in 2008 and 2007 60% was paid in cash and 40% in the form of the 60% of the average indexed earnings from the last ten years. The costs company shares purchased on the members’ behalf. In 2008, 7,077 of lowering the retirement age or supplementing statutory pension company shares were paid to the Chairman, 4,852 shares to the Vice security are generally covered by voluntary pension insurance. The Chairmen of the Board of Directors and the Chairman of the Audit expenses of the Executive Team members’ defi ned benefi t pension Committee, respectively and a total of 19,205 shares to the other mem- plans in 2008 were € 0.5 (2007: € 1.1) million, and the expenses of bers of the Board of Directors. their defi ned contribution plans were € 0.8 (2007: € 0.9) million. Group ■ ACCOUNTS FOR 2008

Members of the Executive Team have certain benefi ts in the event Year ended 31 December of their service contracts being terminated prior to the expiration date €m 2008 2007 stated in them. If UPM-Kymmene Corporation gives notice of termina- Impairment charges on property, tion to Jussi Pesonen, the President and CEO, a severance compensa- plant and equipment tion of 24 months’ basic salary will be paid, in addition to the six Land areas – 1 months’ salary for the notice period. For other members of the Execu- Buildings 58 6 Machinery and equipment 120 21 tive team, the period for additional severance compensation is 12 Other tangible assets 4 15 months in addition to the six months’ salary for the notice period. 182 43 The President and CEO is appointed by the Board of Directors. Impairment of intangible assets If there is a change of control in UPM-Kymmene Corporation as Goodwill 230 350 defi ned in the service contracts, each member of the Executive Team Intangible rights – 8 may terminate such service contract within one month or, in the case of Emission allowances 2 2 Jussi Pesonen within three months, from the date of the event that Other intangible assets 5 2 triggered the change of control, and shall receive compensation equiva- 237 362 lent to 24 months’ basic salary. Impairment reversal Machinery and equipment – –12

Audit fees Depreciation, amortisation and Year ended 31 December impairment charges, total 1,225 1,224 €m 2008 2007 Audit fees 2.3 3.4 In 2008, impairments include in Paper segment an impairment of Audit related fees 0.1 0.5 goodwill of € 230 million. In 2007, impairments include in Paper Other non-audit services 0.4 – segment, an impairment of goodwill of € 307 million and in Pulp Tax consulting fees 1.5 1.0 segment an impairment of goodwill of € 43 million. For goodwill test Total 4.3 4.9 see Note 16. In September 2008, UPM recognised an impairment charge of € 31 million in assets of Finnish sawmills within the Forest and timber 8 CHANGE IN FAIR VALUE OF BIOLOGICAL ASSETS segment, due to weakened profi tability of sawmilling. AND WOOD HARVESTED In November 2008, UPM’s Label segment announced plans to Year ended 31 December restructure its European operations, resulting into impairment charges €m 2008 2007 of € 7 million. Wood harvested –88 –116 In December 2008, UPM closed down uncompetitive paper and Change in fair value 138 195 pulp capacity in Finland, including the Kajaani paper mill and the Total 50 79 Tervasaari pulp mill. This resulted into impairment charges of € 101 million in Paper segment related to the closure of the Kajaani paper 9 SHARE OF RESULTS OF ASSOCIATED COMPANIES mill and impairment charges of € 51 million in Pulp segment related to AND JOINT VENTURES the closure of the Tervasaari pulp mill. Year ended 31 December In June 2007, UPM decided to close the Miramichi magazine paper €m 2008 2007 mill temporarily for nine to twelve months. Due to continued poor Oy Metsä-Botnia Ab 86 58 fi nancial prospects, primarily due to the strengthened Canadian dollar Pohjolan Voima Oy –26 –14 in relation to the US dollar, and the increased cost of essential raw Others 2 –1 materials such as wood and chemicals, UPM decided in December Total 62 43 2007 to close the mill permanently. These decisions resulted in impair- ment charges of € 22 million related to Miramichi’s paper mill, and € 19 million related to Miramichi’s sawmilling and forestry operations 10 DEPRECIATION, AMORTISATION AND reported in Forest and timber segment. In addition, other impairment IMPAIRMENT CHARGES charges of € 12 million were recorded in Other operations. Year ended 31 December Impairment reversals in 2007 relate to machinery and equipment in €m 2008 2007 Paper segment which have been written off in prior years, and which Depreciation on property, plant and equipment UPM is planning to reuse. Buildings 98 97 Machinery and equipment 613 628 Other tangible assets 33 33 11 GAINS ON AVAILABLE-FOR-SALE INVESTMENTS, NET 74 4 758 Year ended 31 December Depreciation on investment property €m 2008 2007 Buildings 1 1 Fair value gains and losses on disposals 2 2 Total 2 2 Amortisation of intangible assets Intangible rights 16 17 Other intangible assets 45 55 61 72 ACCOUNTS FOR 2008 ■ Group

12 FINANCE COSTS Income taxes for 2008 include an € 28 million income from a decrease Year ended 31 December of deferred tax liabilities relating to an impairment of Paper segments €m 2008 2007 goodwill. Change in tax legislation includes a tax expense of € 13 Exchange rate and fair value gains and losses million related to change in the UK tax legislation. Derivatives held for trading 223 –131 Income taxes for 2007 include an € 25 million income from a Fair value gains on derivatives designated decrease of deferred tax liabilities relating to an impairment of good- as fair value hedges 337 7 will of Paper and Pulp segments. Change in tax legislation includes a Fair value adjustment of borrowings attributable tax expense of € 25 million due to a decrease of tax rate in Canada and to interest rate risk –358 –7 Foreign exchange gain/loss on fi nancial liabilities a tax income from tax rate changes in Germany and the UK. Other € measured at amortised cost) –248 187 items include a charge of 123 million from a reduction of deferred Foreign exchange gain/loss on loans and receivables 21 –58 tax assets in Canada (of which € 98 million from book over tax depre- –25 –2 ciation), relating to the closing decision of the Miramichi paper mill.

Interest and other fi nance costs, net Interest expense on fi nancial liabilities measured 14 EARNINGS PER SHARE at amortised cost –213 –221 Year ended 31 December Interest income on derivative fi nancial instruments 3 31 2008 2007 Interest income on loans and receivables 5 5 Profi t (loss) attributable to the equity holders of Gains and losses on sale of associated companies the parent company, €m–17985 and joint ventures shares 4 2 Other fi nancial expenses –1 –8 Average weighted number of shares (1,000) 517,545 522,867 –202 –191 Basic earnings per share, € –0.35 0.16 Total –227 –193 For the diluted earnings per share the number of shares is adjusted by the effect of the share options. Net gains and losses on derivative fi nancial instruments included in the operating profi t Profi t (loss) attributable to the equity holders of € Year ended 31 December the parent company, m–17985 €m 2008 2007 Profi t (loss) used to determine diluted earnings per share, €m –179 85 Derivatives designated as cash fl ow hedges 82 44 Derivatives held for trading 2 22 Average weighted number of shares (1,000) 517,545 522,867 Total 84 66 Effect of options 1) –2,862 Average weighted number of shares for diluted earnings per share (1,000) 517,545 525,729 The aggregate foreign exchange gains and losses € included in the consolidated income statement Diluted earnings per share, –0.35 0.16 Year ended 31 December 1) The dilution effect is calculated to determine the number of shares that could €m 2008 2007 have been acquired at fair value (the average price for shares traded) based on the monetary subscription rights of the outstanding options. The number of shares Sales 88 33 calculated as above is compared with the number of shares that would have been Costs and expenses –14 6 issued assuming the exercise of the options. 6.0 million shares exercisable with Net fi nancial items –7 –4 options (2007: 3.0 million) were excluded from the calculation of diluted earnings Total 67 35 per share as they were not dilutive.

13 INCOME TAXES 15 DIVIDEND PER SHARE Year ended 31 December €m 2008 2007 The dividends paid in 2008 were € 384 million (€ 0.75 per share) and € € Major components of tax expenses in 2007 392 million ( 0.75 per share). The Board of Directors pro- € Current tax expense 60 162 poses to the Annual General Meeting that a dividend of 208 million Change in deferred taxes (Note 28) –81 49 (€ 0.40 per share) will be paid in respect of 2008. Income taxes, total –21 211

Income tax reconciliation statement Profi t before tax –201 292 Computed tax at Finnish statutory rate of 26% –52 76 Difference between Finnish and foreign rates –9 –16 Non-deductible expenses and tax exempt income 42 50 Tax loss with no tax benefi t65 Results of associated companies –18 –12 Change in tax legislation 12 4 Other –2 104 Income taxes, total –21 211

Effective tax rate 10.4% 72.3% Group ■ ACCOUNTS FOR 2008

16 GOODWILL tions on which recoverable amount is based would not cause the aggre- As at 31 December gate carrying amount to exceed the aggregate recoverable amount. €m 2008 2007 In Pulp segment, the recoverable amount, in addition to the pulp sales price, is most sensitive to cost of wood raw material. As at 31 Acquisition cost at 1 Jan. 1,513 1,514 December 2008, a decrease of 1% in pulp prices, an increase of 1% in Disposals – –1 wood costs, or an increase of 0.50% in the pre-tax discount rate would Acquisition cost at 31 Dec. 1,513 1,513 result to a recognition of impairment loss against goodwill. In September 2008, an impairment charge of € 230 million, recog- Accumulated impairment at 1 Jan. –350 – nised in Newsprint segment, is allocated to Paper segment. The main Impairment charges –230 –350 factors for the impairment were lower-than-forecast realised newsprint Accumulated impairment at 31 Dec. –580 –350 market demand in Europe and increased costs. The impairment test for Carrying value at 1 Jan. 1,163 1,514 goodwill was performed on the level of cash generating unit. To iden- Carrying value at 31 Dec. 933 1,163 tify the recoverable amount which is the value in use, the impairment test was conducted using the discounted cash-fl ow method. Based on forecasts and projections of pre-tax cash-fl ows, the value in use was On 1 December 2008, UPM adopted a new business structure. The determined applying a pre-tax discount rate of 7.75%. organisational change resulted to a reallocation of goodwill of the In June 2007, mostly because of the continuing low magazine previous Magazine Paper, Newsprint, Fine and Speciality Papers seg- paper prices and the unfavourable developments of exchange rates, ments to Paper and Pulp reportable segments. The allocation was based especially that of the US dollar, there was an indication of impairments on the proportionate value in use calculations of the new segments. of goodwill. Of the € 350 million goodwill impairment charge, € 307 million has been allocated to Paper segment and € 43 million to Pulp As at 31 December segment. €m 2008 2007 Pulp 113 113 Forest and timber 2 2 17 OTHER INTANGIBLE ASSETS Paper 798 1,028 As at 31 December Label 7 7 €m 2008 2007 Plywood 13 13 Intangible rights Total 933 1,163 Acquisition cost at 1 Jan. 412 411 Additions 4 5 Disposals –14 –2 Impairment tests Reclassifi cations 1 –1 The company prepares impairment test calculations annually. The key Translation differences 3 –1 assumptions for calculations are those regarding the business growth Acquisition cost at 31 Dec. 406 412 outlooks, product prices, cost development, and the discount rate. Business growth outlooks are based on general forecasts for the Accumulated amortisation and impairment at 1 Jan. –147 –124 businesses in question. Ten-year forecasts are used in the calculations Amortisation –16 –17 as the nature of the company’s business is long-term due to its capital Disposals 13 1 intensity, and exposed to cyclical changes. In estimates of product Impairment charges – –8 prices and cost development, the budgets prepared by management for Reclassifi cations – 1 the next year and estimates made for the following nine years are taken Translation differences –1 – into consideration. In the largest segment, in Paper, a negative growth Accumulated amortisation and impairment at 31 Dec. –151 –147 rate of approximately 1 % in real terms has been applied beyond the period covered by the most recent management’s forecasts. The compa- Carrying value at 1 Jan. 265 287 ny’s recent profi tability trend is taken into account in the forecasts. In Carrying value at 31 Dec. 255 265 addition, when preparing estimates, consideration is given to the invest- ment decisions made by the company as well as the profi tability pro- Other intangible assets 1) grammes that the Group has implemented and the views of knowledge- Acquisition cost at 1 Jan. 525 511 able experts of the industry on the long-term development of demand Additions 19 16 and prices. Discount rate is estimated using the weighted average cost Disposals –34 –20 of capital on the calculation date adjusted for risks specifi c to busi- Reclassifi cations 3 22 nesses in question. The pre-tax discount rate used in 2008 for Paper Translation differences –3 –4 segment was 9.00% and for Pulp segment 9.90%. In the previous busi- Acquisition cost at 31 Dec. 510 525 ness structure, the pre-tax discount rates used in 2007 impairment tests were for Magazine Papers, Newsprint and Fine Papers segments 8.40%, Accumulated amortisation and impairment at 1 Jan. –407 –364 8.26% and 8.55%, respectively. Amortisation –44 –55 The recoverable amount of groups of cash generating units is Impairment charges –5 –2 determined based on value in use calculations. Disposals 34 15 The estimated product prices are the most important assumptions Reclassifi cations – –3 in impairment tests. As at 31 December 2008, in Paper segment, a Translation differences 2 2 hypothetic 2% decrease in product prices used in impairment tests Accumulated amortisation and impairment at 31 Dec. –420 –407 would lead to a recognition of impairment loss against goodwill approximately by € 100 million. Other essential assumptions in Paper Carrying value at 1 Jan. 118 147 are costs for chemical pulp, delivery services and personnel. Group Carrying value at 31 Dec. 90 118 believes that any reasonably possible change in these other key assump- ACCOUNTS FOR 2008 ■ Group

As at 31 December As at 31 December €m 2008 2007 €m 2008 2007 Advance payments and construction in progress Accumulated depreciation and impairment at 1 Jan. –1,499 –1,447 Acquisition cost at 1 Jan. 9 11 Depreciation –98 –96 Additions 22 18 Impairment charges –58 –6 Disposals – –3 Disposals 136 32 Reclassifi cations –4 –17 Reclassifi cations 12 11 Acquisition cost at 31 Dec. 27 9 Translation differences 24 7 Accumulated depreciation and impairment at 31 Dec. –1,483 –1,499 Carrying value at 1 Jan. 9 11 Carrying value at 31 Dec. 27 9 Carrying value at 1 Jan. 1,443 1,494 Carrying value at 31 Dec. 1,385 1,443 Emission allowances Acquisition cost 1 Jan. – 16 Machinery and equipment Additions 2) 56 1 Acquisition cost at 1 Jan. 12,550 12,545 Disposals and settlements –23 –15 Additions 267 209 Impairment charges –2 –2 Disposals –775 –239 Acquisition cost 31 Dec. 31 – Reclassifi cations 254 174 Translation differences –134 –139 Carrying value at 1 Jan. – 16 Acquisition cost at 31 Dec. 12,162 12,550 Carrying value at 31 Dec. 31 – Accumulated depreciation and impairment at 1 Jan. –8,721 –8,377 Other intangible assets, total 403 392 Depreciation –617 –623 Impairment charges –120 –21 1) Other intangible assests consist primarily of capitalised software assets. Impairment reversal – 12 2) Additions include allowances received free of charge. Disposals 765 203 Reclassifi cations – 1 Translation differences 152 84 Water rights Accumulated depreciation and impairment at 31 Dec. –8,541 –8,721 Intangible rights include € 189 million (2007: € 189 million) in respect of the water rights of hydropower plants belonging to the Energy seg- Carrying value at 1 Jan. 3,829 4,168 ment. The water rights of power plants are deemed to have an indefi nite Carrying value at 31 Dec. 3,621 3,829 useful life as the company has a contractual right to exploit water resources in the energy production of power plants. The values of water Other tangible assets rights are tested annually for impairment. Acquisition cost at 1 Jan. 899 879 Additions 29 29 Disposals –68 –17 18 PROPERTY, PLANT AND EQUIPMENT Reclassifi cations 7 9 As at 31 December Translation differences –2 –1 €m 2008 2007 Acquisition cost at 31 Dec. 865 899 Land and water areas Accumulated depreciation and impairment at 1 Jan. –696 –666 Acquisition cost at 1 Jan. 350 361 Depreciation –33 –33 Additions 4 7 Disposals 66 16 Disposals –3 –16 Reclassifi cations 2 1 Reclassifi cations 5 – Impairment charges –4 –14 Translation differences –1 –2 Translation differences 3 – Acquisition cost at 31 Dec. 355 350 Accumulated depreciation and impairment at 31 Dec. –662 –696

Accumulated depreciation and impairment at 1 Jan. –8 –7 Carrying value at 1 Jan. 203 213 Impairment charges – –1 Carrying value at 31 Dec. 203 203 Accumulated depreciation and impairment at 31 Dec. –8 –8 Advance payments and construction in progress Carrying value at 1 Jan. 342 354 Acquisition cost at 1 Jan. 362 271 Carrying value at 31 Dec. 347 342 Additions 114 333 Disposals –4 –4 Buildings Reclassifi cations –334 –235 Acquisition cost at 1 Jan. 2,942 2,941 Translation differences –6 –3 Additions 57 66 Acquisition cost at 31 Dec. 132 362 Disposals –141 –71 Reclassifi cations 50 33 Carrying value at 1 Jan. 362 271 Translation differences –40 –27 Carrying value at 31 Dec. 132 362 Acquisition cost at 31 Dec. 2,868 2,942 Property, plant and equipment, total 5,688 6,179 Group ■ ACCOUNTS FOR 2008

Finance lease arrangements 19 INVESTMENT PROPERTY Property, plant and equipment includes property that is acquired under As at 31 December fi nance lease and sale and leaseback contracts: €m 2008 2007 Acquisition cost at 1 Jan. 46 74 As at 31 December Additions 1 – € m 2008 2007 Disposals – –47 Machinery and equipment Reclassifi cations 19 19 Acquisition cost 53 53 Acquisition cost at 31 Dec. 66 46 Accumulated depreciation –39 –34 Carrying value at 31 Dec. 14 19 Accumulated depreciation and impairment at 1 Jan. –32 –44 Depreciation –1 –1 Leased assets, total 14 19 Disposals – 28 Reclassifi cations –14 –15 There is no property, plant and equipment leased to third parties under Accumulated depreciation and impairment at 31 Dec. –47 –32 operating lease contracts. Carrying value at 1 Jan. 14 30 Carrying value at 31 Dec. 19 14

Capitalised borrowing costs The fair value of investment property is determined annually on 31 The borrowing costs capitalised as part of non-current assets amounted December by the Group. Fair value is based on active market prices, € € to 11 million in 2008 and 10 million in 2007. Amortisation of adjusted, if necessary, for any difference in the nature of the specifi c € € capitalised borrowing costs was 8 million in 2008 (2007: 8 million) asset. € and impairment charges related to capitalised borrowing costs were 2 The fair value of investment property in Finland at 31 December € million in 2008 (2007: 0 million). In 2008 and 2007 there were no 2008 was € 16 million (2007: € 9 million) and the fair value of invest- capitalised borrowing costs associated with sold assets. ment property in other countries at 31 December 2008 was € 11 million The average interest rate used was 5.52% (2007: 4.63%), which (2007: € 11 million). In April 2007, UPM sold real estate company represents the costs of the loan used to fi nance the projects. UPM-Asunnot Oy.

Assets classifi ed as held for sale On 15 January 2009, UPM sold its former paper mill and related assets The amounts recognised in the income statement in Miramichi, New Brunswick, Canada to Umoe Solar AS of Norway. Year ended 31 December The sale includes also woodlands operations, and two sawmills located €m 2008 2007 nearby in Bathurst and Blackwill. UPM records an income of approxi- Rental income 6 6 mately € 20 million on the sale as a special item in the fi rst quarter of Direct operating expenses arising from invest- 2009. ment properties that generate rental income 3 3 The following assets of Paper segment and Forest and timber seg- ment and related liabilities have been classifi ed as assets held for sale There were no contractual obligations for future repair and mainte- and related liabilities: nance or purchase of investment property. All assets under investment property are leased to third parties As at 31 December under operating leasing contracts. €m 2008 2007 Land and water areas 1 – Buildings 2 – 20 BIOLOGICAL ASSETS Machinery and equipment 6 – As at 31 December Biological assets 2 – €m 2008 2007 Inventories 1 – At 1 Jan. 1,095 1,037 Assets total 12 – Additions 2 1 Disposals –13 –20 Provisions 2 – Wood harvested –88 –116 Other non-current liabilities 3 – Change in fair value 138 195 Trade and other payables 11 – Translation differences –1 –2 Accruals and deferred income 1 – At 31 Dec. 1,133 1,095 Liabilities total 17 – The pre-tax discount rate used in determing the fair value in 2008 was Liabilities related to assets held 7.50% (2007: 7.50%). A 1% decrease (increase) in discount rate would for sale, interest bearing (Note 31) 2 – Liabilities related to assets held increase (decrease) the fair value of biological assets by approximately € for sale, non-interest bearing 15 – 140 million. In addition to the discount rate, the growth of the forest Liabilities total 17 – stock and timber prices are other essential assumptions used in the valuation. ACCOUNTS FOR 2008 ■ Group

21 INVESTMENTS IN ASSOCIATED COMPANIES a nuclear incident at the operator’s installation or occurring in the AND JOINT VENTURES course of transporting nuclear fuels. Shareholders of power companies As at 31 December that own and operate nuclear power plants are not subject to liability €m 2008 2007 under the Nuclear Liability Act. In Finland, the future costs of condi- At 1 Jan. 1,193 1,177 tioning, storage and fi nal disposal of spent fuel, management of low Additions 19 27 and intermediate-level radioactive waste and nuclear power plant Disposals –12 –2 decommissioning are the responsibility of the operator. Reimburse- Share of results after tax 62 43 ments of the operators’ costs related to decommissioning and disman- Dividends received –18 –23 tling of the power plant and storage and disposal of spent fuel are Translation differences 19 –29 provided for by state-established funds funded by annual contributions At 31 Dec. 1,263 1,193 from nuclear power plant operators. Pursuant to PVO and TVO share- holders’ agreements, the Group bears its proportionate share of the Investments in associated companies at 31 December 2008 include costs related to decommissioning and dismantling of the nuclear power goodwill of € 51 million which relates to Pohjolan Voima Oy’s shares plant and storage and disposal of spent fuel through the price of elec- (2007: € 51 million). tricity acquired from PVO. The contributions to such funds are intended to be suffi cient to cover estimated future costs. If the actual costs devi- As at 31 December ate from fund provisions, the Group would be affected accordingly. €m 2008 2007 Fund assets are measured at the lower of the decommissioning obliga- Sale and leaseback contracts included in tion and provision for spent fuel recognised and UPM’s share of the net investments in associated companies assets of the fund attributable to the contributors. Acquisition cost 13 13 In December 2008, Teollisuuden Voima Oy informed UPM that the Accumulated increases 1 4 Carrying value at 31 Dec. 14 17 supplier of the nuclear power plant Olkiluoto 3 has fi led a request for arbitration concerning the delay and related costs.

Associated companies and joint ventures The Group’s share of the results of its principal associates and joint Group holding ventures, all of which are unlisted, are accounted for using the equity percentage % Carrying value method. The Group’s share of the assets, liabilities, sales and results are 2008 2007 2008 2007 as follows: Associated companies Austria Papier Recycling 2008 Lia- Profi t/ Ges.m.b.H., AT 33.30 33.30 – – €m Assets bilities Sales Loss Oy Keskuslaboratorio- Associated companies and joint ventures Centrallaboratorium Ab, FI 38.65 38.65 1 1 Oy Metsä-Botnia Ab, FI 1,306 561 798 86 2) Botnia South America S.A., UY 12.40 12.40 108 76 Pohjolan Voima Oy, FI 1,219 742 328 –26 Oy Metsä-Botnia Ab, FI 47.00 47.00 637 576 Others 150 109 291 2 Paperinkeräys Oy, FI 22.98 22.98 3 3 Total 2,675 1,412 1,417 62 Pohjolan Voima Oy, FI 41.84 41.99 477 502 1) Powest Oy, FI 9.98 9.98 15 15 2007 Lia- Profi t/ RETS Timber Oy Ltd, FI 50.00 50.00 1 1 €m Assets bilities Sales Loss Steveco Oy, FI 34.32 34.32 9 9 Associated companies and joint ventures Others 6 4 Oy Metsä-Botnia Ab, FI 1,178 526 655 58 At 31 Dec. 1,257 1,187 Pohjolan Voima Oy, FI 1,189 688 273 –14 Others 183 143 280 –1 Joint ventures Total 2,550 1,357 1,208 43 Kainuun Voima Oy, FI 50.00 50.00 6 6 66 The amounts representing the Group’s share of the assets and liabilities Associated companies and joint ventures at 31 Dec. 1,263 1,193 and sales and results of the joint ventures that have been accounted for using the equity method are presented in the table below. 1) The Group’s share of the voting right in Powest Oy is 0.61% (2007: 0.61%). The Group is entitled to 51.22% (2007: 51.22%) of the respective dividends of Powest Oy. Year ended 31 December €m 2008 2007 2) Botnia South America S.A. is a subsidiary of UPM’s associated company Oy Metsä-Botnia Ab. The amount of assets and liabilities related to investments in joint ventures Pohjolan Voima Oy (“PVO”) holds a 58.12% shareholding in Teollisuu- Non-current assets 29 30 den Voima Oy (“TVO”), which owns and operates nuclear power plants Current assets 5 3 in Olkiluoto, Finland. The operation of a nuclear power plant involves Non-current liabilities –20 –22 potential costs and liabilities related to decommissioning and disman- Current liabilities –7 –4 tling of the nuclear power plant and storage and disposal of spent fuel, Net assets 7 7 and is governed by international, European Union and local nuclear regulatory regimes. Pursuant to the Finnish Nuclear Liability Act, the operator of a nuclear facility is strictly liable for damage resulting from Group ■ ACCOUNTS FOR 2008

Year ended 31 December 23 NON-CURRENT FINANCIAL ASSETS €m 2008 2007 As at 31 December The income and expenses related €m 2008 2007 to investments in joint ventures Other loan receivables 16 15 Sales 18 15 Derivative fi nancial instruments 345 67 Expenses –18 –15 At 31 Dec. 361 82 Profi t–– The maximum exposure to credit risk in regard to other loan receiva- The average number of employees in the joint ventures 47 45 bles is their carrying amount.

Transactions and balances 24 OTHER NON-CURRENT ASSETS with associates and joint ventures As at 31 December Year ended 31 December €m 2008 2007 € m 2008 2007 Defi ned benefi t plans (Note 29) 173 93 Sales to associates and joint ventures 138 130 Other non-current assets 28 28 Purchases from associates and joint ventures 592 500 At 31 Dec. 201 121 Receivables from associates and joint ventures 37 29 Payables to associates and joint ventures 27 42 25 INVENTORIES Loan receivables from associates and As at 31 December 1) joint ventures €m 2008 2007 At 1 Jan. 6 6 Raw materials and consumables 664 522 Loans granted 2 2 Work in progress 54 58 Repayments – –2 Finished products and goods 589 687 At 31 Dec. 8 6 Advance payments 47 75 1) Loans to associated companies and joint ventures include current and non-current At 31 Dec. 1,354 1,342 loan receivables.

26 TRADE AND OTHER RECEIVABLES 22 AVAILABLE-FOR-SALE INVESTMENTS As at 31 December Year ended 31 December €m 2008 2007 €m 2008 2007 Trade receivables 1,235 1,359 At 1 Jan. 116 127 Loan receivables 11 8 Disposals – –9 Other receivables 117 137 Changes in fair values – –2 Derivative fi nancial instruments 269 137 At 31 Dec. 116 116 Prepayments and accrued income 54 76 At 31 Dec. 1,686 1,717 At 31 December 2008, the available-for-sale investments include only investments in unlisted equity shares. Unlisted shares, where the fair value cannot be measured reliably are carried at cost. The range of Ageing analysis of trade receivables reasonable fair value estimates of these shares is signifi cant and the As at 31 December probabilities of the various estimates cannot be reasonably assessed. €m 2008 2007 The fair value of the shares in Kemijoki Oy cannot be reliably meas- Undue 1,067 1,181 ured as the redemption clause in the articles of association of the com- Past due up to 30 days 115 126 pany limits fair market transactions to third parties. Currently the Past due 31–90 days 31 31 Group does not have an intention to dispose of this investment. Past due over 90 days 22 21 At 31 Dec. 1,235 1,359

Principal available-for-sale investments In determining the recoverability of trade receivables the Group con- Group siders any change in the credit quality of the trade receivables. There are Number holding Carrying value no indication that the debtors will not meet their payment obligations in of shares percentage 2008 2007 regard to trade receivables that are neither past due nor impaired at Kemijoki Oy 100,797 4.13 106 106 31 December 2008. Impairment of trade receivables amounted to € 22 Other 10 10 million in 2008 (2007: € 13 million) and is recorded under other costs Carrying value of available-for- and expenses. Impairment is recognised when there is objective evi- sale investments at 31 Dec. 116 116 dence that the Group is not able to collect the amounts due. Income from recoveries of trade receivables written off amounted to € 1 million in 2008 (2007: € 1 million). ACCOUNTS FOR 2008 ■ Group

The maximum exposure to credit risk without taking into account Main items included in prepayments and accrued income of any credit enhancements is the carrying amounts of trade and other As at 31 December receivables. Prepayments which are not fi nancial instruments are not €m 2008 2007 subject to credit risk as defi ned in IFRS 7. Personnel expenses 3 3 Indirect taxes 16 20 Other items 35 53 At 31 Dec. 54 76

27 EQUITY AND RESERVES

Share capital and share premium reserve Number of shares Share Share premium €m (1,000) capital reserve Total At 1 Jan. 2007 523,259 890 826 1,716 Exercise of share options 5,710 – – – Cancellation of shares purchased –16,400 – – – Transfer to reserve for invested non-restricted equity – – –776 –776 Transfer to other reserves – – –50 –50 At 31 Dec. 2007 512,569 890 – 890 Exercise of share options 7,401––– At 31 Dec. 2008 519,970 890 – 890

Shares Authorisations to increase the number of shares At 31 December 2008, the number of the company’s shares was The Annual General Meeting of 27 March 2007 has in addition author- 519,970,088. Each share carries one vote. The shares do not have any ised the Board to decide to issue shares and special rights entitling the nominal counter value. The shares are included within the book-entry holder to shares of the company. The number of new shares to be system for securities. issued, including shares to be obtained under special rights, shall be no Due to the change in the Companies’ Act the company’s Articles of more than 250,000,000. Of that, the maximum number that can be Associations was changed. The Annual General Meeting held on 27 issued to the company’s shareholders based on their pre-emptive rights March 2007 decided to delete the mentions concerning the minimum is 250,000,000 shares and the maximum amount that can be issued and maximum share capital and the number of shares. In addition, the deviating from the shareholders’ pre-emptive rights in a directed share meeting decided to transfer the company’s share premium reserve issue is 100,000,000 shares. The maximum number of new shares to be € 776 million to reserve for invested non-restricted equity. Share pre- issued as part of the company’s incentive programmes is 5,000,000. mium reserve of other Group companies has been transferred to other Furthermore, the Board is authorised to decide on the disposal of own reserves. shares. To date, this authorisation has not been used. These authorisa- tions of the 2007 Annual General Meeting will remain valid for no Reserve for invested non-restricted equity more than three years from the date of the decision. Reserve for invested non-restricted equity includes, under the Compa- The meeting 27 March 2007 also decided on granting share options nies’ Act, the exercise value of shareholders’ investments in the com- in connection with the company’s share-based incentive plans. In pany unless otherwise decided by the Company. option programmes 2007A, 2007B and 2007C, the total number of share options is no more than 15,000,000, and they will entitle to sub- Treasury shares scribe for, in total, no more than 15,000,000 new shares of the com- The Annual General Meeting held on 26 March 2008 approved a pro- pany. posal to authorise the Board of Directors to decide to buy back not Apart from the above, the Board of Directors has no current more than 51,000,000 own shares. The authorisation is valid for 18 authorisation to issue shares, convertible bonds, or share options. months from the date of the decision. As at 31 December 2008 the If all the remaining 3,000,000 2005G share options and 3,000,000 company held 15,944 of its own shares, 0.003% of the total number of 2005H share options authorised in 2005 are exercised to subscribe all shares, which have been granted under the Group’s share reward 6,000,000 shares, and all 15,000,000 share options issued in 2007 are scheme in 2008 and 2007. The average acquisition cost of these shares fully exercised, the number of the company’s shares will increase by a is € 16.42 per share. These shares have been returned in connection total of 21,000,000, i.e. by 4.04%. with termination of service contracts. The shares available for subscription under the Board’s share issue On the basis of the decisions of the Annual General Meeting of 27 authorisation and through the exercise of share options may increase March 2007, the Board has the authority to decide on a free issue of the total number of the company’s shares by 52.12%, i.e. by shares to the company itself so that the total number of shares to be 271,000,000 shares, to 790,970,088 shares. issued to the company combined with the number of own shares bought back under the buyback authorisation may not exceed 1/10 of the total number of shares of the company. Group ■ ACCOUNTS FOR 2008

Redemption clause Changes in hedging reserve Under § 12 of UPM-Kymmene Corporation’s Articles of Association, a Year ended 31 December shareholder who alone or jointly with another shareholder owns 33 1/3 €m 2008 2007 percent or 50 percent or more of all the company’s shares or their Hedging reserve at 1 Jan. 46 19 associated voting rights shall, at the request of other shareholders, be Gains and losses on cash fl ow hedges 39 91 liable to redeem in the manner prescribed in § 12 their shares and any Transfers to sales –83 –57 securities that, under the Companies Act, carry the right to such shares. Transfers to initial cost of property, plant and A resolution of general meeting of shareholders to amend or delete equipment –1 1 this redemption clause must be carried by shareholders representing Tax on gains and losses on cash fl ow hedges –10 –23 not less than three-quarters of the votes cast and shares represented at Tax on transfers to income statement 22 15 the meeting. Hedging reserve at 31 Dec. 13 46

Fair value and other reserves As at 31 December €m 2008 2007 Hedging reserve 13 46 Legal reserve 53 53 Share premium reserve 50 50 Share-based compensation 14 44 At 31 Dec. 130 193

28 DEFERRED INCOME TAXES

Reconciliation of the movements of deferred tax asset and liability balances during the period

As at Charged to Acquisitions As at 1 Jan. the income Charged to Translation and 31 Dec. €m 2008 statement equity differences disposals 2008 Deferred tax assets Retirement benefi t and other provisions 98 15 – –5 – 108 Intercompany profi t in inventory 9 2 – – – 11 Book over tax depreciation 127 –11 – –14 – 102 Tax losses and tax credits carried forward 195 20 – –9 – 206 Other temporary differences 4 2 – – – 6 Deferred tax assets, total 433 28 – –28 – 433

Deferred tax liabilities Tax over book depreciation 595 –45 – –16 – 534 Fair value adjustments of net assets acquired and biological assets 263 4 – – – 267 Other temporary differences 36 –12 8 – – 32 Deferred tax liabilities, total 894 –53 8 –16 – 833

The amounts recognised in the balance sheet Assets 284 2 – –28 – 258 Liabilities 745 –79 8 –16 – 658 Deferred tax liabilities, less deferred tax assets 461 –81 8 12 – 400

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fi scal authority. ACCOUNTS FOR 2008 ■ Group

Reconciliation of the movements of deferred tax asset and liability balances during the period

As at Charged to Acquisitions As at 1 Jan. the income Charged to Translation and 31 Dec. €m 2007 statement equity differences disposals 2007 Deferred tax assets Retirement benefi t and other provisions 111 –14 – 1 – 98 Intercompany profi t in inventory 11 –2 – – – 9 Book over tax depreciation 221 –104 – 10 – 127 Tax losses and tax credits carried forward 227 –38 – 6 – 195 Other temporary differences 3 2 – – –1 4 Deferred tax assets, total 573 –156 – 17 –1 433

Deferred tax liabilities Tax over book depreciation 698 –95 – –2 –6 595 Fair value adjustments of net assets acquired and biological assets 266 –3 – – – 263 Other temporary differences 37 –9 8 – – 36 Deferred tax liabilities, total 1,001 –107 8 –2 –6 894

The amounts recognised in the balance sheet Assets 362 –94 – 17 –1 284 Liabilities 790 –45 8 –2 –6 745 Deferred tax liabilities, less deferred tax assets 428 49 8 –19 –5 461

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fi scal authority.

Deferred income tax charged to equity during the year 29 RETIREMENT BENEFIT OBLIGATIONS €m 2008 2007 Cash fl ow hedges –12 8 The Group operates a number of defi ned benefi t and contribution plans Net investment hedge 20 – in accordance with the local conditions and practises in the countries in Total 8 8 which it operates. The most signifi cant pension plan in Finland is the statutory Finn- ish employee pension scheme (TyEL), according to which benefi ts are At 31 December 2008, the net operating loss carry-forwards for which directly linked to the benefi ciary’s earnings. The TyEL pension scheme the Group has recorded a deferred tax asset amounted to € 689 million is mainly arranged with pension insurance companies. (2007: € 645 million), of which € 372 million (2007: € 274 million) In Finland, the pensions of approximately 10% of employees are was attributable to German subsidiaries, € 203 million (2007: € 239 arranged through Group’s own pension funds. All schemes managed by million) to a Canadian subsidiary and € 78 million (2007: € 86 million) the pension funds are classifi ed as defi ned benefi t plans. to US subsidiaries. In Germany net operating loss carry-forwards do Foreign plans include both defi ned contribution and defi ned benefi t not expire. In other countries net operating loss carry-forwards expire plans. Globally approximately one third of the employees belong to at various dates and in varying amounts. The net operating loss carry- defi ned benefi t arrangements. forwards for which no deferred tax asset is recognised due to uncer- DEFINED BENEFIT PLANS tainty of their utilisation amounted to € 136 million in 2008 (2007: € As at 31 December 155 million). These net operating loss carry-forwards are mainly €m 2008 2007 attributable to Canadian and Chinese subsidiaries. Pension benefi ts 182 291 Upon the decision to close the Miramichi paper mill in December Post-employment medical benefi ts 19 21 € 2007 a write-down of 123 million deferred tax assets was recorded Net liability 201 312 due to unability to utilise them before they expire. On 31 December 2008 the Group had deferred tax assets of € 86 million (2007: € 105 Other long-term employee benefi ts 34 36 million) relating to book over tax depreciation in Canada which do not Overfunded plan shown as asset (Note 24) 173 93 expire. The Group has implemented a prudent and feasible tax planning Total liability in balance sheet 408 441 strategy to utilise deferred tax assets in Canada. No deferred tax liability has been recognised for the undistributed profi ts of Finnish subsidiaries and associated companies as, in most cases, such earnings are transferred to the Group without any tax con- sequences. In addition the Group does not recognise a deferred tax liability in respect of undistributed earnings of non-Finnish subsidiaries to the extent that such earnings are intended to be permanently reinvested in those operations. Group ■ ACCOUNTS FOR 2008

PENSION BENEFITS The major categories of plan assets as a percentage of total plan assets The amounts recognised in the balance sheet As at 31 December 2008 2007 As at 31 December €m 2008 2007 Equity instruments 38% 43% Debt instruments 24% 32% Present value of funded obligations 543 803 Property 7% 6% Present value of unfunded obligations 351 373 Money market 5% 3% 894 1,176 Bonds 26% 16% Total 100% 100% Fair value of plan assets –573 –753 Unrecognised actuarial gains and losses –139 –132 Net liability 182 291 In Finland, the pension plan assets include the company’s ordinary shares with a fair value of € 1 million (2007: € 1 million). In 2007 assets included a loan receivable of € 72 million issued to the company The amounts recognised in the income statement by the company’s own fund. The loan receivable was settled in 2008. Year ended 31 December The interest paid on the loan in 2008 was € 2 million (2007: € 8 mil- €m 2008 2007 lion). Current service cost 14 23 Interest cost 57 55 Expected return on plan assets –49 –46 POST-EMPLOYMENT MEDICAL BENEFITS Actuarial gains and losses 12 8 Past service cost – 1 The Group also funds certain post-employment benefi ts in North Amer- Curtailments –3 –38 ica relating to retirement medical and life insurance programmes. Settlements – 41 Total included in personnel expenses (Note 7) 31 44 The amounts recognised in the balance sheet The actual return on plan assets was € –104 million in 2008 As at 31 December €m 2008 2007 (2007: € 39 million). Present value of unfunded obligations 24 27 Unrecognised actuarial gains and losses –5 –6 The movement in the present value of defi ned benefi t obligations Net liability 19 21 As at 31 December €m 2008 2007 The amounts recognised in the income statement Defi ned benefi t obligation as of beginning of the year 1,176 1,194 Year ended 31 December €m 2008 2007 Current service cost 14 23 Interest cost 57 55 Interest cost 1 2 Contributions by plan participants – 3 Actuarial gains and losses 1 1 Actuarial gains and losses –120 –15 Curtailments – –1 Benefi ts paid –85 –52 Settlements – 1 Curtailments –3 –43 Total included in personnel expenses (Note 7) 2 3 Settlements –59 28 Translation differences –86 –17 Defi ned benefi t obligation as of end of the year 894 1,176 The movement in the present value of defi ned benefi t obligations As at 31 December €m 2008 2007 The movement in the fair value of plan assets Defi ned benefi t obligation as of beginning of the year 27 33 As at 31 December Interest cost 1 2 €m 2008 2007 Contributions by plan participants 2 2 Fair value of plan assets as of beginning of the year 753 681 Actuarial gains and losses – –3 Expected return on plan assets 49 46 Benefi ts paid –4 –4 Actuarial gains and losses –153 8 Settlements –3 – Contributions by plan participants – 3 Translation differences 1 –3 Contributions by the employer 146 81 Defi ned benefi t obligation as of end of the year 24 27 Benefi ts paid –85 –52 Settlements –59 – Translation differences –78 –14 Fair value of plan assets as of end of the year 573 753

The contributions to Group’s defi ned benefi t pension plans are expected to be € 25 million in 2009. ACCOUNTS FOR 2008 ■ Group

The movement in the fair value of plan assets As at 31 December €m 2008 2007 Fair value of plan assets as of beginning of the year – – Contributions by plan participants 2 2 Contributions by the employer 2 2 Benefi ts paid –4 –4 Fair value of plan assets as of end of the year – –

The contributions to Group’s post-employment medical benefi t plans are expected to be € 2 million in 2009.

PENSION AND POST-EMPLOYMENT MEDICAL BENEFITS

The principal acturial assumptions used as at 31 December Finland Canada Germany US UK Other 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Discount rate % 5.50 5.00 4.68 4.62 5.50 5.00 6.25 5.40 6.70 5.80 5.50 5.00 Expected return on plan assets % 7.54 6.32 4.81 7.13 N/A N/A 4.50 4.50 6.96 6.70 4.37 4.41 Future salary increases % 3.75 3.75 N/A 2.04 2.50 2.50 N/A N/A N/A 4.04 2.29 2.63 Future pension increases % N/A N/A N/A – 2.00 2.00 N/A N/A 2.45 3.07 0.89 0.87 Expected average remaining working years of participants 12.1 12.1 – 0.1 13.8 14.2 9.4 11.4 17.3 17.3 12.0 13.1

For domestic plans, the overall expected return on plan assets is based The assumed health care cost trend rate used in measuring the on the weighted average of the expected returns on the different asset accumulated post-employment benefi t obligation for US plans was 11% categories held. For foreign plans, the assumption for the weighted in 2007, 10% in 2008, 8.7% in 2009 and then declining 0.2% per year average expected return on plan assets is based on target asset alloca- until it reaches 4.5% in 2029 and remaining at that level thereafter. tion of each plan, historical market performance, relevant forward- A one-percentage-point increase and decrease in assumed health looking economic analyses, expected returns, variances, and correla- care cost trend rates in the US would effect post-employment benefi t tions for different asset categories held. obligation by € 1 million and € –1 million, correspondingly.

The amounts of pension and post-employment medical benefi t plans recognised in the balance sheet as at 31 December 2008 €m Finland Canada Germany US UK Other Total Present value of funded obligations 227 136 – – 166 14 543 Present value of unfunded obligations – 12 296 24 – 43 375 Fair value of plan assets –256 –127 – – –179 –11 –573 Unrecognised actuarial gains and losses –92 – –6 –5 –38 –3 –144 Net liability –121 21 290 19 –51 43 201

The amounts of pension and post-employment medical benefi t plans recognised in the balance sheet as at 31 December 2007 €m Finland Canada Germany US UK Other Total Present value of funded obligations 249 219 – 28 293 14 803 Present value of unfunded obligations – 21 310 22 – 47 400 Fair value of plan assets –296 –187 – –26 –234 –10 –753 Unrecognised actuarial gains and losses –36 –3 –24 –4 –67 –4 –138 Net liability –83 50 286 20 –8 47 312 Group ■ ACCOUNTS FOR 2008

Funded status for pension and post-employment medical benefi t plans As at 31 December €m 2008 2007 2006 2005 Present value of defi ned benefi t obligations –918 –1,203 –1,227 –1,182 Fair value of plan assets 573 753 681 625 Defi cit –345 –450 –546 –557

Experience adjustments on plan liabilities 13 –21 –20 13 Experience adjustments on plan assets –153 8 20 21

30 PROVISIONS Closure and Environ- Actual restructuring Termination mental Reforestation Tax emissions, Other €m provisions provisions provisions provisions provisions provision provisions Total At 1 Jan. 2007 14 84 25 9 19 14 22 187 Translation difference – – – – – – –2 –2 Additional provisions and increases to existing provisions 14 38 3 – – – 9 64 Utilised during year –7 –20 –5 – –2 –6 –4 –44 Unused amounts reversed –3 –4 –2 – –17 –8 – –34 At 31 Dec. 2007 18 98 21 9 – – 25 171

At 1 Jan. 2008 18 98 21 9 – – 25 171 Translation difference –2 –6 –1 – – – –3 –12 Additional provisions and increases to existing provisions 32 45 2 – – 30 2 111 Utilised during year –14 –43 –5 –3 – – –10 –75 Unused amounts reversed – –3 –1 – – – – –4 At 31 Dec. 2008 34 91 16 6 – 30 14 191

Provisions 31 INTEREST-BEARING LIABILITIES Closure and restructuring provisions include charges related primarily As at 31 December to dismantling of closed mills. Termination provisions are concerned €m 2008 2007 with operational restructuring as well as unemployment arrangements Non-current interest-bearing liabilities and disability pensions primarily in Finland. The unemployment pen- Bonds 2,043 2,040 sion provisions have been recognised 2–3 years before the grant and Loans from fi nancial institutions 1,078 951 settlement of the pension. Environmental provisions include expenses Pension loans 919 65 relating to old mill sites and the remediation of industrial landfi lls. Trade payables 9 10 In 2008, increases in provisions relate mainly to the closures of the Finance lease liabilities 99 103 Kajaani paper mill and the Tervasaari pulp mill. Derivative fi nancial instruments 147 119 Other liabilities 239 96 In 2007, increases in provisions relate to the closure of the Miram- 4,534 3,384 ichi paper mill. Closure and restructuring provisions mainly relate to the demolition of the paper mill, and termination provisions include Current Interest-bearing liabilities severance and pension charges. Current portion of long-term debt 352 391 The company takes part in government programmes aimed at Short-term loans 50 71 reducing greenhouse gas emissions. In 2008, the Group has recognised Derivative fi nancial instruments 105 123 a provision amounting to € 30 million (2007: € 0 million) to cover the Other liabilities 1) 30 346 obligation to return emission allowances. The company possesses 537 931 emission allowances worth of € 31 million (2007: € 0 million) as intan- Liabilities related to assets classifi ed gible assets. as held for sale (Note 18) 2 – Total interest-bearing liabilities 5,073 4,315

1) € € As at 31 December Includes issued commercial papers of 0 million in 2008 (2007: 318 million). €m 2008 2007 Non-current provisions 100 76 Current provisions 91 95 Total 191 171 ACCOUNTS FOR 2008 ■ Group

As of 31 December 2008 the contractual maturity of interest-bearing liabilities €m 2009 2010 2011 2012 2013 2014+ Total Bonds Repayments 250 138 – 636 – 1,071 2,095 Interests 127 110 105 105 67 415 929 377 248 105 741 67 1,486 3,024 Loans from fi nancial institutions Repayments 46 29 43 37 72 211 438 Committed facilities – 253 – 434 – – 687 Interests 39 28 26 16 12 22 143 85 310 69 487 84 233 1,268 Pension loans Repayments 39 22 156 148 148 410 923 Interests 38 39 36 30 24 52 219 77 61 192 178 172 462 1,142 Financial leases Repayments 4 4 84 3 3 5 103 Interests 44411115 8888446118 Other loans Repayments 54443208228 Interests 8788893132 13 11 12 12 11 301 360 Interest rate swaps (liabilities) Repayments –––––107107 Interests 7578865100 75788172207 Current loans Repayments 74–––––74 Interests 1–––––1 75–––––75 Forwards and swaps (assets and liabilities) Pay 4,5213––––4,524 Receive –4,569–3–––––4,572 Net –48––––––48 Long term loans repayments excl. committed facilities 344 197 287 828 226 1,905 3,787

As of 31 December 2007 the contractual maturity of interest-bearing liabilities €m 2008 2009 2010 2011 2012 2013+ Total Bonds Repayments 89 250 59 – 636 1,166 2,200 Interests 135 130 114 109 108 487 1,083 224 380 173 109 744 1,653 3,283 Loans from fi nancial institutions Repayments 149 55 24 40 34 259 561 Committed facilities – – 54 – 484 – 538 Interests 49 46 42 37 20 40 234 198 101 120 77 538 299 1,333 Pension loans Repayments 145 40 15 8 – – 208 Interests 7 2 1 – – – 10 152 42 16 8 – – 218 Financial leases Repayments 4 4 4 84 3 8 107 Interests 44341218 88788410125 Other loans Repayments 21221127135 Interests 8555588116 106776215251 Interest rate swaps (liabilities) Repayments –––––7575 Interests 38889157193 38889232268 Current loans Repayments 417–––––417 Interests 3––––– 3 420–––––420 Forwards and swaps (assets and liabilities) Pay 4,10472––––4,176 Receive –4,128–67–––––4,195 Net –245–––––19 Long term loans repayments excl. committed facilities 389 350 104 134 674 1,560 3,211 Figures based on the exchange rates and interests on the reporting date. Group ■ ACCOUNTS FOR 2008

Bonds in interest-bearing liabilities Finance lease liabilities Interest Nominal As at 31 Dec. As at 31 December 2008 the Group has one power plant acquired under rate value issued 2008 2007 sale and leaseback agreement. The Group uses the electrical power gen- % m €m €m erated by this plant in its own production. Payments of this power plant Fixed rate are due by the end of 2011. 1997–2027 7.450 USD 375 395 279 In December 2007, the Group exercised its option and redeemed 1999–2009 6.350 EUR 250 250 246 Kaipola power plant, which decreased lease liability by € 8 million. 2000–2030 3.550 JPY 10,000 48 7 In addition the Group leases certain tangible assets under long-term 2002–2012 6.125 EUR 600 619 589 arrangements. 2002–2014 5.625 USD 500 393 326 Other interest-bearing liabilities include a loan of € 50 million 2002–2017 6.625 GBP 250 284 330 based on a sale and leaseback arrangement, which does not involve a 2003–2018 5.500 USD 250 209 166 2,198 1,943 lease in substance, of specifi ed plywood production machinery and equipment in Finland. The lease period is eight years without any Floating-rate 2002–2008 5.631 EUR 39 – 39 restrictions on the manufacturing use of the assets. 2002–2008 5.387 EUR 50 – 50 2002–2010 6.273 EUR 59 59 59 Finance lease liabilities – minimum lease payments 2002–20126.044EUR252525 2002–2012 4.152 EUR 11 11 11 As at 31 December €m 2008 2007 95 184 Bonds, total 2,293 2,127 Not later than 1 year 8 8 – current portion –250 –87 1–2 years 8 8 Bonds, long-term portion 2,043 2,040 2–3 years 88 7 3–4 years 4 88 4–5 years 4 4 Fair value hedge of the long-term interest-bearing liabilities Later than 5 years 6 10 Fair value hedge accounting in accordance with IAS 39 results in a 118 125 Future fi nance charges –15 –18 cumulative fair value adjustment totalling € 275 million (2007: € 83 Finance lease liabilities – the present value million), which has increased (2007 decreased) the carrying amounts of minimum lease payments 103 107 of the liabilities.

Interest rate variation of interest-bearing liabilities and Finance lease liabilities – the present value of minimum interest rate swaps lease payments Loans from fi nancial insitutions, pension loans and fi nance lease liabil- As at 31 December ities bear fi xed or fl oating interest rates varying from 0.70% to 7.50% €m 2008 2007 as at 31 December 2008 (2007: 3.55% to 7.50%). The Group uses Not later than 1 year 8 8 interest rate swap agreements to hedeg the intereste rate risk relating to 1–2 years 7 7 long term loans. At 31 December 2008, the fi xed interest rates varied 2–3 years 77 6 from 3.35% to 7.45% (2007: 3.55% to 7.45%) and the fl oating rates 3–4 years 3 75 varied from 1.86% to 7.37% (2007: 3.51% to 7.65%). 4–5 years 3 3 Later than 5 years 5 8 NET INTEREST-BEARING LIABILITIES Total 103 107 As at 31 December €m 2008 2007 32 OTHER LIABILITIES Interest-bearing liabilities, total 5,073 4,315 As at 31 December €m 2008 2007 Interest-bearing fi nancial assets Non-current Derivative fi nancial instruments 18 – Loan receivables 9 9 Other 7 12 Derivative fi nancial instruments 345 66 Total 25 12 Other receivables 5 6 359 81 Current Loan receivables 8 6 Other receivables 12 9 Derivative fi nancial instruments 43 9 Cash and cash equivalents 330 237 393 261 Interest-bearing fi nancial assets 752 342

Net interest-bearing liabilities 4,321 3,973 ACCOUNTS FOR 2008 ■ Group

33 TRADE AND OTHER PAYABLES Main items included in accrued expenses As at 31 December and deferred income €m 2008 2007 As at 31 December €m 2008 2007 Advances received 14 47 Trade payables 594 725 Personnel expenses 194 195 Amounts due to associates and joint ventures 25 39 Interest expenses 79 78 Accrued expenses and deferred income 450 498 Indirect taxes 11 16 Derivative fi nancial instruments 83 33 Other items 1) 166 209 Other current liabilities 92 101 Total 450 498 Total 1,258 1,443 1) Consists mainly of customer rebates. Trade and other payables mature within 12 months.

34 CARRYING AMOUNTS OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORIES, AS DEFINED IN IAS 39, AND FAIR VALUES Financial Financial assets/ Available liabilities Carrying liabilities at fair for sale Derivatives measured at amounts 2008 value through Loans and fi nancial used for amortised by balance Balance sheet item profi t or loss receivables assets hedging cost sheet item Fair value Note Non-current fi nancial assets Available-for-sale investments – – 116 – – 116 116 22 Non-current fi nancial assets Loan receivables – 16 – – – 16 16 23 Derivative fi nancial instruments4––341–34534523 361 361 Current fi nancial assets Trade and other receivables Trade and other receivables–1,363–––1,3631,36326 Prepayments and accrued income – 54 – – – 54 54 26 Derivative fi nancial instruments154––115–26926926 1,686 1,686

Carrying amount by category 158 1,433 116 456 – 2,163 2,163

Non-current fi nancial liabilities Non-current interest-bearing liabilities Non-current interest-bearing liabilities – – – – 4,387 4,387 3,867 31 Derivative fi nancial instruments 116 – – 31 – 147 147 31 4,534 4,014 Other liabilities Other liabilities ––––77732 Derivative fi nancial instruments18––––181832 25 25 Current fi nancial liabilities Current interest-bearing liabilities Interest-bearing liabilities – – – – 432 432 432 31 Derivative fi nancial instruments105––––10510531 537 537 Trade and other payables Trade and other payables – – – – 725 725 725 33 Accrued expenses and deferred income – – – – 450 450 450 33 Derivative fi nancial instruments 35 – – 48 – 83 83 33 1,258 1,258

Carrying amount by category 274 – – 79 6,001 6,354 5,834 Group ■ ACCOUNTS FOR 2008

Financial Financial assets/ Available liabilities Carrying liabilities at fair for sale Derivatives measured at amounts 2007 value through Loans and fi nancial used for amortised by balance Balance sheet item profi t or loss receivables assets hedging cost sheet item Fair value Note Non-current fi nancial assets Available-for-sale investments – – 116 – – 116 116 22 Non-current fi nancial assets Loan receivables – 15 – – – 15 15 23 Derivative fi nancial instruments1– –66–676723 82 82 Current fi nancial assets Trade and other receivables Trade and other receivables–1,504–––1,5041,50426 Prepayments and accrued income–76–––767626 Derivative fi nancial instruments 72 – – 65 – 137 137 26 1,717 1,717

Carrying amount by category 73 1,595 116 131 – 1,915 1,915

Non-current fi nancial liabilities Non-current interest-bearing liabilities Non-current interest-bearing liabilities – – – – 3,265 3,265 3,388 31 Derivative fi nancial instruments 30 – – 89 – 119 119 31 3,384 3,507 Other liabilities Other liabilities – – – – 12 12 12 32 Derivative fi nancial instruments–––––––32 12 12 Current fi nancial liabilities Current interest-bearing liabilities Interest-bearing liabilities – – – – 808 808 808 31 Derivative fi nancial instruments 123 – – – – 123 123 31 931 931 Trade and other payables Trade and other payables – – – – 912 912 912 33 Accrued expenses and deferred income – – – – 498 498 498 33 Derivative fi nancial instruments 17 – – 16 – 33 33 33 1,443 1,443

Carrying amount by category 170 – – 105 5,495 5,770 5,893

Fair values of long-term loans, have been estimated as follows: The fair value of the quoted bonds is based on the quoted market value as of 31 December. The fair value of fi xed rate and market-based fl oating rate loans is estimated using the expected future payments discounted at market interest rates. The carrying amounts of current fi nancial assets and liabilities approximate their fair value. ACCOUNTS FOR 2008 ■ Group

35 DERIVATIVE FINANCIAL INSTRUMENTS Group Name of the subsidiary, country of incorporation holding % Net fair values of derivative fi nancial instruments UPM-Kymmene Kagit Urunleri San. ve Tic Ltd. Sti., TR 100.00 As at 31 December UPM-Kymmene Miramichi Inc., CA 100.00 2008 2008 2008 2007 UPM-Kymmene NV/SA, BE 99.60 Positive Negative Net fair Net fair UPM-Kymmene Otepää AS, EE 100.00 €m fair values fair values values values OOO UPM-Kymmene Pestovo, RU 100.00 Interest rate swaps UPM-Kymmene Papier GmbH & Co. KG, DE 100.00 Fair value hedges 323 –1 322 66 UPM-Kymmene Plywood S.A.S., FR 100.00 Held for trading 49–14848UPM-Kymmene Pty. Ltd, AU 100.00 Forward foreign exchange UPM-Kymmene Sales GmbH, DE 100.00 contracts UPM-Kymmene Seven Seas Oy, FI 100.00 Cash fl ow hedges 66 –48 18 49 UPM-Kymmene Sp.z o.o., PL 100.00 Net equity hedges 45 – 45 – UPM-Kymmene S.A., ES 100.00 Held for trading 84 –96 –12 –39 UPM-Kymmene S.r.l., IT 100.00 Currency options UPM-Kymmene Wood AB, SE 100.00 Held for trading – – – 2 UPM-Kymmene Wood A/S, DK 99.93 Cross currency swaps UPM-Kymmene Wood B.V., NL 100.00 Fair value hedges 22 –30 –8 –89 UPM-Kymmene Wood GmbH, DE 100.00 Held for trading – –142 –142 –109 UPM-Kymmene Wood Oy, FI 100.00 Commodity Contracts UPM-Kymmene Wood S.A., ES 100.00 Held for trading 25 –35 –10 1 UPM-Kymmene Wood S.A., FR 99.99 Interest rate forward UPM-Kymmene (Changshu) Paper Industry Co. Ltd, CN 100.00 contracts UPM-Kymmene (UK) Ltd, GB 100.00 Held for trading – – – – UPM Rafl atac Canada Inc., CA 100.00 Total 614 –353 261 –71 UPM Rafl atac CZ s.r.o., CZ 100.00 UPM Rafl atac GmbH, DE 100.00 Notional amounts of derivative fi nancial instruments UPM Rafl atac Iberica S.A., ES 100.00 UPM Rafl atac Inc., US 100.00 As at 31 December €m 2008 2007 PT UPM Rafl atac Indonesia, ID 100.00 UPM Rafl atac Kft., HU 100.00 Interest rate swaps 2,833 2,383 UPM Rafl atac Ltd, GB 100.00 Forward foreign exchange contracts 4,598 4,369 UPM Rafl atac Mexico S.A. de C.V., ME 100.00 Currency options – 110 UPM Rafl atac NZ Limited, NZ 100.00 Cross currency swaps 508 529 UPM Rafl atac Oy, FI 100.00 Commodity contracts 258 15 UPM Rafl atac Polska Sp.z o.o., PL 100.00 Interest rate forward contracts 2,668 3,642 UPM Rafl atac South Africa (Pty) Ltd, ZA 100.00 UPM Rafl atac S.A.S., FR 100.00 UPM Rafl atac Sdn. Bhd., MY 100.00 36 PRINCIPAL SUBSIDIARIES AS AT 31 DECEMBER 2008 UPM Rafl atac Pty Ltd, AU 100.00 Group UPM Rafl atac Co., Ltd, TH 100.00 Name of the subsidiary, country of incorporation holding % UPM Rafl atac (Changshu) Co. Ltd, CN 100.00 Blandin Paper Company, US 100.00 UPM Rafl atac (S) Pte Ltd, SG 100.00 Lignis GmbH & Co. KG, DE 74.90 Werla Insurance Company Ltd, GB 100.00 Nordland Papier GmbH, DE 100.00 € Norfolk House Management Ltd, GB 95.00 The table includes subsidiaries with sales exceeding 2 million. NorService GmbH, DE 100.00 nortrans Speditionsgesellschaft mbH, DE 100.00 37 SHARE-BASED PAYMENTS Silvesta Oy, FI 100.00 Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG, AT 100.00 Share options granted to key personnel ZAO Tikhvinsky Komplexny Lespromkhoz, RU 99.99 Tilhill Forestry Ltd, GB 100.00 As authorised by the Annual General Meeting of 19 March 2002, UPM Sähkönsiirto Oy, FI 100.00 E options have been issued to key personnel. A total of 3,800,000 were OOO UPM-Kymmene, RU 100.00 designated as 2002E. Each option entitles the holder to subscribe two UPM-Kymmene AG, CH 99.80 UPM-Kymmene Corporation shares. The subscription period 2002E UPM-Kymmene Asia Pacifi c Pte Ltd, SG 100.00 options was 1 April 2005 to 30 April 2008. UPM-Kymmene Austria GmbH, AT 100.00 The share subscription price was € 14.27 per share for 2002E UPM-Kymmene B.V., NL 100.00 options. The share subscription price has been be reduced by the OOO UPM-Kymmene Chudovo, RU 100.00 amount of dividend confi rmed after the end of the subscription price UPM-Kymmene Forest AS, EE 100.00 determination period and before the date of share subscription, in each OOO UPM-Kymmene Forest Russia, RU 100.00 case on the record date for dividend distribution. The share subscription UPM-Kymmene France S.A.S., FR 100.00 period for stock options 2002E ended on 30 April 2008. During the UPM-Kymmene Inc., US 100.00 entire share subscription period, a total of 3,703,834 stock options UPM-Kymmene India PVT Ltd, IN 100.00 2002E were used for the subscription of 7,407,668 shares. UPM-Kymmene Japan K.K., JP 100.00 Group ■ ACCOUNTS FOR 2008

The Annual General Meeting held on 31 March 2005 approved the and they will entitle to subscribe in total no more than 15,000,000 new Board of Directors’ proposal to issue share options to the Group’s key shares of the company. Of the share options, 5,000,000 shall be marked personnel. The number of share options is 9,000,000 and these can be with the symbol 2007A, 5,000,000 shall be marked with the symbol exercised to subscribe a maximum total of 9,000,000 UPM-Kymmene 2007B and 5,000,000 shall be marked with the symbol 2007C. The Corporation shares. A total of 3,000,000 of the share options are desig- subscription periods shall be 1 October 2010 to 31 October 2012 for nated 2005F, 3,000,000 2005G and 3,000,000 2005H. The subscription share options 2007A, 1 October 2011 to 31 October 2013 for share periods are 1 October 2006 to 31 October 2008 for 2005F options, options 2007B, and 1 October 2012 to 31 October 2014 for share 1 October 2007 to 31 October 2009 for 2005G options, and 1 October options 2007C. 2008 to 31 October 2010 for 2005H options. The share subscription price shall be the trade volume weighted The subscription price for 2005F share options was the average average quotation of the share on the NASDAQ OMX Helsinki Ltd, trade-weighted price for the company’s share on the Helsinki stock during 1 April to 31 May 2008 for share option 2007A i.e. € 12.40 per exchange between 1 January and 28 February 2005 plus 10 %, i.e. share, during 1 April to 31 May 2009 for share option 2007B, and € 18.23 per share. The subscription price for 2005G options is the during 1 April to 31 May 2010 for share option 2007C. average trade-weighted share price between 1 January and 28 February In January 2009, a total of 4,590,000 2007A options were granted 2006 plus 10%, i.e. € 18.65 per share, and that for 2005H options the to the Group’s key personnel. average trade-weighted share price between 1 January and 28 February 2007 plus 10%, i.e. € 21.65 per share. The share subscription prices Equity-based rewards scheme will be reduced by the amount of dividend confi rmed after the end of Key personnel of the Group who fall within the scope of the share the subscription price determination period and before the date of share ownership rewards scheme may be rewarded with UPM-Kymmene subscription, in each case on the record date for dividend distribution. shares annually in the calendar years 2005, 2006 and 2007. The reward The share subscription period for stock options 2005F ended on will be paid in the next year as a combination of shares and cash. Alto- 31 October 2008. During the entire share subscription period a total of gether not more than 1,046,400 shares will be given to key personnel 4,000 stock options 2005F were used for the subscription of 4,000 on the basis of the scheme. The amount to be paid in cash may be not shares. more than 1.5 times the value of the shares given. The amount of the Share subscriptions based on 2005G and 2005H options may reward is tied to the achievement of set performance targets. increase the number of shares by a total maximum of 6,000,000. In 2008, a total of 57,400 shares were given to 12 key employees The Annual General Meeting held on 27 March 2007 approved the under the terms and conditions of the share ownership rewards scheme. Board of Directors’ proposal to issues share options to the Group’s key Of this amount, 15,800 shares were given to the President and CEO, personnel. The number of options may not be more than 15,000,000 and a total of 26,800 shares to the other Executive Team members.

Changes in the numbers of share options granted 2008 2007 Weighted average Number of Weighted average Number of exercise price, € share options exercise price, € share options 1 Jan. 15.91 12,285,750 15.80 10,305,550 Share options granted 20.15 254,500 18.98 5,622,000 Share options forfeited 20.15 –124,000 17.93 –12,000 Share options exercised 10.53 –3,691,884 37.15 –2,853,945 Share options expired 15.13 –2,986,366 37.15 –775,855 31 Dec. 18.28 5,738,000 15.91 12,285,750 Exercisable share options 5,738,000 9,544,250

Weighted average remaining contractual life was 16 and 17 months as at 31 December 2008 and 2007, respectively.

Outstanding share option plans as at 31 December 2008

1) Plan/Distribution Exercise price Total number of Number of share Vesting 1) of share options Class at 1 Jan. at 31 Dec. share options options granted Exercise period schedule 2005/2007 H 20.90 20.15 3,000,000 2,872,000 1.10.2008–31.10.2010 Vested 2005/2007 G 17.15 16.40 3,000,000 2,866,000 1.10.2007–31.10.2009 Vested 6,000,000 5,738,000

1) Vesting periods range from 6 to 24 months. ACCOUNTS FOR 2008 ■ Group

The Black-Scholes valuation model and the following weighted aver- the power companies are based on production costs, which are gener- age assumptions are used in measuring the fair value of share options ally lower than market prices. Internal sales to the Group’s segments issued in 2008 and 2007: are based on the prevailing market price. 2008 2007 Approximately 10% of the Group’s research and development work Share price, € 13.99 16.79 is conducted by Oy Keskuslaboratorio-Centrallaboratorium Ab Exercise price, € 20.15 19.74 (“KCL”), (the Finnish Pulp and Paper Research Institute or “FPPRI”), Volatility 1) 25% 24% in which the Group is one of four corporate owners with a 38.65% Risk-free interest rate 4% 3.95% interest. Ownership of FPPRI provides the Group with fundamental Assumed annual dividend yield – – research information regarding the Group’s main raw materials, major Expected option life, year 2 3 manufacturing processes and key product attributes. In addition to joint 1) Volatility is a measure of price changes expressed in terms of the standard devia- research at FPPRI, the Group also utilises the institute for contract tion of the price of the security in question over the period of analysis. In the research in connection with product and process development. These calculations the volatility is based on three- and four-year periods. Volatility is services are provided on an arm’s length basis and upon terms that the reported as an annual percentage fi gure. Group believes to be customary within the industry and generally no Assumed forfeiture used in 2008 and 2007 was 5%. less favourable than would be available from independent third parties. On 4 February 2009, FPPRI and Technical Research Centre of Finland 38 RELATED PARTY TRANSACTIONS (“VTT”) signed a letter of intent to integrate the research and labora- tory operations of FPPRI to VTT. The Board of Directors and the Executive Team The Group purchases recovered paper partially from the following There have not been any material transactions between UPM and its three associated companies. LCI s.r.l. is an Italian recovered paper members of the Board of Directors or the Executive Team or close purchasing company in which the Group has a 50% interest. The total members of their families. There are no loans granted to any members value of recovered paper purchases from LCI was € 25 million in 2008 of the Board of Directors or the Executive team at 31 December 2008 and € 15 in 2007. In Finland the Group has a 22,98% interest in and 2007. Shares and options held by the Board of Directors and the Paperinkeräys Oy, a company engaged in the procurement, processing Executive Team are disclosed in page 123. Compensation to the Board and transport of recovered paper. The total value of raw material pur- of Directors and the Executive Team are disclosed in Note 7. chases from Paperinkeräys Oy was € 12 million in 2008 and € 13 million in 2007. Recovered paper is sold to the Group and other share- Associated companies and joint ventures holders of Paperinkeräys Oy at a contract-based price that takes into The Group holds a 47% interest in Oy Metsä-Botnia Ab account paper recycling expenses and the world market prices for (“Metsä-Botnia”), an associated company with M-real Oyj (“M-real”) recovered paper. In Austria, the Group has a similar arrangement con- and Metsäliitto Group. M-real is a Finnish paper and board producer, cerning recovered paper which is purchased from Austria Papier Recy- and Metsäliitto Group is a co-operative organisation of Finnish forest cling G.m.b.H., a company in which the Group owns a 33.3% equity owners. Metsäliitto Group is also the controlling shareholder of M-real. interest. The total value of recovered paper purchases was € 16 million Chemical pulp produced by Metsä-Botnia is sold to the Group and to in 2008 and € 16 million in 2007. M-real at the market price less certain transportation and other costs. In The Group’s associated companies and joint ventures and transac- 2008, the Group’s chemical pulp entitlement with respect to the pro- tions and balances with associated companies and joint ventures are duction of Metsä-Botnia was 1.8 million tonnes per year (2007: 1.1 presented in Note 21. million tonnes). Following the closure of the Kaskinen pulp mill announced on 14 January 2009, UPM’s entitlement will be 1.6 million Pension Funds tonnes. Total purchases of chemical pulp from Metsä-Botnia amounted In Finland, UPM has a pension foundation (Kymin Eläkesäätiö) which to € 287 million in 2008 and € 231 million in 2007. In 2007, is a separate legal entity. The pensions of about 9% of the Group’s Metsä-Botnia completed the construction of a new pulp mill in Uru- Finnish employees are arranged through the foundation. The contribu- guay. The total cost of the project was about USD 1.2 billion. The tions paid by UPM to the foundation amounted to € 47 million in 2008 annual capacity of the mill will be approximately one million tonnes of (€ 50 million in 2007). The foundation manages and invests the contri- bleached eucalyptus pulp. UPM has invested € 98 million in the pulp butions paid to the plan. The fair value of the foundation’s assets at 31 mill project. December 2008 was € 222 million, of which 45% was in the form of The Group obtains most of the energy for its production units in equity instruments, 35% in the form of debt instruments and 20% Finland from the Group’s owned and leased power plants, as well as invested in property and money market. through ownership in power companies which entitles it to receive The Group participates in two UK Pension Schemes which are electricity and heat from those companies. A signifi cant proportion of separate legal entities, one consisting of various defi ned benefi t sec- the Group’s electricity procurement comes from Pohjolan Voima Oy, a tions plus a defi ned contribution section and the other a defi ned benefi t Finnish energy producer in which the Group holds a 41.84% equity section only. Both Defi ned Benefi t Schemes were closed to future interest, and from Kemijoki Oy, a Finnish hydropower producer in accrual as at 31 December 2007 and all active members as at that date which the Group holds a 4.13% equity interest. Pohjolan Voima Oy is became deferred members and were invited to join the Group’s only also a majority shareholder in Teollisuuden Voima Oy, one of Finland’s UK Defi ned Contribution Pension Scheme. The contributions paid by two nuclear power companies. The combined total of these energy the Group to the Defi ned Benefi t Schemes amounted to GBP 44 mil- purchases was € 222 million in 2008 and € 207 million in 2007. In lion in 2008 (GBP 6 million in 2007) to fully fund both Defi ned Benefi t accordance with the articles of association of the power companies and schemes to IAS 19 funding levels as at 31 December 2007. The fair with related shareholder agreements, the prices paid by the Group to value of the funds assets at 31 December 2008 was GBP 171 million, Group ■ ACCOUNTS FOR 2008

of which 58% was invested in equity instruments, 33% in bonds and Commitments UK government bonds and 9% in property and money market invest- As at 31 December ments. €m 2008 2007 On own behalf Subsidiaries Mortgages1) 787 90 The Group’s principal subsidiaries are disclosed in Note 36. On behalf of associated companies and joint ventures 39 COMMITMENTS AND CONTINGENCIES Guarantees 10 10

Contingent liabilities On behalf of others Guarantees 2 3 The Group is a defendant or plaintiff in a number of legal proceedings incidental to its operations. These lawsuits primarily involve claims Other commitments, own arising out of commercial law issues. Operating leases, due within 12 months 17 21 Certain competition authorities are continuing investigations into Operating leases, due after 12 months 56 99 alleged antitrust activities with respect to various products of UPM. The Other commitments 62 70 authorities have granted UPM conditional full immunity with respect to Total 934 293 certain conduct disclosed to them. UPM has settled or agreed to settle the class-action lawsuits in the US except for those fi led by indirect purchas- Mortgages 787 90 ers of labelstock. The remaining litigation matters may last several years. Guarantees 12 13 No provisions have been made in relation to these investigations Operating leases 73 120 Other commitments 62 70 Commitments Total 934 293 In the normal course of business, UPM-Kymmene Corporation and 1) The increase in mortgages relates mainly to giving mandatory security for borrow- some of its subsidiaries enter into various agreements providing fi nan- ing from Finnish pension insurance companies. cial or performance assurance to third parties on behalf of those sub- sidiaries. These agreements are entered into primarily to support or Property under mortgages given as collateral for own commitments enhance the creditworthiness of subsidiaries so that they can accom- include property, plant and equipment, industrial estates and forest plish their intended business purposes. The maximum amount of future land. payments for which UPM-Kymmene Corporation is liable on behalf of its subsidiaries are disclosed in the table below under “Other commit- Commitments related to associated companies and joint ventures ments”. The Group has also entered into various agreements to provide As at 31 December €m 2008 2007 fi nancial or performance assurance to third parties on behalf of certain companies in which the Group has a minority interest. These agree- Proportionate interest in joint ventures’ commitments 22 22 ments are entered into primarily to support or enhance the creditworthi- Contingent liabilities relating to the Group’s interest in the joint ventures 8 9 ness of these companies. The Group has no collateral or other recourse Share of associated companies contingent liabilities1) 239 218 provisions related to these guarantees. The maximum amounts of future payments by UPM-Kymmene Corporation on behalf of its associated 1) Includes mortgages of € 32 million (37 million) pledges € 42 million (59 million) € € companies under these guarantees are disclosed in the table below operating leases 156 million (112 million) and other commitments 9 million (10 million). under “Guarantees on behalf of associated companies”. It is the Group’s policy not to give guarantees on behalf third parties, and the Operating lease commitments – commitments included under the caption “Guarantees on behalf of where a Group company is the lessee others” in the table relate mainly to companies that have been sold. The Group leases offi ce, manufacturing warehouse space and vessels In the normal course of business, certain subsidiaries of under time charter agreements under various non-cancellable operating UPM-Kymmene Corporation, especially in Germany, grant commercial leases. Certain contracts contain renewal options for various periods of guarantees to their customers to help them purchase goods from the time. subsidiary. The Group has no liability with respect to these commercial guarantees, but they are covered by its credit risk insurance. These guarantees mature within one year. The maximum potential amount of The future costs for contracts exceeding one year and for future payments under these guarantees amounted to € 13 million at non-cancellable operating lease contracts 31 December 2008 and € 13 million at 31 December 2007 They are As at 31 December €m 2008 2007 included in the amounts disclosed in the table under “Other commit- ments”. Not later than 1 year 17 21 1–2 years 17 28 2–3 years 13 21 3–4 years 11 18 4–5 years 9 14 Later than 5 years 6 18 Total 73 120 ACCOUNTS FOR 2008 ■ Group

Capital commitments at the balance sheet date but not recognised 40 EVENTS AFTER THE BALANCE SHEET DATE in the fi nancial statements; major commitments under construction listed below On 14 January 2009, UPM’s associated company Oy Metsä-Botnia Ab Commitment announced the permanent closure of the Kaskinen pulp mill in the fi rst as at 31 December quarter of 2009. The special charges resulting from the closure will € m Total cost 2008 2007 reduce UPM’s associated company results by approximately € 27 mil- Rebuild of debarking plant, Wisaforest 30 29 – lion in the fi rst quarter of 2009. UPM’s share in Oy Metsä-Botnia Ab is Waste water treatment plant, Blandin 17 17 – 47%. New Bioboiler, Caledonian 75 16 64 On 15 January 2009, UPM sold its former paper mill and related 9 Effi ciency improvement, Chudovo 9–assets in Miramichi, New Brunswick, Canada, to Umoe Solar AS of Gas usage reduction, Schwedt 9 79 Norway. The sale includes the closed paper mill site, woodlands opera- tions, and two sawmills located nearby in Bathurst and Blackville. UPM records an income of approximately € 20 million on the sale as a special item in the fi rst quarter of 2009. The Group’s management is not aware of any other signifi cant events occurring after 31 December 2008.

Parent Company ■ ACCOUNTS FOR 2008

Parent company accounts (Finnish Accounting Standards, FAS)

INCOME STATEMENT CASH FLOW STATEMENT Year ended 31 Dec. Year ended 31 Dec. €mNote2008 2007 €m 2008 2007 Turnover 1) 4,738 4,775 Operating activities Change in inventories of fi nished goods and work Profi t (loss) before extraordinary items –21 –528 in progress –54 98 Financial income and expenses 70 70 Production for own use 19 33 Adjustments to operating profi t a) 533 1,174 Other operating income 2) 55 164 Change in working capital b) –167 –219 Materials and services Interest paid –231 –212 Materials and consumables Dividends received 56 24 Purchases during the fi nancial period –2,808 –2,747 Interest received 64 103 Change in inventories 110 52 Other fi nancial items 177 –216 External services –349 –364 Income taxes paid c) –21 –107 –3,047 –3,059 Net cash from operating activities 460 89 Personnel expenses Wages and salaries 3) –479 –459 Investing activities Social security expenses Investments in tangible and intangible assets –303 –429 Pension expenses –125 –112 Proceeds from sale of tangible and intangible assets 49 33 Other social security expenses –45 –46 Investments in shares and holdings –14 –15 –649 –617 Proceeds from sale of shares and holdings 185 190 Depreciation and value adjustments 4) Increase in other investments – –5 Depreciation according to plan –342 –335 Decrease in other investments 25 154 Value adjustments to goods held as Net cash used in investing activities –58 –72 non-current assets –184 9 –526 –326 Financing activities Other operating costs and expenses –487 –1,526 Increase in non-current liabilities 940 932 Operating profi t (loss) 49 –458 Decrease in non-current liabilities –565 –738 Increase or decrease in current liabilities –396 343 Financial income and expenses Dividends paid –384 –392 Income from investments held as non-current assets Group contributions, received and paid 49 37 Income from Group companies 39 17 Purchases of own shares – –266 Income from participating interest companies 18 23 Share options exercised 78 104 Interest income from Group companies 15 42 Net cash used in fi nancing activities –278 20 Other interest and fi nancial income Other interest income from Group companies 38 61 Cash and cash equivalents Other interest income from other companies 7 2 Change in cash and cash equivalents 124 37 Other fi nancial income from Group Cash and cash equivalents at the beginning of the year 153 116 companies 137 – Cash and cash equivalents at year-end 277 153 Other fi nancial income from other companies 11 55 Interest and other fi nancial expenses Interest expenses paid to Group companies –38 –43 Notes to the cash fl ow statement Interest expenses paid to other companies –206 –169 Other fi nancial expenses paid to Group a) Adjustments to operating profi t companies – –53 Depreciation 342 335 Other fi nancial expenses paid to other Gains and losses on sale of non-current assets –30 862 companies –91 –5 Value adjustments on non-current assets 184 –9 –70 –70 Change in provisions 37 –14 Profi t (loss) before extraordinary items –21 –528 Total 533 1,174

Extraordinary items 5) b) Change in working capital Extraordinary income 19 78 Inventories –46 –130 Extraordinary expenses –14 –13 Current receivables –21 –198 565 Current non-interest-bearing liabilities –100 109 Profi t (loss) before appropriations and taxes –16 –463 Total –167 –219

Appropriations c) Taxes stemming from extraordinary items and sales of non-current Increase or decrease in accumulated assets are reported here on a net basis. depreciation difference 195 45 Income taxes 6) –42 –116 Profi t (loss) for the fi nancial period 137 –534 ACCOUNTS FOR 2008 ■ Parent Company

BALANCE SHEET As at 31 December As at 31 December €mNote2008 2007 €mNote2008 2007

ASSETS EQUITY AND LIABILITIES Non-current assets Shareholders’ equity 11) Intangible assets 7) Share capital 890 890 Intangible rights 8 7 Revaluation reserve 551 551 Other capitalised expenditure 198 219 Reserve for invested non-restricted equity 1,145 1,067 Advance payments 27 7 Retained earnings 1,748 2,667 233 233 Profi t (loss) for the fi nancial period 137 –534 Total equity 4,471 4,641 Tangible assets 8) Land and water areas 1,039 1,037 Appropriations Buildings 565 591 Accumulated depreciation difference 969 1,165 Machinery and equipment 1,576 1,592 Other tangible assets 73 60 Provisions 12) Advance payments and construction Provisions for pensions 52 52 in progress 16 238 Other provisions 59 22 3,269 3,518 111 74

Investments 9) Non-current liabilities 13) Holdings in Group companies 4,184 3,422 B o n d s 1,8 4 5 2,111 Receivables from Group companies 48 635 Loans from fi nancial institutions 967 821 Holdings in participating interest Pension loans 793 62 companies 648 636 Advances received 1 1 Other shares and holdings 173 173 Payables to Group companies 21 – Other receivables 10 10 Other liabilities 166 127 5,063 4,876 Total non-current liabilities 3,793 3,122 Total non-current assets 8,565 8,627 Current liabilities 14) Current assets Bonds 250 89 Inventories Loans from fi nancial institutions 2 55 Raw materials and consumables 357 246 Pension loans 39 143 Finished products and goods 309 363 Advances received 5 8 Advance payments 60 71 Trade payables 231 292 726 680 Payables to Group companies 1,089 1,210 Payables to participating interest Current receivables 10) companies 26 40 Trade receivables 80 95 Other liabilities 54 394 Receivables from Group companies 1,578 1,843 Accruals and deferred income 340 293 Receivables from participating Total current liabilities 2,036 2,524 interest companies 30 25 Other receivables 37 65 Total liabilities 5,829 5,646 Prepayments and accrued income 87 38 1,812 2,066

Cash and cash equivalents 277 153 Total current assets 2,815 2,899

Total assets 11,3 8 0 11, 526 Total equity and liabilities 11,3 8 0 11, 526 Parent Company ■ ACCOUNTS FOR 2008

Notes to the parent company fi nancial statements

(All amounts in millions of euros unless otherwise stated.)

Accounting policies 5 EXTRAORDINARY ITEMS The fi nancial statements of the parent company are prepared in accord- €m 2008 2007 ance with Finnish Accounting Standards. Main differences in account- Extraordinary income ing policies between the Group and the parent company relate to meas- Group contributions 19 63 urement of derivative fi nancial instruments and biological assets and Gains on mergers – 15 recognition of defi ned benefi t obligations, revaluations and deferred Total 19 78 income taxes. See Notes to the consolidated accounts, Note 1. Extraordinary expenses Group contributions –14 –12 1 TURNOVER Losses on mergers – –1 Owing to the corporate structure of the Group, the turnover of the –14 –13 parent company has not been broken down by division and market. Total 565

2 OTHER OPERATING INCOME 6 INCOME TAXES €m 2008 2007 €m 2008 2007 Gains on sale of non-current assets 35 153 Taxes on operating income for the fi nancial period 44 117 Rental income 14 10 Income taxes from previous periods –2 –1 Gains on sale of emission allowances 1) 5–Total 42 116 Other 1 1 Total 55 164 Deferred tax assets and liabilities 1) Emissions trading rights are accounted for on a net basis. Deferred income tax assets and liabilities of the parent company are not recorded on the balance sheet. Deferred tax liability comprises mainly depreciation differences, 3 PERSONNEL EXPENSES for which the deferred tax liability at 31 December 2008 was € 252 €m 2008 2007 million (€ 303 million). Wages and salaries Deferred tax liability is not stated separately for revaluations. The Managing director and members of potential tax liability arising from the sale of revalued assets is € 184 the Board of Directors 2) 33million (€ 184 million). Other wages and salaries 476 456 Total 479 459 7 INTANGIBLE ASSETS 2) See Notes to the consolidated accounts, Note 7. €m 2008 2007 2008 2007 Intangible rights Average number of personnel 9,420 9,552 Acquisition cost at 1 Jan. 16 14 Increases 25 5 Owing to the corporate structure of the Group, average number of Decreases –23 –1 personnel has not been broken down by segments. Transfers between balance sheet items – –2 Acquisition cost at 31 Dec. 18 16 Accumulated depreciation at 1 Jan. –9 –8 4 DEPRECIATION ACCORDING TO PLAN AND Accumulated depreciation on decreases and transfers 1 – VALUE ADJUSTMENTS Depreciation for the period –2 –1 Accumulated depreciation at 31 Dec. –10 –9 €m 2008 2007 Book value at 31 Dec. 8 7 Depreciation according to plan Intangible rights 2 1 Other capitalised expenditure 30 30 Buildings 43 39 Machinery and equipment 259 258 Other tangible assets 8 7 Total 342 335

Value adjustments Non-current assets 184 –9 Total 526 326 ACCOUNTS FOR 2008 ■ Parent Company

€m 2008 2007 €m 2008 2007 Other capitalised expenditure Other tangible assets Acquisition cost at 1 Jan. 395 368 Acquisition cost at 1 Jan. 186 167 Increases 8 15 Increases 13 14 Decreases –25 –3 Decreases –8 –1 Transfers between balance sheet items 5 15 Transfers between balance sheet items 11 6 Acquisition cost at 31 Dec. 383 395 Acquisition cost at 31 Dec. 202 186 Accumulated depreciation at 1 Jan. –176 –148 Accumulated depreciation at 1 Jan. –126 –120 Accumulated depreciation on decreases and transfers 25 2 Accumulated depreciation on decreases and transfers 8 1 Depreciation for the period –30 –30 Depreciation for the period –8 –7 Value adjustments and their cancellations –4 – Value adjustments and their cancellations –3 – Accumulated depreciation at 31 Dec. –185 –176 Accumulated depreciation at 31 Dec. –129 –126 Book value at 31 Dec. 198 219 Book value at 31 Dec. 73 60

Advance payments Advance payments and construction in progress Acquisition cost at 1 Jan. 7 8 Acquisition cost at 1 Jan. 238 98 Increases 25 14 Increases 16 220 Transfers between balance sheet items –5 –15 Transfers between balance sheet items –238 –80 Book value at 31 Dec. 27 7 Book value at 31 Dec. 16 238

8 TANGIBLE ASSETS 9 INVESTMENTS €m 2008 2007 €m 2008 2007 Land and water areas Holdings in Group companies Acquisition cost at 1 Jan. 491 495 Acquisition cost at 1 Jan. 3,703 4,585 Increases 4 7 Increases 944 446 Decreases –1 –11 Decreases –182 –1,328 Acquisition cost at 31 Dec. 494 491 Acquisition cost at 31 Dec. 4,465 3,703 Revaluations at 1 Jan. 546 547 Accumulated depreciation at 1 Jan. –281 –507 Reversal of revaluation –1 –1 Accumulated depreciation on decreases and transfers – 1,242 Revaluations at 31 Dec. 545 546 Value adjustments and their cancellations – –1,016 Book value at 31 Dec. 1,039 1,037 Accumulated depreciation at 31 Dec. –281 –281 Revaluations at 31 Dec. – – Buildings Book value at 31 Dec. 4,184 3,422 Acquisition cost at 1 Jan. 1,188 1,068 Increases 27 114 The principal subsidiaries are listed in the Consolidated Financial Decreases –113 –12 Statements (Note 36). Transfers between balance sheet items 48 18 Acquisition cost at 31 Dec. 1,150 1,188 €m 2008 2007 Accumulated depreciation at 1 Jan. –597 –545 Accumulated depreciation on decreases and transfers 113 –10 Receivables from Group companies Depreciation for the period –43 –39 Acquisition cost at 1 Jan. 635 985 Value adjustments and their cancellations –58 –3 Increases – 2 Accumulated depreciation at 31 Dec. –585 –597 Decreases –587 –352 Book value at 31 Dec. 565 591 Acquisition cost at 31 Dec. 48 635 Accumulated depreciation on decreases and transfers 3 – Machinery and equipment Value adjustments and their cancellations –3 – Acquisition cost at 1 Jan. 5,641 5,459 Book value at 31 Dec. 48 635 Increases 184 179 Decreases –557 –55 Holdings in participating interest companies Transfers between balance sheet items 179 58 Acquisition cost at 1 Jan. 533 527 Acquisition cost at 31 Dec. 5,447 5,641 Increases 12 7 Accumulated depreciation at 1 Jan. –4,049 –3,859 Decreases – –1 Accumulated depreciation on decreases and transfers 556 56 Acquisition cost at 31 Dec. 545 533 Depreciation for the period –259 –258 Revaluations at 1 Jan. 103 103 Value adjustments and their cancellations –119 12 Revaluations at 31 Dec. 103 103 Accumulated depreciation at 31 Dec. –3,871 –4,049 Book value at 31 Dec. 648 636 Book value at 31 Dec. 1,576 1,592 Parent Company ■ ACCOUNTS FOR 2008

€m 2008 2007 10 CURRENT RECEIVABLES €m 2008 2007 Other shares and holdings Acquisition cost at 1 Jan. 112 116 Trade receivables 599 685 Decreases – –4 Loan receivables 953 1,245 Acquisition cost at 31 Dec. 112 112 Other receivables 37 65 Revaluations at 1 Jan. 61 61 Prepayments and accrued income 223 71 Revaluations at 31 Dec. 61 61 Total at 31 Dec. 1,812 2,066 Book value at 31 Dec. 173 173 Main items included in current Other receivables prepayments and accrued income Acquisition cost at 1 Jan. 10 7 Personnel expenses 2 1 Increases – 3 Interest income 11 14 Book value at 31 Dec. 10 10 Currency derivatives 199 32 Income taxes 3 16 Others 8 8 There were no loans granted to the company’s Managing Director and At 31 Dec. 223 71 members of the Board of Directors at 31 December 2008 or 2007. Receivables from Group companies Trade receivables 491 566 Loan receivables 951 1,245 Prepayments and accrued income 136 32 At 31 Dec. 1,578 1,843

Receivables from participating interest companies Trade receivables 28 24 Loans receivables 2 – Prepayments and accrued income – 1 At 31 Dec. 30 25

11 S H A R E H O L D E RS’ EQ U I T Y

Reserve for Share- Share invested non- holders’ Share premium Revaluation Legal restricted Retained equity, €m capital reserve reserve reserve equity earnings total

Balance sheet value, 1 Jan. 2007 890 776 552 187 – 3,325 5,730 Share options – – – –104–104 Treasury shares 1) – – – – – –266 –266 Revaluations – – –1 – – – –1 Dividend paid – – – – – –392 –392 Transfers ––776––187963–– Loss for the fi nancial period – – – – – –534 –534 Balance sheet value, 31 Dec. 2007 890 – 551 – 1,067 2,133 4,641

Share options – – – – 78 – 78 Dividend paid – – – – ––384–384 Profi t for the fi nancial period – – – – – 137 137 Other items – – – – – –1 –1 Balance sheet value, 31 Dec. 2008 890 – 551 – 1,145 1,885 4,471

1) See Notes to the consolidated accounts, Note 27.

€m 2008 2007 12 PROVISIONS € Distributable funds at 31 Dec. m 2008 2007 Reserve for invested non-restricted equity 1,145 1,067 Provisions for pensions 52 52 Retained earnings 1,748 2,667 Closure and restructuring provisions 40 1 Profi t (loss) for the fi nancial period 137 –534 Environmental provisions 16 17 Distributable funds at 31 Dec. 3,030 3,200 Other provisions 3 4 Total at 31 Dec. 111 74 ACCOUNTS FOR 2008 ■ Parent Company

13 NON-CURRENT LIABILITIES 14 CURRENT LIABILITIES €m 2008 2007 €m 2008 2007 B o n d s 1,8 4 5 2,111 Bonds 250 89 Loans from fi nancial institutions 967 821 Loans from fi nancial institutions 2 55 Pension loans 793 62 Pension loans 39 143 Advances received 1 1 Advances received 5 8 Other liabilities 187 127 Trade payables 301 380 Total at 31 Dec. 3,793 3,122 Other liabilities 1,035 1,482 Accruals and deferred income 404 367 Payables to Group companies Total at 31 Dec. 2,036 2,524 Other liabilities 21 – At 31 Dec. 21 – Main items included in current accruals and deferred income Long-term loans and their repayment schedule Personnel expenses 101 104 Repayment in 2–5 years Interest expenses 29 16 Bonds 695 945 Currency derivatives 248 228 Loans from fi nancial institutions 757 580 Others 26 19 Pension loans 437 62 At 31 Dec. 404 367 Advances received 1 1 Payables to Group companies 21 – Payables to Group companies 1,911 1,588 Trade payables 45 51 Repayment later than 5 years Other liabilities 980 1,085 Bonds 1,150 1,166 Accruals and deferred income 64 74 Loans from fi nancial institutions 210 241 1,089 1,210 Pensions loans 356 – Other liabilities 166 127 Payables to participating interest companies 1,882 1,534 Trade payables 25 37 Other liabilities 1 3 Total at 31 Dec. 3,793 3,122 At 31 Dec. 26 40

Bonds 15 CONTINGENT LIABILITIES Nominal €m 2008 2007 Interest Currency value rate of issued 2008 2007 Mortgages 1) % bond m €m €m As security against own debts 762 60 Fixed-rate Guarantees 1997–2027 7.450 USD 375 269 255 Guarantees for loans 1999–2009 6.350 EUR 250 250 250 On behalf of Group companies 994 974 2000–2030 3.550 JPY 10,000 79 60 On behalf of participating interest companies 10 10 2002–2012 6.125 EUR 600 600 600 Other guarantees 2002–2014 5.625 USD 500 359 340 On behalf of Group companies 67 95 2002–2017 6.625 GBP 250 263 341 2003–2018 5.500 USD 250 180 170 Leasing commitments2) 2,000 2,016 Commitments for next year 18 12 Floating-rate Commitments for subsequent years 159 118 2002–2008 5.631 EUR 39 – 39 2002–2008 5.387 EUR 50 – 50 1) The mortgages given relate mainly to giving mandatory security for borrowing 2002–20106.273EUR595959 from Finnish pension insurance companies. 2) 2002–2012 6.044 EUR 25 25 25 The commitments of long-term lease agreements relate to energy purchases and production machinery. 2002–20124.152EUR111111 95 184 Bonds, total 2,095 2,200 Directors’ pension commitments – current portion –250 –89 Bonds, long-term portion 1,845 2,111 See Notes to the consolidated accounts, Note 7.

Derivate contracts Fair values and notional values are disclosed in the Consolidated Finan- cial Statements (Notes 34 and 35).

122 UPM ANNUAL REPORT 2008 Information on shares ■ UPM

Information on shares

Changes in number of shares 1 January 2004 – 31 December 2008

Number of shares

2003 Number of shares at 31 Dec. 2003 523,578,930

2004 Options exercised 741,322 Number of shares at 31 Dec. 2004 524,320,252

2005 Options exercised 6,934,878 Treasury shares cancelled –8,000,000 Number of shares at 31 Dec. 2005 523,255,130

2006 Options exercised 4,300 Number of shares at 31 Dec. 2006 523,259,430

2007 Options exercised 5,709,890 Treasury shares cancelled –16,400,000 Number of shares at 31 Dec. 2007 512,569,320

2008 Options exercised 7, 4 0 0 , 76 8 Number of shares at 31 Dec. 2008 519,970,088

Stock exchange trading Shares and options held by the Board of Directors and UPM’s shares are listed on NASDAQ OMX Helsinki Ltd. The com- the Executive Team pany’s ADSs are traded on the U.S. over-the-counter (OTC) market At the end of the year, the members of the Board of Directors under a Level 1 sponsored American Depositary Receipt pro- including President and CEO owned a total of 959,785 gramme. UPM-Kymmene Corporation shares (833,398 in 2007), including A total of 932.1 million UPM-Kymmene Corporation shares shares held by persons closely associated with him or her or by were traded on the Helsinki stock exchange in 2008 (952.3 million organisations of which the person has control. These represent in 2007). This represented 180.1% (182.1%) of the total number 0.18% of the shares (0.16%) and 0.18% of the voting rights of shares. The highest quotation was € 13.87 in January and the low- (0.16%). At the end of the year, President and CEO Jussi Pesonen est € 8.15 in December. The total value of shares traded was owned 62,814 shares and 220,000 share options. Exercise of € 10,549 million in 2008 (€ 16,472 million in 2007). During the these options would increase the number of the companys’s year, 0.43 million 2005G share options were traded for € 0.32 mil- shares by 220,000, which at 31 December 2008 would have rep- lion (0.19 million and € 0.40 million) and 0.04 million share options resented 0.04% of the company’s voting rights. 2005H were traded for € 0.02 million as of the beginning of 1 Octo- At the end of the year, the other members of the Executive ber 2008. Team owned a total of 83,562 shares and 687,000 share options. Exercise of these options would increase the number of the com- pany’s shares by 687,000 which at 31 December 2008 would have represented 0.13% of the company’s voting rights. UPM ■ Information on shares

Biggest registered shareholders at 31 December 2008

Shares at 31 December 2008 % of shares % of votes

IImarinen Mutual Pension Insurance Company 13,712,901 2.64 2.64

Varma Mutual Pension Insurance Company 11,553,899 2.22 2.22

Gustaf Serlachius (representing 5 shareholders) 6,309,811 1.21 1.21

The State Pension Fund 5,000,000 0.96 0.96

Svenska litteratursällskapet i Finland 3,827,080 0.74 0.74

OP-Delta Investment Fund 3,704,858 0.71 0.71

Etera Mutual Pension Insurance Company 2,210,000 0.43 0.43

Suomi Mutual Life Assurance Company 2,050,000 0.39 0.39

The Local Government Pensions Institution 1,935,637 0.37 0.37

Sellan Inderessenter Ab 1,725,000 0.33 0.33

Nominees & registered foreign owners 334,754,416 64.38 64.38

Others 133,186,486 25.62 25.62

Total 519,970,088 100.00 100.00

The company has received the following notifi cations from share- holders: Norges Bank on 24 October 2008 held 5.01% of the share capital and the voting rights. Franklin Resources, Inc. held 9.94% of the voting rights on 3 November 2008.

124 UPM ANNUAL REPORT 2008 Information on shares ■ UPM

Share price in 2008 Market capitalisation Monthly average share price and shares traded 1–12/2008

€ €m € % of all shares 16 16 10,000 30 30

14 14 8,000 25 25 20 20 12 12 6,000 15 15 10 10 4,000 10 10 2,000 8 8 5 5

6 6 0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 04 05 06 07 08 1 2 3 4 5 6 7 8 9 101112

Monthly average share price, € Shares traded, %

Share price 2004–2008 Earnings and dividend Shareholders’ equity per share per share

€ € € 25 25 2.5 15

20 20 2.0 12

15 15 1.5 9

10 10 1.0 6

5 5 0.5 3

0 0 0.0 0 2004 2005 2006 2007 2008 04 05 06 07 08 04 05 06 07 08

UPM share price at end of month Earnings per share MSCI (Morgan Stanley Capital International) Dividend per share (2008: proposal) Forest Products & Paper World Index

Shares traded on Helsinki stock exchange 2004–2008 Dividend per share (€) and dividend to earnings ratio (%) 468.8% €m % € % 3,500 30 1.25 200

2,800 25 1.00 160

2,100 20 0.75 120

1,400 15 0.50 80

700 10 0.25 40

0 5 0.00 0 2004 2005 2006 2007 2008 04 05 06 07 08

Monthly trading in UPM shares on Helsinki stock exchange, €m Dividend per share (2008: proposal) Trading in UPM shares as % of total number of shares Dividend to earnings ratio, % (2008: neg.) UPM ■ Information on shares

Distribution of shareholders at 31 December 2008

Number of % of share- Number of % of Size of shareholding shareholders holders shares, million shares

1 – 100 15,743 21.84 1.0 0.2 101 – 1,000 40,373 56.02 17.0 3.3 1,001 – 10,000 14,496 20.11 40.6 7.8 10,001 – 100,000 1,316 1.83 32.4 6.2 10 0,0 01 – 147 0.20 99.4 19.1 Total 72,075 100.00 190.4 36.6

Nominee-registered 329.4 63.4 Not registered as book entry units 0.2 0.0 Total 520.0 100.0

Shareholder breakdown by sector at 31 December, %

2008 2007 2006 2005 2004

Companies 2.8 2.2 1.8 2.8 3.1 Financial institutions and insurance companies 3.2 2.5 2.1 3.5 2.8 Public bodies 8.1 6.4 5.2 5.8 6.4 Non-profi t organisations 6.0 6.0 6.1 6.7 7.0 Households 14.9 14.1 13.5 15.4 15.6 Non-Finnish nationals 65.0 68.8 71.3 65.8 65.1 Total 100.0 100.0 100.0 100.0 100.0

UPM’s share option programmes

Exercise price per share Number of Number of at date of issue at 31 Dec. 2008 Options exercised Options options shares € € Subscription period 2008

2005 G 3,000,000 3,000,000 18.65 16.40 1.10.2007–31.10.2009 – 2005 H 3,000,000 3,000,000 21.65 20.15 1.10.2008–31.10.2010 –

126 UPM ANNUAL REPORT 2008 Key indicators ■ ACCOUNTS FOR 2008

Key fi gures 1999–2008

Adjusted share-related indicators 1999–2008 1)

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Earnings per share, € (diluted 2008: –0.35) –0.35 0.16 0.65 0.50 1.76 0.60 0.96 1.93 2.38 1.88 Shareholders’ equity per share, € 11.74 13.21 13.90 14.01 14.46 13.36 13.85 13.09 11.72 10.23 Dividend per share, € 3) 2) 0.40 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 1.08 Dividend to earnings ratio, % 3) neg. 468.8 115.4 150.0 42.6 125.0 78.1 39.0 31.4 57.0 Effective dividend yield, % 3) 4.4 5.4 3.9 4.5 4.6 5.0 4.9 4.0 4.1 5.4 P/E ratio neg. 86.4 29.4 33.1 8.9 24.8 15.9 9.7 7.7 10.6 Cash fl ow from operations per share, € 1.21 1.66 2.32 1.63 1.90 2.40 2.73 3.32 3.19 2.39 Dividend distribution, €m 3) 2) 208 384 392 392 393 393 390 388 371 557 Share price at 31 Dec., € 9.00 13.82 19.12 16.56 16.36 15.12 15.30 18.63 18.28 20.00 Market capitalisation, €m 4,680 7,084 10,005 8,665 8,578 7,917 7,960 9,681 9,502 10,663 Shares traded, €m 4) 10,549 16,472 16,021 11,358 9,731 9,117 10,827 7,645 6,157 4,834 Shares traded (1,000s) 932,136 952,300 876,023 697,227 625,950 645,988 597,078 443,240 400,822 316,874 Shares traded, % of all shares 180.1 182.1 167.4 133.6 119.5 123.4 115.1 88.1 77.2 59.0 Lowest quotation, € 8.15 13.01 15.36 15.05 14.44 11.05 12.61 14.00 12.46 11.00 Highest quotation, € 13.87 20.59 20.91 18.15 17.13 17.10 22.25 19.93 22.45 21.25 Average quotation for the period, € 11.32 17.30 18.29 16.29 15.55 14.11 18.13 17.24 15.36 15.25 Number of shares, average (1,000s) 517,545 522,867 523,220 522,029 523,641 523,130 518,935 495,784 513,634 528,035 Number of shares at end of period (1,000s) 519,970 512,569 523,259 523,093 524,450 523,579 520,232 517,436 501,295 518,062

Share prices and shares traded are based on trading on the NASDAQ OMX Helsinki stock exchange.

Notes to the tables on pages 127–128 1) Figures for 2002–2008 are reported in accordance with International Financial Reporting Standards (IFRS) and for 1999–2001 in accordance with Finnish Accounting Standards (FAS). More information on the effects of the transition on the balance sheet and income statement is given in the bulletin released on 24.3.2004. The bulletin is available on UPM’s Internet pages at www.upm-kymmene.com. 2) Proposal. 3) The 1999 fi gure includes an extra dividend payment of € 0.45. 4) Trading on the NASDAQ OMX Helsinki stock exchange. Treasury shares bought by the company are included in shares traded. ACCOUNTS FOR 2008 ■ Key indicators

Financial indicators 1999–2008 1)

€m 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Sales 9,461 10,035 10,022 9,348 9,820 9,787 10,417 9,918 9,583 8,261 EBITDA 1,206 1,546 1,678 1,428 1,435 1,442 1,957 2,055 2,081 1,576 % of sales 12.7 15.4 16.7 15.3 14.6 14.7 18.8 20.7 21.7 19.1 Operating profi t, excluding special items 513 835 725 558 470 429 963 1,394 1,560 976 % of sales 5.4 8.3 7.2 6.0 4.8 4.4 9.2 14.1 16.3 11.8 Operating profi t 24 483 536 318 685 368 861 1,614 1,860 1,573 % of sales 0.3 4.8 5.3 3.4 7.0 3.8 8.3 16.3 19.4 19.0 Profi t (loss) before tax –201 292 367 257 556 425 710 1,333 1,859 1,398 % of sales –2.1 2.9 3.7 2.7 5.7 4.3 6.8 13.4 19.4 16.9 Profi t (loss) for the period –180 81 338 261 920 312 500 955 1,366 994 % of sales –1.9 0.8 3.4 2.8 9.4 3.2 4.8 9.6 14.3 12.0 Exports from Finland and foreign operations 8,515 9,170 9,102 8,397 8,791 8,697 9,475 8,948 8,563 7,165 Exports from Finland 4,371 4,546 4,644 4,006 4,301 4,539 4,759 4,635 5,216 4,873

Non-current assets 10,375 10,639 11,355 12,321 12,802 13,509 14,336 12,874 10,163 8,741 Inventories 1,354 1,342 1,255 1,256 1,138 1,144 1,224 1,289 1,184 1,008 Other current assets 2,040 1,972 1,859 1,964 1,887 1,938 2,064 2,368 1,766 1,831 Assets, total 13,781 13,953 14,469 15,541 15,827 16,591 17,624 16,431 13,113 11,580

Total equity 6,120 6,783 7,289 7,348 7,612 7,029 7,237 6,838 6,175 5,558 Non-current liabilities 5,816 4,753 4,770 5,845 5,966 7,322 8,104 5,992 4,564 3,830 Current liabilities 1,828 2,417 2,410 2,348 2,249 2,240 2,283 3,601 2,374 2,192 Total equit y and liabilities 13,781 13,953 14,469 15,541 15,827 16,591 17,624 16,431 13,113 11,580

Capital employed at year end 11,193 11,098 11,634 12,650 12,953 12,811 13,689 13,519 10,448 9,004 Return on equity, % neg. 1.2 4.6 3.5 12.6 4.4 6.8 15.5 21.9 19.2 Return on capital employed, % 0.2 4.3 4.7 3.4 6.0 5.1 7.4 15.6 20.2 17.6 Equity to assets ratio, % 44.5 48.8 50.4 47.3 48.2 42.5 41.1 41.5 46.0 47.0 Gearing ratio, % 71595666616971896955 Net interest-bearing liabilities 4,321 3,973 4,048 4,836 4,617 4,874 5,135 6,041 4,071 2,940 Gross capital expenditure 551 708 699 749 686 720 620 3,850 2,175 609 % of sales 5.8 7.1 7.0 8.0 7.0 7.4 6.0 38.8 22.7 7.4 Gross capital expenditure excluding acquisitions 532 683 631 705 645 703 568 827 571 548 % of sales 5.6 6.8 6.3 7.5 6.6 7.2 5.5 8.3 6.0 6.6 Personnel at year end 24,983 26,352 28,704 31,522 33,433 34,482 35,579 36,298 32,755 30,963

Formulae for calculating indicators are given on page 130.

Deliveries and production Deliveries Production (1999 – 2004) 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Electricity (MWh) 10,167 10,349 Pulp (1,000 t) 1,982 1,927 Papers, total (1,000 t) 10,641 11,389 10,988 10,172 10,886 10,232 10,046 8,298 8,285 7,494 Sawn timber (1,000 m3) 2,132 2,325 2,457 2,016 2,409 2,408 2,201 2,035 2,117 1,911 Plywood (1,000 m3) 806 945 931 827 969 936 905 786 793 729 Key indicators ■ ACCOUNTS FOR 2008

Quarterly fi gures 2007–2008

€m Q4/08 Q3/08 Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 Q1/07 Q1–Q4 /08 Q1–Q4 /07 Sales 2,315 2,358 2,378 2,410 2,512 2,467 2,537 2,519 9,461 10,035 Other operating income 92311408715801883200 Costs and expenses –2,227 –1,998 –2,074 –2,108 –2,270 –2,116 –2,145 –2,119 –8,407 –8,650 Change in fair value of biological assets and wood harvested –2 4 20 28 47 21 14 –3 50 79 Share of results of associated companies and joint ventures –16 35 21 22 2 14 6 21 62 43 Depreciation, amortisation and impairment charges –365 –462 –199 –199 –236 –206 –567 –215 –1,225 –1,224 Operating profi t (loss) –286 –40 157 193 142 195 –75 221 24 483 Gains on available-for-sale investments, net – –2––––2 2 2 Exchange rate and fair value gains and losses –14 – –1 –10 –4 –9 8 3 –25 –2 Interest and other fi nance costs, net –60 –50 –43 –49 –46 –42 –54 –49 –202 –191 Profi t (loss) before tax –360 –90 115 134 92 144 –121 177 –201 292 Income taxes 74 3 –25 –31 –63 –25 –77 –46 21 –211 Profi t (loss) for the period –286 –87 90 103 29 119 –198 131 –180 81 Attributable to: Equity holders of the parent company –287 –86 92 102 32 120 –198 131 –179 85 Minority interest 1 –1 –2 1 –3 –1 – – –1 –4 –286 –87 90 103 29 119 –198 131 –180 81 Basic earnings per share, € –0.56 –0.17 0.18 0.20 0.06 0.23 –0.38 0.25 –0.35 0.16 Diluted earnings per share, € –0.56 –0.17 0.18 0.20 0.06 0.23 –0.38 0.25 –0.35 0.16 Earnings per share, excluding special items, € –0.19 0.25 0.17 0.19 0.24 0.23 0.28 0.25 0.42 1.00 Average number of shares basic (1,000) 519,979 519,999 517,622 512,581 514,085 527,012 527,111 523,261 517,545 522,867 Average number of shares diluted (1,000) 519,979 519,999 516,791 513,412 515,322 529,530 530,980 527,086 517,545 525,729 Special items in operating profi t (loss) –240 –256 2 5 –52 – –300 – –489 –352 Operating profi t (loss), excl. special items –46 216 155 188 194 195 225 221 513 835 % of sales –2.0 9.2 6.5 7.8 7.7 7.9 8.9 8.8 5.4 8.3 Special items before tax –240 –250 2 5 –52 – –300 – –483 –352 Profi t (loss) before tax, excl. special items –120 160 113 129 144 144 179 177 282 644 % of sales –5.2 6.8 4.8 5.4 5.7 5.8 7.1 7.0 3.0 6.4 Return on equity, excl. special items, % n e g . 7. 8 5 . 4 5 .9 7.1 6 .9 8 . 5 7. 3 3 . 4 7. 4 Return on capital employed, excl. special items, % neg. 7.7 5.7 6.5 6.9 6.8 8.3 7.9 4.6 7.4 EBITDA 178 378 313 337 351 366 411 418 1,206 1,546 % of sales 7.7 16.0 13.2 14.0 14.0 14.8 16.2 16.6 12.7 15.4

Sales by segment Energy 141 129 103 105 112 89 81 97 478 379 Pulp 200 228 247 269 187 208 208 205 944 808 Forest and timber 419 475 518 508 537 490 514 498 1,920 2,039 Paper 1,750 1,761 1,727 1,773 1,864 1,856 1,815 1,793 7,011 7,328 Label 233 239 245 242 242 245 255 256 959 998 Plywood 102 121 150 157 154 126 150 161 530 591 Other operations 34 52 66 48 80 83 160 127 200 450 Internal sales –564 –647 –678 –692 –664 –630 –646 –618 –2,581 –2,558 Sales, total 2,315 2,358 2,378 2,410 2,512 2,467 2,537 2,519 9,461 10,035

Operating profi t (loss) excl.special items by segment Energy 62 49 31 33 38 17 11 29 175 95 Pulp –17 60 38 67 9 56 54 69 148 188 Forest and timber –61 –5 17 26 73 38 61 42 –23 214 Paper 27 113 60 50 52 73 79 58 250 262 Label –10 1 8 3 8 12 16 20 2 56 Plywood –10 –2 16 21 15 3 15 17 25 50 Other operations –37 – –15 –12 –1 –4 –11 –14 –64 –30 Operating profi t (loss) excl. special items, total –46 216 155 188 194 195 225 221 513 835 % of sales –2.0 9.2 6.5 7.8 7.7 7.9 8.9 8.8 5.4 8.3 ACCOUNTS FOR 2008 ■ Key indicators

Calculation of key indicators

Formulae for calculation of financial Formulae for calculation of adjusted indicators share-related indicators

Return on equity, %: Earnings per share: Profi t before tax 2) – income taxes Profi t for the period attributable to the equity x 100 3) Total equity (average) holders of the parent company Adjusted average number of shares during the period excluding treasury shares Return on capital employed, %: Profi t before tax 2) + interest expenses and other fi nancial expenses Shareholders’ equity per share: x 100 Total equity + interest-bearing Equity attributable to the equity holders of

liabilities (average) the parent company Adjusted number of shares at end of period Equity to assets ratio, %: Dividend per share: Total equity – treasury shares 1) x 100 Balance sheet total – advances received Dividend distribution – treasury shares 1) Adjusted number of shares at end of period

Net interest-bearing liabilities: Dividend to earnings ratio, %: Dividend per share Interest-bearing liabilities – interest-bearing assets x 100 – listed shares Earnings per share

Gearing ratio, %: Effective dividend yield, %: Net interest-bearing liabilities Adjusted dividend per share x 100 x 100 Total equity – treasury shares 1) Adjusted share price at 31.12.

EBITDA: P/E ratio: Operating profi t + depreciation + amortisation Adjusted share price at 31.12. of goodwill + impairment +/– change in value of Earnings per share biological assets +/– share of results of associated companies +/– special items Market capitalisation: Total number of shares x striking price at end of Return on capital employed (ROCE) for the period segments (operating capital), %: Operating profi t x 100 Adjusted share price at end of period: Non-current assets + stocks + trade Share price at end of period receivables – trade payables (average) Share issue coeffi cient

Adjusted average share price: Total value of shares traded 1) Treasury shares were shown in the balance sheet in Adjusted number of shares traded during period 1999–2001. 2) 1999–2001: Profi t/loss before extraordinary items Cash from operating activities per share: and tax. Cash from operating activities 3) 1999–2001: Profi t/loss before extraordinary items Adjusted average number of shares during the and tax – income tax +/– minority interest. period excluding treasury shares

Key exchange rates for the euro at end of period

31.12.2008 30.9.2008 30.6.2008 31.3.2008 31.12.2007 30.9.2007 30.6.2007 31.3.2007 USD 1.3917 1.4303 1.5764 1.5812 1.4721 1.4179 1.3505 1.3318 CAD 1.6998 1.4961 1.5942 1.6226 1.4449 1.4122 1.4245 1.5366 JPY 126.14 150.47 166.44 157.37 164.93 163.55 166.63 157.32 GBP 0.9525 0.7903 0.7923 0.7958 0.7334 0.6968 0.6740 0.6798 SEK 10.8700 9.7943 9.4703 9.3970 9.4 415 9.2147 9.2525 9.3462 Auditor’s report ■ ACCOUNTS FOR 2008

Auditor’s report

To the shareholders of UPM-Kymmene Corporation An audit involves performing procedures to obtain audit evi- dence about the amounts and disclosures in the fi nancial statements We have audited the accounting records, the fi nancial statements, and the report of the Board of Directors. The procedures selected the report of the Board of Directors and the administration of depend on the auditor’s judgment, including the assessment of the UPM-Kymmene Corporation for the year ended on 31 December, risks of material misstatement of the fi nancial statements, whether 2008. The fi nancial statements comprise the consolidated balance due to fraud or error. In making those risk assessments, the auditor sheet, income statement, cash fl ow statement, statement of changes considers internal control relevant to the entity’s preparation and fair in equity and notes to the consolidated fi nancial statements, as well presentation of the fi nancial statements in order to design audit as the parent company’s balance sheet, income statement, cash fl ow procedures that are appropriate in the circumstances. An audit also statement and notes to the fi nancial statements. includes evaluating the appropriateness of accounting policies used and the reason-ableness of accounting estimates made by manage- Responsibility of the Board of Directors and ment, as well as evaluating the overall presentation of the fi nancial the Managing Director statements and the report of the Board of Directors. The Board of Directors and the Managing Director are responsible The audit was performed in accordance with good auditing for the preparation of the fi nancial statements and the report of the practice in Finland. We believe that the audit evidence we have Board of Directors and for the fair presentation of the consolidated obtained is suffi cient and appropriate to provide a basis for our audit fi nancial statements in accordance with International Financial opin-ion. Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company’s fi nancial state-ments and Opinion on the Consolidated Financial Statements the report of the Board of Directors in accordance with laws and In our opinion, the consolidated fi nancial statements give a true and regulations governing the preparation of the fi nancial statements and fair view of the fi nancial posi-tion, fi nancial performance, and cash the report of the Board of Directors in Finland. The Board of fl ows of the group in accordance with International Financial Re- Directors is responsible for the appropriate arrangement of the porting Standards (IFRS) as adopted by the EU. control of the company’s accounts and fi nances, and the Managing Director shall see to it that the accounts of the company are in com- Opinion on the Company’s Financial Statements and pliance with the law and that its fi nancial affairs have been arranged the Report of the Board of Directors in a reliable manner. In our opinion, the fi nancial statements and the report of the Board of Directors give a true and fair view of both the consolidated and Auditor’s Responsibility the parent company’s fi nancial performance and fi nancial position in Our responsibility is to perform an audit in accordance with good accordance with the laws and regulations governing the preparation auditing practice in Finland, and to express an opinion on the parent of the fi nancial state-ments and the report of the Board of Directors company’s fi nancial statements, on the consolidated fi nancial state- in Finland. The information in the report of the Board of Directors ments and on the report of the Board of Directors based on our is consistent with the information in the fi nancial statements. audit. Good auditing practice requires that we comply with ethical We recommend that the fi nancial statements should be adopted. requirements and plan and perform the audit to obtain reasonable The proposal by the Board of Directors regarding the use of the assurance whether the fi nancial statements and the report of the distributable funds is in compliance with the Limited Liability Com- Board of Directors are free from material misstatement and whether panies Act. We recommend that the Members of the Board of the members of the Board of Directors of the parent company and Directors and the Managing Director should be discharged from the Managing Director have complied with the Limited Liability liability for the fi nancial period audited by us. Companies Act.

Helsinki 20 February 2009

PricewaterhouseCoopers Oy Authorised Public Accountants

Juha Wahlroos Authorised Public Accountant

ISSUER Principal Office of UPM-Kymmene Corporation Eteläesplanadi 2 P.O. Box 380 FI-00101 Helsinki Finland

ARRANGER Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB England

DEALERS

BNP PARIBAS Citigroup Global Markets Limited 10 Harewood Avenue Citigroup Centre London NW1 6AA Canada Square Canary Wharf London E14 5LB England

Commerzbank Aktiengesellschaft Crédit Agricole Corporate and Investment Bank 60 Gracechurch Street 9 Quai du Président Paul Doumer London EC3V 0HR 92920 Paris England La Défense Cedex

Deutsche Bank AG, London Branch Merrill Lynch International Winchester House 2 King Edward Street 1 Great Winchester Street London EC1A 1HQ London EC2N 2DB England England

Nordea Bank Denmark A/S Nordea Bank Finland Plc Christiansbro 2948 Debt and Structured Finance Legal 3 Strandgade Aleksis Kiven katu 9, Helsinki Copenhagen K FI-00020 NORDEA, Denmark Finland

Mitsubishi UFJ Securities International plc The Royal Bank of Scotland plc 6 Broadgate 135 Bishopsgate London EC2M 2AA London EC2M 3UR England

TRUSTEE Citicorp Trustee Company Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB England

PRINCIPAL PAYING AGENT Citibank, N.A., London Branch Citigroup Centre Canada Square Canary Wharf London E14 5LB England

PAYING AND TRANSFER AGENTS

BNP Paribas Securities Services Luxembourg Citibank, N.A., London Branch Branch Citigroup Centre 33, rue de Gasperich Canada Square Howald - Hesperange Canary Wharf L-2085 Luxembourg London E14 5LB England

REGISTRAR Citibank, N.A., London Branch Citigroup Centre Canada Square Canary Wharf London E14 5LB England

LISTING AGENT BNP Paribas Securities Services Luxembourg Branch 33, rue de Gasperich Howald - Hesperange L-2085 Luxembourg

To the Issuer as to Finnish, English and U.S. law White & Case LLP

Eteläranta 14 5 Old Broad Street FI-00130 Helsinki London EC2N 1DW Finland England

To the Dealers and the Trustee as to English law Clifford Chance LLP 10 Upper Bank Street Canary Wharf London E14 5JJ England

AUDITORS TO UPM-KYMMENE CORPORATION PricewaterhouseCoopers Oy Itämerentori 2 P.O. Box 1015 FI-00101 Helsinki Finland