UPM The Biofore Company Investor Presentation December 2018 Competitive businesses with strong market positions UPM UPM UPM UPM UPM UPM BIOCHEMICALS BIOREFINING ENERGY RAFLATAC SPECIALTY COMMUNICA- PLYWOOD BIOCOMPOSITES PAPERS TION PAPERS Pulp Electricity Label Label papers, Magazine Plywood WOOD SOURCING Biofuels generation materials for release liners, papers, and veneer AND FORESTRY Timber and trading product and office papers newsprint and products information and flexible fine papers labelling packaging 2 | © UPM – The Biofore Company Global businesses – local presence UPM’s sales by market 2017 EUR 10,010 million 12,000 customers in 120 countries 54 62% production plants 13% Europe 20% in 12 countries 90,000 North America Asia shareholders in 35 countries 19,100 25,000 employees b-to-b suppliers 5% in 46 countries in 75 countries Rest of the world 3 | © UPM – The Biofore Company Operating on healthily growing markets UPM PLYWOOD Comparable EBIT by Plywood, veneer ~3% business area 2017 EUR 1,292m UPM COMMUNICATION PAPERS Graphic papers ~ –4% UPM BIOREFINING Pulp ~3% Biofuels strong UPM SPECIALTY PAPERS Timber ~2% Label papers ~4% High-end office papers ~4% UPM RAFLATAC Self-adhesive labels ~4% UPM ENERGY Demand trend growth, % pa 4 | © UPM – The Biofore Company Electricity ~1% Sustainable and safe products ELECTRICITY for everyday use everywhere PULP-BASED MATERIALS for packaging, transport, LABEL MATERIALS storage and hygiene products for food packaging, drinks bottles and for communicating PUBLICATION information PAPERS for reading and advertising SPECIALTY PAPERS for food packaging WOOD MATERIALS for construction and design OFFICE PAPERS features for printing WOOD MATERIALS LABELS for furniture and the home for food products 5 || ©© UPMUPM – The Biofore Company Inspired by the Delivering renewable Innovating for limitless opportunities and responsible a future beyond of bioeconomy solutions fossils 6 || ©© UPMUPM Biofore – Beyond Fossils Sustainable and We create value by seizing 2030 safe solutions for global the limitless potential of bioeconomy consumer demand 2020 Innovation Responsible operations and Circular economy value chain High performing people Sustainable 7 | © UPM – The Biofore Company forestry UPM strategic focus areas We create value by seizing… …the limitless potential of bioeconomy Performance Growth Innovation Responsibility > Continuous > Earnings growth > Growth and > Continuous improvement competitiveness improvement Portfolio > Develop businesses with strong long-term fundamentals and sustainable competitive advantage 8 | © UPM – The Biofore Company Spearheads for growth High value fibre Specialty packaging Molecular materials bioproducts Raflatac Specialty papers Forests Pulp Biofuels Biochemicals Communication Plywood Energy papers 9 | © UPM – The Biofore Company UPM in transformation 2008 2017 Operating model vertically integrated six separate Promotes value creation paper company businesses 100 % 100 % Sales Business portfolio 80 % 80 % CommunicationPaper ENA Papers Increasing share of businesses with Paper Plywood strong long-term fundamentals for 60 % 60 % Energy profitability and growth Plywood Specialty Papers 40 % 40 % Raflatac Raflatac Biorefining 20 % 20 % Sawmilling Others 0 % 0 % Sales EUR 9.5bn EUR 10.0bn Business performance EBIT *) EUR 513m EUR 1,292m Continuous improvement in financial, ROE *) 3.5% 11.9% social and environmental performance Net debt EUR 4.3bn EUR 0.2bn Disciplined capital allocation Market cap EUR 4.7bn EUR 13.8bn Driving value creation *) excluding special items for 2008, comparable figures for 2017 10 | © UPM – The Biofore Company UPM current investment portfolio for earnings growth Focused growth projects Transformative prospects • Raflatac speciality label expansion, • Possible new 2mt pulp mill, Uruguay in Q4 2018, Finland – Second preparation phase proceeding: • Chudovo plywood mill expansion, The rail tendering process in final stages, port +45k m3 in Q3 2019, Russia concession tendering started. Environmental and social impact study for the mill submitted. • Jämsänkoski release liner expansion, +40kt in Q4 2018, Finland • Molecular bioproducts, possible biorefineries • Nordland PM2 conversion to release – Basic engineering work continues regarding a liner, +110kt in Q4 2019, Germany potential 150kt biochemicals refinery, Germany • Changshu release liner expansion, – Exploring next steps in biofuels, environmental +40kt in Q1 2020, China impact study submitted for a potential 500kt biorefinery, Finland 11 | © UPM – The Biofore Company Business area long-term return targets apply over investment and business cycles UPM UPM UPM UPM UPM UPM Energy Biorefining Specialty Papers Communication Papers Plywood Raflatac 30 30 30 30 30 30 ROCE % *) ROCE % ROCE % FCF/ ROCE % ROCE % 28 28 28 28 28 28 CE % 26 26 26 26 26 26 24 24 24 24 24 24 22 22 22 22 22 22 20 20 20 20 20 20 18 18 18 18 18 18 16 16 16 16 16 16 14 14 14 14 14 14 12 12 12 12 12 12 10 10 10 10 10 10 8 8 8 8 8 8 6 6 6 6 6 6 4 4 4 4 4 4 2 2 2 2 2 2 0 0 0 0 0 0 *) shareholdings in UPM Energy Long-term return target valued at fair value 12 | © UPM – The Biofore Company Group financial performance Net debt/ EURm Comparable % Comparable ROE Net debt Net debt and EURm EBITDA EBIT leverage (x) 1 600 14 4 500 3,0 1 400 12 3 750 2,5 Target: EBIT growth Target: 10% 1 200 10 3 000 2,0 1 000 Policy: ≤ 2x 8 800 2 250 1,5 6 600 1 500 1,0 4 400 750 0,5 200 2 0 0 0 0,0 2013 2014 2015 2016 2017 LTM 2013 2014 2015 2016 2017 LTM 2013 2014 2015 2016 2017 Q3/18 LTM 13 | © UPM – The Biofore Company 5-year cumulative cash flow (2013–2017) – disciplined capital allocation in action Attractive dividend EUR 1.9bn Strong operating cash flow EUR 6.4bn Industry-leading balance sheet Deleveraging EUR 2.6bn Net debt /EBITDA ~ 0x Focused investments EUR 1.9bn 14 | © UPM – The Biofore Company Illustrative capital allocation*) for next 5 years, assuming the Uruguay pulp mill investment Performance focus Attractive dividend Industry-leading Strong cash flow EUR ~3–4bn balance sheet Net debt /EBITDA < 2x High return investments Maintain headroom EUR ~3–4bn *) This is not a forecast 15 | © UPM – The Biofore Company Dividend EUR % of operating per share cash flow per share 1,40 70 Dividend policy 1,20 60 • UPM aims to pay an attractive dividend, 30–40% of operating cash flow per share 1,00 50 0,80 40 Dividend for 2017 0,60 30 • EUR 1.15 (0.95) per share, totalling EUR 613m 0,40 20 • 39% of 2017 operating cash flow 0,20 10 0,00 0 2012 2013 2014 2015 2016 2017 16 | © UPM – The Biofore Company Low investment needs in existing assets allow growth projects with modest total capex EURm Capital expenditure Estimate Focused growth investments 1 200 ✓ High returns and fast payback 1 000 Myllykoski ✓ Low implementation risk acquisition ✓ Financed from operating cash flow 800 Uruguay Low replacement investments 600 acquisition Depreciation ✓ Asset quality in486 all businesses, Strategic investments e.g. large competitive pulp mills 400 303 300 ✓ UPM Communication Papers 200 Modest total capex and Operational investments attractive returns 0 2009 2010 2011 2012 2013 2014 2015 2016 20172018E 17 | © UPM – The Biofore Company Value from responsibility We create value by seizing… …the limitless potential of bioeconomy Renewable, recyclable Responsible operations Value based leadership Compliance and safe products and value chain • Renewable and • Material efficiency and • Value-based and inspiring • Decision making, biodegradable raw circular economy leadership management and materials and thinking • Safe and healthy working operations guided by recyclable products • Climate solutions and environment and wellbeing our values and UPM • Product stewardship working towards carbon of employees Code of Conduct • Open and transparent neutrality • Diversity and inclusion • Responsible business product • Responsible water use • High performance and practises communications • Sustainable land use continuous professional • Reliable, credible and • Respecting human development of employees transparent reporting rights • Local commitment 18 | © UPM – The Biofore Company Industry leader in responsibility 19 | © UPM – The Biofore Company Q3 2018: strong quarter sets a new benchmark for UPM’s performance Comparable EBIT • Sales grew by 6% to EUR 2,650 million EURm (2,493m) 450 420 400 • Comparable EBIT increased by 20% to 351 EUR 420m (351m) 350 300 • Sales prices increased in all business areas, 250 outweighing the impact of higher input costs 200 • Temporary operational issues in UPM 150 Communication Papers and UPM Biorefining 100 had a EUR 30 million negative impact 50 • Operating cash flow was EUR 434m (486m), 0 net debt decreased to EUR 4m (623m) 20 | © UPM – The Biofore Company Comparable EBIT in Q3 2018 vs. Q3 2017 Prices increased in all businesses, input costs higher Record quarter in Biorefining, improvement Deliveries impacted by temporary production issues in Energy and Communication Papers. Specialty Papers weaker. EURm 700 EURm 700 Prices Fixed 600 costs 600 Deliveries Currency, 500 500 Energy net 420 Communication 420 Biorefining impact 15.9% Papers 15.9% 351 351 Raflatac 400 400 Plywood Variable 14.1% Specialty 14.1% Depr., Other costs Papers forests, operations 300 plantations 300 and eliminations 200 200 100 100 0 0 Q3/17 Q3/18 Q3/17 Q3/18 21 | © UPM – The Biofore Company Q3 2018: Sales prices increased in all business areas, outweighing the impact of higher input costs UPM BIOREFINING UPM SPECIALTY PAPERS • Average pulp prices in euros +27% •