UPM RESULTS Q3 2015 · Q3 2015 –good progress continued EUR million Q3 2015 Q3 2014 Q2 2015 9M 2015 9M 2014 2014 Sales 2,530 2,415 2,548 7,564 7,337 9,868 EBITDA 345 344 317 987

Jussi Pesonen

President and CEO

27 October 2015

UPM RESULTS Q3 2015

| © UPM

Momentum for improvement continued in

Q3 2015

Comparable(* operating profit increased to EUR 242m (235m),

operating profit excluding special items was EUR 507m

+ Profit improvement programme ahead of schedule

+ Favourable currencies

− Currency hedges affected UPM Paper ENA and UPM Paper Asia

− Publication paper prices in Europe, electricity sales prices below last year

Strong operating cash flow at EUR 363m (300m)

Growth projects progressed well – Kymi pulp mill expansion started,

Changshu speciality paper production unit due to start up in Q4 2015

Net debt decreased to EUR 2,465m (2,726m)

2

(* excluding special items and the EUR 265 million

increase in the fair value of the forests in Finland

| © UPM

Net debt

EUR 2,465m -261m

Sales

EUR 2,530m +5%

EBITDA

EUR 345m +1m

Q3 2015 – improvement continued

Operating cash flow

EUR 363m +63m

3

Operating profit (*

EUR 242m +7m

Profit before tax (*

EUR 227m +14m

Operating cash flow / share, 12 month

EUR 2.36 +0.40

Net debt / EBITDA

1.87x -0.26x

Q3 2015 vs. Q3 2014:

EPS (*

EUR 0.36 +0.04

ROE (*

10.0% +0.9pp

(* excluding special items. The figures also exclude the EUR 265 million increase in the fair value

of the forests in Finland and hence, deviate from the official UPM formulae for financial indicators.

| © UPM

Profit improvement programme proceeded

ahead of schedule

0

50

100

150

200

Q314 Q414 Q115 Q215 Q315 Q415 Q116

4

Other fixed and

variable cost

savings

Full annualised EUR 150 million impact of the programme is

expected to realise by the end of 2015, as compared with Q3 14

Fixed cost

savings from

closures (*

(* 800,000 tonnes of publication paper capacity in Europe: three paper

machines were closed in Q1 15, one machine was closed in Q2 15

EUR million

96% realised

in Q3 2015

| © UPM

0

50

100

150

200

250

300

350

400

450

EBITDA

Q3/14

EBITDA

Q3/15

EBITDA in Q3 2015 vs. Q3 2014

Raflatac

Paper

Asia

Other

operations

and

eliminations

Energy

Biorefining

Paper

ENA

Plywood

0

50

100

150

200

250

300

350

400

450

EBITDA

Q3/14

EBITDA

Q3/15

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

Profit improvement actions and

currencies outweighed the decrease

in sales prices EURm

Favourable pulp markets and currencies

benefited UPM Biorefining. Increased

pulp costs and currency hedges

impacted the paper businesses

5

34414.2%

34513.6%

Currency,

net

impact

34414.2%

34513.6%

| © UPM

Operating profit *) by business area

6

0

2,5

5

7,5

10

12,5

0

10

20

30

40

50

Q1 1

3Q

2 1

3Q

3 1

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4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

0

5

10

15

20

25

0

25

50

75

100

125

Q1 1

3Q

2 1

3Q

3 1

3Q

4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

0

10

20

30

40

50

0

20

40

60

80

100

Q1 1

3Q

2 1

3Q

3 1

3Q

4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

0

2

4

6

8

10

0

10

20

30

40

50

Q1 1

3Q

2 1

3Q

3 1

3Q

4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

-4

-2

0

2

4

6

-50

-25

0

25

50

75

Q1 1

3Q

2 1

3Q

3 1

3Q

4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

0

4

8

12

16

20

0

5

10

15

20

25

Q1 1

3Q

2 1

3Q

3 1

3Q

4 1

3Q

1 1

4Q

2 1

4Q

3 1

4Q

4 1

4Q

1 1

5Q

2 1

5Q

3 1

5

EURm % of salesUPM Paper Asia EURm % of salesUPM Paper ENA EURm % of salesUPM Plywood

EURm % of salesUPM RaflatacEURm % of salesUPM EnergyEURm % of salesUPM Biorefining

*) excluding special items

| © UPM

Business area returns and long-term targets

7

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22ROCE %ROCE % (* ROCE %ROCE % CF/CE % ROCE %

UPM

Paper Asia

UPM

Paper ENA

UPM

Plywood

UPM

Raflatac

UPM

EnergyUPM

Biorefining

(* shareholdings in UPM Energy

valued at fair valueLong-term return target

| © UPM

Strong cash flow

8

0

200

400

600

800

1 000

1 200

1 400

Q10

8

Q30

8

Q10

9

Q30

9

Q11

0

Q31

0

Q11

1

Q31

1

Q11

2

Q31

2

Q11

3

Q31

3

Q11

4

Q31

4

Q11

5

Q31

5Operating cash flow

Cash flow

after investing

activities

EUR million Cash flow, trailing 12 months

• Q3 2015 operating cash

flow was EUR 363m

(300m)

• In Q3 2015, working capital

decreased by EUR 48m

(increased by EUR 36m)

• In the last 12 months,

operating cash flow was

EUR 1,257m (1,041m), i.e.

EUR 2.36 per share

| © UPM

Balance sheet continued to strengthen

9

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2008

2009

2010

2011

2012

2013

2014

2015

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Net debt, EUR millionNet debt / EBITDA(trailing 12 months)

Net debt

Net debt / EBITDA

1.9

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2008

2009

2010

2011

2012

2013

2014

2015

20

30

40

50

60

70

80

90

Net debt, EUR million Gearing %

Net debt

Gearing

31

Liquidity was EUR 1.3bn at the end of Q3 2015

Repayments total EUR 0.4bn in 2015-16

| © UPM

UPM increased the fair value of its forests

in Finland by EUR 265 million

• UPM increased the fair value of its biological assets (growing trees)

in Finland by EUR 265m, due to adjusted long-term wood price

estimates and change in the discount rate

– UPM continues to estimate a declining trend of real wood prices in Finland,

although with a slightly slower rate than previously

– The pre-tax discount rate for the Finnish forests was lowered from 7.5% to 7%

• At the end of Q3 2015 the fair value of UPM's biological assets in

the balance sheet was EUR 1,726 million

– Includes the company's forests in Finland (713,000 ha) and the US (75,000 ha)

as well as the plantations in Uruguay (236,000 ha)

10 | © UPM

| © UPM

UPM confirms its full year 2015 outlook

• The improved profitability achieved in 2014 is expected to continue in 2015, and there are prospects for further improvement.

• Profitability is underpinned by the EUR 150 million profit improvement programme, favourable currencies, as well as the first positive impacts from the company’s growth projects.

• Profitability is affected by lower publication paper prices and lower electricity sales prices, compared to 2014.

| © UPM11

| © UPM

Growth projects near completion – focus turns

to reaping the benefits in 2016 and beyond

12

Lappeenranta

biorefinery

120m litres of

renewable diesel

UPM Plywood

Otepää mill

expansion

to 90,000m3

Kymi

pulp mill

expansion

170,000t

UPM Raflatac

50% expansion in

APAC, growth in filmic

labelstock in Poland

UPM Paper Asia

Changshu

new speciality

paper machine

360,000t

Pietarsaari

pulp mill

expansion

70,000t

Fray Bentos

pulp mill

expansion

100,000t

Kaukas

pulp mill efficiency

improvement, paper and

pulp decoupling completed

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Capex so far EUR 514m Remaining capex EUR 256m

| © UPM

| © UPM

Low investment needs in existing assets allow

growth projects with modest total capex

13

0

200

400

600

800

1 000

1 200

2008 2009 2010 2011 2012 2013 2014 2015e 2016e

EUR million

Operational investments

329

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Myllykoski

acquisition

500

Estimate

375

| © UPM

Summary

Performance improvement continued in Q3 2015

• Operating profit, operating cash flow and balance sheet

stronger than last year

UPM is well positioned for next year

• Profit improvement programme is delivering results

• Growth projects are about to start contributing: Kymi and

other pulp mill expansions, Changshu speciality paper

machine, Lappeenranta biorefinery ramp-up

• Impact of favourable currencies, as hedges roll over

Strong cash flow and balance sheet

• UPM is in a unique position to simultaneously distribute

attractive dividend, implement growth projects and

act on strategic opportunities

14

| © UPM

1. Profit

improvement

programme

EUR 150m

UPM strategy in action

15

UPM

Biorefining

UPM

Paper

Asia

UPM

Raflatac

UPM

Energy

UPM

Paper

ENA

UPM

Plywood

2. EBITDA target

for growth projects

EUR 200m

3. Business portfolio

development and

value creation

BIOCHEMICALS

BIOCOMPOSITES

BIOFUELS

4. New businesses

Biofuels:

Lappeenranta

biorefinery

Pulp: 10%

capacity increase

Labelling materials:

Changshu expansion

Self-adhesive labels:

expansion in growth

markets and in higher

value added products

Plywood:

Otepää expansion

| © UPM

Strengths of UPM’s model

16

Top performanceIndustry-leading

balance sheet

Attractive dividend

Strong cash flowFocused

investments

| © UPM

Q3 2015 – good progress continued

EUR million Q3

2015

Q3

2014

Q2

2015

9M

2015

9M

2014 2014

Sales 2,530 2,415 2,548 7,564 7,337 9,868

EBITDA 345 344 317 987 972 1,306

% of sales 13.6 14.2 12.4 13.0 13.2 13.2

Operating profit (* 507 235 227 938 617 847

Profit before tax (* 492 213 203 877 558 774

Earnings per share, EUR (* 0.76 0.32 0.33 1.38 0.85 1.17

ROE, % (* 20.7 9.1 9.1 12.7 8.0 8.3

Operating cash flow 363 300 324 795 779 1,241

Net debt 2,465 2,726 2,635 2,465 2,726 2,401

Gearing, % 31 36 35 31 36 32

18

(* excluding special items

| © UPM

Cash flow

EUR million Q3/15 Q3/14 Q2/15 9M/15 9M/14 2014

EBITDA 345 344 317 987 972 1,306

Cash flow before change in working capital

352 366 357 1,001 942 1,291

Change in working capital 48 -36 31 -68 -71 73

Finance costs and income taxes -37 -30 -64 -138 -92 -123

Net cash from operating activities 363 300 324 795 779 1,241

Capital expenditure -128 -101 -112 -322 -275 -378

Asset sales and acquisitions 21 14 9 32 84 131

Cash flow after investing activities 256 213 221 505 588 994

19

| © UPM

Maturity profile and liquidity

20

0

100

200

300

400

500

600

700

800

900

1 000

2015

2016

2017

2018

2019

2020

2021-2

026

2027

2028

2029

2030

EUR million

0

100

200

300

400

500

600

700

800

900

1 000

2015

2016

2017

2018

2019

2020

2021-2

026

2027

2028

2029

2030

EUR million

Liquidity

Liquidity on 30 September 2015 was EUR 1.3bn

(cash and unused credit facilities)

• bilateral committed credit facilities EUR 0.95bn

Committed credit facilities EUR 0.95bn

Maturity profile of outstanding debt Committed credit facilities’ maturities

| © UPM

Group profitability and targets

0

1

2

3

4

5

6

7

8

9

10

21

0

1

2

3

4

5

6

7

8

9

10

0

20

40

60

80

100

0

1 000

2 000

3 000

4 000

5 000

Operating profit excl. special items

ROEexcl. special items

Net Debt

Gearing

Max gearing

Min target

EURm %%% of sales Operating profit ROE Gearing

(*(*

(* the figures exclude the EUR 265 million increase in the fair value of the forests in Finland

in Q3 2015 and hence, deviate from the official UPM formulae for financial indicators.

| © UPM22

EBITDA Q414-Q315

EUR 1,321m

Capital employed, September 2015

EUR 11.1bn

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper ENA

UPM

Plywood

Other operations

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper ENA

UPM Plywood

UPM businesses by EBITDA generation and

capital employed

| © UPM

0

25

50

75

100

125

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

5

10

15

20

25

UPM Biorefining

23

Operating profit excluding special items

EUR million % of salesMarket review Jan-Sep 2015

• Global chemical pulp demand

remained robust and growth was well

spread over several regions

• USD-denominated NBSK pulp market

price was lower, while BHKP price was

higher than last year

• Euro-denominated pulp prices were

clearly higher than last year

• The market price difference between

NBSK and BHKP narrowed

| © UPM

UPM Energy

24

0

20

40

60

80

100

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

10

20

30

40

50

Operating profit excluding special items Market review Jan-Sep 2015

• The Nordic and Finnish hydrological

balance improved in the first half of the

year, and decreased slightly during the

third quarter. At the end of September, the

hydrological balance was above the long-

term average level.

• Due to mild temperatures and improved

hydrology the average Finnish area spot

price was clearly lower compared with

than the same period last year

• The Finnish area front-year forward

electricity price closed at EUR 29.7/MWh

in September, down 24% compared to the

end of September last year

EUR million % of sales

| © UPM

UPM Raflatac

25

0

10

20

30

40

50

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

2

4

6

8

10


• Global demand for self-adhesive label

materials increased

• Demand was robust in Europe and

North America. In Asia and Latin

America, growth continued, albeit at a

lower level.


| © UPM

UPM Paper Asia

26

0

10

20

30

40

50

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

3

6

9

12

15


• Growth in fine paper demand is

levelling off, office paper demand is

growing

• Overcapacity prevails and the

preliminary US anti-dumping duties are

adding regional supply

• The average market price in local

currencies were slightly lower in most of

the markets, compared to 2014.

• The demand for labelling materials

grew globally, and average prices

remained stable


| © UPM

UPM Paper ENA

27

-40

-20

0

20

40

60

80

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

-4

-2

0

2

4

6

8


Europe

• Demand for graphic papers decreased

by 4%

• Publication paper prices were 5% lower

• Fine paper prices were 3% higher

North America

• Demand for magazine papers

decreased by 7%

• The average US dollar price for

magazine papers was 1% higher


| © UPM

UPM Plywood

28

-5

0

5

10

15

20

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

-5

0

5

10

15

20


• Plywood demand continued to

strengthen somewhat in the first nine

months of 2015

• Compared with last year, demand grew

in both industrial applications and

construction-related end-use segments


| © UPM

Chemical pulp market

30

Source: PPPC World-20 statistics

Pulp inventories

Days of

supply

300

400

500

600

700

800

900

1 000

1 100

2008 2009 2010 2011 2012 2013 2014 2015

USD/tonne

Q3 NBSK pulp price decreased 1% from Q2

Q3 BHKP pulp price increased 3% from Q2

BHKP

NBSK

Source: FOEX Indexes Ltd.

15

20

25

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013 2014 2015

Hardwood

inventories

Softwood

inventories

| © UPM

Price development in the Nordic and Helsinki power markets

31

Source: Reuters

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EUR/MWh

Coal SRMC Front Year System Front Year Helsinki Front Year

Finnish and Nordic electricity prices

| © UPM3232

400

500

600

700

800

900

1000

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

News SC LWC

WFC WFU

EUR/t

Europe

400

500

600

700

800

900

1000

1100

1200

1300

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

News SC LWC

WFC WFU

USD/t USD/t

ChinaNorth America

Sources: PPI, RISI

Graphic paper prices

400

500

600

700

800

900

1000

1100

1200

1300

WFC r (100% chemical pulp)

Reels (mixedchemical/mechanical pulp)

Uncoated Woodfree Reels (100%chemical pulp)

| © UPM

1 500

2 000

2 500

3 000

3 500

4 000

Q1

10Q

3 10

Q1

11Q

3 11

Q1

12Q

3 12

Q1

13Q

3 13

Q1

14Q

3 14

Q1

15Q

3 15

33

1 500

2 000

2 500

3 000

3 500

4 000

Q1 1

0Q

3 1

0Q

1 1

1Q

3 1

1Q

1 1

23Q

12

Q1 1

3Q

3 1

3Q

1 1

4Q

3 1

4Q

1 1

5Q

3 1

5

Sources: Cepiprint/fine, PPPC

Fine papers demand

in Europe -2% 9M 2015

-1%

Graphic papers demand in Europe decreased

by 3% in Q3 and 4% in 9M 2015 from last year

'000 tonnes

1 500

2 000

2 500

3 000

3 500

4 000

Q1 1

0Q

3 1

0Q

1 1

1Q

3 1

1Q

1 1

2Q

3 1

2Q

1 1

3Q

3 1

3Q

1 1

4Q

3 1

4Q

1 1

5Q

3 1

5

Newsprint demand

in Europe -7% 9M 2015Magazine papers demand

in Europe -5% 9M 2015

-5% -5%

| © UPM

-20

-15

-10

-5

0

5

10

15

20

-6,0

-3,0

0,0

3,0

6,0

Paper demand growth (% trailing 3 month)

Sources: Cepiprint, Cepifine, OECD

Euro zone composite leading indicator* (Y/Y %)

Graphic paperdemand growth

Growth in the European economy remains low

Euro zone composite leading indicator

34

| © UPM

Overcapacity in European graphic paper

is visible in margins

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

35

Cash cost of a marginal producer

Price

EUR/t

Sources: PPI, RISI, Pöyry

Documents

UPM RESULTS Q3 2015 · Q3 2015 –good progress continued EUR million Q3 2015 Q3 2014 Q2 2015 9M 2015 9M 2014 2014 Sales 2,530 2,415 2,548 7,564 7,337 9,868 EBITDA 345 344 317 987