Financial Statements Release 2016: UPM finishes a record-strong year with a good quarter

Press Release 31.1.2017 8:35 EET

UPM-Kymmene Corporation Financial Statements Release 31 January 2017 at 9:35 EET

Financial Statements Release 2016: UPM finishes a record-strong year with a good quarter

Q4 2016 highlights

Comparable EBIT increased by 15% to EUR 283 million (247 million).
High maintenance activity resulted in temporarily higher fixed costs and lower operational efficiency.
Growth projects contributed significantly to earnings.
Strong operating cash flow at EUR 405 million (390 million).
The Otepää plywood mill expansion and UPM Kaukas pulp mill investment started production.
In October, UPM announced a new self-adhesive label stock investment in Poland to meet the growing demand in Europe.
In November, UPM announced plans to close 305,000 tonnes of SC paper capacity in Germany and Austria.

2016 highlights

Comparable EBIT increased by 25% to EUR 1,143 million (916 million).
Growth projects contributed significantly to earnings and cost efficiency measures continued on a strong track.
Operating cash flow reached a record high of EUR 1,686 million (1,185 million).
Net debt decreased to a record low of EUR 1,131 million (2,100 million).
UPM closed the Madison Paper Industries in the US in May and sold the Schwedt newsprint mill in Germany in July.
In July, UPM announced expansion of the UPM Kymi pulp mill capacity to 870,000 tonnes.
The Board proposes a dividend of EUR 0.95 (0.75) per share, representing 30% of operating cash flow per share.

Key figures	Q4/2016	Q4/2015	Q3/2016	Q1-Q4/2016	Q1-Q4/2015
Sales, EURm	2,476	2,574	2,445	9,812	10,138
Comparable EBITDA, EURm	349	363	423	1,560	1,350
% of sales	14.1	14.1	17.3	15.9	13.3
Operating profit, EURm	232	220	364	1,135	1,142
Comparable EBIT, EURm	283	247	314	1,143	916
% of sales	11.4	9.6	12.8	11.6	9.0
Profit before tax, EURm	231	214	336	1,080	1,075
Comparable profit before tax, EURm	282	241	288	1,089	849
Profit for the period, EURm	187	193	268	880	916
Comparable profit for the period, EURm	220	215	234	879	734
Earnings per share (EPS), EUR	0.35	0.36	0.50	1.65	1.72
Comparable EPS, EUR	0.41	0.41	0.44	1.65	1.38
Return on equity (ROE), %	9.3	9.7	13.8	10.9	11.9
Comparable ROE, %	10.9	10.8	12.1	10.9	9.5
Return on capital employed (ROCE), %	9.4	8.2	13.4	10.5	10.3
Comparable ROCE, %	11.4	9.2	11.5	10.6	8.3
Operating cash flow, EURm	405	390	506	1,686	1,185
Operating cash flow per share, EUR	0.76	0.73	0.95	3.16	2.22
Equity per share at end of period, EUR	15.43	14.89	14.75	15.43	14.89
Capital employed at the end of period, EURm	10,657	11,010	10,463	10,657	11,010
Net interest-bearing liabilities at end of period, EURm	1,131	2,100	1,479	1,131	2,100
Gearing ratio at end of period, %	14	26	19	14	26
Personnel at the end of period	19,310	19,578	19,559	19,310	19,578

Jussi Pesonen, President and CEO, comments on Q4 and full year 2016 results:

"Year 2016 was financially a record year. It demonstrates the results of our transformation and sets the stage for the future: Today's UPM is earnings growth oriented, capable and financially strong. Now we have the opportunity to seek new horizons and continue to aim higher.

We achieved a lot over the course of the year. We grew with our customers in many growth markets. In addition, our own cost-efficiency measures succeeded well. Our comparable EBIT increased by 25% and our operating cash flow was record strong at EUR 1,686 million. Our net debt was EUR 969 million lower than a year ago, reaching an industry-leading 0.73 times EBITDA. All of this was reflected in the positive share price performance during the year.

Our performance stayed at a good level also during the fourth quarter and comparable EBIT increased to EUR 283 million. As expected, the quarter was impacted by heavy maintenance activity, especially in UPM Biorefining, resulting in temporarily higher fixed costs and lower operational efficiency than in the comparison periods.

The growth projects proceeded well during the autumn. All the first wave growth investments are contributing to our earnings. With further potential, especially in the specialty paper machine in UPM Changshu and the Lappeenranta biorefinery, optimisation continues.

Further growth initiatives are ongoing. The Otepää plywood mill and UPM Kaukas pulp mill expansions started successfully in Q4. Construction of the UPM Kymi pulp mill expansion and UPM Raflatac factory investment in Poland are in full swing. Our discussions with the Government of Uruguay on the prerequisites for long-term industrial development in the country have proceeded in positive spirit. Many important topics are still under discussion, however.

We look confidently to the future. Our competitive position and market demand enable us to expand our growth businesses further and aim higher with our long-term earnings. Today, we have decided on new long-term financial targets reflecting our new ambition level.

UPM's Board of Directors has today proposed that the dividend for 2016 be increased to EUR 0.95 (0.75) per share, which is 30% of the operating cash flow per share".

Outlook for 2017

UPM's profitability improved significantly in 2016 and is expected to remain on a good level in 2017.

Demand growth is expected to continue for most of UPM's businesses, while demand decline is expected to continue for UPM Paper ENA. The focused growth projects continue to contribute gradually to UPM's performance.

Following a deflationary environment in recent years, 2017 is expected to show modest input cost inflation. UPM will continue measures to reduce fixed and variable costs to mitigate this.

2017 starts with lower pulp prices and lower availability of hydropower than in the beginning of 2016.

Webcast and press conference

UPM's President and CEO Jussi Pesonen will present the results in a webcast and a conference call for analysts and investors, held in English language, today at 13:15 EET.

Later in the afternoon, Jussi Pesonen will present the results in a press conference held in Finnish language at the UPM Group Head Office (The Biofore House) in Helsinki, Alvar Aallon katu 1, at 14:30 EET.

Webcast and conference call details:

The conference call can be participated in either by dialling a number in the list below or following the webcast online at www.upm.com or through this link.

Only participants who wish to ask questions in the conference call need to dial in. We recommend that participants start dialling in 5-10 minutes prior to ensure a timely start of the webcast.

The presentation is available at www.upm.com for 12 months after the call.

Conference call title: Financial Statements Release for the year 2016

Direct telephone numbers:

BE: +3224040635
DK: +45 823 331 78
FI: +358981710495
UK: +442031940552
NO: +4723500211
SE: +46856642702
US: +18557161597

International telephone numbers with a pin code 36958264#

AU: +61 29253 5844
AT: +43 19282 258
CH: +44 44580 0083
CN: +86 400 681 5421
DE: +49 030 221 510 067
ES: +34 911 143 608
FR: +33 (0)2 9092 0977
HK: +852 3068 9834
IN: 0018038524634
IR: +353 1696 8154
IT: +39 2 3604 6798
JP: +81 3 4455 9554
NL: +31 20 716 8427
SP: +65 6307 7610

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 profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", 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 manufacturing activities and the achievement of efficiencies 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 products and the pricing pressures thereto, financial 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 geographic markets or fluctuations in exchange and interest rates. The main earnings sensitivities and the group's cost structure are presented on page 18 of the 2015 Annual Report. Risks and opportunities are discussed on pages 17-18 and risks and risk management are presented on pages 84-86 of the report.

UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Stakeholder Relations

UPM, Media Relations
Mon-Fri from 9:00 to 16:00 EET
tel. +358 40 588 3284
media@upm.com

UPM
Through the renewing of the bio and forest industries, UPM is building a sustainable future across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Paper ENA and UPM Plywood. Our products are made of renewable raw materials and are recyclable. We serve our customers worldwide. The group employs around 19,300 people and its annual sales are approximately EUR 10 billion. UPM shares are listed on NASDAQ OMX Helsinki. UPM - The Biofore Company - www.upm.com

UPM Financial Statements Release 2016