UPM aims higher with renewed long-term financial targets

Stock Exchange Release 31.1.2017 10:10 EET

UPM-Kymmene Corporation Other information disclosed according to the rules of the Exchange 31 January 2017 at 10:10 EET

UPM aims higher with renewed long-term financial targets

UPM renews its long-term financial targets. In the new targets,

the business area return targets and the comparable ROE target have been increased.
comparable EBIT growth has been introduced as a new group-level target
a new financial policy on leverage based on net debt/EBITDA has been introduced
the cash flow-based dividend policy remains unchanged.

"Since adopting the current business model of six separate businesses in 2013, we have achieved a clear improvement in our financial performance. The set-up has simultaneously opened attractive growth opportunities for us, as well as enabled us to improve competitiveness in all of the businesses. Now, we are confident we can continue to aim higher," says Jussi Pesonen, President and CEO of UPM.

Business area long-term return targets increased

On the business-area level, UPM has increased the long-term return targets for five of the six business areas.

"The new return targets reflect our increased ambition for business performance. They are credible and sustainable in the long term, over business and investment cycles," says UPM's CFO Tapio Korpeinen.

Business area	Measure	Previous target (%)	New target (%)	Actual 2016 (%)	Actual 2015 (%)	Actual 2014 (%)
UPM Biorefining	ROCE %	10-12	14	12.6	14.6	7.6
UPM Energy	ROCE %**	6	6	5.0	6.7	6.9
UPM Raflatac	ROCE %	18	20	25.5	17.6	15.0
UPM Specialty Papers	ROCE %	10-12	14	12.1	5.5	12.6
UPM Paper ENA	FCF/CE %*	10-12	14	31.0	4.7	12.9
UPM Plywood	ROCE %	10-12	18	22.6	20.9	16.5

ROCE % = Return of capital employed excluding items affecting comparability.
* Free cash flow after investing activities (investments and/or divestments) and restructuring costs.
**UPM Energy assets valued at fair value.

Growth target introduced for group comparable EBIT

A new target has been introduced on the group level: UPM aims to grow its comparable EBIT over the long term.

UPM has a portfolio of five businesses that operate on growing markets and one business that faces declining demand. All of our businesses are competitive and have strong market positions.

"We aim to grow the businesses with strong long-term fundamentals for growth and profitability. At the same time, we aim to maintain strong performance also in the European and North American paper business.

However, we prioritise earnings growth over top-line growth. We will invest in projects with attractive and sustainable returns, supported by a clear competitive advantage or barriers to entry. We also aim to capture opportunities to develop our business and product mix and further improve our cost competitiveness," says Korpeinen.

Measure	New target	Actual 2016 (EURm)	Actual 2015 (EURm)	Actual 2014 (EURm)
Comparable EBIT	Growth	1,143	916	866

Aiming for attractive shareholder returns

UPM has increased its ROE target, now aiming for a 10% return on equity. The previous target was variable: 5 percentage points over a ten-year risk-free investment.

"ROE is a good measure for UPM on the group level, as it also takes into account the financing, taxation and capital structure of the group," says Korpeinen.

Measure	Previous target	New target (%)	Actual 2016 (%)	Actual 2015 (%)	Actual 2014 (%)
Comparable ROE %	5pp over a 10-year risk-free rate	10.0	10.9	9.5	8.5

UPM maintains its cash flow-based dividend policy. UPM aims to pay an attractive dividend: 30-40% of the company's annual operating cash flow per share.

Maintaining a strong balance sheet

UPM aims to maintain a strong balance sheet. Investment grade rating is an important element in UPM's financing strategy. UPM has introduced a new financial policy on leverage:

UPM targets a net debt/EBITDA ratio of approximately 2 times or less.

The previous maximum gearing limit of 90% has been discontinued as redundant.

Measure	Previous limit	New policy	Actual 2016	Actual 2015	Actual 2014
Net debt/EBITDA	N/A	approx. 2x or less	0.73x	1.56x	1.84x
Gearing	<90%>	N/A	14%	26%	32%

For further information, please contact:
Tapio Korpeinen, CFO, tel. +358 2041 50004

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

UPM, Media Relations
Mon-Fri 9:00-16:00 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