Financial Statements Release 2017: Excellent finish to the record-strong year 2017

Stock Exchange Release 31.1.2018 11:45 EET

UPM-Kymmene Corporation Financial Statements Release 31 January 2018 at 09:45 EET

Financial Statements Release 2017: Excellent finish to the record-strong year 2017

Q4 2017 highlights

Comparable EBIT increased by 29% to EUR 366 million (283 million in Q4 2016).
Sales prices and delivery growth boosted earnings, outstripping the impact of higher input costs and unfavourable currencies.
Strong operating cash flow at EUR 407 million (405 million).
Net debt decreased to EUR 174 million (1,131 million).
UPM and the Government of Uruguay signed an agreement on local prerequisites for a possible new pulp mill.
UPM announced the next step towards entering a new sustainable biochemicals business.
UPM announced a new growth project at the UPM Chudovo plywood mill in Russia.
UPM closed graphic paper capacity in the US and announced plans to optimise operations in Germany.
UPM Kymi pulp mill expansion and the UPM Raflatac expansion in Poland were completed.

2017 highlights

Comparable EBIT increased by 13% to EUR 1,292 million (1,143 million in 2016).
Strong profit performance continued through a turn in input cost environment.
Higher delivery volumes contributed to the comparable EBIT growth.
Strong operating cash flow at EUR 1,558 million (1,686 million).
The Board proposes a dividend of EUR 1.15 (0.95) per share, representing 39% of operating cash flow per share.
UPM started focused growth investments at the Kaukas pulp mill and the Tampere label stock factory.
UPM divested UPM Paper ENA's hydropower assets in Germany, Austria and the US.
UPM closed a total of 433,000 tonnes of graphic paper capacity during 2017, targeting total annual cost savings of EUR 60 million.

Key figures	Q4/2017	Q4/2016	Q3/2017	Q1-Q4/2017	Q1-Q4/2016
Sales, EURm	2,571	2,476	2,493	10,010	9,812
Comparable EBITDA, EURm	451	349	425	1,631	1,560
% of sales	17.5	14.1	17.1	16.3	15.9
Operating profit, EURm	299	232	379	1,259	1,135
Comparable EBIT, EURm	366	283	351	1,292	1,143
% of sales	14.2	11.4	14.1	12.9	11.6
Profit before tax, EURm	273	231	357	1,186	1,080
Comparable profit before tax, EURm	340	282	328	1,218	1,089
Profit for the period, EURm	244	187	286	974	880
Comparable profit for the period, EURm	297	220	267	1,004	879
Earnings per share (EPS), EUR	0.46	0.35	0.54	1.82	1.65
Comparable EPS, EUR	0.56	0.41	0.50	1.88	1.65
Return on equity (ROE), %	11.5	9.3	13.9	11.5	10.9
Comparable ROE, %	14.0	10.9	13.0	11.9	10.9
Return on capital employed (ROCE), %	13.2	9.4	14.8	12.5	10.5
Comparable ROCE, %	15.9	11.4	13.6	12.8	10.6
Operating cash flow, EURm	407	405	486	1,558	1,686
Operating cash flow per share, EUR	0.76	0.76	0.91	2.92	3.16
Equity per share at end of period, EUR	16.24	15.43	15.61	16.24	15.43
Capital employed at the end of period, EURm	9,777	10,657	10,098	9,777	10,657
Net debt at the end of period, EURm	174	1,131	623	174	1,131
Net debt to EBITDA (last 12 m.)	0.11	0.73	0.41	0.11	0.73
Personnel at the end of period	19,111	19,310	19,335	19,111	19,310

Jussi Pesonen, President and CEO, comments on Q4 and full year 2017 results:

"2017 was a record year and its last quarter was our 19^th consecutive quarter of earnings growth. This was the result of favourable market conditions, timely growth investments and successful mitigation of input cost increases. Once again, our business model, performance culture and capex effectiveness delivered excellent results.

Our comparable EBIT in 2017 grew by 13%. Our cash flow was consistently strong, and we reduced our net debt by EUR 957 million over the course of the year, ending at a record low of EUR 174 million.

We finished the year with an excellent fourth quarter. We were able to increase prices and achieve good growth in delivery volumes, which in this quarter outstripped the impact of higher input costs and unfavourable currencies. Our comparable EBIT in Q4 increased by 29% to EUR 366 million.

UPM Biorefining benefitted from higher pulp prices and good delivery growth during the quarter. Kaukas, Pietarsaari and Fray Bentos pulp mills and the Lappeenranta biorefinery all set records for annual production. UPM Raflatac, UPM Specialty Papers and UPM Plywood were able to offset higher input costs by increasing deliveries and sales prices. At UPM Energy, the hydropower generation recovered to above normal level. UPM Paper ENA also reported a strong end to the year, despite rising fibre costs.

Since the introduction of UPM business model in 2013, we have achieved a clear improvement in business performance, attractive returns for our growth investments and a truly industry-leading balance sheet. Today we are proud to have six strong business areas, which provide us with a wealth of future opportunities.

Going forward we will maintain our performance focus supported by continuous improvement culture and innovation. We will also continue to grow our businesses with attractive focused growth investments. Today we announced the latest news on UPM Specialty Papers' growth plans.

Furthermore, we are now well-positioned for transformative prospects. I am pleased that we have reached a cornerstone agreement with the Government of Uruguay, outlining the local prerequisites for a potential pulp mill investment. The infrastructure projects and the pre-engineering of the mill are in progress. For UPM's pulp business, the potential mill would imply a step change in business size and earnings.

Another opportunity for transformation comes with the emerging biomolecules businesses, biofuels and biochemicals. During the fourth quarter, we started a basic engineering study regarding a potential industrial scale biochemical refinery in Germany. Entering the biochemicals business could provide UPM with significant growth platform for decades to come.

Our objective is earnings growth and therefore, we will maintain our high standards when it comes to return requirements for growth investments.

UPM is in better standing than ever: in the coming years we can allocate more capital to growing and transforming the company while simultaneously increasing the distribution to our shareholders and maintaining headroom in our strong balance sheet. Today, UPM's Board of Directors has proposed a dividend of EUR 1.15 (0.95) per share for 2017, representing 39% of operating cash flow per share and up by 21% from last year.

All in all, UPM is well-positioned for 2018 and beyond. UPM businesses today and in the future provide sustainable and safe solutions for the growing global consumer demand. Bioeconomy offers us limitless opportunities for value creation and growth."

Outlook for 2018

UPM reached record earnings in 2017. Fundamentals for UPM businesses in 2018 continue to be favourable.

Healthy demand growth is expected to continue for most of UPM's businesses in 2018, while modest demand decline is expected to continue for UPM Paper ENA. Sales prices are expected to increase in most of UPM's businesses, compared with 2017.

Input costs are expected to continue increasing in 2018, compared with 2017. UPM will continue measures to reduce fixed and variable costs to mitigate this. 2018 starts with less favourable currencies than 2017.

Q1 2018 results are expected to be impacted by temporary wood harvesting limitations in Northern Europe caused by unusually warm and wet weather in late 2017 and the beginning of 2018.

Webcast and press conference

UPM's President and CEO Jussi Pesonen will present the financial 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. All participants can view the webcast presentation online. 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 2017

Direct telephone numbers:

BE: +3224040635

DK: +45 823 331 78

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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 115 of the 2016 Annual Report. Risks and opportunities are discussed on pages 22-23 and risks and risk management are presented on pages 98-99 of the report.

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

UPM leads the forest-based bioindustry into a sustainable, innovation-driven and exciting future across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Paper ENA and UPM Plywood. UPM provides sustainable and safe solutions to the growing global consumer demand. Products are made of renewable and recyclable materials. The group employs around 19,100 people worldwide 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 presents certain performance measures of performance, financial position and cash flows, which are alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority (ESMA). The definitions of alternative performance measures are presented in notes to the consolidated financial statements in UPM Annual Report.