Excellent quarter, further steps in transformation

UPM-Kymmene Corporation      Interim Report          24 October 2017 at 09:35 EET

Excellent quarter, further steps in transformation

Q3 2017 highlights

  • Comparable EBIT increased by 12% to EUR 351 million (314 million in Q3 2016).
  • Good growth in deliveries and strong operational efficiency with no significant maintenance activity.
  • Strong operating cash flow at EUR 486 million (506 million).
  • Net debt decreased to EUR 623 million (1,479 million).
  • UPM announced a new focused growth project at the UPM Chudovo plywood mill in Russia.
  • UPM announced the next step towards entering a new sustainable biochemicals business.

Q1-Q3 2017 highlights

  • Comparable EBIT increased by 8% to EUR 926 million (859 million in Q1-Q3 2016).
  • Solid profit performance continued through a turn in input cost environment.
  • Growth initiatives contributed to the comparable EBIT growth.
  • Strong operating cash flow at EUR 1,151 million (1,281 million).
  • UPM announced focused growth investments at the Kaukas pulp mill and the Tampere label stock factory.
  • UPM announced divestments of hydropower assets in Germany, Austria and the US.
Key figures Q3/2017 Q3/2016 Q2/2017 Q1-Q3/2017 Q1-Q3/2016 Q1-Q4/2016
Sales, EURm 2,493 2,445 2,464 7,439 7,336 9,812
Comparable EBITDA, EURm 425 423 349 1,180 1,210 1,560
  % of sales 17.1 17.3 14.2 15.9 16.5 15.9
Operating profit, EURm 379 364 269 960 903 1,135
Comparable EBIT, EURm 351 314 270 926 859 1,143
  % of sales 14.1 12.8 11.0 12.4 11.7 11.6
Profit before tax, EURm 357 336 258 914 848 1,080
  Comparable profit before tax, EURm 328 288 258 878 807 1,089
Profit for the period, EURm 286 268 205 730 693 880
Comparable profit for the period, EURm 267 234 205 707 659 879
Earnings per share (EPS), EUR 0,54 0.50 0.38 1.37 1.30 1.65
  Comparable EPS, EUR 0.50 0.44 0.39 1.32 1.23 1.65
Return on equity (ROE), % 13.9 13.8 10.2 11.7 11.7 10.9
Comparable ROE, % 13.0 12.1 10.2 11.4 11.1 10.9
Return on capital employed (ROCE), % 14.8 13.4 10.8 12.2 11.0 10.5
Comparable ROCE, % 13.6 11.5 10.8 11.7 10.5 10.6
Operating cash flow, EURm 486 506 269 1,151 1,281 1,686
Operating cash flow per share, EUR 0.91 0.95 0.50 2.16 2.40 3.16
Equity per share at end of period, EUR 15.61 14.75 15.14 15.61 14.75 15.43
Capital employed at the end of period, EURm 10,098 10,463 9,965 10,098 10,463 10,657
Net debt at the end of period, EURm 623 1,479 1,046 623 1,479 1,131
Net debt to EBITDA (last 12 m.) 0.41 0.94 0.68 0.41 0.94 0.73
Personnel at the end of period 19,335 19,559 20,096 19,335 19,559 19,310

Jussi Pesonen, President and CEO, comments on the Q3 result:

"The third quarter was another excellent quarter for UPM. The markets were favourable and we achieved good growth in delivery volumes. We also succeeded in mitigating input cost inflation with sales price increases and cost efficiency measures. Our operational efficiency was strong in a quarter with no significant maintenance activity.

Our comparable EBIT increased by 12 per cent to EUR 351 million. Operating cash flow was strong at EUR 486 million and net debt decreased to EUR 623 million, representing 0.4 times EBITDA.

UPM Biorefining benefitted from higher pulp prices and good delivery growth. UPM Raflatac, UPM Specialty Papers and UPM Plywood were able to largely offset higher input costs by increasing deliveries and sales prices. In UPM Energy the hydropower generation recovered to normal level.

UPM Paper ENA was able to report the best quarter of this year, despite the significant increase in fibre costs. This is the outcome of consistent and continuous work for cost efficiency and competitiveness as well as the stringent execution of commercial strategies. In order to succeed also next year, we need to take timely measures in capacity management and cost savings.

In addition to our strong performance we are pleased to see good progress in our transformation, including our initiatives for future growth.

This morning we announced another growth project in our top-performing plywood business. The expansion of the UPM Chudovo plywood mill in Russia will enable us to grow in attractive plywood segments in a highly competitive way. Our ongoing growth projects in pulp and in self-adhesive labels are proceeding well and will strengthen our position in the growing markets in 2018. UPM Kymi pulp mill expansion is already starting production in the fourth quarter.

UPM aims to grow in new biomolecule businesses. I'm pleased to say that the Lappeenranta Biorefinery has now reached the designed capacity of renewable diesel and naphtha and generates a good financial return. The biorefinery was the first significant investment in new innovative wood-based products. Today we reported on our progress towards entering a new sustainable biochemicals business. After more than five years of research and piloting we have now entered the basic engineering phase, targeting industrial scale production of biochemicals in Germany.

When it comes to longer-term growth opportunities in pulp, the discussions continue with the Government of Uruguay concerning infrastructure development and other local prerequisites for a potential pulp mill investment.

Despite seasonal quarterly variations, we have consistently continued our improvement trend in profitability and our financial standing for several years. The third quarter marks the 18th consecutive quarter of improving profits. At the same time with the improving performance, we have proceeded step by step in our business transformation, and this work will continue."

Outlook for 2017

UPM's profitability improved significantly in 2016 and is expected to continue on a good level in 2017. Comparable EBIT is expected to increase in 2017 compared with 2016.

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 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.

Q4 2017 is expected to include more maintenance activity than Q3 2017 in UPM Biorefining and UPM Paper ENA.

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 the event in order 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: UPM Interim Report for January - September 2017

Direct telephone numbers:

BE: +3224040635
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SE: +46856642702
US: +18557161597
NO: +4723500211

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IT: +39 2 3604 6798   
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SP: +65 6307 7610   
FR: +33 29092 0977   

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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 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

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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.

UPM Interim Report Q3 2017