UPM's good performance and favourable market demand continued

Stock Exchange Release 25.7.2017 10:15 EEST

UPM-Kymmene Corporation Half year financial report 25 July 2017 at 9:15 EET

UPM's good performance and favourable market demand continued

Q2 2017 highlights

Comparable EBIT increased by 2% to EUR 270 million (264 million in Q2 2016).
Favourable market demand continued.
High maintenance activity and seasonally higher fixed costs impacted comparable EBIT by approximately EUR -20 million compared with Q2 2016, EUR -45 million compared with Q1 2017.
Solid operating cash flow at EUR 269 million (434 million).
Net debt decreased to EUR 1,046 million (1,876 million).
UPM announced new focused investments at the Kaukas pulp mill and Tampere labelstock factory.

H1 2017 highlights

Comparable EBIT increased by 5% to EUR 575 million (545 million in H1 2016).
Five business areas increased their comparable EBIT.
Growth initiatives contributed to the comparable EBIT growth.
Successful mitigation of raw material cost pressures.
Strong operating cash flow at EUR 665 million (775 million).
UPM announced divestments of hydropower assets in Germany, Austria and the US.

Key figures	Q2/2017	Q2/2016	Q1/2017	Q1-Q2/2017	Q1-Q2/2016	Q1-Q4/2016
Sales, EURm	2,464	2,445	2,482	4,946	4,891	9,812
Comparable EBITDA, EURm	349	385	405	755	788	1,560
% of sales	14.2	15.8	16.3	15.3	16.1	15.9
Operating profit, EURm	269	262	312	581	539	1,135
Comparable EBIT, EURm	270	264	305	575	545	1,143
% of sales	11.0	10.8	12.3	11.6	11.1	11.6
Profit before tax, EURm	258	250	299	557	513	1,080
Comparable profit before tax, EURm	258	252	291	550	519	1,089
Profit for the period, EURm	205	198	240	444	425	880
Comparable profit for the period, EURm	205	200	234	440	425	879
Earnings per share (EPS), EUR	0.38	0.37	0.45	0.83	0.80	1.65
Comparable EPS, EUR	0.39	0.37	0.44	0.82	0.79	1.65
Return on equity (ROE), %	10.2	10.1	11.8	10.9	10.9	10.9
Comparable ROE, %	10.2	10.2	11.6	10.8	10.9	10.9
Return on capital employed (ROCE), %	10.8	9.9	12.0	11.2	10.0	10.5
Comparable ROCE, %	10.8	10.0	11.7	11.1	10.1	10.6
Operating cash flow, EURm	269	434	396	665	775	1,686
Operating cash flow per share, EUR	0.50	0.81	0.74	1.25	1.45	3.16
Equity per share at end of period, EUR	15.14	14.36	14.92	15.14	14.36	15.43
Capital employed at the end of period, EURm	9,965	10,403	9,919	9,965	10,403	10,657
Net debt at the end of period, EURm	1,046	1,876	807	1,046	1,876	1,131
Net debt to EBITDA (last 12 m.)	0.68	1.25	0.52	0.68	1.25	0.73
Personnel at the end of period	20,096	20,711	19,301	20,096	20,711	19,310

Jussi Pesonen, President and CEO, comments on the Q2 result:

"UPM's comparable EBIT continued on an increasing track in Q2 despite clearly higher maintenance activity during the quarter. Operating cash flow was solid at EUR 269 million and net debt decreased to EUR 1,046 million.

Market demand was good and delivery growth continued in most businesses during the quarter. As expected, the higher maintenance activity resulted in temporarily higher fixed costs and lower operational efficiency. Moderate cost inflation continued but was mitigated by our own cost reduction measures and targeted price increases. Overall business conditions were favourable resulting in good performance.

UPM Biorefining benefitted from higher pulp prices, strong pulp demand and improved operational performance in UPM Biofuels. Profitability improved despite the maintenance shutdown at the UPM Pietarsaari pulp mill. UPM Raflatac and UPM Plywood maintained strong profitability and continued to show solid sales growth. UPM Specialty Papers achieved an excellent result. Thanks to the new specialty paper machine at UPM Changshu we have been able to grow the release liner business and improve our product mix even faster than expected.

UPM Paper ENA achieved a satisfactory result in the quarter most impacted by seasonal factors. Demand decline in Europe remained moderate. UPM Energy suffered from poor hydrological availability and prolonged maintenance activity at Olkiluoto power plant in Finland. As a result, power generation was exceptionally low during the quarter.

The focused growth projects over the recent years have been highly successful and have contributed to our profits and returns well. During the second quarter we introduced two further focused investments: the Kaukas pulp mill efficiency and competitiveness improvement in Lappeenranta and the UPM Raflatac specialty labels expansion in Tampere, both of which are in Finland.

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

2017 has started well for us. Five out of our six businesses improved their performance during the first half of the year. Our businesses are performing well, and our cash flow and balance sheet enable us to distribute attractive dividend and simultaneously invest in profitable growth. We look confidently into the future and our opportunities for creating value from bioeconomy."

Outlook for 2017

UPM's profitability improved significantly in 2016 and is expected to continue 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.

Q3 2017 is expected to include significantly less maintenance activity than Q2 2017 in UPM Biorefining, UPM Paper ENA and UPM Energy.

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's Half Year Financial Report 2017

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 65321220#

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: +332 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 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

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.