UPM FOREST OF NEW OPPORTUNITIES UBS Global Paper And Forest Products Conference September 12, 2012

Tapio Korpeinen

CFO

| © UPM

What are we targeting?

• More than 50% of sales from well performing

growth businesses in 5+ years

• Drive strong cash flow through improved margin,

release capital from mature businesses

• Maintain solid balance sheet and strong cash flow

• Increase UPM’s earnings and valuation

2

| © UPM | © UPM

Strategic direction for different businesses

Paper

Improve margins to

maximize cash flow

in Europe

Grow in emerging

markets

Pulp

Grow globally in Pulp

Energy

Grow in advanced

biofuels

Expand in low emission

power generation

3

Engineered materials

Grow globally in Label

Develop new

businesses

| © UPM

0

2 000

4 000

6 000

8 000

2007 2011 "5+ years"

Actions have already reshaped the

business portfolio

4

3.1bn

4.3bn

Energy Biofuels Pulp Paper China,

label papers Label

+40%

0

2 000

4 000

6 000

8 000

2007 2011 "5+ years"

7.6bn 6.9bn -10%

Paper other Timber Plywood

Sales, EURm

Average

EBITDA margin 23%

ROCE 15%

Average

EBITDA margin 5%,

generating free cash flow

Gro

wth

busin

esses

Matu

re b

usin

esses

Sales, EURm

| © UPM

Global pulp demand grows

UPM aims to grow in cost competitive pulp

5

World bleached market pulp demand by end-use and region

*Source: Hawkins Wright. End use markets for bleached kraft pulp, September 2011

WE NA China ROW Total

P&W 14% 5% 10% 9% 39%

Tissue 9% 6% 4% 8% 28%

Packaging 2% 1% 3% 2% 8%

Speciality 7% 2% 3% 4% 16%

Fluff 2% 3% 1% 4% 10%

35% 16% 21% 27% 100%

= declining market segment

= growing market segment

| © UPM

UPM has world class profitability in Pulp

6

200

300

400

500

600

700

800

900

1 000

1 100

0 10 000 20 000 30 000 40 000 50 000 60 000

Cumulative capacity, 1000 t/a

USD/t Market pulp producers' delivered cash costs to Rotterdam

UPM Finland

UPM Uruguay

Source: Pöyry Q1/2012

World softwood

market pulp

World hardwood

market pulp

1 USD = 0,76 EUR

1 EUR = 1,32 USD

| © UPM

0

500

1 000

1 500

2 000

2 500

3 000

02 03 04 05 06 07 08 09 10 11 15e

UPM grows in cost competitive low emission

energy generation

MW

+OL3

7

CO2 neutral electricity capacity

Nuclear

Hydro

Biomass

• During the past decade:

– 84% growth in biomass-based

electricity generation

– 15% growth in hydropower

• 79% of UPM’s power generation

is CO2 neutral

• Biggest on-going project is the

OL3 nuclear power plant

| © UPM

UPM creates new business in advanced

wood-based biodiesel

• UPM invests in the world’s first advanced wood-based biodiesel

production in Lappeenranta, Finland

− Total investment of approximately EUR 150m

− Production 100,000 tonnes/a of advanced biodiesel

− Production starts in 2014

• Main product is advanced, 2nd generation biodiesel

• Raw material is sustainably produced crude tall oil,

a residue from pulp production

• Technology is based on UPM’s innovations and

long term development work

• Potential to grow into a significant new business

with good profitability

8

| © UPM

Consistent growth in Label both in emerging

markets and in higher value added products

9

0

300

600

900

1 200UPM Raflatac sales EURm

| © UPM

UPM grows in China and in the fast

developing label materials segment

• Increase presence in the fast growing Asian

paper segments and strengthen position in the

label materials value chain

• UPM will build a new paper machine at the

Changshu mill in China

− Capable of producing up to 360,000 tonnes of uncoated

woodfree grades and high quality label papers

• Total investment CNY 3,000m (EUR 390m),

start-up in Q4 2014

• Investment supports the good profitability

of UPM’s growth businesses

10

| © UPM

Further improvement in cost competitiveness

in Paper through Myllykoski acquisition

Cost synergies are expected

to total EUR 200m

H2

2011

H1

2012

H2

2012

H1

2013

• In H1 2012, synergy benefits

reduced Paper business’

costs by about EUR 70m

• More than EUR 150m

synergies are expected to

affect the 2012 results

• Full cost synergies of

EUR 200m are expected to

be visible in 2013

Fixed

costs

Variable

costs

11

| © UPM

Paper prices close to marginal producers’ cash costs

– UPM optimises cash flow through low costs and

low investment needs

2004 2005 2006 2007 2008 2009 2010 2011 2012

12

Cash cost of a marginal producer

Price

EUR/t

Source: PPI, RISI, Pöyry

| © UPM

Cash generative businesses

-500

0

500

1 000

1 500Cumulative cash flow from businesses after capex, 2009-2011 EUR m

Average 2009-2011

cash flow (* after capex,

% of BA capital employed

23%

14%

15%

8%

3%

-6%

13

*) before interest and taxes

| © UPM

0

2 000

4 000

6 000

8 000

2007 2011 "5+ years"

Expanding well performing growth businesses

with cash flow from mature businesses

14

3.1bn

4.3bn

Energy Biofuels Pulp Paper China,

label papers Label

+40%

0

2 000

4 000

6 000

8 000

2007 2011 "5+ years"

7.6bn 6.9bn -10%

Paper other Timber Plywood

Growth actions

• Paper machine in China

• Biofuel refinery

• Gascogne labelstock

acquisition

Actions in mature areas

• Divestment of

Metsä Fibre shares

• Divestment of

packaging papers

• Myllykoski synergies

and asset restructuring

• Exit of Stracel paper mill

• Schongau CHP

• Plywood, Timber

restructuring

Sales, EURm

(*

*) This is not a forecast, but one

scenario from some of UPM’s

existing growth opportunities

Average

EBITDA margin 23%

ROCE 15%

Average

EBITDA margin 5%,

generating free cash flow

Gro

wth

busin

esses

Matu

re b

usin

esses

Sales, EURm

FINANCIAL PERFORMANCE

| © UPM

Operating profit excluding special items

16

Profitability over two economic slowdowns

Europe is in second recession in four years

-5

0

5

10

15

2000 2005 2010 2015 2020

Europe

China

USA

Real GDP y-o-y growth %

Sources: Global Insight

8.2

6.0

7.2

8.3

5.4

3.5

6.8

5.2

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 H1/12

% of sales

Target over 10%

| © UPM

0

200

400

600

800

1 000

1 200

1 400

2005 2006 2007 2008 2009 2010 2011 LTM Q2/12

Consistently strong cash flow

17

Operating cash flow

Cash flow

after investing

activities

Cash flow EUR million

| © UPM

Low needs for major investments to

maintain existing assets

18

0

200

400

600

800

1 000

1 200

06 07 08 09 10 11 12e 13e

€ million

Operational investments

350

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Estimate

Myllykoski

acquisition

340

500

Projects in

2012-13

Biofuels

China PM

Schongau

CHP

Low

investments

in mature

businesses

| © UPM

0,20

0,30

0,40

0,50

0,60

0,70

0,80

0,90

0

200

400

600

800

1 000

1 200

1 400

2006 2007 2008 2009 2010 2011

Cash flow based dividend

Cash flow,

EUR million

EUR per

share

0.40

0.45

0.55

Actual / proposed dividend

19

Dividend policy

• at least 1/3 of net cash flow from

operating activities less

operational capital expenditure

• net cash flow calculated as an

average over three years

Dividend for 2011

• EUR 0.60 (0.55) per share

Operational capex

Minimum dividend by the dividend policy

Cash flow after operational capex

0.75 0.60

| © UPM

Strong balance sheet

20

2 500

3 000

3 500

4 000

4 500

5 000

5 500

6 000

2008

2009

2010

2011

2012

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Net debt, EUR million Net debt / EBITDA (trailing 12 months)

Net debt

Net debt / EBITDA

2.6

2.2

2 500

3 000

3 500

4 000

4 500

5 000

5 500

6 000

2008

2009

2010

2011

2012

20

30

40

50

60

70

80

90

Net debt, EUR million Gearing %

Net debt

Gearing

46

44

SUMMARY

| © UPM

Experience and execution(*

22

M&A Investments Closures, restructuring

Uruguay acquisition Changshu paper machine Albruck paper mill

Myllykoski acquisition Investment in biodiesel refinery Myllykoski paper mill

Acquisition of PVO shares Schongau CHP Kajaani paper mill

Divestment of packaging

papers

Kaukas CHP Tervasaari pulp mill

Acquisition of Gascogne and

Gumtac in Label

Caledonian CHP Miramichi paper mill

Divestment of Metsä Fibre

Kymi pulp mill rebuild Voikkaa paper mill

Divestment of RFID business Label factories in Poland, US,

China

Restructuring of Label’s

European operations

Divestment of Tikhvin Materials recovery facility in

Shotton paper mill

Restructuring in Plywood and

Timber

*) some recent examples

| © UPM

What are we targeting?

• More than 50% of sales from well performing

growth businesses in 5+ years

• Drive strong cash flow through improved margin,

release capital from mature businesses

• Maintain solid balance sheet and strong cash flow

• Increase UPM’s earnings and valuation

23