Interim report Q2/2016: UPM's comparable EBIT increased by 21%, cash flow reaching new highs

UPM-Kymmene Corporation      Stock Exchange Release         26 July 2016 at 9:15 EET

Interim report Q2/2016:

UPM's comparable EBIT increased by 21%, cash flow reaching new highs

Q2 2016 highlights

• Comparable EBIT increased by 21% to EUR 264 million (219 million).
• Growth projects contributed to earnings, driving delivery growth in UPM Biorefining, UPM Raflatac and UPM Paper Asia.
• Cost-efficiency measures continued on a strong track, variable and fixed costs decreased significantly.
• Operating cash flow was strong at EUR 434 million (324 million).

H1 2016 highlights

• Comparable EBIT increased by 27% to EUR 545 million (429 million).
• Operating cash flow increased to EUR 775 million (432 million).
• Net debt decreased to EUR 1,876 million (2,635 million), and gearing to 24% (35%).
• UPM sold the Schwedt newsprint mill in Germany in July and closed the Madison SC paper mill in the US in May.
• In July, UPM announced expansion of the UPM Kymi pulp mill capacity to 870,000 tonnes, continuing its focused growth investments.

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

"The first half of 2016 gives further evidence that we are on the right track. We have a strong business model with six agile businesses, efficient capital allocation and an industry-leading balance sheet. For the future, this ensures good opportunities for focused investments in growth, continued strong cash flow and an attractive dividend.

In the second quarter, our growth projects and cost-efficiency measures continued to deliver and our comparable EBIT grew by 21% year-on-year. Cash flow strengthened even further and cumulatively reached a record of EUR 1.5 billion over the past 12 months. By the end of the quarter, our net debt was EUR 759 million lower than a year ago.

UPM businesses enjoyed mostly favourable market demand during the quarter. We are responding to the market demand with timely growth investments in UPM Biorefining, UPM Paper Asia, UPM Raflatac and UPM Plywood. At the same time, we are taking good care of our cost efficiency and the cost take-outs continue on the previous track. This is evident in our improved performance.

UPM Paper ENA was successful in releasing cash by improving profitability, reducing working capital and selling assets, in line with its role. In UPM Energy, the advantageous hedges from previous years have now largely rolled over and the profitability is on a competitive level despite the current market situation.

Going forward we have several growth projects in the pipeline. We are continuing to ramp up production at the new UPM Changshu speciality paper machine, as well as the Lappeenranta biorefinery, following its maintenance shutdown in Q2. Ongoing projects in the Otepää plywood mill in Estonia and UPM Kaukas pulp mill in Finland will be finalised by the end of the year. In July, we announced a EUR 98 million expansion investment in the UPM Kymi pulp mill in Finland. After this project we will have increased our total annual pulp production capacity by more than 500,000 tonnes since 2013, with low investment cost. We are also considering prospects for long-term development in Uruguay."

Outlook for 2016

UPM's profitability improved in 2015 and the improvement is expected to continue in 2016. The business performance is underpinned by the company's growth projects and continuous cost efficiency measures.

UPM's growth projects are expected to contribute positively to the company's earnings in 2016, compared with 2015. UPM continues its measures to reduce variable and fixed costs in 2016. Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at the same level as at the end of 2015.

Webcast and press conference

UPM's President and CEO Jussi Pesonen will present the 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: UPM Interim Report for January - June 2016

**

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 18 of the 2015 Annual Report. Risks and opportunities are discussed on pages 17-18 and risks and risk management are presented on pages 84-86 of the report.

**

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

UPM, Media Relations
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 Paper Asia, UPM Paper Europe and North America and UPM Plywood. Our products are made of renewable raw materials and are recyclable. We serve our customers worldwide. The group employs around 19,600 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

Follow UPM on Twitter | LinkedIn | Facebook | YouTube | Instagram | upmbiofore.com