Interim report Q3/2014: UPM achieves EUR 200 million profit improvement target ahead of schedule –Net debt at lowest level in 15 years

Q3 2014 compared with Q3 2013

• Earnings per share excluding special items were EUR 0.32 (0.26), and reported EUR 0.34 (0.26)
• Operating profit excluding special items increased to EUR 235 million, 9.7% of sales (194 million, 7.8% of sales), due to the success of the profit improvement programme
• EBITDA was EUR 346 million, 14.3% of sales (311 million, 12.6% of sales)
• The full targeted annualised cost savings of EUR 200 million were achieved in Q3 2014, ahead of schedule

Q1–Q3 2014 compared with Q1–Q3 2013

• Earnings per share excluding special items were EUR 0.85 (0.64), and reported EUR 0.95 (0.57)
• Operating profit excluding special items increased to EUR 617 million, 8.4% of sales (476 million, 6.4% of sales), due to the success of the profit improvement programme
• EBITDA was EUR 957 million, 13.0% of sales (853 million, 11.4% of sales)
• Growth projects progressed in UPM Biorefining, UPM Paper Asia and UPM Raflatac
• Strong operating cash flow at EUR 779 million (473 million), net debt decreased to EUR 2,726 million

Key figures	Q3/2014	Q3/2013	Q2/2014	Q1-Q3/2014	Q1-Q3/2013	Q1-Q4/2013
Sales, EURm	2,415	2,472	2,441	7,337	7,466	10,054
EBITDA, EURm	346	311	298	957	853	1,155
% of sales	14.3	12.6	12.2	13.0	11.4	11.5
Operating profit (loss), EURm	236	187	176	603	414	548
excluding special items, EURm	235	194	186	617	476	683
% of sales	9.7	7.8	7.6	8.4	6.4	6.8
Profit (loss) before tax, EURm	214	166	159	610	360	475
excluding special items, EURm	213	173	169	558	422	610
Profit (loss) for the period, EURm	182	138	129	504	299	335
Earnings per share, EUR	0.34	0.26	0.25	0.95	0.57	0.63
excluding special items, EUR	0.32	0.26	0.26	0.85	0.64	0.91
Operating cash flow per share, EUR	0.57	0.55	0.40	1.47	0.90	1.39
Equity per share at end of period, EUR	14.33	14.01	13.76	14.33	14.01	14.08
Gearing ratio at end of period, %	36	45	40	36	45	41
Net interest-bearing liabilities at end of period, EURm	2,726	3,301	2,925	2,726	3,301	3,040

Jussi Pesonen, President and CEO comments on the result:

"UPM posted a strong third quarter 2014 thanks to the success of the profit improvement programme and very good operational efficiency in all businesses. I'm particularly pleased with our cash flow performance and balance sheet as this provides the foundation for both dividend growth and the ability to continue the transformation of the company.

Our new business structure has been operational for 12 months now and the profit improvement programme we started with the new organisation has been completed ahead of schedule. These 12 months have shown that this organisation is capable of delivering results. Our operating profit has improved by 21% compared to Q3 in 2013 and by 30% during the first nine months of 2014.

Compared to Q3 2013, UPM Paper ENA (Europe and North America), UPM Paper Asia and UPM Plywood were all successful in their efforts to improve profitability and lower costs. In UPM Paper ENA, the operating profit also included energy-related refunds in Europe.

In UPM Biorefining, flawless operational efficiency enabled a good result despite the headwind from prices.

In addition, UPM Raflatac managed to increase its operational efficiency and delivery volumes.

In UPM Energy, profitability continued on a good level.

We have reached our 200 M€ profit improvement target ahead of schedule, and we have identified further improvement potential. Also the growth outlook, particularly in Europe, remains weak. Therefore, it is time to set a new profit improvement goal. We are preparing a new plan including fixed and variable cost savings. We are analysing the means and tools at our disposal and will communicate a new profit improvement target in the next few weeks.

As for our strategic growth projects, we are well on track in terms of achieving our target of EUR 200 million of additional EBITDA.

The Lappeenranta biorefinery, the first of its kind in the world, will start producing clean, advanced renewable diesel during the fourth quarter. In Pulp, the construction works at the Kymi mill extension are on schedule. Investments in both wood-free speciality grades and labelling materials in China, as well as UPM Raflatac's expansion in the self-adhesive labels are also making solid progress.

Overall, UPM is in a strong position to undertake future opportunities. We have a new profit improvement programme in preparation and our growth projects proceed well. Furthermore, our cash flow and balance sheet are very strong, enabling the continuing transformation of the company," said Pesonen.

Outlook for 2014

Growth in the European economy has been modest in 2014, but has improved over last year. The outlook for economic growth in Europe has weakened somewhat during the autumn. In the US, growth has been stable at a moderate level, whereas growth is expected to continue in the developing economies.

This environment is expected to be supportive for the global pulp and label materials demand, as well as paper demand in Asia. The graphic paper demand in Europe is expected to decline moderately. The current hydrological situation in Finland is below the long term average level. Based on forward prices, electricity prices in Finland in H2 2014 are expected to be slightly lower than in H2 2013.

UPM's business outlook is broadly stable.

In H2 2014, UPM's performance is expected to be underpinned by similar or slightly better performance in UPM Paper ENA, UPM Paper Asia, UPM Raflatac, UPM Plywood and UPM Energy, when compared to H2 2013.

UPM Biorefining's performance in H2 2014 compared to H2 2013 continues to be impacted by lower chemical pulp prices. Commercial production of renewable diesel at the Lappeenranta refinery is expected to start during Q4 2014, but the impact on UPM Biorefining's earnings during H2 2014 is expected to be minor.

Q4 2014 is expected to be impacted by seasonally higher fixed costs, the year-end stoppages in the company's paper mills as well as the maintenance shutdown of the Fray Bentos pulp mill, when compared to Q3 2014.

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