UPM-Kymmene - Interim report (Q1 and Q3)

Interim report Q3/2016: Performance improvement continued into second half of 2016 - excellent, seasonally strong Q3

UPM-Kymmene Corporation      Stock Exchange Release         25 October 2016 at
9:30 EET

Interim report Q3/2016:

Performance improvement continued into second half of 2016 - excellent,
seasonally strong Q3

Q3 2016 highlights
  * Comparable EBIT increased by 31% to EUR 314 million (240 million).
  * Growth projects contributed significantly to earnings, driving delivery
    growth in UPM Biorefining, UPM Raflatac and UPM Specialty Papers.
  * UPM Paper ENA results were seasonally strong, with high operational
    efficiency and exceptionally low fixed costs.
  * Cost-efficiency measures continued on a strong track.
  * Record strong operating cash flow at EUR 506 million (363 million).

Q1-Q3 2016 highlights
  * Comparable EBIT increased by 28% to EUR 859 million (669 million).
  * Operating cash flow increased to EUR 1,281 million (795 million).
  * Net debt decreased to EUR 1,479 million (2,465 million) and gearing to 19%
    (31%).
  * UPM sold the Schwedt newsprint mill in Germany in July.
  * In July, UPM announced expansion of the UPM Kymi pulp mill capacity to
    870,000 tonnes.
  * In October, UPM announced a new self-adhesive label stock investment in
    Poland to meet the growing demand in Europe.

 Key figures           Q3/2016 Q3/2015 Q2/2016 Q1-Q3/2016 Q1-Q3/2015 Q1-Q4/2015

 Sales, EURm             2,445   2,530   2,445      7,336      7,564     10,138

 Comparable EBITDA,
 EURm                      423     345     385      1,210        987      1,350

   % of sales             17.3    13.6    15.8       16.5       13.0       13.3

 Operating profit,
 EURm                      364     513     262        903        922      1,142

 Comparable EBIT, EURm     314     240     264        859        669        916

   % of sales             12.8     9.5    10.8       11.7        8.8        9.0

 Profit before tax,
 EURm                      336     498     250        848        861      1,075

   Comparable profit
 before tax, EURm          288     225     252        807        608        849

 Profit for the
 period, EURm              268     408     198        693        723        916

 Comparable profit for
 the period, EURm          234     189     200        659        519        734

 Earnings per share
 (EPS), EUR               0.50    0.77    0.37       1.30       1.36       1.72

   Comparable EPS, EUR    0.44    0.35    0.37       1.23       0.97       1.38

 Return on equity
 (ROE), %                 13.8    21.0    10.1       11.7       12.5       11.9

 Comparable ROE, %        12.1     9.7    10.2       11.1        9.0        9.5

 Return on capital
 employed (ROCE), %       13.4    18.4     9.9       11.0       10.9       10.3

 Comparable ROCE, %       11.5     8.6    10.0       10.5        7.9        8.3

 Operating cash flow,
 EURm                      506     363     434      1,281        795      1,185

 Operating cash flow
 per share, EUR           0.95    0.68    0.81       2.40       1.49       2.22

 Equity per share at
 end of period, EUR      14.75   14.89   14.36      14.75      14.89      14.89

 Capital employed at
 the end of period,
 EURm                   10,463  11,148  10,403     10,463     11,148     11,010

 Net interest-bearing
 liabilities at end of
 period, EURm            1,479   2,465   1,876      1,479      2,465      2,100

 Gearing ratio at end
 of period, %               19      31      24         19         31         26

 Personnel at the end
 of period              19,559  19,874  20,711     19,559     19,874     19,578



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

"UPM's performance in the third quarter was excellent and demonstrated the
strength of our business model. Our growth projects and cost-efficiency measures
continued to deliver. UPM Paper ENA was particularly successful in this
seasonally strong quarter. Our comparable EBIT increased by 31% and our
operating cash flow reached record-strong EUR 506 million. Furthermore, our net
debt was EUR 986 million lower than a year ago.

UPM Paper ENA's performance shows that value can also be created in a
challenging business environment. Successful commercial strategy, continued
strict cost management and optimal use of assets deliver results. This was
particularly visible in the seasonally strong third quarter, as operational
efficiency was on a high level and fixed costs very low.

Going forward, we expect the structural decline in demand of graphic papers in
Europe to continue as in the recent years. Therefore we are in the process of
conducting a review of our European graphic paper assets. Any potential
restructuring plans would be announced in the near future.

Our growth investments continued to gather pace, and contributed significantly
to the earnings growth. On top of the pulp and self-adhesive label investments,
the Lappeenranta biorefinery and the specialty paper machine in UPM Changshu
made good contributions to our performance. We have now reached 80% of the EUR
200 million EBITDA target we have set for this first wave of growth investments.

Our second wave of focused growth investments is proceeding well. The Otepää
plywood mill and UPM Kaukas pulp mill expansions are ramping up in the fourth
quarter. The second expansion of UPM Kymi pulp mill is proceeding according to
plans. In October, we announced a EUR 35 million investment in UPM Raflatac
factory in Poland to meet the increasing label stock demand in Europe. In
Uruguay we are continuing negotiations on prospects for long-term development.

All in all, we have every reason to be pleased with the quarter. Our strong cash
flow enables both focused growth investments and attractive distribution to
shareholders. A strong balance sheet gives us the opportunity to accelerate
business transformation, when the opportunity and timing are right. UPM aims to
maintain a strong balance sheet in all situations."

Outlook for 2016

UPM's outlook for 2016 is unchanged. Profitability is expected to improve in
both the full year 2016 and H2 2016, compared with last year. Q4 2016
performance is expected to be negatively impacted compared to Q3 2016 by
seasonal factors and clearly higher maintenance activity in UPM Biorefining and
UPM Paper ENA.

UPM's growth projects are expected to contribute positively to the company's
earnings in 2016, compared with 2015. UPM is continuing its measures to reduce
variable and fixed costs in 2016. Currencies are expected to contribute
positively as hedges have rolled over.

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 - September 2016

Direct telephone numbers:

FI: +358981710495
UK: +442031940552
SE: +46856642702
US: +18557161597

International telephone numbers with a pin code 75349746#

BE: 080049792 (Toll-Free)
FR: +33172040035
NO: +47 23500244
DK: +45 35445597
AU: +61 (0) 284058555
AT: +43 (0) 19287909
CH: +41 (0) 445831883
CN: +86 4006815487
DE: +49 (0) 6922224998
ES: +34 914146225
HK: +852 30600228
IN: 0018038524627
IR: +353 (0) 12475065
IT: +39 (0) 236010935
JP: +81 (0) 344559575
NL: +31 (0) 207133412
SP: +65 64298388

**

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 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 19,600 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

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upmbiofore.com


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UPM Interim Report Q3 2016.pdf