GOLDMAN SACHS
BASIC MATERIALS CONFERENCE
Jyrki SaloExecutive Vice President and CFO
04 June, 2009
UPM 2
CONTENTS
� UPM brief� Financials� Coping with recession� UPM's vision and strategy
UPM 3
Other2%
Paper71%
UPM IN BRIEF Sales € 9,461 million in 2008
Energy1% Pulp
1% Forest and timber
9%Label10%
Plywood5%
% of external sales
UPM 4
UPM IN BRIEF
Sales by business groups in 2008*
Energy and pulp11 %
Forest and timber 9%
Pulp 1%
Energy 1%
Paper72 %
Engineered materials15 %
Total sales 9.5 billion euros
* % of external sales
Labels 10%
Plywood 5%
UPM 5
-75
-50
-25
0
25
50
75
100
125
150
175
200
FINANCIALSEBITDA by business area in Q1 2009
57
Energy
Pulp
Forestand
timber
Paper Label
Plywood
€ million
-55
-15
187
6
-23 -29
UPMtotal
128
Wood and pulp inventory write-down
Otheroperations
UPM 6
FINANCIALSEBITDA development in Q1 2009
0
50
100
150
200
250
300
350
400
450
500
EBITDAQ108
EBITDAQ109
€ million
337
128
Prices, currency
Deliveries
Wood costs
Energy costs Other
items
Fixed costs
Wood and pulp inventory write-down
UPM 7
FINANCIALS Cash flow and actions to preserve cash
-750
-500
-250
0
250
500
750
1 000
1 250
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
€ million, trailing 12 months
WOC reduction
Dividend cut
Capex cut
Net cash flow from operations
Cash flow after investing activities
Cash flow improvement from:
UPM 8
0
200
400
600
800
1000
04 05 06 07 08 09e
FINANCIALS Capital expenditure2009 estimate lowered to € 300 million
€ million
Depreciation excl. amortization of goodwill
Strategic investments
Operational investments
551
300
Estimate
Q1 2009 capital expenditure was € 67 million
UPM 9
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
Res
t of
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-202
6
2027
2028
2029
2030
Committed Facilities Loans
� Liquidity on 31 March 2009 was € 1.7bn� In March, the € 1.5bn loan facility maturing in 2010 was
replaced by a new three-year € 825m facility
FINANCIALSMaturity profile – moderate repayments for the next three years
€ million
UPM 10
4 139
3 000
3 500
4 000
4 500
5 000
04 05 06 07 08 Q109
72
0
20
40
60
80
100
120
04 05 06 07 08 Q109
Gearing ratio Net interest-bearing liabilities
% € million
Target: maximum 90%
FINANCIALS Gearing ratio and net interest-bearing liabilities
Ratings: Moody’s Ba1, latest change February 13, 2009S&P BB+, latest change April 1, 2009
COPING WITH RECESSION
UPM 12
-9,0
-7,4
-5,9
-4,3
-2,8
-1,2
0,3
1,9
3,4
5,0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-25
-20
-15
-10
-5
0
5
10
15
20
COPING RECESSION Weaker economic growth affects demand for European graphic paper demand
Paper demand growth (%, trailing 3 month)
Sources: Cepiprint, Cepifine, OECD
Euro zone composite leading indicator
Graphic paper demand growth
Euro zone composite leading indicator
UPM 13
COPING RECESSION
Graphic Papers Demand in EuropeGraphic Papers Demand in Europe
2 400
2 600
2 800
3 000
3 200
3 400
3 600
3 800
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
'000
tons
2009 2008 2007
-19,0-12 -20-22 -23'09 vs. '08
Source: Cepiprint/fine
Jan.-Apr. '09
vs.
Jan.-Apr. '08-18%WFU*
-22%WFC*
-27%Ctd m
-7%SC
-15%News
*) Imports from E. Europe included from 2005->
excl. Russia and other imports
1,1 '07 vs. '06
'08 vs. '07-2,2
UPM 14
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109
Publication papers Fine and speciality papers Sawn timber Plywood
COPING RECESSION UPM's production has been curtailed to respond to changes in demand
Delivery change from previous year (%)
-26%-27%
-37%-42%
UPM 15
COPING RECESSIONCost deflation materialising with a delay
Cost breakdowntotal €8.4bn in 2008
Energy 11%
Fibre 28%
Delivery 10%
Chemicals 13%
Personnel 17%
Other 15%
� Fixed costs– permanent savings– temporary lay-offs
� Fibre costs– wood– RCP– purchased pulp
� Energy costs
� Oil-based chemicals and logistics costs
Other raw materials
6%
UPM 16
10
11
12
13
14
15
16
17
18
19
20
2004 2005 2006 2007 2008 2009
COPING RECESSION Wood prices in Finland returning to 2005 levels – 2009 still burdened by high wood costs
Fibre wood prices in Finland, € / m³
Source: Metla
UPM's wood costs expected to decrease with a
delay
Birch
Pine
6 month averagedelayed by 6 months
UPM 17
COPING RECESSION Case Paper
� Sales declined by 22%
� Higher prices maintained
� Significant reduction in fixed costs through restructuring and flexible way of working
� Lower pulp costs compensated for the increase in energy costs
EBITDA margin increased to 13.7% (11.8%)
-4%-1%-22%Sales growth, %
10,6412,7532,028Paper deliveries, 1,000 t
885209187EBITDA, M€
0%
50
11.8
1,773
Q1 2008
12,613.7EBITDA, % of sales
-26%
37
1,367
Q1 2009
-7%Paper deliveries, % change
250Operating profit, M€excl. special items
7,011Sales, M€
2008Paper
VISION AND STRATEGY
UPM 19
PURPOSE
We create value from renewable and recyclable materials by combining expertise and technologies within fibre based, energy-related and engineered materials businesses.
In the new forest industry, we reshape markets through cost leadership, change readiness and leading innovation. We develop smart, sustainable products and solutions for customers worldwide.
VISION
The front-runner of the new forest industry.
UPM 20
STRATEGY
Three Business Groups
Energy and pulp11 %
of sales
Forest and timber 9%
Pulp 1%
Energy 1%
Paper72 %
of sales
Engineered materials15 %
of sales
Total Group sales 9.5 billion euros 2008* % of external sales
Labels 10%
Plywood 5%
UPM 21
New business structure leverages the company's competitive advantages
� sets the basis for market driven operations in all three Business Groups
� develop energy related and pulp businesses
� strengthen the cost leadership by optimizing resources, production and investments as well as decreasing complexities in Paper
� increase the weight of fast growing higher value added businesses in Engineered Materials
� new segment reporting to increase transparency of the results and value creation in the company
UPM 22
STRATEGY
Strategy actions – portfolio of choices and opportunities
Energy & Pulp
Paper
Engineered Materials
� Grow in biomass based energy incl. biofuels
� Leverage high self sufficiency in electricity after OL3 nuclear power plant
� Increase share of low cost pulp
� Sawmilling for wood and biomass sourcing
� Focus on European profitability: cost leadership, supply chain management and lean investments
� Growth in China and other emerging markets
� Consolidation in Europe
� Industry leadership in label materials
� Grow in Plywood
� Develop new businesses like RFID, Wood plastic composite based on proprietary know how
UPM 23
Biomass value chain offers strategic opportunities
• forestry• harvesting• sorting on site• drying
Pulpwoodfor pulp and paper
Forest residuesSmall woodStumps
PlywoodSawn timber
PulpPaperCardboard
BiodieselHeatElectricity
Forest biomass Logsfor wood products
Recycling
UPM 24
UPM strategy - Key messages
Long term
UPM will reshape its portfolio: new markets, engineered materials and energy related bus inesses broaden our scope. Fibre based businesses continue to form the
cornerstone of our strategy.
Short to medium termSecure profitability and cash flow through undisputed cost
leadership.
UPM 25
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.
Forward-looking statement
UPM 26
UPM 27
FINANCIALSEnergy
Operating profit improved
� Sales increased by 30%
� Average sales price for electricity increased by 40%
0
20
40
60
80
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
€, million
33
51
31.4%
37.5%
n.a.40%Average price, change %
2.5
51
136
Q1 2009
2.4Electricity sales, TWh
33Operating profit M€excl. special items
105Sales, M€
Q1 2008
Operating profit excluding special items
UPM 28
FINANCIALSPulp
� Operating profit declined due to lower pulp price and lower deliveries
� Wood cost remained high
-100
-80
-60
-40
-20
0
20
40
60
80
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
67
-93
24.9%
-66.9%
n.a.-23%Average price, change %
372
-93
139
Q1 2009
554Pulp deliveries, 1,000 t
67Operating profit M€excl. special items
269Sales, M€
Q1 2008
Associated company Metsä-Botnia
€, million Operating profit excluding special items
UPM 29
FINANCIALSForest and timber
-60
-40
-20
0
20
40
60
80
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
26
-8
5.1%
-2.1%2811Fair value change of
biological assets
363
-21%
-8
385
Q12009
573Sawn timber deliveries, 1,000 m3
n.a.Average price of sawn timber, change %
26Operating profit M€excl. special items
508Sales, M€
Q1 2008
� Operating profit declined due 21% to lower average price and lower deliveries of sawn timber
� Wood cost remained at a high level
Fair value change of biological assets
€, million Operating profit excluding special items
UPM 30
FINANCIALSPaper
0
20
40
60
80
100
120
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
5037
2.8%2.7%
� Operating profit was impacted by lower deliveries (-26%)
� Higher prices maintained
� Significant reduction in fixed costs through restructuring and flexible way of working
� Lower pulp costs compensated for the increase in energy costs
� EBITDA margin increased to 13.7% (11.8%)
2,028
4%
37
1,367
Q1 2009
2,753Paper deliveries, 1,000 t
n.a.Average price, change %
50Operating profit M€excl. special items
1,773Sales, M€
Q1 2008
€, million Operating profit excluding special items
UPM 31
FINANCIALSLabel
�
-10
0
10
20
30
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
3-3
1.2%-1.3%
-3
223
Q1 2009
3Operating profit M€excl. special items
242Sales, M€
Q1 2008
� Operating profit declined due to lower deliveries
� Average sales price increased by about 9%
� Fixed costs were lower
€, million Operating profit excluding special items
UPM 32
FINANCIALSPlywood
� Operating profit declined due to significantly lower delivery volumes and lower prices
� Wood costs remained at a high level
� Extensive production downtime was taken at all mills
-30
-20
-10
0
10
20
30
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
21
-28
13.4%
-37.3%
133
-28
75
Q1 2009
231Plywood deliveries, 1,000 m³
21Operating profit M€excl. special items
157Sales, M€
Q1 2008
€, million Operating profit excluding special items
UPM 33
24,039
274
-0.27
-78
-17
-95
6.9
128
1,857
Q1/2009
25,841
50
0.19
188
5
193
14.0
337
2,410
Q1/2008
24,983
628
0.42
513
-489
24
12.7
1,206
9,461
2008
EBITDA, €m
% of sales
Net cash generated from operating activities, €m
Personnel at end of period
Operating profit (loss) excl. special items, €m
Special items included in operating profit, net
EPS excluding special items, €
Operating profit (loss), €m
Sales, €m
FINANCIALS
Key figures