Financial Statements Release 2016: UPM finishes a record-strong year with a good quarter

Jussi Pesonen, President and CEO, comments on Q4 and full year 2016 results: \"Year 2016 was financially a record year. It demonstrates the results of our transformation and sets the stage for the future: Today\'s UPM is earnings growth oriented, capable and financially strong. Now we have the opportunity to seek new horizons and continue to aim higher.

We achieved a lot over the course of the year. We grew with our customers in many growth markets. In addition, our own cost-efficiency measures succeeded well. Our comparable EBIT increased by 25% and our operating cash flow was record strong at EUR 1,686 million. Our net debt was EUR 969 million lower than a year ago, reaching an industry-leading 0.73 times EBITDA. All of this was reflected in the positive share price performance during the year.

Our performance stayed at a good level also during the fourth quarter and comparable EBIT increased to EUR 283 million. As expected, the quarter was impacted by heavy maintenance activity, especially in UPM Biorefining, resulting in temporarily higher fixed costs and lower operational efficiency than in the comparison periods.

The growth projects proceeded well during the autumn. All the first wave growth investments are contributing to our earnings. With further potential, especially in the specialty paper machine in UPM Changshu and the Lappeenranta biorefinery, optimisation continues.

Further growth initiatives are ongoing. The Otepää plywood mill and UPM Kaukas pulp mill expansions started successfully in Q4. Construction of the UPM Kymi pulp mill expansion and UPM Raflatac factory investment in Poland are in full swing. Our discussions with the Government of Uruguay on the prerequisites for long-term industrial development in the country have proceeded in positive spirit. Many important topics are still under discussion, however.

We look confidently to the future. Our competitive position and market demand enable us to expand our growth businesses further and aim higher with our long-term earnings. Today, we have decided on new long-term financial targets reflecting our new ambition level.

UPM\'s Board of Directors has today proposed that the dividend for 2016 be increased to EUR 0.95 (0.75) per share, which is 30% of the operating cash flow per share\".

Q4 2016 highlights

• Comparable EBIT increased by 15% to EUR 283 million (247 million).
• High maintenance activity resulted in temporarily higher fixed costs and lower operational efficiency.
• Growth projects contributed significantly to earnings.
• Strong operating cash flow at EUR 405 million (390 million).
• The Otepää plywood mill expansion and UPM Kaukas pulp mill investment started production.
• In October, UPM announced a new self-adhesive label stock investment in Poland to meet the growing demand in Europe.
• In November, UPM announced plans to close 305,000 tonnes of SC paper capacity in Germany and Austria.

2016 highlights

• Comparable EBIT increased by 25% to EUR 1,143 million (916 million).
• Growth projects contributed significantly to earnings and cost efficiency measures continued on a strong track.
• Operating cash flow reached a record high of EUR 1,686 million (1,185 million).
• Net debt decreased to a record low of EUR 1,131 million (2,100 million).
• UPM closed the Madison Paper Industries in the US in May and 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.
• The Board proposes a dividend of EUR 0.95 (0.75) per share, representing 30% of operating cash flow per share.

Outlook for 2017

UPM\'s profitability improved significantly in 2016 and is expected to remain on a good level in 2017.

Demand growth is expected to continue for most of UPM\'s businesses, while demand decline is expected to continue for UPM Paper ENA. The focused growth projects continue to contribute gradually to UPM\'s performance.

Following a deflationary environment in recent years, 2017 is expected to show modest input cost inflation. UPM will continue measures to reduce fixed and variable costs to mitigate this.

2017 starts with lower pulp prices and lower availability of hydropower than in the beginning of 2016.

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 19,300 people and its annual sales are approximately EUR 10 billion.

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