UPM CEO Comments on First Half 2012 Financial Results

Jussi Pesonen, President and CEO, UPM.

Aug. 7, 2012 - Jussi Pesonen, President and CEO of UPM, made the following comments on his company's first half of 2012 earnings:

"The profitability of UPMís businesses improved in the first half of the year 2012 compared to the second half of 2011. We achieved this by continuing our consistent work to reduce fixed costs. Furthermore, sales prices and raw material costs developed favourably.

"In the second quarter, our growth businesses — Energy, Pulp, Asian Paper and Label — maintained strong profitability. However, the Groupís operating profit was affected by the exceptional quarter in Other operations, mainly due to fair value losses in currency hedges.

"In Paper, deliveries recovered somewhat from the previous quarter, although this was offset by seasonally higher fixed costs. Myllykoski cost synergies were well on track with two thirds of planned benefits already realised. Despite this, Paperís profitability level remains unacceptable.

"Weakness in the general economic conditions affect UPM businesses, particularly in Europe. In these conditions, the continuing realisation of Myllykoski synergies works for our benefit.

"UPM has used the full tool kit of industry consolidation, restructuring and cost control to improve competitiveness and cash flow, and will continue to do so. Overall, I am confident that our low cost, low investment position enables healthy free cash flow generation, regardless of the demand scenario.

"I would like to highlight that, since the closing of the Myllykoski acquisition in August 2011, we have reduced our net debt by approximately EUR 600 million. Also, during the second quarter, solid cash flow continued and our balance sheet strengthened further. The reliable cash flow and healthy balance sheet give us room to consider our next strategic measures.

"The Lappeenranta biodiesel investment is our first step in becoming the leading producer of wood-based advanced biofuels, and we will continue to evaluate future opportunities in all of our growth businesses," Pesonen concluded.

Outlook for 2012
Global economic growth is expected to continue in 2012. In Europe, economic growth is weak and uncertainty persists. During the summer, there has been an increase in the risks related to both to the European sovereign debt problems and the growth prospects of the Chinese economy.

Profitability in UPMís businesses improved in H1 2012 compared with H2 2011. In H2 2012, profitability in UPMís businesses is not expected to improve materially compared with H1 2012.

Operating profit excluding special items for the full year 2012 is expected to be lower than in 2011. UPMís cost level decreased in H1 2012. Variable costs are expected to remain largely on the same level in Q3 2012. The realisation of the Myllykoski cost synergies is expected to continue as planned, and cost synergies of more than EUR 150 million are expected to affect UPMís full≠year 2012 results.

Capital expenditure for 2012 is forecast to be approximately EUR 350 million.

The full outlook is available in the Interim report at: www.upm.com.

SOURCE: UPM