UPM increases the fair value of its forest assets in Finland and changes the accounting policy of forest renewal costs

Stock Exchange Release 10.12.2018 13:30 EET

UPM-Kymmene Corporation Other information disclosed according to the rules of the Exchange 10 December 2018 at 13:30 EET

UPM increases the fair value of its forest assets in Finland and changes the accounting policy of forest renewal costs

Higher forest growth increases the fair value of forests

UPM increases the IFRS fair value of its forest assets in Finland, mainly due to higher forest growth estimates. In addition, the company adjusts its long-term wood price estimates slightly. The impact of these changes on the fair value of forest assets is approximately EUR 320 million and will be reported as an item affecting comparability in Q4 2018 under Other operations.

The updated forest growth model indicates higher forest growth volumes that are explained mainly by sustainable forest management.

"UPM's own forests are strategic source for UPM's wood supply. Active, timely and sustainable forest management combined with high quality seedling material have increased UPM's own forests' growth significantly over the years. Increasing forest growth and carbon sequestration enable higher sustainable harvesting volumes from UPM's own forests now and in the future," says Sauli Brander, Senior Vice President, Wood Sourcing and Forestry Northern Europe.

UPM continues to estimate a declining trend of real wood prices in Finland with a slightly slower rate than previously. The pre-tax discount rate used to determine the fair value of the Finnish forests remains at 7.0%.

There is no significant change in the fair value of Uruguayan plantations. The pre-tax discount rate used to determine the fair value of the plantations increases from 9.5% to 9.9%.

Accounting policy change of forest renewal costs due to higher share of Southern hemisphere plantations

From 1 January 2019, UPM will change its accounting policy relating to forest assets by capitalising forestry renewal costs on the balance sheet during the growth cycle and reclassifying forest assets-related cash flows from operating cash flow to investing cash flow. Currently UPM recognises forestry renewal costs in income statement and reports forest assets-related cash flows, including forest renewal costs, forest asset purchases and sales, in operating cash flow.

UPM has consistently increased the weight of the Southern hemisphere plantations in its forest asset portfolio, where the growth cycle is significantly shorter and significance of forestry renewal cost substantially higher compared to the Northern hemisphere. Majority of UPM's forest renewal costs are related to Southern hemisphere plantations. Thus, the change of accounting policy results in more relevant information on group's financial performance and cash flows.

The change will impact the following key figures in UPM group, UPM Biorefining Business Area and Other operations: EBITDA, EBITDA margin, operating and investing cash flows, operating cash flow per share and net debt to EBITDA ratio. There will be no impact on EBIT, comparable EBIT and balance sheet. The historical figures will be restated according to the new reporting principles and presented in the tables below.

As published
	Q3/18	Q2/18	Q1/18	2017

EBITDA, EURm	487	425	449	1.631
% of sales	18.4	16.4	17.9	16.3
Operating cash flow, EURm	434	329	208	1.558
Operating cash flow per share, EUR	0.81	0.62	0.39	2.92
Investing cash flow	-61	-62	-54	-222
Net debt to EBITDA (last 12 m.)	0.00	0.23	0.02	0.11


Restated
	Q3/18	Q2/18	Q1/18	2017

EBITDA, EURm	497	442	456	1.677
% of sales	18.7	17.1	18.2	16.8
Operating cash flow, EURm	405	328	214	1.460
Operating cash flow per share, EUR	0.76	0.61	0.40	2.74
Investing cash flow	-33	-61	-59	-124
Net debt to EBITDA (last 12 m.)	0.00	0.22	0.02	0.10

At the end of Q3 2018, the fair value of UPM's forest assets in the balance sheet was EUR 1,607 million. The group owns approximately 535,000 hectares forest land in Finland, 75,000 in the US and 255,000 hectares of plantations in Uruguay.

For further information please contact:
Mika Mikkola, Vice President, Investor Relations, UPM, tel. +358 20 415 0376

UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Stakeholder Relations

UPM, Media Relations
Mon-Fri 9:00-16:00 EET
tel. +358 40 588 3284
media@upm.com

UPM
We deliver renewable and responsible solutions and innovate for a future beyond fossils across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood. We employ around 19,100 people worldwide and our annual sales are approximately EUR 10 billion. Our shares are listed on NASDAQ OMX Helsinki. UPM Biofore - Beyond fossils. www.upm.com