UPM Annual Report 2016

UPM Annual Report 2016

In brief

Strategy

Businesses

Stakeholders

Accounts for 2016

Report of the Board of Directors 90 Board of Directors’ proposal for the distribution of profits 103 Consolidated financial statements, IFRS 104 Consolidated income statement and statement of comprehensive income 104 Consolidated balance sheet 105 Consolidated statement of changes in equity 106 Consolidated cash flow statement 107 Notes to the consolidated financial statements 108

1. Basis for reporting

1.1 Corporate information 108 1.2 Basis of preparation 108 1.3 Consolidation principles 109 1.4 Foreign currency translation 109 1.5 New standards and amendments adopted 110

2. Business performance

2.1 Business areas 110 2.2 Sales 115 2.3 Operating expenses and other 115 operating income 2.4 Earnings per share and dividend 116

3. Employee rewards

3.1 Employee costs 117 3.2 Key management personnel 117 3.3 Share-based payments 118 3.4 Retirement benefit obligations 119

4. Capital employed

4.1 Property, plant and equipment 122 4.2 Forest assets 124 4.3 Energy shareholdings 124 4.4 Goodwill and other intangible assets 125 4.5 Provisions 127 4.6 Working capital 128

5. Capital structure

5.1 Capital management 130 5.2 Net debt 132 5.3 Financial assets and liabilities by category 134 5.4 Financial income and expenses 137 5.5 Share capital and reserves 137

6. Risk management

6.1 Financial risk management 138 6.2 Derivatives and hedge accounting 140

7. Income tax

7.1 Tax on profit for the year 142 7.2 Deferred tax 142

8. Group structure

8.1 Business acquisitions and disposals 143 8.2 Principal subsidiaries and joint operations 144 8.3 Related party transactions 145 8.4 Assets held for sale 145

9. Unrecognised items

9.1 Commitments and contingencies 146 9.2 Litigation 146 9.3 Events after balance sheet date 147

10. Other notes

10.1 New standars and amendments – 147 forthcoming requirements 10.2 Alternative performance measures 148 Parent company accounts 150 Auditor’s report 159 Information on shares 163 Financial information 2007–2016 165

TotheManagementofUPM-KymmeneCorporation

We have been engaged by theManagement of

UPM-Kymmene Corporation (business identity

code 1041090-0, hereinafter also “the Company”) to perform a limited assurance engagement

on selected corporate responsibility information

for the reporting period 1 January 2016 to 31

December 2016, disclosed in UPM-Kymmene

Corporation’s Annual Report 2016 and on its

website in section “Responsibility” (hereinafter

“the CR Reporting”). The assured information

is indicated in the Company’s GRI Content Index

2016 on the Company’s website.

Furthermore, the assurance engagement has

covered UPM-Kymmene Corporation’s adher

ence to the AA1000 AccountAbility Principles

withmoderate (limited) level of assurance.

Management’s responsibility

TheManagement of UPM-Kymmene Corpora

tion is responsible for preparing the CR Report

ing in accordance with the Reporting criteria as

set out in the Company’s reporting instructions

and the G4 Sustainability Reporting Guidelines

of the Global Reporting Initiative. TheManage

ment of UPM-Kymmene Corporation is also

responsible for such internal control as the

management determines is necessary to enable

the preparation of CR Reporting that is free from

material misstatement, whether due to fraud or

error.

TheManagement of UPM-Kymmene Corpo

ration is also responsible for the Company’s

adherence to the AA1000 AccountAbility Princi

ples of inclusivity, materiality and responsive

ness as set out in AccountAbility’s AA1000

AccountAbility Principles Standard 2008.

Practitioner’s responsibility

Our responsibility is to express a limited assur

ance conclusion on the CR Reporting and on the

Company’s adherence to the AA1000 Account

Ability Principles based on the procedures we

have performed and the evidence we have ob

tained. We conducted our limited assurance

engagement in accordance with the Interna

tional Standard on Assurance Engagements

(ISAE) 3000 (Revised) “Assurance Engagements

Other than Audits or Reviews of Historical

Financial Information”. That Standard requires

that we plan and perform the engagement to

obtain limited assurance about whether the CR

Reporting is free frommaterial misstatement.

In addition, we have conducted our work in

accordance with the AA1000 Assurance Stand

ard 2008. For conducting a Type 2 assurance

engagement as agreed with the Company, the

AA1000AS (2008) requires planning and per

forming of the assurance engagement to obtain

moderate (limited) assurance on whether any

matters come to our attention that cause us to

believe that UPM-Kymmene Corporation does

not adhere, in all material respects, to the

AA1000 AccountAbility Principles and that the

CR Reporting is not reliable, in all material

respects, based on the Reporting criteria.

In a limited assurance engagement the evi

dence-gathering procedures are more limited

than for a reasonable assurance engagement,

and therefore less assurance is obtained than in

a reasonable assurance engagement. An assur

ance engagement involves performing proce

dures to obtain evidence about the amounts

and other disclosures in the CR Reporting, and

about the Company’s adherence to the AA1000

AccountAbility Principles. The procedures

selected depend on the practitioner’s judge

ment, including an assessment of the risks of

material misstatement of the CR Reporting and

an assessment of the risks of the Company's

material nonadherence to the AA1000 Account

Ability Principles.

Our work consisted of, amongst others,

the following procedures:

•

Interviewing senior management of the

Company.

•

Interviewing employees from various

organisational levels of the Company with

regards to materiality, stakeholder

expectations, meeting of those expectations,

as well as stakeholder engagement.

•

Assessing stakeholder inclusivity and

responsiveness based on the Company’s

documentation and internal communication.

•

Assessing the Company’s definedmaterial

corporate responsibility topics as well as

assessing the CR Reporting based on these

topics.

•

Visiting the Company’s Head Office and

conducting web conferences with two sites

in Finland and one site in the United States.

•

Interviewing employees responsible for

collecting and reporting the information

presented in the CR Reporting at the group

level as well as at the site level.

•

Assessing how group employees apply the

reporting instructions and procedures of

the Company.

•

Testing the accuracy and completeness of

the information from original documents

and systems on a sample basis.

•

Testing the consolidation of information and

performing recalculations on a sample basis.

Limited assurance conclusion

Based on the procedures we have performed

and the evidence we have obtained, nothing

has come to our attention that causes us to

believe that UPM-Kymmene Corporation

does not adhere, in all material respects, to

the AA1000 AccountAbility Principles.

Furthermore nothing has come to our atten

tion that causes us to believe that UPM-Kym

mene Corporation’s CR Reporting for the re

porting period ended 31 December 2016 is not

properly prepared, in all material respects, in

accordance with the Reporting criteria, or that

the CR Reporting is not reliable, in all material

respects, based on the Reporting criteria.

When reading our assurance report, the

inherent limitations to the accuracy and com

pleteness of sustainability information should

be taken into consideration.

Our assurance report has been prepared in

accordance with the terms of our engagement.

We do not accept, or assume responsibility to

anyone else, except to UPM-Kymmene Corpora

tion for our work, for this report, or for the

conclusions that we have reached.

Observations and recommendations

Based on the procedures we have performed

and the evidence we have obtained, we provide

the following observations and recommenda

tions in relation to UPM-Kymmene Corpora

tion’s adherence to the AA1000 AccountAbility

Principles. These observations and recommen

dations do not affect the conclusions presented

earlier.

Regarding Inclusivity:

UPM-Kymmene

Corporation has processes in place for stake

holder inclusivity and engagement. Stakeholder

Relations coordinates stakeholder engagement

at the group level, while businesses are respon

sible for local activity. We recommend that the

Company continues to enhance internal collab

oration and knowledge sharing within the group

in the stakeholder engagement.

Regarding Materiality:

UPM-Kymmene

Corporation has a systematic process in place

to evaluate and determine the materiality of

corporate responsibility topics. Materiality

analysis is updated annually. We recommend

that the Company considers using stakeholder

panels also to obtain feedback on the materi

ality analysis as well as on the responsibility

focus areas, performance and reporting.

Regarding Responsiveness:

UPM-Kym

mene Corporation has processes in place for

responding to stakeholder needs and concerns.

We recommend that the Company continues

to enhance the use of social media in its stake

holder engagement.

Practitioner’s independence,

qualifications and quality control

We have complied with the independence and

other ethical requirements of the

Code of Ethics

for Professional Accountants

issued by the

International Ethics Standards Board for

Accountants, which is founded on fundamental

principles of integrity, objectivity, professional

competence and due care, confidentiality and

professional behaviour.

Our multi-disciplinary team of corporate

responsibility and assurance specialists pos

sesses the requisite skills and experience within

financial and non-financial assurance, corpo

rate responsibility strategy andmanagement,

social and environmental issues, as well as the

relevant industry knowledge, to undertake this

assurance engagement.

PricewaterhouseCoopers Oy applies Inter

national Standard on Quality Control 1 and

accordingly maintains a comprehensive system

of quality control including documented poli

cies and procedures regarding compliance with

ethical requirements, professional standards

and applicable legal and regulatory require

ments.

Helsinki 17 February 2017

PricewaterhouseCoopers Oy

Merja Lindh

Authorised Public

Accountant

(KHT)

Independent Practitioner’s Assurance Report

Maj-Lis Steiner

Authorised Public

Accountant

(KHT)

Governance

Accounts

CONTENTS

UPM Annual Report 2016