UPM Annual Report 2016

ACCOUNTS

UPM Annual Report 2016

In brief

Strategy

Businesses

Stakeholders

Governance

Accounts

CONTENTS

Other operations

2016

2015

Sales, EURm

285

406

Comparable EBITDA, EURm

–35

–16

Change in fair value of forest assets and wood

harvested, EURm

331

Share of results of associates and joint

ventures, EURm

Depreciation, amortisation and impairment

charges, EURm

–13

Operating profit, EURm

306

Items affecting comparability in operating

profit, EURm

268

Comparable EBIT, EURm

Capital employed (average), EURm

1,541

1,483

Comparable ROCE, %

0.9

2.6

In 2016, items affecting comparability relate to restructuring charges. In 2015,

items affecting comparability include a fair value increase of forest assets

in Finland totalling EUR 265 million, due to adjusted long-term wood price

estimates and a change in discount rate. In addition, capital gains of EUR 3

million from the sale of Tilhill Forestry Ltd shares, capital gains of EUR 3 million

from the sale of other assets and EUR 3 million of restructuring charges were

reported as items affecting comparability.

2016 compared with 2015

Comparable EBIT for Other operations decreased. The increase in the

fair value of biological assets net of wood harvested, excluding items

affecting comparability, was EUR 59 million (66 million). The increase

in the fair value of biological assets (growing trees), excluding items

affecting comparability, was EUR 113 million (112 million), including

gains on forest sales. The cost of wood harvested from UPM forests

was EUR 54 million (46 million).

In 2016, UPM sold a total of 63,113 (63,669) hectares of forests.

UPM has one class of shares. Each share entitles the holder to one

vote at the Annual General Meeting of UPM.

On December 31, 2016 the total number of UPM shares was

533,735,699. Through the issuance authorisation described below,

the number of shares may increase to a maximum of 558,735,699.

On December 31, 2016, UPM held 230,737 of its own shares,

representing approximately 0.04% of the total number of UPM shares

and voting rights. There are no specific terms related to the shares

except for the redemption clause described below.

In 2016, UPM shares worth EUR 6,749 million (EUR 7,469 million)

in total were traded on the NASDAQ Helsinki. This is estimated to

represent about two thirds of all trading volumes in UPM shares.

The highest listing was EUR 23.41 in December and the lowest EUR

13.71 in February.

The company’s ADSs are traded on the US over-the-counter (OTC)

market under a Level 1-sponsored American Depositary Receipt

programme.

Information on the major shareholders, break-down by shareholders

category and size as well as share related indicators are available

in section

» Information on shares

in UPM Annual report 2016.

Redemption clause

Under § 12 of UPM-Kymmene Corporation’s Articles of Association,

a shareholder who, alone or jointly with another shareholder owns 33

1/3 percent or 50 percent or more of all the company’s shares or their

associated voting rights shall, at the request of other shareholders,

be liable to redeem their shares and any securities that, under the

Companies Act, carry the right to such shares, in the manner

prescribed in § 12.

A resolution of a general meeting of shareholders to amend or

delete this redemption clause must be carried by shareholders

representing not less than three-quarters of the votes cast and shares

represented at the meeting.

Authorisations held by the Board of Directors

The Annual General Meeting held on 7 April 2016 authorised the

Board of Directors to decide on the repurchase of a maximum of

50,000,000 of the Company’s own shares. The authorisation will be

valid for 18 months from the date of the AGM resolution.

The Board of Directors was authorised to decide on the issuance

of new shares, transfer of treasury shares and issuance of special

rights entitling to shares in proportion to the shareholders’ existing

holdings in the Company, or in a directed share issue, deviating from

the shareholders’ pre-emptive subscription rights. The Board of

Directors may also decide on a share issue without payment to the

Company itself. The aggregate maximum number of new shares that

may be issued and treasury shares that may be transferred is

25,000,000, including also the number of shares that can be received

on the basis of the special rights. The authorisation will be valid for

three years from the date of the AGM resolution.

Aside from the above, the Board of Directors has no current

authorisation to issue shares, convertible bonds or share options.

Board of Directors and

the Group Executive Team

At the Annual General Meeting held on 7 April 2016, the number

of members of the Board of Directors was confirmed as ten, and all

former directors, i.e. Berndt Brunow, Henrik Ehrnrooth, Piia-Noora

Kauppi, Wendy E. Lane, Jussi Pesonen, Ari Puheloinen, Veli-Matti

Reinikkala, Suzanne Thoma, Kim Wahl and Björn Wahlroos, were

re-elected to the Board for a term continuing until the end of the next

AGM.

At the meeting of the Board of Directors held following the AGM,

Björn Wahlroos was re-elected as Chairman, and Berndt Brunow as

Deputy Chairman of the Board of Directors. In addition, the Board of

Directors elected the chairmen and other members to the Board

committees from among its members. No changes took place in the

committee compositions.

Shares held by the Board of Directors

and the Group Executive Team

At the end of the year, the members of the Board of Directors

including the President and CEO owned a total of 987,427 (882,101)

UPM-Kymmene Corporation shares. These represent 0.19% (0.16%)

of the shares and 0.19% (0.16%) of the voting rights. At the end of

the year, President and CEO Jussi Pesonen owned 304,064 shares.

At the end of the year, the other members of the Group Executive

Team owned a total of 360,170 shares.

» Refer Note 3.2

Key management personnel, of consolidated

financial statements 2016 for further information on remuneration

and shares held by the members of the Board, the President and CEO

and the members of Group Executive Team.

Litigation

» Refer Note 9.2

Litigation, of consolidated financial statements 2016

for information on legal proceedings.

2016

2015

Sales, EURm

444

439

Comparable EBITDA, EURm

% of sales

18.1

17.8

Depreciation, amortisation and impairment

charges, EURm

–22

–23

Operating profit, EURm

% of sales

13.2

12.1

Items affecting comparability in operating

profit, EURm

–

–2

Comparable EBIT, EURm

% of sales

13.2

12.5

Capital employed (average), EURm

259

263

Comparable ROCE, %

22.6

20.9

Plywood deliveries, 1,000 m

764

740

In 2015, items affecting comparability of EUR 2 million relate to Lahti estate

restructuring charges.

2016 compared with 2015

Comparable EBIT for UPM Plywood increased due to higher delivery

volumes and lower costs, partly supported by favourable currency

impact, more than offsetting the negative impact of slightly lower

sales prices.

Market environment

Market environment improved gradually during 2016 in Europe,

and demand is estimated to have increased from last year. Impact

of low-priced imports in the beginning of the year eased in Q2,

and since then, demand has picked up particularly in birch plywood-

related industrial applications.

Activity in the building and construction industry improved

somewhat. Market prices decreased at the beginning of the year,

butexperienced slight increases during the second half of the year.

UPM Plywood

UPM Plywood offers plywood and

veneer products, mainly for construction,

vehicle flooring and LNG shipbuilding,

as well as other manufacturing

industries. Production facilities are

located in Finland, Estonia and Russia.

Other operations include wood sourcing

and forestry, UPM Biocomposites and

UPM Biochemicals business units and

group services.

15 16

EURm

Comparable EBIT

% of sales

15 16

EURm

Comparable EBIT