UPM Annual Report 2016

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Board of Director’s proposal for the distribution of profits

Responsibility Responsibility is good business

No major environmental incidents occurred in 2016. However, several minor temporary deviations from permit limits did arise. These deviations were reported to the relevant authorities immediately, and corrective and preventive measures were taken. These measures are part of UPM’s internal Clean Run campaign that aims to improve the company’s environmental performance further, sharing best practices and promoting and maintaining environmental awareness. The majority of UPM’s production sites, as well as its forestry operations, are covered by environmental, quality and health and safety systems, which are certified in accordance with the ISO 9001, ISO 14001 and OHSAS 18001 standards respectively. In addition, several sites have an ISO 22000 food safety management system or an energy management system according to ISO 50001 or the Finnish ETJ+ system. UPM has certified all its European pulp and paper mills, the UPM Fray Bentos pulp mill in Uruguay and UPM Changshu paper mill in China in accordance with the voluntary EU Eco-Management and Audit Scheme (EMAS). In 2016, UPM Pulp developed a joint integrated management system for its four pulp mills. A similar project has started for UPM’s paper mills in Finland.

Corporate responsibility is an integral part of all our operations and is seen as a source of competitive advantage. UPM is strongly committed to continuous improvement in economic, social and environmental performance. UPM promotes responsible practices throughout the value chain and is active in finding sustainable solutions in co-operation with its customers, suppliers and partners. In 2016, the main focus of UPM’s responsibility activities was on the internal Code of Conduct training and on extending its effects to UPM’s suppliers and third party intermediaries. The safety of employees and contractors remained an important focus area. UPM took part in the UN Global Compact LEAD forum as the first representative of the forest industry and also as the first Finnish participant. Environmental performance In 2016, UPM’s environmental investments totalled EUR 22 million (28 million). The largest being the investment to Schongau power plant retrofit to achieve lower air emissions. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 120 million (129 million), including depreciation.

On the date of the dividend proposal, 31 January 2017, the Company’s registered number of shares is 533,735,699. The aforementioned number of shares includes 230,737 treasury shares which are not entitled to dividend. As a result, the proposed dividend would total EUR 506.8 million. On 31 December 2016, the distributable funds of the parent company were EUR 3,387,589,976.70 including EUR 254,985,094.81 profit for the period. No material changes have taken place in respect of the Company’s financial position after the balance sheet date. In the opinion of the Board of Directors, the proposed distribution of profits does not risk the solvency of the Company.

The Board of Directors proposes to the Annual General Meeting of UPM-Kymmene Corporation to be held on 29 March 2017 that a dividend of EUR 0.95 per share be paid based on the balance sheet to be adopted for the financial year ending 31 December 2016 and that the remaining portion of the distributable funds be retained in the Company’s unrestricted shareholders’ equity. The dividend will be paid to a shareholder who is registered in the Company’s shareholders’ register held by Euroclear Finland Ltd on the dividend record date of 31 March 2017. The Board of Directors proposes that the dividend be paid on 12 April 2017.

IMPACT

MANAGEMENT

Prioritising product stewardship

UPM’s products are made from renewable, biodegradable and recyclable raw materials. Product stewardship covers the entire lifecycle for all UPM products from the development phase to the end-use and beyond. Ecodesign and product safety measures ensure that impacts on products and the environ­ ment are considered and minimised. UPM provides product declarations to grant customers easy access to relevant information. UPM is the largest producer of EU ecolabelled newsprint, graphic and office papers. Today, approximately 89% of all UPM’s production waste is recovered and recycled. UPM has developed innovative ways to reduce its own waste and to recycle waste or residues in new products such as UPM BioVerno, UPM’s renewable diesel and UPM ProFi composite which utilises partly waste from the production of self-adhesive label materials. UPM is also the world’s largest user of recovered paper for the production of graphic papers, consuming 2.8 million tonnes of paper for recycling in 2016. The total amount of solid waste sent to landfill has slightly increased with 3% compared to the previous year. All of UPM’s own forests and eucalyptus plantations are certified according to the FSC and/or PEFC certification schemes. All of UPM’s wood supplies are covered by third-party-verified chains of custody. 84% (84%) of all wood used by UPM is sourced from certified forests. The aim of UPM’s global biodiversity programme is to maintain biodiversity in forests, to promote best practices in sustainable forestry and to emphasize the role of ecosystem services. In 2016, the CDP Forest Program listed UPM as one of the global leaders on the 2016 Forest A List for timber and timber-based products. (fossil carbon dioxide) emissions per tonne of paper have been reduced by approximately 23%. UPM has a wide range of energy sources and it maximises the use of carbon- neutral energy. Biomass-based fuels make up 85% of the fuels used by UPM in Finland and 69% of those used worldwide. UPM is the second largest generator of biomass-based electricity in Europe. If UPM would need to buy certificates to cover its whole fossil CO 2 emissions, and the price of CO 2 certificates would rise by EUR 5 per tonne, it would mean additional costs of approximately EUR 20 million annually. As the use of weather-dependent energy sources increases, the need for balancing power in energy systems will also grow. UPM is investing in hydropower, the most effective and sustainable method of producing balancing power. In 2016, the new unit of the Harjavalta hydropower plant was completed. UPM strives to continuously improve its energy efficiency across all its operations. During the last 20 years, the energy efficiency of production has significantly improved due to energy audits, innovations and internal campaigns. All of UPM’s pulp and paper mills are required to have both a mechanical and a biological wastewater treatment. In order to ensure the best possible treatment result and share best practice, UPM’s wastewater treatment facility team has continued its work. The results have been good and the number of incidents has decreased further in 2016. UPM has reduced wastewater volumes per tonne of paper by 11% and per tonne of chemical pulp by 22% over the last ten years. The COD load has decreased by 23% per tonne of paper, and by 40% per tonne of pulp, over the last ten years. If the price for raw water would increase by 0.01 Euro per m³, it would mean additional water costs of approximately EUR 5 million annually. UPM’s efforts for responsible water use were acknowledged by the CDP Water Program which has rated UPM with A-, a leadership position in the ranking. Since 1990, specific direct CO 2

Reducing waste is part of circular economy

Sustainable forestry

Signatures of the annual accounts and the report of the Board of Directors for the year 2016

Helsinki, 31 January 2017

Climate actions and energy efficiency

Björn Wahlroos

Berndt Brunow

Henrik Ehrnrooth

Chairman

Piia-Noora Kauppi

Wendy E. Lane

Jussi Pesonen President and CEO

Water plays an increasingly important role

Ari Puheloinen

Veli-Matti Reinikkala

Suzanne Thoma

Kim Wahl

Corporate Governance Statement

UPM presents the Corporate Governance Statement as a separate report which is available on the UPM website: www.upm.com .

CONTENTS

ACCOUNTS

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UPM Annual Report 2016

UPM Annual Report 2016