UPM Annual Report 2016

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Research and development costs The research and development costs included in operating expenses were EUR 40 million (37 million) in 2016. The focus was on new technologies and developing businesses. Government grants In 2016, government grants recognised as deduction of operating expenses totalled to EUR 8 million (6 million) of which EUR 6 million (6 million) relates to Finland, EUR 2 million (0 million) to UK and China. In addition, the group received emission rights from govern­ ments amounting to EUR 16 million (22 million) of which EUR 8 million (9 million) relates to Finland, EUR 6 million (9 million) to Germany, EUR 1 million (1 million) to Austria, EUR 1 million (2 million) to UK and EUR 0 million (1 million) to France.

the acquisition cost of the asset and accordingly directly reduce the annual depreciation of the underlying asset. Other government grants are recognised in the income statement in the period necessary to match them with the costs they are intended to compensate. Other operating income Other operating income mainly includes gains on the disposal of non-current assets and rental income. Further, other operating income includes foreign exchange gains and losses in respect of UPM’s normal business activities. Gains and losses on derivatives not qualifying hedge accounting are also recognised in other operating income. Emission rights The group participates in the European Emissions Trading Scheme aimed at reducing greenhouse gas emissions. Emission rights received from governments free of charge to emit a fixed tonnage of carbon dioxide in a fixed period of time give rise to an intangible asset for the emission rights, a government grant and a liability for the obligation to deliver emission rights equal to the emissions that have been made during the compliance period. Emission rights are initially recognised as intangible assets based on market value at the date of initial recognition. Emission rights are not amortised. If the market price of emissions rights at the balance sheet date is less than the recognised costs, any surplus emission rights that are not required to cover actual and estimated emissions during the financial year, are impaired to the market price. Government grants are recognised as deferred income in the balance sheet at the same time as emission rights and are recognised in other operating income in the income statement, systematically, over the compliance period to which the corresponding emission rights relate. The liability to deliver emission rights is recognised based on actual emissions. The emissions realised are expensed under other operating costs and expenses in the income statement and presented as a provision in the balance sheet. The liability is settled using emission rights on hand, measured at the carrying amount of those emission rights. Emission rights and associated provisions are derecognised when disposed. Any profit or loss represents the costs of purchasing additional rights to cover excess emissions, the sale of unused rights in the case realised emission are under emission rights received free of charge or the impairment of unused emission rights. 2.4 Earnings per share and dividend According to UPM dividend policy approved by the Board of Directors in 2015, the company aims to pay an attractive dividend amounting to 30-40% of the group annual operating cash flow per share. The dividend paid in 2016 were EUR 400 million (EUR 0.75 per share) which is 34% of the operating cash flow per share and in 2015 EUR 373 million (EUR 0.70 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 506.8 million, EUR 0.95 per share, will be paid in respect of 2016. The proposed dividend represents 30% of UPM’s operating cash flow per share for the year 2016.

EUR Earnings and dividend per share

Accounting policies

2.00

Earnings per share Earnings per share (EPS) is the amount of profit for the period attributable to each ordinary share. The basic earnings per share are computed using the weighted average number of shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of shares outstanding during the period plus the dilutive effect of share options. The group did not have share- option schemes at the end of 2016 and 2015. Dividend Dividend distribution to the owners of the parent company is recognised as a liability in the group’s consolidated financial statements in the period in which the dividends are approved by the parent company’s shareholders.

1.60

1.20

0.80

0.40

0

12

13 14 15 16

–2.14

■ Earnings per share ■ Dividend per share (2016: proposal)

Other operating income

EURm

2016

2015

Gains on sale of non-current assets

59 16 16 28

20 15 22 18 16 13 –78

Rental income

Emission rights received

3.

Employee rewards

3.2 Key management personnel Remuneration policy

Derivatives, non-qualifying hedges Exchange rate gains and losses

6

3.1 Employee costs

Other Total

16

The Annual General Meeting 2016 decided to leave the Board remuneration unchanged. The Chairman of the Board receives an annual fee of EUR 175,000, Deputy Chairman of the Board and Chairman of the Audit Committee EUR 120,000 and other members of the Board EUR 95,000. No annual fee is paid to the President and CEO for his role as a member of the Board. The annual fee is settled partly in company’s shares and partly in cash so that 40% of the fee is paid in the company shares to be acquired on the Board members’ behalf, and the rest in cash. The company pays the costs and transfer tax payable related to the acquisition of the company shares. In 2016, 4,235 (4,193) company shares were paid to the Chairman, 2,904 (2,875) shares to the Deputy Chairman and the Chairman of the Audit Committee respectively and 2,299 (2,276) shares to each of the other members of the Board.

140

EURm

2016

2015

In 2016, gains on sale of non-current assets includes EUR 47 million related to sale of Schwedt mill assets.

Salaries and fees

969

967

Share-based payments

24

16

Pension and other post-employment benefits, defined benefit plans Pension costs, defined contribution plans

21

32

Emission rights The group has recognised in Other operating income of EUR 16 million (22 million) income and under Other operating costs and expenses of EUR 9 million (14 million) expenses relating to CO 2 emissions. The liability to cover the obligation to return emission rights amounted to EUR 9 million (14 million) and is recognised in provisions. The emission rights recognised in intangible assets are specified below.

107 124

117 125

Other indirect employee costs 1)

Total

1,246

1,257

1) Other indirect employee expenses primarily include other statutory social expenses, excluding pension expenses .

EURm

2016

2015

Carrying value, at 1 January

52 14

43 24

Emission rights received and purchased

Shareholdings (no. of shares) and fees of the Board of Directors

Deliveries and disposals

–14

–15

Impairment

–7 –1 45 52 –7 45

– –

Shareholdings 31 December

Fees (EUR 1,000)

Translation differences

2016

2015

2016

2015

Carrying value, at 31 December

52 54 –2 52

Board members Björn Wahlroos, Chairman

Accumulated costs

256,677 306,482

254,442 303,578

175 120

175 120

Accumulated impairments

Berndt Brunow, Debuty Chairman

Carrying value, at 31 December

Henrik Ehrnrooth Piia-Noora Kauppi

4,575

2,276

95

95

14,460 35,224 304,064 6,600 38,396 4,575 16,374 987,427

11,856 32,925 220,275

120

120

Wendy E. Lane

95

95

Jussi Pesonen, President and CEO

–

–

Accounting policies

Ari Puheloinen

4,301

95 95 95 95

95 95 95 95

Veli-Matti Reinikkala

36,097

Research and development costs Research and development costs are expensed as incurred, except for certain development costs, which are capitalised as they generate future economic benefits, and UPM can the measure the cost reliably. Capitalised development costs are amortised on a systematic basis over their expected useful lives, usually not exceeding five years. Government grants Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and the group will comply with the attached conditions. Government grants relating to the purchase of property, plant and equipment are deducted from

Suzanne Thoma

2,276

Kim Wahl

14,075 882,101

Total

985

985

Earnings per share

2016

2015

Profit attributable to owners of the parent company, EURm Weighted average no. of shares (1,000)

879

916

533,505 533,505

Basic earnings per share, EUR Diluted earnings per share, EUR

1.65 1.65

1.72 1.72

CONTENTS

ACCOUNTS

116

117

UPM Annual Report 2016

UPM Annual Report 2016