UPM Annual Report 2016

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Auditor’s report (Translation from the Finnish Original)

18. Current liabilities

PAYABLES TO PARTICIPATING INTEREST COMPANIES

PAYABLES TO GROUP COMPANIES

To the Annual General Meeting of UPM-Kymmene Corporation

EURm 2016 Bonds

TOTAL

Report on the audit of the financial statements

292

– – –

– – – 1 – – 1 – – – 2 – 1 3

Loans from financial institutions

3

Pension loans Trade payables

68

252 233

40 16

Basis for opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Opinion

Accruals and deferred income

Other current liabilities

2,210 3,058

2,161 2,217

Carrying value, at 31 December

In our opinion, • the consolidated financial statements give a true and fair view of the group’s financial performance and financial position in accor- dance with International Financial Reporting Standards (IFRS) as adopted by the EU • the financial statements give a true and fair view of the parent company’s financial performance and financial position in accor- dance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requi- rements. What we have audited We have audited the financial statements of UPM-Kymmene Corporation (business identity code: 1041090-0) for the year ended 31 December, 2016. The financial statements comprise: • the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies • the parent company’s balance sheet, income statement, statement of cash flows and notes.

2015 Loans from financial institutions

13 68

– – –

Pension loans

Advances received

1

Trade payables

353 260

51 20

Accruals and deferred income

Other current liabilities

1,474 2,169

1,418 1,489

Carrying value, at 31 December

EURm

2016

2015

Accruals and deferred income Personnel expenses

78 32

116

Interest expenses

36 97

Derivative financial instruments

120

Customer rebates

– 1 1

8 – 3

Income taxes Other items

Carrying value, at 31 December

233

260

Our audit approach

OVERVIEW

19. Commitments

Materiality

• Overall group materiality: EUR 54 million, which represents 5% of profit before tax.

EURm

2016

2015

Pension commitments of the President and CEO and the members of the Group Executive Team Refer Note 3.2 Key management personnel. Related party transactions Refer Note 8.3 Related party transactions . Derivatives All financial derivative contracts of the group were made by the parent company. All contracts were made with external counterparties except for one cross currency swap used in managing foreign currency risk of the group internal assets. Hedge accounting was not applied. Derivatives were initially recognised at cost in the balance sheet. The fair value losses of financial derivatives were recognised through the income statement and presented as a provision in the balance sheet. Financial risks, fair values and maturities of the group external derivatives are disclosed in Note 6.1 Financial risk management and Note 6.2 Derivatives and hedge accounting and the group internal financial derivative in Note 16 Provisions of the parent company.

Group scoping

• The entities in scope included two individually significant components, nine significant components and four components with selected significant financial statement line items.

Mortgages 1) As security against own debt

138

220

• Valuation of forest assets • Valuation of energy shareholdings • Recoverability of deferred tax assets • Litigations

As security against group companies’ debt Guarantees Guarantees for loans on behalf of Group companies Other guarantees on behalf of Group companies Other commitments Leasing commitments, due within 12 months Leasing commitments, due after 12 months

13

–

Key audit matters

57

159

41

53

Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

25 65

25

147 175 779

Other commitments 2)

146 485

Total

1) Mortgages given relate mainly to mandatory security for borrowing from Finnish pension insurance companies.

2) Other commitments relate mainly to commodity contracts.

CONTENTS

ACCOUNTS

158

159

UPM Annual Report 2016

UPM Annual Report 2016