UPM Annual Report 2016

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Independent Practitioner’s Assurance Report

Accounts for 2016

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)

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

104 105 106 107 108

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

5. Capital structure 5.1 Capital management

1. Basis for reporting 1.1 Corporate information 1.2 Basis of preparation 1.3 Consolidation principles 1.4 Foreign currency translation

130

108 108 109

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

109 1.5 New standards and amendments adopted 110

6. Risk management 6.1 Financial risk management

2. Business performance 2.1 Business areas

138 140

110 115 115

6.2 Derivatives and hedge accounting

2.2 Sales

2.3 Operating expenses and other operating income 2.4 Earnings per share and dividend

7. Income tax 7.1 Tax on profit for the year

142 142

116

7.2 Deferred tax

3. Employee rewards 3.1 Employee costs

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

117 117 118 119

3.2 Key management personnel 3.3 Share-based payments 3.4 Retirement benefit obligations 4. Capital employed 4.1 Property, plant and equipment

9. Unrecognised items 9.1 Commitments and contingencies

122 124 124 125 127 128

146 146 147

4.2 Forest assets

9.2 Litigation

4.3 Energy shareholdings

9.3 Events after balance sheet date

4.4 Goodwill and other intangible assets

4.5 Provisions

10. Other notes 10.1 New standars and amendments – forthcoming requirements 10.2 Alternative performance measures

4.6 Working capital

147

148

Parent company accounts

150 159 163 165

Auditor’s report

Information on shares

Financial information 2007–2016

Maj-Lis Steiner Authorised Public Accountant (KHT)

CONTENTS

UPM Annual Report 2016 88

89 UPM Annual Report 2016