UPM Annual Report 2016

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Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

UPM Plywood

Other operations

Board of Directors and the Group Executive Team

Shares 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.

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.

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.

EURm Comparable EBIT % of sales

EURm Comparable EBIT

60 50 40 30 20 10 0

18 15 12

48 40 32 24 16

9 6 3 0

8 0

15 16

2016

2015

2016

2015

Sales, EURm

444

439

Sales, EURm

285 –35

406 –16

Comparable EBITDA, EURm

% of sales

18.1

17.8

Change in fair value of forest assets and wood harvested, EURm Share of results of associates and joint ventures, EURm Depreciation, amortisation and impairment charges, EURm

331

Depreciation, amortisation and impairment charges, EURm

–22

–23

Operating profit, EURm

% of sales

13.2

12.1

–13

–13 306

Items affecting comparability in operating profit, EURm 1)

Operating profit, EURm

–

–2 55

Items affecting comparability in operating profit, EURm 1)

Comparable EBIT, EURm

268

% of sales

13.2 259 22.6

12.5 263 20.9

Comparable EBIT, EURm

Capital employed (average), EURm

Litigation

Capital employed (average), EURm

1,541

1,483

Comparable ROCE, %

0.9

2.6

Plywood deliveries, 1,000 m 3

764

740

» Refer Note 9.2 Litigation, of consolidated financial statements 2016 for information on legal proceedings.

1) 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.

1) 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.

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.

CONTENTS

ACCOUNTS

UPM Annual Report 2016

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