UPM Annual Report 2017

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

3. Employee rewards

Accounting policies Research and development costs

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.

3.1 Employee costs

3.2 Key management personnel The Annual General Meeting 2017 decided to raise the annual Board fees, which had remained the same since 2007, and also adopted annual committee fees, which had not been paid earlier. The Chairman of the Board of Directors receives an annual base fee of EUR 190,000, the Deputy Chairman of the Board EUR 135,000 and other members of the Board EUR 110,000. The annual base fee is paid in company shares and cash so that 40% of the fee is paid in the company shares to be purchased on the Board members’ behalf, and the rest in cash. The company pays any costs and transfer tax related to the purchase of the company shares. The annual committee fees are paid in cash. No annual fees are paid to the President and CEO for his role as a member of the Board. In 2017, 3,067 (4,235) company shares were paid to the Chairman, 2,179 (2,904) to the Deputy Chairman, 1,776 (2,904) to the Chairman of the Audit Committee and 1,776 (2,299) to other members of the Board.

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 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.

EURm

2017

2016

Salaries and fees

965

969

Share-based payments

23

24

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

57

21

107 113

107 124

Other indirect employee costs 1)

Total

1,265

1,246

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

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

Annual base fee (EUR 1,000)

Annual committee fee 1) (EUR 1,000)

Shareholdings 31 December

2017

2016

2017

2016

2017

2016

Board members Björn Wahlroos, Chairman

259,744 308,661

256,677 306,482

190 135 110 110 110 110 110 110 110 –

175 120

20 10 10 35 15 10 20 10 15 –

– – – – – – – – – – –

Berndt Brunow, Debuty Chairman

Henrik Ehrnrooth Piia-Noora Kauppi

6,351

4,575

95

2.4 Earnings per share and dividend According to UPM dividend policy, 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 2017 were EUR 507 million (EUR 0.95 per share) which is 30% of the operating cash flow per share and in 2016 EUR 400 million (EUR 0.75 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 613.3 million, EUR 1.15 per share, will be paid in respect of 2017. The proposed dividend represents 39% of UPM’s operating cash flow per share for the year 2017.

16,236 37,000

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

120

EUR Earnings and dividend per share

Wendy E. Lane

95

Jussi Pesonen, President and CEO

353,491

–

2.00

Ari Puheloinen

8,376 41,172 6,351 18,150

95 95 95 95

Veli-Matti Reinikkala

1.60

Suzanne Thoma

1.20

Kim Wahl

0.80

Total

1,055,532

1,095

985

145

0.40

Annual committee fee introduced in 2017.

1)

0

13

14 15 16 17

■ Earnings per share ■ Dividend per share (2017: proposal)

Salaries and benefits of the President and CEO and the Group Executive Team

President and CEO Jussi Pesonen

Other members of Group Executive Team 1)

EUR 1,000

2017 1,049 1,119 2,656

2016 1,049

2017 3,934 2,088 8,174

2016 3,564 1,779 6,269

Earnings per share

Salaries

Accounting policies

Short-term incentives

888

2017

2016

Share rewards

3,098

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 2017 and 2016. 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.

Benefits

31

30

251

231

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

973

879

Total

4,854

5,065

14,446

11,843

533,415 533,505

11 members in 2017 and 2016.

1)

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

1.82 1.82

1.65 1.65

In 2017, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 413,000 (370,000) and payments under the voluntary pension plan were EUR 1,170,000 (1,000,000). In 2017, costs under the Finnish and German statutory pension schemes for Group Executive Team (GET) members (excluding the President and CEO) amounted to EUR 899,000 (881,000) and payments under the voluntary pension plan were EUR 850,000 (818,000).

The remuneration of the President and CEO and other members of the Group Executive Team consists of the base salary and benefits, short-term incentives and long-term share-based incentives. The short-term incentive plan for the President and CEO and other members of the Group Executive Team is linked to the achievement of the predetermined financial targets of the group or business area as well as individual targets. The incentives amount to a total maximum of 100% of annual base salary to the Business Area Executives and to a total maximum of 70% of annual base salary to the other members

CONTENTS

ACCOUNTS

124

125

UPM Annual Report 2017

UPM Annual Report 2017