UPM Annual Report 2017

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Independent Practitioner’s Assurance Report

Accounts for 2017

TotheManagementofUPM-KymmeneCorporation We have been engaged by theManagement of UPM-Kymmene Corporation (hereinafter also “the Company”) to perform a limited assurance engagement on selected corporate responsibility information for the reporting period 1 January 2017 to 31 December 2017, disclosed in UPM-Kymmene Corporation’s Annual Report 2017 and on its website in section “Responsibil- ity” (hereinafter “the CR Reporting”). The assured information is indicated in the Compa- ny’s GRI Content Index 2017 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 GRI Standards Sustainability Reporting Guidelines of the Global Reporting Initiative. TheManagement of UPM-Kymmene Corpora- tion is also responsible for such internal control as the management determines is necessary to enable the preparation of CR Reporting that is free frommaterial 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 AccountA- bility Principles based on the procedures we have performed and the evidence we have obtained. 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 assurance engagement involves performing procedures to obtain evidence about the amounts and other disclosures in the CR Reporting, and about the Company’s adherence to the AA1000 Account­ Ability Principles. The procedures selected depend on the practitioner’s judgement, includ- ing an assessment of the risks of material mis- statement of the CR Reporting and an assess- ment of the risks of the Company's material nonadherence to the AA1000 AccountAbility Principles. Our work consisted of, amongst others, the following procedures: • Interviewing senior management of the Company. • Interviewing employees from various organi- sational levels of the Company with regards to materiality, stakeholder expectations, meeting of those expectations, as well as stakeholder engagement. • Assessing stakeholder inclusivity and respon- siveness based on the Company’s documenta- tion 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 con- ducting web conferences with two sites in Finland and one site in Uruguay. • Interviewing employees responsible for col- lecting and reporting the information pre- sented 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 reporting period ended 31 December 2017 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 continues to enhance the use of different methods for obtaining stakeholder feedback on the materiality 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 19 February 2018 PricewaterhouseCoopers Oy Sirpa Juutinen Partner Sustainability &Climate Change

Report of the Board of Directors

94

Board of Directors’ proposal for the distribution of profits

110

Consolidated financial statements, IFRS

111

Consolidated income statement and statement of comprehensive income

111 112 113 114 115

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

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

5. Capital structure 5.1 Capital management

115 115 116

140

5.2 Net debt 142 5.3 Financial assets and liabilities by category 144 5.4 Financial income and expenses 147 5.5 Share capital and reserves 147

116 1.5 New standards and amendments adopted 117

2. Business performance 2.1 Business areas

6. Risk management 6.1 Financial risk management

117 122 123

148 150

2.2 Sales

6.2 Derivatives and hedge accounting

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

124

152 152

7.2 Deferred tax

3. Employee rewards 3.1 Employee costs

8. Group structure 8.1 Business acquisitions and disposals 153 8.2 Principal subsidiaries and joint operations 154 8.3 Related party transactions 155 8.4 Assets held for sale 155

125 125 126 127 131 133 133 134 137 139

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

4.2 Forest assets

156 156 157

4.3 Energy shareholdings

9.2 Litigation

4.4 Goodwill and other intangible assets

9.3 Events after balance sheet date

4.5 Provisions

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

4.6 Working capital

158

160

Parent company accounts

162 171 175 177

Auditor’s report

Information on shares

Financial information 2008–2017

CONTENTS

UPM Annual Report 2017 92

UPM Annual Report 2017 93