UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

Other financial information Alternative performance measures UPM presents certain performance measures of historical performance, financial position and cash flows, which in accordance with the “Alternative Performance Measures” guidance issued by the European Securities and Markets Authority (ESMA) are not accounting measures defined or specified in IFRS and are therefore considered as alternative performance measures. These alternative performance measures are described below:

Other information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion • the information in the report of the Board of Directors is consistent with the information in the financial statements • the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. • If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard Other Statements We support the proposal that the financial statements are adopted. The proposal by the Board of Directors regarding the distribution of profits is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director of the parent company should be discharged from liability for the financial period audited by us.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

ALTERNATIVE PERFORMANCE MEASURE DEFINITION Operating profit

Profit before income tax expense, finance expenses and finance income and net gains on sale of energy shareholdings as presented on the face of the IFRS income statement. Gains on sale of energy shareholdings are not recorded to the income statement from 2018 onwards.

Comparable EBIT

Operating profit adjusted for items affecting comparability.

Comparable EBITDA

Operating profit before depreciation, amortisation and impairments, change in fair value of forest assets and wood harvested, share of results of associates and joint ventures and items affecting comparability.

Comparable profit before tax

Profit before income tax expense excluding items affecting comparability.

Comparable profit for the period

Profit for the period excluding items affecting comparability and their tax impact.

Comparable EPS, EUR

Earnings per share calculated in accordance with IFRS excluding items affecting comparability and their tax impact. Total of current and non-current debt less cash and cash equivalents and interest-bearing current and non-current financial assets. Certain non-operational or non-cash valuation transactions with significant income statement impact are considered as items affecting comparability, if they arise from asset impairments, restructuring measures, asset sales, fair value changes of forest assets resulting from changes in valuation parameters or estimates or changes in legislation or legal proceedings. In addition, the changes in fair value of unrealised cash flow and commodity hedges are classified as items affecting comparability. Numerical threshold for items to be considered as significant in UPM’s business areas UPM Biorefining, UPM Specialty Papers and UPM Communication Papers is determined as one cent (EUR 0.01) after tax per share or more. In other business areas, the impact is considered to be significant if the item exceeds EUR 1 million before tax.

Other reporting requirements Appointment

Net debt

Items affecting comparability

We have been acting as auditors appointed by the annual general meeting since 30 April 1996. Our appointment represents a total period of uninterrupted engagement of 22 years. The Company arranged the latest audit tendering process in 2013. Authorised Public Accountant (KHT) Merja Lindh has acted as the responsible auditor since 8 April 2014, representing a total uninterrupted period of four years.

Free cash flow

Cash generated from operations after cash used for investing activities.

Return on equity (ROE), %

Profit for the period as a percentage of average equity.

Comparable ROE, % Return on equity (ROE) excluding items affecting comparability. Return on capital employed (ROCE), % Profit before taxes, interest expenses and other financial expenses as a percentage of average capital employed.

Comparable ROCE, %

Return on capital employed (ROCE) excluding items affecting comparability.

Capital employed Group total equity and total debt. Business area’s comparable ROCE, % Business area’s operating profit adjusted for items affecting comparability as a percentage of business area’s average capital employed. Business area’s capital employed Business area’s operating assets less its operating liabilities. Operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in associates and joint-ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.

Capital expenditure

Capitalised investments in property, plant and equipment, intangible assets including goodwill arising from business combinations, energy shareholdings and other shares, associates and joint ventures.

Helsinki 15 February 2019 PricewaterhouseCoopers Oy Authorised Public Accountants

Capital expenditure excluding acquisitions and shares

Capital expenditure excluding investments in shares and participations.

Operating cash flow per share, EUR

Operating cash flow divided by adjusted average number of shares during the period excluding treasury shares.

Gearing ratio, %

Net debt as a percentage of total equity

Net debt to EBITDA

Net debt divided by EBITDA

Merja Lindh Authorised Public Accountant (KHT)

Equity to assets ratio, %

Equity expressed as a percentage of total assets less advances received.

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CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018

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