UPM Annual Report 2018

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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

OUR EMPLOYEES BY REGION

7,390 Finland

Empowering by inspiring leaders Achieving our ambitious targets requires the committed input of skilled people and teams, empowered by inspiring leaders. We strive to lead by example, in accordance with company values and with integrity. UPM continuously invests in developing leadership capabilities and management teams. Our development programmes support our three cornerstones of leadership: leading oneself, leading people and leading business. Dealing with complexity, improving coaching capabilities and promoting inspiring leadership have been the key areas of development in recent years. Our leadership development solutions are renewed constantly. In 2019, UPMwill continue to foster a growth mindset and improve the skills needed to enable performance, such as coaching, conversation and feedback skills. UPM’s learning platform offers digital solutions for achieving quality conversation skills and improved feedback to a wide, scalable audience of managers and individual contributors. Leadership development focuses on front-line managers, as they lead most of our employees. UPM aims to have world-class management teams. In 2018, management teams continued to implement development actions based on their self- assessments and development plans. Developing a diverse and inclusive workplace We value diversity and strive for an inclusive culture. We respect the privacy of our employees and promote equal opportunities and objectivity in employment and career development. In addition to building a culture of Aiming Higher, we are committed to developing local conditions that ensure an inclusive and diverse working environment. UPM addresses diversity as a part of Aiming Higher. It regularly reviews its diversity status and defines intent for each business and function. UPM management teams regularly conduct self-assessments that include diversity and inclusion. We welcome the talent of people with different competencies, backgrounds and experiences, as well as genders, ages and nationalities. This contributes to a richness of views, thereby improving decision-making and business success. Inclusive behaviour is integrated into key UPM leadership development programmes and emphasised in UPMCode of Conduct training. Rewarding and recognising high performance UPM rewards and recognises high performance. Our approach to compensation consists of a base salary, benefits and incentives, which are determined by UPM’s global rules, local legislation, general agreements, local market practices, the level of the position and individual performance. Gender, age, ethnic origin and nationality play no role in determining salaries and wages. Intangible recognition is included in the total reward portfolio, which means that UPMprovides, for instance, a safe and healthy working environment, interesting and meaningful work and good leadership and career opportunities. UPM designed its reward policy to increase employee commitment to and motivation for high performance. We want to recognise the performance of all our employees. They all belong to a unified annual Short-Term Incentive (STI) scheme covering group and business-level targets, as well as personal and team performance targets. The annual incentives paid in 2018 for the 2017 STI plan were EUR 62 million and the estimated amount of annual incentives for the 2018 STI plan is EUR 66 million. To recognise significant individual or team success, we have a separate Achievement Award system. It is designed to support UPM’s high-performance culture and recognise individuals and teams for outstanding contribution, significant achievements and exceptional performance. In addition to the Short-Term Incentive scheme, we provide two long- term incentive plans: Performance Share Plan (PSP) for senior executives and Deferred Bonus Plan (DBP) for other key employees. The annually launched plans cover approximately 400 employees.

97% 3% Full time Part time

4,063 Germany

3,711 Other Europe

889 North America

1,798 China

317 Other Asia

Rest of the world

219

591 Uruguay

18,978 Total

Encouraging learning We encourage our employees to pursue professional growth and support them in learning and developing their skills. Ensuring high performance for business success and continuous professional development are UPM’s long-term goals. We are committed to offering our people a skill set fit for the changing business environment. We aim for all employees to have individual development plan. In 2018, 61% of employees had such a plan. UPM applies the learning and development framework 70-20-10, where 70% of the learning takes place on the job, 20% comes from colleagues and 10% comes from off- the-job training. Digital learning content can be created and shared flexibly in UPM’s learning platform, Workday, launched in 2017. In the changing and ever more complex business environment, enhancing employees’ capabilities and well-being is important for both business success and sustained employability. UPM encourages its employees to develop a range of skill sets and offers a variety of training opportunities. We are determined to be a responsible and attractive employer now, as well as in the future. Enabling renewal through recruitment programmes UPM’s apprenticeship programmes in Finland and Germany, for example, are ways to ensure the required level of expertise for future employees. The programmes are typically targeted at shop floor positions in production or maintenance. UPM conducts the programmes with regional vocational schools. In Finland and Germany, approximately 100 people join the programmes annually. Most of the graduated apprentices have continued to work at UPM. Being the employer of choice has become crucial when recruiting new employees and especially young professionals. We organised several successful graduate programmes in recent years and will continue to do so annually. We have also started a project on developing employee experience. At first phase, the project focuses on the new employees joining UPM. Its purpose is to create a smooth and engaging onboarding experience that best meets the needs of new employees and managers. Attracting new talent helps us maintain our position now and in the future. According to 2018 annual research on professionals in Finland, UPMwas the most attractive employer among female engineers. Following our systematic employer branding work, our position among students and professionals has been recognised by external parties in Finland and China.

79% 21%

ACTIVE FEEDBACK CULTURE ENABLES BETTER PERFORMANCE Being interested in your own work and taking responsibility for what you do increase motivation and encourage personal development. But is there something you could do better? How do your colleagues and managers see your input? In 2018, UPM introduced a new approach for leading and enabling performance that creates a framework for continuous learning with frequent employee- manager discussions, agile goal setting, and asking, receiving and giving feedback. Active feedback encourages employees to learn how feedback can be harnessed for their personal development. Multidirectional feedback helps everyone clarify their strengths and understand the overall picture as well as focus on key actions. By asking and receiving comments on your performance you will also develop better skills in giving feedback to others: sharing observations will also help your colleagues to learn. At the same time, you create goals to pursue. Encouraging everyone to perform at their best is another step on UPM’s journey towards becoming a passionate, outward looking, diverse, co-operative over boundaries team, run with world-class management.

UPM PERSONNEL IN FIGURES 2018 2017 2016 Turnover % 8.9 9.2 9.0 Turnover % (voluntary) 4.1 3.9 3.2 Average age of personnel 44.0 44.5 43.7

People development Average training hours (hours/employee)

12 13 1)

13 1)

OHS figures, UPM workforce Lost-time accident frequency Total recordable injury frequency Number of occupational diseases 3) OHS figures, contractors Lost-time accident frequency Total recordable injury frequency Absenteeism % 3)

2.7 3.3 3.7 6.9 8.2 9.3 3.9 3.8 3.4 6 17 12

3.3 7.0 6.2

5.8

9.4 7.5 2)

1) Reflects active employees 2) Figure for last 9 months of the year, excl. Germany and Austria 3) Reflects own employees

71%

TARGETS 2030