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

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS 2018

COMMITTEE MEMBERS 2018

ATTENDANCE/ NO. OF BOARD MEETINGS

ATTENDANCE/NO. OF COMMITTEE MEETINGS

AVERAGE ATTENDANCE %

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION AND GOVERNANCE COMMITTEE

ATTENDANCE %

DIRECTOR

Piia-Noora Kauppi (Chairman)

Veli-Matti Reinikkala (Chairman)

Björn Wahlroos (Chairman)

Björn Wahlroos (Board and NGC Chairman) Berndt Brunow (Deputy Chairman, NGC member)

8/8 8/8 8/8 8/8 7/7 1/1 8/8 8/8 8/8 8/8 8/8

100 100 100 100 100 100 100 100 100 100 100

4/4 4/4 4/4 6/6 4/5 1/1 4/4 4/4 4/4 6/6 –

100 100 100 100

100 100 100 100 91.6 100 100 100 100 100 100

Marjan Oudeman* )

Henrik Ehrnrooth

Berndt Brunow

Henrik Ehrnrooth (RC member) Piia-Noora Kauppi (AC Chairman)

Kim Wahl

Suzanne Thoma

Ari Puheloinen

Marjan Oudeman (Board and AC member from 5 April) Wendy E. Lane (Board and AC member until 5 April)

* ) Succeeding Wendy E. Lane, who stepped down from the Board on 5 April 2018.

100

Jussi Pesonen

–

Ari Puheloinen (NGC member) Veli-Matti Reinikkala (RC Chairman)

100 100 100 100

Suzanne Thoma (RC member)

Board committees The Board has three committees assisting it in the preparation of matters to be decided by the Board: • Audit Committee • Remuneration Committee, and • Nomination and Governance Committee. The committees also assist the Board in its oversight and monitoring responsibilities. The Board is always responsible for the performance of any duties assigned to the committees. The Nomination and Governance Committee assisted the Board in reviewing the composition, qualification criteria and duties of the Board committees, and made a proposal to the Board for the appointment of committee members and chairmen. The directors appointed to the Board committees in the Board’s constitutive meeting on 5 April 2018 are shown in the table above. Neither the President and CEO nor other company executives may be members of any Board

December. Directors evaluated the performance of the Board and of the committees in relation to their duties and responsibilities, Board and committee composition and structure, Board culture, effectiveness of Board and committee meetings, individual director contribution, and performance of the Chairman of the Board. The overall results of the 2018 self- evaluation survey were very favourable and indicated that the Board, Chairman of the Board and the Board committees are functioning very effectively. The Board’s review of the company’s financial targets and monitoring of the company’s financial performance received very high scores. The Board members also found that the Board is effective in its pursuit of a value-driven and performance-oriented culture that aligns management’s compensation with long-term performance. In 2019, the Board will allocate more time to the review of management succession plans and will emphasise the oversight of strategic priorities.

committees. The written committee charters approved by the Board of Directors set forth the purposes, composition, operations and duties of each committee, as well as the qualifications required for committee membership. The charters are available on the corporate website. Each committee is responsible for carrying out the duties assigned to it in its charter. The committees hold their meetings prior to Board meetings in order to prepare matters to be decided by the Board. In the Board meeting following the committee meetings, the Committee Chairmen report to the Board on matters discussed and actions taken by the committees. Furthermore, minutes of committee meetings are kept and submitted to the Board members for their information. All committee meeting materials are available to the Board members before and after the meetings.

Kim Wahl (AC member)

NGC – Nomination and Governance Committee, RC – Remuneration Committee, AC – Audit Committee

risks and opportunities. These risks and opportunities and their impact on operations and strategy are described on pages 30–31. In 2018, the Board’s strategic considerations focused on the operating platform development in Uruguay. This development plan was initiated in 2015 and discussions with the Government of Uruguay relating to logistical infrastructure and the operating environment took place in 2016. The purpose of these discussions was to outline the local prerequisites for a possible pulp mill investment in central Uruguay. In November 2017, UPM and the Government of Uruguay signed an investment agreement detailing the roles, commitments and timelines for both parties, as well as the relevant items to be agreed on prior to the potential investment decision, which is subject to significant progress in the implementation of the agreed infrastructure initiatives. The Board monitored the progress of these initiatives throughout the year. Read more on these initiatives and the planned strategic investment amounting to approximately EUR 2 billion on pages 18–19. Strategic focus areas in 2019 The Board has recognised that the strategic risk assessment is even more relevant with potential major investments ahead and growing economic and political uncertainties in several markets. In 2019, the Board will continue to closely monitor the progress of the infrastructure initiatives in Uruguay. The second preparation phase of the operating platform development, which is expected to take some 1.5 to 2 years, has proceeded according to plan, meaning READ MORE: upm.uy/en/growth

executive directors are independent of the company, including Berndt Brunow, Veli- Matti Reinikkala and BjörnWahlroos, who have been the company’s non-executive directors for more than ten consecutive years. Based on the Board’s overall evaluation of these directors’ independence, their independence is not compromised due to their long service history, and no other factors or circumstances have been identified that could impair their independence. As the President and CEO of the company, Jussi Pesonen is not independent of it. Board work in 2018 The Board held eight meetings in 2018. There is no minimum attendance requirement for directors’ attendance at the meetings. Instead, directors are expected to attend all meetings unless there is a valid reason for non- attendance. The directors’ average attendance at the Board meetings was 100% (96.7% in 2017) and at the committee meetings 97.6% (100% in 2017). Directors’ personal attendance rates are presented in the table above. In connection of its meetings, the Board also held non-executive sessions and sessions with the auditor without executives present. Strategic focus areas in 2018 In line with its main duties and responsibilities, the Board reviewed and approved updated strategic plans in its strategy session inMay. The main elements of UPMBiofore strategy continue to be performance, growth, innovation, responsibility and portfolio development. In 2018, this strategy was enhanced by a new brand promise: UPMBiofore – Beyond Fossils (read more on pages 8–15). An essential part of the Board’s annual strategy work is the review and consideration of strategic and operational

that the investment decision, if any, can be expected in 2019 at the earliest. The Board will also follow two other interesting strategic business opportunities relating to the company’s biochemicals and biofuels businesses and the potential construction of industrial scale biorefineries in Germany and Finland. If all preparation phases of these business platform opportunities are concluded successfully, the company will initiate its standard analysis procedure and prepare investment proposals for Board approval. (Read more on pages 21 and 34.) The third nuclear power plant unit in Olkiluoto has been a matter of concern for the Board throughout the seriously delayed construction project as the company is involved in this project through its energy shareholdings (read more on these holdings and on this project on pages 107 and 171–172). As the construction project is approaching completion and production start-up is expected in 2020, Olkiluoto 3 will be one of the Board’s focus areas in 2019. Board evaluation The Board conducts an annual evaluation of its performance and working methods, including an evaluation of the performance and working methods of its committees. In addition, the committees evaluate their performance and working methods on an annual basis. The Nomination and Governance Committee assists the Board in the annual evaluation and in the review of the survey results and takes the results into consideration when preparing the Board’s proposal for the composition of the Board to the Annual General Meeting. In 2018, the evaluation was conducted as a self-assessment and its results were reviewed and discussed at the Board meeting in