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

COMPOSITION OF MANAGEMENT BODIES

Committee work in 2018 The importance and extent of the committee work has increased in recent years and will continue increasing following the upcoming changes in the regulatory framework. However, the Board evaluation results for 2018 indicate that the distribution of tasks between the full Board and its committees is deemed appropriate and that the committees contribute effectively to the Board’s work and focus on the right issues. Audit Committee The duties and responsibilities of the Audit Committee are related to the oversight of the company’s financial reporting processes and financial reporting, internal control, internal audit and risk management, and to monitoring the company’s audit and compliance procedures. In 2018, the committee held six meetings. In addition to its regular duties, the committee reviewed, for example, the following topics in these meetings: • Revision of UPMRisk Management Policy (approved by the Board in January) • Global settlement agreement related to the completion of the Olkiluoto 3 construction project • Internal control development plan • Revision of UPMApproval Policy (approved by the Board in April)

Nomination and Governance Committee Duties and responsibilities of the Nomination and Governance Committee are related to the composition, diversity and remuneration of the Board of Directors and to corporate governance. When needed, the committee also identifies individuals qualified to serve as the President and CEO. In 2018, the committee held four meetings. In addition to its regular duties, the committee reviewed, for example, the following topics during the year:

• Implementation of IFRS 16 Leases (new standard applicable from 1 January 2019) • IT compliance, cybersecurity and data privacy • UPMmisconduct investigation protocol • Implementation of UPMDisclosure Policy • Lead audit partner rotation (lead audit partner rotation mandatory in 2021) The lead audit partner attended all committee meetings and reported to the committee on the interim procedures and findings and quarterly audit and non-audit fees and services. The committee also held quarterly non-executive sessions with the internal and statutory auditors and held sessions with the members of the executive management, and among the committee members, at every meeting. The Audit Committee has prepared the Board’s proposal to the AGM 2019 for the election and remuneration of the auditor. In this connection, the committee evaluated the qualifications and independence of the auditor, and the auditor’s provision of audit- related and non-audit services. The evaluation included an assessment of the effectiveness of the audit process, quality of audit, performance of the lead auditor and the audit team, and co-operation with the auditor’s international audit network. As a result of this evaluation, the committee recommended to the Board the re-election of PricewaterhouseCoopers Oy as the company’s auditor and the Board concurred with this proposal and has made a

corresponding proposal to the AGM 2019. According to PricewaterhouseCoopers Oy, Authorised Public Accountant Mikko Nieminen would succeed Authorised Public Accountant Merja Lindh as the lead audit partner. Mr Nieminen is the CEO of PwC Finland and acts as the lead audit partner for two other public companies: Kesko Corporation and Finnair Plc. Remuneration Committee are related to the remuneration of the President and CEO and of senior executives who report directly to the President and CEO, and to the review of the company’s talent and succession planning procedures for senior management. In 2018, the committee held four meetings. In addition to its regular duties, the committee was occupied, for example, with the following topics in these meetings: • Implementation of EU Shareholders’ Rights Directive • Remuneration market trends • Achievement award payments • Payments related to EVP UPMBiorefining (see the next page) Transposition of the EU Shareholders’ Rights Directive into Finnish legislation and its implications for the company will be on the committee’s agenda in 2019. Remuneration Committee Duties and responsibilities of the

GROUP EXECUTIVE TEAM BUSINESS AREA BOARDS STRATEGY TEAM President and CEO (Ch.) President and CEO (Ch.) President and CEO (Ch.) CFO CFO CFO General Counsel General Counsel General Counsel Business area EVPs Business area EVP EVP Strategy EVPs of global functions EVPs of global functions EVP Technology

Executive management Jussi Pesonen has been the President and Chief Executive Officer of UPM-Kymmene Corporation since January 2004. He has also been a member of the company’s Board of Directors since March 2007. The President and CEOmanages and oversees the company’s day-to-day business operations. In practice, the President and CEO chairs the Group Executive Team, Strategy Team and Business Area Boards and makes decisions on matters that are relevant to the company’s daily business operations at the meetings of these management bodies. The compositions of these management bodies are presented in the table above. Read more on our management system in the Corporate Governance Statement 2018 and at www.upm.com/governance. Members of the Group Executive Team, including information on the executives’ biographical details, professional and educational backgrounds, other significant commitments and shareholdings in the

• Amendments to the Articles of Association (2018 AGM approved the proposed amendments) • Reviewof the Board and committee charters • Board training

company, are presented on pages 94–95 of this report. Management responsibilities Members of the Group Executive Team carry the main responsibility for the business areas and global functions that they lead. These areas of responsibility are shown in the illustration below. Heikki Vappula, Executive Vice President of UPM Biorefining Business Area, died in a plane crash while on a private trip in Zimbabwe on 23 November 2018 (stock exchange release on 24 November 2018). Heikki Vappula is greatly missed by his colleagues and business partners globally. The President and CEO Jussi Pesonen has assumed temporary responsibility as the Head of UPMBiorefining as of 26 November 2018 (investor news on 26 November 2018). UPM has initiated a process for permanent management arrangements in UPM Biorefining.

The Nomination and Governance Committee has proposed to the AGM 2019 that all the incumbent directors be re-elected to the

Board. This proposal is based on the committee’s careful and thorough

consideration of the Board’s effectiveness, independence, diversity and balance of relevant director qualifications and competences in relation to the requirements set by the company’s strategic direction, evolving operations and development stage.

• Valuation of forest assets • Valuation of energy assets

• Auditor rotation in peer companies (auditor rotation mandatory in 2024)

RESPONSIBILITY AREAS OF THE MEMBERS OF THE GROUP EXECUTIVE TEAM

PRESIDENT AND CEO JUSSI PESONEN

CFO 1)

Jussi Pesonen (temporarily) UPM Biorefining

Tapio Korpeinen

General Counsel

UPM Energy

Juha Mäkelä

Tapio Korpeinen

Strategy

UPM Raflatac

Kari Ståhlberg

Antti Jääskeläinen

Technology 2)

UPM Specialty Papers

Jyrki Ovaska

Bernd Eikens

Human Resources

UPM Communication Papers

Riitta Savonlahti

Winfried Schaur

Stakeholder Relations 3)

UPM Plywood

Pirkko Harrela

Mika Sillanpää

1) Incl. Finance & Control, Treasury, IR, IT, Sourcing and Real Estate (incl. Finnish forest assets) 2) Incl. Investment Management, R&D, new business development (biochemicals, biocomposites) 3) Incl. Brand & Communications, Responsibility, Public & Media Relations

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CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018