UPM Annual Report 2019

Other operations UPM Forest secures competitive wood and biomass for UPM businesses and manages UPM-owned and privately- owned forests in North Europe. In addition, UPM offers forestry services to forest owners and forest investors. UPM Biochemicals, UPM Biomedicals and UPM Biocomposites business units and group services are also included in Other operations.

Risk Risk management

Board of Directors and the Group Executive Team

UPM regards risk management as a systematic and proactive means to analyse and manage opportunities and threats related to its business operations. This also includes risks that can be avoided through careful planning and evaluation of future projects and business environments. Risk management is an integral part of UPM’s management system as risk taking is a normal part of business operations. While executing strategies, UPM and its business areas, functions and manufacturing units are exposed to a number of risk and opportunities. Each business area, function and unit is responsible for identifying, measuring and managing of risks related to its own operations, and for reporting on risk exposures, risk management activities and results to its own management team and to the Risk Management function. The Risk Management Committee, chaired by the CFO, is responsible for recommending risk tolerances and profile to the President and CEO and the Strategy Team. The Strategy Team is responsible for aligning risk management priorities, business and risk management strategies and policies. The Board of Directors, assisted by the Audit Committee, monitors and assesses the effectiveness of the company’s risk management systems and oversees the assessment and management of risks related to the company’s strategy and operations. The Audit Committee oversees that risk management activities are aligned with the Risk Management Policy, and that risk assessments are used to guide internal audit activities. UPM seeks to transfer insurable risks through insurance arrangements for any risks that exceed the defined tolerance. UPM strives to ensure compliance with the UPM Code of Conduct and other corporate policies. To enhance compliance and mitigate risks, UPM performs risk assessments, training and monitoring at regular intervals. UPM has developed and implemented a comprehensive internal control system that covers business and financial reporting processes. Internal control is aimed at ensuring that the company’s operations are efficient and reliable, and in compliance with statutory requirements, and that the company’s financial reporting is accurate and reliable, and reflects operational results. Internal control pertaining to financial reporting is described in the Corporate Governance Statement available in the corporate website. The main risk factors that can materially affect the company’s business, financial results and non-financial performance are set out below. They have been classified as strategic risks, operational risks, financial risks and hazard risks. Risks may also arise from legal proceedings incidental to UPM’s operations.

At the Annual General Meeting held on 4 April 2019, the number of members of the Board of Directors was confirmed as 10, and Berndt Brunow, Henrik Ehrnrooth, Piia-Noora Kauppi, Marjan Oudeman, Jussi Pesonen, Ari Puheloinen, Veli-Matti Reinikkala, Suzanne Thoma, Kim Wahl and Björn Wahlroos were re-elected to the Board. The directors’ term of office will end upon the closure of the next AGM. Björn Wahlroos was re-elected as Chair, and Berndt Brunow as Deputy Chair of the Board of Directors of UPM-Kymmene Corporation at the Board of Directors’ constitutive meeting that took place following the Annual General Meeting. In addition, the Board of Directors elected the chairs and other members to the Board committees from among its members. Piia-Noora Kauppi was re-elected to chair the Audit Committee, and Marjan Oudeman and Kim Wahl were re-elected as other committee members. Veli-Matti Reinikkala was re-elected to chair the Remuneration Committee, and Henrik Ehrnrooth and Suzanne Thoma were re-elected as other committee members. Björn Wahlroos was re-elected to chair the Nomination and Governance Committee, and Berndt Brunow and Ari Puheloinen were re-elected as other committee members. At the end of the year, the members of the Board of Directors including the President and CEO owned a total of 1,162,920 (1,098,533) UPM-Kymmene Corporation shares. These represent 0.22% (0.21%) of the shares and 0.22% (0.21%) of the voting rights. At the end of the year, President and CEO Jussi Pesonen owned 466,472 shares. At the end of the year, the other members of the Group Executive Team owned a total of 710,645 shares. » Refer Note 3.2 Key management personnel, of the consolidated financial statements 2019 for further information on remuneration and shares held by the members of the Board and the President and CEO and remuneration of the members of Group Executive Team. Shares held by the Board of Directors and the Group Executive Team

2019

2018

2019 compared with 2018 Comparable EBIT for other operations decreased. The change in the fair value of forest assets net of wood harvested was EUR 38 million (419 million). The increase in the fair value of forest assets was EUR 88 million (471 million). In 2018, this included EUR 345 million increase in the fair value of forest assets in Finland. The cost of wood harvested from UPM forests was EUR 51million (52 million).

Sales, EURm

264 -18

326 -28

Comparable EBITDA, EURm 1)

Change in fair value of forest assets and wood harvested, EURm 1) Share of results of associated companies and joint ventures, EURm Depreciation, amortisation and impairment charges, EURm

38

419

—

2

-27 -10

-13

Operating profit, EURm

380

Items affecting comparability in operating profit, EURm 2)

-4 -7

345

Comparable EBIT, EURm

35

Capital employed (average), EURm

1,824

1,392

Comparable ROCE, % 2.5 1) 2018 comparative figures have been restated due to accounting policy change of forest renewal costs. » Refer Note 1.5 Changes in accounting policies , of the consolidated financial statements 2019. 2) In 2019, items affecting comparability of EUR 2 million relate to restructur- ing charges and EUR 2 million to capital loss on sale of Voikkaa mill site in Finland. In 2018, items affecting comparability of EUR 345 million relates to increase in the fair value of the forest assets in Finland, mainly due to higher forest growth estimates. -0.4

Litigation

» Refer Note 9.2 Litigation, of the consolidated financial statements 2019 for information on legal proceedings.

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UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

ACCOUNTS

REPORT OF THE BOARD OF DIRECTORS

REPORT OF THE BOARD OF DIRECTORS