UPM annual report 2014

35 Derivative financial instruments Net fair values of derivative financial instruments 2014

37 Share-based payments Share options

The share subscription price was the trade volume weighted average quotation of the share on the NASDAQ OMX Helsinki Ltd, from 1 April to 31 May 2008 for share option 2007A i.e. EUR 12.40 per share, from 1 April to 31 May 2009 for share option 2007B i.e. EUR 6.24 per share and from 1 April to 31 May 2010 for share option 2007C i.e. EUR 10.49 per share. The share subscription period for share options 2007A ended on 31 October 2012. During the entire share subscription period 300 shares were subscribed with share options 2007A. The share subscription period for share options 2007B ended on 31 October 2013. During the entire share subscription period 4,330,009 shares were subscribed with share options 2007B. The share subscription period for share options 2007C ended on 31 October 2014. During the entire share subscription period 4,435,302 shares were subscribed with share options 2007C.

Group holding %

Subsidiaries, country of incorporation nortrans Speditionsgesellschaft mbH, DE

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 91.00 99.99

OOO UPM-Kymmene, RU

The Annual General Meeting held on 27 March 2007 approved the Board of Directors’ proposal to issue share options to the Group’s key personnel. The number of options was no more than 15,000,000, entitling subscription for a total of no more than 15,000,000 UPM- Kymmene Corporation shares. Of the share options, 5,000,000 were marked with the symbol 2007A, 5,000,000 are marked with the symbol 2007B and 5,000,000 are marked with the symbol 2007C. The subscription periods were 1 October 2010 to 31 October 2012 for share options 2007A, 1 October 2011 to 31 October 2013 for share options 2007B, and 1 October 2012 to 31 October 2014 for share options 2007C.

2013

OOO UPM-Kymmene Chudovo, RU PT UPM Raflatac Indonesia, ID

Positive fair values

Nega- tive fair values

Positive fair values

Nega- tive fair values

Net fair values

Net fair values

EURm

Rhein Papier GmbH, DE

Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG, AT

Interest rate swaps Cash flow hedges Fair value hedges Forward foreign exchange contracts Cash flow hedges Net equity hedges Held for trading

Tilhill Forestry Ltd, GB UPM (China) Co., Ltd, CN UPM (Vietnam) Ltd, VN

– –23 –23

–

–

–

201

– 201 183 –1 182

31 –2 29 32

–

32

UPM AS, EE

UPM Asia Pacific Pte. Ltd, SG

UPM France S.A.S., FR

49 –77 –28 60 –18 42

UPM GmbH, DE

– –30 –30 18

–

18

UPM Manufatura e Comércio de Produtos Florestais Ltda, BR

Held for trading

24 –18

6 23 –31 –8

UPM Raflatac (Changshu) Co., Ltd, CN

Currency options Held for trading, bought Held for trading, written Cross currency swaps Cash flow hedges

UPM Raflatac (S) Pte Ltd, SG UPM Raflatac Co., Ltd, TH UPM Raflatac Iberica S.A., ES

– –

– –

– –

– –

– –

– –

Changes in the numbers of share options granted

2014

2013

UPM Raflatac Inc., US

– –26 –26

– –24 –24

Weighted average exercise price, EUR

Number of share options

Weighted average exercise price, EUR

Number of share options

UPM Raflatac Mexico S.A. de C.V., MX

Fair value hedges Held for trading

78

–

78 46

– 46

UPM Raflatac NZ Limited, NZ

6 –90 –84

– –135 –135

Outstanding 1 Jan. Share options granted Share options forfeited Share options exercised Share options expired Outstanding 31 Dec.

10.49

4,501,500

8.71

7,734,478

UPM Raflatac Oy, FI

Commodity Contracts Cash flow hedges

– –

– –

– –

– –

UPM Raflatac Pty Ltd, AU UPM Raflatac s.r.l., AR UPM Raflatac Sdn. Bhd., MY

52 –81 –29 101 –104 –3

Held for trading

1 –23 –22

2 –20 –18

10.49 10.49

–4,433,802

6.24 6.24

–3,177,487

Interest rate forward contracts Held for trading

–67,698

–55,491

UPM Raflatac South Africa (Pty) Ltd, ZA

– –

10.49

4,501,500 4,501,500

UPM Raflatac Sp.z.o.o., PL

–

–

–

–

–

–

Exercisable share options 31 Dec.

UPM S.A., UY

Total 442 –370 72 465 –333 132 No derivative financial instruments are subject to offsetting in the Group's financial statements. All derivative financial instruments are under ISDA or similar master netting agreement.

UPM Sales GmbH, DE UPM Sales Oy, FI UPM Silvesta Oy, FI

Weighted average remaining contractual life was 10 months as at 31 December 2013.

UPM Sähkönsiirto Oy, FI UPM-Kymmene (UK) Ltd, GB

members and other selected members of the management and it consists of a three-year earning period. The earned shares are delivered after the earning period has ended. Under the plans, UPM shares are awarded based either on group-level performance or total shareholder return dur- ing a three-year earning period. Total shareholder return takes into account share price appreciation and paid dividends. The number of shares delivered to participants under Performance Share Plans as well as other key figures of the plans are presented in the table below.

Share-based rewards The Group's long-term incentives consist of the Performance Share Plan (PSP) for senior executives and the Deferred Bonus Plan (DBP) for other key employees. The Performance Share Plan consists of annually commencing three-year plans. The plan is targeted at Group Executive Team (GET)

UPM-Kymmene AB, SE

Net fair values calculated by counterparty

UPM-Kymmene Austria GmbH, AT

As at 31 December 2014

UPM-Kymmene B.V., NL UPM-Kymmene Inc., US

Positive fair values

Negative fair values

Net fair values

EURm

UPM-Kymmene India Private Limited, IN

Derivative financial instruments

219

–147

72

UPM-Kymmene Japan K.K., JP

UPM-Kymmene Kagit Urunleri Sanayi ve Ticaret Ltd. Sti, TR

Notional amounts of derivative financial instruments

UPM-Kymmene Otepää AS, EE

As at 31 December

UPM-Kymmene S.A., ES

2014 2,134 4,465

2013 1,609 4,973

EURm

UPM-Kymmene Seven Seas Oy, FI

Performance share plans No. of participants (31 Dec. 2014)

PSP 2011-2013

PSP 2012-2014

PSP 2013-2015

PSP 2014-2016

UPM-Kymmene S.r.l., IT

Interest rate swaps

30 0%

32

35

26

UPM-Kymmene Wood Oy, FI

Forward foreign exchange contracts

Actual achievement

22.3%

–

–

Werla Insurance Company Ltd, MT

Currency options

38

33

Max no. of shares to be delivered 1) : to the President and CEO

Wisapower Oy, FI

Cross currency swaps Commodity contracts

617 442

804 490

– – – –

48,837 103,695 85,855 238,387

219,000 470,000 465,000 1,154,000

125,000 410,000 347,500 882,500

The table includes subsidiaries with sales exceeding EUR 2 million.

to other members of GET to other key individuals

Interest rate forward contracts 2,332 Cash collaterals pledged for derivative contracts totalled EUR 8 million of which EUR 6 million relate to commodity contracts and EUR 2 million to interest rate forward contracts. 2,310

Total max no. of shares to be delivered

Group Joint operations, country of incorporation holding % Oy Alholmens Kraft Ab (Pohjolan Voima Oy, G serie), FI 27.88 EEVG Entsorgungs- und Energieverwertungs- gesellschaft m.b.H., AT 50.00 Järvi-Suomen Voima Oy (Pohjolan Voima Oy, G3 serie), FI 50.00 Kainuun Voima Oy, FI 50.00 Kaukaan Voima Oy (Pohjolan Voima Oy, G9 serie), FI 54.00 Kymin Voima Oy (Pohjolan Voima Oy, G2 serie), FI 76.00 Madison Paper Industries, US 50.00 Rauman Biovoima Oy (Pohjolan Voima Oy, G4 serie), FI 71.95

Share delivery (year)

2014

2015

2016

2017

Operating cash flow (60%) and EPS (40%)

Operating cash flow (60%) and EPS (40%)

Operating cash flow (60%) and EPS (40%)

Total shareholder return (100%)

Earning criteria (weighting)

36 Principal subsidiaries and joint operations as at 31 December 2014

1) For PSP 2011-2013 and PSP 2012-2014 actual no. of shares delivered.

Group holding %

Subsidiaries, country of incorporation

The Deferred Bonus Plan is targeted at other selected key employees of the Group and it consists of annually commencing plans. Each plan consists of a one-year earning period and a two-year restriction period. Prior to share delivery, the share rewards earned are adjusted with divi-

dends and other capital distribution, if any, paid to all shareholders during the restriction period. The shares earned on the basis of DBP 2011 were delivered in the spring of 2014 and shares earned on the basis of DBP 2012 in the spring of 2015. Key figures related to the Deferred Bonus Plans are presented in the table below.

Blandin Paper Company, US Forestal Oriental S.A., UY

100.00 100.00 100.00 100.00 100.00 100.00 100.00

Gebrüder Lang GmbH Papierfabrik, DE

LLC UPM Ukraine, UA MD Papier GmbH, DE

Nordland Papier GmbH, DE

NorService GmbH, DE

CONTENTS

ACCOUNTS

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UPM Annual Report 2014

UPM Annual Report 2014