UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Key performance indicators

Financial targets

At the business area level, UPM targets top relative performance in their respective markets compared with key peers. UPMhas also defined long-termEBITDAmargin and ROCE targets for each of its business areas. In the case of UPMPaper ENA, these long-term targets are instead defined for cash flowmargin and cash flow return on capital employed. In UPMEnergy, where the asset base is valued at fair value, the ROCE target is 6%. In the less capital intensive converting industry, UPMRaflatac, the ROCE target is 18%. Finally, in the process industry businesses UPMBiorefining, UPMPaper Asia and UPMPlywood, the ROCE target is 10-12%, or cash return in the case of UPMPaper ENA. With the current business portfolio, achieving the business area targets simultaneously would result in a UPMGroup operating profit margin of approximately 10%, and ROCE of approximately 9%. At the Group level, UPM’s financial targets are based on return on equity and gearing. The return on equity target is at least five percentage points above the yield of a 10-year risk-free investment such as the Finnish government’s euro-denominated bonds. At the end of 2015, the minimum target for return on equity, as defined above, was 5.9%. For 2015, UPM’s return on equity excluding special items was 12.1%. The company aims to maintain a strong balance sheet. The maximum limit for gearing ratio is 90%. At the end of 2015, gearing ratio was 26%.

UPM is committed to continuous improvement in its financial, social and environmental performance. This is reflected in its selection of KPIs. The updated responsibility focus areas, targets and performance indicators are presented on page 36.

The Code of Conduct lays the foundation for responsible business operations and continuous improvement. Increasing EPS reflects earnings to share­ holders, following contributions to other stakeholders, e.g. employees, suppliers, debtors and taxes. Transparent supplier requirements form the basis of responsible sourcing throughout the entire supply chain.

Strong cash flow enables organic growth projects, business development and attractive dividends.

Improving business performance is reflected in increasing UPM operating profit. Strong

Earnings per share *) EUR 1.75 +50%

Operating profit *) EUR 1,163 million +37%

Operating cash flow per share EUR 2.22 –5%

competitiveness mitigates risks.

A strong balance sheet mitigates risks and enables value- enhancing strategic actions.

ROE measures earnings in relation to the equity.

ROE *) 12.1% +3.8pp

Gearing 26% –6pp

% of employees completed Code of Conduct training 90% +2pp

Operating profit excluding special items % of sales

ROE compared with target %

Net debt and gearing EURm

Gearing %

12

12

4,500

90

3,600

72

9

9

2,700

54

6

6

Ensuring a safe working environment and safeguarding for employees and everyone working for UPM.

Engaged, high- performing people implement the Biofore strategy and drive short and long term success.

Supplier Code qualified supplier spend 79% +12pp

Employee engagement 66% +3pp

LTA frequency 3.9 –11%

1,800

36

3

3

800

18

0

0

0

0

11

12

13

14

15

11

12

13

14

15

11

12

13

14

15

■ Operating profit excluding special items, %

■ ROE excluding special items, % Minimum target

■ Net debt Gearing ratio Gearing limit

Business area returns and long-term targets

Forest certification is an excellent tool for promoting sustainable forestry.

Ecolabels help customers and

*) excluding special items

Share of certified wood 84% +1pp

Share of ecolabelled products 77% +1pp

ROCE % * )

ROCE %

ROCE %

CF/CE %

ROCE %

ROCE %

consumers to make responsible choices

20

20

20

20

20

20

16

16

16

16

16

16

and promote transparency.

12

12

12

12

12

12

8

8

8

8

8

8

4

4

4

4

4

4

0

0

0

0

0

0

2013 2014 2015 UPM Energy

2013 2014 2015 UPM Biorefining

2013 2014 2015 UPM Paper Asia

2013 2014 2015 UPM Paper ENA

2013 2014 2015 UPM Plywood

2013 2014 2015 UPM Ra atac

Long-term return target

*) shareholdings in UPM Energy valued at fair value

contents

UPM Annual Report 2015 11

UPM Annual Report 2015 12