UPM Annual Report 2016

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

BUSINESS AREA

DESCRIPTION AND PRODUCTS

1.5 New standards and amendments adopted

UPM Biorefining

UPM Biorefining consists of UPM Pulp, UPM Biofuels and UPM Timber business units. UPM has three pulp mills in Finland, one pulp mill and plantation operations in Uruguay, four saw mills in Finland and one biorefinery in Finland. UPM Pulp serves the global market with a comprehensive assortment of sustainably produced eucalyptus, birch and softwood pulp grades for a variety of tissue, specialty paper, board, printing and writing paper and other applications. UPM Biofuels produces innovative, advanced biofuels for transport. UPM Timber manufactures certified sawn timber from Nordic pine and spruce to joinery, packaging, distribution and construction industries. UPM Energy produces low emission electricity to the Nordic market. UPM Energy is the second largest electricity producer in Finland. UPM Energy operations include electricity generation, and operations in both physical electricity and financial portfolio management. UPM Energy assets consists of hydro power assets in Finland and shareholdings in energy companies.

The following amendments to existing standards that are relevant to group have been adopted on January 2016:

STANDARD

NATURE OF CHANGE

IMPACT

DATE OF ADOPTION

Amendment to IAS 7 Statement of Cash Flows

The amendment requires to explain changes in liabilities arising from financing activities.

The group has early adopted the amendments made to IAS 7 and revised its net debt disclosures to comply with new requirements. The group has reviewed the content and structure of the financial statements in order to provide users with a clearer understanding of what drives financial performance. Immaterial disclosures that may undermine the usefulness of the financial reports have been removed and the notes to the financial statements have been reorganised into sections to assist users in understanding the group performance. The adoption of improvements did not have any impact on the group’s financial statements.

1 January 2016

UPM Energy

Amendment to IAS 1 Presentation of financial statements

Part of IASB “Disclosure initiative” to improve presentation and disclosures in financial reports. The amendment provides prepares with more flexibility in presenting the information in financial reports.

1 January 2016

UPM Raflatac

UPM Raflatac is one of the world’s leading producers of self-adhesive label materials. UPM Raflatac supplies high-quality film and paper label stock for consumer product and industrial labelling.

UPM Paper ENA

UPM Paper ENA (Europe & North America) is the world’s leading producer of graphic papers.

UPM Plywood

UPM Plywood manufactures high-quality plywood and veneer products mainly for construction and transport industries and the new thermo-formable wood material for the form pressing industry. Production facilities are located in Finland, Estonia and Russia.

Annual improvements to IFRSs 2012–2014 cycle

The amendments primarily remove inconsistencies, provide additional guidance and clarify wording of standards.

1 January 2016

UPM Specialty Papers 1)

UPM Specialty Papers produces fine papers to Asian markets and label and packaging materials to global markets. Responsibly produced high performance papers are manufactured in China and Finland.

Other operations

Other operations include wood sourcing and forestry, UPM Biocomposites, UPM Biochemicals business units and group services. Wood sourcing operations source wood raw material for sustainable and recyclable UPM products. UPM Biocomposites combines cellulose fibres and polymers into new high- performance products and materials. UPM Biochemicals wood-based biochemicals offer truly sustainable, competitive and high-quality solutions for various industries and applications.

2.

Business performance

1) In 2016, UPM Paper Asia business area has been renamed UPM Specialty Papers. The new name highlights the business area’s strategic focus on specialty papers and global operations.

Sales

Comparable EBIT

Comparable ROE 10.9% (9.5%)

9,812m

1,143m

EUR

EUR

(EUR 10,138m)

(EUR 916m)

2.1 Business areas UPM business portfolio consist of six competitive businesses with strong market positions. UPM reports financial information for the following business areas (segments): UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Paper ENA, UPM Plywood and Other operations. UPM has production plants in 12 countries. The group’s most important markets are Europe, North America and Asia.

Accounting policies UPM business areas are reported consistently with the internal reporting provided to UPM’s President and CEO who is responsible for allocating resources and assessing performance of the business areas. Internal reporting is prepared under the same basis as the consolidated accounts, except for a joint operation, Madison Paper Industries (MPI) which is consolidated as a subsidiary in the UPM Paper ENA reporting. Costs, revenues, assets and liabilities are allocated to business areas on a consistent basis. The sales transactions between business areas are based on market prices, and they are eliminated on consolidation.

Key performance indicators and financial targets

UPM targets top performance at the business area level in their respective markets. Financial target setting, follow up and allocation of resources in the group’s performance management process is mainly based on the business areas’ comparable EBIT and comparable ROCE.

UPM presents comparable performance measures to reflect the underlying business performance and to enhance comparability from period to period. However the comparable performance measures used by management should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Business area information including description of items affecting comparability is presented below.

to be updated

to be updated

Comparable EBIT 2016 EUR 1,143 million

Capital employed 31 Dec 2016 EUR 10,657 million

% Comparable ROCE

Other operations 1%

30

Other operations 14%

UPM Plywood 5%

UPM Biorefining 36%

UPM Biorefining 31%

24

UPM Paper ENA 25%

UPM Plywood 3%

18

12

UPM Paper ENA 17%

6

■ 2016 ■ 2015

0

UPM Specialty Papers 11%

UPM Energy 21%

UPM Specialty Papers 9%

UPM Energy 10%

UPM Raflatac 12%

UPM Raflatac 5%

UPM Energy

UPM Raflatac

UPM Plywood

UPM Biorefining

UPM Paper ENA

UPM Specialty Papers

CONTENTS

ACCOUNTS

110

111

UPM Annual Report 2016

UPM Annual Report 2016