UPM Annual Report 2017

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

KEY ESTIMATES AND JUDGEMENTS

NOTE

1.5 New standards and amendments adopted

Valuation of forest assets

4.2 Forest assets

Fair value determination of energy shareholdings Impairment of property, plant and equipment Impairment of goodwill and other intangible assets Pension and other post-employment benefits

4.3 Energy shareholdings

STANDARD

NATURE OF CHANGE

IMPACT

DATE OF ADOPTION

4.1 Property, plant and equipment 4.4 Goodwill and other intangible assets

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.

1 January 2016

3.4 Retirement benefit obligations

Income taxes

7. Income tax 4.5 Provisions 9.2 Litigation

Environmental provisions

Legal contingencies

Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12

The amendment clarifies when a deferred tax asset should be recognised for unrealised losses of debt instruments measured at fair value.

The adoption of amendment did not have any impact on the group’s financial statements.

1 January 2017

Financial risks UPM is exposed to a variety of financial risks as a result of its business activities including currency risk, interest rate risk, commodity price risk, credit risk, capital risk and liquidity risk. Risk management related to financial activities is carried out by UPM’s central treasury depart­ ment, Treasury and Risk Management, under policies approved by the Board of Directors. Financial risks are described in the relevant notes as described below.

FINANCIAL RISK

NOTE

Credit risk

4.6 Working capital

Liquidity and refinancing risk

5.1 Capital management

Interest rate risk

6.1 Financial risk management 6.1 Financial risk management 6.1 Financial risk management

Foreign exchange risk Electricity price risk

2. Business performance

Financial counterparty risk

6.2 Derivatives and hedge accounting

Comparable EBIT

Comparable ROE 11.9% (10.9%)

Sales

1,292m

10,010m

EUR

EUR

(EUR 1,143m)

(EUR 9,812m)

balance sheet within equity, separately from equity attributable to owners of the parent company. Transactions with non-controlling interests are treated as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between consideration paid and the acquired share of the carrying value of the subsidiary’s net assets is recorded in equity. Gains or losses of disposals to non-controlling interests are also recorded in equity, net of transaction costs. 1.4 Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. UPM records foreign exchange differences relating to ordinary business operations within the appropriate line items above operating profit and those relating to financial items are presented separately as a net amount in finance costs. Income and expenses of subsidiaries that have a functional currency different from euro are translated into euros at quarterly average exchange rates. Assets and liabilities of subsidiaries are translated at the closing rate at the balance sheet date. All resulting translation differences are recognised as a separate component in other comprehensive income. On consolidation, exchange differences arising from the translation of net investment in foreign operations and other currency instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign entity is partially disposed of, sold or liquidated, translation differences accrued in equity are recognised in the income statement as part of the gain or loss on sale/liquidation.

1.3 Consolidation principles Subsidiaries UPM’s consolidated financial statements include the financial statements of the parent company, UPM-Kymmene Corporation, and subsidiaries controlled by UPM. All group entities apply consistently UPM’s accounting policies. All intercompany transactions, receivables, liabilities and unrealised profits, as well as intragroup profit distributions, are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Joint operations UPM’s share in joint operations is recognised in the consolidated balance sheet through recognition of the group’s own assets and liabilities and revenues and expenses in the arrangement together with UPM’s proportionate share in the joint assets, liabilities and joint income and expenses. The proportionate share of realised and unrealised gains and losses arising from intragroup transactions between UPM and its joint operations is eliminated. Associates and joint ventures Associates are entities over which the group has significant influence. Joint ventures are joint arrangements where the group has joint control with other parties and the parties have rights to the arrangement’s net assets. Interests in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. Associates and joint ventures follow the group accounting policies for consolidation purpose. Non-controlling interests The profit or loss attributable to owners of the parent company and non-controlling interests is presented on the face of the income statement. Non-controlling interests are presented in the consolidated

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.

Comparable EBIT 2017 EUR 1,292 million

Capital employed 31 Dec 2017 EUR 9,777 million

% Comparable ROCE

Other operations 3%

30

Other operations 12% UPM Plywood 3%

UPM Plywood 5%

24

UPM Biorefining 32%

UPM Paper ENA 18%

UPM Biorefining 45%

18

UPM Paper ENA 16%

12

UPM Specialty Papers 12%

6

UPM Specialty

■ 2017 ■ 2016

Papers 9%

0

UPM Raflatac 5%

UPM Raflatac 10%

UPM Energy 23%

UPM Energy 7%

UPM Energy

UPM Raflatac

UPM Plywood

UPM Biorefining

UPM Paper ENA

UPM Specialty Papers

CONTENTS

ACCOUNTS

116

117

UPM Annual Report 2017

UPM Annual Report 2017

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