UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

Business area information for the year ended 31 December 2018

The group disaggregates its external sales by business areas, because 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. The goods and services included in sales revenue of each business area are presented in below table:

UPM SPECIALTY PAPERS

UPM COM PAPERS

ELIMINATIONS AND RECONCI- LIATIONS 2)

UPM BIOREFINING

UPM ENERGY

UPM RAFLATAC

UPM PLYWOOD

OTHER OPERATIONS

EURm, OR AS INDICATED

GROUP

External sales Internal sales Total sales

2,223

109 1,488

1,213 4,664

458

321

7 10,483

BUSINESS AREA

DESCRIPTION AND PRODUCTS

669

282

–

216

26

22

6

–1,220

–

2,892

391 1,488 1,429 4,690

480

326

–1,214 10,483

UPM Biorefining

UPM Biorefining consists of UPM Pulp, UPM Biofuels and UPM Timber business units.

Comparable EBIT

847

123

126

90 267

52

35

–26 1,513

UPM Pulp has three pulp mills in Finland, one pulp mill and plantation operations in Uruguay. 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 has one biorefinery in Finland. UPM Biofuels products include wood-based renewable diesel for transport and renewable naphtha for transport and for bioplastics. UPM Timber has four saw mills in Finland. UPM Timber products include certified sawn timber from Nordic pine and spruce to joinery, packaging, distribution and construction industries. UPM Energy assets consists of hydro power assets in Finland and shareholdings in energy companies. 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 sells low emission electricity to NordPool electricity market. 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. Customers include label printers and brand owners. UPM Communication Papers is the world’s leading producer of graphic papers. UPM Communication Papers customers include newspaper publishers, telephone directory publishers, cataloguers, retailers, magazine publishers, printers, merchants, office supply distributors, office equipment manufacturers and envelope manufacturers. UPM Plywood manufactures high-quality plywood and veneer products mainly for construction and transport industries and thermo-formable wood material for the form pressing industry. Production facilities are located in Finland, Estonia and Russia. UPM Specialty Papers produces office papers to Asian markets and labelling and packaging materials to global markets. High performance papers are manufactured in China and Finland. Other operations include wood sourcing and forestry, UPM Biocomposites, UPM Biochemicals business units and group services. Wood sourcing operations sells wood and wood-based biomass (logs, pulpwood, chips, forest residues) to other UPM Business Areas as well as third party customers. Forestry operations provides forest expertise and contracting services to woodland and forestry owners. UPM Biocomposites combines cellulose fibres and polymers into UPM ProFi decking products and UPM Formi granules. UPM Biochemicals produces wood-based lignin products for industrial use and cell culture hydrogel products for biomedical applications.

Items affecting comparability in operating profit

–

–9

–

– 46 90 312

–

345 380

1 382

Operating profit Finance costs, net

847

114

126

52

–25 1,895

–56

Income taxes

–342 1,496

Profit for the period

Operating assets 1) Deferred tax assets

3,540 2,506

701

1,158 2,228

353

1,847

–362 11,970

397

Other non-operating assets

97

UPM Energy

Other financial assets

1,532

Total assets

13,996

Operating liabilities 1) Deferred tax liabilities

288

45

172

265 624

51

183

–310 1,318

UPM Raflatac

535 826

Other liabilities

Other financial liabilities

1,520 4,199

Total liabilities

UPM Communication Papers

Other items Change in fair value of forest assets and wood harvested Share of results of associates and joint ventures Depreciation and amortisation

30

–

–

–

–

–

422

– 452

UPM Plywood

2

–

–

–

2

–

2

–

6

–155

–9

–30

–77 –116

–23

–13

– –423

Impairment charges

–

–

–

–

–

–

–

–

–

UPM Specialty Papers

Capital employed, 31 December

3,252 2,460 3,180 2,346

529 535

892 1,604 889 1,602

302 283

1,665 1,392

–130 10,575 –51 10,176

Average capital employed

Other operations

Capital expenditure

77

1

24

85

46

52

18

– 303

Capital expenditure, excluding acquisitions and shares

77

1

24

85

46

52

18

– 303 – 14.6 – 18,978

Comparable ROCE, % Personnel, 31 December

26.6

5.3

23.6

10.1 16.7

18.4

2.5

2,636

63 3,244 2,000 7,929 2,502

604

1) Business area’s operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in associates and joint-ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received. 2) Eliminations and reconciliations include the elimination of internal sales and internal inventory margin and the consolidation of MPI as a joint operation. In addition the changes in fair value of unrealised cash flow and commodity hedges that are not allocated to segments are included in reconciliations.

» Refer Other financial information on Alternative performance measures, for definitions of key figures and reconciliation to measures presented in the consolidated income statement and balance sheet prepared in accordance with IFRS.

Key performance indicators and financial targets

UPM aims to grow its comparable EBIT over the long term. The group has a portfolio of five businesses that operate on growing markets and one business that faces declining demand. All of UPM businesses are competitive and have strong market positions. Financial target setting, follow up and allocation of resources in the group’s performance management process is mainly based on the business area 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.

130

131

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018