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

2.2 Sales

Sales by business area

Effect of a 10% change in prices on operating profit for the year

UPM generates revenue mainly from the sale of goods, i.e. several types of products. The majority of UPM’s revenue comes from sales of graphic and specialty papers to publishers, retailers, printing houses, merchants and distributors, converters and label stock manufacturers; sales of self-adhesive label materials to label printers and brand owners and sales of pulp products to tissue, board, specialty and graphic paper producers. The revenue comprises also sales of energy, biofuels, sawn timber and plywood products and a very limited amount of services not related to sale of goods. UPM sells a proportion of its products to several major customers. The largest customer in terms of sales represented approximately 3% of UPM’s sales in 2018 and 2017, and the ten largest customers represented approximately 15% of such sales. The group disaggregates its external sales by business area, because this depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Sales by 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 tables.

EURm

2018

2017

EURm

2018

2017 CHANGE

Papers in UPM Communication Papers Fine and specialty papers in UPM Specialty Papers

458

452

UPM Biorefining UPM Energy UPM Raflatac

2,892 2,531

14% 23%

391

317

120 149

110 149

1,488 1,495 1,429 1,336 4,690 4,615

0% 7% 2%

Label materials in UPM Raflatac

UPM Specialty Papers

Plywood

45 33 57

44 31 52

UPM Communication Papers

Sawn timber

UPM Plywood

480 326

484 281

–1% 16%

Chemical pulp (net effect)

Other operations

Eliminations

–1,214 –1,048 10,483 10,010

–

The biggest factor affecting UPM’s financial results is the sales price of paper. A change in the volume delivered has less than half of the effect of the same percentage change in sale prices.

Total

5%

» Refer Note 2.1 Business areas for information on UPM products.

Accounting policies

External sales by major products

Sales of goods UPM’s performance obligation in the contracts with customers consists of providing the goods specified in the contracts. Revenue from UPM’s product sales is recognised when performance obligation is satisfied, which takes place at point in time when control of the good has been transferred to the customer. In UPM’s customer contracts the transfer of control and thus timing of revenue recognition is largely dependent on delivery terms. Group terms of delivery are based on Incoterms 2010, the official rules for interpretation of trade terms issued by the International Chamber of Commerce. Major part of the sales contracts is on delivery terms basis, whereby delivery is not a promised service to the customer, as the control of a good does not transfer to the customer before shipment. Revenue and the corresponding receivable are recorded at the point in time when the product is delivered to the destination point for terms designated Delivered Duty Paid (“DDP”) or Delivered at Place (“DAP”). For sales transactions designated free of carriage (FCA), revenue is recorded at the time of shipment. For sales transactions designated as Carriage paid to (CPT) or Carriage and Insurance Paid to (CIP), the portion of revenue relating to goods is recorded at the time of loading and the portion of revenue relating to delivery services over time when the service has been performed. UPM sells energy to NordPool electricity market. Revenue is recognised when electricity is transmissed over time. Sales of services UPM provides forest expertise and contracting services to woodland and forestry owners and freight services (free space on group’s vessels sold as freight services). Revenues from services are recorded over time when the service has been performed. Sales of services is very limited and thus the group does not report it separately.

Revenue recognition The group recognises revenue as an amount equal to the price specified in the customer contract net of any sales taxes, cash flow hedging results of sales in foreign currency, hedges of energy sales and variable consideration, when applicable. Variable consideration is defined as any variability that may occur between the sales price and the amount UPM expects to receive. The variable consideration includes mainly volume rebates that encourage the customer to take specific volumes in a given timescale. In addition, the group gives the customers the right for purchase price refund in case the products do not meet the quality as specified in the agreement. The amount of variable consideration is recognised as a refund liability when some of the amount received is expected to be refunded to the customer. Customer rebates payable to customers in relation to sales made until the end of the reporting period and expected quality claims are estimated using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability is included in trade and other payables. Receivables are recognised when the goods are delivered, and the consideration is unconditional except for the passage of time. For most of UPM’s customer contracts the period between the transfer of goods or services to customers and the receipt of payment is less than 12 months. For these contracts the group has elected to use the practical expedient not to adjust revenue for the effect of financing components. Advance payments received from customers are recognised as contract liability. UPM does not have any contract assets arising from contracts with customers.

BUSINESS AREA EUR million UPM Biorefining

BUSINESS

2018

2017

UPM Pulp, UPM Biofuels, UPM Timber

2,223

1,958

UPM Energy UPM Raflatac

UPM Energy UPM Raflatac

109

120

1,488 1,213 4,664

1,495 1,111 4,592

UPM Specialty Papers

UPM Specialty Papers

UPM Communication Papers

UPM Communication Papers

UPM Plywood

UPM Plywood

458

463

Other operations

Wood Sourcing and Forestry, UPM Biochemicals, UPM Biocomposites

321

274

Eliminations and reconciliations

7

–2

Total

10,483

10,010

BUSINESS UPM Pulp

PRODUCT RANGE

Softwood, birch and eucalyptus pulp

UPM Biofuels UPM Timber UPM Energy UPM Raflatac

Wood-based renewable diesel for transport and renewable naphtha for transport and for bioplastics

Standard and special sawn timber Electricity and related services Self-adhesive paper and film label stock

UPM Specialty Papers

Labelling materials, release base papers, flexible packaging materials, office papers, graphic papers

UPM Communication Papers

Graphic papers for various end uses

UPM Plywood

Plywood and veneer products, thermoformable wood material

Wood Sourcing and Forestry

Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering Lignin products for industrial use, nanocellulos-based products for biomedical applications

UPM Biochemicals UPM Biocomposites

» Refer Note 4.6 Working capital for information on contract liabilities and refund liabilities.

UPM ProFi decking products and UPM Formi granules

134

135

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018