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

Accounting policies Defined benefit pension plans

Actuarial assumptions The weighted average principal assumptions used in the valuations of the defined benefit obligations are detailed below:

Defined contribution plans For defined contribution plans, contributions are paid to pension insurance companies. Once the contributions have been paid, there are no further payment obligations. Contributions to defined contribution plans are charged to the income statement in the period to which the contributions relate. Other post-employment obligations Some group companies provide post-employment medical and other benefits to their retirees. The entitlement to healthcare benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans. Valuations of these obligations are carried out by independent qualified actuaries.

Plan benefits depend on salary and length of service. The defined benefit obligations are calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the term of the related pension liability. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The cost of providing pensions is charged to the income statement as employee costs so as to spread the cost over the service lives of employees. Changes in actuarial assumptions and actuarial gains and losses arising from experience adjustments are charged or credited in other comprehensive income in the period in which they arise. Past service costs and gains or losses on settlement are recognised immediately in income when they occur.

FINLAND

UK

GERMANY

OTHER COUNTRIES

2018 1.79 1.69 1.69 0.65

2017 1.55 1.80 1.80 0.67

2018 3.00 3.40

2017 2.50 3.40

2018 1.88 1.70 2.50 1.70

2017 1.65 1.70 2.50 1.70

2018 2.07 1.86 2.53 0.95

2017 1.83 1.91 2.55 0.95

Discount rate % Inflation rate %

Rate of salary increase % Rate of pension increase %

n/a

n/a

3.25

3.25

Expected average remaining working years of participants

13.9

13.1

16.5

16.3

9.3

9.8

9.4

9.0

Sensitivity analysis of defined benefit obligations The sensitivity analysis shows the effect of the change in assumption. The analysis assume that all other assumptions remain unchanged. The projected unit credit method has been applied when calculating the obligation as well as these sensitivities.

EURm

0.5% INCREASE 0.5% DECREASE 2018 2017 2018 2017 –121 –131 137 150

Discount rate %

Rate of salary increase % Rate of pension increase % Life expectancy +1 year

20 67 57

21 –16 –19 74 –64 –71

60 n/a

n/a

A negative change indicates a decrease in the defined benefit obligation. A positive change indicates an increase in the defined benefit obligation.

Other assets 3% Plan assets by categories 2018

Money market 2%

Assets held by insurance companies 6%

Plan assets by categories at 31 December

Property 9%

Debt instruments 35%

EURm

2018 2017 Quoted Unquoted Quoted Unquoted

Equity instruments 45%

Money market Debt instruments Equity instruments

18

–

67

– 7 –

4. Capital employed UPM’s capital employed primarily relates to its production facilities and both forest and energy assets. UPM aims to capture growth opportunities in its existing business portfolio and invest in projects with attractive and sustainable returns.

307 439

27

338 439

–

Property

39

46

48

41

Capital employed

Assets held by insurance companies

– –

54 26

– –

57 30

EURm

2018

2017

Other assets

Total

802

154

892

136

Property, plant and equipment

4,186 4,281 1,945 1,600

Forest assets

Other assets 3% Plan assets by categories 2017

Plan assets include the company’s ordinary shares with a fair value of EUR 1 million (1 million).

Energy shareholdings

2,159

1,974

Goodwill and other intangible assets

531

525

Assets held by insurance companies 6%

Money market 7%

Operating working capital

1,800 1,552

Provisions

–126 –640

–177 –652

Property 9%

In 2019 contributions of EUR 40 million are expected to be paid to group’s defined benefit plans. In 2018 contributions of EUR 40 million were paid to group’s defined benefit plans.

Net retirement benefit assets and liabilities

Debt instruments 33%

Cash and cash equivalents Other assets and liabilities

888 –29

716

–7

Net deferred tax assets and liabilities Assets classified as held for sale

–138

–36

Equity instruments 42%

–

1

Total

10,575 9,777

142

143

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018