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

4.1 Property, plant and equipment

LAND AND WATER

MACHINERY AND EQUIPMENT

OTHER TANGIBLE ASSETS

Accounting policies Property, plant and equipment

CONSTRUCTION IN PROGRESS

EURm

AREAS BUILDINGS

TOTAL

Impairment testing Carrying values of individual items included in property, plant and equipment are reviewed at each closing date to determine whether there is any indication of impairment. The carrying value is written down immediately to the asset’s recoverable amount if the carrying value exceeds the estimated recoverable amount. Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell and its value in use. Value in use is determined by discounting future cash flows expected to be generated by the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but the increased carrying amount will not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Key estimates and judgements The estimations of useful lives, residual value as well as depreciation and amortisation methods require significant management judgement and are reviewed annually. Management makes estimates on the future cash flows expected to result from the use of the asset and its eventual disposal. While management believes that estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect valuations. The long useful lives of assets, changes in estimated future sales prices of products, changes in product costs and changes in the discount rates used could lead to significant impairment charges. Estimates are also made in an acquisition when determining the fair values and remaining useful lives of acquired intangible and tangible assets.

2018 Accumulated costs

Property, plant and equipment is stated at historical cost. Costs of assets of acquired in business combinations are determined at fair value at the acquisition date. Depreciation is calculated on a straight- line basis and the carrying value is adjusted for impairment charges, if any. The carrying value of property, plant and equipment on the balance sheet represents the cost less accumulated depreciation and any impairment charges. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Major renovations are capitalised and depreciated over the useful lives of the related asset. Ordinary expenses for repairs and maintenance are expensed as incurred. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in other operating income and other operating expenses, respectively.

775 –35 740 724

3,599

14,227 –12,060

878

159 19,638 – –15,452

Accumulated depreciation and impairments

–2,606

–751

Carrying value, at 31 December Carrying value, at 1 January

992

2,167 2,295

127 130

159

4,186

1,044

88 4,281

Additions Disposals

7

– –

10 –1

–1

270

286 –15

–13

–

–

Depreciation

– 1

–74

–317

–17

– –408

Reclassifications

15

168

14

–198

–

Translation differences

22

7

12

1

–1

41

Carrying value, at 31 December

740

992

2,167

127

159

4,186

2017 Accumulated costs

759 –35 724 801

3,577

14,150 –11,855

883

88 19,456 – –15,176 88 4,281 89 4,657

Accumulated depreciation and impairments

–2,532

–753

Carrying value, at 31 December Carrying value, at 1 January

1,044 1,131

2,295 2,502

130 133

Additions Disposals

4

8

13 –5

3 –

261

289 –24

–16

–2

–

Depreciation Impairment

–

–80

–337

–18

– –434

–1

2

–4

–1 19 –6

–

–3 –2

Reclassifications

1

26

214 –88

–261

Translation differences

–65 724

–41

–2

–202

Carrying value, at 31 December

1,044

2,295

130

88 4,281

ASSESSED USEFUL LIVES

NUMBER OF YEARS

Land, not subject to depreciation

–

Capital expenditure Capital expenditure, excluding acquisitions and shares, amounted to EUR 303 million (303 million) in 2018. In January 2018, UPM announced that it intends to expand its glassine and supercalendered kraft (SCK) paper manufacturing capacity by rebuilding a calender at the UPM Jämsänkoski mill in Finland. The project increased annual capacity by approximately 40,000 tonnes and was completed during Q4 2018. In April 2018, UPM announced that it would rebuild paper machine 2 at its Nordland mill in Dörpen, Germany and convert it from fine paper to glassine paper production. The machine will be equipped with new finishing equipment and will start producing glassine paper as of Q4 2019. The planned capacity after the rebuild will be 110,000 tonnes per year. The total investment in Nordland is EUR 116 million. In April 2018, UPM announced plans to increase the release liner base paper capacity at the UPM Changshu mill in China. Installing a second supercalender on paper machine 3 will create an additional capacity of more than 40,000 tonnes of glassine paper a year, as of Q1 2020. The total investment in Changshu is EUR 34 million. In October 2017, UPM announced plans to expand its Chudovo plywood mill in Russia. The project will raise the mill’s production capacity by 45,000 cubic metres to 155,000 cubic metres, while also broadening the mill’s product portfolio. In addition to the production capacity growth, a new bio-heat boiler will be built at the mill site. The total investment will be approximately EUR 50 million and will be completed by the end of Q3 2019. In June 2017, UPM announced it will further improve the efficiency and competiveness of the UPM Kaukas pulp mill, with EUR 30 million investment to upgrade the mill’s fibre lines, recovery boiler, evaporation, bailing and wood handling. The project was completed in Q2 2018. The annual production capacity of the UPM Kaukas pulp mill increased by 30,000 tonnes to 770,000 tonnes of softwood and birch pulp.

Capitalised borrowing costs In 2018, the borrowing costs capitalised as part of non-current assets amounted to EUR 2 million (1 million). Amortisation of capitalised borrowing costs was EUR 3 million (2 million) and the average interest rate used 7.92% (2.40%), which represents the average costs to finance the projects. In 2018, capitalised borrowing costs were mainly related to the expansion of Chudovo plywood mill.

Buildings

20–50 20–30 15–20 10–15

Power plants

Heavy machinery Light machinery

Equipment

5

Major capital commitments at 31 December

EURm

2018

2017

Paper machine conversion / Nordland paper mill

81 25

– –

Capacity increase / Changshu paper mill Capacity increase / Chudovo plywood mill

8 6

42 21

Debottlenecking / Kaukas pulp mill

Impairment losses In 2018, no impairment charges were recognised.

In December 2017, UPM closed permanently paper machine 5 at UPM Blandin in Minnesota, USA, in response to overcapacities in the North American paper market. With the closure of the paper machine, UPM recognised impairment charges of EUR 4 million in UPM Communication Papers business area.

144

145

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018