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

4.5 Provisions

Key estimates and judgements

EURm

RESTRUCTURING TERMINATION ENVIRONMENTAL EMISSIONS OTHER TOTAL

Environmental provisions The estimates used in determining the provisions are based on the expenses incurred for similar activities in the current reporting period taking into account the effect of inflation, cost-base development and discounting. Because actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take into account of any such changes. The discount rate applied is reviewed annually. The group aims to operate in compliance with regulations related to the treatment of waste water, air emissions and landfill sites. However, expected events during production processes and waste treatment could cause material losses and additional costs in the group’s operations.

Legal contingencies Management judgement is required in measurement and recognition of provisions related to pending litigation. Provisions are recorded when the group has a present legal or constructive obligation as a result of past event, an unfavourable outcome is probable and the amount of loss can be reasonably estimated. Due to inherent uncertain nature of litigation, the actual losses may differ significantly from the originally estimated provision.

2018 Provisions at 1 January

42

52

20

9

53

177

Provisions made during the year Provisions utilised during the year

1

5

1

16

1

22

–8

–20 –10

–1

–10

–7 –2

–46 –25

Unused provisions reversed

–13

– – –

– – –

Reclassifications

–1

–3

– –

–3

Translation differences

–

–

1

Provisions at 31 December

22

24

20

14

46

126

Non-current

95 31

» Refer Note 9.2 Litigation for details of legal contingencies.

Current

Total

126

2017 Provisions at 1 January

45

54 42

21

9 8

16 42 –1 –3

145

Provisions made during the year Provisions utilised during the year

5

2

99

–7 –1

–35

–1 –1

–8 –1

–53 –14

Unused provisions reversed

–8 –1

Reclassifications

1 –

– –

– – 9

– –

–

Translation differences

–

–1

Provisions at 31 December

42

52

20

53

177 117

Non-current

Current

60

Total

177

4.6 Working capital The group defines operating working capital as inventories, trade receivables, trade payables and advances received which are presented separately below. The performance obligations related to advances received are typically fulfilled within 12 months of receipt of the advance. UPM is focusing on working capital efficiency and targeting a sustainable and permanent reduction in operating working capital.

Accounting policies A provision is recognised when a present legal or constructive obligation exists as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are split between amounts expected to be settled within 12 months of the balance sheet date (current) and amounts expected to be settled later (non-current). Restructuring and termination provisions A restructuring provisions is recognised when a detailed plan for the implementation of the measures is complete and when the plan has been communicated to those who are affected. Employee termination provisions are recognised when the group has communicated the plan to the employees. Environmental provisions Environmental expenditures that relate to an existing condition caused by past operations that do not contribute to future earnings are expensed. The recognition of environmental provisions is based on current interpretations of environmental laws and regulations. Such provisions are recognised when the group has an obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognised and subsequently depreciated as part of the asset. Provisions do not include any third-party recoveries. Emission provisions Emission obligations are recognised in provisions based on realised emissions. The provision is measured at the carrying amounts of the corresponding emission rights held, which are recognised as intangible assets. In case of deficit in emission rights, the shortage is valued at the market value at the balance sheet date.

UPM has undergone several restructurings in recent years including mill closures and profit improvement programs. Restructuring provisions recognised include various restructuring activities including dismantling costs. Termination provisions include severance payments, unemployment compensations or other arrangements for employees leaving the company. In Finland termination provisions include also unemployment arrangements and disability pensions. Unemployment provisions in Finland are recognised 2–3 years before the granting and settlement of the compensation. At 31 December 2018 and 2017, restructuring and termination provisions relate mainly to capacity closures and optimisation of operations in UPM Communication Papers business area. In 2018, EUR 18 million prior years’ restructuring and termination provisions were reversed as unused. In 2017, UPM has closed paper machine 5 at UPM Blandin mill in the United States, optimised operations at UPM Nordland Papier and UPM NorService units in Germany and in other European countries. The total termination and restructuring provisions made related to these capacity closures and optimisations amounted to EUR 40 million in 2017. The group recognises provisions for normal environmental remediation costs expected to be incurred in a future period upon a removal of non-current assets and restoring industrial landfills where a legal or constructive obligation exists. Other provisions are mainly attributable to onerous contracts and will be incurred over a period longer than one year. Provisions for emissions include liability to cover the obligation to return emission rights. The group possesses emission rights amounting to EUR 45 million (44 million) as intangible assets. » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.

Operating working capital

Trade and other receivables

EURm

2018

2017

EURm

2018 1,642

2017 1,311

Inventories

Trade receivables Trade receivables

Trade receivables Trade payables Advances received

1,476 1,447 –1,310 –1,167

1,502 1,470

Loss allowance provision Total trade receivables

–26

–23

–7

–39

1,476 1,447

Total

1,800 1,552

Prepayments and accrued income Personnel expenses

4 1

5 1

Interest income

Inventories

Energy and other excise taxes

54 77

53 64

Other items

EURm

2018

2017

Total prepayments and accrued income Other receivables VAT and other indirect taxes receivable

135

123

Raw materials and consumables

822

617

181

166

Work in progress

10

58

Other receivables

41

47

Finished products and goods

777

617

Total other receivables

222

213

Advance payments

33

19

Total

1,833 1,783

Total

1,642

1,311

LOSS ALLOWANCE PROVISION

2018 TRADE RECEIVABLES, NET OF PROVISION

2017 TRADE RECEIVABLES, NET OF PROVISION

TRADE RECEIVABLES

EURm Undue

1,325

–5 –1 –1

1,320

1,254

Past due up to 30 days Past due 31–90 days Past due over 90 days

116

115

147

32 30

30 10

32 13

–20 –26

Total

1,502

1,476

1,447

150

151

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018