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

8.2 Principal subsidiaries and joint operations

Tax charge to other comprehensive income

COUNTRY OF INCORPORATION

HOLDING % 2018

HOLDING % 2017

Before tax Tax

After tax Before tax Tax

After tax

SUBSIDIARIES

EURm

2018

2017

Blandin Paper Company Forestal Oriental S.A.

US UY DE UA DE DE DE DE RU RU DE AT CN VN CH ID

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 91.00

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 91.00 99.99

Actuarial gains and losses on defined benefit plans

–1

–

–

78 20

–13

66 24

Gebr. Lang GmbH Papierfabrik

Energy shareholdings Translation differences

186

–3

183

4 –

LLC UPM Ukraine MD Papier GmbH

62 16

–

62 13

–270

–270

Cash flow hedges

–3

153

–31

122

Nordland Papier GmbH

Net investment hedges

–17 246

3

–14 243

26

–5

20

NorService GmbH

Total

–2

7

–44

–37

nortrans Speditionsgesellschaft mbH

OOO UPM-Kymmene

OOO UPM-Kymmene Chudovo PT UPM Raflatac Indonesia

8. Group structure

Rhein Papier GmbH

Key estimates and judgements

Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG

UPM (China) Co., Ltd UPM (Vietnam) Ltd

Recognised deferred tax assets The recognition of deferred tax assets requires management judgement as to whether it is probable that such balances will be utilised and/or reversed in the foreseeable future. At 31 December 2018, net operating loss carry-forwards for which the group has recognised a deferred tax asset amounted to EUR 672 million (758 million), of which EUR 567 million (632 million) was attributable to German subsidiaries. In Germany net operating loss carry-forwards do not expire. In other countries net operating loss carry-forwards expire at various dates and in varying amounts. Based on profit forecasts, it is probable that there will be sufficient future taxable profits available against which the tax losses can be utilised. The assumptions regarding future realisation of tax benefits, and therefore the recognition of deferred tax assets, may change due to future operating performance of the group, as well as other factors, some of which are outside of the control of the group. Unrecognised deferred tax assets and liabilities The net operating loss carry-forwards for which no deferred tax is recognised due to uncertainty of their utilisation amounted to EUR 804 million (821 million) in 2018. These net operating loss carry-forwards are mainly attributable to certain German and French subsidiaries and do not expire. In addition, the group has not recognised deferred tax assets on loss carry-forwards amounting to EUR 410 (426 million) which relate to closed Miramichi paper mill in Canada. Most of these loss carry-forwards expire by end of 2029. The group has not recognised deferred tax liability in respect of undistributed earnings of non-Finnish subsidiaries to the extent that it is probable that the temporary differences will not reverse in the foreseeable future. In addition, the group has not recognised deferred tax liability for the undistributed earnings of Finnish subsidiaries and associates as such earnings can be distributed without any tax consequences. Accounting policies Deferred tax is calculated based on temporary differences between the carrying amounts and the taxable values of assets and liabilities and for tax loss carry-forwards to the extent that it is probable that these can be utilised against future taxable profits. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are recognised net where there is a legal right to set-off and an intention to settle on a net basis.

8.1 Business acquisitions and disposals In 2018, UPM made a minor business acquisition by acquiring the assets of Converters Express in the United States. In 2017, UPM made a minor business acquisition by acquiring the assets of Southwest Label Stock in the United States. In 2018 and 2017 no business disposals were made.

UPM AG UPM AS

EE

UPM Asia Pacific Pte. Ltd

SG

UPM Communication Papers Oy 1)

FI FI

UPM Energy Oy UPM France S.A.S.

FR DE BR

UPM GmbH

UPM Manufatura e Comércio de Produtos Florestais Ltda

UPM Plywood Oy UPM Pulp Sales Oy

FI FI

UPM Raflatac (China) Co., Ltd UPM Raflatac (S) Pte Ltd UPM Raflatac (UK) Limited UPM Raflatac Chile SpA

CN SG GB CL TH ES US MX NZ

Accounting policies UPM consolidates acquired entities at the acquisition date which is when it gains control using the acquisition method. Consideration transferred is determined as the fair value of the assets transferred, the liabilities incurred and equity instruments issued including the fair value of a contingent consideration. Acquisition related transaction costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values at the acquisition date. The group measures any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets of the subsidiary acquired is recorded as goodwill.

UPM Raflatac Co., Ltd

UPM Raflatac Iberica S.A.

UPM Raflatac Inc.

UPM Raflatac Mexico S.A. de C.V.

UPM Raflatac NZ Limited

UPM Raflatac Oy

FI

UPM Raflatac Pty Ltd UPM Raflatac s.r.l. UPM Raflatac SAS UPM Raflatac Sdn. Bhd.

AU AR

FR

MY ZA

UPM Raflatac South Africa (Pty) Ltd

UPM Raflatac Sp.z.o.o.

PL

UPM S.A.

UY DE

UPM Sales GmbH UPM Sales Oy UPM Silvesta Oy

FI FI FI FI

UPM Specialty Papers Oy UPM Sähkönsiirto Oy UPM Kymmene (Korea) Ltd UPM-Kymmene (UK) Ltd UPM-Kymmene Austria GmbH

KR GB AT NL DE US IN

UPM-Kymmene B.V.

UPM-Kymmene Beteiligungs GmbH

UPM-Kymmene Inc.

UPM-Kymmene India Private Limited

UPM-Kymmene Japan K.K.

JP TR EE ES

UPM-Kymmene Kagit Urunleri Sanayi ve Ticaret Ltd. Sti.

UPM-Kymmene Otepää AS

UPM-Kymmene S.A.

UPM-Kymmene Seven Seas Oy

FI IT

UPM-Kymmene S.r.l.

Werla Insurance Company Ltd

MT

1) UPM Paper ENA Oy's legal company name has changed to UPM Communication Papers Oy as of 1 September 2018.

The table includes subsidiaries with sales exceeding EUR 2 million in 2018.

168

169

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018