UPM Annual Report 2019

Adjustments of opening balances

IFRIC 23 Uncertainty over income tax treatments

Impact on consolidated income statement, cash flow statement and key figures

EURm

31 DEC 2018 IMPACT OF IFRS 16

1 JAN 2019

ASSETS Goodwill

AS PUBLISHED RESTATED IMPACT

236 295

—

236 279 4,114

IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019. The group is subject to income taxes in numerous jurisdictions and the calculation of the group’s tax expense and income tax liabilities involves a degree of estimation and judgement. Tax balances reflect the current understanding and interpretation of existing tax laws and the latest information available about the positions expected to be taken by tax authorities. Tax matters at UPM are managed by UPM’s own tax function, which is complemented by third-party tax services in order to comply with local tax reporting, filings and other duties. Management periodically evaluates positions taken in tax returns with respect of situations in which applicable tax regulation is subject to interpretation and adjusts income tax liabilities where appropriate using the most likely amount expected to be paid. The group applied IFRIC 23 retrospectively without adjusting comparative information. At the end of 2018, the group has reviewed its uncertain tax positions and concluded that there are appropriate tax liabilities recognised for periods which are open for reviews and audits by tax authorities. Thus, the adoption of IFRIC 23 on 1 January 2019 did not have any impact on the group’s financial statement on transition. On 1 January 2019, UPM has changed its accounting policy relating to forest assets by capitalising forestry renewal costs on the balance sheet during the growth cycle and reclassifying forest assets-related cash flows from operating cash flow to investing cash flow. Previously UPM has recognised forestry renewal costs in income statement and reported forest assets-related cash flows, including forest renewal costs, forest asset purchases and sales, in operating cash flow. UPM has consistently increased the weight of the Southern hemisphere plantations in its forest asset portfolio, where the growth cycle is significantly shorter and significance of forestry renewal cost substantially higher compared to the Northern hemisphere. Majority of UPM’s forest renewal costs are related to Southern hemisphere plantations. Thus, the change of accounting policy results in more relevant information on group’s financial performance and cash flows. The change has an impact on the following key figures in UPM group, UPM Biorefining and Other operations: EBITDA, EBITDA margin, operating and investing cash flows, operating cash flow per share and net debt to EBITDA ratio. Operating profit, comparable EBIT and balance sheet are not affected. The comparative years have been restated according to the new reporting principles. Accounting policy change of forest renewal costs

2018

Other intangible assets

–17 –71 581

Costs and expenses

-8,710 -8,665

45

Property, plant and equipment

4,186

Change in fair value of forest assets and wood harvested

Leased assets Forest assets

—

581

452

407

-45

1,945 2,159

— — — — — — — — -8 — — — -8 — — — — — -6 -6 — -6 — — —

1,945 2,159

Comparable EBITDA, EURm

1,823 1,868

45

Energy shareholdings

% of sales

17.4

17.8

0.4 -60

Other non-current financial assets

178 397

178 397

Operating cash flow, EURm

1,391 1,330

Deferred tax assets

Operating cash flow per share, EUR

2.61 -260 -0.17

2.49 -199 -0.17

-0.11

Net retirement benefit assets

38 32 34

38 32 34

Investing cash flow, EURm

60

Investments in associates and joint ventures

Net debt to EBITDA (last 12 m.)

0

Other non-current assets

9,501

493

9,994

Non-current assets

Phase 1 amendments IFRS 9 and IFRS 7 for IBOR reform

Inventories

1,642 1,833

1,642 1,825

Trade and other receivables Other current financial assets Income tax receivables Cash and cash equivalents

107

107

24

24

The group has elected to early adopt the Amendments to IFRS 9 and IFRS 7 Interest Rate Benchmark Reform issued in September 2019. In accordance with the transition provision, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or where designated thereafter. The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness should continue to be recorded in the income statement. Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interests rate benchmark reform no longer being present. The Group’s risk exposure that is directly affected by the IBOR reform is fair value hedge accounting of long-term fixed-rate debt for changes in fair value attributable to USD LIBOR which is the current benchmark interest rate. Group currently has only few contracts which reference USD LIBOR and extend beyond 2021. Group Treasury oversees the Group’s IBOR transition and follows changes to ISDA and other market guidelines on effects of these changes to UPM’s contracts. In fair value hedging relationships, fair value for both the hedged item and hedging instrument is calculated with identical rate. Therefore no ineffectiveness is expected.

888

888

4,496 13,996

4,488 14,482

Current assets

485

Assets

EQUITY AND LIABILITIES Share capital

890

890

Treasury shares

–2

–2

Translation reserve

232

232

Other reserves

1,778 1,273 5,623 9,792

1,778 1,273 5,617 9,786

Reserve for invested non-restricted equity

Retained earnings

Equity attributable to owners of the parent company

5

5

Non-controlling interests

9,797

9,791

Equity

Deferred tax liabilities

535 679 126 753 101

535 679 126

Net retirement benefit liabilities

Provisions

Non-current debt

422

1,175

Other non-current financial liabilities

—

101

2,194

422

2,616

Non-current liabilities

Current debt

25

69

94

Trade and other payables

1,881

— — —

1,881

Other current financial liabilities

78 22

78 22

Income tax payables Current liabilities

2,005 4,199 13,996

69

2,074 4,690 14,482

491 485

Liabilities

Equity and liabilities

The following reconciliation to opening balance for the lease liabilities as of 1 January 2019 is based upon the operating lease commitments as of 31 December 2018.

EURm Operating lease commitments 31.12.2018 Recognition exemption for short-term leases Reasonably certain extension or termination options Non-lease components (service components)

554

–7 53

–27

Other

2

575 –84 491

Gross lease liabilities at 1.1.2019

Discounting 1)

Lease liability 1.1.2019

Present value of finance lease liabilities 31.12.2018

98

Total lease liabilities 1.1.2019 589 1) The lease liabilities were discounted at incremental borrowing date as of 1.1.2019. The weighted-average incremental borrowing rate was 1.4%.

152

153

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

ACCOUNTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS