UPM Annual Report 2019

4.1 Property, plant and equipment

Accounting policies Defined benefit pension plans

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.

MACHINERY AND EQUIPMENT

OTHER TANGIBLE ASSETS

CONSTRUC- TION IN PROGRESS

LAND AND WATER AREAS BUILDINGS

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. 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.

EURm

TOTAL

2019 Accumulated costs

796 -35 761

3,522 -2,574

13,579 -11,574 2,006

870 -737

235

19,002

Accumulated depreciation and impairments

— -14,919

948

134

235

4,083

Carrying value, at 31 December

Reclassifications to leased assets (IFRS 16) 1 Jan 2019

—

-1

-70

—

—

-71

740

992

2,096

127

159 316

4,115

Carrying value, at 1 January

Additions Disposals

14 — — — — -3 10

7

10 -1

3

351

-5

—

— — —

-6

Depreciation Impairment

-72

-303

-17

-392

-1

-12

—

-13

Reclassifications

22

205

20

-246

—

Reclassifications to assets held for sale

-2

-6 15

—

—

-11 40

Translation differences

8

1

6

761

948

2,006

134

235

4,083

Carrying value, at 31 December

2018 Accumulated costs

775 -35 740 724

3,599 -2,606

14,227 -12,060

878 -751 127 130

159

19,638

Accumulated depreciation and impairments

— -15,452

992

2,167 2,295

159

4,186 4,281

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

1,044

88

Additions Disposals

7

— —

10 -1

-1 —

270

286

-13

— —

-15

Depreciation

—

-74

-317 168

-17

-408

Reclassifications

1

15

14

-198

—

Translation differences

22

7

12

1

-1

41

740

992

2,167

127

159

4,186

Carrying value, at 31 December

Capital employed

Capital expenditure Capital expenditure, excluding acquisitions and shares, amounted to EUR 378 million (303 million) in 2019. In January 2019 UPM announced that it would invest in the refurbishment of the Kuusankoski hydropower plant in Finland. The average annual production of the Kuusankoski plant is expected to increase from the current 180 GWh to 195 GWh. The investment will be completed by the end of 2022. In July 2019 UPM announced that it would invest USD 2.7 billion in a 2.1 million tonne greenfield eucalyptus pulp mill near Paso de los Toros in central Uruguay. Additionally, UPM will invest approximately USD 280 million in port operations in Montevideo and USD 70 million in local investments outside the mill fence, including a new residential area in Paso de los Toros. The mill is scheduled to start up in the second half of 2022. In October 2019 UPM announced that it would invest EUR 95 million in a Combined-Heat-Power (CHP) plant at the UPM Nordland paper mill in Germany. The plant is planned to go on grid in Q3 2022. The annual cost savings of more than EUR 10 million will start as of 2023. The investment is estimated to decrease UPM's CO 2 - footprint by 300,000 tonnes. 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 in Q1 2020. The planned capacity after the rebuild is 110,000 tonnes per year. The total investment in Nordland is EUR 124 million. In April 2018 UPM announced plans to increase 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 per year. The investment was completed in Q4 2019. 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 has raised 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 growth in production capacity, a new bio-heat boiler has been built at the mill site. The total investment is EUR 50 million and was completed at the end of Q3 2019. Capitalised borrowing costs In 2019, the borrowing costs capitalised as part of non-current assets amounted to EUR 4 million (2 million). Amortisation of capitalised borrowing costs was EUR 3 million (3 million) and the average interest rate used 7.19% (7.92%), which represents the average costs to finance the projects. In 2019, capitalised borrowing costs were mainly related to the expansion of Chudovo plywood mill.

2019

2018 4,186

Property, plant and equipment

4,083

Leased assets Forest assets

590

—

2,097 2,145

1,945 2,159

Energy shareholdings

Goodwill and other intangible assets

564

531

Operating working capital

1,451

1,800

Provisions

-144 -721

-126 -640 888

Net retirement benefit assets and liabilities

Cash and cash equivalents Other assets and liabilities

1,536

7

-29

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

-153

-138

18

—

11,474 10,575

Total otal

Major capital commitments at 31 December

EURm

2019

2018

CHP power plant / Germany New pulp mill / Uruguay

95

— —

2,684

Renovation and modernisation / Kuusankoski hydro power plant Paper machine conversion / Nordland paper mill Capacity increase / Changshu paper mill Capacity increase / Chudovo plywood mill

19

—

15

81

4 1

25

8

168

169

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

ACCOUNTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS