UPM Annual Report 2020

Impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Other intangible assets with indefinite useful lives are impaired if the recoverable amount of the asset is less than the carrying amount. The carrying amount of the asset is then reduced to the recoverable amount which is the higher of the asset’s net selling price and its value in use.

litigation, the actual losses may differ significantly from the originally estimated provision.

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. 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 Key estimates and judgements

» Refer Note 9.2 Litigation for details of legal contingencies.

4.5 Provisions

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. Operating working capital

RE STRUCTURING TERMINATION

ENVIRON MENTAL

EURm

EMISSIONS

OTHER

TOTAL

2020 Provisions at 1 January

30 43 -11

36 96 -33

20

18 23 -19

41

144 173

Provisions made during the year Provisions utilised during the year

7

3

-1

-9 -7

-73 -21

Unused provisions reversed

-6 -4

-7

-1

Reclassifications

4

Provisions at 31 December

52

91

29

21

28

222 100 122 222

Non-current

EURm

2020 2019

Current

Inventories

1,285 1,098 -1,128

1,367 1,222 -1,130

Total

Trade receivables Trade payables Advances received

2019 Provisions at 1 January

22 11

24 33 -19

20

14 22 -18

46

126

-8

-8

Provisions made during the year Provisions utilised during the year

6

72 -47

Total

1,247

1,451

-3

-1

-7 -4

Unused provisions reversed

— —

-2

— —

— —

-7

Inventories

Reclassifications

Provisions at 31 December

30

36

20

18

41

144

Non-current

81 62

EURm

2020 2019

Current

Raw materials and consumables

647

682

Total

144

Work in progress

6

9

Finished products and goods

616

658

UPM has undergone several restructuring 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 2020 and 2019, restructuring and termination provisions relate mainly to capacity closures and optimisation of operations in UPM Communication Papers business area. UPM Chapelle paper mill was closed in 2020. UPM Kaipola paper mill was closed in the beginning of 2021. The total termination and restructuring provisions related to these actions amounted to EUR 106 million in 2020. Additionally, termination provision made during the year relate to restructuring of business functions of UPM Communication Papers and UPM Raflatac amounting to EUR 14 million. In UPM Plywood business Jyväskylä plywood mill was closed and EUR 12 million restructuring and termination provision recognised . In 2019, UPM closed paper machine 10 at UPM Plattling in Germany and SC paper machine 2 in Rauma. The total termination and restructuring provisions related to these actions amounted to EUR 33 million in 2019. 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 95 million (80 million) as intangible assets. » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.

Advance payments

16

18

Total

1,285

1,367

Trade and other receivables

EURm

2020 2019

Trade receivables Trade receivables

1,129

1,253

Loss allowance provision Total trade receivables

-31

-31

1,098

1,222

Prepayments and accrued income Personnel expenses

9

2

Interest income

Energy and other excise taxes

48

52

Other items

130 186

106 159

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

135 115 250

144

Other receivables

51

Total other receivables

195

Total

1,534

1,576

176

UPM ANNUAL REPORT 2020 UPM FINANCIAL REPORT 2020 61 177

UPM ANNUAL REPORT 2020

UPM FINANCIAL REPORT 2020 60

Made with FlippingBook Publishing Software