UPM Annual Report 2020

8. Group structure 8.1 Business acquisitions and disposals In 2020, UPM sold its 50% share in the joint operation Kainuun Voima. UPM also made a minor sale of its 6.1% ownership BSW Timber Ltd, which was accounted for as a fair value through OCI investment. In 2019, UPM made a minor sale of its joint venture, EURO WASTE a.s. In 2020, UPM purchased an additional 1.89% share in the joint operation Alholmens Kraft, increasing UPM's ownership from 27.88% to 29.77 %. In 2019, no business acquisitions were made. Net cash arising from disposal of Kainuun Voima Oy

Movements in deferred tax assets and liabilities

EURm

2020 2019

Transactions with non-controlling interests In 2020, there were no changes in the share of non-controlling interests. In September 2019, the new shareholders' agreements of Tile Forestal S.A., CUECAR S.A., Tebetur S.A. and Blanvira S.A. were signed reducing UPM's continuing interest in these companies to 91%. The proceeds of EUR 3 million were received from non-controlling interest in cash being the proportionate share of the carrying amount of the net assets of these subsidiaries. In addition, the terms and conditions of UPM S.A. shareholders’ agreement were amended resulting in recognition of 9% non-controlling interest amounting to EUR 63 million and derecognition of financial liability amounting to EUR 56 million. The difference amounting to EUR 7 million was recognised in equity as transactions with non-controlling interest. Prior to the amendment of the agreement the group accounted the portion belonging to non-controlling interests at the present value of the redemption amount within financial liability due to put option over non-controlling interests. The assets, liabilities, income and expenses of subsidiaries with non controlling interests are consolidated line by line into the UPM consolidated financial statements. The proportion of the profit for the period, as well as the accumulated share of total equity belonging to non-controlling interests are presented separately in the consolidated income statement and consolidated balance sheet. 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. Accounting policies

Carrying value, at 1 January Charged to income statement

-153

-138

-28 29

-53 38

Charged to other comprehensive income

Exchange rate adjustments

9

—

Net deferred tax assets (liabilities)

-143

-153

Tax charge to other comprehensive income

Before tax

Tax

After tax

Before tax

Tax

After tax

EURm

2020

2019

Actuarial gains and losses on defined benefit plans

-50

14

-36

-81 -13 67 -63

24

-58 -13 67 -50

EURm

2020

Energy shareholdings Translation differences

-254 -262

3

-251 -262

— —

Property, plant and equipment and intangible assets

14

—

Trade and other receivables Cash and cash equivalents Trade and other payables

1 1

Cash flow hedges

-37

13

-24

12

Net investment hedges

6

-1

5

-8

2

-6

-1 -8

Total

-597

29

-569

-97

38

-58

Non-current debt

Net assets

7

Gain on disposal Total consideration

11 18

Key estimates and judgements

Accounting policies

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 2020, net operating loss carry-forwards for which the group has recognised a deferred tax asset amounted to EUR 536 million (616 million), of which EUR 475 million (502 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, The net operating loss carry-forwards for which no deferred tax is recognised due to uncertainty of their utilisation amounted to EUR 864 million (819 million) in 2020. 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 relating to closed Miramichi paper mill due to only minor operations in Canada. These loss carry-forwards expire at different times by the 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. some of which are outside of the control of the group. Unrecognised deferred tax assets and liabilities

Settled in cash and cash equivalents Cash in joint operation disposed Net cash arising from disposal

18

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.

-1

17

8.2 Principal subsidiaries and joint operations

COUNTRY OF INCORPORATION

HOLDING % 2020

HOLDING % 2019

SUBSIDIARIES

Blandin Paper Company

US UY UY UY DE UA DE DE DE RU

100.00

100.00

Blanvira S.A. Cuecar S.A.

91.00 91.00

91.00 91.00

Forestal Oriental S.A.

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

Gebrüder Lang GmbH Papierfabrik

LLC UPM Ukraine

Nordland Papier GmbH

NorService GmbH

nortrans Speditionsgesellschaft mbH

OOO UPM-Kymmene

198

UPM ANNUAL REPORT 2020 UPM FINANCIAL REPORT 2020 83 199

UPM ANNUAL REPORT 2020

UPM FINANCIAL REPORT 2020 82