UPM Annual Report 2020

Parent company accounts (Finnish Accounting Standards, FAS) Income statement

8.4 Assets held for sale No assets were classified as held for sale at the end of 2020. At the end of 2019, assets classified as held for sale EUR 18 million relate to UPM Chapelle paper mill assets located in France.

Group companies The group’s management is not aware of any significant litigation in the end of 2020. 9.3 Events after the balance sheet date On 19 January, UPM announced that it would invest EUR 13 million in UPM Raflatac’s new production line in Nowa Wie ś , Poland. The investment will increase UPM Raflatac’s Direct Thermal (DT) Linerless annual production capacity by 100 million m2. The new production line is expected to be operational at the end of 2021. On 28 January, UPM announced that it moves forward with biofuels growth plans and starts the basic engineering phase of a next generation biorefinery. 10. Other notes 10.1 Forthcoming new standards, amendments and accounting policy changes Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods. These standards and amendments are not expected to have a material impact on the group in the current or future reporting periods and on foreseeable future transactions and have not been early adopted. The impact of Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IFRS 7 and IFRS 16) is presented below. Phase 2 amendments IFRS 9, IFRS 7 and IFRS 16 for IBOR reform The IBOR reform phase 2 amendments to IFRS 9 and IFRS 7 relate to matters that might affect financial reporting when an existing interest rate benchmark is replaced. The amendments explain how to account for changes on the basis for determining contractual cash flows as a result of IBOR reform, provide additional temporary exceptions from applying specific hedge accounting requirements to avoid discontinuation of hedge relationships solely due to IBOR reform. The amendments also include additional IFRS 7 disclosures related to the reform. The IBOR reform phase 2 amendments to IFRS 9, IFRS 7 and IFRS 16 are effective for annual reporting periods beginning on or after 1 January 2021. 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.

Accounting policies

EURm

NOTE

2020 1,816

2019 2,318

Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell, if UPM will recover their carrying amount through a sale transaction which is considered highly probable. Non-current assets classified as held for sale, or included within a disposal group that is classified as held for sale, are not depreciated after the classification.

Sales

1

Change in inventories of finished goods and work in progress

-6

-2

Production for own use Other operating income

5

5

2

44

18

Materials and services Raw materials and consumables purchased

-1,342

-1,460

Change in inventories

-6 -6

-45

9. Unrecognised items 9.1 Commitments and contingencies

External charges

-5

-1,353

-1,510

Personnel expenses Salaries and fees

-196

-212

In the normal course of business, UPM enters into various agreements providing financial or performance assurance to third parties. The maximum amounts of future payments for which UPM is liable is disclosed in the table below under “Other commitments”. Property under mortgages given as collateral for own commitments include property, plant and equipment, industrial estates and forest land.

Indirect employee costs Pension costs

-31

-31

Other indirect employee costs

-7

-7

3

-234

-250

Depreciation, amortisation and impairment charges Depreciation and amortisation

-115

-111

Impairment charges on non-current assets

-1

0

EURm

2020 2019

4 5

-116 -183

-111 -192 277

On own behalf Mortgages

Other operating expenses

—

1

Operating profit

-27

On behalf of others Guarantees

Financial income and expenses Income from non-current assets Dividend income from group companies Interest income from group companies Other interest and financial income Other interest income from group companies Other interest income from other companies Other financial income from other companies Impairment charges on investments Interest and other financial expenses Interest expenses to group companies Interest expenses to other companies Other financial expenses to group companies Other financial expenses to other companies

2

2

Other own commitments Leasing commitments for the next 12 months in accordance with IFRS 16 1) Leasing commitments for subsequent periods 1)

348

534

6

6

5

6

—

—

43

40

Other commitments

214 223

104 113

1

1 0

Total

23

Increase in other commitments is mainly due to a shareholder loan commitment to PVO, which amounts to EUR 123 million . Refer Note 4.3 Energy shareholdings for additional information. The lease commitments for leases not commenced at the end of 2020 totals approximately EUR 412 million, which are mostly related to long-term charter agreements, railway service agreement in Uruguay and service agreements related to wood handling, waste water treatment and other utilities in Leuna, Germany. Such lease commitments at the end of 2019 amounted to EUR 100 million.

1

—

-8

-13 -16

-21 -20 -69

-3

-32

302 275

516 793

Profit before closing entries and tax

Closing entries Depreciation difference

9.2 Litigation Contingent liabilities

1

6

Group contributions granted

-19 -18

—

6

The group is defendant or plaintiff in a number of legal proceedings incidental to its operations. These lawsuits primarily involve claims arising from commercial law issues.

Income taxes

6

-8

-43

Profit for the period

249

756

202

UPM ANNUAL REPORT 2020 UPM FINANCIAL REPORT 2020 87 203

UPM ANNUAL REPORT 2020

UPM FINANCIAL REPORT 2020 86