UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

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

4.1 Property, plant and equipment

Accounting policies

LAND AND WATER

MACHINERY AND EQUIPMENT

OTHER TANGIBLE ASSETS

CONSTRUC TION IN PROGRESS

Defined benefit pension plans 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. 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.

EURm

AREAS BUILDINGS

TOTAL

2021 Accumulated costs

sustainable returns. Capital employed

859

3,452 -2,604

13,136 -11,462

834 -712 122 125

2,069

20,349 -14,780

Accumulated depreciation and impairments

-2

—

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

857 757

848 846

1,674 1,864

2,069

5,569 4,316 1,515

724

2021 2020

Additions Disposals

58

2

5

2

1,448

Property, plant and equipment

5,569

4,316

-3

-3

-4

-1

— — —

-12

Leased assets Forest assets

608

561

Depreciation Impairment

— — — —

-71 -12 60

-280

-17

-368

2,328 2,579

2,077 1,936

-38 80 -11 58

-1

-52

Energy shareholdings

Reclassifications

9

-150

-2

Goodwill and other intangible assets

603

592

Reclassifications to assets held for sale

-3

—

—

-13

Operating working capital

1,204

1,247

Translation differences

44

29

6

47

185

Provisions

-155 -597

-222 -744

Carrying value, at 31 December

857

848

1,674

122

2,069

5,569

Net retirement benefit assets and liabilities

2020 Accumulated costs

Cash and cash equivalents Other assets and liabilities

1,460

1,720

797

3,423 -2,577

13,182 -11,318

839 -714 125 134

724

18,965 -14,649

290 -130

215 -143

Accumulated depreciation and impairments

-39

—

Net deferred tax assets and liabilities

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

757 761

846 948

1,864 2,006

724 235 776

4,316 4,083

Total

13,759

11,555

Additions Disposals

48

—

4

1

829

-1

-5

—

—

— — —

-7

Depreciation Impairment

—

-73 -27 30

-292

-18

-383

-8

-34

-1

-70

Reclassifications

—

235

16

-280

1

Reclassifications to assets held for sale

3

-3

-3

—

—

-2

Translation differences

-45

-26

-52

-6

-7

-136

Carrying value, at 31 December

757

846

1,864

125

724

4,316

Capital expenditure Capital expenditure, excluding acquisitions and shares, amounted to EUR 1,477 million (902 million) in 2021. In December 2021, UPM announced that it is investing EUR 10 million in the development of UPM Plywood's plywood mill in Joensuu, Finland. The investment includes new production lines, new workspaces and 720 square metres of completely new production space. In January 2020, UPM announced that it would invest EUR 550 million in a 220,000 tonnes next-generation biochemicals biorefinery in Leuna, Germany. The schedule for the start-up of the facility is by the end of 2023. 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 start-up schedule has been updated to take place by the end of Q1 2023, and the total investment estimate has been increased to USD 3.47 billion

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. Capitalised borrowing costs In 2021, the borrowing costs capitalised as part of non-current assets amounted to EUR 9 million (4 million). Amortisation of capitalised borrowing costs was EUR 2 million (3 million) and the average interest rate used 0.73% (1.31%), which represents the average costs to finance the projects. In 2021, capitalised borrowing costs were mainly related to the construction of the new pulp mill in Uruguay. Government grants In 2021, government grants recognised as deduction of non-current assets totalled to EUR 0 million (5 million).

174

UPM FINANCIAL REPORT 2021 175 UPM ANNUAL REPORT 2021 175

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 174