UPM Annual Report 2021








4.2 Forest assets UPM is both a major forest owner and a purchaser of wood. The value of forest assets, i.e. standing trees, amounted to EUR 2,328 million (2,077 million) at the end of 2021. UPM's own and leased forest land areas are summarised in below table.

Major capital commitments at 31 December

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in other operating income and other operating expenses, respectively.

Key estimates and judgements


2021 2020

Fair valuation The valuation process of forest assets is complex and requires management estimates and judgement on assumptions that have a significant impact on the valuation of the group’s forest assets. Main factors used in the fair valuation of forest assets are estimates for growth and wood harvested, stumpage prices and discount rates. Stumpage price forecasts are based on the current prices adjusted by the management’s estimates for the full remaining productive lives of the trees, up to 100 years for forests in Finland and in the US and up to 10 years for plantations in Uruguay. The cash flows are adjusted by selling costs and costs related to future risks. Felling revenues and maintenance costs are estimated on the basis of actual costs and prices, taking into account the group’s projection of future price and costs development. In addition, calculations take into account future forest growth and environmental restrictions. The pre-tax discount rate used to determine the fair value of the Finnish forests in 2021 was 7.0% (7.0%) and for Uruguayan plantations 9.9% (9.9%). A decrease (increase) of one percentage point in discount rate would increase (decrease) the fair value of forest assets by approximately EUR 270 million (260 million). 4.3 Energy shareholdings UPM is both a significant purchaser and producer of energy. The majority of electrical and thermal energy is consumed at the group’s pulp and paper production. The production is mainly carried out by energy companies in which UPM has energy shareholdings. Energy shareholdings are unlisted equity investments. UPM does not have control or joint control of or significant influence in the said energy companies. The value of energy shareholdings amounted to EUR 2,579 million (1,936 million) at the end of 2021. These energy companies supply energy or both energy and heat to their shareholders on a cost-price principle (Mankala-principle) which is widely applied in the Finnish energy industry. Under the Mankala-principle energy and/or heat is supplied to the shareholders in proportion to their ownership and each shareholder is, pursuant to the specific stipulations of the respective articles of association, severally responsible for its respective share of the production costs of the energy company concerned. In 2020, UPM issued a shareholder loan of EUR 47 million without a maturity date to PVO. Embedded into the loan terms is a right to issue new shares in the PVO B2 series against the remaining, unpaid nominal of the loan starting from 2021. The loan is valued at fair value and is taken into account as a part of the total fair valuation of the PVO B2 series valuation. In addition, in 2020 UPM issued a similar loan commitment of EUR 123 million to PVO, where also a right to issue new PVO B2 shares is embedded starting from 2023.

New biorefinery / Germany CHP power plant / Germany New pulp mill / Uruguay



ASSESSED USEFUL LIVES Land, not subject to depreciation








20-50 20-30 15-20 10-15

Renovation and modernisation / Kuusankoski hydro power plant




Power plants

Heavy machinery Light machinery

Mill development / Plywood Joensuu




1,000 ha

Impairment losses In December 2021, UPM conducted an impairment test of UPM Communication Papers fixed assets. The costs of pulp, recycled fibre, logistics and energy increased significantly in 2021 and high production costs continue to challenge the operations in the foreseeable future. Fair value less cost to sell method was used in the calculation with an inflation rate of 2.0%, negative sales growth rate of 5.4% in real terms, and a post-tax discount rate of 6.7%. As a result of the test calculation, UPM recognised impairment charges of EUR 50 million related to newsprint property, plant and equipment. In June 2020, UPM announced the plan that it has started a consultation process for the potential closure of the UPM Jyväskylä plywood mill in Finland. With the plan to permanently close the mill, UPM recognised impairment charges of EUR 8 million in the Plywood business area. In August 2020, UPM announced the plans for the permanent closure of the UPM Kaipola paper mill in Finland. The mill was permanently closed in early January 2021. With the permanent closure of the mill, UPM recognised impairment charges of EUR 53 million in the Communication Papers business area. Property, plant and equipment Property, plant and equipment is stated at historical cost. Costs of assets of acquired in business combinations are determined at fair value at the acquisition date. Depreciation is calculated on a straightline basis and the carrying value is adjusted for impairment charges, if any. The carrying value of property, plant and equipment on the balance sheet represents the cost less accumulated depreciation and any impairment charges. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Major renovations are capitalised and depreciated over the useful lives of the related asset. Ordinary expenses for repairs and maintenance are expensed as incurred. Accounting policies

515 305 161

426 182 130

420 173 124

Finland Uruguay



Impairment testing Carrying values of individual items included in property, plant and equipment are reviewed at each closing date to determine whether there is any indication of impairment. The carrying value is written down immediately to the asset’s recoverable amount if the carrying value exceeds the estimated recoverable amount. Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell and its value in use. Value in use is determined by discounting future cash flows expected to be generated by the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but the increased carrying amount will not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Key estimates and judgements The estimations of useful lives, residual value as well as depreciation and amortisation methods require significant management judgement and are reviewed annually. Management makes estimates on the future cash flows expected to result from the use of the asset and its eventual disposal. While management believes that estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect valuations. The long useful lives of assets, changes in estimated future sales prices of products, changes in product costs and changes in the discount rates used could lead to significant impairment charges. Estimates are also made in an acquisition when determining the fair values and remaining useful lives of acquired intangible and tangible assets.

Uruguay, leased land




United States

Total 772 At the end of 2021, carrying value of own forest land amounted to EUR 694 million (EUR 594 million) and leased forest land EUR 219 million (EUR 183 million). Forest assets 1,057 793


2021 2,077

2020 2,097

Carrying value, at 1 January

Additions Disposals




Wood harvested


-129 100

Net change in fair value Translation differences




Carrying value, at 31 December



Change in fair value, change due to harvesting and gains or losses on sale of forest assets are recognised in the income statement as a net amount amounting to EUR 111 million (-25 million) in 2021. In 2021, the increase in fair value was impacted by increased forest growth and higher stumpage price estimates used in valuation. Accounting policies The group divides all its forest assets for accounting purposes into growing forests, which are recognised as forest assets at fair value less costs to sell, and land. Own land is stated at cost whereas leased land is valued at cost less accumulated depreciation. Any changes in the fair value of the growing forests are recognised in the operating profit in the income statement. The fair value is calculated on the basis of discounted future expected cash flows as there is a lack of a liquid market. The fair value of forest assets is a level 3 measure in terms of the fair value measurement hierarchy.





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