UPM annual report 2014

12 Finance costs

Profit before taxes for 2014 and 2013 include income not subject to tax from subsidiary operating in tax free zone. In 2014, change in recoverability of deferred tax assets relates to reassessment of estimated recoverability of deferred tax assets in France. In 2013, change in tax legislation includes a tax income of EUR 76 million from tax rate change in Finland and a tax income of EUR 5 mil- lion from tax rate change in UK. Change in recoverability of deferred tax assets relates to reassessment of estimated recoverability of EUR 120 million related to deferred tax assets in Canada. Tax effects of components of other comprehensive income Year ended 31 December EURm 2014 2013 Before tax Tax After tax Before tax Tax After tax

Goodwill by reporting segment

As at 31 December

2014

2013

EURm

As at 31 December

Year ended 31 December

2014

2013

EURm

Other intangible assets 1) Acquisition cost at 1 Jan.

2014 2013

EURm

673

669

UPM Biorefining UPM Raflatac UPM Plywood Other operations

209

198

Exchange rate and fair value gains and losses Derivatives held for trading Fair value gains on derivatives designated as fair value hedges Fair value adjustment of interest-bearing liabilities attributable to interest rate risk Fair value adjustment of firm commitments attributable to foreign exchange risk Foreign exchange gains/losses on financial liabilities measured at amortised cost

Additions Disposals

6

13

7

7

96 –190

–10

–15

13

13

Reclassifications

11

8

1

1

51 –124

Translation differences Acquisition cost at 31 Dec.

5

–2

Total

230

219

685

673

–50

126

Accumulated amortisation and impairment at 1 Jan.

–591

–582

Impairment tests The Group prepares impairment test calculations at operating segment or at lower business unit level annually. The key assumptions for calcula- tions are those regarding business growth outlook, product prices, cost development, and discount rate. The business growth outlook is based on general forecasts for the business in question. Ten-year forecasts are used in these calculations as the nature of the Group’s business is long-term, due to its capital inten- sity, and is exposed to cyclical changes. In estimates of product prices and cost development, forecasts prepared by management for the next three years and estimates made for the following seven years are taken into consideration. The Group’s recent profitability trend is taken into account in the forecasts. In addition, when preparing estimates, consider- ation is given to the investment decisions made by the Group as well as the profitability programmes that the Group has implemented and the views of knowledgeable industry experts on the long-term development of demand and prices. In annual impairment tests, the recoverable amount of groups of cash generating units is determined based on value in use calculations. The discount rate is estimated using the weighted average cost of capital on the calculation date adjusted for risks specific to the business in question. The pre-tax discount rate used in 2014 for pulp operations Finland was 9.86% (10.06%), and for pulp operations Uruguay 9.62% (8.48%). The recoverable amount is most sensitive to pulp sales prices and the cost of wood raw material. As at 31 December 2014, for pulp operations Finland, a decrease of more than 13.4% in pulp prices would result in recognition of impairment loss against goodwill. The Group believes that no reasonable change in wood cost would cause the aggre- gate carrying amount to exceed the recoverable amount. For pulp opera- tions Uruguay, a decrease of more than 3.9% in pulp prices or an increase of more than 10% in wood cost would result in recognition of impairment loss against goodwill. A decrease of more than 5.6% in pulp prices or an increase of more than 15% in wood cost would result in a write-down of the entire goodwill.

5

–

Amortisation

–30

–28

Disposals

10

15

–123 105

Reclassifications

–

2 2

Foreign exchange gains/losses on loans and receivables

Translation differences

–5

17 –4

93 10

Accumulated amortisation and impairment at 31 Dec.

–616

–591

Actuarial gains and losses on defined benefit obligations

–235 54 –181 103 –34 69 291 – 291 –219 – –219 –51 10 –41 102 –25 77 –133 26 –107 –36 8 –28

Interest and other finance costs, net Interest expense on financial liabilities measured at amortised cost Interest income on derivative financial instruments

Translation differences Net investment hedge

Carrying value at 1 Jan. Carrying value at 31 Dec.

82 69

87 82

–148 –146

Cash flow hedges

90 15

85

Available-for-sale investments –173 9 –164 43 15 58 Other comprehensive income –301 99 –202 –7 –36 –43

Advance payments and construction in progress Acquisition cost at 1 Jan.

Interest income on loans and receivables

5

13

12

Other financial expenses

–19 –28 –62 –84

Additions

2

7

Reclassifications

–13

–6 13

Total

–66

–74

Acquisition cost at 31 Dec.

2

14 Earnings per share

Carrying value at 1 Jan. Carrying value at 31 Dec.

13

12 13

Net gains and losses on derivative financial instruments included in the operating profit

Year ended 31 December 2014 2013

2

Year ended 31 December

Profit (loss) attributable to owners of the parent company, EURm

Emission rights Acquisition cost 1 Jan.

512

335

2014 2013

EURm

18 42

40

Derivatives designated as cash flow hedges

30

75 32

Additions 2)

2

Weighted average number of shares (1,000)

531,574 527,818

Derivatives held for trading

–53 –23

Disposals and settlements Acquisition cost 31 Dec.

–13

–24

Basic earnings per share, EUR

0.96 0.63

Total

107

47

18

For the diluted earnings per share the number of shares is adjusted by the effect of the share options.

Accumulated amortisation and impairment at 1 Jan.

–7

–15

The aggregate foreign exchange gains and losses included in the consolidated income statement

Impairment charges Impairment reversal

– 1 2

–4

–

Profit (loss) attributable to owners of the parent company, EURm

Year ended 31 December

Disposals

12 –7

512

335

2014 2013

EURm Sales

Accumulated amortisation and impairment at 31 Dec.

–4

Profit (loss) used to determine diluted earnings per share, EURm Weighted average number of shares (1,000) Weighted average number of shares for diluted earnings per share (1,000)

11

56

512

335

Other operating income

23 –36

Carrying value at 1 Jan. Carrying value at 31 Dec.

11 43

25 11

Net financial items

–11

4

531,574 527,818

Total

23

24

Other intangible assets, total

340

342

531,574 527,818

Diluted earnings per share, EUR

0.96 0.63

13 Income taxes

1) Other intangible assets consist primarily of capitalised software assets. 2) Additions include emission rights received free of charge.

17 Other intangible assets

Year ended 31 December

2014 2013

EURm

15 Dividend per share

As at 31 December

Water rights Intangible rights include EUR 189 million (189 million) in respect of the water rights of hydropower plants belonging to the UPM Energy seg- ment that are deemed to have an indefinite useful life as the company has a contractual right to exploit water resources in the energy production of these power plants. The values of these water rights are tested annually for impairment based on expected future cash flows of each separate hydropower plant.

Major components of tax expenses Current tax expense Change in deferred taxes (Note 28)

2014

2013

EURm

100

123

Intangible rights Acquisition cost at 1 Jan.

55

17

The dividends paid in 2014 were EUR 319 million (EUR 0.60 per share) and in 2013 EUR 317 million (EUR 0.60 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 373 million, EUR 0.70 per share, will be paid in respect of 2014.

536

536

Income taxes, total

155

140

Additions Disposals

3

3

–2

–1

Income tax reconciliation statement Profit (loss) before tax

Reclassifications

–

2

667 133

475 116

Translation differences Acquisition cost at 31 Dec.

12

–4

Computed tax at Finnish statutory rate of 20% (24.5%) Difference between Finnish and foreign rates Non-deductible expenses and tax-exempt income

549

536

9

–6

16 Goodwill

–27

–42

Accumulated amortisation and impairment at 1 Jan.

–300

–294

Tax loss with no tax benefit Results of associated companies

25 –1

32

As at 31 December

Amortisation

–16

–17

–

2014

2013

EURm

Disposals

2 –

2 8 1

Change in tax legislation

1

–80 129

Reclassifications

Carrying value at 1 Jan. Translation differences Carrying value at 31 Dec.

219

222

Change in recoverability of deferred tax assets Utilisation of previously unrecognised tax losses

19 –5

Translation differences

–9

11

–3

–

Accumulated amortisation and impairment at 31 Dec.

–323

–300

230

219

Other

1

–9

Income taxes, total

155

140

Carrying value at 1 Jan. Carrying value at 31 Dec.

236 226

242 236

Effective tax rate

23.2% 29.5%

CONTENTS

ACCOUNTS

101

102

UPM Annual Report 2014

UPM Annual Report 2014