UPM annual report 2014

27 Equity and reserves Share capital

A resolution of a general meeting of shareholders to amend or delete this redemption clause must be carried by shareholders represent- ing not less than three-quarters of the votes cast and shares represented at the meeting.

The maximum exposure to credit risk in regard to other loan receivables is their carrying amount.

Principal available-for-sale investments

Carrying value, EURm 2014 2013

Number of shares 8,176,191 4,140,132 100,797 10,220 243,670

Group holding %

Number of shares (1,000)

Share capital

24 Other non-current assets

Pohjolan Voima Oy, A serie Pohjolan Voima Oy, B serie

61.24 381 407 58.11 1,370 1,313 50.98 187 306 4.13 401 443 51.10 107 109

EURm

Fair value and other reserves

As at 31 December

At 1 Jan. 2013

526,124

890

Pohjolan Voima Oy, B2 serie 1,859,255

2014

2013

EURm

Exercise of share options

3,177

–

As at 31 December

Kemijoki Oy

At 31 Dec. 2013

529,302

890

Defined benefit plans (Note 29)

40 51 91

88 54

2014 1,988 –128

2013 2,152

EURm

Länsi-Suomen Voima Oy OEP Technologie B.V.

Exercise of share options

4,434

–

Other non-current assets

Fair value reserve of available-for-sale investments

10.86

35 29

35 48

At 31 Dec. 2014

533,736

890

At 31 Dec.

142

Hedging reserve

–21

Other 1)

–

–

Legal reserve

– – 7

53 50 22

At 31 Dec.

2,510 2,661

Shares At 31 December 2014, the number of the company’s shares was 533,735,699. Each share carries one vote. The shares do not have any nominal counter value. The shares are included within the book entry system for securities. Reserve for invested non-restricted equity Reserve for invested non-restricted equity includes, under the Compa- nies’ Act, the exercise value of shareholders’ investments in the company unless otherwise decided by the company. Treasury shares The Annual General Meeting held on 8 April 2014 authorised the Board of Directors to acquire no more than 50,000,000 of the company's own shares. The authorisation is valid for 18 months from the date of the decision. As at 31 December 2014, the company held 230,737 (230,737) of its own shares, 0.04% (0.04%) of the total number of shares. 211,481 of the shares were returned upon their issue in 2011 to UPM without consider- ation as part of the contractual arrangements relating to the Myllykoski transaction and 19,256 shares in accordance with the Group’s share reward scheme due to the termination of employment contracts in 2012. Authorisations to increase the number of shares The Annual General Meeting, held on 4 April 2013, authorised the Board of Directors to decide on the issuance of shares and/or the trans- fer of the company’s own shares held by the company and/or the issue of special rights entitling holders to shares in the company as follows: (i) The maximum number of new shares that may be issued and the compa- ny’s own shares held by the company that may be transferred is, in total, 25,000,000 shares. This figure also includes the number of shares that can be received on the basis of the special rights. (ii) The new shares and special rights entitling holders to shares in the company may be issued and the company’s own shares held by the company may be transferred to the company’s shareholders in proportion to their existing sharehold- ings in the company, or in a directed share issue, deviating from the shareholder’s pre-emptive subscription right. This authorisation is valid until 4 April 2016. The subscription period for share options 2007C ended on 31 Octo- ber 2014. During the entire share subscription period 4,435,302 shares were subscribed through exercising 2007C share options. Following the expiration of the 2007 stock options, the company has no stock option programme in place. Aside from the above, the Board of Directors has no current authorisation to issue shares, convertible bonds or share options. The shares available for subscription under the Board’s share issue authorisation may increase the total number of the company’s shares by 4.68%, i.e. by 25,000,000 shares, to 558,735,699 shares. Redemption clause Under § 12 of UPM-Kymmene Corporation’s Articles of Association, a shareholder who, alone or jointly with another shareholder owns 33 1/3 percent or 50 percent or more of all the company’s shares or their associ- ated voting rights shall, at the request of other shareholders, be liable to redeem their shares and any securities that, under the Companies Act, carry the right to such shares, in the manner prescribed in § 12.

Share premium reserve Share-based compensation

1) Includes C, H, M and V series of Pohjolan Voima Oy.

25 Inventories

2,256

At 31 Dec.

1,867

Fair valuation of available-for-sale investments in the UPM Energy segment (Pohjolan Voima Oy’s A, B, B2, C, C2, H, M and V-shares, Kemijoki Oy shares, and Länsi-Suomen Voima Oy shares) is based on discounted cash flows model. The Group’s electricity price estimate is based on fundamental simulation of the Finnish area price. A change of +/-5% in the electricity price used in the model would change the total value of the assets by +/- EUR 369 million. The discount rate of 5.82% used in the valuation model is determined using the weighted average cost of capital method. A change of +/- 0.5% in the discount rate would change the total value of the assets by approximately -/+ EUR 360 million. Other uncertainties and risk factors in the value of the assets relate to start-up schedule of the fixed price turn-key Olkiluoto 3 nuclear power plant project and the on-going arbitration proceedings between the plant supplier AREVA-Siemens Consortium and the plant owner Teollisuuden Voima Oyj (TVO). UPM’s indirect share of the capacity of Olkiluoto 3 is approximately 31%, through its PVO B2 shares. The possible outcome of the arbitration proceedings has not been taken into account in the valuation. Changes in regulatory environment or taxation could also have an impact on the value of the energy generating assets. Fair value of the OEP Technologie B.V. shares is based on the dis- counted value of sales option related to the shareholding. Pohjolan Voima Oy B and B2 series relate to shareholdings in Teolli- suuden Voima Oyj, which operates and constructs nuclear power plants in Olkiluoto, Finland. The operation of a nuclear power plant involves potential costs and liabilities related to decommissioning and disman- tling of the nuclear power plant and storage and disposal of spent fuel and, furthermore, is governed by international, European Union and local nuclear regulatory regimes. Pursuant to the Finnish Nuclear Liabil- ity Act, the operator of a nuclear facility is strictly liable for damage resulting from a nuclear incident at the operator’s installation or occur- ring in the course of transporting nuclear fuels. Shareholders of power companies that own and operate nuclear power plants are not subject to liability under the Nuclear Liability Act. In Finland, the future costs of conditioning, storage and final disposal of spent fuel, management of low and intermediate level radioactive waste and nuclear power plant decommissioning are the responsibility of the operator. Reimbursement of the operators’ costs related to decommissioning and dismantling of the power plant and storage and disposal of spent fuel are provided for by state-established funds funded by annual contributions from nuclear power plant operators. The contributions to such funds are intended to be sufficient to cover estimated future costs which have been taken into consideration in the fair value of the related available-for-sale invest- ments.

As at 31 December

2014

2013

EURm

Raw materials and consumables

548

565

Changes in hedging reserve

Work in progress

55

39

Year ended 31 December

Finished products and goods

713

684

2014

2013

EURm

Advance payments

40

39

At 31 Dec.

1,356

1,327

Hedging reserve at 1 Jan.

–21

7

Gains and losses on cash flow hedges

–102

33

Transfers to sales

–85

–85

Transfers to costs and expenses Transfers to financial costs

51

14

26 Trade and other receivables

3

2

Tax on gains and losses on cash flow hedges

20

–9 17

As at 31 December

Tax on transfers to income statement

6

2014 1,412

2013 1,398

EURm

Hedging reserve at 31 Dec.

–128

–21

Trade receivables Loan receivables

6

10

Components of other comprehensive income

Prepayments and accrued income Derivative financial instruments

143 151 144

154 226 160

Year ended 31 December

Other receivables

2014

2013

EURm

At 31 Dec.

1,856

1,948

Actuarial gains and losses on defined benefit obligations

–181

69

Translation differences Net investment hedge

291 –41

–219

Ageing analysis of trade receivables

77

Cash flow hedges

As at 31 December

2014 1,225

2013 1,191

EURm Undue

gains/losses arising during the year

–82 –25

24

reclassification adjustments

–52 –28

–107

Past due up to 30 days Past due 31–90 days Past due over 90 days

133

137

Available-for-sale investments

32 22

37 33

gains/losses arising during the year

–164 –164 –202

58 58

At 31 Dec.

1,412

1,398

Other comprehensive income

–43

In determining the recoverability of trade receivables the Group con­ siders any change to the credit quality of trade receivables. There are no indications that the debtors will not meet their payment obligations with regard to trade receivables that are not overdue or impaired at 31 De- cember 2014. In 2014, impairment of trade receivables amounted to EUR 8 million (17 million) and is recorded under other costs and ex- penses. Impairment is recognised when there is objective evidence that the Group is not able to collect the amounts due. Maximum exposure to credit risk, without taking into account any credit enhancements, is the carrying amount of trade and other receiv- ables.

Main items included in prepayments and accrued income

As at 31 December

23 Other non-current financial assets

2014

2013

EURm

Personnel expenses

14

11

As at 31 December

Interest income

5

2

2014

2013

EURm

Energy and other excise taxes

70 54

89 52

Loan receivables from associated companies (Note 21)

Other items At 31 Dec.

8

8

143

154

Other loan receivables

35

35

Derivative financial instruments

291 334

239 282

At 31 Dec.

CONTENTS

ACCOUNTS

105

106

UPM Annual Report 2014

UPM Annual Report 2014