UPM annual report 2014

30 Provisions

The significant weighted actuarial assumptions used as at 31 December Finland

Germany

UK

Other countries

Restructuring provisions

Termination provisions

Environmental provisions

Emission rights provision

Other provisions

Total

EURm

2014 1.56 1.25 1.50 2.21 10.3

2013 2.95 2.00 2.50 2.26 10.3

2014 1.62 2.00 2.50 2.00 12.8

2013 2.95 2.00 2.50 2.00 12.6

2014 3.50 3.35

2013 4.50 2.25

2014 2.42 2.12

2013 3.62 2.05 2.63 1.10

At 1 Jan. 2014

50

93

20

9

17

189

Discount rate % Inflation rate %

Additional provisions and increases to existing provisions

15

76

8

11 –8

5

115 –78 –12 214

Rate of salary increase % Rate of pension increase %

N/A N/A 2.46

3.20 12.0

3.25 12.0

1.00 10.9

Utilised during year

–10

–55

–2

–3 –2 17

Expected average remaining working years of participants

9.1

Unused amounts reversed

–5 50

–5

–

–

At 31 Dec. 2014

109

26

12

The sensitivity analysis of the defined benefit obligation to changes in the significant weighted assumptions

At 1 Jan. 2013

73

84

25

10

15

207

Additional provisions and increases to existing provisions

Impact on defined benefit obligation

19 –3

81

– –

8 –

7 –

115

Change in assumption

Increase in assumption

Decrease in assumption

Reclassification

3

–

Discount rate %

0.5% 0.5% 0.5%

Decrease by 8.1% Increase by 1.3% Increase by 4.9% Increase by 3.6%

Increase by 9.4% Decrease by 1.2% Decrease by 4.6%

Utilised during year

–25 –14

–62 –13

–3 –2 20

–9

–3 –2 17

–102

Rate of salary increase % Rate of pension increase %

Unused amounts reversed

– 9

–31 189

At 31 Dec. 2013

50

93

Life expectancy

Increase by 1 year

–

The weighted average duration of defined benefit obligation is 17.4 years.

The above analyses assume that assumption changes occur in isolation, holding all other assumptions constant. The same method (projected unit method) has been applied when calculating the pension liability as well as these sensitivities.

The main categories of pension and other post-employment benefit plan assets 2014

Provisions Restructuring provisions include charges related primarily to mill clo- sures. Termination provisions are concerned with planned mill closures and operational restructuring primarily in Germany, Finland, France and the UK. In Finland provisions include also unemployment arrange- ments and disability pensions. Unemployment pension provisions are recognised 2–3 years before the granting and settlement of the pension. In 2014, additions in provisions relate mainly to planned capacity closures in UPM Paper ENA. In November, UPM announced the plan to permanently close four of its paper machines: PM3 at UPM Chapelle, PM1 at UPM Shotton, PM5 at UPM Jämsänkoski and PM2 at UPM Kaukas. In addition, the restructuring measures have started in the UPM Raflatac segment in April. In 2013, additions in provisions are mainly related to restructuring of UPM Docelles mill and closures of paper machines Rauma PM3 and Ettringen PM4 in UPM Paper ENA segment and the restructuring in the UPM Raflatac segment. In addition, provisions were recognised due to the streamlining of global functions and other actions under UPM’s profit improvement programme. Environmental provisions include expenses relating to closed mills and the remediation of industrial landfills. The Group takes part in government programmes aimed at reducing greenhouse gas emissions. In 2014, the Group has recognised provisions amounting to EUR 12 million (9 million) to cover the obligation to return emission rights. The Group possesses emission rights worth EUR 43 million (11 million) as intangible assets. In 2013 UPM has rec- ognised current receivables of EUR 14 million due to the delayed distri- bution of 2013 emission rights.

Allocation between non-current and current provisions

2013 Quoted % Unquoted % Total % Quoted % Unquoted % Total %

As at 31 December

2014

2013

EURm

Money market Europe Debt instruments Europe

Non-current provisions

112 102 214

83

1

–

1

2

–

2

Current provisions

106 189

Total

28

– – – – – –

28

29

– – – – – –

29

US

2 7

2 7

2 3

2 3

Other

Equity instruments Europe

12 11 32

12 11 32

14 12 31

14 12 31

31 Interest-bearing liabilities

US

Other

As at 31 December

Property

2014

2013

EURm

Europe

3

4 4

7

–

7 7

7

Non-current interest-bearing liabilities Bonds

Total 100 In Finland, plan assets include the company's ordinary shares with a fair value of EUR 0.7 million (0.7 million). In 2015 contributions to the Group's defined pension plans are expected to be EUR 33 million and to other post-employment plans EUR 2 million. 96 100 93

1,081 1,335

955

Loans from financial institutions

1,655

Pension loans

241 100

323 270 100 171

Finance lease liabilities

Derivative financial instruments

99

Other loans

191

Other liabilities

11

11

Main risk areas related to defined benefit plans The main risks related to the Group’s defined benefit plans are changes in discount rate, asset volatility, inflation, changes in salaries and longev- ities of the beneficiaries. Discount rates The discount rates are based on corporate bond yields as at reporting date. A decrease in yields increases the defined benefit obligation. The decrease of 0.5% in discount rate would increase Group’s defined benefit obligation by EUR 149 million. Asset volatility The Group is exposed to changes of assets’ values especially in the investments of the foundations and schemes in Finland and in the UK. The asset values of these arrangements constitute 90% of total asset values in defined benefit plans within Group. Inflation risk In Finland, the plan’s benefits in payment are tied to TyEL index which depends 80% on inflation and 20% on common salary index. Higher inflation increases the TyEL index which increases the employer’s pay- ments to the pooling system. Index increments do not increase directly the plan’s liabilities as they are covered through the pooling system.

In the UK the pensions in payment are tied to Retail Price Index whilst being tied to Consumer Price Index during deferment. An increase of 0.5% in indexes will increase the liabilities by some EUR 35 million. In Germany the pensions have to be adjusted in accordance with the Consumer Price Index. Salary risk In Finland the salary risk is related to 8% of employees that are insured through TyEL foundation. As all UK defined benefit arrangements are closed to future accrual, changes in salary levels have no impact on the funding position. In Germany the salaries affect directly to benefit cost in part of the plans and to part of the plans salary changes have no impact. Life expectancy Adjustments in mortality assumption have an impact on Group’s defined benefit obligation. An increase in life expectancy by one year will in- crease liabilities in Finland of EUR 16 million, in the UK of EUR 15 million and in Germany of EUR 24 million.

3,058

3,485

Current interest-bearing liabilities Current portion of non-current liabilities

290

512

Derivative financial instruments

41 75

82 49

Other liabilities

406

643

Total interest-bearing liabilities

3,464

4,128

CONTENTS

ACCOUNTS

111

112

UPM Annual Report 2014

UPM Annual Report 2014