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FINANCIAL REPORT 2021
Report of the Board of Directors
Financial statements
Auditor's report
Other financial information
Financial information 2012-2021
Report of the Board of Directors
UPM introduction and business model
As a frontrunner in forest industry, UPM provides sustainable solutions to
the growing global consumer demand. Products are made from
renewable materials and are recyclable.
UPM invests in sustainable growth and innovates for a future beyond
fossils across six business areas: UPM Biorefining, UPM Energy, UPM
Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM
Plywood. The business areas are competitive with strong market
positions.
UPM group creates value to its stakeholders by operating separate
businesses with a focus on:
Competitive and sustainable wood sourcing, forestry and plantation
operations
Value adding, efficient and responsible global functions
Continuous improvement (Smart) programmes
Technology and intellectual property rights
A global platform to build on
Disciplined and effective capital allocation
Compliance with applicable laws and regulations, UPM Code of
Conduct and corporate policies
Clear roles and responsibilities
Group
Businesses
Outcomes
Portfolio strategy
Capital allocation
Business targets
Code of Conduct
Responsibility targets
Business area
strategies
Commercial excellence
Operational excellence
Cost efficiency
measures
Focused growth project
Innovation
Top performance
Competitive advantage
Value creation
Stakeholder and societal
value
License to operate
Each business area is responsible for executing its own strategy and
achieving targets. Group direction and support from global functions
enable the businesses to capture benefits from UPM’s brand, scale and
integration, while navigating the complex operating environment.
Capital allocation decisions take place at the group level.
Corporate responsibility is an integral part of all of our operations
and a source of competitive advantage. UPM is committed to continuous
improvement in financial, social and environmental performance. UPM
promotes responsible practices throughout the value chain and is active
in finding sustainable solutions, in co-operation with its customers,
suppliers and partners.
Market environment in 2021
The world economy recovered from the severe global recession of
2020. The year 2021 began with rising optimism about growth driven
by an upswing in global output and consumer spending, as well as
vaccine rollouts in developed countries. Global recovery continued
throughout the year despite disruptions in global supply chains,
inflationary pressure and the growing uncertainty caused by weakening
pandemic dynamics towards end of the year. Global real GDP growth
is projected at 5.6% in 2021.
In Europe, the economy rebounded from the pandemic recession
faster than initially expected. Domestic demand was strong, and the
reopening of the economy made good progress. Global supply-chain
bottlenecks and disruptions also weighed on activity in Europe,
particularly in integrated manufacturing sector. In addition, the sharp
increase in energy prices impacted on consumption and investments.
Economic growth in Europe is projected at 5.6% in 2021.
In the US, accumulated savings, federal stimulus and wage growth
provided strong support for economic recovery. Nevertheless,
expansion faced mounting headwinds as worker shortages, disruptions
in the supply of raw materials and container ship backups threatened to
slow down recovery. Economic growth in the US is projected at 5.7% in
2021.
China’s economy swiftly rebounded in 2021 with its best growth
since 2011. Industrial output, construction and foreign trade surpassed
pre-pandemic levels in spite of the power shortages that hit the country’s
manufacturing and industrial activities during H2. Growth lagged in
retail sales and service industries. Private consumption continued to be
impacted by the pandemic due to the increase in household saving and
lockdowns limiting opportunities to spend. In China, economic growth is
projected at 8.1% in 2021.
Multilateral efforts to mitigate and adapt to climate change remained
a key global focus and priority. The United Nations Climate Change
Conference (COP26) finalised the Paris Agreement to limit the rise in
global temperature to 1.5C. However, that goal will not be reached
without further action and collaboration between governments,
businesses and civil society to deliver on climate goals more quickly.
Over 90% of global GDP is now covered by net zero commitments.
In terms of global biodiversity preservation, the drivers of change are
largely the same as for climate change mitigation. The year 2021 saw
key developments in terms of the global post-2020 biodiversity
framework and its expected adoption. Large economies have shown
strong aspirations to put biodiversity on a path to recovery and
companies are increasingly working to incorporate targets to tackle
nature loss into their strategies.
Inflation increased rapidly in many countries, especially in the United
States, Germany and some emerging markets. UPM’s input costs were
significantly higher in comparison with the previous year, most notably
in fibre and energy.
The US dollar strengthened against the euro and other major world
currencies during 2021. The impact of changing currencies on UPM’s
businesses was moderate in 2021.
Market demand for UPM’s products was good, particularly in
Europe and North America, and sales prices increased in most
businesses. Demand for graphic papers in Europe increased by 4%
from a low comparison period in the previous year. Market prices
increased slightly for most paper grades.
The growth in demand for chemical pulp continued good in Europe
but slowed in China. The average market prices for both northern
bleached softwood (NBSK) and bleached hardwood kraft pulp (BHKP)
increased in Europe.  In China, market prices reached historic highs in
H1 and declined in H2, while remaining at a good level.
UPM FINANCIAL REPORT 2021
2
Demand for advanced renewable diesel and naphtha continued to
be strong in 2021, with continuous growth in demand driven by climate
targets. Market prices were at a high level.
Finland’s electricity consumption was good in 2021. Electricity sales
prices in Finland were at a record high, especially toward the end of
the year, due to high commodity and emission allowance prices and the
dry hydrological situation in the Nordic market.
The growth of global demand for self-adhesive label materials was
healthy, especially in consumer goods and e-commerce-driven labelling.
Market prices increased in all main markets.
The growth in demand for label, release and packaging papers was
good and market prices increased. In H1 2021, demand for office
paper in the Asia-Pacific region was good but in H2, demand became
weaker. Market prices for office paper in China increased sharply in
H1 but decreased below the long-term average price levels in H2.
Market demand for plywood in Europe was strong. Demand for
spruce plywood was driven by high levels of activity in the building and
construction industry. Demand for birch plywood was good in panel
trading, vehicle flooring and construction-related industrial applications.
Market prices increased in many end-uses.
Impact of the COVID-19 pandemic
The COVID-19 pandemic, the related containment measures around the
world and rapid changes in the global economy continue to represent
significant uncertainty.
Global economy
The COVID-19 pandemic and the related containment measures resulted
in a sharp decline in the global economy in 2020. During the first
phase of the recession, the pandemic containment measures and
lockdowns around the world severely limited or temporarily stopped
significant parts of the economy. In 2021, the global economy has
started to recover, but it is uncertain how long-lasting the recovery will
be. Despite progress with vaccinations, additional waves of the
epidemic in different parts of the world remain possible.
The recovery in the global economy from the deep downturn in
2020, combined with the ongoing pandemic have created tightness
and disruptions globally in many supply chains, including logistics and
energy, causing rising costs and uncertainty on price and availability of
many raw materials and energy.
Safety and business continuity
UPM has implemented extensive precautions to protect the health and
safety of its employees and to ensure business continuity and the
progression of its strategic projects during the pandemic. Despite these
efforts, the operation of one or more units or the supply chain and
logistics could be temporarily disrupted during the pandemic, the
related lockdown measures, or the following economic recovery. In
these circumstances some units may need to limit operations or be
temporarily shut down.
So far UPM has been able to protect its employees and business
continuity well.
Demand for UPM products
Many of UPM's products serve essential everyday needs and have
therefore seen resilient demand during the crisis. These products include
pulp, specialty papers and self-adhesive label materials. However, even
in these businesses, demand is influenced by general economic activity.
Demand for graphic papers is more prone to be impacted by the
lockdowns and economic cycles. The lockdowns limit a wide range of
consumer-driven services and retail, as well as work at the office. This
has had a negative impact on printed advertising and graphic paper
demand during the pandemic.
The lockdowns and the level of economic activity may also influence
demand for electricity, plywood and sawn timber.
In Q2 2020, graphic paper demand in Europe decreased by 32%
from the previous year, as particularly advertising-driven paper
consumption and office paper demand being impacted by the
lockdowns across Europe. These impacts moderated to some extent as
the year progressed, and graphic paper demand decreased by 18% in
Q3 2020 and by 14% in Q4 2020 year-on-year. During Q1 2021 the
pandemic and the related containment measures continued to impact
the business environment, and graphic paper demand decreased by
14% from last year. In Q2 2021, as economies in Europe started to
gradually open, graphic paper demand increased by 28% from the low
comparison base in previous year. In Q3 2021, demand grew by 6%
and in Q4 2021 by 4% from the previous year.
Pulp demand has held up relatively well, supported by good
demand for tissue and hygiene products as well as for some packaging
and specialty paper products. Pulp consumption in graphic paper
production decreased in 2020, but improved in 2021.
Demand for self-adhesive label materials and specialty papers has
grown during the pandemic, as consumers have shifted some of their
spending from away-from-home categories to packaged daily consumer
goods. E-commerce has continued to grow, supporting some labelling
and specialty paper applications. Demand for self-adhesive labels in
Europe grew by 7% in Q1 2020 and 9% in Q2 2020 year-on-year,
decreased by 4% in Q3 2020 due to destocking in the customer value
chain, and resumed growth at 6% in Q4 2020. Demand for self-
adhesive labels in Europe increased in Q1 2021 by 1% and in Q2
2021 by 9%. In Q3 2021, demand grew by 15% from last year and in
Q4 by 3%, somewhat impacted by the supply chain constraints.
Adjusting to different scenarios
The potential impacts on UPM are likely to differ by business and phase
and waves of the pandemic, lockdown measures, changes in consumer
behaviour, and the recession and recovery thereof. UPM has used shift
arrangements, temporary layoffs, or reduced working hours as required
to adjust its operations in different scenarios. During Q3 2020, the
company also announced plans to permanently reduce graphic paper
production capacity and other plans to improve cost efficiency in
different businesses and functions. The UPM Kaipola paper mill was
closed in January 2021.
Projects and maintenance shutdowns
The pandemic and the required health and safety measures add
challenges to large investment projects and maintenance shutdowns.
UPM's transformative pulp project in Uruguay and biochemicals project
in Germany are proceeding with strict health and safety controls.
Despite these efforts, some changes to the detailed timeline and costs of
the projects are possible during the pandemic, the related containment
measures, or due to the tight global logistics and supply chains.
In April 2020 TVO announced that fuel loading into the OL3 reactor
would not happen as originally planned in June 2020. TVO announced
an updated schedule in August 2020, and the fuel loading was
completed in April 2021.
UPM rescheduled two pulp mill maintenance shutdowns from Q2
2020 to Q4 2020 due to the pandemic. Both shutdowns were
successfully completed in Q4 with strict health and safety controls. For
2021, UPM rescheduled the maintenance shutdown at the UPM Kymi
pulp mill from Q2 2021 to Q4 2021.
UPM FINANCIAL REPORT 2021
3
Financing
UPM’s financial position is strong. UPM's net debt was EUR 647 million
at the end of 2021. Cash funds and unused committed credit facilities
totalled EUR 2.5 billion at the end of 2021. This includes the
sustainability-linked EUR 750 million committed syndicated revolving
credit facility of which EUR 50 million is maturing in 2025 and EUR
700 million is maturing in 2026 and EUR 159 million equivalent rolling
overdraft facility. During Q4 2020, UPM successfully issued a EUR 750
million Green Bond under its EMTN (Euro Medium Term Note)
programme. A second EUR 500 million Green Bond was issued in Q1
2021. The facilities and UPM's outstanding debt have no financial
covenants.
Key figures
2021
2020
2019
Sales, EURm
9,814
8,580
10,238
Comparable EBITDA, EURm
1,821
1,442
1,851
% of sales
18.6
16.8
18.1
Operating profit, EURm
1,562
761
1,344
Comparable EBIT, EURm
1,471
948
1,404
% of sales
15.0
11.1
13.7
Profit before tax, EURm
1,548
737
1,307
Comparable profit before tax, EURm
1,457
924
1,367
Profit for the period, EURm
1,307
568
1,073
Comparable profit for the period, EURm
1,204
737
1,119
Earnings per share (EPS), EUR
2.41
1.05
1.99
Comparable EPS, EUR
2.22
1.37
2.07
Return on equity (ROE), %
12.7
5.8
10.7
Comparable ROE, %
11.7
7.5
11.2
Return on capital employed (ROE), %
12.4
6.7
12.3
Comparable ROCE, %
11.7
8.3
12.8
Operating cash flow, EURm
1,250
1,005
1,847
Operating cash flow per share, EUR
2.34
1.89
3.46
Equity per share at the end of period, EUR
20.34
17.53
18.87
Capital employed at the end of period, EURm
13,759
11,555
11,474
Net debt, EURm
647
56
-453
Net debt to EBITDA
0.35
0.04
-0.24
Personnel at the end of period
16,966
18,014
18,742
» Refer Other financial information Alternative performance measures for definitions of key figures.
Results
2021 compared with 2020
Sales in 2021 were EUR 9,814 million, 14% higher than the EUR 8,580
million for 2020. Sales increased in all business areas, driven by higher
sales prices and delivery volumes.
Comparable EBIT increased by 55% to EUR 1,471 million, 15.0% of
sales (948 million, 11.1%).
Sales prices increased for UPM Biorefining, UPM Energy, UPM
Specialty Papers, UPM Raflatac and UPM Plywood and decreased for
UPM Communication Papers.
Variable costs increased in all business areas, especially in UPM
Communication Papers, UPM Specialty Papers and UPM Raflatac. At the
group level, the positive impact of higher sales prices more than offset
the negative impact of higher variable costs.
Delivery volumes were higher in all business areas. Fixed costs
decreased by EUR 2 million. Costs in the comparison period were
reduced by temporary measures to adjust to the COVID-19 pandemic.
The industry-wide strike in Finland impacted both delivery volumes and
fixed costs in Q1 2020.
Depreciation, excluding items affecting comparability, totalled
EUR 463 million (471 million) including depreciation of leased assets
totalling EUR 74 million (73 million). The change in the fair value of
forest assets net of wood harvested was EUR 111 million (-25 million).
UPM FINANCIAL REPORT 2021
4
Operating profit totalled EUR 1,562 million (761 million). Items
affecting comparability in operating profit totalled EUR 91 million in the
period (-187 million), including the EUR 133 million gain on the sale of
Shotton Mill Ltd in UPM Communication Papers business area and EUR
50 million impairment charges of newsprint related assets. In 2020,
Items affecting comparability in operating profit included EUR 90 million
in restructuring charges related to the closure of the UPM Kaipola paper
mill, EUR 85 million in restructuring charges related to closure of the
UPM Chapelle paper mill, EUR 23 million in restructuring charges
related to the closure of the Jyväskylä plywood mill, EUR 6 million in
charges related to the restructuring of the functions of UPM
Communication Papers, EUR 9 million in charges related to restructuring
of the functions of UPM Raflatac, earnings of EUR 12 million on the sale
of the group's share in Kainuun Voima Oy and earnings of EUR 11
million on the sale of other non-current assets.
Net interest and other finance income and costs were EUR -12 million
(-26 million). The exchange rate and fair value gains and losses were
EUR -3 million (2 million). Income taxes totalled EUR -240 million (-169
million).
Profit for 2021 was EUR 1,307 million (568 million), and
comparable profit was EUR 1,204 million (737 million).
Financing and cash flow
In 2021 cash flow from operating activities before capital expenditure
and financing totalled EUR 1,250 million (1,005 million). Working
capital increased by EUR 115 million (93 million).
Net debt was EUR 647 million at the end of 2021 (56 million). The
gearing ratio as of 31 December 2021 was 6% (1%). The net debt to
EBITDA ratio, based on the last 12 month's EBITDA, was 0.35 at the
end of the period (0.04).
On 31 December 2021 UPM's cash funds and unused committed
credit facilities totalled EUR 2.5 billion. This includes the sustainability-
linked five-year EUR 750 million revolving credit facility signed in Q1
2020 and the EUR 159 million equivalent rolling overdraft facility.
On 13 November 2020 UPM issued a EUR 750 million Green Bond
and on 15 March 2021 a EUR 500 million Green Bond under its EMTN
(Euro Medium Term Note) programme.
A dividend of EUR 1,30 per share (totalling EUR 693 million) was
paid on 12 April 2021 for the 2020 financial year.
Capital expenditure
In 2021, capital expenditure totalled EUR 1,483 million, which was
15.1% of sales (903 million, 10.5% of sales). Capital expenditure does
not include additions to leased assets.
In 2022, UPM's total capital expenditure, excluding investments in
shares, is expected to be about EUR 1,500 million, which includes
estimated capital expenditure of approximately EUR 1,300 million in
transformative projects. Transformative projects consist of the new pulp
mill, port operations, local investments outside the mill fence in Uruguay
and the biochemicals biorefinery in Germany.
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 in a 2.1 million
tonne greenfield eucalyptus pulp mill near Paso de los Toros, central
Uruguay. Additionally, UPM will invest in port operations in Montevideo
and in local investments outside the mill fence. The updated schedule for
the start-up of the mill is by the end of Q1 2023, and the total
investment estimate is USD 3.47 billion.
In October 2019, UPM announced that it would invest EUR 95
million in a Combined Heat and 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
begin in 2023. The investment is estimated to decrease UPM's CO2-
footprint by 300,000 tonnes.
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 updated schedule for the start-up of the facility is
by the end of 2023.
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.
Personnel
In 2021, UPM had an average of 17,512 employees (18,557). At the
beginning of the year the number of employees was 18,014 and at the
end of 2021 it was 16,966.
Further information about personnel is available in » Our People section in
UPM Annual report 2021.
Uruguay pulp mill investment
On 23 July 2019, UPM announced that it would invest USD 2.72 billion
in a 2.1 million tonne greenfield eucalyptus pulp mill near Paso de los
Toros, central Uruguay. Additionally, UPM would 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. In May 2020, an electrical grid reinforcement
investment of USD 70 million was added to the scope of the project to
fully utilize and sell the surplus energy of the mill.
The investment will grow UPM's current pulp capacity by more than
50%, resulting in a step change in the scale of UPM's pulp business as
well as in UPM's future earnings. 
With a combination of competitive wood supply, scale, best
available techniques and efficient logistics, the mill is expected to reach
a highly competitive cash cost level of approximately USD 280 per
delivered tonne of pulp. This figure includes the variable and fixed costs
of plantation operations, wood sourcing, mill operations and logistics
delivered to the main markets. Furthermore, the safety and sustainability
performance of the value chain from plantations to customer delivery is
expected to be on an industry-leading level.
Competitive wood supply
Eucalyptus availability for the mill is secured through UPM’s own and
leased plantations, as well as through wood sourcing agreements with
private partners. The plantations that UPM owns and leases in Uruguay
cover 466,000 hectares. They will supply the current UPM Fray Bentos
mill and the new mill near Paso de los Toros. 
UPM FINANCIAL REPORT 2021
5
State of the art mill design
The pulp mill has been designed as an efficient single-line operation. The
machines, materials, level of automation and standards enable a high
operating rate and maintainability, as well as a high energy output. This
ensures excellent safety, high environmental performance, and low
operating costs during the long lifecycle of the mill.
The mill is designed to fully meet strict Uruguayan environmental
regulations, as well as international standards and recommendations for
modern mills, including the use of the latest and best available
technology (BAT). The mill's environmental performance will be verified
through comprehensive and transparent monitoring.
The mill's initial annual production capacity is 2.1 million tonnes,
and the environmental permits enable further capacity potential. When
in operation, the mill generates more than 110 MW surplus of
renewable electricity.
Efficient logistics set-up
An efficient logistics chain will be secured by the agreed road
improvements, extensive railway modernisation and port terminal
construction.
The Public-Private-Partnership agreement between the government
and the construction company for the construction of the central railway
was signed in May 2019. Works on the central railway are proceeding,
but the overall rail project is delayed, and the railway is scheduled to
start operations in May 2023. UPM has a contingency plan in place to
ensure logistics with truck transportation during this delay.
UPM is proceeding with the construction of a deep-sea pulp terminal
at Montevideo port with an investment of approximately USD 280
million. Direct rail access from the mill to a modern deep-sea port
terminal creates an efficient supply chain to world markets. The
Montevideo deep-sea port also enables synergies in ocean logistics with
UPM’s existing Uruguay operations.
UPM entered into a port terminal concession agreement in 2019 and
signed an agreement on rail logistics services in October 2020. Both
agreements are considered in accordance with IFRS 16 Leases. The total
amount of such lease payments is expected to be USD 200 million.
Significant impact on the Uruguayan economy
Based on independent socioeconomic impact studies, the mill is
estimated to increase Uruguay’s gross national product by about 2%
and the annual value of Uruguay’s exports by approximately 12% after
completion.
In the most intensive construction phase, more than 6,000 people will
be working on the site. When completed, approximately 10,000
permanent jobs are estimated to be created in the Uruguayan economy
of which approximately 4,000 would involve direct employment by
UPM and its subcontractors. About 600 companies are estimated to be
working in the value chain.
The mill will be located in one of Uruguay's many free trade zones
and will pay a fixed annual tax of USD 7 million. The mill's value chain
is expected to contribute USD 170 million in annual taxes and social
security payments and to contribute USD 200 million annually in wages
and salaries.
Project schedule and capital outflow
The mill was originally scheduled to start up in the second half of 2022.
The successive waves in the pandemic and tight global supply chains
have caused some challenges to the project. Hence, the start-up
schedule has been updated to take place by the end of Q1 2023, and
the total investment estimate has been increased by 10% to USD 3.47
billion.
More than 6,000 people are currently working on the project at the
various construction sites. Strict COVID-19 protocols have been
maintained at all UPM’s construction sites.
At the pulp mill site in Paso de los Toros, the installation phase with
mechanical erection continues to progress in all main process areas and
EIA erection works have started. Majority of large civil works have been
completed. Power boiler pressure test was done successfully in
December. Commissioning works will proceed in the coming months.
Large scale cargo transfers from the UPM Fray Bentos port to the new
mill site continue and include the transports of the machinery,
equipment, and structures necessary for the construction of the UPM
Paso de los Toros mill.
A large part of the pulp terminal area in Montevideo has been
completed, including the structure and roofing of the pulp warehouse –
an area of 50,000 square meters. The unloading lines for the railway
were also completed and construction of railway has continued. Piping,
pipe bridge, auxiliary machinery and electrical installation work
continues on the port basin.
The total capital expenditure of USD 3.47 billion will take place in
2019-2023, with 2021 and 2022 being the most intensive years. UPM
will hold 91% ownership of the project and a local long-term partner
which has also been involved in UPM Fray Bentos, owns 9%. UPM’s
investment will mainly be financed from operating cash flow
complemented by regular group financing activities.
Biochemicals refinery investment
On 30 January 2020 UPM announced that it would invest EUR 550
million in a 220,000 tonnes next-generation biochemicals refinery in
Leuna, Germany. Originally, the biorefinery was scheduled to start up
by the end of 2022. However, the pandemic has slowed down the
completion of the detailed engineering in Leuna. Disruptions to global
supply chains have affected both the availability and costs of critical
construction materials. Hence the start-up schedule has been updated to
take place by the end of 2023. The capital expenditure estimate will be
updated in due course.
The biorefinery will produce a range of 100% wood-based
biochemicals, which will enable a switch from fossil raw materials to
sustainable alternatives in various consumer-driven end-uses. The
investment opens up totally new markets for UPM, with large growth
potential for the future.
The industrial scale biorefinery will convert solid wood into next
generation biochemicals: bio-monoethylene glycol (BioMEG) and
renewable functional fillers. In addition, the biorefinery will produce bio-
monopropylene glycol (BioMPG) and industrial sugars. Once the facility
is fully ramped up and optimized, it is expected to achieve the ROCE
target of 14%.
A combination of sustainable wood supply, a unique technology
concept, integration into existing infrastructure at Leuna as well as the
proximity to customers will ensure the competitiveness of operations. The
safety and sustainability of the value chain will be based on UPM’s high
standards.
InfraLeuna GmbH, in the state of Saxony-Anhalt, offers very
competitive conditions for constructing a biorefinery with its  logistics
arrangements and infrastructure for various services and utilities. In
October 2020, UPM entered into service agreements with InfraLeuna
GmbH related to wood handling, wastewater treatment and other
utilities, which will be recognised as lease assets and liabilities under
IFRS 16 Leases upon the commencement date. The total amount of such
lease assets and liabilities is estimated to be EUR 100 million.
UPM FINANCIAL REPORT 2021
6
Construction at biorefinery-site in Leuna continues and we have now
started erecting the overground structures. Permitting has proceeded in
accordance with German legislation.
Commercial activities continue to proceed positively in different
product and application areas. After the launch of UPM BioMotion™
Renewable Functional Fillers (RFF) in October, joint product development
activities with potential customers in the rubber value chain have
progressed further as have discussions with OEMs, especially in the
automotive sector, with promising results regarding both technical and
commercial viability of our product. We made further progress in taking
renewable monoethylene glycols (bMEG) to market, advancing sales
capabilities and also in this category extending pre-commercial
discussions with potential customers as well as end-users in packaging,
textile and automotive end-uses.
The environmental benefits of the UPM Biorefinery and the UPM
Biochemicals portfolio continue being publicly acknowledged with
nominations as finalist for the German Sustainability Award and the
Chemical Week‘s sustainability awards and an improved sustainability
ranking in the European Rubber Journal.
Research and development facilities on site in Leuna are being
extended and application development centres for rubber and glycols
are now operational. The hiring process for the operations teams has
progressed and we have started a comprehensive training and
simulation programme for our new operations teams based on the
Digital Twin solution of biorefinery and its processes.
Biofuels business development
In January 2021, UPM announced that it moves forward with biofuels
growth plans and starts the basic engineering phase of a next
generation biorefinery. The potential biorefinery would have an annual
capacity of 500,000 tonnes of high-quality renewable fuels including
sustainable jet fuel. The products would significantly reduce the carbon
footprint of road transport and aviation, as well as replace fossil raw
materials with renewable alternatives in chemicals and bioplastics. In the
feedstocks, wood biomass-based residues and side streams play a
substantial role. In addition, it would use sustainable liquid waste and
residue raw materials.
UPM is proceeding with a detailed commercial and basic
engineering study to define the business case, select an innovative
technology option and sustainable feedstock mix and estimate the
investment need.
During the study UPM has completed site assessments in two
locations: Kotka, Finland and Rotterdam, the Netherlands. Work
continues in Rotterdam, where the operating environment is more
favourable for the biofuels business.
If all preparations are concluded successfully, UPM would initiate the
company’s standard procedure of analysing and preparing an
investment decision. Due to the current challenging investment
environment for new major projects like this, further decisions are not
planned before the end of 2022.
OL3 power plant project
Teollisuuden Voima Oyj (TVO) is in the process of constructing a third
nuclear power plant unit, OL3 EPR, at the Olkiluoto site (OL3). UPM
participates in OL3 through its shareholding in Pohjolan Voima Oyj
(PVO), which is the majority shareholder in TVO. UPM’s indirect share
of OL3 is approximately 31%. The OL3 plant supplier, a consortium
consisting of AREVA GmbH, AREVA NP SAS and Siemens AG
(Supplier), is constructing OL3 as a turnkey project.
The start of regular electricity production, originally scheduled for
April 2009, has been revised several times by the Supplier.
As announced by TVO, fuel loading of OL3 was completed in early
April 2021. On 16 December 2021 TVO announced, that the Radiation
and Nuclear Safety Authority in Finland (STUK) had granted the
permission for making the OL3’s reactor critical and conducting lower
power tests. The electricity production of OL3 is scheduled to start at in
February 2022, and the regular electricity production in June 2022. On
21 December 2021, TVO announced that OL3’s reactor started up, i.e.
the first criticality of OL3 was reached.
As announced by TVO earlier, Areva, the Supplier party, was
preparing a financial solution to ensure necessary funding to complete
the OL3 project. TVO and the Supplier also negotiated on the terms of
completing the OL3 project. On 17 May 2021 TVO announced that
TVO and the Supplier reached a consensus in their negotiations
regarding the main principles of the OL3 project completion. The
agreements regarding the amendments to the Global Settlement
Agreement of 2018 entered into force on 13 July 2021.
When completed, OL3 will supply electricity to its shareholders on a
cost-price principle (Mankala-principle) which is widely applied in the
Finnish energy industry. Under the Mankala-principle electricity and/or
heat is supplied to shareholders in proportion to 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.
OL3 will increase UPM Energy’s electricity generation capacity
significantly. The new power plant unit is expected to be highly efficient
and meet the highest safety standards. Its power generation will be CO2
-free and TVO will have a secure solution for the final disposal of used
fuel.
Events during the year 2021
On 19 January, UPM announced that it would invest EUR 13 million in
UPM Raflatac’s new production line in Nowa Wieś, Poland. The
investment will increase UPM Raflatac’s Direct Thermal (DT) Linerless
annual production capacity by 100 million m2. The start-up of the new
production line was at the end of 2021.
On 28 January, UPM announced that it moves forward with biofuels
growth plans and starts the basic engineering phase of a next
generation biorefinery.
On 17 February, UPM announced that it has joined The Climate
Pledge, a cross-sector community of world-class companies working
together to crack the climate crisis and to decarbonise our economy.
These companies are committed to reach the targets of the Paris
Agreement well in advance.
On 15 March, UPM announced that it has issued a new EUR 500
million Green Bond under its EMTN (Euro Medium Term Note)
programme and its Green Finance Framework. The bond matures in
March 2031 and pays a fixed coupon of 0.50%.
On 19 March, UPM announced that it has applied for listing of a
EUR 500 million Green Bond under its Euro Medium Term Note (EMTN)
programme on the Irish Stock Exchange plc, trading as Euronext Dublin.
On 25 March, UPM announced that UPM Timber has completed the
employee consultation process that started in early February regarding
its plans to improve profitability and strengthen competitiveness. Based
on the negotiations, the number of positions at UPM Timber will
decrease by 43. In addition, the small log line at the Kaukas sawmill will
be closed by the end of June 2021 and the operating model of the
Korkeakoski sawmill will be optimised.
On 26 March, the Radiation and Nuclear Safety Authority (STUK)
gave a fuel loading permit for the OL3 EPR unit.
UPM FINANCIAL REPORT 2021
7
On 27 March, the fuel loading of the OL3 EPR unit started.
On 30 March, UPM held its Annual General Meeting.
On 14 April, UPM announced that it aims to increase the efficiency
of its global functions by reorganising and streamlining operations in
Finland, Germany, and Austria. The employee consultation process was
completed in Finland in June and in Germany and Austria in July. As a
result, the number of employments will decrease by 35.
On 15 April, UPM announced that it has improved its outlook for
2021.
On 27 April, Emma FitzGerald was appointed as the fourth member
of UPM's Audit Committee.
On 7 May, UPM received a rating of AAA in the MSCI ESG Ratings
assessment.
On 14 May, UPM announced that is has signed an agreement to sell
its Shotton newsprint mill site in North Wales, United Kingdom and all
related assets to Eren Paper Ltd.
On 29 June, UPM announced that UPM Raflatac has completed its
employee consultation processes. As a result, the number of positions at
UPM Raflatac will decrease by 129.
On 6 July, global sustainability ratings provider EcoVadis recognised
UPM on the highest possible Platinum level for its responsible
performance in 2021. The assessment is based on UPM’s performance
as a supplier.
On 20 September, UPM announced that it has been recognised as
one of the world’s 37 most sustainable companies by the UN Global
Compact. UPM has had LEAD status since 2016.
On 30 September, UPM announced that the transaction of UPM
Shotton newsprint mill was closed and newsprint production has ended.
The gain on sale of the mill amounted to EUR 133 million.
On 12 October, UPM announced that European Commission’s
competition authorities had started an unannounced inspection at UPM’s
premises. The Commission has concerns that the inspected companies in
the wood pulp sector may have violated EU antitrust rules that prohibit
cartels and restrictive business practices.
On 15 October, UPM announced that it has signed an agreement to
sell its Chapelle Darblay newsprint mill in Grand-Couronne, France, site
to a consortium of two partners Samfi and Paprec France SAS. UPM has
permanently ceased production at its Chapelle newsprint mill in June
2020.
On 18 October, UPM announced that it has sold the Kaipola mill site
in Jämsä, Finland, to Kaipola Green Port Oy. UPM closed the Kaipola
paper mill permanently in January 2021.
On 15 November, UPM announced that it has been listed in the Dow
Jones European and World Sustainability Indices (DJSI) for 2021-2022
as the only company in its industry.
On 7 December, UPM announced that it has been recognized with a
CDP ‘A’ score for its sustainable forestry operations.
On 13 December, 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 meters of completely new production space.
On 14 December, UPM announced that the Finnish Paperworkers’
Union has issued a strike announcement to UPM, declaring a three
week's strike to all work under the expiring paper industry collective
agreement at UPM.
On 21 December, the OL3 EPR unit started up.
Events after the balance sheet date
On 1 January, UPM announced that members of the Paperworkers’
Union, the Finnish Electrical Workers´ Union and the Trade Union Pro
have started strikes at UPM mills in Jämsänkoski, Kouvola,
Lappeenranta, Pietarsaari, Rauma, Tampere and Valkeakoski. UPM
businesses falling under the strikes in Finland are UPM Pulp, UPM
Biofuels, UPM Communication Papers, UPM Specialty Papers and UPM
Raflatac. According to the unions, the strikes would continue until 22
January 2022 unless a new collective labour agreement is reached
before that. The duration of the strike has since been extended twice (on
5 January and 20 January) by the Paperworker's union and currently is
due to last until 19 February 2022, unless new agreements are reached
before that.
Outlook for 2022
UPM’s earnings recovered to the strong pre-pandemic level in 2021 and
overall, 2022 is expected to be another good year for the company.
There are significant uncertainties in the outlook for 2022, related to
the ongoing pandemic, continuation of the global economic recovery,
the unusual energy market situation, tight raw material supply chains
and the labour negotiations in Finland.
Good demand is expected to continue for most UPM products in
2022. In the early part of the year, production and earnings are
affected by the strike at the Finnish units of UPM Pulp, UPM Biofuels,
UPM Raflatac, UPM Specialty Papers and UPM Communication Papers.
Sales prices for many UPM products are expected to increase in the
beginning of 2022, most notably the graphic and specialty paper
prices. Sales prices for pulp and energy are expected to continue on
good levels in the early part of the year.
Many variable cost items are expected to increase in 2022 or stay at
elevated level. UPM will continue to manage margins with product
pricing, optimising its product and market mix, efficient use of assets as
well as by taking measures to improve variable and fixed cost efficiency.
UPM’s comparable EBIT in H1 2022 is expected to be on similar
level compared to H1 2021.
UPM FINANCIAL REPORT 2021
8
Business area reviews
UPM Biorefining
UPM Biorefining consists of pulp, timber
and Biofuels businesses. UPM Pulp offers
a versatile range of pulp grades suitable
for a wide range of end uses. UPM
Timber offers certified sawn timber and
UPM Biofuels produces wood-based
renewable diesel for all diesel engines
and renewable naphtha that can be used
as a biocomponent for gasoline or for
replacing fossil raw materials in the
petrochemical industry.
UPM Energy
UPM Energy generates cost-
competitive, zero-carbon electricity.
Operations also include physical
electricity and financial portfolio
management as well as services to
industrial electricity consumers and
producers.
2021
2020
Sales, EURm
2,945
2,183
Comparable EBITDA, EURm
1,016
348
% of sales
34.5
15.9
Change in fair value of forest assets and wood
harvested, EURm
-9
-8
Share of results of associates and joint ventures, EURm
2
2
Depreciation, amortisation and impairment charges,
EURm
-191
-176
Operating profit, EURm
817
166
% of sales
27.8
7.6
Items affecting comparability in operating profit, EURm
Comparable EBIT, EURm
817
166
% of sales
27.8
7.6
Capital employed (average), EURm
4,437
3,620
Comparable ROCE, %
18.4
4.6
Pulp deliveries, 1,000 t
3,724
3,664
2021 compared with 2020
Comparable EBIT increased due to significantly higher pulp and timber
sales prices.
The average price in euro for UPM’s pulp deliveries increased by
35%.
Market environment
In China, chemical pulp demand growth was slowing down in 2021
though showing some improvement at the end of the year. In Europe,
demand was good.
In 2021, the average European market price in euro was 37% higher
for NBSK and 44% higher for BHKP, compared with 2020. In China,
the average market price in US dollars was 46% higher for NBSK
and 42% higher for BHKP, compared with 2020.
Strong demand for advanced renewable diesel and naphtha.
In 2021, demand for sawn timber was strong in 2021. Market prices
were at a high level.
Sources: FOEX, UPM
2021
2020
Sales, EURm
526
379
Comparable EBITDA, EURm
277
178
% of sales
52.7
47.0
Depreciation, amortisation and impairment charges, EURm
-7
-10
Operating profit, EURm
270
184
% of sales
51.3
48.7
Items affecting comparability in operating profit, EURm 1)
0
14
Comparable EBIT, EURm
270
171
% of sales
51.3
45.0
Capital employed (average), EURm
2,375
2,313
Comparable ROCE, %
11.4
7.4
Electricity deliveries, GWh
9,300
9,168
1) In 2020 items affecting comparability include EUR 3 million charges related
to restructuring of ownership in Alholmens Kraft power plant, EUR 12 million
gain on sale of group's share in Kainuun Voima Oy and EUR 5 million
income relating to reversal of unused restructuring provisions.
2021 compared with 2020
Comparable EBIT increased due to higher electricity sales prices.
Nuclear power generation was lower due to longer maintenance breaks
in 2021.
UPM’s average electricity sales price increased by 43% to
EUR 52.1/MWh (36.5/MWh).
Market environment
The Nordic hydrological balance was below normal at the end of
December. In Finland, the hydrological situation was close to normal.
The CO2 emission allowance price of EUR 80.1/tonne at the end of
2021 was significantly higher than at the end of 2020 (EUR 32.7/
tonne).
The average Finnish area spot price on the Nordic electricity
exchange in 2021 was EUR 72.3/MWh, 158% higher than in 2020
(28.0/MWh).
Sources: The Norwegian Water Resources and Energy Directorate, Svensk
Energi, Finnish Environment Institute, Nord Pool, NASDAQ OMX, Bloomberg,
UPM
UPM FINANCIAL REPORT 2021
9
UPM Raflatac                                      UPM Specialty Papers
UPM Raflatac offers innovative and
sustainable self-adhesive label
materials for branding and
promotion, information and
functional labelling in the food,
beverage, personal care,
pharmaceutical and logistics
segments, for example.
UPM Specialty Papers offers
labelling and packaging materials
as well as office and graphic
papers for labelling, commercial
siliconising, packaging, office use
and printing.
2021
2020
Sales
1,671
1,560
Comparable EBITDA, EURm
259
252
% of sales
15.5
16.2
Depreciation, amortisation and impairment
charges, EURm
-36
-39
Operating profit, EURm
222
205
% of sales
13.3
13.2
Items affecting comparability in operating profit,
EURm 1)
-1
-9
Comparable EBIT, EURm
223
214
% of sales
13.3
13.7
Capital employed (average), EURm
553
542
Comparable ROCE, %
40.2
39.5
1) Items affecting comparability include restructuring charges.
2021 compared with 2020
Comparable EBIT increased due to improved mix and margin
management. Variable costs were higher.
Market environment
Global demand for self-adhesive label materials continued healthy in
2021. However, supply constraints towards end of the year hold
back market growth somewhat.
In Asia, demand was particularly strong in H1 2021. In H2, demand
was softening.
In Europe and in the Americas, the robust demand growth continued
from the previous year.
Sources: UPM, FINAT, TLMI
2021
2020
Sales
1,482
1,324
Comparable EBITDA, EURm
209
273
% of sales
14.1
20.6
Depreciation, amortisation and impairment
charges, EURm
-75
-73
Operating profit, EURm
135
206
% of sales
9.1
15.5
Items affecting comparability in operating profit,
EURm 1)
6
Comparable EBIT, EURm
135
199
% of sales
9.1
15.0
Capital employed (average), EURm
864
897
Comparable ROCE, %
15.6
22.2
Paper deliveries, 1000 t
1,658
1,596
1) 2020 items affecting comparability include gains on sale of non-current
assets.
2021 compared with 2020
Comparable EBIT decreased due to higher input costs. Sales prices
increased and delivery volumes were higher.
Market environment
Global demand for label, release and packaging paper was good
in 2021. Demand was driven by fast moving consumer goods and
e-commerce. Market prices increased.
In H1 2021, fine paper demand in the Asia-Pacific region was
good but in H2 2021 demand became weaker.
In H1 2021, fine paper market prices in China increased sharply
from the previous year. However, in H2 2021 market prices
decreased below long-term average price levels.
Sources: UPM, RISI, Pöyry, AWA
UPM FINANCIAL REPORT 2021
10
UPM Communication Papers                UPM Plywood
UPM Communication Papers offers
an extensive product range of
sustainably produced graphic
papers for advertising and
publishing as well as home and
office uses.
UPM Plywood offers high quality
WISA® plywood and veneer
products for construction, vehicle
flooring, LNG shipbuilding, parquet
manufacturing and other industrial
applications.
2021
2020
Sales
3,577
3,333
Comparable EBITDA, EURm
23
300
% of sales
0.6
9.0
Share of results of associates and joint ventures, EURm
0
0
Depreciation, amortisation and impairment charges, EURm
-155
-179
Operating profit, EURm
14
9
% of sales
0.4
0.3
Items affecting comparability in operating profit, EURm 1)
93
-170
Comparable EBIT, EURm
-79
180
% of sales
-2.2
5.4
Capital employed (average), EURm
1,275
1,446
Comparable ROCE, %
-6.2
12.4
Paper deliveries, 1000 t
5,828
5,466
1) 2021 items affecting comparability include gain on sale of Shotton Mill Ltd
EUR 133 million, impairment charges of newsprint fixed assets EUR 50
million, gain on sale of non-current assets EUR 6 million and restructuring
charges EUR 4 million. 2020 items affecting comparability include EUR 74
million restructuring charges and EUR 11 million impairment charges related
to closure of Chapelle mill in France, EUR 43 million restructuring charges
and EUR 47 million impairment charges relating to closure of Kaipola mill in
Finland. EUR 6 million charges relate to restructuring of business functions and
EUR 11 million income to prior capacity closures.
2021 compared with 2020
Comparable EBIT decreased due to higher variable costs and lower
sales prices. Delivery volumes were higher as the comparison period
was impacted by the COVID-19 pandemic and related lockdown
measures. Fixed costs decreased.
The average price in euro for UPM’s paper deliveries decreased by
1%.
Market environment
In 2021, demand for graphic papers in Europe was 4% higher than
in 2020. Newsprint demand decreased by 1%, magazine papers
increased by 1% and fine papers increased by 10% compared to
2020.
In 2021, publication paper prices in Europe remained unchanged
and fine paper prices were 1% higher compared to 2020.
In 2021, demand for magazine papers in North America is
estimated to have increased by 1% compared to 2020. The average
price in US dollars for magazine papers increased by 11%
compared to 2020.
Sources: PPI/RISI, Euro-Graph, PPPC
2021
2020
Sales
492
405
Comparable EBITDA, EURm
99
59
% of sales
20.0
14.6
Depreciation, amortisation and impairment
charges, EURm
-25
-35
Operating profit, EURm
80
10
% of sales
16.2
2.5
Items affecting comparability in operating profit,
EURm 1)
8
-23
Comparable EBIT, EURm
72
33
% of sales
14.6
8.0
Capital employed (average), EURm
286
292
Comparable ROCE, %
25.1
11.2
Plywood deliveries, 1,000 m3
738
683
1) In 2021 items affecting comparability include EUR 6 million restructuring
charges reversals and EUR 1 million impairment reversals related to Jyväskylä
plywood mill closure in 2020. In 2020, items affecting comparability include
EUR 15 million restructuring charges and EUR 8 million impairment charges
related to closure of Jyväskylä plywood mill in Finland.
2021 compared with 2020
Comparable EBIT increased due to higher sales prices and delivery
volumes. Variable and fixed costs were higher. The comparison period
was impacted by a strike in Finland in Q1 2020.
Market environment
In 2021, demand for spruce plywood was strong, driven by the
building and construction industry.
In 2021, demand for birch plywood was good in panel trading,
vehicle flooring and construction-related industrial applications.
Source: UPM
UPM FINANCIAL REPORT 2021
11
Other operations
Other Operations includes UPM Forest,
UPM Biochemicals, UPM Biocomposites
and UPM Biomedicals business units as
well as group services. UPM Forest secures
competitive wood and biomass for UPM
businesses and manages UPM-owned and
privately-owned forests in North Europe. In
addition, UPM Forest offers forestry services
to forest owners and forest investors.
 
2021
2020
Sales, EURm
280
225
Comparable EBITDA, EURm
-19
34
Change in fair value of forest assets and wood
harvested, EURm
120
-17
Share of results of associated companies and joint
ventures, EURm
1
Depreciation, amortisation and impairment
charges, EURm
-25
-30
Operating profit, EURm
75
-15
Items affecting comparability in operating profit,
EURm 1)
-1
-3
Comparable EBIT, EURm
76
-12
Capital employed (average), EURm
1,992
1,901
Comparable ROCE, %
3.8
-0.6
1) In 2021 and 2020, items affecting comparability relate to restructuring
charges.
2021 compared with 2020
Comparable EBIT for other operations increased. The change in the fair
value of forest assets net of wood harvested was EUR 120 million (-17
million). The increase in the fair value of forest assets was EUR 171
million (63 million). The cost of wood harvested from UPM forests was
EUR 51 million (81 million). In 2021, the increase in fair value was
impacted by increased forest growth and higher stumpage price
estimates used in valuation.
Board of Directors and the Group Executive Team
At the Annual General Meeting held on 30 March 2021, the number of
members of the Board of Directors was confirmed as nine instead of the
previous ten, and Berndt Brunow, Henrik Ehrnrooth, Emma FitzGerald,
Piia-Noora Kauppi, Marjan Oudeman, Martin à Porta, Kim Wahl and
Björn Wahlroos were re-elected to the Board. Jari Gustafsson was
elected as a new director to the Board. The directors’ term of office will
end upon the closure of the next AGM.
Björn Wahlroos was re-elected as Chair, and Berndt Brunow as
Deputy Chair of the Board of Directors of UPM-Kymmene Corporation at
the Board of Directors’ constitutive meeting that took place following the
Annual General Meeting.
In addition, the Board of Directors elected the chairs and other
members to the Board committees from among its members. Kim Wahl
was elected to chair the Audit Committee, and Jari Gustafsson and
Marjan Oudeman were elected as other committee members. Henrik
Ehrnrooth was elected to chair the Remuneration Committee, and Emma
FitzGerald and Martin à Porta were elected as other committee
members. Björn Wahlroos was re-elected to chair the Nomination and
Governance Committee, and Berndt Brunow and Piia-Noora Kauppi
were elected as other committee members.
On 27 April 2021, Emma FitzGerald was appointed as the fourth
member of UPM's Audit Committee.
Shares held by the Board of Directors and the Group Executive
Team
At the end of the year, the members of the Board of Directors owned a
total of 685,197 (716,348) UPM-Kymmene Corporation shares. These
represent 0.13% (0.13%) of the shares and 0.13% (0.13%) of the
voting rights. At the end of the year, President and CEO Jussi Pesonen
owned 529,549 shares. At the end of the year, the other members of
the Group Executive Team owned a total of 688,048 shares.
» Refer Note 3.2 Key management personnel, of the consolidated financial
statements 2021 for further information on remuneration and shares held by
the members of the Board and the President and CEO and remuneration of
the members of Group Executive Team.
Litigation
» Refer Note 9.2 Litigation, of the consolidated financial statements
2021 for information on legal proceedings.
UPM FINANCIAL REPORT 2021
12
Risks
Risk management
UPM regards risk management as a systematic and proactive means to
analyse and manage opportunities and threats related to its business
operations. This also includes risks that can be avoided through careful
planning and evaluation of future projects and business environments.
Risk management is an integral part of UPM’s management system
as risk taking is a normal part of business operations. While executing
strategies, UPM and its business areas, functions and manufacturing
units are exposed to a number of risk and opportunities. Each business
area, function and unit is responsible for identifying, measuring and
managing of risks related to its own operations, and for reporting on
risk exposures, risk management activities and results to its
own management team and to the Risk Management function.
The Risk Management Committee, chaired by the CFO, is
responsible for recommending risk tolerances and profile to the
President and CEO and the Strategy Team. The Strategy Team is
responsible for aligning risk management priorities, business and risk
management strategies and policies.
The Board of Directors, assisted by the Audit Committee, monitors
and assesses the effectiveness of the company’s risk management
systems and oversees the assessment and management of risks related
to the company’s strategy and operations. The Audit Committee
oversees that risk management activities are aligned with the Risk
Management Policy, and that risk assessments are used to guide
internal audit activities.
UPM seeks to transfer insurable risks through insurance
arrangements for any risks that exceed the defined tolerance.
UPM strives to ensure compliance with the UPM Code of Conduct
and other corporate policies. To enhance compliance and mitigate
risks, UPM performs risk assessments, training and monitoring at regular
intervals.
UPM has developed and implemented a comprehensive internal
control system that covers business and financial reporting processes.
Internal control is aimed at ensuring that the company’s operations are
efficient and reliable, and in compliance with statutory requirements,
and that the company’s financial reporting is accurate and reliable, and
reflects operational results. Internal control pertaining to financial
reporting is described in the Corporate Governance Statement available
in the corporate website.
The main risk factors that can materially affect the company’s
business, financial results and non-financial performance are set out
below. They have been classified as strategic risks, operational risks,
and financial risks. Risks may also arise from legal proceedings
incidental to UPM’s operations.
Strategic risks
Uncertainties in the economic and political operating
environment
The main short-term uncertainties in UPM’s earnings relate to sales
prices and delivery volumes of its products, as well as to changes in the
main input cost items and currency exchange rates, most of which are
affected by uncertainty in the global, regional or local economic and
political conditions. Political developments are causing uncertainties to
the global economy. Such uncertainties also affect UPM’s customers
influencing the demand for UPM’s products.
Examples of such developments are the trade tensions between the
United States, the EU and China, the nature of the relationship between
the EU and the UK after its exit from the EU as well as increased
geopolitical tensions that may lead to military activity or economic
sanctions or export and/or import restrictions that could limit or prevent
UPM’s business in a country or area. UPM is also exposed to the
impacts of certain governmental protection and trade protection
measures that safeguard domestic industries and other changes
affecting international trade. Restrictions on import and export and other
national interests may affect the availability or cost of necessary raw
materials, and changes in the international trade agreements. The new
variants of the SARS-CoV-2 virus, COVID‑19 related containment
measures, effectiveness of vaccination programs and the economic
downturn or global power struggles continue to cause high uncertainty
to global trade, geopolitics or trajectories of economies.
UPM is especially exposed to the economic and political conditions
in countries in which UPM has significant production operations and
ongoing investment projects, such as Finland, Uruguay and Germany.
UPM also has significant production operations in a number of
developing markets, such as China and Russia, where the lack of
transparency and predictability of the political, economic and legal
systems may lead to an increasing uncertainty and risk level when
investing in or operating in them.
Cyclical and highly competitive markets
In all markets UPM operates in, the price level is determined by a
combination of demand and supply and an imbalance between them
could cause the prices of UPM’s products to fluctuate significantly.
Imbalances in demand and supply may be caused by factors such as
decreases or increases in the end-use demand, changes in customer
preferences or a new production capacity entering the market or an old
production capacity being closed, all of which may affect both the
volume and price level of UPM’s products.
Competitor behaviour may also influence the market price
development. UPM may, from time to time, experience price pressures
from competitors in its main business areas and geographic market
areas as well as particularly large fluctuations in operating margins due
to this competitive environment.
The majority of UPM’s revenue comes from sales of graphic and
specialty papers, pulp and label materials, and UPM principally
competes with several large multinational paper and forest product
companies as well as with numerous regional or more specialised
competitors.
Changes in consumer behaviour
Demand for UPM’s products may be affected by the introduction of
substitute or alternative products. The demand for graphic papers in the
mature markets is forecast to continue to decline. This will likely increase
the pressure on UPM’s graphic paper deliveries and sales prices as well
as the scarcity of recycled fibre. The COVID‑19 pandemic may further
amplify the speed of changes adopted by consumers in consuming and
communicating information. Changes in demand could also cause
overcapacity in some of UPM’s products, affecting the sales prices and
deliveries of such products.
Depending on the product area, the shifts in consumer demand may
either have a positive or an adverse effect on the consumption of UPM’s
products. For example, UPM expects that there will continue to be a
growing need for renewable and recyclable solutions, which creates
various opportunities for UPM and drive demand growth for most of
UPM’s products. At the same time digitalisation and e-commerce have
changed consumer behaviour and resulted in decline in demand for
graphic papers for various end uses.
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Changes in legislation
UPM is exposed to a wide range of laws and regulations globally. The
performance of UPM’s businesses, for example the paper, energy, and
biofuels businesses, are to a high degree dependent on the regulatory
framework for these areas. Changes in regulation, direct and indirect
taxation or subsidies, aid, grants or allowances could have a direct
effect on UPM’s performance and its relative competitiveness, and
structurally restrict or exacerbate UPM’s ability to compete for raw
material.
UPM also operates in industries that are subject to extensive
environmental laws and regulations governing, among others,
emissions, water quality, energy efficiency, as well as waste handling,
recycling and disposal. Environmental laws and regulations have
become more stringent and may continue to develop to be even more
stringent due to various global, regional and national level regulatory
initiatives. As these environmental laws and regulations are amended or
as their application or enforcement is changed, additional costs in
complying with new and more stringent regulations may be imposed on
UPM.
UPM’s operations require UPM to obtain multiple environmental
permits and other licences from relevant authorities and comply with
their terms and conditions. These permits and licences may be subject to
modification, renewal or, subject to certain conditions, revocation by
the issuing authorities. UPM monitors regulatory changes in order to
better adapt to the effects of such changes.
Shareholdings in Pohjolan Voima Oyj
UPM is a shareholder of Pohjolan Voima Oyj (PVO), which is the
majority shareholder of Teollisuuden Voima Oyj (TVO). TVO is in the
process of constructing a third nuclear power plant unit, OL3 EPR, at the
Olkiluoto site (OL3). When completed, OL3 will supply electricity to its
shareholders on a cost-price principle (so called ‘Mankala-principle’)
that is widely applied in the Finnish energy industry. Under the Mankala
principle, electricity 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. OL3 is expected to increase UPM’s electricity
generation capacity significantly. UPM’s indirect share of OL3 is
approximately 31%.
According to TVO OL3 was procured as a fixed price turnkey
project from a consortium formed by Areva GmbH, Areva NP SAS and
Siemens AG (Supplier). Under the plant contract, the consortium
companies have joint and several liability for the contractual
obligations.
Originally commercial electricity production at OL3 was scheduled
to start in April 2009. However, completion of the project has been
delayed. Supplier has updated the schedule for the commissioning of
OL3 several times.
In March 2018 TVO announced that it had signed a Global
Settlement Agreement (the 2018 GSA) with Supplier and the Areva
Group parent company, Areva SA, a company wholly owned by the
French state. The 2018 GSA concerns the completion of the OL3 project
and related disputes and entered into force in late March 2018.
According to TVO, in the 2018 GSA the Supplier consortium
companies committed to ensuring that the funds dedicated to the
completion of the OL3 project are sufficient and cover all applicable
guarantee periods, including setting up a trust mechanism funded by
Areva companies to secure the financing of the costs of completion of
the OL3 project.
TVO announced in its Q3 2021 interim report that replenishing the
trust was finished according to the terms of the 2018 GSA, but it was
replenished according to the amendment agreement which entered into
force in July 2021. The additional compensation in accordance with the
2018 GSA has been recorded as EUR 400 million in total which
decreases the historical costs of the property, plant and equipment in
TVO's balance sheet.
As announced by TVO, the fuel loading of OL3 was completed in
April 2021. TVO announced on 16 December 2021, that the Radiation
and Nuclear Safety Authority in Finland (STUK) had granted the
permission for making the OL3’s reactor critical and conducting lower
power tests. The electricity production of OL3 is scheduled to start in
February 2022, and the regular electricity production in June 2022. On
21 December 2021, TVO announced that OL3’s reactor started up, i.e.
the first criticality of OL3 was reached.
As announced by TVO earlier, Areva, the Supplier party, was
preparing a financial solution to ensure necessary funding to complete
the OL3. TVO and Supplier also negotiated on the terms of completing
the OL3 project. On 17 May 2021 TVO announced that TVO and
Supplier reached a consensus in their negotiations regarding the main
principles of the OL3 project completion, and the key matters are:
Areva companies’ trust mechanism, set up in the GSA 2018, is to
be replenished with approximately EUR 600 million as of the
beginning of January 2021.
Both TVO and Supplier are to cover their own costs as of July
2021 until end of February 2022.
In the case that the Supplier consortium companies would not
complete the OL3 project until the end of February 2022, they
would pay additional compensation for delays, depending on the
date of completion.
On June 3, 2021 TVO announced that it had signed agreements
regarding amendments to the GSA 2018 with Supplier consortium
companies and Areva Group parent company Areva SA. The
agreements regarding the amendments to the GSA 2018 entered into
force on 13 July 2021, when all related conditions were fulfilled.
The coronavirus pandemic may have significantly added uncertainty
to the progress of the project. According to TVO significant
arrangements have been made at the OL3 site preventing the
coronavirus infections. Despite of coronavirus restrictions, work has
been able to continue under special arrangements.
On 16 December 2020 TVO announced that the shareholders of
TVO have signed an additional shareholder loan commitment,
comprising a total of EUR 400 million new subordinated shareholder
loan agreements. According to TVO with the new shareholder loan
commitment, TVO prepares to maintain a sufficient liquidity buffer and
equity ratio in order to complete the OL3.
TVO announced on April 1, 2021 that S&P Global Ratings (S&P)
affirmed its long-term corporate credit rating 'BB' on TVO and changed
the outlook from negative to positive.
Further delays to the OL3 project could have an adverse impact on
PVO’s business and financial position, the fair value of UPM’s energy
shareholdings in PVO and/or the cost of energy sourced from OL3
when completed. It is possible that the cost of energy sourced from OL3
at the time when it starts regular electricity production may be higher
than the market price of electricity at that time.
Climate change
UPM is exposed to a variety of risks related to climate change. Strategic
risks related to climate change include risks concerning competition,
markets, customers, products and regulation. For example,
unpredictable regulation, subsidies or EU policies and resulting national
legislation in EU countries may distort raw material, energy and final
product markets and changing costs of greenhouse gas emissions may
influence UPM’s financial performance. UPM believes that forest, wood-
UPM FINANCIAL REPORT 2021
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based products and low-carbon energy hold significant value creation
potential with respect to renewable and recyclable products.
Other risks related to climate change particularly concern UPM’s
supply chain as well as the availability and price of major inputs, such
as wood and electricity. Climate change may cause exceptional
weather events, such as severe storms, floods and draughts, which
could, for example, result in unpredictable hydropower availability and
wood harvesting conditions. Exceptionally mild winter conditions with a
reduced period of frozen soil in the Nordics could affect the harvesting
and transport of wood, consequently undermining the stability of raw
material supply and potentially increasing the cost of wood. These could
also increase the risk of production limitations.
Loss of major customers and industry consolidation
UPM has several major customers, and the largest customer in terms of
sales represented approximately 2% of UPM’s sales in 2021, and the
ten largest customers represented approximately 15% of such sales.
Although UPM is not dependent on any specific customer or group of
customers, the loss of its major customers, if not replaced on similar
terms, could have a material effect on UPM’s business. Also, as the size
of UPM’s customers could increase in connection with industry
consolidation, such customers could exert increased bargaining power
on all of their suppliers, including UPM. UPM is also exposed to risks
related to any deterioration of a major customer group’s financial
condition.
Product development, innovation and intellectual property rights
Research and product development are an important part of UPM’s
strategy, particularly with regard to new businesses, such as wood-
based biofuels, biochemicals and biomedicals. The return on investment
of new or enhanced existing products and solutions may not meet
targets or improve UPM’s competitiveness.
UPM has a broad patent portfolio that provides value creation
potential in the future; however, it also exposes UPM to risks related to
the protection and management of intellectual property, including
patents and trademarks.
Corporate acquisitions and divestments
UPM’s strategy is to grow businesses with strong long-term fundamentals
and sustainable competitive advantage. This may result in acquisitions
of new businesses or divestments of existing businesses or parts thereof.
Carrying out corporate mergers, acquisitions and divestments involves
risks relating to the successful implementation of a divestment and the
ability to integrate and manage acquired businesses, systems, culture
and personnel successfully. In addition, the cost of an acquisition may
prove high and/or the anticipated economies of scale or synergies may
not materialise. Hidden liabilities of an acquired company (e.g.,
competition law liabilities) may also constitute a significant risk in
relation to potential acquisitions.
UPM may divest operations or assets to focus on strategic areas. Any
future divestments may be affected by many factors that are beyond
UPM’s control, such as the availability of financing to potential buyers,
interest rates and acquirers’ capacity, and divestments may also expose
UPM to indemnity claims. Furthermore, divestments may involve
additional costs due to historical and unaccounted liabilities. The
profitability of corporate acquisitions and divestments may differ from
UPM’s expectations.
Operational risks
Fluctuations in the prices of major inputs as well as changes in
their availability
The main inputs required in the manufacturing of UPM’s products are
wood, fibre, chemicals, energy and water. The prices for many of these
major production inputs have been volatile in the recent years and are
expected to remain volatile for the foreseeable future, which may have
an effect on the general profitability of the industries in which UPM
operates. Climate change may contribute to the increase of the price
volatility of UPM’s major production inputs. Also, any changes in the
current forestry practices and level of harvesting due to negative public
opinion towards harvesting could have an effect on the raw material
supply and may increase the cost of wood.
Governmental protection and trade protection measures could also
have an effect on the price and availability of raw materials as countries
may, for example, enact export ban policies to protect forests or to
bolster their domestic timber industry, which could have a material effect
on the cost and availability of wood as a raw material for UPM. It is
also uncertain how the EU energy policies may affect the availability
and costs of fibre and energy. Significant increases in the prices of
UPM’s major inputs could increase UPM’s operating expenses.
Supplier and subcontractor network and raw materials
procurement
UPM’s business operations depend on a large number of suppliers and
contractors. The majority of UPM’s need of wood is covered by
suppliers, and other production inputs, such as chemicals, fillers and
recovered paper, are fully obtained from suppliers. Disruptions in the
supply of key inputs or transportation services could have a significant
effect on manufacturing operations. This could, for example, result in
interruption or downscaling of production, change in the product mix or
increased costs resulting from price increases for critical inputs or
transportation services as well as shifts in the availability and price of
wood. Supplier consolidation could also limit the number of suppliers
from which UPM would be able to source its production inputs and
could materially affect the prices paid by UPM for these inputs.
The UPM Supplier and Third Party Code defines the minimum level of
performance that UPM requires from its suppliers and third-party
intermediaries. UPM carries out supplier risk assessments on, for
example, operational, financial, quality and responsibility perspectives.
Based on the risk assessment, selected suppliers’ activities are evaluated
in more detail through annual surveys, supplier audits and joint
development plans. If any non-conformities are discovered, the supplier
is required to take corrective measures, which UPM follows up on. Some
contracts may also be discontinued due to the seriousness of the finding
or insufficient corrective measures.
Management and execution of large investment projects
Investment projects in UPM’s businesses are often large and take one or
more years to complete. Participation in large projects involves risks,
such as cost overruns or delays, as well as non-achievement of the
economic targets set for the investment. Currently, UPM’s largest
ongoing investment project is the construction of a new world-class pulp
mill in Uruguay, which includes other related investments as well (port,
Free Trade Zone infra and housing). Particular to this project is its size,
complexity with a number of interconnected sub-projects as well as the
level of cooperation with permit and other authorities. Additionally, the
second largest ongoing project is the construction of a biochemicals
refinery in Germany. This project involves the development of new
business concepts and technologies.
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UPM is responsible for many projects in several of its countries of
operation at any given time. All projects involve technical and
operational risks, and projects require continuous operational planning,
steering and supervision, quality control, input procurement, scheduling
as well as resource and cost monitoring. Managing several projects
requires that UPM has sufficient resources and efficient processes.
Persistent port congestion issues, transportation bottlenecks, and rising
logistics costs, all of which could be resulting from external events or
market conditions beyond the control of UPM, may have an effect on
the execution or profitability of investment projects. The COVID‑19
pandemic and the required additional health and safety measures have
also added a new challenge to large investment projects. UPM’s
transformative pulp project in Uruguay and biochemicals project in
Germany are proceeding with strict health and safety controls, but
despite these efforts, some changes to the detailed timeline of the
projects may occur due to containment measures or infections affecting
project workers, suppliers or infrastructure.
Unavailability of information systems as well as cybersecurity
breaches
UPM’s production and business operations depend on the availability of
supporting information systems and network services. Unplanned
interruptions in UPM's or a supplier's critical information system
services, loss of critical, financial or personal data due to reasons
beyond UPM’s or its suppliers' control, such as power cuts, software or
telecommunication errors or other major disasters, such as fires or
natural disasters, as well as user errors by UPM’s own personnel or
suppliers, can potentially cause major damage to UPM’s businesses and
disruptions to the continuity of operations.
UPM’s or its suppliers' information systems may be exposed to
various cybersecurity risks. Malicious cyber intrusion could cause
leakage of sensitive information, violation of data privacy regulations,
theft of intellectual property, production outages and damage to UPM’s
reputation.
Litigation and compliance
UPM operates globally in a large number of jurisdictions and complex
regulatory frameworks. UPM may from time to time be involved in
litigation and other similar proceedings or it could become subject to
various claims and actions based on various grounds.
On a global scale, enforcement activities and jurisdictional reach
regarding competition issues and anti-corruption have increased. Also,
the recent development of Renewable Energy Sources Act (EEG) related
lawsuits in Germany for alleged non-payment of EEG based surcharges
may have an adverse impact on UPM, albeit UPM is not currently a
party to any such lawsuits. The UPM Code of Conduct sets the
standards of responsible behaviour and it covers topics relating to legal
compliance and disclosure, anti-corruption, competition law, HR
practices, human rights, responsible sourcing and environmental
matters.
UPM’s environmental performance and social responsibility play a
significant role in UPM’s ability to operate and influence the long-term
success of its businesses. UPM has significant manufacturing operations
or sourcing in several developing countries, some of which are
perceived as highly corrupt or corrupt according to Transparency
International. In these countries, there is an increased risk of corruption,
for example in relation to interaction with government officials and in
the use of intermediaries when applying for permits and licences
requiring governmental approval. Breaches of applicable laws and
regulations or corporate policies by UPM employees may lead to legal
processes, sanctions and fines as well as reputational damages
effecting UPM’s operations. For example, In October 2021 the
European Commission conducted an unannounced inspection at UPM’s
premises. According to the Commission’s press release on 12th
October, the Commission has concerns that the inspected companies in
the wood pulp sector may have violated EU antitrust rules that prohibit
cartels and restrictive business practices. Commission states that the
unannounced inspections are a preliminary step in an investigation into
suspected anticompetitive practises, and the fact that the Commission
carries out such inspections does not mean that the companies are guilty
of anti-competitive behaviour nor does it prejudge the outcome of the
investigation itself. UPM continues to support the Commission with any
investigation activity that may follow.
Industrial actions
UPM is subject to risk of industrial actions, which could disrupt its
business operations or the business operations of its stakeholders.
Uncertainty may increase in the Finnish labour market amid the
announcement of the Finnish Forest Industries Federation in fall 2020 to
transfer collective bargaining to companies. For example, in the
beginning of 2022, members of the Paperworkers’ Union, the Finnish
Electrical Workers´ Union and the Trade Union Pro started strikes at
UPM mills in Jämsänkoski, Kouvola, Lappeenranta, Pietarsaari, Rauma,
Tampere and Valkeakoski, Finland. These strikes or other industrial
actions in UPM’s business operations or related sectors could have an
effect on UPM’s business operations. For example, industrial actions in
the transport sector or among other stakeholders important to UPM, may
disrupt UPM’s operations. Additionally, public dissatisfaction with
UPM’s labour-related decisions may, in extreme cases, lead to
unanticipated boycotts or disruptions at its facilities or construction sites.
A natural disaster, fire, accident or other calamity at UPM’s
production facilities
UPM operates a significant number of production facilities globally that
are exposed to risks related to environment, fires, natural events, site
security and occupational health and safety risks. If UPM’s production
facilities were to experience a major accident or were forced to shut
down or curtail production due to such unforeseen events, such as a
leak or spill due to malfunction or human error, this could cause major
interruptions in UPM’s operations and result in significant costs in order
to clean up and repair any potential damages to the production plant
and the surrounding areas. Any failure to maintain high levels of safety
management could also result in physical injury, sickness (such as a
COVID‑19 infection) or liability to UPM’s employees, contractors or
third parties. These risks are managed through established management
procedures, health and safety precautions and loss prevention
programmes. UPM’s insurance programme provides coverage for
insurable hazard risks, subject to insurance terms and conditions.
Forests and plantations
UPM’s plantations and forests may be affected by the impacts of climate
change, which include more frequent and severe extreme weather
conditions such as heavy rainfall, storms, floods and drought. Climate
change is expected to have the biggest physical effect on UPM’s forest
lands in Finland, where temperatures are expected to rise more
significantly and rapidly compared with other countries where UPM
owns forest. Although forest growth will likely accelerate, particularly in
Finland, due to the longer growing season, extreme weather conditions
will intensify, presenting new risks. The increase of droughts and fires
are estimated to pose the most significant risks for UPM’s business. Also,
damages caused by insects and tree diseases are becoming
increasingly common, which could have an effect on the value of UPM’s
forest assets. Should these risks materialise, they could harm UPM’s
forest and plantations resulting in production interruption and additional
costs.
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Strategic partners
UPM collaborates with many partners. For example, product
development in the biofuels, bioenergy or biochemicals increases the
importance of partnerships in the search for new products and
businesses or higher efficiency. Partnerships may, however, create risks
to the profitability, for example, through changes occurring within the
partner entity or changes in how the partnership operates. UPM is also
subject to the risk that its strategic partners do not comply with UPM’s
Code of Conduct with anti-corruption, competition law, HR practices,
human rights, responsible sourcing and environmental matters.
Partnership arrangements may also be too rigid to enable timely
changes required, for example, in connection with changes in the
market conditions or the economy. UPM’s partners may have different
targets with respect to the business of the partnerships. As UPM may not
have sole control over strategic direction and operational output of
these entities, its partners may have the right to make certain decisions
on key business matters with which UPM does not agree. In some cases,
strategic partners may choose not to continue partnerships that they
have with UPM.
Intellectual property rights of third parties
Molecular bioproducts form one of UPM’s three strategic focus areas for
growth. Initiatives within this strategic focus area are technology-
intensive and require increasing investments in such technologies either
through internal development or through third party licences or
technological partnerships. In addition to UPM’s own IPR portfolio, UPM
licences certain technologies developed by third parties. Evaluating the
rights related to the third party technologies UPM uses or intends to use
is increasingly challenging. Licensing third party technology exposes
UPM to such risks as the increase of overall licensing costs, loss of
negotiation power, the validity of such licensing arrangements and
potential infringement claims, which could restrict UPM’s ability to use
certain technologies, prevent the delivery of UPM’s products and/or
result in costly and time-consuming litigation. Risk related to IPR claims
and disputes relating to technological partnerships have been assessed
to increase.
Building capabilities to growth areas
The success of UPM’s business largely depends on the ability to build
the necessary new capabilities required for future growth. UPM is
continuously developing its employee experience, leadership culture,
evaluating its recruitment, compensation policies and career
development opportunities and taking measures to attract and retain
diversely skilled personnel for current and future growth areas.
Financial risks
Financial risks are described in consolidated financial statements 2021.
TYPE OF RISK
CONSOLIDATED FINANCIAL
STATEMENT NOTE
Credit risk
4.6 Working capital
Liquidity and refinancing risk
5.1 Capital management
Interest rate risk
6.1 Financial risk management
Foreign exchange risk
6.1 Financial risk management
Electricity price risk
6.1 Financial risk management
Counterparty risk
6.2 Derivatives and hedge accounting
Non-financial information
Global megatrends represent many long-term opportunities and
challenges for UPM towards 2030 and beyond. They are also driving
demand for sustainable solutions and responsible business practices.
To steer its responsibility activities, UPM has established a set of
responsibility focus areas with targets and key performance indicators.
They are reviewed every year based on a materiality analysis (page
66). The focus areas cover economic, social and environmental
responsibility. Mitigation of and adaptation to climate change is
becoming more important all the time, and it is relevant for UPM
throughout the whole value chain: land use, sourcing, production and
products. Thus, climate-related targets have been established for all of
these areas. In 2021, UPM renewed its social responsibility targets to
strengthen the social commitment. This is also reflected in corresponding
updates of the non-financial key performance indicators.
UPM’s Biofore strategy guides the company in achieving its
responsibility targets for 2030 and in contributing to the Sustainable
Development Goals (SDG) of the 2030 Agenda for Sustainable
Development published by the UN.
Connecting sustainability performance to financing demonstrates the
importance of responsible business practices to UPM’s long term value
creation. In 2020, UPM tied its syndicated revolving credit facility to
both biodiversity and climate targets, and also issued a first green
bond. In 2021, UPM published its first Green Bond report and issued a
second green bond.
Based on international frameworks and commitments
UPM respects international human rights agreements and agreements
concerning labour rights, including the UN Declaration of Human
Rights, the ILO Declaration on Fundamental Principles and Rights at
Work, and the OECD Guidelines for Multinational Enterprises.
Since 2003, UPM is a signatory of the UN Global Compact
initiative, whose ten universal principles are derived from international
agreements in the areas of human rights, labour standards, the
environment and anti-corruption. And since 2016, UPM has the LEAD
participant status for its commitment to the UN Global Compact. In
2021, UPM was globally one of only 37 companies to receive this
recognition, and the only representative of the forest industry and
Finland.
Regarding climate change UPM committed to the Science Based
Targets (SBT) initiative in 2017 and received validation of its tightened
CO2 targets in 2020. To further strengthen its climate approach, UPM
committed to the UN's Business Ambition for the 1.5°C pledge. In
2021, UPM joined The Climate Pledge to reach the targets set by the
Paris Agreement by 2040.
UPM follows the Finnish Corporate Governance Code issued by the
Securities Market Association and complies with all of its
recommendations.
UPM Code of Conduct and other corporate policies
UPM’s decision making, management and operations are guided by
UPM values and the UPM Code of Conduct. Legal compliance and
responsible practices are the foundation of all of UPM’s businesses and
create long-term value for both UPM and its stakeholders. The UPM
Code of Conduct emphasises UPM’s commitment to business integrity
and responsible business operations, manifesting the company’s
guiding principles.
The UPM Code of Conduct is complemented by more detailed
policies approved by the Board of Directors and rules or statements
approved by the Group Executive Team, business areas or global
functions. These policies, rules and statements cover such topics as
UPM FINANCIAL REPORT 2021
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treasury, taxes, disclosures, insider matters, anti-corruption, competition
law, confidentiality, human resources, responsibility, forestry,
information security and data protection, and safety.
UPM requires its suppliers, third party intermediaries and joint
venture partners to apply the same principles as in the UPM Code of
Conduct and to fulfil criteria concerning social and environmental
responsibility. These requirements are defined in the UPM Supplier and
Third Party Code, latest updates effective as of beginning of 2020.
The UPM Code of Conduct was last updated in 2019, and will be
updated in 2022. The preparations for the upcoming update started in
2021.
Roles of the group management and functions in leading non-
financial matters
The Board of Directors, with the assistance of the Audit Committee, is
responsible for monitoring compliance with applicable legal and
regulatory requirements and with the UPM Code of Conduct and other
corporate policies. In addition, the Audit Committee oversees
procedures for treatment of complaints and concerns received by the
company, anonymous or otherwise. As part of the committee’s
compliance review, the committee is provided with a quarterly report by
the company’s Chief Compliance Officer, and a report of submissions
under the company’s Report Misconduct channel by the Head of Internal
Audit.
In line with its main duties and responsibilities, the Board reviewed
and approved strategic plans during its strategy session in May 2021.
The main focus areas of the UPM Biofore strategy continue to be
performance, growth, innovation, responsibility and portfolio
development. This strategy is enhanced by the UPM purpose: We create
a future beyond fossils (read more on pages 22-23). An essential part
of the Board’s annual strategy work is to review and assess strategic
and operational risks and opportunities (see UPM Governance
Statement 2021). These risks and opportunities and their impact on
operations and strategy are described on pages 34-35.
The Board had decided to set environmental, social and governance
related (ESG) related measures in the Company’s performance share
plan (PSP) long-term incentive plan as of January 2022. They decided to
set three distinct ESG performance measures and the total weighting of
these measures accounted for 20% of all measures.
The Group Executive Team, headed by the President and CEO, is in
charge of the management of corporate responsibility, determining
courses of action and guiding development work. In practice, corporate
responsibility efforts take place in businesses and functions, and in the
group’s Responsibility team, which co-ordinates the projects carried out
by businesses and functions.
UPM Legal Function and its Compliance team manage legal
compliance programmes and arrange related training at regular
intervals for specific target groups, which have been defined based on
risk assessments. UPM Sourcing organisations follow clearly defined
selection and follow-up processes when evaluating suppliers. Reliable
long-term deliveries, product and service quality, financial sustainability
of suppliers, social and environmental responsibility and product safety
are the key factors when selecting and evaluating suppliers.
While executing strategies, UPM and its business areas, functions
and production units are exposed to a number of financial and non-
financial risks and opportunities. Each business area, function and unit
is responsible for identifying, measuring and managing risks related to
its own operations, and for reporting on risk exposures, risk
management activities and results to its own management team and to
the Risk Management Function.
Management of non-financial matters
UPM’s responsibility thinking starts with anticipating, mitigating and
managing risks, and extends to creating a competitive advantage and
long-term value.
UPM continually strives to reduce its risk exposure and improve its
performance by using tools such as certified management systems.
Since 2018, all production sites have a certified ISO 14001
environmental management system. Almost all production sites and
wood-sourcing operations implemented integrated management systems
for environmental protection, quality management and occupational
health and safety in accordance with ISO 14001, ISO 9001 and ISO
45001 standards. All pulp and paper mills in the EU, as well as the
UPM Fray Bentos pulp mill in Uruguay and the UPM Changshu paper
mill in China, also adhere to the EU’s Eco-Management and Audit
Scheme (EMAS). Many of the sites also have energy management
systems certified under ISO 50001 or the Finnish ETJ+ system, and food
safety management systems certified under ISO 22000, if relevant.
Should stakeholders have any concerns or suspect misconduct, they
are encouraged to contact UPM or to use the UPM Report Misconduct
channel. The new service is available on the corporate website for both
the company’s employees and external stakeholders. Operated by an
independent external service provider, the channel is accessible in over
40 languages, 24/7. In 2021, 66 (23) cases were reported either
through the UPM Report Misconduct channel or directly to internal audit
or compliance team. 9 of these cases related to alleged discrimination
or harassment. 18 cases led to disciplinary action including warnings
and terminations of employment.
Reporting framework used
UPM uses the GRI Standards reporting guidelines published by the
Global Reporting Initiative to measure and report on corporate
responsibility at group level. UPM’s corporate responsibility reporting
has been compiled in accordance with the GRI Standards: Core option.
UPM also follows the recommendations of  the Task Force on Climate-
related Financial Disclosures (TCFD) (see page 139).
Committed to anti-corruption
The UPM Code of Conduct underlines the company’s zero tolerance
attitude towards corruption and bribery in any form. UPM Anti-
Corruption Rules explain prohibited conduct and expected ethical
behaviour in further detail.
UPM performs anti-corruption risk assessment on a regular basis. The
annual risk-assessment process includes a top-down risk discussion with
the management of each business area. All UPM group entities are also
assessed on the basis of country risk and complexity of operations. UPM
operates globally and has significant manufacturing operations in
several emerging market countries. Such operations require a number of
permits and other licenses from the relevant authorities. Some of the
countries where UPM operates are perceived as highly corrupt or
corrupt according to Transparency International. In these countries,
there is an increased risk of corruption, for example in relation to
interaction with government officials and in the use of intermediaries
when applying for permits and licences requiring governmental
approval.
Due diligence of suppliers and third parties with whom UPM does
business is an essential part of UPM’s anti-corruption compliance
programme. UPM requires that due diligence is performed before
entering into or renewing any contract with a third party that meets
specified criteria. UPM requires anti-bribery contract terms to be
included in agreements with such third parties outlining the third party’s
commitment to compliance with applicable anti-bribery laws and UPM’s
right to audit the third party to verify compliance with these terms. UPM
UPM FINANCIAL REPORT 2021
18
also has corresponding due diligence procedures for joint ventures,
including mergers and acquisitions.
UPM has a dedicated anti-corruption e-learning platform. The anti-
corruption training covers all white-collar employees. In 2021, the
company organised tailored anti-corruption training workshops for
selected target groups across the company and performed risk-based
compliance reviews in selected jurisdictions and operations.
Respect for human rights
UPM is committed to respect and promote human rights in line with the
United Nations Guiding Principles on Business and Human Rights. UPM
has assessed all its operations and activity and has identified the
potential human rights issues and impacts. When considering both the
severity and likelihood of these potential issues and impacts, UPM
considers the salient human rights issues in the company’s sphere of
influence to be environmental pollution, occupational health and safety
(OHS), working conditions, protection of children, and forced labour.
In 2021, UPM was announced as one of the leading companies in
the SIHTI (Status of Human Rights Performance of Finnish Companies)
project initiated by the Government of Finland assessment and research
services. In connection, a report of UPM’s Human Rights Responsibility
was published. UPM reviewed its human rights risks as part of UPM
compliance process quarterly. The assessment of salient human rights
issues on a business area level as well as the integration of the process
to unit specific management systems continued.
Responsible sourcing
UPM requires its suppliers, third-party intermediaries and joint venture
partners to apply the same principles as in the UPM Code of Conduct
including commitment to anti-corruption, environmental and social
responsibility, safe products, human rights and occupational health and
safety practices.
Transparent supplier requirements are the basis for responsible
sourcing. These supplier requirements are defined in the UPM Supplier
and Third Party Code. A number of additional requirements are in place
for the sourcing of wood, chemicals, pulp and packaging materials, as
well as for safety and logistics. All contractors working on site go
through UPM’s safety requirements and a web-based safety induction
training.
UPM identifies its supply chains with a high risk of potential negative
environmental and social impacts. These responsibility-related risks are
determined by the country of origin, sourced material or service, and
complexity of supply chain. Based on the risk identification, selected
suppliers’ activities are evaluated in more detail through EcoVadis and
other assessments, supplier audits and joint development plans.
In 2021, UPM focused on increasing auditing capabilities of its
sourcing employees and continued the digital platform implementation.
UPM Forest proceeded with their supply chain audit project.
UPM continued its co-operation with Together for Sustainability (TfS),
a chemical industry initiative that promotes and improves sustainability
practices within the supply chains and its participation to UN Global
Compact Action Platform on Decent Work in Global Supply Chains. In
2021, UPM conducted some 340 (290) EcoVadis assessments and 124
(117) supplier audits. In addition, about 300 (350) contractor reviews
with focus on working conditions were carried out.
Social and employee-related matters
UPM’s responsibility focus areas in social and employee-related matters
are: learning and development, responsible leadership, diversity and
inclusion, fair rewarding as well as safe and healthy working
environment.
UPM is committed to active employee participation and consultation,
organised in accordance with international and national rules and
regulations. After the Finnish Forest Industries Federation resigned from
collective bargaining, the terms of employment are agreed between
forest products companies and trade unions (see page 65).
UPM aims to empower and engage employees at all levels through
responsible leadership. UPM encourages its employees to pursue
professional growth, expects development and supports them in
learning skills and developing them further.
UPM respects the privacy of employees and promotes equal
opportunities and objectivity in employment and career development. In
2021, UPM implemented gender pay equity review process closing the
unexplained gender pay gap. All UPM employees are treated as
individuals regardless of gender, age, ethnic origin, nationality, etc.
UPM promotes employees' health and wellbeing. Safety is an
essential part of UPM’s activities and business management system.
Equal safety requirements are applied to all employees, visitors and
contractors working at UPM’s premises.
In its People Strategy, UPM focused on leadership and to create a
safe, inclusive & diverse working environment, as well as aiming higher
in performance and ensuring growth of our people. UPM is creating the
future by building resilience, developing future ways of working and
developing digital capabilities. In 2021, UPM continued the enabling
performance approach by strengthening feedback culture, agile goal
setting and frequent manager-employee discussions. Development
programmes to support growth and performance were continued and
implemented virtually. To further develop inclusive leadership and
culture, UPM continued the dialogue on diversity and inclusion widely in
the organisation.
The proactive safety of employees and contractors has remained an
important focus area in 2021. Safety and wellbeing of our employees
during global pandemic has been the key priority.
Product stewardship
Majority of UPM’s products are made from renewable raw materials
and are recyclable. UPM products help to mitigate climate change by
replacing fossil-based products with bio-based renewable alternatives.
Product stewardship covers the entire lifecycle of all UPM products from
the development phase to the end-use and beyond.
In 2021, the new Sustainable Product Design concept was
developed further and piloted with few UPM businesses. The approach
applies lifecycle thinking and lifecycle assessment data, both integrated
in sustainable product design practices. During the process, the whole
raw material chain, production and distribution efficiency, sustainable
use and circularity are considered.
UPM provides product declarations to provide customers with easy
access to information concerning the products' environmental and
product safety aspects or the wood origin. Together with a number of
paper and chemical companies the exchange of information in the
supply chain was improved. This facilitates to pre-assess chemical used
and to ensure compliance with legislations and ecolabels.
Most of UPM products are certified with widely recognised
ecolabels, such as the EU ecolabel and national ecolabels for graphic
paper or ISCC and RSB certification for biofuels, biocomposites and
labels. In 2021, UPM Raflatac’s label range RAFNXT+ was the world’s
first CarbonNeutral® certified label material to help mitigate climate
change.
UPM FINANCIAL REPORT 2021
19
All of UPM pulp mills, UPM Raflatac sites and UPM Specialty Papers'
production lines have implemented food management systems in
accordance with ISO 22000 or FSSC 22000. The respective products
are designed and produced to meet food packaging requirements.
Environment
UPM’s responsibility focus areas in environmental matters are forests
and biodiversity, water, waste and climate. UPM uses raw materials,
water, energy and other resources in a responsible manner and
continuously improves its energy, resource and cost efficiency.
UPM is committed to sustainable forestry and third-party-verified
FSC™ and PEFC chain of custody certification covers all sites using
wood raw materials. This ensures that the wood it legally sourced from
sustainably managed forests. All UPM owned forests are certified, or in
the process of certification if acquired recently.
UPM is continuously working to improve biodiversity in its forests. In
2021, all eight quantitative biodiversity indicators which were
developed and are monitored for UPM’s forests in Finland showed a
positive trend. In Uruguay, UPM implemented a strategy to increase
biodiversity in the long-term, and monitors biodiversity with three main
indicators. In 2021, we further raised the bar with a new global forest
responsibility programme that will be launched in 2022 and reaches
until 2030. The new programme covers not only climate and
biodiversity targets and commitments but also sustainability criteria
related to water, soil and social and economic contribution. 
All of UPM’s production plants are located in areas where there is
sufficient water available. In 2021, a comprehensive water risk analysis
confirmed the earlier results, and provided scenarios for 2030 and
2050. The water used by UPM plants comes from rivers, lakes or
groundwater resources. UPM uses water responsibly in terms of the
company’s water consumption and effluent quality. If the price of raw
water were to increase by EUR 0.01 per cubic metre, it would mean
additional water costs of approximately EUR 4 million annually. In
2021, wastewater volume decreased by 12% per tonne of paper and
remained on the previous year's level per tonne of pulp.
Circular economy thinking is at the core of our operations. We have
developed innovative ways to reduce and recover waste and to use side
streams, residues and recovered materials. For example, tall oil is used
for the production of UPM BioVerno renewable diesel and naphtha and
ash is utilised in soil stabilisation, cement industry or as raw material for
paper filler production. Regulatory changes may have an impact on the
options for waste or residue use, either by restricting the end uses and
thus causing higher costs for alternative solutions, or by creating new
opportunities. In 2021, 89 (89)% of UPM’s process waste was recycled
or recovered, of which 21% is energy recovery.
In 2021, UPM’s environmental investments totalled EUR 5 million
(6 million). The largest investment was the capacity increase of the
electrostatic precipator at UPM Kymi pulp mill's lime kiln to reduce dust
emissions. UPM’s environmental costs, which were mainly attributable to
effluent treatment and waste management, totalled EUR 111 million
(110 million), including depreciation.
The company-wide Clean Run programme, launched in 2012, aims
to improve UPM’s environmental performance by bringing
environmental issues to the forefront of everyday work. All sites
systematically follow up any deviations, proactively report observations
and near misses, carry out walks and discussions, and compile detailed
risk assessments. Despite the global pandemic, approximately 1,400
(1,700) environmental walks were organised and 2,500 (2,700)
preventive environmental observations and near misses were reported in
2021.
Until 2020 there has been a significant decrease in the number of
environmental non-conformances since UPM’s internal Clean Run
programme was launched in 2012. However, in 2021 the number
increased by 8 to a total of 25 (17) temporary deviations from permit,
contractual or other obligations. The deviations were minor
contraventions of obligations. 12 cases were related to air, 12 to water
and one to soil. All deviations were immediately reported to the
authorities and, where relevant, to local stakeholders. Appropriate
measures were taken to normalise the situation, and will be taken to
prevent similar occurrences. No major environmental incidents occurred
at UPM production plants in 2021.
As part of Clean Run development, UPM launched in 2021 a new
process to collect, share and improve the implementation of
environmental related best practices across our operations. A best
practice can be a procedure, instruction, practice or technology, worth
sharing with others who could benefit from knowing it and possibly
implementing it.
Climate
The management of climate change related issues is integrated to
management of other non-financial issues and is reported to the Board
depending on the context and matter. For example: 1) risks are
reported to the Board by CFO, 2) related compliance and regulatory
issues are briefed quarterly to Audit Committee (Board) by Compliance
Officer, 3) annual progress on 2030 responsibility targets is reported
by EVP Stakeholder Relations or 4) if there are specific climate-related
topics, then responsible topic owner briefs the Board. Additionally,
major climate-related issues such as scenario analyses, commitments
and UPM’s overall approach of acting through forests, emission
reductions in production and supply chain and through climate-positive
products are reported directly to UPM management bodies led by CEO.
UPM's position and resilience in different climate scenarios (IPCC
RCP 2.6, RCP 4.5, RCP 8.5, IEA B2DS, IEA NPS and IEA CPS) have
been evaluated for the businesses and functions from both physical and
transitional angles, involving expertise from scientific community.
Generally, in low- and medium-emission scenarios the transition impacts
play a bigger role and UPM is well positioned as its business portfolio
allows for flexibility regarding recognised risks and opportunities. In the
high-emission scenario physical impacts dominate with severe
consequences not only to UPM but the ecosystems and societies over the
globe.
UPM's main target related to climate change is reducing fossil CO2
emissions (scope 1 and 2) by 65% from 2015 level by 2030. This
target was validated by Science-Based Target initiative to be aligned
with the 1.5°C pathway according to Paris agreement. In 2021, fossil
CO2 emissions (scope 1 and 2) summed up to 5.0 (5.4) million tonnes,
which is a decrease of 8% compared to 2020.
Further targets related to climate change are reducing fossil CO2
emissions from supply chain (Scope 3) by 30% from 2018 level by
2030, climate-positive land use and developing climate-positive product
portfolio. Concerning land use, forestry and product portfolio, UPM has
engaged with scientific partners in order to gain credible data and
approaches.
UPM favours the use of renewable and other carbon-neutral energy
sources. Biomass-based fuels make up 70% (72%) of fuels used by UPM
worldwide. If UPM needed to buy certificates to cover its whole direct
fossil CO2 emissions, and if the price of CO2 certificates were to rise by
EUR 10 per tonne, it would mean additional costs of approximately
EUR 27 million annually.
UPM FINANCIAL REPORT 2021
20
UPM climate related disclosures according to TCFD (Task Force on Climate-related Financial Disclosures)
are presented in UPM annual report as follows:
REQUIREMENTS
PAGES
GOVERNANCE
a) The role of the Board in overseeing climate-related issues
Page 136, paragraph "Roles of the group management and functions in leading
non-financial matters"
b) The role of management in assessing and managing climate-related issues
Page 136, paragraph "Roles of the group management and functions in leading
non-financial matters"
STRATEGY
a) The climate related risks and opportunities over the short, medium and long term
Pages 131-134, chapter "Risks"
Pages 34-35, chapter "Risks and opportunities"                                         
Pages 10-13, chapter "Beyond fossils"
b) The impact of climate-related risks and opportunities on business, strategy and
financial planning
Pages 34-35, chapter "Risks and opportunities"                                                   
Pages 10-13, chapter "Beyond fossils"
Page 132-134, paragraphs "Climate change", "Forest and plantations"
c) The resilience of strategy, taking into consideration climate-related scenarios
Page 138, paragraph "Climate"
Pages 10-13, chapter "Beyond fossils"
RISK MANAGEMENT
a) Processes for identifying climate-related risks
Page 131, paragraph "Risk management"
Page 136, paragraph "Roles of the group management and functions in leading
non-financial matters"
b) Processes for managing climate-related risks
Page 131, paragraph "Risk management"
Page 136, paragraph "Roles of the group management and functions in leading
non-financial matters"
c) How processes for identifying, assessing, and managing climate-related risks are
integrated into overall risk management
Page 131, paragraph "Risk management"
Pages106-108, chapter "Governance"
METRICS AND TARGETS
a) Metrics used to assess climate-related risks and opportunities
Pages 14–15, "Key figures 2021"
b) Scope 1, Scope 2 and Scope 3 emissions, and related risks
Page 138, paragraph "Climate"
Page 94, graph "Sources of UPM's greenhouse gas emissions"
c) Targets used to manage climate-related risks and opportunities and performance
against targets
Page 142, table "Material non–financial topics and key performance indicators"
Pages 32-33, table "UPM Responsibility targets"
UPM FINANCIAL REPORT 2021
21
EU Taxonomy
In 2020, the European Union’s Sustainable Finance Classification
System (EU Taxonomy Regulation, 2020/852) was published. In 2021,
the European Commission adopted the related EU Disclosures
Delegated Act, which requires large financial and non-financial
companies to provide information to investors about the environmental
performance of their assets and economic activities. In annual reports
published in 2022, large companies need to start to report the
proportion of their economic activities that are considered as Taxonomy-
eligible. An eligible economic activity is an activity that is included in
the scope of delegated acts adopted pursuant to the Taxonomy
Regulation. In 2023, large companies need to report activities that are
considered as Taxonomy-aligned, i.e. which comply with the criteria for
environmentally sustainable economic activities. In the beginning, the
focus is on activities contributing to climate objectives, climate change
mitigation and adaptation, according to the EU Climate Delegated Act.
Based on the regulation, UPM has carried out an assessment to
identify the economic activities which would be eligible i.e. included in
the scope of EU Taxonomy. The assessment was carried out with the
support of several UPM functions and businesses, and led by UPM’s
finance and responsibility teams. EU NACE Classification (Statistical
Classification of Economic Activities in the European Community) was
used as reference in activity identification. In 2022, UPM will continue
the assessment with a thorough evaluation of the alignment of activities
with the sustainability criteria defined in the regulation.
The identified eligible activities focus on the climate change
mitigation objective. The identified activities are: sustainable forest
management, hydropower generation, biofuels and biocomposites
businesses, paper production from mostly recycled content, part of
renewable energy generation, sales of heat to local communities, part
of the ongoing investment in a biochemicals refinery in Germany, some
water transportation activities as well as R&D activities towards a future
beyond fossils. In addition, water and wastewater related activities have
been considered in the assessment. However, as those are not products
or services of UPM, thus not directly contributing to UPM turnover, those
have not been considered as Taxonomy-eligible activities. UPM´s main
businesses are not included in the scope of EU Taxonomy.
The identified eligible activities correspond with following categories
of the EU Taxonomy:
Activity no
EU Taxonomy activity
UPM activity
Relevant for
turnover
Relevant for
CapEx
Relevant for
OpEx
1.1
Afforestation
Sustainable forest management
n/a
X
X
1.3
Forest management
Sustainable forest management
X
X
X
3.14
Manufacture of organic base chemicals
Part of the current investment in a biochemicals
refinery in Germany
X
X
X
4.5
Electricity generation from hydropower
Electricity generation from hydropower
X
X
X
4.13
Manufacture of biogas and biofuels for use in
transport
Biofuels business
X
X
X
4.15
District heating/cooling distribution
Sales of heat to local communities
X
X
X
4.19
Cogeneration of heat/cool and power from
renewable non-fossil gaseous and liquid fuels
Part of renewable energy generation
X
X
X
4.20
Cogeneration of heat/cool and power from
bioenergy
Part of renewable energy generation
X
X
X
5.9
Material recovery from non-hazardous waste
Paper production from mostly recycled content
and biocomposites business
X
X
X
6.10
Sea and coastal freight water transport, vessels for
port operations and auxiliary activities 
Some water transportation activities
X
X
X
9.1
Close to market research, development and
innovation
R&D activities towards a future beyond fossils
n/a
X
X
Non-financial undertakings falling under the scope of the Non-Financial
Reporting Directive are required to disclose the KPIs, the turnover,
CapEx (capital expenditure) and OpEx (operating expenses) in relation
to economic activities which are Taxonomy-eligible as defined in
Disclosures Delegated Act as well as such eligibility disclosures in
relation to economic activities which are non-eligible under the
Taxonomy.
The eligibility-related financial information to be disclosed pursuant
to Article 8 of the Taxonomy Regulation is presented below. The group
has ensured that activities are accounted only once when calculating
KPIs.
2021
Absolute
turnover, EURm
Proportion of
turnover, %
Absolute CapEx,
EURm
Proportion of
CapEx, %
Absolute OpEx,
EURm
Proportion of
OpEx, %
Taxonomy-eligible activities
1,017
10%
237
14%
80
15%
Taxonomy-non-eligible activities
8,798
90%
1,429
86%
444
85%
Total
9,814
100%
1,666
100%
524
100%
UPM FINANCIAL REPORT 2021
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Accounting Policy
UPM consolidated financial statements that are prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union (IFRS as adopted by the EU) and IFRIC Interpretations.
UPM has calculated the KPIs using the financial information presented in
group consolidated financial statements 2021. The definitions of CapEx
and OpEx key performance indicators are based on group
interpretation of definitions set out in the Disclosures Delegated Act.
Turnover
UPM has calculated turnover, as defined in Disclosures Delegated Act,
based on the same accounting principles that apply for revenue in IFRS,
i.e., covering all amounts derived from the sale of products and services
in the course of ordinary activities. Total turnover corresponds to total
sales as reported in group consolidated financial statements. Refer to
Accounting policy in consolidated financial statements Note 2.2. Sales.
Taxonomy-eligible turnover includes only revenue from sales of products
and services generated from activities that are in the scope of the
Taxonomy. The majority of UPM´s products and services contributing to
the turnover are not in the scope of the EU Taxonomy. In determining
the eligible turnover any specific fragments of production inputs, such as
use of sustainable raw material or energy, have not been included in
the eligible turnover if the main activity is not in the scope of the
Taxonomy.
UPM’s Taxonomy-eligible turnover includes sales of wood and wood-
based biomass (logs, pulpwood, forest residues etc.) to third-party
customers, forestry services to forestry owners, sales of energy
generated from hydropower, sales of wood-based renewable diesel for
transport and renewable naphtha for transport and petrochemicals,
distribution of district heat, sales of heat and power generated from
biomass, gaseous and liquid fuels of renewable origin in combined heat
and power plants, sales of biocomposites and sales of newsprint paper
from mostly recycled content.
CapEx
UPM has included in CapEx, as defined in Disclosures Delegated Act,
additions to tangible and intangible assets, before any depreciations,
impairments, amortisation charges and fair valuations during the
financial year, as accounted for in accordance with IAS 16 Property,
Plant and Equipment, IAS 38 Intangible assets, IAS 41 Agriculture and
IFRS 16 Leases. CapEx corresponds to cash payments to acquire fixed
assets in the Consolidated cash flow statement adjusted with amounts
accrued but not paid at the end of reporting period, and additions to
leased assets. Refer to line items Capital expenditure and Additions to
forest assets in Consolidated cash flow statement and Note 5.2. Leases
in UPM consolidated financial statements 2021.
Taxonomy-eligible CapEx includes purchased and leased land for
afforestation, purchased growing trees, capitalised forestry renewal
costs during the growth cycle, part of capitalised investments in new
biochemicals refinery, capitalised investments in hydropower plants,
capitalised investments in biofuels biorefinery and other capitalised
development costs of Taxonomy-eligible activities towards a future
beyond fossils. Capital expenditure presented in the UPM Annual report
within Other financial information differs from Taxonomy-CapEx as it
does not include additions to forest assets and leased assets.
OpEx
UPM has included in OpEx, as defined in Disclosures Delegated Act,
research and development costs as accounted for in accordance IAS 38
Intangible assets, short term lease expenses as accounted for in
accordance IFRS 16 Leases, and costs of day-to-day servicing (i.e.,
repairs and maintenance) of property, plant and equipment as
accounted for in accordance IAS 16. Costs of day-to-day servicing of
property, plant and equipment include direct salaries of maintenance
personnel, maintenance materials and maintenance services outsourced.
In addition, as UPM owns a significant amount of forest assets, it
considers forest management and support services as day-to-day
servicing of assets as defined in EU Disclosures Delegated Act. OpEx is
included in consolidated income statement line item Costs and
expenses, refer Note 2.3. Operating expenses and other operating
income.
Research and development costs included in Taxonomy-eligible
OpEx relate to technologies and products dedicated to the reduction of
GHG emissions. These costs include mainly new biochemicals
biorefinery and R&D related to the next generation biofuels refinery.
Day-to-day servicing of property, plant and equipment included in
Taxonomy-eligible OpEx includes maintenance costs of newsprint
paper, hydropower and biofuels production facilities and combined
heat power plants. Costs of day-to-day servicing of forest assets
included in Taxonomy-eligible OpEx relate to forestry infrastructure
maintenance, forest fire fighting, protection and environmental activities
whereas forestry renewal costs, e.g., planting, growing of coppice and
operation of forest tree nurseries, are included in CapEx.
UPM FINANCIAL REPORT 2021
23
Material non-financial topics and key performance indicators
Governance/
Anti-
Corruption
Corruption related risks are identified and assessed in connection with
the company’s risk management process. These risks are managed and
mitigated by training, communication, due diligence procedures, audits
and practical guidelines specifically targeted at anti-corruption and anti-
bribery. UPM Code of Conduct training is mandatory to all employees
and anti-bribery training to all salaried employees.
100% coverage of participating
in UPM Code of Conduct training
(continuous)
98% (99%) of active employees
completed training for the  UPM Code of
Conduct.
Human rights
UPM is committed to respecting human rights based on its Code of
Conduct. UPM has a process for assessing human rights at UPM site
level, including community relations and local sourcing, as well as for
risk assessments and audits for suppliers.
Continuous supplier auditing
based on systematic risk
assessment practices
124 (117) supplier audits were
conducted based on identified risks,
including human rights, social and
environmental topics. In addition, about
300 (350) contractor reviews with focus
on working conditions were carried out.
Responsible
sourcing
UPM requires its suppliers, third party intermediaries and joint venture
partners to apply the same principles as in the UPM Code of Conduct.
These supplier requirements are defined in the UPM Supplier and Third
Party Code.
80% of total supplier spend
covered by UPM Supplier and
Third Party Code (continuous)
86% (84%) of supplier spend covered by
UPM Supplier and Third Party Code.
Responsible
leadership
UPM continuously develops leadership capabilities, management teams
and working environments. UPM measures work environments, team
work and leadership with an annual engagement survey. UPM’s global
leadership development portfolio develops capabilities to lead oneself,
lead people and lead business. Programmes address, e.g., inspiring
and purposeful leadership, coaching, conversation and feedback skills,
resilience and leading in complexity.
Employee engagement clearly
above benchmark by 2030
Employee engagement average score 68.
This is 9 points below the global external
benchmark.
Learning and
development
UPM has a systematic process for goal setting and development
planning for all employees globally to ensure high performance and
continuous professional development.
Goal setting discussions are held
and development plans created
for employees, completion rate
100% by 2030
88% (82%) of employees had completed
individual goal settings or annual
discussions. 70% (63%) had a
development plan documented.
Safe and
healthy
working
environment
UPM has a comprehensive safety management system which promotes a
proactive and engaging safety culture. UPM uses means such as safety
audits and reporting on safety related near-misses and safety
observations.
No fatalities
Total recordable injury frequency
(TRIF) <2 by 2030,  including
contractors
0 (0) fatal accident, 3(2) serious
accidents
TRIF was 6.3 (5.3) for UPM workforce
and 7.2 (6.2) including contractors.
Diversity
UPM wants to develop organisational culture and local workplace to
ensure an inclusive and diverse working environment. UPM has
committed to, and promotes, diversity and inclusion in its policies. UPM
reviews the diversity status of all its businesses and functions regularly.
The composition of UPM key management teams and inclusiveness is
discussed and development actions planned and implemented.
UPM is among top 10%
companies by 2030 on
employees’ sense of belonging at
UPM
Average score 67 on Employee
Engagement Survey question about
belonging. This is 13 points below the
benchmark of top 10% companies.
Fair rewarding
UPM’s rewarding and recognition philosophy is to reward high
performance. We aim to ensure fair, equitable and competitive
rewarding for all employees. In addition to competitive, robust and
performance based rewarding practices, we have yearly review
processes ensuring the gender pay equity and employees’ pay meeting
at least a living wage locally. UPM ensures that employees have
sufficient information to understand what their rewarding comprises and
how they can influence on its development.
Ensure gender pay equity for all
employees by implementing
yearly review process to identify
and close unexplained pay gaps
Company-wide review done in 2021 and
pay adjustments implemented to close
identified statistically significant
unexplained gaps related to gender.
Product
stewardship
Ecolabels help customers make responsible choices and provide
stakeholders with important information. Third party verified
environmental certificates and labels tell customers about the
environmental performance of our products.
All applicable products eligible
for ecolabelling by 2030
84% (82%) of UPM sales were eligible
for ecolabelling.
Climate
UPM favours the use of renewable and other carbon-neutral energy
sources and strives to continuously improve its energy efficiency across
all its operations. Strengthened targets for scope 1 and 2 to be in line
with the commitment to Science Based Targets and 1.5° pledge.
Fossil CO2 emissions from its own
combustion and purchased
electricity (Scope 1 and 2)
reduced by 65% by 2030
(compared to 2015)
Fossil CO2 emissions reduced by 27%
compared to 2015 and 8% compared to
2020.
Water
UPM's goal is to minimise the impact of its operations on water
resources, safeguard the natural water cycle in forests, and maintain the
functioning of aquatic ecosystems.
Wastewater volume reduced by
30% by 2030 (compared to
2008)
18% reduction in wastewater volume
achieved since 2008 for the UPM
average product.
TOPIC
MANAGEMENT
KEY PERFORMANCE
INDICATOR
2021 RESULTS
UPM FINANCIAL REPORT 2021
24
Waste
Circular economy means both financial and environmental efficiency.
UPM aims to reuse materials and products, reduce the amount of solid
waste and increase recycling and recovery in its operations.
No process waste sent to landfills
or to incineration without energy
recovery by 2030
89% (89%) of all UPM’s process waste
was recovered and recycled. The total
amount of waste to landfills decreased by
3% compared to 2020.
Forest
UPM is committed to sustainable forestry and uses third party verified
chains-of-custody to ensure that wood is legally sourced from sustainably
managed forests.
All fibre certified by 2030
84% (83%) of all wood used by UPM is
sourced from certified forests.
TOPIC
MANAGEMENT
KEY PERFORMANCE
INDICATOR
2021 RESULTS
Material risks and their management is described on pages 131-135 of the Report of Board of Directors and in the Annual Report on pages 34–35. Information on
the company’s risk management system is available on the corporate website in the governance section and in the Corporate Governance Statement 2021, which is
also available as a separate report on the corporate website upm.com/governance. More information about performance related non-financial topics is available
in the general section of the Annual Report and on the UPM website upm.com.
Research and development
Innovating for the future
Innovation and R&D programmes are essential in the development of
new products and technologies. Research and development expenses
cover the development of new technologies, businesses and processes. 
Our 2030 responsibility targets and our contribution to the UN SDGs
are integrated into our R&D activities and product development (page
32).
In 2021, UPM spent EUR 266 (189) million on research and
development, making up 21.3% (18.8%) of UPM’s operating cash flow.
In addition to direct R&D expenditure of EUR 46 (41) million, the figure
includes negative operating cash flow and capital expenditure in
developing businesses, transformative business prospects and
digitalisation projects.
Expanding the infrastructure
UPM’s Biofore Base research centres in Lappeenranta, Finland and
Changshu, China are accelerating the development of new bio-based
products and their launch to the markets. The Leuna Biofore Base in
Germany was established at the end of the year. It works in connection
with the upcoming biochemicals refinery and specialises in developing
new biomolecular products.
The Biofore Base research centres unite UPM’s various technologies
with globally accumulated experience and expertise in the new and
existing businesses. The centres also focus on piloting and analytics
enabling seamless collaboration with customers, value chain partners
and research organisations such as universities. The research centres
work closely with mills, UPM businesses and their research centres in
various countries.
Innovating climate-positive products
Our products offer solutions to mitigating climate change as they
replace fossil raw materials with bio-based renewable alternatives. The
products store carbon for the entire duration of their lifecycle, especially
when recycled multiple times. New solutions are developed in
collaboration with our businesses, technology partners and customers.
Molecular bioproducts form one of UPM’s three strategic focus areas
for growth. Our first-of-its-kind biochemicals biorefinery in Leuna,
Germany, will enable a switch from fossil raw materials to wood-based
sustainable alternatives in textiles, plastics, PET bottles, packaging and
pharma or cosmetics products.
The commercialisation of biochemicals is taking significant steps
forward. In 2021, UPM started a collaboration with The Coca-Cola
Company to develop wood-based plastic materials for PET bottles. We
also launched UPM BioMotion™ renewable functional fillers to
significantly reduce the CO₂ footprint and weight of rubber and plastics
in various end-uses (page 57).
The basic engineering phase of a next-generation biofuels
biorefinery, announced in January 2021, is proceeding at full speed.
The potential biorefinery would produce high-quality renewable fuels,
including sustainable jet fuel. The products would significantly reduce
the carbon footprint of road transport and aviation, as well as replace
fossil raw materials with chemical and plastic alternatives from
renewable sources.
UPM Biomedicals develops and supplies innovative and sustainable
wood-based biomedical products for high-throughput drug screening,
personalised medicine, advanced cell therapies, 3D bioprinting, tissue
engineering and advanced wound care. More than 300 patents protect
our existing and future products.
We are also examining new ways to utilise renewable fibre-based
materials that are being developed for textiles, nonwovens, hygiene
products, labels and flexible packaging, amongst other applications.
Solid patent portfolio
The significance of the patents, trademarks and intellectual property
rights protecting our innovations is more pronounced in our new
businesses, supporting the journey from innovation to business. We
have nearly 3,000 patents and patent applications, and nearly 1,400
trademarks globally.
Licensing innovations and technologies provides an excellent basis
for value creation with customers and technology partners. As an
example, at the end of 2021, UPM Biochemicals owned 160 patents
and patent applications and another 353 patents and patent
applications were held by partners, covering technology and products
throughout the value chain.
UPM FINANCIAL REPORT 2021
25
Value from data and digital solutions
We aim to significantly increase the accelerate and improve data-based
decision-making. Our development work in data utilisation focuses on
high-quality, compliant, secure and modern common data platforms and
services. We use agile methods in defining and implementing new
business-driven data and digital solutions together with our partners. As
a result, we aim for data products and digital services that have
identified business value.
We finalised our Digi and Data strategy in 2021 based on a solid
operating model created in cooperation with businesses. Our target is
to achieve greater impact from the digital and data-driven solutions both
on a corporate and a business level. The development projects common
to several businesses include digital customer experience and pricing,
digital supply chain and intelligent operations. The implementation of
the strategy and development projects will start in 2022.
Extensive partner network
Our close-knit global partner network is comprised of customers,
universities, research organisations, suppliers and start-up companies.
Collaboration speeds up the development and launch of new business
solutions.
The partnership with the European Joint Undertaking on Bio-Based
Industries (BBI) focuses on strengthening the competitiveness of bio-
based products in Europe. As a shareholder in the Finnish company
CLIC Innovation Ltd, we aim to propel breakthrough solutions in the
circular economy and cleantech. We collaborate with the European
Chemical Industry Council (CEFIC) and Renewable Carbon Initiative
(RCI) to promote making chemicals more sustainable and more climate
smart. UPM Specialty Papers and UPM Raflatac actively collaborate
with 4evergreen Alliance, an initiative by CEPI to raise the overall
recycling rate of fibre-based packaging to 90% by 2030 (page 88).
UPM wants to be proactive in the developments that reduce
greenhouse gas emissions. In 2021, UPM joined the EU’s Clean
Hydrogen Alliance and became a member of the Roundtable on Clean
Hydrogen for industrial users. UPM also joined the newly established
Finnish Hydrogen Cluster to accelerate investments in the hydrogen
economy.
Sustainable product design
We want our products to create value for our stakeholders during the
whole product lifecycle. We offer suitable solutions for the customers’
sustainability challenges and ensure that the new product or service has
a proven sustainability value proposition and supports UN Sustainable
Development Goals (SDGs).
In 2021, we further developed our Sustainable Product Design
concept, the methodology of which is based on design thinking and
aims to steer our product development projects. Our approach applies
lifecycle thinking and lifecycle assessment data, both incorporated in
sustainable product design practices. We consider product development
in six lifecycle steps.
The process starts with a holistic overview of the design, e. g. what
purpose and use is the product developed for and considers all
circularity and technology aspects. During the process, the whole raw
material chain, production and distribution efficiency, sustainable use
and circularity are considered. In 2021, we piloted the new concept
with some of our businesses. Testing will continue in 2022 and the new
concept will be gradually adopted in all businesses.
Market demand and customer interest confirmed in UPM
Biochemicals
The first-of-its-kind biorefinery in Leuna is taking shape, while a robust
business platform is being built and customer engagement points to a
promising commercial future for UPM Biochemicals. 
The EUR 550 million investment will open completely new markets for
us, with large growth potential for the future. The biorefinery will
produce a range of 100% wood-based biochemicals, the main products
being bio-monoethylene glycol (BioMEG), bio-monopropylene glycol
(BioMPG) and lignin-based renewable functional fillers, with a total
annual capacity of approximately 220,000 tonnes. 
In 2021, detailed engineering, procurement and permit processes
continued progressing well, and building at the site took off. However,
the pandemic materially slowed down the completion of the detailed
engineering. Disruptions to global supply chains affected both the
availability and cost of critical construction materials. As a result, the
start-up is estimated to take place by end of 2023. The capital
expenditure estimate will also be updated. 
At the same time, the business platform was strengthened.We have
continued building a team of international experts with a strong
chemical industry background to further advance our research and
development, build strong commercial operations, and then establish
the service and supply infrastructure to meet our customers’ specific
needs. We also started hiring and training the operations personnel for
the biorefinery. The innovative digital twin of our biorefinery supports
the establishment of robust production processes and a competent, well-
trained team.     
UPM’s biochemicals made from renewable raw materials will offer a
missing link to achieve a truly sustainable circular economy: rubber and
plastics based on renewable chemicals. Our glycols and Renewable
Functional Fillers (RFF) are made from renewable resources, work well in
existing production and recycling processes, and will support the
transition away from oil-, gas- and coal-based materials.
We have made strong progress in opening sales channels in various
glycol end-use industries, mainly in packaging, automotive and textile
applications. 
We have started joint product development with potential customers
in various rubber applications to validate the technical performance of
our RFFs and bring sustainable alternatives to CO2-heavy rubbers to the
market. We also launched UPM BioMotion™, the renewable functional
fillers set to significantly reduce the carbon footprint and weight of
rubber and plastic applications.
The possibilities of our new biochemical products are endless. This
was demonstrated by a co-operation announcement with the Coca-Cola
Company, who have unveiled their new 100% plant-based recyclable
bottle, highlighting UPM’s industrial-scale biorefinery as a breakthrough
for the production of a new generation of biochemicals that will help
produce the sustainable packaging of the future. 
Our biorefinery project has also received positive external
recognition. We were among the seven finalists of the prestigious
German Sustainability Award and our contribution to the sustainability
transformation was recognised by the jury. We climbed up to 3rd place
in the European Rubber Journal’s top 10 elastomers for sustainability
ranking. 
Opening new markets for UPM Biomedicals
UPM Biomedicals is at the forefront of innovation and
commercialisation, with a particular focus on personalised medicine.
UPM Biomedicals develops and supplies innovative and sustainable
wood-based biomedical products for medical and life science
applications. The main component in our products is high-quality
nanocellulose, extracted from birch wood.
UPM FINANCIAL REPORT 2021
26
We actively collaborate with universities, research centres and key
industrial partners in the fields of high-throughput drug screening,
personalised medicine, advanced cell therapies, 3D bioprinting, tissue
engineering and advanced wound care. More than 520 patents and
patent applications protect our existing and future products.
In life science, our main products are GrowDex®, a range of
hydrogels for 3D cell culturing, and GrowDase™, an enzyme to release
the cells from the gel. The nanocellulose ensures excellent compatibility
with even the most demanding cells, such as stem cells and patient-
derived cells. Our gels are animal free and do not introduce animal
DNA into the test results. In 2021, we entered into a global distribution
agreement with PerkinElmer Health Sciences, Inc. for the UPM
GrowDex® and Grow- Dase™ products.
The collaboration offers researchers a solution for high-throughput
screening (HTS) of 3D cell cultures in the early stages of the drug
discovery process, combining the cell imaging solutions and knowledge
of PerkinElmer and the animal-free 3D reagents of UPM. The instrument,
software and cell culture matrices advance research and accelerate the
drug development process in which thousands of molecules are
screened, to eventually introduce a new drug onto the market.
PerkinElmer’s automated high-content screening system using
GrowDex hydrogels has been successfully used in a number of research
projects, including automated drug sensitivity and resistance testing of
patient-derived cells for personalised cancer treatment research.
GrowInk™ is a range of bioinks for 3D bioprinting, used in areas
like cancer research, where models of tumours can be printed to test
their response to different treatments. Launched in 2021, our
collaboration with CELLINK will allow us to develop the technology to
print organs or tissue that, in the future, could be transplanted into
patients.
In the clinical field, FibDex® wound dressings were marketed and
sold to healthcare professionals and hospitals in Finland, and work is
ongoing to expand into other European markets.
A year of growth for UPM Biocomposites
UPM Biocomposites is mitigating climate change and creating circular
economy solutions through the manufacture of innovative composite
materials and decking products.
UPM ProFi utilises post-consumer plastic waste and post-industrial
label waste to manufacture high-quality composite decking. The label
production side streams from UPM Raflatac and its customers are
collected and delivered to Germany, where the composite decking is
manufactured. Recycled plastic from European post-consumer waste is
also utilised in the manufacturing process. UPM ProFi’s latest product
launches in the UPM ProFi Piazza product range consist of up to 75%
recycled materials. UPM ProFi is a member of the EU Circular Plastics
Alliance, which aims to boost the EU market for recycled plastics to 10
million tonnes by 2025.
In 2021, UPM ProFi achieved significant sales growth across many
European markets with its renewed product portfolio. Thanks to its local
European operations, operating efficiency and marketing capabilities, it
also benefitted from the increase in home renovations during the
COVID-19 lockdowns.
UPM Formi creates and manufactures wood-based biocomposites,
which enables up to an 80% reduction in the carbon footprint of the
end product, compared to similar products made from fossil-based
materials. The composite materials are suitable for various end uses,
including kitchenware, personal care and acoustic devices. The
materials meet the highest quality standards, allowing the products to
pass food standards or similar quality requirements.
In 2021, UPM Formi, in conjunction with key business development
partners, experienced volume growth among new and existing
customers as a result of new end-use areas. Strong demand for UPM
Formi EcoAce continued. UPM Formi’s customers were recognised with
prestigious awards for using sustainable materials, such as the Red Dot
Design Award and the iF Gold Award.
UPM FINANCIAL REPORT 2021
27
R&D’s role in different businesses
BUSINESS AREA
DESCRIPTION
UPM Biorefining
UPM Pulp
In 2021, special effort was placed on supporting UPM’s growth strategy and implementing the right solutions for our state-of-the-art pulp mill in
Uruguay, scheduled to start up by the end of Q1 2023.
To ensure good communication, cooperation and fast development at exceptional times with restrictions like during the COVID-19 pandemic,
new operational models were brought in. Having structured processes and Technical Customer Service, Development and Research experts in all
our targeted continents led to both successfully implementing better own solutions and meeting current needs as well as those of target customers.
Good results were achieved in several end-use areas and regions, resulting in improved production efficiency both on our side and on the
customers’ side.
Our improved level of digitalisation implementation throughout the value chain enabled more automated traceability and new cost-efficient
ways to deliver the right pulp for right products.
UPM Biofuels
Collaboration for the development of new applications for renewable plastics based on UPM BioVerno naphtha continued. Piloting, research and
process development continued to take place at the UPM Biorefinery Development Centre (BrDC).
UPM was also studying and testing the use of several new feedstocks that meet sustainability criteria, such as wood residues and feedstocks
from carbon farming for our possible growth plans.
UPM Energy
The focus was on improving the cost-competitiveness and environmental performance of hydropower production assets and on developing
competencies and business operations related to the optimisation of industrial energy consumption and demand-side flexibility. UPM Energy
participated in several research programmes and undertook development work with the aim of improving UPM’s power generation and
consumption operations in a changing electricity market, as well as developing means to mitigate the impact of hydro power operations on rivers
and migratory fish.
UPM Raflatac
Research centres located at four sites (Finland, Poland, China, USA) support the product range expansion of paper, film and special products for
global self-adhesive labelling business operations. Cost efficiency and product customisation requirements for various end-use segments were
taken into account during the customer and market-orientated development phase. Global R&D continues to focus on technology platform
development for coatings and polymer development. There was an increase in product safety and sustainable label material alternatives and
new requirements were set for solutions supporting plastic recycling. Ongoing quality improvement remained an essential part of product and
process development. Alternative solutions for raw materials and support meant that supply was a further compulsory top-priority topic.
UPM Specialty
Papers
R&D and product development initiatives aim to enable high performance and efficiency in the value chain and to develop fibre-based
alternatives for non-renewable materials. These initiatives also support growth targets by driving the innovation of products for new applications.
In 2021, we added new barrier and Kraft paper grades to our portfolio. Looking towards the future, we continue to focus on co-creating
sustainable packaging papers for increasingly demanding end-uses, together with the packaging value network; we currently have several
ongoing co-creation initiatives. UPM Specialty Papers continues to develop release liner base papers to further improve efficiency and minimise
the environmental impact of the value chain by, for example, downgauging and developing our offering of grades with recycled content.
In 2021, the renewed Asian R&D centre “UPM Biofore Base” was inaugurated in Changshu, China. It is the first UPM Biofore base pilot
outside Europe, providing seamless research, testing and laboratory analysis services. The new centre will cooperate closely with customers,
universities, research institutions and suppliers. The Northern European Research Centre in Lappeenranta continues to strengthen its R&D
capabilities for specialty papers, including packaging paper and release liner development.
UPM
Communication
Papers
Research & development centres in Lappeenranta, Finland and Augsburg, Germany, continued to focus on investigating fibre concepts for
various paper grades. RCF quality controls also took place. Product portfolio development focused on the needs of key customer groups, as well
as broadening the approach to address new and profitable end uses.
Alongside its value chain partners, UPM Communication Papers has continued to conduct projects designed to explore and develop solutions
that can replace and decrease the amount of plastic used in packaging.
In the area of energy, the focus was on technological innovations that help minimise energy needs at the production sites. Paper mills also
developed intelligent operations to enable increasing demand-side management towards the electricity markets and networks to support system
stability and decrease emissions at peak times.
In terms of operations efficiency, our R&D efforts concentrated on improving the efficiency of several mills for pinpointed efficiency supporting
actions as well as safety-improving areas.
Digital solutions were developed, built and tested to optimise RCF delivery flows and machine performance measurement, as well as improve
order information machine reading.
Contributions from the R&D teams contributed to helping meet the 2030 targets in the areas of energy, water consumption, effluent treatment
and resource efficiency.
UPM Plywood
UPM Plywood product management and development provides competitive products within selected end-use areas in collaboration with our
customers, superior technical expertise and support for customers, as well as support for the commercialisation of newly developed products and
applications. For example, further expanding the use of lignin-based WISA BioBond gluing solution to new product lines.
UPM FINANCIAL REPORT 2021
28
Information on shares
Shares
UPM has one class of shares. Each share entitles the holder to one
vote at the General Meeting of UPM.
On 31 December 2021, the total number of UPM shares was
533,735,699. Through the issuance authorisation described below, the
number of shares may increase to a maximum of 558,735,699. On 31
December 2021, UPM held 411,653 treasury shares, representing
approximately 0.08% of the total number of UPM shares and voting
rights. There are no specific terms related to the shares.
In 2021, UPM shares worth a total of EUR 8,435 million (9,921
million) were traded on the Nasdaq Helsinki stock exchange. This is
estimated to represent more than 70% of the total trading volume in
UPM shares. The highest listing was EUR 35.37 in September and the
lowest was EUR 29.11 in January.
Authorisations held by the Board of Directors
The Annual General Meeting held on 30 March 2021 authorised the
Board of Directors to decide on the repurchase of a maximum of
50,000,000 of the Company’s own shares. The authorisation will be
valid for 18 months from the date of the AGM resolution.
The Annual General Meeting held on 30 March 2021 authorised
the Board of Directors to decide on the issuance of new shares, the
transfer of treasury shares and the issuance of special rights entitling to
shares in proportion to the shareholders’ existing holdings in the
Company, or in a directed share issue, deviating from the shareholder’s
pre-emptive subscription right. The Board of Directors may also decide
on a share issue without payment to the Company itself. The aggregate
maximum number of new shares that may be issued and treasury shares
that may be transferred is 25,000,000, including the number of shares
that can be received on the basis of special rights. The authorisation will
be valid for 18 months from the date of the AGM resolution.
Aside from the above, the Board of Directors has no current
authorisation to issue shares, convertible bonds or share options.
Changes in number of shares
2021
2020
2019
2018
2017
Number of shares 1 January
533,735,699
533,735,699
533,735,699
533,735,699
533,735,699
Number of shares at 31 December
533,735,699
533,735,699
533,735,699
533,735,699
533,735,699
Major shareholders at 31 December 2021
NUMBER OF SHARES
HOLDING %
Ilmarinen Mutual Pension Insurance Company
11,601,000
2.17
Varma Mutual Pension Insurance Company
8,169,340
1.53
ELO Mutual Pension Insurance Company
5,224,719
0.98
The Society of Swedish Literature in Finland
2,877,070
0.54
Holding Manutas Oy
2,550,000
0.48
The State Pension Fund
2,350,000
0.44
OP-Suomi Investment fund
2,252,652
0.42
Mandatum Life Insurance Company
1,857,589
0.35
SECURITY TRADING OY
1,760,000
0.33
Kymin Osakeyhtiön 100-vuotissäätiö
1,696,360
0.32
Nominees & Registered foreign owners
355,786,834
66.66
Others
137,610,135
25.78
Total
533,735,699
100.00
UPM FINANCIAL REPORT 2021
29
Shareholders by category at 31 December, %
2021
2020
2019
2018
2017
Companies
2.9
2.7
2.3
2.1
2.1
Financial institutions and insurance companies
3.7
3.8
3.0
2.9
2.4
Public bodies
5.8
6.0
5.7
6.8
5.1
Non-profit organisations
4.6
4.7
4.6
4.4
4.8
Households
15.8
15.6
15.2
15.0
15.1
Non-Finnish nationals
67.2
67.1
69.1
68.7
70.5
Total
100.0
100.0
100.0
100.0
100.0
Share distribution at 31 December 2021
SIZE OF SHAREHOLDINGS
NUMBER OF
SHARE-
HOLDERS
% OF SHARE-
HOLDERS
NUMBER OF
SHARES,
MILLION
% OF
SHARES
1 – 100
49,631
40.24
2.2
0.4
101 – 1,000
56,070
45.46
21.7
4.1
1,001 – 10,000
16,284
13.20
43.6
8.2
10,001 – 100,000
1,227
0.99
29.6
5.5
100,001 –
134
0.11
80.9
15.2
Total
123,346
100.00
177.9
33.3
Nominee-registered
355.8
66.7
Not registered as book entry units
0.0
Total
533.7
100.0
Under the provisions of the Securities Markets Act, changes in holdings must be disclosed when the holding reaches, exceeds or falls below 5, 10, 15, 20, 25, 30,
50 or 66.7 (2/3) per cent of the voting rights or the number of shares of the company. The stock exchange releases on notifications of changes in holdings pursuant
to Chapter 9, Section 5 of the Securities Market Act are available in UPM website upm.com/investors.
UPM FINANCIAL REPORT 2021
30
Adjusted share related indicators
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Earnings per share (EPS), EUR
2.41
1.05
1.99
2.80
1.82
1.65
1.72
0.96
0.63
–2.14
Comparable EPS, EUR
2.22
1.37
2.07
2.24
1.88
1.65
1.38
1.20
0.91
0.74
Equity per share, EUR
20.34
17.53
18.87
18.36
16.24
15.43
14.89
14.02
14.08
14.18
Dividend per share, EUR 1)
1.30
1.30
1.30
1.30
1.15
0.95
0.75
0.70
0.60
0.60
Dividend to earnings ratio, %
53.9
123.7
65.4
46.4
63.0
57.6
43.6
72.9
95.2
neg.
Dividend to operating cash flow, %
55
69
38
52
42
30
34
30
43
30
Effective dividend yield, %
3.9
4.3
4.2
5.9
4.4
4.1
4.4
5.1
4.9
6.8
P/E ratio
13.9
29.0
15.5
7.9
14.2
14.1
10.0
14.2
19.5
neg.
Operating cash flow per share, EUR
2.34
1.89
3.46
2.49
2.74
3.16
2.22
2.33
1.39
1.98
Dividend distribution, EURm 1)
693
693
693
693
613
507
400
373
317
317
Share price at 31 Dec., EUR
33.46
30.47
30.91
22.15
25.91
23.34
17.23
13.62
12.28
8.81
Lowest quotation, EUR
29.11
20.31
21.10
21.69
20.82
13.71
13.19
10.07
7.30
7.82
Highest quotation, EUR
35.37
31.50
31.49
34.70
26.69
23.41
19.26
13.99
13.02
10.98
Average quotation for the period, EUR
32.15
26.09
25.73
28.86
23.89
17.51
16.37
12.26
9.42
9.21
Market capitalisation, EURm
17,845
16,250
16,485
11,813
13,818
12,452
9,192
7,266
6,497
4,633
Shares traded, EURm 2)
8,435
9,921
9,695
9,980
8,460
6,749
7,469
6,233
5,308
5,534
Shares traded (1,000)
262,377
380,237
376,801
345,822
354,053
385,355
456,168
508,318
563,382
600,968
Shares traded, % of all shares
49.2
71.3
70.7
64.8
66.4
72.2
85.5
95.6
106.7
114.4
Number of shares, average (1,000)
533,324
533,324
533,324
533,324
533,415
533,505
533,505
531,574
527,818
525,434
Number of shares at the end of period (1,000)
533,736
533,736
533,736
533,736
533,736
533,736
533,736
533,736
529,302
526,124
of which treasury shares (1,000)
412
412
412
412
412
231
231
231
231
231
1) 2021 proposal
2) Trading on the Nasdaq Helsinki Main Market. Treasury shares bought by the company are included in shares traded.
The definitions of adjusted share related indicators are described below
SHARE RELATED INDICATORS
DEFINITION
Earnings per share (EPS), EUR
Profit for the period attributable to owners of the parent company divided by adjusted average number of shares during
the period excluding treasury shares.
Comparable EPS, EUR
Earnings per share calculated in accordance with IFRS excluding items affecting comparability and their tax impact.
Equity per share, EUR
Equity attributable to the owners of the parent company in relation to the adjusted number of shares at the end of
period.
Dividend per share, EUR
Dividend distribution divided by adjusted number of shares at the end of period.
Dividend to earnings ratio, %
Dividend per share as a percentage of earnings per share.
Dividend to operating cash flow, %
Dividend per share as a percentage of operating cash flow per share.
Effective dividend yield, %
Adjusted dividend per share as a percentage of adjusted share price at 31.12.
P/E ratio
Adjusted share price in relation to the earnings per share.
Operating cash flow per share, EUR
Operating cash flow divided by adjusted average number of shares during the period excluding treasury shares.
Market capitalisation, EURm
Total number of shares (excluding those held as treasury shares) multiplied by the share price at the end of period.
Adjusted share price at the end of period
Share price at the end of period in relation to share issue coefficient.
Adjusted average share price
Total value of shares traded in relation to adjusted number of shares traded during the period.
UPM FINANCIAL REPORT 2021
31
Board of Directors´ proposal for the distribution of profit
The Board of Directors proposes to the Annual General Meeting
of UPM-Kymmene Corporation to be held on 29 March 2022 that
a dividend of EUR 1.30 per share be paid based on the balance sheet
to be adopted for the financial year ending 31 December 2021
and that the remaining portion of the distributable funds be retained
in the Company’s unrestricted shareholders’ equity.
The dividend will be paid to a shareholder who is registered in
the Company’s shareholders’ register held by Euroclear Finland Ltd
on the dividend record date of 31 March 2022. The Board of Directors
proposes that the dividend will be paid on 7 April 2022.
On the date of the dividend proposal, 27 January 2022,
the Company’s registered number of shares is 533,735,699.
The aforementioned number of shares includes 411,653 treasury shares
which are not entitled to dividend. As a result, the proposed dividend
would total EUR 693.3 million.
On 31 December 2021, the distributable funds of the
parent company were EUR 3,299,180,167.25 including
EUR 469,282,175.70 profit for the period. No material changes have
taken place in respect of the Company's financial position after the
balance sheet date. In the opinion of the Board Of Directors, the
proposed distribution of profits does not risk the solvency of the
Company.
Signatures of the annual accounts and the report of the Board of Directors for the year 2021
Helsinki, 27 January 2022
Björn Wahlroos
Chair
Berndt Brunow
Henrik Ehrnrooth
Emma FitzGerald
Jari Gustafsson
Piia-Noora Kauppi
Marjan Oudeman
Martin à Porta
Kim Wahl
Jussi Pesonen
President and CEO
UPM FINANCIAL REPORT 2021
32
Financial Statements 2021
Consolidated income statement and statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
1.  Basis for reporting
5.  Capital structure
1.1 Corporate information
5.1 Capital management
1.2 Basis of preparation
5.2 Net debt
1.3 Consolidation principles
5.3 Financial assets and liabilities by category
1.4 Foreign currency translation
5.4 Financial income and expenses
1.5 Changes in accounting policies
5.5 Share capital and reserves
2.  Business performance
6.  Risk management
2.1 Business areas
6.1 Financial risk management
2.2 Sales
6.2 Derivatives and hedge accounting
2.3 Operating expenses and other operating
income
2.4 Earnings per share and dividend
7.  Income tax
7.1 Tax on profit for the year
3.  Employee rewards
7.2 Deferred tax
3.1 Employee costs
3.2 Key management personnel
8.  Group structure
3.3 Share-based payments
8.1 Business acquisitions and disposals
3.4 Retirement benefit obligations
8.2 Principal subsidiaries and joint operations
8.3 Related party transactions
4.  Capital employed
8.4 Assets held for sale
4.1 Property, plant and equipment
4.2 Forest assets
9.  Unrecognised items
4.3 Energy shareholdings
9.1 Commitments and contingencies
4.4 Goodwill and other intangible assets
9.2 Litigation
4.5 Provisions
9.3 Events after balance sheet date
4.6 Working capital
10.  Other notes
10.1 Forthcoming new standards, amendments
        and accounting policy changes
Parent company accounts
UPM FINANCIAL REPORT 2021
33
Consolidated financial statements, IFRS
Consolidated income statement
EURm
NOTE
2021
2020
Sales
2.1, 2.2
9,814
8,580
Other operating income
2.3
254
116
Costs and expenses
2.3
-8,104
-7,371
Change in fair value of forest assets and wood harvested
4.2
111
-25
Share of results of associated companies and joint ventures
2
3
Depreciation, amortisation and impairment charges
2.3, 4.1, 4.4
-515
-541
Operating profit
1,562
761
Exchange rate and fair value gains and losses
5.4
-3
2
Interest and other finance costs, net
5.4
-12
-26
Profit before tax
1,548
737
Income taxes
7.1
-240
-169
Profit for the period
1,307
568
Attributable to:
Owners of the parent company
1,286
560
Non-controlling interests
8.1
22
8
1,307
568
Earnings per share for profit attributable to owners of the parent company
Basic earnings per share, EUR
2.4
2.41
1.05
Diluted earnings per share, EUR
2.4
2.41
1.05
Consolidated statement of comprehensive income
EURm
NOTE
2021
2020
Profit for the period
1,307
568
Other comprehensive income for the period, net of tax
Items that will not be reclassified to income statement:
Actuarial gains and losses on defined benefit plans
96
-36
Changes in fair value of energy shareholdings
632
-251
Items that may be reclassified subsequently to income statement:
Translation differences
337
-262
Net investment hedge
-21
5
Cash flow hedges
-127
-24
Other comprehensive income for the period, net of tax
7.2
918
-569
Total comprehensive income for the period
2,225
Attributable to:
Owners of the parent company
2,194
-7
Non-controlling interests
31
6
2,225
The notes are integral part of these consolidated financial statements.
UPM FINANCIAL REPORT 2021
34
Consolidated balance sheet
EURm
NOTE
2021
2020
ASSETS
Goodwill
4.4
237
229
Other intangible assets
4.4
366
363
Property, plant and equipment
4.1
5,569
4,316
Leased assets
5.2
608
561
Forest assets
4.2
2,328
2,077
Energy shareholdings
4.3
2,579
1,936
Other non-current financial assets
5.3
133
166
Deferred tax assets
7.2
466
421
Net retirement benefit assets
3.4
79
26
Investments in associates and joint ventures
33
33
Other non-current assets
20
21
Non-current assets
12,420
10,149
Inventories
4.6
1,594
1,285
Trade and other receivables
4.6, 5.3
2,024
1,534
Other current financial assets
5.3
139
136
Income tax receivables
40
34
Cash and cash equivalents
5.1, 5.3
1,460
1,720
Current assets
5,257
4,709
Assets
17,676
14,858
EURm
NOTE
2021
2020
EQUITY AND LIABILITIES
Share capital
5.5
890
890
Treasury shares
-2
-2
Translation reserve
329
25
Other reserves
5.5
1,938
1,430
Reserve for invested non-restricted equity
5.5
1,273
1,273
Retained earnings
6,419
5,735
Equity attributable to owners of the parent company
10,846
9,351
Non-controlling interests
8.1
261
162
Equity
11,106
9,513
Deferred tax liabilities
7.2
596
564
Net retirement benefit liabilities
3.4
676
771
Provisions
4.5
155
222
Non-current debt
5.2, 5.3
2,566
1,952
Other non-current financial liabilities
5.3
109
97
Non-current liabilities
4,102
3,606
Current debt
5.2, 5.3
86
90
Trade and other payables
4.6, 5.3
2,254
1,571
Other current financial liabilities
5.3
95
48
Income tax payables
32
30
Current liabilities
2,468
1,740
Liabilities
6,570
5,345
Equity and liabilities
17,676
14,858
The notes are integral part of these consolidated financial statements.
UPM FINANCIAL REPORT 2021
35
Consolidated statement of changes in equity
EURm
SHARE
CAPITAL
TREASURY
SHARES
TRANS-
LATION
RESERVE
OTHER
RESERVES
RESERVE
FOR
INVESTED
NON-
RESTRICTED
EQUITY
RETAINED
EARNINGS
EQUITY
ATTRIBU-
TABLE TO
OWNERS
OF THE
PARENT
COMPANY
NON-
CONTROLLING
INTERESTS
TOTAL
EQUITY
Value at 1 January 2021
890
-2
25
1,430
1,273
5,735
9,351
162
9,513
Profit for the period
1,286
1,286
22
1,307
Translation differences
325
325
13
337
Cash flow hedges - reclassified to
income statement, net of tax
63
63
63
Cash flow hedges - reclassified to
PPE
-14
-14
-1
-16
Cash flow hedges - change in fair
value, net of tax
-172
-172
-2
-174
Net investment hedge, net of tax
-21
-21
-21
Energy shareholdings - changes in
fair value, net of tax
632
1
632
632
Actuarial gains and losses on
defined benefit plans, net of tax
96
96
96
Total comprehensive income 
for the period
304
508
1,382
2,194
31
2,225
Share-based payments, net of tax
-1
-6
-6
-6
Dividend distribution
-693
-693
-13
-706
Other items
-1
Contributions by non-controlling
interests
82
82
Total transactions with owners
for the period
-1
-698
-699
68
-632
Total equity at 31 December
2021
890
-2
329
1,938
1,273
6,419
10,846
261
11,106
Value at 1 January 2020
890
-2
278
1,711
1,273
5,912
10,062
113
10,175
Profit for the period
560
560
8
568
Translation differences
-258
-258
-4
-262
Cash flow hedges - reclassified to
income statement, net of tax
-34
-34
-34
Cash flow hedges - reclassified to
PPE
-5
-5
-5
Cash flow hedges - change in fair
value, net of tax
11
11
3
14
Net investment hedge, net of tax
5
5
5
Energy shareholdings - changes in
fair value, net of tax
-252
1
-251
-251
Actuarial gains and losses on
defined benefit plans, net of tax
-36
-36
-36
Total comprehensive income
for the period
-253
-279
525
-7
6
Share-based payments, net of tax
-2
-9
-11
-11
Dividend distribution
-693
-693
-21
-714
Other items
-1
Contributions by non-controlling
interests
64
64
Total transactions with owners
for the period
-2
-702
-704
43
-662
Total equity at 31 December
2020
890
-2
25
1,430
1,273
5,735
9,351
162
9,513
» Refer Note 5.5 Share capital and reserves, for further information.
UPM FINANCIAL REPORT 2021
36
Consolidated cash flow statement
EURm
2021
2020
Cash flows from operating activities
Profit for the period
1,307
568
Adjustments 1)
356
721
Interest received
1
3
Interest paid
-26
-37
Dividends received
2
3
Other financial items, net
-2
-14
Income taxes paid 3)
-275
-145
Change in working capital 2)
-115
-93
Operating cash flow
1,250
1,005
Cash flows from investing activities
Capital expenditure
-1,432
-818
Additions to forest assets
-89
-57
Investments in energy shareholdings
0
-47
Proceeds from sale of property, plant and equipment and intangible assets, net of tax 3)
17
23
Proceeds from sale of forest assets, net of tax 3)
6
3
Proceeds from disposal of businesses and subsidiaries
157
0
Proceeds from disposal of energy shareholdings
1
2
Proceeds from disposal of joint operations
0
17
Net cash flows from net investment hedges
9
-4
Change in other non-current assets
6
3
Investing cash flow
-1,323
-879
Cash flows from financing activities
Proceeds from non-current debt
600
861
Payments of non-current debt
-16
-31
Lease repayments
-84
-86
Change in current liabilities
0
-2
Net cash flows from derivatives
34
-17
Dividends paid to owners of the parent company
-693
-693
Dividends paid to non-controlling interests
-12
-23
Contributions paid by non-controlling interests
82
67
Change in investment funds
-100
0
Other financing cash flow
-5
-4
Financing cash flow
-194
71
Change in cash and cash equivalents
-268
197
Cash and cash equivalents at the beginning of the period
1,720
1,536
Exchange rate effect on cash and cash equivalents
8
-13
Change in cash and cash equivalents
-268
197
Cash and cash equivalents at the end of the period
1,460
1,720
UPM FINANCIAL REPORT 2021
37
1) Adjustments
EURm
2021
2020
Change in fair value of forest assets and wood harvested
-111
25
Share of results of associated companies and joint ventures
-2
-3
Depreciation, amortisation and impairment charges
515
541
Capital gains and losses on sale of non-current assets
-146
-25
Financial income and expenses
15
24
Income taxes
240
169
Utilised provisions
-85
-55
Non-cash changes in provisions
1
130
Other adjustments
-70
-86
Total
356
721
2) Change in working capital
EURm
2021
2020
Inventories
-271
45
Receivables included in working capital
-445
-6
Liabilities included in working capital
601
-133
Total
-115
-93
3) Total income taxes paid in 2021 amounted to EUR 276 million (146 million). Income taxes paid related to investing activities are presented in investing cash flow.
UPM FINANCIAL REPORT 2021
38
Notes to the consolidated financial statements
The notes to the consolidated financial statements are grouped into sections based on their nature. The notes contain the relevant financial
information as well as a description of accounting policy and key estimates and judgements applied for the topics of the individual notes. All amounts
are shown in millions of euros unless otherwise stated.
1.Basis for reporting
1.1Corporate information
UPM-Kymmene Corporation (“the parent company” or “the company”)
together with its consolidated subsidiaries (“UPM” or “the group”) is a
global forest-based bioindustry group. UPM´s large product range
covers pulp, graphic and specialty papers, selfadhesive labels, wood-
based renewable diesel, electricity as well as plywood and timber
products.
UPM-Kymmene Corporation is a Finnish limited liability company,
domiciled in Helsinki in the Republic of Finland. The address of the
company’s registered office is Alvar Aallon katu 1, 00100 Helsinki,
where a copy of the consolidated financial statements can be obtained.
The parent company’s shares are publicly traded on the Nasdaq
Helsinki Main Market.
These group consolidated financial statements were authorised
for issue by the Board of Directors on 27 January 2022. According
to the Finnish Companies Act, the General Meeting of Shareholders
is entitled to decide on the adoption of the company’s financial
statements.
1.2Basis of preparation
UPM’s consolidated financial statements are prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union (IFRS as adopted by the EU) and IFRIC Interpretations.
The consolidated financial statements have been prepared under
the historical cost convention, except for forest assets, energy
shareholdings and certain other financial assets and financial liabilities,
defined benefit plan assets and obligations and share-based payment
arrangements which are measured at fair value.
The consolidated financial statements are presented in millions of
euros, which is the functional and presentation currency of the parent
company. Items included in the financial statements of each group
subsidiary are measured using the currency of the primary economic
environment in which the subsidiary operates (“the functional currency”).
The amounts within parentheses refer to the preceding year, 2020.
Figures presented in these financial statements are rounded and
therefore the sum of individual figures might deviate from the presented
total figure.
In accordance with the European Single Electronic Format (ESEF)
reporting requirements, UPM has published the Board of Directors'
report and the financial statements as an XHTML file. In line with the
ESEF requirements, the primary statements of the consolidated financial
statements have been labelled with XBRL tags. XBRL tags are not
audited.
Accounting policies
The accounting policies applied to the consolidated financial statements
as a whole are described in this section, while the remaining accounting
policies are described in the notes to which they relate as UPM aims to
provide enhanced understanding of each financial statement area.
Further, to provide a better understanding, the accounting choices made
within the framework of the prevailing IFRS are described together with
the policy.
Key estimates and judgements
In the process of applying the group’s accounting policies, management
has made a number of judgements and applied estimates of future
events that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting periods. Although these estimates are based on
management’s best knowledge, actual results and timing may ultimately
differ from previously made estimates.
Key estimates and judgement which are material to the reported
results and financial position are presented in the following notes.
KEY ESTIMATES AND JUDGEMENTS
NOTE
Valuation of forest assets
4.2 Forest assets
Fair value determination of energy
shareholdings
4.3 Energy shareholdings
Impairment of property, plant and
equipment
4.1 Property, plant and equipment
Impairment of goodwill and other
intangible assets
4.4 Goodwill and other intangible
assets
Pension and other post-employment
benefits
3.4 Retirement benefit obligations
Income taxes
7. Income tax
Environmental provisions
4.5 Provisions
Legal contingencies
9.2 Litigation
UPM FINANCIAL REPORT 2021
39
Financial risks
UPM is exposed to a variety of financial risks as a result of its business
activities including currency risk, interest rate risk, commodity price risk,
credit risk, capital risk and liquidity risk. Risk management related to
financial activities is carried out by UPM’s central treasury department,
Treasury and Risk Management, under policies approved by the Board
of Directors. Financial risks are described in the relevant notes as
described below.
FINANCIAL RISK
NOTE
Credit risk
4.6 Working capital
Liquidity and refinancing risk
5.1 Capital management
Interest rate risk
6.1 Financial risk management
Foreign exchange risk
6.1 Financial risk management
Electricity price risk
6.1 Financial risk management
Financial counterparty risk
6.2 Derivatives and hedge accounting
Impact of COVID-19 on the financial statements
The impact of COVID-19 on UPM financial statements has so far been
relatively limited. The group uses estimates and makes significant
judgements when valuating certain assets and liabilities, including
energy shareholdings, forest assets, retirement benefit obligations and
provisions. The group has assessed the impact of COVID-19 to balance
sheet items by considering indicators of impairment of goodwill and
other intangible assets, recoverable amount of property, plant and
equipment, recoverability of deferred tax assets, valuation of inventories,
and collectability of trade receivables. The expectations of future cash
flows, discount rates and other significant valuation inputs were revised
to reflect changed economic environment. Based on these assessments,
no significant adjustments to the carrying amounts of said assets were
made due to COVID-19. However, the increased uncertainty in the
economic environment can lead to significant adjustments to the carrying
amount of assets.
The group expects that it will continue to operate and meet its
liabilities as they fall due. UPM has a strong financial position. Net debt
in the balance sheet amounted to EUR 647 million on
31 December 2021. Cash, investment funds, and unused committed
credit facilities amounted to EUR 2.5 billion. The facilities and UPM's
outstanding debt have no financial covenants.
1.3Consolidation principles
Subsidiaries
UPM’s consolidated financial statements include the financial statements
of the parent company, UPM-Kymmene Corporation, and subsidiaries
controlled by UPM. All group entities apply consistently UPM’s
accounting policies. All intercompany transactions, receivables,
liabilities and unrealised profits, as well as intragroup profit
distributions, are eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the transferred
asset.
Joint operations
A joint operation is a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the assets, and
obligations for the liabilities, relating to the arrangement. Joint control is
a contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require the
unanimous consent of the parties sharing control.
UPM’s share in joint operations is recognised in the consolidated
balance sheet through recognition of the group’s own assets and
liabilities and revenues and expenses in the arrangement together
with UPM’s proportionate share in the joint assets, liabilities and joint
income and expenses. The proportionate share of realised and
unrealised gains and losses arising from intragroup transactions
between UPM and its joint operations is eliminated.
Associates and joint ventures
Associates are entities over which the group has significant influence but
no control. Significant influence is the power to participate in the
financial and operating policy decisions without the power to control or
jointly control those policies. Joint ventures are joint arrangements where
the group has joint control with other parties and the parties have rights
to the arrangement’s net assets.
Interests in associates and joint ventures are accounted for using
the equity method of accounting and are initially recognised at cost.
Associates and joint ventures follow the group accounting policies for
consolidation purpose.
Non-controlling interests
The profit or loss attributable to owners of the parent company and non-
controlling interests is presented on the face of the income statement.
Non-controlling interests are presented in the consolidated balance sheet
within equity, separately from equity attributable to owners of the parent
company.
Transactions with non-controlling interests are treated as transactions
with equity owners of the group. For purchases from non-controlling
interests, the difference between consideration paid and the acquired
share of the carrying value of the subsidiary’s net assets is recorded in
equity. Gains or losses of disposals to non-controlling interests are also
recorded in equity, net of transaction costs.
1.4Foreign currency translation
Foreign currency transactions are translated into the functional currency
using the exchange rate prevailing at the date of transaction.
Receivables and liabilities denominated in foreign currencies
outstanding on the balance sheet date are translated into the functional
currency using the balance sheet date exchange rate. Foreign exchange
gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement, except when recognised in other comprehensive
income as qualifying cash flow hedges and qualifying net investment
hedges.
UPM records foreign exchange differences relating to ordinary
business operations within the appropriate line items above operating
profit and those relating to financial items are presented separately as a
net amount in finance costs.
Income and expenses of subsidiaries that have a functional currency
different from euro are translated into euros at quarterly average
exchange rates. Assets and liabilities of subsidiaries are translated at the
closing rate at the balance sheet date. All resulting translation
differences are recognised as a separate component in other
comprehensive income. On consolidation, exchange differences arising
UPM FINANCIAL REPORT 2021
40
from the translation of net investment in foreign operations and other
currency instruments designated as hedges of such investments, are
recognised in other comprehensive income. When a foreign entity is
partially disposed of, sold or liquidated, translation differences accrued
in equity are recognised in the income statement as part of the gain or
loss on sale/liquidation.
1.5Changes in accounting policies
The group has reviewed IFRS standard amendments effective on periods
starting 1 January 2021. The amendments effective as of 1 January
2021 did not have any impact on the group's financial statements.
2.Business performance
Sales
Comparable EBIT
Comparable ROE
EUR
9,814
m
EUR
1,471
m
11.7
%
(EUR 8,580m)
(EUR 948m)
(7.5%)
2.1Business areas
UPM business portfolio consist of six competitive businesses with strong
market positions. UPM reports financial information for the following
business areas (segments): UPM Biorefining, UPM Energy, UPM
Raflatac, UPM Specialty Papers, UPM Communication Papers,
UPM Plywood and Other operations. UPM has production plants in 12
countries. The group’s most important markets are Europe, North
America and Asia.
Accounting policies
UPM business areas are reported consistently with the internal reporting
provided to UPM’s President and CEO who is responsible for allocating
resources and assessing performance of the business areas. Internal
reporting is prepared under the same basis as the consolidated
accounts. Costs, revenues, assets and liabilities are allocated to
business areas on a consistent basis. The sales transactions between
business areas are based on market prices, and they are eliminated on
consolidation.
UPM FINANCIAL REPORT 2021
41
The goods and services included in sales revenue of each business area are presented in below table:
BUSINESS AREA
DESCRIPTION AND PRODUCTS
UPM Biorefining
UPM Biorefining consists of UPM Pulp, UPM Timber and UPM Biofuels business units.
UPM Pulp offers a versatile range of responsibly-produced pulp grades suitable for a wide range of end uses such as tissue, specialty and
packaging papers, graphic papers and board.
UPM Timber offers certified sawn timber for joinery, packaging,  furniture, planing and construction end-use segments.
UPM Biofuels produces wood-based renewable diesel for all diesel engines and renewable naphtha that can be used as a biocomponent
for gasoline or for replacing fossil raw materials in the petrochemical industry.
UPM Energy
UPM Energy generates cost-competitive, zero-carbon electricity. Operations also include physical electricity and financial portfolio
management as well as services to industrial electricity consumers and producers.
UPM Raflatac
UPM Raflatac offers innovative and sustainable self-adhesive label materials for branding and promotion, information and functional
labelling in the food, beverage, personal care, pharmaceutical and logistics segments, for example.
UPM Specialty Papers
UPM Specialty Papers offers labelling and packaging materials as well as office and graphic papers for labelling, commercial siliconising,
packaging, office use and printing.
UPM Communication
Papers
UPM Communication Papers offers an extensive product range of sustainably produced graphic papers for advertising and publishing as
well as home and office uses.
UPM Plywood
UPM Plywood offers high quality WISA® plywood and veneer products for construction, vehicle flooring, LNG shipbuilding, parquet
manufacturing and other industrial applications.
Other operations
Other operations include UPM Forest, UPM Biochemicals-, UPM Biomedicals-, UPM Biocomposites- business units and group services.
UPM Forest secures competitive wood and biomass for UPM businesses and manages UPM-owned and privately-owned forests in North
Europe. In addition, UPM offers forestry services to forest owners and forest investors. 
UPM Biochemicals offers innovative wood-based biochemicals for replacing fossil-based raw materials in various applications such as
textiles, PET bottles, packaging, cosmetics, pharmaceuticals, detergents, rubbers and resins. 
UPM Biomedicals is the forerunner in producing nanofibrillar cellulose for clinical and life science applications in the field of drug
screening, personalised medicine, advanced cell therapies, 3D bioprinting, tissue engineering and wound care.
UPM Biocomposites is a pioneer in circular economy offering composite decking materials based on both recycled consumer and
industrial waste. The product range also includes composite materials made from renewable fibres and polymers to replace fossil-based
plastics.
Key performance indicators and financial targets
UPM aims to grow its comparable EBIT over the long term. The group
has a portfolio of five businesses that operate on growing markets and
one business that faces declining demand. All of UPM businesses are
competitive and have strong market positions. Financial target setting,
follow up and allocation of resources in the group’s performance
management process is mainly based on the business area comparable
EBIT and comparable ROCE.
UPM presents comparable performance measures to reflect the
underlying business performance and to enhance comparability
from period to period. However, the comparable performance measures
used by management should not be considered in isolation as a
substitute for measures of performance in accordance with IFRS.
Business area information including description of items affecting
comparability is presented below.
UPM FINANCIAL REPORT 2021
42
Business area information for the year ended 31 December 2021
EURm, OR AS INDICATED
UPM BIO-
REFINING
UPM
ENERGY
UPM
RAFLATAC
UPM
SPECIALTY
PAPERS
UPM COM
PAPERS
UPM
PLYWOOD
OTHER
OPE-
RATIONS
ELIMINATI-
ONS AND
RECONCILI
-ATIONS 2)
GROUP
External sales
2,289
290
1,671
1,275
3,536
471
277
5
9,814
Internal sales
655
236
207
41
21
3
-1,163
Total sales
2,945
526
1,671
1,482
3,577
492
280
-1,157
9,814
Comparable EBIT
817
270
223
135
-79
72
76
-42
1,471
Items affecting comparability in
operating profit
-1
93
8
-1
-9
91
Operating profit
817
270
222
135
14
80
75
-50
1,562
Finance costs, net
-15
Income taxes
-240
Profit for the period
1,307
Operating assets 1)
5,567
2,932
768
1,169
1,903
333
2,481
-516
14,635
Deferred tax assets
466
Other non-operating assets
139
Other financial assets
2,436
Total assets
17,676
Operating liabilities 1)
419
140
193
265
737
43
380
-468
1,710
Deferred tax liabilities
596
Other liabilities
863
Other financial liabilities
3,400
Total liabilities
6,570
Other items
Change in fair value of forest
assets and wood harvested
-9
120
111
Share of results of associates
and joint ventures
2
2
Depreciation and amortisation
-190
-7
-36
-75
-103
-27
-25
-463
Impairment charges
-2
-52
1
-52
Capital employed, 31
December
5,148
2,792
575
903
1,165
290
2,101
785
13,759
Average capital employed
4,437
2,375
553
864
1,275
286
1,992
874
12,657
Capital expenditure
1,191
12
25
12
56
14
174
-1
1,483
Capital expenditure, excluding
acquisitions and shares
1,191
7
25
12
56
14
172
-1
1,477
Comparable ROCE, %
18.4
11.4
40.2
15.6
-6.2
25.1
3.8
11.7
Personnel, 31 December
2,692
72
3,016
1,918
6,422
2,196
650
16,966
1) Business area’s operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in
associates and joint ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.
2) Eliminations and reconciliations include the elimination of internal sales and internal inventory margin and the changes in fair value of unrealised cash flow and
commodity hedges that are not allocated to segments.
» Refer Other financial information on Alternative performance measures, for definitions of key figures and reconciliation to measures presented in the
consolidated income statement and balance sheet prepared in accordance with IFRS.
UPM FINANCIAL REPORT 2021
43
Business area information for the year ended 31 December 2020
EURm, OR AS INDICATED
UPM BIO-
REFINING
UPM
ENERGY
UPM
RAFLATAC
UPM
SPECIALTY
PAPERS
UPM COM
PAPERS
UPM
PLYWOOD
OTHER
OPE-
RATIONS
ELIMINATI-
ONS AND
RECONCILI
-ATIONS 2)
GROUP
External sales
1,720
252
1,560
1,148
3,296
385
221
-1
8,580
Internal sales
463
127
176
37
21
4
-827
Total sales
2,183
379
1,560
1,324
3,333
405
225
-828
8,580
Comparable EBIT
166
171
214
199
180
33
-12
-2
948
Items affecting comparability in
operating profit
14
-9
6
-170
-23
-3
-3
-187
Operating profit
166
184
205
206
9
10
-15
-4
761
Finance costs, net
-24
Income taxes
-169
Profit for the period
568
Operating assets 1)
4,004
2,251
656
1,069
1,757
314
2,083
-235
11,898
Deferred tax assets
421
Other non-operating assets
82
Other financial assets
2,457
Total assets
14,858
Operating liabilities 1)
325
23
142
197
436
34
198
-220
1,135
Deferred tax liabilities
564
Other liabilities
1,023
Other financial liabilities
2,623
Total liabilities
5,345
Other items
Change in fair value of forest
assets and wood harvested
-8
-17
-25
Share of results of associates
and joint ventures
2
1
3
Depreciation and amortisation
-176
-7
-39
-74
-121
-27
-29
-472
Impairment charges
-3
-58
-8
-1
-70
Capital employed, 31 December
3,679
2,228
514
871
1,321
280
1,885
777
11,555
Average capital employed
3,620
2,313
542
897
1,446
292
1,901
504
11,514
Capital expenditure
659
6
13
27
70
17
110
2
903
Capital expenditure, excluding
acquisitions and shares
659
5
13
27
70
17
110
1
902
Comparable ROCE, %
4.6
7.4
39.5
22.2
12.4
11.2
-0.6
8.3
Personnel, 31 December
2,695
70
3,087
1,932
7,281
2,301
649
18,014
1) Business area’s operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in
associates and joint ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.
2) Eliminations and reconciliations include the elimination of internal sales and the changes in fair value of unrealised cash flow and commodity hedges that are not
allocated to segments.
» Refer Other financial information on Alternative performance measures, for definitions of key figures and reconciliation to measures presented in the
consolidated income statement and balance sheet prepared in accordance with IFRS.
UPM FINANCIAL REPORT 2021
44
Items affecting comparability
EURm
2021
2020
In operating profit
Impairment charges
-52
-70
Restructuring charges
11
-137
Change in fair value of unrealised cash flow and
commodity hedges
-8
-3
Capital gains and losses on sale of non-current
assets
140
23
Total
91
-187
Total in profit before tax
91
-187
In income taxes
Taxes related to items affecting comparability
12
21
Changes in tax rates
-3
Total
12
18
Total in profit for the period
103
-169
Certain non-operational or non-cash valuation transactions with
significant income statement impact are considered as items affecting
comparability and reported separately to reflect the underlying business
performance and to enhance comparability from period to period.
In 2021, items affecting comparability relate mainly to UPM
Communication Papers and include a capital gain on sale of shares of
Shotton Mill Ltd amounting to EUR 133 million and impairment charges
of newsprint related fixed assets amounting to EUR 50 million.
In 2020, items affecting comparability in UPM Communication
Papers include EUR 117 million restructuring charges and EUR 58
million impairment charges related to closure of UPM Chapelle paper
mill and UPM Kaipola paper mill. In UPM Plywood business area, items
affecting comparability include EUR 15 million restructuring charges and
EUR 8 million impairment charges related to the closure of Jyväskylä
plywood mill. Additionally, restructuring charges reported as items
affecting comparability include prior capacity closures in UPM
Communication Papers as well as restructuring costs related to the
business functions of UPM Communications Papers and UPM Raflatac.
Capital gains affecting the comparability comprise of a gain of EUR 12
million relating to sale of group's share in Kainuun Voima Oy as well as
earnings of EUR 11 million on the sale of other non-current assets.
Total assets and capital expenditure by country
Assets
Capital expenditure
EURm
2021
2020
2021
2020
Finland
9,889
9,050
83
131
Germany
1,521
1,218
204
136
Uruguay
4,046
2,575
1,159
604
China
711
683
7
5
United States
412
328
5
6
United Kingdom
148
151
1
2
Austria
101
103
2
5
Russia
137
123
2
5
Poland
155
125
16
4
Estonia
51
53
1
3
France
33
43
1
1
Other EU countries
53
48
Other European
countries
27
29
1
1
Rest of world
392
330
1
1
Total
17,676
14,858
1,483
903
Sales by destination country
EURm
2021
2020
Finland
1,046
865
Germany
1,395
1,304
United States
1,089
963
United Kingdom
617
520
China
1,058
953
France
378
326
Uruguay
63
25
Poland
336
277
Austria
151
122
Russia
194
159
Other EU countries
1,651
1,495
Other European countries
352
298
Rest of world
1,482
1,272
Total
9,814
8,580
UPM FINANCIAL REPORT 2021
45
2.2Sales
UPM generates revenue mainly from the sale of goods, i.e. several types
of products.
The majority of UPM’s revenue comes from sales of graphic and
specialty papers to publishers, retailers, printing houses, merchants and
distributors, converters and label stock manufacturers; sales of self-
adhesive label materials to label printers and brand owners and sales
of pulp products to tissue, board, specialty and graphic paper
producers. The revenue comprises also sales of energy, biofuels, sawn
timber and plywood products and a very limited amount of services not
related to sale of goods.
UPM sells a proportion of its products to several major customers.
The largest customer in terms of sales represented approximately 2%
(2%) of UPM’s sales and the ten largest customers represented
approximately 15% (14%) of such sales.
The group disaggregates its external sales by business area,
because this depicts how the nature, amount, timing and uncertainty of
revenue and cash flows are affected by economic factors. Sales by
UPM business areas are reported consistently with the internal reporting
provided to UPM’s President and CEO who is responsible for allocating
resources and assessing performance of the business areas. The goods
and services included in sales revenue of each business area are
presented in below tables.
» Refer Note 2.1 Business areas for information on UPM products.
Sales by business area
EURm
2021
2020
CHANGE
UPM Biorefining
2,945
2,183
35 %
UPM Energy
526
379
39 %
UPM Raflatac
1,671
1,560
7 %
UPM Specialty Papers
1,482
1,324
12 %
UPM Communication Papers
3,577
3,333
7 %
UPM Plywood
492
405
21 %
Other operations
280
225
25 %
Eliminations
-1,157
-828
Total
9,814
8,580
14 %
External sales by major products
BUSINESS AREA
BUSINESS
2021
2020
EUR million
UPM Biorefining
UPM Pulp, UPM Biofuels, UPM Timber
2,289
1,720
UPM Energy
UPM Energy
290
252
UPM Raflatac
UPM Raflatac
1,671
1,560
UPM Specialty Papers
UPM Specialty Papers
1,275
1,148
UPM Communication Papers
UPM Communication Papers
3,536
3,296
UPM Plywood
UPM Plywood
471
385
Other operations
UPM Forest, UPM Biochemicals, UPM Biomedicals, UPM Biocomposites
277
221
Eliminations and reconciliations
5
-1
Total
9,814
8,580
BUSINESS
PRODUCT RANGE
UPM Pulp
Softwood, birch and eucalyptus pulp
UPM Biofuels
Wood-based renewable diesel for transport and renewable naphtha for transport and petrochemicals
UPM Timber
Standard and special sawn timber
UPM Energy
Electricity and related services
UPM Raflatac
Self-adhesive paper and film label stock
UPM Specialty Papers
Labelling materials, release base papers, flexible packaging materials, office papers, graphic papers
UPM Communication Papers
Graphic papers for various end uses
UPM Plywood
Plywood and veneer products
UPM Forest
Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering
UPM Biochemicals
Lignin products for industrial use
UPM Biomedicals
Wood-based products for biomedical applications
UPM Biocomposites
UPM ProFi decking products and UPM Formi granules
UPM FINANCIAL REPORT 2021
46
Effect of a 10% change in prices on operating profit for the year
EURm
2021
2020
Papers in UPM Communication Papers
336
318
Fine and specialty papers in UPM Specialty
Papers
126
114
Label materials in UPM Raflatac
167
156
Plywood
46
37
Sawn timber
49
31
Chemical pulp (net effect)
65
56
The biggest factor affecting UPM’s financial results is the sales price
of paper. A change in the volume delivered has less than half of the
effect of the same percentage change in sale prices.
Accounting policies
Sales of goods
UPM’s performance obligation in the contracts with customers consists of
providing the goods specified in the contracts. Revenue from UPM’s
product sales is recognised when performance obligation is satisfied,
which takes place at point in time when control of the good has been
transferred to the customer. In UPM’s customer contracts the transfer of
control and thus timing of revenue recognition is largely dependent on
delivery terms. Group terms of delivery are based on Incoterms 2020,
the official rules for interpretation of trade terms issued by the
International Chamber of Commerce. Major part of the sales contracts is
on delivery terms basis, whereby delivery is not a promised service to
the customer, as the control of a good does not transfer to the customer
before shipment. Revenue and the corresponding receivable are
recorded at the point in time when the product is delivered to the
destination point for terms designated Delivered Duty Paid (“DDP”) or
Delivered at Place (“DAP”). For sales transactions designated free of
carriage (FCA), revenue is recorded at the time of shipment. For sales
transactions designated as Carriage paid to (CPT) or Carriage and
Insurance Paid to (CIP), the portion of revenue relating to goods is
recorded at the time of loading and the portion of revenue relating to
delivery services over time when the service has been performed.
UPM sells energy to NordPool electricity market. Revenue is
recognised when electricity is transmissed over time.
Sales of services
UPM provides forest expertise and contracting services to woodland and
forestry owners and freight services (free space on group’s vessels sold
as freight services). Revenues from services are recorded over time when
the service has been performed. Sales of services is very limited and thus
the group does not report it separately.
Revenue recognition
The group recognises revenue as an amount equal to the price specified
in the customer contract net of any sales taxes, cash flow hedging results
of sales in foreign currency, hedges of energy sales and variable
consideration, when applicable. Variable consideration is defined as
any variability that may occur between the sales price and the amount
UPM expects to receive. The variable consideration includes mainly cash
discounts and volume rebates that encourage the customer to take
specific volumes in a given timescale. In addition, the group gives the
customers the right for purchase price refund in case the products do not
meet the quality as specified in the agreement. The amount of variable
consideration is recognised as a refund liability when some of the
amount received is expected to be refunded to the customer. Customer
rebates payable to customers in relation to sales made until the end of
the reporting period and expected quality claims are estimated using the
expected value method, and revenue is only recognised to the extent
that it is highly probable that a significant reversal will not occur. A
refund liability is included in trade and other payables.
Receivables are recognised when the goods are delivered, and the
consideration is unconditional except for the passage of time. For most
of UPM’s customer contracts the period between the transfer of goods or
services to customers and the receipt of payment is less than 12 months.
For these contracts the group has elected to use the practical expedient
not to adjust revenue for the effect of financing components.
Advance payments received from customers are recognised as
contract liability. UPM does not have any contract assets arising from
contracts with customers.
» Refer Note 4.6 Working capital for information on contract liabilities and
refund liabilities.
2.3Operating expenses and
other operating income
Operating expenses
Operating expenses excluding forest assets fair value change, wood
harvested and share of results of associates and joint ventures are
presented below.
EURm
2021
2020
Costs and expenses
Raw materials, consumables and goods
5,446
4,551
Employee costs 1)
1,094
1,188
Other operating costs and expenses 2)
670
852
Delivery costs and other external charges
894
781
Total
8,104
7,371
1) » Refer Note 3 Employee rewards, for further information.
2) Distribution of other operating costs and expense
EURm
2021
2020
Rents and lease expenses
25
15
Emission expenses 1)
-106
10
Losses on sale of non-current assets
0
0
Credit losses
-5
9
Maintenance and other operating expenses 2)
756
818
Total
670
852
1)    Emission expenses include gains on sales of emission rights EUR 144 (13)
million.
2)    Other operating expenses include, among others, energy as well as
expenses related to services and group’s administration.
UPM FINANCIAL REPORT 2021
47
Auditor’s fees
EURm
2021
2020
Audit fee
3.4
3.8
Audit related services
0.2
0.1
Tax services
0.4
0.4
Other services
0.2
0.2
Total
4.2
4.5
In 2021, auditor's fees include EUR 0.2 (0.1) million related to audit services,
EUR 0.0 (0.0) million related tax services and EUR 0.2 (0.2) million related to
other services paid to PwC Oy.
Research and development costs
The research and development costs included in operating expenses
were EUR 46 million (41 million) in 2021. The focus was on new
technologies and developing businesses.
Government grants
In 2021, government grants recognised as deduction of operating
expenses totalled to EUR 9 million (7 million) of which EUR 3 million
(4 million) relates to Finland. EUR 4 million is related to COVID relief in
Austria. In addition, the group received emission rights from
governments amounting to EUR 75 million (57 million) of which EUR 22
million (21 million) relates to Finland, EUR 46 million (25 million) to
Germany, EUR 1 million (3 million) to Austria and EUR 5 million
(5 million) to UK.
Other operating income
EURm
2021
2020
Gains on sale of non-current assets
147
25
Rental income
13
13
Emission rights received
75
57
Derivatives, non-qualifying hedges
-22
24
Exchange rate gains and losses
-5
-30
Other
47
26
Total
254
116
In 2021, gains on sale of non-current assets include an EUR 133 millon gain
from the disposal of Shotton Mill LTd. » Refer Note 8.1 Business acquisitions
and disposals for further information. In 2020, gains on sale of non-current
assets include an EUR 12 million gain from the disposal of UPM's 50 % share in
the joint operation Kainuun Voima Oy.
Emission rights
The group has recognised EUR 75 million (57 million) of income in
Other operating income and EUR 106 million of income (10 million of
expense) under Other operating costs and expenses relating to CO2
emissions. The liability to cover the obligation to return emission rights
amounted to EUR 39 million (21 million) and is recognised in provisions.
The emission rights recognised in intangible assets are specified below:
EURm
2021
2020
Carrying value, at 1 January
95
80
Emission rights received and purchased
86
57
Deliveries and disposals
-78
-42
Carrying value, at 31 December
104
95
Accumulated costs
105
96
Accumulated impairments
-1
-1
Carrying value, at 31 December
104
95
Accounting policies
Research and development costs
Research and development costs are expensed as incurred, except for
certain development costs, which are capitalised as they generate future
economic benefits, and UPM can the measure the cost reliably.
Capitalised development costs are amortised on a systematic basis over
their expected useful lives, usually not exceeding five years.
Government grants
Government grants are recognised at fair value where there is a
reasonable assurance that the grant will be received and the group will
comply with the attached conditions. Government grants relating to the
purchase of property, plant and equipment are deducted from the
acquisition cost of the asset and accordingly directly reduce the annual
depreciation of the underlying asset. Other government grants are
recognised in the income statement in the period necessary to match
them with the costs they are intended to compensate.
UPM FINANCIAL REPORT 2021
48
Other operating income
Other operating income mainly includes gains on the disposal of non-
current assets and rental income. Further, other operating income
includes foreign exchange gains and losses in respect of UPM’s normal
business activities. Gains and losses on derivatives not qualifying hedge
accounting are also recognised in other operating income.
Emission rights
The group participates in the European Emissions Trading Scheme
aimed at reducing greenhouse gas emissions. Emission rights received
from governments free of charge to emit a fixed tonnage of carbon
dioxide in a fixed period of time give rise to an intangible asset for the
emission rights, a government grant and a liability for the obligation to
deliver emission rights equal to the emissions that have been made
during the compliance period.
Emission rights are initially recognised as intangible assets based on
market value at the date of initial recognition. Emission rights are not
amortised. If the market price of emissions rights at the balance sheet
date is less than the recognised costs, any surplus emission rights that
are not required to cover actual and estimated emissions during the
financial year, are impaired to the market price.
Government grants are recognised as deferred income in the
balance sheet at the same time as emission rights and are recognised in
other operating income in the income statement, systematically, over the
compliance period to which the corresponding emission rights relate.
The liability to deliver emission rights is recognised based on actual
emissions. The emissions realised are expensed under other operating
costs and expenses in the income statement and presented as a
provision in the balance sheet. The liability is settled using emission
rights on hand, measured at the carrying amount of those emission
rights. Emission rights and associated provisions are derecognised when
disposed. Any profit or loss represents the costs of purchasing additional
rights to cover excess emissions, the sale of unused rights in the case
realised emission are under emission rights received free of charge or
the impairment of unused emission rights.
2.4Earnings per share and dividend
According to UPM dividend policy, the company aims to pay an
attractive dividend amounting to 30-40% of the group annual operating
cash flow per share.
The dividend paid in 2021 were EUR 693 million (EUR 1.30 per
share) which is 69% of the operating cash flow per share and in 2020
EUR 693 million (EUR 1.30 per share). The Board of Directors proposes
to the Annual General Meeting that a dividend of EUR 693 million,
EU1.30 per share, will be paid in respect of 2021. The proposed
dividend represents 55% of UPM’s operating cash flow per share for the
year 2021.
Earnings per share
EURm
2021
2020
Profit attributable to owners of the parent
company, EURm
1,286
560
Weighted average no. of shares (1,000)
533,324
533,324
Basic earnings per share, EUR
2.41
1.05
Diluted earnings per share, EUR
2.41
1.05
Accounting policies
Earnings per share
Earnings per share (EPS) is the amount of profit for the period
attributable to each ordinary share. The basic earnings per share
are computed using the weighted average number of shares outstanding
during the period. Diluted earnings per share are computed using
the weighted average number of shares outstanding during the period
plus the dilutive effect of share options. The group did not have share-
option schemes at the end of 2021 and 2020.
Dividend
Dividend distribution to the owners of the parent company is recognised
as a liability in the group’s consolidated financial statements in the
period in which the dividends are approved by the parent company’s
shareholders.
UPM FINANCIAL REPORT 2021
49
3.Employee rewards
3.1Employee costs
EURm
2021
2020
Salaries and fees
877
979
Share-based payments
13
12
Pension and other post-employment benefits,
defined benefit plans
16
13
Pension costs, defined contribution plans
95
89
Other indirect employee costs 1)
93
94
Total
1,094
1,188
1) Other indirect employee expenses primarily include other statutory social
expenses, excluding pension expenses.
3.2Key management personnel
The remuneration of the members of the Board of Directors was resolved
to be raised so that the Chair of the Board will be paid an annual base
fee of EUR 195,000, the Deputy Chair of the Board EUR 140,000 and
other members of the Board EUR 115,000.
The annual base fee was paid in company shares and cash so that
approximately 40% of the fee was paid in the company shares to be
purchased on the Board members’ behalf, and the rest in cash. The
company paid any costs and transfer tax related to the purchase of the
company shares.
The Chair of Audit Committee received annual committee fee of
EUR 35,000 and Chair of Remuneration Committee as well as Chair of
Nomination and Governance Committee EUR 20,000. The members of
Audit Committee received annual committee fee of EUR 15,000 and
members of other committees EUR 10,000. The annual committee fees
were paid in cash.
In 2021, 2,383 (3,123) company shares were purchased to the
Chair, 1,710 (2,219) to the Deputy Chair and 1,405 (1,808) to other
members of the Board.
Shareholdings (no. of shares) and fees of the Board of Directors
Shareholdings 31 December
Annual base fee (EUR 1,000)
Annual committee fee
(EUR 1,000)
2021
2020
2021
2020
2021
2020
Board members
Björn Wahlroos, Chair
270,700
268,317
195
190
20
20
Berndt Brunow, Deputy Chair
316,462
314,752
140
135
10
10
Henrik Ehrnrooth
12,719
11,314
115
110
20
10
Emma FitzGerald
8,213
6,808
115
110
25
15
Piia-Noora Kauppi
22,604
21,199
115
110
10
35
Marjan Oudeman
8,163
5,363
115
110
15
15
Jari Gustafsson 2)
1,405
115
15
Martin à Porta
20,413
6,008
115
110
10
10
Ari Puheloinen 1)
13,339
110
10
Veli-Matti Reinikkala 1)
46,135
110
20
Kim Wahl
24,518
23,113
115
110
35
15
Total
685,197
716,348
1,140
1,205
160
160
1) Ari Puheloinen and Veli-Matti Reinikkala stepped down from the Board in 2021
2) Jari Gustafsson was elected as new director to the Board in 2021
UPM FINANCIAL REPORT 2021
50
Salaries and benefits paid to the President and CEO and the Group Executive Team
President and CEO Jussi Pesonen
Other members of Group Executive Team1)
EUR 1,000
2021
2020
2021
2020
Salaries
1,093
1,093
3,958
4,132
Short-term incentives
708
888
2,054
1,530
Share rewards
1,902
2,734
5,979
8,231
Benefits
31
31
142
134
Total
3,734
4,747
12,132
14,026
1) 11 members in 2021 and 2020.
In 2021, costs under the Finnish statutory pension scheme for the
President and CEO amounted to EUR 329,000 (349,000) and
payments under the voluntary pension plan amounted to
EUR 1,200,000 (1,421,000).
In 2021, costs under the Finnish and German statutory pension
schemes for Group Executive Team (GET) members (excluding the
President and CEO) amounted to EUR 860,000 (785,000) and
payments under the voluntary pension plan amounted to EUR
1,035,000 (964,000).
The remuneration of the President and CEO and other members of
the Group Executive Team consists of the base salary and benefits,
short-term incentives and long-term share-based incentives.
In 2021 and 2020, the short-term incentives are based on the
company's Short-Term Incentive Plan and they are paid annually in
cash. The amount of the incentive is linked to the executive's position
and achievement of annually set targets. The maximum incentives
amount to a total of 100% of the annual base salary to the Business
Area Executives and to a total of 70% of annual base salary to the other
members of the Group Executive Team. For the President and CEO, the
maximum annual incentive amounts to 150% of the annual base salary.
The expenses recognised in income statement in respect of share-
based payments for the Group Executive Team were EUR 3.8 million
(3.4 million).
According to the service agreement, the President and CEO would
have been entitled to retire in November 2020 at the age of 60 but at
the request of the company's Board of Directors, the President and CEO
has decided to continue in his position.
The President and CEO has a voluntary pension benefit in addition
to the Finnish statutory pension scheme. The President and CEO's
voluntary pension benefit was arranged through a defined benefit plan
until the end of November 2020. The last contribution to the defined
benefit plan was made in 2020. Under the defined benefit plan, the
target pension was 60% of the average indexed earnings from the last
ten full calendar years of employment calculated according to the
Finnish statutory pension scheme. The income of the President and
CEO’s defined benefit pension plan in 2021 was EUR 1.3 million (1.6
million in 2020). The plan assets amounted to EUR 15.0 million (17.3
million) and the obligation amounted to EUR 12.8 million (14.9 million).
As of December 2020, the voluntary pension benefit is arranged
through a defined contribution plan. First contribution to the defined
contribution plan took place in 2021.
The retirement age of other members of the Group Executive Team is
63. Other Group Executive Team members are under defined
contribution plans.
Should the company or the President and CEO give notice of
termination of the service agreement, no severance pay will be paid in
addition to the salary for the 12-month notice period. For GET members,
the period for severance pay is 12 months, in addition to the six
months’ salary for the notice period, unless notice is given for reasons
that are solely attributable to the executive. Should a GET member give
notice of termination to the company, no severance pay will be paid in
addition to the salary for the notice period.
If there is a change of control in the company, the President and
CEO may terminate his service agreement within three months and each
GET member within one month from closing the takeover and shall
receive compensation equivalent to 24 months' base salary.
3.3Share-based payments
UPM offers rewards and recognition with an emphasis on high
performance. All UPM’s employees belong to a unified annual Short
Term Incentive (STI) scheme. In addition, UPM has two long-term
incentive schemes: the Performance Share Plan (PSP) for senior
executives and the Deferred Bonus Plan (DBP) for other key employees.
Performance Share Plan
The Performance Share Plan (PSP) is targeted at the President and CEO
and other Group Executive Team (GET) members as well as other
selected members of the management. Under the ongoing plans UPM
shares are awarded based on total shareholder return during a three-
year earning period. The earned shares are delivered after the earning
period has ended. Total shareholder return takes into account share
price appreciation and paid dividends.
UPM FINANCIAL REPORT 2021
51
PERFORMANCE SHARE PLANS
PSP 2018-2020
PSP 2019-2021
PSP 2020-2022
PSP 2021-2023
No. of participants at 31 December 2021
25
26
28
27
Actual achievement
71.45%
97.31%
Max no. of shares to be delivered 1)
to the President and CEO
60,089
91,541
85,589
83,272
to other members of GET
188,914
285,463
272,500
275,700
to other selected members of management
112,892
180,901
212,700
192,600
Total max no. of shares to be delivered
361,895
557,905
570,789
551,572
Share delivery (year)
2021
2022
2023
2024
Earning criteria (weighting)
Total shareholder
return (100%)
Total shareholder
return (100%)
Total shareholder
return (100%)
Total shareholder
return (100%)
1) For PSP 20182020 and PSP 20192021, the gross number of shares actually earned.
Deferred Bonus Plan
The Deferred Bonus Plan (DBP) is targeted at other selected key
employees and it consists of annually commencing plans. Each plan
consists of a one-year earning period and a two-year restriction period.
UPM shares are awarded based on achievement of group or group and
business area EBITDA targets. Prior to share delivery, the share rewards
earned are adjusted with dividends and other capital distributions, if
any, paid to all shareholders during the restriction period.
DEFERRED BONUS PLANS
DBP 2018
DBP 2019
DBP 2020
DBP 2021
No. of participants (at grant)
370
390
393
428
No. of participants (at 31 December 2021)
316
334
366
410
Max no. of shares to be delivered (at grant)
450,000
460,000
429,558
459,912
Estimated no. of shares to be delivered at 31 December 2021 1)
300,478
180,334
149,067
366,698
Share delivery (year)
2021
2022
2023
2024
Earning criteria
Group/Business Area
EBITDA
Group/Business Area
EBITDA
Group/Business Area
EBITDA
Group/Business Area
EBITDA
1) For DBP 2018 and DBP 2019, the gross number of shares actually earned
The indicated actuals and estimates of the share rewards under the
Performance Share Plan and the Deferred Bonus Plan represent the
gross amount of the rewards of which the applicable taxes will be
deducted before the shares are delivered to the participants.
Accounting policies
The group’s long-term share incentive plans are recognised as equity-
settled or cash-settled share-based payment transactions depending on
the settlement. The group classifies the transactions with net settlement
features for tax obligations as equity-settled in its entirety. Shares are
valued using the market rate on the grant date. The settlement is a
combination of shares and cash. The group may obtain the necessary
shares by using its treasury shares or may purchase shares from the
market. PSP and DBP share deliveries are executed by using already
existing shares and the plans, therefore, have no dilutive effect.
UPM FINANCIAL REPORT 2021
52
3.4Retirement benefit obligations
The group operates various pension schemes in accordance with local
conditions and practices in the countries of operations. Retirement
benefits are employee benefits that are payable usually after the
termination of employment, such as pensions and post-employment
medical care.
The pension plans are generally funded through payments to
insurance companies or to trustee-administered funds or foundations and
classified as defined contribution plans or defined benefit plans.
Defined benefit assets and liabilities recognised in the balance sheet
are presented below:
2021
2020
EURm
FINLAND
UK
GERMANY
OTHER
COUN-
TRIES
TOTAL
FINLAND
UK
GERMANY
OTHER
COUN-
TRIES
TOTAL
Present value of funded obligations
577
542
39
15
1,174
581
539
43
16
1,180
Fair value of plan assets
-632
-565
-2
-15
-1,214
-606
-515
-3
-16
-1,140
Deficit (+)/surplus (–)
-55
-23
36
-40
-25
24
40
39
Present value of unfunded
obligations
548
68
616
606
74
679
Net defined benefit liability (+)/
asset (–)
-55
-23
585
68
576
-25
24
646
74
719
Net retirement benefit asset in the
balance sheet
-56
-23
-79
-26
-26
Net retirement benefit liability in the
balance sheet 1)
2
585
68
655
1
24
646
74
745
1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 21 million (25 million) in 2021.
About 95% of the group’s defined benefit arrangements exist in Finland,
in the UK and in Germany. The group has defined benefit obligations
also in Austria, Holland, France, Canada and in the US. Approximately
a quarter of UPM’s employees are active members of defined benefit
arrangement plans.
Finland
In Finland employers are obliged to insure their employees for statutory
benefits, as determined in Employee’s Pension Act (TyEL). TyEL provides
the employee with insurance protection for old age, disability and
death. The benefits can be insured with an insurance company or the
employer can establish a fund or a foundation to manage the statutory
benefits.
Approximately 79% (81%) of group´s Finnish employees are insured
with an insurance company and these arrangements qualify as defined
contribution plans. Approximately 21% (19%) of employees are insured
with TyEL foundation (UPM Sellutehtaiden eläkesäätiö). The TyEL
foundation is administered by the representatives of both the employer
and the employees. The foundation has named an authorised
representative to take care of its regular operations. The plan is
supervised by Financial Supervisory Authority. The foundation is
classified as a defined benefit plan for the benefits that must be funded
nationally and is the most significant defined benefit pension plan in
Finland for UPM.
UK
In the UK, the group operates a legacy defined benefit scheme
providing benefits that are linked to the salary level near retirement age
or an earlier date of leaving service. The scheme is closed both for new
members and future accrual for old members. Part of the scheme is a
defined contribution plan and is open to all current employees. The UK
pension scheme operates under a single trust which is independent from
the group.
Germany
In Germany employees within defined benefit arrangements are entitled
to annual pensions on retirement based on their service and final salary.
All significant defined benefit plans are closed for new employees.
UPM FINANCIAL REPORT 2021
53
Present value of obligation and fair value of plan assets
Pension and other
post-employment benefits 2021
Pension and other
post-employment benefits 2020
EURm
PRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
NET DEFINED
BENEFIT
LIABILITY/
(ASSET)
PRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
NET DEFINED
BENEFIT
LIABILITY/
(ASSET)
Carrying value, at 1 January
1,859
-1,140
719
1,784
-1,092
691
Current service cost
15
15
14
14
Past service cost
-2
-2
-2
-2
Gains and losses arising from settlements
-6
-6
Interest expense (+) income (–)
12
-9
3
20
-14
7
Total included in employee costs (Note 3.1)
25
-9
16
27
-14
13
Actuarial gains and losses arising from changes in
demographic assumptions
-12
-12
-3
-3
Actuarial gains and losses arising from changes in
financial assumptions
-58
-58
163
163
Actuarial gains and losses arising from experience
adjustments
4
4
-21
-21
Return on plan assets, excluding amounts included in
interest expense (+) income (–)
-62
-62
-90
-90
Total remeasurement gains (–) and losses (+)
included in other comprehensive income
-66
-62
-128
140
-90
50
Benefits paid
-64
64
-63
63
Settlements paid
-4
3
-1
Contributions by the employer
-33
-33
-33
-33
Translation differences
39
-36
3
-28
26
-2
Carrying value, at 31 December
1,790
-1,214
576
1,859
-1,140
719
Actuarial risks
Defined benefit plans typically expose the group to the following
actuarial risks:
Investment risk (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 99% of total asset
values in defined benefit plans within group.
Interest risk
Discount rates used in calculations are based on high-quality corporate
bond yield curves in currency in which the benefits are paid. A decrease
in the discount rate would increase the plan liabilities. The maturities of
yields are reflecting the durations of the underlying obligations. The
weighted average duration of group’s defined benefit obligation is 18
years (17 years) at the end of 2021.
Inflation risk
In the Finnish plan, the inflation risk is not significant as changes in the
inflation assumption are mainly covered by the TyEL 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 39 million.
In Germany the pensions have to be adjusted in accordance with the
Consumer Price Index.
Salary risk
The present value of the net retirement benefit assets and liabilities is
calculated by reference to the expected future salaries of plan
participants. An increase in the salary of the plan participants would
increase the plan liabilities. In Finland, the salary risk is minor as well as
in the UK, where the changes in salary levels have no impact on the
funding position as all defined benefit arrangements in the UK are
closed to future accrual. In Germany, an increase of 0.5% in expected
future salaries would increase the obligation by EUR 11 million.
Life expectancy
Adjustments in mortality assumption have an impact on group’s defined
benefit obligation. An increase in life expectancy by one year will
increase the obligation in Finland by EUR 25 million, in the UK by EUR 
26 million and in Germany by EUR 26 million.
UPM FINANCIAL REPORT 2021
54
Key estimates and judgements
Several actuarial assumptions are used in calculating the expense
and liability related to the defined benefit plans. Statistical information
used may differ materially from actual results due to, among others,
changing market and economic conditions, or changes in service period
of plan participants. Significant differences in actual experience or
significant changes in assumptions may affect the future amounts of the
defined benefit obligation and future expense.
Actuarial assumptions
The weighted average principal assumptions used in the valuations of the defined benefit obligations are detailed below:
FINLAND
UK
GERMANY
OTHER COUNTRIES
2021
2020
2021
2020
2021
2020
2021
2020
Discount rate %
0.80
0.33
1.90
1.35
0.82
0.37
1.11
0.67
Inflation rate %
2.03
1.33
3.40
2.95
1.70
1.70
2.00
1.83
Rate of salary increase %
2.01
1.33
2.50
2.50
2.58
2.54
Rate of pension increase %
1.02
0.62
3.25
2.90
1.70
1.70
1.13
0.87
Expected average remaining working years of
participants
15.3
14.1
10.1
11.6
8.2
8.1
8.9
8.6
EURm
0.5% INCREASE
0.5% DECREASE
2021
2020
2021
2020
Discount rate %
-145
-156
162
173
Rate of salary increase %
13
15
-12
-13
Rate of pension increase %
81
92
-80
-88
Life expectancy +1 year
78
86
A negative change indicates a decrease in the defined benefit obligation.
A positive change indicates an increase in the defined benefit obligation.
Plan assets by categories at 31 December
EURm
2021
2020
Quoted
Unquoted
Quoted
Unquoted
Money market
478
138
177
97
Debt instruments
253
225
107
Equity instruments
92
56
295
39
Property
123
21
94
Assets held by insurance
companies
52
62
Other assets
23
24
Total
570
644
718
423
In 2021 plan assets include the company's ordinary shares with a fair value of
EUR 0 million (2 million).
In 2022 contributions of EUR 32 million are expected to be paid to
group’s defined benefit plans. In 2021 contributions of EUR 33 million
were paid to group’s defined benefit plans.
Sensitivity analysis of defined benefit obligations
The sensitivity analysis shows the effect of the change in assumption.
The analysis assume that all other assumptions remain unchanged.
The projected unit credit method has been applied when calculating
the obligation as well as these sensitivities.
UPM FINANCIAL REPORT 2021
55
Accounting policies
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.
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
sustainable returns.
Capital employed
2021
2020
Property, plant and equipment
5,569
4,316
Leased assets
608
561
Forest assets
2,328
2,077
Energy shareholdings
2,579
1,936
Goodwill and other intangible assets
603
592
Operating working capital
1,204
1,247
Provisions
-155
-222
Net retirement benefit assets and liabilities
-597
-744
Cash and cash equivalents
1,460
1,720
Other assets and liabilities
290
215
Net deferred tax assets and liabilities
-130
-143
Total
13,759
11,555
UPM FINANCIAL REPORT 2021
56
4.1Property, plant and equipment
EURm
LAND AND
WATER
AREAS
BUILDINGS
MACHINERY
AND
EQUIPMENT
OTHER
TANGIBLE
ASSETS
CONSTRUC-
TION IN
PROGRESS
TOTAL
2021
Accumulated costs
859
3,452
13,136
834
2,069
20,349
Accumulated depreciation and impairments
-2
-2,604
-11,462
-712
-14,780
Carrying value, at 31 December
857
848
1,674
122
2,069
5,569
Carrying value, at 1 January
757
846
1,864
125
724
4,316
Additions
58
2
5
2
1,448
1,515
Disposals
-3
-3
-4
-1
-12
Depreciation
-71
-280
-17
-368
Impairment
-12
-38
-1
-52
Reclassifications
60
80
9
-150
-2
Reclassifications to assets held for sale
-3
-11
-13
Translation differences
44
29
58
6
47
185
Carrying value, at 31 December
857
848
1,674
122
2,069
5,569
2020
Accumulated costs
797
3,423
13,182
839
724
18,965
Accumulated depreciation and impairments
-39
-2,577
-11,318
-714
-14,649
Carrying value, at 31 December
757
846
1,864
125
724
4,316
Carrying value, at 1 January
761
948
2,006
134
235
4,083
Additions
48
4
1
776
829
Disposals
-1
-5
-7
Depreciation
-73
-292
-18
-383
Impairment
-8
-27
-34
-1
-70
Reclassifications
30
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 CO2-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).
UPM FINANCIAL REPORT 2021
57
Major capital commitments at 31 December
EURm
2021
2020
New biorefinery / Germany
315
471
CHP power plant / Germany
32
67
New pulp mill / Uruguay
1,406
2,139
Renovation and modernisation / Kuusankoski
hydro power plant
10
16
Mill development / Plywood Joensuu
8
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.
Accounting policies
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.
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.
ASSESSED USEFUL LIVES
NUMBER OF YEARS
Land, not subject to depreciation
-
Buildings
20-50
Power plants
20-30
Heavy machinery
15-20
Light machinery
10-15
Equipment
5
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.
UPM FINANCIAL REPORT 2021
58
4.2Forest 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.
1,000 ha
FOREST
LAND
PRO-
DUCTIVE
FOREST
LAND
FORESTED
LAND
Finland
515
426
420
Uruguay
305
182
173
Uruguay, leased land
161
130
124
United States
76
55
55
Total
1,057
793
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
EURm
2021
2020
Carrying value, at 1 January
2,077
2,097
Additions
104
53
Disposals
-6
Wood harvested
-98
-129
Net change in fair value
206
100
Translation differences
44
-45
Carrying value, at 31 December
2,328
2,077
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.
Key estimates and judgements
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).
4.3Energy 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.
UPM FINANCIAL REPORT 2021
59
Energy shareholdings
Number of shares
Group holding %
Carrying value, EURm
2021
2020
Pohjolan Voima Oyj, A series
8,176,191
61.24
473
362
Pohjolan Voima Oyj, B series
4,140,132
58.11
1,219
990
Pohjolan Voima Oyj, B2 series
2,869,819
51.22
424
191
Kemijoki Oy
179,189
7.33
327
273
Länsi-Suomen Voima Oy
10,220
51.10
131
114
Other
6
6
Carrying value, at 31 December
2,579
1,936
PVO’s share capital is divided into different series of shares. The B
and B2 series relate to PVO’s shareholdings in Teollisuuden Voima Oyj
(TVO). UPM has no direct shareholdings in TVO. TVO operates two
nuclear power plants (Olkiluoto 1 and Olkiluoto 2) and is constructing
one new nuclear power plant in Olkiluoto (Olkiluoto 3), Finland. The
operation of a nuclear power plant is governed by international,
European Union and local nuclear regulatory regimes. Pursuant to the
Finnish Nuclear Liability Act, the operator of a nuclear facility has a
strict third-party liability in relation to nuclear accidents. Shareholders of
power companies that own and operate nuclear power plants are not
subject to the 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 as well as
nuclear power plant decommissioning are provided for by a state
established fund (the Finnish State Nuclear Waste Management Fund).
The contributions to the Fund are intended to be sufficient to cover
estimated future costs. These contributions have been taken into
consideration in the fair value of the related energy shareholdings.
Changes in energy shareholdings
EURm
2021
2020
Carrying value, at 1 January
1,936
2,145
Disposals
-1
-2
Changes in fair value recognised in other
comprehensive income
643
-207
Carrying value, at 31 December
2,579
1,936
Accounting policies
The group has made an irrevocable election to designate its energy
shareholdings as equity instruments where changes in fair value are
recognised through OCI. The shareholdings are not held for trading as
the group has an intention to hold the investments for the long term.
Purchases of energy shareholdings are initially and subsequently
measured at fair value through other comprehensive income, net of tax if
applicable, with only dividend income recognised through profit and
loss. Initial fair value is acquisition cost including transaction costs. Upon
disposal of the investment, the accumulated fair value changes in equity
are not recycled to the income statement but instead, are reclassified
from the fair value reserve to retained earnings.
The fair value of energy shareholdings is a level 3 measure in the fair
value measurement hierarchy.
Key estimates and judgements
Fair valuation and sensitivity
Valuation of energy shareholdings requires management’s assumptions
and estimates of a number of factors that may differ from the actual
outcome which could lead to significant adjustment to the carrying
amount of the asset. Fair value is determined on a discounted cash flow
basis and the main factors impacting the future cash flows include future
electricity prices, price trends and discount rates.
The electricity price estimate is based on a simulation of the Finnish
area electricity price. A change of 5% in the electricity price used in the
model would change the total value of the assets by EUR 370 million.
The discount rate of 5.08% used in the valuation model is determined
using the weighted average cost of capital method. A change of 0.5%
percentage points in the discount rate would change the estimated fair
value of the assets by approximately EUR 330 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 EPR nuclear
power plant project. UPM’s indirect share of the capacity of Olkiluoto 3
EPR is approximately 31%, through its PVO B2 shares. Changes in
regulatory environment or taxation could also have an impact on the
value of the energy generating assets.
UPM FINANCIAL REPORT 2021
60
4.4Goodwill and other intangible assets
The group’s goodwill mainly relates to pulp operations in Finland and
Uruguay belonging to UPM Biorefining business area.
Goodwill by business area
EURm
2021
2020
Pulp operations Uruguay
102
94
Pulp operations Finland
113
113
UPM Raflatac
7
7
UPM Plywood
13
13
Other operations
1
1
Total
237
229
Goodwill
EURm
2021
2020
Carrying value, at 1 January
229
238
Translation differences
8
-9
Carrying value, at 31 December
237
229
Other intangible assets
EURm
INTANGIBLE RIGHTS
SOFTWARE AND
OTHER INTANGIBLE
ASSETS
TOTAL
2021
Accumulated costs
477
541
1,018
Accumulated amortisation and impairments
-279
-477
-756
Carrying value, at 31 December
198
64
262
Carrying value, at 1 January
199
69
267
Additions
3
13
15
Amortisation
-3
-18
-21
Reclassifications
1
1
Carrying value, at 31 December
198
64
262
Emission rights, carrying value 1)
104
Carrying value including emission rights, at 31 December
366
2020
Accumulated costs
471
665
1,136
Accumulated amortisation and impairments
-272
-596
-868
Carrying value, at 31 December
199
69
267
Carrying value, at 1 January
199
47
246
Additions
3
34
37
Amortisation
-4
-12
-16
Reclassifications
1
1
Carrying value, at 31 December
199
69
267
Emission rights, carrying value 1)
95
Carrying value including emission rights, at 31 December
363
1) » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.
UPM FINANCIAL REPORT 2021
61
Impairment testing
Impairment tests for goodwill and water rights with indefinite life were
carried out in the fourth quarter 2021.
Water rights of hydropower plants belonging to UPM Energy and
reported in intangible rights amounted EUR 189 million at the end of
2021 and 2020. The values of water rights were tested based on
expected future cash flows of each separate hydro power plant.
Goodwill impairment tests were carried out for pulp operations in
Finland and Uruguay, belonging to UPM Biorefining business area,
UPM Raflatac business area and UPM Plywood business area.
The 2021 impairment tests did not result in a recognition of any
impairment.
The basis for valuation and key assumptions used in goodwill impairment testing are summarised in below table:
CASH GENERATING UNIT
BASIS OF
VALUATION
PERIOD OF FORECAST
PRE-TAX DISCOUNT RATE
KEY ASSUMPTIONS
Pulp operations Finland
Value in use
10 years + terminal value
9.41 % (2020: 7.84 %)
Pulp price, wood costs
Pulp operations Uruguay
Value in use
10 years + terminal value
7.50 % (2020: 7.84 %)
Pulp price, wood costs
UPM Raflatac
Value in use
10 years + terminal value
8.22 % (2020: 7.60 %)
Product prices, cost development
UPM Plywood
Value in use
10 years + terminal value
13.01 % (2020: 13.04 %)
Product prices, cost development
Sensitivity analyses
The sensitivity analyses of goodwill impairment tests indicate that no
reasonable change in key assumptions would result in recognition of
impairment loss against goodwill. In pulp operations the recoverable
amount is most sensitive to pulp sales prices and the cost of wood raw
material.
Key estimates and judgements
The group’s assessment of the carrying value of goodwill and indefinite
life assets requires significant judgement.
While management believes that estimates of future cash flows are
reasonable, different assumptions are subject to change as a result of
changing economic and operational conditions. Actual cash flows could
therefore vary from estimated discounted future cash flows and could
result in changes in the recognition of impairment charges in future
periods.
Future cash flows
The review of recoverable amount for goodwill and indefinite life assets
is based on a calculation of value in use, using management projections
of future cash flows. The most important assessments and assumptions
needed in calculations are forecasts for future growth rates for the
business in question, product prices, cost development and the discount
rates applied. The group is using ten-year forecasts in calculations as
the nature of the group’s business is long-term, due to its capital
intensity, 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. In addition, consideration 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 the projection of cash flows UPM uses EBITDA
adjusted with cash flows not captured within EBITDA, including working
capital movements and capital expenditures.
Discount rate
The discount rate is estimated using the weighted average cost of
capital (WACC) on the calculation date adjusted for risks specific to the
business in question. The adjusted after-tax discount rate is translated to
a pre-tax rate for each cash generating unit (CGU) based on the
specific tax rate applicable to where the CGU operates.
Accounting policies
Goodwill
Goodwill arises in connection with business combinations where the
consideration transferred exceeds the fair value of the acquired net
assets. Goodwill is recognised at cost less accumulated impairment and
is an intangible asset with an indefinite useful life. Goodwill is allocated
to the cash generating units that are expected to benefit from the
synergies from the business combination.
Intangible rights
Intangible rights include water rights of hydropower plants, patents,
licences, intellectual property and similar rights. Water rights are
deemed to have an indefinite useful life as the company has a
contractual right to exploit water resources in the energy production
of power plants.
The values of water rights are tested annually for impairment based
on expected future cash flows of each separate hydropower plant.
Other intangible rights are recognised at cost less accumulated
amortisation and impairment. Amortisation is calculated using the
straight-line method over their estimated useful lives ranging from 5 to
10 years.
Software and other intangible assets
Research expenditure is recognised as an expense as incurred.
Costs incurred in acquiring software that will contribute to future
period financial benefit are capitalised to software and systems. Other
intangible assets are recognised at cost less accumulated amortisation
and impairment. Amortisation is calculated using the straight-line
method over their estimated useful lives ranging from 3 to 5 years.
UPM FINANCIAL REPORT 2021
62
Impairment testing
Goodwill and other intangible assets that are deemed to have an
indefinite life are tested at least annually for impairment. For goodwill
impairment testing purposes the group identifies its cash-generating units
(CGUs), which is the smallest identifiable group of assets that generate
cash inflows largely independent of the cash inflows of other assets or
other groups of assets. Each CGU is no larger than a business area. The
carrying amount for the CGU includes goodwill, non-current assets and
working capital. If the balance sheet carrying amount of the CGU unit
exceeds its recoverable amount, an impairment loss is recognised.
Impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to other assets of the unit. An
impairment loss recognised for goodwill is not reversed in a subsequent
period.
Other intangible assets with indefinite useful lives are impaired if the
recoverable amount of the asset is less than the carrying amount. The
carrying amount of the asset is then reduced to the recoverable amount
which is the higher of the asset’s net selling price and its value in use.
4.5Provisions
EURm
RESTRUCTURING
TERMINATION
ENVIRON-
MENTAL
EMISSIONS
OTHER
TOTAL
2021
Provisions at 1 January
52
91
29
21
28
222
Provisions made during the year
5
6
2
41
11
64
Provisions utilised during the year
-22
-53
-1
-21
-10
-107
Unused provisions reversed
-11
-8
-1
-2
-2
-25
Provisions at 31 December
24
36
30
39
26
155
Non-current
68
Current
88
Total
155
2020
Provisions at 1 January
30
36
20
18
41
144
Provisions made during the year
43
96
7
23
3
173
Provisions utilised during the year
-11
-33
-1
-19
-9
-73
Unused provisions reversed
-6
-7
-1
-7
-21
Reclassifications
-4
4
Provisions at 31 December
52
91
29
21
28
222
Non-current
100
Current
122
Total
222
UPM has undergone several restructuring in recent years including mill
closures and profit improvement programs. Restructuring provisions
recognised include various restructuring activities including dismantling
costs. Termination provisions include severance payments,
unemployment compensations or other arrangements for employees
leaving the company. In Finland termination provisions include also
unemployment arrangements and disability pensions. Unemployment
provisions in Finland are recognised 2–3 years before the granting and
settlement of the compensation.
At 31 December 2021 and 2020, restructuring and termination
provisions relate mainly to capacity closures and optimisation of
operations in UPM Communication Papers business area. In 2021,
there were no significant additions to restructuring and termination
provisions. In 2020, additions to restructuring and termination
provisions of EUR 106 million related to closure of UPM Chapelle paper
mill and UPM Kaipola paper mill. In addition, termination provision
made in 2020 related to restructuring of business functions of UPM
Communication Papers and UPM Raflatac amounting to EUR 14 million.
In UPM Plywood business Jyväskylä plywood mill was closed in 2020
and EUR 12 million restructuring and termination provision recognised.
The group recognises provisions for normal environmental
remediation costs expected to be incurred in a future period upon a
removal of non-current assets and restoring industrial landfills where a
legal or constructive obligation exists.
Other provisions are mainly attributable to onerous contracts and
will be incurred over a period longer than one year.
Provisions for emissions include liability to cover the obligation to
return emission rights. The group possesses emission rights amounting to
EUR 104 million (95 million) as intangible assets.
» Refer Note 2.3 Operating expenses and other operating income, for
further information on emission rights.
UPM FINANCIAL REPORT 2021
63
Accounting policies
A provision is recognised when a present legal or constructive
obligation exists as a result of a past event and it is probable that an
outflow of resources will be required to settle the obligation and the
amount can be reliably estimated. Provisions are split between amounts
expected to be settled within 12 months of the balance sheet date
(current) and amounts expected to be settled later (non-current).
Restructuring and termination provisions
A restructuring provisions is recognised when a detailed plan for the
implementation of the measures is complete and when the plan has
been communicated to those who are affected. Employee termination
provisions are recognised when the group has communicated the plan
to the employees.
Environmental provisions
Environmental expenditures that relate to an existing condition
caused by past operations that do not contribute to future earnings are
expensed. The recognition of environmental provisions is based on
current interpretations of environmental laws and regulations. Such
provisions are recognised when the group has an obligation to
dismantle and remove a facility or an item of plant and to restore the
site on which it is located. The amount recognised is the present value of
the estimated future expenditure determined in accordance with
local conditions and requirements. A corresponding item of property,
plant and equipment of an amount equivalent to the provision is also
recognised and subsequently depreciated as part of the asset.
Provisions do not include any third-party recoveries.
Emission provisions
Emission obligations are recognised in provisions based on realised
emissions. The provision is measured at the carrying amounts of the
corresponding emission rights held, which are recognised as intangible
assets. In case of deficit in emission rights, the shortage is valued at
the market value at the balance sheet date.
Key estimates and judgements
Environmental provisions
The estimates used in determining the provisions are based on the
expenses incurred for similar activities in the current reporting period
taking into account the effect of inflation, cost-base development and
discounting. Because actual outflows can differ from estimates due to
changes in laws, regulations, public expectations, technology, prices
and conditions, and can take place many years in the future, the
carrying amounts of provisions are regularly reviewed and adjusted
to take into account of any such changes. The discount rate applied
is reviewed annually.
The group aims to operate in compliance with regulations related to
the treatment of waste water, air emissions and landfill sites. However,
expected events during production processes and waste treatment could
cause material losses and additional costs in the group’s operations.
Legal contingencies
Management judgement is required in measurement and recognition of
provisions related to pending litigation. Provisions are recorded when
the group has a present legal or constructive obligation as a result of
past event, an unfavourable outcome is probable and the amount of loss
can be reasonably estimated. Due to inherent uncertain nature of
litigation, the actual losses may differ significantly from the originally
estimated provision.
» Refer Note 9.2 Litigation for details of legal contingencies.
4.6Working capital
The group defines operating working capital as inventories, trade
receivables, trade payables and advances received which are
presented separately below. The performance obligations related to
advances received are typically fulfilled within 12 months of receipt
of the advance. UPM is focusing on working capital efficiency and
targeting a sustainable and permanent reduction in operating working
capital.
Operating working capital
EURm
2021
2020
Inventories
1,594
1,285
Trade receivables
1,320
1,098
Trade payables
-1,697
-1,128
Advances received
-14
-8
Total
1,204
1,247
Inventories
EURm
2021
2020
Raw materials and consumables
794
647
Work in progress
6
6
Finished products and goods
769
616
Advance payments
25
16
Total
1,594
1,285
Trade and other receivables
EURm
2021
2020
Trade receivables
Trade receivables
1,345
1,129
Loss allowance provision
-25
-31
Total trade receivables
1,320
1,098
Prepayments and accrued income
Personnel expenses
5
9
Energy and other excise taxes
20
48
Other items
175
130
Total prepayments and accrued income
200
186
Other receivables
VAT and other indirect taxes receivable
166
135
Other receivables
339
115
Total other receivables
504
250
Total
2,024
1,534
UPM FINANCIAL REPORT 2021
64
Trade receivables ageing
2021
2020
EURm
TRADE
RECEIVABLES
LOSS
ALLOWANCE
PROVISION
TRADE
RECEIVABLES,
NET OF
PROVISION
TRADE
RECEIVABLES
LOSS
ALLOWANCE
PROVISION
TRADE
RECEIVABLES,
NET OF
PROVISION
Undue
1,005
-5
1,000
1,030
-4
1,025
Past due up to 30 days
314
-1
313
59
-1
58
Past due 31-90 days
6
-1
5
14
-3
11
Past due over 90 days
20
-19
2
26
-22
4
Total
1,345
-25
1,320
1,129
-31
1,098
Trade and other payables
EURm
2021
2020
Accrued expenses and deferred income
Personnel expenses
191
180
Interest expenses
9
6
Indirect taxes
13
11
Customer rebates
119
92
Customer claims
6
5
Other items
111
59
Total accrued expenses and deferred income
449
354
Advances received
14
8
Trade payables
1,697
1,128
Other current liabilities
94
82
Total
2,254
1,571
Operational credit risk
Operational credit risk is defined as the risk where UPM is not able to
collect the payments for its receivables. The group has a credit policy in
place and the exposure to credit risk is monitored on an ongoing basis.
Outstanding trade receivables, days of sales outstanding (DSO) and
overdue trade receivables are followed on monthly basis. Potential
concentrations of credit risk with respect to trade and other receivables
are limited due to the large number and the geographic dispersion of
customers. Customer credit limits are established and monitored, and
ongoing evaluations of their financial condition is performed. The group
has trade credit insurances to protect accounts receivables from
significant credit losses. In certain market areas, including Asia and
Northern Africa, measures to reduce credit risks include letters of credit,
prepayments and bank guarantees. Maximum exposure to credit risk,
without taking into account any credit enhancements, is the carrying
amount of trade and other receivables.
UPM does not have significant concentration of customer credit risk.
The ten largest customers accounted for approximately 15% (15%) of
the trade receivables as at 31 December 2021 – i.e., approximately
EUR 200 million (170 million).
In 2021, trade receivables amounting to EUR 5 million (10 million)
were subject to permanent write-off and the loss was recognised under
other costs and expenses. In accordance with the group’s accounting
policy, trade receivables are permanently written off when there is no
reasonable expectation of recovery.
Accounting policies
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
is determined by the method most appropriate to the particular nature of
inventory, the first-in, first-out (FIFO) or weighted average cost. The cost
of finished goods and work in progress comprises raw materials, direct
labour, other direct costs and related production overheads (based on
normal operating capacity) but excludes borrowing costs. Net realisable
value is the estimated selling price in the ordinary course of business,
less the costs of completion and selling expenses. If the net realisable
value is lower than cost, a valuation allowance is established for
inventory obsolescence.
Trade receivables
Trade receivables arising from selling goods and services in the normal
course of business are recognised initially at transaction price and
subsequently at amortised cost less loss allowance provision. No
element of financing is deemed present as the sales are made with a
credit term of 14–60 days, which is consistent with market practice.
The group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance for
all trade receivables. The group has recognised two types of provisions
for trade receivables – a general provision for lifetime expected credit
losses and a provision for specified individual trade receivables, both of
which are charged to the income statement. The group uses a provision
matrix for estimating lifetime expected credit losses where trade
receivables are segregated by businesses. The provision matrix is based
on historical observed default rates, adjusted by forward looking
information. It takes into account trade credit insurances, payment
profile of customers and the factor that as debts get older they are more
likely not to be paid. Additionally, the group recognises a provision
individually for outstanding trade receivables where specific debtor
information is available. In these cases there must be objective evidence
that the group will not be able to collect all amounts due according to
the original terms of the receivables.
Trade receivables are permanently written off when there is no
reasonable expectation of recovery. The customer entering into
bankruptcy or liquidation proceedings or finalising such proceedings, or
entering into debt-restructuring are considered indicators that the trade
receivables are no longer expected to be recovered. Subsequent
recoveries of amounts previously written off are credited to the income
statement. The carrying amount of trade receivables approximates to
their fair value due to the short-term nature of the receivables.
UPM FINANCIAL REPORT 2021
65
Trade and other payables
Trade payables arise from purchase of inventories, fixed assets and
goods and services in the ordinary course of business from UPM’s
suppliers. Trade and other payables are classified as current liabilities if
they are due to be settled within the normal operating cycle of the
business or within 12 months from the balance sheet date. Trade
payables are recognised initially at fair value and subsequently at
amortised cost using the effective interest method. The carrying amount
of trade payables approximates to their fair value due to the short-term
nature of the payables.
The group is recognising refund liability for expected volume and
other discounts arising from contracts with customers. Customer rebates
include mainly volume discounts and are recognised as equal to an
amount which is most likely to be paid to the customer. The carrying
amount of expected customer rebates is updated at each reporting date,
using the latest forecast data available.
Customer claims relating to quality complaints are accounted for as
revenue related refund liability. Expected customer claims are estimated
based on historical data and the amount of refund liability is updated at
each reporting date. Customer claims and customer rebates are
typically expected to realise within the next 12 months.
Advances received are recognised as contract liability until the
performance obligation is fulfilled.
5.Capital structure
UPM has a strong cash flow and industry-leading balance sheet that mitigates risks and enables value-enhancing strategic actions.
EUR
647
m
EUR
-74
m
(EUR 56m)
(EUR 126m)
Net debt
Free cash flow
5.1Capital management
UPM’s objective for managing capital comprising of net debt and total
equity is to ensure maintenance of flexible capital structure to enable the
ability to operate in capital markets and maintain optimal returns to
shareholders. The group manages its financing activities, debt portfolio
and financial resources via various policies that are designed to ensure
optimum financing arrangements minimising simultaneously financial
expenses and refinancing risk and optimising liquidity. Borrowing
activities are centralised to the parent to the extent possible and cash
resources are distributed within the group by the central treasury
department.
UPM targets a net debt to EBITDA ratio of approximately 2 times or
less.
UPM’s capital
EURm
2021
2020
Equity attributable to owners of the parent
company
10,846
9,351
Non-controlling interest
261
162
Total equity
11,106
9,513
Non-current debt
2,566
1,952
Current debt
86
90
Total debt
2,652
2,042
Total capitalisation
13,759
11,555
Total debt
2,652
2,042
Less: Interest-bearing financial assets and
investment funds
2,006
1,986
Net debt
647
56
Gearing ratio, % 1)
6
1
Net debt to EBITDA 1)
0.35
0.04
1) Refer » Other financial information on Alternative performance measures.
Liquidity and refinancing risk
Under all circumstances, UPM seeks to maintain adequate liquidity,
which depends on a number of factors, such as the availability of cash
flows from operations and access to additional debt and equity
financing. UPM aims to ensure sufficient liquidity by means of efficient
cash management and restricting financial investments to investment
types that can readily be converted into cash and by keeping a
sufficient amount of unused committed credit lines or cash as a reserve.
UPM aims to minimise refinancing risks by ensuring a balanced loan
portfolio maturing schedule and sufficiently long maturities. The average
loan maturity at 31 December 2021 was 7.3 years (7.6 years).
Liquidity and refinancing
EURm
2021
2020
Cash at bank
1,313
1,390
Cash equivalents
146
330
Investment funds
100
Committed credit lines
909
1,458
of which used
Loan commitments
-123
-123
Used uncommitted credit lines
-2
-2
Long-term loan repayment cash flow
-77
-80
Liquidity
2,267
2,973
Cash and cash equivalents comprise cash in hand, deposits held at
banks and with original maturities of three months or less. Investment
funds comprise fund investments with a redemption period of less than
12 months. Bank overdrafts are included in used uncommitted credit
lines and presented within current debt in the balance sheet. In 2021,
no impairment and no expected credit losses were recognised in profit
or loss for loan receivables or cash and cash equivalents.
UPM FINANCIAL REPORT 2021
66
Maturity table of debt at the end of 2021
EURm
2022
2023
2024
2025
2026
2027+
TOTAL
Bonds
1,581
1,581
Loans from financial institutions
6
8
19
34
31
122
219
Lease liabilities
70
69
62
67
31
275
574
Other loans
1
163
164
Current loans
2
2
Principal payments
79
76
81
101
62
2,141
2,540
Interest payments
45
45
44
44
43
107
328
The difference between the above nominal values and carrying value of total debt arise from fair value adjustments increasing carrying value
by EUR 104 million and other non-cash adjustments decreasing carrying value by EUR 22 million.
Maturity table of debt at the end of 2020
EURm
2021
2022
2023
2024
2025
2026+
TOTAL
Bonds
1,056
1,056
Loans from financial institutions
4
4
17
8
16
77
126
Lease liabilities
75
63
53
50
54
248
544
Other loans
1
168
171
Current loans
2
2
Principal payments
82
67
71
59
70
1,550
1,898
Interest payments
44
40
39
38
37
127
325
The difference between the above nominal values and carrying value of total debt arise from fair value adjustments increasing carrying value
by EUR 157 million and other non-cash adjustments decreasing carrying value by EUR 18 million.
Maturity table of derivatives included in net debt and guarantees at the end of 2021
EURm
2022
2023
2024
2025
2026
2027+
TOTAL
Net settled interest rate swaps
Net inflow
20
16
14
14
14
14
92
Net outflow
-1
-3
-4
-5
-11
-25
Gross settled derivatives
Gross currency swaps
Total inflow
7
7
7
7
7
178
213
Total outflow
-1
-1
-2
-2
-2
-171
-178
Forward foreign exchange contracts
Total inflow
574
574
Total outflow
-574
-574
Guarantees
2
2
UPM FINANCIAL REPORT 2021
67
Maturity table of derivatives included in net debt and guarantees at the end of 2020
EURm
2021
2022
2023
2024
2025
2026+
TOTAL
Net settled interest rate swaps
Net inflow
19
19
19
17
16
29
120
Net outflow
-3
-4
Gross settled derivatives
Gross currency swaps
Total inflow
6
6
6
6
6
188
220
Total outflow
-1
-1
-1
-1
-1
-170
-173
Forward foreign exchange contracts
Total inflow
715
715
Total outflow
-711
-711
Guarantees
2
2
5.2Net debt
Net debt is defined as the total of current and non-current debt less cash
and cash equivalents and interest-bearing current and non-current
financial assets. In 2021, net debt increased by EUR 591 million. Net
debt totalled EUR 647 million (56 million) at the end of 2021.
In October 2020 UPM established a EUR 3 billion Euro Medium
Term Note (EMTN) programme and launched a Green Finance
Framework. The independent second opinion concerning the framework
was provided by CICERO Shades of Green. UPM’s framework was
rated with the highest-grade, CICERO Dark Green.
In March 2021, UPM successfully issued a new EUR 500 million
Green Bond under its EMTN (Euro Medium Term Note) programme and
its Green Finance Framework. The bond matures in March 2031 and
pays a fixed coupon of 0.50%. In November 2020 UPM issued its first
Green Bond under the EMTN programme with a nominal value of EUR
750 million. The bond matures in November 2028 and pays a fixed
coupon of 0.125%. There are no financial covenants connected to the
bonds. The net proceeds from the bonds are used for financing and/or
refinancing Eligible Projects and Assets under UPM’s Green Finance
Framework. Both bonds are listed on the Irish Stock Exchange plc,
trading as Euronext Dublin.
Net debt
EURm
2021
2020
Bonds
1,624
1,153
Loans from financial institutions
213
121
Lease liabilities
504
469
Derivatives
23
Other loans
201
210
Non-current debt
2,566
1,952
Repayments of non-current debt
7
5
Repayments of lease liabilities
70
75
Derivatives
8
8
Other liabilities
2
2
Current debt
86
90
Total debt
2,652
2,042
Loan receivables
4
4
Derivatives
126
157
Other receivables
19
20
Non-current interest-bearing assets
148
181
Loan receivables
3
8
Derivatives
4
12
Other receivables
292
66
Investment funds
100
Cash and cash equivalents
1,460
1,720
Current interest-bearing assets
1,858
1,805
Total interest-bearing assets
2,006
1,986
Net debt
647
56
Accounting policies
Debt
Debt comprising of bonds, bank and pension loans, lease liabilities and
other loans is recognised initially at fair value, net of transaction costs
and subsequently measured at amortised cost using the effective interest
method. Any difference between proceeds (net of transaction costs) and
the redemption value is recognised in the income statement over the
estimated life of the borrowing. UPM classifies debt as non-current
unless due for settlement within a year. Most of the debt is hedged in a
fair value hedge relationship as described in » Note 6.1 Financial risk
management.
UPM FINANCIAL REPORT 2021
68
Change in net debt 2021
Reported in financing activities in cash flow statement
EURm
NON-
CURRENT
LOANS INCL.
REPAYMENTS
LEASE
LIABILITIES
CURRENT
LOANS
NET
DERIVA-
TIVES
INVEST-
MENT
FUNDS
OTHER
FINANCIAL
ASSETS
CASH AND
CASH
EQUIVALENTS
NET DEBT
Carrying value, at 1 January
1,489
544
2
-161
-97
-1,720
56
Change in net debt, cash
Proceeds from non-current debt
600
600
Payments of non-current debt
-16
-16
Lease repayments
-84
-84
Change in current liabilities
Net cash flows from derivatives
34
34
Transaction costs and discounts in operating
cash flow
-7
-7
Change in other financial assets in operating
cash flow
-224
-224
Change in other financial assets in investing
cash flow
5
5
Change in investment funds
-100
-100
Change in cash and cash equivalents
268
268
577
-84
34
-100
-219
268
476
Change in net debt, non-cash
New contracts and subsequent additions
10
93
103
Lease liability reassessments
1
1
Fair value gains and losses
-53
28
-25
Exchange gains and losses
21
21
-8
33
Effective interest rate adjustment
3
3
-20
115
28
-8
114
Carrying value, at 31 December
2,046
574
2
-99
-100
-317
-1,460
647
UPM FINANCIAL REPORT 2021
69
Change in net debt 2020
Reported in financing activities in cash flow statement
EURm
NON-
CURRENT
LOANS INCL.
REPAYMENTS
LEASE
LIABILITIES
CURRENT
LOANS
NET
DERIVATIVES
OTHER
FINANCIAL
ASSETS
CASH AND
CASH
EQUIVALENTS
NET DEBT
Carrying value, at 1 January
708
586
2
-159
-54
-1,536
-453
Change in net debt, cash
Proceeds from non-current debt
861
861
Payments of non-current debt
-31
-31
Lease repayments
-86
-86
Change in current liabilities
-2
-2
Net cash flows from derivatives
-17
-17
Transaction costs and discounts in operating
cash flow
-10
-10
Change in other financial assets in operating
cash flow
-47
-47
Change in other financial assets in investing
cash flow
3
3
Change in cash and cash equivalents
-197
-197
820
-86
-2
-17
-44
-197
473
Change in net debt, non-cash
New contracts and subsequent additions
1
64
65
Lease liability reassessments
5
5
Fair value gains and losses
4
15
20
Exchange gains and losses
-35
-25
13
-46
Effective interest rate adjustment
1
1
Reclassification between non-current and
current loans
-3
3
Liabilities related to assets classified as held
for sale
-8
-8
-39
44
3
15
13
36
Carrying value, at 31 December
1,489
544
2
-161
-97
-1,720
56
UPM FINANCIAL REPORT 2021
70
Free cash flow
Free cash flow is primarily a liquidity measure. It is an important
indicator of UPM’s overall operational performance as it reflects the
cash generated from operations after investing activities.
EURm
2021
2020
Operating cash flow
1,250
1,005
Investing cash flow
-1,323
-879
Free cash flow
-74
126
Dividends paid to owners of the parent company
-693
-693
Dividends paid to non-controlling interests
-12
-23
Contributions paid by non-controlling interests
82
67
Other financing cash flow
-5
-4
Transaction costs and discounts in operating cash
flow
7
10
Change in other financial assets in operating cash
flow
224
47
Change in other financial assets in investing cash
flow
-5
-3
Change in net debt, cash
476
473
Change in net debt, non-cash
114
36
Change in net debt
590
509
Opening net debt
56
-453
Closing net debt
647
56
Bonds
FIXED RATE PERIOD
INTEREST RATE,
%
CURRENCY
NOMINAL
VALUE ISSUED,
MILLION
CARRYING
VALUE 2021
EURm
CARRYING
VALUE 2020
EURm
1997-2027
7.450
USD
375
413
411
2020-2028
0.125
EUR
750
718
741
2021-2031
0.500
EUR
500
494
Value, at 31 December
1,624
1,153
Current portion
Non-current portion
1,624
1,153
Leases
Leases of property, plant and equipment where UPM, as a lessee,
obtains substantially all of the economic benefits from the use of the
identified asset and where UPM has the right to direct the use of the
identified asset, are classified as leases. Approximately 36 % (33%) of
leased assets recognised on the balance sheet consists of land areas in
Uruguay, which the group uses for eucalyptus plantations.
Approximately 30% (34%) of the leased assets on the balance sheet
consist of five power plants. UPM uses the energy generated by these
plants for its own production. In addition, the group has leased one
waste water treatment plant as well as several warehouses, terminals,
offices, railcars and vessels. UPM also leases some production
machinery and equipment like forklifts and vehicles that are insignificant
to the total leased assets portfolio.
In 2021, the total cash outflow for leased assets was EUR 84 (86)
million. The expenses related to short-term leases recognised in the
income statement in 2021 amounted to EUR 3 (7) million. The group
had no significant variable lease payments in 2021.
The lease commitments for leases not commenced at year-end
31 December 2021 totalled approximately EUR 409 (412) million,
which are mostly related to long-term charter agreements, railway
service agreement in Uruguay and service agreements related to wood
handling, waste water treatment and other utilities in Leuna, Germany.
UPM FINANCIAL REPORT 2021
71
Changes in leased assets
LAND AREAS
BUILDINGS
MACHINERY
AND
EQUIPMENT
OTHER LEASED
ASSETS
ADVANCE
PAYMENTS 1)
TOTAL
2021
Carrying value, at 1 January
214
245
86
12
4
561
New contracts and subsequent additions
30
47
13
5
4
98
Reassessments and disposals
4
-1
3
Depreciations
-13
-31
-21
-8
-74
Reclassifications
2
-2
Translation differences
18
2
2
21
Carrying value, at 31 December
252
264
80
8
4
608
2020
Carrying value, at 1 January
212
262
104
12
590
New contracts and subsequent additions
28
16
10
7
4
65
Reassessments and disposals
3
2
-1
3
Depreciations
-12
-32
-22
-7
-73
Reclassifications
-2
-2
Translation differences
-16
-3
-3
-23
Carrying value, at 31 December
214
245
86
12
4
561
1) Advance payments for leases not commenced at the year end reporting date 31 December.
Accounting policies
Leases
The group as a lessee
UPM assesses whether a contract is or contains a lease at inception of
the contract. This assessment involves the exercise of judgment about
whether it depends on a specified asset, whether UPM obtains
substantially all the economic benefits from the use of that asset, and
whether UPM has the right to direct the use of the asset.
The group recognises a leased asset and a lease liability at the lease
commencement date, except for short-term leases. UPM applies this to
all asset classes. Short-term leases are leases that, at the commencement
date, have a lease term of 12 months or less. A lease that contains a
purchase option is not a short-term lease. UPM recognises lease
payments of short-term leases as an expense on a straight-line basis
over the lease term.
The lease term is determined as the non- cancellable period of the
lease taking into consideration the options to extend and terminate if it
is reasonably certain that the group will exercise the extension option or
will not exercise the termination option. If the contract is for an indefinite
period of time and the group and the lessor both have a right to
terminate the contract within a short notice period (12 months or less)
without a significant economic penalties and termination cash
payments, the contract is considered to be a short-term.
The lease liability is recognised at the commencement date and
measured at the present value of the lease payments to be paid during
the lease term. The group uses, as a basis, discount rate implicit in the
lease and if that rate cannot be readily determined, UPM uses
incremental borrowing rate which comprises of currency and lease term-
based reference rate and specific credit spread as well as other specific
terms and conditions of a lease. Lease payments can include fixed
payments, variable payments that depend on an index or rate and
extension option payments or purchase options if it is reasonably certain
that the group will exercise them. The lease liability is subsequently
measured at amortised cost using the effective interest rate method and
remeasured (with corresponding adjustment to the related leased asset)
when there is a change in future lease payments due to renegotiation,
changes of an index or rate or reassessment of options.
Leased asset comprises the initial lease liability, initial direct costs
and the obligations to refurbish the asset, less any incentives granted by
the lessors. The leased asset is subsequently valued at cost less
accumulated depreciation and impairment losses. Remeasurement takes
place in case lease liability is remeasured and change in cash flows is
based on contract terms that have been included in the original
contract. The leased asset is depreciated over the shorter of the asset’s
useful life and the lease term. The leased asset is subject to testing for
impairment if there is an indicator for impairment, as for own assets.
The group has elected to separate non-lease components such as
service components and other variable components and account them
for as expenses, if they can be separated from the leased asset.
However, the group does not separate non-lease components from the
lease contracts of company cars.
The group does not apply portfolio approach of leases with similar
characteristics.
Leased assets are presented in the balance sheet as a separate
financial statement line item. Lease liabilities are presented as part of
non-current debt and current debt line items in the balance sheet. Lease
liabilities are part of net debt calculation of the group. Short-term lease
payments are reported as rents and lease expenses. Variable lease
payments are recognised within the operating costs and expenses
based on the nature of the payment. The interest expense on the lease
liability is recognised as a component of finance costs in income
statement. In cash flow statement, payments for the principal portion of
the lease liability are recognised as financing cash flow while payments
for interest portion of lease liability, short-term leases, and variable
UPM FINANCIAL REPORT 2021
72
amounts not included in the measurement of the lease liability, are
classified within operating cash flow.
The group as a lessor
At inception of a lease contract, the group makes an assessment
whether the lease is a finance lease or an operating lease. If the lease
transfers substantially all of the risks and rewards incidental to
ownership of the asset, it is considered to be a finance lease; if not, the
lease is considered to be an operating lease. The group has only a
minor amount of operating lease contracts, whereby the lease payments
are recognised on a straight-line basis over the term of the lease.
5.3Financial assets and liabilities by category
Financial assets and liabilities recognised in the balance sheet include
cash and cash equivalents, loans and other financial receivables,
investments in securities, trade receivables, trade payables, loans, bank
overdrafts and derivatives.
Classification of financial assets into different measurement
categories depends on the contractual cash flow characteristics and the
business model for managing the financial asset. The measurement
category of each financial asset is determined at inception. Financial
assets and liabilities are offset and the net amount reported in the
balance sheet when there is a legally enforceable right in all
circumstances to offset the recognised amounts and there is an intention
to settle on a net basis or realise the asset and settle the liability
simultaneously.
Financial assets and liabilities by category at the end of 2021
EURm
FAIR VALUE
THROUGH PROFIT
AND LOSS
EQUITY
INSTRUMENTS AT
FAIR VALUE
THROUGH OCI
DERIVATIVES
UNDER HEDGE
ACCOUNTING
FINANCIAL
ASSETS AND
LIABILITIES AT
AMORTISED COST
TOTAL
Energy shareholdings
2,579
2,579
Other non-current financial assets
Loans and receivables
8
8
Derivatives
126
126
126
8
133
Trade and other receivables
2,024
2,024
Other current financial assets
Loans and receivables
3
3
Derivatives
13
23
36
Investment funds
100
100
113
23
3
139
Cash and cash equivalents
1,460
1,460
Total financial assets
113
2,579
149
3,494
6,335
Non-current debt
Interest-bearing liabilities
2,543
2,543
Derivatives
23
23
23
2,543
2,566
Other non-current financial liabilities
Other liabilities 1)
107
107
Derivatives
2
2
2
107
109
Current debt
Interest-bearing liabilities
79
79
Derivatives
8
8
8
79
86
Trade and other payables
2,254
2,254
Other current financial liabilities
Derivatives
12
83
95
12
83
95
Total financial liabilities
20
108
4,982
5,111
1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months.
UPM FINANCIAL REPORT 2021
73
Financial assets and liabilities by category at the end of 2020
EURm
FAIR VALUE
THROUGH PROFIT
AND LOSS
EQUITY
INSTRUMENTS AT
FAIR VALUE
THROUGH OCI
DERIVATIVES
UNDER HEDGE
ACCOUNTING
FINANCIAL
ASSETS AND
LIABILITIES AT
AMORTISED COST
TOTAL
Energy shareholdings
1,936
1,936
Other non-current financial assets
Loans and receivables
8
8
Derivatives
157
157
157
8
166
Trade and other receivables
1,534
1,534
Other current financial assets
Loans and receivables
8
8
Derivatives
32
96
129
32
96
8
136
Cash and cash equivalents
1,720
1,720
Total financial assets
32
1,936
254
3,270
5,492
Non-current debt
Loans
1,952
1,952
1,952
1,952
Other non-current financial liabilities
Other liabilities 1)
97
97
Derivatives
97
97
Current debt
Loans
82
82
Derivatives
8
8
8
82
90
Trade and other payables
1,571
1,571
Other current financial liabilities
Derivatives
19
29
48
19
29
48
Total financial liabilities
27
29
3,703
3,759
1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months.
The carrying amounts of financial assets and financial liabilities except for non-current loans approximate their fair value. The fair value of non-current
loans amounted to EUR 2,573 million (1,978 million) at the end of 2021. For quoted bonds, the fair values are based on the quoted market value as
of 31 December. At the end of 2021, all bonds were quoted.
For other non-current borrowings fair values are estimated using the expected contractual future payments discounted at market interest rates and
are categorised within level 2 of the fair value hierarchy.
» Refer Note 5.2 Net debt, for further information on net debt and bonds.
UPM FINANCIAL REPORT 2021
74
Fair value measurement hierarchy for financial assets and liabilities
EURm
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets
Investment funds
100
100
Derivatives, non-qualifying hedges
13
13
32
32
Derivatives under hedge accounting
1
148
149
2
252
254
Energy shareholdings
2,579
2,579
1,936
1,936
Total
1
261
2,579
2,841
2
284
1,936
2,222
Financial liabilities
Derivatives, non-qualifying hedges
20
20
27
27
Derivatives under hedge accounting
6
102
108
2
27
29
Total
6
122
128
2
54
56
There have been no transfers between levels in 2021 and 2020.
Accounting policies
Fair value through profit or loss
This category includes derivatives that don’t qualify for hedge
accounting and investments funds. They are measured at fair value and
any gains or losses from subsequent measurement are recognised in the
income statement.
Equity instruments at fair value through OCI
This category includes mainly UPM’s energy shareholdings. These assets
are measured at fair value through other comprehensive income.
Financial assets at amortised cost
This category comprises loan receivables with fixed or determinable
payments that are not quoted in an active market, as well as trade and
other receivables, and cash and cash equivalents. They are included in
non-current assets unless they mature within 12 months of the balance
sheet date. Cash and cash equivalents are always classified as current
assets. Loan receivables that have a fixed maturity are measured at
amortised cost using the effective interest method. Loan receivables
without fixed maturity date are measured at amortised cost. As soon as
a loan receivables or cash and cash equivalents are originated or
purchased, a loss allowance for 12-month expected credit losses are
recognised in profit or loss. If credit risk increases significantly, full
lifetime expected credit losses are recognised in profit or loss. In the
comparison period, loan receivables were impaired if the carrying
amount exceeded the estimated recoverable amount. The credit loss
model applied to trade receivables is described in » Note 4.6 Working
capital.
Derivatives under hedge accounting
All derivatives are initially and continuously recognised at fair value in
the balance sheet. Gains and losses on remeasurement of derivatives
used for hedging purposes are recognised in accordance with the
accounting principles described in » Note 6.2 Derivatives and hedge
accounting.
Financial liabilities measured at amortised cost
This category includes debt, trade payables and other financial
liabilities. » Refer Note 5.2 Net debt, for further information.
The different levels of fair value hierarchy used in fair value estimation
are defined as follows:
Fair values under level 1
Quoted prices (unadjusted) traded in active markets for identical assets
or liabilities. Derivatives include futures and commodity forwards traded
in exchange.
Fair values under level 2
Observable inputs are used as basis for fair value calculations either
directly (prices) or indirectly (derived from prices). If all significant inputs
required to fair value an instrument are observable, the instrument is
included in level 2. For investment funds, the valuation is based on
quoted prices (unadjusted) for identical assets in markets that are not
active. For derivatives, level 2 include OTC derivatives like forward
foreign exchange contracts, foreign currency options, interest and
currency swaps and commodity swaps. Specific valuation techniques
used to value financial instruments at level 2 include the following
methods:
Interest forward rate agreements (FRA) are fair valued based
on quoted market rates on the balance sheet date. Forward foreign
exchange contracts are fair valued based on the contract forward rates
at the balance sheet date. Foreign currency options are fair valued
based on quoted market rates and market volatility rates on the balance
sheet date by using the Black&Scholes option valuation model. Interest
and currency swap instruments are fair valued as present value of the
estimated future cash flows based on observable yield curves.
Commodity swaps are fair valued based on quoted forward prices on
the balance sheet date.
An embedded derivative that is by nature a foreign currency forward
contract is valuated at market forward exchange rates and is included
in level 2. Embedded derivatives are monitored by the group and the
fair value changes are reported in other operating income in the income
statement.
Fair values under level 3
Financial assets or liabilities of which fair values are not based on
observable market data (that is, unobservable inputs) are classified
under level 3. This category include UPM’s energy shareholdings and
forest assets. Fair valuations are performed at least quarterly by
respective business areas or functions. Fair valuations are reviewed by
the group finance management and overseen by the Audit Committee.
» Refer Note 4.3 Energy shareholdings and » Note 4.2 Forest assets.
UPM FINANCIAL REPORT 2021
75
5.4Financial income and expenses
EURm
2021
2020
Exchange rate gains and losses
Derivatives
26
-18
Exchange gains and losses on financial liabilities measured at amortised costs
-21
34
Exchange gains and losses on financial assets measured at amortised costs
-7
-16
Other exchange rate gains and losses
4
-1
3
Fair value changes
Fair value gains and losses on derivatives designated as fair value hedges
-55
3
Fair value adjustment of debt attributable to interest rate risk
53
-4
-1
-2
Total
-3
2
Interest and other finance income and costs, net
Interest expense on lease liabilities
-12
-12
Interest expense on other financial liabilities measured at amortised cost
-35
-35
Interest income on derivatives
31
23
Interest income on loans and receivables
1
3
Other financial income and expenses, net
2
-5
-12
-26
Total
-15
-24
Net gains and losses on derivatives included in the operating profit
EURm
2021
2020
Cash flow hedges reclassified from hedging reserve
-79
42
Non-qualifying hedges
-22
24
Total
-102
66
Foreign exchange gains and losses in the operating profit excluding non-qualifying hedges
EURm
2021
2020
Sales
6
-19
Other operating income
-5
-30
Total
1
-48
5.5Share capital and reserves
The company has one series of shares and each share carries one vote.
There are no specific terms related to the shares. At 31 December
2021, the number of the company’s shares was 533,735,699. The
shares do not have any nominal counter value. The shares are included
within the book entry system for securities.
Share capital
2021
2020
Number of shares (1,000)
533,736
533,736
Share capital, EURm
890
890
UPM FINANCIAL REPORT 2021
76
Treasury shares
At 31 December 2021, the company held 411,653 (411,653) of its
own shares, 0.08% (0.08%) of the total number of shares.
Reserves
EURm
2021
2020
Fair value reserve
2,012
1,380
Hedging reserve
-96
28
Share-based payments reserve
21
22
Total other reserves
1,938
1,430
Reserve for invested non-restricted equity
1,273
1,273
Translation reserve
329
25
Total reserves
3,539
2,728
Fair value reserve
This reserve represents the cumulative net change in the fair value of
investments in equity securities comprising mainly of the fair value
change of the energy shareholdings. Amounts are recycled only within
equity upon the disposal of the asset.
Hedging reserve
This reserve comprises the cumulative net change in the fair value of the
effective portion of cash flow hedging instruments related to hedged
transactions that have not yet occurred and the cost of hedging when
recognised in OCI. Amounts are recognised in profit or loss when the
associated hedged transactions affect profit or loss or as part of the
acquisition cost of property, plant and equipment. In 2021, a gain of
EUR 9 million was reclassified from the hedging reserve to other
financial income as a result of inefficiency. In 2020, there were no
reclassifications from the cash flow hedge reserve to profit or loss during
the period resulting from inefficiency.
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value at
the grant date of the share incentive plans, Performance Share Plan and
Deferred Bonus Plan, over their vesting period.
Reserve for invested non-restricted equity
Reserve for invested non-restricted equity includes, under the
Companies’ Act, the exercise value of shareholders’ investments
in the company unless otherwise decided by the company.
Translation reserve
This reserve includes the foreign currency differences arising from the
translation of foreign operations, and the effective result of transactions
that hedge the group’s net investments in foreign operations. There were
no reclassifications from the translation reserve to profit or loss during
the period resulting from inefficiency of net investment hedges.
Accounting policies
Transaction costs directly relating to the issue of new shares or share
options are recognised, net of tax, in equity as a reduction in the
proceeds. Where any group company purchases the parent company’s
shares (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of tax), is deducted from equity
attributable to the owners of the parent company until the shares are
cancelled or reissued. Where such shares are subsequently reissued,
any consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in equity
attributable to the owners of the parent company.
Hedging reserve
EURm
CURRENCY
CASH FLOW
HEDGES
ELECTRICITY
PURCHASE
AND SALES
HEDGES
COST OF
HEDGING
TAX
TOTAL
2021
Hedging reserve, at 1 January
57
-26
-2
-1
28
Amounts reclassified to profit and loss
-5
85
-1
-16
63
Amounts reclassified to acquisition cost of a fixed assets
-14
-14
Change in fair value of hedging instruments recognised in OCI
-70
-143
2
38
-172
Hedging reserve, at 31 December
-32
-84
-1
22
-96
EURm
CURRENCY
CASH FLOW
HEDGES
ELECTRICITY
PURCHASE
AND SALES
HEDGES
COST OF
HEDGING
TAX
TOTAL
2020
Hedging reserve, at 1 January
-4
78
-6
-14
55
Amounts reclassified to profit and loss
10
-61
9
8
-34
Amounts reclassified to acquisition cost of a fixed assets
-4
-5
Change in fair value of hedging instruments recognised in OCI
55
-43
-5
5
11
Hedging reserve, at 31 December
57
-26
-2
-1
28
UPM FINANCIAL REPORT 2021
77
6.Risk management
6.1Financial risk management
The objective of financial risk management is to protect the group
from unfavourable changes in financial markets and thus help to
secure profitability. The objectives and limits for financing activities
are defined in the Group Treasury Policy approved by the Board of
Directors. In financial risk management various financial instruments are
used within the limits specified in the Group Treasury Policy. Only such
instruments which market value and risk profile can be continuously and
reliably monitored are used for this purpose.
Financing services are provided to the group entities and financial
risk management carried out by the central treasury department,
Treasury and Risk Management.
Foreign exchange risk
As a consequence of the global nature of its business, UPM is exposed
to risks associated with changes in exchange rates, primarily with
respect to USD, GBP and JPY. Foreign exchange risk arises from
contracted and expected commercial future payment flows (transaction
exposure), changes in value of recognised assets and liabilities
denominated in foreign currency and changes in the value of assets and
liabilities in foreign subsidiaries (translation exposure). The objective of
foreign exchange risk management is to limit the uncertainty created by
changes in foreign exchange rates on the future value of cash flows
earnings and in the group’s balance sheet. Changing exchange rates
can also have indirect effects, such as change in relative
competitiveness between currency regions.
Transaction exposure
The group hedges transaction exposure related to highly probable future
commercial foreign currency cash flows on a rolling basis over the next
12-month period based on forecasts by the respective business areas.
Transaction risk arises from the changes in currency rates of highly
probable transactions, which are expected to take place in currencies
other than the functional currency of the entity. The group’s policy is to
hedge an average of 50% of its estimated net risk currency cash flow.
Some highly probable cash flows have been hedged for longer than 12
months ahead while deviating from the risk neutral hedging level at the
same time. At 31 December 2021, 49% (49%) of the forecast 12-month
currency flow was hedged.
The group enters into external forward contracts, which are
designated at group level as hedges of foreign exchange risk of specific
future foreign currency flows. Cash flow hedge accounting is applied
when possible. If hedge accounting is not possible, fair value changes
of the hedging instrument are recognised through profit and loss
immediately.
At the end of 2021, UPM’s estimated net risk currency flow for the
next 12 months was EUR 1,886 million (1,327 million).
The weighted hedging rate by currency against EUR were
USD 1.18, JPY 130.29 and GBP 0.86.
In addition to commercial foreign currency flow, the group has
hedged risk currency flow related to investments. Cash flow or fair value
hedge accounting is applied. At the end of 2021 the hedged net risk
currency flow was EUR 360 million (EUR 470 million).
Translation exposure
The group has several currency denominated assets and liabilities on its
balance sheet such as foreign currency bonds, loans and deposits,
group internal loans and cash in other currencies than functional
currencies. UPM aims to fully hedge this balance sheet translation
exposure, however, UPM might have unhedged balance sheet
exposures within the limits set in group Treasury Policy.
At 31 December 2021 the unhedged balance sheet exposures in net
of interest-bearing assets and liabilities amounted to EUR 9 million (11
million). Hedge accounting is not applied and all fair value changes of
hedging instruments are recognised through profit and loss immediately.
The group has also accounts receivable and payable balances
denominated in foreign currencies and UPM aims to fully hedge the net
exposure in main currencies. The nominal values of the hedging
instruments in net of accounts payable and receivable hedging were
EUR 352 million (540 million). Hedge accounting is not applied and all
fair value changes of hedging instruments are recognised through profit
and loss immediately.
UPM's net investments in foreign subsidiaries are also subject to
foreign currency translation differences. The exchange rate differences
arising from translation of foreign subsidiaries are accumulated as a
separate component of equity in the translation reserve relate mainly to
USD, CNY and GBP. Currency exposure arising from the net investment
in foreign subsidiaries is generally not hedged. However, at
31 December 2021, part of the foreign exchange risk associated with
the net investments was hedged, major ones in China and Uruguay,
and net investment hedge accounting has been applied. The average
UPM FINANCIAL REPORT 2021
78
weighted hedging rate of these hedges against EUR were China CNY
8.28 and Uruguay USD 1.23.
Derivatives used for hedging translation risks are external forward
contracts, cross currency swaps and currency options.
Foreign exchange risk sensitivity
The following table illustrates the effect to profit before tax due to
recognised balance sheet items in foreign currency and the effect to
equity arising mainly from foreign currency forwards used to hedge
foreign currency flows.
Profit before tax
Equity
EURm
2021
2020
2021
2020
EUR strengthens by 10%
USD
2
1
97
91
GBP
19
8
UYU
-12
-15
JPY
-1
9
9
EUR weakens by 10%
USD
-2
-1
-97
-91
GBP
-19
-8
UYU
12
15
JPY
1
-9
-9
The following assumptions were made when calculating the sensitivity to
changes in the foreign exchange risk:
Major part of non-derivative financial instruments (such as cash and
cash equivalents, trade receivables, debt and trade payables) are
either directly denominated in the functional currency or are
transferred to the functional currency through the use of derivatives
i.e. the balance sheet position is close to zero. Exchange rate
fluctuations have therefore minor or no effects on profit or loss.
The position includes foreign currency forward contracts that hedge
commercial flows or investments and are part of the effective cash
flow hedge having an effect on equity.
The position includes also foreign currency forward contracts that are
not part of the effective cash flow hedge having an effect on profit.
The position excludes foreign currency denominated future cash flows
and effects of translation exposure and related hedges
Interest rate risk
The interest-bearing liabilities and assets expose the group to interest
rate risk, namely repricing and fair value interest rate risk caused by
interest rate movements. According to the Group Treasury Policy the
interest rate exposure is defined as the difference in interest rate
sensitivity between assets and liabilities compared to a benchmark
portfolio with a 6-month duration. The total interest rate exposure is a
net debt portfolio which includes all interest bearing assets and
liabilities and derivatives that are used to hedge the aforementioned
balance sheet items. The policy sets risk limits and allowed deviation
from target net debt duration level. The group uses interest rate
derivatives, such as interest rate swaps, interest rate futures and cross
currency swaps, to change net debt duration.
The table below shows the nominal value of interest rate position
exposed to interest rate risk in each significant currency. The position
includes all cash balances, investment funds, interest bearing assets and
liabilities and derivatives used to hedge these items. The positive/
negative position indicates a net liability/asset position by currency and
that the group is exposed to repricing and/or fair value interest risk by
interest rate movements in that currency. Table excludes leasing
transactions.
Nominal values of the group’s net debt by currency including
derivatives
EURbn
2021
2020
USD
0.4
0.2
EUR
0.2
-0.3
GBP
-0.2
-0.1
Others
-0.3
-0.3
Total
0.1
-0.5
Most of the interest rate derivatives hedging interest on long-term debt
meet the requirement of fair value hedge accounting.
Interest rate risk sensitivity
The following table illustrates the effect to profit before tax mainly as
a result of changes in interest expense on floating rate debt.
Profit before tax
EURm
2021
2020
Interest rate of net debt 100 basis points higher
-11
-12
Interest rate of net debt 100 basis points lower
11
12
The following assumptions were made when calculating the sensitivity to
changes in interest rates:
The variation of interest rate is assumed to be 100 basis points
parallel shift in applicable interest rate curves.
In the case of fair value hedges designated for hedging interest rate
risk, the changes in the fair values of the hedged items and the
hedging instruments attributable to the interest rate movements
balance out almost completely in the income statement in the same
period. However, the possible ineffectiveness has an effect on the
profit of the year.
Cash balances are excluded.
Investment funds are excluded.
Leasing transaction are excluded.
Fixed rate debt that is measured at amortised cost and is not
designated to fair value hedge relationship is not subject to interest
rate risk sensitivity.
Floating rate debt that are measured at amortised cost and not
designated as hedged items are included in interest rate sensitivity
analysis.
Changes in the market interest rate of interest rate derivatives (interest
rate futures, swaps and cross currency swaps) that are not designated
as hedging instruments in hedge accounting affect the financial
income or expenses (net gains or losses from remeasurement of the
financial assets and liabilities to fair value) and are therefore
included in the income-related sensitivity analysis.
UPM FINANCIAL REPORT 2021
79
Electricity price risk
UPM is hedging the price of electricity consumption and production.
Electricity prices rely on fossil fuel and emissions allowance prices
as well as the balance of supply and demand.  The group’s sensitivity
to electricity market price is dependent on the electricity production and
consumption levels and the hedging levels. The inherent price risks arise
from the daily sales and purchases of electricity from the power market
with spot prices, and the hedging objective is to reduce the earnings
volatility that arises from electricity prices.
UPM considers Nordic system and electricity price area differential
(EPAD) for Finland products perfect hedges for corresponding electricity
price risk components in Finland. The components of electricity price risk
in the Nordic power market are hedged by entering into System and
EPAD electricity derivative contracts, mostly Nasdaq Commodities
forwards, futures and options. system and EPAD prices are considered
as separately identifiable and reliably measurable risk components in
electricity sales and purchase contracts as well as in the hedging
instruments, as a quoted price is available. Fair value changes of
designated system and EPAD derivatives are offsetting electricity sales
and purchase price changes. The share of system component covers
approximately 80-90% and the share of EPAD component covers
10-20% of the changes in electricity sales and purchase prices.
The electricity price risk in the Central European power market is
hedged by entering into European Electricity Exchange futures. Products
used for hedging hedge the entire price risk for the underlying price
area.
The time frame hedged has historically been approximately rolling 5
years. Hedging level has been typically higher for the nearest years and
lower for the latter years. Hedging level for a certain year has
historically varied between 0-80%. UPM constantly updates its electricity
production and consumption forecasts. Hedging level is calculated
based on the most recent available information about the electricity
production and consumption forecast.
The group applies cash flow hedge accounting for the hedging
relationships when it hedges its electricity price risk. In addition to
hedging, the group is also trading electricity forwards and futures. As
well as hedging, proprietary trading risks are monitored on a daily
basis. Value-At-Risk levels are set to limit the maximum risk at any given
time. Cumulative maximum loss is limited by stop-loss limits.
Electricity derivatives price sensitivity
Sensitivity analysis for financial electricity derivatives is based on
position at the end of financial year. Sensitivities change over time
as the overall hedging and trading positions change. Underlying
physical positions are not included in the sensitivity analysis. Sensitivity
analysis is calculated separately for the hedge accounted and non-
hedge accounted volumes. In the analysis it is assumed that forward
quotation in Nasdaq Commodities and EEX would change EUR 5/
MWh throughout the period UPM has derivatives. EUR 5/ MWh price
sensitivity is estimated from historical market price movements in
Nasdaq and EEX markets.
EURm
EFFECT
2021
2020
+/– EUR 5/MWh in electricity
forward quotations
Effect on profit before tax
+/-
0.1
0.7
Effect on equity
+/-
115.9
64.9
6.2Derivatives and hedge accounting
The group uses financial derivatives to manage currency, interest rate
and commodity price risks.
» Refer Note 6.1 Financial risk management.
Accounting policies
All derivatives are initially and continuously recognised at fair value in
the balance sheet. The fair value gain or loss is recognised through the
income statement or other comprehensive income depending on
whether the derivative is designated as a hedging instrument, and on
the nature of the item being hedged. Certain derivatives are designated
at inception either hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedge), hedges of highly
probable forecasted transactions (cash flow hedge), or hedges of net
investments in foreign subsidiaries with other than the EUR as their
functional currency (net investment hedge). Derivative fair values on the
balance sheet are classified as non-current when the remaining maturity
is more than 12 months and as current when the remaining maturity is
less than 12 months.
For hedge accounting purposes, UPM documents the relationship
between the hedging instruments and hedged items, as well as the risk
management objective and strategy for undertaking various hedge
transactions at the inception date. This process includes linking all
derivatives designated as hedges to specific assets and liabilities or to
specific firm commitments or forecast transactions. The group also
documents its assessment, both at the hedge inception and on an on-
going basis, as to whether the hedge is highly effective in offsetting
changes in fair values or cash flows of the hedged items.
Certain derivatives, while considered to be economical hedges for
UPM’s financial risk management purposes, do not qualify for hedge
accounting. Such derivatives are recognised at fair value through the
income statement in other operating income or under financial items.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in other
comprehensive income. Cost of hedging, meaning forward points of
derivative forward contracts accounted as cash flow hedges, is
recognised as a part of the hedging reserve. Amounts deferred in equity
are transferred to the income statement and classified as income or
expense in the same period as that in which the hedged item affects the
income statement (for example, when the forecast external sale to the
group that is hedged takes place).
When the forecasted transaction that is hedged results in the
recognition of a fixed asset, gains and losses previously deferred in
equity are transferred from equity and included in the initial
measurement of the acquisition cost and depreciated over the useful
lives of the assets.
When a hedging instrument expires or is sold, or when a hedge no
longer meets hedge accounting criteria, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when
the committed or forecasted transaction is ultimately recognised in the
income statement. However, if a forecasted transaction is no longer
expected to occur, the cumulative gain or loss that was reported in
equity is immediately recognised to the income statement.
In currency cash flow hedging, the hedging instrument is made in the
same currency as the hedged item and hence the fair value change of
the hedging instrument are expected to effectively offset the fair value
UPM FINANCIAL REPORT 2021
80
changes generated by the hedged items. Thereby the hedge ratio
between the instrument and the cash flow is 1:1. Ineffectiveness may
arise in the highly unlikely case that the forecasted cash flows are no
longer expected to occur. Ineffectiveness can also occur in a situation
where the hedging instrument with an appropriate maturity is not
available in the market for the whole duration of the hedged item. Then
the terms of the hedging instrument and the hedged item don't fully
match, which causes minor ineffectiveness. There are no other
significant sources of ineffectiveness that can reasonably be expected to
take place.
Ineffectiveness in electricity price hedges may arise in the highly
unlikely case that the forecasted cash flows are no longer expected to
occur. Ineffectiveness may also arise in case EPAD prices remained
negative for a longer period of time, but considering historical price
development UPM considers this scenario to be highly unlikely.
Hedges of net investments in foreign subsidiaries
The fair value changes of forward exchange contracts used in hedging
net investments that reflect the change in spot exchange rates are
recognised in other comprehensive income within translation reserve.
Any gain or loss relating to the interest portion of forward exchange
contracts is recognised immediately in the income statement under
financial items. Gains and losses accumulated in equity are included in
the income statement when the foreign operation is partially disposed of
or sold.
The hedging instrument is always made in the same currency as the
hedged investment, hence the hedge ratio in net investment hedging is
1:1. For hedging of net investments, ineffectiveness may only arise in
the highly unlikely situation where the hedged item is disposed or sold
during the duration of the hedging instrument.
Fair value hedges
The group applies fair value hedge accounting for hedging fixed
interest risk on debt. Changes in the fair value of derivatives that are
designated and qualify as fair value hedges and that are prospectively
highly effective are recorded in the income statement under financial
items, along with any changes in the fair value of the hedged asset or
liabilities that are attributable to the hedged risk. The carrying amounts
of hedged items and the fair values of hedging instruments are included
in interest-bearing assets or liabilities.
Derivatives that are designated and qualify as fair value hedges
mature at the same time as hedged items. If the hedge no longer meets
the criteria for hedge accounting, the adjustment to the carrying amount
of a hedged item for which the effective interest method is used is
amortised to profit or loss over the expected period to maturity.
Ineffectiveness in fair value hedge of fixed interest risk may arise in
case of early redemption of such debt, which is hedged under fair value
hedge accounting. The group has not recognised other significant
sources of ineffectiveness that can reasonably be expected to take
place.
The group applies fair value hedge accounting also for hedging firm
commitment of a purchase in foreign currency. The currency changes of
the hedging instrument are recorded through profit and loss in financial
items, until they are recognised as a part of the acquisition cost of a
fixed asset.
Financial counterparty risk
The financial instruments the group has agreed with banks and financial
institutions contain an element of risk of the counterparties being unable
to meet their obligations. According to the Group Treasury Policy
derivative instruments and investments of cash funds may be made only
with counterparties meeting certain creditworthiness criteria. The group
minimises counterparty risk also by using a number of major banks and
financial institutions. Creditworthiness of counterparties is constantly
monitored by Treasury and Risk Management.
Effect of IBOR reform and significant assumptions
Group’s risk exposure that is directly affected by the IBOR reform is fair
value hedge accounting of long-term fixed-rate debt for changes in fair
value attributable to USD LIBOR which is the current benchmark interest
rate. USD LIBOR is currently expected to be published until June 2023.
Group currently has only few contracts which reference USD LIBOR and
extend beyond June 2023. Group oversees the IBOR transition and
follows changes to ISDA and other market guidelines on effects of these
changes to UPM’s contracts. In fair value hedging relationships, fair
value for both the hedged item and hedging instrument is calculated
with identical rate. Therefore no ineffectiveness is expected.
UPM FINANCIAL REPORT 2021
81
Net fair values of derivatives
Positive fair
values
Negative fair
values
Net fair values
Positive fair
values
Negative fair
values
Net fair values
EURm
2021
2020
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges
21
-53
-31
83
-26
57
Net investment hedge
2
-27
-25
12
-1
11
Non-qualifying hedges
11
-13
-2
29
-27
2
Cross currency swaps
Non-qualifying hedges
-4
-4
1
1
Derivatives hedging foreign exchange risk
33
-97
-63
125
-54
71
Interest rate risk
Interest rate swaps
Fair value hedges
86
-23
63
113
113
Non-qualifying hedges
2
2
2
2
Cross currency swaps
Fair value hedges
40
40
44
44
Non-qualifying hedges
Derivatives hedging interest risk
128
-23
105
159
159
Commodity risk
Electricity sales
Cash flow hedges
-6
-6
1
-1
Electricity purchase
Cash flow hedges
1
1
-1
Other commodities
Non-qualifying hedges
-3
-2
1
Derivatives hedging commodity risk
1
-9
-8
2
-2
Total
162
-128
34
286
-56
230
No derivatives are subject to offsetting in the group’s financial statements. All derivatives are under ISDA or similar master netting agreement.
Nominal amounts of derivatives
EURm
2021
2020
Interest rate futures
2,280
2,391
Interest rate swaps
1,081
1,056
Forward foreign exchange contracts
3,550
3,992
Currency options
20
Cross currency swaps
161
166
Commodity contracts
1,508
791
Cash collaterals pledged for derivative contracts totalled
EUR 292 million of which EUR 291 million relate to commodity
contracts and EUR 1 million to interest rate futures.
Net fair values of derivatives calculated by counterparty
EURm
POSITIVE
FAIR
VALUES
NEGATIVE
FAIR
VALUES
NET FAIR
VALUES
2021
124
-90
34
2020
241
-11
230
UPM FINANCIAL REPORT 2021
82
Timing of nominal amounts of derivatives 2021
Within 1 year
Between 1–5 years
Later than 5 years
Total
EURm
2021
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges
2,196
90
2,286
Net investment hedge
392
392
Non-qualifying hedges
864
8
872
Cross currency swaps
Non-qualifying hedges
161
161
Interest rate risk
Interest rate swaps
Fair value hedges
1,081
1,081
Cross currency swaps
Fair value hedges
161
161
Interest rate futures
Non-qualifying hedges
2,190
89
2,280
Commodity risk
Electricity sales
Cash flow hedges
612
335
947
Non-qualifying hedges
2
2
Electricity purchase
Cash flow hedges
397
108
505
Other commodities
Non-qualifying hedges
54
54
Timing of nominal amounts of derivatives 2020
Within 1 year
Between 1–5 years
Later than 5 years
Total
EURm
2020
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges
2,004
441
2,445
Net investment hedge
228
228
Non-qualifying hedges
1,318
1
1,319
Currency options
Non-qualifying hedges
20
20
Cross currency swaps
Non-qualifying hedges
166
166
Interest rate risk
Interest rate swaps
Fair value hedges
1,056
1,056
Non-qualifying hedges
Cross currency swaps
Fair value hedges
166
166
Interest rate futures
Non-qualifying hedges
2,391
2,391
Commodity risk
Electricity sales
Cash flow hedges
274
204
478
Non-qualifying hedges
6
6
Electricity purchase
Cash flow hedges
145
138
283
Other commodities
Non-qualifying hedges
24
24
The nominals of cross currency swaps are included in both foreign exchange risk and interest rate risk.
UPM FINANCIAL REPORT 2021
83
7.Income tax
7.1Tax on profit for the year
Income tax
In 2021, tax on profit for the year amounted to EUR 240 million (169
million). The effective tax rate was 15.5% (22.9%). In 2021 and 2020,
the effective tax rate was affected by the income not subject to tax from
subsidiaries operating in tax free zone and German tax rate that is
higher than in Finland. In addition, in 2021 effective tax rate was
impacted by tax exempt capital gain on the sale of shares of Shotton
Mill Ltd and in 2020 by the  losses resulting from the closure of UPM
Chapelle paper mill  for which no deferred tax assets were recognised
due to uncertainty of their utilisation.
Income tax
EURm
2021
2020
Current tax expense
273
141
Change in deferred taxes
-32
28
Total
240
169
Tax rate reconciliation
EURm
2021
2020
Profit before tax
1,548
737
Computed tax at Finnish statutory rate of 20%
310
147
Difference between Finnish and foreign rates
-16
1
Tax-exempt income
-90
-29
Non-deductible expenses
6
6
Withholding taxes
4
9
Tax loss with no tax benefit
18
29
Results of associates
0
-1
Change in tax legislation
2
4
Change in recoverability of deferred tax assets
13
3
Utilisation of previously unrecognised tax losses
-3
-3
Other items
-3
2
Total income taxes
240
169
Effective tax rate, %
15.5%
22.9%
Accounting policies
The group’s income tax expense comprises current tax and deferred tax.
Current tax is calculated on the taxable result for the period based on
the tax rules prevailing in the countries where the group operates and
includes tax adjustments for previous periods and withholding taxes
deducted at source on intra-group transactions. Tax expense is
recognised in the income statement, unless it relates to items that have
been recognised in equity or as part of other comprehensive income. In
these instances, the related tax expense is also recognised in equity or
other comprehensive income, respectively.
Key estimates and judgements
The group is subject to income taxes in numerous jurisdictions and
the calculation of the group’s tax expense and income tax liabilities
involves a degree of estimation and judgement. Tax balances reflect
a current understanding and interpretation of existing tax laws.
Management periodically evaluates positions taken in tax returns with
respect of situations in which applicable tax regulation is subject to
interpretation and adjusts income tax liabilities where appropriate.
7.2Deferred tax
EURm
2021
2020
2019
Deferred tax assets
Intangible assets and property, plant and
equipment
83
77
77
Inventories
53
38
45
Retirement benefit liabilities and provisions
127
156
148
Other temporary differences
269
163
103
Tax losses and tax credits carried forward
230
157
180
Offset against liabilities
-297
-170
-157
Total
466
421
395
Deferred tax liabilities
Intangible assets and property, plant and
equipment
-261
-245
-249
Forest assets
-398
-352
-364
Retirement benefit assets
-17
-5
-7
Other temporary differences
-217
-132
-86
Offset against assets
297
170
157
Total
-596
-564
-549
Net deferred tax assets (liabilities)
-130
-143
-153
Deferred income tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes relate to the same fiscal
authority.
UPM FINANCIAL REPORT 2021
84
Movements in deferred tax assets and liabilities
EURm
2021
2020
Carrying value, at 1 January
-143
-153
Charged to income statement
32
-28
Charged to other comprehensive income
-15
29
Exchange rate adjustments
-4
9
Net deferred tax assets (liabilities)
-130
-143
Tax charge to other comprehensive income
Before tax
Tax
After tax
Before tax
Tax
After tax
EURm
2021
2020
Actuarial gains and losses on defined benefit plans
128
-32
96
-50
14
-36
Energy shareholdings
643
-11
632
-254
3
-251
Translation differences
337
337
-262
-262
Cash flow hedges
-149
22
-127
-37
13
-24
Net investment hedges
-27
5
-21
6
-1
5
Total
933
-15
918
-597
29
-569
Key estimates and judgements
Recognised deferred tax assets
The recognition of deferred tax assets requires management judgement
as to whether it is probable that such balances will be utilised and/or
reversed in the foreseeable future. At 31 December 2021, net operating
loss carry-forwards for which the group has recognised a deferred tax
asset amounted to EUR 802 million (536 million), of which EUR 717
million (475 million) was attributable to German subsidiaries. In
Germany net operating loss carry-forwards do not expire. In other
countries net operating loss carry-forwards expire at various dates and
in varying amounts. Based on profit forecasts, it is probable that there
will be sufficient future taxable profits available against which the tax
losses can be utilised.
The assumptions regarding future realisation of tax benefits, and
therefore the recognition of deferred tax assets, may change due to
future operating performance of the group, as well as other factors,
some of which are outside of the control of the group.
Unrecognised deferred tax assets and liabilities
The net operating loss carry-forwards for which no deferred tax is
recognised due to uncertainty of their utilisation amounted to EUR 843
million (849 million) in 2021. These net operating loss carry-forwards
are mainly attributable to certain German and French subsidiaries and
do not expire. In addition, the group has not recognised deferred tax
assets on loss carry-forwards relating to closed Miramichi paper mill
due to only minor operations in Canada. These loss carry-forwards
expire at different times by the end of 2029.
The group has not recognised deferred tax liability in respect of
undistributed earnings of non-Finnish subsidiaries to the extent that it is
probable that the temporary differences will not reverse in the
foreseeable future. In addition, the group has not recognised deferred
tax liability for the undistributed earnings of Finnish subsidiaries and
associates as such earnings can be distributed without any tax
consequences.
Accounting policies
Deferred tax is calculated based on temporary differences between the
carrying amounts and the taxable values of assets and liabilities and for
tax loss carry-forwards to the extent that it is probable that these can be
utilised against future taxable profits.
Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the balance sheet date
and are expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries, associates and joint ventures, except where
the timing of the reversal of the temporary difference is controlled by the
group and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets and liabilities are recognised
net where there is a legal right to set-off and an intention to settle on a
net basis.
UPM FINANCIAL REPORT 2021
85
8.Group structure
8.1Business acquisitions and disposals
In 2021, UPM permanently closed paper production at its Shotton
newsprint mill site in North Wales, United Kingdom. The site and all
related assets were sold to Eren Paper Ltd, a subsidiary of Modern
Karton Sanayi Ve Ticaret A.Ş., the containerboard and corrugated
packaging business of the Turkish industrial conglomerate Eren Holding
(“Eren”), thereby closing the transaction announced in May 2021. UPM
also made several minor sales of equity investments accounted at fair
value through OCI. In 2020, UPM sold its 50% share in the joint
operation Kainuun Voima. UPM also made a minor sale of its 6.1%
ownership BSW Timber Ltd, which was accounted for as a fair value
through OCI investment.
In 2021, UPM purchased an additional 20.23% share in the joint
operation Alholmens Kraft, increasing UPM's ownership from 29.77%
to 50.00 %. UPM also made a minor investment in InfraLeuna GmbH
which is an equity investments accounted at fair value through OCI. In
2020, UPM purchased an additional 1.89% share in the joint operation
Alholmens Kraft, increasing UPM's ownership from 27.88% to 29.77 %
Reconciliation of gain on sale and net cash arising from the
disposal of Shotton Mill Ltd
EURm
2021
Reconciliation of gain on sale
Consideration paid in cash
160
Consideration to be received
3
Net assets sold
-25
Transaction and other costs, net
-3
Gain on disposal
133
Consideration paid in cash
160
Cash in company disposed
-2
Net cash arising from disposal
157
Transactions with non-controlling interests
In 2021, UPM made a minor acquisition of an additional 24% holding
of its subsidiary Jyväs-Helmi Oy from a non-controlling shareholder. In
2020, there were no changes in the share of non-controlling interests.
Accounting policies
UPM consolidates acquired entities at the acquisition date which is
when it gains control using the acquisition method. Consideration
transferred is determined as the fair value of the assets transferred,
the liabilities incurred and equity instruments issued including the fair
value of a contingent consideration. Acquisition related transaction costs
are expensed as incurred. Identifiable assets acquired and liabilities
and contingent liabilities assumed are measured initially at their fair
values at the acquisition date. The group measures any non-controlling
interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-
controlling interest in the acquiree and the acquisition-date fair value of
any previous equity interest in the acquiree over the fair value of the
identifiable net assets of the subsidiary acquired is recorded as
goodwill.
The assets, liabilities, income and expenses of subsidiaries with non-
controlling interests are consolidated line by line into the UPM
consolidated financial statements. The proportion of the profit for the
period, as well as the accumulated share of total equity belonging to
non-controlling interests are presented separately in the consolidated
income statement and consolidated balance sheet.
8.2Principal subsidiaries and joint operations
Blandin Paper Company
US
100.00
100.00
Blanvira S.A.
UY
91.00
91.00
Cuecar S.A.
UY
91.00
91.00
Forestal Oriental S.A.
UY
100.00
100.00
Gebrüder Lang GmbH Papierfabrik
DE
100.00
100.00
LLC UPM Ukraine
UA
100.00
100.00
Nordland Papier GmbH
DE
100.00
100.00
NorService GmbH
DE
100.00
100.00
nortrans Speditionsgesellschaft mbH
DE
100.00
100.00
OOO UPM-Kymmene
RU
100.00
100.00
OOO UPM-Kymmene Chudovo
RU
100.00
100.00
PT UPM Raflatac Indonesia
ID
100.00
100.00
Rhein Papier GmbH
DE
100.00
100.00
SUBSIDIARIES
COUNTRY OF
INCORPORATION
HOLDING % 
2021
HOLDING % 
2020
UPM FINANCIAL REPORT 2021
86
Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG
AT
100.00
100.00
Tebetur S.A.
UY
91.00
91.00
Tile Forestal S.A.
UY
91.00
91.00
UPM (China) Co., Ltd
CN
100.00
100.00
UPM (Vietnam) Ltd
VN
100.00
100.00
UPM Asia Pacific Pte. Ltd
SG
100.00
100.00
UPM Biochemicals GmbH
DE
100.00
100.00
UPM Biofuels S.A.
UY
100.00
100.00
UPM Communication Papers Oy
FI
100.00
100.00
UPM Energy Oy
FI
100.00
100.00
UPM France S.A.S.
FR
100.00
100.00
UPM Fray Bentos S.A.
UY
100.00
100.00
UPM GmbH
DE
100.00
100.00
UPM OÜ
EE
100.00
100.00
UPM Plywood Oy
FI
100.00
100.00
UPM Pulp Sales Oy
FI
100.00
100.00
UPM Raflatac (China) Co., Ltd.
CN
100.00
100.00
UPM Raflatac (S) Pte Ltd
SG
100.00
100.00
UPM Raflatac (UK) Limited
GB
100.00
100.00
UPM Raflatac Chile SpA
CL
100.00
100.00
UPM Raflatac Co., Ltd
TH
100.00
100.00
UPM Raflatac Iberica S.A.
ES
100.00
100.00
UPM Raflatac Inc.
US
100.00
100.00
UPM Raflatac Mexico S.A. de C.V.
MX
100.00
100.00
UPM Raflatac NZ Limited
NZ
100.00
100.00
UPM Raflatac Oy
FI
100.00
100.00
UPM Raflatac Pty Ltd
AU
100.00
100.00
UPM Raflatac s.r.l.
AR
100.00
100.00
UPM Raflatac SAS
FR
100.00
100.00
UPM Raflatac Sdn. Bhd.
MY
100.00
100.00
UPM Raflatac South Africa (Pty) Ltd
ZA
100.00
100.00
UPM Raflatac Sp. z o.o.
PL
100.00
100.00
UPM S.A.
UY
91.00
91.00
UPM Sales GmbH
DE
100.00
100.00
UPM Sales Oy
FI
100.00
100.00
UPM Specialty Papers Oy
FI
100.00
100.00
UPM Sähkönsiirto Oy
FI
100.00
100.00
UPM-Kymmene (Korea) Ltd
KO
100.00
100.00
UPM-Kymmene (UK) Ltd
GB
100.00
100.00
UPM-Kymmene Austria GmbH
AT
100.00
100.00
UPM-Kymmene Inc.
US
100.00
100.00
UPM-Kymmene India Private Limited
IN
100.00
100.00
UPM-Kymmene Japan K.K.
JP
100.00
100.00
UPM-Kymmene Kagit Urunleri Sanayi ve Ticaret Ltd. Sti.
TR
100.00
100.00
UPM-Kymmene Otepää OÜ
EE
100.00
100.00
UPM-Kymmene S.A.
ES
100.00
100.00
UPM-Kymmene Seven Seas Oy
FI
100.00
100.00
UPM-Kymmene Sp. z o.o.
PL
100.00
100.00
UPM-Kymmene S.r.l.
IT
100.00
100.00
Werla Insurance Company Ltd
MT
100.00
100.00
SUBSIDIARIES
COUNTRY OF
INCORPORATION
HOLDING % 
2021
HOLDING % 
2020
UPM FINANCIAL REPORT 2021
87
JOINT OPERATIONS
COUNTRY OF
INCORPORATION
HOLDING % 
2021
HOLDING % 
2020
Oy Alholmens Kraft Ab (Pohjolan Voima Oyj, G series and direct ownership) 1)
FI
50.00
29.77
EEVG Entsorgungs- und Energieverwertungsgesellschaft m.b.H.
AT
50.00
50.00
Järvi-Suomen Voima Oy
FI
50.00
50.00
Kaukaan Voima Oy (Pohjolan Voima Oyj, G9 series)
FI
54.00
54.00
Kymin Voima Oy (Pohjolan Voima Oyj, G2 series)
FI
76.00
76.00
Madison Paper Industries
US
50.00
50.00
Rauman Biovoima Oy (Pohjolan Voima Oyj, G4 series)
FI
71.95
71.95
1) In 2021, UPM purchased an additional 20.23% share in the joint operation Alholmens Kraft. » Refer Note 8.1 Business acquisitions and disposals.
8.3Related party transactions
The Board of Directors and the Group Executive Team
There have not been any material transactions between UPM and its
members of the Board of Directors or the Group Executive Team (key
management personnel) or persons closely associated with these
members or organisations in which these individuals have control or
significant influence. There are no loans granted to any members of the
Board of Directors or the Group Executive Team at 31 December 2021
or 2020.
For information concerning shares held by members of the Board of
Directors as well as remuneration to members of the Board of Directors and
the Group Executive Team are disclosed in » Note 3.2. Key management
personnel.
Associates and joint ventures
In Finland, the group organises its producer’s responsibility of recovered
paper collection through Encore Ympäristöpalvelut Oy. Austria Papier
Recycling GmbH purchases recovered paper in Austria and L.C.I s.r.l.
in Italy. ASD Altpapier Sortierung Dachau GmbH is a German
recovered paper sorting company. The purchases from those four
companies represented approximately 91% (95%) of total recovered
paper purchase amount from associates and joint ventures.
Transactions with associates and joint ventures are presented in the
table below. The group has no individually material associates or joint
ventures.
EURm
2021
2020
Dividends received
2
3
Purchases of raw materials and services
69
60
Loan receivables
5
6
Trade and other receivables
2
1
Trade and other payables
9
7
Subsidiaries and joint operations
» Refer Note 8.2 Principal subsidiaries and joint operations.
Pension Funds
In Finland, the group has the pension foundation, UPM Sellutehtaiden
eläkesäätiö, which is a separate legal entity. Pensions for about 21%
(19%) of the group’s Finnish employees are arranged through the
Foundation.
In 2021, the contributions paid by UPM to the Foundation amounted
to EUR 18 million (18 million). The Foundation manages and invests the
contributions paid to the plan. The fair value of the Foundation’s assets
at 31 December 2021 was EUR 597 million (563 million), of which
15% was in the form of equity instruments and 85% was invested in
property and money market.
In the UK, the single UPM Pension Scheme operates under a Trust
which is independent from the group. The Trust consists of various
defined benefit sections, all of which are closed to future accrual and
one common defined contribution section which is open to all UPM
employees in the UK. The group made contributions of EUR 6 million (6
million) to the defined benefit sections of the Scheme in 2021. The fair
value of the UK defined benefit fund assets at 31 December 2021 was
EUR 565 million (515 million), of which 10% was invested in equity
instruments, 45% in debt instruments, 41% in property and money
market and 4% in other investments.
UPM FINANCIAL REPORT 2021
88
8.4Assets held for sale
No assets were classified as held for sale at the end of 2021 or 2020.
Accounting policies
Non-current assets (or disposal groups) are classified as assets held for
sale and stated at the lower of carrying amount and fair value less costs
to sell, if UPM will recover their carrying amount through a sale
transaction which is considered highly probable. Non-current assets
classified as held for sale, or included within a disposal group that is
classified as held for sale, are not depreciated after the classification.
9.Unrecognised items
9.1Commitments and contingencies
In the normal course of business, UPM enters into various agreements
providing financial or performance assurance to third parties. The
maximum amounts of future payments for which UPM is liable is
disclosed in the table below under “Other commitments”. Property under
mortgages given as collateral for own commitments include property,
plant and equipment, industrial estates and forest land.
EURm
2021
2020
On behalf of others
Guarantees
2
2
Other own commitments
Leasing commitments for the next 12 months in
accordance with IFRS 16 1)
4
6
Other commitments
213
214
Total
220
223
The lease commitments for leases not commenced at the end of 2021
totals approximately EUR 409 million, which are mostly related to long-
term charter agreements, railway service agreement in Uruguay and
service agreements related to wood handling, waste water treatment
and other utilities in Leuna, Germany. Such lease commitments at the
end of 2020 amounted to EUR 412 million.
9.2Litigation
Contingent liabilities
The group is defendant or plaintiff in a number of legal proceedings
incidental to its operations. These lawsuits primarily involve claims
arising from commercial law issues.
Group companies
The group’s management is not aware of any significant litigation in the
end of 2021.
In October, the European Commission conducted an unannounced
inspection at UPM’s premises. According to the Commission’s press
release on 12 October, the Commission has concerns that the inspected
companies in the wood pulp sector may have violated EU antitrust rules
that prohibit cartels and restrictive business practices. The Commission
states that the unannounced inspections are a preliminary step in an
investigation into suspected anticompetitive practices, and the fact that
the Commission carries out such inspections does not mean that the
companies are guilty of anti-competitive behaviour nor does it prejudge
the outcome of the investigation itself. UPM takes any suspected
violation of antitrust rules very seriously and has a compliance
programme in place to mitigate the risk of such violations. For example,
all employees and executives are required to take training on the UPM
Code of Conduct, which includes a section regarding antitrust
compliance. In addition, UPM has also in place a specific training
programme regarding antitrust rules which covers approximately 3,000
employees and executives.
9.3Events after the balance sheet date
On 1 January, UPM announced that members of the Paperworkers’
Union, the Finnish Electrical Workers´ Union and the Trade Union Pro
have started strikes at UPM mills in Jämsänkoski, Kouvola,
Lappeenranta, Pietarsaari, Rauma, Tampere and Valkeakoski. UPM
businesses falling under the strikes in Finland are UPM Pulp, UPM
Biofuels, UPM Communication Papers, UPM Specialty Papers and UPM
Raflatac. According to the unions, the strikes would continue until 22
January 2022 unless a new collective labour agreement is reached
before that. The duration of the strike has since been extended twice (on
5 January and 20 January) by the Paperworker's union and at the time
of signing the annual accounts, 27 January, the strike is due to last until
19 February 2022, unless new agreements are reached before that.
UPM FINANCIAL REPORT 2021
89
10.Other notes
10.1Forthcoming new standards, amendments
and accounting policy changes
Certain new accounting standard amendments and interpretations have
been published that come into effect only after the reporting period
started on 1 January 2021. These standards and amendments are not
expected to have a material impact on the group in the current or future
reporting periods and on foreseeable future transactions and have not
been early adopted.
Change in the composition of reportable segments
The group will change its reportable segments composition by moving
the UPM Biofuels business into Other Operations on 1 January 2022.
UPM is forming a new business unit by combining UPM Biofuels,
UPM Biochemicals, UPM Biomedicals and UPM Biocomposites
businesses. The aim is to speed up business growth and to leverage the
capabilities and competences across projects efficiently. This unit will
inherit the name UPM Biorefining and will be reported as part of Other
operations. UPM Pulp and UPM Timber currently reported under UPM
Biorefining will be reported as UPM Fibres business area from 1
January 2022.
Following the change, Other Operations will include UPM Forest,
UPM Biofuels, UPM Biochemicals, UPM Biomedicals and UPM
Biocomposites businesses as well as group services. The change will
impact KPIs of UPM Biorefining (1.1.2022 UPM Fibres) reportable
segment and Other Operations. The comparative periods will be
restated according to the new reporting principles. The reporting
change has no impact on group financial result or balance sheet.
UPM Biorefining (1.1.2022 UPM Fibres)
2021
UPM
Biorefining
as
published
UPM
Fibres
restated
Sales EURm
2,945
2,794
Comparable EBITDA, EURm
1,016
961
% of sales
35
34
Change in fair value of forest assets and wood
harvested, EURm
-9
-9
Share of results of associated companies and joint
ventures, EURm
2
2
Depreciation, amortisation and impairment
charges, EURm
-191
-173
Operating profit, EURm
817
781
% of sales
28
28
Comparable EBIT, EURm
817
781
% of sales
28
28
Capital employed (average), EURm
4,437
4,277
Comparable ROCE, %
18
18
Other operations
2021
As
published
Restated
Sales EURm
280
483
Comparable EBITDA, EURm
-19
36
Change in fair value of forest assets and wood
harvested, EURm
120
120
Depreciation, amortisation and impairment
charges, EURm
-25
-44
Operating profit, EURm
75
112
Items affecting comparability in operating profit,
EURm
-1
-1
Comparable EBIT, EURm
76
113
Capital employed (average), EURm
1,992
2,152
Comparable ROCE, %
4
5
UPM FINANCIAL REPORT 2021
90
Parent company accounts
(Finnish Accounting Standards, FAS)
Income statement
EURm
NOTE
2021
2020
Sales
1
2,554
1,816
Change in inventories of finished goods and work in progress
-2
-6
Production for own use
2
5
Other operating income
2
57
44
Materials and services
Raw materials and consumables purchased
-1,767
-1,342
Change in inventories
16
-6
External charges
-6
-6
-1,757
-1,353
Personnel expenses
Salaries and fees
-211
-196
Indirect employee costs
Pension costs
-31
-31
  Other indirect employee costs
-7
-7
3
-248
-234
Depreciation, amortisation and impairment charges
Depreciation and amortisation
-123
-115
Impairment charges on non-current assets
-2
-1
4
-124
-116
Other operating expenses
5
-180
-183
Operating profit
301
-27
Financial income and expenses
Income from non-current assets
Dividend income from group companies
288
348
Interest income from group companies
5
5
Other interest and financial income
Other interest income from group companies
25
43
Other interest income from other companies
1
1
Other financial income from other companies
6
23
Impairment charges on investments
0
1
Interest and other financial expenses
Interest expenses to group companies
-10
-8
Interest expenses to other companies
-10
-21
Other financial expenses to group companies
-20
-20
Other financial expenses to other companies
-5
-69
281
302
Profit before closing entries and tax
581
275
Closing entries
Depreciation difference
22
1
Group contributions granted
-19
-19
3
-18
Income taxes
6
-115
-8
Profit for the period
469
249
UPM FINANCIAL REPORT 2021
91
Balance sheet
EURm
NOTE
2021
2020
ASSETS
Non-current assets
Intangible assets
Intangible rights
5
5
Other intangible assets
46
59
Advance payments
11
3
7
62
67
Tangible assets
Land and water areas
718
719
Buildings
196
212
Machinery and equipment
514
579
Other tangible assets
21
24
Advance payments and construction in progress
13
7
8
1,462
1,541
Investments
Holdings in group companies
4,610
3,788
Holdings in participating interest companies
5
5
Other shares and holdings
3
3
Receivables from group companies
786
716
Receivables from participating interest companies
3
4
Other non-current receivables
0
0
9
5,408
4,516
Total non-current assets
6,932
6,124
Current assets
Inventories
Raw materials and consumables
176
160
Finished products and goods
17
19
Advance payments
24
15
217
193
Receivables
Current receivables
Trade receivables
32
31
Receivables from group companies
1,678
956
Receivables from participating interest companies
10
8
Other current receivables
271
125
Prepayments and accrued income
26
41
10
2,017
1,162
Other current financial assets
100
0
Cash and cash equivalents
1,296
1,582
Total current assets
3,629
2,937
Assets
10,561
9,061
UPM FINANCIAL REPORT 2021
92
EURm
NOTE
2021
2020
EQUITY AND LIABILITIES
Equity
Share capital
890
890
Revaluation reserve
141
142
Reserve for invested non-restricted equity
1,273
1,273
Retained earnings
1,557
2,002
Profit for the period
469
249
Total equity
11
4,330
4,555
Accumulated depreciation difference
417
439
Provisions
Termination provisions
3
5
Other provisions
149
183
12
152
187
LIABILITIES
Non-current liabilities
Bonds
1,581
1,056
Loans from financial institutions
200
100
Payables to group companies
153
168
Other non-current liabilities
161
166
13
2,095
1,490
Current liabilities
Trade payables
335
247
Payables to group companies
2,873
2,021
Payables to participating interest companies
1
1
Other current liabilities
259
36
Accrued expenses and deferred income
98
83
14
3,566
2,390
Total liabilities
5,661
3,880
Equity and liabilities
10,561
9,061
UPM FINANCIAL REPORT 2021
93
Cash flow statement
EURm
2021
2020
Cash flows from operating activities
Profit before closing entries and tax
581
275
Financial income and expenses
-281
-302
Adjustments to operating profit 1)
64
175
Change in working capital 2)
-639
-131
Interest received
31
49
Interest paid
-22
-29
Dividends received
288
348
Other financial items
18
-22
Income taxes paid 3)
-109
-11
Operating cash flow
-68
352
Cash flows from investing activities
Investments in tangible and intangible assets
-46
-84
Investments in shares and holdings
-829
-719
Proceeds from sale of intangible and tangible assets
11
15
Proceeds from disposal of shares and holdings
4
6
Change in other non-current receivables
-72
150
Investing cash flow
-932
-632
Cash flows from financing activities
Proceeds from non-current liabilities
620
904
Payments of non-current liabilities
-35
0
Change in current liabilities
943
269
Dividends paid
-693
-693
Group contributions, net
-19
0
Other items
-101
0
Financing cash flow
715
480
Cash and cash equivalents at beginning of period
1,582
1,382
Change in cash and cash equivalents
-286
200
Cash and cash equivalents at end of period
1,296
1,582
Notes to cash flow statement
1) Adjustments to operating profit
EURm
2021
2020
Depreciation, amortisation and impairment charges
124
116
Capital gains and losses on sale of non-current assets
-4
-12
Change in provisions
-56
71
Total
64
175
2) Change in working capital
EURm
2021
2020
Inventories
-23
13
Current receivables
-857
-121
Current non-interest-bearing liabilities
241
-23
Total
-639
-131
3) Income taxes related to sale of assets are presented in investing cash flow.
UPM FINANCIAL REPORT 2021
94
Notes to the parent company financial statements
Accounting policies
The financial statements of the parent company are prepared in
accordance with Finnish Accounting Standards, FAS. The main
differences in accounting policies of the group and the parent company
relate to the measurement of financial derivatives and forest assets and
recognition of defined benefit obligations, share-based payments, lease
agreements and deferred income taxes.
The financial statements are presented in millions of euros and
rounded and therefore the sum of individual figures might deviate from
the presented total figure.
Foreign currency translation
Receivables and liabilities denominated in foreign currencies
outstanding on the balance sheet date and other commitments are
translated into euro currency using the balance sheet date exchange
rate. Exchange rate differences arising from the valuation of trade
receivables are recognised in sales and exchange rate differences on
trade payables in purchases. Exchange differences arising from the
measurement of other receivables and liabilities are recognised in
financial items.
Tangible and intangible assets
Tangible and intangible assets are stated at cost less accumulated
depreciation and amortisation according to plan and impairments.
Emission rights are recognised using net approach. Depreciation and
amortization according to plan is recorded on a straight-line basis over
the expected useful lives of the assets as follows:
Land and water areas, no depreciation
Intangible assets
  5 – 10 years
Buildings
20 – 50 years
Light machinery and equipment
  5 – 10 years
Heavy machinery
15 – 20 years
Power plants
20 – 30 years
Other tangible assets
  5 – 20 years
Forest assets are recognised as tangible assets within land and water
areas at historical cost and revaluation. No systematic depreciation or
changes in value due to felling is recognised.
Investments
Investments are stated at cost less impairments.
Inventories
Inventories are stated at cost or the lower of replacement cost and
probable selling price. Costs are measured using FIFO-method. In
addition to variable costs, the cost of inventories includes a portion of
the fixed costs of acquisition and manufacturing.
Revaluations
The balance sheet value of land includes revaluations. No new
revaluations are made and the balance sheet value of land is
considered to be below their fair value.
Leases
Lease payments of lease contracts are recognised in other operating
expenses over the lease term. Lease payments due in future years under
lease contracts are presented as off-balance sheet items.
Provisions
Provisions include foreseeable future expenses and losses to which the
company is committed, the realization of which is probable and the
amount can be reliably estimated, e.g. pension and environmental
liabilities and termination and restructuring costs. Changes in provisions
are recognised in income statement within particular cost items.
Sales
Sales include sales revenue from actual operations less indirect taxes,
discounts, claims and exchange rate differences on net cash flow
hedges and trade receivables.
Research and development costs
Research and development costs are expensed in the year in which they
are incurred.
Pensions
In Finland employers are obliged to insure their employees for statutory
benefits, as determined in Employee’s Pension Act (TyEL). The
mandatory pensions are arranged mainly through pension insurance
companies. Contributions to pension insurance companies are charged
to the income statement in the period to which the contributions relate.
Pension obligations of own pension funds are fully funded.
Share-based payments
Share based compensation is recognized as an expense in the income
statement over the earnings period and the related liability is booked to
the balance sheet.
Closing entries
Parent company closing entries consists of the change in the
depreciation difference and group contributions granted to group
companies. The accumulated depreciation difference in the parent
company has not been divided into equity and deferred tax liability.
Income taxes
Income taxes presented in the income statement consist of accrued taxes
for the financial year and tax adjustments for prior years. The parent
company has not recognised deferred tax assets and liabilities in the
balance sheet, but presents the information in the notes.
Derivatives
Income and expenses of derivative contracts relating to net cash flow
hedges are recognised in sales. Income and expenses related to
commodity derivatives are recognised in purchases. Income and
expenses of fair value hedges are recognised in financial items. Net
cash flow hedging derivatives and commodity derivatives are
recognised in the income statement when the cash flow occurs. Hedge
accounting is not applied. The fair value losses of financial derivatives
are recognised through the income statement and presented as a
provision in the balance sheet.
UPM FINANCIAL REPORT 2021
95
All financial derivative contracts of the group are made by the
parent company. All contracts are made with external counterparties
except internal derivatives which are used to manage foreign currency
and interest rate exposure. Internal derivatives are one cross currency
swap with nominal value of EUR 57 million (66 million) maturing in
2027 and foreign currency forwards with nominal value of EUR 356
million (462) maturing between 2022 and 2024.
Financial risks, fair values and maturities of the group external derivatives
are disclosed in » Note 6.1 Financial risk management and in » Note 6.2
Derivatives and hedge accounting.
1.Sales
Sales by business area
EURm
2021
2020
UPM Biorefining
2,120
1,448
Other operations
434
368
Total
2,554
1,816
Sales by destination
EURm
2021
2020
Finland
2,486
1,785
Other EU countries
38
16
Other countries
30
16
Total
2,554
1,816
2. Other operating income
EURm
2021
2020
Gains on sale of non-current assets
10
15
Rental income
10
10
Other
37
18
Total
57
44
3. Personnel expenses
EURm
2021
2020
Salaries and fees of the President and CEO, and
members of the Board of Directors 1)
5
6
Other salaries and fees
206
190
Pension costs
31
31
Other indirect employee costs
7
7
Total
248
234
1) » Refer Note 3.2 Key management personnel
Personnel
 
2021
2020
Total average
2,815
3,026
4. Depreciation, amortisation and impairment
charges
EURm
2021
2020
Intangible rights
2
2
Other intangible assets
16
10
Buildings
18
19
Machinery and equipment
85
81
Other tangible assets
3
3
Total
124
116
5. Other operating expenses
EURm
2021
2020
Rents and lease expenses
13
13
Losses on sale of non-current assets
2
Maintenance expenses
86
100
Other operating expenses 1)
82
67
Total
180
183
1) The research and development costs in operating expenses were EUR 9
million (9 million) and auditor’s fee EUR 2.7 million (2.0 million). In personnel
expenses the research and development costs were EUR 20 million (17
million).
6. Income taxes
EURm
2021
2020
Tax expense for the period
114
9
Tax expense for the previous periods
1
-1
Total
115
8
Deferred tax assets and liabilities 1)
EURm
2021
2020
Deferred tax assets
Provisions
92
37
Share-based payments
2
1
Other temporary differences
1
0
Total
95
39
Deferred tax liabilities
Accumulated depreciation difference
83
88
Revaluations of land areas
60
60
Total
143
148
1) The parent company has not recognised deferred tax assets and liabilities in
the balance sheet. Deferred tax assets and liabilities are calculated based on
temporary differences between the carrying and taxable values of assets and
liabilities.
UPM FINANCIAL REPORT 2021
96
7.Intangible assets
EURm
INTANGIBLE
RIGHTS
OTHER
INTANGIBLE
ASSETS
ADVANCE
PAYMENTS
TOTAL
2021
Accumulated costs
21
293
11
325
Accumulated amortisation and impairments
-16
-247
-263
Carrying value, at 31 December
5
46
11
62
Carrying value, at 1 January
5
59
3
67
Additions
2
3
8
13
Disposals
Amortisation
-2
-16
-18
Carrying value, at 31 December
5
46
11
62
2020
Accumulated costs
19
303
3
325
Accumulated amortisation and impairments
-14
-244
-259
Carrying value, at 31 December
5
59
3
67
Carrying value, at 1 January
5
13
27
45
Additions
2
29
3
34
Amortisation
-2
-10
-13
Reclassifications
27
-27
Carrying value, at 31 December
5
59
3
67
8.Tangible assets
EURm
LAND AND
WATER AREAS
BUILDINGS
MACHINERY
AND
EQUIPMENT
OTHER
TANGIBLE
ASSETS
ADVANCE
PAYMENTS
AND
CONSTRUCTION
IN PROGRESS
TOTAL
2021
Accumulated costs
419
599
2,251
145
13
3,426
Accumulated depreciation and impairments
-403
-1,737
-123
-2,263
Revaluations
299
299
Carrying value, at 31 December
718
196
514
21
13
1,462
Carrying value, at 1 January
719
212
579
24
7
1,541
Additions
1
3
11
19
33
Disposals
-1
-2
-2
-6
Depreciations
-18
-83
-3
-104
Impairment
-1
-2
Reclassifications
2
9
2
-12
Carrying value, at 31 December
718
196
514
21
13
1,462
2020
Accumulated costs
420
613
2,257
145
7
3,441
Accumulated depreciation and impairments
-401
-1,677
-121
-2,199
Revaluations
300
300
Carrying value, at 31 December
719
212
579
24
7
1,541
Carrying value, at 1 January
721
230
601
25
22
1,599
Additions
1
1
43
2
3
50
Disposals
-2
-1
-2
-5
Depreciations
-19
-80
-3
-102
Reclassifications
16
-17
Carrying value, at 31 December
719
212
579
24
7
1,541
UPM FINANCIAL REPORT 2021
97
9.Other non-current assets
EURm
HOLDINGS
IN GROUP
COMPANIES
HOLDINGS IN
PARTICIPATING
INTEREST
COMPANIES
OTHER
SHARES AND
HOLDINGS
RECEIVABLES
FROM
GROUP
COMPANIES
RECEIVABLES
FROM
PARTICIPATING
INTEREST
COMPANIES
OTHER
NON-
CURRENT
RECEIVA-
BLES
TOTAL
2021
Accumulated costs
6,024
5
3
786
3
6,822
Accumulated value adjustments
-1,414
-1,414
Carrying value, at 31 December
4,610
5
3
786
3
5,408
Carrying value, at 1 January
3,788
5
3
716
4
4,516
Additions
829
104
2
935
Disposals
-8
-34
-2
-44
Value adjustments 1)
1
1
Carrying value, at 31 December
4,610
5
3
786
3
5,408
2020
Accumulated costs
5,204
5
3
716
4
5,931
Accumulated value adjustments
-1,415
-1,415
Carrying value, at 31 December
3,788
5
3
716
4
4,516
Carrying value, at 1 January
3,077
5
3
864
4
7
3,960
Additions
719
37
756
Disposals
-7
-186
-7
-200
Carrying value, at 31 December
3,788
5
3
716
4
4,516
1)  Value adjustments are shown in financial expenses
10.Current receivables
EURm
RECEIVABLES
FROM GROUP
COMPANIES
RECEIVABLES
FROM
PARTICIPATING
INTEREST
COMPANIES
RECEIVABLES
FROM OTHERS
TOTAL
2021
Trade receivables
559
9
32
601
Loan receivables 1)
1,114
1,114
Prepayments and accrued income 2)
4
26
30
Other current receivables
271
271
Carrying value, at 31 December
1,678
10
330
2,017
2020
Trade receivables
280
8
31
319
Loan receivables 1)
675
675
Prepayments and accrued income 2)
1
41
42
Other current receivables
125
125
Carrying value, at 31 December
956
8
198
1,162
1) There were no loans granted to the company’s President and CEO and members of the Board of Directors at 31 December 2021 and 2020.
UPM FINANCIAL REPORT 2021
98
2) Prepayments and accrued income
EURm
2021
2020
Energy taxes
7
Interest income
11
6
Exchange gains and losses
10
14
Income taxes
7
11
Other items
2
4
Carrying value, at 31 December
30
42
11.Equity
EURm
SHARE
CAPITAL
REVALUATION
RESERVE
RESERVE FOR
INVESTED
NON-
RESTRICTED
EQUITY
RETAINED
EARNINGS
PROFIT/LOSS
FOR THE
PERIOD
TOTAL SHARE-
HOLDER’S
EQUITY
2021
Carrying value, at 1 January
890
142
1,273
2,002
249
4,555
Transfer of profit from previous year
249
-249
Profit for period
469
469
Dividend distribution
-693
-693
Carrying value, at 31 December
890
142
1,273
1,557
469
4,330
2020
Carrying value, at 1 January
890
142
1,273
1,940
756
5,000
Transfer of profit from previous year
756
-756
Profit for period
249
249
Dividend distribution
-693
-693
Carrying value, at 31 December
890
142
1,273
2,002
249
4,555
EURm
2021
2020
Distributable funds
Reserve for invested non-restricted equity
1,273
1,273
Retained earnings from previous years
1,557
2,002
Profit for the period
469
249
Total distributable funds at 31 December
3,299
3,524
UPM FINANCIAL REPORT 2021
99
12.Provisions
EURm
RESTRUCTURING
TERMINATION
ENVIRONMENTAL
OTHER 1)
TOTAL
2021
Provisions at 1 January
3
5
8
172
187
Provisions made during the year
1
1
13
15
Provisions utilised during the year
-2
-2
Unused provisions reversed
-1
-47
-48
Carrying value, at 31 December
3
3
9
137
152
2020
Provisions at 1 January
3
3
8
35
49
Provisions made during the year
4
141
145
Provisions utilised during the year
-1
-5
-7
Carrying value, at 31 December
3
5
8
172
187
1) Other provisions are attributable to onerous contracts and fair value losses of financial derivatives. At the end of 2021 the fair value loss in other provisions of
EUR 3 million (5 million) is attributable to one group internal cross currency swap and EUR 13 million (47 million) to group internal foreign currency forwards.
13.Non-current liabilities
EURm
2021
2020
Bonds
1,581
1,056
Loans from financial institutions
200
100
Payables to group companies
153
168
Other non-current liabilities
161
166
Carrying value, at 31 December
2,095
1,490
Maturity in 2027 (in 2026) or later
EURm
2021
2020
Bonds
1,581
1,056
Loans from financial institutions
123
77
Other non-current liabilities
161
166
Total
1,865
1,299
Bonds
FIXED RATE PERIOD
INTEREST
RATE, %
CURRENCY
NOMINAL
VALUE ISSUED,
MILLION
CARRYING
VALUE
CARRYING
VALUE
2021
2020
EURm
EURm
1997–2027
7.450
USD
375
331
306
2020–2028
0.125
EUR
750
750
750
2021-2031
0.500
EUR
500
500
Carrying value, at 31 December
1,581
1,056
Non-current portion
1,581
1,056
UPM FINANCIAL REPORT 2021
100
14.Current liabilities
EURm
PAYABLES TO GROUP
COMPANIES
PAYABLES TO
PARTICIPATING
INTEREST COMPANIES
PAYABLES TO OTHERS
TOTAL
2021
Trade payables
165
1
335
501
Accrued expenses and deferred income 1)
12
98
110
Other current liabilities
2,696
259
2,955
Carrying value, at 31 December
2,873
1
692
3,566
2020
Trade payables
40
1
247
288
Accrued expenses and deferred income 1)
18
83
101
Other current liabilities
1,963
36
2,000
Carrying value, at 31 December
2,021
1
368
2,390
1) Accrued expenses and deferred income
EURm
2021
2020
Personnel expenses
80
65
Interest expenses
6
4
Exchange gains and losses
23
31
Other items
1
1
Carrying value, at 31 December
110
101
15.Commitments
EURm
2021
2020
Guarantees
Guarantees for loans on behalf of group
companies
1
Other guarantees on behalf of group companies
36
26
Other commitments
Leasing commitments, due within 12 months
11
26
Leasing commitments, due after 12 months
39
45
Other commitments
53
49
Total
140
148
In addition, the parent company acts as a guarantor on behalf of other
companies belonging to the group. Majority of such commitments relate
to major investment projects and can end up payable by the parent
company in case group companies are unable to manage their
obligations. » Refer Note 4.1 Property, plant and equipment for
information about major investment projects.
Pension commitments of the President and CEO and the
members of the Group Executive Team
» Refer Note 3.2 Key management personnel.
Related party transactions
» Refer Note 8.3 Related party transactions.
16.Shares and holdings owned by parent company
Myllykoski Oyj
FI
100.00
Repola Investment Oy
FI
100.00
Suurijärven Huolto Oy
FI
65.44
Unicarta Oy
FI
100.00
UPM (Vietnam) Limited
VN
100.00
UPM AG
CH
100.00
UPM Asia Pacific Pte. Ltd.
SG
100.00
UPM B.V.
NL
100.00
UPM Biochemicals GmbH
DE
100.00
UPM Bulgaria EOOD
BG
100.00
UPM Communication Papers Oy
FI
100.00
UPM Energy Oy
FI
100.00
SUBSIDIARIES
COUNTRY OF
INCORPORATION
HOLDING %
UPM FINANCIAL REPORT 2021
101
UPM India Private Limited
IN
100.00
UPM Kft.
HU
100.00
UPM Manufatura e Comércio de Produtos Florestais Ltda.
BR
100.00
UPM NV
BE
100.00
UPM OÜ
EE
100.00
UPM Plywood Oy
FI
100.00
UPM Pulp Oy
FI
100.00
UPM Pulp Sales Oy
FI
100.00
UPM Raflatac Canada Holdings Inc.
CA
100.00
UPM Raflatac NZ Limited
NZ
100.00
UPM Raflatac Oy
FI
100.00
UPM Raflatac S.r.l.
AR
27.80
UPM Romania S.R.L
RO
100.00
UPM Silvesta Oy
FI
100.00
UPM Specialty Papers Oy
FI
100.00
UPM Wood Materials (UK) Ltd
UK
100.00
UPM-Kymmene (HK) Ltd.
CN/HK
100.00
UPM-Kymmene (Korea) Ltd
KR
100.00
UPM-Kymmene (UK) Holdings Limited
UK
100.00
UPM-Kymmene A/S
DK
100.00
UPM-Kymmene AB
SE
100.00
UPM-Kymmene B.V.
NL
100.00
UPM-Kymmene Beteiligungs GmbH
DE
100.00
UPM-Kymmene Comercializacao de Papel Lda
PT
100.00
UPM-Kymmene d.o.o.
SI
100.00
UPM-Kymmene Groupe S.A.
FR
100.00
UPM-Kymmene Grundstücksverwaltung GmbH
DE
100.00
UPM-Kymmene Hellas Ltd
GR
100.00
UPM-Kymmene India Private Limited
IN
100.00
UPM-Kymmene Investment Inc.
US
100.00
UPM-Kymmene Japan K.K.
JP
100.00
UPM-Kymmene Pty Limited
AU
100.00
UPM-Kymmene RUS Holdings Oy
FI
99.62
UPM-Kymmene S.A.
ES
100.00
UPM-Kymmene S.r.l.
IT
100.00
UPM-Kymmene s.r.o.
CZ
100.00
UPM-Kymmene Seven Seas Oy
FI
100.00
UPM-Kymmene Slovakia s.r.o.
SK
100.00
Werla Insurance Company Ltd
MT
100.00
SUBSIDIARIES
COUNTRY OF
INCORPORATION
HOLDING %
PARTICIPATING INTEREST COMPANIES
COUNTRY OF
INCORPORATION
HOLDING %
Kiinteistö Oy Joutsan Rantatie 3
FI
25.43
Metsäteho Oy
FI
23.95
Oy Citotest Ab
FI
36.60
Oy Keskuslaboratorio - Centrallaboratorium Ab
FI
38.65
Perkaus Oy
FI
33.33
Rönnäsin Kiinteistöhuolto Oy
FI
28.41
Selluloosan ruokalaosuuskunta
FI
33.33
Steveco Oy
FI
34.32
Group subsidiaries and joint operations are disclosed in » Note 8.2.
UPM FINANCIAL REPORT 2021
102
Auditor’s Report (Translation of the Finnish Original)
To the Annual General Meeting of UPM-Kymmene Corporation
Report on the Audit of the Financial Statements
Opinion
In our opinion
the consolidated financial statements give a true and fair view of the group’s financial position and financial performance and cash flows in
accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the
laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report to the Audit Committee.
What we have audited
We have audited the financial statements of UPM-Kymmene Corporation (business identity code 1041090-0) for the year ended 31 December 2021.
The financial statements comprise:
the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, cash flow statement and
notes, including a summary of significant accounting policies
the parent company’s balance sheet, income statement, cash flow statement and notes.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further
described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland
and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in
accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of
Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 2.3 to the Financial Statements.
Our Audit Approach
Overview
Overall group materiality: € 77 million, which represents approximately 5 % of the the profit
before tax.
The group audit scope encompassed all significant group companies, as well as a number of
smaller group companies in Europe, Asia, North America and South America covering the vast
majority of revenue, assets and liabilities.
Valuation of forest assets
Valuation of energy shareholdings
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we
considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
UPM FINANCIAL REPORT 2021
103
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the
consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.
Overall group materiality
€ 77 million (previous year € 60 million)
How we determined it
Approximately 5% of the profit before tax.
Rationale for the materiality
benchmark applied
We chose profit before taxes as the benchmark because, in our view, it is the benchmark against
which the performance of the Group is commonly measured by users, and is a generally accepted
benchmark. We chose approximately 5%, which is within the range of acceptable quantitative
materiality thresholds in auditing standards.
How we tailored our group audit scope
We tailored the scope of our audit, taking into account the structure of the UPM-Kymmene Group, the accounting processes and controls, and the
industry in which the group operates.
We determined the type of work that needed to be performed at group companies by us, as the group engagement team, or by auditors from other
PwC network firms operating under our instruction. Audits were performed in group companies which were considered significant either because of
their individual financial significance or due to their specific nature, covering the majority of revenue, assets and liabilities of the group. Selected
specified procedures as well as analytical procedures were performed to cover the remaining group companies.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of
whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Key audit matter in the audit of the group
How our audit addressed the key audit matter
Valuation of forest assets
Refer to note 4.2. in the consolidated financial statements for the related
disclosures.
The group owns and leases total of a 1 057 thousand hectares of forests
and plantations in Finland, the United States and Uruguay valued
at € 2 328 million at 31 December 2021. Forest assets are measured at
fair value less cost to sell. The fair value is calculated on the basis of
discounted future expected cash flows as there is a lack of a liquid
market. Young saplings and land are valued at cost. Main factors used in
the valuation are estimates for growth and wood harvested, stumpage
prices and discount rates.
We focused on this area as the amounts are material, the valuation
process is complex and judgmental and is based on assumptions that are
affected by expected future market or economic conditions.
In testing the valuation of forest assets, in conjunction with our
valuation specialists we:
Assessed the methodologies adopted by management for the
valuation;
Tested the mathematical accuracy of the model used for
valuation;
Assessed the discount rates applied in the valuation;
Assessed the other key valuation assumptions; and,
Validated key inputs and data used in valuation model such as
stumpage price, trend price forecast, tree growth assumptions,
consumer price index and inflation.
UPM FINANCIAL REPORT 2021
104
Valuation of energy shareholdings
Refer to note 4.3. in the consolidated financial statements for the related
disclosures.
The energy shareholdings amounted to € 2 579 million at 31 December
2021. The energy shareholdings are unlisted equity investments in
energy companies and are valued at fair value through other
comprehensive income, net of tax if applicable. The fair value is
determined on a discounted cash flow basis. The main factors impacting
the future cash flows include future electricity prices, price trends,
discount rates and the start-up schedule of the nuclear power plant unit
Olkiluoto 3.
We focused on this area as the amounts are material, the valuation
process is complex and judgmental and is based on assumptions that are
affected by expected future market or economic conditions.
In testing the valuation of the energy shareholdings, in conjunction
with our valuation specialists we:
Assessed the methodology adopted by management for the
valuation;
Tested the mathematical accuracy of the model used for
valuation;
Assessed the future electricity prices and price trends;
Assessed the discount rate applied in the valuation;
Validated the Olkiluoto 3 nuclear power plant unit start-up
schedule against the most recent available information;
Validated key inputs and data used in valuation model such as
production costs and volumes, UPM’s ownership percentages,
inflation, tax rate and net debt.
We have no key audit matters to report with respect to our audit of the parent company financial statements.
There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the
consolidated financial statements or the parent company financial statements.
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair
view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair
view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory
requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and
the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of
accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent
company or the group or to cease operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout
the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the parent company or the group to cease to continue as a going concern.
UPM FINANCIAL REPORT 2021
105
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events so that the financial statements give a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express
an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the
financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
Other Reporting Requirements
Appointment
We have been acting as auditors appointed by the annual general meeting since 30 April 1996. Our appointment represents a total period of
uninterrupted engagement of 26 years. The Company arranged the latest audit tendering process in 2013. Authorised Public Accountant (KHT)
Mikko Nieminen has acted as the responsible auditor since 4 April 2019, representing a total uninterrupted period of three years.
Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board
of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We
have obtained the report of the Board of Directors prior to the date of this auditor’s report and the Annual Report is expected to be made available to
us after that date.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the
Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion
the information in the report of the Board of Directors is consistent with the information in the financial statements
the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is
a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Other Statements
We support the proposal that the financial statements are adopted. The proposal by the Board of Directors regarding the distribution of profits is in
compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director of the
parent company should be discharged from liability for the financial period audited by us.
Helsinki 15 February 2022
PricewaterhouseCoopers Oy
Authorised Public Accountants
Mikko Nieminen
Authorised Public Accountant (KHT)
UPM FINANCIAL REPORT 2021
106
Other financial information
Alternative performance measures
UPM presents certain performance measures of historical performance, financial position and cash flows, which in accordance with the “Alternative
Performance Measures” guidance issued by the European Securities and Markets Authority (ESMA) are not accounting measures defined or specified
in IFRS and are therefore considered as alternative performance measures. These alternative performance measures are described below:
ALTERNATIVE PERFORMANCE MEASURE
DEFINITION
Operating profit
Profit before income tax expense, finance expenses and finance income and net gains on sale of energy shareholdings
as presented on the face of the IFRS income statement. Gains on sale of energy shareholdings are not recorded to the
income statement from 2018 onwards.
Comparable EBIT
Operating profit adjusted for items affecting comparability.
Comparable EBITDA
Operating profit before depreciation, amortisation and impairments, change in fair value of forest assets and wood
harvested, share of results of associates and joint ventures and items affecting comparability.
Comparable profit before tax
Profit before income tax expense excluding items affecting comparability.
Comparable profit for the period
Profit for the period excluding items affecting comparability and their tax impact.
Comparable EPS, EUR
Earnings per share calculated in accordance with IFRS excluding items affecting comparability and their tax impact.
Net debt
Total of current and non-current debt less cash and cash equivalents and interest-bearing current and non-current
financial assets.
Items affecting comparability
Certain non-operational or non-cash valuation transactions with significant income statement impact are considered as
items affecting comparability, if they arise from asset impairments, restructuring measures, asset sales, fair value
changes of forest assets resulting from changes in valuation parameters or estimates or changes in legislation or legal
proceedings. In addition, the changes in fair value of unrealised cash flow and commodity hedges are classified as
items affecting comparability. Numerical threshold for items to be considered as significant in UPM’s business areas
UPM Biorefining, UPM Specialty Papers and UPM Communication Papers is determined as one cent (EUR 0.01) after
tax per share or more. In other business areas, the impact is considered to be significant if the item exceeds EUR 1
million before tax.
Free cash flow
Cash generated from operations after cash used for investing activities.
Return on equity (ROE), %
Profit for the period as a percentage of average equity.
Comparable ROE, %
Return on equity (ROE) excluding items affecting comparability.
Return on capital employed (ROCE), %
Profit before taxes, interest expenses and other financial expenses as a percentage of average capital employed.
Comparable ROCE, %
Return on capital employed (ROCE) excluding items affecting comparability.
Capital employed
Group total equity and total debt.
Business area’s comparable ROCE, %
Business area’s operating profit adjusted for items affecting comparability as a percentage of business area’s average
capital employed.
Business area’s capital employed
Business area’s operating assets less its operating liabilities. Operating assets include goodwill, other intangible assets,
property, plant and equipment, forest assets, energy shareholdings, investments in associates and joint-ventures,
inventories and trade receivables. Operating liabilities include trade payables and advances received.
Capital expenditure
Capitalised investments in property, plant and equipment, intangible assets including goodwill arising from business
combinations, energy shareholdings and other shares, associates and joint ventures.
Capital expenditure excluding acquisitions and
shares
Capital expenditure excluding investments in shares and participations.
Operating cash flow per share, EUR
Operating cash flow divided by adjusted average number of shares during the period excluding treasury shares.
Gearing ratio, %
Net debt as a percentage of total equity
Net debt to EBITDA
Net debt divided by comparable EBITDA
Equity to assets ratio, %
Equity expressed as a percentage of total assets less advances received.
UPM FINANCIAL REPORT 2021
107
Reconciliation of key figures to IFRS (Quarterly key figures are unaudited)
EURm, OR AS INDICATED
Q4/21
Q3/21
Q2/21
Q1/21
Q4/20
Q3/20
Q2/20
Q1/20
Q1–
Q4/21
Q1–
Q4/20
Items affecting comparability
Impairment charges
-52
1
0
-1
2
-53
-19
0
-52
-70
Restructuring charges
0
5
2
4
3
-57
-34
-48
11
-137
Change in fair value of unrealised cash flow and
commodity hedges
0
0
-5
-3
-3
-2
-9
12
-8
-3
Capital gains and losses on sale of non-current assets
7
134
0
0
0
14
8
0
140
23
Total items affecting comparability in operating profit
-46
140
-3
0
2
-98
-55
-36
91
-187
Changes in tax rates
0
0
0
0
0
0
-4
0
0
-3
Taxes relating to items affecting comparability
13
-1
1
0
-3
22
4
-2
12
21
Items affecting comparability in taxes
13
-1
1
0
-2
22
1
-2
12
18
Items affecting comparability, total
-33
139
-3
0
-1
-75
-54
-39
103
-169
Comparable EBITDA
Operating profit
415
564
304
279
253
117
148
243
1,562
761
Depreciation, amortisation and impairment charges
excluding items affecting comparability
113
116
118
116
116
117
119
120
463
471
Change in fair value of forest assets and wood harvested
excluding items affecting comparability
-103
-5
2
-5
24
1
-1
1
-111
25
Share of result of associates and joint ventures
-1
-1
-1
0
0
-1
-1
-1
-2
-3
Items affecting comparability in operating profit
46
-140
3
0
-2
98
55
36
-91
187
Comparable EBITDA
470
535
426
389
392
331
320
398
1,821
1,442
% of sales
17.6
21.2
17.9
17.4
17.9
16.3
15.4
17.4
18.6
16.8
Comparable EBIT
Operating profit
415
564
304
279
253
117
148
243
1,562
761
Items affecting comparability in operating profit
46
-140
3
-2
98
55
36
-91
187
Comparable EBIT
461
424
307
279
252
215
203
279
1,471
948
% of sales
17.2
16.8
12.9
12.5
11.5
10.6
9.8
12.2
15.0
11.1
Comparable profit before tax
Profit before tax
420
558
298
272
250
109
138
240
1,548
737
Items affecting comparability in operating profit
46
-140
3
-2
98
55
36
-91
187
Comparable profit before tax
466
418
301
272
248
207
193
276
1,457
924
Comparable ROCE, %
Comparable profit before tax
466
418
301
272
248
207
193
276
1,457
924
Interest expenses and other financial expenses
6
6
7
7
4
7
10
11
26
33
471
424
308
280
253
213
203
288
1,483
957
Capital employed, average
13,399
12,633
12,080
11,744
11,138
10,744
10,888
11,241
12,657
11,514
Comparable ROCE, %
14.1
13.4
10.2
9.5
9.1
7.9
7.5
10.2
11.7
8.3
Comparable profit for the period
Profit for the period
340
497
243
227
190
83
103
192
1,307
568
Items affecting comparability, total
33
-139
3
1
75
54
39
-103
169
Comparable profit for the period
373
359
246
228
191
158
157
231
1,204
737
Comparable EPS, EUR
Comparable profit for the period
373
359
246
228
191
158
157
231
1,204
737
Profit attributable to non-controlling interest
-5
-9
-4
-3
-3
-1
-2
-2
-22
-8
367
350
242
224
188
157
155
229
1,183
729
Average number of shares basic (1,000)
533,324
533,324
533,324
533,324
533,324
533,324
533,324
533,324
533,324
533,324
Comparable EPS, EUR
0.69
0.66
0.45
0.42
0.35
0.29
0.29
0.43
2.22
1.37
Comparable ROE, %
Comparable profit for the period
373
359
246
228
191
158
157
231
1,204
737
Total equity, average
10,760
10,011
9,454
9,407
9,496
9,468
9,564
9,923
10,310
9,844
Comparable ROE, %
13.8
14.3
10.4
9.7
8.0
6.7
6.6
9.3
11.7
7.5
UPM FINANCIAL REPORT 2021
108
Financial information 20122021
EURm, OR AS INDICATED
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Income statement
Sales
9,814
8,580
10,238
10,483
10,010
9,812
10,138
9,868
10,054
10,492
Comparable EBITDA
1,821
1,442
1,851
1,868
1,677
1,560
1,350
1,306
1,161
1,325
% of sales
18.6
16.8
18.1
17.8
16.8
15.9
13.3
13.2
11.5
12.6
Operating profit
1,562
761
1,344
1,895
1,259
1,135
1,142
674
548
–1,318
% of sales
15.9
8.9
13.1
18.1
12.6
11.6
11.3
6.8
5.5
–12.6
Comparable EBIT
1,471
948
1,404
1,513
1,292
1,143
916
866
683
556
% of sales
15.0
11.1
13.7
14.4
12.9
11.6
9.0
8.8
6.8
5.3
Profit before tax
1,548
737
1,307
1,839
1,186
1,080
1,075
667
475
–1,271
% of sales
15.8
8.6
12.8
17.5
11.9
11.0
10.6
6.8
4.7
–12.1
Comparable profit before tax
1,457
924
1,367
1,457
1,218
1,089
849
793
610
471
% of sales
14.8
10.8
13.4
13.9
12.2
11.1
8.4
8.0
6.1
4.5
Profit for the period
1,307
568
1,073
1,496
974
880
916
512
335
–1,122
% of sales
13.3
6.6
10.5
14.3
9.7
9.0
9.0
5.2
3.3
–10.7
Comparable profit for the period
1,204
737
1,119
1,194
1,004
879
734
638
479
390
% of sales
12.3
8.6
10.9
11.4
10.0
9.0
7.2
6.5
4.8
3.7
Balance sheet
Non-current assets
12,420
10,149
10,140
9,501
9,144
9,715
10,259
10,269
10,487
11,066
Inventories
1,594
1,285
1,367
1,642
1,311
1,346
1,376
1,356
1,327
1,388
Other current assets
3,662
3,424
3,215
2,853
2,612
2,850
2,558
2,570
2,785
2,489
Total assets
17,676
14,858
14,722
13,996
13,067
13,911
14,193
14,195
14,599
14,943
Total equity
11,106
9,513
10,175
9,797
8,663
8,237
7,944
7,480
7,455
7,461
Non-current liabilities
4,102
3,606
2,730
2,194
2,254
3,364
4,328
4,717
5,019
5,430
Current liabilities
2,468
1,740
1,818
2,005
2,150
2,309
1,921
1,998
2,125
2,052
Total equity and liabilities
17,676
14,858
14,722
13,996
13,067
13,911
14,193
14,195
14,599
14,943
Capital employed at year end
13,759
11,555
11,474
10,575
9,777
10,657
11,010
10,944
11,583
11,603
Capital expenditure
1,483
903
378
303
329
325
520
411
362
357
% of sales
15.1
10.5
3.7
2.9
3.3
3.3
5.1
4.2
3.6
3.4
Capital expenditure excluding acquisitions and shares
1,477
902
378
303
303
325
486
375
329
347
% of sales
15.1
10.5
3.7
2.9
3.0
3.3
4.8
3.8
3.3
3.3
Cash flow and net debt
Operating cash flow
1,250
1,005
1,847
1,330
1,460
1,686
1,185
1,241
735
1,040
Free cash flow
-74
126
1,432
1,131
1,336
1,424
750
994
438
968
Net debt
647
56
-453
-311
174
1,131
2,100
2,401
3,040
3,210
Key figures
Return on capital employed (ROCE), %
12.4
6.7
12.3
18.4
12.5
10.5
10.3
6.5
4.8
neg.
Comparable ROCE, %
11.7
8.3
12.8
14.6
12.8
10.6
8.3
7.6
6.0
4.2
Return on equity (ROE), %
12.7
5.8
10.7
16.2
11.5
10.9
11.9
6.9
4.5
neg.
Comparable ROE, %
11.7
7.5
11.2
12.9
11.9
10.9
9.5
8.5
6.4
4.2
Gearing ratio, %
6
1
-4
-3
2
14
26
32
41
43
Net debt to EBITDA
0.35
0.04
-0.24
-0.17
0.10
0.73
1.56
1.84
2.62
2.42
Equity to assets ratio, %
62.9
64.1
69.2
70.1
66.6
59.4
56.1
52.7
51.1
50.0
Personnel
Personnel at year end
16,966
18,014
18,742
18,978
19,111
19,310
19,578
20,414
20,950
22,180
Deliveries
Pulp (1,000 t)
3,724
3,664
3,715
3,468
3,595
3,419
3,224
3,287
3,163
3,128
Electricity (GWh)
9,300
9,168
8,619
8,608
8,127
8,782
8,966
8,721
8,925
9,486
Papers, total (1,000 t)
7,486
7,062
8,326
8,996
9,430
9,613
9,771
10,028
10,288
10,871
Plywood (1,000 m3)
738
683
739
791
811
764
740
731
737
679
Sawn timber (1,000 m3)
1,610
1,604
1,741
1,719
1,728
1,751
1,731
1,609
1,661
1,696
UPM FINANCIAL REPORT 2021
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