UPM annual report 2014

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UPM Raflatac UPM Raflatac segment manufactures self-adhesive label materials for product and information labelling. UPM Paper Asia UPM Paper Asia segment consists of UPM Changshu paper mill in China and label paper operations in the Tervasaari and Jämsänkoski mills in Finland. UPM Paper ENA UPM Paper ENA segment produces magazine paper, newsprint and fine paper in Europe and North America. UPM Plywood UPM Plywood segment produces plywood and veneer products in Fin- land, Estonia and Russia. The information reported for each segment is the measure of what the Group’s President and CEO uses internally for evaluating segment per- formance and deciding on how to allocate resources to operating seg- ments. The performance of an operating segment is evaluated primarily based on the segment’s operating profit. The joint operation Madison Paper Industries (MPI) is reported as subsidiary in UPM Paper ENA segment reporting. In addition, the changes in fair value of unrealised commodity hedges are not allocated to segments. Otherwise the seg- ment’s operating profit is measured on a basis consistent with the consol- idated financial statements. Sales between the segments are based on market prices. The amounts provided to the President and CEO in respect of seg- ment assets and liabilities are measured on a basis consistent with con- solidated financial statements. Assets and liabilities are allocated to the segments based on segment operations. Unallocated assets and liabilities comprise other than energy shares under available-for-sale investments, non-current financial assets, deferred tax assets and liabilities, other non- current assets, income tax receivables and payables, cash and cash equiv- alents, assets classified as held for sale and related liabilities, retirement benefit obligations, provisions, interest-bearing liabilities and other liabil- ities and payables. Other operations Other operations include wood sourcing and forestry, UPM Bio- composites, UPM Biochemicals business units and Group services.

There have been no transfers between levels.

Segment information for the year ended 31 December 2014

The following table presents the changes in Level 3 instruments for the year ended 31 December 2014

UPM Paper Asia

UPM Paper ENA

Eliminations and reconci- liations 8)

UPM Biorefining

UPM Energy

UPM Raflatac

UPM Plywood

Other operations

Group

EURm

Available- for-sale investments

EURm

External sales Internal sales Total sales 1)

1,374

251 1,248

939 5,216

415

442

–17

9,868

563

213

–

185

–1,059 –1,076

–

Opening balance

2,661

1,937

464 1,248 1,124 5,284

440

447

9,868

Additions Disposals

31 –1

Share of results of associates and joint ventures

–

Transfers into Level 3 Transfers from Level 3 Translation differences

–

–10

Operating profit

223

202

108

–32

–22

674

Gains and losses Recognised in income statement, under gains on available-for-sale investments

Finance costs, net

–7

Income taxes

–155

–

Profit (loss) for the period

512

Recognised in statement of comprehensive income, under available-for-sale investments

–173 2,510

–

–11

–

–213

–

45 37

–

–173 847

Special items in operating profit 2) Operating profit excluding special items

Closing balance

217

202

108

181

–22

The following table presents the changes in Level 3 instruments for the year ended 31 December 2013

Assets 3)

3,171 2,826

678 1,008 2,754

284 1,605

–246

12,080

Unallocated assets

2,115

Available- for-sale investments

Total assets

14,195

EURm

Liabilities 4)

170

125

451

188

–191

863

Opening balance

2,587

Unallocated liabilities

5,852 6,715

Additions

Total liabilities

Transfers into Level 3 Transfers from Level 3

1 –

Other items

Gains and losses Recognised in income statement, under gains on available-for-sale investments Recognised in statement of comprehensive income, under available-for-sale investments

Depreciation and amortisation

151

213 136 102

–2

520 138 411

Impairment charge Capital expenditure 5)

–1

–

– 8

–

151

–1

Capital expenditure, excluding acquisitions and shares Capital employed, 31 December 6)

147

102

–1

375

3,002 2,818 2,862 2,903

553 530

922 2,303 861 2,511

257 1,417 268 1,445

–328 –117

10,944 11,263

Capital employed, average Return on capital employed, excluding special items % 7)

Closing balance

2,661

7.6

7.0

15.1

12.5

7.2

16.4

2.6

18.8 –111 –110

7.5

Personnel at year end Personnel, average

2,529 2,612

80 2,847 1,652 10,467 2,441 85 2,845 1,663 10,735 2,463

509 559

20,414 20,852

4 Segment Information

1) The Group's sales comprise mainly of product sales.

The Group’s management has determined the operating segments based on management reporting regularly reviewed by the Group’s chief oper- ating decision maker. The chief operating decision maker has been identified as the Group’s President and CEO. The operating segments are organised on a product basis. UPM’s business structure consists of the following business areas and reporting segments: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper ENA (Europe and North America) and UPM Plywood. Wood sourcing and forestry, UPM Bio- composites, UPM Biochemicals business units and Group services are reported in Other operations. Reportable segments UPM Biorefining UPM Biorefining segment consists of pulp, timber and biofuels busi- nesses. UPM has three pulp mills in Finland, one pulp mill and planta- tion operations in Uruguay and four sawmills in Finland. UPM’s biore- finery for producing wood-based renewable diesel has started up in January 2015 in Finland. UPM Energy UPM Energy segment operates in power generation and physical and derivatives trading. The segment consist of UPM’s hydro power assets in Finland and shareholdings in energy companies

2) In 2014, special income of EUR 5 million in the UPM Biorefining segment relate to a gain on sale of property, plant and equipment and income of EUR 1 million relate to restructuring measures. In the UPM Raflatac segment special items of EUR 11 million relate to restructuring charges, including impairments of EUR 3 million. In the UPM Paper ENA segment special items include write-offs totalling EUR 135 million and restructuring charges totalling EUR 73 million related to planned capacity closures and charges of EUR 5 million related to other restructuring measures, mainly to the closure of the UPM Docelles mill in France, including impairment charges of EUR 1 million. In the Other operations special items relate to a capital gain of EUR 45 million from the sale of forestland in the UK. 3) Segment assets include goodwill, other intangible assets, property, plant and equipment, investment property, biological assets and investments in associated companies and joint ventures, available-for-sale investments, inventories and trade receivables.

4) Segment liabilities include trade payables and advances received.

5) Capital expenditure includes goodwill arising from business combinations, other intangible assets, property, plant and equipment, investment property, and investments in as- sociated companies and joint ventures and other shares.

6) Capital employed is segment assets less segment liabilities. Eliminations and reconciliations include unallocated assets and unallocated non-interest-bearing liabilities.

7) Formulae for calculation of the return on capital employed; for segments: Operating profit excluding special items/Capital employed (average) x 100, for the Group: (Profit before tax + interest expenses and other financial expenses–special items)/(Total equity+interest bearing liabilities (average)) x 100. 8) Eliminations and reconciliations include the elimination of internal sales and internal inventory margin and the consolidation of MPI as a joint operation. In addition the changes in fair value of unrealised commodity hedges that are not allocated to segments are included in reconciliations.

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UPM Annual Report 2014

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