UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

12 Finance costs

10 Depreciation, amortisation and impairment charges

Profit before taxes for 2015 and 2014 include income not subject to tax from subsidiary operating in tax free zone. In 2015, other items include EUR 9 million tax benefit related to capital gain from sale of forestland in UK in 2014 where tax authori- ties accepted treatment of the gain as tax-exempt in 2015. In 2014, change in recoverability of deferred tax assets relates to reassessment of estimated recoverability of deferred tax assets in France. Tax effects of components of other comprehensive income Year ended 31 December EURm 2015 2014 Before tax Tax After tax Before tax Tax

In accordance with the service contract, the retirement age of the President and CEO Jussi Pesonen is 60. For the President and CEO, the target pension is 60% of the average indexed earnings from the last ten years of employment calculated according to the Finnish statu- tory pension scheme. The costs of lowering the retirement age to 60 is covered by supplementing the statutory pension with a voluntary defined benefit pension plan. Should the President and CEO leave the company before reaching the age of 60, an immediate vesting right corresponding to 100% of earned pension (pro rata) will be applied. The retirement age of the other members of the Group Executive Team is 63. The expenses of the President and CEO's defined benefit pen- sion plan in 2015 were EUR 0.6 million (0.5 million), and the plan assets amounted to EUR 1.6 million (6.6 million) and obligation to EUR 0.9 million (5.1 million). Other Group Executive Team members are under defined contribution plans. In case the notice of termination is given to the President and CEO, a severance pay of 24 months' base salary will be paid in addition to the salary for six months' notice period. Should the President and CEO give a notice of termination to the company, no severance pay will be paid in addition to the salary for the notice period. For other members of the Group Executive Team, 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. If there is a change in the control over the company, the President and CEO may terminate his service contract within three months and each member of the Group Executive Team may terminate his/her ser- vice contract within one month from the date of the event that triggered the change of control and shall receive compensation equivalent to 24 months' base salary.

Year ended 31 December

2015 2014

EURm

Year ended 31 December

Exchange rate and fair value gains and losses Derivatives held for trading Fair value gains on derivatives designated as fair value hedges Fair value adjustment of interest-bearing liabilities attributable to interest rate risk Fair value adjustment of firm commitments attributable to foreign exchange risk Foreign exchange gains/losses on financial liabilities measured at amortised cost Foreign exchange gains/losses on loans and receivables Other exchange rate and fair value gains and losses Interest and other finance costs, net Interest expense on financial liabilities measured at amortised cost Interest income on derivative financial instruments

2015 2014

EURm

85

96

Amortisation of intangible assets Intangible rights

8

16 30 46

–13

51

Other intangible assets

25 33

5

–50

Depreciation of property, plant and equipment Buildings

82

81

3

5

Machinery and equipment

388 373 17 487 471 17

Other tangible assets

–105 –123

After tax

Depreciation of investment property Buildings

13 13

17

Actuarial gains and losses on defined benefit obligations

3 1 4

3 1 4

–

153 –40 113 –235 54 –181 221 – 221 291 – 291 –26 –2 –28 –51 10 –41

Other assets

1

–4

Translation differences Net investment hedge

Impairment charges of intangible assets Emission allowances

Cash flow hedges 30 –6 24 –133 26 –107 Available-for-sale investments –424 19 –405 –173 9 –164 Other comprehensive income –46 –29 –75 –301 99 –202

– –

–1 –1

–122 –148

75

90 15

Interest income on loans and receivables

5

Impairment charges of property, plant and equipment Land areas

Other financial expenses

–26 –68

–19 –62

– – – – –

1

Buildings

42 93

14 Earnings per share

Machinery and equipment

Total

–67 –66

Other tangible assets

2

Year ended 31 December 2015 2014

138

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

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

Total

524 658

916

512

Auditor's fees

Year ended 31 December

In 2015, no impairment charges were recognised in property, plant and equipment. In 2014, the Group recognised impairment charges of EUR 135 million in UPM Paper ENA related to the plan to permanently close four of its paper machines: PM3 at UPM Chapelle, PM1 at UPM Shot- ton, PM5 at UPM Jämsänkoski and PM2 at UPM Kaukas. In addition, impairment charges of EUR 3 million related to restructuring in the UPM Raflatac were recognised in property, plant and equipment. 11 Gains on available-for-sale investments, net Year ended 31 December EURm 2015 2014 Net gains and losses on disposals 1) – 59 Total – 59 1) In 2014, includes a gain of EUR 59 million related to the sale of Metsä Fibre Oy shares in 2012.

Weighted average number of shares (1,000)

533,505 531,574

2015 2014

EURm

Basic earnings per share, EUR

1.72

0.96

Year ended 31 December

Derivatives designated as cash flow hedges

–101

30

2015 2014

EURm Audit

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

Derivatives held for trading

–78

–53 –23

2.3 0.8 0.5 3.6

2.0 0.6 0.5 3.1

Total

–179

Tax consulting Other services

Total

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

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

916

512

Year ended 31 December

916

512

8 Change in fair value of biological assets and wood harvested

2015 2014

EURm Sales

533,505 531,574

–100

11 23

Other operating income

18

Year ended 31 December

533,505 531,574

Net financial items

6

–11

2015 2014 –91 –91 443 169

EURm

Total

–76

23

Diluted earnings per share, EUR

1.72

0.96

Wood harvested

Change in fair value

Total

352

78

13 Income taxes

15 Dividend per share

Year ended 31 December

2015 2014

EURm

The dividends paid in 2015 were EUR 373 million (EUR 0.70 per share) and in 2014 EUR 319 million (EUR 0.60 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 400 million, EUR 0.75 per share, will be paid in respect of 2015.

9 Share of results of associated companies and joint ventures

Current tax expense

95 64

100

Change in deferred taxes (Note 28)

55

Income taxes, total

159

155

Year ended 31 December

2015 2014

EURm

Income tax reconciliation statement Profit (loss) before tax

Associated companies

2 1 3

3 – 3

1,075

667 133

Joint ventures

16 Goodwill

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

215

Total

16

9

As at 31 December

–63

–27

2015

2014

EURm

Tax loss with no tax benefit Results of associated companies

11 –1 –1

25 –1

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

230

219

11

11

Change in tax legislation

1

241

230

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

–

19 –5

–6

Other

–12 159

1

Income taxes, total

155

Effective tax rate

14.8% 23.2%

contents

accounts

109

110

UPM Annual Report 2015

UPM Annual Report 2015