UPM annual report 2015

UPM Annual Report 2015

contents

accounts

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Consolidated cash flow statement

Year ended 31 December

EURm

Note

2015

2014

Cash flow from operating activities

Profit (loss) for the period

916

512

Adjustments

449

779

Interest received

Interest paid

–22

–40

Dividends received

Other financial items, net

–17

–11

Income taxes paid

–140

–81

Change in working capital

–8

Net cash generated from operating activities

1,185

1,241

Cash flow from investing activities

Capital expenditure

–432

–378

Acquisition of shares in associated companies and joint ventures

–1

Acquisition of available-for-sale investments

–33

–31

Proceeds from sale of tangible and intangible assets

Proceeds from disposal of subsidiaries

Proceeds from disposal of available-for-sale investments

Change in other non-current assets

Net cash used in investing activities

–392

–247

Cash flow from financing activities

Proceeds from non-current liabilities

–

Payments of non-current liabilities

–519

–836

Change in current liabilities

Share options exercised

–

Dividends paid

–373

–319

Other financing cash flow

–20

–22

Net cash used in financing activities

–868

–1,096

Change in cash and cash equivalents

–75

–102

Cash and cash equivalents at beginning of period

700

787

Foreign exchange effect on cash and cash equivalents

Change in cash and cash equivalents

–75

–102

Cash and cash equivalents at end of period

626

700

The notes are an integral part of these consolidated financial statements.

1 Accounting policies

The principal accounting policies applied in the preparation of the

consolidated financial statements are set out below:

Principal activities

UPM-Kymmene Corporation (“the parent company” or “the company”)

together with its consolidated subsidiaries (“UPM” or “the Group”) is a

global paper and forest products group, mainly engaged in the pro-

duction of paper, with an emphasis on the manufacture and sale of

printing and writing papers. UPM reports financial information for the

following business areas (segments): UPM Biorefining, UPM Energy,

UPM Raflatac, UPM Paper Asia, UPM Paper ENA, UPM Plywood and

Other operations. The Group’s activities are centred in European

Union countries, North and South America and Asia with production

plants in 13 countries.

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 is listed on NASDAQ OMX Helsinki Ltd.

These Group consolidated financial statements were authorised for

issue by the Board of Directors on 2 February 2016. According to the

Finnish Companies Act, the General Meeting of Shareholders is enti-

tled to decide on the adoption of the company’s financial statements.

Basis of preparation

These consolidated financial statements of UPM are prepared in accor-

dance with International Financial Reporting Standards as adopted by

the European Union (IFRS as adopted by the EU) and IFRIC Interpreta-

tions.

The consolidated financial statements have been prepared under

the historical cost convention, except for biological assets, available-

for-sale investments and certain other financial assets and financial

liabilities, defined benefit plan assets and obligations and share-based

payment arrangements.

The preparation of financial statements requires the use of account-

ing estimates and assumptions 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. Accounting esti-

mates are employed in the financial statements to determine reported

amounts, including the realisable value of certain assets, the useful

lives of tangible and intangible assets, income tax and other items.

Although these estimates are based on management’s best knowledge

of current events and actions, actual results may ultimately differ from

them. The preparation of financial statements also requires manage-

ment to exercise its judgement in the process of applying the Group’s

accounting policies. The most significant critical judgements are sum-

marised in Note 2.

Consolidation principles

Subsidiaries

The consolidated financial statements of UPM include the financial

statements of the parent company, UPM-Kymmene Corporation, and its

subsidiaries. Subsidiaries are those entities in which the Group has

control. The Group has control over an entity if it has power over the

entity; it is exposed or has rights to variable returns from its involve-

ment with the entity and has the ability to use its power to affect the

amount of its returns from the entity.

Business combinations are accounted for by using the acquisition

method of accounting. The consideration transferred in a business com-

bination is the fair value of the assets transferred, the liabilities incurred

Notes to the consolidated financial statements

(In the notes all amounts are shown in millions of euros unless otherwise stated.)

and the equity instruments issued at the acquisition date. The consider-

ation transferred includes the fair value of any assets or liabilities result-

ing from a contingent consideration arrangement. Transaction costs

related to an acquisition are expensed as incurred. Identifiable assets

acquired and liabilities and contingent liabilities assumed in a business

combination are measured initially at their fair values at the acquisition

date. For each business combination, the Group measures any non-

controlling interest in the acquiree either at fair value or at the non-con-

trolling 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 good-

will. If this is less than the fair value of the net assets of the subsidiary

acquired in the case of a bargain purchase, the difference is recog-

nised directly in the income statement (see below “Intangible assets”

for goodwill accounting policy).

Subsidiaries are fully consolidated from the date on which control

is transferred to the Group and are no longer consolidated from the

date when control ceases.

All intercompany transactions, receivables, liabilities and unre-

alised profits, as well as intragroup profit distributions, are eliminated.

Unrealised losses are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred. Accounting policies

of subsidiaries have been changed where necessary to ensure consis-

tency with the policies adopted by the Group.

When the Group ceases to have control in subsidiary, any

retained interest in the entity is remeasured to its fair value, with the

change in carrying amount recognised in income statement.

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 obliga-

tions for the liabilities, relating to the arrangement. Joint control is the

contractually agreed sharing of control of an arrangement, which

exists only when decisions about the relevant activities require unani-

mous consent of the parties sharing control.

The Group accounts in relation to its interest for the assets, liabili-

ties, revenues and expenses related to a joint operation in accordance

with IFRS applicable for the particular item. Transactions with joint

operations are recognised in the consolidated financial statements only

to the extent of other parties’ interests in the joint operation.

Associated companies and joint ventures

Associated companies are entities over which the Group has signifi-

cant influence but no control, generally accompanying a shareholding

of between 20% and 50% of the voting rights. Joint ventures are joint

arrangements whereby the parties that have joint control of the ar-

rangement have rights to the net assets of the joint arrangement.

Interests in associated companies and joint ventures are accounted

for using the equity method of accounting and are initially recognised

at cost. Under this method the Group’s share of the associated com-

pany and joint venture profit or loss for the period is recognised in the

income statement and its share of movements in other comprehensive

income is recognised in other comprehensive income. The Group’s

interest in an associated company and joint venture is carried on the

balance sheet at an amount that reflects its share of the net assets of

the associated company and joint venture together with goodwill on

acquisition (net of any accumulated impairment loss), less any impair-

ment in the value of individual investments. Unrealised gains and

losses on transactions between the Group and its associates and joint

ventures are eliminated to the extent of the Group’s interest in the asso-

ciated company and joint venture, unless the loss provides evidence of

an impairment of the asset transferred. Associated company and joint