UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

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.

Repayments of debt and maturities of unused committed credit lines at the end of 2021

2,000

1,600

Leases Loans Unused committed credit lines

1,200

800

EURm

400

0

2022 2023 2024 2025 2026 27+

5. Capital structure

Maturity table of debt at the end of 2021

UPM has a strong cash flow and industry-leading balance sheet that mitigates risks and enables value-enhancing strategic actions.

EURm Bonds

2022

2023

2024

2025

2026 2027+ TOTAL

—

—

—

—

—

1,581

1,581

Net debt

Free cash flow

Loans from financial institutions

6

8

19 62

34 67

31 31

122 275 163

219 574 164

EUR 647 m

EUR -74 m

Lease liabilities Other loans Current loans

70

69

1 2

— —

— —

— —

— —

(EUR 56m)

(EUR 126m)

—

2

Principal payments Interest payments

79 45

76 45

81 44

101

62 43

2,141

2,540

5.1 Capital 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

44 328 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 107

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 Bonds

2021

2022

2023

2024

2025 2026+ TOTAL

—

—

—

—

—

1,056

1,056

Loans from financial institutions

4

4

17 53

8

16 54

77

126 544 171

Lease liabilities Other loans Current loans

75

63

50

248 168

1 2

— —

— —

— —

— —

—

2

Principal payments Interest payments

82 44

67 40

71 39

59 38

70 37

1,550

1,898

127 325 The difference between the above nominal values and carrying value of total debt arise from fair value adjustments increasing carrying value

EURm

2021 2020

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

Cash at bank

1,313

1,390

EURm

2021 2020

Cash equivalents Investment funds

146 100 909

330

Equity attributable to owners of the parent company

10,846

9,351

—

261

162

Non-controlling interest

Committed credit lines

1,458

EURm

2022

2023

2024

2025

2026 2027+ TOTAL

Total equity

11,106

9,513 1,952

of which used

—

—

Net settled interest rate swaps Net inflow

2,566

Non-current debt

Loan commitments

-123

-123

20

16

14

14

14

14 -11

92 -25

86

90

Current debt Total debt

Used uncommitted credit lines

-2

-2

Net outflow

—

-1

-3

-4

-5

2,652

2,042

Long-term loan repayment cash flow

-77

-80

Gross settled derivatives Gross currency swaps Total inflow

Total capitalisation

13,759

11,555

Liquidity

2,267

2,973

2,652

2,042

Total debt

7

7

7

7

7

178 -171

213 -178

Less: Interest-bearing financial assets and investment funds

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.

2,006

1,986

Total outflow

-1

-1

-2

-2

-2

Net debt

647

56

Forward foreign exchange contracts Total inflow

Gearing ratio, % 1) Net debt to EBITDA 1)

6

1

574 -574

— — —

— — —

— — —

— — —

— — —

574 -574

0.35 0.04 1) Refer » Other financial information on Alternative performance measures.

Total outflow Guarantees

2

2

184

UPM FINANCIAL REPORT 2021 185 UPM ANNUAL REPORT 2021 185

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 184