UPM Annual Report 2022

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

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.

impairment was EUR 80 million and the credit loss provision was EUR 8 million. For the time being, UPM businesses have suspended deliveries to Russia as well as wood sourcing in and from Russia. UPM has also suspended the UPM Chudovo plywood mill operations following carefully the legislation in Russia and with due consideration of local employees, customers, and stakeholders. The group expects that it will continue to operate and meet its liabilities as they fall due. » Refer Note 2.1 Business Areas and Note 4.6 Working capital for financial information on implications of Russia's war in Ukraine. 1.3 Consolidation 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

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.

Items marked with this symbol describe the accounting principle applied by UPM to the specific financial statement area.

Items marked with this symbol indicate that the accounting area involves estimates and judgement which are described separately.

Risks related disclosures, whether they are financial, actuarial, credit or counterparty in nature, can be found in sections marked with this symbol.

FINANCIAL RISK

NOTE

Credit risk

4.6 Working capital

1. Basis for reporting 1.1 Corporate information

Liquidity and refinancing risk

5.1 Capital management

Interest rate risk

6.1 Financial risk management 6.1 Financial risk management 6.1 Financial risk management

Foreign exchange risk Electricity price risk Financial counterparty risk

are not audited. The group has also voluntarily published its financial statements in a PDF format. The consolidated financial statements have been prepared in two languages, of which the Finnish version is official and the English translation is non-official. 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.

6.2 Derivatives and hedge accounting

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 2 February 2023. According to the Finnish Companies Act, the General Meeting of Shareholders is entitled to decide on the adoption of the company’s financial statements. 1.2 Basis 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, 2021. 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 as its official financial statements. In line with the ESEF requirements, the primary statements of the consolidated financial statements and notes have been labelled with XBRL tags. XBRL tags within the ESEF financial statements

Impact of COVID-19 on the financial statements The impact of COVID-19 on UPM financial statements has 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 2,374 million on 31 December 2022. Cash, investment funds, and unused committed credit facilities amounted to EUR 6.4 billion. The facilities and UPM's outstanding debt have no financial covenants. Accounting implications of the effects of the Russia's war in Ukraine The group has assessed the balance sheet impact of Russia´s war in Ukraine and the related sanctions imposed on Russia, 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 have been revised to reflect changed economic environment. Due to the significant uncertainties related to operations in Russia and Ukraine, UPM recognised a write off of all operating assets and uninsured receivables locating or relating to operations in these countries in Q1 2022. Impairment of fixed assets, inventories and other receivables amounting to EUR 95 million was reported as items affecting comparability. In addition, in Q1 the group increased the general provision for expected credit losses on trade receivables by EUR 17 million, which is impacting comparable EBIT. At the end of 2022, the

KEY ESTIMATES AND JUDGEMENTS NOTE Valuation of forest assets

4.2 Forest assets

Fair value determination of energy shareholdings Impairment of property, plant and equipment Impairment of goodwill and other intangible assets Pension and other post-employment benefits

4.3 Energy shareholdings

4.1 Property, plant and equipment

4.4 Goodwill and other intangible assets

3.4 Retirement benefit obligations

Income taxes

7. Income tax 4.5 Provisions 9.2 Litigation

Environmental provisions

Legal contingencies

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022

UPM FINANCIAL REPORT 2022

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UPM FINANCIAL REPORT 2022

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