UPM Annual Report 2022

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

2. Business performance

UPM Biorefining (1.1.2022 UPM Fibres)

equity. Gains or losses of disposals to non-controlling interests are also recorded in equity, net of transaction costs. 1.4 Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of transaction. Receivables and liabilities denominated in foreign currencies outstanding on the balance sheet date are translated into the functional currency using the balance sheet date exchange rate. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. UPM records foreign exchange differences relating to ordinary business operations within the appropriate line items above operating profit and those relating to financial items are presented separately as a net amount in finance costs. Income and expenses of subsidiaries that have a functional currency different from euro are translated into euros at quarterly average exchange rates. Assets and liabilities of subsidiaries are translated at the closing rate at the balance sheet date. All resulting translation differences are recognised as a separate component in other comprehensive income. On consolidation, exchange differences arising from the translation of net investment in foreign operations and other currency instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign entity is partially disposed of, sold or liquidated, translation differences accrued in equity are recognised in the income statement as part of the gain or loss on sale/liquidation. 1.5 Changes in accounting policies The group has reviewed IFRS standard amendments effective on periods starting 1 January 2022. The amendments effective as of 1 January 2022 did not have any impact on the group's financial statements. Change in the composition of reportable segments The group has changed its reportable segments composition by moving the UPM Biofuels business into Other Operations on 1 January 2022. UPM has formed a new business unit by combining UPM Biofuels, UPM Biochemicals, UPM Biomedicals and UPM Biocomposites businesses. The aim is to speed up business growth and to leverage the capabilities and competences across projects efficiently. This unit has inherited the name UPM Biorefining and is reported as part of Other operations. UPM Pulp and UPM Timber priorly reported under UPM Biorefining are reported as UPM Fibres business area from 1 January 2022. Following the change, Other Operations include UPM Forest, UPM Biofuels, UPM Biochemicals, UPM Biomedicals and UPM Biocomposites businesses as well as group services. The change has impacted KPIs of UPM Biorefining (1.1.2022 UPM Fibres) reportable segment and Other Operations. The comparative periods have been restated according to the new reporting principles. The reporting change has no impact on group financial result or balance sheet.

UPM Biorefining as published

Sales

Comparable EBIT

Comparable ROE 14.0 %

UPM Fibres restated

EUR 11,720 m

EUR 2,096 m

2021

Sales EURm

2,945 1,016

2,794

Comparable EBITDA, EURm

961 34.4

(11.7%)

(EUR 9,814m)

(EUR 1,471m)

% of sales

34.5

Change in fair value of forest assets and wood harvested, EURm Share of results of associated companies and joint ventures, EURm Depreciation, amortisation and impairment charges, EURm

-9

-9

2.1 Business areas UPM business portfolio consist of six competitive businesses with strong market positions. UPM reports financial information for the following business areas (segments): UPM Fibres, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers, UPM Plywood and Other operations. UPM has production plants in 12 countries. The group’s most important markets are Europe, North America and Asia. Accounting policies UPM business areas are reported consistently with the internal reporting provided to UPM’s President and CEO who is responsible for allocating resources and assessing performance of the business areas. Internal reporting is prepared under the same basis as the consolidated accounts. Costs, revenues, assets and liabilities are allocated to business areas on a consistent basis. The sales transactions between business areas are based on market prices, and they are eliminated on consolidation.

Comparable EBIT, EURm

2

2

0 200 400 600 800

-191

-173

Operating profit, EURm

817 27.8 817 27.8

781 27.9 781 27.9

% of sales

Comparable EBIT, EURm

% of sales

Capital employed (average), EURm

4,437

4,277

Comparable ROCE, %

18.4

18.3

Other operations

UPM Fibres

UPM Energy

UPM Raflatac

UPM Plywood

Other Operations

As published Restated

UPM Specialty Papers UPM Communication Papers

2021

Sales EURm

280

483

2021 2022

Comparable EBITDA, EURm

-19

36

Change in fair value of forest assets and wood harvested, EURm Depreciation, amortisation and impairment charges, EURm

120

120

-25

-44

Capital employed 31 Dec 2022 EUR 17,913 million

Comparable ROCE, %

Operating profit, EURm

75

112

-10 0 10 20 30 40 50

Items affecting comparability in operating profit, EURm

-1

-1

Other operations 15%

Comparable EBIT, EURm

76

113

UPM Plywood 1%

Capital employed (average), EURm

1,992

2,152

UPM Fibres 36%

Comparable ROCE, %

3.8

5.2

UPM Communication Papers 9%

UPM Specialty Papers 5%

UPM Fibres

UPM Energy

UPM Raflatac

UPM Raflatac 4%

UPM Plywood

UPM Energy 21%

UPM Specialty Papers UPM Communication Papers

2021

2022

166

167

UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022

UPM FINANCIAL REPORT 2022

166

UPM FINANCIAL REPORT 2022

167