UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Other operating income Other operating income mainly includes gains on the disposal of non current assets and rental income. Further, other operating income includes foreign exchange gains and losses in respect of UPM’s normal business activities. Gains and losses on derivatives not qualifying hedge accounting are also recognised in other operating income. Emission rights The group participates in the European Emissions Trading Scheme aimed at reducing greenhouse gas emissions. Emission rights received from governments free of charge to emit a fixed tonnage of carbon dioxide in a fixed period of time give rise to an intangible asset for the emission rights, a government grant and a liability for the obligation to deliver emission rights equal to the emissions that have been made during the compliance period. Emission rights are initially recognised as intangible assets based on market value at the date of initial recognition. Emission rights are not amortised. If the market price of emissions rights at the balance sheet date is less than the recognised costs, any surplus emission rights that are not required to cover actual and estimated emissions during the financial year, are impaired to the market price. Government grants are recognised as deferred income in the balance sheet at the same time as emission rights and are recognised in other operating income in the income statement, systematically, over the compliance period to which the corresponding emission rights relate. The liability to deliver emission rights is recognised based on actual emissions. The emissions realised are expensed under other operating costs and expenses in the income statement and presented as a provision in the balance sheet. The liability is settled using emission rights on hand, measured at the carrying amount of those emission rights. Emission rights and associated provisions are derecognised when disposed. Any profit or loss represents the costs of purchasing additional rights to cover excess emissions, the sale of unused rights in the case realised emission are under emission rights received free of charge or the impairment of unused emission rights. 2.4 Earnings per share and dividend On 2 February 2023, UPM’s Board of Directors revised the company’s dividend policy to be based on earnings instead of cash flow. According to new dividend policy, the company aims to pay attractive dividends, targeting at least half of the comparable earnings per share over time. » Refer Note 9.3 Events after the balance sheet date. The dividend paid in 2022 were EUR 693 million (EUR 1.30 per share) which is 55% of the operating cash flow per share and in 2021 EUR 693 million (EUR 1.30 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 800 million, EUR 1.50 per share, will be paid in respect of 2022. The proposed dividend represents 49% of UPM's comparable earnings per share for the year 2022.

Earnings per share

EUR 122 million (22 million) relates to Finland, EUR 74 million (46 million) to Germany, EUR 8 million (1 million) to Austria and EUR 4 million (5 million) to UK. Other operating income

Cost structure 2022 EUR 9,470 million

EURm

2022 2021

Profit attributable to owners of the parent company, EURm Weighted average no. of shares (1,000)

1,526

1,286

Delivery of own products 11%

Other fixed costs 11%

533,324

EURm

2022 2021

Basic earnings per share, EUR Diluted earnings per share, EUR

2.86 2.86

2.41 2.41

Gains on sale of non-current assets

37 12

147

Employee costs 12%

Rental income

13 75 -22

Wood and fibre 29%

Emission rights received

208

Other variable costs 15%

Derivatives, non-qualifying hedges Exchange rate gains and losses

Accounting policies

-47 17

-5

Other Total

Fillers, coating and chemicals 10%

Energy 12%

231

254

Earnings per share Earnings per share (EPS) is the amount of profit for the period attributable to each share. The basic earnings per share are computed using the weighted average number of shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of shares outstanding during the period plus the dilutive effect of share options. The group did not have share-option schemes at the end of 2022 and 2021. Dividend Dividend distribution to the owners of the parent company is recognised as a liability in the group’s consolidated financial statements in the period in which the dividends are approved by the parent company’s shareholders.

In 2021, gains on sale of non-current assets include an EUR 133 million gain from the disposal of Shotton Mill LTd. Emission rights The group has recognised EUR 208 million (75 million) of income in Other operating income and EUR 70 million of expense (106 million of income) under Other operating costs and expenses relating to CO 2 emissions. The liability to cover the obligation to return emission rights amounted to EUR 53 million (39 million) and is recognised in provisions. The emission rights recognised in intangible assets are specified below:

Cost structure 2021 EUR 8,104 million

Delivery of own products 11%

Other fixed costs 8%

Employee costs 13%

Wood and fibre 30%

EURm

2022 2021

Other variable costs 17%

Carrying value, at 1 January

104 231 -100 235 236

95 86 -78

Emission rights received and purchased

Fillers, coating and chemicals 11%

Earnings and dividend per share

Deliveries and disposals

Energy 10%

Carrying value, at 31 December

104 105

0.00 0.50 1.00 1.50 2.00 2.50 3.00

Accumulated costs

Accumulated impairments

-1

Carrying value, at 31 December

235

104

EUR

Auditor’s fees EURm

Accounting policies

2022 2021

Audit fee

4.0 0.2 0.3 0.1 4.6

3.4 0.2 0.4 0.2 4.2

2018

2022

2021

2020

2019

Audit related services

Research and development costs Research and development costs are expensed as incurred, except for certain development costs, which are capitalised as they generate future economic benefits, and UPM can the measure the cost reliably. Capitalised development costs are amortised on a systematic basis over their expected useful lives, usually not exceeding five years. Government grants Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and the group will comply with the attached conditions. Government grants relating to the purchase of property, plant and equipment are deducted from the acquisition cost of the asset and accordingly directly reduce the annual depreciation of the underlying asset. Other government grants are recognised in the income statement in the period necessary to match them with the costs they are intended to compensate. A government grant can also become receivable by the group as compensation for expenses incurred in a previous period. Such a grant is recognised in profit or loss of the period in which it becomes receivable.

Tax services Other services

Earnings per share Dividend per share (2022: proposal)

Total

In 2022, auditor's fees include EUR 0.2 (0.2) million related to audit services, EUR 0.0 (0.0) million related tax services and EUR 0.1 (0.2) million related to other services paid to PwC Oy. Research and development costs The research and development costs included in operating expenses were EUR 55 million (46 million) in 2022. The focus was on new technologies and developing businesses. Government grants In 2022, government grants recognised as deduction of operating expenses totalled to EUR 10 million (9 million) of which EUR 8 million (3 million) relates to Finland. EUR 1 million (4 million) is related to COVID relief in Austria. In addition, the group received emission rights from governments amounting to EUR 208 million (75 million) of which