UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

4. Capital employed UPM’s capital employed primarily relates to its production facilities and both forest and energy assets. UPM aims to capture growth opportunities in its existing business portfolio and invest in projects with attractive and

4.1 Property, plant and equipment

Accounting policies

LAND AND WATER

MACHINERY AND EQUIPMENT

OTHER TANGIBLE ASSETS

CONSTRUC TION IN PROGRESS

Defined benefit pension plans Plan benefits depend on salary and length of service. The defined benefit obligations are calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the term of the related pension liability. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The cost of providing pensions is charged to the income statement as employee costs so as to spread the cost over the service lives of employees. Changes in actuarial assumptions and actuarial gains and losses arising from experience adjustments are charged or credited in other comprehensive income in the period in which they arise. Past service costs and gains or losses on settlement are recognised immediately in income when they occur. Defined contribution plans For defined contribution plans, contributions are paid to pension insurance companies. Once the contributions have been paid, there are no further payment obligations. Contributions to defined contribution plans are charged to the income statement in the period to which the contributions relate. Other post-employment obligations Some group companies provide post-employment medical and other benefits to their retirees. The entitlement to healthcare benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans. Valuations of these obligations are carried out by independent qualified actuaries.

EURm

AREAS BUILDINGS

TOTAL

2022 Accumulated costs

sustainable returns. Capital employed

902

3,707 -2,653 1,054

13,163 -11,526

866 -718 148 122

2,993

21,628 -14,895

Accumulated depreciation and impairments

-2

—

Carrying value, at 31 December Carrying value, at 1 January

900 857

1,638 1,674

2,993 2,069 1,353

6,733 5,569 1,366

848

EURm

2022 2021

Additions

5 3

Property, plant and equipment

6,733

5,569

Companies acquired

—

Leased assets Forest assets

713

608

Disposals

-3

-4

-1

— — —

-9

2,442 3,652

2,328 2,579

Depreciation Impairment

— — — —

-75 -10

-266

-17

-357

Energy shareholdings

-37

-5

-52

Goodwill and other intangible assets

834

603

Reclassifications

260

235

-540

Operating working capital

2,026

1,204

Reclassifications to assets held for sale

—

Provisions

-134 -526

-155 -597

Translation differences

106

159

Net retirement benefit assets and liabilities

Carrying value, at 31 December

900

1,054

1,638

148

2,993

6,733

Cash and cash equivalents Other assets and liabilities

2,067

1,460

2021 Accumulated costs

257 -151

290 -130

859

3,452 -2,604

13,136 -11,462

834 -712 122 125

2,069

20,349 -14,780

Net deferred tax assets and liabilities

Accumulated depreciation and impairments

-2

—

Total

17,913

13,759

Carrying value, at 31 December Carrying value, at 1 January

857 757

848 846

1,674 1,864

2,069

5,569 4,316 1,515

724

Additions Disposals

1,448

-3

-4

-1

— — —

-12

Depreciation Impairment

— — — —

-71 -12 60

-280

-17

-368

-38 80 -11 58

-1

-52

Reclassifications

-150

-2

Reclassifications to assets held for sale

-3

—

-13

Translation differences

185

Carrying value, at 31 December

857

848

1,674

122

2,069

5,569

Capital expenditure Capital expenditure, excluding acquisitions and shares, amounted to EUR 1,399 million (1,477 million) in 2022. In December 2021, UPM announced that it would invest EUR 10 million in the development of UPM Plywood's plywood mill in Joensuu, Finland. The investment includes new production lines, new workspaces and 720 square metres of completely new production space. The investment will be completed by the end of 2023. In January 2020, UPM announced that it would invest in a 220,000 tonnes next-generation biochemicals biorefinery in Leuna, Germany. The facility is scheduled to start up by the end of 2023, and the total investment estimate is EUR 750 million. In January 2019 UPM announced that it would invest in the refurbishment of the Kuusankoski hydropower plant in Finland. The average annual production of the Kuusankoski plant is expected to increase from the current 180 GWh to 195 GWh. The investment will be completed in Q1 2023. In July 2019, UPM announced that it would invest in a 2.1 million tonne greenfield eucalyptus pulp mill near Paso de los Toros, central Uruguay. Additionally, UPM will invest in port operations in Montevideo and in local investments outside the mill fence. The mill is scheduled to start up by the end of Q1 2023, and the total investment estimate is USD 3.47 billion.

In October 2019 UPM announced that it would invest EUR 95 million in a Combined-Heat-Power (CHP) plant at the UPM Nordland paper mill in Germany. The plant was connected to the grid in Q3 2022. Capitalised borrowing costs In 2022, the borrowing costs capitalised as part of non-current assets amounted to EUR 20 million (9 million). Amortisation of capitalised borrowing costs was EUR 1 million (2 million) and the average interest rate used 0.79% (0.73%), which represents the average costs to finance the projects. In 2022, capitalised borrowing costs were mainly related to the construction of the new pulp mill in Uruguay. Government grants In 2022, government grants recognised as deduction of non-current assets totalled to EUR 15 million (0 million). Grants relate mainly to the biochemicals biorefinery investment in Leuna.