UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

4.4 Goodwill and other intangible assets The group’s goodwill mainly relates to pulp operations in Finland and Uruguay belonging to UPM Fibres business area. In 2022, the group's goodwill and other intangible assets increased mainly as a result of the company acquisition of AMC AG in UPM Raflatac business area. Refer Note 8.1 Business acquisitions and disposals for further information.

Energy shareholdings

Number of shares

Group holding %

Carrying value, EURm 2022

Goodwill by business area

2021

Pohjolan Voima Oyj, A series Pohjolan Voima Oyj, B series Pohjolan Voima Oyj, B2 series

8,176,191 4,140,132 2,869,819

61.24 58.11 51.22

584

473

EURm

2022 2021

2,016

1,219

Pulp operations Uruguay Pulp operations Finland

109 113

102 113

454 442 150

424 327 131

Kemijoki Oy

179,189 10,220

7.33

Goodwill by business area 2022

UPM Raflatac UPM Plywood

46 13

Länsi-Suomen Voima Oy

51.10

Other

—

Other operations

Carrying value, at 31 December

3,652

2,579

Total

282

237

UPM Plywood 5%

UPM Raflatac 16%

Goodwill

PVO’s share capital is divided into different series of shares. The B and B2 series relate to PVO’s shareholdings in Teollisuuden Voima Oyj (TVO). UPM has no direct shareholdings in TVO. TVO operates two nuclear power plants (Olkiluoto 1 and Olkiluoto 2) and is constructing one new nuclear power plant in Olkiluoto (Olkiluoto 3), Finland. Olkiluoto 3 has proceeded to its test production phase. The operation of a nuclear power plant is governed by international, European Union and local nuclear regulatory regimes. Pursuant to the Finnish Nuclear Liability Act, the operator of a nuclear facility has a strict third-party liability in relation to nuclear accidents. Shareholders of power companies that own and operate nuclear power plants are not subject to the liability under the Nuclear Liability Act. In Finland, the future costs of conditioning, storage and final disposal of spent fuel, management of low and intermediate level radioactive waste as well as nuclear power plant decommissioning are provided for by a state established fund (the Finnish State Nuclear Waste Management Fund). The contributions to the Fund are intended to be sufficient to cover estimated future costs. These contributions have been taken into consideration in the fair value of the related energy shareholdings.

Pulp operations, Uruguay 39%

Key estimates and judgements

EURm

2022 2021

Carrying value, at 1 January

237

229

Companies acquired Translation differences

—

Fair valuation and sensitivity Valuation of energy shareholdings requires management’s assumptions and estimates of a number of factors that may differ from the actual outcome which could lead to significant adjustment to the carrying amount of the asset. Fair value is determined on a discounted cash flow basis and the main factors impacting the future cash flows include future electricity prices, price trends and discount rates. The electricity price estimate is based on future electricity forward prices and a simulation of the Finnish area electricity price. A change of 5% in the electricity price used in the model would change the total value of the assets by EUR 390 (370) million. The discount rate of 7.13% (5.08%) used in the valuation model is determined using the weighted average cost of capital method. A change of 0.5% percentage points in the discount rate would change the estimated fair value of the assets by approximately EUR 230 (330) million. Other uncertainties and risk factors in the value of the assets relate to start-up schedule of the fixed price turn-key Olkiluoto 3 EPR nuclear power plant project. UPM’s indirect share of the capacity of Olkiluoto 3 EPR is approximately 31%, through its PVO B2 shares. Changes in regulatory environment or taxation also have an impact on the value of the energy generating assets. For example, temporary profit tax on the electricity sector applicable in 2023 according to Finnish Government’s law proposal.

Pulp operations, Finland 40%

Carrying value, at 31 December

282

237

Other intangible assets

SOFTWARE AND OTHER INTANGIBLE ASSETS

EURm

INTANGIBLE RIGHTS

TOTAL

2022 Accumulated costs

482 -285 198 198

614 -494 120

1,096

Accumulated amortisation and impairments

-779 317 262

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

64 11 62 -17

Changes in energy shareholdings

Additions

14 62 -21

Companies acquired

—

EURm

2022 2021

Amortisation

-3

Carrying value, at 1 January

2,579

1,936

Reclassifications

—

Disposals

-2

-1

Carrying value, at 31 December Emission rights, carrying value 1)

198

120

317 235 553

Changes in fair value recognised in other comprehensive income Carrying value, at 31 December

1,074

643

3,652

2,579

Carrying value including emission rights, at 31 December

2021 Accumulated costs

477 -279 198 199

541 -477

1,018

Accounting policies The group has made an irrevocable election to designate its energy shareholdings as equity instruments where changes in fair value are recognised through OCI. The shareholdings are not held for trading as the group has an intention to hold the investments for the long term. Purchases of energy shareholdings are initially and subsequently measured at fair value through other comprehensive income, net of tax if applicable, with only dividend income recognised through profit and loss. Initial fair value is acquisition cost including transaction costs. Upon disposal of the investment, the accumulated fair value changes in equity are not recycled to the income statement but instead, are reclassified from the fair value reserve to retained earnings. The fair value of energy shareholdings is a level 3 measure in the fair value measurement hierarchy.

Accumulated amortisation and impairments

-756 262 267

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

64 69 13 -18

Additions

15 -21

Amortisation

-3

Reclassifications

—

Carrying value, at 31 December Emission rights, carrying value 1)

198

262 104 366

Carrying value including emission rights, at 31 December

1) » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.