UPM Annual Report 2022

First page Table of contents Previous page 192-193 Next page Last page

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

UPM’s capital

recoveries of amounts previously written off are credited to the income statement. The carrying amount of trade receivables approximates to their fair value due to the short-term nature of the receivables. Other receivables consist mainly of cash collaterals pledged for commodity contracts and interest rate futures. The fair value equals to the amount of cash pledged as collateral. The cash collaterals cover the counterparties' losses in case UPM is unable to meet its obligations. Trade and other payables Trade payables arise from purchase of inventories, fixed assets and goods and services in the ordinary course of business from UPM’s suppliers. Trade and other payables are classified as current liabilities if they are due to be settled within the normal operating cycle of the business or within 12 months from the balance sheet date. Trade payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. The carrying amount of trade payables approximates to their fair value due to the short-term nature of the payables. The group is recognising refund liability for expected volume and other discounts arising from contracts with customers. Customer rebates include mainly volume discounts and are recognised as equal to an amount which is most likely to be paid to the customer. The carrying amount of expected customer rebates is updated at each reporting date, using the latest forecast data available. Customer claims relating to quality complaints are accounted for as revenue related refund liability. Expected customer claims are estimated based on historical data and the amount of refund liability is updated at each reporting date. Customer claims and customer rebates are typically expected to realise within the next 12 months. Advances received are recognised as contract liability until the performance obligation is fulfilled. 5. Capital structure UPM has a strong cash flow and industry-leading balance sheet that mitigates risks and enables value-enhancing strategic actions. EUR 2,374 m EUR -1,077 m (EUR 647m) (EUR -74m) Net debt Free cash flow 5.1 Capital management UPM’s objective for managing capital comprising of net debt and total equity is to ensure maintenance of flexible capital structure to enable the ability to operate in capital markets and maintain optimal returns to shareholders. The group manages its financing activities, debt portfolio and financial resources via various policies that are designed to ensure optimum financing arrangements minimising simultaneously financial expenses and refinancing risk and optimising liquidity. Borrowing activities are centralised to the parent to the extent possible and cash resources are distributed within the group by the central treasury department. UPM targets a net debt to EBITDA ratio of approximately 2 times or less.

Repayments of debt and maturities of unused committed credit lines at the end of 2022

EURm

2022 2021

Equity attributable to owners of the parent company

12,502

10,846

4,000

Non-controlling interest

376

261

3,000

Total equity

12,879

11,106

Leases Loans Unused committed credit lines

Non-current debt

4,476

2,566

2,000

Current debt Total debt

558

EURm

5,034

2,652

1,000

Total capitalisation

17,913

13,759

Total debt

5,034

2,652

Less: Interest-bearing financial assets and investment funds

2,660

2,006

2023 2024 2025 2026 2027 2028+

Net debt

2,374

647

Gearing ratio, % 1) Net debt to EBITDA 1)

Maturity table of debt at the end of 2022

0.94 0.35 1) Refer » Other financial information on Alternative performance measures.

EURm Bonds

2023

2024

2025

2026

2027 2028+ TOTAL

—

352 134

1,750

2,102 1,613

Loans from financial institutions

1,001

337

34 49

Liquidity and refinancing risk Under all circumstances, UPM seeks to maintain adequate liquidity, which depends on a number of factors, such as the availability of cash flows from operations and access to additional debt and equity financing. UPM aims to ensure sufficient liquidity by means of efficient cash management and restricting financial investments to investment types that can readily be converted into cash and by keeping a sufficient amount of unused committed credit lines or cash as a reserve. UPM aims to minimise refinancing risks by ensuring a balanced loan portfolio maturing schedule and sufficiently long maturities. The average loan maturity at 31 December 2022 was 4.6 years (7.3 years). Liquidity and refinancing

Lease liabilities Other loans Current loans

343 151

668 152 444

— —

444 538

—

Principal payments Interest payments

1,076

417

83 63

521

2,343

4,978

70 458 The difference between the above nominal values and carrying value of total debt arise from fair value adjustments and discounting decreasing carrying value by EUR 80 million and other non-cash adjustments decreasing carrying value by EUR 24 million. 69 66 61 128

Maturity table of debt at the end of 2021

EURm Bonds

2022

2023

2024

2025

2026 2027+ TOTAL

—

1,581

EURm

2022 2021

Loans from financial institutions

19 62

34 67

31 31

122 275 163

219 574 164

Cash at bank

1,632

1,313

Lease liabilities Other loans Current loans

Cash equivalents Investment funds

434

146 100 909

1 2

— —

—

Committed credit lines

5,709 -1,378

Principal payments Interest payments

79 45

76 45

81 44

101

62 43

2,141

2,540

of which used

—

44 328 The difference between the above nominal values and carrying value of total debt arise from fair value adjustments increasing carrying value by EUR 104 million and other non-cash adjustments decreasing carrying value by EUR 22 million. 107

Loan commitments

-123 -444

-123

Used uncommitted credit lines

-2

Long-term loan repayment cash flow

-94

-77

Liquidity

5,738

2,267

Cash and cash equivalents comprise cash in hand, deposits held at banks and with original maturities of three months or less. Investment funds comprise fund investments with a redemption period of less than 12 months. Commercial papers and utilized bank overdrafts are included in used uncommitted credit lines and presented within current debt in the balance sheet. In 2022 or 2021, no impairment and no expected credit losses were recognised in profit or loss for loan receivables or cash and cash equivalents.