UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Free cash flow Free cash flow is primarily a liquidity measure. It is an important indicator of UPM’s overall operational performance as it reflects the cash generated from operations after investing activities.

Changes in leased assets

Free cash flow

MACHINERY AND EQUIPMENT

1,500

OTHER LEASED ASSETS

ADVANCE PAYMENTS 1)

LAND AREAS BUILDINGS

TOTAL

1,000

2022 Carrying value, at 1 January

EURm

2022 2021

252

264

4 8

608 178

500

Operating cash flow Investing cash flow

508

1,250 -1,323

New contracts and subsequent additions

127

— — — —

-1,585 -1,077

Business acquisitions

—

— —

—

— — — — — —

— —

Free cash flow

-74

EURm

Reassessments and disposals

-8

Dividends paid to owners of the parent company Dividends paid to non-controlling interests Contributions paid by non-controlling interests Transaction costs and discounts in operating cash flow Change in other financial assets in operating cash flow Change in other financial assets in investing cash flow Other financing cash flow

-693

Depreciations Impairments Reclassifications

-16

-34

-29

-80 -12

-500

-27 97

-12 82

— —

-3

-7

-2 -5

-1,000

—

5 1

-1

-9

-5

Translation differences

—

18 19 20 21 22

Carrying value, at 31 December

283

247

169

713

208

224

2021 Carrying value, at 1 January

214

245

86 13

4 4

561

-2

-5

New contracts and subsequent additions

Change in net debt, cash Change in net debt, non-cash

1,499

476 114 590

Reassessments and disposals

-1

—

— — —

229

Depreciations Impairments Reclassifications

-13

-31

-21

-8

-74

Change in net debt Opening net debt Closing net debt

1,728

— —

—

— —

— — —

— —

647

2 2

-2

2,374

647

Translation differences

—

Carrying value, at 31 December

252

264

608

1) Advance payments for leases not commenced at the year end reporting date 31 December.

Bonds

incremental borrowing rate which comprises of currency and lease term based reference rate and specific credit spread as well as other specific terms and conditions of a lease. Lease payments can include fixed payments, variable payments that depend on an index or rate and extension option payments or purchase options if it is reasonably certain that the group will exercise them. The lease liability is subsequently measured at amortised cost using the effective interest rate method and remeasured (with corresponding adjustment to the related leased asset) when there is a change in future lease payments due to renegotiation, changes of an index or rate or reassessment of options. Leased asset comprises the initial lease liability, initial direct costs and the obligations to refurbish the asset, less any incentives granted by the lessors. The leased asset is subsequently valued at cost less accumulated depreciation and impairment losses. Remeasurement takes place in case lease liability is remeasured and change in cash flows is based on contract terms that have been included in the original contract. The leased asset is depreciated over the shorter of the asset’s useful life and the lease term. The leased asset is subject to testing for impairment if there is an indicator for impairment, as for own assets. The group has elected to separate non-lease components such as service components and other variable components and account them for as expenses, if they can be separated from the leased asset. However, the group does not separate non-lease components from the lease contracts of company cars. The group does not apply portfolio approach of leases with similar characteristics. Leased assets are presented in the balance sheet as a separate financial statement line item. Lease liabilities are presented as part of non-current debt and current debt line items in the balance sheet. Lease liabilities are part of net debt calculation of the group. Short-term lease payments are reported as rents and lease expenses. Variable lease

NOMINAL VALUE ISSUED, MILLION

CARRYING VALUE 2022 EURm

CARRYING VALUE 2021 EURm

Accounting policies

INTEREST RATE, %

FIXED RATE PERIOD

CURRENCY

1997-2027 2020-2028 2021-2031 2022-2029

7.450 0.125 0.500 2.250

USD EUR EUR EUR

375 750 500 500

378 605 494 496

413 718 494

Leases The group as a lessee

—

UPM assesses whether a contract is or contains a lease at inception of the contract. This assessment involves the exercise of judgment about whether it depends on a specified asset, whether UPM obtains substantially all the economic benefits from the use of that asset, and whether UPM has the right to direct the use of the asset. The group recognises a leased asset and a lease liability at the lease commencement date, except for short-term leases. UPM applies this to all asset classes. Short-term leases are leases that, at the commencement date, have a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease. UPM recognises lease payments of short-term leases as an expense on a straight-line basis over the lease term. The lease term is determined as the non- cancellable period of the lease taking into consideration the options to extend and terminate if it is reasonably certain that the group will exercise the extension option or will not exercise the termination option. If the contract is for an indefinite period of time and the group and the lessor both have a right to terminate the contract within a short notice period (12 months or less) without a significant economic penalties and termination cash payments, the contract is considered to be a short-term. The lease liability is recognised at the commencement date and measured at the present value of the lease payments to be paid during the lease term. The group uses, as a basis, discount rate implicit in the lease and if that rate cannot be readily determined, UPM uses

Value, at 31 December

1,974

1,624

Current portion

—

Non-current portion

1,974

1,624

Leases Leases of property, plant and equipment where UPM, as a lessee, obtains substantially all of the economic benefits from the use of the identified asset and where UPM has the right to direct the use of the identified asset, are classified as leases. Approximately 34% (36%) of leased assets recognised on the balance sheet consists of land areas in Uruguay, which the group uses for eucalyptus plantations. Approximately 24% (30%) of the leased assets on the balance sheet consist of five power plants. UPM uses the energy generated by these plants for its own production. In addition, the group has leased one waste water treatment plant as well as several warehouses, terminals, offices, railcars and vessels. UPM also leases some production machinery and equipment like forklifts and vehicles that are insignificant to the total leased assets portfolio.

In 2022, additions to lease assets relate mainly to biochemicals refinery utilities in Leuna and new vessels for sea transportation in Europe. Impairment charges in 2022 relate to assets impacted by the Russia´s war in Ukraine. Due to the significant uncertainties related to operations in Russia and Ukraine, UPM recognised a write off of all leased assets locating or relating to operations in these countries. In 2022, the total cash outflow for leased assets was EUR 91 (84) million. The expenses related to short-term leases recognised in the income statement in 2022 amounted to EUR 3 (3) million. The group had no significant variable lease payments in 2022. The lease commitments for leases not commenced at year-end 31 December 2022 totalled approximately EUR 245 (409) million, which are mostly related to long-term charter agreements, railway service agreement in Uruguay and service agreements related waste water treatment and other utilities in Leuna, Germany.