UPM Annual Report 2022

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

8. Group structure 8.1 Business acquisitions and disposals In 2022, UPM sold its 33,09 % holding in the associated company Encore Ympäristöpalvelut Oy, and made several minor sales of equity investments accounted at fair value through OCI. In 2021, UPM permanently closed paper production at its Shotton newsprint mill site in North Wales, United Kingdom. The site and all related assets were sold to Eren Paper Ltd, a subsidiary of Modern Karton Sanayi Ve Ticaret A. Ş ., the containerboard and corrugated packaging business of the Turkish industrial conglomerate Eren Holding (“Eren”), thereby closing the transaction announced in May 2021. Net cash arising from disposal was EUR 157 million and gain on disposal was EUR 133 million. UPM also made several minor sales of equity investments accounted at fair value through OCI. In 2022, UPM made a minor investment in ASK Altpapier Sortierung Kinsau GmbH by acquiring the full share capital of of the company, and made several minor investments in equity investments accounted at fair value through OCI. In 2021, UPM purchased an additional 20.23% share in the joint operation Alholmens Kraft, increasing UPM's ownership from 29.77% to 50.00 %. UPM also made a minor investment in InfraLeuna GmbH which is an equity investment accounted at fair value through OCI. Business combinations On 15 September 2022, UPM Raflatac completed the acquisition of AMC AG (Advanced Methods of Coating). The acquisition announced in May 2022 was closed after regulatory clearances. AMC AG employs more than 300 people and has two production sites in Northern Germany, in Kaltenkirchen and in Hagenow. UPM Raflatac expects to realize significant synergies through the acquisition. If the transaction had occurred on 1 January 2022, UPM’s sales for January–December 2022 would have been EUR 11,794 million and profit for the period EUR 1,558 million. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiaries to reflect the depreciation, amortisation and expenses that would have been charged assuming application of fair value adjustments to other intangible assets, property, plant and equipment and inventories from 1 January 2022, together with the consequential tax effects. Goodwill arising from the acquisition is mainly attributable to the expected synergies and skilful assembled workforce. Details of the purchase consideration, the net assets acquired and goodwill are as follows:

Movements in deferred tax assets and liabilities

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

EURm

2022 2021

EURm

15 SEP 2022

Carrying value, at 1 January Charged to income statement

-130

-143

Customer relationships

42

-44 58 -26

32 -15

Trademarks Technology

9

Charged to other comprehensive income

11

Companies acquired

—

Other intangible assets

0

Exchange rate adjustments

-9

-4

Property, plant and equipment

56

Net deferred tax assets (liabilities)

-151

-130

Leased assets

0

Inventories

20 22

Tax charge to other comprehensive income

Trade and other receivables Income tax receivables Cash and cash equivalents

0

Before tax

Tax

After tax

Before tax

Tax

After tax

12

EURm

2022

2021

Total assets

172

Actuarial gains and losses on defined benefit plans

249

-57 -23

192

128 643 337 -149

-32 -11

96

Energy shareholdings Translation differences

1,074

1,051

632 337 -127

Deferred tax liabilities

26 20

150 -665

—

150 -531

—

Non-current debt

Cash flow hedges

134

22

Current debt

2

Net investment hedges

-19

4

-15

-27

5

-21

Trade and other payables

10

Total

789

58

847

933

-15

918

Income tax payables

2

Total liabilities

60

The group has not recognised deferred tax liability in respect of undistributed earnings of non-Finnish subsidiaries to the extent that it is probable that the temporary differences will not reverse in the foreseeable future. In addition, the group has not recognised deferred tax liability for the undistributed earnings of Finnish subsidiaries and associates as such earnings can be distributed without any tax consequences. Accounting policies Deferred tax is calculated based on temporary differences between the carrying amounts and the taxable values of assets and liabilities and for tax loss carry-forwards to the extent that it is probable that these can be utilised against future taxable profits. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are recognised net where there is a legal right to set-off and an intention to settle on a net basis.

Net identifiable assets acquired

112

Key estimates and judgements

Net assets belonging to non-controlling interest

0

Goodwill arising from acquisition

38

Recognised deferred tax assets The recognition of deferred tax assets requires management judgement as to whether it is probable that such balances will be utilised and/or reversed in the foreseeable future. At 31 December 2022, net operating loss carry-forwards for which the group has recognised a deferred tax asset amounted to EUR 584 million (802 million), of which EUR 514 million (717 million) was attributable to German subsidiaries. In Germany net operating loss carry-forwards do not expire. In other countries net operating loss carry-forwards expire at various dates and in varying amounts. Based on profit forecasts, it is probable that there will be sufficient future taxable profits available against which the tax losses can be utilised. The assumptions regarding future realisation of tax benefits, and therefore the recognition of deferred tax assets, may change due to future operating performance of the group, as well as other factors, The net operating loss carry-forwards for which no deferred tax is recognised due to uncertainty of their utilisation amounted to EUR 890 million (843 million) in 2022. These net operating loss carry-forwards are mainly attributable to certain German and French subsidiaries and do not expire. In addition, the group has not recognised deferred tax assets on loss carry-forwards relating to closed Miramichi paper mill due to only minor operations in Canada. These loss carry-forwards expire at different times by the end of 2029. some of which are outside of the control of the group. Unrecognised deferred tax assets and liabilities

The fair value of trade and other receivables included trade receivables with a fair value of EUR 21 million. At the date of acquisition, the gross contractual amount for trade receivables was EUR 21 million, of which EUR 0 million was expected to be uncollectible. Acquisition-related costs of EUR 5 million are included in other operating expenses and are reported as items affecting comparability in UPM Raflatac business area and Other operations. Information on the amounts of revenue and profit or loss of the acquiree since the acquisition date included in the consolidated income statement for the reporting period is not disclosed because it would be impracticable. The acquired business has been included in the group since 15 September 2022, and the effects of the revenues and profit or loss thereof are not considered material for disclosure purposes. The fair values of net identifiable assets acquired are provisional and dependent on final fair valuations.

EURm Cash paid

150 150

Total purchase consideration

212

213

UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022

UPM FINANCIAL REPORT 2022

212

UPM FINANCIAL REPORT 2022

213