UPM Annual Report 2022

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Notes to the parent company financial statements

Sales by destination

Majority of financial derivative contracts of the group are made by the parent company. All contracts are made with external counterparties except internal derivatives which are used to manage foreign currency and interest rate exposure. Financial risks, fair values and maturities of the group external derivatives are disclosed in » Note 6.1 Financial risk management and in » Note 6.2 Derivatives and hedge accounting. Service charges from group companies The classification of service charges from group companies has been changed in the income statement of UPM-Kymmene Corporation during the fiscal year. Some of the service income previously presented in UPM-Kymmene Corporation’s income statement as “Other operating expenses” as netting items are now presented as “Other operating income” in the income statement. In 1 January – 31 December 2021, the reclassified income totalled EUR 57 million. The service income subject to reclassification relate to services that are internally produced by the entity and are further charged from group companies. These charges are now presented in Other operating income which describes the nature of the activity more precisely. Derivatives The classification of derivative contracts of group companies has been changed in the income statement of UPM-Kymmene Corporation during the fiscal year. The provision on unrealised negative fair value and realised result of forward foreign exchange contracts hedging commercial foreign currency flow of group companies were previously presented in “Sales”. Provision for unrealised negative fair value and realised result of commodity derivatives of group companies were previously presented in “Materials and services”. These derivatives are now presented in the income statement in “Financial income and expenses”. The income statement and notes to the financial statement of the comparison year 2021 are now changed to reflect the classification changes. These changes do not have any effect to equity or the balance sheet. This accounting policy change's effect to income statement in 2021: Changes in accounting policies

EURm Finland

2022 2021

2,342

2,474

Accounting policies

Leases Lease payments of lease contracts are recognised in other operating expenses over the lease term. Lease payments due in future years under lease contracts are presented as off-balance sheet items. Provisions Provisions include foreseeable future expenses and losses to which the company is committed, the realization of which is probable and the amount can be reliably estimated, e.g. pension and environmental liabilities and termination and restructuring costs. Changes in provisions are recognised in income statement within particular cost items. Sales Sales include sales revenue from actual operations less indirect taxes, discounts, claims and exchange rate differences on net cash flow hedges and trade receivables. Research and development costs Research and development costs are expensed in the year in which they are incurred. Pensions In Finland employers are obliged to insure their employees for statutory benefits, as determined in Employee’s Pension Act (TyEL). The mandatory pensions are arranged mainly through pension insurance companies. Contributions to pension insurance companies are charged to the income statement in the period to which the contributions relate. Pension obligations of own pension funds are fully funded. Share-based payments Share based compensation is recognized as an expense in the income statement over the earnings period and the related liability is booked to the balance sheet. Closing entries Parent company closing entries consists of the change in the depreciation difference and group contributions granted to group companies. The accumulated depreciation difference in the parent company has not been divided into equity and deferred tax liability. Income taxes Income taxes presented in the income statement consist of accrued taxes for the financial year and tax adjustments for prior years. The parent company has not recognised deferred tax assets and liabilities in the balance sheet, but presents the information in the notes. Derivatives Realised results of derivative contracts and negative fair value of open derivative contracts are recognised in the income statement. Negative fair value of open derivative contracts that are not settled in cash is recognised as a provision in the balance sheet. Hedge accounting is not applied. Income and expenses of balance sheet hedging and forward foreign exchange contracts hedging commercial foreign currency flow of group companies are recognised in financial items . Income and expenses of commodity derivatives are recognised in operating profit. Income and expenses of commodity derivative contracts of group companies are recognized in financial items.

Other EU countries

46 26

38 30

Other countries

The financial statements of the parent company are prepared in accordance with Finnish Accounting Standards, FAS. The main differences in accounting policies of the group and the parent company relate to the measurement of financial derivatives and forest assets and recognition of defined benefit obligations, share-based payments, lease agreements and deferred income taxes. The financial statements are presented in millions of euros and rounded and therefore the sum of individual figures might deviate from the presented total figure. Foreign currency translation Receivables and liabilities denominated in foreign currencies outstanding on the balance sheet date and other commitments are translated into euro currency using the balance sheet date exchange rate. Exchange rate differences arising from the valuation of trade receivables are recognised in sales and exchange rate differences on trade payables in purchases. Exchange differences arising from the measurement of other receivables and liabilities are recognised in financial items. Tangible and intangible assets Tangible and intangible assets are stated at cost less accumulated depreciation and amortisation according to plan and impairments. Emission rights are recognised using net approach. Depreciation and amortization according to plan is recorded on a straight-line basis over the expected useful lives of the assets as follows:

Total

2,414

2,542

2. Other operating income

EURm

2022 2021

Gains on sale of non-current assets

13

10 10 95

Rental income

9

Other Total

59 81

114

3. Personnel expenses

EURm

2022 2021

Salaries and fees of the President and CEO, and members of the Board of Directors 1)

7

5

Other salaries and fees

187

206

Pension costs 2)

-95

31

Other indirect employee costs

7

7

Total

106

248

1) » Refer Note 3.2 K ey management personnel 2) Pension expenses in 2022 include pension fund excess return of EUR 123 million from UPM Sellutehtaiden eläkesäätiö. Personnel 2022 2021 Total average 2,765 2,815

Land and water areas, no depreciation Intangible assets

5 – 10 years 20 – 50 years 5 – 10 years 15 – 20 years 20 – 30 years 5 – 20 years

Buildings

Light machinery and equipment

Heavy machinery

Power plants

Other tangible assets

Published 1.1.-31.12 .2021

Adjusted 1.1.-31.12 .2021

EURm

Note

Changes

4. Depreciation, amortisation and impairment charges

Forest assets are recognised as tangible assets within land and water areas at historical cost and revaluation. No systematic depreciation or changes in value due to felling is recognised. Investments Investments are stated at cost less impairments. Inventories Inventories are stated at cost or the lower of replacement cost and probable selling price. Costs are measured using FIFO-method. In addition to variable costs, the cost of inventories includes a portion of the fixed costs of acquisition and manufacturing. Revaluations The balance sheet value of land includes revaluations. No new revaluations are made and the balance sheet value of land is considered to be below their fair value.

Sales

1

2,554 -1,757

-12

2,542 -1,505

Materials and services Financial income and expenses Profit for the period

262

281

-251

30

EURm

2022 2021

Intangible rights

2

2

469

0

469

Other intangible assets

13 17 82

16 18 85

Buildings

1. Sales Sales by business area

Machinery and equipment

Other tangible assets

3

3

Total

117

124

EURm

2022 2021

UPM Fibres

1,973

2,120

Other operations

440

422

Total

2,414

2,542

222

223

UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022

UPM FINANCIAL REPORT 2022

222

UPM FINANCIAL REPORT 2022

223