UPM Annual Report 2022

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BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2022

ENSURING PERFORMANCE We aim for continuous improvement in financial performance through our agile operating model, performance culture and effective capital allocation. In 2022, our comparable EBIT grew by 42% and reached a new all-time record.

earnings . UPM invests in sustainable businesses with strong long-term funda mentals for demand growth and a clear competitive advantage or high barrier to entry for superior returns. UPM targets growth in comparable EBIT and compa rable return on equity exceeding 10%. • Pay attractive dividends . UPM aims to pay attractive dividends, targeting at least half of the comparable earnings per share over time. The targeted earnings growth drives dividend growth over time. • Maintain a strong balance sheet . Accord ing to UPM’s leverage policy, net debt to EBITDA ratio is to be less than 2. An investment grade rating is an important element in the financing strategy. • Share buybacks . They are a complement ing tool that may be used relative to investment opportunities and company valuation. Currently, our transformation is in an intensive phase, with growth investments totalling EUR 3.8 billion scheduled to be completed by the end of 2023. For these investments, our ROCE target is 14% and we aim to achieve higher profitability than in the growing businesses on average.

In 2022, our comparable EBIT grew by 42% to EUR 2,096 million (1,471 million). We also succeeded in maintaining progress in the transformative growth projects in Uruguay and Germany. All in all, 2022 was a great success considering the highly uncer tain and volatile business environment. The agile operating model Our businesses in various parts of the bio and forest industry value chain operate as separate market-facing entities, both in terms of customers and suppliers. This enables agility in a fast-changing business environment, higher efficiency, differentiat ed commercial strategies, optimal sourcing, the right incentives, wider product devel opment opportunities and effective capital allocation. At the business area level, we are tar geting top performance in their respective markets. We have also set long-term return targets (ROCE %, on the left) for the six business areas. The return targets apply over business and investment cycles. In 2022, four out of six business areas exceed ed the targeted returns. Capturing corporate synergies We build on corporate synergies, adding val ue to our businesses and stakeholders with: • Competitive and sustainable wood sourc ing, forestry and plantation operations • Efficient and responsible global functions

• Group-wide continuous improvement programmes in commercial strategies, variable costs, working capital, site and maintenance costs, safety and environ mental performance • Technology development and intellectual property rights • Global business platform • Disciplined and effective capital allocation • Compliance, UPM Code of Conduct and strong UPM brand Effective capital allocation Capital allocation is key to attractive long term returns, as well as developing the business portfolio in areas with the best long-term value creation potential. At UPM, capital allocation decisions take place at the corporate level. UPM plans to allocate capital to: • Invest to grow the company and its

IMPACT • Top performance enables investments in growth, innovation and responsibility • Effective capital allocation drives the company transformation and enhances long-term value creation

TARGETS • Continuous improvement • Top performance in each business • Growth in comparable EBIT • Attractive returns • Strong balance sheet

OUR WAY • Agile operating model • High-performing people • Commercial excellence • Cost efficiency • Efficient use of assets and capital • Capitalise on corporate benefits and synergies Energy benefited from the higher prices and increased volatility in the electricity markets. Most of our production units in Finland were affected by a nearly four-month strike. In April, we signed first business-specific collec tive labour agreements with the Paperwork ers' Union, which improve flexibility and opportunities for long-term success for both our businesses and employees.

14.0% Comparable ROE 17.9% Comparable EBIT of sales

2022 was a very unusual year. Russia’s war in Ukraine resulted in extensive sanctions and policy measures. UPM suspended its deliveries to Russia, the purchasing of wood from Russia and the UPM Chudovo plywood mill operations. In the context of the war and the energy crisis, Europe needs to rapidly reduce its energy dependency on Russia. Inflation reached levels last seen

over 40 years ago. The global economy slowed down, impacted by high inflation, rapidly rising interest rates and the ze ro-covid policies in China. Good demand continued in most of our businesses, and sales prices more than offset the impact of significantly higher variable costs. While the energy crisis increased costs for our energy consuming businesses, UPM

Creating shareholder value on page 18 Accelerating growth on page 22 2030 responsibility targets on page 30 Financial Statements on page 158

BUSINESS AREA RETURNS AND LONG-TERM TARGETS

UPM Communication Papers

UPM Specialty Papers

UPM Plywood

Comparable EBIT

Comparable ROE

Net debt and leverage

UPM Energy*** )

UPM Raflatac

UPM Fibres

EURm

FCF/CE %** )

ROCE %* )

EURm

EBITDA (x)

ROCE %* )

4,000

2,500

Target

40 40

Target

2,000

3,000

1,500

Target

2,000

Target

Target 11 11

1,000

500

18 19 20 21 22

13 14 15 16 17 18 19 20 21 22

13 14 15 16 17

20 21 22

18 19

* ) ROCE % = Return of capital employed excluding items affecting comparability. ** ) Free cash flow after investing activities and restructuring costs. *** ) Shareholdings in UPM Energy valued at fair value.

Net debt Net debt/EBITDA

UPM ANNUAL REPORT 2022

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