UPM Annual Report 2023

ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

4.1 Property, plant and equipment

Major capital commitments at 31 December

Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but the increased carrying amount will not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Key estimates and judgements The estimations of useful lives, residual value as well as depreciation and amortisation methods require significant management judgement and are reviewed annually. Management makes estimates on the future cash flows expected to result from the use of the asset and its eventual disposal. While management believes that estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect valuations. The long useful lives of assets, changes in estimated future sales prices of products, changes in product costs and changes in the discount rates used could lead to significant impairment charges. Estimates are also made in an acquisition when determining the fair values and remaining useful lives of acquired intangible and tangible assets.

EURm

2023 2022

LAND AND WATER

MACHINERY AND EQUIPMENT

OTHER TANGIBLE ASSETS

CONSTRUC TION IN PROGRESS

New biorefinery / Germany

363

257

EURm

AREAS BUILDINGS

TOTAL

2023 Accumulated costs

Impairment losses In 2023, impairment charges mainly relate to the closure of UPM Plattling mill in Germany. In 2022, impairment charges relate to property, plant and equipment impacted by Russia´s war in Ukraine. Due to the significant uncertainties related to operations in Russia and Ukraine, UPM recognised a write off of all property, plant and equipment as well as operating assets and uninsured receivables locating or relating to operations in these countries.

862

4,766 -2,693 2,073 1,054

14,771 -11,752

891 -716 175 148

925

22,216 -15,163

Accumulated depreciation and impairments

-2

—

Carrying value, at 31 December Carrying value, at 1 January

861 900

3,019 1,638

925

7,053 6,733 1,074

2,993 1,067

Additions

2

— —

5

— — —

Companies acquired

— — — — —

— —

— — — —

1

Disposals

-1

-2

Depreciation Impairment

-92

-310

-19

-422

-3

-15

-3

-20

Accounting policies

Reclassifications 1)

1,135

1,723

53

-3,052

-141

Reclassifications to assets held for sale 2)

-17 -23

-1

-1

-1 -3

—

-21

Translation differences

-19

-20

-84

-149

Property, plant and equipment Property, plant and equipment is stated at historical cost. Costs of assets of acquired in business combinations are determined at fair value at the acquisition date. Depreciation is calculated on a straightline basis and the carrying value is adjusted for impairment charges, if any. The carrying value of property, plant and equipment on the balance sheet represents the cost less accumulated depreciation and any impairment charges. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Major renovations are capitalised and depreciated over the useful lives of the related asset. Ordinary expenses for repairs and maintenance are expensed as incurred. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in other operating income and other operating expenses, respectively.

Carrying value, at 31 December

861

2,073

3,019

175

925

7,053

2022 Accumulated costs

902

3,707 -2,653 1,054

13,163 -11,526

866 -718 148 122

2,993

21,628 -14,895

Accumulated depreciation and impairments

-2

—

Carrying value, at 31 December Carrying value, at 1 January

900 857

1,638 1,674

2,993 2,069 1,353

6,733 5,569 1,366

848

Additions

5 3

1

7

1

Companies acquired

26

20

—

6

56

Disposals

-3

-4

-1

-1

— — —

-9

Depreciation Impairment

— — —

-75 -10

-266

-17

-357

-37

-5

-52

Reclassifications

260

235

45

-540 106

1

Translation differences

39

8

4

2

159

Carrying value, at 31 December 6,733 1) Reclassifications include a reclassification of EUR 140 million to intangible assets, which relates to the start-up and final classification of assets in the Uruguay pulp mill investment » Refer note 4.4 Goodwill and other intangible assets . 2) Reclassification to assets held for sale relates to agreement to sell 100% of the shares the of the Austrian subsidiary UPM-Kymmene Austria GmbH. » Refer note 900 1,054 1,638 148 2,993

ASSESSED USEFUL LIVES Land, not subject to depreciation

NUMBER OF YEARS

8.4 Assets held for sale. Capital expenditure Capital expenditure, excluding acquisitions and shares, amounted to EUR 1,094 million (1,399 million) in 2023. In December 2021, UPM announced that it would invest EUR 10 million in the development of UPM Plywood's plywood mill in Joensuu, Finland. The investment includes new production lines, new workspaces and 720 square metres of completely new production space. The investment was completed in Q3 2023. In January 2020, UPM announced that it would invest in a 220,000 tonnes next-generation biochemicals biorefinery in Leuna, Germany. The facility is scheduled to start up by the end of 2024, and the total investment estimate is EUR 1,180 million. In January 2019, UPM announced that it would invest in the refurbishment of the Kuusankoski hydropower plant in Finland. The average annual production of the Kuusankoski plant is expected to increase from the current 180 GWh to 195 GWh. The investment was completed in Q1 2023. In July 2019, UPM announced that it would invest in a 2.1 million tonne greenfield eucalyptus pulp mill near Paso de los Toros, central

-

Buildings

20-50 20-30 15-20 10-15

Uruguay. Additionally, UPM will invest in port operations in Montevideo and in local investments outside the mill fence. The mill began its operations on 15 April 2023 after the final authorisation to operate was granted. The total investment was USD 3.47 billion. Capitalised borrowing costs In 2023, the borrowing costs capitalised as part of non-current assets amounted to EUR 38 million (20 million). Amortisation of capitalised borrowing costs was EUR 2 million (1 million) and the average interest rate used 3.00% (0.79%), which represents the average costs to finance the projects. In 2023, capitalised borrowing costs were mainly related to the construction of the new pulp mill in Uruguay and the biochemicals

Power plants

Heavy machinery Light machinery

Equipment

5

Impairment testing Carrying values of individual items included in property, plant and equipment are reviewed at each closing date to determine whether there is any indication of impairment. The carrying value is written down immediately to the asset’s recoverable amount if the carrying value exceeds the estimated recoverable amount. Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell and its value in use. Value in use is determined by discounting future cash flows expected to be generated by the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

biorefinery in Leuna. Government grants

In 2023, government grants recognised as deduction of non-current assets totalled to EUR 7 million (15 million). Grants relate mainly to the biochemicals biorefinery investment in Leuna.

188

189

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

188

UPM FINANCIAL REPORT 2023

189