UPM Annual Report 2023

ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

4.4 Goodwill and other intangible assets The group’s goodwill mainly relates to pulp operations in Finland and Uruguay belonging to UPM Fibres business area. In 2023, the group's goodwill and other intangible assets increased mainly as a result of the company acquisition of SunCoal Industries GmbH in UPM Biochemicals under Other Operations. Refer Note 8.1 Business acquisitions and disposals for further information. In 2022, the group's goodwill and other intangible assets increased mainly as a result of the company acquisition of AMC AG in UPM Raflatac business area. Goodwill by business area 2023

Impairment testing Impairment tests for goodwill and water rights with indefinite life were carried out in the fourth quarter 2023. Water rights of hydropower plants belonging to UPM Energy and reported in intangible rights amounted EUR 189 million at the end of 2023 and 2022. The values of water rights were tested based on expected future cash flows of each separate hydro power plant.

Goodwill impairment tests were carried out for pulp operations in Finland and Uruguay, belonging to UPM Fibres business area, UPM Raflatac business area, UPM Plywood business area and UPM Biochemicals business in Other operations. The 2023 impairment tests did not result in a recognition of any impairment.

Goodwill by business area

EURm

2023 2022

Pulp operations Uruguay Pulp operations Finland

105 113

109 113

The basis for valuation and key assumptions used in goodwill impairment testing are summarised in below table:

UPM Raflatac UPM Plywood

46 13

46 13

BASIS OF VALUATION Value in use Value in use Value in use Value in use Value in use

Other operations

6

1

CASH GENERATING UNIT

PERIOD OF FORECAST PRE-TAX DISCOUNT RATE

KEY ASSUMPTIONS Pulp price, wood costs Pulp price, wood costs

Total

283

282

Pulp operations Finland Pulp operations Uruguay

10 years + terminal value 10 years + terminal value 10 years + terminal value 10 years + terminal value 10 years + terminal value

10.68% (2022: 10.84%) 9.61% (2022: 9.30%) 10.05% (2022: 9.48%) 12.06% (2022: 15.77%)

Goodwill

Other Operations 2%

UPM Raflatac UPM Plywood

Product prices, cost development Product prices, cost development Product prices, cost development

UPM Plywood 5%

EURm

2023 2022

Pulp operations, Uruguay 37%

UPM Raflatac 16%

Carrying value, at 1 January

282

237

UPM Biochemicals

10.20% (2022: n/a)

Companies acquired Translation differences

5

38

-4

6

Sensitivity analyses The sensitivity analyses of goodwill impairment tests indicate that no reasonable change in key assumptions would result in recognition of impairment loss against goodwill. In pulp operations the recoverable amount is most sensitive to pulp sales prices and the cost of wood raw material.

Discount rate The discount rate is estimated using the weighted average cost of capital (WACC) on the calculation date adjusted for risks specific to the business in question. The adjusted after-tax discount rate is translated to a pre-tax rate for each cash generating unit (CGU) based on the specific tax rate applicable to where the CGU operates.

Carrying value, at 31 December

283

282

Pulp operations, Finland 40%

Other intangible assets

SOFTWARE AND OTHER INTANGIBLE ASSETS

Accounting policies

Key estimates and judgements

EURm

INTANGIBLE RIGHTS

TOTAL

2023 Accumulated costs

463 -249 214 198

765 -520 245 120

1,228

Goodwill Goodwill arises in connection with business combinations where the consideration transferred exceeds the fair value of the acquired net assets. Goodwill is recognised at cost less accumulated impairment and is an intangible asset with an indefinite useful life. Goodwill is allocated to the cash generating units that are expected to benefit from the synergies from the business combination. Intangible rights Intangible rights include water rights of hydropower plants, patents, licences, intellectual property and similar rights. Water rights are deemed to have an indefinite useful life as the company has a contractual right to exploit water resources in the energy production of power plants. The values of water rights are tested annually for impairment based on expected future cash flows of each separate hydropower plant. Other intangible rights are recognised at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over their estimated useful lives ranging from 5 to 10 years. Software and other intangible assets Research expenditure is recognised as an expense as incurred. Costs incurred in acquiring software that will contribute to future period financial benefit are capitalised to software and systems. Other intangible assets are recognised at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over their estimated useful lives ranging from 3 to 5 years.

The group’s assessment of the carrying value of goodwill and indefinite life assets requires significant judgement. While management believes that estimates of future cash flows are reasonable, different assumptions are subject to change as a result of changing economic and operational conditions. Actual cash flows could therefore vary from estimated discounted future cash flows and could result in changes in the recognition of impairment charges in future periods. Future cash flows The review of recoverable amount for goodwill and indefinite life assets is based on a calculation of value in use, using management projections of future cash flows. The most important assessments and assumptions needed in calculations are forecasts for future growth rates for the business in question, product prices, cost development and the discount rates applied. The group is using ten-year forecasts in calculations as the nature of the group’s business is long-term, due to its capital intensity, and is exposed to cyclical changes. In estimates of product prices and cost development, forecasts prepared by management for the next three years and estimates made for the following seven years are taken into consideration. In addition, consideration is given to the investment decisions made by the group as well as the profitability programmes that the group has implemented and the views of knowledgeable industry experts on the long-term development of demand and prices. In the projection of cash flows UPM uses EBITDA adjusted with cash flows not captured within EBITDA, including working capital movements and capital expenditures. An assumed terminal value is based on a EBITDA multiples six times, except for UPM Biochemicals for which perpetuity value is determined using inflation based 2% growth rate.

Accumulated amortisation and impairments

-769 459 317

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

Additions

2

6 4

8

Companies acquired

18

22 -29

Amortisation

-4

-25

Reclassifications 2)

—

140 245

140 459 256 715

Carrying value, at 31 December Emission rights, carrying value 1)

214

Carrying value including emission rights, at 31 December

2022 Accumulated costs

482 -285 198 198

614 -494 120

1,096

Accumulated amortisation and impairments

-779 317 262

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

64 11 62 -17

Additions

3

14 62 -21

Companies acquired

—

Amortisation

-3

Reclassifications

—

—

1

Carrying value, at 31 December Emission rights, carrying value 1)

198

120

317 235 553

Carrying value including emission rights, at 31 December

1) » Refer Note 2.3 Operating expenses and other operating income , for further information on emission rights. 2) Reclassifications include a reclass of EUR 140 million from property, plant and equipment, which relates to the start-up and final classification of assets in the Uruguay pulp mill investment » Refer note 4.1 Property, plan and equipment.

192

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

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UPM FINANCIAL REPORT 2023

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