UPM Annual Report 2023

ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Impairment testing Goodwill and other intangible assets that are deemed to have an indefinite life are tested at least annually for impairment. For goodwill impairment testing purposes the group identifies its cash-generating units (CGUs), which is the smallest identifiable group of assets that generate cash inflows largely independent of the cash inflows of other assets or other groups of assets. Each CGU is no larger than a business area. The carrying amount for the CGU includes goodwill, non-current assets and working capital. If the balance sheet carrying amount of the CGU unit

can be reasonably estimated. Due to inherent uncertain nature of litigation, the actual losses may differ significantly from the originally estimated provision.

exceeds its recoverable amount, an impairment loss is recognised. Impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Other intangible assets with indefinite useful lives are impaired if the recoverable amount of the asset is less than the carrying amount. The carrying amount of the asset is then reduced to the recoverable amount which is the higher of the asset’s net selling price and its value in use.

Accounting policies

A provision is recognised when a present legal or constructive obligation exists as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are split between amounts expected to be settled within 12 months of the balance sheet date (current) and amounts expected to be settled later (non-current). Restructuring and termination provisions A restructuring provisions is recognised when a detailed plan for the implementation of the measures is complete and when the plan has been communicated to those who are affected. Employee termination provisions are recognised when the group has communicated the plan to the employees. Environmental provisions Environmental expenditures that relate to an existing condition caused by past operations that do not contribute to future earnings are expensed. The recognition of environmental provisions is based on current interpretations of environmental laws and regulations. Such provisions are recognised when the group has an obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognised and subsequently depreciated as part of the asset. Provisions do not include any third-party recoveries. Emission provisions Emission obligations are recognised in provisions based on realised emissions. The provision is measured at the carrying amounts of the corresponding emission rights held, which are recognised as intangible assets. In case of deficit in emission rights, the shortage is valued at the market value at the balance sheet date. Environmental provisions The estimates used in determining the provisions are based on the expenses incurred for similar activities in the current reporting period taking into account the effect of inflation, cost-base development and discounting. Because actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take into account of any such changes. The discount rate applied is reviewed annually. The group aims to operate in compliance with regulations related to the treatment of waste water, air emissions and landfill sites. However, expected events during production processes and waste treatment could cause material losses and additional costs in the group’s operations. Legal contingencies Management judgement is required in measurement and recognition of provisions related to pending litigation. Provisions are recorded when the group has a present legal or constructive obligation as a result of past event, an unfavourable outcome is probable and the amount of loss Key estimates and judgements

» Refer Note 9.2 Litigation for details of legal contingencies.

4.6 Working capital The group defines operating working capital as inventories, trade receivables, trade payables and advances received which are presented separately below. The performance obligations related to advances received are typically fulfilled within 12 months of receipt of the advance. UPM is focusing on working capital efficiency and targeting a sustainable and permanent reduction in operating working capital. Operating working capital

4.5 Provisions

ENVIRON MENTAL

EURm

RESTRUCTURING TERMINATION

EMISSIONS

OTHER

TOTAL

2023 Provisions at 1 January

14 53

22

29

53 69 -65

15

134 258 -116

Provisions made during the year Provisions utilised during the year

129

2

5

-6 -1 -1

-30

-3 -2

-12

EURm

2023 2022

Unused provisions reversed

-4

—

-2

-10

Inventories

1,948 1,254 -1,297

2,289 1,614 -1,855

Reclassifications

—

1

-1

—

-1

Trade receivables Trade payables Advances received

Provisions at 31 December

59

117

27

56

6

266 170

Non-current

-22

-23

Current

96

Total

1,883

2,026

Total

266

2022 Provisions at 1 January

Inventories

24

36 11 -23

30 11

39 69 -54

26 21 -30

155 117 -121

Provisions made during the year Provisions utilised during the year

5

-12

-1

EURm

2023 2022

Unused provisions reversed

-3

-2

-11

— —

-2

-18

Raw materials and consumables

1,027

1,128

Reclassifications

—

—

—

—

—

Work in progress

6

11

Provisions at 31 December

14

22

29

53

15

134

Finished products and goods

885

1,116

Non-current

64 70

Advance payments

31

34

Current

Total

1,948

2,289

Total

134

Trade and other receivables

UPM has undergone several restructuring in recent years including mill closures and profit improvement programs. Restructuring provisions recognised include various restructuring activities including dismantling costs. Termination provisions include severance payments, unemployment compensations or other arrangements for employees leaving the company. In Finland termination provisions include also unemployment arrangements and disability pensions. Unemployment provisions in Finland are recognised 2–3 years before the granting and settlement of the compensation. At 31 December 2023 and 2022, restructuring and termination provisions relate mainly to capacity closures and optimisation of operations in UPM Communication Papers business area. In 2023, additions to restructuring and termination provisions of EUR 143 million relate to closure of UPM Plattling paper mill and paper machine 6 at UPM Schongau paper mill. In 2022, there were no significant additions to restructuring and termination provisions. The group recognises provisions for normal environmental remediation costs expected to be incurred in a future period upon a removal of non-current assets and restoring industrial landfills where a legal or constructive obligation exists. In 2022, the group recognised EUR 8 million additional environmental provision related to prior capacity closures in Finland.

Other provisions are mainly attributable to onerous contracts and will be incurred over a period longer than one year. In 2022, additions to other provisions include EUR 10 relating to tax dispute. Provisions for emissions include liability to cover the obligation to return emission rights. The group possesses emission rights amounting to EUR 256 million (235 million) as intangible assets. » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.

EURm

2023 2022

Trade receivables Trade receivables

1,284

1,647

Loss allowance provision Total trade receivables

-30

-32

1,254

1,614

Prepayments and accrued income Personnel expenses

2 1

2 1

Interest income

Energy and other excise taxes

11

15

Other items

118 133

158 176

Total prepayments and accrued income Other receivables VAT and other indirect taxes receivable

155 187

326 500

Cash collaterals Other receivables

53

80

Total other receivables

395

906

Total

1,782

2,696

194

195

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

194

UPM FINANCIAL REPORT 2023

195