UPM Annual Report 2023

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ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Changes in leased assets

The group as a lessor At inception of a lease contract, the group makes an assessment whether the lease is a finance lease or an operating lease. If the lease transfers substantially all of the risks and rewards incidental to 5.3 Financial assets and liabilities by category Financial assets and liabilities recognised in the balance sheet include cash and cash equivalents, loans and other financial receivables, investments in securities, trade receivables, trade payables, loans, bank overdrafts and derivatives. Classification of financial assets into different measurement categories depends on the contractual cash flow characteristics and the business model for managing the financial asset. The measurement category of each financial asset is determined at inception. Financial

ownership of the asset, it is considered to be a finance lease; if not, the lease is considered to be an operating lease. The group has only a minor amount of operating lease contracts, whereby the lease payments are recognised on a straight-line basis over the term of the lease.

MACHINERY AND EQUIPMENT

OTHER LEASED ASSETS

ADVANCE PAYMENTS 1)

LAND AREAS BUILDINGS

TOTAL

2023 Carrying value, at 1 January

283

247

169

1 4

13 13

713 161

New contracts and subsequent additions

9 7

Reassessments and disposals

-2

— — —

assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right in all circumstances to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred, and the group has transferred substantially all the risks and rewards of ownership.

Depreciation Impairments

-17

-31

-39

-87

— — —

-100

—

-100

Reclassifications

-4

-2

—

Reclassifications to assets held for sale

—

— —

-1

Translation differences

-10

-1

-11

Carrying value, at 31 December 2022 Carrying value, at 1 January New contracts and subsequent additions

272

161

226

683

252

264

4 8

608 178

Financial assets and liabilities by category at the end of 2023

127

— — —

FINANCIAL ASSETS AND LIABILITIES AT AMORTISED COST

EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OCI

Reassessments and disposals

—

-8

— — — — —

—

FAIR VALUE THROUGH PROFIT AND LOSS

DERIVATIVES UNDER HEDGE ACCOUNTING

Depreciation Impairments

-16

-34

-29

-80 -12

— —

-3

-7

-2 -5

EURm

TOTAL 2,283

Reclassifications

—

5 1

-1

Energy shareholdings

—

2,283

—

Translation differences

—

Other non-current financial assets Loans and receivables

Carrying value, at 31 December

283

247

169

713

— — — —

— — — — — — — — — — — — — — — — — — — — — — — —

—

Derivatives

52 52

—

52 60

1) Advance payments for leases not commenced at the year end reporting date 31 December.

that the group will exercise them. The lease liability is subsequently measured at amortised cost using the effective interest rate method and remeasured (with corresponding adjustment to the related leased asset) when there is a change in future lease payments due to renegotiation, changes of an index or rate or reassessment of options. Leased asset comprises the initial lease liability, initial direct costs and the obligations to refurbish the asset, less any incentives granted by the lessors. The leased asset is subsequently valued at cost less accumulated depreciation and impairment losses. Remeasurement takes place in case lease liability is remeasured and change in cash flows is based on contract terms that have been included in the original contract. The leased asset is depreciated over the shorter of the asset’s useful life and the lease term. The leased asset is subject to testing for impairment if there is an indicator for impairment, as for own assets. The group has elected to separate non-lease components such as service components and other variable components and account them for as expenses, if they can be separated from the leased asset. However, the group does not separate non-lease components from the lease contracts of company cars. The group does not apply portfolio approach of leases with similar characteristics. Leased assets are presented in the balance sheet as a separate financial statement line item. Lease liabilities are presented as part of non-current debt and current debt line items in the balance sheet. Lease liabilities are part of net debt calculation of the group. Short-term lease payments are reported as rents and lease expenses. Variable lease payments are recognised within the operating costs and expenses based on the nature of the payment. The interest expense on the lease liability is recognised as a component of finance costs in income statement. In cash flow statement, payments for the principal portion of the lease liability are recognised as financing cash flow while payments for interest portion of lease liability, short-term leases, and variable amounts not included in the measurement of the lease liability, are classified within operating cash flow.

Accounting policies

Trade and other receivables Other current financial assets Loans and receivables

—

1,782

Leases The group as a lessee

—

Derivatives

— —

Investment funds

—

UPM assesses whether a contract is or contains a lease at inception of the contract. This assessment involves the exercise of judgment about whether it depends on a specified asset, whether UPM obtains substantially all the economic benefits from the use of that asset, and whether UPM has the right to direct the use of the asset. The group recognises a leased asset and a lease liability at the lease commencement date, except for short-term leases. UPM applies this to all asset classes. Short-term leases are leases that, at the commencement date, have a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease. UPM recognises lease payments of short-term leases as an expense on a straight-line basis over the lease term. The lease term is determined as the non-cancellable period of the lease taking into consideration the options to extend and terminate if it is reasonably certain that the group will exercise the extension option or will not exercise the termination option. If the contract is for an indefinite period of time and the group and the lessor both have a right to terminate the contract within a short notice period (12 months or less) without a significant economic penalties and termination cash payments, the contract is considered to be a short-term. The lease liability is recognised at the commencement date and measured at the present value of the lease payments to be paid during the lease term. The group uses, as a basis, discount rate implicit in the lease and if that rate cannot be readily determined, UPM uses incremental borrowing rate which comprises of currency and lease term based reference rate and specific credit spread as well as other specific terms and conditions of a lease. Lease payments can include fixed payments, variable payments that depend on an index or rate and extension option payments or purchase options if it is reasonably certain

64 63

Financial assets classified as held for sale 2)

— —

Cash and cash equivalents Total financial assets Non-current debt Interest-bearing liabilities

632

2,283

2,486

4,884

— — — — — —

—

2,962

Derivatives

94 94

—

2,962

3,056

Other non-current financial liabilities Other liabilities 1)

—

155

Derivatives

2 2

—

155

157

Current debt Interest-bearing liabilities

—

— — — —

294

Derivatives

33 33

—

294

327

Trade and other payables

—

1,883

Other current financial liabilities Derivatives

13 13

38 38

— —

51 51 20

Financial liabilities classified as held for sale 2)

—

Total financial liabilities

134

5,314

5,494

1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months. 2) Financial assets and liabilities classified as held for sale relate to agreement to sell 100% of the shares the of the Austrian subsidiary UPM-Kymmene Austria GmbH. » Refer note 8.4 Assets held for sale.

204

205

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

204

UPM FINANCIAL REPORT 2023

205

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