UPM Annual Report 2023

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ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Financial assets and liabilities by category at the end of 2022

Fair value measurement hierarchy for financial assets and liabilities

EURm

2023

2022

EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OCI

FINANCIAL ASSETS AND LIABILITIES AT AMORTISED COST

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

FAIR VALUE THROUGH PROFIT AND LOSS

DERIVATIVES UNDER HEDGE ACCOUNTING

Financial assets Investment funds

EURm

TOTAL 3,652

— —

— — —

— —

— — —

Energy shareholdings

—

3,652

—

Derivatives, non-qualifying hedges Derivatives under hedge accounting

19 91

19 95

Other non-current financial assets Loans and receivables

150

162

— — — —

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

—

Energy shareholdings

—

2,283 2,283

2,283 2,398

—

3,652 3,652

3,652 3,832

Derivatives

62 62

—

63 70

Total

111

168

Trade and other receivables Other current financial assets Loans and receivables

—

2,696

Financial liabilities Derivatives, non-qualifying hedges Derivatives under hedge accounting

—

— — —

—

— — —

—

— — — —

—

6 6

128 174

134 180

46 46

192 229

238 275

Derivatives

100

117

Total

Investment funds

—

There have been no transfers between levels in 2023 and 2022.

100

118

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

—

2,067 4,771

2,067 8,602

The different levels of fair value hierarchy used in fair value estimation are defined as follows: Fair values under level 1 Quoted prices (unadjusted) traded in active markets for identical assets or liabilities. Derivatives include futures and commodity forwards traded in exchange. Fair values under level 2 Observable inputs are used as basis for fair value calculations either directly (prices) or indirectly (derived from prices). If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. For investment funds, the valuation is based on quoted prices (unadjusted) for identical assets in markets that are not active. For derivatives, level 2 include OTC derivatives like forward foreign exchange contracts, foreign currency options, interest and currency swaps and commodity swaps. Specific valuation techniques used to value financial instruments at level 2 include the following methods: Interest forward rate agreements (FRA) are fair valued based on quoted market rates on the balance sheet date. Forward foreign exchange contracts are fair valued based on the contract forward rates at the balance sheet date. Foreign currency options are fair valued based on quoted market rates and market volatility rates on the balance sheet date by using the Black&Scholes option valuation model. Interest and currency swap instruments are fair valued as present value of the estimated future cash flows based on observable yield curves. Commodity swaps are fair valued based on quoted forward prices on the balance sheet date. An embedded derivative that is by nature a foreign currency forward contract is valuated at market forward exchange rates and is included in level 2. Embedded derivatives are monitored by the group and the fair value changes are reported in other operating income in the income statement. Fair values under level 3 Financial assets or liabilities of which fair values are not based on observable market data (that is, unobservable inputs) are classified under level 3. This category include UPM’s energy shareholdings and forest assets. Fair valuations are performed at least quarterly by respective business areas or functions. Fair valuations are reviewed by the group finance management and overseen by the Audit Committee. » Refer Note 4.3 Energy shareholdings and » Note 4.2 Forest assets .

Accounting policies

3,652

162

— — — — — —

—

4,340

Fair value through profit or loss This category includes derivatives that do not qualify for hedge accounting and investments funds. They are measured at fair value and any gains or losses from subsequent measurement are recognised in the income statement. Equity instruments at fair value through OCI This category includes mainly UPM’s energy shareholdings. These assets are measured at fair value through other comprehensive income. » Refer Note 4.3 Energy shareholdings. Financial assets at amortised cost This category comprises loan receivables with fixed or determinable payments that are not quoted in an active market, as well as trade and other receivables, and cash and cash equivalents. They are included in non-current assets unless they mature within 12 months of the balance sheet date. Cash and cash equivalents are always classified as current assets. Loan receivables that have a fixed maturity are measured at amortised cost using the effective interest method. Loan receivables without fixed maturity date are measured at amortised cost. As soon as a loan receivables or cash and cash equivalents are originated or purchased, a loss allowance for 12-month expected credit losses are recognised in profit or loss. If credit risk increases significantly, full lifetime expected credit losses are recognised in profit or loss. The credit loss model applied to trade receivables is described in » Note 4.6 Working capital . Derivatives under hedge accounting All derivatives are initially and continuously recognised at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recognised in accordance with the accounting principles described in » Note 6.2 Derivatives and hedge accounting. Financial liabilities measured at amortised cost This category includes debt, trade payables and other financial liabilities. » Refer Note 5.2 Net debt, for further information.

Derivatives

137 137

—

137

4,340

4,476

Other non-current financial liabilities Other liabilities 1)

—

90 13

Derivatives

13 13

—

103

Current debt Loans

—

— — — —

534

Derivatives

24 24

—

534

558

Trade and other payables

—

2,720

Other current financial liabilities Derivatives

14 14 37

88 88

— —

102 102

Total financial liabilities

238

7,683

7,959

1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months. The carrying amounts of financial assets and financial liabilities approximate their fair value except for interest-bearing liabilities in non-current debt. Their fair value amounted to EUR 2,873 million (3,607 million) at the end of 2023. For quoted bonds, the fair values are based on the quoted market value as of 31 December. At the end of 2023, all bonds were quoted. For other non-current debt in interest-bearing liabilities fair values are estimated using the expected contractual future payments discounted at market interest rates and are categorised within level 2 of the fair value hierarchy.

» Refer Note 5.2 Net debt, for further information on net debt and bonds.

206

207

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

206

UPM FINANCIAL REPORT 2023

207

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