UPM Annual Report 2023

BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

ENSURING PERFORMANCE We aim for continuous improvement in financial performance through our agile operating model, performance culture and effective capital allocation. In 2023, our comparable EBIT decreased by 52% from the previous year’s all-time record.

businesses with strong long-term funda mentals for demand growth and a clear competitive advantage or high barrier to entry for superior returns. UPM targets growth in comparable EBIT and compa rable return on equity exceeding 10%. • Pay attractive dividends. UPM aims to pay attractive dividends, targeting at least half of the comparable earn ings per share over time. The targeted earnings growth drives dividend growth over time. • Maintain a strong balance sheet. Accord ing to UPM’s leverage policy, net debt to EBITDA ratio is to be less than 2. An investment grade rating is an important element in the financing strategy. • Share buybacks. They are a complemen tary tool that may be used relative to investment opportunities and company valuation. Currently, our transformation is in an intensive phase, with growth investments totalling EUR 4.2 billion scheduled to be completed by the end of 2024. For such investments, our ROCE target is 14% and we aim to achieve higher profitability on average than in the growing businesses.

raw material self-sufficiency will increase significantly once the Uruguayan operations are fully up and running. The OL3 nuclear power plant unit started regular commercial production in May. This grew our energy business significantly and contributed to the easing of the energy crisis in Finland. Agile operating model Our businesses in various parts of the bio and forest industry value chain operate as sepa rate market-facing entities, both in terms of customers and suppliers. This enables agility in a fast-changing business environment, higher efficiency, differentiated commercial strategies, optimal sourcing, the right incen tives, wider product development opportuni ties and effective capital allocation. At the business area level, we are tar geting top performance in their respective markets. We have also set long-term return targets (ROCE %, below) for the six busi ness areas. The return targets apply over business and investment cycles. In 2023, three out of six business areas achieved or exceeded the targeted returns. Capturing corporate synergies We build on corporate synergies, adding value to our businesses and stakeholders with: • Competitive and sustainable wood sourc ing, forestry and plantation operations • Efficient and responsible global functions

• Group-wide continuous improvement programmes in commercial strategies, variable costs, working capital, site and maintenance costs, safety and environ mental performance • Technology development and intellectual property rights • Global business platform • Disciplined and effective capital allocation • Compliance, UPM Code of Conduct and strong UPM brand Effective capital allocation Capital allocation is key to attractive long term returns, as well as developing the business portfolio in areas with the best long-term value creation potential. At UPM, capital allocation decisions take place at the corporate level. UPM plans to allocate capital in order to: • Invest to grow the company and its earnings. UPM invests in sustainable

IMPACT • Top performance enables investments in growth, innovation and responsibility • Effective capital allocation drives the company transformation and enhances long-term value creation

TARGETS • Continuous improvement • Top performance in each business • Growth in comparable EBIT • Attractive returns • Strong balance sheet

OUR WAY • Agile operating model • High-performing people • Commercial excellence • Cost efficiency • Efficient use of assets and capital • Capitalise on corporate benefits and synergies Meanwhile, we ramped up our strategic growth projects, and continued to build the foundation for future growth. The highly competitive UPM Paso de los Toros pulp mill was EBITDA positive in H2 2023 and grew our pulp production capacity by more than 50%. Now about 60% of our pulp production is based on a low-cost plat form in Uruguay. Furthermore, our wood

In 2023, the business environment was exceptional, with a downcycle well beyond the norm in our industry, especially in Europe. Geopolitical uncertainty, low economic activity, persistent inflation and increased interest rates impacted the un derlying demand for consumer products. Market deliveries of our products were fur ther held back by unprecedented destock

ing in most of the product value chains. In these unusual circumstances, we focused on margin management, and imple mented a range of timely cost and capacity reduction measures to maintain good performance. Most raw material costs start ed to decline during 2023. The exception was wood costs in the Nordic area, which remained high.

6.2% Comparable ROE 9.7% Comparable EBIT of sales

Creating shareholder value on page 18 Accelerating growth on page 22 2030 responsibility targets on page 32 Financial Statements on page 163

BUSINESS AREA RETURNS AND LONG-TERM TARGETS

UPM Communication Papers

UPM Specialty Papers

Comparable ROE

UPM Plywood

Comparable EBIT

Net debt and leverage

UPM Energy*** )

UPM Raflatac

UPM Fibres

FCF/CE %** )

ROCE %* )

ROCE %* )

ROCE %* )

ROCE %* )

ROCE %* )

%

EURm

EURm

Net debt/EBITDA (x)

22

12

50

20

20

50

50

12

4,000

48

2,500

4

12

18

11

44

Target

17

16

40 40

16

10

39

40

40

40

2,000

Target

15

15

3,000

Target

9

3

8

13

32

8

7

30

13

30

30

1,500

11

Target

10

25

10

10

6

2,000

6

2

22

22

Target

6

19

Target 11 11

20

20

20

1,000

Target

4

14

5

5

5

3

1,000

1

10

10

10

500

12

2

10

2

0

0

0

0

0

0

0

0

0

0

19 20 21 22 23

19 20 21 22 23

18 19 21 22 23

19 20 21 22 23

17 20 21 22 23

19 20 21 22 23

14 15 16 17

20 21 22 23

14 15 16 17 18 19 20 21 22 23

14 15 16 17 18 19 20 21 22 23

18 19

* ) ROCE % = Return of capital employed excluding items affecting comparability ** ) Free cash flow after investing activities and restructuring costs *** ) Shareholdings in UPM Energy valued at fair value

Net debt Net debt/EBITDA

26

27

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023