UPM Annual Report 2024

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GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Market environment in 2024 The global economy is projected to have grown by 3.1% in 2024, indicating a modest but steady growth trajectory despite geopolitical tensions and economic policy shifts. The year began with inflation rates still elevated, but a downward trajectory set in, and by the end of the year global inflation stood at 5.8%. Global trade grew by 2.7% according to the WTO but was still below its peak in 2022. Trade in services was more robust than in goods, however. Russia’s ongoing war in Ukraine continued to impact global politics. The concerted international effort to respond to Russia's actions in Ukraine continued. Both the number and intensity of sanctions increased, targeting key sectors, and preventing sanctions evasion. The escalation of the conflicts in the Middle East affected key shipping lanes, leading to increased costs, longer transit times and supply chain disruptions. The conflict affected the dynamics of global trade, led to volatility in energy prices and undermined economic confidence. In 2024, the European economy is projected to have grown by around 1.0%, reflecting uneven growth across countries. Growth remained weak particularly in Germany. Energy prices stabilised and inflation declined but remained above the ECB's target. The US economy grew robustly, with real GDP expansion surpassing 2.5%, driven by consumer spending and investment in technology and R&D. Inflation eased toward the Fed's target, prompting interest rate cuts. The presidential elections introduced policy uncertainty in the latter part of the year. The Asia-Pacific region continued to grow, albeit at a slightly slower pace, with an average growth rate of about 4.6% through 2024. Domestic demand in East Asia and India was resilient. In China, consumer spending remained tepid and retail sales growth fell short of expectations. Energy and climate change remained in international debate, with progress on the global transition to a low-carbon economy markedly lacking. 2024 was confirmed to be the hottest year on record, surpassing the previous record set in 2023. The UN Climate Change Conference (COP29) in Baku, Azerbaijan, underscored the importance of ambitious targets to achieve the goal of limiting global temperature rise to 1.5°C. Nearly 200 countries pledged to transition away from fossil fuels in energy systems. To achieve the goal of halting and reversing biodiversity loss by 2030 and promoting nature's recovery, COP29 reaffirmed the commitment to implement the Kunming-Montreal Global Biodiversity Framework agreed at the UN Biodiversity Conference (COP15) in 2022. Effective implementation requires adequate financial resources as well as robust planning, monitoring, reporting and review mechanisms. Both COP processes have an influence on global regulations. The European Union, for its part, formulated several significant new ESG related regulations in 2024 that are expected to come into force soon and aim to promote sustainability, transparency, and accountability in business practices. The recovery of UPM's product markets continued in 2024, but as the year progressed it became clear that growth would remain modest. Market deliveries increased mainly in pulp, and more modestly in self adhesive labels, specialty papers and plywood. Input costs decreased, except for Nordic wood costs. UPM reduced fixed costs and took other measures to improve performance. Global demand for chemical pulp was robust, and UPM's deliveries increased significantly with the completion of the ramp-up of the Paso de los Toros pulp mill in Uruguay. The railway from the mill to the port of Montevideo was gradually brought to full capacity by the end of the year. The average European market price in euros was 17% higher for NBSK and 18% higher for BHKP compared to 2023. In China, the

Key figures

average market prices increased much less, by 2% and 6% respectively in US dollars. In 2024, demand for sawn timber was still subdued due to low construction activity in many areas. Prices recovered compared to 2023 but were offset by rising wood costs. Electricity prices in Europe declined in 2024, after the highs of previous years, with intermittent volatility due to weather, market dynamics and geopolitical events. The average Finnish area spot price on the Nordic electricity exchange was 19% lower than in 2023. The Olkiluoto nuclear power plant had longer than expected maintenance shutdowns, reducing UPM’s nuclear power volumes. In 2024, the global market for self-adhesive label materials grew from the low levels of 2023, particularly in Europe. Market prices declined. Global demand for label, release liner and packaging papers was solid throughout the year. UPM's delivery volumes increased for specialty grades and decreased for fine grades. Market prices decreased compared to the previous year. The fine paper markets in China and the whole Asia-Pacific region were weak but showed slight signs of recovery towards the end of the year. Demand for graphic papers in Europe increased by 1% in 2024 compared with 2023. Market prices decreased for all paper grades. Paper production at UPM Hürth ceased in August and at UPM Nordland Papier PM 3 in December, reducing UPM’s annual capacity by 330,000 tonnes of newsprint and 280,000 tonnes of uncoated fine paper. Demand for spruce plywood in the panel trade and for veneer continued to be weak. Demand for birch plywood in the panel trade was solid, mitigating lower demand from industrial end-uses such as automotive flooring. Demand for birch plywood for LNG end-uses was robust. The European market for advanced renewable fuels remained weak as imports continued to supply the market. Germany adopted regulation to suspend the use of surplus greenhouse gas emissions to meet its 2025 and 2026 targets. Construction and commissioning of the Leuna biochemicals refinery in Germany continued throughout the year. Interest in bio-based glycols and renewable functional fillers remained strong.

2024

2023

2022

Sales, EURm

10,339

10,460

11,720

Comparable EBITDA, EURm

1,734

1,573

2,536

% of sales

16.8 604

15.0 608

21.6

Operating profit, EURm Comparable EBIT, EURm

1,974 2,096

1,224

1,013

% of sales

11.8 500

9.7

17.9

Profit before tax, EURm

464 934 394 755 0.73 1.40

1,944 2,066 1,556 1,679

Comparable profit before tax, EURm

1,123

Profit for the period, EURm

463 953 0.82 1.74

Comparable profit for the period, EURm

Earnings per share (EPS), EUR Comparable EPS, EUR Return on equity (ROE), %

2.86 3.09 13.0 14.0 12.8 13.6 508 0.95

4.0 8.3 4.1 8.2

3.2 6.2 3.5 6.4

Comparable ROE, %

Return on capital employed (ROE), %

Comparable ROCE, %

Operating cash flow, EURm

1,352

2,269

Operating cash flow per share, EUR Equity per share at the end of period, EUR Capital employed at the end of period, EURm

2.54

4.25

20.89

20.93

23.44

15,452

14,916

17,913

Net debt, EURm

2,869

2,432

2,374

Net debt to EBITDA

1.66

1.55

0.94

Personnel at the end of period

15,827

16,573

17,236

» Refer Other financial information Alternative performance measures for definitions of key figures.

Results

economic environment. Additionally, items affecting comparability include EUR 5 million impairment of UPM Biochemicals goodwill, and EUR 113 million impairment of Pulp operations Finland goodwill resulting from high wood costs. Other items affecting comparability include EUR 10 million restructuring charges and EUR 26 million impairment charges of fixed assets related to planned closure of UPM Raflatac Kaltenkirchen factory in Germany, EUR 40 million of restructuring and impairment charges related to the closure of Hürth newsprint mill in Germany, EUR 54 million restructuring and impairment charges related to the closure of Nordland fine paper machine 3 in Germany, EUR 4 million write down of inventory at the Raflatac mill, located in Western North Carolina, USA, which was impacted by Hurricane Helene, EUR 12 million restructuring and impairment charges related to the closure of the UPM Biocomposites business, a EUR 21 million capital gain on the sale of UPM-Kymmene Austria GmbH to HEINZEL GROUP, EUR 9 million capital gain on the sale of other non current assets, EUR 12 million other restructuring costs and EUR 8 million related to prior capacity closures. In 2023, items affecting comparability include EUR 120 million restructuring charges and EUR 112 million impairment charges of fixed and leased assets related to the closure of the UPM Plattling paper mill in Germany and EUR 13 million restructuring charges and EUR 2 million impairment charges related to restructuring measures at the UPM Raflatac Nancy factory in France, EUR 86 million decrease in the fair value of forest assets in Finland resulting from changes in estimates and increase in discount rate, EUR 30 million restructuring charges relating to the closure of paper machine 6 at the UPM Schongau mill in Germany, EUR 10 million charges

2024 compared with 2023 2024 sales were EUR 10,339 million, 1% lower than the EUR 10,460 million for 2023. Sales in UPM Fibres increased significantly with the completion of the ramp up of the Paso de los Toros pulp mill in Uruguay. Sales decreased in UPM Communication Papers, the Other operations reporting segment and UPM Specialty Papers. Comparable EBIT increased by 21% to EUR 1,224 million, 11.8% of sales (1,013 million, 9.7%), mainly driven by higher delivery volumes and lower fixed costs. On the Group level, the change in sales prices had a negative impact, which was more than offset by the declining variable costs. Delivery volumes increased in UPM Fibres, UPM Raflatac and UPM Plywood. In 2024, fixed costs were EUR 103 million lower than in the previous year. Depreciation, amortisation and impairment charges excluding items affecting comparability, totalled EUR 590 million (543 million) including depreciation of leased assets totalling EUR 85 million (87 million). The change in the fair value of forest assets net of wood harvested was EUR 80 million (-17 million). Operating profit totalled EUR 604 million (608 million). Items affecting comparability in operating profit totalled EUR -620 million in the period (-405 million). In 2024, items affecting comparability include EUR 373 million impairment of assets in biochemicals refinery in Leuna resulting from cost overruns and construction delays during the first-of-its kind project. The remaining book value of the refinery closely aligns with the estimated cost of constructing a comparable plant in the current

UPM FINANCIAL REPORT 2024

112

UPM FINANCIAL REPORT 2024

113

112

113

UPM ANNUAL REPORT 2024

UPM ANNUAL REPORT 2024