UPM Annual Report 2024

WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Risks Risk management

geopolitical tensions that may lead to military conflicts, such as Russia's war in Ukraine, recent conflicts in the Middle East, or economic sanctions, blockades, or export and/or import restrictions that could limit or prevent UPM’s business in a country or area or cause adverse effects on energy, logistics or other main input cost items, such as the cost and availability of wood in Finland. UPM is also exposed to the impacts of certain governmental protection and trade protection measures such as import tariffs, foreign direct investment restrictions that safeguard domestic industries and other changes affecting international trade. Restrictions on import and export and other measures protecting national interests may affect the availability or cost of necessary raw materials or price competitiveness compared to producers from other countries, and changes in the international trade agreements. Changes in fiscal, monetary and other policies taken to respond to the economic impacts of Russia's war in Ukraine and to reduce dependency on Russian resources may cause unintended price volatility or other adverse effects on UPM. Economic downturn, global pandemics, or global power struggles continue to cause high uncertainty to global trade, geopolitics or trajectories of economies. UPM is especially exposed to the economic and political conditions in countries in which UPM has significant production operations and ongoing investment projects, such as Finland, Uruguay and Germany. UPM also has significant production operations and sales in and to China where the lack of transparency and predictability of the political, economic and legal systems may lead to an increasing uncertainty and risk level when investing in or operating in the country. UPM's subsidiary and employees in Ukraine are exposed to a challenging and unpredictable environment stemming from Russia's war in Ukraine. Cyclical and highly competitive markets In all markets UPM operates in, the price level is determined by a combination of supply and demand and an imbalance between them could cause the prices of UPM’s products to fluctuate significantly. Imbalances in supply and demand may be caused by factors such as decreases or increases in the end-use demand, changes in customer preferences, market adjustments to Russia's war in Ukraine, or a new production capacity entering the market or an old production capacity being closed, all of which may affect both the volume and price level of UPM’s products. Competitor behaviour may also influence the market price development. UPM may, from time to time, experience price pressures from competitors in its main business areas and geographic market areas as well as particularly large fluctuations in operating margins due to this competitive environment. The majority of UPM’s revenue comes from sales of graphic and specialty papers, pulp and label materials, and UPM principally competes with several large multinational paper and forest product companies as well as with numerous regional or more specialised competitors. Changes in consumer behaviour Demand for UPM’s products may be affected by the introduction of substitute or alternative products. The demand for graphic papers in the mature markets is forecast to continue to decline. This will likely increase the pressure on UPM’s graphic paper deliveries and sales prices as well as the scarcity of recycled fibre. Changes in demand could also cause overcapacity in some of UPM’s products, affecting the sales prices and deliveries of such products. Depending on the product area, the shifts in consumer demand may either have a positive or an adverse effect on the consumption of UPM’s products. For example, UPM expects that there will continue to be a growing need for renewable and recyclable solutions, which creates

various opportunities for UPM and drive demand growth for most of UPM’s products. At the same time, digitalisation and e-commerce have changed consumer behaviour and resulted in a decline in demand for graphic papers for various end-uses. Changes in legislation UPM is exposed to a wide range of laws and regulations globally. The performance of UPM’s businesses, for example the paper, energy, and biofuels businesses, are to a high degree dependent on the regulatory framework for these areas. Changes in regulation, direct and indirect taxation or subsidies, aid, grants or allowances could have a direct effect on UPM’s performance and its relative competitiveness, and structurally restrict or exacerbate UPM’s ability to compete for raw material. UPM also operates in industries that are subject to extensive environmental laws and regulations governing, among others, emissions, water quality, energy efficiency, as well as waste handling, recycling and disposal. Environmental laws and regulations have become more stringent and may continue to develop to be even more stringent due to various global, regional and national level regulatory initiatives. As these environmental laws and regulations are amended or as their application or enforcement is changed, additional costs in complying with new and more stringent regulations or fines for their non-compliance may be imposed on UPM. UPM’s operations require UPM to obtain multiple environmental permits and other licences from relevant authorities and comply with their terms and conditions. These permits and licences may be subject to modification, renewal or, subject to certain conditions, revocation by the issuing authorities. UPM monitors regulatory changes in order to better adapt to the effects of such changes. Shareholdings in Pohjolan Voima Oyj UPM is a shareholder of Pohjolan Voima Oyj (PVO), which is the majority shareholder of Teollisuuden Voima Oyj (TVO). TVO owns and operates three nuclear power plant units at the Olkiluoto site (OL). PVO supplies electricity to its shareholders on a cost-price principle (so called ‘Mankala-principle’) that is widely applied in the Finnish energy industry. Under the Mankala principle, electricity and/or heat is supplied to the shareholders in proportion to their ownership and each shareholder is, pursuant to the specific stipulations of the respective Articles of Association, severally responsible for its respective share of the production costs of the energy company concerned. The newest plant unit, Olkiluoto 3 EPR (OL3), started regular commercial electricity production in 2023 and is expected to increase UPM’s electricity generation capacity significantly. In Finland, UPM indirectly owns approximately 31% of the new nuclear power plant unit OL3, through its shareholdings in Pohjolan Voima Oyj. Pohjolan Voima Oyj is a majority shareholder of Teollisuuden Voima Oyj (TVO), holding 58.5% of its shares. TVO procured OL3 as a fixed-price turnkey project from a consortium (Plant Supplier) formed by Areva GmbH, Areva NP SAS and Siemens AG. As stipulated in the Plant Contract, the consortium companies have joint and several liability for the contractual obligations. According to TVO’s financial statements from 2023, total investment in OL3 was approximately EUR 5.8 billion. According to TVO, the provisional takeover of the plant unit was confirmed in April 2023. The final takeover of the plant unit will take place after the conclusion of the two-year warranty period, i.e. in April 2025. Even after this, the Plant Supplier’s liabilities under the warranty will remain in force up to a maximum of eight (8) years to a certain extent. A Global Settlement Agreement (GSA) was signed in March 2018 and amended in June 2021 concerning the completion of the OL3 project and related disputes. During 2023, the fund mechanism

established in accordance with the GSA and funded by the Areva companies has been used to cover costs incurred to the Areva companies for the completion of the OL3 project in accordance with the GSA. Plant Supplier has still warranty period activities to be completed at OL3 but the funds reserved for their completion in the fund mechanism were depleted in the autumn of 2024. Areva and Siemens have made a decision to recapitalise the fund with more than EUR 80 million. TVO has announced that regular electricity production, which started after the conclusion of the test operation programme in April 2023, and commercial operation, which started in May 2023, transferred the responsibility for OL3 to TVO. The Plant Supplier retains the responsibilities according to the Plant Contract for warranty periods and for the unfinished work, which has been agreed to be done later at the Plant Supplier’s expense. According to TVO, during 2023, several risk management measures have been taken in relation to the OL3's warranty period that improve the process flow during the warranty period and ensure that the prerequisites for the warranty period under the Plant Contract are met. TVO is closely monitoring compliance with the conditions set in the Settlement Agreement signed in March 2018 and supplemented in June 2021, and the progress of the OL3 warranty period and ascertaining that actions are taken in accordance with the Plant Supplier’s schedule while ensuring financial and technical resources. TVO has announced that even though there have been few interruptions to electricity generation at OL3 following the conclusion of the test operation programme, there are uncertainties related to the availability of OL3 during the first operating cycles due to the possibility of unexpected events. These uncertainties are managed by means of systematic maintenance and monitoring of the plant unit. According to TVO, if OL3 fails to achieve the planned load factor or operating cost structure, the Finnish national grid limits its power level, or the costs incurred by TVO due to grid load limitation make it unprofitable to operate at full power, there is a risk of production costs exceeding TVO’s target. Climate change UPM is exposed to a variety of risks related to climate change. Strategic risks related to climate change include risks concerning competition, markets, customers, products and regulation. For example, unpredictable regulation, subsidies or EU policies and resulting national legislation in EU countries may distort raw material, energy and final product markets and changing costs of greenhouse gas emissions may influence UPM’s financial performance. Policies and regulations responding to Russia’s war in Ukraine and cutting Russian gas supply to Europe or policies of the new U.S. government may temporarily emphasise energy supply security over climate targets and thus change the trajectory of climate change or slow down the achievement of emission reductions. UPM believes that forest, wood-based products and low-carbon energy hold significant value creation potential with respect to renewable and recyclable products. Other risks related to climate change particularly concern UPM’s supply chain as well as the availability and price of major inputs, such as wood and electricity. Climate change may cause exceptional weather events, such as severe storms, floods and droughts, which could, for example, result in unpredictable hydropower availability and wood harvesting conditions. Exceptionally mild winter conditions with a reduced period of frozen soil in the Nordics could affect the harvesting and transport of wood, consequently undermining the stability of raw material supply and potentially increasing the cost of wood. These could also increase the risk of production limitations.

UPM regards risk management as a systematic and proactive means to analyse and manage opportunities and threats related to its business operations. This also includes risks that can be avoided through careful planning and evaluation of future projects and business environments. Risk management is an integral part of UPM’s management system as risk taking is a normal part of business operations. While executing strategies, UPM and its business areas, functions and manufacturing units are exposed to a number of risks and opportunities. Each business area, function and unit is responsible for identifying, measuring and managing of risks related to its own operations, and for reporting on risk exposures, risk management activities and results to its own management team and to the Risk Management function. The Risk Management Committee, chaired by the CFO, is responsible for recommending risk tolerances and profiles to the President and CEO and the Strategy Team. The Strategy Team is responsible for aligning risk management priorities, business and risk management strategies and policies. The Board of Directors, assisted by the Audit Committee, monitors and assesses the effectiveness of the company’s risk management systems and oversees the assessment and management of risks related to the company’s strategy and operations. The Audit Committee oversees that risk management activities are aligned with the Risk Management Policy, and that risk assessments are used to guide internal audit activities. UPM seeks to transfer insurable risks through insurance arrangements for any risks that exceed the defined tolerance. UPM strives to ensure compliance with the UPM Code of Conduct and other corporate policies. To enhance compliance and mitigate risks, UPM performs risk assessments, training and monitoring at regular intervals. UPM has developed and implemented a comprehensive internal control system that covers business and financial reporting processes. Internal control is aimed at ensuring that the company’s operations are efficient and reliable, and in compliance with statutory requirements, and that the company’s financial reporting is accurate and reliable, and reflects operational results. Internal control pertaining to financial reporting is described in the Corporate Governance Statement available in the corporate website. The main risk factors that can materially affect the company’s business, financial results and non-financial performance are set out below. They have been classified as strategic risks, operational risks, and financial risks. Risks may also arise from legal proceedings incidental to UPM’s operations. Strategic risks Uncertainties in the economic and political operating environment The main short-term uncertainties in UPM’s earnings relate to sales prices and delivery volumes of its products, as well as to changes in the main input cost items and currency exchange rates, most of which are affected by uncertainty in the global, regional or local economic and political conditions. Political developments are causing uncertainties to the global economy. Such uncertainties also affect UPM’s customers influencing the demand for UPM’s products. Examples of such developments are the trade tensions between the United States, the EU and China, the nature of the relationship between the EU and the UK after its exit from the EU as well as increased

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UPM ANNUAL REPORT 2024

UPM ANNUAL REPORT 2024