UPM Annual Report 2024

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WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Strategic partners UPM collaborates with many partners. For example, product development in the biofuels, bioenergy or biochemicals increases the importance of partnerships in the search for new products and businesses or higher efficiency. Partnerships may, however, create risks to UPM's profitability, for example, through changes occurring within the partner entity or changes in how the partnership operates. UPM is also subject to the risk that its strategic partners do not comply with UPM’s Code of Conduct with anti-corruption, competition law, HR practices, human rights, responsible sourcing and environmental matters. Partnership arrangements may also be too rigid to enable timely changes required, for example, in connection with changes in the market conditions or the economy. UPM’s partners may have different targets with respect to the business of the partnerships. As UPM may not have sole control over strategic direction and operational output of these entities, its partners may have the right to make certain decisions on key business matters with which UPM does not agree. In some cases, strategic partners may choose not to continue partnerships that they have with UPM. Russia's war in Ukraine and the resulting adverse economic conditions may cause financial stress to a strategic partner and trigger unexpected negotiation or other processes causing delays or cost increases for UPM. Intellectual property rights of third parties Molecular bioproducts form one of UPM’s three strategic focus areas for growth. Initiatives within this strategic focus area are technology intensive and require increasing investments in such technologies either through internal development or through third party licences or technological partnerships. In addition to UPM’s own IPR portfolio, UPM licences certain technologies developed by third parties. Evaluating the rights related to the third-party technologies UPM uses or intends to use is increasingly challenging. Licensing third-party technology exposes UPM to such risks as the increase of overall licensing costs, loss of negotiation power, the validity of such licensing arrangements and potential infringement claims, which could restrict UPM’s ability to use certain technologies, prevent the delivery of UPM’s products and/or result in costly and time-consuming litigation. Risk related to IPR claims and disputes relating to technological partnerships have been assessed to increase. Building capabilities to growth areas The success of UPM’s business largely depends on the ability to build and retain the necessary new capabilities required for future growth. UPM is continuously developing its employee experience, leadership culture, evaluating its recruitment, compensation policies and career development opportunities and taking measures to attract and retain diversely skilled personnel and individuals with rare and pivotal specialist knowledge for current and future growth areas.

Financial risks Financial risks are described in consolidated financial statements 2024.

CONSOLIDATED FINANCIAL STATEMENT NOTE

TYPE OF RISK

Sustainability Statement

Credit risk

4.6 Working capital

Liquidity and refinancing risk

5.1 Capital management

Interest rate risk

6.1 Financial risk management 6.1 Financial risk management 6.1 Financial risk management

Foreign exchange risk Electricity price risk

Counterparty risk

6.2 Derivatives and hedge accounting

Impact of Russia's war in Ukraine In response to Russia´s attack on Ukraine, the European Union as well as the United States, the United Kingdom, and other countries imposed extensive sanctions on Russia, the breakaway regions of Donetsk and Luhansk and the oblasts of Zaporizhzhia and Kherson, and Belarus. Since 21 February 2022, these measures have included, for example asset freezes and travel restrictions on individuals and entities, economic sanctions targeting sectors of the Russian and Belarusian economies, and diplomatic restrictions. Russia has also implemented several countermeasures affecting especially foreign companies’ operations within Russia and with Russian counterparties. While the sanctions primarily target Russia’s ability to finance its military operations in Ukraine and impose economic and political costs on the people responsible for them, peaceful resolution to the war in Ukraine remains uncertain. Economic and geopolitical uncertainty and inflation accelerated around the world which resulted in a spike in interest rates that moderated in 2024 but have remained higher compared to pre invasion levels. Impact on UPM businesses The economic sanctions and Russia’s countermeasures have rendered it unviable for UPM to continue operations in Russia or trade with Russian counterparties. UPM businesses have suspended deliveries to Russia as well as wood sourcing in and from Russia. In Q1 2023, UPM completed a full withdrawal of its businesses from Russia by selling all its Russian operations, including the Chudovo plywood mill. The potential further impacts for UPM are likely to differ for each business and depend on the pace, scope and duration of sanctions, market price reactions, supply chain development, and the length of the war in Ukraine and whether there is any geographic escalation of the war. UPM is monitoring the situation closely and preparing plans to adjust its operations in different scenarios accordingly.