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

2.2 Sales UPM generates revenue mainly from the sale of goods, i.e. several types of products. The majority of UPM’s revenue comes from sales of graphic and specialty papers to publishers, retailers, printing houses, merchants and distributors, converters and label stock manufacturers; sales of self adhesive label materials to label printers and brand owners and sales of pulp products to tissue, board, specialty and graphic paper producers. The revenue comprises also sales of energy, biofuels, sawn timber and plywood products and a very limited amount of services not related to sale of goods. UPM sells a proportion of its products to several major customers. The largest customer in terms of sales represented approximately 2% (2%) of UPM’s sales and the ten largest customers represented approximately 13% (13%) of such sales. The group disaggregates its external sales by business area, because this depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Sales by UPM business areas are reported consistently, with the internal reporting provided to UPM’s President and CEO who is responsible for allocating resources and assessing performance of the business areas. The goods and services included in sales revenue of each business area are presented in below tables.

Advance payments received from customers are recognised as contract liability. UPM does not have any contract assets arising from contracts with customers. » Refer Note 4.6 Working capital for information on contract liabilities and refund liabilities.

Accounting policies

Sales by business area

Sales of goods UPM’s performance obligation in the contracts with customers consists of providing the goods specified in the contracts. Revenue from UPM’s product sales is recognised when performance obligation is satisfied, which takes place at a point in time when control of the good has been transferred to the customer. In UPM’s customer contracts the transfer of control and thus timing of revenue recognition is largely dependent on delivery terms. Group terms of delivery are based on Incoterms 2020, the official rules for interpretation of trade terms issued by the International Chamber of Commerce. A major part of the sales contracts is on delivery terms basis, whereby delivery is not a promised service to the customer, as the control of a good does not transfer to the customer before shipment. Revenue and the corresponding receivable are recorded at the point in time when the product is delivered to the destination point for terms designated Delivered Duty Paid (“DDP”) or Delivered at Place (“DAP”). For sales transactions designated free of carriage (FCA), revenue is recorded at the time of shipment. For sales transactions designated as Carriage paid to (CPT) or Carriage and Insurance Paid to (CIP), the portion of revenue relating to goods is recorded at the time of loading and the portion of revenue relating to delivery services over time when the service has been performed. UPM sells energy to NordPool electricity market. Revenue is recognised when electricity is transmissed over time. Sales of services UPM provides forest expertise and contracting services to woodland and forestry owners and freight services (free space on group’s vessels sold as freight services). Revenues from services are recorded over time when the service has been performed. Sales of services is very limited and thus the group does not report it separately. Revenue recognition The group recognises revenue as an amount equal to the price specified in the customer contract net of any sales taxes, cash flow hedging results of sales in foreign currency, hedges of energy sales and variable consideration, when applicable. Variable consideration is defined as any variability that may occur between the sales price and the amount UPM expects to receive. The variable consideration includes mainly cash discounts and volume rebates that encourage the customer to take specific volumes in a given timescale. In addition, the group gives the customers the right for purchase price refund in case the products do not meet the quality as specified in the agreement. The amount of variable consideration is recognised as a refund liability when some of the amount received is expected to be refunded to the customer. Customer rebates payable to customers in relation to sales made until the end of the reporting period and expected quality claims are estimated using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability is included in trade and other payables. Receivables are recognised when the goods are delivered, and the consideration is unconditional except for the passage of time. For most of UPM’s customer contracts the period between the transfer of goods or services to customers and the receipt of payment is less than 12 months. For these contracts the group has elected to use the practical expedient not to adjust revenue for the effect of financing components.

EURm

2024 3,728

2023 CHANGE %

UPM Fibres UPM Energy UPM Raflatac

3,044

22 % — %

627

628

2.3 Operating expenses and other operating income Operating expenses

1,562 1,467 2,953

1,485 1,485 3,598

5 % -1 %

UPM Specialty Papers

UPM Communication Papers

-18 %

UPM Plywood

430 623

422 802

2 %

Operating expenses excluding forest assets fair value change, wood harvested and share of results of associates and joint ventures are presented below.

Other operations

-22 %

Eliminations

-1,051 10,339

-1,003 10,460

—

Total

-1 %

EURm

2024 2023

Costs and expenses Raw materials, consumables and goods

4,472 1,179 1,083 2,072 8,806

6,000 1,287 1,143

Employee costs 1)

Other operating costs and expenses 2) Delivery costs and other external charges

886

Total

9,316

» Refer Note 2.1 Business areas for information on UPM products.

1) » Refer Note 3 Employee rewards, for further information. 2) Distribution of other operating costs and expenses EURm

External sales by major products

2024 2023

BUSINESS AREA

BUSINESS

2024

2023

Rents and lease expenses

21 64

23 18

Emission expenses 1)

EUR million UPM Fibres UPM Energy UPM Raflatac

Losses on sale of non-current assets

6 4

UPM Pulp, UPM Timber

3,108

2,452

Credit losses

UPM Energy UPM Raflatac

487

486

Maintenance and other operating expenses 2)

988

1,092 1,143

1,562 1,272 2,920

1,485 1,300 3,570

Total

1,083

UPM Specialty Papers

UPM Communication Papers

1) Emission expenses include gains on sales of emission rights EUR 2 million (EUR 49 million). 2) Other operating expenses include, among others, energy as well as expenses related to services and group’s administration.

UPM Plywood

409

402

UPM Forest, UPM Biofuels, UPM Biochemicals, UPM Biomedicals, UPM Biocomposites

Other operations

582

768

Eliminations and reconciliations

-1

-3

Total

10,339

10,460

BUSINESS

PRODUCT RANGE

UPM Pulp

Softwood, birch and eucalyptus pulp Standard and special sawn timber

UPM Timber UPM Energy UPM Raflatac

Electricity and related services

Self-adhesive paper and film label stock

UPM Specialty Papers

Labelling materials, release base papers, flexible packaging materials, office papers, graphic papers

UPM Communication Papers

Graphic papers for various end uses

UPM Plywood

Plywood and veneer products

UPM Forest

Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering Wood-based renewable diesel for transport and renewable naphtha for transport and petrochemicals

UPM Biofuels

UPM Biochemicals UPM Biomedicals UPM Biocomposites

Lignin products for industrial use

Wood-based products for biomedical applications UPM ProFi decking products and UPM Formi granules