UPM Annual Report 2024

First page Table of contents Previous page 288-289 Next page Last page

WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Impairment testing Goodwill and other intangible assets that are deemed to have an indefinite life are tested at least annually for impairment. For goodwill impairment testing purposes the group identifies its cash-generating units (CGUs), which is the smallest identifiable group of assets that generate cash inflows largely independent of the cash inflows of other assets or other groups of assets. Each CGU is no larger than a business area. The carrying amount for the CGU includes goodwill, non-current assets and working capital. If the balance sheet carrying amount of the CGU unit exceeds its recoverable amount, an impairment loss is recognised. Impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Other intangible assets with indefinite useful lives are impaired if the recoverable amount of the asset is less than the carrying amount. The carrying amount of the asset is then reduced to the recoverable amount which is the higher of the asset’s net selling price and its value in use.

The values of water rights are tested annually for impairment based on expected future cash flows of each separate hydropower plant. Other intangible rights are recognised at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over their estimated useful lives ranging from 5 to 10 years. Software and other intangible assets Research expenditure is recognised as an expense as incurred. Costs incurred in acquiring software that will contribute to future period financial benefit are capitalised to software and systems. Other intangible assets are recognised at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over their estimated useful lives ranging from 3 to 5 years.

Provisions for emissions include liability to cover the obligation to return emission rights. The group possesses emission rights amounting to EUR 264 million (256 million) as intangible assets. » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.

expected events during production processes and waste treatment could cause material losses and additional costs in the group’s operations. Legal contingencies Management judgement is required in measurement and recognition of provisions related to pending litigation. Provisions are recorded when the group has a present legal or constructive obligation as a result of past event, an unfavourable outcome is probable and the amount of loss can be reasonably estimated. Due to inherent uncertain nature of litigation, the actual losses may differ significantly from the originally estimated provision. 4.6 Working capital The group defines operating working capital as inventories, trade receivables, trade payables and advances received which are presented separately below. The performance obligations related to advances received are typically fulfilled within 12 months of receipt of the advance. UPM is focusing on working capital efficiency and targeting a sustainable and permanent reduction in operating working capital. Operating working capital » Refer Note 9.2 Litigation for details of legal contingencies.

Accounting policies

A provision is recognised when a present legal or constructive obligation exists as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are split between amounts expected to be settled within 12 months of the balance sheet date (current) and amounts expected to be settled later (non-current). Restructuring and termination provisions A restructuring provisions is recognised when a detailed plan for the implementation of the measures is complete and when the plan has been communicated to those who are affected. Employee termination provisions are recognised when the group has communicated the plan to the employees. Environmental provisions Environmental expenditures that relate to an existing condition caused by past operations that do not contribute to future earnings are expensed. The recognition of environmental provisions is based on current interpretations of environmental laws and regulations. Such provisions are recognised when the group has an obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognised and subsequently depreciated as part of the asset. Provisions do not include any third-party recoveries. Emission provisions Emission obligations are recognised in provisions based on realised emissions. The provision is measured at the carrying amounts of the corresponding emission rights held, which are recognised as intangible assets. In case of deficit in emission rights, the shortage is valued at the market value at the balance sheet date. Environmental provisions The estimates used in determining the provisions are based on the expenses incurred for similar activities in the current reporting period taking into account the effect of inflation, cost-base development and discounting. Because actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take into account of any such changes. The discount rate applied is reviewed annually. The group aims to operate in compliance with regulations related to the treatment of waste water, air emissions and landfill sites. However, Key estimates and judgements

4.5 Provisions

ENVIRON MENTAL

EURm

RESTRUCTURING TERMINATION

EMISSIONS

OTHER

TOTAL

2024 Provisions at 1 January

59 27 -29

117

56 78 -68

266 189 -189

Provisions made during the year Provisions utilised during the year

58 -90

—

EURm

2024 2023

-1 -1

-1 -3

Inventories

2,104 1,432 -1,369

1,948 1,254 -1,297

Unused provisions reversed

-4

-5 -1

-1

-14

Trade receivables Trade payables Advances received

Reclassifications

— —

—

Translation differences

—

-6

-22

Provisions at 31 December

253

Total

2,161

1,883

Non-current

Current

165 253

Inventories

Total

2023 Provisions at 1 January

EURm

2024 2023

14 53

53 69 -65

134 258 -116

Raw materials and consumables

1,149

1,027

Provisions made during the year Provisions utilised during the year

129

Work in progress

-6 -1 -1

-30

-3 -2

-12

Finished products and goods

915

885

Unused provisions reversed

-4

—

-2

-10

Advance payments

Reclassifications

—

-1

—

-1

Total

2,104

1,948

Provisions at 31 December

117

266 170

Non-current

Current

Total

266

additions to restructuring and termination provisions of EUR 71 million relate to closures of Hürth newsprint mill and Nordland fine paper machine 3 and the planned closure of Raflatac Kaltenkirchen factory. In 2023, additions to restructuring and termination provisions of EUR 143 million relate to the closure of UPM Plattling paper mill and paper machine 6 at UPM Schongau paper mill. The group recognises provisions for normal environmental remediation costs expected to be incurred in a future period upon a removal of non-current assets and restoring industrial landfills where a legal or constructive obligation exists. Other provisions mainly include other short-term obligations related to emission rights.

UPM has undergone several restructuring programmes in recent years including mill closures and profit improvement programmes. Restructuring provisions recognised include various restructuring activities including dismantling costs. Termination provisions include severance payments, unemployment compensations or other arrangements for employees leaving the company. In Finland, termination provisions include also unemployment arrangements and disability pensions. Unemployment provisions in Finland are recognised 2–3 years before the granting and settlement of the compensation. At 31 December 2024 and 2023, restructuring and termination provisions relate mainly to capacity closures and optimisation of operations in UPM Communication Papers business area. In 2024,