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

Trade and other receivables

In 2024, trade receivables amounting to EUR 15 million (5 million) were subject to permanent write-off and the loss was recognised under other costs and expenses. In accordance with the group’s accounting policy, trade receivables are permanently written off when there is no reasonable expectation of recovery.

business or within 12 months from the balance sheet date. Trade payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. The carrying amount of trade payables approximates to their fair value due to the short-term nature of the payables. The group is recognising refund liability for expected volume and other discounts arising from contracts with customers. Customer rebates include mainly volume discounts and are recognised as equal to an amount which is most likely to be paid to the customer. The carrying amount of expected customer rebates is updated at each reporting date, using the latest forecast data available. Customer claims relating to quality complaints are accounted for as revenue-related refund liability. Expected customer claims are estimated based on historical data and the amount of refund liability is updated at each reporting date. Customer claims and customer rebates are typically expected to realise within the next 12 months. Advances received are recognised as contract liability until the performance obligation is fulfilled.

EURm

2024 2023

Trade receivables Trade receivables

1,458

1,284

Loss allowance provision Total trade receivables

-26

-30

Accounting policies

1,432

1,254

Prepayments and accrued income Personnel expenses

3 0 8

2 1

Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined by the method most appropriate to the particular nature of inventory, the first-in, first-out (FIFO) or weighted average cost. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. If the net realisable value is lower than cost, a valuation allowance is established for inventory obsolescence. Trade and other receivables Trade receivables arising from selling goods and services in the normal course of business are recognised initially at transaction price and subsequently at amortised cost less loss allowance provision. No element of financing is deemed present as the sales are made with a credit term of 14–60 days, which is consistent with market practice. The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. The group has recognised two types of provisions for trade receivables – a general provision for lifetime expected credit losses and a provision for specified individual trade receivables, both of which are charged to the income statement. The group uses a provision matrix for estimating lifetime expected credit losses where trade receivables are segregated by businesses. The provision matrix is based on historical observed default rates, adjusted by forward looking information. It takes into account trade credit insurances, payment profile of customers and the factor that as debts get older they are more likely not to be paid. Additionally, the group recognises a provision individually for outstanding trade receivables where specific debtor information is available. In these cases there must be objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Trade receivables are permanently written off when there is no reasonable expectation of recovery. The customer entering into bankruptcy or liquidation proceedings or finalising such proceedings, or entering into debt-restructuring are considered indicators that the trade receivables are no longer expected to be recovered. Subsequent recoveries of amounts previously written off are credited to the income statement. The carrying amount of trade receivables approximates to their fair value due to the short-term nature of the receivables. Other receivables consist mainly of cash collaterals pledged for commodity contracts and interest rate futures. The fair value equals to the amount of cash pledged as collateral. The cash collaterals cover the counterparties' losses in case UPM is unable to meet its obligations. Trade and other payables Trade payables arise from purchase of inventories, fixed assets and goods and services in the ordinary course of business from UPM’s suppliers. Trade and other payables are classified as current liabilities if they are due to be settled within the normal operating cycle of the

Interest income

Energy and other excise taxes

11

Other items

164 176

118 133

Total prepayments and accrued income Other receivables VAT and other indirect taxes receivable

169 110

155 187

Cash collaterals Other receivables

43

53

Total other receivables

322

395

Total

1,929

1,782

Trade receivables ageing

2024

2023

TRADE RECEIVABLES, NET OF PROVISION

TRADE RECEIVABLES, NET OF PROVISION

LOSS ALLOWANCE PROVISION

LOSS ALLOWANCE PROVISION

TRADE RECEIVABLES

TRADE RECEIVABLES

EURm Undue

1,347

-3 -1 -2

1,345

1,165

-4 -2 -1

1,161

Past due up to 30 days Past due 31–90 days Past due over 90 days

63 14 34

62 12 13

82

80

8

7 6

-21 -26

30

-23 -30

Total

1,458

1,432

1,284

1,254

Trade and other payables

Operational credit risk

EURm

2024 2023

Accrued expenses and deferred income Personnel expenses

Operational credit risk is defined as the risk where UPM is not able to collect the payments for its receivables. The group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Outstanding trade receivables, days of sales outstanding (DSO) and overdue trade receivables are followed on monthly basis. Potential concentrations of credit risk with respect to trade and other receivables are limited due to the large number and the geographic dispersion of customers. Customer credit limits are established and monitored, and ongoing evaluations of their financial condition is performed. The group has trade credit insurances to protect accounts receivables from significant credit losses. In certain market areas, including Asia and Northern Africa, measures to reduce credit risks include letters of credit, prepayments and bank guarantees. Maximum exposure to credit risk, without taking into account any credit enhancements, is the carrying amount of trade and other receivables. UPM does not have significant concentration of customer credit risk. The ten largest customers accounted for approximately 20% (19%) of the trade receivables as at 31 December 2024 – i.e., approximately EUR 288 million (239 million).

186

181

Interest expenses

30 16

22 16 94

Indirect taxes

Customer rebates Customer claims

114

6

6

Other items

109 462

148 467

Total accrued expenses and deferred income

Advances received

6

22

Trade payables

1,369

1,297

Other current liabilities

101

97

Total

1,938

1,883

UPM FINANCIAL REPORT 2024 290

290

UPM FINANCIAL REPORT 2024

291

291

UPM ANNUAL REPORT 2024

UPM ANNUAL REPORT 2024