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

Free cash flow Free cash flow is primarily a liquidity measure. It is an important indicator of UPM’s overall operational performance as it reflects the cash generated from operations after investing activities.

Changes in leased assets

Free cash flow

MACHINERY AND EQUIPMENT

OTHER LEASED ASSETS

ADVANCE PAYMENTS 1)

LAND AREAS BUILDINGS

TOTAL

1,500

2024 Carrying value, at 1 January

272

161

226 181

1 1

683 213

EURm

2024 2023

1,000

New contracts and subsequent additions

3 4

1,352

2,269 -1,076 1,193

Operating cash flow Investing cash flow

Reassessments and disposals

-1

— — — —

— —

-586 766 -801

Depreciation

-18

-24

-43 33 15

-85

500

Free cash flow

Reclassifications

—

— —

-33

—

-799

Dividends paid to owners of the parent company Dividends paid to non-controlling interests Contributions paid by non-controlling interests Transaction costs and discounts in operating cash flow Change in other financial assets in operating cash flow Change in other financial assets in investing cash flow Other financing cash flow

Translation differences

— —

-19

-36 35 -14

Carrying value, at 31 December 2023 Carrying value, at 1 January New contracts and subsequent additions

291

144

411

847

EURm

283

247

169

1 4

13 13

713 161

-10

-500

9 7

Reassessments and disposals

-2

— — —

-1,000

Depreciation Impairments

-17

-31

-39

-87

-79

-311

— — —

-100

—

-100

Reclassifications

-4

-2

—

Reclassifications held for sale

—

— —

-1

Change in net debt, cash Change in net debt, non-cash

135 302 437

-74

Translation differences

-10

-1

-11

131

Carrying value, at 31 December

272

161

226

683

Change in net debt Opening net debt Closing net debt

1) Advance payments for leases not commenced at the year end reporting date 31 December.

2,432 2,869

2,374 2,432

that the group will exercise them. The lease liability is subsequently measured at amortised cost using the effective interest rate method and remeasured (with corresponding adjustment to the related leased asset) when there is a change in future lease payments due to renegotiation, changes of an index or rate or reassessment of options. Leased asset comprises the initial lease liability, initial direct costs and the obligations to refurbish the asset, less any incentives granted by the lessors. The leased asset is subsequently valued at cost less accumulated depreciation and impairment losses. Remeasurement takes place in case lease liability is remeasured and change in cash flows is based on contract terms that have been included in the original contract. The leased asset is depreciated over the shorter of the asset’s useful life and the lease term. The leased asset is subject to testing for impairment if there is an indicator for impairment, as for own assets. The group has elected to separate non-lease components such as service components and other variable components and account them for as expenses, if they can be separated from the leased asset. However, the group does not separate non-lease components from the lease contracts of company cars. The group does not apply portfolio approach of leases with similar characteristics. Leased assets are presented in the balance sheet as a separate financial statement line item. Lease liabilities are presented as part of non-current debt and current debt line items in the balance sheet. Lease liabilities are part of net debt calculation of the group. Short-term lease payments are reported as rents and lease expenses. Variable lease payments are recognised within the operating costs and expenses based on the nature of the payment. The interest expense on the lease liability is recognised as a component of finance costs in income statement. In cash flow statement, payments for the principal portion of the lease liability are recognised as financing cash flow while payments for interest portion of lease liability, short-term leases, and variable amounts not included in the measurement of the lease liability, are classified within operating cash flow.

Accounting policies

Bonds

Leases The group as a lessee

NOMINAL VALUE ISSUED, MILLION

CARRYING VALUE 2024 EURm

CARRYING VALUE 2023 EURm

INTEREST RATE, %

FIXED RATE PERIOD

CURRENCY

UPM assesses whether a contract is or contains a lease at inception of the contract. This assessment involves the exercise of judgment about whether it depends on a specified asset, whether UPM obtains substantially all the economic benefits from the use of that asset, and whether UPM has the right to direct the use of the asset. The group recognises a leased asset and a lease liability at the lease commencement date, except for short-term leases. UPM applies this to all asset classes. Short-term leases are leases that, at the commencement date, have a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease. UPM recognises lease payments of short-term leases as an expense on a straight-line basis over the lease term. The lease term is determined as the non-cancellable period of the lease taking into consideration the options to extend and terminate if it is reasonably certain that the group will exercise the extension option or will not exercise the termination option. If the contract is for an indefinite period of time and the group and the lessor both have a right to terminate the contract within a short notice period (12 months or less) without a significant economic penalties and termination cash payments, the contract is considered to be a short-term contract. The lease liability is recognised at the commencement date and measured at the present value of the lease payments to be paid during the lease term. The group uses, as a basis, discount rate implicit in the lease and if that rate cannot be readily determined, UPM uses incremental borrowing rate which comprises of currency and lease term based reference rate and specific credit spread as well as other specific terms and conditions of a lease. Lease payments can include fixed payments, variable payments that depend on an index or rate and extension option payments or purchase options if it is reasonably certain

1997-2027 2020-2028 2021-2031 2022-2029 2024-2034

7.450 0.125 0.500 2.250 3.375

USD EUR EUR EUR EUR

375 750 500 500 600

375 675 496 497 599

361 650 495 496

—

Value, at 31 December

2,642

2,002

Current portion

—

Non-current portion

2,642

2,002

Leases Leases of property, plant and equipment where UPM, as a lessee, obtains substantially all of the economic benefits from the use of the identified asset and where UPM has the right to direct the use of the identified asset, are classified as leases. Approximately 29% (34%) of leased assets recognised on the balance sheet consists of land areas in Uruguay, which the group uses for eucalyptus plantations. Approximately 8% (11%) of leased assets on the balance sheet consists of vessels for sea transportation in Europe. Approximately 6% (9%) of the leased assets on the balance sheet consist of five power plants. UPM uses the energy generated by these plants for its own production. In 2023, the decrease in carrying value is mainly attributable to the EUR 100 million impairment charge of a leased power plant related to the closure of UPM Plattling paper mill in Germany. In addition, the group has leased one waste water treatment plant as well as several warehouses, terminals, offices and railcars. UPM also leases some

production machinery and equipment like forklifts and vehicles that are insignificant to the total leased assets portfolio. In 2024, additions to leased assets mainly relate to Uruguay railway service agreement, which is approximately 24% of leased assets on the balance sheet. In 2023, additions to leased assets mainly relate to biochemicals refinery utilities in Leuna and new vessels for sea transportation in Europe. Impairment charges in 2023 relate to the closure of the UPM Plattling paper mill. In 2024, the total cash outflow for leased assets was EUR 105 (99) million. The expenses related to short-term leases recognised in the income statement in 2024 were not material. The group did not have significant variable lease payments in 2024. The lease commitments for leases not commenced at year-end 31 December 2024 totalled approximately EUR 24 (176) million, which is mostly related to a service agreement related waste water treatment in Leuna, Germany.