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

Net fair values of derivatives

changes generated by the hedged items. Thereby the hedge ratio between the instrument and the cash flow is 1:1. Hedge accounting ceases in the case that the forecasted cash flows are no longer expected to occur. The group has not recognised significant sources of ineffectiveness that can reasonably be expected to take place. Also in electricity price hedges, hedge accounting ceases in the case that the forecasted cash flows are no longer expected to occur. Hedges of net investments in foreign subsidiaries The fair value changes of forward exchange contracts used in hedging net investments that reflect the change in spot exchange rates are recognised in other comprehensive income within translation reserve. Any gain or loss relating to the interest portion of forward exchange contracts is recognised immediately in the income statement under financial items. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold. The hedging instrument is always made in the same currency as the hedged investment, hence the hedge ratio in net investment hedging is 1:1. For hedging of net investments, hedge accounting ceases in the situation where the hedged item is disposed or sold during the duration of the hedging instrument. Fair value hedges The group applies fair value hedge accounting for hedging fixed interest risk on debt. Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are prospectively highly effective are recorded in the income statement under financial items, along with any changes in the fair value of the hedged asset or liabilities that are attributable to the hedged risk. The carrying amounts of hedged items and the fair values of hedging instruments are included in interest bearing assets or liabilities. Derivatives that are designated and qualify as fair value hedges mature at the same time as hedged items. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the expected period to maturity.

Hedge accounting ceases in fair value hedge of fixed interest risk in case of early redemption of such debt, which is hedged under fair value hedge accounting. The group has not recognised significant sources of ineffectiveness that can reasonably be expected to take place.

Positive fair values

Negative fair values

Positive fair values

Negative fair values

Net fair values

EURm

2024

2023

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

Financial counterparty risk

-54 -25 -17

-38 -16

-12

Net investment hedge Non-qualifying hedges Cross currency swaps Non-qualifying hedges

-2 -5

The financial instruments the group has agreed with banks and financial institutions contain an element of risk of the counterparties being unable to meet their obligations. According to the Group Treasury Policy, derivative instruments and investments of cash funds may be made only with counterparties meeting certain creditworthiness criteria. The group minimises counterparty risk also by using a number of major banks and financial institutions. Creditworthiness of counterparties is constantly monitored by Treasury and Risk Management. Due to the tight counterparty criteria, credit risk does not dominate the fair valuation of financial instruments. Effects of IBOR reform The main effect of the IBOR reform was limited to fair value hedge accounting of long-term fixed-rate debt for changes in fair value attributable to USD LIBOR, that was used as the benchmark interest rate as long as USD LIBOR rates were published. UPM adhered to ISDA 2020 IBOR Fallback Protocol in 2023, and fallback terms stated in the protocol were followed to convert USD LIBOR based transactions SOFR based transactions. In the fair value hedging relationships where IBOR reform had an effect, fair value for both the hedged item and hedging instrument is calculated with identical valuation curve. Therefore no ineffectiveness was recorded.

-7

—

-31 -50

-31

Derivatives hedging foreign exchange risk

-96

-61

-3

Interest rate risk Interest rate swaps Fair value hedges

-74

-53

-94

-69

Non-qualifying hedges Cross currency swaps Fair value hedges Non-qualifying hedges

—

-4

— —

-15

— —

—

Derivatives hedging interest risk

-89

-68

-97

-46

Commodity risk Electricity sales

Cash flow hedges

-26

-8

-26

-14

Non-qualifying hedges

—

Electricity purchase Cash flow hedges Other commodities Cash flow hedges

—

— —

Non-qualifying hedges

—

-6

Derivatives hedging commodity risk

39 95

-26

-32

-16 -66

Total

-211

-116

114

-180

No derivatives are subject to offsetting in the group’s financial statements. All derivatives are under ISDA or similar master netting agreement, which are applied on conditional terms, such as case of breach of contract or bankruptcy. The values of derivatives are recognised as gross on the balance sheet and a breakdown by category of instruments is presented in » Note 5.3 Financial assets and liabilities by category.

Nominal amounts of derivatives

Net fair values of derivatives calculated by counterparty

POSITIVE FAIR VALUES

NEGATIVE FAIR VALUES

EURm

2024 1,134 1,711 3,617

2023 1,691 1,089 3,308

NET FAIR VALUES

Interest rate futures Interest rate swaps

EURm

2024 2023

43 55

-159 -121

-116

Forward foreign exchange contracts

-66

Currency options

—

Cross currency swaps Commodity contracts

129 551

134 591

Cash collaterals pledged mainly for exchange traded contracts totalled EUR 108 (185) million of which EUR 107 (184) million relate to commodity contracts and EUR 1 (1) million to interest rate futures. The open market value of exchange traded contracts on the balance sheet is minor. Cash collaterals are included in Other receivables. » Refer Note 4.6 Working capital.