UPM Annual Report 2025

We are UPM

Governance

Accounts and performance

Financial Statements

Report of the Board of Directors

Sustainability Statement

Auditor's Report

Sustainability Assurance Reports

Net fair values of derivatives

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 amortized 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 recognized significant sources of ineffectiveness that can reasonably be expected to take place. 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 minimizes 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. Financial counterparty risk

Derivative fair values on the balance sheet are classified as non-current when the remaining maturity is more than 12 months and as current when the remaining maturity is less than 12 months. For hedge accounting purposes, UPM documents the relationship between the hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions at the inception date. This process includes linking all derivatives designated as hedges to specific assets and liabilities or forecast transactions. The Group also documents its assessment, both at the hedge inception and on an on-going basis, as to whether the hedge is highly effective in offsetting changes in fair values or cash flows of the hedged items. Certain derivatives, while considered to be economical hedges for UPM’s financial risk management purposes, do not qualify for hedge accounting. Such derivatives are recognized at fair value through the income statement in other operating income or under financial items. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. Cost of hedging, meaning forward points of derivative forward contracts accounted as cash flow hedges, is recognized as a part of the hedging reserve. Amounts deferred in equity are transferred to the income statement and classified as income or expense in the same period as that in which the hedged item affects the income statement (for example, when the forecast external sale to the Group that is hedged takes place). When the forecasted transaction that is hedged results in the recognition of a fixed asset, gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the acquisition cost and depreciated over the useful lives of the assets. When a hedging instrument expires or is sold, or when a hedge no longer meets hedge accounting criteria, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the committed or forecasted transaction is ultimately recognized in the income statement. However, if a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately recognized to the income statement. In currency cash flow hedging, the hedging instrument is made in the same currency as the hedged item and hence the fair value change of the hedging instrument are expected to effectively offset the fair value 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 recognized 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 recognized in other comprehensive income within translation reserve. Any gain or loss relating to the interest portion of forward exchange contracts is recognized immediately in the income statement under financial items.

Positive fair values

Negative fair values

Positive fair values

Negative fair values

Net fair values

Net fair values

€ million

2025

2024

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

26

-5

21

16

-54 -25

-38 -16

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

9 8

-1

8 3

9

-6

10

-17

-7

—

—

—

—

—

—

Derivatives hedging foreign exchange risk

44

-12

32

35

-96

-61

Interest rate risk Interest rate swaps Fair value hedges

15

-74

-59

21

-74

-53

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

—

—

—

—

—

—

-39

-39

— —

-15

-15

— —

—

—

—

—

Derivatives hedging interest risk

15

-113

-98

21

-89

-68

Commodity risk Electricity sales

Cash flow hedges

34

-22

12

18

-26

-8

Non-qualifying hedges

—

—

—

—

—

—

Electricity purchase Cash flow hedges Other commodities Cash flow hedges

—

—

—

—

—

—

— 0

-8

-8

21

— —

21

Non-qualifying hedges

—

— 4

—

—

Derivatives hedging commodity risk

34 93

-30

39 95

-26 -211

13

Total

-155

-62

-116

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 recognized 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

Net fair values

€ million

2025 1,319 1,668 3,192

2024 1,134 1,711 3,617

€ million

Interest rate futures Interest rate swaps

2025 2024

63 43

-125 -159

-62 -116

Forward foreign exchange contracts

Currency options

—

Cross currency swaps Commodity contracts

114

129 551

401

Cash collaterals pledged mainly for exchange traded contracts totaled €32 (108) million of which €31 (107) million relate to commodity contracts and €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 to » Note 4.6 Working capital.

UPM Financial Report 2025

316

UPM Financial Report 2025

317

316

317

UPM Annual Report 2025

UPM Annual Report 2025