213800EC6PW5VU4J9U64-2023-12-31-en

Report of the Board of Directors

UPM introduction and business model

As a biomaterials growth company in forest industry, UPM provides

renewable alternatives for fossil-based materials to the growing global

consumer demand. UPM’s large product range covers pulp, graphic

papers and specialty papers, self-adhesive labels, wood-based

renewable diesel and naphtha, electricity as well as plywood and

timber products.

UPM invests in sustainable growth and innovates for a future beyond

fossils across six business areas: UPM Fibres, UPM Energy, UPM

Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM

Plywood. The business areas are competitive with strong market

positions. At the same time, UPM is developing new innovation-driven

and wood-based growth businesses in biochemicals and biofuels, for

example.

UPM group creates value to its stakeholders by operating separate

businesses with a focus on:

• Competitive and sustainable wood sourcing, forestry and plantation

operations

• Value adding, efficient and responsible global functions

• Group-wide continuous improvement programmes in commercial

strategies, variable costs, working capital, site and maintenance

costs, safety and environmental performance

• Technology development and intellectual property rights

• A global business platform

• Disciplined and effective capital allocation

• Compliance, UPM Code of Conduct and strong UPM brand

Clear roles and responsibilities


Group	Businesses	Outcomes
Portfolio strategy Capital allocation Business targets Code of Conduct Responsibility targets	Business area strategies Commercial excellence Operational excellence Cost efficiency measures Focused growth project Innovation	Top performance Competitive advantage Value creation Stakeholder and societal value License to operate

Each business area is responsible for executing its own strategy and

achieving targets. This enables agility in a fast-changing business

environment, higher efficiency, differentiated commercial strategies,

optimal sourcing, the right incentives, wider product development

opportunities and effective capital allocation.

Corporate responsibility is an integral part of all of our operations

and a source of competitive advantage and value creation. UPM is

committed to continuous improvement in financial, social and

environmental performance. UPM promotes responsible practices

throughout the value chain and is active in finding sustainable solutions,

in co-operation with its customers, suppliers and partners.

Market environment in 2023

Global real GDP growth is projected at 2.7% in 2023. Rising interest

rates and the war in Ukraine continued to weigh on economic activity.

Global inflation fell to 5.6%, driven by the decline in food and energy

prices. However, inflation was still above pre-pandemic levels and core

inflation remained persistent, driven by the services sector and labour

markets remaining relatively tight. Global trade in goods declined in

2023, while trade in services expanded. Persistent regional conflicts

and geopolitical tensions have been increasingly fragmenting the global

economy and affecting global trade.

The Russia-Ukraine conflict continued to pose a significant geopolitical

risk in 2023 and the international community took proactive measures

to prevent escalation. Multiple sectors of the Russian economy are now

sanctioned by Western nations, with the oil, financial and technology

sectors being the most affected. Furthermore, the conflict in the Middle

East increased risks to supply chains and global commodity markets,

though the impact of the conflict remained limited in 2023.

Following robust post-pandemic expansion in 2022, economic growth

in Europe is projected at 0.6%. Private consumption stagnated due to a

high cost of living, and nominal wage growth lagged behind inflation.

Weak external demand, monetary tightening by the European Central

Bank, and inflation, though declining, further limited economic growth.

The euro area industry confidence indicator reflected the low levels of

manufacturing activity since May. Nevertheless, production expectations

improved slightly at the end of the year with signs of recovery in the

unprecedented inventory cycle. The EU labour market showed strong

performance with low unemployment, despite the slowdown in

economic growth.

While a recession was expected at the beginning of the year in the

United States, the US economy progressed at a significant pace over the

course of 2023, driven by strong consumer spending, a resilient labour

market and growing real wages. Manufacturing investment also

reached historic highs. Economic growth in the US is projected at 2.4%.

Inflation decelerated throughout the year mainly due to supply chains

healing. The US dollar appreciated against the euro. On a negative

note, trade tensions between the US and China continued to raise

concerns regarding geopolitics.

The Asia-Pacific region remained a key driver of global growth in

2023, in spite of tighter monetary policies and global demand rotating

from goods to services. The Chinese economy is projected to grow by

5.4%, reflecting a post-pandemic rebound. The Chinese government

continued to make investments to meet GDP growth targets and China’s

debt ratio increased further. The gradual recovery of consumer

spending, the weakness in the property sector and subdued external

demand continued to hinder growth to some extent.

Energy and climate change remained politically polarising issues,

with notably lacking progress being made globally regarding the

climate transition. At the same time, the need to take decisive climate

action has never been more critical as the global mean temperature for

2023 was the highest on record. The UN Climate Conference (COP28)

set out ambitious targets to keep the aim of limiting the rise in global

temperature to 1.5°C within reach and made the historic decision to

accelerate climate action with nearly 200 countries pledging to move

away from fossil fuels in energy systems. Furthermore, climate finance

continued to be at the centre of climate action. However, mitigating

climate change and adapting and responding to climate impacts will


UPM FINANCIAL REPORT 2023	2

still require significant additional finance and collective action to

support developing countries in transitioning to clean energy and

implementing their national climate plans.

To enact the focus of halting and reversing biodiversity loss and

promoting the recovery of nature by 2030, the UN Climate Conference

affirmed the need to implement the Kunming-Montreal Global

Biodiversity Framework, which was agreed at the UN Biodiversity

Conference (COP15) in 2022. To ensure that progress is made, it is

crucial that adequate methods of implementation are in place, such as

financial resources, as well as planning, monitoring, reporting and

review mechanisms.

Both COP processes are influencing regulations globally. Especially in

EU also other ESG related regulations have been formulated lately or

are expected to come in force in the near future. Various conflicts have

highlighted the need to acknowledge human rights everywhere.

In 2023, the business environment for UPM’s products was

unprecedented due to low economic activity, especially in Europe.

Market deliveries of products were further held back by destocking in

most of the product value chains. However, the second half of the year

saw gradual recovery in demand for many of UPM’s products. Margin

management was successful. Apart from the wood costs in the Nordic

region, most input costs declined compared to 2022.

The global demand for chemical pulp in 2023 was solid. After

reaching all-time highs in 2022, the average market prices for both

northern bleached softwood kraft (NBSK) and bleached hardwood kraft

pulp (BHKP) fell to bottom-of the-cycle levels in all markets. Market prices

started to recover in H2 2023. UPM’s new world-class pulp mill in

Uruguay, UPM Paso de los Toros, was ramped up since April 2023.

The mill, which will have highly competitive cash costs once fully

ramped-up and optimised, is set to be profitable in different market

scenarios and will grow UPM’s pulp business by more than 50%.

The energy crisis in Europe eased in 2023. Electricity prices were still

high in Europe and significant volatility in prices has become the new

normal. Increased supply and lower industrial consumption led to lower

power prices in Finland. Electricity self-sufficiency improved significantly

in Finland with the OL3 nuclear power plant unit beginning commercial

production in April 2023.

Market demand for self-adhesive label materials declined in Europe

and North America due to unprecedented destocking and low consumer

demand. Subsequent recovery started to be visible only towards the end

of the year. Tight margin management continued, with capacity and

resources adjusted to reflect lower market demand.

The global demand growth for label, release and packaging papers

was soft and market prices decreased compared to the previous year.

Fine paper demand was impacted by the slower than expected

recovery of the Chinese economy. Market prices for office papers in the

Asia-Pacific region decreased compared to 2022.

Demand for graphic papers in Europe decreased by 24% compared

to 2022. Market prices decreased for all paper grades.

Demand for spruce plywood and veneer declined due to low activity

in the renovation and construction industry. Demand for birch plywood

in panel trading and industrial applications was good in H1 2023 but

moderated towards the end of the year. Market prices increased.

In the timber business, market demand was weak due to low activity

in the construction industry. Market prices were at low level.

Demand for advanced biofuels was good and markets benefited from

climate targets. The revised RED III Directive came into force at the end

of 2023 with the European 2030 target for the share of advanced

biofuels in energy used in transport being increased. Prices of advanced

biofuels declined towards the end of the year.

Impact of Russia's war in Ukraine

In response to Russia´s attack on Ukraine, the European Union as well

as the United States, the United Kingdom, and other countries imposed

extensive sanctions on Russia, the breakaway regions of Donetsk and

Luhansk and the oblasts of Zaporizhzhia and Kherson, and Belarus.

Since 21 February 2022, these measures have included for example

asset freezes and travel restrictions on individuals and entities,

economic sanctions targeting sectors of the Russian and Belarusian

economies, and diplomatic restrictions. Russia has also implemented

several countermeasures affecting especially foreign companies’

operations within Russia and with Russian counterparties. While the

sanctions primarily target Russia’s ability to finance its military

operations in Ukraine and cause economic and political costs on the

people responsible for them, there are limited signs of a peaceful

resolution to the war in Ukraine. Economic and geopolitical uncertainty

and inflation have accelerated around the world.

Impact on UPM businesses

The economic sanctions and Russia’s countermeasures have rendered it

unviable for UPM to continue operations in Russia or trade with Russian

counterparties. UPM businesses suspended deliveries to Russia as well

as wood sourcing in and from Russia. In Q1 2023 UPM completed a

full withdrawal of its businesses from Russia by selling all its Russian

operations, including the Chudovo plywood mill.

The full impact of the current and potential new sanctions,

countersanctions and market development will only become known as

the situation evolves. UPM has implemented mitigation plans to contain

and reduce the negative consequences for its employees, customers,

vendors, and other stakeholders as well as for the operations affected

by sanctions and the war in Ukraine in general. The potential further

impacts for UPM are likely to differ by business and by the pace, scope

and duration of sanctions, market price reactions, development of

supply chains, and the length of the war in Ukraine and whether there is

any geographic escalation of the war. UPM is monitoring the situation

closely and preparing plans to adjust its operations in different

scenarios accordingly.


UPM FINANCIAL REPORT 2023	3

Key figures


	2023	2022	2021
Sales, EURm	10,460	11,720	9,814
Comparable EBITDA, EURm	1,573	2,536	1,821
% of sales	15.0	21.6	18.6
Operating profit, EURm	608	1,974	1,562
Comparable EBIT, EURm	1,013	2,096	1,471
% of sales	9.7	17.9	15.0
Profit before tax, EURm	464	1,944	1,548
Comparable profit before tax, EURm	934	2,066	1,457
Profit for the period, EURm	394	1,556	1,307
Comparable profit for the period, EURm	755	1,679	1,204
Earnings per share (EPS), EUR	0.73	2.86	2.41
Comparable EPS, EUR	1.40	3.09	2.22
Return on equity (ROE), %	3.2	13.0	12.7
Comparable ROE, %	6.2	14.0	11.7
Return on capital employed (ROE), %	3.5	12.8	12.4
Comparable ROCE, %	6.4	13.6	11.7
Operating cash flow, EURm	2,269	508	1,250
Operating cash flow per share, EUR	4.25	0.95	2.34
Equity per share at the end of period, EUR	20.93	23.44	20.34
Capital employed at the end of period, EURm	14,916	17,913	13,759
Net debt, EURm	2,432	2,374	647
Net debt to EBITDA	1.55	0.94	0.35
Personnel at the end of period	16,573	17,236	16,966

» Refer Other financial information Alternative performance measures for definitions of key figures.

Results

2023 compared with 2022

Sales in 2023 were EUR 10,460 million, 11% lower than the

EUR 11,720 million for 2022. Sales decreased in UPM Communication

Papers, UPM Raflatac, UPM Specialty Papers, UPM Plywood and UPM

Energy business areas. Sales increased in UPM Fibres and Other

Operations.

Comparable EBIT decreased by 52% to EUR 1,013 million, 9.7% of

sales (2,096 million, 17.9%).

On the group level, sales prices had a large negative earnings

impact, most notably from pulp and energy prices. Variable costs were

higher as well.

Sales prices decreased for UPM Fibres and UPM Energy, UPM

Communication Papers and UPM Specialty Papers business areas and

increased for UPM Raflatac and UPM Plywood business areas.

Variable costs increased in UPM Energy, UPM Raflatac and UPM

Plywood business areas and in Other Operations. Variable costs

decreased in UPM Communication Papers, UPM Specialty Papers and

UPM Fibres business areas.

Delivery volumes increased for UPM Fibres, UPM Energy and UPM

Biofuels and decreased for UPM Communication Papers, UPM Raflatac,

UPM Plywood and UPM Specialty Papers. Market demand for many

products was soft, and delivery volumes were further held back by

destocking in the various product value chains. UPM Paso de los Toros

pulp mill and the OL3 nuclear power plant unit contributed to deliveries

in 2023, whereas the strike in Finland in January-April 2022 affected

delivery volumes in the comparison period.

Fixed costs increased by EUR 203 million partly due to the growth

projects and higher maintenance activity. Employee costs in the

comparison period were lower partly due to the strike in Finland.

Depreciation, excluding items affecting comparability, totalled EUR

543 million (457 million) including depreciation of leased assets

totalling EUR 87 million (80 million). The change in the fair value of

forest assets net of wood harvested in comparable EBIT was EUR -17

million (12 million).

Operating profit totalled EUR 608 million (1,974 million). Items

affecting comparability in operating profit totalled EUR -405 million in

the period (-122 million). In 2023, items affecting comparability include

EUR 120 million restructuring charges and EUR 112 million impairment

charges of fixed and leased assets related to the closure of the UPM

Plattling paper mill in Germany and EUR 13 million restructuring

charges and EUR 2 million impairment charges related to restructuring

measures at the UPM Raflatac Nancy factory in France, EUR 86 million

decrease in the fair value of forest assets in Finland resulting from

changes in estimates and increase in discount rate, EUR 30 million

restructuring charges relating to the closure of paper machine 6 at the

UPM Schongau mill in Germany, EUR 10 million charges related to the

sale of the Steyrermühl site in Austria, EUR 23 million of other

restructuring charges, EUR 3 million charges related to Sierilä power

plant project impairment in Finland, EUR 6 million capital loss resulting

from the sale of Russian operations and EUR 5 million capital gains on

sale of other non-current assets. In 2022, items affecting comparability

include EUR 80 million impairment charges of assets impacted by

Russia's war in Ukraine, EUR 69 million settlement loss resulting from


UPM FINANCIAL REPORT 2023	4

replacement of a defined benefit pension plan in Finland with defined

contribution plan, EUR 8 million capital gain on the sale of Chapelle

mill site in France, EUR 11 million reversal of restructuring provisions

related to the Chapelle paper mill, EUR 26 million gain on the sale of

other non-current assets, EUR 18 million restructuring costs and EUR 8

million addition to environmental provisions in Finland.

Net interest and other finance income and costs were EUR -70

million (-55 million). The exchange rate and fair value gains and losses

were EUR -74 million (25 million). Items affecting comparability in

finance costs totalled EUR -65 million including EUR 71 million

exchange rate losses relating to the sale of Russian operations. Income

taxes totalled EUR -71 million (-388 million).

Profit for 2023 was EUR 394 million (1,556 million), and

comparable profit was EUR 755 million (1,679 million).

Financing and cash flow

In 2023 cash flow from operating activities before capital expenditure

and financing totalled EUR 2,269 million (508 million). Working capital

decreased by EUR 417 million (increased by 687 million). In 2022, the

energy futures markets experienced an unprecedented rise in futures

prices, followed by a return to lower levels in 2023. As a result, the

cash outflow of UPM's unrealised energy hedges totalled EUR -0.9

billion in 2022, whereas cash inflow totalled EUR 1.0 billion in 2023.

Net debt was EUR 2,432 million at the end of 2023 (2,374 million).

The gearing ratio as of 31 December 2023 was 21% (18%). The net

debt to EBITDA ratio, based on the last 12 month's EBITDA, was 1.55

at the end of the period (0.94).

On 31 December 2023 UPM's cash funds and unused committed

credit facilities totalled EUR 3.6 billion. The total amount of committed

credit facilities was EUR 2.9 billion of which EUR 259 million maturing

in 2025 and EUR 2.7 billion maturing in 2026 or beyond.

For the 2022 financial year, the dividend of EUR 1.50 per share

was paid in two equal instalments. The first instalment of EUR 0.75 per

share (totalling EUR 400 million) was paid on 21 April 2023 and the

second instalment of EUR 0.75 per share was paid on 2 November

2023 (totalling EUR 400 million).

Capital expenditure

In 2023, capital expenditure totalled EUR 1,122 million, which was

10.7% of sales (1,555 million, 13.3% of sales). Capital expenditure

does not include additions to leased assets.

In 2024, UPM's total capital expenditure, excluding investments in

shares, is expected to be about EUR 550 million, which includes

estimated capital expenditure of approximately EUR 300 million in the

biochemicals biorefinery in Germany.

In January 2019, UPM announced that it would invest in the

refurbishment of the Kuusankoski hydropower plant in Finland. The

average annual production of the Kuusankoski plant is expected to

increase from the current 180 GWh to 195 GWh. The investment was

completed in Q1 2023.

In July 2019, UPM announced that it would invest in a 2.1 million

tonne greenfield eucalyptus pulp mill near Paso de los Toros, central

Uruguay. Additionally, UPM will invest in port operations in Montevideo

and in local investments outside the mill fence. The mill began its

operations on 15 April 2023 after the final authorisation to operate was

granted. The total investment was USD 3.47 billion.

In January 2020, UPM announced that it would invest in a 220,000

tonnes next-generation biochemicals biorefinery in Leuna, Germany. The

facility is scheduled to start up by the end of 2024, and the total

investment estimate is EUR 1,180 million.

In December 2021, UPM announced that it would invest EUR 10

million in the development of UPM Plywood's plywood mill in Joensuu,

Finland. The investment includes new production lines, new workspaces

and 720 square metres of completely new production space. The

investment was completed in Q3 2023.

Personnel

In 2023, UPM had an average of 17,109 employees (17,176). At the

beginning of the year the number of employees was 17,236 and at the

end of 2023 it was 16,573.

Further information about personnel is available in » Engaging employees

section in UPM Annual report 2023.

Uruguay pulp mill investment

On 23 July 2019, UPM announced that it would invest in a 2.1 million

tonne greenfield eucalyptus pulp mill near Paso de los Toros, central

Uruguay. Additionally, UPM would invest in port operations in

Montevideo and in local investments outside the mill fence. The mill

began its operations on 15 April 2023 after the final authorisation to

operate was granted. The total investment was USD 3.47 billion.

The investment grows UPM's pulp capacity by more than 50%,

resulting in a step change in the scale of UPM's pulp business as well as

in UPM's future earnings.

With a combination of competitive wood supply, scale, best

available techniques and efficient logistics, the mill is expected to reach

a highly competitive cash cost level of approximately USD 280 per

delivered tonne of pulp. This figure includes the variable and fixed costs

of plantation operations, wood sourcing, mill operations and logistics

delivered to the main markets. Furthermore, the safety and sustainability

performance of the value chain from plantations to customer delivery is

expected to be on an industry-leading level.

Competitive wood supply

Eucalyptus availability for the mill is secured through UPM’s own and

leased plantations, as well as through wood sourcing agreements with

private partners. The plantations that UPM owns, leases or manages in

Uruguay covers 505,159 hectares. They supply the current UPM Fray

Bentos mill and the new UPM Paso de los Toros mill.

State of the art mill design

The pulp mill has been designed as an efficient single-line operation.

The machines, materials, level of automation and standards enable a

high operating rate and maintainability, as well as a high energy

output. This ensures excellent safety, high environmental performance,

and low operating costs during the long lifecycle of the mill.

The mill is designed to fully meet strict Uruguayan environmental

regulations, as well as international standards and recommendations for

modern mills, including the use of the latest and best available

technology (BAT). The mill's environmental performance is verified

through comprehensive and transparent monitoring.

The mill's initial annual production capacity is 2.1 million tonnes,

and the environmental permits enable further capacity potential. When

in full operation, the mill generates more than 110 MW surplus of

renewable electricity.

Efficient logistics set-up

An efficient logistics chain is secured by the agreed road improvements,

extensive railway modernisation and port terminal construction.


UPM FINANCIAL REPORT 2023	5

The Public-Private-Partnership agreement between the government

and the construction company for the construction of the central railway

was signed in May 2019. The construction of the central railway was

completed in December 2023 and the railway will start operations

during H1 after mandatory tests have been carried out. UPM has

ensured logistics with truck transportation until rail logistics are fully

operational.

UPM's new deep-sea pulp terminal at Montevideo port went

operational in October 2022. Direct rail access from the mill to the pulp

specialised deep-sea port terminal will create an efficient supply chain

to world markets. The Montevideo deep-sea port also enables synergies

in ocean logistics with UPM’s all Uruguayan operations.

UPM entered into a port terminal concession agreement in 2019 and

signed an agreement on rail logistics services in October 2020. Both

agreements are considered in accordance with IFRS 16 Leases. The

total amount of such lease payments is expected to be USD 200 million.

Significant impact on the Uruguayan economy

Based on independent socio-economic impact studies, the mill is

estimated to increase Uruguay’s gross national product by about 2%

and the annual value of Uruguay’s exports by approximately 12%.

According to June 2023 data from government agency Uruguay XXI,

eucalyptus pulp has become the country’s main export.

In the most intensive construction phase, more than 7,000 people

have been working on the site. In total, over 20,000 people have been

involved in the various construction sites related to the project.

Now that the pulp mill is operational, approximately 10,000

permanent jobs are estimated to be created in the Uruguayan economy

of which 4,000 would involve direct employment by UPM and its

subcontractors throughout the forestry value chain including logistics.

About 600 companies are estimated to be working in the value chain.

The mill is located in one of Uruguay's many (12) free trade zones

and pays a fixed annual tax of USD 7 million. The new mill's value

chain is expected to contribute USD 170 million in annual taxes and

social security payments and to contribute USD 200 million annually in

wages and salaries.

Project schedule and capital outflow

On 31 March, UPM announced that it reached technical readiness to

begin operations and received approval from the environmental

authorities for all the procedures, systems and technologies that are

required to fulfil the mill's environmental permit. This acceptance

preceded the final operating authorisation that was granted on 14

April. The start-up of the mill commenced immediately. UPM celebrated

the inauguration of the pulp mill together with representatives of the

State of Uruguay and several other stakeholders who have participated

in the successful execution of the growth project. Customer deliveries

from UPM's deep sea pulp terminal in the port of Montevideo started in

May. The nominal capacity of the mill is expected to be reached within

the first year.

The mill has gone through a comprehensive and thorough permitting

process. The Uruguayan environmental authority has monitored the

construction of the mill on site throughout the project. The operating

authorisation process has included several inspections by the

authorities, as well as third party audits by industry experts. UPM has an

extensive environmental monitoring programme covering water and

biota, air, soil, noise, and socio-economic aspects.

In connection with reaching the technical readiness to start

operations, UPM confirmed the expected cash cost level of

approximately USD 280 per delivered tonne of pulp. This positions the

UPM Paso de los Toros mill among the most competitive pulp mills in the

world, with attractive returns on investment in various market scenarios.

The total capital expenditure of USD 3.47 billion took place in

2019–2023, with 2021 and 2022 being the most intensive years. UPM

holds 91% ownership and a local long-term partner which has also

been involved in UPM Fray Bentos, owns 9%.

Biochemicals refinery investment

In January 2020 UPM announced that it would invest in a 220,000

tonnes next-generation biochemicals refinery in Leuna, Germany. The

unit was scheduled to start up by the end of 2023 and its investment

estimate was EUR 750 million. In July 2023 UPM updated the project

schedule, with estimated start-up by the end of 2024 and gave a

revised capital expenditure estimate of EUR 1,180 million.

The update to the schedule and budget was required as the project

has been impacted by the insolvency of one of the key equipment

suppliers, an overall scarcity of contractors and the negative impacts of

the overall geopolitical situation on material availability and prices.

Building a first-of-its-kind biorefinery under these circumstances and

making required adjustments has been demanding and caused

rescheduling and delays in the project. Mitigating actions have been

taken and critical resources are contracted.

The biorefinery is the first of its kind and the process design as well

as some of the technologies used are new to the world. We have full

confidence in the technologies used and the viability of the process.

The biorefinery will produce a range of 100% wood-based

biochemicals, which will enable a switch from fossil raw materials to

sustainable alternatives in various consumer-driven end-uses. The

investment opens up totally new markets for UPM, with large growth

potential for the future.

The industrial scale biorefinery will convert solid wood into next

generation biochemicals: bio-monoethylene glycol (BioMEG) and

renewable functional fillers. In addition, the biorefinery will produce bio-

monopropylene glycol (BioMPG) and industrial sugars. The ROCE target

for the UPM Biochemicals business is 14%.

The combination of a sustainable wood supply, a unique technology

concept, integration into existing infrastructure at Leuna and the

proximity to customers will ensure the competitiveness of operations. The

safety and sustainability of the value chain will be based on UPM’s high

standards.

InfraLeuna GmbH, in the state of Saxony-Anhalt, offers very

competitive conditions for constructing a biorefinery with its logistics

arrangements and infrastructure for various services and utilities. In

October 2020, UPM entered into service agreements with InfraLeuna

GmbH related to wood handling, wastewater treatment and other

utilities, which will be recognised as lease assets and liabilities under

IFRS 16 Leases upon the commencement date. The total amount of such

lease assets and liabilities is estimated to be EUR 130 million.

Construction at the biorefinery site in Leuna continues with visible

progress. The erection of pipe racks, casings, tanks and the substation

buildings is nearing completion. Also, large parts of the reactors,

furnaces and columns are installed. Currently, focus is on piping and

electrification, and with approximately 1,000 workers on site,

construction activities have reached their culmination point. The

biorefinery obtained the permission to operate according to the German

Emission Regulation in May 2023.

The business foundation has been strengthened further. Business

function teams and the future operations team are in place. The

research, analytics and application development laboratories are also

established in Leuna and the teams are working – an important step

towards quality assurance, process optimisation and to define future

development options.


UPM FINANCIAL REPORT 2023	6

Commercial activities are proceeding

Commercial activities have continued to proceed positively in different

product and application areas. We have made strong progress in

qualifying our products for key end-uses, successfully launched

commercial partnerships both for UPM BioPura™ renewable bio-

monoethylene glycols (bMEG) and UPM BioMotion™ Renewable

Functional Fillers (RFF) products. We have a robust commercial pipeline

upon start-up of the UPM Biochemicals business. After the launch of

UPM BioMotion™ in 2021, joint product development activities with

potential customers in the rubber value chain have progressed further as

have discussions with especially automotive OEMs, with good results

regarding both the technical and commercial viability of the product.

We made further progress in taking UPM BioPura™ bMEG, to

market, advancing sales capabilities and extending pre-commercial

discussions with potential customers, as well as brand owners in the

packaging, textile and automotive end-uses. In July 2023 we launched

a partnership with the German sustainable outdoor apparel brand

VAUDE to produce the world’s first polyester fleece jackets containing

renewable chemicals made by UPM. In September and October 2023

we closed and announced the first larger scale sales contracts for our

UPM BioPura™ with our partners Dongsung and Brenntag.

The environmental benefits of the biorefinery and the UPM

Biochemicals portfolio has been publicly acknowledged with

nominations as a finalist in Packaging Europe’s “Renewables, Pre

Commercialized” category and first position in the sustainability ranking

in the European Rubber Journal.

Biofuels business development

In January 2021, UPM announced that it moves forward with biofuels

growth plans and starts the basic engineering phase of a next

generation biorefinery. The potential biorefinery would have a

maximum annual capacity of 500,000 tonnes of high-quality renewable

fuels including sustainable jet fuel. The products would significantly

reduce the carbon footprint of road transport and aviation, as well as

replace fossil raw materials with renewable alternatives in chemicals

and bioplastics. Feedstock sourcing will focus on UPM integrated

feedstocks from the company’s own ecosystem and wood-based

residues will play a substantial role. In addition, the biorefinery would

use sustainable liquid waste and residue raw materials.

UPM is proceeding with a detailed commercial and basic

engineering study to define the business case, select an innovative

technology option and sustainable feedstock mix and estimate the

investment need.

The site assessment for the potential biofuels refinery was completed

in January 2022 and Rotterdam in the Netherlands was selected as the

optimal location.

If all preparations are concluded successfully, UPM would initiate the

company’s standard procedure of analysing and preparing an

investment decision.

OL3 power plant project

In 2005, the Finnish Government granted a construction license to

Teollisuuden Voima Oyj (TVO) for the OL3 EPR nuclear power plant unit

(OL3) to be constructed at the Olkiluoto site. The OL3 project was

completed in April 2023. The OL3 plant supplier (the Supplier), a

consortium consisting of Areva NP SAS, Areva GmbH and Siemens AG

constituting the Supplier are jointly and severally liable for the turnkey

delivery of OL3 under the plant contract. UPM participates in OL3

through its shareholding in Pohjolan Voima Oyj (PVO), which is the

majority shareholder in TVO. UPM’s indirect share of OL3 is

approximately 31%.

According to TVO, the Supplier is responsible under the plant

contract for the design, engineering, equipment procurement, equipment

manufacture, construction, erection, testing, commissioning, licensing,

initial fuel supply and remedying of defects, as well as project

management and schedule of the OL3 EPR on a turnkey basis. Due to

the Supplier's turnkey responsibility, TVO is only responsible for a

limited scope of work under the plant contract. The plant contract

includes contractual securities for TVO, including a contract

performance bond, a guarantee period bond and liquidated damages

for delays, plant performance and plant availability.

According to TVO, under the plant contract, electricity production

was scheduled to start at the end of April 2009. However, the

completion of the project was delayed.

TVO announced, on 20 April 2023, that TVO submitted to the

Supplier the Provisional Takeover Certificate. In addition, TVO

confirmed that the commercial operation of OL3 starts at 1 May 2023.

The final acceptance of OL3 will take place upon termination of the two-

year warranty period. Even after that, the Supplier’s liabilities under the

warranty will remain in force to a certain extent for eight years at most.

The shareholders’ right to electricity generated by OL3 and their liability

for the annual costs incurred from electricity generation are determined

in accordance with TVO’s Articles of Association.

OL3 supplies electricity to its shareholders on a cost-price principle

(Mankala-principle), which is widely applied in the Finnish energy

industry. Under the Mankala-principle electricity and/or heat is supplied

to shareholders in proportion to ownership, and each shareholder is,

pursuant to the specific stipulations of the respective articles of

association, severally responsible for its respective share of the

production costs of the energy company concerned.

OL3 increases UPM Energy’s electricity generation capacity

significantly. The new power plant unit is highly efficient and meets the

highest safety standards. Its power generation is CO2 -free and TVO has

a secure solution for the final disposal of used fuel.

Events during the reporting period

On 2 February, UPM’s Board of Directors revised the Company’s

dividend policy to be based on earnings instead of cash flow. This

aligns the dividend policy with the Company’s transformative growth

strategy. According to the new policy, UPM aims to pay attractive

dividends, targeting at least half of the comparable earnings per share

over time.

On 22 March, UPM announced that it plans to permanently close

paper machine 6 at UPM Schongau, Germany, reducing the annual

capacity of uncoated publication papers by 165,000 tonnes by the end

of Q2 2023. UPM also announced that it accelerates the earlier

announced stop of production at its Steyrermühl mill by six months. The

exit of a total annual capacity of 320,000 tonnes of newsprint took

place in Q2 2023.

On 31 March, UPM announced that the UPM Paso de los Toros pulp

mill had reached technical readiness to start operations. UPM also

received approval from the environmental authorities for all the

procedures, systems and technologies that are required to fulfil the

environmental permit of the mill. This approval precedes the final

operating authorisation.

In March, UPM sold all its business operations in Russia to Gungnir

Wooden Products Trading.

On 12 April, UPM held its Annual General Meeting.


UPM FINANCIAL REPORT 2023	7

On 15 April, UPM announced that the UPM Paso de los Toros pulp

mill begins operations, and first customer deliveries are expected to ship

in May.

On 11 May, UPM announced that it had lowered its outlook due to

the slower recovery of deliveries in most businesses and the rapid fall in

pulp prices.

On 15 June, UPM announced that the European Commission had

decided to close its antitrust investigation in the wood pulp sector. The

Commission carried out an unannounced inspection at UPM premises in

October 2021. The Commission investigated the possible violation of

EU antitrust rules.

On 28 June, UPM announced that employee consultation processes

at UPM Schongau, Germany, had been completed and the number of

persons affected was 136 for the site. Uncoated publication paper

machine 6 was permanently closed. Newsprint paper machine 4 at

UPM Steyrermühl, Austria, was also permanently closed.

On 25 July, UPM Communication Papers announced plans to

permanently close its Plattling mill in Germany. The planned closure of

UPM Plattling’s two paper machines would lead to a permanent

reduction of 380,000 tonnes of uncoated publication paper and

215,000 tonnes of coated publication paper by the end of 2023. The

number of UPM employees affected is 401.

On 4 August, UPM announced that it has received platinum in the

EcoVadis responsibility assessment with a high industry score based on

the company’s sustainability performance in the following four

categories: Environment, Labour and Human Rights, Ethics and

Sustainable Procurement.

On 19 September, UPM announced that it was joining the UN

Global Compact Forward Faster Initiative, which calls upon business

leaders all over the world to take measurable action to accelerate the

progress of the Sustainable Development Goals. UPM is committed to

promoting gender equality, paying living wages and operating in line

with an ambitious net-zero emissions target.

On 20 October, UPM announced that the participation process with

employee representatives had been concluded and UPM decided to

close the Plattling mill in Germany. The mill ceased production in

November 2023.

On 24 October, UPM announced that Massimo Reynaudo had been

appointed as President and CEO of UPM-Kymmene Corporation as of 1

January 2024.

On 6 November, UPM announced that it had published an updated

Green Finance Framework. UPM´s updated Green Finance Framework

received the highest "Dark Green" shading from S&P Global Ratings, in

line with the framework established in 2020.

On 11 December, UPM announced that it had been listed as the

only forest and paper industry company in the Dow Jones Global and

European Sustainability Indices (DJSI) for the years 2023-2024.

Events after the balance sheet date

On 2 January 2024, UPM announced that it had completed the sale of

the Steyrermühl site and all related assets to HEINZEL GROUP, thereby

closing the transaction announced in June 2022.

Outlook for 2024

UPM’s full-year 2024 comparable EBIT is expected to increase from

2023, supported by higher delivery volumes, continued ramp-up and

optimization of the UPM Paso de los Toros pulp mill, and lower fixed

costs. Demand for many UPM products is expected to continue

gradually improving as the destocking seen in 2023 is largely over. The

market conditions in Biofuels are expected to be weaker than last year.

UPM continues to manage margins and take actions to reduce variable

and fixed costs.

In H1 2024, comparable EBIT is expected to be lower than in H2

2023, due to the timing of the energy-related refunds in Q4 2023 and

unusually high maintenance activity in H1 2024. Planned maintenance

shutdowns will take place in UPM Paso de los Toros, UPM Fray Bentos

and UPM Pietarsaari pulp mills and all three units of the Olkiluoto

nuclear power plant.


UPM FINANCIAL REPORT 2023	8

UPM FibresUPM Energy

UPM Fibres consists of pulp and timber

businesses. UPM Pulp offers a versatile

range of responsibly-produced pulp

grades suitable for a wide range of

end-uses. UPM Timber offers certified

sawn timber. UPM has three pulp mills

in Finland, two mills and plantation

operations in Uruguay and operates

four sawmills in Finland.

UPM Energy generates cost-

competitive, zero-carbon electricity.

Operations also include physical

electricity and financial portfolio

management as well as services to

industrial electricity consumers.

UPM Energy is the second largest

electricity producer in Finland.

UPM’s power generation capacity

consists of hydropower, nuclear

power and thermal power.


	2023	2022
Sales, EURm	3,044	2,704
Comparable EBITDA, EURm	407	743
% of sales	13.4	27.5
Change in fair value of forest assets and wood harvested, EURm	-20	11
Share of results of associates and joint ventures, EURm	2	3
Depreciation, amortisation and impairment charges, EURm	-273	-187
Operating profit, EURm	116	517
% of sales	3.8	19.1
Items affecting comparability in operating profit, EURm 1)	—	-53
Comparable EBIT, EURm	116	570
% of sales	3.8	21.1
Capital employed (average), EURm	6,839	5,867
Comparable ROCE, %	1.7	9.7
Pulp deliveries, 1,000 t	4,139	2,761

1) 2022 includes EUR 55 million settlement loss resulting from replacement of

defined benefit pension plan with defined contribution plan in Finland and

EUR 2 million reversal of environmental provisions.

2023 compared with 2022

Comparable EBIT decreased due to lower pulp and timber sales prices.

Delivery volumes increased and were supported by the UPM Paso de

los Toros ramp-up.

The average price in euro for UPM’s pulp deliveries decreased by

28%.

Market environment

• In 2023, global chemical pulp demand was solid. In China, chemical

pulp demand varied depending on the end-use and improved in H2

due to restocking. In Europe, chemical pulp demand was weak.

• In 2023, the average European market price in euro was 12% lower

for NBSK and 21% lower for BHKP, compared with 2022. In China,

the average market price in US dollars was 19% lower for NBSK and

23% lower for BHKP, compared with 2022.

• In 2023, demand for sawn timber was weak and market prices were

at a low level.

Sources: FOEX, UPM


	2023	2022
Sales, EURm	628	734
Comparable EBITDA, EURm	189	388
% of sales	30.2	52.9
Depreciation, amortisation and impairment charges, EURm	-7	-7
Operating profit, EURm	182	381
% of sales	29.1	52.0
Items affecting comparability in operating profit, EURm 1)	—	—
Comparable EBIT, EURm	182	381
% of sales	29.0	52.0
Capital employed (average), EURm	3,042	3,286
Comparable ROCE, %	6.0	11.6
Electricity deliveries, GWh	12,059	9,442

1) 2023 includes EUR 3 million charges related to impairment of the Sierilä

power plant project and EUR 3 million capital gain on sale of other non-

current assets.

2023 compared with 2022

Comparable EBIT decreased due to lower electricity sales price. Power

generation volumes were higher due to the OL3 nuclear power plant

unit.

UPM’s average electricity sales price decreased by 33% to

EUR 49.2/MWh (73.3/MWh).

Market environment

• The Nordic hydrological balance was below the long-term average at

the end of December. In Finland, the hydrological situation was close

to the long-term average.

• The CO2 emission allowance price of EUR 78.1/tonne at the end of

2023 was lower than at the end of 2022 (EUR 81.5/tonne).

• The average Finnish area spot price on the Nordic electricity

exchange in 2023 was EUR 56.5/MWh, 63% lower than in 2022

(EUR 154.0/MWh).

Sources: The Norwegian Water Resources and Energy Directorate, Svensk

Energi, Finnish Environment Institute, Nord Pool, NASDAQ OMX, Bloomberg,

UPM


UPM FINANCIAL REPORT 2023	9

UPM RaflatacUPM Specialty Papers

UPM Raflatac offers high-quality self-

adhesive paper and film products

including label materials, graphics

solutions and removable self-

adhesive products. UPM Raflatac

is the second-largest producer of

self-adhesive label materials world-

wide.

UPM Specialty Papers offers

labelling and packaging materials

as well as office and graphic

papers for labelling, commercial

siliconising, packaging, office use

and printing.


	2023	2022
Sales, EURm	1,485	1,982
Comparable EBITDA, EURm	146	251
% of sales	9.8	12.7
Depreciation, amortisation and impairment charges, EURm	-47	-41
Operating profit, EURm	81	203
% of sales	5.5	10.3
Items affecting comparability in operating profit, EURm 1)	-22	-11
Comparable EBIT, EURm	103	214
% of sales	7.0	10.8
Capital employed (average), EURm	737	681
Comparable ROCE, %	14.0	31.5

1) 2023 includes EUR 13 million restructuring charges and EUR 2 million

impairment charges related to restructuring measures at the UPM Raflatac

Nancy factory in France and EUR 7 million of other restructuring costs. 2022

includes EUR 6 million impairment charges of assets impacted by Russia´s

war in Ukraine, EUR 2 million of AMC acquisition-related costs and EUR 3

million restructuring charges.

2023 compared with 2022

Comparable EBIT decreased due to lower delivery volumes. The positive

impact of higher sales prices offset the negative impact of higher

variable costs. Fixed costs were lower.

Market environment

• In 2023, global demand for self-adhesive label materials declined

compared with 2022 mainly due to destocking in the value chain.

• Global market deliveries of self-adhesive label materials have been

sequentially and modestly recovering since Q2 2023.

Sources: UPM, FINAT, TLMI


	2023	2022
Sales, EURm	1,485	1,677
Comparable EBITDA, EURm	172	230
% of sales	11.6	13.7
Depreciation, amortisation and impairment charges, EURm	-74	-77
Operating profit, EURm	98	153
% of sales	6.6	9.1
Items affecting comparability in operating profit, EURm	—	—
Comparable EBIT, EURm	98	153
% of sales	6.6	9.1
Capital employed (average), EURm	875	889
Comparable ROCE, %	11.2	17.2
Paper deliveries, 1000 t	1,407	1,431

2023 compared with 2022

Comparable EBIT decreased due to lower sales prices and lower

delivery volumes. Input costs decreased.

Market environment

• In 2023, global demand for label, release base and packaging

papers was soft and impacted by destocking in the value chain and

lower consumer confidence. However, demand was improving

towards the end of the year.

• Fine paper demand was solid in China and in the rest of the Asia-

Pacific region.

• In 2023, market prices decreased compared to 2022.

Sources: UPM, RISI, AFRY, AWA


UPM FINANCIAL REPORT 2023	10

UPM Communication PapersUPM Plywood

UPM Communication Papers offers

an extensive product range of

sustainably produced graphic

papers for advertising and

publishing as well as home and

office uses.

UPM Plywood offers high quality

WISA® plywood and veneer

products for construction, vehicle

flooring, LNG shipbuilding, parquet

manufacturing and other industrial

applications.


	2023	2022
Sales, EURm	3,598	4,866
Comparable EBITDA, EURm	544	697
% of sales	15.1	14.3
Share of results of associates and joint ventures, EURm	-1	3
Depreciation, amortisation and impairment charges, EURm	-195	-80
Operating profit, EURm	174	631
% of sales	4.8	13.0
Items affecting comparability in operating profit, EURm 1)	-288	12
Comparable EBIT, EURm	462	619
% of sales	12.8	12.7
Capital employed (average), EURm	1,424	1,506
Comparable ROCE, %	32.4	41.1
Paper deliveries, 1000 t	3,528	4,703

1) 2023 includes EUR 120 million restructuring charges and EUR 112 million

impairment charges of fixed and leased assets related to the closure of the

UPM Plattling paper mill in Germany, EUR 30 million restructuring charges

relating to the closure of paper machine 6 at the UPM Schongau mill in

Germany, EUR 10 million charges related to the sale of the Steyrermühl site in

Austria and EUR 16 million other restructuring costs. 2022 includes EUR 26

million capital gain on sale of non-current assets, EUR 11 million settlement

loss resulting from replacement of a defined benefit pension plan in Finland

with defined contribution plan, EUR 9 million restructuring charges, EUR 11

million reversal of restructuring provisions related to Chapelle paper mill and

EUR 5 million charges related to prior capacity closures.

2023 compared with 2022

Comparable EBIT decreased due to lower production and delivery

volumes. The positive impact of lower variable costs more than offset the

negative impact of lower sales prices.

The average price in euro for UPM’s paper deliveries decreased by

5%.

Market environment

• In 2023, demand for graphic papers in Europe was 24% lower than

in 2022. Newsprint demand decreased by 22%, magazine papers

by 24% and fine papers by 25% compared to 2022.

• In 2023, publication paper prices in Europe were 12% lower and

fine paper prices were 1% higher compared to 2022.

• In 2023, demand for magazine papers in North America decreased

by 35%, compared to 2022. In 2023, the average price in US

dollars for magazine papers increased by 4% compared to 2022.

Sources: PPI/RISI, Euro-Graph, PPPC


	2023	2022
Sales, EURm	422	539
Comparable EBITDA, EURm	77	133
% of sales	18.4	24.6
Depreciation, amortisation and impairment charges, EURm	-21	-67
Operating profit, EURm	50	44
% of sales	11.9	8.2
Items affecting comparability in operating profit, EURm 1)	-6	-65
Comparable EBIT, EURm	56	109
% of sales	13.4	20.3
Capital employed (average), EURm	254	247
Comparable ROCE, %	22.2	44.3
Plywood deliveries, 1,000 m3	429	616

1) 2023 includes EUR 5 million capital loss resulting from sale of Russian

operations and EUR 1 million restructuring costs. 2022 includes EUR 54

million impairment charges of assets impacted by Russia's war in Ukraine, 8

million addition to environmental provisions related to prior mill closures in

Finland and EUR 3 million restructuring charges in Russia.

2023 compared with 2022

Comparable EBIT decreased due to lower delivery volumes. Higher

sales prices offset the impact of higher variable costs. Fixed costs were

lower.

Market environment

• In 2023, demand for spruce plywood and veneer was weak due to

low activity in the building and construction industry.

• Demand for birch plywood in panel trading and industrial

applications was good in H1 and moderate in H2 2023. In LNG

end-use demand for birch plywood was good.

• Destocking in the value chain had an impact on demand, especially

in Europe.

• The European birch plywood balance was impacted by leakage of

illegal Russian plywood to Europe.

Source: UPM


UPM FINANCIAL REPORT 2023	11

Other operations

Other Operations includes UPM Forest,

UPM Biofuels, UPM Biochemicals, UPM

Biomedicals and UPM Biocomposites

business units as well as biofuels

development and group services. UPM

Forest secures competitive wood and

biomass for UPM businesses and manages

UPM-owned and privately owned forests in

North Europe. In addition, UPM Forest

offers forestry services to forest owners and

forest investors. UPM Biofuels produces

wood-based renewable diesel for all diesel

engines and renewable naphtha that can

be used as a biocomponent for gasoline

or for replacing fossil raw materials in

petrochemical industry. UPM operates one

biorefinery in Finland.


	2023	2022
Sales, EURm	802	634
Comparable EBITDA, EURm	29	126
Change in fair value of forest assets and wood harvested, EURm	-82	2
Share of results of associated companies and joint ventures, EURm	-2	-2
Depreciation, amortisation and impairment charges, EURm	-44	-64
Operating profit, EURm	-101	64
Items affecting comparability in operating profit, EURm 1)	-87	-16
Comparable EBIT, EURm	-14	81
Capital employed (average), EURm	2,922	2,577
Comparable ROCE, %	-0.5	3.1

1) 2023 includes EUR 86 million decrease in the fair value of forest assets in

Finland resulting from changes in estimates and increase in discount rate and

EUR 1 million capital loss resulting from sale of Russian operations. 2022

includes EUR 20 million impairment charges of assets impacted by Russia´s

war in Ukraine, EUR 8 million gain on sale of other non-current assets, EUR 3

million settlement loss from replacement of defined benefit pension plan in

Finland with defined contribution plan and EUR 2 million of AMC acquisition-

related costs.

2023 compared with 2022

Comparable EBIT for other operations decreased. The change in the fair

value of forest assets net of wood harvested was EUR -82 million (2

million). The cost of wood harvested from UPM forests was EUR 88

million (84 million). The change in the fair value of forest assets was

EUR 5 million (85 million). In 2023, this amount includes EUR 86 million

decrease in the fair value of forest assets resulting in changes of

estimates and increase in discount rate.

Biofuels sales prices decreased, weakening profitability.

Market environment

• The European market for advanced renewable fuels was soft in

2023, especially in Germany. High GHG reduction was achieved in

the market, partly due to imported renewable fuels volumes from

Asia.

• In 2023, interest in bio-based MEG and renewable functional fillers

remained strong in Europe. Strong interest in more sustainable

solutions from consumers, brand owners and automotive OEMs, is

driving demand for bio-based glycols and renewable functional

fillers.

• In 2023, market demand for biocomposites decreased in Europe,

driven by the decreasing volumes in building and construction, as

well as price sensitivity in consumer products. Market prices were

solid and input costs stable. Long term fundamentals for sustainable

and renewable materials remained solid.

• For life science products, the demand is driven by the need to

implement automated 3D cell based models and to replace animal

models in drug development. For clinical products, hospitals continue

to explore new sustainable advanced wound care dressings.

Source: UPM

Board of Directors and

the Group Executive Team

At the Annual General Meeting held on 12 April 2023, the number of

members of the Board of Directors was confirmed as nine, and Henrik

Ehrnrooth, Emma FitzGerald, Jari Gustafsson, Piia-Noora Kauppi, Topi

Manner, Marjan Oudeman, Martin à Porta and Kim Wahl were re-

elected to the Board. Pia Aaltonen-Forsell was elected as a new director

to the Board. The directors’ term of office will end upon the closure of

the next AGM.

Henrik Ehrnrooth was elected as Chair, and Kim Wahl as Deputy

Chair of the Board of Directors of UPM-Kymmene Corporation at the

Board of Directors’ constitutive meeting that took place following the

Annual General Meeting.

In addition, the Board of Directors elected the chairs and other

members to the Board committees from among its members: Kim Wahl

was re-elected to chair the Audit Committee, and Pia Aaltonen-Forsell

and Marjan Oudeman were elected as other committee members.

Martin à Porta was re-elected to chair the Remuneration Committee, and

Emma FitzGerald and Topi Manner were elected as other committee

members. Henrik Ehrnrooth was elected to chair the Nomination and

Governance Committee, and Jari Gustafsson and Piia-Noora Kauppi

were elected as other committee members.

Shares held by the Board of Directors and the Group Executive

Team

At the end of the year, the members of the Board of Directors owned a

total of 121,283 (380,983) UPM-Kymmene Corporation shares. These

represent 0.02% (0.07%) of the shares and 0.02% (0.07%) of the

voting rights. At the end of the year, President and CEO Jussi Pesonen

owned 602,771 shares. At the end of the year, the other members of

the Group Executive Team owned a total of 769,272 shares.

» Refer Note 3.2 Key management personnel, of the consolidated financial

statements 2023 for further information on remuneration and shares held by

the members of the Board and the President and CEO and remuneration of

the members of Group Executive Team.

Legal proceedings

The Group’s management is not aware of any significant litigation at

the end of 2023.

In October 2021, the European Commission conducted an

unannounced inspection at UPM’s premises. According to the


UPM FINANCIAL REPORT 2023	12

Commission’s press release on 12 October 2021, the Commission had

concerns that the inspected companies in the wood pulp sector may

have violated EU antitrust rules that prohibit cartels and restrictive

business practices. On 15 June 2023 the Commission published a

release that it had decided to close its antitrust investigation in the wood

pulp sector. According to the Commission's release, it had decided to

close the investigation after a thorough analysis and careful assessment

of all the evidence gathered.

» Refer Note 9.2 Litigation, of the consolidated financial statements

2023 for information on legal proceedings.

Risks

Risk management

UPM regards risk management as a systematic and proactive means to

analyse and manage opportunities and threats related to its business

operations. This also includes risks that can be avoided through careful

planning and evaluation of future projects and business environments.

Risk management is an integral part of UPM’s management system

as risk taking is a normal part of business operations. While executing

strategies, UPM and its business areas, functions and manufacturing

units are exposed to a number of risk and opportunities. Each business

area, function and unit is responsible for identifying, measuring and

managing of risks related to its own operations, and for reporting on

risk exposures, risk management activities and results to its

own management team and to the Risk Management function.

The Risk Management Committee, chaired by the CFO, is

responsible for recommending risk tolerances and profile to the

President and CEO and the Strategy Team. The Strategy Team is

responsible for aligning risk management priorities, business and risk

management strategies and policies.

The Board of Directors, assisted by the Audit Committee, monitors

and assesses the effectiveness of the company’s risk management

systems and oversees the assessment and management of risks related

to the company’s strategy and operations. The Audit Committee

oversees that risk management activities are aligned with the Risk

Management Policy, and that risk assessments are used to guide

internal audit activities.

UPM seeks to transfer insurable risks through insurance

arrangements for any risks that exceed the defined tolerance.

UPM strives to ensure compliance with the UPM Code of Conduct

and other corporate policies. To enhance compliance and mitigate

risks, UPM performs risk assessments, training and monitoring at regular

intervals.

UPM has developed and implemented a comprehensive internal

control system that covers business and financial reporting processes.

Internal control is aimed at ensuring that the company’s operations are

efficient and reliable, and in compliance with statutory requirements,

and that the company’s financial reporting is accurate and reliable, and

reflects operational results. Internal control pertaining to financial

reporting is described in the Corporate Governance Statement available

in the corporate website.

The main risk factors that can materially affect the company’s

business, financial results and non-financial performance are set out

below. They have been classified as strategic risks, operational risks,

and financial risks. Risks may also arise from legal proceedings

incidental to UPM’s operations.

Strategic risks

Uncertainties in the economic and political operating

environment

The main short-term uncertainties in UPM’s earnings relate to sales

prices and delivery volumes of its products, as well as to changes in the

main input cost items and currency exchange rates, most of which are

affected by uncertainty in the global, regional or local economic and

political conditions. Political developments are causing uncertainties to

the global economy. Such uncertainties also affect UPM’s customers

influencing the demand for UPM’s products.

Examples of such developments are the trade tensions between the

United States, the EU and China, the nature of the relationship between

the EU and the UK after its exit from the EU as well as increased

geopolitical tensions that may lead to military conflicts, such as Russia's

war in Ukraine, recent emerging conflicts in the Middle East, or

economic sanctions, blockades, or export and/or import restrictions that

could limit or prevent UPM’s business in a country or area or cause

adverse effects on energy, logistics or other main input cost items. UPM

is also exposed to the impacts of certain governmental protection and

trade protection measures such as foreign direct investment restrictions

that safeguard domestic industries and other changes affecting

international trade. Restrictions on import and export and other

measures protecting national interests may affect the availability or cost

of necessary raw materials, and changes in the international trade

agreements. Changes in fiscal, monetary and other policies taken to

respond to the economic impacts of Russia's war in Ukraine and to

reduce dependency on Russian resources may cause unintended price

volatility or other adverse effects on UPM. Economic downturn, global

pandemics, or global power struggles continue to cause high

uncertainty to global trade, geopolitics or trajectories of economies.

UPM is especially exposed to the economic and political conditions

in countries in which UPM has significant production operations and

ongoing investment projects, such as Finland, Uruguay and Germany.

UPM also has significant production operations and sales in and to

China where the lack of transparency and predictability of the political,

economic and legal systems may lead to an increasing uncertainty and

risk level when investing in or operating in the country. UPM's

subsidiary and employees in Ukraine are exposed to challenging and

unpredictable environment stemming from Russia's war in Ukraine.

Cyclical and highly competitive markets

In all markets UPM operates in, the price level is determined by a

combination of demand and supply and an imbalance between them

could cause the prices of UPM’s products to fluctuate significantly.

Imbalances in demand and supply may be caused by factors such as

decreases or increases in the end-use demand, changes in customer

preferences, market adjustments to Russia's war in Ukraine, or a new

production capacity entering the market or an old production capacity

being closed, all of which may affect both the volume and price level of

UPM’s products.

Competitor behaviour may also influence the market price

development. UPM may, from time to time, experience price pressures

from competitors in its main business areas and geographic market

areas as well as particularly large fluctuations in operating margins due

to this competitive environment.

The majority of UPM’s revenue comes from sales of graphic and

specialty papers, pulp and label materials, and UPM principally

competes with several large multinational paper and forest product

companies as well as with numerous regional or more specialised

competitors.


UPM FINANCIAL REPORT 2023	13

Changes in consumer behaviour

Demand for UPM’s products may be affected by the introduction of

substitute or alternative products. The demand for graphic papers in the

mature markets is forecast to continue to decline. This will likely increase

the pressure on UPM’s graphic paper deliveries and sales prices as well

as the scarcity of recycled fibre. Changes in demand could also cause

overcapacity in some of UPM’s products, affecting the sales prices and

deliveries of such products.

Depending on the product area, the shifts in consumer demand may

either have a positive or an adverse effect on the consumption of UPM’s

products. For example, UPM expects that there will continue to be a

growing need for renewable and recyclable solutions, which creates

various opportunities for UPM and drive demand growth for most of

UPM’s products. At the same time digitalisation and e-commerce have

changed consumer behaviour and resulted in decline in demand for

graphic papers for various end uses.

Changes in legislation

UPM is exposed to a wide range of laws and regulations globally. The

performance of UPM’s businesses, for example the paper, energy, and

biofuels businesses, are to a high degree dependent on the regulatory

framework for these areas. Changes in regulation, direct and indirect

taxation or subsidies, aid, grants or allowances could have a direct effect

on UPM’s performance and its relative competitiveness, and structurally

restrict or exacerbate UPM’s ability to compete for raw material.

UPM also operates in industries that are subject to extensive

environmental laws and regulations governing, among others, emissions,

water quality, energy efficiency, as well as waste handling, recycling

and disposal. Environmental laws and regulations have become more

stringent and may continue to develop to be even more stringent due to

various global, regional and national level regulatory initiatives. As these

environmental laws and regulations are amended or as their application

or enforcement is changed, additional costs in complying with new and

more stringent regulations may be imposed on UPM.

UPM’s operations require UPM to obtain multiple environmental

permits and other licences from relevant authorities and comply with

their terms and conditions. These permits and licences may be subject to

modification, renewal or, subject to certain conditions, revocation by

the issuing authorities. UPM monitors regulatory changes in order to

better adapt to the effects of such changes.

Shareholdings in Pohjolan Voima Oyj

UPM is a shareholder of Pohjolan Voima Oyj (PVO), which is the

majority shareholder of Teollisuuden Voima Oyj (TVO). TVO owns and

operates three nuclear power plant units at the Olkiluoto site (OL). PVO

supplies electricity to its shareholders on a cost-price principle (so called

‘Mankala-principle’) that is widely applied in the Finnish energy

industry. Under the Mankala principle, electricity and/or heat is

supplied to the shareholders in proportion to their ownership and each

shareholder is, pursuant to the specific stipulations of the respective

Articles of Association, severally responsible for its respective share of

the production costs of the energy company concerned. The newest

plant unit, Olkiluoto 3 EPR (OL3), started regular commercial electricity

production in 2023 and is expected to increase UPM’s electricity

generation capacity significantly.

In Finland, UPM indirectly owns approximately 31% of the new

nuclear power plant unit OL3, through its shareholdings in Pohjolan

Voima Oyj. Pohjolan Voima Oyj is a majority shareholder of

Teollisuuden Voima Oyj (TVO), holding 58.5% of its shares.

According to TVO, OL3 was procured as a fixed price turnkey

project from a consortium formed by Areva GmbH, Areva NP SAS and

Siemens AG (the Supplier). As stipulated in the plant contract, the

consortium companies have joint and several liability for the contractual

obligations.

According to TVO, under the plant contract, electricity production

was scheduled to start at the end of April 2009. However, the

completion of the project was delayed. On 20 April 2023, TVO

announced that it had submitted to the OL3 plant supplier the

Provisional Takeover Certificate. In addition, TVO confirmed that the

commercial operation of OL3 starts at 1 May 2023. The final

acceptance of OL3 will take place upon termination of the two-year

warranty period. Even after that, the Supplier's liabilities under the

warranty will remain in force to some extent for eight years at most. The

shareholders’ right to electricity generated by OL3 and their liability for

the annual costs incurred from electricity generation are determined in

accordance with TVO’s Articles of Association.

In March 2018, TVO announced that it had signed a Global

Settlement Agreement (the GSA) with the Supplier and the Areva Group

parent company, Areva SA, a company wholly owned by the French

state, concerning the completion of the OL3 project and related

disputes. According to TVO’s announcement, the GSA was amended

with agreements signed in June 2021.

In the GSA, the Supplier consortium companies committed to

ensuring that the funds dedicated to the completion of the OL3 project

are sufficient and cover all the applicable guarantee periods.

Consequently, a trust mechanism was set up funded by the Areva

companies to secure the funds required to cover Areva’s costs for the

completion of the OL3 project.

TVO announced in its Interim Report Q3 2023 that the final payment

of approximately EUR 193 million in delay compensation agreed upon

in 2018 was set off against the final payment installment of the Areva

companies under the plant contract in May 2023. Long-term receivables

include the additional delay compensation of EUR 56.7 million to TVO,

agreed upon in 2021, will become due during the final takeover of OL3

in April 2025 at the earliest.

According to TVO, all payments related to the settlement

compensations have been recorded in the consolidated balance sheet

as property, plant and equipment.

TVO announced in its Interim Report Q3 2023 that total investment

in the OL3 project was approximately EUR 5.8 billion. EUR 250.0

million was transferred from the OL3 investment to operating-time fuel

(inventories) when the OL3 plant unit entered commercial operation.

According to TVO, regular electricity production and commercial

operation of the OL3 on 1 May, transferred the responsibility of the

plant to TVO. The Supplier retains the responsibilities according to the

plant contract for warranty periods and for that unfinished work, which

has been agreed to be done later at the Supplier’s expense.

According to TVO, the company will carefully follow the fulfilment of

the conditions according to the 2018 settlement agreement and the

amendment agreements signed in June 2021. The Supplier is obligated

to complete OL3 in accordance with the plant contract and the

amended GSA.

TVO announced in its Interim Report Q3 2023 that Finnish grid

operator Fingrid Oyj (Fingrid) has limited OL3’s production to a maximum

of 1,570 MW. After reporting period on 12 January 2024, the Energy

Authority issued a decision (1347/040200/2022) considering TVO’s

investigation request on the main grid protection system for OL3. The

decision states that Fingrid acted in breach of electricity market

regulations when transferring obligations related to the maintenance of

OL3’s operational reliability to TVO and when adopting terms and

conditions and determination principles for fees without the Energy

Authority’s confirmation. The Energy Authority requires that Fingrid

submits the determination principles for fees related to system protection

or a proposal for another mechanism for confirmation by 11 April 2024.


UPM FINANCIAL REPORT 2023	14

On 16 December 2020 TVO announced, that the shareholders of

TVO, including PVO, had signed an additional shareholder loan

commitment, comprising a total of EUR 400 million in new subordinated

shareholder loan agreements. According to TVO, with the new

shareholder loan commitment, TVO is preparing to maintain sufficient

liquidity buffer and equity ratio to complete OL3. On 30 November

2022, TVO announced that the shareholder loan commitment of EUR

400 million, which was originally agreed in December 2020, had been

extended by one year until the end of 2023.

On 26 April 2023, TVO announced that S&P Global Ratings had

upgraded its long-term credit rating from “BB+” to “BBB-” and affirmed

its stable outlook. On 4 May 2023, TVO announced that Moody’s

Investors Service had assigned a Baa3 long term issuer rating to TVO

with a stable outlook. TVO maintains investment grade ratings from all

three major credit rating agencies (Fitch Ratings Ltd BBB-/Stable, Moody

´s Baa3/Stable, S&P Global BBB-/ Stable).

According to TVO, there are uncertainties related to the availability

of OL3 during the first operating cycle by means of any possible

unexpected events. Operational issues in power plants could have an

adverse impact on TVO’s business and financial position, which could

cause adverse impact on the fair value of UPM’s energy shareholdings

and/or the cost of energy

Climate change

UPM is exposed to a variety of risks related to climate change. Strategic

risks related to climate change include risks concerning competition,

markets, customers, products and regulation. For example,

unpredictable regulation, subsidies or EU policies and resulting national

legislation in EU countries may distort raw material, energy and final

product markets and changing costs of greenhouse gas emissions may

influence UPM’s financial performance. Policies and regulations

responding to Russia’s war in Ukraine and cutting Russian gas supply to

Europe may temporarily emphasize energy supply security over climate

targets and thus change the trajectory of climate change or slow down

the achievement of emission reductions. UPM believes that forest, wood-

based products and low-carbon energy hold significant value creation

potential with respect to renewable and recyclable products.

Other risks related to climate change particularly concern UPM’s

supply chain as well as the availability and price of major inputs, such

as wood and electricity. Climate change may cause exceptional

weather events, such as severe storms, floods and draughts, which

could, for example, result in unpredictable hydropower availability and

wood harvesting conditions. Exceptionally mild winter conditions with a

reduced period of frozen soil in the Nordics could affect the harvesting

and transport of wood, consequently undermining the stability of raw

material supply and potentially increasing the cost of wood. These could

also increase the risk of production limitations.

Biodiversity loss

Biodiversity refers to the diversity and variation of species and

ecosystems on our planet. According to the UN, and despite ongoing

efforts, biodiversity is deteriorating worldwide. Biodiversity loss is

projected to worsen if no mitigation actions are taken. Mitigating

climate change is in our view the single most important action to

safeguard biodiversity.

UPM’s operations are widely linked with biodiversity, and most

significant impacts on biodiversity arise from wood sourcing activities.

Biodiversity is instrumental in maintaining healthy forest growth and

ensuring that forests adapt to the changing climate. Mitigating

biodiversity loss also plays an important role in our hydropower plants

and production units where we aim to improve living conditions for

local fauna and flora with dedicated actions. Deteriorating biodiversity

may cause significant adverse effect on the availability and

acceptability of wood raw material needed to produce UPM’s products

such as pulp, paper, timber and biofuels.

Loss of major customers and industry consolidation

UPM has several major customers, and the largest customer in terms of

sales represented approximately 2% of UPM’s sales in 2023, and the

ten largest customers represented approximately 13% of such sales.

Although UPM is not dependent on any specific customer or group of

customers, the loss of its major customers, if not replaced on similar

terms, could have a material effect on UPM’s business. Also, as the size

of UPM’s customers could increase in connection with industry

consolidation, such customers could exert increased bargaining power

on all of their suppliers, including UPM. UPM is also exposed to risks

related to any deterioration of a major customer group’s financial

condition.

Product development, innovation and intellectual property rights

Research and product development are an important part of UPM’s

strategy, particularly with regard to new businesses, such as wood-

based biofuels, biochemicals and biomedicals. The return on investment

of new or enhanced existing products and solutions may not meet

targets or improve UPM’s competitiveness.

UPM has a broad patent portfolio that provides value creation

potential in the future; however, it also exposes UPM to risks related to

the protection and management of intellectual property, including

patents and trademarks.

Corporate acquisitions and divestments

UPM’s strategy is to grow businesses with strong long-term fundamentals

and sustainable competitive advantage. This may result in acquisitions

of new businesses or divestments of existing businesses or parts thereof.

Carrying out corporate mergers, acquisitions and divestments involves

risks relating to the successful implementation of a divestment and the

ability to integrate and manage acquired businesses, systems, culture

and personnel successfully. In addition, the cost of an acquisition may

prove high and/or the anticipated economies of scale or synergies may

not materialise. Hidden liabilities of an acquired company (e.g.,

competition law liabilities) may also constitute a significant risk in

relation to potential acquisitions.

UPM may divest operations or assets to focus on strategic areas. Any

future divestments may be affected by many factors that are beyond

UPM’s control, such as the availability of financing to potential buyers,

interest rates, acquirers’ capacity, and regulatory approval processes,

and divestments may also expose UPM to indemnity claims.

Furthermore, divestments may involve additional costs due to historical

and unaccounted liabilities. The profitability of corporate acquisitions

and divestments may differ from UPM’s expectations.

Operational risks

Fluctuations in the prices of major inputs as well as changes in

their availability

The main inputs required in the manufacturing of UPM’s products are

wood, fibre, chemicals, energy and water. The prices for many of these

major production inputs have been volatile in the recent years and are

expected to remain volatile for the foreseeable future, which may have

an effect on the general profitability of the industries in which UPM

operates. Climate change may contribute to the increase of the price

volatility of UPM’s major production inputs. Also, any changes in the

current forestry practices and level of harvesting due to negative public

opinion or regulatory restrictions towards harvesting could have an

effect on the raw material supply and may increase the cost of wood.


UPM FINANCIAL REPORT 2023	15

Governmental protection and trade protection measures, amplified

by Russia's war in Ukraine and the economic sanctions imposed as a

response, could also have an effect on the price and availability of raw

materials as countries may, for example, enact further export ban

policies to protect forests or to bolster their domestic industries, which

could have a material effect on the cost and availability of raw

materials for UPM. It is also uncertain how the EU energy policies may

affect the availability and costs of fibre and energy. Significant

increases in the prices of UPM’s major inputs could increase UPM’s

operating expenses.

Supplier and subcontractor network and raw materials

procurement

UPM’s business operations depend on a large number of suppliers and

contractors. The majority of UPM’s need of wood is covered by

suppliers, and other production inputs, such as chemicals, fillers and

recovered paper, are fully obtained from suppliers. Disruptions in the

supply of key inputs or transportation services could have a significant

effect on manufacturing operations. This could, for example, result in

interruption or downscaling of production, change in the product mix or

increased costs resulting from price increases for critical inputs or

transportation services as well as shifts in the availability and price of

wood. Due to Russia's war in Ukraine, the EU has imposed bans on

wood exports and imports and transportation operations directly

applying to sourcing of wood and other raw materials from Russia.

Supplier consolidation could also limit the number of suppliers from

which UPM would be able to source its production inputs and could

materially affect the prices paid by UPM for these inputs.

The UPM Supplier and Third Party Code defines the minimum level of

performance that UPM requires from its suppliers and third-party

intermediaries. UPM carries out supplier risk assessments on, for

example, operational, financial, quality and responsibility perspectives.

Based on the risk assessment, selected suppliers’ activities are evaluated

in more detail through annual surveys, supplier audits and joint

development plans. If any non-conformities are discovered, the supplier

is required to take corrective measures, which UPM follows up on. Some

contracts may also be discontinued due to the seriousness of the finding

or insufficient corrective measures.

Management and execution of large investment projects

Investment projects in UPM’s businesses are often large and take one or

more years to complete. Participation in large projects involves risks,

such as cost overruns or delays, shortage of labour, financial distress of

suppliers, or accidents as well as non-achievement of the economic

targets set for the investment. Currently, UPM’s largest ongoing

investment project is the construction of a new biochemicals refinery in

Germany. This project involves the development of new business

concepts and technologies.

UPM is responsible for many projects in several of its countries of

operation at any given time. All projects involve technical and

operational risks, and projects require continuous operational planning,

steering and supervision, quality control, input procurement, scheduling

as well as resource and cost monitoring. Managing several projects

requires that UPM has sufficient resources and efficient processes. Port

congestion issues, transportation bottlenecks, accidents in transit, and

rising logistics or construction costs, all of which could be resulting from

external events or market conditions beyond the control of UPM, may

have an effect on the execution or profitability of investment projects.

UPM’s transformative biochemicals project in Germany is proceeding,

but despite efforts, some changes to the detailed timeline of the project

may occur due to events affecting project workers, suppliers or

infrastructure.

Unavailability of information systems as well as cybersecurity

breaches

UPM’s production and business operations depend on the availability of

supporting information systems and network services. Unplanned

interruptions in UPM's or a supplier's critical information system

services, loss of critical, financial or personal data due to reasons

beyond UPM’s or its suppliers' control, such as power cuts, software or

telecommunication errors or other major disasters, such as fires or

natural disasters, as well as user errors by UPM’s own personnel or

suppliers, can potentially cause major damage to UPM’s businesses and

disruptions to the continuity of operations.

UPM’s or its suppliers' information systems may be exposed to

various cybersecurity risks. Malicious cyber intrusion could cause

leakage of sensitive information, violation of data privacy regulations,

theft of intellectual property, production outages and damage to UPM’s

reputation.

Litigation and compliance

UPM operates globally in a large number of jurisdictions and complex

regulatory frameworks. UPM may from time to time be involved in

litigation and other similar proceedings or it could become subject to

various claims and actions based on various grounds.

On a global scale, enforcement activities and jurisdictional reach

regarding competition issues and anti-corruption have increased. Also,

the recent development of Renewable Energy Sources Act (EEG) related

lawsuits in Germany for alleged non-payment of EEG based surcharges

may have an adverse impact on UPM, albeit UPM is not currently a

party to any such lawsuits. Russia's war in Ukraine triggered many

countries to impose several sanctions packages which may increase the

risk of investigations, litigations or claims associated with alleged

sanctions violations, or retaliatory litigation in Russia. The UPM Code of

Conduct sets the standards of responsible behaviour and it covers topics

relating to legal compliance and disclosure, anti-corruption, competition

law, HR practices, human rights, responsible sourcing and

environmental matters.

UPM’s environmental performance and social responsibility play a

significant role in UPM’s ability to operate and influence the long-term

success of its businesses. UPM also measures and publishes information

on its environmental, social and governance matters, for which there is

an increasing risk of investigation or litigation from activist or other

stakeholders on alleged misrepresentation. UPM has significant

manufacturing operations or sourcing in several developing countries,

some of which are perceived as highly corrupt or corrupt according to

Transparency International. In these countries, there is an increased risk

of corruption, for example in relation to interaction with government

officials and in the use of intermediaries when applying for permits and

licences requiring governmental approval. Breaches of applicable laws

and regulations or corporate policies by UPM employees may lead to

legal processes, sanctions and fines as well as reputational damages

effecting UPM’s operations.


UPM FINANCIAL REPORT 2023	16

Industrial actions

UPM is subject to risk of industrial actions, which could disrupt its

business operations or the business operations of its stakeholders.

Uncertainty may increase in the Finnish labour market amid the

announcement of the Finnish Forest Industries Federation in fall 2020 to

transfer collective bargaining to companies. For example, in the

beginning of 2022, members of the Paperworkers’ Union, the Finnish

Electrical Workers´ Union and the Trade Union Pro started strikes at

UPM mills in Jämsänkoski, Kouvola, Lappeenranta, Pietarsaari, Rauma,

Tampere and Valkeakoski, Finland. Any strike or other industrial action

in UPM’s business operations or related sectors could have an effect on

UPM’s business operations. For example, industrial actions in the

transport sector or among other stakeholders important to UPM, may

disrupt UPM’s operations. Additionally, public dissatisfaction with

UPM’s labour-related decisions may, in extreme cases, lead to

unanticipated boycotts or disruptions at its facilities or construction sites.

A natural disaster, fire, accident or other calamity at UPM’s

production facilities

UPM operates a significant number of production facilities globally that

are exposed to risks related to environment, fires, natural events,

machinery breakdowns, site security and occupational health and safety

risks. If UPM’s production facilities were to experience a major accident

or were forced to shut down or curtail production due to such

unforeseen events, such as a leak or spill due to malfunction or human

error, this could cause major interruptions in UPM’s operations and

result in significant costs in order to clean up and repair any potential

damages to the production plant and the surrounding areas. Any failure

to maintain high levels of safety management could also result in

physical injury, sickness (including pandemics related infection

outbreaks) or liability to UPM’s employees, contractors or third parties.

These risks are managed through established management procedures,

health and safety precautions and loss prevention programmes. UPM’s

insurance programme provides coverage for insurable hazard risks,

subject to insurance terms and conditions.

Forests and plantations

UPM’s plantations and forests may be affected by the impacts of climate

change, which include more frequent and severe extreme weather

conditions such as heavy rainfall, storms, floods and drought. Climate

change is expected to have the biggest physical effect on UPM’s forest

lands in Finland, where temperatures are expected to rise more

significantly and rapidly compared with other countries where UPM

owns forest. Although forest growth will likely accelerate, particularly in

Finland, due to the longer growing season, extreme weather conditions

will intensify, presenting new risks. The increase of droughts and forest

fires are estimated to pose the most significant risks for UPM’s forests

and plantations. Also, damages caused by insects and tree diseases are

becoming increasingly common, which could have an effect on the

value of UPM’s forest assets. Should these risks materialise, they could

harm UPM’s forest and plantations resulting in production interruption

and additional costs.

Strategic partners

UPM collaborates with many partners. For example, product

development in the biofuels, bioenergy or biochemicals increases the

importance of partnerships in the search for new products and

businesses or higher efficiency. Partnerships may, however, create risks

to UPM's profitability, for example, through changes occurring within the

partner entity or changes in how the partnership operates. UPM is also

subject to the risk that its strategic partners do not comply with UPM’s

Code of Conduct with anti-corruption, competition law, HR practices,

human rights, responsible sourcing and environmental matters.

Partnership arrangements may also be too rigid to enable timely

changes required, for example, in connection with changes in the

market conditions or the economy. UPM’s partners may have different

targets with respect to the business of the partnerships. As UPM may not

have sole control over strategic direction and operational output of

these entities, its partners may have the right to make certain decisions

on key business matters with which UPM does not agree. In some cases,

strategic partners may choose not to continue partnerships that they

have with UPM. Russia's war in Ukraine and the resulting adverse

economic conditions may cause financial stress to a strategic partner

and trigger unexpected negotiation or other processes causing delays

or cost increases for UPM.

Intellectual property rights of third parties

Molecular bioproducts form one of UPM’s three strategic focus areas for

growth. Initiatives within this strategic focus area are technology-

intensive and require increasing investments in such technologies either

through internal development or through third party licences or

technological partnerships. In addition to UPM’s own IPR portfolio, UPM

licences certain technologies developed by third parties. Evaluating the

rights related to the third party technologies UPM uses or intends to use

is increasingly challenging. Licensing third party technology exposes

UPM to such risks as the increase of overall licensing costs, loss of

negotiation power, the validity of such licensing arrangements and

potential infringement claims, which could restrict UPM’s ability to use

certain technologies, prevent the delivery of UPM’s products and/or

result in costly and time-consuming litigation. Risk related to IPR claims

and disputes relating to technological partnerships have been assessed

to increase.

Building capabilities to growth areas

The success of UPM’s business largely depends on the ability to build

and retain the necessary new capabilities required for future growth.

UPM is continuously developing its employee experience, leadership

culture, evaluating its recruitment, compensation policies and career

development opportunities and taking measures to attract and retain

diversely skilled personnel and individuals with rare and pivotal

specialist knowledge for current and future growth areas.

Financial risks

Financial risks are described in consolidated financial statements 2023.


TYPE OF RISK	CONSOLIDATED FINANCIAL STATEMENT NOTE
Credit risk	4.6 Working capital
Liquidity and refinancing risk	5.1 Capital management
Interest rate risk	6.1 Financial risk management
Foreign exchange risk	6.1 Financial risk management
Electricity price risk	6.1 Financial risk management
Counterparty risk	6.2 Derivatives and hedge accounting


UPM FINANCIAL REPORT 2023	17

Non-financial information

To steer its responsibility activities, UPM has established a set of

responsibility focus areas with targets and key performance indicators.

They are reviewed every year based on a materiality analysis (page

63). The focus areas cover economic, governance, social and

environmental responsibility. Mitigation of and adaptation to climate

change is one of the most material topics, and it is relevant for UPM

throughout the whole value chain: land use, sourcing, production and

products. Thus, climate-related targets are established for all of these

areas. Further material topics are related to biodiversity and human

rights, for example.

UPM’s Biofore strategy guides the company in achieving its

responsibility targets for 2030 and in contributing to the Sustainable

Development Goals (SDG) of the 2030 Agenda for Sustainable

Development published by the UN.

Connecting sustainability performance to financing demonstrates the

importance of responsible business practices to UPM’s long term value

creation. UPM’s revolving credit facility is linked to the long-term

biodiversity and climate targets, and three green bonds have been

issued since 2020. Since January 2022, responsibility-related measures

are included in UPM’s management remuneration.

Based on international frameworks and commitments

UPM respects international human rights agreements and agreements

concerning labour rights, including the UN Declaration of Human

Rights, the ILO Declaration on Fundamental Principles and Rights at

Work, and the OECD Guidelines for Multinational Enterprises.

Since 2003, UPM is a signatory of the UN Global Compact

initiative, whose ten universal principles are derived from international

agreements in the areas of human rights, labour standards, the

environment and anti-corruption. In 2023, UPM joined the UN Global

Compact’s Forward Faster initiative.

Regarding climate change UPM committed to the Science Based

Targets initiative (SBTi) in 2017 and received validation of its tightened

CO2 targets in 2020. To further strengthen its climate approach, UPM

committed to the UN´s Business Ambition for the 1.5°C pledge and

joined The Climate Pledge to reach the targets set by the Paris

Agreement by 2040. In 2023, as part of the Forward Faster initiative,

UPM also committed to set Net Zero targets as defined by SBTi. The

work will be finalised during 2024.

UPM follows the Finnish Corporate Governance Code issued by the

Securities Market Association and complies with all of its

recommendations.

UPM Code of Conduct and other corporate policies

UPM’s decision making, management and operations are guided by

UPM values and the UPM Code of Conduct. Legal compliance and

responsible practices are the foundation of all of UPM’s businesses and

create long-term value for both UPM and its stakeholders. The UPM

Code of Conduct emphasises UPM’s commitment to business integrity

and responsible business operations, manifesting the company’s

guiding principles.

The UPM Code of Conduct is approved by the Board of Directors as

UPM’s highest governance body. It is complemented by more detailed

policies approved by the Board of Directors and rules, statements and

standards approved by the Group Executive Team, business areas or

global functions. These policies, rules, statements and standards cover

such topics as treasury, taxes, disclosures, insider matters, anti-

corruption, competition law, confidentiality, human resources,

responsibility, forestry, information security and data protection,

environment and safety.

UPM expects its suppliers, third party intermediaries and joint

venture partners to apply the same principles as in the UPM Code of

Conduct and to fulfil criteria concerning social and environmental

responsibility. These requirements are defined in the UPM Supplier and

Third Party Code, latest updates effective as of beginning of 2020.

The UPM Code of Conduct was last updated in 2022.

Roles of the group management and functions in leading non-

financial matters

The Board of Directors, with the assistance of the Audit Committee, is

responsible for monitoring compliance with applicable legal and

regulatory requirements and with the UPM Code of Conduct and other

corporate policies. The non-financial information in this Report of the

Board of Directors is reviewed by the Board as part of the approval

process. In addition, the Audit Committee reviews reports on non-

financial matters and related reporting on a regular cadence. The Audit

Committee also oversees procedures for treatment of complaints and

concerns received by the company, anonymous or otherwise. As part of

the committee’s compliance review, the committee is provided with a

quarterly report by the company’s Chief Compliance Officer, and a

report of submissions under the company’s Report Misconduct channel

by the Head of Internal Audit. The Remuneration Committee is

responsible for the review, evaluation and preparation of the company’s

incentive schemes and annually commencing plans for the Board’s

approval, including their linkage to company’s ESG performance. The

Nomination and Governance Committee reviews regularly the

adequacy of the Board and committee charters also related to ESG

topics.

In line with its main duties and responsibilities, the Board reviewed

and approved UPM’s strategic objectives and the strategic plans of the

Company and its business areas during its strategy session in May

2023. The main focus areas of the UPM Biofore strategy continue to be

performance, growth, innovation, responsibility and portfolio

development. This strategy is enhanced by the UPM purpose: We create

a future beyond fossils (read more on pages 20-21). An essential part

of the Board’s annual strategy work is to review and assess strategic

and operational risks and opportunities (see UPM Corporate

Governance Statement 2023). These risks and opportunities and their

impact on operations and strategy are described on pages 34–35.

Since 2022, the Board has included measures related to

environmental, social and governance (ESG) themes in the Company’s

performance share plan (PSP), one of its long-term incentive plans. The

PSP includes three distinct ESG performance measures and the total

weighting of these measures accounts for 20% of all measures.

The President and CEO’s duty is to manage and oversee UPM’s day-

to-day business operations in accordance with the instructions and

orders given by the Board of Directors. In the operative management of

the Company, including the management of corporate responsibility, the

President and CEO is assisted by the Group Executive Team, the

Business Area Boards, the Strategy Team, the Disclosure Committee and

the Ethics Advisory Committee.

The Group Executive Team approves and executes group-level rules,

guidelines and procedures relating to amongst others corporate

responsibility, including possible impacts on economy, environment and

people, determining courses of action and guiding development work.

The role of the Business Area Boards is business area level decision

making in matters pertaining to amongst others corporate responsibility

and they oversee implementation of the group-level rules, guidelines and

procedures in the Business Area. The Strategy Team assists the President

and CEO in matters pertaining to amongst others the integration of

corporate responsibility into group strategies for Boards’ approval and


UPM FINANCIAL REPORT 2023	18

preparation of changes in responsibility focus areas and targets for the

Group Executive Team’s approval.

The Ethics Advisory Committee is chaired by the General Counsel

and its other members are the EVP of the UPM Human Resources

function, the Chief Audit Executive and the Chief Compliance Officer.

The Ethics Advisory Committee supports the President and CEO and the

Board’s Audit Committee in their responsibilities relating to monitoring

compliance with legal and regulatory requirements and company

policies and the effectiveness of UPM’s compliance system. The

Disclosure Committee monitors, assesses, gives recommendations and

guidelines regarding external disclosure pertaining to amongst others

corporate responsibility. The Disclosure Committee is chaired by the

CFO and its other members are the General Counsel, the EVP of UPM

Stakeholder Relations function and the Head of Investor Relations.

In practice, corporate responsibility work takes place in businesses

and functions, and in the group’s Responsibility team, which co-

ordinates the projects carried out by businesses and functions.

UPM Legal Function and its Compliance team manage legal

compliance programmes and arrange related training at regular

intervals for specific target groups, which have been defined based on

risk assessments. UPM Sourcing organisations follow clearly defined

selection and follow-up processes when evaluating suppliers. Reliable

long-term deliveries, product and service quality, cost competitiveness,

financial sustainability of suppliers, social and environmental

responsibility and product safety are the key factors when selecting and

evaluating suppliers.

While executing strategies, UPM and its business areas, functions

and production units are exposed to a number of financial and non-

financial risks and opportunities. Each business area, function and unit

is responsible for identifying, measuring and managing risks related to

its own operations, and for reporting on risk exposures, risk

management activities and results to its own management team and to

the Risk Management Function.

Management of non-financial matters

UPM’s responsible thinking starts with anticipating, mitigating and

managing risks, and extends to creating a competitive advantage and

long-term value.

UPM continually strives to reduce its risk exposure and improve its

performance by using tools such as certified management systems. All

production sites have a certified ISO 14001 environmental

management system, except the new pulp mill in Uruguay which started

production in 2023 and two Raflatac sites in Germany which were

acquired at the end of 2022. Certification is expected during 2024.

Nearly all production sites and wood sourcing operations implemented

integrated management systems for environmental protection, quality

management and occupational health and safety in accordance with

ISO 14001, ISO 9001 and ISO 45001 standards. All pulp and

paper mills in the EU, as well as the UPM Fray Bentos pulp mill in

Uruguay and the UPM Changshu paper mill in China, also adhere to

the EU’s Eco-Management and Audit Scheme (EMAS). Many of the sites

also have energy management systems certified under ISO 50001 or

the Finnish ETJ+ system, and food safety management systems certified

under ISO 22000, if relevant.

Should stakeholders have any concerns or suspect misconduct, they

are encouraged to contact UPM or to use the UPM Report Misconduct

channel. The service is available on the corporate website for both the

company’s employees and external stakeholders. Operated by an

independent external service provider, the channel is accessible in over

40 languages, 24/7. In 2023, 83 (54) cases were reported either

through the UPM Report Misconduct channel or directly to Internal Audit

or the Compliance team. 10 (9) of these cases related to alleged

discrimination or harassment. 21(8) cases led to disciplinary action

including warnings and terminations of employment.

Reporting framework used

For its Group-level sustainability reporting UPM follows the Global

Reporting Initiative’s (GRI) Sustainability Reporting Standards, the Task

Force on Climate-related Financial Disclosures (TCFD), the Task Force on

Nature-related Disclosures (TNFD) as well as the AA 1000

AccountAbility Principles Standard. The respective information is

assured by an independent third-party, PricewaterhouseCoopers, Oy

(pages 118–119).

Committed to anti-corruption

The UPM Code of Conduct underlines the company’s zero tolerance

attitude towards corruption and bribery in any form. UPM Anti-

Corruption Rules explain prohibited conduct and expected ethical

behaviour in further detail.

UPM performs anti-corruption risk assessment on a regular basis. The

2023 compliance risk-assessment process included a top-down risk

discussion (including corruption) with the management of each business

area. All UPM group entities were also assessed on the basis of country

risk and complexity of operations. UPM operates globally and has

significant manufacturing operations in several emerging market

countries. Such operations require a number of permits and other

licenses from the relevant authorities. Some of the countries where UPM

operates are perceived as highly corrupt or corrupt according to

Transparency International. In these countries, there is an increased risk

of corruption, for example in relation to interaction with government

officials and in the use of intermediaries when applying for permits and

licences requiring governmental approval.

Due diligence of suppliers and third parties with whom UPM does

business is an essential part of UPM’s anti-corruption compliance

programme. UPM requires that due diligence is performed before

entering into or renewing any contract with a third party that meets

specified criteria. UPM requires anti-bribery contract terms to be

included in agreements with such third parties outlining the third party’s

commitment to compliance with applicable anti-bribery laws and UPM’s

right to audit the third party to verify compliance with these terms. UPM

also has corresponding due diligence procedures for joint ventures,

including mergers and acquisitions.

UPM has a dedicated anti-corruption e-learning platform. The anti-

corruption training covers all white-collar employees. In 2023, the

company organised tailored anti-corruption training workshops for

selected target groups across the company and performed risk-based

compliance reviews in selected jurisdictions and operations.

Respect for human rights

UPM is committed to respecting and promoting human rights in line with

the United Nations Guiding Principles on Business and Human Rights.

UPM has assessed all its own operations and activities and has

identified the potential human rights issues and impacts. When

considering both the severity and likelihood of these potential issues and

impacts, UPM considers the salient human rights issues in the company’s

sphere of influence to be environmental pollution, occupational health

and safety (OHS), working conditions, protection of children, and

forced labour. UPM regularly analyses the saliency of its human rights

impacts recognising that impacts on people continue to evolve as

business changes and the approach to due diligence develops.

UPM reviews its human rights risks as part of the UPM compliance

process quarterly. In 2023, the assessment of human rights issues on a

business area level as well as the integration of the process to unit

specific management systems continued. UPM also started a human


UPM FINANCIAL REPORT 2023	19

rights impact assessment across its operations in Uruguay in

collaboration with an external partner. The focus on strengthening

UPM’s human rights due diligence practises in investments and business

development projects as well as in contractor management also

continued.

Responsible sourcing

UPM requires its suppliers, third party intermediaries and joint venture

partners to apply the same principles as in the UPM Code of Conduct

including commitment to anti-corruption, environmental and social

responsibility, safe products, human rights and occupational health and

safety practices.

Transparent supplier requirements are the basis for responsible

sourcing. These requirements for suppliers are defined in the UPM

Supplier and Third Party Code. A number of additional requirements

are in place for the sourcing of wood, chemicals, pulp and packaging

materials, as well as for safety and logistics. All contractors working on

site go through UPM’s safety requirements and a web-based safety

induction training.

UPM identifies its supply chains with a high risk of potential negative

environmental and social impacts. These responsibility-related high-risk

suppliers are determined by the country of origin, sourced material or

service, and the UPM supply chain ESG risk register which holds UPM’s

view on company and business area relevant risks on people and the

environment. UPM also uses EcoVadis and other assessments, supplier

audits and joint development plans to carry out more detailed

evaluations of suppliers’ activities.

For the first time in 2023, our various responsible sourcing practices

and priorities were formulated into a cohesive, over-arching sustainable

supply chain programme. Each element entails clear instructions

regarding the relevant sourcing and supply chain management

practices and implications in UPM, as well as tangible guidance,

requirements and expectations for UPM’s suppliers. Effective

implementation is managed and tracked through our 2030

responsibility targets and performance indicators.

UPM continued its co-operation with Together for Sustainability (TfS),

a chemical industry initiative that promotes and improves sustainability

practices within the supply chains. In 2023, UPM conducted some 540

(520) EcoVadis environmental and social assessments and 95 (121)

supplier audits. In addition, about 890 (360) contractor reviews with a

focus on working conditions were carried out in Uruguay.

Social and employee-related matters

UPM’s responsibility focus areas in social and employee-related matters

are: learning and development, responsible leadership, diversity and

inclusion, fair rewarding as well as safe and healthy working

environment.

UPM is committed to active employee participation and consultation,

organised in accordance with international and national rules and

regulations.

UPM aims to empower and engage employees at all levels through

responsible leadership. UPM encourages its employees to pursue

professional growth, expects development and supports them in

learning skills and developing them further.

UPM respects the privacy of employees and promotes equal

opportunities and objectivity in employment and career development.

All UPM employees are treated as individuals regardless of gender,

age, ethnic origin, nationality, etc. Also in 2023, UPM carried out a

gender pay equity review process closing the unexplained gender pay

gap and a living wage review process to make sure that salaries are

sufficient everywhere. To achieve and follow-up the set target of greater

female representation in professional and managerial roles has been in

focus for different organisations.

In its People Strategy, UPM focused on leadership and creating a

safe, inclusive and diverse working environment, as well as aiming

higher in performance and ensuring the growth of our people. The aim

is to create a unique, positive UPM experience and to develop future

ways of working and collaborating, supported by attractive culture,

workspace and technology. In 2023, UPM continued with its

programme to develop the UPM experience and ways of working,

having digital capabilities in focus for operators and tools for citizen

development for UPMers. The enabling performance approach by

strengthening feedback culture, agile goal setting and frequent

manager-employee discussions is being further strengthened.

Development programmes to support growth and performance were

continued and implemented. The key areas of development have been

inclusive and purposeful leadership, high-performing teams, self-

leadership and coaching. Development planning and related tools were

developed and a campaign to support UPMers in their development

done. To further develop inclusive leadership and culture, UPM

continued to have a dialogue and train UPMers. In 2023, an Employee

Resource Group (BeU) was set-up to support the LGBTIQ community,

create awareness and develop inclusive culture at UPM.

UPM promotes employees´ health and wellbeing. In 2023, UPM

continued to implement its health and wellbeing vision, which takes a

holistic approach on themes: body, mind, heart and soul. Safety is an

essential part of UPM’s activities and business management system.

Equal safety requirements are applied to all employees, visitors and

contractors working at UPM’s premises. Proactively thinking about the

safety of employees and contractors remained an important focus area

in 2023.

The requirements concerning process safety have been clarified with

a new safety standard and process safety has been in focus especially

in the new investment projects of the biofuel and biochemicals

businesses. In 2023, a new safety project was started with a dialogue

with employees to engage UPMers to give input about how does the

safety look from employee perspective, what works well and what could

be improved.

Product stewardship

The majority of UPM’s products are made from renewable raw materials

and are recyclable. UPM products help to mitigate climate change by

replacing fossil-based products with bio-based renewable alternatives.

Product stewardship covers the entire lifecycle of all UPM products from

the development phase to the end-use and beyond.

In 2023, UPM’s Sustainable Product Design concept implementation

continued with several projects. The approach applies lifecycle thinking

and lifecycle assessment data, both of which are integrated in

sustainable product design practices. During the process, the whole raw

material chain, production and distribution efficiency, sustainable use

and circularity are considered.

UPM provides product declarations to provide customers with easy

access to information concerning the products´environmental and

product safety aspects or the wood origin. Together with a number of

paper and chemical companies the exchange of information in the

supply chain was improved. This facilitated a pre-assessment of

chemical use and to ensured compliance with legislations and

ecolabels.

Most UPM products are certified with widely recognised ecolabels,

such as the EU ecolabel and national ecolabels for graphic paper or

ISCC and RSB certification for biofuels, biocomposites and labels.

All UPM pulp mills, UPM Raflatac sites, UPM Specialty Papers´

production lines and UPM Kymi paper mill have implemented food


UPM FINANCIAL REPORT 2023	20

management systems in accordance with ISO 22000. The respective

products are designed and produced to meet food packaging

requirements.

In 2023, UPM developed internal guidance on how to make

sustainability claims in its communication and marketing.

Environment

UPM’s responsibility focus areas in environmental matters are forests,

biodiversity, water, waste and climate. UPM uses raw materials, water,

energy and nutrients in a responsible manner and continuously

improves its energy, resource and cost efficiency.

UPM is committed to sustainable forestry and third-party-verified

FSC™ and PEFC chain of custody certification covers all sites using

wood raw materials. This ensures that the wood is legally sourced from

sustainably managed forests. All UPM-owned forests are certified, or in

the process of certification if acquired recently.

According to the water risk analysis carried out with the WWF

Water Risk Filter in 2021, our production sites are in areas with low to

medium water scarcity. A comprehensive water risk analysis has

provided 2030 and 2050 scenarios of water risks, based on climate

and socio-economic changes to enable us to understand and prepare

for future water risks and opportunities. The water withdrawn by UPM

plants comes from rivers, lakes or groundwater resources. UPM uses

water responsibly in terms of the company’s water usage and effluent

quality. If the price of raw water were to increase by EUR 0.01 per

cubic metre, it would mean additional water costs of approximately

EUR 4 million annually. In 2023, wastewater volume decreased by 10%

per tonne of pulp and increased by 23% per tonne of paper. The

increase for paper is due to temporary market-related shut-downs.

Circular bioeconomy is at the core of our operations. We have

developed innovative ways to reduce and recover waste and to use side

streams, residues and recovered materials. For example, tall oil is used

for the production of UPM BioVerno renewable diesel and naphtha and

ash is utilised e.g. in soil stabilisation, cement industry or as raw

material for paper filler production. Regulatory changes may have an

impact on the options for waste or residue use, either by restricting the

end uses and thus causing higher costs for alternative solutions, or by

creating new opportunities. In 2023, 87 (90)% of UPM’s process waste

was recycled or recovered, of which 30 (21)% is energy recovery.

In 2023, UPM’s environmental investments totalled EUR 60 million

(11 million). The significant increase compared to previous year was

mostly due to investments in electric boilers at eight mills, totalling EUR

35 million. In addition, at UPM Kaukas over EUR 2 million were

invested in wastewater management related renewals and upgrades.

UPM’s environmental costs, which were mainly attributable to effluent

treatment and waste management, totalled EUR 121 million (123

million), including depreciation.

The company-wide Clean Run concept, launched in 2012 and

developed since to cover all operations and being holistic

environmental management system, aims to improve UPM’s

environmental performance by bringing environmental issues to the

forefront of everyday work and enabling consistent way of working

whatever operation in concern. In 2023, UPM strengthened its

management of environmental topics by revising and standardizing its

Clean Run concept. The new Clean Run standard will be implemented

globally during 2024. All sites systematically follow up any deviations,

proactively report observations and near misses, carry out walks and

discussions, share best practices and compile detailed risk assessments.

Approximately 1,500 (1,400) environmental walks were organised and

2,600 (2,100) preventive environmental observations and near misses

were reported in 2023.

In 2023, the number of environmental non-conformances increased

to a total of 28 (22) deviations from permit, contractual or other

obligations. 5 cases were related to air, 20 to water, 2 to soil and

water and 1 to waste. All deviations were reported to the authorities

and, where relevant, to local stakeholders. In all cases, appropriate

measures were taken to normalise the situation, and will be taken to

prevent similar occurrences. In 2023, one major environmental incident

occurred at UPM’s new Paso de los Toros pulp mill in Uruguay (read

more on page 93). In January 2024, Uruguay’s Ministry of Environment

imposed a sanction of approx. USD 188,000 on the company for non-

compliance with the environmental management plan for the UPM Paso

de los Toros pulp mill. This sanction will be due for payment in 2024. In

2023, UPM was not required to pay any significant fines due to

environmental non-conformances.

Biodiversity and ecosystems

Since 2022, the importance of biodiversity has been reflected in UPM’s

broader approach towards biodiversity to cover other areas beside

forests, e. g. streams and mill sites, and in establishing it as an own

focus area.

Related forestry, UPM continues to carry out biodiversity activities as

part of UPM’s global Forest Action programme. Targets for net-positive

impact on biodiversity in own forests in Finland and for UPM’s land in

Uruguay have been set with dedicated key performance indicators to

measure the progress. UPM’s stream water programme strives to remove

obstacles to fish migration, restore fish stocks and improve the living

conditions of all stream fauna throughout Finland. Possible impacts on

biodiversity from industrial emissions are minimised by several measures

like using best available techniques, monitoring and continuous

improvement processes.

In 2023, UPM developed and tested tools, methodology and

guidance for setting science-based targets for the preservation of nature

as part of the Science Based Targets Network (SBTN) Corporate

Engagement Program.

Climate

The management of climate change related issues is integrated into the

management of other non-financial issues and is reported to the Board

depending on the context and matter. For example: 1) risks are

reported to the Board by CFO, 2) related compliance and regulatory

issues are briefed quarterly to the Audit Committee (Board) by the

Compliance Officer, 3) annual progress on 2030 responsibility targets

is reported by EVP Stakeholder Relations or 4) if there are specific

climate-related topics, then the responsible topic owner briefs the Board.

Additionally, major climate-related issues such as scenario analyses,

commitments and UPM’s overall approach of acting through forests,

emission reductions in production and supply chain and through climate-

positive products are reported directly to UPM management bodies led

by CEO.

UPM´s position and resilience in different climate scenarios (IPCC

RCP 2.6, RCP 4.5, RCP 8.5, IEA B2DS, IEA NPS and IEA CPS) have

been evaluated for the businesses and functions from both physical and

transitional angles, involving expertise from scientific community.

Generally, in low- and medium-emission scenarios the transition impacts

play a bigger role and UPM is well positioned as its business portfolio

allows for flexibility regarding recognised risks and opportunities. In the

high-emission scenario physical impacts dominate with severe

consequences not only for UPM but for the ecosystems and societies

across the globe.

UPM´s targets for reduction of fossil CO2 emissions are 65%

reduction of Scope 1 and 2 emissions from 2015 level and 30%

reduction of emissions from sourced materials and logistics (Scope 3)


UPM FINANCIAL REPORT 2023	21

from 2018 level by 2030. These targets were validated by the Science-

Based Targets initiative (SBTi) to be aligned with the 1.5° C pathway

according to the Paris agreement. In 2023, fossil CO2 emissions (Scope

1 and 2) summed up to 3.7 (4.5) million tonnes, which is a decrease of

17% compared to 2022, and a decrease of 45% compared to 2015.

The Scope 3 emissions for materials and logistics summed up to 4.7

(4.8) million tonnes CO2, a reduction of 23% compared to 2018.

Overall Scope 3 emissions were 7.6 (7.4) million tonnes. In 2023,

scope, assumptions and factors used in Scope 3 calculation were

reviewed and updated. Detailed information on 2023 data,

methodology and assumptions is available in UPM’s GHG inventory,

published on upm.com. In 2023, UPM committed to set long-term Net

Zero targets as defined by SBTi. The work will be finalised during

2024.

Further targets related to climate change are climate-positive land

use and developing climate-positive product portfolio. Concerning land

use, forestry and product portfolio, UPM has engaged with scientific

partners in order to gain credible data and approaches.

UPM favours the use of renewable and other carbon-neutral energy

sources. Biomass-based fuels make up 76% (65%) of fuels used by UPM

worldwide. If UPM needed to buy certificates to cover its whole direct

fossil CO2 emissions, and if the price of CO2 certificates were to rise by

EUR 10 per tonne, it would mean additional costs of approximately

EUR 21 million annually.

UPM climate and nature related disclosures according to TCFD (Task Force on Climate-related Financial Disclosures) and TNFD (Task

Force on Nature-related Financial Disclosures) are presented in the UPM annual report as follows:


REQUIREMENTS	PAGES
GOVERNANCE
a) The role of the Board in overseeing climate and nature-related issues	Pages 138–139, paragraph "Roles of the group management and functions in leading non-financial matters"
b) The role of management in assessing and managing climate and nature-related issues	Pages 138–139, paragraph "Roles of the group management and functions in leading non-financial matters"
STRATEGY
a) The climate and nature-related risks and opportunities over the short, medium and long term	Pages 133–137, chapter "Risks" Pages 34–35, chapter "Risks and opportunities" Pages 10–13, chapter "Beyond fossils"
b) The impact of climate and nature-related risks and opportunities on business, strategy and financial planning	Pages 34–35, chapter "Risks and opportunities" Pages 10–13, chapter "Beyond fossils" Page 135 paragraph "Climate change", 137 paragraph "Forest and plantations"
c) The resilience of strategy, taking into consideration climate and nature-related scenarios	Page 141, paragraphs "Environment", "Climate" and "Biodiversity and ecosystems" Pages 10–13, chapter "Beyond fossils"
RISK MANAGEMENT
a) Processes for identifying climate and nature-related risks	Page 133, paragraph "Risk management" Pages 138–139, paragraph "Roles of the group management and functions in leading non-financial matters"
b) Processes for managing climate and nature-related risks	Page 133, paragraph "Risk management" Pages 138–139, paragraph "Roles of the group management and functions in leading non-financial matters"
c) How processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management	Page 133, paragraph "Risk management" Pages 106–110, chapter "Governance"
METRICS AND TARGETS
a) Metrics used to assess climate and nature-related risks and opportunities	Pages 14–15, "Key figures 2023" and pages 32–33, "Responsibility targets"
b) Climate: Scope 1, Scope 2 and Scope 3 emissions, and related risks Nature: Positive impact on forest biodiversity and developing a monitoring system and obstacle-free streams, and related risks	Page 141, paragraph "Climate" Page 91, graph "Sources of UPM's greenhouse gas emissions" Page 141, "Biodiversity and ecosystems" and pages 84–85 "Enhancing Biodiversity" Page 83, "Study on the biodiversity of clearcut areas", pages 84 "Landlocked salmon returning to the river" and page 85 "Setting science-based targets for nature conservation"
c) Targets used to manage climate-related risks and opportunities and performance against targets	Page 143, table "Material non–financial topics and key performance indicators" Pages 32–33, table "Responsibility targets"


UPM FINANCIAL REPORT 2023	22

Material non-financial topics and key performance indicators


TOPIC	MANAGEMENT	KEY PERFORMANCE INDICATOR	2023 RESULTS
Governance/ Anti- corruption	Corruption related risks are identified and assessed in connection with the company’s risk management process. These risks are managed and mitigated by training, communication, due diligence procedures, audits and practical guidelines specifically targeted at anti-corruption and anti- bribery. UPM Code of Conduct training is mandatory for all employees and anti-bribery training to all salaried employees.	100% coverage of participation in UPM Code of Conduct training (continuous)	98% (97%) of active employees completed the training for the UPM Code of Conduct.
Human rights	UPM is committed to respecting human rights based on its Code of Conduct. UPM has a process for assessing human rights at UPM site level, including community relations and local sourcing, as well as for risk assessments and audits for suppliers.	Continuous supplier auditing based on systematic risk assessment practices	95 (121) supplier audits were conducted based on identified risks, including human rights, social and environmental topics. In addition, about 890 (360) contractor reviews with focus on working conditions were carried out.
Responsible sourcing	UPM requires its suppliers, third party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct. These supplier requirements are defined in the UPM Supplier and Third Party Code.	80% of total supplier spend covered by UPM Supplier and Third Party Code (continuous)	89% (88%) of supplier spend covered by UPM Supplier and Third-Party Code.
Responsible leadership	UPM continuously develops leadership capabilities, management teams and working environments. UPM measures work environments, team work and leadership with an annual engagement survey. UPM’s global leadership development portfolio develops capabilities to lead oneself, lead people and lead business. Programmes address, e.g., inspiring and purposeful leadership, coaching, conversation and feedback skills, resilience and leading in complexity.	Employee engagement clearly above benchmark by 2030	In the Employee Engagement Survey average score of 70 (70). This is 5 (5) points below the global external benchmark.
Learning and development	UPM has a systematic process for goal setting and development planning for all employees globally to ensure high performance and continuous professional development.	Goal setting discussions are held and development plans created for employees, completion rate 100% by 2030	85% (83%) of employees had completed individual goal settings or annual discussions. 81% (58%) had a development plan documented.
Safe and healthy working environment	UPM has a comprehensive safety management system which promotes a proactive and engaging safety culture. UPM uses means such as safety audits and reporting on safety-related near misses and safety observations.	No fatalities Total recordable injury frequency (TRIF) <2 by 2030, including contractors	0 (3) fatal accidents, 5 (5) serious accidents TRIF was 6.1 (6.4) for UPM workforce and 5.2 (5.9) including contractors.
Diversity and inclusion	UPM wants to develop organisational culture and local workplace to ensure an inclusive and diverse working environment. UPM has committed to, and promotes, diversity and inclusion in its policies. UPM reviews the diversity status of all its businesses and functions regularly. The composition of UPM key management teams and inclusiveness is discussed and development actions planned and implemented.	UPM is among top 10% companies by 2030 on employees’ sense of belonging at UPM	In the Employee Engagement Survey, question about belonging average score of 68 (68). This is 12 (12) points below the benchmark of top 10% companies.
Fair rewarding	UPM’s rewarding and recognition philosophy is to reward high performance. We aim to ensure fair, equitable and competitive rewarding for all employees. In addition to competitive, robust and performance based rewarding practices, we have yearly review processes ensuring the gender pay equity and employees’ pay meeting at least a living wage locally. UPM ensures that employees have sufficient information to understand what their rewarding comprises and how they can influence on its development.	Ensure gender pay equity for all employees by implementing yearly review process to identify and close unexplained pay gaps	Company-wide review done and pay adjustments implemented to close identified statistically significant unexplained gaps related to gender.
Product stewardship	Ecolabels help customers make responsible choices and provide stakeholders with important information. Third-party verified environmental certificates and labels tell customers about the environmental performance of our products.	All applicable products eligible for ecolabelling by 2030	89% (87%) of UPM sales were eligible for ecolabelling.
Climate	UPM favours the use of renewable and other carbon-neutral energy sources and strives to continuously improve its energy efficiency across all its operations. Strengthened targets for scope 1 and 2 to be in line with the commitment to Science Based Targets and 1.5° pledge.	Fossil CO2 emissions from its own combustion and purchased electricity (Scope 1 and 2) reduced by 65% by 2030 (compared to 2015)	Fossil CO2 emissions reduced by 45% compared to 2015 and 17% compared to 2022.
Water	UPM's goal is to minimise the impact of its operations on water resources, safeguard the natural water cycle in forests, and maintain the functioning of aquatic ecosystems.	Wastewater volume reduced by 30% by 2030 (compared to 2008)	7% (13%) reduction in wastewater volume achieved since 2008 for the UPM average product.


UPM FINANCIAL REPORT 2023	23


TOPIC	MANAGEMENT	KEY PERFORMANCE INDICATOR	2023 RESULTS
Waste	Circular economy means both financial and environmental efficiency. UPM aims to reuse materials and products, reduce the amount of solid waste and increase recycling and recovery in its operations.	No process waste sent to landfills or to incineration without energy recovery by 2030	87% (90%) of all UPM’s process waste was recovered and recycled. The total amount of waste to landfills increased by 50% compared to 2022.
Forest	UPM is committed to sustainable forestry and uses third-party verified chains-of-custody to ensure that wood is legally sourced from sustainably managed forests.	All fibre certified by 2030	87% (86%) of all wood used by UPM is sourced from certified forests.
Biodiversity	UPM aims to improve biodiversity with tangible actions for maximising positive impacts and mitigating possible negative impacts on land, in stream waters or in mill operations.	Positive impact on forest biodiversity in Finland (continuous)	Overall positive development as all measured subindicators were positive. For deadwood volume the data will be available in 2024 in connection with national forest inventory.

Material risks and their management is described on pages 133–137 of the Report of Board of Directors and in the Annual Report on pages 32–33. Information on

the company’s risk management system is available on the corporate website in the governance section and in the Corporate Governance Statement 2023, which is

also available as a separate report on the corporate website upm.com/governance. More information about performance related non-financial topics is available

in the general section of the Annual Report and on the UPM website upm.com.


UPM FINANCIAL REPORT 2023	24

EU Taxonomy disclosure

EU Taxonomy is a sustainable finance classification system, which

defines criteria for economic activities that are considered

environmentally sustainable. It represents an important step towards

achieving carbon neutrality by 2050 in line with the EU climate goals.

The first EU Disclosures Delegated Act on Climate was adopted in 2021

and it required large companies to report the proportion of their

economic activities considered Taxonomy-eligible in relation to Climate

change adaptation and Climate change mitigation objectives. In

financial reporting year 2022, companies were also required to report

the taxonomy alignment of their economic activities based on the

sustainability requirements defined in the regulation.

In June 2023, the Commission adopted the Taxonomy Environmental

Delegated Act, including a new set of EU taxonomy requirements for

economic activities making a substantial contribution to one or more of

the non-climate environmental objectives, namely: Sustainable use and

protection of water and marine resources, Transition to a circular

economy, Pollution prevention and control and Protection and

restoration of biodiversity and ecosystems. The Commission also

adopted amendments to the Taxonomy Disclosures Delegated Act and

to the Taxonomy Climate Delegated Act, covering the environmental

objectives of Climate change mitigation and adaptation. For the

financial year 2023, the KPIs shall cover all six environmental objectives

concerning the Taxonomy eligibility. From 2024 onwards, also

alignment shall be reported regarding all six objectives.

Assessment of Taxonomy eligibility and alignment

In 2023, UPM conducted a thorough evaluation of the eligibility of

activities with the new sustainability requirements defined in the

adopted regulation. The assessments were carried out with the support

of several UPM functions and businesses coordinated by UPM’s finance

and responsibility teams. EU NACE Classification (Statistical

Classification of Economic Activities in the European Community) was

used as a reference in activity identification. Based on the assessment,

UPM identified a potential new activity 1.2. Manufacture of medicinal

products for the objective Pollution prevention and control within its

Biomedicals business developing and supplying wood-based

biomedical products. However, as the reportable amounts for the

activity are currently minor and have no impact on the KPIs, UPM

considered to report it as non-eligible.

UPM also completed an annual review of all taxonomy-aligned

activities recognized contributing to climate objectives. All turnover-

generating activities aim at a substantial contribution to climate change

mitigation (CCM) and they meet specific technical screening criteria and

the criteria for ‘do no significant harm’ (DNSH) stated for each activity

within the relevant Appendix to the delegated act. For all activities

contributing to climate change mitigation, a physical climate risk

assessment is needed pursuant to Appendix A to the Climate Delegated

Act. Technical screening and ‘do no significant harm’ criteria were

reviewed together with the responsibility experts from related UPM’s

businesses. Audit requirement related to the activities 1.1 Afforestration

and 1.3 Forest management is interpreted to be fulfilled based on the

FSC, PEFC and (or) SFI audits due to lack of service providers in the

market fulfilling Taxonomy specific certifier requirements on Forest

management. Data for the separate Climate benefit analysis for the

related activities is provided by Natural Resources Institute Finland.

UPM’s Taxonomy aligned economic activities are the following:

1.1 “Afforestation” relates to transformation of land use from non-

forest to forest through planting, deliberate seeding or natural

regeneration and consists of UPM’s afforestation operations in Uruguay.

1.3 “Forest management” relates to economic activity that influences

the ecological, economic or social functions of the forest and mainly

consists of UPM’s forest management and regeneration activities in

Finland, Uruguay and USA.

3.6 “Manufacture of other low carbon technologies” relates to

technologies and products dedicated to the reduction of GHG emissions

and includes construction of UPM’s new biochemicals biorefinery in

Leuna, Germany and intangible rights related to UPM Biochemicals

acquisition of SunCoal Industries GmbH.

4.13 “Manufacture of biogas and biofuels for use in transport and of

bioliquids” relates to manufacture of biofuels from forest biomass and

consists of UPM’s biorefinery operations in Lappeenranta, Finland.

4.5 “Electricity generation from hydropower” relates to operation of

electricity generation facilities that produce electricity from hydropower

including UPM’s own and co-owned hydropower plants.

4.20 “Cogeneration of heat/cool and power from bioenergy”

relates to operation of installations used for cogeneration of heat/cool

and power exclusively from biomass, biogas or bioliquids and it mainly

consists of operation of UPM’s own and co-owned biomass-based

boilers in Finland and Uruguay.

UPM reports separately information on nuclear and fossil gas related

activities according to the Complementary Delegated Act. UPM

identifies the activities 4.27 "Construction and safe operation of new

nuclear power plants" (Olkiluoto 3) and 4.28 "Electricity generation

from nuclear energy in existing installations" (Olkiluoto 1& 2) through its

shareholdings in Pohjolan Voima Oyj (PVO) which has direct

shareholdings in Teollisuuden Voima Oyj (TVO), refer Note 4.3 Energy

shareholdings. TVO operates three nuclear power plants in Finland after

Olkiluoto 3 started its production phase in Q2 2023. Both nuclear

activities 4.27 and 4.28 are Taxonomy aligned based on the

comprehensive assessment conducted by Teollisuuden Voima Oyj

(TVO). For 2023, UPM identified a potential new activity, 4.29.

“Electricity generation from fossil gaseous fuels”, related to new

Nordland CHP plant in Germany. The plant generates electricity mainly

for UPM's internal consumption but in case of excess production

electricity can be sold externally to grid operator. The reportable

amounts for the activity are currently minor and have no impact on the

KPIs, hence, UPM considered to report it as non-eligible.

UPM re-evaluated Taxonomy-eligible activities and made the

following change to the eligible scope compared to 2022: UPM

reclassified its R&D activities previously reported within the activity 9.1

"Close to market research, development, and innovation" to be reported

as a part of activities 3.6 “Manufacture of other low carbon

technologies” and 4.13 “Manufacture of biogas and biofuels for use in

transport and of bioliquids”. Reclassification regarding the activities did

not have an impact on the alignment interpretation of the items. The

change has also been incorporated into comparison figures.


UPM FINANCIAL REPORT 2023	25

Minimum Safeguards

Requirements for Minimum Safeguards shall ensure that a company not

only supports environmental goals, but also adheres to international

social standards and guidelines. UPM evaluated the requirements to be

fulfilled by UPM’s Code of Conduct and related business practices,

measures and commitments. UPM’s due diligence and remedy

processes consider social and employee matters, respect for human

rights, anti-corruption and anti-bribery. Information on Principal Adverse

Impacts (PAIs), as defined in the EU SFDR, are addressed in UPM’s

reporting, if relevant. Our practices and assessments in relevant areas

are described in more detail in this report in following paragraphs:

• Based on international frameworks and commitments, page 138

• UPM Code of Conduct and other corporate policies, page 138

• Management of non-financial matters, page 139

• Committed to anti-corruption, page 139

• Respect for human rights, pages 72–73

• Taxation, pages 80–81

UPM’s Taxonomy alignment 2023 and development compared

to previous year

In 2023, UPM's total Taxonomy-aligned turnover including the nuclear

activities was EUR 995 million (896 million), 10% (8%) of total sales,

Taxonomy-aligned CapEx was EUR 460 million (424 million), 35%

(26%) of total CapEx and Taxonomy-aligned OpEx EUR 141 million

(109 million), 20% (17%) of total OpEx as defined in Disclosures

Delegated Act 1). All the aligned activities in financial year 2022 were

also aligned in 2023 based on the executed annual alignment

assessment. Taxonomy aligned turnover KPI increased by 2 percentage

points mainly due to higher biofuels sales consisting of renewable diesel

and nafta (activity 4.13). In addition, electricity sales volumes related to

nuclear power increased compared to previous year due to start of the

operational phase of Olkiluoto 3. Simultaneously, this was partly offset

by decreased electricity prices (activity 4.27). CapEx KPI increased by

9 percentage points and was notable higher than in previous year due

to higher proportion of Leuna biochemicals biorefinery investment out of

Total Capex as well as additions to intangible rights (IPR) related to

UPM Biochemicals' SunCoal Industries GmbH acquisition (activity 3.6).

OpEx KPI increased by 3 percentage points mainly due to planned

maintenance work at the biofuels biorefinery in Lappeenranta (activity

4.13) and higher OpEx related to Olkiluoto 3 nuclear plant due to

started operations (activity 4.27).

The Taxonomy regulation is still under development and does not

cover all the sustainable economic activities. The majority of UPM´s

products and services, such as pulp, paper, timber, plywood and label

materials contributing to the turnover, are not included in the EU

Taxonomy, thus the high proportion of Taxonomy non-eligible activities.

1) The percentages differ from the Annex II templates presented below as

they include nuclear activities which are not presented in Annex II

templates. Nuclear activities are presented using the Annex XII templates of

the amended Disclosures Delegated Act.

KPIs and accounting policies

The eligibility and aligned-related financial information to be disclosed

pursuant to Article 8 of the Taxonomy Regulation is presented in the

following pages in tables Turnover of taxonomy-eligible activities,

CapEx of taxonomy-eligible activities, OpEx of taxonomy-eligible

activities and Nuclear and fossil gas related templates.


UPM FINANCIAL REPORT 2023	26

Turnover of taxonomy-eligible activities (excluding nuclear and fossil gas related activities)

Fiscal year 2023

2023

Substantial contribution criteria

DNSH criteria

(‘Does Not Significantly Harm’)

Economic activities

Code

Turnover

Proport

ion of

turnove

r %,

year

2023

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Minimum safeguards

Proporti

on of

Taxono

my-

aligned

(A.1.)

or -

eligible

(A.2.)

turnover

, year

2022

Categ

ory

enabli

activit

Cate

gory

transi

tional

activi

EURm

Y; N;

N/EL

Y; N;

N/EL

Y; N;

N/EL

Y; N;

N/EL

Y; N;

N/EL

Y; N;

N/EL

Y/N

A. TAXONOMY-ELIGIBLE ACTIVITIES

A.1. Environmentally sustainable activities (Taxonomy-aligned)

Forest management

CCM

1.3

Electricity generation from hydropower

CCM

4.5

136

Manufacture of biogas and biofuels for

use in transport

CCM

4.13

414

Cogeneration of heat/cool and power

from bioenergy

CCM

4.20

Turnover of environmentally sustainable

activities (Taxonomy-aligned) (A.1)

660

—%

Of which Enabling

660

—%

Of which Transitional

—

—%

A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

Forest management

CCM

1.3

N/EL

Sea and coastal freight water transport,

vessels for port operations and auxiliary

activities

CCM

6.10

N/EL

Turnover of Taxonomy-eligible but not

environmentally sustainable activities

(not Taxonomy-aligned activities) (A.2)

—%

Turnover of Taxonomy-eligible activities

(A.1 + A.2)

691

—%

B. TAXONOMY-NON-ELIGIBLE ACTIVITIES

Turnover of Taxonomy-non-eligible

activities

9,769

93%

TOTAL

10,460

100%

Turnover of Taxonomy-non-eligible activities (B) includes the eligible and aligned nuclear related activities


UPM FINANCIAL REPORT 2023	27

CapEx of taxonomy-eligible activities (excluding nuclear and fossil gas related activities)

Fiscal year 2023

2023

Substantial contribution criteria

DNSH criteria (‘Does Not

Significantly Harm’)

Economic activities

Code(s)

Absolut

CapEx

Proport

ion of

CapEx

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Minimum safeguards

Proportion

Taxonomy

-aligned

(A.1.) or -

eligible

(A.2.)

CapEx,

year

2022

Catego

enablin

activity

Catego

transitio

nal

activity

EURm

Y; N;

N/EL

Y/N

A. TAXONOMY-ELIGIBLE ACTIVITIES

A.1. Environmentally sustainable activities (Taxonomy-aligned)

Afforestation

CCM 1.1

Forest management

CCM 1.3

Manufacture of other low carbon

technologies

CCM 3.6

385

29%

19%

Electricity generation from hydropower

CCM 4.5

Manufacture of biogas and biofuels for use

in transport

CCM

4.13

Cogeneration of heat/cool and power from

bioenergy

CCM

4.20

CapEx of environmentally sustainable activities

(Taxonomy-aligned) (A.1)

460

35%

—%

26%

Of which Enabling

460

35%

—%

26%

Of which Transitional

—

—%

A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)

EL; N/

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

Sea and coastal freight water transport,

vessels for port operations and auxiliary

activities

CCM 6.1

N/EL

CapEx of Taxonomy-eligible but not

environmentally sustainable activities (not

Taxonomy-aligned activities) (A.2)

—%

CapEx of Taxonomy-eligible activities (A.1 +

A.2)

498

38%

—%

29%

B. TAXONOMY-NON-ELIGIBLE ACTIVITIES

CapEx of Taxonomy-non-eligible activities (B)

830

62%

TOTAL

1,329

100%

CapEx of Taxonomy-non-eligible activities (B) includes the eligible and aligned nuclear related activities


UPM FINANCIAL REPORT 2023	28

OpEx of taxonomy-eligible activities (excluding nuclear and fossil gas related activities)

Fiscal year 2023

2023

Substantial contribution

criteria

DNSH criteria (‘Does Not

Significantly Harm’)

Economic activities

Code(s)

Absolu

OpEx

Proport

ion of

OpEx

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Climate change mitigation

Climate change adaptation

Water

Pollution

Circular economy

Biodiversity

Minimum safeguards

Proporti

on of

Taxono

my-

aligned

(A.1.)

or -

eligible

(A.2.)

OpEx,

year

2022

Catego

enablin

activity

Categor

transitio

nal

activity

EURm

N/EL

Y/N

A. TAXONOMY-ELIGIBLE ACTIVITIES

A.1. Environmentally sustainable activities (Taxonomy-aligned)

Forest management

CCM 1.3

Manufacture of other low carbon

technologies

CCM 3.6

Electricity generation from hydropower

CCM 4.5

Manufacture of biogas and biofuels for

use in transport

CCM

4.13

Cogeneration of heat/cool and power

from bioenergy

CCM

4.20

OpEx of environmentally sustainable

activities (Taxonomy-aligned) (A.1)

12%

—%

11%

Of which Enabling

12%

—%

11%

Of which Transitional

—

—%

A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

EL;

N/EL

Sea and coastal freight water transport,

vessels for port operations and auxiliary

activities

CCM 6.1

N/EL

OpEx of Taxonomy-eligible but not

environmentally sustainable activities (not

Taxonomy-aligned activities) (A.2)

—%

OpEx of Taxonomy-eligible activities (A.1 +

A.2)

12%

—%

11%

B. TAXONOMY-NON-ELIGIBLE ACTIVITIES

OpEx of Taxonomy-non-eligible activities (B)

628

88%

Total (A + B)

712

100%

OpEx of Taxonomy-non-eligible activities (B) includes the eligible and aligned nuclear related activities


UPM FINANCIAL REPORT 2023	29

Nuclear and fossil gas related templates

Template 1 Nuclear and fossil gas related activities


Row	Nuclear energy related activities
1.	The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle.	NO
2.	The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies.	YES
3.	The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades.	YES
	Fossil gas related activities
4.	The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels.	NO
5.	The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels.	NO
6.	The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels.	NO

Template 2 Taxonomy-aligned economic activities (denominator)


Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies	136	1%	136	1%	—	—%
3.	4.28. Electricity generation from nuclear energy in existing installations	198	2%	198	2%	—	—%
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred to in rows above in the denominator of Turnover	660	6%	660	6%	—	—%
8.	Total Turnover	10,460	100%	10,460	100%	—	—%


UPM FINANCIAL REPORT 2023	30


Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies
3.	4.28. Electricity generation from nuclear energy in existing installations
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred to in rows above in the denominator of CapEx	460	35%	460	35%	—	—%
8.	Total CapEx	1,329	100%	1,329	100%	—	—%


Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies	16	2%	16	2%	—	—%
3.	4.28. Electricity generation from nuclear energy in existing installations	41	6%	41	6%	—	—%
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred to in rows above in the denominator of OpEx	84	12%	84	12%	—	—%
8.	Total OpEx	712	100%	712	100%	—	—%


UPM FINANCIAL REPORT 2023	31

Template 3 Taxonomy-aligned economic activities (numerator)


Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies	136	14%	136	14%	—	—%
3.	4.28. Electricity generation from nuclear energy in existing installations	198	20%	198	20%	—	—%
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred above in the numerator of turnover	660	66%	660	66%	—	—%
8.	Total amount and proportion of taxonomy- aligned economic activities in the numerator of the Turnover	995	100%	995	100%	—	—%

Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies
3.	4.28. Electricity generation from nuclear energy in existing installations
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred to in rows above in the numerator of CapEx	460	100%	460	100%	—	—%
8.	Total amount and proportion of taxonomy- aligned economic activities in the numerator of the CapEx	460	100%	460	100%	—	—%


UPM FINANCIAL REPORT 2023	32


Row	Economic activities	Amount and proportion
		CCM + CCA		Climate change mitigation (CCM)		Climate change adaptation (CCA)
		Amount	%	Amount	%	Amount	%
1.	4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
2.	4.27. Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies	16	12%	16	12%	—	—%
3.	4.28. Electricity generation from nuclear energy in existing installations	41	29%	41	29%	—	—%
4.	4.29. Electricity generation from fossil gaseous fuels
5.	4.30. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
6.	4.31. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
7.	Amount and proportion of other taxonomy- aligned economic activities not referred to in rows above in the numerator of OpEx	84	59%	84	59%	—	—%
8.	Total amount and proportion of taxonomy- aligned economic activities in the numerator of the OpEx	141	100%	141	100%	—	—%

Accounting Policy

UPM consolidated financial statements are prepared in accordance with

IFRS Accounting Standards as adopted by the EU and IFRIC

Interpretations. UPM has calculated the KPIs using the financial

information presented in group consolidated financial statements 2023.

In determining the eligible and aligned turnover any specific fragments

of production inputs, such as use of sustainable raw material or energy,

have not been included in the eligible turnover if the main activity is not

included in the Taxonomy. However, for activities that are used both

internally and, to some extent, to generate external turnover, the CapEx

and OpEx is not split in relation of internal and external use, but fully

allocated to economic activity that leads to revenue. The definitions of

CapEx and OpEx key performance indicators are based on definitions

set out in the Disclosures Delegated Act. CapEx and OpEx related to

assets or processes that are associated with Taxonomy-aligned

economic activities are counted only once. Whenever an individual

investment is considered Taxonomy-aligned, this proportion of CapEx is

not further allocated to a Taxonomy-aligned economic activity, to avoid

double counting. Similarly, OpEx related to purchased outputs that are

already considered under OpEx associated with Taxonomy-aligned

activities is not further counted. The group has no economic activities

contributing to multiple climate or environmental objectives.

Turnover

UPM has calculated turnover, as defined in Disclosures Delegated Act,

based on the same accounting principles that apply for revenue in IFRS

Accounting Standards, i.e., covering all amounts derived from the sale

of products and services in the course of ordinary activities. Total

turnover corresponds to total sales as reported in group consolidated

financial statements. Refer to Accounting policy in consolidated financial

statements Note 2.2. Sales. Taxonomy-eligible and -aligned turnover

include only revenue from sales of products and services generated from

activities that are included in the Taxonomy.

In 2023 and 2022, the numerator of the turnover KPI is defined as

the turnover derived from products and services associated with

Taxonomy-aligned economic activities:

1.3. “Forest management” generates turnover from the sale of wood

and wood-based biomass such as logs, pulpwood and forest residues

from UPM’s own and leased forests to third party customers (other

sources of wood excluded from the eligible turnover).

4.5. “Electricity generation from hydropower” generates turnover from

the sale of electricity generated by UPM’s own or co-owned

hydropower plants.

4.13. “Manufacture of biogas and biofuels for use in transport”

generates turnover on sale of wood-based renewable diesel and

naphtha for transport and petrochemicals.

“4.20. “Cogeneration of heat/cool and power from bioenergy”

generates turnover from the surplus sale of heat and power generated

from biomass in combined heat and power plants that is not consumed

in own production. Regarding the power plants, the portion of the fossil

fuels has been excluded from the turnover.

Turnover from sale of forestry services to private forest owners (1.3.

“Forest management”) and sale of logistic services from leased vessels

(6.10 “Sea and coastal freight water transport, vessels for port

operations and auxiliary activities”) are Taxonomy-eligible but not

Taxonomy-aligned.

CapEx

UPM has included in CapEx, as defined in Disclosures Delegated Act,

additions to tangible and intangible assets, before any depreciations,

impairments, amortisation charges and fair valuations during the

financial year, as accounted for in accordance with IAS 16 Property,

Plant and Equipment, IAS 38 Intangible assets, IAS 41 Agriculture and

IFRS 16 Leases. CapEx corresponds to cash payments to acquire fixed

assets in the Consolidated cash flow statement adjusted with amounts

accrued but not paid at the end of reporting period, acquisition of

businesses and subsidiaries (intangible rights) and additions to leased


UPM FINANCIAL REPORT 2023	33

assets. Refer to line items Capital expenditure, Additions to forest assets

and Acquisition of businesses and subsidiaries, net of cash acquired in

Consolidated cash flow statement and Note 5.2. Leases in UPM

consolidated financial statements 2023. Capital expenditure presented

in the UPM Annual report within Other financial information differs from

Taxonomy-CapEx as it does not include additions to forest assets,

acquisition of businesses and subsidiaries and leased assets.

In 2023 and 20221), the numerator consists of the following categories

of Taxonomy-aligned CapEx:

1.1. “Afforestation” CapEx includes purchased and leased land for

afforestation.

1.3. “Forest management” CapEx includes capitalised forest

regeneration costs.

3.6 “Manufacture of other low carbon technologies” CapEx relates to

investment in new-generation biorefinery in Leuna, Germany and

intangible rights related to UPM Biochemicals acquisition of SunCoal

Industries GmbH, a German-based company that developed a unique

technology portfolio to produce performance products such as functional

fillers from renewable raw materials. The group is reporting all CapEx

related to ongoing investment in new-generation biorefinery as

Taxonomy-aligned CapEx.

4.13. “Manufacture of biogas and biofuels for use in transport” CapEx

includes refurbishment of Lappeenranta biorefinery.

4.5. “Electricity generation from hydropower” CapEx includes

refurbishment of hydropower plants.

4.20. “Cogeneration of heat/cool and power from bioenergy” includes

refurbishment of related power plants.

CapEx related to investments on leased vessels (6.10 “Sea and

coastal freight water transport, vessels for port operations and auxiliary

activities”) in 2023 and 2022 is Taxonomy-eligible but not Taxonomy-

aligned.

OpEx

UPM has included in OpEx, as defined in Disclosures Delegated Act,

research and development costs as accounted for in accordance IAS 38

Intangible assets, short term lease expenses as accounted for in

accordance IFRS 16 Leases, and costs of day-to-day servicing (i.e.,

repairs and maintenance) of property, plant and equipment as

accounted for in accordance IAS 16. Costs of day-to-day servicing of

property, plant and equipment include direct salaries of maintenance

personnel, maintenance materials and maintenance services outsourced.

In addition, as UPM owns a significant amount of forest assets, it

considers forest management and support services as day-to-day

servicing of assets as defined in EU Disclosures Delegated Act. OpEx is

included in consolidated income statement line item Costs and

expenses, refer Note 2.3. Operating expenses and other operating

income.

In 2023 and 20221), the numerator consists of the following categories

of Taxonomy-aligned OpEx:

1.3. “Forest management” OpEx includes forestry infrastructure

maintenance, forest fire fighting, protection and environmental activities

whereas forest regeneration costs, e.g., planting, growing of seedlings

and operation of nurseries, are included in CapEx.

3.6 “Manufacture of other low carbon technologies” includes R&D costs

related to biochemicals biorefinery.

4.5. “Electricity generation from hydropower” OpEx includes

maintenance costs of hydropower plants.

4.13. “Manufacture of biogas and biofuels for use in transport” OpEx

includes maintenance costs of biofuels production facility in

Lappeenranta and next generation biofuels refinery R&D costs.

4.20. “Cogeneration of heat/cool and power from bioenergy” includes

maintenance of related power plants.

OpEx related to investments on leased vessels (6.10 “Sea and

coastal freight water transport, vessels for port operations and auxiliary

activities”) in 2023 and 2022 is Taxonomy-eligible but not Taxonomy-

aligned.

Nuclear and Gas related activities

UPM has reported separately its activities related to Nuclear and Gas

as defined in the Complementary Climate Delegated Act (2022/1214).

Taxonomy-eligible turnover from nuclear related activities includes

UPM's electricity sales to external customers related to nuclear power

plants (Olkiluoto 3 under activity 4.27 and Olkiluoto 1and 2 under

activity 4.28). Taxonomy-eligible OpEx in activities 4.27 and 4.28

includes, as defined in Disclosures Delegated Act, UPM's share of day-

to-day servicing costs related to property, plant and equipment in the

new and existing nuclear power plants. UPM is not reporting any

CapEx related to the nuclear activities as due to the nature of its

shareholding ownership in PVO, investments related nuclear are not

included in the total UPM's Capital expenditure as presented in the UPM

Annual report, refer Note 4.3 Energy shareholdings. For 2023, UPM

identified a potential new activity 4.29. “Electricity generation from

fossil gaseous fuels” related to new Nordland CHP plant in Germany.

The reportable amounts for the activity are currently minor and have no

impact on the KPIs, hence, UPM considered to report it as non-eligible.

All the reported nuclear activities and respective KPIs are both

Taxonomy-eligible and Taxonomy-aligned.

1) UPM reclassified its R&D activities previously reported within activity 9.1.

Close to market research, development, and innovation to be reported as a

part of activities 3.6 “Manufacture of other low carbon technologies” and

4.13 “Manufacture of biogas and biofuels for use in transport and of

bioliquids”. Reclassification regarding the activities did not have an impact

on the alignment interpretation of the items. The change has also been

incorporated into comparison figures.


UPM FINANCIAL REPORT 2023	34

Research and development

Innovating for the future

Innovation and R&D programmes are essential in the development of

new products and technologies. Research and development expenses

cover the development of new technologies, businesses and processes.

In 2023, we spent EUR 538 million (EUR 414) million) on research and

development, which accounted for 23.7% (81.5%) of operating cash

flow. In addition to direct R&D expenditure of EUR 66 (55) million, the

figure includes negative operating cash flow and capital expenditure in

developing businesses, transformative business prospects and

digitalisation projects.

The patents, trademarks and intellectual property rights protecting

our innovations support the journey from innovation to business. We

have nearly 3,600 patents and patent applications, and more than

1,700 trademarks globally. Licensing innovations and technologies

provides an excellent basis for value creation with customers and

technology partners.

Extensive partner network

Our close-knit global partner network includes customers, universities,

research organisations, suppliers and start-up companies. Collaboration

speeds up the development and launch of new business solutions.

Our network includes the Circular Bio-based Europe Joint

Undertaking (CBE JU), the European Chemical Industry Council (Cefic)

and the Renewable Carbon Initiative (RCI). We are a member of the

4evergreen alliance, an initiative created by the Confederation of

European Paper Industries (Cepi) to raise the overall recycling rate of

fibre-based packaging to 90% by 2030. We are also a member of

EUROPEN, the European association that strives towards achieving

carbon neutrality in the packaging value chain.

We want to take part in the developments that reduce greenhouse

gas emissions. In 2023, we actively participated in Hydrogen Cluster

Finland to create new technologies, business opportunities and climate

benefits throughout the network.

Our focus in 2023

Innovating climate-positive products

Our biochemicals refinery under construction in Leuna, Germany, will

enable us to switch from fossil raw materials to wood-based alternatives

in textiles, plastics, PET bottles, packaging and pharma. To accelerate

product development, UPM Biochemicals announced several

partnerships in 2023.

Co-creating products with customers and technology partners

continued. For example, we introduced the world’s first fleece jacket

containing 30% wood-based polyester as well as fully fibre-based heat-

sealable packaging and a bio-attributed jar for a moisturiser.

The step from mainly fossil-based plastic packaging to biomaterials

requires R&D in numerous areas. Our work focused on packaging

paper and pulp value chains, including pulp side streams such as lignin.

We led a collaboration project on finding alternatives for fossil-based

binders and coatings.

We are examining new ways to utilise renewable biomaterials for

textiles, nonwovens, hygiene products and labels for example. We are

also looking into the opportunities provided by green hydrogen and

biogenic CO2.

Expanding R&D infrastructure

UPM’s three Biofore Base research centres accelerate the development

of bio-based products. The centres focus on research, piloting and

analytics, enabling seamless collaboration with customers, value chain

partners and research organisations such as universities. They work

closely with UPM’s mills, businesses and business-specific research

centres in various countries.

In 2023, we continued to strengthen our infrastructure in Germany,

Finland, Switzerland and Uruguay. In Germany, we intensified

biochemical R&D and piloting in several of our laboratories in

connection with the upcoming biochemicals refinery, supported by the

acquisition of Suncoal Industries.

In Finland, we expanded our research centre in Lappeenranta with

the main focus on developing biomolecular businesses. In Uruguay, we

focused on piloting future pulp end-uses in close collaboration with our

forestry research centre specialising in eucalyptus plantations. UPM

Biomedicals opened a new cell laboratory in Basel, Switzerland.

Implementing sustainable product design concept

Our 2030 responsibility targets and contribution to the UN SDGs are

integrated into our R&D activities and product development. We want

our products to create value for our stakeholders during the whole

product lifecycle.

We carried out screenings in the early stages of product

development using a tool we developed to map impacts on the SDGs.

Based on the feedback we obtained, we continued to develop the tool

by reviewing and adapting the questions included in the tool. The

concept was also tested to investigate product reuse with UPM

Biocomposites and UPM Raflatac.

Our approach applies lifecycle thinking and lifecycle assessment

data, both of which are incorporated in sustainable product design

practices. Life Cycle Assessment (LCA) and carbon footprint are key

tools in our concept. They provide credible environmental data over the

lifecycle of products under development and for products already

available on the market. We also continued to conduct biodegradability

and recyclability testing.

Developing R&D competences

R&D supports our growth and responsibility targets globally, enhances

technology-triggered business opportunities and protects performance in

existing businesses. Strong focus is placed on the growth businesses

and close collaboration with customers and production.

We continuously develop our competences for the future needs of

our businesses. Competence development is essential for the entire

organisation, including both technical capabilities and ways of working.

We focused especially on chemical safety and behavioural safety at

work, noting both safe and at-risk behaviours. Our R&D and piloting

teams have also become more international thanks to successful

recruitments and onboarding. In addition to internal competence

development, we collaborate with universities and vocational schools to

enhance mutual learning.

UPM Biofuels - Green growth with advances biofuels

Our renewable and sustainable biofuels help to mitigate climate

change. Advanced biofuels reduce greenhouse gas emissions by more

than 80% compared to fossil fuels. In addition to decarbonising road

transportation, we help to defossilise various other industries by offering

wood-based naphtha. Naphtha is the major raw material for most

chemicals and plastics. UPM BioVerno™ naphtha is a drop-in solution

for replacing fossil-based naphtha allowing the production of

sustainable chemicals and plastics. Our strategy is based on proprietary

technology and UPM’s integrated feedstocks.


UPM FINANCIAL REPORT 2023	35

Focus on market fundamentals

In 2023, demand for advanced biofuels was good and markets

continued to benefit from a dedicated and compulsory mandate for

advanced biofuels based on EU-wide rules. Simultaneously, European

biofuels markets faced uncertainties due to economic slowdown and

increased imports of biofuels labelled as advanced from China. The

longer term effect of Chinese imports remains uncertain.

Input costs remained at a high level. Crude tall oil (CTO) markets

continued to tighten due to the increased replacement of fossil fuels and

stronger competition. In the first half of the year, the turnaround shut-

down impacted production rates at the UPM Lappeenranta Biorefinery.

In the second half of the year, production levels were good and

production efficiency improved after the shutdown.

Green growth opportunities

UPM aims to become a major European player in the production of

advanced biofuels. Markets con-tinue to grow and be driven by climate

targets. According to estimates, around 30% of fossil-derived fuels used

for transportation in the EU could be replaced with advanced biofuels

by 2050.

Further growth in advanced biofuels plays an important role in

UPM’s Biofore strategy. We are currently conducting the commercial

and basic engineering study for a next-generation biofuels refinery in

Rotterdam, the Netherlands. The new potential biorefinery would

produce high quality renewable fuels, including sustainable aviation

fuels, and raw materials for the petrochemical sector, for example in

bioplastic applications. In 2023, UPM Biofuels initiated proceedings to

qualify its renewable fuel as sustainable aviation fuel.

Our current feedstock for biofuels in the UPM Lappeenranta

Biorefinery is crude tall oil, which is a residue from pulp production. In

our plans to increase production of advanced biofuels, we are also

considering other residue streams and by-products of the forest industry.

The planned biorefinery would enhance material efficiency without

compromising global food production.

In the future, the path to defossilisation in different transport sectors

will increasingly rely on renewable synthetic fuels. Our extensive know-

how and experience in biorefinery operations not only gives us a

competitive edge but also opens up growth opportunities in the realm of

green hydrogen solutions.

Towards 2030

UPM’s advanced biofuels belong to the most demanding sustainability

category of the Renewable Energy Directive (RED II and forthcoming

RED III), which includes residues from agricultural and forest-ry activities.

Our UPM Lappeenranta Biorefinery, with an annual capacity of

130,000 tonnes, is the largest advanced biofuels-only refinery in the

EU.

The newly adopted RED III Directive includes an increased target for

advanced biofuels in the transport energy mix in Europe by 2030,

reflecting a considerable increase on today’s production capacity and

creating significant opportunities for new investments.

UPM Biochemicals - Ramping up new business

Global brands deepen their sustainability promises to consumers and

market CO2-optimised products while embracing increased supply chain

sustainability. UPM Biochemicals will be well positioned to provide

renewable chemicals made from sustainable wood with a CO2- product

footprint that is considerably below that of fossil-based chemical

products and credibly documented by our third-party-reviewed LCA.

Our proposition to help brands defossilise their products has gained

further traction in the market and has triggered wide-spread support

across our key markets.

The main civil works of the world’s first industrial-scale wood-to-

chemicals biorefinery in Leuna, Germany were completed in 2023 and

commissioning will be gradually concluded during 2024. The relevant

German authorities granted the preliminary licence to operate in 2023

— a big milestone towards start-up. The total cost of the biochemicals

investment project is estimated at EUR 1,180 million.

The biorefinery will convert solid wood into next-generation

biochemicals: bio-monoethylene glycol (BioMEG) and Renewable

Functional Fillers (RFF). The biorefinery will also produce bio-

monopropylene glycols (BioMPG) and industrial sugars. The total

annual capacity of the biorefinery will be 220,000 tonnes.

The feedstock sourcing network has grown further, and we are

continuing to close strategic partnerships to secure a stable flow of

certified sustainable beechwood. Our active role in shaping the

German and European policies on biomass-based materials has

triggered government endorsement and is actively enabling commercial

opportunities.

Positive market response and first product sales

Markets are responding very positively to our new products as we have

further stepped up our sales and marketing. This shows in proactive

endorsement through global consumer brands and a series of

development partnerships in globally lead markets for sustainable

chemicals.

We finalised distribution agreements for our lignin-based Renewable

Functional Filler (RFF) and advanced application development to qualify

RFF for applications in the automotive, fashion, building and plastics

industry.

With the acquisition of German-based SunCoal Industries, we

strengthened our technology portfolio for lignin-based rubber solutions

and increased our process and product know-how by adding an

innovative team of experts.

European Rubber Journal renewed their endorsement of UPM

BioMotion™ Renewable Functional Fillers as the most important

sustainability project in the elastomers and rubber industry.

For our renewable bio-monoethylene glycols (BioMEG), UPM

BioPura™, we extended our development partnership with Dongsung,

the leading glycols manufacturer and seller in the Korean market and

one of the region’s biggest materials suppliers of global footwear

brands. We also realised the first product sales with Dongsung and

Brenntag, the world’s leading chemicals distributor, confirming the value

expectations in our BioMEG.

A successful co-operation partnership with the German outdoor and

performance wear brand VAUDE was met with significant public and

consumer interest. We jointly launched the world’s first polyester fleece

jacket, containing 30% renewable content with our BioPura™ BioMEG.

The transformative character of our investment was highlighted by

UPM Biochemicals winning the prestigious Independent Commodity

Intelligence Services (ICIS) Best Process Innovation from a Large

Company Award and the International Textile Manufacturers Forum’s

(ITMF) Sustainability and Innovation Award.

Towards production start and commercial ramp-up

The building site is busy with more than 1,400 contractors finalising the

project, with a heavy focus on piping and electrification and

automation. The future operations team is trained and starts taking

ownership of the processes, actively driving commissioning and start-up

preparations.

With all critical materials sourced, contractor relationships tested

and proven, and a firm grip on the timeline, we are confident to start up

the first units of the Leuna biorefinery. To support a ramp-up from 2025

onwards, we put in place efficient sourcing and supply chain operations


UPM FINANCIAL REPORT 2023	36

and agreed the relevant partnerships to enable efficient production and

distribution of our products.

UPM Biomedicals - Advancing innovations

UPM Biomedicals develops and supplies innovative and sustainable

wood-based products for medical and life science applications. The

main component of our products is nanocellulose, refined from birch

wood, which encourages the trend to reduce animal-based materials in

the field.

We actively collaborate with universities, research centres and key

industrial partners in the fields of high-throughput drug screening,

personalised medicine, cell therapies, 3D bioprinting, tissue engineering

and advanced wound care.

In life sciences, our main products are GrowDex®, a range of

hydrogels for 3D cell culturing, GrowInk™ a range of bioinks for 3D

bioprinting and GrowDase™, an enzyme to release living cells from the

gel. The nanocellulose ensures excellent compatibility with even the most

demanding cells, such as stem cells and patient-derived cells.

We continued to study the use of GrowDex®in a cell-based model of

a liver. Cell-based liver models (mini-livers) are used to test the toxicity

of almost every new pharmaceutical candidate. We continue to develop

Grow-Dex based mini-livers and other mini-organs in our own cell

laboratory in Helsinki.

In 2023, we opened a new sales office and cell laboratory in the

Switzerland Innovation Park in Basel. This allows us to be close to our

customers and support the use of our products in central Europe.

In 2023, we continued to supply nanocellulose to Cellink and signed

a distribution agreement for GrowInk™ bioinks with Brinter.

GrowInk™ is a range of bioinks for 3D bioprinting used in areas

such as cancer research, where models of tumours can be printed to test

their response to different treatments. The ultimate goal is to print organs

or tissues that could, in the future, be transplanted into patients.

In the clinical field, many Finnish healthcare professionals and

hospitals in the Nordic countries already use our CE-marked FibDex®

wound dressings for skin graft donor sites. These one-time applicable

wound dressings were also successfully piloted with good healing

results in selected university hospitals in Germany. In 2023, we started

the clinical investigation for superficial dermal burns at Uppsala

University Hospital in Sweden.

UPM Biocomposites – Best in class

UPM ProFi uses European post-consumer plastic waste and post-

industrial label waste to manufacture high-quality composite decking.

The label production side streams come from UPM Raflatac and its

customers, with the waste being collected and delivered to Germany

where the composite decking is manufactured.

The UPM ProFi Piazza product range is made with up to 75%

recycled materials and offers best-in-class performance. We are a

member of the EU Circular Plastics Alliance, which aims to increase the

EU market for recycled plastics to 10 million tonnes by 2025.

UPM Formi creates and manufactures wood-based biocomposites,

enabling the carbon footprint of the end product to be reduced by up to

80% compared with similar products made from fossil-based materials.

The composite materials are suitable for various end uses, including

kitchenware, personal care and acoustic devices. Products comply with

food safety standards and other similar quality requirements.

In 2023, the new organ's facade pipes are made of wood-based

UPM Formi 3D biocomposite at the Helsinki Music Centre (page 63).

As an example of material efficiency, we introduced new trays made

of UPM Formi composite to Finnish ABC service stations. The trays can

be recycled into new trays after use (page 100). In 2023, the European

Food Safety Authority re-evaluated the safety of wood-based fibres in

contact with food and made its criteria more stringent. UPM takes the

safety of its products seriously and is compliant with the updated

regulatory requirements.


UPM FINANCIAL REPORT 2023	37

R&D’s role in different businesses


BUSINESS AREA	DESCRIPTION
UPM Fibres	In 2023 our global R&D presence in Asia, Europe and the Americas continued to enable us to work faster and better with our customers and partners to find and implement required solutions. By having a local presence at a global scale we were able to implement fit for purpose solutions. Several developments were made to improve operational reliability, safety and environmental performance at our pulp mills. Our commitment to developing sustainable and high-quality eucalyptus plantations for pulp production remains at the core of our operations in Uruguay. In 2023, it has taken a new dimension with the fully operational Forestry R&D Center in Paysandú and the inauguration of a new tree nursery in Sarandí del Yí, turning our long term R&D into high quality seedlings for new plantations, and supporting the new era in our operations after the start-up of the UPM Paso de los Toros pulp mill. In Uruguay, we have also been able to capitalize on long-term R&D by starting to deliver continuously a dried mix of biosludge and lime sludge to a local cement factory, reducing landfill waste at the UPM Fray Bentos pulp mill and substituting high CO2 energy sources at the cement factory with a renewable biofuel. After a period of solution development stage for our second state-of-the-art eucalyptus pulp mill that started operating in Uruguay in April, more emphasis was placed on developing and piloting the first stages of our next fibre based and bio-streams growth concepts for our pulp mills in cooperation with research institutes at UPM’s pilot plant in Lappeenranta. In doing so, we see clear synergies and advantages in having in-house businesses that focus on replacing fossil materials with renewable solutions. It allows us to make our customers more successful faster by designing and implementing solutions based on our bio-steams in a range of industries and applications. UPM is researching options in the further use of its biogenic CO2 sidestream. Options researched include creating negative emissions by storing biogenic CO2 emitted by pulp mills as well as utilisation into, for example, carbon neutral synthetic fuels and chemicals. UPM published a white paper on its views on how to scale up the negative emissions value chain.
UPM Energy	The focus was on improving the cost-competitiveness and environmental performance of hydropower production assets and on developing competencies and business operations related to the optimisation of industrial energy consumption and demand-side flexibility. UPM Energy participated in several research programmes and undertook development work with the aim of improving UPM’s power generation and consumption operations in a changing electricity market, as well as developing means to mitigate the impact of hydro power operations on rivers and migratory fish as a part of UPM’s Stream water programme.
UPM Raflatac	UPM Raflatac product development in Strategic Business Units and in Global R&D continues to support UPM’s sustainable development goals and commitments in self-adhesive label materials. Packaging recyclability, reduction of raw materials and new renewable raw materials are core elements in all UPM Raflatac’s R&D projects supporting UPM’s beyond fossils strategy. Continuous improvements in quality and cost efficiency remain essential to product and process development. The AMC acquisition brings new technologies and products which will further strengthen UPM Raflatac’s technical competencies in self-adhesive materials. This will enable new opportunities for future product development.
UPM Specialty Papers	R&D and product development initiatives aim to enable high performance and efficiency in the value chain and to develop fibre-based alternatives for non-renewable materials. These initiatives also support growth targets by driving the innovation of products for new applications. We continue to focus on co-creating sustainable paper-based packaging solutions for various end-uses; together with the packaging value network; we currently have several ongoing co-creation initiatives supported by our excellent R&D infrastructure including Northern European and Asian R&D centres. UPM Specialty Papers continues to develop release liner base papers to further improve efficiency and minimise the environmental impact of the value chain. For example, our downgauging initiatives support our customers’ material efficiency targets. We are also driving an industry- wide design-for-recycling approach across the label and tape value chains.
UPM Communication Papers	In the area of energy, we have electrified our heat and steam generation and invested considerably in power-to-heat boilers at our paper locations in order to enable reliable heat supply in case of gas or other fuel supply disruptions, improve our cost competitiveness and reduced CO2 emissions in an increasingly volatile electricity system. Furthermore, the focus was on technological innovations that help minimise energy needs at the production sites. Paper mills also developed further intelligent operations to enable increasing demand-side management towards the electricity markets and networks to support system stability and decrease emissions at peak times. The Research & Development Centre in Lappeenranta, Finland and the Central European Support Team in Augsburg, Germany continued to focus on investigating fibre concepts for various paper grades. The teams have been further optimising recovered paper (RCP) supply by various quality studies. UPM Communication Papers continued to participate in projects and association activities to keep RCP recyclable, e. g. in the cycle4green initiative. Furthermore, our R&D teams provided support to optimise the deinking process with the aim of minimising material losses and reducing energy and the water consumption. Product portfolio development focused on the needs of key customer groups. In terms of operations efficiency, our R&D efforts concentrated on improving the efficiency of several mills for pinpointed efficiency supporting actions as well as safety-improving areas. Contributions from the R&D teams contributed to meeting the 2030 targets in the areas of energy, water consumption, effluent treatment and resource efficiency.
UPM Plywood	UPM Plywood product management and development provides competitive products within selected end-use areas in collaboration with our customers, superior technical expertise and support for customers, and support for the commercialisation of newly developed products and applications. An example would be further expanding the use of lignin-based WISA BioBond gluing solution to new product lines.
Other operations UPM Biofuels	Collaboration for the development of new applications for renewable plastics based on UPM BioVerno naphtha continued. Piloting, research and process development continued to take place at the UPM Biorefinery Development Centre (BrDC) and with external partners. UPM also studied and tested the use of several new innovative feedstocks that meet sustainability criteria, such as wood residues and feedstocks from carbon farming for our possible growth plans.


UPM FINANCIAL REPORT 2023	38

Information on shares

UPM has one class of shares. Each share entitles the holder to one

vote at the General Meeting of UPM.

On 31 December 2023, the total number of UPM shares was

533,735,699. Through the issuance authorisation described below, the

number of shares may increase to a maximum of 558,735,699. On 31

December 2023, UPM held 411,653 treasury shares, representing

approximately 0.08% of the total number of UPM shares and voting

rights. There are no specific terms related to the shares.

In 2023, UPM shares worth a total of EUR 8,752 million (9,680

million) were traded on the Nasdaq Helsinki stock exchange. This is

estimated to represent approximately 70% of the total trading volume in

UPM shares. The highest listing was EUR 35.99 in January and the

lowest was EUR 26.62 in June.

Authorisations held by the Board of Directors

The Annual General Meeting held on 12 April 2023 authorised the

Board of Directors to decide on the repurchase of a maximum of

50,000,000 of the Company’s own shares. The authorisation will be

valid for 18 months from the date of the AGM resolution.

The Annual General Meeting held on 12 April 2023 authorised the

Board of Directors to decide on the issuance of new shares, the transfer

of treasury shares and the issuance of special rights entitling to shares in

proportion to the shareholders’ existing holdings in the Company, or in

a directed share issue, deviating from the shareholder’s pre-emptive

subscription right. The Board of Directors may also decide on a share

issue without payment to the Company itself. The aggregate maximum

number of new shares that may be issued and treasury shares that may

be transferred is 25,000,000, including the number of shares that can

be received on the basis of special rights. The authorisation will be valid

for 18 months from the date of the AGM resolution.

Aside from the above, the Board of Directors has no current

authorisation to issue shares, convertible bonds or share options.

Changes in number of shares


	2023	2022	2021	2020	2019
Number of shares 1 January	533,735,699	533,735,699	533,735,699	533,735,699	533,735,699
Number of shares at 31 December	533,735,699	533,735,699	533,735,699	533,735,699	533,735,699

Major shareholders at 31 December 2023


	NUMBER OF SHARES	HOLDING %
Ilmarinen Mutual Pension Insurance Company	8,958,528	1.68
Varma Mutual Pension Insurance Company	8,599,564	1.61
ELO Mutual Pension Insurance Company	4,892,000	0.92
The State Pension Fund	2,900,000	0.54
The Society of Swedish Literature in Finland	2,621,521	0.49
Holding Manutas Oy	2,500,000	0.47
Security Trading Oy	1,860,000	0.35
Kymin Osakeyhtiön 100-vuotissäätiö	1,696,360	0.32
Nordea Pro Finland Fund	1,478,991	0.28
Samfundet Folkhälsan i Svenska Finland	1,454,890	0.27
Nominee registered	360,763,557	67.59
Others	136,010,288	25.48
Total	533,735,699	100.00


UPM FINANCIAL REPORT 2023	39

Shareholders by category at 31 December, %


	2023	2022	2021	2020	2019
Companies	2.6	2.6	2.9	2.7	2.3
Financial institutions and insurance companies	3.8	3.6	3.7	3.8	3.0
Public bodies	5.3	5.3	5.8	6.0	5.7
Non-profit organisations	4.4	4.5	4.6	4.7	4.6
Households	16.4	16.0	15.8	15.6	15.2
Non-Finnish nationals	67.6	68.1	67.2	67.1	69.1
Total	100.0	100.0	100.0	100.0	100.0

Share distribution at 31 December 2023


SIZE OF SHAREHOLDINGS	NUMBER OF SHARE- HOLDERS	% OF SHARE- HOLDERS	NUMBER OF SHARES, MILLION	% OF SHARES
1 – 100	61,123	43.43	2.6	0.5
101 – 1,000	61,382	43.62	23.1	4.3
1,001 – 10,000	16,854	11.98	44.7	8.4
10,001 – 100,000	1,248	0.89	30.0	5.6
100,001 –	121	0.09	74.8	14.0
Total	140,728	100.00	175.2	32.8
Nominee-registered			358.5	67.2
Not registered as book entry units			—	0.0
Total			533.7	100.0

Under the provisions of the Securities Markets Act, changes in holdings must be disclosed when the holding reaches, exceeds or falls below 5, 10, 15, 20, 25, 30,

50 or 66.7 (2/3) per cent of the voting rights or the number of shares of the company. The stock exchange releases on notifications of changes in holdings pursuant

to Chapter 9, Section 5 of the Securities Market Act are available in UPM website upm.com/investors.


UPM FINANCIAL REPORT 2023	40

Adjusted share related indicators


	2023	2022	2021	2020	2019	2018	2017	2016	2015	2014
Earnings per share (EPS), EUR	0.73	2.86	2.41	1.05	1.99	2.80	1.82	1.65	1.72	0.96
Comparable EPS, EUR	1.40	3.09	2.22	1.37	2.07	2.24	1.88	1.65	1.38	1.20
Equity per share, EUR	20.93	23.44	20.34	17.53	18.87	18.36	16.24	15.43	14.89	14.02
Dividend per share, EUR 1)	1.50	1.50	1.30	1.30	1.30	1.30	1.15	0.95	0.75	0.70
Dividend to earnings ratio, %	206.2	52.4	53.9	123.7	65.4	46.4	63.0	57.6	43.6	72.9
Dividend to operating cash flow, %	35	158	55	69	38	52	42	30	34	30
Dividend to comparable EPS, %	107	49	59	95	63	58	61	58	54	58
Effective dividend yield, %	4.4	4.3	3.9	4.3	4.2	5.9	4.4	4.1	4.4	5.1
P/E ratio	46.8	12.2	13.9	29.0	15.5	7.9	14.2	14.1	10.0	14.2
Operating cash flow per share, EUR	4.25	0.95	2.34	1.89	3.46	2.49	2.74	3.16	2.22	2.33
Dividend distribution, EURm 1)	800	800	693	693	693	693	613	507	400	373
Share price at 31 Dec., EUR	34.06	34.93	33.46	30.47	30.91	22.15	25.91	23.34	17.23	13.62
Lowest quotation, EUR	26.62	24.85	29.11	20.31	21.10	21.69	20.82	13.71	13.19	10.07
Highest quotation, EUR	35.99	37.14	35.37	31.50	31.49	34.70	26.69	23.41	19.26	13.99
Average quotation for the period, EUR	31.33	32.50	32.15	26.09	25.73	28.86	23.89	17.51	16.37	12.26
Market capitalisation, EURm	18,165	18,629	17,845	16,250	16,485	11,813	13,818	12,452	9,192	7,266
Shares traded, EURm 2)	8,752	9,680	8,435	9,921	9,695	9,980	8,460	6,749	7,469	6,233
Shares traded (1,000)	279,371	297,879	262,377	380,237	376,801	345,822	354,053	385,355	456,168	508,318
Shares traded, % of all shares	52.4	55.9	49.2	71.3	70.7	64.8	66.4	72.2	85.5	95.6
Number of shares, average (1,000)	533,324	533,324	533,324	533,324	533,324	533,324	533,415	533,505	533,505	531,574
Number of shares at the end of period (1,000)	533,736	533,736	533,736	533,736	533,736	533,736	533,736	533,736	533,736	533,736
of which treasury shares (1,000)	412	412	412	412	412	412	412	231	231	231

1) 2023 proposal

2) Trading on the Nasdaq Helsinki Main Market. Treasury shares bought by the company are included in shares traded.

The definitions of adjusted share related indicators are described below


SHARE RELATED INDICATORS	DEFINITION
Earnings per share (EPS), EUR	Profit for the period attributable to owners of the parent company divided by adjusted average number of shares during the period excluding treasury shares.
Comparable EPS, EUR	Earnings per share calculated in accordance with IFRS excluding items affecting comparability and their tax impact.
Equity per share, EUR	Equity attributable to the owners of the parent company in relation to the adjusted number of shares at the end of period.
Dividend per share, EUR	Dividend distribution divided by adjusted number of shares at the end of period.
Dividend to earnings ratio, %	Dividend per share as a percentage of earnings per share.
Dividend to operating cash flow, %	Dividend per share as a percentage of operating cash flow per share.
Dividend to comparable EPS, %	Dividend per share as a percentage of comparable earnings per share
Effective dividend yield, %	Adjusted dividend per share as a percentage of adjusted share price at 31.12.
P/E ratio	Adjusted share price in relation to the earnings per share.
Operating cash flow per share, EUR	Operating cash flow divided by adjusted average number of shares during the period excluding treasury shares.
Market capitalisation, EURm	Total number of shares (excluding those held as treasury shares) multiplied by the share price at the end of period.
Adjusted share price at the end of period	Share price at the end of period in relation to share issue coefficient.
Adjusted average share price	Total value of shares traded in relation to adjusted number of shares traded during the period.


UPM FINANCIAL REPORT 2023	41

Board of Directors´ proposal for the distribution of profit

The Board of Directors proposes to the Annual General Meeting

of UPM-Kymmene Corporation to be held on 4 April 2024 that an

aggregate dividend of EUR 1.50 per share be paid based on the

balance sheet to be adopted for the financial year ending 31 December

2023, and that the remaining portion of the distributable funds be

retained in the Company’s unrestricted shareholders’ equity. The Board

proposes that the dividend be paid in two instalments.

The first dividend instalment, EUR 0.75 per share, is proposed to be

paid to shareholders registered in the Company’s register of

shareholders maintained by Euroclear Finland Oy on the record date for

the first dividend instalment 8 April 2024. The Board proposes that the

payment date for the first dividend instalment would be on 16 April

2024.

The second dividend instalment, EUR 0.75 per share, is proposed to

be paid to shareholders registered in the Company's register of

shareholders maintained by Euroclear Finland Oy on the record date for

the second dividend instalment 31 October 2024. The Board proposes

that the payment date for the second dividend instalment would be on 7

November 2024.

If the payment of the dividend is prevented due to applicable law,

regulation or unexpected circumstances, the Board will resolve, as soon

as practically possible, on a new record date and payment date.

On the date of the dividend proposal, 1 February 2024, the

registered number of the Company’s shares is 533,735,699.

The aforementioned number of shares includes 411,653 treasury shares

which are not entitled to dividend. As a result, the proposed dividend

would total EUR 800.0 million.

On 31 December 2023, the distributable funds of the

parent company were EUR 3,289,796,583.55. The profit of the parent

company for the period was EUR 1,674,687,361.44. No material

changes have taken place in respect of the Company's financial

position after the balance sheet date. In the opinion of the Board Of

Directors, the proposed distribution of profits does not risk the solvency

of the Company.

Signatures of the annual accounts and the report of the Board of Directors for the year 2023

Helsinki, 1 February 2024


Henrik Ehrnrooth Chair	Kim Wahl	Pia Aaltonen-Forsell



Emma FitzGerald	Jari Gustafsson	Piia-Noora Kauppi



Topi Manner	Marjan Oudeman	Martin à Porta


Massimo Reynaudo President and CEO


UPM FINANCIAL REPORT 2023	42

Financial Statements 2023


Consolidated income statement and statement of comprehensive income	44
Consolidated balance sheet	45
Consolidated statement of changes in equity	46
Consolidated cash flow statement	47
Notes to the consolidated financial statements	49


1. Basis for reporting	49	5. Capital structure	77
1.1 Corporate information	49	5.1 Capital management	77
1.2 Basis of preparation	49	5.2 Net debt	80
1.3 Consolidation principles	50	5.3 Financial assets and liabilities by category	85
1.4 Foreign currency translation	50	5.4 Financial income and expenses	88
1.5 Changes in accounting policies	50	5.5 Share capital and reserves	88

2. Business performance	52	6. Risk management	90
2.1 Business areas	52	6.1 Financial risk management	90
2.2 Sales	57	6.2 Derivatives and hedge accounting	92
2.3 Operating expenses and other operating income	58
2.4 Earnings per share and dividend	60	7. Income tax	96
		7.1 Tax on profit for the year	96
3. Employee rewards	61	7.2 Deferred tax	97
3.1 Employee costs	61
3.2 Key management personnel	61	8. Group structure	98
3.3 Share-based payments	62	8.1 Business acquisitions and disposals	98
3.4 Retirement benefit obligations	64	8.2 Principal subsidiaries and joint operations	99
		8.3 Related party transactions	101
4. Capital employed	67	8.4 Assets held for sale	101
4.1 Property, plant and equipment	68
4.2 Forest assets	70	9. Unrecognised items	102
4.3 Energy shareholdings	70	9.1 Commitments and contingencies	102
4.4 Goodwill and other intangible assets	72	9.2 Litigation	102
4.5 Provisions	74	9.3 Events after balance sheet date	102
4.6 Working capital	75
		10. Other notes	102
		10.1 Forthcoming new standards, amendments and accounting policy changes	102


Parent company accounts	103


UPM FINANCIAL REPORT 2023	43

Consolidated financial statements

Consolidated income statement


EURm	NOTE	2023	2022
Sales	2.1, 2.2	10,460	11,720
Other operating income	2.3	228	231
Costs and expenses	2.3	-9,316	-9,470
Change in fair value of forest assets and wood harvested	4.2	-103	12
Share of results of associated companies and joint ventures		-1	4
Depreciation, amortisation and impairment charges	2.3, 4.1, 4.4	-660	-522
Operating profit		608	1,974

Exchange rate and fair value gains and losses	5.4	-74	25
Interest and other finance costs, net	5.4	-70	-55
Profit before tax		464	1,944

Income taxes	7.1	-71	-388
Profit for the period		394	1,556

Attributable to:
Owners of the parent company		388	1,526
Non-controlling interests	8.1	6	31
		394	1,556

Earnings per share for profit attributable to owners of the parent company
Basic earnings per share, EUR	2.4	0.73	2.86
Diluted earnings per share, EUR	2.4	0.73	2.86

Consolidated statement of comprehensive income


EURm	NOTE	2023	2022
Profit for the period		394	1,556
Other comprehensive income for the period, net of tax
Items that will not be reclassified to income statement:
Actuarial gains and losses on defined benefit plans		-10	192
Changes in fair value of energy shareholdings		-1,351	1,051
Items that may be reclassified subsequently to income statement:
Translation differences		-120	150
Net investment hedge		6	-15
Cash flow hedges		539	-531
Other comprehensive income for the period, net of tax	7.2	-936	847
Total comprehensive income for the period		-542	2,403

Attributable to:
Owners of the parent company		-536	2,358
Non-controlling interests		-7	45
		-542	2,403

The notes are integral part of these consolidated financial statements.


UPM FINANCIAL REPORT 2023	44

Consolidated balance sheet


EURm	NOTE	2023	2022
ASSETS
Goodwill	4.4	283	282
Other intangible assets	4.4	715	553
Property, plant and equipment	4.1	7,053	6,733
Leased assets	5.2	683	713
Forest assets	4.2	2,355	2,442
Energy shareholdings	4.3	2,283	3,652
Other non-current financial assets	5.3	60	70
Deferred tax assets	7.2	431	485
Net retirement benefit assets	3.4	1	1
Investments in associates and joint ventures		23	27
Other non-current assets		26	20
Non-current assets		13,913	14,977
Inventories	4.6	1,948	2,289
Trade and other receivables	4.6, 5.3	1,782	2,696
Other current financial assets	5.3	64	118
Income tax receivables		27	61
Cash and cash equivalents	5.1, 5.3	632	2,067
Current assets		4,454	7,230
Assets classified as held for sale	8.4	106	—
Assets		18,473	22,207

EURm	NOTE	2023	2022
EQUITY AND LIABILITIES
Share capital	5.5	890	890
Treasury shares		-2	-2
Translation reserve		347	449
Other reserves	5.5	1,655	2,460
Reserve for invested non-restricted equity	5.5	1,273	1,273
Retained earnings		6,998	7,433
Equity attributable to owners of the parent company		11,161	12,502
Non-controlling interests	8.1	370	376
Equity		11,531	12,879

Deferred tax liabilities	7.2	616	636
Net retirement benefit liabilities	3.4	502	527
Provisions	4.5	170	64
Non-current debt	5.2, 5.3	3,056	4,476
Other non-current financial liabilities	5.3	157	103
Non-current liabilities		4,501	5,807
Current debt	5.2, 5.3	327	558
Trade and other payables	4.6, 5.3	1,883	2,720
Provisions	4.5	96	70
Other current financial liabilities	5.3	51	102
Income tax payables		28	73
Current liabilities		2,385	3,522
Liabilities related to assets classified as held for sale	8.4	56	—
Liabilities		6,942	9,329
Equity and liabilities		18,473	22,207

The notes are integral part of these consolidated financial statements.


UPM FINANCIAL REPORT 2023	45

Consolidated statement of changes in equity


EURm	SHARE CAPITAL	TREASURY SHARES	TRANS- LATION RESERVE	OTHER RESERVES	RESERVE FOR INVESTED NON- RESTRICTED EQUITY	RETAINED EARNINGS	EQUITY ATTRIBU- TABLE TO OWNERS OF THE PARENT COMPANY	NON- CONTROLLING INTERESTS	TOTAL EQUITY
Value at 1 January 2023	890	-2	449	2,460	1,273	7,433	12,502	376	12,879
Profit for the period	—	—	—	—	—	388	388	6	394
Translation differences	—	—	-108	—	—	—	-108	-13	-120
Cash flow hedges - reclassified to income statement, net of tax	—	—	—	94	—	—	94	—	94
Cash flow hedges - reclassified to PPE, net of tax	—	—	—	1	—	—	1	—	1
Cash flow hedges - change in fair value, net of tax	—	—	—	444	—	—	444	—	444
Net investment hedge, net of tax	—	—	6	—	—	—	6	—	6
Energy shareholdings - changes in fair value, net of tax	—	—	—	-1,350	—	-1	-1,351	—	-1,351
Actuarial gains and losses on defined benefit plans, net of tax	—	—	—	—	—	-10	-10	—	-10
Total comprehensive income for the period	—	—	-102	-811	—	377	-536	-7	-542
Share-based payments, net of tax	—	—	—	6	—	-11	-5	—	-5
Dividend distribution	—	—	—	—	—	-800	-800	-35	-835
Other items	—	—	—	—	—	—	—	—	—
Contributions by non-controlling interests	—	—	—	—	—	—	—	35	35
Total transactions with owners for the period	—	—	—	6	—	-811	-805	—	-805
Total equity at 31 December 2023	890	-2	347	1,655	1,273	6,998	11,161	370	11,531

Value at 1 January 2022	890	-2	329	1,938	1,273	6,419	10,846	261	11,106
Profit for the period	—	—	—	—	—	1,526	1,526	31	1,556
Translation differences	—	—	136	—	—	—	136	14	150
Cash flow hedges - reclassified to income statement, net of tax	—	—	—	376	—	—	376	—	376
Cash flow hedges - reclassified to PPE, net of tax	—	—	—	25	—	—	25	2	27
Cash flow hedges - change in fair value, net of tax	—	—	—	-932	—	—	-932	-2	-934
Net investment hedge, net of tax	—	—	-15	—	—	—	-15	—	-15
Energy shareholdings - changes in fair value, net of tax	—	—	—	1,050	—	1	1,051	—	1,051
Actuarial gains and losses on defined benefit plans, net of tax	—	—	—	—	—	192	192	—	192
Total comprehensive income for the period	—	—	121	519	—	1,718	2,358	45	2,403
Share-based payments, net of tax	—	—	—	3	—	-10	-7	—	-7
Dividend distribution	—	—	—	—	—	-693	-693	-27	-721
Other items	—	—	—	—	—	-1	-1	—	-1
Contributions by non-controlling interests	—	—	—	—	—	—	—	98	98
Total transactions with owners for the period	—	—	—	3	—	-704	-701	70	-631
Total equity at 31 December 2022	890	-2	449	2,460	1,273	7,433	12,502	376	12,879

» Refer Note 5.5 Share capital and reserves, for further information.


UPM FINANCIAL REPORT 2023	46

Consolidated cash flow statement


EURm	2023	2022
Cash flows from operating activities
Profit for the period	394	1,556
Adjustments 1)	1,760	35
Interest received	37	8
Interest paid	-116	-43
Dividends received	3	3
Other financial items, net	-44	-52
Income taxes paid 4)	-181	-313
Change in working capital 3)	417	-687
Operating cash flow	2,269	508

Cash flows from investing activities
Capital expenditure	-1,026	-1,398
Additions to forest assets	-54	-79
Acquisition of businesses and subsidiaries, net of cash acquired	-20	-138
Proceeds from sale of property, plant and equipment and intangible assets, net of tax 4)	7	41
Proceeds from sale of forest assets, net of tax 4)	10	7
Proceeds from disposal of businesses and subsidiaries and advances received	1	15
Proceeds from disposal of shares in associates and joint ventures	1	11
Proceeds from disposal of energy shareholdings	0	2
Net cash flows from net investment hedges	10	-47
Change in other non-current assets	-5	3
Investing cash flow	-1,076	-1,585

Cash flows from financing activities
Proceeds from non-current debt	100	4,402
Payments of non-current debt	-1,506	-2,550
Lease repayments	-99	-91
Change in current liabilities	-260	439
Net cash flows from derivatives	6	20
Dividends paid to owners of the parent company	-799	-693
Dividends paid to non-controlling interests	-36	-27
Contributions paid by non-controlling interests	35	97
Change in investment funds	0	99
Other financing cash flow	-14	-9
Financing cash flow	-2,573	1,687

Change in cash and cash equivalents	-1,379	610

Cash and cash equivalents at the beginning of the period	2,067	1,460
Exchange rate effect on cash and cash equivalents	-16	-3
Change in cash and cash equivalents	-1,379	610
Cash and cash equivalents classified as held for sale (Note 8.4)	-39	0
Cash and cash equivalents at the end of the period	632	2,067


UPM FINANCIAL REPORT 2023	47

1) Adjustments


EURm	2023	2022
Change in fair value of forest assets and wood harvested	103	-12
Share of results of associated companies and joint ventures	1	-4
Depreciation, amortisation and impairment charges	660	522
Capital gains and losses on sale of non-current assets	-2	-35
Financial income and expenses	144	30
Income taxes	71	388
Utilised provisions	-42	-52
Non-cash changes in provisions	179	7
Other adjustments 2)	646	-808
Total	1,760	35

2) 2023 and 2022 other adjustments include energy hedging derivative market value payments.

3) Change in working capital


EURm	2023	2022
Inventories	293	-665
Receivables included in working capital	854	-400
Liabilities included in working capital	-731	378
Total	417	-687

4) Total income taxes paid in 2023 amounted to EUR 181 million (315 million). Income taxes paid related to investing activities are presented in investing cash flow.


UPM FINANCIAL REPORT 2023	48

Notes to the consolidated financial statements

The notes to the consolidated financial statements are grouped into sections based on their nature. The notes contain the relevant financial

information as well as a description of accounting policy and key estimates and judgements applied for the topics of the individual notes. All amounts

are shown in millions of euros unless otherwise stated.

1.Basis for reporting

1.1Corporate information

UPM-Kymmene Corporation (“the parent company” or “the company”)

together with its consolidated subsidiaries (“UPM” or “the group”) is a

global forest-based bioindustry group. UPM´s large product range

covers pulp, graphic and specialty papers, selfadhesive labels, wood-

based renewable diesel, electricity as well as plywood and timber

products.

UPM-Kymmene Corporation is a Finnish limited liability company,

domiciled in Helsinki in the Republic of Finland. The address of the

company’s registered office is Alvar Aallon katu 1, 00100 Helsinki,

where a copy of the consolidated financial statements can be obtained.

The parent company’s shares are publicly traded on the Nasdaq

Helsinki Main Market.

These group consolidated financial statements were authorised

for issue by the Board of Directors on 1 February 2024. According

to the Finnish Companies Act, the General Meeting of Shareholders

is entitled to decide on the adoption of the company’s financial

statements.

1.2Basis of preparation

UPM’s consolidated financial statements are prepared in accordance

with International Financial Reporting Standards as issued by the

International Accounting Standards Board and as adopted by the EU

(IFRS as issued by the IASB and as adopted by the European Union) and

IFRIC Interpretations.

The consolidated financial statements have been prepared under

the historical cost convention, except for forest assets, energy

shareholdings and certain other financial assets and financial liabilities,

defined benefit plan assets and obligations and share-based payment

arrangements which are measured at fair value.

The consolidated financial statements are presented in millions of

euros, which is the functional and presentation currency of the parent

company. Items included in the financial statements of each group

subsidiary are measured using the currency of the primary economic

environment in which the subsidiary operates (“the functional currency”).

The amounts within parentheses refer to the preceding year, 2022.

Figures presented in these financial statements are rounded and

therefore the sum of individual figures might deviate from the presented

total figure.

In accordance with the European Single Electronic Format (ESEF)

reporting requirements, UPM has published the Board of Directors'

report and the financial statements as an XHTML file as its official

financial statements. In line with the ESEF requirements, the primary

statements of the consolidated financial statements and notes have been

labelled with XBRL tags. XBRL tags within the ESEF financial statements

are not audited. The group has also voluntarily published its financial

statements in a PDF format. The consolidated financial statements have

been prepared in two languages, of which the Finnish version is official

and the English translation is non-official.


	Accounting policies

The accounting policies applied to the consolidated financial statements

as a whole are described in this section, while the remaining accounting

policies are described in the notes to which they relate as UPM aims to

provide enhanced understanding of each financial statement area.

Further, to provide a better understanding, the accounting choices made

within the framework of the prevailing IFRS Accounting Standards are

described together with the policy.


	Key estimates and judgements

In the process of applying the group’s accounting policies, management

has made a number of judgements and applied estimates of future

events that affect the reported amounts of assets and liabilities, the

disclosure of contingent assets and liabilities at the date of the financial

statements, and the reported amounts of revenues and expenses during

the reporting periods. Although these estimates are based on

management’s best knowledge, actual results and timing may ultimately

differ from previously made estimates.

Key estimates and judgement which are material to the reported

results and financial position are presented in the following notes.


KEY ESTIMATES AND JUDGEMENTS	NOTE
Valuation of forest assets	4.2 Forest assets
Fair value determination of energy shareholdings	4.3 Energy shareholdings
Impairment of property, plant and equipment	4.1 Property, plant and equipment
Impairment of goodwill and other intangible assets	4.4 Goodwill and other intangible assets
Pension and other post-employment benefits	3.4 Retirement benefit obligations
Income taxes	7. Income tax
Environmental provisions	4.5 Provisions
Legal contingencies	9.2 Litigation


UPM FINANCIAL REPORT 2023	49


	Financial risks

UPM is exposed to a variety of financial risks as a result of its business

activities including currency risk, interest rate risk, commodity price risk,

credit risk, capital risk and liquidity risk. Risk management related to

financial activities is carried out by UPM’s central treasury department,

Treasury and Risk Management, under policies approved by the Board

of Directors. Financial risks are described in the relevant notes as

described below


FINANCIAL RISK	NOTE
Credit risk	4.6 Working capital
Liquidity and refinancing risk	5.1 Capital management
Interest rate risk	6.1 Financial risk management
Foreign exchange risk	6.1 Financial risk management
Electricity price risk	6.1 Financial risk management
Financial counterparty risk	6.2 Derivatives and hedge accounting

1.3Consolidation principles

Subsidiaries

UPM’s consolidated financial statements include the financial statements

of the parent company, UPM-Kymmene Corporation, and subsidiaries

controlled by UPM. All group entities apply consistently UPM’s

accounting policies. All intercompany transactions, receivables,

liabilities and unrealised profits, as well as intragroup profit

distributions, are eliminated. Unrealised losses are also eliminated unless

the transaction provides evidence of an impairment of the transferred

asset.

Joint operations

A joint operation is a joint arrangement whereby the parties that have

joint control of the arrangement have rights to the assets, and

obligations for the liabilities, relating to the arrangement. Joint control is

a contractually agreed sharing of control of an arrangement, which

exists only when decisions about the relevant activities require the

unanimous consent of the parties sharing control.

UPM’s share in joint operations is recognised in the consolidated

balance sheet through recognition of the group’s own assets and

liabilities and revenues and expenses in the arrangement together

with UPM’s proportionate share in the joint assets, liabilities and joint

income and expenses. The proportionate share of realised and

unrealised gains and losses arising from intragroup transactions

between UPM and its joint operations is eliminated.

Associates and joint ventures

Associates are entities over which the group has significant influence but

no control. Significant influence is the power to participate in the

financial and operating policy decisions without the power to control or

jointly control those policies. Joint ventures are joint arrangements where

the group has joint control with other parties and the parties have rights

to the arrangement’s net assets.

Interests in associates and joint ventures are accounted for using

the equity method of accounting and are initially recognised at cost.

Associates and joint ventures follow the group accounting policies for

consolidation purpose.

Non-controlling interests

The profit or loss attributable to owners of the parent company and non-

controlling interests is presented on the face of the income statement.

Non-controlling interests are presented in the consolidated balance sheet

within equity, separately from equity attributable to owners of the parent

company.

Transactions with non-controlling interests are treated as transactions

with equity owners of the group. For purchases from non-controlling

interests, the difference between consideration paid and the acquired

share of the carrying value of the subsidiary’s net assets is recorded in

equity. Gains or losses of disposals to non-controlling interests are also

recorded in equity, net of transaction costs.

1.4Foreign currency translation

Foreign currency transactions are translated into the functional currency

using the exchange rate prevailing at the date of transaction.

Receivables and liabilities denominated in foreign currencies outstanding

on the balance sheet date are translated into the functional currency

using the balance sheet date exchange rate. Foreign exchange gains

and losses resulting from the settlement of such transactions and from the

translation at year-end exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in the income

statement, except when recognised in other comprehensive income as

qualifying cash flow hedges and qualifying net investment hedges.

UPM records foreign exchange differences relating to ordinary

business operations within the appropriate line items above operating

profit and those relating to financial items are presented separately as a

net amount in finance costs.

Income and expenses of subsidiaries that have a functional currency

different from euro are translated into euros at quarterly average

exchange rates. Assets and liabilities of subsidiaries are translated at the

closing rate at the balance sheet date. All resulting translation

differences are recognised as a separate component in other

comprehensive income. On consolidation, exchange differences arising

from the translation of net investment in foreign operations and other

currency instruments designated as hedges of such investments, are

recognised in other comprehensive income. When a foreign entity is

partially disposed of, sold or liquidated, translation differences accrued

in equity are recognised in the income statement as part of the gain or

loss on sale/liquidation.

1.5Changes in accounting policies

The group has reviewed IFRS Accounting Standard amendments

effective on periods starting 1 January 2023. The amendments effective

as of 1 January 2023 did not have any impact on the group's financial

statements.

IFRS 17 Insurance contracts

On 1 January 2023 the group implemented IFRS 17 Insurance contracts.

The group has assessed the impact of the implementation of IFRS 17 and

concluded that it has no effect on the group financial statements as of 1

January 2023.

Narrow-scope amendments to IAS 1

On 1 January 2023 the group has implemented the narrow-scope

amendments to IAS 1, which require entities to disclose their material

accounting policy information, instead of significant accounting policies.

The group has reviewed its accounting policies and made minor

amendments to the disclosures.


UPM FINANCIAL REPORT 2023	50

Reclassification of provisions in the balance sheet

Effective from the current reporting period, the group has reclassified

current provisions to the current liabilities section. Previously both current

and non-current provisions were presented within the non-current

liabilities section of the balance sheet. This adjustment ensures better

alignment with IFRS Accounting Standards accounting and facilitates a

clearer understanding of short-term obligations. The comparative periods

have been restated according to the new reporting principles. The

reporting change has no impact on group financial result.

Liabilities in the balance sheet


2022	As published	Restated
Deferred tax liabilities	636	636
Net retirement benefit liabilities	527	527
Provisions	134	64
Non-current debt	4,476	4,476
Other non-current financial liabilities	103	103
Non-current liabilities	5,876	5,807
Current debt	558	558
Trade and other liabilities	2,720	2,720
Provisions	—	70
Other current financial liabilities	102	102
Income tax payables	73	73
Current liabilities	3,452	3,522
Liabilities	9,329	9,329


UPM FINANCIAL REPORT 2023	51

2.Business performance


Sales			Comparable EBIT			Comparable ROE
EUR	10,460	m	EUR	1,013	m	6.2	%
(EUR 11,720m)			(EUR 2,096m)			(14.0%)

2.1Business areas

UPM business portfolio consist of six competitive businesses with strong

market positions. UPM reports financial information for the following

business areas (segments): UPM Fibres, UPM Energy, UPM Raflatac,

UPM Specialty Papers, UPM Communication Papers, UPM Plywood and

Other operations. UPM has production plants in 10 countries. The

group’s most important markets are Europe, North America and Asia.


	Accounting policies

UPM business areas are reported consistently with the internal reporting

provided to UPM’s President and CEO who is responsible for allocating

resources and assessing performance of the business areas. Internal

reporting is prepared under the same basis as the consolidated

accounts. Costs, revenues, assets and liabilities are allocated to

business areas on a consistent basis. The sales transactions between

business areas are based on market prices, and they are eliminated on

consolidation.


UPM FINANCIAL REPORT 2023	52

The goods and services included in sales revenue of each business area are presented in below table:


BUSINESS AREA	DESCRIPTION AND PRODUCTS
UPM Fibres	UPM Fibres consists of UPM Pulp and UPM Timber business units. UPM Pulp offers a versatile range of responsibly-produced pulp grades suitable for a wide range of end uses such as tissue, specialty and packaging papers, graphic papers and board. UPM Timber offers certified sawn timber for joinery, packaging, furniture, planing and construction end-use segments.
UPM Energy	UPM Energy generates cost-competitive, zero-carbon electricity. Operations also include physical electricity and financial portfolio management as well as services to industrial electricity consumers and producers.
UPM Raflatac	UPM Raflatac offers innovative and sustainable self-adhesive label materials for branding and promotion, information and functional labelling in the food, beverage, personal care, pharmaceutical and logistics segments, for example.
UPM Specialty Papers	UPM Specialty Papers offers labelling and packaging materials as well as office and graphic papers for labelling, commercial siliconising, packaging, office use and printing.
UPM Communication Papers	UPM Communication Papers offers an extensive product range of sustainably produced graphic papers for advertising and publishing as well as home and office uses.
UPM Plywood	UPM Plywood offers high quality WISA® plywood and veneer products for construction, vehicle flooring, LNG shipbuilding, parquet manufacturing and other industrial applications.
Other operations	Other operations include UPM Forest, UPM Biofuels, UPM Biochemicals-, UPM Biomedicals-, UPM Biocomposites- business units and group services. UPM Forest secures competitive wood and biomass for UPM businesses and manages UPM-owned and privately-owned forests in North Europe. In addition, UPM offers forestry services to forest owners and forest investors. UPM Biofuels produces wood-based renewable diesel for all diesel engines and renewable naphtha that can be used as a biocomponent for gasoline or for replacing fossil raw materials in the petrochemical industry. UPM Biochemicals offers innovative wood-based biochemicals for replacing fossil-based raw materials in various applications such as textiles, PET bottles, packaging, cosmetics, pharmaceuticals, detergents, rubbers and resins. UPM Biomedicals is the forerunner in producing nanofibrillar cellulose for clinical and life science applications in the field of drug screening, personalised medicine, advanced cell therapies, 3D bioprinting, tissue engineering and wound care. UPM Biocomposites is a pioneer in circular economy offering composite decking materials based on both recycled consumer and industrial waste. The product range also includes composite materials made from renewable fibres and polymers to replace fossil-based plastics.

Key performance indicators and financial targets

UPM aims to grow its comparable EBIT over the long term. The group

has a portfolio of five businesses that operate on growing markets and

one business that faces declining demand. All of UPM businesses are

competitive and have strong market positions. Financial target setting,

follow up and allocation of resources in the group’s performance

management process is mainly based on the business area comparable

EBIT and comparable ROCE.

UPM presents comparable performance measures to reflect the

underlying business performance and to enhance comparability

from period to period. However, the comparable performance measures

used by management should not be considered in isolation as a

substitute for measures of performance in accordance with IFRS.

Business area information including description of items affecting

comparability is presented below.


UPM FINANCIAL REPORT 2023	53

Business area information for the year ended 31 December 2023


EURm, OR AS INDICATED	UPM FIBRES	UPM ENERGY	UPM RAFLATAC	UPM SPECIALTY PAPERS	UPM COM PAPERS	UPM PLYWOOD	OTHER OPE- RATIONS	ELIMINATI- ONS AND RECONCILI -ATIONS 2)	GROUP
External sales	2,452	486	1,485	1,300	3,570	402	768	-3	10,460
Internal sales	592	141	—	185	28	20	34	-1,000	—
Total sales	3,044	628	1,485	1,485	3,598	422	802	-1,003	10,460
Comparable EBIT	116	182	103	98	462	56	-14	8	1,013
Items affecting comparability in operating profit	—	—	-22	—	-288	-6	-87	-2	-405
Operating profit	116	182	81	98	174	50	-101	6	608
Finance costs, net									-144
Income taxes									-71
Profit for the period									394
Operating assets 1)	7,314	2,624	831	1,022	1,619	276	3,374	-411	16,648
Deferred tax assets									431
Other non-operating assets									62
Other financial assets									1,332
Total assets									18,473
Operating liabilities 1)	419	116	144	219	377	29	431	-408	1,328
Deferred tax liabilities									616
Other liabilities									832
Other financial liabilities									4,166
Total liabilities									6,942
Other items
Change in fair value of forest assets and wood harvested	-20	—	—	—	—	—	-82	—	-103
Share of results of associates and joint ventures	2	—	—	—	-1	—	-2	—	-1
Depreciation and amortisation	-270	-7	-43	-74	-78	-21	-44	—	-538
Impairment charges	-2	—	-4	—	-117	—	—	—	-123
Capital employed, 31 December	6,895	2,508	687	803	1,242	246	2,943	-408	14,916
Average capital employed	6,839	3,042	737	875	1,424	254	2,922	321	16,414
Capital expenditure	616	3	26	23	50	15	388	—	1,122
Capital expenditure, excluding acquisitions and shares	616	3	26	23	50	15	361	—	1,094
Comparable ROCE, %	1.7	6.0	14.0	11.2	32.4	22.2	-0.5	—	6.4
Personnel, 31 December	2,775	81	3,100	1,963	6,005	1,634	1,015	—	16,573

1) Business area’s operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in

associates and joint ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.

2) Eliminations and reconciliations include the elimination of internal sales and internal inventory margin and the changes in fair value of unrealised cash flow and

commodity hedges that are not allocated to segments.

» Refer Other financial information on Alternative performance measures, for definitions of key figures and reconciliation to measures presented in the

consolidated income statement and balance sheet prepared in accordance with IFRS Accounting Standards.


UPM FINANCIAL REPORT 2023	54

Business area information for the year ended 31 December 2022


EURm, OR AS INDICATED	UPM FIBRES	UPM ENERGY	UPM RAFLATAC	UPM SPECIALTY PAPERS	UPM COM PAPERS	UPM PLYWOOD	OTHER OPE- RATIONS 3)	ELIMINATI- ONS AND RECONCILI -ATIONS 2)	GROUP
External sales	2,052	343	1,981	1,423	4,792	518	608	2	11,720
Internal sales	652	390	—	254	73	21	26	-1,416	—
Total sales	2,704	734	1,982	1,677	4,866	539	634	-1,415	11,720
Comparable EBIT	570	381	214	153	619	109	81	-31	2,096
Items affecting comparability in operating profit	-53	—	-11	—	12	-65	-16	13	-122
Operating profit	517	381	203	153	631	44	64	-18	1,974
Finance costs, net									-30
Income taxes									-388
Profit for the period									1,556
Operating assets 1)	6,888	4,068	995	1,316	2,245	297	3,153	-657	18,304
Deferred tax assets									485
Other non-operating assets									82
Other financial assets									3,336
Total assets									22,207
Operating liabilities 1)	510	240	201	379	649	47	448	-596	1,878
Deferred tax liabilities									636
Other liabilities									733
Other financial liabilities									6,081
Total liabilities									9,329
Other items
Change in fair value of forest assets and wood harvested	11	—	—	—	—	—	2	—	12
Share of results of associates and joint ventures	3	—	—	—	3	—	-2	—	4
Depreciation and amortisation	-187	-7	-37	-77	-81	-23	-45	—	-457
Impairment charges	—	—	-4	—	1	-43	-19	—	-65
Capital employed, 31 December	6,378	3,827	793	937	1,596	250	2,705	1,426	17,913
Average capital employed	5,867	3,286	681	889	1,506	247	2,577	784	15,836
Capital expenditure	1,005	8	175	18	57	9	283	1	1,555
Capital expenditure, excluding acquisitions and shares	1,005	8	18	18	57	9	283	1	1,399
Comparable ROCE, %	9.7	11.6	31.5	17.2	41.1	44.3	3.1	—	13.6
Personnel, 31 December	2,688	79	3,319	1,959	6,289	1,982	921	—	17,236

1) Business area’s operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in

associates and joint ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.

2) Eliminations and reconciliations include the elimination of internal sales and the changes in fair value of unrealised cash flow and commodity hedges that are not

allocated to segments.

» Refer Other financial information on Alternative performance measures, for definitions of key figures and reconciliation to measures presented in the

consolidated income statement and balance sheet prepared in accordance with IFRS Accounting Standards.


UPM FINANCIAL REPORT 2023	55

Items affecting comparability


EURm	2023	2022
In operating profit
Impairment charges	-117	-80
Restructuring charges	-199	-15
Change in fair value of unrealised cash flow and commodity hedges	-2	13
Capital gains and losses on sale of non-current assets	—	34
Fair value changes of forest assets	-86	—
Other items	—	-74
Total	-405	-122
In finance costs	-65	—
Total in profit before tax	-470	-122
In income taxes
Taxes related to items affecting comparability	107	9
Tax provisions	2	-10
Total	109	-1
Total in profit for the period	-361	-122

In 2023, items affecting comparability include EUR 120 million

restructuring charges and EUR 112 million impairment charges of fixed

and leased assets related to the closure of the UPM Plattling paper mill

in Germany, EUR 30 million restructuring charges relating to the closure

of paper machine 6 at the UPM Schongau mill in Germany, EUR 10

million charges related to the sale of the Steyrermühl site in Austria and

EUR 13 million restructuring charges and EUR 2 million impairment

charges related to restructuring measures at the UPM Raflatac Nancy

factory in France. Fair value decrease of forest assets EUR 86 million

results from changes of estimates and increase in discount rate used in

valuation of forest assets in Finland. Items affecting comparability in

finance costs include EUR 71 million exchange rate losses related to the

sale of Russian subsidiaries.

In 2022, items affecting comparability include EUR 80 million

impairment charges of assets impacted by Russia´s war in Ukraine.

Other items include EUR 69 million settlement loss resulting from

replacement of a defined benefit pension plan in Finland with defined

contribution plan. Tax provisions relate to tax dispute.


	Accounting policies

Certain non-operational or non-cash valuation transactions with

significant income statement impact are considered as items affecting

comparability and reported separately to reflect the underlying business

performance and to enhance comparability from period to period. The

group applies relevant IFRS Accounting Standards to such transactions.

Total assets and capital expenditure by country


	Assets		Capital expenditure
EURm	2023	2022	2023	2022
Finland	8,633	12,478	153	82
Germany	2,139	1,946	358	468
Uruguay	5,817	5,364	581	980
China	572	680	4	4
United States	463	660	12	9
United Kingdom	103	108	4	1
Austria	106	96	—	1
Russia	—	31	—	—
Poland	145	179	4	6
Estonia	47	55	1	2
France	27	37	2	1
Other EU countries	54	65	—	—
Other European countries	32	40	—	—
Rest of world	335	467	1	2
Total	18,473	22,207	1,122	1,555

Sales by destination country


EURm	2023	2022
Finland	1,267	973
Germany	1,469	2,032
United States	1,366	1,623
United Kingdom	548	676
China	1,533	1,165
France	435	501
Uruguay	66	56
Poland	301	402
Austria	160	194
Russia	0	37
Other EU countries	1,594	2,033
Other European countries	306	388
Rest of world	1,415	1,639
Total	10,460	11,720


UPM FINANCIAL REPORT 2023	56

2.2Sales

UPM generates revenue mainly from the sale of goods, i.e. several types

of products.

The majority of UPM’s revenue comes from sales of graphic and

specialty papers to publishers, retailers, printing houses, merchants and

distributors, converters and label stock manufacturers; sales of self-

adhesive label materials to label printers and brand owners and sales

of pulp products to tissue, board, specialty and graphic paper

producers. The revenue comprises also sales of energy, biofuels, sawn

timber and plywood products and a very limited amount of services not

related to sale of goods.

UPM sells a proportion of its products to several major customers.

The largest customer in terms of sales represented approximately 2%

(3%) of UPM’s sales and the ten largest customers represented

approximately 13% (15%) of such sales.

The group disaggregates its external sales by business area,

because this depicts how the nature, amount, timing and uncertainty of

revenue and cash flows are affected by economic factors. Sales by

UPM business areas are reported consistently with the internal reporting

provided to UPM’s President and CEO who is responsible for allocating

resources and assessing performance of the business areas. The goods

and services included in sales revenue of each business area are

presented in below tables.

» Refer Note 2.1 Business areas for information on UPM products.

Sales by business area


EURm	2023	2022	CHANGE %
UPM Fibres	3,044	2,704	13 %
UPM Energy	628	734	-14 %
UPM Raflatac	1,485	1,982	-25 %
UPM Specialty Papers	1,485	1,677	-11 %
UPM Communication Papers	3,598	4,866	-26 %
UPM Plywood	422	539	-22 %
Other operations	802	634	26 %
Eliminations	-1,003	-1,415	—
Total	10,460	11,720	-11 %

External sales by major products


BUSINESS AREA	BUSINESS	2023	2022
EUR million
UPM Fibres	UPM Pulp, UPM Timber	2,452	2,052
UPM Energy	UPM Energy	486	343
UPM Raflatac	UPM Raflatac	1,485	1,981
UPM Specialty Papers	UPM Specialty Papers	1,300	1,423
UPM Communication Papers	UPM Communication Papers	3,570	4,792
UPM Plywood	UPM Plywood	402	518
Other operations	UPM Forest, UPM Biofuels, UPM Biochemicals, UPM Biomedicals, UPM Biocomposites	768	608
Eliminations and reconciliations		-3	2
Total		10,460	11,720


BUSINESS	PRODUCT RANGE
UPM Pulp	Softwood, birch and eucalyptus pulp
UPM Timber	Standard and special sawn timber
UPM Energy	Electricity and related services
UPM Raflatac	Self-adhesive paper and film label stock
UPM Specialty Papers	Labelling materials, release base papers, flexible packaging materials, office papers, graphic papers
UPM Communication Papers	Graphic papers for various end uses
UPM Plywood	Plywood and veneer products
UPM Forest	Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering
UPM Biofuels	Wood-based renewable diesel for transport and renewable naphtha for transport and petrochemicals
UPM Biochemicals	Lignin products for industrial use
UPM Biomedicals	Wood-based products for biomedical applications
UPM Biocomposites	UPM ProFi decking products and UPM Formi granules


UPM FINANCIAL REPORT 2023	57

Effect of a 10% change in prices on operating profit for the year


EURm	2023	2022
Papers in UPM Communication Papers	340	464
Fine and specialty papers in UPM Specialty Papers	128	139
Label materials in UPM Raflatac	148	198
Plywood	39	51
Sawn timber	35	48
Chemical pulp (net effect)	126	46

The figures above illustrate the effects on the operating profit of years

2023 and 2022 only. The biggest factor affecting UPM’s financial

results is the sales price of paper. A change in the volume delivered has

less than half of the effect of the same percentage change in sales

prices. UPM Paso de los Toros pulp mill was ramped up since April

2023. Had the mill operated for the entire year of 2023, the sensitivity

to changes in chemical pulp prices would have increased to EUR 190

million.


	Accounting policies

Sales of goods

UPM’s performance obligation in the contracts with customers consists of

providing the goods specified in the contracts. Revenue from UPM’s

product sales is recognised when performance obligation is satisfied,

which takes place at point in time when control of the good has been

transferred to the customer. In UPM’s customer contracts the transfer of

control and thus timing of revenue recognition is largely dependent on

delivery terms. Group terms of delivery are based on Incoterms 2020,

the official rules for interpretation of trade terms issued by the

International Chamber of Commerce. Major part of the sales contracts is

on delivery terms basis, whereby delivery is not a promised service to

the customer, as the control of a good does not transfer to the customer

before shipment. Revenue and the corresponding receivable are

recorded at the point in time when the product is delivered to the

destination point for terms designated Delivered Duty Paid (“DDP”) or

Delivered at Place (“DAP”). For sales transactions designated free of

carriage (FCA), revenue is recorded at the time of shipment. For sales

transactions designated as Carriage paid to (CPT) or Carriage and

Insurance Paid to (CIP), the portion of revenue relating to goods is

recorded at the time of loading and the portion of revenue relating to

delivery services over time when the service has been performed.

UPM sells energy to NordPool electricity market. Revenue is

recognised when electricity is transmissed over time.

Sales of services

UPM provides forest expertise and contracting services to woodland and

forestry owners and freight services (free space on group’s vessels sold

as freight services). Revenues from services are recorded over time when

the service has been performed. Sales of services is very limited and thus

the group does not report it separately.

Revenue recognition

The group recognises revenue as an amount equal to the price specified

in the customer contract net of any sales taxes, cash flow hedging results

of sales in foreign currency, hedges of energy sales and variable

consideration, when applicable. Variable consideration is defined as

any variability that may occur between the sales price and the amount

UPM expects to receive. The variable consideration includes mainly cash

discounts and volume rebates that encourage the customer to take

specific volumes in a given timescale. In addition, the group gives the

customers the right for purchase price refund in case the products do not

meet the quality as specified in the agreement. The amount of variable

consideration is recognised as a refund liability when some of the

amount received is expected to be refunded to the customer. Customer

rebates payable to customers in relation to sales made until the end of

the reporting period and expected quality claims are estimated using the

expected value method, and revenue is only recognised to the extent

that it is highly probable that a significant reversal will not occur. A

refund liability is included in trade and other payables.

Receivables are recognised when the goods are delivered, and the

consideration is unconditional except for the passage of time. For most

of UPM’s customer contracts the period between the transfer of goods or

services to customers and the receipt of payment is less than 12 months.

For these contracts the group has elected to use the practical expedient

not to adjust revenue for the effect of financing components.

Advance payments received from customers are recognised as

contract liability. UPM does not have any contract assets arising from

contracts with customers.

» Refer Note 4.6 Working capital for information on contract liabilities and

refund liabilities.

2.3Operating expenses and

other operating income

Operating expenses

Operating expenses excluding forest assets fair value change, wood

harvested and share of results of associates and joint ventures are

presented below.


EURm	2023	2022
Costs and expenses
Raw materials, consumables and goods	6,000	6,260
Employee costs 1)	1,287	1,181
Other operating costs and expenses 2)	1,143	1,028
Delivery costs and other external charges	886	1,001
Total	9,316	9,470

1) » Refer Note 3 Employee rewards, for further information.

2) Distribution of other operating costs and expenses


EURm	2023	2022
Rents and lease expenses	23	29
Emission expenses 1)	18	70
Losses on sale of non-current assets	6	1
Credit losses	4	9
Maintenance and other operating expenses 2)	1,092	919
Total	1,143	1,028

1) Emission expenses include gains on sales of emission rights EUR 49 million

(losses EUR 2 million).

2) Other operating expenses include, among others, energy as well as expenses

related to services and group’s administration.


UPM FINANCIAL REPORT 2023	58

Auditor’s fees


EURm	2023	2022
Audit fee	4.4	4.0
Audit related services	0.2	0.2
Tax services	0.3	0.3
Other services	0.1	0.1
Total	5.0	4.6

In 2023, auditor's fees include EUR 0.2 (0.2) million related to audit services,

EUR 0.0 (0.0) million related tax services and EUR 0.1 (0.1) million related to

other services paid to PricewaterhouseCoopers Oy.

Research and development costs

The research and development costs included in operating expenses

were EUR 66 million (55 million) in 2023. The focus was on new

technologies and developing businesses.

Government grants

In 2023, government grants recognised as deduction of operating

expenses totalled to EUR 16 million (10 million) of which EUR 16 million

(8 million) relates to Finland. In addition, the group received emission

rights from governments amounting to EUR 154 million (208 million) of

which EUR 65 million (122 million) relates to Finland, EUR 79 million

(74 million) to Germany, EUR 5 million (8 million) to Austria and

EUR 4 million (4 million) to UK.

In addition, the company receives electricity price compensation in

Germany and Finland. The group considers that the conditions related to

subsidies have been met. Accordingly, the subsidies have been

recorded as income for the period when the subsidy has been received.

The authorities monitor the use of subsidies afterwards.

Other operating income


EURm	2023	2022
Gains on sale of non-current assets	8	37
Rental income	10	12
Emission rights received	154	208
Derivatives, non-qualifying hedges	4	3
Exchange rate gains and losses	-35	-47
Other	88	17
Total	228	231

Emission rights

The group has recognised EUR 154 million (208 million) of income in

Other operating income and EUR 18 million of expense (70 million of

expense) under Other operating costs and expenses relating to CO2

emissions. The liability to cover the obligation to return emission rights

amounted to EUR 56 million (53 million) and is recognised in provisions.

The emission rights recognised in intangible assets are specified below:


EURm	2023	2022
Carrying value, at 1 January	235	104
Emission rights received and purchased	159	231
Deliveries and disposals	-134	-100
Impairment	-3	—
Reclassifications to assets held for sale	-1	—
Carrying value, at 31 December	256	235
Accumulated costs	260	236
Accumulated impairments	-4	-1
Carrying value, at 31 December	256	235


	Accounting policies

Research and development costs

Research and development costs are expensed as incurred, except for

certain development costs, which are capitalised as they generate future

economic benefits, and UPM can the measure the cost reliably.

Capitalised development costs are amortised on a systematic basis over

their expected useful lives, usually not exceeding five years.

Government grants

Government grants are recognised at fair value where there is a

reasonable assurance that the grant will be received and the group will

comply with the attached conditions. Government grants relating to the

purchase of property, plant and equipment are deducted from the

acquisition cost of the asset and accordingly directly reduce the annual

depreciation of the underlying asset. Other government grants are

recognised in the income statement in the period necessary to match


UPM FINANCIAL REPORT 2023	59

them with the costs they are intended to compensate. A government

grant can also become receivable by the group as compensation for

expenses incurred in a previous period. Such a grant is recognised in

profit or loss of the period in which it becomes receivable.

Other operating income

Other operating income mainly includes gains on the disposal of non-

current assets and rental income. Further, other operating income

includes foreign exchange gains and losses in respect of UPM’s normal

business activities. Gains and losses on derivatives not qualifying hedge

accounting are also recognised in other operating income.

Emission rights

The group participates in the European Emissions Trading Scheme

aimed at reducing greenhouse gas emissions. Emission rights received

from governments free of charge to emit a fixed tonnage of carbon

dioxide in a fixed period of time give rise to an intangible asset for the

emission rights, a government grant and a liability for the obligation to

deliver emission rights equal to the emissions that have been made

during the compliance period.

Emission rights are initially recognised as intangible assets based on

market value at the date of initial recognition. Emission rights are not

amortised. If the market price of emissions rights at the balance sheet

date is less than the recognised costs, any surplus emission rights that

are not required to cover actual and estimated emissions during the

financial year, are impaired to the market price.

Government grants are recognised as deferred income in the

balance sheet at the same time as emission rights and are recognised in

other operating income in the income statement, systematically, over the

compliance period to which the corresponding emission rights relate.

The liability to deliver emission rights is recognised based on actual

emissions. The emissions realised are expensed under other operating

costs and expenses in the income statement and presented as a

provision in the balance sheet. The liability is settled using emission

rights on hand, measured at the carrying amount of those emission

rights. Emission rights and associated provisions are derecognised when

disposed. Any profit or loss represents the costs of purchasing additional

rights to cover excess emissions, the sale of unused rights in the case

realised emission are under emission rights received free of charge or

the impairment of unused emission rights.

2.4Earnings per share and dividend

On 2 February 2023, UPM’s Board of Directors revised the company’s

dividend policy to be based on earnings instead of cash flow.

According to new dividend policy, the company aims to pay attractive

dividends, targeting at least half of the comparable earnings per share

over time.

The dividend paid in 2023 were EUR 800 million (EUR 1.50 per

share) which is 158% of the operating cash flow per share and in 2022

EUR 693 million (EUR 1.30 per share). The Board of Directors proposes

to the Annual General Meeting that a dividend of EUR 800 million, EUR

1.50 per share, will be paid in respect of 2023. The proposed dividend

represents 107% of UPM's comparable earnings per share for the year

2023.

Earnings per share


EURm	2023	2022
Profit attributable to owners of the parent company, EURm	388	1,526
Weighted average no. of shares (1,000)	533,324	533,324
Basic earnings per share, EUR	0.73	2.86
Diluted earnings per share, EUR	0.73	2.86


	Accounting policies

Earnings per share

Earnings per share (EPS) is the amount of profit for the period

attributable to each share. The basic earnings per share are computed

using the weighted average number of shares outstanding during the

period. Diluted earnings per share are computed using the weighted

average number of shares outstanding during the period plus the dilutive

effect of share options. The group did not have share-option schemes at

the end of 2023 and 2022.

Dividend

Dividend distribution to the owners of the parent company is recognised

as a liability in the group’s consolidated financial statements in the

period in which the dividends are approved by the parent company’s

shareholders.


UPM FINANCIAL REPORT 2023	60

3.Employee rewards

3.1Employee costs


EURm	2023	2022
Salaries and fees	1,039	901
Share-based payments	15	16
Pension and other post-employment benefits, defined benefit plans 1)	21	77
Pension costs, defined contribution plans	101	93
Other indirect employee costs 2)	111	94
Total	1,287	1,181

1) 2022 includes EUR 69 million settlement loss related to replacement of a

defined benefit pension plan in Finland with defined contribution plan.

2) Other indirect employee expenses primarily include other statutory social

expenses, excluding pension expenses.

3.2Key management personnel

The remuneration of the Chair of the Board of Directors was resolved to

be raised so that the Chair of the Board was paid an annual base fee of

EUR 218,000, the Deputy Chair of the Board EUR 145,000 and the

other members of the Board EUR 120,000.

The annual base fee was paid in company shares and cash so that

approximately 40% of the fee was paid in the company shares

purchased on the Board members’ behalf, and the rest in cash. The

company paid any costs and transfer tax related to the purchase of the

company shares.

The remuneration of annual committee fees remained unchanged,

and the Chair of Audit Committee received annual committee fee of

EUR 35,000, the Chair of Nomination and Governance Committee EUR

20,000 and the Chair of Remuneration Committee EUR 27,500. The

members of Audit Committee received annual committee fee of EUR

15,000 and members of other committees EUR 10,000. The annual

committee fees were paid in cash.

In 2023, 3,027 (2,489) company shares were purchased to the

Chair, 2,013 (1,742) to the Deputy Chair and 1,666 (1,431) to other

members of the Board.

Shareholdings (no. of shares) and fees of the Board of Directors


	Shareholdings 31 December		Annual base fee (EUR 1,000)		Annual committee fee (EUR 1,000)
	2023	2022	2023	2022	2023	2022
Board members
Henrik Ehrnrooth, Chair 1)	17,488	14,461	218	140	20	10
Kim Wahl, Deputy Chair 2)	27,962	25,949	145	115	35	35
Pia Aaltonen-Forsell 3)	1,666	—	120	—	15	—
Emma FitzGerald	3,097	4,644	120	115	10	10
Jari Gustafsson	4,502	2,836	120	115	10	15
Piia-Noora Kauppi	25,701	24,035	120	115	10	10
Topi Manner	3,097	1,431	120	115	10	10
Marjan Oudeman	11,260	9,594	120	115	15	15
Martin à Porta	26,510	24,844	120	115	28	28
Björn Wahlroos, Chair 4)	—	273,189	—	200	—	20
Total	121,283	380,983	1,203	1,145	153	153

1) Henrik Ehrnrooth, Chair as of 12 April 2023

2) Kim Wahl, Deputy Chair as of 12 April 2023

3) Pia Aaltonen-Forsell was elected as a new director to the Board in 2023

4) Björn Wahlroos, Chair until 12 April 2023


UPM FINANCIAL REPORT 2023	61

Salaries and benefits paid to the President and CEO and the Group Executive Team


	President and CEO Jussi Pesonen		Other members of Group Executive Team1)
EUR 1,000	2023	2022	2023	2022
Salaries	1,161	1,153	3,950	4,140
Short-term incentives	1,473	1,309	2,973	2,739
Share rewards	2,902	2,997	9,242	9,347
Benefits	24	28	139	135
Total	5,561	5,486	16,304	16,361

1) 11 members in 2023 and 2022.

In 2023, costs under the Finnish statutory pension scheme for the

President and CEO amounted to EUR 469,000 (458,000) and

payments under the voluntary pension plan amounted to EUR 911,000

(1,000,000).

In 2023, costs under the Finnish and German statutory pension

schemes for Group Executive Team (GET) members (excluding the

President and CEO) amounted to EUR 881,000 (941,000) and

payments under the voluntary pension plan amounted to EUR 994,000

(987,000).

The remuneration of the President and CEO and other members of

the Group Executive Team consists of the base salary and benefits,

short-term incentives and long-term share-based incentives.

In 2023 and 2022, the short-term incentives were based on the

company's Short-Term Incentive Plan and they are paid annually in

cash. The amount of the incentive is linked to the executive's position

and achievement of annually set targets. The maximum incentives

amount to a total of 110% of the annual base salary to the Business

Area Executives and to a total of 90% of annual base salary to the other

members of the Group Executive Team. For the President and CEO, the

maximum annual incentive amounts to 150% of the annual base salary.

The expenses recognised in income statement in respect of share-

based payments for the Group Executive Team were EUR 4.3 million

(3.6 million).

According to the service agreement, the UPM’s President and CEO

Jussi Pesonen would have been entitled to retire in November 2020 at

the age of 60 but at the request of the company's Board of Directors,

the President and CEO decided to continue in his position longer. In

accordance with the terms of his service contract, President and CEO

Jussi Pesonen announced that he will exercise his right to retire from

UPM in during 2024. In October 2023, Massimo Reynaudo was

appointed to President and CEO of UPM-Kymmene Corporation as of 1

January 2024. Jussi Pesonen continued as the President and CEO until

31 December 2023, after which he will work as an advisor to the

Company and its management until he will retire from UPM on 30 April,

2024.

The President and CEO Jussi Pesonen has a voluntary pension

benefit in addition to the Finnish statutory pension scheme. The

voluntary pension benefit was arranged through a defined benefit plan

until the end of November 2020. The last contribution to the defined

benefit plan was made in 2020. Under the defined benefit plan, the

target pension was 60% of the average indexed earnings from the last

ten full calendar years of employment calculated according to the

Finnish statutory pension scheme. The income of the President and CEO

Jussi Pesonen’s defined benefit pension plan in 2023 was EUR 0.7

million (0.5 million in 2022). The plan assets amounted to EUR 10.4

million (10.8 million) and the obligation amounted to EUR 9.7 million

(9.6 million). As of December 2020, the voluntary pension benefit is

arranged through a defined contribution plan. First contribution to the

defined contribution plan took place in 2021.

The retirement age of other members of the Group Executive Team is

65 or 63 for executives who have become Group Executive Team

members before December 2023. They are covered by the statutory

pension plan in the country of residence, supplemented by voluntary

defined contribution pension plans. For other GET members, the period

for severance pay is 12 months, in addition to the six months’ salary for

the notice period, unless notice is given for reasons that are solely

attributable to the executive. Should a GET member give notice of

termination to the company, no severance pay will be paid in addition

to the salary for the notice period.

The UPM’s new President and CEO Massimo Reynaudo's retirement

age is 65 years. He has a voluntary pension benefit to supplement the

Finnish statutory pension scheme (TyEL). The voluntary pension benefit is

arranged through a defined contribution plan. Should the company give

notice of termination of the President and CEO Massimo Reynaudo's

service agreement, severance pay of 12 months base salary will be

paid in addition to the salary for the 12-month notice period. Should the

President and CEO give notice of termination to the company, no

severance pay will be paid in addition to the salary for the notice

period.

If there is a change of control in the company, the President and

CEO may terminate his service agreement within three months and each

GET member within one month from closing the takeover and shall

receive compensation equivalent to 24 months' base salary.

3.3Share-based payments

UPM offers rewards and recognition with an emphasis on high

performance. All UPM’s employees belong to a unified annual Short

Term Incentive (STI) scheme. In addition, in 2023 and 2022 UPM had

two long-term incentive schemes: the Performance Share Plan (PSP) for

senior executives and the Deferred Bonus Plan (DBP) for other key

employees.

Performance Share Plan

The Performance Share Plan (PSP) is targeted at the President and CEO

and other Group Executive Team (GET) members as well as other

selected members of the management. Under the PSP 2020–2022 and

PSP 2021–2023 UPM shares are awarded based on total

shareholder return during a three-year earning period. Total shareholder

return takes into account share price appreciation and paid dividends.


UPM FINANCIAL REPORT 2023	62

The performance measures for the PSP 2022–2024 and PSP 2023–

2025 comprise the total shareholder return (80% weighting) and

selected environmental, social and governance related (ESG) measures.

In all plans, the earned shares are delivered after the earning period

has ended.


PERFORMANCE SHARE PLANS	PSP 2020-2022	PSP 2021-2023	PSP 2022-2024	PSP 2023-2025
No. of participants at 31 December 2023	25	22	24	24
Actual achievement	100%	34.62%	—	—
Max no. of shares to be delivered 1)
to the President and CEO Jussi Pesonen	85,589	28,829	80,870	75,802
to other members of GET	272,500	89,562	279,000	265,000
to other selected members of management	160,200	42,272	138,500	125,500
Total max no. of shares to be delivered	518,289	160,663	498,370	466,302
Share delivery (year)	2023	2024	2025	2026
Earning criteria (weighting)	Total shareholder return (100%)	Total shareholder return (100%)	Total shareholder return (80%) ESG (20%) 2)	Total shareholder return (80%) ESG (20%) 3)

1) For PSP 2020–2022 and PSP 2021–2023, the gross number of shares actually earned.

2) ESG measures are reduction of fossil CO2 emissions from UPM’s own combustion and purchased electricity by 65% by 2030 from 2015 level (10% weighting),

achievement of a net positive impact on biodiversity in the company’s own forests in Finland (5% weighting) and achievement of gender pay equity (5%

weighting).

3) ESG measures are reduction of fossil CO2 emissions from UPM’s on-site combustion and purchased energy by 65% by 2030 from 2015 level (10% weighting),

achievement of a net positive impact on biodiversity in the company’s own forests in Finland (5% weighting) and achievement of gender pay equity (5%

weighting).

Deferred Bonus Plan

The Deferred Bonus Plan (DBP) is targeted at other selected key

employees and it consists of annually commencing plans. Each plan

consists of a one-year earning period and a two-year restriction period.

UPM shares are awarded based on achievement of group or group and

business area EBITDA targets. Prior to share delivery, the share rewards

earned are adjusted with dividends and other capital distributions, if

any, paid to all shareholders during the restriction period.


DEFERRED BONUS PLANS	DBP 2020	DBP 2021	DBP 2022	DBP 2023
No. of participants (at grant)	393	428	451	446
No. of participants (at 31 December 2023)	330	350	398	431
Max no. of shares to be delivered (at grant)	429,558	459,912	487,130	477,052
Estimated no. of shares to be delivered at 31 December 2023 1)	141,642	355,032	388,173	48,806
Share delivery (year)	2023	2024	2025	2026
Earning criteria	Group/Business Area EBITDA	Group/Business Area EBITDA	Group/Business Area EBITDA	Group/Business Area EBITDA

1) For DBP 2020 and DBP 2021, the gross number of shares actually earned

The indicated actuals and estimates of the share rewards under the

Performance Share Plan and the Deferred Bonus Plan represent the

gross amount of the rewards of which the applicable taxes will be

deducted before the shares are delivered to the participants.


	Accounting policies

The group’s long-term share incentive plans are recognised as equity-

settled or cash-settled share-based payment transactions depending on

the settlement. The group classifies the transactions with net settlement

features for tax obligations as equity-settled in its entirety. Shares are

valued using the market rate on the grant date. The settlement is a

combination of shares and cash. The group may obtain the necessary

shares by using its treasury shares or may purchase shares from the

market. PSP and DBP share deliveries are executed by using already

existing shares and the plans, therefore, have no dilutive effect.


UPM FINANCIAL REPORT 2023	63

3.4Retirement benefit obligations

The group operates various pension schemes in accordance with local

conditions and practices in the countries of operations. Retirement

benefits are employee benefits that are payable usually after the

termination of employment, such as pensions and post-employment

medical care.

The pension plans are generally funded through payments to

insurance companies or to trustee-administered funds or foundations and

classified as defined contribution plans or defined benefit plans.

Defined benefit assets and liabilities recognised in the balance sheet

are presented below:


	2023					2022
EURm	FINLAND	UK	GERMANY	OTHER COUN- TRIES	TOTAL	FINLAND	UK	GERMANY	OTHER COUN- TRIES	TOTAL
Present value of funded obligations	26	320	30	2	377	27	316	30	11	384
Fair value of plan assets	-26	-297	-2	-2	-327	-26	-300	-2	-11	-340
Deficit (+)/surplus (–)	0	23	27	0	50	0	16	27	0	44
Present value of unfunded obligations	—	—	417	16	434	—	—	414	52	466
Net defined benefit liability (+)/ asset (–)	0	23	445	16	484	0	16	442	52	510
Net retirement benefit asset in the balance sheet	-1	—	—	—	-1	-1	—	—	—	-1
Net retirement benefit liability in the balance sheet 1)	0	23	445	16	485	1	16	442	52	511

1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 17 million (16 million) in 2023.

Approximately 14% (15%) of UPM’s employees are active members

of defined benefit arrangement plans. In 2023, net retirement benefit

liability of EUR 36 million of UPM-Kymmene Austria GmbH is presented

in liabilities related to assets held for sale, » Refer note 8.4, and consists

of unfunded obligations. In 2022, the most significant defined benefit

plan in Finland (UPM Sellutehtaiden eläkesäätiö) was replaced with

defined contribution arrangement. Following the replacement, UPM's

most significant defined benefit arrangements are in the UK and in

Germany. The group has defined benefit obligations also in Holland,

France, Canada and in the US.

Finland

In Finland employers are obliged to insure their employees for statutory

benefits, as determined in Employee’s Pension Act (TyEL). TyEL provides

the employee with insurance protection for old age, disability and

death.

Group's Finnish employees are mainly insured with an insurance

company and these arrangements qualify as defined contributions plans.

Previously part of group´s Finnish employees were insured with TyEL

foundation (UPM Sellutehtaiden eläkesäätiö) which was classified as a

defined benefit plan. In 2022, TyEL foundation was replaced with

defined contribution arrangement. The assets and liabilities of the plan

were transferred to the insurance company and the group recognised

EUR 69 million settlement loss in the income statement. The cash

received on the settlement amounted to EUR 128 million.

In the UK, the group operates a legacy defined benefit scheme

providing benefits that are linked to the salary level near retirement age

or an earlier date of leaving service. The scheme is closed both for new

members and future accrual for old members. Part of the scheme is a

defined contribution plan and is open to all current employees. The UK

pension scheme operates under a single trust which is independent from

the group.

Germany

In Germany employees within defined benefit arrangements are entitled

to annual pensions on retirement based on their service and final salary.

All significant defined benefit plans are closed for new employees.


UPM FINANCIAL REPORT 2023	64

Present value of obligation and fair value of plan assets


	Pension and other post-employment benefits 2023			Pension and other post-employment benefits 2022
EURm	PRESENT VALUE OF OBLIGATION	FAIR VALUE OF PLAN ASSETS	NET DEFINED BENEFIT LIABILITY/ (ASSET)	PRESENT VALUE OF OBLIGATION	FAIR VALUE OF PLAN ASSETS	NET DEFINED BENEFIT LIABILITY/ (ASSET)
Carrying value, at 1 January	850	-340	510	1,790	-1,214	576
Current service cost	5	—	5	11	—	11
Past service cost	-1	—	-1	-1	—	-1
Gains and losses arising from settlements 1)	—	—	—	62	—	62
Interest expense (+) income (–)	32	-15	17	18	-13	5
Total included in employee costs (Note 3.1)	36	-15	21	90	-13	77
Actuarial gains and losses arising from changes in demographic assumptions	-13	—	-13	—	—	—
Actuarial gains and losses arising from changes in financial assumptions	9	—	9	-562	—	-562
Actuarial gains and losses arising from experience adjustments	12	—	12	50	—	50
Return on plan assets, excluding amounts included in interest expense (+) income (–)	—	6	6	—	263	263
Total remeasurement gains (–) and losses (+) included in other comprehensive income	7	6	14	-512	263	-249
Benefits paid	-44	44	—	-59	59	—
Settlements paid	-9	9	—	-431	431	—
Contributions by the employer	—	-25	-25	—	104	104
Translation differences	6	-6	—	-29	30	1
Liabilities classified as held for sale (Note 8.4)	-36	—	-36	—	—	—
Carrying value, at 31 December	810	-327	484	850	-340	510

1) In 2022, gains and losses on settlement relate to replacement of a defined benefit pension plan in Finland with defined contribution plan.


	Actuarial risks

Defined benefit plans typically expose the group to the following

actuarial risks:

Investment risk (asset volatility)

The group is exposed to changes of assets’ values especially in the UK.

The asset values of UK arrangements constitute 91% of total asset values

in defined benefit plans within group.

Interest risk

Discount rates used in calculations are based on high-quality corporate

bond yield curves in currency in which the benefits are paid. A decrease

in the discount rate would increase the plan liabilities. The maturities of

yields are reflecting the durations of the underlying obligations. The

weighted average duration of group’s defined benefit obligation is 14

years (14 years) at the end of 2023.

Inflation risk

In the UK, the pensions in payment are tied to Retail Price Index whilst

being tied to Consumer Price Index during deferment. An increase of

0.5% in indexes will increase the liabilities by approximately EUR 17

million. In Germany the pensions have to be adjusted in accordance

with the Consumer Price Index.

Salary risk

The present value of the net retirement benefit assets and liabilities is

calculated by reference to the expected future salaries of plan

participants. An increase in the salary of the plan participants would

increase the plan liabilities. In the UK, the changes in salary levels have

no impact on the funding position as all defined benefit arrangements in

the UK are closed to future accrual. In Germany, an increase of 0.5% in

expected future salaries would increase the obligation by EUR 6 million.

Life expectancy

Adjustments in mortality assumption have an impact on group’s defined

benefit obligation. An increase in life expectancy by one year will

increase the obligation in the UK by EUR 12 million and in Germany by

EUR 17 million.


UPM FINANCIAL REPORT 2023	65


	Key estimates and judgements

Several actuarial assumptions are used in calculating the expense

and liability related to the defined benefit plans. Statistical information

used may differ materially from actual results due to, among others,

changing market and economic conditions, or changes in service period

of plan participants. Significant differences in actual experience or

significant changes in assumptions may affect the future amounts of the

defined benefit obligation and future expense.

Actuarial assumptions

The weighted average principal assumptions used in the valuations of the defined benefit obligations are detailed below:


	FINLAND		UK		GERMANY		OTHER COUNTRIES
	2023	2022	2023	2022	2023	2022	2023	2022
Discount rate %	3.11	3.25	4.55	4.80	3.26	3.32	4.16	3.67
Inflation rate %	2.13	2.53	3.10	3.25	2.00	2.00	2.28	2.51
Rate of salary increase %	1.89	2.23	—	—	2.50	2.50	2.50	2.87
Rate of pension increase %	1.44	1.77	3.00	3.15	2.00	2.00	—	1.13
Expected average remaining working years of participants	1.0	1.9	8.8	9.5	8.1	8.0	11.5	9.0


EURm	0.5% INCREASE		0.5% DECREASE
	2023	2022	2023	2022
Discount rate %	-50	-52	54	57
Rate of salary increase %	6	7	-6	-7
Rate of pension increase %	40	39	-37	-38
Life expectancy +1 year	29	29	—	—

A negative change indicates a decrease in the defined benefit obligation.

A positive change indicates an increase in the defined benefit obligation.

Plan assets by categories at 31 December


EURm	2023		2022
	Quoted	Unquoted	Quoted	Unquoted
Money market	49	2	97	36
Debt instruments	129	32	—	77
Equity instruments	3	45	—	15
Property	—	21	—	59
Assets held by insurance companies	—	30	—	39
Other assets	—	15	—	16
Total	182	145	97	243

In 2023 plan assets include the company's ordinary shares with a fair value of

EUR 0 million (0 million).

In 2024 contributions of EUR 22 million are expected to be paid to

group’s defined benefit plans. In 2023 contributions of EUR 25 million

were paid to group’s defined benefit plans.

Sensitivity analysis of defined benefit obligations

The sensitivity analysis shows the effect of the change in assumption.

The analysis assume that all other assumptions remain unchanged.

The projected unit credit method has been applied when calculating

the obligation as well as these sensitivities.


UPM FINANCIAL REPORT 2023	66


	Accounting policies

Defined benefit pension plans

Plan benefits depend on salary and length of service. The defined

benefit obligations are calculated annually by independent actuaries

using the projected unit credit method. The present value of the defined

benefit obligation is determined by discounting the estimated future cash

outflows using interest rates of high-quality corporate bonds that are

denominated in the currency in which the benefits will be paid and that

have terms to maturity approximating the term of the related pension

liability. The liability recognised in the balance sheet in respect of

defined benefit pension plans is the present value of the defined benefit

obligation at the balance sheet date less the fair value of plan assets.

The cost of providing pensions is charged to the income statement as

employee costs so as to spread the cost over the service lives of

employees. Changes in actuarial assumptions and actuarial gains and

losses arising from experience adjustments are charged or credited in

other comprehensive income in the period in which they arise. Past

service costs and gains or losses on settlement are recognised

immediately in income when they occur.

Defined contribution plans

For defined contribution plans, contributions are paid to pension

insurance companies. Once the contributions have been paid, there are

no further payment obligations. Contributions to defined contribution

plans are charged to the income statement in the period to which the

contributions relate.

Other post-employment obligations

Some group companies provide post-employment medical and other

benefits to their retirees. The entitlement to healthcare benefits is usually

conditional on the employee remaining in service up to retirement age

and the completion of a minimum service period. The expected costs of

these benefits are accrued over the period of employment, using an

accounting methodology similar to that for defined benefit pension

plans. Valuations of these obligations are carried out by independent

qualified actuaries.

4.Capital employed

UPM’s capital employed primarily relates to its production facilities and

both forest and energy assets. UPM aims to capture growth opportunities

in its existing business portfolio and invest in projects with attractive and

sustainable returns.

Capital employed


EURm	2023	2022
Property, plant and equipment	7,053	6,733
Leased assets	683	713
Forest assets	2,355	2,442
Energy shareholdings	2,283	3,652
Goodwill and other intangible assets	998	834
Operating working capital	1,883	2,026
Provisions	-266	-134
Net retirement benefit assets and liabilities	-501	-526
Cash and cash equivalents	632	2,067
Other assets and liabilities	-69	257
Net deferred tax assets and liabilities	-185	-151
Assets classified as held for sale, net	50	—
Total	14,916	17,913


UPM FINANCIAL REPORT 2023	67

4.1Property, plant and equipment


EURm	LAND AND WATER AREAS	BUILDINGS	MACHINERY AND EQUIPMENT	OTHER TANGIBLE ASSETS	CONSTRUC- TION IN PROGRESS	TOTAL
2023
Accumulated costs	862	4,766	14,771	891	925	22,216
Accumulated depreciation and impairments	-2	-2,693	-11,752	-716	—	-15,163
Carrying value, at 31 December	861	2,073	3,019	175	925	7,053
Carrying value, at 1 January	900	1,054	1,638	148	2,993	6,733
Additions	2	—	5	—	1,067	1,074
Companies acquired	—	—	—	—	—	1
Disposals	—	-1	—	—	—	-2
Depreciation	—	-92	-310	-19	—	-422
Impairment	—	-3	-15	-3	—	-20
Reclassifications 1)	—	1,135	1,723	53	-3,052	-141
Reclassifications to assets held for sale 2)	-17	-1	-1	-1	—	-21
Translation differences	-23	-19	-20	-3	-84	-149
Carrying value, at 31 December	861	2,073	3,019	175	925	7,053
2022
Accumulated costs	902	3,707	13,163	866	2,993	21,628
Accumulated depreciation and impairments	-2	-2,653	-11,526	-718	—	-14,895
Carrying value, at 31 December	900	1,054	1,638	148	2,993	6,733
Carrying value, at 1 January	857	848	1,674	122	2,069	5,569
Additions	5	1	7	1	1,353	1,366
Companies acquired	3	26	20	—	6	56
Disposals	-3	-4	-1	-1	—	-9
Depreciation	—	-75	-266	-17	—	-357
Impairment	—	-10	-37	-5	—	-52
Reclassifications	—	260	235	45	-540	1
Translation differences	39	8	4	2	106	159
Carrying value, at 31 December	900	1,054	1,638	148	2,993	6,733

1) Reclassifications include a reclassification of EUR 140 million to intangible assets, which relates to the start-up and final classification of assets in the Uruguay pulp

mill investment » Refer note 4.4 Goodwill and other intangible assets.

2) Reclassification to assets held for sale relates to agreement to sell 100% of the shares the of the Austrian subsidiary UPM-Kymmene Austria GmbH. » Refer note

8.4 Assets held for sale.

Capital expenditure

Capital expenditure, excluding acquisitions and shares, amounted to

EUR 1,094 million (1,399 million) in 2023.

In December 2021, UPM announced that it would invest EUR 10

million in the development of UPM Plywood's plywood mill in Joensuu,

Finland. The investment includes new production lines, new workspaces

and 720 square metres of completely new production space. The

investment was completed in Q3 2023.

In January 2020, UPM announced that it would invest in a 220,000

tonnes next-generation biochemicals biorefinery in Leuna, Germany. The

facility is scheduled to start up by the end of 2024, and the total

investment estimate is EUR 1,180 million.

In January 2019, UPM announced that it would invest in the

refurbishment of the Kuusankoski hydropower plant in Finland. The

average annual production of the Kuusankoski plant is expected to

increase from the current 180 GWh to 195 GWh. The investment was

completed in Q1 2023.

In July 2019, UPM announced that it would invest in a 2.1 million

tonne greenfield eucalyptus pulp mill near Paso de los Toros, central

Uruguay. Additionally, UPM will invest in port operations in Montevideo

and in local investments outside the mill fence. The mill began its

operations on 15 April 2023 after the final authorisation to operate was

granted. The total investment was USD 3.47 billion.

Capitalised borrowing costs

In 2023, the borrowing costs capitalised as part of non-current assets

amounted to EUR 38 million (20 million). Amortisation of capitalised

borrowing costs was EUR 2 million (1 million) and the average interest

rate used 3.00% (0.79%), which represents the average costs to finance

the projects. In 2023, capitalised borrowing costs were mainly related

to the construction of the new pulp mill in Uruguay and the biochemicals

biorefinery in Leuna.

Government grants

In 2023, government grants recognised as deduction of non-current

assets totalled to EUR 7 million (15 million). Grants relate mainly to the

biochemicals biorefinery investment in Leuna.


UPM FINANCIAL REPORT 2023	68

Major capital commitments at 31 December


EURm	2023	2022
New biorefinery / Germany	363	257

Impairment losses

In 2023, impairment charges mainly relate to the closure of UPM

Plattling mill in Germany.

In 2022, impairment charges relate to property, plant and equipment

impacted by Russia´s war in Ukraine. Due to the significant uncertainties

related to operations in Russia and Ukraine, UPM recognised a write off

of all property, plant and equipment as well as operating assets and

uninsured receivables locating or relating to operations in these

countries.


	Accounting policies

Property, plant and equipment

Property, plant and equipment is stated at historical cost. Costs of assets

of acquired in business combinations are determined at fair value at the

acquisition date. Depreciation is calculated on a straightline basis and

the carrying value is adjusted for impairment charges, if any. The

carrying value of property, plant and equipment on the balance sheet

represents the cost less accumulated depreciation and any impairment

charges.

Borrowing costs incurred for the construction of any qualifying assets

are capitalised during the period of time required to complete and

prepare the asset for its intended use. Other borrowing costs are

expensed.

Major renovations are capitalised and depreciated over the useful

lives of the related asset. Ordinary expenses for repairs and

maintenance are expensed as incurred.

Gains and losses on disposals are determined by comparing the

disposal proceeds with the carrying amount and are included in other

operating income and other operating expenses, respectively.


ASSESSED USEFUL LIVES	NUMBER OF YEARS
Land, not subject to depreciation	-
Buildings	20-50
Power plants	20-30
Heavy machinery	15-20
Light machinery	10-15
Equipment	5

Impairment testing

Carrying values of individual items included in property, plant and

equipment are reviewed at each closing date to determine whether there

is any indication of impairment. The carrying value is written down

immediately to the asset’s recoverable amount if the carrying value

exceeds the estimated recoverable amount. Assets that have an

indefinite useful life are not subject to amortisation and are tested

annually for impairment. The recoverable amount is determined as

the higher of an asset’s fair value less costs to sell and its value in use.

Value in use is determined by discounting future cash flows expected to

be generated by the asset. For the purposes of assessing impairment,

assets are grouped at the lowest levels for which there are separately

identifiable cash flows (cash-generating units).

Non-financial assets, other than goodwill, that have suffered

impairment are reviewed for possible reversal of the impairment at each

reporting date. Where an impairment loss is subsequently reversed, the

carrying amount of the asset is increased to the revised estimate of its

recoverable amount, but the increased carrying amount will not exceed

the carrying amount that would have been determined had no

impairment loss been recognised for the asset in prior years.


	Key estimates and judgements

The estimations of useful lives, residual value as well as depreciation

and amortisation methods require significant management judgement

and are reviewed annually. Management makes estimates on the future

cash flows expected to result from the use of the asset and its eventual

disposal. While management believes that estimates of future cash flows

are reasonable, different assumptions regarding such cash flows could

materially affect valuations.

The long useful lives of assets, changes in estimated future sales

prices of products, changes in product costs and changes in the discount

rates used could lead to significant impairment charges.

Estimates are also made in an acquisition when determining the fair

values and remaining useful lives of acquired intangible and tangible

assets.


UPM FINANCIAL REPORT 2023	69

4.2Forest assets

UPM is both a major forest owner and a purchaser of wood. The value

of forest assets, i.e. standing trees, amounted to EUR 2,355 million

(2,442 million) at the end of 2023 .


EURm	2023	2022
Carrying value, at 1 January	2,442	2,328
Additions	50	79
Disposals	-10	-16
Wood harvested	-184	-143
Net change in fair value	81	153
Translation differences	-25	40
Carrying value, at 31 December	2,355	2,442

Change in fair value, change due to harvesting and gains or losses on

sale of forest assets are recognised in the income statement as a net

amount amounting to EUR -103 million (12 million) in 2023. In 2023,

the change in fair value of forest assets in Finland was impacted by

higher discount rate which was partly offset by higher stumpage price

estimates.

Forest assets


EURm	2023	2022
Forest assets in Finland	1,621	1,702
Forest assets in Uruguay	720	724
Forest assets in United States	13	15
Carrying value, at 31 December	2,355	2,442

Forest land

Forest land is included in land and water areas within property, plant

and equipment. » Refer Note 4.1 Property, Plant and equipment. At the

end of 2023, carrying value of own forest land amounted to EUR 715

million (EUR 736 million) and leased forest land EUR 231 million (EUR

243 million).

UPM's own and leased forest land areas are summarised in below

table.


1,000 ha	FOREST LAND	PRO- DUCTIVE FOREST LAND	FORESTED LAND
Finland	523	430	421
Uruguay	304	182	177
Uruguay, leased land	170	138	131
United States	76	55	55
Total	1,073	805	784


	Accounting policies

The group divides all its forest assets for accounting purposes into

growing forests, which are recognised as forest assets at fair value less

costs to sell, and land. Own land is stated at cost whereas leased land is

valued at cost less accumulated depreciation.

Any changes in the fair value of the growing forests are recognised

in the operating profit in the income statement. The fair value is

calculated on the basis of discounted future expected cash flows

considering existing, sustainable harvesting plans and assessments

regarding growth, timber prices, harvesting and silviculture costs and

selling expenses. The fair value of forest assets is a level 3 measure in

terms of the fair value measurement hierarchy.


	Key estimates and judgements

Fair valuation

The valuation process of forest assets is complex and requires

management estimates and judgement on assumptions that have a

significant impact on the valuation of the group’s forest assets.

Main factors used in the fair valuation of forest assets are estimates

for growth and wood harvested, stumpage prices and discount rates.

Stumpage price forecasts are based on the current prices adjusted by

the management’s estimates for the full remaining productive lives of the

trees, up to 100 years for forests in Finland and in the US and up to 10

years for plantations in Uruguay. The cash flows are adjusted by selling

costs and costs related to future risks. Felling revenues and maintenance

costs are estimated on the basis of actual costs and prices, taking into

account the group’s projection of future price and costs development. In

addition, calculations take into account future forest growth and

environmental restrictions.

The pre-tax discount rate used to determine the fair value of the

Finnish forests in 2023 was 9.5% (8.0%) and for Uruguayan plantations

11.5% (11.0%). A decrease (increase) of one percentage point in

discount rate would increase (decrease) the fair value of forest assets by

approximately EUR 214 million (257 million).

4.3Energy shareholdings

UPM is both a significant purchaser and producer of energy. The

majority of electrical and thermal energy is consumed at the group’s

pulp and paper production. The production is mainly carried out by

energy companies in which UPM has energy shareholdings. Energy

shareholdings are unlisted equity investments. UPM does not have

control or joint control of or significant influence in the said energy

companies.

The value of energy shareholdings amounted to EUR 2,283 million

(3,652 million) at the end of 2023. These energy companies supply

electricity or both electricity and heat to their shareholders on a cost-

price principle (Mankala-principle) which is widely applied in the Finnish

energy industry. Under the Mankala-principle electricity and/or heat is

supplied to the shareholders in proportion to their ownership and each

shareholder is, pursuant to the specific stipulations of the respective

articles of association, severally responsible for its respective share of

the production costs of the energy company concerned.

In 2020, UPM issued a shareholder loan of EUR 47 million without a

maturity date to PVO. Embedded into the loan terms is a right to issue

new shares in the PVO B2 series against the remaining, unpaid nominal

of the loan starting from 2021. The loan is valued at fair value and is

taken into account as a part of the total fair valuation of the PVO B2

series valuation.


UPM FINANCIAL REPORT 2023	70

Energy shareholdings


	Number of shares	Group holding %	Carrying value, EURm
			2023	2022
Pohjolan Voima Oyj, A series	8,176,191	61.24	507	584
Pohjolan Voima Oyj, B series	4,140,132	58.11	1,302	2,016
Pohjolan Voima Oyj, B2 series	2,869,819	51.22	0	454
Kemijoki Oy	179,189	7.33	345	442
Länsi-Suomen Voima Oy	10,220	51.10	124	150
Other	—	—	5	5
Carrying value, at 31 December			2,283	3,652

PVO’s share capital is divided into different series of shares. The B

and B2 series relate to PVO’s shareholdings in Teollisuuden Voima Oyj

(TVO). UPM has no direct shareholdings in TVO. TVO operates three

nuclear power plants (Olkiluoto 1, Olkiluoto 2 and Olkiluoto 3) in

Finland. The operation of a nuclear power plant is governed by

international, European Union and local nuclear regulatory regimes.

Pursuant to the Finnish Nuclear Liability Act, the operator of a nuclear

facility has a strict third-party liability in relation to nuclear accidents.

Shareholders of power companies that own and operate nuclear power

plants are not subject to the liability under the Nuclear Liability Act. In

Finland, the future costs of conditioning, storage and final disposal of

spent fuel, management of low and intermediate level radioactive waste

as well as nuclear power plant decommissioning are provided for by a

state established fund (the Finnish State Nuclear Waste Management

Fund). The contributions to the Fund are intended to be sufficient to cover

estimated future costs. These contributions have been taken into

consideration in the fair value of the related energy shareholdings.

Changes in energy shareholdings


EURm	2023	2022
Carrying value, at 1 January	3,652	2,579
Disposals	—	-2
Changes in fair value recognised in other comprehensive income	-1,369	1,074
Carrying value, at 31 December	2,283	3,652


	Accounting policies

The group has made an irrevocable election to designate its energy

shareholdings as equity instruments where changes in fair value are

recognised through OCI. The shareholdings are not held for trading as

the group has an intention to hold the investments for the long term.

Purchases of energy shareholdings are initially and subsequently

measured at fair value through other comprehensive income, net of tax if

applicable, with only dividend income recognised through profit and

loss. Initial fair value is acquisition cost including transaction costs. Upon

disposal of the investment, the accumulated fair value changes in equity

are not recycled to the income statement but instead, are reclassified

from the fair value reserve to retained earnings.

The fair value of energy shareholdings is a level 3 measure in the fair

value measurement hierarchy.


	Key estimates and judgements

Fair valuation and sensitivity

Valuation of energy shareholdings requires management’s assumptions

and estimates of a number of factors that may differ from the actual

outcome which could lead to significant adjustment to the carrying

amount of the asset. Fair value is determined on a discounted cash flow

basis and the main factors impacting the future cash flows include future

electricity prices, price trends and discount rates. Changes in regulatory

environment or taxation may also have an impact on the value of the

energy generating assets. The valuation process is carried out by UPM

Energy and the results are reviewed by management.

The electricity price estimate is based on future electricity forward

prices and a simulation of the Finnish area electricity price. A change of

5% in the electricity price used in the model would change the total

value of the assets by EUR 180 (390) million. The discount rate of

8.01% (7.13%) used in the valuation model is determined using the

weighted average cost of capital method. A change of 0.5% percentage

points in the discount rate would change the estimated fair value of the

assets by approximately EUR 100 (230) million.

UPM’s indirect share of the capacity of Olkiluoto 3 EPR is

approximately 31%, through its PVO B2 shares, and on 16 April 2023

TVO announced that OL3 is ready. Test production has been completed

and regular electricity production started on 16 April 2023.

The decrease in fair value during reporting period was mainly due to

the decrease in electricity forward market prices and the increase in

discount rate.


UPM FINANCIAL REPORT 2023	71

4.4Goodwill and other intangible assets

The group’s goodwill mainly relates to pulp operations in Finland and

Uruguay belonging to UPM Fibres business area. In 2023, the group's

goodwill and other intangible assets increased mainly as a result of the

company acquisition of SunCoal Industries GmbH in UPM Biochemicals

under Other Operations. Refer Note 8.1 Business acquisitions and

disposals for further information. In 2022, the group's goodwill and

other intangible assets increased mainly as a result of the company

acquisition of AMC AG in UPM Raflatac business area.

Goodwill by business area


EURm	2023	2022
Pulp operations Uruguay	105	109
Pulp operations Finland	113	113
UPM Raflatac	46	46
UPM Plywood	13	13
Other operations	6	1
Total	283	282

Goodwill


EURm	2023	2022
Carrying value, at 1 January	282	237
Companies acquired	5	38
Translation differences	-4	6
Carrying value, at 31 December	283	282

Other intangible assets


EURm	INTANGIBLE RIGHTS	SOFTWARE AND OTHER INTANGIBLE ASSETS	TOTAL
2023
Accumulated costs	463	765	1,228
Accumulated amortisation and impairments	-249	-520	-769
Carrying value, at 31 December	214	245	459
Carrying value, at 1 January	198	120	317
Additions	2	6	8
Companies acquired	18	4	22
Amortisation	-4	-25	-29
Reclassifications 2)	—	140	140
Carrying value, at 31 December	214	245	459
Emission rights, carrying value 1)			256
Carrying value including emission rights, at 31 December			715
2022
Accumulated costs	482	614	1,096
Accumulated amortisation and impairments	-285	-494	-779
Carrying value, at 31 December	198	120	317
Carrying value, at 1 January	198	64	262
Additions	3	11	14
Companies acquired	—	62	62
Amortisation	-3	-17	-21
Reclassifications	—	—	1
Carrying value, at 31 December	198	120	317
Emission rights, carrying value 1)			235
Carrying value including emission rights, at 31 December			553

1) » Refer Note 2.3 Operating expenses and other operating income, for further information on emission rights.

2) Reclassifications include a reclass of EUR 140 million from property, plant and equipment, which relates to the start-up and final classification of assets in the

Uruguay pulp mill investment » Refer note 4.1 Property, plan and equipment.


UPM FINANCIAL REPORT 2023	72

Impairment testing

Impairment tests for goodwill and water rights with indefinite life were

carried out in the fourth quarter 2023.

Water rights of hydropower plants belonging to UPM Energy and

reported in intangible rights amounted EUR 189 million at the end of

2023 and 2022. The values of water rights were tested based on

expected future cash flows of each separate hydro power plant.

Goodwill impairment tests were carried out for pulp operations in

Finland and Uruguay, belonging to UPM Fibres business area, UPM

Raflatac business area, UPM Plywood business area and UPM

Biochemicals business in Other operations.

The 2023 impairment tests did not result in a recognition of any

impairment.

The basis for valuation and key assumptions used in goodwill impairment testing are summarised in below table:


CASH GENERATING UNIT	BASIS OF VALUATION	PERIOD OF FORECAST	PRE-TAX DISCOUNT RATE	KEY ASSUMPTIONS
Pulp operations Finland	Value in use	10 years + terminal value	10.68% (2022: 10.84%)	Pulp price, wood costs
Pulp operations Uruguay	Value in use	10 years + terminal value	9.61% (2022: 9.30%)	Pulp price, wood costs
UPM Raflatac	Value in use	10 years + terminal value	10.05% (2022: 9.48%)	Product prices, cost development
UPM Plywood	Value in use	10 years + terminal value	12.06% (2022: 15.77%)	Product prices, cost development
UPM Biochemicals	Value in use	10 years + terminal value	10.20% (2022: n/a)	Product prices, cost development

Sensitivity analyses

The sensitivity analyses of goodwill impairment tests indicate that no

reasonable change in key assumptions would result in recognition of

impairment loss against goodwill. In pulp operations the recoverable

amount is most sensitive to pulp sales prices and the cost of wood raw

material.


	Key estimates and judgements

The group’s assessment of the carrying value of goodwill and indefinite

life assets requires significant judgement.

While management believes that estimates of future cash flows are

reasonable, different assumptions are subject to change as a result of

changing economic and operational conditions. Actual cash flows could

therefore vary from estimated discounted future cash flows and could

result in changes in the recognition of impairment charges in future

periods.

Future cash flows

The review of recoverable amount for goodwill and indefinite life assets

is based on a calculation of value in use, using management projections

of future cash flows. The most important assessments and assumptions

needed in calculations are forecasts for future growth rates for the

business in question, product prices, cost development and the discount

rates applied. The group is using ten-year forecasts in calculations as

the nature of the group’s business is long-term, due to its capital

intensity, and is exposed to cyclical changes. In estimates of product

prices and cost development, forecasts prepared by management for

the next three years and estimates made for the following seven years

are taken into consideration. In addition, consideration is given to the

investment decisions made by the group as well as the profitability

programmes that the group has implemented and the views of

knowledgeable industry experts on the long-term development of

demand and prices. In the projection of cash flows UPM uses EBITDA

adjusted with cash flows not captured within EBITDA, including working

capital movements and capital expenditures. An assumed terminal value

is based on a EBITDA multiples six times, except for UPM Biochemicals

for which perpetuity value is determined using inflation based 2%

growth rate.

Discount rate

The discount rate is estimated using the weighted average cost of

capital (WACC) on the calculation date adjusted for risks specific to the

business in question. The adjusted after-tax discount rate is translated to

a pre-tax rate for each cash generating unit (CGU) based on the

specific tax rate applicable to where the CGU operates.


	Accounting policies

Goodwill

Goodwill arises in connection with business combinations where the

consideration transferred exceeds the fair value of the acquired net

assets. Goodwill is recognised at cost less accumulated impairment and

is an intangible asset with an indefinite useful life. Goodwill is allocated

to the cash generating units that are expected to benefit from the

synergies from the business combination.

Intangible rights

Intangible rights include water rights of hydropower plants, patents,

licences, intellectual property and similar rights. Water rights are

deemed to have an indefinite useful life as the company has a

contractual right to exploit water resources in the energy production

of power plants.

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.


UPM FINANCIAL REPORT 2023	73

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.

4.5Provisions


EURm	RESTRUCTURING	TERMINATION	ENVIRON- MENTAL	EMISSIONS	OTHER	TOTAL
2023
Provisions at 1 January	14	22	29	53	15	134
Provisions made during the year	53	129	2	69	5	258
Provisions utilised during the year	-6	-30	-3	-65	-12	-116
Unused provisions reversed	-1	-4	-2	—	-2	-10
Reclassifications	-1	—	1	-1	—	-1
Provisions at 31 December	59	117	27	56	6	266
Non-current						170
Current						96
Total						266
2022
Provisions at 1 January	24	36	30	39	26	155
Provisions made during the year	5	11	11	69	21	117
Provisions utilised during the year	-12	-23	-1	-54	-30	-121
Unused provisions reversed	-3	-2	-11	—	-2	-18
Reclassifications	—	—	—	—	—	—
Provisions at 31 December	14	22	29	53	15	134
Non-current						64
Current						70
Total						134

UPM has undergone several restructuring in recent years including mill

closures and profit improvement programs. 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 2023 and 2022, restructuring and termination

provisions relate mainly to capacity closures and optimisation of

operations in UPM Communication Papers business area. In 2023,

additions to restructuring and termination provisions of EUR 143 million

relate to closure of UPM Plattling paper mill and paper machine 6 at

UPM Schongau paper mill. In 2022, there were no significant additions

to restructuring and termination provisions.

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. In 2022, the group recognised

EUR 8 million additional environmental provision related to prior

capacity closures in Finland.

Other provisions are mainly attributable to onerous contracts and

will be incurred over a period longer than one year. In 2022, additions

to other provisions include EUR 10 relating to tax dispute.

Provisions for emissions include liability to cover the obligation to

return emission rights. The group possesses emission rights amounting to

EUR 256 million (235 million) as intangible assets.

» Refer Note 2.3 Operating expenses and other operating income, for

further information on emission rights.


UPM FINANCIAL REPORT 2023	74


	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.


	Key estimates and judgements

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,

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.

» Refer Note 9.2 Litigation for details of legal contingencies.

4.6Working 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


EURm	2023	2022
Inventories	1,948	2,289
Trade receivables	1,254	1,614
Trade payables	-1,297	-1,855
Advances received	-22	-23
Total	1,883	2,026

Inventories


EURm	2023	2022
Raw materials and consumables	1,027	1,128
Work in progress	6	11
Finished products and goods	885	1,116
Advance payments	31	34
Total	1,948	2,289

Trade and other receivables


EURm	2023	2022
Trade receivables
Trade receivables	1,284	1,647
Loss allowance provision	-30	-32
Total trade receivables	1,254	1,614
Prepayments and accrued income
Personnel expenses	2	2
Interest income	1	1
Energy and other excise taxes	11	15
Other items	118	158
Total prepayments and accrued income	133	176
Other receivables
VAT and other indirect taxes receivable	155	326
Cash collaterals	187	500
Other receivables	53	80
Total other receivables	395	906
Total	1,782	2,696


UPM FINANCIAL REPORT 2023	75

Trade receivables ageing


	2023			2022
EURm	TRADE RECEIVABLES	LOSS ALLOWANCE PROVISION	TRADE RECEIVABLES, NET OF PROVISION	TRADE RECEIVABLES	LOSS ALLOWANCE PROVISION	TRADE RECEIVABLES, NET OF PROVISION
Undue	1,165	-4	1,161	1,471	-1	1,470
Past due up to 30 days	82	-2	80	114	-1	114
Past due 31–90 days	8	-1	7	19	-3	16
Past due over 90 days	30	-23	6	42	-28	14
Total	1,284	-30	1,254	1,647	-32	1,614

Trade and other payables


EURm	2023	2022
Accrued expenses and deferred income
Personnel expenses	181	184
Interest expenses	22	21
Indirect taxes	16	17
Customer rebates	94	130
Customer claims	6	7
Other items	148	169
Total accrued expenses and deferred income	467	528
Advances received	22	23
Trade payables	1,297	1,855
Other current liabilities	97	314
Total	1,883	2,720


	Operational credit risk

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 19% (17%) of

the trade receivables as at 31 December 2023 – i.e., approximately

EUR 239 million (269 million).

In 2023, trade receivables amounting to EUR 5 million (2 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. In 2022, due to the significant

uncertainties related to operations in Russia and Ukraine, the group

increased the general provision for expected credit losses on trade

receivables, and impaired inventories and other receivables. As at

31 December 2022, the credit loss provision related to operations in

Russia was EUR 8 million, impairment related to inventories EUR 10

million and impairment related to other receivables EUR 5 million. As a

result of the sale of Russian operations in March 2023, there were no

such credit loss provisions or impairments recognised as at

31 December 2023.


	Accounting policies

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


UPM FINANCIAL REPORT 2023	76

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

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.

5.Capital structure

UPM has a strong cash flow and industry-leading balance sheet that

mitigates risks and enables value-enhancing strategic actions.


Net debt			Free cash flow
EUR	2,432	m	EUR	1,193	m
(EUR 2374m)			(EUR -1077m)

5.1Capital management

UPM’s objective for managing capital comprising of net debt and total

equity is to ensure maintenance of flexible capital structure to enable the

ability to operate in capital markets and maintain optimal returns to

shareholders. The group manages its financing activities, debt portfolio

and financial resources via various policies that are designed to ensure

optimum financing arrangements minimising simultaneously financial

expenses and refinancing risk and optimising liquidity. Borrowing

activities are centralised to the parent to the extent possible and cash

resources are distributed within the group by the central treasury

department.

UPM targets a net debt to EBITDA ratio of approximately 2 times or

less.

UPM’s capital


EURm	2023	2022
Equity attributable to owners of the parent company	11,161	12,502
Non-controlling interest	370	376
Total equity	11,531	12,879
Non-current debt	3,056	4,476
Current debt	327	558
Debt held for sale	2	0
Total debt	3,385	5,034
Total capitalisation	14,916	17,913
Total debt	3,385	5,034
Less: Interest-bearing financial assets and investment funds	906	2,660
Less: Interest-bearing financial assets held for sale	47	0
Net debt	2,432	2,374
Gearing ratio, % 1)	21	18
Net debt to EBITDA 1)	1.55	0.94

1) Refer » Other financial information on Alternative performance measures.


	Liquidity and refinancing risk

Under all circumstances, UPM seeks to maintain adequate liquidity,

which depends on a number of factors, such as the availability of cash

flows from operations and access to additional debt and equity

financing. UPM aims to ensure sufficient liquidity by means of efficient

cash management and restricting financial investments to investment

types that can readily be converted into cash and by keeping a

sufficient amount of unused committed credit lines or cash as a reserve.

UPM aims to minimise refinancing risks by ensuring a balanced loan

portfolio maturing schedule and sufficiently long maturities. The average

loan maturity at 31 December 2023 was 5.1 years (4.6 years).

Liquidity and refinancing


EURm	2023	2022
Cash at bank	613	1,632
Cash equivalents	19	434
Cash classified as assets held for sale	39	0
Investment funds	1	1
Committed credit lines	2,909	5,709
of which used	—	-1,378
Loan commitments	—	-123
Used uncommitted credit lines	-182	-444
Long-term loan repayment cash flow	-114	-94
Debt held for sale	-2	0
Liquidity	3,284	5,738

Cash and cash equivalents comprise cash in hand, deposits held at

banks and with original maturities of three months or less. Investment

funds comprise fund investments with a redemption period of less than

12 months. Commercial papers and utilized bank overdrafts are

included in used uncommitted credit lines and presented within current

debt in the balance sheet. In 2023 or 2022, no impairment and no

expected credit losses were recognised in profit or loss for loan

receivables or cash and cash equivalents.


UPM FINANCIAL REPORT 2023	77

Maturity table of debt at the end of 2023


EURm	2024	2025	2026	2027	2028	2029+	TOTAL
Bonds	—	—	—	339	750	1,000	2,089
Loans from financial institutions	20	34	31	31	31	62	208
Lease liabilities	94	97	64	53	50	348	706
Other loans	—	2	—	—	—	135	137
Current loans and debt held for sale	183	—	—	—	—	—	183
Principal payments	297	133	95	423	830	1,545	3,323
Interest payments	75	66	62	61	34	111	409

The difference between the above nominal values and carrying value of total debt arise from fair value adjustments and discounting decreasing

carrying value by EUR 45 million and other non-cash adjustments decreasing carrying value by EUR 20 million.

Maturity table of debt at the end of 2022


EURm	2023	2024	2025	2026	2027	2028+	TOTAL
Bonds	—	—	—	—	352	1,750	2,102
Loans from financial institutions	9	1,001	337	34	134	99	1,613
Lease liabilities	84	75	80	49	36	343	668
Other loans	1	—	—	—	—	151	152
Current loans	444	—	—	—	—	—	444
Principal payments	538	1,076	417	83	521	2,343	4,978
Interest payments	70	69	66	63	61	128	458

The difference between the above nominal values and carrying value of total debt arise from fair value adjustments decreasing carrying value

by EUR 80 million and other non-cash adjustments decreasing carrying value by EUR 24 million.


UPM FINANCIAL REPORT 2023	78

Maturity table of derivatives included in net debt and guarantees at the end of 2023


EURm	2024	2025	2026	2027	2028	2029+	TOTAL
Net settled interest rate swaps
Net inflow	3	7	9	9	—	—	27
Net outflow	-30	-19	-17	-18	-19	—	-104
Gross settled derivatives
Gross currency swaps
Total inflow	7	7	7	7	7	138	173
Total outflow	-7	-5	-5	-5	-5	-168	-195
Forward foreign exchange contracts
Total inflow	1,000	9	—	—	—	—	1,009
Total outflow	-989	-9	—	—	—	—	-999
Guarantees	—	—	—	—	—	—	—

Maturity table of derivatives included in net debt and guarantees at the end of 2022


EURm	2023	2024	2025	2026	2027	2028+	TOTAL
Net settled interest rate swaps
Net inflow	3	6	8	9	9	—	35
Net outflow	-24	-28	-26	-25	-25	-25	-153
Gross settled derivatives
Gross currency swaps
Total inflow	7	7	7	7	7	160	197
Total outflow	-7	-7	-6	-6	-6	-175	-208
Forward foreign exchange contracts
Total inflow	625	—	—	—	—	—	625
Total outflow	-623	—	—	—	—	—	-623
Guarantees	2	—	—	—	—	—	2


UPM FINANCIAL REPORT 2023	79

5.2Net debt

Net debt is defined as the total of current and non-current debt less cash

and cash equivalents and interest-bearing current and non-current

financial assets. In 2023, net debt increased by EUR 58 million. Net

debt totalled EUR 2,432 million (2,374 million) at the end of 2023.

In 2020, UPM established a EUR 3 billion Euro Medium Term Note

(EMTN) programme and launched a Green Finance Framework that

aligns with the International Capital Markets Association (ICMA) Green

Bond Principles. UPM has since issued three Green Bonds, totalling EUR

1,750 million. The independent second party opinion concerning the

framework was provided by CICERO Shades of Green, and UPM’s

framework was rated with the highest-grade, CICERO Dark Green. In

November 2023, UPM published an updated Green Finance

Framework, which was reviewed by S&P Global Ratings. The new

framework also received the highest “Dark Green” overall shading.

The proceeds from the Green Bonds have been allocated in

accordance with the Green Finance Framework to eligible green

projects and assets in the following categories: sustainable forest

management, climate-positive products and solutions, and hydropower.

The bonds do not have any financial covenants and all issued euro

bonds are listed on the Irish Stock Exchange plc, trading as Euronext

Dublin.

Net debt


EURm	2023	2022
Bonds	2,002	1,974
Loans from financial institutions	188	1,604
Lease liabilities	612	583
Derivatives	94	137
Other loans	160	179
Non-current debt	3,056	4,476
Repayments of non-current debt	20	9
Repayments of lease liabilities	94	84
Derivatives	33	24
Other liabilities	180	441
Current debt	327	558
Debt held for sale	2	0
Total debt	3,385	5,034
Loan receivables	4	4
Derivatives	51	61
Other receivables	17	19
Non-current interest-bearing assets	71	84
Loan receivables	1	0
Derivatives	14	9
Other receivables	187	500
Investment funds	1	1
Cash and cash equivalents	632	2,067
Current interest-bearing assets	835	2,576
Interest-bearing assets held for sale	47	0
Total interest-bearing assets	953	2,660
Net debt	2,432	2,374


	Accounting policies

Debt

Debt comprising of bonds, bank and pension loans, lease liabilities and

other loans is recognised initially at fair value, net of transaction costs

and subsequently measured at amortised cost using the effective interest

method. Any difference between proceeds (net of transaction costs) and

the redemption value is recognised in the income statement over the

estimated life of the borrowing. UPM classifies debt as non-current

unless due for settlement within a year. Most of the debt is hedged in a

fair value hedge relationship as described in » Note 6.1 Financial risk

management.


UPM FINANCIAL REPORT 2023	80

Change in net debt 2023


	Reported in financing activities in cash flow statement
EURm	NON- CURRENT LOANS INCL. REPAYMENTS	LEASE LIABI- LITIES	CURRENT LOANS	NET DERIVA- TIVES	INVEST- MENT FUNDS	DEBT HELD FOR SALE	OTHER FINANCIAL ASSETS	CASH AND CASH EQUIVA- LENTS	FINANCIAL ASSETS HELD FOR SALE	NET DEBT
Carrying value, at 1 January	3,766	668	441	90	-1	—	-523	-2,067	—	2,374
Change in net debt, cash
Proceeds from non-current debt	100	—	—	—	—	—	—	—	—	100
Payments of non-current debt	-1,506	—	—	—	—	—	—	—	—	-1,506
Lease repayments	—	-99	—	—	—	—	—	—	—	-99
Change in current liabilities	—	—	-260	—	—	—	—	—	—	-260
Net cash flows from derivatives	—	—	—	6	—	—	—	—	—	6
Change in other financial assets in operating cash flow	—	—	—	—	—	—	311	—	—	311
Change in other financial assets in investing cash flow	—	—	—	—	—	—	-5	—	—	-5
Change in investment funds					—	—			—	—
Change in cash and cash equivalents	—	—	—	—	—	—	—	1,379	—	1,379
	-1,406	-99	-260	6	—	—	306	1,379	—	-74
Change in net debt, non-cash
Companies acquired	2	—	—	—	—	—	—	—	—	2
Companies disposed	—	-2	—	—	—	—	—	—	—	-2
New contracts and subsequent additions	—	149	—	—	—	—	—	—	—	149
Lease liability reassessments	—	2	—	—	—	—	—	—	—	2
Fair value gains and losses	33	—	—	-34	—	—	—	—	—	-1
Exchange gains and losses	-27	-11	—	—	—	—	—	16	—	-22
Effective interest rate adjustment	4	—	—	—	—	—	—	—	—	4
Reclassifications to assets and liabilities held for sale	-1	-1	—	—	—	2	9	39	-47	—
	11	137	—	-34	—	2	8	55	-47	131
Carrying value, at 31 December	2,371	706	180	63	-1	2	-208	-632	-47	2,432


UPM FINANCIAL REPORT 2023	81

Change in net debt 2022


	Reported in financing activities in cash flow statement
EURm	NON- CURRENT LOANS INCL. REPAYMENTS	LEASE LIABILITIES	CURRENT LOANS	NET DERIVA- TIVES	INVEST- MENT FUNDS	OTHER FINANCIAL ASSETS	CASH AND CASH EQUIVALENTS	NET DEBT
Carrying value, at 1 January	2,046	574	2	-99	-100	-317	-1,460	647
Change in net debt, cash
Proceeds from non-current debt	4,402	—	—	—	—	—	—	4,402
Payments of non-current debt	-2,550	—	—	—	—	—	—	-2,550
Lease repayments	—	-91	—	—	—	—	—	-91
Change in current liabilities	—	—	439	—	—	—	—	439
Net cash flows from derivatives	—	—	—	20	—	—	—	20
Transaction costs and discounts in operating cash flow	-5	—	—	—	—	—	—	-5
Change in other financial assets in operating cash flow	—	—	—	—	—	-208	—	-208
Change in other financial assets in investing cash flow	—	—	—	—	—	2	—	2
Change in investment funds	—	—	—	—	99	—	—	99
Change in cash and cash equivalents	—	—	—	—	—	—	-610	-610
	1,847	-91	439	20	99	-206	-610	1,499
Change in net debt, non-cash
Companies acquired	22	—	—	—	—	—	—	22
New contracts and subsequent additions	—	171	—	—	—	—	—	171
Lease liability reassessments	—	-5	—	—	—	—	—	-5
Fair value gains and losses	-180	—	—	169	—	—	—	-11
Exchange gains and losses	28	18	—	—	—	—	3	49
Effective interest rate adjustment	3	—	—	—	—	—	—	3
	-127	184	—	169	—	—	3	229
Carrying value, at 31 December	3,766	668	441	90	-1	-523	-2,067	2,374


UPM FINANCIAL REPORT 2023	82

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.


EURm	2023	2022
Operating cash flow	2,269	508
Investing cash flow	-1,076	-1,585
Free cash flow	1,193	-1,077
Dividends paid to owners of the parent company	-799	-693
Dividends paid to non-controlling interests	-36	-27
Contributions paid by non-controlling interests	35	97
Other financing cash flow	-14	-9
Transaction costs and discounts in operating cash flow	0	5
Change in other financial assets in operating cash flow	-311	208
Change in other financial assets in investing cash flow	5	-2
Change in net debt, cash	-74	1,499
Change in net debt, non-cash	131	229
Change in net debt	58	1,728
Opening net debt	2,374	647
Closing net debt	2,432	2,374

Bonds


FIXED RATE PERIOD	INTEREST RATE, %	CURRENCY	NOMINAL VALUE ISSUED, MILLION	CARRYING VALUE 2023 EURm	CARRYING VALUE 2022 EURm
1997-2027	7.450	USD	375	361	378
2020-2028	0.125	EUR	750	650	605
2021-2031	0.500	EUR	500	495	494
2022-2029	2.250	EUR	500	496	496
Value, at 31 December				2,002	1,974
Current portion				—	—
Non-current portion				2,002	1,974

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 34% (34%) of

leased assets recognised on the balance sheet consists of land areas in

Uruguay, which the group uses for eucalyptus plantations.

Approximately 11% of leased assets on the balance sheet consists of

vessels for sea transportation in Europe. Approximately 9% (24%) 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 2023 and 2022, additions to leased assets mainly relate to

biochemicals refinery utilities in Leuna and new vessels for sea

transportation in Europe. Impairment charges 2023 relate to the closure

of the UPM Plattling paper mill and in 2022 to assets impacted by

Russia's war in Ukraine. Due to the significant uncertainties related to

operations in Russia and Ukraine, UPM recognised a write off of all

leased assets locating or relating to operations in these countries.

In 2023, the total cash outflow for leased assets was EUR 99 (91)

million. The expenses related to short-term leases recognised in the

income statement in 2023 amounted to EUR 3 (3) million. The group did

not have significant variable lease payments in 2023.

The lease commitments for leases not commenced at year-end

31 December 2023 totalled approximately EUR 176 (245) million,

which are mostly related to a railway service agreement in Uruguay

and a service agreement related waste water treatment in Leuna,

Germany.


UPM FINANCIAL REPORT 2023	83

Changes in leased assets


	LAND AREAS	BUILDINGS	MACHINERY AND EQUIPMENT	OTHER LEASED ASSETS	ADVANCE PAYMENTS 1)	TOTAL
2023
Carrying value, at 1 January	283	247	169	1	13	713
New contracts and subsequent additions	9	40	95	4	13	161
Reassessments and disposals	7	4	-2	—	—	9
Depreciation	-17	-31	-39	—	—	-87
Impairments	—	-100	—	—	—	-100
Reclassifications	—	2	4	-4	-2	—
Reclassifications to assets held for sale	—	—	—	—	—	-1
Translation differences	-10	-1	-1	—	—	-11
Carrying value, at 31 December	272	161	226	1	24	683
2022
Carrying value, at 1 January	252	264	80	8	4	608
New contracts and subsequent additions	24	18	127	—	8	178
Reassessments and disposals	8	—	-8	—	—	—
Depreciation	-16	-34	-29	—	—	-80
Impairments	—	-3	-7	-2	—	-12
Reclassifications	—	—	5	-5	—	-1
Translation differences	15	2	1	—	—	18
Carrying value, at 31 December	283	247	169	1	13	713

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


	Accounting policies

Leases

The group as a lessee

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.

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

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.


UPM FINANCIAL REPORT 2023	84

The group as a lessor

At inception of a lease contract, the group makes an assessment

whether the lease is a finance lease or an operating lease. If the lease

transfers substantially all of the risks and rewards incidental to

ownership of the asset, it is considered to be a finance lease; if not, the

lease is considered to be an operating lease. The group has only a

minor amount of operating lease contracts, whereby the lease payments

are recognised on a straight-line basis over the term of the lease.

5.3Financial assets and liabilities by category

Financial assets and liabilities recognised in the balance sheet include

cash and cash equivalents, loans and other financial receivables,

investments in securities, trade receivables, trade payables, loans, bank

overdrafts and derivatives.

Classification of financial assets into different measurement

categories depends on the contractual cash flow characteristics and the

business model for managing the financial asset. The measurement

category of each financial asset is determined at inception. Financial

assets and liabilities are offset and the net amount reported in the

balance sheet when there is a legally enforceable right in all

circumstances to offset the recognised amounts and there is an intention

to settle on a net basis or realise the asset and settle the liability

simultaneously. Financial assets are derecognised when the rights to

receive cash flows from the financial assets have expired or have been

transferred, and the group has transferred substantially all the risks and

rewards of ownership.

Financial assets and liabilities by category at the end of 2023


EURm	FAIR VALUE THROUGH PROFIT AND LOSS	EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OCI	DERIVATIVES UNDER HEDGE ACCOUNTING	FINANCIAL ASSETS AND LIABILITIES AT AMORTISED COST	TOTAL
Energy shareholdings	—	2,283	—	—	2,283
Other non-current financial assets
Loans and receivables	—	—	—	8	8
Derivatives	—	—	52	—	52
	—	—	52	8	60
Trade and other receivables	—	—	—	1,782	1,782
Other current financial assets
Loans and receivables	—	—	—	1	1
Derivatives	19	—	43	—	62
Investment funds	1	—	—	—	1
	20	—	43	1	64
Financial assets classified as held for sale 2)	—	—	—	63	63
Cash and cash equivalents	—	—	—	632	632
Total financial assets	20	2,283	95	2,486	4,884
Non-current debt
Interest-bearing liabilities	—	—	—	2,962	2,962
Derivatives	—	—	94	—	94
	—	—	94	2,962	3,056
Other non-current financial liabilities
Other liabilities 1)	—	—	—	155	155
Derivatives	—	—	2	—	2
	—	—	2	155	157
Current debt
Interest-bearing liabilities	—	—	—	294	294
Derivatives	33	—	—	—	33
	33	—	—	294	327
Trade and other payables	—	—	—	1,883	1,883
Other current financial liabilities
Derivatives	13	—	38	—	51
	13	—	38	—	51
Financial liabilities classified as held for sale 2)	—	—	—	20	20
Total financial liabilities	46	—	134	5,314	5,494

1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months.

2) Financial assets and liabilities classified as held for sale relate to agreement to sell 100% of the shares the of the Austrian subsidiary UPM-Kymmene Austria GmbH.

» Refer note 8.4 Assets held for sale.


UPM FINANCIAL REPORT 2023	85

Financial assets and liabilities by category at the end of 2022


EURm	FAIR VALUE THROUGH PROFIT AND LOSS	EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OCI	DERIVATIVES UNDER HEDGE ACCOUNTING	FINANCIAL ASSETS AND LIABILITIES AT AMORTISED COST	TOTAL
Energy shareholdings	—	3,652	—	—	3,652
Other non-current financial assets
Loans and receivables	—	—	—	8	8
Derivatives	—	—	62	—	63
	—	—	62	8	70
Trade and other receivables	—	—	—	2,696	2,696
Other current financial assets
Loans and receivables	—	—	—	—	—
Derivatives	17	—	100	—	117
Investment funds	1	—	—	—	1
	18	—	100	—	118
Cash and cash equivalents	—	—	—	2,067	2,067
Total financial assets	18	3,652	162	4,771	8,602
Non-current debt
Interest-bearing liabilities	—	—	—	4,340	4,340
Derivatives	—	—	137	—	137
	—	—	137	4,340	4,476
Other non-current financial liabilities
Other liabilities 1)	—	—	—	90	90
Derivatives	—	—	13	—	13
	—	—	13	90	103
Current debt
Loans	—	—	—	534	534
Derivatives	24	—	—	—	24
	24	—	—	534	558
Trade and other payables	—	—	—	2,720	2,720
Other current financial liabilities
Derivatives	14	—	88	—	102
	14	—	88	—	102
Total financial liabilities	37	—	238	7,683	7,959

1) Consists mainly of non-current advances received and a put liability that is not estimated to mature within 12 months.

The carrying amounts of financial assets and financial liabilities approximate their fair value except for interest-bearing liabilities in non-current debt.

Their fair value amounted to EUR 2,873 million (3,607 million) at the end of 2023. For quoted bonds, the fair values are based on the quoted

market value as of 31 December. At the end of 2023, all bonds were quoted.

For other non-current debt in interest-bearing liabilities fair values are estimated using the expected contractual future payments discounted at

market interest rates and are categorised within level 2 of the fair value hierarchy.

» Refer Note 5.2 Net debt, for further information on net debt and bonds.


UPM FINANCIAL REPORT 2023	86

Fair value measurement hierarchy for financial assets and liabilities


EURm	2023				2022
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial assets
Investment funds	—	1	—	1	—	1	—	1
Derivatives, non-qualifying hedges	—	19	—	19	—	17	—	17
Derivatives under hedge accounting	4	91	—	95	12	150	—	162
Energy shareholdings	—	—	2,283	2,283	—	—	3,652	3,652
Total	4	111	2,283	2,398	12	168	3,652	3,832

Financial liabilities
Derivatives, non-qualifying hedges	—	46	—	46	—	37	—	37
Derivatives under hedge accounting	6	128	—	134	46	192	—	238
Total	6	174	—	180	46	229	—	275

There have been no transfers between levels in 2023 and 2022.


	Accounting policies

Fair value through profit or loss

This category includes derivatives that do not qualify for hedge

accounting and investments funds. They are measured at fair value and

any gains or losses from subsequent measurement are recognised in the

income statement.

Equity instruments at fair value through OCI

This category includes mainly UPM’s energy shareholdings. These assets

are measured at fair value through other comprehensive income. » Refer

Note 4.3 Energy shareholdings.

Financial assets at amortised cost

This category comprises loan receivables with fixed or determinable

payments that are not quoted in an active market, as well as trade and

other receivables, and cash and cash equivalents. They are included in

non-current assets unless they mature within 12 months of the balance

sheet date. Cash and cash equivalents are always classified as current

assets. Loan receivables that have a fixed maturity are measured at

amortised cost using the effective interest method. Loan receivables

without fixed maturity date are measured at amortised cost. As soon as

a loan receivables or cash and cash equivalents are originated or

purchased, a loss allowance for 12-month expected credit losses are

recognised in profit or loss. If credit risk increases significantly, full

lifetime expected credit losses are recognised in profit or loss. The credit

loss model applied to trade receivables is described in » Note 4.6

Working capital.

Derivatives under hedge accounting

All derivatives are initially and continuously recognised at fair value in

the balance sheet. Gains and losses on remeasurement of derivatives

used for hedging purposes are recognised in accordance with the

accounting principles described in » Note 6.2 Derivatives and hedge

accounting.

Financial liabilities measured at amortised cost

This category includes debt, trade payables and other financial

liabilities. » Refer Note 5.2 Net debt, for further information.

The different levels of fair value hierarchy used in fair value estimation

are defined as follows:

Fair values under level 1

Quoted prices (unadjusted) traded in active markets for identical assets

or liabilities. Derivatives include futures and commodity forwards traded

in exchange.

Fair values under level 2

Observable inputs are used as basis for fair value calculations either

directly (prices) or indirectly (derived from prices). If all significant inputs

required to fair value an instrument are observable, the instrument is

included in level 2. For investment funds, the valuation is based on

quoted prices (unadjusted) for identical assets in markets that are not

active. For derivatives, level 2 include OTC derivatives like forward

foreign exchange contracts, foreign currency options, interest and

currency swaps and commodity swaps. Specific valuation techniques

used to value financial instruments at level 2 include the following

methods:

Interest forward rate agreements (FRA) are fair valued based

on quoted market rates on the balance sheet date. Forward foreign

exchange contracts are fair valued based on the contract forward rates

at the balance sheet date. Foreign currency options are fair valued

based on quoted market rates and market volatility rates on the balance

sheet date by using the Black&Scholes option valuation model. Interest

and currency swap instruments are fair valued as present value of the

estimated future cash flows based on observable yield curves.

Commodity swaps are fair valued based on quoted forward prices on

the balance sheet date.

An embedded derivative that is by nature a foreign currency forward

contract is valuated at market forward exchange rates and is included

in level 2. Embedded derivatives are monitored by the group and the

fair value changes are reported in other operating income in the income

statement.

Fair values under level 3

Financial assets or liabilities of which fair values are not based on

observable market data (that is, unobservable inputs) are classified

under level 3. This category include UPM’s energy shareholdings and

forest assets. Fair valuations are performed at least quarterly by

respective business areas or functions. Fair valuations are reviewed by

the group finance management and overseen by the Audit Committee.

» Refer Note 4.3 Energy shareholdings and » Note 4.2 Forest assets.


UPM FINANCIAL REPORT 2023	87

5.4Financial income and expenses


EURm	2023	2022
Exchange rate gains and losses
Derivatives	4	8
Exchange gains and losses on financial liabilities measured at amortised costs	29	-37
Exchange gains and losses on financial assets measured at amortised costs	-32	22
Other exchange rate gains and losses 1)	-73	29
	-72	22
Fair value changes
Fair value gains and losses on derivatives designated as fair value hedges	32	-177
Fair value adjustment of debt attributable to interest rate risk	-33	180
	-2	3
Total	-74	25
Interest and other finance income and costs, net
Interest expense on lease liabilities	-21	-14
Interest expense on other financial liabilities measured at amortised cost	-38	-49
Interest income (expense) on derivatives	-28	26
Interest income on loans, receivables and cash	37	9
Other financial income and expenses, net	-20	-27
	-70	-55
Total	-144	-30

1) Other exchange rate gains and losses include EUR 71 million exchange rate losses relating to the sale of Russian subsidiaries in 2023.

Net gains and losses on derivatives included in the operating profit


EURm	2023	2022
Cash flow hedges reclassified from hedging reserve	-117	-475
Non-qualifying hedges	4	3
Total	-113	-472

Foreign exchange gains and losses in the operating profit excluding non-qualifying hedges


EURm	2023	2022
Sales	61	-59
Other operating income	-35	-47
Total	26	-106

5.5Share capital and reserves

The company has one series of shares and each share carries one vote.

There are no specific terms related to the shares. At 31 December

2023, the number of the company’s shares was 533,735,699. The

shares do not have any nominal counter value. The shares are included

within the book entry system for securities.

Share capital


	2023	2022
Number of shares (1,000)	533,736	533,736
Share capital, EURm	890	890


UPM FINANCIAL REPORT 2023	88

Treasury shares

At 31 December 2023, the company held 411,653 (411,653) of its

own shares, 0.08% (0.08%) of the total number of shares.

Reserves


EURm	2023	2022
Fair value reserve	1,713	3,062
Hedging reserve	-88	-627
Share-based payments reserve	31	25
Total other reserves	1,655	2,460
Reserve for invested non-restricted equity	1,273	1,273
Translation reserve	347	449
Total reserves	3,276	4,182

Fair value reserve

This reserve represents the cumulative net change in the fair value of

investments in equity securities comprising mainly of the fair value

change of the energy shareholdings. Amounts are recycled only within

equity upon the disposal of the asset.

Hedging reserve

This reserve comprises the cumulative net change in the fair value of the

effective portion of cash flow hedging instruments related to hedged

transactions that have not yet occurred and the cost of hedging when

recognised in OCI. Amounts are recognised in profit or loss when the

associated hedged transactions affect profit or loss or as part of the

acquisition cost of property, plant and equipment. In 2023, a gain of

EUR 0 million (5) was reclassified from the hedging reserve to other

financial income and expenses as a result of discontinuation of hedge

accounting.

Share-based payments reserve

The share-based payments reserve is used to recognise the fair value at

the grant date of the share incentive plans, Performance Share Plan and

Deferred Bonus Plan, over their vesting period.

Reserve for invested non-restricted equity

Reserve for invested non-restricted equity includes, under the

Companies’ Act, the exercise value of shareholders’ investments

in the company unless otherwise decided by the company.

Translation reserve

This reserve includes the foreign currency differences arising from the

translation of foreign operations, and the effective result of transactions

that hedge the group’s net investments in foreign operations. There were

no reclassifications from the translation reserve to profit or loss during

the period resulting from inefficiency of net investment hedges.


	Accounting policies

Transaction costs directly relating to the issue of new shares or share

options are recognised, net of tax, in equity as a reduction in the

proceeds. Where any group company purchases the parent company’s

shares (treasury shares), the consideration paid, including any directly

attributable incremental costs (net of tax), is deducted from equity

attributable to the owners of the parent company until the shares are

cancelled or reissued. Where such shares are subsequently reissued,

any consideration received, net of any directly attributable incremental

transaction costs and the related income tax effects, is included in equity

attributable to the owners of the parent company.

Hedging reserve


EURm	CURRENCY CASH FLOW HEDGES	ELECTRICITY PURCHASE AND SALES HEDGES	COST OF HEDGING	TAX	TOTAL
2023
Hedging reserve, at 1 January	42	-814	-11	155	-627
Amounts reclassified to profit and loss	-74	178	13	-23	94
Amounts reclassified to acquisition cost of a fixed assets	—	—	1	—	1
Change in fair value of hedging instruments recognised in OCI	44	516	-5	-111	444
Hedging reserve, at 31 December	13	-120	-3	21	-88


EURm	CURRENCY CASH FLOW HEDGES	ELECTRICITY PURCHASE AND SALES HEDGES	COST OF HEDGING	TAX	TOTAL
2022
Hedging reserve, at 1 January	-32	-84	-1	22	-96
Amounts reclassified to profit and loss	65	401	4	-94	376
Amounts reclassified to acquisition cost of a fixed assets	24	—	1	—	25
Change in fair value of hedging instruments recognised in OCI	-15	-1,131	-15	228	-932
Hedging reserve, at 31 December	42	-814	-11	155	-627


UPM FINANCIAL REPORT 2023	89

6.Risk management

6.1Financial risk management

The objective of financial risk management is to protect the group

from unfavourable changes in financial markets and thus help to

secure profitability. The objectives and limits for financing activities

are defined in the Group Treasury Policy approved by the Board of

Directors. In financial risk management various financial instruments are

used within the limits specified in the Group Treasury Policy. Only such

instruments which market value and risk profile can be continuously and

reliably monitored are used for this purpose.

Financing services are provided to the group entities and financial

risk management carried out by the central treasury department,

Treasury and Risk Management.


	Foreign exchange risk

As a consequence of the global nature of its business, UPM is exposed

to risks associated with changes in exchange rates, primarily with

respect to USD, UYU, GBP and CNY. Foreign exchange risk arises from

contracted and expected commercial future payment flows (transaction

exposure), changes in value of recognised assets and liabilities

denominated in foreign currency and changes in the value of assets and

liabilities in foreign subsidiaries (translation exposure). The objective of

foreign exchange risk management is to limit the uncertainty created by

changes in foreign exchange rates on the future value of cash flows

earnings and in the group’s balance sheet. Changing exchange rates

can also have indirect effects, such as change in relative

competitiveness between currency regions.

Transaction exposure

The group hedges transaction exposure related to highly probable future

commercial foreign currency cash flows on a rolling basis over the next

12-month period based on forecasts by the respective business areas.

Transaction risk arises from the changes in currency rates of highly

probable transactions, which are expected to take place in currencies

other than the functional currency of the entity. The group’s policy is to

hedge an average of 50% of its estimated net risk currency cash flow.

Some highly probable cash flows have been hedged for longer than 12

months ahead while deviating from the risk neutral hedging level at the

same time. At 31 December 2023, 53% (51%) of the forecast 12-month

currency flow was hedged.

The group enters into external forward contracts, which are

designated at group level as hedges of foreign exchange risk of specific

future foreign currency flows. Cash flow hedge accounting is applied

when possible. If hedge accounting is not possible, fair value changes

of the hedging instrument are recognised through profit and loss

immediately.

At the end of 2023, UPM’s estimated net risk currency flow for the

next 12 months was EUR 1,875 million (2,291 million).

The weighted hedging rate by currency against EUR were

USD 1.09, UYU 43.02 and GBP 0.88.

In addition to commercial foreign currency flow, the group has

hedged risk currency flow related to investments. Cash flow hedge

accounting is applied. At the end of 2023 the hedged net risk currency

flow was EUR 1 million (EUR 141 million).

Translation exposure

The group has several currency denominated assets and liabilities on its

balance sheet such as foreign currency bonds, loans and deposits,

group internal loans and cash in other currencies than functional

currencies. UPM aims to fully hedge this balance sheet translation

exposure, however, UPM might have unhedged balance sheet

exposures within the limits set in group Treasury Policy.

At 31 December 2023 the unhedged balance sheet exposures in net

of interest-bearing assets and liabilities amounted to EUR 9 million (8

million). Hedge accounting is not applied and all fair value changes of

hedging instruments are recognised through profit and loss immediately.

The group has also accounts receivable and payable balances

denominated in foreign currencies and UPM aims to fully hedge the net

exposure in main currencies. The nominal values of the hedging

instruments in net of accounts payable and receivable hedging were

EUR 323 million (410 million). Hedge accounting is not applied and all

fair value changes of hedging instruments are recognised through profit

and loss immediately.

UPM's net investments in foreign subsidiaries are also subject to

foreign currency translation differences. The exchange rate differences

arising from translation of foreign subsidiaries are accumulated as a

separate component of equity in the translation reserve relate mainly to

USD, CNY and GBP. Currency exposure arising from the net investment

in foreign subsidiaries is generally not hedged. However, at

31 December 2023, part of the foreign exchange risk associated with

the net investments was hedged, major ones in China and Uruguay,

and net investment hedge accounting has been applied. The average


UPM FINANCIAL REPORT 2023	90

weighted hedging rate of these hedges against EUR were China CNY

7.77 and Uruguay USD 1.10.

Derivatives used for hedging translation risks are external forward

contracts, cross currency swaps and currency options.

Foreign exchange risk sensitivity

The following table illustrates the effect to profit before tax due to

recognised balance sheet items in foreign currency and the effect to

equity arising mainly from foreign currency forwards used to hedge

foreign currency flows.


	Profit before tax		Equity
EURm	2023	2022	2023	2022
EUR strengthens by 10%
USD	2	1	89	128
UYU	—	—	-14	-15
GBP	—	—	13	17
CNY	1	1	10	10
EUR weakens by 10%
USD	-2	-1	-89	-128
UYU	—	—	14	15
GBP	—	—	-13	-17
CNY	-1	-1	-10	-10

The following assumptions were made when calculating the sensitivity to

changes in the foreign exchange risk:

• Major part of non-derivative financial instruments (such as cash and

cash equivalents, trade receivables, debt and trade payables) are

either directly denominated in the functional currency or are

transferred to the functional currency through the use of derivatives

i.e. the balance sheet position is close to zero. Exchange rate

fluctuations have therefore minor or no effects on profit or loss.

• The table includes effect of foreign currency forward contracts that

hedge commercial flows or investments or net investments in foreign

subsidiaries, and which have an effective hedge relationship.

• The table includes also effect of foreign currency forward contracts

that are not part of the effective cash flow hedge having an effect on

profit.

• The table excludes effect of foreign currency denominated future cash

flows.


	Interest rate risk

The interest-bearing liabilities and assets expose the group to interest

rate risk, namely repricing and fair value interest rate risk caused by

interest rate movements. According to the Group Treasury Policy the

interest rate exposure is defined as the difference in interest rate

sensitivity between assets and liabilities compared to a benchmark

portfolio with a 6-month duration. The total interest rate exposure is a

net debt portfolio which includes all interest bearing assets and

liabilities and derivatives that are used to hedge the aforementioned

balance sheet items. The policy sets risk limits and allowed deviation

from 6-month benchmark net debt duration level. UPM has decided to

deviate from its policy benchmark and extend the duration of net debt.

At 31 December 2023 the duration of net debt was 40 (45) months.

The group uses interest rate derivatives, such as interest rate swaps,

interest rate futures and cross currency swaps, to change net debt

duration.

The table below shows the nominal value of interest rate position

exposed to interest rate risk in each significant currency. The position

includes all cash balances, investment funds, interest bearing assets and

liabilities and derivatives used to hedge these items. The positive/

negative position indicates a net liability/asset position by currency and

that the group is exposed to repricing and/or fair value interest risk by

interest rate movements in that currency. Table excludes leasing

transactions.

Nominal values of the group’s net debt by currency including

derivatives


EURbn	2023	2022
EUR	1.3	1.8
USD	0.9	0.5
CNY	-0.2	-0.2
Others	-0.2	-0.4
Total	1.8	1.8

Most of the interest rate derivatives hedging interest on long-term debt

meet the requirement of fair value hedge accounting.

Interest rate risk sensitivity

The following table illustrates the effect to profit before tax mainly as

a result of changes in interest expense on floating rate debt.


	Profit before tax
EURm	2023	2022
Interest rate of net debt 100 basis points higher	-8	-24
Interest rate of net debt 100 basis points lower	8	24

The following assumptions were made when calculating the sensitivity to

changes in interest rates:

• The variation of interest rate is assumed to be 100 basis points

parallel shift in applicable interest rate curves.

• In the case of fair value hedges designated for hedging interest rate

risk, the changes in the fair values of the hedged items and the

hedging instruments attributable to the interest rate movements

balance out almost completely in the income statement in the same

period. However, the possible ineffectiveness has an effect on the

profit of the year.

• Cash balances are excluded.

• Investment funds are excluded.

• Leasing transactions are excluded.

• Fixed rate debt that is measured at amortised cost and is not

designated to fair value hedge relationship is not subject to interest

rate risk sensitivity.

• Floating rate debt that are measured at amortised cost and not

designated as hedged items are included in interest rate sensitivity

analysis.

• Changes in the market interest rate of interest rate derivatives (interest

rate futures, swaps and cross currency swaps) that are not designated

as hedging instruments in hedge accounting affect the financial

income or expenses (net gains or losses from remeasurement of the

financial assets and liabilities to fair value) and are therefore

included in the income-related sensitivity analysis.


UPM FINANCIAL REPORT 2023	91


	Electricity price risk

UPM is hedging the price of electricity consumption and production.

Electricity prices rely on weather, fossil fuel and emissions allowance

prices as well as the balance of supply and demand. The group’s

sensitivity to electricity market price is dependent on the electricity

production and consumption levels and the hedging levels. The inherent

price risks arise from the daily sales and purchases of electricity from

the power market with spot prices, and the hedging objective is to

reduce the earnings volatility that arises from electricity prices.

UPM considers Nordic system and electricity price area differential

(EPAD) for Finland products perfect hedges for corresponding electricity

price risk components in Finland. The components of electricity price risk

in the Nordic power market are hedged by entering into System and

EPAD electricity derivative contracts, mostly Nasdaq Commodities

futures and bilateral forwards. System and EPAD prices are considered

as separately identifiable and reliably measurable risk components in

electricity sales and purchase contracts as well as in the hedging

instruments, as a quoted price is available. Fair value changes of

designated system and EPAD derivatives are offsetting electricity sales

and purchase price changes. The share of system component covers

approximately 80-90% and the share of EPAD component covers

10-20% of the changes in electricity sales and purchase prices.

The electricity price risk in the Central European power market is

hedged by entering into European Electricity Exchange futures. Products

used for hedging hedge the entire price risk for the underlying price

area.

The time frame hedged has historically been approximately rolling 5

years. Hedging level has been typically higher for the nearest years and

lower for the latter years. Hedging level for a certain year has

historically varied between 0-80%. UPM constantly updates its electricity

production and consumption forecasts. Hedging level is calculated

based on the most recent available information about the electricity

production and consumption forecast.

The group applies cash flow hedge accounting for the hedging

relationships when it hedges its electricity price risk. In small amounts,

the group is also trading electricity forwards and futures. As well as

hedging, proprietary trading risks are monitored on a daily basis.

Value-At-Risk levels are set to limit the maximum risk at any given time.

Cumulative maximum loss is limited by stop-loss limits.

Electricity derivatives price sensitivity

Sensitivity analysis for financial electricity derivatives is based on

position at the end of financial year. Sensitivities change over time

as the overall hedging and trading positions change. Underlying

physical positions are not included in the sensitivity analysis. Sensitivity

analysis is calculated separately for the hedge accounted and non-

hedge accounted volumes. In the analysis it is assumed that forward

quotation in Nasdaq Commodities and EEX would change EUR 5/

MWh throughout the period UPM has derivatives.


EURm	EFFECT	2023	2022
+/– EUR 5/MWh in electricity forward quotations
Effect on profit before tax	+/-	0.1	0.1
Effect on equity	+/-	51.0	93.0

6.2Derivatives and hedge accounting

The group uses financial derivatives to manage currency, interest rate

and commodity price risks.

» Refer Note 6.1 Financial risk management.


	Accounting policies

All derivatives are initially and continuously recognised at fair value in

the balance sheet. The fair value gain or loss is recognised through the

income statement or other comprehensive income depending on

whether the derivative is designated as a hedging instrument, and on

the nature of the item being hedged. Certain derivatives are designated

at inception either hedges of the fair value of recognised assets or

liabilities (fair value hedge), hedges of highly probable forecasted

transactions (cash flow hedge), or hedges of net investments in foreign

subsidiaries with other than the EUR as their functional currency (net

investment hedge). 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 recognised 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 recognised in other

comprehensive income. Cost of hedging, meaning forward points of

derivative forward contracts accounted as cash flow hedges, is

recognised 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 recognised when

the committed or forecasted transaction is ultimately recognised 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 recognised 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


UPM FINANCIAL REPORT 2023	92

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.


	Financial counterparty risk

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

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.


UPM FINANCIAL REPORT 2023	93

Net fair values of derivatives


	Positive fair values	Negative fair values	Net fair values	Positive fair values	Negative fair values	Net fair values
EURm	2023			2022
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges	25	-12	13	67	-34	33
Net investment hedge	3	-2	1	2	-2	—
Non-qualifying hedges	19	-5	14	16	-15	—
Cross currency swaps
Non-qualifying hedges	—	-31	-31	—	-16	-16
Derivatives hedging foreign exchange risk	47	-50	-3	85	-68	18
Interest rate risk
Interest rate swaps
Fair value hedges	24	-94	-69	30	-137	-107
Non-qualifying hedges	—	-4	-4	—	-2	-2
Cross currency swaps
Fair value hedges	27	—	27	31	—	31
Non-qualifying hedges	—	—	—	—	—	—
Derivatives hedging interest risk	51	-97	-46	62	-139	-77
Commodity risk
Electricity sales
Cash flow hedges	12	-26	-14	19	-54	-35
Non-qualifying hedges	—	—	—	—	-2	-2
Electricity purchase
Cash flow hedges	4	—	4	12	-11	1
Other commodities
Non-qualifying hedges	—	-6	-6	1	-1	—
Derivatives hedging commodity risk	16	-32	-16	32	-69	-36
Total	114	-180	-66	179	-275	-96

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


EURm	2023	2022
Interest rate futures	1,691	1,969
Interest rate swaps	1,089	1,102
Forward foreign exchange contracts	3,308	3,913
Currency options	—	—
Cross currency swaps	134	149
Commodity contracts	591	1,744

Cash collaterals pledged mainly for exchange traded contracts totalled

EUR 185 (500) million of which EUR 184 (498) million relate to

commodity contracts and EUR 1 (2) 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.

Net fair values of derivatives calculated by counterparty


EURm	POSITIVE FAIR VALUES	NEGATIVE FAIR VALUES	NET FAIR VALUES
2023	55	-121	-66
2022	88	-185	-96


UPM FINANCIAL REPORT 2023	94


Timing of nominal amounts of derivatives 2023	Within 1 year	Between 1–5 years	Later than 5 years	Total
EURm	2023
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges	1,735	8	—	1,743
Net investment hedge	287	—	—	287
Non-qualifying hedges	1,263	15	—	1,278
Cross currency swaps
Non-qualifying hedges	—	—	134	134
Interest rate risk
Interest rate swaps
Fair value hedges	—	1,089	—	1,089
Cross currency swaps
Fair value hedges	—	—	134	134
Interest rate futures
Non-qualifying hedges	1,691	—	—	1,691
Commodity risk
Electricity sales
Cash flow hedges	381	60	—	442
Non-qualifying hedges	—	—	—	—
Electricity purchase
Cash flow hedges	35	2	—	37
Non-qualifying hedges	1	—	—	1
Other commodities
Non-qualifying hedges	111	—	—	111


Timing of nominal amounts of derivatives 2022	Within 1 year	Between 1–5 years	Later than 5 years	Total
EURm	2022
Foreign exchange risk
Forward foreign exchange contracts
Cash flow hedges	2,597	18	—	2,615
Net investment hedge	365	—	—	365
Non-qualifying hedges	928	5	—	934
Cross currency swaps
Non-qualifying hedges	—	—	149	149
Interest rate risk
Interest rate swaps
Fair value hedges	—	352	750	1,102
Cross currency swaps
Fair value hedges	—	—	149	149
Interest rate futures
Non-qualifying hedges	1,969	—	—	1,969
Commodity risk
Electricity sales
Cash flow hedges	968	393	—	1,361
Non-qualifying hedges	5	1	—	6
Electricity purchase
Cash flow hedges	244	40	—	283
Non-qualifying hedges	—	—	—	—
Other commodities
Non-qualifying hedges	93	—	—	93

The nominals of cross currency swaps are included in both foreign exchange risk and interest rate risk.


UPM FINANCIAL REPORT 2023	95

7.Income tax

7.1Tax on profit for the year

Income tax

In 2023, tax on profit for the year amounted to EUR 71 million (388

million). The effective tax rate was 15.2% (19.9%). In 2023 and 2022,

the effective tax rate was affected by the income not subject to tax from

subsidiaries operating in tax free zone and German tax rate that is

higher than in Finland. In 2023, effective tax rate was significantly

impacted by restructuring charges and impairment charges related to

the closure of the UPM Plattling paper mill and paper machine 6 at the

UPM Schongau mill in Germany.

Income tax


EURm	2023	2022
Current tax expense	161	344
Change in deferred taxes	-90	44
Total	71	388

Tax rate reconciliation


EURm	2023	2022
Profit before tax	464	1,944
Computed tax at Finnish statutory rate of 20%	93	389
Difference between Finnish and foreign rates	-28	62
Tax-exempt income	-51	-99
Non-deductible expenses	28	11
Withholding taxes	2	0
Tax loss with no tax benefit	45	19
Results of associates	0	-1
Change in tax legislation	—	1
Change in recoverability of deferred tax assets	-5	9
Utilisation of previously unrecognised tax losses	-3	-9
Other items	-9	7
Total income taxes	71	388
Effective tax rate, %	15.2%	19.9%


	Accounting policies

The group’s income tax expense comprises current tax and deferred tax.

Current tax is calculated on the taxable result for the period based on

the tax rules prevailing in the countries where the group operates and

includes tax adjustments for previous periods and withholding taxes

deducted at source on intra-group transactions. Tax expense is

recognised in the income statement, unless it relates to items that have

been recognised in equity or as part of other comprehensive income. In

these instances, the related tax expense is also recognised in equity or

other comprehensive income, respectively.


	Key estimates and judgements

The group is subject to income taxes in numerous jurisdictions and

the calculation of the group’s tax expense and income tax liabilities

involves a degree of estimation and judgement. Tax balances reflect

a current understanding and interpretation of existing tax laws.

Management periodically evaluates positions taken in tax returns with

respect of situations in which applicable tax regulation is subject to

interpretation and adjusts income tax liabilities where appropriate.

In December 2022, EU member states reached agreement to

implement at EU level the minimum taxation component, known as Pillar

Two, of the OECD’s reform of international taxation. The entities in

scope will be liable to pay a top-up tax for the difference between their

GloBE effective tax rate per jurisdiction and the 15% minimum rate.

UPM is within the scope of the OECD Pillar Two model rules. Pillar Two

legislation was enacted in Finland in 2023, the jurisdiction in which

UPM is incorporated, and will come into effect from 1 January 2024.

Since the Pillar Two legislation was not effective at the reporting date,

the group has no related current tax exposure. The group applies the

exception to recognising and disclosing information about deferred tax

assets and liabilities related to Pillar Two income taxes, as provided in

the amendments to IAS 12 issued in May 2023. UPM is currently

evaluating Pillar Two requirements and legislation in the jurisdictions

that are likely to be impacted. For the annual reporting period to 31

December 2023, some of the jurisdictions have effective tax rate below

15% as calculated in accordance with IAS 12. However, the group

might not be exposed to paying Pillar Two income taxes. This is due to

the impact of specific adjustments in calculating the GloBE effective tax

rates compared to those calculated in accordance with paragraph 86

of IAS 12 as well as substance based income exclusion which limits the

tax base. Based on initial assessment, if the Pillar Two rules had been

applicable in 2023, there would not have been any impact on group’s

income taxes. The assessment is based on the current information

available and may change as more details and guidance on the

implementation of the Pillar Two rules are released. The main

jurisdiction for possible exposure to additional Pillar Two income taxes

is Uruguay. The financial impact would depend on the results of the

Uruguay subsidiaries and the decrease in the substance based income

exclusion in accordance with the OECD Pillar Two model rules in

subsequent years. Due to the complexities in applying the legislation

and calculating GloBE income and additional guidance still being

developed by OECD, the quantitative impact of the enacted or

substantively enacted legislation is not yet reasonably estimable.

The law for a temporary profit tax on the electricity sector in Finland

was enacted in March 2023. The additional tax to be applied is 30%

of the companies’ net profits generated from the electricity business in

Finland in fiscal year 2023 exceeding 10% annual return on

shareholder’s equity of the electricity business (in addition to normal 20

% corporate income tax rate on profits generated from electricity

operations). UPM is in scope of temporary profit tax and the additional

tax accrued amounted to EUR 1 million.


UPM FINANCIAL REPORT 2023	96

7.2Deferred tax


EURm	2023	2022	2021
Deferred tax assets
Intangible assets and property, plant and equipment	66	86	83
Inventories	77	86	53
Retirement benefit liabilities and provisions	94	88	127
Other temporary differences	175	475	269
Tax losses and tax credits carried forward	242	167	230
Offset against liabilities	-224	-417	-297
Total	431	485	466
Deferred tax liabilities
Intangible assets and property, plant and equipment	-265	-335	-261
Forest assets	-412	-423	-398
Retirement benefit assets	—	-2	-17
Other temporary differences	-163	-294	-217
Offset against assets	224	417	297
Total	-616	-636	-596
Net deferred tax assets (liabilities)	-185	-151	-130

Movements in deferred tax assets and liabilities


EURm	2023	2022
Carrying value, at 1 January	-151	-130
Charged to income statement	90	-44
Charged to other comprehensive income	-113	58
Companies acquired	-5	-26
Classified as held for sale	-13	—
Exchange rate adjustments	7	-9
Net deferred tax assets (liabilities)	-185	-151

Deferred income tax assets and liabilities are offset when there is a

legally enforceable right to offset current tax assets against current tax

liabilities and when the deferred income taxes relate to the same fiscal

authority.

Tax charge to other comprehensive income


	Before tax	Tax	After tax	Before tax	Tax	After tax
EURm	2023			2022
Actuarial gains and losses on defined benefit plans	-14	4	-10	249	-57	192
Energy shareholdings	-1,370	19	-1,351	1,074	-23	1,051
Translation differences	-120	—	-120	150	—	150
Cash flow hedges	673	-134	539	-665	134	-531
Net investment hedges	8	-2	6	-19	4	-15
Total	-823	-113	-936	789	58	847


	Key estimates and judgements

Recognised deferred tax assets

The recognition of deferred tax assets requires management judgement

as to whether it is probable that such balances will be utilised and/or

reversed in the foreseeable future. At 31 December 2023, net operating

loss carry-forwards for which the group has recognised a deferred tax

asset amounted to EUR 841 million (584 million), of which EUR 772

million (514 million) was attributable to German subsidiaries. In

Germany net operating loss carry-forwards do not expire. In other

countries net operating loss carry-forwards expire at various dates and

in varying amounts. Based on profit forecasts, it is probable that there

will be sufficient future taxable profits available against which the tax

losses and tax credits can be utilised.

The assumptions regarding future realisation of tax benefits, and

therefore the recognition of deferred tax assets, may change due to

future operating performance of the group, as well as other factors,

some of which are outside of the control of the group.

Unrecognised deferred tax assets and liabilities

The net operating loss carry-forwards for which no deferred tax is

recognised due to uncertainty of their utilisation amounted to EUR 902

million (890 million) in 2023. These net operating loss carry-forwards

are mainly attributable to certain German and French subsidiaries and

do not expire, as well as to certain Uruguayan subsidiaries which

expire at different times by the end of 2028.

In addition, the group has not recognised deferred tax assets on loss

carry-forwards relating to closed Miramichi paper mill due to only minor

operations in Canada. These loss carry-forwards expire at different

times by the end of 2029.

In Uruguay tax credits amounting to EUR 155 million have not been

recognised due to uncertainty of their utilisation.

The group has not recognised deferred tax liability in respect of

undistributed earnings of non-Finnish subsidiaries to the extent that it is

probable that the temporary differences will not reverse in the

foreseeable future. In addition, the group has not recognised deferred

tax liability for the undistributed earnings of Finnish subsidiaries and

associates as such earnings can be distributed without any tax

consequences.


UPM FINANCIAL REPORT 2023	97


	Accounting policies

Deferred tax is calculated based on temporary differences between the

carrying amounts and the taxable values of assets and liabilities and for

tax loss carry-forwards to the extent that it is probable that these can be

utilised against future taxable profits.

Deferred income tax is determined using tax rates (and laws) that

have been enacted or substantially enacted by the balance sheet date

and are expected to apply when the related deferred income tax asset

is realised or the deferred income tax liability is settled.

Deferred income tax is provided on temporary differences arising on

investments in subsidiaries, associates and joint ventures, except where

the timing of the reversal of the temporary difference is controlled by the

group and it is probable that the temporary difference will not reverse in

the foreseeable future. Deferred tax assets and liabilities are recognised

net where there is a legal right to set-off and an intention to settle on a

net basis.

8.Group structure

8.1Business acquisitions and disposals

In 2023, UPM sold all its business operations in Russia to Gungnir

Wooden Products Trading. The group also sold its holding in ASK

Altpapier Sortierung Kinsau GmbH and its 20.00 % holding in the

associated company Northern SC Paper Corporation. UPM made also

several minor investments and sales of equity investments accounted at

fair value through OCI.

In 2022, acquired AMC AG (Advanced Methods of Coating) and

made a minor investment in ASK Altpapier Sortierung Kinsau GmbH by

acquiring the full share capital of of the company. UPM also sold its

33.09 % holding in the associated company Encore Ympäristöpalvelut

Oy, and made several minor investments and disposals of equity

investments accounted at fair value through OCI.

Business combinations

On 1 August 2023, it was announced that UPM Biochemicals has

acquired SunCoal Industries GmbH. The acquisition enables UPM

Biochemicals to strengthen the role as a leading supplier of sustainable,

renewable functional fillers (RFF) to the rubber and plastic markets. UPM

Biochemicals expects to realize significant synergies through the

acquisition.

If the transaction had occurred on 1 January 2023, UPM’s sales for

January–December 2023 would have been EUR 10,461 million and

profit for the period EUR 393 million. These amounts have been

calculated using the group’s accounting policies and by adjusting the

results of the subsidiaries to reflect the amortisation that would have

been charged assuming application of fair value adjustments to other

intangible assets from 1 January 2023, together with the consequential

tax effects.

Details of the purchase consideration, the net assets acquired and

goodwill are as follows:


EURm
Cash paid	21
Deferred consideration	2
Total purchase consideration	23


EURm	31 JUL 2023
Other intangible assets	22
Property, plant and equipment	1
Leased assets	0
Trade and other receivables	1
Cash and cash equivalents	1
Total assets	25
Deferred tax liabilities	5
Provisions	0
Non-current debt	0
Trade and other payables	1
Total liabilities	7
Net identifiable assets acquired	17
Goodwill arising from acquisition	5

Acquisition-related costs of EUR 1 million are included in other

operating expenses and are reported as items affecting comparability in

UPM Biochemicals business in Other Operations.

Information on the amounts of revenue and profit or loss of the

acquiree since the acquisition date included in the consolidated income

statement for the reporting period is not disclosed because it would be

impracticable. The acquired business has been included in the group

since 31 July 2023, and the effects of the revenues and profit or loss

thereof are not considered material for disclosure purposes.

The fair values of net identifiable assets acquired are provisional and

dependent on final fair valuations.

Transactions with non-controlling interests

In 2023, UPM did not have any change in its non-controlling interests.

In 2022, UPM acquired a holding with a minor non-controlling

interest as a part of the acquisition of AMC AG.


	Accounting policies

UPM consolidates acquired entities at the acquisition date which is

when it gains control using the acquisition method. Consideration

transferred is determined as the fair value of the assets transferred,

the liabilities incurred and equity instruments issued including the fair

value of a contingent consideration. Acquisition related transaction costs

are expensed as incurred. Identifiable assets acquired and liabilities

and contingent liabilities assumed are measured initially at their fair

values at the acquisition date. The group measures any non-controlling

interest in the acquiree either at fair value or at the non-controlling

interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-

controlling interest in the acquiree and the acquisition-date fair value of

any previous equity interest in the acquiree over the fair value of the

identifiable net assets of the subsidiary acquired is recorded as

goodwill.

The assets, liabilities, income and expenses of subsidiaries with non-

controlling interests are consolidated line by line into the UPM

consolidated financial statements. The proportion of the profit for the

period, as well as the accumulated share of total equity belonging to

non-controlling interests are presented separately in the consolidated

income statement and consolidated balance sheet.


UPM FINANCIAL REPORT 2023	98

8.2Principal subsidiaries and joint operations


SUBSIDIARIES	COUNTRY OF INCORPORATION	HOLDING % 2023	HOLDING % 2022
Blandin Paper Company	US	100.00	100.00
Blanvira S.A.	UY	91.00	91.00
Cuecar S.A.	UY	91.00	91.00
Forestal Oriental S.A.	UY	100.00	100.00
Gebr. Lang GmbH Papierfabrik	DE	100.00	100.00
LLC UPM Ukraine	UA	100.00	100.00
Nordland Papier GmbH	DE	100.00	100.00
NorService GmbH	DE	100.00	100.00
Nortrans Speditionsgesellschaft mbH	DE	100.00	100.00
OOO UPM-Kymmene	RU	—	100.00
OOO UPM-Kymmene Chudovo	RU	—	100.00
Print Inform Japan K.K.	JP	80.00	80.00
PT UPM Raflatac Indonesia	ID	100.00	100.00
Rhein Papier GmbH	DE	100.00	100.00
SERPRI S.A. Unipersonal	ES	100.00	100.00
Steyrermühl Sägewerksgesellschaft m.b.H. Nfg KG	AT	100.00	100.00
SunCoal Industries GmbH1)	DE	100.00	—
Tebetur S.A.	UY	91.00	91.00
Tile Forestal S.A.	UY	91.00	91.00
UPM (China) Co. Ltd	CN	100.00	100.00
UPM (Vietnam) Limited	VN	100.00	100.00
UPM AG	CH	100.00	100.00
UPM Asia Pacific Pte. Ltd.	SG	100.00	100.00
UPM Biochemicals GmbH	DE	100.00	100.00
UPM Biochemicals Sales GmbH	DE	100.00	100.00
UPM Biofuels S.A.	UY	100.00	100.00
UPM Communication Papers Oy	FI	100.00	100.00
UPM Energy Oy	FI	100.00	100.00
UPM France S.A.S.	FR	100.00	100.00
UPM Fray Bentos S.A.	UY	100.00	100.00
UPM GmbH	DE	100.00	100.00
UPM-Kymmene (Korea) Ltd	KO	100.00	100.00
UPM-Kymmene (UK) Ltd	GB	100.00	100.00
UPM-Kymmene Administrations GmbH & Co. KG	DE	100.00	100.00
UPM-Kymmene Austria GmbH	AT	100.00	100.00
UPM-Kymmene Grundbesitz GmbH & Co. KG	DE	100.00	100.00
UPM-Kymmene Inc.	US	100.00	100.00
UPM-Kymmene India Private Limited	IN	100.00	100.00
UPM-Kymmene Japan K.K.	JP	100.00	100.00
UPM-Kymmene Kagit Urunleri Sanayi ve Ticared Ltd. Sti.	TR	100.00	100.00
UPM-Kymmene Otepää OÜ	EE	100.00	100.00
UPM-Kymmene S.r.l.	IT	100.00	100.00
UPM-Kymmene Seven Seas Oy	FI	100.00	100.00
UPM-Kymmene Sp.z o.o.	PL	100.00	100.00
UPM NV	BE	100.00	100.00
UPM OÜ	EE	100.00	100.00
UPM Plywood Oy	FI	100.00	100.00
UPM Pulp Sales Oy	FI	100.00	100.00
UPM Raflatac (China) Co., Ltd.	CN	100.00	100.00


UPM FINANCIAL REPORT 2023	99


SUBSIDIARIES	COUNTRY OF INCORPORATION	HOLDING % 2023	HOLDING % 2022
UPM Raflatac (S) Pte Ltd	SG	100.00	100.00
UPM Raflatac (UK) Ltd.	GB	100.00	100.00
UPM Raflatac Chile SpA	CL	100.00	100.00
UPM Raflatac Co. Ltd.	TH	100.00	100.00
UPM Raflatac GmbH	DE	100.00	100.00
UPM Raflatac Iberica S.A.	ES	100.00	100.00
UPM Raflatac Inc.	US	100.00	100.00
UPM Raflatac Mexico S.A. de C.V.	MX	100.00	100.00
UPM Raflatac NZ Limited	NZ	100.00	100.00
UPM Raflatac Oy	FI	100.00	100.00
UPM Raflatac Pty Ltd	AU	100.00	100.00
UPM Raflatac S.r.l.	AR	100.00	100.00
UPM Raflatac SAS	FR	100.00	100.00
UPM Raflatac Sdn.Bhd.	MY	100.00	100.00
UPM Raflatac South Africa (Pty) Ltd	ZA	100.00	100.00
UPM Raflatac Sp. z o .o.	PL	100.00	100.00
UPM S.A.	UY	91.00	91.00
UPM Sales GmbH	DE	100.00	100.00
UPM Sales Oy	FI	100.00	100.00
UPM Specialty Papers Oy	FI	100.00	100.00
UPM Sähkönsiirto Oy	FI	100.00	100.00
UPM Trading (Shanghai) Co	CN	100.00	100.00
Uruwood S.A.	UY	93.55	93.25
Werla Insurance Company Ltd	MT	100.00	100.00

1) In 2023, UPM completed acquisition of SunCoal Industries GmbH. » Refer to note 8.1. Business acquisitions and disposals.


JOINT OPERATIONS	COUNTRY OF INCORPORATION	HOLDING % 2023	HOLDING % 2022
Oy Alholmens Kraft Ab (Pohjolan Voima Oyj, G series and direct ownership)	FI	50.00	50.00
EEVG Entsorgungs- und Energieverwertungsgesellschaft m.b.H.	AT	50.00	50.00
Järvi-Suomen Voima Oy	FI	50.00	50.00
Kaukaan Voima Oy (Pohjolan Voima Oyj, G9 series)	FI	54.00	54.00
Kymin Voima Oy (Pohjolan Voima Oyj, G2 series)	FI	76.00	76.00
Madison Paper Industries	US	—	50.00
Rauman Biovoima Oy (Pohjolan Voima Oyj, G4 series)	FI	71.95	71.95

Non-controlling interests

UPM has non-controlling interests mainly in Uruguay companies.

Summarised financial information of Uruguay subsidiaries that have

non-controlling interests is presented in the following table. The amounts

disclosed are before inter-company eliminations.


EURm	2023	2022
Profit for the period	60	339
Other comprehensive income for the period	3	2
Total comprehensive income for the period	63	341
Share of non-controlling interests	6	31

Non-current assets	3,449	3,100
Current assets	712	1,034
Non-current liabilities	121	29
Current liabilities	188	176
Net assets	3,852	3,929
Share of non-controlling interests	347	354


UPM FINANCIAL REPORT 2023	100

8.3Related party transactions

The Board of Directors and the Group Executive Team

There have not been any material transactions between UPM and its

members of the Board of Directors or the Group Executive Team (key

management personnel) or persons closely associated with these

members or organisations in which these individuals have control or

significant influence. There are no loans granted to any members of the

Board of Directors or the Group Executive Team at 31 December 2023

or 2022.

For information concerning shares held by members of the Board of

Directors as well as remuneration to members of the Board of Directors and

the Group Executive Team are disclosed in » Note 3.2. Key management

personnel.

Associates and joint ventures

Austria Papier Recycling GmbH purchases recovered paper in Austria

and L.C.I s.r.l. in Italy. ASD Altpapier Sortierung Dachau GmbH is a

German recovered paper sorting company.

Transactions with associates and joint ventures are presented in the

table below. The group has no individually material associates or joint

ventures.


EURm	2023	2022
Dividends received	2	3
Purchases of raw materials and services	37	57
Loan receivables	5	5
Trade and other receivables	—	1
Trade and other payables	5	7

Subsidiaries and joint operations

» Refer Note 8.2 Principal subsidiaries and joint operations.

Pension Funds

In the UK, the single UPM Pension Scheme operates under a Trust which

is independent from the group. The Trust consists of various defined

benefit sections, all of which are closed to future accrual and one

common defined contribution section which is open to all UPM

employees in the UK. The group made contributions of EUR 0 million (6

million) to the defined benefit sections of the Scheme in 2023. The fair

value of the UK defined benefit fund assets at 31 December 2023 was

EUR 297 million (300 million), of which 16% was invested in equity

instruments, 54% in debt instruments, 7% in property, 17% money

market and 5% in other investments.

Previously part of group´s Finnish employees were insured with TyEL

foundation (UPM Sellutehtaiden eläkesäätiö) which was classified as a

defined benefit plan. In 2022, TyEL foundation was replaced with

defined contribution arrangement. The assets and liabilities of the plan

were transferred to the insurance company and the group recognised

EUR 69 million settlement loss in the income statement. The cash

received on the settlement amounted to EUR 128 million.

8.4Assets held for sale

Assets and liabilities classified as held for sale as at 31 December

2023 relate to agreement to sell 100% of the shares of Austrian

subsidiary UPM-Kymmene Austria GmbH to the HEINZEL GROUP as

announced in June 2022. The transaction comprises the UPM

Steyrermühl site and the Steyrermühl sawmill operations. UPM

Communication Papers ended the newspaper production at Steyrermühl

paper mill in June 2023.

The following assets and liabilities were reclassified as held for sale in

relation to the sale of UPM-Kymmene Austria GmbH as of 31 December

2023. On 2 January 2024, UPM announced that it has completed the

sale.


EURm	2023
Other intangible assets	2
Property, plant and equipment	21
Leased assets	1
Other non-current financial assets	5
Deferred tax assets	13
Non-current assets	41
Inventories	7
Trade and other receivables	15
Other current financial assets	4
Cash and cash equivalents	39
Current assets	65
Assets classified as held for sale	106
Net retirement benefit liabilities	36
Provisions	1
Non-current debt	2
Non-current liabilities	39
Trade and other payables	17
Current liabilities	17
Liabilities classified as held for sale	56

No assets or liabilities were classified as held for sale at the end of

2022.


	Accounting policies

Non-current assets (or disposal groups) are classified as assets held for

sale and stated at the lower of carrying amount and fair value less costs

to sell, if UPM will recover their carrying amount through a sale

transaction which is considered highly probable. Non-current assets

classified as held for sale, or included within a disposal group that is

classified as held for sale, are not depreciated after the classification.


UPM FINANCIAL REPORT 2023	101

9.Unrecognised items

9.1Commitments and contingencies

In the normal course of business, UPM enters into various agreements

providing financial or performance assurance to third parties. The

maximum amounts of future payments for which UPM is liable is

disclosed in the table below under “Other commitments”. Property under

mortgages given as collateral for own commitments include property,

plant and equipment, industrial estates and forest land.


EURm	2023	2022
On behalf of others
Guarantees	—	2
Other own commitments
Leasing commitments for the next 12 months in accordance with IFRS 16	2	2
Other commitments	99	219
Total	101	223

The lease commitments for leases not commenced at the end of 2023

totals approximately EUR 176 million, which are mostly related to a

railway service agreement in Uruguay and a service agreement related

to waste water treatment in Leuna, Germany. Lease commitments at the

end of 2022 amounted to EUR 245 million.

The decrease in other commitments during the period is mainly due

to the PVO loan commitment, which matured at the end of 2023.

9.2Litigation

Contingent liabilities

The group is defendant or plaintiff in a number of legal proceedings

incidental to its operations. These lawsuits primarily involve claims

arising from commercial law issues.

Group companies

The Group’s management is not aware of any significant litigation at

the end of 2023.

In October 2021, the European Commission conducted an

unannounced inspection at UPM’s premises. According to the

Commission’s press release on 12 October 2021, the Commission had

concerns that the inspected companies in the wood pulp sector may

have violated EU antitrust rules that prohibit cartels and restrictive

business practices. On 15 June 2023 the Commission published a

release that it had decided to close its antitrust investigation in the wood

pulp sector. According to the Commission's release, it had decided to

close the investigation after a thorough analysis and careful assessment

of all the evidence gathered.

9.3Events after the balance sheet date

On 2 January 2024, UPM announced that it has completed the sale of

Steyrermühl site and all related assets to HEINZEL GROUP, thereby

closing the transaction announced in June 2022.

10.Other notes

10.1Forthcoming new standards, amendments

and accounting policy changes

Certain new accounting standard amendments and interpretations have

been published that come into effect only after the reporting period

started on 1 January 2023. These standards and amendments are not

expected to have a material impact on the group in the current or future

reporting periods and on foreseeable future transactions and have not

been early adopted.


UPM FINANCIAL REPORT 2023	102

Parent company accounts

(Finnish Accounting Standards, FAS)

Income statement


EURm	NOTE	2023	2022
Sales	1	2,585	2,414
Change in inventories of finished goods and work in progress		10	15
Production for own use		1	2
Other operating income	2	103	81
Materials and services
Raw materials and consumables purchased		-1,935	-1,449
Change in inventories		-43	-98
External charges		-8	-6
		-1,987	-1,553
Personnel expenses
Salaries and fees		-198	-194
Indirect employee costs
Pension costs		-36	95
Other indirect employee costs		-7	-7
	3	-241	-106
Depreciation, amortisation and impairment charges
Depreciation and amortisation		-112	-117
	4	-112	-117
Other operating expenses	5	-349	-289
Operating profit (loss)		10	446
Financial income and expenses
Income from non-current assets
Dividend income from group companies		738	293
Interest income from group companies		5	16
Other interest and financial income
Other interest income from group companies		150	63
Other interest income from other companies		30	6
Other financial income from group companies		1	77
Other financial income from other companies		974	0
Impairment charges and reversals on investments		9	-62
Interest and other financial expenses
Interest expenses to group companies		-133	-35
Interest expenses to other companies		-93	-43
Other financial expenses to group companies		-32	-3
Other financial expenses to other companies		-17	-858
		1,632	-547
Profit (loss) before closing entries and tax		1,642	-101
Closing entries
Depreciation difference		31	19
Group contributions received		37	0
Group contributions granted		-37	-24
		31	-5
Income taxes	6	1	-84
Profit (Loss) for the period		1,675	-190


UPM FINANCIAL REPORT 2023	103

Balance sheet


EURm	NOTE	2023	2022
ASSETS
Non-current assets
Intangible assets
Intangible rights		5	5
Other intangible assets		27	32
Advance payments		26	22
	7	58	60
Tangible assets
Land and water areas		748	746
Buildings		166	178
Machinery and equipment		414	453
Other tangible assets		18	19
Advance payments and construction in progress		26	21
	8	1,372	1,418
Investments
Holdings in group companies		6,587	5,834
Holdings in participating interest companies		5	5
Other shares and holdings		3	3
Receivables from group companies		993	930
Receivables from participating interest companies		3	3
	9	7,590	6,774
Total non-current assets		9,019	8,252
Current assets
Inventories
Raw materials and consumables		229	272
Finished products and goods		43	33
Advance payments		30	32
		302	337
Receivables
Current receivables
Trade receivables		37	57
Receivables from group companies		1,786	2,581
Receivables from participating interest companies		13	17
Other current receivables		182	490
Prepayments and accrued income		12	23
	10	2,029	3,167

Other current financial assets		1	1
Cash and cash equivalents		500	1,840
Total current assets		2,832	5,345
Assets		11,852	13,598


UPM FINANCIAL REPORT 2023	104


EURm	NOTE	2023	2022
EQUITY AND LIABILITIES
Equity
Share capital		890	890
Revaluation reserve		140	140
Reserve for invested non-restricted equity		1,273	1,273
Retained earnings		342	1,333
Profit (Loss) for the period		1,675	-190
Total equity	11	4,319	3,445

Accumulated depreciation difference		367	398
Provisions
Termination provisions		1	2
Other provisions		166	297
	12	167	299
LIABILITIES
Non-current liabilities
Bonds		2,089	2,102
Loans from financial institutions		185	1,578
Payables to group companies		285	160
Other non-current liabilities		134	149
	13	2,693	3,988
Current liabilities
Loans from financial institutions		15	0
Advances received		0	1
Trade payables		341	454
Payables to group companies		3,654	4,334
Payables to participating interest companies		6	3
Other current liabilities		201	573
Accrued expenses and deferred income		88	103
	14	4,305	5,467
Total liabilities		6,998	9,455
Equity and liabilities		11,852	13,598


UPM FINANCIAL REPORT 2023	105

Cash flow statement


EURm	2023	2022
Cash flows from operating activities
Profit before closing entries and tax	1,642	-101
Financial income and expenses	-1,632	547
Adjustments to operating profit 1)	48	231
Change in working capital 2)	983	-1,156
Interest received	185	87
Interest paid	-228	-69
Dividends received	738	293
Other financial items	861	-758
Income taxes paid 3)	8	-84
Operating cash flow	2,605	-1,010

Cash flows from investing activities
Investments in tangible and intangible assets	-69	-79
Investments in shares and holdings	-812	-1,285
Proceeds from sale of intangible and tangible assets	12	17
Proceeds from disposal of shares and holdings	68	1
Change in other non-current receivables	-63	-143
Investing cash flow	-865	-1,490

Cash flows from financing activities
Proceeds from non-current liabilities	325	4,493
Payments of non-current liabilities	-1,578	-2,627
Change in current liabilities	-1,004	1,794
Dividends paid	-800	-693
Group contributions, net	-24	-19
Other items	-1	97
Financing cash flow	-3,081	3,044

Cash and cash equivalents at beginning of period	1,840	1,296
Change in cash and cash equivalents	-1,340	545
Cash and cash equivalents at end of period	500	1,840

Notes to cash flow statement

1) Adjustments to operating profit


EURm	2023	2022
Depreciation, amortisation and impairment charges	113	181
Capital gains and losses on sale of non-current assets	-14	-13
Change in provisions	-51	63
Total	48	231

2) Change in working capital


EURm	2023	2022
Inventories	34	-121
Current receivables	1,133	-1,143
Current non-interest-bearing liabilities	-184	108
Total	983	-1,156

3) Income taxes related to sale of assets are presented in investing cash flow.


UPM FINANCIAL REPORT 2023	106

Notes to the parent company financial statements


	Accounting policies

The financial statements of the parent company are prepared in

accordance with Finnish Accounting Standards, FAS. The main

differences in accounting policies of the group and the parent company

relate to the measurement of financial derivatives and forest assets and

recognition of defined benefit obligations, share-based payments, lease

agreements and deferred income taxes.

The financial statements are presented in millions of euros and

rounded and therefore the sum of individual figures might deviate from

the presented total figure.

Foreign currency translation

Receivables and liabilities denominated in foreign currencies

outstanding on the balance sheet date and other commitments are

translated into euro currency using the balance sheet date exchange

rate. Exchange rate differences arising from the valuation of trade

receivables are recognised in sales and exchange rate differences on

trade payables in purchases. Exchange differences arising from the

measurement of other receivables and liabilities are recognised in

financial items.

Tangible and intangible assets

Tangible and intangible assets are stated at cost less accumulated

depreciation and amortisation according to plan and impairments.

Emission rights are recognised using net approach. Depreciation and

amortization according to plan is recorded on a straight-line basis over

the expected useful lives of the assets as follows:


Land and water areas, no depreciation
Intangible assets	5–10 years
Buildings	20–50 years
Light machinery and equipment	5–10 years
Heavy machinery	15–20 years
Power plants	20–30 years
Other tangible assets	5–20 years

Forest assets are recognised as tangible assets within land and water

areas at historical cost and revaluation. No systematic depreciation or

changes in value due to felling is recognised.

Investments

Investments are stated at cost less impairments.

Inventories

Inventories are stated at cost or the lower of replacement cost and

probable selling price. Costs are measured using FIFO-method. In

addition to variable costs, the cost of inventories includes a portion of

the fixed costs of acquisition and manufacturing.

Revaluations

The balance sheet value of land includes revaluations. No new

revaluations are made and the balance sheet value of land is

considered to be below their fair value.

Leases

Lease payments of lease contracts are recognised in other operating

expenses over the lease term. Lease payments due in future years under

lease contracts are presented as off-balance sheet items.

Provisions

Provisions include foreseeable future expenses and losses to which the

company is committed, the realization of which is probable and the

amount can be reliably estimated, e.g. pension and environmental

liabilities and termination and restructuring costs. Changes in provisions

are recognised in income statement within particular cost items.

Sales

Sales include sales revenue from actual operations less indirect taxes,

discounts, claims and exchange rate differences on trade receivables.

Research and development costs

Research and development costs are expensed in the year in which they

are incurred.

Pensions

In Finland employers are obliged to insure their employees for statutory

benefits, as determined in Employee’s Pension Act (TyEL). The

mandatory pensions are arranged mainly through pension insurance

companies. Contributions to pension insurance companies are charged

to the income statement in the period to which the contributions relate.

Share-based payments

Share based compensation is recognized as an expense in the income

statement over the earnings period and the related liability is booked to

the balance sheet.

Closing entries

Parent company closing entries consists of the change in the

depreciation difference and group contributions granted to group

companies. The accumulated depreciation difference in the parent

company has not been divided into equity and deferred tax liability.

Income taxes

Income taxes presented in the income statement consist of accrued taxes

for the financial year and tax adjustments for prior years. The parent

company has not recognised deferred tax assets and liabilities in the

balance sheet, but presents the information in the notes.

Derivatives

Realised results of derivative contracts and negative fair value of open

derivative contracts are recognised in the income statement. Negative

fair value of open derivative contracts that are not settled in cash is

recognised as a provision in the balance sheet. Hedge accounting is not

applied. Income and expenses of balance sheet hedging and forward

foreign exchange contracts hedging commercial foreign currency flow

of all group companies are recognised in financial items. Income and

expenses of commodity derivatives are recognised in operating profit.

Income and expenses of commodity derivative contracts of group

companies are recognized in financial items.

Majority of financial derivative contracts of the group are made by

the parent company. All contracts are made with external counterparties


UPM FINANCIAL REPORT 2023	107

except internal derivatives which are used to manage foreign currency

and interest rate exposure.

Financial risks, fair values and maturities of the group external derivatives

are disclosed in » Note 6.1 Financial risk management and in » Note 6.2

Derivatives and hedge accounting.

1. Sales

Sales by business area


EURm	2023	2022
UPM Fibres	2,075	1,973
Other operations	509	440
Total	2,585	2,414

Sales by destination


EURm	2023	2022
Finland	2,515	2,342
Other EU countries	45	46
Other countries	24	26
Total	2,585	2,414

2. Other operating income


EURm	2023	2022
Gains on sale of non-current assets	5	13
Rental income	6	9
Other	92	59
Total	103	81

3. Personnel expenses


EURm	2023	2022
Salaries and fees of the President and CEO, and members of the Board of Directors 1)	7	7
Other salaries and fees	191	187
Pension costs 2)	36	-95
Other indirect employee costs	7	7
Total	241	106

1) » Refer Note 3.2 Key management personnel

2) Pension expenses in 2022 include pension fund excess return of EUR 123

million from UPM Sellutehtaiden eläkesäätiö.

Personnel


	2023	2022
Total average	2,932	2,765

4. Depreciation, amortisation and impairment

charges


EURm	2023	2022
Intangible rights	2	2
Other intangible assets	13	13
Buildings	16	17
Machinery and equipment	79	82
Other tangible assets	3	3
Total	112	117

5. Other operating expenses


EURm	2023	2022
Rents and lease expenses	15	13
Maintenance expenses	146	118
Other operating expenses 1)	188	159
Total	349	289

1) The research and development costs in operating expenses were EUR 32

million (25 million) and auditor’s fee EUR 3.2 million (2.9 million). In

personnel expenses the research and development costs were EUR 16 million

(16 million).

6. Income taxes


EURm	2023	2022
Tax expense for the period	9	74
Tax expense for the previous periods	-10	10
Total	-1	84

Deferred tax assets and liabilities 1)


EURm	2023	2022
Deferred tax assets
Provisions	33	58
Share-based payments	2	3
Other temporary differences	24	176
Total	60	236

Deferred tax liabilities
Accumulated depreciation difference	73	80
Revaluations of land areas	60	60
Total	133	139

1) The parent company has not recognised deferred tax assets and liabilities in

the balance sheet. Deferred tax assets and liabilities are calculated based on

temporary differences between the carrying and taxable values of assets and

liabilities.


UPM FINANCIAL REPORT 2023	108

7.Intangible assets


EURm	INTANGIBLE RIGHTS	OTHER INTANGIBLE ASSETS	ADVANCE PAYMENTS	TOTAL
2023
Accumulated costs	22	300	26	348
Accumulated amortisation and impairments	-18	-273	—	-291
Carrying value, at 31 December	5	27	26	58
Carrying value, at 1 January	5	32	22	60
Additions	2	8	8	18
Disposals	—	-5	—	-5
Amortisation	-2	-13	—	-15
Reclassifications	—	4	-4	—
Carrying value, at 31 December	5	27	26	58
2022
Accumulated costs	22	293	22	337
Accumulated amortisation and impairments	-18	-260	—	-278
Carrying value, at 31 December	5	32	22	60
Carrying value, at 1 January	5	46	11	62
Additions	2	—	12	13
Amortisation	-2	-13	—	-16
Carrying value, at 31 December	5	32	22	60

8.Tangible assets


EURm	LAND AND WATER AREAS	BUILDINGS	MACHINERY AND EQUIPMENT	OTHER TANGIBLE ASSETS	ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS	TOTAL
2023
Accumulated costs	450	574	2,268	138	26	3,456
Accumulated depreciation and impairments	—	-408	-1,854	-120	—	-2,382
Revaluations	298	—	—	—	—	298
Carrying value, at 31 December	748	166	414	18	26	1,372
Carrying value, at 1 January	746	178	453	19	21	1,418
Additions	2	1	24	2	23	52
Disposals	—	—	—	—	—	-1
Depreciations	—	-16	-79	-3	—	-97
Reclassifications	—	2	15	—	-17	—
Carrying value, at 31 December	748	166	414	18	26	1,372
2022
Accumulated costs	449	570	2,230	139	21	3,409
Accumulated depreciation and impairments	—	-392	-1,777	-120	—	-2,289
Revaluations	298	—	—	—	—	298
Carrying value, at 31 December	746	178	453	19	21	1,418
Carrying value, at 1 January	718	196	514	21	13	1,462
Additions	33	—	13	—	18	66
Disposals	-3	-2	-1	—	—	-6
Depreciations	—	-17	-82	-3	—	-102
Reclassifications	—	1	9	—	-10	—
Changes in revaluations	-2	—	—	—	—	-2
Carrying value, at 31 December	746	178	453	19	21	1,418


UPM FINANCIAL REPORT 2023	109

9.Other non-current assets


EURm	HOLDINGS IN GROUP COMPANIES	HOLDINGS IN PARTICIPATING INTEREST COMPANIES	OTHER SHARES AND HOLDINGS	RECEIVABLES FROM GROUP COMPANIES	RECEIVABLES FROM PARTICIPATING INTEREST COMPANIES	TOTAL
2023
Accumulated costs	8,054	5	3	993	3	9,057
Accumulated value adjustments	-1,467	—	—	—	—	-1,467
Carrying value, at 31 December	6,587	5	3	993	3	7,590
Carrying value, at 1 January	5,834	5	3	930	3	6,774
Additions	812	—	—	164	—	976
Disposals	-68	—	—	-102	—	-169
Value adjustments 1)	9	—	—	—	—	9
Carrying value, at 31 December	6,587	5	3	993	3	7,590
2022
Accumulated costs	7,310	5	3	930	3	8,251
Accumulated value adjustments	-1,476	—	—	—	—	-1,476
Carrying value, at 31 December	5,834	5	3	930	3	6,774
Carrying value, at 1 January	4,610	5	3	786	3	5,408
Additions	1,285	—	—	332	—	1,617
Disposals	—	—	—	-188	—	-188
Value adjustments 1)	-62	—	—	—	—	-62
Carrying value, at 31 December	5,834	5	3	930	3	6,774

1) Value adjustments are shown in financial expenses

10.Current receivables


EURm	RECEIVABLES FROM GROUP COMPANIES	RECEIVABLES FROM PARTICIPATING INTEREST COMPANIES	RECEIVABLES FROM OTHERS	TOTAL
2023
Trade receivables	478	13	37	528
Loan receivables 1)	1,269	—	—	1,269
Prepayments and accrued income 2)	3	—	12	14
Other current receivables	37	—	182	219
Carrying value, at 31 December	1,786	13	231	2,029
2022
Trade receivables	783	17	57	857
Loan receivables 1)	1,795	—	—	1,795
Prepayments and accrued income 2)	2	—	23	25
Other current receivables	—	—	490	490
Carrying value, at 31 December	2,581	17	570	3,167

1) There were no loans granted to the company’s President and CEO and members of the Board of Directors at 31 December 2023 and 2022.


UPM FINANCIAL REPORT 2023	110

2) Prepayments and accrued income


EURm	2023	2022
Interest income	9	10
Income taxes	2	10
Other items	3	5
Carrying value, at 31 December	14	25

11.Equity


EURm	SHARE CAPITAL	REVALUATION RESERVE	RESERVE FOR INVESTED NON- RESTRICTED EQUITY	RETAINED EARNINGS	PROFIT/LOSS FOR THE PERIOD	TOTAL SHARE- HOLDER’S EQUITY
2023
Carrying value, at 1 January	890	140	1,273	1,333	-190	3,445
Transfer of profit from previous year	—	—	—	-190	190	—
Profit for period	—	—	—	—	1,675	1,675
Dividend distribution	—	—	—	-800	—	-800
Other changes	—	—	—	-1	—	-1
Carrying value, at 31 December	890	140	1,273	342	1,675	4,319
2022
Carrying value, at 1 January	890	141	1,273	1,557	469	4,330
Transfer of profit from previous year	—	—	—	469	-469	—
Profit for period	—	—	—	—	-190	-190
Dividend distribution	—	—	—	-693	—	-693
Changes in revaluations	—	-2	—	—	—	-2
Other changes	—	—	—	-1	—	-1
Carrying value, at 31 December	890	140	1,273	1,333	-190	3,445


EURm	2023	2022
Distributable funds
Reserve for invested non-restricted equity	1,273	1,273
Retained earnings from previous years	342	1,333
Profit (Loss) for the period	1,675	-190
Total distributable funds at 31 December	3,290	2,416


UPM FINANCIAL REPORT 2023	111

12.Provisions


EURm	RESTRUCTURING	TERMINATION	ENVIRONMENTAL	OTHER 1)	TOTAL
2023
Provisions at 1 January	3	2	8	286	299
Provisions made during the year	—	—	1	—	1
Provisions utilised during the year	—	—	—	-129	-130
Unused provisions reversed	—	-1	—	-2	-3
Carrying value, at 31 December	2	1	9	155	167

2022
Provisions at 1 January	3	3	9	137	152
Provisions made during the year	—	—	2	149	151
Provisions utilised during the year	—	—	—	-1	-1
Unused provisions reversed	—	—	-2	—	-3
Carrying value, at 31 December	3	2	8	286	299

1) Other provisions are attributable to onerous contracts and negative fair values of financial derivatives. At the end of 2023 the negative fair value in other provisions

of EUR 8 million (8 million) is attributable to one group internal cross currency swap and EUR 0.3 million (10 million) to group internal foreign currency forwards.

13.Non-current liabilities


EURm	2023	2022
Bonds	2,089	2,102
Loans from financial institutions	185	1,578
Payables to group companies	285	160
Other non-current liabilities	134	149
Carrying value, at 31 December	2,693	3,988

Maturity in 2029 (in 2028) or later


EURm	2023	2022
Bonds	1,000	1,750
Loans from financial institutions	62	92
Other non-current liabilities	134	149
Total	1,196	1,992

Bonds


FIXED RATE PERIOD	INTEREST RATE, %	CURRENCY	NOMINAL VALUE ISSUED, MILLION	CARRYING VALUE	CARRYING VALUE
				2023	2022
				EURm	EURm
1997–2027	7.450	USD	375	339	352
2020–2028	0.125	EUR	750	750	750
2021–2031	0.500	EUR	500	500	500
2022–2029	2.250	EUR	500	500	500
Carrying value, at 31 December				2,089	2,102
Non-current portion				2,089	2,102


UPM FINANCIAL REPORT 2023	112

14.Current liabilities


EURm	PAYABLES TO GROUP COMPANIES	PAYABLES TO PARTICIPATING INTEREST COMPANIES	PAYABLES TO OTHERS	TOTAL
2023
Loans from financial institutions	—	—	15	15
Trade payables	104	6	341	451
Accrued expenses and deferred income 1)	1	—	88	88
Other current liabilities	3,549	—	201	3,750
Carrying value, at 31 December	3,654	6	645	4,305
2022
Advances received	—	—	1	1
Trade payables	137	3	454	594
Accrued expenses and deferred income 1)	1	—	103	104
Other current liabilities	4,196	—	573	4,769
Carrying value, at 31 December	4,334	3	1,130	5,467

1) Accrued expenses and deferred income


EURm	2023	2022
Personnel expenses	73	84
Interest expenses	15	17
Other items	1	3
Carrying value, at 31 December	88	104

15.Commitments


EURm	2023	2022
Guarantees
Other guarantees on behalf of group companies	25	28
Other commitments
Leasing commitments, due within 12 months	24	18
Leasing commitments, due after 12 months	115	89
Other commitments	47	51
Total	212	187

In addition, the parent company acts as a guarantor on behalf of other

companies belonging to the group. Majority of such commitments relate

to major investment projects and can end up payable by the parent

company in case group companies are unable to manage their

obligations. » Refer Note 4.1 Property, plant and equipment for

information about major investment projects.

Pension commitments of the President and CEO and the

members of the Group Executive Team

» Refer Note 3.2 Key management personnel.

Related party transactions

» Refer Note 8.3 Related party transactions.

16.Shares and holdings owned by parent company


SUBSIDIARIES	COUNTRY OF INCORPORATION	HOLDING %
Myllykoski Oyj	FI	100.00
Repola Investment Oy	FI	100.00
Suurijärven Huolto Oy	FI	65.44
Unicarta Oy	FI	100.00
UPM (Vietnam) Limited	VN	100.00
UPM AG	CH	100.00
UPM Asia Pacific Pte. Ltd.	SG	100.00
UPM B.V.	NL	100.00
UPM Biochemicals GmbH	DE	100.00


UPM FINANCIAL REPORT 2023	113


SUBSIDIARIES	COUNTRY OF INCORPORATION	HOLDING %
UPM Communication Papers Oy	FI	100.00
UPM Energy Oy	FI	100.00
UPM Kft.	HU	100.00
UPM Manufatura e Comércio de Produtos Florestais Ltda.	BR	100.00
UPM NV	BE	100.00
UPM OÜ	EE	100.00
UPM Plywood Oy	FI	100.00
UPM Pulp Oy	FI	100.00
UPM Pulp Sales Oy	FI	100.00
UPM Raflatac Canada Holdings Inc.	CA	100.00
UPM Raflatac NZ Limited	NZ	100.00
UPM Raflatac Oy	FI	100.00
UPM Raflatac S.r.l.	AR	27.80
UPM Romania S.R.L	RO	100.00
UPM Silvesta Oy	FI	100.00
UPM Specialty Papers Oy	FI	100.00
UPM Wood Materials (UK) Ltd	UK	100.00
UPM Wood Materials Austria GmbH	AT	100.00
UPM-Kymmene (HK) Ltd.	CN/HK	100.00
UPM-Kymmene (Korea) Ltd	KR	100.00
UPM-Kymmene (UK) Holdings Limited	UK	100.00
UPM-Kymmene A/S	DK	100.00
UPM-Kymmene AB	SE	100.00
UPM-Kymmene B.V.	NL	100.00
UPM-Kymmene Beteiligungs GmbH	DE	100.00
UPM-Kymmene d.o.o.	SI	100.00
UPM-Kymmene Groupe S.A.	FR	100.00
UPM-Kymmene Grundstücksverwaltung GmbH	DE	100.00
UPM-Kymmene Hellas Ltd	GR	100.00
UPM-Kymmene India Private Limited	IN	100.00
UPM-Kymmene Investment Inc.	US	100.00
UPM-Kymmene Japan K.K.	JP	100.00
UPM-Kymmene Pty Limited	AU	100.00
UPM-Kymmene S.A.	ES	100.00
UPM-Kymmene S.r.l.	IT	100.00
UPM-Kymmene s.r.o.	CZ	100.00
UPM-Kymmene Seven Seas Oy	FI	100.00
UPM-Kymmene Slovakia s.r.o.	SK	100.00
Werla Insurance Company Ltd	MT	100.00


PARTICIPATING INTEREST COMPANIES	COUNTRY OF INCORPORATION	HOLDING %
Kiinteistö Oy Joutsan Rantatie 3	FI	25.43
Metsäteho Oy	FI	23.95
Oy Keskuslaboratorio - Centrallaboratorium Ab	FI	38.65
Perkaus Oy	FI	33.33
Rönnäsin Kiinteistöhuolto Oy	FI	28.41
Steveco Oy	FI	34.32

Group subsidiaries and joint operations are disclosed in » Note 8.2.


UPM FINANCIAL REPORT 2023	114

Electricity business

According to Electricity Market Act (588/2013), company is required to

unbundle electricity business from other operations if the size of the

electricity business is not considered minor. The Decree on the

unbundling of electricity business of the Ministry of Economic Affairs and

Employment of Finland (TEM 1305/2019) states that electricity business

is not considered minor if the revenue exceeds 500 thousand euros.

Electricity business refers to production and sales of electricity. The

electricity business of the parent entity exceeds the minimum requirement,

therefore, the mentioned requirement is applicable to the company.

Accounting policies

The unbundled financial statement of electricity business is prepared in

accordance with Electricity Market Act. Transactions and balance sheet

items are recorded to income statement and balance sheet in

accordance with the cause-and-effect principle. The transactions and

balance sheet items which are not directly derived from the electricity

business, are allocated based on the size of the business.

Income statement


EURm	2023	2022
Sales	11	40
Other operating income	6	2
Materials and services
Raw materials and consumables purchased	-16	-10
	-16	-10
Personnel expenses
Salaries and fees	—	—
Indirect employee costs
Pension costs	—	—
Other indirect employee costs	—	—
	—	—
Depreciation, amortisation and impairment charges
Depreciation and amortisation	-1	-1

Other operating expenses	-2	-1
Operating profit (loss)	-3	29

Profit (loss) before closing entries and tax	-3	29
Closing entries
Depreciation difference	1	1
Income taxes	—	-6
Profit (Loss) for the period	-2	24


UPM FINANCIAL REPORT 2023	115

Balance sheet


EURm	2023	2022
ASSETS
Non-current assets
Tangible assets
Machinery and equipment	5	6
Total non-current assets	5	6
Current assets
Receivables
Current receivables
Trade receivables	1	8
	1	8
Cash and cash equivalents	21	25
Total current assets	23	33
Assets	28	40

EURm	2023	2022
EQUITY AND LIABILITIES
Equity
Retained earnings	26	3
Profit (Loss) for the period	-2	24
Total equity	24	26

Accumulated depreciation difference	3	4
LIABILITIES
Current liabilities
Trade payables	—	1
Other current liabilities	1	8
Total liabilities	1	9
Equity and liabilities	28	40


UPM FINANCIAL REPORT 2023	116

Auditor’s Report (Translation of the Finnish Original)

To the Annual General Meeting of UPM-Kymmene Corporation

Report on the Audit of the Financial Statements

Opinion

In our opinion

• the consolidated financial statements give a true and fair view of the group’s financial position, financial performance and cash flows in

accordance with IFRS Accounting Standards as adopted by the EU

• the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the

laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements.

Our opinion is consistent with the additional report to the Audit Committee.

What we have audited

We have audited the financial statements of UPM-Kymmene Corporation (business identity code 1041090-0) for the year ended 31 December 2023.

The financial statements comprise:

• the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows

and notes, which include material accounting policy information and other explanatory information

• the parent company’s balance sheet, income statement, cash flow statement and notes.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further

described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland

and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and group companies are in

accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of

Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 2.3 to the Financial Statements.

Our Audit Approach

Overview


	• Overall group materiality: € 65 million, which represents approximately 5 % of the the average profit before tax for the last three years.
	• The group audit scope encompassed all significant group companies, as well as a number of smaller group companies in Europe, Asia, North America and South America covering the vast majority of revenue, assets and liabilities.
	• Valuation of forest assets • Valuation of energy shareholdings

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we

considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making

assumptions and considering future events that are inherently uncertain.


UPM FINANCIAL REPORT 2023	117

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial

statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the

consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of

our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.


Overall group materiality	€ 65 million (previous year € 95 million)
How we determined it	Approximately 5% of the profit before tax for the last three years.
Rationale for the materiality benchmark applied	We chose profit before taxes as the benchmark because, in our view, it is the benchmark against which the performance of the Group is commonly measured by users, and is a generally accepted benchmark. We chose approximately 5%, which is within the range of acceptable quantitative materiality thresholds in auditing standards.

How we tailored our group audit scope

We tailored the scope of our audit, taking into account the structure of the group, the accounting processes and controls, and the industry in which

the group operates.

We determined the type of work that needed to be performed at group companies by us, as the group engagement team, or by auditors from

other PwC network firms operating under our instruction. Audits were performed in group companies which were considered significant either

because of their individual financial significance or due to their specific nature, covering the majority of revenue, assets and liabilities of the group.

Selected specified procedures as well as analytical procedures were performed to cover the remaining group companies.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current

period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we

do not provide a separate opinion on these matters.

As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of

whether there was evidence of bias that represented a risk of material misstatement due to fraud.


Key audit matter in the audit of the group	How our audit addressed the key audit matter
Valuation of forest assets Refer to note 4.2. in the consolidated financial statements for the related disclosures. The group owns and leases a total of 1 073 thousand hectares of forests and plantations in Finland, the United States and Uruguay. The value of the forest assets, i.e. standing trees, amount to € 2 355 million at 31 December 2023. Forest assets are measured at fair value less cost to sell. The fair value is calculated on the basis of discounted future expected cash flows. Young saplings and land are valued at cost. Main factors used in the valuation are estimates for growth and wood harvested, stumpage prices and discount rates. We focused on this area as the amounts are material, the valuation process is complex and judgmental and is based on assumptions that are affected by expected future market or economic conditions.	In testing the valuation of forest assets, in conjunction with our valuation specialists we: – Assessed the methodologies adopted by management for the valuation; – Tested the mathematical accuracy of the model used for valuation; – Assessed the discount rates applied in the valuation; – Assessed the other key valuation assumptions; and, – Validated key inputs and data used in valuation model such as stumpage price, trend price forecast, tree growth assumptions, consumer price index and inflation.


UPM FINANCIAL REPORT 2023	118


Valuation of energy shareholdings Refer to note 4.3. in the consolidated financial statements for the related disclosures. The energy shareholdings amounted to € 2 283 million at 31 December 2023. The energy shareholdings are unlisted equity investments in energy companies and are valued at fair value through other comprehensive income, net of tax if applicable. The fair value is determined on a discounted cash flow basis. The main factors impacting the future cash flows include future electricity prices, price trends, and discount rates. We focused on this area as the amounts are material, the valuation process is complex and judgmental and is based on assumptions that are affected by expected future market or economic conditions.	In testing the valuation of the energy shareholdings, in conjunction with our valuation specialists we: – Assessed the methodology adopted by management for the valuation; – Tested the mathematical accuracy of the model used for valuation; – Assessed the discount rate applied in the valuation; – Assessed the future electricity prices and price trends; – Validated key inputs and data used in valuation model such as production costs and volumes, UPM’s ownership percentages, inflation, tax rate and net debt.
We have no key audit matters to report with respect to our audit of the parent company financial statements.
There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair

view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance

with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of

Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of

financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and

the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of

accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent

company or the group or to cease operations, or there is no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether

due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a

guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements

can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the

economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism

throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit

procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not

detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,

intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

management.

• Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based

on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent

company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.

Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause

the parent company or the group to cease to continue as a going concern.


UPM FINANCIAL REPORT 2023	119

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements

represent the underlying transactions and events so that the financial statements give a true and fair view.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an

opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We

remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant

audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding

independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and

where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the

financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be

communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of

such communication.

Other Reporting Requirements

Appointment

We have been acting as auditors appointed by the annual general meeting since 30 April 1996. Our appointment represents a total period of

uninterrupted engagement of 28 years. The Company arranged the latest audit tendering process in 2013. Authorised Public Accountant (KHT)

Mikko Nieminen has acted as the responsible auditor since 4 April 2019, representing a total uninterrupted period of five years.

Other Information

The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board

of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We

have obtained the report of the Board of Directors prior to the date of this auditor’s report and the Annual Report is expected to be made available to

us after that date.

Our opinion on the financial statements does not cover the other information.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so,

consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise

appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the

report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

In our opinion

• the information in the report of the Board of Directors is consistent with the information in the financial statements

• the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is

a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Other Statements

We support the proposal that the financial statements are adopted. The proposal by the Board of Directors regarding the distribution of profits is in

compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director of the

parent company should be discharged from liability for the financial period audited by us.

Helsinki 14 February 2024

PricewaterhouseCoopers Oy

Authorised Public Accountants

Mikko Nieminen

Authorised Public Accountant (KHT)


UPM FINANCIAL REPORT 2023	120

Other financial information

Alternative performance measures

UPM presents certain performance measures of historical performance, financial position and cash flows, which in accordance with the “Alternative

Performance Measures” guidance issued by the European Securities and Markets Authority (ESMA) are not accounting measures defined or specified

in IFRS Accounting Standards and are therefore considered as alternative performance measures. These alternative performance measures are

described below:


ALTERNATIVE PERFORMANCE MEASURE	DEFINITION
Operating profit	Profit before income tax expense, finance expenses and finance income and net gains on sale of energy shareholdings as presented on the face of the IFRS income statement. Gains on sale of energy shareholdings are not recorded to the income statement from 2018 onwards.
Comparable EBIT	Operating profit adjusted for items affecting comparability.
Comparable EBITDA	Operating profit before depreciation, amortisation and impairments, change in fair value of forest assets and wood harvested, share of results of associates and joint ventures and items affecting comparability.
Comparable profit before tax	Profit before income tax expense excluding items affecting comparability.
Comparable profit for the period	Profit for the period excluding items affecting comparability and their tax impact.
Comparable EPS, EUR	Earnings per share calculated in accordance with IFRS excluding items affecting comparability and their tax impact.
Net debt	Total of current and non-current debt less cash and cash equivalents and interest-bearing current and non-current financial assets.
Items affecting comparability	Certain non-operational or non-cash valuation transactions with significant income statement impact are considered as items affecting comparability, if they arise from asset impairments, restructuring measures, asset sales, fair value changes of forest assets resulting from changes in valuation parameters or estimates or changes in legislation or legal proceedings. In addition, the changes in fair value of unrealised cash flow and commodity hedges are classified as items affecting comparability. Numerical threshold for items to be considered as significant in UPM’s business areas UPM Fibres, UPM Specialty Papers and UPM Communication Papers is determined as one cent (EUR 0.01) after tax per share or more. In other business areas, the impact is considered to be significant if the item exceeds EUR 1 million before tax.
Free cash flow	Cash generated from operations after cash used for investing activities.
Return on equity (ROE), %	Profit for the period as a percentage of average equity.
Comparable ROE, %	Return on equity (ROE) excluding items affecting comparability.
Return on capital employed (ROCE), %	Profit before taxes, interest expenses and other financial expenses as a percentage of average capital employed.
Comparable ROCE, %	Return on capital employed (ROCE) excluding items affecting comparability.
Capital employed	Group total equity and total debt.
Business area’s comparable ROCE, %	Business area’s operating profit adjusted for items affecting comparability as a percentage of business area’s average capital employed.
Business area’s capital employed	Business area’s operating assets less its operating liabilities. Operating assets include goodwill, other intangible assets, property, plant and equipment, forest assets, energy shareholdings, investments in associates and joint-ventures, inventories and trade receivables. Operating liabilities include trade payables and advances received.
Capital expenditure	Capitalised investments in property, plant and equipment, intangible assets including goodwill arising from business combinations, energy shareholdings and other shares, associates and joint ventures.
Capital expenditure excluding acquisitions and shares	Capital expenditure excluding investments in shares and participations.
Operating cash flow per share, EUR	Operating cash flow divided by adjusted average number of shares during the period excluding treasury shares.
Gearing ratio, %	Net debt as a percentage of total equity
Net debt to EBITDA	Net debt divided by comparable EBITDA
Equity to assets ratio, %	Equity expressed as a percentage of total assets less advances received.


UPM FINANCIAL REPORT 2023	121

Reconciliation of key figures to IFRS (Quarterly key figures are unaudited)


EURm, OR AS INDICATED	Q4/23	Q3/23	Q2/23	Q1/23	Q4/22	Q3/22	Q2/22	Q1/22	Q1– Q4/23	Q1– Q4/22
Items affecting comparability
Impairment charges	-1	-113	-2	-1	5	7	4	-95	-117	-80
Restructuring charges	-15	-132	-15	-37	-15	-6	5	0	-199	-15
Change in fair value of unrealised cash flow and commodity hedges	-10	-5	8	5	14	3	-4	0	-2	13
Capital gains and losses on sale of non-current assets	0	2	3	-6	13	2	18	1	0	34
Fair value changes of forest assets	-86	0	0	0	0	0	0	0	-86	0
Other non-operational items	0	0	0	0	5	-5	-74	0	0	-74
Total items affecting comparability in operating profit	-113	-249	-5	-38	22	2	-52	-94	-405	-122
Items affecting comparability in financial items	0	1	1	-67	0	0	0	0	-65	0
Items affecting comparability in taxes	26	71	4	8	-8	-9	15	1	109	-1
Items affecting comparability, total	-87	-177	0	-97	14	-7	-37	-93	-361	-122
Comparable EBITDA
Operating profit (loss)	211	-29	108	318	675	781	335	183	608	1,974
Depreciation, amortisation and impairment charges excluding items affecting comparability	152	152	125	114	119	114	113	111	543	457
Change in fair value of forest assets and wood harvested excluding items affecting comparability	-10	5	16	5	-12	3	8	-12	17	-12
Share of result of associates and joint ventures	0	0	0	1	-1	-2	-2	1	1	-4
Items affecting comparability in operating profit	113	249	5	38	-22	-2	52	94	405	122
Comparable EBITDA	465	376	255	477	759	894	506	377	1,573	2,536
% of sales	18.4	14.6	10.0	17.1	23.5	26.1	19.7	15.0	15.0	21.6
Comparable EBIT
Operating profit (loss)	211	-29	108	318	675	781	335	183	608	1,974
Items affecting comparability in operating profit	113	249	5	38	-22	-2	52	94	405	122
Comparable EBIT	323	220	114	356	653	779	387	277	1,013	2,096
% of sales	12.8	8.5	4.5	12.8	20.2	22.8	15.1	11.0	9.7	17.9
Comparable profit before tax
Profit (loss) before tax	180	-52	96	239	638	766	361	179	464	1,944
Items affecting comparability in operating profit	113	249	5	38	-22	-2	52	94	405	122
Items affecting comparability in financial items	0	-1	-1	67	—	—	—	—	65	—
Comparable profit before tax	293	196	101	344	616	764	413	273	934	2,066
Comparable ROCE, %
Comparable profit before tax	293	196	101	344	616	764	413	273	934	2,066
Interest expenses and other financial expenses	40	33	22	17	34	20	9	21	112	85
	333	229	123	361	651	784	422	294	1,046	2,151
Capital employed, average	15,044	15,246	15,900	17,196	17,983	16,845	14,738	13,799	16,414	15,836
Comparable ROCE, %	8.9	6.0	3.1	8.4	14.5	18.6	11.5	8.5	6.4	13.6
Comparable profit for the period
Profit (loss) for the period	161	-28	77	183	503	622	292	139	394	1,556
Items affecting comparability, total	87	177	—	97	-14	7	37	93	361	122
Comparable profit for the period	248	149	77	281	489	629	329	232	755	1,679
Comparable EPS, EUR
Comparable profit for the period	248	149	77	281	489	629	329	232	755	1,679
Profit attributable to non-controlling interest	-1	2	1	-7	-5	-11	-9	-5	-6	-31
	246	151	78	273	484	618	320	226	749	1,648
Average number of shares basic (1,000)	533,324	533,324	533,324	533,324	533,324	533,324	533,324	533,324	533,324	533,324
Comparable EPS, EUR	0.46	0.28	0.15	0.51	0.91	1.16	0.60	0.42	1.40	3.09
Comparable profit for the period	248	149	77	281	489	629	329	232	755	1,679
Total equity, average	11,670	11,751	12,290	12,883	12,589	11,799	11,167	11,071	12,205	11,992
Comparable ROE, %	8.5	5.1	2.5	8.7	15.5	21.3	11.8	8.4	6.2	14.0


UPM FINANCIAL REPORT 2023	122

Financial information 2014–2023


EURm, OR AS INDICATED	2023	2022	2021	2020	2019	2018	2017	2016	2015	2014
Income statement
Sales	10,460	11,720	9,814	8,580	10,238	10,483	10,010	9,812	10,138	9,868
Comparable EBITDA	1,573	2,536	1,821	1,442	1,851	1,868	1,677	1,560	1,350	1,306
% of sales	15.0	21.6	18.6	16.8	18.1	17.8	16.8	15.9	13.3	13.2
Operating profit	608	1,974	1,562	761	1,344	1,895	1,259	1,135	1,142	674
% of sales	5.8	16.8	15.9	8.9	13.1	18.1	12.6	11.6	11.3	6.8
Comparable EBIT	1,013	2,096	1,471	948	1,404	1,513	1,292	1,143	916	866
% of sales	9.7	17.9	15.0	11.1	13.7	14.4	12.9	11.6	9.0	8.8
Profit before tax	464	1,944	1,548	737	1,307	1,839	1,186	1,080	1,075	667
% of sales	4.4	16.6	15.8	8.6	12.8	17.5	11.9	11.0	10.6	6.8
Comparable profit before tax	934	2,066	1,457	924	1,367	1,457	1,218	1,089	849	793
% of sales	8.9	17.6	14.8	10.8	13.4	13.9	12.2	11.1	8.4	8.0
Profit for the period	394	1,556	1,307	568	1,073	1,496	974	880	916	512
% of sales	3.8	13.3	13.3	6.6	10.5	14.3	9.7	9.0	9.0	5.2
Comparable profit for the period	755	1,679	1,204	737	1,119	1,194	1,004	879	734	638
% of sales	7.2	14.3	12.3	8.6	10.9	11.4	10.0	9.0	7.2	6.5
Balance sheet
Non-current assets	13,913	14,977	12,420	10,149	10,140	9,501	9,144	9,715	10,259	10,269
Inventories	1,948	2,289	1,594	1,285	1,367	1,642	1,311	1,346	1,376	1,356
Other current assets	2,612	4,941	3,662	3,424	3,215	2,853	2,612	2,850	2,558	2,570
Total assets	18,473	22,207	17,676	14,858	14,722	13,996	13,067	13,911	14,193	14,195
Total equity	11,531	12,879	11,106	9,513	10,175	9,797	8,663	8,237	7,944	7,480
Non-current liabilities	4,501	5,807	4,102	3,606	2,730	2,194	2,254	3,364	4,328	4,717
Current liabilities	2,441	3,522	2,468	1,740	1,818	2,005	2,150	2,309	1,921	1,998
Total equity and liabilities	18,473	22,207	17,676	14,858	14,722	13,996	13,067	13,911	14,193	14,195
Capital employed at year end	14,916	17,913	13,759	11,555	11,474	10,575	9,777	10,657	11,010	10,944
Capital expenditure	1,122	1,555	1,483	903	378	303	329	325	520	411
% of sales	10.7	13.3	15.1	10.5	3.7	2.9	3.3	3.3	5.1	4.2
Capital expenditure excluding acquisitions and shares	1,094	1,399	1,477	902	378	303	303	325	486	375
% of sales	10.5	11.9	15.1	10.5	3.7	2.9	3.0	3.3	4.8	3.8
Cash flow and net debt
Operating cash flow	2,269	508	1,250	1,005	1,847	1,330	1,460	1,686	1,185	1,241
Free cash flow	1,193	-1,077	-74	126	1,432	1,131	1,336	1,424	750	994
Net debt	2,432	2,374	647	56	-453	-311	174	1,131	2,100	2,401
Key figures
Return on capital employed (ROCE), %	3.5	12.8	12.4	6.7	12.3	18.4	12.5	10.5	10.3	6.5
Comparable ROCE, %	6.4	13.6	11.7	8.3	12.8	14.6	12.8	10.6	8.3	7.6
Return on equity (ROE), %	3.2	13.0	12.7	5.8	10.7	16.2	11.5	10.9	11.9	6.9
Comparable ROE, %	6.2	14.0	11.7	7.5	11.2	12.9	11.9	10.9	9.5	8.5
Gearing ratio, %	21	18	6	1	-4	-3	2	14	26	32
Net debt to EBITDA	1.55	0.94	0.35	0.04	-0.24	-0.17	0.10	0.73	1.56	1.84
Equity to assets ratio, %	62.5	58.1	62.9	64.1	69.2	70.1	66.6	59.4	56.1	52.7
Personnel
Personnel at year end	16,573	17,236	16,966	18,014	18,742	18,978	19,111	19,310	19,578	20,414
Deliveries
Pulp (1,000 t)	4,139	2,761	3,724	3,664	3,715	3,468	3,595	3,419	3,224	3,287
Electricity (GWh)	12,059	9,442	9,300	9,168	8,619	8,608	8,127	8,782	8,966	8,721
Papers, total (1,000 t)	4,935	6,135	7,486	7,062	8,326	8,996	9,430	9,613	9,771	10,028
Plywood (1,000 m3)	429	616	738	683	739	791	811	764	740	731
Sawn timber (1,000 m3)	1,524	1,538	1,610	1,604	1,741	1,719	1,728	1,751	1,731	1,609


UPM FINANCIAL REPORT 2023	123


Report of the Board of Directors	2
Financial statements	43
Auditor's report	117
Other financial information	121
Financial information 2014-2023	123