Metsä Board Annual review 2023

METSÄ BOARD Annual review 2023

■ 4.2 Property, plant and equipment

Impairment testing Depreciation is not recognised for assets with indefinite useful lives. Instead, such assets are tested for impairment annually. Assets that are subject to depreciation are always tested for impairment when events or changes in conditions indicate that it is possible that the monetary amount corresponding to the book value of the assets might not be recoverable. Cash-generating units are reporting segments or smaller units for which a utility value can be defined. The recoverable amount is the higher of the fair value of an asset less the cost of sale, and its value in use. Value in use is the estimated future net cash flows, discounted to their present value, expected to be derived from said asset or cash-generating unit.

An impairment loss is recognised if the carrying amount of the asset is higher than its recoverable amount. If the impairment loss concerns a cash-generating unit, it is first allocated to decrease the goodwill of the cash-generating unit, and thereafter to decrease the other assets of the unit on pro-rata basis. In connection with the recognition of the impairment loss, the useful life of the depreciated asset is re-evalu- ated. An impairment loss recognised for an asset other than goodwill is reversed if a change has taken place in the estimates used to deter- mine the recoverable amount of the asset. However, the maximum reversal of an impairment loss amounts to no more than the carrying amount of the asset if no impairment loss had been recognised. An impairment loss recognised on goodwill is not reversed under any circumstances.

Business operations and value creation 2 This is Metsä Board 4 CEO’s review 6

Accounting principles Property, plant and equipment are measured at acquisition cost less accumulated depreciation and impairment losses. The acquisition cost includes costs that are directly incurred in the acquisition of an item of property, plant or equipment. Qualifying external borrowing costs resulting directly from the acquisition, con- struction or manufacture of an item of property, plant or equipment are capitalised as part of the acquisition cost of property, plant and equipment. If a piece of property, plant or equipment consists of several com- ponents with differing useful lives, each component is handled as a separate item. In that case, the expenses related to replacing the component are capitalised, and any book value remaining at the time of replacement is derecognised on the balance sheet. Spare parts, spare equipment and maintenance supplies are recog- nised in property, plant and equipment when they fulfill the criteria for recognition of property, plant and equipment. Otherwise, such commodities are classified as inventories. Significant investments in refurbishments and improvements are capitalised on the balance sheet and depreciated over the remaining useful life of the main asset related to such investments. Repair and maintenance costs are recognised as expenses when they are incurred. Property, plant and equipment is depreciated on a straight-line basis over the estimated useful lives. Depreciation is not recognised for owned land and water.

Leases The Group has leased various land areas, properties, equipment and vehicles. When the leased asset is available for the Group’s use, A fixed asset item and a corresponding liability of the lease is recognised. Paid rents are divided into liabilities and finance costs. The finance cost is included in profit or loss over the lease term in such a way that the interest rate of the remaining debt balance is the same during each period. The leased fixed asset is subject to straight-line depreciations over the asset’s economic life or the lease term, depending on which of them is shorter. Assets and liabilities arising from leases are initially measured at the present value. Lease liabilities include fixed payments, less any lease incentives receivable; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined, or the Group’s incre- mental borrowing rate. The leased fixed assets are measured at cost, which includes the amount of the initial measurement of the lease lia- bility; any lease payments made at or before the commencement date, less any lease incentives received; any initial direct costs incurred; and any costs incurred by restoring the site on which it is located. Some of the leases include options to extend or terminate, which are largely available only for the Group, not the lessor. Payments related to short-term leases or leases where the value of the underlying asset is low are recognised as costs on a straight-line basis. A lease with a lease term of 12 months or less is considered a short-term lease. Assets of a low value include mainly ICT and office equipment.

Strategy and financial targets

Value creation

Financial development 10 Key figures 12

Report of the Board of Directors

20 72

• Sustainability statement • Sustainability statement assurance report

Consolidated financial statements

Impairment testing 2023 Metsä Board carries out impairment testing once a year, during the fourth quarter, based on the situation on 30 September, or more frequently if signs of a possible impairment are detected. The group did not recognise impairments based impairment testing in 2023. In the testing carried out in 2023, a somewhat potential change in any individual key assumption would not lead to the recognition of an impairment. The group’s key impairment testing and key assumptions in the situation on 30 September 2023:

78 Notes to the consolidated financial statements 126 Parent company financial statements 129 Notes to the parent company financial statements 142 The Board’s proposal to the Annual General Meeting for the distribution of funds 143 Auditor’s Report 147 Shares and shareholders 151 Ten years in figures 152 Taxes 153 Production capacities 155 Calculation of key ratios and comparable performance measures Corporate governance 157 Corporate governance statement 165 • Board of Directors of Metsä Board 168 • Corporate Management Team of Metsä Board

Discount rate after taxes on 30 September 2023

Discount rate after taxes on 30 September 2022

Long-term growth rate on 30 September 2023

Long-term growth rate on 30 September 2022

Goodwill EUR million

Brand EUR million

Cash-generating unit Paperboard industry Folding boxboard 1)

31.0 26.4

2.5 3.0

7.9 7.9 7.9

7.2 7.2 7.2

2.0 2.0 2.0

Liner 1)

Estimated useful lives Buildings and constructions Machinery and equipment Heavy power plant machinery

Market pulp 1)

20–40 years

1) Metsä Board’s share of Metsä Fibre’s recoverable cash flow, the book value and the goodwill included in the balance sheet item “Investments in associates and joint ventures” (EUR 45.2 million) and other intangible assets with unlimited economic life (EUR 5.6 million), are allocated to cash flow generating units in proportion to their pulp purchases.

Key estimates and judgments

20–40 years

Aineelliset käyttöomaisuushyödykkeet Estimates concerning the residual value and useful life of property, plant and equipment, as well as the selection of the depreciation method, require significant management judgement. Leases When determining the lease term, the management accounts for all relevant facts and circumstances that create an economic incentive to exercise the option to extend the lease, or not to exercise the option to terminate the lease. Options to extend the lease (or the time sub- sequent to an option to terminate) are accounted for in the lease term only if the extension of the lease (or the decision not to terminate the lease) is reasonably certain. The possible future cash flows of EUR 2.0 million have not been included in the lease liability because the exten- sion of the lease (or the decision not to terminate it) is not reasonably certain. The Group will conduct a reassessment upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee and affects the assessment.

Other heavy machinery

15–20 years

The recoverable amounts of the cash-generating units being tested are based on five-year forecasts and the resulting, steadily growing cash flows. The initial value used for the key assumptions of the cash flows – prices and variable costs – after the forecast period is the average of the five-year forecast period. The value used for delivery volumes and fixed costs is the value of the forecast period’s fifth year. The key testing assumptions are management estimates and forecasts obtained from external sources of information. The discount rate used is the weighted average cost of capital (WACC). When calculating the WACC, the cost of debt takes into account the mar- ket-based view of the credit risk premium.

Lightweight machinery and equipment

5–15 years

Other tangible assets

5–20 years

The residual value of an asset, the financial useful life and depreciation method are reviewed at least annually, at the end of each financial period, and adjustments are made when necessary to reflect changes in the expected financial benefit of the asset. Gains and losses arising from the sale and decommissioning of items of property, plant and equipment are recognised in other operating income and expenses. Sales gains or losses are calculated as the difference between the sales price and the remaining acquisition cost. Government grants related to the acquisition of assets are presented as adjustments of the acquisition cost on the balance sheet and recog- nised as income in the form of lower depreciation during the useful life of the asset.

170 Remuneration report 174 Investor relations and investor information

Consolidated financial statements | METSÄ BOARD ANNUAL REVIEW 2023