FINANCIAL STATEMENTs 2017 Summary. city of lahti

Transcription

1 FINANCIAL STATEMENTs 2017 Summary city of lahti

2 FINANCIAL STATEMENTS 2017 SUMMARY City Board

3 2 TABLE OF CONTENTS KEY OPERATIONAL AND FINANCIAL EVENTS... 3 MAYOR S REVIEW... 3 CITY OF LAHTI STATEMENTS... 4 PROFIT AND LOSS STATEMENT... 4 CASH FLOW STATEMENT... 5 BALANCE SHEET... 6 CITY OF LAHTI KEY FIGURES... 8 GROUP STATEMENTS... 9 PROFIT AND LOSS STATEMENT... 9 CASH FLOW STATEMENT BALANCE SHEET LAHTI GROUP KEY FIGURES NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE PROFIT AND LOSS STATEMENT ACCOUNT ON THE BASES USED FOR PLANNED DEPRECIATIONS NOTES TO THE GROUP FINANCIAL STATEMENTS FORMULAE FOR KEY FIGURES AUDITORS REPORT... 40

4 KEY OPERATIONAL AND FINANCIAL EVENTS MAYOR S REVIEW 3 Last year, Finland rose from a recession that lasted for almost ten years. The positive trend has also been evident in Lahti in the form of good corporate news, improved employment and a greater number of tourists, amongst other things. However, unemployment is reduced at a lower rate than the national average. Housing production has remained at a very high level. The population of Lahti has continued to grow even though, according to the available advance information, population growth was slightly lower than in the previous year. The economic development was also evident in tax income, which was higher than originally estimated. The Finland 100 centenary was celebrated in Lahti in a multitude of ways. The Finland 100 theme featured strongly at FIS Nordic World Ski Championships 2017, held in Lahti for the 7th time. The national main celebration of the National Veterans Day, which started in Lahti in 1987, returned to Lahti on independent Finland s centenary year. Possibly the most far-reaching issue in Lahti in 2017 were university arrangements. Last year, decisions were made regarding the Lahti University of Applied Sciences joining the Lappeenranta University of Technology (LUT) group and, at the same time, expanding the operations of LUT in Lahti. Lahti is becoming a bona fide university city, which is reflected by the pending name change of LUT to the Lappeenranta-Lahti University of Technology. The Lahti University of Applied Sciences, LUT as well as the University of Helsinki, which is expanding its activities in Lahti, create a strong foundation for the success of the province. There was an important change in Lahti s operations in early 2017 when the responsibility for providing social and health care services for the residents was taken over by Päijät-Hämeen Hyvinvointiyhtymä. The response to this in the City of Lahti s organisation was to abandon boardthinking and switch to a one-city operational organisation, where the CIty of Lahti operates as one entity as much as possible. Strategic development work and internal support services were combined, and to a large degree, the responsibility for the services lies with two service areas. Part of the arrangement was to transfer the mutual support services of the city organisation and social and health care services (catering services and institutional care services) to the mutual companies of the City of Lahti and Päijät- Hämeen Hyvinvointiyhtymä. The financial result of the City of Lahti in 2017 was clearly better than estimated: approximately EUR 12.7 million instead of the EUR -1.7 million according to the original budget. The operational margin was 1.7 million weaker than in the original budget, which means that, in its own operations, Lahti was nearly able to compensate for the invoicing of Päijät-Hämeen Hyvinvointiyhtymä, which was EUR 8 million over the budget. The Competitiveness Pact, e.g. temporary cuts to holiday pay and extended working hours, was reflected on the cost level of Lahti. However, the government deducted the benefit in full from the state funding allocated to Lahti. The annual margin was EUR 60.7 million. When compared to the original budget, greaterthan-estimated tax income and financing income had the greatest impact on the positive result. Especially with regard to tax income, it is a question of one-time instalments, which are not reflected on this year. Lahti s level of investment remains high; in 2017, the actual gross investments amounted to EUR 68 million. There are several large school and day care nursery renovation investments under way. Investments are also increased by Lahti s investments in the construction of the southern ring road (national road 12). Loans taken for Lahti s own operations constituted EUR 256 million at the end of 2017, or EUR 2,140 per resident. According to preliminary information, the entire group s loan amount at the end of the year was EUR 1,098 million. The gross investment was EUR 68 million and the amount invested was EUR 30.5 million. The investment costs were EUR 10 million below the budget, and the investment income was EUR 12.9 million over the budget. The investment income was primarily boosted by the sale of the share capital of the Lahti University of Applied Sciences to LUT as well as the group s internal real property arrangements and other arrangements. The operations and economy balancing programme implemented in , which will strengthen Lahti s economic foundation, was approved in December The programme includes 10 project entities, which will boost operations by EUR 20 million by the year The investments savings achieved by the programme are EUR 45 million. The starting point of the programme is to conduct a broad-minded structural reform of operating methods in order to avoid service culls and cuts threatening long-term development. Operations in 2017 were based on the city strategy decided in connection with the merger of Lahti and Nastola; the strategy revision began at the end of More than 90% of the key goals of the strategy were achieved in full or in part in The strategy revision work is aimed at more efficient key measures, which can be focused on and invested in to a greater degree. Jyrki Myllyvirta Mayor

5 4 CITY OF LAHTI STATEMENTS PROFIT AND LOSS STATEMENT CITY OF LAHTI PROFIT AND LOSS STATEMENT (all figures are in euros) Income from operations Sales revenue 25,130, ,888, Revenue from fees 16,981, ,102, Aid and assistance 9,038, ,751, Rent revenue 28,246, ,511, Other income from operations 11,447, ,951, ,844, ,206, Production for own use 1,173, , Operating expenses Personnel expenses Salaries and fees -120,707, ,227, Social security expenses Pension expenses -34,676, ,863, Other social security -5,087, ,767, Services purchased -450,502, ,905, Materials, supplies, and goods -18,229, ,675, Assistance and subsidies -36,014, ,507, Other operating expenses -19,652, ,234, ,870, ,180, Operating margin -592,853, ,458, Tax revenue 452,799, ,177, State aid 188,981, ,429, Financial income and expenses Interest income 9,321, ,901, Other financial income 14,331, ,113, Interest paid -12,844, ,929, Other financial expenses 948, ,548, Total financial income/expenses 11,756, ,538, Annual margin 60,684, ,686, Depreciation and write-downs Planned depreciation -43,184, ,830, Write-downs -2,372, ,586, ,64-49,416, Extraordinary items Extraordinary incomes 2,116, ,600, Extraordinary expenses , ,116, , Result for the financial year 17,243, ,818, Increase(-)/decrease(+) in depreciation 227, , Increase(-)/decrease(+) in funds -136, SURPLUS (DEFICIT) FOR THE FINANCIAL YEAR 17,334, ,286,305.52

6 5 CASH FLOW STATEMENT CITY OF LAHTI CASH FLOW STATEMENT (all figures are in euros) Cash flow from operations Annual margin 60,684, ,686, Extraordinary items 2,116, , Adjustment to retained earnings -8,918, ,551, ,881, ,046, Cash flow from investments Investment expenses -67,950, ,550, Financial contribution toward investments expenses 458, , Revenue from sale of fixed assets 29,919, ,504, ,572, ,603, Cash flow from operations and investments 16,309, ,556, Financing cash flow Change in lending Increase in loan receivables -57,380, ,800, Decrease in loan receivables 40,405, ,773, ,974, ,026, Change in borrowing Increase in long-term debt 59,045, ,571, Decrease in long-term debt -52,526, ,875, Change in short-term debt 4,037, ,658, ,557, ,354, Other changes in liquidity Change in assignment assets and capital -167, , Change in current assets 78, , Change in receivables 63,683, ,953, Change in non-interest-bearing debt -22,343, ,885, ,250, ,671, Financing cash flow 34,833, ,343, Change in liquid assets 51,142, ,99 Change in liquid assets Liquid assets ,642, ,499, Liquid assets ,499, ,400, ,142, ,900,911.99

7 BALANCE SHEET CITY OF LAHTI BALANCE SHEET (all figures are in euros) ASSETS LONG-TERM ASSETS Intangible assets Intangible rights 16, , Other long-term expenditure 6,501, ,586, Advance payments and work in progress 6,518, ,825, Tangible assets Land and water areas 127,437, ,418, Buildings 276,569, ,285, Fixed structures and equipment 181,976, ,970, Machinery and equipment 5,908, ,022, Other tangible assets 56, , Advance payments and work in progress 17,780, ,294, ,729, ,049, Investments Stock and shares 193,761, ,536, Other loan receivables 461,696, ,721, ,457, ,258, ASSIGNMENT ASSETS State assignments Special margins for donation funds 247, , , , SHORT-TERM ASSETS Current assets Materials and supplies 83, , Receivables Long-term receivables Loan receivables 20,861, ,155, Other receivables 607, , Short-term receivables Accounts receivable 8,369, ,866, Loan receivables 16,488, ,514, Other receivables 3,391, ,333, Deferred assets 9,878, ,035, ,596, ,280, Marketable securities Stock and shares 29,382, ,457, ,382, ,457, Cash and bank receivables 76,259, ,041, TOTAL ASSETS 1,437,274, ,436,365,407.97

8 7 LIABILITIES EQUITY Original capital 437,196, ,196, Revaluation reserve 80, , Other own reserves 10,445, ,308, Surplus from previous financial years 134,693, ,235, Surplus (deficit) for the financial year 17,334, ,541, ,749, ,278, DEPRECIATION DIFFERENCE AND VOLUNTARY RESERVES Depreciation difference 1,769, ,996, STATUTORY RESERVES Pension reserves 5,505, ,029, Other statutory reserves 2,101, ,916, ,607, ,945, ASSIGNMENT CAPITAL State assignments , Donation fund capital 3,197, ,399, ,197, ,407, EXTERNAL CAPITAL Long-term Bonds ,000, Loans from financial and insurance institutions 649,650, ,250, Other loans 65, , Deferred liabilities 5,458, ,054, ,174, ,406, Short-term Bonds 40,000, ,00 Loans from financial and insurance institutions 21,600, ,430, Other loans 43,700, ,677, Advances received 793, , Accounts payable 33,445, ,456, Other debt 2,961, ,352, Deferred liabilities 27,275, ,778, ,776, ,330, TOTAL LIABILITIES 1,437,274, ,436,365,407.97

9 8 CITY OF LAHTI KEY FIGURES CITY OF LAHTI KEY FIGURES Profit and loss statement key figures Operating income/operating expense, % 13.3 % 17.6% Annual margin/depreciation, % % 78.3% Annual margin, in euros/resident Inhabitants* 119, ,377 Number of staff 3,519 6,527 Cash flow statement key figures Accrued cash flow from operations and investments over 5 years, in euros -107,278, ,244,295 Internal financing of investments, % 89.9 % 61.3% Debt coverage ratio Cash sufficiency, days Balance sheet key figures Solvency ratio, % 41.9 % 40.9% Relative indebtedness, % % 108.2% Debts and liabilities of the operating income % % - Accrued surplus/deficit, in euros 152, ,946 Accrued surplus/deficit, in euros/resident 1,271 1,172 Debt, in euros/resident 6,312 6,236 Total borrowing 755,016, ,458,823 Total borrowing as of , euros 755, ,459 Loan receivables as of , euros 461, ,722 *Preliminary figure for residents in 2017

10 9 GROUP STATEMENTS PROFIT AND LOSS STATEMENT (all figures are in euros) LAHTI-GROUP Income from operations 610,585, ,052, Operating expenses -1,134,068, ,118,146, Share in profit (loss) of affiliated entities 155, , OPERATING MARGIN -523,326, ,057, Tax revenue 448,383, ,753, State aid 253,229, ,390, Financial income and expenses Interest income 1,175, ,138, Other financial income 1,111, , Interest paid -21,877, ,399, Other financial expenses 465, ,801, Total financial income/expenses -19,125, ,395, ANNUAL MARGIN 159,161, ,690, Depreciation and write-downs Planned depreciation -117,107, ,778, Ownership elimination difference -191, , Write-downs -1,019, , Depreciation and write-downs -118,318, ,466, Extraordinary items 1,046, , RESULT FOR THE FINANCIAL YEAR 41,890, ,088, Adjustments -137, , Income taxes paid from operations -5,764, ,345, Deferred taxes paid from operations -1,861, ,079, Minority interest -1,048, , SURPLUS FOR THE FINANCIAL YEAR 33,078, ,043,217.41

11 10 CASH FLOW STATEMENT (all figures are in euros) LAHTI-GROUP CASH FLOW STATEMENT Cash flow from operations ANNUAL MARGIN 159,161, ,690, Extraordinary items 1,046, , Taxes -5,764, ,345, Adjustment to retained earnings -10,000, ,976, ,443, ,232, Cash flow from investments Investment expenses -211,893, ,825, Financial contribution toward investment expenses 529, , Revenue from sale of fixed assets -5,232, ,369, Cash flow from investments -216,595, ,881, Cash flow from operations and investments -72,152, ,649, Financing cash flow Change in lending Increase in loan receivables -14,153, , Decrease in loan receivables 746, , Change in lending -13,406, , Change in borrowing Increase in long-term debt 174,021, ,096, Decrease in long-term debt -70,482, ,793, Change in short-term debt 21,942, ,331, Change in borrowing 125,481, ,028, Change in equity Change in equity 1,875, , Change in minority interest -2,217, , , , Other changes in liquidity Change in assignment assets and capital 123, , Change in current assets 351, ,002, Change in receivables -5,424, ,331, Change in non-interest-bearing debt 10,814, ,274, ,865, ,003, Financing cash flow 117,598, ,816, Change in liquid assets 45,445, ,465, Liquid assets at end of period 158,601, ,155, Liquid assets ,155, ,999, Change in the municipal federation share , Change in liquid assets 45,445, ,465,362.85

12 11 BALANCE SHEET (all figures are in euros) LAHTI-GROUP BALANCE SHEET ASSETS LONG-TERM ASSETS Intangible assets Intangible rights 9,073, ,808, Other long-term expenditure 13,412, ,177, Advance payments and work in progress 1,078, , Intangible assets 23,564, ,770, Tangible assets Land and water areas 144,438, ,682, Buildings 779,597, ,370, Fixed structures and equipment 375,233, ,815, Machinery and equipment 172,214, ,024, Other tangible assets 3,133, ,245, Advance payments and assets under construction 103,568, ,454, Tangible assets 1,578,186, ,506,592, Investments Stock and shares in affiliated entities 669, , Other stock and shares and revaluation of shares 79,513, ,751, Bond receivables , Other loan receivables 24,203, ,593, Other receivables 80, , Investments 104,467, ,176, LONG-TERM ASSETS 1,706,218, ,617,539, ASSIGNMENT RESERVES 1,203, ,205, SHORT-TERM ASSETS Current assets 22,719, ,122, Long-term receivables 9,988, ,854, Short-term receivables 99,176, ,348, Marketable securities 35,546, ,173, Cash and bank receivables 123,054, ,981, SHORT-TERM ASSETS 290,485, ,481, ASSETS 1,997,907, ,861,226,913.40

13 12 LAHTI-GROUP LIABILITIES EQUITY Original capital 437,196, ,196, Original capital of associations and foundations 74, , Revaluation reserve 2,351, ,310, Other own reserves 11,861, ,133, Surplus (deficit) from previous periods 129,661, ,109, Surplus (deficit) for the financial year 33,078, ,043, EQUITY 614,223, ,867, MINORITY INTERESTS 14,156, ,325, CONSOLIDATION DIFFERENCE 771, ,542, STATUTORY RESERVES Pension reserves 5,505, ,029, Other statutory reserves 14,095, ,508, STATUTORY RESERVES 19,601, ,537, ASSIGNMENT CAPITAL 5,458, ,698, EXTERNAL CAPITAL Long-term interest-bearing debt 993,238, ,308, Long-term non-interest-bearing debt 61,857, ,281, Short-term interest-bearing debt 104,785, ,180, Short-term non-interest-bearing debt 183,814, ,484, EXTERNAL CAPITAL 1,343,696, ,230,255, LIABILITIES 1,997,907, ,861,226,913.39

14 13 LAHTI GROUP KEY FIGURES KEY FIGURES Profit and loss statement key figures Operating income/operating expense, % 53.8% 49.9% Annual margin/depreciation, % 134.7% 108.9% Annual margin, in euros/resident 1,331 1,070 Inhabitants* 119, ,452 Cash flow statement key figures Internal financing of investments, % 75.3% 76.3% Debt coverage ratio Cash sufficiency, days Accrued cash flow from operations and investments over 5 years, euros -314, ,005.4 Balance sheet key figures Solvency ratio, % 31.6% 32.8% Relative indebtedness, % 101.9% 96.0% Debts and liabilities of the operating income % 110.1% 102.8% Accrued surplus/deficit, in euros 162, ,152 Accrued surplus/deficit, in euros/resident 1,361 1,107 Total borrowing as of , euros 1,098, ,489 Total borrowing as of , in euros/resident 9,180 8,289 Loan receivables as of , euros 24,204 10,797 Number of staff 9,896 11,007 *Preliminary figure for residents in 2017

15 14 NOTES TO THE FINANCIAL STATEMENTS Notes to the preparation of the financial statements Valuation principles and methods; allocation principles and methods Valuation of fixed assets Tangible and intangible fixed assets have been reported at acquisition cost less planned depreciation and financial contribution received towards investment expenses. The planned depreciations have been calculated according to a depreciation plan prepared in advance. The calculation of planned depreciations and their bases are described in the notes to the profit and loss statement under Bases of planned depreciations. Valuation of investments Investments in fixed assets are valuated at acquisition cost or lower. The valuation is based on the future income likely to be accrued from the asset or its value in service production. Valuation of current assets Current assets in the balance sheet are valued according to the weighted average acquisition cost or likely acquisition cost or at their likely sales price, whichever is lower. Valuation of financial assets Receivables are valuated at their nominal or likely value, whichever is lower. Financial securities are valuated at their acquisition cost or likely sales price, whichever is lower. Treatment of derivative contracts Derivative contracts are used to manage the interest rate risk of borrowing with the purpose of offsetting the impact of changes in interest rates, predicting cash flows and lowering the interest cost. Derivative contracts include interest rate swaps, interest rate and currency swaps and interest rate swaps with a right to extend or terminate, where the City of Lahti is the seller of the right of option. The maximum duration of derivative contracts extends to The City of Lahti has agreements as a whole, which include an interest swap agreement and a closely related option agreement with a right of continuation or cancellation, the terms and conditions of which are interdependent. All derivative contracts valid at the time of the financial statements are presented in the appendices to the financial statements. All derivative contracts have been entered into with the purpose of hedging the City s current or future borrowings. On the basis of the new guidelines pertaining to the financial statements and accounting practices of derivative contracts, an interest swap agreement due to enter into force in the distant future for which there is no loan with corresponding terms at the time of the financial statements, has been classified in the financial statements as nonprotective and, in addition to presenting it in the appendices, the negative market value of the agreement has been entered in mandatory provisions in accordance with the prudence principle. The City of Lahti will specify other agreements as protective in the financial statements and only present them in the appendices to the financial statements. Using currency swaps, debt denominated in SEK has been converted into EUR at exchange rates set through interest rate and currency swaps, agreed upon for the dates of both drawdown and maturity at the time of the drawing down of the loans. Hence, currency risk has been eliminated. Allocation principles Revenue and expenditure are reported on an accrual basis. In contrast, tax revenue is reported based on the time of payment during the financial year, and interest income on the subordinated loans granted to the following company: Kuntien Tiera Oy, in 2017, EUR 12, in total EUR 48, Kiinteistö Oy Naskunvuo, in 2017, EUR 6,000, in total EUR 12, Kiinteistö Oy Lahden Varaani, v.2017 EUR 1,025.94, in total EUR 15, Treatment of subsidies Financial assistance received for the acquisition of fixed tangible assets is recorded as a deduction of the acquisition price of the asset in question. Comparability with the previous financial period Extraordinary income includes a surplus refund in the amount of EUR 2.1 million from the Salpaus Further Education municipal consortium. The 2017 street parking income of a total of EUR 0.4 million subject to the Urban Environment service area was left unallocated by mistake. The responsibility for providing social care and basic health care was transferred effective from 1 January 2017 onwards to Päijät-Hämeen Hyvinvointikuntayhtymä. The social care and health care service staff switched over to Päijät-Hämeen Hyvinvointikuntayhtymä at the same time, subject to a business transfer agreement. The Lahden Tietotekniikka balance sheet unit was sold on 1 January 2017 to Provincia Oy, a subsidiary owned by the City of Lahti. The Lahden Ateria balance sheet unit was turned into a limited company, which was entered into the trade register on 3 May The staff moved to the limited company on 1 May 2017, which is when the company also started its operation. The Lahden Servio balance sheet unit was turned into a limited company, which was entered into the trade register on 27 April The staff moved to the limited company on 1 May 2017, which is when the company also started its operation. Treatment of errors regarding previous financial years The current financial statements include a correction of errors in the 2016 financial statements of derivated contracts in the amount of EUR 3.2 million. The adjustments have been included in the surplus from previous financial years and reference data has been adjusted accordingly. The review of the entire Liipola oppimisympäristönä (Liipola as a learning environment) project revealed that an investment aid of approximately EUR 400,000 to the Onni community centre in Liipola was allocated at the financial statements stage to the starting year 2014 and completion year 2015 of the construction project. The payment application, which according to ARA s aid decision can be made once investment has been completed, was, by mistake, not submitted, so no aid was received. As it is not possible to submit a payment application afterwards, the mistake will be corrected by cancelling the allocations of a total of EUR 443,394 and by entering them in the 2018 financial statements as a correction to the investment expenditure funding percentage.

16 15 NOTES TO THE PROFIT AND LOSS STATEMENT CITY OF LAHTI OPERATING INCOME BY BUSINESS FUNCTION Social and health services 2,850, ,765, Education and cultural services 21,114, ,721, Utilities 34,785, ,302, Housing and real estate services 16,958, ,448, Other services 15,134, ,967, Total income from operations 90,844, ,206, TAX REVENUE Municipal tax revenue 390,184, ,502, Share in corporate tax revenue 26,717, ,131, Real estate tax 35,897, ,542, Total tax revenue 452,799, ,177, STATE AID State s share of basic municipal services 163,689, ,387, Adjustment of state s share based on tax revenue 28,345, ,332, State s share of education and cultural services -3,053, ,290, Total state aid 188,981, ,429, SERVICES PURCHASED ITEMISED Customer services purchased 357,477, ,998, Other services purchased 93,025, ,907, Total municipal services purchased 450,502, ,905, AID TO COUNCIL GROUPS Left Alliance, Lahti 1, , National Coalition Party, Lahti 8, , Centre Party Greens, Lahti 4, , Social Democrats, Lahti 15, , Christian Democrats, Lahti 2, , TOTAL AID TO COUNCIL GROUPS 31, , CHANGE IN STATUTORY RESERVES Pension reserve 1.1 6,029, ,151, Decrease -523, ,122, Pension reserve ,505, ,029, Other statutory reserves Reserve for environmental liabilities, , , Reserve for environmental liabilities, , Share in deficit of municipal federation ,859, Decrease ,859, Share in deficit of municipal federation Other statutory reserves, 1.1 5,676, ,500, Decrease -3,574, ,500, Increase ,676, Other statutory reserves ,101, ,676, Total other statutory reserves, ,101, ,916, Total reserves 7,607, ,945,105.40

17 NOTES TO THE PROFIT AND LOSS STATEMENT 16 CITY OF LAHTI CAPITAL GAINS AND LOSSES FROM FIXED ASSETS Other income from operations Capital gains from land and water areas 3,525, ,278, Capital gains from buildings 1,030, , Other capital gains 184, , Total capital gains 4,740, ,593, Other operating expenses Capital losses from buildings , Capital losses from land properties 44, Other capital losses 107, , Total capital losses 152, , EXTRAORDINARY INCOME AND EXPENDITURE Extraordinary income Surplus refund, Salpaus Further Education 2,116, ,600, Total extraordinary income 2,116, ,600, Extraordinary expenditure Sale of Nastola Municipal Waterworks , Extraordinary expenditure , Total extraordinary items 2,116, , DIVIDEND INCOME AND INTEREST ON SHARE CAPITAL, ITEMISED Dividend income from Group companies 13,574, ,628, Dividend income and interest on share capital from others 225, , Total 13,799, ,729,649.55

18 ACCOUNT ON THE BASES USED FOR PLANNED DEPRECIATIONS 17 Depreciations were determined based on a depreciation plan prepared in advance. Planned depreciations have been calculated on the basis of the useful life of tangible and intangible fixed assets, estimated based on their acquisition cost. Estimated depreciation times and methods: City of Lahti s depreciation plan until City of Lahti s depreciation plan unless applied for exemption Nastola municipality s depreciation plan until Depreciation plan for fixed assets acquired since unless applied for exemption % Fixed assets Intangible assets Development expenditure % Intangible rights % Goodwill Other long-term expenditure Computer software Other % Tangible assets Land and water areas Buildings and constructions Administrative and institutional buildings % Industrial and production buildings % Outbuildings % Recreational buildings % Residential buildings Fixed structures and equipment Streets, roads, market squares, parks Net expenditures 15% Bridges, piers, swimming pools Net expenditures 15% 10 10% Other land and water Net expenditures 10% % constructions Water distribution network Net expenditures 8% % Sewer system Net expenditures 8% % Electric wires, transformer % stations, outdoor lighting Other pipelines and cable networks Net expenditures 20% % Institutional machines and Net expenditures 20% 10 10% equipment for electricity, water, etc. Traffic control equipment % Other fixed machinery, equipment % and structures Building overhauls Useful economic life Useful economic life Useful economic life calc. separately for each investment calc. separately for each investment calc. separately for each investment Machinery and equipment Other transport equipment % Other mobile machinery % Other heavy machinery % Other light machinery % Hospital, health care and similar % equipment Computer equipment 3 5 years % Other equipment and fixtures 3-15 years % Other tangible assets Natural resources Art and valuables depreciation based on use no write-off period depreciation based on use no write-off period depreciation based on use no write-off period depreciation based on use no write-off period Advances and assets under construction no write-off period no write-off period no write-off period Investment in fixed assets Stocks and shares no write-off period no write-off period no write-off period 50% 50% 3.30% 6.70% Acquisitions of less than 10,000 euros (VAT 0%) are included in annual expenditure.

19 18 Derivative contracts The City s management of borrowing and financial risks follows the guidelines set in the City s financial policy. Financial risks are managed by diversifying loans in accordance with the market situation at the time of drawing, taking account of the existing loan portfolio, the determination of the new loan s interest rate, currency and maturity, or by separate derivative contracts. Derivative contracts are used to hedge against interest rate and currency risks. The management of the interest rate risk aims at offsetting the adverse impact of changes in interest rates, improving the predictability of cash flows, and reducing interest cost. Derivative contracts are used to change the interest rate and/or currency allocation of fixed- and floating-rate loans on the basis of cyclical conditions and interest rate expectations. The City aims to hedge against any additional cost arising from interest rate movements and to keep the financial burden resulting from borrowing as light and predictable as possible. Uncertainty associated with the exchange rate changes related to loans denominated in foreign currencies i.e. currency risk is eliminated using currency and interest rate swaps at the time of the drawing of the loan. The City of Lahti will use derivative contracts to protect existing loans using agreements to reduce the interest rate risk of individual loans. In addition to the protection of individual loans, derivative contracts have been used to protect the future loan portfolio without loan-specific connections. The basis for these protective measures is that because of the need for refinancing resulting from overdue bullet loans and estimated long-term investment needs, the size of Lahti s loan portfolio will also be kept at a reasonable level in the future. One interest rate swap agreement for which there was no loan with equivalent terms at the time of the financial statements and the starting date of which is in the significantly distant future, was classified in the financial statements as non-protective, and the agreement s negative market value has been entered in the mandatory provisions in accordance with the prudence principle. In accordance with accounting principles, the entry was implemented as a change. The City of Lahti will specify other agreements as protective and only present them in the appendices to the financial statements. Below is a list of derivative contracts that is current as of the end of the financial year (1-10). For each contract, the purpose of the hedge has been described. Some of the derivative contracts form fixed contract packages wherein the interest rate risk has been hedged against by means of a combination of several contracts, while efforts have been made at the same time to keep the financing cost reasonable and predictable. There were three such packages at the end of the year. Derivative contracts forming a package have been denoted with the letter A, B or C. Agreements included in the derivative contracts belonging to one entity are processed in the same way in the financial statements. Interest rate swaps Interest rate swap 1 Notional principal amount EUR 63,000, Market value as of (incl. deferred interest), per bank statement EUR -1,1786, Market value as of EUR 3,114, Interest paid 0.875% Interest received Instalment plan 3-month Euribor Bullet Commencement date 11 December 2014 Maturity date 11 December 2024 Interest rate swap 1 was entered into to hedge against the interest rate risk of a single loan: The contract was used to change a variable rate into a fixed rate. The principal value, maturity and interest-payment dates of the loan are equivalent to those of the interest rate swap. The annual interest cost of the loan will not exceed 0.875% plus the margin paid for the variable rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Interest rate swap 2 Notional principal amount EUR 20,000, Market value as of (incl. deferred interest),per bank statement EUR -2,055, Market value as of EUR -2,741, Interest paid 3.36% Interest received Instalment plan 6-month Euribor Bullet Commencement date 24 April 2013 Maturity date 15 September 2020 Interest rate swap 2 was entered into to hedge against the interest rate risk of a single loan: Through the contract, the variable interest rate loan (amount EUR 20,000, December 2016) is changed into a fixed rate until The principal and interest payment dates of the loan are equivalent to those of the interest rate swap The capital of the loan and the interest rate swap agreement and the interest determination and payment dates will correspond with each other from 15 March 2017 to 15

20 19 September The annual interest cost of the loan of EUR will not exceed 3.36% (EUR 672,000) plus the margin paid for the variable-rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Interest rate and currency swaps Interest rate and currency swap 3 Notional principal amount EUR 30,000, / SEK 270,000, Market value as of (incl. deferred interest), per bank statement EUR -2,448, Market value as of EUR -1,841, Interest paid Interest received Instalment plan 12-month Euribor + margin 1-month STIBOR + margin Bullet Commencement date 10 June 2011 Maturity date 10 June 2021 By means of interest rate and currency swap 3, a currency loan was converted into euros at the drawing and will carry interest at a rate linked to the 12-month Euribor. Currency risk associated with currency fluctuations has been eliminated. The principals, maturities and interest payment dates under the contracts are equivalent in value. Package A: Interest rate swap 4 (part of package A) Notional principal amount EUR 21,000, Market value as of (incl. deferred interest),per bank statement EUR -1,841, Market value as of (incl. deferred interest),per bank statement EUR -2,727, Interest paid 4.20% Interest received Instalment plan 6-month Euribor Bullet Commencement date 1 December 2004 Maturity date 2 December 2019 Interest rate swaps with right to extend or terminate Interest rate swap 5 with right to terminate (part of package A) Notional principal amount EUR 21,000, Market value as of (incl. deferred interest), EUR 10,661, per bank statement Market value as of EUR 12,133, Interest paid Interest received 4.57% Instalment plan 6-month Euribor Bullet Commencement date 1 December 2004 Maturity date 1 December 2034 Right to terminate Notional principal amount EUR 21,000, Market value as of, per bank statement EUR -8,670, Market value as of , per bank statement EUR -9,238, Seller of the option Buyer of the option Right to terminate City of Lahti Bank 28 November 2019 and 29 November 2029 The interest rate swap agreement no. 4, interest rate swap agreement with a right of cancellation no. 5 and two loan agreements including a right of option, a total of EUR 21 million, form the agreement as a whole in which the terms and conditions of the agreements can be considered interdependent. Derivative contracts have been used to lower the financing costs of two fixedrate loans for the period The maximum annual interest paid on the loans until 2019 is 4.2%. The loan and derivative contract capitals and interest payment dates (fixed interest) correspond with each other.

21 20 Interest rate swap 5 with right to terminate includes the bank s right to terminate the swap on 28 November If the interest on a 15-year interest rate swap agreements is then lower than 4.57%, the bank will use its right of cancellation and the interest rate swap agreement will become void. The loan agreements of the City of Lahti include the right to accelerate the loans at the corresponding times. If the bank decides to cancel the interest rate swap agreement, Lahti will use the loan agreement s rights of option and pay off the loans in The interest rate swap agreement no. 4 will become due simultaneously in The option clauses of the interest rate swap agreement with a right of cancellation and the option clauses of loans will become void on the due date of the right of cancellation or the validity of the agreements will continue to the next due date of the right of cancellation or the next agreement due date. The costs incurred by the agreement as a whole are known until If the loan agreements and the interest rate swap agreements with a right of cancellation continue after 2019, the interest rate of said loans will be the 6-month Euribor and the interest charge will depend on the market situation. Package B Interest rate swap 6 (part of package B) Notional principal amount EUR 15,000, Market value as of (incl. deferred interest), per bank statement EUR 549, Market value as of EUR 734, Interest paid Interest received Instalment plan 12 month Euribor 12 month Euribor + margin Bullet Commencement date 7 October 2010 Maturity date 7 April 2020 Interest rate swap 7 with right to extend (part of package B) Notional principal amount EUR 37,000, Market value as of (incl. deferred interest), EUR -4,681, per bank statement Market value as of EUR -6,955, Seller of the option Buyer of the option City of Lahti Bank Interest paid 2.20% Interest received Instalment plan 6-month Euribor Bullet Commencement date 7 April 2020 Maturity date 7 April 2040 Package B consists of interest rate swaps 6 and 7 (with the right to extend): This package has been used to reduce the interest cost of a fixed-rate loan in At the same time, future rates have been changed into fixed rates for , provided that the bank will exercise its option. Interest rate swap 6 has been used to reduce the interest cost of a fixed-rate loan (amount EUR 15,000,000.00) by the margin applied to the swap until maturity in The principal and interest-payment dates of the loan are equivalent to those of interest rate swap. The maturity date for both is in Interest rate swap 7 with the right to extend is used to change the variable interest rate of future loans into a fixed rate for , which requires that the City has an outstanding loan of an equivalent amount with an interest rate linked to the 6-month Euribor. Interest rate swap 7 with the right to extend gives the bank the right to exercise the interest rate swap underlying the option. If the 20-year swap on the expiry date of the option, 3 April 2020, is lower than 2.20%, the bank will exercise its option and the interest rate swap with notional principal of EUR 37 million will enter into force. After this, until 2040, the annual interest cost of the loan of EUR 37 million will not exceed 2.20% plus the margin paid for the variable rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. If the 20-year swap is higher than 2.20%, the option expires, the interest rate swap will not be exercised. The agreement as a whole is protective because it implements interest rate risk management in accordance with the City of Lahti s financing policy. With the help of the agreements, the interest charges of the loan are reduced for a ten-year period. According to the existing plans, the need for refinancing resulting from Lahti s planned investments and the maturity of bullet loans in 2020 will exceed the amount of the interest rate swap agreement with the right of continuation. Should the bank use the right of option, floating rate loans will be turned into fixed interest rate loans using the interest rate swap agreement with the right of continuation, in which case the financing costs for EUR 37 million in will be known in advance. If the right of option is not used, Lahti can protect the interest rate risk with new agreements.

22 21 Package C Interest rate swap 8 (part of package C) Notional principal amount EUR 17,000, Market value as of (incl. deferred interest),per bank statement EUR 1,466, Market value as of EUR 1,771, Interest paid 12 month Euribor Interest received 12 month Euribor + margin Instalment plan Bullet Commencement date 26 August 2013 Maturity date 26 August 2022 Interest rate swap 9 with right to extend (part of package C) Notional principal amount EUR 40,000, Market value as of (incl. deferred interest),per bank statement EUR -8,507, Market value as of (incl. deferred interest),per bank statement EUR -10,886, Seller of the option Buyer of the option City of Lahti Bank Interest paid 2.84% Interest received Instalment plan 6-month Euribor Bullet Commencement date 26 August 2022 Maturity date 26 August 2042 Package C consists of interest rate swaps 8 and 9 (with the right to extend): This package has been used to reduce the interest cost of a fixed-rate loan in At the same time, the rate on future loans has been changed into a fixed rate for , provided that the bank will exercise its option. Interest rate swap 8 has been used to reduce the interest cost of a fixed-rate loan by the margin applied to the swap until maturity, in The principal and interest payment dates of the loan are equivalent to those of the interest rate swap. The maturity date for both is in Interest rate swap 9 with the right to extend is used to change the variable interest rate of future loans into a fixed rate for , which requires that the City has an outstanding loan of an equivalent amount with an interest rate linked to the 6-month Euribor. Interest rate swap 9 with the right to extend gives the bank the right to exercise the interest rate swap underlying the option. If the 20-year swap on the expiry date of the option, 24 August 2022, is lower than 2.84%, the bank will exercise its option and the interest rate swap with notional principal of EUR 40 million will enter into force. After this, until 2042, the annual interest cost of the loan of EUR 40 million will not exceed 2.84 plus the margin paid for the variable rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. If 20-year swap is higher than 2.84%, the option expires, the interest rate swap will not be exercised. The agreement as a whole is protective because it implements interest rate risk management in accordance with the City of Lahti s financing policy. With the help of the agreements, the interest charges of the loan are reduced for a nine-year period. According to the existing plans, the need for refinancing resulting from Lahti s planned investments and the maturity of bullet loans in 2022 will exceed the amount of the interest rate swap agreement with the right of continuation. Should the bank use the right of option, floating rate loans will be turned into fixed interest rate loans using the interest rate swap agreement with the right of continuation, in which case the financing costs for EUR 40 million in will be known in advance. If the right of option is not used, Lahti can protect the interest rate risk with new agreements.

23 22 Derivative contracts recorded in mandatory provisions Interest rate swap 10 Notional principal amount EUR 20,000, Market value as of (incl. deferred interest),per bank statement EUR -2,101, Market value as of EUR -3,255, Interest paid 2.46% Interest received Instalment plan 6-month Euribor Bullet Commencement date 25 May 2035 Maturity date 25 May 2055 The interest rate swap agreement no. 10, which will enter into force in the future, will change the floating rate of the loan(s) into a fixed rate for the period, which requires that the City of Lahti has raised an equivalent amount of loan for the aforementioned period tied to a 6-month Euribor interest rate with an interest rate determination date and payment date corresponding with the interest rate swap agreement. Each contracting party has an optional right to prematurely accelerate the interest rate swap agreement on 25 May 2025, 25 May 2035 or 25 May The counterparty who accelerates the agreement shall pay the other contracting party the current negative market value of the agreement. The agreement, which will enter into force in the significantly distant future, has been interpreted in the financial statements as non-protective, and the negative market value at the time of the financial statements has been entered in the mandatory provisions. In accordance with accounting principles, the entry was implemented as a change. Interest rate sensitivity of derivative contracts The following table shows the interest rate sensitivity of interest rate and currency swaps, i.e. how a change in interest rates impacts the market values of contracts. Sensitivity has been calculated for cases where the interest rate changes from the end of the year by -0.5, +0.5, +1 or +2 percentage points. The timing of negative cash flows of derivative contracts in the future has been estimated based on the yield curve at the end of the year. City of Lahti s derivative contracts, sensitivity analysis

24 23 CITY OF LAHTI NOTES TO PERSONNEL City staff General administration Social and health services 0 2,531 Education 2,621 2,658 Cultural and recreational services Technical administration Total 3,281 5,749 Balance sheet units Facility centre Lahti Symphony Orchestra Lahti City Theatre Lahden Ateria, catering services Lahden Servio, cleaning services Lahden Tietotekniikka, IT services 0 1 Total Total City 3,519 6,527 Fees charged and settled from the fee of the person in a position of trust Häme National Coalition Party The Finns Party of Häme Hämeen sosiaalidemokraatit ry Christian Democrats mun. chapter, Lahti 4,025 5,692 Christian Democrats mun. chapter, Nastola 1,013 1,821 Centre Party, Päijät-Häme Centre Party mun. chapter, Lahti 7,641 12,756 National Coalition Party mun. chapter, Lahti 29,345 40,057 The Finns Party of Lahti 5,554 8,045 Social Democrats, Lahti 45,081 50,579 The Green Party, Lahti 9,550 4,971 National Coalition Party, Nastola 0 40 The Finns Party, Nastola 444 2,008 Social Democrats mun. chapter, Nastola 0 72 Left Alliance, Nastola The Finns Party, Padasjoki 0 10 Communist Party of Finland Left Alliance mun. chapter, Lahti 12,030 9,410 Total fees settled for persons in position of trust 117, ,738 Auditor fees Oy Audiator Ab/BDO Audiator Oy Auditing fees , Acquisition audit Total fees , PwC Julkistarkastus Oy Auditing fees 20, , Acquisition audit , Total fees 20, ,460.85

25 24 Lahden kaupunki KPMG Julkishallinnon Palvelut Oy Auditing fees 8, Acquisition audit Total fees 8, Total auditing fees 28, ,897.85

26 25 NOTES TO THE GROUP FINANCIAL STATEMENTS Notes to the preparation of the Group financial statements Scope of the Group financial statements The consolidated Group financial statements include 43 subsidiaries, two foundations and five municipal federations of which the City is a member. Moreover, the Group entities participate in ten affiliated entities, two of which have been consolidated in the statements of a subgroup. The rest of the affiliated entities, as small enterprises, have been excluded from the consolidation (Accounting Act 6:3.1). The consolidation includes five following subgroups. Consolidated statements have been prepared for these companies and included in the Lahti Group figures. Entities included in the Group financial statements: 2017 Subsidiaries Corporations Housing, real estate and housing corporations 16 Corporations active in municipal business 14 Other corporations 13 Foundations 2 Municipal federations 5 Affiliated and other holding participations 2 Non-consolidated entities 8 Total 59 Elimination of mutual ownership The mutual ownership of the City and its subsidiaries as well as the municipal corporations has been eliminated. The indirect ownership in affiliated entities through municipal federations has also been eliminated. The entire difference arising from the elimination has been recorded in the acquisition period. Internal transactions and profits The mutual income and expenses, receivables and debt of the Group entities, the City and the member municipalities have been eliminated in the consolidated profit and loss statement and balance sheet. Material internal profits included in fixed assets have been deducted. Minority interests Minority interests have been deducted from the Group surplus/deficit in the consolidated profit and loss statement and from the equity in the consolidated balance sheet. Adjustment to planned depreciations Depreciations on the buildings of real estate companies and housing corporations have been adjusted to align with the plan, and the difference in the remaining values has been entered as an adjustment to the depreciations of the subsidiaries; the accumulated difference has been used to adjust the surplus/deficit of previous periods. Depreciation difference and voluntary provisions In the Group balance sheet, the voluntary reserves and the reserves made for tax purposes as well as the depreciation difference have been divided into unrestricted equity and deferred tax liability. The division has been taken into account in the elimination of ownership and the separation of minority interests. The deferred tax liability is shown in full as long-term liability. Deferred tax assets have been entered for the Group on the basis of exports resulting from the sub-group s business operations. The deferred tax assets have been divided into long-term and short-term based on their potential realisation. The Group has recorded the following deferred tax liability: Receivables: long-term EUR 152,614,00 and short-term EUR 127, Debt: long-term EUR 23,152, Affiliated entities With the exception of the two consolidated in a subgroup, the affiliated entities, as small enterprises, have been excluded from the consolidation (Accounting Act 6:3.1).

27 26 Changes to the group structure during the accounting period Founded on 1 January 2017, Päijät-Hämeen Hyvinvointikuntayhtymä provides the residents of the area with social care, health care and environmental health services. When the responsibility for providing these services was moved to Hyvinvointikuntayhtymä, the City of Lahti transferred its social and health service functions to Hyvinvointikuntayhtymä subject to a business transfer agreement. The business operations of Lahden Tietotekniikka, which acted as the balance sheet unit of the City of Lahti, was sold from 1 January 2017 onwards to the Group subsidiary Provincia Oy. In connection with the agreement made during the previous accounting period, the real property deal between the City of Lahti and Salpaus Further Education gained legal force. The sale price was paid by returning Salpaus Further Education s original capital and surplus from previous financial periods. The return reduced the City of Lahti s share of ownership in the municipal consortium. The aforementioned change of the share of ownership also indirectly affected the subsidiaries owned by Salpaus Further Education joined with the municipal consortium. The shares of ownership in these subsidiaries have been calculated to correspond with the City of Lahti s reduced share of ownership in Salpaus Further Education. Lahden Seudun Kuntatekniikka Oy entered liquidation on 4 January The company s operation was terminated during 2017 such that the final account was conducted on 15 April The City of Lahti sold the shares of Kiinteistö Oy Naskunvuo to Lahden Talot Oy on 1 January The real property company will be joined with the sub-group of Lahden Talot Oy from the financial period 2017 onwards. The City of Lahti sold 10.05% of the shares of Lahden Työn Paikka Oy to the municipality of Hollola. Following the sale, a minority share of the financial period s result and the company s equity have been separated from the company. The City of Lahti hived off the business operations of the former balance sheet units Lahden Ateria and Lahden Servio. The new limited companies, Päijät-Hämeen Ateriapalvelut Oy and Päijät-Hämeen Laitoshuoltopalvelut Oy, commenced business on 1 May Päijät-Hämeen Hyvinvointiyhtymä, a partner in the companies, transferred its corresponding business operations to the new limited companies. In the sub-group of Lahden Talot Oy, Asunto Oy Lahden Iisakki and Asunto Oy Lahden Valtteri merged with Lahden Asunnot Oy. The City of Lahti redeemed the shares of Lahden Messut Oy from minority shareholders, so that the City of Lahti s share of ownership in the 2016 financial statements was 100%. Lahden Messut Oy merged with Lahden Sibeliustalo Oy on 1 January The new company got the name KOKO Lahti Oy. Lahden seutu Lahti Region Oy sold the whole share capital of Lahti Events Oy s owned by it to KOKO Lahti Oy on 30 June Following the share sale, the Group owns 100% of Lahti Events Oy. The City of Lahti sold the shares of Kiinteistö Oy Sammonkatu 8 to Spatium Toimitilat Oy, which is part of the Group. The Group s ownership of Kiinteistö Oy Sammonkatu 8 remained the same. Salpaus Further Education founded a company called Salpaus-palvelu Oy, which it owns 100%. The company was registered on 12 December 2016, and its business operations stated in Following the foundation of the limited company, the municipal consortium drew up consolidated financial statements, which will be joined with the municipal consortium. The City of Lahti sold Lahti University of Applied Sciences to the Lappeenranta University of Technology on 19 December The company s profit and loss account was added to the financial statements, eliminating the internal instalments created during The aforementioned sale reduced the share of ownership of the subsidiaries owned by Lahti University of Applied Sciences that belonged to the Group. The shares of ownership of these subsidiaries have been calculated to correspond with the situation following the sale. Lahti Energia Oy founded a new company, Pilke Energia Oy, at the end of the financial period. This new limited company bought the share capital of Koskipower Oy from Koskisen Oy. Pilke Energia Oy creates a sub-group under Lahti Energia Oy; the entity will be merged with the municipal consortium. Adjustment of unit price funding to state share The unit-price funding paid to the education consortium and the University of Applied Sciences in the amount of EUR 64.2 million was transferred from operating income to state shares in the consolidated statement. Treatment of real estate tax The real estate taxes in the amount of EUR 4.4 million paid by the consolidated entities to the municipality have been eliminated. Ownership elimination difference The statements include negative elimination differences in the amount of EUR 0.2 million. Known changes following the financial statements The Group and Facilities Division of the City of Lahti has made a decision regarding the division of Osaamiskiinteistöt Oy. The Group entries will be made during the 2018 financial period. After the financial statements were drawn up, an internal margin resulting from the Group s internal real property sale that has not been eliminated surfaced. The effect of the internal margin on the Group is EUR 1 million. With regard to the above real property sale, the municipal consortium returned accumulated surplus the elimination of which had been excessively taken into account. The effect of this on the Group was EUR 764,000. The eliminations were made for 2018 and they have been taken into account in the comparison.

28 27 NOTES TO THE GROUP PROFIT AND LOSS STATEMENT LAHTI GROUP Notes to the Group profit and loss statement Operating income by business function Social and health services 198,149, ,015, Education and cultural services 31,604, ,365, Utilities 243,981, ,858, Housing and real estate services 71,117, ,008, Other services 65,732, ,806, ,585, ,052, Extraordinary income and expenditure Other extraordinary income Other extraordinary income 1,046, , Other extraordinary income 1,046, , Other extraordinary expenditure Other extraordinary expenditure , Other extraordinary expenditure , Capital gains and losses from fixed assets Capital gains Capital gains, Land and water areas 3,533, ,278, Capital gains, Buildings 1,042, ,944, Capital gains, Other 5,965, , Capital gains 10,541, ,077, Capital losses Capital losses, Buildings -44, , Capital losses, Other -4,705, , Capital losses -4,750, , Change in statutory reserves Pension reserve Pension reserve 1.1 6,029, ,151, Decrease -523, ,122, Pension reserve ,505, ,029, Other statutory reserves Other statutory reserves ,268, ,024, Increase 4,516, ,190, Decrease -3,689, ,946, Other statutory reserves ,095, ,268,764.14

29 28 NOTES TO THE GROUP ASSETS LAHTI GROUP Notes to the assets Land and water areas 19, , Subscription fees of properties 20, , Other land and water areas 144,725, ,317, Total land and water areas, excl. revaluation 144,745, ,340, Revaluation -307, , Land and water areas 144,438, ,682, Revaluation of buildings 19, , Revaluation of buildings 1.1 5,521, ,020, Deductions for shares in municipal federations -217, , Decrease -3,500, , Revaluation of buildings 1,802, ,521, Revaluation of shares 19, , Revaluation of shares, , , Deductions for shares in municipal federations -2, , Deductions -34, Revaluation of shares 24, , Material items included in deferred assets Tax receivables 1,075, , Amortised personnel expenses 163, , State aid and EU subsidies 1,790, ,230, Energy payment receivables 2,877, ,353, Kela payments for occupational health care 1,902, ,018, Other deferred assets 14,303, ,293, Material items included in deferred assets 22,113, ,378, Deferred interest 331, , Deferred assets incl. deferred interest 22,444, ,758,285.44

30 29 NOTES TO THE GROUP LIABILITIES LAHTI GROUP Notes to the liabilities Change in equity items Original own funds Original own funds ,196, ,196, Original own funds 437,196, ,196, Foundation equity Foundation equity, , , Foundation equity 74, , Revaluation reserve Revaluation reserve 1.1 6,310, ,830, Deductions for shares in municipal federations -233, , Transfer from fund -3,726, , Revaluation reserve 2,351, ,310, Other own funds Other own funds, ,133, ,126, Corporate sales -1,412, , Transfers to fund 141, , Other own funds 11,861, ,133, Change in surplus (deficit) from previous periods Surplus (deficit) from previous periods ,152, ,420, Corporate sales -1,954, Adjustments to previous periods -3,255, , Dividends paid , Change in surplus (deficit) from previous periods 764, , Surplus (deficit) from previous periods 129,661, ,109, Surplus for the financial year 33,078, ,043,217.41

31 30 LAHTI GROUP Material items included in statutory reserves itemised City of Lahti 5,505, ,029, Pension reserves 5,505, ,029, Other statutory reserves Reserve for environmental liabilities City of Lahti , Other statutory reserves City of Lahti 2,101, ,420, Päijät-Häme well-being consortium 6,317, ,181, Lahden Seudun Kehitys Oy LADEC 200, , Lahti Energia Oy 1,400, ,365, Päijät-Hämeen Jätehuolto Oy (waste management) 3,904, ,101, Koulutuskeskus Salpaus ky 172, Lahden ammattikorkeakoulu Oy , Other statutory reserves 14,095, ,508, Total statutory reserves 19,601, ,537, Liquidity-relevant cheque account limit Credit limit on cheque account 141,555, ,213,100.00, unused amount 117,128, ,722, Entry fees, other debt Other debt to others 36,628, ,690, Entry fees 34,209, ,823, Entry fees, other debt 70,837, ,514, Material items included in deferred liabilities Tax liabilities 1,953, ,827, Amortised personnel expenses 56,265, ,594, Patient injury liability 3,602, ,010, Advance payments of state aid and EU subsidies 1,918, ,728, Other deferred liabilities 9,519, ,310, Material items included in deferred liabilities 73,259, ,471, Deferred interest 5,711, ,246, Deferred liabilities including deferred interest 78,970, ,717,931.42

32 31 GROUP GUARANTEES AND CONTINGENT LIABILITIES LAHTI GROUP Debt secured by mortgage and share collateral Loans from financial and insurance institutions secured by mortgage 20,092, ,640, Loans from financial and insurance institutions 20,092, ,640, Loans from public corporations secured by mortgage 165,411, ,547, Loans from public corporations 165,411, ,547, Other loans secured by mortgage 93,270, ,271, Other loans 93,270, ,271, Debt secured by mortgage and share collateral 278,774, ,459, Real estate and shares used as collateral Real estate mortgaged as collateral for loans from financial and 21,042, ,489, insurance institutions Real estate mortgaged as collateral for loans from public corporations 118,211, ,141, Real estate mortgaged as collateral for other loans 93,270, ,271, Real estate mortgaged 232,523, ,901, Real estate and shares used as collateral 232,523, ,901, Other collateral used for own debt Real estate mortgages 3,013, ,979, Corporate mortgages 801, , Book value of pledged securities 1,543, ,617, Deposits 2, , Guarantees 417, Others 5,538, ,538, Other collateral used for own debt 11,316, ,938, Collateral given for debt of others Guarantees 2,103, ,103, Collateral given for debt of others 2,103, ,103, Leasing liabilities Leasing liabilities due within one year 8,981, ,828, Leasing liabilities due later 26,550, ,705, Leasing liabilities 35,532, ,534, Other rental liabilities, effective until Leasing liabilities due within one year 8,731, ,998, Leasing liabilities due later 71,098, ,263, Other rental liabilities 79,829, ,261, Rental liabilities 115,361, ,796,379.07

33 32 LAHTI GROUP Other off-balance sheet arrangements Municipality s deficiency guarantees for mortgage loans ,612, Contractual liabilities 13,675, ,314, Contractual redemption obligations ,475, Contractual refund obligations 1,739, ,758, Value added tax refund liability 20,906, ,644, Refund liability for state aid for founding projects ,426, Other off-balance sheet arrangements 36,321, ,230, Other contingent liabilities of Group entities Lahti Energia Oy Group has a liability for the participation fee in the joint air-quality monitoring agreement concluded for the City for in the amount of EUR 135,793. Through the shares it owns in Voimaosakeyhtiö SF, Lahti Energia Oy has made the commitment to further fund Fennovoima Oy s Hanhikivi 1 nuclear power project to the total amount of EUR 34,730,540 over the period extending from early 2014 until the commissioning of the plant. The company has also agreed to partake, in proportion to the size of its shareholding, in the administration and other annual expenses of Voimaosakeyhtiö SF, estimated to amount to EUR 1.3 million by Lahti-Energia Oy has a subrogation obligation or the obligation to buy an object of leasing with regard to the subsidiary Pilke Energia Oy s leasing agreement. A charge has been brought against the company. The resulting maximum fine imposed is EUR 850,000. It is not possible to estimate the schedule of the final decision. Presumably, the district court will give its verdict in Päijät-Hämeen Jätehuolto Oy has the responsibility to review the VAT deductions it has made for real property investments, if the taxable use of the property is reduced during the review period. The maximum amount of the liability is EUR 1,651, and the last review year is The Finnish branch of Nordea Bank Ab has granted the business, transport and environment centre of the Häme region a suretyship pursuant to section 59 of the Environmental Protection Act on behalf of Päijät-Hämeen Jätehuolto Oy regarding the Kujala environmental licence (environmental licence 17 November 2016) regarding the appropriate termination of waste management, control, monitoring and operation or to ensure the required following measures. The bank s total liability is EUR 5,000,000. The guarantee is in force until 3 January The Finnish branch of Nordea Bank Ab has granted the business, transport and environment centre of the Häme region a suretyship pursuant to section 199 of the Environmental Protection Act on behalf of Päijät-Hämeen Jätehuolto Oy (special exemption 6 July 2017) regarding the restoration of the environment in case of a repeal of the licence decision or a change of the licence regulation. The total liability of the suretyship is EUR 170,000. The suretyship shall be in force until 30 June Pending court actions with the City of Lahti as defendant Court Administrative Court of Hämeenlinna 412, , Päijät-Häme District Court 3, , Itä-Suomen Court of Appeal 350, Total 765, , Emission rights The production facilities of Lahti Energia Oy Group generated 370,833 tonnes of emissions in At the balance sheet date, the transferable EUA rights amounted to 482,271 tonnes and the CER rights to 28,866 tonnes. The market value of these rights is EUR 3,930,

34 33 LAHTI GROUP Derivative contracts Foreign exchange forward transactions Market value -9, Value of underlying asset 2,480, Interest rate swaps Market value -14,096, ,346, Value of underlying asset 356,476, ,480, Interest rate and currency swaps Market value -2,448, ,510, Value of underlying asset 30,000, ,000, Interest rate swaps with option*) Market value -14,374, ,615, Value of underlying asset 131,468, ,515, Electricity derivatives Market value 223, , Value of underlying asset 2,619, ,619, Total derivative contracts Market value -30,705, ,711, Value of underlying asset 523,045, , * Counterparty s option The notional values and market values of the derivative contracts of Group entities have been disclosed based on the City s ownership share. The market value equals the value indicated by the bank at the time of the financial statement (the market value of a contract). In the notes to the Group financial statements, the derivative contracts have been numbered consecutively (City of Lahti from 1-10 and Lahti Group 11-28). Interest rate swaps Interest rate swaps have been entered into to hedge against the interest rate risk of a single loan. The contracts have been used to change a variable rate into a fixed rate. The principal value, maturity and interest-payment dates of the loan are equivalent to those of the interest rate swap, or the principal of the interest rate swap may be smaller and/or the maturity shorter than that of the loan. Nro Notional principal amount in EUR Notional principal amount in EUR Maturity date 1 63,000, ,786, ,000, ,114, ,500, , ,142, ,019, ,000, ,051, ,680, ,401, ,760, ,020, ,000, , ,000, , ,000, ,055, ,000, ,741, ,750, , ,875, , ,627, , ,983, , ,031, , ,311, , ,130, , ,354, , ,429, , , , , , , , , A future interest rate swap to hedge the loan portfolio. Through the contract, the variable interest rate of the portfolio for the notional principal of the interest rate swap has been changed into a fixed rate for a certain period, during which time the City has

35 34 and will have outstanding a loan/loans in the amount of the notional principal of the interest rate swap with an interest rate linked to a variable interest rate; the loan/loans will not be associated with other derivative contracts. Nro Notional principal amount in EUR Notional principal amount in EUR Maturity date 23 3,925, , ,925, , ,166, , ,412, , The interest rate swap is used to lower the financing cost of fixed-rate loans. The contracts are combined with the interest rate swaps with options 5, 7 and 9. Nro Notional principal amount in EUR 4 21,000, ,000, ,000, ,841, ,466, , Notional principal amount in EUR Maturity date 21,000, ,727, ,000, ,771, ,000, , Interest rate and currency swaps By means of interest rate and currency swaps, a currency loan was converted into euros at the drawing and will carry interest at a rate linked to Euribor. Currency risk associated with currency fluctuations has been eliminated. The principals, maturities and interest payment dates under the contracts are equivalent in value. Nro Notional principal amount in 3 EUR 30,000, SEK 270,000, Interest rate swaps with option Notional principal amount in ,448, EUR 30,000, SEK 270,000, Maturity date ,841, Interest rate swap with the right to terminate (nro 5, ) to reduce the financing cost of a single loan, combined with another interest rate swap nro 4 to form a package. As the result of the arrangement, the maximum annual interest paid on the loans until 2019 is 4.2%. According to the interest rate swap agreement with a right of cancellation the City of Lahti will pay a 6- month Euribor interest and receive a 4.57% interest. In the interest rate swap agreement with a right of cancellation, the bank has the right to cancel the interest rate swap agreement on 28 November 2019 or on 29 November If the interest on a 15-year interest rate swap agreements is lower than 4.57%, the bank will use its right of cancellation and the interest rate swap agreement will become void. The loan agreements of the City of Lahti include the right to accelerate the loans at the corresponding times. The interest rate swap agreement no. 4 will also become simultaneously due. If the interest on a 15-year interest rate swap agreements is higher than 4.57%, the bank will not use its right of cancellation and the interest rate swap agreement shall remain in force until the maturity date or the next expiry date of the right of cancellation, at which point the loan charge of the loan will be a 6-month Euribor interest until 29 November 2029 or until the loan becomes mature in The amount of the loan charge of the loan will then depend on the market situation and the level of the 6-month Euribor interest rate. Nro Notional principal amount in Maturity date 5 21,000, ,991, ,000, ,895, An interest rate swap agreement including a right of continuation (no 7, starting date 7 April 2020), which is connected to the reduction of the loan charge of an individual loan for the period and which forms a whole together with another interest rate swap agreement (no. 6). The agreement changes the floating rate of loans to a fixed rate for the period, if the bank uses its right of option. According to the agreement, the bank shall have the right to implement the interest rate swap agreement which is the underlying asset of the right of option. If the interest rate of a 20-year interest rate swap agreement is lower than 2.2% on the termination date of the right of option, 3 April 2020, the bank will use its right of option and an interest rate swap agreement with a nominal value of EUR 37 million will enter into force. After this until 2040, the annual loan charges for the loaned amount of EUR 37 million shall be a maximum of 2.2% of the loan marginal paid for a floating rate loan and, if the Euribor interest rate is negative, the percentage of the floating interest rate of the interest rate swap agreement. If the interest rate of a 20-year interest rate swap agreement is higher than 2.2%, the option agreement shall become void and neither the interest rate swap agreement nor the protection of the loan portfolio will be implemented. Nro Notional principal amount in Maturity date 7 37,000, ,681, ,000, ,955, An interest rate swap agreement including a right of continuation (no 9, starting date 26 August 2022), which is connected to the reduction of the loan charge of an individual loan for the period and which forms a whole together with another interest rate swap agreement (no. 8). The agreement changes the floating rate of loans to a fixed rate for the period, if the bank uses its right of option. The contract gives the bank the right to exercise the interest rate swap underlying the option. If the 20-year swap on the expiry date of the option, 24 August 2022, is lower than 2.84%, the bank will exercise its option and

36 35 the interest rate swap with notional principal of EUR 40 million will enter into force. After this, until 2042, the annual interest cost of the loan of EUR 40 million will not exceed 2.84% plus the margin paid for the variable rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. If the 20 year swap is higher than 2.84%, the option expires, the interest rate swap will not be exercised, and the loan portfolio will not be hedged. Nro Notional principal amount in Maturity date 9 40,000, ,507, ,000, ,886, An interest rate swap with threshold (nro 25) is used to hedge the interest rate risk of the loan portfolio in By means of the interest rate swap, the interest rate of the loan portfolio has been changed to a fixed rate of 2.55% while the 6-month Euribor does not exceed 5%. If the interest rate rises above 5%, the interest rate changes from 2.55% to 6-month Euribor minus one percentage point.. The interest rate will be adjusted every 6 months. Additionally, the annual interest cost includes the margin paid for the loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Nro Notional principal amount in Maturity date ,108, , ,318, ,071, An interest rate swap with a change option (nro 26) was used to change the interest rate of the loan portfolio to a fixed rate of 4.85%. The contract 19 of September 2007 gives the bank the right to decide on any interest payment day (once a year) to exercise the change option included in the contract. The change option in the contract relates to the terms of interest payment: If the bank exercises its option, the interest rate tying is changed. In such a case, the interest rate changes from 4.85% to the 12-month Euribor minus 0.10 per cent. In both cases, the bank pays 12-month Euribor. The next exercise notification date is 15 September The annual interest cost includes the interest rate of 4.85%, the margin paid for the loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Nro Notional principal amount in Maturity date , , , , Derivative interest-rate contracts recorded in mandatory provisions Derivative contracts have been interpreted as non-protective and the contracts negative market values or market value changes have been entered in the mandatory provisions as having an impact on profits in accordance with the prudence principle. Interest rate swaps Nro Notional principal amount in Maturity date 10 20,000, ,101, ,00, ,255, ,627, ,188, ,983, ,688, An interest rate swap with the right to extend The Group company is the seller of the right of option. According to the agreement, the bank shall have the right to implement the interest rate swap agreement which is the underlying asset of the right of option.. If the 9-year swap on the expiry date of the option is lower than 2.80%, the bank will exercise its option and the interest rate swap with notional principal of EUR 27,941,180 will enter into force 10 of March Nro Notional principal amount in Maturity date 28 27,941, ,276, ,941, ,502, Electricity derivatives Notional principal amount in ,619, , ,619, , Currency derivatives The Group company uses foreign exchange transactions to protect coal purchases in USD denomination from exchange rate changes. The foreign exchange transactions lock the currency s buying rate in the future. The transactions will reach maturity in July, August and September Amount of USD bought 3,000, ,881.04

37 36 Interest rate sensitivity of derivative contracts The following table shows the interest rate sensitivity of the interest rate and currency swaps held by the City Group, i.e. how a change in interest rates impacts the market values of contracts. Sensitivity has been calculated for cases where the interest rate changes from the time of the financial statements by -0.5, +0.5, +1 or +2 percentage points. The timing of negative cash flows of derivative contracts in the future has been estimated based on the yield curve at the end of the year. Interest rate sensitivity of interest rate and currency derivatives of Lahti Group