Tornator Oyj BALANCE BOOK. 31 December 2013

Transcription

1 Tornator Oyj BALANCE BOOK 31 December 2013

2 Tornator Oyj, Board of Directors Report 2013 Net sales and results The Group's net sales were EUR 86.7 (82.9) million. Timber sales income accounted for the majority of the net sales, 88% (89%). The net sales include EUR 9.3 (9.2) million of income from the sale of land areas and plots. The growth of net sales was due to an increase in the volume of timber deliveries to 2.8 (2.65) million m 3. Other operating income, EUR 4.8 (5.4) million, includes EUR 2.6 (3.1) million in conservation area compensation. The rest of other operating income is mainly attributable to leasing of land and the sale of soil resources. Operating profit amounted to EUR (71.8) million and profit for the period EUR (7.4) million. The change in the fair value of biological assets increased operating profit by EUR 49.2 (8.7) million. The positive change in the fair value of interest rate derivatives was EUR 17.1 (-45.0) million before deferred taxes. The Tornator Timberland Group includes, besides the parent company Tornator Oyj in Finland, Tornator Eesti OÜ (100.0%) in Estonia and SC Tornator SRL (100.0%) and Oituz Private Forest District SRL (100.0%) in Romania. Key figures The key figures have been calculated without the effects of the changes in the fair value of biological assets and interest rate derivatives. The figures for the Group have been calculated according to the International Financial Reporting Standards (IFRS) and for the parent company according to the Finnish Accounting Standards (FAS) Net sales, EUR million THE GROUP Parent Operating profit, EUR million THE GROUP Parent Operating profit, % of net sales THE GROUP 75.6% 76.1% 83.8% Parent 87.2% 87.6% 101.0% Profit for the period, EUR million THE GROUP Parent Return on equity THE GROUP 7.0% 8.3% 8.6% Parent 22.4% 20.5% 23.1% Return on capital employed THE GROUP 7.1% 7.1% 7.4% Equity ratio THE GROUP 43.0% 40.1% 41.9% 2

3 Distribution of revenues and non-current assets by country EUR thousand 1 Jan 31 Dec Jan 31 Dec 2012 Revenues: Finland 82,815 96% 79,907 96% Romania and Estonia 3,892 4% 3,030 4% Total 86, % 82, % Biological assets: Finland 949,986 93% 906,691 94% Romania and Estonia 72,675 7% 62,486 6% Total 1,022, % 969, % Non-current assets Finland 1,022,282 92% 981,356 93% Romania and Estonia 83,518 8% 68,372 7% Total 1,105, % 1,049, % Notable events during the period Tornator s operational activities were excellent, and the good demand for wood and favourable harvesting conditions resulted in the highest volume of deliveries in the company s history. Tornator started wood raw material deliveries to Fortum s new pyrolysis plant in Joensuu, the first one in Finland. Silvicultural work was performed according to plan. In Finland, forestland sales continued at a good pace, while the plot sales remained slow as in the previous year. About 5,000 hectares of forestland was purchased in Estonia. The Finnish Parliament ratified the decision to lower the corporate tax rate starting in 2014, which increased the fair value of forests. Due to the lower tax rate, when calculating the fair value of forests there will be a lower tax burden on future cash flows, hence the fair value of Tornator s forests in Finland increased by some EUR 54 million on 31 December The tax rate change also decreased the deferred taxes on forestland by a total of some EUR 20 million. Biological assets, such as growing stock in the case of Tornator, are entered in the balance sheet at market value. The value of the Group s forest assets is based on the discounted cash flow model. The fair value is calculated by a third-party appraiser on the basis of the future cash flows of continuing operations, i.e. considering sustainable forest management and the growth potential of the forests. The new value of the Group s forests in the financial statements was approximately EUR 1,088 (1,034) million, including growing stock and land. The figures include the effects of harvesting as well as the purchases and sales of forestland. The rise in long-term interest rates was reflected as an increase in the fair value of Tornator s interest rate hedges, and the positive income effect in P/L amounted to some EUR 17 million before deferred taxes. Tornator s liquidity remained strong throughout the year. 3

4 Tornator Oyj s Annual General Meeting of 13 March 2013 decided, according to the proposal of the Board of Directors, to pay out EUR 23 million in dividend. According to a decision of the Extraordinary General Meeting of 28 October 2013, the company paid its shareholders an extra dividend of EUR 40 million. The payment of the extra dividend was financed with an agreed bank loan arrangement. Despite the payment of the dividends, Tornator s equity ratio increased by 2.9 percentage points to 43.0% (40.1%) Risk management Tornator s risk management is aimed at securing profitable business in the long term and to create opportunities for well-managed risk taking within the selected strategy. It is based on systematic identification and analysis of all significant risks to the company. Tornator s risks are divided into three main categories: strategic risks, operational risks and financial risks. The key risks of the main categories are described below. Strategic risks Tornator sells most of its cutting rights to a single customer. This creates a risk exposure that is managed with special attention. In Finland, wood demand has traditionally exceeded domestic supply, as indicated by the significant volumes of wood imports for many years. The company has also built good relationships with a number of mediumsized wood processing companies, and most recently with operators in the energy sector. About 30% of the Group s net sales come from companies other than the main customer. Fluctuation of wood prices is a significant risk factor in terms of Tornator s results. If prices go down, Tornator can temporarily increase the volume of cutting right sales or plot and forestland sales or both. However, the company aims to follow the sustainable annual cut, thereby trying to optimise annual cash flows in the long term. Risks concerning roundwood quantity and quality are controlled through long-term forest resource management planning and focusing operations according to the structure and age class distribution of the forests. To support planning, Tornator regularly commissions an independent study on the structure of company forests, using it to prepare a long-term cutting plan (more than 30 years). The latest forest inventory by the Finnish Forest Research Institute and the cutting budget based on it are from Operational risks Tornator manages internal business risks with functional and auditor-approved processes. International expansion disperses risks to property and operations. Natural disasters pose a risk to forest assets. For Tornator, the size of its holdings on the one hand, and their geographic extent on the other, intrinsically work as a risk management tool. In addition, Tornator has a Finnish forest insurance policy that covers damage in case of a major disaster. However, the company has deemed it unprofitable to insure its forest holdings abroad, because the target countries presently lack an operational forest insurance market. 4

5 Financial risks A substantial proportion of loan capital in the company s balance sheet constitutes a risk which Tornator manages with special attention. Ready access to the capital markets will enable the successful refinancing of the loans in the future. The company has dispersed the risks related to funding by issuing a 7-year bond besides a 5-year bank loan. The company is prepared for interest rate changes with derivative contracts. Hedging is applied to mitigate the interest rate risk on the loans and to reduce the volatility of the discount rate used in calculating the fair value of forests, and therefore it will be easier to predict the development of the company value. Liquidity management is based on advance payments and up-to-date cash management. Cash reserves are invested in bank deposits and short-term, highly rated funds. Tornator manages customer risks by advance payments based on sales agreements. Notable events after the end of the period No notable events after the end of the period. An estimate of future development The company estimates that its debt service capabilities will remain stable in Research and development Besides finalising the last few functionalities of the enterprise resource planning system, the company put a lot of emphasis on improving the availability and quality of forest stand data. The monitoring of harvesting was also developed. Personnel The average number of personnel increased slightly. In addition to normal pay, the company uses a reward system based on performance targets. An average of 6.0% (6.0%) of normal pay was given as performance-based bonuses in Personnel, wages and salaries Average number of personnel during the period Wages and salaries for the period EUR 8.7 million EUR 7.8 million EUR 7.2 million Environment The Company has an environmental programme whose objectives and realisation are reviewed annually. The framework for the company's environmental management is set by forest and environmental legislation as well as the PEFC (Programme for the Endorsement of Forest Certification). The company's forests in Finland are certified in accordance with the PEFC. Compliance with the certification criteria is audited annually by an external evaluator. In its forestry operations, the company complies with the Forest Management Practice Recommendations published by the Forestry Development Centre Tapio. 5

6 Company organisation, management and auditors At the Annual General Meeting of 13 March 2013, the following were elected as ordinary members of the Board of Directors and their personal deputies until the next Annual General Meeting: Ordinary member Mikko Koivusalo Erkko Ryynänen Jyrki Tammivuori Esko Torsti Elina Tourunen Deputy Risto Autio Jari Pussinen Jari Suvanto Timo Kärkkäinen Jari Puhakka Esko Torsti has acted as the Chairman of the Board with Mikko Koivusalo as Vice Chairman. These persons have also acted as the members of the Remuneration Committee which works under the Board of Directors. Mikko Koivusalo has acted as the Chairman of the Oversight Committee that oversees significant agreements between the company and the shareholders. Arto J. Huurinainen has acted as Chief Executive Officer. Chief Financial Officer Henrik Nieminen is his deputy. The Management Group was made up by Chief Executive Officer Arto J. Huurinainen, Chief Financial Officer Henrik Nieminen, Forestry Director Ari Karhapää, Planning and Development Director Tapio Suutarla, Real Estate Manager Antero Luhtio and Forestry and Resource Manager Antero Pasanen. At the Annual General Meeting of 13 March 2013, Deloitte & Touche Oy was elected auditor with Jukka Vattulainen, APA, as principal auditor. Number of shares The parent company's share capital of EUR 51,836, is divided into 5,000,000 shares, and all shares carry equal rights. Handling of profit The parent company's distributable profit amounted to EUR 79,997,360.27, of which the profit for the period is EUR 52,352, The Board of Directors of Tornator Oyj proposes to the Annual General Meeting that a dividend of EUR 4.40 per share or EUR 22,000, be paid. The remaining part will be carried over in the shareholders' equity. The Board proposes the dividend payment date as 1 April 2014 and the record date as 14 March

7 Major shareholders, 31 December 2013 Stora Enso Oyj 41.0% Ilmarinen Mutual Pension Insurance Company Varma Mutual Pension Insurance Company Etera Mutual Pension Insurance Company 16.9% 13.1% 6.3% OP Bank Group Pension Fund 5.2% Other shareholders 17.5% Total 100.0% Voting rights According to Tornator Oyj s Articles of Association, the votes of a shareholder at the Shareholders General Meeting may not exceed twenty (20) percent of the total number of votes carried by all shares in the company, including the voting rights of all companies and their pension funds and foundations belonging to the same group as the shareholder. 7

8 Contents A. Consolidated financial statements Notes to the consolidated financial statements General information Summary of the most important accounting principles Accounting principles of the consolidated financial statements Subsidiaries Segment reporting Conversion of line items denominated in foreign currencies Property, plant & equipment Intangible assets Impairments Biological assets Leases Inventories Accounts receivable Financial assets and financial liabilities Financial liabilities Borrowing costs Impairment of financial assets Derivatives contracts and hedging accounting Cash and cash equivalents Share capital Dividends Income taxes Employment benefits Pension liabilities Accounts payable Income recognition Operating profit Interest and dividends Application of the new and revised IFRS standards Financial risk management Critical accounting estimates & judgements Operating segments Intangible assets Property, plant & equipment Biological assets Derivatives Inventories Trade and other receivables Available-for-sale investments Cash and cash equivalents Share capital and share premium fund Imputed tax assets and imputed tax liabilities Financial liabilities Pension obligations Trade and other payables Breakdown of net sales

9 21 Other operating income Materials and services Personnel expenses Depreciation and amortisation expense and impairments Other operating costs Financial income and expenses Income taxes Dividends Related party transactions Subsidiaries 31 December Contingent assets and liabilities and issued commitments Other collateral granted for own account Judicial proceedings Classification of financial assets and financial liabilities Fair value hierarchy of financial assets and liabilities at fair value Essential post-balance sheet date events B. Parent company financial statements 9

10 Consolidated Income Statement EUR thousand Note 1 January 31 December January 31 December 2012 Net sales , ,937.4 Other operating income 21 4, ,436.4 Change in inventories of finished and unfinished products ,772.4 Materials and services 22-11, ,846.6 Personnel expenses 23-8, ,821.6 Depreciation and amortisation expense and impairments 24-1, ,368.4 Other operating costs 25-4, ,451.2 Change in fair value of biological assets and harvesting 9 49, ,694.3 Operating profit 114, ,807.8 Financial income Financial expenses 26-23, ,683.6 Change in fair value of financial instruments 5, 10 17, ,002.4 Financial expenses (net) 26-6, ,259.7 Profit/loss before tax 108, ,548.1 Income taxes 27-10, ,448.1 Change in imputed taxes 16 10, ,256.8 Profit for the financial period 108, ,356.8 Distribution: To owners of the parent company 108, ,356.8 Consolidated statement of comprehensive income Profit for the financial period 108, ,356.8 Other comprehensive income for the period after taxes: Items not recognised later through profit and loss Items derived from the re-definition of net defined benefit costs (or asset items) Items that may later be recognised through profit and loss Translation difference Available-for-sale investments Cash flow hedging 15, , , , 27 6, ,764.6 Comprehensive income for the period total 114, ,049.2 Distribution: To owners of the parent company 114, ,049.2 The notes on pages are a material part of these financial statements 10

11 Consolidated balance sheet 1 January 31 December January 31 December 2012 EUR thousand Note ASSETS Non-current assets Intangible assets 7 4, Property, plant & equipment 8 78, ,028.1 Biological assets 9 1,022, ,177.0 Available-for-sale investments Non-current assets total 1,105, ,049,727.9 Current assets Inventories 11 2, Trade and other receivables 12 3, ,080.1 Available-for-sale investments 13 7, ,173.7 Cash and cash equivalents 14 30, ,843.0 Current assets total 43, ,162.4 Total assets 1,149, ,104,890.3 EQUITY AND DEBT Equity belonging to owners of the parent company Share capital 15 50, ,000.0 Other equity 427, , , ,905.6 Non-current liabilities Deferred tax liabilities , ,906.3 Financial liabilities , ,769.6 Derivatives 10 45, ,693.9 Pension obligations Non-current liabilities total 606, ,514.8 Current liabilities Financial liabilities 17 44, ,500.0 Trade and other payables 19 21, ,146.3 Derivatives ,823.7 Current liabilities total 66, ,470.0 Total debt 672, ,984.8 Total equity and debt 1,149, ,104,890.3 The notes on pages are a material part of these financial statements 11

12 Statement of changes in equity EUR thousand Shareequity Note Share capital Share premium Translation difference Fair value reserve Retained earnings total Equity 1 January , , , , , ,006.6 Retroactive application of the revised IAS Restated equity 1 January , , , , , ,856.4 Comprehensive income Profit for the period 7, ,356.8 Other comprehensive income (after taxes) Items derived from the redefinition of net defined benefit liabilities (or asset items) Translation difference 15, 27-1, ,303.5 Available-for-sale investments 13, Cash flow hedging 10, 27 14, ,764.6 Comprehensive income for the period , , , ,049.2 Transactions with owners Payment of dividends 28-26, ,000.0 Transactions with owners total , ,000.0 Equity 31 December , , , , , ,905.6 Equity 1 January , , , , , ,905.6 Comprehensive income Profit for the period 108, ,118.8 Other comprehensive income (after taxes) Items derived from the redefinition of net defined benefit liabilities (or asset items) Translation difference 15, Available-for-sale investments 13, Cash flow hedging 10, 27 6, ,164.6 Comprehensive income for the period , , ,214.6 Transactions with owners Payment of dividends 28-63, ,000.0 Transactions with owners total -63, ,000.0 Equity 31 December , , , , , ,120.2 The notes on pages are a material part of these financial statements 12

13 Consolidated cash flow statement EUR thousand Cash provided by operating activities Cash from sales 68, ,203.7 Capital gain from sale of tangible and intangible assets 9, ,371.7 Cash from other operating income 4, ,574.8 Cash paid for operating expenses -25, ,417.1 Cash flow from operations before financial items and taxes 57, ,733.2 Interest and charges paid for other operating financial expenses -21, ,009.4 Interest received from operations Direct taxes paid -10, ,952.3 Cash provided by operating activities 25, ,197.9 Cash flow from investing activities Investments in intangible assets Investment in biological assets -6, ,766.1 Total capital expenditure, forested soil ,330.6 Investments in other tangible assets -3, ,070.8 Cash flow from receivables 8, ,547.4 Cash flow from investing activities -2, ,673.7 Cash flow from financing activities Long-term loans withdrawn ,470.0 Repayments of long-term loans -4, ,000.0 Short-term loans withdrawn 40, ,525.2 Repayments of short-term loans ,096.0 Dividends paid -63, ,000.0 Cash flow from financing activities -27, ,100.8 Change in cash and cash equivalents -4, ,423.4 Cash and cash equivalents at the start of the accounting period 34, ,403.1 Effect of exchange rate movements on cash and cash equivalents Cash and cash equivalents 31 Dec 30, ,843.0 The notes on pages are a material part of these financial statements 13

14 Consolidated financial statements 31 December 2012 Notes to the Consolidated Financial Statements 1 Notes to the consolidated financial statements General information Tornator Oyj is a Finnish limited liability company that operates under the jurisdiction of the legislation of a- pinkuja 3 C, Imatra, Finland. A copy of the consolidated financial statements is also available from this address. r- vices, sells land for recreational use and buys forest properties. At the end of 2013, the Group owned about 630,000 hectares of forest property (625,000). The Board of Directors of Tornator Oyj approved these financial statements for publication at its meeting on 6 February According to the Finnish Limited Liability Companies Act, the Annual General Meeting has the option to approve or reject or change the financial statements. 2 Summary of the most important accounting principles The most important accounting principles followed in the preparation of the financial information on the Group are explained below. These accounting principles have been applied in all the presented years. Accounting basis The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), and the IAS and IFRS standards and SIC and IFRIC interpretations in force andapplication in the EU and their interpretations in accordance with EU regulation (EC) 1606/2002. The notes to the consolidated financial statements also comply with the requirements of the Finnish accounting and corporate legislation that supplements the IFRS regulations. The consolidated financial statements have been prepared using the historical cost basis, except for available-for-sale investments, financial assets and liabilities recognised at fair value through profit and loss, biological assets, derivative financial instruments and items under hedging of fair value, which are measured at fair value. The financial statements are presented in thousands of euros unless otherwise The preparation of the consolidated financial statements according to the IFRS standards requires the making of certain estimates and assumptions. The making of these assumptions and estimates has an impact on the assets and liabilities reported on the balance sheet date, the presentation of contingent assets and liabilities in the notes and the income and expenses reported for the financial year. These estimates differ from the estimates made. Areas that have required greater judgement and areas in which the judgement has had the greatest impact on the figures presented in the financial statements are presented in Note 4. 14

15 3 Accounting principles of the consolidated financial statements Subsidiaries The consolidated financial statements include the companies of which the Group controls over half of the votes or over which eliminated by means of the acquisition cost method. Subsidiaries are included in the consolidated financial statements starting from the date on which the Group assumes control over them, and they are removed from the statements on the date on which control is relinquished. The amount by which the acqui- If the acquisition cost is smaller than the net assets of the acquired subsidiary, the difference will be entered directly in a separate income statement. Intra-group transactions, receivables, debts and unrealised profits are eliminated when the consolidated financial statements are prepared. Unrealised losses are not eliminated if the loss is incurred due to impairment. When necessary, the accounting principles of the financial statements of subsidiaries have been amended to correspond to the consolidated accounting principles. Since the acquisitions of subsidiaries have not satisfied the definition of a business, they have been handled as acquisitions of asset items. The consolidated financial statements contain the financial information of the parent company Tornator Oyj and its 100% owned subsidiaries SC Tornator SRL and Tornator Eesti Oü. Segment reporting Operating segments are determined and reported in a manner which is consistent with internal reporting to the highest operational decision-maker. According to the internal reports, the Group has one operating segment and, thus, separate segment notes are not presented. Conversion of line items denominated in foreign currencies (a) Functional and presentational currencies tational currency. Items included in the financial statements of the Group companies are valued in the currency of the oper- (b) Business transactions and balances Transactions denominated in foreign currencies are converted into the functional currency using the exchange rates on the date of the transactions or, if the items have been revalued, using the exchange rates on the valuation dates. Exchange gains and losses from payments related to business transactions and converting assets and debts denominated in a foreign currency into the exchange rate on the date of the financial statements are entered in the income statement, except in the case of hedging of cash flow or net investment complying with the terms and conditions, which are entered into equity. 15

16 Exchange gains and losses related to debts and cash and cash equivalents are presented in the income -)/gains of business operations Changes in the fair value of monetary securities, denominated in a foreign currency and classified as available for sale, are divided into exchange rate differences due to changes in the deferred acquisition cost of the security and other changes in the book value. Exchange rate differences related to changes in the deferred acquisition cost are recognised through profit and loss, and other changes in the book value are entered in equity. Exchange rate differences of non-monetary assets and debts, such as shares recognised at fair value through profit and loss, are recognised in the income statement as part of gain or loss from the change of fair value. Exchange rate differences from non-monetary shares classified as available-for-sale are entered in the available-for-sale investment fund in equity. (c) Group companies The income statements and balance sheets of Group companies (none of which operate in a hyperinflation country) using a functional currency different from the presentation currency of the Group are converted to the presentation currency as follows: a) the assets and debts of each balance sheet to be presented are converted into the exchange rate on the date of the balance sheet; b) the income and expense items of each income statement are converted into the average rates of the period (or the rates on the transaction dates if using the average rate does not produce a reasonable similar rate); c) all exchange rate differences generated by this are entered in the conversion differences of equity. Exchange rate differences generated by the conversion of net investments into foreign units and by loans and other currency instruments defined to hedge such net investments are entered in the exchange rate differences in equity when preparing the consolidated financial statements. When a foreign unit is partly transferred or when it is sold, exchange rate differences entered in equity are recognised in the income statement as part of capital gain/loss. Property, plant & equipment Property, plant and equipment are measured at the original acquisition cost, less deduction for depreciation and impairment. The acquisition cost contains costs immediately resulting from the acquisition. Costs that the future economic benefit associ i- tion cost can be reliably determined. Other repair and maintenance costs are recognised through profit and loss for the period in which they were realised. The residual values of assets and economic service lives are verified at a minimum annually on the date of the financial statements. Assets are subjected to straight-line depreciation over the following estimated useful lives: 16

17 Buildings 7 20 years Machinery and equipment 3 5 years Land areas No depreciation Roads and ditches 10 years Intangible assets less deduction for recognised depreciation and amortisation expenses and impairment. They are depreciated over the estimated useful life of 5 10 years. Impairments Tangible and intangible assets The Group assesses whether there is any indication that an asset has been impaired at each financial statements date. If any such indication exists, the recoverable amount of the said asset is estimated. The recoverable amount is also estimated annually for the following assets, regardless of whether or not there are signs of impairment: goodwill, intangible assets with an unlimited useful life, and unfinished intangible assets. The need for impairment is assessed at the level of cash-generating units, i.e. the lowest individual unit level that is mainly independent of the other units and whose cash flows can be separated from other cash flows. Value in use is the estimated future net cash flows, discounted to their present value, expected to be derived from the said asset or cash-generating unit. The discount rate used is the interest rate before asset. An impairment loss is recognised if the carrying amount of the asset is higher than its recoverable amount. The impairment loss is immediately recognised in the income statement. In connection with the recognition of the impairment loss, the useful life of the depreciated asset is re-evaluated. An impairment loss recognised for an asset is reversed if a change has taken place in the estimates used to determine the recoverable amount of the asset. However, the maximum reversal of an impairment loss amounts to the carrying amount of the asset had no impairment loss been recognised. Biological assets market value. Group forests are thus measured at fair value less estimated point-of-sale costs at harvest, there being a presumption that fair values can be reliably measured for these assets. The value of the calculated on the basis of future cash flows from continuing operations, i.e. based on sustainable forest management and taking growth potential into consideration. The Group estimates that the turnover cycle of forest is 70 years in Finland, 80 in Estonia and 120 in Romania, and these figures are used as the bases for the cash flows. Annual felling in line with the long-term felling plan based on the forecast tree growth is multiplied by the prices forecast by an external assessor for each wood type and felling method for the corresponding period. The long-term felling plan is based on forest inventories prepared by the Finnish Forest Research Institute and revised at regular intervals. The development of wood prices after the prediction period given by an external assessor (10 years) is assumed to be ±0. The fair value of the 17

18 biological asset is measured as the present value of the harvest from one growth cycle based on the productive forest land, taking into consideration environmental restrictions and other reservations. The discount rate used in the valuation is determined using the weighted average cost of capital (WACC), in which case the required rate of return on equity is based on the use of the capital asset pricing model. The Group verifies its discount rate in accordance with a pre-defined calculation template, but the discount rate is modified only when an essential change that is classified as long-term takes place in an individual interest rate component. Biological assets that are physically attached to soil are recognised and measured at their fair value separately from the land. When acquiring biological assets, they are valued at the acquisition cost corresponding to the fair value. Leases Group is the leaseholder Leases where the risks and rewards typical of ownership remain with the lessor are classified as other leases. Leases paid on the basis of other leases are recognised in the income statement as expenses over the term of the lease in equal-sized instalments. Group as the lessor Assets leased with agreements other than finance leases are included in the property, plant and equipment in the balance sheet. The property items leased out by the company are land areas and they are not subject to depreciation. Lease income is recognised in the income statement as equal instalments over the term of the lease. Inventories Inventories are measured at the acquisition cost or the lower net realisable value. Acquisition cost is determined using the weighted average price method. The acquisition cost includes the immediate purchasing costs less VAT. Net realisable value is the estimated selling price obtained in the ordinary course of business, from which the cost of the sale is deducted. Inventories include the wood raw material for available-for-sale biofuel, and seedlings and seeds. The Group will transfer land areas to inventories which have an approved building plan and the land areas are on the external sales list. In the case of land areas, these items are transferred to inventories when the building plan is ratified or the land areas are transferred to the external sales list. Accounts receivable Accounts receivable are initially recognised at fair value and later measured at deferred acquisition cost using the effective interest rate method less any impairment. Impairment loss is recognised when the company has objective evidence of the impairment. The amount of the impairment loss is the difference between the book value of the receivables and the amount recoverable from them, and corresponds to the present value of expected future cash flows. Financial assets and financial liabilities Financial assets 18

19 value through profit and loss, loans and other receivables, and available-for-sale financial assets. The classification is carried out based on the purpose of the acquisition of the financial assets and the assets are classified when they are first acquired. Financial assets recognised through profit and loss at fair value are held for trading. An item belonging to financial assets is classified in this category if it has primarily been acquired for sale in the near future. Derivatives are also held for trading unless they have been defined as hedges. Asset items belonging to this group are short-term assets, unless they mature more than 12 months after the end of the reporting t- ing from changes in fair value are recognised in the income statement for the accounting period during which they are created. Loans and other receivables are non-derivative assets that are connected to fixed or determinable payments and are not quoted on a functioning market and the Group does not hold them for trading purposes. Their valuation principle is deferred acquisition cost. In the balance sheet, they are included in the accounts receivable and other receivables under short-term or long-term assets according to their nature. They are placed in the latter category if they mature in more than 12 months. Available-for-sale financial assets are non-derivative assets that have been expressly determined to be in this category or that have not been classified into any other category. They are included in non-current assets unless the intention is to hold them for less than 12 months after the date of the financial statements, in which case they are included in short-term assets. Available-for-sale financial assets can include both shares and interest-bearing investments. They are measured at fair value or, if fair value cannot be reliably determined, at acquisition price. Changes in the value of available-for-sale financial assets are recognised in the fair value reserve, taking into consideration the tax effect of equity. Changes in fair value are transferred from equity to the income statement when the investment is sold or when its value has decreased so that an impairment loss must be recognised for the investment. Transaction costs are included in the original book value of financial assets when an item is not measured at fair value through profit and loss. All purchases and sales of financial assets are recognised on the trade date. De-recognition of financial assets from the balance sheet occurs when the Group has lost its contractual right to cash flows or when it has transferred risks and income outside the Group to a significant degree. Financial liabilities Financial liabilities are originally recognised in accounting at fair value. Transaction costs are included in the original book value of financial liabilities. Financial liabilities used later for fair value hedging are recognised by taking into account the change in the fair value of the hedged item, and other financial liabilities are recognised at deferred acquisition cost using the effective interest rate method. Financial liabilities are included in short-term and long-term liabilities. Borrowing costs Borrowing costs are recognised as expenses for the accounting period during which they were incurred. 19

20 Impairment of financial assets On every financial statements date the Group evaluates whether there is objective evidence of the impairment of a single financial asset line item or the impairment of a financial asset category. If the fair value of share investments falls short of acquisition cost to a significant degree and for a period of time defined by the Group, this is an indication of the impairment of the available-for-sale share. If there is evidence of impairment, the loss accrued in the fair value reserve is transferred to the income statement. An impairment loss from equity investments classified as available-for-sale financial assets is not reversed through the income statement, whereas the later reversal of an impairment loss from interest-bearing instruments is recognised through profit and loss. The Group recognises an impairment loss on accounts receivable when there is objective evidence that the receivables cannot be collected in full. Significant financial problems by the debtor, the likelihood of bankruptcy or neglect of payments are evidence of the impairment of accounts receivable. The size of the impairment loss recognised in the income statement is determined by the difference between the book value of the receivables and the present value of estimated deferred cash flows discounted by the effective interest rate. If the size of the impairment loss decreases during a later accounting period and the reduction can be objectively considered to be connected to an event after the recognition of the impairment, the recognised loss is reversed through profit or loss. Derivatives contracts and hedging accounting Derivatives contracts are originally recognised in accounting at fair value on the date on which the Group becomes a contracting party, and later they are also measured at fair value. Profits and losses that result from measurement at fair value are handled in accounting in a way determined by the purpose of the derivatives contract. Changes in the value of derivatives contracts to which hedging accounting is applied, and that are effective hedging instruments, are presented congruently with the hedged line item in the income statement. When derivatives contracts are concluded, the Group treats them as hedges of the estimated highly probable cash flow from operations, fair value hedges or derivatives contracts that do not satisfy the criteria of hedging accounting. The Group documents hedge accounting when it initiates the relationship between the target to be risk management objectives and the strategy for undertaking hedging. When starting hedging, and at least at the time of the release of each set of financial statements, the Group documents and evaluates the effectiveness of the hedging relations by examining the ability of the hedging instrument to protect against changes in cash flow or the fair value of the line item being hedged. Changes in the fair value of derivatives that meet the terms of fair value hedging are recognised through profit and loss to adjust interest and financing costs in the income statement. Correspondingly, the change in the fair value of the hedged item is entered in the income statement. A change in the fair value of the effective portion of derivative instruments that satisfy the conditions for hedging cash flow are recognised directly in the hedging fund contained in the equity revaluation reserve. Profits and losses recognised in equity are transferred to the income statement in the accounting period for which the hedged line item is recognised in the income statement. When the Group applies cash flow hedging to hedge against the interest risk of floating rate loans, the ineffective portion of the hedging relationship is entered to adjust the interest expenses of the income statement. 20

21 When a hedging instrument acquired to hedge cash flow matures or is sold, or when the criteria of hedging accounting are no longer satisfied, the profit or loss accrued from the hedging instrument remains in equity until the forecast interest cash flow is realised. Nevertheless, if the forecast hedged transaction is no longer expected to be implemented, the profit or loss accrued in equity is immediately recognised in the income statement. If the maturity of the hedged line item is over 12 months, the fair values of derivatives in hedge accounting are presented in non-current assets or debts in the balance sheet; otherwise, they are included in shortterm assets or debts. Cash and cash equivalents Cash is recognised at fair value in the balance sheet. Cash and cash equivalents in the cash flow statement is comprised of cash, cash in bank accounts and bank deposits that can be withdrawn on demand. Share capital Share capital is comprised exclusively of ordinary shares. Direct costs of issuing new shares, less deduction for taxes, are recognised in equity to reduce the payment received from the issuance. Dividends Dividend debt to Group shareholders is recognised for the period in which the Annual General Meeting has approved the dividend. Income taxes Tax expenses in the income statement comprise taxes based on taxable profit for the period and imputed taxes. The tax effect associated with items recognised directly in equity is correspondingly recognised as x- able profit for the period at domestic rates applicable to profits in the country concerned. The imputed tax balance is adjusted using any taxes associated for previous periods. Imputed taxes are calculated for all temporary differences between the book value and taxable value. Imputed taxes are calculated by using the tax rate that has been stipulated by the financial statements date or the approved amount of which has been announced. Imputed tax assets are recognised up to the amount that it is probable that taxable income will be generated in the future, against which a temporary difference can be utilised. The imputed tax liability is, nevertheless, not recognised when it is an asset item or debt originally to be entered in accounting and it is not a question of business combination and the recognition of this kind of asset or liability item does not affect the result of accounting nor taxable income at the time the transaction is realised. Imputed tax is not recognised for undistributed earnings of subsidiaries to the extent that the difference is not likely to dissolve in the foreseeable future. Imputed tax assets and imputed tax liabilities are offset when the group has the legal right to set off the imputed tax assets and liabilities based on the taxable income for the period and when the imputed tax assets and liabilities are related to income taxes collected by the same tax recipient either from the same 21

22 party liable to pay taxes or different parties liable to pay taxes, when the asset and liability are to be realised in full. Employment benefits Pension liabilities contribution plan, the Group pays fixed payments into the arrangement. The company has no legal or actual obligation to make additional payments if the party receiving payments does not have sufficient funds to pay pension benefits earned by employees during current or previous periods. Payments made under a defined contribution plan are recognised in the income statement for the period the payment concerns. he projected unit credit method. Pension expenses are recognised as expenses over the service lives of employees based on calculations made by authorised actuaries. When calculating the current value of the pension obligation, the discount interest rate is the market yield of high-quality bonds issued by companies or the interest rate of government securities. The maturity of bonds and securities substantially corresponds to the maturity of the calculated pension obligation. The assets included in the pension arrangement at fair value on the closing date are deducted from the current value of the pension obligation items) are entered in the balance sheet. Current service costs (pension costs) and the net interest on a defined benefit arrangement are recognised through profit and loss and presented in costs arising from employment benefits. Any items arising from the re-definition of net defined benefit liabilities (or asset items) (e.g. actuarial gains and losses, and income from assets included in the arrangement) are recognised as other items of comprehensive income over the financial period when they were created. Prior service costs are recognised as expenses through profit and loss on the earliest of the following dates: either when the arrangement is changed or reduced, or when the Group recognises the related reorganisation costs or benefits related to the termination of employment. The impact o e- Accounts payable Accounts payable are initially recognised at fair value and subsequently at deferred acquisition cost using the effective interest method. Income recognition services. The amount of income to be recognised is comprised of the fair value of the consideration received, or to be received, for a sold product or service, less deduction for value-added taxes, volume discounts and other discounts. Sale of cutting rights: 22

23 Income is recognised for a cutting right sold once the measuring certificate for the cutting carried out pursuant to the cutting right has been signed, i.e. the customer has cut the trees from the purchased cutting right area. Sale of plots and forest plots: Income from the sale of plots and forest plots is recognised when the Group has irrevocably delivered the rights to the customer, the collection of receivables has been reliably verified and the seller no longer has any material risks or advantages connected to the ownership of the rights or plots, or a managerial role or actual control over the sold goods. Other services: The sale of services is recognised as income for the period during which the service is provided. Operating profit The IAS 1 Presentation of Financial Statements standard does not define the concept of operating profit. The Group has defined it as follows: Operating profit is the net amount arrived at when other income from operations is added to net sales, from which is deducted purchase costs adjusted for changes in inventories of finished and unfinished products and costs resulting from manufacturing for own use, from which is deducted the costs of employment benefits, depreciation and amortisation expenses, any impairment losses and other operating expenses, as well as income or expenses arising from fellings and changes in the fair value of biological assets. All other income statement items not mentioned above are presented below operating profit. Foreign exchange differences and changes in the fair value of derivatives are included in operating profit if they arise for reasons connected to business; otherwise they are recorded as financial items. Interest and dividends Interest income is recognised using the effective interest method and dividend income when the right to a dividend has arisen. Application of the new and revised IFRS standards The consolidated financial statements have been prepared in accordance with the same accounting principles applied in 2012, apart from the following revised standards. The adoption of these revised affect the way how future business transactions and events will be handled in the financial statements. On 1 January 2013, the Group adopted the revised IAS 19 Employee benefits standard which resulted in the Group no longer being able to apply the corridor method. The generated actuarial gains and they exceed the higher of the following: 10% of the pension obligation or 10% of the fair value of the assets. According to the revised standard, actuarial gains and losses are recognised directly in other -definition of net defined benefit costs (or 23

24 the following dates: either when the arrangement is changed or reduced, or when the Group recognises the related reorganisation costs or benefits related to the termination of employment. Interest expenses and expected return on plan assets have been replaced by net interest on net defined benefit liabilities (or asset items) which is recognised through profit and loss and presented in costs arising from employment benefits. The revised standard has been applied retroactively according to transition rules and the IAS 8 standard (Accounting Policies, Changes in Accounting Estimates and Errors). Unrecognised actuarial gains and losses have been entered in the balance sheet as of the beginning of the reference period of 1 January The 2012 reference information has been adjusted according to the revised standard. ion are presented in the table below. EUR thousand Previously reported Adjustment Restated Balance sheet 1 January 2012 Deferred tax liabilities (tax receivables) Pension receivables (pension obligations) Retained earnings 390, ,595.2 Income statement 1 January 31 December 2012 Pension costs defined benefit arrangements Profit for the period 7, ,356.8 Distributable to Parent company owners 7, ,356.8 Comprehensive income 1 January 31 December 2012 Items not recognised later through profit and loss Items derived from the re-definition of net defined benefit liabilities Balance sheet 31 December 2012 Deferred tax liabilities (tax receivables) Pension receivables (pension obligations) Retained earnings 372, ,904.4 Amendment to IAS 1 Presentation of Financial Statements concerning the presentation of other items of comprehensive income (applicable to financial periods starting on or after 1 July 2012). The key amendment is the requirement for classifying other comprehensive income items depending on whether they will subsequently be transferred to profit or loss if certain conditions are met. The amendment had an impact on the presentation of other comprehensive income items. IFRS 13 Fair Value Measurement (applicable to financial periods starting on or after 1 January 2013). The standard seeks to increase consistency and decrease complexity since it provides an exact fair value method and combines the requirements for measuring fair value and the required notes in a single standard. The use of fair value is not expanded, but instructions are provided on its measurement when its use is permitted or required by another standard. The new standard expanded notes that concern asset items recognised at fair value. The new requirements had an impact on the notes of the consolidated financial statements that concern financial instruments and biological assets. 24

25 IFRS 7 Financial Instruments: Disclosures, amendment, Offsetting Financial Assets and Financial Liabilities (applicable to financial periods starting on or after 1 January 2013). The amendment specifies requirements set out for notes that concern net financial instruments presented on the balance sheet and general net arrangements or similar agreements. The amendment did not have any impact on the notes presented by the Group. IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (applicable to financial periods starting on or after 1 January 2013). The interpretation did not have any effect on the consolidated financial statements. Annual Improvements to IFRSs (May 2012, applicable to financial periods starting on or after 1 January 2013). Minor and less urgent revisions to standards are collated into a single package and implemented once a year through the Annual Improvements procedure. Project-related amendments concern a total of five standards. The effects of the amendments vary according to standard. Overall, the amendments did not have any significant impact on the consolidated financial statements. IASB has published the following new or revised standards and interpretations that the Group has not adopted yet. The Group will adopt them as of the effective date of each standard or interpretation, or if the effective date is not the first day of the financial period, as of the beginning of the financial period following the effective date. The Group has initiated measures to evaluate the impact of these new and revised standards. IFRS 9 Financial Instruments, and amendments thereto (the mandatory effective date remains open). When completed, the originally three-phase project of IASB will replace the current standard IAS 39 Financial Instruments: Recognition and Measurement. The first part of IFRS 9, including instructions for the classification and recognition of financial assets, was published in November According to IFRS 9, the classification and recognition of financial assets depends on the characteristics of cons business model. The second part published in October 2010 deals with the classification and recognition of financial liabilities, and is largely based on the current IAS 39 requirements. The part concerning hedge accounting was published in November Currently, IASB has not issued the part concerning impairment. The standard has not yet been approved as applicable in the EU. IFRS 10 Consolidated Financial Statements. The standard defines control as the basis for consolidation when determining whether an entity should be consolidated. Furthermore, the standard provides additional guidance on the definition of control when it is difficult to assess. The standard has been approved by the EU as mandatory for financial periods starting on or after 1 January 2014, but the standard may also be adopted earlier. The Group will adopt the standard on 1 January 2014, but it is not expected to have a material impact on the consolidated financial statements. IFRS 11 Joint Arrangements. The standard emphasises the rights and obligations arising from joint arrangements in their accounting rather than their legal form. There are two types of joint arrangements: joint operations and joint ventures. The standard requires the use of a single method in the reporting of joint ventures, the equity method, and the previous proportionate consolidation method is no longer accepted. The standard has been approved by the EU as mandatory for financial periods starting on or after 1 January 2014, but the standard may also be adopted earlier. The Group will adopt the standard on 1 January 2014, but it is not expected to have a material impact on the consolidated financial statements. IFRS 12 Disclosure of Interests in Other Entities (applicable in the EU to financial periods starting on or after 1 January 2014). The standard includes the requirements for notes concerning various interests in other entities, including associates, joint arrangements, companies established for a specific purpose and other off-balance sheet companies. The standard has been approved by the EU as 25

26 mandatory for financial periods starting on or after 1 January 2014, but the standard may also be adopted earlier. The Group will adopt the standard on 1 January This is not expected to have a material impact on the consolidated financial statements. IAS 27 Separate Financial Statements (revised in 2011) (applicable in the EU to financial periods starting on or after 1 January 2014). The revised standard includes the requirements concerning separate financial statements remaining after the items on control were included in the new IFRS 10. The standard revision will not have material impact on the consolidated financial statements. The standard has been approved to be applicable within the EU, and the Group will adopt it over the financial period starting on 1 January Investment entities revisions to IFRS 10, IFRS 12 and IAS 28 (applicable to financial periods starting on or after 1 January 2014). If an entity is defined as an investment entity pertaining to the standard and it recognises all of its subsidiaries at fair value, it does not need to present consolidated financial statements. The standard revision will not have material impact on the consolidated financial statements. IAS 28 Investments in Associates and Joint Ventures (revised in 2011) (applicable in the EU to financial periods starting on or after 1 January 2014). The revised standard includes requirements for the accounting of associates as well as joint ventures with the equity method as the result of the publication of IFRS 11. The standard has been approved to be applicable within the EU, and the Group will adopt it over the financial period starting on 1 January The standard amendment will not have material impact on the consolidated financial statements. IAS 32 Financial Instruments: Disclosures, amendment, Offsetting Financial Assets and Financial Liabilities (applicable to financial periods starting on or after 1 January 2014). The amendment specifies the presentation of net financial assets and liabilities, and increases governing application instructions. The standard amendment will not have material impact on the consolidated financial statements. Amendment to IAS 36 Impairment of Assets (applicable to financial periods starting on or after 1 January 2014). The amendment specifies requirements for notes concerning such cash-flow-producing units to which impairment recognition has been allocated. The standard amendment will not have material impact on the consolidated financial statements. Amendment to IAS 39 Financial Instruments: Recognition and Measurement (applicable to financial periods starting on or after 1 January 2014). The amendment concerns the application of hedge accounting in situations where a derivative contract is transferred to a central counterparty. Through the amendment, hedge accounting can also be extended if specific terms are fulfilled in the event of such transfers. The standard amendment will not have material impact on the consolidated financial statements. IFRIC 21 Levies (applicable to financial periods starting on or after 1 January 2014). The interpretation concerns the accounting of any obligation generated to a payer from public fees. The interpretation will not have material impact on the consolidated financial statements. The interpretation has not yet been approved as applicable in the EU. Annual Improvements to IFRSs (applicable to financial periods starting on or after 1 January 2014). Minor and less urgent revisions to standards are collated into a single package and implemented once a year through the Annual Improvements procedure. Project-related amendments 26

27 concern a total of seven standards. The effects of the amendments vary according to standard. Overall, the amendments did not have any significant impact on the consolidated financial statements. Annual Improvements to IFRSs (applicable to financial periods starting on or after 1 January 2014). Minor and less urgent revisions to standards are collated into a single package and implemented once a year through the Annual Improvements procedure. Project-related amendments concern a total of four standards. The effects of the amendments vary according to standard. Overall, the amendments did not have any significant impact on the consolidated financial statements. 4 Financial risk management Risk management principles and process In its operations, the Group is exposed to various kinds of financial risk, including the effects of fluctuations in exchange n- result. Risk management is carried out by the finance management in line with general principles approved by the Board of Directors. amendments and additions will come into force when the Board of Directors has approved it. The operating instructions regarding the use of all financial instruments should be consistent with the general financtions that will ente important financial market risks are listed below. Exchange rate risk The Group also operates outside the Euro area and is thus exposed to risks arising from the currency pofunctional currency. Currency risks emerge from commercial transactions, monetary items in the balance sheet and net investments in foreign subsidiaries. The Group has foreign net investments and is thus exposed to risks emerging from the translation of indoes not hedge against exchange rate risk. A sensitivity analysis is provided in Note 15. Interest rate risk rates. -term loans that were issued with variable interest The Group has hedged its exposure to interest rate risk by signing interest rate swaps and interest rate option agreements with financial institutions that have a high credit rating. The interest rate hedging stratement. 27

28 -term money market investments expose it to cash flow interest rate risks, but their efindependent of fluctuations in market rates of interest. The Group is mainly exposed to interest rate risk related to variable interests, which is considered to be mainly connected to the loan portfolio. According to the principles of risk management, the Group must hedge at least 70% of the credit portfolio from fluctuation in market interest rates and the average maturity of the hedging should be in the range % of the maturity of the underlying loan portfolio. On the balance sheet date, 84% of credit had either been converted into fixed rate credit or hedged with ceiling/floor options. The average maturity of both loans and hedges was 5.0 years. The Group can take out loans with either a fixed rate of interest or a variable rate of interest and use interest rate swaps or ordinary interest rate options to achieve the objective of its financing principles. In addition to the interest hedges, the Group has prepared for future refinancing of loans and hedging the associated interest risk by entering into interest rate swaps with a value of EUR 164 million with financial institutions, starting in three years and with maturities of 30 years. In these agreements, Tornator will pay a fixed interest of approximately 3.0% and receive interest equal to the 1-month Euribor rate. On the balance sheet date, the Group had open euro-denominated interest derivatives, based on which the Group pays an average of 5.0% (3.4%) in fixed interest. Hedge accounting is applied to about half of EUR thousand Gains (+) and losses (-) recognised through profit or loss from changes in the fair value of interest rate derivatives 16, ,002.4 A change up or down of 1 percentage point in the interest curve would impact on the fair value of the -43 million, divided in the income statement and equity as shown in the table below: EUR thousand +1% -1% To income statement 26,898-38,292 5,426-4,977 Total 32,324-43,268 Taking the imputed tax into account To income statement 21,518-30,634 4,341-3,981 Total 25,859-34,615 Liquidity risk The Group continuously aims to assess and monitor the amount of financing required by business operations so that the Group would have sufficient liquid assets for financing its operations and paying back cash as well as the amount of liquid investments. Furthermore, the guidelines define that a liquid investment refers to a short rate fund investing in EU banks and companies with a credit rating from which the assets can be redeemed within 24 hours. The availability and flexibility of financing is guaranteed with the terms of the long-term timber trade agreement on the timing of timber transactions and preliminary payments during the year. 28

29 The following table presents an analysis of maturity. A negative figure refers to incoming cash. For items other than derivatives, the figures are undiscounted and include interest payments, paying off capital and repayments. For derivatives, the division of the balance sheet value has been presented on the basis of their maturity. 31 December 2013 EUR million Balance Less than over 5 Appendix sheet value Cash flow 1 year 1 2 years 2 5 years years Financial liabilities Trade and other payables Derivative instruments Interest rate derivatives Current financial liabilities include a bank loan of EUR 40 million which will be renewed whenever it falls due payable (revolving credit facility), i.e. it does not have any 31 December 2012 EUR million Balance Less than over 5 Appendix sheet value Cash flow 1 year 1 2 years 2 5 years years Financial liabilities Trade and other payables Derivative instruments Interest rate derivatives Credit risk of customers, investment transactions and derivative financial instruments. Credit risk management and with an impeccable credit rating. In individual significant transactions, the Group always requires the counterparty to set a sufficient guarantee. The Group only signs derivative agreements and makes investment transactions with counterparties with a minimum credit rating of A. The Group does not have a significant concentration of credit risk associated with receivables as the receivables are made up of several items. The Group had no credit losses recognised through profit and loss during the accounting period. Working capital management The purpose through the optimum capital structure by ensuring normal conditions and increasing shareholder value with the aim of best possible profits. An optimum capital structure also guarantees the lowest capital costs. 29

30 EUR million Interest-bearing debt Interest-bearing receivables Cash and cash equivalents Net debt Gearing 96.4% 96.6% The company has complied with the terms and conditions of its loans. 5 Critical accounting estimates & judgements The most important item that requires the judgement of management is connected to the assumptions used in measuring the value of forests, such as the price of wood, the discount rate and the growth period. The development of wood prices after the prediction period given by an external assessor (10 years) is assumed to be ±0 balance sheet date amounted to EUR 1,022.7 million (EUR million). The effect of forest lands acquired or sold during the financial year is taken into account in the change of value. The discount rate after taxes used by the Group in the valuation of forests was 4.00%, including equity and liability interest rate components and taking inflation into account. In calculating the discount rate, the equity interest component has a weight of 35%, and the 10-year sliding average of the 50-year euro swap interest rate is used as the risk-free interest rate (3.80% in 2013, 4.01% in 2012). A fluctuation range of ±50 basis points is used for the equity risk premium calculated by the external assessor (2.50% in 2013), i.e. the premium is only changed if it changes more than the aforementioned fluctuation range. In calculating the discount rate, the liability interest rate component has a weight of 65% on the basis of the targeted financing structure as determined in the strategy, corresponding with the hedged interest rate of the non-current liabilities (estimated 5.00% over time). The wood price estimate and the risk-free interest rate are updated annually. A change of ±1% in the discount rate will change the valuation of forest assets by EUR -170/+240 million (Finland, 70-year cash flows). A change of ±10% in the estimate of wood prices will change the valuation of forest assets by EUR ±115 million. The valuation principles applied to forests are presented in the accounting principles concerning biological assets, and valuation during the financial year is presented in Note 9. 6 Operating segments ands marked for harvesting. The stands include regular cutting methods and timber types. The Group manages and monitors its business as a single entity, and thus the Group only has one operating segment. Therefore, segment- 30

31 specific information is not presented, as this would be a repetition of the figures presented on the income statement and balance sheet. In addition to the figures presented on the income statement, reporting to the highest operational decision-maker also includes the operating profit excluding changes in the fair value of biological assets and harvesting, which amounted to EUR 65,509 thousand in 2013 (EUR 63,105 thousand in 2012). The sale of cutting rights represented 88.4% of the net sales (88.5% in 2012). The geographical distribution of income and non-current assets is presented in the tables below. Net sales are allocated to the operating countries on the basis of the geographical location of the forest. EUR thousand % EUR thousand Income: Finland 82, , Romania and Estonia 3, , Total 86, , Biological assets: Finland 949, , Romania and Estonia 72, , Total 1,022, , Non-current assets total: Finland 1,022, , Romania and Estonia 83, , Total 1,105, ,049, The above non-current assets include all of the Group s non-current assets except financial instruments, deferred tax assets and assets related to post-employment benefit plans. % 31

32 7 Intangible assets 31 December 2013 Computer software Other intangible rights EUR thousand Note Total Acquisition costs Acquisition cost on 1 January , ,771.6 Increases 4, ,416.0 Decreases Acquisition cost on 31 December , ,187.6 Accrued depreciation and impairment Accrued depreciation and impairment on 1 January , ,251.5 Depreciation and amortisation Accrued depreciation and impairment on 31 December , ,835.5 Book value on 31 December , ,352.1 Book value on 1 January December 2012 Computer software Other intangible rights EUR thousand Note Total Acquisition costs Acquisition cost on 1 January , ,196.1 Increases Decreases Acquisition cost on 31 December , ,771.6 Accrued depreciation and impairment - Accrued depreciation and impairment on 1 - January , ,096.4 Depreciation and amortisation Accrued depreciation and impairment on 31 - December , ,251.5 Book value on 31 December Book value on 1 January , ,

33 8 Property, plant & equipment 31 December 2013 EUR thousand Land areas Buildings Machinery and equipment Roads and ditches Purchases in progress Acquisition cost on 1 January , , , , ,849.4 Translation difference Increases , , ,702.4 Decreases , ,545.7 Acquisition cost on 31 December , , , , ,982.2 Accrued depreciation and impairment Accrued depreciation and impairment on 1 January , ,821.3 Depreciation and amortisation expense and impairments , ,372.7 Accrued depreciation and impairment on 31 December , , ,194.0 Book value on 31 December , , , ,788.2 Book value on 1 January , , , ,028.1 Total 31 December 2012 EUR thousand Land areas Buildings Machinery and equipment Roads and ditches Purchases in progress Acquisition cost on 1 January , , , , ,078.3 Translation difference Increases 1, , ,895.9 Decreases ,010.4 Acquisition cost on 31 December , , , , ,849.4 Accrued depreciation and impairment Accrued depreciation and impairment on 1 January , ,608.0 Depreciation and amortisation expense and impairments ,2-1, ,213.3 Accrued depreciation and impairment on 31 December , ,821.3 Book value on 31 December , , , ,028.1 Book value on 1 January , , , ,470.3 Total 33

34 9 Biological assets EUR thousand Biological assets on 1 January ,177.0 Translation difference 0.0 Harvesting -1,325.0 Valuation difference 50,536.6 Change in Income statement 49,211.6 Increases* 5,930.6 Decreases* -1,463.7 Translation difference Biological assets on 31 December ,022,660.3 EUR thousand Biological assets on 1 January ,931.5 Translation difference 0.0 Harvesting -8,182.4 Valuation difference 16,876.7 Change in Income statement 8,694.3 Increases* 11,325.0 Decreases* Translation difference -1,270.1 Biological assets on 31 December ,177.0 * In 2012 and 2013, the Group acquired more forest in Finland and Estonia and sold forest in Finland. 10 Derivatives The Group uses interest rate swaps and ordinary options for hedging its cash flows. The majority of the interest derivatives will mature in more than 3 years. Fair values of interest derivatives on 31 December. EUR thousand Assets Liabilities Assets Liabilities Interest rate swaps - -35, ,090.3 Interest rate options , ,505.6 Total fair values of derivatives , ,596.0 Nominal values of interest derivatives on 31 December EUR thousand Interest rate swaps 669, ,000.0 Interest rate options 164, ,625.0 Nominal values total 834, ,019,

35 Share of interest rate derivatives recognised under financial income and expenses in the income statement on 31 December EUR thousand Income Expense Net Net Interest rate swaps 20, , , ,355.6 Interest rate options 1, , ,646.9 Total 22, , , ,002.4 In addition, EUR 1,070.5 thousand has been entered in financial items in the income statement as a change in fair value of the hedged item in the fair value hedging relationship. Share of interest derivatives recognised under shareholders equity (imputed taxes taken into consideration) on 31 December EUR thousand Interest rate swaps -5, ,751.9 Interest rate options -7, ,469.6 Total -12, ,221.5 Interest rate swaps and interest rate options are intended as protection against market rate fluctuations. Some agreements are subject to hedge accounting, whereas some are handled as items recognised at fair value through profit and loss. In cash flow hedging, changes in fair value have been recognised on the basis of efficiency testing partly through profit and loss and partly at equity. The ineffective part of cash flow hedges and changes in the value of fair value hedges and derivatives not included in hedge accounting are recognised at financial items through profit and loss. The share recognised in the income statement has had a profit-improving (weakening) effect of EUR 16,061.2 thousand (EUR -45,002.4 thousand). Profits and losses that have been transferred to fair value reserve (reconciliation of shareholders equity) are systematically recognised in the income statement until the loans have been paid back in full. In addition, EUR 1,070.5 thousand has been entered in financial items in the income statement as a change in fair value of the hedged item in the fair value hedging relationship. Derivatives are classified under non-current assets or liabilities if the hedged item will mature in more than 12 months; otherwise, derivatives are presented under short-term assets or liabilities. A summary of profits and losses from cash flow hedging recognised in equity during the accounting period, the amount derecognised from equity and presented in the adjustments of net sales for the accounting period, and the hedging result recognised to adjust the acquisition costs of the balance sheet item are presented in the calculation in the changes of the Group s equity. For the interest rates of interest derivatives, see Financial risks (Note 4). 35

36 11 Inventories EUR thousand Appendix Prepaid expenses of purchases Other inventories 2, Total 2, The increase in inventories is caused by the deliveries of wood raw material for biofuel started in The Group did not recognise impairment on inventories in 2013 and In the income statement, EUR thousand has been recognised as a change in inventories over the financial period (EUR -1,772.4 thousand). 12 Trade and other receivables Accounts receivable EUR thousand Note Accounts receivable 1, ,733.1 Accounts receivable total 1, ,733.1 Age breakdown of accounts receivable Not matured 1, ,256.9 matured for less than 3 months matured for over 3 months, less than 6 months matured for over 6 months 87.2 Other receivables EUR thousand Note Accrued income Accrued income* 1, ,133.2 Other receivables Total other receivables 2, ,347.0 Trade and other receivables total 3, ,080.1 *Accrued income includes EUR 1,829.8 thousand in tax assets. The book value of accounts receivable and other receivables corresponds to their fair value. Receivables are not associated with significant concentrations of credit risk. The balance sheet values best correspond to the amount that is the maximum amount of credit risk in cases where the other contracting parties cannot fulfil their liabilities connected to the receivables. The fair values of receivables are presented in Note

37 13 Available-for-sale investments Financial assets include shares and other investments. At the present time, all investments are classified as available-for-sale investments. Available-for-sale investments: EUR thousand Note Value at beginning of financial period 16, , Increases/-Decreases 35-8, ,333.2 Changes in fair value recognised in equity Value at end of financial period 7, ,173.7 Long-term part Fund investments were sold and purchased during the financial period Financial investments are measured at fair value. The non-current portion in 2012 consisted of unquoted euro-denominated shares that were sold in The fair values of investments are presented in Note 35. Financial assets have expired and no impairment was recognised on them. 14 Cash and cash equivalents EUR thousand Note Cash and bank accounts (cash and cash equivalents in the cash flow statement) 30, ,843.0 Total 30, ,843.0 Cash and cash equivalents are not associated with significant concentrations of credit risk. The balance sheet values best correspond to the amount that is the maximum amount of credit risk in cases where the other contracting parties cannot fulfil their liabilities connected to the receivables. The fair values of cash and cash equivalents are presented in Note 35. In addition to cash and cash equivalents, Tornator Oyj has a bank loan facility of EUR 100 million and, on the closing date, EUR 60 million remained in the facility. The facility and the amounts taken out will mature in Share capital and share premium fund Tornator Oyj has one series of shares in which all shares entitle the owner to the same dividend. The shares have no nominal value. Tornator Oyj has 5 million shares. 37

38 Group Parent Group Parent Number of shares on 1 Jan 5,000,000 5,000,000 5,000,000 5,000,000 Number of shares on 31 Dec 5,000,000 5,000,000 5,000,000 5,000,000 Share capital (EUR thousand) on 1 Jan 50, , , ,836.2 Share capital (EUR thousand) on 31 Dec 50, , , ,836.2 Share premium fund (EUR thousand) on 1 Jan 29, , Share premium fund (EUR thousand) on 31 Dec 29, , All issued shares are fully paid up. capital when the parent company was established. Share premium The difference between the issue price of shares and the nominal value of shares is recognised in the share premium fund in cases in which a decision on the subscriptions shares was made pursuant to the old Finnish Companies Act (29 September 1978/734). Fair value reserve The fair values of derivative instruments used in hedging the cash flow and the changes in the value of available-for-sale financial assets from the time of acquisition less imputed taxes are recorded in the fair value reserve. EUR thousand Fair value reserve, changes during the financial period Hedging reserve, changes during the financial period 6, ,764.6 Total 6, ,043.5 Translation differences The Group has subsidiaries in Estonia and Romania. The Romanian share capital is presented in the lo- -denominated equity is exposed to foreign currency fluctuations. The foreign currency fluctuation in the Group is recognised in the translation differences in equity. +20% -20%

39 16 Imputed tax assets and imputed tax liabilities The imputed taxes have been recognised for all temporary differences. Changes in imputed taxes during 2013, excluding the effect of offset done when the tax recipient is the same, are as follows: EUR thousand Note 1 January 2013 Recognised through profit or loss Recognised under other comprehensive income 31 December 2013 Deferred tax assets: Temporary differences Measurement of financial instruments at fair value 10 17, , , ,641.3 Available-for-sale investments Recognition of defined benefit pensions Total deferred tax assets 18, , , ,689.7 Deferred tax liabilities: Temporary differences: Measurement of financial instruments at fair value Measurement of biological assets at fair value 9 132, , ,694.6 Total deferred tax liabilities 132, , ,365.6 EUR thousand Deferred tax assets: Temporary differences Measurement of financial instruments at fair value Note 1 January 2012 Recognised through profit or loss Recognised under other comprehensive income 31 December , , ,961.6 Available-for-sale investments Recognition of defined benefit pensions Total deferred tax assets 11, , ,077.7 Deferred tax liabilities: Temporary differences: Measurement of financial instruments at fair value Available-for-sale investments 0.0 Measurement of biological assets at fair value 9 128, , ,004.2 Total deferred tax liabilities 128, , ,

40 Imputed tax assets and imputed tax liabilities are offset when the corporation has the legal right to set off the recognised items against each other and the imputed taxes concern the same tax recipient. EUR thousand Total deferred tax assets 8, ,077.7 Offset against deferred tax liability 8, ,077.7 Deferred tax assets on the balance sheet Deferred tax liabilities 116, ,984.0 Offset against deferred tax assets -8, ,077.7 Deferred tax liabilities on the balance sheet 107, ,906.3 Imputed tax assets EUR thousand Deferred tax assets that expire after 12 months 8, ,077.7 Deferred tax assets that expire within 12 months Deferred tax liabilities EUR thousand Deferred tax liabilities that expire after 12 months 116, ,984.0 Deferred tax liabilities that expire within 12 months 116, Imputed tax liability is not recognised for undistributed profit funds of subsidiaries because the profits will not be distributed in the foreseeable future and because the realisation of tax consequences is not likely. The subsidiaries do not have undistributed profits. 17 Financial liabilities EUR thousand Long-term financial liabilities Loans from financial institutions, long-term part 452, ,769.6 Loans from financial institutions, short-term part 4, ,500.0 Current financial liabilities 40, and Note 9 (Biological assets). Current financial liabilities include a bank loan of EUR 40 million which will be renewed whenever it falls 40

41 Expiry of current and non-current financial liabilities EUR thousand Less than 1 year 44, , year less than 2 years 4, , years 136, ,000.0 After , ,269.6 Total 497, ,269.6 bilities using interest rate swaps, and the repricing takes place once every 1 6 months. a- The weighted averages of the effective interest rates for long-term financial liabilities (including short-term interest-bearing debt) are: EUR thousand % % Loans from financial institutions Pension obligations Pension plans are classified as defined benefit and defined contribution plans. Payments made under a defined contribution arrangement are recognised in the income statement for the period the payment concerns. On 1 January 2013, the Group adopted the revised IAS 19 standard. The impact of the adoption is pre- The Group has additional defined benefit pension plans in Finland. The plans are based on the average final salary and those taking part in them receive an additional pension in addition to their retirement pension. The amount of the pension benefit upon retirement is defined on the basis of certain factors, such as the salary and service years. Pensions are adjusted according to the minimum price index. The pension plans have been taken out from a life insurance company. The Group has partially funded plans. The assets included in these plans are managed by a life insurance company according to local legislation and practices. Net defined benefit liabilities on the balance sheet are defined as follows: EUR thousand Present value of funded obligations 1, ,425.0 Fair value of plan assets -1, ,280.0 Net balance sheet liability

42 Net defined benefit liabilities were changed as follows during the financial period: EUR thousand Present value of liability Fair value of plan assets Total 1 January , Current service costs Interest loss or gain Previous service costs and losses from fulfilled - obligations Re-defined items: Profit from assets included in the plan, apart from items included in interest loss or gain (±) Profit (-) or loss (+) from changes in population assumptions Actuarial profit (-) or loss (+) from changes in financial assumptions Experience-based profit (-) or loss (+) Changes in the maximum amount of an asset item, apart from the amount included in interest losses (±) Payments: From employers (+) From plan members (+) Payments from plans: Benefits paid (-) December , , January , , Current service costs Interest loss or gain Previous service costs and losses from fulfilled obligations Re-defined items: Profit from assets included in the plan, apart from items included in interest loss or gain (±) Profit (-) or loss (+) from changes in population assumptions Actuarial profit (-) or loss (+) from changes in financial assumptions Experience-based profit (-) or loss (+) Changes in the maximum amount of an asset item, apart from the amount included in interest losses (±) Exchange rate differences Payments: From employers (+) From plan members (+) Payments from plans: Benefits paid (-) Fulfilled obligations 31 December , ,

43 Sensitivity analysis for defined benefit pension obligations The following table illustrates the impact of various factors on defined benefit obligations, the fair value of assets, net liabilities and pension costs over the 2013 financial period. The analysis has been conducted following the same accounting principles as those applied to pension calculations. EUR thousand Defined benefit Fair value of obligation plan assets Net liabilities Service costs Net interest Discount rate 3.0% 1, , Discount rate 0.5% 1, , Discount rate -0.5% 1, , Change % Discount rate 3.0% 0.0% 0.0% 0.0% 0.0% 0.0% Discount rate 0.5% -6.04% 5.40% % -6.15% -2.44% Discount rate -0.5% 6.66% 5.98% 11.39% 5.29% 5.64% EUR thousand Salary increases 3.5% 1, , Salary increases 0.5% 1, , Salary increases -0.5% 1, , Change % Salary increases 3.5% 0.0% 0.0% 0.0% 0.0% 0.0% Salary increases 0.5% 0.36% 0.02% 2.72% 0.62% 3.16% Salary increases -0.5% -0.37% -0.01% -2.88% -1.31% -3.35% EUR thousand Change in pension benefit 2.10% 1, , Change in pension benefit 0.50% 1, , Change in pension benefit -0.50% 1, , Change % Change in pension benefit 2.10% 0.0% 0.0% 0.0% 0.0% 0.0% Change in pension benefit 0.50% 6.38% 0.00% % 3.48% 59.05% Change in pension benefit -0.50% -5.85% 0.00% % -4.54% % A change in mortality which would increase life expectancy by one year would increase net liabilities by EUR 39,000 (2.71%). 43

44 Fair value of plan assets Contributions paid to the insurance company and accumulated by the date of the financial statements are insurance company is liable for their management. Therefore, it is not possible to present the breakdown of plan assets by asset category. The realised loss of the plan assets was EUR 8 thousand in 2012 (profit of EUR 131 thousand in 2012). Key actuarial assumptions Discount rate % 3.00% 3.00% Annual, future wage increase assumption % 3.50% 3.50% Future employee pension increases % 2.10% 2.10% Inflation 2.00% 2.00% Average remaining service years 4 4 Obligation duration Mortality table Gompertz Gompertz The Group predicts that it will pay EUR 51 thousand in defined benefit pension plans during the 2014 financial period. 19 Trade and other payables EUR thousand Accounts payable Advances received 13, ,153.4 Accrued liabilities Staff accruals 1, ,568.3 Accrued interest 1, ,431.0 Other accruals Accrued liabilities and deferred income total 3, ,178.6 Other liabilities 3, ,267.5 Trade and other payables total 21, ,146.3 The fair values of trade and other payables are presented in Note Breakdown of net sales EUR thousand Sale of cutting rights 76, ,416.1 Sale of plots and forest plots 9, ,186.4 Sale of forestry services Total 86, ,

45 21 Other operating income EUR thousand Sale of soil Area rents Other* 3, ,896.5 Total 4, ,436.4 * The most significant item in line 'Other' consists of conservation area compensation: the amount was EUR 2,585.1 thousand in 2013 and EUR 3,111.2 thousand in Materials and services EUR thousand Products and services Purchases 2, ,905.8 External services 8, ,940.8 Total 11, ,846.6 External services mainly comprise services by forest machine contractors. Goods are mainly seedlings and seeds. 23 Personnel expenses EUR thousand Note Wages 6, ,092.7 Pension costs defined contribution arrangements 1, ,272.4 Pension costs defined benefit arrangements Social security costs Total 8, , Depreciation and amortisation expense and impairments EUR thousand Appendix Depreciation on fixed assets Buildings Machinery and equipment Roads and ditches 8 1, ,018.3 Computer software Total depreciation 1, ,

46 25 Other operating costs EUR thousand Renting expenses (other leases) other expenses* 4, ,120.5 Total 4, ,451.2 * Other expenses comprise various items that are not substantial individually. In 2012, the item included several one-off projects by different consultants, as well as costs related to the introduction of the ERP system. 26 Financial income and expenses EUR thousand Note Interest income Bank deposits Interest expenses from loans at amortised cost Loans -23, ,683.6 Change in fair value of interest derivatives 10 17, ,002.4 Financial expenses net -6, , Income taxes EUR thousand , ,448.1 Reconciliation of tax expenses: EUR thousand Profit/loss before tax 108, ,548.1 Imputed tax in the income statement -66, ,308.1 Taxable income 42, ,856.2 Tax calculated with a 24.5% tax rate -10, ,479.8 Different tax rates of foreign companies and other tax-exempt and non-deductible expenses , ,448.1 (EUR 8,256.8 thousand in 2012). The imputed tax assets and tax liabilities are calculated using a tax rate of 20% in Finland, and 16% in Romania, while in Estonia the tax rate is 0%. Imputed tax and any changes therein are presented in Note

47 The weighted average tax rate after the change in imputed taxes is 0.3% (30%). In 2013, the decrease of 4.5 percentage points in the Finnish corporation tax had a significant impact on the imputed taxes related reas the increase in interest rates had a positive effect on the fair value of interest derivatives. As a result of these factors, the average tax rate in 2013 was unusually low. In 2012, the company booked a non-deductible EUR 44 million writedown of interest rate hedges. As a result, the average tax rate was exceptionally high. Other taxes related to comprehensive income items EUR thousand Before taxes Tax effect After taxes Before taxes Tax effect After taxes Items derived from the re-definition of net defined benefit liabilities Translation difference , ,303.5 Available-for-sale assets Cash flow hedging 9, , , , , , Dividends In 2013, EUR 63.0 million was paid in dividends (EUR per share). The Board of Directors has proposed that, on the basis of the 2013 result, a maximum dividend of EUR 22.0 million (EUR 4.40 per share) be paid. The debt resulting from the proposed dividend has not been recognised in these Financial Statements. 29 Related party transactions The following transactions were carried out with related parties: Employment benefits of management: EUR thousand Management team (incl. Managing Director) wages with indirect costs and other short-term employment benefits 1, Board remuneration Enso significant influence with- Storain the Group. The following transactions were carried out with Stora Enso EUR thousand Sales Purchases Receivables Liabilities , , , ,881.7 Related party transactions occurred under the same terms and conditions as transactions between unrelated parties. 47

48 30 1) audit 88.2 (64.0) 2) assignments referred to in section 1 (1) subsection 2 of the Auditing Act 0.0 (0.0) 3) tax guidance 0.0 (9.0) 4) other services 26.4 (208.5) 31 Subsidiaries 31 December 2013 SC Tornator SRL 100% Romania Tornator Eesti Oü 100% Estonia Oituz Private Forest District SRL 100% Romania 32 Contingent assets and liabilities and issued commitments Commitments concerning other leases in which the Group is the leaseholder. The Group rents office space, machinery and cars under non-voidable other leases. Minimum rents paid under non-voidable other leases: EUR thousand Within one year After one year and within five years After more than five years Other collateral granted for own account The Group has pledged forest property as collateral for debt (Note 17). As collateral for debts, land areas and biological assets, a total of EUR 1,029.3 million has been pledged. 34 Judicial proceedings The Group had no judicial proceedings pending during the financial period. 48

49 35 Classification of financial assets and financial liabilities 31 December 2013 Financial assets Current Loans and receivables Financial items recognised at fair value through the income statement Hedging derivatives Available-forsale investments Book values according to the balance sheet item Fair value Available-for-sale 7, , ,362.5 Trade and other receivables 3, , ,717.9 Cash and cash equivalents 30, , ,284.2 Total 34, , , ,364.6 Financial liabilities Non-current Loans and receivables Financial items recognised at fair value through the income statement Hedging derivatives Financial liabilities at deferred acquisition cost Book values according to the balance sheet item Fair value Interest-bearing liabilities 452, , ,568.8 Derivatives 21, , , ,295.3 Total 21, , , , ,864.1 Current Current portion of non-current interest-bearing liabilities 4, , ,500.0 Interest-bearing debt 40, , ,000.0 Trade and other payables 21, , ,813.3 Total 21, , , , December 2012 Financial assets Current Loans and receivables Financial items recognised at fair value through the income statement Hedging derivatives Available-forsale investments Book values according to the balance sheet item Fair value Available-for-sale 16, , ,173.7 Unlisted shares Trade and other receivables 4, , ,080.1 Cash and cash equivalents 34, , ,843.0 Total 38, , , ,099.5 Financial liabilities Non-current Loans and receivables Financial items recognised at fair value through the income statement Hedging derivatives Financial liabilities at deferred acquisition cost Book values according to the balance sheet item Fair value Interest-bearing liabilities 457, , ,769.6 Derivatives 41, , , ,693.9 Total 41, , , , ,463.5 Current Current portion of non-current interest-bearing liabilities 4, , ,500.0 Derivatives 3, , ,823.7 Trade and other payables 32, , ,146.3 Total 32, , , , ,

50 The following price quotes, assumptions and measurement models have been used to determine the fair values of the financial assets and financial liabilities presented in the table. Derivatives price quote, which has been comthe prices the Group would have to pay or would receive if it cancelled the derivative financial instrument. The fair values of interest derivatives correspond to the current value of their cash flows. Available-for-sale cash and cash equivalents Available-for-sale cash and cash equivalents mainly comprise shares in Finnish mutual funds and Finnish unlisted shares. Unlisted share investments are measured at acquisition cost because their measurement at fair value using measurement methods was not possible. The fair values of investments could not be reliably determined and the estimate varies significantly, or the probabilities of various estimates located in the range could not be reasonably determined and used to evaluate fair value. Financial assets recognised at fair value are either eligible for secondary markets or the purchase rate of the counterparty on the balance sheet date was used in their measurement, and the rate was also tested using generally applicable measurement methods and available market quotes. Trade and other receivables The original book value of receivables not based on derivative financial instruments corresponds to their book value because the effect of discounting is not material when taking the maturity of the receivables into account. Loans from financial institutions The fair values of debts are based on discounted cash flows. The discount rate used is the interest rate the Group would have to pay to take out a corresponding external loan on the balance sheet date. The total interest rate is comprised of risk-free interest and the company-specific risk premium. Trade and other payables The original book value of trade and other payables corresponds to their book value because the effect of discounting is not material when taking the maturity of the debts into account. 50

51 36 Fair value hierarchy of financial assets and liabilities at fair value 31 December 2013 EUR thousand Tier 1 Tier 2 Tier 3 Total Assets EUR thousand Biological assets - - 1,022, ,022,660.3 Available-for-sale investments - equity securities debt investments 7, ,362.5 Total assets 7, ,022, ,030,022.8 Liabilities Interest-bearing debt - 497, ,494.9 Derivatives - 45, ,295.3 Total debt - 542, , December 2012 Tier 1 Tier 2 Tier 3 Total Assets EUR thousand Biological assets , ,177.0 Available-for-sale investments - equity securities debt investments - 16, ,173.7 Total assets , , ,353.4 Liabilities Derivatives - 69, ,517.6 Total debt , ,517.6 No transfers between fair value hierarchy tiers 1 and 2 took place during the ended financial period. Hierarchy tier 1 fair values are based on the quoted prices for similar assets or liabilities on a functioning market. The fair values of tier 2 instruments are to a significant extent based on input data other than quoted prices included in tier 1 but nevertheless on data (i.e. prices) or indirectly (i.e. derived from prices). In determining the fair value of these instruments, the Group uses generally accepted valuation models whose input data is, nevertheless to a significant extent, based on verifiable market data. 51

52 The fair values of tier 3 instruments are based on input data concerning the asset or liability which are not based on verifiable market data but to a significant extent on estimates by the management or their use in generally accepted valuation models. 37 Essential post-balance sheet date events The Group did not have other essential post-balance sheet date events besides the dividend payment proposal (see Note 28). 52

53 BALANCE BOOK FOR FINANCIAL YEAR 1 JANUARY Page: Financial Statements Income Statement 1 Balance Sheet Cash Flow Statement 4 Notes List of accounting books and storage methods 12

54 INCOME STATEMENT, EUR Ref December 2013 December 2012 Net sales , ,74 Other operating income , ,28 Materials and services , ,67 Personnel expenses , ,02 Depreciation and amortisation , ,84 Other operating costs , ,51 Operating profit , ,98 Financial income and expenses , ,26 Change in value of interest rate derivatives , ,00 Profit before appropriations and taxes , ,28 Taxes , ,36 Profit for the period , ,92 1

55 BALANCE SHEET, EUR ASSETS Ref NON-CURRENT ASSETS 7 Intangible assets , ,42 Property, plant and equipment , ,66 Investments Shares in Group companies , ,15 Other investments 0, ,47 Non-current assets total , ,70 CURRENT ASSETS Inventories , ,00 Long-term receivables , ,61 Short-term receivables 9 Accounts receivable , ,99 Receivables from Group companies , ,10 Other receivables 6 353, ,74 Accrued income , , , ,67 Investments , ,26 Cash and bank balances , ,44 Current assets total , ,98 ASSETS TOTAL , ,68 2

56 BALANCE SHEET, EUR LIABILITIES Ref SHAREHOLDERS' EQUITY 10 Share capital , ,00 Invested unrestricted equity reserve , ,06 Retained earnings , ,90 Profit for the period , , , ,04 Obligatory provisions , ,00 LIABILITIES Non-current liabilities Loans from financial institutions , ,00 Bond , ,00 Debenture loan , ,00 Derivatives , ,00 Deferred tax liabilities , , , ,91 SHORT-TERM LIABILITIES Loans from financial institutions ,00 0,00 Short-term share of long-term loans , ,00 Derivatives 0, ,00 Advances received , ,69 Accounts payable , ,82 Liabilities to Group companies 2 800,00 0,00 Other liabilities , ,93 Accrued liabilities , , , ,73 Liabilities total , ,64 SHAREHOLDERS' EQUITY AND LIABILITIES TOTAL , ,68 3

57 CASH FLOW STATEMENT, EUR Cash flow from operations: Cash from sales , ,93 Cash from other operating income , ,14 Cash paid for operating expenses , ,11 Cash flow from operations before financial items and taxes , ,96 Interest and charges paid for other operating financial expenses , ,62 Interest received from operations , ,83 Direct taxes paid , ,86 Cash flow from operations (A) , ,31 Cash flow from investments: Investments in tangible and intangible assets , ,91 Capital gain from sale of tangible and intangible assets , ,98 Expenditure on other investments , ,00 Cash flow from investments (B) , ,07 Cash flow from financial operations Short-term loans withdrawn ,00 Long-term loans withdrawn ,00 Repayments of long-term loans , ,00 Dividends paid and other distribution of profit , ,00 Cash flow from financing operations (C) , ,00 Change in cash and cash equivalents (A+B+C) increase (+) / decrease (-) , ,38 Cash and cash equivalents at the start of the accounting period , ,06 Cash and cash equivalents at the end of the accounting period , ,44 4

58 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2013 Tornator Oyj operates as the parent company of the Tornator Timberland Group. office at Napinkuja 3C, Imatra. ACCOUNTING PRINCIPLES APPLIED IN THE FINANCIAL STATEMENTS The financial statements have been prepared in accordance with the Finnish Accounting Act 1336/1997 and the Limited Liability Companies Act 624/ Valuation of non-current assets Tangible assets are recognised in the balance sheet at cost less depreciation according to plan. Depreciation according to plan has been calculated as straight line depreciation on the basis of the useful life of the asset. The depreciation plan is the same as in the previous year. The depreciation times are: Loan management expenses Computer software Fertilisation Roads and ditches Buildings and structures Machinery and equipment 10 years 8 years 10 years 2 Inventories Inventories are measured at the lower of acquisition cost or probable sales price. 3 Expenses with long-term effects Expenses that generate income over three or more years have been activated as expenses with long-term effects and will be depreciated over 5-10 years. 4 Items in foreign currencies Transactions denominated in foreign currencies are recognised in accounting at the exchange rate on the date of the transaction. In the financial statements, currency-denominated receivables and payables in the balance sheet are valued at the exchange rate on the date of the financial statements. Foreign exchange differences for operating items are recognised in the appropriate income statement accounts before operating profit. For financial items, the foreign exchange differences are entered as a net amount in the financial income and expenses of the income statement. 5 Pensions pension insurance companies. Pension expenses are recognised as an expense for the year during which they incur. 6 Imputed tax Imputed tax liability or asset is calculated for the temporary differences between taxation and the financial statements using the tax rate confirmed for future years at the time of closing. The balance sheet includes the imputed tax liability in total and the imputed tax asset in the amount of an estimated probable receivable. 5

59 NOTES TO THE INCOME STATEMENT, EUR December 2013 December Other operating income Capital gain from non-current assets , ,80 Capital gain from extractable soil resources , ,99 Conservation area compensation , ,00 Income from land area leases , ,45 Other income , ,05 Other intra-group income , , , ,28 2 Materials and services Materials and supplies , ,10 Change in the inventory , ,13 External services , , , ,67 3 Personnel expenses Wages and salaries , ,14 Pension expenses , ,60 Other statutory employer contributions , , , ,02 Salaries, wages and bonuses of the management Members of the Board and the Managing Director , ,23 During the reporting period, the Company employed on average Salaried employees Workers Total Depreciation according to plan From other long-term expenses , ,72 From buildings 6 990, ,02 From machinery and equipment , , , ,84 5 Other operating costs Other personnel expenses , ,17 IT and office expenses , ,27 Other services , ,87 Other , , , ,51 Authorised Public Accountants Deloitte & Touche Oy , ,00 Other services , ,00 Tax counsel 0, ,00 6

60 6 Financial income and expenses December 2013 December 2012 Interest and financial income from others Group companies 0, ,89 Others , , , ,16 Interest and other financial expenses To others , ,42 Change in the value of derivatives , ,00 Interest expenses total , ,42 7

61 NOTES TO THE BALANCE SHEET, EUR Non-current assets Loan management expenses Book value 1 Jan 0, ,94 Increases 0,00 0,00 0, ,94 0, ,94 Book value 31 Dec 0,00 0,00 Computer software Book value 1 Jan , ,94 Increases , , , , , ,71 Book value 31 Dec , ,48 Fertilisation Book value 1 Jan , ,71 Increases , , , , , ,74 Book value 31 Dec , ,94 Land and water areas Book value 1 Jan , ,28 Increases , ,23 Decreases , ,37 Book value 31 Dec , ,14 Roads and ditches Book value 1 Jan , ,35 Increases , , , , , ,27 Book value 31 Dec , ,70 Buildings and structures Book value 1 Jan , ,02 Increases 0,00 0, , , , ,02 Book value 31 Dec , ,00 Machinery and equipment Book value 1 Jan , ,53 Increases , ,59 Decreases 0,00 0, , , , ,10 Book value 31 Dec , ,02 Purchases in progress Purchases in progress 31 Dec , ,20 Increases , ,22 Decreases , ,62 Book value 31 Dec , ,80 8

62 Shares ownership Book value Book value Group companies Tornator Timberland Estonia Oü 100,0 % , ,94 S.C Tornator S.R.L. 100,0 % , , , ,15 8 Long-term receivables Rent security deposits , ,61 9

63 9 Receivables and liabilities, Group companies Tornator Eesti Oü Accounts receivable , ,43 Accrued income 639,12 639,12 Accounts payable 2 800,00 0,00 Tornator S.R.L. Accounts receivable , ,55 Accrued income 0,00 0,00 10 Equity Restricted Equity Share capital 1 Jan , ,00 Share capital 31 Dec , ,00 Restricted equity, total , ,00 Non-restricted equity Invested unrestricted equity reserve 1 Jan , ,06 Invested unrestricted equity reserve 31 Dec , ,06 Retained earnings 1 Jan , ,30 Payment of dividends , ,00 Adjustment of prior year results 0, ,60 Retained earnings , ,90 Profit for the financial period , ,92 Unrestricted equity, total , , , ,04 11 Obligatory provisions Restoration provision of regeneration areas , ,00 10

64 12 Deferred tax liabilities Tax liability from merger loss , ,05 Tax assets from obligatory provision , ,37 Tax assets from derivatives , , , ,91 13 Current liabilities Withdrawable loans from financial institutions: , ,00 Syndicated, committed credit facility (RCF). Available for withdrawal until November 2012, matures in November Substantial accrued liabilities Wages and salaries with social security expenses , ,76 Interest , ,21 Taxes 0,00 0,00 Other items , ,32 15 Loans with mortgages as collateral , ,29 Loans from financial institutions , ,00 Mortgages given , ,00 16 Contingent liabilities and other commitments Leasing liabilities Lease commitments in ,87 Lease commitments after ,80 Annual lease payments for operational leasing are reported as rental expenses. with no redemption clauses. The lease commitments include value-added tax. Derivative contracts Interest rate swaps, nominal value , ,00 Interest rate options, nominal value , ,00 Nominal values total , ,00 Interest rate swaps, fair value , ,97 Interest rate options, fair value , ,57 Fair values total , ,54 Recognised on the balance sheet , ,00 11

65 LIST OF ACCOUNTING BOOKS AND STORAGE METHODS Balance book General ledger and journal Ledger specifications Payroll accounting receipts Purchases ledger receipts Sales ledger receipts Memo vouchers Bank receipts Bound separately CD-ROM CD-ROM CD-ROM CD-ROM CD-ROM CD-ROM CD-ROM 12

66 Consolidated financial statements 31 December 2012 Notes to the Consolidated Financial Statements SIGNATURES TO THE FINANCIAL STATEMENTS AND THE REPORT OF THE BOARD OF DIREC- TORS Helsinki, 6 February 2014 Esko Torsti Chairman of the Board Mikko Koivusalo Erkko Ryynänen Jyrki Tammivuori Elina Tourunen Arto Huurinainen Managing Director AUDITORS' NOTATION A report on the audit carried out has been submitted today. Helsinki, 6 February 2014 Deloitte & Touche Oy Authorised Public Accountants Jukka Vattulainen Authorised Public Accountant

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