Exhibit 99.4

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Auditor’s report

To the Annual General Meeting of Powerflute Oyj

We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Powerflute Oyj for the year ended 31 December, 2015. The financial statements comprise the consolidated income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, cash flow statement and notes to the consolidated financial statements, as well as the parent company’s income statement, balance sheet, cash flow statement and notes to the financial statements*.

Responsibility of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company or the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion on the consolidated financial statements

In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

Opinion on the company’s financial statements and the report of the Board of Directors

In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.

Helsinki, 8 March 2016

Ernst & Young Oy

Authorised Public Accountant Firm

Erkka Talvinko

Authorised Public Accountant

* The Annual report and accounts 2015 include the following audited information: the report of the Board of Directors and the consolidated financial statements which comprise the consolidated income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, cash flow statement and notes to the consolidated financial statements and extracts of the parent company’s financial statements. The complete parent company’s financial statements are not included but are available on request from the company’s registered office.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Consolidated income statement

for the year ended 31 December 2015

	Notes		2015 €000			2014 €000
Continuing operations
Revenue		4		357,204			150,135
Other operating income		10.1		294			263
Changes in inventories of finished goods and work in progress				3,371			(973	)
Raw materials and consumables used				(116,678	)		(72,894	)
Employee benefits expense		10.2		(66,175	)		(22,086	)
Other expenses		10.3		(127,032	)		(39,354	)
Share of profit/(loss) of a joint venture		7		211			(368	)
Gain on acquisition		6		—			1,433
Gain on disposal				2,062			—
Depreciation and amortisation		13, 14		(9,935	)		(6,048	)
Operating profit				43,321			10,108
Finance income		10.5		444			160
Finance expenses		10.6		(6,017	)		(1,700	)
Profit before taxation				37,748			8,568
Income tax		11		(10,523	)		(2,309	)
Profit for the period from continuing operations				27,225			6,259
Profit for the period				27,225			6,259
Attributable to
– Equity holders of the parent				25,811			6,140
– Non-controlling interests				1,414			119
				27,225			6,259
Earnings per share (cents per share)
Basic		12		9.1			2.2
Diluted		12		8.7			2.1
Earnings per share for continuing operations (cents per share)
Basic		12		9.1			2.2
Diluted		12		8.7			2.1

2

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Consolidated statement of comprehensive income

for the year ended 31 December 2015

	Notes		2015 €000			2014 €000
Profit for the period				27,225			6,259
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations				5,768			1,720
Net movement on available-for-sale financial assets		15		(2,046	)		2,046
Net movement on cash flow hedges		10.7		(998	)		297
Income tax effect		10.7		211			(53	)
Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods				2,935			4,010
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined benefit plans				8			(69	)
Income tax effect				(2	)		14
Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods				6			(55	)
Total comprehensive income for the period, net of tax				30,166			10,214
Attributable to
– Equity holders of the parent				28,327			9,978
– Non-controlling interest				1,839			236

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Consolidated statement of financial position

as at 31 December 2015

	Notes		2015 €000			2014 €000
Assets
Non-current assets
Property, plant and equipment		13		105,589			99,240
Intangible assets		14		6,911			7,317
Other non-current financial assets		15		1,031			3,746
Investment in an associate or joint venture		7		3,547			3,308
Deferred tax asset		11		2,308			602
Total non-current assets				119,386			114,213
Current assets
Inventories		17		38,974			36,480
Trade and other receivables		18		67,907			65,666
Derivative financial instruments		15		73			—
Current income tax receivables				419			269
Cash and short-term deposits		15,19		59,218			47,469
Total current assets				166,592			149,884
Total assets				285,978			264,097
Equity and liabilities
Equity attributable to equity holders of the parent
Issued share capital		20		88			88
Reserve for invested non-restricted equity		20		28,422			28,422
Exchange differences on translating foreign operations				6,946			1,603
Treasury shares		20		(1,735	)		(1,735	)
Hedging reserve		20		(1,164	)		(377	)
Available-for-sale reserve		20		—			2,046
Defined benefit plans reserve		20		(49	)		(55	)
Retained earnings		20		61,692			39,747
Equity attributable to equity holders of the parent				94,200			69,739
Non-controlling interests				7,658			8,379
Total equity				101,858			78,118
Non-current liabilities
Interest-bearing loans and borrowings		15		92,078			106,549
Other non-current financial liabilities		15		224			247
Derivative financial instruments		15		519			264
Provisions		22		1,409			1,409
Deferred tax liabilities		11		12,544			9,985
Total non-current liabilities				106,774			118,454
Current liabilities
Trade and other payables		25		65,020			60,758
Interest-bearing loans and borrowings		15		4,218			2,396
Other current financial liabilities		15		3			41
Employee benefit liability		23		2			6
Derivative financial instruments		15		1,887			986
Provisions		22		1,159			813
Current income tax liabilities				5,056			2,525
Total current liabilities				77,346			67,525
Total liabilities				184,120			185,979
Total equity and liabilities				285,978			264,097

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Consolidated statement of changes in equity

for the year ended 31 December 2015

	Attributable to equity holders of the parent
	Share capital €000		Invested non- restricted equity €000		Treasury shares €000			Hedging reserve €000			Available- for-sale reserve €000			Defined benefit plans €000			Foreign currency translation reserve €000		Retained earnings €000			Total €000			Non- controlling interests €000			Total equity €000
As at 1 January 2015		88		28,422		(1,735	)		(377	)		2,046			(55	)		1,603		39,747			69,739			8,379			78,118
Profit for the period		—		—		—			—			—			—			—		25,811			25,811			1,414			27,225
Other comprehensive income/(loss)		—		—		—			(787	)		(2,046	)		6			5,343		—			2,516			425			2,941
Total comprehensive income		—		—		—			(787	)		(2,046	)		6			5,343		25,811			28,327			1,839			30,166
Dividends paid		—		—		—			—			—			—			—		(4,262	)		(4,262	)		(2,560	)		(6,822	)
Share-based payments		—		—		—			—			—			—			—		396			396			—			396
At 31 December 2015		88		28,422		(1,735	)		(1,164	)		—			(49	)		6,946		61,692			94,200			7,658			101,858
As at 1 January 2014		88		28,422		(1,735	)		(621	)		—			—			—		37,121			63,275			—			63,275
Profit for the period		—		—		—			—			—			—			—		6,140			6,140			119			6,259
Other comprehensive income/(loss)		—		—		—			244			2,046			(55	)		1,603		—			3,838			117			3,955
Total comprehensive income		—		—		—			244			2,046			(55	)		1,603		6,140			9,978			236			10,214
Dividends paid		—		—		—			—			—			—			—		(3,836	)		(3,836	)		—			(3,836	)
Share-based payments		—		—		—			—			—			—			—		322			322			—			322
Acquisition of a subsidiary (Note 6)		—		—		—			—			—			—			—		—			—			8,143			8,143
At 31 December 2014		88		28,422		(1,735	)		(377	)		2,046			(55	)		1,603		39,747			69,739			8,379			78,118

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Consolidated cash flow statement

for the year ended 31 December 2015

	Notes		2015 €000			2014 €000
Operating activities
Profit/(loss) before tax from continuing operations				37,748			8,568
Non-cash:
Depreciation of property, plant and equipment		13		9,249			5,922
Amortisation of intangible assets		14		686			126
Share-based payment expense		24		396			322
Net foreign exchange differences				(4,587	)		—
Gain on sale of shares		15.1		(2,062	)		—
Gain on acquisition		6		—			(1,433	)
Change in financial instruments		15		296			881
Finance income		10.5		(444	)		(160	)
Finance expense		10.6		6,017			1,700
Share of (profit)/loss in a joint venture		7		(211	)		368
Movements in provisions, pensions and government grants				348			(18	)
Working capital adjustments:
Change in trade and other receivables and prepayments				(845	)		(3,529	)
Change in inventories				(1,740	)		(1,097	)
Change in trade and other payables				3,862			7,226
Income tax received/(paid)				(6,267	)		(1,678	)
Net cash flows from operating activities				42,445			17,198
Investing activities
Purchase of property, plant and equipment		13		(11,028	)		(5,720	)
Investment in a joint venture and associate		7		(28	)		(4	)
Acquisition of a subsidiary		6		—			(73,032	)
Proceeds from sale of financial assets				3,724			—
Interest received				444			160
Net cash flows used in investing activities				(6,889	)		(78,596	)
Financing activities
Proceeds from borrowings				—			100,000
Repayment of borrowings				(13,881	)		(11,617	)
Payment of finance lease liabilities				(23	)		(37	)
Interest and similar costs paid				(4,786	)		(4,843	)
Dividends paid to equity holders of the parent				(4,262	)		(3,836	)
Dividends paid to non-controlling interests				(2,560	)		—
Net cash flows from financing activities				(25,511	)		79,667
Net increase/(decrease) in cash and cash equivalents				10,045			18,268
Cash and cash equivalents at 1 January				47,469			28,893
Foreign translation differences				1,704			308
Cash and cash equivalents at 31 December				59,218			47,469

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements

1. Corporate information

Powerflute Oyj is a public limited company incorporated and domiciled in Finland. The address of the registered office is Sorsasalo/Box 57, FI-70101 Kuopio, Finland. The Company is listed on the Alternative Investment Market (“AIM”) of the London Stock Exchange.

The consolidated financial statements of the Company and its preliminary announcement for the year ended 31 December 2015 were approved for issue by resolution of the Company’s Board of Directors on 8 March 2016.

The principal activities of the Company and its subsidiaries (the “Group”) are described in Note 4.

2. Accounting policies

2.1 Basis of preparation and significant accounting policies

The consolidated financial statements of Powerflute Oyj and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and adopted by the EU.

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 December 2014, except for the adoption of new standards and interpretations as of 1 January 2015, noted below:

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

Annual Improvements 2010-2012 Cycle

Annual Improvements 2011-2013 Cycle

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

The adoption of the new standards and interpretations referred to above does not have a material impact on the accounting policies, financial position or performance of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in Euros and all values are rounded to the nearest thousand (€000) except when otherwise indicated.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December of each year.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date that such control ceases. The financial information relating to subsidiaries is prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-Group balances, income and expenses, unrealised gains and losses and dividends resulting from intra-Group transactions are eliminated in full.

The business combination of Powerflute Oyj and Savon Sellu Oy is accounted for in accordance with the pooling of interest method.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary it:

• derecognises the assets (including goodwill) and liabilities of the subsidiary;

• derecognises the carrying amount of any non-controlling interest;

• derecognises the cumulative translation differences recorded in equity;

• recognises the fair value of the consideration received;

• recognises the fair value of any investment retained;

• recognises any surplus or deficit in profit or loss; and

• reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

In the statement of comprehensive income, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations down to the level of profit after taxes. This approach is adopted even where the Group retains a non-controlling interest in the subsidiary.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

2.3 Summary of significant accounting policies

a) Business combinations and goodwill

Business combinations other than those between entities under common control are accounted for in accordance with the acquisition method. Under the acquisition method the cost of acquisition is allocated to the acquired identifiable assets, liabilities and contingent liabilities (net assets) based on their fair values at the date of acquisition. Any difference between the cost of acquisition and the fair value of the acquired net assets is recognised as goodwill in the consolidated statement of financial position or income (referred to as negative goodwill) in the consolidated income statement.

Goodwill is initially measured at cost, being the excess of the cost of acquisition over the fair value of the acquired net assets. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Business combinations between entities under common control are accounted for in accordance with the pooling of interest method. Under the pooling of interest method the entities are combined from the beginning of the financial year in which the combination took place. The consolidated income statement reflects the results of the combining entities for the full year and the consolidated balance sheet the assets and liabilities at their carrying values. The excess of the cost of acquisition over the share capital of the acquired entity is recognised in consolidated shareholders’ equity. Goodwill is not recognised.

b) Investment in associated companies and joint ventures

Associated companies are entities over which the Group has significant influence but not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

The Group’s investments in associated companies and joint ventures are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognises the loss as “Share of profit of an associate and a joint venture” in the statement of profit or loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

c) Non-current assets held for sale

Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is considered to be met only when the sale is highly probable, the asset or disposal group is available for immediate sale in its present condition and the sale is expected to qualify for recognition as a completed sale within one year from the date of classification.

Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised.

d) Foreign currency translation

The consolidated financial statements are presented in Euros, which is the functional and presentation currency of the Group and all of its subsidiaries and associated companies or joint ventures.

Transactions denominated in foreign currencies are translated into the functional currency using the exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are translated into the functional currency using the exchange rates prevailing at the reporting date. Foreign exchange gains and losses arising from financial assets and liabilities are recorded in the income statement.

e) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty, and is adjusted for exchange differences on sales in foreign currency. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent and has concluded that it is acting as principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Revenue from the sale of the goods is recognised as income when the significant risks and rewards of ownership of the goods have passed to the buyer and the Group no longer has a continuing right to dispose of the goods or effective control over the goods. Usually, this means that sales are recorded upon delivery of goods to the customer in accordance with agreed terms of delivery, which are based on Incoterms 2000. The main categories of terms covering Group sales are:

• “D” terms, under which the Group is obliged to deliver the goods to the buyer at the agreed destination, usually the buyer’s premises, in which case the point of sale is the moment of delivery to the buyer.

• “C” terms, whereby the Group arranges and pays for the external carriage and certain other costs, though the Group ceases to be responsible for the goods once they have been handed over to the carrier in accordance with the relevant term. The point of sale is thus the handing over of the goods to the carrier contracted by the seller for the carriage to the agreed destination.

• “F” terms, being where the buyer arranges and pays for the carriage, thus the point of sale is the handing over of goods to the carrier contracted by the buyer.

(ii) Interest income

For all financial instruments measured at amortised cost and interest-bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (“EIR”) method. Interest income is included in finance income in the income statement.

f) Taxes

(i) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date at the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

(ii) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries and associates or joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

• where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries and associates or joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(iii) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

• where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

g) Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income.

Where the Group receives non-monetary grants, the asset and the grant are recorded at nominal amounts and released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

h) Pensions and other post-employment benefits

(i) Defined contribution pension plans

The Group operates a number of defined contribution pension plans which require contributions to be made into separately administered funds. In addition, the Group also provides certain other post-employment benefits to eligible employees who retire before reaching their normal retirement date. These benefits are unfunded.

10

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

(ii) Defined benefit pension plans

The Group operates a number of defined benefit pension plans which require contributions to be made into separately administered funds.

The cost of providing benefits under defined benefit plans are determined using the projected unit credit method.

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognised in profit or loss on the earlier of:

• the date of the plan amendment or curtailment; and

• the date that the Group recognises related restructuring costs.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under “cost of sales”, “administration expenses” and “selling and distribution expenses” in the consolidated statement of profit or loss (by function):

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements.

• Net interest expense or income.

(iii) Other post-employment benefits

The Group participates in a number of industry or country specific early retirement schemes which provide eligible employees with the opportunity to retire before they reach normal retirement date. The Group regards such schemes as unfunded post-employment benefits and recognises their costs over the remaining active working life of the employee in accordance with the requirements of IAS 19 Employee Benefits.

Where entitlement to post-employment benefits arises as a result of termination of employment by the Group, the benefit is treated as a termination cost. The expense is recognised in the income statement and the related liability is recorded in the statement of financial position immediately in accordance with the provisions of IAS 37 Provisions, contingent liabilities and contingent assets.

i) Share-based payment transactions

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date on which they are granted. The fair value is determined by using an appropriate pricing model, further details of which are given in Note 23.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is included in employee benefits expense (Note 10.2).

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the awards is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

All cancellations of equity-settled transaction awards are treated equally.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see Note 12).

j) Financial instruments – initial recognition and subsequent measurement

(i) Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale financial assets, or as derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial assets at initial recognition depending upon the purpose for which the financial assets were acquired.

All financial assets are recognised initially at fair value plus, in the case of investments other than at fair value through profit and loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash and short-term deposits, trade and other receivables, loan and other receivables and derivative financial instruments.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.

Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognised in the income statement.

Changes in fair value of foreign exchange forward contracts are recognised within sales and other expenses and changes in fair value of commodity forward contracts are recognised in other expenses.

The Group has not designated any financial assets upon initial recognition as at fair value through profit or loss.

The Group evaluates its financial assets at fair value through profit and loss (held for trading) to determine whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available for sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, they are subsequently measured at amortised cost using the effective interest rate (“EIR”) method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs.

Available-for-sale financial investments

Available-for-sale financial investments include equity investments. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available-for sale reserve to the income statement in finance costs.

Listed investments are measured at the market price at the end of the reporting period. Investments, for which fair values cannot be measured reliably, such as unlisted equities, are reported at cost or at cost less impairment. If the available-for-sale asset is impaired, impairment loss is recognised immediately in profit or loss.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

De-recognition

A financial asset is derecognised when:

• the rights to receive cash flows from the asset have expired; and

• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass through arrangement; and either a) the Group has transferred substantially all the risks and rewards of the asset, or b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

(ii) Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate and if a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised directly in other comprehensive income.

(iii) Financial liabilities

Initial recognition and measurement

Finance liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, include directly attributable transaction costs.

The Group’s financial liabilities include trade payables and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts, and derivative financial instruments.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationships as defined by IAS 39.

Gains or losses on liabilities held for trading are recognised in the income statement.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

The Group has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

Interest-bearing loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate (“EIR”) method amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the income statement.

Interest-bearing liabilities are classified as non-current liabilities unless they are due to being settled within 12 months after the reporting date.

De-recognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

(iv) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(v) Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, fair value is determined using appropriate valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current fair value of another instrument, which is substantially the same; discounted cash flow analysis or other valuation models.

k) Derivative financial instruments and hedging

Initial recognition and subsequent measurement

The Group uses derivative financial instruments such as forward exchange contracts, interest rate swaps and commodity forward contracts to hedge its foreign currency risks, interest rate risks and commodity price risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives are taken directly to the income statement, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income.

For the purposes of hedge accounting, hedges are classified as:

• fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment (except for foreign currency risk);

• cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment; or

• hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the effectiveness of the hedging instrument will be assessed. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

Fair value hedges

The Group did not have any fair value hedges or hedges of net investments at 31 December 2015 and 2014.

Cash flow hedges

Cash flow hedges which meet the strict criteria for hedge accounting are accounted for as follows:

• The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement.

• Amounts recognised as other comprehensive income are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs.

• If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if the requirements of hedge accounting are no longer achieved, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

The Group uses currency forward contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments, but does not apply hedge accounting. The Group uses commodity forward contracts as hedges of its exposure to commodity price risk. Refer to Note 15 for more details.

Current versus non-current classification

Derivative instruments that are not designated and effective hedging instruments are classified as current or non-current and separated into a current or non-current portion based on an assessment of the facts and circumstances.

• Where the Group does not apply hedge accounting and will hold a derivative as an economic hedge for a period beyond 12 months after the reporting date, the derivative is classified as non-current consistent with the classification of the underlying item.

• Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if reliable allocation can be made.

l) Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. When significant parts of property, plant and equipment are replaced, related costs are recognised as assets with specific useful lives and depreciation, respectively. All other repair and maintenance costs are expensed as incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for provision are met.

Depreciation is calculated on a straight line basis over the useful life of the assets. Land and water areas are not depreciated as they are deemed to have indefinite life, but otherwise depreciation is based on the following expected useful lives:

Plant and equipment	2–20 years
Buildings	10–50 years
Other capitalised expenses	5–20 years

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use of disposal. Gains or losses arising from de-recognition of an asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

The residual values, useful lives and methods of depreciation or property, plant and equipment are reviewed and adjusted prospectively, if appropriate, at each financial year end.

m) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the income statement.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

Capitalised leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.

n) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. The Group did not have any such assets at 31 December 2015 and 2014 and no borrowing costs were capitalised.

All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

o) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition.

Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.

The straight line amortisation of intangible assets with finite lives is based on the following estimates of useful life:

Customer contracts	5-10 years
Trademarks	5-20 years
IT software	1-5 years
Patents and licences	5-10 years
Other intangible assets	5-10 years

Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Research and development costs

Research and development costs are expensed as incurred. The Group has no development project expenditures that should be recognised as an intangible asset.

p) Inventories

Inventories are valued at the lower of cost or net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

Raw materials	Purchase cost on a first in, first out basis.
Finished goods	Cost of direct materials and labour and a proportion of work in progress manufacturing overheads based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

2. Accounting policies continued

q) Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specified to the asset.

Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in expense categories consistent with the function of the impaired asset, except for property which has been previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount after reversal cannot exceed the recoverable amount nor the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement.

The following criteria are also applied in assessing impairment of specific assets:

Goodwill

Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. Where the recoverable amount of the CGU is less than their carrying amount an impairment loss is recognised. Impairment loss relating to goodwill cannot be reversed in future periods.

r) Cash and short-term deposits

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

s) Provisions

General

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Carbon dioxide emissions

The Group receives free carbon dioxide emission allowances as a result of the European Emission Trading Scheme. The allowances are granted on an annual basis and, in return, the Group is required to remit allowances equal to its actual emissions. The Group has adopted a net liability approach to the allowances granted. Therefore, a provision is only recognised when actual emissions exceed the emission allowances granted and still held. Where emission allowances are purchased from other parties, they are recorded at cost and treated as a reimbursement right.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

3. Significant accounting judgements, estimates and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, where a different opinion could result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used are disclosed in Note 24.

Taxes

Taxation of gains arising on disposal of shares

During the year ended 31 December 2011, the Group sold a portion of its shareholding in Harvestia and sold its entire interest in the Graphic Papers businesses, realising a profit on both disposals. In preparing its financial statements for the year ended 31 December 2015 and 2014, the Group has assumed that the resulting gains are exempt from corporate taxes under the substantial shareholder exemptions available to industrial companies in Finland.

During the year ended 31 December 2012, the Group was informed by the Tax Administration division of Vero, the Finnish taxation authority, that it is considered to be a venture capital company and not eligible to take advantage of the substantial shareholder exemptions. The Tax Administration considered that the gains arising on the share disposals should be subject to tax and confirmed assessments for the year ended 31 December 2011 including €3,571,000 of taxes relating to the share transactions.

Following a detailed review of the facts and circumstances by the Group’s advisers, including consideration of current tax regulations and official guidance on their implementation, recent case history and the treatment of other tax payers in similar circumstances, the Group considered that it had strong and defensible arguments against the decision of the Tax Administration and during the year ended 31 December 2013 filed an appeal against the decision with the Assessment Adjustment Board (“AAB”) of Vero.

In December 2013, the Group’s appeal against the original tax assessments was upheld by the AAB. The AAB determined that the Group was not a venture capital company and overturned the original tax assessments and returned the matter to the Tax Administration for reconsideration. In March 2014, the Group received notification that the Tax Administration had filed a further appeal with the Administrative Court in Helsinki against the decision of the AAB to overturn the original assessments.

While the taxes have been paid to avoid the risk of interest and other penalties, the financial statements for the 12 months ended 31 December 2015 continue to be prepared on the basis that the Group is an industrial company and that the gains arising on the disposals will be exempt from corporate taxes. The taxes originally assessed by the Tax Administration and paid by the Group have not been recognised in the income statement, but have been recorded as a current financial asset in the balance sheet. Full provision has been made against the estimated future costs of the handling the dispute within the results of discontinued operations.

In the event that the Group does not prevail in its appeal against the original tax assessment, then additional taxes of €3,571,000 would have to be recognised within the results of discontinued operations. There would be no impact on the net cash position of the Group, or on the results from continuing operations.

In view of this, the financial statements for the 12 months ended 31 December 2015 continue to be prepared on the basis that the Group is an industrial company and that the gains arising on the disposals will be exempt from corporate taxes.

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

4. Segmental information

For management purposes, the Group is organised into business units based upon the products and services which it supplies. The Group currently has two reportable operating segments:

• Packaging Papers, which is involved in the production and sale of Nordic semi-chemical fluting for use in premium-grade corrugated-box applications and operates a fluting mill in Kuopio, Finland.

• Coreboard and Cores, which is involved in the manufacture of high performance coreboard and cores, with coreboard mills in Europe and the United States and a network of core producing facilities in Europe, the United States and China.

No operating segments have been aggregated to form the above reportable operating segments.

The joint ventures and associated companies in which the Group has an interest form an integral part of its principal operating activities and the Group’s share of the profits or losses of such joint ventures and associated companies are reported within the relevant operating segment.

Until the acquisition of Corenso group in December 2014, the Group had only one reportable operating segment within continuing operations.

Management monitors the operating results of business units separately for the purpose of making decisions about resource allocation and performance assessment. The principal measure used to monitor and evaluate segmental performance is earnings before interest, tax, depreciation and amortisation (“EBITDA”). The measurement basis for Segment EBITDA excludes the effects of equity-settled share-based payments and unrealised gains or losses on financial instruments. The costs of central functions, including the costs of corporate and other central services, are allocated to the reportable operating segments using appropriate cost allocation methodologies. Interest income and expenditure are not allocated to operating segments.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

At 31 December 2015	Packaging Papers €000			Coreboard and Cores €000			Not allocated €000			Total €000
Revenue
Third party		144,040			213,163			—			357,204
Inter-segment		43			9			(52	)		—
Total revenue		144,083			213,173			(52	)		357,204
Results
Segment EBITDA profit		30,059			22,296			—			52,355
Unrealised gains/(losses) on financial instruments		(765	)		—			—			(765	)
Expenses of share-based payment schemes		—			—			(396	)		(396	)
EBITDA from operating activities		29,294			22,296			(396	)		51,194
Gain on sale of financial assets		—			—			2,062			2,062
Advisory costs related to evaluation of acquisition opportunities		—			—			—			—
EBITDA		29,294			22,296			1,666			53,256
Depreciation and amortisation		(5,005	)		(4,930	)		—			(9,935	)
Operating profit		24,289			17,366			1,666			43,321
Finance income		—			—			444			444
Finance expenses		—			—			(6,017	)		(6,017	)
Profit/(loss) before taxation		24,289			17,366			(3,907	)		37,748
Total assets		93,031			129,909			63,038			285,978
Total liabilities		35,102			48,244			100,774			184,120
Other disclosures
Investment in an associate		22			55			3,470			3,547
Capital expenditure		6,968			1,396			2,664			11,028

19

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

4. Segmental information continued

At 31 December 2014	Packaging papers €000			Coreboard and Cores €000			Not allocated €000			Total €000
Revenue
Third party		134,361			15,774			—			150,135
Inter-segment		—			—			—			—
Total revenue		134,361			15,774			—			150,135
Results
Segment EBITDA profit		19,774			2,206			—			21,980
Unrealised gains/(losses) on financial instruments		(739	)		—			—			(739	)
Expenses of share-based payment schemes		(322	)		—			—			(322	)
EBITDA from operating activities		18,713			2,206			—			20,919
Gain on acquisition		—			—			1,433			1,433
Advisory costs related to evaluation of acquisition opportunities		—			—			(6,196	)		(6,196	)
EBITDA		18,713			2,206			(4,763	)		16,156
Depreciation and amortisation		(5,706	)		(342	)		—			(6,048	)
Operating profit		13,007			1,864			(4,763	)		10,108
Finance income		—			—			160			160
Finance expenses		—			—			(1,700	)		(1,700	)
Profit/(loss) before taxation		13,007			1,864			(6,303	)		8,568
Total assets		82,234			119,235			62,628			264,097
Total liabilities		38,982			30,097			116,900			185,979
Other disclosures
Investment in an associate		3,308			—			—			3,308
Capital expenditure		5,396			1,112			—			6,508

Adjustments, eliminations and unallocated items

Inter-segment revenues are eliminated on consolidation and eliminations are shown within the Not Allocated section. Revenues arising from intra-segment trading activities during the year ended 31 December 2015 amount to €52,000 (2014: nil). Segment operating profit does not include acquisition-related expenses or income, or finance income and finance costs, which are reported separately within Not Allocated.

Geographical information

	2015 €000		2014 €000
Revenues from external customers:
Finland		25,248		6,432
Other countries in the EU		152,479		61,729
Other countries in Europe		22,299		17,989
China		30,846		1,300
USA		67,363		13,101
Other countries		58,969		49,584
Total revenues from external customers		357,204		150,135
Assets:
Finland		168,012		151,886
Other countries in the EU		50,058		52,059
Other countries in Europe		588		2,150
Other countries		67,320		58,002
		285,978		264,097
Capital expenditure:
Finland		9,864		5,547
Other countries in the EU		788		357
Other countries in Europe		—		31
Other countries		376		573
		11,028		6,508

Management considers the principal geographic segments based on customer location to be Finland, other countries in the EU, other countries in Europe and the rest of the world.

In the year ended 31 December 2015, the Group had no customers who each individually represented more than 10% of its revenues from continuing operations.

20

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

4. Segmental information continued

In the year ended 31 December 2014, the Group had two customers who each individually represented more than 10% of its revenues from continuing operations. Together, these customers accounted for revenues of €42,727,000 for the Packaging Papers segment, all of which was reported within revenues from “Other countries in the EU”.

5. Capital management

The primary objective of the Group’s capital management is to ensure that healthy capital ratios are maintained in order to support its business and maximise shareholder value. The Group manages its capital structure and makes changes to it in light of changes in economic conditions and business requirements or objectives. No changes were made to the underlying objectives, policies or processes during the years ended 31 December 2015 and 2014.

The Group monitors capital using a gearing ratio, which is defined as net debt divided by total capital plus net debt. Net debt includes interest-bearing loans and borrowings less cash and cash equivalents. Capital includes equity attributable to the equity holders of the parent.

	2015 €000			2014 €000
Interest-bearing loans and borrowings:
Non-current portion		92,078			106,549
Current portion		4,218			2,396
		96,296			108,945
Cash and short-term deposits		59,218			47,469
Equity attributable to equity holders of the parent		94,200			69,739
Gearing ratio		28.2	%		46.9	%

6. Business combinations and acquisition of non-controlling interests

The Group did not make any acquisitions during the year ended 31 December 2015.

On 1 December 2014, the Group completed the acquisition of 100% of the Corenso group of companies. Corenso is a leading international producer of coreboard and cores with operations throughout Europe, in the USA and in China. Further details of the legal entities acquired or established in connection with this acquisition can be found in Note 26.

The purchase price agreed with the vendor was based on a cash free debt free enterprise valuation of €90.0 million, which was to be subject to various adjustments including adjustments to reflect the presence of minority interests in certain of the acquired businesses, normalisation of net working capital to an agreed target amount and adjustments to reflect the presence of net debt or net cash at the time of acquisition. The initial cash consideration to be paid at completion was based on estimates of the above, which remained subject to further adjustment following preparation of closing accounts and completion of a customary closing and adjustments process.

The initial cash consideration paid by the Group on 1 December 2014 was €102.3 million. Following completion of the closing accounts and preparation and agreement of the closing and adjustments statement, the purchase consideration was reduced to €101.6 million and on 18 March 2015, the Group entered into a final agreement with the vendor for the return of €0.7 million of the initial cash consideration.

The financial statements for the year ended 31 December 2014 have been prepared on the basis of the final agreed purchase price of €101.7 million and the refund of initial cash consideration due of €0.7 million has been recorded as an amount receivable from the vendor. The Group has elected to measure the non-controlling interests in the acquired businesses at fair value.

21

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

6. Business combinations and acquisition of non-controlling interests continued

Assets acquired and liabilities assumed

The fair values of the identifiable assets and liabilities of Corenso group as at the date of acquisition were:

	Fair value recognised on acquisition €000
Assets
Property, plant and equipment (Note 13)		58,200
Cash and cash equivalents		29,261
Trade and other current receivables		32,849
Inventories		18,745
Intangible assets (Note 14)		6,900
Deferred tax assets		500
		146,455
Liabilities
Trade payables		(15,725	)
Other current liabilities		(12,262	)
Deferred tax liability (Note 11)		(5,584	)
Provisions (Note 22)		(1,482	)
Other non-current liabilities		(239	)
		(35,292	)
Total identifiable net assets at fair value		111,163
Non-controlling interests measured at fair value		(8,142	)
Gain arising on acquisition		(1,433	)
Purchase consideration transferred		101,588

The fair value of the trade and other current receivables amounts to €29,649,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.

Provisions comprises post-employment pension provisions and reorganisation provisions (Note 22). Prior to completion of the acquisition, Corenso had commenced implementation of a number of restructuring plans and the restructuring provision recognised was a present obligation that had arisen immediately prior to the business combination. The execution of the restructuring plan was not conditional upon Corenso being acquired by the Group.

The deferred tax liability mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible and intangible assets.

The excess of the fair value of identifiable assets, liabilities and contingent liabilities acquired, after deduction of non-controlling interest measured at fair value, over the purchase consideration transferred has been recognised as a gain arising on acquisition and reported within operating profit for the year. The gain on acquisition arises principally as a result of the valuation at fair value attributed to the supply agreement entered into between Corenso and the vendor, under which Corenso will continue to supply not less than 95% of the vendor’s core requirements for a period of five years.

The fair value of the non-controlling interests in Hangzhou Corenso Hualun Paper Core Co. Ltd and Corenso Tolosana S.A, both unlisted companies, is based on the agreed deduction of €8,142,000 from the purchase price to reflect the presence of minorities and the possible future obligations of the Group to pay dividends to or otherwise distribute reserves to these minorities.

From the date of acquisition, Corenso contributed €15,774,000 of revenue and €1,864,000 to profit before taxation from continuing operations of the Group. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been €330,396,000, EBITDA excluding non-recurring items would have been €39,502,000, profit before taxation from continuing operations excluding non-recurring items would have been €22,600,000 and profit before taxation for the Group would have been €17,837,000.

Purchase consideration

	€000
Initial purchase price paid in cash at completion		102,293
Adjustment to initial purchase price		(705	)
Purchase consideration		101,588

The adjustment to the initial purchase price was agreed following completion of the closing and adjustment process and was confirmed in a post-closing agreement made between the parties on 18 March 2015. The amount of the adjustment has been included as a receivable in the balance sheet at 31 December 2014.

22

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

6. Business combinations and acquisition of non-controlling interests continued

Analysis of cash flows on acquisition

	€000
Purchase consideration transferred		102,293
Net cash acquired included in cash flows from investing activities		(29,261	)
Net cash outflow included in cash flows from investing activities		73,032
Transaction costs included in cash flow from operating activities:
Year ended 31 December 2013		1,209
Year ended 31 December 2014		6,196
Transaction costs included in cash flows from financing activities		3,489
Net cash outflow on acquisition		83,926

Transaction costs of €6,196,000 have been expensed in the year ended 31 December 2014 and are included in administrative expenses. Transaction costs of €1,209,000 relating to the acquisition had already been expensed during the year ended 31 December 2013.

Expenses of €3,489,000 relating to the new borrowing facilities of €120 million required to finance the purchase consideration are included within cash flows from financing expenses in interest and similar costs paid. The expenses have been capitalised in interest-bearing loans and borrowings and will be amortised over the remaining life of the facilities. The amount included within finance expenses in the income statement for the year ended 31 December 2014 was €205,000 (2013: nil).

Contingent consideration

As part of the purchase agreement for the acquisition of the Corenso businesses completed in December 2014, the Group agreed to make additional payments to the previous owner contingent upon the occurrence of certain future events. In particular, in the event that the Group is able to:

• recover deferred consideration relating to an earlier sale of shares in Mandriladora Alpesa SL, then such consideration must be paid over to the previous owner up to a maximum amount of €1,000,000; and

• utilise accumulated tax losses of the North American operations to offset future taxable profits, then an amount equivalent to the net cash tax saving must be paid over to the previous owner up to a maximum amount of €2,000,000.

On acquisition, the Group has not attached any value to the assets which are the subject of the contingent consideration arrangements and any liability to make payments to the former owner of Corenso will be financed directly from realisation of the asset concerned.

During 2015, the utilisation of tax losses of the North American operations reduced the cash taxes payable by the US businesses by €1,883,000 (2014: nil). However, the effective tax rate charge has not been reduced to reflect this and the application portion of the related liability instead of being shown as a current income tax liability is recorded within other current liabilities.

7. Investment in a joint venture or an associate

The Group has a 47.4% interest in Harvestia Oy (“Harvestia”), a wood procurement company incorporated and domiciled in Helsinki, Finland. Harvestia is a private limited company that is not listed on any public exchange.

Through its acquisition of Corenso, the Group has acquired a 25% interest in Mandriladora Alpesa S.L. (“Alpesa”), a manufacturer of cardboard cores, mandrels and tubes incorporated and domiciled in Valencia, Spain. Alpesa is a private limited company that is not listed on any public exchange.

Prior year information

On 15 February 2013, one of the founding management shareholders of Harvestia left the company and under the terms of his departure surrendered shares in the Company previously held by him representing 5% of the total issued share capital. These shares were subsequently cancelled and as a result of this change, the Group’s effective interest in Harvestia increased from 45.0% to 47.4%.

23

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

7. Investment in a joint venture or an associate continued

Harvestia

Harvestia is accounted for using the equity method in the consolidated financial statements. Summarised financial information of the joint venture at 31 December 2015 and reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below:

	2015 €000			2014 €000
Current assets		29,761			30,921
Non-current assets		167			182
		29,928			31,103
Liabilities		(23,572	)		(25,097	)
Equity		6,356			6,005
Proportion of the Group’s ownership		47.4	%		47.4	%
Group’s share of equity		2,890			2,852
Additional share of invested non-restricted shareholder’s equity		225			225
Total share of net assets		3,115			3,077
Carrying amount of investment in Harvestia		3,470			3,305
Carrying amount of other investments		77			3
Total investment in an associate or joint venture		3,547			3,308

Summarised statement of profit or loss of Harvestia:

	2015 €000			2014 €000
Revenue		165,586			198,478
Other operating income		174			384
Cost of sales		(160,244	)		(193,733	)
Administrative expenses		(4,867	)		(5,435	)
Finance costs		(299	)		(403	)
Profit/(loss) before tax		350			(709	)
Income tax		1			(2	)
Profit/(loss) for the period		351			(711	)
Group’s share of profit/(loss) for the year		166			(338	)

The Group has unrecognised purchasing obligations towards Harvestia under contracts for wood procurement and Harvestia itself has related obligations towards third parties. The Group’s share of the contingent liabilities of the joint venture amounted to €6,026,000 at 31 December 2015 (2014: €6,545,000).

8. Material partly owned subsidiaries

Financial information for subsidiaries that are considered to be material to the Group and which have material non-controlling interests is provided below.

Proportion of equity interest held by non-controlling interests:

Name	Country of incorporation and operation		2015 €000			2014 €000
Hangzhou Corenso Hualun Paper Core Co. Ltd		China		49.0	%		49.0	%
Corenso Tolosana S.A		Spain		22.7	%		22.7	%
			2015 €000			2014 €000
Accumulated balances of material non-controlling interest:
Hangzhou Corenso Hualun Paper Core Co. Ltd				6,874			7,963
Corenso Tolosana S.A				784			416
Profit allocated to material non-controlling interest:
Hangzhou Corenso Hualun Paper Core Co. Ltd				1,396			119
Corenso Tolosana S.A				18			—

24

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

8. Material partly owned subsidiaries continued

The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss for December 2015:

	Corenso Hualun €000			Corenso Tolosana €000
Revenue		19,922			8,096
Cost of sales		(1,223	)		(737	)
Variable production expenses		(13,362	)		(6,383	)
Administrative expenses		(1,041	)		(808	)
Exceptional costs		(604	)		6
Other non-operating items		246			(25	)
Depreciation		(432	)		(37	)
Finance income		217			11
Profit/(loss) before tax		3,722			123
Taxation		(873	)		(16	)
Profit/(loss) for the period from continuing operations		2,849			107
Total comprehensive income		2,849			107
Attributable to non-controlling interests		1,396			18
Dividend paid to non-controlling interests		2,560			—

Summarised statement of financial position as at 31 December 2015, presented without purchase price allocations:

	Corenso Hualun €000			Corenso Tolosana €000
Inventories and cash and bank balances (current)		15,015			4,601
Property, plant and equipment and other financial assets (non-current)		2,129			252
Trade and other payables (current)		(4,977	)		(1,325	)
Interest-bearing loans and borrowings and deferred tax liabilities (non-current)		—			(71	)
Total equity		12,167			3,457
Attributable to:
Equity holders of the parent		6,205			2,662
Non-controlling interests		6,874			784

Summarised statement of cash flow information for the year ended 31 December 2015:

	Corenso Hualun €000			Corenso Tolosana €000
Operating		2,230			303
Investing		(81	)		(50	)
Financing		(5,038	)		9
Net increase/(decrease) in cash and cash equivalents		(2,889	)		262

25

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

9. Fair values

Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are carried in the financial statements.

	Carrying amount				Fair value
	2015 €000		2014 €000		2015 €000		2014 €000
Financial assets
Other non-current financial assets		1,031		3,746		1,031		3,746
Trade and other receivables		67,907		65,666		67,907		65,666
Derivative financial instruments		73		—		73		—
Cash and short-term deposits		59,218		47,469		59,218		47,469
		128,229		116,881		128,229		116,881
Financial liabilities
Interest-bearing loans and borrowings		96,296		108,945		98,450		112,331
Trade and other payables		65,020		60,758		65,020		60,758
Other financial liabilities		227		288		227		288
Derivative financial instruments		2,406		1,250		2,406		1,250
Employee benefits		2		6		2		6
		163,951		171,247		166,105		174,633

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a transaction between willing parties, other than in a forced liquidation or sale. The following methods were used to estimate the fair values:

• Cash and short-term deposits, trade and other receivables and trade and other payables approximate their carrying amounts largely due to the short-term nature of these instruments.

• The fair value of loans from banks, other non-current financial liabilities, obligations under finance leases and employee benefits with fixed and variable interest rates is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using a valuation technique with market observable inputs are foreign exchange forward contracts and commodity forward contracts. The most frequently applied valuation techniques include forward pricing using present value calculations. The models incorporate inputs such as foreign exchange spot and forward rates and quoted market prices on future exchanges of the underlying commodity.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Assets measured at fair value

	31 Dec 2015 €000		Level 1 €000		Level 2 €000		Level 3 €000
Financial assets at fair value through profit or loss:
Available-for-sale financial assets:		—		—		—		—
Commodity forward contracts		73		—		73		—
Equity shares		—		—		—		—
		73		—		73		—

26

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

9. Fair values continued

Liabilities measured at fair value

	31 Dec 2015 €000		Level 1 €000		Level 2 €000		Level 3 €000
Financial liabilities at fair value through profit or loss:
Foreign exchange forward contracts		765		—		765		—
Commodity forward contracts		1,641		—		1,641		—
		2,406		—		2,406		—

Reconciliation of fair value measurements of Level 3 financial instruments

The Group carries unquoted equity shares as available-for-sale financial instruments classified as Level 3 within the fair value hierarchy.

The Group had a 10.0% interest in Kotkamills Oy throughout the year and through the acquisition of Corenso in December 2014 has acquired a 19.98% interest in Crown Fibre Tube Inc. See Note 15 for further details.

In February 2015, the Group entered into a conditional sale agreement for the disposal of its 10% interest in Kotkamills for cash consideration of €3,724,000. Accordingly, the fair value of this investment has been reassessed and the Group recorded a gain of €2,046,000 in the statement of comprehensive income with respect to Level 3 financial instruments. The transaction was successfully completed on 24 March 2015 and the realised gain has been recorded in the consolidated statement of profit or loss for the 12 months ended 31 December 2015.

There have been no other changes in the Level 3 financial instruments.

10. Other income, expenses and adjustments

10.1 Other operating income

	2015 €000		2014 €000
Government grants		129		36
Insurance compensation		71		73
Rental income		65		30
Net gain on disposal of property, plant and equipment		29		45
Other		—		79
		294		263

10.2 Employee benefits expense

	2015 €000		2014 €000
Wages and salaries		48,121		17,896
Pension and other post-employment benefits		13,195		2,672
Social security costs		4,463		1,196
Expense of share-based payment schemes		396		322
		66,175		22,086

The average total number of employees during the year was 1,114 (2014: 285). The total number of employees at 31 December 2015 was 1,084 (2014: 1,120).

10.3 Other operating expenses

	2015 €000		2014 €000
Freight, distribution and other sales expenses		46,550		24,287
Other operating and administrative expenses		80,482		15,067
		127,032		39,354

10.4 Research and development costs

Research and development costs recognised as an expense in the income statement during the financial year amount to €181,000 (2014: €41,000).

27

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

10. Other income, expenses and adjustments continued

10.5 Finance income

	2015 €000		2014 €000
Interest income on other loans and receivables		98		21
Interest income on short-term bank deposits		346		139
		444		160

10.6 Finance expenses

	2015 €000		2014 €000
Interest expense:
Bank loans and other borrowings		3,934		1,225
Interest on overdrafts and other financial cost		28		94
Finance leases		—		9
		3,962		1,328
Other finance expenses		2,055		372
		6,017		1,700

10.7 Components of other comprehensive income

	2015 €000			2014 €000
Cash flow hedges net of tax:
Gains/(losses) arising during the year		409			636
Reclassification adjustment for gains/(losses) included in the income statement		(1,196	)		(392	)
		(787	)		244

11. Income tax

Consolidated income statement

The major components of income tax for the years ended 31 December 2015 and 2014 are:

	2015 €000			2014 €000
Consolidated income statement
Current income tax expense/(income)		9,369			1,503
Deferred tax expense/(income)		1,154			806
		10,523			2,309
Consolidated statement of other comprehensive income
Deferred tax related to items charged or credited directly to equity during the year:
Net gain/(loss) on revaluation of cash flow hedges		211			(53	)
Re-measurement gains (losses) on defined benefit plans		(2	)		14
		209			(39	)

28

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

11. Income tax continued

A reconciliation between the tax expense/(income) and the product of accounting profit multiplied by the domestic tax rate in Finland of 20.0% for the year ended 31 December 2015 (2014: 20.0%) is as follows:

	2015 €000			2014 €000
Profit/(loss) before tax from continuing operations		37,748			8,568
Profit/(loss) before tax from discontinued operations		—			—
Accounting profit/(loss) before income tax		37,748			8,568
Taxation at domestic income tax rate of 20.0% (2014: 20.0%)		7,550			1,714
Effect of foreign tax rates		2,097			129
Gain on acquisition		—			(287	)
Expenses not deductible for tax purposes		1,412			658
Change in deferred tax rate		—			—
Adjustments in respect of current income tax of previous years		(265	)		(167	)
Other		(271	)		262
Taxation at effective income tax rate of 27.9% (2014: 26.9%)		10,523			2,309
Income tax expense reported in the consolidated income statement		10,523			2,309
Income tax attributable to discontinued operations		—			—

In calculating income tax and deferred tax for the years ended 31 December 2015 and 2014, the Group has assumed that it is able to take advantage of participation or substantial shareholder exemptions and that gains arising on share disposals will be exempt from corporate taxes. For further details see Note 2.

Deferred tax

Deferred tax in the income statement relates to the following:

	2015 €000			2014 €000
Deferred tax liabilities
Revaluation of assets to fair value on acquisition		(196	)		(208	)
Accelerated depreciation for tax purposes		535			584
Transaction costs capitalised		(246	)		627
Undistributed reserves		—			—
Other		—			—
Deferred tax assets
Revaluation of assets to fair value on acquisition		—			10
Deferred depreciation for tax purposes		(115	)		—
Share of profits/(losses) of a joint venture		29			(78	)
Losses available for offset against future profits		1,397			(123	)
Deferred revenue		(11	)		(2	)
Post-employment pension benefits		(282	)		5
Finance leases		—			(2	)
Revaluation of forward contracts to fair value		(18	)		(7	)
Other		61			—
Deferred tax expense/(income)		1,154			806
Included in continuing operations		1,154			806
Included in discontinued operations		—			—

The change in the deferred tax liability recognised in other comprehensive income is a gain of €209,000 (2014: charge of €39,000) which arises from the revaluation of forward contracts to fair value and re-measurement on defined benefit plans. The change in net deferred tax liabilities was an increase of €853,000 (2014: increase of €5,667,000).

29

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

11. Income tax continued

Deferred tax in the statement of financial position at 31 December relates to the following:

	2015 €000			2014 €000
Deferred tax liabilities
Revaluation of assets to fair value on acquisition		6,043			5,316
Accelerated depreciation for tax purposes		5,992			8,286
Undistributed reserves		—			600
Transaction costs capitalised		431			677
Other		77			(50	)
		12,544			14,829
Deferred tax assets
Deferred depreciation for tax purposes		115			198
Losses available for offset against future profits		(6	)		3,257
Share of profit (losses) of a joint venture		53			82
Deferred revenue		36			25
Provisions and post-employment pension benefits		319			128
Finance leases		0			6
Revaluation of forward contracts to fair value		290			94
Other		1,500			1,656
		2,308			5,446
Deferred tax liabilities, net		10,236			9,383
Reflected in the statement of financial position as follows:
Deferred tax assets		2,308			602
Deferred tax liabilities		12,544			9,985
Deferred tax liabilities, net		10,236			9,383

The Group has unutilised tax losses of €14,435,000 (2014: €16,318,000), which arose in connection with the activities of Corenso in the US. Although these tax losses remain potentially available for use by the Group until at least 2028, there can be no certainty that they will remain available to the Group or can be used to offset taxable profits in the future either in the businesses where they arose or elsewhere.

Under the term of the agreement for the acquisition of Corenso, to the extent that it is able to utilise brought forward tax losses to reduce the liability to corporate income taxes in the United States, the Group is obliged to provide compensation to the former owner, Stora Enso, up to a maximum amount of €2,000,000. The net effect of this arrangement is that while the Group is obliged to utilise brought forward losses to reduce taxes payable, it currently derives no benefit from it. During the year ended 31 December 2015, the utilisation of such losses reduced the cash taxes payable by the US businesses by €1,883,000 (2014: nil). However, the effective tax rate has not been reduced to reflect this and the applicable portion of the related liability instead of being shown as current income tax liability is recorded within other current liabilities.

12. Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	2015 €000		2014 €000
Net profit attributable to ordinary equity holders of the parent		25,811		6,140
	Thousands		Thousands
Weighted average number of shares for basic earnings per share		284,118		284,118
Effect of dilution:
Share options		12,569		12,247
Weighted average number of ordinary shares adjusted for dilution		296,687		296,365

The weighted average number of shares takes into account the weighted average effect of changes in treasury share transactions during the period.

30

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

12. Earnings per share continued

Authority to repurchase of shares

On 28 May 2015, the Annual General Meeting granted authority to the Board of Directors to decide on the repurchase of up to 28,000,000 of the Company’s shares pursuant to Chapter 15, Section 5(2) of the Finnish Companies Act by using funds in the Company’s unrestricted equity. The proposed amount of shares corresponded to approximately 9.7% of all shares and votes of the Company then in issue. The authority remains effective until 30 June 2016 unless revoked or amended before this date by a General Meeting of shareholders, and replaces any previous similar authorities granted to the Board of Directors.

Authority to issue new shares

On 28 May 2015, the Annual General Meeting granted authority to the Board of Directors to resolve on the issuance of up to 28,000,000 shares through a share issue or granting of options or other special rights granting entitlement to shares pursuant to Chapter 10, Section 1 of the Finnish Companies Act. This authority may be utilised in one or several issues. The Board of Directors may resolve to give either new shares or shares in the Company’s possession. The proposed amount of shares corresponded to approximately 9.7% of all shares and votes of the Company then in issue. This authority provides the right to deviate from the shareholders’ pre-emptive subscription right. The authority remains effective until 30 June 2016 unless revoked or amended before this date by a General Meeting of shareholders, and replaces any previous similar authorities granted to the Board of Directors.

13. Property, plant and equipment, investment properties

	Property €000			Plant and equipment €000			Other tangible assets €000			Assets in progress €000			Total €000
Net book value at 1 January 2014
Cost or valuation		8,156			64,895			1,131			224			74,406
Accumulated depreciation and impairment		(1,161	)		(32,218	)		(415	)		—			(33,794	)
		6,995			32,677			716			224			40,612
Year ended 31 December 2014
Opening net book amount		6,995			32,677			716			224			40,612
Additions		—			5,522			202			626			6,350
Acquisition of Corenso group		6,215			50,556			572			857			58,200
Transfer		—			—			—			—			—
Disposal		—			—			—			—			—
Depreciation charge for the year		(2	)		(5,891	)		(29	)		—			(5,922	)
Exchange differences		—			788			—			—			788
Closing net book amount		13,208			82,864			1,461			1,707			99,240
Net book value at 31 December 2014
Cost or valuation		14,371			120,973			1,905			1,707			138,956
Accumulated depreciation and impairment		(1,163	)		(38,109	)		(444	)		—			(39,716	)
		13,208			82,864			1,461			1,707			99,240
Year ended 31 December 2015
Opening net book amount		13,208			82,864			1,461			1,707			99,240
Additions		2,349			7,416			214			2,729			12,708
Transfer		—			598			96			(1,447	)		(753	)
Disposal		—			(11	)		(30	)		—			(41	)
Depreciation charge for the year		(1,171	)		(7,953	)		(125	)		—			(9,249	)
Exchange differences		330			3,345			1			8			3,684
Closing net book amount		14,716			86,259			1,617			2,997			105,589
Net book value at 31 December 2015
Cost or valuation		17,050			132,321			2,186			2,997			154,554
Accumulated depreciation and impairment		(2,334	)		(46,062	)		(569	)		—			(48,965	)
		14,716			86,259			1,617			2,997			105,589

Translation differences have been added into the line additions.

Finance leases

The carrying value of plant and equipment held under finance lease and hire purchase contracts at 31 December 2015 was €454,000 (2014: €50,000). The addition of plant and equipment held under finance leases during the year was €563,000 (2014: nil). Leased assets and assets held under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.

31

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

14. Intangible assets

	Patents and licences €000			Customer contracts €000			Trademark €000			Total €000
Net book value at 1 January 2014
Cost or valuation		1,621			—			—			1,621
Accumulated amortisation		(1,236	)		—			—			(1,236	)
		385			—			—			385
Year ended 31 December 2014
Opening net book amount		385			—			—			385
Additions		158			—			—			158
Acquisition of Corenso group		—			2,500			4,400			6,900
Amortisation		(93	)		(17	)		(16	)		(126	)
Closing net book amount		450			2,483			4,384			7,317
Net book value at 31 December 2014
Cost or valuation		1,779			2,500			4,400			8,679
Accumulated amortisation		(1,329	)		(17	)		(16	)		(1,362	)
		450			2,483			4,384			7,317
Year ended 31 December 2015
Opening net book amount		450			2,483			4,384			7,317
Additions		280			—			—			284
Amortisation		(211	)		(251	)		(224	)		(686	)
Closing net book amount		519			2,232			4,160			6,911
Net book value at 31 December 2015
Cost or valuation		2,059			2,500			4,400			8,963
Accumulated amortisation		(1,540	)		(268	)		(240	)		(2,048	)
		519			2,232			4,160			6,911

Patents, licences, customer contracts and trademarks relate to the fair value of intangible assets acquired through business combinations. The Group has determined that such assets have a finite useful life and they are being amortised over their remaining useful lives. Translation differences have been added into the line additions.

Impairment testing of goodwill and intangible assets

The Group has no indefinite goodwill or other assets that require mandatory annual impairment testing. However, it reviews periodically possible impairment triggers for testing. It considers the relationship between its market capitalisation and the book value of its assets and liabilities, among other factors, when reviewing for indicators of impairment. As at 31 December 2015, the market capitalisation of the Group was significantly higher than the book value of its equity and no triggering events regarding the impairment of Group’s assets were identified. Therefore, the Group has not performed any impairment testing on its assets or business units as at 31 December 2015.

32

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

15. Other financial assets and financial liabilities

15.1 Financial instruments by category

	Loans and receivables €000		Available- for-sale investments €000		Items at fair value through profit and loss €000		Derivatives used for hedging €000		Financial liabilities at amortised cost €000		Total €000
At 31 December 2015:
Financial assets
Other non-current financial assets		1,031		—		—		—		—		1,031
Trade and other receivables		67,907		—		—		—		—		67,907
Derivative financial instruments		—		—		—		73		—		73
Cash and short-term deposits		59,218		—		—		—		—		59,218
		128,156		—		—		73		—		128,229
Financial liabilities
Interest-bearing loans and borrowings		—		—		—		—		96,296		96,296
Other financial liabilities		—		—		—		—		227		227
Trade and other payables		—		—		—		—		65,020		65,020
Employee benefit liability		—		—		—		—		2		2
Derivative financial instruments		—		—		—		2,406		—		2,406
		—		—		—		2,406		161,545		163,951
At 31 December 2014:
Financial assets
Other non-current financial assets		38		3,708		—		—		—		3,746
Trade and other receivables		65,666		—		—		—		—		65,666
Derivative financial instruments		—		—		—		—		—		—
Cash and short-term deposits		47,469		—		—		—		—		47,469
		113,173		3,708		—		—		—		116,881
Financial liabilities
Interest-bearing loans and borrowings		—		—		—		—		108,945		108,945
Other financial liabilities		—		—		—		—		288		288
Trade and other payables		—		—		—		—		60,758		60,758
Employee benefit liability		—		—		—		—		6		6
Derivative financial instruments		—		—		—		1,250		—		1,250
		—		—		—		1,250		169,997		171,247

Interest-bearing loans and borrowings

	2015 €000		2014 €000
Non-current
Loans from financial institutions		91,740		106,509
Finance lease and hire purchase liabilities		338		40
		92,078		106,549
Current
Loans from financial institutions		4,104		2,359
Finance lease and hire purchase liabilities		114		37
		4,218		2,396
Total borrowings		96,296		108,945

33

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

15. Other financial assets and financial liabilities continued

Movements in borrowings are analysed as follows:

	€000
12 months ended 31 December 2014
Opening amount as at 1 January 2014		23,751
Proceeds from borrowings		96,511
Repayment of borrowings		(11,280	)
Change in other interest-bearing liabilities		(37	)
Closing amount as at 31 December 2014		108,945
12 months ended 31 December 2015
Opening amount as at 1 January 2015		108,945
Proceeds from borrowings		—
Repayment of borrowings		(13,023	)
Change in other interest-bearing liabilities		373
Closing amount as at 31 December 2015		96,296

(a) Available-for-sale investment - unquoted equity shares

Available-for-sale financial assets consist of investments in shares of non-listed companies.

At 31 December 2014, the Group held a 10.0% interest in Kotkamills Oy (“Kotkamills”), an integrated forest products business located in Kotka in Eastern Finland.

In February 2015, the Group entered into a conditional agreement for the sale of its investment in Kotkamills Oy for cash consideration of €3,724,000. Accordingly, the fair value of this investment was reassessed and the Group recorded a gain of €2,064,000 in the statement of comprehensive income with respect to Level 3 financial instruments as at 31 December 2014. The transaction was successfully completed on 24 March 2015 and the realised gain has been recorded in the consolidated statement of profit or loss for the 12 months ended 31 December 2015.

As part of the Corenso acquisition, the Group acquired a 19.98% interest in Crown Fibre Tube Inc., a non-listed Canadian company. No value has been attributed to this investment in the Group’s consolidated financial statements.

(b) Loans from financial institutions

Loans from financial institutions include amortising term loans of €98,000,000 (2014: €82,250,000) which mature at various times between 2015 and 2017, together with revolving credit and other facilities repayable on demand which are available to the Group until at least September 2017. Further details of the maturity profile of the Group’s borrowing facilities are provided in Note 28.

Loans from financial institutions bear interest at floating rates based upon the selected Euribor rate plus a bank margin of between 2.00% and 4.50%. The margin applicable to the Group’s borrowings under revolving credit and other facilities is subject to change from time to time based upon the ratio of consolidated total net debt to consolidated EBITDA.

The facilities are secured by mortgages and charges over certain of the Group’s assets in Finland and elsewhere and are subject to financial and other covenants which are assessed on a quarterly basis. The principal covenants measure ratios of consolidated total net debt to consolidated equity, consolidated total net debt to consolidated EBITDA and consolidated EBITDA to consolidated net finance charges.

(c) Finance lease liabilities

The Group uses finance leases to fund the purchase of certain items of plant and equipment. The duration of such agreements is generally five years or less and as at 31 December 2015 and 31 December 2014 the Group had no obligations with a maturity of more than five years. Under the terms of the agreements, the rights to the leased assets revert to the lessor in the event of default by the lessee. Further details of the assets purchased by the Group which are subject to finance leases and the Group’s obligations in connection with these assets are provided in Notes 15 and 28.

34

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

15. Other financial assets and financial liabilities continued

15.2 Derivative financial instruments and hedging activities

	2015				2014
	Assets €000		Liabilities €000		Assets €000		Liabilities €000
Foreign exchange forward contracts		—		765		—		739
Commodity forward contracts		73		1,641		—		511
Total		73		2,406		—		1,250
Less: non-current portion
Foreign exchange forward contracts		—		—		—		—
Commodity forward contracts		—		519		—		264
		—		519		—		264
Current portion		73		1,887		—		986

The full fair value of a hedging instrument is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the maturity of the hedged item is less than 12 months.

Net gains/(losses) on financial instruments included in operating profit

	2015 €000			2014 €000
Electricity forward contracts designated as cash flow hedges		(935	)		(636	)
Non-hedge accounted foreign exchange forward contracts		(2,548	)		(616	)

The exchange differences recognised as an expense during the year 2015 were in total €1,873,000 (2014: €860,000).

Derivatives not designated as hedging instruments

The Group uses foreign exchange forward contracts to manage some of its transaction exposures. Currency forward contracts are not designated as cash flow, fair value or net investment hedges and are entered into for periods consistent with currency transaction exposures up to 12 months in advance.

Cash flow hedges

The Group uses commodity forward contracts to manage its exposure to fluctuations in the price of electricity, oil, natural gas and other sources of energy. Forward contracts for the purchase of energy are entered into on the basis of highly probable forecast transactions which are expected to occur within the next 12 months. Such contracts are designated as cash flow hedges and hedge accounting is applied.

As at 31 December 2015, the fair value of outstanding commodity forward contracts included an asset of €73,000 (2014: nil) and a liability of €1,641,000 (2014: €511,000). The ineffectiveness recognised in other expenses in the income statement for the current year was €90,000 (2014: €33,000). The cumulative effective portion of €730,000 net of tax is reflected in other comprehensive income.

16. Impairment of assets

At 31 December 2015, the market capitalisation of the Group was significantly higher than the book value of its equity and no triggering events regarding the impairment of the Group’s assets were identified. Therefore, the Group has not performed any impairment testing of its assets or business units as at 31 December 2015.

17. Inventories

	2015 €000		2014 €000
Raw materials and supplies		20,710		21,696
Finished goods		18,264		14,784
		38,974		36,480

There were no substantial write-downs in the value of inventory during 2015 or 2014.

35

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

18. Trade and other receivables (current)

	2015 €000		2014 €000
Trade receivables		56,489		51,736
Prepayments and other receivables		11,418		13,930
		67,907		65,666

Trade receivables are non-interest bearing and are generally on 30 to 90 day terms.

The Group remains exposed to foreign currency risk and the risk of late payment after invoicing on receivables which are subject to factoring arrangements. At 31 December 2015, the Group had not recognised any factored foreign currency trade receivables that do not qualify for de-recognition in the statement of financial position (2014: nil). At 31 December 2015, the Group did not have any factored trade receivables which qualify for de-recognition and are not recognised in the statement of financial position (2014: nil).

As at 31 December 2015, trade receivables with an initial carrying value of €1,207,000 (2014: nil) were impaired and fully provided for. See below for the movements in the provision for impairment of receivables:

	Individually impaired €000		Collectively impaired €000		Total €000
At 1 January 2015		—		—		—
Charge for the year		1,207		—		1,207
Utilised		—		—		—
Unused amounts reverse		—		—		—
Discount rate adjustment		—		—		—
At 31 December 2015		1,207		—		1,207

At 31 December, the age profile of trade receivables was as follows:

	2015 €000		2014 €000
Current		52,571		42,703
Past due but not impaired:
<30 days		3,130		7,938
30-60 days		0		965
60-90 days		308		101
90-120 days		9		0
>120 days		471		28
		56,489		51,736

The carrying amounts of the Group’s trade receivables are denominated in the following currencies:

	2015 €000		2014 €000
Euro		29,262		28,455
US Dollar		10,622		8,865
UK Pound		3,475		3,211
Chinese Renminbi		10,203		8,561
Swedish Krona		1,819		1,659
Other currencies		1,108		983
		56,489		51,736

Collateral

The Group has pledged all of its trade receivables as security for its borrowing facilities.

36

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

19. Cash and short-term deposits

	2015 €000		2014 €000
Cash at banks and on hand		59,218		47,469

Cash at banks earns interest at floating rates based upon daily bank deposit rates.

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following at 31 December:

	2015 €000		2014 €000
Cash at banks and on hand		59,218		47,469

20. Share capital and reserves

Authorised share capital

	2015 Thousands		2014 Thousands
Ordinary shares		289,818		289,818

The shares have no nominal value.

Issued and fully paid share capital and reserve for invested non-restricted equity

	No. of shares Thousands		Share capital €000		Reserve for invested non- restricted equity €000		Total €000
At 1 January 2014		289,818		88		28,422		28,510
At 31 December 2014		289,818		88		28,422		28,510
At 31 December 2015		289,818		88		28,422		28,510

Share option schemes

The Group has one share option scheme under which options to subscribe for shares have been granted to certain executives and senior employees (Note 24).

Other reserves

	Treasury shares €000			Hedging reserve €000			Available-for- sale reserve €000			Defined benefit plans reserve €000			Foreign currency translation reserve €000		Retained earnings €000
At 1 January 2014		(1,735	)		(621	)		—			—			—		37,121
Share-based payment		—			—			—			—			—		322
Cash flow hedges		—			297			—			—			—		—
Tax effect of cash flow hedges		—			(53	)		—			—			—		—
Foreign exchange translation differences		—			—			—			—			1,603		—
Gain on AFS financial assets		—			—			2,046			—			—		—
Re-measurement on defined benefit plan		—			—			—			(55	)		—		—
Dividends paid		—			—			—			—			—		(3,836	)
Profit for the period		—			—			—			—			—		6,140
At 31 December 2014		(1,735	)		(377	)		2,046			(55	)		1,603		39,747
Share-based payments		—			—						—			—		396
Cash flow hedges		—			(998	)		—			—			—		—
Tax effect of cash flow hedges		—			211			—			—			—		—
Foreign exchange translation differences		—			—			—			—			5,343		—
Sale of AFS financial assets		—			—			(2,046	)		—			—		—
Re-measurement on defined benefit plan		—			—			—			6			—		—
Dividends paid		—			—			—			—			—		(4,262	)
Profit for the year		—			—			—			—			—		25,811
At 31 December 2015		(1,735	)		(1,164	)		—			(49	)		6,946		61,692

37

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

20. Share capital and reserves continued

Nature and purpose of other reserves

The treasury share reserve contains the cost of the investment by the Group in 5,700,000 of its own shares (2014: 5,700,000 shares).

The hedging reserve contains the effective portion of the hedge relationships incurred as at the reporting date.

The available-for-sale reserve contains the cumulative gain or loss arising on revaluation to fair value of investments held for sale as at the reporting date.

The defined benefit plan reserve contains the portion of the actuarial gains or losses arising on defined benefit pension plans or other similar schemes recognised in equity.

21. Dividends paid and proposed

	2015 €000		2014 €000
Declared and paid during the year:
Dividends on ordinary shares		4,262		3,836
Proposed for approval at the Annual General Meeting:
(not recognised as a liability at 31 December)
Dividends on ordinary shares		8,524		4,262

A dividend of 1.50 cents per share was proposed for the year ended 31 December 2014 and following approval by the shareholders at the Annual General Meeting held in May 2015, an amount of €4,262,000 was paid during the year ended 31 December 2015. The dividend proposed for the year ended 31 December 2013 was 1.35 cents per share and a total of €3,836,000 was paid in the year ended 31 December 2014.

The directors intend to propose a dividend of 3.00 cents per share for the year ended 31 December 2015 at the Annual General Meeting to be held in May 2016.

22. Provisions

	Pension and other obligatory provisions €000			Provision for uncertainties €000		Other €000		Total €000
At 1 January 2015		1,409			622		191		2,222
Arising during the year		30			49		297		376
Utilised		—			—		—		—
Unused amounts reversed		(30	)		—		—		(30	)
At 31 December 2015		1,409			671		488		2,568
Current		—			671		488		1,159
Non-current		1,409			—		—		1,409

The acquisition of Corenso group increased pension provisions by €1,409,000 and reorganisation provisions of €73,000. Provisions for uncertainties relate principally to provisions against the cost of potential claims under warranties and indemnities provided by the Group to the purchaser of the Graphic Papers businesses. At 31 December 2015, the Group had not been notified of any potential claims.

23. Pensions and other post-employment benefit plans

Pensions

The Group has established a number of pension and other benefit plans for its operations throughout the world, the cost of which amounted to €13,195,000 (2014: €2,672,000). The majority of plans are defined contribution schemes, the charge for which amounted to €13,195,000 (2014: €2,584,000).

The retirement age for the management of the Group has been agreed at between 60 and 65 years. The retirement age for other staff either follows national retirement ages or is determined by local labour agreements. The Group’s total net defined benefit obligations to current and former members of staff amount to €1,359,000. The defined benefit expense in the income statement for the year ended 31 December 2015 was nil (2014: €60,000).

38

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

23. Pensions and other post-employment benefit plans continued

The Group’s policy for funding deficits is intended to satisfy local statutory funding requirements for tax deductible contributions together with adjusting to market rates the discount factors used in the actuarial calculations. However, the emphasis of the Group is to provide defined contribution schemes for its post-employment benefits, thus all aspects of the provision and accounting for defined benefit schemes are being evaluated. In the statement of financial position the full liability for all plan deficits is recorded, as adjusted if required for any past service costs still to be amortised. The statement of financial position fully reflects the actual surplus or deficits in its defined benefit plans thereby aligning the net liability in the statement of financial position.

Finland

The Group funds its Finnish pension obligations mainly through defined contribution schemes. Pensions have been organised entirely through local insurance companies. Plan assets in Finland are managed by insurance companies. Details of the exact structure and investment strategy surrounding plan assets are not available to participating employers as the assets actually belong to the insurance companies themselves. The assets are managed in accordance with EU regulations, and also national requirements, under which there is an obligation to pay guaranteed benefits irrespective of market conditions.

Germany

The total defined benefit obligation is €506,000, nearly all of which is unfunded. Defined benefit pension plans are mainly accounted for in the statement of financial position through book reserves with some minor plans using insurance companies or independent trustees. Retirement benefits are based on years worked and salaries received during the pensionable service, the commencement of pension payments being co-ordinated with the national pension scheme retirement age. Pensions are paid directly by the companies themselves to their former employees. The security for the pensioners is provided by the legal requirement (BetrAVG §7(3)) that the provision held in the statement of financial position is insured. The insurance has a limit, however this limit is higher than the obligation regarding respective person.

France

The total defined benefit obligation is €853,000 which is unfunded. The Group provides Retirement Indemnity payments. These payments are lump sums paid upon retirement as defined under the industry wide collective bargaining agreement “Convention nationale des salariés de la production de Papiers, Cartons et Cellulose”. The lump sum is paid only if the employee is still employed at the date of the retirement.

Other post-employment benefits plans

The Group has a liability for early-retirement pensions arising from the dismissal of personnel in 2005. In accordance with legislation in Finland, the Group remains liable for payment of early-retirement pensions for certain of these employees if they are not able to secure alternative employment before they become eligible to receive a normal retirement pension.

	2015 €000			2014 €000
At 1 January		6			24
Charge in income statement		(4	)		(18	)
At 31 December		2			6
Current		2			6
Non-current		—			—

24. Share-based payment plans

The expense recognised for employee services received during the year is shown in the following table:

	2015 €000		2014 €000
Expense arising from equity-settled share-based payment transactions		396		322

The share-based payment plans are described below.

Powerflute Stock Option Scheme 2012

In April 2012, the Company established the Powerflute Stock Option Scheme 2012 (“PSOS 2012”) for the benefit of certain of the Group’s directors and senior executives. The maximum number of share options available for grant under the PSOS 2012 is 14,000,000 shares, equivalent to 4.8% of the existing issued share capital of the Company.

The subscription price, performance targets, measurement period and other vesting criteria for each grant of options is determined at the discretion of the Board at the time each grant of options is made, having due regard to the prevailing share price on the AIM market. Amounts subscribed for shares obtained through the exercise of share options under the PSOS 2012 are included within the Company’s reserve for invested non-restricted equity.

39

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

24. Share-based payment plans continued

Share-based incentive scheme

Under the terms of his employment, Marco Casiraghi was provided with a special share-based incentive comprising a nil-cost option over 2,000,000 shares whose vesting was subject only to him continuing to be employed by the Company on 31 December 2012. The fair value of the incentive scheme was estimated based on the grant date market price (€0.34) of the share. The incentive scheme expired and the award made under it vested on 31 December 2012. As at 31 December 2015, the option granted to Mr Casiraghi under this scheme had not been exercised.

Movements during the year

The following tables illustrate the number (“No.”) and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year.

PSOS 2012	2015 No. Thousands		2015 WAEP €		2014 No. Thousands		2014 WAEP €
At 1 January		10,569		—		8,469		—
Granted during the year		—		—		2,100		—
Forfeited during the year		—		—		—		—
At 31 December		10,569		—		10,569		—

Grant of share options during the year ended 31 December 2012

On 5 April 2012, the Board approved the grant of options over a total of 8,469,300 of the Company’s ordinary shares under the terms of the PSOS 2012. The grant consisted of 2,823,100 each of 2012A, 2012B and 2012C options. The 2012A, 2012B and 2012C options are subject to different share price performance targets and measurement dates, but in all other respects are identical.

The fair value of the options granted was estimated at the date of grant using a binomial pricing model taking into account the terms and conditions under which the options were granted. The contractual life of each option granted is seven years. There is no cash settlement of the options.

The fair value of options granted was estimated on the date of grant using the following assumptions (identical for each of the 2012A, 2012B and 2012C options):

Dividend yield (%)	0.0
Expected volatility (%)	40.0
Risk-free interest rate (%)	1.25
Expected life (years)	7.00
Weighted average share price (pence)	24.75

Grant of share options during the year ended 31 December 2014

On 9 December 2014, the Board approved the grant of options over a total of 2,100,000 of the Company’s ordinary shares under the terms of the PSOS 2012. The grant consisted of 2,100,000 2012D options.

The fair value of the options granted was estimated at the date of grant using a two-stage option valuation model taking into account the terms and conditions under which the options were granted. The contractual life of each option granted is seven years. There is no cash settlement of the options.

The fair value of options granted was estimated on the date of grant using the following assumptions:

Expected volatility (%)	39.5
Risk-free interest rate (%)	1.68
Expected life (years)	7.3
Annual required rate of return (%)	6.0

The expected life of the options is based upon historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

The PSOS 2012 is an equity-settled plan and the fair value is measured at the grant date.

40

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

25. Trade and other payables

	2015 €000		2014 €000
Trade payables		30,120		33,256
Amounts due to a joint venture		8,270		3,246
Other payables and accrued liabilities		26,630		24,256
		65,020		60,758

Trade payables are non-interest bearing and are normally settled on terms of 30 to 60 days. Other payables are non-interest bearing and have an average term of less than six months. Interest payable is normally settled monthly throughout the financial year.

26. Related party disclosures

Subsidiary companies

These financial statements include the financial statements of Powerflute Oyj and the subsidiaries listed in the following table:

			% equity interest
	Country of incorporation		2015		2014
Savon Sellu Oy		Finland		100.0		100.0
Powerflute International S.L.U.		Spain		100.0		—
Powerflute Monaco SARL		Monaco		90.0		90.0
Corenso Holdings Finland Oy		Finland		100.0		100.0
Corenso United Oy Ltd		Finland		100.0		100.0
Corenso Holdings Sweden AB		Sweden		100.0		100.0
Corenso Svenska AB		Sweden		100.0		100.0
Bäcke Emballage AB		Sweden		100.0		100.0
Mohed Emballage AB		Sweden		100.0		100.0
Powerflute Group Holdings Limited		United Kingdom		100.0		100.0
Corenso Group Holdings Limited		United Kingdom		100.0		100.0
Corenso (UK) Ltd		United Kingdom		100.0		100.0
Corenso Holdings Germany GmbH		Germany		100.0		100.0
Corenso-Elfes GmbH & Co KG		Germany		100.0		100.0
Elfes Beteiligungs GmbH		Germany		100.0		100.0
Corenso United DE Verwaltungs GmbH		Germany		100.0		100.0
Corenso United DE GmbH & Co KG		Germany		100.0		100.0
Corenso Holdings France SAS		France		100.0		100.0
Corenso France SAS		France		100.0		100.0
Corenso Holdings Netherlands BV		Netherlands		100.0		100.0
Corenso Edam BV		Netherlands		100.0		100.0
Corenso Poland sp. z o.o.		Poland		100.0		100.0
Corenso Tolosana SA		Spain		77.3		77.3
Corenso Holdings America Inc.		USA		100.0		100.0
Corenso North America Corp.		USA		100.0		100.0
Corenso Foshan Paper Core Co. Ltd		China		100.0		100.0
Corenso Hualun (Hangzhou) Paper Core Co. Ltd		China		51.0		51.0

Corenso Elfes GmbH & Co KG is included in the consolidated financial statements of Powerflute Oyj and in accordance with the provisions of Section 264b HGB (Handelsgesetzbuch) is exempt from the requirement to make its own financial statements public.

Joint ventures and associates

The Group has a 47.4% interest in Harvestia Oy (2014: 47.4%), a wood procurement company incorporated and located in Finland, and a 25.0% interest in Mandriladora Alpesa S.L. (2014: 25.0%), a producer and distributor of cores incorporated and located in Spain.

41

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

26. Related party disclosures continued

Transactions with related parties

a) Sales and purchases of goods and services

	2015 €000		2014 €000
Sale of services to related parties:
Joint Venture – Harvestia Oy		31		22
Purchase of goods and services from related parties:
Joint Venture – Harvestia Oy		33,485		33,862

Savon Sellu purchases a proportion of its raw materials from Harvestia Oy. The goods are purchased in accordance with terms specified in the shareholder agreement and supply contracts negotiated between the parties.

b) Amounts due to or from related parties

	2015 €000		2014 €000
Amounts due to related parties arising from the purchase of goods/services
Joint Venture – Harvestia Oy		8,270		6,727
Other amounts due from related parties
Joint Venture – prepayments to Harvestia Oy		2,554		3,481

c) Key management compensation

	2015 €000		2014 €000
Salaries and other short-term employee benefits		2,145		1,823
Directors’ fees		472		408
Share-based payments		396		322
		3,013		2,553

d) Directors’ interests in employee share incentive plans

The share options held by executive members of the Board of Directors providing the entitlement to purchase ordinary shares have the following expiry dates and exercise prices:

					Number outstanding
Issue date	Expiry date		Exercise price		2015 Thousands		2014 Thousands
11 Jan 2010		—		nil		2,000		2,000
5 Apr 2012		4 April 2019	€	0.01		8,469		8,469

27. Commitments and contingencies

Mortgages

The Group has pledged the assets and shares of its subsidiary companies as security for interest-bearing borrowing facilities provided by Nordea Bank and Finnvera.

Guarantees

The Group had provided the following guarantees as at 31 December:

	2015 €000		2014 €000
On behalf of a joint venture
Guarantee		2,000		2,000

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

27. Commitments and contingencies continued

Operating lease commitments

The Group has entered into commercial leases on office premises, certain motor vehicles and various items of machinery. Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

	2015 €000		2014 €000
Within one year		1,756		2,025
After one but not more than five years		3,739		4,983
More than five years		66		524
No expiry		6		1,046
		5,567		8,578

The charge for payments made under operating leases expensed during the year 2015 was €1,639,000 (2014: €888,000).

Finance lease and hire purchase commitments

The Group has finance leases and hire purchase contracts for various items of plant and machinery, software licences and certain of its intangible assets. Future minimum lease payments under finance lease and hire purchase contracts, together with the present value of the net minimum lease payments, were as follows:

	2015 Minimum payments €000			2015 Present value of payments €000		2014 Minimum payments €000			2014 Present value of payments €000
Within one year		135			113		46			37
After one but not more than five years		405			337		41			40
Total minimum lease payments		540			450		87			77
Less amounts representing finance charges		(90	)		—		(10	)		—
Present value of minimum lease payments		450			450		77			77

Capital commitments

At 31 December 2015, the Group had capital commitments of €7,547,000 (2014: €484,000) relating to investments in plant and equipment, ERP implementation and IT infrastructures.

Emissions rights (CO₂)

The Group has received confirmation of the emission rights available to it for the period 2013 to 2020.

The Group forecasts annual CO₂ emissions based upon estimates of future annual production volumes and the following assumptions:

• Total energy consumption is expected to reduce through investment in the production processes.

• The use of biofuels will increase, leading to a reduced dependence upon peat which has the highest CO₂ content of all of the fuels used by the Group.

• Investments in power plant technology will lead to a reduction in the consumption of heavy oil.

Emission rights are freely traded as commodities. In the event that the Group produces more CO₂ emissions than forecast, it is possible to purchase the necessary additional emission rights. CO₂ emissions were below forecast levels for the year ended 31 December 2015. Accordingly, it was not necessary to purchase or provide for the purchase of any additional emission rights.

28. Financial risk management objectives and policies

The Group’s principal financial liabilities, other than derivatives, comprise loans and borrowings as well as trade and other payables. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has loan and other receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Group also enters into derivative transactions.

The Group is exposed to various types of risk including interest rate risk, foreign currency risk, commodity risk, credit risk and liquidity risk. The senior management of the Group oversees the management of these risks and ensures that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and appetite for risk. The Board of Directors regularly reviews and agrees policies for managing each of the principal risks which the Group faces.

All derivative activities for risk management are carried out by managers that have the appropriate skills and experience, working under the direct supervision of the Board of Directors. It is the Group’s policy that no trading in derivatives for speculative purposes shall be undertaken.

43

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

28. Financial risk management objectives and policies continued

The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates.

The Group manages its interest rate risk by maintaining an appropriate portfolio of fixed and variable rate loans and borrowings. To achieve this, from time to time the Group enters into interest rate swaps, in which the Group agrees to exchange at specified intervals the difference between fixed and variable interest rate amounts calculated by reference to an agreed-upon notional principle amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2015, the Group did not have any interest rate swaps.

Interest rate sensitivity

The following table demonstrates the sensitivity to changes in interest rates, with all other variables held constant, of the Group’s profit before taxation (through the impact on floating rate borrowings). The impact on the Group’s equity is not material.

	Increase/ decrease in basis points bps		Effect on profit before taxation €000
2015		100		963
2014		100		1,089

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange relates primarily to the Group’s operating activities (when revenue or expenses are denominated in a different currency to the Group’s functional currency which is the Euro).

The Group manages its foreign currency risk by hedging transactions that are expected to occur within a maximum 12 month period. Transactions that are certain may be hedged without any limitation in time. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item in order to maximise the hedge effectiveness.

In the year ended 31 December 2015, the principal foreign currency risk arose as a result of sales and purchases made in currencies other than the functional currency. In particular, approximately 28% of the Group’s sales and 14% of the Group’s purchases and other expenses were denominated in US Dollars.

The following table demonstrates the sensitivity to a change in the US Dollar, Pound Sterling, Chinese Renminbi and Swedish Krona exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities).

				Effect on profit before taxation
	Increase/ decrease in currency rate			US Dollar €000			GBP Sterling €000			CNY Renminbi €000			SEK Krona €000
2015		+10	%		(763	)		(279	)		(444	)		(137	)
		–10	%		763			279			444			137
2014		+10	%		(606	)		(122	)		(466	)		(139	)
		–10	%		606			122			466			139

The Group’s exposure to foreign currency changes for all other currencies is not material.

Commodity risk

Commodity risk is the risk arising from fluctuations in the availability and cost of certain of the Group’s raw material and other input costs. In particular, the Group is exposed to fluctuations in the availability and cost of wood and other fibres and to fluctuations in the cost of electricity.

Commodity risk is managed through the use of formal agreements with recognised and established counterparties and the purchase of commodity derivatives. Wood and other fibre purchases are secured for periods of up to 12 months in advance through supply agreements made with wood procurement companies, including the Group’s joint venture Harvestia Oy. Availability of electricity is secured through the use of framework agreements with suppliers and the risk associated with price fluctuations is hedged using commodity derivatives.

44

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

28. Financial risk management objectives and policies continued

At 31 December 2015, the Group had hedged over 90% of its forecast electricity purchases for the following 12-month period. Hedge accounting has been adopted for such derivatives and effective portion of the gains and losses are taken to a hedging reserve within other comprehensive income and only transferred to the income statement during the period in which the hedged cost is incurred.

The following table demonstrates the effect that changes in the electricity price would have, with all other variables held constant, on the fair value of electricity derivatives and on the Group’s profit before tax. The effect has been estimated using a VaR model with a holding period of ten days and a confidence level of 95%.

	Increase/ decrease in electricity price			Effect on profit before taxation €000
2015		20–25	%		+/–332
2014		20–25	%		+/–464

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities and its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Credit risk related to receivables: Customer credit risk is managed by each business unit in accordance with the Group’s policy, procedures and controls relating to the management of credit risk. Credit quality of customers is objectively assessed and outstanding receivables are regularly monitored. Deliveries to the majority of customers are covered by either letter of credit or other forms of credit insurance and the uninsured exposure is monitored and managed centrally by the Group. The Group has a large number of different customers and counterparties in international markets. Accordingly, there is no concentration of credit risk in any particular counterparty or country. The maximum exposure to credit risk related to receivables is the carrying value of each class of financial assets mentioned in Note 15.

Credit risk related to financial instruments and cash deposits: Credit risk from transactions and balances with banks and other financial institutions is managed centrally by the Group. The Group only enters into transactions with approved counterparties and within limits which are reviewed by the Group’s Board of Directors on an annual basis. The Group’s maximum exposure to credit risk for the components of the balance sheet at 31 December 2015 and 2014 is the carrying value of the amounts as illustrated in Note 15.

Liquidity risk

The Group monitors its liquidity risk using a recurring liquidity planning tool which forecasts the amounts and timings of future cash flows. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, invoice discounting and debt factoring, finance leases and hire purchase contracts.

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2015 and 2014 based on contractual undiscounted payments.

As at 31 December 2015	On demand €000		Less than 3 months €000			3 to 12 months €000			1 to 5 years €000			>5 years €000		Total €000
Interest-bearing loans and borrowings		—		221			5,702			90,362			11		96,296
Trade and other payables		635		60,533			3,212			633			7		65,020
Employee benefit liabilities		—		—			2			—			—		2
		635		60,754			8,916			90,995			18		161,318
Derivative financial instruments
Forward foreign exchange contracts – not hedge accounting
Cash flow payable		—		11,008			16,428			—			—		27,436
Cash flow receivable		—		(10,771	)		(15,899	)		—			—		(26,670	)
Commodity derivatives – hedge accounting
Cash flow payable		—		678			2,043			3,396			—		6,117
Cash flow receivable		—		(400	)		(1,200	)		(2,877	)		—		(4,477	)
		—		515			1,372			519			—		2,406

45

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Notes to the consolidated financial statements continued

28. Financial risk management objectives and policies continued

As at 31 December 2014	On demand €000		Less than 3 months €000			3 to 12 months €000			1 to 5 years €000			>5 years €000		Total €000
Interest-bearing loans and borrowings		—		441			1,955			106,549			—		108,945
Trade and other payables		—		60,758			—			—			—		60,758
Employee benefit liabilities		—		—			6			—			—		6
		—		61,199			1,961			106,549			—		169,709
Derivative financial instruments
Forward foreign exchange contracts – not hedge accounting
Cash flow payable		—		—			—			—			—		—
Cash flow receivable		—		—			—			—			—		—
Commodity derivatives – hedge accounting
Cash flow payable		—		609			1,828			4,356			—		6,792
Cash flow receivable		—		(549	)		(1,643	)		(4,091	)		—		(6,281	)
		—		61			186			264			—		511

Interest-bearing loans and borrowings include amounts borrowed under a revolving credit facility which is available to the Group until September 2017.

Interest-bearing loans and borrowings also include amounts borrowed under a credit factoring facility which is available to the Group until September 2017. Where the maturity of individual factored sales invoices is less than three months, the balance is presented within amounts falling due for repayment before three months.

29. Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments

IFRS 14 Regulatory Deferral Accounts

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

Annual improvements 2010-2012 Cycle

IFRS 15 Revenue from Contracts with Customers

Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants

Amendments to IAS 27: Equity Method in Separate Financial Statements

The standards issued but not yet effective and their interpretations are not expected to have any impact on the Group’s financial statements.

46

Powerflute Oyj | Annual report and accounts 2014

Financial statements and notes

Parent Company income statement

for the year ended 31 December 2015

The Parent Company Financial Statements are prepared according to Generally Accepted Accounting Principles in Finland (Finnish GAAP).

	2015 €000			2014 €000
Revenue		243			119
Other operating income		5,529			1,200
Employee benefits expense		(884	)		(768	)
Other expenses		(6,736	)		(6,388	)
Depreciation and amortisation		(13	)		(3	)
Operating profit/(loss)		(1,861	)		(5,840	)
Finance income/(expenses)		(97	)		77
Profit/(loss) before extraordinary items		(1,958	)		(5,763	)
Extraordinary items		3,861			5,850
Profit before appropriations and taxes		1,903			87
Appropriations		(2	)		2
Income tax		(381	)		88
Profit for the period		1,520			177

47

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Parent Company statement of financial position

as at 31 December 2015

	2015 €000		2014 €000
Assets
Non-current assets
Property, plant and equipment		2,595		5
Intangible assets		61		—
Shares in Group companies		16,704		16,704
Investment in a joint venture		3,170		3,170
Other non-current financial assets		—		1,662
Amounts due from Group companies		103,613		104,898
Total non-current assets		126,143		126,439
Current assets
Trade and other receivables		4,174		5,326
Amounts due from Group companies		17,501		11,104
Cash and short-term deposits		2,658		6,831
Total current assets		24,333		23,261
Total assets		150,476		149,700
Equity and liabilities
Equity
Issued share capital		88		88
Share premium		912		912
Reserve for invested non-restricted equity		30,228		30,228
Retained earnings		8,384		11,126
Total equity		39,612		42,354
Non-current liabilities
Interest-bearing loans and borrowings		91,000		98,000
Total non-current liabilities		91,000		98,000
Current liabilities
Trade and other payables		2,195		5,249
Amounts due to Group companies		12,986		1,416
Interest-bearing loans and borrowings		4,000		2,000
Provisions		678		678
Appropriations		5		3
Total current liabilities		19,864		9,346
Total liabilities		110,864		107,346
Total equity and liabilities		150,476		149,700

48

Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Parent Company statement of changes in equity

for the year ended 31 December 2015

	Share capital €000		Share premium €000		Reserve for invested non- restricted equity €000		Retained earnings €000			Total equity €000
As at 1 January 2015		88		912		30,228		11,126			42,354
Profit for the period		—		—		—		1,520			1,520
Dividends paid		—		—		—		(4,262	)		(4,262	)
At 31 December 2015		88		912		30,228		8,384			39,612
As at 1 January 2014		88		912		30,228		14,785			46,013
Profit for the period		—		—		—		177			177
Dividends paid		—		—		—		(3,836	)		(3,836	)
At 31 December 2014		88		912		30,228		11,126			42,354

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Powerflute Oyj | Annual report and accounts 2015

Financial statements and notes

Parent Company cash flow statement

for the year ended 31 December 2015

	2015 €000			2014 €000
Operating activities
Profit before appropriations and taxes		1,903			87
Non-cash:
Depreciation of property, plant and equipment		13			3
Finance income		(45	)		(65	)
Finance expense		4,612			2,207
Group contribution		(3,861	)		(5,850	)
Movements in provisions, pensions and government grants		—			(98	)
Working capital adjustments:
Change in trade and other receivables and prepayments		(5,853	)		(6,283	)
Change in trade and other payables		(5,680	)		8,307
Income tax received/(paid)		(38	)		(520	)
Net cash flows from operating activities		(8,959	)		(2,212	)
Investing activities
Purchase of property, plant and equipment		(2,664	)		—
Proceeds from sale of financial assets		3,724			—
Loans granted		705			(104,398	)
Interest received		45			65
Net cash flows used in investing activities		1,810			(104,333	)
Financing activities
Proceeds from borrowings		11,000			100,000
Repayment of borrowings		(5,000	)		—
Group contribution received		5,850			4,000
Interest and similar costs paid		(4,612	)		(2,207	)
Dividends paid to equity holders of the parent		(4,262	)		(3,836	)
Net cash flows from financing activities		2,976			97,957
Net increase/(decrease) in cash and cash equivalents		(4,173	)		(8,588	)
Cash and cash equivalents at 1 January		6,831			15,419
Cash and cash equivalents at 31 December		2,658			6,831

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