BUSINESS OPERATIONS AND VALUE CREATION
■ 4.3 Other investments
Pohjolan Voima Oyj
Accounting principles Other investments consist of listed and unlisted equity investments. The most significant of these is the Group’s holding in Pohjolan Voima. This investment is unlisted and strategic in nature, serving the Group’s long-term energy sourcing needs. This being the case, the Group classifies its shares in Pohjolan Voima as financial assets at fair value recognised under other items of comprehensive income. Changes in their fair value are presented in the fair value reserve, accounting for the tax effect. When the investment is abandoned, the fair value changes accu- mulated in the equity are transferred to the retained earnings from the fair value fund. The Group classifies its other equity financial assets as financial assets at fair value to be recognised as financial assets through profit and loss. The fair values of publicly listed shares are based on the share price on the balance sheet date. The fair values of shares other than listed shares are determined using various valuation models, such as the price levels of recent transactions and valuation methods based on the present value of discounted cash flows. As far as possible, the valuation methods are founded on market-based valuation factors.
Other unlisted shareholdings
Other investments total
The most important unlisted shareholding under other investments consists of a 2.6 per cent stake in Finnish energy company Pohjolan Voima Oyj, which produces electricity and heat for its shareholders in Finland. Pohjolan Voima trades with its shareholders at prices based on production costs, which generally are lower than market prices. The Group is entitled, through the B shares of Pohjolan Voima, to a share of approximately 5.2% of the energy generated by the Olkiluoto 1 and Olkiluoto 2 nuclear power plants and, through the B2 shares of Pohjolan Voima, to a share of 1.5% of the energy generated by the Olkiluoto 3 nuclear power plant, now being deployed. On 1 January 2022, Metsä Board acquired the entire share capital of Hämeenkyrön Voima Oy from Pohjolan Voima Oyj (84%) and from DL Power Oy, part of Leppäkoski group (16%). In this connection, Metsä Board sold its series G10 shares, which corresponded to an 84% holding in Hämeenkyrön Voima Oy, to Pohjolan Voima Oyj for EUR 12.0 million. Hameenkyrön Voima Oy was merged later during the financial year to the parent company. The ownership is measured quarterly at fair value on share series basis by using the average of discounted cash flow method and valuation based on earlier transactions. The weighted average cost of capital used was 5.42 (2021: 3.14) per cent. The acquisition cost of shares in Pohjolan Voima Oyj is EUR 28.3 million (40.2) and the fair value EUR 344.1 million (177.6). The change in fair value was due to an updated long-term price forecast for the electricity used in the shares’ valuation model. The fair value of the G10 series in 2021 was EUR 12.0 million. Shareholder agreement restricts sale of shares of Pohjolan Voima to buyers that are not existing shareholders.
Key estimates and judgements
Fair value measurement The application of valuation models to measuring fair value requires judgement concerning the selection of the method to be applied, as well as valuation factors required by the chosen method that are based on the price and interest levels prevailing in the market on the end date of each reporting period. The most significant item of other investments that has been valued by using a valuation model is the Group’s investment in the shares of Pohjolan Voima Oyj. The price of these shares is determined based on the present value of discounted cash flows. Key factors affecting cash flows include the price of electricity, inflation expectations and the discount rate. The 12-month moving average of electricity futures prices has been used as the energy price for the first eight years. Subsequent prices are based on a long-term market price forecast. The carrying amount of the Group’s shares in Pohjolan Voima was EUR 344.1 million on the balance sheet on 31 December 2022. The carrying value of other investments is estimated to change by EUR -12.3 million and EUR 13.0 million should the rate used for dis-counting the cash flows change by 0.5 percentage points from the rate estimated by the management. The carrying value of other investments is estimated to change by EUR 71.5 million should the energy prices used in calculating the fair value differ by 10% from the prices estimated by the management.
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