METSÄ BOARD Annual review 2023
■ 4.3 Other investments
■ 4.4 Inventories
■ 4.5 Trade receivables and other receivables
Business operations and value creation 2 This is Metsä Board 4 CEO’s review 6
EUR million
2023 253.0
2022 344.1
Pohjolan Voima Oyj
Accounting principles Other investments consist of listed and unlisted equity invest- ments. 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 mar- ket-based valuation factors.
Accounting principles Inventories are measured at the lower of acquisition cost or net realisable value. In measuring inventories, the FIFO principle is observed or, alternatively, the weighted average price method, depending on the nature of the inventories. The acquisition cost of finished products acquired comprises all purchase costs, including direct transport, handling and other expenses. The acquisition cost of finished and semi-finished products of own manufacture includes raw materials, direct production costs, and the systematically allocated portion of variable manufacturing overheads and fixed overheads at the normal level of operation. Borrowing cost is not included in the acquisition cost. Net realisable value is the estimated sales price in ordinary business operations less the estimated cost of completion and the necessary sales costs. Key estimates and judgements The Group regularly reviews its inventories for situations where the inventories contain non-marketable items or items with net realisable value below the acquisition cost. When necessary, the Group reduces the book value of the inventories accordingly. This review requires the management’s estimates of the sales prices of products, the cost of completion and the costs necessary to make the sale. Any changes in these estimates might lead to an adjustment in the book value of the inventories in future periods.
Accounting principles Trade receivables are initially measured at fair value and later at amortised cost, taking into account impairment. The Group applies a model based on expected credit losses to the deter- mination of the impairment of trade receivables. Provisions are furthermore set up on a case-by-case basis when there is a justifi- able reason to assume that the Group will not receive payment for the invoiced amount according to the original terms.
Other unlisted shareholdings
1.4
1.3
Other investments total
254.4
345.4
Strategy and financial targets
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 5.35 (5.42) per cent. The acquisition cost of shares in Pohjolan Voima Oyj is EUR 28.3 million (28.3) and the fair value EUR 253.0 million (344.1). The change in fair value was due to an updated long-term price forecast for the electricity used in the shares’ valuation model. Shareholder agreement restricts sale of shares of Pohjolan Voima to buyers that are not existing shareholders.
8
Value creation
Financial development 10 Key figures 12
Report of the Board of Directors
20 72
• Sustainability statement • Sustainability statement assurance report
Trade receivables and other non-interest bearing receivables
EUR million
2023
2022
From Group companies Trade receivables
74
Consolidated financial statements
19.3
40.8
Prepayments and accrued income
0.5
0.4
78 Notes to the consolidated financial statements 126 Parent company financial statements 129 Notes to the parent company financial statements 142 The Board’s proposal to the Annual General Meeting for the distribution of funds 143 Auditor’s Report 147 Shares and shareholders 151 Ten years in figures 152 Taxes 153 Production capacities 155 Calculation of key ratios and comparable performance measures Corporate governance 157 Corporate governance statement 165 • Board of Directors of Metsä Board 168 • Corporate Management Team of Metsä Board
Total
19.8
41.2
From associated companies and joint ventures Trade receivables
0.2
0.1
From others
Trade receivables
190.3
272.5
Key estimates and judgements
Impairment
-0.6
-1.2
Total
189.7
271.4
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 253.0 million on the balance sheet on 31 December 2023. The carrying value of other investments is estimated to change by EUR -9.9 million and EUR 10.3 million should the rate used for discounting 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 61.6 million should the energy prices used in calculating the fair value differ by 10% from the prices estimated by the management.
Other receivables
36.1
34.3
Prepayments and accrued income
5.9
7.5
EUR million
2023 174.9 219.4
2022 211.6 276.1
From others total
231.7
313.2
Raw materials and consumables
Finished goods
Trade receivables and other receivables total
251.7
354.5
Advance payments Inventories total
0.0
19.0
394.4
506.7
Receivables from Group companies are receivables from parent company Metsäliitto Cooperative and from other subsidiaries of the parent company. Derivative receivables are from Metsä Group Treasury Oy, a wholly owned subsidiary of Metsäliitto Cooperative. In 2022 as a consequence of the discontinuation of Russian business operations, the Group made a write-down of all its trade receivables and other receivables related to operations in Russia, totalling EUR 0.1 million.
At the end of 2023, the inventory has been written down to a net realisable value of EUR 1.0 million. In 2022, no write-downs were recorded for inventory.
170 Remuneration report 174 Investor relations and investor information
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99
Consolidated financial statements | METSÄ BOARD ANNUAL REVIEW 2023
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