17 Mar 2008 07:02
Powerflute Oyj17 March 2008 17 March 2008 POWERFLUTE OYJ FINAL RESULTS FOR YEAR ENDED 31 DECEMBER 2007 (INCORPORATING UNAUDITED INTERIM RESULTS FOR THE PERIOD 30 JUNE TO 31 DECEMBER 2007) London & Helsinki, 17 March, 2008 | Powerflute Oyj (the "Group" or "Powerflute"), a manufacturer of premium quality Nordic semi-chem fluting, is pleased toannounce its first full year results as a public company. Powerflute is listedon the AIM market of the London Stock Exchange (Ticker: POWR.L) and on the FirstNorth list, the alternative market of the OMX Nordic Exchange Stockholm AB(Ticker POW1V). •m FY 2007 FY 2006 Change Sales 115,737 98,302 +18% EBITDA1 20,418 12,817 +59% EBITDA Margin 18 % 13% +5% Operating profit 15,156 8,012 +89% Profit before tax 12,520 5,775 +117% Basic EPS 10.3 cents 4.9 cents +110% Dividend per share 3.366 cents (2.566p) - - Net debt 25.6 33.4 -23% Net debt to EBITDA 1.25x 2.61x 1. EBITDA refers to operating profit on ordinary activities before depreciation,amortisation and impairment of property, plant and equipment and intangibleassets and the release of negative goodwill. Although EBITDA is not a measure ofoperating profit, operating performance or liquidity under IFRS, the Company haspresented this financial measure because it understands that EBITDA is used bysome investors to determine a Company's ability to service indebtedness and fundongoing capital expenditures. EBITDA should not, however, be considered inisolation or as a substitute for operating profit as determined by IFRS, or asan indicator of the Company's operating performance or of its cash flows fromoperating activities as determined in accordance with IFRS. Financial Highlights • Net sales increased by 18 per cent. to €115.7 million (2006: €98.3 million, 2005: €85.4million) • EBITDA on ordinary activities increased by 59 per cent. to €20.4 million (2006: €12.8 million) • EBITDA margin 18 per cent. (2006: 13 per cent.) • Operating profit on ordinary activities before tax increased by of 89 per cent. to €15.2 million (2006: • 8.0 million) • Basic EPS from ordinary activities increased by 110 per cent. to 10.3 cents per share (2006: 4.9) Reported basic EPS were 8.0 cents per share (2006: 4.3) • Net debt reduced by €7.8 million to €25.6 million • Final dividend of 3.366 cents (2.566p) per share proposed to be paid in May 2008. It is proposed that the Board be authorised to resolve and pay an additional dividend of 1.681 cents (at current •:GBP levels 1.28p) per share in October/ November 2008. Expected future dividend payment ratio, two thirds final, one third interim. Strategic & Operating Highlights • AIM IPO successfully completed in May 2007 • First North listing February 2008 - alternative market of the OMX Nordic Exchange Stockholm AB • Total sales volume increased by 5 per cent. to 262,792 tonnes, an (2006: 251,375 tonnes) • Agreement on new headbox and stock approach system to further improve operational efficiency was signed in August. • Wood supply joint venture agreed in February 2008 to deliver security of supply and improved efficiencies Performance Review & Outlook Powerflute Chairman, Dermot Smurfit commented: "The Group reports a strong financial performance for the 2007 full year andsignificant progress against every financial measure. Overall, the outlook for 2008 is positive as we continue to improve theefficiency and output capacity of the Mill. Demand for Nordic semi-chem flutingremains strong. The Board views 2008 with confidence." Powerflute CEO, Don Coates commented: "We are pleased with the advances that your Group has made during 2007. TheGroup has delivered an improved operating profit, increased EBITDA margins andstrong cash flow during the period. Indeed the Savon Sellu mill had a recordyear operationally, despite a number of challenges faced during the period inreview. About Powerflute Powerflute operates a currently 300,000 tonne per annum rated capacity papermill (the "Mill") located near Kuopio, Finland on the shores of Lake Kallavesi,manufacturing specialised high quality nordic semi-chem fluting. Powerflute was established to make further acquisitions in the paper and paperconversions market, typically of assets which are no longer regarded by theirparent groups as core businesses and where the Board believes that it canfurther develop such assets or companies. Powerflute's Chairman is Dermot Smurfit, (retired Chairman of Smurfit Europe andjoint Deputy Chairman of Jefferson Smurfit Group PLC), Don Coates is the CEO,(previously the CEO of the St Regis Paper Company Limited owned by DS Smith plc)and Ian Halliday is an Executive Director, (former senior manager at Mondi PaperGroup and Jefferson Smurfit Group). Non-executive directors include JuhaNiemela, (previously the CEO of UPM-Kymmene Corporation, one of the largestpulp and paper groups in the world), Tony Smith (former CEO of Smurfit UKoperations) and Christopher Knight. Together, the management team have over 150years of experience in the paper industry. Powerflute's nominated adviser on AIM is Collins Stewart (Europe) Limited. Powerflute's Certified Advisor on First North is E. Ohman J:or FondkommissionAB. The Swedish Company Registration Number: 409596-1 Review of Financials and Performance The following pages contain the information required to be included by theapplicable regulations in the form of Chairman's Statement, Annual Accounts forthe full year 2007 and the interim results for the six months ended 31 December2007 all as approved by the Board of Directors of Powerflute, as well as theAuditor's Report. Forward Looking Statements Some statements in this announcement are forward-looking. They representexpectations for Powerflute's business, and involve risks and uncertainties.These forward-looking statements are based on current expectations andprojections about future events. The Group believes that current expectationsand assumptions with respect to these forward-looking statements are reasonable.However, because they involve known and unknown risks, uncertainties and otherfactors, which are in some cases beyond the Group's control, actual results orperformance may differ materially from those expressed or implied by suchforward-looking statements. Contacts For additional information please contact: Powerflute OYJDermot Smurfit (Chairman) C/O Billy CleggDon Coates (Chief Executive Officer) +44 (0)20 7269 7157 Collins Stewart Europe Ltd:Nick Ellis +44 (0)20 7523 8319 E.Ohman J:or Fondkommission AB:Vesa Heikkila +358 (9) 8866 6021 Financial Dynamics:Billy Clegg +44 (0)20 7831 3113Georgina Bonham K Capital Source +353 (1) 631 5500Mark KennyJonathan Neilan A copy of this announcement has been placed on the Company's websitewww.powerflute.com. A copy of an investor presentation in relation to theresults will also be available on the website in due course. Copies of thisannouncement will not be dispatched to shareholders. Management of Powerflute will host a presentation to review the Group'sPreliminary Results at 09.30am on Monday 17 March at FD's offices, 26Southampton Buildings, WC2A 1PB . There will be an opportunity for investorsand analysts to join the presentation by conference call. Please contact FD fordial-in details for the conference call. Chairman's Statement It is with great pleasure that we make our first full year report toshareholders following the successful IPO on the AIM market of the London StockExchange in May 2007. We are delighted with the progress and performance of your Group over the pastyear. The Group has delivered an improved operating profit, increased EBITDAmargins and strong cash flow during the period. The Savon Sellu mill (the "Mill") had a record year operationally in 2007, despite a number of challenges faced during the period. Additionally, our net debt has reduced to €25.6 million a reduction of €7.8 million during the period. Market Demand for Nordic semi-chem fluting remained strong throughout 2007 and thisenabled the successful implementation of price increases required to recovercost increases. Volumes increased by 5 per cent. to 262,792 tonnes from 251,375tonnes in 2006, and were limited only by our ability to produce. Average sellingprices increased by 10 per cent. year-on-year. Demand was underpinned by steadygrowth in global trade and, in particular, for fruit and vegetables packed incorrugated boxes containing Nordic semi-chem fluting. A notable positive factorwas the growth of new markets supplying fruit and vegetables from around theMediterranean rim and from South America. Operational performance Powerflute is focused on continuously improving production efficiencies at theMill. As a result, total production volume rose by 2.8 per cent. from theprevious year to 260,634 tonnes (2006: 253,620 tonnes). Production volumes would have been higher but for wood shortages following ashort winter last year in the Nordic and Baltic region, and disruptions causedby the implementation of a wood export tariff by Russia during the summer. Therewas continued upward pressure on input prices, especially wood, but also energyand other raw materials. Our business model has allowed us to recover these costincreases, although inevitably with a lag before full implementation which hassome impact on margins. Nevertheless, EBITDA margins increased from 13 per cent.(2006) to 18 per cent. (2007) underpinning the strong cash generation for theGroup. As part of the Group's strategy to improve operational efficiency, in August,the Group signed an agreement with Vaahto Pulp & Paper Machinery to supply andinstall a new headbox and stock approach system, which delivers pulp to thepaper machine.,This will take place during the mill's annual maintenance shut inthe first week of May 2008. This will further improve the output and quality,leading to better consistency and performance at our customers' corrugators. Strategic Developments During 2007, we evaluated a number of acquisition possibilities, one of which,involved incurring substantial due diligence costs, before declining to proceed.We continue to believe that the current environment of industry restructuring inthe face of changing economic fundamentals will provide us with attractiveacquisition opportunities. We are continuing to evaluate a number of thesewhich, if completed, would, in time, deliver significant value to ourshareholders. Given that approximately 12.5 per cent. of the AIM IPO was placed in the Nordicregion, the Board concluded that it would assist shareholders and raise theGroup's profile in the Nordic region by seeking a dual listing on the FirstNorth market of the OMX, a market with a developed paper sector presence and astrong investor and analyst following. Listing on the OMX was completed inFebruary 2008. Wood Strategy Developing a sustainable wood supply strategy is a strategic priority formanagement. On 29th February 2008, we announced that we had agreed to establisha joint venture with Myllykoski Oyj ("Myllykoski") to manage our woodprocurement and secure supply as we grow. The current supply agreement withMetsaliitto is due to end on 31 December 2009. The new joint venture will ensure continuity of supply for the Mill in Finlandwhich in turn will benefit from lower costs and higher efficiencies due to thesynergies between the companies, namely complementary grades of wood and similargeographies, and a lean organisation. The needs of Myllykoski and Powerflute for wood complement each other. TheMyllykoski mill uses fresh spruce wood as its raw material, while the Sunilapulp mill uses pine pulpwood and sawmill chips. Powerflute's Mill, on the otherhand, uses birch wood as its sole wood raw material. The Board believes that this joint venture brings a new dynamic to the woodmarket which should be beneficial to forest owners and encourage domesticharvesting in the Nordic region. The joint venture will procure wood principally from Finland but will alsoimport from the Baltic area. Subject to certain regulatory approvals, theparties expect the joint venture to be up and running during the summer of 2008. Powerflute and Myllykoski chose to establish this joint venture as a response tochanges in the forestry environment which could tighten supply, notably theproposed increased tariff on wood imported from Russia from 1 January 2009. Woodis a vital and strategically important raw material for both companies and thejoint venture will enable both companies to improve control of their woodprocurement and secure supply. Capital Expenditure & Investment During 2007, the Group invested €5.5 million of capital expenditure at the mill.This represented maintenance investment and the partial cost of a new headbox.The new headbox installation will cost approximately €4.4 million, which hasbeen spread over 2007 and 2008. We believe there is still significant operational progress to be made at theMill and that production output can be increased up to 300,000 tonnes per yearwithout significant further capital investment. Powerflute is focused on prudentlevels of capital spend to maximise benefits for shareholders. Research & Development costs during the period amounted to €0.3 million (2006:€0.6 million). All R&D costs are expensed in the income statement. Dividends & Profits Powerflute proposes to pay a final dividend for the year ended 31st December2007 of 3.366 cents (2.566p) per share expected to be payable on or about 6thMay 2008 to shareholders on the register on Friday 18th April 2008. Theremainder of the profit for 2007, following the dividend payments is to betransferred to the company's reserves. Future dividends are expected to be paidin the ratio of two thirds final and one third interim. Based on today's FXrate, the Board expects to pay, subject to no extraordinary events, an interimdividend of up to 1.681 cents per share (at current •:GBP levels 1.28p). Theinterim dividend, if any, would be paid to investors who are Powerfluteshareholders at the time of the announcement of the interim dividend expected inOctober/November 2008. Annual General Meeting The Annual General Meeting will be held on 15 April 2008 in Kuopio, Finland. Aseparate invitation to the AGM including the agenda for the meeting will bepublished as a separate stock exchange announcement on 17 March 2008. Management and employees The successful implementation of our strategy is dependent on the expertise,commitment and strong support of our employees. The Board would like to thankall of the Group's employees for their hard work during the period. Commentary for the six months ended 31 December 2007 The demand for semi-chem fluting remained strong during second half of 2007. TheGroup's deliveries were slightly above 130,000 tonnes for the six months and theaverage price increased by 9 per cent. compared to the first half of 2007. Theearnings per share from ordinary activities during the second half increased to5.98 cents (from 1.15 cents for the second half of 2006 and from 4.52 cents forthe first half of 2007). Of the events referred to above, the following tookplace during the last six months of the financial year ended 31 December 2007: - signing of the agreement on installment of new headbox and stockapproach system in August 2007. - net sales for the second half of 2007 increased to • 59.8 million(compared to • 50.6 million for the second half of 2006) Financial review For the financial year ended 31 December 2007 2006 • 000 • 000 Net sales 115,737 98,302 +18% EBITDA from ordinary activities 20,418 12,817 +59%EBITDA margin 18 % 13 % Depreciation and amortisation expense (5,262) (4,805)Operating profit from ordinary activities 15,156 8,012 +89% Finance expenses, net (2,636) (2,237)Profit before tax from ordinary activities 12,520 5,775 +117% Income tax expense from ordinary activities (3,461) (1,474)Profit for the year from ordinary activities 9,059 4,301 +111% One off income 586One off costs (3,294) (729)Income tax from one off items 704 190Reported profit for the year 7,055 3,762 +88% Basic earnings per Share from ordinary activities (cents) 10.3 4.9 +110% Reported basic earnings per Share (cents) 8.0 4.3 Net sales The Group achieved an increase in net sales some 18 per cent. due to salesvolume and price increases. The Group had net sales of €115.737 million (2006:€98.302 million, 2005: €85.448 million) EBITDA on ordinary activities A 59 per cent. increase in EBITDA from ordinary activities from €12.817 millionto €20.418 million reflects increase in turnover and improved utilisation of theasset base. Operating profit The operating profit from ordinary activities before tax has increased from€8.012 million to €15.156 million representing an increase of 89 per cent. overthe period. One off items Other expenses include one off costs associated with the IPO of €2.843 million,the costs of an aborted transaction of €0.451 million, and a gain on a propertydisposal of €0.586 million. Number of shares and earnings per share Based on the weighted average number of shares issued of 88,000,000, basic EPSfrom ordinary activities were 10.29 cents per share (2006: 4.89) representing anincrease of 110 per cent. Reported basic EPS were 8.02 cents per share (2006:4.28). The share option scheme has no dilutive effect on the earnings per share. The number of shares was increased by a pre- IPO share split during first halfof 2007 whereby the number of shares increased from 880,000 to the currentissued number 88,000,000 shares. Currency During the period, management worked hard to counter the impact of a continuedweakness in the US$ against the •. The US$ is the base currency for about onethird of the Group's sales. EBITDA on ordinary activities for 2007 would havebeen €3 million higher without the adverse currency impact. In order to mitigateadverse currency movement we have continued our policy of quarterly hedgingagainst US$ movements covering up to 100% of our expected $US denominated sales. Annual report and accounts The report and accounts for the financial year ended 31 December 2007 will beavailable on 7 April 2008. The report can be obtained from the Group and willalso be available to download from the Group website www.powerflute.comfollowing that date. Current trading and outlook Since the year end trading is ahead of last year. The order book is strong,allowing us to implement price increases of US$50 per tonne from 1 January 2008in our US$ traded markets, and further, announce a €40 per tonne price increasein Europe, effective from the beginning of April 2008. Nordic semi-chem flutingis a premium product in the corrugated paper market which delivers significantlyimproved strength in corrugated boxes, particularly in higher humidityenvironments such as that encountered when shipping fruit and vegetables.Demand for fruit and vegetables is growing worldwide and we continue to broadenthe geographical spread of our customer base into new growth markets. The current winter in the Nordic region has been warmer than is the norm, whichwe anticipate will result in some increased pressure on wood input costs due toreduced cutting. Both this, and the likelihood of higher tariffs on wood importsfrom Russia, means that ensuring sustainable wood supply is a priority. Ourjoint venture with Myllykoski is a significant step by the business to addressthis issue. Overall, the outlook for 2008 is positive as we continue to improve theefficiency and output capacity of the Mill; demand for Nordic semi-chem flutingremains strong. The Board views 2008 with confidence. The interim report forthe period January to June 2008 is expected to be published on 28 August 2008. Set out at the end of this document as an appendix, in accordance with therequirements of First North, are the Group interim results for the six monthsended 31 December 2007 and comparable period ended 31 December 2006. Dermot SmurfitChairman 17 March 2008AUDITORS' REPORT The financial information set out does not constitute the Group's statutoryaccounts for the year ended 31 December 2007 but is derived from those accounts.Statutory accounts for 2007 will be delivered in accordance with Companies Actfollowing the Group's annual general meeting convened for 15 April 2008. We have audited the accounting records, the report of the Board of Directors,the financial statements and the administration of Powerflute Oyj for the period1 January 2007 - 31 December 2007. The Board of Directors and the ChiefExecutive Officer have prepared the consolidated financial statements, preparedin accordance with International Financial Reporting Standards as adopted by theEU, as well as the report of the Board of Directors and the parent company'sfinancial statements, prepared in accordance with prevailing regulations inFinland, containing the parent company's balance sheet, income statement, cashflow statement and notes to the financial statements. Based on our audit, weexpress an opinion on the consolidated financial statements, as well as on thereport of the Board of Directors, the parent company's financial statements andthe administration. We conducted our audit in accordance with Finnish Standards on Auditing. Thosestandards require that we perform the audit to obtain reasonable assurance aboutwhether the report of the Board of Directors and the financial statements arefree of material misstatement. An audit includes examining on a test basisevidence supporting the amounts and disclosures in the report and in thefinancial statements, assessing the accounting principles used and significantestimates made by the management, as well as evaluating the overall financialstatement presentation. The purpose of our audit of the administration is toexamine whether the members of the Board of Directors and the Chief ExecutiveOfficer of the parent company have complied with the rules of the FinnishCompanies Act. Consolidated financial statements In our opinion the consolidated financial statements, prepared in accordancewith International Financial Reporting Standards as adopted by the EU, give atrue and fair view, as defined in those standards and in the Finnish AccountingAct, of the consolidated results of operations as well as of the financialposition. Parent company's financial statements, report of the Board of Directors andadministration In our opinion the parent company's financial statements have been prepared inaccordance with the Finnish Accounting Act and other applicable Finnish rulesand regulations. The parent company's financial statements give a true and fairview of the parent company's result of operations and of the financial position. In our opinion, the report of the Board of Directors has been prepared inaccordance with the Finnish Accounting Act and other applicable Finnish rulesand regulations. The report of the Board of Directors is consistent with theconsolidated financial statements and the parent company's financial statementsand gives a true and fair view, as defined in the Finnish Accounting Act, of theresult of operations and of the financial position. The consolidated financial statements and the parent company's financialstatements can be adopted and the members of the Board of Directors and theChief Executive Officer of the parent company can be discharged from liabilityfor the period audited by us. The proposal by the Board of Directors regardingthe disposal of distributable funds is in compliance with the Companies Act. 17 March 2008 Ernst & Young OyAuthorised Public Accountant Firm 1. Consolidated income statement for the year ended 31 December 2007 2007 2006 Notes • 000 • 000 restatedSales 5.4 115,737 98,302Other income 5.5 2,034 771Changes in inventories of finished goods and work in progress (684) 1,652Raw materials and consumables used (56,518) (49,771)Employee benefits expense 5.6 (14,424) (14,660)Other expenses 5.5 (28,435) (24,206)Depreciation and amortisation 5.7 (5,262) (4,805)Operating profit 12,448 7,283Finance income 5.8 70 68Finance expenses 5.8 (2,706) (2,305)Profit before tax 9,812 5,046Income tax expense 5.9 (2,757) (1,284)Profit for the year 7,055 3,762Attributable to equity holders 7,055 3,762 Earnings per Share (cents) 5.10 8.02 4.28 2. Consolidated balance sheetas at 31 December 2007 2007 2006 Notes • 000 • 000ASSETS RestatedNon-current assetsProperty, plant and equipment 5.12 31,132 28,368Intangible assets 5.13 4,273 6,352Deferred tax asset 5.9 112 849 35,517 35,569Current assetsInventories 5.14 8,989 10,946Trade and other receivables 5.15 25,740 20,482Derivative financial instruments 5.27 675 -Cash and short-term deposits 5.16 6,785 8,158 42,189 39,586Assets classified as held for sale 5.17 - 2,294Total assets 77,706 77,449Equity and liabilitiesAttributable to equity holdersIssued capital 5.19 88 88Retained earnings 10,030 5,788Net profit for the period 7,055 3,762Total equity 17,173 9,638Non-current liabilitiesInterest-bearing loans and borrowings 5.20 28,192 37,504Employee benefit liability 5.21 309 670Deferred tax liability 5.9 5,150 6,052 33,651 44,226Current liabilitiesTrade and other payables 5.22 19,909 17,085Interest-bearing loans and borrowings 5.20 4,164 4,086Derivative financial instruments 5.27 - 140Income tax payable 2,809 2,274 26,882 23,585Total liabilities 60,553 67,811Total equity and liabilities 77,706 77,449 3. Consolidated statement of changes in equityfor the year ended 31 December 2007 Attributable to equity holders of the parent Issued Share Retained Total capital premium Earnings equity (Note 5.19) (Note 5.19) • 000 • 000 • 000 • 000At 31 December 2005, Savon Sellu Oy 40 1,968 17,679 19,687Issue of share capital Savon Sellu Oy (Note 5.19) 88 912 - 1,000Elimination due to pooling (40) (2,880) (11,891) (14,811)Profit for the period Savon Sellu Oy - - 3,762 3,762At 31 December 2006, restated 88 - 9,550 9,638At 1 January 2007 88 - 9,550 9,638Share-based payment (Note 5.18) - - 480 480Profit for the year - - 7,055 7,055At 31 December 2007 88 - 17,085 17,173 Profit for the period and Retained earnings as at 31 December 2006 are restated,because of the net increase in pension liability of • 255,000. There was achange in pension liability legislation in Finland as at 1 January 2007, theeffect of which was backdated to 2006. 4. Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 Notes • 000 • 000 Operating activitiesProfit before tax from continuing operations 9,812 5,046Non-cash adjustments:Depreciation of property, plant and equipment 5.7 3,207 2,732Amortisation of intangible assets 5.7 2,055 2,073Share-based payment 5.18 480 -Gain on disposal of property, plant and equipment (586)Finance income 5.8 (70) (68)Finance expense 5.8 2,706 2,305Movements in provisions and pensions 5.6 (361) 363Working capital adjustments:Change in trade and other receivables (5,671) (1,152)Change in inventories 1,957 (1,823)Increase in trade and other payables 2,237 3,267Income tax paid (2,466) - 13,300 12,743 Net cash flows from operating activitiesInvesting activitiesPurchase of property, plant and equipment (5,493) (2,957)Purchase of intangible assets - (18)Proceeds from sales 5.17 2,880 -Interest received 272 65Net cash flows used in investing activities (2,341) (2,910)Financing activitiesProceeds from share issue 5.19 - 1,000Payment of finance lease liabilities (176) (68)Proceeds from borrowings, net - 12,542Repayment of borrowings (9,600)Interest and similar costs paid (2,556) (2,675)Payment to shareholders of Savon Sellu Oy 5.3 - (14,811)Net cash flows used in financing activities (12,332) (4,012)Net increase in cash and cash equivalents (1,373) 5,821Cash and cash equivalents at the beginning of period 5.16 8,158 2,337Cash and cash equivalents at 31 December 5.16 6,785 8,158 5. Notes to the consolidated financial statements 5.1 Corporate Information Powerflute Oyj is a public limited company incorporated and domiciled inFinland. The address of the registered office is Sorsasalo/Box 57, FI-70101Kuopio, Finland. The principal activities of the Group are to produce semi-chemical fluting. TheGroup's products are sold globally, the main market being Europe. 5.2 Accounting policies 5.2.1 Basis of preparation The consolidated financial information has been prepared on a historical costbasis, except for derivative financial instruments that have been measured atfair value. The consolidated financial statements are presented in euros and allvalues are rounded to the nearest thousand (€000) except when otherwiseindicated. Statement of compliance The consolidated financial information of Powerflute Oyj and its subsidiary hasbeen prepared in accordance with International Financial Reporting Standards(IFRS). Basis of consolidation The consolidated financial information comprises the financial information ofPowerflute Oyj and its subsidiary as at 31 December each year. The financialinformation of the subsidiary is prepared for the same reporting year as theparent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses and unrealisedprofits and losses resulting from intra-group transactions are eliminated infull. The business combination of Powerflute Oyj and Savon Sellu Oy is accounted forin accordance with the pooling of interest method. 5.2.2 Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previousfinancial year except as follows: The Group has adopted the following new and amended IFRS and IFRICinterpretations during the year. Adoption of these revised standards andinterpretations did not have any effect on the financial performance or positionof the Group. They did however give rise to additional disclosures. • IFRS 7 Financial Instruments: Disclosures • IAS 1 Amendment - Presentation of Financial Statements • IFRIC 8 Scope of IFRS 2 • IFRIC 9 Reassessment of Embedded Derivatives • IFRIC 10 Interim Financial Reporting and Impairment The principal effects of these changes are as follows: IFRS 7 Financial Instruments: Disclosures This standard requires disclosures that enable users of the financial statementsto evaluate the significance of the Group's financial instruments and the natureand extent of risks arising from those financial instruments. The newdisclosures are included throughout the financial statements. While there hasbeen no effect on the financial position or results, comparative information hasbeen revised where needed. IAS 1 Presentation of Financial Statements This amendment requires the Group to make new disclosures to enable users of thefinancial statements to evaluate the Group's objectives, policies and processesfor managing capital. These new disclosures are shown in Note 5.26. IFRIC 8 Scope of IFRS 2 This interpretation requires IFRS 2 to be applied to any arrangements in whichthe entity cannot identify specifically some or all of the goods received, inparticular where equity instruments are issued for consideration which appearsto be less than fair value. As equity instruments are only issued to employeesin accordance with the employee stock option scheme, the interpretation had noimpact on the financial position or performance of the Group. IFRIC 9 Reassessment of Embedded Derivatives IFRIC 9 states that the date to assess the existence of an embedded derivativeis the date that an entity first becomes a party to the contract, withreassessment only if there is a change to the contract that significantlymodifies the cash flows. As the Group has no embedded derivative requiringseparation from the host contract, the interpretation had no impact on thefinancial position or performance of the Group. IFRIC 10 Interim Financial Reporting and Impairment The Group adopted IFRIC Interpretation 10 as of 1 January 2007, which requiresthat an entity must not reverse an impairment loss recognised in a previousinterim period in respect of goodwill or an investment in either an equityinstrument or a financial asset carried at cost. As the Group had no impairmentlosses previously recognised, the interpretation had no impact on the financialposition or performance of the Group. 5.2.3 Significant accounting judgments, estimates and assumptions The preparation of the Group's financial statements requires management to makejudgments, estimates and assumptions that affect the reported amounts ofrevenues, expenses, assets and liabilities, and the disclosure of contingentliabilities, at the reporting date. However, uncertainty about these assumptionsand estimates could result in outcomes that could require a material adjustmentto the carrying amount of the asset or liability affected in the future. Judgments Estimates are based on historical experience and various other assumptions thatare believed to be reasonable, though actual results and timing could differfrom the estimates. Management believes that the accounting policies belowrepresent those matters requiring the exercise of judgment where a differentopinion could result in the greatest changes to reported results. Estimates and assumptions The key assumptions concerning the future and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below. (i) Fixed Assets For material fixed assets acquired in the fluting business acquisition, theGroup's management performed a fair valuation of the acquired fixed assets anddetermined their remaining useful lives. The Group's management believes thatthe assigned values and useful lives, as well as the underlying assumptions, arereasonable, though different assumptions and assigned lives could have asignificant impact on the reported amounts. The carrying amounts of fixed assets are reviewed at each balance sheet date orwhenever events or changes in circumstances indicate that the carrying amount ofan asset may be impaired. Triggering events for impairment reviews include,among others: • A permanent deterioration in the economic or politicalenvironment of customers or Group activities; Significant under-performancerelative to expected historical or projected future performance; and • Material changes in strategy affecting Group businessplans and previous investment policies. If any such indications exist, the recoverable amount of an asset is estimatedas the higher of the net selling price and the value in use, with an impairmentcharge being recognized whenever the carrying amount exceeds the recoverableamount. (ii) Share-based payments The Group measures the cost of equity-settled transactions with employees byreference to the fair value of the equity instruments at the date at which theyare granted. Estimating fair value requires determining the most appropriatevaluation model for a grant of equity instruments, which is dependent on theterms and conditions of the grant. This also requires determining the mostappropriate inputs to the valuation model including the expected life of theoption, volatility and dividend yield and making assumptions about them. Theassumptions and models used are disclosed in Note 5.18. (iii) Income Taxes Deferred income taxes are provided using the liability method, as measured withenacted tax rates, to reflect the net tax effects of all temporary differencesbetween the carrying amounts for financial reporting purposes and the tax basesof assets and liabilities. Principal temporary differences arise fromdepreciation on property, plant and equipment, fair valuation of net assets atacquisition, fair valuation of derivative financial instruments and tax lossescarried forward. Related deferred tax assets are recognised to the extent it isprobable that future taxable profits will be available against which deductibletemporary differences and unused tax losses may be utilised. Tax assets and liabilities are reviewed on a periodic basis and balances areadjusted as appropriate. The Group's management considers that adequateprovision has been made for future tax consequences based upon current facts,circumstances and tax law. However, should any tax positions be challenged andnot prevail, different outcomes could result and have significant impact on theamounts reported in the consolidated financial information. (iv) Environmental Remediation Costs Environmental expenditures resulting from the remediation of an existingcondition caused by past operations and which do not contribute to current orfuture revenues, are expensed as incurred. Environmental liabilities arerecorded, based on current interpretations of environmental laws andregulations, when it is probable that a present obligation has arisen and theamount of such liability can be reliably estimated. However, establishing theprecise nature of any contingent liability for environmental liabilities is byits very nature extremely subjective, thus the Group's management can only makeits best estimate based on the facts known at the time and by external advicewhere appropriate. 5.2.4 Summary of significant accounting policies Foreign currency translation The consolidated financial information is presented in euros, which is theGroup's functional and presentation currency. Transactions denominated inforeign currency are translated into euros using the exchange rate on thetransaction date. Receivables and liabilities in foreign currencies aretranslated into euros using the exchange rates prevailing at the balance sheetdate. Foreign exchange differences for operating items are recorded in theappropriate income statement account before operating profit and, for financialassets and liabilities, in the financial items of the Income Statement. Property, plant and equipment Plant and equipment is stated at cost, excluding the costs of day to dayservicing, less accumulated depreciation and accumulated impairment losses. Suchcost includes the cost of replacing part of the plant and equipment when thatcost is incurred, if the recognition criteria are met. Borrowing costs areexpensed as incurred. Land and buildings are stated at cost, excluding the costs of day to dayservicing, less accumulated depreciation and accumulated impairment losses. Depreciation is calculated on a straight line basis over the useful life of theassets. Property, plant and equipment are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. The recoverable amount is the higher of an assets fair value lesscosts to sell and value in use. The value in use is determined by reference todiscounted future cash flows expected to be generated by the asset. For thepurpose of assessing impairment, assets are grouped at the lowest levels forwhich there are separately identifiable cash flows (separate asset, group ofassets or cash-generating units). An impairment loss is recognised for theamount by which the assets carrying amount exceeds its recoverable amount. Where an impairment loss is subsequently reversed, the carrying amount of theasset is increased but not by an amount in excess of its carrying amount priorto the impairment adjusted for depreciation to the date of reversal. An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected from its use or disposal. The asset'sresidual values, useful lives and methods of depreciation are reviewed andadjusted, if appropriate, at each financial year end. Land and water areas are not depreciated as they are deemed to have indefinitelife, but otherwise depreciation is based on the following expected usefullives: Plant and equipment 5-20 yearsBuildings 10-50 yearsOther capitalized expenses 5-20 years Ordinary maintenance and repair charges are expensed as incurred, however, thecosts of significant renewals and improvements are capitalised and depreciatedover the remaining useful lives of the related assets. Retirements, sales anddisposals of property, plant and equipment are recorded by deducting the costand accumulated depreciation from accounting records with any resulting terminaldepreciation adjustments reflected in impairment charges in the incomestatement; capital gains are shown in "other operating income". Business combinations and goodwill Business combinations other than those between entities under common control areaccounted for in accordance with the purchase method. Under the purchase methodthe cost of acquisition is allocated to the acquired identifiable assets,liabilities and contingent liabilities (net assets) based on their fair valuesat the date of acquisition. Any difference between the cost of acquisition andthe fair value of the acquired net assets is recognised as goodwill in theconsolidated balance sheet or income (referred to as negative goodwill) in theconsolidated income statement. Goodwill is initially measured at cost, being the excess of the cost ofacquisition over the fair value of the acquired net assets. Following initialrecognition, goodwill is measured at cost less accumulated impairment losses.Goodwill is tested for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Business combinations between entities under common control are accounted for inaccordance with the pooling of interest method. Under the pooling of interestmethod the entities are combined from the beginning of the financial year inwhich the combination took place. The consolidated income statement reflects theresults of the combining entities for the full year and the consolidated balancesheet the assets and liabilities at their carrying values. The excess of thecost of acquisition over the share capital of the acquired entity is recognisedin consolidated shareholders' equity. Goodwill is not recognised. Intangible assets Intangible assets acquired separately are measured on initial recognition atcost. The cost of intangible assets acquired in a business combination is fairvalue as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less anyaccumulated amortisation and any accumulated impairment losses. Internallygenerated intangible assets are not capitalised and expenditure is reflected inthe income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be finite. Intangible assets with finite lives are amortised over the useful economic lifeand assessed for impairment whenever there is an indication that the intangibleasset may be impaired. The amortisation period and the amortisation method forthe intangible asset with a finite useful life is reviewed at least at eachfinancial year end. Changes in the expected useful life or the expected patternof consumption of future economic benefits embodied in the asset is accountedfor by changing the amortisation period or method, as appropriate, and treatedas changes in accounting estimates. The amortisation expense on intangibleassets with finite lives is recognised in the income statement in the expensecategory consistent with the function of the intangible asset. Gains or losses arising from derecognition of an intangible asset are measuredas the difference between the net disposal proceeds and the carrying amount ofthe asset and are recognised in the income statement when the asset isderecognised. Intangible assets are recognised in the balance sheet at the original cost ofacquisition, and are amortised using the straight-line method during theiruseful life. The amortisation of intangible assets is based on the followingestimates of useful life: Customer contracts 5 yearsIT software 5 yearsOther intangible assets 10 years Research and development costs Research and development costs are expensed as incurred. The Group has nodevelopment project expenditures that should be recognised as an intangibleasset. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that anasset may be impaired. If any such indication exists, or when annual impairmenttesting for an asset is required, the Group estimates the asset's recoverableamount. An asset's recoverable amount is the higher of an asset's orcash-generating unit's fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets. Where the carrying amount of an asset exceeds its recoverable amount,the asset is considered impaired and is written down to its recoverable amount. For assets excluding goodwill, an assessment is made at each reporting date asto whether there is any indication that previously recognised impairment lossesmay no longer exist or may have decreased. If such indication exists, the Groupmakes an estimate of recoverable amount. A previously recognised impairment lossis reversed only if there has been a change in the estimates used to determinethe asset's recoverable amount. That increased amount cannot exceed the carryingamount that would have been determined, net of depreciation, had no impairmentloss been recognised for the asset in prior years. Such reversal is recognisedin profit or loss unless the asset is carried at revalued amount, in which casethe reversal is recognised in profit or loss or shareholders' equitycorrespondingly to the recognition of the impairment loss. Financial assets Financial assets have been classified according to the IAS standard 39 asfollows: 1) Financial assets at fair value through profit or loss, 2)Held-to-maturity investments, 3) Loans and other receivables and 4)Available-for-sale financial assets. The Group has financial assets only in thecategories of Loans and other receivables as well as Financial assets at fairvalue through profit or loss (Derivative financial instruments). Categorisationdepends on the purpose for which the assets were acquired and is made at thetime they were originally recorded. Financial asset purchases and sales arerecorded on the trade date, which is the date that Group commits to purchase theasset. When financial assets are recognised initially, they are measured at fairvalue, plus, in the case of investments other than at fair value through profitand loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initialrecognition and, where allowed and appropriate, re-evaluates this designationeach financial year. (i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss includes financial assetsheld for trading and financial assets designated upon initial recognition as atfair value through profit or loss. Financial assets are classified as held for trading if they are acquired for thepurpose of selling in the near term. Derivatives are also classified as held fortrading unless they are designated as effective hedging instruments or afinancial guarantee contract. Gains or losses on assets held for trading arerecognised in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market and the companydoes not hold them for trading purposes. This category includes those financialassets that arise when delivering money, goods or services to a debtor. They arevalued at amortised cost and included in the current-and non-current financialassets. The loan receivables are recognised at cost in the balance sheet and themanagement makes an assessment of them on the reporting date. If the value ofthe receivables has been impaired, an impairment loss is recognised in theincome statement. The amount of impairment loss is measured as the differencebetween the book value and the present value of future cash flows of thereceivables. (iii) Available-for-sale financial investments Available-for-sale financial assets are those non-derivative financial assetsthat are designated as available-for-sale or are not classified in any of thetwo preceding categories. After initial measurement, available for salefinancial assets are measured at fair value with unrealised gains or lossesrecognised directly in equity in the net unrealised gains reserve. When theinvestment is disposed of, the cumulative gain or loss previously recorded inequity is recognised in the income statement. (iv) Fair value The fair value of investments that are actively traded in organised financialmarkets is determined by reference to quoted market bid prices at the close ofbusiness on the balance sheet date. For investments where there is no activemarket, fair value is determined using valuation techniques. Such techniquesinclude using recent arm's length market transactions; reference to the currentmarket value of another instrument, which is substantially the same; discountedcash flow analysis or other valuation models. (v) Impairment of financial assets The Group assesses at each balance sheet date whether a financial asset or groupof financial assets is impaired. An impairment of financial assets is recognisedif the book value of the financial asset exceeds its recoverable amount. Inventories Inventories are valued in the balance sheet at the lower of cost or market valueat the time of the closing of books. Acquisition cost is determined as the purchase price plus costs incurred inbringing each product to its present location and condition. Such costs areaccounted for as follows: Raw materials purchase cost on a first in, first out basisFinished goods and cost of direct materials and labor and a proportion ofwork in progress manufacturing overheads based on normal operating capacity but excluding borrowing costs Market value is determined as net realisable value or replacement cost. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Cash and cash equivalents Cash and short term deposits in the balance sheet comprise cash at banks. Carbon dioxide emissions The Group receives carbon dioxide emission allowances as a result of theEuropean Emission Trading Scheme. The allowances are granted on an annual basisand, in return, the Group is required to remit allowances equal to its actualemissions. The Group has adopted a policy of applying a net liability approachto the allowances granted. Therefore, a provision is only recognised when actualemissions exceed the emission allowances granted and still held. Where emissionallowances are purchased from other parties, they are recorded at cost, andtreated as a reimbursement right. The Group participates in the European Emissions Trading Scheme. The emissionallowances are only valid for a predetermined period. On 21 December 2004, theGovernment granted the first installation-specific emission allowances for2005-2007, which is the period of validity for the allowances. According to theinstallation-specific issuance decision, the Emissions Trading Registry annuallyrecords the relevant number of emission allowances held by each registeredinstallation. Annually, each calendar year's emission allowances are recordedseparately. If the operator's emission allowances exceed its actual emissions,it may sell them or save them for future years in the emissions trading period.As a result of emissions trading, a market value is established for them. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event and a reliable estimate can be made of the amount of theobligation. If the effect of time value of money is material, provisions arediscounted using an income tax rate that reflects the risks specific to theliability. Where discounting is used, the increase of the provision due to thepassage of time is recognised as a finance cost. Pensions and other employee benefits Employees of the Group working in Finland are covered by the provisions of thestatutory Employees' Pensions Act (the TyEL -system). The obligations under theTyEL -system are insured with local pension insurance companies. The TyEL -system is classified as a defined contribution plan, and the related paymentsare recognised in the income statement on an accrual basis. Probable future unemployment pension obligations are recognised as employeebenefits expense in the income statement and as employee benefit liabilities inthe balance sheet. Share-based payment transactions Employees (including senior executives) of the Group receive remuneration in theform of share-based payment transactions, whereby employees render services asconsideration for equity instruments ('equity-settled transactions'). In situations where equity instruments are issued and some or all of the goodsor services received by the entity as consideration cannot be specificallyidentified, they are measured as the difference between the fair value of theshare-based payment and the fair value of any identifiable goods or servicesreceived at the grant date. The cost of equity-settled transactions with employees is measured by referenceto the fair value of the equity instruments at the date on which they aregranted. The fair value is determined by an external value using an appropriatepricing model, further details of which are given in Note 5.18. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevantemployees become fully entitled to the award ('the vesting date'). Thecumulative expense recognised for equity-settled transactions at each reportingdate until the vesting date reflects the extent to which the vesting period hasexpired and the Group's best estimate of the number of equity instruments thatwill ultimately vest. The profit or loss charge or credit for a periodrepresents the movement in cumulative expense recognised as at the beginning andend of that period. The outstanding options had no dilutory effect in the 2007 financial statements,as their subscription price exceeded their fair value (see note 5.10). Leases The determination of whether an arrangement is, or contains a lease is based onthe substance of the arrangement at inception date of whether the fulfilment ofthe arrangement is dependent on the use of a specific asset or assets or thearrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalised at theinception of the lease at the fair value of the leased property or, if lower,the present value of the minimum lease payments. Related lease liabilities arerecognised at the corresponding amounts. Lease payments are appointed betweenthe finance charges and reduction of the lease liability so as to achieve aconstant rate of interest on the remaining balance of the liability. Financecharges are reflected in the income statement. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset and the lease term, if there is no reasonable certaintythat the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement ona straight line basis over the lease term. Reporting by business segment The Group has only one business segment and therefore it does not reportindividual business segments. Sales, assets and investments by geographicalsegment are shown by customer location and covers countries in the EU, Asia andother countries. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and revenue can be reliably measured. Revenue ismeasured at the fair value of the consideration received, excluding discounts,rebates, and other sales taxes or duty, and is adjusted for exchange differenceson sales in foreign currency. (i) Sale of goods Revenue from the sale of the goods is recognised as income when the significantrisks and benefits associated with ownership of the products have passed to thepurchaser and the seller no longer has an actual right of possession or controlover the products. Sales are recorded upon delivery of goods to the customer inaccordance with agreed terms of delivery, which are based on Incoterms 2000. Themain categories of terms covering group sales are: • "D" terms, under which the Group is obliged to deliver thegoods to the buyer at the agreed destination, usually the buyer's premises, inwhich case the point of sale is the moment of delivery to the buyer. • "C" terms, whereby the Group arranges and pays for theexternal carriage and certain other costs, though the Group ceases to beresponsible for the goods once they have been handed over to the carrier inaccordance with the relevant term. The point of sale is thus the handing over ofthe goods to the carrier contracted by the seller for the carriage to the agreeddestination. • "F" terms, being where the buyer arranges and pays for thecarriage, thus the point of sale is the handing over of goods to the carriercontracted by the buyer. (ii) Interest income Revenue is recognised as interest accrues using the effective interest method. Discontinued operations and assets held for sale A discontinued operation is one which has been sold or identified for sale. Suchoperations are identified by the assets, liabilities and net financial resultswhich are distinguishable, operationally, physically and by financial reporting.Assets are classified as such when it is highly probable that the carryingamount of the asset will be recovered through a sale transaction rather thancontinuing use. The pre-tax gain or loss on disposal of discontinued operationsis shown as a separate item in the income statement. Government grants Government grants are recognised where there is reasonable assurance that thegrant will be received and all attaching conditions will be complied with. Whenthe grant relates to an expense item, it is recognised as income over the periodnecessary to match the grant on a systematic basis to the costs that it isintended to compensate. Where the grant relates to an asset, it is set up asdeferred income. Where the Group receives non-monetary grants, the asset and thegrant are recorded at nominal amounts and the grant is released to the incomestatement over the expected useful life of the relevant asset by equal annualinstalments. Financial liabilities (i) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value lessdirectly attributable transaction costs. After initial recognition, interestbearing loans and borrowings are subsequently measured at amortised cost usingthe effective interest method. Interest-bearing liabilities are classified as non-current liabilities unlessthey are due to being settled within twelve months after the balance sheet date. Gains and losses are recognised in the income statement when the liabilities arederecognised as well as through the amortisation process. (ii) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss includes financialliabilities held for trading and financial assets designated upon initialrecognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquiredfor the purpose of selling in the near term. Derivatives are also classified asheld for trading unless they are designated as effective hedging instruments.Gains or losses on liabilities held for trading are recognised in profit or loss A financial liability is derecognised when the obligation under the liability isdischarged or cancelled or expires. Where an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liabilityare substantially modified, such an exchange or modification is treated as aderecognition of the original liability and the recognition of a new liabilityand the difference in the respective carrying amounts is recognised in theincome statement. Derivative financial instruments and hedging The Group uses derivative financial instruments such as forward exchangecontracts, interest rate options and commodity derivatives to hedge its risksassociated with fluctuations in exchange rates of foreign currencies, interestrates and the price of electricity. Such derivative financial instruments areinitially recognised at fair value on the date on which a derivative contract isentered into and are subsequently remeasured at fair value. Derivatives arecarried as assets when the fair value is positive and as liabilities when thefair value is negative. Gains or losses arising from changes in fair value on derivatives during theyear are taken directly to profit or loss. Hedge accounting is not applied. The fair value of foreign exchange forward contracts is calculated by referenceto current forward exchange rates for contracts with similar maturity profiles.The fair value of the interest rate options are calculated based on the presentvalue of the estimated future cash flows. Commodity derivatives are valued basedon quoted market rates on the balance sheet date. Taxes (i) Current income tax Current income tax assets and liabilities for the current and prior periods aremeasured at the amount expected to be recovered from or paid to the taxationauthorities. The tax rates and tax laws used to compute the amount are thosethat are enacted or substantively enacted by the balance sheet date. Current income tax relating to items recognised directly in equity is recognisedin equity and not in the income statement. (ii) Deferred income tax Deferred income tax is provided using the liability method on temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporarydifferences. Deferred income tax assets are recognised for all deductible temporarydifferences, carry forward of unused tax credits and unused tax losses, to theextent that it is probable that taxable profit will be available against whichthe deductible temporary differences, and the carry forward of unused taxcredits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredtax asset to be utilised. Unrecognised deferred income tax assets are reassessedat each balance sheet date and are recognised to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to berecovered. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. Deferred income tax relating to items recognised directly in equity isrecognised in equity and not in the income statement. Deferred income tax assets and deferred income tax liabilities are offset if alegally enforceable right exists to set off current tax assets against currentincome tax liabilities and the deferred income taxes relate to the same taxableentity and the same taxation authority. (iii) Sales tax Revenues, expenses and assets are recognised net of the amount of sales taxexcept: • where the sales tax incurred on a purchase of assets orservices is not recoverable from the taxation authority, in which case the salestax is recognised as part of the cost of acquisition of the asset or as part ofthe expense item as applicable; and • receivables and payables that are stated with the amount ofsales tax included. The net amount of sales tax recoverable from, or payable to, the taxationauthority is included as part of receivables or payables in the balance sheet. 5.2.5 Future changes in accounting policies Standards issued but not yet effective IFRS 8 Operating Segments IFRS 8 is effective for accounting periods beginning on or after 1 January 2009.IFRS 8 replaces IAS 14 Segment Reporting and requires that the informationreported is that which management uses internally for evaluating the performanceof operating segments and allocating resources to those segments. Thisinformation may differ from information reported in the income statement andbalance sheet and entities will need to provide reconciliations of thedifferences. The Group will evaluate the effects of implementing the newstandard during the current accounting period. IAS 23 Borrowing Costs A revised IAS 23 Borrowing costs was issued in March 2007, and becomes effectivefor financial years beginning on or after 1 January 2009. The standard has beenrevised to require capitalisation of borrowing costs when such costs relate to aqualifying asset. A qualifying asset is an asset that necessarily takes asubstantial period of time to get ready for its intended use or sale. Inaccordance with the transitional requirements in the Standard, the Group willadopt this as a prospective change. Accordingly, borrowing costs will becapitalised on qualifying assets with a commencement date after 1 January 2009.No changes will be made for borrowing costs incurred to this date that have been expensed. IFRIC 12 Service Concession Arrangements IFRIC Interpretation 12 was issued in November 2006 and becomes effective forannual periods beginning on or after 1 January 2008. This Interpretation appliesto service concession operators and explains how to account for the obligationsundertaken and rights received in service concession arrangements. No member ofthe Group is an operator and hence this Interpretation will have no impact onthe Group. IFRIC 13 Customer Loyalty Programmes IFRIC Interpretation 13 was issued in June 2007 and becomes effective for annualperiods beginning on or after 1 July 2008. This Interpretation requires customerloyalty award credits to be accounted for as a separate component of the salestransaction in which they are granted and therefore part of the fair value ofthe consideration received is allocated to the award credits and deferred overthe period that the award credits are fulfilled. The Group expects that thisinterpretation will have no impact on the Group's financial statements as nosuch schemes currently exist. IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction IFRIC Interpretation 14 was issued in July 2007 and becomes effective for annualperiods beginning on or after 1 January 2008. This Interpretation providesguidance on how to assess the limit on the amount of surplus in a definedbenefit scheme that can be recognised as an asset under IAS 19 EmployeeBenefits. The Group expects that this Interpretation will have no impact on thefinancial position or performance of the Group as all defined benefit schemesare currently in deficit. 5.3 Business combinations Business combination in 2006 On 31 July 2006, Powerflute Oyj acquired 100 % of the voting shares of SavonSellu Oy. At the time of the acquisition both companies were owned by the sameshareholders. The business combination was a corporate restructuring of existingoperations and involved a refinancing of the new Group. As a business combination between parties under common control, the combinationhas been accounted for in accordance with the pooling of interest method. Underthe pooling of interest method the entities are combined from the beginning ofthe financial year in which the combination took place. The consolidated incomestatement reflects the results of the combining entities for the full year andthe consolidated balance sheet the assets and liabilities at their carryingvalues. The excess of the cost of acquisition over the share capital of theacquired entity is recognised in consolidated shareholders' equity. No goodwillis recognised. Application of the pooling of interest method: • 000Cost of the shares in Savon Sellu Oy 14,811Less the share capital of Savon Sellu Oy (40)Excess of the cost of shares over the acquired share capital 14,771Recognised in the consolidated share premium (2,880)Recognised in the consolidated retained earnings (11,891) 5.4 Segment information Segment information is presented according to the Group's business andgeographical segments. The Group's geographical segments are based on thecustomer location. Geographical segment is divided into three categories: Countries in the EU, Asiaand Other countries. 2007 2006 • 000 • 000SalesCountries in the EU 61,289 60,109Asia 15,170 15,141Other countries 39,277 23,052 115,737 98,302AssetsCountries in the EU 66,153 67,386Asia 2,733 3,567Other countries 8,820 6,496Total assets 77,706 77,449Capital expenditureCountries in the EU 5,493 2,957Asia - -Other countries - - 5,493 2,9575.5 Other income and expenses 2007 2006 • 000 • 000Other IncomeGovernment grants 35 223Insurance compensation 25 67Net gain on disposal of property, plant and equipment 586 -Gain on selling emission rights, see note 5.23 1,239 316Other 149 165 2,034 771 Other Expenses Freight and sales expenses 19,253 21,697Other 4,953 6,739 24,206 28,435 5.6 Employee benefits expense 2007 2006 • 000 • 000 Wages and salaries 11,128 11,651Pension costs 1,679 2,001Other statutory employer expenses 1,154 645Unemployment pension liability (17) 363Share-based payments expense 480 - 14,424 14,660 The Group has a liability for early retirement pensions, which are due to thelaying-off of personnel. The Group is charged for pension payments for theredundancies if they are not employed for at least 6 months period before theirnormal retirement pension starts. The pension liability is valued according to the insurance company's valuation. The average number of personnel employed during the financial periods was: 2007 2006Office personnel 50 48Operations staff 166 160 216 208 5.7 Depreciation and amortisation 2007 2006 • 000 • 000Depreciation and AmortisationIntangible assets 2,095 2,073Buildings 291 290Plant and equipment 2,868 2,254Other tangible assets 8 188 5,262 4,8055.8 Finance income and expenses 2007 2006Finance income • 000 • 000Bank interest receivable 70 68 70 68Finance expensesInterest expense: Bank loans and overdrafts (2,147) (1,836) Finance leases (41) (11) Shareholder capital loan (225) (157)Other finance expenses (293) (301) (2,706) (2,305) 5.9 Income tax The components of income tax (income)/expense for the periods ended 31 December2006 and 2007 are: 2007 2006 • 000 • 000Income statementCurrent income tax charge 2,924 2,292Deferred income tax charge (167) (1,008)Income tax expense reported 2,757 1,284 Income tax reconciliation for the periods ended 31 December 2006 and 2007 is: 2007 2006 • 000 • 000Accounting profit before income tax 9,812 5,046At domestic statutory income tax rate of 26% 2,551 1,312Prior year adjustments (227) (21)Non-deductible expenses 7 7Tax exempt income (94) (30)Permanent difference related to assets sold 559 -Other (39) 16Income tax expense reported 2,757 1,284 Deferred income taxDeferred income tax at 31 December relates to the following: Balance sheets Income statements 2007 2006 2007 2006 • 000 • 000 • 000 • 000Deferred tax liabilitiesFair value adjustments on acquisition 4,100 5,511 (1,410) (851)Accelerated depreciation for tax purposes 734 356 379 356Borrowing costs capitalised 140 185 (45) 56Revaluation of forward contracts 176 - 176 (102) 5,150 6,052Deferred tax assetsLosses available for offset against future profits - 227 227 (227)Deferral of revenue recognition 27 84 57 (52)Unemployment pension charge 80 174 94 (94)Financial leases 5 4 (5) (4)Employee profit-sharing scheme - 324 324 (121)Revaluation of forward contracts - 36 36 (36)Interest charge on capital loan - - - 67 112 849 (167) (1,008)Deferred tax liabilities net 5,038 5,203 Group recognised a deferred tax asset for the Company's net operating losscarried forwards from 2006. The loss has been utilised in 2007. 5.10 Earnings per share Basic earnings per share are calculated by dividing the net profit for theperiod attributable to equity holders by the weighted number of sharesoutstanding during the year. The share options had no dilutive effect in the 2007 financial statements, astheir subscription price exceeded their fair value. On 31 July 2006 Powerflute Oyj acquired 100 % of the share capital of SavonSellu Oy. At the time of the acquisition, both companies were owned by the sameshareholders. The business combination was a corporate restructuring of existingoperations and involved a refinancing of the new Group. The following reflects the income and share data used in the earnings per sharecomputations: 2007 2006 • 000 • 000Net profit attributable to equity holders of the Company 7,005 3,762 2007 2006 Thousands ThousandsWeighted average number of shares 88,000 88,000 There have been no other transactions involving ordinary shares or options overshares between the reporting date and the date of completion of these financialstatements. 5.11 Dividends proposed Proposed for approval at the AGM (not recognized as a liability as at 31 December) 2007 2006 €000 €000 Equity dividends on ordinary shares Final dividend for 2007: 3.366 cents per share 2,962 - 5.12 Property, plant and equipment Other tangible Land and Plant & assets Assets in buildings Equipment progress • 000 • 000 • 000 Total • 000 • 000Cost or valuation:At 1 January 2006 9,606 18,667 1,828 2,814 32,915Additions 46 1,169 - 1,742 2,957Transfer - 2,798 - (2,798) -Transfer to assets held for sale (1,471) - (1,098) - (2,569) - -At 31 December 2006 8,181 22,634 730 1,758 33,303Additions - 2,121 - 3,810 5,931Transfer - 1,731 - (1,731) -At 31 December 2007 8,181 26,486 730 3,829 39,234 Depreciation:At 1 January 2006 290 2,000 188 - 2,478Depreciation charge for the period 290 2,254 188 - 2,732Transfer to assets held for sale - - (275) - (275) At 31 December 2006 580 4,254 101 - 4,935Depreciation charge for the period 291 2,868 8 - 3,167At 31 December 2007 871 7,122 109 - 8102Net Book Value:At 31 December 2006 7,601 18,380 629 1,758 28,368At 31 December 2007 7,310 19,364 621 3,837 31,132 The carrying value of assets held under finance leases is • 601,000 (2006: €337,000). Additions during the year include • 398,000 (2006: • 199,000) of plantand equipment held under finance leases. Leased assets are pledged as securityfor the related finance lease liabilities. 5.13 Intangible assets Patents and Customer licences contracts Total • 000 • 000 • 000Cost or valuation:At 1 January 2006 922 9,333 10,255Additions 217 - 217At 31 December 2006 1,139 9,333 10,472Additions 16 - 16 At 31 December 2007 1,155 9,333 10,488 Amortisation:At 1 January 2006 181 1,867 2,048Amortisation 206 1,867 2,073At 31 December 2006 387 3,734 4,121Amortisation 228 1,867 2,095At 31 December 2007 615 5,600 6,215 Net Book Value:At 31 December 2006 752 5,599 6,352 At 31 December 2007 540 3,733 4,273 Patents and licences represent licence rights relating to the operational IT software. 5.14 Inventories 2007 2006 • 000 • 000Materials and supplies 3,939 5,211Finished goods 5,050 5,735 8,989 10,946There are no substantial write-downs of inventories to net realisable value. 5.15 Trade and other receivables (current) 2007 2006 • 000 • 000Trade receivables 23,068 18,500Other receivables 2,672 1,982 25,740 20,482Trade receivables are non-interest bearing and are generally on 30-90 days' terms. As at 31 December, the ageing analysis of trade receivables is as follows: Past due but not impaired Neither past due nor impaired Total < 30 day 30-60 days 60-90 days 90-120 days > 120 days • 000 • 000 • 000 • 000 • 000 • 000 • 0002007 23,068 20,313 2,310 439 0 0 62006 18,500 17,730 567 185 13 5 0 5.16 Cash and short-term deposits 2007 2006 • 000 • 000Cash at bank and in hand 6,785 8,158Cash at bank earns interest at floating rates based on daily bank deposit rates. 5.17 Assets classified as held for sale 2007 2006 • 000 • 000Property, plant and equipment - 2,294 These assets were disposed by the Group during 2007, resulting in a net gain ondisposal of • 586,000. 5.18 Share-based payment plans The expense recognised for employee services received during the year is shownin the following table: 2007 2006 • 000 • 000 Expense arising from equity-settled share-based payment transactions 480 - The share-based payment plans are described below. Movements during the year The following table illustrates the number (No) and weighted average exerciseprices (WAEP) of, and movements in, share options during the year: 2007 2007 2006 2006 No. WAEP No. WAEP Outstanding 1 January - - - -Granted during the year 5,280,000 1.617 - -Forfeited during the year - - - -Exercised during the year - - - -Expired during the year - - - -Outstanding at 31 December 5,280,000 - - -Exercisable at 31 December - - - - The weighted average remaining contractual life for the share optionsoutstanding as at 31 December 2007 was 4.3 years. The weighted average fair value of options granted during the year was • 0,46. Powerflute Stock Option Scheme On 3 May 2007, the maximum total numbers of 8,800,000 options were issued. Ofthe Options, 5,280,000 were marked with the symbol 2007A, 1,760,000 were markedwith the symbol 2007B and 1,760,000 were marked with the symbol 2007C. 2007A Options were granted to senior executives under the Powerflute StockOption Scheme. The exercise price of the options (• 1.617) is equal to themarket price of the shares on the date of grant (£ 1.10). The 2007B and 2007Cseries Options have not yet been granted. Number of Number ofOption options options Shares per series issued granted Share subscription period option Exercise price • 1.617 (£ 1.10); the price at which the Shares were placed pursuant to a2007A 5,280,000 5,280,000 1 June 2010 31 May 2012 1:1 placing agreement dated 4 May 2007 2007B 1,760,000 0 1 June 2011 31 May 2013 1:1 The middle market quotation for the Share on AIM during five trading days after the publishing of the Company's financial statements for the financial year 2007 The middle market quotation for the Share on AIM during five trading days after the publishing of the Company's financial statements for2007C 1,760,000 0 1 June 2012 31 May 2014 1:1 the financial year 2008 The exercise price shall not be decreased according to the future dividendspaid. The fair value of the 2007A options was estimated at the grant date using aBlack & Scholes pricing model, taking into account the terms and conditions uponwhich the options were granted and the assumptions stated below. The contractuallife of each option granted is five years. There are no cash settlement options. Dividend yield (%) 0.0Expected volatility (%) 26.6Risk - free interest rate (%) 4.18Expected life of option (years) 4.08Weighted average share price (•) 1.617Model used Black & Scholes The expected life of the options is based on historical data and is notnecessarily indicative of exercise patterns that may occur. The expectedvolatility reflects the assumption that the historical volatility is indicativeof future trends, which may also not necessarily be the actual outcome. 5.19 Issued capital Powerflute Oyj was established on 26 July 2006 and acquired all the shares ofSavon Sellu Oy on 31 July 2006. The business combination has been accounted for in accordance with the poolingof interest method as disclosed in note 5.3. The 2006 consolidated figures havebeen presented to reflect the effects of the pooling method on the consolidatedissued capital and reserves. Ordinary shares issued and fully paid 2007 2006 • 000 • 000 At 1 January 2006 -Issued on 26 July 2006 for cash 88Acquired on 31 July 2006 40Eliminated on consolidation (40)At 31 December 2006 88At 1 January 2007 88Movements -At 31 December 2007 88 Share premium reserveAt 1 January 2006 -Share premium in respect of issue on 26 July 2006 912Share premium acquired on 31 July 2006 1,968Eliminated on consolidation (2,880)At 31 December 2006 and at 31 December 2007 - 2007 2006 thousands thousandsShares of • 0.10 each, from 26 July 2006 onwards 88,000 88,000 5.20 Interest-bearing loans and borrowings As at 31 December Maturity 2007 2006 • 000 • 000Non-currentShareholder capital loan 2013 1,000 3,000Loans from financial institutions 2010 - 2011 26,706 34,234Finance lease liabilities 2012 486 270 28,192 37,504CurrentLoans from financial institutions 2008 4,000 4,000Finance lease liabilities 2008 164 86 4,164 4,086 The maturity presented above is the final instalment of the named liability. General terms of loans per 31 December 2007: (a) Shareholder capital loan The Group has a subordinated shareholder loan of • 1,000,000. The main terms ofthe loan are: 1. The lenders have unconditionally subordinated theirrespective claims for repayment of the entire principal amount includinginterest against the Group to all secured and unsecured claims of any otherlender to the Group. 2. The principal amount may be repaid only if the restrictedequity and other non-distributable items of the balance sheet are fully coveredthereafter. 3. Interest is paid only to the extent that the Group can usethe respective amount to be paid as part of profit distribution for thefinancial period last ended. 4. The principal amount of the loan is repayable on 31 July 2013. 5. The rate of interest applicable to the loan shall beannually defined as the 12 month euribor for the first banking day of April eachyear, plus 4 per cent. per annum. The interest shall accrue yearly in arrears.For the first interest period the interest accrued from 1 August 2006 until 31March 2007. Each subsequent interest period shall be a full calendar yearstarting from 1 April 2007. The interest shall be paid annually five bankingdays after the annual general meeting of the Group has approved the annualfinancial statements for the previous financial period. Any unpaid accruedinterest shall be capitalised to the principal amount of the loan on theinterest payment day and such unpaid amount shall accrue interest from therelevant interest payment day until the actual interest payment day. (b) Loans from financial institutions Interest on the loans from financial institutions is based on Euribor 1 monthfloating rate plus bank margin. Loans are secured by liens over all of the Group's assets. The covenants of the loans are calculated on the basis of Group's consolidatedfinancial statements prepared in accordance with Finnish Accounting Standards(FAS). The main covenants relate to the Group's Senior net debt to EBITDA ratio,total net cash interest cover, minimum EBITDA, shareholders' equity, debtservice cover and capital expenditure. 5.21 Employee benefit liability Unemployment pension • 000Charge in Income StatementIncrease in existing liability 363Carrying value at 31 December 2006 670 Charge in Income StatementDecrease in existing liability (361)Carrying value at 31 December 2007 309 The Group has an obligatory early retirement pension liability in its balancesheet which is due to the dismissal of personnel in 2005. The Company isrequired to pay the early retirement pension for the redundancies, if redundantstaff are not employed before their normal retirement pension starts. There was a change in pension liability legislation in Finland as at 1 January2007, effect of which was backdated to 2006. 5.22 Trade and other payables (current) 2007 2006 • 000 • 000Trade payables 10,561 8,749Other payables 373 407Accrued liabilities 8,975 7,929 19,909 17,085 Terms and conditions of the above liabilities: • Trade and other payables are non-interest bearing and are normally settled on 30-day terms • Interest payable is normally settled monthly throughout the financial year • For terms and conditions relating to related parties, refer to note 5.24 5.23 Commitments and contingencies 2007 2006 • 000 • 000Liens over the Group's assets (securing loans from financial institutions) 84,000 84,000 Operating leases, repayable in less than 1 year 182 120Operating leases, repayable after 1 year 427 286 609 406 As at December 2007, the Group sold its forecasted CO2-tons surplus of 20,000from the years 2008 - 2012. Management has estimated the Group's annualCO2-emissions as follows: Confirmed emission Usage rights available, total Peat Heavy oil Other Total Surplus t CO2 t CO2 t CO2 t CO2 t CO2 t CO2 2008 127,832 104,500 22,000 100 117,520 1,2322009 127,832 103,000 22,000 100 117,020 2,7322010 127,832 102,500 21,000 100 117,920 4,2322011 127,832 102,500 20,000 100 118,020 5,2322012 127,832 101,160 20,000 100 119,520 6,572 639,160 513,660 105,000 500 619,160 20,000 Management's estimate is based on the following assumptions: • The additional energy needed for the production growth will be produced by bio fuel, which will partly replace the usage of peat. Peat has the highest CO2 - content of the above fuels used by the Group. • Further investments in the production process will reduce the energy consumption • Improvements in the power plant technology will reduce the usage of heavy oil The Directors believe that the above estimates cover the emission rights usagefor the years 2008 - 2012. The final emission right allowances per annum havebeen confirmed by the Finnish government. In the event the Group uses more CO2 - tons than forecast above, the Group willhave to cover the missing emission rights. Finance leases The Group has finance leases for both tangible and intangible assets. The lease terms include renewal options but no purchase options. Future minimum lease payments under finance leases with the present value of theminimum lease payments are as follows: 2007 2007 2006 2006 Present value Present value Minimum of the Minimum of the Payments payments payments payments • 000 • 000 • 000 • 000Within one year 197 164 90 86After one year but not more than 523 486 327 270five yearsTotal minimum lease payments 720 650 417 356Less amounts representing finance charges (70) - (61) -Present value of minimum finance lease 650 650 356 356payments 5.24 Related party transactions The financial statements include the financial statements of Powerflute Oyj andthe subsidiary, Savon Sellu Oy. Both companies are located in Finland. Compensation of key management personnel of the Group 2007 2006 • 000 • 000Salaries paid to management 1,045 1,728Directors' fees 233 120Consultancy fees paid to Executive Directors 102 340Payments of services rendered from companies in which two Directors have 170 391personal interestsTotal compensation paid 1,550 2,579 Payment to shareholders of Savon Sellu Oy On 31 July 2006 Powerflute Oyj acquired 100 % of the voting shares of SavonSellu Oy. At the time of the acquisition both companies were owned by the sameshareholders. See note 5.3. Shareholder Capital Loan Details of the loan are given in note 5.20. 5.25 Financial risk management objectives and policies The Group's principal financial instruments, other than derivatives, comprisebank loans and overdrafts, finance lease payables and trade payables. The mainpurpose of these financial instruments is to raise finance for the Group'soperations. The Group has various financial assets such as trade receivables and cash, whicharise directly from its operations. The Group also enters into derivative transactions such as forward exchangecontracts, interest rate options and commodity derivatives (for hedging theprice of electricity). The purpose is to manage risks arising from the Group'soperations and its sources of finance. It is the Group's policy that no tradingin derivatives should be undertaken. The main risks arising from the Group's financial instruments are interest raterisk, foreign currency risk, commodity risk, liquidity risk and credit risk. The Board reviews and agrees policies for managing each of these risks which aresummarised below. Interest rate risk The Group's exposure to the risk of changes in market interest rates relatesprimarily to the Group's long-term debt obligations with floating interestrates. To manage this risk, the Group enters into interest rate options(collar), the hedging ratio being 18 % of the loans at the end of the financialperiod (2006: 16 %). The following table demonstrates the sensitivity to changes in interest rates,with all other variables held constant, of the Group's profit before tax(through the impact on floating rate borrowings, interest rate optionsexcluded). There is no impact on the Group's equity. Increase/ decrease Effect on profit in percentage points before tax • 0002007 1.0 +/- 3642006 1.0 +/- 400 Foreign currency risk The Group has transactional currency exposures arising from sales in currenciesother than the Group's functional currency. The risk relates mainly to the $ with approximately $ 54 million in sales madeduring the year 2007. The Group uses forward exchange contracts to hedgeapproximately 80 % of its sales denominated in $. The following table demonstrates the sensitivity to changes in the US dollarexchange rate, with all other variables held constant, of the Group's profitbefore tax (due to changes in the fair value of monetary assets and liabilitiesas well as derivative instruments). There is no impact on the Group's equity. Increase/ decrease Effect on profit in US dollar rate before tax • 0002007 10 % +144/ +1522006 10 % - 645/ +790 Commodity risk The Group has commodity risk exposure relating to the availability and pricefluctuations of commodities, particularly wood and electricity. The Groupreduces these risks by entering into framework agreements with knowncounterparties and acquiring certain commodity derivatives. The Group has hedgedabout 90 per cent of its electricity procurement over the next 12 months.Hedging accounting according to IAS 39 is not applied. Changes in the fair valueof these derivatives are recognised in profit and loss statement and recordedunder other income and expenses. The following table demonstrates the effect on the open positions of electricityderivatives at 31 December that 20 - 25 per cent (p.a.) change in electricityprice would have, with all other variables held constant, on the Group's profitbefore tax by using VaR- method. The holding period in the model is 10 days andthe confidence level 95 per cent. There is no impact on the Group's equity. VaR 95 % Increase/ decrease Effect on profit in electricity price p.a. before tax • 0002007 20 - 25% +/- 3712006 20 - 25% +/- 235 Credit risk The Group trades only with recognised, creditworthy third parties. The Group hasin place a reliable credit assessment procedure which conducts detailedpre-supply credit checks. The Group uses credit insurance, which covers theGroup for aggregated loss for its total turnover and 90 % of the first loss ofany default. The maximum exposure is the carrying amount as disclosed in note5.20. There is no credit risk concentration in respect of trade receivables,because the Group has a large number of different customers and counterpartieson international markets. The analysis of trade receivables by date is presentedin note 5.15. With respect to credit risk arising from the other financial assets of theGroup, which comprise cash and cash equivalents, available-for-sale financialassets, loans and derivative instruments, the Group's exposure to credit riskarises from default of the counterparty, with a maximum exposure equal to thecarrying amount of these instruments. Liquidity risk The Group monitors its liquidity risk in order to be able to assure sufficientfinancing for its operations. For this purpose there is a liquidity planningprocedure in place with a planning tool for forecasting the amounts and timingof the future cash flows. The Group's objective is to maintain a balance between continuity of funding andflexibility through the use of bank overdrafts, bank loans and finance leases.As at 31 December, approximately 14 % of the Group's debt will mature in lessthan one year (2006: 11 %) based on the carrying value of borrowings reflectedin the financial statements. The Group's principal source of liquidity isexpected to be cash generated from operations. The table below summarises the maturity profile of the Group's financialliabilities as at 31 December 2007 based on contractual undiscounted payments(interest excluded). As at 31 December 2007 On demand Less than 3 3 to 12 1 to 5 > 5 years Total months months years • 000 • 000 • 000 • 000 • 000 • 000 Interest bearing loans and 14,500 2,041 3,123 12,692 - 32,356borrowingsEmployee benefit liability - - - 309 - 309Trade and other payables - 16,983 2,926 - - 19,909Income tax payable - - 2,809 - - 2,809 14,500 19,024 8,858 13,001 - 55,383Derivative financial instrumentsForward foreign exchange contracts Cash flow payable - 10,010 - - - 10,010 Cash flow receivable - 10,151 - - - 10,151Commodity derivatives Cash flow payable - - - - - - Cash flow receivable - - 439 236 - 675 - 141 439 236 - 816 As at 31 December 2006 On demand Less than 3 3 to 12 1 to 5 > 5 years Total months months years • 000 • 000 • 000 • 000 • 000 • 000 Interest bearing loans and 18,500 2,022 2,065 19,003 - 41,590borrowingsEmployee benefit liability - - - 326 - 326Trade and other payables - 13,832 3,393 - - 17,225Income tax payable - - 2,274 - - 2,274 18,500 15,854 7,732 19,329 - 61,415Derivative financial instrumentsCommodity derivatives Cash flow payable - - 140 - - 140 Cash flow receivable - - - - - - - - 140 - - 140 5.26 Capital management The primary objective of the Group's capital management is to ensure that itmaintains a strong credit rating and healthy capital ratios in order to supportits business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light ofchanges in economic conditions. To maintain or adjust the capital structure, theGroup may adjust the dividend payment to shareholders, return capital toshareholders or issue new shares. No changes were made in the objectives,policies or processes during the years ended 31 December 2007 and 31 December2006. The Group monitors capital also by reason of loan covenants (see note 5.20). TheGroup has met the requirements of financial covenants in both years 2007 and2006. 5.27 Financial instruments Set out below is a comparison by category of carrying amounts and fair values ofall of the Group's financial instruments that are carried in the financialstatements: Fair values Financial assets/ FinancialAs at 31 December 2007 liabilities at liabilities• 000 Loans and fair value measured at Carrying Fair through receivables profit or loss amortized cost amounts valuesFinancial assets:Trade receivables 23,068 - - 23,068 23,068Derivative financial instruments - 816 - 816 816Cash 6,785 - - 6,785 6,785 29,853 816 - 30,669 30,669 Financial liabilities:Trade payables - - 10,561 10,561 10,561Interest bearing loans and borrowings - - 32,356 32,356 32,356 10,561 - 42,917 42,917 42,917 Financial assets/ FinancialAs at 31 December 2006 liabilities at liabilities• 000 Loans and fair value measured at Carrying Fair through receivables profit or loss amortized cost amounts valuesFinancial assets:Trade receivables 18,500 - - 18,500 18,500Cash 8,158 - - 8,158 8,158 26,658 - - 26,658 26,658 Financial liabilities:Trade payables - - 8,749 8,749 8,749Interest bearing loans and borrowings - - 41,590 41,590 41,590Derivative financial instruments - 140 - 140 140 8,749 140 50,339 50,479 50,479 Derivative financial instruments Derivative financial instruments are recorded on the balance sheet at fairvalue. The fair values of such financial items at the balance sheet date havebeen estimated on the following basis: Foreign exchange forward contracts are revalued based on the forward rates. Commodity derivatives are valued based on quoted market rates on the balancesheet date. The fair value of the interest rate options is calculated based on the presentvalue of the estimated future cash flows. Derivative contracts have been made for hedging purposes but hedge accountinghas not been applied. Changes in the fair value of derivative contracts arerecognised in the income statement under sales and other expenses. The values offinancial derivatives are presented under derivative financial instruments asassets when the fair value is positive and as liability when the fair value isnegative. The fair values of interest rate options are immaterial and have not beenrecognised in the accounts. 5.28 Events after the balance sheet date Powerflute Oyj's shares have been admitted to trading on the First North Finlandlist of First North Nordic as at 5 February 2008. On the 29 February 2008, Powerflute Oyj entered into an agreement in order toestablish a joint venture to manage future wood procurement. UNAUDITED INTERIM RESULTS FOR THE PERIOD 30 JUNE TO 31 DECEMBER 2007 1. Interim consolidated income statement for the six months ended 31 December 2007 July-December July-December 2007 2006 • 000 • 000 Sales 59,849 50,595Other income 1,335 592Changes in inventories of finished goods and work in progress (921) 1,256Raw materials and consumables used (29,950) (25,589)Employee benefits expense (7,328) (7,662)Other expenses (11,826) (13,841)Depreciation and amortisation (2,748) (2,486)Operating profit 8,411 2,865Finance income - 39Finance expenses (1,097) (1,428)Profit before tax 7,314 1,476Income tax expense (2,054) (469)Profit for the year 5,260 1,007Attributable to equity holders 5,260 1,007 Earnings per Share (cents) 5.98 1.15 2. Interim consolidated balance sheet as at 31 December 2007 2007 2006 • 000 • 000 ASSETS Non-current assets RestatedProperty, plant and equipment 31,132 28,368Intangible assets 4,273 6,352Deferred tax asset 112 849 35,517 35,569Current assetsInventories 8,989 10,946Trade and other receivables 25,740 20,482Derivative financial instruments 675 -Cash and short-term deposits 6,785 8,158 42,189 39,586Assets classified as held for sale - 2,294Total assets 77,706 77,449Equity and liabilitiesAttributable to equity holdersIssued capital 88 88Retained earnings 10,030 5,788Net profit for the period 7,055 3,762Total equity 17,173 9,638Non-current liabilitiesInterest-bearing loans and borrowings 28,192 37,504Employee benefit liability 309 670Deferred tax liability 5,150 6,052 33,651 44,226Current liabilitiesTrade and other payables 19,909 17,085Interest-bearing loans and borrowings 4,164 4,086Derivative financial instruments - 140Income tax payable 2,809 2,274 26,882 23,585Total liabilities 60,553 67,811Total equity and liabilities 77,706 77,449 3. Interim consolidated statement of changes in equity for the six months ended 31 December 2007 Attributable to equity holders of the parent Issued Share Retained Total capital premium Earnings equity • 000 • 000 • 000 • 000At 1 July 2007 88 - 11,469 11,557Share-based payment - - 356 356Profit for the period - - 5,260 5,260At 31 December 2007 88 - 17,085 17,173 At 1 July 2006 40 1,968 20,434 22,442Issue of share capital 88 912 - 1,000Elimination due to pooling (40) (2,880) (11,891) (14,811)Profit for the period - - 1,007 1,007At 31 December 2006, restated 88 - 9,550 9,638 4. Interim consolidated cash flow statement for the six months ended 31 December 2007 July-December July-December 2007 2006 • 000 • 000 Operating activitiesProfit before tax from continuing operations 7,314 1,476Non-cash adjustments:Depreciation of property, plant and equipment 1,732 1,450Amortisation of intangible assets 1,016 1,036Share-based payment 356 -Gain on disposal of property, plant and equipment - -Finance income 11 -39Finance expense 1,086 1,428Movements in provisions and pensions -361 363Working capital adjustments:Change in trade and other receivables -2,707 299Change in inventories 1,145 -2,357Increase in trade and other payables -2,286 458Income tax paid -142 - Net cash flows from operating activities 7,164 4,114 Investing activitiesPurchase of property, plant and equipment -4,082 -2,239Purchase of intangible assets - -18Proceeds from sales - -Interest received 191 36Net cash flows used in investing activities -3,891 -2,221Financing activitiesProceeds from share issue - 1,000Payment of finance lease liabilities -99 -40Proceeds from borrowings, net - 15,342Repayment of borrowings -2,000 -Interest and similar costs paid -1,136 -1,874Payment to shareholders of Savon Sellu Oy - -14,811Net cash flows used in financing activities -3,235 -383Net increase in cash and cash equivalents 38 1,510Cash and cash equivalents at the beginning of period 6,747 6,648Cash and cash equivalents at the end of the period 6,785 8,158 This information is provided by RNS The company news service from the London Stock Exchange
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| Date | Source | Headline | |
|---|---|---|---|
| 25th Nov 2016 | 1:46 pm | RNS | COMMENCEMENT OF COMPULSORY REDEMPTION PROCEEDINGS |
| 23rd Nov 2016 | 4:33 pm | RNS | Holding(s) in Company |
| 23rd Nov 2016 | 9:28 am | RNS | Related Party Transaction |
| 17th Nov 2016 | 4:01 pm | RNS | Notice of EGM |
| 17th Nov 2016 | 4:00 pm | RNS | Notice of EGM |
| 16th Nov 2016 | 5:33 pm | RNS | Exercise of Share Options |
| 15th Nov 2016 | 3:37 pm | RNS | Holding(s) in Company |
| 14th Nov 2016 | 9:10 am | RNS | Application for Delisting |
| 14th Nov 2016 | 7:00 am | RNS | Offer Update |
| 7th Nov 2016 | 7:00 am | RNS | First Closing Date announcement |
| 31st Oct 2016 | 9:26 am | RNS | Increase of shareholding in Harvestia Oy |
| 18th Oct 2016 | 9:51 am | RNS | Offer Update |
| 10th Oct 2016 | 1:58 pm | RNS | Director's Dealing |
| 30th Sep 2016 | 5:45 pm | RNS | Document: re Powerflute |
| 26th Sep 2016 | 7:06 am | RNS | Offer Document Posted |
| 15th Sep 2016 | 7:00 am | RNS | Recommended Cash Offer |
| 2nd Sep 2016 | 12:22 pm | RNS | Holding(s) in Company |
| 1st Sep 2016 | 1:55 pm | RNS | Holding(s) in Company |
| 16th Aug 2016 | 7:00 am | RNS | Interim Results |
| 28th Jun 2016 | 10:07 am | RNS | Holding(s) in Company |
| 27th May 2016 | 2:20 pm | RNS | Distribution of Annual Report |
| 26th May 2016 | 10:11 am | RNS | Results of 2016 AGM |
| 26th May 2016 | 7:00 am | RNS | AGM Statement |
| 18th May 2016 | 7:00 am | RNS | Modification of Proposals to the AGM |
| 3rd May 2016 | 7:00 am | RNS | Notice of AGM |
| 14th Apr 2016 | 9:30 am | RNS | Holding(s) in Company |
| 5th Apr 2016 | 7:01 am | RNS | Exercise of Share Options by Directors |
| 5th Apr 2016 | 7:00 am | RNS | Grant of Options |
| 22nd Mar 2016 | 2:15 pm | RNS | Holding(s) in Company |
| 21st Mar 2016 | 5:10 pm | RNS | Completion of Secondary Placing |
| 8th Mar 2016 | 7:00 am | RNS | Final Results |
| 1st Feb 2016 | 8:54 am | RNS | Directorate Change |
| 21st Dec 2015 | 7:00 am | RNS | Termination of discussions |
| 10th Dec 2015 | 7:00 am | RNS | Trading Statement |
| 10th Dec 2015 | 7:00 am | RNS | Receipt of Preliminary Proposal |
| 6th Oct 2015 | 4:46 pm | RNS | Holding(s) in Company |
| 14th Sep 2015 | 2:00 pm | RNS | Holding(s) in Company |
| 8th Sep 2015 | 7:00 am | RNS | Interim Results |
| 14th Aug 2015 | 7:00 am | RNS | Trading Statement |
| 27th Jul 2015 | 2:24 pm | RNS | Holding(s) in Company |
| 27th Jul 2015 | 2:22 pm | RNS | Holding(s) in Company |
| 27th Jul 2015 | 2:20 pm | RNS | Holding(s) in Company |
| 26th Jun 2015 | 4:12 pm | RNS | Director's Dealing |
| 12th Jun 2015 | 7:00 am | RNS | Director's Dealing |
| 10th Jun 2015 | 2:39 pm | RNS | Holding(s) in Company |
| 10th Jun 2015 | 7:00 am | RNS | Director's Dealing |
| 9th Jun 2015 | 12:10 pm | RNS | Director's Dealing |
| 28th May 2015 | 10:02 am | RNS | Appointment of Director |
| 28th May 2015 | 10:00 am | RNS | Results of AGM |
| 15th May 2015 | 7:00 am | RNS | Trading Statement |
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