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Note 1 Accounting principles

Principal activities

Stora Enso Oyj (“the company”) is a Finnish public limited liability company organised under the laws of the Republic of Finland and with its registered address at Kanavaranta 1, 00160 Helsinki. Its shares are currently listed on Nasdaq Helsinki and Stockholm. The operations of Stora Enso Oyj and its subsidiaries (together “Stora Enso” or the “group”) are organised into the following divisions: Consumer Board, Packaging Solutions, Biomaterials, Wood Products, Paper and the segment Other. Segment Other includes the Nordic forest equity accounted investments, Stora Enso’s shareholding in Pohjolan Voima, operations supplying wood to the Nordic mills and group shared services and administration. The group’s main market is Europe, with an expanding presence in Asia and South America.

The Financial Statements were authorised for issue by the Board of Directors on 3 February 2017.

Basis of preparation

The Consolidated Financial Statements of Stora Enso Oyj have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, including International Accounting Standards (IAS) and Interpretations issued by the IFRS Interpretations Committee (IFRIC). The Consolidated Financial Statements of Stora Enso Oyj have been prepared under the historical cost convention, except as disclosed in the accounting policies. The detailed accounting principles are explained in the related notes, with a few exceptions where accounting principles are presented in this note. The Consolidated Financial Statements are presented in euro, which is the parent company’s functional currency.

New and amended standards and interpretations adopted in 2016

The group has applied the following amendments effective from 1 January 2016:

  • IAS 19 Defined Benefit Plans Employee Contributions (amendment). The amendment clarifies the accounting for contributions made by employees or third parties to defined benefit plans. The amendment does not have a significant effect on the group financial statement.
  • Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants. The amendments define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment. These amendments have no effect on the group financial statements.
  • Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation. The amendments prohibit using a revenue-based depreciation method for items of property, plant and equipment and introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. These amendments have no effect on the group financial statements.
  • IFRS 11 Accounting for Acquisition of Interests in Joint Operations (amendment) provides guidance on how to account for the acquisition of a joint operation that constitutes a business. The amendment has no effect on the group financial statements.
  • IAS 27 Equity Method in Separate Financial Statements (amendment) reinstates the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. This change is not relevant to the group.
  • Amendments to IAS 1: Disclosure Initiative clarifies the presentation principles. The amendments do not have material effect on the group financial statement.

Presentation change

Presentation of Consolidated Income Statement has been changed from the previous year. Row ‘Change in net value of biological assets’ has been moved above ‘Depreciation, amortisation and impairment charges’. Previously it was presented above ‘Materials and service’. This change is not impacting the subtotals of Consolidated income statement or the group’s other IFRS figures.

Consolidation principles

The Consolidated financial statements include the parent company, Stora Enso Oyj, and all companies controlled by the group. Control is achieved when the group:

    • has power over the investee,
    • is exposed, or has rights, to variable returns from its involvement with the investee; and
    • has the ability to use its power to affect its returns.

If facts and circumstances indicate that there are changes to the three elements of control listed above the group reassess whether or not it controls an investee. Acquired companies are accounted for under the purchase method whereby they are included in the Consolidated Financial Statements from the date when the control over the subsidiary is obtained, whereas, conversely, divestments are included up to their date when the control is lost. The principal subsidiaries and joint operations are listed in Note 30 Principal subsidiaries and joint operations.

All intercompany transactions, receivables, liabilities and unrealised profits, as well as intragroup profit distributions, are eliminated. Accounting policies for subsidiaries, joint arrangements and all equity accounted investments are adjusted where necessary to ensure consistency with the policies adopted by Stora Enso. Non-controlling interests are presented as a separate component of equity.

Associated companies over which Stora Enso exercises significant influence are accounted for using the equity method, which involves recognising in the Consolidated Income Statement the group’s share of the equity accounted investment profit or loss for the year less any impaired goodwill. These companies are undertakings in which the group has significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the company without control or joint control over those policies. The most significant of such companies are listed in Note 13 Equity accounted investments.

The group’s interest in an associated company is carried in the Consolidated Statement of Financial Position at an amount that reflects its share of the net assets of the associate together with any remaining goodwill on acquisition. When the group share of losses exceeds the carrying amount of an investment, the carrying amount is reduced to zero and any recognition of further losses ceases unless the group is obliged to satisfy obligations of the investee that it has guaranteed or to which it is otherwise committed.

Joint operations are joint arrangements whereby the partners that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The interpretations as joint operations are based on shareholders’ agreements which give Stora Enso rights to share of the returns and make the group liable indirectly for the liabilities, as our ability to pay for the pulp is used to finance the debts. Joint control is the contractually agreed sharing of the control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the partners sharing control.

The group has two joint operations: Veracel and Montes del Plata. The group as a joint operator recognises in relation to its interest in a joint operation assets, liabilities, revenues and expenses using the line-by-line method.

  • Veracel is a jointly (50%/50%) owned company of Stora Enso and Fibria located in Brazil. The pulp mill produces 1.1 million tonnes of bleached Eucalyptus hard wood pulp per year and both owners are entitled to half of the mill’s output. The eucalyptus is sourced mostly from the company’s own forestry plantations. The mill commenced production in May 2005 and the group’s part of the pulp shipments are sent primarily to Stora Enso mills in Europe and China.
  • Montes del Plata is a jointly (50%/50%) owned company of Stora Enso and Arauco located in Uruguay. The Montes del Plata Pulp Mill’s annual capacity is 1.3 million tonnes of bleached Eucalyptus hard wood pulp and Stora Enso’s part, 650 000 tonnes, is to be sold entirely as market pulp. The eucalyptus is sourced mostly from the company’s own forestry plantations. The mill started in June 2014.

Joint venture is a joint arrangement whereby the partners that have joint control of the arrangement have rights to the net asset of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decision about the relevant activities require unanimous consent of the parties sharing control. The group has a joint venture Bulleh Shah Packaging (Private) Limited.

Revenue recognition

Sales comprise products, raw materials and services less indirect sales tax and discounts, and are adjusted for exchange differences on sales in foreign currency. Sales are recognised after Stora Enso has transferred the risks and rewards of ownership to the buyer and the Group retains neither a continuing right to dispose of the goods, nor effective control of those goods; usually, this means that sales are recorded upon delivery of goods to customers in accordance with the agreed terms of delivery.

Stora Enso terms of delivery are based on Incoterms 2010, which are the official rules for the interpretation of trade terms as issued by the International Chamber of Commerce (ICC). The main categories of terms covering group sales are:

  • “D” terms, under which the group is obliged to deliver the goods to the buyer at the agreed place in the manner specified in the chosen rule, in which case the Point of Sale is the moment of delivery to the buyer.
  • “C” terms, whereby the group arranges and pays for the external carriage and certain other costs, though the group ceases to be responsible for the goods once they have been handed over to the carrier in accordance with the relevant term. The Point of Sale is thus the handing over of the goods to the carrier contracted by the seller for the carriage to the agreed destination.
  • “F” terms, being where the buyer arranges and pays for the carriage, thus the Point of Sale is the handing over of goods to the carrier contracted by the buyer at the agreed point.

Where local rules may result in invoices being raised in advance of the above, the effect of this revenue advancement is quantified and an adjustment is made for it.

Revenues from services are recorded when the service has been performed.

Shipping and handling costs

When Stora Enso is responsible for arranging transport for its sales, such costs are not billed separately but are included in revenue in the value of the goods billed to customers; the shipping costs incurred are shown in materials and services.

Foreign currency transactions

Transactions in foreign currencies are recorded at the rate of exchange prevailing at the transaction date, but at the end of the month, foreign-currency-denominated receivables and liabilities are translated using the month-end exchange rate. Foreign exchange differences for operating items are recorded in the appropriate income statement account within operating profit, and, for financial assets and liabilities, are entered in the financial items of the Consolidated Income Statement, except when deferred in equity as qualifying net investment hedges. Translation differences on non-monetary financial assets, such as equities classified as available-for-sale, are included in equity.

Foreign currency translations – subsidiaries

The group operates internationally and is thus exposed to currency risk arising from exchange rate fluctuations on the value of its net investment in non-euro area foreign subsidiaries and equity accounted investments. The Income Statements of subsidiaries with functional and presentational currencies other than the euro are translated into the group reporting currency using the average exchange rates for the year, whereas the Statements of Financial Position of such subsidiaries are translated using the exchange rates at the reporting date. Exchange differences arising from the retranslation of the net investments in foreign entities that are non-euro foreign subsidiaries, joint arrangements or equity accounted investments, and of financial instruments that are designated as and are hedges of such investments, are recorded directly in shareholders’ equity in the cumulative translation adjustment (CTA), as shown in the Consolidated Statement of Comprehensive Income and Note 28 Cumulative translation adjustments and equity hedging. The cumulative translation differences of divestments and liquidations are combined with their gain or loss on disposal. The CTA is also recycled in the Consolidated Income Statement upon the repayment of share capital, return of investment and any partial disposal of a business unit.

Future standard changes endorsed by the EU but not yet effective in 2016

  • Amendments to IFRS 10, IFRS 12 and IAS 28: Investment entities – Applying the consolidation Exception, effective for annual periods beginning on or after 1 January 2016. The amendment was endorsed by the EU on September 2016, resulting in the adoption being transferred to 1 January 2017. The amendments provide an exemption from consolidation of subsidiaries for entities that meet the definition of investment entity. This change is not relevant to the group.
  • IFRS 15 Revenue from Contracts with Customers. The new standard specifies how and when revenue is recognised and increases the disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. The standard is effective 1 January 2018.

Stora Enso is a leading provider of renewable solutions in packaging, biomaterials, wooden constructions and paper on global markets. Our customers include publishers, retailers, brand owners, print and board producers, printing houses, merchants, converters and joineries and construction companies. Stora Enso’s customer contracts can typically be clearly identified based on the customer orders. Performance obligations are normally explicitly defined as the products and services are delivered based on the customer contracts. 

The main customer contracts of each division have been reviewed and not such additional separate performance obligations have been identified in the contracts with customers that would materially change the timing of the revenue recognition under IFRS 15 standard compared to the current revenue recognition practises. Hence, we do not expect that IFRS 15 standard would have a significant impact on Stora Enso group.

  • IFRS 9 Financial Instruments is the replacement of IAS 39 Financial Instruments: Recognition and Measurement. The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The version of IFRS 9 issued on July 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements).

The adoption of  IFRS 9 is not expected to have a significant impact on group figures but will require certain changes to disclosure tables and notes of the consolidated financial statements. The Group intends to classify its equity investments in Pohjolan Voima shares, currently classified as available-for-sale investments (AFS) under IAS 39, as at fair value through other comprehensive income (FVTOCI) under IFRS 9. The main difference between AFS and FVTOCI is that gains and losses resulting from changes in the fair value of equity investments accounted for at FVTOCI are not recycled to Income Statement upon impairment or disposal, with only dividend income recognized in Income Statement.

Under IFRS 9, the changes in the time value of currency options used as hedges of foreign currency sales shall be recognised in Other Comprehensive Income to the extent that they relate to the hedged items, and will be reclassified from equity to profit or loss in the  same period or periods during which  the  expected future cash flows affect profit or loss. This will reduce Income Statement volatility as compared to IAS 39.

Future standard changes not yet effective and not yet endorsed by the EU in 2016

  • IFRS 14 Regulatory Deferral Accounts permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account for ”regulatory deferral account balances” in accordance with its previous GAAP. The EU endorsement process has been stopped for this interim standard. The standard is not relevant to the group.
  • IFRS 16 Leases provides a single lessee accounting model, requiring the balance sheet recognition of assets and liabilities for all leases with a certain exceptions. The effective date for this standard is 1 January 2019. The effects of this standard on the group financial statements are under investigation. Please refer to Note 29 Commitments and Contingencies for more details about the value of current operating lease agreements.
  • Amendments to IFRS 10 and IAS 28: Sale or contribution of Assets between an Investor and its Associate or Joint Venture. The amendments to the standards clarify the accounting in different types of transactions between an investor and its associate in joint ventures. The EU endorsement process has been postponed.
  • Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses. The diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12. The amendments effective date is 1 January 2017. This amendment is not relevant to the group.
  • Amendments to IAS 7: Disclosure Initiative. The amendments are intended to clarify IAS 7 'Statement of Cash Flows' to improve information provided to users of financial statements about an entity's financing activities, and to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The effective date for these amendments is 1 January 2017. The amendment does not have a significant effect on the group financial statement.
  • Clarifications to IFRS 15 Revenue from Contracts with Customers. The effective date for these clarifications is 1 January 2018.
  • Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions. These narrow-scope amendments clarify how to account for certain types of share-based payment transactions. The effective date for these amendments is 1 January 2018. The amendment does not have a significant effect on the group financial statement.
  • Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. The amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9, before implementing the replacement Standard that the Board is developing for IFRS 4. The effective date for these amendments is 1 January 2018. This amendment is not relevant to the group.
  • Amendments to IAS 40: Transfers of Investment Property..Amendments clarify transfers of property to, or from, investment property. The effective date for these amendments is 1 January 2018.




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