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Note 25 Fair values
Accounting principles
Investments
The group classifies its investments in marketable debt and equity securities, and investments in unlisted equity securities into three categories being trading, held-to-maturity and available-for-sale. Investments acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and are therefore fair valued through the Consolidated Income Statement and presented as current assets. Investments with fixed maturity, which management has the intent and ability to hold to maturity, are classified as held-to-maturity, to be disclosed in non-current assets. Investments in listed and unlisted shares are classified as available-for-sale. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis.
Fair value of financial instruments
The fair values of publicly traded derivatives, along with trading and available-for-sale securities, are based on quoted market prices at the reporting date; the fair values of interest rate swaps are calculated as the present value of the estimated future cash flows and the fair values of foreign exchange forward contracts are determined using forward exchange rates at the reporting date. The valuation principles for derivative financial instruments have been described in more detail in Note 27 Derivatives.

In assessing the fair values of non-traded derivatives and other financial instruments, the group uses a variety of methods and makes assumptions based on market conditions at each reporting date. Quoted market prices or dealer quotes for identical or similar instruments are used for non-current debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair values for the remaining financial instruments. The face values, less any estimated credit adjustments, for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair values of financial liabilities for disclosure purposes are estimated by discounting the future contractual cash flows at the current market interest rates available to the group for similar financial instruments.

Purchases and sales of financial instruments are recognised on the trade date, which is the date on which the group commits to purchasing or selling the financial instrument. Financial instruments are derecognised when the rights to receive or the cash flows from the financial instruments have expired or have been transferred and the group has transferred substantially all risks, rewards and obligations of the ownership of the financial instrument asset or liability.
Fair value hierarchy
The group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
• Level 3: techniques which use inputs which have a significant effect on the recorded fair values that are not based on observable market data.

See Note 14 Available-for-sale investments for more information on Level 3 fair value measurement of available-for-sale investments.
Carrying amounts of financial assets and liabilities by measurement category: 2016
EUR million Loans and Receivables Financial Items at Fair Value through Income Statement Hedging Derivatives Available-for-Sale Investments Carrying Amounts Fair Value Note
Financial Assets
Available-for-sale - - - 295 295 295 14
Non-current loan receivables 7 - - - 7 7 17
Trade and other operative receivables 870 3 - - 873 873 17
Interest-bearing receivables 5 12 29 - 46 46 17
Cash and cash equivalents 953 - - - 953 953
Total 1 835 15 29 295 2 174 2 174
EUR million Financial Items at Fair Value through Income Statement Hedging Derivatives Measured at Amortised Cost Carrying Amounts Fair Value Note
Financial Liabilities
Non-current debt - - 2 655 2 655 2 684 26
Current portion of non-current debt - - 552 552 552 26
Interest-bearing liabilities 7 50 506 563 563 26
Trade and other operative payables 23 - 1 468 1 491 1 491 23
Bank overdrafts - - 4 4 4
Total 30 50 5 185 5 265 5 294
Carrying amounts of financial assets and liabilities by measurement category: 2015
EUR million Loans and Receivables Financial Items at Fair Value through Income Statement Hedging Derivatives Available-for-Sale Investments Carrying Amounts Fair Value Note
Financial Assets
Available-for-sale - - - 159 159 159 14
Non-current loan receivables 68 - - - 68 70 17
Trade and other operative receivables 987 - - - 987 987 17
Interest-bearing receivables 12 12 29 - 53 53 17
Cash and cash equivalents 808 - - - 808 808
Total 1875 12 29 159 2 075 2 077
EUR million Financial Items at Fair Value through Income Statement Hedging Derivatives Measured at Amortised Cost Carrying Amounts Fair Value Note
Financial Liabilities
Non-current debt - - 3 342 3 342 3 445 26
Current portion of non-current debt - - 228 228 228 26
Interest-bearing liabilities 22 48 556 626 626 26
Trade and other operative payables 24 - 1 421 1 445 1 445 23
Bank overdrafts - - 1 1 1
Total 46 48 5 548 5 642 5 745
In the previous tables, fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities such as trade receivables and payables due to short time to maturity and limited credit risk. The fair value of non-current debt, considered as a level 2 fair value measurement, is estimated based on discounted cash flow analysis in which yield curves observable at commonly quoted intervals are used as a discount factor in the model. In 2015 the fair value of non-current loan receivables included Papyrus loan note fair valuation and the fair value, categorised on level 3 in the fair value hierarchy, was estimated based on discounted cash flow analysis with the most significant input being the discount rate. Papyrus Holdings AB voluntarily prepaid the full loan note balance and related interests in November 2016.

In 2014, Stora Enso acquired 100% of the shares of the US-based company Virdia Inc. The transaction included potential payouts depending on completion of specific technical and commercial milestones. The present value of the estimated payouts, considered as a level 3 fair value measurement, is estimated based on certain probability criteria and discounted cash flow analysis. At year end, the fair value amounted to EUR 23 (EUR 21) million and is presented in the above table under trade and other operative payables.
Fair value measurements recognised in the statement of financial position: 2016
As at 31 December
EUR million Level 1 Level 2 Level 3 Total
Derivative Financial Assets
Hedging derivatives - 29 - 29
Derivatives at fair value through profit and loss - 12 - 12
Available-for-Sale Investments
Listed securities 42 - - 42
Unlisted shares - - 253 253
Trade and Other Operative Assets
Operative receivables through profit and loss - 3 - 3
Total 42 44 253 339
Derivative Financial Liabilities
Hedging derivatives - 50 - 50
Derivatives at fair value through profit and loss - 7 - 7
Trade and Other Operative Liabilities
Operative payables through profit and loss - - 23 23
Total - 57 23 80
Fair value measurements recognised in the statement of financial position: 2015
As at 31 December
EUR million Level 1 Level 2 Level 3 Total
Derivative Financial Assets
Hedging derivatives - 29 - 29
Derivatives at fair value through profit and loss - 12 - 12
Available-for-Sale Investments
Listed securities 28 - - 28
Unlisted shares - - 131 131
Total 28 41 131 200
Derivative Financial Liabilities
Hedging derivatives - 48 - 48
Derivatives at fair value through profit and loss - 22 - 22
Trade and Other Operative Liabilities
Operative payables through profit and loss - 3 21 24
Total - 73 21 94
Reconciliation of levels 3 fair value measurement of financial assets
EUR million 2016 2015
Opening balance at 1 January 131 444
Gains/Losses recognised through income statement 5 -2
Gains/Losses recognised in Available-for-Sale Investments reserve 125 -325
Additions 2 14
Disposals -10 -
Closing Balance at 31 December 253 131

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