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Note 29 Commitments and contingencies
Accounting principles
The guarantees entered into with financial institutions and other credit guarantors generally oblige the group to make payment in the event of default by the borrower. The guarantees have off-Balance-Sheet credit risk representing the accounting loss that would be recognised at the reporting date if the counterparties failed to perform completely as contracted. The credit risk amounts are equal to the contract sums assuming the amounts are not paid in full and are irrecoverable from other parties.
Operating Leases
Payments made under operating leases are expensed on a straight-line basis over the lease periods. When an operating lease is terminated before the expiry of the lease period, any obligatory payment to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Lease termination benefits are recognised on a discounted basis.
As at 31 December
EUR million 2016 2015
On Own Behalf
Mortgages 9 4
On Behalf of Equity Accounted Investments
Guarantees 4 17
On Behalf of Others
Guarantees 34 30
Other Commitments Own
Operating leases in next 12 months 86 83
Operating leases after next 12 months 747 804
Pension liabilities 1 0
Other commitments 9 11
Total 890 949
Mortgages 9 4
Guarantees 38 47
Operating leases 833 887
Pension liabilities 1 0
Other commitments 9 11
Total 890 949
In 2016, the group’s commitments amounted to EUR 890 (EUR 949) million. In addition, parent company Stora Enso Oyj has guaranteed the liabilities of many of its subsidiaries and joint operations up to EUR 2 123 (EUR 2 352) million as of 31 December 2016.

In 2015, Stora Enso Logistic AB’s time charter arrangements relating to vessels MV Schieborg and MV Slingeborg were reorganised and Stora Enso Logistics AB entered into time charter parties with subsidiaries of Koninklijke Wagenborg B.V., the new owners of the vessels. In connection therewith, Stora Enso Oyj issued a guarantee to a third-party creditor securing certain obligations of the owners under the term facilities agreement entered into by and between the owners, Koninklijke Wagenborg B.V. and the creditor. The group’s maximum exposure under the guarantee amounted to EUR 21 (EUR 25) million plus interests and costs at year end.

The group leases office and warehouse space, cars, machinery and equipment under various non-cancellable operating leases, some of which contain renewal options. There were no leases deemed onerous at the end of 2016 and 2015. The future cost for contracts exceeding one year and for non-cancellable operating leasing contracts are:
Repayment schedule of operating lease commitments
As at 31 December
EUR million 2016 2015
Less than 1 year 86 83
1–2 years 73 73
2–3 years 66 64
3–4 years 59 59
4–5 years 53 55
Over 5 years 496 553
Total 833 887
The group has rental commitments for up to 50 years, with the option to terminate after 20 years, on approximately 84 000 (86 000) hectares of land contracted to date in China, as well as being obliged to pay for the standing trees on land it has contracted to rent. Future land rental payments reported under operating leases are estimated at EUR 562 (EUR 599) million for the plantations.

Stora Enso Oyj has also signed a 15-year take-or-pay contract with Rederi AB Trans-Atlantic for the operation of ships between Finland and Sweden. The group’s commitment amounted to EUR 68 (EUR 81) million for the remaining five years at the end of 2016.

Capital expenditure commitments at the balance sheet date but not recognised in the financial statements amounted to EUR 171 (EUR 196) million. These include the group’s share of direct capital expenditure contracts in joint operations. Commitments in relation to capital expenditure mainly relate to ongoing projects at Guangxi in China and at Imatra Mills in Finland.
Contingent liabilities
Stora Enso has undertaken significant restructuring actions in recent years which have included the divestment of companies, sale of assets and mill closures. These transactions include a risk of possible environmental or other obligations the existence of which would be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group.

Stora Enso is party to legal proceedings that arise in the ordinary course of business and which primarily involve claims arising out of commercial law. The management does not consider that liabilities related to such proceedings before insurance recoveries, if any, are likely to be material to the group’s financial condition or results of operations.
Latin American cases
Fibria and Stora Enso each own 50% of Veracel, and the joint ownership is governed by a shareholder agreement. In May 2014, Fibria initiated arbitration proceedings against Stora Enso claiming that Stora Enso was in breach of certain provisions of the shareholder agreement. Fibria has estimated that the interest to be paid regarding the dispute should be approximately USD 54 (EUR 51) million. Stora Enso denies any breach of contract and disputes the method for calculating the interest to be paid. No provisions have been made in Stora Enso’s accounts for this case.

On 11 July 2008, Stora Enso announced that a federal judge in Brazil had issued a decision claiming that the permits issued by the State of Bahia for the operations of Stora Enso’s joint operations company Veracel were not valid. The judge also ordered Veracel to take certain actions, including reforestation with native trees on part of Veracel’s plantations and a possible fine of BRL 20 (EUR 6) million. Veracel disputes the decision and has filed an appeal against it. Veracel operates in full compliance with all Brazilian laws and has obtained all the necessary environmental and operating licences for its industrial and forestry activities from the relevant authorities. In November 2008, a Federal Court suspended the effects of the decision. No provisions have been recorded in Veracel’s or Stora Enso’s accounts for the reforestation or the possible fine.
Legal proceedings in Finland
In December 2009, the Finnish Market Court fined Stora Enso for competition law infringements in the market for roundwood in Finland from 1997 to 2004. Stora Enso did not appeal against the ruling. In March 2011 Metsähallitus of Finland initiated legal proceedings against Stora Enso, UPM and Metsäliitto claiming compensation for damages allegedly suffered due to competition law infringements. The total claim against the defendants amounted to approximately EUR 160 million and the secondary claim against Stora Enso to approximately EUR 87 million. In its ruling issued in June 2016, the Helsinki District Court dismissed Metsähallitus’ claim for damages against Stora Enso, Metsäliitto and UPM. Metsähallitus has appealed this ruling. In addition, certain Finnish municipalities and private forest owners initiated similar legal proceedings. The total amount claimed from the defendants amounts to approximately EUR 25 million, the secondary claims solely against Stora Enso amount to approximately EUR 6 million. Stora Enso denies that the plaintiffs suffered any damages whatsoever and will forcefully defend itself. No provisions have been made in Stora Enso’s accounts for these lawsuits.
Legal proceedings in Sweden
Insurance claim
Stora Enso was informed in July that six Swedish Insurance companies are filing lawsuits against Stora Enso. The claimed amount is approximately SEK 300 (EUR 31) million attributable to insurance compensation paid to injured parties in connection with the forest fire in Västmanland, Sweden in 2014. Stora Enso denies liability and will respond within the frame of the legal proceedings.
Norrsundet Pulp Mill environmental case
The production of pulp at Norrsundet Mill in Sweden was permanently closed in December 2008. Provisions for refuse handling contamination on site and sea sediment have been recognized. In 2011 some chemical substances were found in the sea sediment outside the mill area. Discussions with the country administrative board about responsibility and possible actions are ongoing and no decisions had been taken by the balance sheet date. Stora Enso has, however, initiated mapping of the extent of possible sediments.
Veracel's potential tax exposure arising from PIS/COFINS tax credits
In December 2011 Veracel Celulose SA (Veracel) received a tax audit report, in which the tax authority claimed that part of the PIS (social intergration programme) and COFINS (contribution for the financing of social security) paid by Veracel on the purchase of raw material and services, was not eligible for tax credit. Stora Enso and Veracel consider the claim unjustified and no provisions have been made in Stora Enso’s or Veracel´s accounts for this matter. The dispute is still pending.

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