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Note 5 Other operating income and expense
Accounting principles
Research and development
Research costs are expensed as incurred in other operating expenses in the Consolidated Income Statement. Development costs are also expensed as incurred unless it is probable that future economic benefits will flow to the group, in which case they are capitalised as intangible assets and depreciated over the period of the income streams.
Government grants
Government grants relating to the purchase of property, plant and equipment are deducted from the carrying value of the asset, the net cost being capitalised. Other government grants are recognised as income on a systematic basis over the periods necessary to match them with the related costs which they were intended to compensate.
Emission rights and trading
The group’s participation in the European Emissions Trading Scheme, in which it has been allocated allowances to emit a fixed tonnage of carbon dioxide in a fixed period of time, gives rise to an intangible asset for the allowances, a government grant and a liability for the obligation to deliver allowances equal to the emissions that have been made during the compliance period. Emission allowances recorded as intangible assets are recognised when the group is able to exercise control and are measured at level 1 fair value at the date of initial recognition. If the market value of emission allowances falls significantly below the carrying amount, and the decrease is considered permanent, then an impairment charge is booked for allowances which the group will not use internally. The liability to deliver allowances is recognised based on actual emissions; this liability will be settled using allowances on hand, measured at the carrying amount of those allowances, with any excess emissions being measured at the market value of the allowances at the period end.

In the Consolidated Income Statement, the group will expense, under materials and services, emissions made at the fair value of the rights at their grant date, together with purchased emission rights at their purchase price. Such costs will be offset under other operating income by the income from the original grant of the rights used at their fair value at the grant date, together with income from the release or sale of surplus rights. The Consolidated Income Statement will thus be neutral in respect of all rights consumed that were within the original grant. Any net effect represents the costs of purchasing additional rights to cover excess emissions, the sale of unused rights, in the case realised emissions are under allowances received free of charge or the impairment of allowances not required for internal use.
Other Operating Income and expense
Year Ended 31 December
EUR million 2016 2015
Other Operating Income
Emission rights granted and disposal gains 13 19
Sale of Green Certificates 36 42
Capital gains on sale of Intangible Assets and Property, Plant and Equipment 3 4
Dividend and gain on sale of unlisted shares 6 -
Freight sales, rent and other 54 54
Government grants 11 9
Total 123 128
Other Operating Expenses include
Rents paid 102 105
Research and development 80 66
Credit losses 11 7
CTA release 23 4
Materials and Services include
Emissions rights to be delivered and disposal losses 12 15
The group has recorded Other Operating Income of EUR 13 (EUR 19) million related to Emissions. Under Material and Services an expense of EUR 12 (EUR 15) million has been booked related to the cost of CO2 emissions from production. Actual realised profits amounted to EUR 5 (EUR 10) million on the disposal of surplus rights and EUR 1 (EUR 6) million is the value of excess emission rights held at the year end.

The group also generates income from its renewable power generation in Belgium and Poland. The power is produced from biomass, so the group is entitled to Green Certificates for onward sale to electricity retailers for fulfilling their renewable power quota obligations. The income from the sale of green certificates amounted to EUR 36 (EUR 42) million.

In 2016 the group recorded cumulative translation adjustment loss of EUR 23 million mainly relating to divestment of Arapoti Mill in Brazil.

Total sales of excess freight capacity in 2016 amounted to EUR 43 (EUR 40) million.
Principal independent auditor's fees and services
Year Ended 31 December
EUR million 2016 2015
Audit fees 4 4
Audit-related - -
Tax fees - -
Other fees 1 1
Total 5 5
Aggregate fees for professional services rendered to the group principal auditor Deloitte amounted to EUR 5 (EUR 5) million. Audit fees relate to the audit of the annual financial statements or ancillary services normally provided in connection with statutory and regulatory filings. Audit-related fees are incurred for assurance and associated services that are reasonably related to the performance of the audit or review of the financial statements.

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