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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 and Baltic mills, plantations not connected to any mill site 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 8 February 2018.

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 according to 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 the accounting principles are presented in this note. The Consolidated fnancial statements are presented in euros, which is the parent company’s functional currency.

New and amended standards and interpretations adopted in 2017

The Group has applied the following amendments which are effective from 1 January 2017:

  • Amendments to IAS 7 Disclosure Initiative. These 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 to evaluate changes in liabilities arising from financing activities. The effective date for these amendments is 1 January 2017. The amendment did not have a significant effect on the consolidated financial statements of the Group as most of the new information requirements are already covered in Note 26 Debt.
  • Amendments to IAS 12, Income taxes on the recognition of deferred tax assets for unrealised losses. These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. The effective date for these amendments is 1 January 2017. The amendment does not have any impact on the Group.

Consolidation principles

The Consolidated financial statements include the parent company, Stora Enso Oyj, and all companies controlled by the Group. Control is defined as 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 the control over the subsidiary is obtained, whereas, conversely, divestments are included up to the 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 the Group’s share of the equity accounted investment profit or loss for the year less any impaired goodwill in the Consolidated income statement. These companies are undertakings in which the group has significant influence, but which it does not control. Significant influence means 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 upon 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 which it is otherwise committed to.

A joint venture is a joint arrangement whereby the partners who have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of the joint arrangement, which exists only when decisions on relevant activities require the unanimous consent of the parties sharing control.

Joint operations are joint arrangements whereby the partners who have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.


Joint control is the contractually agreed sharing of the control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the partners sharing control.

The Group has two joint operations: Veracel and Montes del Plata. In relation to its interest in joint operations, as a joint operator, the Group recognises 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 1.2 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 share 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 1.4 million tonnes of bleached Eucalyptus hard wood pulp and Stora Enso’s part, 650 000 tonnes, is sold entirely as market pulp. The eucalyptus is sourced mostly from the company’s own forestry plantations. The mill started in June 2014.

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 currencies. 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 the delivery of goods to customers in accordance with the agreed terms of delivery.

Stora Enso’s 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 the 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 the 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 once 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 in the operating profit, and, for financial assets and liabilities, they 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

The Group operates internationally and is thus exposed to currency risks 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 these subsidiaries are translated using the exchange rates at the reporting date. Exchange differences arising from the retranslation of 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 the 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 2017

  •  IFRS 15 Revenue from Contracts with Customers. The new standard specifies how and when revenue is recognised and increases the disclosure requirements. The standard provides a single, principle based, five-step model to be applied to all contracts with customers. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The new standard replaces current IAS 18 and IAS 11 standards and related interpretations. The standard is effective from 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.

The Group evaluated the impact of IFRS 15 based on the amount and timing of revenue recognition as part of a project during 2015, 2016 and 2017. The main customer contracts for each division have been reviewed based on a standardised questionnaire that followed the five-step model for revenue recognition.

The first step was to evaluate whether the existing contracts meet the definition of contracts with customers as per IFRS 15. The relevant attributes of contracts under IFRS 15 are: approval of the contracts by the parties to the contract, ability to identify each party’s rights regarding the goods or services to be transferred, clear payment terms, commercial substance of the contract and expectation that the consideration can be collected from the customer. Stora Enso’s customer contracts can typically be clearly identified based on the customer orders with clear terms and individual pricing and thus no significant changes in the identification of contracts compared to existing revenue recognition practices were noted.

The second step was about the identification of performance obligations included in sales contracts. Stora Enso’s sales mainly comprise sales of products and, to a limited extent, services such as transportation and silviculture services. Performance obligations are normally explicitly defined as the products and services are delivered based on customer contracts. No additional separate performance obligations have been identified in the contracts with customers that would materially impact the revenue recognition under IFRS 15 standard compared to the current revenue recognition practises. No significant contracts were identified where the Group would act as an agent on behalf of another party. Certain non-significant amounts of transport and freight sales and silviculture services currently presented under Other operating income will be reclassified on the adoption of IFRS 15 to the Sales line in the Consolidated Income Statement.

The third and fourth steps relate to determining and allocating the transaction price. Transaction price is the amount the Group expects to receive in exchange for a fulfilled performance obligation. The prices received by the Group, net of Value Added and Sales taxes, are divided into fixed and variable parts, and do not include significant financing components. The variable consideration comprises different discounts as e.g. payment discounts and volume rebates. These are deducted from sales in line with estimates of the amount of the discount the customer is entitled to. In certain cases, service fees are paid to a company in the customer’s organization acting as a negotiating partner, facilitating the making of contracts under a frame agreement. These service fees are currently presented as part of operative costs and in certain cases, under IFRS 15, if the payment cannot be allocated to a distinct service, the fees will be treated as rebates and deducted from sales. A significant part of the Group’s sales contracts contain performance obligations that are easily identifiable with a defined price for each obligation. Therefore IFRS 15 does not materially change the principles applied by the Group regarding the determination and allocation of the transaction price.

The fifth step is about recognising revenue in the period during which the control of goods or services transfers to the customers. The delivery terms applied by the Group in its sales contracts determine the point of time, at which the control of goods is transferred to the customer. The revenue recognition from sale of services occurs in a manner consistent with the delivery of the service to the customer (e.g. silviculture services). The revenue recognition principles and delivery terms applied by the Group are described in more detail above under section Revenue recognition and will be generally unaltered by the adoption of IFRS 15.

In conclusion, the adoption will have no significant impact on the substance of the principles applied by the Group to the amount and timing of revenue recognition.

The Group intends to adopt the modified retrospective application of IFRS 15 from 1 January 2018, without adjusting prior reporting periods. This means applying the new guidance only to contracts that are not completed at the adoption date. No adjustment to the opening balance of retained earnings is expected as there are no changes in the timing of the revenue recognition as a result of applying IFRS 15.

  • IFRS 9 Financial Instruments will replace 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 the group intends to apply it prospectively from 1 January 2018, without presenting restated comparatives in line with IFRS 1, paragraph E1 and E2. An exception to this is that in respect of the time value of currency options under hedge accounting, Stora Enso will apply the IFRS 9 treatment retrospectively for those options that were in the Group’s books at 1 January 2018.

The Group intends to classify its equity investments in Pohjolan Voima shares, currently classified as available-for-sale investments (AFS) under IAS 39, at fair value under 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 under FVTOCI are not recycled to the Income Statement upon impairment or disposal, with only the dividend income recognized in the Income Statement.

Under IFRS 9, the changes in the time value of currency options used as hedges of foreign currency sales will 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 will affect the profit or loss. This will reduce Income Statement volatility compared to IAS 39.

The new impairment model for financial assets requires the recognition of doubtful receivables allowances based on expected credit losses, rather than only incurred credit losses as under current IAS 39. The main impact for the Group relates to trade receivables that do not contain a significant financing component, and as allowed by IFRS, the Group will use a simplified approach whereby the loss allowance will be measured at the initial recognition and throughout the life of the receivable at an amount equal to its lifetime expected credit losses. In calculating the expected credit loss rates, the group will consider the customers’ ability to fulfil their obligations based on historical performance, current condition and credit evaluations. The new IFRS 9 impairment model will result in a non-significant increase in doubtful receivables allowances.

The adoption of IFRS 9 will not have a significant impact on Group figures.

  • Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. These amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9, before implementing the IFRS 17 Insurance Contracts that will replace IFRS 4. The effective date for these amendments is 1 January 2018. This amendment is not relevant to the Group.
  • IFRS 16 Leases. This standard replaces the current guidance in IAS 17 and is a significant change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on the balance sheet) and an operating lease (off the balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. There is an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. Service components of lease contracts are not required to be reported on the balance sheet. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The effective date for this standard is 1 January 2019.



The effects of this standard on the Group financial statements are under investigation. It is expected that the Operating profit will somewhat increase since the interest component of operating leases rental payments will be reclassified from Other operating expenses to Financial expenses. At the same time, right-of-use assets and Financial liabilities will increase due to the adoption of new accounting rules. More details about the value of current operating lease agreements are included in Note 29 Commitments and Contingencies.

Future standard changes not yet effective and not yet endorsed by the EU in 2017

  • 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’s financial statement.
  • Amendments to IAS 40: Transfers of Investment Property. These amendments clarify transfers of property to, or from, investment property. The effective date for these amendments is 1 January 2018. The amendment does not have a significant effect on the Group's financial statement.
  • Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures. These amendments clarify that an entity should apply IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The effective date for these amendments is 1 January 2019. The amendment does not have a significant effect on the Group’s financial statement.
  • IFRS 17 Insurance Contracts: This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. The effective date for these amendments is 1 January 2021. The standard is not relevant for the Group.
  • Other published standard changes or interpretations are not expected to have a significant effect on the Group’s Consolidated financial statements or disclosures.

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