- Note 1 Accounting principles
- Note 2 Critical accounting estimates and judgements
- Note 3 Segment information
- Note 4 Acquisitions and disposals
- Note 5 Other operating income and expense
- Note 6 Personnel expenses
- Note 7 Board and executive remuneration
- Note 8 Net financial items
- Note 9 Income taxes
- Note 10 Depreciation, amortisation and impairment charges
- Note 11 Intangible assets and property, plant and equipment
- Note 12 Biological assets
- Note 13 Equity accounted investments
- Note 14 Available-for-sale investments
- Note 15 Other non-current assets
- Note 16 Inventories
- Note 17 Receivables
- Note 18 Shareholders’ equity
- Note 19 Non-controlling interests
- Note 20 Post-employment benefits
- Note 21 Employee variable compensation and equity incentive schemes
- Note 22 Other provisions
- Note 23 Operative liabilities
- Note 24 Financial risk management
- Note 25 Fair values
- Note 26 Debt
- Note 27 Derivatives
- Note 28 Cumulative translation adjustment and equity hedging
- Note 29 Commitments and contingencies
- Note 30 Principal subsidiaries and joint operations
- Note 31 Related party transactions
- Note 32 Earnings per share and equity per share
Note 5 Other operating income and expense
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 relating to the purchase of property, plant and equipment are deducted from the carrying value of the asset, while the net cost are 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 over 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 for the emission allowances falls significantly below the carrying amount, and the decrease is considered permanent. At that point 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 and measured at the carrying amount of those allowances, with any excess emissions measured at the market value of the allowances at the period end.
In the Consolidated Income Statement, the Group will expense emissions made at the fair value of the rights at their grant date, under materials and services, 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, or the sale of unused rights in the case that the realised emissions are below the allowances received free of charge or the impairment of allowances are not required for internal use.
Stora Enso is part of the local green energy production system which entitles selected mills in Sweden, Belgium and Poland to receive green certificates based on megawatt hours of green energy produced. Green certificates represent the environmental value of renewable energy generated. The certificates can be traded separately from the energy produced. Several countries use green certificates as a mean to make the support of green electricity generation closer to a market economy instead of more bureaucratic investment support and feed-in tariffs. The certificates are typically received free of charge and they can be traded in the local market to offset part of the production costs. Green certificates are often sold to electricity distributors which have a quota obligation to buy a certain percentage of their electricity from renewable sources. Green certificates are evidencing that the electricity has been produced from sustainable sources.
All certificates received are recognized at grant date market value only in the Balance Sheet. Certificates are posted to prepaid costs and accrued income and a corresponding liability is entered into accrued liabilities and deferred income. As such the fluctuation in market prices does not have impact on the Income statement. The income is recognised only when the certificate is sold.
|Other Operating Income and expense|
|Year Ended 31 December|
|Other Operating Income|
|Emission rights granted and disposal gains||13||13|
|Sale of Green Certificates||18||36|
|Capital gains on sale of Intangible Assets and Property, Plant and Equipment||4||3|
|Dividend and gain on sale of unlisted shares||3||6|
|Freight sales, rent and other||76||52|
|Other Operating Expenses include|
|Research and development||85||80|
|Credit losses, net of reversals||-7||11|
|Materials and Services include|
|Emissions rights to be delivered and disposal losses||10||12|
The Group has recorded an Other Operating Income of EUR 13 (EUR 13) million related to Emissions. Under Material and Services an expense of EUR 10 (EUR 12) million has been booked related to the cost of CO2 emissions from production. Actual realised profits amounted to EUR 3 (EUR 5) million on the disposal of surplus rights and EUR 2 (EUR 1) 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. 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 18 (EUR 36) million.
In 2017 Group recorded EUR 25 (EUR 2) million insurance compensation which related mainly to an incident at Veitsiluoto Mill paper machine (PM) 2.
In 2016 the Group recorded cumulative translation adjustment loss of EUR 23 million mainly relating to the divestment of Arapoti Mill in Brazil.
Total sales of excess freight capacity in 2017 amounted to EUR 66 (EUR 43) million.
|Auditor's fees and services|
|Year Ended 31 December|
Aggregate fees for professional services rendered to the Group principal auditor Deloitte amounted to EUR 5 (EUR 5) million. Audit fees relate to the auditing 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 for the review of the financial statements.