Ahlstrom-Munksjö Oyj
Financials
This is voluntary published ESEF report, so it does not fulfil the disclosure obligation pursuant to Section 7:5§ of the Securities Markets Act.
BOARD OF DIRECTORS’ REPORT, KEY FIGURES AND FINANCIAL STATEMENTS 2020
The Ahlstrom-Munksjö financial year 2020
Contents | |
Ahlstrom-Munksjö’s business and basis of preparation of financial statements | |
Note 1 Information about Ahlstrom-Munksjö | |
Note 2 Basis of preparation | |
Note 3 Business acquisitions and disposals | |
Note 4 Business area information | |
Note 5 Sources of revenue | |
Note 6 Cost of goods sold and other operating income and other operating expense | |
Note 7 Employee and board of directors remuneration | |
Note 8 Depreciation, amortization and impairment | |
Note 9 Net financial items | |
Note 10 Taxes | |
Note 11 Earnings per share | |
Note 12 Intangible assets, property, plant and equipment and right-of-use assets | |
Note 13 Inventories | |
Note 14 Trade and other receivables and trade and other payables | |
Note 15 Defined benefit obligation | |
Note 16 Provisions | |
Note 17 Net debt | |
Note 18 Equity |
We use the following symbols throughout the financial statements | |
This symbol describes the accounting policy applied by the Group to the specific financial statement item. | |
This symbol is used when the specific item requires management to make judgements, estimates and assumptions that have a significant effect on the financial statements and estimates that may cause material adjustments to the financial statements. | |
This symbol is used with a disclosure on a specific risk related to the financial statement item. | |
FINANCIALS
Board of Directors’ report
HIGHLIGHTS OF 2020
•Net sales decreased due to an adverse currency effect, lower selling prices and a less favorable product mix. Comparable EBITDA increased, supported by lower costs. Cash flow remained good.
•Rapid response to the coronavirus pandemic and an early establishment of Covid-19 Safety Protocol ensured that plants and customer service were kept operational throughout year
•Expansion of face mask materials’ manufacture to production lines normally used for industrial products and cost saving actions cushioned the impact of the pandemic.
•Demand recovered in the second half of 2020, and the resurgence of global Covid-19 infections had a limited impact
•Sale of the fine art paper business in Arches, France
•Recommended public tender offer for all Ahlstrom-Munksjö shares.
DIVIDEND PROPOSAL
The Board of Directors’ dividend proposal to the Annual General Meeting will be decided after the Extraordinary General Meeting to be held on February 19, 2021.
FINANCIAL PERFORMANCE 2020
Net sales decreased by 8.0% to EUR 2,683.3 million (2,915.3). At constant currency rates, the decrease was 5.3%, driven mainly by lower selling prices and a more adverse product mix. Deliveries increased significantly in health-care- and life science-related end uses, and grew modestly in consumer goods-related end uses. Deliveries decreased in transportation and industrial related applications and fell slightly in home building- and furniture-related end uses.
Comparable EBITDA increased to EUR 334.2 million (312.9), representing 12.5% of net sales (10.7). Lower variable costs more than offset the negative impact of lower selling prices. Variable costs were reduced due to both lower raw material prices and cost-saving measures.
Items affecting comparability (IAC) in EBITDA and operating result
EBITDA was EUR 354.5 million (279.4). Items affecting comparability (IACs) in EBITDA totaled EUR 20.3 million (-33.4) and included a capital gain of EUR 32.0 million from the sale of the fine arts paper business, as well as costs related to the tender offer. The previous year’s figure included costs related to the integration of Expera Specialty Solutions, as well as restructuring
costs. The operating result was EUR 176.2 million (103.2). Depreciation, amortization and impairment amounted to EUR -178.4 million (-176.2), including depreciation and amortization arising from PPA of EUR -51.0 million (-52.1), and an impairment loss of EUR -9.2 million (-2.4), which is an item affecting comparability in the operating result.
Net financial items
Net financial items decreased to EUR -45.7 million (-51.6). The figure includes net interest expenses of EUR -36.5 million (-47.6), a currency exchange loss of EUR -2.2 million (2.8 gain) and other financial expenses of EUR -7.0 million (-6.7). Net interest expenses decreased due to lower interest rates.
Net profit for the period
The result before taxes was EUR 130.4 million (51.6). Taxes amounted to EUR -36.0 million (-18.8). The net result was EUR 94.5 million (32.8), and earnings per share (basic) were EUR 0.78 (0.27).
CASH FLOW AND FINANCING
Cash flow
Net cash from operating activities amounted to EUR 255.1 million (286.7) and was mainly supported by the improved result. Working capital decreased although not as significantly as in the comparison period.
Capital expenditure
Ahlstrom-Munksjö's capital expenditure excluding acquisitions totalled EUR 117.5 million in January-December 2020 (EUR 161.1 million). The investments were related to maintenance, cost and efficiency improvements, as well as growth initiatives and improved environmental performance and safety.
On September 23, 2020, Ahlstrom-Munksjö announced a EUR 7 million investment in a more sustainable coating machine in Billingsfors, Sweden to enable formaldehyde free balancing and finish foils for furniture, as well as the building and construction industries. The new machine is expected to be fully commissioned in the fourth quarter of 2021.
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In December, a new power co-generation investment was completed at the Turin plant in Italy. The new plant allows the combined and efficient power and steam generation needed for the site’s processes.
The company is progressing with its EUR 190 million investment program, including a total of 13 projects, of which 11 have been completed. The remaining two are expected to be completed in 2021 and 2022. A full list of completed and on-going investments is available at www.ahlstrom-munksjo.com/Investors.
Net debt
Net debt decreased to EUR 735.8 million at the end of the reporting period (885.0 on December 31, 2019) and was supported by the sale of the fine arts business in the first quarter and strong cash flow in the second half of the year. Gearing stood at 62.1% (71.8 on December 31, 2019).
The company’s liquidity continues to be strong. At the end of the reporting period, the total cash position was EUR 308.7 million (166.1 on December 31, 2019). In addition, it had undrawn committed credit facilities and committed cash pool overdrafts of EUR 261.0 million at its disposal. At the end of the reporting period, the weighted average interest rate, excluding lease liabilities and the hybrid bond, was 2.7% (3.4 on December 31, 2019).
The public tender offer for Ahlstrom-Munksjö shares was completed on February 4, 2021 which will have an impact on the Group’s financing structure. EUR 249.5 million of the bonds and EUR 602.9 million of the bank loans will become redeemable during the first half of 2021 at the lenders’ option based on the customary change of control terms in the existing financing agreements. Any repayments will be financed using committed facilities of SPA Holdings 3 Oy, the new parent company for Ahlstrom-Munksjö Oyj. Further details are described in Events after the reporting period.
On December 31, 2020, equity was EUR 1,184.6 million (1,232.0 on December 31, 2019). The equity was impacted by a EUR 60 million dividend to be paid in four installments, EUR 15 million each. Cash flow impact for 2020 has been EUR 45 million and the last installment has been paid on January 11, 2021.
TENDER OFFER FOR ALL AHLSTROM-MUNKSJÖ SHARES
On September 24, 2020, a consortium consisting of Ahlström Capital, funds managed or advised by Bain Capital as well as Viknum and Belgrano Inversiones made a public recommended cash tender offer for all shares in Ahlstrom-Munksjö.
Below is a summary of the process.
SUMMARY OF THE TENDER OFFER (based on the announcement day information)
•The offer price is EUR 18.10 in cash for each share. The offer price represents a premium of approximately:
•24% compared to EUR 14.56, the closing price on September 23, 2020, the last trading day immediately preceding the announcement of the tender offe
•37% compared to EUR 13.20, the closing price on July 31, 2020, the last trading day prior to the consortium submitting its non-binding proposal to Ahlstrom-Munksjö
•30% compared to EUR 13.96, the three-month volume-weighted average trading price preceding the announcement of the tender offer
•41% compared to EUR 12.87, the twelve-month volume-weighted average trading price preceding the announcement of the tender offer
•The offer price implies an enterprise value multiple of approximately 10.0 times Ahlstrom-Munksjö’s Comparable EBITDA for the 12 months ended June 30, 2020, which is attractive when compared to similar M&A transactions in the fiber-based engineered materials sector, and the historical trading multiple of Ahlstrom-Munksjö over the cycle
•The tender offer values Ahlstrom-Munksjö’s total equity at approximately EUR 2.1 billion
•The Board of Directors of Ahlstrom-Munksjö, represented by a quorum of non-conflicted members, has unanimously decided to recommend that the shareholders of Ahlstrom-Munksjö accept the tender offer
•Certain major shareholders of Ahlstrom-Munksjö, i.e. Ahlström Capital, Viknum, Belgrano Inversiones, Varma Mutual Pension Insurance Company, and Ilmarinen Mutual Pension Insurance Company, together representing over 35% of all the shares and votes in Ahlstrom-Munksjö, have irrevocably undertaken to accept the tender offer. Varma Mutual Pension Insurance Company’s and Ilmarinen Mutual Pension Insurance Company’s undertakings are subject to certain customary conditions.
BACKGROUND AND STRATEGIC RATIONALE OF THE TENDER OFFER
•The consortium believes that under private ownership Ahlstrom-Munksjö will be best placed to fulfil its potential from its diversified product portfolio, substantial technical know-how as well as its leading positions in attractive niches. However, the consortium recognizes that the sector is becoming increasingly competitive.
•The consortium intends to invest significant time, resources and capital to support the company’s strategy for long-term profitable growth, to maintain and further strengthen the company’s existing market positions in its core areas, as well as to invest in new business opportunities. Under private ownership, the company would be ideally positioned to invest further and faster in initiatives to support organic growth as well as benefiting from additional expansionary capital expenditures and acquisitions to strengthen selected areas of the portfolio.
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•The consortium believes that Ahlstrom-Munksjö, in a private setting, will more effectively manage all above mentioned initiatives as well as current market challenges as management can devote its full attention to business performance without the constraints imposed by its current balance sheet and the public market.
•The consortium is well-positioned to support the transformation of the company due to Bain Capital’s considerable experience in the industry and distinctive approach to investments, working alongside management in the pursuit of long-term strategic goals, with the benefit of continuity from the families’ prominent participation in the consortium. Together this unique group of investors is best equipped with the appropriate long-term investment horizon, expertise and capital required to realize Ahlstrom-Munksjö’s potential.
On September 30, 2020, the Board of Directors of Ahlstrom-Munksjö resolved on a dividend in the amount of EUR 0.13 per each outstanding share. In accordance with the announcement of the tender offer, the offer price per share was reduced on a euro-for-euro basis as a result. Following the adjustment of the offer price, the price offered for each share in the tender offer was EUR 17.97, subject to any further adjustments.
On October 16, 2020, the Board of Directors of Ahlstrom-Munksjö, represented by a quorum of non-conflicted members, issued a statement regarding the tender offer, unanimously recommending that the shareholders of Ahlstrom-Munksjö to accept the tender offer.
On October 22, 2020, at 9:30 a.m. (Finnish time) the offer period for the tender offer commenced, and it was announced to expire on December 30, 2020, at 4:00 p.m. (Finnish time).
On December 8, 2020, the offeror decided to extend the offer period to expire on January 14, 2021, at 4:00 p.m. (Finnish time), unless the offer period was extended further or any extended offer period was discontinued in accordance with the terms and conditions of the tender offer
On December 17, 2020, the Board of Directors of Ahlstrom-Munksjö resolved on a dividend in the amount of EUR 0.13 per each outstanding share. In accordance with the announcement of the tender offer, the offer price per share was further reduced on a euro-for-euro basis as a result. Following the adjustment of the offer price, the price offered was EUR 17.84, subject to any further adjustments.
For information about final result and completion of the public tender offer see section Events after the reporting period.
UPDATE ON COVID-19
Health and safety of outmost importance
On January 23, 2020, Ahlstrom-Munksjö initiated a centralized crisis alert team to carry out a global pandemic contingency and preparedness response plan. The company has established a Covid-19 Safety Protocol to ensure safe operations and customer service. Its manufacturing plants are maintaining a cohesive set of rules to keep operations running and employees safe. Local adjustments are made according to country level or local health and safety regulation and guidance.
Limited operational impact of the coronavirus pandemic
Ahlstrom-Munksjö’s 45 plants and converting sites in 14 countries have remained operational during 2020, except for a few temporary shutdowns caused by government lockdowns or employee absences related to quarantine or infections. Production has not been interrupted to any significant extent due to raw material supply issues.
Significant impact on customer activity
Within Ahlstrom-Munksjö’s broad range of advanced fiber-based solutions, the impact of the pandemic on customer activity has varied.
Since the first quarter of 2020, the company has experienced strong demand in the healthcare and life science end-use segments. Solutions for personal protection equipment, such as face masks, drapes and gowns, as well as diagnostics materials for rapid test kits and venting filters for devices used in the treatment of patients with respiratory disorders, were in strong demand. The exceptional circumstances, with regional lockdowns and limited mobility for citizens, also increased demand for packaging-related release liner and tape backings.
In the second quarter, demand decreased clearly in the home building and furniture, transportation and industrial end-uses due to a large portion of the global population being in lockdown.
In the third quarter, demand recovered in home building and furniture, driven mainly by increased household furniture spending, as well as transportation end-uses. Toward the end of the year, demand for industrial-related products improved. Overall demand for consumer goods-related applications, of which food and beverage and packaging represent the largest share, remained relatively stable. However, it has varied depending on end use. The surge in the number of infections in the fall caused countries to reimpose restrictions, but these lighter and more regional lockdowns did not have a material impact on demand in the fourth quarter.
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Capacity expansion in response to growing demand
The pandemic has created an exceptional situation globally and a strong demand for healthcare goods in general, and particularly for protective medical products made from Ahlstrom-Munksjö’s fabrics. Ahlstrom-Munksjö has long been an established manufacturer of nonwoven fabrics, which are used to construct protective medical fabrics such as surgical gowns and drapes, pleated surgical face masks, protective apparel and sterile barrier systems. The company has been producing the inner and outer coverstock used for pleated surgical face masks, while the middle filter media was something Ahlstrom-Munksjö has not produced until recently. Thanks to its in-depth knowledge of filtration materials and common manufacturing platform, the company could respond swiftly to growing demand by expanding the manufacture of face mask fabrics to lines normally used for producing other fiber-based materials. As of the second quarter of 2020, the company’s offering includes a full range of protective face mask fabrics for civil, surgical and respiratory masks.
During the second half of 2020, delivery volumes of face mask fabrics gradually decreased, as production and export of face masks from China resumed, and global availability and price competition increased.
Actions to mitigate the negative financial impact
For Ahlstrom-Munksjö the financial implications of the pandemic was relatively limited in 2020.
Ahlstrom-Munksjö took numerous actions across the organization to cushion the financial impact of the decline in delivery volumes.
Implemented actions have included temporary layoffs, reduction of working hours and the minimization of the use of external personnel and services. Spending was reduced and certain projects were postponed. Members of the Executive Management Team and the CEO took a 50% and 100% reduction, respectively, on one month’s salary during the second quarter. The Board of Directors also decided to forgo their compensation for one month in the second quarter.
Savings from these actions were approximately EUR 24 million in 2020.
MEASURES TO IMPROVE COMPETITIVENESS
Expera and Caieiras cost synergies achieved – business synergies ahead
In 2019, the company achieved the targeted cost synergy run rate of EUR 21 million from the Expera and Caieiras acquisitions, exceeding the initial target of EUR 14 million. The Expera acquisition is also expected to generate annual business synergies of at least EUR 10 million with a gradual impact from 2020 onwards. Cross-selling opportunities are related to the broader product offering and expanded presence, particularly in food processing and packaging, such as specialty paper to wrap and package processed and quick service restaurant prepared foods. Technology sharing is expected to generate benefits in the
manufacture of e.g. interleaving papers and release liner. The expanded production platform provides production optimization opportunities e.g. in the tape products segment.
However, coronavirus-related lockdowns and travel restrictions have delayed the implementation of some of the planned actions, and implemented actions generated synergy benefits of EUR 2 million in 2020.
Program to lower manufacturing fixed costs
Ahlstrom-Munksjö has expanded its businesses and ability to meet customer needs through a merger and acquisitions in recent years. This strategic transformation has proven successful, and the company has captured the promised synergy benefits. The market environment has been challenging, impacted by volatile raw material prices, lower demand and intensified competition. The company’s continuous improvement measures and the synergy benefits realized from the acquisitions have reduced both variable and fixed costs. However, the company’s cost-effictiveness can be further improved.
Ahlstrom-Munksjö introduced a new longer-term profit improvement program in April 2020. The annualized target from the program is in the range of EUR 20 million. The majority of the savings are expected to come from manufacturing fixed costs. Implemented actions delivered savings of EUR 7 million in 2020.
DECOR EXPLORING STRATEGIC ALTERNATIVES IN CHINA
On September 17, 2019, Ahlstrom-Munksjö announced it was exploring potential acquisitions, mergers and joint-ventures with decor paper suppliers in China to speed up the development of the business into a stand-alone leading operation globally. In addition, the company is investigating the interest of capital investment in the Decor business.
The opportunities being explored are based on strong strategic and financial rationales. Partnering with a Chinese decor paper supplier would create a global leader with a strong presence in the world’s two largest markets. It would strengthen the business and its ability to serve customers as well as leverage from an industry-leading brand with premium quality and service. Outside capital would enable investments to grow and develop the business into a stand-alone operation.
On November 27, 2019, Ahlstrom-Munksjö signed a non-binding letter of intent to acquire Hebei Minglian New Materials Technology Co., Ltd. as part of this process. The company comprises a state-of-the-art greenfield decor paper plant in the city of Xingtai, Hebei Province, China. The debt-free purchase price is approximately EUR 60 million. The transaction is subject to further due diligence as well as final and binding transaction agreements. Coronavirus related lockdowns and travel restrictions are delaying the negotiation and signing of the transaction is expected during the first half of 2021.
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PERSONNEL
Ahlstrom-Munksjö employed in January-December 2020 an average of 7,814 (8,078) people in full-time equivalents. As of December 31, 2020, the highest numbers of employees were in the United States (31%), France (19%), Sweden (10%), Brazil (9%) and Germany (7%).
INNOVATION
Ahlstrom-Munksjö has extensive research and development capabilities in each business. Product development in the businesses is carried out at the various plants and in collaboration with customers. The company also operates a research center at two sites in France, one in Pont-Evêque and one in Apprieu. The research center employing about 70 people works in close cooperation with the businesses and provides services, and develops new products and
next generation technology platforms. Company-wide research and development work is governed by a steering committee chaired by the Executive Vice President, Innovation,
Sustainability and Communication and composed by key representatives from business areas, centralized R&D and Intellectual Property function.
In addition, marketing, sales and customer service organizations support the R&D process by identifying areas where development needs to be prioritized or quality improved,
or where customers are looking for new applications.
One of the strategic direction of the company is to propose alternatives to plastic solutions as well as to increase the sustainability of its products by using biobased raw material and tailoring their end of life without compromising their functional properties. Ahlstrom-Munksjö has developed paper solutions that are designed to deliver outstanding grease resistance without the use of PFAS (fluorochemicals) for a broad range of grease resistant food packaging applications, each with uniquely challenging performance requirements. Quick service restaurant applications, microwave popcorn bags, and other papers are specially manufactured to meet or exceed sustainability goals.
Ahlstrom-Munksjö also develops fiber-based materials to be used in energy storage devices.
In 2020, the company’s expenditure on R&D was approximately EUR 27 million, representing 1% of net sales. The figure does not include technical product development costs carried out in close cooperation with customers.
CHANGES IN THE GROUP EXECUTIVE MANAGEMENT TEAM (EMT)
On August 21, 2020, Anna Bergquist, Executive Vice President, Strategy, Sustainability and Innovation and a member of the Group Executive Management Team, decided to leave Ahlstrom-Munksjö to pursue career opportunities outside the company.
On October 28, 2020, Mikko Lankinen was appointed Executive Vice President, Corporate Strategy and Development, and a member of the Group Executive Management Team as of October 28, 2020. He reports to Hans Sohlström, President and CEO.
On October 28, 2020, Robin Guillaud was appointed Executive Vice President, Innovation, Sustainability and Communication, and a member of the Group Executive Management Team as of October 28, 2020. He reports to Hans Sohlström, President and CEO.
The members of the EMT and Board of Directors are introduced in the Annual report and at www.ahlstrom-munksjo.com/Investors. Their shareholdings and remuneration is presented in note 7 in the consolidated financial statements. The remuneration statement is available at www.ahlstrom-munksjo.com/Investors.
EVENTS DURING THE REPORTING PERIOD
On September 24, 2020, a consortium of investors made a public recommended cash tender offer for all shares in Ahlstrom-Munksjö. For information about the offer see section Tender offer for all Ahlstrom-Munksjö shares.
Change in the reporting language
On December 18, 2020, Ahlstrom-Munksjö decided to discontinue the use of Swedish as a reporting language as of January 1, 2021. The official reporting languages used in the company’s regulatory disclosures will be Finnish and English. By discontinuing the use of Swedish as a reporting language, Ahlstrom-Munksjö aims to ensure speed and efficiency in the company’s financial reporting and in the publishing of releases.
Sustainability work awarded with EcoVadis Gold rating
Ahlstrom-Munksjö was awarded the EcoVadis Gold rating for the company’s sustainability management and performance for the fourth consecutive year in June 2020. Compared with the results from the previous year, progress was especially made in sustainable procurement.
EcoVadis is a globally recognized business sustainability rating provider. The Corporate Social Responsibility assessment criteria include four themes: environment, labor practices, sustainable procurement and fair business practices. The EcoVadis method is based on internationally adopted principles for sustainability reporting, such as the Global Reporting Initiative, United Nations Global Compact and ISO 26000, and is audited by independent sustainability experts.
Divestment of the fine art paper business
On March 3, 2020, Ahlstrom-Munksjö completed the sale of fine art paper business ARCHES® to Italian based F.I.L.A. Group, Fabbrica Italiana Lapis ed Affini S.p.A., for a debt and cash free price of EUR 43.6 million. The company booked a capital gain of EUR 32.0 million from the sale. The fine art paper business is small and has limited synergies within Ahlstrom-Munksjö’s portfolio of businesses. F.I.L.A. is a strategic and industrial owner, a leading global player in its field, for which the ARCHES paper product range is complementary and provides further
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growth opportunities. The standalone pro forma net sales of the fine art paper business were approximately EUR 13 million and comparable EBITDA in excess of EUR 4 million in 2019. The transaction was first announced on October 30, 2019.
New plan periods in the share-based long-term plans and a new matching share plan
On February 13, 2020, the Board of Directors decided on a new performance period under the long-term share-based incentive plan announced on October 24, 2017. The Board of Directors has, in addition, decided on the establishment of a fixed matching share plan as well as on the establishment of a new earning period in the restricted share plan that was announced on March 28, 2019. The aim of the plans is to align the objectives of the company's shareholders and key personnel to increase the company's value and to commit the key personnel to the company through an incentive system based on the ownership of Ahlstrom-Munksjö shares. The full release is available at www.ahlstrom-munksjo.com/Media/releases.
BUSINESS AREAS AND STRUCTURE
Ahlstrom-Munksjö implemented a new business and reporting structure as of January 1, 2020. The new business areas are Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions which form Group’s operating segments. More information about the company’s structure and business areas can be found in note 4 of the consolidated financial statements.
Net sales | Comparable EBITDA | Comparable EBITDA margin, % | ||||||
EUR million, or as indicated | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
Filtration & Performance Solutions | 637.1 | 724.0 | 118.6 | 126.1 | 18.6 | 17.4 | ||
Advanced Solutions | 476.2 | 470.2 | 61.1 | 50.6 | 12.8 | 10.8 | ||
Industrial Solutions | 683.9 | 765.7 | 71.3 | 61.1 | 10.4 | 8.0 | ||
Food Packaging & Technical Solutions | 554.6 | 582.4 | 52.5 | 53.4 | 9.5 | 9.2 | ||
Decor Solutions | 369.7 | 419.6 | 37.6 | 34.5 | 10.2 | 8.2 | ||
Other and eliminations | -38.1 | -46.5 | -6.8 | -12.9 | — | — | ||
Group | 2,683.3 | 2,915.3 | 334.2 | 312.9 | 12.5 | 10.7 |
FILTRATION & PERFORMANCE SOLUTIONS
The Filtration & Performance Solutions business area develops and produces engine oil, fuel and air filtration materials, as well as industrial filtration. It also produces abrasive backings, glass fiber for flooring products as well nonwoven materials for automotive, construction, textile, hygiene and wallcovering applications.
Market review January-December 2020
•Demand for filtration materials gradually recovered from a low level in Q2
•Demand for glass fiber flooring, abrasive backings, wallcoverings and plasterboard materials improved
•Face mask material deliveries compensated for temporarily lower demand in Q2–Q3
•Launch of Ahlstrom-Munksjö FibRoc®, a new product platform of high-performance solutions for durable applications. FibRoc® Flooring product portfolio was the first introduction under the portfolio.
•Launch of product portfolio for lead acid batteries under the Ahlstrom-Munksjö FortiCell range of fiber-based solutions for energy storage applications
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2020 compared with 2019
The decline in net sales was mainly driven by lower sales volumes, particularly in the Filtration business, and the divestments of the glass fiber reinforcement and fine arts businesses. The divestments had a negative impact of about EUR 43 million on net sales.
The decline in comparable EBITDA was mainly driven by lower sales volumes. This was partially offset by improved cost efficiency.
ADVANCED SOLUTIONS
The Advanced Solutions business area develops and produces materials for laboratory filters and life science diagnostics, water filtration, beverage and food processing, tapes and medical fabrics. The business area also supplies hot cooking oil and milk filtration materials as well as specialty release liners..
Market review January-December 2020
•Strong demand for medical and life science products
•Solid demand growth for tape backings, tea and coffee materials, as well as fibrous meat casing materials
•Weak demand for specialty release liners due to low activity in aerospace
•Launch of Trustshield Biological, a personal protective apparel medical fabric designed to shield against hazardous pathogens
•Partnership with BUFF, a producer of sport and lifestyle accessories, for the supply of replaceable filter media in face masks.
2020 compared with 2019
Net sales increased as higher selling prices and volumes were almost offset by an adverse currency effect. Deliveries increased in all businesses except Precision Coating, where they decreased significantly.
Comparable EBITDA increased mainly due to a larger share of sales of medical and life science products, more than offsetting the negative impact of lower specialty release liner deliveries.
INDUSTRIAL SOLUTIONS
The Industrial Solutions business area develops and produces release liners, electrotechnical insulation papers as well as flexible packaging and coated label papers. The business area also supplies specialty pulp, interleaving papers as well as office and printing papers..
Market review January-December 2020
•Good demand growth in release liners for labels, with improving demand for industrial grades from a weak Q2
•Recovery in demand for electrotechnical and steel interleaving papers in Q4
•Demand for coated papers improved, particularly in Brazil, after a decline in Q2
•Ahlstrom-Munksjö joined CELAB (Circular Economy for Labels), a global coalition to promote the development of the circular economy for self-adhesive label materials
•Decision to invest in a more sustainable coating machine in Billingsfors, Sweden to enable formaldehyde free balancing and finishing foils for furniture, as well as the building and construction industries
•A new power co-generation investment was completed at the Turin site in Italy. The new plant allows the combined and efficient power and steam generation needed for the site’s processes.
2020 compared with 2019
Net sales declined mainly due to lower selling prices and an adverse currency effect.
Comparable EBITDA increased mainly due to lower costs, more than offsetting lower selling prices. Costs were reduced partly due to internal initiatives.
FOOD PACKAGING & TECHNICAL SOLUTIONS
The Food Packaging & Technical Solutions business area develops and produces a wide range of sustainable food packaging and processing papers as well as specialty papers for industrial and construction use.
Market review January-December 2020
•Demand for food processing and packaging continued to improve, following a mild rebound in restaurant traffic
•Robust demand for parchment cooking and baking papers in North America and flexible packaging products sold in grocery stores continued
•Rebound in demand for specialty papers in industrial and construction applications in Q4.
2020 compared with 2019
Net sales decreased due to lower delivery volumes, particularly in the Technical business, and an adverse currency effect. Average selling prices were lower and were partly impacted by a less favorable product mix.
Comparable EBITDA decreased. Lower variable costs more than offset the negative impacts of lower sales volumes and average selling prices. Fixed costs increased, partly driven by maintenance activity.
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DECOR SOLUTIONS
The Decor Solutions business area develops and produces paper-based surfacing for wood-based materials such as laminate flooring, furniture and interiors.
Market review January-December 2020
•After a market recovery in the first quarter, demand for decor paper dropped at the end of March, following the closures of retail furniture outlets. In the second half of the year, there was a strong market recovery, following their re-opening.
•Broad-based downtime at decor paper customers and end-customers in the furniture industry from mid-March to mid-June. Strong demand recovery in the second half of the year
•Very strong demand in home furniture and home renovation segments during the summer and fall driving good order inflow in the second half of the year, while demand in office and shop furniture remained weak
•Strategic review of the business proceeding, although delayed due to the coronavirus outbreak
2020 compared with 2019
Net sales decreased due to significantly lower delivery volumes in Q2, lower selling prices and adverse currency effect.
Comparable EBITDA increased as lower variable costs, partly driven by higher raw material efficiency, more than offset the negative impacts of lower selling prices and volumes.
SHARES AND SHARE CAPITAL
Ahlstrom-Munksjö’s shares are listed on the Nasdaq Helsinki and Nasdaq Stockholm. All shares carry one vote and have equal voting rights. The trading code is AM1 in Helsinki and AM1S in Stockholm. On December 31, 2020, Ahlstrom-Munksjö’s share capital amounted to EUR 85.0 million and the total number of shares was 115,653,315..
The company had a total of 15,938 shareholders at the end of the reporting period (14,742 as of December 31, 2019) according to Euroclear Finland Ltd. and Euroclear Sweden Ltd.
At the end of the reporting period, Ahlstrom-Munksjö held 664,862 own shares, corresponding to approximately 0.6% of total shares and votes.
Share price performance and trading
Nasdaq Helsinki | Nasdaq Stockholm | ||||
2020 | 2019 | 2020 | 2019 | ||
Share price at the end of the period, EUR/SEK | 18.10 | 14.32 | 181.40 | 149.60 | |
Highest share price, EUR/SEK | 18.42 | 15.18 | 192.60 | 165.00 | |
Lowest share price, EUR/SEK | 8.12 | 11.90 | 90.50 | 121.40 | |
Market capitalization at the end of the period1, EUR million | 2,081.3 | 1,650.9 | n/a | n/a | |
Trading value, EUR/SEK million | 417.9 | 184.5 | 354.7 | 214.3 | |
Trading volume, shares million | 28.6 | 13.3 | 2.3 | 1.5 | |
Average daily trading volume, shares | 113,384 | 53,330 | 9,014 | 5,847 |
1Excluding the shares held by Ahlstrom-Munksjö
ANNUAL GENERAL MEETING OF SHAREHOLDERS
Ahlstrom-Munksjö Oyj's Annual General Meeting (AGM) was held on March 25, 2020. The AGM adopted the Financial Statements for 2019 and discharged the members of the Board of Directors and the President and CEO from liability for the financial year 2019.
The AGM resolved to distribute a dividend of EUR 0.52 per share (EUR 59,793,995.56 in total) for the fiscal year that ended on December 31, 2019 in accordance with the proposal of the Board of Directors. The dividend will be paid in four installments. The first installment of EUR 0.13 per share was paid on April 3, 2020, the second installment of EUR 0.13 was paid on July 9, 2020 the third installment of EUR 0.13 was paid on October 9, 2020, and the fourth installment of EUR 0.13 was paid on January 11, 2021.
The full release on resolutions is available at www.ahlstrom-munksjo.com
PROPOSAL FOR THE DISTRIBUTION OF PROFIT
The distributable funds on the balance sheet of Ahlstrom-Munksjö Oyj as of December 31, 2020 amounted to EUR 901,057,524.65. The Board of Directors’ dividend proposal to the Annual General Meeting will be decided after the Extraordinary General Meeting to be held on February 19, 2021.
RISKS AND RISK MANAGEMENT
Information about major risk faced by Ahlstrom-Munksjö and how they are mitigated can be found on in the risk section of the Annual report and at www.ahlstrom-munksjo.com. Financial risks are described in notes 17 and 19 of the consolidated financial statements.
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Short-term risks
As Ahlstrom-Munksjö manages a broad portfolio of businesses and serves a wide range of end uses globally, it is unlikely to be significantly affected at a group level by individual business related factors. However, slowing global economic growth and uncertain financial market conditions could have a materially adverse effect on the Group’s financial results, operations and financial position.
Recently, the coronavirus pandemic has been the key driver of increased uncertainty globally from an economic and social perspective. The risk of a broader economic downturn is less tangible. However, if it materializes, it may weaken demand for a wide range of Ahlstrom-Munksjö products for a longer period. The full impact of the pandemic cannot be foreseen at this stage. It will depend on both the duration and severity of the pandemic, and the measures taken to contain it. The resurgence in the number of infections during the fall of 2020 has caused countries to reimpose temporary and regional restrictions.
The coronavirus pandemic has disrupted consumers’ lives across the world. The length of the pandemic will probably be a key determinant for if and how our way of life will permanently change and affect companies’ future business opportunities. Globally, the rollout of coronavirus vaccinations has started, which is expected to contain the spread.
Ahlstrom-Munksjö has assessed carrying amounts of assets and liabilities, such as goodwill and other intangible, tangible assets, inventories, deferred taxes, trade receivables and pension plans and re-assessed the need of impairment. Based on the assessments, the consequences of the pandemic has currently no impact on asset valuations.
The company’s significant risks and uncertainty factors mainly consist of developments in demand for and prices of sold products, the cost and availability of significant raw materials and energy, financial risks, as well as other business factors including developments in global politics, regulations and the financial markets. The company’s financial performance may be impacted by the timing of possible raw material price increases and its ability to raise selling prices. On-going trade disputes pose a threat to the global economy, which may have an effect on Ahlstrom-Munksjö’s markets.
Operational risks such as personnel absences, supply of key raw materials and deliveries to customers have also increased due to the pandemic. These risks have been mitigated by a rapid and coordinated response, and the implementation of the Ahlstrom-Munksjö Covid-19 Safety Protocol. However, if the pandemic continues for a longer period, the exposure to the operational risks may increase.
The company’s key financial risks include interest rate and currency, liquidity and credit risks. To mitigate short-term risks, methods such as hedging and credit insurance are used. Additional credit risk assessment has been implemented for customer receivables to evaluate the potential implications of the coronavirus pandemic. Based on the assessment, the company has not identified any significant increase in the amount of bad debt, and there has currently not been any significant change in payment delays related to Ahlstrom-Munksjö’s customer
receivables. However, if the pandemic continues for a longer period, the exposure to the credit risk, such as delayed payments from the customers, may increase.
The pandemic has increased the risk of financiers becoming more cautious and reducing banks’ willingness to provide financing. This may have an impact on refinancing and increase financing costs. Ahlstrom-Munksjö’s liquidity continues to be good, and during the second quarter, the company has signed additional financing facilities to further strengthen its liquidity position. There are no major short-term refinancing needs.
The Group is exposed to tax risks due to potential changes in tax laws or regulations or their application, or as a result of on-going or future tax audits or claims.
The company regularly assesses the best structure for its platform of businesses and systematically evaluates M&A opportunities. In potential business combinations, substantial integration work is needed to realize expected synergies.
The company has operations in many countries, and sometimes disputes cannot be avoided in daily operations. The company is sometimes involved in legal actions, disputes, claims for damages and other procedures. The result of these cannot be predicted, but taking into account all the available current information, no significant impact on the financial position of the company is expected.
More information about risks and uncertainty factors related to Ahlstrom-Munksjö’s business and the company’s risk management is available at www.ahlstrom-munksjo.com..
NON-FINANCIAL INFORMATION STATEMENT
Ahlstrom-Munksjö produces sustainable and innovative fiber-based solutions to customers worldwide. The company’s offering includes filter materials, release liners, food and beverage processing materials, decor papers, abrasive and tape backings, electrotechnical paper, glass fiber materials, medical fiber materials and solutions for diagnostics as well as a range of specialty papers for industrial and consumer end-uses. Ahlstrom-Munksjö operates in 45 production and converting sites in 14 countries, serving more than 7,000 customers in 100 countries.
Ahlstrom-Munksjö employed in January-December 2020 an average of 7,814 (8,078) people in full-time equivalents. As of December 31, 2020, the highest numbers of employees were in the United States (31%), France (19%), Sweden (10%), Brazil (9%) and Germany (7%).
Net sales were EUR 2,683.3 million and comparable EBITDA EUR 334.2 million.
Ahlstrom-Munksjö organization, including branches, and businesses are presented in the annual report and in note 21 in the consolidated financial statements.
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Knowhow, technology and partnership at the center of value creation
Ahlstrom-Munksjö is a producer of functional materials. We create value by adding knowhow and advanced technology to fibers that we ensure are responsibly sourced. In close partnership with our customers we develop fiber-based solutions that often perform vital functions and have a positive impact as part of the end product or solution.
We deliver a value proposition for our customers that is based on innovation, quality and customized service. With our product offering we facilitate a sustainable everyday life by providing solutions with better performance, safer materials, fewer resources and lower environmental impact. Our customers use our solutions in a large variety of everyday applications within in a broad range of end-uses that are underpinned by fundamental business drivers in today’s society.
AHLSTROM-MUNKSJÖ’S SUSTAINABILITY AREAS AND MATERIAL TOPICS
For the year 2020, the company reports on nine material topics within its materiality areas People, Planet and Prosperity.
People
1. Human rights
2. Community engagement
3. Employee well-being
Planet
4 Supply chain
5. Energy, water and waste
6. Carbon dioxide
Prosperity
7. Profitability
8. Innovation
9. Business ethics
These topics are Ahlstrom-Munksjö's strategic areas of focus for accurate data collection, management for performance, and transparent reporting on progress towards targets. The non-financial information will include all of these except for the themes of profitability and innovation that are discussed in other sections of the Board of Directors' report.
SUSTAINABILITY POLICY AND MANAGEMENT APPROACH
Ahlstrom-Munksjö's sustainability policy defines the formal sustainability governance structure. The company’s sustainability work is governed by the Sustainable Business Council (SBC) with representatives from the Executive Management Team (EMT), the Business Areas and other functions such as legal, procurement and communication. The Council, which convenes at least biannually, oversees the integration of sustainability practices into business operations.
NON-FINANCIAL MATTERS AS REQUIRED BY THE FINNISH ACCOUNTING ACT
The Board of Directors has evaluated the following non-financial matters: environmental, social and employee, respecting human rights as well as anti-corruption and bribery, as required by the Finnish Accounting Act and set forth in EU Directive 2014/95/EU.
THE ENVIRONMENT
As part of a resource-intensive industry, Ahlstrom-Munksjö has a particular responsibility to advance environmental performance throughout its operations and supply chains. The company pursues continuous improvement in three areas: the environmental impacts of its supply chain practices, efficiencies in energy and water use and waste reduction and disposal, and carbon dioxide emissions reductions.
Ahlstrom-Munksjö works to ensure that raw materials are responsibly sourced and that procurement promotes sustainable forestry practices. Ahlstrom-Munksjö works with a large number of suppliers to secure the high quality and diverse inputs needed to create its portfolio of fiber-based solutions.
Supply chain
Ahlstrom-Munksjö expects its suppliers to uphold high standards for ethical and socially and environmentally responsible business practices. By supporting partners who adhere to overall responsible practices, Ahlstrom-Munksjö can avoid the risk of negative impacts on operation and reputation and contribute to sustainable development across the value chain. Sound procurement practices also mitigate business risks for the company, customers, and investors.
Ahlstrom-Munksjö’s Supplier Code of Conduct establishes clear, non-negotiable minimum requirements related to legal compliance, human rights and the prevention of child labor, health and safety, responsible business practices, environmental impacts, and transparency. Ahlstrom-Munksjö's Procurement is ensuring that every supplier has signed or is in full compliance with these expectations through regular dialogue with suppliers as well as systems for risk assessment and field auditing. Ahlstrom-Munksjö also creates accountability by evaluating Supplier Code of Conduct risks and following up with mitigation actions as needed.
The supplier risk management procedure is in place to support the organization to identify potential risk factors in the supply chain. The procedure consists of an evaluation per supplier and creation of a risk mitigation action plan according to risk severity. The risk evaluation is
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assessed semi-annually by the category managers/ buyers and the risk mitigation action plan is reviewed quarterly by procurement function. Supplier audits are conducted by qualified Ahlstrom-Munksjö personnel (i.e. procurement or quality professionals) or by accredited third party auditors.
Performance indicators
The target for the year 2020 was that all fiber and chemical suppliers are signatories or considered compliant by the end of the year. At the end of 2020, 97 percent (95) of fiber spend and 96 percent (93) of chemical spend had signed the Supplier Code of Conduct or were considered compliant. During the year, progress has been made in committing the energy and indirect suppliers to the Supplier Code of Conduct. In 2020, 60 percent (26) of the energy suppliers and 39 percent (23) of the indirect suppliers had signed the Supplier Code of Conduct or were considered compliant.
By year end 2020, 80 percent (approximately 190 suppliers) of all fiber and chemical spend have been evaluated by supplier risk assessment. For medium & high risk severity suppliers a supplier specific action plan has been put in place. In 2019 and 2020 seven Corporate Social Responsibility (CSR) audits were completed and risk mitigation plan were put in place. Due to the pandemic on-site audits have not been possible in 2020.
Any potential violations to the Supplier Code of Conduct can be reported to a Procurement Manager, Human Resources or Legal departments. Ahlstrom-Munksjö has also contracted an external service where employees can report violations confidentially through a hotline or online. Reports of violations may also be made by third parties to a dedicated and confidential mailbox at codeviolation@ahlstrom-munksjo.com.
Energy, water and waste
Ahlstrom-Munksjö's production generates emissions to air and water, and waste to landfills. The risk of failing to comply with environmental regulation and permits, or failing to continuously improve our production processes and our products could lead to a material adverse effect on the company as well as reducing environmental quality. Plant managers and their teams lead these efforts. Ahlstrom-Munksjö also continues to strengthen internal networks and training opportunities to share best practices in resource management specific to the company’s operations.
Ahlstrom-Munksjö is dedicated to designing products and manufacturing processes that use energy, water and raw materials as efficiently as possible to minimize waste and emissions. As part of a resource-intensive industry, the company has a particular responsibility in this area to continuously reduce its environmental impact. It will also help to ensure full legal compliance and achieve cost savings that benefit the bottom line, customers, and investors.
Performance indicators
We assess energy use and water use per gross ton of our production, as well as total tons of waste sent to landfill.
The target for specific energy consumption reduction was an annual 2 percent reduction from 2018 onward. In 2020, the total energy use in GJ per gross ton production increased by 1.5% to 26.7 (26.3) partly due to swings in production caused by changing customer demand, particularly in Q2 and Q3, caused by the spread of Covid-19. Due to issues in data collection, the 2019 figure for energy consumption was corrected. The company is taking the required actions to ensure accurate data collection.
The target for reductions of water usage was an annual 1.5 percent reduction in water use per gross ton production from 2018 onward. Water use in cubic meters per gross ton production decreased by 1% to 72.3 (73.0).
The target for waste reduction is an annual 2 percent reduction in tons of waste to landfill from 2018 onward. In 2020, 100,564 tons of non-recoverable waste were sent to landfills, compared to 98 507 tons in 2019. The increase was partly due to the challenging weather conditions, which prevented a larger amount from being used in agriculture as fertilizer, and that the waste scope was expanded at the Caierias mill in Brazil.
Carbon dioxide
Ahlstrom-Munksjö has acknowledged its responsibility to align with targets set by international agreements of decreasing specific carbon dioxide emissions and increasing the company’s share of renewable and carbon free energy. This commitment allows the company to proactively respond to an evolving regulatory environment, particularly in the European Union where many production sites are based. These activities also synergistically improve the company’s efforts to save energy and cost where possible and meet growing stakeholder expectations that companies like Ahlstrom-Munksjö take action on climate change.
Performance indicators
The target for Scope 1 emissions was an annual reduction of 2 percent while the target for Scope 2 emissions was an annual reduction. In 2020, the Scope 1 emissions were 1.1 tons and Scope 2 carbon dioxide emissions were 0.3 tons. Due to issues in data collection, performance in 2020 is not comparable with reporting in 2019. The company is taking the required actions to ensure accurate data collection.
SOCIAL AND PERSONNEL-RELATED ISSUES
People are central to every aspect of sustainability at Ahlstrom-Munksjö. The company aims to build close, long-term relationships with the communities where production sites are located and provide safe and healthy work environments, free from discrimination and full of
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opportunities. Ahlstrom-Munksjö's continued progress in these areas is essential to our long-term success.
Ahlstrom-Munksjö believes in creating safe and inclusive work environments where employees are given fair treatment and equal opportunity. Ahlstrom-Munksjö is committed to being a responsible employer and providing fair remuneration to our employees.
All of the company’s efforts and long-term business success rely on strong performance in this area.
Community engagement
To Ahlstrom-Munksjö, Community Engagement means having a positive impact in the community by supporting local and global initiatives that align with the company’s values. Currently, local community relationships are cultivated by plant managers and their teams at 45 locations worldwide. Over time, effective community engagement reduces risks of potential conflict, strengthens local economy, helps attract employees and opens up possibilities for productive collaborations and partnerships. Production sites have undertaken a diverse range of community engagement activities, such as hosting open houses and plant tours, providing educational or professional development opportunities for young people, contributing charitable donations and in-kind support to community enrichment activities, maintaining an open dialogue and quickly respond to community feed-back related to regular plant activities. Some plants have undertaken formal stakeholder analyses, and based on them developed community engagement plans, whereas others work more on an ad hoc basis as opportunities or challenges arise.
Going forward, local plant leadership will remain essential. To build on already largely positive and productive relationships with host communities, all Ahlstrom-Munksjö plant management teams will take time each year to carefully consider their community engagement work. Components of this plan will include how plant activities can improve company image, attract potential employees, and contribute to healthier living in the area. These activities are supported and followed up on by Group HR, who reports Community Engagement Activities annually.
Performance indicators
The target for 2020 was that all plants have an annually updated community engagement plan. By the end of 2020, 40 percent (58) of sites had updated their formal community engagement plans. However, 100% of the plants participated in the company-wide United Nation’s Children’s Day in November, 2020. This activity was localized in 12 language versions and taken forward locally by the site Culture Ambassador and local HR.
Employee well-being
Ahlstrom-Munksjö focuses on three dimensions of the Employee Well-Being topic: Health & Safety, Employee Development, as well as and Gender Equality and Diversity.
Health & Safety
Safety is our mindset throughout operations at Ahlstrom-Munksjö. The company works towards a zero-injury workplace and a healthy, productive team by setting ambitious targets for continuous improvement, developing consistent safety practices and competencies at every level, and creating a culture of responsibility and accountability for all employees, contractors and visitors at our sites. This can reduce the risks of injuries or diseases that can lead to delays, quality issues and liability.
This work is determined by the Occupational Health and Safety Policy, safety standards and guidelines, safety rules, lifesaving rules, and that safety management systems required to be certified by an external partner.
As highlighted in the company’s Occupational Health and Safety Policy, focus lies on conducting the ten preventative activities, with main focus on reporting upon hazards and near misses, behavior-based safety interactions, safety inspections and auditing, and tailored safety training, to ensure a safe working environment. Local Health & Safety Managers lead these activities at each site in coordination with our Safety Network of leaders across business areas and sites, Human Resources team, and the VP Health & Safety.
Performance indicators
To measure our progress in this area, Ahlstrom-Munksjö tracks three priority metrics: Total Recordable Incidents Rate (TRIR), Near Miss Rate, and hours of Tailored Safety Training.
The main lagging indicator is the Total Recordable Incidents rate (TRIR) where a baseline of 2.2 was established in 2017. In 2020 the TRIR decreased by 12 percent to 1.42 (1.62 in 2019, adjusted for divested entities).
The annual near miss rate had a 2020 target of 5.5, much higher than the baseline target of 2.37 set in 2017. In 2020, the company achieved a near miss rate of 6.0, up from 5.0 in 2019, meaning that risks are being reported and responded upon swiftly. In Ahlstrom-Munksjö we believe that collecting near-miss reports helps create a culture that seeks to identify and control hazards, which over time will reduce risks and the potential for harm. This KPI means that each employee has on average submitted a minimum of six near misses in 2020.
The number of hours of tailored safety training per employee this year reached 17 in 2020, down from 20 in 2019. The target was however 15. The reason for the decline is due to Covid-19, and no possibilities to conduct face to face trainings. We believe that zero accidents are possible, and this is our long-term aspiration. Working with preventative activities like reviewing safety alerts and best practices, working diligently on the main leading indicators,
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drives safety in the correct direction, and the reduction of seventeen percent in all recordable accidents in 2020, compared to 2019, comes as a direct result of these efforts.
Total Recordable Incidents is the sum of all recorded occupational accidents; lost time accidents, occupational diseases, light duty cases, and other recordable incident. Total recordable Incidents Rate; (Total Recordable Incidents/Total hours worked) x 200,000.
Employee Development
As described in the Human Capital Policy, Ahlstrom-Munksjö is committed to continuously developing its employees based on individual aspirations, company values, and business needs by for example providing on-the-job training as well as development programs within leadership and other strategic competence areas. Continuous learning and growing are essential components of a vibrant company and can contribute to achieving growth and greater business, social and environmental results throughout the company. By investing into our team we can continue to remain an attractive employer.
The Human Resources team leads this initiative and collects information on progress towards targets in this area. For the Employee Development aspect of the Employee Well-Being materiality, progress is measured by tracking what percentage of employees have had a performance and development discussion with their manager in the past year as well as by employee and leadership engagement indexes.
Performance indicators
All employees should have an annual performance and development discussion with their manager so that they are empowered in their roles and have opportunities for further development. In 2020, 96 percent (70) of employees had an annual performance and development discussion. The Employee Engagement Index and Leadership Index were established and measured during our 2020 employee survey. The baseline result for the Employee Engagement Index was defined as 80% and the Leadership Index as 77%.
Gender Equality and Diversity
In addition to preventing discrimination in accordance with our Human Rights activities, Ahlstrom-Munksjö is working to proactively ensure equal opportunities and drawing on talent across the population. Drawing on talent from across all groups of population enriches our company and enhances our products and solutions. By working with equality, the legal risks as well as reputational risks can be mitigated.
The Human Resources team has led efforts to identify talented new hires regardless of gender. Moving forward, the company will continue to proactively support gender equality in the workplace. The ambition is to always have applicants of the underrepresented gender
among final candidates in both internal and external recruitments and narrow any gender gaps in the company.
Performance indicators
For the Gender Equality and Diversity aspect of the Employee Well-Being materiality, Human Resources measures the percentage of male and female managers at the company. The target was to have a gender representation in managerial roles that is at least proportional to the ratio of the total workforce. In 2019, the base line for the gender ratio was 18 percent female employees of total workforce.
The share of female managers in 2020 was 21 (21) percent of all managerial positions compared to the gender ratio of 18 (18) percent of total workforce. Gender diversity is considered during recruiting, hiring and promotion.
Respect for Human Rights
Ahlstrom-Munksjö is highly committed to respecting fundamental human rights in all its activities and expects the same from suppliers. Human rights violations in the supply chain is considered a larger risk than in Ahlstrom-Munksjö's own operations.
As laid out in the company Code of Conduct, this means for example that all employees must be treated with respect and given equal opportunities for personal growth and professional development regardless of their gender, age, race, ethnicity, disabilities, nationality, sexual orientation, religious beliefs, political affiliations, marital or economic status, or position within the company.
Mitigating risks of violations in human rights along the supply chain such as poor employment and working conditions can also counteract negative impacts to sustainable development at large and minimize reputational risks.
Ahlstrom-Munksjö also supports the United Nations’ Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the OECD Guidelines for Multinational Enterprises, and the UN Global Compact. This commits to eradicating child labor and forced labor anywhere in the supply chain and recognizing employees’ right to freedom of association and collective bargaining.
The same level of commitment is expected from the company’s suppliers. The Supplier Code of Conduct’s key human rights provisions include fair and equal treatment in hiring and employment practices as well as wages, benefits, and working hours that at minimum comply with all local laws and binding collective agreements. It also mandates respecting freedom of association and collective bargaining rights in accordance to all applicable laws and regulations and prohibits child labor, harassment and abuse, and forced and compulsory labor. Finally, it requires suppliers to respect the traditional and customary rights of local communities affected by their operations.
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Performance indicators
Compliance with Human Rights issues in the operations is governed by Ahlstrom-Munksjö’s Code of Conduct and in the supply chain by the Supplier Code Conduct.
In order to make sure that all our employees are both aware of and understand Ahlstrom-Munksjö’s Code of Conduct, they are expected to complete the Code of Conduct course which needs to be renewed biennially and is part of our introduction package for new hires. To date 95% (91%) of all employees of the Ahlstrom-Munksjö Group have completed the Code of Conduct course.
Business ethics
Ahlstrom-Munksjö is committed to conducting its business ethically and responsibly in local and global communities. Adhering to ethical business practices is a fundamental principle for the company’s work across the globe. To foster this the company has a compliance program in place which is led by the company’s Chief Compliance Officer who reports to Audit and Sustainability Committee. Ahlstrom-Munksjö’s Code of Conduct provides with expectations for integrity and ethical behavior throughout the operations, including compliance with all appropriate national and international laws and regulations. Any shortcomings in behaving ethically can result in possible damage to Ahlstrom-Munksjö’s brand and reputation and the associated risk to earnings, sales, market share and shareholder value.
Performance indicators
To comply with ethical and responsible business practices we have the same target as for Human Rights, that all employees are expected to complete the Code of Conduct course. To date 95% (91%) of all employees of the Ahlstrom-Munksjö Group have completed the Code of Conduct course.
At the end of 2020, Ahlstrom-Munksjö updated its materiality assessment. The KPIs and targets for the materialities as of 2021 are presented in Corporate Social Responsibility (CSR) Data chapter in the Annual Report.
OUTLOOK
Ahlstrom-Munksjö expects demand for its products to remain at the current level.
EVENTS AFTER THE BALANCE SHEET DATE
On September 24, 2020, a consortium, consisting of Ahlström Capital, funds managed or advised by Bain Capital as well as Viknum and Belgrano Inversiones made a public recommended cash tender offer for all shares in Ahlstrom-Munksjö. The offer period for the
tender offer commenced on October 22, 2020 and expired on January 14, 2021. The consortium’s intention is to eventually acquire all the shares in Ahlstrom-Munksjö and apply for a delisting of the shares from Nasdaq Helsinki and Nasdaq Stockholm to develop the company in a private domain.
On January 18, 2021 based on the preliminary result, the offeror decided that it will waive the minimum acceptance condition and complete the tender offer in accordance with its terms and conditions provided that the final result of the tender offer confirms that the tender offer has been validly accepted with respect to shares representing, together with any shares otherwise held by the offeror prior to the date of the announcement of the final result of the tender offer, on a fully diluted basis at least 75% of the shares and voting rights of the company. On January 20, 2021 the consortium declared the tender offer unconditional with approximately 81% of shares validly tendered and accepted in the tender offer.
On January 20, 2021, the offeror also announced the commencement of a subsequent offer period in accordance with the terms and conditions of the tender offer. The subsequent offer period commenced on January 21, 2021 and expired on February 4, 2021. According to the final result of the subsequent offer period, the shares validly tendered and accepted during the subsequent offer period, together with the shares validly tendered and accepted during the initial offer period (as extended) and otherwise acquired by the offeror through market purchases until February 8, 2021, represent approximately 90.6% of all the shares and voting rights carried by the shares in Ahlstrom-Munksjö. The offeror’s intention is to apply for the shares in Ahlstrom-Munksjö to be delisted from Nasdaq Helsinki Ltd (“Nasdaq Helsinki”) and from Nasdaq Stockholm AB (“Nasdaq Stockholm”), respectively, as soon as permitted and reasonably practicable under the applicable laws and regulations and the rules of Nasdaq Helsinki and Nasdaq Stockholm. As the offeror’s holdings in Ahlstrom-Munksjö will exceed 90% of all the shares and voting rights carried by the shares in Ahlstrom-Munksjö after the settlement of the shares tendered in the tender offer, the offeror will initiate compulsory redemption proceedings to acquire the remaining shares in accordance with the Finnish Companies Act.
Extraordinary General Meeting
On January 25, 2021, notice was given to the shareholders of Ahlstrom-Munksjö to Extraordinary General Meeting to be held on February 19, 2021 to resolve on the election of new Board of Directors and certain other matters.
Change in Ahlstrom-Munksjö Group ownership
Following the completion of the Tender Offer on February 4, 2021, Spa (BC) Lux Holdco S.à r.l. (entity owned and controlled by funds managed and/or advised by Bain Capital Private Equity (Europe), LLP, and/or its affiliates), Ahlstrom Invest B.V., Viknum AB (an entity in which
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Alexander Ehrnrooth, a member of the Board of Directors, exercises influence) and Belgrano Inversiones Oy (an entity in which Alexander Ehrnrooth, a member of the Board of Directors, exercises control) together indirectly owned 81.0% of all the shares and voting rights in Ahlstrom-Munksjö Oyj through Spa Holdings 3 Oy, a private limited liability company incorporated and existing under the laws of Finland. The ultimate new parent company for Ahlstrom-Munksjö Oyj is SPA Lux TopCo Sárl, an entity domiciled in Luxembourg.
Transaction costs
Ahlstrom-Munksjö will pay approximately EUR 9 million of transaction costs resulting from the successful closing of the Tender Offer, which will be recognized as expenses during first quarter of 2021. These expenses will be reported as items affecting comparability in the Company’s results for the first quarter 2021.
Long-term incentive plans
Ahlstrom-Munksjö’s Board of Directors decided on February 9, 2021 following the closing of the Tender Offer to prematurely terminate all existing long-term share-based incentive plans and to settle them in cash. Matching share plans (2019-2021, 2020-2022) reward payments are made to the participants immediately and long-term share-based incentive plans (LTI 2019-2021, LTI 2020-2022) rewards payments are made to the participants in three months from closing of the Tender Offer. The estimated amount of cash payments (including social security costs) is approximately EUR 18.6 million during the first half of the year of 2021. The income statement impact over the first quarter of 2021 resulting from accelerated vesting is approximately EUR 15.8 million. The income statement impact will be reported as items affecting comparability in the Group’s results.
Change of control events impact to Ahlstrom-Munksjö's long-term funding
As a result of the settlement of the tender offer on February 4, 2021, the EUR 249.5 million senior bond and EUR 602.9 million of the bank loans (amounts reported as carrying values as of December 31, 2020) will become redeemable during the first half of 2021 to the extent the financing providers exercise their mandatory prepayment rights based on the customary change of control terms in the existing financing documents.
In addition, unless Ahlstrom-Munksjö at its option decides to redeem the hybrid bond within six months from the date of completion of the tender offer, the interest rate of the hybrid bond will increase by an additional margin of 5.0% p.a.
For purposes of the refinancing of Ahlstrom-Munksjö’s existing debt, financing the Tender Offer and other agreed purposes, SPA Holdings 3 Oy and SPA US Holdco, Inc have committed senior term facilities and senior bridge facilities totaling to EUR 1,650 million (nominal) provided on a customary certain funds basis, with maturities of 7 years. Any repayments
required by the existing Ahlstrom-Munksjö financing providers are expected to be initially funded using proceeds from an intercompany loan provided to Ahlstrom-Munksjö by SPA Holdings 3 Oy and Ahlstrom-Munksjö USA Inc by SPA US Holdco, Inc and cash on balance sheet in each case, in all material respects reflecting the terms of the committed facilities of SPA Holdings 3 Oy and SPA US Holdco, Inc described above with the exception of a 12 month maturity, customary margin step-up and other customary changes for such intercompany loan instrument.
In addition, the existing committed EUR 200 million multicurrency revolving facility agreement and the committed EUR 50 million revolving credit facility, which both were undrawn at the balance sheet date, may be cancelled at the lender’s option. SPA Holdings 3 Oy and SPA US Holdco, Inc also have a committed EUR 325 million revolving credit facility under its senior facilities agreement to replace these facilities and to provide ongoing working capital and general corporate funding requirements for the Group.
Ahlstrom-Munksjö Oyj
Board of Directors
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Key figures
Certain of our key figures are not accounting measures defined or specified under IFRS and therefore are considered as alternative performance measures. We present these alternative performance measures as additional information to the financial measures presented in the consolidated financial statements prepared in accordance with IFRS. The Group believes that the alternative performance measures provide significant additional information on Ahlstrom-Munksjö’s results of operations, financial position and cash flows, and are widely used by analysts, investors and other parties and provide additional information to analyze our performance and capital structure.
Alternative performance measures should not be viewed in isolation or as a substitute to measures presented in our IFRS financial statements. Companies do not calculate alternative performance measures in a uniform way, and therefore Ahlstrom-Munksjö’s alternative performance measures may not be comparable with similarly named measures presented by other companies.
Alternative performance measures are unaudited.
Financial key figures 2020-2018
EUR million, or as indicated | 2020 | 2019 | 2018 |
Performance indicators | |||
Net sales | 2,683.3 | 2,915.3 | 2,437.5 |
Operating result | 176.2 | 103.2 | 88.7 |
Operating result margin, % | 6.6 | 3.5 | 3.6 |
EBITDA | 354.5 | 279.4 | 222.6 |
EBITDA margin, % | 13.2 | 9.6 | 9.1 |
Comparable EBITDA | 334.2 | 312.9 | 277.7 |
Comparable EBITDA margin, % | 12.5 | 10.7 | 11.4 |
Items affecting comparability in EBITDA | 20.3 | -33.4 | -55.1 |
Comparable operating result | 165.1 | 139.0 | 151.4 |
Comparable operating result margin, % | 6.2 | 4.8 | 6.2 |
Items affecting comparability in operating result | 11.1 | -35.8 | -62.7 |
Comparable operating result excluding depreciation and amortization arising from PPA | 216.1 | 191.1 | 186.1 |
Net result | 94.5 | 32.8 | 42.9 |
Earnings per share (basic), EUR | 0.78 | 0.27 | 0.43 |
Earnings per share (diluted), EUR | 0.78 | 0.27 | 0.43 |
Comparable net result | 84.6 | 59.3 | 89.7 |
Comparable earnings per share, EUR | 0.70 | 0.50 | 0.91 |
Comparable net result excluding depreciation and amortization arising from PPA | 122.8 | 98.0 | 115.6 |
Comparable earnings per share excluding depreciation and amortization arising from PPA, EUR | 1.03 | 0.84 | 1.18 |
Net cash from operating activities | 255.1 | 286.7 | 91.6 |
Operating cash flow per share, EUR | 2.22 | 2.49 | 0.95 |
Capital expenditure | 117.5 | 161.1 | 160.1 |
Payment for acquisition of businesses and subsidiaries, net of cash acquired | — | 10.8 | 608.0 |
Average number of employees, FTE | 7,814 | 8,078 | 6,480 |
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EUR million | 2020 | 2019 | 2018 |
Capital structure | |||
Capital employed average for 12 months | 2,301.1 | 2,363.3 | 1,814.5 |
Total equity | 1,184.6 | 1,232.0 | 1,162.2 |
Net debt | 735.8 | 885.0 | 962.5 |
Gearing ratio, % | 62.1 | 71.8 | 82.8 |
Return on equity (ROE), rolling 12 months, % | 7.9 | 2.9 | 4.1 |
Comparable return on equity, rolling 12 months, % | 7.1 | 5.2 | 8.6 |
Return on capital employed (ROCE), rolling 12 months, % | 7.7 | 4.4 | 4.9 |
Comparable return on capital employed, rolling 12 months, % | 7.2 | 5.9 | 8.3 |
Equity/assets ratio, % | 37.9 | 38.5 | 35.9 |
Net debt/Comparable EBITDA | 2.2 | 2.8 | 3.5 |
Reconciliation of certain key performance measures
EUR million | 2020 | 2019 | 2018 |
Items affecting comparability | |||
Transaction costs | -6.5 | -2.7 | -10.9 |
Integration costs | -0.5 | -11.7 | -20.4 |
Inventory fair valuation | — | — | -7.5 |
Restructuring costs | -2.6 | -15.4 | -15.9 |
Environmental provision | — | — | -0.2 |
Gain/Loss on business disposal | 31.8 | -1.6 | — |
Other | -1.9 | -2.1 | -0.1 |
Total items affecting comparability in EBITDA | 20.3 | -33.4 | -55.1 |
Impairment loss | -9.2 | -2.4 | -7.7 |
Total items affecting comparability in operating result | 11.1 | -35.8 | -62.7 |
Comparable EBITDA | |||
Operating result | 176.2 | 103.2 | 88.7 |
Depreciation, amortization and impairment | 178.4 | 176.2 | 133.9 |
EBITDA | 354.5 | 279.4 | 222.6 |
Total items affecting comparability in EBITDA | -20.3 | 33.4 | 55.1 |
Comparable EBITDA | 334.2 | 312.9 | 277.7 |
Comparable operating result excl. depreciation and amortization arising from PPA | |||
Operating result | 176.2 | 103.2 | 88.7 |
Total items affecting comparability in operating result | -11.1 | 35.8 | 62.7 |
Comparable operating result | 165.1 | 139.0 | 151.4 |
Depreciation and amortization arising from PPA1 | 51.0 | 52.1 | 34.7 |
Comparable operating result excl. depreciation and amortization arising from PPA | 216.1 | 191.1 | 186.1 |
1 Depreciation and amortization arising from PPA comprise depreciation and amortization charges from fair value adjustments relating to the business combinations starting from the year 2013. |
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Comparable net result excl. depreciation and amortization arising from PPA | |||
Net result | 94.5 | 32.8 | 42.9 |
Total items affecting comparability in operating result | -11.1 | 35.8 | 62.7 |
Taxes relating to items affecting comparability in operating result | 1.2 | -9.3 | -15.9 |
Comparable net result | 84.6 | 59.3 | 89.7 |
Depreciation and amortization arising from PPA1 | 51.0 | 52.1 | 34.7 |
Taxes relating to depreciation and amortization arising from PPA | -12.8 | -13.4 | -8.9 |
Comparable net result excl. depreciation and amortization arising from PPA | 122.8 | 98.0 | 115.6 |
Comparable earnings per share, EUR | |||
Comparable net result | 84.6 | 59.3 | 89.7 |
Profit attributable to non-controlling interest | -1.4 | -1.2 | -1.4 |
Comparable net result attributable to parent company shareholders | 83.3 | 58.2 | 88.4 |
Interest on hybrid bond for the period after taxes | -3.2 | -0.2 | — |
Weighted average number of outstanding shares | 115,034,656 | 115,288,453 | 96,758,002 |
Comparable earnings per share, EUR | 0.70 | 0.50 | 0.91 |
Comparable earnings per share excl. depreciation and amortization arising from PPA, EUR | |||
Comparable net result excl. depreciation and amortization arising from PPA | 122.8 | 98.0 | 115.6 |
Net result attributable to non-controlling interest | -1.4 | -1.2 | -1.4 |
Comparable net result excl. depreciation and amortization arising from PPA attributable to parent company shareholders | 121.5 | 96.8 | 114.2 |
Interest on hybrid bond for the period after taxes | -3.2 | -0.2 | — |
Weighted average number of outstanding shares | 115,034,656 | 115,288,453 | 96,758,002 |
Comparable earnings per share excl. depreciation and amortization arising from PPA, EUR | 1.03 | 0.84 | 1.18 |
Return on equity (ROE), rolling 12 months, % | |||
Net result for the last 12 months | 94.5 | 32.8 | 42.9 |
Total equity, average for the last 12 months | 1,189.7 | 1,149.3 | 1,048.2 |
Return on equity, rolling 12 months, % | 7.9 | 2.9 | 4.1 |
Comparable return on equity, rolling 12 months, % | |||
Comparable net result for the last 12 months | 84.6 | 59.3 | 89.7 |
Total equity, average for the last 12 months | 1,189.7 | 1,149.3 | 1,048.2 |
Comparable return on equity, rolling 12 months, % | 7.1 | 5.2 | 8.6 |
Return on capital employed (ROCE), rolling 12 months, % | |||
Operating result for the last 12 months | 176.2 | 103.2 | 88.7 |
Capital employed, average for the last 12 months | 2,301.1 | 2,363.3 | 1,814.5 |
Return on capital employed, rolling 12 months, % | 7.7 | 4.4 | 4.9 |
Comparable return on capital employed, rolling 12 months, % | |||
Comparable operating result for the last 12 months | 165.1 | 139.0 | 151.4 |
Capital employed, average for the last 12 months | 2,301.1 | 2,363.3 | 1,814.5 |
Comparable return on capital employed, rolling 12 months, % | 7.2 | 5.9 | 8.3 |
Net debt | |||
Cash and cash equivalents | 308.7 | 166.1 | 151.0 |
Non-current borrowings | 744.1 | 899.0 | 1,020.4 |
Non-current lease liabilities | 37.8 | 44.2 | 3.1 |
Current borrowings | 249.3 | 94.8 | 132.7 |
Current lease liabilities | 13.2 | 13.1 | 1.1 |
Securitization liability | — | — | -43.7 |
Net debt | 735.8 | 885.0 | 962.5 |
1 Depreciation and amortization arising from PPA comprise depreciation and amortization charges from fair value adjustments relating to the business combinations starting from the year 2013.
Page 19
CALCULATION OF KEY FIGURES
The definitions of financial key performance indicators are described below.
Key figure | Definitions | Reason for use of the key figure |
Operating result | Net result before taxes and net financial items | Operating result shows result generated by the operating activities |
Operating result margin, % | Operating result / net sales | |
EBITDA | Operating result before depreciation, amortization and impairment | EBITDA is the indicator to measure the performance of Ahlstrom-Munksjö. |
EBITDA margin, % | EBITDA / net sales | EBITDA margin is a key measure in our long-term financial targets. |
Comparable EBITDA | EBITDA excluding items affecting comparability in EBITDA | Comparable EBITDA, comparable EBITDA margin, comparable operating result, comparable operating result margin, comparable operating result excluding depreciation and amortization arising from PPA, comparable net result, comparable earnings per share, comparable net result excluding depreciation and amortization arising from PPA and comparable earnings per share excluding depreciation and amortization arising from PPA are presented in addition to EBITDA, operating result, net result and earnings per share to reflect the underlying business performance and to enhance comparability from period to period. Ahlstrom-Munksjö believes that these comparable performance measures provide meaningful supplemental information by excluding items outside ordinary course of business including PPA related depreciation and amortization, which reduce comparability between the periods. |
Comparable EBITDA margin, % | Comparable EBITDA / net sales | |
Comparable operating result | Operating result excluding items affecting comparability in operating result | |
Comparable operating result margin, % | Comparable operating result / net sales | |
Comparable operating result excluding depreciation and amortization arising from PPA | Operating result excluding items affecting comparability in operating result and depreciation and amortization arising from PPA | |
Depreciation and amortization arising from PPA comprise depreciation and amortization charges from fair value adjustments relating to the business combinations starting from the year 2013. | ||
Comparable net result | Net result excluding items affecting comparability in operating result, net of tax | |
Comparable earnings per share (basic), EUR | Comparable net result - net result attributable to non-controlling interests - Interest on hybrid bond for the period after taxes/ weighted average number of shares outstanding during the period | |
Comparable net result excluding depreciation and amortization arising from PPA | Net result excluding items affecting comparability in operating result, net of tax, and depreciation and amortization arising from PPA, net of tax | |
Comparable earnings per share excluding depreciation and amortization arising from PPA, EUR | Comparable net result excluding depreciation and amortization arising from PPA - net result attributable to non-controlling interests - Interest on hybrid bond for the period after taxes/ weighted average number of shares outstanding during the period | |
Items affecting comparability in operating result | Material items outside ordinary course of business, such as gains and losses on business disposals, direct transaction costs related to business acquisitions, costs for closure of business operations and restructurings including redundancy payments, impairment losses, one-off items arising from purchase price allocation such as inventory fair value adjustments, compensation related to environmental damages arising from unexpected or rare events and other items including fines (such as VAT tax audit fines) or other similar stipulated payments and litigations. | |
Items affecting comparability in EBITDA | Items affecting comparability in operating result excluding impairment losses | |
Earnings per share (EPS), basic, EUR | Net result for the period attributable to parent company's shareholders - Interest on hybrid bond for the period after taxes / weighted average number of outstanding shares during the period | |
Earnings per share (EPS), diluted, EUR | Net result for the period attributable to parent company's shareholders - Interest on hybrid bond for the period after taxes / weighted average number of outstanding shares during the period + dilution effect from share based incentive plans |
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Key figure | Definitions | Reason for use of the key figure |
Net debt | Non-current and current borrowings and non-current and current lease liability less securitization liability less cash and cash equivalents | Net debt and total debt are indicators to measure the total external debt financing of Ahlstrom-Munksjö |
Total debt | Non-current and current borrowings and non-current and current lease liability less securitization liability | |
Capital employed average for 12 months | Total equity and total debt (average of the last 12 months) | Capital employed average for 12 months, Return on capital employed, rolling 12 months and Comparable return on capital employed, rolling 12 months measure capital tied up in operations and return on capital tied up in operations. |
Return on capital employed (ROCE), rolling 12 months, % | Operating result (for the last 12 months) / capital employed (average of the last 12 months) | |
Comparable return on capital employed, rolling 12 months, %/Comparable ROCE, rolling 12 months, % | Comparable operating result (for the last 12 months) / capital employed (average of the last 12 months) | |
Total equity for 12 months | Total equity (average of the last 12 months) | Total equity for 12 months, Return on equity, rolling 12 months and Comparable return on equity, rolling 12 months measures the equity available and the ability to generate income from it. |
Return on equity (ROE), rolling 12 months, % | Net result (for the last 12 months) / total equity (average of the last 12 months) | |
Comparable return on equity, rolling 12 months, %/ Comparable ROE, rolling 12 months, % | Comparable net result (for the last 12 months) / total equity (average of the last 12 months) | |
Gearing ratio, % | Net debt / total equity | Ahlstrom-Munksjö believes that Gearing ratio helps to show financial risk level and it is a useful measure for management to monitor the level of Ahlstrom-Munksjö’s indebtedness. Gearing ratio is also one of the Ahlstrom-Munksjö's long-term financial targets measure. |
Equity/assets ratio, % | Total equity / total assets | Ahlstrom-Munksjö believes that Equity/assets ratio helps to show financial risk level and it is a useful measure for management to monitor the level of Group’s capital used in the operations. |
Shareholders' equity per share, EUR | Equity attributable to parent company's shareholders / number of shares outstanding at the end of the period | |
Capital expenditure | Purchases for property, plant and equipment and intangible assets as presented in the cash flow statement. | Capital expenditure provides additional information of the cash flow needs of the operations. |
Operating cash flow per share, EUR | Net cash from operating activities / weighted average number of shares outstanding during the period | |
Net debt/ Comparable EBITDA | Net debt / comparable EBITDA | Net debt to EBITDA is a useful measure for management to monitor the level of Ahlstrom-Munksjö's indebtedness |
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Share related indicators 2020-2018
2020 | 2019 | 2018 | |
Earnings per share (basic), EUR | 0.78 | 0.27 | 0.43 |
Earnings per share (diluted), EUR | 0.78 | 0.27 | 0.43 |
Shareholders' equity per share, EUR | 9.33 | 9.73 | 10.00 |
Dividend per share, EUR 1 | 0.00 | 0.52 | 0.52 |
Dividend per earnings, % | 0.0 | 189.3 | 120.9 |
Effective dividend yield, % | 0.0 | 3.6 | 4.3 |
Price/earnings ratio, % | 23.1 | 52.1 | 28.2 |
Share price development | |||
Lowest share price, EUR | 8.12 | 11.90 | 10.68 |
Highest share price, EUR | 18.42 | 15.18 | 20.10 |
Average share price, EUR | 14.62 | 13.84 | 14.96 |
Closing share price at the reporting date, EUR | 18.10 | 14.32 | 12.12 |
Market capitalization, EUR million | 2,081.3 | 1,650.9 | 1,397.3 |
Shares traded (1,000 shares) | 28,573 | 13,332 | 12,836 |
Shares traded, % of all share | 24.8 | 11.6 | 13.3 |
Weighted average number of outstanding shares during the period (1,000 shares | 115,035 | 115,288 | 96,758 |
Number of shares at the end of the period (1,000 shares) | 115,653 | 115,653 | 115,653 |
of which treasury shares (1,000 shares) | 665 | 365 | 365 |
1 For year 2020 the Board of Directors' dividend proposal to the Annual General Meeting will be decided after the Extraordinary General Meeting to be held on February 19, 2021.
Share related indicator | Definition |
Earnings per share (EPS), basic, EUR | Net result for the period attributable to parent company's shareholders - Interest on hybrid bond for the period after taxes / weighted average number of outstanding shares during the period |
Earnings per share (EPS), diluted, EUR | Net result for the period attributable to parent company's shareholders - Interest on hybrid bond for the period after taxes / weighted average number of outstanding shares during the period + dilution effect from share based incentive plans |
Shareholders' equity per share, EUR | Equity attributable to parent company's shareholders / number of shares outstanding at the end of the period |
Dividend per share, EUR | Dividends paid for the period / number of shares outstanding at the end of the period |
Dividend per earnings, % | Dividend per share / earnings per share, basic |
Effective dividend yield, % | Dividend per share / closing share price at the reporting date |
Price/Earnings ratio, % | Closing share price at the reporting date / earnings per share, basic |
Market capitalization | Total number of shares outstanding multiplied by the share price at the reporting date |
Average share price, EUR | Total value of shares traded / number of shares traded during the period |
Shares traded, % of all shares | Shares traded/weighted average number of outstanding shares during the period |
Page 22
Consolidated financial statements, IFRS
Income statement
EUR million | NOTE | 2020 | Restated 2019 |
Net sales | 4, 5 | ||
Cost of goods sold | 6, 7, 8 | - | - |
Gross profit | |||
Sales and marketing expenses | 7, 8 | - | - |
R&D expenses | 7, 8 | - | - |
Administrative expenses | 7, 8 | - | - |
Other operating income | 6 | ||
Other operating expense | 6 | - | - |
Share of profit in equity accounted investments | 21 | ||
Operating result | |||
Financial income | 9 | ||
Financial expenses | 9 | - | - |
Net financial items | - | - | |
Result before tax | |||
Income taxes | 10 | - | - |
Net result | |||
The notes are an integral part of the financial statements.
Statement of comprehensive income
EUR million | NOTE | 2020 | 2019 |
Net result | |||
Other comprehensive income | |||
Items that may be reclassified to income statement | |||
Exchange differences on translation of foreign operations | 19 | - | |
Change in cash flow hedge reserve | 19 | - | |
Cash flow hedge transferred to this year’s result | 19 | - | |
Income taxes related to items that may be reclassified | - | - | |
Items that will not be reclassified to income statement | |||
Actuarial gains and losses on defined benefit plans | 15 | - | |
Income taxes related to items that will not be reclassified | - | ||
Comprehensive income | |||
Net result attributable to: | |||
Parent company’s shareholders | |||
Non-controlling interests | |||
Comprehensive income attributable to: | |||
Parent company’s shareholders | |||
Non-controlling interests | |||
Earnings per share | |||
Weighted average number of outstanding shares | |||
Weighted average number of outstanding shares, diluted | |||
Basic earnings per share, EUR | 11 | ||
Diluted earnings per share, EUR | 11 | ||
The notes are an integral part of the financial statements.
Page 23
Balance Sheet
Dec 31, | Dec 31, | ||
EUR million | NOTE | 2020 | 2019 |
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 12 | ||
Right-of-use assets | 12 | ||
Goodwill | 12 | ||
Other intangible assets | 12 | ||
Equity accounted investments | 21 | ||
Other non-current assets | 19 | ||
Deferred tax assets | 10 | ||
Total non-current assets | |||
Current assets | |||
Inventories | 13 | ||
Trade and other receivables | 14 | ||
Income tax receivables | 10 | ||
Cash and cash equivalents | 17 | ||
Total current assets | |||
TOTAL ASSETS |
Dec 31, | Dec 31, | ||
EUR million | NOTE | 2020 | 2019 |
EQUITY AND LIABILITIES | |||
Equity | |||
Equity attributable to parent company's shareholders | |||
Share capital | 18 | ||
Reserve for invested unrestricted equity | 18 | ||
Other reserves and treasury shares | 18 | ||
Retained earnings | 18 | ||
Total equity attributable to parent company's shareholders | |||
Non-controlling interests | |||
Hybrid bond | 18 | ||
Total equity | |||
Non-current liabilities | |||
Non-current borrowings | 17 | ||
Non-current lease liabilities | 17 | ||
Other non-current liabilities | |||
Employee benefit obligations | 15 | ||
Deferred tax liabilities | 10 | ||
Non-current provisions | 16 | ||
Total non-current liabilities | |||
Current liabilities | |||
Current borrowings | 17 | ||
Current lease liabilities | 17 | ||
Trade and other payables | 14 | ||
Income tax liabilities | 10 | ||
Current provisions | 16 | ||
Total current liabilities | |||
Total liabilities | |||
TOTAL EQUITY AND LIABILITIES | |||
The notes are an integral part of the financial statements.
Page 24
Statement of changes in equity
Equity attributable to parent company's shareholders | |||||||||||
EUR million | Share capital | Reserve for invested | Other | Treasury | Cumulative | Hedging | Retained | Total equity | Non-controlling | Hybrid bond | TOTAL |
EQUITY AT DECEMBER 31, 2018 | - | - | |||||||||
Restatement due to IFRIC 23 | - | - | - | ||||||||
EQUITY AT JANUARY 1, 2019 | - | - | |||||||||
Net result | — | — | — | — | — | — | — | ||||
Other comprehensive income before tax | — | — | — | — | - | — | |||||
Tax on other comprehensive income | — | — | — | — | — | - | — | — | |||
Total comprehensive income | |||||||||||
Dividends and other | — | — | — | — | — | — | - | - | - | — | - |
Transaction costs on rights issue | — | — | — | — | — | — | — | — | |||
Hybrid bond | — | — | — | — | — | — | - | - | — | ||
Long term incentive plans | — | — | — | — | — | — | - | - | — | — | - |
EQUITY AT DECEMBER 31, 2019 | - | - | |||||||||
EQUITY AT JANUARY 1, 2020 | - | - | |||||||||
Net result | — | — | — | — | — | — | — | ||||
Other comprehensive income before tax | — | — | — | — | - | - | - | — | - | ||
Tax on other comprehensive income | — | — | — | — | — | - | - | - | — | — | - |
Total comprehensive income | - | ||||||||||
Dividends and other | — | — | — | — | — | — | - | - | - | — | - |
Repurchase of treasury shares | — | — | — | - | — | — | — | - | — | — | - |
Interest on hybrid bond | — | — | — | — | — | — | - | - | — | — | - |
Long term incentive plans | — | — | — | — | — | — | — | — | |||
EQUITY AT DECEMBER 31, 2020 | - | - |
The notes are an integral part of the financial statements.
Page 25
Cash flow statement
EUR million | Note | 2020 | 2019 |
Cash flow from operating activities | |||
Net result | |||
Adjustments: | |||
Non-cash transactions and transfers to cash flow from other activities | |||
Depreciation, amortization and impairment | 8 | ||
Gains and losses on sale of non-current assets | - | ||
Change in employee benefit obligations | 15 | - | - |
Non-cash transactions and transfers to cash flow from other activities, total | |||
Interest and other financial income and expense | |||
Taxes | 10 | ||
Changes in net working capital: | |||
Change in trade and other receivables | 14 | - | |
Change in inventories | 13 | ||
Change in trade and other payables | 14 | ||
Change in provisions | 16 | - | - |
Interest received | |||
Interest paid | - | - | |
Other financial items | - | - | |
Income taxes paid | 10 | - | - |
Net cash from operating activities |
EUR million | Note | 2020 | 2019 |
Cash flow from investing activities | |||
Purchases of property, plant and equipment and intangible assets | 12 | - | - |
Payment for acquisition of businesses and subsidiaries, net of cash acquired | 3 | - | |
Proceeds from disposal of shares in Group companies and businesses and associated companies | 3 | ||
Change in other investments | - | - | |
Proceeds from disposal of intangible assets and property, plant and equipment | |||
Net cash from investing activities | - | - | |
Cash flow from financing activities | |||
Rights issue | - | ||
Repurchase of treasury shares | - | ||
Hybrid bond | 18 | ||
Proceeds from non-current borrowings | 17 | ||
Repayment of non-current borrowings | 17 | - | - |
Change in current borrowings | 17 | ||
Change in lease liabilities | 17 | - | - |
Dividends and other | - | - | |
Net cash from financing activities | - | - | |
Net change in cash and cash equivalents | |||
Cash and cash equivalents at the beginning of the period | |||
Foreign exchange effect on cash | - | ||
Cash and cash equivalents at the end of the period | 17 | ||
The notes are an integral part of the financial statements
Page 26
Notes to the consolidated financial statements
Ahlstrom-Munksjö’s business and basis of preparation
1 | INFORMATION ABOUT AHLSTROM-MUNKSJÖ |
General
2 | BASIS OF PREPARATION |
Basis of preparation and accounting policies in our audited financial statements |
Basis of preparation
Ahlstrom-Munksjö’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the interpretations issued by the IFRS Interpretations Committee as approved by the Commission of the European Communities (EU) for application in the European Union.
The following general principles have been applied to our financial statements:
•The parent company’s functional and presentation currency is the euro ("EUR") and financial statements are presented in millions of euros ("EUR million"), unless otherwise indicated.
•Financial statements are prepared on a historical cost basis, except for derivative financial instruments, unlisted shares and interests and defined benefit pension plan assets, which are measured at fair value.
•Non-current assets and non-current liabilities consist of amounts that are expected to be recovered or paid more than 12 months after the reporting period. Current assets and current liabilities consist of amounts that are expected to be recovered or paid within 12 months of the end of the reporting period.
•All financial data in the financial statements have been rounded and consequently the sum of individual figures can deviate from the total sum. Percentages are subject to possible rounding differences.
•The accounting policies outlined in these financial statements have been applied consistently throughout the Group and comparative information has been reclassified and restated where required to ensure consistency.
Foreign currency translation
Figures representing the financial result and position of each subsidiary in the Group are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency).
Transactions in foreign currencies are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Monetary balance sheet items denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date.
Foreign exchange differences arising from the currency translation are recognized in the income statement. Foreign exchange gains and losses arising from operating business transactions are included in operating profit, and those arising from financial transactions are included as a gross amount in financial income and expenses. The foreign exchange gains and losses arising from the qualifying cash flow hedges and qualifying hedges of a net investment in foreign operations are recorded in the statement of other comprehensive income and accumulated currency differences are recognized in equity.
The balance sheets of foreign subsidiaries are translated into euros at the exchange rates prevailing at the balance sheet date while the income statements are translated at the average exchange rates for the period. Translating the result of the period using different exchange rates on the balance sheet and income statement causes a translation difference to be recognized in equity and its change is recorded in the statement of other comprehensive income.
Page 27
Cont. note 2
Translation differences arising from the elimination of the acquisition price of foreign subsidiaries and from the translation differences in equity items since the acquisition date as well as the effective portion of hedging instruments that hedge the currency exposures on net investments are recognized in the statement of other comprehensive income. When a subsidiary is disposed or sold wholly or partially, translation differences arising from the net investment and related hedges are recognized in the income statement as part of the gain or loss on sale.
New reporting structure and the presentation of income statement
The Group has changed the presentation format for the Income statement based on function of expenses as of January 1, 2020 to align with internal reporting. The comparative income statement information for the year 2019 has been restated and accordingly is unaudited. Previously the Group presented its Income statement based on the nature of expenses. The Group made also certain minor reclassifications of the income statement items in connection with adoption of the functional presentation. Certain items previously reported within Net sales were classified to other income statement lines, such as operative exchange gains and losses as well as operative foreign exchange derivative results. In addition, certain accounting policy alignments were made between Net sales and Other operating income relating to the past acquisitions and the income from the sale of emission and other environmental rights previously presented in Other operating expenses was reclassified to Other operating income. As a result of these reclassifications, Net sales for the year 2019 decreased by EUR 1.0 million and Other operating income for the year 2019 increased by EUR 8.6 million. The reclassifications have no impact on Group’s operating result or net result for the year 2019. In the 2020 financial statements certain income statement line items were renamed, such as net profit to net result and profit before tax to result before tax.
Ahlstrom-Munksjö implemented a new business and reporting structure as of January 1, 2020. The new business areas are Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions which form Group’s operating segments. In these financial statements, the comparative segment information for the year 2019 has been restated accordingly and is unaudited. More information is disclosed in note 4. In addition, the Group has reallocated goodwill to affected cash-generating units, see note 12 for more information.
Expenses by function
Cost of goods sold includes costs of producing inventories that have been sold to third parties, delivery expenses, impairment of inventories, repair and maintenance, operative exchange gains/losses including the impact of the foreign exchange derivatives and general overhead expenses of Group’s Production and supply function which are expensed as incurred.
Sales and marketing expenses include costs of selling products, customer service, marketing and promotional expenses.
R&D expenses include the expenses of Ahlstrom-Munksjö’s R&D facilities and expenses related to innovation and product development resources.
Administrative expenses include expenses of General Management, Finance, Corporate Strategy and Development, Legal, Communications and Investor Relations, Human Resources and Information Systems functions.
Tender offer for all Ahlstrom-Munksjö shares
On September 24, 2020, a consortium consisting of Ahlström Capital, funds managed or advised by Bain Capital as well as Viknum and Belgrano Inversiones made a public recommended cash tender offer for all shares in Ahlstrom-Munksjö.
On September 30, 2020, the Board of Directors of Ahlstrom-Munksjö resolved on a dividend in the amount of EUR 0.13 per each outstanding share. In accordance with the announcement of the tender offer, the offer price per share was reduced on a euro-for-euro basis as a result. Following the adjustment of the offer price, the price offered for each share in the tender offer was EUR 17.97, subject to any further adjustments.
On October 16, 2020, the Board of Directors of Ahlstrom-Munksjö, represented by a quorum of non-conflicted members, issued a statement regarding the tender offer, unanimously recommending that the shareholders of Ahlstrom-Munksjö to accept the tender offer.
On October 22, 2020, at 9:30 a.m. (Finnish time) the offer period for the tender offer commenced, and it was announced to expire on December 30, 2020, at 4:00 p.m. (Finnish time).
On December 8, 2020, the offeror decided to extend the offer period to expire on January 14, 2021, at 4:00 p.m. (Finnish time), unless the offer period was extended further or any extended offer period was discontinued in accordance with the terms and conditions of the tender offer.
On December 17, 2020, the Board of Directors of Ahlstrom-Munksjö resolved on a dividend in the amount of EUR 0.13 per each outstanding share. In accordance with the announcement of the tender offer, the offer price per share was further reduced on a euro-for-euro basis as a result. Following the adjustment of the offer price, the price offered was EUR 17.84, subject to any further adjustments.
For information about final result and completion of the public tender offer see note 24.
Impact of Covid-19
Due to continuing uncertainty around the Covid-19 pandemic, Ahlstrom-Munksjö has continued to assess the impact on its business, results of operations, financial position and cash flows. For Ahlstrom-Munksjö the financial implications of the pandemic have been relatively limited so far. Ahlstrom-Munksjö’s 45 plants and converting sites in 14 countries have remained operational during 2020, except for a few temporary shutdowns caused by government lockdowns or employee absences related to quarantine or infections. Production has not been interrupted to any significant extent due to raw material supply issues.
Within Ahlstrom-Munksjö’s broad range of advanced fiber-based solutions, the impact of the pandemic on customer activity has varied. The pandemic has also created an exceptional situation globally and a strong demand for healthcare goods in general, and particularly for protective medical products made from Ahlstrom-Munksjö’s fabrics. Additional credit risk assessment has been implemented for customer receivables to evaluate the potential implications of the Covid-19 pandemic. Based on the assessment, the Group has not identified any significant increase in the amount of bad debt, and there has currently not been any significant change in payment delays related to Ahlstrom-Munksjö’s customer receivables.
The pandemic has increased the risk of financiers becoming more cautious and reducing banks’ willingness to provide financing. This may have an impact on refinancing and increase financing costs. Ahlstrom-Munksjö’s liquidity continues to be good, and during the second quarter, the company has signed additional financing facilities to further strengthen its liquidity position. There are no major short-term refinancing needs. The company also proactively increased its financial flexibility by renegotiating its other financial covenant, net debt to EBITDA. Please see more information in notes 17 and 19.
Given the ongoing and dynamic nature of the circumstances surrounding the Covid-19 pandemic, it is difficult to predict how significant the impact of Covid-19, including any responses to it, will be on the global economy and the business of the Group or for how long any disruptions are likely to continue. This has increased uncertainty and management judgement related to cash flow projections. Ahlstrom-Munksjö assesses continuously indications for impairment and carrying amounts of the assets and liabilities.
Adopted IFRS standards, amendments and improvements
Ahlstrom-Munksjö has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2020:
•Amendments to References to Conceptual Framework in IFRS Standards
•Definition of a Business - Amendments to IFRS 3 Business Combinations
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Cont. note 2
•Definition of Material – Amendments to IAS 1 Presentation of Financial Instruments and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
•Interest Rate Benchmark Reform – Phase 1 – Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures
•Covid-19-Related Rent Concessions - Amendment to IFRS 16 Leases
The amendments and improvements listed above did not have material impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
The financial statements were authorised for issue by Ahlstrom-Munksjö’s Board of Directors on February 9, 2021 and are expected to be adopted by the Annual General Meeting.
Accounting estimates and judgements |
Due to the uncertainty around the Covid-19 pandemic, Ahlstrom-Munksjö has reviewed its estimates and judgements used in the preparation of financial statements. The possible impact of the situation due to the Covid-19 on the relevant factors in each estimate have been taken into consideration. The impact of the pandemic on estimates in the financial reporting rely on managements best judgement under the current circumstances but the end result will depend heavily on the duration and severity of the pandemic.
Notes disclosures
Notes to the financial statements include information required under IFRS to understand the financial statements and is material and relevant to Ahlstrom-Munksjö’s operations, financial position and performance. Information is considered material and relevant if, for example:
•The amounts are significant because of size or nature;
•Disclosure is important for understanding the results of the Group;
•Disclosure helps to explain the impact of significant changes in the composition of the Group, operations or significant events such as acquisitions, impairments, major refinancing transactions; or
•The disclosure relates to an aspect of Ahlstrom-Munksjö’s operations that is important to its future performance.
Where an accounting policy is applicable to a specific note, it is described within that note with the related disclosures including estimates and judgements of material nature made by management. Certain of our accounting policies that relate to the financial statements as a whole, are disclosed above. New IFRS standards and amendments or interpretations that will be adopted post-balance sheet date are described in note 23.
Financial statement disclosures are organised into the following sections:
•Performance – This section focuses on the results and performance of the Group including a description of changes in our group structure. This section includes disclosures that explain the Group’s performance on a consolidated level as well on a business area level, sources of revenue, other operating income and expense, employee benefits, finance items as well as information about our tax footprint and earnings per share.
•Operating capital – Disclosures in this section focus on our operating assets and liabilities including information on our investments in long-lived assets, trade receivables and payables, inventories, benefit obligations towards our current and former employees and provisions.
•Net debt and capital management – This section outlines the Group’s net debt and how Ahlstrom-Munksjö manages its capital and liquidity. Net debt is an important indicator for Ahlstrom-Munksjö’s to measure the external debt financing of the Group.
•Financial risk management – This section discusses the Group’s exposure to various financial risks, explains how these affect Ahlstrom-Munksjö’s financial position and performance and how risk is managed.
•Other notes – this section provides the additional information required to be disclosed under IFRS and Finnish statutory requirements. However, these are not considered critical in understanding the financial performance or the financial position of Ahlstrom-Munksjö.
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Cont. note 2
We use the following symbols throughout the financial statements | ||||||
This symbol describes the accounting policy applied by the Group to the specific financial statement item. | This symbol is used when the specific item requires management to make judgements, estimates and assumptions that have a significant effect on the financial statements and estimates that may cause material adjustments to the financial statements. | |||||
This symbol is used with a disclosure on a specific risk related to the financial statement item. | ||||||
The following matrix outlines the notes structure and where our accounting policies, estimates, judgements and risk disclosures are included within the footnotes to our main statements:
Note | Topic | |||
Ahlstrom-Munksjö’s business and basis of preparation | ||||
1 | Information about Ahlstrom-Munksjö | |||
2 | Basis of preparation | X | X | |
Performance | ||||
3 | Business acquisitions and disposals | X | X | |
4 | Business area information | X | ||
5 | Sources of revenue | X | ||
6 | Cost of goods sold and other operating income and other operating expense | X | ||
7 | Employee and board of directors remuneration1 | X | X | |
8 | Depreciation, amortization and impairment | X | ||
9 | Net financial items | X | ||
Note | Topic | |||
10 | Taxes | X | X | |
11 | Earnings per share | X | ||
Operating capital | ||||
12 | Intangible assets, property, plant and equipment and right-of-use assets | X | X | |
13 | Inventories | X | X | |
14 | Trade and other receivables and trade and other payables | X | X | |
15 | Defined benefit obligation | X | X | X |
16 | Provisions | X | X | |
Net debt and capital management | ||||
17 | Net debt | X | X | |
18 | Equity | X | ||
Financial risk management | ||||
19 | Financial risk management | X | X | |
Other notes | ||||
20 | Off-balance sheet commitments | X | ||
21 | Ahlstrom-Munksjö subsidiaries, associates and joint operations and related party transactions1 | X | ||
22 | Auditor remuneration | |||
23 | New accounting standards | |||
24 | Post-balance sheet events |
1Related party transactions are presented separately for the Board of Directors and key management remuneration in note 7 and other related parties are presented in note 21.
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Performance
This section focuses on the results and performance of the Group including a description of changes in our group structure. This section includes disclosures that explain the Group’s performance on a consolidated level as well on a business area level, employee benefits, other operating income and expense, finance items as well as information about our tax footprint and earnings per share.
3 | BUSINESS ACQUISITIONS AND DISPOSALS |
2020
Divestment of Fine Arts in Arches
On March 3, 2020 Ahlstrom-Munksjö completed the sale of its fine art paper business ARCHES® to Italian based F.I.L.A. Group, Fabbrica Italiana Lapis ed Affini S.p.A., at a debt and cash free price of EUR 43.6 million.
Gain on sale and cash flow
EUR million | |
Total net assets sold | 10.3 |
Sale consideration | 42.3 |
Gain on sale | 32.0 |
Cash flow | |
Consideration received | 42.3 |
The last part of disposal was completed in the second quarter of 2020. Total book value of sold net assets were EUR 10.3 million and the gain on sales was EUR 32.0 million.
Divestment of glass fiber reinforcement business in Mikkeli
During the year 2020 the sale consideration of glass fiber reinforcement business in Mikkeli was adjusted by EUR -0.4 million and sale consideration of EUR 0.2 million was received. The total cash flow impact of the divestment during the year 2020 was EUR -0.2 million.
2019
Divestment of glass fiber reinforcement business in Mikkeli
On December 31, 2019 Ahlstrom-Munksjö completed the sale of its glass fiber reinforcement business in Mikkeli, Finland, to Vitrulan Composites Oy, a fully owned subsidiary of Vitrulan Group and part of the family-owned industrial holding ADCURAM Group. Mikkeli was part of the Filtration and Performance business area.
Loss on sale and cash flow
EUR million | |
Total net assets sold | 4.8 |
Sale consideration | 3.2 |
Loss on sale | -1.5 |
Cash flow | |
Sale consideration | 3.2 |
Receivable related to sale consideration | -1.9 |
Consideration received | 1.4 |
Total book value of sold net assets were EUR 7.2 million and corresponding fair value EUR 4.8 million. An impairment loss of EUR 2.4 million was recognized and the loss on sale was EUR 1.5 million. Receivable of EUR 1.9 million related to the sale consideration is recognized in the Trade and other receivables.
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Cont. note 3
Acquisition of converting operations in China and in the U.S.
On December 17, 2019 Ahlstrom-Munksjö acquired converting operations in China and the U.S. from Shunde Lucas and Altior Industries. The purchase price is EUR 9.6 million. The acquisition will be reported as part of the Advanced Solutions business area.
Purchase price allocation and cash flow
EUR million | |
Non-current assets | |
Property, plant and equipment | 0.6 |
Other intangible assets | 2.8 |
Current assets | |
Inventories | 1.2 |
Non-current liabilities | |
Deferred tax liabilities | -0.3 |
Total net assets acquired | 4.4 |
Goodwill | 5.2 |
Purchase consideration | 9.6 |
Cash flow | |
Purchase consideration | 9.6 |
Liability related to purchase consideration | -0.3 |
Consideration paid | 9.3 |
The fair values of acquired identifiable intangible assets at the date of acquisition were EUR 2.8 million comprising of customer relationships.
The goodwill of EUR 5.2 million arising from the acquisition of converting operations is mainly attributable to synergies. Acquired goodwill has been allocated to Advances Solutions business area. For more information about goodwill allocation and our annual goodwill impairment tests, see note 12.
Acquisition related costs of EUR 0.3 million are included in other operating expenses in income statement and in net cash from operating activities in cash flow statement.
The consolidated net sales for the year ended December 31, 2019, as though the acquisition date had been as of January 1, 2019 were EUR 2,922.9 million.
Accounting policies |
Business acquisitions
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the fair value of consideration transferred comprising of the following:
•fair values of the assets transferred
•liabilities incurred to the former owners of the acquired business
•equity interests issued as purchase consideration
•fair value of any contingent consideration arrangement, and
•fair value of any pre-existing equity interest in the subsidiary, if applicable.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values and any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests’ proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred and presented as administrative expenses in the income statement with the exception of costs directly attributable to the issuance of equity instruments that are deducted from equity, net of tax. Any excess of the consideration transferred over the fair value of the net identifiable assets acquired is recorded as goodwill.
Business disposals
Gains or losses arising from the sale of business are recognized as other operating income or other operating expenses. Intangible and tangible assets with definite useful lives are tested for impairment if there are indicators of impairment, see more information on triggering events in note 12.
Accounting estimates and judgements |
The application of the acquisition method requires certain estimates and assumptions to be made, especially concerning the fair values of the acquired intangible assets, property, plant and equipment and the liabilities assumed at the acquisition date, and the useful lives of the acquired intangible assets and property, plant and equipment.
Measurement is based to a large extent on anticipated cash flows. If actual cash flows vary from those used in calculating fair values, this may materially affect the Group’s future results of operations. In particular, the estimation of discounted cash flows for e.g. customer relationships, technology based assets as well as trademarks and tradename are based on assumptions concerning, for example:
•Assumptions related to long-term sales projections and margin development
•Determination of appropriate discount rates
•Estimates related to customer retention rates
•Estimates related to appropriate market based royalty rates
For significant acquisitions, the fair valuation exercise on the acquired assets and assumed liabilities is carried out with assistance from independent third-party valuation specialists. The valuations are based on the information available at the acquisition date taking into account the provisional adjustment period allowed under IFRS of 12 months.
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4 | BUSINESS AREA INFORMATION |
Ahlstrom-Munksjö implemented new business and reporting structure as of January 1, 2020. Starting from the year 2020 Ahlstrom-Munksjö is organized into five business areas which are Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions and which also form Group’s operating segments. Ahlstrom-Munksjö’s business areas are described below. The comparative business area information for the year 2019 has been restated to correspond to the current reporting structure and is consistent with internal reporting to the CODM.
Filtration & Performance Solutions The Filtration & Performance Solutions business area develops and produces engine oil, fuel and air filtration materials, as well as industrial filtration. It also produces abrasive backings, glass fiber for flooring products as well nonwoven materials for automotive, construction, textile, hygiene and wallcovering applications. | Advanced Solutions The Advanced Solutions business area develops and produces materials for laboratory filters and life science diagnostics, water filtration, beverage and food processing, tapes and medical fabrics. The business area also supplies hot cooking oil and milk filtration materials as well as specialty release liners. | ||
Industrial Solutions The Industrial Solutions business area develops and produces release liners, electrotechnical insulation papers as well as flexible packaging and coated label papers. The business area also supplies specialty pulp, interleaving papers as well as office and printing papers. | Food Packaging & Technical Solutions The Food Packaging & Technical Solutions business area develops and produces a wide range of sustainable food packaging and processing papers as well as specialty papers for industrial and construction use. | ||
Decor Solutions The Decor Solutions business area develops and produces paper-based surfacing for wood-based materials such as laminate flooring, furniture and interiors. | Other and eliminations Other and eliminations include head office costs comprising the following functions: Group Finance, Corporate Development, Legal, R&D, Group Communications and Investor Relations, as well as Group Human Resources. The head office costs comprise mainly salaries, rent and professional fees. Other and eliminations include holding and sales companies' income and expenses. Other and eliminations also include certain other exceptional costs not used in the assessment of business area performance. | ||
Business area key measures
Financial performance by business area, EUR million, 2020 | Filtration & | Advanced | Industrial | Food | Decor | Other and | Group |
Net sales, external | 630.0 | 473.7 | 676.8 | 526.2 | 369.2 | 7.5 | 2,683.3 |
Net sales, internal | 7.1 | 2.5 | 7.1 | 28.4 | 0.5 | -45.5 | — |
Net sales | 637.1 | 476.2 | 683.9 | 554.6 | 369.7 | -38.1 | 2,683.3 |
Comparable EBITDA | 118.6 | 61.1 | 71.3 | 52.5 | 37.6 | -6.8 | 334.2 |
Items affecting comparability in EBITDA | 30.6 | -0.3 | -1.5 | -0.4 | -0.9 | -7.2 | 20.3 |
EBITDA | 149.2 | 60.8 | 69.7 | 52.1 | 36.7 | -14.0 | 354.5 |
Depreciation, amortization and impairment | -178.4 | ||||||
Operating result | 176.2 |
Additional business area information
Additional business area information, EUR million, 2020 | Filtration & | Advanced | Industrial | Food | Decor | Other and | Group |
Capital expenditure | 26.3 | 12.5 | 32.4 | 17.5 | 8.9 | 20.0 | 117.5 |
Depreciation, amortization and impairment | -51.3 | -20.9 | -46.9 | -34.1 | -11.7 | -13.4 | -178.4 |
Operating working capital | 58.8 | 73.0 | 51.6 | 49.9 | 33.1 | -40.3 | 226.0 |
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Cont. note 4
Financial performance by business area, EUR million, restated 2019 | Filtration & | Advanced | Industrial | Food | Decor | Other and | Group |
Net sales, external | 717.1 | 468.2 | 758.2 | 545.3 | 418.8 | 7.8 | 2,915.3 |
Net sales, internal | 6.9 | 2.1 | 7.4 | 37.1 | 0.8 | -54.3 | — |
Net sales | 724.0 | 470.2 | 765.7 | 582.4 | 419.6 | -46.5 | 2,915.3 |
Comparable EBITDA | 126.1 | 50.6 | 61.1 | 53.4 | 34.5 | -12.9 | 312.9 |
Items affecting comparability in EBITDA | -4.4 | -0.4 | -8.2 | -2.1 | -9.5 | -8.8 | -33.4 |
EBITDA | 121.7 | 50.2 | 52.9 | 51.3 | 25.0 | -21.6 | 279.4 |
Depreciation, amortization and impairment | -176.2 | ||||||
Operating result | 103.2 |
Additional business area information
Additional business area information, EUR million, restated 2019 | Filtration & | Advanced | Industrial | Food | Decor | Other and | Group |
Capital expenditure | 35.5 | 10.5 | 63.1 | 20.3 | 9.4 | 22.2 | 161.1 |
Depreciation, amortization and impairment | -53.8 | -23.4 | -39.8 | -33.5 | -13.8 | -11.9 | -176.2 |
Operating working capital1 | 68.8 | 77.1 | 67.5 | 47.7 | 55.9 | -13.9 | 303.1 |
1Due to reclassifications between non-operative and operative receivables and payables the total of operating working capital for 2019 has changed and is not audited.
Accounting policies |
Business areas
Ahlstrom-Munksjö’s CEO assisted by the Executive Management Team is the Group’s chief operating decision maker (“CODM”) and operating segments are determined on the basis of information reviewed by the CEO for the purposes of allocating resources and assessing the business area’s performance. The business area’s performance is assessed internally based on net sales and comparable EBITDA. Comparable EBITDA is defined for internal management reporting purposes as operating result before depreciation, amortization and impairments and excluding items affecting comparability. Ahlstrom-Munksjö defines items affecting comparability being material items outside ordinary course of business, such as gains and losses on business disposals, direct transaction costs related to business acquisitions, costs for closure of business operations and restructuring including redundancy payments, one-off items arising from purchase price allocation such as inventory fair value adjustments, compensation related to environmental damages arising from unexpected or rare events and other items including fines (such as VAT tax audit fines) or other similar stipulated payments and litigations.
In addition to comparable EBITDA, the CODM also follows the business areas' net asset position based on the operating working capital which is defined as inventories plus operative receivables before factoring less operating payables.
Sales between the business areas are invoiced at market prices. None of Ahlstrom-Munksjö’s individual customers accounts for more than 10 per cent of the Group's revenues.
Page 34
5 | SOURCES OF REVENUE |
Ahlstrom-Munksjö’s revenue comprise the sale of manufactured products through its five business areas, including filter materials, release liners, food and beverage processing materials, decor papers, abrasive and tape backings, electrotechnical paper, glass fiber materials, medical fiber materials and solutions for diagnostics as well as a range of specialty papers for industrial and consumer end-uses.
Net sales by geography
Net sales by geography, EUR million | 2020 | Restated 2019 |
USA | 857.1 | 894.5 |
Germany | 255.6 | 262.4 |
Brazil | 152.3 | 185.9 |
China | 148.5 | 148.6 |
Italy | 121.9 | 129.0 |
Poland | 114.8 | 114.8 |
Netherlands | 103.8 | 29.5 |
Spain | 100.3 | 112.6 |
France | 94.0 | 181.9 |
Turkey | 60.8 | 58.0 |
India | 54.3 | 61.9 |
Other | 619.8 | 736.4 |
Total | 2,683.3 | 2,915.3 |
Net sales in the table above are presented based on the customers’ geographical location. Ahlstrom-Munksjö recognizes revenue at a point in time.
Net sales by region, EUR million | 2020 | Restated 2019 |
Europe | 1,158.4 | 1,275.0 |
North America | 932.0 | 984.2 |
South America | 197.1 | 233.5 |
Asia-Pacific | 356.9 | 382.9 |
Rest of the world | 38.9 | 39.7 |
Total | 2,683.3 | 2,915.3 |
Contract assets and liabilities
The Group has advance payments received from customers EUR 3.0 million (EUR 1.9 million), see note 14.
Non-current assets by geography
Non-current assets by geography, EUR million | 2020 | 2019 |
USA | 727.7 | 822.6 |
Sweden | 267.0 | 173.4 |
France | 259.9 | 323.5 |
Italy | 201.2 | 235.7 |
Germany | 189.9 | 222.0 |
Finland | 161.5 | 159.7 |
Brazil | 121.3 | 189.5 |
China | 75.5 | 78.9 |
Spain | 58.8 | 36.9 |
South Korea | 29.4 | 41.7 |
Other | 79.8 | 76.9 |
Total | 2,172.0 | 2,360.8 |
Accounting policies |
Revenue recognition
IFRS 15 Revenue from Contracts with Customers standard defines a five-step model to recognize revenue arising from contracts with customers. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the good or service underlying the particular performance obligation is transferred to the customer.
The Group is delivering goods to the customers where each good provided to the customer is distinct from the other goods provided to the customer. A typical good consist of a packed sheet of paper, a roll of paper or a cube of pulp, which each represent a distinct performance obligation. The Group does not provide significant amount of services. Sale of goods is the revenue stream of the Company that consists of the following business areas: Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions.
A typical contract with customer consists of purchase order and order confirmation, including the general terms and conditions of the arrangement.
The Group provides standard assurance-type warranties only and consequently the customer contracts do not include any service-type warranties that should be accounted for as a separate performance obligation.
The transaction price may include variable consideration components, including volume and cash discounts and refunds. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated discounts and refunds. Accumulated experience is used and provide for the discounts and customer refunds, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.
Revenue is recognised at a point in time when control of goods has been transferred to the customer based on Incoterms.
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6 | COST OF GOODS SOLD AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE |
Cost of goods sold
Cost of goods sold, EUR million | 2020 | Restated 2019 |
Raw materials | -1,117.1 | -1,332.1 |
Production costs | -718.9 | -734.5 |
Energy | -198.3 | -225.0 |
Delivery expenses | -102.7 | -109.4 |
Other variable costs | -136.6 | -139.8 |
Operative exchange gains/losses including foreign exchange derivatives | 4.1 | -3.4 |
Total | -2,269.5 | -2,544.1 |
Other operating income
Other operating income, EUR million | 2020 | Restated 2019 |
Gain on business disposal | 32.0 | — |
Government grants | 9.4 | 3.3 |
Sale of scrap and side products | 4.8 | 5.5 |
R&D and other tax credits | 1.1 | 1.4 |
Gain on sale of fixed assets | 0.3 | 0.9 |
Rental and lease income | 0.3 | 0.3 |
Gain on sale of emission rights and other environmental rights | 0.0 | 6.2 |
Insurance compensation | 0.0 | 0.3 |
Other | 5.9 | 2.9 |
Total | 53.8 | 20.7 |
Other operating expense
Other operating expense, EUR million | 2020 | Restated 2019 |
Depreciation and amortization arising from PPA1 | -51.0 | -52.1 |
Impairment loss | -9.2 | -2.4 |
Other | -2.2 | -1.5 |
Total | -62.4 | -55.9 |
1 Depreciation and amortization arising from PPA comprise depreciation and amortization charges from fair value adjustments relating to the business combinations starting from the year 2013.
Accounting policies |
Repair and maintenance
Ordinary repairs and maintenance activities are performed to maintain the plants and equipment in operating condition. Ordinary repairs usually benefit only the period when such repairs are done and accordingly are expensed in the period incurred.
Cost of goods sold
Cost of goods sold includes costs of producing inventories that have been sold to third parties, delivery expenses, impairment of inventories, repair and maintenance, operative exchange gains/losses including the impact of the foreign exchange derivatives and general overhead expenses of Group’s Production and supply function which are expensed as incurred
Other operating income
Other operating income includes gain from disposal of assets, gain on sale of emission rights, sale of scrap and side products and regular incomes, such as rental and lease income and gain relating to business disposals. Other operating income includes also grants. Government grants are recognized in the income statement in the same period as the costs they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are deducted from the cost of the assets and accordingly reduce the depreciation of the underlying asset.
Other operating expense
Other operating expenses include depreciation and amortization arising from purchase price allocations (PPA), impairment losses, losses from disposal of assets, bad debt allowances and other costs not directly related to production, supply and sale of products.
Page 36
7 | EMPLOYEE AND BOARD OF DIRECTORS REMUNERATION |
Ahlstrom-Munksjö has some 8,000 employees working in 45 production and converting facilities and offices in 24 different countries. The following section outlines the benefits granted to our employees, to our Executive Management Team including the CEO and the Board of Directors. The section also provides information on shareholdings of the Board of Directors and Executive Management, and details of the long-term incentive plan that the company operates to align the objectives of the shareholders with the Group’s key personnel.
Employee benefit expenses (including members of the Board of Directors)
Wages, salaries and other remuneration
Employee benefit expenses for all employees, EUR million | 2020 | 2019 |
Wages and salaries | -454.0 | -457.0 |
Statutory social expenses | -70.8 | -73.4 |
Pension expenses, defined contribution plans | -32.4 | -35.9 |
Pension expenses, defined benefit plans (note 15) | -3.5 | -2.5 |
Long-term incentives | -1.9 | 1.6 |
Other indirect employee costs | -11.3 | -15.8 |
Total | -573.9 | -583.1 |
Executive Management
Ahlstrom-Munksjö’s Executive Management consists of the CEO, Deputy CEO, Business Area Executive Vice Presidents (EVPs) and EVPs responsible for Group Functions. See Board of Director's report for changes in Group Executive Management team and Board of Directors.
2020
Remuneration of the CEO and the Executive Management Team, EUR thousand, 20201 | Fixed salary | Short term | Fringe | Payments to | Total |
CEO - Hans Sohlström | 599 | 223 | 0 | 124 | 947 |
Executive Management Team | 2,328 | 858 | 29 | 342 | 3,557 |
Total | 2,928 | 1,081 | 30 | 466 | 4,504 |
1 Not including social costs.
CEO and Executive Management Team remuneration and benefits recognized in income statement, EUR thousand, 20201 | Salaries and other | Long-term | Payments to | Total |
CEO - Hans Sohlström | 986 | 262 | 124 | 1,373 |
Executive Management Team | 3,989 | 565 | 342 | 4,895 |
Total | 4,975 | 827 | 466 | 6,268 |
1 Not including social costs.
2019
Remuneration of the CEO and the Executive Management Team, EUR thousand, 20191 | Fixed salary | Short term | Fringe | Payments to | Total |
CEO - Hans Sohlström | 643 | 103 | 0 | 124 | 870 |
Executive Management Team | 2,286 | 674 | 72 | 265 | 3,296 |
Total | 2,929 | 776 | 72 | 389 | 4,166 |
1 Not including social costs.
CEO and Executive Management Team remuneration and benefits recognized in income statement, EUR thousand, 20191 | Salaries and other | Long-term | Payments to | Total |
CEO - Hans Sohlström | 899 | -46 | 124 | 977 |
Executive Management Team | 2,610 | -253 | 265 | 2,622 |
Total | 3,509 | -300 | 389 | 3,598 |
1 Not including social costs.
Executive Management Team Remuneration
The fixed remuneration on the CEO and other members of the Executive Management Team consists of both fixed salary and personal benefits such as company car and phone benefit. The CEOs monthly fixed total salary is EUR 51,667. The variable compensation of the CEO and other members of the Executive Management Team consists of short term incentive plan (STI) and long term incentive plans (LTI). The Board of Directors authorize the final resolution on the payments from the incentive plans for the Executive Management Team and the CEO. Members of the Executive Management Team took 50% and the CEO took 100% reduction on their one month’s salary during the second quarter to mitigate the negative financial impact of Covid-19.
Pensions
Pension arrangements for the Executive Management Team and CEO include customary occupational pensions and in some cases individually agreed defined contribution pension arrangements. The CEO is part of the Finnish obligatory pension plan (TyeL) and in addition he belongs to an additional Group Pension Plan. Ahlstrom-Munksjö shall contribute 20 per cent of the CEO’s monthly fixed salary per annum to the Group Pension Plan. The CEO's retirement age is 63 according to the additional Group Pension Plan.
Page 37
Cont. note 7
Other Benefits
To the extent that other benefits are paid, they consist of company cars, housing and health insurances.
Termination Clauses for the CEO
The CEO’s Service Contract may be terminated by the Company with twelve (12) months’ notice and by the CEO with six (6) months’ notice. If the Company terminates the CEO’s Contract for any other reason than material breach, the Company shall pay the CEO severance compensation equal to the amount of his fixed salary for the full six (6) months immediately preceding the termination.
Average number of employees
2020 | 2019 | |
Average number of employees (FTE) | 7,814 | 8,078 |
Remuneration of the Board of Directors and Board Committees
Ahlstrom-Munksjö’s Annual General Meeting (“AGM”) makes resolutions each year on the compensation for the members of the Board of Directors remuneration. The 2020 AGM resolutions for yearly compensation were as follows (The 2019 remuneration resolutions are presented in brackets as comparatives):
•The Chairman of the Board EUR 130,000 (EUR 130,000)
•The Vice Chairman EUR 90,000 (EUR 90,000) and the ordinary members EUR 65,000 (EUR 65,000) each.
•The Chairman of the Audit Committee EUR 15,000 (EUR 15,000) and the ordinary members of the committee EUR 7,500 (EUR 7,500) each.
•The Chairman of the Human Resources Committee EUR 10,000 (EUR 10,000) and the ordinary members EUR 5,000 (EUR 5,000) each.
•The Chairman of the Shareholders’ Nomination Board EUR 8,000 (EUR 8,000) and the ordinary members EUR 4,000 (EUR 4,000) each.
Members of The Board of Directors decided to forgo their compensation for one month in the second quarter of 2020 to mitigate the negative financial impact of Covid-19.
Compensation of current members of the Board of Directors and/or board committees and/or shareholders' nomination board, EUR thousand | 2020 | 2019 | |
Jaakko Eskola | Chairman of the Board | 108 | 53 |
Elisabet Salander Björklund | Vice-Chairman of the Board | 104 | 102 |
Nathalie Ahlström | 47 | — | |
Alexander Ehrnrooth | 70 | 75 | |
Johannes Gullichsen | 64 | 69 | |
Lasse Heinonen | 66 | 69 | |
Hannele Jakosuo-Jansson | 69 | 73 | |
Harri-Pekka Kaukonen | 66 | 71 | |
Valerie A. Mars | — | — | |
Kari Kauniskangas | Nomination board member | 8 | 4 |
Mikko Mursula | Nomination board member | 4 | 4 |
Compensation of former members of the Board of Directors and/or board committees and/or shareholders' nomination board, EUR thousand | 2020 | 2019 | ||
Peter Seligson | Up until March 25, 2020 | 34 | 127 | |
Pernilla Walfridsson | Up until March 27, 2019 | — | 17 | |
Mikael Lilius | Nomination board member up until March 27, 2019 | — | 4 |
Shareholding of the Board of Directors and Executive management
Board of Directors shareholding December 31, 2020 | Title | Shares |
Jaakko Eskola | Chairman of the Board | 9,080 |
Elisabet Salander Björklund | Vice-Chairman of the Board | 5,040 |
Nathalie Ahlström | Board member | 0 |
Alexander Ehrnrooth | Board member | 14,717,714 |
Johannes Gullichsen | Board member | 415,955 |
Lasse Heinonen | Board member | 0 |
Hannele Jakosuo-Jansson | Board member | 3,600 |
Harri-Pekka Kaukonen | Board member | 4,868 |
Valerie A. Mars | Board member | 14,680 |
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Cont. note 7
Executive management shareholding December 31, 2020 | Title | Shares |
Hans Sohlström | President and CEO | 72,215 |
Sakari Ahdekivi | Deputy CEO and CFO | 7,852 |
Dan Adrianzon | Executive Vice President, Industrial Solutions | 9,292 |
Daniele Borlatto | Executive Vice President, Filtration & Performance Solutions | 24,408 |
Robyn Buss | Executive Vice President, Food Packaging & Technical Solutions | 38,140 |
Andreas Elving | Executive Vice President, Legal and General Counsel | 6,925 |
Robin Guillaud | Executive Vice President, Innovation, Sustainability and Communication | 3,580 |
Mikko Lankinen | Executive Vice President, Corporate Strategy and Development | 4,606 |
Tarja Takko | Executive Vice President, People & Safety | 6,761 |
Markus Westerkamp | Executive Vice President, Advanced Solutions | 11,218 |
Tomas Wulkan | Executive Vice President, Decor Solutions | 0 |
Related party transaction - the Board of Directors and the Executive Management Team
There have not been any material transactions between Ahlstrom-Munksjö and its members of the Board of Directors or the Executive Management Team or persons closely associated with these members or organization in which these individuals have control or significant influence. There are no loans granted to any members of the Board of Directors or Executive Management Team at December 31, 2020 nor December 31, 2019.
Share-based payments
Ahlstrom-Munksjö’s CEO, Executive Management Team members and a number of key employees participate in share-based long-term incentive plans which are established on a recurring basis to align the interests of the shareholders and management.
Ahlstrom-Munksjö Long-term Incentive Share-based Plans
Ahlstrom-Munksjö’s Board of Directors decided on October 24, 2017 to introduce a rolling long-term share-based incentive plan for members of the Group’s key personnel with the aim of aligning the objectives of the owners and key personnel to increase the Group’s value and to commit the key personnel to the Group. At the end of December 2020, there are three ongoing performance periods.
In March 2019 the Board of Directors decided, in addition to the rolling long-term share-based incentive plan on the establishment of a fixed matching share plan as well as on the establishment of a new restricted share plan as a complementary share-based incentive structure for specific situations.
In February 2020 the Board of Directors decided to introduce a rolling Fixed Matching Share plan. and establish a new earning period in the restricted share plan that was announced
Rolling long-term share based incentive programme
The rolling long-term share based incentive plan consists of a rolling structure of individual plans, each with a three-year performance period. Below the list of the open performance periods at the end of December 2020.
•Performance period 2018-2020 ("LTI 2018-2020") was decided by the Board in February, 2018. The performance conditions described below were not met and thus no reward will be paid out in 2021.
•Performance period 2019-2021 ("LTI 2019-2021") was decided by the Board in March, 2019. The possible reward will be paid out in 2022 in the form of shares, provided that the below mentioned performance and service conditions are met.
•Performance period 2020-2022 ("LTI 2020-2022") was decided by the Board in February, 2020. The possible reward will be paid out in 2023 in the form of shares, provided that the below mentioned performance and service conditions are met.
Performance conditions
In order for the rewards to qualify for vesting, the following performance conditions will need to be met over the performance periods.
Common for all the performance periods
•Total shareholder return (TSR) is a market condition and is based on the share price at the end of the performance period. This will need to exceed the minimum threshold set by the Board of Directors in order for the condition to be met. A market condition is taken into account when estimating the grant date fair value and therefore, the expense is recognised irrespectively of whether this market condition is satisfied.
Performance periods 2018-2020 and 2019-2021
•Ahlstrom-Munksjö’s cumulative comparable EBITDA over the performance period will need to exceed an underlying comparable EBITDA requirement. This is a non-market performance condition. A performance condition other than market condition is not taken into account when estimating the grant date fair value. If the condition is not met, then it will result in a true up of the cumulative share-based payment cost.
Performance period 2020-2022
•Ahlstrom-Munksjö’s cumulative earnings per share (EPS) over the performance period. This is a non-market performance condition. A performance condition other than market condition is not taken into account when estimating the grant date fair value. The cumulative share-based payment cost is trued up depending on the level of achieving the cumulative earning per share (EPS).
Service condition
In addition to the performance conditions, in order for the rewards to vest, the participant will need to be employed by Ahlstrom-Munksjö at the time when the reward is paid.
Service condition as well as the probability of achieving the comparable EBITDA or earnings per share performance criteria are used to calculate the annual expense and cumulative amount recognized in equity relating the share-based payment scheme.
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Cont. note 7
Other long-term incentive share based plans
Matching Share Plan
The Matching Share Plan is a one-off plan, which covers the years 2019-2021. A precondition of an eligible individual’s participation in the plan is the individual’s personal investment in shares of Ahlstrom-Munksjö. In the Matching Share Plan the participant will receive one matching share for each invested share free of charge after an approximately three-year restriction period in the year 2022 provided that the participant continues to own the invested shares and that the employment relationship of the participant with Ahlstrom-Munksjö still continues.
Ahlstrom-Munksjö’s Board of Directors decided on February 13, 2020 to introduce a rolling Fixed Matching Share Plan for members of the Group’s key personnel. Its first plan period covers the years 2020-2022. A precondition of an eligible individual's participation is a personal investment in Ahlstrom-Munksjö shares. In the Matching Share Plan 2020 the participant will receive one matching share (gross before the withholding of all applicable taxes) for each two invested shares free of charge after an approximately three-year restriction period in the spring 2023. A precondition for the receipt of the share reward is the continued holding of the invested shares and continued employment with Ahlstrom-Munksjö throughout the plan.
Service condition is used to calculate the annual expense and cumulative amount recognized in equity relating the share-based payment scheme
Restricted Share plan
The Restricted Share Plan consists of annually commencing individual restricted share plans, each with a three-year retention period after which the share rewards granted within the plan will be paid to the participants in shares of Ahlstrom-Munksjö.
The commencement of each individual plan is subject to a separate Board approval. No individual plans have been approved by the Board at the end of December 2020.
Data related to the LTI plans | LTI | Matching | LTI | Matching | LTI |
Initial amount, pcs | 625,400 | 127,450 | 672,000 | 109,000 | 1) |
Initial allocation date | Feb 13, 2020 | Feb 13, 2020 | Mar 28, 2019 | Mar 28, 2019 | Feb 12, 2018 |
Beginning of earning period | Jan 1, 2020 | Jan 1, 2020 | Jan 1, 2019 | Jan 1, 2019 | Jan 1, 2018 |
End of earning period | Dec 31, 2022 | Feb 28, 2023 | Dec 31, 2021 | Feb 12, 2022 | Dec 31, 2020 |
End of restriction period | Mar 15, 2023 | Mar 31, 2023 | Mar 15, 2022 | Mar 31, 2022 | Mar 15, 2021 |
Vesting conditions | 3-year Total | Share | 3-year Total | Share | 3-year Total |
Maximum contractual life, years | 3.1 | 3.1 | 3.0 | 3.0 | 3.1 |
Remaining contractual life, years | 2.2 | 2.2 | 1.2 | 1.2 | — |
Number of participants at the end of the period | 90 | 64 | 73 | 35 | — |
Payment method | Shares/Cash | Shares/Cash | Shares/Cash | Shares/Cash | Shares/Cash |
1 Allocation is expressed as a specific monetary amount. The possible reward is converted into a specific number of shares after the earning period by dividing the monetary amount of the reward with the share price prevailing at the time of the conversion.
Changes of the number of shares during the period | LTI | Matching | LTI | Matching |
January 1, 2020 | ||||
Outstanding at the beginning of the reporting period | — | — | 565,200 | 78,196 |
Changes during the period | ||||
Granted | 613,399 | 68,451 | 3,600 | — |
Forfeited | 2,900 | — | 14,400 | — |
December 31, 2020 | ||||
Outstanding at the end of the period | 610,499 | 68,451 | 554,400 | 78,196 |
Page 40
Cont. note 7
Fair value determination
The fair value of share based incentives have been determined at grant date and the fair value is expensed until vesting. The pricing of the share based incentives granted during the period was determined by the following inputs and had the following effect:
Data related to the fair value of rewards | LTI | Matching |
Grant date | May 15, 2020 | May 15, 2020 |
Share price at grant date, EUR | 11.82 | 14.00 |
Share price at the end of the reporting period, EUR | 18.10 | 18.10 |
Expected average yearly volatility, % | 34.4 | — |
Expected dividends, EUR | 1.60 | 1.60 |
Maturity, years | 2.8 | 2.9 |
Valuation model | Monte Carlo | — |
Fair value of the reward at December 31, 2020, EUR million | 3.6 | 0.8 |
Effect on the profit for the period and liabilities, EUR million | 2020 | 2019 |
Expense (-) for the reporting period | -1.9 | 1.6 |
Liabilities arising from share-based payments at December 31 (social costs) | 0.3 | 0.0 |
Future cash payment to be paid to the tax authorities from share-based payments, estimated at the end of the period | 6.5 | 0.6 |
No other rewards were exercised or forfeited during the period for these plans.
Accounting policies |
Share-based payments
The long term incentive share based plans are accounted for as share-based payments whereby employees in exchange for providing services receive Ahlstrom-Munksjö shares. Ahlstrom-Munksjö has classified these programs as equity-settled as it is the Group’s intention to settle the rewards in the form of shares.
Ahlstrom-Munksjö’s share-based payments include both market and non-market performance conditions. The Group calculates the grant-date fair value using a probability weighted value model to reflect the probability of not achieving the TSR (market) conditions. The expense is recognized irrespectively of whether the conditions are satisfied. The non-market performance condition and the requirement to stay in service are not factored into the grant date fair value. If the non-marked performance condition or the service condition is not met, the cumulative share-based payment cost will be trued-up accordingly.
The share-based cost related to equity-settled schemes is recognized by the Group under Employee benefit expenses in the income statement. The total cost is determined by reference to the fair value at grant-date and is recognized over the expected vesting period. At each balance sheet date, Ahlstrom-Munksjö revises the cumulative share-based cost expected to be paid out based on the likelihood of achieving non-market performance criteria levels and the estimated retention rate of participants at the end of the performance period.
The rewards will be settled by the Group, net of taxes that will be withheld. Net settled schemes are treated as equity settled.
Matching share plan
The share-based cost related to the matching share plan is recognized under Administrative expenses in the income statement. The total cost is determined by reference to the fair value at grant-date and is recognized over the expected vesting period. The fair value is determined on the grant date. Expected dividends during the vesting period have been deducted from the value of the share. The requirement to stay in service is not factored into the grant date fair value. If the service condition is not met, the cumulative share-based payment cost will be trued-up accordingly.
Accounting estimates and judgements |
The long term incentive share based plans have been accounted for as equity settled share-based payments. This is based on a judgment made by the Group that the plans will be rewarded in the form of shares and not settled in cash.
The fair value of the long term incentive share based plans have been estimated at the grant-date based on the probability of TSR reaching specific thresholds at the end of the performance period. In order to calculate the probabilities, the most important assumptions that have been made in the probability weighted value model comprise of required rate of return and annual TSR volatility.
The expense recognized in Administrative expenses is based on management’s estimate of the likelihood of achieving the non-market performance criteria and the estimated number of participants remaining in the scheme when the vesting period ends.
At the end of each period, management estimates the likelihood of achieving the non-market performance criteria and the expected retention rate for participants in order to calculate the expense for the current period and the change in the amount recognised in equity. In order to estimate the likelihood for achieving the non-market performance criteria management considers the Group's non-market performance criteria against the target to date and the forecast for the remainder of the performance period.
Management estimate the number of participants that they expect to remain in the scheme at the end of the vesting period by reviewing the number of participants remaining at the end of each period, and the expected number of these participants who will remain at the pay-out date, considering the historic rate of staff retention in the Group.
Page 41
8 | DEPRECIATION, AMORTIZATION AND IMPAIRMENT |
Intangible assets, property, plant and equipment and right-of-use assets ("ROU assets") are stated in the balance sheet at cost less accumulated depreciation, amortization and impairment.
Depreciation and amortization, EUR million | 2020 | 2019 |
Other intangible assets | ||
Customer relationships | -15.0 | -15.4 |
Patents and trademarks | -1.7 | -1.7 |
Other | -20.9 | -18.0 |
Property, plant and equipment | ||
Land improvements and buildings | -14.6 | -14.7 |
Machinery and equipment and other | -102.0 | -108.6 |
Right-of-use assets | ||
Land and water areas and buildings | -3.8 | -4.2 |
Machinery and equipment and other | -11.2 | -11.3 |
Total | -169.1 | -173.9 |
Other comprises favourable contracts (e.g. economic value of the landfill rights) and technology related intangible assets identified in business combinations.
Depreciation and amortization arising from PPA adjustments recognized in the acquisitions and in the merger was EUR 51.0 million in 2020 and EUR 52.1 million in 2019.
Impairment, EUR million | 2020 | 2019 |
Property, plant and equipment | ||
Machinery and equipment | -8.2 | -2.4 |
Right-of-use assets | ||
Land and water areas and buildings | -1.1 | — |
Total | -9.2 | -2.4 |
Depreciation, amortization and impairment, EUR million | 2020 | 2019 |
Depreciation, amortization and impairment | 178.4 | 176.2 |
Impairment losses
In 2020 impairment losses totalled to EUR -9.2 million. Impairment losses recognized relates to an old gas turbine in Turin, Italy that was replaced (EUR -4.2 million), to property, plant and equipment in Stenay plant in France that is facing increased competition (EUR -4.0 million) and a right-of-use asset office building in Sweden that is no longer in use (EUR -1.1 million). In 2019 an impairment loss of EUR -2.4 million was recognized in relation to the divestment of Mikkeli plant.
Accounting policies |
Depreciation and amortization is recognized in the income statement on a straight-line basis based on estimated useful life of intangible assets, property, plant and equipment and ROU assets, adjusted in appropriate cases by impairments. The useful lives are estimated as the period over which the Group will derive a benefit from the asset.
Goodwill and other intangible assets with an indefinite useful life are considered as non-depreciable assets. For non-depreciable assets, impairment tests are performed annually, as well as if there are any indications of impairments during the year, by calculating the assets recovery value. For more information on the impairment of goodwill and other intangible assets see note 12.
Depreciation and amortization periods
Other intangible assets | |
Customer relationships | 15-25 years |
Patents and trademarks | 20-30 years |
Other | 10-40 years |
Property, plant and equipment | |
Land improvements | 20 years |
Buildings | 20-50 years |
Machinery and equipment | 2-20 years |
Right-of-use assets | |
Land and water areas | 5-12 years |
Buildings | 5-53 years |
Machinery and equipment | 2-8 years |
Page 42
9 | NET FINANCIAL ITEMS |
Net financial items outlines the components of financial income and financial expenses included in the income statement. The Group’s financial income is mainly comprised of exchange rate gains on financing items. Financial costs mainly consist of interest expense on bank loans, pension loan and bonds.
Net financial items, EUR million | 2020 | 2019 |
Interest income from loans and receivables | 1.1 | 1.2 |
Exchange rate gains | 18.2 | 5.4 |
Other financial income | 0.7 | — |
Financial income | 20.0 | 6.6 |
Interest expense from bank loans, pension loan and bonds | -35.1 | -45.9 |
Interest expenses on lease liabilities | -2.5 | -2.7 |
Loss on interest rate swap | -0.0 | — |
Unwinding of discount on provisions and net interest cost on defined benefit plans (note 15, 16) | -1.8 | -2.4 |
Extinguished borrowings (Net gain or loss) | — | -0.2 |
Exchange rate losses | -20.3 | -2.6 |
Other financial costs1 | -6.0 | -4.4 |
Financial expenses | -65.7 | -58.2 |
Net financial items | -45.7 | -51.6 |
1 Other financial costs include bank fees and amendment fees related to existing financing agreements.
Exchange rate gains and losses in the income statement, EUR million | 2020 | 2019 |
Exchange gains and losses | ||
Operating result | 1.4 | -0.1 |
Financial income and expenses | -0.6 | 3.0 |
Foreign exchange derivatives | ||
Operating result | 2.7 | -3.2 |
Financial income and expenses | -1.6 | -0.3 |
Total | 1.9 | -0.6 |
Accounting policies |
Financial income and expenses
Financial income in the income statement consists of interest income from financial asset measured at amortized cost, gain on interest rate swaps, exchange rate gains and gains from foreign exchange derivatives on financial items.
Financial expenses consist of interest expenses on borrowings, commitment fees and other financial fees, net interest costs of defined benefit plans, the interest related to discounted provisions, and exchange rate losses on exchange, interest rate swaps and foreign exchange derivatives. These costs are reported in the income statement in the period in which they were incurred using the effective interest method, except for the interest rate swaps.
Fair value changes of interest rate swaps are recognized as financial income or expenses in the period in which they arise. Exchange gains and losses and foreign exchange derivatives on operative items are recorded in operating result.
Page 43
10 | TAXES |
This note explains Ahlstrom-Munksjö's income tax expense and tax related balances in the consolidated financial statements. The deferred tax section provides information on expected future tax payments.
Income tax expense, EUR million | 2020 | 2019 |
Result before taxes | 130.4 | 51.6 |
Current tax income/expense | ||
Current tax on profits for the year | -32.5 | -29.2 |
Adjustments in respect of prior years | 3.8 | 2.9 |
Total | -28.6 | -26.3 |
Deferred tax | ||
Relating to tax loss carry forwards | -5.5 | -8.9 |
Relating to other temporary differences | -1.8 | 16.4 |
Total | -7.3 | 7.5 |
Total income taxes | -36.0 | -18.8 |
Reconciliation of effective tax rate, EUR million | 2020 | 2019 |
Result before taxes | 130.4 | 51.6 |
Income tax at Finnish tax rate (20%) | -26.1 | -10.3 |
Effect of other tax rates for foreign subsidiaries | -6.5 | 2.5 |
Regional, minimum and foreign withholding taxes | -6.1 | -1.2 |
Effect on deferred tax from change in tax rate | 0.4 | -0.2 |
Adjustments to current tax in respect of prior years | 0.8 | 3.1 |
Current year losses for which no deferred tax asset recognized | -1.0 | -16.1 |
Revaluation of deferred tax assets and liabilities | 4.2 | 2.9 |
Non–deductible expenses | -2.2 | -1.6 |
Tax exempt income and tax reliefs | 1.0 | 1.9 |
Other | -0.5 | 0.2 |
Income taxes in the income statement | -36.0 | -18.8 |
Uncertain tax positions
The Group had income tax receivables and liabilities where tax recoverability or tax payable amount is uncertain due to pending tax audits, tax disputes or other reasons. At balance sheet date net liability of uncertain tax position was EUR 2.5 million (EUR 3.0 million). The recorded amounts are based on management's estimates of the outcomes.
2020 | ||||||
Change in deferred tax on temporary differences and loss carry forwards, EUR million | Opening | Translation | Business | Recognized in | Recognized in | Closing |
Property, plant and equipment and intangible assets | -220.6 | 14.2 | — | 16.5 | — | -190.0 |
Employee benefit obligations | 18.6 | -0.3 | — | -3.9 | -0.8 | 13.6 |
Provisions | 16.7 | -1.3 | — | 1.2 | — | 16.6 |
Tax losses carried forward | 25.6 | -2.2 | — | -5.5 | — | 17.9 |
Other | 22.1 | -0.7 | — | -15.6 | 0.4 | 6.4 |
Net of deferred tax liabilities (-) and deferred tax assets (+) | -137.6 | 9.6 | — | -7.3 | -0.4 | -135.6 |
Assets | 9.9 | 6.1 | ||||
Liabilities | -147.5 | -141.7 |
2019 | ||||||
Change in deferred tax on temporary differences and loss carry forwards, EUR million | Opening | Translation | Business | Recognized in | Recognized in | Closing |
Property, plant and equipment and intangible assets | -224.3 | -1.1 | -0.3 | 5.1 | — | -220.6 |
Employee benefit obligations | 14.9 | 0.1 | — | 2.3 | 1.3 | 18.6 |
Provisions | 16.5 | 0.2 | — | 0.0 | — | 16.7 |
Tax losses carried forward | 34.6 | -0.1 | — | -8.9 | — | 25.6 |
Other | 15.2 | -0.2 | — | 8.9 | -1.8 | 22.1 |
Net of deferred tax liabilities (-) and deferred tax assets (+) | -143.1 | -1.1 | -0.3 | 7.5 | -0.5 | -137.6 |
Assets | 7.5 | 9.9 | ||||
Liabilities | -150.6 | -147.5 |
Page 44
Cont. note 10
Tax losses carried forward | Recognized deferred tax assets | Unrecognized deferred tax assets | ||||||
Tax losses and related deferred tax assets EUR million | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
Expiry within one year | — | 3.8 | — | 0.0 | — | 0.9 | ||
Expiry within two-five years | 47.6 | 51.0 | — | 0.2 | 11.9 | 12.7 | ||
Expiry after five years | 10.1 | 11.6 | 1.2 | 1.3 | 1.3 | 1.5 | ||
No expiry | 185.5 | 219.1 | 16.7 | 24.1 | 29.0 | 31.5 | ||
Total | 243.2 | 285.5 | 17.9 | 25.6 | 42.2 | 46.6 |
Recognized deferred tax assets on losses at December 31, 2020 relate mainly to France, Brazil and India. Unrecognized deferred tax assets on losses at December 31, 2020 relate mainly to China, France, Spain and the United Kingdom.
Accounting policies |
Current and deferred tax expense
The income tax expense is comprised of current tax and deferred tax. Tax is recognised in the income statement except when underlying transactions are reported in other comprehensive income, or directly in equity, in which case the associated tax effect is reported in other comprehensive income or directly in equity.
Current taxes are based on the results of group companies and are calculated using the local tax laws and tax rates that are enacted or substantively enacted as of each reporting date. The Group files tax returns in several jurisdictions and evaluates regularly tax positions taken. Tax liabilities for uncertain tax positions are recognized when it is considered that certain tax positions will be challenged or have already been challenged by tax authorities. Deferred tax is calculated using the liability method on temporary differences between the carrying amounts and taxable values of assets and liabilities. Deferred tax is not recognised for temporary differences that arise on initial recognition of goodwill or the initial recognition of assets and liabilities in a transaction other than a business combination that do not affect either the accounting or taxable profit at the time of the transaction.
Deferred tax is not recognized for temporary differences that arise on investments in subsidiaries where the reversal is in the Group’s control and not expected in the foreseeable future.
The valuation of deferred tax provided is based on how carrying amounts of assets or liabilities are expected to be realized or settled. Deferred tax is calculated by applying the tax rates enacted or substantially enacted at the reporting date.
Deferred tax assets for tax-deductible temporary differences and loss carry forwards are recognized only to the extent it is likely that they will be utilized.
Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities, and when the deferred tax assets and tax liabilities are attributable to taxes charged by the same tax authority and relate to either the same tax entities or different tax entities, where there is an intention to settle the balances on a net basis.
Accounting estimates and judgements |
The utilization of deferred tax assets is dependent on the reversal of deferred tax liabilities and generation of future taxable profits. The Group estimates possibilities to use deferred tax assets based on current business plans. The Group periodically evaluates status of ongoing tax audits and disputes and positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It makes a revaluation of the amounts recorded, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Because the Group operates in complex international tax environment, significant degree of judgement is used in identifying outcomes of tax audits and disputes and uncertain tax positions.
Page 45
11 | EARNINGS PER SHARE |
The total number of shares at the end of December 2020 was 115,653,315. At the end of the reporting period, Ahlstrom-Munksjö held 664,862 own shares, corresponding to approximately 0.6% of total shares and votes.
Earnings per share | 2020 | 2019 |
Net result attributable to the parent company’s shareholders, EUR million | 93.1 | 31.7 |
Accumulated interest expenses on hybrid bond after taxes for the period, EUR million | -3.2 | -0.2 |
Weighted average number of outstanding shares before dilution | 115,034,656 | 115,288,453 |
Dilution effect from share based incentive plans | 80,876 | 32,262 |
Weighted average number of outstanding shares after dilution | 115,115,532 | 115,320,715 |
Basic earnings per share, EUR | 0.78 | 0.27 |
Diluted earnings per share, EUR | 0.78 | 0.27 |
Accounting policies |
Earnings per share is calculated by dividing the net profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding during the period. The accumulated interest expenses on hybrid bond after taxes for the period is deducted in the earnings per share calculation. The dilutive effect of equity settled share based payments is included in the computation of diluted earnings per share.
Page 46
Operating capital
Disclosures in this section focus on our operating assets and liabilities including information on our investments in long-lived assets, trade receivables and payables, inventories, benefit obligations towards our current and former employees and provisions.
12 | INTANGIBLE ASSETS, PROPERTY, PLANT AND EQUIPMENT AND RIGHT-OF-USE ASSETS |
Intangible assets
Other intangible assets | |||||
Intangible assets, EUR million, 2020 | Goodwill | Customer | Patents and | Other | Other |
Historical cost | |||||
Opening | 642.7 | 293.8 | 50.2 | 309.4 | 653.4 |
Additions | — | — | — | 18.1 | 18.1 |
Disposals | -5.3 | — | — | -0.7 | -0.7 |
Reclassifications and other | — | — | — | 5.4 | 5.4 |
Translation differences | -28.4 | -23.9 | — | -14.8 | -38.7 |
Closing | 608.9 | 269.9 | 50.2 | 317.4 | 637.5 |
Accumulated amortization | |||||
Opening | — | 42.2 | 10.8 | 101.3 | 154.3 |
Amortization | — | 15.0 | 1.7 | 20.9 | 37.6 |
Disposals | — | — | — | -0.7 | -0.7 |
Reclassifications | — | — | — | 3.0 | 3.0 |
Translation differences and other | — | -3.6 | — | -5.6 | -9.2 |
Closing | — | 53.6 | 12.5 | 119.0 | 185.1 |
Net book value at year end | 608.9 | 216.3 | 37.7 | 198.4 | 452.3 |
Other intangible assets as at December 31, 2020 mainly comprise of customer relationships, favourable contracts (e.g. economic value of the landfill rights) and technology related intangible assets identified in business combinations. Increase in other intangible assets for year ended December 31, 2020 mainly relate to capitalized development costs, patents and IT projects. Goodwill disposals in 2020 relates to divestment of Fine Arts in Arches. See note 3 for more information.
Other intangible assets | |||||
Intangible assets, EUR million, 2019 | Goodwill | Customer | Patents and | Other | Other |
Historical cost | |||||
Opening | 630.6 | 288.2 | 50.2 | 285.8 | 624.2 |
Business combination | 7.7 | 2.8 | — | — | 2.8 |
Additions | — | — | — | 18.4 | 18.4 |
Disposals | — | — | — | -0.9 | -0.9 |
Reclassifications and other | — | — | — | 4.2 | 4.2 |
Translation differences | 4.3 | 2.8 | — | 2.0 | 4.8 |
Closing | 642.7 | 293.8 | 50.2 | 309.4 | 653.4 |
Accumulated amortization | |||||
Opening | — | 26.8 | 9.1 | 83.3 | 119.2 |
Amortization | — | 15.4 | 1.7 | 18.0 | 35.1 |
Disposals | — | — | — | -0.7 | -0.7 |
Translation differences and other | — | 0.0 | — | 0.7 | 0.7 |
Closing | — | 42.2 | 10.8 | 101.3 | 154.3 |
Net book value at year end | 642.7 | 251.6 | 39.4 | 208.1 | 499.1 |
Goodwill
The carrying value of goodwill amounted to EUR 608.9 million (EUR 642.7 million) as of December 31, 2020.
Ahlstrom-Munksjö is organized into five business areas which are Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions. Ahlstrom-Munksjö’s business areas are described below. These five business areas form the Group’s operating and reportable segments. Goodwill is allocated to the business areas reflecting their share of the deemed fair values of the acquired assembled workforce, expected synergies and other benefits. These five business areas correspond to the groups of cash-generating units (CGU) and the lowest level at which goodwill is monitored for internal management purposes. See note 4 for business area information.
Page 47
Cont. note 12
As a result of implementing a new business and reporting structure as of January 1, 2020 the Group has reallocated goodwill to affected groups of CGUs. The following table presents the allocation of goodwill to Ahlstrom-Munksjö’s new business areas (groups of CGUs) and is not comparable to goodwill allocation presented for comparative year. The reallocation was performed using a relative value approach.
The following tables present the allocation of goodwill to Ahlstrom-Munksjö’s business areas (groups of CGUs) as of the annual impairment testing date:
Allocation of goodwill by business area, EUR million | 2020 |
Filtration & Performance Solutions | 54.6 |
Advanced Solutions | 67.1 |
Industrial Solutions | 131.6 |
Food Packaging & Technical Solutions | 184.0 |
Decor Solutions | 171.6 |
Total | 608.9 |
Allocation of goodwill by business area, EUR million | 2019 |
Filtration and Performance | 58.3 |
Specialties | 94.4 |
Industrial Solutions | 136.5 |
North America Specialty Solutions | 175.9 |
Decor | 177.6 |
Total | 642.7 |
Impairment tests for goodwill
The recoverable amounts of each group of cash-generating units are determined using a discounted cash flow model (value-in-use). Key assumptions used in the determination include short-term and long-term growth rate for net sales, development of EBITDA, annual capital expenditure, changes in operative working capital and pre-tax discount rate.
The cash flows are based on business plans approved by the Board of Directors covering a period of three years. The impact of Covid-19 on the future cash flows is insignificant. Cash flows beyond this three-year period are based on the terminal value and have been extrapolated using an estimated long-term sales growth rate of 2.0% considering inflation. All cash flow projections reflect the past performance of the Group’s business operations and management expectations for future market development considering the external sources of information when available.
The discount rate used in the calculation is based on weighted average cost of capital (WACC) based on the market view of the time-value of money and reflect specific risks related to each business area. In the weighted average cost of capital (WACC) management has included an alfa factor amounting to 2.0% to mitigate the risks related to the future cash flow projections and to the impact of Covid-19 pandemic.
The following tables set out the key assumptions for the groups of CGUs. The comparative year data is based on the previous business and reporting structure and is not comparable with the current year's data.
Key assumptions, 2020 | Filtration & | Advanced | Industrial | Food Packaging | Decor |
Average net sales growth % in the testing period | 4.9 | 2.8 | 2.7 | 4.5 | 3.0 |
Long-term growth-% | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 |
Average EBITDA margin % in the testing period | 19.7 | 15.1 | 12.9 | 9.9 | 10.9 |
Pre-tax discount rate % | 7.3 | 7.1 | 7.4 | 6.9 | 7.8 |
Key assumptions, 2019 | Decor | Filtration and Performance | Industrial | North America Specialty Solutions | Specialties |
Average net sales growth % in the testing period | 0.7 | 1.4 | 2.5 | 2.1 | 5.0 |
Long-term growth-% | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 |
Average EBITDA margin % in the testing period | 7.4 | 18.8 | 11.5 | 8.0 | 9.3 |
Pre-tax discount rate % | 6.3 | 6.3 | 6.3 | 6.1 | 6.1 |
The impairment tests for 2020 indicated that the recoverable amount of the groups of CGUs exceeded their carrying value and goodwill is not been impaired.
Goodwill impairment tests for 2019 did not result in a recognition of any impairment.
Sensitivity analysis
As a part of the performance reviews, management has performed sensitivity analysis regarding the key assumptions. The parameters used in the impairment tests, which were the most sensitive for changes were EBITDA margin and pre-tax discount rate. The table below shows the percentage change in the key parameters used in the calculations that would result in the value in use being equal to the carrying value (keeping other parameters constant). The recoverable amount of the assets tested in 2020 exceeds their carrying value by EUR 1,744.5 million for Filtration & Performance Solutions, EUR 606.1 million for Advanced Solutions, EUR 520.0 million for Industrial Solutions, EUR 552.3 million for Food Packaging & Technical Solutions and EUR 203.0 million for Decor Solutions.
Key assumptions, 2020 | Filtration & | Advanced | Industrial | Food Packaging | Decor |
Annual average change % in EBITDA margin in the testing period | -12.7 | -8.5 | -4.3 | -4.0 | -3.3 |
Pre-tax discount rate % change in percentage points | 21.3 | 10.6 | 6.8 | 4.2 | 3.5 |
Page 48
Cont. note 12
Management has considered and assessed reasonable possible changes for other key assumptions and has not identified any instances that would result in a carrying amount that exceed the recoverable amount of the groups of CGUs.
Research and development
Ahlstrom-Munksjö has product and process development activities focusing mainly on meeting customer requirements in relation to product properties and adaptations. Research and development costs are expensed except those development expenses that meet the capitalization criteria. In 2020 development costs that met capitalization criteria and were capitalized amounted to EUR 6.2 million (EUR 6.5 million).
Emission rights
Ahlstrom-Munksjö participates in the European Union emission trading scheme in which it has received free emission allowances for a defined period. Ahlstrom-Munksjö was granted 379,597 units (401,096 units) of CO2 emission rights for the year 2020. The rights in excess of the Group’s needs have been transferred to 2021. As of December 31, 2020, the remaining CO2 credits amounted to 30,850 units (98,841 units) and their market value was approximately EUR 1.0 million (EUR 2.5 million).
In 2020, Ahlstrom-Munksjö did not sell or buy any emission rights. During the year 2019 Ahlstrom-Munksjö sold emission rights amounting to EUR 2.3 million but didn't buy any.
Accounting policies |
Intangible assets
Goodwill
Goodwill arises from business combinations and represents the excess of the consideration transferred over the Group’s interest in the fair value of the identifiable net assets acquired at the acquisition date. Goodwill is an intangible asset with an indefinite useful life. It is not amortized, but it is subject to impairment testing annually, or more frequently, if events or changes in circumstances indicate that goodwill might be impaired.
For impairment testing purposes, goodwill is allocated to groups of cash-generating units reflecting the lowest levels at which the goodwill is monitored for internal management purposes. A cash-generating unit, as determined for the purposes of the impairment testing, is the smallest group of assets generating separately identifiable cash inflows, which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). The carrying value of a cash generated unit includes its share of relevant corporate assets allocated to it on a reasonable and consistent basis.
Ahlstrom-Munksjö conducts its impairment testing by determining the recoverable amount for a group of CGUs. The recoverable amount is defined as value-in-use according to a present value of the estimated future cash flows. The recoverable amount is compared to the group of CGUs’ carrying value. If the carrying value exceeds the recoverable amount, the asset is considered impaired and is written down to its recoverable amount. If an impairment loss is recognized, the loss is first allocated to reduce goodwill and then to reduce other assets.
Impairment is recognized as an expense in the income statement. An impairment loss recognized for goodwill is not reversed in a subsequent period.
Other intangible assets
Customer relationships, patents and trademarks, technology related assets and other intangible assets acquired in business combinations are recorded at fair value at the acquisition date and are subsequently amortized on a straight-line basis over estimated useful lives.
Computer software and separately acquired patents and trademarks are recorded at historical cost and amortized on a straight-line basis over their expected useful lives.
Other intangible assets with definite useful lives are tested for impairment if there are indicators of impairment, see more information on triggering events in Accounting policy of Property, plant and equipment.
Research and development
Ahlstrom-Munksjö has product and process development activities focusing mainly on meeting customer requirements in relation to product properties and adaptations. Activities are divided into a research phase and a development phase. Research costs are expensed as incurred and recorded in the income statement. Expenditures on development activities are also expensed as incurred except those development expenses that meet the capitalization criteria. Development costs arising from the development of new or significantly improved products are capitalized as intangible assets when the costs of the development stage can be reliably determined, the product is technically feasible and economically viable, the product is expected to produce economic benefits and the Group has the intention and the required resources to complete the development effort. Capitalized development costs include the costs of material, labour and testing that are directly attributable to creating, producing and preparing the asset to be capable of operating in the manner intended by management. Amortization period for capitalized development costs is 10 years.
Emission rights
Ahlstrom-Munksjö participates in the European Union's Emissions Trading Scheme aimed at reducing greenhouse gas emission and receives allowances for a defined period to emit a fixed tonnage carbon dioxide. The Group receives allowances either free of charge from the scheme or acquires them from other participants. The allowances received and the liability based on the actual emissions are netted. A provision is recognized if the allowances received do not cover the actual emissions. No intangible asset is recognized for the excess of allowances. Gains arising from the sale of the emission right allowances are recorded in other operative income in the income statement.
Page 49
Cont. note 12
Accounting estimates and judgements |
Key assumptions used in goodwill impairment testing
The management makes significant estimates and judgements in determining the level at which the goodwill is tested and whether there are any indications of impairment.
The calculations of the value-in-use are based on cash flow projections, which require assessments and estimates from the management. The most significant estimates concern development of net sales and EBITDA including estimates for market prices of pulp and cost levels of main raw materials and energy as well as determination of the weighted average cost of capital (WACC) used to discount cash flows. Management tests the impacts of changes in significant estimates used in forecasts by sensitivity analyses as described above in this note.
The covid-19 has increased the uncertainty related to the cash flow projections as the final impact will depend on the duration and the severity of the virus. In the weighted average cost of capital (WACC) management has included an alfa factor amounting to 2.0% to mitigate the risks related to the future cash flow projections and to the impact of Covid-19 pandemic.
Estimates and judgements related to other intangible assets
For more information on the estimation of useful economic life of an intangible asset, see note 8.
Property, plant and equipment
Property, plant and equipment, EUR million, 2020 | Land and land | Buildings | Machinery | Other | Construction | Total |
Historical cost | ||||||
Opening | 76.4 | 398.8 | 2,354.4 | 25.1 | 134.6 | 2,989.2 |
Additions | — | 1.4 | 20.4 | 0.4 | 65.4 | 87.6 |
Disposals | — | -0.5 | -9.0 | -0.3 | -1.6 | -11.4 |
Reclassifications and other | 1.2 | 15.6 | 95.8 | 3.0 | -121.0 | -5.4 |
Translation differences | -2.4 | -12.4 | -79.6 | -0.8 | -9.7 | -105.0 |
Closing | 75.2 | 402.8 | 2,382.0 | 27.4 | 67.7 | 2,955.1 |
Accumulated depreciation | ||||||
Opening | 8.6 | 250.2 | 1,582.2 | 16.2 | 0.5 | 1,857.7 |
Depreciation | 0.8 | 13.8 | 100.2 | 1.8 | — | 116.5 |
Disposals | — | -0.5 | -7.2 | -0.2 | — | -7.9 |
Impairment | — | — | 8.2 | — | — | 8.2 |
Reclassifications | — | 0.2 | -5.2 | 1.9 | — | -3.0 |
Translation differences and other | 0.2 | -5.4 | -42.9 | -0.5 | 0.0 | -48.7 |
Closing | 9.5 | 258.3 | 1,635.3 | 19.3 | 0.4 | 1,922.8 |
Net book value at year end | 65.7 | 144.5 | 746.7 | 8.1 | 67.3 | 1,032.3 |
Increase in property, plant and equipment for the year ended December 31, 2020 were mainly related to the investments in Turin, Italy EUR 13.3 million, in Chirnside, UK EUR 8.9 million, in Rhinelander, U.S. EUR 4.9 million, in Thilmany, U.S. EUR 4.8 million, in Mosinee, U.S. EUR 4.1 million and in Billingsfors, Sweden EUR 4.0 million. A total of EUR -7.9 million of the disposals in historical cost and EUR 4.7 million of disposals in accumulated depreciation relate to the divestment of Fine Arts in Arches. See note 3 for more information.
See note 20 for information on capital expenditure commitments and note 8 for information on impairment losses.
Page 50
Cont. note 12
Property, plant and equipment, EUR million, 2019 | Land and land | Buildings | Machinery | Other | Construction | Total |
Historical cost | ||||||
Opening | 72.1 | 395.0 | 2,270.4 | 16.5 | 143.6 | 2,897.5 |
Reclassification to right-of-use assets (Finance lease IAS 17) | — | -2.0 | -8.9 | — | — | -10.8 |
Business Combination | — | — | 0.6 | — | — | 0.6 |
Additions | 0.0 | 1.2 | 20.2 | 1.5 | 122.5 | 145.5 |
Disposals | -0.1 | -7.9 | -43.8 | -0.4 | — | -52.1 |
Reclassifications and other | 4.6 | 10.9 | 107.4 | 7.2 | -131.8 | -1.6 |
Translation differences | -0.2 | 1.5 | 8.3 | 0.2 | 0.3 | 10.1 |
Closing | 76.4 | 398.8 | 2,354.4 | 25.1 | 134.6 | 2,989.2 |
Accumulated depreciation | ||||||
Opening | 8.2 | 240.5 | 1,521.3 | 10.0 | 0.3 | 1,780.4 |
Reclassification to right-of-use assets (Finance lease IAS 17) | — | -0.3 | -4.7 | — | — | -5.0 |
Depreciation | 0.5 | 14.1 | 106.9 | 1.5 | 0.2 | 123.3 |
Disposals | -0.1 | -5.4 | -43.1 | -0.4 | — | -48.9 |
Impairment | 0.1 | 0.4 | 1.9 | — | — | 2.4 |
Reclassifications | — | 0.1 | -4.8 | 5.0 | 0.0 | 0.2 |
Translation differences and other | -0.1 | 0.7 | 4.7 | 0.1 | 0.0 | 5.4 |
Closing | 8.6 | 250.2 | 1,582.2 | 16.2 | 0.5 | 1,857.7 |
Net book value at year end | 67.8 | 148.6 | 772.1 | 8.8 | 134.1 | 1,131.5 |
Right-of-use assets ("ROU assets")
Right-of-use assets recognized in the balance sheet include vehicles, forklifts, machinery and equipment, premises and land areas.
Right-of-use assets, EUR million, 2020 |
|
|
|
|
Historical cost | ||||
Opening | 0.7 | 22.6 | 53.4 | 76.7 |
Additions | — | 2.7 | 9.0 | 11.7 |
Other | — | -2.0 | -5.1 | -7.1 |
Translation differences | -0.1 | -0.9 | -2.0 | -3.0 |
Closing | 0.7 | 22.4 | 55.3 | 78.3 |
Accumulated depreciation | ||||
Opening | 0.1 | 4.0 | 15.6 | 19.7 |
Depreciation | 0.1 | 3.7 | 11.2 | 15.0 |
Impairment | — | 1.1 | — | 1.1 |
Other | — | -1.8 | -4.2 | -6.1 |
Translation differences | 0.0 | -0.2 | -0.6 | -0.8 |
Closing | 0.1 | 6.8 | 21.9 | 28.9 |
Net book value at year end | 0.6 | 15.5 | 33.3 | 49.4 |
The expenses relating to leases for which Ahlstrom-Munksjö applied the practical expedient (short-term leases and low-value leases) amounted to EUR 4.3 million (EUR 4.0 million) and the income from subleasing right-of-use assets amounted to EUR 0.3 million (EUR 0.3 million) for the year end December 31, 2020 and are reported as other operating income.
Ahlstrom-Munksjö has currently no material variable lease payments that are not included in the measurement of ROU asset and no leases with residual value guarantees.
Page 51
Cont. note 12
Right-of-use assets, EUR million, 2019 |
|
|
|
|
Historical cost | ||||
Opening | — | — | — | — |
Reclassification from property, plant and equipment (Finance lease IAS 17) | — | 2.0 | 8.9 | 10.8 |
Impact of IFRS 16 on the opening balance | 0.7 | 22.8 | 33.5 | 57.0 |
Additions | — | 0.5 | 11.3 | 11.8 |
Other | — | -2.9 | -0.6 | -3.5 |
Translation differences | 0.0 | 0.2 | 0.3 | 0.5 |
Closing | 0.7 | 22.6 | 53.4 | 76.7 |
Accumulated depreciation | ||||
Opening | — | — | — | — |
Reclassification from property, plant and equipment (Finance lease IAS 17) | — | 0.3 | 4.7 | 5.0 |
Depreciation | 0.1 | 4.1 | 11.3 | 15.4 |
Impairment | — | — | 0.0 | 0.0 |
Other | — | -0.4 | -0.4 | -0.8 |
Translation differences | 0.0 | 0.0 | 0.0 | 0.0 |
Closing | 0.1 | 4.0 | 15.6 | 19.7 |
Net book value at year end | 0.7 | 18.6 | 37.8 | 57.0 |
Accounting policies |
Property, plant and equipment
Impairment of property, plant and equipment, goodwill and other intangible assets
Ahlstrom-Munksjö assesses the recoverability of the carrying amount of property, plant and equipment and intangible assets with definite useful lives if events or changes in circumstances indicate that the carrying amount may be impaired (a triggering event). Factors that the Group considers when it reviews indicators of impairment include, but are not limited to:
•Observable indications for decrease in value
•Significant adverse changes that have taken place in the technological, market, economic or legal environment
•Increases in interest rates
•Obsolescence or physical damage affecting the asset
•Deterioration in the expected level of the asset's performance or adverse changes impacting the way the asset is used or expected to be used
•Where management's own forecasts of future net cash inflows or operating profits show a significant decline from previous budgets and forecasts
The carrying amount of an asset is written down immediately to the asset’s recoverable amount if the carrying value exceeds the recoverable amount. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell or its value-in-use. Value-in-use is determined by discounting future cash flows expected to be generated by the asset. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating unit).
The impairment of assets is reversed if there is an indication that it is no longer necessary, and there has been a change in the assumptions which formed the basis of the calculation of the recoverable amount. A reversal is only made to the extent that the asset’s carrying value after reversal does not exceed the carrying value that the asset would have had, with a deduction for depreciation, if no impairment had been carried out.
Property, plant and equipment
Land and land improvements include the Group’s freehold land and the landfills that the Group operates at or near certain of its facilities in the United States. The operation of these landfills require state, federal and local permits for construction, operation and closure and the landfills are subject to constructing final capping and continued monitoring.
The freehold land and land improvements are recognized at cost. The cost of land improvements include the cost of landfill preparation and excavation, construction of liners, related costs for environmental permits and studies and the initial estimate to close, cap and care the landfill, for which the Group has made the environmental provision (see note 16).
Property, plant and equipment are recognized at cost less accumulated depreciation and any impairment. The cost includes the purchase price and expenditure directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended. Interest on borrowings directly attributable to the purchase, construction or production of assets that take considerable time to complete are capitalized.
Property, plant and equipment comprising parts with different useful lives are treated as separate components of the asset. The costs incurred for replacing the part are recognized in the carrying amount of the asset which is depreciated over the useful life of replacement. The carrying value of a property, plant and equipment is derecognized from the balance sheet on scrapping or sale, or when no future economic benefits are expected from use of the asset. Ordinary repair and maintenance costs are expensed as incurred.
Page 52
Cont. note 12
Gains or losses arising from the sale of property, plant and equipment are recognized as other operating income or other operating expenses.
Government grants
Government grants are recognized at fair value when there is a reasonable assurance that the grant will be received. Government grants relating to the purchase of property, plant and equipment are deducted from the cost of the assets and accordingly reduce the depreciation of the underlying asset. Other government grants are recognized in the income statement in the same period as the costs they are intended to compensate unless the grant compensates an item which has been expensed in prior years.
Right-of-use assets
The measurement of the right-of-use asset and the lease liability is determined by discounting the minimum future lease payments. Ahlstrom-Munksjö initially measures the lease liability at the present value of the lease payments to be made over the lease term. The payments are based on the lease contracts and respective payment schedules. Non-lease components, such as maintenance rents and other variable components are separated from the lease liability and expensed if the non-lease components are specified in the agreement. Open ended lease contracts and extension options are taken into account using management’s best estimate, e.g. end date for open ended lease contracts is the most likely end date for the contracts and the extension option is included if it is reasonably certain that the extension option will be exercised. Right-of-use asset is initially measured equal to the lease liability and adjusted if payments relating to agreement are done in advance or there are initial costs for the agreement. Right-of-use assets are also subject to impairment (IAS 36). The lease payments are discounted using the interest rate implicit in the lease or the incremental borrowing rate. The incremental borrowing rate comprises the reference rate and credit spread for incremental borrowing. Factors affecting the incremental borrowing rate include the length of the contract and potential premiums for country and currency risks. The revised incremental borrowing rate is used when there are changes in the lease term, changes in assessment of an option to purchase the asset and modifications to the lease that are not accounted as a separate lease. A change in index or such expected changes do not result in a revised discount rate.
After the commencement date according to IFRS 16 the following applies: lease liabilities are reduced by lease amortization and remeasurements are made to reflect changes to the lease payments; rights-of-use assets are measured at cost less accumulated depreciation and accumulated impairment losses adjusted for remeasurements of the lease liability.
Payments of short-term leases with a maturity less than 12 months, leases of low-value assets and variable lease payments are not included in the measurement of the lease liability nor right-of-use asset and are presented in cost of goods sold, sales and marketing, R&D and administrative expenses in the income statement.
Accounting estimates and judgements |
Estimates and judgements related to property, plant and equipment as well as other intangible assets
The Group has tangible and other intangible assets with definite useful lives which values are presented above. The assets are tested for impairment when there are events or changes in circumstances indicate that the carrying value may be impaired (a triggering event). The recoverability of these assets is based on market assumptions and managements estimate of future cash flows. Changes in assumptions and failure to meet certain earnings targets could result in impairment. Management has considered the triggering events due to Covid-19 pandemic and other events and tested the assets for impairment accordingly. For impairment testing see more details in note 8.
Estimates and judgements related to right-of-use assets
The Group has open ended lease contracts and contacts with extension options. Management uses their best estimate according to the existing information available to evaluate the most likely end date for these types of contracts. Changes in the estimated end dates impact the amount of right-of-use asset and lease liability booked in the balance sheet.
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13 | INVENTORIES |
Inventories consist of products from the Group’s five business areas – Filtration & Performance Solutions, Advanced Solutions, Industrial Solutions, Food Packaging & Technical Solutions and Decor Solutions – in varying stages of the production process.
Inventories, EUR million | 2020 | 2019 |
Materials and supplies | 89.1 | 85.3 |
Work in progress | 31.6 | 33.5 |
Finished products | 181.6 | 203.2 |
Consumables and spare parts | 63.7 | 65.7 |
Total | 366.0 | 387.6 |
Change in allowance for inventory obsolescence for Finished products and Work in progress, EUR million | 2020 | 2019 |
Opening | -26.8 | -23.4 |
Change in allowance for inventory obsolescence | -2.9 | -0.1 |
Inventory write-downs through profit and loss | -0.1 | -3.2 |
Translation differences | 0.8 | -0.2 |
Closing | -28.9 | -26.8 |
Accounting policies |
Inventories are recognized at the lower of cost and net realizable value. Net realizable value is calculated as the selling price less costs attributable to the sale.
The methodology for determining the cost of inventories varies depending on the inventory class.
Materials and supplies
Materials and supplies are valued using the weighted average cost method. Under the weighted average cost method, the cost of each items remaining in inventories at the period end is determined from the weighted average of the cost of similar items at the beginning of the period and the cost of similar items purchased during the period.
Finished products and Work in progress
Finished products and work in progress are valued on a first-in, first-out basis. Costs comprise all costs that are directly attributable to the manufacturing process, including direct material and labour, and production related overheads (based on normal operating capacity and normal consumption of material, labour and other production costs) and depreciation charges.
Accounting estimates and judgements |
Inventory obsolescence
If the net realizable value of inventory is deemed lower than the cost, then allowance is established for inventory obsolescence. The amount to be allocated to inventory obsolescence is based on an estimation of the net realizable value of inventory.
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14 | TRADE AND OTHER RECEIVABLES AND TRADE AND OTHER PAYABLES |
Trade and other receivables represent amounts that Ahlstrom-Munksjö expects to collect from other parties. Trade and other payables mainly consist of amounts owed to suppliers, employees and customers.
Trade and other receivables
Current trade and other receivables, EUR million | 2020 | 2019 |
Trade receivables | 214.5 | 218.6 |
Value added tax | 16.1 | 13.0 |
Prepaid expenses and accrued income | 17.7 | 20.6 |
Current derivative assets (note 19) | 4.4 | 1.7 |
Other receivables | 12.1 | 24.9 |
Total | 264.7 | 278.9 |
Trade receivables consists mainly of receivables from contracts with customers.
Ageing of trade receivable
The ageing of trade receivable, both gross and the impaired amount, is shown in the following table.
EUR million, 2020 | Not due | 1-30 | 31-180 | 181-360 | >360 | Total |
Trade receivable | 189.5 | 22.3 | 2.0 | 0.2 | 6.8 | 220.8 |
Loss allowance | — | 0.0 | 0.0 | -0.1 | -6.2 | -6.3 |
Trade receivables | 189.5 | 22.3 | 2.0 | 0.1 | 0.6 | 214.5 |
EUR million, 2019 | Not due | 1-30 | 31-180 | 181-360 | >360 | Total |
Trade receivable | 186.1 | 29.2 | 3.8 | -0.4 | 6.5 | 225.1 |
Loss allowance | — | -0.1 | -0.1 | -0.2 | -6.0 | -6.4 |
Trade receivables | 186.1 | 29.0 | 3.7 | -0.7 | 0.5 | 218.6 |
Recoverability of trade receivable
Change in allowance for trade receivable, EUR million | |
Opening at January 1, 2019 | -7.5 |
Increase in allowance recognized in profit or loss during the year | -0.7 |
Reversal of allowance | 1.7 |
Translation differences | 0.0 |
Closing at December 31, 2019 | -6.4 |
Opening at January 1, 2020 | -6.4 |
Increase in allowance recognized in profit or loss during the year | -0.6 |
Reversal of allowance | 0.6 |
Translation differences | 0.1 |
Closing at December 31, 2020 | -6.3 |
Credit risk |
Financial instruments that could potentially expose Ahlstrom-Munksjö to counterparty risk consist primarily of trade receivables, cash and cash equivalents and derivative financial instruments. The Group is exposed to counterparty credit risks from financial transactions and customer credit risks.
Financial transactions counterparty credit risk
Financial transactions counterparty credit risk refers to the Group’s exposure under financial contracts arising from the deterioration of the counterparties’ financial position. In order to minimize this risk, Ahlstrom-Munksjö have the following guidelines in place in the Group Finance Policy:
•Only entering into transactions with leading financial institutions and with industrial companies that have a high credit rating (preferably BBB or higher).
•Investing in liquid cash funds only with financially secure institutions or companies (preferably BBB or higher).
•Requiring parent company guarantees when dealing with any subsidiary of a rated company.
Customer credit risk
Customer credit risk is applied centrally and managed locally in each subsidiary.
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Cont. note 14
Factoring
When seeking to finance the Group’s receivables, this shall be limited to 50% of the total accounts receivables before factoring calculated as a rolling average for three month’s ends. Group companies may enter into factoring, supplier finance or other corresponding financing arrangements subject to CFO approval and according to the criteria defined in the credit exposure policy approved by the Board. All factoring or similar arrangements are made on non-recourse basis. At the end of the reporting period the outstanding amount under the factoring or similar arrangements was EUR 188.5 million (EUR 224.3 million).
Trade and other payables
Trade and other payables, EUR million | 2020 | 2019 |
Trade payables | 408.0 | 454.3 |
Accrued expenses | 146.9 | 132.9 |
Trade payables to equity accounted investments | 4.2 | 5.1 |
Current derivative liabilites (note 19) | 0.2 | 0.5 |
Advances received from customers | 3.0 | 1.9 |
Other liabilities | 46.4 | 27.0 |
Total | 608.8 | 621.7 |
Accrued expenses, EUR million | 2020 | 2019 |
Accrued personnel costs | 89.6 | 64.2 |
Accrued customer rebates | 23.4 | 17.7 |
Accrued interest expenses | 7.9 | 9.6 |
Other | 26.1 | 41.5 |
Total | 146.9 | 132.9 |
Accrued expenses include rebates from contracts with customers amounting to EUR 23.4 million (EUR 17.7 million).
Trade payables to equity accounted investments comprise of trade payables to Sydved AB. More details on Ahlstrom-Munksjö’s associate investee can be found in note 21.
Accounting policies |
Trade and other receivables
Trade and other receivables are recognized at amortized cost, using the effective interest rate method, less any impairment losses, with the exception of fair value of unrealized hedges whose treatment is discussed in note 19. The credit quality of receivables that are neither past due nor impaired has been deemed sufficient and payments are expected to be received when the receivables are due. Any changes to the allowance for doubtful accounts receivable are recognized as an expense in the income statement.
The Group applies the simplified approach to assess the credit risk of trade receivables. The loss allowance is measured at the estimate of the lifetime expected credit losses. The Group uses loss allowance provision matrix to determine the expected credit loss rates. It considers historical loss rates for each ageing category and region. The calculated loss percentage is then adjusted with the forward looking macroeconomic data. For trade receivables not due or maximum 180 days overdue, a loss allowance of 0.0%-10.0% is made. The trade receivables, which are overdue 181-360 days a loss allowance of 60.0% will be made and for more than 360 days a loss allowance of 100.0 % will be made. The trade receivables are partly insured and the amount that will be received from the insurer is excluded from the calculation of the trade receivables impairment
Trade and other payables
Trade and other payables represent liabilities for goods and services and are recognized at amortized cost, using the effective interest rate method. The amounts are unsecured and are usually paid within 30 days from initial recognition.
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15 | DEFINED BENEFIT OBLIGATION |
Group has defined benefit plans in several countries, of which the most significant are the United States 43.6% of Group’s total defined benefit obligation, United Kingdom 25.5%, France 11.8%, Sweden 7.0% and Germany 5.3%. The plans are in accordance with local laws and practices and are funded to satisfy the local statutory funding requirements.
Ahlstrom-Munksjö’s most significant funded defined benefit plans are in the United States and the United Kingdom. The assets are managed by external fund managers. The funds are allocated between equities and fixed income instruments in order to provide return at target level and limited risk profile. The valuations of the obligations are carried out by independent qualified actuaries.
In the United States, a part of Ahlstrom-Munksjö’s employees are members Group Retirement Plan for U.S. Employees, which is a funded defined benefit plan and the largest of the Group’s schemes in the United States. The plan is managed by Ahlstrom-Munksjö USA Inc.’s Pension Committee. The scheme has been closed to new members since 2006. In addition to the Group Retirement Plan for U.S. Employees, Ahlstrom-Munksjö also operates a number of other post-employment benefit plans in the United States, including providing post-employment medical and life insurance benefits, retirement plans for hourly paid employees, and State Earnings Related Pension Schemes (SERPS). These plans are predominantly unfunded.
In the United Kingdom, the Group operates a funded defined benefit plan. The pension plan is designed according to the Definitive Trust Deed and Rules and complies with the guidelines of the UK Pension Regulator. The pension scheme has been closed to new members since 2006 and is managed through Ahlstrom-Munksjö Chirnside Ltd.
In France the main funded defined benefit plan operated by the Group is the termination indemnity plan. Termination indemnity plans are designed to finance the severances paid to the employees who leave the company for retirement. Ahlstrom-Munksjö still operates other post-employment benefit plans in France which are closed to new members for many years.
The Group’s main unfunded defined benefit plans are in Germany, Italy (TFR Trattamento di Fine Rapporto, termination indemnity plan) and in Sweden. The pension schemes in Germany and Italy are closed for new entrants. In Sweden, the pension cover is organized through unfunded defined benefit plans (ITP system, Industrins och handels tilläggspension).
Risks associated with defined benefit plans |
Through its defined benefit pension plans the Group is exposed to a number of risks.
Changes in bond yields
The employer’s defined benefit obligations pension liability are calculated using a discount rate which is determined with reference to corporate bond yield as at the balance sheet date. A decrease (increase) in used discount rates increase (decrease) the defined benefits obligations. However, a decrease (increase) in the used discount rate yield also increases (decreases) the fair value of the assets partially offsetting the total impact of the change in yield on the net defined benefit pension liability.
Inflation risk
The benefit of the plans is tied to the future pension increase, which depends on inflation and common salary index. Higher inflation increases the benefit increase, which leads to an increase in liabilities and annual payments to the insurance company.
If the active employee's salary increases more than the common salary index, the amount of promised benefit and the benefit obligation increases together with annual payments to life insurance company.
Life expectancy
Longevity risk arises in case the actual timing of mortality differs from the assumed. Possible adjustments in mortality assumption have an effect on the employer's liability.
Post-employment and other long-term benefit plans
Employee benefits liability recognized in the balance sheet, EUR million | 2020 | 2019 |
Present value of funded benefit obligations | 208.8 | 209.2 |
Present value of unfunded benefit obligations | 59.3 | 64.7 |
Fair value of plan assets | -194.1 | -190.2 |
Deficit/Surplus | 74.0 | 83.7 |
Effect of asset ceiling | 8.8 | 8.5 |
Net defined benefit liability - closing | 82.8 | 92.1 |
Other long-term employee benefits | 7.7 | 5.1 |
Total net liability | 90.4 | 97.2 |
Amounts in the balance sheet, EUR million | 2020 | 2019 |
Employee benefit obligations | 93.1 | 97.2 |
Other non-current assets | 2.7 | — |
Total net liability | 90.4 | 97.2 |
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Cont. note 15
Changes in the present value of obligations, EUR million | 2020 | 2019 |
Present value of defined obligation - opening | 273.9 | 250.2 |
Disposal | -0.6 | — |
Reclassification | -2.8 | — |
Current and past service cost | 3.6 | 2.6 |
Interest cost | 5.6 | 7.4 |
Remeasurement gain/loss on pension scheme liabilities | 16.6 | 26.4 |
Gains and losses on settlement | 0.0 | — |
Benefits paid | -15.0 | -16.9 |
Other changes | 0.0 | -0.6 |
Translation differences | -13.1 | 4.8 |
Present value of defined benefit obligation - closing | 268.1 | 273.9 |
Changes in the fair value of the plan assets, EUR million | 2020 | 2019 |
Opening fair value of plan assets | 190.2 | 167.4 |
Reclassification | -0.1 | — |
Interest income on plan assets | 4.6 | 5.8 |
Remeasurement gain/loss on pension scheme assets | 18.3 | 21.1 |
Contributions by employer | 8.6 | 8.4 |
Benefits paid | -15.0 | -16.9 |
Other changes | 0.0 | -0.5 |
Translation differences | -12.5 | 4.8 |
Closing fair value of plan assets | 194.1 | 190.2 |
Changes in the effect of asset ceiling, EUR million | 2020 | 2019 |
Effect of asset ceiling – opening | 8.5 | 5.0 |
Changes in asset ceiling | 0.6 | 3.0 |
Interest expense/income on asset ceiling | 0.2 | 0.2 |
Translation differences | -0.5 | 0.3 |
Effect of asset ceiling - closing | 8.8 | 8.5 |
Amounts recognized in income statement, EUR million | 2020 | 2019 |
Personnel costs | ||
Current service cost | -3.0 | -3.3 |
Past service cost | -0.6 | 0.7 |
Gains and losses on settlement | 0.0 | — |
Finance costs | ||
Net interest cost | -1.2 | -1.8 |
Cost recognized in income statement | -4.7 | -4.3 |
Remeasurement effects recognized in | 2020 | 2019 |
Remeasurement gain/loss on pension scheme assets | 18.3 | 21.1 |
Remeasurement gain/loss on pension scheme liabilities | -16.6 | 18.6 |
Remeasurement gain/loss on change in asset ceiling | -0.6 | -48.0 |
Remeasurement effects before tax | 1.1 | -8.3 |
Income tax relating to remeasurement effects | -0.7 | 1.4 |
Remeasurement effects recognized in OCI net of tax | 0.4 | -6.9 |
The Group expects to contribute EUR 8.0 million to its defined benefit plans in 2021.
Plan asset categories, EUR million | 2020 | 2019 |
Equity instruments (listed) | 42.8 | 41.7 |
Debt instruments | 114.8 | 114.8 |
Property | — | 0.0 |
Other | 36.4 | 33.7 |
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Cont. note 15
Principal actuarial assumptions, % | 2020 | 2019 |
USA | ||
Discount rates | 2.3 | 3.2 |
Future salary increases | n/a | n/a |
Future pension increases | n/a | n/a |
UK | ||
Discount rate | 1.5 | 2.0 |
Future salary increases | n/a | n/a |
Future pension increases | 3.4 | 3.3 |
France | ||
Discount rate | 0.3 | 0.9 |
Future salary increases | 2.8 | 2.8 |
Future pension increases | n/a | n/a |
Sweden | ||
Discount rate | 1.1 | 1.4 |
Future salary increases | 2.5 | 2.8 |
Future pension increases | 1.5 | 2.8 |
Germany | ||
Discount rate | 0.5 | 0.5 |
Future salary increases | 2.3 | 2.5 |
Future pension increases | 1.8 | 1.8 |
The actuarial assumptions in other countries are immaterial.
Assumptions regarding future mortality are based on actuarial guidelines in accordance with published statistics and experience in each region.
The sensitivity of the defined benefit obligation to changes in discount rate, future salary growth and future pension growth is presented in the following tables (increase of liability (+)/decrease of liability (-)).
Sensitivity analyses: Discount rate impact, EUR million | 2020 | 2019 |
Discount rate change + 0.50% | -18.4 | -17.1 |
Discount rate change - 0.50% | 20.4 | 18.9 |
Sensitivity analyses: Future salary growth, EUR million | 2020 | 2019 |
Future salary growth + 0.50% | 3.1 | 3.0 |
Future salary growth - 0.50% | -2.8 | -2.6 |
Sensitivity analyses: Future pension growth, EUR million | 2020 | 2019 |
Future pension growth + 0.50% | 6.9 | 6.7 |
Future pension growth - 0.50% | -6.5 | -6.2 |
Sensitivities are calculated by changing one assumption while keeping other variables constant.
Accounting policies |
Defined benefit obligation
The Group has various pension schemes and other post-employment benefits in accordance with local practices in different countries. The post-employment plans are classified as either defined contribution plans or defined benefit plans. The schemes are mostly funded through payments to insurance companies or trustee-administered funds according to local regulations. A defined contribution plan is a post-employment plan under which the company and usually also the employees pay fixed contributions to an insurance company. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay the benefits to the employees. Contributions to defined contribution pension plans are recognized as expense in the period when they incur. All pension plans which do not meet the criteria for defined contribution plans are defined benefit plans. Defined benefit plans typically define a fixed amount of benefit that an employee will receive after retirement and which the company is responsible for.
The Group’s net obligation of defined benefit plans is calculated and recorded separately for each pension or other post employment plan based on calculations prepared by independent actuaries. The present value of defined benefit obligations is determined using the projected unit credit method. The net liability recognized in the balance sheet is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets. The discount rate used to determine the present value of the defined benefit obligation is equal to the yield on high quality corporate bonds or, if not available, government bonds.
The interest rates of the high quality corporate bonds are determined in the currency in which the benefits will be paid with a similar maturity to the obligation.
The Group’s net obligation in respect of long-term service benefits, other than post employment benefits, is the amount of future benefit that employees have earned in return for their service in the current and prior periods.
Accounting estimates and judgements |
Pension calculations under defined benefit plans include several factors that rely on management estimates: the discount rate used in calculating pension expenses and obligations for the period, the rate of salary increase and the rate of future discretionary bonuses decided by the insurance company. Changes in these assumptions can significantly impact the amounts of pension liability and future pension expenses.
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16 | PROVISIONS |
Provisions are estimated liabilities with uncertainty over the timing and amount that will be paid by Ahlstrom-Munksjö in the future.
Provisions, EUR million, 2020 | Environmental | Restructuring | Other | Total |
Opening | 16.4 | 14.1 | 6.7 | 37.1 |
Unwinding of discount | 0.6 | — | — | 0.6 |
Provisions made during the year | 0.6 | 1.8 | 4.8 | 7.2 |
Provisions used during the year | -0.3 | -7.1 | -3.7 | -11.2 |
Provisions reversed | — | -1.6 | -0.6 | -2.2 |
Reclassification | -0.5 | — | 2.7 | 2.2 |
Translation differences | -1.0 | -0.2 | -0.8 | -1.9 |
Closing | 15.8 | 7.0 | 9.1 | 31.9 |
Non-current provisions | 21.8 | |||
Current provisions | 10.1 |
Environmental provisions of EUR 15.8 million mainly consist of landfill related provisions in the U.S. EUR 9.8 million, future restoration costs of old Fitchburg mill in the U.S. and old buildings in Sweden. Provisions made are mainly other provisions and provisions related to customer claims. For the most part the provisions used relates to the Stenay mill in France.
Provisions, EUR million, 2019 | Environmental | Restructuring | Other | Total |
Opening | 18.8 | 14.8 | 4.6 | 38.2 |
Unwinding of discount | 0.6 | — | — | 0.6 |
Provisions made during the year | 0.7 | 8.1 | 2.4 | 11.2 |
Provisions used during the year | -0.6 | -8.7 | -3.4 | -12.7 |
Provisions reversed | — | -0.1 | -0.3 | -0.4 |
Reclassification | -3.2 | -0.1 | 3.3 | — |
Translation differences | 0.2 | -0.1 | 0.0 | 0.2 |
Closing | 16.4 | 14.1 | 6.7 | 37.1 |
Non-current provisions | 24.3 | |||
Current provisions | 12.8 |
Accounting policies |
A provision is recognized when a present legal or constructive obligation exists as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are split between amounts expected to be settled within 12 months on the balance sheet (current) and amounts expected to be settled later (non-current).
Restructuring
A provision for restructuring is only recognized when a formal plan has been approved and the implementation of the plan has either commenced or the plan has been announced.
Environmental
Environmental provisions are recorded based on current interpretations of environmental laws and regulations. Such provisions are recognized when it is probable that an obligation has arisen and that the amount of the obligation can be reliably measured. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements.
Accounting estimates and judgements |
Environmental
The estimates used in determining the provisions for environmental costs are based on management’s expectations of, for example:
•Timing and scope
•Future cost levels
•Laws and regulations enacted at time of the restoration works
The timing of the environmental costs depends on the expected useful lives of the Group’s sites. These range from 50 – 70 years. In measuring the future cost levels, the Group estimates future costs and adjusts these for the effect of inflation, cost-base development and discounting. The estimated costs are based on current laws and regulations in place at the time of making the provision.
The Group utilizes a third party consultant to estimate both the closure and long-term care costs for the landfills. The estimate is based on the area finally to be capped and the capping materials and activities required along with the permit and regulatory requirements for closure and post-closure maintenance. These costs are reviewed periodically by the Group’s environmental experts and by a third party consultant.
Because actual outflows can differ from estimates due to changes in law, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take into account any such changes. The discount rate used is reviewed annually.
Page 60
Net debt and capital management
This section outlines the Group’s net debt and how Ahlstrom-Munksjö manages its capital including liquidity management. The Group’s objective when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the Group’s capital structure, the Group uses different means such as adjust the amount of dividends paid to shareholders, issue new shares, refinance its debt or sell assets to reduce debt. Ahlstrom-Munksjö’s monitors capital based on the gearing ratio with a target below 100%. At the end of 2020 the ratio was 62.1 % (71.8 %).
17 | NET DEBT |
Net debt is Ahlstrom-Munksjö’s key measure to evaluate the total external debt financing of the Group. Net debt is defined as borrowings less cash and cash equivalents and a securitization liability. The Group assumed the securitization liability in 2018 as a result of the acquisition of Expera and the arrangement has been extinguished since that date. The Group’s sources of borrowing for funding and liquidity purposes are primarily bank loans, pension loan and bonds. The Group has also entered into a number of lease liabilities to secure the availability of assets used in the production process.
Net debt, EUR million | 2020 | 2019 |
Bond | 249.5 | 249.2 |
Bank loans | 721.5 | 738.8 |
Pension loan | 20.0 | — |
Lease liabilities | 51.0 | 57.3 |
Other financial liabilities | 2.4 | 5.8 |
Gross borrowings | 1,044.4 | 1,051.1 |
Less: Cash and cash equivalents | 308.7 | 166.1 |
Net debt | 735.8 | 885.0 |
Reconciliation of net debt
An analysis of the changes in net debt is provided below.
Reconciliation of net debt, EUR million, 2020 | Opening | Movements | Non-cash | Translation | Closing |
Gross borrowings | 1,051.1 | 19.6 | 13.5 | -39.7 | 1,044.4 |
Cash and cash equivalents | 166.1 | 149.9 | — | -7.4 | 308.7 |
Net debt | 885.0 | -130.3 | 13.5 | -32.3 | 735.8 |
Reconciliation of net debt, EUR million, 2019 | Opening | Movements | Non-cash | Translation | Closing |
Gross borrowings | 1,157.2 | -180.3 | 60.6 | 13.5 | 1,051.1 |
Securitization liability | -43.7 | 44.7 | — | -1.0 | — |
Cash and cash equivalents | 151.0 | 13.9 | — | 1.2 | 166.1 |
Net debt | 962.5 | -149.5 | 60.6 | 11.3 | 885.0 |
Borrowings
Ahlstrom-Munksjö’s bank loans include several facilities. These facilities consist mainly of, in original nominal amounts, a term facility of EUR 200 million maturing in 2021; a multi currency revolving credit facility of EUR 200 million and term facilities in EUR, SEK and USD totalling to approximately EUR 208 million maturing in 2022; term facilities in EUR and USD totalling to approximately EUR 320 million maturing in 2023; and a working capital credit facility of BRL 330 million maturing in 2023.
On April 22, 2020 Ahlstrom-Munksjö signed a new EUR 50 million committed revolving credit facility for 12 months as part of the Company's overall funding liquidity management activities. In addition, on April 20, 2020 the company signed a pension loan (TyEL pension loan) of EUR 20 million maturing in 2023 and on May 11, 2020 a new term loan of EUR 50 million maturing in 2021.
On December 13, 2019 Ahlstrom-Munksjö issued a EUR 100 million hybrid bond. The proceeds from the hybrid bond issue were used to partly repay and refinance the EUR 200 million term facility maturing on 2021. More information about the hybrid bond can be found in note 18.
At the balance sheet date, the weighted average interest rate, excluding lease liabilities and hybrid bond, for the Group was approximately 2.7 % (3.4%). Net debt amounted to EUR 735.8 million (EUR 885.0 million) at December 31, 2020, resulting in a gearing of 62.1 % (71.8%). Ahlstrom-Munksjö’s financing facilities contain two gearing financial covenants that are monitored quarterly which are consolidated net debt to consolidated EBITDA and consolidated net debt to equity. During the second quarter of 2020, Ahlstrom-Munksjö proactively increased its financial flexibility by renegotiating its financial covenant, the consolidated net debt to consolidated EBITDA. IFRS16 impact is excluded from the debt covenant calculations. Throughout the reporting period the Group was in full compliance with the covenants of its financing agreements and management expects such compliance to continue.
Page 61
Cont. note 17
The tables below provide further detail on the financing entered in to by the Group.
Bonds
The Group has an unsecured senior bond outstanding at the balance sheet date with a principal amount of EUR 250 million. The bond was issued by Ahlstrom-Munksjö on June 9, 2017 and the bond is listed on the Nasdaq Helsinki. The notes are callable before maturity and shall be repaid in full at their nominal principal amount on June 9, 2022, however, the bond terms also contain a customary change of control clause entitling noteholders to require redemption at par with accrued interest if there is a change of control of Ahlstrom-Munksjö share ownership. The coupon of the bond is fixed at 1.88 %.
Carrying value, EUR million | |||||
Notional currency | Initial notional | Maturity | Coupon, % | 2020 | 2019 |
EUR | 250.0 | June 9, 2022 | 1.88 | 249.5 | 249.2 |
Bank loans
The Group has the following bank loans as at December 31, 2020. The long term loans have maturity dates ranging from 2022 – 2023. The loans carry interest based on reference rates (floor at 0%) + a margin.
2020 | Weighted average | Carrying value, |
National currency | ||
Committed loans from banks grouped by currency | ||
EUR | 2.1 | 305.5 |
USD | 2.9 | 240.4 |
SEK | 2.5 | 59.8 |
BRL | 7.4 | 51.8 |
Uncommitted loans from banks grouped by currency | ||
CNY | 4.5 | 50.5 |
BRL | 8.1 | 13.5 |
2019 | Weighted average | Carrying value, |
National currency | ||
Committed loans from banks grouped by currency | ||
EUR | 2.2 | 283.7 |
USD | 4.9 | 266.6 |
SEK | 2.5 | 57.4 |
BRL | 8.0 | 79.9 |
Uncommitted loans from banks grouped by currency | ||
CNY | 4.6 | 51.2 |
For further information on the maturity of financial liabilities of the Group, see note 19.
Interest rate risk |
Interest rate risk refers to the risk that changes in interest rates would have a negative effect on the result of the Group and could affect the long-term competitiveness of Ahlstrom-Munksjö. There is a risk of interest rates moving both upwards and downwards. However, in accordance with the loan terms, the reference rates in the Group’s bank loans have a interest rate floor at zero. Accordingly, if the reference rates are below zero, the Group’s interest payments correspond to the margin.
Most of the Group's bank loans are at variable interest rates, which for loans denominated in euros is in essence fixed when the reference interest rate is below zero, due to the interest rate floor in the bank loans. The bond is a fixed rate borrowing. The average maturity of the total debt portfolio, excluding hybrid bond, is currently 11 months (8 months) with interest rate derivatives.
Consideration is taken at all times to assess how vulnerable the Group is to a change in interest rates. In order to limit the impact of movements in interest rates, the Treasury Policy provides the following guidelines:
•Aim is to achieve an average maturity of the interest rates in the debt portfolio, including the interest rate derivatives, of 2 years +/-1 year or in accordance with the loan agreement if so specified.
•Interest maturities are preferably spread out evenly over time in order to avoid substantial risk concentrated on single financial year.
In accordance with its policy, Ahlstrom-Munksjö may hedge its interest rate risk by using derivative instruments, such as interest rate swaps. The gross nominal volume of interest rate derivatives at the time of financial statements is EUR 50.0 million and USD 130.0 million, by which floating-rate financing has been converted into fixed-rate financing. All derivatives are maturing in 2023. The group applies IFRS hedge accounting on all interest rate swap contracts. At December 31, 2020, the fair value of the interest rate swaps under hedge accounting was EUR -0.4 million. The Group booked gain of EUR 0.0 million to the cash flow hedge transferred to this year's result in OCI.
More information on how Ahlstrom-Munksjö manages its financial risks is presented below in note 19.
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Cont. note 17
Sensitivity analysis of Ahlstrom-Munksjö position to changes in interest rates
The impact of reasonably possible interest rate fluctuation on the Group’s result before tax is shown in the table below at year-ends.
Interest rate sensitivity, EUR million | 2020 | 2019 |
Variable rate cash equivalents | 308.7 | 166.1 |
Variable rate bank loans | -719.1 | -734.5 |
Impact of interest rate swaps | 155.9 | — |
Position used in sensitivity analysis | -254.4 | -568.4 |
Interest +1%, impact on net result | -2.0 | -4.8 |
Interest +2%, impact on net result | -4.5 | -10.5 |
Cash and cash equivalents
Ahlstrom-Munksjö utilizes cash pools to optimize the amount of interest to be paid and received on the amounts held in the bank accounts in order to improve liquidity management. Group Treasury is responsible for the Group’s cash pool management.
EUR million | 2020 | 2019 |
Cash and cash equivalents | 308.7 | 166.1 |
Bank deposits earn variable interest based on the bank’s daily deposit rate.
The cash and cash equivalents disclosed above include restricted cash amounting to EUR 47.3 million (EUR 45.7 million).
Accounting policies |
Borrowings
Bonds, bank loans and loans from multilateral institutions are recognized at their inception at their fair value (typically the proceeds received) net of directly related transaction costs incurred. The borrowings are subsequently measured at amortized cost using the effective interest method. Transaction costs are amortized over the life of the borrowings based on the effective interest method.
Facility fees
Fees paid on the establishment of loan facilities are recognized as transaction costs of the credit facilities and facility loans to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.
De-recognition of borrowings
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss within financial items.
Lease liabilities
For the accounting policy please see note 12.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts, as applicable, are shown within borrowings in current liabilities in the balance sheet. Restricted cash includes cash balances that are subject to regulatory restrictions or other limitations, and are therefore not immediately available to the other entities of the Group.
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18 | EQUITY |
The Board of the Directors of Ahlstrom-Munksjö together with the management of the Group considers appropriate financial targets for Ahlstrom-Munksjö and agrees on a financial target framework. According to the long-term financial targets approved by the Board of Directors, Ahlstrom-Munksjö aims for a stable and annually increasing dividend to be paid to shareholders several times a year.
In 2020, the Company decided to distribute dividends to its shareholders totalling to EUR 59.8 million (EUR 59.9 million). Dividends were paid in four different instalments, three during the year 2020 (April, July and October) and the last instalment in January 2021. The Board of Directors' dividend proposal to the Annual General Meeting based on the financial statements of the year 2020, will be decided after the Extraordinary General Meeting to be held on February 19, 2021.
Distributable funds of Ahlstrom-Munksjö
The following table shows distributable funds of the parent company Ahlstrom-Munksjö Oyj as at December 31, 2020 and December 31, 2019:
Distributable funds, EUR million | 2020 | 2019 |
Reserve for invested unrestricted equity | 558.7 | 558.7 |
Retained earnings | 179.2 | 160.5 |
Net result | 163.6 | 82.6 |
- Less capitalized development costs | -0.5 | -0.5 |
Total distributable funds | 901.1 | 801.3 |
Accounting policies |
Return of equity and dividends proposed by the Board of Directors are recognized in equity and liability in the balance sheet when they have been approved by the shareholders at the Annual General Meeting.
Equity
Shares and share capital
Ahlstrom-Munksjö has one series of shares issued under Finnish Law. The shares are listed on the Nasdaq Helsinki and Nasdaq Stockholm. The shares have no nominal value. Each share entitles the holder to one vote at the general meetings of shareholders of Ahlstrom-Munksjö. As at December 31, 2020, Ahlstrom-Munksjö share capital amounts to EUR 85.0 million (EUR 85.0 million) and the total number of shares is 115,653,315 (115,653,315). The shares have been entered into the Finnish book-entry securities system maintained by Euroclear Finland.
Reserve for invested unrestricted equity and other reserves
The following table shows the impact of changes in the number of shares:
Number of shares | |
Opening at January 1, 2020 | 115,653,315 |
Change | — |
Closing at December 31, 2020 | 115,653,315 |
Treasury shares
During the year 2020, Ahlstrom-Munksjö repurchased a total of 300,000 own shares. As at December 31, 2020, Ahlstrom-Munksjö holds 664,862 of its own shares, corresponding approximately 0.6 % of the total shares and votes.
Shareholders’ Meeting held in March 2020 authorized the Board of Directors to repurchase the parent company’s own shares as well as to accept them as pledge. According to the resolution, the shares may be repurchased or accepted as pledge in one or several instalments and either through a tender offer made to all shareholders on equal terms or in another proportion than that of the existing shareholdings of the shareholders in the company in public trading at the prevailing market price. The shares would be repurchased with funds from the company’s unrestricted shareholders’ equity. The number of shares to be repurchased or accepted as pledge by virtue of the authorization shall not exceed 11,500,000 company's own shares. The authorizations are valid until the close of the next Annual General Meeting, however, no longer than eighteen (18) months from the close of the Annual General Meeting.
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Cont. note 18
The following table shows the movements in treasury shares:
Number of shares | Cost, EUR million | |
Closing at December 31, 2019 | 364,862 | 6.3 |
Repurchase of own shares | 300,000 | 4.0 |
Closing at December 31, 2020 | 664,862 | 10.4 |
Hybrid bond
On December 13, 2019 Ahlstrom-Munksjö issued a EUR 100 million hybrid bond. The hybrid bond does not have a specified maturity date, but Ahlstrom-Munksjö may redeem it for the first time on February 13, 2024, or on any interest payment date thereafter of if there is a change of control in Ahlstrom-Munksjö. It bears interest at a fixed rate of 3.879 percent per annum until February 13, 2024. The hybrid bond will be subordinated to Ahlstrom-Munksjö’s debt obligations and is treated as equity in Ahlstrom-Munksjö’s consolidated financial statements prepared in accordance with IFRS. The hybrid bond does not confer their holder the rights of a shareholder and does not dilute the holdings of the current shareholders.
The hybrid bond includes a disposal event call option, entitling Ahlstrom-Munksjö to redeem the hybrid bond in a disposal event where the related aggregate disposal proceeds are equal or greater than the outstanding aggregate amount of the hybrid bond. In such event, Ahlstrom-Munksjö is entitled to redeem the hybrid bond in whole, but not in part, on the first anniversary following the hybrid bond issue date and at any time thereafter at 103 percent of their nominal amount together with accrued interest to the date of redemption.
Upon a change of control event, Ahlstrom-Munksjö is entitled to redeem the hybrid bond in whole, but not in part, within six months from the change of control at the nominal amount together with accrued interest to the date of redemption. Unless Ahlstrom-Munksjö at its option redeems the hybrid bond within six months from the date of change of control, the interest rate of the hybrid bond will increase by an additional margin of 5.0% p.a.
Accounting policies |
Treasury shares
The parent company’s shares that are acquired are recognized as a reduction of equity at cost of acquisition, including any directly attributable costs (net of tax). When the shares are cancelled or reissued, the acquisition cost of treasury shares is recognized in retained earnings.
Cumulative translation adjustment
Translation differences consist of translation differences arising from translation of foreign Group companies’ assets and liabilities into euro, the presentation currency of the consolidated financial statements. On disposal of all or a part of a foreign Group company, the cumulative amount of translation differences is recognized as income or expense in the income statement when the gain or loss on disposal is recognized.
Reserve for invested unrestricted equity
Any consideration received for the issue of new shares or treasury shares of the parent company is recognized to reserve for invested unrestricted equity unless otherwise decided. Transaction costs directly related to the issue of these shares are recognized, net of tax, in the reserve for invested unrestricted equity as a reduction in the proceeds.
Hedging reserve
The hedging reserve comprises the unrealized fair value changes of cash flow hedges, net of taxes, qualifying for hedge accounting and the amount recognized is reclassified in income statement when the hedged item affects the profit or loss. See note 19 for more information on cash flow hedges.
Hybrid bond
The hybrid bond is is treated as equity in the consolidated financial statements. Interest on the hybrid bond is not accrued but is recorded in retained earnings in the consolidated financial statements, net of taxes, after dividend approved by the Annual General Meeting. The arrangement fees are also recorded in retained earnings.
Retained earnings
The following are recorded directly to retained earnings:
•The Group has certain long-term incentive plans for key personnel. These plans are accounted for as share-based payments where the fair value of the awards granted in shares are classified as equity-settled and recorded in the income statement and retained earnings in equity over the vesting period. See note 7 for more information on share-based payments.
•The Group has hybrid bond. Interest on hybrid bond is charged to retained earnings as well as the related arrangement fees.
•The Group has defined benefit plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions for these defined benefit plans are charged or credited to retained earnings. See note 15 for more information on defined benefit obligations.
Page 65
Financial risk management
This section discusses the Group’s exposure to various financial risks, explains how these affect Ahlstrom-Munksjö’s financial position and performance and how management manages the risks.
This section also describes the Group’s financial instruments and the risk exposures, sensitivities and monitoring strategies related to these financial instruments.
19 | FINANCIAL RISK MANAGEMENT |
General
Financial risks of the Group consist of credit risk (see note 14), funding risk, liquidity risk and market risks. Market risks are further divided to currency risk, interest rate risk (refer to note 17) and commodity risk.
The Treasury Policy sets the Board of Directors' guidelines on how finance and treasury operations are carried out and how financial risks within the Group are managed. The guidelines aim to ensure that the Group's financial risks are kept at an acceptable level.
The Treasury Policy is approved by the Board of Directors of Ahlstrom-Munksjö. The Board of Directors has the overall responsibility for managing financial risks. Executive Treasury Committee monitors and manages the financial risks. Operational management of financial risks is carried out centrally by the Group Treasury under the Treasury Policy. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units.
Group Treasury is handling all hedging of foreign exchange, commodity and interest rates, if nothing else has been approved. Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item.
Currency risk
Due to the global operations of Ahlstrom-Munksjö, the Group is exposed to currency risk. Currency risk refers to the risk that fluctuations in the foreign exchange market will negatively affect the Ahlstrom-Munksjö’s cash flow, net result and equity. Currency exposure, defined as all unhedged exposure in foreign currency, is split into two types of exposure: transaction exposure and translation exposure.
Transaction exposure
Ahlstrom-Munksjö conducts manufacturing and sells its products around the globe and is therefore exposed to transaction risk. Transaction exposure arises from commercial and finance-related transactions and payments in a currency other than an operation’s functional currency i.e. from internal purchases, sales between manufacturing units and market companies, external sales and purchases as well as from financing transactions in foreign currencies. Additionally, firm commitments to acquire businesses may expose the Group to foreign currency transaction risk.
Foreign currency cash flows are hedged on a net exposure basis in accordance with the rules set out in the Treasury Policy. The Group’s risk management strategy in terms of currency risk is to hedge 75% (+/-10%) of the forecasted cash flows for a period up to 9 months if the total exposure to forecasted net flows of foreign currency exceeds the equivalent of 2% of the total turnover of the company. The Group uses forward contracts to hedge this commercial foreign currency exposure and applies cash flow hedge accounting. The forward contracts’ maturity is materially reconciled with the timing of the forecasted sales and purchases. At December 31, 2020, the fair value of the foreign currency forwards under hedge accounting was EUR 4.2 million. In 2020, the Group booked loss of EUR 2.1 million to the cash flow hedge transferred to this year's result in OCI. The Group has not historically booked material ineffectiveness from the hedging relationships, however, ineffectiveness might arise from timing differences.
In addition to using derivatives for hedging, Ahlstrom-Munksjö also employs practical actions in order to reduce the currency risk. The number of currencies used in intercompany invoicing is minimized and where possible, Group Treasury will match foreign exchange cash flows within the Group.
The following tables show the Group’s exposure to currency cash flow risk.
Cash flows by currency before hedging activities
EUR million, 2020 | BRL | CNY | EUR | GBP | KRW | SEK | USD | Other |
Net sales | 125 | 70 | 1,174 | 18 | 16 | 106 | 1,263 | 39 |
Operating costs | -105 | -42 | -976 | -45 | -39 | -216 | -1,091 | -29 |
Net cash flow | 20 | 29 | 198 | -27 | -23 | -110 | 172 | 11 |
Cash flows by currency before hedging activities
EUR million, 2019 | BRL | CNY | EUR | GBP | KRW | SEK | USD | Other |
Net sales | 159 | 67 | 1,290 | 20 | 14 | 43 | 1,281 | 42 |
Operating costs | -161 | -55 | -1,151 | -36 | -36 | -157 | -1,083 | -23 |
Net cash flow | -2 | 12 | 139 | -16 | -21 | -114 | 197 | 19 |
At the end of the reporting period, the hedge ratio for the forecasted cash flows for the next 9 months, including indirect exposure embedded in pulp prices and other adjustments, was approximately 72% (74%) for USD, about 82% for SEK (67%), and about 71% for GBP (-%). Hedging of GBP was initiated during 2020. The exposures in other currencies are limited and are not hedged. Outstanding nominal amounts at the end of the year for these forward contracts were USD 35 million, SEK 720 million, and GBP 16 million.
The following table shows the Group's estimated sensitivity for the next 9 months to a currency rate of a weaker EUR of 5%, including FX-hedges and indirect exposures. The table is based on information monitored by the Board for currency risk management.
EUR million, Q1-Q3 2021 | BRL | CNY | GBP | KRW | SEK | USD | Other |
Currency change of 5% to EUR | -1.5 | -1.0 | 0.4 | 0.8 | 0.1 | -0.3 | -0.5 |
The parent company has provided financing (or received deposits) to (from) its foreign subsidiaries which have been hedged by using forward contracts at December 31, 2020. The nominal amounts of the loans are USD 5 million, CNY
Page 66
Cont. note 19
25 million, the nominal amount of the deposit is JPY 661 million. Additionally, the parent company hedges an external loan with a nominal amount of USD 35 million. Hedge accounting is not applied to these relationships. Furthermore, these amounts correspond to the nominal amounts of the forward contracts, which have a maturity of three months and are adjusted according to the open balances. These forward contracts are recognised at fair value with changes in fair value through the exchange gains and losses within the financial items. The fair value for the forwards was EUR -0.0 million at December 31, 2020.
Translation risk
Ahlstrom-Munksjö’s income statement and balance sheet are both exposed to foreign exchange fluctuations, as these affect the translation of subsidiaries’ assets and liabilities denominated in foreign currencies.
The Group aims to minimize currency risk related to translation exposure by aiming to balance assets and liabilities of subsidiaries so that the foreign exchange risk is minimized in the consolidated balance sheet. Due to the long-term nature of net investments, equity hedging is not normally performed by the Group.
The following table shows the Group’s translation exposure arising from net investments in foreign subsidiaries in the predominant currencies for the Group.
Group translation exposure, EUR million | Net investment in subsidiaries | |
2020 | 2019 | |
USD | 513.7 | 550.2 |
SEK | 195.6 | 115.5 |
GBP | 64.2 | 23.9 |
BRL | 61.1 | 93.5 |
CNY | 43.2 | 39.7 |
KRW | 37.0 | 51.1 |
The following table shows the consolidated equity’s estimated sensitivity for a currency rate change of a weaker EUR of 5 %.
EUR million | BRL | CNY | GBP | KRW | SEK | USD |
Currency change of 5% to EUR | 2.9 | 2.1 | 3.1 | 1.8 | 9.3 | 24.5 |
Accounting policies |
Derivative instruments and hedging activities
Ahlstrom-Munksjö uses derivative instruments to manage certain exposures to fluctuations in foreign currency rates and interest rates. These derivative financial instruments are recognized initially at fair value on the date on which a derivative contract is entered into and subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Hedge accounting is applicable when, at inception of the hedge, there is a formal designation and documentation of the hedging relationship and other criteria for hedge accounting are met. At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management strategy and objective for undertaking its hedge transactions.
The Group only applies cash flow hedge accounting, which is used to hedge exposure to variability in cash flows that is attributable to a particular risk associated with a highly probable forecasted transaction or firm commitment. The effective portion of changes in the fair value of the hedging instrument is booked in other comprehensive income and accumulated in equity. It is reclassified in income statement when the hedged item affects the income statement, or in the initial cost of the hedged item when it relates to the hedge of a firm commitment to acquire a non-financial item (for example, business combination). The Group does not separate forward points in a hedge relationship.
When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecasted transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When the forecasted transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to income statement. Subsequent changes in the value of the hedging instrument after the hedging relationship is terminated are recorded in income statement.
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Cont. note 19
Commodity risk |
Commodity risk refers to the risk that changes in the cost of raw materials (pulp, titanium dioxide etc.) and energy (electricity, gas, oil etc.) have a negative effect on the result and/or competitiveness of Ahlstrom-Munksjö. Consideration as to the vulnerability of the Group to changes in relevant commodity prices is taken periodically.
To mitigate the commodity risk exposure, the Group hedges commodity exposures in line with the Group Treasury Policy. In accordance with the policy, commodity hedging should have a maximum length of 3 years and can be up to 50% of forecasted consumption in the first year, 40% of forecasted consumption in the second year and 30% in the third year. All hedging transaction are also to be connected to projects, customer agreements or other direct identifiable business risks. This is in order to avoid speculative hedging. At the balance sheet date, the Group did not have any outstanding commodity derivatives.
Funding and liquidity risk |
Funding risk
Funding risk refers to the risk the Ahlstrom-Munksjö does not at all times have access to financing or financing at an acceptable cost. This may arise should the Group become too dependent on a single source of financing, or if the maturity structure of the Group’s debt portfolio is too concentrated. In order to mitigate funding risk, the Group aims to spread its debt across different lenders, different maturities and different forms of financing.
Ahlstrom-Munksjö has outlined the following guidelines in its Treasury Policy, which aim to mitigate the funding risk. The Group aims to ensure that not more than 50% of its debt portfolio will mature in the same 12-month period and the average maturity of the long-term finance should be at least 2 years. The Group also aims to avoid the inclusion of covenants in all types of financing agreements.
Liquidity risk
Liquidity risk is the risk that Ahlstrom-Munksjö will not have sufficient funds to pay foreseen committed obligations in addition to unforeseen expenditures. In order to mitigate this risk, Group Treasury monitors the Group’s cash pools, bank agreements and liquidity to ensure at all times that there is sufficient liquidity. The liquidity situation is monitored in such way that Ahlstrom-Munksjö Group at all times has sufficient liquidity. The Group’s cash accounts are included in the cash pools.
Ahlstrom-Munksjö’s cash needs in respect of meeting its financial liabilities are show in the tables below. The maturity analysis was determined at the balance sheet date based on the contractual obligations existing at the balance sheet date. The maturity analysis is based on undiscounted cash flows, excluding interest payments that are shown separately at the bottom of the table. The interest payments are based on market conditions at the balance sheet date. Ahlstrom-Munksjö's liquidity position at year-end comprising of the strong cash position of EUR 308.7 million and increase in the committed credit lines to EUR 261.0 million is sufficient to meet the 2021 repayment obligations on the existing debt maturities if the expected closing for Tender Offer and its impacts to the Company's capital structure would not take place as estimated.
Maturity of financial liabilities, EUR million, 2020 | 2021 | 2022 | 2023 | 2024- | Total |
Non-derivative financial liabilities | |||||
Bond1 | — | 250.0 | — | — | 250.0 |
Bank loans1 | 241.5 | 147.3 | 332.7 | — | 721.5 |
Pension loan | 5.0 | 10.0 | 5.0 | — | 20.0 |
Lease liabilities | 13.2 | 11.4 | 7.9 | 18.6 | 51.0 |
Other financial liabilities | 2.9 | 2.6 | 0.5 | — | 6.0 |
Trade payables | 412.2 | — | — | — | 412.2 |
Total | 674.8 | 421.3 | 346.1 | 18.6 | 1,460.7 |
Future interest on financial liabilities | 27.4 | 18.2 | 12.3 | 4.4 | 62.2 |
Derivative financial liabilities | |||||
Interest rate swaps used for hedging | — | — | -0.4 | — | -0.4 |
Forward exchange contracts used for hedging: | |||||
- Outflow | -163.1 | — | — | — | -163.1 |
- Inflow | 167.2 | — | — | — | 167.2 |
1Bond comprising of EUR 249.5 million and EUR 602.9 million of the bank loans (carrying values) will become redeemable at the lenders' option if there is a change of control in Ahlstrom-Munksjö as a result of the Tender offer expected to take place in February 2021.
Maturity of financial liabilities, EUR million, 2019 | 2020 | 2021 | 2022 | 2023- | Total |
Non-derivative financial liabilities | |||||
Bond | — | — | 250.0 | — | 250.0 |
Bank loans | 90.2 | 127.5 | 147.6 | 373.5 | 738.8 |
Lease liabilities | 12.7 | 10.5 | 8.8 | 25.4 | 57.3 |
Other financial liabilities | 4.5 | 2.8 | 2.9 | 0.3 | 10.4 |
Trade payables | 459.4 | — | — | — | 459.4 |
Total | 566.8 | 140.8 | 409.3 | 399.1 | 1,516.0 |
Future interest on financial liabilities | 35.9 | 34.5 | 26.7 | 19.0 | 116.0 |
Derivative financial liabilities | |||||
Interest rate swaps used for hedging | — | — | — | — | — |
Forward exchange contracts used for hedging: | |||||
- Outflow | 128.3 | — | — | — | 128.3 |
- Inflow | -128.2 | — | — | — | -128.2 |
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Cont. note 19
The table below represents the total amount of funds that are available to the Group at year end. In addition to Bank overdrafts and cash and cash equivalents, the Group´s funding programmes include committed Revolving Credit Facilities of EUR 250 million (EUR 50 million maturing 2021 and EUR 200 million maturing 2022), and Finnish Commercial Paper programme totalling EUR 300 million and available uncommitted bank overdrafts.
Liquidity position, EUR million | 2020 | 2019 |
Available committed bank overdrafts | 11.0 | 14.0 |
Cash and cash equivalents | 308.7 | 166.1 |
Committed revolving credit facilities | 250.0 | 200.0 |
Finnish Commercial Paper programme | 300.0 | 300.0 |
Available uncommitted bank overdrafts | 102.7 | 97.5 |
Liquidity position | 972.4 | 777.6 |
Ahlstrom-Munksjö uses factoring or similar arrangements for working capital management. All factoring or similar arrangements are made on non-recourse basis. At the end of the reporting period the outstanding amount under the factoring or other similar arrangements was EUR 188.5 million (EUR 224.3 million). For more information please see note 14.
Financial instruments subject to offsetting, enforceable master netting agreements and similar agreements
Ahlstrom-Munksjö have a number of counterparties in respect of which the Group is both buyer and seller. Consequently, Ahlstrom-Munksjö’s gross financial assets can be significant before offsetting. Offsetting is typically limited within specific products and is possible when payment and receipt from the same counterparty occur simultaneously. These financial assets and liabilities are not offset on the balance sheet as the offsetting in the balance sheet is allowed only in certain, limited circumstances.
The table below shows the Group’s derivative contracts that are subject to offsetting agreements. The column net amount shows the impact on the Group’s balance sheet if all set-off rights were exercised. Under the terms of these arrangements, only where certain credit events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the relevant arrangements terminated. As the Group does not presently have a legally enforceable right of set-off, these amounts have not been offset in the balance sheet.
Derivative instruments, EUR million | Carrying value of | Master netting | Net |
2020 | |||
Derivative assets | 4.4 | -0.4 | 3.9 |
Derivative liabilities | -0.6 | 0.4 | -0.2 |
2019 | |||
Derivative assets | 1.7 | -0.5 | 1.2 |
Derivative liabilities | -0.5 | 0.5 | — |
Accounting policies |
Offset of financial instruments
Financial assets and liabilities are offset and recognized with a net amount in the balance sheet only when there is a legal right to offset the recognized amounts and an intention to balance the items with a net amount, or to simultaneously realize the asset and settle the liability.
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Cont. note 19
Financial assets and liabilities by category
Financial assets and liabilities recognized in the balance sheet include cash and cash equivalents, loans and other financial receivables, trade receivables, other investments, trade payables, borrowings and derivatives.
The following table summarizes the carrying value of financial assets and liabilities by categories.
Information on financial assets and liabilities | ||||||
EUR million, December 31, 2020 | Carrying | Of which | Measured at | Derivatives | Other | Derivatives |
Non-current assets | ||||||
Other non-current assets | 21.3 | 1.3 | 0.8 | — | 0.4 | — |
Current assets | ||||||
Trade and other receivables | 264.7 | 219.2 | 214.8 | 0.1 | — | 4.3 |
Cash and cash equivalents | 308.7 | 308.7 | 308.7 | — | — | — |
Carrying amount by measurement category | 594.8 | 529.1 | 524.3 | 0.1 | 0.4 | 4.3 |
Non-current liabilities | ||||||
Non-current borrowings | 744.1 | 744.1 | 744.1 | — | — | — |
Non-current lease liabilities | 37.8 | 37.8 | 37.8 | — | — | — |
Other non-current liabilities | 5.6 | 5.0 | 4.6 | — | — | 0.4 |
Current liabilities | ||||||
Current borrowings | 249.3 | 249.3 | 249.3 | — | — | — |
Current lease liabilities | 13.2 | 13.2 | 13.2 | — | — | — |
Trade and other payables | 608.8 | 415.4 | 415.2 | 0.1 | — | 0.1 |
Carrying amount by measurement category | 1,658.8 | 1,464.8 | 1,464.2 | 0.1 | — | 0.5 |
Information on financial assets and liabilities | ||||||
EUR million, December 31, 2019 | Carrying | Of which | Measured at | Derivatives | Other | Derivatives |
Non-current assets | ||||||
Other non-current assets | 19.3 | 6.0 | 5.5 | — | 0.5 | — |
Current assets | ||||||
Trade and other receivables | 278.9 | 220.8 | 219.0 | 0.2 | — | 1.5 |
Cash and cash equivalents | 166.1 | 166.1 | 166.1 | — | — | — |
Carrying amount by measurement category | 464.3 | 392.9 | 390.7 | 0.2 | 0.5 | 1.5 |
Non-current liabilities | ||||||
Non-current borrowings | 899.0 | 899.0 | 899.0 | — | — | — |
Non-current lease liabilities | 44.2 | 44.2 | 44.2 | — | — | — |
Other non-current liabilities | 1.4 | 0.5 | 0.5 | — | — | — |
Current liabilities | ||||||
Current borrowings | 94.8 | 94.8 | 94.8 | — | — | — |
Current lease liabilities | 13.1 | 13.1 | 13.1 | — | — | — |
Trade and other payables | 621.7 | 461.8 | 461.3 | 0.2 | — | 0.3 |
Carrying amount by measurement category | 1,674.2 | 1,513.4 | 1,512.9 | 0.2 | — | 0.3 |
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Cont. note 19
Fair values of financial assets and liabilities
The following table shows the carrying values (book values), fair values and valuation hierarchy of the Group’s financial instruments as at the balance sheet date.
2020 | 2019 | ||||||
EUR million | Carrying | Fair | Level | Carrying | Fair | Level | |
Non-current financial instruments measured at amortized cost | |||||||
Bonds | 249.5 | 252.0 | 1 | 249.2 | 257.7 | 1 | |
Bank loans | 479.6 | 479.6 | 2 | 649.8 | 649.8 | 2 | |
Pension loan | 15.0 | 15.0 | 2 | — | — | — | |
Lease liabilities | 37.8 | 37.8 | 2 | 44.2 | 44.2 | 2 | |
Financial instruments measured at fair value | |||||||
Forward contracts - cash flow hedge accounting | 4.2 | 4.2 | 2 | 1.3 | 1.3 | 2 | |
Forward contracts - fair value through income statement | -0.0 | -0.0 | 2 | -0.1 | -0.1 | 2 | |
Interest rate swap contracts - cash flow hedge accounting | -0.4 | -0.4 | 2 | — | — | — |
The Group considers that the carrying amount of cash and cash equivalents, trade and other receivables and trade and other payables provide a reasonable approximation of fair value, due to the short maturity and liquid nature of these elements. In addition, the carrying amounts of non-current and current loan from financial institutions and other loan are measured at amortized cost using the effective interest rate. The fair value amounts are reasonable approximations of their carrying amounts.
Accounting policies |
Financial assets at amortised cost
The group classifies its financial assets as at amortised cost only if both of the following criteria are met:
•the asset is held within a business model whose objective is to collect the contractual cash flows;
•the contractual terms give rise to cash flows that are solely payments of principal and interest.
The financial assets in this group are carried at amortized cost using the effective interest method if the time value of money is significant. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired (see note 14), as well as through the amortization process. This category of financial assets includes trade and other receivables and cash equivalents (see note 17).
Financial assets and liabilities at fair value through income statement
The Group classifies derivatives for which hedge accounting is not applied as financial assets at fair value through profit or loss (FVPL).
Financial assets at fair value through income statement are carried on the balance sheet at fair value with gains or losses recognized in the income statement. Derivatives, other than those designated as effective hedging instruments, are classified as held for trading and are included in this category.
Other investments include unlisted shares and interests carried at fair value. Fair value changes are recognised in the other comprehensive income. For unlisted shares and interests the fair value cannot be measured reliably and therefore the management considers that the cost is a reasonable approximation of the fair value.
Financial liabilities measured at amortized cost
Financial liabilities measured at amortized cost are initially recognized at fair value, net of transaction costs. For interest-bearing loans and borrowings this is the fair value of the proceeds received net of issue costs associated with the borrowing.
After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognized in interest and other income and finance costs respectively.
This category of financial liabilities includes trade and other payables and debt (see note 17).
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Cont. note 19
Fair values of financial assets and liabilities
The financial assets and liabilities measured at fair value in the balance sheet have been classified based on the three hierarchy levels:
•level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
•level 2: inputs that are observable for the asset or liability, either directly or indirectly;
•level 3: unobservable inputs for the asset or liability.
The Group considers that the carrying amount of cash, trade receivables and various deposits provide a reasonable approximation of fair value, due to the short maturity and liquid nature of these elements.
For financial liabilities at amortized cost, the fair value of financial liabilities is determined using:
•the quoted price for listed instruments (a detailed analysis is performed in the case of a material decrease in liquidity to evidence whether the observed price corresponds to the fair value; otherwise the quoted price is adjusted);
•the present value of estimated future cash flows, discounted using rates observed by the Group at the end of the period for lease liabilities and other instruments.
Fair values of derivatives are based on valuations provided by external parties using various valuation techniques. The fair value of the forward exchange contracts is determined using forward exchange rates at the balance sheet date with the resulting fair value discounted to present value. The fair value of interest rate swaps is determined using net present value method, supported by market interest rates and other market information at the end of the reporting period.
Other notes
This section provides the additional information required to be disclosed under IFRS and Finnish statutory requirements. However, these are not considered critical in understanding the financial performance or the financial position of Ahlstrom-Munksjö.
20 | OFF-BALANCE SHEET COMMITMENTS |
Ahlstrom-Munksjö has the following off-balance sheet commitments at the balance sheet date.
Off-balance sheet commitments, EUR million | 2020 | 2019 |
Assets pledged: | ||
Pledges | 1.0 | 0.9 |
Commitments: | ||
Guarantees and commitments given on behalf of Group companies | 67.0 | 56.5 |
Capital expenditure commitments | 38.4 | 15.7 |
Other guarantees and commitments | 50.6 | 40.9 |
Guarantees and commitments given on behalf of Group companies include a pension liability guarantee EUR 19.3 million (EUR 20.4 million) in the U.K.
Capital expenditure commitments are mainly related to the IT investment in parent company, Finland, and the strategic investments in Advanced Solutions business area in Chirnside, UK as well as in Filtration & Performance Solutions business area, in Malmédy, Belgium and in Turin, Italy.
Other guarantees and commitments include binding contracts for purchases of energy and IT development projects among others.
At the end of December, 2020, the Group does not have any contingent liabilities.
Accounting policies |
Commitments
Unrecognized commitments are disclosed where the Group has an agreement or a pledge to assume a financial obligation at a future date.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity. They can also include obligations that are not recognized because their amount cannot be measured reliably or because settlement is not probable. A contingent liability is not recognized in the statement of financial position but as off-balance sheet commitments.
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21 | AHLSTROM-MUNKSJÖ SUBSIDIARIES, ASSOCIATES AND JOINT OPERATIONS AND RELATED PARTY TRANSACTIONS |
The Group holds interests in a number of subsidiaries and associates which are outlined below.
Equity accounted investments
Ahlstrom-Munksjö holds a 33% share of the equity and 33% share of the voting rights of its associate company in Sweden, Sydved AB (“Sydved”). Ahlstrom-Munksjö purchases wood and woodchips from Sydved amounting to 827,245 m³ (862,147 m³) of wood and woodchips amounting to EUR 39.7 million (EUR 44.0 million).
Book value of associated company, EUR million | 2020 | 2019 |
Book value at the beginning of the year | 1.4 | 1.1 |
Share of earnings for the year | 0.2 | 0.2 |
Translation differences | 0.0 | 0.0 |
Book value at the year end | 1.6 | 1.4 |
Share of Sydved AB's assets, equity, net sales and profit before tax, EUR million | 2020 | 2019 |
Assets | 20.7 | 21.3 |
Equity | 1.4 | 1.1 |
Net sales | 90.1 | 101.1 |
Profit before tax | 0.2 | 0.3 |
The carrying value of the associated company Sydved AB has no goodwill included. The Group’s liabilities to Sydved amounted to EUR 4.2 million (EUR 5.1 million). Share of profit of the associated company is EUR 0.2 million (EUR 0.2 million).
Joint operations
Ahlstrom-Munksjö Paper GmbH is buying electricity and gas from Stadtwerke Aalen GmbH who owns 40% of Ahlstrom-Munksjö Paper GmbH’s subsidiary Kraftwerksgesellschaft Unterkochen GmbH. The related purchase amounts to EUR 4.7 million (EUR 5.4 million).
Group companies
The consolidated accounts include the following entities:
Company name | Registered Office | Share of equity % |
Ahlstrom-Munksjö Oyj | Finland | Parent |
Ahlstrom-Munksjö AB | Sweden | 100 |
Ahlstrom-Munksjö Aspa Bruk AB | Sweden | 100 |
Ahlstrom-Munksjö Spain Holding, S.L | Spain | 100 |
Ahlstrom-Munksjö Paper S.A. | Spain | 100 |
Ahlstrom-Munksjo Paper (Taicang) Co. Ltd | China | 100 |
Ahlstrom-Munksjö Germany Holding GmbH | Germany | 100 |
Ahlstrom-Munksjö Paper GmbH | Germany | 100 |
Kraftwerksgesellschaft Unterkochen GmbH | Germany | 60 |
Ahlstrom-Munksjö Dettingen GmbH | Germany | 100 |
Ahlstrom-Munksjo Paper Inc. | USA | 100 |
Munksjö Paper S.p.A. | Italy | 100 |
Ahlstrom-Munksjö Italia S.p.A. | Italy | 100 |
Ahlstrom-Munksjö France Holding S.A.S. | France | 100 |
Ahlstrom-Munksjö Arches S.A.S. | France | 100 |
Ahlstrom-Munksjö Stenay S.A.S. | France | 100 |
Ahlstrom-Munksjö Rottersac S.A.S. | France | 100 |
Ahlstrom-Munksjö La Gère S.A.S. | France | 100 |
Ahlstrom-Munksjo Paper Trading (Shanghai) Co., Ltd | China | 100 |
Ahlstrom-Munksjo Asia Holdings Pte Ltd | Singapore | 100 |
PT Ahlstrom Indonesia | Indonesia | 100 |
Ahlstrom-Munksjö Barcelona, S.A | Spain | 100 |
Ahlstrom-Munksjö Brasil Indústria e Comércio de Papéis Especiais Ltda. | Brazil | 100 |
Caieiras Indústria e Comércio de Papéis Especiais Ltda. | Brazil | 100 |
Ahlstrom-Munksjö Chirnside Limited | United Kingdom | 100 |
Ahlstrom-Munksjo Fibercomposites (Binzhou) Limited | China | 100 |
Ahlstrom Munksjo Fiber Composites India Private Ltd | India | 100 |
Ahlstrom-Munksjö Germany GmbH | Germany | 100 |
Ahlstrom-Munksjö Glassfibre Oy | Finland | 100 |
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Cont note 21
Company name | Registered Office | Share of equity % |
Ahlstrom-Munksjö Tver LLC | Russia | 100 |
Ahlstrom-Munksjö Industries S.A.S. | France | 100 |
Ahlstrom-Munksjö Brignoud S.A.S. | France | 100 |
Ahlstrom-Munksjö Tampere Oy | Finland | 100 |
Ahlstrom-Munksjö Specialties S.A.S. | France | 100 |
Ahlstrom-Munksjo Japan Inc. | Japan | 100 |
Ahlstrom-Munksjo Korea Co., Ltd | South Korea | 100 |
Ahlstrom-Munksjö Malmédy SA | Belgium | 100 |
Ahlstrom-Munksjö Monterrey, S. de R.L. de C.V. | Mexico | 100 |
Ahlstrom-Munksjö South Africa (Pty) Ltd | South Africa | 100 |
Ahlstrom-Munksjö Ställdalen AB | Sweden | 100 |
Ahlstrom-Munksjö Falun AB | Sweden | 100 |
Ahlstrom-Munksjo USA Inc. | USA | 100 |
Ahlstrom-Munksjo Filtration LLC | USA | 100 |
Ahlstrom-Munksjo Nonwovens LLC | USA | 100 |
Windsor Locks Canal Company | USA | 100 |
Ahlstrom-Munksjo NA Specialty Solutions Holdings Inc. | USA | 100 |
Ahlstrom-Munksjo NA Specialty Solutions LLC | USA | 100 |
Ahlstrom-Munksjo Brokaw LLC | USA | 100 |
Ahlstrom-Munksjo Nicolet LLC | USA | 100 |
Ahlstrom-Munksjo Mosinee LLC | USA | 100 |
Ahlstrom-Munksjo Rhinelander LLC | USA | 100 |
Ahlstrom-Munksjo Coated Products LLC | USA | 100 |
Ahlstrom-Munksjo Vilnius UAB | Lithuania | 100 |
Ahlstrom-Munksjö Warsaw Sp. Z.o.o | Poland | 100 |
Ahlstrom-Munksjo Yulong (Shanghai) Specialty Paper Trading Co. Ltd | China | 60 |
Ahlstrom-Munksjo Yulong Specialty Paper Company Limited | China | 60 |
Akerlund & Rausing Kuban Holding GmbH | Germany | 100 |
In addition, the Group has branch or representative offices in India, Indonesia, Norway, Sri Lanka, Taiwan and Thailand.
Accounting policies |
Subsidiaries, joint operations and associates
Subsidiaries are entities that are directly or indirectly controlled by Ahlstrom-Munksjö controls, ie. when the Group is exposed to, or has rights to, variable returns from its involvement and has the ability to affect those returns through exercising power. Subsidiaries are consolidated from the date control is achieved to the date when the Group ceases to exercise power.
Associated companies are those in which the Group has a significant influence over operational and financial policies. Significant influence is the power to participate in, but not control or jointly control, the financial and operating decisions of the investee. These investments are accounted for using the equity method.
The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses in accordance with the Ahlstrom-Munksjö’s contractual rights and obligations.
Transactions eliminated on consolidation and transactions between the owners of the parent
Transactions between Group companies, including intra-group receivables and liabilities, income or expenses and unrealized gains or losses are eliminated in full. Unrealized gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest, unless otherwise contractually agreed by the parties. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Transactions with the owners of the parent are reported within shareholders’ equity. Transactions with non-controlling interests are reported as transactions with equity owners of the Group. Divestments to and purchases from non-controlling interests result in gains and losses for the Group, which are reported in equity.
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22 | AUDITOR REMUNERATION |
Ahlstrom-Munksjö’s Annual General Meeting (“AGM”) makes resolutions each year to elect the Group’s auditors. It was resolved at the 2020 AGM that in accordance with the proposal of the Board that KPMG Oy Ab would be appointed as the Group’s auditor.
Auditor remuneration, EUR million | 2020 | 2019 |
Audit fees | -1.4 | -1.4 |
Audit-related fees | -0.3 | -0.2 |
Tax service fees | -0.1 | -0.1 |
Other fees | 0.0 | 0.0 |
Total | -1.8 | -1.7 |
KPMG Oy Ab has provided non-audit services to the entities of Ahlstrom-Munksjö Group in total of EUR 0.0 million (EUR 0.0 million) during the financial year 2020.
23 | NEW ACCOUNTING STANDARDS |
Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases
To be applied from 1 January 2021
Amendments address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of interest rate benchmark reform. Amendments assist companies in providing useful information about the effects of interest rate benchmark reform on financial statements.
Amendments to IAS 16 Property, Plant and Equipment
To be applied from 1 January 2022
Under the amendments, proceeds from selling items before the related item of PPE is available for use should be recognized in profit or loss, together with the costs of producing those items.
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
To be applied from 1 January 2022
When an onerous contract is accounted for based on the costs of fulfilling the contract, the amendments clarify that these costs comprise both the incremental costs and an allocation of other direct costs.
Annual Improvements to IFRS Standards 2018–2020
To be applied from 1 January 2022
The annual improvements process provides a mechanism for minor and non-urgent amendments to IFRSs to be grouped together and issued in one package annually. The amendments clarify the following standards:
•IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter: This amendment simplifies the application of IFRS 1 for a subsidiary that becomes a first-time adopter later than its parent – a subsidiary may elect to measure cumulative translation differences at amounts included in the consolidated financial statements of the parent.
• IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities: This amendment clarifies that – for the purpose of performing the ‘’10 per cent test’ for derecognition of financial liabilities – in determining those fees paid net of fees received, a borrower includes only fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
•IFRS 16 Leases – Lease incentives – Example 13. The amendment removes the illustration of payments from the lessor relating to leasehold improvements. The example was not clear as to why such payments are not a lease incentive.
•IAS 41 Agriculture – Taxation in fair value measurements. This amendment removes the requirement to exclude cash flows for taxation when measuring fair value, thereby aligning the fair value measurement requirements in IAS 41 with those in IFRS 13 Fair Value Measurement. When a present value technique is used to measure fair value, the assumptions used for the cash flows and discount rates should be internally consistent – i.e. using either after tax or pre-tax for both.
Amendments to IAS 1 Presentation of Financial Statements
To be applied from 1 January 2023
The amendments are to promote consistency in application and clarify the requirements on determining if a liability is current or non-current.
IFRS 17 Insurance Contracts
To be applied from 1 January 2023
The new standard for insurance contracts will help investors and others better understand insurers’ risk exposure, profitability and financial position. This standard replaces IFRS 4 standard.
The Group doesn't expect any material impact on the financial statements regarding the new standards, amendment nor improvements.
24 | POST-BALANCE SHEET EVENTS |
On September 24, 2020, a consortium, consisting of Ahlström Capital, funds managed or advised by Bain Capital as well as Viknum and Belgrano Inversiones made a public recommended cash tender offer for all shares in Ahlstrom-Munksjö. The offer period for the tender offer commenced on October 22, 2020 and expired on January 14, 2021. The consortium’s intention is to eventually acquire all the shares in Ahlstrom-Munksjö and apply for a delisting of the shares from Nasdaq Helsinki and Nasdaq Stockholm to develop the company in a private domain.
On January 18, 2021 based on the preliminary result, the offeror decided that it will waive the minimum acceptance condition and complete the tender offer in accordance with its terms and conditions provided that the final result of the tender offer confirms that the tender offer has been validly accepted with respect to shares representing, together with any shares otherwise held by the offeror prior to the date of the announcement of the final result of the tender offer, on a fully diluted basis at least 75% of the shares and voting rights of the company.
Page 75
On January 20, 2021 the consortium declared the tender offer unconditional with approximately 81% of shares validly tendered and accepted in the tender offer.
On January 20, 2021, the offeror also announced the commencement of a subsequent offer period in accordance with the terms and conditions of the tender offer. The subsequent offer period commenced on January 21, 2021 and expired on February 4, 2021. According to the final result of the subsequent offer period, the shares validly tendered and accepted during the subsequent offer period, together with the shares validly tendered and accepted during the initial offer period (as extended) and otherwise acquired by the offeror through market purchases until February 8, 2021, represent approximately 90.6% of all the shares and voting rights carried by the shares in Ahlstrom-Munksjö. The offeror’s intention is to apply for the shares in Ahlstrom-Munksjö to be delisted from Nasdaq Helsinki Ltd (“Nasdaq Helsinki”) and from Nasdaq Stockholm AB (“Nasdaq Stockholm”), respectively, as soon as permitted and reasonably practicable under the applicable laws and regulations and the rules of Nasdaq Helsinki and Nasdaq Stockholm. As the offeror’s holdings in Ahlstrom-Munksjö will exceed 90% of all the shares and voting rights carried by the shares in Ahlstrom-Munksjö after the settlement of the shares tendered in the tender offer, the offeror will initiate compulsory redemption proceedings to acquire the remaining shares in accordance with the Finnish Companies Act.
Extraordinary General Meeting
On January 25, 2021, notice was given to the shareholders of Ahlstrom-Munksjö to Extraordinary General Meeting to be held on February 19, 2021 to resolve on the election of new Board of Directors and certain other matters.
Change in Ahlstrom-Munksjö Group ownership
Following the completion of the Tender Offer on February 4, 2021, Spa (BC) Lux Holdco S.à r.l. (entity owned and controlled by funds managed and/or advised by Bain Capital Private Equity (Europe), LLP, and/or its affiliates), Ahlstrom Invest B.V., Viknum AB (an entity in which Alexander Ehrnrooth, a member of the Board of Directors, exercises influence) and Belgrano Inversiones Oy (an entity in which Alexander Ehrnrooth, a member of the Board of Directors, exercises control) together indirectly owned 81.0% of all the shares and voting rights in Ahlstrom-Munksjö Oyj through Spa Holdings 3 Oy, a private limited liability company incorporated and existing under the laws of Finland. The ultimate new parent company for Ahlstrom-Munksjö Oyj is SPA Lux TopCo Sárl, an entity domiciled in Luxembourg.
Transaction costs
Ahlstrom-Munksjö will pay approximately EUR 9 million of transaction costs resulting from the successful closing of the Tender Offer, which will be recognized as expenses during first quarter of 2021. These expenses will be reported as items affecting comparability in the Company’s results for the first quarter 2021.
Long-term incentive plans
Ahlstrom-Munksjö’s Board of Directors decided on February 9, 2021 following the closing of the Tender Offer to prematurely terminate all existing long-term share-based incentive plans and to settle them in cash. Matching share plans (2019-2021, 2020-2022) reward payments are made to the participants immediately and long-term share-based incentive plans (LTI 2019-2021, LTI 2020-2022) rewards payments are made to the participants in three months from closing of the Tender Offer. The estimated amount of cash payments (including social security costs) is approximately EUR 18.6 million during the first half of the year of 2021. The income statement impact over the first quarter of 2021 resulting from accelerated vesting is approximately EUR 15.8 million. The income statement impact will be reported as items affecting comparability in the Group’s results.
Change of control events impact on Ahlstrom-Munksjö's long-term funding
As a result of the settlement of the tender offer on February 4, 2021, the EUR 249.5 million senior bond and EUR 602.9 million of the bank loans (amounts reported as carrying values as of December 31, 2020) will become redeemable during the first half of 2021 to the extent the financing providers exercise their mandatory prepayment rights based on the customary change of control terms in the existing financing documents.
In addition, unless Ahlstrom-Munksjö at its option decides to redeem the hybrid bond within six months from the date of completion of the tender offer, the interest rate of the hybrid bond will increase by an additional margin of 5.0% p.a.
For purposes of the refinancing of Ahlstrom-Munksjö’s existing debt, financing the Tender Offer and other agreed purposes, SPA Holdings 3 Oy and SPA US Holdco, Inc have committed senior term facilities and senior bridge facilities totaling to EUR 1,650 million (nominal) provided on a customary certain funds basis, with maturities of 7 years. Any repayments required by the existing Ahlstrom-Munksjö financing providers are expected to be initially funded using proceeds from an intercompany loan provided to Ahlstrom-Munksjö by SPA Holdings 3 Oy and Ahlstrom-Munksjö USA Inc by SPA US Holdco, Inc and cash on balance sheet in each case, in all material respects reflecting the terms of the committed facilities of SPA Holdings 3 Oy and SPA US Holdco, Inc described above with the exception of a 12 month maturity, customary margin step-up and other customary changes for such intercompany loan instrument.
In addition, the existing committed EUR 200 million multicurrency revolving facility agreement and the committed EUR 50 million revolving credit facility, which both were undrawn at the balance sheet date, may be cancelled at the lender’s option. SPA Holdings 3 Oy and SPA US Holdco, Inc also have a committed EUR 325 million revolving credit facility under its senior facilities agreement to replace these facilities and to provide ongoing working capital and general corporate funding requirements for the Group.
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Parent company financial statements, FAS
The Parent Company Financial Statements are prepared according to Generally Accepted Accounting Principles in Finland “Finnish GAAP”. Accounting principles are available in Group Consolidated Financial Statements. The main differences between the accounting policies of the Group and the Parent Company are:
•Hybrid bond is treated as liability and the associated interests and arrangement fees are booked in the income statement
•Hedge accounting is not applied to derivative contracts
•Costs related to the combination of Munksjö AB and Ahlstrom Oyj’s Label and Processing business
•Costs related to the listing of the company’s shares on the Helsinki stock exchange
•Cost related to the rights issue
Income statement
EUR million | 2020 | 2019 |
Net sales | 95.4 | 103.0 |
Other operating income | — | 0.0 |
Personnel costs | -10.8 | -7.7 |
Depreciation, amortization and impairment | -13.6 | -6.5 |
Other operating expense | -55.9 | -57.7 |
-80.3 | -72.0 | |
Operating result | 15.0 | 31.0 |
Financing income and expense | ||
Dividend income | 167.4 | 43.8 |
Interest and other financing income | 8.9 | 23.6 |
Interest and other financing expense | -25.3 | -23.2 |
Impairment of long term investments | -14.4 | — |
Gains and losses on foreign currency | 3.0 | 7.1 |
139.6 | 51.2 | |
Result before appropriations and taxes | 154.7 | 82.3 |
Appropriations | ||
Change in cumulative accelerated depreciation | 0.1 | 0.1 |
Group contributions | 10.5 | 6.4 |
10.6 | 6.5 | |
Income taxes | -1.6 | -6.1 |
Net result | 163.6 | 82.6 |
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Balance sheet
Dec 31, | Dec 31, | |
EUR million | 2020 | 2019 |
ASSETS | ||
Non-current assets | ||
Intangible assets | ||
Development expenses | 0.5 | 0.5 |
Intangible rights | 22.1 | 10.7 |
Other long term expense | 13.4 | 21.6 |
Advances paid and construction in progress | 7.3 | 12.5 |
43.3 | 45.3 | |
Tangible assets | ||
Land and water areas | 0.0 | 0.0 |
Machinery and equipment | 0.1 | 0.2 |
Other tangible assets | 0.1 | 0.1 |
Advances paid and construction in progress | 0.0 | 0.0 |
0.2 | 0.3 | |
Long-term investments | ||
Shares in Group companies | 1,602.8 | 1,585.0 |
Shares in other companies | 0.1 | 0.1 |
1,602.9 | 1,585.0 | |
Current assets | ||
Long-term receivables | ||
Receivables from Group companies | 190.2 | 184.6 |
Other long-term assets | 4.5 | 0.6 |
194.7 | 185.2 | |
Short-term receivables | ||
Trade receivables | 0.8 | — |
Receivables from Group companies | 55.6 | 39.5 |
Other short-term receivables | 0.4 | 0.2 |
Prepaid expenses and accrued income | 9.4 | 6.0 |
66.2 | 45.7 | |
Cash and cash equivalents | 248.2 | 104.0 |
TOTAL ASSETS | 2,155.6 | 1,965.7 |
Dec 31, | Dec 31, | |
EUR million | 2020 | 2019 |
SHAREHOLDERS' EQUITY AND LIABILITIES | ||
Shareholders' equity | ||
Share capital | 85.0 | 85.0 |
Non-restricted equity reserve | 558.7 | 558.7 |
Retained earnings | 179.2 | 160.5 |
Result for the period | 163.6 | 82.6 |
986.5 | 886.9 | |
Appropriations | ||
Cumulative accelerated depreciation | 0.1 | 0.2 |
Provisions for contingencies | 3.0 | 3.1 |
Liabilities | ||
Long-term liabilities | ||
Hybrid bond | 100.0 | 100.0 |
Loans from financial institutions | 462.0 | 587.4 |
Pension loans | 15.0 | — |
Trade payables | 0.8 | — |
Other long-term debts | 0.4 | — |
578.1 | 687.4 | |
Short-term liabilities | ||
Loans from financial institutions | 176.6 | 26.0 |
Pension loans | 5.0 | — |
Trade payables | 7.4 | 6.4 |
Liabilities to Group companies | 368.4 | 342.6 |
Other short-term liabilities | 19.8 | 0.3 |
Accrued expenses and deferred income | 10.6 | 12.7 |
587.8 | 388.1 | |
Total liabilities | 1,165.9 | 1,075.5 |
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 2,155.6 | 1,965.7 |
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Cash flow statement
EUR million | 2020 | 2019 |
Cash flow from operating activities | ||
Result before appropriations and taxes | 154.7 | 82.3 |
Adjustments | ||
Depreciation, amortization and impairment | 13.6 | 6.5 |
Impairment of long-term investments | 14.4 | — |
Interest and other financial income and expense | 13.4 | -7.5 |
Received dividends | -167.4 | -43.8 |
Other adjustments | -0.1 | -0.1 |
Cash flow from operating activities before the changes in net working capital | 28.5 | 37.5 |
Changes in net working capital | ||
Change in trade and other receivables, increase(-)/decrease(+) | -1.8 | 2.7 |
Change in trade and other payables, increase (+)/decrease (-) | 10.9 | -6.7 |
Cash flow from operating activities before financial items and taxes | 37.6 | 33.5 |
Interest paid and payments of other financial items (-) | -21.5 | -15.6 |
Interests received (+) | 5.9 | 23.7 |
Income taxes paid (-) | -5.8 | -5.0 |
Net cash from operating activities | 16.2 | 36.6 |
Cash flow from investing activities | ||
Purchases of property, plant and equipment and intangible assets (-) | -13.2 | -11.3 |
Proceeds from disposal of property, plant and equipment and intangible assets (+) | — | 0.2 |
Investment in other long-term assets (-) | -0.7 | — |
Capital refund from Group companies (+) | 8.0 | 20.0 |
Capital injections to Group companies (-) | -17.9 | -450.6 |
Dividends received from investments (+) | 167.4 | 43.8 |
Net cash from investing activities | 143.6 | -397.9 |
EUR million | 2020 | 2019 |
Cash flow from financing activities | ||
Repurchase of treasury shares (-) | -4.0 | — |
Proceeds from long-term loans (+) | 20.0 | 100.0 |
Repayment of long-term loans (-) | -26.0 | -125.3 |
Proceeds from short-term loans (+) | 50.0 | — |
Changes in loans receivables and loans from Group companies | -16.9 | 477.2 |
Dividends and other | -45.1 | -60.0 |
Group contribution received | 8.8 | — |
Group contribution paid | -2.4 | -12.8 |
Net cash from financing activities | -15.6 | 379.0 |
Net change in cash and cash equivalents | 144.2 | 17.7 |
Cash and cash equivalents at the beginning of the period | 104.0 | 86.3 |
Net change in cash and cash equivalents | 144.2 | 17.7 |
Cash and cash equivalents at the end of the period | 248.2 | 104.0 |
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Proposal for the distribution of profits
The Parent Company’s balance sheet on December 31, 2020 shows:
EUR | |
Non-restricted equity reserve | 558,737,599.61 |
Retained earnings | 179,177,369.75 |
Net result | 163,624,246.54 |
- Less capitalized development costs | -481,691.25 |
Total distributable funds | 901,057,524.65 |
The Board of Directors' dividend proposal to the Annual General Meeting will be decided after the Extraordinary General Meeting to be held on February 19, 2021.
EUR | ||
- dividend will be decided after the Extraordinary General Meeting | ||
- non-restricted equity reserve carried forward | 558,737,599.61 | |
- to be retained in retained earnings | 342,801,616.29 | |
- less capitalized development costs | -481,691.25 | |
901,057,524.65 |
Helsinki, February 9, 2021 | |||
Jaakko Eskola | |||
Nathalie Ahlström | Alexander Ehrnrooth | Johannes Gullichsen | Lasse Heinonen |
Hannele Jakosuo-Jansson | Harri-Pekka Kaukonen | Valerie A. Mars | Elisabet Salander Björklund |
Hans Sohlström | |||
CEO |
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This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.
Auditor’s report
To the Annual General Meeting of Ahlstrom-Munksjö Oyj
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Ahlstrom-Munksjö Oyj (business identity code 2480661-5) for the year ended 31 December 2020. The financial statements comprise the consolidated balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes.
In our opinion
•the consolidated financial statements give a true and fair view of the group’s financial position, financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
•the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submitted to the Audit Committee.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 22 to the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Materiality
The scope of our audit was influenced by our application of materiality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) of Article 10(2) are included in the description of key audit matters below.
We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
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THE KEY AUDIT MATTER | HOW THE MATTER WAS ADDRESSED IN THE |
Valuation of goodwill and acquisition related intangible assets (refer to accounting principles for the consolidated financial statements and note 12) | |
•At the end of the financial year, the group had EUR 609 million of goodwill and EUR 453 million of other intangible assets. The goodwill amounts to 51 % of the group equity and 19 % of the group’s total assets at 31 December, 2020. •Goodwill is tested for impairment when indicators of impairment exist, or at least annually. Goodwill impairment testing is conducted by comparing the carrying value with the recoverable amount using a discounted cash flow model.. •Determining the key assumptions used in the impairment tests requires management judgement and estimates especially relating to long term growth, profitability and discount rates. •Acquisition related intangible assets have a definitive useful life, however, the useful lives and related amortization periods are assessed annually. •Valuation of goodwill and acquisition related intangible assets are considered a key audit matter due to the significant carrying values and high level of management judgement involved. | •We assessed the impairment tests prepared by the Company. . •Our detailed audit work with the involvement of KPMG valuation specialists included testing the integrity of the calculations and the technical model. We challenged the assumptions used by management in respect of forecasted growth rates and profitability as well as the appropriateness of the discount rates used. We also validated the assumptions used in relation to market and industry information. •We also evaluated the cash flows used by comparing them to the group’s business plans and to the understanding we gained from our audit. •Furthermore, we have considered the adequacy of the group’s disclosures in respect of the impairment testing •For acquisition related intangible assets, we challenged management's assumptions regarding the remaining useful life of identified intangible assets based on our own expectations and on our knowledge of the client and experience of the industry in which it operates. |
Revenue recognition (refer to accounting principles for the consolidated financial statements and note 5) | |
•Revenue is mainly generated through the sale of manufactured goods. The revenue is generated by subsidiaries in different countries. The revenue earned from the sale of goods is recognised when the control associated with ownership is transferred to the buyer in accordance with the terms of delivery. •In general, revenue recognition within the group is not complex but the large volumes of transactions and the fact that the revenue is generated through subsidiaries in different countries makes revenue recognition an area of focus in the audit and is therefore determined as a key audit matter. | •During our audit we have focused on identifying unusual sales transactions. Auditors of subsidiaries have performed testing of controls related to revenue recognition and also performed substantive procedures such as testing of sales agreements and year-end transactions. •We have on group level assessed the revenue recognition principles and based on work performed by the auditors in the subsidiaries tested compliance with group revenue recognition principles. |
Valuation of Inventories (refer to accounting principles of the consolidated financial statements and note 13) | |
•The value of inventories amounted to EUR 366 million at the end of the financial year. •There are several different systems for inventory accounting in the group. It is essential from an accounting perspective that the internal control related to inventory accounting and valuation is appropriately organized. •The valuation of inventories is based on management estimates in respect of obsolescence assessment. •Due to the significant carrying amount and management judgement involved, valuation of inventories is determined as a key audit matter that our audit is focused on. | •In our audit the key focus has been on the pricing and valuation of inventories. Our component auditors carried out appropriate controls testing and substantive testing in relation to standard cost setting, accounting for variances and obsolescence provisions including monitoring of inventory levels. •On group level we have assessed the work performed by the auditors in the subsidiaries and on group level made an overall assessment of the valuation of inventories. |
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Responsibilities of the Board of Directors and the Managing
Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of Financial Statements
Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also::
•Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control.
•Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
•Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
•Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
•Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Reporting Requirements
Information on our audit engagement
We were first appointed as auditors by the Annual General Meeting on 2.4.2014, and our appointment represents a total period of uninterrupted engagement of 7 years.
Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Helsinki, 9 February 2021
KPMG OYAB
ANDERS LUNDIN
Authorised Public Accountant, KHT
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This document is an English translation of the Finnish Independent Auditor’s Reasonable Assurance report. Only the Finnish version of the report is legally binding.
Independent Auditor’s Reasonable Assurance Report on Ahlstrom-Munksjö Oyj’s ESEF Financial Statements
To the Shareholders of Ahlstrom-Munksjö Oyj
We have undertaken a reasonable assurance engagement on the iXBRLmarking up of the consolidated financial statements for the year ended December 31,2020 included in the Ahlstrom-Munksjö Oyj’s digital files 213800F2MJ5Z2TAQ1726-2020-12-31_EN.zip prepared in accordance with the requirements of Article 4 of EU Delegated Regulation 2018/815 (ESEF RTS).
The Responsibility of the Board of Directors and Managing Director
The Board of Directors and Managing Director are responsible for preparing the report of the Board of Directors and financial statements (ESEF financial statements) that comply with the requirements of ESEF RTS. This responsibility includes:
a.preparation of ESEF financial statements in XHTML format in accordance with Article 3 of the ESEF RTS
b.marking up the consolidated financial statements included in the ESEF financial statements with iXBRL tags in accordance with Article 4 of the ESEF RTS; and
c.ensuring consistency between ESEF financial statements and audited financial statements.
The Board of Directors and the Managing Director are also responsible for such internal control as they deem necessary to prepare the ESEF financial statements in accordance with the requirements of the ESEF RTS.
Auditor’s Independence and Quality Control
We are independent of the company in accordance with the ethical requirements applicable in Finland, which apply to the engagement we have performed, and we have fulfilled our other ethical obligations in accordance with these requirements.
The auditor applies International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Auditor’s Responsibility
In accordance with the Engagement Letter our responsibility is to express an opinion on whether the marking up of the consolidated financial statements included in the ESEF financial statements comply in all material respects with the Article 4 of the ESEF RTS. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000.
The engagement involves procedures to obtain evidence whether;
a.the consolidated financial statements included in the ESEF financial statements are, in all material respects, marked up with iXBRL tags in accordance with Article 4 of the ESEF RTS, and;
b.the ESEF financial statements and the audited financial statements are consistent with each other.
The nature, timing and the extent of procedures selected depend on practitioner’s judgement. This includes the assessment of the risks of material departures from the requirements set out in the ESEF RTS, whether due to fraud or error.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the consolidated financial statements included in the ESEF financial statements of Ahlstrom-Munksjö Oyj identified as 213800F2MJ5Z2TAQ1726-2020-12-31_EN.zip for the year ended December 31, 2020 are marked up, in all material respects, in compliance with the ESEF Regulatory Technical Standard.
Our audit opinion relating to the consolidated financial statements of Ahlstrom-Munksjö Oyj for the year ended December 31, 2020 is set out in our Auditor’s Report. In this report, we do not express an audit opinion, review conclusion or any other assurance conclusion on the consolidated financial statements.
Helsinki, 24 February 2021
KPMG OY AB
Anders Lundin
KHT
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