Accounting principles

All Group companies apply uniform accounting principles based on Finnish accounting legislation, which conforms to EU accounting directives and to generally accepted accounting standards.

Scope of consolidation

The consolidated financial statements include Rettig Group Ltd and those companies in which the parent company directly or indirectly holds more than half of the voting rights. Dormant companies are excluded since they have no material impact on the disclosure of a true and fair view. Major investments in associated companies, i.e. those in which the parent company directly or indirectly owns 20–50 per cent of the voting rights at the year-end, are accounted for in the consolidated financial statements using the equity method. Försäkringsaktiebolaget Alandia became an associated company of Rettig Group in March when the holding exceeded 20 per cent.

Consolidation principles

The acquisition of companies is accounted for using the purchase method. The excess value of the purchase price is allocated to the underlying balance sheet items up to the fair value of the assets acquired, and the remaining elimination difference is carried over as goodwill on consolidation. If the acquisition cost of the shares is less than the corresponding capital, the negative difference is allocated to the values of assets and liabilities which are considered to be the basis for the difference. The proportion of the negative difference which cannot be allocated is recognised as other operating income in the consolidated income statement. Intragroup transactions, balances and profits, material internal margins and dividends are eliminated on consolidation.

The financial results of subsidiaries acquired or divested during the year are included in the consolidated financial statements from their acquisition date up to their disposal date. The Group’s share of the associates’ net result is reported under financial items in the income statements. The Group’s share in joint ventures is consolidated using the proportionate consolidation method.

The minority interest in equity, including untaxed appropriations less deferred taxes, and in the net profit for the financial year is calculated prior to the elimination of internal transactions and balances.

Sales gains or losses on divestments of business areas are recognised as operating income/expenses and income taxes due to sales gains are recorded in taxes.

As the acquisition of Emmeti S.p.A. took place at the end of year the acquisition calculation is not yet final concerning the final price paid and the allocation of goodwill on consolidation which in the balance sheet has been booked as goodwill on consolidation. Due to the acquisition of Emmeti S.p.A. the numbers for 2014 and 2015 are not fully comparable.

Non-current assets

The balance sheet values of tangible and intangible assets are based on direct historical cost less accumulated depreciation and write-downs. In addition, certain land areas may be stated at revalued amounts. Asset values are regularly reviewed. A predetermined schedule is applied to calculate depreciation and amortisation of non-current assets. Depreciation and amortisation is calculated using the straight-line method over the assets’ expected useful life. As a rule, depreciation and amortisation periods are as follows:
• Intangible rights 5–10 years
• Goodwill 5–10 years
• Goodwill on consolidation 5–20 years
• Goodwill allocated to mines and quarries 30 years
• Other capitalised expenditure 3–10 years
• Buildings and constructions 10–40 years
• Vessels 18–25 years
• Machinery and equipment 3–10 years
• Heavy process machinery and kilns 15–25 years
• Other tangible assets 5–10 years

Land and water are not depreciated with the exception of quarries and mines which are subject to substance depreciations. Amortisation of goodwill on consolidation is generally calculated over five years. When material goodwill arises on the acquisition of a subsidiary, which results in the Group acquiring a significant market share, the amortisation period may be longer than five years, but may not, however, exceed twenty years. The elimination difference allocated to non-current assets on consolidation is depreciated according to the depreciation schedule for each item. Amortisation of consolidation goodwill that has been allocated to quarries and mines are amortised over thirty years due to the strategic nature of the mines.

Long-term investments comprise financial investments and receivables intended to be held for more than one year. These are valued at acquisition cost. The value of shares in subsidiaries is reviewed annually against cash flow estimates.

Inventories

Inventories are valued using the lower of cost or market method. Cost is calculated according to the FIFO principle. The cost of inventories includes, in addition to direct costs, an appropriate proportion of purchase and production overheads.

Cash and marketable securities

Cash and cash equivalents include cash in hand, bank balances, deposits of up to three months and other funds that are equivalent to cash.

Marketable securities comprise equity securities, deposits and debt securities intended for resale within a year. Marketable securities are stated at the lower of cost or market value. Changes in market values are recognised in the income statement under financial items.

Provisions and appropriations

Accumulated untaxed appropriations, net of any deferred tax liability, are included in the consolidated balance sheet as part of retained earnings but may not, however, be treated as disposable funds.

Mandatory provisions are future expenses that are judged to be imminent and which will probably not generate any future income. These are charged against income as a provision under liabilities.

The Group’s pension arrangements conform to the customs and practice prescribed by local legislation in each country. Pension costs, post-retirement benefits and changes in pension obligations are mainly recognised in the income statement. Provisions include estimated costs for future pensions. The retirement age of the managing directors of Group companies varies between 60 and 65 years.

Revenue recognition

Turnover is recognised upon the exchange of goods or the performance of services, net of sales taxes, discounts and exchange rate differences. The delivery costs of products sold are recorded as production expenses and bad debts are recognised as sales and marketing expenses.

Emission rights

Emission rights are recognised using the net value method. In other words, current values are not recognised in the balance sheet. Emission rights acquired to cover shortfalls, and shortfalls not covered by acquisition, are reported as a cost provision according to their value at the balance sheet date. Gains on the sale of surplus emission rights are recognised under other operating income.

Research and development costs

Research and development costs are expensed in the year they are incurred.

Taxes

Taxes for the financial year are shown in the consolidated financial statements as a combined amount covering the taxes recognised in single-entity financial statements prepared in accordance with local tax rules.

A deferred tax asset or liability is determined by accounting for timing differences between the tax written down and accounting values of assets and liabilities using the current tax rate or the enacted tax rates effective for the future years. Deferred tax liabilities are recognised in full in the balance sheet, while deferred tax assets are only recognised to the expected extent these can be utilised to reduce future tax. Deferred tax liabilities on acquired fair values are recognised in the consolidated financial statements.

Bore Ltd entered into the Finnish tonnage system on 1 January 2015. In the tonnage tax system, the shipping operations shifted from taxation on business income to tonnage-based taxation.

Foreign currencies

Foreign currency transactions during the year are recognised in the financial  statements at the exchange rates that apply on the date at the transaction.

Receivables and liabilities denominated in foreign currencies are translated into euro at the closing rate determined by the European Central Bank (ECB) at the balance sheet date. If the amount is fixed by a forward contract, the forward rate is applied. Realised and unrealised exchange gains and losses on receivables and liabilities are recognised in the income statement.

Derivatives designated as hedges are measured on a monthly basis, and any consequent unrealised gains and losses are recognised in financial income and expenses on the same basis as the gains and losses on the underlying hedged item.Foreign currency-denominated future cash flows can normally be hedged for up to 12 months.

Foreign exchange gains and losses relating to normal business operations are treated as adjustments to sales and purchases. Gains and losses associated with financing are recognised as financial income and expenses.

With regard to shareholders’ equity, translation differences due to exchange rate fluctuations are recognised in the consolidated financial statements under retained earnings. The income statements of all foreign subsidiaries are translated into euro at the months’ average exchange rates and the balance sheets at the year-end exchange rate.

Updated 3 March 2016