ALTIA

Annual Report (ESEF) • Feb 25, 2021

52990007AXNSS4PNX3522020-01-012020-12-3152990007AXNSS4PNX3522019-01-01ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522019-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522019-01-01ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522019-01-01ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:CapitalReserveMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:StatutoryReserveMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522019-01-012019-12-3152990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522019-01-012019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522019-12-31ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522019-12-31ifrs-full:IssuedCapitalMemberifrs-full:CapitalReserveMember52990007AXNSS4PNX3522019-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522019-12-31ifrs-full:IssuedCapitalMemberifrs-full:StatutoryReserveMember52990007AXNSS4PNX3522019-12-31ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522019-12-31ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522020-12-3152990007AXNSS4PNX3522020-01-01ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522020-01-01ifrs-full:CapitalReserveMember52990007AXNSS4PNX3522020-01-01ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522020-01-01ifrs-full:StatutoryReserveMember52990007AXNSS4PNX3522020-01-01ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522020-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522020-01-01ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522020-01-01ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:CapitalReserveMember52990007AXNSS4PNX3522019-12-3152990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:StatutoryReserveMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522020-12-31ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522020-12-31ifrs-full:IssuedCapitalMemberifrs-full:CapitalReserveMember52990007AXNSS4PNX3522020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522020-12-31ifrs-full:IssuedCapitalMemberifrs-full:StatutoryReserveMember52990007AXNSS4PNX3522018-12-3152990007AXNSS4PNX3522020-12-31ifrs-full:ReserveOfCashFlowHedgesMember52990007AXNSS4PNX3522020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990007AXNSS4PNX3522020-12-31ifrs-full:RetainedEarningsMember52990007AXNSS4PNX3522020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember52990007AXNSS4PNX3522019-01-01ifrs-full:IssuedCapitalMember52990007AXNSS4PNX3522019-01-01ifrs-full:CapitalReserveMember52990007AXNSS4PNX3522019-01-01ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember52990007AXNSS4PNX3522019-01-01ifrs-full:StatutoryReserveMemberiso4217:EURiso4217:EURxbrli:shares Contents REPORT BY THE BOARD OF DIRECTORS 2 Non-financial statement 19 Key ratios of the Group 23 CONSOLIDATED FINANCIAL STATEMENTS 28 Consolidated Income Statement 29 Consolidated Statement of Comprehensive Income 29 Consolidated Balance Sheet 30 Consolidated Statement of Cash Flows 31 Consolidated Statement of Changes in Equity 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33 General information 33 1. Operating result 36 1.1. Revenues from operations 36 1.2. Segment information 37 1.3. Other operating income 39 1.4. Materials and services 39 1.5. Employee benefit expenses 39 1.6. Other operating expenses 40 1.7. Depreciation, amortisation and impairment 40 1.8. Research and development expenditures 40 2. Operative assets and liabilities 41 2.1. Goodwill and other intangible assets 41 2.2. Property, plant and equipment 45 2.3. Leases 47 2.4. Inventories 48 2.5. Contract assets and liabilities (current) 48 2.6. Trade and other receivables (current) 48 2.7. Employee benefit obligations 49 2.8. Trade and other payables 49 2.9. Provisions 50 3. Financial items and capital structure 51 3.1. Finance income and expenses 52 3.2. Financial assets and liabilities 53 3.2.1. Financial assets 53 3.2.2. Financial liabilities 54 3.2.3. Classification and fair values of financial assets and liabilities 56 3.3. Derivative instruments and hedge accounting 58 3.4. Equity 60 4. Financial and capital risk 62 4.1. Financial risk management 62 4.2. Capital risk management 68 5. Consolidation 69 5.1. General consolidation principles 69 5.2. Subsidiaries 70 5.3. Associated companies and joint arrangements 71 6. Other notes 73 6.1. Income tax expense 73 6.2. Collaterals, commitments and contingent assets and liabilities 78 6.3. Related party transactions 79 6.4. Share-based payments 80 6.5. Adoption of new or amended IFRS standards and interpretations 81 6.6. Events after the reporting period 82 PARENT COMPANY FINANCIAL STATEMENTS 83 Altia Plc Income Statement (FAS) 83 Altia Plc Balance Sheet (FAS) 84 Altia Plc Statement of Cash Flows (FAS) 86 Notes to Altia Plc Financial Statements 87 BOARD OF DIRECTORS’ PROPOSAL FOR THE DISTRIBUTION OF PROFITS 96 THE AUDITORS’ NOTE 96 THE AUDITORS’ REPORT 97 Part of the Financial Statements SYMBOLS Accounting Critical estimates and management judgements For important information for U.S. shareholders, please see “Important Information” on page 27. Annual Report 2020 Report by the Board of Directors Annual Report 20203 A ltia is a leading Nordic alcoholic beverage brand company operating in the wines and spirits markets in the Nordic coun- tries, Estonia and Latvia. Altia produces, imports, markets, sells and distributes both own and partner brand beverages. Altia has also production in Cognac, France. Further, Altia exports al- coholic beverages to approximately 30 countries. Last year was exceptional for Altia, with the outbreak of COVID-19 into a global pandemic and the challenges it brought to Altia’s business. In 2020, Altia’s net sales decreased by 4.4% in constant currencies. The decline was largely driven by the negative impacts of COVID-19 restrictions on travel retail, exports and on-trade sales channels and contract manufacturing volumes. Following these restrictions, consumers have shifted purchases to the monopolies. In the Finland & Exports segment, net sales declined from the previous year due to the sales drop in travel retail and exports, while Altia’s net sales in the monopoly Report by the Board of Directors 2020 channel grew, driven by strong spirits sales. In the Scandinavia segment, net sales grew from the previous year driven by strong sales in the monopolies offsetting the decline in on-trade. In Altia Industrial, net sales declined due to lower contract manufacturing volumes, while ethanol sales saw demand-driven growth. In 2020, Altia’s profitability improved from the previous year with comparable EBITDA increasing by 17.1% or EUR 7.6 million to EUR 52.4 million. As a result of this positive development, Altia has reached its long-term financial target with a comparable EBITDA margin of 15.3%. The drivers for the exceptionally strong profitability development were the Altia Industrial segment, the positive channel mix, and Group-wide cost savings measures. Altia’s financial position has been solid throughout the whole year with good cash flow development and strong liquidity. Net cash flow from operations improved to EUR 56.1 (52.6) driven by the positive development of working capital. KEY RATIOS 2020 2019 2018 Net sales, EUR million 342.4 359.6 357.3 Comparable EBITDA, EUR million 52.4 44.8 40.0 % of net sales 15.3 12.4 11.2 EBITDA, EUR million 40.3 43.1 34.0 Comparable operating result, EUR million 35.0 26.8 25.6 % of net sales 10.2 7.5 7.2 Operating result, EUR million 22.9 25.1 19.7 Result for the period, EUR million 17.8 18.4 15.1 Earnings per share, EUR 0.49 0.51 0.42 Net cash flow from operating activities, EUR million 56.1 52.6 6.5 Net debt / comparable EBITDA -0.1 0.6 1.2 Average number of personnel 650 682 718 Annual Report 20204 Market development Nordic monopoly market The exceptionally high market volumes in the Nordic monopolies were related to the channel shift following the COVID-19 restrictions. During the year, governments and health authorities issued travel and social gathering restrictions, as well as limitations on the sales of alcoholic beverages and number of customers in the on-trade outlets. Following these restrictions, consumers shifted purchases of alcoholic beverages from travel retail and the on-trade to the monopolies. In 2020, the market volumes in the Nordic monopolies grew by a total of 17.1%. Spirits market volumes grew by 18.5%, and the channel shift was seen in premium spirits brands, which are normally widely sold in travel retail, for example. Wine market volumes grew by 16.9%, and within wines, the share of bag-in-boxes grew. Finland In 2020, the Finnish retail monopoly’s spirits and wine sales volumes were up by 13.7% compared with the previous year. Spirits market volumes grew by 10.4%, with growth in all categories. The high growth categories were gin, whiskies, rum and grape spirits. Wine market volumes grew by 15.0%. The large red and white wine categories grew by 15.2% and 17.1% respectively. Rosé wines grew by 39.7%. Sweden In 2020, the Swedish retail monopoly’s spirits and wine volumes were up by 10.0% compared with the previous year. Spirits market volumes grew by 18.8%. The high growth categories were gin, whiskies, rum and bitters. The aquavit category declined. Wine market volumes grew by 9.2%. The large red and white wine categories grew by 6.8% and 10.0% respectively. Rosé wines grew by 22.1%. Norway In 2020, the Norwegian retail monopoly’s spirits and wine volumes were up by 40.4% compared with the previous year. Spirits market volumes grew by 32.1%, with growth in all categories. The high growth categories were gin, rum, aquavit and whiskies. Wine market volumes grew by 41.8%. The large red and white wine categories grew by 40.3% and 44.2% respectively. Rosé wines grew by 72.5%. Strategy and financial targets Altia’s refined strategy was published in February 2020. The strategic choices support Altia’s profitable growth ambitions and strengthen Altia’s position as one of the most sustainable spirits companies and a leading Nordic drinks house: • Strengthen Nordic market leadership in grain-based spirits • Boost Nordic channel excellence of Altia’s own brands and partner business execution • Take Altia’s core spirit brands to new markets • Unlock value potential of Altia Industrial. Financial targets Altia’s long-term financial targets have remained unchanged: • Comparable EBITDA margin of 15% in the long-term • Annual net sales growth of 2 per cent over time (CAGR) • The target is to keep reported net debt in relation to comparable EBITDA below 2.5x in long-term Dividend policy Altia pursues an active dividend policy, and the result of the period not considered necessary to grow and develop the Company will be distributed to the shareholders. According to the dividend policy, the Company targets a dividend pay-out ratio of 60% or above of the result for the period. Key events Refined strategy In February, Altia published its refined strategy, in which the long-term strategic focus areas and growth ambitions were reviewed. The refined strategy strengthens Altia’s position as one of the most sustainable spirits companies and a leading Nordic drinks house. The long-term financial targets remained unchanged. Altia and Arcus merger In 2020, the strategically most important milestone was the announcement of the merger between Altia and Arcus. In September, Altia and Arcus jointly announced the merger plan to form a leading Nordic wine and spirits brand house: Anora Group. Altia’s Extraordinary General Meeting approved the merger plan on 12 November 2020. Customary regulatory approvals are needed before the completion of the merger. On 15 December, 21 December 2020 and 8 January 2021, respectively, Altia published stock exchange releases about the decisions by the Swedish, Norwegian and Finnish competition authorities to move their investigations into phase II. The possibility of competition authority investigations moving into phase II has been considered DEVELOPMENT OF WINE AND SPIRITS SALES VOLUMES IN THE NORDIC RETAIL MONOPOLIES % change compared to previous year 2020 2019 Nordic monopolies in total +17.1 +0.1 Spirits +18.5 +1.0 Wine +16.9 -0.1 Finland, total sales +13.7 -2.9 Spirits +10.4 -2.1 Wine +15.0 -3.2 Sweden, total sales +10.0 +1.0 Spirits +18.8 +3.9 Wine +9.2 +0.7 Norway, total sales +40.4 +0.4 Spirits +32.1 +1.6 Wine +41.8 +0.2 Source: Based on sales volumes by litre published by Alko, Systembolaget, Vinmonopolet. Annual Report 20205 in the expected closing schedule, and hence Altia and Arcus continue to expect to obtain the merger control approvals and to complete the merger during the first half of 2021. Successful innovations During 2020, Altia’s innovations in its key spirits brands such as Koskenkorva Vodka, Explorer Vodka and O.P. Anderson Aquavit were successful in international competitions. The success culminated in receiving the “Vodka Producer of the Year” award from the International Spirits Challenge. The award further strengthens Altia’s position as the Nordic innovation role model in the beverage industry. Strengthening partnerships Altia and Brown-Forman renewed the Finlandia Vodka production agreement. The renewed agreement runs until 2035 and continues a long-lasting strategic collaboration between Altia and Brown- Forman, which began in 2000. Altia and Distell renewed their contract for the distribution and marketing of Distell’s brands in Sweden, Finland, Norway and travel retail in the Nordics. Distell and Altia have had a long collaboration with each other for nearly two decades. Altia partnered with Underberg to enter the German market with Koskenkorva Vodka and O.P. Anderson Aquavit. The long-term partnership includes the sales, marketing and distribution of Koskenkorva Vodka Original and O.P. Anderson Original Aquavit. The wine portfolio in Finland was strengthened with new distribution agreements with two German wine producers: F. W. Langguth Erben GmbH & Co. KG and Leitz Weingut. Altia Industrial: continuous improvement A new fuel silo was commissioned at the Koskenkorva plant, which further increases the share of renewable energy in the plant’s energy production. The investment can help achieve a 20 per cent annual decrease in carbon dioxide emissions, which takes Altia one step closer to its target of carbon- neutral production by 2025. The Koskenkorva Distillery has run at full capacity and reached a record-high volume of grain consumption. Ethanol production grew significantly. Driven by the COVID-19 pandemic, technical ethanol volumes at the Rajamäki technical ethanol plant were at an exceptionally high level due to the increased demand for hand sanitisers. A de-alcoholisation production process was implemented at the Rajamäki alcoholic beverage plant. Accelerating digital experiences In 2020, Altia’s digital platforms viinimaa.fi, folkofolk.se and nordicspirits. com have reached record-high site traffic, supported by targeted long- term development work. Further, driven by the COVID-19 pandemic, brand experiences were moved to online environments and brand activation focused on digital content such as tastings as remote events. Leading the way in sustainable packaging In 2020, Altia’s first products packed in rPET bottles that include recycled plastic were introduced. Altia’s aim is to increase the content of recycled plastic in PET bottles to 100% by 2030, compared with the EU requirement of 30% by 2030. Sustainability rating In April, Altia’s sustainability work was recognised with a Gold Medal in the EcoVadis Corporate Social Responsibility rating. Financial review Seasonality There are substantial seasonal fluctuations in the consumption of alcoholic beverages impacting net sales and cash flow of Altia. The company typically generates large amounts of its revenue and cash flow during the fourth quarter of the year, whereas the first quarter of the year is significantly lower. In addition, excise taxes related to the high season at the end of the year are paid in January, resulting in large cash outflows at the beginning of the year. Net sales In 2020, Altia’s reported net sales decreased by 4.8% to EUR 342.4 (359.6) million. In constant currencies, net sales decreased by 4.4%. The net sales decline is due to the significant negative COVID-19 impacts on sales in travel retail, exports and on-trade channels as well as on contract manufacturing volumes. Furthermore, the lower barley price in Altia Industrial and the business model change in Denmark (Q2 2019) have impacted net sales negatively. Net sales of beverage products NET SALES BY SEGMENT EUR million 2020 2019 Change, % Finland & Exports 117.2 128.6 -8.9 Scandinavia 123.9 120.7 2.7 Altia Industrial 101.2 110.2 -8.2 Total 342.4 359.6 -4.8 NET SALES BY PRODUCT CATEGORY EUR million 2020 2019 Change, % Spirits 119.1 121.3 -1.8 Wine 119.5 124.9 -4.4 Other beverages 2.5 3.1 -19.7 Industrial products and services 101.2 110.2 -8.2 Total 342.4 359.6 -4.8 Annual Report 20206 COMPARABLE EBITDA BY SEGMENT EUR million 2020 2019 Finland & Exports 19.8 20.6 Scandinavia 14.2 12.1 Altia Industrial 17.9 11.4 Other 0.5 0.7 Total 52.4 44.8 % net sales 15.3 12.4 ITEMS AFFECTING COMPARABILITY EUR million 2020 2019 Comparable EBITDA 52.4 44.8 Net gains or losses from business and assets disposals - 0.1 Cost for closure of business operations and restructurings -0.3 -0.2 Major corporate projects Costs related to the closed voluntary pension scheme -0.5 -1.6 Costs related to the merger plan of Altia and Arcus -11.4 - Total items affecting comparability -12.1 -1.7 EBITDA 40.3 43.1 decreased by 2.7% in constant currencies. Altia’s net sales in all three monopolies increased supported by the high market volumes. Spirits sales in the monopolies grew but this did not offset the decline in travel retail, exports and on-trade sales due to COVID-19. In wine, net sales decreased from last year’s level, driven by partner portfolio changes in Q2 2020 and the release of a tax provision (EUR 0.5 million) in Q2 2019. The net sales decline in Other beverages was due to partner portfolio changes last year (Q3 2019). Profitability and result for the period In 2020, comparable EBITDA, i.e. EBITDA excluding items affecting comparability (IAC), was EUR 52.4 (44.8) million, which is 15.3% (12.4%) of net sales. Items affecting comparability totalled EUR -12.1 (-1.7) million and were mainly related to the Altia and Arcus merger plan. Reported EBITDA was EUR 40.3 (43.1) million. In 2020, the improvement in comparable EBITDA amounted to EUR 7.6 million. The drivers for the solid profitability development were the Altia Industrial segment, strong sales and continued revenue management in the monopolies, as well as Group-wide cost savings measures related to COVID-19. In Altia Industrial, the significant improvement was related to strong ethanol sales, supply chain efficiencies and the lower barley price during the first nine months of the year. The release of a tax provision (EUR 0.5 million) in Q2 2019 and the sale of emission rights (EUR 0.8 million) in 2019 impacts year-on-year comparison negatively. Other operating income amounted to EUR 6.2 (7.6) million, including income from the sales of emission allowances of EUR - (0.8) million; income from the sales of mainly steam, energy and water of EUR 3.3 (3.4) million, and rental income of EUR 1.4 (1.3) million. Employee benefit expenses totalled EUR 49.1 (45.9) million, including EUR 38.1 (34.2) million in wages and salaries. Of the employee benefit expenses EUR 2.0 (-) million were related to the Altia and Arcus merger plan and have been classified as items affecting comparability (IAC) in the comparable EBITDA calculation. Other operating expenses amounted to EUR 66.6 (65.0) million. Of the other operating expenses EUR 9.3 (-) million were related to the Altia and Arcus merger plan and have been classified as items affecting comparability (IAC) in the comparable EBITDA calculation. Cost savings were made in marketing, travel and representation, and purchased services due to COVID-19. Net financial expenses amounted to EUR 2.9 (2.2) million. The share of profit in associates and income from interests in joint operations totalled EUR 1.2 (1.6) million. Taxes for the reporting period were EUR 3.5 (6.2) million corresponding to a tax rate of 16.5 % (25.1%). The higher tax rate in the comparison period was related to a tax provision related to the outcome of a tax audit in France and to Denmark where no deferred tax asset was booked related to the loss from the restucturing in spring 2019. The result for the period amounted to EUR 17.8 (18.4) million, and earnings per share were EUR 0.49 (0.51). Cash flow, balance sheet and investments In 2020, net cash flow from operations totalled EUR 56.1 (52.6) million. The improvement of net cash flow from operations was driven by the positive development of working capital. The higher sales to the monopolies impacted net working capital development positively due to increased amounts of sold receivables in Finland and Sweden, and also due to increased amounts of excise taxes and VAT payable. The receivables sold amounted to EUR 91.9 (76.7) million at the end of the period. At the end of the reporting period, the Group’s net debt amounted to EUR -3.9 (28.9) million. Cash and cash equivalents amounted to EUR 130.7 (64.2) million while the interest-bearing debt amounted to EUR 126.8 (93.1) million. Gearing at the end of the reporting period was -2.5% (19.1%) and the equity ratio was 34.3% (37.8%). The reported net debt to comparable EBITDA was -0.1 (0.6) times. The Group has a revolving credit facility of EUR 60.0 (60.0) million, of which EUR 0.0 (0.0) million was in use at the end of the reporting period. The nominal value of commercial papers issued amounted to EUR 40.0 (0.0) million at the end of the reporting period. Altia Group’s liquidity position has been strong throughout the period due to the positive development of operational cash flow and the actions to secure liquidity during the pandemic by issuing commercial papers. Annual Report 20207 The total in the consolidated balance sheet was EUR 455.6 (400.2) million at the end of the period. The growth of the total balance sheet is related to the excess cash position maintained by the Group following commercial paper issues and a strong operational cash flow. In 2020, gross capital expenditure totalled EUR 7.0 (6.8) million. At the Rajamäki alcoholic beverage plant production process investments such as the de-alcoholisation process were completed. The investment in a new bag-in-box line was initiated with expected ramp-up in Q1 2021. At the Koskenkorva plant, the investment in a new fuel silo was completed according to Altia’s long-term plan to reduce CO 2 emissions. Furthermore, a number of maintenance and safety related investments were carried out at the Rajamäki and Koskenkorva plants. BALANCE SHEET KEY FIGURES EUR million 2020 2019 Reported net debt / comparable EBITDA -0.1 0.6 Borrowings, EUR million 116.1 82.6 Net debt, EUR million -3.9 28.9 Equity ratio, % 34.3 37.8 Gearing, % -2.5 19.1 Capital expenditure, EUR million -7.0 -6.8 Total assets, EUR million 455.6 400.2 Impacts of COVID-19 The COVID-19 restrictions have a significant impact on Altia’s operating environment and sales channels. The predictability is low due to the continuously shifting restrictions and hence forecasting is difficult. The key impacts and uncertainties of COVID-19 are described below. Consumer beverages (Finland & Exports and Scandinavia segments) • Of Altia’s beverage sales channels, travel retail, exports and on-trade are restricted or closed due to COVID-19 restrictions. • Despite consumers shifting purchases of alcoholic beverages to the sales to monopolies have not compensated for the shortfall coming from travel retail, exports and on-trade. • The recovery of travel retail, exports and on-trade depends on the level and extent of government restrictions and recommendations on travelling, social distancing, restaurant opening hours and sales of alcoholic beverages. • The pace of recovery is difficult to estimate. It is affected by changes in consumer behaviour and expected to vary across sales channels: on-trade channels could be expected to recover faster than travel retail. • Uncertainty in the sales to the monopoly channel is related to 1) the monopoly channel remaining open and continuing normal operations which could be dependent on, for example, the health of the monopolies’ personnel and political decision- making, and to 2) Altia’s ability to deliver products. Altia Industrial • Uncertainty is high both in industrial products and services. The demand for starch has weakened due to the decreased demand for printing paper. The ethanol market is expected to stay tight but stable. Due to the continued increased demand for ethanol on global markets, purchase prices for imported ethanol have increased, lowering technical ethanol margins. The impact of COVID-19 on volumes in industrial services is expected to continue. • Uncertainty in Altia’s ability to deliver to the beverage sales channels (monopolies and grocery trade) is related to the availability of products and raw materials such as bulk wine, dry goods and partner goods. • The risks related to the health and safety of Altia’s employees in Altia’s production and logistics operations remain high. The risk for supply chain disturbances continues to be high. Uncertainty concerning the availability of machinery spare parts and the maintenance workforce continues. Measures to adjust cost structure • Close follow-up of sales and profitability development continues, and additional cost savings actions are implemented when necessary. Group financial position • COVID-19 may impact Altia’s financial position in many ways and increase the uncertainty related to the values of its assets. Due to this Altia has assessed the impact of the pandemic on its financial position and has considered the values of assets and liabilities that include critical accounting estimates and require management judgement. The identified and expected effects have been taken into consideration in the reported figures and in the forecasts requiring management judgement. • The value of inventory is monitored on a regular basis also for slow moving items. COVID-19 has not had a material impact on the value of inventory. • The credit risk of trade receivables and the amount of bad debt provision have beeen analysed thoroughly at the end of reporting period with the conclusion being there is sufficient provision in place. • The strict focus on net working capital management with issuing commercial papers ensured that Altia’s liquidity position was good throughout the review period. Annual Report 20208 Business review Finland & Exports The Finland & Exports segment comprises the import, sale and marketing of wines, spirits and other beverages in Finland and the Baltics, as well as exports and travel retail. 2020 2019 Change, % Net sales, EUR million 117.2 128.6 -8.9 Comparable EBITDA, EUR million 19.8 20.6 -3.7 Comparable EBITDA, % of net sales 16.9 16.0 Average number of personnel 90 89 EUR million 2020 2019 Change, % Spirits 67.6 75.1 -10.0 Wine 48.3 52.5 -7.9 Other beverages 1.3 1.0 26.3 Total 117.2 128.6 -8.9 Net sales In 2020, net sales in the Finland & Exports segment were EUR 117.2 (128.6) million, down by 8.9% from the previous year. The net sales decline was due to the sales drop in travel retail, exports and on-trade where the negative impact of COVID-19 was signficant. Spirits sales declined due to travel retail and exports, and wine sales declined due to partner portfolio changes in Q2 2020 and the release of a tax provision (EUR 0.5 million) in Q2 2019. In Finland, the market volumes in the monopoly were high as consumers shifted purchases from the restricted sales channels to the monopoly. Altia’s net sales in the monopoly grew from the previous year, driven by strong spirits sales. In the Finnish grocery trade, net sales grew steadily driven by new launches and improved distribution. In the Baltics, the positive development in the domestic grocery trade offset the decrease in harbour and border trade. Comparable EBITDA In 2020, comparable EBITDA was EUR 19.8 (20.6) million, 16.9% (16.0%) of net sales. The positive channel mix, revenue management and implemented cost savings have partly offset the negative impact of lost volumes due to COVID-19 which drives full-year profitability below last year’s level. The release of a tax provision (EUR 0.5 million) in Q2 2019 impacts year- on-year comparison negatively. Business events In 2020, Altia launched several new innovations in Finland. The Koskenkorva brand was extended with for example Koskenkorva 7 Botanicals and Koskenkorva Espresso, Lemon and Mojito liqueurs. The Leijona brand was extended with new mild spirits such as Leijona Bahama Mango Mojito, and Jaloviina successfully launched Jaloviina Hanki liqueur through order assortment. In the grocery trade, both the Koskenkorva and Leijona brands were extended with new products such as the Koskenkorva Green, the first organic ready-to-drink product in the Koskenkorva RTD offering. Leijona RTD offering launched a new packaging design and three new flavours. In Q2, Altia partnered with Underberg to enter the German market with Koskenkorva Vodka and O.P. Anderson Aquavit. The long-term partnership includes the sales, marketing and distribution of Koskenkorva Vodka Original and O.P. Anderson Original Aquavit. The launch was slowed down by the significant lockdowns in Germany, but in Q4 the distribution footprint in the retail channel expanded with a number of new listings. The wine portfolio in Finland was strengthened with new distribution agreements with two German wine producers: F. W. Langguth Erben GmbH & Co. KG and Leitz Weingut. The targeted long-term work, change in consumer behaviour, and COVID-19 supported a strong development of Altia’s digital platforms viinimaa.fi and nordicspirits.com, and visits to both sites increased significantly. This further strengthens Viinimaa’s position as a leading wine marketing platform in Finland. During 2020, Altia arranged virtual events such as online tastings for customers, consumers, journalists and influencers. The Nordic Spirits site, Altia’s ecommerce sales channel in Germany, was further developed and a direct sales channel in Amazon was opened. In Finland, Altia has supported its on- trade customers, that have been hit by the COVID-19 crisis, through different campaigning, for example, in social media. Annual Report 20209 Scandinavia The Scandinavia segment comprises the import, sale and marketing of wines, spirits and other beverages in Sweden, Norway and Denmark. 2020 2019 Change, % Net sales, EUR million 123.9 120.7 2.7 Comparable EBITDA, EUR million 14.2 12.1 18.0 Comparable EBITDA, % of net sales 11.5 10.0 Average number of personnel 74 74 EUR million 2020 2019 Change, % Spirits 51.5 46.2 11.5 Wine 71.2 72.4 -1.7 Other beverages 1.2 2.1 -42.2 Total 123.9 120.7 2.7 Net sales In 2020, net sales in the Scandinavia segment were EUR 123.9 (120.7) million, up by 2.7% from the previous year. In constant currencies, net sales grew by 3.9%. The net sales growth was supported by the high market volumes in the monopolies as consumers have shifted purchases to the monopolies due to COVID-19. In Sweden, Altia’s net sales grew driven by strong spirits sales in the monopoly, while wine sales were negatively impacted by partner portfolio changes in Q2 2020. In Norway, net sales grew in both wine and spirits, driven by market volumes in the monopoly. The net sales decline in Other beverages is due to partner portfolio changes (Q2 2019). The business model change in Denmark (Q2 2019) impacted net sales negatively. Comparable EBITDA In 2020, comparable EBITDA was EUR 14.2 (12.1) million, 11.5% (10.0%) of net sales. Profitability improvement was driven by all three markets. In Sweden and Norway, the growth in monopoly sales and revenue management supported profitability improvement. In Denmark, the profitability improvement is related to the business model change (Q2 2019). Comparable EBITDA was impacted negatively by the development of the Norwegian krona. Business events In 2020, Altia made several product launches in Sweden and Norway during the period. To address the growing gin category, Altia launched Hernö Pink Gin, Explorer Pink Gin, and under the O.P. Anderson brand, an organic dry gin. Koskenkorva liqueurs such as Koskenkorva Ginger and Lemon were introduced. The Xanté brand was extended with Xanté Rum & Pear and Coconut Cream & Pear liqueurs. Ahead of the glögg season, new exciting novelties were launched in the Blossa offering: the annual Blossa 2020 and a new flavour “Blossa Saffran”. Altia received reports of few broken Blossa Sparkling bottles in the fourth quarter. There were no injuries in connection with these. Altia’s highest priority is the high quality and safety of its products, so as a precautionary measure, all Blossa Sparkling products were withdrawn from stores. No other Blossa products were concerned. Altia and Distell renewed the contract for the distribution and marketing of Distell’s brands in Sweden, Finland, Norway and travel retail in the Nordics. Distell and Altia have had a long collaboration with each other for nearly two decades. With COVID-19 and the on-trade business being hit significantly, Altia established a scholarship – Altia krOgfolk-hjälpen – directed at employees in the restaurant business and those who have been hit by COVID-19. The scholarship provides financial support for professional training. In 2020, folkofolk.se further strengthened its position as Sweden’s leading lifestyle wine and spirits marketing platform. The site traffic to folkofolk.se reached an all-time high and visits more than doubled from the previous year. This is a result of the targeted development work on search engine optimisation, user experience and content. Annual Report 202010 Altia Industrial The Altia Industrial segment comprises Koskenkorva plant operations, starch, feed component and technical ethanol businesses, as well as contract manufacturing services. It also includes supply chain operations, i.e. production operations in different countries, customer service, logistics and sourcing. 2020 2019 Change, % Net sales, EUR million 101.2 110.2 -8.2 Comparable EBITDA, EUR million 17.9 11.4 56.5 Comparable EBITDA, % of net sales 17.6 10.4 Average number of personnel 404 426 Net sales In 2020, net sales in the Altia Industrial segment were EUR 101.2 (110.2), down by 8.2% from the previous year. The net sales decline was driven by the decrease of contract manufacturing volumes due to COVID-19. The demand for technical ethanol has been strong during the COVID-19 pandemic, and Altia’s volumes have been at a higher level compared to the previous year. Starch was negatively impacted by lower volumes due to a weak demand for printing paper and the lower barley price during the first nine months of the year. Comparable EBITDA In 2020, comparable EBITDA was EUR 17.9 (11.4) million, 17.6% (10.4%) of net sales. The improvement in profitability was related to the positive development of technical ethanol and improved supply chain efficiencies as well as the lower barley price during the first nine months of the year. Production volumes and key projects During 2020, the Rajamäki alcoholic beverage plant in Finland produced 56.8 (65.8) million litres of spirits and wine. In 2020, the Koskenkorva Distillery reached all-time high volume of grain consumption and significant growth in ethanol production. The plant has run at full capacity during the period and 214 (212) million kilos grain was consumed. Grain spirits production was 23.4 (22.2) million kilos including technical ethanols, starch production was 64.1 (65.1) million kilos, and feed component production was 66.4 (65.6) million kilos. A new fuel silo was commissioned at the Koskenkorva plant which further increases the share of renewable energy in the plant’s energy production. At an annual level, the investment can help Altia achieve a 20 per cent decrease in carbon dioxide emissions, which takes Altia one step closer to its target of carbon-neutral production by 2025. At the Rajamäki alcoholic beverage plant a de-alcoholisation production process was implemented. This new capability strengthens Altia’s opportunities to launch new low-alc and non-alc products in line with our long-term sustainability target. Altia and Brown-Forman renewed the Finlandia Vodka production agreement. The renewed agreement runs until 2035. Annual Report 202011 Research and development activities The Group’s direct research and development expenditure amounted to EUR 1.6 (2.3) million and was related to the product development of alcoholic beverages. Governance Corporate Governance and Remuneration Statement 2019 Altia’s Corporate Governance Statement and the Remuneration Statement for 2019 were published together with the Report by the Board of Directors on 2 March 2020 and are available on the company’s website. Annual General Meeting 2020 Altia’s Annual General Meeting was held in Helsinki on 4 June 2020. The meeting adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2019. The meeting approved the proposal by the Board of Directors to pay a dividend of EUR 0.21 per share. The dividend was paid on 15 June 2020. Further, the AGM authorised the Board of Directors to resolve on the payment of dividend up to EUR 0.21 per share. On 16 November 2020, the Board of Directors decided based on the authorisation by the AGM on the payment of a second dividend instalment of EUR 0.21 per share for the financial year 2019. The dividend was paid on 25 November 2020. The AGM also adopted the Remuneration Policy for the governing bodies of the company. Board of Directors and Board Committees Based on the proposals by the Shareholders’ Nomination Board, the meeting approved the number of members of the Board of Directors to be seven. The meeting re-elected Sanna Suvanto-Harsaae as Chairman of the Board of Directors and Tiina Lencioni, Jukka Ohtola, Anette Rosengren and Torsten Steenholt as members of the Board of Direcotrs. Jyrki Mäki-Kala and Jukka Leinonen were elected as new members. Jyrki Mäki-Kala was further elected as Vice Chairman of the Board of Directors. The term for the members of the Board of Directors lasts until the end of the next Annual General Meeting. Based on the proposal by the Shareholders’ Nomination Board, the meeting decided that the remuneration to the members of the Board of Directors during the next term consists of a monthly term of office fee as follows: • EUR 4 000 per month, Chairman • EUR 2 500 per month, Vice Chairman • EUR 2 000 per month, member In addition to the monthly fee, the members of the Board of Directors receive a meeting fee for the Board of Directors and Board Committee meetings of EUR 600 per meeting for Board members residing in Finland and EUR 1 200 per meeting for Board members residing abroad. Travel expenses are reimbursed in accordance with the company’s travel policy. Altia’s Board of Directors held its organisational meeting after the Annual General Meeting and elected members of the Audit and Human Resources Committees as follows: • Audit Committee: Jyrki Mäki- Kala (Chairman), Tiina Lencioni, Torsten Steenholt and Sanna Suvanto-Harsaae • Human Resources Committee: Sanna Suvanto-Harsaae (Chairman), Jukka Leinonen and Jukka Ohtola The Board of Directors has assessed that all members of the Board of Directors are independent of the company. Furthermore, all members of the Board of Directors, with the exception of Jukka Ohtola, are independent of the company’s significant shareholders. Jukka Ohtola holds an office in the Ownership Steering Department of the Finnish Prime Minister’s Office and is therefore not independent of a significant shareholder of the company. Auditor In accordance with the recommendation by the Audit Committee, the Annual General Meeting re-elected PricewaterhouseCoopers Oy as the company’s auditor for a term that ends at the close of the next Annual General Meeting. PricewaterhouseCoopers Oy has informed the company that Authorized Public Accountant Ylva Eriksson continues as the auditor in charge. The meeting decided that the auditor’s fees be paid against an invoice approved by the company. Amendment of the Articles of Association The AGM approved the proposal by the Board of Directors to amend the first sentence of Article 4 of the company’s Articles of Association to set the maximum number of members of the Board of Directors of the company at eight members instead of the current seven members, as follows: “The company’s Board of Directors shall comprise a minimum of three (3) and a maximum of eight (8) members.” Article 4 of the Articles of Association remains otherwise unchanged. Further, the AGM approved that Article 11 of the company’s Articles of Association is amended so that the Annual General Meeting shall decide, in addition to the items that currently appear from Article 11, also on the adoption of the remuneration policy when necessary, and on the adoption of the remuneration report. Article 11 of the Articles of Association remains otherwise unchanged. Authorisation of the Board of Directors to resolve on the repurchase of the company’s own shares The AGM approved the Board’s proposal to authorise the Board of Directors to resolve on the repurchase of the company’s own shares. The number of shares to be repurchased by virtue of the authorisation shall not exceed 360,000 own shares in the company, which corresponds to approximately one percent of all the company’s shares at the time of the proposal, subject to the provisions of the Finnish Companies Act on the maximum amount of shares owned by the company or its subsidiaries. The shares may be repurchased in one or several instalments and either through Annual Report 202012 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 shares can be repurchased for the purpose of implementing the company’s share-based incentive plans or share savings plans. The Board of Directors was authorised to resolve on all other terms and conditions regarding the repurchase of the company’s own shares. The authorisation is valid until the close of the next Annual General Meeting, however, no longer than until 30 June 2021. Amendment of the charter of the Shareholders’ Nomination Board The AGM approved the proposal by the Shareholders’ Nomination Board to amend section 2 of the charter of the Shareholders’ Nomination Board so that the Value Day is the first banking day of June. Shareholders’ Nomination Board In July, Altia announced that its three largest registered shareholders (shareholder register maintained by Euroclear Finland Ltd as per 1 June 2020) have nominated the following representatives to the Shareholders’ Nomination Board: • Pekka Hurtola, the Ownership Steering Department in the Prime Minister’s Office • Annika Ekman, Ilmarinen Mutual Pension Insurance Company • Hanna Kaskela, Varma Mutual Pension Insurance Company In its organising meeting on 1 July 2020 the Nomination Board elected Pekka Hurtola as its Chairman. The Chairman of Altia’s Board of Directors, Sanna Suvanto-Harsaae acts as an expert member in the Nomination Board. Extraordinary General Meeting 2020 Altia’s Extraordinary General Meeting held on 12 November 2020 approved the merger of Altia and Arcus ASA in accordance with the merger plan approved by the Board of Directors of Altia and Arcus on 29 September 2020. Pursuant to the Merger Plan, Arcus shall be merged into Altia through a statutory cross-border absorption merger so that all assets and liabilities of Arcus shall be transferred without a liquidation procedure to Altia and Arcus will be dissolved. The merger will result in the combined company Anora Group Plc. Group structure In order to simplify the Group structure, Altia Oyj’s Finnish subsidiaries excluding Oy Wennerco Ab were merged to Altia Oyj and all Swedish subsidiaries to Altia Sweden AB as of 30 April 2020. Chief Executive Officer and Group Management On 4 May, it was announced that Altia’s Chief Financial Officer (CFO) and member of the Executive Management Team (EMT), Niklas Nylander had resigned from his position. Niklas Nylander continued in his position and as a member of the Executive Management Team until 19 August 2020. On 31 December 2020, the EMT consisted of the following members: • Pekka Tennilä, CEO • Janne Halttunen, SVP, Scandinavia • Kari Kilpinen, SVP, Finland & Exports • Kirsi Lehtola, SVP, HR • Kirsi Puntila, SVP, Marketing • Hannu Tuominen, SVP, Altia Industrial Juhana Jokinen has acted as the interim CFO and is a member of the extended EMT. Altia’s share Altia’s shares are listed on the Nasdaq Helsinki. All shares carry one vote and have equal voting rights. The trading code of the shares is “ALTIA”, and the ISIN code is FI4000292438. Share capital and share At the end of the reporting period, Altia Plc's share capital amounted to EUR 60 480 378.36 and the number of issued shares was 36 140 485. Shareholders and share trading At the end of December 2020, Altia had 21 083 registered shareholders, and 8 519 390 shares representing 23.6% of the total number of shares were nominee-registered. During 2020, the highest share price was EUR 10.40 and the lowest EUR 7.01. In total, 10 559 865 shares were traded on Nasdaq Helsinki. The closing price of Altia’s share on 30 December 2019 was EUR 9.98, and the market capitalisation was approximately EUR 360.7 million. Dividend payments The Annual General Meeting approved the proposal by the Board of Directors to pay a dividend of EUR 0.21 per share. The dividend was paid on 15 June 2020. Further, the AGM authorised the Board of Directors to resolve on the payment of dividend up to EUR 0.21 per share. On 16 November 2020, the Board of Directors decided based on the authorisation by the AGM on the payment of a second dividend instalment of EUR 0.21 per share for the financial year 2019. The dividend was paid on 25 November 2020. Flagging notifications In 2020, Altia was informed of the following changes in ownership: • On 21 February, Lazard Asset Management LLC notified of their ownership falling below the threshold of 5% with a holding of 4.89% of which 1.55% are shares with voting rights attached. • On 7 October, Lazard Asset Management LLC notified of their ownership exceeding the threshold of 5% with a holding of 5.02% of which 1.47% are shares with voting rights attached. • On 30 October, Lazard Asset Management LLC notified of their ownership falling below the threshold of 5% with a holding of 4.99% of which 1.45% are shares with voting rights attached. Annual Report 202013 • On 5 November, Lazard Asset Management LLC notified of their ownership exceeding the threshold of 5% with a holding of 5.36% of which 1.44% are shares with voting rights attached. • On 18 December, Valtion kehitysyhtiö Vake Oy transferred 13 097 481 shares to the State of Finland. Valtion kehitysyhtiö Vake Oy is a company fully owned by the State of Finland and thereby fully controlled by the State of Finland. Management’s ownership On 31 December 2020, the members of the Board of Directors, the CEO and the members of the Executive Management Team, including their controlled corporations, owned a total of 82 346 shares corresponding to 0.23% of the total number of shares. Authorisations, option and share-based incentive programmes During 2020, Altia did not have share option programmes. Altia’s CEO, the members of the Executive Management Team and selected key employees SECTOR DISTRIBUTION 31 DEC 2020 Sector Number of shares % of shares Public sector 15 641 386 43.3 Financial and insurance corporations 8 984 661 24.9 Households 8 213 480 22.7 Non-financial corporations 2 185 942 6.0 Non-profit institutions 779 565 2.2 Rest of the world 335 451 0.9 Total 36 140 485 100.0 DISTRIBUTION BY SIZE OF HOLDING 31 DEC 2020 Number of shares Number of shareholders % of shareholders Number of shares % of shares 1-100 7 549 35.8 473 808 1.3 101-500 9 618 45.6 2 444 395 6.8 501-1,000 2 350 11.1 1 750 873 4.8 1,001-5,000 1 347 6.4 2 679 716 7.4 5,001-10,000 121 0.6 861 393 2.4 10,001-50,000 72 0.3 1 548 162 4.3 50,001-100,000 9 0.0 678 476 1.9 100,001-500,000 11 0.1 1 744 988 4.8 500,001-& above 6 0.0 23 958 674 66.3 Total 21 083 100.0 36 140 485 100.0 ) Source: Euroclear Finland LARGEST SHAREHOLDERS 31 DEC 2020 Number of shares Number of shares % of shares Prime Minister’s Office 13 097 481 36.2 Ilmarinen Mutual Pension Insurance Company 1 113 300 3.1 Varma Mutual Pension Insurance Company 1 050 000 2.9 WestStar Oy 684 085 1.9 Veritas Pension Insurance Company Ltd. 355 530 1.0 FIM Fenno Sijoitusrahasto 207 908 0.6 Säästöpankki Kotimaa 150 000 0.4 Mandatum Life Insurance Company Limited 146 860 0.4 Petter and Margit Forsström´s Foundation 140 200 0.4 Takanen Jorma 122 617 0.3 Total 17 067 981 47.2 Nominee-registered shares 8 519 390 23.6 are part of a share based, long-term incentive scheme. Altia’s Board of Directors is authorised to resolve on the repurchase of the company’s own shares. The number of shares to be repurchased by virtue of the authorisation shall not exceed 360,000 own shares in the company. The shares could be repurchased for the purpose of implementing the company’s share-based incentive plans or share savings plans. The authorisation is valid until the close of the next Annual General Meeting, however, no longer than until 30 June 2021. By the end of December 2020, the company has not repurchased shares based on this authorisation. Personnel In 2020, Altia Group had an average of 650 (682) employees. On 31 December 2020, Altia Group had 637 (632) employees, of whom 378 (381) were in Finland, 115 (110) in Sweden, 4 (4) in Denmark, 23 (21) in Norway, 34 (31) in Latvia, 58 (60) in Estonia, and 25 (25) in France. There were no significant changes in the number of personnel during the year. As a measure to mitigate the impacts of COVID-19, Altia implemented temporary lay-offs in Finland, Sweden and Norway. The temporary lay-offs affected approximately 180 persons. During the pandemic, the safety of Altia employees was the highest priority, and new practices, instructions and ways of working were implemented. The Altia Tasting personnel survey was conducted in January–February 2020. All indices developed in a positive direction. Based on decided actions, training, e.g. in leadership development, teamwork, self-awareness and feedback, was organised for different teams. Investment continued in developing Annual Report 202014 Altia leaders according to revised leadership principles co-designed during the previous year. Additionally, a change leadership programme was launched. Other training covered e.g. regular induction sessions for new employees and training in technical skills and tools. The holistic Human Factor development programme to improve safety culture continued in 2020, with workshops and training at the Finnish production facilities. The progamme adopts a broader perspective on occupational accidents and the promotion of occupational safety. Altia aims to achieve its goal of zero absences attributable to occupational accidents by 2030. Incentive programmes Short-term and long-term incentives Altia’s salaried, senior salaried employees and management participate in an annual performance incentive scheme. The potential annual reward is based on both the Group’s and its business units’ targets, as well as on personal targets. Rewards are paid either once a year or more frequently as an annual reward or sales bonus. Workers participate in a production bonus system. The production bonuses are based on the targets of each production unit. Based on the result for 2020, no annual performance bonuses were paid. Other bonuses, including the cash- based long-term incentive programme 2017-2019, totalled EUR 1.0 (0.5) million, including social expenses. In connection with the preparation of the Altia-Arcus merger, the project team members were paid an Anora project bonus of EUR 1.1 million due to the extraordinary workload. Share-based incentive scheme Altia’s CEO, the members of the Executive Management Team and selected key employees are part of a share-based, long-term incentive scheme. The objectives of the share-based long- term incentive scheme are to align the interests of Altia’s management and key employees with those of the Company’s shareholders and, thus, to promote shareholder value creation in the long term, and to commit the management and key employees to achieving Altia’s strategic targets as well as the retention of Altia’s valuable key resources. The scheme complements a balanced incentive structure. The scheme consists of annually commencing individual performance share plans (PSP), each with a three-year performance period, followed by the payment of the potentially earned share reward. The commencement of each individual plan is subject to a separate Board approval. The first plan (PSP 2019–2021) commenced in the beginning of 2019 and the potential share reward thereunder will be paid in the spring of 2022, provided that the performance targets set by the Board of Directors are achieved. The potential reward will be paid in listed shares of Altia. Those eligible to participate in the first plan are approximately 20 individuals. If all the performance targets set for PSP 2019–2021 are fully achieved, the aggregate maximum number of shares to be paid based on this first plan is approximately 250 000 shares. The second plan (PSP 2020–2022) commenced in the beginning of 2020 and the potential share reward thereunder will be paid in the spring 2023, provided that the performance targets set by the Board of Directors are achieved. The potential reward will be paid in listed shares of Altia. Those eligible to participate in the second plan are approximately 25 individuals. If all the performance targets set for PSP 2020–2022 are fully achieved, the aggregate maximum number of shares to be paid based on this second plan is approximately 271 000 shares. Sustainability From the beginning of 2020, Altia has been guiding it’s responsibilty efforts according to the Sustainability Roadmap 2030. The roadmap sets ambitious, numerical targets to the four focus areas. The key target is to have carbon neutral production in 2025, without using compensations. Altia's sustainability roadmap has four focus areas, which also include the cornerstones of the previous plan: Our Distillery, Our Drink, Our Society and Our People. The focus areas are based on selected United Nations Sustainable Development Goals (SDGs), Altia’s purpose and strategy, stakeholder expectations, the company’s own operating principles and codes of conduct, as well as the amfori BSCI Code of Conduct, which in turn is based on key international agreements protecting workers’ rights. Altia has joined the amfori BSCI initiative and aims to annually increase the traceability and transparency of product and raw material supply chains. More details can be found in the Non-Financial Statement published in connection with the Report by the Board of Directors and in the Annual Report’s dedicated section on Sustainability. Health, safety and environment Occupational health and safety Occupational safety is a vital part of Altia’s corporate responsibility. Altia aims to reduce the number of accidents and absences caused by accidents and sickness. In 2020, the sickness absence was 4.0% (3.7%). The accident frequency (the number of accidents per one million working hours, excluding commuting) for accidents requiring at least one day of absence was 7 (9). There were no fatal work-related accidents in 2020 (0). The environment and energy efficiency The most significant environmental impacts of Altia’s operations are energy consumption, water consumption, waste water quality, waste generation and the non-quality costs generated from scrapped raw materials, packaging materials and end products. Environmental indicators have been defined to support the reduction of these impacts. Annual targets and related actions were defined for different locations. Organic loading of wastewater decreased at Rajamäki, Tabasalu and Koskenkorva plants during the reporting period. At Koskenkorva, wastewater calculations include also A-Rehu’s amount. A-Rehu operates on Koskenkorva plant area. Water Annual Report 202015 consumption relative to production increased at Rajamäki and decreased at Tabasalu and Koskenkorva. The waste utilisation rate for the Altia production sites in Rajamäki, Koskenkorva and Tabasalu, was 99.5% (99.5%). The bioenergy power plant at Koskenkorva, which uses barley husks as its primary fuel, has enabled the Koskenkorva plant to reduce its carbon dioxide emissions and achieve a 65% (62%) self-sufficiency rate in fuels for steam production in the reporting period. The bioenergy power plant has been operating at full capacity since January 2015. The use of renewable fuel has reduced the Koskenkorva plant’s carbon dioxide emissions by 58% in 2020 compared to the base year 2014 level. Energy efficiency achieved through various energy saving measures is a major development area for the company both in terms of profitability and environmental responsibility. Altia is committed to the Finnish energy efficiency agreement for the period of 2017–2025, with the target to reduce energy consumption by 10% by the year 2025, compared to the base year 2014. As part of the new Sustainability Roadmap, Altia has also committed to 100% renewable energy by 2025. In 2020, energy use relative to production volume decreased at the Koskenkorva plant and increased at the Rajamäki and Tabasalu plants. Risks and risk management Risk management Altia’s risk management aims to support the realisation of the company’s strategy, risk identification, and means to reduce the likelihood and impact of materialised risks, as well as to safeguard business continuity. Risks may be the result of an internal or external event. The Group’s risk management policy has been approved by Altia Plc’s Board of Directors. The risk management policy describes the goals, principles and responsibilities of Altia’s risk management and the related reporting principles. In line with this, the Executive Management Team supports and coordinates risk management as part of the Group’s planning and control processes and reports key risks to the company’s management and Audit Committee. The most significant risks and uncertainties are assessed yearly in the Report of the Board of Directors. Altia’s business areas are responsible for risks related to their operations, as well as for their identification, prevention and key limitation methods. The Group’s finance department manages financial risks according to the hedging principles defined in the company’s financial policy. The management principles of the Group’s most significant financial risks are described in more detail in the Notes to the Consolidated Financial Statements, under section 4.1. Financial risk management. The finance department is also responsible for insurance programmes that cover the entire Group. Altia’s risk management process is based on the ISO 31000 standard and also includes ERM components, as applicable. The Corporate Governance Statement includes information on the risk management process. Most significant risks and uncertainties For reporting and risk assessment purposes, risks are categorised into four classes: strategic and business risks, operational and process-related risks, damage risks and financial risks. The Board of Directors and the Audit Committee assesses these central risks and the measures aiming to reduce the likelihood of their materialisation regularly. Strategic and business risks relate to decision-making, resource allocation, management systems and the capacity to respond to changes in the operating environment (Strategy period: long-term, 3–5 years). Strategic risk assesment comprises also the regulatory framework and ethically sustainable business practices that apply to the company’s operations and industry. Corporate Responsibility risks related to business operations are described in the Non-Financial Statement published in connection with the Report by the Board of Directors. Operational risks concern the implementation of strategy and day- to-day business operations. Such risks include deviations in processes, systems and conduct (Budget period: short-term, 1–2 years). Hazard risks are errors, malfunctions and accidents occurring within Altia or its operating environment, resulting in damage or loss. Financial risks pertain to changes in market prices, the short- and long-term adequacy of financial assets and the ability of counterparties to meet their financial obligations. RISK MANAGEMENT Hazard risks • Health and safety • Property • Environment • Fires, accidents and natural catastrophes Strategic risks • Business environment • Technology • Regulation • Climate change • Reputation • M&A Financial risks • Liquidity • Profitability • Interest rate, currency and credit risks • Taxation risks • Accounting and reporting • Capital structure Operational risks • Organisation, management and personnel • IT and security • Production and processes • Business disruption • Quality • Contractual and liability risks • Compliance Annual Report 202016 The following table contains a summary of key uncertainties with an either positive or negative effect on Altia’s operations: Risk Description Risk management Raw material price risk The availability of domestic barley and its market price has a significant impact on the profitability of Altia’s business. Altia ensures the availability of barley with contract farming and the price of barley in cooperation with farmers and grain companies. Risks related to customers and consumer demand Our customers in Altia’s market areas include Nordic retail monopolies, wholesalers who sell alcohol, restaurants, retail stores, travel retail, international wine and spirits companies and importers operating in the export markets. The wide customer base provides Altia with diverse opportunities for the long-term development of customer cooperation. Changes in consumer behaviour may, in the long term, shift the emphasis in the demand for Altia’s products between different product categories. A strong market position, efficient industrial processes, good quality and well-known brands improve Altia’s chances to manage the risk. Changes in consumption patterns and the need to adjust operations are prepared for by investing in consumer-driven product development. Product safety risks As a wine and spirits company, one major risk is ensuring the quality and safety of the raw materials and finished goods through the supply chain. Altia employs modern methods to ensure the safety of production processes and to eliminate various microbiological, chemical and physical hazards. In ensuring product safety, Altia complies with the operating methods required by food safety management and quality certificates. Damage risks Altia has production facilities in Finland, Estonia and France. A fire or other unforeseen event may interrupt the operations of a production facility. All of our production facilities have insurance policies for material damage and the interruption of operations in the Group’s insurance programme. Key production facilities are subject to a risk survey every 1–2 years. Continuity plans serve to limit any possible loss of profits. Financial risks The key risks related to finance in Altia’s operations are currency transaction and translation risks, interest rate risks and refinancing and liquidity risks. Financial risk management aims to mitigate any impact that price fluctuations and other uncertainties in the financial markets have on operating results, the balance sheet and cash flow and to ensure sufficient liquidity. The management principles of the Group’s most significant financial risks are described in more detail in the Notes to the Consolidated Financial Statements, under section 4.1. (p. 145) Financial risk management. Compliance Key compliance risks in Altia’s operations relate to the breach of laws and regulations and decisions by authorities concerning reporting, permits and licenses, marketing of alcoholic beverages, competition law and processing of personal data. Altia aims to manage compliance risks and ensure ethically sustainable business practices with guidance and regular training. Compliance risk management aims to avoid sanctions, consequences and official investigations and decisions that may damage the company’s profitability, business continuity and reputation. Annual Report 202017 Price risk associated with commodities Barley In 2020, Altia consumed approximately 214 (212) million kilos of Finnish grain to produce ethanol and starch. The availability of high-quality domestic barley is ensured through contract cultivation and cooperation with farmers and grain handling companies. The market price of barley fluctuates significantly year by year as a result of several factors that affect Finnish barley supply and demand. The price of barley is therefore considered to be a significant risk for Altia during the financial year. The price risk has not been hedged against with derivative instruments. Electricity A strong increase in the market price of electricity is a significant risk for Altia. The risk is managed by following Altia’s principles for electricity procurement and by a third-party specialist. These principles determine the hedging limits within which the electricity price risk is hedged against. The hedges are executed with the OTC-derivatives of Nasdaq OMX Oslo ASA. At the end of 2020, the hedging ratio for deliveries for the next 12 months was 74.7% (53.7%), in line with the set targets. In 2020, the average hedging ratio was 72.1% (66.0%). Cash flow hedge accounting in accordance with IFRS 9 is applied to the hedges against electricity price risk, and hedge effectiveness is tested quarterly. All hedging was effective in 2020 as that was in 2019. Altia purchases its electricity straight from the Nord Pool Spot markets as a delivery tied to the spot price of the Finnish price area. Sensitivity to market risks The table below describes the sensitivity of the Group’s profit and equity (before taxes) to changes in electricity prices, foreign exchange rates and interest rates. When Altia applies hedge accounting, the sensitivity is directed at equity. When hedge accounting is not applied, the sensitivity is recognised as a potential impact on profit or loss. The sensitivity to foreign exchange rate changes is calculated from the net currency position resulting from financial instruments. The total group floating rate liability position consists of floating rate liabilities EUR 65.0 (70.0) million and floating leg of interest rate swap EUR 20.0 (20.0) million which is netting the interest rate risk. An increase of one percentage point in interest rates would have an effect of EUR -0.5 (-0.5) million on the income statement. The effect of the increase in market interest rates on the Group’s profit is determined by net interest expenses. Short-term risks and uncertainties The most significant uncertainties in the company’s operations relate to the overall economic development and its impacts on consumption, as well as the effects of alcohol taxes and legislation on consumer behaviour. Unexpected and unforeseen disruptions in production and deliveries form the major short-term risks related to operations, as well as sudden and significant changes in prices of raw materials, especially related to barley. Altia Plc’s Board of Directors has confirmed the Group Risk Management Policy. Risk management is aimed at supporting the implementation of Altia Group’s strategy, the identification of risks and methods for reducing the probability and impacts of risks, as well as ensuring business continuity. Risks may arise from internal or external events. Outlook for 2021 Market outlook The development of the Group’s business operations and profitability are affected by the competitive environment, the overall economic outlook and changes in alcohol taxation and regulation. Uncertainty related to changes in consumer buying behaviour and consumer demand continues. In addition, overall fluctuations of direct product costs affect the Group’s profitability. COVID-19 update: Of Altia’s beverage sales channels, travel retail, exports and on-trade are restricted or closed due to COVID-19 restrictions. The recovery of these channels depend on the level and extent of government restrictions and recommendations and how consumer behaviour changes. The pace of recovery is difficult to estimate and is expected to vary across sales channels. Uncertainty in the economy and operating environment is high and the risk of an economic slowdown is high. Seasonality There are substantial seasonal fluctuations in the consumption of alcoholic beverages impacting the net sales and cash flow of Altia. The company typically generates large amounts of its revenue and cash flow during the fourth quarter of the year, whereas the first quarter of the year is significantly lower. In addition, excise taxes related to the high season at the end of the year are paid in January, resulting in large cash outflows at the beginning of the year. SENSITIVITY OF FINANCIAL INSTRUMENTS TO MARKET RISKS (BEFORE TAXES) IN ACCORDANCE WITH IFRS 7 2020 2019 EUR million Income statement Equity Income statement Equity +/-10% electricity - +/-0.4 - +/-0.2 +/-10% change in EUR/NOK exchange rate -/+0.2 +/-0.3 +/-0.0 +/-0.2 +/-10% change in EUR/SEK exchange rate -/+0.2 +/-2.1 +/-0.2 +/-1.8 +/-10% change in EUR/USD exchange rate +/-0.0 -/+0.4 +/-0.0 +/-0.2 +/-10% change in EUR/AUD exchange rate -/+0.0 -/+0.2 +/-0.0 +/-0.2 +/-1%-points change in interest rates -0.5 +0.2 -0.5 +0.4 Note: +10% increase in EUR/SEK exchange rate would have an EUR -0.2 million effect in income statement. Other risks with same principle. Annual Report 202018 Short-term outlook Altia has decided to provide a short- term outlook but no guidance for 2021, due to the uncertainties caused by COVID-19 and the low predictability for the full year 2021. In the first half of 2021, COVID-19 is expected to impact travel retail, exports and on-trade. The channel shift in the monopoly markets is expected to continue for as long as travel retail and on-trade continue to be restricted. The situation is expected to stabilise earliest after the summer period. In Altia Industrial, for the first half of 2021, COVID-19 is expected to continue to impact contract manufacturing and industrial products in a significant way. The increased prices of imported ethanol puts pressure on technical ethanol margins. The barley prices have increased at the beginning of this year and the price level is expected to be higher than in 2020 until the new crop. The recovery of the operating environment depends largely on the development of COVID-19, the progress of vaccinations, and changes in consumer behaviour. Financial calendar 2021 The Annual Report 2020 including the financial statements, Board of Directors' report, Auditor's report, the Corporate Governance statement and the remuneration statement will be published in English and Finnish on Altia’s website during week 8 (the week starting on 22 February). Altia Plc will publish financial reports in 2021 as follows: • 28 April: Business Review for January-March 2021 • 18 August: Half-Year Report for January-June 2021 • 3 November: Business Review for January-September 2021 Annual General Meeting 2021 Altia Plc’s Annual General Meeting (AGM) 2021 is planned to be held on 19 March 2021 in Helsinki. The notice to and instructions for the AGM are published on Altia’s website. Dividend proposal According to the financial statements on 31 December 2020, the parent company’s distributable funds amount to EUR 87630619.27 including profit for the period of EUR 5873094.86. There have been no significant changes to the parent company’s financial position after the end of the financial year. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.35 per share be paid for the financial year 2020. Arcus’ Board of Directors have similarly proposed to the Annual General Meeting of Arcus that an annual dividend of NOK 1.66 per share be paid for the financial year 2020, reflecting the relative value of Altia and Arcus agreed upon in the merger plan, meaning that dividends for the financial year 2020 to be paid by Altia and Arcus, respectively, will not have an impact on the agreed valuation of the companies for the purpose of the Altia and Arcus merger. Altia’s Board of Directors also proposes to the Annual General Meeting that the dividend authorisation decided by the Extraordinary General Meeting 2020 to pay an extra dividend of EUR 0.40 per share to Altia's shareholders in connection with and prior to the closing of the Altia and Arcus merger be renewed. Events after the period On 8 January 2021, it was announced that the Finnish Competition and Consumer Authority has moved its investigation of the combination of Altia and Arcus into phase II. On 21 January 2021, the proposals by Altia’s Shareholders’ Nomination Board to Altia’s Annual General Meeting 2021 on the number of members, composition and remuneration of the Board of Directors were announced. Helsinki, 24 February 2021 Altia Plc Board of Directors Annual Report 202019 Introduction Sustainability is a key success factor for Altia and as of 2020, is an integral part of Altia’s company strategy. With our Sustainability Roadmap 2030, we want to support national and international efforts to mitigate climate change and move towards a more circular economy. Altia also promotes a modern and responsible Nordic drinking culture that consists of higher quality beverages, produced in responsible ways, and consumed moderately. Altia has reported on the company’s sustainability efforts for over ten years in accordance with the model for corporate responsibility reporting for state-owned companies 1 and the Global Reporting Initiative (GRI) guidelines. This non-financial statement describes, in accordance with the Finnish Accounting Act, Altia’s approach to the management of environmental, social and employee matters, as well as matters related to respect for human rights and anti-corruption and bribery in its Non-Financial Statement 2020 operations. More detailed information about our sustainability work and key performance indicators is provided in a separate section on Sustainability in this Annual Report. Business model Altia’s business model is based on offering a strong portfolio of its own brands and a versatile range of international partner brands, as well as providing services to its customers utilising the company’s production, packaging and logistics capacity. In addition, Altia avoids generating waste and creates value of the by-products from the production process, which are sold to industrial customers in other industries. The integrated operating model creates significant economies of scale in sourcing, production and distribution, and allows the company to take advantage of its shared operations – such as consumer research, innovation, product development and overall know- how – and use its centralised support functions efficiently. The Business Overview section contains a description of how Altia creates value. Environmental matters a. Policies and ways of working (including due diligence) Altia’s work on environmental matters focuses on minimising the environmental impacts of the company’s own operations, improving our material and resource efficiency and in developing our products and packaging to achieve a lower environmental impact. In addition, necessary measures are taken to protect the groundwater used in Altia’s products. The environmental aspects relevant to the company are assessed at three- year intervals. In the assessment conducted in 2018, energy consumption, water consumption, wastewater and its quality, as well as waste generation, were identified as the most significant environmental impacts in Altia’s own operations. Environmental key performance indicators and annual reduction targets were defined to support the reduction of these impacts. Plant-specific targets and actions are set annually, and progress is monitored monthly. The standards, policies and principles relevant to Altia’s environmental work include: • Altia Code of Conduct • Altia Quality, Safety and Environmental policy • ISO 14001:2015 Environmental Management System standard; the certification covers Altia’s operations in Finland b. Principal risks and their management Environmental risks are assessed regularly as part of the assessment of Altia’s environmental impacts and Altia Group’s risk management. The principal risks identified include climate change, natural disasters, possible leaks to the soil or waterways (including groundwater areas), overruns of the waste-water quality limits in Altia’s environmental permits, and the costs related to maintaining compliance with increasingly strict environmental regulations, as well as the fines and sanctions resulting from any non- compliance with the said regulations. The risks are managed through various measures, including the maintenance of an environmental management system in accordance with the ISO14001:2015 standard, regular monitoring of wastewater quality, ownership of land in groundwater areas and monitoring legislative developments. 1 Government Resolution on State Ownership Policy 3 November 2011, Annex Annual Report 202020 KPI 2020 2019 2018 Energy efficiency (MWh/m 3 of product or tonne of barley) Koskenkorva: 0.71 Rajamäki and Tabasalu: 0.28 Koskenkorva: 0.79 Rajamäki and Tabasalu: 0.27 Koskenkorva: 0.78 Rajamäki and Tabasalu: 0.31 Water efficiency (m 3 /m 3 of product or tonne of barley) 1 Koskenkorva: 2.33 Rajamäki and Tabasalu: 2.01 Koskenkorva: 1.88 Rajamäki and Tabasalu: 1.65 Koskenkorva: 2.82 Rajamäki and Tabasalu: 1.61 Quality of wastewater (kg COD/m 3 of product or tonne of barley) 2 Koskenkorva: 4.09 Rajamäki and Tabasalu: 2.09 Koskenkorva: 4.24 Rajamäki and Tabasalu: 2.29 Koskenkorva: 3.86 Rajamäki and Tabasalu: 3.35 Rate of recycling and reutilisation 99.5% 99.5% 99.7% Monetary value of environmental fines and number of non-monetary sanctions 0 0 0 1 Monitoring of the KPI for water efficiency was discontinued at the beginning of 2018 at the Rajamäki plant of the Industrial Products unit, because the KPI is not material for the operations. 2 The KPI for the quality of wastewater is not monitored at the Tabasalu plant. KPI 2020 2019 2018 Amount of income taxes paid and excise taxes collected E U R 4 6 9 . 1 m i l l i o n The full tax footprint is available in the section on Sustainability EUR 435 million The full tax footprint is available in the section on Sustainability EUR 454.2 million The full tax footprint is available in the section on Sustainability c. Outcome and KPIs Our sustainability goal is that by 2023, all of the electricity Altia buys in Finland comes from renewable sources, and that by 2025, all of our energy will be carbon neutral. In Finland, Altia has joined the voluntary Energy Efficiency Agreement and commits to reducing energy consumption by 10% by 2025, compared to the base year 2014. Energy consumption relative to production increased at the Rajamäki plant and decreased at Koskenkorva in 2020 compared to the previous year. The limit values for wastewater loads are specified in Altia’s environmental permits. Altia aims to diminish the amount of Altia’s wastewater by 20% by 2025 (bl 2018). Organic loading of wastewater relative to production decreased both at the Rajamäki and Koskenkorva plants in 2020 compared to previous year. The bioenergy power plant at the Koskenkorva plant enabled Altia to reduce Koskenkorva plant’s carbon dioxide emissions by 58 % in 2020, compared to 2014. The plant’s fuel self- sufficiency in steam production was 65 % in 2020 (62%). 2020 saw advances in projects to reach carbon neutrality including the launch of the world’s first vodka made from regeneratively farmed barley. Regenerative farming methods aim to convert fields from sources of emissions into carbon sinks. Other outcomes include the launch of new rPET bottles with 25% of recycled plastic. Our aim is to increase the content of rPET to 50% by 2025 and to 100% by 2030, far exceeding the goals and pace required by the EU. The carbon footprint of PET plastic bottles is much lower than that of glass, even lower with using recycled PET (read more about our packaging advances in Our Drink). The results of Altia’s key environmental indicators are summarised in the table above and discussed in more detail in Our Distillery in the Sustainability section of this annual report. Social and employee matters Consumer and product related matters a. Policies and ways of working (including due diligence) Product safety is a top priority for Altia. We market our products responsibly and in compliance with applicable marketing laws and provide consumer information as required. The key processes related to product quality and safety have been defined and the relevant instructions are maintained in Altia’s management system. Key performance indicators regarding quality, targets included, have been set and are monitored monthly. The KPIs concern quality costs, customer feedback and the proportions of deviating batches. Plant- specific targets and actions are also set annually and monitored monthly. Altia’s Rajamäki plant has FairTrade certification. Altia Brunna also has the Fair for Life certification. The Koskenkorva distillery, the Rajamäki alcoholic beverage plant and the distillery in Sundsvall are certified for organic production. The standards, policies and principles relevant to the safety, quality, marketing and consumption of Altia’s products include: • Altia Code of Conduct • ISO 9001:2015 Quality Management standard; the certification covers Altia’s operations in Finland as well as the Tabasalu plant in Estonia • FSSC22000 v 4.1. Food Safety Management standard; the certification covers Altia’s Rajamäki plant • Altia Quality, Safety and Environmental Policy • Altia Marketing Guidelines • Altia Employee Alcohol Policy b. Principal risks and their management The risks are assessed as part of quality and safety risk assessments and as part of Altia Group’s risk management. The principal risks identified include failure to comply with hygiene requirements, lack of consistency in the quality of products, any contamination of products, as well as defects in raw materials or packaging. Such incidents can lead to product recalls or make the company subject to legal claims. As the alcohol business is highly regulated, stricter regulation regarding the marketing and advertising of alcoholic beverages or their taxation, for example, could have an impact on the company’s operations. To manage risks of this type, Altia maintains quality and food safety management systems in accordance with international standards. Quality Annual Report 202021 is monitored continuously during production by means of line inspections and testing, as well as the analysis of end products. Instructions and process are maintained in view of possible recalls and situations are practised regularly by way of phantom testing. Applicable legislation and any developments therein are reviewed regularly. c. Outcome and KPIs Altia’s Rajamäki plant received the FSSC 22000 v.4.5. food safety certificate in the beginning of 2020. Altia also has specified instructions and processes for food fraud mitigation and food defence. Plant-specific targets and actions are set annually, and progress is monitored monthly. Altia’s tax footprint is significant compared to company net sales, due to excise duty. Employee matters a. Policies and ways of working (including due diligence) Altia is committed to building a culture with a motivating and supportive working environment based on safety, openness, equality and trust. Altia wants to ensure safe and healthy working conditions for all its employees and people whose workplace or work conditions the company can affect. This has been particularly relevant in 2020 amidst the global pandemic. The goal is to reduce sickness absences, the number of accidents and the number of absences caused by accidents. Plant-specific targets and actions are reviewed and set annually, and progress is monitored monthly. At the beginning of 2020, the occupational health and safety management system of Finnish Altia units was awarded the ISO 45001:2018 Occupational Health and Safety standard certification, one of the first Finnish companies, to receive this certification. ISO 45001:2018 replaces our previous OHSAS 18001 standard. The standards, policies and principles relevant to employee matters include: • Altia Code of Conduct • Altia Behaviours • ISO 45001:2018 Occupational Health and Safety standard; covers Altia’s operations in Finland • Altia Quality, Safety and Environmental Principles • amfori BSCI Code of Conduct b. Principal risks and their management The risks are assessed as part of Altia Group’s risk management. The principal risks relate to Altia’s ability to recruit, develop, motivate and retain the right know-how and succeed in daily leadership, the maintenance of good collaboration practices with employees and their unions, as well as the occurrence of accidents. To manage the risks, Altia develops its employer value proposition, recruitment, and retention, conducts the employee satisfaction survey Altia Tasting on an annual basis, and maintains frequent collaboration with unions. c. Outcome and KPIs One of the key focus areas in personnel development in 2020 continued to be work safety. However, workshops and trainings on the Human Factor programme, aiming to enhance safety at Rajamäki plant had to be put on hold due to the pandemic. Altia’s annual employee survey (Altia Tasting) was organised in January 2020. All indices were improved from 2019. Leadership had still room for improvement, and a change leadership programme was launched to better support team leaders in their role as change drivers- particularly relevant with the coming merger. The results of the indicators for occupational health and safety are presented in the table below. There were no fatal work-related accidents during the year. KPI 2020 2019 2018 Sickness absence, % 4 3.7 3.4 Accident absence rate without commuting, LTIF 7 9 1 12 1 Accident absence, % 0.09 0.07 0.07 Number of accidents 8 11 1 15 1 1 2018 and 2019 LTIF and number of accidents is reported without commuting. KPI 2020 2019 2018 2017 Share of purchases from risk countries as identified in amfori BSCI risk country classification 2% 2% 3% 4% Number of grievances related to human rights reported through the whistleblowing channel 0 0 0 0 The whistleblowing channel was launched in October 2017, due to which the first full year figure concerns 2018. Respect for human rights a. Policies and ways of working (including due diligence) Altia is committed to respecting and promoting human rights and international labour standards in accordance with the United Nation’s (UN) Universal Declaration of Human Rights and the key conventions of the International Labour Organization (ILO) and expects the same from its suppliers, partners and subcontractors. Altia’s most relevant human rights impacts are related to the sourcing of wines, spirits and raw materials. In 2017, Altia joined amfori BSCI and amfori BSCI’s Sustainable Wine Programme to develop responsible sourcing. As a participant Altia is committed to furthering the principles of the amfori BSCI Code of Conduct in its supply chains. Altia’s due diligence process is currently composed of mapping the supply chains of Altia's products and their components, using a questionnaire to gather information about Altia's suppliers’ and partners’ responsibility work, contractual obligations as well as participation in and utilisation of the tools offered by amfori BSCI, including third party audits. Altia has a whistleblowing channel open to all stakeholders, maintained by an independent third party. The standards, policies and principles relevant to Altia’s work with human rights matters include: • Altia Code of Conduct • amfori BSCI Code of Conduct • Altia Code of Conduct for Suppliers and Subcontractors Annual Report 202022 b. Principal risks and their management The principal risks are related to Altia’s business relationships and primarily concern labour and human rights in the wine, spirits and raw material supply chains. Altia’s customers have expectations of social compliance within supply chains, and any human or labour right violation by Altia’s suppliers, sub- suppliers or partners could lead to customers ending purchases of a given product. The risks are managed with the due diligence process explained above and human rights are part of Altia Group’s risk management. c. Outcome and KPIs No amfori BSCI audits were conducted in 2020 due to the pandemic. In 2019, 6 amfori BSCI audits (full audits or follow- up audits) were conducted at Altia’s suppliers, partners or their sub-suppliers. Anti-corruption and -bribery matters a. Policies and ways of working (including due diligence) Altia has zero tolerance towards bribery and corruption. The company is committed to operating fairly and to not offering improper benefits to any party. Altia also expects its representatives, consultants, agents, subcontractors and other business partners to unconditionally refrain from corruptive behaviour when performing services for Altia or on its behalf. Altia does not support, either directly or indirectly, political parties or organisations. Nor does the company participate in financing election campaigns of individual candidates. Altia’s Code of Conduct describes the company’s commitment to ethical business conduct. Every Altia employee is familiarised with the Altia Code of Conduct, including the company’s anti- bribery and corruption activities. Altia has a whistleblowing channel maintained by an independent third party, open to all Altia employees and external stakeholders. All concerns raised, whether KPI 2020 2019 2018 Communication and training on anti-corruption policies New employees have completed on-line course. Internal communications done for all employees. Online course on Altia's Anti-Bribery and -Corruption Policy organised for the entire personnel. Internal communication on ethical business conduct. Online course on the Altia Code of Conduct organised for the entire personnel. Number of anti-corruption and bribery incidents reported through the whistleblowing channel 0 0 0 through the channel or through other means, are investigated in accordance with an established process to ensure accuracy, anonymity, and fairness. The standards, policies and principles relevant to anti-corruption and -bribery matters include: • Altia Code of Conduct • Anti-Bribery and Corruption Policy • Whistleblowing channel b. Principal risks and their management The risks are assessed as part of Altia Group’s risk management. The principal risks associated with anti-corruption and bribery matters include a reputational risk caused by any act of corruption or bribery, especially related to Altia’s key persons and business partners. Given that alcohol is a highly regulated business, obtaining and maintaining the necessary licenses and permits are associated with a risk of corruption or bribery, especially in countries high on the corruption index. These risks are managed through contractual obligations, third party due diligence inspections concerning suppliers and distributors where necessary, as well as internal training on Altia’s Anti-Bribery and Corruption Policy. c. Outcome and KPIs In 2020, Altia’s new employees conducted an online course on Altia's Anti-Bribery and Corruption Policy. The course was available also to the entire personnel and there were communications on the topic. The whistleblowing channel has been in use since 2017. No reports were submitted through the whistleblowing channel in 2020. Annual Report 202023 Key ratios of the Group 2020 2019 2018 2017 2016 Income statement Net sales EUR million 342.4 359.6 357.3 359.0 356.6 Comparable EBITDA EUR million 52.4 44.8 40.0 42.4 40.8 (% of net sales) % 15.3 12.4 11.2 11.8 11.5 EBITDA EUR million 40.3 43.1 34.0 40.3 60.8 Comparable operating result (EBIT) EUR million 35.0 26.8 25.6 28.2 26.4 (% of net sales) % 10.2 7.5 7.2 7.8 7.4 Operating result EUR million 22.9 25.1 19.7 26.1 46.3 Result before taxes EUR million 21.3 24.6 18.6 25.0 45.0 Result for the period EUR million 17.8 18.4 15.1 18.3 36.1 Items affecting comparability EUR million -12.1 -1.7 -6.0 -2.1 19.9 Balance sheet Cash and cash equivalents EUR million 130.7 64.2 42.0 52.4 68.0 Total equity EUR million 156.3 151.2 150.1 136.8 191.3 Borrowings EUR million 116.1 82.6 89.4 100.1 72.8 Invested capital EUR million 272.4 233.8 239.5 236.9 264.0 Profitability Return on equity (ROE) % 11.6 12.2 10.5 11.1 20.0 Return on invested capital (ROI) % 7.7 8.5 7.0 8.0 14.4 2020 2019 2018 2017 2016 Financing and financial position Net debt EUR million -3.9 28.9 47.4 47.7 4.7 Gearing % -2.5 19.1 31.6 34.9 2.5 Equity ratio % 34.3 37.8 38.4 34.3 44.2 Net cash flow from operating activities EUR million 56.1 52.6 6.5 37.6 29.4 Net debt/comparable EBITDA -0.1 0.6 1.2 1.1 0.1 Share-based key ratios Earnings / share (Basic and diluted) EUR 0.49 0.51 0.42 0.51 1.00 Equity / share EUR 4.33 4.18 4.15 3.80 5.32 Dividend per share EUR 0.75 0.42 0.38 - - Dividend/earnings % 152.2 82.6 91.2 - - Effective dividend yield % 7.5 5.1 5.4 - - Price/Earnings 20.3 16.1 17.0 - - Closing share price on the last day of trading EUR 9.98 8.18 7.07 - - Highest EUR 10.40 8.22 9.50 - - Lowest EUR 7.01 7.08 7.015 - - Market value of shares at the end of period EUR million 360.7 295.6 255.5 - - Number of shares outstanding at the end of period 36 140 485 36 140 485 36 140 485 35 960 000 35 960 000 Personnel Average number of personnel 650 682 718 762 829 Board's dividend proposal for the financial year 2020 EUR 0.35 per share and an authorisation for an extra dividend EUR 0.40 per share. Annual Report 202024 RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES (APM) TO IFRS FIGURES AND ITEMS AFFECTING COMPARABILITY (IAC) EUR million 2020 2019 Items affecting comparability Net gains or losses from business and assets disposals - 0.1 Cost for closure of business operations and restructurings -0.3 -0.2 Major corporate projects Costs related to the closed voluntary pension scheme -0.5 -1.6 Costs related to the merger plan of Altia and Arcus -11.4 - Total items affecting comparability -12.1 -1.7 Comparable EBITDA Operating result 22.9 25.1 Less: Depreciation, amortisation and impairment 17.4 17.9 Total items affecting comparability 12.1 1.7 Comparable EBITDA 52.4 44.8 % of net sales 15.3 12.4 Comparable EBIT Operating result 22.9 25.1 Less: Total items affecting comparability 12.1 1.7 Comparable EBIT 35.0 26.8 % of net sales 10.2 7.5 Altia presents alternative performance measures as additional information to financial measures presented in the consolidated income statement, consolidated balance sheet and consolidated statement of cash flows prepared in accordance with IFRS. In Altia’s view, alternative performance measures provide significant additional information on Altia’s results of operations, financial position and cash flows to management, investors, analysts and other stakeholders. Alternative performance measures should not be viewed in isolation or as a substitute to the IFRS financial measures. All companies do not calculate alternative performance measures in a uniform way, and therefore Altia’s alternative performance measures may not be comparable with similarly named measures presented by other companies. The alternative performance measures are unaudited. Annual Report 202025 THE DEFINITIONS AND REASONS FOR THE USE OF FINANCIAL KEY INDICATORS Key figure Definition Reason for the use Operating margin, % Operating result / Net sales Operating result shows result generated by the operating activities. EBITDA EBITDA margin, % Operating result before depreciation and amortization EBITDA / Net sales EBITDA is the indicator to measure the performance of the Group. Comparable operating result Comparable operating margin, % Comparable EBITDA Comparable EBITDA margin, % Items affecting comparability Operating result excluding items affecting comparability Comparable operating result / Net sales EBITDA excluding items affecting comparability Comparable EBITDA / Net sales Material items outside normal business, such as net gains or losses from business and assets disposals, impairment losses, cost for closure of business operations and restructurings, major corporate projects including direct transaction costs related to business acquisitions, voluntary pension plan change and costs related to other corporate development. Comparable EBITDA, comparable EBITDA margin, comparable operating result and comparable operating margin are presented in addition to EBITDA and operating result to reflect the underlying business performance and to enhance comparability from period to period. Altia believes that these comparable performance measures provide meaningful supplemental information by excluding items outside normal business, which reduce comparability between the periods. Comparable EBITDA is an internal measure to assess performance of Altia and key performance measure at segment level together with net sales. Comparable EBITDA margin is also one of Altia’s financial targets. Comparable EBITDA is commonly used as a base for valuation purposes outside the Company and therefore important measure to report regularly. Invested capital Total equity + Borrowings Base for ROI measure. Return on equity (ROE), % Result for the period / Total equity (average of reporting period and comparison period) This measure can be used to evaluate how efficiently Altia has been able to generate results in relation to the equity of the Company. Return on invested capital (ROI), % (Result for the period + Interest expenses) / (Total equity + Non-current and current borrowings) (average of reporting period and comparison period) This measure is used to evaluate how efficiently Altia has been able to generate net results in relation to the total investments made to the Company. Annual Report 202026 Key figure Definition Reason for the use Borrowings Net debt Non-current borrowings + Current borrowings Borrowings + Non-current and current lease liabilities - Cash and cash equivalents Net debt is an indicator to measure the total external debt financing of the Group. Gearing, % Net debt / Total equity Gearing ratio helps to show financial risk level and it is a useful measure for management to monitor the level of Group’s indebtedness. Important measure for the loan portfolio. Equity ratio, % Total equity / (Total assets – Advances received) 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. Net debt / Comparable EBITDA Net debt / Comparable EBITDA The level of Net debt / Comparable EBITDA is one of Altia’s financial targets. Earnings / share Result for the period attributable to shareholders of the parent company/ Share-issue adjusted number of shares during the period Equity/share Equity attributable to shareholders of the parent company /Share- issue adjusted number of shares at the end of period Dividend/share Dividend distribution for period/Number of shares (basic) at the end of period Dividend / earnings % Dividend/share / Earnings/ share Effective dividend yield % Dividend/share / Price of share at the end of the accounting period Price / earnings Price of share at the end of accounting period / Earnings/share Market value of outstanding shares The number of shares at the end of accounting period x the price of the share at the end of accounting period. Annual Report 202027 Important information The securities referred to in this document in relation to the merger have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or the securities laws of any state of the United States (as such term is defined in Regulation S under the U.S. Securities Act) and may not be offered, sold or delivered, directly or indirectly, in or into the United States absent registration, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable state and other securities laws of the United States. This document does not constitute an offer to sell or solicitation of an offer to buy any of the shares in the United States. Any offer or sale of new Altia shares made in the United States in connection with the merger may be made pursuant to the exemption from the registration requirements of the U.S. Securities Act provided by Rule 802 thereunder. Altia is a Finnish company and Arcus is a Norwegian company. The transaction, including the information distributed in connection with the merger and the related shareholder votes, is subject to disclosure, timing and procedural requirements of a non-U.S. country, which are different from those of the United States. The financial information included or referred to in this document has been prepared in accordance with IFRS, which may not be comparable to the accounting standards, financial statements or financial information of U.S. companies or applicable in the United States. It may be difficult for U.S. shareholders of Arcus to enforce their rights and any claim they may have arising under U.S. federal or state securities laws, since Altia and Arcus are not located in the United States, and all or some of their officers and directors are residents of non-U.S. jurisdictions. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court’s judgment. U.S. shareholders of Arcus may not be able to sue Altia or Arcus or their respective officers and directors in a non-U.S. court for violations of U.S. laws, including federal securities laws, or at the least it may prove to be difficult to evidence such claims. Further, it may be difficult to compel Altia or Arcus and their affiliates to subject themselves to the jurisdiction of a U.S. court. In addition, there is substantial doubt as to the enforceability in a foreign country in original actions, or in actions for the enforcement of judgments of U.S. courts, based on the civil liability provisions of the U.S. federal securities laws. Arcus’ shareholders should be aware that Altia is prohibited from purchasing Arcus’ shares otherwise than under the merger, such as in open market or privately negotiated purchases, at any time during the pendency of the merger under the Merger Plan. Annual Report 2020 Financial Statements Annual Report 202029 CONSOLIDATED INCOME STATEMENT EUR million Note 1 Jan – 31 Dec 2020 1 Jan – 31 Dec 2019 NET SALES 1.1. 342.4 359.6 Other operating income 1.3. 6.2 7.6 Materials and services 1.4. -192.5 -213.1 Employee benefit expenses 1.5. -49.1 -45.9 Other operating expenses 1.6. -66.6 -65.0 Depreciation, amortisation and impairment 1.7. -17.4 -17.9 OPERATING RESULT 22.9 25.1 Finance income 3.1. 0.2 3.5 Finance expenses 3.1. -3.1 -5.7 Share of profit in associates and joint ventures and income from interests in joint operations 1.2 1.6 RESULT BEFORE TAXES 21.3 24.6 Income tax expense 6.1. -3.5 -6.2 RESULT FOR THE PERIOD 17.8 18.4 Result for the period attributable to: Owners of the parent 17.8 18.4 Earnings per share for the result attributable to owners of the parent, EUR Basic and diluted 3.4. 0.49 0.51 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EUR million Note 1 Jan – 31 Dec 2020 1 Jan – 31 Dec 2019 Result for the period 17.8 18.4 OTHER COMPREHENSIVE INCOME Items that will not be reclassified to profit or loss Remeasurements of post-employment benefit obligations 0.2 -0.2 Related income tax 6.1. -0.0 0.0 Total 0.2 -0.2 Items that may be reclassified to profit or loss Cash flow hedges 0.2 -1.3 Translation differences 3.4. 1.8 -2.4 Income tax related to these items 6.1. -0.0 0.3 Total 2.0 -3.5 Other comprehensive income for the period, net of tax 2.2 -3.6 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 20.0 14.8 Total comprehensive income attributable to: Owners of the parent 20.0 14.8 The notes are an integral part of the consolidated financial statements. Annual Report 202030 CONSOLIDATED BALANCE SHEET EUR million Note 31 Dec 2020 31 Dec 2019 ASSETS Non-current assets Goodwill 2.1. 81.4 80.1 Other intangible assets 2.1. 20.7 25.2 Property, plant and equipment 2.2. 58.9 60.9 Right-of- use assets 2.3. 10.2 10.4 Investments in associates, joint ventures and interests in joint operations 5.3. 9.1 8.8 Financial assets at fair value through other comprehensive income 3.2.1. 1.4 1.4 Deferred tax assets 6.1. 1.4 0.9 Total non-current assets 183.2 187.7 Current assets Inventories 2.4. 92.3 92.0 Contract assets 2.5. 0.2 0.2 Trade and other receivables 2.6. 46.8 54.4 Current tax assets 2.4 1.6 Cash and cash equivalents 3.2.1. 130.7 64.2 Total current assets 272.3 212.4 TOTAL ASSETS 455.6 400.2 EUR million Note 31 Dec 2020 31 Dec 2019 EQUITY AND LIABILITIES Equity attributable to owners of the parent 3.4. Share capital 60.5 60.5 Invested unrestricted equity fund 1.2 1.2 Fair value reserve 0.6 0.6 Legal reserve 0.1 0.1 Hedge reserve -0.9 -1.0 Translation differences -20.5 -22.1 Retained earnings 115.3 111.9 Total equity 156.3 151.2 Non-current liabilities Deferred tax liabilities 6.1. 16.8 16.7 Borrowings 3.2.2. 69.6 76.1 Lease liabilities 3.2.2. 7.0 7.1 Employee benefit obligations 2.7. 1.1 1.4 Total non-current liabilities 94.5 101.3 Current liabilities Borrowings 3.2.2. 46.5 6.5 Lease liabilities 3.2.2. 3.7 3.4 Trade and other payables 2.8. 152.6 134.7 Contract liabilities 2.5. 0.5 0.5 Current tax liabilities 1.5 2.5 Total current liabilities 204.8 147.6 Total liabilities 299.2 249.0 TOTAL EQUITY AND LIABILITIES 455.6 400.2 The notes are an integral part of the consolidated financial statements. Annual Report 202031 EUR million Note 1 Jan – 31 Dec 2020 1 Jan – 31 Dec 2019 CASH FLOW FROM OPERATING ACTIVITIES Result before taxes 21.3 24.6 Adjustments Depreciation, amortisation and impairment 1.7. 17.4 17.9 Share of profit in associates and joint ventures and income from investments in joint operations 5.3. -1.2 -1.6 Net gain on sale of non-current assets 1.3. -0.0 -0.0 Finance income and costs 3.1. 2.9 2.2 Other adjustments 0.4 -0.8 19.4 17.7 Change in working capital Change in inventories, increase (-) / decrease (+) 0.2 7.4 Change in contract assets, trade and other receivables, increase (-) / decrease (+) 7.7 5.3 Change in contract liabilities, trade and other payables, increase (+) / decrease (-) 16.8 3.8 Change in working capital 24.7 16.5 Interest paid 3.1. -1.6 -1.6 Interest received 3.1. 0.1 0.2 Other finance income and expenses paid 3.1. -1.4 -1.7 Income taxes paid 6.1. -6.4 -3.1 Financial items and taxes -9.3 -6.1 NET CASH FLOW FROM OPERATING ACTIVITIES 56.1 52.6 EUR million Note 1 Jan – 31 Dec 2020 1 Jan – 31 Dec 2019 CASH FLOW FROM INVESTING ACTIVITIES Payments for property, plant and equipment and intangible assets 2.1.,2.2. -7.0 -6.8 Proceeds from sale of property, plant and equipment and intangible assets 1.3. 0.3 0.1 Investments in associated companies and joint ventures - -0.2 Interest received from investments in joint operations 5.3. 0.9 0.9 Dividends received 3.1. 0.2 - NET CASH FLOW FROM INVESTING ACTIVITIES -5.6 -6.0 CASH FLOW FROM FINANCING ACTIVITIES Changes in commercial paper program 40.0 - Repayment of borrowings 3.2.2. -6.5 -6.5 Repayment of lease liabilities 3.2.2. -3.7 -3.7 Dividends paid and other distributions of profits 3.4. -15.2 -13.7 NET CASH FLOW FROM FINANCING ACTIVITIES 14.6 -23.9 CHANGE IN CASH AND CASH EQUIVALENTS 65.1 22.7 Cash and cash equivalents at the beginning of the period 64.2 42.0 Translation differences on cash and cash equivalents 1.4 -0.5 Change in cash and cash equivalents 65.1 22.7 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 3.2.3. 130.7 64.2 The notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS Annual Report 202032 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Equity attributable to owners of the parent EUR million Note Share capital Invested unrestricted equity fund Fair value reserve Legal reserve Hedge reserve Translation differences Retained earnings Total equity Equity at 1 January 2019 60.5 1.2 0.6 - 0.0 -19.6 107.3 150.1 Total comprehensive income Result for the period - - - - - - 18.4 18.4 Other comprehensive income (net of tax) Cash flow hedges - - - - -1.0 - - -1.0 Translation differences 3.4. - - - - - -2.5 0.1 -2.4 Remeasurements of post-employment benefit obligations 2.7. - - - - - - -0.2 -0.2 Total comprehensive income for the period - - - - -1.0 -2.5 18.3 14.8 Transactions with owners Dividend distribution - - - - - - -13.7 -13.7 Share based payment - - - - - - 0.1 0.1 Total transactions with owners - - - - - - -13.6 -13.6 Transfer to reserve - - - 0.1 - - -0.1 0.0 EQUITY AT 31 DECEMBER 2019 60.5 1.2 0.6 0.1 -1.0 -22.1 111.9 151.2 Equity at 1 January 2020 60.5 1.2 0.6 0.1 -1.0 -22.1 111.9 151.2 Total comprehensive income Result for the period - - - - - - 17.8 17.8 Other comprehensive income (net of tax) Cash flow hedges - - - - 0.2 - - 0.2 Translation differences 3.4. - - - - - 1.6 0.3 1.8 Remeasurements of post-employment benefit obligations 2.7. - - - - - - 0.2 0.2 Total comprehensive income for the period - - - - 0.2 1.6 18.3 20.0 Transactions with owners Dividend distribution - - - - - - -15.2 -15.2 Share based payment - - - - - - 0.3 0.3 Total transactions with owners - - - - - - -14.9 -14.9 EQUITY AT 31 DECEMBER 2020 60.5 1.2 0.6 0.1 -0.9 -20.5 115.3 156.3 The notes are an integral part of the consolidated financial statements. Annual Report 202033 GENERAL INFORMATION Information on Altia Altia Plc (the "Company") together with its' subsidiaries (the "Group", "Altia Group" or "Altia") is an international alcoholic beverage service Group, which operates in the Nordic countries, Estonia, Latvia and France producing, marketing, selling and distributing both own and partner brands. Altia distils barley spirit from domestic barley for the basis of its beverages. The production plants are located in Finland and Estonia, and aging and production of cognac in France. Altia has high-quality brands of its own and international brands. In addition, the company represents international brands from all over the world. Altia’s business also includes industrial products such as starch and feed, technical ethanol and contract services. Altia’s customers include alcohol retail monopolies, alcoholic beverage wholesale outlets, restaurants, grocery stores, travel trade, importers in the export markets and industrial customers. Altia Plc, the parent company of Altia Group, is domiciled in Helsinki, Finland. Altia Plc is a Finnish publicly listed company. Altia’s shares are listed in Nasdaq Helsinki Ltd. The registered address of the Company is Kaapeliaukio 1. FI-00180 Helsinki, Finland. Copies of the consolidated financial statements are available online at www.altiagroup.com or at the Group's headquarters at Kaapeliaukio 1. FI-00180 Helsinki, Finland. Altia Plc’s Board of Directors has approved these financial statements for publication in its meeting on 24 February 2021. According to the Finnish Limited Liability Companies Act, shareholders have the right to approve or reject the financial statements in the Annual General Meeting held after the publication of the financial statements. The Annual General Meeting also has the right to make a decision to amend the financial statements. Basis of preparation The consolidated financial statements for the year ended 31 December 2020 are prepared in accordance with International Financial Reporting Standards (IFRS) complying with the SIC and IFRIC interpretations in force and approved by EU on 31 December 2020. Notes to the consolidated financial statements also comply with the requirements of the Finnish Accounting Act and Limited Liability Companies Act. New and amended standards applied in 2020 and future periods are described in Note 6.5. The consolidated financial statements for the year ended 31 December 2020 has been prepared on a historical cost basis, except equity investments and derivatives. The consolidated financial statements are presented in thousands of euros (Annual Reports in millions of euros). The figures are rounded to the nearest thousand, and therefore the sum of individual figures may deviate from the total presented. If the figure is EUR 0. it is shown as a hyphen. Notes to the consolidated financial statements Annual Report 202034 Nr. Note Accounting principle 1. Operating result Revenue recognition, operating result 1.2. Segment information Operating segments 2.9. Provisions Provisions 2.7. Employee benefit obligations Employee benefits 2.2. Property, plant and equipment Property, plant and equipment 2.3. Right-of-use assets Leases 2.4. Inventories Inventories 1.6. Other operating expenses Leases 2.2. Property, plant and equipment 2.1. Goodwill and other intangible assets Goodwill 2.1. Goodwill and other intangible assets Intangible assets 3.2.1. Financial assets Financial assets 3.2.3. Financial assets and liabilities- classification and fair value 3.2.2. Financial liabilities Financial liabilities 3.2.3. Financial assets and liabilities- classification and fair value 3.3. Derivative instruments and hedge accounting Derivative contracts and hedge accounting 5.2. Subsidiaries Consolidation principles of subsidiaries 5.2. Subsidiaries Non-controlling interest and transactions with non- controlling interest 5.3. Associated companies and joint arrangements Associates and joint ventures 6.1. Income tax expense Income and deferred taxes Refer to the table below to see which notes and accounting principles are related. Accounting policies requiring management judgement and key sources of estimation uncertainty The preparation of financial statements requires the use of accounting estimates, which by definition, seldom equal the actual results. In addition, management makes judgements in applying Altia’s accounting policies. Estimates made in the preparation of the financial statements, and related assumptions, are based on the management’s best knowledge at the reporting date. Consequently, the realised results can differ from the estimates. Any changes in estimates and assumptions are recognised when estimates and assumptions are corrected. The Group’s most significant area in which the management has exercised judgement is related to the revenue recognition (Note 1.1) and impairment provision of trade receivables, and useful lives of intangible assets and parameters used in impairment testing (Note 2.1.), and parameters used in lease accounting. Other critical future assumptions and anticipated uncertainties at the reporting date, which pose a significant risk of resulting in material changes in the carrying amounts of assets and liabilities within the next financial year, are related to deferred taxes (Note 6.1.) and uncertain tax positions. Impacts of COVID-19 COVID-19 may impact Altia’s financial position in many ways and increase the uncertainty related to the values of its assets. Due to this Altia has assessed the impact of the pandemic on its financial position and has considered the values of assets and liabilities that include critical accounting estimates and require management judgement. The identified and expected effects have been taken into consideration in the reported figures and in the forecasts requiring management judgement. Altia has carried out annual impairment tests for goodwill and for trademarks on 31 October 2020. The impact of the COVID-19 has been taken into account in forecasted profitability together with other assumptions used for impairment testing or for evaluating the amortization periods of the intangible assets. On the basis of the impairment calculations, there has been no need for impairment of goodwill for any CGU or for trademarks. (See note 2.1) The value of inventory is monitored on a regular basis also for slow moving items. COVID-19 has not had a material impact on the value of inventory. (see note 2.4) The credit risk of trade receivables and the amount of expected credit losses has been analysed at the end of December 2020. Overdue receivables have been assessed on a customer level and expected default rates have been taken into consideration in the valuation. Based on the review no material adverse impacts on the value of trade receivables have been identified. (See note 2.6.) Annual Report 202035 FINANCIAL RISKS Altia Group reviewed its financial risks more thoroughly in 2020 due to COVID-19. The management has analysed the credit risks of trade receivables and the loss allowance for trade receivables. According to management the loss allowances are sufficient based on the following. The significant portion of the sales of Finland and Exports and Scandinavia are for monopoly channels. Trade receivables to Finnish and Swedish monopolies are sold and are derecognized from the balance sheet as the contractual rights and all the related substantial risks have been transferred outside the Group. The payment behavior of Altia Industrial segment’s customers has not changed due to COVID-19. Historically the amount of overdue trade receivables have been low and the amount of overdue receivables have not materially increased due to COVID-19. The overdue receivables have been assessed on customer level. After the reporting period, there have been no indications that loss allowances at the reporting period were not sufficient. The management has analyzed that the liquidity risk has not increased significantly based on the following reasons. The reported net debt at 31.12.2020 was EUR -3.9 million and cash and cash equivalents EUR 130.7 million. Group’s liquidity position has been strong throughout the year due to positive development of operational cash flow and the actions to secure liquidity during the pandemic by issuing commercial papers. Group also has a EUR 60 million unused revolving credit facility. Group has fulfilled its covenants determined in the Group’s loan terms. 1. Operating result 1.1. REVENUES FROM OPERATIONS Revenue recognition The revenue is recognized at an amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price may include variable considerations such as volume discounts, bonuses, marketing support, product returns etc. The variable considerations are estimated using the most likely value method if not yet realized in the end of reporting period. The revenue is further adjusted with indirect sales taxes, excise taxes, deposit and recycling fees and exchange rate differences relating to sales. Typical contracts with customers include a sale of goods to a customer with only one performance obligation. In contract services the contracts essentially include a single performance obligation, being a series of distinct services such as contract manufacturing, customer services and logistics. The revenue recognition occurs at a point in time, when the control of the goods is transferred to the customer according to the delivery terms. Revenue from the sale of services is recognised at the time of delivery of services. Annual Report 202037 1.2. SEGMENT INFORMATION Description of segments and principal activities Altia reports its business operations under the following segments: Finland & Exports, Scandinavia and Altia Industrial. Finland & Exports and Scandinavia segments comprise importing, sale and marketing of wine, spirits and other beverage product categories. Within the Finland & Exports segment the Company operates in Finland, the Baltics and travel retail channels and conducts exports. Scandinavia segment represents the Company’s operations in Sweden, Norway and Denmark. Altia Industrial segment comprises the Company’s production of ethanol, starch and feed as well as contract services. These segments comprise both Altia’s operating and reportable segments. The Board of Directors of Altia has been determined as the Company’s current chief operative decision maker, and the reportable segments are based on the Altia’s operating structure and internal reporting to the CODM used to assess the performance of the segments. For internal reporting purposes, reporting on the segment profit is based on an internal measure of a comparable EBITDA derived as follows: • Net sales and direct segment expenses reported within the Comparable EBITDA segment profit measure are measured on an accrual basis and reported under the same accounting principles as in the consolidated accounts. • Expenses allocated to the segments related to shared function costs or business support services expenses comprise costs such as centralized marketing costs, IT infrastructure related costs, shared support services, headquarter costs including finance and treasury, communication, legal and human resource related costs as well as certain warehousing and service fees. For internal reporting purposes these cost allocations are based on budgeted amounts and variances from budgeted amounts are presented under column “Unallocated and adjustments” and can result in either incurred overruns or savings compared to budgeted amounts. All of these variances are not allocated to the segments for internal reporting purposes. • The unallocated and adjustments column represents in addition to the budget variances, certain unallocated headquarter costs. EUR million 2020 2019 Sales revenues deducted with revenue adjustments 805.0 791.5 Excise tax -462.6 -431.9 Net sales 342.4 359.6 Tax share of sales revenues, % 57.5% 54.6% The most significant revenue flows are generated by the sale of own products and partner brands. In addition, revenues are generated by contract manufacturing, as well as the sale of industrial products, such as starch, feed and technical ethanol. Adjustments to sales and obligations to repurchase certain products are taken into account in the revenue recognition phase. In partner supplier agreements, which entitle Group to distribute partners’ products, Altia acts as a principal towards the end customer having control over the product, discretion in establishing prices and owning the inventory. Accordingly, revenue recognised is the gross amount to which Altia is entitled to in these product sales. The amount of excise tax deducted from sales revenue is significant. The amounts of sales including tax and excise taxes are presented below: Annual Report 202038 1 Jan - 31 Dec 2020 EUR million Finland & Exports Scandinavia Altia Industrial Unallocated and adjustments Group Net sales, total 117.7 124.4 143.1 385.3 Net sales, Internal -0.5 -0.5 -41.9 -42.9 Net sales, external 117.2 123.9 101.2 342.4 Comparable EBITDA 19.8 14.2 17.9 0.5 52.4 Items affecting comparability 1 -12.1 EBITDA 40.3 Depreciation, amortisation and impairment -17.4 OPERATING RESULT 22.9 1 Jan - 31 Dec 2019 EUR million Finland & Exports Scandinavia Altia Industrial Unallocated and adjustments Group Net sales, total 129.0 121.4 149.7 400.1 Net sales, Internal -0.4 -0.7 -39.4 -40.5 Net sales, external 128.6 120.7 110.2 359.6 Comparable EBITDA 20.6 12.1 11.4 0.7 44.8 Items affecting comparability 1 -1.7 EBITDA 43.1 Depreciation, amortisation and impairment -17.9 OPERATING RESULT 25.1 1 Items affecting comparability comprise of material items incurred outside normal business, such as net gains or losses from business and assets disposals, impairment losses, cost for closure of business operations and restructurings, major corporate projects including direct transaction costs related to business acquisitions, voluntary pension plan change and costs related to other corporate development. Gains on sale of property, plant and equipment and intangible assets are presented in Note 1.3 and employee costs related to restructuring in Note 1.5. Other entity-wide disclosures NET SALES BY GEOGRAPHY Net sales broken down by the location of Altia entity for the years ended 31 December 2020 and 2019 were as follows: In Finland & Exports segment, net sales of EUR 81.3 million (2019: EUR 74.9 million) were derived from a single external customer. In Scandinavia segment, net sales of EUR 86.2 million (2019: EUR 81.8 million) were derived from a single external customer. In Altia Industrial segment, net sales of EUR 27.9 million (2019: EUR 43.7 million) were derived from a single external customer. No other single external customer represented more than 10 per cent or more of Altia’s total net sales for the years ended 31 December 2020 or 2019. NET SALES BY PRODUCT CATEGORY Net sales broken down by product category for the years ended 31 December 2020 and 2019 were as follows: EUR million 2020 2019 Finland 193.5 211.7 Sweden 97.7 97.2 Norway 25.5 22.6 Estonia 9.1 9.3 Latvia 10.8 10.1 Denmark 0.3 2.8 Other countries 5.5 5.9 NET SALES, TOTAL 342.4 359.6 EUR million 2020 2019 Spirits 119.1 121.3 Wine 119.5 124.9 Other beverages 2.5 3.1 Industrial products and services 101.2 110.2 NET SALES BY PRODUCT CATEGORY, TOTAL 342.4 359.6 Segment net sales and results The following tables set out the segment net sales and Comparable EBITDA as well as the reconciliation of the Comparable EBITDA to the group’s operating result: Annual Report 202039 1.4. MATERIALS AND SERVICES Materials and services consist of cost of material, such as barley, wine, different spirit, liquids, ground water as well as other ingredients needed for a variety of different drinks, packaging materials, production costs, changes in inventories, scrapping and obsolescence costs and external services such as logistics and warehousing. 1.5. EMPLOYEE BENEFIT EXPENSES In Altia, the total wages and salaries of personnel consists of fixed and variable pay, allowances, short and long-term incentives and fringe benefits. The group has recognised the total amount of incentives EUR 5.7 million (2019: EUR 0.4 million) in the form of cash bonuses. Employee benefit expenses include personnel related restructuring costs of EUR 0.3 million (2019: EUR 0.2 million). The group has recognized the total amount of EUR 0.5 million (2019: EUR 1.6 million) of closed voluntary pension scheme. NON-CURRENT ASSETS BY GEOGRAPHY The total of non-current assets other than financial instruments and deferred tax assets broken down by the location of the assets as at 31 December 2020 and 2019 were as follows: EUR million 2020 2019 Finland 107.7 110.6 Sweden 47.0 48.2 Norway 0.2 0.5 Estonia 2.3 2.2 Latvia 0.2 0.2 Denmark 5.2 5.9 Other countries 8.8 9.0 NON-CURRENT ASSETS BY GEOGRAPHY, TOTAL 171.3 176.6 EUR million 2020 2019 Gains on sale of property, plant and equipment and intangible assets 0.0 0.0 Gains on sale of emission allowances - 0.8 Rental income 1.4 1.3 Income from sale of energy, water, steam and carbon dioxide 3.3 3.4 Other income 1.5 2.0 TOTAL 6.2 7.6 EUR million 2020 2019 Wages and salaries 38.1 34.2 Pension expenses Defined contribution plans 5.9 7.1 Share -based payments 0.3 0.1 Other social expenses 4.7 4.4 TOTAL 49.1 45.9 EUR million 2020 2019 Raw materials, consumables and goods Purchases during the period 190.5 200.8 Change in inventories -0.2 7.6 Scrapping and obsolescence and revaluation 0.6 3.2 External services 1.6 1.6 TOTAL 192.5 213.1 1.3. OTHER OPERATING INCOME Other operating income mainly includes gains on the disposal of non-current assets, income from sale of energy, water, steam and carbon dioxide, gains on sale of emission allowances, rental income and related non- core business service income and contract termination fees. Annual Report 202040 The table above presents fees to PricewaterhouseCoopers globally during the year. Non-audit fees to PricewaterhouseCoopers Oy in 2020 amounted to EUR 0.8 million of which EUR 0.5 million related to the future issuance and listing of the Altia-Arcus merger consideration shares are booked to accrued income and at the date of issuance will be recognised directly to equity. 1.7. DEPRECIATION, AMORTISATION AND IMPAIRMENT Depreciation and amortisation by asset categories is as follows: Group’s depreciation and amortisation methods and periods are described in Note 2.1. Goodwill and other intangible assets, Note 2.2. Property, plant and equipment and Note 2.3. Leases. 1.8. RESEARCH AND DEVELOPMENT EXPENDITURES Operating result includes research and development expenditures amounting to EUR 1.6 million (2019: EUR 2.3 million). The R&D expenditures represents 0.5% of net sales in 2020 (2019: 0.6%). More information on the Group’s pension plans is presented in Note 2.7. Information of management remuneration is presented in Note 6.3. related party transactions. 1.6. OTHER OPERATING EXPENSES Average number of personnel during the period 2020 2019 Workers 256 272 Clerical employees 394 410 TOTAL 650 682 Auditor's fees included in other operating expenses 2020 2019 Audit fees 0.3 0.3 Tax consultation - 0.0 Other fees 0.3 0.2 TOTAL 0.6 0.5 EUR million 2020 2019 Losses on sales and disposals of property, plant and equipment and intangible assets 0.1 - Rental expenses 1.4 1.6 Short-term lease expenses 0.1 0.2 Expenses for leases of low-value assets 0.1 0.2 Variable lease payments 1.3 1.2 Marketing expenses 9.3 12.3 Travel and representation expenses 0.9 2.7 Outsourcing services 16.0 8.9 Repair and maintenance expenses 7.0 6.8 Energy expenses 7.4 7.4 IT expenses 6.3 6.0 Variable sales expenses 11.4 12.5 Other expenses 6.7 6.9 TOTAL 66.6 65.0 EUR million 2020 2019 Amortisation on intangible assets Trademarks 3.7 4.1 Software and other intangible assets 2.2 2.0 Total amortisation on intangible assets 5.9 6.1 Depreciation on property, plant and equipment Buildings 3.2 3.4 Machinery and equipment 4.8 4.7 Other tangible assets 0.0 0.0 Total depreciation on property, plant and equipment 8.0 8.1 Depreciation on right-of-use assets Buildings 2.5 2.5 Machinery 1.0 1.2 Total depreciation on right-of-use assets 3.5 3.7 TOTAL DEPRECIATION AND AMORTISATION 17.4 17.9 2. Operative assets and liabilities 2.1. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets other than goodwill are recorded at historical costs and depreciated over their useful lives. Intangible assets include goodwill, trademarks, software and other intangible assets and prepayments. Goodwill Goodwill arising on the business acquisition is recognised as the excess of the aggregate of the consideration transferred, the amount of non-controlling interests and any previously held equity interest in the acquiree, over the fair value of the net assets acquired. Goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment. For the purpose of impairment testing, goodwill is allocated to the groups of cash-generating units (CGU) that are expected to benefit from the business combinations in which the goodwill was generated. Impairment testing is described in more detail later in this note. Other intangible assets Annual Report 202042 Other intangible assets Other intangible assets include intangible rights, other intangible assets and prepayments for intangible assets. Intangible assets such as patents and IT-software, with finite useful lives, are recognised in the balance sheet at the original acquisition cost less accumulated amortisation and possible impairment. Altia's trademarks have been acquired in connection with business acquisitions and recognised originally at fair value and are subsequently amortised on a straight-line basis over the estimated useful lives. The estimated useful lives of intangible assets are as follows: Trademarks 10–15 years IT-development and software 3–5 years The costs related to the intangible assets are capitalised if it can be demonstrated that the asset will generate the future economic benefits, the entity controls the asset and the cost of the asset can be measured reliably. All other expenditure is recognised as an expense as incurred. Expenditure on research activities is recognised in profit or loss in the period in which it is incurred. The Group has no projects related to the development activities of new products or processes qualifying for the identifiability and other criteria regarding capitalisation under IFRS. Accounting for emission allowances is described in Note 6.2. Emission allowances are presented as off-balance sheet items. Critical estimates and management judgements – Useful lives of trademarks Altia’s trademarks have been acquired in connection with business acquisitions and recognised originally at fair value and are subsequently amortised on a straight-line basis over the estimated useful lives. Management has estimated the useful lives of trademarks to be in a range from 10 to 15 years. However, the actual useful life may be shorter or longer than the estimated range depending on the market trends and customer behavior. Annual Report 202043 EUR million Goodwill Trademarks Software and other intangible assets Prepayments Other intangible assets total Acquisition cost at 1 January 2020 128.3 122.8 23.4 2.0 148.1 Additions - 0.0 0.0 1.1 1.2 Disposals - -0.0 - - -0.0 Effect of movement in exchange rates -5.3 1.8 -0.0 - 1.8 Transfers between items - - 1.7 -1.7 0.0 Acquisition cost at 31 December 2020 123.0 124.7 25.0 1.4 151.1 Accumulated amortisation and impairment losses at 1 January 2020 -48.2 -104.5 -18.5 - -123.0 Amortisation - -3.7 -2.2 - -5.9 Accumulated amortisation on disposals and transfers - 0.0 - - 0.0 Effect of movement in exchange rates 6.6 -1.6 -0.0 - -1.6 Accumulated amortisation and impairment losses at 31 December 2020 -41.6 -109.7 -20.7 - -130.4 Carrying amount at 1 January 2020 80.1 18.3 4.9 2.0 25.2 CARRYING AMOUNT AT 31 DECEMBER 2020 81.4 15.0 4.3 1.4 20.7 Acquisition cost at 1 January 2019 128.0 123.8 21.8 1.7 147.3 Additions - 0.1 0.0 1.8 2.0 Disposals - -0.1 - - -0.1 Effect of movement in exchange rates 0.3 -1.1 -0.0 - -1.1 Transfers between items - - 1.6 -1.6 0.0 Acquisition cost at 31 December 2019 128.3 122.8 23.4 2.0 148.1 Accumulated amortisation and impairment losses at 1 January 2019 -47.3 -101.2 -16.5 - -117.8 Amortisation - -4.1 -2.0 - -6.1 Accumulated amortisation on disposals and transfers - 0.1 - - 0.1 Effect of movement in exchange rates -0.9 0.9 0.0 - 0.9 Accumulated amortisation and impairment losses at 31 December 2019 -48.2 -104.5 -18.5 - -123.0 Carrying amount at 1 January 2019 80.7 22.6 5.3 1.7 29.6 CARRYING AMOUNT AT 31 DECEMBER 2019 80.1 18.3 4.9 2.0 25.2 GOODWILL AND OTHER INTANGIBLE ASSETS The most significant trademarks include Renault, Larsen, Xanté, Blossa, Chill Out, Explorer, Grönstedts, Bröndums, 1-Enkelt and Arsenitch. Software and other intangible assets are mainly computer software. Annual Report 202044 Impairment testing Book value of assets are assessed to determine whether there are any impairment at least at the end of each financial year. If any evidence of impairment emerges (a triggering event), the assets’ recoverable amount is estimated. The recoverable amount is determined on the basis of value in use. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. The impairment loss is immediately recognised in profit or loss and the estimated useful life of the asset in question is reassessed when an impairment loss is recognised. The recoverable amounts of goodwill and intangible assets not yet available for use are estimated annually. The need for recognising an impairment loss is assessed at cash-generating unit level. This level is essentially independent from other units with separate cash flows. The impairment loss is reversed if there has been such a positive change in the estimates used to determine the recoverable amount of the asset or cash-generating unit that recoverable amount of the asset will increase the book value of asset. Impairment losses are only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised. An impairment loss on goodwill is never reversed. Critical estimates and management judgements – Impairment testing: The preparation of calculations for the impairment testing of goodwill requires estimates regarding the future. The management’s estimates and related critical uncertainties are related to the components of the recoverable amount calculation, including the discount rate, the terminal growth rate and development of the net sales and operating result, including estimated cost levels of main raw materials and energy. The discount rates reflect current assessments of the time value of money and relevant market risk premiums reflecting risks and uncertainties for which the future cash flow estimates have not been adjusted. The discount rates used, expected net sales growth rates and profitability levels, including sensitivity analyses, are stated below. Impairment testing of goodwill ALLOCATION OF GOODWILL Goodwill is allocated to groups of cash-generating units (CGU) that represent the level on which the management monitors the goodwill. Altia reports its business operations under the following segments: Finland & Exports, Scandinavia and Altia Industrial. Finland & Exports and Scandinavia segments comprise importing, sale and marketing of wine, spirits and other beverage product categories. Within the Finland & Exports segment the Company operates in Finland, the Baltics and travel retail channels and conducts exports. Scandinavia segment represents the Company’s operations in Sweden, Norway and Denmark. Altia Industrial segment comprises the Company’s production of ethanol, starch and feed as well as contract services. These segments comprise both Altia’s operating and reportable segments. Goodwill is monitored by management at the level of the operating segments. A segment-level allocation of the goodwill at 31 December 2020 and 2019 is presented below: IMPAIRMENT TESTING The key assumptions in impairment testing are operating result and discount rate. The goodwill allocated to the Group’s cash-generating units is tested for impairment annually or when there is reason to assume that the carrying amount has exceeded the recoverable amount, with the carrying amount compared to the recoverable amount in the testing. The annual impairment tests have been carried out on 31 October 2020 and 31 October 2019. At the time of testing, the companies did not have intangible assets with indefinite useful lives other than goodwill. The cash flow estimates used are based on CGU-specific financial plans for the following year approved by the Group’s management. The forecast period applied for the calculations covers five years, beyond which the cash flow projections are extrapolated using a constant market-specific growth rate estimate. The forecasted cash flows for a longer term than this have been estimated by using an annual growth rate estimate of -0.5%. In the view of the management, these growth estimates represent the development of business operations in the longer term pursuant to the forecasts. The COVID-19 pandemic has been taken into consideration in CGU specific financial plans for the year 2020 and its impacts on operating result. The market-specific WACC estimates are based on external market-specific references. Management makes judgements regarding the development of assumptions other than WACC based on internal and external views of the industry’s history and future. EUR million 2020 % 2019 % Finland& Exports 46.4 57.0% 46.7 58.3% Scandinavia 35.0 43.0% 33.4 41.7% TOTAL 81.4 100.0% 80.1 100.0% Annual Report 202045 The weighted average costs of capital used as discount rates for the cash flow estimates are presented in the enclosed table: The estimated average operating margins used in the calculations are presented in the enclosed table: Based on the analyses prepared by the company, no reasonably possible change in any of the key assumptions would cause any of the tested unit's recoverable amount to decrease to be equal to its carrying amount. 2.2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment Property, plant and equipment mainly consist of manufacturing and warehouse buildings, land, and machinery and equipment used in alcoholic beverage industry. Property, plant and equipment are measured at historical cost less accumulated depreciation and possible impairment losses. If parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. The subsequent costs related to the items of property, plant and equipment are capitalised only if the future economic benefits exceed the originally assessed standard of performance. All other expenditure, for example ordinary maintenance and repair costs, is recognised as an expense as incurred. Depreciation is recognised on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Land is not depreciated. Projected average pre-tax operating result, % 2020 2019 Finland & Exports 14.9% 13.1% Scandinavia 9.1% 8.1% Government grants, for example grants received from the State, are recognised in profit or loss in the same period in which the related expenses are recognised. Grants that compensate the Group for the acquisition of property, plant and equipment are deducted from the carrying amount adjusted with the grant received. Investment properties are properties held by the Group in order to earn rental income or for capital appreciation. Investment properties are measured at cost less accumulated depreciation and impairment losses. Fair values of investment properties are determined based on a valuation carried out by an external property valuator. The estimated useful lives of property, plant and equipment are as follows: Buildings and structures 10–40 years Machinery and equipment 10 years Other tangible assets 3–10 years The estimated useful lives and residual values are reviewed at each financial year-end, and if they differ substantially from the previous estimates, the depreciation periods are adjusted accordingly. Impairment loss is recognised in profit or loss to the extent the assets carrying value exceeds its recoverable amount. Gains and losses on the disposals of property, plant and equipment are included in other operating income or expenses. Covid-19 pandemic has not had significant effect on utilization of fixed assets therefore there were no need to change the estimated useful lives and no impairment losses were detected. Used pre-tax discount rate % 2020 2019 Finland & Exports 6.4% 6.4% Scandinavia 6.0% 6.0% Annual Report 202046 EUR million Land and water areas Buildings and structures Machinery and equipment Other tangible assets Prepayments and assets under construction Total Acquisition cost at 1 January 2020 3.0 111.3 131.3 0.8 1.6 247.9 Additions - 0.2 0.7 0.0 5.2 6.1 Disposals -0.0 -0.5 -0.9 - - -1.4 Effect of movement in exchange rates - 0.0 0.2 0.0 - 0.2 Transfers between items - 1.6 2.6 - -4.2 0.0 Acquisition cost at 31 December 2020 3.0 112.6 133.9 0.8 2.6 252.9 Accumulated depreciation and impairment losses at 1 January 2020 0.0 -85.8 -101.1 -0.2 - -187.0 Depreciation - -3.2 -4.8 -0.0 - -8.0 Accumulated depreciation on disposals and transfers - 0.3 0.8 - - 1.2 Effect of movement in exchange rates - -0.0 -0.1 - - -0.1 Accumulated depreciation and impairment losses at 31 December 2020 0.0 -88.7 -105.1 -0.2 - -194.0 Carrying amount at 1 January 2020 3.0 25.6 30.2 0.6 1.6 60.9 CARRYING AMOUNT AT 31 DECEMBER 2020 3.0 23.9 28.7 0.6 2.6 58.9 Acquisition cost at 1 January 2019 3.0 109.5 129.8 0.8 1.5 244.6 Additions - 0.1 0.4 - 4.3 4.8 Disposals - - -1.3 -0.0 - -1.3 Effect of movement in exchange rates - -0.0 -0.1 -0.0 - -0.1 Transfers between items - 1.8 2.4 - -4.3 0.0 Acquisition cost at 31 December 2019 3.0 111.3 131.3 0.8 1.6 247.9 Accumulated depreciation and impairment losses at 1 January 2019 0.0 -82.4 -97.4 -0.2 - -179.9 Depreciation - -3.4 -4.7 -0.0 - -8.1 Accumulated depreciation on disposals and transfers - - 0.9 0.0 - 1.0 Effect of movement in exchange rates - 0.0 0.1 - - 0.1 Accumulated depreciation and impairment losses at 31 December 2019 0.0 -85.8 -101.1 -0.2 - -187.0 Carrying amount at 1 January 2019 3.0 27.1 32.4 0.6 1.5 64.6 CARRYING AMOUNT AT 31 DECEMBER 2019 3.0 25.6 30.2 0.6 1.6 60.9 PROPERTY, PLANT AND EQUIPMENT Annual Report 202047 2.3. LEASES Leases Lease is a contract, or a part of a contract that conveys the right to use an asset for a period of time in exchange for consideration. A contract contains a lease if there is an identified asset and the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Altia mainly acts as the lessee. The Group’s leases are related to normal business operations, such as leases on facilities, warehouses, vehicles, forklifts and office technology. The new standard removes the previous distinction between operating and finance leases. In accordance with the new standard, an asset item (right of use of the leased asset) and a financial liability concerning lease payments have been recognised for most of Altia’s leases. The lease liability is measured by discounting the expected lease payments to the current value. Lease payments include fixed lease payments, expected payments related to residual value guarantees and the possible exercise price of the purchase option if the use of the option is reasonably certain. The lease period is the non-cancellable period of the lease. Any extension options are added to the lease period if it is reasonably certain that the Group will exercise such options. Lease payments are discounted at the internal rate of return of the lease if that rate can be readily determined. If an internal rate of return cannot be readily determined, the interest rate for additional credit is used as the discount rate. The criteria used to determine the discount rate includes the class of the underlying asset, geographical location, currency, the maturity of the risk-free interest rate and the lessee’s credit risk premium. The lease liability is remeasured and adjusted against the right of used asset if the cash flow in accordance with the original terms and conditions of lease changes; for example, if the lease period changes or if the lease payments change based on a variable index or interest rate. The lease liability is divided into current and non-current liability and is presented on a separate line on the balance sheet. Right-of-use assets are measured at acquisition cost based on the amount of the initial measurement of the lease liability. Right-of-use assets are depreciated over the lease period or their useful lives, depending on which is shorter. Right -of use assets related to buildings are depreciated in 2-6 years and right-of -use assets related to machinery and equipment are depreciated in 2-6 years. Right-of-use assets related to tangible assets are presented on a separate line on the balance sheet. The IFRS 16 standard includes exemptions concerning leases of less than 12 months and low-value assets. Altia treats leases with less than 12 months remaining of the lease period at the time of transition as current underlying asset items that are not recognised on the balance sheet. The selection is made based on the class of the underlying asset. Exemptions apply to all underlying asset items other than vehicles and offices, which are recognised on the balance sheet even if their remaining lease period is less than 12 months at the time of transition. Lease liabilities are not recognised for low-value assets. Altia considers assets with an acquisition cost of less than EUR 5,000 to be low-value. Finance leases included in exemptions as short-term or low value were derecognized from balance sheet. Lease expenses related to leases included in the exemptions are recognised in equal instalments over the lease period. EUR million Buildings Machinery and equipment Total Acquisition cost at 1 January 2020 10.9 3.1 14.1 Additions 2.1 1.2 3.3 Disposals - -0.2 -0.2 Effect of movement in exchange rates 0.3 0.0 0.3 Acquisition cost at 31 December 2020 13,3 4.1 17.5 Accumulated depreciation at 1 January 2020 -2.6 -1.1 -3.7 Depreciation -2.5 -1.0 -3.5 Accumulated depreciation on disposals - 0.1 0.1 Effect of movement in exchange rates -0.1 -0.0 -0.2 Accumulated depreciation at 31 December 2020 -5.2 -2.0 -7.2 CARRYING AMOUNT AT 31 DECEMBER 2020 8.1 2.1 10.2 EUR million Buildings Machinery and equipment Total Acquisition cost at 1 January 2019 8.6 2.1 10.7 Additions 2.4 1.1 3.5 Disposals - -0.1 -0.1 Effect of movement in exchange rates -0.1 -0.0 -0.1 Acquisition cost at 31 December 2019 10.9 3.1 14.1 Depreciation -2.5 -1.2 -3.7 Accumulated depreciation on disposals - 0.0 0.0 Effect of movement in exchange rates -0.0 -0.0 -0.0 Accumulated depreciation at 31 December 2019 -2.6 -1.1 -3.7 CARRYING AMOUNT AT 31 DECEMBER 2019 8.4 2.0 10.4 RIGHT-OF-USE ASSETS Annual Report 202048 2.5. CONTRACT ASSETS AND LIABILITIES (CURRENT) Contract assets represent the amount which Altia has right to receive goods expected to be returned to inventory with respect to return clauses in the contracts. Contract assets are measured at the former carrying amount of the inventory less any expected costs to recover the goods and less any impairment losses. Contract liabilities represent the amount received or receivable that is expected to be returned as a refund liability. 2.6. TRADE AND OTHER RECEIVABLES (CURRENT) Trade and other receivables Trade receivables are carried at original invoiced amount less any impairment losses. An impairment loss is recognized immediately in profit and loss. Impairment provisions are recognized based on lifetime expected credit losses from trade receivables in accordance with IFRS 9. The expected credit loss model is forward looking and expected default rates are based on historical realized credit losses. The lifetime expected credit loss provision is calculated using aging of the accounts receivable and regional portfolios. Sold trade receivables are derecognised from the balance sheet as soon as the receivable is sold and the price has been received. At the time of sale, the Group derecognises the trade receivable as the contractual rights to these cash flows expire and all the related substantial risks and rewards have been transferred outside the Group. The costs related to the sold receivables are recognised in Other finance expenses. 2.4. INVENTORIES Inventories Inventories are measured at the lower of cost and net realisable value. Self-manufactured products are measured at standard prices, except cognac products, which are measured at weighted average cost. Fixed production costs are allocated to the cost of own production. Raw materials, supplies and trading goods are measured at weighted average cost. Semi-finished products are measured at weighted average cost, except semi-finished products produced in Estonia, which are measured at standard prices. Repacked trading goods are measured at standard cost in repacking plant. The cost of finished products and work in progress includes raw materials, direct labour costs, other direct costs as well as an allocable proportion of variable procurement and production costs and fixed overheads in case of finished products, determined based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. EUR million 2020 2019 Materials and supplies 43.9 49.6 Work in progress 9.8 10.5 Finished goods 16.4 13.5 Goods 22.0 18.3 Advance payments 0.2 0.3 TOTAL 92.3 92.0 INVENTORIES Altia recognised write-downs of inventories amounting to EUR 1.6 million in 2020 (2019: EUR 1.9 million). COVID-19 has not had a material impact on the value of inventory. EUR million 2020 2019 Contract assets 0.2 0.2 TOTAL 0.2 0.2 Contract liabilities 0.5 0.5 TOTAL 0.5 0.5 Annual Report 202049 EUR million 2020 2019 Trade receivables not past due 38.0 42.7 Trade receivables past due 1-90 days 2.6 4.8 Trade receivables past due over 90 days 0.3 0.8 Impairment losses -0.3 -0.2 TOTAL 40.5 48.1 AGEING ANALYSIS OF TRADE RECEIVABLES At the end of the reporting period 2020 the sold trade receivables amounted to EUR 91.9 million (2019: EUR 76.7 million). Trade receivables from associated companies and joint arrangements are presented in Note 6.3. The realized impairment losses recognized on trade receivables during the year 2020 amounted to EUR 0.1 million (2019: EUR 0.0 million). The loss allowance for trade receivables is based on the ageing of the accounts receivable and regional portfolios. The expected loss rate for all trade receivables is 0.1% and in addition receivables more than 120 days due are impaired with 60% expected loss rate. The receivables of the monopolies in Finland and Sweden are excluded due to the nature of the customer and related credit risk (government entities). Forward looking macro-economic information has been included in the analysis. Due to the COVID-19 overdue receivables have been assessed on a customer level. 2.7. EMPLOYEE BENEFIT OBLIGATIONS Group’s pension arrangements The Group operates various pension plans in accordance with local conditions and practices in different countries. In the Finnish companies, statutory pension obligations (TyEL) are arranged through insurance companies, when the TyEL plan is a defined contribution plan. The defined contribution plans are applied also in other countries and the foreign subsidiaries manage their pension plans in accordance with local legislation and established practice. The Group has defined benefit pension plans for supplementary pension in Norway and France. In defined benefit pension plans, the amount of the pension benefit at retirement is calculated based on salary, years of service and life expectancy. The Norwegian and French pension plans cover only few employees, thus the related pension liabilities are not material for the Group. At the end of the reporting period 2020 the defined benefit plan obligation amounted to EUR 1.1 million (2019: EUR 1.4 million). TRADE AND OTHER RECEIVABLES EUR million 2020 2019 Trade receivables 40.5 48.1 Accrued income 2.7 3.2 Receivables on derivative instruments 0.7 0.4 Other receivables 2.9 2.8 TOTAL 46.8 54.4 2.8. TRADE AND OTHER PAYABLES EUR million 2020 2019 Current Trade payables 29.6 25.7 Accruals for wages and salaries and social security contributions 6.0 0.9 Interest liabilities 0.3 0.3 Other accrued expenses 23.2 24.1 Derivative liabilities 1.9 1.7 Excise tax 54.7 47.0 VAT liability 29.4 27.9 Other liabilities 7.6 7.1 TOTAL 152.6 134.7 Annual Report 202050 2.9. PROVISIONS Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated. The amount recognised as provision is the management’s best estimate of the costs required to settle the existing obligation at the end of the reporting period. If part of the obligation may potentially be compensated by a third party, the compensation is recognised as a separate asset when it is virtually certain that the compensation will be received. A provision for restructuring is recognised when a detailed restructuring plan has been prepared, and the implementation of the plan has either been commenced or the plan has been announced to those who are affected. The Group had no provisions at 31 December 2020 or 31 December 2019. 3. Financial items and capital structure Annual Report 202052 3.1. FINANCE INCOME AND EXPENSES FINANCE INCOME Foreign exchange differences arising from trade receivables and trade payables amounting to EUR 0.4 million (2019: EUR 0.1 million) and from currency derivatives amounting to EUR -0.7 million (2019: EUR 0.9 million) are included in operating result. FINANCE EXPENSES Interest expenses included finance lease related interest expenses amounting to EUR 0.1 million (2019: EUR 0.1 million). To ensure sufficient funding and liquidity reserves following the completion of the planned Altia-Arcus merger, Altia has obtained certain consents and waivers from the lenders under existing senior facilities agreement in order for the existing financing arrangements to continue in force and survive the merger. In addition Altia has received a back up financing commitment for the establishment of the bridge facilities agreement. These refinancing costs EUR 0.6 million are included in other financial costs. EUR million 2020 2019 Interest income Forward points on FX-forwards - 0.0 Loans, receivables and cash and cash equivalents 0.1 0.2 Total interest income 0.1 0.2 Foreign exchange gains Foreign exchange gains on FX-derivatives - 0.8 Foreign exchange gains on I/C loans and cash pool accounts - 2.5 Total foreign exchange gains - 3.3 Dividend income Fair value through other comprehensive income 0.2 - Total dividend income 0.2 - TOTAL FINANCE INCOME 0.2 3.5 EUR million 2020 2019 Interest expenses Forward points on FX-forwards - -0.0 Financial liabilities at amortised cost 1.1 1.1 Derivatives under hedge accounting (Interest rate risk) 0.4 0.4 Interest expenses on lease liabilities 0.1 0.1 Other interest expenses, pension liability 0.0 0.0 Total interest expenses 1.7 1.6 Foreign exchange losses Foreign exchange losses on FX-derivatives 0.0 2.1 Foreign exchange losses on I/C loans and cash pool accounts 0.1 1.2 Total foreign exchange losses 0.1 3.3 Other finance expenses Other financial expenses 1.4 0.7 Total other finance expenses 1.4 0.7 TOTAL FINANCE EXPENSES 3.1 5.7 Annual Report 202053 3.2. FINANCIAL ASSETS AND LIABILITIES 3.2.1 FINANCIAL ASSETS According to IFRS 9 the classification is business model driven and there are three classes: fair value through profit and loss, amortised cost and fair value through other comprehensive income. Classification is made upon initial recognition based on the purpose of use of the asset. The basis of classification is reassessed at each reporting date. All purchases and sales of financial instruments are recognised on the trade date, which is the date when the Group commits to purchase or sell a financial instrument. Financial assets are recognised in the balance sheet at original cost which equals their fair value at the acquisition date. If the asset in question is not measured at fair value through profit or loss, transaction costs are included in the original cost of the financial asset. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or the Group transfers all the substantial risks and rewards related to the financial asset outside the Group. Financial assets are included in non-current items of the balance sheet when their maturity is over 12 months. Impairment of financial assets The impairment model requires the recognition of impairment provision based on expected credit losses. The impairment provision is recognised based on lifetime expected credit losses from trade receivables and contract assets. More information on the impairment provision on trade receivables can be found in Note 2.6. Trade and other receivables (current). The impairment model does not apply to financial assets measured at fair value and investments in associates and joint ventures and interests in joint operations since those are measured at fair value which already takes into account expected credit losses. Financial assets recognised at fair value through profit or loss This category includes financial assets held for trading purposes or otherwise designated as financial assets recognised at fair value through profit or loss by Altia Group. Derivative instruments held for hedging purposes, but not qualifying for the criteria of hedge accounting, are classified in this category. Items in this category are initially recognised at fair value and subsequently measured at the fair value of each reporting date, which is the market bid price at the end of the reporting period determined based on public price quotations in active markets. Realised and unrealised gains and losses arising from changes in fair values are recognised in profit or loss in financial items in the period in which they are incurred if they relate to hedging of financial items. Amortised cost Loans and receivables arise when money, goods or services are delivered to a debtor, and they are included in current or non-current financial assets in accordance with their maturity. The assets in this category are held according to a business model of which objective is to collect contractual cash flows. In Altia, non-current receivables include loan receivables and other receivables with the maturity of over one year. Current receivables include trade receivables as well as cash and cash equivalents presented under current financial assets. Receivables are measured at amortised cost when the related payments are fixed or determinable and the instruments are not quoted in financial markets. The exchange rate differences of intra-group foreign currency denominated loan receivables are presented within financial items as foreign exchange differences related to loans. The exchange rate differences of foreign currency denominated trade receivables are presented in income statement as adjustments to sales. Fair value through other comprehensive income These assets are non-derivative financial assets which are either designated in this category or not classified in any other category of financial assets. These are included in non-current assets, unless they are intended to be held less than 12 months from the end of the reporting period, in which case they are included in current assets. Financial assets measured at fair value through other comprehensive income consist of unquoted shares. Unquoted shares are measured at fair value based on market approach valuation techniques using information from market transactions involving comparable assets. Fair value through other comprehensive income Fair value through other comprehensive income assets consisted of unquoted shares, amounting to EUR 1.4 million (2019: EUR 1.4 million). Annual Report 202054 3.2.2 FINANCIAL LIABILITIES Financial liabilities are classified as financial liabilities at fair value through profit or loss and financial liabilities at amortised cost. Financial liabilities are initially measured at fair value and recognised net of transaction costs, with the exception of items measured at fair value through profit or loss. A financial liability (or a part of it) is not derecognised until the obligation specified in the contract is discharged or cancelled or expires. A financial liability is classified as current, unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the end of the reporting period. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include derivatives held for hedging purposes but not qualifying for hedge accounting. Financial liabilities in this category are measured at fair value, which is determined based on price quotations in active markets at the reporting date. Realised and unrealised gains or losses arising from the changes in fair values are recognised through profit or loss in the financial items as incurred. Financial liabilities at amortised cost This category includes the Group’s external loans from financial institutions, loans from pension institutions, commercial paper loans as well as trade payables. These financial liabilities are measured at amortised cost using the effective interest method. When loans are paid off or refinanced, the related unamortised costs are recognised in finance expenses. Group overdrafts in use are included in current borrowings. In addition, Altia has a revolving credit facility and the related fee is amortised on a straight- line basis in other finance expenses during the term of the facility. The exchange rate differences arising from foreign currency denominated loans from financial institutions are disclosed under financial items. The exchange rate differences of intra-group foreign currency denominated loans are presented within financial items in the foreign exchange differences of the category financial liabilities at amortised cost. The fair values of loans from financial institutions and commercial paper loans are determined based on future cash flows discounted with market interest rate at the reporting date adjusted with Altia’s credit risk premium. At the reporting date, the carrying amounts of the loans are considered to equal their fair values because of the stable level of market interest rates. The fair values of lease and finance lease liabilities are based on discounted future cash flows. The discount rate is internal rate of return of the lease or interest rate for additional credit. BORROWINGS AND LEASE LIABILITIES Interest-bearing non-current loans from financial and pension institutions are measured at amortised cost using the effective interest method. All of the Group’s non-current and current loans from financial and pension institutions were nominated in Euros as at 31 December 2020 and 31 December 2019. The weighted average effective interest rate (p.a.) of the Group’s loans from financial and pension institutions as at 31 December 2020 was 1.5% (2019: 1.9%). The weighted average interest rate (p.a.) of the Group’s lease liabilities as at 31 December 2020 was 1.1% (2019: 1.2%). EUR million 2020 2019 Non-current Loans from financial institutions 59.9 64.8 Loans from pension institutions 9.8 11.3 Lease liabilities 7.0 7.1 TOTAL 76.6 83.2 Current Loans from financial institutions 5.0 5.0 Loans from pension institutions 1.5 1.5 Commercial papers 40.0 - Lease liabilities 3.7 3.4 TOTAL 50.1 9.9 Annual Report 202055 NET DEBT Movements in Net debt the year ended 31 December 2020 and 2019 are presented in the following table: Derivative instruments Derivatives are included in financial assets and liabilities at fair value through profit or loss when they do not meet the criteria of hedge accounting pursuant to IFRS 9. These derivatives are recognised at fair value on the trade date and they are subsequently measured at fair value at the reporting date. Derivative instruments and hedge accounting are described in Note 3.3. The fair values of derivatives equal the amount that the Group would have to pay, or it would receive from the termination of the derivative contract at the reporting date. The fair values of forward exchange contracts are determined by using the market prices at the reporting date. The fair values of interest rate derivatives are determined by discounting the related future cash flows. The valuation of commodity derivatives is determined based on the fair values received from the financial markets. EUR million Cash and cash equivalents Loans from financial and pension institutions (non-current) Loans from financial and pension institutions (current) Lease liabilities (non-current) Lease liabilities (current) Finance lease liabilities (non- current) Finance lease liabilities (current) Total Net debt as at 1 January 2020 64.2 76.1 6.5 7.1 3.4 - - 28.9 Cash flows 65.1 - 33.5 - -3.7 - - -35.3 Translation differences 1.4 - - - - - - -1.4 Other non-cash movement - -6.4 6.5 -0.1 3.9 - - 3.9 NET DEBT AS AT 31 DECEMBER 2020 130.7 69.6 46.5 7.0 3.7 - - -3.9 Net debt as at 1 January 2019 42.0 82.5 6.5 - - 0.2 0.2 47.4 Adoption of IFRS 16 - - - 7.4 3.3 - - 10.7 Cash flows 22.7 - -6.5 - -3.7 - - -32.9 Translation differences -0.5 - - - - - - 0.5 Other non-cash movement - -6.4 6.5 -0.3 3.8 -0.2 -0.2 3.1 NET DEBT AS AT 31 DECEMBER 2019 64.2 76.1 6.5 7.1 3.4 - - 28.9 Annual Report 202056 3.2.3 CLASSIFICATION AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES FAIR VALUES AND THE CARRYING AMOUNTS IN THE CONSOLIDATED BALANCE SHEET FOR EACH FINANCIAL INSTRUMENT BY CLASSES: 2020 EUR million Note Derivatives, hedge accounting Fair value through profit or loss Amortised cost Fair value through other comprehensive income Carrying amounts of items in the balance sheet Fair value Level Financial assets Non-current financial assets Investments in associates and receivables from interests in joint operations - - 9.1 - 9.1 9.1 Unquoted shares 3.2.1. - - - 1.4 1.4 1.4 3 Current financial assets Trade and other receivables 2.6. - - 41.9 - 41.9 41.9 Trade and other receivables/Derivative instruments Forward exchange contracts 2.6. 0.0 0.0 - - 0.0 0.0 2 Commodity derivatives 2.6. 0.6 - - - 0.6 0.6 2 Cash and cash equivalents 4.1. - - 130.7 - 130.7 130.7 TOTAL 0.7 0.0 181.6 1.4 183.8 183.8 Financial liabilities Non-current financial liabilities Borrowings 3.2.2. - - 69.6 - 69.6 69.6 2 Lease liabilities 3.2.2. - - 7.0 - 7.0 7.0 2 Current financial liabilities Borrowings 3.2.2. - - 46.5 - 46.5 46.5 2 Lease liabilities 3.2.2. - - 3.7 - 3.7 3.7 2 Trade and other payables 2.8. - - 29.6 - 29.6 29.6 Trade and other payables/Derivative instruments Interest rate derivatives 2.8. 1.0 - - - 1.0 1.0 2 Forward exchange contracts 2.8. 0.8 0.2 - - 1.0 1.0 2 TOTAL 1.8 0.2 156.4 - 158.3 158.3 Annual Report 202057 At the reporting date due to short maturity fair value of trade receivables and other short-term receivables and liabilities equal to their value in the balance sheet. The table above presents the classification of financial instruments. The levels 1-3 of fair value hierarchy reflect the significance of inputs used in determining the fair values. In level one, fair values are based on public quotations of identical financial instruments. In level two, the inputs used in determining the fair values are based on quoted market rates and prices observable for the asset or liability in question directly (i.e. price) or indirectly on discounted future cash flows. Fair values of other financial assets and liabilities in level two reflect their carrying value. In level three, the fair values of assets and liabilities are based on inputs that are not based on observable market data for all significant variables, and instead are, to a significant extent, based on management estimates and their use in generally accepted valuation techniques. The reported fair value level is based on the lowest level of input information that is significant in determining the fair value. 2019 EUR million Note Derivatives, hedge accounting Fair value through profit or loss Amortised cost Fair value through other comprehensive income Carrying amounts of items in the balance sheet Fair value Level Financial assets Non-current financial assets Investments in associates and receivables from interests in joint operations - - 8.8 - 8.8 8.8 Unquoted shares 3.2.1. - - - 1.4 1.4 1.4 3 Current financial assets Trade and other receivables 2.6. - - 49.3 - 49.3 49.3 Trade and other receivables/Derivative instruments Forward exchange contracts 2.6. 0.0 0.0 - - 0.0 0.0 2 Commodity derivatives 2.6. 0.3 - - - 0.3 0.3 2 Cash and cash equivalents 4.1. - - 64.2 - 64.2 64.2 TOTAL 0.3 0.0 122.3 1.4 124.1 124.1 Financial liabilities Non-current financial liabilities Borrowings 3.2.2. - - 76.1 - 76.1 76.1 2 Lease liabilities 3.2.2. - - 7.1 - 7.1 7.1 2 Current financial liabilities Borrowings 3.2.2. - - 6.5 - 6.5 6.5 2 Lease liabilities 3.2.2. - - 3.4 - 3.4 3.4 2 Trade and other payables 2.8. - - 25.9 - 25.9 25.9 Trade and other payables/Derivative instruments Interest rate derivatives 2.8. 1.2 - - - 1.2 1.2 2 Forward exchange contracts 2.8. 0.4 0.1 - - 0.5 0.5 2 TOTAL 1.6 0.1 119.0 - 120.7 120.7 Annual Report 202058 3.3. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING When the Group applies IFRS 9 hedge accounting to foreign currency, interest rate and electricity derivatives, the effective portion of the fair value change is recognised in other comprehensive income and presented within equity in the hedge reserve. When hedge accounting is applied In Altia, cash flow hedging is applied to part of the interest rate, foreign currency and electricity derivatives based on case-by-case assessment. In cash flow hedging, the Group is hedging against changes in cash flows related to a specific asset or liability recognised in the balance sheet or to a highly probable future business transaction. Hedge accounting is a method of accounting with the purpose to allocate one or several hedging instruments so that their fair value changes offset in full or partly the changes in fair value or cash flow arising from the hedged risk in profit or loss during the period, for which the hedge is designated. In the beginning of the hedging arrangement, Altia documents the relationship between each hedging instrument and hedged item, as well as the objectives of risk management and the strategy in engaging in hedging. IFRS 9 requires that the effectiveness of hedging instruments is tested prospectively. Effectiveness means the ability of a hedging instrument to offset the changes in the fair value of the hedged item or changes in the cash flows of the hedged transaction attributable to the hedged risk. Under IFRS 9 the hedging relationship is regarded to be highly effective when there is an economic relationship between the hedged item and the hedging instrument. Hedging ratio is defined as a relationship between the quantity of the hedging instrument and the quantity of the hedged item. Hedge accounting is discontinued when the criteria for hedge accounting is no longer met. The gains and losses arising from fair value changes of derivative contracts, to which hedge accounting is applied, are presented in congruence with the hedged item. Forward points are included to hedging relationship. The effective portion of the unrealised changes in the fair value of derivatives designated and qualifying as cash flow hedges are recognised in other comprehensive income and presented in the hedge reserve in equity. The ineffective portion is immediately recognized in finance income or expenses in profit or loss. The cumulative gain or loss in equity on derivative instruments related to commercial items is recognised in profit or loss as an adjustment to purchases or sales simultaneously with the hedged item in the period in which the hedged item affects profit or loss. Realised gain or loss on electricity derivatives is included in operating result in electricity procurement expenses. When a hedging instrument designated as a cash flow hedge no longer meets the criteria of hedge accounting, the gain or loss accumulated in equity is recognised through finance income or expenses. When hedge accounting is not applied The accounting for gains and losses arising from fair value measurement is dependent on the purpose of use of the derivative. In Altia, the changes in the fair values of derivative instruments are immediately recognised in profit or loss in finance income or expense if the derivative in question is related to hedging of commercial cash flows (purchases and sales) and hedge accounting is not applied. The fair value changes of other derivative instruments are immediately recognised in profit or loss in finance income or expense items if hedge accounting is not applied. Derivatives, to which hedge accounting is not applied, are acquired to minimise the profit and/or cash flow effects related to business operations or financing. NOMINAL VALUES OF DERIVATIVE INSTRUMENTS EUR million 2020 2019 Derivative instruments designated for cash flow hedging Interest rate derivatives 20.0 20.0 Forward exchange contracts 29.4 24.4 Commodity derivatives, electricity 3.3 1.3 0.1TWh 0.1TWh Derivative instruments, non-hedge accounting Forward exchange contracts 5.0 3.9 Annual Report 202059 EUR million Interest rate swap 2020 2019 Carrying amount (liability) 1.0 1.2 Notional amount 20.0 20.0 Maturity date 04/2023 04/2023 Hedge ratio 1:1 1:1 Change in discounted value of outstanding hedging instruments since 1 January -0.3 -0.1 Change in value of hedged item used to determine hedge effectiveness 0.3 0.1 Weighted average hedged rate for the year 2.07% 1.99% EUR million Commodities - Electricity 2020 2019 Carrying amount (asset) 0.6 0.3 Notional amount 3.3 1.3 TWh 0.1 0.1 Maturity date 2021-2024 2020-2021 Hedge ratio 1:1 1:1 Change in discounted value of outstanding hedging instruments since 1 January 0.3 -1.0 Change in value of hedged item used to determine hedge effectiveness -0.3 1.0 Weighted average hedged price EUR/MWh 28.85 23.91 EUR million EURAUD EURUSD EURNOK EURSEK Foreign currency forwards 2020 2019 2020 2019 2020 2019 2020 2019 Carrying amount (asset) 0.0 0.0 - - - - - - Carrying amount (liability) - - -0.0 -0.0 -0.1 -0.0 -0.6 -0.3 Notional amount 1.7 1.5 2.2 1.4 2.5 1.8 20.7 18.2 Maturity date Feb-Dec 2021 Feb-Dec 2020 Feb-Dec 2021 Feb-Jun 2020 Feb-Dec 2021 Feb-May 2020 Feb-Dec 2021 Feb-Aug 2020 Hedge ratio 1:1 1:1 1:1 1:1 1:1 1:1 1:1 1:1 Change in discounted value of outstanding hedging instruments since 1 January 0.0 0.0 -0.0 -0.1 -0.0 -0.1 -0.3 -0.2 Change in value of hedged item used to determine hedge effectiveness -0.0 -0.0 0.0 0.1 0.0 0.1 0.3 0.2 EFFECTS OF HEDGE ACCOUNTING ON THE FINANCIAL POSITION AND PERFORMANCE Annual Report 202060 Positive and negative fair values of unrealised derivatives and their net amount are presented below. Interest and currency derivatives are under netting agreements. The master netting agreements in respect of derivatives do not meet the criteria for offsetting in the balance sheet owing to legally enforceable right not existing currently. OFFSETTING FINANCIAL ASSETS AND LIABILITIES 3.4. EQUITY Share capital Altia Plc’s share capital, paid in its entirety and registered in the trade register, was 60,480,378.36 euros at the end of 2020 and 2019. At the end of the financial period 2020 and 2019 there were 36,140,485 shares outstanding. All shares issued have been paid in full. The shares have no nominal value. Each share has one vote at the Annual General meeting and equal rights to dividend and other distribution of assets. The company does not hold its own shares. NUMBER OF SHARES Invested unrestricted equity fund The amounts paid for issued Personnel Shares in Altia’s listing have been recorded as invested unrestricted equity fund. Fair value reserve The fair value reserve represents the change in the fair value of financial assets measured at fair value through other comprehensive income Legal reserve Legal reserve represents statutory part of the foreign subsidiary’s result. Hedge reserve The hedge reserve includes the fair value changes of derivative instruments used for cash flow hedging for effective hedges. CASH FLOW HEDGE RESERVE EUR million 2020 2019 Derivative assets: Fair value, gross 0.7 0.4 Fair value, under netting agreements -0.0 -0.0 Fair value, net 0.6 0.3 Derivative liabilities: Fair value, gross 1.9 1.7 Fair value, under netting agreements -0.0 -0.0 Fair value, net 1.9 1.6 EUR million Currency forwards Interest rate swaps Commodities Total hedge reserves Opening balance 1 January 2019 -0.0 -1.0 1.1 0.0 Change in fair value of hedging instrument recognised in OCI 0.5 0.2 -0.2 0.5 Reclassified from OCI to profit or loss - included in purchases/sales adjustments -0.9 - - -0.9 Reclassified from OCI to financial income / expenses - -0.4 - -0.4 Reclassified from OCI to electricity purhases - - -0.5 -0.5 Deferred tax 0.1 0.2 -0.1 0.3 Closing balance 31 December 2019 -0.3 -1.0 0.2 -1.0 Change in fair value of hedging instrument recognised in OCI 0.2 0.4 0.1 0.7 Reclassified from OCI to profit or loss - included in purchases/sales adjustments -0.7 - - -0.7 Reclassified from OCI to financial income / expenses - -0.4 - -0.4 Reclassified from OCI to electricity purhases - - 0.3 0.3 Deferred tax 0.2 0.2 -0.1 0.2 Closing balance 31 December 2020 -0.6 -0.8 0.5 -0.9 2020 2019 Number of outstanding shares in the beginning of the financial year 36,140,485 36,140,485 Number of outstanding shares at the end of the financial year 36,140,485 36,140,485 Annual Report 202061 Translation differences Translation differences comprise all foreign exchange differences arising from the translation of the foreign subsidiaries’ financial statements. The Group’s accumulated translation differences amounted to negative EUR 20.5 million at 31 December 2020 (31.12.2019: negative EUR 22.1 million). Earnings per share Basic earnings per share is calculated by dividing the result for the period attributable to owners of the parent company by the weighted average number of shares outstanding during the reporting period. Diluted earnings per share has been calculated on the same basis as basic earnings per share except that it reflects the impact of any potential commitments the Group has to issue shares in the future. Altia has not issued any dilutive instruments during the periods presented. EARNINGS PER SHARE Dividend The Board of Directors proposes to the Annual General Meeting that dividend of EUR 0.35 per share be distributed for 2020. Arcus’ Board of Directors have similarly proposed to the Annual General Meeting of Arcus that an annual dividend of NOK 1.66 per share be paid for the financial year 2020, reflecting the relative value of Altia and Arcus agreed upon in the merger plan, meaning that dividends for the financial year 2020 to be paid by Altia and Arcus, respectively, will not have an impact on the agreed valuation of the companies for the purpose of the Altia and Arcus merger. Altia’s Board of Directors also proposes to the Annual General Meeting that the dividend authorisation decided by the Extraordinary General Meeting 2020 to pay an extra dividend of EUR 0.40 per share to Altia's shareholders in connection with and prior to the closing of the Altia and Arcus merger be renewed. A dividend for 2019 of EUR 0.21 per share, amounting to a total of EUR 7.6 million, was decided in the Annual General Meeting on 4 June 2020. The dividend was paid on 14 June 2020. Further, the AGM authorized the Board of Directors to resolve on the second payment of dividend, not exceeding EUR 0.21 per share. The second dividend instalment was paid on 25 November 2020. 2020 2019 Result attributable to the shareholders of the parent company, EUR million 17.8 18.4 Weighted average number of shares outstanding (1.000 pcs) 36.140 36.140 Basic and diluted earnings per share (EUR) 0.49 0.51 EUR million 31 Dec 2020 31 Dec 2019 Invested unrestricted equity fund 1.2 1.2 Retained earnings 95.7 70.9 Distribution of dividends -15.2 -13.7 Profit for the period 5.9 38.6 TOTAL DISTRIBUTABLE FUNDS 87.6 96.9 ALTIA PLC'S DISTRIBUTABLE FUNDS 4. Financial and capital risk 4.1. FINANCIAL RISK MANAGEMENT Financial risk management principles The aim of Altia's financial risk management is to ensure the Group’s financial stability and availability of sufficient financing options in different market situations. In addition, the aim is to support the business operations to identify business-related financial risks and their management, and to hedge against material financial risks. The Group is exposed to various market risks. Changes in these risks affect the company’s assets, liabilities and anticipated transactions. The risks are caused by changes in interest rates, currencies and commodity market prices. Selected derivative instruments can be used to manage the risks resulting from these market risks. Altia mainly hedges against risks that impact the Group’s cash flow, and, if deemed appropriate, also certain foreign currency denominated items in the balance sheet. Derivatives are solely used to hedging against the above- mentioned risks. The principles of IFRS 9 hedge accounting are applied to certain interest rate, foreign exchange as well as electricity derivatives. Financial risk management is executed as part of the Group’s risk management, according to the Risk Management Principles approved by the Board of Directors. Altia’s principles aiming towards financial, credit and operational continuity form the basis for financial risk management. Annual Report 202063 1. CURRENCY RISK Altia is exposed to currency risks resulting from export and import, intra-group trade across borders of the euro-area, as well as internal loans and investments in foreign subsidiaries. The objective of the Group’s currency risk management is to limit the uncertainties associated with foreign exchange rates and their effect on the Group’s profit, cash flows and balance sheet. Transaction risk Transaction risk is caused by foreign currency denominated items in the balance sheet and future cash flows related to sales, purchases and return of capital. Transaction risk management aims to hedge the Group’s profit against the effects of changes in foreign exchange rates. The objective is to hedge 60-80% of highly probable commercial cash flows. The average hedging ratio has remained at the target level. Hedging transactions are executed with forward exchange contracts or options for the following 12 months at the most, predominantly following the pricing periods of customers. Altia may apply cash flow hedge accounting to foreign exchange derivatives. Intra-group loan arrangements are hedged by 100% and hedge accounting is not applied to these arrangements. The two tables below present the Group’s net currency position, first on the basis of financial instruments recorded on the balance sheet and secondly including on a net basis also the estimated future foreign currency net cash flows. The currency position resulting from the financial instruments in accordance with IFRS 7 consists of trade receivables, trade payables, cash and cash equivalents, the Group’s internal and external loans and derivative instruments. The net currency risk has been taken into account in the table if the transaction currency is other than the company’s functional currency. Risk management process Special process features related to financing are described below in connection with the descriptions of market, liquidity and credit risks. The financial risk exposure is regularly reported to the Audit Committee and Altia’s Board of Directors. The most significant principle decisions concerning risk management are made by the company’s Board of Directors. As part of the financial risk management principles, Altia’s Board of Directors has approved a list of financial instruments, in which the accepted instruments, their purpose and the person who decides on their use have been specified for different types of financial risks. Financial risk management organisation Financial matters are reported regularly to the Group management. On a case-by-case basis, the Board of Directors processes all substantial financial matters, such as the Group’s internal and external loan arrangements. Tasks and responsibilities regarding Altia’s financial operations and financial risk management are described in the financial risk management principles. The Group Treasury is responsible for securing financing, identifying risks and, if required, executing hedging transactions with external counterparties. The business units and subsidiaries are responsible for managing the risks associated with their own operations and forecasting cash flows. Risk concentrations Altia carefully analyses the financial risks and risk concentrations related to its operations. Risk concentrations identified as a result of this assessment are described in connection with the descriptions of market and credit risks. Market risk Altia defines market risk as a risk where the fair values of financial instruments or future cash flows fluctuate as a result of changes in market prices. The most significant market risks for the Group are currency risk, interest rate risk and price risks for barley and electricity. Annual Report 202064 TABLE 1: THE GROUP’S NET CURRENCY POSITION AT 31 DECEMBER Translation risk Translation risk is mainly caused by the parent company’s foreign currency denominated net investments in foreign subsidiaries, which cause a translation difference in equity in the Group’s balance sheet upon consolidation. The Group Treasury regularly analyses the translation risk and reports any material issues to the management. The most significant net investments are denominated in the Swedish and Norwegian kroner. The translation risk has not been hedged. 2. INTEREST RATE RISK The objective of interest rate risk management is to minimise the impact of fluctuations arising from interest rate changes on the Group’s profit. At 31 December 2020 the total nominal amount of loans was EUR 76.3 million (2019: 82.8) and was divided as follows: • The EUR10.0 million loan matures in January 2022 with annual EUR 5 million instalments. The interest rate on the loan is based on three –month market rate. Currently these interest payments are not hedged. • The EUR 55.0 million portion of the loan matures in January 2023. The interest rate on the loan is based on three-month market rate. Altia has hedged these interest payments to fixed interest rate by using an interest rate derivative amounting to EUR 20 million. Hedge accounting principles are applied to this interest rate derivative. The hedge has been regarded as effective. • The EUR 11.3 million pension loan matures in January 2028. The interest rate is fixed for the whole loan period. The maximum amount under Altia’s domestic commercial paper program is EUR 100 million. The amount of issued commercial papers at 31 December 2020 was EUR 40.0 (2019: 0.0) million. Altia’s maximum limit for sale of trade receivables amounts to EUR 145 million and is approved by Board of Directors. The sold trade receivables are derecognised at the time of trade with no obligation to repurchase. The related costs are recognised in other financial expenses. The trade receivables are current receivables and the related interest rate risk is not hedged. The amount of the sold trade receivables was EUR 91.9 million at 31 December 2020 (2019: 76.7 million). 3. PRICE RISK ASSOCIATED WITH COMMODITIES Barley In 2020, Altia used approximately 214 (212) million kilos of Finnish grain to produce ethanol and starch. The availability of high-quality domestic barley is ensured with contract cultivation and cooperation with grain growers and grain handling companies. The market price of barley fluctuates significantly year by year as a result of various factors that affect the Finnish barley supply and demand and is therefore considered a significant risk for Altia. The price risk has not been hedged with derivative instruments. Electricity Strong increase in the market price of electricity is a significant risk for Altia. The risk is managed by following Altia’s principles for electricity procurement. These principles determine the hedging limits, within which the electricity price risk is hedged. The hedges are done with OTC-derivatives of Nasdaq OMX Oslo ASA. The hedging service for electricity procurement has been outsourced. Cash flow hedge accounting in accordance with IFRS 9 is applied to the hedges against electricity price risk, and hedge effectiveness is tested quarterly. The hedged risk is the euro dominated sourcing of electricity in Finland. To hedge the risk system priced, Finnish price area and price area derivative is used. With system priced derivatives is hedged Nordic electricity price and with price area derivative is hedged the price difference between Finnish price area and system price. At the end of 2020, the hedging ratio for deliveries for the next 12 months was 74.7% (2019: 53.7%), in line with the set targets. In 2020 the average hedging ratio was 72.1% (66.0%). All hedging was effective in 2020 as it was in 2019. Altia purchases its electricity straight from the Nord Pool Spot markets as a delivery tied to the spot price of the Finnish price area. The Group's net currency position at 31 December including also the hedged commercial cash flows EUR million 2020 2019 EUR-SEK 2.4 1.8 EUR-NOK 1.9 0.3 EUR-USD -0.2 0.3 EUR-AUD 0.1 0.2 The net currency position resulting from the financial instruments in accordance with IFRS 7 EUR million 2020 2019 EUR-SEK -18.3 -16.4 EUR-NOK -0.6 -1.6 EUR-USD 3.8 2.7 EUR-AUD 1.8 1.7 Annual Report 202065 4. SENSITIVITY TO MARKET RISKS The following table describes the sensitivity of the Group’s profit and equity (before taxes) to changes in electricity prices, interest and foreign exchange rates. When Altia applies hedge accounting, the sensitivity is directed at equity. When hedge accounting is not applied, the sensitivity is recognised as a potential impact on profit or loss. The sensitivity to foreign exchange rate changes is calculated from the net currency position resulting from financial instruments. TABLE 2: SENSITIVITY ANALYSES At the end of 2020 the total group floating rate liability position consists of floating rate liabilities EUR 65.0 million (2019: EUR 70.0 million) and floating leg of interest rate swap EUR 20.0 million (2019: EUR 20.0 million) which is netting the interest rate risk. Liquidity risk The management has analyzed that the liquidity risk has not increased significantly due to COVID-19. Group’s liquidity position has been strong throughout the year due to the positive development of operational cash flow and the actions to secure liquidity during the pandemic by issuing commercial papers. In order to manage the liquidity risk, Altia continuously maintains sufficient liquidity reserves, which at the end of 2020 comprised Group’s EUR 10 million overdraft facility and a EUR 60 million revolving credit facility. At the end of December 2020 no revolving credit facility was in use (2019: EUR 0.0 million). The revolving credit facility matures in January 2023. More detailed information on the Group’s external loans is provided in the interest rate risk section. TABLE 3: LIQUIDITY RESERVES Sensitivity of financial instruments to market risks (before taxes) in accordance with IFRS 7 2020 2019 EUR million Income statement Equity Income statement Equity +/-10% electricity - +/-0.4 - +/-0.2 +/-10% change in EUR/NOK exchange rate -/+0.2 +/-0.3 -/+0.0 +/-0.2 +/-10% change in EUR/SEK exchange rate -/+0.2 +/-2.1 -/+0.2 +/-1.8 +/-10% change in EUR/USD exchange rate +/-0.0 -/+0.4 -/+0.0 -/+0.2 +/-10% change in EUR/AUD exchange rate -/+0.0 -/+0.2 -/+0.0 -/+0.2 +1%-points parallel shift in interest rates -0.5 +0.2 -0.5 +0.4 +10% increase in EUR/SEK exchange rate would have an EUR -0.2 million effect in income statement. Other risks with same principle. Cash and cash equivalents and unused committed credit limits EUR million 2020 2019 Cash and cash equivalents 130.7 64.2 Overdraft facilities 10.0 10.0 Revolving credit line 60.0 60.0 TOTAL 200.7 134.2 Annual Report 202066 TABLE 4: MATURITIES OF FINANCIAL LIABILITIES Contractual payments on financial liabilities 2020 Cash flows 2021 Cash flows 2022 Cash flows 2023- EUR million Total contractual cash flows Fixed rate Variable rate Re-payment Fixed rate Variable rate Re-payment Fixed rate Variable rate Re-payment Non-derivative: Loans from financial institutions 1 -66.3 - -0.6 -5.0 - -0.6 -5.0 - -0.1 -55.0 Loans from pension institutions 2 -11.8 -0.1 - -1.5 -0.1 - -1.5 -0.3 - -8.3 Lease liabilities -10.7 - - -3.4 - - -3.1 - - -4.1 Trade payables -29.6 - - -29.6 - - - - - - Derivative: Currency derivatives, hedge accounting Inflow 28.9 - - 28.9 - - - - - - Outflow -29.7 - - -29.7 - - - - - - Currency derivatives, non-hedge accounting Inflow 5.0 - - 5.0 - - - - - - Outflow -5.2 - - -5.2 - - - - - - Interest rate derivatives, hedge accounting -1.0 -0.4 - - -0.4 - - -0.1 - - Commodity derivatives, hedge accounting -0.6 - - -0.3 - - -0.2 - - -0.1 TOTAL -120.9 -0.6 -0.6 -40.8 -0.5 -0.6 -9.9 -0.4 -0.1 -67.5 1 Loans from financial institutions mature 2022 and 2023 2 Loans from pension institutions mature 2028 Annual Report 202067 TABLE 4: MATURITIES OF FINANCIAL LIABILITIES Contractual payments on financial liabilities 2019 Cash flows 2020 Cash flows 2021 Cash flows 2022- EUR million Total contractual cash flows Fixed rate Variable rate Re-payment Fixed rate Variable rate Re-payment Fixed rate Variable rate Re-payment Non-derivative: Loans from financial institutions 1 -72.2 - -0.7 -5.0 - -0.7 -5.0 - -0.8 -60.0 Loans from pension institutions 2 -13.4 -0.1 - -1.5 -0.1 - -1.5 -0.4 - -9.8 Lease liabilities -10.5 - - -3.4 - - -3.0 - - -4.1 Trade payables -25.7 - - -25.7 - - - - - - Derivative: Currency derivatives, hedge accounting Inflow 24.2 - - 24.2 - - - - - - Outflow -24.6 - - -24.6 - - - - - - Currency derivatives, non-hedge accounting Inflow 3.9 - - 3.9 - - - - - - Outflow -3.9 - - -3.9 - - - - - - Interest rate derivatives, hedge accounting -1.2 -0.4 - - -0.4 - - -0.5 - - Commodity derivatives, hedge accounting -0.3 - - -0.2 - - -0.1 - - - TOTAL -123.8 -0.5 -0.7 -36.3 -0.5 -0.7 -9.6 -0.9 -0.8 -73.9 1 Loans from financial institutions mature 2022 and 2023 2 Loans from pension institutions mature 2028 Annual Report 202068 Credit risk The objective of Altia’s credit risk management is to minimise the losses if one of the Group’s counterparties fails to meet its obligations. The principles of credit risk management are described in the Group’s credit policy. Credit risks are caused by a counterparty not fulfilling its contractual payment obligations or the counterparty’s credit rating changing in a manner that affects the market value of the financial instruments it has issued. Due to the COVID-19 pandemic, Altia reviewed its credit risk more carefully in 2020. The maximum amount of credit risk is equal to the carrying amount of the Group’s financial assets. No significant risk concentrations relate to trade receivables. Historically the amount of overdue trade receivables have been low and the amount of overdue receivables have not materially increased due to COVID-19. The aim is to minimise credit risks by active credit management and by taking into account customers’ credit rating when determining the payment term of invoices. 4.2. CAPITAL RISK MANAGEMENT The target of Altia’s capital management is to secure an effective capital structure that supports the profitable growth of the operations. The Board of Directors monitors the Group’s capital structure regularly. Altia monitors its capital based on gearing (the ratio of interest-bearing net liabilities to equity). Interest- bearing net liabilities consist of the borrowings and lease liabilities less cash and cash equivalents. The current level of gearing is distinctly lower than the limit determined in the Group’s loan terms. During the business cycle, the company’s net gearing is likely to fluctuate, and the objective is to retain a sufficiently strong capital structure to secure the Group’s financing needs. At 31 December 2020 and 31 December 2019 the gearing ratio was as follows: TABLE 5: GEARING Gearing as of 31 December, EUR million 2020 2019 Borrowings 116.1 82.6 Lease liabilities 10.7 10.5 Cash and cash equivalents 130.7 64.2 Net debt -3.9 28.9 Total equity 156.3 151.2 GEARING AT 31 DECEMBER -2.5% 19.1% 5. Consolidation 5.1 GENERAL CONSOLIDATION PRINCIPLES Consolidation Consolidation, consolidation method and classification of ownership interests depends on whether the Group has power to control or jointly control the entity or have significant influence or other interests in the entity. When the Group has power to control the entity, it is consolidated as a subsidiary according to principles described in Note 5.2. Subsidiaries. When the Group has joint control or significant influence over an entity but does not have power to control, entity is accounted for by using the principles set in Note 5.3. Associated companies, joint ventures and interests in joint operations. If the Group does not have power to control nor significant influence in the entity, its ownership interests are classified as Financial assets at fair value through other comprehensive income and accounted for according to principles described in Note 3.2.1. Foreign currency items The consolidated financial statements are presented in euro, which is the functional and presentation currency of the parent company. Transactions in foreign currencies are translated to euro at average foreign exchange rates published by the European Central Bank on banking days. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to euro at the average exchange rates prevailing at that date. Foreign currency differences arising on translation are recognised in profit or loss. Foreign exchange gains and losses related to purchases and sales are recognised in the respective items and included in operating result. Foreign currency gains and losses arising from loans denominated in foreign currencies are recognised in finance income and expenses. Income and expenses for the statements of comprehensive income of foreign subsidiaries that operate outside the eurozone are translated using the average rates of the European Central Bank’s exchange rates at the end of the month. The statements of financial position of foreign subsidiaries are translated using the average exchange rates ruling at the reporting date. Foreign currency differences arising on the translation of profit or loss for the period with different exchange rates in the statement of comprehensive income and in the balance sheet are recognised in other comprehensive income and included in translation differences in equity. Changes in translation differences are recognised in other comprehensive income. In the consolidated financial statements, exchange rate differences arising from the translation of foreign currency denominated loans to foreign subsidiaries, which form a part of net investments in foreign companies, are recognised in other comprehensive income and included in translation differences within equity. Translation differences arising from elimination of the cost of foreign subsidiaries and from translation of the foreign subsidiaries’ post-acquisition profits and losses are recognised in other comprehensive income and presented as a separate item within equity. Goodwill and the fair value adjustments to the carrying amounts of assets and liabilities of foreign units are accounted for as assets and liabilities of the respective foreign units, which are translated to euro at the exchange rates prevailing at the reporting date. If these foreign units are entirely or partly disposed of, related exchange rate differences are recognised in profit or loss as part of the gain or loss on disposal. 5.2. SUBSIDIARIES Subsidiaries consolidation principles Consolidated financial statements of Altia include the parent company, Altia Plc, and all subsidiaries. Subsidiaries are all those in which the parent company exercises control. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of acquired subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All business combinations are accounted for by using the acquisition method. The consideration transferred and the identifiable assets acquired and liabilities assumed in the acquired company are measured at fair value at the acquisition date. The amount exceeding the aggregate of the consideration transferred, the amount of non-controlling interests and any previously held equity interest in the acquiree, over the fair value of the net assets acquired is recorded as goodwill. All acquisition-related costs, with the exception of costs to issue debt or equity securities, are expensed. The consideration transferred does not include any transactions accounted for separately from the acquisition. Any contingent consideration is recognised at fair value at the acquisition date and it is classified as either liability or equity. Contingent consideration classified as a liability is measured at fair value at each reporting date and any resulting gain or loss is recognised in profit or loss. Intra-group transactions, receivables, liabilities and unrealised gains, as well as the distribution of profits within the Group are eliminated in preparing the consolidated financial statements. Unrealised losses are not eliminated if the loss in question results from impairment. The Group had no non-controlling interests at 31 December 2020 or 31 December 2019. Annual Report 202070 Altia Plc had 12 subsidiaries at the end of the reporting period (23 subsidiaries at 31 December 2019). In order to simplify the Group structure, Altia Oyj’s Finnish subsidiaries A-Beverages Oy, Alpha Beverages Oy, ExCellar Oy, Harald Zetterström oy /ab and Prime Wines Oy were merged to Altia Oyj and all Swedish subsidiaries Altia Holding Sweden AB, Altia Sweden Services AB, BevCo AB, Bibendum AB, Philipson&Söderberg AB and Vinuversum AB to Altia Sweden AB as of 30 April 2020. Parent company's share of ownership (%) Group's share of ownership (%) Country of incorporation Altia Eesti AS 100.00 100.00 Estonia Altia Denmark A/S 100.00 100.00 Denmark SIA Altia Latvia 100.00 100.00 Latvia Altia Norway AS 100.00 100.00 Norway Altia Sweden AB 100.00 100.00 Sweden Best Buys International AS 100.00 100.00 Norway Bibendum AS 100.00 100.00 Norway Interbev AS 100.00 100.00 Norway Larsen SAS 100.00 100.00 France Premium Wines AS 100.00 100.00 Norway Ström AS 100.00 100.00 Norway Oy Wennerco Ab 100.00 100.00 Finland 5.3. ASSOCIATED COMPANIES AND JOINT ARRANGEMENTS Associated companies Associated companies are all entities over which the Group accompanies a shareholding of over 20% of voting rights or otherwise has significant influence, but not control. Altia has an investment in an associated company Palpa Lasi Oy. Associated companies are consolidated by using the equity method. Under the equity method, the investment is initially recognised at cost and subsequently adjusted with the change in the net assets of the investee after the acquisition date, consistent with the ownership interest of the Group. After the acquisition the Group’s share in the associated company’s profit and loss for the period is separately disclosed after operating result. If the Group’s share in the associated company’s loss exceeds the carrying amount of the investment, the investment is recognised at zero value in the consolidated balance sheet and the loss exceeding the carrying amount is not consolidated, unless the Group has committed to fulfil the company’s obligations. An investment in an associated company includes goodwill arisen on acquisition. The Group’s share in changes in the associated company’s other comprehensive income is recognised in consolidated other comprehensive income. Results from the transactions between the Group and its associates are recognised only to the extent of unrelated investor’s interests in the associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. In case of such indications, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its’ carrying value. The impairment is recognised in share of results in associated companies. Financial statements of associated companies have been changed where necessary to correspond with the accounting policies adopted by the Group. If financial statements for the period are not available, the share of the profit is included in the consolidated financial statements based on the preliminary financial statements or latest available information. Annual Report 202071 Joint arrangements A joint arrangement is an arrangement of which two or more parties have contractually agreed joint control which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. Altia has an interest through a receivable in Roal Oy based on the contractual relationship with the other party to the joint operation. The interest in Roal Oy is accounted for as a joint operation. Joint ventures are consolidated by using the equity method. Altia has an investment in a joint venture Von Elk Company. ASSOCIATED COMPANIES AND JOINT ARRANGEMENTS 2020 Share of ownership % 2019 Share of ownership % Roal Oy, Finland 50.00 50.00 Palpa Lasi Oy, Finland 25.53 25.53 Von Elk Company Oy, Finland 20.00 20.00 Roal Oy engages enzyme business. The joint operation’s other owner is ABF Overseas Ltd. Altia has joint control over Roal but the option right held by the other shareholder represents in substance a receivable with a fixed rate of return and Altia does not have a right to 50% of the net assets until the option lapses. Accordingly, the interest is classified as a joint operation with Altia accounting for its share of assets as a receivable with the annual minimum dividend accounted for as interest income. The receivable amounted to EUR 7.6 million as at 31 December 2020 and 31 December 2019. Palpa Lasi Oy engages in the recycling and re-use of glass beverage packages. Von Elk Company is a Finnish family enterprise which engages in alcoholic beverage business. INVESTMENTS IN ASSOCIATED COMPANIES AND JOINT VENTURES EUR million 2020 2019 At the beginning of the period 1.2 0.3 Additions - 0.2 Share of result for the period 0.3 0.7 At the end of the reporting period 1.5 1.2 FINANCIAL SUMMARY OF ASSOCIATED COMPANIES AND JOINT VENTURES EUR million 2020 2019 Assets 8.7 8.8 Liabilities 3.3 4.9 Net assets 5.4 3.9 Net sales 16.4 18.5 Result for the period 1.3 2.6 Related party transactions with associated companies and joint arrangements are presented in Note 6.3. Annual Report 202072 6. Other notes 6.1. INCOME TAX EXPENSE Income tax expense The Group’s income tax expense recognised through profit or loss comprises current tax based on taxable income for the period, any adjustments to tax payable in respect of previous periods and deferred taxes. Current income tax based on taxable income is calculated according to the local tax regulations of each Group company. Tax effects related to transactions or other events recognised in profit or loss are recognised in profit or loss. If the taxes relate to items of other comprehensive income or transactions or other events recognised directly in equity, income tax expense is recognised within the respective items. The Group’s share of profit or loss in associated companies and joint ventures is reported as calculated from the net profit and thus including the income tax effect. Deferred tax assets and liabilities are principally recognised for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The most significant temporary differences arise from property, plant and equipment Annual Report 202074 and intangible assets, carry forward of unused tax losses and fair value allocations on business combinations. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax liabilities are recognised in full. Deferred taxes are calculated using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax is recognised for foreign subsidiaries undistributed earnings only when related tax effects are probable. Deferred tax assets and liabilities are set off when they are levied by same taxing authority and Altia has legally enforceable right to set off the balances. Critical estimates and management judgements – Deferred tax assets Judgment is required in assessing whether deferred tax assets are recognised on the balance sheet. Deferred tax assets are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These future cash flow estimates depend on estimates of future sales volumes, price levels of main raw materials, capital expenditure and other components affecting profitability of the operations. These estimates and assumptions are subject to risk and uncertainty, hence it is possible that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets recognised on the balance sheet and the amount of any other tax losses and temporary differences not yet recognised. Altia’s ability to generate taxable profit is also subject to general economic, financial, competitive, legislative and regulatory factors that are beyond its control. If Altia generates lower future taxable profits than what management has assumed in determining the amounts of the recognised deferred tax assets, the assets would become impaired, either partly or in full. Accordingly, amounts recognised in balance sheet could potentially be reversed through profit and loss. Changes in circumstances may also result in recognition of deferred tax assets for tax losses not yet recognised as an asset. Uncertain tax positions The tax positions are evaluated in periodically by the management to identify the situations in which tax regulation is subject to interpretation. Based on the evaluation uncertain tax positions are recognized when it is more likely than not that certain tax position will be challenged by tax authorities. The impact of the uncertainty is measured using either the most likely amount or the expected value method, depending on which method better predicts the resolution of the uncertainty. INCOME TAX EXPENSE EUR million 2020 2019 Current income tax expense 4.4 5.3 Adjustments to taxes for prior periods -0.0 0.7 Deferred taxes: Origination and reversal of temporary differences -0.8 0.2 Impact of changes in tax rates -0.1 - TOTAL 3.5 6.2 The reconciliation of the tax expense recognised in profit and loss and the tax expense calculated using Altia Group's domestic corporate tax rate (20.0%): EUR million 2020 2019 Result before taxes 21.3 24.6 Income tax using the parent company’s tax rate 4.3 4.9 Effect of tax rates of subsidiaries in foreign jurisdictions -0.0 -0.0 Tax-exempt income -0.2 -0.2 Non-deductible expenses 0.1 0.2 Adjustments to taxes for prior periods -0.0 0.7 Share of profit in associated companies, net of tax -0.1 -0.1 Effect of changes in tax rates -0.1 - Tax on undistributed earnings 0.1 0.1 Other items -0.6 0.6 TAX EXPENSE IN PROFIT OR LOSS 3.5 6.2 Annual Report 202075 INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME 2020 EUR million Before tax Tax Net of tax Cash flow hedges 0.2 -0.0 0.2 Translation differences 1.8 - 1.8 Remeasurements of post-employment benefit obligations 0.2 -0.0 0.2 TOTAL 2.3 -0.1 2.2 2019 EUR million Before tax Tax Net of tax Cash flow hedges -1.3 0.3 -1.0 Translation differences -2.4 - -2.4 Remeasurements of post-employment benefit obligations -0.2 0.0 -0.2 TOTAL -3.9 0.3 -3.6 Annual Report 202076 DEFERRED TAX ASSETS AND LIABILITIES Change in deferred tax assets and liabilities during 2020: EUR million 1 Jan 2020 Recognised in profit or loss Recognised in other comprehensive income Exchange rate differences 31 Dec 2020 Deferred tax assets: Tax losses 0.0 0.6 - 0.0 0.6 Fixed assets 1.7 -0.3 - -0.0 1.3 Pension benefits 0.3 -0.0 -0.0 -0.0 0.2 Internal margin of inventories 0.1 -0.0 - 0.0 0.1 Recognised in hedge reserve 0.3 - -0.0 0.0 0.2 Other temporary differences 0.2 0.0 - -0.0 0.2 Total deferred tax assets 2.5 0.3 -0.1 -0.0 2.7 Offset against deferred tax liabilities -1.6 -1.3 Net deferred tax assets 0.9 1.4 Deferred tax liabilities: Fixed assets 5.2 -0.6 - 0.0 4.6 Fair value allocation on acquisitions 1.7 -0.3 - 0.1 1.4 Deductable goodwill depreciation 9.6 0.0 - 0.2 9.9 Undistributed profits of foreign subsidiaries 1.8 0.1 - - 1.9 Other temporary differences 0.0 0.2 - - 0.2 Total deferred tax liabilities 18.3 -0.6 - 0.3 18.0 Offset against deferred tax assets -1.6 -1.3 Net deferred tax liabilities 16.7 16.8 Annual Report 202077 Change in deferred tax assets and liabilities during 2019: EUR million 1 Jan 2019 Recognised in profit or loss Recognised in other comprehensive income Exchange rate differences 31 Dec 2020 Deferred tax assets: Tax losses 0.1 -0.1 - 0.0 0.0 Fixed assets 2.0 -0.3 - 0.0 1.7 Pension benefits 0.3 -0.0 0.0 0.0 0.3 Provisions 0.1 -0.1 - - 0.0 Internal margin of inventories 0.1 0.0 - -0.0 0.1 Recognised in hedge reserve 0.0 - 0.2 -0.0 0.3 Other temporary differences 0.1 0.1 - 0.0 0.2 Total deferred tax assets 2.7 -0.5 0.3 0.0 2.5 Offset against deferred tax liabilities -1.9 -1.6 Net deferred tax assets 0.8 0.9 Deferred tax liabilities: Fixed assets 5.2 -0.0 - -0.0 5.2 Recognised in hedge reserve 0.0 - -0.0 0.0 0.0 Fair value allocation on acquisitions 2.1 -0.4 - -0.0 1.7 Deductable goodwill depreciation 9.7 0.0 - -0.1 9.6 Undistributed profits of foreign subsidiaries 1.7 0.1 - - 1.8 Other temporary differences 0.0 - - - 0.0 Total deferred tax liabilities 18.8 -0.3 -0.0 -0.1 18.3 Offset against deferred tax assets -1.9 -1.6 Net deferred tax liabilities 16.8 16.7 At 31 December 2020, the Group had EUR 1.0 million (2019: EUR 1.6 million) of tax loss carry forwards for which no deferred tax was recognised. EUR 0.9 million of these temporary differences expire in two years. Altia management estimates these losses arise in subsidiaries which have neither indication of future taxable income nor other convincing evidence that tax losses can be utilised and deferred tax asset be recognised in balance sheet. Altia Oyj’s fully owned French subsidiary Larsen SAS has been undergoing a regular audit by the local tax authorities. In December 2019 the company received the tax assessment decision regarding the outcome of the audit resulting in a tax claim amounting to EUR 1.1 million relating to the mark-up used in the transfer pricing for products sold to other Group companies. Based on the tax assessment the company has accrued for the tax claim in the 2019 financial statements. Altia Group has however submitted its counter arguments against the claim and case is still ongoing. Should the French authorities maintain its position, Altia Group will proceed through the Mutual Agreement Procedure (MAP) with the aim to eliminate a potential double taxation related to the increased mark-up in France which is to be deducted in the tax jurisdictions where the Altia Group companies buying the products have been operating. Altia has recorded a EUR 0.4 million tax receivable in respect of the potential MAP application. Annual Report 202078 6.2. COLLATERALS, COMMITMENTS AND CONTINGENT ASSETS AND LIABILITIES EUR million 2020 2019 Collaterals and commitments Collaterals given on behalf of Group companies Mortgages 18.5 18.5 Guarantees 3.8 5.9 TOTAL COLLATERALS 22.3 24.4 Commitments Short-term and low value lease obligations Less than one year 0.1 0.2 Between one and five years 0.1 0.1 Total short-term and low value lease obligations 0.2 0.3 Other commitments 19.1 20.8 TOTAL COMMITMENTS 19.4 21.1 Collaterals given on behalf of Group companies all relate to commitments to authorities. Short-term and low value obligations consists mainly of laptops. Other commitments include mainly purchase obligations of wine and cognac. Assets not recognized in the balance sheet, emission allowances The Group participates in the European Union emission trading scheme, where it has been granted a certain number of carbon dioxide emission allowances for a certain period of time, free of charge. Altia Plc discloses its carbon dioxide emission allowances granted free of charge on net basis. Following from this, the Group does not recognise in the balance sheet the granted emission allowances, nor the obligation to deliver allowances corresponding to the realised emissions. The Group does not recognise income or expenses arising from emission allowances through profit or loss when the emission allowances granted are sufficient to cover the obligation to deliver allowances corresponding to the amount of emissions made. If the realised emissions exceed the granted emission allowances, the obligation arising from the excess emissions is recognised at fair value as a liability in the balance sheet at the reporting date. If the realised emissions fall below the granted emission allowances, the difference is not recognised in the balance sheet but it is disclosed in the notes to the financial statements, measured at fair value. Altia´s actual emissions are below the emission allowances granted. The following table presents changes in allowances for financial years 2020 and 2019, as well as their fair values: Emission allowances, kilotons 2020 2019 Emission allowances received 26.4 26.4 Excess emission allowances from the previous period 4.0 30.6 Adjustments related to prior year's estimates - -0.0 Sold emission allowances - -33.0 Realised emissions -19.6 -20.0 EMISSION ALLOWANCES AT 31 DECEMBER 10.9 4.0 Fair value of emission allowances at 31 December, EUR million 0.3 0.1 The emission allowances received during year 2020 and the realised emissions are estimates, which will be adjusted during the spring 2021. Altia continues to operate within the emission trading system for the trading period 2021–2030. Annual Report 202079 6.3. RELATED PARTY TRANSACTIONS The Company's related parties include the subsidiaries, associated companies, joint ventures and joint operations. The subsidiaries are presented in Note 5.2 and associated companies, joint ventures and joint operations in Note 5.3. Related party transactions include such operations that are not eliminated in the Group´s consolidated financial statements. Related party also include the Board of Directors, the CEO, the members of the Executive Management Team and their family members as well as entities controlled or jointly controlled by these persons. Also, entities that are controlled or jointly controlled by, or are associates of the State, are related parties of Altia. Altia has applied the exemption to report only material transactions with the government related entities. Transactions with related parties are entered into on market terms. Altia has related party transactions on a continuous basis with its major customer Alko. Transactions with Alko have been presented below under Other companies considered related parties. THE FOLLOWING TRANSACTIONS HAVE TAKEN PLACE WITH RELATED PARTIES EUR million 2020 2019 Sales of goods and services Associates, joint ventures and joint operations 1.0 0.8 Other companies considered related parties 83.1 76.5 TOTAL 84.0 77.3 Purchases of goods and services Associates, joint ventures and joint operations 1.7 1.9 Other companies considered related parties 1.7 1.2 TOTAL 3.4 3.2 Outstanding balances from sales and purchases of goods and services Receivables Other companies considered related parties 0.9 0.9 Payables Associates, joint ventures and joint operations 0.5 0.2 Other companies considered related parties 0.2 0.1 MANAGEMENT REMUNERATION EUR million 2020 2019 CEO Salaries and other short-term employee benefits 0.3 0.3 Performance bonus and the bonuses from long-term incentive plan 0.3 - Pension benefits 0.1 0.1 TOTAL 0.7 0.4 Members of the Executive Management Team (CEO not included) Salaries and other short-term employee benefits 1.5 1.2 Bonuses from long-term incentive plan 0.1 - Pension benefits 0.3 0.2 TOTAL 1.9 1.4 Members and deputy members of the Board of Directors 0.4 0.3 No monetary loans have been granted to the CEO or the members of the Board of Directors, nor any collaterals or commitments granted on their behalf. The retirement age of the CEO of the parent company is 63 years. Annual Report 202080 6.4. SHARE-BASED PAYMENTS The Group has share-based incentive plan which is settled in shares and in cash. The granted shares are measured at fair value at a grant date and are recognized as personnel expenses over the vesting period with corresponding increase in equity. Non-market conditions are not included in fair value of share- based instruments but in the number of instruments that are expected to vest. At each reporting period closing date, the estimates about number of instruments are revised and the impact is recognized in income statement. Also share-based payments to be paid in cash are classified as paid by equity and recognized in equity measured at fair value at grant date. The Board of Directors of Altia Plc decided on the establishment of a share-based long-term incentive scheme for the management and key employees of Altia Group 2019. The objectives of the share-based long-term incentive scheme are to align the interests of Altia’s management and key employees with those of the Company’s shareholders and, thus, to promote shareholder value creation in the long term, and to commit the management and key employees to achieving Altia’s strategic targets as well as the retention of Altia’s valuable key resources. PSP 2019-2021 performance period started in the beginning of 2019 and the potential share reward will be paid in spring 2022 in Altia shares. The performance targets based on which the potential share reward under PSP 2019-2021 will be paid are the relative total shareholder return (relative TSR) of Altia’s share and earnings per share (EPS). Approximately 20 individuals are included into the plan. If all the performance targets set for PSP 2019–2021 are fully achieved, the aggregate maximum number of shares to be paid based on the plan is approximately 250 000 Altia shares. This number of shares represents a gross earning, from which the applicable payroll tax is withheld, and the remaining net value is paid to the participants in shares. The combined amount of variable compensation paid to an individual participant any given year, including the long-term incentive scheme and the short-term incentive scheme, may not exceed 120% of the individual's annual gross base salary. If the individual’s employment with Altia Group terminates before the payment date of the share reward, the individual is, as a main rule, not entitled to any reward based on the plan. Altia applies a share ownership recommendation to the members of its Executive Management Team. According to this recommendation each member of the Executive Management Team is expected to retain in his/her ownership at least half of the net shares received under the share-based incentive schemes of Altia until the value of his/her share ownership in Altia corresponds to at least his/her annual gross base salary. The Board of Directors of Altia Plc has decided on a new earning period in the share-based long-term incentive scheme for the management and key employees of Altia Group. The objectives of the share-based long-term incentive scheme are to align the interests of Altia’s management and key employees with those of the Company’s shareholders and, thus, to promote shareholder value creation in the long term, and to commit the management and key employees to achieving Altia’s strategic targets as well as the retention of Altia’s valuable key resources. PSP 2020-2022 performance period started in the beginning of 2020 and the potential share reward will be paid in spring 2023 in Altia shares. The performance targets based on which the potential share reward under PSP 2020-2022 will be paid are the relative total shareholder return (relative TSR) of Altia’s share and earnings per share (EPS). Approximately 25 individuals are included into the plan. If all the performance targets set for PSP 2020–2022 are fully achieved, the aggregate maximum number of shares to be paid based on the plan is approximately 271 000 Altia shares. This number of shares represents a gross earning, from which the applicable payroll tax is withheld and the remaining net value is paid to the participants in shares. The combined amount of variable compensation paid to an individual participant any given year, including the long-term incentive scheme and the short-term incentive scheme, may not exceed 120% of the individual' annual gross base salary. If the individual’s employment with Altia Group terminates before the payment date of the share reward, the individual is, as a main rule, not entitled to any reward based on the plan. Altia applies a share ownership recommendation to the members of its Executive Management Team. According to this recommendation each member of the Executive Management Team is expected to retain in his/her ownership at least half of the net shares received under the share-based incentive schemes of Altia until the value of his/her share ownership in Altia corresponds to at least his/her annual gross base salary. Annual Report 202081 The following tables summarize the terms and assumptions used in accounting for share-based incentives during the period 1.1.2020-31.12.2020: Plan Long-term incentive Plan 2019-2024 Long-term incentive Plan 2019-2024 Type share share Instrument Performance period 2020-2022 Performance period 2019-2021 Grant date 21/02/2020 28/02/2019 Beginning of earning period 01/01/2020 01/01/2019 End of the earning period 31/12/2022 31/12/2021 Vesting date 31/03/2023 31/03/2022 Vesting conditions Relative TSR and EPS Relative TSR and EPS Maximum contractual life, years 3.25 3.25 Remaining contractual life, years 2.25 1.25 Number of persons at the end of reporting year 21 17 Payment method Cash and equity Cash and equity Changes during period Performance period 2020-2022 Performance period 2019-2021 Outstanding in the beginning of the period - 219,000 Granted during the period 251,000 - Forfeited during the period 17,500 17,500 Outstanding at the end of the period 233,500 201,500 Fair-value determination, valuation parameters for instruments granted during the period Share price at grant, € 8.56 Share price at the reporting period end, € 9.98 Expected dividends, € 1.76 Risk free rate, % -0.01 Fair value, € 728,514 EFFECT OF SHARE -BASED INCENTIVES ON THE RESULT: EUR million 2020 2019 Expenses for the financial year, share based payments paid in equity 0.1 0.0 Expenses for the financial year, share based payments paid in cash 0.2 0.1 Total 0.3 0.1 6.5. ADOPTION OF NEW OR AMENDED IFRS STANDARDS AND INTERPRETATIONS Altia has adopted following new accounting standards issued by the International Accounting Standards Board effective on January 1, 2020: Amendments to IFRS 3 Business Combinations: The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of the term ‘outputs’ is amended to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which use a consistent definition of materiality throughout International Financial Reporting Standards and the Conceptual Framework for Financial Reporting, clarify when information is material and incorporate some of the guidance in IAS 1 about immaterial information. The amendments have no impact on the consolidated financial statements. Temporary amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform The IASB has amended the hedge accounting requirements in IFRS 9 and IAS 39, and the related standard for disclosures, IFRS 7. The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments have no impact on the consolidated financial statements. Amendment to IFRS 16 Leases Covid-19-Related Rent Concessions: The amendment introduces an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of the COVID-19 pandemic. A lessee that applies the practical expedient is not required to assess whether eligible rent concessions are lease modifications when the criteria presented in the amendment are met. The amendment does not have a significant impact on the consolidated financial statements. In 2021 or later, the Group will adopt the following new or amended standards issued by the International Accounting Standards Board: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2: The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. Given the pervasive nature of IBOR-based contracts, the amendments could affect companies in all industries. The amendments are not expected to have a significant impact on the consolidated financial statements. Annual Report 202082 IFRS 17 Insurance Contracts (Originally 1 January 2021,but extended to 1 January 2023) IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. It requires a current measurement model where estimates are re-measured in each reporting period. The overall objective is to provide a consistent accounting model for insurance contracts. The amendments are not expected to have a significant impact on the consolidated financial statements. Classification of Liabilities as Current or Non-current – Amendments to IAS 1: The narrow-scope amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date (eg the receipt of a waiver or a breach of covenant). The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. The amendments are not expected to have a significant impact on the consolidated financial statements. Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16: The amendment to IAS 16 Property, Plant and Equipment (PP&E) prohibits an entity from deducting from the cost of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment. Entities must disclose separately the amounts of proceeds and costs relating to items produced that are not an output of the entity’s ordinary activities. The amendments are not expected to have a significant impact on the consolidated financial statements. Reference to the Conceptual Framework – Amendments to IFRS 3: Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21 Levies. The amendments also confirm that contingent assets should not be recognised at the acquisition date. These updates do not change the accounting requirements for business combinations. The amendments are not expected to have a significant impact on the consolidated financial statements. Onerous Contracts – Cost of Fulfilling a Contract Amendments to IAS 37: The amendment to IAS 37 clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract. The amendments are not expected to have a significant impact on the consolidated financial statements. 6.6. EVENTS AFTER THE REPORTING PERIOD On 8 January 2021, it was announced that the Finnish Competition and Consumer Authority has moved its investigation of the combination of Altia and Arcus into phase II. On 21 January 2021, the proposals by Altia’s Shareholders’ Nomination Board to Altia’s Annual General Meeting 2021 on the number of members, composition and remuneration of the Board of Directors were announced. Annual Report 202083 Parent Company Financial Statements EUR million Note 1 Jan - 31 Dec 2020 1 Jan - 31 Dec 2019 NET SALES 1. 197.4 208.7 Increase (+) / decrease (–) in inventories of finished goods and work in progress 3.2 -1.8 Other operating income 2. 13.9 18.4 Materials and services Raw materials, consumables and goods Purchases during the period -114.5 -121.2 Change in inventories 0.1 -3.9 External services -0.1 -0.1 Total materials and services -114.4 -125.1 Personnel expenses 3. Wages and salaries -25.7 -22.5 Indirect employee expenses Pension expenses -4.7 -6.0 Other indirect employee expenses -0.9 -0.7 Total personnel expenses -31.3 -29.2 Depreciation, amortisation and impairment losses Depreciation and amortisation according to plan -11.9 -11.8 Total depreciation, amortisation and impairment losses -11.9 -11.8 Other operating expenses 4. -50.4 -46.2 OPERATING RESULT 6.4 13.0 EUR million Note 1 Jan - 31 Dec 2020 1 Jan - 31 Dec 2019 Finance income and expenses 5. Income from Group companies - 27.7 Income from participating interests 0.9 0.9 Income from other investments held as non-current assets From others 0.2 - Other interest and finance income From Group companies 0.2 0.3 From others than Group companies 0.1 3.0 Interest and other finance expenses To Group companies -0.1 -0.2 To others than Group companies -2.7 -4.7 Total finance income and expenses -1.4 26.9 RESULT BEFORE APPROPRIATIONS AND TAXES 5.0 39.9 Appropriations 6. Depreciation difference increase (–) /decrease (+) 2.1 1.1 Income tax expense 7. Current period taxes -1.3 -2.4 Deferred taxes -0.0 -0.1 Other direct taxes 0.0 0.1 Total income taxes -1.3 -2.5 RESULT FOR THE PERIOD 5.9 38.6 ALTIA PLC INCOME STATEMENT (FAS) Annual Report 202084 EUR million Note 31 Dec 2020 31 Dec 2019 ASSETS NON-CURRENT ASSETS 8. Intangible assets Intangible rights 6.8 10.0 Goodwill 0.3 - Other capitalised long-term expenditure 5.7 6.2 Prepayments 1.4 2.0 Intangible assets total 14.1 18.1 Tangible assets Land and water areas 2.4 2.4 Buildings and structures 19.9 21.0 Machinery and equipment 24.6 26.1 Other tangible assets 0.5 0.5 Prepayments and assets under construction 2.6 1.5 Tangible assets total 50.1 51.6 Investments Holdings in Group companies 196.5 206.8 Participating interests 8.2 8.2 Other shares and investments 0.8 0.8 Investments total 205.6 215.9 TOTAL NON-CURRENT ASSETS 269.8 285.6 EUR million Note 31 Dec 2020 31 Dec 2019 CURRENT ASSETS Inventories 9. Materials and supplies 18.1 17.9 Work in progress 9.6 10.3 Finished goods 13.8 9.8 Advance payments 0.0 0.1 Inventories total 41.5 38.1 Non-current receivables 10. Receivables from Group companies 5.9 14.8 Deferred tax assets 0.5 0.6 Non-current receivables total 6.3 15.4 Current receivables 11. Trade receivables 19.4 26.7 Receivables from Group companies 9.7 113.0 Receivables from participating interest undertakings 0.1 0.1 Other receivables - 0.0 Accrued income and prepaid expenses 3.2 3.2 Current receivables total 32.4 143.1 Cash at hand and in banks 129.2 61.0 TOTAL CURRENT ASSETS 209.4 257.6 TOTAL ASSETS 479.2 543.2 ALTIA PLC BALANCE SHEET (FAS) Annual Report 202085 EUR million Note 31 Dec 2020 31 Dec 2019 EQUITY AND LIABILITIES Equity 13. Share capital 60.5 60.5 Invested unrestricted equity fund 1.2 1.2 Hedge reserve -0.6 -0.9 Retained earnings 80.5 57.1 Profit for the period 5.9 38.6 TOTAL EQUITY 147.5 156.6 Appropriations 14. Depreciation difference 18.3 20.5 Liabilities Non-current 15. Loans from financial institutions 60.0 65.0 Loans from pension institutions 9.8 11.3 Liabilities to Group companies - 2.0 Other liabilities 4.9 4.9 Non-current liabilities total 74.7 83.2 Current Loans from financial institutions 45.0 5.0 Loans from pension institutions 1.5 1.5 Trade payables 13.2 13.1 Liabilities to Group companies 16. 110.6 208.4 Other liabilities 44.1 37.2 Accrued expenses and deferred income 17. 24.2 17.8 Current liabilities total 238.7 283.0 TOTAL LIABILITIES 313.3 366.2 TOTAL EQUITY AND LIABILITIES 479.2 543.2 ALTIA PLC BALANCE SHEET (FAS) Annual Report 202086 EUR million Note 1 Jan - 31 Dec 2020 1 Jan - 31 Dec 2019 CASH FLOW FROM OPERATING ACTIVITIES Result before taxes 7.2 41.0 Adjustments Depreciation, amortisation and impairment 11.9 11.8 Gain/loss from disposal of property, plant and equipment and intangible assets - -0.0 Finance income and costs 1.4 -26.9 Change in depreciation difference -2.1 -1.1 Other adjustments 0.2 -0.5 11.4 -16.7 Change in working capital Change in inventories, increase (-) / decrease (+) -2.5 5.6 Change in trade and other receivables, increase (-) / decrease (+) 6.8 -0.1 Change in trade and other payables, increase (+) / decrease (-) 12.6 1.3 Change in working capital 16.9 6.7 Interest paid -1.5 -1.5 Interest received 0.3 0.5 Other finance income and expenses paid -1.2 -0.6 Income taxes paid -3.0 -0.9 Financial items and taxes -5.4 -2.5 NET CASH FLOW FROM OPERATING ACTIVITIES 30.0 28.6 CASH FLOW FROM INVESTING ACTIVITIES Payments for property, plant and equipment and intangible assets -6.1 -5.9 Proceeds from sale of property, plant and equipment and intangible assets 2. - 0.0 Investments in participating interest companies - -0.2 Repayment of loan receivables 9.0 1.0 Dividends received 5. 1.1 0.9 NET CASH FLOW FROM INVESTING ACTIVITIES 3.9 -4.2 ALTIA PLC STATEMENT OF CASH FLOWS (FAS) EUR million Note 1 Jan - 31 Dec 2020 1 Jan - 31 Dec 2019 CASH FLOW FROM FINANCING ACTIVITIES Changes in commercial paper program 40.0 - Proceeds from current borrowings 16. 17.9 17.9 Repayment of current borrowings 16. -2.0 -1.6 Repayment of non-current borrowings 15. -6.5 -6.5 Dividends paid and other distributions of profits 13. -15.2 -13.7 Group contributions paid - -0.0 NET CASH FLOW FROM FINANCING ACTIVITIES 34.2 -3.9 CHANGE IN CASH AND CASH EQUIVALENTS 68.1 20.5 Cash and cash equivalents at the beginning of the period 61.0 40.6 Change in cash and cash equivalents 68.1 20.5 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 129.2 61.0 Annual Report 202087 NOTES TO ALTIA PLC FINANCIAL STATEMENTS Accounting policies for financial statements The financial statements of the parent company are prepared in accordance with the Finnish accounting legislation. NON-CURRENT ASSETS AND DEPRECIATIONS Non-current assets are recognised in the balance sheet at acquisition cost less depreciations. The depreciation periods for non-current assets are: Trademarks 10–15 years IT- development and software 3–5 years Buildings and structures 10–40 years Machinery and equipment 10 years Other tangible assets 3–10 years Holdings in Group companies and other shares and investments included in non-current assets are measured at acquisition cost or fair value, if lower. INVENTORIES Inventories are measured at the lower of cost and net realisable value. Self-manufactured products are measured at standard prices, except cognac products, which are measured at weighted average cost. Fixed production costs are allocated to the cost of own production. Raw materials, supplies and trading goods are measured at weighted average cost. Repacked trading goods are measured at standard cost in repacking plant. The cost of finished products and work in progress includes raw materials, direct labour costs, other direct costs as well as an allocable proportion of variable procurement and production costs and fixed overheads in case of finished products, determined based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. PENSION PLANS The pension plans of the parent company are arranged through pension insurance companies. Pension expenses are accrued to correspond to the performance-based salaries in the financial statements. CASH POOL The Group has applied the so called cash pool arrangement, which enables efficient management of the parent company's and subsidiaries' cash and cash equivalents. LEASES All lease payments are recognised as rental expenses. FINANCIAL DERIVATIVES Fair value measurement compliant with Chapter 5, section 2a of the Accounting Act is applied to the accounting treatment of financial derivatives. Derivatives are included in financial assets and liabilities at fair value through profit or loss when they do not meet the criteria of hedge accounting. These derivatives are recognised at fair value on the trade date and they are subsequently measured at fair value at the reporting date. The fair values of derivatives equal the amount that Altia Plc would have to pay or it would receive from the termination of the derivative contract at the reporting date. The fair values of forward exchange contracts are determined by using the market prices at the reporting date. The fair values of interest rate derivatives are determined by discounting the related future cash flows. The valuation of commodity derivatives is determined based on the fair values received from the financial markets. All derivatives for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy level 1–3. The levels of fair value hierarchy reflect the significance of inputs used in determining the fair values. In level one, fair values are based on public quotations of identical financial instruments. In level two, the inputs used in determining the fair values are based on quoted market rates and prices observable for the asset or liability in question directly (i.e. price) or indirectly on discounted future cash flows. Fair values of other financial assets and liabilities in level two reflect their carrying value. In level three, the fair values of assets and liabilities are based on inputs that are not based on observable market data for all significant variables, and instead are, to a significant extent, based on management estimates and their use in generally accepted valuation techniques. The fair values of the financial instruments are determined by using the market prices on the closing date of the reporting period. HEDGE ACCOUNTING The parent company applies hedge accounting when the change in fair value is recognised in the hedge reserve under equity. In Altia Oyj, cash flow hedging is applied to part of the interest rate, foreign currency and electricity derivatives based on case-by-case assessment. In cash flow hedging, Altia Oyj is hedging against changes in cash flows related to a specific asset or liability recognised in the balance sheet or to Annual Report 202088 a highly probable future business transaction. In the beginning of the hedging arrangement, company documents the relationship between each hedging instrument and hedged item, as well as the objectives of risk management and the strategy in engaging in hedging. Effectiveness means the ability of a hedging instrument to offset the changes in the fair value of the hedged item or changes in the cash flows of the hedged transaction attributable to the hedged risk. The hedging relationship is regarded to be highly effective when there is an economic relationship between the hedged item and the value of the hedging instrument and the value of the hedged item moves to the opposite direction due to same risk. Hedge accounting is discontinued when the criteria for hedge accounting is no longer met. The gains and losses arising from fair value changes of derivative contracts, to which hedge accounting is applied, are presented in congruence with the hedged item. The effective portion of the unrealised changes in the fair value of derivatives designated and qualifying as cash flow hedges are recognised in the hedge reserve in equity. The ineffective portion is immediately recognised in profit or loss in finance income or expense. The cumulative gain or loss in equity on derivative instruments related to commercial items is recognised in profit or loss as an adjustment to purchases or sales simultaneously with the hedged item in the period in which the hedged item affects profit or loss. Realised gain or loss on electricity derivatives is included in operating result in electricity procurement expenses. When a hedging instrument designated as a cash flow hedge expires, is sold or no longer meets the criteria of hedge accounting, the gain or loss accumulated in equity is recognised through profit or loss either as an adjustment to purchases or sales when hedging is effective or as finance income or expense when hedge accounting criteria is not met. RESEARCH AND DEVELOPMENT EXPENDITURE Research and development expenditure is recognised as an annual expense as incurred. FINANCIAL SECURITIES Financial securities are recognised at acquisition cost or lower. RECEIVABLES Receivables are measured at acquisition cost or probable value, if lower. SALE OF TRADE RECEIVABLES The sold receivables are derecognised when the receivable has been sold and the sales price for it has been received. The related costs are recognised in other financial expenses. NON-CURRENT FINANCIAL LIABILITIES Non-current financial liabilities are recognised at acquisition cost. INCOME TAXES Income taxes in the income statement include taxes calculated for the financial year based on Finnish tax legislation, adjustments to taxes in previous financial years and the change in deferred taxes. FOREIGN CURRENCY DENOMINATED ITEMS Foreign currency denominated receivables and liabilities are translated to Finnish currency at the rates of the closing date of the reporting period. Annual Report 202089 EUR million 2020 2019 Net sales by business areas Alcohol beverages 104.7 105.0 Industrial services 92.7 103.4 Other - 0.3 TOTAL 197.4 208.7 Net sales by geographic areas Finland 151.5 157.0 Europe 44.4 50.3 Rest of the world 1.4 1.4 TOTAL 197.4 208.7 1. NET SALES EUR million 2020 2019 Rental income 1.1 1.1 Income from energy sales 3.3 3.4 Proceeds from disposal of non-current assets - 0.0 Service income 8.4 11.6 Other income 1.2 2.4 TOTAL 13.9 18.4 2. OTHER OPERATING INCOME EUR million 2020 2019 Wages and salaries 25.7 22.5 Pension expenses 4.7 6.0 Other social expenses 0.9 0.7 TOTAL 31.3 29.2 EUR million 2020 2019 Fringe benefits (taxable value) 0.6 0.7 The average number of personnel during the reporting period 2020 2019 Workers 194 210 Clerical employees 201 208 TOTAL 395 418 Management remuneration, EUR million 2020 2019 CEO 0.3 0.3 Board members 0.4 0.3 3. NOTES RELATED TO PERSONNEL Pension commitments of the Board and CEO The retirement age of the CEO of the company is 63 years. EUR million 2020 2019 Rental expenses 1.7 2.0 Marketing expenses 3.7 5.9 Energy expenses 7.2 7.2 Travel and representation expenses 0.3 1.1 Repair and maintenance expenses 6.3 6.0 IT expenses 6.0 5.6 Outsourcing services 13.7 5.4 Variable sales expenses 5.3 5.5 Other expenses 6.2 7.4 TOTAL 50.4 46.2 Auditor's fees Audit fees 0.1 0.2 Tax consultation - 0.0 Other fees 0.8 0.2 TOTAL 1.0 0.4 4. OTHER OPERATING EXPENSES Environmental expenses The Company's environmental expenses did not have a significant impact on the result for the period and on the financial position. Annual Report 202090 EUR million 2020 2019 Dividend income From Group companies - 27.7 From participating interest undertakings 0.9 0.9 From others 0.2 - Total dividend income 1.1 28.6 Interest income From Group companies 0.2 0.3 From others 0.1 0.2 Total interest income 0.3 0.5 Other finance income From others 0.0 2.7 Total other finance income 0.0 2.7 TOTAL FINANCE INCOME 1.4 31.9 Interest expenses To Group companies 0.1 0.2 To others 1.5 1.4 Total interest expenses 1.5 1.6 Other finance expenses To others 1.2 3.3 Total other finance expenses 1.2 3.3 TOTAL FINANCE EXPENSE 2.8 4.9 TOTAL FINANCE INCOME AND EXPENSES -1.4 26.9 The following items are included in finance items of the income statement from fair value hedges: Other finance income Fair value changes of derivatives -0.0 -0.0 5. FINANCE INCOME AND EXPENSES EUR million 2020 2019 Difference between depreciations according to plan and depreciations made in taxation: Intangible rights 1.1 0.1 Other intangible assets -0.0 - Buildings and structures 0.8 0.8 Machinery and equipment 0.3 0.2 Other tangible assets -0.0 -0.0 TOTAL 2.1 1.1 6. APPROPRIATIONS EUR million 2020 2019 Income taxes from current period -1.3 -2.4 Income taxes from previous periods 0.0 0.1 Change in deferred tax assets -0.0 -0.1 TOTAL -1.3 -2.5 7. INCOME TAX EXPENSE Annual Report 202091 EUR million 2020 2019 Intangible assets Intangible rights Acquisition cost at 1 January 34.3 32.7 Additions 0.1 0.1 Additions, Group internal structural changes 0.0 - Transfers between items 0.2 1.5 Acquisition cost at 31 December 34.6 34.3 Accumulated amortisation at 1 January -24.3 -20.7 Accumulated amortisation, Group internal structural changes -0.0 - Amortisation for the period -3.5 -3.7 Accumulated amortisation at 31 December -27.8 -24.3 CARRYING AMOUNT AT 31 DECEMBER 6.8 10.0 Goodwill Acquisition cost at 1 January 17.6 17.6 Additions, Group internal structural changes 1.1 - Acquisition cost at 31 December 18.7 17.6 Accumulated amortisation at 1 January -17.6 -17.6 Accumulated amortisation, Group internal structural changes -0.7 - Amortisation for the period -0.1 - Accumulated amortisation at 31 December -18.4 -17.6 CARRYING AMOUNT AT 31 DECEMBER 0.3 - Other intangible assets Acquisition cost at 1 January 24.3 24.3 Additions 0.1 - Transfers between items 1.3 - Acquisition cost at 31 December 25.8 24.3 Accumulated amortisation at 1 January -18.2 -16.6 Amortisation for the period -1.9 -1.6 Accumulated amortisation at 31 December -20.1 -18.2 CARRYING AMOUNT AT 31 DECEMBER 5.7 6.2 Prepayments in intangible assets Acquisition cost at 1 January 2.0 1.7 Additions 0.9 1.8 Transfers between items -1.4 -1.5 CARRYING AMOUNT AT 31 DECEMBER 1.4 2.0 EUR million 2020 2019 Tangible assets Land and water areas Acquisition cost at 1 January 2.4 2.4 CARRYING AMOUNT AT 31 DECEMBER 2.4 2.4 Buildings and structures Acquisition cost at 1 January 97.8 95.9 Additions 1.4 1.1 Transfers between items 0.1 0.7 Disposals -0.3 - Acquisition cost at 31 December 99.0 97.8 Accumulated depreciation at 1 January -76.8 -74.0 Accumulated depreciation on disposals and transfers 0.2 - Depreciation for the period -2.6 -2.7 Accumulated depreciation at 31 December -79.1 -76.8 CARRYING AMOUNT AT 31 DECEMBER 19.9 21.0 Machinery and equipment Acquisition cost at 1 January 118.3 116.2 Additions 1.3 1.3 Disposals -0.2 -0.0 Transfers between items 1.1 0.8 Acquisition cost at 31 December 120.5 118.3 Accumulated depreciation at 1 January -92.2 -88.4 Accumulated depreciation on disposals and transfers 0.2 0.0 Depreciation for the period -3.9 -3.8 Accumulated depreciation at 31 December -95.9 -92.2 CARRYING AMOUNT AT 31 DECEMBER 24.6 26.1 Other tangible assets Acquisition cost at 1 January 0.5 0.5 Acquisition cost at 31 December 0.5 0.5 CARRYING AMOUNT AT 31 DECEMBER 0.5 0.5 Prepayments and assets under construction Acquisition cost at 1 January 1.5 1.5 Additions 2.4 1.5 Transfers between items -1.3 -1.5 CARRYING AMOUNT AT 31 DECEMBER 2.6 1.5 CARRYING AMOUNT OF MACHINERY AND EQUIPMENT USED IN PRODUCTION AT 31 DECEMBER 24.1 25.6 8. SPECIFICATION OF NON-CURRENT ASSETS Annual Report 202092 EUR million 2020 2019 Investments Holdings in Group companies Acquisition cost at 1 January 358.3 358.3 Additions - 103.2 Disposals -10.3 -103.2 Acquisition cost at 31 December 348.0 358.3 Accumulated impairment at 1 January -151.5 -151.5 Accumulated impairment at 31 December -151.5 -151.5 CARRYING AMOUNT AT 31 DECEMBER 196.5 206.8 Participating interests Acquisition cost at 1 January 8.2 8.0 Additions - 0.2 CARRYING AMOUNT AT 31 DECEMBER 8.2 8.2 Other shares and investments Acquisition cost at 1 January 0.8 0.8 CARRYING AMOUNT AT 31 DECEMBER 0.8 0.8 EUR million 2020 2019 Receivables from Group companies Trade receivables 4.5 3.2 Loan receivables - 103.2 Cash Pool receivables - 0.5 Other receivables 3.1 4.6 Derivatives 0.5 0.2 Accrued income and prepaid expenses 1.6 1.4 Total 9.7 113.0 Receivables from participating interest undertakings Trade receivables 0.1 0.1 Total 0.1 0.1 Receivables from others Trade receivables ** 19.4 26.7 Other receivables - 0.0 Accrued income and prepaid expenses 3.2 3.2 Total 22.6 29.9 TOTAL CURRENT RECEIVABLES 32.4 143.1 Accrued income and prepaid expenses Significant items in accrued income and prepaid expenses: Derivatives 0.7 0.4 Taxes 0.8 - Others 1.7 2.9 Total 3.2 3.2 9. INVENTORY There is no significant difference between the repurchase price and cost of inventories. 11. CURRENT RECEIVABLES relates to Group internal structural changes Does not include the sold trade receivables 10. NON-CURRENT RECEIVABLES EUR million 2020 2019 Receivables from Group companies Loan receivables 5.9 14.8 Deferred tax assets Recognised in hedge reserve 0.2 0.2 Fixed assets deferred depreciations 0.3 0.4 Deferred tax assets total 0.5 0.6 TOTAL NON-CURRENT RECEIVABLES 6.3 15.4 Annual Report 202093 EUR million 2020 2019 Fair value 31 Dec Changes in the fair value recognised in the income statement Changes in the fair value recognised in fair value reserve Fair value 31 Dec Changes in the fair value recognised in the income statement Changes in the fair value recognised in fair value reserve Derivative instruments Interest rate derivatives (level 2) -1.0 - -1.0 -1.2 - -1.2 Foreign exchange derivatives (level 2) -0.5 -0.0 -0.4 -0.2 -0.0 -0.2 Commodity derivatives (level 2) 0.6 - 0.6 0.3 - 0.3 TOTAL -0.8 -0.0 -0.8 -1.1 -0.0 -1.1 12. DISCLOSURES ON FAIR VALUES (DERIVATIVES) 13. EQUITY EUR million 2020 2019 Restricted equity Share capital at 1 January 60.5 60.5 Share capital at 31 December 60.5 60.5 Hedge reserve at 1 January -0.9 0.0 Additions and disposals 0.3 -0.9 Hedge reserve at 31 December -0.6 -0.9 Total restricted equity 59.9 59.6 Unrestricted equity Invested unrestricted equity fund 1.2 1.2 Retained earnings at 1 January 95.7 70.9 Distribution of dividends -15.2 -13.7 Profit for the period 5.9 38.6 Total unrestricted equity 87.6 96.9 TOTAL EQUITY 147.5 156.6 Distributable unrestricted equity Calculation of distributable equity Invested unrestricted equity fund 1.2 1.2 Retained earnings 95.7 70.9 Distribution of dividends -15.2 -13.7 Profit for the period 5.9 38.6 TOTAL DISTRIBUTABLE UNRESTRICTED EQUITY 87.6 96.9 Company’s share capital: Number of shares outstanding at the end of the period 36 140 485 36 140 485 14. APPROPRIATIONS EUR million 2020 2019 Depreciation difference Intangible rights 1.4 2.6 Other intangible assets 0.2 0.1 Buildings and structures 1.9 2.7 Machinery and equipment 14.8 15.1 Other tangible assets -0.0 -0.0 TOTAL 18.3 20.5 15. LIABILITIES EUR million 2020 2019 Non-current Loans from financial institutions 60.0 65.0 Loans from pension institutions 9.8 11.3 Liabilities to Group companies - 2.0 Other liabilities 4.9 4.9 TOTAL 74.7 83.2 Annual Report 202094 16. LIABILITIES TO GROUP COMPANIES 18. COLLATERALS AND COMMITMENTS EUR million 2020 2019 Trade payables 0.6 0.7 Liabilities to Group companies 1.0 103.2 Cash Pool liabilities 107.2 102.1 Derivative instruments 0.0 0.0 Other accrued expenses 1.8 2.4 TOTAL 110.6 208.4 * relates to Group internal structural changes 17. ACCRUED EXPENSES AND DEFERRED INCOME EUR million 2020 2019 Significant items under accrued expenses: Holiday pay and other wages and salaries 9.1 5.1 Contract discount 0.5 0.7 Procurement expenses and other accrued expenses 12.7 9.6 Taxes - 0.8 Derivative instruments 1.9 1.7 TOTAL 24.2 17.8 EUR million 2020 2019 Collaterals given on behalf of the Group companies Mortgages 18.5 18.5 Guarantees 3.8 5.9 TOTAL COLLATERALS 22.3 24.4 Commitments and other contingencies Operating and finance lease obligations Not later than one year 0.6 0.6 Later than one year 0.7 0.7 Total 1.3 1.2 Lease obligations Not later than one year 0.6 0.6 Later than one year 2.1 0.8 Total 2.7 1.5 Other obligations Not later than one year 3.2 5.1 Total 3.2 5.1 TOTAL COMMITMENTS 7.2 7.8 Annual Report 202095 VAT liability for real estate investments The company is liable to review VAT deductions made for real estate investments completed in 2012–2020 if the use subject to VAT decreases during the review period. The maximum liability is EUR 1.3 million and the last year to review is 2029. Derivative contracts 2020 2019 EUR million Electricity derivatives Fair value 0.6 0.3 Nominal value 3.3 1.3 Amount (TWh) 0.1 0.1 Parent company's external forward exchange contracts Fair value -0.9 -0.4 Nominal value 34.4 28.3 Parent company's internal forward exchange contracts Fair value 0.5 0.2 Nominal value 14.8 13.8 Interest rate derivatives Fair value -1.0 -1.2 Nominal value 20.0 20.0 Emission allowances (kilotons) 2020 2019 Emission allowances received 26.4 26.4 Excess emission allowances from the previous year 4.0 30.6 Adjustments related to prior year's estimates - -0.0 Sold emission allowances - -33.0 Realised emissions -19.6 -20.0 EMISSION ALLOWANCES AT 31 DECEMBER 10.9 4.0 Fair value of the remaining emission allowances, EUR million 0.3 0.1 The received emission allowances and the realised emission of the year 2020 are estimates which will be adjusted during spring 2021. Altia continues to operate within the emission trading system for the trading period 2021-2030. 19. RELATED PARTY TRANSACTIONS Related party transactions are carried out at market value. More information about related party transactions is presented in Group Note 6.3. Management remuneration is presented in Altia Plc Note 3. Annual Report 202096 Board of Directors’ proposal for the distribution of profits According to the balance sheet at 31 December 2020, Altia Plc’s distributable earnings amount to EUR 87,630,619.27 including profit for the period of EUR 5,873,094.86. There have been no significant changes to the parent company’s financial position at the end of the financial year. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.35 per share be paid for the financial year 2020. Arcus’ Board of Directors have similarly proposed to the Annual General Meeting of Arcus that an annual dividend of NOK 1.66 per share be paid for the financial year 2020, reflecting the relative value of Altia and Arcus agreed upon in the merger plan, meaning that dividends for the financial year 2020 to be paid by Altia and Arcus, respectively, will not have an impact on the agreed valuation of the companies for the purpose of the Altia and Arcus merger. Altia’s Board of Directors also proposes to the Annual General Meeting that the dividend authorisation decided by the Extraordinary General Meeting 2020 to pay an extra dividend of EUR 0.40 per share to Altia's shareholders in connection with and prior to the closing of the Altia and Arcus merger be renewed. Signatures to the Board of Directors’ Report and to the financial statements Helsinki, 24 February 2021 Sanna Suvanto-Harsaae Chairman Jukka Leinonen Tiina Lencioni Jyrki Mäki-Kala Jukka Ohtola Anette Rosengren Torsten Steenholt Pekka Tennilä CEO The Auditors’ Note An auditor´s report concerning the performed audit has been given to date. Helsinki, 24 February 2021 PricewaterhouseCoopers Oy Authorised Public Accountants Ylva Eriksson Authorised Public Accountant Annual Report 202097 REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion In our opinion • the consolidated financial statements give a true and fair view of the group’s financial position and 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 the financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report to the Audit Committee. WHAT WE HAVE AUDITED We have audited the financial statements of Altia Oyj (business identity code 1505555-7) for the year ended 31 December 2019. The financial statements comprise: • the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of • significant accounting policies the parent company’s balance sheet, income statement, statement of cash flows and notes. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Auditor's Report (Translation of the Finnish Original) To the Annual General Meeting of Altia Oyj INDEPENDENCE 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. To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 1.6 to the Financial Statements. Our Audit Approach OVERVIEW MATERIALITY GROUP SCOPING KEY AUDIT MATTERS MATERIALITY • Overall group materiality: € 3,3 million GROUP SCOPING • The group audit included the parent company and all significant subsidiaries covering the vast majority of net sales, assets and liabilities. KEY AUDIT MATTERS • Revenue recognition • Valuation of inventories • Annual Report 202098 As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. MATERIALITY The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They 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. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole. Overall group materiality € 3,3 million How we determined it 1 % of net sales Rationale for the materiality benchmark applied We chose net sales as the benchmark because it provides a consistent year-on-year basis for determining materiality. In addition, it is a benchmark against which the performance of the group is commonly measured by users. We used 1 % of net sales, which is within the range of acceptable quantitative materiality thresholds in auditing standards. HOW WE TAILORED OUR GROUP AUDIT SCOPE We tailored the scope of our audit, taking into account the structure of the group, the accounting processes and controls, and the size, complexity and risks of individual subsidiaries. Altia Group has operations in the Nordic countries, Baltics and France. The main accounting areas for subsidiaries in the Nordic countries are handled centrally in Finland. We performed group audit procedures on all significant account balances covering the vast majority of the group’s net sales, assets and liabilities. In addition, we performed analytical procedures at group level of the remaining balances. 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. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Annual Report 202099 Key audit matter in the audit of the group How our audit addressed the key audit matter REVENUE RECOGNITION Refer to note 1.1 in the consolidated financial statements Altia’s revenue flows are generated by the sale of own products and partner brands, contract manufacturing and sale of industrial products. The transaction price may include variable considerations such as volume discounts, bonuses, marketing support and product returns. Due to a variety of contractual terms, the calculation of period’s variable components is a complex accounting area that include management judgement. We have accordingly considered the risk that revenue is not recorded in the correct period to be a key audit matter. Our audit procedures included e.g. the following: • We gained an understanding of the nature of the revenue flows and different contractual terms used. • We compared the accounting treatment of a sample of sales transactions and variable consideration to the terms of underlying contracts. • We assessed the Group’s accounting policies over revenue recognition. • We tested a sample of sales transactions against incoming cash. • We tested a sample of sales invoices recorded in December 2020 and January 2021 to evaluate that revenue had been recognised in the right period. • For selected revenue and accounts receivable balances we obtained customer confirmations. VALUATION OF INVENTORY Refer to note 2.4 in the consolidated financial statements Inventory forms a significant part of the Group’s assets, amounting to EUR 92,3 million as of 31 December 2020. Inventories are measured at the lower of cost and net realisable value. Self-manufactured products are measured at standard prices or weighted average cost. Fixed production costs are allocated to the cost of own production. Management exercises judgement and applies assumptions when estimating the need for an obsolescence provision. This includes identification of slow moving and seasonal products, changes in product portfolio and consideration of sales forecasts. Given the factors described above, we have considered valuation of inventory to be a key audit matter. Our audit procedures included e.g. the following: • We gained an understanding of the controls established in relation to inventory valuation. • We assessed the adequacy of the obsolescence provision and checked adherence to the Group’s accounting policy. • We tested, on a sample basis, the accuracy of cost for self-manufactured products by comparing the actual production costs to market and other price data. • We tested a sample of inventory items to confirm whether they are held at the lower of cost and net realisable value, through comparison to vendor invoices and sales prices. • For a sample of warehouses, we attended the physical stock-take counting or reconciled third party confirmations with the accounting records. We have no key audit matters to report with respect to our audit of the parent company financial statements. There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements. Annual Report 2020100 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 a 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 to cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these 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. Annual Report 2020101 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 to 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 Appointment We were first appointed as auditors by the annual general meeting on 29 March 2016. Our appointment represents a total period of uninterrupted engagement of 5 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 • 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 24 February 2021 PricewaterhouseCoopers Oy Authorised Public Accountants Ylva Eriksson Authorised Public Accountant (KHT)