SUSTAINABLE GROWTH FROM GENERATION TO GENERATION

YEAR 2019

ASPO'S YEAR

ASPO IN BRIEF

SUSTAINABLE VALUE CREATION

Aspo is a conglomerate that creates values by developing and internationalizing businesses in Northern Europe and growth markets sustainably and in the long-term. The strong company brands - ESL Shipping, Leipurin, Telko and Kauko - aim to be the market leaders in their sectors.

ESL Shipping Telko Leipurin

ESL Shipping is the leading dry bulk cargo company in the Baltic Sea region. ESL Shipping's competitive edge is based on its ability to secure product and raw material transportation for industries and energy production year-round, even in difficult weather conditions.

Leipurin is a unique provider of comprehensive solutions in bakery, confectionery product and foodservice markets.

Kauko is a specialist in demanding work environments, bringing customized hardware, applications and services together. Kauko is reported as part of Telko segment. In 2019, Kauko's share of the Telko segment net sales was EUR 26.7 million and the number of employees was 31.

CEO'S REVIEW A YEAR OF TWO PARTS

CREATING SHAREHOLDER VALUE REMAINS THE BASIS OF ALL OUR OPERATIONS.

2019 was a year of two parts in Aspo's business operations. On one hand, the Group's net sales reached a new record, supported by investments, and cash flow from operations was very strong. On the other, the market situation proved more challenging than expected, and we fell short of our profitability goals.

In particular, lower transportation volumes in the steel industry considerably reduced ESL Shipping's operating profit. In turn, Telko's profitability decreased due to oversized stocks and the negative development in raw material prices. Leipurin's bakery operations were on a growth track, while challenges in machinery operations negatively impacted the company's results.

Although the year was clearly a disappointment in terms of operating profit, I am very confident of Aspo's long-term profit-making capabilities and the efficiency of our strategy.

INVESTMENT PROGRAM COMPLETED

During the past four years, we have invested approximately EUR 110 million in developing our shipping business. Swedish shipping company AtoB@C has now been successfully integrated into ESL Shipping and after initial crane problems, the eco-friendliest LNG-fueled vessels in their category have already proven their energy and cost efficiency. All in all, our investment program has been a success, and its results are already starting to show. Currently, no significant

FOR THE NEXT FEW YEARS, WE WILL FOCUS ON IMPROVING PROFITABILITY IN ALL OUR BUSINESS OPERATIONS.

investments are expected in the next few years, and our aim is to achieve the financial goals we have set for 2023 with our current structure by improving the profitability of our business operations.

UNCERTAINTIES IN THE GLOBAL ECONOMY

The distribution of net sales between different business operations and between different geographic markets is a buttress for Aspo to lean on as uncertainties increase in the global economy. As a conglomerate, Aspo has lower business risks than normal, although we are not completely immune to global economic turmoil.

Forecasting the development of global markets is a difficult task. Political and financial risks have increased globally, which may have a rapid impact on Aspo's operating environment. Currently, forecasting the short-term development of raw material transportation important to our shipping company is a significant challenge. However, we expect long-term trends to firmly support ESL Shipping's strategic choices.

EASTERN MARKETS STILL SHOWING POTENTIAL

Aspo has solid experience and expertise in developing business operations in eastern markets. In the market area of Russia, other CIS countries and Ukraine, Aspo's average annual growth in net sales has been roughly 13% over the past ten years. In Russia, economic development has been strong, and the prerequisites for business operations have improved considerably during the past few years.

Net sales of Telko and Leipurin increased in eastern markets during 2019, and both companies have gained a strong market position in the region. ESL Shipping is actively investigating new opportunities to expand to growth markets in the Russian Arctic. Organic growth in Russia and more broadly throughout eastern markets is one of Aspo's strategic cornerstones, and we continue to firmly believe in the potential the region has to offer.

STRONG MANDATE FROM MAIN OWNERS

During the year, Aspo's Executive Committee, Board of Directors and main owners focused on planning the Group's long-term strategy. Following a comprehensive strategy process, the message communicated to Aspo's acting management was that the current group structure continues to best respond to the interests of shareholders. Furthermore, the Board of Directors' goal remains to annually increase the amount of dividends.

Aspo is committed to maintaining its structure as a conglomerate, and this can also be seen in the Group's management. In addition to all members of our Group's personnel and Board of Directors, I would like to particularly thank all members of the Boards of Directors of our subsidiaries for the past year. Specialist members of the Boards of Directors of our subsidiaries play an important role in the Group's management system: They act as mentors for the acting managers of our subsidiaries and produce concrete added value for the development of our business operations.

During the year, we also developed Aspo Group's responsibility strategy. Our goal is to implement systematic monitoring and reporting processes in our business operations and define short- and long-term responsibility goals for the Group and all subsidiaries during 2020.

TIME TO PROVE OURSELVES

Now that we have completed our major investments, we will focus next on improving our profitability in all our business operations. Although economic growth is showing signs of slowing down, 2020 is a time for us to prove ourselves. Creating shareholder value remains the basis of all operations.

Helsinki, February 27, 2020

Aki Ojanen CEO of Aspo Group

STRATEGY

INCREASING THE SHAREHOLDER VALUE IN THE LONG TERM

Aspo is a conglomerate that owns, leads and develops its business operations and Group structure in the long term without any predefined schedules

A BALANCED ENTITY

As a conglomerate, Aspo forms a balanced entity. The company's cash flow is diversified by business function and geographic region. In addition, Aspo's business operations have differing business cycles, which evens out the impact of economic fluctuations on the Group's results. The goal of all operations is to develop Aspo's value steadily in the long term.

AN OWNER AND DEVELOPER

The value of subsidiaries is increased both organically and through business acquisitions. Typically, Aspo owns its business operations in their entirety. As an owner, it is responsible for the acquisition and allocation of capital and for investments in its subsidiaries. In recent years, the largest investments have been made in shipping company operations: Aspo has invested roughly EUR 110 million in ESL Shipping's growth during the past four years. The structure of a conglomerate also enables larger investments, which individual businesses might not be able to afford.

The development of businesses always starts with management. Here, the selection of Boards of Directors and the acting management for each subsidiary suitable for their development stage is crucial. As a conglomerate, the Boards of Directors of subsidiaries, consisting of external specialist members, comprise one of the most distinctive features of Aspo. They plan and approve company-specific strategies and select acting managers. Aspo Group's CEO acts as the Chairman of all Boards of Directors in Aspo's subsidiaries, which improves Grouplevel development.

EFFECTIVE USE OF CAPITAL MARKETS

The Group's capital efficiency is tightly linked to the fulfillment of Aspo's strategy. As a conglomerate, Aspo has diversified its operational risks. Because operational risks are lower than in average companies, Aspo can take more financial risks and utilize the capital markets as efficiently as possible. While interest rates have remained low, Aspo has used low-cost debt financing to accelerate its growth.

As part of its strategy, Aspo also takes care of its capital structure so that the Group can develop its businesses with no predefined schedules. Aspo must always have sufficient resources for operations or

■ LONG TERM RETURN, %

ASPO'S GOAL IS TO ANNUALLY INCREASE THE AMOUNT OF DIVIDENDS. THE EFFECTIVE DIVIDEND YIELD FOR 2019 WAS 5.9%.

ASPO'S FINANCIAL TARGETS

RETURN ON EQUITY MORE THAN ON AVERAGE 20% 130%

ASPO AIMS TO REACH THE FINANCIAL TARGETS IN 2023

structural arrangements that produce more value. A strong capital structure also means that Aspo is not forced by any external factors to sell or otherwise reorganize its business operations.

READY FOR STRUCTURAL CHANGES

During its 90-year history, Aspo has acquired and sold several businesses, listed one business function and been divided into two independent listed companies. The Group is continuously investigating new possibilities for structural changes that increase the shareholder value. Such structural changes, which aim to produce more value, may include the acquisition or sale of companies or business functions, the listing of business functions or other market operations. During its history, the Group has gained solid expertise in business acquisitions and the successful integration of acquired businesses. The most recent example is the acquisition of Ato-B@C, a strategically important Swedish shipping company, and its integration into ESL Shipping.

A FIRMLY FINNISH COMPANY

Regardless of its international operations, Aspo is a listed company with its roots firmly in Finland. Approximately 98% of Aspo's shares are in Finnish ownership. Furthermore, representatives of the largest shareholder families are members of the company's Board of Directors, with external specialist members. Through a steady production of dividends, effectively diversified business operations and lower average business risks, Aspo's shareholders also include a considerable number of Finnish small-scale investors. At the end of 2019, Aspo had a total of 10,260 shareholders.

ESL SHIPPING

THE LEADING DRY BULK CARGO COMPANY IN THE BALTIC SEA REGION

ESL Shipping's competitive edge is based on its ability to secure product and raw mate-

rial transportation for the industries and energy production yearround, even in difficult weather conditions. Its significant customer groups include the steel, energy and forest industries. The shipping company also loads and unloads large ocean liners at sea as a special service.

ESL Shipping's vessels mainly operate in contract traffic in the Baltic Sea and in Northern Europe. Transportation operations the Baltic Sea and the North Sea are mainly based on long-term customer agreements and established customer relationships. ESL Shipping is also actively investigating opportunities to expand to growth markets in the Russian Arctic.

FLEET FOR DEMANDING CONDITIONS

To provide flexible and reliable services for customers, a sufficiently large and interchangeable fleet is required. At the end of 2019, ESL Shipping had 51 vessel units in use, with a total capacity of more than 468,000 dwt. Of these vessels, 24 were wholly owned, two were minority owned, and the remaining 25 were time chartered. ESL Shipping's ice-strengthened and self-discharging vessels are especially designed for operations in demanding conditions.

INVESTING IN GROWTH AND ENERGY EFFICIENCY

Aspo has invested roughly EUR 110 million in ESL Shipping's growth and the improved energy efficiency of its vessels during the past four years, and the results are starting to show. The technical difficulties that the shipping company's new LNG-fueled vessels faced at the beginning of the year have been resolved, and the vessels now fulfill the high requirements set for them in terms of lower emissions, improved energy efficiency and load-handling capacity. The highly cost-effective LNG-fueled vessels improve ESL

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Shipping's profitability. The acquisition of Swedish shipping company AtoB@C has also been completed, and its operations have successfully been integrated into ESL Shipping. In 2019, the vessel investments and the business acquisition started to reach the financial goals that Aspo, as the owner, had set for the investment program.

The market situation was challenging in 2019. The realized transportation volumes of customers were lower than expected in the steel industry, in particular, which negatively impacted ESL Shipping's profitability.

A YEAR OF INTEGRATION AND DEVELOPMENT

During the year, ESL Shipping focused especially on the integration of AtoB@C, acquired in August 2018, and the deployment of the new ERP system in fleet operations. Operations in Finland and Sweden are now processed in a single ERP system, which significantly improves ESL Shipping's operational efficiency. Aspo's goal is to continue to strengthen ESL Shipping's position as the leading and most eco-friendly shipping company in the Baltic Sea – a company that continuously improves its profitability.

THE GOAL IS TO CONTINUE TO STRENGTHEN ESL SHIPPING'S POSITION AS THE LEADING AND ECO-FRIENDLIEST SHIPPING COMPANY IN THE BALTIC SEA

NEW AREAS CONQUERED

ESL Shipping is known especially for the transportation of raw materials for the steel, energy and forest industries. In recent years, especially after the acquisition of AtoB@C, a Swedish shipping company, the company's customer base and cargo types have significantly diversified, and ESL Shipping's vessels carry a broad range of goods in the Baltic and North Seas.

Lindbäcks Group Ab, a family-owned company operating in Piteå in Northern Sweden, is the largest and oldest supplier of prefabricated elements in Sweden and the largest industrial manufacturer of wooden apartment buildings in the whole of Europe. Lindbäcks has designed, built and produced nearly 10,000 apartments in wooden buildings from Northern Sweden to Stockholm. When the location of the new Lindbäcks factory was planned, proximity to the sea was an important criterion. Southern Sweden is the most important market area for Lindbäcks, and sea transportation was considered a cost-effective option to carry large material flows.

The transportation of prefabricated house modules by sea started in October 2018, when vessels of AtoB@C delivered the first two test batches to the Port of Malmö. The modules were used to build two apartment buildings with a total of 175 apartments. The

ASPO HAS INVESTED ROUGHLY EUR 110 MILLION IN ESL SHIPPING'S GROWTH DURING THE PAST FOUR YEARS transportation of house modules by sea is effective and significantly reduces congestion in the road network. It would take nearly 40 trucks to carry as many Lindbäcks modules as a single vessel with a cargo capacity of 5,000 tons can transport.

The loading and transportation of house modules call for extreme precision. Modules are loaded following a detailed plan to maximize the efficiency of the cargo capacity. Once all the modules have been loaded in their correct places, they are protected for sea transportation. Airfilled cushions are used to keep the modules in place. After the vessel has been safely loaded, it is time to set course for Southern Sweden. Two days later, the modules are unloaded at the Port of Norrköping, from where they are transported to nearby worksites to build new apartment buildings.

LEIPURIN

FROM BREAD AND RECIPES TO A COMPREHENSIVE SELECTION

Leipurin is a provider of comprehensive solutions in the bakery and confection-

ery product and foodservice markets. For example, Leipurin's products and services range from product development, recipes, raw materials, training and equipment all the way to the design of sales outlets. Leipurin operates in Finland, Russia, the Baltic countries, Ukraine, Kazakhstan and Belarus. Leipurin uses leading international manufacturers as its raw material and machinery supply partners.

BAKERY BUSINESS GREW IN THE EASTERN MARKETS

The company's operations are divided into three areas: bakery business, machinery business and – the most recent addition – foodservice business. Solutions offered by the bakery business include product range development, recipes, raw materials and training. In 2019, the bakery business developed as expected. Particularly positive achievements were the increase in net sales and profitability in eastern markets, a region where Leipurin has gained a strong

LEIPURIN HAS HELPED TO DEVELOP THE FINNISH BAKERY AND FOOD INDUSTRY FOR MORE THAN 100 YEARS

market position. The development of procurement processes also improved the results of the bakery business. The bakery business account for more than 80% of Leipurin's total net sales.

A CHALLENGING YEAR FOR THE MACHINERY BUSINESS

Leipurin also supplies machinery and full manufacturing lines for every stage of the bakery industry's production process, and currently also for the needs of the food industry. The company has a separate unit specializing in the design and manufacture of machinery in Nastola, and Leipurin also supplies machinery from key international principals to its customers. 2019 was challenging for the machinery business. Activities to improve the efficiency of the company's machinery production and accelerate exports continued, while the postponement of a significant delivery project in Russia to 2020 negatively impacted results.

NEW VENTURES IN THE FOODSERVICE MARKET

The foodservice market is a new growth area for Leipurin. Investments have been made particularly in Finland and increasingly in other parts of western markets where demand for café chains and bakery cafeterias is increasing. The goal of the Leipurin foodservice product and service range is to create new operating models and services, such as the Baker's Story café concept launched in cooperation with local bakeries in November 2019. Leipurin is responsible for the design and nationwide marketing of cafés and providing a comprehensive product range, research and development, and logistics services, as well as the training required.

NET SALES 115.7 M€ -4.4% OPERATING PROFIT 3.0 M€ -9.1% PERSONNEL 297

SUSTAINABLY PRODUCED COFFEE AND LOCAL BAKERY PRODUCTS

In recent years, the bakery industry has undergone major changes. In Finland, large retail chains have introduced more bake-off units, and it has been difficult for individual bakery entrepreneurs to increase their visibility in competition with large retail chains. At the same time, the popularity of cafeterias has increased, while out-of-home eating and the trend of buying snacks to go continue to expand.

Baker's Story is a new café concept, which brings local products close to consumers in a new kind of cafeteria environment. Finland's first Baker's Story bakery café was opened in Tampere in November.

Leipurin, which developed the concept with bakery entrepreneurs, plays a significant role in assisting entrepreneurs to support their cafeteria operations. "However, local bakeries play the leading role. Every bakery has their own unique story, and we want to share these with a larger audience. With this shared café concept, we can increase the visibility and profitability of all the bakeries," says Mikko Laavainen, managing director of Leipurin.

SHARED CAFÉ CONCEPT BENEFITS ALL LOCAL BAKERIES

Every Baker's Story bakery café is run by a local entrepreneur. Being part of a large domestic café concept brings a range of benefits to bakery entrepreneurs. Local cafés highlight their best products, and bake fresh and high-quality Baker's Story products. What's more, the best sustainably produced special and filter coffee is close to the heart of Baker's Story.

Leipurin is responsible for the design and nationwide marketing of cafés and also for providing comprehensive product range, research and development, and logistics services, as well as the training required. The plan is to open a number of bakery cafés in cooperation with local bakery entrepreneurs.

TELKO

THE LEADING DISTRIBUTOR OF PLASTIC RAW MATERIALS AND INDUSTRIAL CHEMICALS

Telko is a link between industrial customers and international raw material manufac-

turers. Telko supplies plastics, chemicals and lubricants, as well as different raw materials required in the manufacture of high-quality products, to its customers. Telko's strengths include its broad product range, comprehensive technical expertise and a thorough understanding of local market conditions. Technical expertise associated with Telko's raw materials and product processes helps customers to design even better and more competitive products. Telko's 24 outlets in 16 different countries ensure that services are flexible and products can be delivered in accordance with customers' requirements.

TOWARDS IMPROVED PROFITABILITY

Telko's key principals include well-known manufacturers of plastic raw materials and chemicals, such as ExxonMobil Chemical, BASF and LG. Telko supplies both engineering and commodity plastics to companies in the packaging, construction, and electricity and electronics industries, as well as to plastics industry companies that manufacture consumer products. In chemicals, Telko supplies lubricants and industrial, specialty and automotive chemicals. Its customers include companies operating in the paint, printing, packaging, cosmetics, construction and chemical industries.

TELKO IS A LINK BETWEEN INDUSTRIAL CUSTOMERS AND INTERNATIONAL RAW MATERIAL MANUFACTURERS

Mikko Pasanen started as the managing director of Telko in October 2019. Before his appointment, Pasanen worked as the CEO and director of professional customer sales of Onninen Oy within the K Group. Under his leadership, Telko will continue to implement its strategy and improve its profitability. The development of profitability is based on efficient procurement activities, investments in technical products that produce more added value, the development of logistics and more active pricing. In Russia, Telko will continue to strengthen its regional organizations. According to its strategy, Telko will invest in special chemicals for a higher processing rate and in the life science segment in eastern markets. Research and development operations have increased to develop the range of alternate plastic raw materials. Furthermore, Telko aims to increase fiber-based and recycled plastics and their relative proportion, particularly in western markets.

SUSTAINABLE BUSINESS

Telko closely complies with all environmental and safety regulations and invests heavily in eco-friendly alternative plastic raw materials. Industrial sectors that use plastic raw materials require options for conventional raw materials and seek to find eco-friendlier solutions. The largest raw material producers are focusing on alternate bio-based and biodegradable materials. Business operations are expected to grow in western markets in particular, while customers in eastern markets are also interested, for example, in raw materials suitable for the manufacture of biodegradable plastic bags and solvent-free paints. Telko strives to be the leader in eco-friendliness in the distribution sector.

SUSTAINABLY PRODUCED PLASTIC RAW MATERIALS

In August 2019, Telko was the first Finnish distributor to receive the ISCC Plus certificate. International Sustainability & Carbon Certification (ISCC) promotes sustainable solutions in supply chains. ISCC Plus is a certificate granted for biobased plastics. Accordingly, Telko can provide plastic raw materials produced in line with mass balance principles for its customers.

The mass balance system enables the increased use of bio-based feedstocks in polymer supply chains. In the system, part of the fossil feedstocks used in the manufacture of plastics is replaced by renewable feedstocks, such as reusable plant oil or palm oil. When buying certified plastics, customers know that fossil feedstocks are replaced by the same amount of renewable feedstocks. They can therefore promote the use of renewable raw materials.

Telko's first ISCC-certified customer projects, in which sustainably produced plastic materials are used, are already in progress.

TELKO STRIVES TO BE THE LEADER IN ECO-FRIENDLINESS IN THE DISTRIBUTION SECTOR "We supply certified and sustainably produced polymers for the manufacture of plastic products," says Kimmo Liinamaa, development manager of Telko's plastic business. "Customers know that they are promoting the use of renewable raw materials."

The granting of this certificate to Telko is a concrete indication of Telko's strategy to invest in sustainable and ecofriendly alternate raw materials. Industrial sectors that use plastic raw materials require alternatives for conventional raw materials in western markets, in particular, and seek to find eco-friendlier solutions, and Telko aims to respond to this demand.

KAUKO

A SPECIALIST IN DEMANDING WORK ENVIRONMENTS

Kauko is a specialist in demanding work environments, bringing hardware, applications and ser-

vices together. The company's operations are divided into the following areas: mobile knowledge work, healthcare, AV, and wireless and security technology.

COMPREHENSIVE PRODUCT RANGE

In mobile knowledge work, work is carried out in the field close to customers using a tablet, laptop or other mobile device. Devices and interfaces require seamless connectivity, real-time monitoring capability, and access to critical systems. They must withstand 24/7 operation, shocks, vibrations and extreme temperatures, and be easily attached to the vehicle docking stations. A strong shift from rugged computers to tablets can be seen in mobile knowledge work markets. There is still a growing demand for new mobile solutions. This also requires suppliers to be able to provide well-functioning comprehensive solutions. In 2019, Kauko signed significant new customer agreements as a Hansel framework agreement supplier, and it strengthened its cooperation with its existing customers through mobile device maintenance agreements.

In the healthcare sector, Kauko makes the work of healthcare professionals easier by supplying hardware and service solutions customized for critical environments and mobile knowledge work. The net sales of hardware operations increased during the year, in addition to which new customer relationships were established with companies and comprehensive suppliers specializing in hospital construction. In the field of digital solutions, one of the most significant projects in 2019 was the delivery of a new IoT-based

hand hygiene monitoring solution for COXA, the only hospital in Finland fully specializing in joint replacement surgery. The solution will be taken into use in early 2020.

Since 1969, Kauko has distributed the B-to-B products and solutions of Panasonic, an international electronics manufacturer, in Finland. The AV product range consists of projectors, display units, cameras, video switchers and recorders, for example. In 2019, Kauko delivered professional AV solutions to the Helsinki Central Library Oodi and the Mall of Tripla, a shopping center that opened in October. In addition, it supplied video camera technology for vessels built in Finnish shipyards.

In the area of security technology, Kauko delivered CCTV systems in 2019 for the monitoring needs of shops and offices, and for demanding area and process monitoring in industrial companies. Radiotelephone operations also remain stable, with the communication units of industrial and logistics companies showing demand for these devices.

SOLUTIONS TO MEET CUSTOMER NEEDS

Overall, 2019 was a year when Kauko clarified its business operations. In April, Juha Rytkönen was appointed CEO of Kauko, and the leading theme was a focus on key operations, following many new projects carried out in previous years. Kauko's strategy was shaped from a product-driven model toward comprehensive solutions responding to customer demand. As part of this focus on key operations, Kauko and Panasonic signed an agreement according to which the distribution of Panasonic heat pumps will transfer from Kauko to Panasonic from January 1, 2020, and Kauko's heat pump personnel will transfer to Panasonic.

KAUKO INNOVATES AND PROVIDES SEAMLESSLY OPERATING HARDWARE AND SOFTWARE FOR TOP PROFESSIONALS IN DIFFERENT FIELDS

MORE THAN A LIBRARY

Opened in December 2018, the Helsinki Central Library Oodi is an impressive calling card for Finnish design and construction. It is open to users from early morning to late at night, seven days a week. The building's architecture and spatial design have received international attention. Moreover, the interior design and presentation solutions were settled without compromise.

Oodi offers a broad range of facilities: in addition to the library space, there are studios, editing rooms, spaces for teamwork and learning, and a movie theatre. The latest landmark in Helsinki calls for flexibility and reliability from presentation technology. Using the AV systems supplied by Kauko, Oodi's wall surfaces can be used to present images or videos and to convey information, for example.

"In designing AV solutions for Oodi, the particular strengths of the firstrate Panasonic projects represented by Kauko were the broad product range and predictable lifecycle costs. Needs for space-specific projectors, minimum illuminance and other technical requirements were fulfilled by only using two

PROJECTORS CAN CREATE IMMERSIVE EXPERIENCES FOR VISITORS

model series. This gives us a range of benefits," says Urpo Nylander from the IT department of the City of Helsinki.

Oodi also features a cubic space where images can be projected on all walls, giving impressive immersive experiences to visitors. There is also a multi-function space designed for children and equipped with several projects, for example, for showing movies to children. In total, Kauko delivered some 30 projectors, a number of lenses and other AV equipment to Oodi.

"We're proud of this opportunity to be part of such a unique project," says Juha Lindqvist, sales manager for AV solutions at Kauko.

SUSTAINABILITY

ASPO SUSTAINABILITY REPORT 2019

ASPO GROUP BUSINESSES SUSTAINABILITY GOVERNANCE MANAGEMENT REPORT FINANCIAL STATEMENTS

Aspo believes that socially, financially and environmentally sustainable business is a requirement for creating long-term value. A responsibly led, growing company can create jobs, tax revenues and wellbeing. Aspo Group's CEO is in charge of the management of Aspo's responsibility. The CEO reports to the company's Board of Directors in accordance with the risk management policy. Aspo's Code of Conduct defines a common set of rules for responsible business in all the Group's subsidiaries. The Board of Directors of Aspo approved the revised Code of Conduct in December 2019.

Since 2018, Aspo has been a member of the UN's Global Compact initiative, and the Group's operations are steered by the ten Global Compact principles related to human rights, working life principles, the environment and the prevention of corruption. In 2019, Aspo also joined the corporate responsibility network FIBS. Aspo aims to actively develop its responsibility at a group and subsidiary level.

The stakeholder survey completed in 2019 and the materiality assessment prepared on its basis help us to steer our corporate responsibility and stakeholder processes toward the factors that are most significant for our stakeholders and are also related to the key financial, social and environmental impacts of our business operations.

Based on the materiality assessment, Aspo's most significant areas of responsibility are:

The engagement of employees and the improvement of wellbeing at work
Openness and compliance with regulations and the Code of Conduct
Environmentally friendly innovations and reduced emissions
Product safety

As a conglomerate, Aspo's different businesses partly have highly different focus areas in their responsibility. ESL Shipping has actively reduced its environmental footprint by minimizing its fleet's emissions and energy consumption. The opera-

tions of Leipurin focus on product safety, and the reduction of waste and wastage. Product safety is also essential for Telko, which acts as a link between industrial customers and international raw material manufacturers. However, Aspo's Code of Conduct and responsibility priorities steer all operations at Group level.

The aim is to conduct the stakeholder survey regularly and redefine Group-level priorities as necessary. The goal set for 2020 is to define short- and long-term responsibility targets for every subsidiary. Progress in reaching these targets will also be monitored in Aspo's responsibility reports.

Every year, Aspo reports the fulfillment of the Global Compact principles as part of this account of non-financial information in accordance with the requirements set out in the Finnish Accounting Act and EU Directive 2014/95/EU. The Board of Directors of Aspo approves and signs this information annually when approving the financial statements.

Helsinki, February 27, 2020

ASPO Plc

Board of Directors CEO

Engagement of employees and job satisfaction

Social responsibility

Corporate governance

Environmental responsibility

Other sustainability topics

1. Openness (e.g. publication of financial and non-financial information, remuneration of members of the management and governance)
1. Environmentally friendly innovation (e.g. new low-emission vessels, green product portfolios)
1. More effective and reduced use of fuel (e.g. route optimization)
1. Improved wellbeing at work
1. Compliance with the Code of Conduct (e.g. prevention of corruption and the support of human rights in Aspo's operations and supply chain)
1. Increased share of recycled, renewable or biodegradable products
1. Helping to mitigate climate change, reduced CO2 emissions and carbon neutrality
1. Governance (e.g. governance structure, shareholders' rights, ethical business, compliance program)
1. Risk management
1. Product safety
1. Management of human capital

The stakeholder survey conducted during 2018 and 2019 investigated the opinions of Aspo's shareholders and potential investors regarding some 40 different responsibility areas and their impact on Aspo's business operations. The areas were defined by an external consulting company and Aspo's Group Executive Committee. Selected personnel from Aspo Group and its businesses, as well as members of the Board of Directors, also responded to the survey. The diagram represents how respondents to the stakeholder survey rated the most significant responsibility themes.

ENVIRONMENTAL SUSTAINABILITY

CONCRETE ACTIONS FOR THE ENVIRONMENT

For Aspo, environmental sustainability means selections and concrete actions for the good of the environment in all its businesses. In a conglomerate, key business-related environmental aspects and impact may vary significantly between different subsidiaries.

Actions and selections are supported by environmental guidelines and regulations that define a common set of rules for the Group's subsidiaries. Their leading principle is the continuous improvement of businesses. In order to address environmental aspects in supply chains, Aspo has prepared the Supplier Code of Conduct. Aspo's reputation as a responsible conglomerate that attends to its environmental impact is an important competitive factor for Aspo. After all, environmental issues are valuable to customers and other stakeholders. If realized, environmental risks could cause significant financial losses or tarnish Aspo's reputation.

The Group has classified environmental damage resulting from its operations and

especially from fuel processing in the shipping company's operations and the practices of its partners, for example, in the transport and storage of chemicals as significant risks associated with the environment. Changing regulations, such as stricter environmental laws, any changes in energy policies and the development of fuel taxation, can also have a significant impact on operating conditions and costs. Aspo actively monitors the regulatory situation and aims to develop its operations cost-effectively and at the correct time so that it can keep any investment needs resulting from changing regulations under control.

Aspo prepares for and controls risks through productive environmental management. For example, ESL Shipping, which operates in the sensitive ecosystem of the Baltic Sea, has its own environmental management system, certified by ISO 140001. In 2019, ESL Shipping registered four (2018: 4) minor oil spills. These were handled properly and resulted in no consequences from the authorities. Oil did not

ASPO GROUP BUSINESSES SUSTAINABILITY GOVERNANCE MANAGEMENT REPORT FINANCIAL STATEMENTS

TELKO CONDUCTED THE FIRST SUSTAINABILITY AUDITS FOR ITS SUPPLIERS IN 2019

reach the sea in two cases, while in the other two, approximately 30–40 liters of oil or oil-containing water leaked into the sea. One of these latter incidents took place when a hydraulic hose was damaged when using a vessel's hatches. As a result, some 10–20 liters of oil leaked onto the deck and into the sea. The alerted rescue authorities decided that no control measures were necessary. In the other incident, a vessel's bilge tank overflowed through air pipes due to the ongoing maintenance of the ballast water system. As a result of this incident, some 20 liters of oil-containing water leaked into the sea. As in the first case, the rescue authorities did not consider control measures necessary.

In Telko's operations, warehouse audits conducted in partners' facilities comprise a significant part of environmental management. Audits conducted in 2018 in Latvia, Kazakhstan, Ukraine, Russia and Belarus were continued in 2019 by audits in Finland, Russia and Ukraine. In Russia and Ukraine, the audits discovered slight non-conformities in compliance with safety guidelines: the marking of emergency exits, product placement and the display of first aid equipment. In addition, one instance of a significant breach of safety guidelines was discovered when auditing a warehouse in Ukraine: warning labels had been removed from containers containing flammable liquids soon to be delivered to customers, because the arranged transport did not have an ADR permit for transporting hazardous goods. Telko discontinued its cooperation with the warehouse in question. Guidelines have been specified regarding the warehouse in Russia, and compliance with the guidelines will be monitored. In Finland, warehouse audits revealed minor deficiencies in product labels. Telko also prepared general guidelines on storage safety and distributed them to all Telko's warehouses in different countries during the third quarter of 2019.

Telko started to plan specific sustainability audits in 2018, and the first on-site audits were conducted in Russia and China in early 2019. During the audits, Telko's representatives and external consultants interview representatives of suppliers regarding sustainability and responsibility, and discuss Telko's requirements for human rights, environmental responsibility and safety guidelines, for example. Facilities and production plants are also audited. In addition to on-site sustainability audits, a larger group of suppliers is monitored through self-assessments.

A more effective use of energy and raw materials plays a key role in reducing the Group's environmental impact. ESL Shipping's most significant environmental aspects are associated with improving the energy efficiency of its fleet and reducing its carbon footprint, for example, by optimizing the sailing speed and fuel economy of its vessels. All ESL Shipping's vessels are fueled by environmentally friendly low-sul-

51% THE AMOUNT OF LEIPURIN'S LANDFILL WASTE DECREASED BY

WASTE - LEIPURIN

tons	2019	2018	2017	Change 2, %
Utilized	271.33	88.78	75.7	305.6
share of total sales1	2.34	0.73	0.62	320.0
Landfill	152.27	298.36	300.74	-51.0
share of total sales1	1.32	2.46	2.45	-53.4
Energy	22.87	42.49	54.38	-53.8
share of total sales1	0.20	0.35	0.44	-56.4

¹ Share of total sales reported waste ton per EUR million ² Change 2018–2019

TELKO'S GREEN PORTFOLIO BUSINESS IS EXPECTED TO GROW AND BECOME COMMERCIALLY SIGNIFICANT IN THE NEXT FEW YEARS

fur oil or nearly sulfur-free liquefied natural gas, which significantly reduces carbon dioxide emissions. In recent years, Aspo has invested more than EUR 100 million in the development of its shipping company, and a significant part of this investment has been directed at improving the fleet's energy and cost-effectiveness. Examples of these investments include m/s Viikki and m/s Haaga, the most environmentally friendly LNG-fueled dry bulk cargo vessels in their category.

In 2019, the installations of ballast water treatment systems in accordance with new environmental regulations were started. During the year, the system was installed in ESL Shipping's largest vessel m/s Arkadia. The installations will mainly take place in 2020 and 2021 during the regular scheduled dockings. For m/s Viikki and m/s Haaga, the ballast water treatment systems were installed already during the construction phase of the vessels. The purpose of these treatment systems is to prevent alien plant and animal species from accessing new living environments through ballast water. For example, the Baltic Sea has more than 100 alien species, many of which can also be found on the Finnish coast. Alien species may displace original species living in the Baltic Sea, altering the structure and functioning of the entire ecosystem.

The goal of Leipurin is to reduce its environmental footprint especially by minimizing food wastage and the volume of waste. Leipurin has significantly reduced its wastage in recent years. Leipurin achieved its 2019 goal of reducing wastage by at least 25% in Finland, with wastage reducing by a total of 46% year-on-year. In Finland and other countries, the utilization of waste was increased by raising the amount of waste used as feed and recycled waste. Reducing wastage was possible, for example, by improving the efficiency of procurement activities and holding monthly meetings between procurement, sales and quality. These helped to accelerate the storage turnover rate.

In addition to reducing the environmental impact of their own operations, Aspo Group's businesses provide their customers with solutions that help them to reduce environmental loads in their entire production and supply chains.

Telko is playing its part in improving the circular economy involving plastics and is providing its customers with environmentally sustainable solutions. In 2019, the Green Portfolio business, focusing on sustainability, made up 1.1% (1.2%) of Telko's net sales. Although this percentage remains very low, Telko's Green Portfolio is expected to become a commercially significant business during the next few years. Growth is also expected in western markets, in particular, while customers in eastern markets are also interested in raw materials suitable for the manufacture of biodegradable plastic bags and solvent-free paints, for example. Research and development operations have increased to develop the range of alternate plastic raw materials. Furthermore, Telko aims to increase fiber-based and recycled plastics, and their relative proportion. In August 2019, Telko was the first Finnish distributor to receive the ISCC Plus certificate. ISCC Plus is a certificate granted for bio-based plastics. Accordingly, Telko can provide plastic raw materials produced in line with mass balance principles for its customers.

ESL SHIPPING HAS MADE SIGNIFICANT INVESTMENTS TO IMPROVE THE ENERGY EFFICIENCY OF ITS FLEET

FIVE-STAR ENVIRONMENTAL TECHNOLOGY

In April 2019, MS Viikki and MS Haaga, ESL Shipping's dry bulk cargo vessels fueled by liquefied natural gas (LNG), received the highest five-star environmental label from Clean Shipping Index (CSI). CSI is an independent non-profit organization. Its research methodology is assessed by a technical committee consisting of specialists and researchers.

"This independent CSI assessment proves that our new and innovative LNG-fueled vessels will help us to provide our customers with the eco-friendliest and the most sustainable transportation option in the markets," summarizes Mikki Koskinen, managing director of ESL Shipping.

CSI's environmental impact assessment is a very comprehensive process, taking into account emissions into the air and sea from vessels. The assessment covers direct exhaust emissions, chemicals used and on-board water and waste management.

The environmental footprint of these vessels is reduced by many innovative

MORE THAN 50% FEWER CARBON DIOXIDE EMISSIONS

solutions that aim to minimize emissions and energy consumption. The use of liquefied natural gas and powerful engines significantly reduces emissions into the atmosphere. The advanced ballast treatment system and the recovery system for water used to wash the cargo space minimize emissions into the sea.

Viikki and Haaga are the eco-friendliest dry bulk cargo vessels in the world, and they already meet environmental requirements set for 2025. Delivered in 2018, the vessels produce more than 50% fewer carbon dioxide emissions and 98% fewer particulate emissions than the previous generation of vessels in the same size category.

SOCIAL RESPONSIBILITY

PROMOTING A RESPONSIBLE AND ETHICAL BUSINESS MODEL

Aspo's Code of Conduct and HR management and development principles guide the Group's operations as a responsible employer. Aspo respects the freedom of association of employees and complies with local laws in each operating country. In emerging markets, Aspo aims to lead the way and spread responsible operating methods.

The most significant social risks are associated with occupational safety and health, and the availability and commitment of the personnel. In the conglomerate, work environments range from cargo vessels to chemical warehouses, and specific focus is placed on safety guidelines and training in different businesses. The goal is that there are zero occupational accidents.

The Finnish Transport and Communications Agency (Traficom) and classification society DNV GL have audited and certified ESL Shipping's functions and vessels in accordance with the International Safety Management (ISM) Code of the International Maritime Organization (IMO). In addition to safe operations aboard ships, the ISM Code sets standards for the prevention of emissions.

During the year, ESL Shipping discovered four incidents (four incidents in 2018) where the shipping company's substance abuse policy was violated. None of these incidents endangered maritime safety, and the company reacted to these violations by taking appropriate action as required by the company's safety policy and collective agreements. Two of the employees guilty of violations are no longer employed by the company. To ensure safety, ESL Shipping monitors any substance abuse by its employees through unannounced control tests. In 2019, these tests showed no violations.

IN EMERGING MARKETS, ASPO AIMS TO LEAD THE WAY IN RESPONSIBILITY

The engagement of employees and wellbeing at work comprise one of the most significant areas of responsibility in Aspo Group. For example, Aspo aims to contribute to this by providing opportunities for professional development for its employees at all levels of the organization, building an encouraging atmosphere and attending to wellbeing at work. Aspo regularly assesses the satisfaction of employees with their own tasks, the quality of management, and Aspo as an employer by conducting an annual atmosphere survey. In 2019, overall job satisfaction remained high, with the satisfaction of employees with their own work increasing to 4.27 (4.22) on a scale of 1 to 5. Long careers are also an indication of engagement and wellbeing: some 30% of all employees have worked in Aspo Group for more than ten years, and the average length of career was 7.3 (7.0) years in 2019.

The purpose of occupational safety and health is to maintain the physical and psychological working ability of the personnel and thus their high quality of life. In Finland, occupational safety and health matters are handled at a Group level by the occupational safety and health committee. The committee had two meetings in 2019 (two meetings in 2018). In addition, meetings were held in different work locations. Each ESL Shipping vessel has an occupational safety and health committee which covers the entire crew and meets four times a year. A significant part of annual training is held by each business in accordance with their own special needs.

In 2019, ESL Shipping had 326 (332) training days. The shipping company also plays a key role in Finnish maritime training. Dozens of future seamen train aboard ESL Shipping's vessels every year. In 2019, 110 (90) students completed their study-related training periods aboard ESL Shipping's vessels, totaling 3,618 training days.

As Leipurin operates in the food industry, counterfeit food, products of poor quality and health hazards directed at consumers such as allergen contaminations, pose significant risks, which the company controls using stabilized processes and practices. In 2019, Leipurin conducted an extensive risk assessment regarding counterfeit products, and its results will be entered in the company's integrated management systems and processes during 2020. Leipurin also closely monitors whether raw material batches sent from risk countries defined by the Business Social Compliance Initiative (BSCI) are clean and genuine.

Leipurin assesses risks associated with product safety using a regularly updated risk analysis. Customers, food authorities and external auditors audit Leipurin's operations several times a year. In Finland, Leipurin uses an ISO 9001:2015-certified quality management system for change and risk management, and the continuous improvement of operations. The goal is to certify quality management systems in all countries and all operating units. Alongside the current system, Leipurin has also proactively developed its operations toward the level required by the BRC Global Standard for Food Safety. The aim is to fulfill the requirements of the standard within two years.

Product safety is also essential for Telko which acts as a link between industrial customers and international raw material manufacturers. Non-conformities in quality and deliveries of incorrect products may have severe consequences. Telko has systematized and boosted its reporting process for non-conformities in quality. Currently, even the smallest non-conformities are registered in all the company's operating countries. During 2019, Telko had six cases in which incorrect products were delivered to customers. None of these cases led to an accident or near-miss incident, as the errors were discovered and corrective measures were taken in time.

Aspo also has a broad impact on the communities in which it operates. For example, ESL Shipping is a significant organizer of maritime transport and plays a key role in Finland's emergency supply, because maritime transport accounts for 80% of Finland's imports and 90% of its exports. In the event of a crisis, vessels operating under the Finnish flag safeguard connections to other countries. Kauko is involved in digitalizing the work of public authorities and improving efficiency in key sectors such as rail, road and air traffic, healthcare, and waste management.

SUSTAINABILITY AUDITS PROVIDE INFORMATION ABOUT SUPPLY CHAINS

Telko started to plan a pilot project for sustainability audits in 2018, and the first on-site audits were conducted in Russia and China in early 2019. These audits were based on a frame of reference built with an external consulting company, based on Telko's Code of Conduct for suppliers.

During the audits, Telko's representatives and external consultants interviewed representatives of suppliers regarding sustainability and responsibility, and discussed Telko's requirements for human rights, environmental responsibility and safety guidelines, for example. Facilities and production plants were also audited.

Telko has hundreds of suppliers all over the world. In addition to on-site sustainability audits, a larger group of suppliers is monitored through self-assessments. A self-assessment questionnaire was sent to Telko's 100 largest suppliers in November. Its results provide the company with valuable information about the supplier network, and enable resources to be allocated better and the audit process to be fine-tuned. The same questionnaire will also be used to assess the sustainability and responsibility of potential suppliers. These assessments also act as selection criteria, with the aim of securing sustainable operations throughout Telko's value chain.

"Audits and self-assessments give us an even better understanding of the current situation, and what we can reasonably demand from our suppliers in each area. It is obvious that we can lead the way in terms of sustainability in certain markets, and we're working hard to this end," says Piia Appelqvist, HSEQ manager at Telko.

HUMAN RIGHTS

WE TAKE CARE OF OUR PERSONNEL

Aspo is committed to respecting internationally accepted human rights as defined in the Universal Declaration of Human Rights and the UN Guiding Principles on Business and Human Rights.

Aspo treats its employees in a just and equal manner in all countries where it operates. The applicable local legislation and regulations are complied with in all contracts of employment. These concern, among other things, working hours, remuneration, development opportunities, human rights and working conditions.

Aspo's Code of Conduct defines a common set for rules for the Group's entire personnel. We reject any discrimination based on education, competence, position, personality, way of life, work experience, ethnic origin, religion, gender, sexual orientation, age, nationality, abilities or other qualities.

Aspo uses a whistleblowing channel for reporting any human rights violations. Employees are notified of the whistleblowing channel, for example, in conjunction with Code of Conduct training. As part of the annual atmosphere survey, Aspo aims to identify whether its personnel are aware of the channel. In the 2019 survey, 97% (92%) of respondents said they are aware of the internal whistleblowing procedure in the case of any violations. Awareness of the whistleblowing channel has continued to increase, and Aspo's goal is that all personnel are aware of the channel and motivated to use it. Matters reported through

the whistleblowing channel are received by the Group's Legal Counsel and discussed by Aspo's Board of Directors. In 2019, a suspicion of abuse in Telko's Chinese country organization was raised, and the investigation is still ongoing. There have also been cases reported through the whistleblowing channel that are not directly related to violations but more about suggested develop-

ment of processes. The Group's atmosphere survey also always examines the fulfillment of equality. In this year's survey, employees once again considered the level of equality to be high: the score given to the question "Are men and women treated equally?" was 4.57 on a scale of 1 to 5. In 2018, the corresponding figure was 4.39.

Aspo's internal processes and regulations aim to prevent the use of child labor, forced labor or bonded labor in the Group's business operations. In examining the Group's entire supply chain more broadly, Aspo has identified potential risks associated with human rights violations, such as violations related to trading in conflict minerals. Criteria applied to the selection of new partners also focus on the environment, social responsibility, and the prevention of corruption and bribery.

To ensure appropriate operating methods, Aspo's businesses monitor compliance with the Supplier Code of Conduct in various ways. For example, Telko started sustainability audits in the facilities of its suppliers in 2019 and continued to audit the warehouses it uses in different countries. These audits also cover Telko's requirements concerning human rights. In addition to on-site audits, a larger group of suppliers is monitored through self-assessment.

Significant numbers of the partners of ESL Shipping, Telko and Kauko are important international companies, with which each of these businesses have been engaged in long-term cooperation and which have their own stabilized processes for the responsible management of supply chains. Leipurin also has a broad network of smaller partners, and the company is currently developing processes to monitor these partners more effectively.

OF THE PERSONNEL ARE AWARE OF THE WHISTLE- BLOWING PROCEDURE IN THE EVENT OF ANY VIOLATIONS 97%

ANTI-CORRUPTION AND ANTI-BRIBERY MEASURES

MANAGEMENT OF THE SUPPLY CHAIN IS KEY

As an international company, Aspo also operates in countries in which corruption is common. According to Transparency International, these include Russia and Ukraine. To prevent any misconduct, the use of cash has been minimized in Aspo's businesses. Aspo's Internal Audit and Legal Affairs conduct audits within all businesses in accordance with annual plans.

Aspo's Code of Conduct absolutely prohibits corruption and bribery in all their forms. Code of Conduct training includes anti-corruption issues and provides guidance for identifying any suspicious situations and practices considered unethical. Telko also uses more detailed guidelines for bribery, and it complies with the FECC's Code of Conduct.

The key tool in the prevention of corruption and bribery is the responsible management of the supply chain. To ensure appropriate operating methods, Aspo has prepared the Supplier Code of Conduct, compliance with which is monitored in all businesses. For example, Telko conducts separate sustainability audits.

During 2019, compliance manuals were written for all businesses. The aim was to develop business processes, internal guidelines, and documentation and reporting. Alongside the manuals, training was provided for key employees, and a separate online compliance course was built for the Group's entire personnel, specifying business-specific key areas and themes in more detail. The online course is mandatory for all Aspo Group employees.

In addition, Telko and ESL Shipping apply risk assessments to their suppliers. Leipurin's objective is, through its new quality management system, to further clarify its supplier criteria related to anti-corruption and anti-bribery.

The investigation of a suspected fraud uncovered in 2018 continued in 2019. As a result of the investigation, Telko discontinued its cooperation with a Latvian supplier. In 2019, a case of potential misconduct related to the freight rates of one of Telko's logistics providers in Lithuania was discovered. This investigation is still ongoing.

GUIDELINES FOR RESPONSIBLE BUSINESS

Compliance often means the observance of requirements, laws, rules and regulations. At Aspo, compliance means ensuring that we act in accordance with requirements that are derived from laws and regulations, our compliance manual, our internal guidelines, Aspo's Code of Conduct and the UN Global Compact principles.

Aspo Group started to develop its compliance program in 2019. The purpose was to develop business processes, internal guidelines, as well as documentation and reporting. The ultimate goal was to raise the bar in compliance-related matters.

"The purpose of the compliance program is to ensure that we always abide by laws, the company's principles and operating models, and the Group's values. As a result, we can reduce business risks, protect Aspo's reputation and meet our stakeholders' expectations. Everything revolves around responsible and ethical operations," says Toni Santalahti, director of legal affairs and compliance officer at Aspo Group.

The implementation of the program made good progress during the year. First, compliance officers and other key employees were appointed in each subsidiary. Next, every business distributed the program to all their locations. The purpose of the online training course, mandatory for all employees, is to communicate the importance of compliance in day-to-day activities and teach employees what to do in different situations by use of examples. It is also important to show how and where the personnel can report any suspected violations.

"Our compliance manuals and our Code of Conduct give us guidelines for working ethically and responsibly," Santalahti says in summary.

SUSTAINABILITY TABLES

The reporting period is the calendar year 2019. In principle, the reporting covers the entire Aspo Group. Any exceptions have been stated in conjunction with the indicators.

The personnel figures given in the responsibility report include all permanent employees, including long-term absentees. The personnel figures also include the temporary maritime crew of AtoB@C Shipping, acquired by ESL Shipping in autumn 2018, but only with regard to vessels owned by the company. In the financial statements, the personnel figures only include Aspo Group's own employees, not temporary workers. Additionally, the personnel figures only include active employees.

■ NUMBER OF PERSONNEL BY GEOGRAPHICAL AREA, DECEMBER 31

	ESL Shipping1			Leipurin			Telko
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Finland	262	262	236	80	100	108	52	50	64
Skandinavia	74	69	–	–	–	–	24	27	23
Baltic countries	–	–	–	50	49	50	36	33	31
Russia, other CIS countries and Ukraine	–	–	–	167	171	212	162	161	169
Other countries	1	1	–	–	10	14	25	25	32

	Kauko			Other operations			Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Finland	30	33	47	27	25	26	451	470	481
Skandinavia	–	–	–	–	–	–	98	96	23
Baltic countries	–	–	–	–	–	–	86	82	81
Russia, other CIS countries and Ukraine	–	–	–	–	–	–	329	332	381
Other countries	1	1	13	–	–	–	27	37	59

1 Includes crew members of vessels owned by AtoB@C, acquired by ESL Shipping in autumn 2018.

■ NUMBER OF PERSONNEL BY CATEGORY, DECEMBER 31

		ESL Shipping1					Telko
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Office staff	38	35	21	206	211	272	250	250	256
Supervisors	3	–	3	40	38	20	19	17	18
Management	7	8	3	19	20	26	24	20	25
Non-office staff	2	3	6	32	61	66	6	9	20

	Kauko			Other operations				Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Office staff	22	24	47	22	19	19	538	539	615
Supervisors	1	5	3	2	3	2	65	63	46
Management	3	–	4	3	3	4	56	51	62
Non-office staff	5	5	6	–	–	1	45	78	99

1 Not including marine personnel.

■ NUMBER OF PERSONNEL BY CONTRACT TYPE, DECEMBER 31

	ESL Shipping			Leipurin				Telko
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Amount of personnel	337	332	236	297	330	384	299	296	319
Full-time contract	501	451	331	293	316	364	293	290	313
Part-time contract	–1	11	–1	4	14	20	6	6	6

	Kauko			Other operations			Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Amount of personnel	31	34	60	27	25	26	991	1 017	1 025
Full-time contract	31	34	60	26	22	23	6431	7071	7931
Part-time contract	–	–	–	1	3	3	111	241	241

1 Not including marine personnel.

■ GENDER DISTRIBUTION, DECEMBER 31

	ESL Shipping			Leipurin			Telko			Kauko
	2019	2018	2017	2019	2018	2017	2019	2018	2017	2019	2018	2017
Women	36	35	21	166	198	228	164	160	162	5	7	14
Men	301	297	215	131	132	156	135	136	157	26	27	46

	Other operations			The Boards of Aspo and segments			Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Women	16	14	13	7	5	8	394	419	446
Men	11	11	13	9	10	11	613	613	598

■ AGE DISTRIBUTION, DECEMBER 31

	ESL Shipping			Leipurin			Telko
	2019	20182	2017	2019	2018	2017	2019	2018	2017
> 24	12	9	15	3	17	20	8	6	9
25–39	119	103	82	129	154	173	140	137	157
40–54	127	107	96	132	126	141	117	119	123
55 <	79	56	43	33	33	50	34	34	30

	Kauko			Other operations			Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
> 24	–	1	2	1	–	–	24	33	46
25–39	6	6	13	6	6	6	400	406	431
40–54	16	19	35	10	10	10	402	381	405
55 <	9	8	10	10	9	10	165	140	143

■ AVERAGE AGE OF EMPLOYEES

	ESL Shipping		Leipurin		Telko		Kauko		Other operations
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
Average age of employees	45	44	41	39	41	40	47	48	47	47

■ EMPLOYEE TURNOVER RATE

	ESL Shipping1		Leipurin				Telko
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Average turnover rate, %	16	16	15	26	26	18	20	14	13

	Kauko			Other operations			Aspo Group
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Average turnover rate, %	31	41	16	39	18	8	23	21	15

1 Not including marine personnel.

■ EMPLOYEE SATISFACTION INDEX (SCALE 1–5)

	2019	2018	2017
Business segment	3.94	4.18	4.13
Own unit	4.08	4.24	4.25
My work	4.27	4.22	4.21
My superior	4.1	4.16	4.11

■ LTIF AND SICK LEAVES

	ESL Shipping Office					ESL Shipping Marine personnel			ESL Shipping AtoB@C Marine personnel4
	2019	2018	2017		2019	2018	2017	2019	2018
LTIF1	0	0	0	TIR3	22.1	21.1	8.9	0	0
Sick leaves, %2	1.39	0.48	0.94	Sick leaves, %2	4.0	3.9	2.97	0	–5

	Leipurin			Telko			Kauko			Other operations
	2019	2018	2017	2019	2018	2017	2019	2018	2017	2019	2018	2017
LTIF1	8	10	48	4	41	13	0	0	14	0	0	29
Sick leaves, %2	3.99	1.69	1.85	1.44	1.05	1.4	0.32	1.56	0.86	1.61	0.69	1.09

1 Lost-time injury frequency (LTIF) is presented per 1,000,000 working hours. LTIF-rate includes only Finnish personnel. The LTIF-rate is significantly affected by even small changes in the number of incidents: one incident more or less during the reporting year, in comparison to the baseline year, will have a major impact on the LTIF-rate. Particularly for the smaller businesses the fluctuation of the LTIF-rate can partially be explained by the small number of employees. ²

Sick-leave absence ratio is calculated: (sick days/total work days)*100. Sick-leave absence ratio of marine personnel is calculated: (total sick days in the fleet/total days worked onboard)*100. ³

TIR (Total Incident Rate) includes all incidents; the ratio is presented per 1,000,000 working hours.

4 AtoB@C Shipping marine figures included in reporting from 2018.

5 Information on sick leave is not available for AtoB@C Shipping marine personnel for the year 2018.

■ THE USE OF ENERGY AND EMISSIONS

	ESL Shipping2
	2019	20183	2017	Change5 , %
Purchased energy1 , Mwh	117.6	105.2	129.7	11.7
Total use of fuel, Mwh	892,250	597,300	347,830	49.4
2 tCO2	237,296	160,988	93,224	47.4
g-CO2 per ton mile3	15.47	13.10	10.75	18.1
2 tSOX	179.3	128.9	95.3	39.1
mg-SOX per ton mile3	11.69	10.49	10.99	11.4

	Leipurin			Telko4
	2019	2018	2017	Change5 , %	2019	2018	2017	Change5 , %
Purchased energy1 , Mwh	3,394.8	4,240.6	3,429.0	-19.9	1,093.0	1,059.5	1,118.7	3.2
2 tCO2	1,154.2	1,441.0	1,374.0	-19.9	306.9	337.2	428	-9.0

	Kauko			Other operations
	2019	2018	2017	Change5 , %	2019	2018	2017	Change5 , %
Purchased energy1 , Mwh	146.5	125.0	144.9	17.2	150.3	177.1	210.9	-15.1
2 tCO2	24.7	23.0	29.5	7.3	23.7	25.6	32.7	-7.4

¹ Purchased energy mainly measured, if not possible to measure the figures are estimated. 2 Excluding Raahe depot and certain vessels on voyage charter. ⁴ Figures corrected retrospectively for 2018 and 2017. ⁴ The figures cover Telko's main countries of operation Finland, Poland, Russia, Ukraine, Sweden and Denmark. ⁵ Change 2018–2019.

GOVERNANCE

GOVERNANCE

CORPORATE GOVERNANCE

Aspo Plc is a Finnish publicly listed company. Its objective is to increase the shareholder value responsibly in the long term by leading and developing the businesses it owns.

Aspo's decision-making and administration comply with the Finnish Companies Act, securities market legislation, other regulations concerning public companies, Aspo Plc's Articles of Association, and the rules and regulations of Nasdaq Helsinki Ltd. Aspo follows the Finnish Corporate Governance Code, effective from January 1, 2020, which is available on the Securities Market Association's website.

GROUP STRUCTURE

The Aspo Group's parent company, Aspo Plc, is a Finnish public company domiciled in Helsinki. The main responsibility for Aspo Group's administration and operations lies with Aspo Plc's governing bodies, which are the Shareholders' Meeting, the Board of Directors and the CEO. The highest decision-making power is exercised by the shareholders at the Shareholders' Meeting.

Aspo Group is an industrial conglomerate which develops its businesses in the long term independent of the time. Aspo Plc's task is to own, lead and develop the operations of its subsidiaries and other Group companies, centrally administer the Group companies, take care of issues related to financing and strategic planning, and plan and implement financially expedient investments.

The Group's operational business is carried out in the Group companies, ESL Shipping Ltd, Leipurin Plc, Telko Ltd and Kauko Ltd, and in their subsidiaries in Finland and abroad.

SHAREHOLDERS' MEETING

The Annual Shareholders' Meeting is arranged every year on a date set by the Board of Directors and it deals with the issues that are the Annual Shareholders' Meeting's responsibility as outlined in the Articles of Association, the proposals of the Shareholders' Nomination Board and the Board of Directors and possible other proposals to the Shareholders' Meeting. The Annual Shareholders' Meeting, for instance, approves the financial statements, elects the Board members and the auditor, and decides on profit distribution and the remuneration of the Board members and the auditor.

Shareholders are, according to the Companies Act, entitled to bring issues falling within the domain of the Shareholders' Meeting to be dealt with at the Shareholders' Meeting if they demand this in writing from the Board of Directors well in advance so that the issue can be included in the notice of the meeting.The Board of Aspo Plc convenes the Shareholders' Meetings. The notice of the meeting is published in a stock exchange release and on the company's website not earlier than two months and not later than twenty-one (21) days prior to the meeting, however, at least nine (9) days prior to the record date for the shareholders' meeting. In addition, the Board of Directors may at their discretion decide to announce about the shareholders' meeting in one or several newspapers. In addition, the following information is published on the company's website 21 days before the Shareholders' Meeting at the latest:

total number of shares and votes by share class on the date of the notice of the meeting
documents to be presented to the Shareholders' Meeting
decision proposal of the Board of Directors or some other competent body
any issue that is included in the agenda of the Shareholders' Meeting but for which no decision is proposed

The decisions of the Shareholders' Meeting are published after the meeting in a stock exchange release. The minutes of the Shareholders' Meeting with the voting results and appendices related to the decisions are published on the company's website within two weeks of the Shareholders' Meeting.

SHAREHOLDERS' NOMINATION BOARD

Aspo has a permanent Shareholders' Nomination Board to prepare proposals to the Annual Shareholders' Meeting for the election and remuneration of the members of the Board of Directors and the remuneration of the Board committees. The Nomination Board comprises representatives of the four largest shareholders of the company and, in addition, the Chairman of the company's Board as an expert member.

The following representatives of the largest shareholders were members of the Nomination Board which prepared proposals for the Annual Shareholders' Meeting 2020: Roberto Lencioni (Vehmas family), Chairman; Veronica Timgren (Nyberg family, including Oy Havsudden Ab); Annika Ekman (Ilmarinen Mutual Pension Insurance Company) and Reima Rytsölä (Varma Mutual Pension Insurance Company). In addition, Gustav Nyberg, Chairman of Aspo Board of Directors, has acted as an expert member of the Nomination Board.

BOARD OF DIRECTORS

According to the Articles of Association, Aspo Plc's Board of Directors comprises no fewer than five and no more than eight members. The number of members of the Board is determined at the Shareholders' Meeting, where its members are also elected. The members of the Board of Directors elect a chairman and a vice chairman from amongst themselves. In the 2019 Annual Shareholders' Meeting, six Board members were elected. The term of the members ends at the conclusion of the Annual Shareholders' Meeting following the election.

The Board constitutes a quorum when more than half of the members, including either the chairman or vice chairman, are present. The duties and responsibilities of the Board of Directors are set out in the Articles of Association, the Finnish Companies Act and other applicable legislation. Aspo Plc's Board of Directors has confirmed written standing orders which state that the matters to be dealt with by the Board include, but are not limited to:

Aspo Group's strategic guidelines and divisional strategies
Group structure
matters to be presented to Shareholders' Meetings
interim reports and consolidated financial statements
Group business plans, budgets and investments
expanding and scaling back operations, acquisitions/divestments of companies or operations
Group risk management, insurance and treasury policies
Group environmental policy
management remuneration and incentive plans
appointment of the CEO
monitoring the financial and financing situation of Aspo Group

The Board carries out an annual self-evaluation of its operations and working methods. In 2019, the Board of Directors arranged 9 meetings. The participation rate was 98.

Board committees

Audit Commitee

The Audit Committee is tasked with preparing issues related to the company's financial reporting and control. The Audit Committee does not have independent decision-making authority, but the Board makes the decisions on the basis of preparations by the committee. The Audit Committee consists of the chairperson and at least two members, whom the Board appoints from among the Board members for one year at a time. In 2019, Mammu Kaario acted as the Chairman of the Audit Committee and Mikael Laine, Salla Pöyry and until April 9, 2019 Tatu Vehmas as committee members.

GOVERNANCE

The tasks of the Audit Committee are:

monitoring the financial statements reporting process
control of the financial reporting process
monitoring the effectiveness of internal control, internal audit and risk management systems
review of internal audit's plans and reports
processing plans and reports for the company's compliance function
review of the description of the main principles related to the internal control and risk management -systems over financial reporting process included in the company's Corporate Governance Statement
monitoring the statutory audit of the financial statements and consolidated financial statements
assessing the independence of the audit firm
assessing the auxiliary services offered by the audit firm
preparing the decision on the election of the auditor

The Audit Committee will convene regularly at least twice a year. In 2019, the audit committee had seven meetings. The average participation rate was 100.

Remuneration Committee

Aspo Plc's Board of Directors has, on April 9, 2019, established a Remuneration Committee with the objective of preparing matters related to the remuneration and appointment of the CEO and other members of the company's management and to other personnel reward schemes. The Remuneration Committee does not have independent decision-making authority, but the Board makes the decisions on the basis of preparations by the committee. The Remuneration Committee consists of the chairperson and of two to three members. In 2019, Gustav Nyberg acted as the Chairman ot the Remuneration Committee and Risto Salo and Tatu Vehmas as committee members.

The tasks of the Remuneration Committee are:

to prepare the appointment of the CEO and other members of the management, and to identify their successors;
to prepare the salaries and other financial benefits of the CEO and other members of the management;
to prepare matters related to the company's reward schemes;
to assess the remuneration paid to the CEO and other members of the management, and to ensure that reward schemes are purposeful;
to assess programs and other incentive schemes that are based on shares or special rights entitling their holder to shares and present recommendations about them to the Board of Directors;
to plan the remuneration of other personnel and the development of the organization;
to respond to questions related to the remuneration statement at the Annual Shareholders' Meeting; and
to recommend an advisor for the company's Board of Directors, if required, and prepare a proposal for fees paid to specialists.

The Remuneration Committee will convene regularly at least three times a year. In 2019, the remuneration committee had three meetings. The average participation rate was 100.

Remuneration for Board members

The Annual Shareholders' Meeting decides on the remuneration and cost compensation principles for the Board members every year. The 2019 Annual Shareholders' Meeting confirmed the Chairman of the Board's monthly remuneration to be EUR 5,400. It was resolved that the Vice Chairman be paid a monthly remuneration of EUR 4,050 and the other members of the Board of Directors EUR 2,700 per month. It was also resolved that EUR 1,050 per meeting be paid to the Chairman of the Audit and Remuneration Committee and EUR 700 per meeting be paid to the members of the Committees. If the Chairman of the Committee is also the Chairman or the Vice Chairman of the Board of Directors, the fee paid to the Chairman of the Committee is the same as that paid to member of the Committee. Board or the commitee members employed by or in a service relationship with an Aspo Group company are not paid a fee. Travel is compensated for in accordance with Aspo's travel policy.

In 2019, the Aspo Plc Board members received a total of EUR 264,700 in fees.

The majority of Aspo's Board members are independent of the company and its major shareholders.

Chairman of the Board

Gustav Nyberg, B.Sc. (Econ.), eMBA (63) has acted as the Chairman of the Aspo Plc Board.

Diversity on the Board of Directors

Aspo regards diversity on the Board of Directors as a significant part of sustainable operations, and a success factor that allows the company to reach its strategic goals. Diversity must be part of a functional Board of Directors which is able to work together and respond to the requirements set by the company's businesses and strategic goals, and to challenge the company's acting management in a proactive and constructive manner.

The Shareholders' Nomination Board prepares and presents the proposal for the composition of the Board of Directors to the Annual Shareholders' Meeting. When planning the composition of the Board of Directors, the Aspo Shareholders' Nomination Board takes account of the needs and development phases of the company's businesses, as well as the competence areas required by different board committees. When selecting board members, the objective is to ensure that the Board of Directors as a whole supports the development of Aspo's current and future business operations.

The chairman of the Board of Directors proposes the competence and know-how required from board members to the Nomination Board so that each member can be assumed to have the required expertise and experience. The objective of the preparatory work of the Nomination Board is to ensure that the Board of Directors forms a functional whole.

Diversity on the Board of Directors is examined from different points of view. For the composition of Aspo's Board of Directors, key factors are competence, with each board member supplementing one another, education and experience in different business fields, management and operations in different development phases, as well as the personal characteristics of each member. In addition, diversity on the Board of Directors is supported by experience in an international operating environment and consideration of the age and gender distribution. The objective is that both genders are represented by at least two members. Aspo fulfills this objective.

Members of Aspo's Board of Directors must have the competence required for the position and the ability to allocate sufficient time to their tasks. When forming the Board of Directors, long-term needs and replacement planning are also taken into account. The composition of the Board of Directors and the number of members must enable the Board of Directors to work effectively.

Aspo owns and develops businesses belonging to the Group. The Boards of Directors of each subsidiary prepare and decide on the strategies of each business. The subsidiaries are independent of one another, and they have separate objectives, customer needs, capital structures and business cycles. Therefore, they need independent Boards of Directors that produce genuine added value for the development of the companies. Aspo's CEO acts as the chairman of the Boards of Directors of all subsidiaries. The aim is to find active top experts in their fields who are still actively engaged in business life for the Boards of Directors of the subsidiaries. Another aim is to follow the same level of diversity on the Boards of Directors of the subsidiaries as on the Aspo Board of Directors. Through their work, the Boards of Directors of the subsidiaries support diversity on the Board of Directors of Aspo.

CHIEF EXECUTIVE OFFICER

The Board of Directors appoints Aspo Plc's CEO. The CEO of Aspo is Aki Ojanen, eMBA (59). The CEO leads and develops the Group's business and is responsible for the operative management in accordance with the instructions of the Board of Directors. The CEO presents matters and reports to the Board of Directors. The CEO is responsible for the company accounting complying with applicable legislation and for the reliable arrangement of the company finances. He also serves as the Chairman of the subsidiary Boards and acts as the operational supervisor of the Managing Directors of the subsidiaries and Group administration. He is also responsible for internal audit and for Group risk management, which are coordinated by the CFO.

The terms of the CEO's employment relationship have been agreed in writing in the CEO agreement. The period of notice applied to the CEO is six months. If notice is given by the company, severance pay corresponding to 18 months' salary will be paid in addition to the salary for the notice period. In 2019 the CEO was paid EUR 635,168 in salary, bonuses and fringe benefits. The share of bonuses for 2018 was EUR 111,486 the share of share-based payments for 2018 was EUR 33,480 and the share of voluntary pension insurance payments was EUR 102,835.

GROUP EXECUTIVE COMMITTEE

The CEO is assisted by the Group Executive Committee, which is responsible for developing the strategic structure of Aspo Group and its earnings, as well as prepares the Group policies and common practices. The Group Executive Committee convenes at least six times a year.

In addition to the CEO, the Group Executive Committee in 2019 consisted of CFO Arto Meitsalo, Group Treasurer Harri Seppälä as well as Matti-Mikael Koskinen, Managing Director of ESL Shipping, Mikko Laavainen, Managing Director of Leipurin, Kalle Kettunen, Managing Director of Telko until May 20, 2019 and since October 28, 2019 Mikko Pasanen, Managing Director of Telko as well as Toni Santalahti, Director, Legal Affairs. In 2019, the Group Executive Committee received a total of EUR 1,532,127 in salaries, bonuses and fringe benefits. The share of bonuses for 2018 was EUR 184,224, the share of sharebased payments for 2018 was EUR 73.237 and the share of voluntary pension insurance payments was EUR 90,533. In addition to the aforementioned, a severance pay of EUR 137,558 was paid.

REMUNERATION

Aspo Group applies a profit bonus system which was adopted in 2013. The profit bonus system applied to Finnish personnel is linked with the personnel fund so that the bonus can be invested in the personnel fund or withdrawn in cash. The long-term goal of the funding system is that the personnel will become a significant shareholder group in the company. Being a member of the personnel fund requires an employment relationship with a Finnish company belonging to Aspo Group.

Aspo Plc's management remuneration consists of the person's fixed monthly salary, a short-term bonus depending on the profit impact of the respective position, long-term management pension benefits and share-based payment plan.

Aspo Plc's Board of Directors makes decisions on the salaries, other financial benefits, and the basis of the bonus plan and the share-based payment plan for Aspo's CEO and the Group Executive Committee members.

Bonus plan based on the company result (short-term incentive program)

Aspo has a result-based incentive plan for the management. The maximum bonus may differ up to a sum equivalent to three to eight months of the employee's salary. The maximum bonus of the CEO is a sum equivalent to eight months' salary. The criteria used in the bonus plan include annual requirements and the development preconditions of the area for which the person has responsibility. The fulfilling of the bonus plan criteria is monitored annually. The criteria and payments paid according to the criteria are approved by Aspo Plc's Board of Directors. Bonuses recognized annually are paid after the completion of the annual financial statements.

Share-based incentive plans 2018–2020

The Board of Directors of Aspo Plc has approved three new share-based incentive plans for the Group key employees in April 2018. The aim of the new plans is to combine the objectives of the shareholders and the key employees in order to increase the value of the company in the long-term, to retain the key employees at the company, and to offer them competitive reward plans based on earning and accumulating the company´s shares.

Share-based incentive plan 2018–2020

The share-based incentive plan 2018–2020 includes three earnings periods, calendar years 2018, 2019 and 2020. The Board of Directors of the company will resolve on the plan's performance criteria and required performance levels for each criterion at the beginning of each earnings period.

The potential reward of the plan from the earnings period 2019 will be based on the Group's earnings per share (EPS). The sharebased incentive plan is directed to approximately 15 people, including the members of the Group Executive Committee, during the earnings period 2019. A potential reward from the year 2019 will be paid in 2020 partly in shares and partly in cash. The rewards to be paid on the basis of the share-based incentive plan 2018–2020 correspond to the value of a maximum total of 500,000 Aspo Plc shares including also the proportion to be paid in cash.

Executive Committee share-based incentive plan 2018–2020

The Executive Committee share-based incentive plan 2018–2020 includes one earnings period, calendar years 2018– 2020. The potential reward of the plan from the earnings period 2018–2020 will be based on the Group's operating profit (EBIT), and the reward payment requires exceptional performance.

The potential reward from the earnings period 2018–2020 will be paid partly in the company´s shares and partly in cash in 2021. The rewards to be paid on the basis of the earnings period 2018–2020 correspond to the value of a maximum total of 200,000 Aspo Plc shares including also the proportion to be paid in cash.

Restricted share-based incentive plan 2018

The reward from the restricted share-based incentive plan 2018 will be based on the participant's valid employment or service and the continuation of employment during the vesting period. The reward will be paid partly in the company´s shares and partly in cash after the end of a 12–36 month vesting period. The restricted share-based incentive plan is intended solely for individual key employees by a special resolution of the Board of Directors. The rewards to be paid on the basis of restricted sharebased incentive plan 2018 correspond to the value of a maximum total of 100,000 Aspo Plc shares including also the proportion to be paid in cash.

Further information of remuneration and incentive plans on remuneration statement at www.aspo.com.

Supplementary pensions

The CEO and two members of the Group Executive Committee at Aspo Plc are eligible for a defined contribution pension insurance plan. The retirement age is the lowest possible retirement age less three years whereupon the payment of contribution ends. The receiving of a pension ends at the age of 75. The pension is determined in accordance with the accumulated insurance savings at the time of retirement. The start of receiving the pension can be postponed, at most, until the age of 70. In that case, the pension is determined on the basis of insurance savings adjusted in accordance with the value development of related investment objects.

If the person's employment to the company ends before the contractual retirement age, the person is entitled to a paid-up policy – a paid-up insurance that corresponds to insurance savings accumulated by the end of the person´s employment. The person is always entitled to a paid-up policy that corresponds to his or her own share of contribution.

The costs of the voluntary group pension insurance plans totaled EUR 193,368.

AUDIT

According to the Articles of Association, the Annual Shareholders' Meeting elects the auditor, which must be an audit firm approved by the Central Chamber of Commerce. The term of the auditor ends at the conclusion of the Annual Shareholders' Meeting following the election.

The auditor elected by the Shareholders' Meeting is responsible for instructing and coordinating the auditing work centrally in the Group. The auditor provides the company's shareholders with the auditor's report in connection with the financial statements, in accordance with legislation. The Board also receives other possible reports and statements given by the auditor.

The 2019 Annual Shareholders' Meeting elected Ernst & Young Oy as the auditor. APA Toni Halonen acted as the principal auditor. In 2019, companies belonging to the EY chain in Finland and abroad were paid a total of EUR 381,000 in compensation for performing audits for Aspo Group. In addition, other services were acquired for EUR 147,000.

INTERNAL CONTROL

Aspo's internal control includes the control that is built in to the business processes, the Group's management system and financial reporting covering the entire Group. Internal control is an integral part of the company's management, risk management and administration. The aim of internal control is to create sufficient certainty of goals and objectives being reached in the following issues:

operational profitability and efficiency, and capital management
reliability and integrity of financial and operational information
compliance with laws, regulations and agreements, as well as ethical principles and social responsibility
safeguarding and responsible management of assets and brands

The responsibility to arrange the control lies with the Board of Directors and the CEO both at Group and business unit level. The Aspo Board is responsible to the shareholders and the CEO to the Board. The chain of responsibility continues throughout the organization so that each Aspo employee is responsible to his/her superior for control over his/her responsibility area. Group company controllers have control responsibility concerning compliance with legislation and Group instructions. As well as to the subsidiary management, they also report to the CFO. The CFO reports to the CEO and Board on possible findings. The internal audit function supports the Group management in their control task and the aim is to offer Aspo Board sufficient assurance that the control is working.

FINANCIAL REPORTING

The control of financial reporting is based on monitoring of business processes. The information for financial reporting is created as business processes progress, and the responsibility for correct information is shared by all participants in the process. The financial reporting process is decentralized and monitored by the Audit Committee.

The financial statements of the Group are prepared according to the IFRS standards as adopted by the EU. The financial statements of the parent company and the Finnish subsidiaries are prepared according to the Finnish Accounting Standards. Each separate company complies with the legislation of the country where it is located, but reports based on Aspo's internal accounting instructions. Separate companies may have their own chart of accounts, but all information is consolidated on the basis of a common chart of accounts to the unit level, where their reliability is assessed before the information is transferred to the Group level. Aspo Group's financial information is verified and its quality assessed on monthly basis. At each phase the unit responsible for the quality and preparation of information will assess its reliability. The Grouplevel monitoring and reconciliation mechanisms are used on both monthly and quarterly bases.

The systems required for financial reporting are decentralized and used according to the principles of internal control. Achieving the set targets is monitored on a monthly basis with the Group's consolidation and reporting system. In addition to actual and comparative figures, the system provides up-to-date forecasts. The reports are provided to the Aspo Board of Directors monthly. The Board of Directors assesses the Group's position and future based on the provided information. The Board of Directors is responsible for the contents and publication of the financial statements.

Besides the Audit Committee, the reliability of reporting and processes are assessed by an independent, external audit firm.

INTERNAL AUDIT

The purpose of internal audit is to support assessment and assurance of the Group to verify the efficiency of risk management, control, management and administration. Internal audit assists the management and the organization in ensuring the achievement of the Group targets and ensuring the effectiveness and development of the control system.

The Board of Directors approves the principles of internal audit as part of internal control. The Group CFO is responsible for the coordination of internal audit, and reports the findings to the CEO, the Audit Committee and the Board of Directors. Internal audit is organized corresponding to the size of the Group. Additional resources and special skills will be purchased for demanding assessments if needed. The target is to several risk-based audits annually. The audits are based on risk assessment as defined in the risk analyses of individual business units. The objects of the audit assessment and assurance are profitability and efficiency of activities, reliability of financial and operational reporting, compliance issues and safeguarding of assets.

The Audit Committee monitors the operations and efficiency of the company's internal audit in its meetings. The committee also reviews the plans and reports of the internal audit.

RISK MANAGEMENT

The target of risk management is to ensure the implementation of Group strategy, development of financial results, shareholder value, dividend payment ability and business continuity. The operational management of the business units is responsible for risk management. They are also responsible for determining sufficient measures and their implementation, and for monitoring and ensuring that the measures are implemented as part of daily management of operations. Risk management is coordinated by the Group CFO, who reports to the CEO.

The Audit Committee monitors the efficiency of the risk management systems and deals with processes the plans and reports of the risk management.

Each business unit has a separate risk management program. Business risks and their management are dealt with in the business unit management teams. The functions common to the whole Group will ensure that sufficient risk assessment and reporting procedures are incorporated into the processes they are responsible for. In terms of certain risks, the risk management principles and main content have been defined in Group-level policies and guidelines. Group administration is responsible for Group-level insurance plans.

Risk management is essentially based on the aforementioned procedures of internal control, where the chain of responsibility extends throughout the Group. The most important factors in business risk management are a profound understanding of the business and command of the tools which are used for daily business operations and their management. Characteristic risks in each business area are identified in the business units, assessed in the business unit management teams, and reported to the subsidiary Boards, if need be, also to the Aspo Board of Directors or the Audit Committee.

Risks are continuously assessed and their management is discussed in the business unit management teams. Risk assessments are updated according to Aspo's management policy and the most noteworthy findings are presented in the quarterly interim reports. Larger projects always include a separate risk analysis. The most significant risks for the Group are assessed once a year and the results are presented in the annual report.

Financial risks, their management principles and related organization are presented in the notes to the financial statements.

RELATED PARTY TRANSACTIONS

On the basis of the Corporate Governance Code, Aspo must evaluate and monitor business transactions in which it is engaged with its related parties and ensure that any conflicts of interest are addressed appropriately in decision making. Aspo maintains a list of related parties and verifies any changes at least once a year. If related party transactions are significant for Aspo and differ from regular business activities, or have been carried out on the basis of unusual market conditions, decision-making processes associated with these related party transactions must be described in financial statements.

Aspo's related party transactions are described in Note 29 (Related parties) of

the consolidated financial statements. Related party transactions are not significant for the company. Nor do they differ from the company's normal business activities, and they have been carried out on the basis of normal market conditions.

INSIDER MANAGEMENT

Aspo Group follows Nasdaq Helsinki Ltd's insider instructions.

Permanent insiders of Aspo Plc include members of the Board of Directors, the Group's Executive Committee, the auditor and other individuals who have regular access to insider information. Individuals working in managerial positions at Aspo Plc include members of the Board of Directors and the Group's Executive Committee. When necessary, Aspo establishes and maintains project-specific insider registers regarding individuals who participate in the preparation of insider projects.

The 30-day closed window preceding the publication of interim reports, half year financial reports and financial statements applies to individuals working in managerial positions at Aspo and to permanent insiders. During the closed window, transactions using Aspo's financial instruments in one's own name or in the name of a third party are not permitted. Furthermore, individuals entered in project-specific insider registers cannot trade on securities issued by the company during the specific project period.

Individuals working in managerial positions at Aspo and their related parties must report any business transactions associated with the company's financial instruments to the company and the Finnish Financial Supervisory Authority.

The Group's CFO is responsible for the control and monitoring of insider issues. Aspo Plc's insider register and project-specific insider registers are maintained in the Sire service, an application service provided by Euroclear Finland for its customers to maintain registers associated with insider management.

Aspo Plc's report on the Corporate Governance Statement and remuneration statement for 2019 are available on Aspo's website.

Shareholdings in Aspo on December 31, 2019: 10,000 or 0.03% of the total number of shares. No holdings or rights based on share-based incentive plans. Remuneration in 2019: EUR 37,300

TATU VEHMAS

Member of the Board since 2018, member of the Remuneration Committee since 2019, member of the Audit Committee 2018–04/2019 Bachelor of Science, born 1994 Analyst, Nordic West Office Oy 2019-

DECEMBER 31. 2019

ESL SHIPPING LTD

Aki Ojanen Chairman of the Board since 2009

Mikko Niini

M.Sc. (Tech.) Member of the Board since 2012 CEO, Aker Arctic Technology Oy, 2005–2014 Chairman of the Board: Rauma Marine Constructions Oy

Kimmo Nordström

Member of the Board since 2016 Senior Adviser, Partner, Capstan Ltd

Ulla Tapaninen Ph.D., Adj. professor (docent) Member of the Board since 2012 Head of Unit, City of Helsinki

TELKO LTD

Aki Ojanen Chairman of the Board since 2009

Ralf Holmlund M.Sc. (Econ.) Member of the Board since 2018

Patricia Nyberg

M.Sc. (Econ.), MBA (IMD) Member of the Board since 2019 Country Manager, Tessin Nordic AB

Elina Piispanen

M.Sc. (Econ.) Member of the Board since 2017 Managing Director, Fit Advice Oy

LEIPURIN PLC

Aki Ojanen

Chairman of the Board since 2009

Heli Arantola

Dr (Econ. Sc.) Member of the Board since 2019 Chairman of the Board: Foundation for Aalto University Science and Technology; Member of the Board: S-Pankki Oy, Berner Oy ja Tobii AB

145.8

€

Jukka Havia

M.Sc. (Econ.) Member of the Board since 2014 Depyty CEO, Ramirent Oyj

Kaisa Poutanen

D.Sc. (Tech.) Member of the Board since 2014 Senior Advisor, VTT Technical Research Centre of Finland

Harri Sivula

M.Sc. (Admin.) Member of the Board 2010–2013 and since 2014 Member of the Board: Atria Oy, Dieta Oy, Kamux Oyj, Makua Foods Oy, Tokmanni Oyj

KAUKO LTD

Aki Ojanen Chairman of the Board since 2009

Arto Meitsalo

M.Sc. (Econ.) Member of the Board since 2018 CFO, Aspo Plc, 2009–

Harri Seppälä

eMBA Member of the Board since 2018 Group Treasurer, Aspo Plc, 2008–

FINANCIAL STATEMENTS AND MANAGEMENT REPORT 2019

MANAGEMENT REPORT

44 Management Report 2019

44 Key Figures

145.8

54 Shares and Shareholders
56 Share-specific Alternative Key Figures
56 Calculation Principles of the Key Figures
57 Dividend Proposal of the Board of Directors

FINANCIAL STATEMENTS

58 Consolidated Financial Statements, IFRS 58 Consolidated Statement of Comprehensive Income
59 Consolidated Balance Sheet
60 Consolidated Cash Flow Statement
61 Consolidated Statement of Changes in Equity
62 Notes to the Consolidated Financial Statements

103 Parent Company's Financial Statements, FAS

103 Parent Company's Income Statement
104 Parent Company's Balance Sheet
105 Parent Company's Cash Flow Statement
106 Notes to the Parent Company's Financial Statements

114 Auditor's Report

MANAGEMENT REPORT 2019

Aspo Plc has prepared a separate 2019 Corporate Governance Statement. In addition, Aspo publishes a report on non-financial information as required by the Finnish Accounting Act in the form of its Sustainability Report simultaneously with this Management Report. Both reports are released on the company's website at www.aspo.com.

MANAGEMENT REPORT 2019

ASPO'S OPERATING MODEL

Aspo is a conglomerate that creates value by developing and internationalizing businesses in Northern Europe and growth markets. Aspo's value comes from its wholly owned independent businesses, which specialize in demanding B-to-B customers. ESL Shipping, Leipurin, Telko and Kauko are strong business brands in the field of trade and logistics. Aspo develops its group structure and businesses in the long term in a responsible and sustainable manner.

In 2019, Aspo's reportable segments were ESL Shipping, Leipurin and Telko. On January 1, 2019, Aspo changed its segment reporting so that Kauko is reported as part of Telko. Other operations consist of Aspo Group's administration, the financial and ICT service center, and a small number of other functions not covered by the reportable segments.

OPERATING ENVIRONMENT IN 2019

General political uncertainty in the markets remained unchanged throughout the year. Tensions related to trade policies and the slow progress of Brexit decelerated growth and reduced exports and the investment outlook in Finland and in the EU in general. In Russia, the national economy and industrial production grew slowly, while international sanctions have maintained uncertainties over economic development. Prices of production raw materials, important to Aspo, started to fall during the first quarter, continuing throughout the year.

Dry bulk freight rates in sea transportation fell steeply at the beginning of the year and turned into an increase until September, only to decline to the initial level during the final quarter. During the year, ESL Shipping's main customers faced challenges in their processes, had interruptions in the delivery of raw materials and suffered from equipment breakdowns, causing transportation volumes in the steel industry to fall short of the previous year. Due to the market situation, vessels were also forced to operate in less productive spot markets. The poor market situation also reduced the profitability of ESL Shipping's largest Supramax vessels. Unexpected industrial stoppages and lower transportation volumes in the steel and energy industries, in particular, had a negative impact on the profitability development of our shipping company's operations and, therefore, on Aspo's total results.

In key market areas of Leipurin, the market situation remained challenging throughout the year. For example, several bakeries discontinued their operations in Finland. The market for industrially packed bread continues to decrease in the west, whereas the market of in-store bakeries and baking units has continued to increase. This presents challenges in the operations of industrial and artisanal bakeries. Equipment investments of bakeries and the food industry have not increased in Finland or in the Baltic countries. In Russia, investments increased cautiously.

The deceleration of economic growth and increased uncertainties were reflected, for example, in a decrease in the prices of raw materials sold by Telko, intensifying price competition and more cautious purchases by customers. The consolidation of companies has also continued in Telko's operating environment, resulting in fiercer competition.

KEY FIGURES

■ ASPO GROUP'S KEY FIGURES

	2019	2018	2017	2016	2015
Net sales, MEUR	587.7	540.9	502.4	457.4	445.8
Profit for the period, MEUR	16.1	14.2	19.4	15.9	19.8
% of net sales	2.7	2.6	3.9	3.5	4.4

Earnings per share (EPS), EUR	0.47	0.42	0.56	0.49	0.61
Alternative key figures
Operating profit, MEUR	21.1	20.6	23.1	20.4	20.6
% of net sales	3.6	3.8	4.6	4.5	4.6
Profit before taxes, MEUR	18.2	16.4	21.1	17.3	21.3
% of net sales	3.1	3.0	4.2	3.8	4.8

Return on equity, % (ROE)	13.5	12.4	17.1	14.6	19.1
Equity ratio, %	30.1	29.5	35.6	37.4	33.8
Gearing, %	162.2	154.4	103.9	89.8	101.4

Net cash from operating activities	52.5	20.3	17.4	16.2	25.0
Free cash flow	45.2	-34.8	0.9	10.1	15.1

1) The comparability of the key figures is affected by the adoption of IFRS 16 Leases on January 1, 2019.

2) Figures from 2018 include an impairment loss of EUR 4.8 million recognized on Kauko's goodwill, which decreased earnings per share by approximately 0.16 euro.

3) The decision issued by the Administrative Court in April 2019 to reduce the additional taxes imposed on Telko in 2015 increased the financial income, in particular, and improved earnings per share by EUR 0.05.

4) Calculation principles for the key figures are presented on page 56.

■ NET SALES BY SEGMENT

	2019 MEUR	2018 MEUR	Change MEUR	Change %
ESL Shipping	175.0	120.1	54.9	45.7
Leipurin	115.7	121.0	-5.3	-4.4
Telko	297.0	299.8	-2.8	-0.9
Total	587.7	540.9	46.8	8.7

■ NET SALES BY MARKET AREA

	2019 MEUR	2018 MEUR	Change MEUR	Change %
Finland	195.1	175.7	19.4	11.0
Scandinavia	84.8	62.0	22.8	36.8
Baltic countries	57.9	60.6	-2.7	-4.5
Russia, other CIS countries + Ukraine	171.2	171.9	-0.7	-0.4
Other countries	78.7	70.7	8.0	11.3
Total	587.7	540.9	46.8	8.7

■ OPERATING PROFIT BY SEGMENT

	2019 MEUR	2018 MEUR	Change MEUR	Change %
ESL Shipping	14.6	15.1	-0.5	-3.3
Leipurin	3.0	3.3	-0.3	-9.1
Telko	8.0	7.4	0.6	8.1
Other operations	-4.5	-5.2	0.7	13.5
Total	21.1	20.6	0.5	2.4

Telko's 2018 figures include an impairment loss of EUR 4.8 million recognized on Kauko's goodwill, while ESL Shipping's 2018 figures include EUR 0.9 million in expenses related to the acquisition.

EARNINGS

Aspo Group's net sales increased from the previous year to EUR 587.7 (540.9) million. The positive development of net sales mainly resulted from the significant increase in ESL Shipping's net sales through the acquisition of AtoB@C.

MANAGEMENT REPORT 2019

Aspo Group's operating profit amounted to EUR 21.1 (20.6) million. Operating profit for 2018 adjusted by the impairment loss recognized on Kauko's goodwill was EUR 25.4 million.

Earnings per share for the financial year increased to EUR 0.47 (0.42). The decision issued by the Administrative Court in April 2019 to reduce the additional taxes imposed on Telko in 2015 improved earnings per share by EUR 0.05. The impairment loss recognized on Kauko's goodwill in 2018 decreased earnings per share by approximately EUR 0.16. Shareholders' equity per share was EUR 3.92 (3.75).

Net sales increased significantly in Scandinavia and Finland. In Scandinavia, net sales increased by 37%, mainly as a result of the acquisition of AtoB@C. In Finland, net sales grew by 11%. Russia, other CIS countries and Ukraine continue to be a significant market area for Aspo, in which net sales in 2019 remained unchanged from the comparative period, totaling EUR 171.2 (171.9) million. Net sales of both Telko and Leipurin continued to increase in eastern markets. However, the increase in the Group's net sales stopped in the market area of Russia, other CIS countries and Ukraine due to the decrease of more than 90% in ESL Shipping's net sales. This resulted from iron pellet deliveries to Europe being interrupted during 2019.

ESL Shipping's operating profit decreased by approximately 3% to EUR 14.6 (15.1) million. In 2019, unexpected industrial stoppages and lowering transportation volumes in the steel industry, in particular, had a negative impact on the development of the profitability of shipping company operations. In 2018, ESL Shipping's operating profit included EUR 0.9 million in expenses related to the acquisition. Leipurin's operating profit decreased to EUR 3.0 (3.3) million. Instead, Telko's operating profit improved from the comparative period to EUR 8.0 (7.4) million. The operating result of other operations improved to EUR -4.5 (-5.2) million. From the beginning of 2019, the cost structure of other operations has been lighter as a result of lower rents of premises and Aspo no longer being responsible for vacant premises.

CASH FLOW AND FINANCING

The Group's cash and cash equivalents totaled EUR 23.7 (19.3) million at the end of the period. The Group's net cash from operating activities improved from the previous year to EUR 52.5 (20.3) million. The adoption of IFRS 16 improved the net cash from operating activities and the free cash flow by approximately EUR 14 million. The change in working capital was EUR 9.3 (-10.7) million during the period. The improved efficiency of inventory management had a positive impact on the development of the working capital. Net cash from investing activities totaled EUR -7.3 (-55.1) million. The Group's free cash flow was EUR 45.2 (-34.8) million.

Aspo Group's gearing was 162.2% (154.4) and its equity ratio was 30.1% (29.5). As a result of the adoption of IFRS 16 at the beginning of 2019, gearing increased by roughly 30 percentage points and the equity ratio decreased compared with the 2018 financial statements.

The consolidated balance sheet included a total of EUR 221.7 (199.4) million in interest-bearing liabilities. Interest-bearing liabilities recognized on the consolidated balance sheet increased from the 2018 financial statements as a result of the adoption of IFRS 16 Leases at the beginning of 2019. The average rate of interest-bearing liabilities, excluding lease liabilities, was 1.4% (1.6) at the end of the period. Non-interest-bearing liabilities totaled EUR 66.2 (83.7) million.

The amount of committed revolving credit facilities signed between Aspo and its main financing banks was EUR 40 million at the end of the period. At the end of the period, the revolving credit facilities were fully unused. EUR 21 million of Aspo's EUR 80 million commercial paper program were in use. During 2019, a total of approximately EUR 35 million in financing agreements fell due. During 2020, a revolving credit facility of EUR 20 million and a term loan of EUR 25 million will fall due. Aspo has hedged its interest rate risk by means of interest rate swaps. Their fair value on December 31, 2019 was EUR -0.1 (-0.2) million.

In May, Aspo signed a credit agreement of EUR 15 million with a three-year loan period. In June, Aspo also signed a revolving credit facility of EUR 20 million with a maturity of three years. Both credit agreements replaced similar previous credit agreements.

In September 2019, Aspo Plc participated in a bond loan of EUR 40 million guaranteed by Garantia Insurance Company with a loan unit of EUR 15 million. The loan has a maturity of five years and its fixed coupon rate is 0.75% per annum. In addition to the coupon rate, Aspo pays an annual guarantee fee to Garantia. The funds obtained from the loan unit are intended to be used to cover the Group's general needs for financing.

On May 27, 2016, Aspo issued a hybrid bond of EUR 25 million. The fixed coupon rate of the bond is 6.75% per annum. The bond has no maturity, but the company may exercise an early redemption option after four years of its issuance, i.e. in May 2020 at the earliest.

Starting from March 1, 2020, Keijo Keränen (M.Sc. Econ.) has been appointed Aspo's Group Treasurer and member of the Group Executive Committee. Keränen will succeed Harri Seppälä who announced that he will step down from the position of Group Treasurer during spring 2020.

FINANCIAL TARGETS

With its current structure, Aspo is looking for an operating profit rate of 6%, return on equity of more than 20% on average and gearing of at most 130%. Aspo aims to reach the financial targets in 2023. The financial targets were announced at Aspo's Capital Markets Day in November 2019.

The operating profit rate for the financial year was 3.6% (3.8), return on equity was 13.5% (12.4), and gearing was 162.2% (154.4). As a result of the adoption of IFRS 16 at the beginning of 2019, gearing increased by roughly 30 percentage points. Aspo's good and diversified operational cash flow enables gearing to be temporarily higher than the target level.

EVENTS AFTER THE FINANCIAL YEAR

There have been no material events after the end of the financial year.

OUTLOOK FOR 2020

General political uncertainty in the markets has increased. The increase in industrial production is expected to continue to slow down or turn into a decrease in the main market areas of Aspo's businesses. Prices of raw materials are expected to remain at the present level. In Russia, a market area important to Aspo, the national economy and industrial production are growing slowly, while international sanctions and potential increases in them maintain uncertainties over economic development in Russia and other CIS countries. General political risks continue to be high. This may cause rapid changes in the operating environment or weaken free trade, also having an impact on the operating conditions of Aspo's customers. The economic trend is expected to continue in Aspo's businesses, although there is always a risk of rapid economic changes. Prices of the industrial raw materials and oil that are important to Aspo are expected to remain at their current low level. Dry bulk freight rates in sea transportation that are important to ESL Shipping are expected to remain at their current level.

GUIDANCE FOR 2020

Aspo's operating profit in 2020 will be higher than in 2019 (EUR 21.1 million).

ASPO'S BUSINESS OPERATIONS

ESL Shipping

ESL Shipping is the leading dry bulk cargo company in the Baltic Sea region. At the end of the financial year, the shipping company's fleet consisted of 51 vessels with a total capacity of 468,000 dwt. Of the vessels, 24 are wholly-owned (75% of the fleet), two are minority-owned (2%) and the remaining 25 are time-chartered (23%). ESL Shipping's competitive edge is based on its ability to secure product and raw material transportation for industries and energy production throughout the year, even under difficult weather conditions. The shipping company also loads and unloads large ocean liners at sea as a special service.

During 2019, the shipping company's vessels mainly operated in contract traffic in the Baltic Sea and in Northern Europe, and also carried out loading and unloading operations at sea. Demand in the steel industry in Northern Europe showed a high variation during the year, with technical stoppages at production plants having a negative impact on deliveries during the first part of the year. The contractual transportation of iron pellets from Russia to Central Europe via Finland were at a standstill during the entire year, due to which Supramax vessels operated in international traffic between third countries. The results of these vessels were not satisfactory. The international freight rates of dry bulk cargo decreased again towards the end of the year in the largest vessel categories.

ESL Shipping's operations in the Baltic Sea and the North Sea are mainly based on long-term customer agreements and established customer relationships. As contractual transportation volumes were significantly lower than what was previously estimated for the whole year, the shipping company's vessels were forced to operate more than expected in weaker spot markets. Weather conditions were unusually warm and windy, due to which there were no market for ice-strengthened vessels with higher returns. In the larger vessel category, operations were excellent when considering the low volume, while the targets set for more effective sales were not reached. Both operational and commercial targets were reached in the smaller vessel category.

Demand for loading and unloading operations for large ocean liners at sea was higher towards the end of the year than in the previous year. The new LNG-fueled vessels proved to be highly economical, although all cranes of both vessels suffered from serious technical problems covered by warranty during the first half of the year. These prevented the cranes from being operated and thus the planned operations of both vessels. The deployment of crane automation has been delayed significantly due to previous extensive long-term warranty repairs.

Even though transportation volumes in the steel industry fell significantly short of forecasts, the total transportation volume increased from the previous year, particularly as a result of the acquisition of Ato-B@C. The volume of cargo carried by ESL Shipping in 2019 amounted to 15.9 (13.4) million tons. In the smaller vessel category, raw material and product transportation in the forest industry was largely at the planned level. Raw mineral and fertilizer transportation volumes developed positively from the previous year. Balance in contract traffic developed favorably in the smaller vessel category, while it suffered relatively more in the larger vessel category from strikes and significantly lower transportation volumes in the steel industry.

In 2019, the net sales of ESL Shipping increased by 46% from the previous year to EUR 175.0 (120.1) million. This was mainly due to the acquisition of AtoB@C. The weak first half of the year and the difficult market climate in the steel industry during the last part of the year reduced ESL Shipping's operating profit by 3% to EUR 14.6 (15.1) million.

In August, ESL Shipping acquired m/s Alppila in accordance with the terms and conditions of the leasing agreement signed in 2011. The transfer of the vessel under ESL Shipping's ownership improves the company's profitability. ESL Shipping also improved the efficiency of its operations in 2019 by deploying a new ERP system, which covers all vessel operations and combines cargo operations in Finland and Sweden into a single data system.

Outlook 2020 for ESL Shipping

The global market prices of dry bulk cargo at the beginning of 2020 were as low as at the beginning of the comparative period. Stricter global sulfur regulations on ship fuels entered into force at the beginning of the year, potentially leading to higher fluctuations in price levels and occasional shortages in the availability of fuel that is compliant with the new regulations. However, vessels equipped with a sulfur scrubber can continue to use high-sulfur fuel. The final determination of differences in prices of different fuels may have a particular impact on the competitiveness and profitability of the shipping company's Supramax vessels which primarily operate over longer distances. High fluctuations in prices may have a short-term impact on profitability, even though the fuel price risk is controlled comprehensively through fuel clauses in transportation agreements. All ESL Shipping's vessels are fueled by environmentally friendly low-sulfur oil or nearly sulfur-free liquefied natural gas, which significantly reduces carbon dioxide emissions.

Economic growth is slow in the shipping company's primary market areas. However, the general outlook for industrial sectors important to ESL Shipping has brightened from the situation at the end of last year, and previous restrictions in industrial production have been dissolved. Most of the shipping company's transportation capacity has been secured in the Baltic Sea and Northern Europe through long-term agreements. Production in the steel industry in Northern Europe is expected to settle at a satisfactory level, and estimated transportation volume for 2020 to be higher than the realized volume of 2019. The general transportation volume estimates of contractual partners are at a satisfactory level in the most important customer segments. Transportation volumes in the energy industry will most likely decrease as a result of the exceptionally warm weather in Northern Europe. The transportation of iron pellets from Russia to Central Europe via Finland using ESL Shipping's vessels has restarted.

Markets continue to show signs of general uncertainty in demand and price levels. However, positive or negative measures directed at international free trade and increasing political risks have an impact on global material flows. The general development of cargo markets in 2020 will have the highest impact on the performance of the shipping company's largest Supramax vessels. The cargo prices of large vessels returned to a historically low level at the beginning of 2020.

During spring, Finland may face largescale strikes that may have a significant impact on the operations of ESL Shipping's customer companies and their supply chains. These potential strikes may also affect the availability of ship fuels in Finland.

Demand for loading and unloading operations for large ocean liners at sea, a segment important to the shipping company, is expected to remain at least satisfactory. Contractual transportation volumes in the shipping company's smaller vessel category are expected to be good and contractual coverage is expected to be better than in the previous year. In the smaller vessel category, the price level of renewed and new time-chartering agreements is lower than last year overall, which improves the shipping company's profitability.

ESL Shipping is actively investigating different opportunities to have a broader presence in growing markets in the Russian Arctic. The shipping company will also continue its development activities to offer the most effective and environmentally friendly future transportation solutions in the markets also in the smaller vessel category of AtoB@C. At the same time, ESL Shipping is investigating opportunities to use different new solutions related to the ownership and financing of vessels, used broadly in international shipping company operations, to speed up its operational development.

In 2020, three larger vessel units will be docked as planned during the second quarter and one of the two pusher systems will be docked completely during the third quarter. At least two smaller vessels will be docked during the third quarter. During these scheduled dockages, new ballast water treatment systems that meet new environmental regulations will be installed in the vessels.

ESL Shipping published its new financial targets in November 2019. ESL Shipping aims at net sales of EUR 200 million and an operating profit rate of 12% in 2023.

Leipurin

Leipurin provides solutions particularly for bakery customers and chain customers in the foodservice business, and partly to other food industries and the retail trade. Leipurin's business operations are divided into three areas: the bakery business, the machinery business and the latest addition, the foodservice business. Solutions offered by bakery operations include product range development, recipes, raw materials and training. As part of its machinery business, Leipurin designs, delivers and maintains production lines for the baking industry, baking units and other machinery and equipment required in the food industry. In the foodservice business, Leipurin's range includes procurement and logistics services, as well as branded concepts. Leipurin uses leading international producers and manufacturers as its raw material and machinery supply partners. Leipurin operates in Finland, Russia, the Baltic countries, Ukraine, Kazakhstan and Belarus.

In 2019, Leipurin's net sales decreased from the previous year to EUR 115.7 (121.0) million. Net sales decreased particularly in the machinery business. In 2019, the operating profit rate was 2.6% (2.7). Net sales in the market area of Russia, other CIS countries and Ukraine increased by approximately 4% to EUR 37.9 (36.3) million.

The bakery business is clearly the largest of Leipurin's business areas, accounting for more than 80% of Leipurin's total net sales. In 2019, net sales of the bakery business remained at the previous year's level, while its profitability increased as a result of efficiency measures and growth in eastern markets. The average market prices of bakery raw materials increased from the previous financial year.

The machinery business produced a loss in 2019, falling clearly short of the comparative period's operating profit level. The operating profit fell due to the postponement of significant machine deliveries planned in Russia for the final quarter to the second quarter of 2020 for reasons independent of the company and changes in principals in the principal machinery business. At the end of 2019, Leipurin's machinery business was reorganized and cooperation negotiations were held in Leipurin's own machine production, among others, as a result of which the employment relationship of six people was terminated. Furthermore, the efficiency of the management structure of the machinery business was improved.

The foodservice market is a new area of growth for Leipurin. As a new business, it has, so far, focused on Finnish markets, and it only accounted for a small portion of Leipurin's total net sales in 2019. The new Baker's Story bakery café concept based on a licensing model was launched in November. The first Baker's Story was opened in Tampere together with a local bakery entrepreneur, and activities to increase business operations will continue.

In 2019, Leipurin's operating profit decreased to EUR 3.0 (3.3) million. The operating profit of the bakery business increased by approximately EUR 1.4 million as a result of the improved operational efficiency and growth in eastern markets, while the operating profit of the machinery business decreased by EUR 1.6 million from the good profit level during the comparative period and was negative.

Outlook 2020 for Leipurin

The market situation is expected to remain challenging in Leipurin's key markets. The development of Leipurin's main customer categories, i.e., bakeries and foodservice chains, continues to vary from one customer to the next. Fluctuation in the market prices of raw material groups important to Leipurin is expected to continue, while market prices of seasonal products of 2019 are expected to increase overall. The market position of Leipurin is expected to remain strong in the industrial baking sector in Finland, Russia and the Baltic region. Continuously improved customer experiences, effective operating methods, growth projects in eastern markets, increasing Baker's Story operations and returning the machinery business back to a profit-making track are focus points in operations in 2020.

In Russia, consumer confidence is low, and international sanctions and their possible increase have added to the uncertainties regarding the development of the country's economy. The development of local production has intensified competition over prices in eastern markets. Leipurin will continue to develop its own production and external procurement of bakery raw materials in the area in order to better respond to any changes in demand. Leipurin's goal is to maintain its high profitability in the region, strengthen its market position, and look for growth in the bread and pastry sectors, as well as in-store bakeries.

Leipurin will continue to invest in the foodservice market, particularly in Finland and more extensively in the western markets, where Leipurin is responding, for example, to the growing demand for cafeteria chains and bakery cafés. The development of Leipurin's foodservice range aims to create new business models and services, such as the Baker's Story licensing concept, which will help Leipurin and its customers to succeed in the growing foodservice market.

In the machinery business, bakeries and the food industry are expected to maintain their current equipment investment level in Finland. In the Baltic countries, equipment investments are expected to decrease in the near future. No significant changes are expected in investment levels in Russia. In Leipurin's own machine production, sales will be expanded to new export markets and the efficiency of operations will be improved by further modifying processes and operating methods. The changes in principals that have taken place in principal machinery operations during 2019 are expected to have a negative impact on principal machinery operations, especially in Russia. In machinery operations, the high fluctuation in net sales and profitability will continue due to the nature of the operations. At the end of the period, the order book was reasonable for the first half of 2020, partly as a result of the postponement of significant machine deliveries planned for the final quarter of 2019 in Russia to the second quarter of 2020 due to reasons independent of the company. The cost efficiency of Leipurin's own machine production has been improved, and the increased focus on new chilling and freezing solutions for the food industry will significantly increase the market potential.

Leipurin published its new financial targets in November 2019. Leipurin aims at net sales of EUR 140 million and an operating profit rate of 5% in 2023.

Telko

Telko is a leading expert in and supplier of plastic raw materials, industrial chemicals and lubricants. Kauko, reported as part of the Telko segment, is a specialist in demanding mobile knowledge work environments. Telko's operations are based on representing the best international principals, the expertise of personnel and a long-standing customer relationships. The Telko segment has companies in Finland, the Baltic countries, Scandinavia, Poland, Romania, Russia, Belarus, Ukraine, Kazakhstan, Uzbekistan, Azerbaijan, China and Germany.

During the year, Telko's operating environment weakened in all market areas as a result of decelerated economic growth. The deceleration of economic growth and increased uncertainties were reflected, for example, in a decrease in the prices of raw materials sold by Telko, intensifying price competition and more cautious purchases by customers.

Towards the end of the year, in particular, Telko focused on actions to improve the efficiency of its working capital and increase its profitability. In increasing profitability, focus on technical products with a higher added value, more effective purchasing and logistics and stronger relationships with the most significant customers and principals are key factors.

Net sales of the Telko segment decreased by 1% to EUR 297.0 (299.8) million. Operating profit stood at EUR 8.0 (7.4) million. The operating profit rate was 2.7% (2.5). In 2019, the Telko segment's net sales in eastern markets, i.e., Russia, other CIS countries and Ukraine, increased by 3% to EUR 132.8 (128.5) million. Telko segment's net sales in western markets totaled EUR 155.8 (161.7) million. Net sales of the plastic business increased by 3% to EUR 152.3 (147.7) million. Net sales of the chemical business remained unchanged at EUR 118.1 (118.5) million. Net sales of Kauko decreased by 21% to EUR 26.7 (33.6) million. The decrease in Kauko's net sales can be explained by the strategic discontinuation of the energy business in 2019.

Telko's managing director Kalle Kettunen resigned on May 20, 2019, and Telko's Board of Directors appointed the company's CFO Tomi Tanninen the acting managing director. Starting from October 28, Mikko Pasanen (M.Sc. Econ.) was appointed Telko's new managing director, and Tanninen resumed his previous position as the CFO.

Outlook 2020 for Telko

In 2020, Telko will continue the previously started actions aimed at improving the efficiency of working capital and the level of profitability. Telko seeks growth in its current geographic areas from technical products of a higher added value. At the same time, Telko will continue to develop its customer relationships and product portfolio to secure its prerequisites for growth. Telko's Green Portfolio business is expected to gain a commercially significant role in the future.

Uncertainties in international trade and economy will continue. The general economic trend is expected to remain weak, and demand for technical products is not expected to pick up. The exceptionally long negative price development of volume plastics is expected to even out and prices of chemicals are expected to remain unchanged. Strong changes in the price of crude oil may cause even rapid price fluctuations.

Demand in eastern markets, an area important to Telko, is expected to remain unchanged or decrease. Growth in Russian markets is expected to decelerate. Operations in Ukraine are important to Telko, and political and economic problems in the country may affect demand in the area. In Finland, strikes that threaten the sector may, if materialized, have a significant impact on Finland's sales volume and have a negative impact on results.

Telko published its new financial targets in November 2019. Telko aims at net sales of EUR 300 million and an operating profit rate of 6% in 2023.

STRUCTURAL ARRANGEMENTS

During the financial year, Telko established a subsidiary, Telko Romania SRL, in Romania. In Russia, Telko Terminal, a company wholly owned by Telko, merged with OOO Telko. Telko's acquisition of the business operations of Danish HH Plastkombi A/S was completed at the beginning of the year. Leipurin Poland Sp. z o.o., a subsidiary of Leipurin, discontinued its operations, and the company was dissolved during the financial year. AtoB@C Shipping AB acquired the remaining 60% of shares in its associated company Norra Skeppnings Gruppen AB during the financial year. Kauko sold its heat pump business to Panasonic on December 31, 2019.

INVESTMENTS

Aspo Group's investments totaled EUR 19.9 (43.2) million. The redemption of m/s Alppila by ESL Shipping in August was the most significant single investment of the year. Other investments mainly consisted of normal annual docking and other maintenance investments.

■ INVESTMENTS BY SEGMENT, ACQUISITIONS EXCLUDED

2019 MEUR	2018 MEUR	2017 MEUR
18.6	41.9	16.8
0.5	0.5	0.5
0.7	0.7	0.6
0.1	0.1	0.1
19.9	43.2	18.0

PERSONNEL

Employee benefit expenses within the Group amounted to EUR 45.1 (43.2) million. More detailed information about the personnel is presented in Aspo's Sustainability Report.

■ PERSONNEL

	2019	2018	2017
Personnel at year-end	931	958	909
Average personnel during the financial year	945	919	877
Total salaries and fees during the financial year, MEUR	38.5	36.7	34.7

■ PERSONNEL BY SEGMENT, ON AVERAGE

	2019	2018	2017
ESL Shipping	274	254	230
Leipurin	314	320	305
Telko	331	321	317
Other operations	26	24	25
Total	945	919	877

Rewarding

Aspo Group applies a profit bonus system which was adopted in 2013. The profit bonus system applied to Finnish personnel is linked to the personnel fund so that the bonus can be invested in the personnel fund or withdrawn in cash. The long-term goal of the funding system is that the personnel will become a significant shareholder group in the company. All persons working at Aspo Group's Finnish companies are members of the personnel fund.

Aspo has three share-based incentive plans in effect: share-based incentive plan 2018–2020, Executive Committee sharebased incentive plan 2018–2020 and restricted share-based incentive plan 2018. More information about incentive plans is presented in Note 29 Related parties.

RESEARCH AND DEVELOPMENT

Aspo Group's R&D focuses, according to the nature of each segment, on developing operations, procedures and products as part of the customer-specific operations, which means that the development inputs are included without specification in normal operational costs.

SUSTAINABILITY

Aspo believes that socially, financially and environmentally sustainable business is a requirement for producing long-term value. A responsibly led, growing company can create jobs, tax income and wellbeing. Aspo Group's CEO is in charge of the management of Aspo's responsibility. The CEO reports to the company's Board of Directors in accordance with the risk management policy. Aspo's Code of Conduct defines a common set of rules for responsible business in all the Group companies. The Board of Directors of Aspo approved the revised Code of Conduct in December 2019.

Aspo acts as a good corporate citizen in all of its operating countries. Being a good corporate citizen is part of social responsibility and means, for example, that Aspo always pays its taxes in the country in which it has made its profit. Aspo treats its employees and stakeholders in a just and equal manner in all countries where it operates. In Aspo's businesses, the main aspects related to sustainability concern the reduction of energy consumption and waste, wellbeing and safe working conditions, as well as equality of personnel and good governance.

RISKS AND RISK MANAGEMENT

Decreases in global trade as a result of decelerated growth in the global economy and increased uncertainties in economic development have reduced exports and the investment outlook. The decrease in global purchasing manager indices has stopped, while the situation continues to deteriorate in key production countries in the EU, such as Germany. These changes have affected industrial production in the Eurozone and can be seen in increased risks in Aspo's market areas, even though Finnish exports are showing signs of growth, particularly in terms of exports outside the EU. Despite growing uncertainties, economic growth has continued in the Eurozone, albeit slowly. However, the continuous, while decelerating, increase in employment and continuously rising salaries support economic stability in the Eurozone. Political tension and resulting risks have increased, but they are not expected to have any impact on Aspo's business operations in the short term. The trade war between the USA and China, including the resulting import duties, which limit international free trade and has already decelerated economic growth in China, have not directly affected Aspo's operations. Aspo does not have any business operations that are or would also be affected directly by Brexit or its implementation, but there may be an indirect impact through the principals or customers of Aspo's businesses.

Following the financial crisis, the global economy has grown simultaneously in all Aspo's market areas, albeit at different rates in different areas, and in general slowly. In the Eurozone, growth has slowed down due to growing political tension related to trade. In addition, the expected Brexit increases uncertainty. The Russian GDP increased by roughly 1% and industrial production by approximately 2%, meaning that both have increased more slowly as a result of decelerated growth in the global economy. The Russian ruble has become stronger, partly as a result of elevated oil prices. Russia's foreign exchange reserves and oil assets have increased as the economy has returned to normal. In logistics chains, the dry bulk freight rates of sea transportation increased steeply during the first half, only to turn into a decline at the beginning of September, ending up at the April level at the end of the year.

Financial risks in all Aspo's businesses are slowly increasing, even though the markets are relatively stable. However, any unexpected changes in international politics and trade policies, combined with rapid changes in exchange rates or commodities markets, may have an impact on demand for and competitiveness of the products of Aspo's businesses. In Russia, increased real salaries and decelerated inflation supported increases in private consumption. As there have been no structural economic reforms in Russia, economic growth is only expected to be moderate, primarily resulting from government-steered investment projects. The price of oil has a significant impact on the Russian economy.

Strategic risks

Political and financial risks have increased globally, which may rapidly impact Aspo's operating environment. Free trade has already decreased, and these changes may also have an impact in the long term. The economic and political situation in Aspo's market areas may have made it more difficult to make structural changes as part of Aspo's strategy. The situation may continue unchanged, but, as the economic and political pressure varies, it may change rapidly. An unfavorable turn in the situation may lead to Aspo being unable to achieve its financial targets in the set time frame.

The Russian economy has stabilized, and inflation has decelerated, while economic growth is slow. The long-term deterioration in consumption demand has affected trade in general and, after a brief upswing, the natural increase in purchasing power fluctuated, strengthening towards the end of the period. No signs of weakening have been seen in the financial markets and payment transactions of Russia, but they involve risks that are reflected, for example, in the Russian banking sector.

The Ukrainian economy is still in a weak state and the macroeconomy is showing signs of weakening in nearly all sectors, apart from construction. Inflation has slowed down but is still relatively high. The increase in purchasing power, combined with a favorable development in salaries, has increased consumption demand. The central bank's reference rate is still high, although it was lowered considerably at the end of the year.

The promotion of local production has further increased the volume of raw materials and items produced in Russia in industrial production, despite the decrease in quality. This may further reduce the position of imported raw materials in the value chain and the margin level, but, correspondingly, an increase in import volumes may increase demand for foreign raw materials and reduce related risks for Aspo.

Economic sanctions, their increase or other obstacles arising from the economic or political situation in Russia may, in part, reduce transportation volumes originating from Russia and the demand for unloading services for large ocean liners at sea. Protectionist actions may decrease sea transportation in the Russian Arctic if Russia sets stricter regulations on internal transportation, for example, regarding the transport of energy products. In Finland and the rest of Europe, social pressures to reduce the use of fossil energy sources in energy production are constantly increasing, which has already reduced coal transport volumes and will continue to reduce them in the future. Correspondingly, the transportation volumes of replacement energy products will increase. Due to this change, it is difficult to estimate future transportation volumes. Fluctuations in international freight indices, their extended low level and the previous global increase in the number of vessels, particularly in large size categories, have increased uncertainty over the long-term profitability of shipping companies.

Strategic risks may be caused by the deterioration of the global economic situation, the political atmosphere, protectionism and the outlook and production choices of industrial customers. Decisions regarding energy production structures affected by environmental policy and other political choices cause changes in industry and energy production which will decrease the use of fossil fuels and increase the use of alternative forms of energy. The flow of goods in the Baltic Sea may change as a result of steel production, cost structures, changes in customer structure, such as centralization or other reasons. Lower demand for metal products in global markets may cause changes in demand for sea freights in the future as well. These changes may have negative consequences on operations as the need for transportation decreases, but they can also be seen as significant opportunities. As a result of low cargo prices in international shipping, competition for cargoes may also become fiercer in the Baltic Sea. Mild, ice-free winters may also increase competition. ESL Shipping received two new, low-emission vessels with better fuel economy for this region and customer base. These will also be able to operate in ice conditions. The shipping company also completed an acquisition in 2018 that significantly improved its competitiveness.

Strategic risks are influenced by longterm changes in cargo prices, the building of new vessels and the removal of others from the markets, investment trends, and changes in trade structures, especially in western markets. In eastern markets, risks are increased by such factors as political instability, social structures or the lack of reaction to the difficulties encountered by business operations. Accumulation and discharge of investments may cause long-term changes in the competitive situation and customer behavior. Trade between eastern and western markets may suffer from restrictions on free trade, as a result of which there may be a decrease in the sales of goods and services.

Rapid changes in economic structures may cause risks due to changes in the customer or principal structure or technologies, and due to unused opportunities requiring a quick response. Changes in demand as a result of various megatrends may cause changes in the product and service ranges of Aspo's subsidiaries, due to which it may be difficult to replace their current products. Disruptive changes may be very rapid. Aspo's strategic risks are evened out by the distribution of business operations over three segments, its engagement in business operations in a broad geographical area, and its ability to react quickly to changing situations.

In addition to western markets, Aspo operates in areas where economic trends or the political atmosphere may turn rapidly positive or negative, which could significantly change the prevailing operating conditions.

Operational risks

Economic uncertainty in Aspo's operating environment increased compared with the previous year. As a result, operational risks also increased. These include risks related to supply chains, goods and services, and persons. Selections made by principals regarding their distribution networks may have a positive or negative impact on the representation of Aspo's subsidiaries and, therefore, on their financial results. The threat of different kinds of misuse from outside the Group has increased further as a result of the development and increased activity of electronic media.

For a long time, the focus of Aspo's growth has been on emerging market areas, where risks decelerating growth are affected by factors such as exchange rate fluctuations and interest rates, the level of and changes in the global market prices of raw materials, industrial and commercial investments, customer liquidity, changes in legislation and import regulations, and inactivity, bias or corruption among public authorities.

Economic growth and, alternatively, any decrease in production may have an impact on demand for raw materials. Political instability makes commercial activities more difficult and, if the situation prolongs, it may also decelerate the growth of Aspo's businesses. Consumer behavior and confidence are also reflected in risks associated with B-to-B customers and their risk levels. Growth opportunities presented by emerging markets are encouraging competitors to consider starting or expanding business operations in these areas. The challenging emerging markets and their escalated situations have also caused competitors to withdraw from these markets, which has created new potential for Aspo's businesses and has increased their market shares.

Hedging against exchange rate changes is not possible in all conditions or, in particular, at all times. Changes in exchange rates may reduce profit and equity on the balance sheet as a result of translation differences. Then again, changes in exchange rates may also strengthen results and the balance sheet. As changes in credit loss risks are diversified across businesses and customers, Aspo's businesses have not been subject to any significant credit losses related to their customers, even though credit loss risks have increased, and provisions are made for them in accordance with principles of IFRS 9 standard.

The technical products or applications deployed by Aspo's businesses may break or malfunction, due to which the increase in profit based on these products or applications may slow or be delayed. Sales margins may be reduced and financial claims related to deliveries may emerge if Aspo's products are not suited to the customers' production processes or lack the correct technical properties.

Operational risks have also increased as a result of computer-related crime, malware and the increased number of fraud attempts. If realized, these risks may cause financial losses for Aspo. Aspo has appropriate information security and internal training arrangements, but individual cases may occur due to the decentralized structure of operations. Any deviations in internal processes may result in losses, for example, in the form of taxes or official fees.

The quantity and probability of the Group's loss risks are regularly assessed. Bidding processes are arranged for general insurance policies, and the amounts insured are regularly updated. Amounts insured are sufficient in view of the scope of Aspo's operations, but insurance companies may restrict the validity of insurance policies as a result of risks increasing for various reasons, such as in war areas.

Financial risks

Aspo Group's financing and financial risk management are centralized in the parent company in accordance with the financial policy approved by the Board of Directors.

Refinancing risk

Refinancing risk is managed by decentralizing interest-bearing liabilities with respect to the counterparty, the form of funding, and maturity.

Liquidity risk

Liquidity risk is managed by securing the Group's sufficient cash funds, with committed revolving credit facilities and other financial reserves.

Interest rate risk

The company hedges against interest rate changes by tying interest-bearing liabilities partly to floating rate loans and partly to fixed rate loans. In addition, interest rate derivatives are used for hedging against interest rate risks.

Credit risk

On a case-by-case basis, the Group uses terms of payment based on advance payments and bank guarantees to hedge against credit risks. Full knowledge of customers is an important part of credit risk management.

Currency risk

Within Aspo Group, the exchange rate risk is primarily managed through customer and principal agreements at the business level, and secondarily by using currency derivatives.

A more detailed description of financial risks is presented in Note 26 of the consolidated financial statements.

Internal control and risk management

One of the responsibilities of Aspo's Audit Committee is to monitor the efficiency of the Group's internal control, internal audits and risk management systems. The Audit Committee monitors the risk management process and gives instructions on the necessary measures to prevent strategic risks in particular. In accordance with the internal control principles approved by the Board of Directors, risk management is part of Aspo's internal control, and its task is to ensure the implementation of the Group's strategy, the development of financial results, shareholder value, dividend payment ability, and continuity in business operations. The operational management of each business is responsible for risk management. The management is responsible for specifying sufficient measures and their implementation, and for monitoring and ensuring that the measures are implemented as part of day-to-day operational management. Aspo's CFO, who reports to the Group CEO, is in charge of risk management.

LEGAL PROCEEDINGS

On February 27, 2015, the Helsinki District Court announced its judgement in the case between ESL Shipping and the Finnish State regarding fairway dues levied during the years 2001–2004. According to the judgement, the Finnish State was required to refund to ESL Shipping approximately EUR 3.0 million in accordance with the company's claim, as well as legal expenses and interest. The State lodged an appeal against

the District Court's judgement and, in its ruling issued on August 8, 2016, the Court of Appeal overruled the Helsinki District Court's judgement and dismissed ESL Shipping's legal action as time-barred. The company applied for leave to appeal from the Supreme Court, which rejected the application in February 2018. In June 2018, ESL Shipping filed, together with 13 other shipping companies, an appeal regarding an extraordinary appeal (for nullification) to the Supreme Court. In addition, the company lodged a complaint with the European Court of Human Rights, particularly regarding a breach of protection of property. In September 2019, the European Court of Human Rights announced that it will not process the appeal. The Supreme Court did not authorize any extraordinary appeal, and the case has been closed.

ESL Shipping won legal proceedings against Indian ABG Shipyard concerning the compensation payable for repairs made to m/s Alppila during the warranty period. The vessel was delivered to ESL Shipping in 2011. According to the ruling of the arbitration court, ABG Shipyard was decreed to pay repair expenses and interest to ESL Shipping according to the company's claims. The impact of the ruling will be taken into account during the financial year over which the imposed payment is received.

The administrative court process started by Telko Ltd regarding the tax increase imposed by Finnish Customs ended on June 5, 2019. The administrative court process was related to goods imported by Telko in 2013 and 2014, for which Finnish Customs had imposed a tax increase of EUR 1.7 million. The charges of EUR 1.7 million imposed by Customs were recognized as expenses in 2015. The decision of the administrative court reduced the amount to approximately EUR 60,000. The positive decision improved the operating profit of Telko by approximately EUR 0.2 million, and the financial income by approximately EUR 1.4 million.

In 2018, Telko took legal action in Korea against a former principal (Korea Engineering Plastics Co. LTD) regarding unpaid commission. In October 2019, the court confirmed the settlement reached between the parties and that the legal process has been discontinued.

In spring 2017, Kauko took legal action in civil court against two individuals who worked in leading positions in the mobile knowledge work unit that provides IT solutions for the healthcare sector due to breaches of the non-solicitation and non-compete clauses. On February 2018, the district court decided the matter for the benefit of the defendants and Kauko appealed against the judgement to the Court of Appeal. In 2018, Kauko dropped its claims against one of the defendants. The Court of Appeal issued its decision on February 8, 2019, and confirmed that the non-compete clause was valid as regards the defendant, and a contractual penalty, plus interest on arrears, was imposed on the defendant for the violation of the clause. In addition, the Court of Appeal confirmed that the clause for the non-use of trade and professional secrets and the non-solicitation clause were binding. The Court of Appeal held that these were also violated. Kauko applied for leave to appeal from the Supreme Court against a contractual penalty related to confidentiality and unpaid legal expenses. The Supreme Court did not grant leave to appeal, which means that the rulings of the Court of Appeal are legally valid.

MANAGEMENT AND AUDITORS

Mammu Kaario, Mikael Laine, Gustav Nyberg, Salla Pöyry and Risto Salo were re-elected to the Board of Directors, and Tatu Vehmas was elected as a new member of the Board, at Aspo Plc's Annual Shareholders' Meeting on April 9, 2019. At the Board's organizing meeting held after the Annual Shareholders' Meeting, Gustav Nyberg was elected Chairman of the Board and Mammu Kaario Vice Chairman. At the meeting, the Board decided to establish a Remuneration Committee and appointed Gustav Nyberg the Chairman of the committee, and Risto Salo and Tatu Vehmas ordinary members. At the meeting, the Board also decided to appoint Mammu Kaario the Chairman of the Audit Committee, and Mikael Laine and Salla Pöyry ordinary members. More information about the activities of the Board of Directors in 2019 and the Nomination Committee is presented in Aspo Plc's Corporate Governance Statement.

eMBA Aki Ojanen acted as the CEO of the company in 2019.

The authorized public accountant firm Ernst & Young Oy has been the company's auditor. Toni Halonen, APA, has acted as the auditor in charge.

BOARD AUTHORIZATIONS

Authorization of the Board of Directors to decide on the acquisition of treasury shares

The Annual Shareholders' Meeting on April 9, 2019 authorized the Board of Directors to decide on the acquisition of no more than 500,000 of the treasury shares using the unrestricted equity of the company representing about 1.6% of all the shares in the company. The authorization includes the right to accept treasury shares as a pledge. The authorization is valid until the Annual Shareholders' Meeting in 2020 but not more than 18 months from the approval at the Shareholders' Meeting. The authorization was not used during the financial year.

Authorization of the Board of Directors to decide on a share issue of treasury shares

The Annual Shareholders' Meeting on April 9, 2019 authorized the Board of Directors to decide on a share issue, through one or several installments, to be executed by conveying treasury shares. An aggregate maximum amount of 900,000 shares may be conveyed based on the authorization. The authorization is valid until the Annual Shareholders' Meeting in 2020 but not more than 18 months from the approval at the Shareholders' Meeting. The authorization was not used during the financial year.

Authorization of the Board of Directors to decide on a share issue of new shares

The Annual Shareholders' Meeting on April 9, 2019 authorized the Board of Directors to decide on a share issue of new shares against payment. The authorization includes the right of the Board of Directors to decide on all of the other terms and conditions of the conveyance and thus also includes the right to decide on a directed share issue, in deviation from the shareholders' pre-emptive right, if a compelling financial reason exists for the company to do so. The total number of new shares to be offered for subscription may not exceed 1,500,000. The authorization is valid until the Annual Shareholders' Meeting in 2020 but not more than 18 months from the approval at the Shareholders' Meeting. The authorization was not used during the financial year.

In March 2019, Aspo Plc transferred 7,711 treasury shares held by the company to individuals belonging to the sharebased incentive plan 2018–2020 in sharebased payments. The transfer was based on the authorization given by the Annual Shareholders' Meeting on April 10, 2018. The shares were transferred gratuitously in accordance with the terms and conditions of the share-based incentive plan.

SHARE CAPITAL AND PAYMENT OF DIVIDENDS

Aspo Plc's share capital on December 31, 2019 was EUR 17,691,729.57, and the total number of shares was 31,419,779, of which the company held 296,650 shares; that is, 0.9% of the share capital.

In 2019, Aspo paid EUR 0.44 per share in dividends. The dividend was paid in two installments. The payment date for the first installment of EUR 0.22 per share was April 18, 2019 and the payment date for the second installment of EUR 0.22 per share was November 7, 2019. Aspo revised its dividend policy in November 2018. According to its new dividend policy, Aspo's goal is to annually increase the amount of dividends.

SHARES AND SHAREHOLDERS

Aspo Plc has one share series. Each share entitles the shareholder to one vote at the shareholders' meeting. Aspo's share is quoted on Nasdaq Helsinki Ltd's Mid Cap segment under industrial products and services.

During 2019, a total of 2,453,714 Aspo Plc shares were traded at EUR 20.1 million, meaning that 7.8% of all shares changed owners. During the financial year, the share reached a high of EUR 9.42 and a low of EUR 7.52. The average price was EUR 8.20 and the closing price at year-end was EUR 7.62. At the end of the financial year, the market value excluding treasury shares was EUR 237.2 million.

Shareholders

Aspo's shares are included in the book-entry system maintained by Euroclear Finland Ltd. At the end of 2019, Aspo had 10,260 shareholders. Of all shares, 97.8% were held directly, and 2.2% were held via nominee registrations. A total of 1.8% of the company's shares were held by foreign enti-

■ MAJOR SHAREHOLDERS ON DECEMBER 31, 2019

	Number of shares	% of shares and voting rights
Havsudden Oy Ab	3,162,941	10.07
Vehmas Tatu	2,306,676	7.34
Varma Mutual Pension Insurance Company	1,438,412	4.58
Vehmas Tapio	1,375,827	4.38
Ilmarinen Mutual Pension Insurance Company	915,578	2.91
Nyberg Gustav	801,667	2.55
Robinson Joanna	754,259	2.40
Investment fund Nordea Nordic Small Cap	721,040	2.29
Procurator-Holding Oy	514,882	1.64
Madremar Ab	444,255	1.41
Ten major shareholders, total	12,435,537	39.57

■ DISTRIBUTION OF SHARE OWNERSHIP ON DECEMBER 31, 2019 BY NUMBER OF SHARES

Number of shares	Number of owners	Share of owners %	Total shares	% of shares
1–100	2,060	20.08	112,361	0.36
101–500	3,886	37.88	1,070,305	3.41
501–1,000	1,686	16.43	1,296,109	4.12
1,001–5,000	2,102	20.49	4,557,221	14.50
5,001–10,000	307	2.99	2,167,806	6.90
10,001–50,000	170	1.66	3,465,675	11.03
50,001–100,000	15	0.14	1,139,533	3.63
100,001–500,000	24	0.23	5,615,023	17.87
500,001–	9	0.09	11,991,282	38.17

Total in joint accounts	1	0.01	4,464	0.01
Total	10,260	100.00	31,419,779	100.00

■ DISTRIBUTION OF SHARE OWNERSHIP ON DECEMBER 31, 2019 BY OWNER GROUPS

	Ownership %	Shares %
Households	94.8	60.8
Companies	3.8	17.3
Financial and insurance institutions	0.2	7.9
Non-profit organizations	0.8	4.5
Public organizations	0.1	7.7
Non-domestic	0.3	1.8
Total	100.0	100.0

■ SHARE TRADING AND AVERAGE PRICES

ties. On December 31, 2019, the ten largest shareholders owned a total of 39.6% of the company's shares and voting rights.

SHARES AND SHAREHOLDERS

A monthly updated list of Aspo's major shareholders is available on the company's website.

Share ownership by members of the Board and the Group Executive Committee

On December 31, 2019, the total number of shares owned by the members of Aspo Plc's Board of Directors with entities under their control was 6,972,898 shares, which represents 22.2% of the company's shares and voting rights.

On December 31, 2019, Aspo Plc's CEO and the other members of the Group Executive Committee held a total of 211,513 shares, which represents 0.7% of the company's shares and voting rights.

■ DIVIDEND PER SHARE,EUR

■ EFFECTIVE DIVIDEND YIELD, %

^* Board proposal to the AGM * Board proposal to the AGM

■ EQUITY/SHARE EUR

■ NUMBER OF SHAREHOLDERS

■ SHARE-SPECIFIC ALTERNATIVE KEY FIGURES

SHARES AND SHAREHOLDERS

	2019	2018	2017	2016	2015
Shareholders' equity per share, EUR	3.92	3.75	3.67	3.75	3.36

Dividend per share, EUR (2019 proposal by the Board of Directors)	0.45	0.44	0.43	0.42	0.41
Dividend/earnings, %	94.8	106.7	76.3	85.4	67.1
Effective dividend yield, %	5.9	5.5	4.3	5.1	5.5
Price/earnings ratio (P/E)	16.1	19.1	17.7	16.6	12.3
Share price performance, EUR
Average price	8.20	9.51	8.91	6.95	7.23
Lowest price	7.52	7.90	8.20	6.00	5.92
Highest price	9.42	10.80	10.00	8.21	8.16
Closing price	7.62	7.96	10.00	8.18	7.50
Market value of shares, Dec. 31, MEUR	237.2	247.7	306.1	250.1	228.7
Share trading, 1,000 shares	2,454	1,809	2,851	2,491	4,886
Share trading, MEUR	20.1	17.2	25.4	17.3	35.3
Share trading/number of shares, %	7.8	5.8	9.2	8.0	15.8
Total number of shares on the closing date, 1,000 shares	31,420	31,420	30,976	30,976	30,976
Treasury shares	297	304	370	396	480
Outstanding shares on Dec. 31	31,123	31,115	30,605	30,579	30,496
Average number of shares (outstanding), 1,000 shares	31,121	30,809	30,599	30,564	30,479

■ CALCULATION PRINCIPLES FOR KEY FIGURES

Aspo Plc applies the guidance on alternative key figures issued by the European Securities and Market Authority (ESMA). In addition to IFRS key figures, the company releases other commonly used key figures (alternative key figures) which are mainly derived from the consolidated statement of comprehensive income and consolidated balance sheet. According to management, the alternative key figures clarify and complement the picture that the consolidated statement of comprehensive income, consolidated balance sheet and IFRS key figures provide of Aspo's financial performance and financial position.

Return on equity, %		profit for the period × 100	Shareholders' equity per		shareholders' equity
(ROE)	= share, EUR equity (average of the current and previous financial years)		=	number of shares on the closing date, excluding treasury shares
Equity ratio, %		shareholders' equity × 100			dividend per share × 100
	=	balance sheet total – advances received	Dividend/earnings, %	=	(profit for the period – hybrid interest, net of tax) / number of shares on the closing date, excluding treasury shares
Gearing, %		(interest-bearing liabilities – cash and cash equivalents) × 100
	=	shareholders' equity	Effective dividend		dividend per share × 100
		yield, %		=	closing price
Interest-bearing liabilities		loans and overdraft facilities used + lease liabilities Price/earnings ratio			closing price
		(P/E)	=	earnings per share
Free cash flow	=	net cash from operating activities + net cash from investing activities	Market value of shares	=	number of shares on the closing date, excluding treasury shares × closing price
Earnings per share (EPS),		profit for the period – hybrid interest, net of tax
EUR	=	average number of shares, excluding treasury shares

DIVIDEND PROPOSAL BY THE BOARD OF DIRECTORS

The Board of Directors proposes to the Annual Shareholders' Meeting to be held on April 7, 2020, that a dividend of EUR 0.45 per share is paid for the financial year ended December 31, 2019, based on the balance sheet to be confirmed and that the remaining distributable funds are retained in the unrestricted shareholders' equity.

The dividend will be paid in two installments. The first installment of EUR 0.22 per share will be paid to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date of April 9, 2020. The Board of Directors proposes that the dividend is paid on April 20, 2020. The second instalment of EUR 0.23 per share will be paid in November 2020 to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date. At its meeting to be held on October 29, 2020, the Board of Directors will decide on the record and payment dates of the second installment, in accordance with the rules of the Finnish book-entry securities system. According to the current system, the dividend record date would be November 2, 2020 and the payment date would be November 9, 2020.

The company's registered number of shares on February 13, 2020 was 31,419,779, of which the company held, directly or indirectly, 296,650. No dividend will be paid for Aspo Plc's treasury shares. Based on this proposal, a total of EUR 14.0 million would be paid in dividends.

On December 31, 2019, the parent company's distributable funds totaled EUR 44,009,796.24, with the profit for the financial year being EUR 15,456,798.52.

The company's financial position has not changed substantially since the end of the financial year. The company's liquidity is good and, in the Board of Directors' view, not endangered by the proposed distribution of profit.

KEY FIGURES FOR THE GROUP

Before the Board of Directors implements the decision made at the Annual Shareholders' Meeting, it must assess, as required in the Finnish Limited Liability Companies Act, whether the company's liquidity and/or financial position has changed after the decision was made at the Annual Shareholders' Meeting so that the prerequisites for the distribution of dividends stipulated in the Limited Liability Companies Act are no longer fulfilled. The fulfillment of the prerequisites stipulated in the Limited Liability Companies Act is a requirement for the implementation of the decision made at the Annual Shareholders' Meeting.

Signature of the Financial Statements and the Management Report

Helsinki, February 27, 2020

Gustav Nyberg Mammu Kaario Mikael Laine Salla Pöyry Risto Salo Tatu Vehmas

Aki Ojanen CEO

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL STATEMENTS, IFRS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

1,000 EUR	Notes	Jan 1–Dec 31, 2019	Jan 1–Dec 31, 2018
Net sales	1	587,689	540,935
Other operating income	3	907	4,110
Share of profits accounted for using the equity method	16	7	-131
Materials and services	6	-389,070	-382,182
Employee benefit expenses	4	-45,116	-43,247
Depreciation, amortization and impairment losses	5	-14,920	-16,484
Depreciation, right-of-use assets	5	-13,705
Other operating expenses	7	-104,669	-82,446
Operating profit		21,123	20,555
Financial income	8	2,175	933
Financial expenses	8	-5,050	-5,053
Total financial income and expenses		-2,875	-4,120
Profit before taxes		18,248	16,435
Income taxes	9	-2,130	-2,251
Profit for the period		16,118	14,184
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Translation differences		4,435	-1,939
Cash flow hedges		36	2,572
Income tax on other comprehensive income	9		-125
Other comprehensive income for the period, net of taxes		4,471	508
Total comprehensive income		20,589	14,692
Profit for the period attributable to
Parent company shareholders		16,118	14,184
Total comprehensive income attributable to
Parent company shareholders		20,589	14,692
Earnings per share attributable to parent company shareholders, EUR	10
Basic earnings per share		0.47	0.42
Diluted earnings per share		0.47	0.42

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED BALANCE SHEET

ASSETS

1,000 EUR	Notes	Dec 31, 2019	Dec 31, 2018
Non-current assets
Intangible assets	11	7,943	8,887
Goodwill	12	43,301	43,011
Tangible assets	13	180,184	175,053
Right-of-use assets	14	21,494
Investments accounted for using the equity method	16	1,438	1,512
Other financial assets	15	170	170
Receivables	19	31	250
Deferred tax assets	17	382	2,391
Total non-current assets		254,943	231,274
Current assets
Inventories	18	55,894	71,295
Accounts receivable and other receivables	19	74,572	77,496
Current tax assets		832	323
Cash and cash equivalents	20	23,667	19,333
Total current assets		154,965	168,447
Total assets		409,908	399,721

EQUITY AND LIABILITIES

Notes	Dec 31, 2019	Dec 31, 2018

21	17,692	17,692
21	4,351	4,351
21	16,483	16,482
21	-86	-122
21	25,000	25,000
	-19,182	-23,616
	77,811	76,862
	122,069	116,649

17	4,849	7,158
22	141,696	170,921
14	8,769
23	86	266
	155,400	178,345

25	128	385
22	58,155	28,526
14	12,980
23	60,344	75,338
	832	478
	132,439	104,727
	287,839	283,072
	409,908	399,721

CONSOLIDATED CASH FLOW STATEMENT

1,000 EUR	Jan 1–Dec 31, 2019	Jan 1–Dec 31, 2018
Cash flows from operating activities
Operating profit	21,123	20,555
Adjustments to operating profit:
Depreciation, amortization and impairment losses	28,625	16,484
Gains and losses on sale of tangible assets	-35	-25
Gains and losses on sale of business operations	-179	24
Share of profits accounted for using the equity method	-7	131
Employee benefits	183	70
Change in provisions	-257	-822
Unrealized foreign exchange gains and losses on operating activities	-281	-14
Change in working capital:
Inventories	18,453	-10,645
Current receivables	5,634	-4,530
Non-interest-bearing current liabilities	-14,773	4,438
Interest paid	-5,014	-3,655
Interest received	1,744	525
Income taxes paid	-2,664	-2,263
Net cash from operating activities	52,552	20,273
Cash flows from investing activities
Investments in tangible and intangible assets	-5,402	-43,054
Proceeds from sale of tangible assets	195	392
Acquisitions, net of cash	-2,511	-12,528
Dividends received	59	1
Proceeds from sale of business operations	300	104
Net cash from investing activities	-7,359	-55,085
Cash flows from financing activities
Proceeds from current loans	698	17,289
Proceeds from non-current loans	29,951	58,018
Repayments of non-current loans	-29,463	-25,391
Payment of lease liabilities	-27,729
Hybrid instrument, interests	-1,687	-1,687
Dividends distributed	-13,694	-13,287
Net cash from financing activities	-41,924	34,942
Change in cash and cash equivalents	3,269	130
Cash and cash equivalents Jan. 1	19,333	19,923
Translation differences	1,064	-720
Cash and cash equivalents at year-end	23,666	19,333

Cash flows relating to lease contracts have been transferred to a material extent from cash flows from operating activities to cash flows from financing activities starting from January 1, 2019 as a result of the adoption of IFRS 16 standard. This improved the cash flows from operating activities by approximately EUR 14 million.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

1,000 EUR	Share capital	Share premium	equity reserve unrestricted Invested	Fair value reserve	Other reserves	Translation differences	Treasury shares	Retained earnings	Total

Equity January 1, 2019	17,692	4,351	16,482	-122	25,000	-23,616	-1,738	78,600	116,649
Impact of transition to IFRS 16								29	29
Adjusted equity January 1, 2019	17,692	4,351	16,482	-122	25,000	-23,616	-1,738	78,629	116,678
Comprehensive income
Profit for the period								16,118	16,118
Other comprehensive income, net of taxes
Cash flow hedges				36					36
Translation differences			1			4,434			4,435
Total comprehensive income			1	36		4,434		16,118	20,589
Transactions with owners
Dividend payment								-13,694	-13,694
Hybrid instrument, interests								-1,687	-1,687
Share-based incentive plan							50	133	183
Total transactions with owners							50	-15,248	-15,198
Equity December 31, 2019	17,692	4,351	16,483	-86	25,000	-19,182	-1,688	79,499	122,069
Equity January 1, 2018	17,692	4,351	12,061	-2,569	25,000	-21,681	-2,169	79,582	112,267
Impact of IFRS 2 amendment								566	566
Adjusted equity January 1, 2018	17,692	4,351	12,061	-2,569	25,000	-21,681	-2,169	80,148	112,833
Comprehensive income
Profit for the period								14,184	14,184
Other comprehensive income, net of taxes
Cash flow hedges				2,447					2,447
Translation differences			-4			-1,935			-1,939
Total comprehensive income			-4	2,447		-1,935		14,184	14,692
Transactions with owners
Dividend payment								-13,287	-13,287
Share issue			4,425						4,425
Hybrid instrument, interests								-1,687	-1,687
Share-based incentive plan							431	-758	-327
Total transactions with owners			4,425				431	-15,732	-10,876
Equity December 31, 2018	17,692	4,351	16,482	-122	25,000	-23,616	-1,738	78,600	116,649

Changes in equity are discussed in more detail in Note 21.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

BASIC INFORMATION

Aspo Plc is a Finnish public corporation domiciled in Helsinki. Aspo Plc's shares are listed on Nasdaq Helsinki Ltd.

KONSERNITILINPÄÄTÖKSEN LIITETIEDOT

Aspo is a conglomerate that creates value by developing and internationalizing businesses in Northern Europe and growth markets. Aspo's value comes from its wholly owned independent businesses, which specialize in demanding B-to-B customers. ESL Shipping, Leipurin, Telko and Kauko are strong business brands in the field of trade and logistics, and they are seeking the leading position in their respective markets. Aspo develops its group structure and businesses in the long-term and in a responsible and sustainable manner.

The Group's parent company is Aspo Plc. The parent company is domiciled in Helsinki and its registered address is Mikonkatu 13 A, FI-00100 Helsinki, Finland, where also a copy of the consolidated financial statements is available.

Aspo Plc's Board of Directors and CEO have approved these consolidated financial statements for issue. Pursuant to the Finnish Companies Act, shareholders may either adopt or reject the consolidated financial statements at the Annual Shareholders' Meeting held after the issue, or it may also decide to have them modified.

ACCOUNTING PRINCIPLES

Basis of accounting

Aspo Plc's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and by applying the standards and interpretations valid on December 31, 2019. The notes to the consolidated financial statements also comply with Finnish Accounting Standards and company law.

All figures in the consolidated financial statements are presented in EUR thousands and are based on the original cost of transactions, unless otherwise stated in the accounting principles.

New and amended standards adopted by the Group

The following standards, amendments and interpretations have been applied by the Group for the first time in the annual reporting period commencing January 1, 2019:

IFRS 16 Leases
Prepayment Features with Negative Compensation – Amendments to IFRS 9
Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28
Annual Improvements to IFRS Standards 2015 – 2017 Cycle
Interpretation 23 Uncertainty over Income Tax Treatments.

The Group had to change its accounting policies as a result of adopting IFRS 16. Aspo has chosen a simplified method of transition to IFRS 16, according to which the right-of-use assets and lease liabilities were recognized in the opening balance sheet of January 1, 2019. The transition has been described in note 14.2 Adoption of IFRS 16 Leases standard. The other changes listed above did not have any impact on the amounts recognized in prior periods and did not significantly affect the current period or future periods.

Principles of consolidation

The consolidated financial statements include the parent company Aspo Plc and all its subsidiaries. Subsidiaries are all entities over which the Group has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Associates are entities in which the Group has 20%–50% of the voting rights and at least a 20% shareholding, or in which the Group otherwise holds significant influence. Investments in associates are accounted for using the equity method of accounting. If the Group's share of losses in an associate exceeds the carrying amount, losses in excess of the carrying amount will not be recognized, unless the Group undertakes to fulfil the obligations of the associate. Unrealized gains on transactions between the Group and its associates are eliminated in proportion to the Group's ownership share.

The acquisition method of accounting is used to account for business combinations. The consideration and the acquired company's assets and liabilities are measured at fair value at the acquisition date. Acquisition-related costs are recognized as expenses. Any contingent consideration is measured at fair value at the acquisition date and is classified either as a liability or equity. A contingent consideration classified as a liability is measured at fair value at each consequent reporting date, and the resulting gain or loss is recognized in profit or loss. The contingent consideration classified as equity is not re-measured. The amount by which the consideration exceeds the net fair value of the acquired identifiable assets, liabilities and contingent liabilities is recorded as goodwill.

Intra-group transactions, receivables and liabilities and intra-group profit distribution have been eliminated when preparing the consolidated financial statements. In addition, unrealized gains on transactions within the Group are eliminated.

Items denominated in foreign currencies

Transactions denominated in foreign currencies are recorded at the exchange rates at the transaction dates. Receivables and liabilities denominated in foreign currencies, outstanding at the end of the financial year are translated using the exchange rates at the reporting date. The gains and losses arisen from foreign currency denominated transactions and the translation of monetary items are recognized in profit or loss. Foreign exchange gains and losses related to business operations are included in the corresponding items above the operating profit. Foreign exchange gains and losses arisen from loans denominated in foreign currencies are included in financial income and expenses.

Aspo has classified Telko's internal non-current loans to subsidiaries in Telko segment in Belarus, Ukraine and Kazakhstan, as net investments in foreign entities, in accordance with IAS 21 standard. Any unrealized foreign exchange gains and losses arising from these net investments are recognized in other comprehensive income.

Foreign subsidiaries

Results and financial position of group entities are measured in the primary currency of the unit's economic environment ("functional currency"). The consolidated financial statements are presented in euro, which is also the parent company's functional and presentation currency. In the consolidated financial statements, the income statements of foreign subsidiaries are translated into euro using the average rate of the financial year. Balance sheet items are translated into euro using the exchange rates at the reporting date. Translation differences are presented as a separate item under equity. When an interest in a subsidiary is divested in its entirety or partially such that control is lost, the accumulated translation differences are reclassified to the statement of comprehensive income as part of the sales gain or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

Segment reporting

In year 2019 Aspo's reportable segments were ESL Shipping, Leipurin and Telko. Aspo changed its segment reporting so that Kauko is reported as part of the Telko segment starting from January 1, 2019. The operating segments remain ESL Shipping, Leipurin, Telko and Kauko and they are reported separately to the chief operating decision maker. The Board of Directors, which is responsible for allocating resources to the operating segments and evaluating their performance, has been designated as the chief operating decision maker. Inter-segment transactions are carried out at market prices.

Other operations include Aspo Group's administration, the financial and ICT service center, and a small number of other functions not included in the reportable segments.

Tangible assets

Tangible assets are recognized at cost net of cumulative depreciation less possible impairment losses. For new construction of vessels, financial expenses arising during the construction are capitalized as part of the cost and depreciated over the useful life of the asset.

Depreciation is calculated on a straightline basis over the estimated useful life as follows:

Buildings and structures 15–40 years
Vessels 17–30 years
Pushers 18 years
Dockings 2–3 years

•	Machinery and equipment	3–10 years
•	Piping	5–20 years
•	Refurbishment costs
	from premises	5–10 years
•	Other tangible assets	3–40 years

Land is not depreciated. The values are reviewed annually.

The value of an asset is impaired if its carrying amount exceeds its recoverable amount. A previously recognized impairment loss on tangible assets is reversed if the estimates used in the determination of the recoverable amount change. Carrying amount increased due to the reversal of an impairment loss may not exceed the carrying amount that would have been defined for the asset item if no impairment loss had been recognized in previous years. Gains and losses arising from the discontinued use and disposal of tangible assets are included in other operating income and expenses.

Goodwill and other intangible assets

Goodwill arising from the acquisition of a subsidiary is not amortized, instead it is tested for impairment at least annually by using value in use calculations (see Goodwill impairment test, Note 12).

Intangible assets with indefinite useful lives are not amortized, instead they are tested for impairment at least annually. The useful lives of the brands in Leipurin and Telko segments are estimated to be indefinite. The strong image and history of the brands support management's view that the brands will generate cash flows over an indefinable period.

Other intangible assets are measured at cost and amortized on a straight-line basis over their useful lives. The amortization periods for other intangible assets are:

Software and associated licenses 3–5 years • Principal relationships and
technology acquired through business combinations 10 years
Customer relationships acquired through business combinations 15 years

The Group assesses the carrying amounts of goodwill and intangible assets annually, or more often if there is any indication of potential impairment. If such indication exists, the recoverable amount of the asset in question is determined. Impairment of goodwill is assessed at the level of cash-generating units.

KONSERNITILINPÄÄTÖKSEN LIITETIEDOT

The recoverable amount is the fair value less costs to sell, or the value in use, if higher. The cash-flow-based value in use is determined by calculating the discounted present value of predicted cash flows. The discount rate of the calculations is based on the average cost of capital (WACC), which reflects the market's view of the time value of money and the risks involved in Aspo's business operations.

An impairment loss is recognized in the statement of comprehensive income if the carrying amount of the asset is higher than its recoverable amount. Where an impairment loss is recognized for an asset subject to depreciation, the asset's useful life is re-estimated. An impairment loss recognized for assets other than goodwill is reversed if the estimates used in the determination of the recoverable amount change to a substantial extent. Carrying amount increased due to the reversal of an impairment loss may not exceed the carrying amount that would have been determined for the asset if no impairment loss had been recognized in previous years. An impairment loss recognized from goodwill is not reversed under any circumstances.

Research and development costs

Aspo Group's R&D focuses, according to the nature of each segment, on developing operations, procedures and products as part of customer-specific operations, which means that development inputs are included without specification in normal operational costs.

Inventories

Inventories are measured at cost or at net realizable value, if lower. The cost is determined using the FIFO (first-in, first-out) principle. The cost of finished goods and work in progress includes raw material purchase costs, direct manufacturing wages, other direct manufacturing costs, and a share of manufacturing overheads (based on normal operating capacity), borrowing costs excluded. Net realizable value is the actual sales price in the ordinary course of business less the costs of completion and sale.

Leases

The Group has changed its accounting policies and applied IFRS 16 Leases standard from January 1, 2019. Comparative figures have not been restated, i.e. they have been prepared in accordance with IAS 17 Leases standard. The new accounting principles are described below and the impact of the transition is explained in note 14.2 Adoption of IFRS 16 Leases standard.

The Group has customary, business related lease contracts, e.g. relating to offices, warehouses, vessels and cars. Also, part of the office technique is leased. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease term for vessels is in general approximately one year. Other rental agreement periods are typically less than five years. Leased assets may not be used as security for borrowing purposes.

Until December 31, 2018, leasing agreements where the Group assumes an essential part of the risks and benefits inherent in ownership were classified as financial leasing agreements. Assets acquired through financial leasing agreement were recognized in the balance sheet at an amount equalling the fair value at the start of the agreement or at the present value of minimum lease payments, if lower. Lease payments are divided into financial expenses and loan repayment. Corresponding leasing liabilities, less financial expenses, are included in interest-bearing liabilities. The interest of finance is recognized in profit or loss over the leasing period so that the interest rate for the remaining liability is the same for each financial year. Assets leased under financial leasing agreements are depreciated either over their useful lives or over the term of the leasing agreement, if shorter. Financial leasing agreements include leasing agreements of machinery and equipment and IT software. Leasing agreements in which the material part of risks and benefits inherent in ownership remain with the lessor were classified as operating leases, the leasing payments of which were recognized in profit or loss as expenses over the leasing period.

From January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date when the leased asset is available for use by the Group. Contracts may contain both lease and non-lease components. When the agreement includes a non-lease component such as maintenance, services, and maritime crew. Aspo separates them based on their stand-alone price given in the agreement or by using estimates.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives to be received
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
amounts expected to be payable by the Group under residual value guarantees
the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and
payments arising from terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used. The criteria used to determine the applicable discount rate for each lease agreement include the class of underlying asset, the geographic location, the currency, the maturity of the risk-free interest rate and the lessee's credit risk premium.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liability
any lease payments made at or before the commencement date less any lease incentives received
any initial direct costs, and
restoration costs.

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Leases are charged to profit or loss as finance cost of the lease liability and depreciation of the right-of-use asset. Right-ofuse assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

A lease liability and a right-of-use-asset are not recognized on the balance sheet in respect of leases of low value assets. Aspo has determined the acquisition value of EUR 5,000 as a threshold for low value assets. Low-value assets comprise ICT equipment and minor office furniture. Also, short term leases, with a lease term of 12 months or less, are not recognized on the balance sheet. Further, lease contracts relating to intangible assets are excluded from the scope of IFRS 16. Payments associated with low-value assets and short-term leases as well as rents charged for intangible assets are recognized on a straight-line basis in other operating expenses.

Aspo acts as a lessor in a very minor scale when sub-leasing office premises. These arrangements have been classified as operating leases and the lease income is recognized in other operating income on a straight line basis over the lease term.

Management judgements

The most significant management judgement relating to the determination of the lease term relates to leased vessels, most of which, have been leased for a period of approximately one year. As a significant portion of the fleet is leased, it is likely that, at the end of the lease term, the same or a similar vessel will be leased again. In case there is no intention to continue or renew the lease, the agreement will be treated as a fixed-term lease contract. If a vessel is leased for approximately one year, the lease term used to calculate the lease liability is 13 months (ongoing month + the next 12 months). By applying the 13-month lease term Aspo attempts to achieve financial statements that provide a true and fair view of the obligations associated with the lease liabilities and the significance of the right-of-use assets regardless of whether the vessels are rented or owned by the company.

In case of lease agreements where the lease term is defined to be valid until further notice, the expected lease term is based on management judgement. The financial impact of contract penalties, e.g. sanctions arising from terminating the lease, are taken into account when determining the expected lease term.

The option to extend or terminate a lease is taken into account in determining the lease term. The period covered by an option to extend the lease is included into the lease term if it according to management judgement is reasonably certain that the option will be exercised. Correspondingly, if it is reasonably certain that an option to terminate the lease is not exercised, the lease term will cover the contract period in full. The assessment to exercise an option or not is made case by case based on the profitability of the arrangement and needs of the business.

Employee benefits

In Finland the statutory pension provision is arranged by insurances from pension insurance companies. In foreign units, the pension provision is arranged in accordance with local legislation and social security regulations. The Group only has defined contribution pension schemes. The related payments are recorded in the statement of comprehensive income of the financial year to which they pertain.

Share-based payments

The Group has share-based management incentive plans, where part of the reward is settled in shares and the rest in cash. These plans include net payment features for meeting withholding tax obligations. Note 29 includes more information on the share-based arrangements. Assigned shares are measured at fair value at the time of assignment and recognized in the statement of comprehensive income as costs over the vesting period of the incentive plan. Other than market-based conditions (e.g. profitability and profit growth target) are not included in the fair value but taken into account when determining the number of shares to which a right is assumed to be generated by the end of the vesting period. For the portion settled in shares the expense is recognized as an employee benefits expense, with a corresponding increase in equity. Also the portion paid in cash is classified as equity settled and recognized in equity at the grant date market value.

Share capital

Share capital includes ordinary shares. Transaction costs, net of tax, resulting directly from the issuance of new shares are recognized in equity, as a reduction of the payments received.

When the company purchases treasury shares, the consideration paid for the shares and the transaction costs are recognized as a reduction in equity. When the shares held by the company are sold, the consideration, net of tax and less direct transaction costs, is recognized as an increase in equity.

Dividend

The dividend proposed by the Board of Directors to the Annual Shareholder's Meeting is not recognized in the financial statements. Dividend is recognized only based on the Shareholder's Meeting resolution.

Provisions

A provision is recognized in the balance sheet if the Group has, as a result of a past event, a present legal or constructive obligation that will probably have to be settled, and the amount of the obligation can be reliably estimated. Warranty provisions include the cost of product repair or replacement if the warranty period is still effective at the reporting date. Warranty and maintenance obligations usually extend over 1–2 years. Warranty provisions are determined on the basis of historical experience.

The amount recognized as provisions is the present value of the costs that are expected to occur when settling the obligation.

Income taxes

The Group's income taxes include taxes based on the Group companies' profits for the financial year, adjustment of taxes from previous financial years and changes in deferred taxes. Income taxes are recognized in accordance with the tax rate valid in each country. Deferred tax assets and liabilities are calculated from the temporary differences between accounting and taxation by applying the applicable tax rate at the reporting date or by using a future substantively enacted tax rate. Temporary differences arise e.g. from provisions, depreciation differences and on taxable losses carried forward. Deferred tax assets are recognized from taxable losses carried forward and other temporary differences only to the extent that it is likely that they can be utilized in the future. The share of profits of associated companies presented in the consolidated statement of comprehensive income is calculated from the associate's profit for the period, net of tax.

A limited liability company which is obliged to pay taxes in Finland and is practising international marine logistics has the opportunity to apply taxation based on vessel tonnage during a tonnage taxation period, instead of taxation based on the profits of the shipping business. ESL Shipping Ltd transferred from business taxation to tonnage taxation retrospectively from January 1, 2011.

Revenue recognition

Aspo's revenue from contracts with customers mainly consists of the following income flows:

Sales of raw materials in the plastics and chemical industries
Sales of raw materials and machines in the bakery and other food industries
Sales of ship transportation services mainly in the energy and metal industries
Sales of tools and applications for mobile knowledge work

The majority of Aspo's net sales comes from the sale of products recognized upon delivery at a point in time once significant risks and benefits associated with ownership have been passed on to the buyer in accordance with the delivery clauses. Apart from ESL Shipping, only a small part of the net sales of the operating segments comprises services sold to customers, income from which is recognized at a point in time once the service has been rendered, or over time if the customer simultaneously receives benefits when the service is being rendered. Majority of other services offered by the segments are regarded as customer service because they are related, for example, to the development and design of product concepts and customized solutions. ESL Shipping's income is recognized over time as the services are rendered. The revenue recognition is based on the transportation agreements or other service agreements. At the end of each reporting period, revenue from ESL Shipping's undelivered or otherwise incomplete services is recognized on the basis of the number of days completed by the reporting date as a percentage of the estimated total duration of the service.

Revenue and expenses from construction contracts produced in accordance with individual orders are recognized based on the completion method when the outcome of the project can be assessed reliably. The completion stage is determined as the proportion of realized planning, production and installation hours accumulated by the time of review of the project's total estimated planning, production and installation hours. Accrued costs from construction contracts not recognized as revenue yet, are recognized as incomplete construction contracts in inventories. When it is likely that a project generates losses, the losses are recognized as expenses immediately. Aspo Group's construction contracts are related to Leipurin's own machine production, which comprises only a small part of the Group's net sales.

According to the IFRS 15 standard, an entity must recognize revenue once it has satisfied its performance obligation by transferring the promised goods or services to the customer. The Group's sales agreements mainly concern the sale of products to customers, and they include one performance obligation. The transaction price is mainly fixed. Income is recognized once products have been delivered to the customer at a specific point in time.

Transaction prices do not include any significant financing components. Primarily, accounts receivable fall due within 0–60 days after the invoicing date. Advance payments received from customers are also used, typically in projects with a long production period, where installments are tied to the progress of the project.

Some contracts with customers include discounts that are tied, for example, to product volumes purchased annually by the customer in question. With regard to these, the likely amount of a realized discount is estimated on the basis of historical information, and these estimates are used to adjust revenue to be recognized. These accruals are recorded on a monthly basis, and the estimates are updated when more information about the situation is obtained. The amount of these discounts is not significant within Aspo Group.

Products sold by Aspo involve warranty obligations, due to the replacement or repair of any defective products during the warranty period. These warranty obligations do not differ from normal statutory obligations or any obligations followed in accordance with sector-specific market practices. These obligations are assessed regularly as the likely amount based on historical experience and recognized in operational expenses.

Aspo has not had significant incremental costs for obtaining contracts with customers that should be capitalized in the balance sheet. Possible incremental costs are expensed as incurred as their nature is such that they would be expensed within a year.

Aspo specifies revenue from contracts with customers according to market areas, product groups and the timing of revenue recognition.

Subsidies

Government subsidies granted to compensate for expenses incurred are recognized in the statement of comprehensive income in the periods in which the expenses related to the object of the subsidy are expensed. Subsidies received are presented as net deductions from generated expenses. Subsidies related to the acquisition of tangible assets have been recognized as adjustments to their cost. Subsidies are recognized as income during the period of use of the asset in the form of smaller depreciation expense.

Financial assets

Aspo classifies its financial assets on the basis of its business model as follows: measured at fair value through other comprehensive income, measured at fair value through profit or loss, and measured at amortized cost.

Financial assets recognized at fair value through other comprehensive income include any derivatives in hedge accounting. They are recognized at fair value on the settlement date and measured later at fair value on the closing date of each financial year.

Financial assets measured at fair value through profit or loss include any derivatives outside hedge accounting, and other non-current financial assets. They are recognized at fair value on the settlement date and measured later at fair value on the closing date of each financial year. Other non-current financial assets include equity investments. They are measured at fair value using quoted market prices and rates or the imputed present value. Changes in fair value are recognized in financial items in the consolidated statement of comprehensive income. Purchases and sales of other non-current financial assets are recognized on the settlement date at fair value. If no reliable market value is available, other non-current financial assets are measured at cost less possible impairment losses.

Loan receivables are recognized on the settlement date and are initially measured at fair value. Subsequently loan receivables are measured at amortized cost using the effective interest rate method. Their cash flows consist of the payment of capital and interest, and it is planned to hold them until the date of maturity. Transaction costs are included in the original acquisition cost. Credit loss risks associated with loan receivables are assessed on a customer-specific basis and, if required, the expected credit loss is considered when measuring receivables over each 12-month period or when the credit loss risk increases throughout the contractual period. The amount of the Group's loan receivables is not significant.

Accounts receivable and other receivables are measured at amortized cost. When measuring accounts receivable, Aspo applies the simplified segment-specific model to determine expected credit losses, as permitted by IFRS 9. The Group estimates expected credit losses using an experience-based matrix which takes into account the age structure of receivables, each segment's credit loss history from previous years, the market area and the customer base.

Cash and cash equivalents are measured at amortized cost. They include cash funds, bank deposits and other highly liquid investments of no more than three months. Overdraft facilities used are presented under current or non-current liabilities.

Financial assets are derecognized when the Group has lost the contractual right to cash flows, or when it has materially moved risks and revenue outside the Group.

Financial liabilities

The Group's financial liabilities recognized at fair value through other comprehensive income include derivatives in hedge accounting. They are recognized on the settlement date and measured at fair value at the end of the reporting period.

Group's financial liabilities recognized at fair value through profit or loss include derivatives, to which hedge accounting is not applied. They are recognized on the settlement date and measured at fair value at the end of the reporting period.

Financial liabilities measured at amortized cost are recognized on the settlement date and measured at amortized cost, less transaction costs. Interest expenses are recognized in the statement of comprehensive income over the contractual term of the loan using the effective interest method. Financial liabilities are classified as current when they fall payable within twelve months after the end of the reporting period.

Derivatives

Derivatives are initially recognized at fair value on the day the Group becomes a contractual counterparty and are subsequently measured at fair value.

The Group has applied hedge accounting to the hedging of predicted foreign currency denominated cash flows arising from the acquisition of tangible assets. The change in the fair value of the effective portion of hedging has been recognized in other comprehensive income and has been presented in the hedging reserve that is included in the fair value reserve under equity. Profits and losses recognized under equity has been reclassified to the cost of the asset in question during the financial period when the hedged item has been capitalized. This principle was applied to vessel purchases in 2018.

Hedge accounting is also applied to interest rate swaps to hedge the future interest rate cash flows as fixed. The change in the fair value of the effective portion of hedging has been recognized in other comprehensive income and presented in the hedging reserve included in the fair value reserve under equity. Interest rates of the interest rate swap realized during the financial year are recognized in financial items. Hedge accounting is not applied to other derivatives.

When applying hedge accounting, the relation between the hedging instruments and hedged items is documented at the start of hedging, as well as the risk management targets and strategies used as guidelines when launching different hedging actions. At the start of hedging and continuously after this action, the Group prepares an estimate whether the derivatives used in hedging effectively abolish the changes in fair values or cash flows of the hedged objects. The gain or loss relating to an inefficient portion is immediately recognized in the statement of comprehensive income as financial items. When the hedging instrument expires or is sold or when hedging does not meet the criteria of hedge accounting, the accumulated gains and losses retained in equity at that time remain in equity and are reclassified to the statement of comprehensive income only after the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, the accumulated gain or loss retained under equity is immediately reclassified to the statement of comprehensive income as financial items.

Changes in the fair value of derivatives, to which the hedge accounting is not applied, associated with financial items are recognized in financial income and expenses. Changes in the fair value of other derivatives are recognized in other operating income and expenses.

Fair value of derivatives is determined on the basis of quoted market prices and rates, the discounting of cash flows and option valuation models. The fair value of currency forwards is calculated by discounting the predicted cash flows from the agreements in accordance with interest rates of the currencies sold, translating the discounted cash flows at the exchange rates at the reporting date, and calculating the difference between the discounted values. Fair values of currency options are determined using commonly adopted option valuation models. The fair value of interest rate swaps is calculated by discounting the predicted cash flows from the agreements by using the market prices valid upon valuation.

Fair value hierarchy

Preparing the consolidated financial statements requires the measurement of fair values, for both financial and non-financial assets and liabilities. Group classifies the fair value measurement hierarchy as follows:

Level 1: The fair values of financial instruments are based on quoted prices on active markets. A market may be considered active when quoted prices are available on a regular basis and the prices represent the instrument's actual value in liquid trading.

Level 2: The financial instruments are not traded on active and liquid markets. The value of the financial instrument can be determined on verifiable market information and possibly partially on the basis of derived determination of value. If the factors influencing the instrument's fair value are nevertheless available and verifiable, the instrument belongs to level 2.

Level 3: The valuation of the financial instrument is not based on verifiable market information. Nor are other factors that affect the instrument's fair value available or verifiable.

Management judgement and use of estimates

When preparing the consolidated financial statements in accordance with IFRS, the Group management must use judgements including the recognition of transactions, selection and application of relevant IFRS standard or accounting principle, determination of the appropriate financial statement presentation, and estimates and assumptions the recognition of items is based on. This judgement affects the amounts and presentation of assets and liabilities in the balance sheet at the time of preparation, the reporting of contingent assets and liabilities, and the amounts and presentation of income and expenses during the financial year.

Estimates are used, for instance, to determine the carrying amounts of goodwill and brands and their expected yields, the useful lives of tangible and intangible assets, the recoverable amounts of inventories and other assets and liabilities as well as the application of the terms and conditions of lease agreements. Judgement also relates to the recognition of the revenue from long-term projects and recognition of deferred tax receivables.

The estimates are based on the information compiled from the business units related to the respective markets and development of the businesses and their impact on the Group's net sales and cost level; the experience of management; and other justifiable assumptions that constitute the best current assessments of management. Due to changes in the factors that form the basis for estimates, it is possible that final figures may, sometimes significantly, deviate from the estimations in the consolidated financial statements.

According to the Group management, goodwill and brand impairment testing and recognition of deferred tax assets involve the most significant estimates and assumptions, these are discussed below in more detail. Management judgement regarding leases are described above under Leases.

Goodwill and brand impairment testing

The Group tests the carrying amounts of goodwill and brands annually or more often if there is any indication of potential impairment. Goodwill is allocated to the Group's cash-generating units identified on the basis in which the management monitors goodwill in the internal management reporting. The unit's recoverable amount is calculated on the basis of value-in-use calculations. The cash-flow-based value in use is determined by calculating the discounted present value of predicted cash flows. The cash flows include, among others projections of future sales, profitability and maintenance capital expenditures. The discount rate of the calculations is determined through the weighted average cost of capital (WACC) that depicts the overall costs of equity and liabilities, taking into account the particular risks related to asset items and location of operations. The weighted average cost of capital reflects the Group's average non-current financial structure. Different estimates and assumptions could significantly affect the amounts of goodwill and brands reported in the consolidated financial statements. An impairment loss is recognized in profit or loss if the asset's carrying amount is higher than its recoverable amount. An impairment loss recognized for goodwill is not reversed under any circumstances. Goodwill, brands and their impairment testing are discussed in more detail in Note 12.

Deferred tax assets

At the end of each financial year, the Group estimates if it is sufficiently probable that deferred tax assets will be available in the future. The estimates are based on management projections on future results. The amount of deferred tax assets in the consolidated financial statements would be impacted if, for example, future taxable income deviated from projections or related tax legislation changed.

Adoption of new or amended IFRS standards and IFRIC interpretations

In 2020, the Group will adopt the following changes in standards and Conceptual Framework:

Definition of Material – Amendments to IAS 1 and IAS 8. The amendments include a consistent definition for materiality and clarify when information is material.

Definition of a Business – Amendments to IFRS 3. The amended definition clarifies, whether an acquisition is accounted for as a business combination or as asset acquisition.

Revised Conceptual Framework for Financial Reporting. IASB has issued a revised Conceptual Framework, which will be applied from January 1, 2020 in determining the accounting policies for transactions, events or conditions that are not otherwise dealt with under the accounting standards.

The changes are not expected to have a significant impact on the consolidated financial statements.

1. Net Sales and Segment Information

Aspo's reportable segments are ESL Shipping, Leipurin and Telko. From the beginning of 2019 Kauko is reported as part of the Telko segment. Comparative figures have been restated.

ESL Shipping conducts sea transportation of energy sector and industrial raw materials, and offers related services.

Leipurin provides solutions particularly for bakery customers and chain customers in the foodservice business, and partly to other food industries and the retail trade.

Telko acquires and supplies plastic raw materials and chemicals to industry. Its extensive customer service also covers technical support and the development of production processes. Kauko, which is reported in Telko segment, is an expert in demanding working environment providing total solutions, services and equipment for mobile knowledge work.

Other operations include Aspo Group's administration, the financial and ICT service centre, and a small number of other operations not covered by the reportable segments.

The assessment of each segment's profitability is based on the segment's operating profit and net sales to external customers. The Board of Directors is responsible for assessing the segments and making resourcing decisions.

The segment's assets and liabilities are items that the segment uses in its business operations or that can be reasonably allocated to the segment. Items not allocated to segments consist of items associated with income taxes and centralized financing in the statement of comprehensive income and balance sheet. Investments consist of increases in tangible assets and intangible assets that will be used in more than one financial year. Transactions between segments are based on fair market prices. There are no considerable inter-segment net sales.

■ NET SALES BY MARKET AREA

1,000 EUR	2019	2018
ESL Shipping
Finland	79,570	48,285
Scandinavia	46,963	28,730
Baltic countries	8,107	6,267
Russia, other CIS countries + Ukraine	447	7,150
Other countries	39,870	29,643
Total	174,957	120,075
Leipurin
Finland	43,870	45,485
Scandinavia	690	269
Baltic countries	31,487	33,491
Russia, other CIS countries + Ukraine	37,923	36,309
Other countries	1,759	5,475
Total	115,729	121,029

Telko
Finland	71,629	81,897
Scandinavia	37,213	33,061
Baltic countries	18,281	20,834
Russia, other CIS countries + Ukraine	132,834	128,462
Other countries	37,046	35,577
Total	297,003	299,831

Total
Finland	195,069	175,667
Scandinavia	84,866	62,060
Baltic countries	57,875	60,592
Russia, other CIS countries + Ukraine	171,204	171,921
Other countries	78,675	70,695
Total	587,689	540,935

NET SALES

Aspo Group's net sales in 2019 increased by 9% from the previous year. Net sales increased particularly as a result of the acquisition of AtoB@C by ESL Shipping and the deployment of two new vessels.

Net sales grew in Finland, Scandinavia and Other countries market areas. The growth was 11% in Finland and 37% in Scandinavia, accelerated by higher transportation volumes due to the acquisition of AtoB@C in August 2018. In 2019, Finland accounted for 33% (33) and the market area of Russia, other CIS countries and Ukraine for 29% (32) of net sales.

The majority of the Group's net sales, 70% (76), is recognized at a point in time in conjunction with the delivery of goods or services. Net sales recognized over time mainly include ESL Shipping's sea transportation and related services of EUR 173.4 (120.1) million and Leipurin's construction contracts in machinery operations of EUR 4.2 (8.3) million.

Of Leipurin's net sales, raw material operations accounted for 87% (83) and machinery operations for 13% (17). Of Telko's net sales, plastics operations accounted for 51% (49), chemical operations for 40% (40) and Kauko of for 9% (11).

■ NET SALES BY TIMING OF RECOGNITION

1,000 EUR	2019	2018
ESL Shipping
At a point in time	1,550
Over time	173,407	120,075
Total	174,957	120,075

Leipurin
At a point in time	111,510	112,748
Over time	4,219	8,281
Total	115,729	121,029

Telko
At a point in time	296,120	298,885
Over time	883	946
Total	297,003	299,831

Total
At a point in time	409,180	411,633
Over time	178,509	129,302
Total	587,689	540,935

■ NET SALES BY PRODUCT CATEGORY

1,000 EUR	2019	2018
ESL Shipping	174,957	120,075

Raw materials	100,448	100,355
Machinery	15,281	20,674
Leipurin	115,729	121,029

Plastics	152,188	147,737
Chemicals	118,141	118,458
Kauko	26,674	33,636
Telko	297,003	299,831

Total	587,689	540,935

CONTRACT ASSETS AND LIABILITIES

Contract assets include revenue from construction contracts performed in accordance with individual orders which have not yet been delivered to customers. Revenue from construction contracts is recognized over time, and the amounts show annual variation depending on project completion schedules. Construction contracts outstanding on the closing date are expected to be delivered to customers during the first and second quarter of 2020. The duration of projects is usually less than one year.

Contract liabilities comprise advance payments received from construction contracts and other advance payments received, the products or services related to which have not been delivered or rendered.

INFORMATION RELATED TO GEOGRAPHICAL REGIONS

The Group monitors its net sales in accordance with the following geographical division: Finland, Scandinavia, the Baltic countries, Russia, other CIS countries and Ukraine, and other countries. Net sales of the geographical regions are presented as per customer location and their assets as per location of the assets.

■ CONTRACT ASSETS

1,000 EUR	2019	2018
The cumulative revenue of non-delivered construction contracts	785	430
Total	785	430

■ CONTRACT LIABILITIES

1,000 EUR	2019	2018
Advances received	4,767	4,722
Total	4,767	4,722

■ INFORMATION RELATED TO GEOGRAPHICAL REGIONS

		Net sales		Non-current assets*
1,000 EUR	2019	2018	2019	2018
Finland	195,069	175,667	241,058	175,455
Scandinavia	84,866	62,060	11,690	20,954
Baltic countries	57,875	60,592	386	388
Russia, other CIS countries + Ukraine	171,204	171,921	1,394	1,176
Other countries	78,675	70,695	33	30,909
Total	587,689	540,935	254,561	228,882

* Non-current assets other than financial assets and assets related to taxes.

■ OPERATING SEGMENTS 2019

1,000 EUR	ESL Shipping	Leipurin	Telko	Unallocated items	Group total
Sales to external customers	174,957	115,729	297,003		587,689
Inter-segment sales			90
Net sales	174,957	115,729	297,093		587,689
Operating profit	14,563	2,995	8,047	-4,482	21,123
Net financial expenses					-2,875
Profit before taxes					18,248
Income taxes					-2,130
Profit for the period					16,118
Depreciation, tangible assets	13,392	312	801	49	14,554
Amortization, intangible assets	172	122	73	68	435
Depreciation, right-of-use assets	10,120	1,641	1,511	432	13,704
Segment's assets	222,736	65,514	94,238	27,420	409,908
Segment's liabilities	26,356	20,194	32,194	209,096	287,840
Investments	18,558	520	705	130	19,913

2018

1,000 EUR	ESL Shipping	Leipurin	Telko	Unallocated items	Group total
Sales to external customers	120,075	121,029	299,831		540,935
Inter-segment sales			122
Net sales	120,075	121,029	299,953		540,935
Operating profit	15,114	3,267	7,387	-5,213	20,555
Net financial expenses					-4,120
Profit before taxes					16,435
Income taxes					-2,251
Profit for the period					14,184
Depreciation, tangible assets	9,407	296	768	24	10,495
Amortization, intangible assets	120	443	558	68	1,189
Segment's assets	206,780	58,936	109,228	24,777	399,721
Segment's liabilities	17,293	14,179	41,756	209,844	283,072
Investments	41,848	509	740	92	43,189

2. Acquisitions and Divestments

ACQUISITIONS

Acquisitions in 2019

In the beginning of 2019, Telko acquired the business of the Danish HH Plastkombi A/S. HH Plastkombi is a distributor specialized in technical plastics, with net sales of approximately EUR 3 million. The acquisition increased Telko's goodwill by EUR 0.3 million.

In the end of August 2019 AtoB@C Shipping AB acquired the rest of the shares (60%) in the associated company Norra Skeppings Gruppen AB. The company offers brokerage and logistic services for sea transportation and trades with biofuel raw materials. The deal had only a minor impact on the consolidated financial statements.

Acquisition of the shipping company AtoB@C in 2018

ESL Shipping acquired the operations of AtoB@C, a Swedish shipping company, by acquiring all shares in its key companies AtoB@ Shipping AB and AtoB@C Holding AB through a transaction completed on August 31, 2018. The consideration was EUR 25.5 million. Part of the consideration was paid by transferring 444,255 new shares in Aspo Plc to the seller at the rate prevailing on the acquisition date and rest of the consideration was paid in cash. In 2018 EUR 19.1 million of the cash consideration was paid and the rest EUR 2.0 million was paid in February 2019.

Through the acquisition, ESL Shipping strengthened its position in the smaller vessel category. The shipping company's operations diversified significantly as it expanded its service range and customer base from the transportation of raw materials to industrial products. The cargo carried by AtoB@C includes forest industry raw materials and products, steel industry products, fertilizers, recycled materials, biofuels and minerals.

The fair values of the assets acquired and liabilities assumed in the acquisition on the transaction date are presented in the following table. The fair values of receivables correspond the gross contractual amounts of receivables. The goodwill of EUR 5.5 million arising from the acquisition is based on a higher operational competitiveness and synergies related to sourcing and more comprehensive organization. The goodwill is not deductible in taxation.

■ ACQUISITION OF THE SHIPPING COMPANY ATOB@C

1,000 EUR	2018
Consideration
Paid in cash	19,127
Unpaid consideration	2,000
Paid in shares of Aspo Plc	4,425
Total consideration	25,552

Recognized amounts of identifiable assets acquired and liabilities assumed	Fair value
Intangible assets (customer relationships)	1,874
Tangible assets	23,100
Investments accounted for using the equity method	1,643
Inventories	1,308
Accounts receivable and other receivables	7,890
Cash and cash equivalents	6,909
Total assets	42,724
Loans and overdraft facilities	12,826
Accounts payable and other liabilities	5,531
Deferred tax liabilities	4,345
Total liabilities	22,702
Net assets acquired	20,022
Goodwill	5,530
Total	25,552
Transaction costs related to the acquisition	879

Expenses have been recognized in other operating expenses in the ESL Shipping segment.

Other acquisitions in 2018

On August 10, 2018 Telko completed the acquisition of the business of Square Oil, a Danish distribution company for lubricants. Square Oil is a specialist in BP Castrol's industrial lubricants, and it operates in Denmark and Norway. Square Oil's annual net sales are approximately EUR 3 million. The acquisition increased Telko's goodwill by EUR 0.3 million.

DIVESTMENTS

In 2019 Kauko sold its heat pump business to Panasonic. The divestment date was December 31, 2019. The impact of the divestment on the Group's profit was minor.

No businesses were divested during the financial year 2018.

3. Other Operating Income

1,000 EUR	2019	2018
Gains on sale of tangible assets	51	119
Rents and related remunerations	19	301
Compensations for delays and discontinuations of agreements		2,608
Gains on sale of business operations	300
Lease agreement related compensation	60	88
Other income	477	994
Total	907	4,110

4. Employee Benefits and Personnel Information

At the end of the financial year, the number of employees of Aspo Group was 931 (958), while the average during the financial year was 945 (919).

■ EMPLOYEE BENEFIT EXPENSES

1,000 EUR	2019	2018
Wages and salaries	38,261	35,946
Pension expenses, defined contribution plans	4,575	4,482
Share-based payments	247	742
Other employee benefit expenses	2,033	2,077
Total*	45,116	43,247

*Expenses are decreased by the government subsidy for merchant vessels from the Ministry of Transport and Communications, according to which ESL Shipping receives withholding taxes and social security expenses related to marine personnel's pays as refunds 5,312 4,792

Information regarding the employee benefits of key management personnel is presented in Note 29. Related Parties.

■ PERSONNEL BY SEGMENT AT YEAR-END

	2019	2018
ESL Shipping	277	276
Leipurin	297	323
Telko	330	334
Other operations	27	25
Total	931	958

■ PERSONNEL BY SEGMENT, ON AVERAGE DURING THE FINANCIAL YEAR

	2019	2018
ESL Shipping	274	254
Leipurin	314	320
Telko	331	321
Other operations	26	24
Total	945	919

■ PERSONNEL BY GEOGRAPHICAL AREA AT YEAR-END

	2019	2018
Finland	451	452
Scandinavia	38	40
Baltic countries	86	81
Russia, other CIS countries + Ukraine	329	340
Other countries	27	45
Total	931	958

5. Depreciation, Amortization and Impairment Losses

■ DEPRECIATION AND AMORTIZATION, TANGIBLE AND INTANGIBLE ASSETS

1,000 EUR	2019	2018
Intangible assets	367	1,189
Buildings	378	330
Vessels	13,357	9,394
Machinery and equipment	786	739
Other tangible assets	32	32
Total	14,920	11,684

■ IMPAIRMENT LOSSES

1,000 EUR	2019	2018
Goodwill		4,800
Total		4,800

Total depreciation, amortization and impairment losses	14,920	16,484

■ DEPRECIATION, RIGHT-OF-USE ASSETS

1,000 EUR	2019	2018
Land	84
Buildings	2,757
Vessels	9,807
Machinery and equipment	1,045
Other tangible assets	12
Total	13,705

6. Materials and Services

1,000 EUR	2019	2018
Purchases during the period
ESL Shipping	37,903	28,889
Leipurin	90,527	90,072
Telko	235,190	267,059
Total	363,620	386,020

Change in inventories	18,095	-11,652

Outsourced services
Leipurin	3,216	3,933
Telko	4,139	3,881
Total	7,355	7,814

Total materials and services	389,070	382,182

7. Other Operating Expenses

1,000 EUR	2019	2018
ESL Shipping	82,590	56,062
Leipurin	7,124	9,480
Telko	11,439	12,569
Other operations	3,516	4,335
Total	104,669	82,446

■ AUDITORS' FEES

1,000 EUR	2019	2018
Auditing	381	346
Tax advice	23	64
Other services	124	81
Total	528	491

8. Financial Income and Expenses

In April 2019, the administrative court gave its decision to reduce the tax increase imposed by Finnish Customs on Telko in 2015. The favourable ruling increased the financial income by approximately EUR 1.4 million in 2019.

The items above operating profit include EUR 0.4 (-0.2) million of exchange rate differences from sales and purchase transactions.

1,000 EUR	2019	2018
Dividend income from other non-current financial assets	1	1
Interest income from loans and other receivables	1,630	434
Foreign exchange gains	544	498
Total financial income	2,175	933

Interest expenses from leases	-729
Interest and other financial expenses	-3,899	-3,996
Foreign exchange losses	-422	-1,057
Total financial expenses	-5,050	-5,053

Total financial income and expenses	-2,875	-4,120

9. Income Taxes

■ TAXES IN THE STATEMENT OF COMPREHENSIVE INCOME

1,000 EUR	2019	2018
Taxes for the period	-2,515	-2,038
Change in deferred tax assets and liabilities	380	-174
Taxes from previous financial years	5	-39
Total	-2,130	-2,251

■ RECONCILIATION OF THE TAX EXPENSE IN THE STATEMENT OF COMPREHENSIVE INCOME AND TAXES CALCULATED USING THE GROUP´S PARENT COMPANY´S TAX RATE 20%

1,000 EUR	2019	2018
Profit before taxes	18,248	16,435

Taxes calculated using the parent company's tax rate	-3,650	-3,287
Impact of foreign subsidiaries' tax rates	174	312
Impact of tonnage taxation	2,432	3,594
Losses for which no deferred tax asset was recognized	-1,193	-996
Utilization of previously unrecognized tax losses	121	36
Allowance for deferred tax assets	-1,941	-490
Taxes from previous financial years	5	-39
Withholding taxes	-88	-128
Timing differences, tax-free and non-deductible items	2,011	-1,253
Taxes in the statement of comprehensive income	-2,129	-2,251

Effective tax rate	12%	14%

The tonnage based taxation of ESL Shipping Ltd reduces significantly the effective tax rate of the Group.

■ INCOME TAX ON OTHER COMPREHENSIVE INCOME

1,000 EUR	2019	2018
Cash flow hedges		-125

10. Earnings per Share

Earnings per share is calculated by dividing the profit or loss attributable to the parent company's shareholders by the weighted average number of outstanding shares during the financial year. When calculating earnings per share, the interest of the hybrid bond, net of tax, has been considered as a profit-reducing item. Diluted earnings per share equals basic earnings per share as there have been no dilution effects in 2019 and 2018.

1,000 EUR	2019	2018
Basic
Profit for the period attributable to parent company shareholders	16,118	14,184
Interest of the hybrid bond (adjusted by tax effect)	-1,350	-1,350

Average number of shares during period (1,000)	31,121	30,809

Basic earnings per share, EUR	0.47	0.42

Diluted
Diluted earnings per share, EUR	0.47	0.42

11. Intangible Assets

Intangible rights mainly consist of corporate brands described in Note 12. Other intangible assets include software and associated licenses, as well as principal and customer relationships and new technology acquired in business combinations.

■ 2019		Other	Advance payments of
1,000 EUR	Intangible rights	intangible assets	intangible assets	Total
Acquisition cost, Jan. 1	7,909	17,529	42	25,480
Translation differences	3	7		10
Increases, business combina tions		371
Increases	122	1	109	232
Decreases	-647	-3,032	-50	-3,729
Acquisition cost, Dec. 31	7,387	14,876	101	22,364
Accumulated amortization, Jan. 1	-2,313	-14,280		-16,593
Translation differences	-2	-8		-10
Accumulated amortization of decreases	647	1,902		2,549
Amortization for the period	-74	-293		-367
Accumulated amortization, Dec. 31	-1,742	-12,679		-14,421
Carrying amount, Dec. 31	5,645	2,197	101	7,943

■ 2018		Other	Advance payments of
1,000 EUR	Intangible rights	intangible assets	intangible assets	Total
Acquisition cost, Jan. 1	7,886	16,300	118	24,304
Translation differences	-4	72		68
Increases, business combina tions		1,874		1,874
Increases	28	139	42	209
Decreases	-1	-856		-857
Transfers between classes			-118	-118
Acquisition cost, Dec. 31	7,909	17,529	42	25,480
Accumulated amortization, Jan. 1	-2,241	-14,069		-16,310
Translation differences	3	47		50
Accumulated amortization of decreases	1	855		856
Amortization for the period	-76	-1,113		-1,189
Accumulated amortization, Dec. 31	-2,313	-14,280		-16,593
Carrying amount, Dec. 31	5,596	3,249	42	8,887

■ INTANGIBLE ASSETS LEASED UNDER FINANCE LEASE ARE INCLUDED IN INTANGIBLE ASSETS AS FOLLOWS

Other intangible assets

1,000 EUR	2019	2018
Acquisition cost, Jan. 1		3,580
Increases		140
Transfers between classes		118
Decreases		-855
Acquisition cost, Dec. 31		2,983

Accumulated amortization, Jan. 1		-2,034
Accumulated amortization of decreases		855
Amortization for the period		-673
Accumulated amortization, Dec. 31		-1,852

Carrying amount, Dec. 31		1,131

In 2019, as a result of the adoption of IFRS 16 standard, finance leases were derecognized. The impacts of the adoption of IFRS 16 standard are explained in Note 14.

12. Goodwill

Goodwill is allocated to the Group's cash-generating units on operating segment level. Goodwill is allocated to the segments as follows: ESL Shipping EUR 6.3 million (6.3), Leipurin EUR 26.7 million (26.7), Telko EUR 5.5 million (5.3), and Kauko EUR 4.7 million (4.7). During the 2018 financial year, an impairment loss of EUR 4.8 million was recognized on Kauko's goodwill in accordance with the strategic decision made by Aspo's Board of Directors in December to restructure Kauko's energy operations either by divesting or discontinuing the operations, which was accomplished in 2019.

The useful lives of brands included in Leipurin and Telko segments have been estimated to be indefinite. The strong image and history of these brands support management's view that these brands will affect cash flow generation over an indefinable period. The brands have been tested for impairment. According to test results, there is no need for impairment.

IMPAIRMENT TESTING

Future cash flows in impairment calculations have been defined on the basis of value in use. Cash flow projections are based on the three-year financial plans approved by the Board of Directors. In testing, cash flow projections are prepared for five years, after which the cash flow is assumed to grow steadily. The terminal value has been calculated by using a growth assumption of 1% (1). The recoverable amounts indicated by the tests clearly exceed the carrying values of goodwill. The proportion of the terminal value to the recoverable amount ranged from 59% to 77% (53–76) and was the highest in ESL Shipping.

When estimating net sales, the assumption is that current operations can be maintained, and net sales will grow in a controlled manner at the rate estimated in financial plans. The sales margin is estimated to follow net sales growth. It is estimated that costs will increase slowly as a result of continuous cost management. Fixed costs are expected to grow at the rate of inflation.

The discount rate is determined for each segment by using the weighted average cost of capital (WACC) that depicts the

■ GOODWILL

1,000 EUR	2019	2018
Acquisition cost, Jan. 1	49,158	43,360
Business combinations	293	5,839
Translation differences	-3	-41
Acquisition cost, Dec. 31	49,448	49,158

Accumulated impairment losses, Jan. 1	-6,147	-1,347
Impairment loss for the financial year		-4,800
Accumulated impairment losses, Dec. 31	-6,147	-6,147

Carrying amount, Dec. 31	43,301	43,011

■ ALLOCATION OF GOODWILL

1,000 EUR	2019	2018
ESL Shipping	6,337	6,319
Leipurin	26,683	26,683
Telko	5,541	5,269
Kauko	4,704	4,704
Other operations	36	36
Total	43,301	43,011

■ BRANDS

1,000 EUR	2019	2018
Leipurin	3,148	3,148
Telko	2,155	2,155
Total	5,303	5,303

overall costs of equity and liabilities, taking into account the particular risks related to the assets and location of operations. The post-tax discount rate (WACC) used in the calculations was 6.9–12.2% (10.3–13.4).

FACTORS INFLUENCING IMPAIRMENT TESTING AND SENSITIVITY ANALYSIS

Slow economic growth, changes in exchange rates and heavy fluctuation in the operating environment make it more difficult to evaluate the assumptions used in impairment testing. Management believes that the assumptions used are appropriate and that the tested business units have a sustainable basis. There are no indications of impairment in the business operations' goodwill, however, the results of the impairments tests will depend on the realization of estimated future cash flows. A substantial negative change in future cash flows, a significant increase in interest rates or a high tying-up rate of capital may result in an impairment loss of goodwill. According to management's view the estimated future cash flows and the tying-up rate of capital used in the tests are likely.

Each segment has undergone a sensitivity analysis in which the values of basic assumptions used in the tests were lowered one by one while other factors remained the same. As a result, the future cash flows generated by the businesses declined and the recoverable amounts decreased:

Increase in WACC of 20% decreased the recoverable amount by 18–20% (17–21).
Decrease in operating profit of 10% decreased the recoverable amount by 7–22% (7–14).

13. Tangible Assets

■ 2019			Machinery		Other	Work in progress
1,000 EUR	Land	Buildings	and equipment	Vessels	tangible assets	and advance payments	Total
Acquisition cost, Jan. 1	54	6,332	7,448	282,884	751	8	297,477
Translation differences		15	301				316
Increases		268	974	18,314	5	127	19,688
Decreases		-26	-540	-2,917			-3,483
Transfers between classes			7			-7	0
Acquisition cost, Dec. 31	54	6,589	8,190	298,281	756	128	313,998
Accumulated depreciation, Jan. 1		-3,453	-5,576	-113,045	-350		-122,424
Translation differences		-3	-198				-201
Accumulated depreciation of decreases		26	421	2,917			3,364
Depreciation for the period		-378	-786	-13,357	-32		-14,553
Accumulated depreciation, Dec. 31		-3,808	-6,139	-123,485	-382		-133,814
Carrying amount, Dec. 31	54	2,781	2,051	174,796	374	128	180,184

The most significant acquisition in 2019 was the redemption of m/s Alppila by ESL Shipping in August. The EU subsidizes the energy-efficiency and environmental investments made by ESL Shipping in LNG-fueled vessels, which were deployed in 2018. The subsidy received by ESL Shipping in 2016– 2020 is at most EUR 5.9 million, of which EUR 2.1 million was obtained in 2016. The received subsidy reduces the acquisition cost of the vessels. The preconditions to obtain the subsidy, is that the activities listed in the agreement are carried out and that costs arising are documented in an appropriate manner.

■ 2018			Machinery		Other	Work in progress
1,000 EUR	Land	Buildings	and equipment	Vessels	tangible assets	and advance payments	Total
Acquisition cost, Jan. 1	54	6,335	7,109	187,461	728	24,264	225,951
Translation differences		-13	-225			-5	-243
Increases, business combinations				30,076			30,076
Increases		10	1,122	41,821	23	7	42,983
Decreases			-558	-635		-97	-1,290
Transfers between classes				24,161		-24,161	0
Acquisition cost, Dec. 31	54	6,332	7,448	282,884	751	8	297,477
Accumulated depreciation, Jan. 1		-3,125	-5,498	-97,091	-319		-106,033
Accumulated depreciation, business combinations				-6,976			-6,976
Translation differences		2	154				156
Accumulated depreciation of decreases			507	417			924
Depreciation for the period		-330	-739	-9,395	-31		-10,495
Accumulated depreciation, Dec. 31		-3,453	-5,576	-113,045	-350		-122,424
Carrying amount, Dec. 31	54	2,879	1,872	169,839	401	8	175,053

■ TANGIBLE ASSETS LEASED UNDER FINANCE LEASE ARE INCLUDED IN TANGIBLE ASSETS AS FOLLOWS

Machinery and equipment

1,000 EUR	2019	2018
Acquisition cost, Jan. 1		308
Decreases		-237
Acquisition cost, Dec. 31		71

Accumulated depreciation, Jan. 1		-238
Accumulated depreciation of decreases		237
Depreciation for the period		-27
Accumulated depreciation, Dec. 31		-28

Carrying amount, Dec. 31		43

In 2019, as a result of the adoption of IFRS 16 standard, finance leases were derecognized as they were low-value assets. The impacts of the adoption of IFRS 16 standard are explained in Note 14.

14. Leases

14.1 LEASES

■ RIGHT-OF-USE ASSETS

1,000 EUR	Land	Buildings	Machinery and equipment	Vessels	Other assets	Total
Opening balance, Jan. 1	652	9,528	1,670	26,647	36	38,533
Increases		2,147	1,450	8,709	15	12,321
Decreases		-698	-334	-15,793		-16,825
Accumulated depreciation of decreases		100	278	569		947
Translation differences		217			6	223
Depreciation for the period	-84	-2,757	-1,045	-9,807	-12	-13,705
Carrying amount, Dec. 31	568	8,537	2,019	10,325	45	21,494

At the end of the financial year the most significant right-of-use assets were vessels EUR 10.3 million and office and warehouse premises (including land) EUR 9.1 million. Depreciation of right-of-use assets amounted to EUR 13.7 million, of which EUR 9.8 million related to vessels and EUR 2.8 million to office and warehouse premises. The decreases arose mainly from ESL Shipping's acquisition of the previously rented ms Alppila vessel in August 2019. Other lease agreements do not include significant purchase options.

The lease payments relating to right-ofuse assets amounted to EUR 15.0 million, of which EUR 0.7 million was interest. The total lease payments, including also the variable lease payments, rents for shortterm and low-value asset leases as well as rents for intangible assets amounted to EUR 16.1 million.

Most lease payments fall due within five years and the most significant part relating to leases of vessels fall due within a year after the reporting date.

At the end of the financial year the Group was committed mainly to such future lease agreements that are designated to replace existing agreements, and the amount of which does not significantly depart from the agreements currently effective.

■ AMOUNTS RECOGNIZED IN PROFIT OR LOSS

1,000 EUR	2019
Depreciation, right-of-use assets	13,705
Interest expense	729
Expense relating to short-term leases	218
Expense relating to leases of low-value assets	202
Expense relating to leases of intangible assets	565
Expense relating to variable lease payments	16
Expenses total	15,435

Rental income from operating sub-leases	19

■ MATURITY OF LEASE LIABILITIES

1,000 EUR Dec. 31, 2019
Within one year	13,295
1–2 years	4,187
2–3 years	2,714
3–4 years	1,268
4–5 years	381
After five years	513
Total	22,358

14.2 ADOPTION OF IFRS 16 LEASES STANDARD

IFRS 16 Leases standard was effective starting from January 1, 2019. Under IFRS 16, all leases are in general recognized on the lessee's balance sheet, and the classification between operating and finance leases according to IAS 17 is no longer valid. In accordance with the new standard, all assets related to lease agreements (right-of-use assets) and future discounted lease payment obligations (lease liabilities) are recognized on the balance sheet. Exemptions include short-term leases and leases for which the underlying asset is of low value, which are recognized as an expense in profit or loss on a straight-line basis over the lease term.

Transition

Aspo has chosen the simplified transition approach in the adoption of IFRS 16 standard, according to which the right-ofuse assets and lease liabilities have been recognized to the opening balance sheet as per January 1, 2019 and the cumulative effect of adopting the standard has been recognized as an adjustment to the opening balance of equity. Comparatives have not been restated.

The lease liabilities recognized at the date of transition were measured at the present value of the remaining lease payments. The right-of-use assets were measured at an amount equal to the lease liabilities, adjusted by the amount of prepaid rents recognized in the consolidated balance sheet at the date of initial application.

Aspo applied the following exemptions and practical expedients in the adoption of IFRS 16:

Leases with a lease term less than 12 months remaining at the date of transition on January 1, 2019 were accounted for as short-term leases and not recognized on the balance sheet. The selection was made by class of underlying asset, and was applied to all other classes except cars, which were recognized on the balance sheet even if their remaining lease term would have been less than 12 months at the time of transition.
The lease liability and the right-of-useasset were not recognized on the balance sheet in respect of leases relating to low value assets. Aspo uses

a threshold of EUR 5,000 for low value assets.

Lease agreements with reasonably similar characteristics were subject to one predetermined discount rate. The criteria used to determine the discount rate were the class of underlying asset, the geographic location, the currency, the maturity of the riskfree interest rate and the lessee's credit risk premium. At the time of the transition, the weighted average of interest on incremental borrowing was 2.33%.
In case of leases in which the lease term included extension options or termination options, current knowledge was used in the determination of the lease term.
The initial direct costs were not included in the right-of-use asset's value at the time of transition on January 1, 2019.

Other impacts of the adoption of IFRS 16

The adoption of the standard had a significant impact on the balance sheet of Aspo Group and key figures derived from it, as well as the presentation of the statement of comprehensive income and cash flow statement. The Group's interest-bearing liabilities and non-current assets recognized on the balance sheet according to the standard are significantly higher than when applying IAS 17. With regard to key figures, the adoption has had the most significant impact on gearing, which increased by approximately 30 percentage points. Lease expenses previously recognized in the statement of comprehensive income have been replaced by depreciation expense arising from the rightof-use asset, and interest expense arising from the lease liabilities. In the cash flow statement, the transfer of payments of lease liabilities to cash flows from financing activities increases cash flows from operating activities, while the total cash flows remain unchanged.

The enclosed table presents the conversion of the IAS 17 lease commitments to IFRS 16 lease liabilities and discloses the amounts of the low-value assets, shortterm leases and leased intangible assets, which have not been recognized in the balance sheet as lease liabilities.

1,000 EUR

Operating lease commitments as at December 31, 2018	48,050
Discounted using the lessee's incremental borrowing rate on January 1, 2019	46,738
Less short-term leases	-377
Less low-value leases	-917
Less non-lease components of lease agreements	-23,004
Add adjustments as a result of management's determination of lease terms	5,989
Add adjustment as a result of a different treatment of purchase options	9,146
Add finance lease liabilities recognized as at December 31, 2018	1,203
Less IAS 17 finance lease liabilities relating to intangible assets and low-value assets	-1,203
Lease liability recognized as at January 1, 2019	37,575
Of which:
Non-current lease liabilities	10,350
Current lease liabilities	27,225

The impact of the adoption of IFRS 16 standard to Aspo Group's opening balance January 1, 2019 is displayed in the attached table. The right-of-use assets recognized in the balance sheet were EUR 38.5 million, prepaid rents amounted to EUR 0.9 million and lease liabilities were EUR 37.6 million. Right-of-use assets are presented in the consolidated balance sheet as a single line item and lease liabilities are presented divided into non-current and current liabilities. In the opening balance sheet the non-current lease liabilities amounted to EUR 10.4 million and current lease liabilities amounted to EUR 27.2 million.

Aspo had as per December 31, 2018, when applying IAS 17, recognized finance leases relating to some tangible and intangible assets, the related assets and liabilities amounted both to EUR 1.2 million. The value of the finance lease liabilities exceeded slightly the value of the assets. Thus, the small difference of EUR 0.0 million was recognized to equity in the opening balance sheet as per January 1, 2019. The tangible assets were derecognized as they were low-value assets. The intangible assets were derecognized as they are excluded from the scope of IFRS 16 standard. Starting from January 1, 2019 the lease payments relating to these lease agreements are recognized in other expenses on a straight line basis over the lease term.

■ IMPACT OF THE ADOPTION OF IFRS 16 STANDARD ON THE OPENING BALANCE SHEET

MEUR	Dec. 31, 2018	Add right-of-use assets and lease liabilities	Less IAS 17 finance leases	Jan. 1, 2019
Assets
Intangible assets	8.9		-1.2	7.7
Goodwill	43.0			43.0
Tangible assets	175.1		0.0	175.1
Right-of-use assets		38.5		38.5
Investments accounted for using the equity method	1.5			1.5
Other non-current assets	2.8			2.8
Total non-current assets	231.3	38.5	-1.2	268.6
Inventories	71.3			71.3
Accounts receivable and other receivables	77.8	-0.9		76.9
Cash and cash equivalents	19.3			19.3
Total current assets	168.4	-0.9		167.5
Total assets	399.7	37.6	-1.2	436.1
Equity and liabilities
Share capital	17.7			17.7
Other equity	98.9		0.0	98.9
Total equity	116.6		0.0	116.7
Loans and overdraft facilities	170.9		-0.7	170.2
Lease liabilities		10.4		10.4
Other liabilities	7.4			7.4
Total non-current liabilities	178.3	10.4	-0.7	188.0
Loans and overdraft facilities	28.5		-0.5	28.0
Lease liabilities		27.2		27.2
Accounts payable and other liabilities	76.3			76.3
Total current liabilities	104.8	27.2	-0.5	131.5
Total equity and liabilities	399.7	37.6	-1.2	436.1

15. Other Financial Assets

Other long-term financial assets are unlisted shares. Because their fair value cannot be reliably determined, they have been recognized at their acquisition cost less possible impairment losses.

■ UNLISTED SHARES

1,000 EUR	2019	2018
Acquisition cost, Jan. 1	170	170
Acquisition cost, Dec. 31	170	170
Carrying amount, Dec. 31	170	170

16. Investments Accounted for using the Equity Method

On December 31, 2019, Aspo Group had two associated companies that were acquired in conjunction with the acquisition of AtoB@C. These German limited partnership companies Auriga KG and Norma KG are domiciled in Leer. Both of the companies own one dry bulk cargo vessel. Aspo Group holds 49% of the shares of these companies. Their income consists of lease income from renting vessels. Their combined total assets at the acquisition date was EUR 7.1 million. The fair value of these associated companies determined in conjunction with the acquisition was EUR 0.9 million higher than the carrying amount. The difference between the fair value and carrying amount is attributable to the vessels owned by the companies, and it is amortized during the useful life of the vessels.

The third associated company acquired in connection with the acquisition of AtoB@C was a Swedish Norra Skeppnings Gruppen AB, which became a subsidiary during the financial year 2019 when AtoB@C Shipping AB acquired the remaining 60% of the company. The acquisition was not material for the Group.

■ INVESTMENTS IN ASSOCIATED COMPANIES

1,000 EUR	2019	2018
Balance Jan. 1	1,512
Investments in associated companies		1,643
Transfer to group companies	-23
Dividends received	-58
Share of associated companies' profits for the the financial year	7	-131
Carrying amount Dec. 31	1,438	1,512

17. Deferred Taxes

The deferred tax liability on the transition to tonnage taxation is relieved in form of government subsidies received during the validity period of the tonnage taxation, if the preconditions for the subsidy are met. The amount of the tax relief was EUR 0.6 million in 2019, and cumulatively EUR 5.4 million in 2011–2018.

The deferred tax assets related to losses carried forward that were included in the consolidated balance sheet in 2018 of EUR 1.9 million have been written off during the financial year based on management's assessment. No deferred tax assets have been recognized on the taxable losses carried forward of EUR 41.0 million incurred by Finnish companies. The utilization period of these taxable losses is 10 years. They fall due starting in year 2021.

The Group had EUR 1.7 million (2.5) in unused taxable losses in subsidiaries abroad, relating to which no deferred tax assets have been recognized because the Group is unlikely to accumulate taxable income against which the losses could be utilized before they expire. The loss expiry period varies from one country to another. Some losses expire in 2020, while some losses do not have any expiry period set out within the scope of the current legislation. A deferred tax liability of EUR 2.3 million (1.7) has not been recognized based on the retained earnings of subsidiaries abroad because they are permanently invested in the countries in question.

■ DEFERRED TAX ASSETS

1,000 EUR	2019	2018
Derivatives		26
Employee benefits		3
Losses carried forward	84	2,111
Other temporary differences	298	251
Total	382	2,391

■ DEFERRED TAX LIABILITIES

1,000 EUR	2019	2018
Depreciation in excess of plan	1,467	3,026
Deferred tax liability due to tonnage taxation	618	1,235
Tangible and intangible assets	2,724	2,844
Other temporary differences	40	53
Total	4,849	7,158

■ CHANGES IN DEFERRED TAX ASSETS

1,000 EUR	2019	2018
Deferred tax assets, Jan. 1	2,391	3,267
Items recognized in the statement of comprehensive income
Unutilized tax losses	-2,027	-617
Employee benefits	-3	-27
Other temporary differences	21	-107
Items recognized in other comprehensive income		-125
Deferred tax assets, Dec. 31	382	2,391

■ CHANGES IN DEFERRED TAX LIABILITIES

1,000 EUR	2019	2018
Deferred tax liabilities, Jan. 1	7,158	3,300
Items recognized in the statement of comprehensive income
Depreciation in excess of plan	-1,559	242
Deferred tax liability due to tonnage taxation	-617	-618
Tangible and intangible assets	-202	-133
Other temporary differences	-19	22
Business combinations	88	4,345
Deferred tax liabilities, Dec. 31	4,849	7,158

18. Inventories

An expense of EUR 0.0 million (0.4) was recognized during the financial year for a writedown of inventories to net realizable value.

1,000 EUR	2019	2018
Materials and supplies	3,847	4,038
Finished goods	49,149	64,129
Other inventories	2,898	3,128
Total	55,894	71,295

19. Accounts Receivable and Other Receivables

According to management's judgement accounts receivable do not involve significant credit loss risks. A total of EUR 0.3 million (0.5) was recognized as impairment losses from accounts receivable.

When measuring accounts receivable, Aspo applies the simplified segment-specific model to determine the expected credit losses as allowed by the IFRS 9 standard. The Group evaluates expected credit losses using an experience-based matrix which takes into account the age structure of receivables, each segment's credit loss history from previous years, the market area and the customer base.

■ NON-CURRENT RECEIVABLES

1,000 EUR	2019	2018
Loan receivables	31	149
Deferred receivables		101
Total	31	250

■ ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

1,000 EUR	2019	2018
Accounts receivable	59,498	64,797
Accounts receivable on construction contracts, non-delivered	785	430
Refund from the Ministry of Transport and Communications	3,143	2,535
Advance payments	2,118	2,013
VAT receivable	1,212	1,055
Loan receivables	85	50
Other deferred receivables	7,731	6,616
Total	74,572	77,496

■ AGEING ANALYSIS OF ACCOUNTS RECEIVABLE

2019	Allowance Accounts		Carrying
1,000 EUR	receivable	for credit losses	amount
Not matured	46,609	-51	46,558
Matured 1–30 days ago	8,640	-42	8,598
Matured 31–60 days ago	2,619	-28	2,591
Matured 61–90 days ago	676	-6	670
Matured 91–180 days ago	663	-107	556
Matured more than 181 days ago	2,396	-1,871	525
Total	61,603	-2,105	59,498

2018		Allowance
1,000 EUR	Accounts receivable	for credit losses	Carrying amount
Not matured	49,089	-37	49,052
Matured 1–30 days ago	11,591	-70	11,521
Matured 31–60 days ago	2,459	-98	2,361
Matured 61–90 days ago	650	-10	640
Matured 91–180 days ago	895	-185	710
Matured more than 181 days ago	1,953	-1,440	513
Total	66,637	-1,840	64,797

1,000 EUR	2019	2018
Bank accounts and deposits	23,667	19,333

21. Equity

On December 31, 2019, Aspo Plc's number of shares was 31,419,779 and the share capital was EUR 17.7 million. In 2018, the number of Aspo Plc's registered shares increased by 444,255 shares with respect to the acquisition of AtoB@C.

Equity consists of the share capital, share premium, fair value reserve, translation differences, invested unrestricted equity reserve, other reserves, and retained earnings. Share subscriptions based on the convertible capital loan that were issued during the validity of the old Companies Act (29.9.1978/734) were recognized in the share premium. The invested unrestricted equity reserve includes other equity-type investments and share subscription price to the extent that it is not recognized in the share capital in accordance with a separate resolution. The fair value reserve includes accumulated changes in the fair value of derivative instruments under hedge accounting. Other reserves include hybrid instruments.

On May 27, 2016, Aspo issued a EUR 25 million hybrid bond. The coupon rate of the bond is 6.75% per annum. The bond has no maturity but the company may exercise an early redemption option after four years from the issuing date. The interest payment obligation arises if the Annual Shareholders' Meeting decides to distribute dividends. If no dividend is distributed, the company can decide upon the payment of interest separately. A hybrid bond is an instrument which is subordinated to the company's other debt obligations. In the consolidated financial statements, the loan is classified as equity, and the interest paid is presented in equity according to its nature. The hybrid bond does not confer to its holders the rights of a shareholder and does not dilute the holdings of the shareholders. An interest of EUR 1.7 million has been paid on the hybrid instrument annually.

DIVIDENDS

The Board of Directors proposes that a dividend of EUR 0.45 per share is distributed for the financial year 2019, and that the dividend is paid in two installments, EUR 0.22 per share in April and EUR 0.23 per share in November. A dividend of EUR 0.44 was distributed for 2018 in two installments: EUR 0.22 per share in April and EUR 0.22 per share in November.

■ EQUITY 2019

1,000 EUR	in 1,000s	Share capital	Share premium	Invested unrestricted equity reserve	Hybrid instrument	Treasury shares	Total
January 1, 2019	31,115	17,692	4,351	16,482	25,000	-1,738	61,787
Share-based incentive plan	7					50	50
Translation differences				1			1
December 31, 2019	31,122	17,692	4,351	16,483	25,000	-1,688	61,838
Treasury shares held by the Group	297
Total number of shares	31,420

2018

1,000 EUR	in 1,000s	Share capital	Share premium	Invested unrestricted equity reserve	Hybrid instrument	Treasury shares	Total
January 1, 2018	30,605	17,692	4,351	12,061	25,000	-2,169	56,935
Share-based incentive plan	66					431	431
Share issue	444			4,425			4,425
Translation differences				-4			-4
December 31, 2018	31,115	17,692	4,351	16,482	25,000	-1,738	61,787
Treasury shares held by the Group	304
Total number of shares	31,420

Share-based incentive plans are discussed in more detail in Note 29.

22. Loans

In September 2019, Aspo Plc participated in a bond loan of EUR 40 million guaranteed by Garantia Insurance Company with a loan unit of EUR 15 million. The bond pays fixed interest rate and matures on September 25, 2024.

In 2015, Aspo Plc issued a EUR 11 million unsecured private placement bond. The bond pays fixed interest rate and matures on September 29, 2022.

Due to the adoption of IFRS 16 standard finance lease liabilities were derecognised in 2019. The impact of the adoption is disclosed in Note 14, where also the maturity of the lease liabilities is presented.

■ NON-CURRENT LOANS AND OVERDRAFT FACILITIES

1,000 EUR	2019	2018
Loans	111,163	152,826
Pension loans	2,857	4,286
Bonds	25,832	10,945
Financial leasing liabilities		700
Overdraft facilities in use	1,844	2,164
Total	141,696	170,921

■ CURRENT LOANS AND OVERDRAFT FACILITIES

1,000 EUR	2019	2018
Loans	53,875	23,206
Pension loans	1,429	1,429
Financial leasing liabilities		503
Overdraft facilities in use	2,851	3,388
Total	58,155	28,526

■ MATURING OF FINANCE LEASE LIABILITIES

1,000 EUR	2019	2018
Finance lease liabilities – total amount of minimum lease payments
Within one year		522
After one year and within five years		715
Total		1,237
Finance lease liabilities – present value of minimum lease payments
Within one year		503
After one year and within five years		700
Total		1,203
Future financial expenses		34

■ OTHER NON-CURRENT LIABILITIES

1,000 EUR	2019	2018
Derivative contracts	86	66
Other non-interest-bearing liabilities		200
Total	86	266

■ ACCOUNTS PAYABLE AND OTHER LIABILITIES

1,000 EUR	2019	2018
Accounts payable and other liabilities	33,085	45,520
Advances received	4,767	4,722
Salaries and social security contributions	6,912	7,419
Employer contributions	1,554	1,286
Accrued interest	1,461	1,566
Derivative contracts		128
VAT liability	3,749	4,096
Other current liabilities	200	200
Other current deferred liabilities	8,616	10,401
Total	60,344	75,338

24. Pensions

In Finland the statutory pension provision is arranged by insurances from pension insurance companies. In foreign units, the pension provision is arranged in accordance with local legislation and social security regulations. The Group's pension schemes are treated as defined contribution plans in the consolidated financial statements.

■ PENSION EXPENSES IN THE STATEMENT OF COMPREHENSIVE INCOME

1,000 EUR	2019	2018
Defined contribution plans	4,575	4,482

25. Provisions

The recognized provisions are based on best estimates on the reporting date. Warranty provisions are mainly associated with the Group's product warranties and pension provisions to direct pension liabilities granted by the Group.

1,000 EUR	Warranties and maintenance services	Pension commit ments	Total
December 31, 2018	380	5	385
Decrease in provisions	-257		-257
December 31, 2019	123	5	128

26. Financial Risks and Financial Risk Management

26.1 FINANCIAL RISK MANAGEMENT PRINCIPLES AND ORGANIZATION

The function of Aspo Group's financial risk management is to protect the operating margin and cash flows, and effectively manage fund-raising and liquidity. The Group aims to develop the predictability of the results, future cash flows, and capital structure, and continuously adapt its operations to changes in the operating environment.

Financial risk management is based on the treasury policy approved by the Board of Directors, which defines the main principles for financial risk management in Aspo Group. The treasury policy defines general risk management objectives, the relationship between the Group's parent company and business units, the division of responsibility, and risk management-related reporting requirements. The treasury policy also defines the operating principles related to the management of currency risks, interest rate risks, and liquidity and refinancing risks.

Together with the Group Treasurer, Aspo's CEO is responsible for the implementation of financial risk management in accordance with the treasury policy approved by the Board of Directors. The business units are responsible for recognizing their own financial risks and managing them together with the parent company in accordance with the Group's treasury policy and more detailed instructions provided by the parent company.

26.2 MARKET RISKS

Currency risk

Aspo Group has companies in 19 countries, and the operations take place in 14 different currencies. The Group's currency risk consists of foreign currency-denominated internal and external receivables, liabilities, estimated currency flows, derivative contracts and translation risks related to results and capital. The target of Aspo Group is to decrease the uncertainty related to fluctuations in results, cash flows and balance sheet items.

At the business unit level, currency risk mainly occurs when a unit sells products and services with its domestic currency, but the costs are realized in a foreign currency.

In accordance with Aspo's strategy, an increasingly significant part of the net sales of Telko and Leipurin originates from Russia. In addition, a considerable part of Telko's net sales comes from Ukraine. Aspo's

■ LOANS AND OVERDRAFT FACILITIES BY CURRENCY

1,000 EUR	2019	2018
EUR	195,156	193,561
RUB		2,497
USD	1,844
PLN	2,851	3,389
Total	199,851	199,447

■ ACCOUNTS RECEIVABLE BY CURRENCY

1,000 EUR	2019	2018
EUR	40,551	45,508
SEK	818	1,164
DKK	2,270	1,361
PLN	840	911
RUB	3,732	4,549
UAH	5,708	5,611
USD	3,289	4,029
Other	2,290	1,664
Total	59,498	64,797

■ ACCOUNTS PAYABLE AND ADVANCES RECEIVED BY CURRENCY

1,000 EUR	2019	2018
EUR	30,052	38,874
SEK	903	1,148
DKK	344	284
PLN	142	305
RUB	1,674	1,386
UAH	109	589
USD	3,897	7,061
Other	731	595
Total	37,852	50,242

most extensive currency risk is related to the Russian ruble. If the ruble weakened against the euro, the Russian net sales denominated in euro of the Telko and Leipurin segments would decrease. Contradictory, the strengthening of the ruble would increase the net sales of the Group. Compared with the previous year, the Russian ruble strengthened against euro in 2019.

The currency risks of ESL Shipping are mainly related to dollar-denominated investments. In 2019, the shipping company had no major dollar-denominated investments.

At the reporting date, Aspo Group's currency position mainly consisted of internal and external interest-free and interest-bearing receivables and liabilities denominated in foreign currencies. Interest-bearing liabilities are mainly denominated in euro.

Most of Aspo Group's accounts receivable are denominated in euro. Ruble- and hryvnia-denominated receivables comprise the second largest item. Because a significant part of the operations of Telko and Leipurin takes place in Russia and Ukraine, ruble- and hryvnia-denominated accounts receivable make up a significant item.

Aspo Group has made investments in foreign subsidiaries. The equity of the foreign subsidiaries changes based on their business results. The total equity of the Group's foreign subsidiaries at the reporting date was EUR 44.1 million (36.1). Ruble-denominated investments of EUR 17.9 million (14.8) in subsidiaries operating in Russia were the biggest investment in regard to the currency amount. Despite the significant share of equity being denominated in the Russian ruble, the Group deems that diversifying is at a sufficient level, and there is no need to hedge the translation position associated with the equities of its foreign subsidiaries. The table shows the Group's share in the subsidiaries' equity by currency.

In addition, non-current intra-Group loan receivables (included in the Telko segment) from Telko's Belarusian, Ukrainian and Kazakhstani subsidiaries have been classified as non-current net investments in foreign operations. The total amount of these loan receivables is EUR 12.5 million (12.5).

Interest rate risk

To finance its operations, Aspo Group uses both fixed-rate and floating-rate borrowings that cause an interest rate risk in Aspo Group's cash flow and profit as a result of changes in the interest rate level. In addition to fixed-rate borrowings, Aspo Group uses interest rate derivatives to decrease a possible growth in future cash flows caused by an increase in short-term market interest rates. On December 31, 2019, the Group's interest-bearing liabilities totaled EUR 221.7 million (199.4) and cash and cash equivalents stood at EUR 23.7 million (19.3). The share of lease liabilities included in the amount of interest-bearing liabilities was EUR 21.8 million. Aspo Group's credit portfolio is reviewed with regard to average interest rate, the duration of interest rate position, average loan maturity, and relation between fixed-rate and floating-rate borrowings. On the balance sheet date, the average interest rate on interest-bearing liabilities, excluding lease liabilities, was 1.4% (1.6), the duration of interest rate position was 1.1 years (1.1), the average loan maturity was 2.7 years (3.5), and the share of fixed-rate borrowings was 27% (30). In 2019, the average interest rate of inter-

■ INVESTMENTS IN FOREIGN SUBSIDIARIES

1,000 EUR	Equity 2019	Equity 2018
EUR	14,156	12,898
SEK	-242	-540
DKK	6,538	5,812
RUB	17,907	14,836
NOK	5	18
UAH	4,995	2,260
PLN	1,639	1,929
BYN	-984	-990
CNY	831	492
KZT	-193	-474
AZN	-212
IRR	-178	-174
UZS	-215	16
RON	43
Total	44,090	36,083

■ CASH AND CASH EQUIVALENTS AND UNUTILIZED COMMITTED REVOLVING CREDIT FACILITIES

2019	2018
23,667	19,333
40,000	40,000
63,667	59,333

est-bearing liabilities decreased, the average maturity shortened and the share of fixed-rate borrowings decreased.

Sensitivity to market risks

Aspo Group is exposed to interest rate and currency risks via financial instruments, such as financial assets and liabilities including derivative contracts, in the balance sheet on the reporting date. The currency position varies during the financial year and, accordingly, the position included in the balance sheet on the reporting date does not necessarily reflect the situation during the financial year. The impact of foreign currency denominated sales and purchase transactions made during the financial year on the statement of comprehensive income is not taken into account in the sensitivity analysis unless they were hedged through derivatives.

The sensitivity analysis is used to analyze the impact of market trends on measurements. The fluctuation between the Russian ruble and euro is the most significant factor causing currency risks to the Group.

The sensitivity analysis regarding changes in the euro/Russian ruble exchange rate is based on the following assumptions:

The exchange rate change of +/-30%.
The position includes the rubledenominated financial assets and liabilities of companies that use the euro as their functional currency and the euro-denominated financial assets and liabilities of subsidiaries operating in Russia, i.e. accounts receivable and other receivables, loans and overdraft facilities used, accounts payable and other liabilities, as well as cash and cash equivalents on the reporting date.
Future cash flows are not taken into account in the position.

The sensitivity calculation resulting from changes in interest rates is based on the following assumptions:

The interest level changes by one percentage point.
The position includes floating-rate interest-bearing financial liabilities and assets.
The calculation is based on balance sheet values on the reporting date, and changes in capital during the year are not taken into account.

In the sensitivity analysis, the effects in the statement of comprehensive income are calculated as profit before taxes. The equity sensitivity analysis covers the capital invested in the subsidiary with regard to the currency risk.

Market risks also have an impact on Aspo Group through items other than financial instruments. The oil price has an impact on Aspo Group's financial performance through transportation costs. The Group has hedged against this risk by means of contractual clauses. The fluctuations in raw material prices for chemicals and food also affect the Group's financial performance.

Hedge accounting

The fair value of Group's interest rate swaps to which hedge accounting is applied was EUR -0.1 million (-0.1) on December 31, 2019. The effective portion of the changes in their fair value, EUR 0.0 million, was recognized in other comprehensive income, and interest expenses for the financial year were recognized in the financial items.

26.3 LIQUIDITY AND REFINANCING RISK

The objective of Aspo Group is to ensure sufficient financing for operations in all situations and market conditions. In accordance with the treasury policy, the sources of financing are diversified among a sufficient number of counterparties and different loan instruments. The sufficient number of committed financing agreements and sufficient maturity ensure Aspo Group's current and near-future financing needs.

Aspo Group's need for financing decreased significantly in 2019 compared with the previous year. This is due to the low investment needs in shipping operations. The main financing source of Telko and Leipurin is the cash flow from their operations. Liquidity is ensured through cash and cash equivalents, by issuing of commercial

■ SENSITIVITY ANALYSIS FOR FOREIGN CURRENCY AND INTEREST RATE RISK

		2019	2018
1,000 EUR	Statement of compre hensive income	Equity	Statement of compre hensive income	Equity
Currency risk
+ 30% strengthening of euro against RUB	474	-4,132	1,136	-3,424
- 30% weakening of euro against RUB	-255	7,674	-612	6,358

Interest rate risk
Change of +100 basic points in the market interest rates	-1,483		-1,378
Change of -100 basic points in the market interest rates	1,476		1,377

papers and committed overdraft limits, as well as revolving credit facilities granted by selected cooperation banks.

At the end of the financial year, the Group's cash and cash equivalents were EUR 23.7 (19.3) million. At the reporting date, Aspo Plc had a EUR 80 million domestic commercial paper program of which EUR 21 million were in use. At the reporting date, Aspo Plc also had revolving credit facilities granted by selected cooperation banks in the amount of EUR 40 million which were fully unutilized. During the financial year, Aspo signed a term loan facility agreement of EUR 15 million with a three-year loan period. In addition, Aspo signed a revolving credit facility agreement of EUR 20 million, with a maturity of three years. Both credit agreements were used to replace similar earlier credit agreements. Aspo Plc participated in a EUR 40 million group bond guaranteed by Garantia Insurance Company with a loan unit of EUR 15 million. The loan has a maturity of five years.

26.4 CREDIT AND COUNTERPARTY RISKS

The Group has credit risk from accounts receivable. Telko and Leipurin segments have an international and highly diversified customer base, and no considerable customer risk concentrations exist. ESL Shipping's accounts receivable are connected to long-term customer relationships with creditworthy companies. The turnover rate of its accounts receivable is high. All segments hedge against credit risks by using, when necessary, payment terms based on advance payments and bank guarantees.

Aspo Group aims to have a low cash and cash equivalents balance. The counterparty risk is managed by selecting wellknown and financially solvent domestic and international banks as counterparties. Excess funds are invested in bank deposits and short-term money market instruments. The derivative contract-based counterparty risk is managed by selecting well-known and solvent domestic banks as counterparties.

26.5 CAPITAL MANAGEMENT

The objective of the Group is to achieve a capital structure, with which Aspo Group can ensure the operational framework for short- and long-term operations, and a sufficient return on equity.

The main factors affecting the capital structure are possible acquisitions and divestments, Aspo Plc's dividend policy, the vessel investments of ESL Shipping and the profitability of the subsidiaries' business operations.

The development of the Group's capital structure is mainly monitored through the equity ratio and gearing. On December 31, 2019, the equity ratio was 30.1% (29.5) and gearing was 162.2% (154.4). In the beginning of 2019 as result of the adoption of IFRS 16 standard gearing increased approximately 30 percentage points and the equity ratio decreased compared with the 2018 financial statements.

■ MATURITY ANALYSIS

2019

1,000 EUR	Balance sheet value Dec 31,2019	Cash flow 2020	2021	2022	2023	2024–
Loans	-195,156	-58,018	-20,337	-41,047	-68,525	-15,112
Overdraft facilities	-4,695	-2,851	-1,844
Accounts payable and other liabilities	-40,049	-40,049
Derivative instruments
Interest rate swaps
Hedge accounting applied
Cash flows to be paid		-48	-32	-6

2018

	Balance sheet value	Cash flow
1,000 EUR	Dec 31,2018	2019	2020	2021	2022	2023–
Loans	-192,692	-40,769	-38,110	-23,173	-26,188	-72,236
Overdraft facilities	-5,552	-3,388	-2,164
Other liabilities	-200		-200
Financial leasing liabilities	-1,203	-522	-357	-271	-68	-19
Accounts payable and other liabilities	-52,668	-52,668
Derivative instruments
Interest rate swaps
Hedge accounting applied
Cash flows to be paid		-46	-24
Cash flows to be received					4
Hedge accounting not applied
Cash flows to be paid		-128

■ FINANCIAL ASSETS AND LIABILITIES 2019

1,000 EUR	Measured at fair value through other comprehensive income	Measured at fair value through profit or loss	Measured at amortized cost	Carrying amount
Non-current financial assets
Other non-current financial assets		170		170
Non-current receivables*			31	31
Current financial assets
Accounts receivable and other receivables*			60,795	60,795
Cash and cash equivalents			23,667	23,667
Total		170	84,493	84,663
Non-current financial liabilities
Loans and overdraft facilities			141,696	141,696
Lease liabilities			8,769	8,769
Derivatives	86			86
Current financial liabilities
Loans and overdraft facilities			58,155	58,155
Lease liabilities			12,980	12,980
Accounts payable and other liabilities*			40,049	40,049
Total	86		261,649	261,735

* Comprises only financial assets or financial liabilities included in the corresponding balance sheet item.

■ FINANCIAL ASSETS AND LIABILITIES 2018

1,000 EUR	Measured at fair value through other comprehensive income	Measured at fair value through profit or loss	Measured at amortized cost	Carrying amount
Non-current financial assets
Other non-current financial assets		170		170
Non-current receivables*			149	149
Current financial assets
Accounts receivable and other receivables*			65,902	65,902
Cash and cash equivalents			19,333	19,333
Total		170	85,384	85,554
Non-current financial liabilities
Loans and overdraft facilities			170,921	170,921
Derivatives	66			66
Other non-current liabilities			200	200
Current financial liabilities
Loans and overdraft facilities			28,526	28,526
Derivatives		128		128
Accounts payable and other liabilities*			52,668	52,668
Total	66	128	252,315	252,509

* Comprises only financial assets or financial liabilities included in the corresponding balance sheet item.

Accounting Principles include a description on how the Group classifies the determination of fair values of financial assets and liabilities to different levels of the fair value hierarchy. Group's derivatives include interest rate swaps and they fall into level 2 of the fair value hierarchy. Other long-term financial assets fall into hierarchy level 3.

Financial assets and liabilities not measured at fair value fall into hierarchy level 2. Their fair values are not materially different from their carrying amounts. The fair values of non-current loans are based on discounted future cash flows taking into account Aspo's credit margin.

27. Derivative Contracts

		2019		2018
1,000 EUR	Nominal value	Fair values, net	Nominal value	Fair values, net
Interest rate derivatives
Interest rate swaps	11,538	-86	28,462	-194
Total		-86		-194

28. Contingent Assets and Liabilities, and Other Commitments

OTHER COMMITMENTS

As part of their ordinary business activities, Aspo and some of its subsidiaries sign different kinds of agreements under which guarantees are offered to third parties on behalf of these subsidiaries. Such agreements are primarily made in order to support or improve Group companies' creditworthiness, and facilitate the availability of sufficient financing.

CONTINGENT ASSETS AND LIABILITIES

Hybrid instrument

Environmental restoration obligation

Rauma Terminal Services Oy, a company within the Aspo Group, is obligated, with regard to land areas leased from the Town of Rauma to restore the land areas so that they are in the same condition as before the lease. The scope of the obligation covers the dismantling of the buildings built by the company, including their foundations, and levelling the dismantled area. The review also includes regular environmental responsibilities from which no costs arise according to the company's understanding. The area has long-term lease agreements, and the Town of Rauma has not expressed any intention to change the area's purpose of use. As a result, the obligation has been treated as a contingent liability in the consolidated financial statements, and no entries have been made in the statement of comprehensive income or on the balance sheet.

Tax positions

Due to local tax audits or clarification requests, Aspo has some uncertain tax positions, as the tax authority has sum-

■ COLLATERAL FOR OWN DEBT

1,000 EUR	2019	2018
Mortgages given	129,000	155,837
Guarantees	21,928	31,970
Total	150,928	187,807

Other commitments*	26,449	314

■ OPERATING LEASE COMMITMENTS*

1,000 EUR	2019	2018
Within one year		31,851
After one year and within five years		16,173
After five years		26
Total		48,050

* Other commitments 2019 consists mainly of commitments relating to temporary maritime personnel of time-chartered vessels. In 2018 these commitments were reported as part of Operating lease commitments. The change in presentation is due to the adoption of IFRS 16 Leases standard on January 1, 2019.

moned the company's claims for deductible items in tax returns. Concerning each case, Aspo has assessed whether the tax authority's interpretations are justified and, if necessary, adjusted the recognized amounts to correspond with the expected payable amounts. Although management believes that these cases will not result in any significant additional recognitions in addition to previously recognized amounts, the final amounts may differ from the estimated amounts.

Legal proceedings

Aspo Group companies are parties to some legal proceedings and disputes associated with regular business operations. The financial impact of these proceedings and disputes cannot be estimate for certain but, on the basis the information available and taking into account the existing insurance cover and provisions made, Aspo management believes that they do not have any material adverse impact on the Group's financial position.

Legal proceedings finalized in 2019 are disclosed in the Management Report in section Legal proceedings.

29. Related Parties

The subsidiaries and associated companies of Aspo Group are presented in the attached table. Additional information about the associated companies is presented in Note 16. The related parties also include key management personnel, i.e. members of the Board of Directors and the Group Executive Committee, and any entities under their control. Information about the members of the Board and the Group Executive Committee is available in the Aspo's Year 2019 publication in the Corporate Governance section.

■ GROUP COMPANIES

Company	Domicile	Holding %
Aspo Plc, parent company	Finland
Aspo Palvelut Ltd	Finland	100.00
AtoBatC Holding AB	Sweden	100.00
AtoBatC Shipping AB	Sweden	100.00
Oy AtoBatC Shipping Ab	Finland	100.00
Oy Bomanship Ab	Finland	100.00
Bomanship Europe Unipessoal Lda	Portugal	100.00
Bothnia Bulk AB	Sweden	100.00
ESL Shipping Ltd	Finland	100.00
Kauko GmbH	Germany	100.00
Kauko Ltd	Finland	100.00
LeiConcept Oy	Finland	100.00
OOO Leipurien Tukku	Russia	100.00
Leipurien Tukku Oy	Finland	100.00
Leipurin Plc	Finland	100.00
FLLC Leipurin	Belarus	100.00
LLC Leipurin	Ukraine	100.00
SIA Leipurin	Latvia	100.00
TOO Leipurin	Kazakhstan	100.00
UAB Leipurin	Lithuania	100.00
Leipurin Estonia AS	Estonia	100.00
Norra Skeppnings Gruppen AB	Sweden	100.00
OOO NPK Leipurin	Russia	100.00
Rauma Terminal Services Oy	Finland	100.00
Suhi-Suomalainen Hiili Oy	Finland	100.00
Telko Ltd	Finland	100.00
FLLC Telko	Belarus	100.00
LLC Telko	Ukraine	100.00
OOO Telko	Russia	100.00
Telko UAB	Lithuania	100.00
Telko Caucasus LLC	Azerbaijan	100.00
LLC Telko Central Asia	Kazakhstan	100.00
Telko Estonia OÜ	Estonia	100.00
Telko Denmark A/S	Denmark	100.00
Telko Latvia SIA	Latvia	100.00
Telko Middle East Co.	Iran	100.00
Telko Norway AS	Norway	100.00
Telko-Poland Sp. z o.o.	Poland	100.00
Telko Romania SRL	Romania	100.00
Telko Shanghai Ltd.	China	100.00
Telko Solution LLC	Uzbekistan	100.00
Telko Sweden AB	Sweden	100.00
Oy Troili Ab	Finland	100.00
Vulganus Oy	Finland	100.00

■ ASSOCIATED COMPANIES

Company	Domicile	Holding %
Auriga KG	Germany	49.00
Norma KG	Germany	49.00

MANAGEMENT EMPLOYEE BENEFITS

Share-based incentive plans 2018–2020

The Board of Directors of Aspo Plc approved three new share-based incentive plans in April 2018 for the Group's key employees. The aim of the new plans is to combine the objectives of the shareholders and key employees in order to increase the value of the company in the long term, to retain the key employees in the company, and to offer them competitive reward plans based on earnings and accumulating the company's shares.

Share-based incentive plan 2018–2020

The share-based incentive plan 2018–2020 includes three earnings periods: calendar years 2018, 2019 and 2020. The Board of Directors of the company will define the plan's performance criteria and required performance levels for each criterion at the beginning of each earnings period.

The potential reward of the plan from the earnings period 2019 is based on the Group's earnings per share (EPS). The sharebased incentive plan covers approximately 15 people, including the members of the Group Executive Committee during the earnings period 2019. The potential reward from the earnings period will be paid partly in the company's shares and partly in cash in the following year after the earnings period. On February 13, 2020 the Board of Directors decided that no rewards will be paid for the 2019 earnings period, as the performance criteria were not met.

The reward from the earnings period 2018 was based on the Group's earnings per share (EPS). In March 2019, on the basis of the 2018 earnings period, employees included in the plan received 7,711 treasury shares as a share-based reward, as well as cash equalling the value of the shares, at most, in order to pay taxes.

The reward from the earnings period 2018–2020 correspond to the value of a maximum total of 500,000 Aspo Plc shares, including the portion to be paid in cash.

Executive Committee share-based incentive plan 2018–2020

The Executive Committee share-based incentive plan 2018–2020 includes one earnings period: calendar years 2018– 2020. The potential reward of the plan from the earnings period 2018–2020 is based on the Group's operating profit (EBIT), and requires exceptional performance.

The potential reward from the earnings period 2018–2020 will be paid partly in

■ SHARE-BASED PAYMENTS RECOGNIZED IN THE PERIOD

	2019	2018
Total expenses recognized in employee benefit expenses	247	742
Accrued expenses in the balance sheet related to the proportion paid in cash	0	118

■ SHARE-BASED INCENTIVE PLAN

	Grant date	Transfer date	Number of shares granted	Market value of share on grant date, EUR	Market value of share on transfer date, EUR
Share-based incentive plan 2018–2020	Apr. 9, 2018
the share of year 2018	Jun. 8, 2018	Mar. 26, 2019	7,711	8.76	8.64
the share of year 2019	Mar. 26, 2019		0	8.64

Executive committee share-based incentive plan 2018–2020	Apr. 9, 2018
	Jun. 8, 2018			8.76

■ KEY MANAGEMENT PERSONNEL COMPENSATION

1,000 EUR	2019	2018
Salaries and other short-term employee benefits	1,867	1,869
Post-employment benefits	506	517
Termination benefits	138	72
Share-based payments	127	591
Total	2,638	3,049

the company's shares and partly in cash in 2021. The rewards to be paid on the basis of the earnings period 2018–2020 correspond to the value of a maximum total of 200,000 Aspo Plc shares, including of the portion to be paid in cash.

Restricted share-based incentive plan 2018

The reward from the restricted share-based incentive plan will be based on the participant's valid employment or service and the continuation of employment during the vesting period. The reward will be paid partly in the company's shares and partly in cash after the end of a 12–36 month vesting period. The restricted share-based incentive plan is intended solely for individual key employees by a special resolution of the Board of Directors. Rewards to be paid on the basis of the restricted sharebased incentive plan 2018 correspond to the value of a maximum total of 100,000 Aspo Plc shares, including the portion to be paid in cash. No participants were within the scope of the plan in 2018–2019.

Other benefits

The CEO has a supplementary defined contribution pension plan in which the pension is determined in accordance with the accumulated insurance savings at the time of retirement. The CEO's retirement age is the lowest possible statutory retirement age less three years. The statutory pension cost recognized as expenses was EUR 80,964 and the voluntary pension cost was EUR 102,835. The period of notice applied to the CEO is six months. If notice is given by the company, severance pay corresponding to 18 months' salary will be paid in addition to the salary for the notice period.

Information on Aspo's hybrid bond subscribed by the related parties is presented in Aspo's Year 2019 publication in the Corporate Governance section.

■ SALARIES AND BENEFITS OF BOARD MEMBERS AND CEO

	2019			2018
1,000 EUR	Salaries and remu nerations	Pensions	Salaries and remu nerations	Pensions
Ojanen Aki, CEO		184		193
CEO, salaries	387		381
CEO, bonuses	112		151
CEO, share-based payments	33		290
Board of Directors:
Nyberg Gustav, Chairman of the Board	67		65
Kaario Mammu, Vice Chairman of the Board	54		48
Laine Mikael	37		36
Lencioni Roberto*			13
Pöyry Salla	37		36
Salo Risto	35		33
Vehmas Tatu **	35		26
Total	797	184	1,079	193

*Member of the Board and Vice Chairman until April 10, 2018

**Member of the Board since April 10, 2018

Pension benefits include both statutory and voluntary pension payments.

■ TRANSACTIONS WITH RELATED PARTIES ASSOCIATED COMPANIES

1,000 EUR	2019	2018
Services sold		1,471
Services purchased		34
Rents for time-chartered vessels	2,528	782
Accounts receivable and other receivables	26	427
Accounts payable and other liabilities		1

30. Events After the Financial Year

There have been no material events after the end of the financial year.

PARENT COMPANY'S FINANCIAL STATEMENTS, FAS

PARENT COMPANY'S INCOME STATEMENT

PARENT COMPANY'S FINANCIAL STATEMENTS, FAS

1,000 EUR	Notes	Jan 1–Dec 31, 2019	Jan 1–Dec 31, 2018
Other operating income	1.1	988	1,671

Employee benefit expenses	1.2	-1,687	-1,862
Depreciation and amortization	1.3	-48	-22
Other operating expenses	1.4	-3,662	-4,759
Operating loss		-4,409	-4,972
Financial income and expenses	1.5	17,236	17,742
Profit before appropriations and taxes		12,827	12,770
Appropriations	1.6	2,630	3,870
Profit before taxes		15,457	16,640
Income taxes		0	0
Profit for the period		15,457	16,640

PARENT COMPANY'S BALANCE SHEET

ASSETS

1,000 EUR	Notes	Dec 31, 2019	Dec 31, 2018
Non-current assets
Intangible assets	2.1	107	51
Tangible assets	2.1	109	127
Investments	2.2	83,427	83,427
Total non-current assets		83,643	83,605
Current assets
Non-current receivables	2.3	120,424	99,475
Current receivables	2.3	16,591	21,398
Cash and cash equivalents		3,214	202
Total current assets		140,229	121,075
Total assets		223,872	204,680

PARENT COMPANY'S FINANCIAL STATEMENTS, FAS

EQUITY AND LIABILITIES

1,000 EUR	Notes	Dec 31, 2019	Dec 31, 2018
Equity
Share capital	2.4	17,692	17,692
Share premium	2.4	4,351	4,351
Invested unrestricted equity reserve	2.4	21,317	21,305
Retained earnings	2.4	7,236	4,247
Profit for the period		15,457	16,640
Total equity		66,053	64,235
Provisions	2.5		60
Liabilities
Non-current liabilities
Loans from Group companies	2.6	5,654	7,089
Bonds	2.6	25,953	11,000
Loans from financial institutions	2.6	45,000	70,000
Hybrid instrument	2.6	25,000	25,000
Total non-current liabilities		101,607	113,089
Current liabilities
Loans from financial institutions	2.7	46,000	17,000
Liabilities to Group companies	2.7	8,390	8,212
Accounts payable	2.7	77	203
Other liabilities	2.7	54	37
Deferred liabilities	2.7	1,691	1,844
Total current liabilities		56,212	27,296
Total liabilities		157,819	140,385
Total equity and liabilities		223,872	204,680

PARENT COMPANY'S CASH FLOW STATEMENT

PARENT COMPANY'S FINANCIAL STATEMENTS, FAS

1,000 EUR	Jan 1–Dec 31, 2019	Jan 1–Dec 31, 2018
Cash flows from operating activities
Operating loss	-4,409	-4,973
Adjustments to operating loss	8	-516
Change in working capital	-185	62
Interest paid	-3,946	-3,484
Interest received	1,867	1,255
Dividends received	20,300	20,700
Net cash from operating activities	13,635	13,044
Cash flows from investing activities
Investments in tangible and intangible assets	-151	-27
Proceeds from sale of investments	50
Net cash from investing activities	-101	-27
Cash flows from financing activities
Proceeds from non-current loans from Group companies		1,375
Repayment of non-current loans from Group companies	-1,436
Proceeds from non-current loans	15,000	30,000
Repayment of non-current loans	-15,000
Proceeds from issuance of a bond loan	14,954
Change in non-current receivables from Group companies	-20,949	-44,500
Proceeds from issuance of a commercial paper	4,000
Change in current receivables	2,537	-3,116
Change in current liabilities	162	9,807
Group contributions received	3,870	3,560
Dividends distributed	-13,694	-13,287
Purchase of treasury shares		-42
Proceeds from sale of treasury shares	34	412
Net cash from financing activities	-10,522	-15,791
Change in cash and cash equivalents	3,012	-2,774
Cash and cash equivalents Jan 1	202	2,976
Cash and cash equivalents at year-end	3,214	202

NOTES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

ACCOUNTING PRINCIPLES

Basis of accounting

Aspo Plc's financial statements have been compiled in accordance with Finnish Accounting Standards (FAS). The accounting principles have not changed from the previous year. Aspo Plc is the parent company of Aspo Group. All figures in the financial statements are presented in EUR thousands. When appropriate, the financial statements of Aspo Plc comply with the Group's accounting principles based on IFRS. Below are described those accounting principles in which the financial statements of Aspo Plc differ from the accounting principles of the Group. The accounting principles for the consolidated financial statements are presented in the notes to the consolidated financial statements. When compiling the financial statements, the management of the company must, in accordance with valid regulations and good accounting practice, make estimates and assumptions that affect the measurement and accruing of financial statement items. The outcome may differ from the estimates.

NON-CURRENT ASSETS AND DEPRECIATIONS

Non-current assets are recognized in the balance sheet at acquisition cost, less depreciation. The depreciation periods for non-current assets are:

Intangible rights 3–5 years
Other long-term expenditure 10 years
Buildings 15–40 years
Machinery and equipment 3–8 years

LEASING

Lease payments are recognized as rent expenses during the lease period and included in other operating expenses.

PROVISIONS

Provisions include items that are either based on contracts or otherwise binding obligations, but have not yet realized. Changes in provisions are recognized in the income statement.

SHARE-BASED PAYMENTS

In the parent company's financial statements, the estimated share based payment expense from the financial year ended is recognized in the balance sheet as a provision. The possible reward is settled partly in shares of the company and partly in cash. When the reward is paid, the share of the reward settled in shares is recognized as an increase in equity.

INCOME TAXES

NOTES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

The income taxes in the income statement include taxes calculated on profit for the period based on Finnish tax legislation and considering losses carried forward, as well as adjustment of taxes from previous financial years.

HYBRID INSTRUMENT

The hybrid instrument is presented in the parent company's balance sheet as liabilities and the related interest is presented as financial expenses in the income statement.

CASH POOL ARRANGEMENT

The Group has a cash pool arrangement, to facilitate an efficient liquid asset management between the parent and its subsidiaries. The cash pool balances of the subsidiaries are presented in the parent company's balance sheet as either receivables from or liabilities to Group companies.

MEASUREMENT OF FINANCIAL INSTRUMENTS

Fair value measurement compliant with Chapter 5, section 2a of the Accounting Act is applied to the accounting treatment of financial derivatives, and changes in their fair value are entered in the income statement. Financial derivatives are measured at the market prices at the balance sheet date.

1.1 Other Operating Income

1,000 EUR	2019	2018
Other operating income from Group companies	552	495
Rental income from Group companies	374	793
Other rental income		293
Other operating income	62	90
Total	988	1,671

1.2 Personnel and Board Members

NOTES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

The CEO's retirement age is the lowest possible statutory retirement age less three years.

■ EMPLOYEE BENEFIT EXPENSES

1,000 EUR	2019	2018
Salaries and remunerations	1,220	1,343
Share-based payments	-6	63
Profit bonus paid to the personnel fund	18	21
Pension expenses	441	417
Other social security expenses	14	18
Total	1,687	1,862

■ MANAGEMENT EMPLOYEE BENEFITS

1,000 EUR	2019	2018
CEO, salaries	387	381
CEO, bonuses	112	151
CEO, share-based payments	33	290
Members of the Board of Directors, remunerations	265	244
Total	797	1,066

■ AVERAGE NUMBER OF PERSONNEL DURING THE FINANCIAL YEAR

	2019	2018
Office staff	6	5

1.3 Depreciation and Amortization

1,000 EUR	2019	2018
Other long-term expenditure	26	1
Machinery and equipment	22	21
Total	48	22

1.4 Other Operating Expenses

1,000 EUR	2019	2018
Rents	710	1,777
Administration and consultancy services	1,950	1,892
Other expenses	1,002	1,090
Total	3,662	4,759

NOTES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

■ AUDITOR'S FEES

1,000 EUR	2019	2018
Auditing	76	80
Tax advice	6	32
Other services	54	60
Total	136	172

1.5 Financial Income and Expenses

1,000 EUR	2019	2018
Dividend income
From Group companies	19,300	19,700
Income from non-current investments	19,300	19,700

Other interest and financial income
From Group companies	1,866	1,265
From others		3
Total interest and other financial income	1,866	1,268

Interest expenses and other financial expenses
To Group companies	-98	-119
To others	-3,832	-3,107
Total interest and other financial expenses	-3,930	-3,226

Total financial income and expenses	17,236	17,742

1.6 Appropriations

1,000 EUR	2019	2018
Income
Group contributions	2,630	3,870

2.1 Intangible and Tangible Assets

NOTES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

1,000 EUR	Intangible rights	Other long-term expenditure	Total intangibles	Land	Buildings	Machinery and equipment	Other tangible assets	Total tangibles
Acquisition cost, Jan. 1	243	11	254	1	12	164	73	250
Increases	8	124	132			4		4
Decreases	-50		-50					0
Acquisition cost, Dec. 31, 2019	201	135	336	1	12	168	73	254
Accumulated depreciation, Jan. 1	-201	-2	-203		-12	-111		-123
Depreciation and amortization for the period		-26	-26			-22		-22
Accumulated depreciation, Dec. 31, 2019	-201	-28	-229		-12	-133		-145
Carrying amount, Dec. 31, 2019	0	107	107	1	0	35	73	109
Carrying amount, Dec. 31, 2018	42	9	51	1	0	53	73	127

2.2 Investments

1,000 EUR	Subsidiary shares	Other shares	Total
Acquisition cost, Jan. 1	83,244	183	83,427
Acquisition cost, Dec. 31, 2019	83,244	183	83,427
Acquisition cost, Dec. 31, 2018	83,244	183	83,427

2.3 Non-current and Current Receivables

■ NON-CURRENT RECEIVABLES

1,000 EUR	2019	2018
Receivables from Group companies
Loan receivables	120,424	99,475
Total	120,424	99,475

■ CURRENT RECEIVABLES

1,000 EUR	2019	2018
Receivables from Group companies
Accounts receivable	9
Dividend receivables	13,000	14,000
Group contribution receivables	2,630	3,870
Cash pool accounts	569	213
Loan receivables		2,895
Deferred receivables		8
Total	16,208	20,986

Other receivables	103	109
Deferred receivables	280	303
Total	383	412

Total current receivables	16,591	21,398

2.4 Equity

1,000 EUR	2019	2018
Share capital, Jan. 1	17,692	17,692
Share capital, Dec. 31	17,692	17,692
Share premium, Jan. 1	4,351	4,351
Share premium, Dec. 31	4,351	4,351
Invested unrestricted equity reserve, Jan. 1	21,305	16,706
Share-based payments	12	174
Share issue		4,425
Invested unrestricted equity reserve, Dec. 31	21,317	21,305
Retained earnings, Jan. 1	20,887	17,175
Dividend payment	-13,694	-13,287
Share-based payments	43	401
Returned share-based payments		-42
Retained earnings, Dec. 31	7,236	4,247
Profit for the period	15,457	16,640
Total equity	66,053	64,235

Distributable funds under unrestricted equity total EUR 44,009,796.24 (42,191,625.81).

2.5 Provisions

1,000 EUR	2019	2018
Share-based incentive plan		60
Total	0	60

2.6 Non-current Liabilities

On May 27, 2016, Aspo Plc issued a EUR 25 million hybrid bond. The bond has no maturity but the company may exercise an early redemption option after four years. The coupon rate of the bond is 6.75% per annum.

In 2015, Aspo Plc issued a EUR 11 million unsecured private placement bond. The bond pays fixed interest rate and matures on September 29, 2022.

1,000 EUR	2019	2018
Loans from Group companies	5,654	7,089
Bonds	25,953	11,000
Hybrid instrument	25,000	25,000
Loans from financial institutions	45,000	70,000
Total non-current loans	101,607	113,089

Total non-current liabilities	101,607	113,089

2.7 Current Liabilities

1,000 EUR	2019	2018
Loans from financial institutions	46,000	17,000
Accounts payable	77	204
Unpaid dividend	11	9
Other liabilities	43	37
Deferred liabilities*	1,691	1,834
Total	47,822	19,084
Liabilities to Group companies
Accounts payable	6	6
Cash pool accounts	6,940	6,756
Other liabilities	1,428	1,450
Deferred liabilities	16
Total	8,390	8,212
Total current liabilities	56,212	27,296
* Main items
Accrued interests	1,271	1,302
Accrued salaries	326	476

2.8 Other Notes

■ FUTURE LEASE PAYMENTS

1,000 EUR	2019	2018
Payable within one year	126	94
Payable later	252	143
Total	378	237

■ OTHER RENTAL LIABILITIES

1,000 EUR	2019	2018
Payable within one year	864	602
Payable later	2,490	3,426
Total	3,354	4,028

■ GUARANTEES ON BEHALF OF GROUP COMPANIES

1,000 EUR	2019	2018
Guarantees	94,722	112,316
Total	94,722	112,316

■ GUARANTEES ON OWN BEHALF

1,000 EUR	2019	2018
Guarantees	95	95
Total	95	95

■ DERIVATIVE CONTRACTS

1,000 EUR	2019	2018
Interest rate swap
Nominal value		15,000
Fair value		-128

AUDITOR'S REPORT

AUDITOR'S REPORT To the Annual General Meeting of Aspo Oyj

(Translation of the Finnish original)

REPORT ON THE AUDIT OF FINANCIAL STATEMENTS

Opinion

We have audited the financial statements of Aspo Oyj (business identity code 1547798- 7) for the year ended 31 December, 2019. The financial statements comprise the consolidated balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company's balance sheet, income statement, statement of cash flows and notes.

In our opinion

the consolidated financial statements give a true and fair view of the group's financial position as well as its financial performance and its cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements.

Our opinion is consistent with the additional report submitted to the Audit Committee.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of Financial Statements section of our report.

We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 7 to the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.

AUDITOR'S REPORT

Key Audit Matter	How our audit addressed the Key Audit Matter
Valuation of goodwill We refer to the consolidated financial statements' accounting policies and to the note 12
At the balance sheet date 31.12.2019, the value of goodwill amounted to EUR 43,3 million representing 11% of total assets and 35% of total equity. Annually performed impairment tests were considered as a key audit matter, because: • the estimation process is complex and includes judgmental areas • impairment test is based on assumptions in relation to market and economic conditions: • goodwill is significant relative to the financial statements. The Group's cash-generating units' recoverable amount is deter mined by and based on the value in use calculations, which may vary significantly when the underlying assumptions included in the calculations changes. The determination of value in use is affected by several assumptions, such as for example revenue growth, gross margin, and the discount rate applied on discount ing the cash flows. Changes in the above mentioned assump tions may result in an impairment of goodwill. Valuation of goodwill was a key audit matter and a significant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2).	Our audit procedures, which take into account significant risk of material misstatement in valuation of goodwill, included among others: • as part of audit, valuation specialist assisted us in evaluating the assumptions and methodologies used by the Group; • assessment of management's forecasting accuracy and comparison of projections to the latest budgets approved by the Board; • assessment of appropriateness of sensitivity analyses and whether any reasonably possible change in key assumptions could cause the carrying amount to exceed its recoverable amount; • assessment of the adequacy of the notes related to sensitivity analyses for assumptions used in impairment tests presented in the note 12.
Revenue recognition We refer to the consolidated financial statements' revenue recognition accounting policies and to the note 1
In the financial year 2019 Aspo Group's turnover amounted to EUR 587,7 million, which mainly consists of sale of goods, but also from services sold to customers. Minor part of the turno ver consists of revenue recognized from customer specific long term projects. Revenue from sale of goods is recognized when the control of the underlying products have been transferred to the cus tomer. Revenue from services is recognized after the service has been rendered. Sales contract terms and practices vary in different markets. Turnover is Group's key performance indicator, which may be an incentive for premature revenue recognition. Revenue rec ognition was a key audit matter and a significant risk of mate rial misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2) due to risk related to correct timing of revenue recognition.	Our audit procedures, which take into account significant risk of material misstatement in revenue recognition, included among others: • assessment of the compliance of company's accounting policies over revenue recognition and comparison with applicable accounting standards; • testing of the revenue recognition including testing of internal controls when applicable. Our tests included among others external confirmations, reconciliation of sales against customer contracts and verification of acceptance of deliveries; • analytical substantive audit procedures relating to revenue recognition; • assessment of the adequacy of financial statement notes related to revenues.

AUDITOR'S REPORT

Key Audit Matter	How our audit addressed the Key Audit Matter
Valuation of inventories We refer to the consolidated financial statements' accounting policies and to the note 18
At the balance sheet date 31.12.2019, the value of inventory amounted to EUR 55,9 million representing 14% of total assets and 46% of total equity. Inventories are measured at acquisition cost or net realizable value if lower. Net realizable value is the sales price in the ordinary course of business less sales costs and the costs needed to finish the production of the goods. Impairment due to obsolescence is considered when assess ing the valuation of inventories. Aspo has segment and market specific procedures to identify impairment due to obsolescence. Inventory is a key audit matter due to the size of the account balance and because inventory valuation involves management judgement.	Our audit procedures, which take into account risk related to val uation of inventories, included among others: • assessment of the compliance of company's accounting policies on inventory valuation and comparison with applicable accounting standards; • assessment of the processes and practices related to inventory valuation, and in major locations testing of the controls related to processes; • test of detail procedures related to acquisition cost of inventory: • assessment of the compliance of obsolescence provisions with the group accounting policies: • assessment of the appropriateness and correctness of management judgement included in obsolescence provisions: • assessment of the notes related to inventories.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of the Board of Directors' and the

Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

OTHER REPORTING REQUIREMENTS

Information on our audit engagement

We were first appointed as auditors by the Annual General Meeting on 10.4.2013, and our appointment represents a total period of uninterrupted engagement of 7 years.

Other information

The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Aspo's Year 2019 publication, 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 Aspo's Year 2019 publication 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 report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

AUDITOR'S REPORT

Helsinki 4th March, 2020

Ernst & Young Oy Authorized Public Accountant Firm

Toni Halonen Authorized Public Accountant

INFORMATION FOR INVESTORS

BASIC SHARE INFORMATION

INVESTOR INFORMATION

Listed on: Nasdaq Helsinki Ltd
Industry sector: Industrials
Category: Mid Cap
Trading code: ASPO
ISIN code: FI0009008072

ANNUAL SHAREHOLDERS' MEETING

The Aspo Plc Annual Shareholders' Meeting will be held at the Scandic Marina Congress Center, Katajanokanlaituri 6, FI-00100 Helsinki, Finland on Tuesday, April 7, 2020 at 10:00 p.m. The record date of the Annual Shareholders' Meeting is March 26, 2020.

Shareholders wishing to attend the Annual Shareholders' Meeting must notify the company on April 2, 2020 by 16:00 p.m. at the latest. Please register:

through Aspo's website at www.aspo.com,
by telephone on +358 20 770 6887,
by letter to Aspo Plc, P.O. Box 499, FI-00101 Helsinki.

In connection with the registration, shareholders are requested to notify the company of any proxies authorized to exercise their voting rights. The proxies should be delivered to the company within the registration period.

DIVIDEND PAYMENTS

According to Aspo's new dividend policy, Aspo's goal is to annually increase the amount of dividends. The Board of Directors proposes to the Annual Shareholders' Meeting that a dividend of EUR 0.45 per share be paid for 2019 and that no dividend be paid for treasury shares held by the company.

The dividend will be paid in two installments. The first installment of EUR 0.22 per share will be paid to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date of April 9, 2020. The Board of Directors proposes that the dividend be paid on April 20, 2020. The second installment of EUR 0.23 per share will be paid in November 2020 to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date. At its meeting to be held on October 29, 2020, the Board of Directors will decide on the record and payment dates of the second installment, in accordance with the rules of the Finnish book-entry securities system. According to the current system, the dividend record date would be November 2, 2020 and the payment date would be November 9, 2020.

FINANCIAL REPORTING IN 2020

Financial Statement Release February 13, 2020
Financial Statements 2019 will be published on March 13, 2020 at the latest
Interim Report for January–March on Tuesday, May 5, 2020
Half Year Financial Report for January– June on Wednesday, August 12, 2020
Interim Report for January–September on Thursday, October 29, 2020

Aspo's financial information is published on the company's website at www.aspo.com, including financial statements, interim reports and stock exchange releases in Finnish and in English. Reports can also be ordered by phone +358 9 521 41 00 or by e-mail from [email protected].

FURTHER INVESTOR INFORMATION

Aspo's website at www.aspo.com offers also versatile further investor information, such as the latest share information and consensus estimates based on expectations and predictions by the analysts following Aspo. At the web address www.aspo. com it is also possible to order all stock exchange releases and press releases to your e-mail.

ADDRESS CHANGES

Material will be sent to shareholders to the address shown in the shareholder register maintained by Euroclear Finland Ltd. Shareholders are advised to notify changes of address to the bank or brokerage firm where the shareholder has a book-entry account.

ASPO PLC'S INVESTOR RELATIONS

Aspo organizes frequent investor meetings with various stakeholder groups. The target is to provide for versatile information about Aspo and its operations to institutional and private investors, analysts and media representatives.

Aspo has adopted a silent period of 30 days prior to the publication of results. During this period, no comments on the financial situation, company's outlook or estimates will be made. During this period, the company does not meet investors, analysts or media in events where these issues are discussed.

CONTACT INFORMATION

For any further information concerning Aspo's investor relations issues, please contact:

Aki Ojanen, CEO Tel. +358 9 521 40 10 [email protected]

Keijo Keränen, Group Treasurer Tel. +358 9 521 40 35 [email protected]

Arto Meitsalo, CFO Tel. +358 9 521 40 20 [email protected]

Print: Hämeenlinnan kirjapaino Paper: Munken Polar, cover 240 g and inner pages 120 g Design: Avidly

FSC-certified paper has been used on the printed version of this document.

Printed matter 4041 0209

HÄMEEN KIRJAPAINO OY ClimateCalc CC-000025/FI

ASPO PLC

P.O. Box 499, Mikonkatu 13 A FI-00101 Helsinki Tel. +358 9 5211 Fax +358 9 521 49 99 www.aspo.com

ESL SHIPPING www.eslshipping.com

LEIPURIN www.leipurin.com

TELKO www.telko.com

KAUKO www.kauko.com

ASPO

| YEAR 2019

AI assistant

Aspo Oyj — Annual Report 2019

3255_10-k_2020-03-09_3ebcef54-c9b6-4434-b8d6-49af5bada489.pdf

SUSTAINABLE GROWTH FROM GENERATION TO GENERATION

ASPO'S YEAR

ASPO GROUP

BUSINESSES

SUSTAINABILITY

GOVERNANCE

ASPO IN BRIEF

SUSTAINABLE VALUE CREATION

CEO'S REVIEW A YEAR OF TWO PARTS

CREATING SHAREHOLDER VALUE REMAINS THE BASIS OF ALL OUR OPERATIONS.

INVESTMENT PROGRAM COMPLETED

FOR THE NEXT FEW YEARS, WE WILL FOCUS ON IMPROVING PROFITABILITY IN ALL OUR BUSINESS OPERATIONS.

UNCERTAINTIES IN THE GLOBAL ECONOMY

EASTERN MARKETS STILL SHOWING POTENTIAL

STRONG MANDATE FROM MAIN OWNERS

TIME TO PROVE OURSELVES

STRATEGY

INCREASING THE SHAREHOLDER VALUE IN THE LONG TERM

A BALANCED ENTITY

AN OWNER AND DEVELOPER

EFFECTIVE USE OF CAPITAL MARKETS

■ LONG TERM RETURN, %

ASPO'S GOAL IS TO ANNUALLY INCREASE THE AMOUNT OF DIVIDENDS. THE EFFECTIVE DIVIDEND YIELD FOR 2019 WAS 5.9%.

ASPO'S FINANCIAL TARGETS

RETURN ON EQUITY MORE THAN ON AVERAGE 20% 130%

ASPO AIMS TO REACH THE FINANCIAL TARGETS IN 2023

READY FOR STRUCTURAL CHANGES

A FIRMLY FINNISH COMPANY

ESL SHIPPING

THE LEADING DRY BULK CARGO COMPANY IN THE BALTIC SEA REGION

FLEET FOR DEMANDING CONDITIONS

INVESTING IN GROWTH AND ENERGY EFFICIENCY

A YEAR OF INTEGRATION AND DEVELOPMENT

NEW AREAS CONQUERED

LEIPURIN

FROM BREAD AND RECIPES TO A COMPREHENSIVE SELECTION

BAKERY BUSINESS GREW IN THE EASTERN MARKETS

LEIPURIN HAS HELPED TO DEVELOP THE FINNISH BAKERY AND FOOD INDUSTRY FOR MORE THAN 100 YEARS

A CHALLENGING YEAR FOR THE MACHINERY BUSINESS

NEW VENTURES IN THE FOODSERVICE MARKET

SUSTAINABLY PRODUCED COFFEE AND LOCAL BAKERY PRODUCTS

TELKO

THE LEADING DISTRIBUTOR OF PLASTIC RAW MATERIALS AND INDUSTRIAL CHEMICALS

TOWARDS IMPROVED PROFITABILITY

TELKO IS A LINK BETWEEN INDUSTRIAL CUSTOMERS AND INTERNATIONAL RAW MATERIAL MANUFACTURERS

SUSTAINABLE BUSINESS

SUSTAINABLY PRODUCED PLASTIC RAW MATERIALS

KAUKO

A SPECIALIST IN DEMANDING WORK ENVIRONMENTS

COMPREHENSIVE PRODUCT RANGE

SOLUTIONS TO MEET CUSTOMER NEEDS

KAUKO INNOVATES AND PROVIDES SEAMLESSLY OPERATING HARDWARE AND SOFTWARE FOR TOP PROFESSIONALS IN DIFFERENT FIELDS

MORE THAN A LIBRARY

PROJECTORS CAN CREATE IMMERSIVE EXPERIENCES FOR VISITORS

SUSTAINABILITY

ASPO SUSTAINABILITY REPORT 2019

Helsinki, February 27, 2020

ENVIRONMENTAL SUSTAINABILITY

CONCRETE ACTIONS FOR THE ENVIRONMENT

TELKO CONDUCTED THE FIRST SUSTAINABILITY AUDITS FOR ITS SUPPLIERS IN 2019

51% THE AMOUNT OF LEIPURIN'S LANDFILL WASTE DECREASED BY

WASTE - LEIPURIN

TELKO'S GREEN PORTFOLIO BUSINESS IS EXPECTED TO GROW AND BECOME COMMERCIALLY SIGNIFICANT IN THE NEXT FEW YEARS

FIVE-STAR ENVIRONMENTAL TECHNOLOGY

SOCIAL RESPONSIBILITY

PROMOTING A RESPONSIBLE AND ETHICAL BUSINESS MODEL

IN EMERGING MARKETS, ASPO AIMS TO LEAD THE WAY IN RESPONSIBILITY

SUSTAINABILITY AUDITS PROVIDE INFORMATION ABOUT SUPPLY CHAINS

HUMAN RIGHTS

WE TAKE CARE OF OUR PERSONNEL

OF THE PERSONNEL ARE AWARE OF THE WHISTLE- BLOWING PROCEDURE IN THE EVENT OF ANY VIOLATIONS 97%

MANAGEMENT OF THE SUPPLY CHAIN IS KEY

GUIDELINES FOR RESPONSIBLE BUSINESS

SUSTAINABILITY TABLES

■ NUMBER OF PERSONNEL BY GEOGRAPHICAL AREA, DECEMBER 31

■ NUMBER OF PERSONNEL BY CATEGORY, DECEMBER 31

■ NUMBER OF PERSONNEL BY CONTRACT TYPE, DECEMBER 31

Aspo Oyj Annual Report 2019