Annual Report • Mar 17, 2017
Annual Report
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| Directors' Report, 1 January to 31 December 2016 3 |
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|---|---|
| Consolidated Balance Sheet9 | |
| Consolidated Statement Of Cash Flows10 | |
| Consolidated Statement Of Changes In Equity11 | |
| Accounting Policies Used In the Consolidated Financial Statements12 | |
| Notes to the Honkarakenne Group Consolidated Financial Statements19 | |
| Notes to the Honkarakenne Group Consolidated Balance Sheet23 | |
| Parent company income statement (FAS) 50 |
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| Parent company balance sheet (FAS)50 | |
| Parent company cash flow statement52 | |
| Corporate Governance Statement 201668 |
The Honkarakenne Group's net sales amounted to MEUR 36.1 (MEUR 39.1 in the previous year, MEUR 45.5 in 2014). The Group posted an operating loss of MEUR -0.8 (MEUR -1.1; MEUR -2.2). Loss before taxes was MEUR -1.2 (MEUR -1.7; MEUR -2.5). Earnings per share were EUR -0.30 (EUR -0.23; EUR -0.40). The Board of Directors will propose to the General Meeting that no dividends be paid for the financial year now ended.
The Group's net sales were down 8% on 2015. Although the general market situation was difficult in Finland, the net sales in this business area saw year-on-year growth of 13%. Sales of detached homes developed particularly favourably in 2016. The first part of the year was difficult in the Russian market, but sales picked up slightly in the last quarter. Full-year net sales saw a year-on-year decline of 15% in Russia & CIS. Net sales were down 30% in Global Markets. The most significant factor was weaker performance in project sales than in the previous year.
At the end of the year, the Group's order book stood at MEUR 16.3, up 9% on the year-end order book for 2015, when it stood at MEUR 15.0. The order book refers to orders whose delivery date falls within the next 24 months. Some orders may include terms and conditions relating to financing or building permits.
In Finland & Baltics, net sales saw year-on-year growth of 13%. Honkarakenne's marketing outlays yielded results and the company was able to tap into the recovery of the Finnish market. Sales of detached homes developed particularly well in 2016. High quality, design, healthiness and a low carbon footprint are strong selling points for Honkarakenne. For instance, Kaisa Mäkäräinen, one of Finland's top athletes, chose Honkarakenne – one of her major reasons was that solid log houses are healthy and have good indoor air.
Honka's showcase house at the Seinäjoki Housing Fair – the modern log house Honka Markki, designed by architect Anssi Lassila, SAFA – attracted widespread interest among the visitors and the response of the media was also positive. At the housing fair, Honka also unveiled its own public construction concept. The factory market held in September at the Karstula factory was also a success. This year's star attraction was the actor Ville Haapasalo, who is a Honkarakenne customer.
In Russia & CIS, the general economic uncertainty was evident in Honkarakenne's sales in the first months of the year. Earlier, Honkarakenne weathered the difficult market situation well thanks to its strong brand. However, based on the first months of the year, it was going to be a difficult year in Russia. To bolster net sales, Honkarakenne developed new methods and tools for more modern architecture and focused on expanding its product range and large-scale projects such as area development. Quality was also a major focus in 2016. Full-year net sales in Russia & CIS declined by 15% compared with the previous year. The company estimates that it is probable that the market situation in Russia will remain difficult.
In Global Markets, the company is seeking growth from large projects in Central Europe, Asia and especially China. In addition, Honkarakenne gained product approval for the Chinese market in the second quarter, which is expected to contribute substantially to net sales growth. A deal was made in China to deliver two houses for installation close to the venue of the Beijing 2022 Winter Olympics. The Japanese subsidiary launched its 25th anniversary campaign and achieved good results. Performance in German-speaking Europe and in international projects fell significantly short of the objectives set for both sales and net sales. In Global Markets, the company overhauled its dealer network, recruited
and trained new dealers, and also developed support functions to serve sales better. Sales reorganisation is ongoing in, for instance, European operations.
The operating loss for 2016 was MEUR -0.8 (MEUR -1.1) and the loss before taxes was MEUR -1.2 (MEUR -1.7). The adjusted operating loss was MEUR -0.4 (MEUR -0.2). Costs classified as adjustment items totalling MEUR 0.4 were recognised for the 2016 financial year (MEUR 0.8).
Compared to 2015, the full-year adjusted operating result was negatively impacted by decline in net sales while efficiency-boosting measures had a positive effect. The adjusted result before taxes was also positively impacted by lower financial expenses compared to the previous year.
The Group's key figures are presented in Note 31.
The Group's financial position was satisfactory during the review period. The equity ratio stood at 41% (37%) and net financial liabilities at MEUR 5.0 (MEUR 6.5). Group liquid assets totalled MEUR 0.4 (MEUR 1.1). The Group also has a MEUR 5.4 (MEUR 7.8) bank overdraft facility, MEUR 1.2 of which had been drawn on at the end of the report period (MEUR 2.5). Gearing stood at 75% (81%).
In December 2016, the company negotiated new financing resolutions for 2017 with its financiers. Some of the new financing resolutions include EBITDA covenants. In 2017, EBITDA must be at least MEUR 1.8. Additionally, quarterly minimum values have been set for it. The EBITDA covenants apply to MEUR 2.1 in financial liabilities, of which MEUR 1.3 (1.9) already carried a 30 per cent equity ratio covenant term. As part of Honkarakenne's financial arrangements, the main shareholder of Honkarakenne, Saarelainen Oy, granted Honkarakenne Oyj an unsecured junior loan amounting
MEUR 0.3 in November. The junior loan is subordinated to bank loans.
The Group's capital expenditure on fixed assets totalled MEUR 0.1 (MEUR 0.1), while the Group's depreciation and amortisations amounted to MEUR 1.8 (MEUR 2.0). In April, Honkarakenne sold the Alajärvi factory property to the city of Alajärvi. In 2015, the factory property was categorised under non-current assets held for sale, and the transaction had no earnings impact on the result for 2016.
Research and development focused especially on solutions for healthy public construction and modern architecture. For both the Finnish and export markets, Honkarakenne unveiled healthy care and school concepts which take the special requirements of public construction into consideration. These complete concepts can be either sold as is or adapted to the customer's requirements, which facilitates sales and speeds up the design phase. Development of structural solutions for modern urban construction continued with the development of a broader non-settling log type, which is particularly suitable for public construction, with a matching modern zero corner solution. The company also worked on safe product solutions for large window walls and their connections.
Healthy House development continued. At the end of 2016, VTT granted Honkarakenne the right to give a Healthy House certificate to a larger delivery package that also includes construction done by the customer. In addition, after a long period of development and cooperation, the Chinese authorities officially approved Honkarakenne's structural systems and solutions.
The Group's R&D expenditure in January-December totalled MEUR 0.3 (MEUR 0.4), representing 0.8% of net sales (0.9%). The Group did not capitalise any research and development costs during the financial year.
Russia is one of Honkarakenne's major business territories. The sanctions connected to the Ukrainian crisis and strong exchange rate fluctuations currently cause instability in the
Russian market. This might have major impacts on Honkarakenne's operations.
In December 2016, the company negotiated new financing resolutions for 2017 with its financiers. Some of the new financing resolutions include EBITDA covenants. In 2017, EBITDA must be at least MEUR 1.8. Additionally, quarterly minimum values have been set for it. The EBITDA covenants apply to MEUR 2.1 in financial liabilities, of which MEUR 1.3 (1.9) already carried a 30 per cent equity ratio covenant term. If the company's sales do not develop sufficiently well, it is possible that the terms of the covenant will be broken during the next year. The company has started measures to secure additional financing with a view to ensuring the continuity of its operations.
In the financial statements, the deferred tax assets in the balance sheet include an item of MEUR 1.5 related to unused tax losses, of which MEUR 0.5 will expire in 2019 and MEUR 0.7 in 2021-2025. In Honkarakenne's opinion, these deferred tax assets recognised in the balance sheet can be utilised by using the company's estimated taxable income, which is based on Honkarakenne's business plans, including the current efficiency-boosting programme. If earnings do not develop as expected in the long term, it is possible that the tax assets might not be utilised in time and must be impaired. The company did not recognise new deferred tax assets in the balance sheet in 2016. For additional information on risks, see Notes 16 and 28.
Honkarakenne has one major dealer that generates a substantial share of the Group's net sales and earnings.
The assessment of amounts in the balance sheet is based on current assessments by the management. If these assessments are changed, this may result in changes to the company's result
For additional information on risks, see Note 28.
Ecology, longevity and energy efficiency are the key strengths of log house construction. Wood is a renewable resource and provides an ecological and sustainable choice of building material. A growing tree acts as a carbon sink, binding carbon dioxide from the atmosphere and locking it into the walls of a wooden house for hundreds of years to come. At the same time, new forests grow on solar energy, binding more carbon dioxide and slowing down climate change. Wood is a natural choice for responsible house builders and consumers who wish to be mindful of future generations.
At Honkarakenne, we build our environmental policy on sustainable, versatile forestry; careful use of all wood raw materials; saving energy; and recycling our waste and using recyclables.
In our environmental policy, we are committed to the certification of Finnish forests (FFCS), and never procure wood from protected areas. Honkarakenne has PEFC certification, which indicates that the company employs a PEFC-approved mechanism for tracking the origin of timber.
New, ever more-stringent energy regulations call for new log products, which we continue to develop. Our manufacturing plants follow several procedures that respect nature, always striving to do what is best for the environment. Our investments in research and product development enable us to employ new, environmentally friendly production methods. ETA certification and the right to use the CE mark also ensure that Honkarakenne's operations always follow high quality and environmental standards.
We believe that careful and economical use of raw materials, saving energy, making use of by-products and recycling waste for further use all contribute to responsible environmental management. At Honkarakenne, we use our sawmilling by-products as pack- aging material, and label our recyclable, wooden packaging materials according to EU standard. We convert our log ends, second-grade timber and waste wood into wood chips and burn them for energy recovery. Our cutter chips are supplied for use as agricultural bedding, while spare log ends from the production process are used to make wood wool.
We sort and pre-process our plastic packaging films and plastic-based binding strips. We send all recyclable materials out for further processing. All other waste is sorted at the factory and sent for either recycling or storage. We have
waste collection contracts with regional waste management companies.
The associated company Puulaakson Energia Oy produces all of the thermal energy required by the Karstula factory's drying plants. It also supplies thermal energy to the Karstula district heating system. By-products from the Karstula factory, such as bark, sawdust and dry chips, are used to fuel the power plant. Honkarakenne held a 26% stake in the company at the end of the financial year.
At the end of the financial year, the Group had 132 employees (134; 148). On average, the company had 136 (139; 161) employees in 2016. In terms of person-years, the Group had a total of 110 (115, 146) employees in 2016, a year-on-year decrease of five.
At the end of the financial year, the parent company employed 127 (127; 140) people. On average, the company had 130 (132; 151) employees.
86% of Honkarakenne Oyj's staff worked in the Karstula factory (81%) and 14% (20%) in Tuusula. Salaried employees and work supervisors accounted for 46% (52%) of the parent company's personnel. The percentage of female employees at the parent company was 16% (15%). At the end of 2016, the percentage of part-time employees was 1% (1%). The share of temporary employees was 1% (1%).
The Group paid salaries and remunerations to a total of MEUR 5.5 for the financial year 2016. The sum was MEUR 6.1 in 2015 and MEUR 6.8 million in 2014.
In May-June 2016, the Group conducted negotiations under the act on co-operation within undertakings and as a result Honkarakenne can lay-off clerical and managerial employees temporarily for a maximum of 90 days and blue-collar workers will work under reduced working hours. The lay-off plan is effective until 31 March 2017 for white-collars and until 31 May 2017 for blue-collar workers.
In competence development, Honkarakenne focused on job rotation, as it provides personnel with a better overall view of the company's operations and enables each employee to better understand the impact that their work has on the company's other operations.
The company has a management system with ISO 9001 and ISO 14001 certification.
Honkarakenne's CFO Mikko Jaskari announced in June that he will transfer into another company's employ. Mikko Jaskari's employment relationship ended on 31 July 2016. Erja Heiskanen, Honkarakenne's Vice President – Operations, left the company at the end of June due to the organisational reform carried out as part of the efficiency-boosting programme.
Honkarakenne Group's parent company is Honkarakenne Oyj, and its registered office is in Karstula. The other operating companies in the Group, as of 31 December 2016, were Honka Japan, Inc. (Japan), Honka Blockhaus GmbH (Germany) and Honkarakenne S.a.r.l. (France), and the associated company Puulaakson Energia Oy (25.9% share).
Honka Management Oy, which was established as an incentive scheme for senior management in 2010, is now entirely owned by Honkarakenne Oyj following the acquisition of shares in December 2016. Before that, Honkarakenne Oyj's holding was 47%. Honkarakenne Oyj already had control of Honka Management Oy prior to the share transaction in December on the basis of a shareholders' agreement, due to which the company was included in the consolidated financial statements in earlier periods.
On 3 November 2016, Sistema Finance S.A. announced its intention to make a voluntary public cash tender offer for all outstanding Series A and Series B shares in Honkarakenne Oyj (Series B shares on Nasdaq Helsinki Oy: HONBS). On 4 November 2016, Honkarakenne Oyj's largest shareholder Saarelainen Oy announced to the Board of Directors of Honkarakenne Oyj that it would not accept the purchase
offer. Sistema Finance S.A. started this voluntary public cash tender offer on 11 November 2016. The offer period was scheduled to end at 16:00 on 16 December 2016.
Honkarakenne Oyj's Board of Directors published a statement on the tender offer of Sistema Finance S.A. On 16 December 2016, Sistema Finance S.A. announced that it would extend the offer period of the voluntary public cash tender offer for all shares in Honkarakenne Oyj ("Honka") to 16:00 on 19 January 2017. In addition, Sistema Finance S.A. announced on that date that it had received clearance on 12 December 2016 from the antimonopoly authorities of the Russian Federation in respect of the transaction planned in the tender offer.
Sistema Finance S.A. announced the preliminary results of the voluntary public cash tender offer for all shares in Honkarakenne Oyj on 20 January 2017 and the final results on 24 January 2017. According to Sistema Finance S.A.'s announcement, 192,866 Series B shares were tendered in the offer, representing 3.7% of Honka shares. Sistema Finance S.A. announced that it would not complete the tender offer in accordance with its terms and conditions, as it was contingent on the acquisition of at least 67 per cent or more of the Series A and Shares B shares in Honka.
In the second quarter of 2013, the Board of Directors decided on a long-term share-based incentive scheme for members of the Executive Group. The performance period of the new plan began on 1 January 2013 and will end on 31 December 2016. The potential reward for the performance period is based on the cumulative earnings per share (EPS) for 2013–2016 and the average return on capital employed (ROCE) for 2013–2016. Any rewards for the performance period 2013-2016 will be paid partly as B shares and partly in cash in 2017. The rewards to be paid on the basis of the performance period will correspond to a maximum total of about 340,000 B shares, including the amount to be paid in cash.
The performance period of the share-based incentive plan concluded at the end of 2016 and no rewards will be paid
under the plan; the payouts had already been assessed as zero a year ago.
On 31 May 2010, the Board of Directors of Honkarakenne Oyj decided on an Executive Group incentive scheme with the aim of enabling significant long-term management shareholdings in the company. In connection with this scheme, a total of 286,250 Honkarakenne Oyj B shares were granted to Honka Management Oy in 2010-2011. In December 2016, the shareholders of Honka Management Oy mutually agreed on dissolving the scheme such that Honkarakenne Oyj acquired the entire share capital of Honka Management Oy by buying the shares of the executives participating in the scheme at a price of one euro per share. Before that, Honkarakenne Oyj's holding was 47 per cent.
More information on the Executive Group incentive scheme and management shareholdings is presented in Note 32. Information on the loan granted to Honka Management Oy is provided in Note 30.
Honkarakenne Oyj has not acquired its own shares during the report period. At the end of the report period, the Group held 364,385 of its Honkarakenne B shares with a total purchase price of EUR 1,381,750.23. This includes the shares owned by Honka Management Oy. These shares represent 6.99% of all the company's shares and 3.34% of all votes. The purchase cost has been deducted from shareholders' equity in the consolidated financial statements.
At the end of the review period, the total number of Honkarakenne Oyj shares amounted to 5,211,419, of which 300,096 were Series A shares and 4,911,323 Series B shares. Each B share carries one (1) vote and each A share carries twenty (20) votes. Hence, Honkarakenne's shares in aggregate carry a total of 10,913,243 votes. The Series A and B shares confer different rights to dividends. Profit will be distributed in such a way that EUR 0.20 will be paid on each B share, followed by EUR 0.20 on each A share, and any remaining profits will be distributed equally on all shares. The company's registered share capital is EUR 9,897,936.00.
If a series A share is transferred to a non-shareholder otherwise than by inheritance, testament or matrimonial right, the Board of Directors must be informed of the transfer in writing. The Board has the right to redeem the series A shares within 30 days of receiving said notification at the book value of the share in the previous financial statements by using the reserve fund or other assets exceeding the share capital. If the A shares are not redeemed for the company, the Board of Directors must inform the other series A shareholders of this without delay Series A shareholders have the right of redemption with the same terms as described above within another 30 days. If more than one shareholder wishes to exercise his/her right of redemption, the redeemable series A shares shall be split among them in proportion to their prior holdings of series A shares in the company. If this is not possible, lots will be drawn. Series B shares are not subject to redemption rights and there are no restrictions on their transfer.
Information on share classes and amounts is presented in Notes 21 and 32. For information on shareholders, the breakdown of ownership and the shareholder agreement, see Note 32.
On 15 April 2016, the AGM decided that the Board of Directors will be authorised to acquire a maximum of 400,000 of the company's own B shares with assets included in the company's unrestricted equity. In addition, the AGM authorised the Board to decide on a rights issue or bonus issue and on granting special rights to shares referred to in Section 1 of Chapter 10 of the Limited Liability Companies Act in one or more instalments. By virtue of the authorisation, the Board may issue a maximum total of 1,500,000 new shares and/or relinquish old B shares held by the company, including those shares that can be issued by virtue of special rights. Both authorisations will remain in force until the next Annual General Meeting, however expiring at the latest on 30 June 2017.
Honkarakenne Oyj observes the Finnish Limited Liability Companies Act and the Corporate Governance Code 2015 for listed companies issued by the Finnish Securities Market Association (which came into force on 1 January 2016). The Group's Corporate Governance Statement for the period from 1 January to 31 December 2016 will be provided as a separate document, independently of the Board of Directors' Report, and may be found after the official financial statements on pages 68.
Up until the General Meeting on 15 April 2016, Honkarakenne Oyj's Board of Directors for the 2016 financial year consisted of: Arto Tiitinen (Chairman), Mauri Saarelainen (Vice Chairman), Hannu Krook, Kati Rauhaniemi, Anita Saarelainen and Jukka Saarelainen.
By the decision of the General Meeting of 15 April 2016, the Board of Directors has consisted of: Arto Tiitinen (Chairman), Mauri Saarelainen (Vice Chairman), Rainer Häggblom, Kati Rauhaniemi, Anita Saarelainen and Jukka Saarelainen.
The auditor has been the firm of authorised public accountants PricewaterhouseCoopers Oy, with Authorised Public Accountant Maria Grönroos as the principal auditor.
In Honkarakenne's view, net sales in 2017 will be higher and the result before taxes will be better than in the previous year.
Sistema Finance S.A. announced the preliminary results of the voluntary public cash tender offer for all shares in Honkarakenne Oyj on 20 January 2017 and the final results on 24 January 2017. According to Sistema Finance S.A.'s announcement, 192,866 Series B shares were tendered in the offer, representing 3.7 per cent of Honka shares. Sistema Finance S.A. announced that it would not complete the tender offer in accordance with its terms and conditions, as it was contingent on the acquisition of at least 67 per cent or more of the Series A and Shares B shares in Honka.
The parent company has no distributable funds and no funds can be allocated as profits. The parent company posted a MEUR -0.1 loss for the financial year.
The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial year ending 31 December 2016.
Tuusula, 15 February 2017
This report contains forward-looking statements, which are based on information and assumptions held by the Management at the time of writing and on decisions and plans made by the Management at that time. While the Management believes that these forecasts are well grounded, it cannot provide any absolute guarantee that the assumptions in question will be realised.
| EUR thousand | Note | 1.1.-31.12.2016 | 1.1.-31.12.2015 |
|---|---|---|---|
| Net sales | 1, 2 | 36 080 | 39 110 |
| Other operating income | 3 | 396 | 309 |
| Change in inventories of finished and unfinished goods |
-192 | -632 | |
| Production for own use | 0 | 7 | |
| Materials and services | -23 018 | -24 768 | |
| Employee benefit expenses | 4 | -6 745 | -7 522 |
| Depreciation and amortisation | 6 | -1 783 | -2 047 |
| Impairment | 6 | 0 | -280 |
| Other operating expenses | 7 | -5 547 |
-5 255 |
| Operating profit / loss | -809 | -1 077 | |
| Financial income | 8 | 167 | 174 |
| Financial expenses | 8 | -512 | -755 |
| Share of result of associated companies | 1 | -65 | |
| Profit / loss before taxes | -1 152 | -1 723 | |
| Income taxes | 9 | -284 | 628 |
| Profit / loss for the year | -1 436 | -1 095 | |
| Other comprehensive income: | |||
| Translation differences | 124 | 189 | |
| Total comprehensive income for the year | -1 312 | -906 | |
| Comprehensive income attributable to: | |||
| Equity holders of the parent | -1 309 | -906 | |
| Non-controlling interest | -3 | 0 | |
| -1 312 | -906 | ||
| Earnings/share (EPS) calculated on the profit attributable to equity holders of | |||
| the parent: | 10 | ||
| Basic, EUR | -0,30 | -0,23 | |
| Diluted, EUR | -0,30 | -0,23 |
Honkarakenne Oyj has two series of shares: A shares and B shares, which have different right to dividend. Profit distribution of 0.20 EUR per share will be paid first for B shares, then 0.20 EUR per share for A shares, followed by equal distribution of remaining profit distribution between all shares.
| EUR thousand | |||
|---|---|---|---|
| Assets | Note | 31.12.2016 | 31.12.2015 |
| Non-current assets | |||
| Property, plant and equipment | 11 | 9 611 | 11 385 |
| Goodwill | 12 | 72 | 72 |
| Other intangible assets | 12 | 138 | 220 |
| Investments in associated companies | 13 | 192 | 191 |
| Available-for-sale financial assets | 14 | 42 | 42 |
| Receivables | 15 | 78 | 195 |
| Deferred tax assets | 16 | 2 617 | 2 743 |
| 12 750 | 14 849 | ||
| Current assets | |||
| Inventories | 17 | 4 017 | 4 246 |
| Trade and other receivables | 18 | 2 786 | 3 769 |
| Cash and cash equivalents | 19 | 392 | 1 118 |
| 7 195 | 9 134 | ||
| Non-current assets held for sale | 20 | 0 | 950 |
| Total assets | 19 945 | 24 932 |
| EUR thousand | |||
|---|---|---|---|
| Equity and liabilities | Note | 31.12.2016 | 31.12.2015 |
| Equity attributable to the equity holders of the parent com | |||
| pany | |||
| Share capital | 21 | 9 898 | 9 898 |
| Share premium account | 21 | 520 | 520 |
| Fund for invested unrestricted equity | 21 | 6 534 | 6 534 |
| Own shares | 21 | -1 382 | -1 382 |
| Translation differences | 21 | 97 | -27 |
| Retained earnings | -8 993 | -7 757 | |
| 6 674 | 7 786 | ||
| Non-controlling interests | 4 | 204 | |
| Total equity | 6 678 | 7 990 | |
| Non-current liabilities | |||
| Deferred tax liabilities | 16 | 32 | 34 |
| Provisions | 24 | 154 | 240 |
| Financial liabilities | 23 | 4 458 | 4 528 |
| Other liabilities | 0 | 97 | |
| 4 644 | 4 898 | ||
| Current liabilities | |||
| Trade and other payables | 25 | 7 459 | 8 463 |
| Current tax liabilities | 25 | 25 | 56 |
| Provisions | 24 | 214 | 343 |
| Current financial liabilities | 23 | 925 | 3 096 |
| 8 623 | 11 957 | ||
| Liabilities of non-current assets held for sale | 11, 20 | 0 | 86 |
| Total liabilities | 13 267 | 16 942 | |
| Total equity and liabilities | 19 945 | 24 932 |
| EUR thousand | Note | 1.–12.2016 | 1.–12.2015 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit / loss for the year | -1 436 | -1 095 | |
| Adjustments for: | |||
| Non-cash items | 26 | 1 567 | 2 053 |
| Financial income and expenses | 8 | 344 | 581 |
| Other adjustments | 13 | -5 | |
| Taxes | 9 | 284 | -628 |
| Working capital changes: | |||
| Change in trade and other receivables | 950 | 795 | |
| Change in inventories | 229 | 634 | |
| Change in trade payables and other | |||
| liabilities | -926 | -83 | |
| Interest paid | -339 | -332 | |
| Interest received | 13 | 30 | |
| Other financial expenses | -217 | -249 | |
| Other financial income | 132 | 129 | |
| Income taxes paid | -153 | -3 | |
| Net cash flows from operating activities | 462 | 1 826 | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | -109 | -103 | |
| Purchase of intangible assets | 0 | -2 | |
| Proceeds from sale of property, plant and | 1 162 | 16 | |
| Net cash used in investing activities | 1 053 | -89 |
| EUR thousand | Note | 1.–12.2016 | 1.–12.2015 |
|---|---|---|---|
| Cash flows from financing activities | |||
| Proceeds from share issue | 300 | 185 | |
| Proceeds from non-current borrowings | -2 494 | -1 710 | |
| Repayment of non-current borrowings | -1 | 0 | |
| Payment of finance lease liabilities | -46 | -71 | |
| Net cash used in financing activities | -2 241 | -1 596 | |
| Net change in cash and cash equivalents | -726 | 141 | |
| Cash and cash equivalents at the beginning of | |||
| the year | 19 | 1 118 | 977 |
| Cash and cash equivalents at the close of the | |||
| year | 19 | 392 | 1 118 |
| EUR thousand | Note | Share capital |
Share premium account |
Fund for in vested unre stricted equity |
Own shares |
Translation differences |
Retained earnings |
Total | Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Total equity 1 Jan 2015 | 9 898 | 520 | 6 534 | -1 382 | -215 | -6 638 | 8 716 | 204 | 8 920 | |
| Comprehensive income | ||||||||||
| Result for the year | -1 095 | -1 095 | -1 095 | |||||||
| Other comprehensive income | ||||||||||
| Translation differences | 189 | 189 | 189 | |||||||
| Total comprehensive income for | 0 | 0 | 0 | 0 | 189 | -1 095 | -906 | 0 | -906 | |
| the year | ||||||||||
| Transactions with the equity | ||||||||||
| holders of the parent company | ||||||||||
| Management incentive plan | 22 | -23 | -23 | -23 | ||||||
| Transactions with the equity | 0 | 0 | 0 | 0 | 0 | -23 | -23 | 0 | -23 | |
| holders of the parent company | ||||||||||
| Total equity 31 Dec 2015 | 9 898 | 520 | 6 534 | -1 382 | -27 | -7 757 | 7 786 | 204 | 7 990 | |
| Total equity 1 Jan 2016 | 9 898 | 520 | 6 534 | -1 382 |
-27 | -7 757 | 7 786 | 204 | 7 990 | |
| Comprehensive income | ||||||||||
| Result for the year | -1 433 | -1 433 | -3 | -1 436 | ||||||
| Other comprehensive income | ||||||||||
| Translation differences | 124 | 124 | 124 | |||||||
| Total comprehensive income for | 0 | 0 | 0 | 0 | ||||||
| the year | 124 | -1 433 | -1 309 | -3 | -1 312 | |||||
| Transactions with the equity | ||||||||||
| holders of the parent company | ||||||||||
| Purchase of non-controlling | 22 | |||||||||
| interests | 197 | 197 | -197 | 0 | ||||||
| Transactions with the equity | 0 | 0 | 0 | 0 | 0 | 197 | 197 | -197 | 0 | |
| holders of the parent company | ||||||||||
| Total equity 31 Dec 2016 | 9 898 | 520 | 6 534 | -1 382 | 96 | -8 993 | 6 674 | 4 | 6 678 |
Honkarakenne Oyj is a public limited liability company founded in accordance with Finnish laws and domiciled in Karstula. The address of its registered office is Hongantie 41, 43500 Karstula, Finland. The company manufactures and sells log houses in Finland and abroad.
A copy of the consolidated financial statements is available on the company website at www.honka.com or from Honkarakenne Oyj's head office at the above address. These consolidated financial statements were authorised for issue by the Board of Directors of Honkarakenne Oyj on 15 February 2017. According to the Finnish Companies Act, shareholders are entitled to approve or reject the financial statements at the Annual General Meeting held after their publication. The Annual General Meeting may also decide on amendments to the financial statements.
These Honkarakenne consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in conformance with IAS and IFRS standards and SIC and IFRIC interpretations valid on 31 December 2016. IFRSs, referred to in the Finnish Accounting Act and in ordinances issued based on the provisions of this Act, refer to the standards and their interpretations adopted in accordance with the procedure laid down in regulation (EC) No. 1606/2002 of the EU. The notes to the consolidated financial statements are also in compliance with Finnish accounting principles and corporate legislation.
The figures in the consolidated financial statements are based on original acquisition costs unless otherwise stated, and are presented in thousand euros.
Preparation of financial statements requires making forward-looking estimates and assumptions that may or may not occur in the future. Discretion is also required in applying the accounting principles of the consolidated financial statements.
The consolidated financial statements include the parent company Honkarakenne Oyj and all its subsidiaries where over 50% of the subsidiary's voting rights are controlled directly or indirectly by the parent company, or the parent company is otherwise in control of the company.
Honka Management Oy, which was established as an incentive scheme for senior management in 2010, is now entirely owned by Honkarakenne Oyj following the acquisition of shares in December. Before that, Honkarakenne Oyj's holding was 47%. On the basis of the shareholders' agreement, Honkarakenne Oyj already had control of Honka Management Oy prior to the share transaction in December, due to which the company was included in the consolidated financial statements in earlier periods.
Mutual ownership has been eliminated according to the acquisition method. Acquired subsidiaries are included in the consolidated financial statements from the date when the Group has obtained control, and divested subsidiaries up to the date when control ceases. All intercompany transactions, receivables, liabilities and unrealised profits, as well as distribution of profits within the Group, are eliminated.
Associated companies in which Honkarakenne holds between 20% and 50% of voting rights and exercises significant influence, but no control, are included in the consolidated financial statements using the equity method. When Honkarakenne's share of losses exceeds the carrying amount of an associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.
Preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions. Discretion is also required in applying the accounting principles of the consolidated financial statements. Even though the estimates and assumptions made represent management's best knowledge at the time, the realised results can differ from these estimates and assumptions. Management has considered the following areas of the financial statements to be the most critical, because the principles involved in preparing them require the most estimations and assumptions:
Figures on the financial performance and standing of Group companies are presented in the currency of each company's primary operating environment ("functional currency"). The consolidated financial statements are presented in euros, which is the parent company's functional and presentation currency.
Foreign currency transactions are translated into the functional currency at the exchange rates valid on the date of transaction. Monetary assets and liabilities are translated into euro amounts at the exchange rate valid on the balance sheet date. Gains and losses from foreign currency transactions and from the translation of monetary items have been recognised in the statement of comprehensive income. Exchange rate gains and losses are presented in financial income and expenses in the statement of comprehensive income.
The statements of comprehensive income of Group companies that do not use the euro as their functional currency have been translated into euros using the average exchange rate for the financial year, while their balance sheets have been translated using the exchange rate for the balance sheet date. The result for the financial year is translated with different exchange rates in the statement of comprehensive income and the balance sheet, resulting in translation differences that are recognised in shareholders' equity in the balance sheet. Changes in translation differences are disclosed in other comprehensive income.
Translation differences from the elimination of the acquisition cost of subsidiaries that do not use the euro as their functional currency and the translation of equity items accrued after acquisition are recognised in the statement of comprehensive income. When such a subsidiary is divested, accumulated translation differences are recognised in the statement of comprehensive income, as part of the gain or loss on sale.
Net sales are presented on the basis of the fair value of income from the sale of goods and services, adjusted by indirect sales taxes and sales discounts.
The Group sells and manufactures log house packages and also sells process wastes generated during the production process for recycling. Sales of goods are recognised after the risks and rewards of ownership and control of the goods have been transferred to the buyer. Generally this occurs when the goods are handed over as set out in the contractual terms. The Group provides erection and design services. Sales of services are recognised when the service has been completed and it is probable that the service will yield economic benefits. The Group sells ready-to-move-in log houses on a turnkey basis that include both materials and construction ser-
Projects in which the Group sells both house packages and construction services and which take more than a year to complete are treated as long-term projects. Honkarakenne Group's income from long-term projects is recognised on the basis of the percentage of completion when the final result of a long-term project can be reliably measured. The stage of completion of a long-term project is determined on the basis of proportion of costs incurred for work performed to date, compared to the total estimated costs, i.e. the cost-to-cost method.
Net sales are itemised in Note 2.
Other operating income includes gains from disposal of assets and regular income not generated from primary activities, such as rental income, and government grants that are not allocated to acquisitions of property, plant and equipment.
Honkarakenne Group's pension plans are classified as defined contribution plans. Payments made into defined contribution pension plans are recognised through profit and loss in the period to which they apply.
Operating profit is the net sum calculated from net sales and other operating income, deducting or adding the change in inventories of finished goods and work in progress, adding production for own use, deducting materials and services, employee benefit expenses, depreciation and impairment as well as other operating expenses.
Accrual-based taxes that are based on the taxable income calculated in accordance with the local tax legislation and present tax rate in force for each Group company, tax adjustments for prior years and changes in deferred taxes are recognised as income taxes in the consolidated statement of comprehensive income.
Deferred tax assets and liabilities are recognised using the liability method for all temporary differences between the taxable values of assets and liabilities and their carrying amounts. Deferred tax is recorded using the tax rate that is expected to be realised.
Principal temporary differences in the Group arise from amortisation of property, plant and equipment as well as tax losses carried forward. Deferred tax is not recognised on goodwill, which is non-tax-deductible.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the asset can be utilised. Probability is assessed using the company's estimated taxable income, which is based on Honkarakenne's business plans and budgets. The preconditions for recognising deferred tax assets are evaluated on the closing date of each reporting period.
Goodwill is measured as the excess of the cost of an acquisition over the acquirer's share of the net fair values of the acquired company's identifiable assets, liabilities and contingent liabilities at the date of acquisition.
Goodwill is recognised at original cost. Goodwill is not amortised, but tested annually for any impairment. To this end, goodwill is allocated to cash generating units. Goodwill is measured at original acquisition cost less any impairment after the acquisition. Note 12.
Research expenses are recognised in the statement of comprehensive income in the year in which they have been incurred. Expenditure on development activities related to new products and processes has not been capitalised because the income they are expected to generate in the future is not certain until the products enter the market..
Patents, trademarks, licences and other intangible assets with a limited useful life are recognised in the consolidated balance sheet and amortised on a straight-line basis over their expected useful lives. Intangible assets with an indefinite useful life are not subject to depreciation, but are tested for any impairment annually or more often as required. The Group does not currently possess any intangible assets with an unlimited useful life.
Intangible assets are amortised from the date they are ready for utilisation. The amortisation period is determined by the estimated useful life of the asset. An asset that is not ready for utilisation is tested for any impairment annually or more often as required.
The acquisition cost of intangible assets consists of the purchase price, including any directly attributable costs of preparing the assets for their intended use.
Subsequent expenditure on other intangible assets is capitalised only when it increases the company's future economic benefit from the assets in question over what has originally been estimated. All other expenditure is recognised when it is incurred..
Property, plant and equipment consist mainly of land, buildings, machinery, tools and equipment. They are valued in the balance sheet at original acquisition cost less accumulated depreciation and any impairment losses. The acquisition cost of self-constructed assets includes materials, direct labour and the other direct costs of completing the asset for its intended
purpose. When an asset includes several components with different useful lives, the components are accounted for as separate items.
Expenditure incurred to replace a separately-recognised component in a tangible asset is capitalised. Other subsequent expenditure is capitalised only if it will generate future economic benefits to the company from the asset. All other expenditure, such as normal maintenance and repairs, is expensed through profit or loss.
Depreciation is recognised on a straight-line basis over the expected useful lives of property, plant and equipment. Land is not depreciated.
The estimated useful lives of property, plant and equipment are (years):
Gains or losses arising from the decommissioning and disposal of property, plant and equipment are recognised in the statement of comprehensive income through profit and loss. Capital gains or losses are measured as the difference between the sale price and remaining acquisition cost.
Government grants received as compensation for incurred expenses are recognised through profit and loss in the period during which the right to the grant arises. Such grants are disclosed in other operating income. A government grant for the acquisition of intangible assets or property, plant and equipment is recognised as a deduction to the carrying amounts of assets when there is reasonable certainty that the Group meets the terms and conditions of the grant and will receive it. Such grants are recognised as smaller depreciations over the service life of the asset item.
The carrying amounts of assets are tested at each balance sheet date to determine whether there is any indication of impairment. If such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount. Impairment losses are expensed through profit or loss.
An impairment loss on a cash-generating unit is allocated first as a reduction to the carrying value of goodwill allocated to the cash-generating unit and thereafter as a reduction to the carrying amounts of other assets in the unit on a pro rata basis.
For intangible and tangible assets, the recoverable amount is the higher of their fair value less costs of selling and their value in use. When assessing value in use, estimated future cash flows are discounted to their present value based on the average cost of capital rate (pre-tax) of the cash-generating unit, adjusted for risks specified for the assets.
For intangible and tangible assets, the recoverable amount is the higher of their fair value less costs of selling and their value in use. When assessing value in use, estimated future cash flows are discounted to their present value based on the average cost of capital rate (pre-tax) of the cash-generating unit, adjusted for risks specified for the assets.
With respect to property, plant and equipment and other intangible assets excluding goodwill, impairment losses are reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is not, however, reversed beyond what the carrying amount of the asset would have been (less depreciation and amortisation) if no impairment loss had been recognised in previous years. An impairment loss on goodwill is never reversed.
More information on impairment testing is provided in Note 12.
In calculating the recoverable amount of financial instruments, such as available-for-sale assets or receivables, the estimated future cash flows are discounted to their present value based on the original effective interest rate. Current receivables are not discounted. An impairment loss on trade receivables is recognised when there is objective evidence that the Group will be unable to collect the receivable in full. Impairment losses on trade receivables that are over 90 days overdue are recognised on a case-by-case basis. An impairment loss is reversed if a later realised addition to the recoverable amount can be reliably attributed to an event that takes place after the impairment loss was recognised.
In accordance with the criteria set out in the IAS 17 Leases standard, lease contracts under the terms of which the Group substantially assumes the risks and rewards of ownership are classified as finance leases. Assets obtained under finance leases, less accumulated depreciation, are recognised under property, plant and equipment, and the associated obligations are recognised in interest-bearing liabilities. Lease payments under finance leases are divided into financial expense and a reduction of a liability. Rents paid or received under other lease agreements are recognised through profit or loss in equal instalments over the lease period.
Assets financed with leasing contracts defined as finance leases under IAS 17 are recognised in the balance sheet and are measured at an amount equal to the lower of their fair value at the inception of the lease and the present value of the minimum lease payments. Assets financed with finance leases are depreciated on the basis of their economic life and any impairment losses are recognised. The assets are depreciated according to the schedule specified for tangible assets, however not exceeding the lease period.
Inventories are valued at the lower of acquisition cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated necessary selling expenses.
The value of inventories is determined using the first-in, first-out (FIFO) principle and includes all direct expenses incurred in acquiring the inventories and other indirect attributable expenses. The cost for finished goods and work in progress represents the purchase price of materials, direct labour, other direct costs and related production overheads excluding selling and financial costs. An allowance is established for obsolete items.
The Group's financial assets are categorised as follows: financial assets at fair value through profit or loss, loans and other receivables, and available-for-sale financial assets.
The classification is carried out based on the purpose for which each financial asset was acquired and is done in conjunction with the original acquisition. Transaction expenses are included in the original carrying amount of financial assets in the case of an item that is not measured at fair value through profit or loss. All purchases and sales of financial assets are recognised on the transaction date. Financial assets are derecognised if the Group loses the contractual right to cash flows or if it transfers substantial risks and income outside the Group.
Financial assets held for sale have mainly been acquired to gain profit from short-term changes in market prices. Assets held for sale as well as financial assets expiring within 12 months are presented in current assets. The items in this group are measured at fair value using quoted market prices in an active market, i.e. the purchase rates at the balance sheet date. Any realised and unrealised gains or losses from changes in fair value are recognised in the statement of comprehensive income for the period in which they occur.
Currency derivatives are used to hedge foreign currency cash flows from sales. They do not meet the requirements of hedge accounting defined in IAS 39. Hedge accounting is not applied to them, but the related changes in fair value are recognised through profit or loss.
Interest rate swaps are recognised in the financial items of the statement of comprehensive income on the expiry dates of the loans, and are measured at market value.
In fair value hierarchy level 1, values are based on the prices of fully equivalent assets or the quoted prices of debt in active markets.
In fair value hierarchy level 2, values are largely based on input data other than the quoted prices included in hierarchy level 1.
In fair value hierarchy level 3, fair values are based on input data that are not derived from verifiable market information, but largely from management estimates and generally accepted valuation models for the use of such estimates.
Currency derivatives and interest rate swaps are classified at level 2 in the fair value hierarchy.
Loans and other receivables are non-derivative assets with fixed or determinable payments that are not quoted in an active market and not held for sale. This group of assets includes the Group's financial assets resulting from the delivery of cash, goods or services to a debtor. They are carried at amortised cost and are presented as current or non-current financial assets depending on their nature; assets expiring after 12 months are presented in non-current assets.
This class also includes trade receivables. Trade receivables due within a year are recognised at their original value, while trade receivables falling due after over a year are discounted to their present value. An impairment loss on trade receivables is recognised when there is objective evidence that the Group will be unable to collect the receivable in full. Impairment losses on trade receivables that are over 90 days overdue are recognised on a case-by-case basis. Impairments are recognised in the statement of comprehensive income as an expense.
Available-for-sale financial assets are non-derivative financial assets that are specifically categorised in this group or that have not been categorised in any other group. They are presented as non-current financial assets except when they are expected to be sold within 12 months of the balance sheet date, in which case they are presented in current assets. Available-for-sale financial assets may include shares and interest-bearing investments, and are measured at fair value.
Changes in the fair value of available-for-sale financial assets are presented as other comprehensive income in fair value reserves under equity, taking the tax effect into consideration. Fair value changes are transferred from equity to the statement of comprehensive income when an investment is sold or its value has been impaired, so that a related impairment loss must be recognised. There are no transactions in the fair value reserve. Capital gains and losses from availablefor-sale financial assets with no fair value changes are presented in financial items in other comprehensive income.
Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that have a low risk of changing in value and which can be easily converted to a known amount of cash. Items in cash and cash equivalents have a maximum maturity of three months from the date of acquisition.
Financial liabilities are initially recognised at fair value based on the consideration received. Financial liabilities are included in current and non-current liabilities, and they are mainly interest-bearing.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions arise from guarantees, onerous contracts, litigation, environmental or tax risks or restructuring plans.
Warranty provisions are recognised when a product under warranty is sold. The amount of the warranty provision is set on the basis of experience of actual warranty costs. A provision is recognised for an onerous contract when the expenditure required to fulfil the obligations exceeds the benefits that may be derived from it. Obligations arising from restructuring plans are recognised when detailed and formal plans have been established and the parties involved in the restructuring have been informed, thus giving a valid expectation that such plans will be carried out. The recognised provision is the best estimate of costs required for the fulfilment of the existing obligation on the balance sheet date.
Dividends proposed by the Board of Directors are recorded in retained earnings in the consolidated balance sheet for the financial period during which the Annual General Meeting approves them.
When Honkarakenne Oyj's own shares are repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction in equity.
Earnings per share (EPS) are calculated by dividing the profit or loss for the period attributable to equity holders of the parent company by the weighted average number of outstanding shares. Treasury shares are not included in the number of outstanding shares. Diluted earnings per share (EPS) are calculated from earnings per share plus the effect of potential ordinary shares on the result for the financial period and the weighted average number of shares
Non-current assets held for sale and discontinued operations
The Group classifies non-current assets (or disposal groups) and the assets and liabilities of discontinued operations as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. Furthermore, the management must be committed to its sale, the active marketing of the asset for sale has begun and it is expected that the sale will be made within one year of the date of classification.
When an asset (or disposal group) is classified as held for sale, the carrying amount of the asset (or the carrying amounts of all the assets and liabilities in the group) shall be measured in accordance with IFRS. From the day of their classification as held for sale, assets (or disposal groups) are recognised at the lower of the carrying amount or their fair value less costs to sell. Once classified as held for sale, these assets are no longer depreciated.
Assets and liabilities in disposal groups that do not fall under the scope of the IFRS 5 standard are recognised in the same way as prior to their classification. Assets held for sale and the liabilities of a disposal group are presented separately from other items in the balance sheet.
The Group classified the Alajärvi factory property as an asset held for sale in 2015. It was sold in 2016. The Group does not currently have any assets held for sale.
A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:
The result of discontinued operations is presented as a separate item in the statement of comprehensive income. The assets of discontinued operations and other related items that are recognised in the statement of comprehensive income as well as liabilities included in disposal groups are presented separately in the balance sheet.
The Group does not currently have any items classified as discontinued operations.
As from the beginning of 2016, Honkarakenne has applied the following amended standards that have come into effect.
Annual Improvements to IFRSs 2012–2014 (in force as from 1 January 2016):
These changes did not have a significant effect on the consolidated financial statements for 2016.
• IFRS 9 "Financial Instruments" and associated amendments to various other standards (coming into force on 1 January 2018)
IFRS 9 "Financial Instruments" replaces IAS 39 and it will bring changes to classification and measurement of financial assets, their impairment assessment and the principles of hedge accounting.
A debt instrument is measured at amortised cost only if the objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and the contractual cash flows under the instrument solely represent payments of principal and interest.
All other debt and equity instruments, as well as structured investment products, are measured at fair value.
All fair value movements on financial assets are taken through the statement of profit or loss, except for investments in securities that are not held for trading, which may be recorded in the statement of profit or loss or in equity funds (without subsequent recycling to profit or loss). In addition, certain debt instruments included in financial assets can be classified at fair value through other comprehensive income depending on the entity's business model.
According to the preliminary assessment of the Group, the standard will not have a significant impact on its financial statements.
• IFRS 15 "Revenue from contracts with customers" and related amendments to several other standards (in force as from 1 January 2018)
The IASB has issued a new standard for the recognition of revenue. It will replace IAS 18, which covers contracts for goods and services, and IAS 11, which covers construction contracts.
The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards.
A new five-stage process is to be applied in the recognition of revenue:
The Group has reviewed its business operations and ascertained that the Group sells house packages, erection services and ready-to-move-in house packages that include the house elements, erection and other construction services. The Group has reviewed its sales agreements from recent years and ascertained that the products sold by the Group are such in which the sold product comprises a single integrated whole and in which control over the entire product is transferred to the customer at one time.
The exception to this may comprise long-term projects that the Group has defined as projects that include a house package, erection services and possibly also other construction services over a period of more than one year. The Group has not had any such long-term projects in recent years. The recognition of income from such projects under IFRS 15 is examined on a case-by-case basis in accordance with the customer agreement.
The new standard may have effects in transaction price and how price components are represented in accounting. It is possible that some of additional work may differ from a single integrated product and will be treated as a separate product. Accounting policies with credits paid to the customers will be examinated yet. In addition the Group will asses if extended payment schedules and advance payments integrate a separate financial component.
Group 's assesment of all effects of this new standard is still unfinished. The Group will add information of new standard in half year report of 2017, financial statement release as well as in Financial Statements for 2017. According to the Group's preliminary assessment, the standard is not expected to have a material impact on the consolidated financial statements. The Group will adopt this standard on 1 January 2018 and will present adjusted comparison information if adjustments are necessary in accordance with IAS 8.
• IFRS 16 "Leases" (in force as from 1 January 2019)
IFRS 16 will mainly affect the accounting of lessees and will result in almost all leases, except shortterm and low-value leases, being recognised in the balance sheet. From the lessee's perspective, the standard dispenses with the current division into operational lease agreements and financial lease agreements. In practice, under the new standard, an asset (the right to use the leased item) and a financial liability are recognised for all lease agreements.
The standard will also affect the income statement, as total expenses are typically higher at the beginning of a lease and smaller towards its end. In addition, lease expenses, which are currently included in operating expenses, will be replaced by interest and depreciation, which will have an effect on key indicators such as EBITDA.
According to IFRS 16, an agreement is a lease or includes a lease if the agreement confers the right to control the use of an identified asset over a certain period in exchange for compensation.
The Group is assessing the impact of the standard and according to its preliminary estimate the changes in accounting treatment may have an effect on the consolidated financial statements with respect to the balance sheet, statement of comprehensive income and the notes.
Honkarakenne has three geographical operating segments that have been combined into one segment for reporting purposes in accordance with IFRS 8.12. Geographically, sales are divided as follows: Finland & Baltics, Russia & CIS and Global Markets. Honkarakenne has combined geogphic sales areas as one reporting segment because of similarity of economic characteristics and sold products. Chief Executive Officer is the highest operative decisionmaker of the company.
The internal management reporting is in line with the IFRS accounting principles and for this reason seperate reconciliations are not presented. Internal management reporting monitors the development of operations in terms of geographical business areas. This type of reporting facilitates the setting of targets and budget monitoring, and should thus be seen as a management tool, not as a financial accounting measurement method.
Geographically, the Group's sales are divided as follows: Finland & Baltics, Russia & CIS and Global Markets.
Finland & Baltics includes Finland, Latvia, Lithuania and Estonia. It also includes Process Waste Sales for Recycling.
Russia & CIS includes Russia, Azerbaijan, Kazakhstan and other CIS countries excluding Ukraine.
Global Markets includes all other business countries and CIS country Ukraine.
Net sales are reported by the location of the customer and assets by their location
The external revenue of the Honkarakenne Group is generated by a wide customer base. In accordance with IFRS 8, revenue from significant individual customers amounted to EUR 10.2 million in 2016 and EUR 12.0 million in 2015.
| Geographical distribution | |||
|---|---|---|---|
| Distribution of net sales, % | 2016 | 2015 | |
| Finland & Baltics | 51 % | 42 % | |
| Russia & CIS | 28 % | 31 % | |
| Global Markets | 21 % | 28 % | |
| Total | 100 % | 100 % | |
| Net sales EUR thousand |
2016 | 2015 | % change |
| Finland & Baltics | 18 309 | 16 247 | 13 % |
| Russia & CIS | 10 190 | 12 029 | -15 % |
| Global Markets | 7 581 | 10 834 | -30 % |
| Total | 36 080 | 39 110 | -8 % |
| Non-current assets EUR thousand |
2016 | 2015 | |
| Finland & Baltics | 8 447 | 11 645 | |
| Russia & CIS | |||
| Global Markets | 1 686 | 418 | |
| Total | 10 133 | 12 064 |
Net sales generated in Finland in 2016 were EUR 18 309 thousand and in 2015 they were EUR 16 247 thousand. Assets located in Finald in 2016 were EUR 8 447 thousand and in 2015 they were EUR 11 645 thousand.
| 2. Net sales EUR thousand |
2016 | 2015 |
|---|---|---|
| Sales of goods | 33 899 | 36 720 |
| Rendering of services | 2 181 | 2 390 |
| Total | 36 080 | 39 110 |
On the balance sheet dates in 2016 and 2015, there were no incomplete long-term projects.
| 3. Other operating income EUR thousand | 2016 | 2015 |
|---|---|---|
| Rental income | 70 | 88 |
| Gain on disposal of property, plant and equipment | 53 | 2 |
| Received government grants | 83 | 191 |
| Sale of round timber | 0 | 1 |
| Other operating income | 97 | 27 |
| Total | 36 | 309 |
| 4. Employee benefit expenses EUR thousand | 2016 | 2015 |
| Wages and salaries | 5 520 | 6 113 |
| Pension expenses, defined contribution plans | 891 | 1 122 |
| Other personnel expenses | 334 | 287 |
| Total | 6 745 | 7 522 |
| Personnel in person-years, average | 2016 | 2015 |
| Clerical and managerial employees | 62 | 63 |
| Workers | 48 | 51 |
| Total | 110 | 113 |
| Average number of personnel | 2016 | 2015 |
| Clerical and managerial employees | 67 | 71 |
| Workers | 69 | 68 |
| Total | 136 | 139 |
Expensed R&D expenditure totaled EUR 290 thousand in 2016 (EUR 362 thousand in 2015).
| 6. Depreciation, amortisation and impairment EUR thousand | 2016 | 2015 |
|---|---|---|
| Depreciation and amortisation | ||
| Intangible assets | ||
| Immaterial rights | 92 | 118 |
| Property, plant and equipment | ||
| Buildings and structures | 565 | 621 |
| Machinery and equipment | 1 060 | 1 182 |
| Other tangible assets | 66 | 126 |
| Total | 1 691 | 1 930 |
| Impairment | ||
| Land and water | 0 | 64 |
| Buildings and structures | 0 | 177 |
| Machinery and equipment | 0 | 31 |
| Other tangible assets | 0 | 7 |
| Total | 0 | 280 |
| Total depreciation, amortisation and impairment | 1 783 | 2 327 |
In 2016 there were no impariment losses. In general impairment losses are due to the measurement of property, plant and equipment at their recoverable amount, determined at fair value less costs to sell.
In 2015, impairment losses amounted to EUR 280 thousand due to the measurement of property, plant and equipment at their recoverable amount, determined at fair value less costs to sell.
| 7. Other operating expenses EUR thousand | 2016 | 2015 |
|---|---|---|
| Non-mandatory employee benefit expenses | 132 | 189 |
| Rents | 544 | 713 |
| Bad debt | 46 | 100 |
| Sales and marketing expenses | 1 225 | 984 |
| Professional services | 1 087 | 767 |
| Costs for premises | 305 | 308 |
| IT costs | 792 | 768 |
| Paid compensations for damages | 10 | 70 |
| Insuarance contributions | 127 | 134 |
| Other operating expenses | 1 279 | 1 222 |
| Total | 5 547 | 5 255 |
| Audit fees | ||
| Audit | 86 | 51 |
| Tax consulting | 0 | 0 |
| Other services | 22 | 52 |
| Total | 108 | 104 |
| 8. Financial income and expenses EUR thousand | 2016 | 2015 |
| Financial income |
||
| Change in value of financial assets at fair value through profit or | ||
| loss: | ||
| Currency derivatives, not in hedge accounting | 31 | 0 |
| Interest swap, not in hedge accounting | 110 | 92 |
| Other interest and financial income | 14 | 33 |
| Total | 155 | 125 |
| Financial expenses | ||
| Interest expenses on financial liabilities at amortised cost | 197 | 385 |
| Change in valule of financial assets at fair value through profit or loss | ||
| Currency derivatives, not in hedge accounting | 0 | 14 |
| Other financial expenses | 35 | 6 |
| Total | 232 | 405 |
| 2016 | 2015 | |
|---|---|---|
| Foreign exchange gains and losses recognised in financial | ||
| items in statement of comprehensive income | ||
| Foreign exchange gains | 12 | 141 |
| Foreign exchange losses | -280 | -441 |
| Total | -268 | -300 |
| Total financial income and expenses | -344 | -581 |
| All interest expenses are recognised as expenses in statement of comprehensive income. | ||
| 9. Income taxes EUR thousand |
2016 | 2015 |
| Current tax expense | 39 | 509 |
| Income taxes from previous years | -10 | 41 |
| Deferred taxes | ||
| Origination and reversal of temporary differences | -312 | 78 |
| Total | -284 | 628 |
| Income tax reconciliation againts local tax rates EUR thou | ||
| sand | 2016 | 2015 |
| Profit/loss before taxes | -1 152 | -1 723 |
| Tax calculated at parent company tax rate | 230 | 345 |
| Effect of different tax rates in the foreign subsidiaries | -9 | 21 |
| Income not subject to tax | 0 | 131 |
| Expenses not deductible for tax purposes | -45 | -6 |
| Use of tax losses for which no deferred tax assets was recog | ||
| nised | 0 | 85 |
| Temporary differences for which no deferred tax assets was | ||
| recognised | -312 | -7 |
| Share of profit of associated companies deducted by income | ||
| taxes | 0 | 13 |
| Income taxes from previous years | -10 | 41 |
| Other items | -138 | 4 |
| Tax charge in the statement of comprehensive income | -284 | 628 |
In 2016 the tax rate for the parent company is 20 % (in 2015 it was 20%).
Basic earnings per share is calculated by diving the profit attributable to owners of the parent company by the weighted average number of outstanding shares.
| 2016 | 2015 |
|---|---|
| -1 436 | -1 095 |
| -3 | 0 |
| -1 433 | -1 095 |
| 4 847 | 4 847 |
| 4 847 | 4 847 |
| -0,30 | -0,23 |
| -0,30 | -0,23 |
Honkarakenne Oyj has two series of shares: A shares and B shares, which have different right to dividend. Profit distribution of 0.20 EUR per share will be paid first for B shares, then 0.20 EUR per share for A shares, followed by equal distribution of remaining profit distribution between all shares.
| Buildings and structu | Machinery and Advance payments and |
|||||
|---|---|---|---|---|---|---|
| Property, plant and equipment 2016 | Land and water | res | equipment | Other tangible assets | work in progress | Total |
| Cost 1 Jan | 758 | 17 599 | 30 149 | 2 444 | 21 | 50 970 |
| Translation differences (+/-) | 9 | 8 | 17 | |||
| Increase | 16 | 61 | 46 | 123 | ||
| Reclassifications | 86 | 3 | 18 | 56 | -21 | 142 |
| Disposals | -879 | -2 062 | -18 | -2 958 | ||
| Cost 31 Dec | 844 | 16 748 | 28 174 | 2 482 | 46 | 48 293 |
| Accumulated depreciation 1 Jan |
86 | -11 709 | -25 595 | -2 367 | 0 | -39 586 |
| Translation differences (+/-) | -4 | -5 | -9 | |||
| Accumulated depreciation of disposals and reclassifica | -86 | 677 | 2 051 | -38 | 2 604 | |
| tions | ||||||
| Depreciation for the year | -565 | -1 060 | -66 | -1 691 | ||
| Impairment | 0 | |||||
| Accumulated depreciation 31 Dec | 0 | -11 601 | -24 610 | -2 472 | 0 | -38 682 |
| Carrying amount 31 Dec 2016 | 844 | 5 147 | 3 564 | 10 | 46 | 9 611 |
The recoverable amount is measured at fair value less costs to sell and it is based on management's estimates.
| Buildings and structu | Machinery and | Advance payments and | |||||
|---|---|---|---|---|---|---|---|
| Property, plant and equipment 2015 | Land and water | res | equipment | Other tangible assets | work in progress | Total | |
| Cost 1 Jan | 1 253 | 23 476 | 38 200 | 2 931 | 0 | 65 861 | |
| Translation differences (+/-) | 14 | 12 | 26 | ||||
| Increase | 50 | 21 | 71 | ||||
| Transferred to non-current assets held for sale | -412 | -5 877 | -8 081 | -488 | -14 858 | ||
| Disposals | -83 | -15 | -32 | -130 | |||
| Cost 31 Dec | 758 | 17 599 | 30 149 | 2 444 | 21 | 50 970 | |
| Accumulated depreciation1 Jan | -222 | -16 041 | -32 401 | -2 693 | 0 | -51 356 | |
| Translation differences (+/-) | -6 | -7 | -12 | ||||
| Transferred to non-current assets held for sale | 303 | 5 121 | 8 026 | 458 | 13 908 | ||
| Accumulated depreciation of disposals and reclassifica tions |
69 | 15 | 83 | ||||
| Depreciation for the year | -621 | -1 182 | -126 | -1 930 | |||
| Impairment | -64 | -177 | -31 | -7 | -279 | ||
| Accumulated depreciation 31 Dec | 86 | -11 709 | -25 595 | -2 367 | 0 | -39 586 | |
| Carrying amount 31 Dec 2015 | 844 | 5 890 | 4 554 | 76 | 21 | 11 385 |
In 2015, impairment losses of EUR 279 thousand were recognized under impairmet EUR 233 thousand of those is connected to Alajärvi Mill property. In 2015 Alajärvi Mill property was classified as non-current assets held for sale. The carrying amout of Alajärvi Mill property is EUR 949 thousand. The recoverable amount is measured at fair value less costs to sell and it is based on management's estimates.
Finance lease agreements
Property, plant and equipment include assets acquired under finance lease agreements as follows:
| Machinery and equipment |
|
|---|---|
| 31 Dec 2016 | |
| Cost | 96 |
| Accumulated depreciation | -65 |
| Carrying amount | 31 |
| 31 Dec 2015 | |
| Cost | 180 |
| Accumulated depreciation | -103 |
| Carrying amount | 77 |
In 2016, increases in the cost of property, plant and equipment include EUR 0 thousand in assets acquired under finance lease agreements (EUR 26 thousand in 2015).
In 2016 decreases in the cost of property, plant and equipment include EUR 84 thousand in assets acquired under finance lease agreements (EUR 108 thousand in 2015).
| Advance payments for | |||||
|---|---|---|---|---|---|
| Intangible assets 2016 | Goodwill | Intangible rights | Other intangible assets |
intangible assets | Total |
| Cost 1 Jan | 72 | 5 087 | 2 148 | 0 | 7 306 |
| Translation differences (+/-) | 0 | ||||
| Increase | 9 | 9 | |||
| Disposals | 0 | ||||
| Reclassifications | -57 | -57 | |||
| Cost 31 Dec | 72 | 5 096 | 2 091 | 0 | 7 259 |
| Accumulated amortisation 1 Jan | 0 | -4 867 | -2 148 | 0 | -7 015 |
| Accumulated amortisation of disposals | 57 | 57 | |||
| Amortisation for the year | -92 | -92 | |||
| Accumulated amortisation 31 Dec | 0 | -4 958 | -2 091 | 0 | -7 049 |
| Carrying amount 31 Dec 2016 | 72 | 138 | 0 | 0 | 210 |
| Intangible assets 2015 | Goodwill | Intangible rights | Other intangible assets | Advance payments for intangible assets |
Total |
| Cost 1 Jan | 72 | 5 056 | 2 148 | 49 | 7 325 |
| Translation differences (+/-) | 0 | ||||
| Increase | 1 | 1 | |||
|---|---|---|---|---|---|
| Disposals | -20 | -20 | |||
| Reclassifications | 49 | -49 | 0 | ||
| Cost 31 Dec | 72 | 5 087 | 2 148 | 0 | 7 306 |
| Accumulated amortisation 1 Jan | 0 | -4 768 | -2 148 | 0 | -6 917 |
| Accumulated amortisation of disposals | 19 | 19 | |||
| Amortisation for the year | -118 | -118 | |||
| Accumulated amortisation 31 Dec | 0 | -4 867 | -2 148 | 0 | -7 015 |
| Carrying amount 31 Dec 2015 | 72 | 220 | 0 | 0 | 291 |
According to IAS 36, goodwill on consolidation is not amortised, but is instead tested annually for impairment. Goodwill is allocated to the 10% holding in Honka Blockhaus GmbH that Honkarakenne Oyj acquired in 2003. No goodwill impairment has been recognised in 2006- 2016.
| EUR thousand | 2016 | 2015 |
|---|---|---|
| Honka Blockhaus | 72 | 72 |
The estimated cash flows are based on strategies planned and approved by the manage-ment, covering a period of five years. The discount rate used in testing is 10.1%. Its sensi-tivity in relation to the calculationsis tested with different ranges. Calculation of the dis-counted cash flows requires forecasts and assumptions concerning factors such as market growth, prices and volume development.
| Projection parameters applied | Honka Blockhaus | Honka Blockhaus |
|---|---|---|
| 2016 | 2015 | |
| Discount rate (pre tax WACC) | 10,1 % | 10,1 % |
| Terminal growth | 2 % | 2 % |
| Fixed operating expenses, average annual increase |
2 % | 2 % |
| Sensitivity analysis *) | Honka Blockhaus 2016 |
Honka Blockhaus 2015 |
| Discount rate | 7,0 % | 1,0 % |
| Terminal growth | -9,0 % | -1,0 % |
*) Percentage point change in crucial projection parameters that makes the recoverable amount equal to the carrying amount. A single parameter has changed, the others remain unchanged.
| 13. Investments in associated companies EUR thousand | 2016 | 2015 |
|---|---|---|
| Cost 1 Jan | 191 | 256 |
| Share of result of associated companies | 1 | -65 |
| Cost 31 Dec | 192 | 191 |
| Associated companies | ||
| Puulaakson Energia Oy, Karstula | ||
| Ownership (%) | 25,9 % | 25,9 % |
| Assets | 2 574 | 2 961 |
| Liabilities | 1 960 | 2 349 |
| Net sales | 1 255 | 1 038 |
| Profit / loss | 2 | -170 |
| Pielishonka Oy, Lieksa | ||
| Ownership (%) | 39,3 % | 39,3 % |
| Assets | 96 | 94 |
| Liabilities | 2 | 2 |
| Income | 25 | 27 |
| Profit / loss | 2 | 3 |
| 14. Available-for-sale financial assets EUR thousand |
2016 | 2015 |
| Available-for-sale financial assets | ||
| Investment in unquoted shares | 42 | 42 |
| Available-for-sale financial assets | ||
| Cost 1 Jan | 42 | 42 |
| Disposals | ||
| Carrying amount 31 Dec | 42 | 42 |
| Of which are non-current | 42 | 42 |
The carrying amounts of available-for-sale financial assets correspond to the management's view of their fair value.
| Non-current receivables 2016 | Non-current loan receivables |
Other non current receiva bles |
Total |
|---|---|---|---|
| Cost 1 Jan | 226 | 20 | 245 |
| Translation differences (+/-) | 7 | 7 | |
| Increase | 26 | 26 | |
| Disposals | -151 | -151 | |
| Cost 31 Dec | 108 | 20 | 127 |
| Accumulated amortisation 1 Jan | -50 | -50 | |
| Accumulated amortisation 31 Dec | -50 | 0 | -50 |
| Carrying amount 31 Dec 2016 | 58 | 20 | 78 |
The carrying amount equals the management's view of the fair value and is the maximum amount of credit risk without accounting for the fair value of guarantees.
| Non-current receivables 2015 | Non-current loan receivables |
Other non current receiva bles |
Total |
|---|---|---|---|
| Cost 1 Jan | 214 | 20 | 233 |
| Translation differences (+/-) | 13 | 13 | |
| Disposals | -2 | -2 | |
| Cost 31 Dec | 226 | 20 | 245 |
| Accumulated amortisation 1 Jan | -50 | -50 | |
| Accumulated amortisation 31 Dec | -50 | 0 | -50 |
| Carrying amount 31 Dec 2015 | 176 | 20 | 195 |
The carrying amount equals the management's view of the fair value and is the maximum amount of credit risk without accounting for the fair value of guarantees.
Deferred tax assets 2016
| 1.1.2016 | Recorded in profit or loss |
Translation differences |
31.12.2016 | |
|---|---|---|---|---|
| Tax losses carried forward | 1 600 | -126 | 6 | 1 480 |
| Temporary differences | 1 143 | -9 | 2 | 1 137 |
| Total | 2 743 | -135 | 9 | 2 617 |
| 1.1.2015 | Recorded in profit or loss |
Translation differences |
31.12.2015 | |
|---|---|---|---|---|
| Tax losses carried forward | 1 383 | 217 | 1 600 | |
| Temporary differences | 720 | 420 | 3 | 1 143 |
| Total | 2 103 | 637 | 3 | 2 743 |
Temporaty differences primarily comprise unused tax depreciations and tax assets generated in elimination of internal margin of inventory.
Management carefully reviewed the valuation of the deferred tax assets recognised for tax losses carried forward when preparing the financial statements. The recognised deferred tax assets are based on the management's view of future development.
Although the company has posted a loss in recent years, these deferred tax assets recognised in the balance sheet can, in the company's view, be utilised by using the estimated taxable income, which is based on Honkarakenne's business plans.
The positive earnings trend is supported particularly by the significant efficiency-boosting and reorganisation measures carried out in 2012-2016, including the divestment of the Alajärvi production plant, the reorganisation of work and expansion into new market and business areas. These measures have decreased the Group's expenses and earnings have developed in a positive direction.
The development of Group's result bebore taxes 2012-2016 is presented below:
| 2016 | 2015 | 2014 | 2013 | 2012 | |
|---|---|---|---|---|---|
| Group's result before taxes | -1 152 | -1 723 | -2 523 | -1 651 | -4 409 |
The market in this business has been tough in recent years, but it is believed that it will turn for the better. The Group's marketing outlays have yielded results. Honkarakenne was able to tap into the recovery of the Finnish market. Another indication of the earnings trend is that the Group's order book was higher on the closing date than a year earlier
Healthy construction is a growing market trend and Honkarakenne has made strong outlays on it. For instance, Honkarakenne is the only log house supplier with a VTT certificate
(Healthy House). It is also expected that outlays on the Chinese market will yield results in the next few years.
If earnings do not develop as expected, it is possible that the tax assets might not be utilised in time and must be impaired. The company did not recognise new deferred tax assets in the balance sheet in 2016.
More information about risks is found in note 28.
| Expiring year of deferred tax assets | 2016 | 2015 |
|---|---|---|
| Year 2019 | 467 | 541 |
| Year 2021 | 2 | 2 |
| Year 2023 | 194 | 194 |
| Year 2024 | 460 | 496 |
| Year 2025 | 100 | 110 |
| No expirity date | 257 | 257 |
| Total | 1 480 | 1 600 |
| Deferred tax assets are allocated in |
2016 | 2015 |
| Parent company | 2 158 | 2 274 |
| German subsidiary | 276 | 276 |
| Japanese subsidiary | 183 | 192 |
Temporary differences of EUR 23 thousand due to the closure of the Alajärvi plant have not been recognised in deferred tax assets (EUR 387 thousand in 2015).
Temporary differences of EUR 7 thousand due to efficiency measures implemented in 2013 have not been recognised in deferred tax assets (EUR 10 thousand in 2015).
A total of EUR 132 thousand in deferred tax assets remain unrecognised on Honka Management Oy's tax losses for 2012-2016 (EUR 131 thousand in 2015).
| Deferred tax liabilities 2016 |
1.1.2016 | Recorded in profit or loss |
31.12.2016 |
|---|---|---|---|
| Depreciation in excess of plan | 5 | 0 | 5 |
| Temporary differences | 29 | -2 | 27 |
| Total | 34 | -2 | 32 |
| Deferred tax liabilities 2015 | 1.1.2015 | Recorded in profit or loss |
31.12.2015 |
| Depreciation in excess of plan | 4 | 1 | 5 |
| Temporary differences | 26 | 3 | 29 |
| Total | 30 | 4 | 34 |
No deferred tax liabilities have been recognised for the undistributed profits of subsidiaries, because the investment is permanent.
| 17. Inventory EUR thousand | 2016 | 2015 |
|---|---|---|
| Unfinished goods | 1 820 | 2 627 |
| Finished goods | 907 | 274 |
| Other inventories | 1 290 | 1 345 |
| Total | 4 017 | 4 246 |
During the reporting period, expenses of EUR 141 thousand were recognised, decreasing the carrying amount of inventories to equal their net realisable value (EUR 85 thousand in 2015).Other inventories primarily comprise plots.
| 18. Trade and other current receivables EUR thousand | 2016 | 2015 |
|---|---|---|
| Loan and receivables | ||
| Trade receivables | 1 899 | 1 827 |
| Receivables from associated companies | 27 | 16 |
| Loan receivables | 21 | 30 |
| Other receivables | 788 | 1 001 |
| Accrued income and prepayments | ||
| Accrued income and prepayments | 50 | 861 |
| Tax receivable, income tax | 0 | 33 |
| Total | 2 785 | 3 769 |
An impairment loss is recognised for trade receivables when there is objective evidence that the Group will not be able to collect the receivables in full. Impairment losses for trade receivables that are overdue for more than 90 days are recog-nised on a case-by-case basis.
The carrying amount represents the management's view of fair value and the maximum amount of credit risk.
| Trade receivables by age |
201 6 |
Impairment recognised |
Netto 201 6 |
201 5 |
Impairment recognised |
Netto 201 5 |
|---|---|---|---|---|---|---|
| Not due | 923 | 923 | 921 | 2 | 918 | |
| Overdue less than 30 days |
285 | 285 | 204 | 1 | 202 | |
| Overdue 31 - 60 days |
- 5 |
- 5 |
36 | 36 | ||
| Overdue 61 - 120 days |
213 | 213 | 100 | 2 | 98 | |
| Overdue 121 - 180 days |
32 | 32 | 93 | 93 | ||
| Overdue 181 - 365 days |
51 | 35 | 16 | 171 | 1 | 171 |
| Overdue more than 366 days |
1 015 | 579 | 436 | 870 | 561 | 309 |
| Total | 2 514 | 615 | 1 899 | 2 395 | 567 | 1 827 |
Impairments of trade receivables have been recognised in Finland, Germany and Japan.
| 19. Cash and cash equivalents EUR thou sand |
201 6 |
2015 |
|---|---|---|
| Cash and cash equiva | 392 | 1 118 |
| lents | ||
| Total | 392 | 1 118 |
In financial statements for 2016 does not include any non-current assets held for sale.
In 2015 Alajärvi Mill property was classified as non-current assets held for sale and the sale of Alajärvi Mill took place during the second quarter of 2016.
Alajärvi Mill, which was classified as non-current assets held for sale, included intangible rights, land, several buildings and structures, machinery and equipment totalling EUR 950 thoudsand.
Transferred mill property was valued at fair value less costs to sell and it is based on management's estimates
Intangible rights includes steering systems, land includes several plots, buildings and structures include manufacture buildings as well as office space and warehouses and machinery included in them permanently, machinery and equipment include manufacture machinery and equipment and other tangible assets include maintenance and fundamental improvment work such as as-phalting and electricity work.
Breakdown of property with plant stock transferred into non-current assets held for sale in financial statements for 2015 is represented on table below:
| Cost | Previous depreciation, amortisation and im pairment |
Impairment linked to reclassification |
Estimated fair value less cost to sell |
|
|---|---|---|---|---|
| Intangible rights | 20 | - 19 |
1 | |
| Land and water | 412 | - 277 |
- 26 |
109 |
| Buildings and structure | 5 877 | - 4 952 |
- 170 |
755 |
| Machinery and equipment | 8 081 | - 7 995 |
- 31 |
55 |
| Other tangible assets | 488 | - 452 |
- 7 |
29 |
| Total | 14 878 | - 13 694 |
- 233 |
950 |
The management was commited to sell the mill property and sales actions had been started. The negotiations with the possible buyer had taken place and the property was expected to be sold during the first half of year 2016. The selling was concluded during the second quarter of the year 2016.
A provision of EUR 86 thousand due to Alajärvi mill maintenance costs was recognized in financial statements for 2015. The provision was based on management's estimates. In financial statements for 2016 do not include any such provision.
| Number of | Number of | Total number of shares |
Share premium | Fund for invested | |||
|---|---|---|---|---|---|---|---|
| 21. Equity EUR thousand |
A shares (1000) | B shares (1000) |
(1000) | Share capital | account | unrestricted equity | Total |
| 31.12.2014 | 300 | 4 911 | 5 211 | 9 898 | 520 | 6 534 | 16 952 |
| 31.12.2015 | 300 | 4 911 | 5 211 | 9 898 | 520 | 6 534 | 16 952 |
| 31.12.2016 | 300 | 4 911 | 5 211 | 9 898 | 520 | 6 534 | 16 952 |
Honkarakenne Oyj has two series of shares: A shares and B shares. There are minimum of 300,000 and maximum of 1,200,000 A shares and minimum of 2,700,000 and maximum of 10,800,000 B shares.
Each A share entitles to 20 votes and each B shares entitles one vote at the Annual General Meeting.
Profit distribution of 0,20 EUR per share will be paid first for B shares, then 0,20 EUR per share for A shares, followed by equal distribution of remaining profit distribution between all shares.
The shares have no nominal value. All issued shares have been paid in full. The parent company had a total of 78 135 treasury B shares on 31 Dec 2016 (78 135 B shares on 31 Dec 2015).
In 2014 a directed share issue was implemented and total of 42,451 new B shares were subscribed. The total subscription price of these new shares was 90,195.93 euros which is recorded in full in the invested non-restricted equity fund of the company.
After the balance sheet date, the Board of Directors proposed to the Annual General Meeting that no dividends be paid for the 2015 financial year. No dividends were paid for the 2014 financial year.
Share premium account under the old Limited Liability Coampanies Act (734/1978) and during or after the year 2003, monetary payments received for share subscriptions adjusted by any transaction expenses have been recognised in share capital and the share premium account in accordance with the terms and conditions of the scheme.
The fund for invested unrestricted equity includes all other equity investments and the subscription prices of shares when a separate decision has been made to not recognise them in share capital.
On the basis of the authorisation to issue shares granted to the Board of Directors of Honkarakenne Oyj at the Annual General Meeting of 5 April 2013, the Board decided, on 10 Jan 2014, to arrange a directed issue, based on which the company's employees were offered the opportunity to subcribe shares. The Board of Directors approved subscriptions for a total of 42,451 new Series B shares in the Directed Share Issue to Personnel. The total subscription price of the shares, EUR 90,195.93, is recorded in full in the invested non-restricted equity fund.
The translation difference fund includes the translation differences from the translation of the financial statements of foreign units.
In the second quarter of 2013, the Board of Directors of Honkarakenne Oyj decided on a new share-based incentive plan for key employees. The new long-term incentive plan seeks to align the objectives of the shareholders and the key employees in order to increase the value of the company and commit key employees to the company by offering them a competitive incentive plan based on the company's strategy and share performance.
The performance period of the share-based incentive plan began on 1 January 2013 and will end on 31 December 2016. The potential reward for the performance period is based on the cumu-lative earnings per share (EPS) for 2013-2016 and on the average return on capital employed (ROCE) for 2013-2016.
Any rewards for the performance period 2013-2016 will be paid partly as B shares and partly in cash in 2017. The cash component is intended to cover the key employee's taxes and taxrelated costs arising from the reward. If a key employee's employment or service ends before the payment date of the reward, the reward is as a rule not paid.
The target group of the share-based incentive plan is the Executive Group. The rewards to be paid on the basis of the 2013-2016 performance period will correspond to a total maximum of about 340 000 B shares, including the amount to be paid in cash.
At the end of 2015, payouts from the share scheme were assessed as zero for the entire performance period 2013- 2016, and any amounts previously recognised for the scheme were cancelled.
| Share-based incentive plan 2013–2016 |
The performance period 2013–2016 |
|||
|---|---|---|---|---|
| Basic information | ||||
| Grant date | 20.6.2013 | |||
| Maximum number of share rewards | 340 000 | |||
| Performance period begins, date | 1.1.2013 | |||
| Performance period ends, date | 31.12.2016 | |||
| Vesting conditions | employment commitment | |||
| Criteria | EPS 2013-2016, | |||
| ROCE 2013-2016 | ||||
| Form of payment | Shares and cash | |||
| 2016 | 2015 | 2014 | 2013 | |
| Remaining commitment time, years | 0 | 1 | 2 | 3 |
| Persons (at end of reporting period) | 1 | 2 | 5 | 6 |
| Fair value measurement* | 2016 | 2015 | 2014 | 2013 |
| Share price at grant date, EUR | 3,14 | 3,14 | 3,14 | 3,14 |
| Share price at date of payment/end of financial period, EUR | 1,65 | 1,60 | 1,70 | 2,70 |
| Impact on earnings and financial position | ||||
| Employee benefit expenses recognised during period, EUR thousand | 0 | -36 | 5 | 31 |
| Recognised in income taxes during period, EUR thousand | 0 | 3 | 0 | -3 |
| Recognised in deferred tax assets iduring period, EUR thousand | 0 | -6 | 3 | 3 |
| Recognised directed in retained earnings during period, EUR thousand | 0 | -23 | 7 | 16 |
| Recognised in total in retained earnings during period, EUR thousand | 0 | -12 | 1 | 11 |
| Debt from share-based payments at the end of the financial period, EUR | ||||
| thousand | 0 | 0 | 12 | 14 |
| Amounts ** | ||||
| Amounts 1 Jan | 0 | 14 675 | 10 484 | |
| Changes | ||||
| Allocated during the period | 0 | -14 675 | 4 191 | 10 484 |
| Amounts 31 Dec |
0 | 0 | 14 675 | 10 484 |
* The per-share fair value of the portion to be settled in cash changes on each reporting date until the reward is paid. The fair value of share-based payments is recognised in the amount, which is based on the best estimate of the rewards that are expected to vest.
** The share reward amounts presented in the table include both the share and cash components.
On 31 May 2010, the Board of Directors of Honkarakenne Oyj decided on an Executive Group bonus scheme, with the aim of enabling significant long-term management shareholdings in the company. To this end, Honkarakenne Oyj carried out a directed rights issue of 220,000 shares, and in addition to this the Executive Group purchased 49,000 B shares in 2010. The per-share price of the shares subscribed for and acquired in the 2010 issue was EUR 3.71 to a total of EUR 997,990.
In the second quarter of 2011, the Board of Directors decided to transfer 17 250 of its own B shares to Honka Management Oy, a holding company set up by the management, by means of a directed issue so that the new member of Honkarakenne's Executive Group, Sanna Wester, could join the scheme. The purchase price of the shares was EUR 5.26 per share to a total of EUR 90,735.
As a result of these arrangements, Honka Management Oy owns a total of 286,250 Honkarakenne Oyj B shares. The shares were acquired with cash payments from Executive Group members, totalling EUR 242,499, and loans granted by Honkarakenne Oyj in 2010- 2011, totalling EUR 851,000.
Esa Rautalinko, CEO on 1 January 2012, resigned in January 2012 and Honkarakenne Oyj redeemed his holding in Honka Management Oy on 29 March 2012 as set out in the shareholder agreement.
In accordance with the original plan, the loans granted by Honkarakenne Oyj should have been repaid in full by 1 August 2014 at the latest, but the dissolution of the arrangement has been deferred. Dissolution of the arrangement may be deferred by one year at a time, and the loan repayment date is then likewise deferred. Honka Management has the right to repay the loan prematurely at any time.
The arrangement can be dismantled by merging Honka Management Oy into Honkarakenne Oyj or by repaying the loan by selling Honkarakenne Oyj shares in an amount equal to the loan and the loan servicing costs. After the sale of said shares, the company shall pay off its debt to Honkarakenne. The remaining shares will then be distributed to the shareholders in proportion to their holdings and the shareholders shall dissolve Honka Management Oy without delay as set out in the Companies Act..
Any transfer of Honkarakenne shares held by Honka Management Oy has been limited during the plan period. In principle, the Executive Group's ownership of Honka Management shall remain in force until the plan is dismantled. If the employment or service of a member of Honkarakenne's Executive Group is terminated for reasons due to the member himself/herself prior to the dismantling of the plan, his/her holding in Honka Management may be bought out before the plan is to be dismantled, and without the member gaining any financial benefit from it.
December 2016 Honka Management Oy's shareholders by consensus agreed to dissolve the scheme, with Honkarakenne Oyj acquiring all Honka Management Oy's shares by purchase
from executives involved in the scheme at a unit price of one euro. Honkarakenne Oyj's earlier ownership of the shares in Honka Management Oy was 47 %.
Based on the shareholder agreement, Honkarakenne Oyj already had control of Honka Management Oy before the share purchase, for which reason the latter was already included in the consolidated financial statements, and the shares in the parent company owned by Honka Management Oy were deducted from the consolidated balance sheet and from the Group's unrestricted shareholders' equity.
In the Honkarakenne Group, the plan is treated as a share-reward plan paid out in cash. The plan is measured on each closing date on the basis of the fair value of Honkarakenne Oyj's B share.
In 2010-2016, no expenses related to Honka Management Oy's share ownership programme were recognised in the Group's result.
| 23. Financial liabilities EUR thousand |
2016 | 2015 |
|---|---|---|
| Non-current | ||
| Loans from financial institutions | 4 151 | 4 495 |
| Loans from related party | 300 | 0 |
| Finance lease liabilities | 7 | 33 |
| Total | 4 758 | 4 528 |
| Current | ||
| Loans from financial institutions | 900 | 3 050 |
| Finance lease liabilities | 25 | 46 |
| Total | 925 | 3 096 |
| Non-current loans from financial institutions include bank overdrafts |
1 226 | 2 470 |
The carrying amount represents the management's view of fair value.
The table below presents a contractual maturity analysis. The figures are undiscounted and include both interest payments and capital repayments.
| Maturity of financial liabilities 31 Dec |
2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Carrying amount | Cash flow *) | 2017 | 2018 | 2019 | 2020 | 2021 | 2022+ | |
| Loans from financial insti tutions |
5 351 | 5 776 | 1 052 | 1 172 | 1 287 | 1 250 | 1 016 | 0 |
| Loans from related party | 300 | 405 | 0 | 0 | 0 | 0 | 405 | 0 |
| Finance lease liabilities | 33 | 33 | 25 | 6 | 1 | 1 | ||
| Trade and other payables | 7 459 | 7 459 | 7 459 | |||||
| Total | 13 143 | 13 673 | 8 535 | 1 178 | 1 288 | 1 251 | 1 421 | 0 |
| Maturity of derivatives 31 Dec 2016 | ||||||||
| Carrying amount | Cash flow *) | 2017 | 2018 | 2019 | 2020 | 2021 | 2022+ | |
| Interest rate swaps Not included in hedge accounting |
119 | 84 | 84 | 0 | 0 | 0 | 0 | 0 |
| Currency derivatives Not included in hedge accounting |
13 | 0 | 0 | |||||
| Total | 132 | 84 | 84 | 0 | 0 | 0 | 0 | 0 |
| *) Contractual cash flow from agreements settled in gross amounts. Maturity of financial liabilities 31 Dec 2015 |
Carrying amount | Cash flow *) | 2016 | 2017 | 2018 | 2019 | 2020 | 2021+ |
| Loans from financial insti tutions |
7 545 | 8 116 | 3 197 | 1 196 | 997 | 367 | 359 | 2 000 |
| Finance lease liabilities | 79 | 82 | 48 | 26 | 6 | 1 | ||
| Trade and other payables | 8 560 | 8 560 | 8 560 | |||||
| Total | 16 184 | 16 758 | 11 805 | 1 222 | 1 003 | 368 | 359 | 2 000 |
| Maturity of derivatives 31 Dec 2015 | ||||||||
| Carrying amount | Cash flow *) | 2016 | 2017 | 2018 | 2019 | 2020 | 2021+ | |
| Interest rate swaps Not included in hedge accounting Currency derivatives |
228 | 195 | 111 | 84 | 0 | 0 | 0 | 0 |
| Not included in hedge accounting |
44 | -154 | -154 | |||||
| Total | 272 | 41 | -43 | 84 | 0 | 0 | 0 | 0 |
*) Sopimukseen perustuva rahavirta niistä sopimuksista, jotka selvitetään bruttomääräisinä.
Tilinpäätöspäivänä 2016 valuuttajohdannaisia oli 266 889 000 JPY (2015; 233 480 000 JPY ).
The sensitivity analysis includes financial liabilities in the balance sheet dated 31 December 2016 (31 Dec 2015). It has been assumed that the change in the interest rate level is one percentage point. The interest rate position is assumed to include interest-bearing financial liabilities and receivables as well as interest rate swaps on the balance sheet date, assuming that all contracts would be valid and unchanged during the entire year.
| 2016 | 2015 | |
|---|---|---|
| Statement of | Statement of | |
| MEUR | comprehensive | comprehensive |
| income | income | |
| Change in interest +/- 1 % |
+/- 0,1 |
+/- 0,1 |
Range of interest expenses for interest-bearing liabilities 31 Dec 2016:
Financial loans 1.75 – 7.00 % (2015; 1,619-3,04 %).
Maximum interest for interest rate swaps 3.98 % (2015; 3.98 %).
Most of the Group's financial loans have variable interest rates. The average interest rate on financial loans is 3.0968 % (2015; 2.4452 %).
Finance lease liabilities are discounted by using the interest rate 3.75 % (2015; 3.72 %).
he Group's functional currency is the euro. Significant foreign currency receivables and liabilities are in Japanese yen.
| 2016 | 2015 | |
|---|---|---|
| Non-current assets | ||
| Loans and receivables | 122 | 236 |
| Currrent assets | ||
| Cash and cash equivalents | 327 | 698 |
| Trade and other receivables | 177 | 265 |
| Current liabililities | ||
| Financial liabililities | 0 | 0 |
| Korottomat velat | 804 | 772 |
| Valuuttamääräiset saamiset ja velat netto | -178 | 426 |
| Other liabilities | 2 163 | 1 781 |
| Net currency risk | -2 341 | -1 355 |
The following table presents the strengthening or weakening of the euro against the Japanese yen when all other factors remain unchanged. The change percentage is assumed to be +/- 10%. The sensitivity analysis is based on yen-denominated assets and liabilities on the balance sheet date. Currency derivatives are included, but other future items are left out. Additional yen derivatives are used to cover future net sales. Net investments in foreign subsidiaries are not included in the sensitivity analysis. Changes would have been mainly caused by exchange rate changes in yen-denominated assets and liabilities.
| 2016 | 2015 | |||
|---|---|---|---|---|
| Change percentage | + 10 % | - 10 % |
+ 10 % | - 10 % |
| Impact on post-tax result | -161 | 196 | -13 | 212 |
Calculation and estimations of more or less possible changes are based on assumptions of regular market and business conditions.
Financial risks are defined and more information about them is presented in Note 28.
| Provisions | ||||
|---|---|---|---|---|
| 24. Provisions EUR thou |
Warranty | due to dispu | Restructuring | |
| sand | provisions | tes | provision | Total |
| 31 Dec 2015 | 240 | 10 | 332 | 582 |
| New provisions | -86 | 65 | 20 | -1 |
| Provisions used | -10 | -203 | -213 | |
| 31 Dec 2016 |
154 | 65 | 149 | 368 |
| 31 Dec 2014 | 200 | 130 | 592 | 922 |
| New provisions | 40 | -120 | 111 | 31 |
| Provisions used | -284 | -284 | ||
| Transferred | -86 | -86 | ||
| 31 Dec 2015 | 240 | 10 | 332 | 583 |
| 2016 | 2015 | |||
| Non-current provisions | 154 | 240 | ||
| Current provision | 214 | 343 | ||
| Total | 368 | 583 |
The Group provides a warranty on its products. During the warranty period, any product defects are repaired at the Group's expense or the customer is provided with an equivalent new product. At the end of 2016, warranty provisions amounted to EUR 154 thousand (EUR 240 thousand on 31 Dec 2015). Warranty provisions are based on experience of defective products in earlier years.
The Group has three ongoing disputes on 31 December 2016. Provisions of EUR 65 thousand have been recognised for these disputes (31 Dec 2015: two ongoing, for which provisions of EUR 10 thousand were recognised). The provisions are expected to be realised in the next few years.
The 2016 Financial Statements include EUR 20 thousand in restructuring provisions relating to personnel reductions and efficiency measures carried out in 2016. In 2016 EUR 110 thousand was used.
The 2013 Financial Statements included EUR 340 thousand in restructuring provisions relating to lay-offs and the consolidation of production in Karstula. A total of EUR 7 thousand was added to this provision in 2014 and in 2015 increase was EUR 87 thousand. Prior to reclassification of Alajärvi Mill property as non-current assets held for sale the provision included EUR 86 thousand future maintence costs and in connection of reclassification these were reclassified as liabilities of non-current assets held for sale. These were used in 2016. Remaining restructuring provision in 2015 Financial Statemens was EUR 332 thousand and of it EUR 93 thousand was used in 2016. The remaining provision for consolidaton of production includes EUR 115 thousand expenses relating to lay-offs (EUR 222 thousand in 31 Dec 2015).
| 25. Trade and other payables EUR thousand | 2016 | 2015 |
|---|---|---|
| Current financial liabilities | ||
| Trade payables | 2 096 | 2 037 |
| Other liabilities | 513 | 343 |
| Advances received from clients | 3 665 | 3 388 |
| Accruals and deferred income | 1 066 | 2 466 |
| Current financial liabilities at fair value through | ||
| profit or loss | ||
| Derivatives, not in hedge accounting | 119 | 228 |
| Total | 7 459 | 8 463 |
The carrying amounts of liabilities correspond to their fair value. The payment terms for trade payables correspond to conventional corporate terms of payment.
Essential items in accruals and deferred income include accrued employee-related expenses and interest expenses.
The fair value of derivative instruments is determined using the totalmarket value of the interest rate swap. Currency derivatives and interest rate swaps are categorised in Level 2 in the fair value hierarchy.
| Current tax liability EUR thousand | 2016 25 |
2015 56 |
|---|---|---|
| 26. Adjustments to cash flows from operations EUR thousand | 2016 | 2015 |
| Non-cash items | ||
| Depreciation and amortisation | 1 783 | 2 047 |
| Change in provisions | -214 | -339 |
| Impairment | 0 | 280 |
| Share of associated companies' result | -1 | 65 |
| Total | 1 567 | 2 053 |
| 27. Contingent liabilities EUR thousand | 2016 | 2015 |
| Collaterals and guarantees for own commitments | ||
| Corporate mortgage | 5 306 | 5 306 |
| Property mortgages | 12 081 | 20 410 |
| Guarantees for own commitments | 2 288 | 1 860 |
| Total | 19 675 | 27 576 |
Guarantees of EUR 17 387 thousand (EUR 25 716 thousand 31 Dec 2015) have been given to financial institutions for loans that will mature in 2016-2018.
Corporate and property mortgages have been pledged as guarantees for loans from financial institutions.
Guarantees for own commitments are guarantees for advance payments.
| 2016 | 2015 | |
|---|---|---|
| Liabilities for which mortgages or other collaterals have | ||
| been given | ||
| Loans from financial institutions | 5 351 | 7 545 |
| Total | 5 351 | 7 545 |
| 2016 | 2015 | |
|---|---|---|
| Finance leases | ||
| Finance lease liabilities gross amount | ||
| - Maturity of minimum lease payments |
||
| Maturing in less that one year | 26 | 48 |
| Maturing in 1-5 years | 8 | 33 |
| Total | 34 | 82 |
| Financial expenses maturing in future | -1 | -2 |
| Present value of finance lease liabilities | 33 | 79 |
| Maturity of present value of finance lease liabilities | 2016 | 2015 |
| Maturing in less that one year | 25 | 46 |
| Maturing in 1-5 years | 7 | 33 |
| Total | 33 | 79 |
Finance lease agreements have been used to acquire IT equipment and smartphones.
| Operating leases | 2016 | 2015 |
|---|---|---|
| Operating lease payments maturing in less than one year | 51 | 134 |
| Operating lease payments maturing in 1-5 years | 28 | 49 |
| Premises lease payments maturing in less than one year | 139 | 139 |
| Premises lease payments maturing in 1-5 years | 0 | 139 |
| Total | 218 | 460 |
Operating leases are for copy machines, printers and cars.
The table below presents the nominal and fair values of derivative contracts. Derivatives mature during the next 12 months with the exception of interest rate derivatives, whose maturity dates are presented separately.
| 2016 Pos. fair |
2016 Neg. fair |
2016 Fair value, |
2015 Fair value, |
2016 Nominal va |
2015 Nominal va |
|
|---|---|---|---|---|---|---|
| value | value | net | net | lues | lues | |
| Interest rate swaps | ||||||
| Not in hedge-accounting | ||||||
| Maturing 2017 | -119 | -119 | -228 | 2 800 | 2 800 | |
| Total | -119 | -119 | -228 | 2 800 | 2 800 | |
| Forward exchange contracts | ||||||
| Not in hedge-accounting | -13 | -13 | -44 | 2 163 | 1 781 |
Interest rate swaps are not included in hedge accounting, and the change in their fair values, EUR -110 thousand (EUR -92 thousand in 2015) is recognised through profit or loss.
Currency derivatives and interest rate swaps are classified in Level 2 in the fair value hierarchy.
The Group's risks are divided into strategic risks, operational risks, financial risks and the risks of damage. Risk assessment takes the probability and possible impact of these risks into consideration.
Strategic risks are associated with the nature of the company's business, and include factors such as changes in the operating environment; changes in the market situation and legislation; sourcing of raw materials; the company's business as a whole; the reputation of the company, its brands and raw materials; and large investments. The company makes a concerted effort to ensure that it has an appropriate management structure and reporting principles.
Consumer purchasing power and behaviour are influenced by global economic fluctuations in all of the company's market areas. If the current level of demand drops, this could also impact on the company's sales and profitability. The company's response to such a situation would include boosting the efficiency of the flow of goods; adjusting the personnel headcount in different positions; boosting marketing efforts; closing down unprofitable business locations; changing prices; and enhancing operational efficiency in general. Although the company is proactively managing its expenses, failure to manage the above risks could significantly hinder Honkarakenne's business, financial position, results, future prospects, and share price. Russia currently poses the greatest risk of economic fluctuations.
Economic fluctuations may also threaten the solvency of the Group's customers and its subcontractors' operations. Honkarakenne focuses on understanding customers' needs and meeting these needs by continuously developing products for new customer segments.
Any problems in distribution channels may have an effect on the demand for the company's products. This presents a particularly high risk in the Russian market, where operations rely on the performance of one single importer. Risk in Russia is also increased by the market environment in the country.
Economic recession may also decrease the value of land, shares and property owned by the parent company. The company commissions estimate documents of its properties from an external assessor at interval of three to five years.
As a matter of principle, the company seeks to rely on multiple suppliers in sourcing critical raw materials and subcontracted products in order to ensure smooth operations. Honkarakenne stretches the use of raw wood as far as possible, using every bit of wood as carefully as it can. The company's product development respects the special characteristics of raw wood. Honkarakenne manages the risks associated with competition for raw materials by continually developing its products and maintaining a strong brand and business concept.
The majority of Honkarakenne wooden houses are sold in Finland, Russia, and the CIS countries. Should any of these market areas pass new legislation that is unfavourable to the company; set unexpected taxes, customs duties or other fees payable on income from those markets; limit imports; or set any other statutory restrictions, this could have significant adverse consequences for the business operations, financial position and results of the company. The Ukrainian crisis is currently increasing this risk in Russia in particular.
Future building regulations and norms, particularly new energy and fire safety standards, may affect the profitability of the business.
The company prepares for any risks associated with legislation by means of long-term product development to ensure that Honkarakenne products always comply with all local requirements. In all of its business countries, Honkarakenne acquires all the required approvals for its products. Product development keeps a close eye on developments in energy regulations, thus enabling the company to respond effectively to changes.
Strategic risks include the sustainability of the company's management structure and reporting principles. Honkarakenne abides by the Helsinki Stock Market Corporate Governance recommendations for organising its management and business control systems. Honkarakenne believes that the Corporate Governance recommendations provide a solid governance system that clearly defines the management system and the responsibilities, rights, accountabilities and reporting relationships of employees and is transparent about the essential characteristics and principles of the system. This serves to foster trust in the Honkarakenne Group and its management.
Operational risks include risks related to both finances and operations. Financial risks are associated with goodwill, intangible rights, deferred tax assets, the ability to pay dividends, and taxation. Operational risks relate to products, distribution channels, personnel, operations and processes..
Changes in market conditions may cause risks associated with goodwill and intangible rights. No regular amortisation is recognised for goodwill or other intangible assets with an unlimited economic life; instead, they are annually tested for possible impairment. Thus goodwill is allocated to cashgenerating units or, in the case of an associated company, the goodwill is included in the acquisition cost of the company in question. According to the consolidated balance sheet of 31 December 2016, the company has about MEUR 0.1 in goodwill remaining,
The cash flow predictions used for goodwill impairment testing and the assessment of the valuation of deferred tax assets are based on the financial forecasts of the company's management. According to the consolidated balance sheet of 31 December 2016, the company had MEUR 2.6 in deferred tax assets. It is possible that the assumptions behind the cash flow forecasts will not hold true, as a result of which the
impairment of goodwill and deferred tax assets could have an unfavourable impact on the company's results and financial position.
In the financial statements, the deferred tax assets in the balance sheet include an item of MEUR 1.5 related to unused tax losses. MEUR 0.5 in tax receivables will fall due in 2019, MEUR 0.2 in 2023, MEUR 0.5 in 2024, and MEUR 0.1 in 2025. Tax receivables also contain a MEUR 0.3 item with no due date.
Although the company has posted a loss in recent years, these deferred tax assets recognised in the balance sheet can, in the company's view, be utilised by using the estimated taxable income, which is based on Honkarakenne's business plans. The positive earnings trend is supported particularly by the significant efficiency-boosting and reorganisation measures carried out in 2012-2016, including the divestment of the Alajärvi production plant, the reorganisation of work and expansion into new market and business areas. These measures have decreased the Group's expenses and earnings have developed in a positive direction. The market in this business has been tough in recent years, but it is believed that it will turn for the better. The Group's marketing outlays have yielded results. Honkarakenne was able to tap into the recovery of the Finnish market. Another indication of the earnings trend is that the Group's order book was higher on the closing date than a year earlier. Healthy construction is a growing market trend and Honkarakenne has made strong outlays on it. For instance, Honkarakenne is the only log house supplier with a VTT certificate (Healthy House). It is also expected that outlays on the Chinese market will yield results in the next few years.
If earnings do not develop as expected, it is possible that the tax assets might not be utilised in time and must be impaired. The company did not recognise new deferred tax assets in the balance sheet in 2016.
If future tax inspections find deviations that would lead to the amendment of a tax assessment, including potential tax increases or fines, this could substantially affect the company's result and financial position.
The company aims to minimise product liability risks by developing products that are as safe as possible to their users. Honkarakenne hedges against product liability risks with Group-level insurance policies. Notwithstanding these measures, it is possible that the materialisation of product liability risks would harm the Honkarakenne Group's business operations, financial position and/or results.
Operational risks at Honkarakenne are associated with the consequences of human factors, internal processes and external events. The company minimises operational risks related to factory operations by means such as systematic development efforts. The introduction of new manufacturing techniques and production lines involves cost and capacity risks. The company protects itself against them with meticulous design work and personnel training. Dependence on key suppliers of goods might increase the Group's material, machinery and spare part costs or have implications for production. Operational problems may also be associated with changes in the distribution channel and logistics systems. Operational risks include risks associated with contracts.
The Group's business operations are based on functional and reliable information systems. Honkarakenne seeks to manage the associated risks by duplicating critical information systems, carefully considering the selection of business partners and standardising workstation models, software and data security procedures. In line with the nature of the Group's business operations, trade receivables and inventories are significant balance sheet items. Honkarakenne manages the credit loss risk of trade receivables through the Group's advance payment procedures and the terms and conditions of letters of credit.
The Group's core competencies are focused on its business processes, which include marketing, sales, design, product development, production and logistics, as well as related support processes, such as information management, finance, human resources and communications. Unpredictable loss of core competencies and the inability of personnel to develop pose a risk. The company continually strives to improve both the core and other significant competencies of its personnel by offering opportunities to learn at work and attend training, as well as recruiting skilled new personnel as and when required.
The Group manages fixed asset and business interruption insurances in a centralised manner, aiming for comprehensive coverage in case of financial loss resulting from machinery breakdown, fire or other similar risks. In addition, automatic sprinkler systems have been installed on all critical production lines. Damage risks also consist of work health and occupational protection risks, environmental risks and accident risks. As part of overall risk management, the Group regularly assesses its insurance coverage. Honkarakenne uses insurance for the types of risks where it makes sound financial sense or is otherwise the best option.
The Group's business operations expose it to different kinds of financial risks. Risk management aims to minimise any negative impacts of financial market changes on the Group's result. The main financial risks for the Group include currency, interest, credit, liquidity and covenant risks. The Group's financing has been centralised at the parent company. The parent company's finance department is responsible for the management of financial risks in accordance with the principles approved by the Board of Directors.
Fluctuations in currency rates can have an unfavourable impact on Honkarakenne's results.
Honkarakenne operates in international markets, which exposes it to transaction and other risks due to foreign exchange positions. These risks arise when investments in subsidiaries made in different currencies are translated into the parent company's functional currency.
The Group hedges itself against currency risks by using the euro as the principal transaction currency for both sales and purchasing.
The Group's most significant foreign currency is the Japanese yen. In 2016, the share of the Group's net sales accounted for by yen was 11% (10% in 2015).
The Group's yen-denominated receivables and liabilities as well as a sensitivity analysis are presented in Note 23.
In the consolidated financial statements of 31 December 2016, the nominal value of open forward exchange contracts in yen was MEUR 2.2 (MEUR 1.8 in 2015). Honkarakenne does not apply hedge accounting to its forward exchange contracts.
The company hedges 0-60% of the yen-denominated net sales that are estimated to materialise during the next year. In addition, the parent company has an internal loan of MEUR 1.8 granted by the Japanese subsidiary. This loan is exposed to currency risk.
Although Honkarakenne uses financial instruments to manage its currency risks, it is possible that future exchange rates may have an unfavourable impact on Honkarakenne's business operations, financial position, results, future prospects and share price.
Fluctuations in interest rates may have an unfavourable impact on Honkarakenne's results.
The Honkarakenne Group's income and operational cash flows are mostly independent of market rate fluctuations. The Group is exposed to fair value interest risks, which are mainly associated with the loan portfolio. The Group can take out loans either on fixed or variable interest rates and hedges against the impacts of interest fluctuations with interest rate swaps. The interest risk of the Group's loans is also influenced by the interest margin added to the reference rate by financial institutions.
A significant increase in the interest rate may have a negative impact on private consumer spending. In addition, an interest rate rise may have a significant unfavourable effect on the price of borrowing and the company's current financing costs. Honkarakenne closely follows the trend in interest rates and seeks to proactively manage its interest risks. Although the company takes active steps to control its exposure, failure to manage these risks could significantly hinder
Honkarakenne's business, financial position, results, future prospects and share price.
All of the company's loans from financial institutions have variable interest rates. In addition, the company has an unsecured junior loan of MEUR 0.3 from its main shareholder, Saarelainen Oy. The junior loan has a fixed interest rate and is subordinated to bank loans.
The company also has interest rate swaps with nominal value of MEUR 2.8, which change the corresponding amount of loans into fixed interest rate loans (MEUR 2.8 in 2015).
More information on the interest rate percentages and the impact of their fluctuations is presented in Note 23.
The consolidated financial statements of 31 December 2016 include MEUR 0.5 (MEUR 0.5 in 2015) in trade receivables that are more than 180 days overdue. Most of these consist of receivables from two customers.
Trade receivables are presented by age in Note 18. Credit loss risk is managed with advance payments, bank guarantees and letters of credit for exports. Sales regions are responsible for the credit risks of trade receivables. In cases of payment defaults, the company seeks to negotiate on payment programmes or use a collection agency to collect overdue payments. The maximum amount of credit risk associated with the Group's trade receivables is equal to their carrying amount on 31 December 2016. Although the company is proactively managing its credit risk, failure to manage these risks could significantly hinder Honkarakenne's business, financial position, results, future prospects and share price.
The company makes derivative contracts only with banks that have a good credit rating. The maximum amount of credit risk associated with financial assets other than trade receivables is equal to their carrying amounts on 31 December 2016.
To maintain its ability to pay back debt, Honkarakenne depends on good cash flow.
In order to be able to execute its strategy, Honkarakenne needs positive cash flow to support the implementation of
company-set requirements and to maintain its operations, repay its debts and secure sources of financing in the future. Increases in cash flow must be built on growth in the sales of current products and Honkarakenne's success in launching profitable new products and establishing distribution channels. If Honkarakenne does not succeed in generating sufficient cash flow to support these operations, or in obtaining sufficient financing under acceptable terms, its business, financial position, results, future prospects and share price could be significantly threatened.
Honkarakenne has an MEUR 5.4 overdraft facility for short-term capital requirements. On the closing date, 31 December 2016, MEUR 1.2 of this facility was in use. Banks have the right to terminate a bank overdraft facility at short notice if Honkarakenne's ability to pay weakens substantially or for some other business reason. Overdrafts are recognised in non-current liabilities, as these are not short-term repayment obligations.
The Group seeks to continually assess and monitor the amount of financing required to ensure that it has enough liquid assets to finance its business operations and repay maturing debts. The company seeks to ensure the availability and flexibility of financing by maintaining liquid assets, utilising bank credit facilities and relying on several financial institutions to obtain financing. Honkarakenne's view is that the risk of available financing has significantly increased during the past twelve months.
Although the company is proactively managing its liquidity risk, failure to manage these risks could significantly hinder Honkarakenne's business, financial position, results, future prospects and share price.
There is also an increased risk associated with the availability of extra financing at the moment.
The financial liability table in Note 23 shows a maturity analysis. The figures have not been discounted and they include both interest payments and capital repayments.
In December 2016, the company negotiated new financing resolutions for 2017 with its financiers. Some of the new financing resolutions include EBITDA covenants. In 2017, EBITDA must be at least MEUR 1.8. Additionally, quarterly minimum values have been set for it. The EBITDA covenants apply to MEUR 2.1 in financial liabilities, of which MEUR 1.3 (1.9) already carried a 30 per cent equity ratio covenant term. If the company's sales do not develop sufficiently well, it is possible that the terms of the covenant will be broken during the next year. The company has started measures to secure additional financing with a view to ensuring the continuity of its operations.
The Group does not have any significant investments in quoted shares, and thus the risk associated with fluctuation in the market prices of these shares is not material.
Honkarakenne's capital consists of its own equity and liabilities. Through the management of capital, the company aims to ensure the viability of business operations and increase shareholder value. The company's objective for its capital structure is to maintain an economic operating environment with an equity ratio of over 35%. The company's return of capital to its owners consists of dividends and the buyback of its own shares. The long-term objective for profit distribution is between 30 and 50% of the full-year result.
| Capital structure and key indicators MEUR | 2016 | 2015 |
|---|---|---|
| Net financial liabilities | 5,0 | 6,5 |
| Total equity | 6,7 | 8,0 |
| Total net financial liabilities and equity | 11,7 | 14,5 |
| Equity ratio (%) | 41,0 | 37,1 |
| Gearing (%) | 74,7 | 81,4 |
The Group's related parties consist of subsidiaries and associated companies; the com-pany's management and any companies in which they exert influence; and those involved in the Saarelainen shareholder agreement and any companies controlled by them. The management personnel considered to be related parties comprise the Board of Directors, Presidentt & CEO, and the company's Executive Group.
The Group's parent and subsidiary relationships are as follows:
| Company | Home country |
Group owner ship and share of vot-ing rights (%) |
|---|---|---|
| Emoyritys Honkarakenne Oyj | Finland | |
| Honka Blockhaus GmbH | Germany | 100 |
| Honka Japan Inc. | Japan | 100 |
| Honkarakenne Sarl | France | 87 |
| Alajärven Hirsitalot Oy | Finland | 100 |
| Honka-Kodit Oy | Finland | 100 |
| Honka Management Oy | Finland | 100 |
Honka Management Oy, which was owned by the members of executive group of Honkarakenne Oyj, was earlier included in the consolidated financial statements due to the terms and conditions of the shareholder agreement concluded between the Honka Management Oy and Honkarakenne Oyj. In December 2016 Honkarakenne Oyj acquired shares from individual shareholders to dissolve the unprofitable scheme.
Honka Management Oy's share acquisitions were carried out with equity financing from the company's owners and a EUR 851,023 loan from Honkarakenne Oyj. Honkarakenne Oyj carried out a directed issue of 220,000 B shares in 2010 and a directed issue of 17,250 B shares in 2011. In addition, Honka Management Oy bought 49,000 Honkara-kenne B shares from its shareholders in 2010. Honka Management Oy owns a total of 286,250 Honkarakenne B shares.
| Associated companies | Domicile | Ownership (%) |
|---|---|---|
| Pielishonka Oy | Lieksa | 39,3 |
| Puulaakson Energia Oy | Karstula | 25,9 |
Business transactions with related party and related party receivables and liabilities:
| EUR thousand | Sales Purchases Receivables Liabilities |
|||
|---|---|---|---|---|
| 2016 | ||||
| Associated companies | 169 | 343 | 27 | 53 |
| Key management | 0 | 0 | 0 | 0 |
| Related parties of key management | 0 | 0 | 18 | 0 |
| Other related party | 89 | 67 | 14 | 308 |
| 2015 | ||||
| Associated companies | 236 | 363 | 16 | 97 |
| Key management | 0 | 0 | 0 | 0 |
| Related parties of key management | 75 | 0 | 488 | 0 |
| Other related party | 98 | 52 | 29 | 0 |
The pricing of goods and services in transactions with associated companies conforms to market-based pricing.
In addition the parent company has granted in 2010 and 2011 loans totalling EUR 851 thousand to Honka Management Oy, which was owned by menbers of executive group. The loans mature at latest in 2016 and the interest payable until the repayment date is 12-month euribor + 1%. An impairment of EUR 29 thousand was rec-orded for this loan in 2015 (in year 2014; Eur 364 thousand).
No credit losses were recognised to related parties in 2015 - 2016.
| Key management remuneration EUR thousand |
2016 | 2015 |
|---|---|---|
| Salaries and other short-term employee benefits | 749 | 1 050 |
| Benefits paid upon termination | 224 | 564 |
| Post-employment benefits | 206 | 319 |
| Total | 1 179 | 1 932 |
Post-employment benefits include the costs of both statutory and voluntary pension schemes. Pension schemes are defined contribution plans.
| Spesification of post-employment benefits | 2016 | 2015 |
|---|---|---|
| Statutory pension schemes | ||
| President and CEO | ||
| Mikko Kilpeläinen, CEO until 24 March 2015 | 0 | 88 |
| Mikko Jaskari, acting CEO 24 March-25 June 2015 |
0 | 17 |
| Marko Saarelainen, CEO since 25 June 2015 | 40 | 5 |
| Board members | 24 | 25 |
| Other executive group members | 89 | 111 |
| Total | 154 | 246 |
| Voluntary pension schemes | ||
| President and CEO | ||
| Mikko Kilpeläinen, CEO until 24 March 2015 | 0 | 15 |
| Mikko Jaskari, acting CEO 24 March-25 June 2015 | 0 | 9 |
| Marko Saarelainen, CEO since 25 June 2015 | 18 | 3 |
| Other executive group members | 35 | 46 |
| Total | 52 | 72 |
| Total post-employment benefits | 206 | 319 |
| Management remuneration | 2016 | 2015 |
| President and CEO | 249 | 654 |
| Board members | 144 | 141 |
| Other executive group members | 528 | 730 |
| Total | 921 | 1 525 |
| President and CEO remuneration | ||
| Mikko Kilpeläinen, CEO until 24 March 2015 | 0 | 518 |
| Mikko Jaskari, acting CEO 24 March-25 June 2015 | 0 | 32 |
| Marko Saarelainen, CEO since 25 June 2015 | 249 | 104 |
| Total | 249 | 654 |
| Total | 144 | 141 |
|---|---|---|
| Saarelainen Mauri | 24 | 25 |
| Saarelainen Jukka | 18 | 14 |
| Saarelainen Anita | 18 | 19 |
| Rauhaniemi Kati | 18 | 14 |
| Pankko Teijo | 0 | 5 |
| Krook Hannu | 5 | 18 |
| Häggblom Rainer | 14 | 0 |
| Tiitinen Arto chairman | 48 | 49 |
| Board members remuneration |
No special agreements apply to the retirement age of the President and CEO of Honkarakenne Oyj. The basic pension scheme is defined contribution-based. In addition, the President and CEO as the members of the Executive Group are covered by a defined contribution plan which cost are defined on post-employment benefits specification table.
The President and CEO of Honkarakenne Oyj has a six-month period of notice, in addition to which the CEO will receive monetary compensation equal to 6 months' pay if the employment contract is terminated at the initiative of the company.
| Key indicators of financial performance |
IFRS 2016 |
IFRS 2015 |
IFRS 2014 |
IFRS 2013 |
IFRS 2012 |
|
|---|---|---|---|---|---|---|
| Net sales | MEUR | 36,08 | 45,51 | 48,29 | 46,23 | 55,00 |
| Operating profit | MEUR | -0,81 | -2,17 | -1,69 | -4,32 | 1,90 |
| % lv:stä | -2,2 | -4,8 | -3,5 | -9,4 | 3,4 | |
| Profit/loss before taxes | MEUR | -1,15 | -2,52 | -1,65 | -4,41 | 1,09 |
| % of net sales | -3,2 | -5,5 | -3,4 | -9,5 | 2,0 | |
| Return on equity | % | -19,6 | -19,7 | -12,9 | -27,7 | 4,6 |
| Return on capital employed | % | -6,7 | -7,9 | -4,3 | -15,5 | 5,7 |
| Equity ratio | % | 41,0 | 37,0 | 38,2 | 47,4 | 52,6 |
| Net financial liabilities | MEUR | 5,0 | 8,2 | 6,1 | 1,5 | 6,1 |
| Gearing | % | 74,7 | 92,1 | 56,6 | 11,1 | 34,5 |
| Capital expenditure, gross | MEUR | 0,1 | 0,9 | 3,7 | 0,9 | 1,0 |
| % of net sales | 0,2 | 2,1 | 7,7 | 1,9 | 1,8 | |
| R&D expenditure | MEUR | 0,3 | 0,5 | 0,4 | 0,4 | 0,5 |
| % of net sales | 0,8 | 1,0 | 0,1 | 0,9 | 1,0 | |
| Order book | MEUR | 16,3 | 12,5 | 18,1 | 15,9 | 13,6 |
| Average number of personnel | 136 | 161 | 213 | 257 | 265 | |
| Key indicators per share | ||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||
| Earnings/share (EPS) | euro | -0,30 | -0,23 | -0,40 | -0,32 | -0,90 |
| Dividend per share *) | euro | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 |
| Dividend payout ratio, % | % | 0,0 | 0,0 | 0,0 | 0,0 | 0,0 |
| Effective dividend yield | % | 0,0 | 0,0 | 0,0 | 0,0 | 0,0 |
| Equity/share | euro | 1,38 | 1,61 | 1,80 | 2,20 | 2,69 |
| P/E ratio | neg. | neg. | neg. | neg. | neg. | |
*) as proposed by the Board of Directors
Calculation of key indicators
| Return on equity, % = |
Profit/loss for the period Total equity, average |
|
|---|---|---|
| Return on capital employed, %= | Profit/loss for the period + financial expenses Equity + financial liabilities, average |
|
| Equity ratio, % = |
Total equity Balance sheet total – |
advances received |
| Net financial liabi-lities = |
Financial liabilities – | cash and cash equivalents |
| Gearing, % = |
Gearing, % Total equity |
|
| Earnings/share (EPS) = |
the parent | Profit for the period attributable to equity holders of Average number of outstanding shares |
| Dividend payout ratio, % = |
Dividend per share Earnings per share |
|
| Effective dividend yield, % = |
Dividend per share | Closing share price at the balance sheet date |
| Equity/share = |
Shareholders' equity | Number of shares outstanding at the close of period |
| Price-earnings (P/E) ratio = |
Earnings per share | Share price at the balance sheet date |
| Share price trend | 2016 | 2015 | 2014 | 2013 | 2012 | |
|---|---|---|---|---|---|---|
| Highest quotation during the year | euro | 1,78 | 2,50 | 2,95 | 3,32 | 3,60 |
| Lowest quotation during the year | euro | 1,20 | 1,52 | 1,68 | 2,11 | 2,07 |
| Quotation on the balance sheet date | euro | 1,65 | 1,60 | 1,70 | 2,70 | 2,12 |
| Market capitalisation *) | MEUR | 8,0 | 7,8 | 8,2 | 13,0 | 10,2 |
| Shares traded | value of trading | 1,8 | 1,2 | 1,3 | 2,2 | 1,1 |
| trading volume percentage of total shares |
1 198 | 702 | 549 | 821 | 420 | |
| Adjusted number of shares **) | value of trading on the balance sheet |
24,7 | 14,5 | 11,3 | 17,1 | 8,7 |
| date average |
4 847 | 4 847 | 4 847 | 4 805 | 4 805 | |
| during the year | 4 847 | 4 847 | 4 840 | 4 805 | 4 805 |
*) The price of B shares has been used as the value for A shares
**) Treasury shares are not included
Major shareholders 31.12.2016 by number of shares held
| Nimi | HONAS | HONBS | Total | Nimi | HONAS | HONBS | Total | ||
|---|---|---|---|---|---|---|---|---|---|
| 1 | Saarelainen Oy | 139 100 | 503 107 | 642 207 | 16 | Mandatum Life Unit-Linked | 50 000 | 50 000 | |
| 2 | Norvestia Oyj | 451 739 | 451 739 | 17 | Lindfors Juha Antero | 47 493 | 47 493 | ||
| 3 | Honka Management Oy | 286 250 | 286 250 | 18 | Niiva Eero | 47 407 | 47 407 | ||
| 4 | Sijoitusrahasto Nordea Nordic Small Cap |
251 457 | 251 457 | 19 | Saarelainen Paula Sinikka | 3 851 | 39 758 | 43 609 | |
| 5 | Op-Suomi Pienyhtiöt | 250 000 | 250 000 | 20 | Etola Markus Eeriki | 40 000 | 40 000 | ||
| 6 | Keskinäinen Työeläkevakuutusyhtiö Varma | 222 812 | 222 812 | 21 | Tugent Oy | 40 000 | 40 000 | ||
| 7 | Ajp Holding Oy | 202 636 | 202 636 | 22 | Hämäläinen Kristiina Leila | 38 234 | 38 234 | ||
| 8 | Saarelainen Marko Tapani | 1 742 | 159 810 | 161 552 | 23 | J & K Hämäläinen Oy | 36 880 | 36 880 | |
| 9 | Lieksaare Oy | 18 500 | 142 700 | 161 200 | 24 | Saarelainen Sirkka | 35 914 | 35 914 | |
| 10 | Nordea Pankki Suomi Oyj, nominee reg. |
135 778 | 135 778 | 25 | Saarelainen Mauri Olavi | 10 456 | 23 460 | 33 916 | |
| 11 | Op-Henkivakuutus Oy | 125 000 | 125 000 | 26 | Saarelainen Anita | 3 252 | 30 375 | 33 627 | |
| 12 | Ruuska Pirjo | 5 950 | 92 857 | 98 807 | 27 | Halonen Panu Markus |
30 000 | 30 000 | |
| 13 | Saarelainen Erja Anneli | 10 456 | 68 090 | 78 546 | 28 | Lindfors Antti | 30 000 | 30 000 | |
| 14 | Honkarakenne Oyj | 78 135 | 78 135 | 29 | Pihlaja Hanna Miira Maria | 1 743 | 27 939 | 29 682 | |
| 15 | Ruponen Sonja Helena | 60 398 | 60 398 | 30 | Saarelainen Sointu Sinikka | 29 020 | 200 | 29 220 |
| Number of | Votes | ||
|---|---|---|---|
| Nominee registered shares on 31 Dec 2016 | shares | % | % of shares |
| Nordea Pankki Suomi Oyj | 135 778 | 1,2 | 2,6 |
| Skandinaviska Enskilda Banken Ab (Publ), | |||
| Helsingin Sivukonttori | 20 377 | 0,4 | 0,2 |
| Clearstream Banking S.A. | 5 500 | 0,1 | 0,1 |
| Danske Bank Oyj | 291 | 0,0 | 0,0 |
| Euroclear Bank Sa/Nv | 220 | 0,0 | 0,0 |
| Nordnet Bank Ab | 138 | 0,0 | 0,0 |
The Board members and the President and CEO own 239 095 company shares, representing 4.6 % of all shares and 4.9 % of votes.
| by number of shares held on 31 Dec 2016 |
Number of sharehol ders |
% of share holders |
Number of shares |
% of shares |
|---|---|---|---|---|
| 1-100 | 506 | 30,9 | 27 792 | 0,5 |
| 101–500 | 622 | 38,0 | 171 044 | 3,3 |
| 501–1000 | 218 | 13,3 | 181 188 | 3,5 |
| 1001–5000 | 210 | 12,8 | 483 450 | 9,3 |
| yli 5000 | 73 | 4,5 | 4 169 627 | 80,0 |
| Total | 1 629 | 99,6 | 5 033 101 | 96,6 |
| Nominee registrations | 6 | 0,4 | 162 304 | 3,1 |
| On waiting list | 12 573 | 0,2 | ||
| On joint account | 3 441 | 0,1 | ||
| Number of shares on the market |
100 | 5 211 419 | 100 |
| Ownership breakdown by sector 31 Dec 2016 |
Number of sharehol ders |
% of sharehol ders |
Number of shares |
% of shares |
|---|---|---|---|---|
| Companies | 76 | 4,6 | 1 641 794 | 31,5 |
| Financial and insurance institutions | 10 | 0,6 | 1 364 892 | 26,2 |
| Households | 1 528 | 93,5 | 2 003 148 | 38,4 |
| Non-profit organisations | 5 | 0,3 | 6 900 | 0,1 |
| Foreign registrations | 10 | 0,6 | 16 367 | 0,3 |
| Total | 1 629 | 99,6 | 5 033 101 | 96,6 |
| Nominee registrations | 6 | 0,4 | 162 304 | 3,1 |
| On waiting list | 12 573 | 0,2 | ||
| On joint account | 3 441 | 0,1 | ||
| Number of shares on the market | 100 | 5 211 419 | 100 |
In the second quarter of 2013, the Board of Directors of Honkarakenne Oyj decided on a new share-based long-term incentive plan for key employees. The performance period of the share-based incentive plan began on 1 January 2013 and will end on 31 December 2016. The potential reward for the performance period is based on the cumulative earnings per share (EPS) for 2013-2016 and on the average return on capital employed (ROCE) for 2013-2016. Any rewards for the performance period 2013-2016 will be paid partly as B shares and partly in cash in 2017. The rewards to be paid on the basis of the 2013-2016 performance period will correspond to a total maximum of about 340,000 B shares, including the amount to be paid in cash.
At the end of 2015, payouts from the share scheme were assessed as zero for the entire performance period 2013- 2016, and any amounts previously recognised for the scheme were cancelled. The assessment proved to be correct and there will be no payouts.
On 31 May 2010, the Board of Directors of Honkarakenne Oyj decided on an Executive Group bonus scheme, with the aim of enabling significant long-term management shareholdings in the company. To this end, Honkarakenne Oyj carried out a directed rights issue of 220,000 shares, and in addition to this the Executive Group purchased 49,000 B shares in 2010. In the second quarter of 2011, the Board of Directors decided to transfer 17 250 of its own B shares to Honka Management Oy, a holding company set up by the management, by means of a directed issue so that the new member of Honkarakenne's Executive Group, Sanna Wester, could join the scheme.
In the directed issue carried out in 2011, Honkarakenne transferred a total of 17,250 of its own shares (HONBS) to Honka Management Oy as part of the Executive Group share ownership scheme. The purchase price of the shares was EUR 5.26 per share to a total of EUR 90,735. After the transaction, Honka Management Oy owned 286,250 B shares in Honkarakenne Oyj.
Esa Rautalinko, CEO on 1 Jan. 2012, resigned in January 2012 and Honkarakenne Oyj redeemed his holding in Honka Management Oy on 29 March 2012 as set out in the shareholder agreement.
In accordance with the original plan, the arangement should have been effective until year 2014 and after that it was ment to be dissoluted. Depending on share price development the dissolution of the arrangement may be deferred by one year at a time. The arrangement was not dissoluted but it was deferred in 2014 and 2015.
In December 2016 Honka Management Oy's shareholders by consensus agreed to dissolve the scheme, with Honkarakenne Oyj acquiring all Honka Management Oy's shares by purchase from executives involved in the scheme at a unit price of one euro. Honkarakenne Oyj's earlier ownership of the shares in Honka Management Oy was 47 %.
At the end of the report period, the Group held 364,385 of its Honkarakenne B shares with a total purchase price of EUR 1,381,750.23. These shares represent 6.99 % of the company's all shares and 3.34 % of all votes. The purchase cost has been deducted from shareholders' equity in the consolidated financial statements.
The company's Board of Directors has an authorisation to acquire a maximum of 400,000 Honkarakenne shares with funds from unrestricted equity. These shares can be acquired to develop the company's capital structure, to finance or carry out acquisitions or other corporate arrangements, or otherwise to be conveyed or annulled. The authorisation also covers the option to acquire own shares to execute share-based incentive schemes and to accept the coampany's own B shares as a pledge. The authorisation will remain in force until the next Annual General Meeting, however expiring at the latest on June 30, 2017.
The company's Board of Directors has an authorisation to decide on a bonus or capitalisation issue of shares, as prescribed in Section 1, Chapter 10 of the Limited Liability Companies Act regarding the issue of option rights in one or more batches, under the following terms and conditions:
The authorisation will remain in force until the next Annual General Meeting, however expiring at the latest on June 30, 2017.
If a series A share is transferred to a non-shareholder otherwise than by inheritance, testament or matrimonial right, the Board of Directors must be informed of the transfer in writing.
The Board has the right to redeem the series A shares within 30 days of receiving said notifi-cation at the book value of the share in the previous financial statements by using the reserve fund or other assets exceeding the share capital. If the A shares are not redeemed for the company, the Board of Directors must inform the other series A shareholders of this without delay. Series A shareholders have the right of redemption with the same terms as described above within another 30 days. If more than one shareholder wishes to exercise his/her right of redemption, the redeemable series A shares shall be split among them in proportion to their prior holdings of series A shares in the company. If this is not possible, lots will be drawn.
Series B shares are not subject to redemption rights and there are no restrictions on their transfer.
Saarelainen Oy and certain shareholders representing the Saarelainen family signed an amended shareholder agreement on 17 February 2009. The previous shareholder agreement was signed on 21 April 1990. The parties to the agreement agreed that the shareholders will strive to exercise their voting rights unanimously at company meetings. If they are unable to reach consensus, the shareholders will vote in favour of Saarelainen Oy's position. When members of the Saarelainen family are elected to the Board of Directors of Honkarakenne Oyj, the election will be subject to an agreement based on the shareholders' unanimous decision. If the parties are unable to reach a consensus the shareholders' meeting of Saarelainen Oy will decide on which family member is to be elected based on the majority of votes given at the meeting.
According to the shareholder agreement, the shareholders agree not to sell or assign the Honkarakenne Oyj A shares they own to anyone else except a shareholder who has signed the agreement, or to Saarelainen Oy, with certain exceptions, before making such shares available under the right of first refusal to Saarelainen Oy or a party designated by Saarelainen Oy.
In addition to Saarelainen Oy, the agreement covers the following shareholders: Saarelainen Sinikka, Saarelainen Reino kuolinpesä, Saarelainen Erja, Saarelainen Mauri, Ruuska Pirjo, Saarelainen Anita, Saarelainen Kari, Saarelainen Paula, Ruponen Helena, Saarelainen Jukka, Saarelainen Sari ja Saarelainen Jari. The total shareholding of those covered by the agreement, including their underage children, is 236 282 A shares and 833 495 B shares. They hold 20.53 % of all shares, representing 50.94 % of all votes.
Disclosures concerning shares and shareholders in accordance with the Decree of the Ministry of Finance on the Regular Duty of Disclosure of an Issuer of a Security (153/2007) are also presented in the Directors' Report.
| EUR thousand | 1.1.-31.12.2016 | 1.1.-31.12.2015 |
|---|---|---|
| NET SALES | 34 293 | 37 076 |
| Change in inventories of finished goods and work in | ||
| progress, | ||
| increase (+) or decrease (-) | -270 | -373 |
| Production for own use (+) | 7 | |
| Other operating income | 298 | 282 |
| Materials and services | ||
| Materials, supplies and goods: | ||
| Purchases during the financial year | -17 909 | -19 714 |
| Increase (-) or decrease (+) in inventories | -74 | -64 |
| External services | -4 505 | -4 597 |
| Personnel expenses | -6 353 | -7 115 |
| Depreciation, amorsation and imparment | ||
| Depreciation and amorsation | -1 719 | -1 908 |
| Impairment | -279 | |
| Other operating expenses | -4 719 | -4 576 |
| OPERATING PROFIT/LOSS | -958 | -1 262 |
| Financial income and expenses | ||
| Income from shares in Group companies | 1 401 | |
| Other interest and financial income | 182 | 152 |
| Interest and other financial expenses | -548 | -625 |
| PROFIT/LOSS BEFORE APPROPRIATIONS AND TAXES | 77 | -1 735 |
| Appropriations | ||
| Increase (-) or decrease (+) in depreciation difference | 0 | -3 |
| Taxes | ||
| Income taxes | -140 | 0 |
| Changes in deferred tax assets PROFIT/LOSS FOR THE PERIOD |
-84 -147 |
149 -1 589 |
Assets
| NON-CURRENT ASSETS | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Intangible assets | ||
| Intangible rights | 138 | 221 |
| Tangible assets | ||
| Land and water | 867 | 977 |
| Buildings and structures | 5 581 | 6 896 |
| Machinery and equipment | 3 506 | 4 488 |
| Other tangible assets | 10 | 106 |
| Advance payments and aquisitions in progress | 46 | 21 |
| 10 010 | 12 487 | |
| Investments | ||
| Holdings in Group companies | 348 | 367 |
| Investment in assosiated companies | 439 | 439 |
| Other shares and holdings | 42 | 42 |
| Other receivables from Group companies | 1 600 | 1 600 |
| 2 430 | 2 449 | |
| TOTAL NON-CURRENT ASSETS | 12 577 | 15 614 |
| CURRENT ASSETS | 31.12.2016 | 31.12.2015 |
| Inventories | ||
| Work in progress | 1 761 | 2 126 |
| Finished products/goods | 423 | 328 |
| Other inventories | 1 244 | 1 307 |
| 3 428 | 3 761 | |
| Receivables | ||
| Non-current receivables | ||
| Receivables from Group companies | 458 | 458 |
| Loan receivables | 20 | 20 |
| Deferred tax assets | 1 158 | 1 243 |
| 1 636 | 1 720 |
| Current receivables | ||
|---|---|---|
| Trade receivables | 1 393 | 1 203 |
| Receivables from Group companies | 1 359 | 1 005 |
| Receivables from associated companies |
27 | 16 |
| Other receivables | 768 | 964 |
| Accrued income | 45 | 857 |
| 3 593 | 4 045 | |
| Cash and bank | 4 | 194 |
| TOTAL CURRENT ASSETS | 8 661 | 9 720 |
| Total assets | 21 239 | 24 877 |
| EUR thousand Equity and liabilities |
31.12.2016 | 31.12.2015 |
|---|---|---|
| SHAREHOLDERS' EQUITY | ||
| Share capital | 9 898 | 9 898 |
| Share premium account | 520 | 520 |
| Fund for Invested unrestricted equity | 6 579 | 6 579 |
| Retained earnings | -9 802 | -8 212 |
| Profit/loss for the period | -147 | -1 589 |
| TOTAL SHAREHOLDERS' EQUITY | 7 048 | 7 195 |
| ACCUMULATED APPROPRIATIONS | ||
| Depreciation difference | 21 | 21 |
| PROVISIONS | ||
| Other provisions | 334 | 659 |
| LIABILITIES | ||
| Non-current | ||
| Loans from financial institutions | 4 151 | 4 495 |
| Loans from Group companies | 1 800 | 1 800 |
| Loans from related party | 300 | 0 |
| Loans from accosiated companies | 0 | 97 |
| 6 251 | 6 392 | |
| Current | ||
| Loans from financial institutions | 900 | 3 050 |
| Advances received | 3 090 | 2 767 |
| Trade payables | 1 306 | 1 850 |
| Liabilities to Group companies | 207 | 212 |
| Other payables | 161 | 156 |
| Accrued liabilities | 1 920 | 2 574 |
| 7 584 | 10 609 | |
| TOTAL LIABILITIES | 13 835 | 17 001 |
| Total equity and liabilities | 21 239 | 24 877 |
| EUR thousand CASH FLOW FROM OPERATING ACTIVITIES |
2016 | 2015 |
|---|---|---|
| Profit/loss for the period | -147 | -1 589 |
| Adjustements for: | ||
| Depreciation and reduction in value |
1 719 | 2 187 |
| Other non-cash items | -325 | -133 |
| Financial income and expenses | -1 035 | 473 |
| Other adjustments | 84 | -150 |
| Cash flow before working capital changes | 296 | 788 |
| CHANGE IN WORKING CAPITAL | ||
| Change in current trade receivables | 452 | 671 |
| Change in inventories | 333 | 437 |
| Change in current liabilities | -797 | 390 |
| Cash flow before financial items and taxes | 284 | 2 287 |
| Paid interest and other financial expences | -595 | -623 |
| Dividends received | 1 401 |
0 |
| Interest received | 145 | 133 |
| Paid taxes | -140 | 0 |
| Cash flow from operating activities | 1 095 | 1 796 |
| CASH FLOW FROM INVESTING ACTIVITIES | ||
| Investments in tangible and intangible assets | -88 | -103 |
| Capital gains on tangible and intangible assets | 998 | 16 |
| Investments in subsidiaries | -1 | 0 |
| Cash flow from investing activities | 910 | -87 |
| CASH FLOW FROM FINANCING ACTIVITIES | ||
| Proceeds from current loans | 0 | 185 |
| Proceeds from non-current loans | 300 | 0 |
| Repayment of non-current loans | -2 494 | -1 710 |
| Cash flow from financing activities | -2 194 | -1 525 |
| Net change in cash and cash equivalents | -190 | 185 |
| Cash and cash equivalents, 1 Jan | 194 | 9 |
| Cash and cash equivalents, 31 Dec | 4 | 194 |
Assets have been activated at the direct acquisition cost. The 'Buildings and struc-tures' category includes revaluations made in accordance with the old Accounting Act, and the validity of the grounds for these revaluations are examined annually.
Planned depreciation has been calculated using the acquisition cost and determined on a straight-line basis over the estimated economic life of the asset. A period of 12 years has been set as the useful lifetime of new factory production lines in the 'Machinery and equipment' category.
Depreciation and amorsation periods according to plan are: Immaterial rights 5–10 years Goodwill 5 years Buildings and structures 20–30 years Machinery and equipment 3–12 years Other tangibles 3–10 years
The value of inventories has been determined using the first-in, first-out (FIFO) principle at the acquisition cost, or at the probable replacement or transfer price if this is lower.
The company's derivatives include forward exchange contracts and interest rate swap agreements. The company uses forward exchange contracts to hedge against predicted changes in foreign-currency sales. Forward exchange contracts are used to hedge against almost 50 per cent of the company's predicted foreign-currency cash flows for the upcoming 12 months.
Interest rate swap agreements are used to change the interest rates on the company's loans from financial institutions from variable to fixed rates. Interest rate swap agreements are made with a maximum original maturity of 10 years, and interest rates are redefined at three- to sixmonth intervals.
In the Financial Statements, derivatives are valued at their fair value. Changes in fair value have been recognised through profit and loss under other financial income and expenses.
Personnel's statutory pension obligations have been handled via pension insurance companies.
Deferred tax assets or liabilities have been calculated using the temporary dif-ferences between taxation and the Financial Statements, using the tax rate for the coming years that was confirmed on the closing date. The balance sheet includes deferred tax liabilities in their entirety, while deferred tax assets have been entered at their estimated value.
Foreign-currency receivables and liabilities have been translated into euros using the exchange rate on the closing date.
| 1.1. Net sales (EUR thousand) |
2016 | 2015 |
|---|---|---|
| Distribution of net sales | ||
| Finland & Baltics |
18 309 | 16 247 |
| Russia & CIS | 10 190 | 12 029 |
| Global Markets | 5 794 | 8 800 |
| Total | 34 293 | 37 076 |
Finland & Baltics includes other than Finland EUR 0 thousand (EUR 0 thousand).
| 1.2. Other operating income (EUR thousand) Government grants |
2016 83 |
2015 191 |
|---|---|---|
| Rental income | 70 | 88 |
| Gain on disposal of fixed assets | 48 | 1 |
| Credit for disfuntional fixed assets |
97 | 0 |
| 1.3. Notes concerning personnel and members of administrative bodies | ||
|---|---|---|
| Personnel expenses (EUR thousand) |
2016 | 2015 |
| Wages and salaries | 5 210 | 5 767 |
| Pension costs | 869 | 1 107 |
| Social costs | 274 | 241 |
| Total | 6 353 | 7 115 |
| Average number of personnel | ||
| Workers | 69 | 68 |
| Clerical and managerial employees | 61 | 63 |
| Total | 130 | 132 |
| Number of personnel in person-years, average | ||
| Workers | 48 | 51 |
| Clerical and managerial employees | 55 | 56 |
| Total | 103 | 107 |
| Management remuneration (EUR thousand) | 2016 | 2015 |
| President and CEO and board members | 388 | 790 |
| President and CEO remuneration | ||
| Kilpeläinen Mikko | 0 | 518 |
| Saarelainen Marko | 244 | 99 |
| Jaskari Mikko (acting CEO) | 0 | 32 |
| 244 | 649 | |
| Board members remuneration | ||
| Tiitinen Arto chairman | 48 | 49 |
| Häggblom Rainer | 14 | 0 |
| Krook Hannu | 5 | 18 |
| Pankko Teijo | 0 | 5 |
| Rauhaniemi Kati | 18 | 14 |
| Saarelainen Anita | 18 | 19 |
| Saarelainen Jukka | 18 | 14 |
| Saarelainen Mauri | 24 | 25 |
| Total | 144 | 141 |
| Business transactions with related party (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Purchases | 410 | 415 |
| Sales | 258 | 409 |
| Write-offs and impairments from loans and other receiva |
||
| bles from related party | 0 | 55 |
| Loans to related party, granted this period | 0 | 0 |
| Loans to related party, granted earlier | 458 | 458 |
| Loans from related party, granted this period | 300 | 0 |
| Loand from related party, granted earlier | 0 | 0 |
Related parties consist of subsidiaries and associated companies; the company's management and any companies in which they exert influence; and those involved in the Saarelainen shareholder agreement and any companies controlled by them. The management personnel considered to be related parties comprise the Board of Directors, President & CEO, and the company's Executive Group.
Related-party transactions are ordinary business transactions on market-based terms.
| 1.4. Depreciation, amortisation and impairment (EUR thousand) |
2016 | 2015 |
|---|---|---|
| Depreciation and amortisation according to plan | ||
| Immaterial rights | 92 | 118 |
| Buildings and structures | 563 | 575 |
| Machinery and equipment | 998 | 1 089 |
| Other tangible assets | 66 | 126 |
| Total depreciation and amortisation according to plan | 1 719 | 1 908 |
| Reduction in value of non-current assets | 0 | 279 |
| Total depreciation, amortisation and impairment | 1 719 | 2 187 |
| 1.5. Audit fees (EUR thousand) |
2016 | 2015 |
| Audit | 78 | 44 |
| Tax consulting | 0 | 0 |
| Other services | 32 | 53 |
| Total | 110 | 97 |
| 1.6. Financial income and expenses (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Dividends from Group companies | 1 401 | 0 |
| Interest income | 28 | 11 |
| Impairment of non-current investments | -20 | -29 |
| Interest expenses | -234 | -333 |
| Other financial expenses | -35 | -6 |
| Exchange rate gains/losses | -137 | -102 |
| Value changes of currency derivatives | 31 | -14 |
| Total | 1 035 | -473 |
| 1.7. Income taxes (EUR thousand) |
2016 | 2015 |
| Paid taxes | -140 | 0 |
| Change in deferred taxes | -84 | 149 |
| Total | -225 | 149 |
| 2.1. Parent company's intangible assets 2016 EUR thousand |
Immaterial rights |
Other capitalised expenditures |
Advance payments |
Intangible assets total |
|---|---|---|---|---|
| Cost 1 Jan | 5 106 | 2 148 | 7 254 | |
| Increase | 9 | 9 | ||
| Reclassifications | -20 | -57 | -77 | |
| Cost 31 Dec | 5 095 | 2 091 | 0 | 7 186 |
| Accumulated amortisation 1 Jan | -4 884 | -2 148 | -7 033 | |
| Accumulated amortisation of disposals and reclassifi | ||||
| cations | 19 | 57 | 77 | |
| Amortisation for the period | -92 | -92 | ||
| Accumulated amortisation 31 Dec | -4 957 | -2 091 | 0 | -7 048 |
| Carrying amount 31 Dec | 138 | 0 | 0 | 138 |
| Emoyhtiön aineettomat hyödykkeet 2015 EUR thousand |
Immaterial rights |
Other capitalised expenditures |
Advance payments |
Intangible assets total |
| Cost 1 Jan | 5 055 | 2 148 | 49 | 7 252 |
| Increase | 1 | 1 | ||
| Reclassifications | 49 | -49 | 0 | |
| Cost 31 Dec | 5 106 | 2 148 | 7 254 | |
| Accumulated amortisation 1 Jan | -4 767 | -2 148 | -6 915 | |
| Accumulated amortisation of disposals and reclassifi | 0 | |||
| cations | ||||
| Amortisation for the period | -118 | -118 | ||
| Accumulated amortisation 31 Dec | 0 | |||
| Carrying amount 31 Dec |
-4 884 | -2 148 | -7 033 |
| Advance | Tangible | |||||
|---|---|---|---|---|---|---|
| 2.2. Parent company's tangible asset 2016 EUR thousand | Land and water |
Buildings and structures |
Machinery and equipment |
Other tangible assets |
payments and work in progress |
assets total |
| Cost 1 Jan | 1 269 | 21 826 |
37 380 | 2 931 | 21 | 63 428 |
| Increase | 13 | 87 | 100 | |||
| Disposals | -425 | -5 920 | -9 922 | -449 | -16 716 | |
| Reclassifications | 3 | 59 | -62 | |||
| Cost 31 Dec | 844 | 15 909 | 27 530 | 2 482 | 46 | 46 811 |
| Accumulated depreciation 1 Jan | -316 | -15 400 | -32 893 | -2 826 | -51 434 | |
| Accumulated depreciation of disposals and reclassifications |
316 | 5 165 | 9 867 | 420 | 15 767 | |
| Depreciation for the period |
-563 | -998 | -66 | -1 627 | ||
| Impairment | ||||||
| Accumulated amortisation 31 Dec | -10 798 | -24 024 | -2 472 | -37 294 | ||
| Revaluations | 24 | 470 | 494 | |||
| Carrying amount 31 Dec | 867 | 5 581 | 3 506 | 10 | 46 | 10 010 |
The carrying amount of production machinery and equipment on 31 Dec 2016 was EUR 3 493 thousand (EUR 4 470 thousand in 2015). Revaluations are based on the assessment of the value of assets.
| Parent company's tangible asset 2015 EUR thousand | Land and water |
Buildings and structures |
Machinery and equipment |
Other tangible assets |
Advance payments and work in progress |
Tangible assets total |
|---|---|---|---|---|---|---|
| Cost 1 Jan | 1 352 | 21 844 | 37 421 | 2 931 | 63 548 | |
| Increase | 23 | 44 | 67 | |||
| Disposals | -83 | -18 | -63 | -23 | -187 | |
| Reclassifications | 0 | |||||
| Cost 31 Dec | 1 269 | 21 826 | 37 380 | 2 931 | 21 | 63 428 |
| Accumulated depreciation 1 Jan | -320 | -14 666 | -31 803 | -2 693 | -49 482 | |
| Accumulated depreciation of disposals and reclassifications |
4 | 31 | 34 | |||
| Depreciation for the period | -568 | -1 089 | -126 | -1 783 | ||
| Impairment | 5 | -170 | -31 | -7 | -203 | |
| Kertyneet poistot 31.12. | -316 | -15 400 | -32 893 | -2 826 | -51 434 | |
| Arvonkorotukset | 24 | 470 | 494 | |||
| Carrying amount 31 Dec | 977 | 6 896 | 4 488 | 106 | 21 | 12 487 |
The carrying amount of production machinery and equipment on 31 Dec 2015 was EUR 4 470 thousand (EUR 5 603 thousand in 2014).
Revaluations are based on the assessment of the value of assets.
| Parent company's investments 2016 EUR thousand | Holdings in Group companies |
Holdings in associated companies |
Other shares and holdings |
Other receivables from Group companies |
Investments total |
|---|---|---|---|---|---|
| Cost 1 Jan | 367 | 439 | 42 | 1 600 | 2 449 |
| Increase | 1 | 1 | |||
| Disposals | -20 | -20 | |||
| Cost 31 Dec | 348 | 439 | 42 | 1 600 | 2 430 |
| Carrying amount 31 Dec | 348 | 439 | 42 | 1 600 | 2 430 |
Holdings in Group companies includes EUR 8 thousand of Honka Management Oy shares which are valued at acquisition costs less an impairment amounting EUR 28 thousand recognised in 2014.
The parent company has EUR 1 600 thousand non-current capital loan receivable from German subsidiary and that is valued at acquistion cost. On the closing date 2016 the German subsidiary equity totals negative EUR 659 thousand excluding the capital loan. Based on management's view the German subsidiary is expected to grow in future years. The balance sheet values of German subsidiary are valued on future cash flows according to business plan.
| Parent company's investments 2015 EUR thousand | Holdings in Group companies |
Holdings in associated companies |
Other shares and holdings |
Other receivables from Group companies |
Investments total |
|---|---|---|---|---|---|
| Cost 1 Jan | 367 | 439 | 42 | 1 600 | 2 449 |
| Cost 31 Dec | 367 | 439 | 42 | 1 600 | 2 449 |
| Carrying amount 31 Dec | 367 | 439 | 42 | 1 600 | 2 449 |
Holdings in Group companies includes EUR 7 thousand of Honka Management Oy shares which are valued at acquisition costs less an impairment amounting EUR 28 thousand recognised in 2014.
The parent company has EUR 1 600 thousand non-current capital loan receivable from German subsidiary and that is valued at acquistion cost. On the closing date 2015 the German subsidiary equity totals negative EUR 586 thousand excluding the capital loan. Based on management's view the German subsidiary is expected to grow in future years. The balance sheet values of German subsidiary are valued on future cash flows according to business plan.
| Group companies | Holding and votes % of the parent company and the Group |
|---|---|
| Honka Blockhaus GmbH, Saksa | 100 % |
| Honka Japan Inc., Japani | 100 % |
| Honkarakenne Sarl, Ranska | 87 % |
| Alajärven Hirsitalot Oy, Alajärvi | 100 % |
| Honka-Kodit Oy, Tuusula | 100 % |
| Honka Management Oy | 100 % |
| Holding and votes % | |
|---|---|
| of the parent company | |
| Associated companies | and the Group |
| Pielishonka Oy, Lieksa, Finland | 39,3 % |
| Puulaakson Energia Oy, Karstula, | |
| Finland | 25,9 % |
Other inventories consist of EUR 106 thousand (EUR 106 thousand) in timeshares and EUR 1 138 thousand (EUR 1 201 thousand) in land and water. Other inventories are measured at acquisition cost or at fair market value, whichever is lower.
| 2.6.1. Non-current receivables (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Receivables maturing in more than one year | ||
| Loan receivables | 20 | 20 |
| Loan receivables from the company owned by | ||
| top management | 458 | 458 |
The parent company has EUR 458 thousand loan receivable from Honka Management Oy, a company owned by senior management, an impairment amounting EUR 393 thousand was recognised on that loan in 2014-2015. The loan matured on 31 August 2014, but the dissolution of the company was delayed. The interest payable until the repayment date is 12-month euribor + 1%. If the dismantling of Honka Management Oy is delayed by one year, the repayment date of the loan will be delayed correspondingly. In December 2016 it was decided to dissolve the scheme and the parent company acquired all rest shares of Honka Management Oy by purchase from executives involved in scheme.
| 2.6.2. Deferred tax assets and liabilities EUR thousand | 2016 | 2015 |
|---|---|---|
| Deferred tax assets | 1 158 | 1 242 |
Defered tax assets recognised in financial statements 2016 consists of parent company's confirmed tax losses carried forward. Management carefully reviewed the valuation of the deferred tax assets recognised for tax losses carried forward when preparing the financial statements. The recognised deferred tax assets are based on the management's view of future development.
Although the company has posted a loss in recent years, these deferred tax assets recognised in the balance sheet can, in the company's view, be utilised by using the estimated taxable income, which is based on Honkarakenne's business plans.
The positive earnings trend is supported particularly by the significant efficiency-boosting and reorganisation measures carried out in 2012-2016, including the divestment of the Alajärvi production plant, the reorganisation of work and expansion into new market and business areas. These measures have decreased the Group's expenses and earnings have developed in a positive direction.
The development of Group's result bebore taxes 2012-2016 is presented below: (EUR thousand)
| 2016 | 2015 | 2014 | 2013 | 2012 | |
|---|---|---|---|---|---|
| Group's result before taxes | -1 152 | -1 723 | -2 523 | -1 651 | -4 409 |
The market in this business has been tough in recent years, but it is believed that it will turn for the better. The Group's marketing outlays have yielded results. Honkarakenne was able to tap into the recovery of the Finnish market. Another indication of the earnings trend is that the Group's order book was higher on the closing date than a year earlier
Healthy construction is a growing market trend and Honkarakenne has made strong outlays on it. For instance, Honkarakenne is the only log house supplier with a VTT certificate (Healthy House). It is also expected that outlays on the Chinese market will yield results in the next few years.
Specification of most significant deferred tax assets which have not been recognised due to uncertainities in realisation (EUR thousand):
| 2016 | 2015 | |
|---|---|---|
| Reorganising provision | 149 | 222 |
| Impairment recognised in fixed assets and unused tax depre | 3 324 | 1 763 |
| ciation |
| 2.6.3. Receivables from Group companies (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Saamiset saman konsernin yrityksiltä | ||
| Trade receivables |
1 196 | 883 |
| Other receivables | 163 | 121 |
| Total | 1 359 | 1 005 |
| 2.6.4. Accrued income EUR thousand |
2016 | 2015 |
| VAT on advances received | 5 | 5 |
| Capitalised sales provisions for uninvoiced orders | 0 | 751 |
| Accrued government grant (Tekes) | 0 | 100 |
| Lisäprovision ennakkomaksu | 36 | 0 |
| Other accrued income | 4 | 1 |
| Total | 45 | 857 |
| 2.7 Shareholders' equity (EUR thousand) | 2016 | 2015 |
| Capital stock 1 Jan | 9 898 | 9 898 |
| Capital stock 31 Dec | 9 898 | 9 898 |
| Share premium 1 Jan | 520 | 520 |
| Share premium 31 Dec | 520 | 520 |
| Restricted equity | 10 418 | 10 418 |
| Fund for invested unrestricted equity 1 Jan | 6 579 | 6 579 |
| Fund for invested unrestricted equity 31 Dec | 6 579 | 6 579 |
| Retained earnings 1 Jan | -9 802 | -7 903 |
| Edellisten tilikausien voittovaroihin kohdistuvat | ||
| Adjustment for profit of previous years | 0 | -309 |
| Profit/loss for the period | -147 | -1 589 |
| Retained earnings 31 Dec | -9 949 | -9 802 |
| Unrestricted equity | -3 370 | -3 223 |
| Total equity | 7 048 | 7 195 |
| Statement of distributable equity 31 Dec | 2016 | 2015 |
| Profit from previous financial years | -9 802 | -7 903 |
| Adjustment for profit of previous years | 0 | -309 |
| Profit/loss for the period | -147 | -1 589 |
| Fund for invested unrestricted equity | 6 579 | 6 579 |
| Loan to Honka Management Oy | -458 | -458 |
|---|---|---|
| Total | -3 828 | -3 681 |
| Statement of distributable earnings 31 Dec | 2016 | 2015 |
| Profit from previous financial years | -9 802 | -7 903 |
| Adjustment for profit of previous years | 0 | -309 |
| Profit/loss for the period | -147 | -1 589 |
| Loan to Honka Management Oy | -458 | -458 |
| Total | -10 407 | -10 260 |
The parent company's shares are divided into share classes as follows:
| votes | shares | |
|---|---|---|
| A shares total (20 votes per share) | 6 001 920 | 300 096 |
| B shares total(1 vote per share) | 4 911 323 | 4 911 323 |
| A ja B shares total | 10 913 243 | 5 211 419 |
| 2.8. Provisions (EUR thousand) | 2016 | 2015 |
| Warranty provision | 120 | 240 |
| Restructuring provision, non-current | 65 | 0 |
| Restructuring provision, current | 149 | 419 |
| Total | 334 | 659 |
EUR 115 thousand (EUR 260 thousand) of the restructuring provision is related to the closing of the Alajärvi factory, EUR 14 thousand (EUR 48 thousand) to redundancy and efficiency measures in 2013 and EUR 20 thousand to redundacy and efficiency measures in reporting year (EUR 110 thousand).
Current restructuring provision includes EUR 149 thousand (EUR 284 thousand) in redundancy expenses and EUR 0 thousand (EUR 86 thousand) in property maintenance expenses.
| 2.9.1. Non-current liabilities (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Liabilities maturing in five years or more | ||
| Loans from financial institutions | 0 | 0 |
| Loans from financial institutions includes bank over-drafts | 1 226 | 2 470 |
| Loans from Group companies | ||
| Other loans | 1 800 |
1 800 |
| Loans from assosiated companies | ||
| Other loans | 0 | 97 |
| 2.9.2. Current liabilities (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Liabilities to Group companies | ||
| Trade payables | 150 | 154 |
| Other payables | 57 | 57 |
| Total | 207 | 212 |
| 2.9.3. Accrued liabilities (EUR thousand) |
2016 | 2015 |
| 970 | 1 012 | |
| Wages and salaries, including social costs | 59 | 94 |
| Accrued interest costs | 186 | 467 |
| Provisions | 131 | 272 |
| Accrued derivates | 151 | 266 |
| Accrued purchase invoices | 300 | 340 |
| Accrued other costs | 123 | 123 |
| Total | 1 920 | 2 574 |
Accrued derivates include fair value of forward exchange contracts and intrest rate swaps on closing date. Change in fair value is recognised in income statement in other financial income and expences. The fair value change in 2016 is EUR 31 thousand (EUR -14 thousand in 2015).
| 3. Pledges given (EUR thousand) | 2016 | 2015 |
|---|---|---|
| Debts and liabilities secured with real estate | ||
| mortgages, mortgages on company assets | ||
| and pledged shares | ||
| Loans from financial institutions | 5 351 | 7 545 |
| Total | 5 351 | 7 545 |
| Given to secure the above | ||
| Real estatem mortgages | 12 081 | 20 409 |
| Mortgages on company assets | 5 306 | 5 306 |
| Total | 17 387 | 25 716 |
| Guarantees given | ||
| Guarantees for own commitments | 2 288 | 1 860 |
| Total | 2 288 | 1 860 |
| Amounts payable on leasing contracts | ||
| Payable in the next financial year |
77 | 182 |
| Payable later | 35 | 82 |
| Total | 112 | 264 |
| Amonts payable on rented locations | ||
| Payable in the next financial year | 139 | 139 |
| Payable later | 0 | 139 |
| Total | 139 | 277 |
Information about shares and shareholders is represented in Notes to Group, note 32 and in Directors' report.
| Overall group materiality | € 360.000 (previous year € 370.000) |
|---|---|
| How we determined it | 1% of total revenue |
| Rationale for the materiality benchmark applied |
We chose total revenue as the benchmark because, in our view, it is the benchmark against which the performance of the the group is most commonly measured by users, and is a generally accepted benchmark. We chose 1% which is within the range of acceptable quantitative materiality thresholds in auditing standards. |
| Key audit matter in the audit of the group | How our audit addressed the key audit matter |
|---|---|
| Financial risks | |
| If the company's sales do not develop sufficiently well, it is possible that the terms of the covenant will be broken during the next year. According to our understanding a covenant breach could lead to expiration of the loans and consequently to shortage of liquidity. The company has started measures to secure additional financing with a view to ensuring the continuity of its operations. |
Our audit plan included review of processes relating to financing of the company, and we evaluated management capability to prepare result forecasts, as well as matters related to sufficiency of funding. Our audit focused on the following matters: We compared the company's estimates for previous years with actual results to assess forecast accuracy. |
| In December 2016, the company negotiated new financing resolutions for 2017 with its financiers. Some of the new financing resolutions include |
We tested the estimates and forecasts for mathematical accuracy and reconciled the information with plans approved by the managament |
Honkarakenne Oyj observes the Finnish Limited Liability Companies Act and the Corporate Governance Code 2015 for listed companies issued by the Finnish Securities Market Association (which came into force on 1 January 2016). The Corporate Governance Code is publicly available on the Finnish Securities Market Association's website, www.cgfinland.fi.
The information stipulated by the Corporate Governance Code is available for viewing on the company's website at www.honka.com/en/investors.
The Corporate Governance Statement is issued separately from the Report by the Board of Directors.
The Board of Directors is responsible for the proper governance and organisation of the operations of Honkarakenne Oyj and, as set out by the Articles of Association, the Board has between three and eight members. The Annual General Meeting decides on the number of Board members and elects the members to the Board. The term of Board members expires at the end of the first Annual General Meeting following their election.
The Board members for the accounting period of 2016 were::
Chairman and member of the Board since 2014
Board member since 2016
M.Sc. (Agriculture and Forestry), University of Helsinki 1980, M.Sc. M.Sc. (Econ.), Helsinki School of Economics 1984 (Aalto University)
Full-time Chairman of the Board Häggblom & Partners Ltd. Oy 2008-, full-time Chairman of the Board Pöyry Forest Consulting 2006-2008, full-time Chairman of the Board Jaakko Pöyry Consulting Oy 1999-2006, Managing Director Jaakko Pöyry Consulting 1992-1999, Director Jaakko Pöyry Consulting 1990-1992, several positions Jaakko Pöyry Group 1984-1990
Board member since 2015
Board member since 2014
Board member since 2015
Board member since 1994, Chairman of the Board 2004–2008
Board member since 2014 and until 15 April 2016
The Board convenes as scheduled at the initial organisation meeting of the year (10–11 meetings per year). The Board may also hold additional meetings as required, making the total number of meetings between 12 and 30 annually. Scheduled meetings discuss the company's current situation and its future prospects based on information presented by the CEO. A general outline of themes and topics for the rest of the year is agreed upon, allowing the Executive The Annual General Meeting of 15 April 2016 decided that Board members shall be paid a monthly fee of EUR 1,500, the Chairman a monthly fee of EUR 4,000 and the Vice Chairman a monthly fee of EUR 2,000. In addition, the Board members are paid per diems and their travel costs are reimbursed against an invoice. If the Board establishes committees from
amongst its members, the Board committee members will be paid EUR 500 per meeting. The Board of Directors elected at the Annual General Meeting of 15 April 2016 established a Nomination and Remuneration Committee from amongst its number. The following persons were elected as members of the Nomination and Remuneration Committee: Arto Tiitinen (Chairman of the committee), Anita Saarelainen and Mauri Saarelainen.
The Board has a responsibility to make decisions on company strategy, goals and objectives
The Board held 28 Board meetings in 2016. The Board members' meeting attendance rate was 94%.
The Board's Remuneration and Nomination Committee met once and the attendance was 100%.
The Board of Directors appoints a CEO, who leads the company's operations according to the instructions and specifications supplied by the Board. The CEO is responsible for the legality of company accounts and the reliable management of company finances. The Board of Directors approves the key terms of the CEO's employment in a written contract of employment.
Born in 1967 in Lieksa, Finland
Marko Saarelainen has a CEO's employment contract with monthly salary and benefits amounting to EUR 17,500. Saarelainen also has a personal incentive bonus arrangement. If the annual performance targets approved by the Board of Directors are achieved, he receives a maximum bonus equating to 50% of his annual salary for that year. The President & CEO's retirement age complies with current legislation. A sum equivalent to one month's salary is paid into the CEO's pension fund annually. Moreover, if separate performance targets are met, the Board of Directors may decide to pay an additional sum, equivalent to one month's salary, into the members' pension funds. Saarelainen's period of notice is six months. If the company decides to terminate Mr Saarelainen's employment, he shall have the right to receive an additional severance payment equivalent to his salary for six months.
The CEO of Honkarakenne Oyj acts as the Chairman of the Executive Group, whose members include directors from different operational departments of the company. The Executive Group convenes 15–25 times per year.
In addition to CEO Marko Saarelainen, the Executive Group has the following members:
Vice President, Design
Principal Designer 1997-2006. Architects Jouni Koiso-Kanttila Oy: Project Architect 1999-2002, 1997. City of Iisalmi: Town Planning Architect 2001. City of Kiuruvesi and Municipality of Vieremä: Assistant Town Planning Architect, 1995.
• Holds 10,000 Series B shares
For a part of the year, the Executive Group also included:
Chief Financial Officer until 31 July 2016
Vice President, Operations until 30 June 2016
The members of the Executive Group receive compensation which consists of a fixed monthly salary and an incentive bonus scheme. In addition, a sum equivalent to one month's salary is paid annually into each member's pension fund. Moreover, if separate performance targets are met, the Board of Directors may decide to pay an additional sum, equivalent to one month's salary, into the members' pension funds.
Mikko Jaskari and Tanja Rytkönen were included in a long-term incentive scheme that was implemented as a share-based plan. Its performance period began on 1 January 2013 and ended on 31 December 2016. The potential reward for the performance period is based on the cumulative earnings per share (EPS) for 2013–2016 and the average return on capital employed (ROCE) for 2013–2016.
Any rewards for the performance period 2013-2016 would have been paid partly as B shares and partly in cash in 2017. The cash component would have covered the taxes and tax-like charges incurred by key persons due to the rewards. If the employment relationship of the key person had ended before the payment date of the rewards, said rewards would not as a rule have been paid. The maximum rewards of an Executive Group member from the scheme amounted to the value of 40,000 Series B Honkarakenne shares.
The performance period ended on 31 December 2016 and no rewards will be paid to the participants.
Mikko Jaskari is also included in Honkarakenne's long-term incentive scheme through Honka Management, a company owned by the management. Honka Management owns a total of 286,250 Honkarakenne B shares. To obtain the shares, Honkarakenne issued 237,250 shares directly to Honka Management and acquired 49,000 shares from the market. The subscription and acquisition price was EUR 3.71 per share for the 220,000 shares issued in 2010. At the time, Honkarakenne issued a loan of EUR 800,000 to Honka Management Oy to cover part of the acquisition cost of the shares. The remainder of the acquisition price was collected from the CEO and the Executive Group. In addition, Honka Management subscribed for 17,250 shares at the acquisition price of EUR 5.26 per share in 2011, when Sanna Wester, Vice President, Marketing, became employed with Honkarakenne and was included in this scheme. Honkarakenne issued a loan of EUR 51,023 to cover part of the cost of this transaction, with Sanna Wester financing the remainder of the acquisition price.
The bonus scheme with Honka Management Oy was intended to run until 2014, after which it was to have been dissolved. Depending on the performance of the company's share, the scheme could have been extended twice, for one year at a time. In December 2016, the shareholders of Honka Management Oy mutually agreed on dissolving the scheme such that Honkarakenne Oyj acquired the entire share capital of Honka Management Oy by buying the shares of the executives participating in the scheme at a price of one euro per share.
Before the share transaction in December, Honka Management was owned by the following parties: Honkarakenne 47.0%, Mikko Jaskari 18.8%, Risto Kilkki 9.4%, Eino Hekali 9.4%, Reijo Virtanen 9.4% and Sanna Wester 6.0%. None of the individuals who owned shares were members of the Group's Executive Group in December 2016.
Under the provisions of the Articles of Association, Honkarakenne Oyj must appoint one regular auditor and one deputy auditor. If the regular auditor is an auditing firm, no deputy auditor need be appointed. Following their election, the term of the auditors covers the remainder of the accounting period during which they were elected and expires at the end of the following Annual General Meeting.
Authorised public accountants PricewaterhouseCoopers Oy were the company's auditors, with Authorised Public Accountant Maria Grönroos as the chief auditor.
The Group paid an auditing fee of EUR 86 thousand for the accounting period of 2016 and EUR 51 thousand for 2015.
One of the primary objectives of internal supervision at Honkarakenne Oyj is to ensure that financial reporting remains reliable at all times.
The CEO of Honkarakenne Oyj chairs the Executive Group, the members of which include directors from different operational departments of the company. The Executive Group convenes for general meetings between 10-15 times annually, and holds weekly follow-up meetings. In addition, other Honkarakenne operations have their own steering groups, which consist of key people and meet as required.
Honkarakenne's business strategy is updated and its targets are defined every year. The setting of Group-level targets must precede internal supervision, because those targets are used to derive individual targets for different companies, units, functions and managers. The company's business plan sets quantitative and qualitative targets for different business operations, and the progress of these targets is regularly monitored.
The Chief Financial Officer is responsible for setting, maintaining and developing financial steering and reporting requirements and processes. He is also responsible for setting up a system of supervision and seeing it through. The system of supervision includes guidance, defining limits of authority, balancing, Executive Group reports and non-conformance reports. The Chief Financial Officer monitors that all set processes and controls are being followed. He is also tasked with controlling the reliability of financial reporting.
Auditors and other external assessors evaluate control measures for the reliability of financial reporting.
The Board of Directors approves Honkarakenne's strategy, annual action plans and budgets.
The Executive Group produces reports separately and independently from the rest of the business operations. For monitoring and controlling its business activities, Honkarakenne uses an appropriate and reliable Enterprise Resource Planning (ERP) system, on which its other information systems and subsidiaries' own systems are based. Honkarakenne has a valid, upto-date data security policy and supporting data security guidelines.
Ho Honkarakenne handles inside information and insiders in accordance with all laws and regulations applicable to inside information and trading The most important statutory regulations are included in the European Union's Market Abuse Regulation (EU/596/2014).
Honkarakenne also complies with its own insider policy and the insider guidelines for listed companies approved by Nasdaq Helsinki.
Insider lists are also drafted on a project-by-project basis as necessary. Insiders are notified in writing of their insider status and provided with instructions of the obligations of insiders. The Chief Financial Officer acts as the Insiders' representative.
According to Honkarakenne's guidelines, Board and Executive Group members and other specified employees may not trade in Honkarakenne shares during the 30-day period prior to the publication of interim reports, half-year reports and financial statement bulletins..
Honkarakenne discloses the securities transactions of persons in executive positions and their related parties in accordance with the Market Abuse Regulation. "Persons in executive positions" refers solely to members of Honkarakenne's Board of Directors, the CEO and the Executive Group members.
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