Koskisen Oyj

Annual Report (ESEF) • Apr 18, 2024

Title: AFR of Koskisen Group Koskisen Corporation REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL STATEMENTS 1 January - 31 December 2023 (Unofficial translation of Finnish original) Name or other identifier of the reporting entity Koskisen Corporation Description of the change in the name or other identifier of the reporting entity after the end of the previous reporting period no changes Domicile of the entity Kärkölä Legal form of the entity Public limited liability company Home state Finland Registered address of the entity Tehdastie 2, 16600 Järvelä Principal place of business Kärkölä Description of the nature and main activities of the entity Wood sawing, planing and impregnation Name of the parent company Koskisen Corporation Name of the parent company of the entire Group Koskisen Corporation Koskisen Corporation, Group The Report of the Board of Directors and Financial Statements Jan 1 - Dec 31, 2023 Table of Contents The Report of the Board of Directors Calculation formulas for key figures Reconciliation of alternative performance measures Consolidated Financial Statements (IFRS) Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the Consolidated Financial Statements 1. General information and basis of preparation 2. Segment information and revenue 3. Financial risk and capital management 4. Other operating income 5. Materials and services 6. Employee benefit expenses 7. Share-based incentives 8. Depreciation, amortisation and impairment 9. Other operating expenses 10. Finance income and expenses 11. Income tax 12. Property, plant and equipment 13. Forest assets 14. Leases 15. Intangible assets 16. Inventories 17. Other receivables 18. Equity 19. Earnings per share 20. Financial assets and liabilities 21. Provisions 22. Other payables 23. Group structure 24. Related party transactions 25. Contingent liabilities and commitments 26. New standards 27. Events after the balance sheet date Parent company's Financial Statements (FAS) Income statement Balance sheet Statement of cash flows Notes to the financial statements of parent company Signatures List of records and materials Auditor´s report Independent Auditor’s Reasonable Assurance Report on Koskisen Oyj’s ESEF Financial Statements Koskisen Corporation, Group The Report of the Board of Directors Koskisen is a Finnish wood processing company with more than a hundred years of history. The main raw material used by Koskisen in its production is wood, which Koskisen processes into sawn timber, plywood, chipboard and more. Koskisen has two business segments: Sawn Timber Industry and Panel Industry. Sawn Timber Industry produces sawn and processed timber, while Panel Industry produces birch plywood, thin plywood, veneer, chipboard and interior solutions for light and heavy-duty utility vehicles under the Kore brand. Koskisen’s wood procurement function is part of the Sawn Timber Industry segment. The wood procurement function is responsible for procuring wood for Koskisen’s own production plants, delivering side streams from Koskisen’s own production to the power plants owned and operated by Loimua Oy for bioenergy production at Koskisen’s production plants and several other power plants in the vicinity, as well as supplying raw material (chips and pulpwood) to paper and pulp manufacturers. Koskisen’s production facilities are located in Järvelä and Hirvensalmi, Finland, as well as in Toporów, Poland. The company’s shares have been listed on Nasdaq Helsinki’s main list as of 1 December 2022. Result and financial situation Consolidated revenue declined in January–December and amounted to EUR 271.3 (317.7) million. The decrease in revenue was mainly due to the fall in the prices of sawn timber and delivery volumes being lower than in the comparison period in both the Sawn Timber Industry segment and the Panel Industry segment. Adjusted EBITDA declined to EUR 33.1 (66.6) million. The decrease in adjusted EBITDA was mainly due to the negative development of the market prices of sawn timber and lower delivery volumes. The prices of wood raw material have remained high. Operating profit came to EUR 24.4 (58.2) million. Depreciation, amortisation and impairment amounted to EUR 8.6 (8.1) million. Profit before income tax amounted to EUR 24.1 (57.8) million, and income tax for the period amounted to EUR 3.8 (11.8) million. The profit for the financial period came to EUR 20.2 (46.0) million, and earnings per share were EUR 0.88 (2.48). Segments The Sawn Timber Industry segment’s revenue amounted to EUR 122.4 (165.4) million and EBITDA to EUR 3.3 (41.6) million. The Panel Industry segment’s revenue amounted to EUR 148.8 (152.1) million and EBITDA to EUR 29.3 (29.3) million. Balance sheet, cash flow and financing At the end of the accounting period, Koskisen’s equity ratio was 54.8 (52.7) per cent, and gearing was -1.8 (-21.0) per cent. Cash flow from operating activities for January–December amounted to EUR 14.9 (47.2) million. The effect of the change in working capital was EUR -11.9 (12.3) million. The most significant item in the increase in working capital was the increase in value of the stock of materials and supplies, which was mainly due to the increased prices of timber. In addition, the trade payables on the closing date of 2022 included significant IPO-related items. Cash flow from financing activities amounted to EUR -17.6 (15.1) million. Cash flow from investment activities came to EUR -36.2 (-18.4) million. Interest-bearing liabilities at the end of the period amounted to EUR 63.7 (56.0) million, and liquid assets totalled EUR 66.4 (84.4) million. Interest-bearing net liabilities amounted to EUR -2.7 (-28.5) million. Koskisen’s liquidity has remained strong. At the end of the accounting period, available liquidity amounted to EUR 66.4 (84.4) million, comprising cash and cash equivalents of EUR 35.8 (74.5) million, deposits of EUR 20.0 (0.0) million and capital redemption contract of EUR 10.6 (fund investments 9.9) million. In addition, the company has an unused account limit of EUR 7.2 million. Key figures EUR million 2023 2022 Change, % Revenue 271.3 317.7 -14.6 EBITDA 33.0 66.3 -50.2 EBITDA margin, % 12.2 20.9 Adjusted EBITDA 33.1 66.6 -50.2 Adjusted EBITDA margin, % 12.2 21.0 Operating profit (EBIT) 24.4 58.2 -58.1 Operating profit (EBIT) margin, % 9.0 18.3 Profit for the period 20.2 46.0 -56 Basic earnings per share, EUR 0.88 2.48 Diluted earnings per share, EUR 0.87 2.47 Gross investments 32.1 27.0 Equity per share, EUR 6.4 5.9 Return on capital employed (ROCE), % 12.1 35.7 Working capital, end of period 37.9 28.9 Net cash flow from operating activities 14.9 47.2 Equity ratio, % 54.8 52.7 Gearing, % -1.8 -21.0 Investments Gross investments for January–December amounted to EUR 32.1 (27.0) million. The construction of the new sawmill in Järvelä accounted for a significant proportion of the investments. At the end of the financial period, advance payments and work in progress included EUR 11.3 million related to the new sawmill, and investments of EUR 27.9 million related to it were completed during the financial period. Other significant investments during the financial period include a spindleless lathe (EUR 2 million) and a solar power plant in Järvelä (EUR 1.3 million). Value creation Koskisen’s ability to create value is based on a material-efficient and integrated value chain from the forest to the end product. Koskisen’s efficient integrated operating model enables the optimum use of wood as a raw material at its production facilities, and Koskisen’s wood procurement enables the availability of high-quality wood raw material. Koskisen’s integrated operating model is based on interconnected processes that form the basis of Koskisen’s business, from the forest through production to the finished products. Koskisen’s whole value chain from harvesting to end products is designed around synergistic material flows and an agile operating model allowing utilisation of raw material from diverse sources. Koskisen’s integrated operating model is based on interlinked processes, which form the basis of Koskisen’s business from the forest through production to finished products. Koskisen’s entire value chain, from harvesting to final products, is designed around synergetic material flows and an agile operating model, which enables the use of raw materials from different sources. Strategy Koskisen’s strategy is the cornerstone of all of the company’s operations. Koskisen’s growth is based on close customer relationships, quality, responsibility and agility, which are key focus areas in the strategy. The new sawmill, systematic product development, organic and inorganic growth, and ensuring the sales organisation’s competence and capability are key strategic measures for the strategy period concluding at the end of 2027. Financial objectives for 2027 Koskisen’s Board of Directors has confirmed the following long-term financial targets extending over the business cycle, which the company aims to achieve by the end of 2027. Growth: revenue of EUR 500 million for the financial period ending on 31 December 2027, including both organic and inorganic growth Profitability: adjusted EBITDA margin averaging 15 per cent over the cycle. Balance sheet: maintaining a strong balance sheet Dividend policy: attractive dividend of at least one-third of the net profit each year. Personnel The Koskisen Group had an average of 904 (925) employees in January–December 2023 and 883 (899) employees at the end of December. Wages and salaries paid to personnel in 2023 were EUR 39.1 (37.4) million. Incentive schemes for the management and key personnel Koskisen has a share-based incentive program for its key employees for the years 2022–2026. The purpose of the incentive program is to align the objectives of the company’s shareholders and persons participating in the program in order to increase the value of the company in the long term, commit the participants to the company and offer them a competitive incentive program for earning and accumulating shares. Currently, the members of the Group’s Executive Board, a total of seven people, are eligible to participate in the share-based incentive program. The incentive program consists of three three-year earning periods: 2022–2024, 2023–2025, and 2024–2026. The Company’s Board of Directors determines the key persons eligible for the incentive program for each earning period, as well as the earning criteria and objectives, which may be based on financial performance, strategy or other objectives. In addition, the Company’s Board of Directors determines the fees to be paid under the incentive program to each participating person, and they are paid in shares and in cash. The cash component covers the tax costs related to the shares. The Company’s Board of Directors has the right to decide that the remuneration be paid in full in cash. The members of Koskisen’s Executive Board are required to retain a certain holding until the end of their membership in Koskisen’s Executive Board. On 13 April 2023, the Company’s Board of Directors resolved on the criteria and targets, as well as the eligible key employees, for the second earning period of the share-based incentive program. In the second earning period of the incentive program, participants eligible for the incentive program may earn up to a total of 215,000 shares or a cash amount corresponding to their value before the deduction of taxes, if the reward is decided to be paid in cash. Remuneration report Koskisen’s Remuneration Report 2023 will be published as a separate report from the Report of the Board of Directors. Research and development Koskisen’s main product groups include sawn and processed timber in the Sawmill Industry segment and birch plywood, thin plywood, veneer, chipboard and interior solutions for light and heavy-duty utility vehicles under the Kore brand in the Panel Industry segment. Koskisen’s product development aims to improve the functionality and properties of products in accordance with the principles of responsible and sustainable development and focuses on material efficiency, recyclability and fossil-free raw materials. Koskisen’s product development focuses on improving long-term use, renewability and safety, as well as on developing new products. The Group’s research and development expenditure amounted to EUR 0.5 (0.3) million, or 0.2 (0.1) per cent of revenue. Risks and uncertainties and their management The Board of Directors of Koskisen Oyj has confirmed the Group’s risk management policy and risk management principles. All Group companies and businesses regularly assess and report on the risks related to their business operations and the adequacy of the required control methods and risk management measures. The purpose of these risk assessments is to ensure adequate measures to manage risks. Risk management frameworks, policies and principles are regularly assessed and developed. Short-term risks The Group’s most significant short-term risks are related to the availability of raw materials and the management of price changes, negative changes in the general geopolitical situation, the general weakening of the market situation and its effect on market demand, the solvency of customers and the purchasing power of consumers, the delivery capability of suppliers and service providers, the labour market situation, the seasonality of operations, changes in customer relationships, and the success of the ramp-up of production at the new sawmill. Russia’s military operations Koskisen stopped importing wood from Russia in March 2022. The end of imports from Russia has kept the wood market situation tight in Finland, mainly with regard to pulpwood and forest converted chips. The procurement of birch raw material from Finland has succeeded according to plans. EU sanctions on Russia affect the supply of sawn timber and birch plywood on the market, significantly restricting it. The process of winding down Koskisen’s logistics and timber procurement company in Russia was completed in November 2023. The share of Russian operations in the Group’s revenue was small, approximately 0.1 per cent of the Group’s revenue, and the financial impact of the closure of operations was minor. The Russian unit had one employee. After this, the company has no operations in Russia. The most significant risks related to Koskisen’s operations The following table provides a brief summary of the most significant risks related to Koskisen’s operations. Together or separately, the risks may have a positive or negative impact on Koskisen’s operations, performance, financial position, competitiveness and reputation. The risks are presented in a random order in the table. Risks related to Koskisen’s operating environment Description of the risk Risk management and factors that mitigate uncertainty Koskisen operates in cyclical sawmill and panel industry markets, and the uncertainty and unfavourable development of the economic situation may reduce the demand for Koskisen’s products or the profitability of its operations, which may have an adverse effect on Koskisen’s business operations, operating result and financial position. Koskisen has two business segments with partially countercyclical markets. This softens the impact of cyclicality at the Group level. Koskisen operates in several markets and its customers represent several end-use segments with different demand drivers. Fluctuations in wood prices, disturbances in wood supply and impacts on the availability of wood may cause significant costs, disturbances in production and adversely affect Koskisen’s profitability. Koskisen has an extensive and professional wood procurement organisation with decades of experience in the industry. Wood procurement aims to proactively react to potential risks related to wood raw material. The effects of general cost inflation on production costs and thus Koskisen’s profitability. The procurement organisation closely monitors the development of production costs and engages in close dialogue with production and sales regarding the possible impact of costs on the pricing of final products. In accordance with its hedging policy, Koskisen uses hedging instruments to control key production factors, such as electricity price fluctuations. Epidemics can disrupt Koskisen’s operations and result in significant costs. Koskisen aims to prevent and, if necessary, minimise the impact of the pandemic on the health and safety of personnel and ensure undisturbed supply chain with various exceptional arrangements, such as the use of different types of protective equipment or restrictions on group sizes. Environmental impacts and climate change, as well as their mitigation, may have impacts on Koskisen’s operations, performance and reputation. Such impacts may include changes in consumer behaviour, business processes, material damage, technology change needs, increased regulation and increased environmental taxation. The direct environmental and climate impacts of Koskisen’s own operations are managed in many different ways, for example by increasing energy efficiency, using more and more renewable energy sources, increasing material efficiency and using water and other natural resources responsibly. In its raw material procurement, Koskisen ensures that sustainable forest management practices are implemented. Koskisen monitors the development of regulation and industry recommendations related to the topic and takes these into account in its own operations. Risks related to Koskisen’s business Description of the risk Risk management and factors that mitigate uncertainty Significant disruptions or interruptions in Koskisen’s production or deliveries, interruptions in energy distribution, damage to, destruction or closure of Koskisen’s production facilities, or disruptions in the transfer of production to the new Järvelä unit would materially impair Koskisen’s ability to deliver its products to customers and would have an adverse effect on its business operations and operating result. Koskisen manages its integrated production and supply chain taking risk factors into account. Koskisen has prepared for any disruptions in production and business caused by accidents through comprehensive insurance policies. The new unit’s pursued production volume for the first phase is based on full production in two daily shifts. In the ramp-up of production, a daily third shift can be used to reach the targeted volumes. Koskisen may lose significant customers (over 10% of revenue), which may have a material adverse effect on Koskisen’s business operations and profitability. Koskisen’s customer base is geographically diversified and spread over different industries. There are no individual customers in the customer base whose share of revenue would be significant. Koskisen’s business operations involve risks related to environmental contamination and environmental damage. Koskisen’s production operations require a valid environmental permit. Koskisen monitors, supervises and reports the environmental impacts of its operations systematically. Koskisen has quality, environmental and safety management certificates audited annually by a third party. Koskisen’s business operations involve safety and health risks, such as accident and damage risks in its production facilities, which, if realised, could lead to Koskisen’s obligation to compensate for damages and delay or interfere with the delivery of Koskisen’s products and services. Koskisen has comprehensive insurance policies in case of accidents and damage. The need for insurance is assessed annually and whenever necessary due to particular changed circumstances. Koskisen carries out systematic safety work and invests in modern safety equipment to minimise risks. Failure to recruit competent management or personnel or loss of key personnel could have a materially detrimental effect on Koskisen’s ability to operate its business. Koskisen manages risk through interesting tasks, developing its empolyer image, competitive reward, investments in personnel development and training and more. In addition, annual personnel surveys are used to survey the work community’s well-being, motivation and related development needs. Difficulties in maintaining and updating IT infrastructure, shortcomings in IT systems and external cyber-attacks related to IT systems may have a detrimental effect on Koskisen. Koskisen is prepared for increased cybercrime and information system disruptions. The purpose of systematic monitoring and the placement of critical systems in cloud services is to ensure that the company is able to react quickly and has the best expertise in the event of an incident. The weakening of Koskisen’s reputation could affect its business operations. The Code of Conduct is the foundation of Koskisen’s business operations. The company’s Code of Ethics guide to operating honestly, transparently, lawfully and ethically with all stakeholders. Industrial action, such as strikes, can disrupt Koskisen’s business operations. Koskisen respects the freedom of association. Koskisen maintains an open and active dialogue with different labour market parties. Risks related to the financial position and financing Description of the risk Risk management and factors that mitigate uncertainty The covenants included in Koskisen’s financing agreements may limit Koskisen’s business operations and financial flexibility, and Koskisen may have difficulties in complying with the terms of its financing agreements, which may lead to the financing agreements falling prematurely due or increased costs. Koskisen takes care of its solvency, sufficient and functional funding relationships and the structure of financing. Koskisen actively and proactively monitors the development of its solvency and financial position. The management of financial risks is discussed in more detail in note 3 to the financial statements. Exchange rate fluctuations may have a material adverse effect on Koskisen. Koskisen uses currency hedging instruments in accordance with the hedging policy approved by the Board of Directors. Credit losses may have a detrimental effect on the operating result of Koskisen. In accordance with its policy, Koskisen has comprehensive credit risk insurance policies and well-functioning risk management processes. Governance Composition of the Board of Directors On 31 December 2023, Koskisen Corporation’s Board of Directors had the following six members: Pekka Kuusniemi (Chair of the Board of Directors), Eva Wathén, Kari Koskinen (Vice Chairman), Kalle Reponen, Hanna Sievinen and Hanna Masala. Corporate Governance Statement Koskisen Corporation’s Corporate Governance Statement 2023 will be published as a separate statement from the Report of the Board of Directors. Changes in Group structure The process of winding down Koskisen’s logistics and timber procurement company in Russia was completed in November 2023. The share of Russian operations in the Group’s revenue was small, approximately 0.1 per cent of the Group’s revenue, and the financial impact of the closure of operations was minor. The Russian unit had one employee. After this, the company has no operations in Russia. Shares and ownership Koskisen’s share capital amounts to EUR 1,512,000. On 31 December 2023, the total number of issued shares was 23,011,659 and the total number of outstanding shares was 23,010,573. The company has one series of shares. One share carries one vote at the general meeting. The shares have no nominal value. The company’s shares have been listed on Nasdaq Helsinki Oy as of 1 December 2022. Treasury shares On 31 December 2023, the company held 1,086 treasury shares, which was 0.005 per cent of the total number of shares. The shares were acquired through an over-the-counter transaction. The share repurchases are related to Koskisen Corporation’s personnel offering carried out in autumn 2022. The shares have been redeemed in accordance with the terms and conditions of the offering from persons whose employment relationship ended before autumn 2024. The shares were redeemed at a price of EUR 3 per share, which is the same as the subscription price for the personnel offering. Share price and turnover A total of 1,532,898 of the company’s shares were traded on the Helsinki Stock Exchange between 1 January and 31 December 2023, corresponding to 6.7 per cent of the total number of shares. The highest share price was EUR 6.80 and the lowest EUR 5.78. The average price of the shares traded was EUR 6.36. The share turnover was EUR 9,756,449. At the end of the review period, the market capitalisation of the company was EUR 138,069,954. Authorisations of the Board of Directors On 11 May 2023, the Annual General Meeting authorised the Board of Directors to resolve on the repurchase of the company’s own shares. Under the authorisation, the Board of Directors may resolve on the repurchase of a maximum of 1,000,000 of the company’s own shares. The repurchase authorisation is valid until 30 June 2024, and it revokes all previous repurchase authorisations concerning the company’s own shares. On 11 May 2023, the Annual General Meeting authorised the Board of Directors to resolve on issuing new shares and/or transferring treasury shares held by the company and/or issuing option rights and other special rights referred to in Chapter 10, Section 1 of the Limited Liability Companies Act. Under the authorisation, a maximum of 1,000,000 new shares may be issued and/or treasury shares held by the company or its group company may be transferred, the amount of which also includes any shares issued on the basis of option rights or other special rights. The authorisations revoke all previous authorisations concerning the issuance of shares and the granting of special rights entitling to shares. The Board of Directors decides on all other matters relating to the authorisations. The authorisations are valid until 30 June 2024. Flagging notifications Koskisen received one flagging notification in 2023. According to the flagging notification, the total holdings of shares and votes of the Sirkka-Leena Koskinen estate in Koskisen Corporation had fallen below the five per cent threshold. Estimate of probable development Koskisen Group’s revenue for 2024 is expected to grow from the level of 2023. The adjusted EBITDA margin is expected to be 8–12 per cent. Board of Directors’ proposal for the distribution of profits On 31 December 2023, the parent company’s distributable assets were EUR 120,952,032.01, of which the profit for the financial period constitutes EUR 13,232,443.34. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.32 be paid for each outstanding share for the financial year 2023. Based on the number of shares registered on 12 April 2024, the total dividend would be EUR 7,367,703.36. The remaining part of the distributable funds will be left in unrestricted equity. The Board of Directors has assessed the company’s financial situation and liquidity before making the proposal. The company’s financial position has not changed significantly since 31 December 2023, the company’s liquidity is still good and the proposed dividend will not endanger the company’s solvency. Non-financial disclosures Impacts of operations Koskisen’s business is based on forests, which is why taking care of nature and environment is at the core of Koskisen’s business and strategy. The company also has a significant direct impact as an employer and user of materials and services, and an indirect impact as a taxpayer. In 2023, the company had some 900 employees. The company’s operations are based on sustainable forestry and skilled wood procurement, the processing of wood into bioeconomy products and the green transition, and the creation of added value for customers and other stakeholders. The customer’s needs and quality perceived by the customer are the starting point for all operations, as is working in close cooperation with various stakeholders. Koskisen’s most important customer groups are the construction industry, wholesalers and retailers, manufacturers of transport equipment and various furniture and furnishings. Other important stakeholders include the personnel, forest owners, investors, logging and transport companies, the reseller network and material suppliers. The company is engaged in active dialogue with its stakeholders. The company is involved in the development of local communities, for example, through cooperation with educational institutions and selected cooperation forums. The company’s focus is on supporting the well-being of children and young people through various community-based recreational activities. Koskisen’s raw material supply chain consists of wood procurement and the procurement of other raw materials and services. The responsibility of procurement is ensured through self-monitoring, third-party-certified processes, such as various certificates, and audits of key material suppliers. Koskisen’s suppliers commit to operating in an ethically sustainable manner in accordance with the principles of the Code of Conduct. A Supplier Code of Conduct was drafted in 2023, and it will be deployed during 2024. Koskisen is PEFC CoC and FSC CoC certified for managing the origin of wood. In 2023, 84.5 per cent of the wood procured by Koskisen was certified. All of the wood used in production was sourced from Finland in 2023. Preparing for 2024 During 2023, Koskisen prepared for the requirements of the Corporate Sustainability Reporting Directive (EU) 2022/2464, which will enter into force at the beginning of 2024, as well as the European Sustainability Reporting Standards (ESRS). In 2023, Koskisen carried out a dual materiality analysis to deepen its understanding of the company’s essential sustainability aspects and their impacts, risks and opportunities for the environment, people and society throughout the value chain. Koskisen’s most significant sustainability aspects are related to climate change, biodiversity, the circular economy and its own workforce. Koskisen’s business model and strategy are based on close customer relationships, quality, sustainability and agile business. In addition to defining sustainability aspects, work began during 2023 to update the Group’s strategy and determine the direction for future growth, taking into account the most significant sustainability aspects as drivers of strategy and business operations. Environment Production facilities The environmental aspects of Koskisen’s industrial operations are managed in accordance with Koskisen’s environmental management system (ISO 14001) and the environmental permit requirements. The most significant environmental impacts are related to the resources used by the production units and the reuse of production side streams. Key environmental aspects include functioning waste management, air and water system protection, noise abatement and the prevention of chemical accidents. Protective measures and unit-specific operating instructions have been drawn up for these in the company’s operating system to prevent environmental incidents and promote environmental protection, as well as to continuously improve operations and the state of the environment. The environmental management system is guided by the Group’s operating policy. An environmental dashboard has been created for the company and production unit levels, and its results are monitored on a quarterly basis. Employees are informed about topical environmental issues and the achievement of environmental objectives through Koskisen’s internal channels. The company’s goal is to have active and proactive employees who take environmental issues into account in their work, which is achieved through the continuous development of their environmental knowledge and competence. Koskisen’s operations in the Tehdastie and Mäntsäläntie plant areas in Järvelä, as well as the production plant operations in Hirvensalmi, have been granted environmental permits valid until further notice, which are supervised by the local ELY Centres (business, transport and environment). The emission limit values set in environmental permits are continuously monitored and any deviations are immediately reacted to. The operations in Poland do not require environmental permission. Koskisen publishes a separate environmental report annually, which can be found on the company’s website. Environmental risk management The identification, management and reporting of environmental risks has been implemented as part of Koskisen’s environmental management system. Risks have been identified on a unit-by-unit basis locally. The most significant risks include noise, oil spills and air emissions. Environmental risks and plans for their management are updated regularly. Environmental incidents No serious environmental damage was caused in the operations of Koskisen’s production units in 2023. Six minor environmental incidents related to local oil and adhesive spills occurred at Koskisen’s Järvelä plant areas. The incidents were recorded in Koskisen’s Continuous Development application and corrective actions were taken. The incidents did not result in permanent environmental pollution. Key indicators Indicator 2023 2022 Total energy consumption (MWh) 365,498 363,076 Percentage of non-renewable sources in total energy consumption (%) 81% 80% Total GHG emissions (location-based) (tCO2eq) 167,745 178,354 GHG removal compared with total GHG emissions (location-based) 2.3 2.1 Significant sustainability aspects Climate change In order to mitigate climate change, Koskisen invests in the energy efficiency of its own production facilities and increasing the use of renewable energy. Sustainable forestry and wood procurement that promotes the regeneration of forests are ways to ensure healthy trees and soil as carbon sinks. Koskisen’s wood products store the carbon sequestered by forests during their long service life. In 2023, Koskisen made several energy efficiency investments. These included roof renovations in several production buildings in Järvelä, the renewal of the wall and roof insulation of the plywood factory’s soaking basin building, adoption of LED lighting in all properties, and an investment in a new thin plywood press in Hirvensalmi, as well as various measures to improve energy efficiency. The production of renewable energy at the plywood and chipboard factories located in the Järvelä Tehdastie industrial area will increase in 2024 thanks to the new solar power plant. The solar power plant was built in 2023. Koskisen acquires the wood used as a raw material in a responsible and sustainable way, so that carbon sinks and biodiversity are restored as quickly as possible. Wood procurement complies with the requirements set by the PEFC or FSC chain of custody certificates. Carbon sequestered by forests is stored in Koskisen’s highly durable wood and side stream products. It is in Koskisen’s interests to harvest timber at the end of the growth phase. Biodiversity The forestry recommendations used by Koskisen are based on the sustainability guidelines issued by the Forestry Development Centre Tapio. Operators in the forest sector have jointly drawn up comprehensive guidelines for economically, ecologically, socially and culturally sustainable forestry. Koskisen encourages and trains both harvesting entrepreneurs and forest owners to operate in accordance with these guidelines while maintaining biodiversity. During 2024, Koskisen will build an information system to monitor measures that support biodiversity and set targets for the measures. Circularity and material efficiency Koskisen’s material and resource efficiency is high. Koskisen manages different material flows efficiently and uses raw materials from different sources as fully as possible in the production of plywood, sawn timber products and chipboard. Koskisen will continue to act in a material-wise and systematic manner in the overall use of wood raw material and in the development of new solutions that increase added value. In 2023, Koskisen invested in a spindleless lathe at the plywood factory, and it was commissioned late in the year. The new lathe will significantly improve material efficiency by utilising the log more precisely and enhance our ability to use valuable wood raw material as efficiently as possible. During 2024, operating principles, indicators and objectives for significant environmental sustainability aspects will be defined. Social aspects Personnel Koskisen is one of the largest employers in the Päijät-Häme region. The company works closely with several harvesting and transport companies as well as industrial service providers. In addition to the approximately 900 Koskisen employees, the company employs some 4,000 people indirectly. In addition, Koskisen offers summer jobs to nearly 100 young people each year. Koskisen invests in its employees’ competence, motivation and experience of meaningful work. These are supported by ensuring a safe working environment, excellent working conditions, fair treatment, continuous competence development and seeing to well-being at work. Principles in HR management include equality, non-discrimination, fair remuneration, training and development, and occupational health, which are guided through the Group’s operating policy. The overall score in Koskisen’s 2023 occupational well-being survey was 3.93 (3.85) out of 5.00, an all-time high. This is proof of the culture of cooperation, an interactive work community and a sense of mutual appreciation. Every team will review the results of the annual occupational well-being survey and draw up a concrete development plan. Koskisen’s goal is zero accidents. Long-term work to promote safety is a shared strategic intent. The continuous improvement of occupational safety includes safety observations, risk assessments and, through these, the prevention of as many risks as possible. The employees are encouraged to propose safety measures and engage in the development of a common safety culture. In 2023, Koskisen received 78 (109) safety initiatives and 61 of them were rewarded. A total of 5,238 (4,926) safety observations were made. In 2023, Koskisen introduced compensation for accident-free periods. Equality at Koskisen Promoting equal treatment, equality and diversity is an essential part of the corporate culture and its continuous renewal. The essence of Koskisen can be seen in the appreciation and inclusion of everyone. It is important for Koskisen also to act and grow as a fair, supportive and open work community. Risks to employees Psychosocial stress and occupational health and safety have been identified as risks related to employees. The assessment of psychosocial stress is part of the workplace survey, which is carried out every three years. Preventive work in occupational health is carried out with the help of a mental concern service and the guidance of an occupational physiotherapist in occupational health care to prevent musculoskeletal disorders. Early support processes also support employment and motivate employees. Occupational safety risk prevention is based on occupational safety observations and initiatives, safety tours, regularly conducted workplace-specific risk assessments, accident investigation, communications and continuous personnel training. Respecting human rights and combatting corruption and bribery Koskisen respects human rights. The company does not accept the use of child labour or forced labour, or discrimination of any kind on the grounds of race, age, gender, nationality or sexual orientation. Corruption, bribery and illegal payments and receiving such are prohibited in the Group’s operations. Koskisen requires compliance with the Code of Conduct in its own operations and supply chain. Koskisen’s operating policy also guides ethical and responsible operations. A more detailed implementation plan for subsequent years will be prepared in 2024 to assess the human rights impact. In 2023, two anonymous reports were received through the whistleblowing channel and examined by independent experts. They were not cases of human rights violations or cases of bribery or corruption. All reports via the whistleblowing channel are treated with absolute confidentiality. The whistleblowing channel is available on the Koskisen website (koskisen.fi). Incidents related to social aspects No severe incidents concerning employees, human rights or corruption took place in 2023. Key indicators Indicator 2023 2022 Employee satisfaction survey overall index 3.93 3.85 Employee satisfaction survey response rate 82.2 % 76.0 % Employee satisfaction survey eNPS 1) 19 12 Average attendance rate 95.0 % 94.8 % Accident frequency (LTA1) 2) 17.9 19.3 1) Employee Net Promoter Score (eNPS) is an internationally comparable recommendation index, sith the scale between -100 - +100. 2) Number of accidents leading to absence per one million working hours. Sustainability reporting The measures and results are reported in the sustainability section of Koskisen’s annual report for 2023. EU Taxonomy Report The EU taxonomy is a classification system for sustainable economic activities as defined in Regulation (EU) 2020/852 of the European Parliament and of the Council (Taxonomy Regulation), which aims to increase the transparency of sustainable investment and to channel capital flows to technologies and businesses considered to be sustainable. The Taxonomy Regulation will be gradually supplemented through delegated regulations. The criteria for making a significant contribution to the EU’s climate change objectives for selected sectors and the requirements for the format of related reporting have already entered into force. Since the beginning of 2024, the criteria have also been supplemented with regard to other environmental objectives, such as the protection of marine and water resources, the transition to a circular economy, pollution prevention, and the protection of biodiversity and ecosystems. Companies subject to the reporting obligation must report not only taxonomy eligibility (the share of their own activities that corresponds to the activities listed in the classification system) but also taxonomy alignment, i.e. the extent to which the taxonomy-eligible activities meet the technical criteria for a) making a significant contribution to the sustainability objective related to climate change, b) avoiding significant harm to the achievement of other environmental objectives (Do No Significant Harm (DNSH)), and c) the adequacy of the minimum safeguards for their own activities and supply chain to avoid social violations (Minimum Safeguards). The majority of Koskisen’s products are so far excluded from the taxonomy review, as the evaluation focuses mainly on Koskisen’s forest management services, energy efficiency improvements in production plants and properties, as well as forest biomass-based energy production. However, this does not mean that Koskisen’s operations are unsustainable from the EU taxonomy point of view, but that the majority of the operations are not currently among the activities that the EU perceives to be used to achieve the most immediate and significant climate benefits in relative terms in its economic area. In many taxonomy-eligible functions, meeting the criteria for taxonomy alignment requires information on detailed consideration of climate aspects and often also on their independent verification on a scale that has not hitherto been used. Therefore, for the time being, taxonomy alignment is not formally demonstrated due to the lack of data, but as the taxonomy criteria become established and various parties take these into account in their operations, the availability of data is expected to improve. ACCOUNTING PRINCIPLE Koskisen’s consolidated financial statements have been prepared in accordance with the accounting standards (IFRS) adopted in the EU (for more information, see the note “accounting policies” to the financial statements). The percentage ratios of the taxonomy have been calculated by allocating the financial figures presented in the consolidated financial statements (Revenue, capital expenditure (CapEx) and certain operating expenses (OpEx)) to the businesses deemed taxonomically eligible in accordance with the delegated act on the reporting format of the Taxonomy Regulation. The minimum social safeguards were assessed by benchmarking against the interpretation guidelines of the Commission Communication (2023/C 211/01). TAXONOMY ASSESSMENT Taxonomy eligibility and taxonomy alignment were established by comparing Koskisen’s activities that generated revenue and were the target of investments during the 2023 financial period with the descriptions of the economic activities listed in the taxonomy and their technical criteria. With a large part of Koskisen’s operations currently being outside the scope of the taxonomy, taxonomy assessment is limited to the following taxonomy-eligible economic activities: CCM 1.3. Forest management Forest management services provided to forest owners include activities such as soil preparation, planting of seedlings and seeds, early weeding, tending of seedling stands and preclearing. Koskisen’s timber harvesting operations also generate revenue, the share of which can be broken down from invoicing in connection with the sale of timber on behalf of forest owners. The activities cannot yet be considered to be in line with the taxonomy, as formal climate benefit estimates in accordance with the requirements are not yet available in the forest management plans of the forest parcels concerned by the activities. PPC 2.4. Rehabilitation of contaminated sites and areas Operating expenditure used for groundwater treatment operations in Järvelä is considered taxonomy-eligible. The contamination of groundwater was caused in 1976 by the fire extinguishing water of Koskisen’s sawmill with a chlorophenol-containing wood preservative for sawn timber (KY-5). Groundwater treatment operations were started independently in 2012 using a method developed in cooperation with Afry Finland Oy. CE 3.2. Repair of existing buildings In 2023, Koskisen implemented maintenance measures for factory and office buildings that are taxonomy-eligible. The biggest investment has been the renovation of the roof and walls of the plywood factory’s log pond. Maintenance activities do not yet meet all the criteria for significantly promoting the transition to a circular economy, as the Global Warming Potential (GWP) is not yet calculated for all renovations of buildings. CCM 3.5. Manufacture of energy efficiency equipment for buildings The cladding panels manufactured by Koskisen from wood were considered to be a key part of the insulation of the building concerned and thus energy efficiency. They are not yet taxonomy-aligned, as the material’s thermal conductivity (W/mK) exceeds the limit value of the technical criterion for significant climate change mitigation. CCM 3.6. Manufacture of other low carbon technologies During the financial year 2023, Koskisen prepared the start of commercial production of Zero furniture panel. In the Zero furniture panel, wood-based lignin replaces the fossil-based binder conventionally used in similar products, being a lower-emission alternative to ordinary furniture panels, and therefore it has been interpreted to correspond to the manufacture of other low-carbon technologies referred to in the taxonomy. Not all verification data required by taxonomy are available yet. CCM 4.1. Electricity generation using photovoltaic technology In 2023, a solar power field was built at Koskisen’s Tehdastie factory area. The investment related to solar power production is both taxonomy-eligible and taxonomy-aligned. In accordance with normal practices, the project has invested in the best available technology and has no significant adverse environmental impacts. CCM 4.24. Production of heat/cool from bioenergy The Sermet and BIO8 boiler plants at Koskisen’s Mäntsäläntie plant area produce district heat for the plant’s own needs from 100% wood biomass, utilising the by-products of its own process. Not all the required data concerning the source of the wood biomass are currently available, so it is not yet possible to verify that the activities are taxonomy-aligned. CCM 4.20. Cogeneration of heat/cool and power from bioenergy The Koskipower boiler plant at Koskisen’s Tehdastie plant area produces heat and electricity from 95.4% wood biomass. In special cases (for example, during maintenance work), the boiler plant may also fire fossil fuels, but this proportion has not been calculated in the taxonomy eligibility ratio. Not all the required data concerning the source of the wood biomass are currently available, so it is not yet possible to verify that the activities are taxonomy-aligned. CCM 5.1. Construction, extension and operation of water collection, treatment and supply systems During the financial period 2022, a significant investment was made in the stormwater system, continuing in part during 2023. The technical energy consumption data required to prove taxonomy alignment were not yet available. CCM 7.3. Installation, maintenance and repair of energy efficiency equipment More energy-efficient LED lights have been installed at Koskisen’s properties, among other measures. At the Hirvensalmi thin plywood factory, a new steam pipe has been drawn from the biopower plant for production, allowing to increase the use of thermal energy produced by own bioenergy power plant. For the time being, with in the absence of the required data, not all of the technical criteria for avoiding sustainability disadvantages can have been demonstrated. CE 4.1. Provision of IT/OT data-driven solutions During the reporting year, Koskisen implemented a veneer management system that improves resource efficiency and developed condition monitoring systems at Panel Industry’s Järvelä factories. The EU taxonomy requires companies to disclose how they have avoided duplicate accounting when allocating the shares of turnover, capital expenditure (CapEx) and certain operating expenses (OpEx) to economic activities (numerator items) that are taxonomically eligible (and aligned). The functions listed above correspond to the cost and income items of the business areas that are separately monitored in Koskisen’s accounting, which makes it possible to allocate financial figures to parts of operations that are considered taxonomy eligible. MINIMUM SAFEGUARDS By minimum safeguards, the Taxonomy Regulation refers to a company’s procedures to ensure that its operations and supply chain comply with a) OECD Guidelines for Multinational Enterprises, b) UN Guiding Principles on Business and Human Rights (UNGP), c) the declaration on Fundamental Principles and Rights at Work of the International Labour Organisation (ILO) and d) the United Nations Universal Declaration on Human Rights. In practice, adherence to the above principles requires the company to have in place administrative processes for a) the realisation of human rights and good working conditions (in accordance with the UN Guiding Principles and the OECD Guidelines), b) combatting corruption and bribery, c) safeguarding fair competition and d) the payment of taxes to avoid violations, and that the company or its management has not been convicted of illegal activity in relation to the topics. Koskisen has no illegal violations against the aforementioned matters and the Group’s current governance structures, practices and controls are designed to ensure compliance with them. Koskisen invests in many ways in its social responsibility priorities: occupational safety, employee well-being and maintaining good and fair partnerships with customers and forest owners. The aim is to prevent negative impacts through various policies, guidelines and risk assessments. Various indicators of occupational safety and customer satisfaction are monitored and the results are reported on an annual basis. Koskisen also has a Whistleblowing channel on its website, which can be used to anonymously report any violations. Read more about Koskisen’s responsible business assurance methods in the NFI disclosures. Koskisen monitors the development of relevant EU legislation, in particular the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) with detailed reporting requirements, and assesses the need for updating the minimum safeguards referred to in the Taxonomy Regulation on the basis of these. Proportion of turnover from products or services associated with Taxonomy-aligned economic activities . . Proportion of CapEx from products or services associated with Taxonomy-aligned economic activities Proportion of OpEx from products or services associated with Taxonomy-aligned economic activities . ADDITIONAL INFORMATION ABOUT TAXONOMY RATIOS The taxonomy-eligible turnover for the 2023 financial period consisted of invoicing in accordance with customer agreements for products and services deemed taxonomy-eligible. The denominator of the ratio is the Group’s total revenue for 2023. The taxonomy-eligible CapEx capital expenditure (CapEx ratio numerator) consists of increases in tangible and intangible capital related to activities assessed as taxonomy eligible during the financial period. Correspondingly, the taxonomy eligible proportion of the OpEx operating expenses referred to in the Delegated Act on the reporting format supplementing the EU Taxonomy Regulation has been calculated in terms of the costs essential for the continuity of operations assessed as taxonomy eligible connected to maintenance and repairs, short-term leasing contracts and research and development expenses. The corresponding financial figure presented in Koskisen’s consolidated financial statements has been included in its entirety in the denominator of both ratios. Koskisen had no direct links to nuclear or fossil gas-based energy production within the meaning of Delegated Regulation (EU) 2022/1214. Activities in the fossil gas and nuclear energy sectors Line Nuclear energy-related activities 1 The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. NO 2 The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. NO 3 The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. NO Fossil gas-related activities 4 The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. NO 5 The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. NO 6 The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cooling using fossil gaseous fuels. NO Shares and shareholders Major shareholders on 31 December 2023 Number of shares % of shares Kari Koskinen 4,493,065 19.53 Markku Koskinen 3,729,988 16.21 Eva Wathén 2,228,988 9.69 Ella Paksuniemi 1,314,693 5.71 Ester Paksuniemi 1,314,693 5.71 Laura Paksuniemi 1,314,693 5.71 Karoliina Koskinen 922,039 4.01 Lasse Koskinen 922,039 4.01 Elo Mutual Pension Insurance Company 814,332 3.54 Varma Mutual Pension Insurance Company 814,332 3.54 Stephen Industries Inc Oy 498,599 2.17 Ilmarinen Mutual Pension Insurance Company 485,000 2.11 Riitta Kokko-Parikka 475,130 2.06 Arto Koskinen 475,130 2.06 Juha Koskinen 475,130 2.06 Veritas Pension Insurance Company 228,523 0.99 Sijoitusrahasto UB Suomi 209,172 0.91 Högskolestiftelsen i Österbotten 145,000 0.63 UB Metsä Global Erikoissijoitusrahasto 88,630 0.39 WIP Nordic Equity 70,000 0.30 20 largest, total 21,019,176 91.34 Breakdown of shareholding by scale on 31 December 2023 Lower limit Upper limit Number of shareholders Share of shareholders, % Total number of shares % of shares 1 100 2,783 53.4 171,911 0.7 101 500 1,870 35.9 406,278 1.8 501 1,000 290 5.6 229,282 1.0 1,001 5,000 203 3.9 406,545 1.8 5,001 10,000 23 0.4 167,109 0.7 10,001 50,000 19 0.4 486,361 2.1 50,001 100,000 4 0.1 310,376 1.3 100,001 500,000 8 0.2 2,964,935 12.9 500,001 10 0.2 17,868,862 77.7 Total 5,210 100 23,011,659 100 Ownership structure by sector 31 December 2023 Number of shares % of shares Companies 803,691 3.5 Financial and insurance institutions 387,182 1.7 Public sector 2,258,664 9.8 Households 19,098,915 83.0 Non-profit organisations 123,730 0.5 Foreign shareholders 5,328 0.0 Total 22,677,510 98.5 Nominee-registered 334,149 1.5 All in total 23,011,659 100 Koskisen Corporation, Group Calculation formulas for key figures 1. Items affecting comparability are unusual material items outside the ordinary course of business that relate to (i) costs related to reorganisations, (ii) impairment charges, (iii) the gain or loss from the sale of businesses or significant fixed assets and (iv) costs related to the Listing. Items affecting comparability is presented to reflect the underlying business performance of Koskisen and to enhance comparability between periods. Koskisen believes that items affecting comparability provide meaningful supplemental information by excluding items outside the ordinary course of business that reduce comparability between periods. 2. EBITDA = Operating profit (loss) + Depreciation, amortisation and impairments EBITDA is an indicator used to measure Koskisen’s performance. 3. EBITDA margin, per cent = EBITDA -------------------------------------------------------------------------------------------------- x 100 Revenue EBITDA margin is an indicator used to measure Koskisen’s performance. 4. Adjusted EBITDA = EBITDA + Items affecting comparability Adjusted EBITDA is an indicator used to measure Koskisen’s performance. Adjusted EBITDA is presented in addition to EBITDA to reflect the underlying business performance and to enhance comparability between periods. Koskisen believes that adjusted EBITDA provides meaningful supplemental information by excluding items outside the ordinary course of business that reduce comparability between periods. 5. Adjusted EBITDA margin, per cent = Adjusted EBITDA -------------------------------------------------------------------------------------------------- x 100 Revenue Adjusted EBITDA margin is an indicator used to measure Koskisen’s performance. Adjusted EBITDA margin is presented in addition to EBITDA margin to reflect the underlying business performance and to enhance comparability between periods. Koskisen believes that adjusted EBITDA margin provides meaningful supplemental information by excluding items outside the ordinary course of business that reduce comparability between periods. 6. EBIT margin, per cent = Operating profit (loss) -------------------------------------------------------------------------------------------------- x 100 Revenue EBIT margin is an indicator used to measure Koskisen’s performance. 7. Adjusted EBIT = Operating profit (loss) + Items affecting comparability Adjusted EBIT is an indicator used to measure Koskisen’s performance. Adjusted EBIT is presented in addition to operating profit (loss) to reflect the underlying business performance and to enhance comparability between periods. Koskisen believes that adjusted EBIT provides meaningful supplemental information by excluding items outside the ordinary course of business that reduce comparability between periods. 8. Adjusted EBIT margin, per cent = Adjusted EBIT -------------------------------------------------------------------------------------------------- x 100 Revenue Adjusted EBIT margin is an indicator used to measure Koskisen’s performance. Adjusted EBIT margin is presented in addition to EBIT margin to reflect the underlying business performance and to enhance comparability between periods. Koskisen believes that adjusted EBIT margin provides meaningful supplemental information by excluding items outside the ordinary course of business that reduce comparability between periods. 9. Basic Earnings per Share, EUR = Profit (loss) for the period attributable to owners of the parent company ----------------------------------------------------------------------------------------------------------- Weighted average number of ordinary Shares outstanding during the period Basic Earnings per Share reflects the distribution of Koskisen’s results to its shareholders. 10. Diluted Earnings per Share, EUR = Profit (loss) for the period attributable to owners of the parent company ----------------------------------------------------------------------------------------------------------- Weighted average number of ordinary Shares outstanding during the period + Weighted average number of all dilutive instruments potentially to be converted into Shares Diluted Earnings per Share reflects the distribution of Koskisen’s results to its shareholders. 11. Capital employed = Total assets - Current liabilities Capital employed reflects the capital tied to Koskisen’s operations and it is used to calculate return on capital employed. 12. Liquid assets = Current financial assets at fair value through profit or loss + Deposits + Cash and cash equivalents Liquid assets reflects the amount of cash and other assets that are readily convertible to cash. 13. Net debt = Borrowings + Lease liabilities - Liquid assets Net debt is an indicator used to assess Koskisen’s total external debt financing. 14. Net debt/EBITDA, ratio = Net debt ------------------------------------------------------------------------------------- x 100 EBITDA (last 12 months) Net debt/EBITDA is an indicator used to assess the level of Koskisen’s financial risk and the level of Koskisen’s indebtedness. 15. Working capital = Inventories + Trade receivables + Other receivables - Advances received - Trade payables - Trade payables, payment system Working capital is an indicator used to monitor the level of direct net working capital tied to Koskisen’s operations. 16. Equity ratio, per cent = Total equity ---------------------------------------------------------------------------------------- x 100 Total assets - Advances received Equity ratio measures Koskisen’s solvency and ability to meet its liabilities in the long term. 17. Gearing, per cent = Net debt ------------------------------------------------------------------------------------------- x 100 Total equity Gearing is a measure used to assess Koskisen’s financial leverage. 18. Return on capital employed, per cent = Operating profit (loss) (last 12 months) ------------------------------------------------------------------------------------------- x 100 Capital employed (average for the last 12 months) Return on capital employed reflects the return of capital tied to Koskisen’s operations. Koskisen Corporation, Group Reconciliation of alternative performance measures The following table sets forth a reconciliation of the Alternative Performance Measures as at the dates and for the periods indicated: EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Items affecting comparability Costs related to reorganisations 326 430 The gain (-) or loss (+) from sale of businesses or significant fixed assets -190 -2,485 Costs related to the Listing - 2,428 Items affecting comparability 137 373 EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 EBITDA Operating profit (loss) 24,396 58,168 Depreciation, amortisation and impairments 8,607 8,083 EBITDA 33,003 66,251 EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 EBITDA margin, per cent EBITDA 33,003 66,251 Revenue 271,275 317,651 EBITDA margin, per cent 12.2 % 20.9 % EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Adjusted EBITDA Operating profit (loss) 24,396 58,168 Depreciation, amortisation and impairments 8,607 8,083 Items affecting comparability 137 373 Adjusted EBITDA 33,140 66,624 EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Adjusted EBITDA margin, per cent Adjusted EBITDA 33,140 66,624 Revenue 271,275 317,651 Adjusted EBITDA margin, per cent 12.2 % 21.0 % Koskisen Corporation, Group Consolidated statement of comprehensive income EUR thousand Note Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Revenue 2 271,275 317,651 Other operating income 4 4,050 4,316 Change in inventories of finished goods and work in progress 16 922 -634 Change in fair value of forest assets 13 870 -19 Materials and services 5 -156,769 -161,770 Employee benefit expenses 6 -46,890 -46,269 Depreciation, amortisation and impairments 8 -8,607 -8,083 Other operating expenses 9 -40,455 -47,025 Operating profit (loss) 24,396 58,168 Finance income 10 4,573 5,998 Finance expense 10 -4,910 -6,408 Finance costs, net -337 -410 Profit (loss) before income tax 24,059 57,757 Income tax expense 11 -3,829 -11,784 Profit (loss) for the period 20,230 45,973 Other comprehensive income: Items that may be reclassified to profit or loss Translation differences 335 186 Other comprehensive income for the period, net of tax 335 186 Total comprehensive income for the period 20,565 46,159 Profit (loss) for the period attributable to: Owners of the parent company 20,230 39,746 Non-controlling interests - 6,227 Profit (loss) for the period 20,230 45,973 Total comprehensive income for the period attributable to: Owners of the parent company 20,565 39,929 Non-controlling interests - 6,230 Total comprehensive income 20,565 46,159 Earnings per share for profit attributable to the ordinary equity holders of the parent company: Basic earnings per share, EUR 19 0.88 2.48 Diluted earnings per share, EUR 19 0.87 2.47 The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Koskisen Corporation, Group Consolidated balance sheet EUR thousand Note Dec 31, 2023 Dec 31, 2022 ASSETS Non-current assets Property, plant and equipment 12 97,508 76,275 Forest assets 13 3,599 2,731 Right-of-use assets 14 26,159 22,702 Intangible assets 15 1,308 923 Financial assets at fair value through profit or loss 20 960 1,752 Other receivables 17 11 79 Deferred tax assets 11 88 129 Total non-current assets 129,634 104,590 Current assets Inventories 16 37,544 34,174 Trade receivables 20 23,365 25,541 Other receivables 17 10,427 9,534 Financial assets at fair value through profit or loss 20 10,625 9,892 Income tax receivables 11 1,839 354 Deposits 20 20,000 - Cash and cash equivalents 20 35,771 74,527 Total current assets 139,571 154,022 TOTAL ASSETS 269,205 258,612 EQUITY AND LIABILITIES Equity Share capital 18 1,512 1,512 Legal reserve 18 16 16 Reserve for invested unrestricted equity 18 73,843 73,843 Treasury shares 18 -3 - Cumulative translation difference 18 144 -191 Retained earnings 51,487 20,886 Profit (loss) for the period 20,230 39,746 Total equity attributable to owners of the parent company 147,229 135,811 Total equity 147,229 135,811 Non-current liabilities Borrowings 20 31,310 24,150 Lease liabilities 14, 20 23,857 25,294 Other long-term employee benefits 6 3,124 3,020 Deferred tax liabilities 11 5,697 3,734 Provisions 21 150 100 Total non-current liabilities 64,138 56,299 Current liabilities Borrowings 20 6,401 4,500 Lease liabilities 14, 20 2,132 2,015 Advances received 20 639 756 Trade payables 20 25,411 32,263 Trade payables, payment system 20 7,396 7,316 Other payables 22 15,811 19,501 Income tax liabilities 11 13 130 Provisions 21 35 20 Total current liabilities 57,838 66,501 Total liabilities 121,976 122,800 TOTAL EQUITY AND LIABILITIES 269,205 258,612 The consolidated balance sheet should be read in conjunction with the accompanying notes. Koskisen Corporation, Group Consolidated statement of changes in equity Attributable to owners of the parent company EUR thousand Note Share-capital Legal reserve Reserve for invested unrestricted equity Treasury shares Cumulative translation differences Retained earnings Total equity attributable to owners of the parent company Equity attributable to non-controlling interests Total equity Equity at Jan 1, 2023 1,512 16 73,843 - -191 60,631 135,811 - 135,811 Profit (loss) for the period - - - - - 20,230 20,230 - 20,230 Other comprehensive income Cumulative translation differences - - - - 335 - 335 - 335 Total comprehensive income - - - - 335 20,230 20,565 - 20,565 Transactions with owners: Dividend distribution - - - - - -9,895 -9,895 - -9,895 Share-based payments 18 - - - - - 751 751 - 751 Acquisition of treasury shares 18 - - - -3 - - -3 - -3 Total transactions with owners - - - -3 - -9,144 -9,148 - -9,148 Equity at Dec 31, 2023 1,512 16 73,843 -3 144 71,717 147,229 - 147,229 Attributable to owners of the parent company EUR thousand Note Share-capital Legal reserve Reserve for invested unrestricted equity Treasury shares Cumulative translation differences Retained earnings Total equity attributable to owners of the parent company Equity attributable to non-controlling interests Total equity Equity at Jan 1, 2022 1,512 16 - - -374 34,486 35,641 23,179 58,820 Profit (loss) for the period - - - - - 39,746 39,746 6,227 45,973 Other comprehensive income Cumulative translation differences - - - - 183 - 183 3 186 Total comprehensive income - - - - 183 39,746 39,929 6,230 46,159 Transactions with owners: Share issue (merger) 18 - - 43,252 - - -13,842 29,409 -29,409 - Directed share issue, personnel offering 18 - - 345 - - - 345 - 345 Share-based payments 18 - - - - - 242 242 - 242 Share issue 18 - - 32,029 - - - 32,029 - 32,029 Transaction expenses, share issue 18 - - -1,783 - - - -1,783 - -1,783 Total transactions with owners - - 73,843 - - -13,601 60,242 -29,409 30,833 Equity at Dec 31, 2022 1,512 16 73,843 - -191 60,631 135,811 - 135,811 The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Koskisen Corporation, Group Consolidated statement of cash flows EUR thousand Note Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Cash flow from operating activities Profit (loss) for the period 20,230 45,973 Adjustments: Depreciation, amortisation and impairment 8 8,607 8,083 Change in the fair value of the forest assets 13 -870 19 Gains and losses from sale of subsidiaries - -2,209 Gains and losses from sale of non-current assets -328 -396 Interest and other finance income and expense 10 337 410 Income taxes 11 3,829 11,784 Change in other long-term employee benefits -6 -678 Share-based payments 751 238 Other adjustments 134 0 Adjustments total 12,454 17,251 Changes in net working capital: Change in trade and other receivables 17, 20 1,079 661 Change in trade and other payables 20, 22 -9,722 8,120 Change in inventories 16 -3,266 3,527 Utilised provision 21 68 1 Interest received 1,417 163 Interest paid -4,106 -9,227 Other financial items received 390 163 Arrangement fees and other financing costs paid -201 -1,080 Income taxes paid -3,408 -18,326 Net cash flow from operating activities 14,936 47,225 Cash flow from investing activities Purchases of property, plant and equipment and intangible assets 12, 14 -17,067 -22,046 Proceeds from sale of non-current assets 1,023 491 Payments for financial assets at fair value through profit or loss 20 -10,000 - Proceeds from financial assets at fair value through profit or loss 9,892 - Investments in deposits -35,000 - Repayment of deposits 15,000 - Proceeds from sale of subsidiary, net of cash sold - 3,136 Net cash from investing activities -36,152 -18,418 Cash flows from financing activities Proceeds from issue of shares - 30,591 Acquisition of treasury shares -3 - Proceeds from borrowings 20 - 29,000 Repayment of borrowings 20 -4,500 -43,988 Proceeds from a change in a lease contract - 3,000 Repayments of lease liabilities 20 -3,165 -3,511 Dividends paid -9,895 - Net cash from financing activities -17,563 15,092 Net change in cash and cash equivalents -38,780 43,898 Cash and cash equivalents at the beginning of the period 74,527 30,538 Effects of exchange rate changes on cash and cash equivalents 24 91 Cash and cash equivalents at the end of period 35,771 74,527 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. Notes to the Consolidated Financial Statements 1. General information and basis of preparation General information of the Group Koskisen Corporation (the company, the parent company) together with its consolidated subsidiaries (Koskisen, the Group) is a Finnish public company active in the sawn timber and panel industries where it manufactures a wide range of wooden products such as sawn goods, plywood and chipboard. Koskisen aims to be a sustainable partner with both the forest owners as well as its customers. Koskisen was founded in 1909. Its headquarters is in Järvelä, Finland and it has offices in Finland and Poland. Koskisen has approximately 900 employees. Koskisen Corporation is a Finnish public limited liability company, with a corporate identity number, 0148241-9, domiciled in Kärkölä, Finland. The registered address is Tehdastie 2, 16600 Järvelä, Finland. The parent company's / Koskisen Corporation's shares are listed on the main list of Nasdaq Helsinki Oy from 1 December 2022. The Board of Directors of Koskisen Corporation has approved these consolidated financial statements for issue on 12 April 2024. A copy of the consolidated financial statements is available at the Internet-address www.koskisen.com. Basis of preparation Koskisen’s consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union, and the IAS and IFRS standards as well as interpretations issued by the SIC and the IFRIC as at 31 December 2023. The notes to the consolidated financial statements also comply with the requirements under the Finnish accounting and company legislation complementary to the IFRS. Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. The consolidated financial statements have been prepared primarily under the historical cost convention unless otherwise indicated. Financial assets at fair value through profit or loss, derivative liabilities and forest assets, as well as assets and liabilities regarding benefit-based plans and share-based payments have been measured at fair value. The consolidated financial statements are presented in thousands of euros, which is the functional and presentation currency of the parent company. All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand unless otherwise stated, therefore the sum of individual figures may deviate from the presented total figure. Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in euros, which is the company’s functional and presentation currency. Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income. Foreign exchange gains and losses relating to the ordinary course of business, as well as, foreign exchange gains and losses relating to financial items are presented in finance costs, net in the statement of comprehensive income. Group companies The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency. Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet. Income and expenses for each statement of comprehensive income are translated at average exchange rates. All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold or otherwise disposed of, the associated exchange differences are reclassified to the statement of comprehensive income, as part of the gain or loss on sale. Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The effects of the Russian war of aggression Koskisen actively monitors the impact of Russia’s war of aggression against Ukraine on the estimates and assumptions used in the preparation of the consolidated financial statements. The war has kept the demand for birch plywood high relative to supply, supporting the high price level of birch plywood. The impact of the war on the estimates presented in financial reporting is based on the management’s best judgement. The liquidation process of OOO Koskiles, Koskisen’s logistics and wood supply company operating in Russia, was completed in November 2023, after which the group has no operations in Russia. The costs related to the liquidation of the company were not significant. Key estimates and management judgement The preparation of financial statements in conformity with IFRS requires management to use certain critical estimates and exercise judgement, which have an impact on the amount of assets and liabilities as well as the amount of income and expenses recognised for the financial year presented in these consolidated financial statements. In addition, the management is required to use judgement in the application of the accounting policies. The estimates and judgement are continually evaluated and are based on the management’s best knowledge, historical experience and expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are presented in the following notes to the consolidated financial statements: Note Key estimates and judgements 13. Forest assets Valuation of forest assets 14. Leases Embedded leases 14. Leases Lease term determination 14. Leases Determination of incremental borrowing rate 21. Provisions Estimation of the amount and timing of the provision 2. Segment information and revenue Koskisen's chief operative decision-maker (CODM) is the Board of Directors which monitors the results of the Group and allocates resources to the segments. Koskisen’s operating segments, which also are the Group’s reportable segments are the Panel Industry and the Sawn Timber Industry. The Board of directors monitors each segment’s performance on the basis of revenue and EBITDA. Transactions between operating segments are based on arm’s length terms, and they are eliminated on consolidation. The Panel Industry provides tailored high quality panel board solutions to our customers. The Panel Industry revenue comprises sales of plywood, chipboard, thin plywood and veneer as well as optimised van interior solutions. The Sawn Timber Industry provides sawn timber and further-processed products that are produced from high-quality wood raw material. The Sawn Timber Industry revenue comprises sales of sawn timber and further processed timber as well as wood procurement side products for pulp and paper industry and bioenergy for several power plants. Other consists of Kosava-Kiinteistöt Oy, 100% owned subsidiary providing facility management related services to the parent company, as well as some of the Group central functions which are not allocated to the segments. Revenue by segments Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 EUR thousand External Internal Total External Internal Total Panel Industry 148,786 9 148,795 152,111 1,873 153,984 Sawn Timber Industry 122,400 24,823 147,223 165,426 23,637 189,063 Segments total 271,186 24,832 296,018 317,537 25,510 343,048 Other 89 577 666 114 581 695 Elimination of internal sales -25,410 -25,410 -26,092 -26,092 Total 271,275 - 271,275 317,651 - 317,651 Koskisen generates revenue mainly from the sale of goods, i.e. sawn timber and panel. Majority of the Koskisen’s revenue is recognised at a point in time when customer obtains control of the goods based on the applicable delivery terms. The payment terms in Koskisen’s customer contracts typically vary between 30 and 60 days, and the contracts do not include significant financing components. The contracts may include variable payments such as cash discounts or other discounts. In 2023 and 2022 Koskisen had no external customers from which revenue recognised would have been over 10% of the Group’s total revenue. Revenue by countries EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Finland 111,206 124,553 Japan 21,116 39,950 Germany 20,320 20,822 Poland 11,556 11,742 Other EU countries 75,419 81,718 Other countries 31,658 38,866 Yhteensä 271,275 317,651 EBITDA by segments EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Panel Industry 29,282 29,279 Sawn Timber Industry 3,274 41,557 Segments total 32,556 70,835 Other 3,204 -4,747 Eliminations -2,757 162 Total 33,003 66,251 Reconciliation of EBITDA to operating profit (loss) EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 EBITDA 33,003 66,251 Depreciation, amortisation and impairments -8,607 -8,083 Operating profit (loss) 24,396 58,168 Contract assets and liabilities EUR thousand Dec 31, 2023 Dec 31, 2022 Contract liabilities 1) 501 598 1) Included in Advances received in the balance sheet Revenue was recognised for the majority of the amount included in the contract liability balance at the beginning of the period. Non-current assets by geographical area EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Finland 126,498 101,898 EU countries 3,032 2,493 Other countries 16 42 Total 129,546 104,434 Accounting policy Based on contracts with customers, sales of goods are distinct performance obligations. In addition, Koskisen applies various delivery terms based on Incoterms 2020, which are the official rules for the interpretation of trade terms as issued by the International Chamber of Commerce (ICC). Control of goods sold transfers at a point in time, typically when the title for the goods or physical possession of the goods has transferred to the customer, the customer has accepted the goods or Koskisen has right to payment. When control of goods has transferred to the customer, but Koskisen still has responsibility to arrange for delivery or insurance, these services are considered as distinct performance obligations; and, if material, recognised over time, while the service is being performed. Koskisen considers that the customer is able to benefit from these services by simultaneously receiving and consuming the benefits provided by such a service. The more widely used delivery terms are Carriage and Insurance Paid to (CIP), Carriage Paid to (CPT), Cost, Insurance and Freight paid to (CIF) or Cost and Freight paid to (CFR): with revenue for goods recognised at the point of handing over the goods to a carrier in accordance with relevant term; for Free of Carriage (FCA) sale of goods is recognised at the point of handing the goods over to the buyer’s carrier; and for Delivered at Place (DAP) at the point of delivery to destination. Koskisen recognises revenue from contracts with customer to the amount that it expects to receive from the customer net of any sales taxes. Any variable considerations, such as discounts, included in the customer contract are estimated and included in the revenue only to the extent that it is highly probable that no significant reversal in the amount of cumulative revenue recognised will not occur. The amount of variable consideration is estimated at the end of each reporting period. When a contract contains more than one performance obligation, the consideration included in the contract is allocated to the performance obligations based on stand-alone selling prices. Koskisen does not have significant warranty or return obligations. Koskisen does not recognise material contract assets arising from contracts with customers, as right to consideration typically meets the definition of trade receivables on initial recognition. Trade receivables are recognised when the control of the goods is transferred to the customer, and the consideration included in the contract is unconditional except for the passage of time. In Koskisen’s customer contracts the period between the transfer of the goods or services to the customers and the receipt of payment is less than 12 months. Koskisen has elected to use the practical expedient not to adjust revenue for the effect of financing components. Any advance payments received from the customers are recognised on the balance sheet (contract liability). Koskisen recognises paid sales commissions as an expense in the same period in which the corresponding sales transaction is recognised. 3. Financial risk and capital management Financial risks are divided into credit risk covering business-related credit risk and financial credit risk, liquidity risk and market risk covering foreign exchange risk and interest rate risk. These financial risks are managed by the Koskisen Group Finance department in accordance with the Koskisen Treasury Policy. Koskisen Treasury Policy is approved by the Board of Directors of Koskisen Corporation. The objective for treasury activities is to guarantee sufficient funding at all times and to identify, evaluate and manage financial risks. Credit risk Credit risk arises from cash and cash equivalents, deposits, investments measured at fair value through profit or loss (FVPL), favourable derivative financial instruments as well as trade receivables. The Group’s credit risks or counterparty risks are realised when the customer or other counterparty is unable to fulfil its commitments to the Group. Regarding trade receivables Koskisen applies the expected credit loss model to assess impairment loss for the doubtful trade receivables since the trade receivables do not contain a significant financing component. To measure the lifetime expected credit losses, trade receivables have been grouped based on aging category and measured based on historical loss rates adjusted by forward looking estimates and individual assessment. Trade receivables is written off as impaired when receivership or bankruptcy is confirmed or when it is otherwise obvious that the customer will be unable to meet its payment obligations. Changes in impairment loss for doubtful trade receivables are recognised under other operating costs in the statement of comprehensive income. According to the principles of credit management, the quality of receivables is assessed on the basis of customer-specific analysis. Credit risks related to customers are managed by credit insurance, advance payment terms and/or by expecting bank guarantees or confirmed letters of credit for customer payments. Koskisen is also exposed to counterparty risks related to financial institutions, through the significant amounts of liquid funds deposited with financial institutions, in the form of financial investments and in derivatives. Financial investments are made only with counterparties with high creditworthiness. While cash and cash equivalents and deposits are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial. Loss allowance Under 30 30-60 61-90 Over 90 EUR thousand Not due days days days days Total Dec 31, 2023 Expected loss rate 0.1 % 0.1 % 0.2 % 1.6 % 100.0 % Trade receivables, gross 18,750 4,464 160 5 85 23,464 Loss allowance -11 -3 -0 -0 -85 -99 Trade receivables, net 18,739 4,462 159 5 - 23,365 Under 30 30-60 61-90 Over 90 EUR thousand Not due days days days days Total Dec 31, 2022 Expected loss rate 0.1 % 0.1 % 0.2 % 1.6 % 100.0 % Trade receivables, gross 22,043 3,369 125 31 15 25,584 Loss allowance -12 -2 -0 -0 -15 -30 Trade receivables, net 22,031 3,367 125 31 - 25,554 Loss allowance reconciliation EUR thousand 2023 2022 Opening loss allowance at Jan 1 30 41 Increase in loss allowance recognised in the statement of comprehensive income during the financial year 99 30 Receivables written off during the financial year as uncollectible -20 -4 Unused amount reversed -10 -37 Closing loss allowance at Dec 31 99 30 Liquidity risk Cash flow from operations is the principal source of Koskisen’s financing. External funding, as well as cash and financial investments, are managed centrally by Koskisen Group Finance according to the Koskisen Treasury Policy. Financial investments are made mainly in short-term instruments to ensure continuous liquidity Koskisen ensures sufficient liquidity at all times by efficient cash management and by maintaining sufficient available committed and uncommitted credit lines that are available until 2025. Refinancing risk is managed by having a sufficiently long loan portfolio. The Group’s existing credit facilities include committed revolving credit facility totalling to EUR 8.0 million as at 31 December 2023 (31 December 2022: EUR 8.0 million). At the end of 2023, the funding of Koskisen was guaranteed by existing committed credit facilities, cash and financial investments. The Group had cash and cash equivalents totalling EUR 35.8 million as at 31 December 2023 (31 December 2022: EUR 74.5 million). Binding revolving credit facilities and long-term loans include financial covenants, which are described below in the capital management section. Maturities of financial liabilities Total contractual Carrying EUR thousand 2024 2025 2026 2027 2028 2029- cash flows amount Dec 31, 2023 Loans from financial institutions 7,877 9,237 13,993 3,246 3,180 5,086 42,619 37,711 Lease liabilities 4,979 3,523 2,848 2,565 2,458 23,472 39,846 25,989 Trade payables 25,411 - - - - - 25,411 25,411 Trade payables, payment system 1) 7,437 - - - - - 7,437 7,396 Total 45,704 12,759 16,841 5,811 5,639 28,559 115,312 96,507 Total contractual Carrying EUR thousand 2023 2024 2025 2026 2027 2028- cash flows amount Dec 31, 2022 Loans from financial institutions 5,650 6,265 6,357 11,309 657 2,227 32,465 28,650 Lease liabilities 4,090 3,759 3,355 2,766 2,584 27,311 43,865 27,309 Trade payables 32,263 - - - - - 32,263 32,263 Trade payables, payment system 1) 7,316 - - - - - 7,316 7,316 Total 49,319 10,024 9,712 14,075 3,241 29,538 115,909 95,538 1) Trade payables under the payment system are payable on demand, so the company reports them as short-term debt. Accumulated interest and interest for the 45 days notice period have been added to the contractual cash flows of these. Market risk Commodity price risk Prices of panel board and sawn wood products as well as timber used as raw material fluctuates based on international market conditions exposing Koskisen revenue and profitability to negative fluctuations. Koskisen hedges against electricity price risk fluctuations by entering partly in fixed price contracts. For the purchases between 1 to 12 months forward, the range of the price fixing is between 65% to 90% and for the following 13 to 24 months, the range of the price fixing is between 35% to 75%. Koskisen’s principle is to keep the degree of hedging within these ranges. The Group’s aim is to ensure that a sufficiently large proportion of the purchases is protected from fluctuations in the market price. The significant volatility of the electricity prices is an additional risk for production costs and its importance for market competition depends on the realisation of the risk in relation to competitors. Foreign exchange risk Koskisen’s headquarters is in Finland and Koskisen also has a foreign subsidiary in Poland. The Group is exposed to both transaction and translation foreign exchange risks. The Group’s business and results from operations are exposed to changes in exchange rates between the euro, the presentation currency, and other currencies, such as the U.S. dollar (USD) and British pound (GBP). The largest export currency after the euro is the USD, which is used for example as the currency for exports to Japan. The magnitude of foreign exchange exposures changes over time as a function of revenue and costs in different markets, as well as the prevalent currencies used for transactions in those markets. Significant changes in exchange rates may also impact Koskisen’s competitive position and related price pressures through their impact on our competitors. The majority of Koskisen’s revenue and results are in the group companies’ functional currencies, hence Koskisen’s exposure to risks, other than risks arising from USD, is limited. Additionally, Koskisen is exposed to risks related to liquidity and payment discipline of its customers, which may impact cash flow or lead to credit losses As shown in the table below, Koskisen is primarily exposed to changes in EUR/USD exchange rate. The sensitivity of profit or loss to changes in the exchange rates arises mainly from revenue, outstanding trade receivables in USD, and a bank account in USD. Koskisen’s exposure to other foreign exchange movements is not material. To mitigate the impact of changes in exchange rates on Koskisen’s results, Koskisen hedges the foreign exchange exposure by entering into foreign exchange forward contracts. The Koskisen policy is to fix 100% of the USD denominated sales within the current quarter, 50% in the next quarter and 25% of the third quarter. The nominal amount of the outstanding USD foreign exchange forward contracts was EUR 2,416 thousand on 31 Dec 2023 (31 December 2022: EUR 2,404 thousand). The group’s open USD position as well as the derivatives and the sensitivity analysis of the position are presented in the tables below. At the balance sheet date, the open USD position is higher than the average during the financial period. USD exposure EUR thousand 31.12.2023 31.12.2022 Trade receivables 752 523 Cash and cash equivalents 3,550 4,688 Trade payables 40 46 Foreign currency forwards (nominal value) 2,416 2,404 Foreign currency forwards (fair value) 55 82 Impact on post-tax profit EUR thousand 2023 2022 EUR strengthens against US dollar 10% -1,589 -2,740 EUR weakens against US dollar 10% 1,589 2,740 As Koskisen has entities where the functional currency is other than the euro, the shareholders’ equity is exposed to fluctuations in foreign exchange rates. Changes in shareholders’ equity caused by movements in foreign exchange rates are shown as currency translation differences in the consolidated financial statements. The Group does not hedge this risk. Interest rate risk Koskisen borrows money from financial institutions and the interest rates of these loans are based on floating markets rates which exposes Koskisen to an increase in its financing costs (cash flow interest rate risk). Koskisen hedges its exposure to changes in interest rates with interest rate swaps. These hedges cover 80% (2022: 100%) of the open balance of variable rate loans from the change of the market rates. Their nominal amount is EUR 30.0 million during the periods presented. The interest rate swap agreements are valid until 2025, and accordingly effectively fix interest rates partly to predetermined level. The following sensitivity analysis covers both variable rate loans and the interest rate swap contracts. Impact on post-tax profit EUR thousand 2023 2022 Interest rates – increase by one percentage points 1) -77 - Interest rates – decrease by one percentage points 1) 77 - 1) Holding all other variables constant Capital management Koskisen aims to manage its capital in a way that supports the profitable growth of operations, and ensures an adequate liquidity and capitalisation of the Group at all times. The target is to maintain a capital structure that contributes to the creation of shareholder value. Management monitors the capital structure with leverage (Net Debt to EBITDA). The assets employed in Koskisen’s business consist principally of net working capital, fixed assets, and financial investments which are funded by equity and net debt. Koskisen aims to maintain low net working capital to ensure a healthy cash flow even when the business is growing and to maintain a high return on assets employed. Koskisen has not defined a specific quantitative target for its capital management or capital structure, but the aim is to ensure strong credit quality to provide for ample access to external funding sources and to support the growth ambitions of the business. Koskisen considers its current capital structure to be a strength, as it allows for capturing potential value creating business opportunities, should such opportunities arise. The key terms of the loans in the Koskisen financing agreement are: - Interest 6 months Euribor - Margin, which varies depending on financial performance - Semi-annual repayments - Covenants: Leverage, Equity ratio - Termination date of the loan agreement 14 April, 2026. The loan was initially recognised at fair value, net of transaction costs incurred. The loans in the Koskisen financing agreement include covenant conditions regarding the company's indebtedness and self-sufficiency. The covenants are calculated from the figures according to Koskinen's Finnish accounting regulations and are reported to the financiers twice a year. The table lists the covenants of the loans. The covenants were met throughout the reporting periods. Dec 31, 2023 Dec 31, 2022 Actual Threshold Actual Threshold Leverage -0.02 3.5 -0.21 3.5 Equity Ratio 54.80% 30% 52.70% 30% Cash Flow Coverage - - - - The Board of Directors of the company has adopted a dividend policy pursuant to which Koskisen aims to pay an attractive dividend in accordance with its strategy, investment requirements, financial position and market outlook. Koskisen aims to pay a dividend equal to no less than one third of its net profit annually. The key terms of the new sawmill financing package loans are: - Interest 6 months Euribor - Fixed margin - Semi-annual repayments - No covenants - The loans mature between the years 2029 - 2031. 4. Other operating income EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Gain on sale of subsidiary - 2,209 Sale of emission allowances 2,385 765 Gains on disposal of property, plant and equipment 484 396 Grants received 294 350 Firewood sales to forest owners 263 281 Realisation of electricity hedges 220 - Compensations received 106 37 Lease income 93 99 Other 205 178 Total 4,050 4,316 Koskisen participates in the European Union emission trading scheme in which it has received free emission allowances for a defined period. Koskisen was granted 20,985 units of CO2 emission rights for the year 2023 (2022: 43,675 units). The rights in excess of the Group’s needs have been transferred to the following financial period. In 2023, Koskisen returned emission rights totalling 1,891 units (2022: 3,285 units) Koskisen’s CO2 credits as at 31 December 2023 amounted to 25,297 units (31 December 2022: 35,203 units) and their market value was approximately EUR 2,033 thousand (31 December 2022: EUR 3,037 thousand). Koskisen sold emission rights in 2023 amounting to EUR 2,385 thousand (2022: EUR 765 thousand). No rights have been purchased (2022: no purchases). Accounting policy Emission rights Koskisen participates in the European Union's Emissions Trading Scheme aimed at reducing greenhouse gas emission and receives allowances, free of charge, for a defined period to emit a fixed tonnage carbon dioxide. Allowances received are initially and subsequently measured at cost (nominal amount). The related liability is measured at the carrying amount of the allowances. Any emissions exceeding the allowances received is measured at the market value of the excess emissions. Gains arising from the sale of the emission right allowances are recorded in other operating income in the statement of comprehensive income. Government grants Government grants are recognised when there is reasonable assurance that the conditions underlying the grants have been met and that the grant will be received. Government grants to cover expenses incurred are recognised in the statement of comprehensive income proportionally over the periods during which the related expenses are recognised. Government grants received, for which the expenses have not yet been recognised, are recognised as an advance received in the consolidated balance sheet. The grant component for eligible expenses already incurred during the reporting period, for which the grant will be received in subsequent reporting periods, is recognised as grant income in the statement of comprehensive income and as other receivable in the consolidated balance sheet. 5. Materials and services Materials and services comprise purchases of materials and supplies such as logs, coatings, glues, energy for production and other production materials. External services comprise log harvesting, transportation and machinery repair services. EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Purchases of materials and supplies 122,969 122,506 Change in inventories -2,363 2,979 External services 36,163 36,285 Total 156,769 161,770 6. Employee benefit expenses Koskisen employed an average of 904 employees in 2023, of which 810 employees were located in Finland and 76 in Poland. In addition, there were some 20 employees working in sales in different countries around the world. Koskisen’s employee benefit expenses are presented in the table below. The remuneration of the members of the Executive Board team, CEO and the members of the Board of Directors is presented in the note 24. Related party transactions. EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Wages and salaries 38,876 38,070 Pension costs - defined contribution plans 6,157 6,943 Social security costs 1,863 1,935 Other long-term benefits - service allowance -6 -678 Total 46,890 46,269 Other long-term benefits consist of an annual service allowance plan. The cost of the plan is determined based on the advice of qualified actuary who carries out a full valuation of the plan on a regular basis using the projected unit credit method. Under this method, the costs of the plan are charged to the statement of comprehensive income to spread the regular costs over the working lives of the employees. Koskisen presents the service cost relating to defined benefit obligations in employee benefit expenses while the net interest is presented in finance costs. Average number of employees Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Salaried employees 243 236 Workers 661 689 Average number of employees during the period 904 925 Accounting policy Short-term employee benefits are recognised as expenses during the period in which related service is provided. A liability is recognised when the Group has a statutory and constructive obligation relating to employment relationship based on performance received and when an obligation can be measured reliably. Koskisen has only defined contribution pension plans in the jurisdictions it operates. The Group pays contributions to external insurance companies and it does not have a legal or constructive obligation to make additional payments in case the recipient for pension contributions is unable to pay the pension benefits. The contributions are recognised as employee benefit expense in the statement of comprehensive income during the period to which the charge relates to. Annual service allowance Koskisen pays an annual service allowance to its production workers based on the collective agreements. The plan is accounted for as a long-term employee benefit plan according to IAS 19 Employee benefits, with items resulting from remeasurement, which include actuarial gains and losses, are recognised immediately in the consolidated balance sheet for the period through the statement of comprehensive income (profit and loss) when they incur. Past service costs are recognised as expenses at the earlier of the plan amendment or curtailment and when related restructuring costs or termination benefits are recognised. Net interest is calculated by applying the discount rate to the net liability or asset under the defined benefit plan. The Group recognises the changes in the net liability for the service cost in employee benefit expenses and net interest expense or income in finance costs, net. The annual service allowance obligations and the related service costs have been calculated using the projected credit unit method by discounting the estimated future cash flows with the discount rate based on AA euro corporate bond yield curve which reflects the duration of the liability. 7. Share-based incentives Share-based incentive plan 2022-2026 In March 2022, the Board of Directors of Koskisen Corporation decided on a share-based incentive program in place for its key employees for the years 2022 to 2026. The incentive program consists of three three-year earning periods, which are from 2022 to 2024, from 2023 to 2025 and from 2024 to 2026. Share-based incentive plan 2022-2026 - Performance period 2022-2024 The key employees eligible for the program, the incentives to be paid, the vesting conditions and targets determined by the company's Board of Directors were communicated to the persons participating in the arrangement in June 2022. The key employees eligible for the program (six individuals) can receive a maximum of 138,000 company shares (gross amount) if the terms of the program are met. The vesting conditions and the targets relate to meeting certain key figures (EBITDA and return on invested capital) and work obligation. The earned shares are given to the key employees after the vesting period ends. From the total number of shares, Koskisen withholds the withholding tax corresponding to the income tax liability of the key employee and pays it to the tax authorities. The arrangement has a net settlement feature of tax obligations and is classified as an equity-settled share-based transaction in its entirety. The arrangement is treated as an equity-settled share-based transaction. Share-based incentive plan 2022-2026 - Performance period 2023-2025 In April 2023, the company's Board of Directors resolved on the criteria and targets as well as the key employees eligible for the incentive program for the second earning period. The members of the Group Executive Board, a total of seven people, are currently entitled to participate in the long-term share-based incentive program. The potential receipt and amount of the reward is based on the accumulated adjusted EBITDA from 1 January 2023 to 31 December 2025 and the person's continued employment with the company. During the second earning period of the incentive program, the key employees eligible for the incentive program may earn a maximum of 215,000 shares (gross amount). The earned shares are given to the key employees after the vesting period ends. From the total number of shares, Koskisen withholds the withholding tax corresponding to the income tax liability of the key employee and pays it to the tax authorities. The arrangement has a net settlement feature of tax obligations and is classified as an equity-settled share-based transaction in its entirety. The arrangement is treated as an equity-settled share-based transaction. Incentive plan related to the Initial public offering In June 2022, Koskisen established a share-based incentive plan for key management. The Board of Directors has determined the employees eligible for the program, the incentives to be paid, and the vesting conditions and targets. The program includes two individuals who, if the conditions are met, can receive a maximum of 45,000 company shares. The earning criteria and goals are related to the listing and work obligation. The first part is paid two months after the listing and the second part 12 months after the first part is paid. The reward is paid half in shares and half in cash, which is determined by the value of the share at the time of payment. The arrangement is treated partly as an equity-settled and partly as a cash-settled share-based transaction. The first part was paid in full in February 2023. Share-based incentive plan 2022-2026 Incentive plan related to the initial public offering Total Performance period 2022-2024 1) Performance period 2023-2025 Instalment 1 1) Instalment 2 1) Total / Weighted average Maximum amount, pcs 2) 138,000 215,000 18,000 27,000 398,000 Initial allocation date Jul 1, 2022 Apr 30, 2023 Jun 21, 2022 Oct 6, 2022 Estimated vesting date Apr 30, 2025 Apr 30, 2026 Feb 28, 2023 Feb 28, 2024 Maximum contractual life, years 2.8 3 0.7 1.4 2.7 Remaining contractual life, years 1.3 2.3 0.0 0.2 1.7 Number of persons at the end of reporting year 6 7 0 2 Payment method Equity and cash (net settlement) Equity and cash (net settlement) Equity and cash Equity and cash 1) Maximum amounts of the Share-based incentive plan 2022-2026 Performance Period 2022-2024 and Incentive plan related to the initial offering are adjusted by the share split carried out in November 2022. 2) The amounts are presented in gross terms, i.e. the share reward figures both the reward paid in share and a number of shares corresponding to the amount of the reward paid in cash. Share-based incentive plan 2022-2026 Incentive plan related to the initial public offering Changes during the period Performance period 2022-2024 1) Performance period 2023-2025 Instalment 1 1) Instalment 2 1) Total Jan 1, 2023 Outstanding in the beginning of the period 138,000 - 18,000 27,000 183,000 Changes during period Granted during period - 215,000 - - 215,000 Exercised during period - - 18,000 - 18,000 Dec 31, 2023 Granted shares to which the right has not yet arisen 138,000 215,000 - 27,000 380,000 1) Granted amounts of the Share-based incentive 2022-2026 Performance Period 2022-2024 and Incentive plan related to the initial public offering are adjusted by the share split carried out in November 2022. Fair value determination The fair value of share-based incentives have been determined at grant date and the fair value is expensed until vesting. The pricing of the share-based incentives granted during the period was determined by the following inputs and had the following effect: Valuation parameters for instruments granted during 2023 Share-based incentive plan 2022-2026 Instrument Performance period 2023-2025 Estimated market price of the share at the time of issuance, EUR 6.75 Maturity, years 3 Risk-free rate, % 2.72% Expected dividends, EUR 1.1 The fair value of the benefit per share at the time of grant, EUR 5.68 Share price at reporting period end, EUR 6.00 Effect on the result and financial position EUR thousand Jan 1 - Dec 31, 2023 Expenses for the financial year, share-based payments 540 Expenses for the financial year, share-based payments, equity-settled 462 Liabilities arising from share-based payments Dec 31, 2023 72 Estimated amount of cash to be paid for the tax withholding within the ongoing plans, Dec 31, 2023 440 Share issue directed to personnel In September 2022, Koskisen carried out a directed share issue to its employees, in which all employees working in a permanent employment relationship could participate. The subscription price of the shares issued as part of the personnel offering (115,018) was lower than the fair value of the shares. The subsequent sale of the subscribed shares is limited and the shares are subject to an obligation to work for a period that ends with a separate decision of the Board of Directors, when two years have passed since the approval of the share subscriptions or when at least six months have passed since the listing, whichever occurs later. Instrument Share issue directed to personnel 2022 1) Maximum amount, pcs 260,000 Initial exercise price 3.00 Dividend adjustment No Initial allocation date Sep 29, 2022 Vesting date Sep 29, 2024 Maximum contractual life, yrs 2 Remaining contractual life, yrs 0.7 Number of persons at the end of reporting year 110 Payment method Shares 1) Share Issue Directed to Personnel 2022 maximum amount is adjusted by the share split carried out in November 2022. Changes during the period Share issue directed to personnel 2022 1) Jan 1, 2023 Outstanding in the beginning of the period 115,018 Changes during period Forfeited during period 1,086 Dec 31, 2023 Granted shares to which the right has not yet arisen 113,932 1) Share Issue Directed to Personnel 2022 subscribed amounts are adjusted by the share split carried out in November 2022. Effect on the result and financial position EUR thousand Jan 1 - Dec 31, 2023 Expenses for the financial year, share-based payments, equity-settled 289 Liabilities arising from share-based payments Dec 31, 2023 - Accounting policy The Group's share-based incentive plans are classified as equity-settled or cash-settled share-based transactions. Transactions with the net settlement feature for tax obligations are classified in their entirety as equity-settled share-based transactions. Equity-settled share-based transactions are measured at the grant date fair value. The liabilities for the cash-settled share-based transactions are measured at the fair value on each reporting date. At the end of each reporting period, the company's management evaluates the probability of the fulfilment of the plan conditions (conditions based on the performance of the service and results), updates the estimate of the number of shares expected to finally vest and makes a corresponding adjustment on the expense recognised. Payments for share-based plans are expensed on a straight-line basis over the vesting period when the obligation has incurred. The expense is presented in the employee benefit expenses. For the equity-settled plans a corresponding amount is recognised as an increase in retained earnings, and for the cash-settled plans a corresponding liability is recognised in other liabilities on the balance sheet. 8. Depreciation, amortisation and impairment EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Property, plant and equipment, depreciation Buildings and structures 1,503 1,063 Machinery and equipment 3,523 3,523 Other property, plant and equipment 358 215 Total 5,385 4,801 Property, plant and equipment, impairment Buildings and structures - 23 Machinery and equipment 35 54 Total 35 77 Right-of-use assets , depreciation Power plants 1,589 1,658 Machinery and equipment 1,191 1,265 Land and water areas 49 49 Buildings 138 81 Total 2,967 3,053 Intangible assets, depreciation Software 220 152 Total 220 152 Depreciation, amortisation and impairment total 8,607 8,083 Accounting policy Depreciation and amortisation is recognised in the statement of comprehensive income on a straight-line basis over the estimated useful lives of property, plant and equipment and intangible assets. Right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term. If Koskisen is reasonably certain on exercising a purchase option, the right-of-use asset is depreciated over its useful life. 9. Other operating expenses Other operating expenses comprise, for example costs related to sales freight, forwarding and chipping, expenses for property maintenance and IT expenses. EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Sales freight and forwarding 22,237 28,297 IT expenses 3,954 3,302 Maintenance of property 3,528 3,820 Personnel related expenses 1,972 1,359 Administrative expenses 1,595 1,825 Consulting and administrative services 1,431 1,728 Travel expenses 1,003 752 Lease expenses 809 671 Marketing expenses 732 595 Sales commissions 656 902 Research and development expenses 540 348 Listing costs 1) - 1,830 Other expenses 2) 1,998 1,595 Total 40,455 47,025 1) Expenses related to the listing on the main list of Nasdaq Helsinki Oy, other than those directly related to the issuance of new shares. 2) Other expenses include, for example expenses related to machines, equipment and vehicles, as well as losses on disposal of fixed assets Fees paid to the auditor of the Group performing the statutory audit for the years presented in the consolidated financial statements appointed by the annual general meeting are presented in the table below. Auditor remuneration EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Audit 100 347 Tax and legal advisory services 5 74 Other services 28 1,178 Total 133 1,599 Auditor remuneration include the fees paid to the auditors of each Group company. Accounting policy Research costs are expensed as incurred in the other operating expenses in the statement of comprehensive income. Development costs are expensed as incurred unless they meet the criteria for internally developed intangible assets, in which case they are capitalised as intangible assets and amortised over their expected useful life. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. 10. Finance income and expenses EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Finance income Interest income 2,299 163 Foreign exchange gains 879 1,470 Gains on capital redemption contracts 625 - Gains on interest rate derivatives 606 3,010 Gains on foreign currency derivatives 162 1,161 Other finance income 3 194 Total 4,573 5,998 Finance costs Interest expenses from lease liabilities -2,079 -2,254 Foreign exchange losses -961 -1,259 Interest expenses from borrowings -934 -421 Losses on interest rate derivatives -554 -396 Losses on foreign currency derivatives -175 -998 Other finance expenses -206 -1,081 Total -4,910 -6,408 Finance income and costs total -337 -410 Other finance expenses in 2022 include commitment fees for renewed credit facility EUR 653 thousand and availability fees related to credit facility EUR 136 thousand. 11. Income tax Income tax expense comprises current income tax based on the taxable income for the period and deferred tax expense. Income tax expense EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Current tax on result for the period -1,612 -9,844 Adjustments for current tax of prior periods -208 -5 Total current income tax expense -1,819 -9,849 Change in deferred tax assets 137 -817 Change in deferred tax liabilities -2,147 -1,119 Total deferred tax expense -2,009 -1,935 Income tax expense -3,829 -11,784 The difference between income taxes at the statutory tax rate in Finland (20%) and income taxes recognised in the statement of comprehensive income is reconciled as follows: Reconciliation of the effective tax rate EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Profit (loss) before taxes 24,059 57,757 Tax calculated at Finnish tax rate 20 % -4,812 -11,551 Effect of other tax rates for foreign subsidiaries 1 10 Effect of expenses not deductible for tax purposes -223 -606 Utilisation of non-deductible net interest expenses from previous reporting periods 1,398 - Effect of non-taxable income 15 377 Effect of unrecognised deferred tax assets from tax losses - -9 Adjustment in respect to prior years -208 -5 Income tax expense -3,829 -11,784 Deferred tax assets and liabilities Recognised in profit or loss Reclassifi-cations Translation differences EUR thousand At Jan 1 At Dec 31 2023 Deferred tax assets Leases 1,093 153 0 1,247 Other long-term employee benefits 604 21 625 Intangible assets - -31 97 66 Provisions 20 17 37 Credit loss provision 6 13 0 20 Other items 219 -36 -97 4 90 Total 1,942 137 - 5 2,084 Netting of deferred taxes -1,814 -1,996 Total 129 88 Deferred tax liabilities Accumulated depreciation differences 4,280 1,547 5,827 Tangible assets - 174 164 338 Intangible assets 164 -164 - Derivatives 306 9 314 Borrowings 626 207 833 Rental contracts 172 196 367 Other items - 14 14 Total 5,547 2,147 - - 7,694 Netting of deferred taxes -1,814 -1,996 Total 3,734 5,697 Deferred tax liabilities, net 3,605 5,610 Recognised in profit or loss Reclassifi-cations Translation differences EUR thousand At Jan 1 At Dec 31 2022 Deferred tax assets Borrowings 1,030 -1,030 - Other long-term employee benefits 734 -130 604 Derivatives 408 -353 -55 - Tax losses 0 -0 - Leases 384 710 -0 1,093 Provisions 24 -4 -0 20 Credit loss provision 8 -2 -0 6 Other items 173 -8 55 -2 219 Total 2,761 -817 - -2 1,942 Netting of deferred taxes -2,700 -1,814 Total 61 129 Deferred tax liabilities Accumulated depreciation differences 4,052 227 4,280 Intangible assets 168 -4 164 Derivatives - 306 306 Borrowings 95 531 626 Rental contracts - 172 172 Other items 113 -113 - Total 4,429 1,119 - - 5,547 Netting of deferred taxes -2,700 -1,814 Total 1,728 3,734 Deferred tax liabilities, net 1,667 3,605 Accounting policy Income tax The income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Deferred tax Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 12. Property, plant and equipment Property, plant and equipment EUR thousand Land Buildings and structures Machinery and equipment Other tangible assets Advance payments and construction in progress Total Cost at Jan 1, 2023 2,734 61,241 95,078 6,061 26,741 191,854 Additions 33 7,648 8,604 120 15,303 31,708 Disposals -61 -1,613 -3,738 -825 -4 -6,241 Reclassifications - 14,738 2,688 2,085 -24,044 -4,533 Translation differences 8 144 16 5 8 182 Cost at Dec 31, 2023 2,714 82,158 102,648 7,446 18,004 212,970 Accumulated depreciation and impairment at Jan 1, 2023 - -39,870 -71,297 -4,412 - -115,579 Depreciation - -1,503 -3,523 -358 - -5,385 Accumulated depreciation of disposals and reclassifications - 1,272 3,738 538 - 5,548 Impairment - - -35 - - -35 Translation differences - -28 21 -3 - -10 Accumulated depreciation and impairment at Dec 31, 2023 - -40,130 -71,096 -4,235 - -115,462 Carrying value at Jan 1, 2023 2,734 21,370 23,781 1,650 26,741 76,275 Carrying value at Dec 31, 2023 2,714 42,028 31,551 3,211 18,004 97,508 EUR thousand Land Buildings and structures Machinery and equipment Other tangible assets Advance payments and construction in progress Total Cost at Jan 1, 2022 2,730 65,881 93,572 6,661 6,797 175,642 Additions 81 435 4,803 34 21,267 26,621 Disposals -84 -5,542 -3,996 -706 12 -10,316 Reclassifications - 490 685 73 -1,329 -80 Translation differences 7 -24 15 -1 -8 -11 Cost at Dec 31, 2022 2,734 61,241 95,078 6,061 26,741 191,854 Accumulated depreciation and impairment at Jan 1, 2022 - -44,186 -71,252 -5,063 - -120,500 Depreciation - -1,063 -3,523 -215 - -4,801 Accumulated depreciation of disposals and reclassifications - 5,397 3,542 866 - 9,806 Impairment - -23 -54 - - -77 Translation differences - 4 -11 0 - -6 Accumulated depreciation and impairment at Dec 31, 2022 - -39,870 -71,297 -4,412 - -115,579 Carrying value at Jan 1, 2022 2,730 21,696 22,321 1,598 6,797 55,142 Carrying value at Dec 31, 2022 2,734 21,370 23,781 1,650 26,741 76,275 Other tangible assets comprise the Mäntsäläntie industrial area's stormwater system (EUR 1.3 million), and district heating network (EUR 0.5 million) which were taken into use during the reporting period, and in addition amongst others, constructions of roads, parking and warehouse areas and an art collection. The increases during the financial period amounted to EUR 31.7 (26.6) million and were mainly related to the construction of the new sawmill in Järvelä. At the end of the financial period, advance payments and work in progress included EUR 11.3 million related to the new sawmill, and investments of EUR 27.9 million related to this were completed during the financial year. Other significant investments during the financial period are a spindleless lathe (EUR 2.0 million), as well as a solar power plant in Järvelä (EUR 1.3 million). The additions during 2022 were mainly related to the new sawmill in Järvelä. Advance payments and construction in progress included EUR 21.6 million related to the construction of the new sawmill, of which the additions in 2022 amount to EUR 15.8 million. The additions to machinery and equipment consisted mainly of a stick stacker to the new sawmill (EUR 3.3 million). Accounting policy Land is recognised in property, plant and equipment at cost. Other property, plant and equipment is recognised at cost less accumulated depreciation and any impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. The estimated useful economic lives of property, plant and equipment are - Buildings and structures 10-50 years - Machinery and equipment 5-15 years - Other tangible assets 5-10 years The residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income Impairment Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. The assets are tested at the cash generating unit (CGU) level, which is represents the lowest level for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets. Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 13. Forest assets Koskisen owns 781 hectares of forests land in Southern Finland at the end of the reporting period. The value of the forest assets, i.e. standing trees, is EUR 3.6 million as at 31 December 2023 (31 December 2022: EUR 2.7 million). Forest assets EUR thousand 2023 2022 Carrying value, at Jan 1 2,731 2,750 Gain (loss) arising from changes in fair value 870 -19 Decreases due to sales -2 - Carrying value, at Dec 31 3,599 2,731 Koskisen uses forest certification and all of its own forests are certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC sets requirements for the monitoring of certified wood raw materials and wood products in supply chains. In addition, the certification requires safeguarding the diversity of forests, maintaining the health and growth of forests and the use of the forests for recreational use. Accounting policy The forest land is divided into the forest assets i.e. standing trees and land. Forest assets are recognised at fair value less cost to sell. Land is recognised at cost and presented in property plant and equipment. The fair value of forest assets is calculated using the sum value method, in which the values of the soil base, saplings and standing trees are valuated separately and the total value is adjusted based on the special characteristics of the forests. The fair value of forest assets is classified as level 3 in the fair value hierarchy due to the use of the unobservable inputs, for example wood growth. Changes in the fair value of the forest assets is recognised in the operating profit (loss) in the statement of comprehensive income. Key estimates and judgements Valuation of forest assets The valuation of forest assets is a complicated process and requires several management estimates and judgement on assumptions that have a significant impact on the value of the forest assets presented on the balance sheet. Factors requiring management estimates include estimates on wood growth, analysing the appropriateness of harvesting and stumpage prices and management review of the valuation related data provided by third-party service providers. Stumpage prices used in the calculations are based on prices from third-party valuation service providers and have been compared to Finnish statistical database prices. 14. Leases Koskisen’s lease contracts comprise leases of real estates, including offices, apartments, warehouses and land areas, production machinery and equipment, cars and leases of other machinery and equipment, such as IT equipment. The lease terms are fixed or valid until further notice and may include extension or termination options. The lease contracts may include index clauses, which are typically based on the consumer price index. These are not included in the measurement of lease liability until they realise. In addition, Koskisen has entered into an agreement for heat energy supply which includes a lease contract for power plants. Koskisen has right to receive substantially all the economic benefits from the use of the power plants. The agreement includes an option based on which at the end of the 15 years agreement period, or in case of a breaching event, Koskisen has the right and obligation, if the other party requires, to redeem the power plants for itself or for a third party. Due to restructuring the lease agreement during 2022 Koskisen received a payment of EUR 3.0 million which was recognised as decrease to the right-of-use assets. Koskisen also has an agreement for sawn timber manufacturing. All payments for the agreement are variable, and therefore not included in the measurement of the lease liability but are recognised as cost in the statement of comprehensive income as incurred. The balance sheet shows the following amounts relating to leases: EUR thousand Dec 31, 2023 Dec 31, 2022 Right-of-use assets Power plants 18,751 19,822 Machinery and equipment 6,891 2,274 Land and water areas 229 278 Buildings 289 328 Total 26,159 22,702 Lease liabilities Non-current 23,857 25,294 Current 2,132 2,015 Total 25,989 27,309 Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Additions to the right-of-use assets during the financial year 1,636 1,022 The statement of comprehensive income shows the following amounts relating to leases: EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Depreciation charge of right-of-use assets Power plants 1,589 1,658 Machinery and equipment 1,191 1,265 Land and water areas 49 49 Buildings 138 81 Total 2,967 3,053 Interest expense 2,079 2,254 Expense relating to short-term leases 1) 8 14 Expense relating to leases of low value assets that are not short-term leases1) 361 345 Expenses relating to variable lease payments not included in lease liabilities1) 0 1,466 1) Included in other operating expenses Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 The total cash flow for leases in the financial year 5,607 7,326 The maturity of the lease liabilities is presented in note 3: Financial risk and capital management. Accounting policy At the contract inception, Koskisen assesses whether the arrangement is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Koskisen recognises a right-of-use asset and a corresponding lease liability at contract commencement for leases where it is a lessor. The contract commencement date is the date on which the asset is available for use by the lessee. Koskisen measures the lease liability at the commencement by discounting the future lease payments to their present value. The lease payments include fixed payments, variable lease payments based on an index or a rate, residual value guarantees, which are expected to be payable by Koskisen and the exercise price of a purchase option, if Koskisen is reasonably certain to exercise the option. Penalties for terminating the lease are included in the lease liability measurement if the lease term reflects that Koskisen will use the termination option. Koskisen discounts lease payments using the interest rate implicit in the lease. If that rate cannot be readily determined, Koskisen uses the incremental borrowing rate, i.e. the rate that Koskisen would have to pay to borrow over a similar term, and with a similar security to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Interest expense on lease liabilities is presented in the cash flow from operating activities. After the lease commencement, lease liability is measured at amortised cost using the effective interest method. Lease liability is remeasured, when the lease payments change due to, for example, index change, exercising of option included in the lease are reassessed or to reflect other lease modifications. Right-of-use assets are measured at cost comprising the initial amount of the lease liability, any lease payments made at or before the contract commencement, any initial direct costs and restoration costs. Right-of-use assets are depreciated using the straight-line method over the shorter of the asset’s useful life and lease term. If Koskisen is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the asset’s useful life. Koskisen applies the short-term and low value asset exemptions provided by the standard. Short-term leases are leases with a lease term of 12 months or less. Low value assets include, among others, bicycles and ICT equipment. Lease payments associated with those leases are recognised as an expense on a straight-line basis. Koskisen does not separate non-lease components from lease components in the sawmill lease. Koskisen has minor activities as a lessor by leasing its land areas and apartments. Koskisen classifies all of its leases as operating leases as the leases do not transfer substantially all of the risks and rewards incidental to ownership of an underlying assets. Key estimates and judgements Embedded leases Koskisen has agreements for heat energy supply and sawn timber manufacturing for which management has assessed whether the agreements include a lease. When the agreements include an identified asset and Koskisen utilises substantially all of the capacity of the assets and therefore obtains substantially all of the economic benefits from the use of the assets, and if Koskisen also has right to direct the use of the asset for a period of time, Koskisen accounts the arrangement as a lease. In some arrangements all the payments for a lease are variable, not dependent on index or a rate, and not in-substance fixed. Accordingly, for such arrangements no lease liability nor right-of-use asset has been recognised in the balance sheet. Lease term determination Koskisen assesses the lease term on a lease-by-lease basis based on the contractual obligations, economic incentives, and nature of the asset. Koskisen’s lease contracts include contracts with fixed lease terms, extension and termination options and contracts that are valid until further notice. If the contract contains a fixed lease term without option to extend or to terminate the lease, the lease term is set based on the fixed lease term. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). If the lease term is not stated clearly in the contract, or will continue in perpetuity until further notice, management assesses the enforceable period of the lease based on the contractual terms and reasonable certainty. In case there are no significant penalties involved in contracts where the lease term in not stated clearly or continues until further notice, the Group determines the lease term on a lease-by-lease basis reflecting the Group’s need for the underlying asset and its strategic planning period of five years. The lease term is reassessed if a significant event or change in circumstances occurs. Incremental borrowing rate determination The incremental borrowing rate is determined based on recent third-party financing agreements as a starting point, adjusted to reflect the lease term, credit risk for leases, the leased asset and changes in financing conditions and operating environment since third-party financing was received. 15. Intangible assets EUR thousand Softwares Advance payments and work in progress Total Cost at Jan 1, 2023 3,415 290 3,705 Translation differences 6 - 6 Additions 389 30 419 Disposals -662 - -662 Reclassifications 473 -290 183 Cost at Dec 31, 2023 3,622 30 3,652 Accumulated amortisation and impairment at Jan 1, 2023 -2,782 - -2,782 Translation differences -4 -4 Accumulated amortisation of disposals and reclassifications 662 - 662 Amortisation -220 - -220 Accumulated amortisation and impairment at Dec 31, 2023 -2,344 - -2,344 Carrying value at Jan 1, 2023 633 290 923 Carrying value at Dec 31, 2023 1,278 30 1,308 EUR thousand Softwares Advance payments and work in progress Total Cost at Jan 1, 2022 3,185 160 3,345 Additions 100 275 374 Disposals -94 - -94 Reclassifications 225 -144 80 Cost at Dec 31, 2022 3,415 290 3,705 Accumulated amortisation and impairment at Jan 1, 2022 -2,726 - -2,726 Cumulative amortisation on disposals and reclassifications 95 95 Amortisation -152 - -152 Accumulated amortisation and impairment at Dec 31, 2022 -2,782 - -2,782 Carrying value at Jan 1, 2022 459 160 619 Carrying value at Dec 31, 2022 633 290 923 Accounting policy Software-related costs Software costs are recognised as an asset if Koskisen has control over the underlying asset, at historical cost less accumulated amortisation and impairment losses. Amortisations are calculated on a straight-line method over the useful economic lives of the assets which is five years. The assets’ useful lives and amortisation methods are reviewed at minimum at the end of each reporting period and adjusted, if appropriate, to reflect changes in the expected economic benefits. The amortisation of intangible assets is commenced when the asset is ready for its intended use. Impairments are presented in note 12: Property, plant and equipment. 16. Inventories EUR thousand Dec 31, 2023 Dec 31, 2022 Raw materials 22,534 20,111 Work in progress 4,824 4,019 Finished goods 10,185 10,044 Total 37,544 34,174 Write-downs of slow-moving inventories to net realisable value amounted to EUR 288 thousand in 2023 (2022: EUR 98 thousand). These were recognised as an expense during the financial year and included in changes in inventories of finished goods and work in progress in the statement of comprehensive income. The Group reversed EUR 98 thousand of a previous inventory write-down in 2023, based on the Group’s assessment of the net realisable values (2022: EUR 12 thousand). The amount reversed has been included in changes in inventories of finished goods and work in progress in the statement of comprehensive income. Accounting policy Inventories are stated at the lower of cost and net realisable value, the cost being determined by the weighted average cost method. The cost comprises raw materials, direct labour, depreciation and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale A valuation allowance is made for old, slow-moving inventories based on the management’s best estimate of the expected net realisable value at the end of the reporting period. 17. Other receivables EUR thousand Dec 31, 2023 Dec 31, 2022 Non-current assets Accruals of financial expenses 11 79 Total 11 79 Current assets Advances of purchases of logs 3,731 2,273 VAT receivables 2,090 2,831 Other receivables 1,242 1,133 Other accrued income on expenses 3,365 3,297 Total 10,427 9,534 Other receivables total 10,439 9,613 18. Equity EUR thousand Total number of shares outstanding (pcs) Treasury shares (pcs) Total number of issued shares (pcs) Share capital Reserve for invested unrestricted equity Jan 1, 2022 630 - 630 1,512 - Free share issue (split) 6,299,370 - 6,299,370 - - Share issue (merger) 2,532,294 - 2,532,294 - 43,252 Directed share issue, personnel 1) 57,509 - 57,509 - 345 Free share issue (split) 8,889,803 - 8,889,803 - - Listing share issue 5,223,053 - 5,223,053 - 30,246 Dec 31, 2022 23,002,659 - 23,002,659 1,512 73,843 Directed share issue without consideration, management 1) 9,000 - 9,000 - - Acquisition of treasury shares -1,086 1,086 - - - Dec 31, 2023 23,010,573 1,086 23,011,659 1,512 73,843 1) Additional information in note 7: Share-based incentive plans Share capital Koskisen Corporation has one series of shares, and all shares are equally entitled to dividends. One share carries one vote at the general meeting. Koskisen carried out a free share issue (split) approved by the annual general meeting on 26 April 2022. The shares were entered in the share register on 31 May 2022. The shareholders were issued 9,999 shares for each old share. The total number of shares increased retrospectively to 6,300,000 shares. Koskisen Oy, a subsidiary of Koskitukki Oy, merged with Koskitukki Oy on 31 May 2022. After the merger, Koskitukki Oy's name was changed to Koskisen Oy. In the merger, all the assets and liabilities of the merging company were transferred to the company receiving the liquidation procedure. In connection with the merger, the minority shareholders of Koskisen Oy became shareholders of Koskitukki Oy. Non-controlling shareholders were given 2,532,294 new shares of the receiving company as merger consideration. The shares were valued at fair value, which was EUR 17.08 per share. The number of shares to be given as consideration has been calculated based on the mutual valuation of the shares of the merging company and the receiving company. Koskisen carried out a free share issue (split) approved by the extraordinary general meeting on 31 October 2022. The shares were entered in the share register on 11 November 2022. The total number of Koskisen’s shares increased to 17,779,606 shares as shareholders were issued one new share for each old share. The free share issues did not impact the company's share capital or capital structure. Trading in Koskisen Corporation shares began on 1 December 2022. In the initial public offering, 5,223,053 new shares were issued and the total number of shares in the company after the initial public offering was 23,002,659 shares. The new shares were registered in the Trade Register on 30 November 2022. Koskisen received gross proceeds of EUR 32 million from the IPO, which were recognised in the reserve for invested non-restricted equity. The company’s listing costs amounted to EUR 4.1 million. Of these, listing expenses recognised in equity were EUR 2.2 million less the tax impact of EUR 0.4 million and expenses recognised in profit or loss were EUR 1.8 million. On 7 February 2023, Koskisen Corporation’s Board of Directors decided on a directed share issue without consideration to the company’s CEO and CFO as part of the remuneration of management pursuant to the authorisation granted by the Extraordinary General Meeting of 31 October 2022. The issued shares were registered in the Trade Register on 16 February 2023. The total number of shares increased to 23,011,659 shares when in total 9,000 new shares were issued to the CEO and CFO. The value of the first instalment of the remuneration to the CEO for the completion of the IPO corresponds to 12,000 shares, half of which was paid in cash to cover withholding tax. The value of the first instalment of the remuneration to Koskisen’s CFO corresponds to 6,000 shares, half of which was paid in cash to cover withholding tax. The share issue without consideration did not impact the company's share capital or capital structure. Koskisen Corporation acquired on 5 July 2023 a total of 1,086 shares of Koskisen Corporation in accordance with the terms of the minority shareholders’ agreement with EUR 3.00 per share purchase price. Originally, the shares were subscribed in the personnel offering carried out in September 2022. In accordance with the terms of the minority shareholders’ agreement, ownership of the shares issued in the personnel offering requires a valid employment relationship with the company. After the share acquisition, Koskisen Corporation holds 1,086 treasury shares. Legal reserve The legal reserve comprises the amounts transferred from distributable funds under the articles of association or by decision of the general meeting. Reserve for invested unrestricted equity The subscription prices of new shares, as well as other equity investments, are recognised in the reserve for invested unrestricted equity, unless these are recognised in full or in part in share capital according to a specific decision. Treasury shares The acquisition cost of treasury shares held by the Group is presented in equity as a separate reserve that reduces the unrestricted equity. Translation differences Translation differences arising from the translation of the financial statements of foreign subsidiaries are recognised in the other comprehensive income and accrued in a separate equity reserve. The cumulative amount of translation differences is recognised in the consolidated statement of comprehensive income on the disposal of the net investment. 19. Earnings per share Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Earnings per share Profit (loss) for the period attributable to the owners of the parent company (EUR) 20,230,125 39,745,676 Weighted average number of shares outstanding during the period 23,010,189 16,043,440 Diluted weighted average number of shares outstanding during the period 23,182,729 16,069,899 Basic earnings per share (EUR) 0.88 2.48 Diluted earnings per share (EUR) 0.87 2.47 Accounting policy Basic earnings per share is calculated by dividing the profit attributable to owners of the parent company by the weighted average number of ordinary shares outstanding during the financial period. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into consideration the Group’s potential commitment to issue new shares in the future. 20. Financial assets and liabilities Financial assets and financial liabilities by category Thousand eur Fair value hierarchy level 31.12.2023 31.12.2022 Financial assets measured at amortised cost Trade receivables - 23,365 25,541 Deposits 1) - 20,000 - Cash and cash equivalents - 35,771 74,527 Total financial assets measured at amortised cost 79,136 100,068 Financial assets measured at fair value through profit or loss Money market funds 1 - 9,892 Capital redemption contracts 1 10,625 - Derivatives 2 947 1,528 Other assets measured at fair value through profit or loss 3 14 223 Total financial assets measured at fair value through profit or loss 11,585 11,644 Financial liabilities measured at amortised cost Loans from financial institutions 2 37,711 28,650 Lease liabilities - 25,989 27,309 Trade payables - 25,411 32,263 Trade payables, payment system - 7,396 7,316 Total financial liabilities measured at amortised cost 96,507 95,538 1) Time deposits with a maturity of over three months The fair value of the loans from financial institutions on 31 December 2023 was EUR 37.7 million (31 December 2022: EUR 29.1 million). The fair value of the loans has been determined by discounting the future cash flows at the estimated market interest rate at the time of reporting. The company has estimated that the contractual interest rate of the loans is reasonably close to the market interest rate and has not made an adjustment to the discount rate at which the fair values are determined, in which case the fair values of the loans correspond to their nominal value. Since the company's loans from financial institutions have variable interest rates, the rise in market interest rates during the period has been directly reflected in the group's interest expenses and has therefore not affected the fair value of the loans. Fair values of loans from financial institutions are classified in level 2 in the fair value hierarchy. The fair value of derivatives is estimated based on the present value of future cash flows, using market prices on the valuation date, and the fair value of fund investments and capital redemption contracts is estimated on the basis of counterparty quotes. Changes in the fair value of derivatives, fund investments and capital redemption contracts are recognised in financial income and expenses. The most significant part of the changes in the fair value arises from derivatives, and they are mainly due to changes in market interest rates during the reporting period. The group's open USD balance position at the time of closing on 31 December 2023 mainly consisted of trade receivables and a bank account, totalling EUR 4.3 million (31 December 2022: EUR 5.2 million). The nominal value of the hedging open futures on the reporting date is EUR 2.4 million (31 December 2022: EUR 2.4 million). The hierarchy levels are as follows: Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. Reconciliation of financial liabilities Lease Thousand eur Borrowings liabilities Total Jan 1, 2022 44,831 29,732 74,563 Cash flows from financing Proceeds from borrowings 29,000 - 29,000 Repayments of borrowings -43,988 -3,445 -47,433 Other changes Exportkredit loan 1) 3,846 - 3,846 New leases - 1,022 1,022 Interest paid 2), 3) and interest expense -5,039 - -5,039 Dec 31, 2022 28,650 27,309 55,959 Cash flows from financing Proceeds from borrowings - - - Repayments of borrowings -4,500 -3,165 -7,665 Other changes Exportkredit and Kredex loan 1) 13,360 - 13,360 New leases - 1,845 1,845 Effect of applying the effective interest rate 1) 200 - 200 Dec 31, 2023 37,711 25,989 63,700 1) No cash flow impact 2) Included in the Net cash flow from operating activities 3) During period 2022 interest of capital loan EUR 5.8 million was paid. Changes in financial liabilities Koskinen has three loans under the financing agreement, a term loan of EUR 19.0 million, a term loan of EUR 10.0 million and a standby credit of EUR 8.0 million, which is intended to finance the group's general working capital requirements. The loans have been withdrawn in full at the time of the reporting. EUR 7.9 million of the standby credit remains undrawn. The financing agreement is valid for four years until year 2026. The financing agreement includes the usual financial covenant and default terms. Financial covenants are measured every six months on a rolling basis for the past 12 months and are calculated from the Koskisen Group's financial information prepared in accordance with FAS. The interest on the loans is tied to the six-month Euribor, and they also have a margin, the level of which depends on the ratio of net debt to EBITDA. Loans related to the financing package for the new sawmill have been withdrawn to the amount of EUR 18.4 million on the closing date, and EUR 1.4 million remains to be withdrawn. The loans will mature between 2029 and 2031. The interest rates on the loans are tied to the 6-month Euribor rate and the margins are fixed. Koskisen's loans from financial institutions expose the group's cash flow to interest rate risk, the importance of which has been emphasised during the period as market interest rates have risen considerably. There have been no changes in Koskisen's interest rate risk hedging policy, but the Group's management constantly evaluates the amount of open risk and the need for additional hedging. Koskisen has interest rate swaps with a total nominal value of EUR 30 million. The changes in the fair value of the interest rate swaps net out the profit effects of the loan's interest rate changes, protecting the group from interest rate risk, even though they are not one-to-one with the group's financial institution loans. The interest rate swap agreements are valid until 2025. The Group’s exposure to various risks associated with the financial instruments is discussed in the note 3: Financial risk and capital management. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. Accounting policy The Group’s financial assets comprise trade receivables, money market funds, capital redemption contracts, deposits and cash and cash equivalents. Money market funds and capital redemption contracts are classified as financial assets at fair value through profit or loss and trade receivables, deposits and cash and cash equivalents are classified as financial assets measured at amortised cost, as assets are for collection of contractual cash flows, where those cash flows represent solely payment of principal and interest. Interest income from these financial assets is included in finance income using the effective interest rate method. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Any gain or loss arising on derecognition is recognised directly in the statement of comprehensive income and presented in other operating expenses. Money market funds Koskisen has invested in money market securities. The money market funds are measured at fair value through profit or loss as they don’t meet the solely payments of principal and interest (SPPI) test under IFRS 9 Financial instruments. Capital redemption contracts Koskisen has invested in capital redemption contracts. These contracts are measured at fair value through profit or loss as they don’t meet the solely payments of principal and interest (SPPI) test under IFRS 9 Financial instruments. Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into, and they are subsequently remeasured to their fair value at the end of each reporting period. The Group has entered into interest rate swap contracts and foreign currency forward contracts for hedging purposes, even though hedge accounting, as specified under IFRS, is not applied. The fair value of derivatives is estimated based on the present value of future cash flows using market prices on the measurement date. Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details on the Group’s impairment policies and the calculation of the loss allowance are provided in note 3: Financial risk and capital management. Due to the short-term nature of the trade receivables, their carrying amount is considered to be the same as their fair value. Deposits Time deposits with a maturity of more than three months are presented in deposits. Cash and cash equivalents Cash and cash equivalents presented in the balance sheet and cash flow statement consist of cash at bank and in hand. Any utilised credit limits are presented as current liabilities. Credit limits are a part of the liquidity management. Liquidity risk and its management is described in note 3: Financial risk and capital management. Impairment of financial assets For trade receivables and contract assets Koskisen applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. To measure the expected credit losses, trade receivables have been grouped based on aging category. The expected loss rates are based on the actual performance over the comparison period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The factors considered include, but are not limited to, customers’ previous payment behaviour, available forecasts and their possible impact on the credit rating and payment behaviour of customers, as well as possible securities and credit insurances. Receivables are derecognised as final credit losses when their payment cannot be reasonable expected. Indications that the payment cannot be reasonably expected include, unsuccessful collection efforts, bankruptcy notification etc. Credit risk arising from financial assets, management of credit risk and the provision matrix of trade receivables are presented in note 3: Financial risk and capital management. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of comprehensive income as other income or finance costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Trade payables Trade payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. The carrying amount of trade payables is considered to equal their fair value due to their short maturity. Trade payables, payment system Koskisen provides, as part of its wood procurement process, a possibility for the seller to deposit the transaction price or part of the transaction price received from the sale of logs to Koskisen. Fixed interest rate is offered varying according to the length of the deposit period. The length of the deposit varies between one and three years. However, the seller has a right to withdraw the deposit whenever with a 45 days’ notice period. These payment system trade payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Due to the right to withdraw the deposit the payables are presented as current on the balance sheet. The carrying amount of the payment system trade payables is considered to equal their fair value due to their short maturity. 21. Provisions EUR thousand Environmental provisions Others Total Jan 1, 2023 100 20 120 Increase 132 - 132 Used during the year -47 -20 -67 Dec 31, 2023 185 - 185 Non-current 150 - 150 Current 35 - 35 Total 185 - 185 EUR thousand Environmental provisions Others Total Jan 1, 2022 120 - 120 Increase - 20 20 Used during the year -20 - -20 Dec 31, 2022 100 20 120 Non-current 100 - 100 Current - 20 20 Total 100 20 120 Koskisen has a provision to cover costs estimated still to incur from the cleaning of groundwater. As a consequence of the 1976 fire at the sawmill, a significant amount of chlorophenol ended up in groundwater around the factory. The Group has since committed funds to clean the contaminated ground and groundwater. Currently the chlorophenol content has been lowered to low levels, but Koskisen will continue the cleaning and monitoring work for some years to come. The progress of the cleaning and the necessary measures are evaluated annually in cooperation with the environmental authorities and groundwater experts. Accounting policy Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Provisions are presented as current liabilities if amounts are expected to be settled within 12 months from the end of the reporting period. Otherwise provisions are presented as non-current liabilities. Key estimates and judgements Estimation of the amount and timing of the provision An estimate of the financial impact of a past event requires judgement from the management. Koskisen’s management has estimated that the groundwater cleaning will continue for another about five years. The expected costs have been estimated based on the historical costs and knowledge of similar events. The provision amounts are reviewed regularly and adjusted as necessary to reflect the best estimate at the end of the reporting period. Actual expenses may differ from the estimates. 22. Other payables EUR thousand Dec 31, 2023 Dec 31, 2022 Current liabilities Accrued employee expenses 8,856 10,051 Payroll tax liabilities 1,840 2,008 Subcontractor accruals 2,721 2,730 Accrued listing costs - 1,765 VAT liabilities - 338 Interest liabilities 106 466 Other liabilities 471 692 Other accrued liabilities 1,817 1,452 Total 15,811 19,501 Other liabilities total 15,811 19,501 23. Group structure Subsidiaries belonging to the Group as at 31 December 2023 are presented in the following table: Group Group Country of ownership % ownership % Subsidiary incorporation Dec 31, 2023 Dec 31, 2022 Kosava-Kiinteistöt Oy Finland 100% 100% Koskisen Sp z.o.o Poland 100% 100% OOO Koskiles Russia 0% 100% The liquidation process of OOO Koskiles, Koskisen’s logistics and wood supply company operating in Russia, was completed in November 2023, after which the group has no operations in Russia. The costs related to the liquidation of the company were not significant. Accounting policy Subsidiaries are companies in which the Group has control. The Group has controlling power in a company when, by being part of it, it is exposed to its variable return or is entitled to variable return and it is able to influence this return by using its power over the company to direct its operations. Subsidiaries are combined in the consolidated financial statements in their entirety from the day the Group acquires control over them. The merger is terminated when control ceases. Transactions between Group companies, including internal receivables and payables, income and expenses and unrealised profits, are eliminated. Unrealised losses are also eliminated, unless the transaction gives indications of a decrease in the value of the transferred asset. 24. Related party transactions Koskisen’s related parties consists of the members of Board of Directors, the chief executive officer (CEO), members of the Executive Board and shareholders with significant influence over the company. The related parties also include the close family members of these aforementioned individuals and entities in which these individuals have either control or joint control. Compensation and remuneration to the members of the Executive Board and Board of Directors EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 CEO Wages and salaries and other short-term employee benefits 690 581 Pension costs – defined contribution plans 120 43 Total 810 624 Management Team Wages and salaries and other short-term employee benefits 1,126 925 Pension costs – defined contribution plans 94 78 Total 1,220 1,003 Board of Directors Wages and salaries and other short-term employee benefits 268 274 Pension costs – defined contribution plans 6 7 Total 274 280 Total remuneration of the management and Board of Directors 2,305 1,907 The CEO may receive a performance bonus amounting to a maximum of 48 per cent of the annual salary. The amount of the performance bonus depends on the annual targets. The CEO’s period of notice is six months, and the severance pay equals six months’ salary. The CEO has an additional pension arrangement, the annual fee of which is an amount equivalent to two months' fixed salary. The fixed salary consists of a basic salary and fringe benefits. The supplementary pension is a defined contribution plan, so no liability for it has been recognised on the balance sheet. Based on the supplementary pension agreement, the CEO may retire at the age of 65. One member of the Executive Board and one member of the Board of Directors also have a voluntary pension plan. No other special conditions concerning retirement or the amount of pension have been agreed upon. The statutory pension expense of the CEO and Executive Board for the financial year 2023 amounted to EUR 146 thousand (2022: EUR 113 thousand). The Board of Directors' fees do not include statutory retirement obligation. During the financial period 2022 Koskisen established share-based incentive programs for its key employees and key management. Employees eligible for the incentive programs can receive a maximum of 398,000 shares (gross amount) if the terms of the programs are met. In the financial period, EUR 540 thousand were recognised as expenses for the share-based incentive programs related to related parties. Of this, EUR 462 thousand were recognised in equity and EUR 72 thousand were recognised in current other liabilities. In addition, some of the members of the management team who are related parties have participated in Koskisen's personnel offering. The impact of the personnel offering is immaterial. More detailed information on the share-based incentive plans is presented in note 7: Share-based incentive plans. Shareholding of the key management personnel EUR thousand Dec 31, 2023 Dec 31, 2022 Board of Directors, CEO and Executive Board Common shares (pcs) 6,785,781 7,281,704 Shareholding, % 29% 32% Total number of shares outstanding (pcs) 23,010,573 23,002,659 Additional information about changes in shares in note 18: Equity. On 31 December 2023, the members of the Board of Directors, CEO and Executive Board held altogether 6,785,781 shares. The figures include the holdings of their own, close family members and control entities. During the financial year no loans have been granted to the Group’s management. No pledges have been given or other commitments made on behalf of the company’s management and shareholders. Related party transactions EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Shareholders with significant influence 1) Wages, salaries and pension costs -86 -439 Lease income - 2 Income from sale of property, plant and equipment 881 400 Interest expense - -304 Total 794 -341 1) Includes shareholders with more than 10% ownership and their close family members During the financial period, the company sold a property with movables and two cars to a member of the Board of Directors belonging to the company’s related parties. The sales prices were based on external estimates. 25. Contingent liabilities and commitments EUR thousand Dec 31, 2023 Dec 31, 2022 Liabilities for which collaterals have been given Loans from financial institutions 20,500 25,000 Account and guarantee limits in use at the balance sheet date Account limit - - Guarantee limit 83 267 Mortgages Real estate mortgages 307,200 307,200 Company mortgages 181,551 181,551 Guarantees Advance payment, delivery, etc. guarantees 83 267 Koskisen has committed to a total of EUR 17,6 million in payments related to investments. The commitments are mainly related to the new sawmill and logyard in Järvelä. Legal disputes As at 31 December 2023, there were no significant on-going legal disputes (31 December 2022: no significant legal disputes). Accounting policy Contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. A present obligation is considered as contingent liability when it is not probable that an outflow of resources is required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. 26. New standards Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 27. Events after the balance sheet date On 16 February 2024 Koskisen Corporation's Board of Directors decided on a free share issue directed to the company's CEO and CFO as part of management remuneration based on the authorisation given by the extraordinary general meeting on 31 October 2022. The issued shares were registered in the trade register on 28 February 2024. The total number of shares increased to 23,025,159 shares when the CEO and CFO were given 13,500 new shares. The value of the second instalment of the fee related to the completion of the listing to Koskisen's CEO corresponds to 18,000 shares, half of which is paid in cash to cover the withholding tax. The value of the second instalment of the bonus to Koskisen's CFO corresponds to 9,000 shares, half of which is paid in cash to cover the withholding tax. Koskisen Corporation Income statement 1 EUR Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 REVENUE 260,819,102.99 227,616,416.16 Change in inventories of finished goods and work in progress 978,557.83 -2,061,764.72 Production for own use 222,508.51 346,394.60 Other operating income 7,844,343.83 69,860,178.62 Materials and services Materials, supplies, goods Purchases during the period -121,338,113.32 -106,593,303.03 Increase / decrease in inventories 2,678,027.71 -3,770,054.81 Materials, supplies, goods -118,660,085.61 -110,363,357.84 External services -36,439,331.43 -29,707,855.40 Materials and services -155,099,417.04 -140,071,213.24 Personnel expenses Wages and salaries -35,896,406.51 -21,763,228.06 Pension costs -5,760,441.58 -4,323,566.93 Other social security costs -1,818,530.63 -1,194,532.53 Personnel expenses -43,475,378.72 -27,281,327.52 Depreciation, amortisation and impairment Depreciation and amortisation -5,535,553.10 -2,934,357.72 Impairment on non-current assets -35,186.90 -8,852.01 Depreciation, amortisation and impairment -5,570,740.00 -2,943,209.73 Other operating expenses -43,823,570.21 -34,997,502.56 OPERATING PROFIT (LOSS) 21,895,407.19 90,467,971.61 Finance income and expense Income from investments 967.50 - Other interest and financial income From group undertakings 111,355.38 146,724.88 From others 3,882,186.09 1,939,611.42 Impairment on investments held as non-current assets - -130,348.08 Interest expenses and other financial expenses To group undertakings -18,571.80 -316,369.64 To others -3,115,508.33 -14,238,449.09 Finance income and expense 860,428.84 -12,598,830.51 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 22,755,836.03 77,869,141.10 Appropriations Change in cumulative accelerated depreciation -7,731,772.21 -3,182,457.13 Appropriations -7,731,772.21 -3,182,457.13 Income taxes Taxes for current and prior periods -1,791,620.48 -2,665,093.42 Deferred tax 0.00 -137,989.65 Income taxes -1,791,620.48 -2,803,083.07 PROFIT (LOSS) FOR THE PERIOD 13,232,443.34 71,883,600.90 Koskisen Corporation Balance sheet 1 EUR Dec 31, 2023 Dec 31, 2022 ASSETS NON-CURRENT ASSETS Intangible assets Other intangible assets 1,582,538.12 1,082,300.41 Advance payments 29,832.00 289,934.75 Intangible assets 1,612,370.12 1,372,235.16 Tangible assets Land and water areas 6,138,146.05 6,167,761.17 Buildings and structures 38,987,993.97 19,744,679.88 Machinery and equipment 30,469,451.67 23,498,607.18 Other tangible assets 3,183,132.02 1,620,178.42 Advance payments and work in progress 17,042,567.61 25,305,947.08 Tangible assets 95,821,291.32 76,337,173.73 Investments Investments in Group companies 365,736.77 365,736.77 Other shares and equity interests 223,172.42 223,172.42 Other receivables 10,060,606.00 - Investments 10,649,515.19 588,909.19 NON-CURRENT ASSETS 108,083,176.63 78,298,318.08 CURRENT ASSETS Inventories Materials and supplies 21,595,595.50 18,917,567.79 Work in progress 4,821,951.03 4,014,933.72 Finished goods 9,863,618.12 9,692,077.60 Inventories 36,281,164.65 32,624,579.11 Receivables Non-current receivables Receivables from Group companies 1,340,000.00 2,380,000.00 Prepayments and accrued income 4,243,500.00 - Non-current receivables 5,583,500.00 2,380,000.00 Current receivables Trade receivables 20,871,270.44 23,520,930.53 Receivables from Group companies 2,820,760.80 745,504.66 Other receivables 7,014,646.80 6,065,120.57 Prepayments and accrued income 4,538,602.73 2,658,859.27 Current receivables 35,245,280.77 32,990,415.03 Receivables 40,828,780.77 35,370,415.03 Cash equivalents Other securities 30,000,000.00 9,892,037.88 Cash equivalents 30,000,000.00 9,892,037.88 Cash and bank 25,142,203.64 73,750,180.73 CURRENT ASSETS 132,252,149.06 151,637,212.75 ASSETS 240,335,325.69 229,935,530.83 Balance sheet 1 EUR Dec 31, 2023 Dec 31, 2022 EQUITY AND LIABILITIES EQUITY Share capital 1,512,000.00 1,512,000.00 Revaluation reserve 70,222.30 70,222.30 Other reserves Legal reserve 16,202.59 16,202.59 Reserve for invested unrestricted equity 58,825,127.65 58,825,127.65 Other reserves 58,841,330.24 58,841,330.24 Retained earnings (loss) 48,894,461.02 -13,090,760.61 Profit (loss) for the financial year 13,232,443.34 71,883,600.90 EQUITY 122,550,456.90 119,216,392.83 APPROPRIATIONS Cumulative accelerated depreciation 29,133,230.15 21,401,457.94 APPROPRIATIONS 29,133,230.15 21,401,457.94 LIABILITIES Non-current liabilities Loans from financial institutions 32,400,349.48 24,824,284.00 Liabilities to Group companies 743,115.60 605,791.63 Deferred tax liability 339,576.27 339,576.27 Accruals and deferred income 60,606.00 - Non-current liabilities 33,543,647.35 25,769,651.90 Current liabilities Loans from financial institutions 6,493,565.50 4,500,000.00 Advances received 633,691.99 752,198.50 Trade payables 24,825,932.36 31,913,757.46 Liabilities to Group companies 674,036.45 77,203.45 Other liabilities 9,494,972.24 10,272,487.02 Accruals and deferred income 12,985,792.75 16,032,381.73 Current liabilities 55,107,991.29 63,548,028.16 LIABILITIES 88,651,638.64 89,317,680.06 EQUITY AND LIABILITIES 240,335,325.69 229,935,530.83 Koskisen Corporation Statement of cash flows 1 EUR Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Cash flow from operating activities PROFIT (LOSS) FOR THE PERIOD 13,232,443.34 71,883,600.90 Depreciation, amortisation and impairment 5,570,740.00 2,943,209.73 Gains and losses of disposals of non-current assets -242,502.42 -1,732,104.89 Unrealised foreign exchange gains and losses 115,872.89 - Financial income and expenses -976,301.73 12,598,830.51 Appropriations 7,731,772.21 3,182,457.13 Income taxes 1,791,620.48 2,803,083.07 Other adjustments - -61,962,723.05 Operating cash flow before working capital changes 27,223,644.77 29,716,353.40 Working capital changes Increase (-) / decrease (+) in inventories -3,656,585.54 5,831,819.53 Increase (-) / decrease (+) in non-interest bearing receivables -788,986.12 7,841,311.74 Increase (+) / decrease (-) in non-interest bearing liabilities -9,385,494.38 1,930,467.43 Cash flows from operations before financial items and taxes 13,392,578.73 45,319,952.10 Interest paid from operating activities -2,024,996.44 -5,008,844.43 Interest received from operating activities 1,510,128.94 198,273.59 Dividends received from operating activities 967.50 - Other financial items for operating activities 385,828.81 -6,857,621.65 Income taxes paid -2,846,505.66 -3,787,004.92 Proceeds from repayments of loans 1,040,000.00 - Net cash from operating activities 11,458,001.88 29,864,754.69 Cash flows from investing activities Purchase of tangible and intangible assets -16,653,146.27 -14,699,101.60 Proceeds from sale of tangible and intangible assets 937,671.12 436,011.61 Proceeds from sale of subsidiary - 3,134,821.92 Investments in other investments -10,060,606.00 - Investments in time deposits -35,000,000.00 - Repayment of time deposits 15,000,000.00 - Loans granted -0.00 -17,720,000.00 Net cash flow from investing activities -45,776,081.15 -28,848,268.07 Cash flows from financing activities Proceeds from issue of share capital - 32,374,021.61 Proceeds from non-current borrowings 136,630.39 35,490,751.00 Repayment of non-current borrowings -4,500,000.00 - Purchase of treasury shares -3,365.90 - Proceeds from current borrowings 1,511,899.62 2,126,652.13 Repayment of current borrowings -1,432,086.44 -5,414,726.33 Dividends paid -9,895,013.37 - Repayment of capital loan - -6,988,174.00 Net cash flow from financing activities -14,181,935.70 57,588,524.41 Net change in cash and cash equivalents -48,500,014.97 58,605,011.03 Cash and cash equivalents at the beginning of the period 83,642,218.61 134.56 Cash and cash equivalents at the end of the period 35,142,203.64 83,642,218.61 Cash and cash equivalents, other arrangements - -25,037,072.77 Koskisen Corporation Notes to the financial statements of parent company Basis of preparation Koskisen Corporation's financial statements for the financial year between 1 January to 31 December 2023, have been prepared in accordance with the provisions of the Finnish Accounting Act and other regulations and provisions regarding the preparation of financial statements valid in Finland. Valuation of inventories Inventories are valued at acquisition cost or lower net realisable value. The acquisition cost is determined using the weighted average cost method. In addition to direct costs, a part of the indirect costs of acquisition and manufacturing is included in the acquisition cost of the inventory. Valuation of non-current assets Intangible and tangible assets are recognised at acquisition cost less depreciation, amortisation and impairments, and increased by any revaluations. The revaluations are based on an external assessment, and their existence is justified based on the assessment of the company’s management. The deferred tax liabilities arising from the revaluations have been deducted from the revaluation reserve in equity and presented on the balance sheet in the ‘Deferred tax liabilities’. The acquisition cost includes the variable costs resulting from procurement and manufacturing. The depreciation has been calculated on a straight-line basis over the economic lifetime of the intangible and tangible assets. The depreciation starts from the month the asset was commissioned. The impairment is entered if the future income accrued by the asset is permanently below the book value. Depreciation periods are: Other intangible assets 5 years Buildings 20-50 years Structures 10 years Machinery and equipment 5-15 years Other tangible assets 5-10 years Valuation of financial instruments and derivatives In accordance with section 5:2 of the Accounting Act, financial assets are valued at the acquisition cost or at the lower probable fair market value. Financial liabilities are valued at their nominal value. In accordance with the principles of risk management, the Group may use derivatives as protection from the price risks of goods, interest rates or currency. Pursuant to statement 1963/13.12.2016 of the Accounting Board, the negative fair value of interest and currency derivative contracts is recorded in the income statement and as a mandatory provision, as well as the resulting deferred tax in deferred tax receivables. Electricity derivatives are used as protection against the price risk of highly probable current supply at market prices. The derivatives used will protect 25% to 95% of the current supply required for the operations of the next four years. The current values of the electricity derivative contracts are treated as off-balance sheet liabilities to the degree that the electricity derivative contracts can be deemed to meet the preconditions set forth in statement 1963/2016 of the Accounting Board for treatment as an off-balance sheet liability. The electricity derivative contracts are established and paid on a monthly basis in accordance with the contracts. The electricity derivative contracts have been deemed to meet the preconditions for treatment as an off-balance sheet liability. Comparability of information from the previous financial year Koskisen Corporation's subsidiary Koskisen Oy merged into the company on 31 May 2022. The information from previous financial year is therefore not comparable. Foreign currency items Receivables and liabilities in foreign currency have been converted into EUR subject to the exchange rate on the balance sheet date. The exchange rate gains or losses arising from the valuation of receivables or liabilities are entered in the profit and loss account as a financial exchange difference. Deferred taxes Deferred tax liabilities or assets have been calculated for temporary differences between taxation and the financial statements on the basis of the tax rate of the next years confirmed at the time of the financial statements. The balance sheet includes the deferred tax liabilities in total as well as the deferred tax assets corresponding with the amount of the estimated probable receivable. Koskisen Corporation Notes to the income statement Revenue by segments and geographical areas EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Distribution by industry Panel Industry 138,424 85,816 Sawn Timber Industry 122,384 141,764 Other sales 11 37 Total 260,819 227,616 EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Geographical distribution Finland 111,111 125,902 Japan 21,116 20,239 Germany 15,961 9,272 Poland 16,147 6,000 Other EU countries 64,959 43,144 Other countries 31,525 23,058 Total 260,819 227,616 Other operating income EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Gain from merger - 61,963 Payment from Lahti-Energia regarding business resale - 3,000 Gain on the sale of subsidiary - 1,420 Service charges and rents from subsidiaries 3,932 2,314 Sale of emission allowances 2,385 198 Gains on disposal of property, plant and equipment 399 177 Grants received 294 185 Firewood sales to forest owners 263 166 Compensations received 106 21 External rental income 93 51 Other operating income 373 365 Total 7,844 69,860 Other operating expenses EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Sales freight and forwarding -20,231 -18,914 Lease costs -5,714 -4,520 IT expenses -3,929 -2,897 Maintenance of property -3,438 -2,391 Personnel related expenses -1,913 -886 Administrative expenses -1,536 -964 Consulting and administrative services -1,253 -1,304 Travel expenses -968 -607 Marketing expenses -684 -421 Sales commissions -656 -463 Research and development expenses -535 -225 Other expenses -2,968 -1,407 Total -43,824 -34,998 Auditor remuneration EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Audit -98 -283 Tax advisory services -5 -73 Other services -28 -1,177 Total -131 -1,533 Average number of employees at parent company during the fiscal year Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Salaried employees 239 149 Workers 649 353 Total 888 502 Salaries and remuneration of management EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Board members and CEO -1,085 -904 Income tax EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Taxes for the financial year -1,608 -2,665 Taxes for prior financial years -184 - Change in deferred tax assets - -138 Total -1,792 -2,803 Finance income and expense EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Finance income Dividend income from others 1 - Interest income 2,391 310 Foreign exchange gain 996 526 Other finance income 606 1,250 Total 3,995 2,086 EUR thousand Jan 1 - Dec 31, 2023 Jan 1 - Dec 31, 2022 Finance costs Impairment on investments held as non-current assets - -130 Interest expenses -2,051 -1,050 Interest expenses from capital loans - -5,765 Foreign exchange loss -1,007 -1,533 Listing costs - -4,059 Other finance expenses -76 -2,147 Total -3,134 -14,685 The exchange rate differences are due to changes in the exchange rates of the US dollar, the Polish zloty and the Russian ruble. Koskisen Corporation Notes to balance sheet The acquisition cost, additions, disposals and accumulated depreciation of the fixed assets of the parent company Intangible assets Tangible assets EUR thousand Other long-term expenses Advance payments Land Buildings and structures Machinery and equipment Other tangible assets Advance payments and construction in progress Cost at Jan 1, 2023 4,549 290 6,168 58,842 94,339 5,587 25,306 Additions 389 30 33 7,299 8,603 120 13,540 Disposals -662 - -63 -1,613 -3,544 -429 -4,029 Reclassifications 473 -290 - 13,672 1,839 2,081 -17,775 Cost at Dec 31, 2023 4,750 30 6,138 78,200 101,237 7,359 17,043 Accumulated depreciation and impairment at Jan 1, 2023 -3,466 - - -39,098 -70,840 -3,966 - Accumulated depreciation of disposals and reclassifications 662 - - 1,272 3,544 142 - Depreciation -363 - - -1,386 -3,436 -351 - Impairments - - - - -35 - - Accumulated depreciation and impairment at Dec 31, 2023 -3,167 - - -39,213 -70,767 -4,175 - Value increases 2,293 2,741 Carrying value at Jan 1, 2023 1,082 290 6,168 19,745 23,499 1,620 25,306 Carrying value at Dec 31, 2023 1,583 30 6,138 38,988 30,469 3,183 17,043 Investments EUR thousand Investments in Group Companies Other shares and equity interests Other receivables Total Cost at Jan 1, 2023 496 223 - 195,799 Additions - - 10,061 40,076 Disposals -130 - - -10,469 Reclassifications - - - - Cost at Dec 31, 2023 366 223 10,061 225,406 - Accumulated depreciation and impairment at Jan 1, 2023 -130 - - -117,501 Accumulated depreciation of disposals and reclassifications 130 - - 5,749 Depreciation - - - -5,536 Impairments - - - -35 Accumulated depreciation and impairment at Dec 31, 2023 -0 -0 - -117,323 Value increases 5,035 - Carrying value at Jan 1, 2023 366 223 - 78,298 Carrying value at Dec 31, 2023 366 223 10,061 108,083 Intangible assets Tangible assets EUR thousand Other long-term expenses Advance payments Land Buildings and structures Machinery and equipment Other tangible assets Advance payments and construction in progress Cost 1.1.2022 1,826 - 387 796 35 381 305 Additions 83 275 89 435 4,129 30 12,701 Internal reorganisations 2,451 - 5,721 57,831 90,765 5,109 13,343 Disposals - - -30 -220 -1,159 - -205 Reclassifications 189 15 - - 568 67 -839 Cost 31.12.2022 4,549 290 6,168 58,842 94,339 5,587 25,306 Cumulative amortisation and impairment 1.1.2022 -1,440 - - -347 -22 - - Cumulative amortisation on disposals and reclassifications - - 126 1,159 - Amortisation -221 - - -634 -2,004 -76 - Internal reorganisations -1,805 - - -38,243 -69,965 -3,890 - Impairments - - - -9 - Cumulative amortisation and impairment 31.12.2022 -3,466 - - -39,098 -70,840 -3,966 - Value increases 2,293 2,741 Carrying value at Jan 1, 2022 386 - 387 449 14 381 305 Carrying value at Dec 31, 20212 1,082 290 6,168 19,745 23,499 1,620 25,306 Investments EUR thousand Investments in Group Companies Other shares and equity interests Other receivables Total Cost 1.1.2022 24,894 11 - 28,636 Additions - - - 17,744 Internal reorganisations 366 212 - 175,797 Disposals -24,763 - - -26,376 Reclassifications - - - -0 Cost 31.12.2022 496 223 - 195,799 Cumulative amortisation and impairment 1.1.2022 -5,300 - - -7,109 Cumulative amortisation on disposals and reclassifications - - - 1,285 Amortisation - - - -2,934 Internal reorganisations - - - -113,903 Impairments 5,170 - - 5,161 Cumulative amortisation and impairment 31.12.2022 -130 - - -117,501 Value increases 5,035 Carrying value at Jan 1, 2022 19,594 11 - 21,526 Carrying value at Dec 31, 2022 366 223 - 78,298 Koskisen Corporation Group companies Subsidiary company Registered office Parent company's ownership % Dec 31, 2023 Parent company's ownership % Dec 31, 2022 Kosava-Kiinteistöt Oy Kärkölä, Finland 100% 100% Koskisen Sp z.o.o Warsaw, Poland 100% 100% OOO Koskiles St. Petersburg, Russia 0% 100% The liquidation process of OOO Koskiles, Koskisen’s logistics and wood supply company operating in Russia, was completed in November 2023, after which the group has no operations in Russia. Receivables from Group companies EUR thousand Dec 31, 2023 Dec 31, 2022 Loan receivables: Koskisen Sp z.o.o. 1,340 2,380 Total 1,340 2,380 Trade receivables: Koskisen Sp z.o.o. 2,814 740 Kosava-Kiinteistöt Oy 7 6 Total 2,821 746 All in total 4,161 3,126 Essential items included in prepayments accrued income EUR thousand Dec 31, 2023 Dec 31, 2022 Non-current prepayments and accrued income Prepaid rent of leasing contracts 4,244 - Total 4,244 - Current prepayments and accrued income Interest receivables 496 - Other financial items 143 10 Tax accrual 1,392 337 Accrued personnel costs - 2 Other accrued income 2,507 2,311 Total 4,539 2,659 Changes in equity EUR thousand Dec 31, 2023 Dec 31, 2022 Share capital Jan 1 1,512 1,512 Share capital Dec 31 1,512 1,512 Revaluation reserve Jan 1 70 70 Revaluation reserve Dec 31 70 70 Legal reserve Jan 1 16 16 Legal reserve Jan 1 16 16 Total restricted equity 1,598 1,598 Reserve for invested unrestricted equity Jan 1 58,825 - Share issue - 58,825 Reserve for invested unrestricted equity Dec 31 58,825 58,825 Retained earnings (loss) Jan 1 58,793 -13,091 Dividend distribution -9,895 - Acquisition of treasury shares -3 - Retained earnings (loss) Dec 31 48,894 -13,091 Profit (loss) for the financial year 13,232 71,884 Total unrestricted equity 120,952 117,618 Total equity 122,550 119,216 Distributable unrestricted equity EUR thousand Dec 31, 2023 Dec 31, 2022 Reserve for invested unrestricted equity 58,825 58,825 Retained earnings (loss) 48,894 -13,091 Profit (loss) for the financial year 13,232 71,884 Total 120,952 117,618 Payables to Group companies EUR thousand Dec 31, 2023 Dec 31, 2022 The main bank accounts of the group's Finnish companies are connected to the Group account arrangement, the main holder of which is Koskisen Corporation. Liabilities based on the group account arrangement: Kosava-Kiinteistöt Oy 741 604 Total 741 604 Trade payables: Kosava-Kiinteistöt Oy 41 49 Koskisen Sp z.o.o. 633 29 Total 674 77 Accrued expenses: Kosava-Kiinteistöt Oy 2 1 Total 2 1 All in total 1,417 683 Essential items included in accrued expenses EUR thousand Dec 31, 2023 Dec 31, 2022 Non-current accruals and deferred income Accrued personnel costs 61 - Total 61 - Current accruals and deferred income Accrued personnel costs 8,487 9,137 Subcontractor's accrued expenses 2,721 2,730 Accrued listing costs - 1,765 Heating energy accruals 1,026 - Interest accrual 106 466 Other short-term accrued expenses 645 1,934 Total 12,986 16,032 Deferred tax liability EUR thousand Dec 31, 2023 Dec 31, 2022 From value increases 340 340 Total 340 340 Notes to statement of cash flows The cash and cash equivalents described in the statement of cash flows include cash, bank receivables that can be converted into cash if necessary, and financial securities with a highly liquid secondary market and with minimum risk of fluctuation in value. In practice, the financial securities included in cash and cash equivalents, which are presented in the balance sheet item Financial securities, are fund investments and time deposits with a deposit period of three months or less. Koskisen Corporation Collaterals, commitments and off-balance sheet arrangements Given collaterals EUR thousand Dec 31, 2023 Dec 31, 2022 Liabilities secured by real estate- or business mortgages Loans from financial institutions 20,500 25,000 Account- and guarantee limits (EUR 8 million), of which in use at the balance sheet date: Account limit - - Guarantee limit 83 267 Mortgages Given real estate mortgages 307,200 307,200 Given business mortgages 181,551 181,551 Guarantees Advance payment, delivery guarantees etc. 83 267 Amounts payable from lease contracts EUR thousand Dec 31, 2023 Dec 31, 2022 Payable during following year 1,479 1,180 Payable later 1,609 1,476 Total 3,088 2,656 Residual values of lease contracts Payable during following year - 2 Payable later - - Total - 2 Other liability commitments The power plants sold to Lahti Energia by Koskisen Corporation, which have since been transferred to the ownership of Loimua Oy, have a repurchase obligation after the end of the contract period in October 2032. The repurchase price is estimated to be approximately EUR 15 million. Koskisen Corporation has committed to a total of EUR 17,6 million in payments related to investments. The commitments are mainly related to the new sawmill and logyard in Järvelä. Koskisen Corporation's loan share of Asunto Oy Puumera on 31 December 2023 was EUR 132 thousand (31 December 2022 EUR 142 thousand). The audit obligation of real estate investments in the financial statements 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total Deducted VAT 143 28 36 16 7 8 93 22 4,842 5,195 Annual proportion of deducted VAT 14 3 4 2 1 1 9 2 484 519 Remaining years included in the review period 1 2 3 4 5 6 7 8 9 Refundable amount of deduction 14 6 11 6 4 5 65 18 4,358 4,486 Derivative contracts In accordance with the principles of risk management, the company can use derivatives to hedge against commodity, interest and currency price risks. The negative fair value of interest rate and currency derivative contracts on the balance sheet date is recorded as a provision. Electricity derivative contracts have been deemed to meet the conditions for being treated as an off-balance sheet liability. Derivative contracts valid at the balance sheet date 2023 2022 2023 2022 Fair Fair Nominal Nominal EUR thousand value value value value Interest rate swaps due Feb 25, 2025 285 492 10,000 10,000 due Jul 1, 2025 271 402 10,000 10,000 due Oct 27, 2025 336 552 10,000 10,000 Total, interest rate swaps 892 1,446 30,000 30,000 Deferred tax asset - - Foreign exchange forward contracts EUR-USD, due date Mar 29, 2023 29 494 EUR-USD, due date Mar 30, 2023 21 719 EUR-USD, due date Mar 31, 2023 -3 462 EUR-USD, due date Jun 26, 2023 28 491 EUR-USD, due date Jun 29, 2023 6 238 EUR-USD, due date Mar 28, 2024 30 1,606 EUR-USD, due date Jun 28, 2024 25 810 Total, foreign exchange forward contracts 55 82 2,416 2,404 Deferred tax asset - - Electricity forward contracts Due in year 2023 5,217 2,649 Due in year 2024 519 1,254 1,912 1,248 Due in year 2025 11 113 557 203 Total, electricity forward contracts 530 6,583 2,469 4,100 Timber reserve The company has entered into binding agreements with forest owners regarding future timber procurement (timber reserve). The amount of commitments at the time of closing the accounts is approximately EUR 34.8 million (31 December 2022, EUR 24.3 million). Covenants Loans from financial institutions include covenants. According to financing agreements, lenders can make loans due early if the covenant conditions are not met. Loans from financial institutions are presented on the balance sheet in accordance with the repayment plans of the financing agreements valid at the time of the financial statements. During the financial year, the covenant conditions are reviewed every six months. The covenants were more than fulfilled in the 2023 fiscal year. Share-based incentives Share-based incentive plan 2022-2026 In March 2022, the Board of Directors of Koskisen Corporation decided on a share-based incentive program in place for its key employees for the years 2022 to 2026. The incentive program consists of three three-year earning periods, which are from 2022 to 2024, from 2023 to 2025 and from 2024 to 2026. Share-based incentive plan 2022-2026 - Performance period 2022-2024 The key employees eligible for the program, the incentives to be paid, the vesting conditions and targets determined by the company's Board of Directors were communicated to the persons participating in the arrangement in June 2022. The key employees eligible for the program (six individuals) can receive a maximum of 138,000 company shares (gross amount) if the terms of the program are met. The vesting conditions and the targets relate to meeting certain key figures (EBITDA and return on invested capital) and work obligation. The earned shares are given to the key employees after the vesting period ends. From the total number of shares, Koskisen withholds the withholding tax corresponding to the income tax liability of the key employee and pays it to the tax authorities. The arrangement has a net settlement feature of tax obligations and is classified as an equity-settled share-based transaction in its entirety. The arrangement is treated as an equity-settled share-based transaction. Share-based incentive plan 2022-2026 - Performance period 2023-2025 In April 2023, the company's Board of Directors resolved on the criteria and targets as well as the key employees eligible for the incentive program for the second earning period. The members of the Group Executive Board, a total of seven people, are currently entitled to participate in the long-term share-based incentive program. The potential receipt and amount of the reward is based on the accumulated adjusted EBITDA from 1 January 2023 to 31 December 2025 and the person's continued employment with the company. During the second earning period of the incentive program, the key employees eligible for the incentive program may earn a maximum of 215,000 shares (gross amount). The earned shares are given to the key employees after the vesting period ends. From the total number of shares, Koskisen withholds the withholding tax corresponding to the income tax liability of the key employee and pays it to the tax authorities. The arrangement has a net settlement feature of tax obligations and is classified as an equity-settled share-based transaction in its entirety. The arrangement is treated as an equity-settled share-based transaction. Incentive plan related to the Initial public offering In June 2022, Koskisen established a share-based incentive plan for key management. The Board of Directors has determined the employees eligible for the program, the incentives to be paid, and the vesting conditions and targets. The program includes two individuals who, if the conditions are met, can receive a maximum of 45,000 company shares. The earning criteria and goals are related to the listing and work obligation. The first part is paid two months after the listing and the second part 12 months after the first part is paid. The reward is paid half in shares and half in cash, which is determined by the value of the share at the time of payment. The arrangement is treated partly as an equity-settled and partly as a cash-settled share-based transaction. The first part was paid in full in February 2023. Share issue directed to personnel In September 2022, Koskisen carried out a directed share issue to its employees, in which all employees working in a permanent employment relationship could participate. The subscription price of the shares issued as part of the personnel offering (115,018) was lower than the fair value of the shares. Subsequent sale of the subscribed shares is limited and the shares are subject to an obligation to work for a period that ends with a separate decision of the Board of Directors, when two years have passed since the approval of the share subscriptions or when at least six months have passed since the listing, whichever occurs later. Events after the balance sheet date On 16 February 2024 Koskisen Corporation's Board of Directors decided on a free share issue directed to the company's CEO and CFO as part of management remuneration based on the authorisation given by the extraordinary general meeting on 31 October 2022. The issued shares were registered in the trade register on 28 February 2024. The total number of shares increased to 23,025,159 shares when the CEO and CFO were given 13,500 new shares. The value of the second instalment of the fee related to the completion of the listing to Koskisen's CEO corresponds to 18,000 shares, half of which is paid in cash to cover the withholding tax. The value of the second instalment of the bonus to Koskisen's CFO corresponds to 9,000 shares, half of which is paid in cash to cover the withholding tax. Signatures of the Report of the Board of Directors and Financial Statements In Helsinki on 12 April 2024 Pekka Kuusniemi Kari Koskinen Chairman of the Board Board member Hanna Masala Kalle Reponen Board member Board member Hanna Sievinen Eva Wathén Board member Board member Jukka Pahta CEO The auditor's note Our auditor's report has been issued today. In Helsinki on 12 April 2024 PricewaterhouseCoopers Oy Audit firm Markku Launis KHT List of parent company's records and materials Accounting book: Method of storage: Financial statements Digital Subledgers -Purchase ledger Digital -Sales ledger Digital General ledger Digital Diary Digital Cash book Digital Fixed asset accounting Digital Inventory records Digital Voucher types: Method of storage: Financial account vouchers Digital Contributory end vouchers Digital Memo voucher Digital Payroll accounting Digital/Hard copies Dispatches Supply warehouse Digital Arrivals Supply warehouse Digital Sales invoices Digital Purchase invoices Digital Receipts sales ledger Digital Payments purchase ledger Digital Opening balances Digital Depreciation Digital Accruals Digital Auditor’s Report (Translation of the Finnish Original) To the Annual General Meeting of Koskisen Oyj Report on the Audit of the Financial Statements Opinion In our opinion - the consolidated financial statements give a true and fair view of the group’s financial position and financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU - the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report to the Audit Committee. What we have audited We have audited the financial statements of Koskisen Oyj (business identity code 0148241-9) for the year ended 31 December 2023. The financial statements comprise: - consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and notes, including a summary of significant accounting policies - the parent company’s balance sheet, income statement, cash flow statement and notes. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, the non-audit services that we provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 9 Other operating expenses to the Financial Statements. Our Audit Approach Overview - Overall group materiality: EUR 2 700 000, which represents 1% of net sales - Audit scope: We have audited parent company - Valuation of inventory As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole. Overall group materiality EUR 2 700 000 How we determined it 1% of net sales Rationale for the materiality benchmark applied We chose net sales as the benchmark because, in our view, the performance of the Group is most commonly measured by using this criteria, and it is a generally accepted benchmark. We chose net sales as the benchmark as we considered that this provides us with a consistent year-on-year basis for determining materiality. How we tailored our group audit scope We tailored the scope of our audit, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates. Our audit procedures covered all significant components of the group. The audit of the consolidated financial statements was focused on the most significant location in Finland, where we performed an audit based on the size of the companies and the characteristics of the risks. In other group companies we have performed analytical audit procedures to mitigate the risk of material misstatements in the consolidated financial statements. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Key audit matter in the audit of the group and parent company How our audit addressed the key audit matter Valuation of inventory Refer to accounting principles and to note 16 in the consolidated financial statements and to the notes of the parent company's financial statements. We assessed the compliance of the group’s accounting policies in comparison to applicable accounting framework and performed control testing and test of details to valuation and existence of the inventories. Inventory is one of the most significant balance sheet items and amounted to EUR 37,5 million in the consolidated balance sheet and EUR 36,3 million in the parent company’s balance sheet at the balance sheet date. We tested a sample of inventory items to third party purchase invoices. We also tested management’s calculations on the absorption of relative share of indirect production overheads. Inventories are stated at the lower of cost and net realisable value, the cost being determined by the weighted average cost method. The cost comprises raw materials, direct labour, depreciation and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. We attended stock takings in selected inventory locations to obtain audit evidence regarding existence of the inventory. During stock takes we assessed the appropriateness of the stock takes and performed independent test counts. We compared the value of selected finished goods inventory items to the sales prices. A valuation allowance is made for old, slow-moving inventories based on the managements best estimate of the expected net realisable value at the end of the reporting period. Valuation of inventories is a key audit matter due to the size of the balance and the level of management judgement involved in the estimation process. Key audit matter in the audit of the group and parent company How our audit addressed the key audit matter There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements. Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. - Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. - Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Reporting Requirements Appointment We were first appointed as auditors by the annual general meeting on 26 April 2022. Our appointment represents a total period of uninterrupted engagement of 2 years. Other Information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises in the report of the Board of Directors and the information included in the Annual Report but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion - the information in the report of the Board of Directors is consistent with the information in the financial statements - the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Helsinki 12 April 2024 PricewaterhouseCoopers Oy Authorised Public Accountants Markku Launis Authorised Public Accountant (KHT) Independent Auditor’s Reasonable Assurance Report on Koskisen Oyj’s ESEF Financial Statements To the Management of Koskisen Oyj We have been engaged by the Management of Koskisen Oyj (business identity code 0148241-9) (hereinafter also “the Company”) to perform a reasonable assurance engagement on the Company’s consolidated IFRS financial statements for the financial year 01 January – 31 December 2023 in European Single Electronic Format (“ESEF financial statements”). Management’s Responsibility for the ESEF Financial Statements The Management of Koskisen Oyj is responsible for preparing the ESEF financial statements so that they comply with the requirements as specified in the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 (“ESEF requirements”). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of ESEF financial statements that are free from material noncompliance with the ESEF requirements, whether due to fraud or error. Our Independence and Quality Management We have complied with the independence and other ethical requirements of the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Our firm applies International Standard on Quality Management 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Our Responsibility Our responsibility is to express an opinion on the ESEF financial statements based on the procedures we have performed and the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information. That standard requires that we plan and perform this engagement to obtain reasonable assurance about whether the ESEF financial statements are free from material noncompliance with the ESEF requirements. A reasonable assurance engagement in accordance with ISAE 3000 (Revised) involves performing procedures to obtain evidence about the ESEF financial statements compliance with the ESEF requirements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material noncompliance of the ESEF financial statements with the ESEF requirements, whether due to fraud or error. In making those risk assessments, we considered internal control relevant to the Company’s preparation of the ESEF financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, Koskisen Oyj’s ESEF financial statements for the financial year ended 31 December 2023 comply, in all material respects, with the minimum requirements as set out in the ESEF requirements. Our reasonable assurance report has been prepared in accordance with the terms of our engagement. We do not accept, or assume responsibility to anyone else, except for Koskisen Oyj for our work, for this report, or for the opinion that we have formed. 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