Valmet Oyj — Annual Report 2019

Feb 25, 2020

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Financial Statements 2019 and information for investors

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Contents

Report of the Board of Directors 2019 ......................... 2 Financial indicators................................................ 20 Formulas for calculation of indicators ......................... 21 Consolidated financial statements ............................ 22 Consolidated statement of income ............................ 22 Consolidated statement of comprehensive income ......... 23 Consolidated statement of financial position ................ 24 Consolidated statement of cash flows ........................ 26 Consolidated statement of changes in equity ................ 27 Notes to the consolidated financial statements ............. 28 Parent company financial statements ........................ 81 Parent company statement of income, FAS .................. 81 Parent company statement of financial position, FAS ...... 82 Parent company statement of cash flows, FAS .............. 83 Notes to parent company financial statements ............. 84 Signatures of Board of Directors’ report and financial statements ......................................................... 95 Auditor’s Report ................................................... 96 Board of Directors ............................................... 100 Executive Team .................................................. 102 Information for investors ...................................... 104 Investor Relations ............................................... 109

Notes to the consolidated financial statements ............... 28 1. Basis of preparation ............................................ 28 2. Reporting segments and geographic information ........ 30 3. Revenue recognition ............................................ 32 4. Intangible assets and property, plant and equipment .... 35 5. Leases ............................................................. 40 6. Net working capital ............................................ 43 7. Inventories ....................................................... 44 8. Financial assets and liabilities ................................ 45 9. Interest-bearing financial instruments ....................... 49 10. Derivative financial instruments .............................. 49 11. Financial income and expenses ............................... 53 12. Provisions ......................................................... 53 13. Other current liabilities ......................................... 55 14. Personnel expenses and the number of personnel ........ 55 15. Share-based payments ........................................ 56 16. Post-employment benefit obligations ....................... 59 17. Income taxes ..................................................... 63 18. Equity.............................................................. 66 19. Selling, general and administrative expenses .............. 67 20. Other operating income and expenses ...................... 67 21. Business combinations ........................................ 68 22. Financial risk management .................................... 70 23. Investments in associates and joint ventures .............. 74 24. Audit fees ......................................................... 76 25. Contingencies and commitments ............................. 76 26. Related party information ..................................... 77 27. Group companies ................................................ 78 28. Events after the reporting period ............................ 80 29. New accounting standards .................................... 80

valmet | financial statements 2019 and information for investors

report of the board of directors

Report of the Board of Directors January–December 2019

Governance

Current legislation, the company’s Articles of Association and the rules and regulations of organizations regulating and supervising the activities of listed companies are complied with in Valmet Oyj and Valmet Group corporate governance. Valmet Oyj complies without deviation with the Finnish Corporate Governance Code for listed companies. The Code is publicly available at www.cgfinland.fi.

Corporate Governance Statement and Remuneration Report

Valmet has prepared a separate Corporate Governance Statement and a Remuneration Report for 2019, which comply with the recommendations of the Finnish Corporate Governance Code for listed companies. The statements also cover other central areas of corporate governance. The statements have been published on Valmet’s website, separately from the Board of Directors’ Report, at www.valmet.com/governance.

Annual General Meeting

The Annual General Meeting is the company’s highest decision-making body, and its tasks are defined according to the Articles of Association and the Finnish Limited Liability Companies Act. The Annual General Meeting decides on the adoption of the Financial Statements, the distribution of profit, discharging the members of the Board of Directors and the President and CEO from liability, appointing the members, Chairman and Vice-Chairman of the Board as well as the auditor, their remunerations, and other matters requiring a decision by the Annual General Meeting according to the Finnish Limited Liability Companies Act that are presented to the Annual General Meeting. The General Meeting convenes at least once a year. The Board of Directors convenes the Annual General Meeting.

The Board of Directors

The Board of Directors shall see to the administration of the company and the appropriate organization of its operations, and ensures that the monitoring of the company’s accounting and asset management is arranged appropriately. The Board of Directors monitors the Group’s activities, finances and risk management, and its task is to promote the interests of shareholders and the Group by ensuring the appropriate organization of the entire Group’s governance and operations.

According to Valmet’s Articles of Association, the Board of Directors shall include at least five (5) members and at most eight (8) members. The term of office of Board members ends at the end of the first Annual General Meeting following the elections. The Annual General Meeting selects the Chairman, Vice-Chairman and other members of the Board.

President and CEO

The Board of Directors selects a President and CEO for the company and decides on the salary and remunerations of the President and CEO as well as other terms related to the position. The Board of Directors monitors the work of the CEO.

The President and CEO is responsible for the company’s daily administration according to the instructions and regulations of the Board of Directors. The President and CEO is responsible for ensuring the legality of the company’s accounting and for the reliable organization of the company’s asset management.

Valmet’s results in 2019

Figures in brackets, unless otherwise stated, refer to the comparison period, i.e. the same period of the previous year. As of January 1, 2019, Valmet has adopted IFRS 16 without restating the figures for the comparison period.

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Key figures[1]

EUR million	2019	2018	2017
Orders received	3,986	3,722	3,272
Order backlog2	3,333	2,829	2,458
Net sales	3,547	3,325	3,058
Comparable earnings before interest,taxes and amortization(Comparable EBITA)	316	257	218
% of net sales	8.9%	7.7%	7.1%
Earnings before interest,taxes and amortization(EBITA)	315	241	202
% of net sales	8.9%	7.2%	6.6%
Operating proft(EBIT)	281	211	170
% of net sales	7.9%	6.4%	5.6%
Proft before taxes	269	205	158
Proft for theperiod	202	152	121
Earningsper share,EUR	1.35	1.01	0.81
Earningsper share,diluted,EUR	1.35	1.01	0.81
Equity per share2,EUR	6.95	6.31	6.09
Dividendper share,EUR	0.803	0.65	0.55
Cash fowprovided byoperatingactivities	295	284	291
Cash fow after investments	58	208	227
Return on equity (ROE)4	20%	16%	13%
Return on capital employed(ROCE)before taxes4	23%	19%	14%
Equityto assets ratio2	41%	43%	42%
Gearing2	-9%	-23%	-11%

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 and 2017 figures are not restated. 1 The calculation of key figures is presented in the section ‘Formulas for calculation of indicators’. 2 At the end of period

3 Board of Directors’ proposal

4 In the calculation of 2017 figures, non-restated data points from 2016 have been used.

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Orders received increased 7 percent to EUR 3,986 million in 2019

Orders received, EUR million	2019	2018	Change
Services	1,459	1,315	11%
Automation	359	330	9%
Pulpand Energy	1,125	1,000	13%
Paper	1,043	1,077	-3%
Total	3,986	3,722	7%

Orders received, comparable
foreign exchange rates,
EUR million1	2019	2018	Change
Services	1,443	1,315	10%
Automation	355	330	8%
Pulpand Energy	1,139	1,000	14%
Paper	1,034	1,077	-4%
Total	3,971	3,722	7%

1 Indicative only. January to December 2019 orders received in euro calculated by applying January to December 2018 average exchange rates to the functional currency orders received values reported by entities.

Orders received, EUR million	2019	2018	Change
North America	880	730	20%
South America	670	480	40%
EMEA	1,690	1,606	5%
China	267	523	-49%
Asia-Pacifc	479	383	25%
Total	3,986	3,722	7%

Orders received by business line, %

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Services 37% (35%) Automation 9% (9%) Pulp and Energy 28% (27%) Paper 26% (29%)

Orders received by area, %

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North America 22% (20%) South America 17% (13%) EMEA 42% (43%) China 7% (14%) Asia-Pacific 12% (10%)

Orders received increased 7 percent to EUR 3,986 million (EUR 3,722 million) in 2019. The Services and Automation business lines together accounted for 46 percent (44%) of Valmet’s orders received. Orders received increased in the Pulp and Energy, Services and Automation business lines and remained at the previous year’s level in the Paper business line. The acquired businesses contributed EUR 133 million to orders received.

Orders received increased in South America, Asia-Pacific, North America and EMEA and decreased in China. Measured by orders received, the top three countries were the USA, Brazil and Finland, which together accounted for 40 percent of orders received. The emerging markets accounted for 41 percent (45%) of orders received.

Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased orders received by approximately EUR 15 million in 2019.

In 2019, Valmet received among others an order for a large pulp and paper technology delivery to Brazil, valued at a total of around EUR 260–290 million, an order for an evaporation plant and a white liquor plant to Brazil, typically valued at around EUR 200–250 million, an order for a containerboard making line with an extensive scope to Germany, typically valued at around EUR 150–200 million, and an order for a new recovery boiler and an evaporation upgrade to Sweden, typically valued in the range of EUR 100–150 million. Marine scrubber orders amounted to EUR 127 million.

Order backlog increased to EUR 3.3 billion

	As	at Dec 31,
Order backlog, EUR million	2019	2018	Change
Total	3,333	2,829	18%

Order backlog amounted to EUR 3,333 million at the end of the reporting period, 18 percent higher than at the end of December 2018. Approximately 25 percent of the order backlog relates to stable business (Services and Automation business lines, approximately 25% at the end of December 2018). Approximately 70 percent of the order backlog is currently expected to be realized as net sales during 2020 (at the end of 2018, approximately 75% was expected to be realized as net sales during 2019).

Net sales increased 7 percent to EUR 3,547 million in 2019

Net sales, EUR million	2019	2018	Change
Services	1,374	1,219	13%
Automation	341	306	12%
Pulpand Energy	919	863	7%
Paper	913	937	-3%
Total	3,547	3,325	7%

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Net sales, comparable foreign
exchange rates, EUR million1	2019	2018	Change
Services	1,356	1,219	11%
Automation	338	306	11%
Pulpand Energy	926	863	7%
Paper	905	937	-3%
Total	3,525	3,325	6%

1 Indicative only. January to December 2019 net sales in euro calculated by applying January to December 2018 average exchange rates to the functional currency net sales values reported by entities.

Net sales, EUR million	2019	2018	Change
North America	774	679	14%
South America	368	169	>100%
EMEA	1,566	1,545	1%
China	465	535	-13%
Asia-Pacifc	375	396	-6%
Total	3,547	3,325	7%

Asia-Pacific. Measured by net sales, the top three countries were the USA, China and Finland, which together accounted for 39 percent of net sales. Emerging markets accounted for 41 percent (42%) of net sales.

Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased net sales by approximately EUR 22 million in 2019.

Comparable EBITA and operating profit increased and profitability improved

In 2019, comparable earnings before interest, taxes and amortization (Comparable EBITA) were EUR 316 million, i.e. 8.9 percent of net sales (EUR 257 million and 7.7%). Profitability improved due to higher net sales and gross profit. The impact arising from adoption of IFRS 16 was approximately EUR 2 million.

Operating profit (EBIT) in 2019 was EUR 281 million, i.e. 7.9 percent of net sales (EUR 211 million and 6.4%). Items affecting comparability amounted to EUR -1 million (EUR -16 million).

Net financial income and expenses

Net sales by business line, %

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Services 39% (37%) Automation 10% (9%) Pulp and Energy 26% (26%) Paper 26% (28%)

Net sales by area, %

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North America 22% (20%) South America 10% (5%) EMEA 44% (46%) China 13% (16%) Asia-Pacific 11% (12%)

Net financial income and expenses in 2019 were EUR -11 million (EUR -6 million). The interest expense recognized on lease liabilities amounted to EUR 2 million.

Profit before taxes and earnings per share increased

Profit before taxes in 2019 was EUR 269 million (EUR 205 million). The profit attributable to owners of the parent was EUR 201 million (EUR 151 million), corresponding to earnings per share (EPS) of EUR 1.35 (EUR 1.01).

Return on capital employed (ROCE) and return on equity (ROE) improved

In 2019, the return on capital employed (ROCE) before taxes was 23 percent (19%) and return on equity (ROE) 20 percent (16%). Recognition of leased assets following adoption of IFRS 16 increased capital employed, however only having a minor impact on ROCE for the reporting period.

Business lines

Services: Orders received EUR 1,459 million in 2019

Net sales increased 7 percent to EUR 3,547 million (EUR 3,325 million) in 2019. The Services and Automation business lines together accounted for 48 percent (46%) of Valmet’s net sales. Net sales increased in the Services, Automation, and Pulp and Energy business lines and remained at the previous year’s level in the Paper business line. The acquired businesses contributed EUR 133 million to net sales.

Net sales increased in South America and North America, remained at the previous year’s level in EMEA, and decreased in China and

Services business line	2019	2018	Change
Orders received(EUR million)	1,459	1,315	11%
Net sales(EUR million)	1,374	1,219	13%
Personnel(end ofperiod)	6,461	5,544	17%

In 2019, orders received by the Services business line increased 11 percent to EUR 1,459 million (EUR 1,315 million). Services accounted for 37 percent (35%) of all orders received. Orders received increased in North America, South America, Asia-Pacific and EMEA, and remained at the

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previous year’s level in China. Orders received increased in Energy and Environmental, and Performance Parts, remained at the previous year’s level in Fabrics and Rolls, and decreased in Mill Improvements. The acquired businesses contributed EUR 117 million to Services’ orders received. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased orders received by approximately EUR 16 million.

In 2019, net sales for the Services business line amounted to EUR 1,374 million (EUR 1,219 million), corresponding to 39 percent (37%) of Valmet’s net sales. The acquired businesses contributed EUR 115 million to Services’ net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased net sales by approximately EUR 17 million.

sponding period in 2018 decreased orders received by approximately EUR 14 million.

In 2019, net sales for the Pulp and Energy business line amounted to EUR 919 million (EUR 863 million), corresponding to 26 percent (26%) of Valmet’s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 decreased net sales by approximately EUR 7 million.

Paper: Orders received EUR 1,043 million in 2019

Paper business line	2019	2018	Change
Orders received(EUR million)	1,043	1,077	-3%
Net sales(EUR million)	913	937	-3%
Personnel(end ofperiod)	2,908	2,904	0%

Automation: Orders received EUR 359 million in 2019

Automation business line	2019	2018	Change
Orders received(EUR million)	359	330	9%
Net sales(EUR million)	341	306	12%
Personnel(end ofperiod)	1,908	1,802	6%

In 2019, orders received by the Automation business line increased 9 percent to EUR 359 million (EUR 330 million) and accounted for 9 percent (9%) of Valmet’s orders received. Orders received increased in South America, North America, Asia-Pacific and EMEA, and decreased in China. Orders received increased in Pulp and Paper, and decreased in Energy and Process. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased orders received by approximately EUR 3 million.

In 2019, net sales for the Automation business line amounted to EUR 341 million (EUR 306 million), corresponding to 10 percent (9%) of Valmet’s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased net sales by approximately EUR 3 million.

Pulp and Energy: Orders received EUR 1,125 million in 2019

Pulp and Energy business line	2019	2018	Change
Orders received(EUR million)	1,125	1,000	13%
Net sales(EUR million)	919	863	7%
Personnel(end ofperiod)	1,788	1,748	2%

In 2019, orders received by the Pulp and Energy business line increased 13 percent to EUR 1,125 million (EUR 1,000 million). Pulp and Energy accounted for 28 percent of all orders received (27%). Orders received increased in North America, South America and EMEA, remained at the previous year’s level in Asia-Pacific and decreased in China. Orders received increased in Pulp and decreased in Energy. Changes in foreign exchange rates compared to the exchange rates for the corre-

In 2019, orders received by the Paper business line remained at the previous year’s level and were EUR 1,043 million (EUR 1,077 million). Paper accounted for 26 percent (29%) of all orders received. Orders received increased in South America, Asia-Pacific and North America, and decreased in China and EMEA. Orders received remained at the previous year’s level in Board and Paper, and decreased in Tissue. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased orders received by approximately EUR 9 million.

In 2019, net sales for the Paper business line amounted to EUR 913 million (EUR 937 million), corresponding to 26 percent (28%) of Valmet’s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2018 increased net sales by approximately EUR 9 million.

Cash flow and financing

Cash flow provided by operating activities amounted to EUR 295 million (EUR 284 million) in 2019. Net working capital totaled EUR -426 million (EUR -474 million) at the end of the reporting period. Change in net working capital in the statement of cash flows was EUR -28 million (EUR 86 million) in 2019. Payment schedules of large capital projects have a significant impact on net working capital development.

Cash flow after investments totaled EUR 58 million (EUR 208 million) in 2019. During the third quarter, the final adjustments to the consideration transferred for the acquisitions of GL&V and J&L Fiber Services Inc. were settled, resulting in total net cash outflow of EUR -163 million.

At the end of 2019, gearing was -9 percent (-23%) and equity to assets ratio was 41 percent (43%). Interest-bearing liabilities amounted to EUR 268 million (EUR 201 million), and net interest-bearing liabilities totaled EUR -90 million (EUR -219 million) at the end of the reporting period. The adoption of IFRS 16 increased interest-bearing liabilities by EUR 61 million, which had a negative impact on the above key performance indicators.

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The average maturity of Valmet’s non-current debt was 3.1 years, and average interest rate was 1.1 percent at the end of December. Lease liabilities, which are discussed in detail in the Consolidated financial statements, have been excluded from calculation of these two key performance indicators.

Valmet’s liquidity was strong at the end of the reporting period, with cash and cash equivalents amounting to EUR 316 million (EUR 376 million) and interest-bearing current financial assets totaling EUR 42 million (EUR 44 million). Valmet’s liquidity was additionally secured by a committed revolving credit facility worth of EUR 200 million, which matures in 2024, and an uncommitted commercial paper program worth of EUR 200 million. In December 2019, Valmet signed a 10-year EUR 50 million loan agreement with the Nordic Investment Bank. All the above facilities were undrawn at the end of the reporting period.

On April 4, 2019, Valmet paid out dividends of EUR 97 million.

Capital expenditure

Gross capital expenditure (excluding business combinations) in 2019 totaled EUR 79 million (EUR 79 million), of which maintenance investments were EUR 61 million (EUR 47 million).

Acquisitions and disposals

Acquisitions

GL&V

On February 26, 2019, Valmet announced the acquisition of North American-based GL&V, a global provider of technologies and services to the pulp and paper industry. The enterprise value of the acquisition was approximately EUR 113 million on a cash and debt free basis, and final consideration transferred after ordinary post-closing adjustments was EUR 101 million. The acquisition was completed on April 1, 2019. GL&V supplies technologies, upgrades and optimization services, rebuilds and spare parts for the pulp and paper industry globally. Net sales of the acquired operations were approximately EUR 160 million and EBITA margin was around 11 percent in calendar year 2018. The acquired operations employ about 630 people, of whom approximately 65 percent are in North America and the rest mainly in Europe, South America and India. GL&V’s washing, oxygen delignification and bleaching operations with Compact Press®, pumps and mixers technology for chemical pulping as well as the related Product Center in Karlstad, Sweden were not included in the transaction scope. The integration has been effective, and the onboarding of the over 600 new professionals to our global organization has been completed successfully.

supplies low-consistency refiner segments that are important wear parts used in pulp and paper production, complementing Valmet’s offering in refiner segments. It also supplies high-consistency refiner segments that are used in thermomechanical pulping and medium density fiberboard (MDF) refining. In the twelve months preceding the completion of the acquisition, the company had net sales of approximately EUR 30 million with an EBITA margin of around 15 percent. The acquired operations employ about 100 people, most of whom are located in Wisconsin, USA. J&L Fiber Services operates globally through a sales representative and distribution network. Over 75 percent of its sales goes to North America. The acquired business became a part of Valmet’s Services business line, as Waukesha Service Center.

Disposals

Valmet made no disposals in 2019.

Research and development

Valmet’s research and development (R&D) expenses in 2019 amounted to EUR 71 million, i.e. 2.0 percent of net sales (EUR 66 million and 2.0%). Research and development work is carried out predominantly in Finland and Sweden, within the business lines’ R&D organizations and pilot facilities. In addition, research and development takes place within a network of customers, suppliers, research institutes and universities. In the end of 2019, R&D employed 452 people (442 people, person-years).

Valmet’s R&D work is based on customers’ needs, such as improving production and resource efficiency, maximizing the value of raw materials, providing new revenue streams, and developing new innovations and technologies.

Valmet develops competitive, leading production and automation technologies and services. To enhance raw material, water and energy efficiency in its customers’ production processes, Valmet combines digitalization, process technology, automation and services. Valmet also develops solutions for replacing fossil materials with renewable ones and for producing new high-value end products.

J&L Fiber Services Inc.

On May 2, 2019, Valmet announced that it has completed the acquisition of J&L Fiber Services Inc., a manufacturer and provider of refiner segments to the pulp, paper and fiberboard industry. The company is located in Wisconsin, USA. The final purchase price for the transaction was approximately EUR 51 million. J&L Fiber Services manufactures and

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Number of personnel increased mainly due to acquisitions

Number of personnel due to acquisitions	increased mainly	increased mainly
	As at Dec 31,
Personnel by business line	2019	2018	Change
Services	6,461	5,544	17%
Automation	1,908	1,802	6%
Pulpand Energy	1,788	1,748	2%
Paper	2,908	2,904	0%
Other	533	530	0%
Total	13,598	12,528	9%

Changes in Valmet’s Executive team

Valmet announced on January 24, 2019 that Juha Lappalainen, Senior Vice President, Strategy and Operational Development (SOD) was to start in a new position in Valmet’s Services business line on March 1, 2019. Due to this change, Valmet divided the Strategy and Operational Development function so that the Strategy function was integrated into Valmet’s Finance corporate function lead by CFO Kari Saarinen. Julia Macharey, previously Senior Vice President, Human Resources, was appointed Senior Vice President, Human Resources and Operational Development. The changes took effect on March 1, 2019.

Strategic goals and their implementation

	As at Dec 31,	As at Dec 31,
Personnel by area	2019	2018	Change
North America	1,700	1,202	41%
South America	548	510	7%
EMEA	8,654	8,303	4%
China	1,797	1,752	3%
Asia-Pacifc	899	761	18%
Total	13,598	12,528	9%

Personnel by business line, %

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Services 48% (44%) Automation 14% (14%) Pulp and Energy 13% (14%) Paper 21% (23%) Other 4% (4%)

Personnel by area, %

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North America 13% (10%) South America 4% (4%) EMEA 64% (66%) China 13% (14%) Asia-Pacific 7% (6%)

Valmet is the leading global developer and supplier of technologies, automation and services for the pulp, paper and energy industries. Valmet focuses on delivering technology and services globally to industries that use bio-based raw materials. Valmet’s main customer industries are pulp, paper and energy. These are all major global industries that offer growth potential for the future. Valmet is committed to moving its customers’ performance forward.

Valmet’s vision is to become the global champion in serving its customers, and its mission is to convert renewable resources into sustainable results. Valmet seeks to achieve its strategic targets by pursuing the following Must-Win initiatives: ‘customer excellence’, ‘leader in technology and innovation’, ‘excellence in processes’ and ‘winning team’.

Valmet’s product and service portfolio consists of productivity-enhancing services, automation solutions, plant upgrades and rebuilds, new cost-efficient equipment and solutions for optimizing energy and raw material usage, and technologies increasing the value of our customers’ end products.

In order to improve its operational excellence, Valmet is in the process of renewing its ERP system. The aim is to improve Valmet’s operational capability through process harmonization and standardization, and through renewal and modernization of the ERP platform.

Valmet has an annual strategy process, where, among others, Valmet’s strategy, Must-Wins and financial targets are reviewed. At the end of 2019, Valmet had the following financial targets:

Financial targets

• Net sales for stable business to grow over two times the market growth

• Net sales for capital business to exceed market growth

• Comparable EBITA: 8–10%

• Comparable return on capital employed (pre-tax), ROCE: 15–20%

• Dividend payout at least 50% of net profit

In 2019, Valmet employed an average of 13,235 (12,461) people. The number of personnel at the end of December was 13,598 (12,528). Personnel expenses totaled EUR 897 million (EUR 812 million) in 2019, of which wages, salaries and remuneration amounted to EUR 708 million (EUR 638 million).

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Continued focus on improving profitability

Valmet continues to focus on improving profitability through various actions in e.g. sales process management, project management and project execution, in procurement and quality, as well as in technology and R&D.

To improve sales process management, Valmet is focusing on key account management and analyzing the customers’ share of wallet. Valmet is targeting market share improvement at key customers and adding focus on sales training. Valmet has also launched ‘Valmet Way to Serve’ services concept – a shift towards more unified and customer-oriented services.

Valmet is continuously improving its project management and project execution by training personnel and implementing a Valmet-wide project execution model. By focusing on improving project management and execution, Valmet is targeting continuous improvement of gross profit.

Valmet has set a long-term savings target for procurement. In order to decrease procurement costs, Valmet is focusing on design-to-cost and adding supplier involvement through supplier relationship management. Valmet has also set a target for quality cost savings and is adding focus on root cause analysis of quality deviations. Furthermore, Valmet is continuing to adopt the Lean principles and methodology.

Valmet is constantly focusing on new technologies and R&D to improve product cost competitiveness and performance. The renewal of Valmet’s ERP system will increase efficiency once implemented.

Disclosure of non-financial information

Business model and value creation

Valmet’s mission is to convert renewable resources into sustainable results. Sustainability is at the core of all Company’s operations. Valmet has an active and open dialogue with its stakeholders. Company’s product and service portfolio consists of technologies increasing the value of its customers’ end products. Valmet works closely with its customers throughout its key processes – from product development to commercialization of new solutions. Company has financial strength to invest in innovations and growth.

In addition to the value for its owners, Valmet also creates economic value as an employer and taxpayer. Company provides employment and business opportunities to a wide range of stakeholders and indirectly builds wealth in local societies.

Valmet’s technology and services enable customers to produce their products with less resources and raw materials and to improve flexibility in fuel source selection to replace fossil fuels with renewable ones. In Valmet’s own operations, more efficient processes enable the use of less natural resources and lower CO2 emissions.

Valmet strives to develop the transparency and traceability of its entire value chain from the sourcing of raw materials to the recycling of its products. Valmet purchases raw materials, components, energy and services.

Valmet has estimated that around 4 percent of its environmental impact arises through its supply chain and around 1 percent through its own operations. The remaining 95 percent is caused when customers use Valmet’s technologies over their entire life cycles.

Materiality assessment

Valmet has assessed the most significant topics of the non-financial disclosure by conducting an internal stakeholder review. All topics have been assessed based on their importance to Valmet and its stakeholders with key experts and management. As a result of the process Valmet has defined five sustainability focus areas covering the most material sustainability topics for Valmet: sustainable supply chain; health, safety and environment; people and performance; sustainable solutions and corporate citizenship.

Valmet has a systematic method for regularly assessing the probability and impact of risks and opportunities related to sustainability. Valmet has several group-wide policies in place to mitigate these risks.

The basis of Valmet’s operations is its Code of Conduct, which creates a uniform and ethical foundation for all our business transactions and work assignments. Valmet strives for globally consistent and transparent management practices so that all its stakeholders can reliably assess the company’s sustainable operations and development.

Valmet’s sustainability agenda, related goals, as well as all supporting policies are owned, driven and monitored by Valmet’s Executive Team. Sustainability performance is reviewed annually by the Executive Team. All Valmet’s operations are responsible for ensuring that group-wide initiatives are implemented to meet Valmet’s sustainability goals. Valmet ties selected sustainability topics, such as health, safety and quality as well as sustainable supply chain KPIs, to remuneration.

Material topics

Environmental matters

Valmet has defined targets for the reduction of energy and water consumption, as well as CO2 emissions and waste by 2030. Valmet provides customers with sustainable solutions that help to improve environmental performance and their safety. Valmet continuously improves the eco-efficiency in all production facilities based on global and operation specific HSE action plans.

Social and employment related matters

Valmet’s operations provide direct and indirect employment for a wide range of stakeholders. Company continuously improves employee skills and capabilities and strives to ensure a healthy and safe working environment for both its own people and partners. Valmet participates in discussions regarding its operating environment and regulations. Valmet builds trust and reputation by operating in a sustainable and profitable manner.

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Respect for human rights

As a global technology and services supplier, Valmet operates in a highly multicultural environment. Valmet recognizes its responsibility to respect human rights and requires its business partners to do the same. Valmet is committed to international frameworks related to human rights, such as the UN Guiding Principles on Business and Human Rights. Valmet recognizes the business benefits of having a diverse workforce and aims to provide equal opportunities for everyone.

Anti-corruption and bribery

Valmet has several policies in place which guide its and its partners’ operations regarding corruption, bribery and competition compliance. Valmet arranges regular training on its Code of Conduct, anti-corruption principles and competition compliance guidelines to enforce the principles set in the policies. All Valmet’s suppliers are required to commit to the principles set in the sustainable supply chain policy, to which compliance is assessed by potential self-assessments and audits.

Non-financial indicators

Orders received from new products and services, EUR million

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1,200 1,080
987
1,000
800 692
600
400
200
0
2017 2018 2019
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New suppliers screened over sustainability, %

Employees covered by Workforce represented collective bargaining in formal managementagreements, % worker health and safety committees, %

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100 100 92% 93% 96% 100 96%
84%
80 74% 72% 71% 80 80 73%
60 60 60
40 40 40
20 20 20
0 0 0
2017 2018 2019 2017 2018 2019 2017 2018 2019
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Sponsorships and donations, EUR thousand

Monetary value of significant fines for non-compliance with laws and regulations, Number of corporate EUR million internal audits performed

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250 10 15
12
200 179 8 12
10 10
150 142 6 9
123
100 4 6
50 2 3
0 0 0
0 0 0
2017 2018 2019 2017 2018 2019 2017 2018 2019
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Number of environmental compliance cases

There were no significant environmental incidents resulting from major permit violations, claims, compensations or media coverage in 2019.

One minor non-compliance with limited environmental impact resulted in a minor administrative fine at the Laem Chabang service center in Thailand. This incident was related to effluent control. Immediate improvement actions were taken into use to the satisfaction of local authorities.

Breakdown of employees by contract type, employment type, region and gender

Number of employees by employment contract and gender

Number of employees by employment contract and gender
Female	Male	Total
2019	2018 2019	2018 2019 2018
Permanent 2,387	2,187 9,944	9,072 12,331 11,259
Temporary 394	362 873	907 1,267 1,269
Total 2,781	2,549 10,817	9,979 13,598 12,528

Number of permanent employees by employment type and gender

Number of permanent employees by employment type	and gender	and gender
	Female			Male			Total
	2019		2018	2019		2018	2019		2018
Full-time	2,278		2,070	9,837		8,966	12,115		11,036
Part-time	109		117	107		106	216		223
Total	2,387		2,187	9,944		9,072	12,331		11,259

Workforce by region and gender

Workforce by region and gender
	Female			Male			Total
	2019		2018	2019		2018	2019		2018
North America	233		170	1,467		1,032	1,700		1,202
South America	103		87	445		423	548		510
EMEA	1,919		1,792	6,735		6,511	8,654		8,303
China	418		402	1,379		1,350	1,797		1,752
Asia-Pacifc	108		98	791		663	899		761
Total	2,781		2,549	10,817		9,979	13,598		12,528

Workforce by region and employee contract

Workforce by region and employee contract
	Regular 2019 Fixed term 2019 Total 2019
North America	1,683 17 1,700
South America	537 11 548
EMEA	8,071 583 8,654
China	1,151 646 1,797
Asia-Pacifc	889 10 899
Total	12,331 1,267 13,598

Lost time incident frequency, total recordable incident frequency, number of fatalities and absentee rate, own personnel

own personnel
	2019	2018
LTIF1	2.1	2.3
TRIF2	4.3	4.4
Fatalities	0	0
Absentee rate	2.6%	2.6%

1 LTIF reflects the number of injuries resulting in an absence of at least one workday per million hours worked

2 LTIF + medical treatment and restricted work cases

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Valmet’s management approach for non-financial impacts

	ENVIRONMENTAL MATTERS	SOCIAL AND EMPLOYMENT RELATED MATTERS
Policies and	International •United Nations Universal Declaration of Human Rights
standards	frameworks •UN Guiding Principles on Business and Human Rights
	covering all topics: •UN Sustainable Development Goals
	•Global Compact
	•Health, Safety and Environment Policy: Defnes Valmet’s	•Valmet’s Human Rights Statement: States Valmet’s
	approach and demonstrates commitment to managing	commitment and respect to human rights
	health, safety and environmental issues at Valmet	•Health, Safety and Environment Policy: Defnes Valmet’s
	•Sustainable Supply Chain Policy: Describes Valmet’s	approach and demonstrates commitment to managing
	requirements for sustainable operating principles for	health, safety and environmental issues at Valmet
	suppliers concerning environmental issues	•Sustainable Supply Chain Policy: Describes requirements
	•Instructions on environmental principles: Support	for ethical standards and sustainable business practices
	implementing Valmet’s HSE policy	for suppliers
	•Instructions on sustainable and responsible research,	•Human Resources Policy: Framework for the management
	product development and design: Support implementing	of the human resources function, which is committed
	Valmet’s HSE policy	to developing an engaged and performance-driven
		community and to continuously driving the development
		of Valmet employees’ capabilities globally
		•Minimum Safety Standards: Defnes minimum requirements for safety at work for specifc high-risk
		activities
Due diligence	•HSE incident reporting and management system is used to	•HSE incident reporting and management system is used
processes	follow and prevent HSE related incidents and hazards	to follow and prevent HSE related incidents and hazards
	•Compliance with HSE related laws and regulations is ensured by	•Compliance with laws and regulations is ensured by
	complying with Valmet’s related processes	complying with Valmet’s related processes
	•Valmet executes internal and external audits globally to evaluate	•Valmet executes internal and external audits globally
	compliance to internal, legal and other HSE requirements and	to evaluate compliance to internal, legal and other HSE
	correct non-conformities	requirements and correct non-conformities
Risks and risk	Risks:	Risks:
management	•Risks related to Valmet’s suppliers can cause signifcant	•Valmet’s own personnel’s and partners’ health and safety
	reputation or business risks	risks are related to work related illnesses, injuries and
	•Non-compliance with environmental regulation may result in fnes	occupational wellbeing
	and cause reputation and business risks	•Varying competence levels and a slowing down of the
		resourcing process
	Risk management:	•Risks related to Valmet’s suppliers can cause signifcant
	•ISO 14001 environmental management systems in all operations	reputation or business risks
	•Risk management is integrated into all activities to ensure
	hazards and impacts are proactively identifed and mitigated	Risk management:
		•OHSAS 18001 health and safety management systems in
		all operations
		•HSE incident management system
		•Development of global training portfolio and ensuring
		necessary competence in place across regions
		•Global process for supplier sustainability
		•Safety committees covering all personnel
Outcomes of	•New products and services that meet environmental	•Healthy and safe working places for own employees and
policies and	requirements and help customers produce sustainable products	partners
due diligence	•Supplier audits conducted globally improving suppliers’	•Operations free from life changing incidents, reduction in
processes	sustainability approach	overall incident frequencies
	•Environmental targets 2030 including targets for energy	•Training programs developed to enhance skills
	efciency, water consumption and waste management

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RESPECT FOR HUMAN RIGHTS	ANTI-CORRUPTION AND BRIBERY
•Declaration on Fundamental Principles and Rights at Work	of the International Labour Organization (ILO)
•OECD’s Guidelines for Multinational Enterprises
•OHSAS 18001 Occupational health and safety management system
•ISO 14001 Environmental management system
•ISO 9001 Quality management system
•Valmet’s Human Rights Statement and Code of Conduct:	•Anti-Corruption Policy and Code of Conduct: Defnes Valmet’s zero
States Valmet’s commitment and respect to human rights	tolerance approach to bribery and corruption in more detail
•Sustainable Supply Chain Policy: Describes Valmet’s requirements	•Compliance reporting guideline: Defnes how Valmet employees can
for human rights for suppliers	voice their concerns as to potential violations of the Code of Conduct,
•Equal Opportunity and Diversity Policy: Defnes Valmet’s approach	Anti-Corruption Policy as well as other corporate policies
to promoting equal opportunities for all employees	•Approval guideline for Agency agreements: Describes Valmet’s due
	diligence process and requirements (including anti-bribery questionnaire)
	for agent approval
	•Sustainable Supply Chain Policy: Describes Valmet’s requirements for
	sustainable operating principles
•Human rights due diligence management system is in place and	•Risk management evaluation and audits help Valmet to fnd the best
executed through long-term action plans that are monitored and	ways to manage risks and to train the unit’s personnel to use existing
reported. Management system is based on UN Guiding Principles	tools and procedures to manage risk
for Business and Human Rights.
Risks:	Risks:
•Potential violations of human and labor rights and unethical business	•Unethical business practices can impact Valmet’s reputation and thus
practices can impact Valmet’s reputation and thus fnancial position	fnancial position
Risk management:	Risk management:
•Valmet’s comprehensive human rights due diligence management	•Internal risk management audits and global process for supplier
system helps to identify and mitigate potential negative human	sustainability
rights impacts and risks	•Anti-Corruption Policy works as a tool to set the tone for preventive
	misconduct and mitigate potential risks
•Reporting system in place for violations of Code of Conduct	•Valmet executes supplier sustainability audits globally.
•Started training on human rights to increase awareness on potential	Business ethics are an integrated part of Valmet’s audit checklist.
negative impacts	•Reporting system in place for violations of Code of Conduct,
•Human rights impact assessment carried out and improvement	including anti-corruption and bribery
actions defned in two locations, according to Valmet’s human rights	•Trainings on anti-corruption and bribery, including e-learning
due diligence management system.

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Shares and shareholders

Development of Valmet’s share price since listing, January 2, 2014–December 31, 2019

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EUR
25
20
15
10
5
0
2014 2015 2016 2017 2018 2019
Valmet OMX Helsinki (rebased)
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Share capital and share data[1]

	2019	2018	2017
Share capital,December 31,EUR million	100	100	100
Number of shares,December 31:
Number of outstandingshares	149,618,523	149,617,820	149,864,220
Treasuryshares held bythe Parent Company	246,096	246,799	399
Total number of shares	149,864,619	149,864,619	149,864,619
Average number of outstandingshares	149,604,375	149,649,501	149,864,220
Average number of diluted outstandingshares	149,604,375	149,649,501	149,864,220
Tradingvolume on NasdaqHelsinki Ltd.2	152,595,590	102,204,539	89,279,591
% of total shares forpublic trading	102.0	68.3	59.6
Earningsper share,EUR	1.35	1.01	0.81
Earningsper share,diluted,EUR	1.35	1.01	0.81
Dividendper share,EUR	0.803	0.65	0.55
Dividend,EUR million	1203	97	82
Dividend to earnings	59%3	64%	68%
Efective dividendyield	3.7%3	3.6%	3.3%
Price to earnings ratio(P/E)	15.9	17.8	20.4
Equity per share,EUR	6.95	6.31	6.09
Highest shareprice,EUR	25.14	20.94	18.44
Lowest shareprice,EUR	15.55	15.50	13.45
Volume-weighted average shareprice,EUR	20.46	17.77	16.08
Shareprice,December 31,EUR	21.36	17.95	16.44
Market capitalization,December 31,EUR million	3,201	2,690	2,464

1 The formulas for calculation of the figures are presented in the section ‘Formulas for Calculation of Indicators’

2 In addition to Nasdaq Helsinki Ltd, Valmet’s shares are also traded on other marketplaces, such as Cboe BXE, Cboe CXE and Turquoise. A total of approximately 122 million of Valmet’s shares were traded on alternative marketplaces in 2019, which equals to approximately 45 percent of the share’s total trade volume. (Source: Bloomberg)

3 Board of Directors’ proposal

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Largest shareholders on December 31, 2019

			% of share
		Shares	capital
1	Solidium Oy	16,695,287	11.14%
2	Ilmarinen Mutual Pension Insurance Company	3,881,000	2.59%
3	Elo Mutual Pension Insurance Company	3,700,000	2.47%
4	OP Funds	3,654,749	2.44%
5	Varma Mutual Pension Insurance Company	2,712,465	1.81%
6	Te State Pension Fund	1,545,000	1.03%
7	Keva	1,502,166	1.00%
8	Evli Funds	1,040,000	0.69%
9	Danske Invest funds	850,906	0.57%
10	Nordea Funds	606,747	0.40%
11	Sigrid Jusélius Foundation	526,865	0.35%
12	Te Finnish Cultural Foundation	520,123	0.35%
13	Investment fund Aktia Capital	500,000	0.33%
14	Veritas Pension Insurance CompanyLtd.	450,014	0.30%
15	Te Social Insurance Institution of Finland,KELA	396,316	0.26%

Source: Euroclear Finland

Holdings of the Board of Directors in Valmet Oyj on December 31, 2019

		Shares
Mäkinen,Mikael	Chairman of the Board	1,764
Cantell,Aaro	Vice Chairman of the Board	5,506
Kemppainen,Pekka	Member of the Board	2,063
Maurer,Monika	Member of the Board	2,063
Söderström,Eriikka	Member of the Board	3,193
Tyni,Tarja	Member of the Board	4,989
Ziviani,Rogério	Member of the Board	9,176
Total		28,754
% shares outstanding		0.02%

Holdings of the Executive Team in Valmet Oyj on December 31, 2019

		Shares
Laine,Pasi	President and CEO	136,042
Karlstedt, Bertel	Business Line President, Pulp and Energy	36,157
King, David	Area President, North America	24,912
Macharey, Julia	SVP, Human Resources and Operational	26,892
	Development
Niemi, Aki	Business Line President, Services	50,730
Riekkola, Sami	Business Line President, Automation	5,620
Saarinen, Kari	CFO	39,514
Salonsaari-Posti, Anu	SVP, Marketing, Communications,	21,527
	Sustainabilityand Corporate Relations
Simola, Vesa	Area President, EMEA	39,846
Tacla, Celso	Area President, South America	74,990
Tiitinen, Jukka	Area President, Asia Pacifc	78,473
Vähäpesola, Jari	Business Line President, Paper	47,585
Zhu, Xiangdong	Area President, China	17,451
Total		599,739
% of outstanding
shares		0.40%

Number of shareholders

The number of registered shareholders at the end of December 2019 was 45,965 (43,692).

Distribution of shareholding by sector on December 31, 2019, %

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Nominee registered and non-Finnish holders 53.4% Finnish institutions, companies and foundations 22.7% Finnish private investors 12.7% Solidium Oy 11.1%

Distribution of shareholders by number of shares held, %

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1–100 (45.7%) 101–1,000 (45.4%) 1,001–10,000 (8.2%) 10,001–100,000 (0.6%) 100,001– (0.1%)

Flagging notifications

During the review period, Valmet received the following flagging notifications referred to in the Securities Market Act:

Transaction			Direct	Indirect	Total
date	Shareholder	Treshold	holding, %	holding, %	holding, %
January 16,	BlackRock, Inc	Above 5%	4.33%	0.74%	5.08%
2019
February 6,	BlackRock, Inc	Above 5%	5.23%	0.82%	6.05%
2019
March 21,	BlackRock, Inc	Below 5%	4.96%	0.66%	5.62%
2019
March 27,	BlackRock, Inc	Above 5%	5.77%	0.69%	6.46%
2019
August 9,	Te Goldman	Above 5%	2.82%	2.20%	5.02%
2019	Sachs Group,
	Inc
August 12,	Te Goldman	Below 5%	2.73%	2.12%	4.85%
2019	Sachs Group,
	Inc
August 28,	BlackRock, Inc	Below 5%	Below 5%	Below 5%	Below 5%
2019
August 29,	BlackRock, Inc	Above 5%	4.91%	0.24%	5.16%
2019
August 30,	BlackRock, Inc	Below 5%	Below 5%	Below 5%	Below 5%
2019

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Trading of shares

	January 1–	January 1–
Trading of Valmet shares on Nasdaq	December 31,	December 31,
Helsinki	2019	2018
Number of shares traded	152,595,590	102,204,539
Total value,EUR	3,104,265,131	1,816,203,435
High,EUR	25.14	20.94
Low,EUR	15.55	15.50
Volume-weighted averageprice,EUR	20.46	17.77
Closing price on the fnal day of trading,
EUR	21.36	17.95

The closing price of Valmet’s share on the final day of trading for the reporting period, December 30, 2019, was EUR 21.36, i.e. 19 percent higher than the closing price on the last day of trading in 2018 (EUR 17.95 on December 28, 2018).

In addition to Nasdaq Helsinki Ltd, Valmet’s shares are also traded on other marketplaces, such as Cboe CXE, Cboe BXE and Turquoise. A total of approximately 122 million of Valmet’s shares were traded on alternative marketplaces in 2019, which equals to approximately 45 percent of the share’s total trade volume (Bloomberg).

Board authorizations regarding share repurchase and share issue

Valmet Oyj’s Annual General Meeting on March 21, 2019 authorized Valmet’s Board of Directors to decide on the repurchase of the Company’s own shares in one or several tranches. The maximum number of shares to be repurchased shall be 10,000,000 shares, which corresponds to approximately 6.7 percent of all the shares in the Company.

The Company’s own shares may be repurchased otherwise than in proportion to the shareholdings of the shareholders (directed repurchase). Company’s own shares may be repurchased using the unrestricted equity of the Company at a price formed on a regulated market on the stock exchange main list upheld by Nasdaq Helsinki Ltd on the date of the repurchase.

Company’s own shares may be repurchased for reasons of developing the Company’s capital structure, financing or carrying out acquisitions, investments or other business transactions, or for the shares to be used in an incentive scheme.

The Board of Directors decides on all other terms related to the repurchasing of the Company’s own shares.

Valmet Oyj’s Annual General Meeting authorized Valmet’s Board of Directors to decide on the issuance of shares as well as the issuance of special rights entitling to shares pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act in one or several tranches. The issuance of shares may be carried out by offering new shares or by transferring treasury shares held by Valmet Oyj. Based on this authorization, the Board of Directors may decide on a directed share issue in deviation from the shareholders’ pre-emptive rights, and on the granting of special rights subject to the conditions mentioned in the Finnish Limited Liability Companies Act.

The maximum number of new shares which may be issued by the Board of Directors based on this authorization shall be 15,000,000 shares, which corresponds to approximately 10.0 percent of all the shares in Valmet Oyj. The maximum number of treasury shares which may be issued shall be 10,000,000 shares, which corresponds to approximately 6.7 percent of all the shares in the Company.

The Board of Directors is furthermore authorized to issue special rights pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act entitling their holder to receive new shares or treasury shares for consideration. The maximum number of shares which may be issued based on the special rights shall be 15,000,000 shares, which corresponds to approximately 10.0 percent of all the shares in Company. This number of shares shall be included in the aggregate numbers of shares mentioned in the previous paragraph.

The new shares and treasury shares may be issued for consideration or without consideration.

The Board of Directors of Valmet Oyj was also authorized to resolve on issuing treasury shares to the Company without consideration. The maximum number of shares which may be issued to Valmet Oyj shall be 10,000,000 shares when combined with the number of shares repurchased based on an authorization. Such number corresponds to approximately 6.7 percent of all shares in the Company. The treasury shares issued to the Company shall not be taken into account in the limits set out in the preceding paragraphs.

The Board of Directors may decide on all other terms of the issuance of shares and special rights entitling to shares pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act. The Board of Directors may use this authorization, for example, for reasons of developing the Company’s capital structure, in financing or carrying out acquisitions, investments or other business transactions, or for the shares to be used in incentive schemes.

The authorizations shall remain in force until the next Annual General Meeting, and they cancel the authorizations granted in the Annual General Meeting of March 21, 2018.

In its meeting on December 19, 2019, the Board of Directors of Valmet decided to use the authorization granted by the General Meeting held on March 21, 2019 to acquire the Company’s own shares. Based on the authorization, the Board decided to initiate a fixed-term share buy-back program for the purpose of acquiring the Company’s own shares to meet part of the obligations arising from the LTI Plan and the Restricted Shares Pool incentive plans. The share acquisitions will begin at the earliest on February 6, 2020 and will end at the latest on February 28, 2020. The maximum number of shares to be acquired is 270,000. The shares will be acquired at market price in public trading on Nasdaq Helsinki Ltd.

As at December 31, 2019, Valmet’s Board of Directors had not used the other authorizations given by the Annual General meeting on March 21, 2019.

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Share-based incentive plans

Valmet’s share-based incentive plans are part of the remuneration program for Valmet’s key personnel. The purpose of the plans is to align the goals of shareholders and management to increase the value of the Company, to ensure management commitment, and to offer them a competitive, ownership-based reward scheme. Any shares to be potentially awarded are, or have been, acquired through public trading, and therefore the incentive plans have no diluting effect on the share value.

Long-term incentive plan 2018–2020

In December 2017, the Board of Directors of Valmet Oyj approved a long-term share-based incentive plan for Valmet’s key employees. The plan includes three performance periods, which are the calendar years 2018, 2019 and 2020. Valmet’s Board of Directors decided on the performance criteria and targets in the beginning of each discretionary period. The LTI Plan is directed to approximately 130 participants (including Executive Team members, key employees and management talents).

Performance period	2018	2019	2020
Incentive based on	Comparable	Comparable	Comparable
	EBITA as a	EBITA as a per-	EBITA as a per-
	percentage of	centage of net	centage of net
	net sales, and	sales, and orders	sales, and orders
	orders received	received growth	received growth
	growth in the	in the stable	in the stable
	stable business	business	business
	(Services and	(Services and	(Services and
	Automation	Automation	Automation
	business lines)	business lines)	business lines)
Potential reward	Was paid partly	Will be paid partly	Will be paid partly
payment	in Valmet shares	in Valmet shares	in Valmet shares
	and partly in	and partly in cash	and partly in cash
	cash in spring	in spring 2020	in spring 2021
	2019
Total number of	356,624	As at December	Approximate
shares		31, 2019, a	maximum of
		total of 276,648	440,000 shares
		shares were
		allotted to
		participants.

The Board of Directors of Valmet Oyj approved in December 2017 a share ownership recommendation for Valmet’s Executive Team members. All members of the Executive Team are recommended to own and hold an amount of Company shares equaling to their gross annual base salary (100 percent ownership recommendation).

In its meeting on December 20, 2018, the Board of Directors of Valmet decided to use the authorization granted by the General Meeting held on March 21, 2018 to acquire the Company’s own shares. Based on the authorization, the Board decided to initiate a fixed-term share buyback program for the purpose of acquiring the Company’s own shares to meet part of the obligations arising from the LTI Plan and the Restricted Pool incentive plans. The share acquisitions began on February 11, 2019 and ended on February 21, 2019. The number of shares acquired was

194,600. The shares were acquired at market price in public trading on Nasdaq Helsinki Ltd.

In the end of the reporting period, the Company held 246,096 treasury shares related to the share-based incentive programs.

More information about share-based incentive plans can be found in Valmet’s Remuneration Report, which is available at www.valmet.com/governance.

Resolutions of Valmet Oyj’s Annual General Meeting

The Annual General Meeting of Valmet Oyj was held in Helsinki on March 21, 2019. The Annual General Meeting adopted the Financial Statements for 2018 and discharged the members of the Board of Directors and the President and CEO from liability for the 2018 financial year. The Annual General Meeting approved the Board of Directors’ proposals concerning authorizing the Board to decide on repurchasing Company shares and to resolve on the issuance of shares and the issuance of special rights entitling to shares.

The Annual General Meeting confirmed the number of Board members as seven and appointed Mikael Mäkinen as Chairman of Valmet Oyj’s Board and Aaro Cantell as Vice-Chairman. Pekka Kemppainen, Monika Maurer, Eriikka Söderström, Tarja Tyni and Rogério Ziviani will continue as members of the Board. The term of office of the members of the Board of Directors expires at the close of the Annual General Meeting 2020.

PricewaterhouseCoopers Oy, authorized public accountants, was appointed as the Company’s auditor for a term expiring at the end of the next Annual General Meeting.

Valmet published a stock exchange release on March 21, 2019 concerning the resolutions of the Annual General Meeting and the organizing meeting of the Board of Directors. The stock exchange release and an introduction of the new Chairman can be viewed on Valmet’s website at www.valmet.com/agm.

In compliance with the resolution of the Annual General Meeting, on April 4, 2019 Valmet paid out dividends of EUR 97 million for 2018, corresponding to EUR 0.65 per share.

Lawsuits and claims

Several lawsuits, claims and disputes based on various grounds are pending against Valmet in various countries, including product liability lawsuits and claims as well as legal disputes related to Valmet’s deliveries. Valmet is also a plaintiff in several lawsuits.

Valmet announced by stock exchange release on December 22, 2016 that it has received a reassessment decision from the Finnish tax authority for Valmet Technologies Inc. The reassessment decision is a result of a tax audit carried out in the company, concerning tax years 2010–2012. During the first quarter 2017 Valmet paid additional taxes, late payment interests and penalties in total of EUR 19 million related to the reassessment decision. Valmet considers the Finnish tax authority’s decision unfounded and has appealed of the decision.

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Valmet’s management does not expect to the best of its present understanding that the outcome of these lawsuits, claims and disputes will have a material adverse effect on Valmet in view of the grounds currently presented for them, provisions made, insurance coverage in force and the extent of Valmet’s total business activities.

Risks and business uncertainties

Valmet’s operations are affected by various strategic, financial, operational and hazard risks. Valmet takes measures to exploit emerging opportunities and to limit the adverse effects of potential threats. The assessment of risks related to sustainable development holds an important role in risk management. If such threats materialized, they could have material adverse effects on Valmet’s business, financial situation and operating result, or on the value of shares and other securities.

The objective of Valmet’s risk management is to ensure the implementation of an effective and successful strategy for achieving both long- and short-term goals. The task of Valmet’s management is to regulate risk appetite.

In assessing risks, Valmet takes into consideration the probability of the risks and their estimated impact on net sales and financial results. Valmet’s management estimates that the Company’s overall risk level is currently manageable in proportion to the scope of its operations and the practical measures available for managing these risks.

Financial uncertainty in the global economy, coupled with fluctuations in exchange rates and tightening financial market regulations, may have an adverse effect on the availability of financing from banks and capital markets and could reduce the investment appetite of Valmet’s customers. Valmet estimates that the high proportion of business derived from stable business (Services and Automation) and the geographical diversification will reduce the possible negative effects that market uncertainties may have.

If global economic growth weakens, it might have adverse effects on new projects under negotiation or on projects in the order backlog. Some projects may be postponed, suspended, or canceled. In the case of long-term delivery projects, initial customer advance payments are typically 10–30 percent of the value of the project, and customers make progress payments as the project is implemented. This significantly decreases the risks and financing requirements related to Valmet’s projects. Valmet continually assesses its customers’ creditworthiness and their ability to meet their obligations. As a rule, Valmet does not finance customer projects. If economic growth slows down significantly, the markets for Valmet’s products may shrink, which may lead to, for example, tougher price competition.

Changes and uncertainty in future regulation and legislation can also have critical effects, especially on the energy business.

Large fluctuations in energy prices can affect the global economy. These fluctuations can also affect Valmet and its customers, especially in the energy business.

Changes in labor costs and the prices of raw materials and components can affect Valmet’s profitability. Wage inflation is continuing,

but Valmet’s goal is to offset this at least partly through increased productivity and strict price discipline. It is possible, however, that tough competition in some product categories will make it difficult to pass on cost increases to product prices. On the other hand, some of Valmet’s customers are raw material producers and their ability to operate and invest may be enhanced by strengthening commodity prices and hampered by declining commodity prices.

To ensure a high level of quality in both production and services, it is important to sustain a high level of competence and talent availability. This includes, for example, maintaining efficient recruitment programs, utilization of existing talent and sharing knowledge globally.

Through acquisitions, Valmet may become exposed to risks associated with new markets and business environments. The actual acquisition process also includes risks. Other risks associated with acquisitions include, but are not limited to, integration of the acquired business, increased financial risk exposure, retention of key personnel and achieving the targets set for the acquired business.

Management of project business risks important

An important part of Valmet’s business consists of project business. Pulp business projects in particular can be large, thus project-specific risk management is crucial. Key risks related to projects are project cost estimation, scheduling, project risk management, quality and performance risks, and materials management risks. Risk analysis shall, as a minimum, take place for all significant project quotations. The work concerning threat and opportunity assessment continues during the execution phase of the project. Risk management is based on careful planning and continuous, systematic monitoring and evaluation. Project risks are managed by improving and continuously developing project management processes and the related systems.

There may be changes in the competitive situation of Valmet’s individual businesses, such as the emergence of new, cost-effective competition in the markets. Valmet can safeguard its market position by developing its products and services, and through good customer service and local presence.

Availability of financing crucial

Securing the continuity of Valmet’s operations requires sufficient available funding under all circumstances. Valmet estimates that its liquid cash assets and committed credit limits are sufficient to secure its immediate liquidity and to ensure the flexibility of financing. The average maturity of Valmet’s non-current debt, excluding lease liabilities, is 3.1 years. Loan facilities include customary covenants, and Valmet is in clear compliance with the covenants at the balance sheet date.

Net working capital and capital expenditure levels have a key impact on the adequacy of Valmet’s financing. Setting aside investments into the renewal of the ERP system, Valmet does not expect any significant increase in annual capital expenditure. Depreciation expense increased in 2019 following the adoption of the new lease accounting standard (IFRS 16).

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valmet | financial statements 2019 and information for investors

report of the board of directors

Of the financial risks that affect Valmet’s profit, currency exchange rate risks are among the most substantial. Exchange rate changes can affect Valmet’s business, although the wide geographical scope of the Company’s operations reduces the impact of any individual currency. Economic insecurity typically increases exchange rate fluctuations. Valmet hedges its currency exposures linked to firm delivery and purchase agreements.

Changes in legislation and the way authorities interpret regulation, for example regarding taxation, can also have an impact on Valmet’s financials.

At the end of December 2019, Valmet had EUR 687 million (EUR 617 million) of goodwill on its statement of financial position. Valmet assesses the value of its goodwill for impairment annually, or more frequently if facts and circumstances indicate that a risk of impairment exists. Valmet has not identified any indications of impairment during the reporting period. The principles used for impairment testing are presented in the Financial Statements.

Events after the reporting period

Valmet announced on January 21, 2020 that it is planning changes in the Fabrics Business Unit which is part of the Services Business Line in order to secure the unit’s profitability and future competitiveness. The most important action in the preliminary plan is to move the dryer fabric and wide filter fabric production from Tampere in Finland to Valmet’s unit in Portugal. As a consequence of the above, Valmet started co-determination negotiations in Fabrics’ operations in Tampere on January 21, 2020. The co-determination negotiations can result in the reduction of 90 persons at maximum mainly during year 2021 by estimate, and in possible temporary lay-offs and part-time work during 2020.

sentiment, causing global growth to fall below the projected baseline. (International Monetary Fund, January 2020)

Short-term market outlook

Valmet reiterates the good short-term market outlook for services, automation, pulp, and board and paper, and the satisfactory short-term market outlook for energy, and tissue.

Board of Director's proposal for the distribution of profit

Valmet Oyj’s distributable funds on December 31, 2019 totaled EUR 1,165,761,301.98, of which the net profit for 2019 was EUR 196,078,447.45 (according to Finnish Generally Accepted Accounting Standards).

The Board of Directors proposes that a dividend of EUR 0.80 per share be paid based on the statement of financial position to be adopted for the financial year which ended December 31, 2019, and that the remaining part of the profit be retained and carried further in the Company’s unrestricted equity.

The dividend will be paid to shareholders who on the dividend record date March 23, 2020 are registered in the Company’s shareholders’ register held by Euroclear Finland Ltd. The dividend will be paid on April 3, 2020. All the shares in the Company are entitled to a dividend except for treasury shares held by the Company on the dividend record date.

In Espoo on February 5, 2020 Valmet’s Board of Directors

Guidance for 2020

Valmet estimates that net sales in 2020 will increase in comparison with 2019 (EUR 3,547 million) and Comparable EBITA in 2020 will increase in comparison with 2019 (EUR 316 million).

Short-term outlook

General economic outlook

Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent for 2021. Market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit. Downside risks, however, remain prominent, including rising geopolitical tensions, notably between the United States and Iran, intensifying social unrest, further worsening of relations between the United States and its trading partners, and deepening economic frictions between other countries. A materialization of these risks could lead to rapidly deteriorating

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valmet | financial statements 2019 and information for investors

financial indicators

Financial indicators

		As at and for the	twelve months ended Dec 31,	twelve months ended Dec 31,
EUR million	20191	20181	20172	2016	2015
Net sales	3,547	3,325	3,058	2,926	2,928
Net sales change,%	7%	9%	5%	0%	18%
Operating proft	281	211	170	147	120
% of net sales	7.9%	6.4%	5.6%	5.0%	4.1%
Proft before taxes	269	205	158	136	108
% of net sales	7.6%	6.2%	5.2%	4.6%	3.7%
Proft for theperiod	202	152	121	82	78
% of net sales	5.7%	4.6%	4.0%	2.8%	2.7%
Proft attributable to owners of theparent	201	151	121	83	77
Amortization	-34	-30	-31	-35	-37
Depreciation, property, plant and equipment(excl. leased assets)	-48	-46	-49	-51	-55
Depreciation,leased assets	-23	-	-	-	-
Depreciation and amortization	-105	-76	-81	-87	-92
% of net sales	-3.0%	-2.3%	-2.6%	-3.0%	-3.1%
Comparable EBITA	316	257	218	196	182
% of net sales	8.9%	7.7%	7.1%	6.7%	6.2%
EBITA	315	241	202	183	157
% of net sales	8.9%	7.2%	6.6%	6.2%	5.3%
Financial income and expenses, net	-11	-6	-13	-12	-10
% of net sales	-0.3%	-0.2%	-0.4%	-0.4%	-0.3%
Interest expenses	-9	-7	-8	-9	-13
% of net sales	-0.3%	-0.2%	-0.2%	-0.3%	-0.5%
Gross capital expenditure(excl. business combinations and leased assets)	-79	-79	-66	-60	-44
% of net sales	-2.2%	-2.4%	-2.2%	-2.1%	-1.5%
Additions to leased assets	-27	-	-	-	-
Business combinations, net of cash acquired and loans repaid	-163	-2	-	-	-323
Cash fowprovided byoperatingactivities	295	284	291	246	78
Cash fow after investments	58	208	227	188	-287
Research and development expenses, net	-71	-66	-64	-64	-59
% of net sales	-2.0%	-2.0%	-2.1%	-2.2%	-2.0%
Total assets	3,452	2,988	2,908	2,958	2,894
Equityattributable to owners of theparent	1,040	944	913	881	855
Total equity	1,046	949	918	886	860
Interest-bearingliabilities	268	201	219	310	371
Net interest-bearingliabilities	-90	-219	-100	52	178
Net workingcapital(NWC)	-426	-474	-387	-294	-238
Return on equity (ROE), %3	20%	16%	13%	9%	9%
Comparable return on capital employed(ROCE)before taxes,%3	23%	20%	16%	13%	14%
Return on capital employed(ROCE)before taxes,%3	23%	19%	14%	12%	12%
Equityto assets ratio,%	41%	43%	42%	37%	36%
Gearing,%	-9%	-23%	-11%	6%	21%
Orders received	3,986	3,722	3,272	3,139	2,878
Order backlogat end ofyear	3,333	2,829	2,458	2,283	2,074
Average number ofpersonnel	13,235	12,461	12,208	12,261	11,781
Personnel at end ofyear	13,598	12,528	12,268	12,012	12,306

¹ Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated.

2 2017 financials have been presented on restated basis due to the retrospective implementation of IFRS 15 – Revenue from contracts with customers as of January 1, 2018. 3 In the calculation of 2017 figures, non-restated data points from 2016 have been used.

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formulas for calculation of indicators

Formulas for calculation of indicators

In addition to financial performance indicators as defined by IFRS, Valmet publishes certain other widely used measures of performance that can be derived from figures in the Consolidated statement of income and financial position, as well as notes thereto. The formulas for calculation of these alternative performance measures are presented below.

EBITA:

Operating profit + amortization

Comparable EBITA:

Operating profit + amortization +/- items affecting comparability

Equity to assets ratio, %:

Total equity x 100 Balance sheet total - amounts due to customers under revenue contracts Gearing, %: Net interest-bearing liabilities x 100 Total equity

Earnings per share:

Profit attributable to shareholders of the Company Average number of outstanding shares during period

Net interest-bearing liabilities:

Non-current interest-bearing debt + non-current lease liabilities + current interest-bearing debt + current lease liabilities - cash and cash equivalents - other interest-bearing assets

Earnings per share, diluted:

Profit attributable to shareholders of the Company Average number of diluted shares during period

Dividend per share:

Dividend for the financial period Number of shares at end of period

Return on equity (ROE), %:

Profit for the period x 100 Total equity (average for period) Return on capital employed (ROCE) before taxes, %: Profit before taxes + interest and other financial expenses x 100 Balance sheet total - non-interest-bearing liabilities (average for period) Comparable return on capital employed (ROCE) before taxes, %: Profit before taxes + interest and other financial expenses +/- items affecting comparability x 100 Balance sheet total - non-interest-bearing liabilities (average for the period)

Dividend / earnings ratio, %:

Dividend per share x 100 Earnings per share

Effective dividend yield, %:

Dividend per share x 100 Closing share price at end of period

Price / earnings ratio:

Closing share price at end of period Earnings per share

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valmet | financial statements 2019 and information for investors

consolidated financial statements

Consolidated statement of income

		Year ended Dec 31,	Year ended Dec 31,
EUR million	Note	2019	2018
Net sales	2,3	3,547	3,325
Cost ofgoods sold	4,5,7,14	-2,688	-2,561
Grossproft		859	764
Selling, general and administrative expenses	4,5,14,19	-588	-532
Other operatingincome	20	32	14
Other operatingexpenses	20	-22	-36
Share inprofts and losses of associated companies,operative investments	23	-	1
Operating proft		281	211
Financial income	11	4	3
Financial expenses	11	-15	-9
Share inprofts and losses of associated companies,fnancial investments	23	-1	-1
Proft before taxes		269	205
Current tax expense		-64	-47
Deferred taxes		-3	-6
Income taxes, total	17	-67	-53
Proft for theperiod		202	152
Attributable to:
Owners of theparent		201	151
Non-controllinginterests		1	-
Proft for theperiod		202	152
Earnings per share attributable to owners of theparent:
Earningsper share,EUR		1.35	1.01
Diluted earningsper share,EUR		1.35	1.01

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated.

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consolidated financial statements

Consolidated statement of comprehensive income

		Year ended Dec 31,	Year ended Dec 31,
EUR million	Note	2019	2018
Proft for theperiod		202	152
Items that may be reclassifed toproft or loss:
Cash fow hedges	8,10,18	8	-16
Currencytranslation on subsidiarynet investments	18	2	-10
Income tax relatingto items that maybe reclassifed	17	-2	4
Total items that may be reclassifed toproft or loss		8	-23
Items that will not be reclassifed toproft or loss:
Remeasurement of defned beneftplans	16	-13	-15
Income tax relatingto items that will not be reclassifed	17	3	3
Total items that will not be reclassifed toproft or loss		-10	-12
Other comprehensive income for theperiod		-2	-35
Total comprehensive income for theperiod		200	117
Attributable to:
Owners of theparent		200	116
Non-controllinginterests		1	-
Total comprehensive income for theperiod		200	117

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valmet | financial statements 2019 and information for investors

consolidated financial statements

Consolidated statement of financial position

Assets

Assets
		As at Dec 31,
EUR million	Note	2019	2018
Non-current assets
Intangible assets
Goodwill		687	617
Other intangible assets		253	201
Total intangible assets	4	941	818
Property, plant and equipment
Land and water areas		25	24
Buildings and structures		115	117
Machineryand equipment		174	170
Leased assets		65	-
Assets under construction		51	36
Totalproperty, plant and equipment	4,5	429	348
Other non-current assets
Investments in associated companies	23	13	14
Non-current fnancial assets	8,9,10	8	9
Deferred tax assets	17	73	69
Non-current income tax receivables		30	27
Other non-current assets		17	14
Total other non-current assets		141	133
Total non-current assets		1,511	1,299
Current assets
Inventories
Materials and supplies		84	85
Work inprogress		328	265
Finishedproducts		101	69
Total inventories	7	514	419
Receivables and other current assets
Trade receivables	8	656	555
Amounts due from customers under revenue contracts	3	262	169
Other current fnancial assets	8,9,10	59	58
Income tax receivables		27	17
Other receivables		108	95
Cash and cash equivalents	8	316	376
Total receivables and other current assets		1,428	1,271
Total current assets		1,942	1,690
Total assets		3,452	2,988

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated.

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valmet | financial statements 2019 and information for investors

consolidated financial statements

Consolidated statement of financial position

Equity and liabilities

			As at Dec 31,
EUR million	Note	2019		2018
Equity
Share capital		100		100
Reserve for invested unrestricted equity		421		416
Cumulative translation adjustments		-16		-18
Hedge and other reserves		1		-5
Retained earnings		534		451
Equity attributable to owners of theparent	18	1,040		944
Non-controlling interests		6		5
Total equity		1,046		949
Liabilities
Non-current liabilities
Non-current debt	8	159		162
Non-current lease liabilities	5,8	39		-
Post-employment benefts	16	190		163
Non-currentprovisions	12	31		30
Other non-current liabilities	8,10	8		7
Deferred tax liabilities	17	66		50
Total non-current liabilities		492		412
Current liabilities
Currentportion of non-current debt	8	48		39
Current lease liabilities	5,8	22		-
Tradepayables	8	354		286
Currentprovisions	12	142		119
Amounts due to customers under revenue contracts	3	913		771
Other current fnancial liabilities	8,10	14		25
Income tax liabilities		66		42
Other current liabilities	13	356		344
Total current liabilities		1,915		1,628
Total liabilities		2,407		2,039
Total equity and liabilities		3,452		2,988

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated.

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valmet | financial statements 2019 and information for investors

consolidated financial statements

Consolidated statement of cash flows

		Year ended Dec 31,	Year ended Dec 31,
EUR million	Note	2019	2018
Cash fows from operating activities
Proft for theperiod		202	152
Adjustments
Depreciation and amortization	4,5	105	76
Financial income and expenses	11	11	6
Income taxes	17	67	53
Other non-cash items		-4	-39
Change in net workingcapital	6	-28	86
Interestpaid		-8	-5
Interest received		4	2
Income taxespaid		-55	-48
Net cashprovided by (+) / used in(-) operating activities		295	284
Cash fows from investing activities
Capital expenditures on fxed assets	4	-79	-79
Proceeds from sale of fxed assets		6	6
Business combinations,net of cash acquired and loans repaid	21	-163	-2
Net cashprovided by (+) / used in(-) investing activities		-237	-75
Cash fows from fnancing activities
Redemption of own shares		-4	-4
Dividendspaid	18	-97	-82
Proceeds from non-current debt		45	-
Repayments of non-current debt		-40	-18
Repayments of lease liabilities		-25	-
Financial investments		1	-22
Net cashprovided by (+) / used in(-) fnancing activities		-120	-127
Net increase(+)/ decrease(-)in cash and cash equivalents		-62	82
Efect of changes in exchange rates on cash and cash equivalents		2	-2
Cash and cash equivalents at beginningofyear	8	376	296
Cash and cash equivalents at end ofyear		316	376

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated.

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valmet | financial statements 2019 and information for investors

consolidated financial statements

Consolidated statement of changes in equity

		Reserve for				Equity
		invested	Cumulative			attributable
		unrestricted	translation	Hedge and	Retained	to owners of	Non-controlling
EUR million	Share capital	equity	adjustments	other reserves	earnings	the parent	interests	Total equity
Balance at January 1, 2018	100	413	-8	7	400	913	5	918
Change in accounting principles¹	-	-	-	-	-2	-2	-	-2
Restated balance at January 1, 2018	100	413	-8	7	398	911	5	916
Proft for theperiod	-	-	-	-	151	151	-	152
Other comprehensive income for theperiod
Cash fow hedges
Fair valuegains / losses,net of tax	-	-	-	-6	-	-6	-	-6
Transferred to Other operating income /
expenses inproft or loss,net of tax	-	-	-	-7	-	-7	-	-7
Currency translation on subsidiary net
investments	-	-	-10	-	-	-10	-	-10
Remeasurement of defned beneft plans, net
of tax	-	-	-	-	-12	-12	-	-12
Other comprehensive income for theperiod,total	-	-	-10	-13	-12	-35	-	-35
Total comprehensive income for theperiod	-	-	-10	-13	139	116	-	117
Transactions with owners in their capacity as
owners
Dividends	-	-	-	-	-82	-82	-	-82
Purchase of treasuryshares	-	-	-	-	-4	-4	-	-4
Share-basedpayments,net of tax	-	3	-	-	-1	3	-	3
Balance at December 31, 2018	100	416	-18	-5	451	944	5	949
Balance at January 1, 2019	100	416	-18	-5	451	944	5	949
Change in accounting principles²	-	-	-	-	-4	-4	-	-4
Restated balance at January 1, 2019	100	416	-18	-5	447	940	5	945
Proft for theperiod	-	-	-	-	201	201	1	202
Other comprehensive income for theperiod
Cash fow hedges
Fair valuegains / losses,net of tax	-	-	-	-4	-	-4	-	-4
Transferred to Other operating income /
expenses inproft or loss,net of tax	-	-	-	10	-	10	-	10
Currency translation on subsidiary net
investments	-	-	2	-	-	2	-	2
Remeasurement of defned beneft plans, net
of tax	-	-	-	-	-10	-10	-	-10
Other comprehensive income for theperiod,total	-	-	2	7	-10	-2	-	-2
Total comprehensive income for theperiod	-	-	2	7	192	200	1	200
Transactions with owners in their capacity as
owners
Dividends	-	-	-	-	-97	-97	-	-97
Purchase of treasuryshares	-	-	-	-	-4	-4	-	-4
Share-basedpayments,net of tax	-	5	-	-	-3	2	-	2
Balance at December 31, 2019	100	421	-16	1	534	1,040	6	1,046

¹ Net impact arising from the adoption of IFRS 9, EUR -5 million, and amendments to IFRS 2, EUR 3 million, as of January 1, 2018.

² Net impact arising from the adoption of IFRS 16, EUR -3 million, and IFRIC 23, EUR -1 million, as of January 1, 2019.

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

Notes to the consolidated financial statements

1[Basis of preparation ]

General information

Valmet Oyj (the “Company” or the “parent company”), a public limited liability company, and its subsidiaries (together “Valmet,” “Valmet Group” or the “Group”) form a global developer and supplier of process technologies, automation and services for the pulp, paper and energy industries. Valmet Oyj is domiciled in Helsinki, and its registered address is Keilasatama 5, 02150 Espoo, Finland. The Company’s shares are listed on the Nasdaq Helsinki Ltd as of January 2, 2014. The copies of the consolidated financial statements are available at www.valmet.com or the parent company’s head office, Keilasatama 5, 02150 Espoo, Finland. The consolidated financial statements were authorized for issue by Valmet’s Board of Directors on February 5, 2020 after which, in accordance with Finnish Limited Liability Company Act, the financial statements are either approved, amended or rejected in the Annual General Meeting. The consolidated financial statements have been prepared in accordance with the basis of presentation set out below and accounting policies described in connection with each note.

These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopt ed by the European Union. The financial statements figures are presented mainly in millions of euros subject to rounding, which may cause some rounding inaccuracies in aggregate column and row totals.

Associated companies

The consolidated financial statements include associated companies in which Valmet either holds between 20 percent to 50 percent of the voting rights or in which Valmet otherwise has significant influence but not control. Investments in associated companies are accounted for using the equity method of accounting. Investments in associates are initially recorded at cost, and the carrying amount is increased or decreased to recognize Valmet’s share of changes in net assets of the associates after the date of the acquisition. The Group’s investment in associates includes goodwill identified on acquisition. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired.

Valmet’s share of post-acquisition profit or loss is recognized in Consolidated statement of income and its share of post-acquisition movements in other comprehensive income (OCI) is recognized in Consolidated statement of comprehensive income with a corresponding adjustment to the carrying amount of the investment. The share of results of associated companies is presented in Consolidated statement of income either included in Operating profit or adjacent to Financial income and expenses below Operating profit depending on the nature of the investment.

Foreign currency translation

Basis of presentation

Subsidiaries

Subsidiaries are all entities over which Valmet Group has control. Control over an entity exists when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When the Group has less than a majority of the voting or similar rights of an entity, the Group considers all relevant facts and circumstances in assessing whether it has control over an entity, including the contractual arrangement with the other vote holders of the entity, rights arising from other contractual arrangements and the Group’s voting rights and potential voting rights.

The Group reassesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains and losses arising from transactions between Group companies are eliminated.

Items included in the financial statements of each of Valmet Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). These consolidated financial statements are presented in euros, which is the Group’s presentation currency. The statements of income of foreign Group companies are translated into euros using the average exchange rate for the reporting period. The statements of financial position are translated at the closing exchange rate of the reporting date. Translating the net income for the period using different exchange rates in the Consolidated statement of income and in the Consolidated statement of financial position results in a translation difference, which is recognized in the Consolidated statement of comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange rate differences arising are recognized in the Consolidated statement of comprehensive income.

When a subsidiary is disposed of or sold, exchange rate differences that were recorded in equity are recognized in profit or loss as part of the gain or loss on sale.

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the date of transaction. Non-monetary items that are measured at fair value are translated into functional currency using the exchange rate of the transaction date.

Foreign exchange gains and losses resulting from the settlement of such balances and from the translation of monetary assets and liabilities

denominated in foreign currencies at year-end exchange rates, are recognized in Consolidated statement of income. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in Consolidated statement of income within Financial income and expenses. All other foreign exchange gains and losses are presented in Other operating income and expenses.

Key exchange rates:

		Average rates	Average rates	Year-end rates	Year-end rates
		2019	2018	2019	2018
USD	(US dollar)	1.1214	1.1809	1.1234	1.1450
SEK	(Swedish krona)	10.5572	10.2591	10.4468	10.2548
CNY	(Chineseyuan)	7.7353	7.8148	7.8205	7.8751

Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make estimates and exercise judgment in the application of the accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including 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.

Significant accounting policies applied, and critical accounting estimates and judgments made are described adjacent to each note as follows:

• Revenue recognition Note 3 • Intangible assets and property, plant and equipment Note 4 • Leases Note 5 • Inventories Note 7 • Financial assets and liabilities Note 8 • Derivative financial instruments Note 10 • Provisions Note 12 • Post-employment benefit obligations Note 16 • Income taxes Note 17

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notes to the consolidated financial statements

2 Reporting segments and geographic information

Accounting policies

Valmet supplies process automation, machinery, services, clothing and filter fabrics for the pulp, paper and energy industries. The Group’s Chief Operating Decision Maker (CODM) is the President and CEO of Valmet. Valmet’s four business lines are highly integrated through complementing product and service offerings and joint customer projects. Thus, the operations and profitability of Valmet is reported as a single reportable segment with the key operative decisions being made by the CODM at the Valmet Group level.

The performance of the Group is reviewed by the CODM. One key indicator of performance reviewed is Earnings before interest, taxes and amortization (EBITA). Performance is also assessed through Comparable EBITA, i.e. with EBITA excluding certain items of income and expense that reduce the comparability of the Group’s performance from

one period to another. The alternative performance measures of EBITA and Comparable EBITA, are published by Valmet as part of regulated financial information to enable users of the financial information to prepare more meaningful analysis on Valmet’s performance. Items affecting comparability consist of income and expenses arising from activities that amend the capacity of Valmet’s operations, such as restructuring costs and gains or losses on sale of businesses or non-current assets, income and expenses incurred outside Valmet’s normal course of business, such as impairment charges and gains or losses recorded as a result of settlement payments to/from third parties (e.g. penalties incurred as a result of tax audits or settlements to closed lawsuits) as well as expenses arising from changes in legislation expected to affect Valmet temporary only (e.g. customs or other tariffs imposed by authorities on Valmet’s products).

Reconciliation between Comparable EBITA, EBITA and operating profit:

Reconciliation between Comparable EBITA, EBITA and operating proft:
	Year ended Dec 31,
EUR million	2019	2018
Comparable EBITA	316	257
Items afectingcomparabilityin cost of sales
Expenses related to capacityadjustments	-3	-
Expensingof fair value adjustments recognized in business combinations	-2	-
Other items afectingcomparability1	-8	-1
Items afectingcomparabilityin selling, general and administrative expenses
Expenses related to acquisitions	-1	-
Other items afectingcomparability	-	-1
Items afectingcomparabilityin other operatingincome and expenses
Income and expenses arisingfrom unused facilities	-	-5
Other items afectingcomparability1	13	-9
EBITA	315	241
Amortization included in cost of sales
Other intangibles	-1	-1
Amortization included in selling, general and administrative expenses
Intangibles recognized in business combinations	-21	-18
Other intangibles	-12	-10
Operating proft	281	211

1 Includes insurance income and expenses relating to fire at Valmet’s mill in Ovar, Portugal in 2019, and income and expenses arising from settlements of lawsuits, and indirect taxes.

Entity-wide information

Valmet has operations globally in over 35 countries. Measured by net sales, the top three countries in 2019 and 2018 were the USA, China and Finland, which together accounted for 39 percent of total net sales

(42%). Net sales from Finland (the country of domicile) amounted EUR 298 million in 2019 (EUR 285 million).

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notes to the consolidated financial statements

Net sales by destination 2019, EUR 3,547 million

Net sales by destination 2018, EUR 3,325 million

==> picture [76 x 75] intentionally omitted <==

North America EUR 774 million South America EUR 368 million EMEA EUR 1,566 million China EUR 465 million Asia-Pacific EUR 375 million

==> picture [76 x 75] intentionally omitted <==

North America EUR 679 million South America EUR 169 million EMEA EUR 1,545 million China EUR 535 million Asia-Pacific EUR 396 million

Non-current assets by location:

				EMEA
		North	South	excluding
EUR million	Finland	America	America	Finland	China	**Asia-Pacifc **	Non-allocated	Total
2019	233	154	21	122	83	27	771	1,412
2018	197	96	18	91	78	20	707	1,207

Non-current assets comprise intangible assets, property, plant and equipment and investments in associated companies and joint ventures. Non-allocated assets include mainly goodwill, non-current income tax

receivables and other fair value adjustments arising from business combinations that have not been pushed down to adjust the value of assets in the subsidiaries’ books.

Gross capital expenditure (excluding business combinations and leased assets) by location:

	North	South
EUR million	America	America	EMEA	China	Asia-Pacifc	Total
2019	5	4	55	13	2	79
2018	5	3	61	6	4	79

Major customers

Valmet enters into large long-term capital projects which however individually rarely contribute more than 10 percent of annual revenue. In 2019 and 2018 there were no single customer with revenue exceeding 10 percent of net sales.

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notes to the consolidated financial statements

3[Revenue recognition]

Accounting policies

Valmet delivers process automation, machinery, equipment and services for the pulp, paper, energy and other industries. On the capital business side, the Group’s revenue arises from projects, the scope of which ranges from delivery of complete mill facilities on a turnkey basis to single section machine rebuilds, that may or may not include process automation solutions. Service business revenue includes revenue from short-term and long-term maintenance contracts, smaller improvement and modification contracts, rebuilds, as well as sale of spare parts and consumables. Capital and service business revenue largely arises from the same customers with service offering being focused on maintaining installed base of equipment and automation solutions.

Revenue is recognized to depict the transfer of promised goods or services to the customers in an amount that reflects the consideration to which Valmet expects to be entitled to in exchange for those goods or services. The timing and method as well as unit of revenue recognition are determined in accordance with the five-step model of IFRS 15 as follows:

Step 1: Identification of the contract(s) with a customer

Step 2: Identification of the performance obligations in the contract

• Step 3: Determination of the transaction price attached to the contract

• Step 4: Allocation of the transaction price to the performance obligations identified in the contract

• Step 5: Recognition of revenue when (or as) the entity satisfies a performance obligation

In long-term capital projects involving delivery of both equipment and services, one or more performance obligations are identified. The identification of performance obligations depends on the scope of the project and terms of the contracts, and largely follows the level at which quotes are being requested by the customers on capital projects.

In short-term service contracts that involve delivery of a combination of equipment and services, depending on the scope of the contract and terms attached thereto, one or more performance obligations are identified. When scope of the contract involves services provided at the customer site, such as installation, maintenance, technical support or mechanical audits, these are typically considered as a separate performance obligation from delivery of significant equipment and services provided off-site. On the other hand, when services in the scope of the contract are performed at Valmet premises only, such as workshop services, material and services typically cannot be identified separately, and consistently only one performance obligation is identified.

In long-term service contracts where Valmet’s activities are largely performed at the customer’s site, depending on the contract and terms attached thereto, one or more performance obligations are identified.

When the scope of the contract involves various service elements that are sold separately on a stand-alone basis, these elements would typically be determined to consist of performance obligations on their own.

Revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service, either over time or at a point in time.

When Valmet determines that control on goods or services is transferred over time, this is typically based on either that customer simultaneously receives and consumes benefits as Valmet performs, or that Valmet’s performance creates an asset with no alternative use throughout the duration of a contract and Valmet has enforceable right to payment for performance completed to date.

Deliverables within Valmet’s product offering that have the characteristics of the first criterion include mill maintenance services or other field services provided under long-term contracts, in which the receipt and simultaneous consumption by the customer of the benefits of Valmet’s performance can be readily identified. Deliverables with the characteristics of the second criterion include capital projects where the scope of the contract involves design and construction of an asset according to customer specifications. The assets created in these projects do not have alternative use because the design is based on specific customer needs. When revenue is recognized over time, progress towards complete satisfaction of the performance obligation is measured using the cost-to-cost method. The cost-to-cost method is estimated to result in a revenue profile that best depicts the transfer of control on the deliverables to the customer.

Recognition of revenue at a point in time is applicable, among others, in contracts where services are performed at Valmet’s premises, and deliveries of spare parts and consumables. Control of deliverables typically transfers based on the delivery terms used, at the takeover, or at a later point in time when customer acceptance is received.

Valmet’s contracts often involve elements of variable consideration, such as penalties, liquidated damages or performance bonus arrangements. Variable consideration is estimated by using either the expected value or the most likely amount -method, depending on the type of variable element and related contractual terms and conditions. Amount of variable consideration is included in transaction price only to the extent that it is highly probable that a significant reversal of revenue does not occur later. Transaction prices are reassessed at each reporting date. Variable elements are generally allocated proportionately to all performance obligations in the contract, or when terms of the variable payments relate to satisfying a specific performance obligation and allocated amount depicts the amount of consideration to which Valmet expects to be entitled in exchange for transferring related goods or services, variable consideration is allocated to that specific performance obligation, and not all performance obligations in the contract.

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notes to the consolidated financial statements

Valmet provides its customers with standard payment terms. If extended payment terms exceeding one year are offered to customers, the invoiced amount is discounted to its present value and interest income is recognized over the credit term.

When Valmet incurs costs in fulfilling its contractual obligations, these are expensed as incurred, unless costs can be capitalized as inventory. The latter is typically the case in performance obligations for which revenue is recognized at a point in time. Costs to obtain a contract that are expected to be recovered are capitalized when amortization period is over a year. Otherwise, these costs are expensed as incurred.

Critical accounting estimates and judgments

For performance obligations satisfied over time, Valmet uses costto-cost method to recognize revenue as it best depicts the transfer of control to the customer as Valmet performs. Under cost-to-cost method, progress towards complete satisfaction of performance obligation is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated profits, are recorded proportionally as costs are incurred. Management regularly reviews the progress of and execution on performance obligations. As part of the process, management reviews information including, but not limited to, key contractual obligations outstanding, project schedule, identified risks and opportunities, as well as changes in estimates of revenues and costs. A projected loss on a customer contract is recognized in full through profit or loss when it becomes known.

Valmet regularly enters into contracts where the consideration includes one or more variable elements. Variable consideration is estimated by using either the expected value or the most likely amount -method, depending on the type of the arrangement. In making judgments about variable consideration, Valmet considers historical, current and forecast information. Impact of changes in estimates is recognized in revenue in the period when the estimate is updated.

Revenue reporting 2019

Valmet’s revenue is reported on and monitored by management in both business line and area dimension. Paper, and Pulp and Energy business lines’ revenue is derived from large long-term capital projects, for which revenue is mostly recognized over time based on the cost-tocost method. Service business line’s revenue arises from large volume of short-term contracts with relatively low individual value, for which revenue is mainly recognized at a point in time. Automation business line’s revenue consists of long-term contracts and short-term service contracts. The nature of long-term contracts, and therefore also the revenue recognition method, is similar to capital projects although with average contract values being lower. Revenue for short-term service contracts is recognized at a point in time. Nature of revenue in each area in any given reporting period is driven by volume and size of ongoing capital projects.

Net sales by business lines:

Net sales by business lines:
	Year ended Dec 31,
EUR million	2019	2018
Services	1,374	1,219
Automation	341	306
Pulpand Energy	919	863
Paper	913	937
Total	3,547	3,325

Timing of revenue recognition:

Timing of revenue recognition:
	Year ended Dec 31,
EUR million	2019	2018
Performance obligations satisfed at apoint in time	1,576	1,503
Performance obligations satisfed over time	1,971	1,822
Total	3,547	3,325

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notes to the consolidated financial statements

In order to mitigate credit risk and compensate for contract costs incurred upfront, Valmet regularly requires advance payments from its customers. During the reporting period Valmet had not entered into any material contracts where the period between when Valmet transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or more. Neither were there any ongoing projects from previous reporting periods for which the former would apply.

The creditworthiness of a customer is verified before entering into a contract. However, if a risk of non-payment arises after contract inception, the probability of collection of consideration is re-evaluated and if assessed improbable, recognition of revenue is discontinued. An allowance for non-collectability of open receivables and contract assets is established as concluded appropriate.

Valmet receives payments from customers based on invoicing schedules as set out in the customer contracts. Changes in contract assets and

liabilities are due to Valmet’s performance under the contracts. Amounts due from customers under revenue contracts primarily relate to Valmet’s right to consideration for work completed but not yet invoiced at the reporting date. These assets are transferred to trade receivables when right to consideration becomes unconditional, which is typically at the time when Valmet has contractual right to issue an invoice. Significant part of amounts due to customers relate to advance consideration received from customer in long-term capital contracts for which revenue is recognized over time. These amounts are recognized as revenue as (or when) Valmet performs under the contracts.

Following tables provide specification of movements in amounts due from customers under revenue contracts and amounts due to customers under revenue contracts over the reporting period. Revenue recognized in the period also includes revenue recognized related to performance obligations satisfied in previous periods, the amount of which however is insignificant.

Amounts due from customers under revenue contracts:

Amounts due from customers under revenue contracts:
EUR million	2019	2018
Balance at the beginningof theperiod	169	164
Translation diferences	2	-4
Acquired in business combinations	7	-
Revenue recognized in theperiod	875	594
Transfers to trade receivables	-790	-585
Balance at the end ofperiod	263	169

Amounts due to customers under revenue contracts:

Amounts due to customers under revenue contracts:
EUR million	2019	2018
Balance at the beginningof theperiod	771	716
Translation diferences	-5	-4
Acquired in business combinations	13	-
Revenue recognized in theperiod	-1,541	-1,680
Consideration invoiced and/or received	1,675	1,739
Balance at the end ofperiod	913	771

	As at Dec 31,
EUR million	2019	2018
Amounts due to customers under revenue contracts for which revenue is recognized
Point in time	262	219
Over time	651	552
Carrying value at the end ofperiod	913	771

Valmet typically issues contractual product warranties under which it guarantees the mechanical functioning of equipment delivered during the agreed warranty period. Valmet does not issue service-type warranties.

The aggregate amount of transaction price allocated to unsatisfied or partially satisfied performance obligations as of December 31, 2019 is EUR 3,333 million.

As the end of 2019, Valmet had no costs to obtain or fulfil contracts capitalized under IFRS 15.

34

valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

4 Intangible assets and property, plant and equipment

Accounting policies

Fixed assets consist of intangible assets and property, plant and equipment. Intangible assets, which comprise mainly goodwill, software, patents and licenses, are stated at historical cost less accumulated amortization and impairment losses, if any. Goodwill is not amortized, but tested for impairment.

Property, plant and equipment is stated at historical cost, less accumulated depreciation and impairment losses, if any. Land and water areas are not depreciated.

Subsequent improvement costs related to an asset are included in the carrying value of such an asset or recognized as a separate asset, as appropriate, only when the future economic benefits associated with the costs are probable, and the related costs can be separated from normal maintenance costs.

Depreciation and amortization

Amortization of intangible assets with a definite useful life is calculated on a straight-line basis over the expected economic lives of the assets, being the following:

Patents and licenses	5–10 years
Sofware	3–5 years
Technology	3–15 years
Customer relationships	3–15 years
Other intangibles	3–15 years

Depreciation of property, plant and equipment is calculated on a straight-line basis over the expected useful lives of the assets, being the following:

Buildings and structures	15–40 years
Machinery and equipment	3–20 years

Expected useful lives are reviewed at each balance sheet date and if they differ significantly from previous estimates the remaining depreciation periods are adjusted accordingly.

Impairment

The carrying value of fixed assets subject to amortization or depreciation is reviewed for impairment whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverable amount of an asset is the higher of its fair value and its value in use. An asset is impaired if its carrying amount exceeds its recoverable amount, at which time an impairment loss is recognized in the Consolidated statement of income in Other operating

expenses. The previously recognized impairment loss may be reversed if, and only if, there is exceptional and significant improvement in the circumstances having initially caused the impairment.

The carrying value of goodwill is reviewed for impairment annually or more frequently, if the facts and circumstances, such as decline in sales, operating profit or cash flows or material adverse changes in the business environment, suggest that carrying value may not be recoverable. Valmet has three cash generating units (CGUs) that establish the first aggregation levels at which impairment testing can be done. The testing of goodwill for impairment is performed at the CGU level as goodwill does not generate cash flows independent from the CGUs. Valmet uses value in use method to measure the recoverable amount of goodwill subject to testing. Value in use is estimated through discounted cash flow method. A previously recognized impairment loss on goodwill is not reversed even if there is significant improvement in circumstances having initially caused the impairment.

Critical accounting estimates and judgments

Impairment testing

Preparation of impairment analysis requires use of numerous estimates. The valuation is inherently judgmental and highly susceptible to change from period to period, because it requires management to make assumptions about future supply and demand related to its individual business units, future sales prices and achievable cost levels. The value of the benefits and savings expected from the efficiency improvement programs are inherently subjective. All outsized improvements are excluded from future cash inflows and outflows. The value in use of a cash generating unit is determined by discounting estimated future cash flows with a discount rate approximating the weighted average cost of capital (WACC).

The WACC is based on comparable peer industry betas and capital structure. It is additionally adjusted with specific risks associated with the estimated cash flows and therefore the rate may not be indicative of actual rates obtained in the market.

Triggering events for impairment reviews at Valmet include the following:

• Material permanent deterioration in the economic or political environment of the customers’ or of own activity

• Business’s or asset’s significant under-performance relative to historical or projected future performance

• Significant changes in Valmet’s strategic orientations affecting the business plans and previous investment policies.

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notes to the consolidated financial statements

Intangible assets:

		Patents and	Capitalized	Other
EUR million	Goodwill	licenses	software	intangible assets	Total
2018
Acquisition cost at beginningof theperiod	614	33	77	446	1,169
Translation diferences	-	-	-	-3	-2
Capital expenditure	-	-	-	26	26
Acquired in business combinations	3	-	-	2	4
Retirements	-	-2	-3	-	-5
Reclassifcations	-	2	26	-28	-
Other changes and disposals	-	3	-	-	3
Acquisition cost at end of theperiod	617	36	101	443	1,196
Accumulated amortization at beginningof theperiod	-	-25	-65	-266	-355
Translation diferences	-	-	-	2	2
Amortization charges for theperiod	-	-2	-8	-20	-30
Impairment losses	-	-1	-	-	-1
Retirements	-	2	3	-	5
Other changes and disposals	-	-	-	-	-
Accumulated amortization at end of theperiod	-	-25	-70	-283	-378
Carrying value at end of theperiod	617	11	30	160	818

		Patents and	Capitalized	Other
EUR million	Goodwill	licenses	software	intangible assets	Total
2019
Acquisition cost at beginningof theperiod	617	36	101	443	1,196
Translation diferences	1	-	-	-1	1
Capital expenditure	-	-	-	22	23
Acquired in business combinations	69	-	-	75	144
Retirements	-	-1	-	-	-1
Reclassifcations	-	6	27	-40	-6
Other changes and disposals1	-	-	-	-10	-10
Acquisition cost at end of theperiod	687	42	128	489	1,346
Accumulated amortization at beginningof theperiod	-	-25	-70	-283	-378
Translation diferences	-	-	-	1	-
Amortization charges for theperiod	-	-3	-9	-21	-34
Impairment losses	-	-	-	-	-
Retirements	-	1	-	-	1
Other changes and disposals1	-	-	-	6	6
Accumulated amortization at end of theperiod	-	-28	-79	-298	-405
Carrying value at end of theperiod	687	14	49	191	941

¹ Includes reclassification of land areas in the amount of EUR 8 million to leased assets.

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notes to the consolidated financial statements

Property, plant and equipment (excluding leased assets):

	Land and	Buildings and	Machinery and	Assets under
EUR million	water areas	structures	equipment	construction	Total
2018
Acquisition cost at beginningof theperiod	25	398	867	35	1,325
Translation diferences	-	-3	-4	-	-7
Capital expenditure	1	2	4	47	53
Acquired in business combinations	-	-	-	-	-
Disposals	-4	-29	-5	-	-39
Retirements	-	-3	-16	-	-19
Reclassifcations	2	9	33	-44	-
Other changes	-	-	-7	-1	-8
Acquisition cost at end of theperiod	24	373	873	36	1,306
Accumulated depreciation at beginningof theperiod	-	-274	-697	-	-971
Translation diferences	-	1	2	-	3
Depreciation charges for theperiod	-	-11	-35	-	-46
Impairment losses	-	-1	-	-	-1
Disposals	-	27	5	-	32
Retirements	-	3	16	-	19
Other changes	-	-	7	-	7
Accumulated depreciation at end of theperiod	-	-256	-703	-	-958
Carrying value at end of theperiod	24	117	170	36	348

	Land and	Buildings and	Machinery and	Assets under
EUR million	water areas	structures	equipment	construction Total
2019
Acquisition cost at beginningof theperiod	24	373	873	36 1,306
Translation diferences	-	1	3	- 4
Capital expenditure	-	-	5	51 57
Acquired in business combinations	1	2	6	1 10
Disposals	-	-2	-9	- -12
Retirements	-	-	-12	- -12
Reclassifcations	-	8	34	-38 4
Other changes	-	-	1	- 1
Acquisition cost at end of theperiod	25	381	900	51 1,357
Accumulated depreciation at beginningof theperiod	-	-256	-703	- -958
Translation diferences	-	-	-2	- -2
Depreciation charges for theperiod	-	-12	-36	- -48
Impairment losses	-	-	-1	- -2
Disposals	-	2	8	- 10
Retirements	-	-	12	- 12
Other changes	-	-1	-3	- -4
Accumulated depreciation at end of theperiod	-	-267	-726	- -993
Carrying value at end of theperiod	25	115	174	51 365

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notes to the consolidated financial statements

Depreciation and amortization 2019, EUR 105 million

Depreciation and amortization 2018, EUR 76 million

==> picture [75 x 80] intentionally omitted <==

Intangible assets EUR 34 million Buildings and structures EUR 12 million Machinery and equipment EUR 36 million Leased assets EUR 23 million

==> picture [78 x 76] intentionally omitted <==

Intangible assets EUR 30 million Buildings and structures EUR 11 million Machinery and equipment EUR 35 million

Depreciation and amortization by function are as follows:

Depreciation and amortization by function are as follows:
	Year ended Dec 31,
EUR million	2019	2018
Cost ofgoods sold	-47	-36
Selling, general and administrative expenses
Marketingand selling	-7	-7
Research and development	-4	-4
Administrative	-47	-29
Total	-105	-76

Goodwill impairment testing

At the acquisition date goodwill arising from business acquisitions is allocated to the cash generating unit or cash generating units expected to benefit from the synergies of the combination, irrespective of whether other assets and/or liabilities of the acquiree are assigned to the CGU or CGUs.

In 2019 and 2018 Valmet has identified three CGUs. The first CGU comprises of Valmet’s Paper business line and the paper business related part of Valmet’s service business. The second CGU comprises of Valmet’s Pulp and Energy business line and the pulp and energy related part of Valmet’s service business. The third CGU consists of Valmet’s Automation business line.

Valmet assesses the value of its goodwill for impairment annually or more frequently, if facts and circumstances indicate, that a risk of impairment exists. If any such indication exists, then the carrying value of the CGU is compared to its recoverable amount, which is determined based on a value in use calculation. This calculation uses pre-tax cash flow projections based on financial budgets approved by Valmet’s management and Board of Directors covering a three-year period.

The following table sets out the allocation of goodwill as at December 31, 2019 and 2018 and the key assumptions applied in the value in use calculations (in both financial years, testing was performed as at September 30).

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notes to the consolidated financial statements

Allocation of goodwill:

Allocation of goodwill:
		As at Dec 31,
EUR million	2019		2018
Paper business line and thepaper business relatedpart of Valmet’s service business	180		166
Pulpand Energybusiness line and thepulpand energyrelatedpart of Valmet’s service business	341		285
Automation business line	166		166
Total	687		617

Key assumptions applied:

Key assumptions applied:
	2019	2018
Longtermgrowth rate, (%)
Paper business line and thepaper business relatedpart of Valmet’s service business	1.7%	1.7%
Pulpand Energybusiness line and thepulpand energyrelatedpart of Valmet’s service business	1.3%	1.2%
Automation business line	1.0%	1.0%
Pre-tax discount rate, (%)
Paper business line and thepaper business relatedpart of Valmet’s service business	9.9%	9.8%
Pulpand Energybusiness line and thepulpand energyrelatedpart of Valmet’s service business	9.6%	10.4%
Automation business line	9.3%	9.4%

The key assumptions are based on past performance and management’s and Board of Directors’ expectations on market development. Assumptions on product mix are in line with the Group’s financial targets with stable business growth exceeding that of capital business. Profitability margin assumptions are reflecting improvement similarly in line with the Group’s financial targets as communicated. External sources are also used to obtain data on growth and demand, as well as price development in establishing the assumptions. The discount rate used in testing is derived from the weighted average cost of capital based on comparable peer industry betas and capital structure. The assumptions requiring most judgment are the market development and product mix.

As a result of the annual impairment tests, no impairment loss was recognized on goodwill in 2019, or in 2018.

Sensitivity analysis

Valmet’s management has assessed that no reasonably possible change in any of the key assumptions would cause any of the CGU’s carrying amount to exceed its recoverable amount.

A change in a key assumption that would cause the recoverable amount to equal the carrying amount of each one of the CGU is presented in the table below.

Sensitivities on key assumptions:

	Change
EBITDA
Paper business line and thepaper business relatedpart of Valmet’s service business	decrease more than 45percent
Pulpand Energybusiness line and thepulpand energyrelatedpart of Valmet’s service business	decrease more than 50percent
Automation business line	decrease more than 50percent
Pre-tax discount rate, (%)
Paper business line and thepaper business relatedpart of Valmet’s service business	increase to more than 40percent
Pulpand Energybusiness line and thepulpand energyrelatedpart of Valmet’s service business	increase to more than 35percent
Automation business line	increase to more than 23percent

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

5[Leases]

Transition to IFRS 16 – Leases

Valmet adopted IFRS 16 – Leases as of January 1, 2019. IFRS 16 replaced IAS 17 – Leases and related interpretations concerning the principles for the recognition, measurement, presentation and disclosure of leases. Under IFRS 16 – Leases, a right-of-use asset and a corresponding lease liability is recognized for all identified leases, except for short-term leases with a lease term of 12 months or less and leases of low-value assets.

On adoption Valmet applied the simplified retrospective approach with the practical expedients provided by IFRS 16 as described below. The cumulative effect of adopting IFRS 16 was recognized in the opening balance of Retained earnings as at January 1, 2019, and prior periods were not restated. Valmet recognized lease liabilities in relation to leases which had under the principles of IAS 17 been classified as operating leases. Valmet used hindsight when assessing lease term for lease contracts that contained options to extend or terminate the lease. Further, the likely lease terms for open-ended contracts were revised

at transition. Exemptions provided for recognition of right-of-use asset and corresponding liability for leases of low-value assets and short-term leases were also applied at transition.

Right-of-use asset was measured as if IFRS 16 had been applied from lease commencement. Lease liabilities were measured at the present value of the future unpaid lease payments discounted using incremental borrowing rates at the date of initial application. The weighted average discount rate at transition was 3.3 percent. The recognized right-of-use asset and lease liability are presented under Property, plant and equipment and Non-current and Current liabilities, respectively. Valmet’s operating lease commitments under the principles of IAS 17 – Leases amounted to EUR 57 million as at December 31, 2018, and adoption of IFRS 16 has not had a significant effect in the scope of contracts identified as leases. Below table presents the cumulative effect to the Consolidated statement of financial position from the initial application of IFRS 16.

EUR million	As at Jan 1, 2019
Recognition of right-of-use assets to Property, plant and equipment1	55
Recognition of lease liabilities	-53
Increase in Deferred tax assets	1
Transition adjustment to Retained earnings	-3

¹ Includes reclassification of leased land areas in the amount of EUR 8 million from intangible assets at transition.

Impact of adoption of IFRS 16 to key ratios:

Impact of adoption of IFRS 16 to key ratios:
	2019 excluding
EUR million	IFRS 16 impact	2019
Capital employed	1,257	1,314
Interest-bearingliabilities	207	268
Net interest-bearingliabilities	-151	-90
Gearing	-14%	-9%
Equityto assets ratio	42%	41%

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

Accounting policies

Under IFRS 16 – Leases, Valmet assesses at the inception of a contract whether it is or contains a lease. Contract is considered to contain a lease if it conveys a right to use an either explicitly or implicitly identified asset for a period of time in exchange for consideration. In lease contracts where Valmet is the lessee, a right-of-use asset and a lease liability is recognized at lease commencement date to reflect Valmet’s right to use the underlying asset and unpaid future lease payments respectively. These are presented under Property, plant and equipment and Non-current and Current liabilities.

Lease liability is initially measured at an amount equal to the present value of the future lease payments that are not yet paid at the commencement date. As interest rate implicit in the contract is not commonly readily available, incremental borrowing rates reflecting entity-specific factors and lease term are applied to all lease contracts at Valmet when calculating the present value of lease liability and interest expense. Incremental borrowing rates are estimated based on market prices adjusted with calculated margins representing the entity-specific factors such as credit and country risk.

Critical accounting estimates and judgments

Valmet has a significant volume of open-ended real estate lease contracts which carry a short notice period only, or which have an initial fixed term but carry extension or termination options. Estimating the likely lease term for these contracts and assessing if the options will be exercised requires significant judgement. When assessing the lease term for these contracts, management considers the relevant facts and circumstances. The likely lease term is typically assessed following the three-year financial forecasts established by management. In case there are specific circumstances in place, such as beneficial market rates, significant leasehold improvements, or other significant direct or indirect costs associated with exiting the lease, lease term can be above three years. Considering other than real estate leases, the need for assets leased under open-ended contracts is commonly short-term in nature, and as such open-ended contracts where the notice period is 12 months or less are accounted for as short-term leases.

In subsequent periods the lease liability is measured using the effective interest rate method, and the carrying amount of lease liability is increased with the interest on the lease liability, reduced with the amount of lease payments made, and adjusted to reflect any reassessments or lease modifications made. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset. Variable lease payments not based on index or rate are not included in the liability but are expensed as incurred.

A right-of-use asset is initially measured at cost comprising of the amount of the initial measurement of the lease liability and any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs incurred by Valmet, and restoration costs. Subsequently the right-of-use asset is depreciated on a straight-line basis over the shorter of lease term or the useful life of the asset.

Valmet applies exemptions provided by the standard not to recognize a right-of-use asset and corresponding lease liability for leases with a contract term of 12 months or less, and for leases of low-value assets. The payments for these leases are recognized as an expense on a straight-line basis over the lease term. Further, Valmet separates nonlease components from lease components only for asset classes in which the amount of non-lease components is significant.

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notes to the consolidated financial statements

Valmet’s leasing activities

Majority of Valmet’s lease arrangements concern real estate, vehicles, and machinery and equipment located primarily on Valmet’s premises. The length of these lease arrangement is typically 3 to 5 years and contracts may include options to extend the lease. Before adoption of IFRS 16 these arrangements were mainly classified as operating leases,

and lease expenses were recognized to profit or loss on a straight-line basis over the period of use.

The below tables present the right-of-use assets recognized in the Consolidated statement of financial position and the movements during the period and the future minimum lease payments as at December 31, 2019.

==> picture [524 x 112] intentionally omitted <==

----- Start of picture text -----

|||||||
|---|---|---|---|---|---|
|Land and water|Buildings and|Machinery and|Leased assets|
|EUR million|areas|[1]|structures|equipment|total|
|2019|
|Carrying value at transition|9|34|12|55|
|-|-|-|-|
|Translation differences|
|Additions|-|16|10|27|
|Acquired in business combinations|-|6|1|7|
|Depreciation|-|-15|-8|-23|
|Other changes|-|-1|-|-1|
|Carrying value at end of the period|8|41|16|65|

----- End of picture text -----

¹ Includes reclassification of leased land areas in the amount of EUR 8 million from intangible assets at transition.

==> picture [525 x 92] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|EUR million|As at Dec 31, 2019|
|Not later than 1 year|23|
|Later than 1 year and not later than 2 years|17|
|Later than 2 years and not later than 3 years|11|
|Later than 3 years and not later than 4 years|6|
|Later than 4 years and not later than 5 years|3|
|Later than 5 years|9|
|Total future lease payments|68|

----- End of picture text -----

Lease payments related to short-term leases and leases of low-value assets, as well as variable lease payments that are not based on index or rate, are not included in the lease liability but are recognized as an expense as incurred in either Cost of goods sold or Selling, general and administra-

tive expenses based on the nature of underlying asset. The below table presents lease payments for such leases. Interest expense related to leases included in Financial expenses is presented in Note 11.

==> picture [525 x 68] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|Year ended|
|EUR million|Dec 31, 2019|
|Expenses related to short-term leases|-4|
|Expenses related to leases of low-value assets|-5|
|Expenses related to variable lease payments not included in lease liabilities|-1|
|Total lease related expenses|-9|

----- End of picture text -----

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notes to the consolidated financial statements

6[Net working capital ]

Valmet’s net working capital is typically negative due to advance payments received from customers related to long-term capital projects. Calculation of net working capital does not include non-operative items

such as taxes, interest-bearing assets and liabilities, or other items related to funding of the Group’s operations.

	Year ended Dec 31,	Year ended Dec 31,	Impact
EUR million	2019	2018	2019
Assets included in net working capital
Other non-current assets	17	14	-4
Inventories	514	419	-95
Trade receivables	656	555	-101
Amounts due from customers under revenue contracts	262	169	-93
Derivative fnancial instruments(assets)	21	19	-2
Other receivables	108	95	-13
Liabilities included in net working capital
Post-employment benefts	-190	-163	26
Provisions	-173	-149	23
Other non-current non-interest-bearingliabilities	-3	-3	-
Tradepayables	-354	-286	68
Amounts due to customers under revenue contracts	-913	-771	142
Derivative fnancial instruments(liabilities)	-19	-29	-10
Other current liabilities	-355	-343	12
Total net working capital	-426	-474	-47
Efect of foreign exchange rates			2
Change in allowance for doubtful receivables and inventoryobsolescenceprovision			-
Acquired in business combinations			18
Change in net working capital in the Consolidated statement of cash fows			-28

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notes to the consolidated financial statements

7[Inventories ]

Accounting policies

Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated amount that can be realized from the sale of the asset in the normal course of business after allowing for the costs of sale. For materials and supplies and finished products, cost is determined mainly on a first in, first out (FIFO) basis.

Critical accounting estimates and judgments

Provision for slow-moving and obsolete inventory is based on the best estimate of such amounts at the balance sheet date. The estimate is based on a systematic ongoing review and evaluation of inventory balances. As part of this evaluation, Valmet also considers the composition and age of the inventory compared to anticipated future needs.

Specification of changes in inventory obsolescence provision:

Specifcation of changes in inventory obsolescence provision:
EUR million	2019	2018
Balance at beginningof theperiod	28	29
Additions charged toproft or loss	8	9
Acquired in business combinations	2	-
Used reserve	-1	-4
Reversal of reserve	-7	-6
Balance at end of theperiod	29	28

The cost of inventories recognized as expense was EUR 2,578 million and EUR 2,471 million for the years ended December 31, 2019 and 2018, respectively.

The Work in progress balance as of the balance sheet date includes specific costs identified for ongoing capital and service projects, for which revenue is recognized at a point in time. These costs usually

include direct inventory costs and absorption of engineering, supplies, manufacturing and project management costs. As of December 31, 2019, the Work in progress amounted to EUR 328 million (EUR 265 million) and Total inventories amounted to EUR 514 million (EUR 419 million).

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notes to the consolidated financial statements

8[Financial assets and liabilities ]

Accounting policies

Valmet classifies its financial assets into the following categories: At amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. Measurement category of financial assets is determined based on related business model and contractual cash flow characteristics of a given instrument. Financial assets are derecognized when the contractual rights to cash flows have expired, or the rights to cash flows together with substantially all risks and rewards of ownership, have transferred.

Financial liabilities are classified either at amortized cost or at fair value through profit or loss. Financial liabilities are derecognized when they are extinguished, that is when the obligation specified in the contract is discharged, cancelled or expires.

For other financial assets and liabilities than derivatives, settlement date accounting is applied. Both financial assets and liabilities are presented as non-current when their maturity exceeds 12 months.

Financial assets at amortized cost

The Group’s financial assets measured at amortized cost include trade, loan and other receivables together with cash and cash equivalents. These assets are recognized initially at fair value including transaction costs. Trade receivables are the most significant of these assets, and for them the fair value equals to the original amount invoiced to customers, net of allowance for expected credit losses. Subsequently the assets are recognized at amortized cost using the effective interest rate method. If extended payment terms exceeding one year are offered to counterparty, the receivable is discounted to present value and interest income is recognized over the credit term.

Valmet evaluates changes in credit risk associated with different financial assets at each reporting date as required by general impairment guidelines set out in IFRS 9. If credit risk has not changed significantly since initial recognition, allowance amounting to expected credit losses for next 12 months is recognized. Should the credit risk have changed significantly, valuation of allowance is based on lifetime expected credit losses.

For trade receivables and contract assets arising from customer contracts for which revenue is recognized over time, simplified impairment model is applied and valuation of allowance is based on lifetime expected credit losses which are recognized at the time of the initial recognition of an asset. Valmet’s application of the simplified impairment model considers historical credit loss experience, time value of money and forward-looking information relevant to estimate future credit losses, and the inputs used in the model are updated on a regular basis. The model applied includes statistical model together with an option to apply case-by-case analysis for significant trade receivables overdue more than 90 days. Final bad debts are written off when official announcement of receivership, liquidation or bankruptcy is received

confirming that the receivable will not be honored by the customer. Changes in allowance together with final bad debts are reported under Other operating income and expenses.

Financial assets at fair value through other comprehensive income

Majority of Valmet’s financial assets measured at fair value through other comprehensive income are interest-bearing financial assets managed centrally by the Group treasury. Business model for these assets involves both holding until maturity and selling before maturity date approaches, depending on prevailing market circumstances and Group treasury’s operational requirements. Gains and losses from these assets are recognized in the fair value reserve of Equity and at derecognition these are recycled through OCI to Consolidated statement of income.

Valmet also applies fair value through other comprehensive income option to a certain equity investment in a publicly traded company, due to strategic nature of the ownership. Change in fair value of the related shares is also recognized in the fair value reserve of Equity. Should the investment be divested in the future, any cumulative gain or loss remains in Equity, and is not recycled through OCI to Consolidated statement of income. Any dividend income arising from this equity investment is recognized in Consolidated statement of income. Fair value of the equity investment classified at fair value through other comprehensive income as at December 31, 2019 was EUR 1 million (EUR 1 million).

Financial assets and liabilities at fair value through profit or loss

Majority of the Group’s financial assets and liabilities measured at fair value through profit or loss are derivative financial instruments and the related accounting policies are presented in Note 10. Valmet’s other equity holdings, excluding one strategic equity investment, include various industrial participations, shares in real estate holdings and other shares which are measured at fair value through profit or loss. For these other equity ownerships, if reliable market value does not exist, historical cost is considered best available estimate of fair value. Valmet has not voluntarily assigned any financial assets or liabilities to be measured at fair value in addition to items designated to this category mandatorily in accordance with IFRS 9.

Financial liabilities at amortized cost

Valmet’s financial liabilities measured at amortized cost consist of loans from financial institutions, lease liabilities and trade payables. Loans from financial institutions are initially recognized at fair value as at the settlement date, net of transaction costs incurred. Subsequently these liabilities are measured at amortized cost by using the effective interest rate method. Loans from financial institutions are classified as current liabilities unless Valmet has an unconditional right to defer

45

valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

settlement of the liability for at least 12 months after the balance sheet date. Accounting policies for leases are presented in Note 5.

Fair value estimation

For those financial assets and liabilities, which have been recognized at fair value in the Consolidated statement of financial position, the measurement hierarchy and valuation methods described below have been applied. There have been no transfers between fair value levels.

Level 1

Quoted unadjusted prices at reporting date in active markets. The market prices are readily and regularly available from an exchange, dealer, broker, market data provider, pricing service or regulatory agency. The quoted market price used for financial assets is the current bid price. Level 1 financial instruments include equity and interest-bearing assets classified as financial assets at fair value through other comprehensive income.

Level 2

The fair value of financial instruments in Level 2 is determined using valuation techniques. These techniques utilize observable market data readily and regularly available from an exchange, dealer, broker, market data provider, pricing service or regulatory agency. Level 2 financial instruments include over-the-counter (OTC) derivatives classified as financial assets and liabilities at fair value through profit or loss or at fair value through other comprehensive income, when these qualify for hedge accounting.

Level 3

A financial instrument is categorized into Level 3 if the calculation of the fair value cannot be based on observable market data. There were no changes in Level 3 instruments for the 12 months ended December 31, 2019.

Critical accounting estimates and judgments

Under the simplified impairment model applied to trade receivables and contract assets, an allowance amounting to lifetime expected credit losses is recognized at the time of the initial recognition of an asset. The amount of this allowance is estimated based on a model that considers historical credit loss experience, time value of money and forward-looking information relevant to estimate future credit losses. The inputs used in the model are updated on a regular basis.

Application of the guidance for impairment of financial assets, in particular estimation of future expected credit losses and application of case-by-case analysis to significant trade receivables overdue more than 90 days, requires significant management judgment and includes consideration of available customer and market information. Resulting impairment of financial assets is best estimate based on information available and may differ from the actual result.

Classification of financial assets and liabilities as at December 31:

		At fair value		Derivatives
	At amortized	through other comprehensive	At fair value through proft	qualifed for hedge			Fair value
EUR million	cost	income	or loss	accounting	Carrying value	Fair value	level
2019
Non-current fnancial assets
Equityinvestments	-	3	-	-	3	3	1,3
Loan receivables	-	-	-	-	1	1	2
Derivative fnancial instruments	-	-	-	4	4	4	2
Total	-	3	-	4	8	8
Current fnancial assets
Interest-bearingfnancial assets	-	-	42	-	42	42	1
Trade receivables	656	-	-	-	656	656	2
Derivative fnancial instruments	-	-	3	14	17	17	2
Cash and cash equivalents	316	-	-	-	316	316	2
Total	972	-	45	14	1,031	1,031

46

valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

		Derivatives
	At fair value through proft	qualifed for hedge
EUR million	At amortized cost or loss	accounting Carrying value Fair value Fair value level
2019
Non-current fnancial liabilities
Loans from fnancial institutions	159 -	- 159 160 2
Lease liabilities	39 -	- 39 39 2
Derivative fnancial instruments1	- -	5 5 5 2
Total	198 -	5 202 203
Current fnancial liabilities
Loans from fnancial institutions	48 -	- 48 48 2
Lease liabilities	22 -	- 22 22 2
Tradepayables	354 -	- 354 354 2
Derivative fnancial instruments	- 5	9 14 14 2
Total	424 5	9 439 439

		At fair value		Derivatives
	At amortized	through other comprehensive	At fair value through proft	qualifed for hedge			Fair value
EUR million	cost	income	or loss	accounting	Carrying value	Fair value	level
2018
Non-current fnancial assets
Equityinvestments	-	3	-	-	3	3	1,3
Loan receivables	-	-	-	-	1	1	2
Derivative fnancial instruments	-	-	-	5	5	5	2
Total	-	3	1	5	9	9
Current fnancial assets
Interest-bearingfnancial assets	-	41	3	-	44	44	1,2
Trade receivables	555	-	-	-	555	555	2
Derivative fnancial instruments	-	-	5	9	14	14	2
Cash and cash equivalents	376	-	-	-	376	376	1,2
Total	931	41	8	9	989	989

		At fair value	Derivatives
	At amortized	through proft	qualifed for
EUR million	cost	or loss	hedge accounting	Carrying value	Fair value	Fair value level
2018
Non-current fnancial liabilities
Loans from fnancial institutions	162	-	-	162	164	2
Derivative fnancial instruments1	-	-	3	4	4	2
Total	162	-	3	166	168
Current fnancial liabilities
Loans from fnancial institutions	39	-	-	39	39	2
Tradepayables	286	-	-	286	286	2
Derivative fnancial instruments	-	8	17	25	25	2
Total	326	8	17	351	351

1 Included in Other non-current liabilities in the Consolidated statement of financial position.

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

Non-current equity investments comprise EUR 1 million listed shares (EUR 1 million) and various industrial participations, shares in real-estate holdings and other shares amounting to EUR 2 million as at December 31, 2019 (EUR 2 million). Current interest-bearing financial assets managed centrally by the Group treasury amount to EUR 42 million (EUR 44 million).

Valmet manages its cash by investing in financial assets with varying maturities. Interest-bearing financial assets with maturities at the date of acquisition exceeding three months are classified as Other current

financial assets and assets with maturities of three months or less are classified as Cash and cash equivalents in the Consolidated statement of financial position. Cash and cash equivalents comprise cash at bank and in hand EUR 289 million (EUR 274 million), investments to commercial paper EUR 4 million (EUR 33 million) and other short-term financial assets with maturities of three months or less EUR 23 million (EUR 68 million). For more information on derivative financial instruments, see Note 10.

Analysis of trade receivables by age:

Analysis of trade receivables by age:
	As at Dec 31,
EUR million	2019	2018
Trade receivables,not due	473	380
Trade receivables 1–30 days overdue	93	80
Trade receivables 31–60 days overdue	29	30
Trade receivables 61–90 days overdue	12	18
Trade receivables 91–180 days overdue	21	11
Trade receivables more than 180 days overdue	28	37
Total	656	555

Allowance for trade receivables and contract assets has changed as follows:

	Year ended Dec, 31
EUR million	2019	2018
Balance at beginningof theperiod	18	16
Change in accounting principles1	-	6
Additions charged toproft or loss	4	4
Acquired in business combinations	1	-
Used reserve	-2	-1
Reversals	-3	-4
Other changes	-	-2
Balance at end of theperiod	18	18

1 Gross impact arising from the adoption of IFRS 9 as of January 1, 2018.

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notes to the consolidated financial statements

9 Interest-bearing financial instruments

		As at Dec 31,
EUR million	2019		2018
Non-current fnancial assets
Interest-bearing	-		-
Non-interest-bearing	8		8
Total	8		9
Other current fnancial assets
Interest-bearing	42		44
Non-interest-bearing	18		14
Total	59		58

Valmet’s interest-bearing liabilities consist of debt and lease liabilities, and debt portfolio includes only loans from financial institutions.

10[Derivative financial instruments ]

Accounting policies

Derivative financial instruments

Derivative financial instruments are used to hedge the Group’s exposure to foreign exchange rate, interest rate and commodity price risks arising from operational, investment and financing activities in accordance with Valmet’s treasury policy, which is discussed further in Note 22.

Trade date accounting is applied to Group’s derivative financial instruments and these are measured at initial recognition and at each reporting date at fair value in balance sheet. Fair value of open derivative contracts is calculated as present value of future cash flows using currency, interest and commodity price quotations at reporting date. The instruments are classified as non-current assets or liabilities when the remaining maturities exceed 12 months and as current assets or liabilities when the remaining maturities are 12 months or less.

When hedge accounting is applied derivatives are designated at inception either as hedges of firm commitments or highly probable forecasted sale and purchase transactions. When hedge accounting criteria are not met derivatives are measured at fair value through profit or loss.

Application of hedge accounting

Valmet has designated certain forward exchange contracts, interest rate swaps, and electricity forward contracts to cash flow hedge accounting relationships. When hedge accounting is applied, relationship between hedging instrument and hedged item is documented, including related risk management strategy and objectives. Both at hedge inception and at each reporting date a forward-looking assessment is performed to

ensure that changes in cash flows of the hedging instrument are expected to offset changes in cash flows from the hedged item. When performing this assessment, if critical terms of hedging instrument and hedged item match, economic relationship exists and hedge accounting relationship is considered effective. In Valmet’s hedge accounting relationships hedge ratio is 1:1 (i.e. the relationship between the quantity of hedging instrument and quantity of hedged risk in their relative weighting).

For derivatives that have been designated to a cash flow hedge accounting relationship, the effective portion of change in fair value is recognized through other comprehensive income (OCI) in the hedge reserve under Equity and reclassified to profit or loss concurrently with the underlying hedged transaction. The gains or losses relating to the ineffective portion of derivatives hedging operative items (e.g. foreign currency denominated sales and purchase transactions) are reported under Other operating income and expenses in profit or loss. Respectively, the ineffective portions of derivatives hedging non-operative items (e.g. interest-bearing financial assets and liabilities, and other items related to Group’s funding) are reported under Financial income and expenses in profit or loss. Ineffectiveness arising from application of hedge accounting during the reporting period was insignificant. Should a hedged transaction no longer be expected to occur, any cumulative gain or loss previously recognized under Equity is reclassified through OCI to profit or loss.

When hedging for changes in foreign currency denominated firm commitments or highly probable forecasted sale and purchase transactions, currency component of forward exchange contracts has been designated as hedging instrument in hedge accounting relationships.

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

The interest component of forward exchange contracts is not part of Valmet’s hedge accounting relationships and is recognized in profit or loss.

Valmet has designated all open interest rate swaps as hedging instruments to hedge future changes in cash flows arising from Valmet’s floating rate loans from financial institutions. Interest arising from interest rate swaps is reported under Financial income and expenses concurrently with interest expense arising from hedged floating rate loans from financial institutions.

For highly probable forecasted purchases of electricity, the Group has designated system-price component of electricity purchases as hedged risk and electricity forward contracts as hedging instruments to hedge accounting relationships. The realized gains and losses related to effective portion of the electricity forward contracts are recognized in Consolidated statement of income under Cost of goods sold, whereas the ineffective portion of both realized and unrealized electricity forward contracts is recognized in Other operating income and expenses.

Derivatives at fair value through profit or loss

Certain forward exchange contracts and commodity derivatives do not qualify for hedge accounting and change in fair value is recorded through profit or loss. Gains or losses arising from derivatives hedging operative items are recognized in Other operating income and expenses. When the forward exchange contracts hedge exchange rate risk arising from foreign currency denominated non-operative items, gains and losses are recognized in Financial income and expenses in profit or loss.

Critical accounting estimates and judgments

Financial instruments

In accordance with the disclosure requirements on financial instruments, the management is obliged to make certain assumptions of the related future cash inflows and outflows associated with different financial assets and liabilities. Management assumes that the fair values of derivatives, especially fair values of forward exchange contracts, materially reflect the present values of future cash inflows or outflows to be realized from such instruments.

Hedging of foreign currency denominated firm

commitments or highly probable forecasted sale and purchase transactions

Under Valmet’s treasury policy, all Valmet entities are required to hedge their foreign currency risk when they have become engaged in a firm commitment denominated in a currency different from their functional currency. The commitment can be between Valmet entities or external to Valmet Group. In addition, certain highly probable forecasted sales and purchases are hedged in co-operation with the Group treasury. When revenue for a customer contract is recognized over time, the entity applies cash flow hedge accounting to both foreign currency denominated sales and purchases and recognizes the effect from the hedging instruments in the OCI until the hedged sales and/or purchases are recognized in Consolidated statement of income. Although the exposure hedged by Valmet entities has been clearly defined in Valmet treasury policy, the final realization of the hedged items depends also on factors beyond management’s control, which cannot be foreseen when initiating the hedge relationship. Such factors include change in the market environment causing the other party to postpone or cancel the commitment or highly probable forecasted sale or purchase. Management tries to the extent possible to include clauses in the related contracts to reduce the impact of such adverse events to the Consolidated statement of income.

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

Notional amounts and fair values of derivative financial instruments as at December 31 are as follows:

EUR million	Notional amount	Fair value, assets	Fair value, liabilities	Fair value, net
2019
Forward exchange contracts1
Under hedge accounting	2,184	17	-11	6
Notqualifyingfor hedge accounting	725	3	-5	-2
Total	2,909	21	-17	4
Electricityforward contracts2
Under hedge accounting	175	-	-	-
Nickel commodityswaps3
Notqualifyingfor hedge accounting	54	-	-	-
Interest rate swaps1
Under hedge accounting	30	-	-2	-2
Total		21	-19	2
Netting fair values of derivative fnancial instruments
subject to ISDAs4		-17	17	-
Total, net		4	-2	2
2018
Forward exchange contracts1
Under hedge accounting	1,567	12	-19	-8
Notqualifyingfor hedge accounting	804	5	-8	-3
Total	2,371	17	-28	-11
Electricityforward contracts2
Under hedge accounting	158	2	-	2
Interest rate swaps1
Under hedge accounting	30	-	-1	-1
Total		19	-29	-10
Netting fair values of derivative fnancial instruments
subject to ISDAs4		-17	17	-
Total, net		2	-12	-10

1 Notional amount in EUR million.

2 Notional amount in GWh.

3 Notional amount in metric tons.

4 Group’s derivatives are carried out under International Swaps and Derivatives Association’s Master Agreements (ISDA). In case of an event of default under these Agreements the nondefaulting party may request early termination and set-off of all outstanding transactions. These agreements do not meet the criteria for offsetting in the statement of financial position.

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notes to the consolidated financial statements

As at December 31, the maturities of financial derivatives are the following:

	2020	2021	2022	2023	2024 and later
2019
Notional amounts
Forward exchange contracts1	2,442	382	85	-	-
Electricityforward contracts2	101	48	26	-	-
Nickel commodityswaps3	54	-	-	-	-
Interest rate swaps1	-	-	-	-	30
Fair values,EUR million
Forward exchange contracts	3	2	-	-	-
Electricityforward contracts	-	-	-	-	-
Nickel commodityswaps	-	-	-	-	-
Interest rate swaps	-	-	-	-	-2

	2019	2020	2021	2022	2023 and later
2018
Notional amounts
Forward exchange contracts1	1,969	374	23	6	-
Electricityforward contracts2	83	48	26	-	-
Interest rate swaps1	-	-	-	-	30
Fair values,EUR million
Forward exchange contracts	-13	2	-	-	-
Electricityforward contracts	1	1	-	-	-
Interest rate swaps	-	-	-	-	-1

1 Notional amount in EUR million.

2 Notional amount in GWh.

3 Notional amount in metric tons.

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notes to the consolidated financial statements

11 Financial income and expenses

	Year ended Dec 31,	Year ended Dec 31,
EUR million	2019	2018
Interest income on fnancial assets measured at amortized cost	4	2
Financial income total	4	3
Interest expenses on fnancial liabilities measured at amortized cost(excl. leases)	-3	-3
Interest expenses on lease liabilities	-2	-
Net interest from defned beneftplans	-4	-4
Net loss from foreign exchange	-1	-
Interest component from forward contracts	-3	-
Other fnancial expenses	-2	-1
Financial expenses total	-15	-9
Financial income and expenses, net	-11	-6

Exchange rate differences included in financial income and expenses:

Exchange rate diferences included in fnancial income and expenses:
	Year ended Dec 31,
EUR million	2019	2018
Exchange rate diferences from both interest-bearing fnancial assets and liabilities,
and other items related to Group’s funding	-2	1
Exchange rate diferences from derivative fnancial instruments	1	-2
Net loss from foreign exchange	-1	-

Interest expenses on financial liabilities at amortized cost (excl. leases) includes interest expenses on interest-bearing loans and interest rate swaps.

12[Provisions ]

Accounting policies

A provision is recognized when Valmet has a present legal or constructive obligation as a result of a past event, payment is probable, and Valmet is able to estimate the amount of the obligation reliably. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate or reversed if they are no longer needed. Long-term provisions are discounted to their present value based on the expected timing of cash outflows when the effect of the time value of money is significant.

a certain percentage, based on past experience, of total revenue of a deliverable as a provision for expected warranty work. For sales involving new technology and long-term delivery contracts, additional warranty provision may be established on a case-by-case basis to take into account the potentially increased risk. The actual warranty costs of each project are booked against the warranty provision and thus the remaining warranty provision of each project can be followed.

Actual warranty costs incurred on projects are monitored regularly in order to assess the need for amending the percentage based on which warranty provisions are recognized going forward.

Warranty provisions

The Group typically issues contractual product warranties under which it generally guarantees the mechanical functioning of equipment delivered during the agreed warranty periods, ranging from 12 to 24 months. The main principle in measuring the warranty provision is to book

Restructuring provisions

A provision for restructuring costs is recognized only when general recognition criteria for provision are met and after management has prepared and approved a formal plan to which it is committed, and it

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notes to the consolidated financial statements

has raised a valid expectation in those affected by the measures that it will carry out the restructuring by starting to implement that plan or announcing its main features.

The costs included in a provision for restructuring are those costs that are either incremental or incurred as a direct result of the plan or are the result of a continuing contractual obligation with no continuing economic benefit to Valmet or a penalty incurred to cancel the contractual obligation. Restructuring and capacity adjustment expenses are recognized in either Cost of goods sold or Selling, general and administrative expenses depending on the nature of the expense. Restructuring costs can also include other costs incurred as a result of a restructuring plan, which are recorded under Other operating income and expenses, such as asset impairment charges.

Provisions for onerous contracts

A provision for an onerous contract is recognized when the Group has a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is either the cost of fulfilling contractual obligations or penalties arising from the failure to fulfil those obligations.

Other provisions

Critical accounting estimates and judgments

The amount recognized as a provision is the best estimate of the expenditure required to settle the obligation at the reporting day, taking into account related risks and uncertainties, management judgment supplemented by experience with similar transactions and future events when there is a sufficient evidence that they will occur and affect the amount of payment.

Under contractual warranty clauses, Valmet generally guarantees the performance of products delivered for a certain warranty period. The warranty provision is based on historical realized warranty costs for deliveries of standard products. The warranty period typically commences from the date of customer acceptance of the delivered equipment. For more complex contracts, including long-term projects, the warranty reserve is calculated contract by contract and updated regularly to ensure its appropriateness.

Provisions for restructuring costs are recognized when the requirements for recognition are satisfied. For reasons beyond the control of management the final costs may differ from the initial amount for which provision has been established.

Valmet recognizes a provision for losses associated with environmental remediation obligations when such losses are probable and reliable estimate of amounts can be made. Following initial recognition, the amount of provision is adjusted later if further information is obtained or circumstances change.

Other provisions include provisions related to environment, personnel, legal and tax related processes. These provisions are recognized when general recognition criteria for provision are met.

Specification of changes in provisions:

Specifcation of changes in provisions:
			2019
	Warranty	Restructuring	Provisions for
EUR million	provisions	provisions	onerous contracts	Other provisions	Total
Balance at beginningof theperiod	128	6	9	6	149
Additions charged toproft or loss	87	3	7	2	100
Acquired in business combinations	5	-	-	7	12
Used reserve	-44	-3	-4	-3	-54
Reversal of reserve	-32	-	-1	-1	-34
Balance at end of theperiod	143	7	11	12	173
Non-current	21	1	-	9	31
Current	122	6	11	3	142

Provisions for expected contract losses relate primarily to long-term capital projects. The Group did not have material environmental and product liabilities as at December 31, 2019 or December 31, 2018.

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notes to the consolidated financial statements

13 Other current liabilities

		As at Dec 31,
EUR million	2019		2018
Accruedpersonnel costs	135		125
Accruedproject costs	101		119
Accrued interest	1		1
Otherpayables	119		98
Other current liabilities total	356		344

The maturity of payables is largely determined by local trade practices and individual agreements between Valmet and its suppliers and rarely

exceeds six months. Accrued personnel costs, which include holiday pay, are settled in accordance with local laws and stipulations.

14

Personnel expenses and the number of personnel

Personnel expenses:

Personnel expenses:
	Year ended Dec 31,
EUR million	2019	2018
Salaries and wages	-703	-632
Pension costs,defned contributionplans	-67	-69
Pension costs,defned beneftplans1	-9	-7
Otherpost-employment benefts1	-5	-3
Share-basedpayments2	-5	-6
Other indirect employee costs	-108	-96
Total	-897	-812

1 For more information, see Note 16.

2 For more information, see Note 15.

Number of personnel:

Number of personnel:
	2019	2018
Personnel at end of theperiod	13,598	12,528
Average number ofpersonnel duringtheperiod	13,235	12,461

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notes to the consolidated financial statements

15[Share-based payments ]

Accounting policies

Valmet’s share-based incentive plans are part of the remuneration and retention program for Valmet’s key personnel. In majority of jurisdictions where key employees participating in the Group’s long-term incentive (LTI) plans reside, Valmet has an obligation to withhold an amount for the key employee’s tax obligations associated with the sharebased payment rewards, and transfer that amount directly to the tax authorities on the key employee’s behalf. Thus, the arrangements carry net settlement feature and both equity and cash settled portions of the plans are accounted for against equity.

Non-market vesting conditions, such as Comparable EBITA as a percentage of net sales, and orders received growth in the stable busi-

ness, are used for calculating the number of shares related to Group’s LTI plans that are expected to vest. These estimates are revised at the end of each reporting period and impact of the revision to previous estimate is recognized through profit or loss with corresponding adjustment to equity.

The compensation expense for the shares is recognized as an employee benefit expense evenly during the required service period whereas the compensation expense resulting from the cash portion is recognized as an employee benefit expense on accrual basis between grant and payment date. Valuation of the related expenses is based on number of shares expected to vest, remaining vesting period at the reporting date and Valmet’s closing share price as at the grant date.

Granted share amounts of the share-based incentive plans:

Granted share amounts of the share-based incentive plans:
	Plan 2015–2017	Plan 2018–2020
2019
At beginningof theperiod	-	357,940
Maximum number of shares to begranted	-	452,638
Changes due to achievement criteria	-	-177,306
Actual number of sharesgranted	-	-356,624
Shares returned by planparticipants	4,543	861
Shares transferred to treasuryshares	-4,543	-861
At end of theperiod	-	276,648

Long-term incentive plan for 2015–2017

The Board of Directors of Valmet Oyj approved in December 2014 a share-based incentive plan for Valmet’s key employees. The plan included three performance periods, which were the calendar years 2015, 2016 and 2017. The Board of Directors decided on the performance criteria and targets in the beginning of each performance period. The plan has been directed to approximately 80 key employees.

The rewards from the plan were paid partly in Company shares and partly in cash. The cash portion was dedicated to cover taxes and tax-related payments arising from the reward to the key employee. The reward of the plan from one performance period could not exceed 120 percent of the key employee’s annual base salary. As a rule, no reward was paid, if the key employee’s employment or service ended before the reward payment. The shares paid as reward may not be transferred during the restriction period, which will end two years after the end of each performance period (Transfer Restriction). Should a key employee’s employment or service end during the restriction period, as a rule, he or she must gratuitously return the shares given as reward to Valmet. As part of the share-based incentive program, members of Valmet Executive Team had the possibility to receive a matching share reward for each performance period, provided that the Executive Team member owned or acquired Valmet shares up to a number determined by the Board of Directors by the end of each performance period. Re-

ward receipt was tied to continued employment or service of the Valmet Executive Team member upon reward payment.

The Board has the right to cancel the reward or recollect paid rewards that are subject to the Transfer Restriction, fully or partly, if the LTI plan participant has acted against the law or against the ethical guidance of the Company or otherwise unethically.

Long-term incentive plan for 2018–2020

The Board of Directors of Valmet Oyj decided in December 2017 on a new long-term share-based incentive plan for Valmet’s key employees. The plan includes three performance periods, which are the calendar years 2018, 2019 and 2020. Valmet’s Board of Directors shall decide on the performance criteria and targets in the beginning of each performance period. The plan is directed to a total of approximately 130 participants, of which 90 are key employees in management positions (including Executive Team members), and 40 are management talents, which is a new target group in Valmet’s share-based incentive plan.

For all plan participants the maximum reward is capped at grant to a fixed number of shares. For the President and CEO, the reward is capped at grant to a maximum number of shares calculated based on 130 percent of his annual base salary. For reward calculation purposes, other members of the Executive Team form a group and maximum reward calculation for each individual member is based on average annual base

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notes to the consolidated financial statements

salary of that group. The fixed maximum number of shares is calculated in the beginning of the performance period based on 110 percent of the average annual base salary of all other members of the Executive Team.

The potential reward is purely performance based for all plan participants. The rewards from the plan are paid partly in Company shares and partly in cash. The cash portion is dedicated to cover taxes and tax-related payments arising from the reward to the plan participants. The rewarded shares may not be transferred during the restriction period, which will end two years after the end of the performance period. As a rule, no reward is paid if the plan participant’s employment or service

at Valmet ends before the reward payment. Should a plan participant’s employment or service end during the restriction period, he or she must, as a rule, gratuitously return the shares given as reward to the Company. The Board has the right to cancel the reward or recollect paid rewards that are subject to the Transfer Restriction, fully or partly, if the LTI plan participant has acted against the law or against the ethical guidance of the Company or otherwise unethically.

The below table summarizes key attributes of the long-term incentive plans with financial impact to the current or to the comparative reporting period:

Performance
period	2016	2017	2018 2019 2020
Incentive based on	Comparable EBITA as a	Comparable EBITA as a	Comparable EBITA as a Comparable EBITA as a Comparable EBITA as a
	percentage of net sales,	percentage of net sales,	percentage of net sales, percentage of net sales, percentage of net sales,
	and orders received	and orders received	and orders received and orders received and orders received
	growth in the stable	growth in the stable	growth in the stable growth in the stable growth in the stable
	business	business	business business business
Rewardpayment	In spring2017	In spring2018	In spring2019 In spring2020 In spring2021
Total gross number	556,049 shares	390,820 shares	356,624 shares As at December 31, Te rewards to be paid are
of shares earned			2019 a total of 276,648 capped to an approximate
(including the			shares were allotted to maximum of 440,000
matching share			participants. shares in Valmet.
rewards)
Valmet’s closing	EUR 9.14	EUR 14.39	EUR 18.33 EUR 19.83
share price as at
thegrant date
Vesting period	February 2016 to	February 2017 to	February 2018 to February 2019 to February 2020 to
	December 2018	December 2019	December 2020 December 2021 December 2022

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notes to the consolidated financial statements

Restricted shares pool

As part of total remuneration, for example for retention purposes, the Board of Directors decided on an additional incentive element in December 2018, the restricted shares pool, from which shares can be granted to selected key employees. Restricted share pools are intended to be annually commencing, and the annual restricted shares pool is subject to separate approval by the Board of Directors. In 2019 no allocation was made from the restricted shares pool. In 2020 a maximum of 66,000 Company shares can be allocated to possible participants in the restricted shares pool. As a rule, the restriction period for these shares is 3 years. Plan nominations as well as detailed terms of allocation will be proposed by the President and CEO to the Chairman of the Board of Directors for approval. A precondition for the payment of the share reward based on the restricted shares pool is that a threshold Valmet Comparable EBITA is exceeded and that the employment relationship of the individual participant with Valmet continues until the payment date of the reward.

Share ownership recommendation

Costs recognized for the share ownership plans

The compensation expense for the shares is recognized as an employee benefit expense evenly during the required service period with corresponding entry in equity. The compensation expense resulting from the cash portion is recognized as an employee benefit expense on accrual basis between grant and payment date with a corresponding entry made to equity. Valuation of the related expenses is based on number of shares expected to vest, remaining vesting period at the reporting date and Valmet’s closing share price as at the grant date.

Costs arising from share-based payments plans:

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Plan 2015–2017	-834	-2,435
Plan 2018–2020	-4,578	-3,711
Total	-5,412	-6,147

To recognize and highlight the importance and value of having the members of Valmet’s Executive Team own and hold Company shares, the Board of Directors has approved in December 2017 a share ownership recommendation for Valmet’s Executive Team members. All members of Valmet’s Executive Team are recommended to own and hold Company shares equaling to their gross annual base salary (100 percent ownership recommendation).

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valmet | financial statements 2019 and information for investors

notes to the consolidated financial statements

16 Post-employment benefit obligations

Accounting policies

Pensions and coverage of pension liabilities

Valmet has various post-employment benefit schemes in place in line with local regulations and practices in countries in which Group operates. In certain countries, the schemes involve defined benefit plans with retirement, disability, death, and other post-retirement benefits, such as health benefits, and termination income benefits. Defined benefit plans are post-employment benefit plans other than defined contribution plans. In defined benefit plans the benefits are usually based on the number of service years and the salary levels of the final service year. The schemes are generally funded through payments to insurance companies or to trustee-administered funds as determined by periodic actuarial calculations.

In addition, certain entities within Valmet Group have multiemployer pension arrangements classified as defined contribution plans. The contributions to defined contribution plans and to multi-employer and insured plans are charged to profit or loss concurrently with the payment obligations. In defined contribution plans, the Group pays fixed contributions into a separate entity and the Group will have no legal or constructive obligation to pay further contributions.

In the case of defined benefit plans, the net defined benefit liability recognized from the plan is the present value of the defined benefit obligation as of the balance sheet date, reduced by the fair value of the plan assets. Independent actuaries calculate the defined benefit obligation by applying the projected unit credit method under which the estimated future cash flows are discounted to their present value using a duration specific discount rate. The cost of providing pension and other

post-retirement benefits is charged to profit or loss concurrently with the service rendered by the employees. The service cost is recorded as part of personnel expenses in profit or loss and the net interest is recorded under financial income and expenses. Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and actual return on plan assets (excluding interest income on plan assets) are recognized through OCI into equity.

Critical accounting estimates and judgments

The benefit expense and liabilities arising from defined benefit arrangements are calculated based on assumptions that include the following:

• The discount rates used to discount post-employment benefit obligations (both funded and unfunded): These rates are determined by reference to market yields at the end of the reporting period on high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields (at the end of the reporting period) on government bonds have been used. The currency and term of the corporate bonds or government bonds are consistent with the currency and duration of the post-employment benefit obligations.

• Estimated rates of future pay increases which include general pay rise expectations as well as merit increases. Actual increases may not reflect estimated future increases.

• Due to the significant uncertainty of the global economy, these estimates are difficult to project.

Amounts recognized in the Consolidated statement of financial position are as follows:

As at Dec	31,
2019		2018
EUR million Funded Unfunded Total	Funded	Unfunded	Total
Present value of funded obligation 203 - 203	179	-	179
Fair value ofplan assets -166 - -166	-136	-	-136
Net surplus(-)/ defcit(+)of fundedplans 37 - 37	42	-	42
Present value of unfunded obligation - 152 152	-	121	121
Asset(-) / liability (+) 37 152 189	42	121	163
Amounts in the Consolidated statement of fnancialposition
Liabilities 38 152 190	42	121	163
Assets 1 - 1	-	-	-
Net liability 37 152 189	42	121	163

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notes to the consolidated financial statements valmet | financial statements 2019 and information for investors

Amounts recognized in the Consolidated statement of income are as follows:

	Year ended Dec 31,	Year ended Dec 31,
	2019		2018
EUR million	Funded Unfunded Total	Funded	Unfunded	Total
Employer’s current service cost	3 6 9	2	5	7
Net interest on net surplus / defcit	1 3 4	1	3	4
Total expenses	4 9 13	4	7	11

Changes in the present value of the defined benefit obligation are as follows:

		2019			2018
EUR million	Funded	Unfunded	Total	Funded	Unfunded	Total
Present value of obligation at beginningof theperiod	179	121	300	183	114	296
Other adjustments	-	10	10	-	-2	-2
Acquired in business combinations	1	-	-	-	-	-
Employer’s current service cost	3	6	9	2	5	7
Interest expense	6	3	9	6	3	8
Actuarialgain(-)/ loss(+)due to change in fnancial assumptions	19	15	34	-9	4	-5
Actuarialgain(-)/ loss(+)due to change in demographic assumptions	-	-	-	1	-	1
Actuarialgain(-)/ loss(+)due to experience	-	2	2	-1	6	4
Beneftspaid from the arrangements	-8	-	-8	-7	-	-8
Beneftspaid directlybyemployer	-	-4	-4	-	-4	-4
Translation diferences	4	-1	3	5	-3	2
Present value of defned beneft obligation at end of theperiod	203	152	354	179	121	300
- of which related to active members			147			120
- of which related to deferred members			68			58
- of which related topensioner members			139			122

Changes in the fair value of the plan assets during the period are as follows:

	2019		2018
EUR million	Funded Unfunded Total	Funded	Unfunded	Total
Fair value ofplan assets at beginningof theperiod	136 - 136	146	-	146
Acquired in business combinations	- - -	-	-	-
Interest income on assets	5 - 5	5	-	5
Return onplan assets excludinginterest income	24 - 24	-14	-	-14
Employer contributions	5 - 5	4	-	4
Beneftspaid from the arrangements	-8 - -8	-7	-	-8
Beneftspaid directlybyemployer	- - -	-	-	-
Translation diferences	3 - 3	4	-	4
Fair value ofplan assets at end of theperiod	166 - 166	136	-	136

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notes to the consolidated financial statements

Remeasurements of the net defined benefit liability / asset reported in other comprehensive income are as follows:

			Year ended Dec 31,	Year ended Dec 31,
		2019			2018
EUR million	Funded	Unfunded	Total	Funded	Unfunded	Total
Experiencegain(-)/ loss(+)on assets	-24	-	-24	14	-	14
Actuarialgain(-)/ loss(+)on liabilities due to change in fnancial assumptions	19	15	34	-9	4	-5
Actuarial gain (-) / loss (+) on liabilities due to change in demographic
assumptions	-	-	-	1	-	1
Actuarialgain(-)/ loss(+)on liabilities due to experience	-	2	2	-1	6	4
Totalgain(-) / loss(+)	-5	18	13	5	10	15

The major categories of plan assets as a percentage of total plan assets of Valmet’s defined benefit plans are as follows:

	2019		2018
As at Dec 31	Quoted Unquoted Total	Quoted	Unquoted	Total
Equities	30% - 30%	30%	-	30%
Bonds	48% - 48%	46%	-	46%
Other	2% 20% 21%	2%	22%	24%
Total	80% 20% 100%	78%	22%	100%

At December 31, 2019 there were no plan assets invested in affiliated companies or property occupied by affiliated companies.

The principal actuarial assumptions used to determine the defined benefit obligation (expressed as weighted averages) are as follows:

		2019			2018
As at Dec 31	Funded	Unfunded	All plans	Funded	Unfunded	All plans
Discount rate	2.7%	1.6%	2.2%	3.5%	2.5%	3.1%
Salaryincrease	2.7%	2.6%	2.7%	2.7%	2.7%	2.7%
Pension increase	1.5%	1.8%	1.6%	2.0%	2.7%	2.5%
Medical cost trend rates	-	5.6%	5.6%	-	6.3%	6.3%

The weighted average life expectancy used for the major defined benefit plans are as follows:

	Life expectancy at age	65 for	Life expectancy at age 65 for	Life expectancy at age 65 for
	a male participant currently aged 65		a male participant currently aged 45
Expressed in years	2019	2018	2019	2018
Sweden	22	22	23	23
Canada	21	21	23	23
USA	21	21	22	22
Finland	21	21	24	24

Life expectancy is allowed for in the assessment of the defined benefit obligation using mortality tables, which are generally based on experience within the country in which the arrangement is located with (in

many cases) an allowance made for anticipated future improvements in longevity.

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notes to the consolidated financial statements

Sensitivity analysis on present value of defined benefit obligation:

	As at Dec 31,
	2019		2018
EUR million	Funded Unfunded Total	Funded	Unfunded	Total
Discount rate
Increase of 0.25%	-6 -7 -13	-5	-5	-10
Decrease of 0.25%	6 8 14	6	5	11
Salaryincrease rate
Increase of 0.25%	1 5 5	1	3	4
Decrease of 0.25%	-1 -5 -5	-1	-3	-3
Pension increase rate
Increase of 0.25%	1 - 1	1	-	1
Decrease of 0.25%	-1 - -1	-1	-	-1
Medical cost trend
Increase of 1%	- - -	-	1	1
Decrease of 1%	- - -	-	-1	-1
Life expectancy
Increase of oneyear	7 6 13	5	6	11
Decrease of oneyear	-7 -6 -13	-4	-3	-7

The table above presents value of the defined benefit obligation when major assumptions are changed while holding the others constant.

Weighted average duration of defined benefit obligation:

		2019			2018
Expressed in years	Funded	Unfunded	All plans	Funded	Unfunded	All plans
As at December 31	12	21	16	12	17	14

Valmet sponsors both defined contribution and defined benefit arrangements. Valmet operates various defined benefit pension and other long-term employee benefit arrangements pursuant to local conditions, practices and collective bargaining agreements in the countries in which it operates. The majority of Valmet’s defined benefit liabilities relate to arrangements that are funded through payments to either insurance companies or to independently administered funds based on periodic actuarial calculations. Other arrangements are unfunded with benefits being paid directly by Valmet as they fall due. All arrangements are subject to local tax and legal restrictions in their respective jurisdictions. Valmet’s defined benefit pension arrangements in the USA, Canada and Sweden together represent 86 percent of Valmet’s defined benefit obligation and 80 percent of its pension assets. These arrangements provide income in retirement, which is substantially based on salary and service at or near retirement.

In the USA and Canada annual valuations are carried out to determine whether cash funding contributions are required in accordance with local legislation.

Defined benefit pension arrangements in Sweden are offered in accordance with collective labor agreements and are unfunded. The liability recorded on Valmet’s balance sheet and cash contributions to funded arrangements are sensitive to the assumptions used to measure the liabilities, the extent to which actual experience differs to the assumptions made and the returns on plan assets. Therefore, Valmet is exposed to the risk that balance sheet liabilities and/or cash contributions increase based on these influences.

Assets of Valmet’s funded arrangements are managed by external fund managers. The allocation of assets is reviewed regularly by those responsible for managing Valmet’s arrangements based on local legislation, professional advice and consultation with Valmet, based on acceptable risk tolerances. The expected contributions to defined benefit type arrangements in 2020 are EUR 0.5 million in respect of Finnish plans and EUR 5 million in respect of foreign plans. Valmet paid contributions of EUR 67 million (EUR 69 million) to defined contribution arrangements during 2019.

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notes to the consolidated financial statements

17 Income taxes

Accounting policies

Tax expenses in the profit or loss comprise current and deferred taxes. Taxes are recognized in profit or loss except when they are associated with items recognized in Consolidated statement of comprehensive income or directly in equity. Current taxes are calculated on the taxable income on the basis of the tax rates stipulated for each country as at the balance sheet date. Additionally, non-recoverable foreign taxes on financing transactions or transactions with shareholders, which are not based on taxable profits, are reported in Current tax expenses. Non-recoverable withholding taxes and foreign taxes on operative items are reported in Other operating income and expenses. These non-recoverable foreign taxes include for example taxes paid that are not creditable based on applicable Double Tax Treaty. Taxes are adjusted for the taxes of prior financial periods, if applicable. Interest that is calculated based on unpaid tax amounts, is reported under Financial expenses. Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. No liability is recognized when it is considered probable that items reported to tax authorities can be substantiated on examination. The tax provisions recognized in such situations are based on evaluations by management.

Deferred taxes are calculated on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred taxes have been calculated using the statutory tax rates or the tax rates enacted or substantively enacted as at reporting date. Deferred tax assets are only recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. The most significant temporary differences arise from differences in revenue recognition methods applied for tax purposes, depreciation differences relating to property, plant and equipment, treatment of costs arising from defined benefit pension plans, provisions deductible at a later date, fair value measurement of assets and liabilities in connection with business combinations and unused tax losses. Deferred taxes are not recognized on items that do not affect accounting or tax profit. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by 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.

IFRIC 23 – Uncertainty over Income Tax Treatments became effective as of January 1, 2019. The interpretation provides guidance on recognition and measurement of deferred and current income tax assets and liabilities under circumstances when there is uncertainty over a tax treatment. Valmet has elected to apply the interpretation retrospectively with the cumulative impact of initial application recognized as an adjustment to the opening balance of retained earnings as of January 1, 2019. Adoption of the interpretation did not have a material impact on deferred or current tax asset or tax liabilities.

Critical accounting estimates and judgments

Deferred tax assets and liabilities are recognized for temporary differences. They are expected to be realized through the income statement over extended periods of time in the future. Valmet management has made certain assumptions regarding future tax consequences and used certain estimates when calculating differences between carrying amounts of assets and liabilities and their tax basis. Key assumptions underlying tax calculations include e.g. likelihood that recoverability periods for tax loss carryforwards will not change, and that existing tax laws and rates remain unchanged into foreseeable future. At each balance sheet date deferred tax assets are assessed for recoverability and when circumstances indicate that it is no longer probable that deferred tax assets can be recovered, balances are reduced to their recoverable amounts.

Liabilities and assets are recognized with respect to income tax amounts management is expecting to pay and recover, respectively. Management has chosen not to discount non-current tax balances. Valmet entities are subject to tax audits on an ongoing basis. Complex and constantly changing regulations in multiple jurisdictions where Valmet operates create uncertainties relating to tax obligations towards authorities. Changes in the tax authorities’ interpretations could have unfavorable impact on Valmet’s financials.

63

notes to the consolidated financial statements

valmet | financial statements 2019 and information for investors

The differences between income tax expense computed at the Finnish statutory rate (20.0% in 2019 and 2018) and income tax expense recognized in profit or loss are as follows:

Te diferences between income tax expense computed at the Finnish statutory rate (20.0% in 2019 and 2018) and income tax expense recog- nized in proft or loss are as follows:
	Year ended Dec 31,
EUR million	2019	2018
Proft before taxes	269	205
Taxes calculated accordingto tax rate in Finland	-54	-41
Impact of changes in tax rates	-	2
Income tax forprioryears	-2	-2
Efect of diferent tax rates in foreign subsidiaries	-4	-4
Utilization of tax losses carried forward	-	1
Non-recoverable foreign taxes	-4	-4
Efect of tax-free income and non-deductible expenses	-1	-4
Other	-2	-2
Income tax expense	-67	-53
Efective tax rate, (%)	25.0%	25.9%
Efective tax rate, (%)excludingincome tax forprioryears	24.3%	25.0%

Tax effects of components in other comprehensive income:

			Year ended Dec 31,	Year ended Dec 31,
		2019			2018
EUR million	Before taxes	Tax	After taxes	Before taxes		Tax	After taxes
Hedge and other reserves	8	-2	7	-16		4	-13
Remeasurement of defned beneftplans	-13	3	-10	-15		3	-12
Currencytranslation on subsidiarynet investments	2	-	2	-10		-	-10
Total comprehensive income for theperiod	-3	1	-2	-42		7	-35
Deferred tax	-	1	-	-		7	-
Total	-	1	-	-		7	-

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notes to the consolidated financial statements

Reconciliation of deferred tax balances:

	Balance at	Change in	Charged	Charged to	Acquired in
	beginning of	accounting	to income	other compre-	business	Translation	Balance at end
EUR million	the period	principles2	statement	hensive income	combination	diferences	of the period
2019
Deferred tax assets
Tax losses carried forward	8	-	-1	-	-	-	8
Fixed assets	11	-	-1	-	-1	-	9
Inventory	5	-	-2	-	-	-1	2
Provisions	23	-	-1	-	3	1	26
Accruals	6	-	-1	-	-	-3	2
Employee benefts	21	-	-	2	-	1	24
Other	12	1	-	-2	1	1	13
Total deferred tax assets	86	1	-6	-	5	-	85
Ofset against deferred tax liabilities1	-17	-	4	-	-	-	-12
Net deferred tax assets	69	1	-1	-	5	-	73
Deferred tax liabilities
Purchaseprice allocations	64	-	-1	-	13	-	76
Fixed assets	-	-	1	-	-	1	2
Other	2	-	-2	-2	-	2	1
Total deferred tax liabilities	66	-	-2	-2	13	4	79
Ofset against deferred tax assets1	-17	-	4	-	-	-	-12
Net deferred tax liabilities	50	-	2	-2	13	4	66
2018
Deferred tax assets
Tax losses carried forward	11	-	-2	-	-	-1	8
Fixed assets	14	-	-3	-	-	-	11
Inventory	-	-	4	-	-	1	5
Provisions	22	1	-	-	-	-1	23
Accruals	10	-	-3	-	-	-1	6
Employee benefts	19	-	-1	3	-	-1	21
Other	14	-	-3	4	-	-2	12
Total deferred tax assets	89	1	-8	7	-	-4	86
Ofset against deferred tax liabilities1	-12	-	-5	-	-	-	-17
Net deferred tax assets	78	1	-12	7	-	-4	69
Deferred tax liabilities
Purchaseprice allocations	61	-	-4	-	-	7	64
Fixed assets	-	-	-	-	-	-	-
Other	9	-	-10	-	-	3	2
Total deferred tax liabilities	69	-	-13	-	-	10	66
Ofset against deferred tax assets1	-12	-	-5	-	-	-	-17
Net deferred tax liabilities	58	-	-18	-	-	10	50

1 Deferred tax assets and liabilities are offset when there is legally enforceable right to offset tax assets against tax liabilities and when the deferred income taxes relate to the same fiscal authority.

2 Impact arising from implementation of IFRS 16 in 2019 and IFRS 9 in 2018.

A deferred tax liability on undistributed profits of Valmet’s legal entities located in countries where distribution generates tax consequences is recognized when it is likely that earnings will be distributed in the near future. For the years ended December 31, 2019 and 2018, earnings of EUR 23 million and EUR 20 million, respectively, would have been subject to recognition of a deferred tax liability, had Valmet regarded

a distribution in the near future as likely. A deferred tax asset is recognized for tax loss carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable. There were no material tax loss carryforwards for which a deferred tax asset had not been recognized. Valmet has tax loss carryforwards of EUR 3 million that will expire within the following five years.

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notes to the consolidated financial statements

18 Equity

Share capital and number of shares

Share capital and number of shares
	2019	2018
Share capital at end of theperiod,EUR	100,000,000	100,000,000
Number of shares at end of theperiod	149,864,619	149,864,619
Treasuryshares at end of theperiod	246,096	246,799
Shares outstandingat end of theperiod	149,618,523	149,617,820
Average number of shares outstandingduringthe fnancialperiod	149,604,375	149,649,501

Valmet Oyj has one series of shares. The shares of Valmet Oyj do not have a nominal value.

Treasury shares

As at December 31, 2019 Valmet Oyj held 246,096 (246,799) of its own shares. These shares have been acquired through a purchase on the Helsinki Stock Exchange (Nasdaq Helsinki Ltd). The total amount paid to acquire Valmet’s own shares during the reporting period, including transaction costs, was EUR 4 million (EUR 4 million) and it has been deducted from Retained earnings in Equity. Own shares have been acquired for the purposes of Valmet’s long-term incentive plans. Shares issued to employees under these plans are recognized on first-in-firstout basis.

Dividends

The Board of Directors proposes that a dividend of EUR 0.80 per share will be paid out based on the Consolidated statement of financial position to be adopted for the financial year ended December 31, 2019, and that the remaining part of the Retained earnings will be carried forward in Valmet Oyj’s unrestricted equity. These financial statements do not reflect this dividend payable of EUR 120 million.

Reserve for invested unrestricted equity

Reserve for invested unrestricted equity includes other equity-related investments and share subscription prices to the extent not designated to be included in share capital. The reserve for invested non-restricted equity fund in Valmet’s Consolidated statement of financial position consists of the fund held by the parent company Valmet Oyj.

Hedge and other reserves

Hedge reserve includes effective portion of fair value movements related to derivative financial instruments, which qualify for hedge accounting.

Fair value reserve includes the change in fair values of interest-bearing financial assets classified as fair value through other comprehensive income.

Legal reserve consists of restricted equity, which has been transferred from distributable funds under the Articles of Association, local company law or by a decision of the shareholders.

Cumulative translation adjustments

Cumulative translation adjustments consist of currency translation differences, which relate to translation of foreign operations from their functional currencies to Valmet Group’s reporting currency euro.

In compliance with the resolution of the Annual General Meeting, on April 4, 2019 Valmet paid out dividends of EUR 97 million for 2018, corresponding to EUR 0.65 per share.

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notes to the consolidated financial statements

19 Selling, general and administrative expenses

Selling, general and administrative expenses 2019, EUR 588 million

Selling, general and administrative expenses 2018, EUR 532 million

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Marketing and selling Marketing and selling
expenses EUR 318 million expenses EUR 290 million
Research and development Research and development
expenses, net EUR 71 million expenses, net EUR 66 million
Administrative expenses Administrative expenses
EUR 199 million EUR 176 million
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Research and development expenses, EUR million

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80
71 73
70
60
50
40
30
20
10 4 4
-6 -3 -3 -3
0
-10
Research and Recognized Grants Depreciation
development in fixed received and
costs assets amortization
2018 2019
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20 Other operating income and expenses

	Year ended Dec 31,	Year ended Dec 31,
EUR million	2019	2018
Gain on sale of fxed assets	4	-
Reversal of allowance for doubtful receivables and contract assets1	7	6
Insurance compensation	15	-
Other income	6	6
Other operating income, total	32	14
Loss on sale of fxed assets	-	-1
Impairment of fxed assets	-2	-2
Expenses from unused facilities	-	-3
Net loss from foreign exchange	-1	-3
Interest component from forward contracts	-4	-3
Non-recoverable foreign taxes	-3	-5
Allowance for doubtful receivables and contract assets1	-7	-6
Other expenses	-6	-12
Other operating expenses, total	-22	-36
Other operating income and expenses, net	10	-22

1 For more information, see Note 8.

Exchange rate differences included in Other operating income and expenses:

Exchange rate diferences included in Other operating income and expenses:
	Year ended Dec 31,
EUR million	2019	2018
Exchange rate diferences from trade receivables andpayables	25	3
Exchange rate diferences from derivative fnancial instruments	-26	-6
Net loss from foreign exchange	-1	-3

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notes to the consolidated financial statements

21[Business combinations ]

Acquisition of GL&V

The acquisition of North American-based GL&V Group (GL&V), announced on February 26, 2019, was completed on April 1, 2019. Control of the acquiree was obtained through the purchase of 100 percent equity interest in GL&V Canada Inc. and in a new company established in Sweden. The enterprise value of the acquisition was approximately EUR 113 million on a cash and debt free basis, and final consideration transferred after ordinary post-closing adjustments was EUR 101 million.

GL&V supplies technologies, upgrades and optimization services, rebuilds, and spare parts for the pulp and paper industry globally. The acquisition strengthens Valmet’s global services business further and complements the Group’s technology offering for the pulp and paper industry customers.

Net sales and EBITA margin of the acquired operations in calendar year 2018 were approximately EUR 160 million and 11 percent, respectively. The acquired operations employ about 630 people of whom approximately 65 percent are in North America and the rest mainly in Europe, South America and India. GL&V’s washing, oxygen delignification and bleaching businesses were not included in the transaction scope.

Impact of acquisitions in 2019

Fair values of assets acquired, liabilities assumed, and goodwill recognized at the date of acquisition, together with net cash flow impact for both acquisitions are summarized in the following tables. The net assets acquired for both business combinations are denominated in USD. For both acquisitions the amount of consideration transferred is final and does not carry any contingent consideration arrangements.

Goodwill arising from the business combinations is attributable to the assembled workforce and synergies expected to be derived from the combined businesses. Majority of the goodwill arising from the acquisition of GL&V is not expected to be tax-deductible, whereas the goodwill from acquisition of J&L Fiber Services is expected to be deductible for income tax purposes in the USA.

The two acquired businesses have been consolidated into the Group financials from the acquisition dates onwards.

Acquisition of J&L Fiber Services Inc.

On May 2, 2019, Valmet announced that it has completed the acquisition of J&L Fiber Services Inc. (J&L Fiber Services) on May 1, 2019 through purchase of 100 percent of outstanding equity of the company. The final purchase price for the transaction was approximately EUR 51 million.

J&L Fiber services, based in Wisconsin, USA, manufactures and supplies low-consistency refiner segments that are important wear parts used in pulp and paper production. It also supplies high-consistency refiner segments that are used in thermomechanical pulping and medium density fiberboard (MDF) refining. The acquisition of J&L Fiber Services complements Valmet’s offering in refiner segments and further strengthens the Group’s presence especially in North America.

In the twelve months preceding the completion of the acquisition, the company had net sales of approximately EUR 30 million with an EBITA margin of around 15 percent. The acquired operations employ about 100 people, most of whom are located in Wisconsin, USA. J&L Fiber Services operates globally through a sales representative and distribution network. Over 75 percent of the revenue of the company arises from North America.

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notes to the consolidated financial statements

Fair values of assets acquired and liabilities assumed at the date of acquisition:

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|||||||
|---|---|---|---|---|---|
|J&L Fiber Services Inc.|
|EUR million|GL&V as at April 1, 2019|[1]|as at May 1, 2019|[1]|Total|
|Non-current assets|
|Goodwill|49|20|69|
|Other intangible assets|53|22|75|
|Property,|plant and equipment|4|5|10|
|Leased assets|7|1|7|
|Deferred tax assets|5|-|5|
|Total non-current assets|119|48|167|
|Current assets|
|Inventories|27|3|30|
|Trade receivables|27|4|31|
|Amounts due from customers under revenue contracts|8|-|8|
|Other current assets|5|-|5|
|Cash and cash equivalents|7|-|8|
|Total current assets|74|8|82|
|Non-current liabilities|
|Non-current lease liabilities|5|-|5|
|Other non-current liabilities|7|-|7|
|Deferred tax liabilities|12|-|12|
|Total non-current liabilities|24|1|25|
|Current liabilities|
|Current debt|18|-|18|
|Current lease liabilities|2|-|2|
|Trade payables|15|2|17|
|Amounts due to customers under revenue contracts|13|-|13|
|Other current liabilities|19|1|21|
|Total current liabilities|67|4|71|
|Net assets acquired|102|51|153|

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1 EUR values have been translated using foreign exchange rates prevailing at the date of the acquisition.

Cash flows associated with the acquisitions:

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||||||
|---|---|---|---|---|
|J&L Fiber Services Inc.|
|EUR million|GL&V as at April 1, 2019|as at May 1, 2019|Total|
|Consideration transferred|[1]|-101|-51|-152|
|Cash and cash equivalents acquired|7|-|8|
|Loan repayment at closing|-18|-|-18|
|Net cash outflow|-112|-51|-163|

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1 In the Consolidated statement of cash flows, the consideration transferred for GL&V includes gain from foreign exchange hedging amounting to EUR 1 million.

From the date of acquisition, the two acquired businesses have contributed EUR 133 million of revenue and EUR 4 million of profit to the Group, including EUR 7 million amortization of intangibles and inventory fair-value step-up recognized at acquisition.

If both acquisitions had occurred on January 1, 2019, management estimates that the combined statement of income would show net sales of EUR 3,611 million and profit for the period amounting to EUR 208

million. These pro forma amounts include income tax expenses as well as the fair value adjustments, determined as at December 31, 2019, for the January–March period for GL&V and January–April period for J&L Fiber Services.

Acquisition related costs of EUR 1 million have been charged to Selling, general and administrative expenses in the Consolidated statement of income in January–December 2019.

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notes to the consolidated financial statements

Acquisition of Enertechnix Process Sensors, Inc.

As of October 1, 2018, Valmet acquired 100 percent ownership in Enertechnix Process Sensors, Inc. (Enertechnix), a high-tech combustion

diagnostics and monitoring technology company based in Washington, USA. Purchase price paid at closing on cash and debt free basis was EUR 2 million and final goodwill recognized EUR 3 million. The acquisition had no material effect on Valmet’s financial statements for 2018.

22[Financial risk management ]

As a global Group, Valmet is exposed to a variety of business and financial risks. Financial risks are managed centrally by the Group treasury (hereafter Treasury) under annually reviewed written policies approved by Valmet’s Board of Directors. Treasury identifies, evaluates and hedges financial risks in close co-operation with the subsidiaries. Treasury functions as counterparty to the subsidiaries, manages centrally external funding and is responsible for the management of financial assets and appropriate hedging measures. The objective of financial risk management is to mitigate potential adverse effects of financial risks on Valmet’s financial performance.

Valmet implemented IFRS 16 – Leases as of January 1, 2019 by applying the simplified transition method and therefore 2018 figures are not restated. Lease liabilities recognized in Consolidated statement of financial position from January 1, 2019 onwards are part of Valmet’s interest-bearing liabilities. To present information focused on Group’s long-term funding and related financial risks, figures presented in this note regarding liquidity and refinancing risk, capital structure and interest rate risk management, exclude the impact of lease liabilities. More information regarding leases is presented in Note 5.

Sensitivity analysis

Sensitivity analysis presented in connection with various financial risks is based on the risk exposures at the balance sheet date.

Sensitivities are calculated by assuming a change in one of the risk factors of a financial instrument, such as interest or currency rate. When calculating the sensitivity, commonly used market conventions have been chosen in assuming a variation of 1 percentage point (100 basis points) in interest rates, a 10 percent change in foreign exchange rates and in commodity prices.

Liquidity and refinancing risk management

Liquidity or refinancing risk arises when a company is not able to arrange funding at terms and conditions corresponding to its creditworthiness. Cautious maturity distribution of interest-bearing debt and sufficient cash, short-term investments and committed and uncommitted credit facilities are maintained to protect short-term liquidity and to manage refinancing risk. Diversification of funding among different markets and an adequate number of financial institutions are used to safeguard

the availability of liquidity at all times. Treasury monitors bank account structures, cash balances and forecasts of the subsidiaries and manages the utilization of the consolidated cash resources.

At the end of 2019 Cash and cash equivalents amounted to EUR 316 million (EUR 376 million) and interest-bearing financial assets managed centrally by Treasury to EUR 42 million (EUR 44 million). Due to the global nature of operations, some of the Valmet subsidiaries are located in countries in which currency is subject to limited exchangeability or capital controls. Given Valmet’s total liquidity position, related balances are considered to be immaterial.

Valmet’s liquidity was additionally secured by a committed revolving credit facility worth of EUR 200 million, which matures in 2024, committed overdraft limits of EUR 14 million and an uncommitted domestic commercial paper program worth of EUR 200 million. In December 2019, Valmet signed a 10-year EUR 50 million loan agreement with Nordic Investment Bank. All the above facilities were undrawn at the end of the reporting period.

Net working capital management is an integral part of the liquidity risk management. Treasury monitors and forecasts net working capital fluctuations in close co-operation with the subsidiaries. Net working capital increased to EUR -426 million (EUR -474 million) as at December 31, 2019 due to e.g. large capital projects’ milestone payments.

Group’s refinancing risk is managed by balancing the proportion of current and non-current interest-bearing debt and average maturity of non-current interest-bearing debt including committed undrawn credit facility. The average maturity of non-current interest-bearing debt, including current portion, and committed undrawn credit facility as at December 31, 2019, was 3.1 years (3.7 years). The amount of current interest-bearing debt, including current portion of non-current interest-bearing debt, was 23 percent (19%) of total debt portfolio. As at December 31, 2019, Valmet’s interest-bearing liabilities consist of debt and lease liabilities, and debt portfolio includes only loans from financial institutions.

The tables below present undiscounted cash flows on the repayments and interests on Valmet’s financial liabilities (excl. lease liabilities and derivatives) by the remaining maturities from the balance sheet date to the contractual maturity date. The remaining maturities of lease liabilities are presented in Note 5, and correspondingly remaining maturities of derivatives in Note 10.

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notes to the consolidated financial statements

					2024 and
EUR million	2020	2021	2022	2023	later
Loans from fnancial institutions
Repayments	48	39	64	29	27
Interests	2	1	1	-	-
Tradepayables and other current fnancial liabilities	368	-	-	-	-
Total	418	40	65	29	27
Te information presented in above table excludes the impact of lease liabilities and derivatives.
					2023 and
EUR million	2019	2020	2021	2022	later
Loans from fnancial institutions
Repayments	39	39	30	55	38
Interests	2	2	1	1	-
Tradepayables and other current fnancial liabilities	312	-	-	-	-
Total	353	41	31	56	38

The information presented in above table excludes the impact of derivatives.

Capital structure management

The capital structure management seeks to safeguard the ongoing business operations, to ensure flexible access to capital markets and to secure adequate funding at a competitive rate. Capital structure management at Valmet comprises both equity and interest-bearing debt. As of December 31, 2019, Total equity was EUR 1,046 million (EUR 949 million) and the amount of interest-bearing debt was EUR 207 million (EUR 201 million).

Valmet has not disclosed any long-term financial ratio target for its capital structure. However, the objective of Valmet is to maintain strong capital structure in order to secure customers’, investors’, creditors’ and market confidence. The capital structure is assessed regularly by the Board of Directors and managed operationally by Treasury. Loan facility agreements include customary covenants and Valmet is in clear compliance with the covenants at the balance sheet date. Valmet has no credit rating at December 31, 2019.

	As	at Dec 31,
EUR million	2019	2018
Interest-bearingdebt	207	201
Cash and cash equivalents	316	376
Interest-bearingfnancial assets	42	44
Interest-bearingnet debt	-151	-219
Total equity	1,046	949

The information presented in above table excludes the impact of lease liabilities.

Interest rate risk management

Interest rate risk arises when changes in market interest rates and interest margins influence finance costs, returns on financial investments and valuation of interest-bearing items. The interest rate risk is managed and controlled by Treasury. The interest rate risks are managed through balancing the ratio between fixed and floating interest rates and duration of interest-bearing debt and interest-bearing financial assets.

Additionally, Valmet may use derivative instruments such as forward rate agreements, swaps, options and futures contracts to mitigate the risks arising from interest-bearing assets and liabilities. The ratio of fixed rate debt of the total debt portfolio is required to stay within the 10–60 percent range including the interest rate derivatives. The duration of the non-current interest-bearing debt, including the current portion, and the interest rate derivatives is allowed to deviate between 6–42 months.

The fixed rate interest proportion was 31 percent (36%), the duration was 1.4 years (1.5 years) and the EUR denominated debt was 100 percent (100%) of the total debt portfolio at the end of 2019. The basis for the interest rate risk sensitivity analysis is an aggregate Group level interest rate exposure, composed of interest-bearing financial assets, interest-bearing liabilities (excl. leases) and interest rate swaps, which are used to hedge the underlying exposures. The sensitivity analysis does not include interest component of foreign exchange derivatives since the impact of a one percentage point change in interest rates is not significant, assuming similar change in all currency pairs at the same time. For all interest-bearing debt, assets and interest rate derivatives to be fixed during the next 12 months a change of one percentage point upwards or downwards in interest rates with all other variables held constant would have following effect, net of taxes:

EUR million	2019	2018
Proft for theperiod	+/- 0.7	+/- 1.1
Equity	+/- 1.3	+/- 1.5

The information presented in above table excludes the impact of lease liabilities.

Valmet has used the interest rate derivatives to hedge the interest rate risk of debt portfolio. All interest rate swaps have been designated to cash flow hedge accounting relationships. The nominal and fair values of the outstanding interest rate derivative contracts are presented in Note 10.

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notes to the consolidated financial statements

Foreign exchange rate risk management

Valmet operates globally and is exposed to foreign exchange risk in several currencies, although the geographical diversity of operations decreases the significance of any individual currency. Substantial proportion of Valmet’s net sales and costs are generated in euros (EUR), US dollars (USD), Swedish kronas (SEK) and Chinese yuans (CNY).

Transaction exposure

Foreign exchange transaction exposure arises when a subsidiary has commercial or financial transactions and payments in another currency than its own functional currency and when related cash inflow and outflow amounts are not equal or concurrent.

In accordance with Valmet’s treasury policy, subsidiaries are required to hedge in full the foreign currency exposures on Consolidated statement of financial position and other firm commitments. Cash flows denominated in a currency other than the functional currency of the subsidiary are hedged with internal forward exchange contracts with Treasury for periods, which do not usually exceed two years. Subsidiar-

ies also carry out hedging directly with the banks in countries, where the regulation does not allow corporate internal cross-border contracts. Treasury monitors the net position of each currency and decides to what extent a currency position is to be closed. Treasury is responsible for entering into external forward transactions corresponding to the internal forwards whenever a subsidiary applies hedge accounting. Valmet’s treasury policy defines upper limits on the open currency exposures managed by Treasury; limits have been calculated on the basis of their potential profit or loss impact. To manage the foreign currency exposure Treasury may use forward exchange contracts and foreign exchange options. Valmet is exposed to foreign currency risk arising from both on and off-balance sheet items. The foreign currency exposure is composed of all assets and liabilities denominated in foreign currencies and their counter values in local currencies. Calculation includes external and internal short and long-term sales and purchase contracts, projected cash flows for unrecognized firm commitments and financial items, net of respective hedges. The table below illustrates Group’s outstanding foreign currency risk at the end of the reporting period:

	As at Dec 31, 2019
EUR million	EUR SEK USD CNY Others
Operational items	-26 -239 309 -198 154
of which trade receivables and other current assets	-2 -107 66 36 7
of which tradepayables and other current liabilities	-63 90 -8 -36 18
Financial items	22 -104 87 3 -8
Hedges	-4 337 -378 202 -157
under hedge accounting	9 172 -246 225 -160
notqualifyingfor hedge accounting	-13 165 -131 -24 2
Total exposure	-8 -6 18 8 -12

		As at Dec 31, 2018	As at Dec 31, 2018
EUR million	EUR	SEK	USD	CNY	Others
Operational items	-53	-191	371	-145	17
of which trade receivables and other current assets	-40	-90	99	30	1
of which tradepayables and other current liabilities	-33	17	14	-14	15
Financial items	28	20	-37	-46	35
Hedges	28	165	-326	188	-55
under hedge accounting	33	117	-321	162	10
notqualifyingfor hedge accounting	-5	48	-5	26	-65
Total exposure	4	-7	8	-3	-2

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notes to the consolidated financial statements

This Group level currency exposure is the basis for the sensitivity analysis of foreign exchange risk. Assuming euro to appreciate or depreciate 10 percent against all other currencies, the impact on cash flows, net of taxes, would be:

		As	at Dec 31, 2019	at Dec 31, 2019
EUR million	SEK	USD	CNY	Others	Total
EUR +/-10% change	+/- 0.5	-/+ 1.5	-/+ 0.6	+/- 1.0	-/+ 0.7
		As	at Dec 31, 2018
EUR million	SEK	USD	CNY	Others	Total
EUR +/-10% change	+/- 0.5	-/+ 0.6	+/- 0.2	+/- 0.2	+/- 0.3

The sensitivity analysis as required by IFRS 7, includes financial instruments, such as trade and other receivables, trade and other payables, interest-bearing liabilities, deposits, cash and cash equivalents and derivative financial instruments.

The table below presents the effects, net of taxes, of a +/- 10 percent change in EUR against all other currencies:

EUR million	2019	2018
Proft for theperiod	-/+ 4.4	-/+ 4.0
Equity	+/- 0.7	+/- 2.6

Changes in fair value of derivative contracts that qualify for cash flow hedge accounting are recorded in equity. The effect in profit or loss is the change in fair value for all other financial instruments exposed to foreign exchange risk.

The nominal and fair values of the outstanding forward exchange contracts are presented in Note 10.

Translation or equity exposure

Foreign exchange translation exposure arises when the equity, goodwill and fair value step up of a subsidiary is denominated in currency other than the functional currency of the parent company. As at December 31, 2019 the total non-EUR denominated equity, goodwill and fair value step up of the subsidiaries were EUR 408 million (EUR 310 million). The major translation exposures were in 2019 EUR 130 million in USD and EUR 97 million in CNY, and respectively in 2018 EUR 97 million in CNY and EUR 73 million in SEK. Valmet is currently not hedging any equity exposure.

Commodity risk management

Valmet is exposed to risk in variations of the prices of raw materials and of supplies including energy. Subsidiaries have identified their commodity price hedging needs and hedges have been executed through Treasury using approved counterparties and instruments. For commodity risks separate overall hedging limits are defined and approved.

Hedging is done on a rolling basis with a declining hedging level over time. Electricity exposure in the Nordic subsidiaries has been hedged with electricity forwards and fixed price physical contracts. Hedging is focused on the estimated energy consumption for the next two-year period with some contracts extended to approximately five years. The execution of electricity hedging has been outsourced to an external broker. As at December 31, 2019 Valmet had outstanding electricity forwards amounting to 175 GWh (158 GWh) and 175 GWh (206 GWh) under fixed price purchase agreements.

To reduce its exposure to the volatility caused by the surcharge for certain metal alloys (Alloy Adjustment Factor) comprised in the price of stainless steel charged by its suppliers, Valmet may enter into average-price swap agreements for nickel. The Alloy Adjustment Factor is based on monthly average-prices of its components of which nickel is the most significant. As at December 31, 2019 Valmet had 54 metric tons outstanding average-price swap agreements for nickel (0 metric tons).

The following table presenting the sensitivity analysis of the commodity prices comprises the net aggregate amount of commodities bought through forward contracts and swaps but excludes the anticipated future consumption of raw materials and electricity.

A 10 percent change upwards or downwards in commodity prices would have the following effects, net of taxes:

EUR million	2019	2018
Electricity- efect inproft for theperiod	+/- 0.0	+/- 0.0
Electricity- efect in equity	+/- 0.4	+/- 0.5
Nickel - efect inproft for theperiod	+/- 0.1	-

Cash flow hedge accounting has been applied to electricity forward contracts. The effective portion of derivatives is recognized in Equity and the ineffective portion is recognized through Consolidated statement of income. Hedge accounting is not applied to nickel agreements and the change in the fair value is recorded through Consolidated statement of income.

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notes to the consolidated financial statements

Credit and counterparty risk management

Credit or counterparty risk is defined as the possibility of a customer, subcontractor or a financial counterparty not fulfilling its commitments towards Valmet. Subsidiaries are primarily responsible for credit risks pertaining to sales and procurement activities. The subsidiaries assess the credit standing of their customers, by taking into account their financial position, past experience and other relevant factors. Advance payments, letters of credit and third-party guarantees are actively used to mitigate credit risks. Treasury provides centralized services related to trade, project and customer financing and seeks to ensure that the principles of Valmet’s treasury policy are adhered to with respect to terms of payment and required collateral. Valmet has no significant concentrations of credit risks due to the large number and geographic dispersion of companies that comprise the Group’s customer base.

The maximum credit risk equals the carrying value of trade and other receivables, together with contract assets related to contracts for which revenue is recognized over time. The credit risk quality is evaluated both on the basis of aging of the trade receivables and also on the basis of customer specific analysis. The aging structure of trade receivables is presented in Note 8. Counterparty risk arises also from financial transactions agreed upon with banks, financial institutions and corporations. The risk is managed by careful selection of banks and other counterparties and by applying counterparty specific limits and netting agreements such as ISDA (Master agreement of International Swaps and Derivatives Association), see Note 10. When measuring the financial credit risk exposure, all open exposures such as cash at bank accounts, investments, deposits and other financial transactions, for example derivative contracts, are included. The compliance with financial counterparty limits is regularly monitored by the management.

23 Investments in associates and joint ventures

Valmet Group has the following associated companies and joint ventures:

	Place of incorporation and	Share of ownership	Share of ownership		Measurement
Company name	principal place of business	Dec 31, 2019	Dec	31, 2018	method
Allimand S.A.	France	35.8%		35.8%	Equity
Valprogerenciamento de obras Ltda	Brazil	51.0%		51.0%	Equity
NanjingSAC Valmet Automation Co.,Ltd.	China	21.95%		21.95%	Equity

Allimand S.A. is a French company that provides products and services for the paper industry and its main focus is on specialty paper and midsize board machines. Allimand S.A. was established in 1850 and Valmet has been a shareholder since 1979. Allimand S.A. is an associated company that management has classified as financial investment since 2015.

Valpro gerenciamento de obras Ltda is a joint venture between Valmet and Progen, with the company attending exclusively to Valmet’s projects in the South American pulp, paper and energy market. Valpro gerenciamento de obras Ltda was established in 2013 in order to strengthen and diversify activities in Brazil. The joint venture supplies specialized technical services in the field of construction and erection management.

Valpro gerenciamento de obras Ltda is classified as joint venture, because Valmet has, together with the other shareholder, joint power to govern the company.

Nanjing SAC Valmet Automation Co., Ltd. is a company established in 2011 between Metso Automation Co., Ltd. and Guodian Nanjing Automation Co., Ltd. Guodian Nanjing Automation Co., Ltd is a public company majority owned by Huadian Power International Corporation Limited, one of the five biggest power producing companies in China.

The ownership of Metso Automation Co., Ltd. transferred to Valmet when the Group completed its acquisition of Process Automation Systems on April 1, 2015. Nanjing SAC Valmet Automation Co., Ltd. concentrates on developing new technology, products and solutions to the digital power plant concepts by combining the resources of the parties. The associated company is focusing especially on the Chinese market.

Allimand S.A., Valpro gerenciamento de obras Ltda and Nanjing SAC Valmet Automation Co., Ltd. are private companies and there are no quoted market prices available for their shares. There are no contingent liabilities relating to Valmet’s interest in Allimand S.A., Valpro gerenciamento de obras Ltda or Nanjing SAC Valmet Automation Co., Ltd. Summarized financial information for Allimand S.A. and Nanjing SAC Valmet Automation Co., Ltd. is set out below.

The summarized financial information below represents amounts shown in Allimand S.A.’s and Nanjing SAC Valmet Automation Co., Ltd.’s financial statements. Allimand S.A. is accounted based on the financial information available as August 31, since more recent information is not typically available. The current and non-current assets and liabilities, revenues and results of Valpro gerenciamento de obras Ltda are not material.

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notes to the consolidated financial statements

	Allimand S.A.	Allimand S.A.		SAC
	As at Aug 31,		As at Dec 31,
EUR million	2019	2018	2019	2018
Non-current assets	10	10	12	12
Current assets	66	40	71	77
Non-current liabilities	7	9	-	-
Current liabilities	65	33	37	43
Net assets	4	8	46	46
Valmet’s share of net assets	1	3	10	10
	Allimand S.A.			SAC
	Period ended Aug	31,	Year ended Dec 31,
EUR million	20191	20182	2019	2018
Revenue	50	44	50	62
Proft or loss	-3	-2	1	6
1Period Sep 2018–Aug 2019.
2Period Sep 2017–Aug 2018.

Carrying value of investments in associates and joint ventures:

Carrying value of investments in associates and joint ventures:
	Year	ended Dec 31,
EUR million	2019	2018
Investments in associated companies andjoint ventures
Acquisition cost at beginningand end of theperiod	8	8
Equityadjustments in investments in associated companies andjoint ventures
Equityadjustments at beginningof theperiod	6	5
Share of results,operative investments	-	1
Share of results,fnancial investments	-1	-1
Dividend income	-	-
Equity adjustments at end of theperiod	4	6
Carrying value at end of theperiod	13	14

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notes to the consolidated financial statements

24 Audit fees

In 2019, the Annual General Meeting of Valmet Oyj elected Authorised Public Accountants PricewaterhouseCoopers Oy as Valmet Oyj’s auditor. The below table presents fees for audit and other services provided by PricewaterhouseCoopers Oy and its affiliates (PwC) to Valmet Group.

Group.
		Year ended Dec 31,
		2019		2018
EUR million	PwC	Others	PwC		Others
Audit	-1.7	-0.3	-1.7		-0.2
Tax consulting	-0.2	-0.9	-0.2		-0.5
Other services	-0.2	-0.3	-0.3		-0.3
Total	-2.2	-1.5	-2.2		-1.0

In 2019, PricewaterhouseCoopers Oy has provided non-audit services to entities of Valmet Group in total of EUR 0.2 million (EUR 0.3 million) with the services consisting of auditors’ statements, tax and other services.

25 Contingencies and commitments

Valmet Oyj, with its subsidiaries, and financial institutions have guaranteed commitments arising from the ordinary course of business of Valmet Group up to a maximum of EUR 998 million and EUR 876 million as at December 31, 2019 and 2018, respectively.

As at December 31, 2019, Valmet entities are subject to tax audits in several jurisdictions. Liabilities and assets are recognized with respect to income tax amounts management is expecting to pay and recover,

respectively. No liability is recognized when it is considered probable that items reported to tax authorities can be sustained on examination. Complex and constantly changing regulations in multiple jurisdictions where Valmet operates create uncertainties relating to tax obligations towards authorities. Changes in the tax authorities’ interpretations could have an unfavorable impact on Valmet’s financials.

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notes to the consolidated financial statements

26 Related party information

Valmet’s related parties include Valmet Group companies (see Note 27 and associated companies and joint ventures (see Note 23) as well as the members of Valmet’s Board of Directors and Executive Team.

Remuneration of Chief Executive Officer and other Executive Team members

The table below presents the expenses related to management compensation that have been recognized in profit or loss. More information about share-based payments is presented in Note 15.

	Salaries and
	other short-term	Performance	Share-based	Post-retirement
EUR thousand	benefts	bonuses	payments	benefts	Total
2019
President and CEO	-680	-492	-510	-293	-1,976
Other Executive Team members	-3,125	-1,233	-1,842	-1,253	-7,452
Total	-3,805	-1,725	-2,353	-1,546	-9,428
2018
President and CEO	-664	-290	-566	-289	-1,808
Other Executive Team members	-3,190	-1,023	-2,479	-1,231	-7,924
Total	-3,854	-1,313	-3,045	-1,520	-9,732

The President and CEO is entitled to retire when reaching 63 years of age. All other Executive Team members belong to the pension systems of their country of residence and have a statutory retirement age. The President and CEO and members of the Executive Team belong to supplementary defined contribution pension plans. Contributions to the

plans are 15–20 percent of the employee’s annual salary. Expenses are included in the post-retirement benefits together with statutory pension benefits presented in the table above. The final benefit received by the employee depends on the return on the plan’s investments.

Remuneration paid to members of the Board of Directors

EUR thousand	2019
Bo Risberg,Chairman until March 21,2019	-7
Mikael Mäkinen,Chairman since March 21,2019	-123
Aaro Cantell,Vice Chairman	-80
Pekka Kemppainen,Member	-71
Monika Maurer,Member	-77
Eriikka Söderström,Member	-78
Tarja Tyni,Member	-71
Rogério Ziviani,Member	-81
Riina Vilander,Personnel Representative	-7
Total	-593

As at December 31, 2019, the aggregate shareholding of the Board of Directors, the President and CEO and other Executive Team members was 628,493 shares (574,433 shares as at December 31, 2018).

Valmet has no loan receivables from the Executive Team or the members of the Board of Directors. No pledges or other commitments have been given on behalf of management or shareholders.

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notes to the consolidated financial statements

27 Group companies

27 Group companies
	Country of
	incorporation and			Group ownership
Company name	place of business	Primary nature of business	Parent holding, %	interest, %
Valmet Automation PtyLtd1	Australia	Sales	-	100.0
Valmet PtyLtd	Australia	Sales	-	100.0
Valmet GesmbH	Austria	Sales	-	100.0
Valmet Celulose Papel e Energia Ltda	Brazil	Manufacturing	-	100.0
Valmet Fabrics Tecidos Técnicos Ltda	Brazil	Manufacturing	-	100.0
GL&V Brasil Equipamentos,Comércio e Serviços Ltda	Brazil	Sales	-	100.0
Valmet Ltd.	Canada	Sales	-	100.0
Valmet Technologies and Services Ltd.	Canada	Holding	-	100.0
Valmet S.A.	Chile	Sales	-	100.0
Valmet(China)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Automation(Shanghai)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Fabrics(China)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Paper(Shanghai)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Paper Technology (China)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Paper Technology (Guangzhou)Co.,Ltd.	China	Manufacturing	-	100.0
Valmet Paper Technology (Xi’an)Co.,Ltd.	China	Manufacturing	-	75.0
Valmet Technologies Co.,Ltd.	China	Sales	-	100.0
Valmet d.o.o.	Croatia	Manufacturing	-	100.0
Valmet s.r.o.	Czech Republic	Manufacturing	-	100.0
Valmet Technologies Oü	Estonia	Sales	-	100.0
Valmet Automation Oy	Finland	Manufacturing	100.0	100.0
Valmet Kauttua Oy	Finland	Manufacturing	-	100.0
Valmet Technologies Oy	Finland	Manufacturing	100.0	100.0
TamPulpingOy	Finland	Manufacturing	-	100.0
GL&V France S.à.r.l.	France	Sales	-	100.0
Valmet Automation SAS	France	Sales	-	100.0
Valmet SAS	France	Manufacturing	-	100.0
Valmet Deutschland GmbH	Germany	Holding	-	100.0
Valmet GmbH	Germany	Sales	-	100.0
Valmet PlattlingGmbH	Germany	Sales	-	100.0
GL&V India Private Limited	India	Manufacturing	-	100.0
Valmet Technologies Private Limited	India	Manufacturing	-	100.0
PT Valmet	Indonesia	Sales	-	100.0
PT Valmet Automation Indonesia	Indonesia	Sales	-	100.0
PT Valmet TechnologyCenter	Indonesia	Manufacturing	-	100.0

1 Under liquidation.

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notes to the consolidated financial statements

	Country of
	incorporation and			Group ownership
Company name	place of business	Primary nature of business	Parent holding, %	interest, %
Valmet Como S.r.l1	Italy	Manufacturing	-	100.0
Valmet S.p.A.	Italy	Manufacturing	-	100.0
Valmet K.K.	Japan	Sales	-	100.0
GL&V LuxemburgS.à.r.l.	Luxembourg	Holding	-	100.0
Valmet Technologies Sdn. Bhd.	Malaysia	Sales	-	100.0
Valmet Technologies S. de R.L. de C.V.	Mexico	Sales	-	100.0
Valmet B.V.	Netherlands	Sales	-	100.0
Valmet AS	Norway	Sales	-	100.0
Valmet Automation Sp. z o.o.	Poland	Manufacturing	-	100.0
Valmet Technologies Sp. z o.o.1	Poland	Manufacturing	-	100.0
Valmet Lda	Portugal	Manufacturing	-	100.0
Valmet Inc.	Republic of Korea	Sales	-	100.0
Valmet Automation JSC	Russia	Sales	-	100.0
Valmet Pte. Ltd.	Singapore	Sales	-	100.0
Valmet South Africa(Pty)Ltd	South Africa	Sales	-	100.0
GL&V Industrial Equipment S.L.	Spain	Sales	-	100.0
Valmet Technologies,S.A.U.	Spain	Manufacturing	-	100.0
Valmet Technologies Zaragoza,S.L.	Spain	Manufacturing	-	81.0
Valmet AB	Sweden	Manufacturing	100.0	100.0
Valmet Technologies and Services AB	Sweden	Manufacturing	-	100.0
Valmet Automation Co.,Ltd.1	Tailand	Sales	-	100.0
Valmet Co. Ltd.	Tailand	Sales	-	100.0
Valmet Selüloz Kagit ve Enerji Teknolojileri A.S.	Turkey	Sales	-	100.0
Valmet Process Technologies and Services LLC2	United Arab Emirates	Sales	-	49.0
Valmet Automation Limited	United Kingdom	Sales	-	100.0
Valmet Ltd	United Kingdom	Manufacturing	-	100.0
Valmet,Inc.	USA	Sales	90.0	100.0
GL&V US Corporation	USA	Holding	-	100.0
GL&V USA Inc.	USA	Sales	-	100.0
J&L Fiber Services Inc.	USA	Manufacturing	-	100.0
Valmet Technologies and Services Co.,Ltd.	Vietnam	Sales	-	100.0
Allimand S.A.	France	Manufacturing	-	35.8
Valprogerenciamento de obras Ltda	Brazil	Manufacturing	-	51.0
NanjingSAC Valmet Automation Co.,Ltd.	China	Manufacturing	-	21.95

1 Under liquidation.

2 Based on contractual arrangement, the Group has full control of the company and is consolidating the entity 100%.

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notes to the consolidated financial statements

28 Events after the reporting period

Valmet is planning changes in the Fabrics Business Unit which is part of the Services Business Line in order to secure the unit’s profitability and future competitiveness. The most important action in the preliminary plan is to move the dryer fabric and wide filter fabric production from Tampere in Finland to Valmet’s unit in Portugal. The possible actions will have employee impacts. The functions under consideration are part of Valmet Technologies Oy.

As a consequence of the above, Valmet starts co-determination negotiations in Fabrics’ operations in Tampere on January 21, 2020. The co-determination negotiations are estimated to last six weeks and they

include Fabrics’ personnel in Tampere. The co-determination negotiations can result in the reduction of 90 persons at maximum mainly during year 2021 by estimate, and in possible temporary lay-offs and part-time work during 2020. Fabrics Business Unit employs altogether approximately 500 persons in its Tampere operations.

Fabrics Business Unit develops and manufactures press felts, shoe press belts, dryer fabrics and wide filter fabrics in Tampere. Valmet’s location in Portugal, to which the dryer fabric and wide filter fabric production possibly is relocated, develops and manufactures filter fabrics and other industrial textiles.

29 New accounting standards

New and amended standards adopted by the Group

In the current year, the Group has adopted new standards and interpretations into its accounting and reporting, including but not limited to IFRS 16 – Leases, and IFRIC 23 – Uncertainty over income tax treatments. The impact of adoption of IFRS 16 – Leases and IFRIC 23 – Uncertainty over income tax treatments has been described in connection with related notes. The requirements of other amendments effective as of January 1, 2019 did not have a material impact on the results or financial position of Valmet Group, or the presentation of financial statements.

New standards and interpretations not yet adopted

Several standards and interpretations have been published by IASB that apply for the first time to financial reporting periods commencing on or after January 1, 2020. These standards and interpretations are not expected to have a material impact on the results or financial position of Valmet Group, or the presentation of financial statements.

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parent company financial statements

Parent company statement of income, FAS

			Year ended Dec 31,
EUR	Note	2019	2018
Other operatingincome	3	10,838,193.53	15,856,973.09
Personnel expenses	2	-14,728,267.05	-14,204,347.47
Depreciation and amortization		-597,688.89	-739,682.02
Other operatingexpenses	3,4	-13,267,056.52	-9,882,753.46
Operating proft		-17,754,818.93	-8,969,809.86
Financial income and expenses,net	5	90,917,262.30	108,034,096.02
Proft before appropriations and taxes		73,162,443.37	99,064,286.16
Groupcontributions		149,958,000.00	84,822,000.00
Income taxes	7	-27,041,995.92	-15,830,576.41
Proft for theperiod		196,078,447.45	168,055,709.75

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parent company financial statements

Parent company statement of financial position, FAS

Assets

			As at Dec 31,
EUR	Note	2019	2018
Non-current assets
Intangible assets	8	649,325.77	17,365.91
Property, plant and equipment	8	5,379,449.39	5,344,892.12
Equityinvestments	9	1,406,965,321.58	1,406,969,358.09
Non-current receivables	11,12	101,367,277.65	89,439,141.69
Total non-current assets		1,514,361,374.39	1,501,770,757.81
Current assets
Current receivables	11,12	242,002,524.76	224,654,553.38
Cash and cash equivalents		161,342,716.19	255,022,420.86
Total current assets		403,345,240.95	479,676,974.24
Total assets		1,917,706,615.34	1,981,447,732.05

Equity and liabilities

			As at Dec 31,
EUR	Note	2019	2018
Equity	13
Share capital		100,000,000.00	100,000,000.00
Reserve for invested unrestricted equity		426,089,982.39	421,486,120.98
Hedge and other reserves		-1,682,300.40	-1,134,188.30
Retained earnings		543,592,872.14	476,964,301.39
Proft for theperiod		196,078,447.45	168,055,709.75
Total equity		1,264,079,001.58	1,165,371,943.82
Liabilities
Non-current liabilities	12,14	163,377,372.04	165,540,127.00
Current liabilities	12,15	490,250,241.72	650,535,661.23
Total liabilities		653,627,613.76	816,075,788.23
Total equity and liabilities		1,917,706,615.34	1,981,447,732.05

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parent company financial statements

Parent company statement of cash flows, FAS

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Cash fows from operating activities:
Proft before appropriations and taxes	73,162	99,064
Adjustments
Depreciation and amortization	598	740
Financial income and expenses,net	-90,917	-108,034
Other non-cash items	-6,000	-2,732
Total adjustments	-96,319	-110,026
Change in workingcapital	7,992	-187
Interest and other fnancial expensespaid	-11,266	-10,493
Dividends received	92,314	107,752
Interest and other fnancial income received	11,034	11,288
Income taxespaid	-17,374	-19,677
Net cashprovided by (+) / used in(-) operating activities	59,543	77,722
Cash fows from investing activities:
Investments in tangible and intangible assets	-1,265	-45
Proceeds from sale of tangible and intangible assets	-	-
Net increase(-)/ decrease(+)in loan receivables from Groupcompanies	-11,344	-6,879
Proceeds from sale of subsidiaryshares	-	1,024
Other investments	-4	-
Net cashprovided by (+) / used in(-) investing activities	-12,614	-5,901
Cash fows from fnancing activities:
Purchase of treasuryshares	-4,174	-3,859
Issue of treasuryshares to Groupcompanies	3,440	2,475
Dividendspaid	-97,253	-82,279
Groupcontribution received	84,822	70,740
Proceeds from non-current debt	45,000	-
Repayments of non-current debt	-39,111	-18,000
Netproceeds(+)/ repayments(-)of debt from Groupcompanies	-18,361	15,895
Net increase(+)/ decrease(-)in Group pool accounts	-156,108	73,920
Financial investments	41,135	-41,135
Net cashprovided by (+) / used in(-) fnancing activities	-140,609	17,757
Net increase(+)/ decrease(-)in cash and cash equivalents	-93,680	89,578
Cash and cash equivalents at beginningof theperiod	255,022	165,444
Cash and cash equivalents at end of theperiod	161,343	255,022

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notes to parent company financial statements

Notes to parent company financial statements

1 Accounting principles

The parent company’s financial statements have been prepared in accordance with the Finnish Accounting Standards (FAS).

Non-current assets

Tangible and intangible assets are measured at historical cost, less accumulated depreciation according to plan. Land and water areas are not depreciated.

Depreciation and amortization are calculated on a straight-line basis over the expected useful lives of the assets as follows:

Other intangible assets	10 years
Buildings and structures	12–30 years
Machinery and equipment	5–10 years
Other tangible assets	20 years

Investments in subsidiaries and other companies are measured at acquisition cost, or fair value in case the fair value is lower than cost.

income and expenses concurrently with interest expense arising from hedged floating rate debt.

The derivative contracts used to hedge the commodity risk related to electricity and nickel are measured at fair value, and the changes in fair values are recognized in Other operating income and expenses in profit or loss. The fair value of commodity derivatives is based on quoted market prices at the balance sheet date.

Interest-bearing financial investments managed centrally by the Treasury are measured at fair value. The change in the fair value is recognized in fair value reserve within Equity in the Statement of financial position. The fair values of the interest-bearing financial assets are determined using prevailing market rates at the balance sheet date.

Pensions

An external pension insurance company manages the parent company’s statutory and voluntary pension plans that are all defined contribution in nature. Contributions are expensed to the Statement of income as incurred.

Financial instruments

Valmet’s financial risk management is carried out centrally by the Group treasury (hereafter Treasury) under annually reviewed written policies approved by Valmet’s Board of Directors. Treasury functions in co-operation with the operating units to minimize financial risks to both the parent company and the Group.

Forward exchange derivative contracts are used to hedge foreign exchange rate risk, and these instruments are measured at fair value. The change in the fair value of derivative instruments used to hedge operative items (e.g. foreign currency denominated sales and purchase transactions) is reported under Other operating income and expenses in profit or loss. The change in the fair value of derivatives used to hedge non-operative items (e.g. interest-bearing financial assets and liabilities, and other items related to funding) are reported under Financial income and expenses in profit or loss. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date.

Cash flow hedge accounting is applied to interest rate swaps hedging future changes in cash flows arising from floating rate debt. The fair value of the interest rate swaps is calculated as the present value of the estimated future cash flows arising from the contract. The gain or loss related to the ineffective portion of hedging instruments is expensed immediately and is reported under Financial income and expenses. Interest arising from interest rate swaps is reported under Financial

Deferred taxes

A deferred tax liability or asset has been calculated for all temporary differences between tax bases of assets and liabilities and their amounts in financial reporting, using the tax rates enacted or substantially enacted by the balance sheet date. The deferred tax liabilities are recognized in the Statement of financial position in full, and the deferred tax assets are recognized when it is probable that there will be sufficient taxable profit against which the asset can be utilized.

Foreign currency transactions

Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the individual transaction. Foreign currency denominated monetary items recognized in the Statement of financial position have been translated into the functional currency at the exchange rates prevailing at the balance sheet date. Exchange rate gains and losses related to operative items are reported under Other operating income and expenses in the Statement of income, whereas exchange rate gains and losses related to non-operative items are reported under Financial income and expenses.

Receivables

Receivables are initially recognized at nominal amounts. Subsequently they are measured at amortized cost, less provision for impairment.

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notes to parent company financial statements

Share-based incentive plan

Rewards arising from share-based incentive plans are settled partly in shares and partly in cash. The shares to be transferred as part of the plan are obtained in public trading. The acquisition of shares is recognized as decrease in Retained earnings and transfer of shares as increase in

Reserve for invested unrestricted equity and Personnel expenses. The part settled in cash is recognized in the Statement of income under Personnel expenses at the time of payment.

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2
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Personnel expenses

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Salaries and wages	-12,421	-11,505
Pension costs	-2,006	-2,154
Other indirect employee costs	-301	-545
Total	-14,728	-14,204

Remuneration to management:

Remuneration to management:
	Year ended Dec 31,
EUR thousand	2019	2018
Chief Executive Ofcer	-1,976	-1,808
Members of the Board	-593	-535
Total	-2,569	-2,343

The President and CEO is entitled to retire when reaching 63 years of age. The President and CEO belongs to a supplementary defined contribution plan. The contribution to the plan is 20 percent of his annual salary.

Expenses are included in the remuneration to management table above. Additional information on management remuneration is presented in Note 26 of the Consolidated financial statements.

Number of personnel:

	2019	2018
Personnel at end of theperiod	101	95
Average number ofpersonnel duringtheperiod	102	95

3 Other operating income and expenses

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Services for Groupcompanies	10,838	15,379
Gain on sale of subsidiary	-	478
Other operating income, total	10,838	15,857
Consultingand other services	-7,311	-7,629
IT	-1,627	-1,536
Valuation of derivatives	-596	3,181
Other	-3,733	-3,899
Other operating expenses, total	-13,267	-9,883

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notes to parent company financial statements

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4 Audit fees
----- End of picture text -----

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Audit	-525	-575
Tax consulting	-10	-19
Other services	-402	-268
Total	-937	-862

5 Financial income and expenses

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Dividends received
Groupcompanies	91,882	107,752
Others	432	-
Interest income
Groupcompanies	7,689	7,481
Others	2,359	3,657
Other fnancial income
Groupcompanies	4,854	5,137
Others	50,572	43,274
Interest expenses
Groupcompanies	-2,082	-3,362
Others	-7,874	-6,408
Other fnancial expenses
Groupcompanies	-1,425	-3,108
Others	-55,489	-46,390
Total	90,917	108,034

6 Changes in fair value recognized in income statement

	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Other operatingexpenses
Changes in fair value of derivatives	-596	3,181
Other fnancial expenses
Changes in fair value of derivatives	-5,346	-2,162

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notes to parent company financial statements

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7 Income taxes
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	Year ended Dec 31,	Year ended Dec 31,
EUR thousand	2019	2018
Income tax for the fnancialperiod	-27,012	-15,497
Income tax forpriorperiods	-5	-355
Change in deferred taxes	-26	21
Total	-27,042	-15,831

8 Intangible assets and property, plant and equipment

8 Intangible assets and p	roperty, p	lant and	equipmen	t
			Buildings	Machinery	Other
	Intangible		and	and	tangible	Tangible
EUR thousand	assets	Land areas	structures	equipment	assets	assets total	Total
2018
Acquisition cost at beginningof theperiod	331	809	8,473	592	557	10,432	10,763
Additions	-	-	45	-	-	45	45
Retirements	-	-	-	-	-	-	-
Acquisition cost at end of theperiod	331	809	8,518	592	557	10,477	10,808
Accumulated depreciation at beginning of the
period	-252	-	-3,850	-449	-154	-4,453	-4,705
Depreciation charges for theperiod	-61	-	-536	-119	-25	-680	-740
Retirements	-	-	-	-	-	-	-
Accumulated depreciation at end of theperiod	-314	-	-4,386	-568	-180	-5,132	-5,445
Carrying value at end of theperiod	17	809	4,133	25	378	5,345	5,362
			Buildings	Machinery	Other
	Intangible		and	and	tangible	Tangible
EUR thousand	assets	Land areas	structures	equipment	assets	assets total	Total
2019
Acquisition cost at beginningof theperiod	331	809	8,518	592	557	10,477	10,808
Additions	636	-	628	-	-	628	1,265
Retirements	-	-	-	-1	-	-1	-1
Acquisition cost at end of theperiod	968	809	9,146	591	557	11,104	12,071
Accumulated depreciation at beginning of the
period	-314	-	-4,386	-568	-180	-5,132	-5,445
Depreciation charges for theperiod	-4	-	-544	-25	-25	-593	-598
Retirements	-	-	-	1	-	1	1
Accumulated depreciation at end of theperiod	-318	-	-4,929	-591	-205	-5,725	-6,042
Carrying value at end of theperiod	649	809	4,218	-	352	5,379	6,029

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notes to parent company financial statements

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9 Investments
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		Shares
EUR thousand	Group companies	Others	Investments total
2018
Acquisition cost at beginningof theperiod	1,406,013	1,498	1,407,511
Disposals	-542	-	-542
Acquisition cost at end of theperiod	1,405,471	1,498	1,406,969
Carrying value at end of theperiod	1,405,471	1,498	1,406,969
		Shares
EUR thousand	Group companies	Others	Investments total
2019
Acquisition cost at beginningof theperiod	1,405,471	1,498	1,406,969
Disposals	-	-4	-4
Acquisition cost at end of theperiod	1,405,471	1,494	1,406,965
Carrying value at end of theperiod	1,405,471	1,494	1,406,965

10 Shareholdings in Group companies

Company name	Domicile	Ownership %
Valmet Technologies Oy	Finland,Helsinki	100.0
Valmet AB	Sweden,Sundsvall	100.0
Valmet,Inc.	USA,Duluth	90.0
Valmet Automation Oy	Finland,Helsinki	100.0

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notes to parent company financial statements

11 Specification of receivables

Non-current receivables:

Non-current receivables:
		As at Dec 31,
EUR thousand	2019	2018
Loan receivables from Groupcompanies	96,322	83,946
Deferred tax assets	867	752
Derivatives	4,179	4,741
Non-current receivables total	101,367	89,439

Current receivables:

Current receivables:
		As at Dec 31,
EUR thousand	2019	2018
Trade receivables from
Groupcompanies	8,201	11,371
Others	23	79
Total	8,224	11,450
Loan receivables from
Groupcompanies	39,383	35,205
Group pool accounts	9,235	8,630
Total	48,617	43,836
Prepaid expenses and accrued income from
Groupcompanies	166,788	112,198
Others	18,290	56,591
Total	185,078	168,789
Other receivables	82	580
Current receivables total	242,003	224,655
Current receivables from Groupcompanies total	223,607	167,404

Specification of prepaid expenses and accrued income:

Specifcation of prepaid expenses and accrued income:
		As at Dec 31,
EUR thousand	2019	2018
Prepaid expenses and accrued income from Groupcompanies
Groupcontribution receivables	149,958	84,822
Accrued interest income	1,928	2,685
Derivatives	13,943	24,501
Other	960	190
Total	166,788	112,198
Otherprepaid expenses and accrued income
Derivatives	16,905	55,187
Other accrued items	1,385	1,404
Total	18,290	56,591

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notes to parent company financial statements

12 Financial assets and liabilities recognized at fair value

Notional amounts and fair values as at December 31 are as follows:

			Changes in fair value	Changes in fair value
EUR thousand	Notional amount	Fair value	recognized in proft or loss	recognized in hedge reserve
2018
Forward exchange contracts
With Groupcompanies	2,071,748	9,656	35,132	-
Others	2,333,414	-10,966	-36,390	-
Interest rate swaps1
Others	30,000	-1,438	-141	-1,438
Electricityforward contracts2
Others	158	2,257	2,418	-
Interest-bearingfnancial investments
Others	41,114	41,139	-	25
			Changes in fair value	Changes in fair value
EUR thousand	Notional amount	Fair value	recognized in proft or loss	recognized in hedge reserve
2019
Forward exchange contracts
With Groupcompanies	2,663,451	13,905	15,790	-
Others	2,868,484	4,477	-19,747	-
Interest rate swaps1
Others	30,000	-2,219	-6	-2,219
Electricityforward contracts2
Others	175	272	-1,985	-
Nickel commodityswaps3
With Groupcompanies	54	38	38	-
Others	54	-38	-38	-

1 All interest rate swaps have been designated to cash flow hedge accounting relationships.

2 Notional amount in GWh.

3 Notional amount in metric tons.

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notes to parent company financial statements

13 Statement of changes in equity

		Year ended Dec 31,
EUR thousand	2019	2018
Share capital at beginningof theperiod	100,000	100,000
Share capital at end of theperiod	100,000	100,000
Reserve for invested unrestricted equityat beginningof theperiod	421,486	418,279
Share-basedpayments	4,604	3,207
Reserve for invested unrestricted equityat end of theperiod	426,090	421,486
Hedge and other reserves at beginningof theperiod	-1,134	-904
Additions	-548	-230
Hedge and other reserves at end of theperiod	-1,682	-1,134
Retained earnings at beginningof theperiod	645,020	563,102
Dividendspaid	-97,253	-82,279
Purchase of treasuryshares	-4,174	-3,859
Retained earnings at end of theperiod	543,593	476,964
Proft for theperiod	196,078	168,056
Total equity at end of theperiod	1,264,079	1,165,372

Statement of distributable funds:

Statement of distributable funds:
		As at Dec 31,
EUR	2019	2018
Reserve for invested unrestricted equity	426,089,982.39	421,486,120.98
Retained earnings	543,592,872.14	476,964,301.39
Proft for theperiod	196,078,447.45	168,055,709.75
Total distributable funds	1,165,761,301.98	1,066,506,132.12

14 Non-current liabilities

		As at Dec 31,
EUR thousand	2019		2018
Loans from fnancial institutions	158,778		161,889
Derivatives	4,600		3,651
Non-current liabilities total	163,377		165,540

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notes to parent company financial statements

15 Current liabilities

		As at Dec 31,
EUR thousand	2019	2018
Currentportion of non-current loans	48,111	39,111
Tradepayables to
Groupcompanies	1,230	1,235
Others	3,103	1,969
Total	4,334	3,204
Accrued expenses and deferred income to
Groupcompanies	21,592	15,375
Others	32,285	34,191
Total	53,877	49,566
Other current interest-bearingdebt to Groupcompanies	45,793	64,740
Group pool accounts	337,662	493,166
Other liabilities	474	749
Current liabilities total	490,250	650,536
Current liabilities to Groupcompanies total	406,277	574,515

Specification of accrued expenses and deferred income:

Specifcation of accrued expenses and deferred income:
		As at Dec 31,
EUR thousand	2019	2018
Accrued expenses and deferred income to Groupcompanies
Accrued interest expenses	37	279
Derivatives	21,515	14,845
Other accrued items	41	251
Total	21,592	15,375
Accrued expenses and deferred income to others
Accrued interest expenses	1,169	1,432
Derivatives	13,877	25,289
Accrued salaries,wages and social costs	3,408	3,076
Accrued income taxes	13,392	3,749
Other accrued items	440	645
Total	32,285	34,191

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notes to parent company financial statements

16 Other contingencies

Guarantees:

Guarantees:
		As at Dec 31,
EUR thousand	2019	2018
Guarantees on behalf of Groupcompanies	930,909	809,048
Lease commitments:
		As at Dec 31,
EUR thousand	2019	2018
Payments in the following period	756	662
Payments later	720	1,312
Total	1,476	1,974

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list of account books used in parent company

List of account books used in parent company

Voucher description	Voucher class	Voucher format
Generaljournal andgeneral ledger		In electronic format
Specifcations of accounts receivable andpayable		In electronic format
Fixed assets transactions	778,782,786	In electronic format
Bank transactions	425,500-692,730,950	In electronic format
Sales invoices	300,310,491,493,802,930	In electronic format
Purchase invoices	100,110,140,290,291,293,801	In electronic format
Travel invoices	755	In electronic format
Salarytransactions	750	In electronic format
Journal vouchers	700,710,715,720,740,756,900	In electronic format
Financial transactions	760	In electronic format
Openingbalance	791	In electronic format

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Signatures of Board of Directors’ Report and Financial Statements

Espoo, February 5, 2020

Mikael Mäkinen Aaro Cantell Chairman of the Board Vice Chairman of the Board Pekka Kemppainen Monika Maurer Eriikka Söderström Member of the Board Member of the Board Member of the Board Tarja Tyni Rogério Ziviani Member of the Board Member of the Board Pasi Laine President and CEO

The Auditor’s Note

Our auditor’s report has been issued today.

Helsinki, February 5, 2020

PricewaterhouseCoopers Oy Authorised Public Accountant Firm

Jouko Malinen

Authorised Public Accountant

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Auditor’s Report (Translation of the Finnish Original)

To the Annual General Meeting of Valmet Oyj

Report on the Audit of the Financial Statements

Opinion

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 23 to the Financial Statement.

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 Valmet Oyj (business identity code 2553019-8) for the year ended 31 December, 2019. The financial statements comprise:

• the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, 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, statement of cash flows and notes.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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

Our Audit Approach

Overview

• Overall group materiality: € 13 million, which represents 5% of adjusted profit before tax

• Materiality • We conducted audit work in all major countries covering all key reporting units. The focus of our

• Group work was on the most significant

• scoping reporting units in Finland, Sweden, USA, Brazil and China.

• • Accounting for long-term capital

• Key audit matters projects and long-term service contracts

• Timing of revenue recognition for service contracts and automation business related contracts

• Goodwill valuation

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

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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	€ 13 million (previous year € 10 million)
How we
determined it	5% of adjusted proft before tax
Rationale for	Proft before tax is a generally accepted
the materiality	benchmark. We chose 5%, which is within
benchmark	the range of acceptable quantitative materi-
applied	ality thresholds in auditing standards.

and judgments are mainly related to the estimation of project cost, which serves as a basis for the determination of the percentage of completion, which the group applies for recognizing revenues and for the assessment of provisions for projects and potential loss-making contracts.

The total amount of revenue and profit to be recognized under longterm capital projects and long-term service contracts can be affected by changes in conditions and circumstances over time, such as:

• modifications and scope changes to the original contract due to changes in client specifications

• uncertainties and risks relating to assumptions utilized in the estimation of project cost, components delays, overruns or other circumstances that impacts the project cost of completion.

This matter is a significant risk of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014.

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.

We conducted audit work in all key countries covering all key reporting units. The group audit scope was focused on the most significant reporting units in Finland, Sweden, USA, Brazil, and China, where we performed an audit of the complete financial information due to their size and their risk characteristics. We also carried out specific audit procedures over group functions and areas of significant judgement, including taxation, goodwill and material litigation. For the remaining reporting units, we performed other procedures to confirm there were no significant risks of material misstatement in the group 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

How our audit addressed the key audit matter

Our procedures included understanding of the end-to-end revenue recognition process relating to long-term capital projects and longterm service contracts. We identified and tested certain key internal controls and IT systems supporting revenue recognition and project management and accounting.

We have met and discussed regularly with business line and corporate management to identify new significant and high-risk projects, existing projects with significant fluctuations in gross margins, and potentially loss-making projects, including those with ongoing disputes and litigations.

We have performed detailed procedures on individually significant and high-risk projects. This includes assessing the reasonableness of estimated project cost of completion by obtaining a detailed understanding of the cost model and key assumptions utilized in the estimates, and challenging management’s judgments and estimates. In addition, we have also inspected pricing and sales forecasts, and other relevant supporting evidences utilized in the development of cost estimates such as historical data, price quotations, and engineering specifications.

In addition, we have discussed the progress of projects with business line management and certain project management representatives.

Further, we have performed a lookback analysis by comparing actual project outcomes to their related cost estimates to obtain perspective on the accuracy of the estimation process.

With the outcome of those discussions and the results of our audit procedures, we assessed management’s assumptions in the determination of the project cost estimate.

Accounting for long-term capital projects and long-term

service contracts

Refer to note 3 to the consolidated financial statements for the related disclosures.

Over time revenue recognition for long-term capital projects and long-term service contracts is significant to the financial statements based on the quantitative materiality and the degree of management judgment required to account for revenue recognition. The complexity

Timing of revenue recognition for service contracts and automation business related contracts

Refer to note 3 to the consolidated financial statements for the related disclosures.

The company has several revenue streams relating to service and automation contracts.

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We focused on this area because the significant portion of the group net sales arising from these businesses and the level of management judgment required in regards of timing the net sales for certain of these revenue streams. Uncertainties relates to in determining whether revenue transactions have been recorded in the correct period in relation to the point in time when the control has transferred to the customer based on delivery or shipping terms.

to identify how much each of these key drivers needed to change, either individually or collectively, before the goodwill was impaired.

We also evaluated the likelihood of such a movement in those key assumptions that would require for goodwill to be impaired.

We assessed the adequacy of the disclosures in note 4, by checking that they were compliant with IFRSs and that their presentation was consistent with our understanding of the key issues and sensitivities in the valuation.

How our audit addressed the key audit matter

Our procedures included understanding of the end-to- end revenue recognition process underlying revenue recognition process.

Through this, we have identified the appropriate period before and after year-end wherein risk of misstatement is likely to arise, and tested revenue transactions in these periods and inspected supporting evidences including customer contracts and sales orders, invoices, delivery and freight documents, and collection supports.

We have also tested credit notes issued subsequent to year-end to identify potential indicators of premature revenue recognition in relation to billing goods or services that do not meet the agreed delivery terms.

Goodwill valuation

Refer to note 4 to the consolidated financial statements for the related disclosures.

At 31 December 2019 the group’s goodwill balance is valued at 685 million euro. Under IFRS the company is required to annually test goodwill for impairment. Goodwill valuation was important to our audit due to the size of the goodwill balance and because the assessment of the value in use of the group’s Cash Generating Units s is complex, involving judgement about the future results of the business by estimating future, EBITDAs and inflation rates and determining the discount rate for the calculations. We focused on the risk that goodwill may be overstated.

Based on the annual goodwill impairment test management concluded that no goodwill impairment was needed.

We have no key audit matters to report with respect to our audit of the parent company financial statements.

There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the 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 International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so.

How our audit addressed the key audit matter

We evaluated management’s future cash flow forecasts and the process by which they were drawn up, including comparing them to the latest Board approved budgets, and testing the underlying calculations. We evaluated and challenged the company’s future cash flow forecasts in a discussion with management of the business involved, and the process by which they were drawn up, and tested the underlying value in use calculations. We compared the current year actual results to the figures for the financial year ended 31 December 2019 included in the prior year impairment models to consider whether any forecasts included assumptions that have proven to be optimistic.

We evaluated and challenged the discount rate used.

We assessed the sensitivity analysis that had been performed by management around the key drivers of the cash flow forecasts, which were:

• the projected EBITDAs

• the discount rate

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:

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• 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 March 2014. Our appointment represents a total period of uninterrupted engagement of 6 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 5 February 2020

PricewaterhouseCoopers Oy Authorised Public Accountants

Jouko Malinen

Authorised Public Accountant (KHT)

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board of directors

Board of Directors

==> picture [86 x 104] intentionally omitted <==

Mikael Mäkinen

born 1956, Finnish citizen

Valmet Board Member and Chairman of the Board since 2019 Chairman of the Board’s Remuneration and HR Committee Independent of the company and independent of significant shareholders M.Sc. (Eng.)

Board Member of Finnlines Oyj

==> picture [86 x 105] intentionally omitted <==

Aaro Cantell

born 1964, Finnish citizen

Valmet Board Member since 2016

Vice Chairman of the Board since 2018

Member of the Board’s Remuneration and HR Committee

Independent of the company. Not independent of significant shareholders due to board membership in Solidium Oy. M.Sc. (Tech.)

Chairman of the Board of Normet Group Oy

Vice-Chairman of the Board in Solidium Oy

==> picture [86 x 104] intentionally omitted <==

Pekka Kemppainen

born 1954, Finnish citizen

Valmet Board Member since 2018

Member of the Board’s Audit Committee Independent of the company and independent of significant shareholders Lic.Sc. (Tech.)

Board member of Bittium Oyj and Junttan Oy

==> picture [86 x 105] intentionally omitted <==

Monika Maurer

born 1956, German citizen

Valmet Board member since 2018

Member of the Board’s Remuneration and HR Committee Independent of the company and independent of significant shareholders Diploma in Physics and Chemistry, the University of Stuttgart, Germany Diploma in Pedagogy, State University for Pedagogic, Stuttgart, Germany Vice Chairman of the Board in Nokia Shanghai Bell, Co. Ltd.

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board of directors

==> picture [86 x 104] intentionally omitted <==

Eriikka Söderström

born 1968, Finnish citizen

Valmet Board Member since 2017 Chairman of the Board’s Audit Committee Independent of the company and independent of significant shareholders M.Sc. (Econ.)

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Tarja Tyni

born 1964, Finnish citizen

Valmet Board member since 2016 Member of the Board’s Audit Committee Independent of the company and independent of significant shareholders LL.M.

Chairman of the Board of Mandatum Life Investment Services Ltd

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Rogério Ziviani

born 1956, Brazilian citizen

Valmet Board Member since 2013 Independent of the company and independent of significant shareholders B.Sc. in Business Management, MBA Board Member of Innovatech Negócios Florestais

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Personnel representative

Riina Vilander

born 1978, Finnish citizen

Personnel representative since 2018 M.Sc. (Eng.) QHSE Engineer Personnel representative will participate as an invited expert in meetings of the Board of Directors. Employed by Valmet since 2002

Bo Risberg was Member of Valmet’s Board, Chairman of the Board and Chairman of the Board’s Remuneration and HR Committee until March 21, 2019.

More information about Valmet’s Board of Directors: www.valmet.com/management

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Executive Team

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Pasi Laine born 1963

President and CEO M.Sc. (Eng.) Finnish citizen

Sami Riekkola born 1974

Business Line President, Automation M.Sc. (Eng.) Finnish citizen

Jari Vähäpesola born 1959

Business Line President, Paper M.Sc. (Eng.) Diploma in International Marketing Management Finnish citizen

Celso Tacla born 1964

Area President, South America MBA Production Engineer Chemical Engineer Brazilian citizen

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Aki Niemi

born 1969

Business Line President, Services M.Sc. (Eng.) Finnish citizen

Bertel Karlstedt

born 1962

Business Line President, Pulp and Energy M.Sc. (Eng.) Finnish citizen

David King born 1956

Area President, North America B.Sc. (Eng.) US citizen

Vesa Simola born 1967

Area President, EMEA M.Sc. (Eng.) Finnish citizen

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executive team

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Jukka Tiitinen born 1965 Area President, Asia Pacific M.Sc. (Eng.) Finnish and US citizen

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Xiangdong Zhu born 1967

Area President, China B.Sc. (Eng.) MBA Chinese citizen

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Kari Saarinen born 1961 CFO

M.Sc. (Accounting and Finance) Finnish citizen

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Julia Macharey born 1977

Senior Vice President, Human Resources and Operational Development M.Sc. (Econ.) B.A. (Intercultural Communication) Finnish citizen

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Anu Salonsaari-Posti born 1968

Senior Vice President, Marketing, Communications, Sustainability and Corporate Relations M.Sc. (Econ.) MBA Finnish citizen

Juha Lappalainen was Senior Vice President, Strategy and Operational Development in the Executive Team until February 28, 2019. As of March 1, 2019, the Strategy and Operational Development function was divided so that the Strategy function was integrated into Valmet’s Finance corporate function lead by CFO Kari Saarinen. Julia Macharey, who previously held the position of Senior Vice President, Human Resources, was appointed Senior Vice President, Human Resources and Operational Development.

More information about Valmet’s Executive Team: www.valmet.com/management

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information for investors

Information for investors

WHY INVEST IN VALMET

BASIC INFORMATION ON VALMET SHARE

1. Strong position in the growing market of converting renewables

2. Widest offering combining process technology, services and automation in a unique way

3. Large stable business offering growth and profitability

4. Strong capital business with high market share and flexible cost structure

5. Votes per share: 1

6. Listed: Nasdaq Helsinki (since January 2, 2014)

7. Trading currency: euro

8. Segment: Large Cap

9. Industry: Industrials

10. Trading code: VALMT

11. ISIN code: FI4000074984

12. Systematically building the future

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Valmet is a global leader in sustainability

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Dividend per share, EUR and payout ratio, %

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EUR %
1.0 100
0.8 76 80
68 68 64 59
0.6 60
0.4 40
0.2 20
0.35 0.42 0.55 0.65 0.80
0 0
2015 2016 2017 2018 2019 [1]
Dividend
Payout ratio, % of net profit
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1 Board of Directors’ proposal.

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information for investors

Share capital and share data[1]

Share capital and share data1
	2019	2018	2017
Share capital,December 31,EUR million	100	100	100
Number of shares,December 31:
Number of outstandingshares	149,618,523	149,617,820	149,864,220
Treasuryshares held bythe Parent Company	246,096	246,799	399
Total number of shares	149,864,619	149,864,619	149,864,619
Average number of outstandingshares	149,604,375	149,649,501	149,864,220
Average number of diluted outstandingshares	149,604,375	149,649,501	149,864,220
Tradingvolume on NasdaqHelsinki Ltd.2	152,595,590	102,204,539	89,279,591
% of total shares forpublic trading	102.0	68.3	59.6
Earningsper share,EUR	1.35	1.01	0.81
Earningsper share,diluted,EUR	1.35	1.01	0.81
Dividendper share,EUR	0.803	0.65	0.55
Dividend,EUR million	1203	97	82
Dividend to earnings	59%3	64%	68%
Efective dividendyield	3.7%3	3.6%	3.3%
Price to earnings ratio(P/E)	15.9	17.8	20.4
Equity per share,EUR	6.95	6.31	6.09
Highest shareprice,EUR	25.14	20.94	18.44
Lowest shareprice,EUR	15.55	15.50	13.45
Volume-weighted average shareprice,EUR	20.46	17.77	16.08
Shareprice,December 31,EUR	21.36	17.95	16.44
Market capitalization,December 31,EUR million	3,201	2,690	2,464

1 The formulas for calculation of the figures are presented in the section ‘Formulas for Calculation of Indicators’

2 In addition to Nasdaq Helsinki Ltd, Valmet’s shares are also traded on other marketplaces, such as Cboe BXE, Cboe CXE and Turquoise. A total of approximately 122 million of Valmet’s shares were traded on alternative marketplaces in 2019, which equals to approximately 45 percent of the share’s total trade volume. (Source: Bloomberg)

3 Board of Directors’ proposal

Development of Valmet’s share price, January 1–December 31, 2019

Valmet OMX Helsinki (rebased)

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EUR
25
23
21
19
17
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15 Q1

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Q2
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Q3
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Q4
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• Feb 7 Financial Statements Review Apr 4 Dividend payout July 23 Half Year Financial Review, Oct 24 Interim Review, 2018 Apr 26 Interim Review January–June 2019 January–September 2019

• Feb 26 Acquisition of GL&V January–March 2019 Sep 16 Inclusion in Dow Jones Mar 21 Annual General Meeting May 2 Acquisition of J&L Fiber Sustainability Index Services

• Major orders booked in Q1: Major orders booked in Q2: Major orders booked in Q3: Major orders booked in Q4: • Grade conversion rebuild to China • Containerboard making line with an • Board machine to India • New lime kiln and a fiberline upgrade • Containerboard line to Malaysia extensive scope to Germany • Coated board machine to the USA to Sweden • Recovery boiler to India • A major pulp and board technology • Key technology for a new pulp mill • New recovery boiler and an delivery to Brazil in Brazil evaporation upgrade to Sweden

• • Extensive paper machine grade • Advantage ThruAir tissue production conversion rebuild in Finland line to the USA

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information for investors

Development of Valmet’s share price since listing, January 2, 2014–December 31, 2019

EUR

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25
20
15
10
5
0
2014 2015 2016 2017 2018 2019
Valmet OMX Helsinki (rebased)
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Shareholders

The number of registered shareholders at the end of December 2019 was 45,965 (43,692).

Distribution of shareholding by sector, %

Shares held by institutional investors per geography

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100
14% 13% 14% 13% 13%
80 11% 11% 11% 11% 11%
60 23% 26% 25% 22% 23%
40
51% 50% 50% 54% 53%
20
0
2015 2016 2017 2018 2019
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Source: Nasdaq

Finland 40% United States 21% Sweden 10% United Kingdom 8% Norway 6% Rest of Europe 14% Rest of world 1%

Nominee registered and non-Finnish holders Finnish institutions, companies and foundations Solidium Oy[1] Finnish private investors

1 Solidium Oy is wholly owned by the Finnish state.

VALMET’S SHAREHOLDER STRUCTURE AT THE END OF 2019

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Largest shareholders on December 31, 2019

		Shares	% of share capital
1	Solidium Oy1	16,695,287	11.14%
2	Ilmarinen Mutual Pension Insurance Company	3,881,000	2.59%
3	Elo Mutual Pension Insurance Company	3,700,000	2.47%
4	OP Funds	3,654,749	2.44%
5	Varma Mutual Pension Insurance Company	2,712,465	1.81%
6	Te State Pension Fund	1,545,000	1.03%
7	Keva	1,502,166	1.00%
8	Evli Funds	1,040,000	0.69%
9	Danske Invest funds	850,906	0.57%
10	Nordea Funds	606,747	0.40%
11	Sigrid Jusélius Foundation	526,865	0.35%
12	Te Finnish Cultural Foundation	520,123	0.35%
13	Investment fund Aktia Capital	500,000	0.33%
14	Veritas Pension Insurance CompanyLtd.	450,014	0.30%
15	Te Social Insurance Institution of Finland,KELA	396,316	0.26%

1 Solidium Oy is wholly owned by the Finnish state.

Flagging notifications in 2019

Transaction date	Shareholder	Treshold	Direct holding, %	Indirect holding, %	Total holding, %
January16,2019	BlackRock,Inc.	Above 5%	4.33%	0.74%	5.08%
February6,2019	BlackRock,Inc.	Above 5%	5.23%	0.82%	6.05%
March 21,2019	BlackRock,Inc.	Below 5%	4.96%	0.66%	5.62%
March 27,2019	BlackRock,Inc.	Above 5%	5.77%	0.69%	6.46%
August 9,2019	Te Goldman Sachs Group,Inc.	Above 5%	2.82%	2.20%	5.02%
August 12,2019	Te Goldman Sachs Group,Inc.	Below 5%	2.73%	2.12%	4.85%
August 28,2019	BlackRock,Inc.	Below 5%	Below 5%	Below 5%	Below 5%
August 29,2019	BlackRock,Inc.	Above 5%	4.91%	0.24%	5.16%
August 30,2019	BlackRock,Inc.	Below 5%	Below 5%	Below 5%	Below 5%

Distribution of shareholders by number of shares held

Distribution of voting rights, shareholders grouped by number of shares held

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1–100 (45.7%) 101–1,000 (45.4%) 1,001–10,000 (8.2%) 10,001–100,000 (0.6%) 100,001– (0.1%)

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• 1–100 (0.7%)

• 101–1,000 (5.0%) 1,001–10,000 (6.3%)

• 10,001–100,000 (5.2%) 100,001– (82.7%)

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information for investors

Holdings of the Board of Directors in Valmet Oyj on December 31, 2019

		Shares
Mäkinen,Mikael	Chairman of the Board	1,764
Cantell,Aaro	Vice Chairman of the Board	5,506
Kemppainen,Pekka	Member of the Board	2,063
Maurer,Monika	Member of the Board	2,063
Söderström,Eriikka	Member of the Board	3,193
Tyni,Tarja	Member of the Board	4,989
Ziviani,Rogério	Member of the Board	9,176
Total		28,754
% of outstanding shares		0.02%

Holdings of the Executive Team in Valmet Oyj on December 31, 2019

		Shares
Laine,Pasi	President and CEO	136,042
Karlstedt,Bertel	Business Line President,Pulpand Energy	36,157
King,David	Area President,North America	24,912
Macharey,Julia	SVP,Human Resources and Operational Development	26,892
Niemi,Aki	Business Line President,Services	50,730
Riekkola,Sami	Business Line President,Automation	5,620
Saarinen,Kari	CFO	39,514
Salonsaari-Posti,Anu	SVP,Marketing,Communications,Sustainabilityand Corporate Relations	21,527
Simola,Vesa	Area President,EMEA	39,846
Tacla,Celso	Area President,South America	74,990
Tiitinen,Jukka	Area President,Asia Pacifc	78,473
Vähäpesola,Jari	Business Line President,Paper	47,585
Zhu,Xiangdong	Area President,China	17,451
Total		599,739
% of outstanding shares		0.40%

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investor relations

Investor Relations

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Site visit for investors and analysts to the Automation business line in Tampere, Finland, in June 2019.

INVESTOR RELATIONS IN 2019

Investors met

~330

Meetings and events

~260

Mission and goal

The main task of Valmet’s Investor Relations is to ensure that the markets have correct and sufficient information for determining the value of Valmet’s share. Investor Relations is responsible for planning and executing financial and investor communications and takes care of all investor inquiries. In addition to Financial Statements, Interim Reviews, the investor website, stock exchange releases and press releases, Valmet’s investor communication involves investor meetings, seminars, webcasts, news conferences of result publications, site visits and general meetings. Valmet also arranges Capital Markets Days for institutional investors and analysts.

Silent period

Valmet observes a 21-day silent period prior to the publication of financial results. During this time, Valmet does not comment on the company’s financial situation, markets or outlook, and neither do Valmet’s executives or employees meet with representatives of capital markets or financial media.

Valmet’s investor website

Valmet’s investor website provides a comprehensive set of information about Valmet’s business environment, strategy, business lines and financial performance. In addition to financial reports, presentations, webcast recordings and interactive share and ownership monitors, the website features an IR Video Gallery and the IR Director’s blog for more topics tailored to investors’ interests.

Roadshow days

32

FREQUENTLY ASKED QUESTIONS

How big is Valmet’s market share?

Countries visited

12

Valmet has a leading market position: it is globally either #1, #2 or #3 in all markets it serves. As a provider of board and paper making technology, Valmet’s market share is ca. 40 percent, and in tissue ca. 35 percent. In these businesses, Valmet is the global market leader. As a supplier of pulp manufacturing technology, Valmet has a ca. 40 percent market share, and in energy ca. 20 percent. In automation, Valmet’s market share is ca. 20 percent in the pulp and paper market, and ca. 10 percent in other process industries. In services, where the market is more fragmented, Valmet’s market share is ca. 17 percent.

What are the market drivers for Valmet’s businesses?

Increasing world trade and e-commerce as well as a shift away from plastic packaging drive an increase in board consumption, while rising purchasing power and living standards drive the demand for tissue. Pulp is a raw material for both board and tissue, so the demand for pulp is also growing over time. Growth in energy consumption as well as need for sustainable solutions and emission control drive growth in Valmet’s energy business. In addition to increasing pulp, paper and energy production, demands for more efficient processes and Industrial Internet solutions drive growth in the services and automation businesses.

What are Valmet’s long-term financial targets?

In the end of 2019, Valmet's financial targets were the following: In stable business (Services and Automation business lines) Valmet targets net sales growth that is over two times the market growth. In capital business (Paper, and Pulp and Energy business lines), growth should exceed market growth. Valmet’s profitability target is a comparable EBITA margin of 8–10 percent. The targeted comparable return on capital employed (pre-tax ROCE) is 15–20 percent. As for dividend, Valmet targets to pay out at least 50 percent of net profit.

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investor relations

Analyst coverage

Analyst contact information and consensus estimates are available on Valmet’s investor website. Valmet does not take any responsibility for the content, accuracy or completeness of the views of the capital market representatives.

According to Valmet’s knowledge, the following analysts have regular coverage on Valmet share:

Analyst

Company

Philippe Lorrain Tom Skogman Antti Suttelin Tomi Railo Joonas Ilvonen Timo Heinonen Antti Viljakainen Johan Eliason Robert J. Davies Manu Rimpelä Kim Gorschelnik Antti Kansanen Sven Weier

Berenberg Carnegie Investment Bank Danske Bank DNB Markets Evli Research Handelsbanken Inderes Kepler Cheuvreux Morgan Stanley Nordea Markets OP Corporate Bank SEB UBS

Financial calendar 2020

February 5, 2020 Financial Statements Review for 2019 March 19, 2020 Annual General Meeting April 2, 2020 Silent period begins April 23, 2020 Interim Review for January–March 2020 July 2, 2020 Silent period begins July 23, 2020 Half Year Financial Review for January–June 2020

October 6, 2020 Silent period begins October 27, 2020 Interim Review for January–September 2020

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The calendar is available on Valmet’s investor website.

Valmet Investor Relations

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Pekka Rouhiainen

Director, Investor Relations Tel. +358 10 672 0020 pekka.rouhiainen@valmet.com

Tuuli Oja

Manager, Investor Relations Tel. +358 10 672 0352 tuuli.oja@valmet.com

Karin Mattila

Investor Relations Coordinator Tel. +358 10 672 0973 karin.mattila@valmet.com

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Valmet reports 2019

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Progress in operations and sustainabilityAnnual Review 2019
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Financial Statements 2019and information for investors
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ANNUAL REVIEW 2019

The report covers Valmet’s market environment and the progress of its strategy, operations and sustainability in 2019.

FINANCIAL STATEMENTS 2019 AND INFORMATION FOR INVESTORS

The report includes Valmet’s Financial Statements for 2019 and information about its share, shareholders and management.

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GRI Supplement 2019
Corporate Governance Statement 2019
Remuneration Report 2019
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GRI SUPPLEMENT 2019

The report includes Valmet’s sustainability reporting indicators and principles, and its alignment with the Global Reporting Initiative (GRI) Standards framework in 2019.

CORPORATE GOVERNANCE STATEMENT 2019

The report covers Valmet’s governance principles and activities, Board of Directors and management in 2019.

REMUNERATION REPORT 2019

The report covers Valmet’s remuneration in 2019.

valmet | financial statements 2019 and information for investors

contacts

Contacts

VISITING ADDRESS

Valmet Oyj Keilasatama 5 FI-02150 Espoo, Finland

POSTAL ADDRESS

Valmet Oyj P.O. Box 11 FI-02151 Espoo, Finland

MEDIA CONTACTS

media@valmet.com

SUSTAINABILITY CONTACTS

sustainability@valmet.com

INVESTOR RELATIONS

ir@valmet.com

FOLLOW VALMET ON SOCIAL MEDIA

linkedin.com/company/valmet

twitter.com/valmetglobal

twitter.com/valmetir

youtube.com/valmetglobal

ORDER PUBLICATIONS

Tel. +358 (0)10 672 0000

firstname.lastname@valmet.com

www.valmet.com/subscribe

UNSUBSCRIBE PUBLICATIONS

facebook.com/valmetcorporation

instagram.com/valmetglobal

media@valmet.com

WWW.VALMET.COM

About this report

This report is made from paper and pulp that were produced on Valmet machinery and equipment. It is printed on Maxioffset paper, which is certified according to the PEFC standard and the Nordic Ecolabel.

This report is from sustainably managed forests and controlled sources. PEFC certification requires that the forests are managed well with regard to biodiversity, forest health and maintenance, as well as recreational use. The PEFC logo promotes responsible consumption.

The Nordic Ecolabel ensures that products that are used in printed matter fulfill certain criteria. Inks are mineral-oil free, and for all other materials, those that are recyclable and environmentally friendly are preferred.

DESIGN AND PRODUCTION

Miltton Oy

PAPER

Maxioffset 300 g Maxioffset 120 g

PRINTING

Grano Oy

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4041 0955
Printed matter
NORDIC ECOLABEL
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Valmet Oyj

Keilasatama 5 / P.O. Box 11 FI-02151 ESPOO, FINLAND www.valmet.com

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