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Board of Directors´ Report

Business Performance

The Group's business consists of subsidiaries and the business operations of Laatumaa, the enterprise’s property development unit.

Turnover, EUR million 238.2
Operating profit, EUR million 64.4
Share of turnover, % 27
Result, EUR million 57.1
Dividend paid to the state, EUR million 116.7
Return on investment (%) 2.4
Investment (% of turnover) 5
Solvency ratio (%) 97
Number of person-years in business operations 639

 

 

 

 

 

 

 

 

Profit and balance sheet

Metsähallitus Group's operating profit totalled EUR 57.1 million and its turnover EUR 238.2 million. It mainly consisted of timber sales and rental income. Turnover from forestry totalled EUR 218.5 million, and the rest comprised rental income, sales of seeds, seedlings and soil and rock resources. Other operating income amounted to EUR 16.2 million, of which property sales revenue accounted for EUR 10.3 million.

The largest expense item, external services, coming to EUR 106.6 million in total, mainly consisted of services purchased from forest service and transport companies. These expenses were directly linked to the harvest volumes.

Staff expenses amounted to EUR 41.6 million and included EUR 9.6 million of additional pension contributions. This was paid in connection with the incorporation of Forestry, as staff pension liabilities transferred from the state system to a private insurance company. In addition, employee costs included a non-recurring item worth EUR 1.1 million.

Depreciation totalled EUR 2.7 million. The majority of property used in business operations consists of land and water areas, which are not subject to depreciation. Depreciation was mainly related to buildings, forest roads, property development and information systems.

Other operating costs, EUR 29.2 million in total, include EUR 8.5 million of expenses related to the cartel trial. Helsinki District Court issued its decision on the raw timber cartel case in June. The District Court dismissed the claims for damages made by Metsähallitus and ordered Metsähallitus to pay the opposing party’s legal costs. Processing of the case continues in higher court instances.

In December, the Board decided to initiate a reorganisation of its seedling business, which has shown a loss for several years. The enterprise wrote down the value of the subordinated loan it had made based on the precautionary principle. The Group recorded a provision of EUR 3 million, related to the restructuring.

The cost-effectiveness of the various business operations has been systematically improved. Staff expenses, excluding non-recurring items, totalled EUR 31.0 million and accounted for 13 per cent of turnover during the financial period. Other expenses, excluding the non-recurring item relating to the court proceedings, totalled EUR 20.7 million, or 8.6 per cent of turnover.

The balance sheet total for business operations was EUR 3,017.0 million, of which the enterprise accounted for EUR 2,997.5 million. During the financial period, business operations received land areas from the State through transfer of possession and inheritance, at a total value of EUR 1.1 million.

Investments and sale of assets

Investments totalling EUR 6.9 million were covered by cash-flow financing. The largest investments were related to property development.

Since the beginning of the financial period, costs incurred from the construction of forest roads have no longer been treated as investments. Forestry Ltd is responsible for building and maintaining the forest roads required for its operations. The company builds these roads on state-owned land and does not have right of ownership to the roads. Road construction expenditure is classified as other long-term expenses, allocated over a period of 10 years. During the financial period, the costs incurred from the construction and renovation of forest roads totalled EUR 5.1 million.

The transfer price from the sale of fixed assets totalled EUR 7.7 million and EUR 4.5 million in profits were recorded for sales. Losses recorded for sales amounted to EUR 13.8 thousand.

 

Business operations No. Book value Transfer price Profits Losses
Sales - land and water areas 427 1,156,304.22 5,518,532.18 4,376,054.96 13,827.00
Sales – buildings 5 13,510.64 134,018.00 120,507.36 0.00
Change in land use for public administration duties 94 2,020,890.83 2,020,890.83 0.00 0.00
Other - land areas 7 4,002.56 4,002.56 0.00 0.00
Total 533 3,194,708.25 7,677,443.57 4,496,562.32 13,827.00


Financing

According to the new law, Group financing can be managed by the Group’s internal bank, which means that the enterprise and companies may lend money to each other on market terms. For reasons of competition neutrality, the enterprise cannot guarantee the loans of its subsidiaries. These guarantee arrangements were revoked at the beginning of the financial period.

The enterprise and subsidiaries have no long-term loans. The enterprise gave Fin Forelia Ltd a loan of EUR 5 million on subordinated loan terms. At the end of the financial period, leasing liabilities totalled EUR 4.6 million, mainly related to automotive and ICT equipment.

The Enterprise secures liquidity with a committed loan agreement of EUR 20 million and a commercial paper programme of EUR 50 million. Some of the subsidiaries have lines of credit.

Metsähallitus does not engage in investment activities. Its cash surplus is invested in accordance with the financial guidelines approved by the Board of Directors.

Cash flow from business operations totalled EUR 35.9 million. Investments amounted to EUR 6.9 million. The sale of assets for EUR 13.9 million increased the cash flow.

During the financial period, EUR 106.7 million relating to the profit for 2015 and EUR 10 million for the financial period 1 January to 14 April 2016 were paid in dividends to the state. The cash flow from financing activities showed a deficit of EUR 60.0 million.

The Group's liquid funds totalled EUR 33.4 million at the beginning of the financial period and EUR 3.9 million at the end. At the end of the financial period, the Group’s short-term interest-bearing loans totalled EUR 59.9 million.

Financial performance by business

The enterprise's operating profit was 51.0 million euros. The largest source of income was the EUR 57 million in compensation paid by the Forestry company for the right to use state-owned forests.

Laatumaa is engaged in the property development business, responsible for property leasing, development, sales and purchases. Laatumaa’s operating profit amounted to EUR 21.7 million.

Group operations and shared service units form part of the parent enterprise. Income from the services provided by the Group to various units and companies totalled EUR 10.5 million.

Metsähallitus Forestry Ltd manages state-owned multiple-use or commercial forests, and harvests and sells timber. As previously, Metsähallitus Forestry takes account of social impacts such as preserving biodiversity, ensuring recreational access to forests, promoting employment, and securing favourable preconditions for the Sámi culture and reindeer husbandry.

The company’s turnover totalled EUR 219.4 million and its profit EUR 3.2 million. The company’s operations commenced at a challenging time of the year regarding profit performance: just after the spring timber deliveries were completed and the summer, a quiet season for sales, lay ahead with costs related to forest management work. The result includes EUR 9.6 million of non-recurring pension expenses and EUR 1.2 million of other items, both relating to the incorporation.

The company's balance sheet, which mainly consisted of working capital items, totalled EUR 71.5 million. The company’s solvency ratio was 75.5 per cent. Return on equity was 6.0 per cent.

Forestry Ltd’s first financial period was from 15 April to 31 December 2016. Separate financial statements were prepared for this period. Other subsidiaries of Metsähallitus prepared separate financial statements for the period 1 January-31 December 2016. The results of these subsidiaries are consolidated in the Group's result for the financial period of the enterprise, that is for the period 15 April-31 December 2016.

Siemen Forelia Oy specialises in the production and sales of cultivated forest tree seeds, plus diverse services related to the harvesting and processing of seeds. The company cultivates seeds on special sites across the country. In order to develop its operations, it has formed networks with research institutions and customers. The company's profit for the financial period 15 April-31 December totalled EUR 163 thousand. Profit for the full year was EUR 360 thousand.

MH-Kivi Oy is a subsidiary of Metsähallitus, engaged in the rock material business. Metsähallitus sold most of its earth material business in 2013. The civil action between the parties to the transaction was processed through arbitration in February 2016. The claims made by MH-Kivi and Metsähallitus were accepted. The opposing party has taken legal action to overrule the decision made through arbitration. Processing of the matter continues. The other party to the civil action, the largest customer of the company, engaged in a reorganisation and MH-Kivi Oy recorded all receivables from them as a credit loss. As a consequence, the company's profit for the period 15 April-31 December 2016 turned negative, totalling EUR 323 thousand. The company’s result for the full year showed a loss of EUR 288.

Fin Forelia Oy produces forest tree saplings. The company's operations have shown a loss in recent years. The sector has suffered from excess production. Due to cuts in production volumes and growth in the bioeconomy sector, market expectations for the future are brighter. During the year under review, the planned cuts to the company’s production capacity were implemented and activities were concentrated in three nurseries. The company's profit for the financial period 15 April-31 December was EUR 895 thousand. The company’s result for the full year showed a loss of EUR 121 thousand.

Evaluation of financial performance and comparable profit for the calendar year 2016

The structure, implemented on 15 April 2016, compliant with the new Act on Metsähallitus and the related non-recurring items and the non-standard financial period do not enable the direct comparison of the financial performance with previous financial years.

The enterprise prepared financial statements for the financial period 1 January to 14 April 2016. The comparable result for 2016 was prepared by combining the two financial periods of 2016 and taking account of the costs resulting from the restructuring.


Profit and Loss Account, Business Operations

EUR million Year 2016 Year 2015
TURNOVER 332.9 337.2
Other operating income 26.4 28.5
External services 162.5 164.1
Staff expenses 52.7 46.2
Depreciation, amortisation and impairment 3.8 3.9
Other operating costs 37.3 32.9
OPERATING PROFIT 103.3 116.2
Operating profit % 31% 34%
Income taxes 6.5 8.8
PROFIT DURING THE FINANCIAL YEAR 93.7 107.9






The 2016 result includes costs associated with the restructuring under the new Act on Metsähallitus in the Group, amounting to EUR 11.7 million in total, of which the additional pension costs of employees accounted for EUR 9.6 million.

In addition, the result for 2016 includes EUR 12.6 million in non-recurring items. These include compensation for the legal costs of the opposing party in the legal proceedings concerning a cartel in raw timber sales, and a provision related to corporate restructuring. The operating profit, adjusted for restructuring expenses and non-recurring items, totalled EUR 127.6 million.

In the result for 2015, the negative impact of non-recurring items was EUR 5.6 million. The operating profit, adjusted for non-recurring items for the year 2015, amounted to EUR 121.8 million. In terms of operating profit, there was an improvement of 4.8 per cent from 2015 to 2016.