Board of Directors´ Report

Goals Set for the Business

The service and other operational goals set for Metsähallitus’ business and the profit and dividend payment goals for the financial period 15 April-31 December 2016, and the attainment of those goals.

The goals set by Parliament

When processing the Government proposal for a supplementary budget for 2016, Parliament defined the following objectives for Metsähallitus’ business for the period 15 April-31 December 2016.

1. Key service targets of business operations and other operational goals

In its business operations, and in providing guidance to its subsidiaries, Metsähallitus has taken account of its general social obligations, in accordance with the legislation on Metsähallitus.

The impact of taking these general social obligations into account was EUR 56.1 million on the direct operating profit during the calendar year 2016 (EUR 55.6 million in 2015).

Metsähallitus releases a follow-up report, General social obligations, as part of the financial statements. The report includes a more detailed account of the content, measurement and monitoring of these obligations, alongside the benefits obtained.

2. Number of investments and investment commitments

Realised investments totalled EUR 6.9 million, falling below the maximum sum of EUR 20 million defined by Parliament. Investment commitments given totalled EUR 5.9 million of the maximum sum of EUR 20 million defined by Parliament.

3. Maximum amount for business loans

The maximum amount for business loans set by Parliament was EUR 80 million. Metsähallitus has no long-term loans. Metsähallitus secures its liquidity with a committed loan agreement of EUR 20 million and a commercial paper programme of EUR 50 million. At the end of the financial period, Metsähallitus’ business had EUR 59.9 million in short-term interest-bearing debt.

4. Maximum amount for business guarantees

Metsähallitus provided EUR 0.7 million in collateral for its operations to parties outside the Group. The authorisation granted by Parliament was EUR 2.5 million.

The goals set by the Ministry of Agriculture and Forestry and their attainment

In addition to the aforementioned objectives, the Ministry of Agriculture and Forestry defined the following service and other objectives for Metsähallitus’ business for the period 15 April-31 December 2016.

The objectives were based on the Ownership Policy relating to Metsähallitus, confirmed on 31 January 2012.

1. Service targets and other operational goals

Natural resource planning for southern Finland was launched in the summer of 2016. Natural resource planning refers to long-term planning of the sustainable use of state-owned land and water areas. It involves the preparation, in collaboration with stakeholders, of a plan for the period 2017-2022, guiding the use of state-owned land and water areas and exploiting new opportunities. The aim of natural resource planning is to coordinate the various requirements for use, so as to achieve the maximum overall benefit for society. The plan will be completed in the spring of 2017.

A multiple-use solution for state-owned land areas protects and enhances biodiversity, including outside protected areas, in multiple-use forests. Metsähallitus’ multiple-use forests include around 80,000 sites of high natural value, and some 40,000 habitats of threatened species that secure biodiversity. Sites of high natural value were successfully taken into account and their characteristics preserved in all lines of work monitored in 2016. The characteristics of valuable habitats were completely preserved on 98.6% of their total area on regeneration sites.

Retention trees are important to many species dependent on decaying wood. An average of 11.7 retention trees, compliant with the target level specified in Metsähallitus’ Environmental Guidelines for Practical Forest Management, were left on each hectare managed through regeneration felling. The result meets the target level specified by Metsähallitus - 10 trees per hectare.

The number of retention trees compliant with the requirements of forest certification, 21 trees per hectare, clearly exceeded the requirements specifying 10 trees per hectare.

Special fellings accounted for 12.7 per cent of regeneration felling in 2016. This can be considered appropriate in terms of the recreational use of forests. Metsähallitus engages in close cooperation with reindeer husbandry. All felling, soil preparation and road construction plans, as well as tourism trail agreements, were sent to reindeer herding cooperatives, discussed when appropriate and amended. Regular co-operation negotiations were conducted both with the Reindeer Herders' Association and the reindeer herding cooperatives. According to the feedback received, cooperation between reindeer herding cooperatives and Metsähallitus has functioned as agreed.

Metsähallitus’ operations in the Sámi Homeland has complied with the Natural Resource Plan. The agreement between Metsähallitus, the Sámi Parliament, Skolt Village Meetings and the reindeer herding cooperatives in the Sámi Homeland, on cooperation procedures and the consideration of reindeer herding, was complied with. A special area plan was under preparation for the Juutua-Tuulispää recreational forest, in cooperation with local users in the area and the Akwé: Kon working group, appointed by the Sámi Parliament. The plan will be completed in 2017.

Metsähallitus’ compliance with its general social obligations resulted in an estimated EUR 56.1 million decrease in operating profit (calculated) (2015: EUR 55.6 million).

In order to preserve biodiversity, promote the use of nature for recreational purposes and secure favourable conditions for the practice of reindeer husbandry and Sámi traditions, restrictions were placed on 524,000 (15.0%) hectares of forested land with a yield requirement (2015: 528,000 hectares and 15.1%). A total of 285,000 hectares (8.2%) were fully excluded from commercial use and 239,000 hectares (6.8 %) were in limited use. These factors reduced Metsähallitus’ calculated operating profit by EUR 50.7 million. In addition, other factors related to the promotion of reindeer husbandry and Sámi culture, the promotion of employment, and an increase in planning costs decreased the operating profit by EUR 5.5 million.

2. Operating profit and dividend payment goal for the financial period 15 April to 31 December 2016

Metsähallitus' operating profit totalled EUR 57.1 million. The result fell short of the target, set at EUR 63.7. The enterprise's operating profit was EUR 51.0 million.

Return on investment for the basic equity of the enterprise was 2.4 per cent, below the defined key figure of 3.5 per cent. This key figure is not comparable with the figures previously presented for the 12-month accounting period.

The Ministry set EUR 86 million as the target for dividend paid to the state on the profit for the period and retained earnings, to be paid during the year 2017. When adopting the financial statements, Parliament will make its final decision on the sum to be paid to the state as dividend.

The retained earnings from business operations entered in the balance sheet of the enterprise totalled EUR 89.0 million at the end of the financial period, of which profit for the period was EUR 51.0 million. Retained earnings facilitate the payment of the target dividend to the state.

The long-term objective set by the Ministry is to improve the profitability of the businesses. Forestry Ltd and Siemen Forelia Oy made a profit during the financial period. Fin Forelia and MH-Kivi Oy both had positive operating profits but, due to the restructuring of Fin Forelia and the prolonged civil action of MH-Kivi, the overall result showed a loss. The comparable profitability of Metsähallitus’ business for 12 months in 2016 remained at the 2015 level.