Note 1 General information

Moelven Industrier ASA is a public limited company registered in Norway. The company’s headquarters are located at Industriveien 2. 2390 Moelv.  Norway.

The group's activities are described in the report of the board.

Note 2 Basis for preparing the annual accounts

The consolidated accounts of the Moelven have been prepared in accordance with the International Financial Reporting Standards (IFRS) and the interpretations of the IFRS interpretations committee (IFRIC), as determined by the EU.

The consolidated accounts were presented by the board on 14th March 2018 and the ordinary general meeting to discuss the annual accounts has been fixed for 25th April 2018.

The consolidated accounts are based on the principles of historic cost accounting with the exception of the following items:

  • Defined-benefit pension schemes are valued at present value of the future pension benefits that have been earned on the date of balance. Pension funds are valued at fair value.
  • Financial instruments at fair value through profit or loss. These include derivatives for hedging interest rates, foreign exchange and electric power.

The consolidated accounts have been prepared with uniform accounting principles for similar transactions and events under otherwise similar conditions. 

Note 3 Significant accounting principles

Presented below are the most important accounting principles that have been used in preparing the consolidated accounts. These principles have been used in the same way for the comparison figures in the consolidated accounts.

3.1 Consolidation principles

The consolidated accounts include Moelven Industrier ASA and companies over which Moelven Industrier ASA has control of. Control is ordinarily achieved when the Group owns more than 50% of the shares in the company, but annual assessments are carried out of whether the Group also has control of companies where the stake is less than 50%. An investor controls an undertaking in which an investment is made when the investor is exposed to or has rights to variable returns from its involvement in that undertaking, and has the opportunity to influence these returns through its power over the undertaking. Non-controlling interest are included in Group equity.

The acquisition method is used for recognising company mergers on the income statement. Companies which are bought or sold during the course of the year are included in the Group accounts from the date on which control is achieved until the date on which it ceases.

Changes in holdings in the subsidiaries that do not lead to loss of control are entered as an equity transaction. The remuneration is entered at fair value and the difference between remuneration and the value of the holding entered on the balance sheet is entered against the majority owner's equity.

With changes in holdings that lead to loss of control. remuneration is measured at fair value. The balance sheet value of holdings and obligations in the subsidiary and the minority interests are deducted on the date of loss of control. The difference between the remuneration and the balance sheet value of the holding is included on the income statement as a gain or loss. Any remaining holding is measured at fair value and any gain or loss included on the income statement as part of the gain/loss on the sale of the subsidiary. Amounts included in other income and costs are entered on the income statement.

Associated companies are enterprises in which the Group has significant influence. but not control. over the financial and operational management. We have holdings between 20% and 50% in our associated companies. The Group accounts include the Group’s share of profits from associated companies entered by equity method from the time significant control was achieved and until such control ceases.

When the Group's losses exceed the investment in an associated company. the Group's balance sheet value is reduced to zero and further loss is not entered unless the Group has an obligation to cover this loss.

All other investments are entered in accordance with IAS 39. Financial instruments: Recognition and measurement more detailed information on which is given in note 26.

Internal Group transactions and intra Group balances. including internal earnings and unrealised gains and losses are eliminated. Unrealised earnings in respect of transactions with associated companies and jointly controlled enterprises are eliminated with the Group's share of the company/enterprise. Unrealised losses are eliminated in the same way. but only to the extent that there are indications of depreciation of value of assets that are sold internally.

3.2 New standards and interpretations

Below is a summary of new and revised standards that have been decided, but which have not come into force as at 14th March 2018.

Konsern Note 3 Tabell note 3.2 E

IFRS 9 Financial instruments

The standard regulates the classification, measurement and accounting of financial assets and financial obligations. Compulsory effective date is 1 January 2018.

In comparison to IAS 39, IFRS 9 includes new principles for the classification and measurement of financial instruments, impairment of financial assets and hedge accounting.

It is not expected that the transition to an “expected loss model” according to IFRS 9 will result in significant changes.
The Group has a very restrictive credit policy, and has as a result of this historically had very low losses on receivables.
In project operations, projects with expected losses have been isolated and are shown separately in the accounts for 2017. See note 19.

The actual implementation effect related to financial instruments will depend on which instruments the Group has and the macroeconomic conditions that apply at the time of implementation, in addition to considerations that the Group will make in the future. The Moelven Group employs only simple financial instruments and does not use hedge accounting.

Based on the assessments that have been carried out, the new standard is not expected to affect the consolidated accounts at the time of implementation to any material degree.

IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts from customers, which replaces the current revenue recognition standards (IAS11 and IAS 18) and interpretations, introduces a new model for recognition and measurement of revenue from sales contracts with customers. The standard takes effect for fiscal years that start on 1 January 2018 or later.

The new model is based on a five stage process, which must be followed for all sales contracts with customers to determine when and how revenue should be recognized on the income statement.

The most significant changes in IFRS 15 in relation to current practice are:

  • A sales transaction should be recognized as revenue in the profit and loss accounts as control (which can either take place at a certain time or over time) of the product or service transfers to the customer (the current "risk and rewards" concept is thus replaced by a control concept)
  • New and more detailed guidance on how part transactions in a sales contract are identified, and how the individual components are recognized and measured
  • New and more detailed guidance for recognition of revenue over time

The Moelven Group has performed an analysis of the new standard’s expected significance for the Group. Based on analyses of the Group’s current product mix and contract types within the divisions in both Timber, Wood and Building, the Moelven Group is of the opinion that the new standard will have minor significance on the following areas:

  • The new requirements to discretion and assessments of for example variable consideration, identification of sales contracts’ sub-components, etc., can impact the amount and/or timing for recognition of revenue. This applies in particular in relation to larger construction contracts. It is considered that the impact based on the existing product mix is minimal. In 2017 no contracts have been identified that will have such effect.

The Group has concluded that IFRS 15 will not impact recognition and measurement of the Group’s other revenues, including the sale of retail goods, produced goods, services and rental income.

Overall, the assessment based on the conducted analyses is that the impact on recognition and measurement is insignificant for the current product mix and contract types.

IFRS 16 Leases

IFRS 16 Leases supersedes the current standard IAS 17 Leases, and must be used from the 2019 fiscal year.

The new standard will change the Moelven Group’s recognition of leases for the agreements which under IAS 17 have been recognized as operational leases.

As at 31.12.2017 the Moelven Group has entered 52% of posted rental costs as financial leases, with capitalization of right of use of rent as an asset and the payment obligation as a financial obligation. The overall financial obligation for leases at the turn of the year was NOK 19.8 million. Correspondingly, the right of use of rent as an asset was entered at NOK 18.9 million.

For more information on the Group’s leases, see note 9.

According to the new standard, there is no longer a distinction between financial and operational rent. The new standard requires capitalization of all leases as a financial asset and financial obligation. There are exceptions for short leases and leases where the underlying asset is of low value.

The purpose of the accounting standard is to provide better information on a company’s rights and obligations, and to ensure better comparability between companies that themselves own their operating assets and those that lease these.

For the Moelven Group the new standard will have an impact on the posting of leases for vehicles and premises, and require a new evaluation of forklift agreements that currently are posted as operational leases. Moelven largely owns all buildings and associated machinery used in operations, with a limited exception at individual units where leases must be adjusted to the new standard. Some leases include several components such as right of use and services. These must be split into the individual components and each component must be assessed independently. 

The effect of the new standard will affect EBITDA and operating profit, as a result of rent costs being moved from operating expenses to depreciation and interest charge. Earnings before tax will not be affected over time, but at the start of the lease period costs from depreciation and interest will exceed the actual rental costs. Towards the end of the tenancy depreciation and interest will be less than the rental costs.

On the balance sheet assets and total assets will increase by the current value of the right of use to the leased objects. Correspondingly, debt will increase by the current value of the financial obligations. The equity ratio will be reduced as a result of increased total assets.

Cash flow from operating activities will increase as the assets are depreciated, while the cash flow from financial activities are reduced as debt is written down. The Group’s overall cash flow is not affected.

The Group will use retroactive application of IFRS 16 without reworking comparative figures and with effect on the equity’s opening balance in the transition year. The entire impact of the transition to IFRS 16 will be taken against the opening balance for equity in 2019.

3.3 Functional currency and presentation currency

The Group's presentation currency is NOK. This is also the functional currency of the parent company. Subsidiaries with other functional currencies are converted to the day rate for balance items and to the transaction rate for income statement items. Average monthly exchange rate is used as an approximation of transaction rate. Translation differences are entered against other income and costs ("OCI"). In any future sale of investments in foreign subsidiaries. accumulated translation differences that are referred to the majority owners will be entered on the income statement.

3.4 Use of estimates in preparing the annual accounts

Management has used estimates and assumptions which have affected assets. liabilities. income. costs and information regarding potential obligations. This applies in particular to depreciation of fixed assets. assessment of added value and goodwill in connection with acquisitions. inventory. project assessments and pension commitments. Future events may cause the estimates to change. Estimates and the underlying assumptions are continually assessed. Changes in accounting estimates are entered into the accounts during the period in which the changes occur. Where changes also affect future periods. the effect is distributed across the current and future periods. See also note 4.

3.5 Foreign currency

Foreign exchange transactions

Foreign exchange transactions are calculated at the exchange rate prevailing at the time of the transaction. Monetary items in foreign currency are converted to Norwegian kroner by using the rate of exchange on the balance date. Non-monetary items which are measured at historical exchange rates expressed in foreign currency are converted to Norwegian kroner by using the exchange rate at the time of transaction. Non-monetary items which are measured at fair value expressed in foreign currency are converted to the exchange rate determined at the time of the balance. Foreign currency fluctuations are recognised on the income statement continuously over the accounting period.

Activities abroad

Assets and liabilities in foreign companies including goodwill and fair value adjustments which arise on consolidation are converted to Norwegian kroner by using the exchange rate on the balance date. Income and expenses in foreign enterprises are converted to Norwegian kroner by using the average exchange rate.

Exchange rate differences are entered in other income and costs ("OCI").

3.6 Income

Income is recognised on the income statement when it is probable that transactions will generate future financial benefit which will accrue to the company and the size of the amount can be reliably estimated. Sales income is presented after deduction of value added tax and discounts. Internal sales within the Group are eliminated.

Income from sale of goods is entered on the income statement once delivery has taken place and most of the risk and profit have been transferred.

Income from sale of services and long-term manufacturing projects is entered on the income statement as the project progresses. when the outcome of the transaction can be reliably estimated. In some of the companies. progress is measured as accrued costs in relation to total estimated costs. while in other companies. progress is measured on invoicing in relation to the contract total. When the result of the transaction cannot be reliably estimated. only income corresponding to accrued project costs will be recognised as income. In the period in which a project is identified as giving a negative result. the estimated loss on the contract will be recognised on the income statement in its entirety.

The Group produces and sells energy to end customers. The sales is entered as income when the energy has been delivered and is read off at the customer's premises. Sales are entered based on the prices achieved. which are contract prices. but which can also be subject to price guarantee for the delivery period. Not including the financing element in sales is being considered. Otherwise. payment terms correspond to those that are normal in the market.

Interest earnings are recognised on the income statement as they are earned.

Dividends are entered when the shareholders' rights to receive dividends have been adopted by the general meeting.

IFRS 15 Revenue from contracts with customers will be implemented from the 2018 fiscal year, replacing IAS 18 Revenue. Information on the implementation period and consequences for the Group are described in section 3.2.

3.7 Segments

For management purposes the Group is organised into four different divisions according to products and range of services. The divisions represent the basis for the primary report segments. Financial information regarding segments and geographical distribution is presented in note 6.

In segment reporting. internal earnings on sales between the segments are eliminated.

3.8 Loan costs

Loan costs are entered on the income statement when the cost arises. Loan costs are entered on the balance sheet to the extent that they are directly related to the purchase manufacture of an asset and where the manufacturing period is long. A long manufacturing period means close to 12 months. Interest rate costs accrue during the build period until the asset is entered on the balance sheet. Balance entry of the loan costs is done until the point when the asset is ready for use. If the cost price exceeds the asset's fair value. it is written down.

3.9 Income tax

Tax costs consist of payable tax and changes in deferred tax. Deferred tax/tax benefits are calculated on all differences between book and taxable values of assets and liabilities. with the exception of:

  • goodwill on Group level
  • temporary differences relating to investment in subsidiaries. associated companies or jointly controlled enterprises that the Group controls. when the temporary differences will be reversed and this is not expected to occur in the foreseeable future

Deferred tax advantage is recognised on the income statement when it is probable that the company will have sufficient tax surplus in later periods to utilise the tax advantage. The companies enter deferred tax benefits that have not been previously entered to the extent that it has become probable that the company may make use of the deferred tax benefit. Likewise the company will reduce deferred tax advantages to the extent that the company no longer regards it as probable that it can utilise the deferred tax advantage.

Deferred tax and deferred tax advantages are measured based on anticipated future tax rates for the companies in the Group where temporary differences have previously arisen.

Deferred tax and deferred tax advantages are recognised at nominal value and are classified as financial capital expenditure (long-term liability) on the balance sheet.

Payable tax and deferred tax are entered directly against equity to the extent that the tax entries relate to equity transactions.

3.10 Research and development

Expenses associated with research activities are recognised on the income statement when they arise. Costs relating to development activities are entered on the balance sheet to the extent to which the product or process is technically and commercially realisable and the Group has sufficient resources to complete the development. The costs that are entered include material costs. direct payroll costs and a proportion of directly attributable joint expenses. Development costs entered on the balance sheet are entered as acquisition costs minus accumulated depreciation and write-down.

Development costs entered on the balance sheet are depreciated on a straight line basis over the estimated lifetime of the asset.

3.11 Tangible fixed assets

Tangible fixed assets are measured at acquisition cost. less accumulated depreciations and write downs.  When assets are sold or disposed of. the value on the balance sheet is deducted and any profit or loss is entered on the income statement.

Acquisition price for fixed assets is the purchase price including duties/taxes and costs directly associated with preparing the fixed assets for use. Costs after the fixed asset has been taken into use. such as continuous maintenance. are entered on the income statement. while other costs that are expected to provide future financial benefit are entered on the balance sheet.

Depreciation is calculated on a straight-line basis over subsequent decomposition and useful life:

Konsern Note 3.11 E

Depreciation period and method are reviewed annually. Scrap value is estimated at each year end and changes in estimated scrap value are entered as estimate changes.

Plant under manufacture is classified as a fixed asset and is entered as cost until manufacture or development is completed. Plant under manufacture is not depreciated until the asset is taken into use.

3.12 Leasing

Financial lease agreements
Lease agreements for which the Group assumes the main risk and profit involved in ownership of the asset are financial lease agreements. At the beginning of the lease period. financial lease agreements are recognised at an amount corresponding to the lower of either fair value or the present value of the minimum lease. For calculation of the lease agreement’s present value the implicit interest cost in the lease agreement is used if it is possible to calculate this. If not. the company’s marginal borrowing interest is used. Direct expenses relating to establishing the lease contract are included in the asset's cost price.

The same depreciation period is used as for the company's other depreciable assets. Where reasonable certainty that the company will assume ownership at the end of the lease period does not exist. the asset is depreciated over the shorter of the duration of the lease agreement and the asset's economic life cycle.

Operational lease agreements
Lease agreements where the main risk and profit associated with ownership of the asset are not transferred are classified as operational lease agreements. Lease payments are classified as operating expenses and are recognised on a straight-line basis over the contract period.

IFRS 16 Leases will be implemented from the 2019 fiscal year, replacing IAS 17 Leases. Information on the implementation period and consequences for the Group are described in section 3.2.

3.13 Intangible assets

Intangible assets acquired separately are entered on the balance sheet at cost. The cost of intangible assets obtained through acquisitions are entered on the Group's balance sheet at fair value at the time of the acquisition.  Intangible assets entered on the balance sheet are entered in the accounts at cost less any depreciation or write down.

Internally generated intangible assets. with the exception of recognised development costs. are not entered on the balance sheet but are entered as costs on an ongoing basis.

Useful lifetime is either predetermined or non-predetermined. Intangible assets with a predetermined useful life are depreciated over this period and tested for write down if so indicated. Depreciation method and period are assessed at least annually. Changes in depreciation method and/or period are treated as estimate changes.

Intangible assets with a non-predetermined useful life are tested for depreciation at least annually. either individually or by cash flow generating unit. Intangible assets with a non-predetermined useful life are not depreciated. The useful life is assessed annually to determine whether the assumption of non-predetermined useful life is reasonable. If not. a change is made to predetermined useful life.

Software
Costs relating to the purchase of new software are entered on the balance sheet as an intangible asset if these costs are not part of the acquisition cost of hardware. Software is normally depreciated on a straight line basis over 3 years. Costs arising as a result of maintaining the future usefulness of software are entered as costs if the changes to the software do not increase the future financial benefit of the software.

3.14 Business combinations and goodwill

Business combinations are entered in accordance with the acquisition method. Refer to note 3.24 with regard to the measurement of minority interests. Transaction costs are entered on the income statement as they occur.

Remuneration for the purchase of a company is measured at fair value on the date of acquisition.

When a company is purchased. all assets and obligations taken over are assessed for classification and assignment in accordance with contract conditions. economic circumstances and relevant conditions on the date of acquisition. Assets and debts taken over are entered on the balance sheet at fair value on the consolidated opening balance unless IFRS 3 indicates that other measurement rules shall be used.

Allocation of added value in company amalgamations is amended if new information arises regarding fair value on the date of taking control. Allocation can be changed up to 12 months after the date of acquisition if this is specified at the time of acquisition. The minority interests are calculated as the minorities' percentage of identifiable assets and debts.

In the case of step by step acquisition. earlier assets are measured at fair value on the date of acquisition. Changes in the value of earlier assets are entered on the income statement.

Goodwill is calculated as the sum of the remuneration and book value of the minority interests and fair value of previously owned assets. less the net value of identifiable assets and obligations calculated on the date of acquisition. Goodwill is not depreciated but tested at least annually for loss in value.

The part of the fair value of the equity that exceeds the remuneration (negative goodwill) is immediately entered on the income statement on the date of acquisition.

3.15 Public grants

Public grants are entered in the accounts when there is reasonable certainty that the company will fulfil the conditions associated with the grant. Recognition of operational grants is calculated systematically over the grant period. Grants are recognised as deductions from the cost that the grant is intended to cover. Investment subsidy is entered on the balance sheet in a systematic way over the life cycle of the asset. Investment subsidy is entered either as deferred income or as a deduction when determining the value of the asset on the balance sheet.

3.16 Financial instruments

According to IAS 39 Financial Instruments – recognition and measurement. financial instruments within the scope of IAS 39 are classified in the following categories: financial assets at fair value through profit or loss. held to maturity. loans and receivables. available for sale and other obligations.

Financial instruments that are primarily held for the purpose of selling or buying back in the short term. financial instruments in a portfolio of identified instruments that are controlled together and where there are clear signs of short term realisation of gains and derivatives that have not been designated as hedging instruments are classified as held for trading purposes. These instruments are included in the category financial assets at fair value through profit or loss. together with financial instruments that qualify as. and have been designated as. instruments at fair value through profit or loss. Financial guarantee contracts are measured at the higher of what follows from IAS 37 Provisions. Contingent Liabilities and Contingent Assets and IAS 18 Revenue. unless the contracts qualify as. and have been designated as. instruments at fair value through profit or loss.

Financial assets with fixed or determinable cash flows and fixed redemption dates. where the Group has the intention of and the ability to hold the investment to maturity. are classified as investments held to maturity. with the exception of those instruments that the company designates as instruments at fair value through profit or loss or available for sale. or which meet the criteria for inclusion in the category loans and receivables.

Financial assets with fixed or determinable cash flows that are not listed in an active market are classified as loans and receivables. with the exception of instruments that the Group has designated as instruments at fair value through profit or loss or available for sale.

All other financial assets are classified as available for sale.

Financial obligations that due not fall into the category held for trading purposes and that have not been designated as instruments at fair value through profit or loss are classified as other obligations.

Financial instruments held to maturity are included in financial fixed assets. unless the redemption date is within 12 months of the balance date. Financial instruments in the Group that are held for trading purposes are classified as current assets. Financial instruments available for sale are presented as current assets if management has decided to dispose of the instrument within 12 months of the balance date.

Investments held to maturity. loans and receivables and other obligations are recognised at amortised cost. Financial instruments classed as available for sale and held for trading purposes are recognised at fair value. as observed in the market on the balance date. without deduction for costs connected with sale.

Gains or losses resulting from changes in the fair value of financial investments classified as available for sale are recognised as other income and costs until the investment is realised. On realisation. accumulated gains or losses on the financial instrument that have previously been recognised against equity are reversed and the gain or loss is entered on the income statement.

Gains or losses resulting from changes in the fair value of financial investments classified as held for trading purposes or that have been designated as instruments at fair value through profit or loss are entered on the income statement and presented as financial income or cost.

The fair value of financial instruments that are traded in active markets is determined at the end of the reporting period by referring to the listed market price from traders of financial instruments (buying rate for long positions and selling rate for short positions). without deduction for transaction costs.

For financial instruments that are not traded in an active market. the fair value is determined with the aid of a suitable valuation method. Such valuation methods involve the use of recent market transactions at arm's length between well-informed and voluntary parties. if such are available. referral to the current fair value of another instrument that is practically the same. discounted cash flow calculation or other valuation model.

An analysis of fair value of financial instruments and other details regarding the measurement of these is given in the note 26.

IFRS 9 Financial instruments will be implemented from the 2018 fiscal year, replacing IAS 39 Financial instruments - Recognition and measurement. Information on the implementation period and consequences for the Group are described in section 3.2.

3.17 Hedging

The Group performs financial hedging transactions. However on the basis of an assessment of cost and benefit of hedge accounting in accordance with IAS 39. it has been decided that the Group does not perform hedge accounting.

3.18 Derivatives that are not hedging instruments

Financial derivatives that are not recognised as hedging instruments are assessed at fair value. Changes in fair value are entered on the income statement on an ongoing basis.

An inbuilt derivative is separated from the host contract and recognised as a derivative if and only if all the following conditions are fulfilled:

  • The financial characteristics and the financial risk of an inbuilt derivative are not closely related to the financial characteristics and the financial risk of the host contract.
  • A separate instrument with the same conditions as the inbuilt derivative would have satisfied the definition of a derivative.
  • The combined instrument (main contract and inbuilt derivative) is not measured at fair value through profit or loss.

3.19 Impairment of financial assets

Financial assets valued at amortised cost are written down when it is probable based on objective evidence that the instrument’s cash flow has been affected negatively by one or more events occurring after the initial recognition of the instrument. The write-down amount is entered on the income statement. If the cause of the write down later ceases and the cessation can be objectively associated with an event taking place after the inclusion of the write-down. the previous write-down is reversed. This reversal must not result in the balance value of the financial asset exceeding the amount of what the amortised cost would have been. if the loss in value had not been included at the time when the write-down was reversed. Reversal of earlier write down is presented as income.

Financial assets classified as available for sale are written down when there are objective indications that the value of the asset has fallen. The accumulated loss that has been entered directly to equity (the difference between acquisition cost and current fair value less write-down that has previously been included on the income statement and any amortisation amount) is removed from equity and entered on the income statement. If the fair value of a debt instrument classified as available for sale increases at a later date. and the increase can be objectively linked to an event that occurred after the write-down was entered on the income statement. the write-down shall be reversed on the income statement. Write down of an investment in an equity instrument is not reversed on the income statement.

3.20 Inventory

Inventory is recognised on the income statement at the lower of acquisition cost or net sales price. Net sales price is an estimated sales price for ordinary operations minus estimated costs for completion. marketing and distribution. Acquisition cost is allocated by use of the FIFO method and includes expenses accrued when acquiring the goods and the costs of bringing the goods to their current condition and location. Proprietary goods include variable and fixed costs that can be allocated based on normal capacity utilisation.

3.21 Projects

The Building Systems division primarily performs contract assignments (projects). Revenue from projects are recognised by the degree of completion. based primarily on a comparison of accrued project costs and estimated total costs of the project.

Additional claims and disputed amounts are not normally entered until agreement has been reached or there is a court judgement. However part of the claim is entered if there is an overwhelming probability of the anticipated outcome. Provision is made for claims activities based on historical experience and identified risks. Guarantee periods are normally from three to five years.

For projects that are expected to result in a loss. the entire loss is entered on the income statement as soon as it is identified. Costs of tendering and other preparatory work are entered as they arise.

For projects that are directed by outside companies. invoicing is performed monthly with 30 day payment terms. Invoicing is normally done in line with the completion of the work. but there are also payment schedules that do not correspond to progress.

For projects. both income and costs are scheduled. Income that has been earned but not yet invoiced is entered under the item "Completed. not invoiced". Invoiced income that has not yet been earned (forward payment plans) is entered under the item "Prepayments from customers" under other short term liabilities; see note 19.

Scheduling of costs (accrued. not entered) is recognised as trade accounts payable. while provisions for claims activities on concluded projects are entered as claims provisions etc.

Part of the outstanding receivables is secured in the form of bank guarantees or other forms of security. There is not considered to be any credit risk associated with public sector customers. Refer to note 5 on financial risk.

Refer to note 19 Projects in progress, note 18 Accounts receivable, note 25 A Other short term liabilities and note 24 Claims provisions etc. 

When the result of the transaction cannot be reliably estimated, only income corresponding to accrued project costs will be recognised as income.

IFRS 15 Revenue from contracts with customers will be implemented from the 2018 fiscal year, replacing IAS 18 Revenue. Information on the implementation period and consequences for the Group are described in section 3.2.

3.22 Cash and cash equivalents

Cash includes cash holdings and bank deposits. Cash equivalents are short term liquid investments that can be immediately converted into a known amount of cash and that have a maximum of 3 months to maturity.

In the cash flow statement. the bank overdraft has been subtracted from the balance of cash and cash equivalents.

3.23 Equity

Own shares
On repurchase of own shares. the purchase price including immediate costs is entered as a change in equity. Nominal value of own shares are presented in a separate accounting line while paid amounts beyond nominal value as a reduction of equity. Losses or gains on own share transactions are not entered on the income statement. but is recognised in equity.

Costs of equity transactions
Transaction costs directly associated with equity transactions are entered directly to equity after deduction for tax.

Other equity
Translation differences arise in conjunction with currency differences on consolidation of foreign units.

Currency differences on monetary items (liability or receivable) that are in reality part of a company's net investment in a foreign unit are also entered as translation differences.

For disposal of foreign units the accumulated translation difference associated with the unit is reversed and entered on the income statement for the same period as the profit or loss on the disposal is entered on the income statement.

3.24 Non-controlling interests (minority interests)

Minority interests in the consolidated accounts represent the minority's holding of the balance sheet value of equity. With acquisitions. minority interests are measured according to their proportionate share of identified assets.

The subsidiary company's results. as well as the individual components of other income and costs. are attributable to owners of the parent company and the minority interests. The total result is attributed to the parent company's owners and to the minority interests. even if this leads to a negative minority interest.

3.25 Employee contributions

The Group's Norwegian companies:
All the Norwegian companies have collective contribution-based pension schemes. These are schemes with a savings portion and a risk portion with earnings right. Pension premiums are entered as costs as they occur.

The collective contributory pension was ended in 2015. All new employees will now attend the collective contributory pension. The closed schemes are defined benefit plans that give a few employees entitlement to agreed future pension benefits. The benefits are based on the number of years of earning and pay level on retirement.

The Group's foreign companies
Many of the Group's foreign companies offer their employees pensions based on agreed individual contribution-based pension schemes. In Sweden. most employees are covered by a collective occupational pension agreement. The scheme is defined as a multi-employer plan. Salaried staff born before 1979 are included in an individual occupational pension scheme that is also defined as a defined benefit plan. Because of the difficulty of reliably measuring the benefit level of these plans. there is insufficient information on an individual basis to enter the plans in the accounts as defined benefit schemes. The plans are entered as if they were contribution-based schemes. Salaried staff born after 1979 are included in an occupational pension scheme that is premium based and is therefore treated in the accounts as contribution-based.

Defined-benefit pension schemes
Defined-benefit pension schemes are valued at present value of the future pension benefits that have been earned on the date of balance. Pension funds are valued at fair value.

Changes in defined-benefit pension commitments that are due to changes in pension plans are distributed over the estimated average remaining earnings period. Estimate changes and changes in financial and actuarial assumptions (actuarial gains and losses) are entered in other income and costs (OCI). The period’s net pension costs are classified as payroll and personnel costs.

Gains and losses on the curtailment or settlement of a defined-benefit pension scheme are recognised on the income statement on the date the curtailment or settlement occurs.

Curtailment occurs when the Group decides on a significant reduction in the number of employees covered by a scheme or changes the conditions for a defined-benefit pension scheme so that a considerable part of the present employees' future earning no longer qualifies for benefits or only qualifies for reduced benefits.

Contributory pension scheme
All Norwegian employees are now a part of the Group's contribution-based pension schemes. Contributions are given to the pension plan for full-time employees and represent from 3.6 % to 21.7 % of pay. Pension premiums are entered as costs as they occur.

3.26 Provisions

A provision is recognised when the Group has an obligation (legal or self-imposed) as a result of an earlier event. it is probable (more probable than not) that a financial settlement will take place as a result of this obligation and the amount can be reliably measured. If the effect is considerable. the provision is limited by discounting anticipated future cash flow by using a discount rate before tax that reflects the market price of the monetary value and. if relevant. the risk associated with the specific provision.

A provision for guarantees is included when the underlying products or services are sold. The provision is based on historical information about guarantees and a weighting of possible outcomes according to the probability of their occurrence.

Restructuring provisions are included when the Group has approved a detailed and formal restructuring plan and the restructuring has already started or has been made public.

3.27 Conditional liabilities and assets

Conditional liabilities are not recognised in the annual accounts. Significant conditional liabilities are reported. with the exception of conditional liabilities where the probability of the liability is low.

A conditional asset is not recognised in the annual accounts. but is reported where it is probable that a benefit will accrue to the Group.

3.28 Subsequent events

New information about the company's financial position on the balance date that arises after the balance date is taken in to consideration in the annual accounts. Events after the balance date that do not affect the company's financial position on the balance date, but which will influence the company's financial position in the future, are reported if they are significant.

Currency exchange rates

The following exchange rates against the Norwegian kroner (NOK) have been used in consolidating the accounts.

Konsern Note 3 Tabell end Valutakurser E

The income statement rate is an average rate for the year.

Balance sheet rate is the closing rates 31.12.

Note 4 Critical accounting estimates and judgements

In preparing the annual accounts in accordance with IFRS, the company's management have used estimates based on good faith and assumptions which are believed to be realistic. Situations or changes may arise which may mean that such estimates require adjustment and thereby affect the company’s assets, debt, equity or profit and loss.

The company’s most important accounting estimates relate to the following:

  • Valuation and depreciation on tangible fixed assets.
  • Valuation of inventory
  • Fair value of assets and obligations in acquisitions.
  • Project valuations

Anticipated useful life of the company's production equipment is affected by the technological development and profitability of the plant. Choice of depreciation period is an estimate.

If there are indications of a fall in value, the inventory in the subsidiaries must be tested for value loss. Book value is then compared with estimated net sales value. Management must take many things into account when making this estimate.

The company's recognised goodwill and intangible assets are assessed for write down annually. Impairment testing of intangible assets are presented in Note 10b. The company is greatly affected by economic cycles that lead to considerable fluctuations in fair value in the company. The group is particularly affected by developments in the export markets in Europe and Africa, as well as fluctuations in the building industry in Scandinavia. Exchange rates and market interest rates also affect valuation. Valuations of the various established segments will naturally vary within a range of +/- 20%. For businesses in less mature markets, the range may be even greater. Moelven must distribute the cost price of acquired companies over acquired assets and acquired debt based on estimated fair value. The valuation estimates require management to make considerable assessments in the choice of method, estimates and assumptions. Significant acquired intangible assets that Moelven has included, comprise customer base and goodwill. The assumptions made for the assessment of intangible assets include, but are not limited to, estimated average lifetime of customer relationships based on natural loss of customers. The assumptions made for the assessment of assets include, but are not limited to, the reacquisition costs of fixed assets. Management's assessments of fair value are based on assumptions that are deemed to be reasonable, but that have a built in uncertainty, and as a result of this the actual results may differ from the calculations.

Project assessment is dependent on estimates of degree of completion, anticipated final status, any loss projects, guarantee obligations and claims. The managements of the subsidiaries within Building Systems use figures based on experience, among others, in preparing the estimates.

Projects under construction is presented in note 19.

Note 5 Financial risk management

Risk management principles and processes

The Moelven Group’s operations entail various forms of financial risk. The group has designed a financial policy whose main purpose is to reduce risk and establish predictable financial framework for the industrial operations. Financial risk is managed by the finance department of Moelven Industrier ASA in collaboration with the various operational unit, in a cost-effective manner. The adopted policy should minimize the potentially negative effects the financial markets may have on the Group’s cash flow. The financial guidelines are primarily based on the concept that it is the industrial operations, rather than financial transactions, that should ensure profitability. The most important financial risks and the principles for the finance department are described below:

5.1 Market risk

The market risk is the risk that a financial instrument's fair value or future cash flow will fluctuate as a result of changes in market prices. Market risk includes three types of risk: currency exchange rate risk, interest rate risk and other price risk.

5.1.1 Foreign currency - transaction risk

Transaction risk means the exchange rate risk that is caused by the possibility of exchange rate changes in the period between the time a transaction in foreign currency is agreed and the time of settlement. About 15 per cent of the Group's operating revenues comes from markets outside Scandinavia and carry exchange rate risks. The companies import raw materials and finished goods to both Sweden and Norway. There is also significant trade both within the group and externally between Sweden and Norway. The key currencies are EUR, GBP, DKK and SEK, but the Moelven Group is also exposed to USD, CAD and CHF.

In accordance with the Group’s financial policy, cash flow fluctuations as a result of variation in exchange rates must be kept within a defined outcome area through the use of hedging instruments. Currency terms are primarily used. All hedging in the group shall be done by the group’s central financial department in Moelv, both internally for the group companies and net exposure externally. Norwegian subsidiaries hedge against NOK, Swedish ones against SEK. Results from Swedish subsidiaries are included as part of net investment in foreign subsidiaries and are not hedged for exchange rate fluctuations in compliance with the current finance policy.

In accordance with the financial policy, net exposure in foreign currency shall be hedged against rate fluctuations according to the following main principles:

  • At least 90 per cent of obligations in foreign currency shall be hedged when entering into the contract. This relates mainly to investment projects where machinery and equipment is bought from abroad.
  • Expected net exposure in the upcoming 24 months will be secured within the defined maximum and minimum limits, which become lower the further into time the cash flow is expected to arise.

Because of the hedging strategy that has been chosen, changes in exchange rates must be long-term so as to have the full effect on the Group's profitability. During the hedging period, operational adaptations may be made to compensate for the external changes.

Sensitivities - foreign currency

The table below shows the transaction volume for the main currencies in 2017 and 2016. The group does not use hedge accounting, and the equity effect of changed market values for currency hedges therefore corresponds to the result after tax. The effects of changed competitiveness due to exchange rate changes are not included in the sensitivity analysis.

 

Konsern Note 5 transaksjon Tabell 5.1 E

In addition to the exposure shown in the above tables, the group has an annual exposure in SEKNOK corresponding to approximately 132 million. The exposure is due to net export from Swedish group companies to Norway, and is currency hedged in the usual manner at the company level. Since a large proportion of the Group's total production takes place in Sweden, the Group also has significant costs in Sweden. Net profit from the Swedish subsidiaries are included in retained earnings, and the currency risk arising in connection with these units' operating income and expenses are taken into account the risk related with the risk of conversion to equity.

The table below shows sensitivity in the results before tax to exchange rate changes when all other conditions remain unchanged. The calculations are on the basis of rate changes being constant for the whole year. The effects of currency hedging, changes in the market value of financial hedging instruments and revaluing of balance sheet items have not been taken into account.

Konsern Note 5 Resultat før skatt tabell 5.1.1a E

The market value of financial derivatives used for currency hedging depends on the balance sheet exchange rate in relation to the hedging rates that have been achieved. Changes in market value will result in an unrealized gain or loss and are recognized as financial cost. The table below shows how the ordinary result before taxes would have been affected by a change in the balance sheet date.

The calculation is made on the basis of actual hedging volumes in the specified currencies per 31.12.2017.

 

Konsern Note 5 Resultat før skatt tabell 5.1.1b E

5.1.2 Foreign currency - translation risk

In this context, translation risk means exchange rate risk due to the balance sheet including items that are denominated in a foreign currency. For the group companies, this translation risk is eliminated in that financing shall occur in the same currency as the asset is entered in the accounts.

About half of the Group's total balance sheet is connected to activities in Sweden. The balance sheet figures will therefore be affected by the prevailing exchange rate between the Swedish and Norwegian kroner. A large part of equity is secured against fluctuations as the share investments in most of the group's Swedish subsidiaries are financed in Swedish kroner.

The table below shows the effect on consolidated equity by a change in the exchange rate of +/- 10 percent:

Konsern Note 5 Markedsverdi av finansielle instrumenter tabell 5.1.2 E

5.1.3 Interest rate risk

Interest rate risk is the risk that a financial instrument's fair value or future cash flows will fluctuate because of changes in market interest rates. The Group's net interest-bearing debt is subject to interest rate risk. The group companies are to be funded with internal loans from the parent company in the currency that is the subsidiary’s local currency. This essentially means either NOK or SEK. All external borrowing is done by the parent company, which also makes hedging in accordance with financial policy. Hedging instruments that can be used is interest rate swaps, FRAs and complex basis swaps. The extent of hedging is measured in terms of the combined duration of outstanding debt and hedging activities. The total duration should be minimum of 12 months and maximum 60 months. Interest rate hedging agreements with a maturity of more than 10 years shall not be entered.

The Group's average net debt in 2017 was NOK 940,9 million (1,143.0). If the entire debt had been without interest rate hedging, an interest rate change of one percentage point would lead to a change in the group’s financing cost of NOK 9.5 million. However, pursuant to the financial policy, part of the debt is secured against interest rate fluctuations through the use of financial hedging instruments. Interest rate swaps are the main instrument. At the end of 2017 the hedge ratio was 63.5 per cent. Unrealized market value changes of interest rate instruments are recognized in the profit and loss account, but do not affect the cash flow. The unrealized market value of interest rate instruments is tied to the remaining term of the instrument, which according to the group’s finance policy may be up to 10 years.

Estimated effect on profit before tax by a change in interest rates and yield curves in the future are shown in the table below. The group does not use hedge accounting, and the equity effect therefore equals the result after tax.

Konsern Note 5 Renterisiko tabell 5.1.3 E

5.1.4 Other price risk

Other price risk is the risk that a financial instrument's fair value or future cash flow will fluctuate because of changes in market prices (apart from changes that are due to interest rate risk or exchange rate risk), regardless of whether these changes are caused by factors that are specific for the individual financial instrument or the instrument's issuer, or by factors that affect all corresponding financial instruments that are traded in the market.

The price of electric power is an important factor that affects the Group's profitability. About 230 GWh of electric power a year is bought via the Group's electricity suppliers on the Nasdaq OMX exchange.

According to the Group's finance policy, the need for electric power shall be secured against price fluctuations so as to ensure stability and predictability. The anticipated power requirement is hedged within stated maximum and minimum levels by forward buying on Nasdaq OMX with a 5 year maximum horizon.

The price of electric power is denominated in EUR. The Group's power costs are therefore affected by both price changes and exchange rate changes. Based on the Financial Supervisory Authority’s statements in 2016 concerning long-term supply contracts for energy, the proportion of the market value change for energy hedges that can be attributed to exchange rate changes is treated as a embedded currency derivative. The value is included in the group’s accounts, while the actual supply contracts are kept outside pursuant to IAS 39. The value as at 31.12.2017 amounted to NOK -1.0 million (0.6 million) The group's annual electricity consumption has been relatively stable, apart from increases caused by business combinations.

Accounting of energy hedging differs in Norway and Sweden. Hedging of power consumption in Norway is subject to the exception rules on purchasing for own consumption in IAS 39, and are only entered when the power delivery takes place. For the hedges in Sweden the market value is capitalized at the time of reporting, and value changes are entered against the result.

The table below illustrates the effects on results before tax of a change in the electricity price of +/- 1 EUR per MWh at different exchange rate levels for EURNOK.

Konsern Note 5 prisrisiko Tabell 5.1.3b E

The effect on ordinary result before tax of exchange rate changes on the total consumption per year is shown in the table below:

Konsern Note 5 Tabell 5.1.3c E

The table below shows the sensitivity to changes in the price level for el.terminer at Nasdaq OMX. The starting point in secured volume per 31.12.2017 and provided that the price curve for futures contracts changed with 1 EUR / MWh.

Konsern Note 5 Tabell 5.1.3d E

5.1.5 Liquidity risk

Liquidity risk means that the company will have difficulties in fulfilling financial obligations that are settled with cash or another financial asset. The group’s foreign capital funding consists of a long-term credit facility maturing in June 2020, in addition to short-term credit facilities in the banking systems. The long-term loan agreement was entered into in June 2016, and includes two credit limits of NOK 850 million and SEK 750 million respectively. The agreement initially had a 3 year term, with the option to request an extension of 1 year up to 2 times in the agreement’s 2 first years. In the second quarter of 2017 the first of these two options was used, and the agreement’s maturity was changed from June 2019 to June 2020. Any decision to request a further extension of the agreement will be made in the course of March/April 2018. The agreement includes general default clauses on minimum equity ratio of 33 per cent, net equity value of NOK 1.1 billion and debt ratio of a maximum 1.0. As at 31 December 2017, the Group's key figures were above the agreed levels. In addition to the long-term credit facility, the group also has available short-term credit of NOK 312 million, which is renewed annually. As at 31 December 2017, the group deposit amount was NOK 30.9 million. Long-term cash flow forecasts are prepared in connection with the strategy and budget process. The finance department monitors the utilisation of the credit facilities against the long-term liquidity needs, to ensure that the group has sufficient long-term financing to carry out operation and development of the group in accordance with the current strategy plan.

Short-term cash flow forecasts are prepared at the company level and reported weekly to the Group's finance department, which aggregates the forecasts and monitors the group's total liquidity requirements. Based on these forecasts, the finance department ensures that the group has sufficient and as reasonable as possible cash equivalents available to meet operational obligations. Surplus liquidity is used to repay long-term debt. Short-term investments are thus only made exceptionally.

Due to the annual seasonal variation in raw material access and market activity, the Group's working capital varies by NOK 300 million to NOK 400 million from its highest level in May/June to its lowest in November/December.

Maturity structure

Konsern Note 5 Tabell 5.1.4a E

The table above does not show cash flow from accounts payable, other interest-free debt and cash flow from currency derivatives. A summary of the nominal value of financial derivatives is presented in note 26.3.

Konsern Note 5 Tabell 5.1.5 E

Long-term interest-bearing debt by currency:

Konsern Note 5 Tabell 5.1.4bcd 

Loans secured with mortgages in assets:

Konsern Note 5 Tabell 5.1.4bcd 

Book value of mortgaged assets:

Konsern Note 5 Tabell 5.1.4bcd 

5.1.6 Refinancing risk

Refinancing risk is the risk of difficulties arising in refinancing the Group's long-term liabilities. In accordance with the group's financial policy, the remaining time to maturity of the group’s main financing shall be a minimum of 1 year. The Group's long-term financing is based on syndicated loans from a few selected financial institutions with which the Group has cooperated closely for an extended period. The background for this is the significance of these financial institutions' focus on the mechanised wood industry, combined with industry competence and knowledge of risk profiles and seasonal and other fluctuations. The present financing has been taken up with negative pledge declaration and default clauses linked with key figures on the balance sheet. The loan agreements do not contain any profit-related default clauses.

5.1.7 Credit risk

Credit risk arises in transactions with settlements ahead in time. For the Moelven Group this mainly concerns transactions with customers and suppliers, in addition to trading in financial derivatives and deposits in banks and financial institutions.

As a general rule, the group only enters into financial transactions with financial institutions that participate in the long-term financing of the group. None of these has a credit rating poorer than A with the major credit rating agencies. The group has corresponding principles in relation to bank deposits and purchasing of financial services.

In accordance with the group’s financial policy, credit is only given against satisfactory security. This mainly means credit insurance or warranties, but letters of credit, advance payments and offsetting are also used. The group’s framework agreements for credit insurance and guarantees are with counterparties recognized in the market and with an A credit rating.

In certain cases it is not possible to obtain satisfactory security for credit sales. A function has therefore been established for determining internal credit limits and follow-up of credit sales.

Of the group’s total capitalized receivable, the use of the various forms of hedging against credit risk are distributed as follows:

Konsern Note 5 Bokført verdi tabell 5.1.4d N

5.2 Risk in connection with asset management

The Group’s goals for asset management are:

- To ensure the basis for continued good operations to contribute to a satisfactory and predictable return for the owners.

- To ensure sufficient financial room for maneuver to achieve the established targets of profitable growth and development of the Group.

- To keep capital costs as low as possible.

The rule of thumb in the group’s dividend policy indicates that a cash dividend corresponding to 50 per cent of net profit, albeit a minimum of 40 øre per share. Considerations to the company’s financial position and other capital sources must always be satisfactorily maintained.

The equity ratio goal is a minimum of 40 per cent, a level that is appropriate in light of the economic fluctuations that have been seen in recent years. In addition, Moelven's operations have a seasonal requirement for working capital that cause great variations in the equity ratio.

The Group has an objective of a debt ratio of 0.50 for a normal seasonal balance. In accordance with the current loan agreement, the debt ration cannot exceed 1.00. The debt ratio is calculated by dividing net interest-bearing debt by equity.

Konsern Note 5 Tabell 5.2 Risiko tilknyttet kapitalforvaltning E

Note 6 Operating segments

6.1 – Main figures for the group and operating segments

Criteria for division

The divisions are divided in accordance with Moelven's three core activities: Timber (industrial goods), Wood (construction materials) and Building Systems (projects). There is also a division named "Other" in which the remaining units are placed. The divisions are built up around independent subsidiaries with activities clearly defined within the divisions. All transactions between the divisions are conducted on normal commercial terms. The split into divisions differs from the formal legal ownership structure.

Group management represents the group's decision maker. The operating segments are managed by their peculiarity.

The segments are divided in accordance with who the customers are. Timber has mainly industrial customers, Wood has mainly end users and building product chains as customers and Building Systems has customers in the contracting sector. The others are the remaining companies, mainly the parent company, timber supply and bioenergy.

In Timber and Wood especially, there is a great deal of collaboration between segments, but there are internal transactions between all four segments. Transactions between the segments are agreed on the arm's length principle. Income from customers outside the segment is reported to group management according to the same principles as the consolidated income statement.

Group management is mostly focused on the following key figures: Sales income, profit margins, net operating capital, employed capital and returns on employed capital, interest-bearing debt and investments. In addition, the development of sickness absence and injury statistics is carefully monitored.

The accounting principles that form the basis for segment reporting are the same as those used for consolidated accounting and are described in note 3.

Konsern Note 6 tabell 6.1 E

Reconciliation between reported segments operating revenues, profit before tax, assets and liabilities and other significant conditions.

Konsern Note 6 tabell 6.2 E

6.2 – Geographical segments

The presentation of geographical segments shows operating revenues based on the geographical location of the customers.

Konsern Note 6 tabell 6.3 E

No customer represents more than 10 % of income.

Presentation of number of employees, fixed assets, employed capital and investments is shown based on geographical location of the assets.

Konsern Note 6 tabell 6.4 E

Note 7 Sales income

Konsern Note 7 Salgsinnteker E

In sales income for the group, internal deliveries and services between the group companies amounting to NOK 6.540 million have been eliminated (NOK 6.365 million).

Note 8 Fixed assets

Konsern Note 8 Varige driftsmidler tabell E

Ordinary depreciation rates are given in note 3.11

8.2. Impairment

The result for 2017 were impacted by an impairment loss of NOK 17.6 million as a result of the restructuring of Moelven Norsälven AB. The result for 2016 were impacted by an impairment loss of NOK 16.5 million as a result of the restructuring of Moelven Tom Heurlin AB.The impairment of the cash-generating entity's value is entirely recognized in profit and the recoverable amount is estimated to be the value in use.

Temporarily out of order

For 2017 there is a facility to book value of NOK 3.5 million who are temporarily out of service. The plant is not impaired as the entry into service is assessed on an on-going basis.

Note 9 Leasing

Operating lease

The group recognised expenses of NOK 12.2 million in relation to operating leases in 2017. The equivalent expense in 2016 was NOK 18.4 million.

Minimum lease payments relating to operating leases

Konsern Note 9 Leasing tabell 9.1 E

Finance leases

Leases where control and substantially all the risks have been transferred to the group are classified as finance leases. Further information are given in note 3.

Minimum lease payments relating to finance leases

Konsern Note 9 Leasing tabell 9.2 E

Note 10 Intangible assets

10 a - Intangible assets

Konsern Note 10a immaterielle eiendeler tabell E

10 - b Impairment test of goodwill

As of 31th December 2017 goodwill in the group entered on the balance sheet amounted to NOK 13.3 million. This is linked to the acquisitions of Sør-Tre Bruk AS, Granvin Bruk AS and Eco Timber AS that were completed in 2010. These three acquired companies are all in the Wood division and it is the division's operation that is deemed to be the cash flow generating group that goodwill shall be tested against.

Konsern Note 10b Nedskrivningstest av goodwill tabell 10b.1 E

Goodwill is tested at the level monitored by group management, which means that there are groups of cash flow generating units (CGUs).

The recoverable amount of CGU is determined based on an assessment of the division's value in use. Value in use is estimated by discounting expected future cash flows after tax, discounted at an appropriate discount rate after tax that takes into account maturity and risk.

The projections of cash flows based on budgets approved by management for the first four years. The cash flows are arrived at by taking the historical figures for the CGUs as a basis, but with an allowance for an expected moderate growth in the total market, Moelven's market share and the prices of the products. In management's opinion it is reasonable to assume that considerable development of new products and technologies will occur in these areas. Net expectations for operating margins are improvements. When it comes to fixed assets and production capacity, the management believes that these have the capacity needed to handle future growth. After four years, it is placed a conservative estimate of 2.5 per cent nominal growth in net cash flows. In the terminal period, investments and depreciation equal.

The rate used for discounting cash flows is 8,0 per cent. This is based on a risk-free rate of 1,6 per cent, an added risk premium of 5.9 per cent, an equity beta of 1.2 and a liquidity premium of 3.0 per cent. In addition this is weighted up against the long-term borrowing rate of 3.2 per cent. The risk premium is based on observations of comparable companies.

There was no write down of goodwill in either 2017 or 2016. In 2016, a company with a recorded goodwill of NOK 3.6 million was sold from Buildings Systems.

Maximum exposure to possible write down of goodwill is NOK 13.3 million. We have calculated sensitivity for the write down assessments, and a 5.5 per cent change in discount rate would lead to write down of the goodwill in the Wood division in the consolidated accounts.

Segments - Groups of cash flow generating units (CGUs):

Konsern Note 10b Nedskrivningstest av goodwill tabell 10b.2 E

Note 11 Payroll expenses, employees and remuneration to auditor

11 - a Payroll expenses

Konsern Note 11a lønnskostnader tabell E

11 - b Number of employees

Average number of employees in 2017 was 3,536 and in 2016 it was 3,521. Moelven had 3,546 employees at the end of 2017 compared to 3,492 employees at the end of 2016.

11 - c Remuneration to auditor

Konsern Note 11c godtgjørelse til revisor tabell E

Note 12 Financial income and costs Note 13 Tax expense

Konsern Note 13 Skattekostnad tabell 13.1 E

Reconciliation of tax calculated against the Group's weighted average tax rate and tax expense as it appears in the income statement:

Konsern Note 13 Skattekostnad tabell 13.2 E

Konsern Note 13 Skattekostnad tabell 13.3 E

Note 14 Deferred tax

Deferred tax benefits and deferred tax are netted when there is a legal right to give and receive group contribution between the entities.

The table below shows the basis that has resulted in recognised deferred tax benefits and deferred tax.

14.1 Assets and obligations with deferred tax consist of:

Konsern Note 14.1 og 2 Utsatt skatt tabell E

14.2 Assets with deferred tax from loss carry-forward

Konsern Note 14.1 og 2 Utsatt skatt tabell E

The group has no recorded deferred tax regarding carry-forward losses in other countries than Norway.

14.3 Analysis of deferred tax through the year

Konsern Note 14.3 Analyse utsatt skatt gjennom året tabell E

Note 15 Other shares Note 16 Investments in associated companies

Konsern Note 16a Investeringer i tilknyttet selskap tabell E

Konsern Note 16b Investeringer i tilknyttet selskap tabell E

1) The company has deviating accounting with balance sheet date 31.08. The result of four months will be insignificant for Moelven Group. It is therefore not prepared any interim balance.

Note 17 Inventory

Konsern Note 17 Varelager tabell E

Write down of inventory to fair value in 2017 is included in profit and loss with NOK 16.9 million. The equivalent value in 2016 was NOK 18.0 million. The book value of inventories pledged as security in 2016 was NOK 1.1 million. The loan was redeemed in 2017.

Note 18 Accounts receivable and other receivables

Konsern Note 18 Kundefordringer og andre fordringer tabell 18.1 E

Part of the outstanding receivables is secured in the form of bank guarantees or other forms of security. There is not considered to be any credit risk associated with public sector customers. Refer to note 5 on financial risk.

Other receivables consist of other deferred income, prepayments and operations-related items. The groups accounts receivable are mainly secured through credit insurance.

Currency breakdown of accounts receivable before provision for loss

Konsern Note 18 Kundefordringer og andre fordringer tabell 18.2 E

Note 19 Projects in progress

Konsern Note 19 Prosjekter under utførelse tabell E

For projects that are directed by outside companies, invoicing is performed monthly with 30 day payment terms. Invoicing is normally done in line with the completion of the work, but there are also payment schedules that do not correspond to progress.

For projects, both income and costs are scheduled. Income that has been earned but not yet invoiced is entered under the item "Completed, not invoiced". Invoiced income that has not yet been earned (forward payment plans) is entered under the item "Prepayments from customers" under other short term liabilities, see note 25. Only one of these items is used per project. Thus
each project shows either a net receivable for the customer or a net liability to the customer.

Scheduling of costs (accrued, not entered) is recognised as trade accounts payable, while provisions for claims activities on concluded projects are entered as claims provisions etc.

Note 20 Cash and cash equivalents Note 21 Earnings per share and equity per share

Earnings per share

Earnings per share is calculated by dividing the share of the annual profits allocated to the company’s shareholders by a weighted average of the number of ordinary shares issued over the year, less own shares.

Konsern Note 21 Resultat per aksje og egenkap. per aksje tabell 21.1 E

Equity per share

Equity per share is calculated by dividing the share of equity assigned to the company’s shareholders by a weighted average of the number of ordinary shares issued over the year, less own shares.

Konsern Note 21 Resultat per aksje og egenkap. per aksje tabell 21.2 E

Note 22 Group companies

The following companies are included in the Group. The list is group according to division structure. Book value shows the book value in the separate financial statement of the owner of the company.

Konsern Note 22 Konsernselskaper E

Note 23 Pension costs and pension commitments

Pension schemes

The pension funds and commitments on the balance sheet mainly relate to the group's Norwegian companies.

Secured schemes

The group's defined benefit scheme regarding the Norwegian companies was ended in 2015. New employees will be affiliated a contributions based pension scheme. The contribution scheme include a risk coverage in case of disability.

The Group is required to have an occupational scheme by legislation on compulsory occupational pensions. The pension schemes fulfil the requirements of this legislation.

Unsecured schemes

Unsecured schemes relate to guaranteed pension liabilities. These are calculated in accordance to IFRS pension costs. There are no unsecured pension commitments that have not been included in the calculation mentioned above. The remaining pension commitments in balance sheet are related to agreed arrangements for a small number of previous and current employees.

A new AFP scheme from 01 January 2011 for the Group's Norwegian companies

All employees in the Norwegian companies in the group should be comprised by the right to early retirement (AFP), early retirement schemes in the private sector from the age of 62 if they fulfil the requirements of this scheme. The new AFP scheme which came into force in 2011 is defined as a defined-benefit multi-employer plan, but accounted for as a defined contribution scheme until reliable and sufficient information enabling the companies to account for its proportionate share of pension costs, pension obligations and pension funds in the scheme. The company's obligations related to the new AFP scheme is therefore not recorded as a liability.

The group's foreign companies

any of the group's foreign companies offer their employees pensions based on agreed individual contribution-based pension schemes.

In Sweden, most employees are covered by a collective occupational pension agreement. The scheme is defined as a multi-employer plan. Salaried staff born before 1979 are included in an individual occupational pension scheme that is also defined as a defined benefit plan. Because of the difficulty of reliably measuring the benefit level of these plans, there is insufficient information on an individual basis to enter the plans in the accounts as defined benefit schemes. The plans are accounted for as if they were contribution-based, in accordance with good accounting practice. Salaried staff born after 1979 are included in an occupational pension scheme that is premium based and is therefore treated in the accounts as contribution-based.

23.1 – Economic and actuarial assumptions

Konsern Note 23 Pensjonskostnader og pensjonsforpliktelser tabell 23.1-3 E

Note 24 Provisions

Guarantee liability on projects

Konsern Note 24 Garantiavsetninger tabell E

Konsern Note 24 Garantiavsetninger tabell E

Konsern Note 24 Garantiavsetninger tabell E

Loans with mortgages were redeemed in 2017.

Moelven Industrier is operating business that can affect the external environment. Moelven performs periodical mapping of the environmental effect of our production. Based on these mappings, Moelven has assessed that the recognition criteria of a reliable estimate is not fulfilled. There is therefore not recognized any provisions regarding environmental effects.

Note 25 Other short-term liabilities

Konsern Note 25 Annen kortsiktig gjeld tabell E

Prepayments from customers relates to invoiced income on projects that has not been earned (invoiced, not performed).

Refer to note 19 Projects.

Note 26 Financial instruments

26.1 Book value of financial assets and obligations by category:

Konsern Note 26 Finansielle instrumenter tabell 26.1a E

Konsern Note 26 Finansielle instrumenter tabell 26.1b E

Level 1: Listed price in an active market for an identical asset or liability.

Level 2: Valuation based on observable factors other than listed price (used in level 1) either directly or indirectly derived from prices for the asset or liability. Assets and liabilities valued according to this method are mainly financial instruments for hedging future cash flows in foreign currency, interest and electricity. Market value is the difference between the financial instrument's value according to the signed contract and how a similar financial instrument is priced at the balance sheet date. The balance sheet market prices are based on market data from Norges Bank, the ECB, Nasdaq OMX and the financial contract counterparty.

Level 3: Valuation based on factors not obtained from observable markets (non-observable assumptions). The valuation method is used to a very small extent and only for unlisted shares. Since market value is not available, the expected future cash flow from the shares is used as an estimate.

26.2 Nominal value of financial instruments

Konsern Note 26 Finansielle instrumenter tabell 26.2 E

The table shows the nominal gross value in NOK.

Sales of foreign currency is sales against NOK and SEK. Calculation of nominal value in NOK is done by using the nominal value of SEK converted to NOK by using the balance sheet date rate.

Acquisitions of foreign currency are mainly sales of SEK against NOK and SEK against EUR.

Power contracts are bought forward contracts for electricity.

*The market value of power derivatives for own consumption was NOK 8.4 million in 2017 and NOK 5.9 million in 2016.

Note 27 Share capital and share premium reserve

The last capital increase was in 2004 when Moelven aquired the Are Group. The share capital was increased by NOK 52.5 million.

Konsern Note 27 Aksjekapital og overkursfond tabell E

Konsern Note 27 Aksjekapital og overkursfond tabell 27.2 E

Note 28 Remuneration to group management, board and corporate assembly

28.1 – Shares in Moelven Industrier ASA owned by members of the group management, board and corporate assembly

Konsern Note 28 Godtgjørelse til konsernledelsen, styret og bedriftsforsamlingen tabell 28.1 E

28.2 Declaration of determination of remuneration for the Group Executive Board

Background

In accordance with section 6-16a of the Public Limited Company Act, the board of Moelven Industrier ASA has prepared a declaration on the fixing of pay and other remuneration for senior executives within the group. The declaration, which was adopted by the general meeting of 26 April 2016, has been the guideline for the 2016 financial year. An identical declaration, which will be presented to the general meeting of 26 April 2017, will be the guideline for the 2017 financial year.

The following persons are involved

The declaration covers the group management of Moelven Industrier ASA. Group management means the CEO and the heads of the divisions.

General

Moelven shall have a level of pay and other terms of employment that is necessary in order to be able to keep and recruit managers with good competence and the capacity to achieve the objectives that are set.

Salary

Moelven's main principle is that senior executives shall have fixed salary. Salary is adjusted annually, normally with effect from 1 July.

Other benefits in kind

Moelven shall have other benefits, in the form of free car, free newspapers and free telephony for example, where this makes work easier and is deemed to be reasonable in relation to general practice in the market.

Bonuses and other variable elements of the remuneration

Over and above the main principle of fixed pay, the board wishes it to be possible to offer other variable forms of remuneration in cases where this is found to be appropriate. Bonuses may be used to a limited extent and by special agreement and shall be directly dependent on operating profit.

Remuneration linked to shares etc.

Moelven has no form of remuneration for companies within the group that is linked to shares or the development of the share price, including shares, subscription rights and options. In the event of the establishment of such a scheme, it shall cover a large number of employees and such remuneration shall represent a smaller proportion than the fixed pay.

Pension schemes

Moelven shall have pension conditions that are on a level with the general market in the home country. New employees shall join contributory pension schemes.

Pay after termination of employment

In the event of immediate termination of employment by the company, management shall as a standard be entitled to pay for 18 months, less pay earned by any new employer during this period.

Previous financial years

Management pay policy in previous financial years has been in line with the content of this declaration.

The board reserves the right to deviate from these guidelines if there are serious grounds for doing so in individual cases. If the board should deviate from these guidelines, their reasons for doing so must appear in the minutes of the meeting.

28.3 – Remuneration to senior executives etc.

Konsern Note 28 Godtgjørelse til konsernledelsen, styret og bedriftsforsamlingen tabell 28.3 E

On termination of employment, the President and CEO and the Managing Directors of Timber and Wood have 18 month's pay after termination, less pay from new position/employer. The Managing Director of Building Systems has a similar agreement for 6 months.

28.4 - Remuneration to the board and corporate assembly

Konsern Note 28 Godtgjørelse til konsernledelsen, styret og bedriftsforsamlingen tabell 28.4 E

The chairman of the board of directors receives NOK 515.000 and the board members NOK 123.600 in annual remuneration. Deputy members of the board receive NOK 5.700 per meeting. The chairman of the corporate assembly receives NOK 61.800 in annual remuneration. The members and deputy members of the corporate assembly receive NOK 5.700 per meeting.

Note 29 Shareholders' agreement and related parties

29.1 Shareholders' agreement

The share capital of Moelven Industrier ASA consists of 129,542,384 shares with a face value of NOK 5 and there is only one share class. In total the shares are distributed among 934 shareholders, of which the six largest, Eidsiva Vekst AS, Felleskjøpet Agri SA and the forest owner cooperatives Glommen Skog SA, Mjøsen Skog SA, AT Skog SA and Viken Skog SA, control a total of 99.6 per cent. There is several shareholders' agreements between these shareholders. Among other things, this shareholders' agreement has clauses that determine that the company shall be run as an independent unit with a long-term perspective and with continued focus on Scandinavia as the main market. The agreement also contains clauses regarding the composition of the board, dividend policy, strategic focus areas and share transfer.

29.2 Related parties

Transactions with the owners are performed in some areas of the ordinary activities. Among other things, this relates to purchase of timber, where the Norwegian forest owner cooperatives are suppliers. There will also be deliveries of biofuel from the Moelven group to a bioenergy plant owned by Eidsiva Energi AS, with possible buy-back of bioenergy for Moelven's industries in connection with the energy plant. Also, Eidsiva Energi Marked AS sells electric power to Moelven's Norwegian industrial operations. All these transactions have in common that the arm's length principle shall be applied. Where other suppliers can offer better prices or terms, these will be used. About 45 per cent of Moelven's total purchasing requirement for timber of 4.2 million cubic metres comes via the Norwegian forest owner cooperatives.

Moelven' supply of energy raw materials to Eidsiva's bioenergy plant represents between 40 and 50 GWh on an annual basis, while buying back energy represents between 20 and 30 GWh. Net delivery of energy raw materials is 20 GWh.

The extent of the sale of electrical power corresponds to about 40 per cent of Moelven's total consumption of about 230 GWh.

Moelven has a long tradition of running its operations in accordance with all the laws and ethical guidelines of the industry and is of the opinion that competition is positive for all parties in industry. In order to ensure that this culture is maintained, ethical guidelines and guidelines for complying with legislation on competition have been devised.

Note 30 Events after the date of balance

No subsequent events have taken place that should have any effect on the 2017 annual report.