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Parent company accounting principles

The financial statements of Tecnotree Oyj are prepared in accordance with the Finnish Accounting Act (1997/1336) and Ordinance (1997/1339) and with other legislation and regulations concerning financial statements. The financial statements are also prepared on a going concern basis. On 5 March 2015 Tecnotree Corporation filed an application for restructuring proceedings with the district court of Espoo, which the District Court confirmed the amended restructuring programme proposal on 15 November 2016. Additional information about the restructurng proceedings is given in note 20, and the basis for applying the going concern principle is disclosed in the accounting principles of the Group.

The consolidated financial statements of Tecnotree Corporation in year 2018 have been prepared in accordance with the going concern principle.

New capital investments done to the company in autumn 2018 and beginning of 2019 have significantly improved the financial position of the company. According to company’s cash flow forecast its cash flow will be positive during the next 12 months period. This along with ensuring the going concern principle assumes net sales of the company to remain at the same level as in 2018 and cost management according to the plan. In 2019, based on the company’s sales forecast projections and new capital investment funds received, it will cautiously invest on product portfolio and market expansion plans while continuously ensuring careful monitoring and management of operational costs to ensure cash resilience and profitability quarter on quarter. Tecnotree continues to focus on cost optimization, and in addition, concentrate on minimizing currency exchange risks and withholding taxes by initiating actions to further optimize these processes.

Tecnotree has a risk affected by the negative shareholders’ equity of the parent company.

The uncertainty factors relating to Tecnotree's operations are explained in more detail in section "Risks and uncertainty factors" in the Board of Directors report. Financial risk management is described in note 23 of the consolidated financial statements. Information about the debt restructuring proceedings is disclosed in note 28.

Items denominated in foreign currencies

Transactions in foreign currencies are recorded at the rates of exchange prevailing on the transaction dates. Foreign currency receivables and liabilities in the financial statements, including those hedged with derivative contracts, are translated into euros at the average exchange rate quoted by the European Central Bank on the closing date.

Exchange rate gains and losses relating to business operations are treated as adjustments to net sales or purchasing and manufacturing. Exchange rate gains and losses relating to financing operations are entered under financing income and expenses. Exchange rate gains and losses arising from the translation of balance sheet items are charged to the income statement.

Derivatives entered into by the company comprise currency forward contracts to hedge against changes in the cash flows from purchase and sales agreements denominated in foreign currencies. The company policy is to hedge the net foreign currency exposure over the following 12 months at a maximum.

Those derivatives entered into for hedging purposes are initially recognized at cost equivalent to their fair value. Subsequently derivatives are measured at fair value based on the forward rates quoted at the balance sheet date.

Exchange rate differences on derivative contracts made for hedging purposes are charged to the income statement under other operating income and expenses.

Net sales

The parent company revenue recognition principles of 2018 have been adjusted to comply with the new principles applied in the Group. The impact of this change has been recorded in the retained earnings of the opening balance. The parent company recognises revenue as transfer is completed of project milestones.The group revenue recognition principles are presented in the section "Accounting principles for consolidated financials statements"

Pension plans

Statutory pension and supplementary pension obligations in Finland are covered through payments to pension insurance organisations. Expenses related to pension arrangements are recognized in the income statement in the period on the accrual basis.

Leasing

Leasing payments have been entered as rentals. Contractual leasing fees remaining on the balance sheet date are presented in the financial statements under contingent liabilities.

Research and development expenses

Research and development expenses are expensed as incurred, apart from machinery purchases, which are depreciated over three years on a straight-line basis.

Valuation of inventories

Inventories are valued using the FIFO principle at the lowest of acquisition cost, repurchase price and probable selling price.

Valuation of non-current assets

Non-current assets have been capitalised at the acquisition cost. Planned depreciation and amortization is calculated on a straight-line basis over the useful life of the fixed assets. The periods for planned depreciation and amortization are as follows:

  • Intangible rights 3-10 years
  • Other long-term expenditure 5 years
  • Buildings and structures 25 years
  • Machinery and equipment 3-5 years
  • Computing hardware and software 3-5 years

Derivative financial instruments

The derivative contracts entered into by the Company are currency forward contracts and options as well as interest rate swaps. The derivative contracts are fair valued. The fair value is determined by using market rates of the counterparty for instruments with similar maturity. Gains and losses arising from changes in the fair values are recognised in the income statement in the period in which they arise.

In the end of 2018, Tecnotree had no derivate contracts in place.