2015 in brief

For the Moelven Group 2015 was a year with great emphasis on internal improvement work and restructuring in line with the strategy that was drawn up in the autumn of 2014.

 Both sales of plants in the wood processing part of the Group and acquisitions of operations in Building Systems are results of this strategy. The combined demand for the Group's products and services was satisfactory throughout the year, and the Group increased its revenues by NOK 862.2 million to NOK 9,690.4 million. The operating profit improved from NOK 203.6 million to NOK 214.8 million and return on capital employed improved from 6.8 to 7.4 per cent.

With sales in more than 30 countries and on several continents, the Moelven Group is obviously dependent on developments in the global economy. However, the spread is broad enough to have a diversifying effect. Combined, approx. 15 per cent of the Group's turnover is in markets beyond Scandinavia. Overall, demand has been satisfactory throughout 2015. Moelven has very little exports to the United States, but the improvement in the US economy contributes to improve the market balance in other markets where Moelven has a presence.

Export is primarily from the units that use sawlogs as a raw material in their production, which is to say the sawmills in Timber division and the combined sawmills and planing mills in Wood division. It is mainly sawn timber products that is exported. For Timber in isolation the export share outside of Scandinavia is 45 per cent, and for Wood it is 10 per cent. Both price developments on the international market for sawn timber and exchange rate developments therefore have a major impact on the business. International price levels rapidly impact the home market in Scandinavia. In 2015 the prices for sawn timber have been dropping, but in the export markets the change in the currency situation has contributed to preserve margins.

Access to raw material for the sawlogs-consuming units was satisfactory for the year as a whole.

Price levels forsawlogs dropped slightly through the year and were overall somewhat lower than in 2014. Prices for chip and fibre products were also lower than in the preceding year. The decline was initially noticeable on the Swedish side, but also made itself felt in Norway as the year progressed.

The Wood division mainly sells its processed wood products on the building materials market in Scandinavia. Demand in this market has been satisfactory, but price levels declined somewhat during the year.

The Building Systems division operates exclusively in building and construction in Scandinavia. Deliveries are to professional players in both the new building and renovations and remodelling markets. Demand for the division's products and services have been satisfactory overall for the year, and the combined order backlog at year end was NOK 272 million higher than for the previous year. However, market conditions saw very different developments in Norway and Sweden as the year progressed. While the units with operations in Sweden enjoyed high levels of activity in the Swedish economy, Norwegian units have had to adapt to dropping activity levels. The decline has been particularly pronounced in south-west Norway as a result of developments in the petroleum industry.

Corporate governance

At the Corporate Assembly meeting after the annual general meeting on 26 April 2015, a new Board was elected. The new members of the Board are Olav Fjell (chairman), Mari Wilhelmsen and Asbjørn Bjørnstad. The Board additionally comprises Trond Stangeby (deputy), Elisabeth Krokeide, Lars-Håkan Karlsson (employee representative) and Martin Fauchald (employee representative). Comprehensive information on the Group's governing bodies is available at www.moelven.no and on page XX.

In September 2015 Morten Kristiansen, who had served as acting CEO since September 2014, was appointed CEO. Kristiansen holds a degree in structural engineering and is a graduate economist from the Norwegian Business School. He was employed by Moelven from 1981 to 1994 and subsequently from the year 2000. When he was made acting CEO last autumn, he came from the position as vice president in Moelven Industrier ASA with responsibility for timber supply and fibre products.

Corporate structure

In February the company Moelven Modus Prosjekt AS merged with Moelven Modus AS.

In August Moelven and Västvärmlands LBC established the transport company Woodtrans AS. Moelven's ownership interest in Woodtrans AS is 34%. The new company will take over the chip and timber transport from Pedersens Lastebiltransport AS, and will initially consist of 16 heavy goods vehicles operating in the combination market (chip, sawn timber and planed timber) in South Norway. For Moelven the establishment of the company represents an opportunity for synergies through more efficient transport management within a greater geographical area. Operations in Woodtrans AS commenced on 1 September.

On 1 October Moelven acquired module manufacturer Hedalm AS at Hjellum in Hamar municipality. The company continues to operate as an independent company, coordinated with other module production in the Group, under the name Moelven Byggmodul Hjellum AS.

The acquisition provides the Group with greater specialization, capacity and ability to deliver large orders with a short production time in all three segments in module operations

– a) construction, b) projects, and c) housing. The acquisition thus strengthens the Group's position as the leading module manufacturer in the Nordic region. Coordination between the module companies will also provide synergies in that production to a greater extent than previously can be cultivated at each production site.

In December an agreement was reached with the Vida group for the sale of the property, production equipment and movable property from Moelven Nössemark Trä AB. All production activity in the company was discontinued in the fourth quarter, and the transaction was completed on 30 December. The accumulated operating result for 2015 has been charged with impairment and loss through the sale of fixed assets totalling NOK 54.1 million.

This is the Moelven Group

Ownership structure

The Moelven Group is owned by Glommen Skog SA (29.1%), Eidsiva Vekst AS (23.8%), Agri MI AS (15.8%), Viken Skog SA (11.9%), Mjøsen Skog SA (11.7%) and AT Skog SA (7.3%). Most of the remaining 0.4 per cent is owned by private individuals.

Vision

Moelven is a Scandinavian Group. All production units are located in Scandinavia, which is also the primary market. The business is based on the prerequisites dictated by Scandinavian society and builds on these. Moelven's vision is to be the natural choice for people who wish to build and live Scandinavian, and the Group shall take the lead in developing buildings that are based on Scandinavian building traditions. Within this framework, activities are based on a desire and an ability to contribute to creating good spaces – good environments to live and work in, and for all social functions. Good Scandinavian environments are often close to nature in their form and content. Wood and other natural materials are essential parts of what Moelven makes and are dominant in the greater part of the product range. Natural materials are environmentally friendly building materials and solutions when it comes to houses and modules, bridges and interior products.

Location

The Group has its headquarters in Moelv in Norway and consists of 43 production companies in 49 production locations, and 32 offices for sales, service and fitting. Most of the production units are companies and workplaces with a strong local presence in rural communities in South East Norway and the western part of Central Sweden. 

The offices for sales, service and fitting are located in larger population centres around Norway, Sweden, Denmark, the United Kingdom, Germany and the Netherlands. Production in Norway and Sweden is of approximately the same volume, but the Swedish units export a greater proportion of their production than the Norwegian. Out of a total of 3,426 (3,326) employees at the end of 2015, 1,777 (1,697) work in Norway, 1,621 (1,597) in Sweden, 20 (19) in Denmark and 8 (13) in other countries.

The Divisions

Moelven offers a wide range of building products and building systems and associated services. The Scandinavian market accounts for 85 per cent of sales revenues, and 85 per cent of the Group's products and services are used for new building or renovation of homes and commercial property. A large part of the remaining operation consists of sales of biomass for biofuel and for pulp, paper and particle board production. The Group also supplies wood products to the furniture, interior and packaging sectors. Customers are divided into three main segments: industry, trade and projects. These segments are based on the nature of their business. The Group is divided into three divisions: Timber, Wood and Building Systems, each of which focuses on one of the main segments. There is also an Other Businesses reporting area, which consists of the holding companies, supply businesses fibre products and bioenergy companies.

Timber

The Timber division consists of 14 production companies and 4 sales offices, supplying sawn timber products, components and chip products made from local spruce and pine. 

The customers are mainly industrial companies that buy intermediate products for their own production of construction timber, glulam, panels, flooring, mouldings, windows, packaging, board and paper products and for bioenergy. About 55 per cent of operating revenues come from Scandinavian customers. At the end of 2015, there were 679 (703) employees, 237 (245) of them in Norway, 434 (450) in Sweden and 8 (8) in other countries.

Wood

The Wood division comprises 19 production companies, 3 customer centres and one project sales company. The main products are white and impregnated building wood, external cladding, boards, components and chip products and interior products such as mouldings, flooring and interior panels. 

Wood also sells products produced by other companies. Almost 80 per cent of production is sold through the building goods trade. Wood is one of the leading suppliers to the Scandinavian market and about 90 per cent of its operating revenues come from Scandinavian customers. At the end of 2015, there were 1,009 (993) employees, 564 (522) of them in Norway, 425 (452) in Sweden and 20 (19) in Denmark.

Building systems

The Building Systems division consists of 8 production companies at 13 production locations and 24 sales, service and fitting offices. Building Systems is divided into the business areas Glulam, Building Modules and System Interiors, all three of which are market leaders in Norway and Sweden, as well as Electrical Services in Norway. 

The division's building and contracting customers buy customised building modules, flexible interior solutions systems and associated services, advanced glulam structures and electrical installation services. In addition to bridges and load-bearing structures, the glulam unit also has considerable sales of standard laminated timber beams through the building products trade, as well as components for the prefabricated house industry. Operating revenues come from Scandinavian customers. At the end of 2015, there were 1,607 (1,498) employees, 927 (837) of them in Norway, 680 (656) in Sweden and 0 (5) in the United Kingdom. In order to ensure adequate flexibility in production capacity to meet seasonal and economic fluctuations in the market, the divisions use hired workers. Hired workers are not included in the employee figures. However work is carried out on the principle that work contracts, rights and obligations, as well as time limits in the employment relationship, should be the same as for permanent employees.

Other business

Other businesses include Moelven Industrier ASA, with common services in economics, finance, insurance, communications, HR, ICT and procurement. Timber supply and sales of wood chips and energy products are organised as a common function for the Group's timber processing industry and are included through the companies Moelven Skog AB, Moelven Virke AS and Vänerbränsle AB. Moelven Bioenergi AS is also included.

At the end of 2015, there were 131 (132) employees, 49 (45) of them in Norway and 82 (87) in Sweden.

Social responsibility

The Board has processed and approved the Groups general strategy and guidelines relating to HSE, social responsibility, the environment and competition law. The discussion of these areas are included in the Board's explanation of principles and practice concerning social responsibility pursuant to the Accounting Act Section 3-3c.

Operating revenues and results

Operating revenues increased by 9.8 per cent compared to the previous year, including acquisitions. The operating result increased by 5.5 per cent. EBITDA, which doesn't include impairment and loss through the sale of fixed assets, increased by 13.0 per cent compared to 2014. Overall delivery volumes in 2015 were higher than the preceding year, but at lower prices. For the sawlog-consuming units reduced market prices for sawn timber products, chip and fibre products has partly been compensated by lower prices on sawn timber.

The inventory estimates, which are prepared according to the FIFO principle, are reviewed regularly to correct for developments in raw material costs. Along with an update of real value assessments of inventory, this formed the basis for price adjustments totalling NOK -45.6 million in 2015 and NOK 48.6 million in 2014. The items do not have any impact on cash flow.

The internal improvement work and restructuring that has been given high priority throughout 2015 is resource-intensive, but has yielded good results.

2015 has been the first year in a three-year plan to bring the Group's profitability up to the targeted level. Work will therefore proceed in the same manner in 2016 and 2017.

The result for 2015 has been charged with impairment and loss through the sale of fixed assets totalling NOK 54.1 million. The item is in its entirety related to the sale and discontinuation of operations at Moelven Nössemark Trä AB. The property, including production equipment and movable property was sold in December.

In connection with follow-up of the project portfolio in the Electrical Installations business, in 2015 a provision has been recognised for possible losses totalling NOK 40 million. The corresponding provision in 2014 comprised NOK 9 million.

In the course of the autumn of 2015 the Group's remaining defined-benefit pension schemes in Norway were converted to defined-contribution pension schemes. The change resulted in a positive non-recurring effect on the operating result of NOK 26.5 million.

In 2014 the operating result for the fourth quarter and the year as a whole saw positive effect from the recognition of reimbursements from group health insurance plans in Sweden totalling NOK 6.7 million.

Net financial expenses excluding changes in the value of financial instruments were somewhat higher in 2015 than in 2014. Net interest-bearing debt has been lower throughout 2015, but the overall borrowing cost has been higher following refinancing carried out in mid-2014. The Group employs financial instruments to hedge foreign exchange rates, interest rates and power prices. Non-cash items associated with this totalled NOK 5.6 million (NOK -30.4 million) The market value of both currency and interest hedges improved compared to the previous year, while falling energy prices entailed a negative development for the power contracts.

 

Timber

årsberetning timber tabell 1 E

In market terms the start of 2015 was characterized by some uncertainty and a wait-and-see attitude among customers in the international market for sawn timber products. Combined with high producer stocks this contributed to falling prices, particularly for pine products. This development continued for large parts of the year, and gradually spread from its origin in the export markets in Europe, the Middle East and North Africa, and into the Swedish domestic market. However, in the course of the fourth quarter there was a certain positive development for spruce products, while the declining trend for pine products levelled off.

The underlying demand was satisfactory throughout 2015, despite difficult financial conditions in certain export markets in the Middle East and North Africa making export to these markets more resource-intensive than usual.

Weak exchange rates for both Swedish krona and Norwegian kroner have contributed to reduce the price drop in these home currencies, while also maintaining competitiveness in export markets to a certain extent. For the year as a whole delivery volumes were higher than in 2014, but at somewhat lower prices.

Access to raw material has been satisfactory, and the prices for sawlogs were somewhat lower than in 2014. Overall the prices for chip and fibre products were also somewhat lower than in the previous year. Due to price developments, the profits have been charged with price adjustments to inventories totalling NOK -23.0 million The corresponding adjustment in 2014 had a positive effect of NOK 17.2 million.

Although several units can boast good results as a consequence of internal improvement work, too many units remain with excess units costs. The ongoing improvement work continues unabated to reduce unit costs and bring the companies with poor earnings up to an acceptable profitability level.

At the end of the year an agreement was reached with the Vida group for the sale of the property, production equipment and movable property from Moelven Nössemark Trä AB. All production activity in the company was discontinued in the fourth quarter, and the transaction was completed on 30 December. The accumulated operating result for 2015 has been charged with impairment and loss through the sale of fixed assets totalling NOK 54.1 million.

The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 2.1 million in 2015. In 2014 the operating result has seen a positive effect from the recognition of reimbursements from group health insurance plans in Sweden totalling NOK 3.4 million.

Wood

årsberetning wood tabell 2 E

Market activities in 2015 were satisfactory in both Sweden and Norway, and complied with the normal seasonal variations throughout the year. In Denmark the organization is tailored according to market activities, which have been at a stable low level.

For the division overall delivery volumes were higher than in 2014, but at prices that were somewhat lower in total.

Several units saw good progress in 2015 as a result of the ongoing improvement work. This work continues unabated in the entire division in order to maintain competitiveness and to bring the remaining units with poor earnings up to an acceptable profitability level. In addition to operational improvements, the Wood division has had good success with its HSE work. In the course of 2015 the number of injuries per million worked hours (LTI) has dropped from 18.2 to 8.9.

For the division's planing mills, who use sawn timber products as a raw material, raw material costs for the year as a whole were on a par with 2014.

For the division's sawlog-consuming units access to sawlogs was satisfactory in 2015 and prices were somewhat lower. Overall, the prices for chip and fibre products were also somewhat lower. Due to price developments, the profits for the quarter have been charged with price adjustments to inventories of NOK 22.6 million (31.4).

The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 4.6 million in 2015. In 2014 the operating result has seen a positive effect from the recognition of reimbursements from group health insurance plans in Sweden totalling NOK 1.3 million.

Building Systems

årsberetning byggsytemer tabell 3 E

Following progress for all business areas, both revenue and operating results increased compared to the same period the previous year for the division as a whole. At the end of the quarter the order backlog was NOK 272 million higher that for the same period the previous year. The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 17.2 million. In 2014 the operating result has seen a positive effect from the recognition of reimbursements from group health insurance plans in Sweden totalling NOK 2.0 million.

In 2015 the glulam business in Norway had a satisfactory activity level in both standard glulam and projects, in a market where competition from foreign players has declined somewhat due to the currency situation. For the business in Sweden activity levels were below par for the first six months, but positive developments in the second half of the year and an increasing market share resulted in a satisfactory level at year end.

It is primarily standard glulam for small buildings, but also the project market that have picked up compared to the previous year. In terms of volume, deliveries to the Swedish market were among the highest ever in the year's final quarter. Operations in Sweden have, following unsatisfactory results in 2014, carried out restructuring and rationalization measures, and had at year end improved profitability significantly compared to the situation a year previously. The full effect of the recently implemented measures will however not be achieved until the first quarter of 2016.

Besides obligations related to the completion of older, long-term projects, the Electrical Installations business has been restructured in 2015. In the core business area of the restructured part of the Electrical Installations business, i.e. smaller projects and service assignments, activity levels were good in 2015 and results developed satisfactorily through the year. The order backlog at the end of 2015 was good. For the part of the company responsible for the completion of older, larger projects, a further devaluation of the project portfolio was required. The 2015 result has been charged with a total of NOK 40.0 million following valuation allowances of NOK 6.0 million in the first quarter, NOK 22.0 million in the second quarter and NOK 12.0 million in the fourth quarter.

For the Building Module business in Sweden market activities and new orders were very good throughout 2015. The 2015 result was the best recorded. The main reasons are an increased share of projects with a high level of standardisation, as well as improved factory productivity.

On the market for module based buildings in Norway activity was somewhat better than in 2014 in the first three quarter, but dropped back to the level of a year previously in the final quarter. The combined activity for Moelven's module production in Norway increased as a result of the acquisition of module manufacturer Hedalm AS at Hjellum in Hamar municipality. The transaction was completed on 1 October.

The company continues to operate as an independent company, coordinated with other module production in the Group, under the name Moelven Byggmodul Hjellum AS. The acquisition provides the Group with greater specialization, capacity and ability to deliver large orders in the short term in all three segments in module operations – a) construction, b) projects, and c) housing. The acquisition thus strengthens the Group's position as the leading module manufacturer in the Nordic region. At the end of 2015 a number of measures were ongoing to streamline production and cultivate the production concepts according to plant. This will be completed in the first quarter of 2016. All Norwegian module production for housing purposes will take place in the factory at Hjellum, while other modules will be produced in Moelv.

For the Modular System Interiors companies, the level of activity for new construction was good in the Swedish part of the business, especially in the major cities of Stockholm, Gothenburg and Malmø. The renovation and remodelling market had a stable and high level of activity throughout the quarter.

Market activities in Norway were, despite some improvement in central areas of eastern Norway, still declining compared to 2014. The decline is significant in south-western Norway, and particularly applies to new buildings to a greater extent than the renovation, conversion and extension market, although activities have also declined somewhat in this segment too.

Other businesses

årsberetning øvrige tabell 4 E

Fluctuations in operating revenues within the area of Other businesses are largely due to fluctuations in the level of activity within timber supply and sales of chips and energy products. The main activity is internal sales, which do not materially affect the results within the business area. In order to safeguard the supply of timber and market opportunities for wood chip and energy products in regions without local demand for these products, train solutions have been established for transport. The arrangement entails increased external sales due to pulp wood now being purchased and subsequently sold externally. The business is based on fixed agreements on both the customer and supplier sides, and the risk is limited.

The result for 2015 includes a positive net result of NOK 5.0 million from badwill related to acquisitions and the elimination of internal profit from inventory. In addition there is a positive non-recurring effect of NOK 3.5 million as a result of the group's remaining defined-benefit pension schemes in Norway being converted to defined contribution pension schemes. A provision for 18 months' salary for the former CEO was charged to the operating profit for 2014 in accordance with the guidelines described in note 28 in the consolidated financial statements.

Investments, balance sheet and financing

During 2015, total investments were NOK 215.8 million (NOK 195.1 million). The investments were aimed primarily at necessary repairs and maintenance. Investment projects of a strategic nature have been initiated to a greater degree than in 2014. In order to realize the improvement of the Group's profitability described in the strategy plan, the share of strategic investments will increase further in 2016. Depreciation in 2015 was NOK 291.2 million (286.5). Additionally, Moelven Nössemark Trä AB's fixed assets were written down by NOK 47.9 million in the second quarter and subsequently sold in the fourth quarter. At the end of the year, the book value of the Group's total assets was NOK 4,778.1 million (NOK 4,653.2 million).

Cash flow from operating activities was NOK 584.6 million (351,5). The improvement over 2014 is mainly due to underlying profitability and less accumulation of working capital in the final six months. Cash flow from working capital items was NOK 100.7 million (-72.2).

Net interest-bearing liabilities were NOK 1,110.4 million (NOK 1,353.1 million) at the end of the year. Financial leases are included in net interest-bearing liabilities, amounting to NOK 31.5 million (NOK 27.1 million). The liquidity reserve was NOK 631.0 million (NOK 238.7 million). In the Group's main financing the available loan facility varies in time with the natural fluctuations in the Group's tied-up capital through the year.

The Group's long-term financing consists of two loan facilities with a credit ceiling totalling NOK 1,575 million. NOK 225 million is due in September 2016 and the primary facility is due at the end of the first six months of 2017. The process for refinancing both facilities was initiated in January 2016. Current liabilities at year end are due to credit in the loan facility that matures in 2016. This credit may be covered by unused credit limits in the main facility.

Equity at the end of the year amounted to NOK 1,756.9 million (NOK 1,592.3 million), equivalent to NOK 13.56 (NOK 12.29) per share. The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided, in addition to recognition in the results, a direct increase in equity of NOK 37.5 million. The decision to disburse a dividend for 2014 totalling NOK 51.8 million was made in December, and was thus charged to equity in the fourth quarter. At the end of the year the equity ratio was 36.8 per cent (34.2 per cent). Parts of the Group's equity are linked to ownership interests in foreign subsidiaries, principally in Sweden, and are thereby exposed to exchange rate fluctuations.

The extent and consequences of likely variations in exchange rates are within acceptable risk limits. For the year as a whole there has been an increase in equity related to currency fluctuations of NOK 61.7 million (12.3). Approximately half of the Group's assets are recognized in SEK. The total assets thus also change based on the exchange rate. The equity ratio in percent is therefore less impacted by exchange rate fluctuations than the nominal equity.

Risk

The Group's profits and balance sheet are affected by several external factors that can be influenced by Moelven to a greater or lesser extent.

The Group's profits and balance sheet are affected by several external factors that can be influenced by Moelven to a greater or lesser extent.

For some of the risk areas that affect the Group, there are functioning financial markets where the risk of fluctuations can be reduced. This applies, for example, to interest rates, exchange rates and electricity.

The Group's position on financial risk is that it is the industrial activities rather than financial transactions that shall create the conditions necessary for profitability. The main aim of the guidelines for the use of financial instruments is to reduce fluctuations and create more predictability. In other areas, such as raw materials, finished goods and projects, other methods of hedging risk must be used. As far as possible, fixed price contracts or index linking of contracts is used, for example. The Group's composition of units directed at different primary markets also has the effect of reducing risk. The primary markets are seldom affected by economic fluctuations at the same time, while the cost side can still benefit from economies of scale.

Prices of finished goods

The units of the Moelven Group operate in markets with free competition and many players. The creation of prices therefore occurs freely in the marketplace, and assuming unchanged volumes a change in process will affect the group as shown on the sensitivity table.

Sawn timber prices

In 2015, the Group produced and processed 4.0 million cubic metres of sawn spruce and pine at a value of about NOK 2,500 million, including transport costs. Spruce and pine account for approximately equal portions of the round timber. Moelven does not own any forest, but buys all its timber from external suppliers. These suppliers are in turn dependent on functioning markets within an acceptable transport distance, as well as satisfactory price levels for both sawn timber and pulpwood.

The cost of timber is by far the biggest single cost for the Group, and changes in timber prices have an immediate and substantial impact on margins.

This involves both a price risk and a volume risk. The Group therefore focuses on entering into price agreements that as far as possible correlate timber prices with documented changes in the price of finished goods.

Prices of chips and biomass

The price of cellulose chips and biomass, which come from saw and planing production in Timber and Wood, is of great significance for the Group's revenues. Even though work is constantly going on to improve the utilisation of raw material, only about half of each log becomes industrial timber after passing through a sawmill. The remaining half is made up of bark, shavings, cellulose chips and biomass. Part of this is used for our own energy production, while the rest is sold to the particle board, bioenergy and paper industries. Since a change in the profit margin for these products has a direct influence on the Group's results, the distance to the customers and access to efficient logistics solutions for road and rail transport are of great importance.

Electricity prices

The price of electric power is another important factor that affects the Group's profitability. Through the Group's electricity suppliers an annual 185 GWh of electricity is purchased on Nasdaq OMX Commodities.

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 trading futures on Nasdaq OMX with a 5 year maximum horizon.

Interest rate risk

The Group's net interest-bearing debt is subject to interest rate risk. The bulk of the debt in SEK, which is why interest rates in Sweden are most important for the development of the Group's interest expense. The Group companies will be financed with loans from the parent company. All external borrowing is done by the parent company, which also makes hedging in accordance with financial policy. The hedging instruments that can be used are ordinary interest rate swaps, FRAs and composite swaps of types that are normally used for such purposes. The extent of hedging is measured in terms of the combined duration of outstanding debt and hedging arrangements. The combined duration shall be between 12 and 60 months. No interest rate hedging agreements shall be entered into over more than 10 years.

Exchange rate risk

About 15 per cent of the Group's operating revenues come from markets outside Scandinavia and carry exchange rate risks.

Additionally, there is significant internal and external trade within the group with both raw materials and finished products between Sweden and Norway. The most important currency crosses are EUR/SEK, GBP/SEK, SEK/NOK and EUR/NOK. Moelven uses forward contracts to counteract large cash flow fluctuations as a result of variations in exchange rates. Because of the hedging strategy that has been chosen, changes must be long-term so as to have the full effect on the Group's profitability, and during the hedging period operational adaptations may be made to compensate for the external changes. During the hedging period, operational adaptations may be made to compensate for the external changes.. 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. The equity is partially hedged against this by financing the share investments in most of the Group's Swedish subsidiaries in Swedish krona. At the end of 2015, the total equity that is exposed to exchange rate risk amounted to SEK 701.0 million (SEK 632.3 million).

Credit risk

It is the Group's policy that credit sales over a certain size shall be secured in the form of either guarantees or credit insurance. In practice, credit insurance is used most. There are internal guidelines and follow-up routines for unsecured sales, which only occur when no other security is possible.

Liquidity risk

The Group's foreign capital financing consists of two long-term credit facilities with ceilings of NOK 1,350 million, which expires in June 2017, and NOK 225 million, which is due in full in September 2016. The loan agreements include normal default clauses with regard to equity, net equity value and debt ratio. As at 31 December 2015, the Group's key figures were better than the levels at which the default clauses are triggered. In addition to the long-term credit facilities, the Group also has available credit in its banking systems, amounting altogether to about NOK 312 million, which is renewed annually.

Risk of damage and interruption to production

The Group has a policy for industrial insurance that is centrally managed and which is followed by all companies. This policy gives guidelines for insurance cover, preventive measures, risk review and preparation of continuity plans. The continuity plans become key plans if a fire/damage should occur. The plans cover immediate efforts, disaster management and the ability to continue deliveries to customers. Through its industrial insurance, the Group is covered for financial loss exceeding NOK 3 million per individual claim.

Risk of loss of reputation

Moelven places great emphasis on maintaining a good reputation. This is measured regularly using a brand survey that is conducted by external partners. There is financial risk linked to any loss of Moelven's reputation. The reputation risk is not quantified. Openness is what characterises the way the Group relates outwardly to society and the media and inwardly to employees of the Group. This applies whether it concerns positive or negative circumstances for Moelven, in line with Moelven's brand platform.

Risk of loss of environmental costs

The activities of the Moelven Group follow the prevailing legislation and regulations with regard to emissions and waste management. The Group has made provisions in the accounts for all known obligations in connection with environmental protection. The purpose of the Group's environmental policies is to minimize the risk of negative impact on the natural environment and thus the potential environmental cost as well.

årsberetning Risiko Sensitivitetstabell E

Human resources

The Group's human resources ideal is to "Provide opportunities for people with the drive to succeed". This ideal establishes guidelines for the Group's objectives in terms of which persons are recruited, what expertise is demanded, what pay and working conditions are offered, how new employees are introduced, what development and career opportunities are offered and how downsizing is handled.

Employees

The number of employees increased from 3,326 to 3,426 during the course of 2015. For a more detailed view of the HSE area, please refer to the Board's explanation of principles and practice concerning social responsibility pursuant to the Accounting Act Section 3-3c.

The number of employees increased from 3,326 to 3,426 during the course of 2015

Recruitment and personal development

Moelven acts strategically in both internal and external recruitment. Competent employees are vital to the Group's competitive ability and it is important for Moelven to emerge as an attractive employer.

Moelven focuses on long-term employment relationships and strives to offer its employees the opportunity to develop in their jobs. Motivated and competent employees are encouraged to take their personal development further, including through internal management programmes.

Effect on the external environment

Sustainability is one of Moelven's basic values. Environmental considerations are a natural part of day-to-day work and an ongoing effort is being made to reduce the impact on the external environment. Moelven takes responsibility for the environment through sustainable and long-term exploitation of renewable resources. Industrial production is largely based on the use of wood and the wood content of the finished products is very high in most operations. Wood as a material has many positive environmental aspects, including that it binds carbon dioxide. The vast majority of the forest raw materials that are used in Moelven's production end up as products or biofuel. The Group therefore produces little waste. The aim is that all fractions of wood shall be treated as potential input factors in the products and contribute to overall value creation. Cellulose chips, dry chips, shavings and bark from the sawmills have ever increasing financial and environmental significance. District heating systems use dry chips, shavings and bark as fuel and the Group's own heating systems use chips and bark.

The vast majority of the forest raw materials that are used in Moelven's production end up as products or biofuel

For those companies in the group that make less use of forest raw materials in their production, the industrialised building process helps to limit the environmental effects in comparison with traditional building methods.

For a more detailed description, please refer to the Board's explanation of principles and practice concerning social responsibility pursuant to the Accounting Act Section 3-3c.

Innovation

Moelven's innovation focus is to engage in development and innovation linked to a specific application of a product or in a production process. Responsibility for is with corporate management. The innovation processes take place mainly within each business area, where the greatest competence exists. Where there are larger parts of Moelven that drive and benefit from an area of innovation, this takes place in joint projects. The group must facilitate innovation and provide resources, support and coordination. Research and development at Moelven takes place primarily at the project level, linked to commercial operations.

Product innovation

For the building module companies, the development of cost-effective concepts adapted to the market for modular buildings of several storeys has been a prerequisite for the operations as they are today. The functional and aesthetic aspects change continuously in accordance with the technological developments and market trends. In order to maintain the market position in current markets and develop further in other segments, focus on innovation and developing new solutions in essential.

The newly-developed housing concept in Norway with accompanying specialization of the processes is a good example of this. The building interiors companies are aimed at a market where trends move rapidly. Product development and innovation are therefore a high priority and a continuous process.

Glulam operations have for several years been at the forefront in the development of new products and technical solutions, and have both in own account and in cooperation with costumers completed several major innovation projects in recent years.  The development of the hub technology forms the basis for glulam bridges and halls with large spans, as well as buildings with multiple storeys.

 

At Moelven Wood product development is of great importance in order for the choice of products to both follow the shifting market trends and satisfy requirements toward quality and functionality.

The goal is to offer customers the market's best, most diverse and most modern product range. Innovation work is divided into two main directions. One aims to develop modern products that contribute towards inspiration and new trends at the end-user. The other main direction aims to simplify work with the products at the building site. Examples of such solutions are preprocessed internal panels with concealed nails, various floor solutions, sheet products with reduced widths to ease handling, ready cut lengths, etc.

Process innovation

For the project part of the glulam business, the use of new technology to process individual elements in the load-bearing structures is a precondition to provide complex, high-quality systems.

For the part of Glulam that is directed at the building products trade and for the processing units at Wood, the logistics systems are of great significance for reducing the cost and environmental effects of transport and for ensuring the customers' access to a wide range of products with short delivery times.

Work on optimising the logistics systems is therefore continuous.

For the sawlog-consuming units in Timber and Wood, it is primarily the optimisation of the production processes that is of key importance. The objective is to safeguard the values inherent in the raw material. The use of X-ray photography, camera sorting and mechanical strength sorting are tools that contribute to this.

For the Module and Interior operations, the development and refinement of technical solutions for production, connection of technical installations and assembly at the building site have been important to operate profitable industrial production of module-based building solutions, as well as to exploit the competitive advantage inherent in fast completion at the building site.

Corporate governance

Corporate governance at the Moelven Group is based on the Norwegian recommendations for corporate governance of October 2014. The Board's report on the Group's policies and practice for corporate governance in accordance with section 3-3b of the Norwegian Accounting Act has been incorporated into the report on corporate governance. For further information about the Board and senior executives, refer to note 28.

Allocation of the net profit/loss for the year

The Board of Directors' dividend policy is based on Moelven's shareholders receiving a predictable and satisfactory cash return on their share investment. The policy provides guidelines for how much of the profit, or of distributable equity in years with a loss, shall be distributed as a dividend. The Group's net profit for 2015 was NOK 117.0 million (88.4). The equity ratio is 36.8 per cent (34.2 per cent). The Group has adequate equity to disburse a dividend in accordance with the applicable dividend policy. Based on the 2015 result this amounts to NOK 0.45 per share. The normal seasonal variations in the Group's tied-up capital and equity ratio means that the Board asks the annual general meeting to delegate authority to pay dividends to the Board, with an upward limit of NOK 58,294,072. Distribution of dividends assumes that the company has sufficient capital and liquidity at the time the dividend is approved by the Board.

The parent company Moelven Industrier ASA, which distributes a dividend for the Group, had a net loss of NOK 7.5 million for the year in 2015 after the receipt of group contributions and share dividends from subsidiaries. It is proposed that the negative net income and provision for dividend is covered by a transfer from retained earnings in its entirety. The company has sufficient distributable equity and liquidity for the distribution of the dividend at the adjusted time for the decision on dividends.

Events after the balance sheet date

No events have occurred after the balance sheet date that affects the accounts that have been presented.

Going concern assumption

In accordance with the requirements in the Norwegian accounting legislation, the Board of Directors confirms that the prerequisites have been met for preparation of the accounts under the assumption that the Company will continue as a going concern and that the annual accounts have been prepared under this assumption.

Outlook

While Norway is experiencing a situation where the downturn in the petroleum industry to a greater extent is making itself felt in relation to economic activity, other and less oil-dependent markets are in a different stage of their economic cycles. In Sweden activity levels are higher than in a long time, and the US economy is on the mend. The growth rate In China is decreasing, while the Middle East and North Africa are characterized by unrest and regulations from public authorities that complicate international trade. However, the underlying demand is good in the latter markets.

We expect to see a positive change in international market prices for sawn timber in the first quarter.

This particularly applies to core products and better qualities of spruce. For pine the situation remains challenging in some export markets, which may require that production is limited. The currency situation continues to contribute to maintain competitive ability in export markets, particularly in markets where trading is in EUR or USD.

In Norway demand for processed products is expected to remain on a par with the previous year, albeit with regional differences. Building activity in and around the major cities, with the exception of south-west Norway, is expected to remain high. Competition from foreign players is declining due to the weak Norwegian currency. In Sweden changes in regulations related to the renovation and remodelling deduction may cause a certain drop-off in the renovation and remodelling market. However, the need for new homes remains great and contributes to drive activities in the new building market. Overall, the Swedish market is expected to maintain the same level as in 2015.

Sawlog inventory at the start of the year are satisfactory with regard to planned production for the first six months. It is expected that there will be good access to sawn timber throughout the winter.

For glulam the positive trend of choosing wood for load bearing structures looks set to continue in 2016.

In both Norway and Sweden demand is good for module-based buildings for housing purposes. Demands toward short construction times are increasing. This applies equally to homes, schools, care facilities and not least refugee reception centres. The market for system interior fitting is experiencing a very high level of activity in Sweden, primarily in connection with Stockholm, Gothenburg and Malmø. The Norwegian market is declining, and capacity adjustments will be required. In both Norway and Sweden the renovation, conversion and extension market may see a certain increase in activities as a result of the need to remodel empty premises into refugee and asylum seeker reception centres.

For the Group as a whole revenues are expected to increase somewhat. The programme for operational improvement and structuring of the group in line with the long-term strategy plan continues unabated and will contribute to improved profitability for the underlying operations.

The Group's composition, with divisions that experience different impacts from economic fluctuations and units that operate in different markets, yet who are capable of realizing synergies across divisions, provides the Group with a good starting point for 2016. The result is expected to be somewhat better than for 2015. The group has a long-term goal of a return on capital employed of 13 per cent. To ensure that the Group has sufficient long-term access to liquidity in order to implement the restructuring and improvement projects required to reach this goal, the process to refinance the Group's long-term debt was initiated in January 2016.

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