Annual report
We deliver
reliable performance
Neles delivers mission-critical flow control innovations,
technologies, and services for the continuously evolving
needs of global process industries. We help our
customers to improve their process performance and
ensure the safe flow of materials. We drive profitable
growth and sustainable productivity across our
customer industries.
ii
ANNUAL REPORT 2020
Contents
Welcome to Neles Annual Report 2020.
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Neles’ Business in 2020 ....
Neles in brief ............................
From the CEO ...........................
Did you know this about valves ..........
Neles’ journey ...........................
Our people and culture ..................
Close to our customers
all over the world ........................
Creating value ...........................
Responding to megatrends. . . . . . . . . . . . . .
Our operating environment ..............
Strategy for profitable growth ...........
Board of Directors’ Report
Financial year ......................
Corporate Governance Statement and
Remuneration Report ..............
Non-financial information ................
Shares, trading and shareholders ........
Key figures ..............................
Board of Directors’ proposal on the
use of profit .............................
Financial statements ........
Consolidated Financial Statements ...
Consolidated Statement of Income, IFRS
Consolidated Statement of
Comprehensive Income .................
Consolidated Balance Sheet .............
Consolidated Statement of
Changes in Shareholders’ Equity .........
Consolidated Statement of Cash Flows. .
Notes to the Consolidated Financial
Statements ..............................
Financial Statements of the
Parent Company, FAS ..................
Auditor’s Report ........................
Investor information .........
Corporate governance ......
Corporate Governance Statement .......
Corporate Governance principles ........
Governance structure ...................
Neles Board .............................
Neles Management .....................
Neles Executive Team ...................
Main features of the internal control
and risk management systems .........
Audit ....................................
Related Party Transactions ..............
Insider management ....................
Remuneration ..................
Sustainability ....................
Sustainability agenda at Neles ...........
Sustainable solutions for
reliable customer experience ............
Health and safety .......................
Building a solid safety culture
towards zero harm ......................
Environment .............................
Minimizing the environmental load .......
Society and people ......................
Making our mark in communities ........
1
ANNUAL REPORT 2020
Reinventing
reliability
In our line of business, reliability is everything. We draw
on our long heritage and knowhow to continuously
develop and innovate solutions that redefine how process
industries experience reliable flow control performance.
Our customer promise ‘Reinventing reliability’, reflects
our continuous commitment in serving our customers
throughout their investment and operations life cycle.
Neles’ Business in
2
ANNUAL REPORT 2020
Neles in brief
576
Sales, MEUR
2,840
Employees
14.8%
Adjusted EBITA
of sales
Delivering flow control
performance that helps
meet growing demand
Improving safety
and environmental
performance
Leading the way
towards increased
digitalization
Our vision
Leading valve and valve
automation company,
Reinventing reliability in
flow control.
Pulp, Paper & Bio 29%
Oil 24%
Chemicals 21%
Gases 10%
Other industries
*
16%
EMEIA 39%
North America 29%
APAC 22%
South America 10%
Neles™
Jamesbury™
Easyflow by Neles™
Leading brands
* Incl. Mining & Metals, Power,
Water treatment, Food & Bev
Our year
Neles in brief
3
ANNUAL REPORT 2020
Going forward
with reliability
2020 was a period of great change for Neles.
Reborn as an independent flow control
company, we ensured an uninterrupted
business transition and maintained profitability
despite the challenging global situation.
Since the 1950s, Neles has been a forerunner in developing flow control
solutions. Over the years, Neles has systematically expanded its oering to
new customer segments and developed its services strategy and capabilities
to become the most reliable partner for our customers.
This year, we restarted our journey as an independent stock-listed
company. Aer the partial demerger of Metso’s Minerals business and Flow
Control business, which was renamed Neles, Neles became the successor of
Metso on the Helsinki Stock Exchange in July.
Although Neles’ business operations were already independent from the
minerals business, the project to separate Neles from Metso’s infrastructure
and to build its own systems, processes and identity was a year-long journey
directly involving dozens of people and indirectly impacting many more. The
process was an upliing experience for us all and created a lot of excitement
around the organization.
From the CEO
4
CEO’S REVIEW
ANNUAL REPORT 2020
CEO’S REVIEW
Despite challenges caused by the global pandemic, we
successfully finalized the partial demerger and ensured
a smooth, uninterrupted global business transition. We
also launched our renewed identity centered around
“Reinventing Reliability”, which describes our continuous
commitment to providing products and services that
enable our customers to improve their processes for beer
profitability and more sustainable operations.
Strategy for profitable growth
Prior to the demerger, we defined the new strategy and
financial targets for Neles, which were presented during
our first, fully virtual Capital Markets Day in May. Our main
ambition is to grow faster than the market by expanding
our oering and diversifying the valves and valve controls
businesses to new customer segments. We aim to do this
while maintaining first-class profitability.
Developing sustainable operations and oering
At Neles, sustainability is integrated into everything we do in
terms of health and safety, environment as well as society
and people. Our safety, measured by incidents causing
injuries, has improved to the best level ever. Despite the
positive development, we know that safety requires a
constant focus.
Over the last couple of years, reducing fugitive emissions
and improving energy eciency have become increasingly
critical for our customers. Even though we were adjusting
our spending during the market slowdown in 2020, we
were able to advance our R&D eorts in the renewal and
development of key technology platforms, such as smart
digital controllers and various valve product families. These
technologies help customers to achieve more sustainable
and reliable performance through beer valve performance
and advanced control and diagnostics.
In July, we opened our second valve technology center
in China, in Jiaxing. This was an important strategic addition
to our global manufacturing footprint and good news
for our valve customers around the world. Following our
environmental targets, the principle at the new site was
to ensure the most reliable and emission-free production
processes.
Customer success is our success –
annual feedback encouraging
Aer leading Neles team for a year, I started as the CEO
of the company in July 2020. Before the world went into
lockdown, I had the opportunity to visit several Neles
locations around the world, meet hundreds of colleagues,
and discuss their expectations, challenges and ideas. I
was impressed by how dedicated our employees and
channel partners are to our customers. The feedback from
our annual customer satisfaction survey echoed the same
message: in addition to product quality, our customers
strongly value the technical expertise and the never-walk-
away mentality of our employees. Neles’ Net Promoter
Score of 38 compares well with the peer flow control
companies, and it was a significant improvement from last
year’s score of 29.
5
CEO’S REVIEW
ANNUAL REPORT 2020
Exceptional year for business in a mixed market
We started the year with a strong order backlog and a
positive business outlook, and we reacted quickly when
the pandemic hit globally. From the start, our priority was
to protect our employees and customer deliveries. We also
took early resolute action to ensure profitability and cash
generation in preparation for all scenarios.
The unique feature of the Covid-19 crisis was that it hit
our services and Maintenance, Repairs and Operations
(MRO) driven business immediately, as lockdowns and
postponements of large service events at customer sites
started in the second quarter. Although some markets
have improved and there are signals of recovery overall, the
market situation for services and MRO-driven business was
still suppressed at the end of 2020.
The momentum in our project business was beer.
Oil and Gas projects were active in the first half of the
year, but the funnel got thinner in the second half. We
were successful in winning Pulp and Paper projects and
strengthened our market leadership throughout 2020.
Thanks to our proactive measures, we kept our profit-
ability and cash flows at a good level despite the reduced
orders and sales. Our adjusted EBITA for the full year was a
solid 14.8% of sales.
Development in shareholder base
During the third quarter, there was considerable debate and
public interest in the ownership situation of Neles. Valmet
became a major shareholder on July 1st and continued to
increase its shareholding through the third quarter. Alfa
Laval announced a voluntary public tender oer for all Neles
shares in early July. In November, Alfa Laval announced that
they would not complete the oer, as they had not reached
the threshold ownership level in their oer. In the midst of
this, Neles’ management and employees focused on daily
business, serving customers and executing our strategy.
Looking forward
Looking ahead in 2021, the visibility for the direction of
the markets and business could be beer, but we expect
market activity for the services and MRO-driven businesses
to gradually improve during the second quarter of 2021. We
envisage that Pulp and Paper projects continue at a good
level. Also Chemicals and Oil & Gas projects are expected
to continue at a satisfactory level as in the second half of
2020; however, global uncertainties continue to reduce
visibility of their timing. We will continue implementing our
strategy to develop our cost base, product and services
oering, as well as our delivery capabilities for dierent
future scenarios.
I want to take this opportunity to give my sincerest
thanks to all Neles and Metso colleagues for their enthu-
siasm and dedication in creating a strong, independent
Neles during this journey. A special thanks to all our
customers and partners for working with us to find
solutions that enable us to work together in these new
circumstances. With this solid foundation, we can continue
‘Reinventing Reliability’ together for a successful future.
Olli Isotalo
President and CEO, Neles Corporation
Building new Neles was
a year-long journey
directly involving dozens
of people and indirectly
impacting many more.
6
CEO’S REVIEW
ANNUAL REPORT 2020
Strategy implementation
Partial demerger of Metso
Group and launch of Neles’
standalone operations
Launch of the new technology
center in Jiaxing, China
Good performance in pulp
and paper projects
Customer NPS 38 (29 in 2019)
Financial performance
Good profitability and
strong cash flow
Adjusted EBITA EUR 85 million
Adjusted EBITA % 14.8
EPS, continuing operations EUR 0.32
Board of Directors dividend
proposal: EUR 0.18 per share
Achievements in sustainability
Developing safety culture - Lost Time
Indicent Frequency improved to 1.3
100% of R&D projects had
set sustainability targets
12 supplier sustainability audits
88% of personnel completed
Code of Conduct training
2020 Highlights
7
2020 Highlights
ANNUAL REPORT 2020
2020 Highlights
Valves play an important role in
our everyday lives, and they allow
various industries to produce
materials that keep our societies
and infrastructures up and running.
Wherever e.g. liquid or gas is
moved in a pipe, valves are involved.
Mission critical equipment – did
you know this about valves?
The valves Neles makes are very dierent from the
valves you find at home, for example. They are high-per-
formance industrial process valves that can operate in
demanding conditions, such as high pressures or tempera-
tures, and they can handle challenging gases and liquids
flowing through them. They must meet tight environmental
regulations and customer requirements and are oen
engineered to customers’ specific requirements.
Valves are used to secure safety in process plants
or to regulate and control process flows in, e.g., pulp or
bioproduct mills or oil refineries. The important role they
play in the productivity and safety of process plants makes
them mission-critical. In order to keep valves functioning
reliably, they are serviced at regular intervals.
Neles produces full valve packages consisting of the
valve, actuator and valve controller, as well as sells each of
these components as standalone products.
Valve controller
Valve controllers, aka positioners, control the actuator with pneumatic signal (compressed air) and send information to the
user about the valve’s position or condition. Today, Neles is one of the world’s top three providers of valve controllers.
Actuator
Actuator is the motor that operates the valve. Together, the actuator and valve controller form a valve automation solution.
Neles is among top five players in actuators globally.
Valve
Valves open, close or control the liquid or gas flow path in the pipe. They can be categorized based on their functionality:
control, on/o, or safety. In total, the market consists of ~900 valve providers. Neles is among the 10 largest players globally.
Anatomy of a flow control solution
Did you know this about valves
8
2020 Highlights
ANNUAL REPORT 2020
150+ shutdowns per year and
100+ service agreements globally
More than 20,000
overhauled valves per year
Neles valves facts
~500,000
valves delivered every year
~7
million valves in
our installed base
Neles designs and produces valves that range from ~1/4 to 100 inches
Neles valves in the field
90% coverage in required automated valves in a typical pulpmill
project
Decades of experience in deliveries to polyolefin processes
Ultra-reliable oering for Industrial gases such as oxygen or
hydrogen
~1.2
million serviceable
valves tagged
A pulp mill with annual production of 1 million tons
typically has around 2,000-2,500 control valves
9
2020 Highlights
ANNUAL REPORT 2020
History of industry experience
and technology leadership
Neles’ history of innovation starts in 1956. Over the years,
the company has expanded from having a pulp and paper
market focus to being a leading global player in several
process industries, including oil and gas refining, petro-
chemicals and industrial gases.
Frontrunner in valve automation
and digitalization
Since 1990s, Neles has been a frontrunner in valve auto-
mation and digital solutions for flow control applications in
process industries. Recent industry-leading developments
in this area include the next-generation digital positioner
family Neles™ NDX valve controller.
Services expansion
Over the years Neles has earned its reputation as a trusted
partner bringing reliability to customer processes and
supporting them throughout the plant life cycle. Together
with our service partners, we have built an extensive global
network of service centers close to our customers. We
have also invested in developing data-driven solutions to
support our customers’ ongoing process monitoring and
valve maintenance, and in managing their valve installed
base with a rich set of information.
Organic growth, supported by
strategic acquisitions
Neles has mainly grown through systematic organic
development. Acquisition of Jamesbury in 1988 was a
transformative step in becoming a global leader in flow
control. Acquisitions since then have been smaller in scale
and have complemented our oering, widened our market
reach to new customer segments and geographies, and
strengthened our global operations and supply chain
capabilities.
Today, Neles is a leading provider of mission-critical flow
control solutions and services for all process industries. We
have expanded our sales and services reach to cover all
the main global markets, and our operations and supply
chain footprint stretches from Europe to the US, China, India,
Middle East and Latin America.
The Neles journey
1956
Neles
founded
1982
Neles acquired
by predecessor
of Metso
1988
Jamesbury
acquired
2000
StoneL acquired
– Broadening the
valve controls and
switches oering
2001
Valvcon
acquired
2008
MAPAG
acquired
– Expansion to
industrial gas
2012
Valstone acquired –
Broadening the control
valve oering with
globe valves
2013
ExperTune
acquired
Soware for
performance
services
2018
Rotex valve
automation
division acquired
– Easyflow by
Neles™ range and
a manufacturing
footprint in India
2020
Neles
independent
2021 will be Neles’ 65th year of industry-leading innovations and experience.
Neles’ journey
10
2020 Highlights
ANNUAL REPORT 2020
We are a global and commied
team of flow control experts, with
strong industry knowhow and
focus on helping our customers
to succeed. We believe that best
results are made through great
collaboration and knowledge
sharing within our network.
In 2020, Neles identity and key cultural elements were
defined together with employees. Neles culture is driven
by understanding our customers’ businesses and needs
and geing things done. Our values guide us in how
we do business and in how we work together with our
stakeholders.
Customer Success is our success
We are driven to understand customers’ business needs,
where we can help them and how satisfied they are.
We build and share expertise
We place huge importance on growing and sharing knowl-
edge, within our team and our customers and partners.
We strive for beer together
We’re honest and open about how things can be beer,
and always strive to reach the best possible solution.
We keep our promises
We never walk away from issues until we get to a
conclusion. We do what we say we’ll do and live up to
ourpromises.
Our people and culture
2,840
employees in
38countries
51 nationalities
9
years average career at Neles
Our people and culture
11
2020 Highlights
ANNUAL REPORT 2020
Neles serves customers in 115
countries around the world. Our
customers are increasingly
focusing on eciency and reliability
as well as eective maintenance to
avoid disruptions in their processes.
This means that valves, spare parts,
or expert services must be at hand
when they are needed.
Close to our customers
all over the world
We continued the development
of our sales and services
network in by adding
new channel partners globally.
The flexibility of our global footprint was put to the test in
2020, as the pandemic made moving people and goods
challenging. Thanks to our global partner network, sourcing,
and logistics, we were able to manage these challenges.
Our new technology center in Jiaxing, China, started
its operations in July and was fully operational throughout
the second half of 2020. We also ramped up a new plant
in Dammam, Saudi Arabia, through a joint venture with
Industrial Systems Group. The new plant provides support
to our clients across the Middle East.
Neles’ valves typically go through Factory Acceptance
Testing (FAT) before being delivered to customer projects.
Prior Covid-19, the customer would normally visit the factory
for conducting FAT. In order to ensure that our customers’
valves are manufactured according to their requirements
and to prevent the virus from spreading, Neles carried
out FAT by utilizing photos, video and also provided a live
streaming possibilities.
Training our own personnel and our customers’ and partners’ is an
important part of Neles’ expertise. In 2020, we held more than 75
webinars and virtual seminars for customers globally and 85 online
trainings for channel partners in North America only.
Close to our customers all over the world
12
2020 Highlights
ANNUAL REPORT 2020
Fergus Falls, MN, USA
Design and manufacturing
Est.
Shrewsbury, MA, USA
Technology center
Est.
Sorocaba, Brazil
Service and supply center
Est.
Current plant
Vantaa, Finland
Technology center
Est.
Current plant
Horgau, Germany
Technology center
Est.
Current plant
Damman, Saudi
Arabia
Manufacturing and
services
Est
Vadodara, India
Service and supply
center
Est.
Mumbai region, India
Technology center
Est. /
Chungu, South Korea
Technology center
Est.
Current plant
Shanghai, China
Technology center
Est.
Current plant
Jiaxing, China
Technology center
Est.
7 technology centers
38 countries
~40 service locations
300+ channel partners
400+ service professionals
Neles in the world
13
2020 Highlights
ANNUAL REPORT 2020
Technologies based
on deep industry
knowledge
Customer
engagement
Reliable
partner
Continuous in
novations and
development
Our
strategy and
business
model
What we doCapitals Our impact:
Sustainable solutions
We are a reliable partner offering sustainable solutions
to our customer industries. We create value to our
customers, shareholders and other stakeholders
Society
EUR 16 million
Shareholders
EUR 44 million
Employees
EUR 134 million
Suppliers
EUR 260 million
Customers
EUR 576 million
* Calculated according to GRI standards
Installed base and
services oering
Sales and supply
chain network
Outputs
Direct
• Industrial valves, controllers, spare parts
and related services
Indirect
• Solutions contributing in solving global
environmental challenges
• Promoting circular economy and recycling
e.g. through serviceable products and new
by-products from out-of-waste flow
Benefits for customers
• Sustainable solutions to support customers in
their sustainability work
• Innovation for productivity, energy eciency
and safety
• Solutions for complying with tightening
regulations and legislation
• Optimized process eciency
Economic value created
*
Environmental impact
2020 reduction of emissions:
4,879 tCO
2
tons in logistics
0.16 tCO
2
tons in production
Compared to 2019 baseline
Social impact
28.3
employee NPS
7,992
risk observations
Mission: Providing market-leading expertise, products
and services to add the most value to customers.
Growing
demand for
materials
Safety,
reliability,
emissions
Growing
automation
levels and
digitalization
Creating value
Financial
People and
leadership
Natural resources
Brand and
intellectual
property
Distributors
Supply chain
Own
manufacturing
Creating value
14
2020 Highlights
ANNUAL REPORT 2020
In 2020, the global pandemic made
Neles, our customer industries
and partners, as well as societies
at large to rethink the ways things
are done. This situation continues
to cause uncertainties in the short
term. Mid-to-long-term, however,
there are solid drivers for growth
in process industries and thus in
the valves and valve automation
business.
Responding to megatrends
Rapid industrialization and continuing global population
growth are increasing the demand for industrial goods
and materials. At the same time, tighter regulations and
increasing environmental consciousness are adding to the
demand for more reliable and beer performing equipment
and more intelligent solutions.
We have identified the megatrends and industry drivers
that have great impact on our customers and where Neles
technologies and solutions can help them to tackle these
challenges in a sustainable manner.
Growing and changing demand for materials
Urbanization and global GDP growth increases and
changes the demand for materials. A good example of this
is our traditional stronghold, the pulp and paper industry,
which is transforming to meet the demand for bio-based
materials, such as tissue (e.g. sanitary papers), biodegrad-
able packaging materials and biofuels. Neles has been
active in developing solutions to support this transformation
through our extensive process knowledge, our products,
and through our digital tools designed to help collect and
utilize accurate data to improve process performance.
Safety, reliability and emissions
As environmental awareness is increasing, producers are
looking for more reliable process performance with less
waste and emissions. Safety, reliability and emissions of
industrial processes are thrust into the spotlight as a result
of tighter legislation. End products, e.g. in the oil industry,
are facing tighter environmental regulation. We see these
trends as increased investments to upgrade and replace
processes and related valve assets.
Growing automation levels and digitalization
Unplanned downtime and seemingly unpredictable
breakages are the key driver of lost production. Therefore,
growing automation levels and digitalization not only help
to secure safety, but also plant productivity. Neles develops
solutions for beer process and product utilization, enabling
predictable maintenance needs and well-timed decisions to
ensure stable performance and avoid unplanned downtime.
Collaboration is the key to success when it comes to
collecting, managing and utilizing data. Therefore, we work
towards beer use of digitalization opportunities together
with our network.
GROWING DEMAND
FOR MATERIALS
SAFETY, RELIABILITY,
EMISSIONS
GROWING AUTOMATION
LEVELS AND DIGITALIZATION
Responding to megatrends
15
2020 Highlights
ANNUAL REPORT 2020
Minimizing fugitive emissions
Fugitive emissions are emissions caused by leaks and
other unintended releases of gases in industrial activities.
In addition to the economic cost of lost commodities,
fugitive emissions contribute to air pollution and may
increase the risk of occupational hazards.
Neles’ valve products are designed and tested to
ensure minimum fugitive emissions. A large portion of
Neles valve products are certified to meet the global
ISO 15848 standard requiring close to zero emissions
for processes involving hazardous fluids and volatile
air pollutants; they also comply with many standards
mandated in specific regions.
Meeting these tight requirements is a mandatory
requirement in the majority of current projects in the oil
and gas industries worldwide, and, increasingly, in other
process industries as well. By eliminating fugitive emissions,
valve products help our customers improve the health
and safety of workers, allow plants to meet regulatory
standards, reduce product losses, and ultimately improve
the environmental performance over the entire plant life
cycle.
Our knowledge of fugitive emissions is based on strong
in-house capabilities where fugitive emissions theory
and testing are combined with skilled personnel. Neles
has advanced valve testing facilities where the fugitive
emissions development and type-approval tests are done.
Sustained performance through digitalization
In a typical process plant, many controls and processes
are not operating optimally; this can result in less stable
production, higher raw material usage, increased energy
consumption and lower yield. Generally, about 20–30%
of controls are in manual mode, and up to 85% of control
loops have sub-optimal seings. Neles PID tuning and
process control services identify incorrectly configured
control loops and the root causes of issues and prepare
corrective actions that optimize control performance.
New generation bioproduction
In 2020, Neles was selected as the main supplier of valve
solutions for the new bioproduct mill of Metsä Fibre, part
of Metsä Group. The new bioproduct mill to be built in
Kemi, Finland, will have the capacity to produce 1.5 million
tonnes of pulp and various other bioproducts annually.
Metsä Fibre set high environmental, material and energy
eciency targets for the new mill. Therefore, also their
partners are expected to deliver the technically most
reliable solutions as well as deep knowledge of production
requirements.
The new bioproduct mill will be the largest and
most ecient wood-processing unit in the Northern
Hemisphere and the largest investment in Finnish forest
industry history. (Image: Metsä Group)
Our advanced testing facilities
enable testing valve solutions
for maximum tightness as well
as functionality in extreme
conditions.
16
2020 Highlights
ANNUAL REPORT 2020
Neles serves process industries
that play an important role in
keeping modern societies and
infrastructures functional. We
support our customer industries
in making sustainable choices by
enabling safe flow of materials.
Our operating environment
Valves are used across wide variety of process industries,
which makes the business less sensitive to industry-
specific fluctuations. End-product prices, production
capacity, new project and energy markets are the main
demand drivers in the process industries. Neles oers
valve and valve automation technologies and services to all
process industries.
Process industry flow control market is highly
fragmented with a few large global players who are present
in most markets, as well as huge number of smaller, local
ones. Neles in among the top ten valve manufactures
globally, in the top five in actuators and among the top
three in valve controls.
Neles’ business consists of business driven by capital
investments, such as EPC projects, as well as business
driven by services and customer Maintenance, Repair and
Operations (MRO), which is mostly sold to end customers
directly or through our channel partner network.
Capital investment-driven business is cyclical in nature,
and dierent customer industries have dierent cycles. The
services and MRO-driven business is normally less cyclical,
enduring global economic shocks and growing stably, as
it is driven by customer operating volumes, the need to
perform service and maintenance regularly, and customer
needs to upgrade their processes to accommodate new
products or to meet safety and environmental requirements.
Total market of valves,
actuators and valve controllers
is EUR ~ billion globally.
However, in 2020 customers started postponing
their planned maintenance shutdowns and focused on
conservation of cash and reducing operating costs, which
contributed negatively to our services and MRO-driven
business.
Our operating environment
17
2020 Highlights
ANNUAL REPORT 2020
In 2020, Neles defined the
new strategy for sustainable
profitable growth. Our ambition
is to grow faster than the market
by expanding our oering and
diversifying the valves, valve
automation and services
businesses to new customer
segments.
Strategy for profitable growth
Global businesses and local customer service
Neles’ competitiveness is based on the high-quality of
its products and services, its proven technologies and
its global team of experts. The cornerstones of our
strategy are: broadening our innovations and product
reliability, expanding our multi-channel service capabilities
supported by digitalization, and accelerating growth in
valve automation. Neles businesses have been organized in
three business lines, Valve Equipment, Valve Controls and
Actuator and Services, and centralized operations function
to support daily execution of our strategy..
To enable collaboration with customers, Neles has
market-specific sales organizations in four market areas.
Our global presence in 38 countries is further enhanced
by a growing network of channel partners. In 2020, we
continued the development of our sales and services
network by adding 25 new channel partners to our network
globally.
Sustainability integrated
throughout the value chain
Our commitment to reinventing reliability covers the whole
life cycle of our valve solutions. Sustainability is integrated
into everything we do. Our approach is twofold:
We are a reliable partner oering sustainable solutions
for our customer industries by helping to ensure the
safe flow of materials. We innovate solutions that help our
customers to improve their process performance in a safe
and sustainable way, through product safety and reduced
energy consumption and waste.
We are commied to improving sustainability in our
own operations in terms of safety, environment, and
society and people. In practice, this means continuous
improvement of safety and environmental eciency – from
manufacturing and logistics to the way we work together
with colleagues, partners, and customers every day.
Read more about our sustainability agenda and targets
on pages 124–133.
Strategy for sustainable growth
18
2020 Highlights
ANNUAL REPORT 2020
Innovation and product
reliability at the core
Neles product and service portfolio is built on remarkable
innovations, some of which have been industry benchmarks
for decades. We have a field-proven track record in
developing long-lasting and reliable valve technologies.
Today, valves must withstand more stringent process
conditions, such as high process pressures or extreme
temperatures. Not only are the technical requirements
more demanding, there is also pressure to bring more
economical solutions to market.
Neles is constantly developing our portfolio of high-en-
gineered valves, valve controls and standard solutions to
meet the diverse needs of our customers. We build on
continuous and systematic product renewal and expanding
our oering. We are also exploring new manufacturing
methods and materials technologies and further leveraging
our simulation and design automation capabilities.
In 2020, the focus of Neles’ research and development
activities was on the renewal and expansion of certain
product platforms, e.g. high-pressure ball valve technology.
By focusing on the development of seat technology, we
are ensuring beer internal tightness and thus minimizing
harmful fugitive emissions to the atmosphere, even in the
most demanding applications.
Valve automation
Valve controls and actuators play a key role in ensuring
process performance and safety, regardless of the valve
in use. Together they form the core of a valve automation
solution. Accurate control and automation solution helps
to ensure production quality and minimize the amount of
production losses. It also allows optimizing the material flows
as well as use of chemicals and energy. Today, we are among
the top three players in valve controls and top five in actuators.
In 2020, Valve controls and Actuators was launched as
a new business line targeting to accelerate growth in valve
automation. We are focusing on the development and
expansion of our current valve automation solutions portfolio
and on developing dedicated channels to be able to serve a
wider range of customers.
High-performance and reliability
with Easyflow by Neles oering
In 2020, we continued to roll out our high-performance
valve solution oering under the Easyflow by Neles™
brand. Designed and manufactured largely at Neles’
Technology Center in India, Easyflow by Neles oers a
complete suite of products for the easy selection and
creation of automated valve assemblies suitable for a wide
range of industries and applications.
All research and development
projects have sustainability
targets, e.g. for product safety
and eciency.
Next wave in 3D printing
3D printing has evolved from a viable technology for
prototyping and training purposes into a robust and
reliable production process that is ideal for small, complex
shapes. As 3D printing does not require production tooling,
such as casting paerns, it makes it economically feasible
to customize valve features for an individual valve or
customer.
Neles is one of the 3D frontrunners in the valve
business. In 2018, we delivered the first valves with
3D-printed parts. These 3D components allow the valves
to perform in a particularly demanding application where
they need to withstand numerous fast open-close cycles
without maintenance. In 2020, Neles manufactured an
entire 3D-printed valve body to be installed in a customer
process for field testing.
Next generation of valve control
One of our latest innovations in valve automation is the
Neles NDX valve controller. Neles NDX is a technology
platform for smart digital controllers having independent
computing power for accurate and fast control and
diagnostics with Industry 4.0 communication capabilities.
Neles NDX valve controller has been designed with a
strong focus on the user experience and it is compatible
with all valve brands in a wide range of applications,
regardless of customer or industry.
19
2020 Highlights
ANNUAL REPORT 2020
Service leadership
and digitalization
Process plants need production lines that are up and
running as reliably and as eciently as possible. Correct,
timely maintenance actions not only enable the best plant
performance, but also helps to manage and mitigate risks.
Neles is an industry leader in services. Our service
portfolio covers the entire plant lifecycle from start-up
of new plants to modernization and upgrade of existing
ones. Over the years, we have developed global network
of service professionals and facilities as well as unique
capabilities to leverage data about and generated by our
customers’ valves. This data is used to oer value-adding
insights and services to our customers.
We also develop new methods to interact and transfer
data with our sales partners and customers. Additionally,
our performance service solutions enable process plants
to monitor process loops and prioritize improvement and
maintenance actions.
Combining data and experience
for proactive maintenance
Today, asset data has become vital information for
industry, both strategically and operationally. At the end of
2020, Neles had matched roughly one million valves with
end user tags, and new deliveries and repairs continue
to generate and add data. This data is valuable when
planning maintenance shutdowns, turnarounds and
outages (STOs) at critical intervals to ensure ecient and
safe process operations. Neles also combines decades
of cumulative experience from designing and servicing
valves with diagnostic, performance and historical
maintenance data to determine which valves should be
prioritized for maintenance at each opportunity to pull
equipment from the process. Well-planned maintenance
and good practices ultimately increase production
capacity, improve product quality, maximize energy
eciency and reduce unit downtime.
Reliability and sustainability
through digitized services
A client in Russia used Neles’ control performance
services to stabilize pulp mill production processes and
to achieve goals for chemical savings. By identifying
unperforming controllers and returning them to automatic
operation, the process variability was reduced, leading to
more stable and reliable operations. By using Expertune™
PlantTriage™ soware to investigate the performance of
hundreds of valves and controllers, the customer was
able to identify and resolve issues, resulting in a reduction
in two bleaching chemicals; more than 6% reduction in
caustic (NaOH) and more than 5% reduction in chlorine
dioxide (ClO
2
), all while maintaining production and quality
targets.
ExperTune™ PlantTriage™ was installed in the
production process to constantly monitor the production
process for potential issues and to report them in real
time with analysis and suggestions for continuous
improvement. Neles and customer engineers used
PlantTriage™ tools remotely, via customer-approved
secure connections.
20
2020 Highlights
ANNUAL REPORT 2020
Board of Directors’ Report
Neles Group created on June 30, 2020
21
ANNUAL REPORT 2020
Board of Directors’ Report
Financial year
The partial demerger of Metso Group took place on June 30, 2020, and the continuing oper-
ations were renamed Neles Group. Neles valves business has been reported as continuing
operations, and the demerged Metso Minerals business as discontinued operations (for
the period January 1–June 30, 2020). In this Financial Statement Review, in addition to IFRS
financial information, a comparable balance sheet and a cash flow statement are disclosed.
Figures in parentheses refer to the corresponding period in 2019 unless otherwise stated.
Neles Group is reported as one segment, starting on June 30, 2020.
Creation of Neles on June 30, 2020
Metso’s Extraordinary General Meeting on October 29, 2019 approved the partial demerger
of the company. The registration of the completion of the partial demerger was executed on
June 30, 2020. According to the demerger plan, the Metso Minerals businesses were carved
out and combined with Outotec Group. Metso’s valves business formed the continuing
operations, and on July 1, 2020, Metso Group was renamed Neles Group. Metso’s share-
holders continue as shareholders of Neles Corporation. Additionally, shareholders received
4.3 new Outotec shares for one old Metso share as consideration for the distributed net
assets of the Minerals business. The partial demerger of Metso was completed on June 30,
2020, with share trading continuing under the Neles name on Nasdaq Helsinki on July 1. In
IFRS reporting, a gain of EUR 2,022 million was recorded on the distribution of the Minerals
net assets at fair value and is included in Profit for the period, discontinued operations.
Public tender oer by Alfa Laval and stake-building by Valmet
On July 13, Alfa Laval AB (publ) published its intention of making a Public Tender Oer (PTO)
for all shares of Neles Oyj at a price of EUR 11.50 per share. The Tender Oer was published
on August 12, 2020. On October 15, Alfa Laval amended its PTO terms by lowering the
minimum acceptance threshold to more than 50% of outstanding Neles shares (previously
2/3 of outstanding Neles shares) and extending the PTO until October 30 (previously
October 22). Neles’ Board recommended the PTO on August 12 and again on October 19
regarding the changed PTO terms. On November 4, 2020, Alfa Laval announced it would
not complete the PTO, as it had received approximately 32.82% (of 50% threshold) of Neles
shares during the oer period. On December 31, 2020, Alfa Laval’s shareholding in Neles
shares was 8.46%.
Valmet Oyj, which acquired a stake of 14.88% in Neles Oyj on July 1, had a shareholding
of 29.54% as of December 31, 2020. On September 29, Valmet published a proposal for
a merger between Valmet Oyj and Neles Oyj. On October 12, Neles’ Board announced
that there were no ongoing discussions with Valmet and reiterated its recommendation
regarding Alfa Laval’s PTO.
Key figures, IFRS
EUR million Change, %
Continuing operations
Orders received –
Order backlog at the end of period –
Sales –
Sales by services business –
% of sales
Adjusted EBITA
)
–
% of sales . .
Operating profit –
% of sales . .
Earnings per share, EUR . . –
Free cash flow
Return on capital employed (ROCE) before taxes, % . .
)
Adjustment items amounted to EUR . million in . No adjustment items were included in . The
adjustments were aributable to advisory, brand, IT and other costs related to the creation and rebranding of
Neles, establishing a new operating structure and developments around Neles’ shareholding.
EUR million
Discontinued operations
Profit for the year, discontinued operations ,
Earnings per share, EUR . .
Neles total
Profit for the year ,
Earnings per share, EUR . .
Net debt
Equity to assets ratio, % . .
Net debt/ EBITDA, rolling months . –
Gearing, % . .
Personnel at end of period , ,
22
Board of Directors’ Report
ANNUAL REPORT 2020
Operating environment, Orders and Sales
Market activity was mixed in 2020. Pulp and Paper investment projects remained active
throughout 2020. Chemicals and Oil & Gas project activity was strong in the first half of
the year. The activity decreased during the second half of the year but remained at a
satisfactory level. Travel restrictions and lockdown measures associated with the Covid-19
pandemic led to cancelations and postponements of customers’ planned site work and
maintenance shutdowns. From the second quarter, this decreased both orders received and
sales for Services and MRO-driven businesses.
In 2020, orders received decreased by 13% (decrease in comparable currencies 9%)
to EUR 590 million (EUR 681 million). The decline in orders was due to a slowdown in the
Services and MRO-driven businesses. Currency exchange rate changes had a negative
impact of 4% in 2020 on orders received. The order backlog as of December 31, 2020 was
EUR 270 million (December 31, 2019: EUR 280 million).
In 2020, sales decreased by 13% (decrease in comparable currencies 9%) to EUR
576 million (EUR 660 million). The decline in sales was due to slowdowns in Services and
MRO-driven businesses, while project sales were at a high level, peaking in the fourth
quarter. Currency exchange rate changes had a negative impact of 4% in 2020 on
sales. The currency exchange rate impacts came mainly from the Brazilian real, US dollar,
Singapore dollar, South African rand, and Chilean peso.
FX impact on orders received and sales
Orders received Sales
, EUR million
Organic growth in constant currencies, % – –
Impact of changes in exchange rates, % – –
Structural changes, % – –
Total change, % – –
, EUR million
In 2020, market sentiment was generally subdued in the North American Market Area
due to Covid-19 pandemic-related issues and oil price fluctuations. Since the start of the
third quarter, there has been a gradual recovery, but overall market activity has remained
suppressed.
The EMEIA (Europe, Middle East, India, and Africa) Market Area was impacted by
challenges associated with the Covid-19 pandemic, which especially aected the Services
and MRO-driven businesses during the second and third quarters. In the fourth quarter, the
situation gradually improved. Overall project business activity remained at a good level, even
though Chemicals and Oil & Gas project orders declined during the second half of the year.
Project activity was strong in APAC. In the second half of 2020, project activity in both
Pulp and Paper and in Chemicals and Oil & Gas was driven by the Chinese market. The
Services and MRO-driven businesses’ activity was reduced due to Covid-19-related travel
restrictions, lockdowns, shutdown postponements and customers’ cost-saving activities.
South America Market Area business activity was strong, thanks to growth in Pulp and
Paper project orders, which peaked in the first half. During the second half of the year,
business remained at a good level but was lower than in the first half of the year.
Orders by market area
EUR million
EMEIA
North America
South America
Asia-Pacific
Neles total
Sales by market area
EUR million
EMEIA
North America
South America
Asia-Pacific
Neles total
Financial performance
Neles, continuing operations
In 2020, Neles adjusted EBITA amounted to EUR 85 million, or 14.8% of sales (EUR 97 million,
or 14.7%). Adjusted EBITA was negatively aected by a lower sales volume than in 2019,
especially in the Services and MRO-driven businesses. Both permanent and temporary
cost-saving actions were taken to oset the negative volume impact on profitability.
Reduced work time was implemented during the second and third quarters, while other
cost-saving activities related to external spending also continued in the fourth quarter.
SG&A costs in 2020 were lower than the comparison period due to cost-saving actions and
lower business activity than in 2019.
In 2020, adjustment items of EUR 11 million (EUR 0 million) had a negative impact on
operating profit. The adjustments were aributable to advisory, brand, IT, and other costs
related to the creation and rebranding of Neles, seing up a new operating structure and
developments around Neles’ shareholding. The activities related to the adjustment items are
mainly completed. Certain development activities, in particular ongoing ERP harmonization
project, will continue in 2021 and will be reported as part of our operating costs instead of
23
Board of Directors’ Report
ANNUAL REPORT 2020
adjusting items. The operating profit in 2020 amounted to EUR 70 million, or 12.2% of sales
(EUR 93 million, or 14.0%).
Financial net expenses in 2020 amounted to EUR 6 million (EUR 2 million). The increase
was aributable to loan facilities allocated to Neles and other finance expenses related to
funding arrangements at the time of the partial demerger.
In 2020, the eective tax rate was 24.4%.
Earnings per share in 2020 for continuing Neles operations amounted to EUR 0.32.
Cash flow, continuing operations
Free cash flow amounted to EUR 69 million (EUR 34 million) in the reporting period for
January 1–December 31, 2020. The strong free cash flow was due to decreased net working
capital.
Investments amounted to EUR 13 million (EUR 20 million) in the reporting period for
January 1–December 31, 2020.
Discontinued operations
The profit for discontinued operations amounted to EUR 2,150 million for the January 1–June
30, 2020 period. The reported amount includes a net profit of EUR 127 million for Minerals
operations, without depreciations and amortizations, and a EUR 2,022 million gain recorded
in the distribution of Minerals net assets at fair value. Accordingly, earnings per share for
discontinued operations were EUR 14.31.
Financial position
Neles’ balance sheet and liquidity position remained solid. Cash and cash equivalents on
December 31, 2020 were EUR 136 million (EUR 114 million aer the demerger on June 30,
2020). In July, Neles paid EUR 26 million in withholding taxes on the dividend distribution
paid to shareholders in June.
Interest bearing liabilities on December 31, 2020 were EUR 217 million (EUR 213 million at
the end of June 2020), including EUR 51 million lease liabilities (EUR 41 million at the end of
June 2020). The increase in the lease liabilities was due to the completion of the new factory
in China. On December 31, 2020, Neles’ net debt amounted to EUR 81 million, gearing was
30.9%, and the equity-to-asset ratio was 42.6%.
Neles’ available additional funding consists of an undrawn, commied syndicated
revolving credit facility of EUR 200 million and the EUR 200 million Finnish commercial paper
program.
On July 17, 2020, Moody’s Investors Service (Moody’s) withdrew the Baa2 long-term
Issuer rating and (P)Baa2 senior unsecured MTN rating of Metso Corporation, which was
renamed to Neles. Moody’s states that it has decided to withdraw the unsolicited rating for
its own business reasons. Neles Group has no public rating in any ratings agency.
Capital expenditure and investments
In 2020, gross capital expenditure for continuing Neles operations was EUR 13 million
(EUR 20 million). Capital expenditure was related to production facilities and equipment, IT
systems, HS&E related improvements, and one Research and Development project. EUR
5 million (2019: EUR 8 million) of the investments are associated with to the new manufac-
turing site in Jiaxing, China.
Research and development
Neles’ research and development activities focus on the renewal and expansion of certain
product platforms to ensure its oering’s future competitiveness. All research and develop-
ment projects also have sustainability targets, e.g. for product safety and eciency.
In the first quarter of 2020, Neles™ R-series segmented ball valve with on-o valve
seating technology to allow new competitive solution shut-o applications was launched. In
the fourth quarter of 2020, the Jamesbury™ 7000/9000 flanged ball valve product line was
upgraded to continue design improvements for enhanced conformity to the latest industry
standards. In addition, incremental improvements were made across the Neles product
portfolio.
R&D and IP-related expenditure, continuing operations
EUR million
R&D expenditure
of sales, % . .
Of which expensed
of sales, % . .
Inventions and patents, continuing operations
Pieces
Invention disclosures
Priority patent applications
Inventions protected by patents
)
, as of December
)
Three patent families were transferred to Neles at the time of the partial demerger.
Safety and sustainability
Neles is a reliable partner, oering sustainable solutions to its customers. This means that
Neles operates eciently and responsibly in terms of safety, the environment, society,
people and the economy. Neles’ operations are audited regularly by a third party.
Safety
Neles’ aim is to reinforce its commitment to the continuous improvement of safety and the
goal of zero harm. In 2020, Neles succeeded in improving its safety performance, ending the
24
Board of Directors’ Report
ANNUAL REPORT 2020
year with a lost time incident frequency (LTIF) of 1.3 (2019: 1.5). The focus on safety was also
reflected in the increased number of risk observations and safety conversations in 2020. In
2020, Neles’ Health, Safety and Environmental policy and minimum safety standards were
set and communicated to all employees.
Neles has developed a safety audit process with follow-up plans for corrective actions
for its manufacturing and service sites. Neles has the ISO45001 occupational health and
safety management system certificate for its manufacturing operations, which are audited
regularly.
Environment
Neles works to prevent environmental hazards by auditing its own operations and following
the implementation of corrective actions. In 2020, Neles’ environmental audits focused on
chemical safety and the handling of hazardous waste, for example. Neles has the ISO14001
environmental management system certificate for its manufacturing operations. To ensure
compliance, regular audits are conducted by a third party.
In 2020, for example, Neles improved energy eciency at its production sites by investing
in an ecient painting line Volatile Organic Compound, and emission control system and
solar panels in China, and evaluating pressure air systems to identify possible leakages and
make improvements in the US and Finland. Neles’ European plants have ISO50001 energy
management system certificates and are audited regularly. Water consumption was also
decreased by reusing and recycling process waters.
Climate
In 2020, Neles set climate targets for the most significant sources of emissions. Neles has
commied to a 25% reduction in carbon emissions in production by 2030 compared to
the 2019 base line. Neles enforces sustainability not only in its own production, but 20%
of its suppliers in terms of spend are also required to set emission targets by 2025. By
streamlining transportation routes and optimizing warehouse locations, Neles aims for a
20% reduction in transportation emissions by 2025.
Additionally, Neles aims to make an impact in the reduction of greenhouse gas emissions
in the most energy-intensive customer processes using its products. This is further
reinforced by the sustainability targets in all Neles R&D projects. As supportive actions,
Neles will also continue to find new ways to decrease emissions in its oces e.g., by
purchasing CO
2
free energy.
Responsible procurement
Neles has published a Supplier Code of Conduct that sets the standards for Neles’ suppliers
and forms the basis for supplier cooperation. Neles has over 1,000 suppliers in more than 30
countries. The direct procurement spending in 2020 totaled EUR 166 million.
In 2020, Neles conducted 12 supplier sustainability audits; 11 were done by Neles supplier
quality team and one by a third party.
Corporate governance and remuneration
Decisions of the 2020 Annual General Meeting
Metso Corporation’s Annual General Meeting (AGM) was held on June 16, 2020 in Helsinki.
The meeting approved the financial statements and discharged the members of the Board
of Directors and the President & CEO from liability for the 2019 financial year.
Dividend for 2019
The meeting approved the Board of Directors’ proposal to pay a dividend of EUR 1.47 per
share for the 2019 financial year. The dividend was paid to the shareholders who were
registered in the company’s shareholders’ register, held by Euroclear Finland Oy, on the
dividend record date June 18, 2020. The dividend was paid on June 25, 2020. All the shares
in the company were entitled to a dividend except for the company’s own shares held on
the dividend record date.
Composition of the Boards of Directors
Metso Corporation (January 1–June 15, 2020)
The Board of Directors of Metso had seven members for the period January 1–June 30, 2020,
Mikael Lilius as Chair, Christer Gardell as Vice Chair, and Lars Josefsson, Ani Mäkinen, Kari
Stadigh and Arja Talma.
Metso Corporation (June 16–30, 2020)
The AGM on June 16, 2020, confirmed that the Board of Directors of Metso has seven
members and re-elected Mikael Lilius as Chair, Christer Gardell as Vice Chair, and Lars
Josefsson, Ani Mäkinen, Kari Stadigh and Arja Talma as members of the Board. Emanuela
Speranza was elected as a new member.
The Board’s term of oce commenced at the end of the Annual General Meeting and will
expire at the registration of the completion of the partial demerger of Metso Corporation.
Neles Corporation (eective July 1, 2020)
The AGM confirmed that the Board of Directors of the future Neles has seven members.
Jukka Moisio was elected as Chair, Mark Vernon as Vice Chair, and Bria Giesen, Anu
Hämäläinen, Niko Pakalén, Teija Sarajärvi and Peer Söderström as members of the Board.
The term of oce of the Board of the future Neles Corporation commences at the
registration of the completion of the partial demerger of Metso Corporation and expires at
the end of the next Annual General Meeting of the future Neles Corporation.
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Board of Directors’ Report
ANNUAL REPORT 2020
Remuneration of the Boards of Directors
Metso Corporation (eective June 16–30, 2020)
The AGM decided that the Metso Board members would be paid the same fixed annual
remuneration as in the previous term. The remuneration to be paid will be calculated pro
rata to the length of the term of oce based on the following annual remuneration:
Chair: EUR 120,000
Vice Chair: EUR 66,000
Other members: EUR 53,000 each
It was further decided that the same additional remuneration as in the previous term
would be paid to the members of the Board of Directors elected as members of the Audit
Commiee and the Remuneration and HR Commiee. The additional remuneration to be
paid will be calculated pro rata to the length of the term of oce based on the following
annual remuneration:
Chair of the Audit Commiee: EUR 20,000
Members of the Audit Commiee: EUR 10,000 each
Chair of the Remuneration and HR Commiee: EUR 10,000
Members of the Remuneration and HR commiee: EUR 5,000 each
The AGM also approved that the fixed annual remuneration be paid to the members of
the Board of Directors in cash within two weeks aer the expiry of their term of oce.
Neles Corporation (eective July 1, 2020)
The AGM decided that the following fixed annual remuneration would be paid to the
members of the Board of Directors of the Neles Corporation. The remuneration to be paid
will be calculated pro rata to the length of the term of oce based on the following annual
remuneration:
Chair: EUR 115,000
Vice Chair: EUR 65,000
Other members: EUR 50,000 each
It was further decided that an additional remuneration would be paid for the members of
the Board of Directors elected as members of the Audit Commiee and the Remuneration
and HR Commiee. The remuneration to be paid will be calculated pro rata to the length of
the term of oce based on the following annual remuneration:
Chair of the Audit Commiee: EUR 15,000
Members of the Audit Commiee: EUR 7,500 each
Chair of the Remuneration and HR Commiee: EUR 7,500
Members of the Remuneration and HR Commiee: EUR 3,750 each
As a condition for the annual remuneration, the members of the Board of Directors of
the Neles Corporation are obliged to use 40 percent of the fixed total annual remuneration
to purchase Neles Corporation’s shares from the market at a price formed in public trading.
The purchase was be carried out within two weeks of the publication of the interim review
for the period following the registration of the completion of the partial demerger of Metso
Corporation.
Meeting fees
The AGM also approved the following meeting fees: for each meeting of the Board of
Directors of Metso Corporation and the Neles Corporation and their respective Commiees,
a fee of EUR 800 to be paid to the members of the Board residing in the Nordic countries;
a fee of EUR 1,600 to be paid to the members of the Board residing in other European
countries; and a fee of EUR 3,200 to be paid to the members of the Board residing outside
Europe.
Auditor
The authorized Public Accountant Ernst & Young Oy was elected as the company’s Auditor
until the end of the next AGM. Ernst & Young Oy has designated Mikko Järventausta, APA,
as the responsible auditor. In addition, Mr. Toni Halonen, APA, will act as the responsible
auditor of the Neles Corporation aer the partial demerger. It was decided to pay the
remuneration for the Auditor against the invoice approved by the Audit Commiee.
Authorization to repurchase the company’s own shares
The AGM approved the proposal of the Board of Directors to authorize the Board to decide
on the repurchase of Metso’s own shares. The number of Metso’s own shares to be
repurchased may not exceed 5,000,000 shares, which corresponds to approximately 3.3
percent of all Metso’s shares. The authorization is eective until June 30, 2021, and it cancels
the previous authorization. This authorization has not been exercised as of February 3, 2021.
Authorization to issue shares and special rights entitling to shares
The AGM approved the proposal of the Board of Directors to decide on the issuance of
shares and the issuance of special rights entitling to shares. The number of new shares that
may be issued based on decision(s) of the Board of Directors pursuant to the authorization
may not exceed 10,000,000 shares, which corresponds to approximately 6.7 percent of all
Metso’s shares. The number of Metso’s own shares that may be transferred pursuant to the
authorization may not exceed 5,000,000 shares, which corresponds to approximately 3.3
percent of all Metso’s shares. The authorization is eective until June 30, 2021, and it cancels
the previous authorization. This authorization has not been exercised as of February 3, 2021.
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Board of Directors’ Report
ANNUAL REPORT 2020
Neles Board’s organizational meeting on July 1, 2020
Neles Corporation’s Board of Directors made the following decisions at its organization
meeting:
Appointments of the Board’s commiees and deputy CEO
– Audit Commiee: Anu Hämäläinen (Chair), Bria Giesen, Niko Pakalén, and Peer
Söderström
– Remuneration Commiee: Jukka Moisio (Chair), Mark Vernon, and Teija Sarajärvi
– Chief Financial Ocer Simo Sääskilahti appointed as Deputy CEO
Confirmation and approval of the company’s profitable growth strategy
Confirmation and approval of the company’s mid-term financial targets
Update to the company’s Disclosure Policy
Personnel representation from July 1, 2020
The personnel are represented through regular reviews with the President and CEO, as well
as employee representative’s participation in Neles Finland management team meetings.
Extraordinary Annual General Meeting on October 29, 2020
Neles’ Extraordinary General Meeting (EGM) was held on October 29, 2020. The EGM
resolved, in accordance with the proposals made on July 2, 2020 by its largest shareholder,
Valmet Corporation, that the number of members of the Board be eight, and that for a
term of oce expiring at the end of the next Annual General Meeting, Mr. Jukka Tiitinen be
elected as a new member of the Board in addition to the previous members of the Board.
Annual General Meeting, June 16, 2020
Metso Corporation’s Annual General Meeting (AGM) was held on June 16, 2020. Decisions
taken at the AGM and information about the Board’s authorization can be found on Neles’
website hps://www.neles.com/investors/governance/agm/.
Neles Executive Team, July 1–December 31, 2020
The composition of the Neles Executive Team from July 1, 2020 onwards: Olli Isotalo,
President and CEO; Timo Hänninen, Head of Equipment; Sami Nousiainen, Head of Services;
Kalle Suurpää, Head of Valve Controls & Actuators; Patrick Dunn, Head of North America;
Fabio Maia, Head of South America; Jon Jested-Rask, Head of EMEIA; Tan HangPheng,
Head of Asia-Pacific; Kevin Tinsley, Head of Global Operations; Simo Sääskilahti, Finance
(CFO and deputy CEO); Hanne Peltola, Head of Human Resources and Kaisa Voutilainen,
Communications and Marketing.
Ms. Elisa Erkkilä, LL.M, was appointed on December 15, 2020, as a member of the Neles
Executive Team as of January 1, 2021. Elisa Erkkilä has been with Neles as General Counsel
and Chief Compliance Ocer since the launch of Neles Corporation in July 2020.
Up-to-date information regarding the Neles executive team at
hps://www.neles.com/investors/governance/.
Metso Executive Team, January 1–June 30, 2020
The composition of the Metso Executive Team from January 1 to June 30, 2020: Pekka
Vauramo, President and CEO; Eeva Sipilä, Chief Financial Ocer, Deputy to CEO; Ue
Hansen, President, Recycling; Olli Isotalo, President, Valves; Hannele Järvistö, Interim Senior
Vice President, Human Resources; Mikko Keto, President, Minerals Services and Pumps (until
1. 1. 2020); Giuseppe Campagnelli, President, Minerals Services and Pumps (from 2. 1. 2020),
Stephan W. Kirsch, President, Mining Equipment; Jani Puroranta, Chief Digital Ocer;
Markku Simula, President, Aggregates Equipment; Sami Takaluoma, President, Minerals
Consumables.
Shareholders’ Nomination Board’s proposals regarding the composition
and remuneration of the Board of Directors of Metso and Neles
Composition of the Neles’ Shareholders Nomination Board
The composition of the Shareholders’ Nomination Board on December 31, 2020 was as
follows: Mr. Pasi Laine, President and CEO, Valmet Corporation; Mr. Philip Ahlgren, Vice
President, Cevian Capital AB; Mr. Mikko Mursula, Chief Investment Ocer, Ilmarinen Mutual
Pension Insurance Company and Mr. Jukka Moisio, Chair of Neles Board. Mr. Risto Murto,
President and CEO, Varma Mutual Pension Insurance Company resigned on October 23,
2020 due to changes in Varma’s shareholding.
Neles Shareholders’ Nomination Board announced on December 22, 2020 its proposal
to the AGM 2021. The proposal regarding composition and remuneration of the Board of
Directors were as follows:
the number of Board members be seven
fixed annual remuneration be kept unchanged
Jaakko Eskola be elected as the Chair
Peru Louhiluoto be elected as Vice-Chair, and
Anu Hämäläinen, Niko Pakalén, Teija Sarajärvi, Jukka Tiitinen and Mark Vernon be
re-elected as Board members.
Composition of the Metso’s Shareholders Nomination Board
The Shareholders’ Nomination Board published its proposals regarding the composition and
remuneration of the Board of Directors of both Metso and the future Neles Corporation on
January 16, 2020. The Nomination Board would provide these proposals to Metso’s Board of
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ANNUAL REPORT 2020
Directors, which would submit them to Metso’s next Annual General Meeting, to be held on
March 20, 2020.
Metso’s Shareholders’ Nomination Board comprised Peer Söderström (Investment
Director, Solidium Oy) as the Chair and Niko Pakalén (Partner, Cevian Capital Partners Ltd.),
Mikko Mursula (Deputy CEO, Ilmarinen Mutual Pension Insurance Company), Risto Murto
(President and CEO, Varma Mutual Pension Insurance Company), and as an expert member,
Mikael Lilius (Chair of Metso’s Board of Directors). The Shareholders’ Nomination Board
consists of the representatives of the four largest registered shareholders of the company
based on the ownership situation as of September 1 annually.
Mikael Lilius did not participate in the decision making of the Nomination Board’s
proposal concerning the remuneration of the Chair of the Board and the election of the
Chair of the Board of Metso due to his current position as Metso’s Chair.
Peer Söderström and Niko Pakalén did not participate in the decision making of the
Nomination Board’s proposal concerning the remuneration of the members of the Board
of Directors and the election of the Board members of the Neles Corporation due to their
being proposed as Board members of Neles.
Solidium representative Peer Söderström notified Neles on July 2, 2020, that he
has resigned from Neles’ Shareholders’ Nomination Board due to changes in Solidium’s
shareholding.
Personnel
At the end of December 2020, Neles had 2,840 employees (June 30, 2020: 2,950
employees).
Personnel, end of reporting period
Neles total , ,
Discontinued operations – ,
Metso total – ,
Structural changes and the Covid-19 pandemic
The employee negotiations concerning the production of the Helsinki plant announced by
Neles Finland Oy on December 7, 2020 were completed on December 17, 2020. As a result
of the negotiations, temporary layos of employees in the factory production and quality
functions were initiated for production and financial reasons. The temporary layos aect
a total of about 300 people, and their precise targeting and duration will depend on the
function. Layos are for a fixed period of up to 90 days starting on January 1, 2021.
Neles employee negotiations in Finland were finalized on June 23, 2020; as a result, 32
permanent positions of the initial estimated maximum of 45 were terminated in 2020. In
the US, 49 permanent positions were terminated in the second quarter of 2020. Temporary
layos, as announced on March 25, 2020, included most of the personnel in Finland,
excluding some employees in manufacturing at the Vantaa factory and in IT. Similar arrange-
ments were implemented globally.
Share-based long-term incentive schemes for Neles key personnel
On December 15, 2020, the Board of Directors decided on the commencement of a
new plan period within the share-based long-term incentive scheme targeted at Neles’
management and key employees. The scheme comprises a Performance Share Plan (also
PSP) for top management, a deferred share unit plan (also DSUP) for other management
and selected key employees, and a Restricted Share Plan (also RSP) as a complementary
structure for specific situations. Neles originally announced the establishment of the long-
term incentive scheme on July 1, 2020.
Share-based long-term incentive program conversion for Metso personnel
In the demerger, all the open long-term incentive programs and obligations were allocated
to Metso Minerals business key personnel, except for Neles key persons their share in
Deferred Share unit Plans in 2018 and 2019. Each Metso share unit earned was converted
into Neles share unit based on the average share prices of July 2020 with the objective that
the value of the reward will not be aected by the conversion. The reward will be paid aer a
two-years retention period in 2021 and 2022.
Employee engagement
Employee engagement is measured by the Neles’ global employee survey, PeoplePulse,
which was conducted in 2020 and showed that Neles employees in global comparison
were highly commied, had a strong feeling of being able to contribute and a good level of
competences in performing in their work. The PeoplePulse response rate was 75% (89%
in 2019) and it provided information for practical and positive development actions. In 2020,
PeoplePulse included only approximately 62% of total personnel, mainly those impacted by
the partial demerger. Neles employee net promoter score (eNPS) in 2020 was 28.3 (2019:
Valves business area 34.4).
Neles employees represent 51 nationalities, operating in 38 countries and in 83 locations.
The combination of dierent backgrounds and a wide range of service years and ages
ensures diverse capabilities.
Personnel representation in governing bodies
The personnel are represented through regular reviews with the President and CEO, as well
as via participation in Neles Finland management team meetings.
Strategy for profitable growth and mid-term financial targets
On July 1, Neles’ Board of Directors confirmed and approved Neles’ profitable growth
strategy and mid-term financial targets, as announced on May 25, 2020 and presented at
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ANNUAL REPORT 2020
Neles’ first virtual capital markets day on May 27. A full archive of the materials is available at
hps://www.neles.com/investors/cmd/.
Neles’ vision is to become a leading diversified valve and valve automation company,
reinventing reliability in flow control. Neles aims to achieve profitable, faster-than-market
growth and will continue to develop its organization and operations to ensure the successful
execution of its strategy.
The confirmed mid-term financial targets derived from the strategy are:
Orders received of more than EUR 1 billion around 2025
Annual organic growth ambition of at least 5%
EBITA margin of at least 15%, while investing in growth
Maintaining a strong balance sheet (net debt/EBITDA less than 2.5), while investing in
growth
Dividend payout of approx. 40% of net earnings (excluding PPA amortization related to
acquisitions)
Neles’ strategic targets are mid-term ambitions and should not be viewed as guidance
for the near-term performance of Neles, as the current Covid-19 pandemic will adversely
impact the Neles’ business in the short term.
Other main events in 2020
December 2: Neles announced it would expand its presence with eight new channel
partners in South and Central America.
November 9: Neles announced it had strengthened its distributor network with 13 new
partners in India, Sri Lanka, and Bangladesh.
November 4: Alfa Laval announced it would not complete the PTO. The final result of the
PTO was 32.82% of Neles shares out of the required 50% per the PTO. Additional informa-
tion can be found at neles.com.
October 29: A Neles EGM was held and Valmet’s proposal to elect Mr. Jukka Tiitinen as a
member of the Board of Directors was accepted.
October 27: Alfa Laval announced it had received all necessary regulatory approvals for the
recommended public cash tender oer for all shares in Neles.
October 22: Neles and Metsä Fibre signed a preliminary agreement for valve solutions
delivery to the new Kemi bioproduct mill in Finland.
October 19: The Board of Directors of Neles Corporation supplemented its statement
regarding the recommended voluntary public cash tender oer by Alfa Laval AB (publ) aer
the change of PTO terms.
October 15: Alfa Laval changed its PTO terms (minimum acceptance more than 50%,
previously 2/3 of shares) and extended its oer period (October 30, previously October 22).
October 12: The Board of Directors of Neles assessed Valmet’s merger proposal. The
recommendation by the Board of Directors of Neles published on August 12, 2020, regarding
the Tender Oer made by Alfa Laval remains in place.
September 29: Neles confirmed that it has received an unsolicited leer from Valmet
proposing a merger between Neles and Valmet.
September 3: The determining of the acquisition cost of Neles and Metso Outotec shares in
Finnish income taxation was published.
August 12: The Board of Directors of Neles Corporation published a statement regarding the
recommended voluntary public cash tender oer by Alfa Laval AB (publ).
August 12: Alfa Laval AB (publ) announced it would commence the recommended public
cash tender oer (PTO) for all shares (EUR 11.50 per share) in Neles on August 13, 2020.
July 29: At the request of Valmet Corporation, the shareholders of Neles were notified of the
Extraordinary General Meeting to be held on Thursday, October 29, 2020.
July 13: Alfa Laval AB (publ) and Neles Corporation entered into a combination agreement
pursuant to which Alfa Laval made a voluntary recommended public cash tender oer for all
issued and outstanding shares in Neles.
July 7: Neles’ new valve technology center in Jiaxing, China, started its operations. The new
plant strengthens Neles’ valve and related products production capabilities and increases
availability for customers across various process industries, in China and globally.
July 1: The Board approved Neles’ Disclosure Policy and confirmed that Neles would observe
a 30-day silent period prior to the publication of its financial results. During this time, Neles
is not in contact with capital market representatives nor does it comment on the company’s
financial performance, markets or its future outlook. The full Disclosure Policy is available on
Neles’ website.
June 30: The completion of Metso’s partial demerger was registered at the Finnish Trade
Register.
June 23: Appointments of the composition of the Board of Directors and Executive
Management Team of Neles.
June 23: Metso Corporation and Outotec Oyj to complete the combination of Outotec and
Metso’s Minerals business.
June 18: Metso Corporation and Outotec Oyj received all regulatory approvals for the
combination of Metso’s Minerals business and Outotec.
May 18: Future Metso Outotec business structure and Executive Team appointments
announced.
May 13: Metso Corporation and Outotec Oyj received unconditional merger control clear-
ance from the European Commission for the combination of Metso Minerals with Outotec.
Covid-19 pandemic update
The Covid-19 pandemic continues to present significant short-term risks and uncertainties
for the markets. It continues to be dicult to predict the pandemic’s spread and severity.
Abrupt measures taken by various national and local governments to restrict the spread of
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ANNUAL REPORT 2020
the virus have increased the unpredictability of the demand for Neles’ products and services.
The pandemic-related mobility restrictions have impacted Neles’ operations by restricting
Neles’ ability to provide services at customer sites, as well as the running of manufacturing
sites when lockdowns have been imposed. These uncertainties are expected to continue in
the first half of 2021.
The business situation did not change significantly from the third to the fourth quarter.
Customers have returned to more normal operations than in the second quarter, but
large maintenance projects remain largely postponed due to mobility restrictions and
customers’ tight cash management. The situation has caused a slowdown in the Services
and MRO-driven businesses. The company’s supply chains have been operational, and
the delays in delivery times reported in the third quarter have eased. Thus far, Neles has
experienced no material credit losses or order cancelations in the order backlog.
Since the second quarter, management has taken proactive measures to ensure the
safety of employees, control costs and preserve cash flow to protect Neles’ financial
position. The measures have included a variety of enforced safety procedures at manufac-
turing sites, remote working and strict travel restrictions, cuts to external spending across
the organization, and cost-saving and optimization activities. Increased aention has also
been paid to managing net working capital.
There is an increased risk that global economic growth will significantly deteriorate
because of the pandemic, which, with uncertain political and trade-related developments,
could aect Neles’ customer industries, and reduce investment appetite and customer
spending, weakening the demand for Neles’ products and services, as well as aecting the
company’s business operations and profitability. Other market- and customer-related risks
could also cause planned and ongoing projects to be postponed, delayed or discontinued.
Short-term business risks and market uncertainties
In addition to risks related to the Covid-19 pandemic, tightening trade relations, continued
market growth and inflation, as well as the impact of taris or other trade barriers could
pose challenges to Neles’ supply chain and price management, impacting the company’s
growth capability and margins. Exchange rate fluctuations and changes in commodity
prices could aect our orders received, sales and financial position. Neles hedges currency
exposure linked to firm delivery and purchase agreements. Other market- and customer-re-
lated risks could also cause planned and ongoing projects to be postponed, delayed or
discontinued.
Uncertain market conditions could adversely aect our customers’ payment behavior
and increase the risk of lawsuits, claims and disputes taken against Neles in various
countries related to Neles’ products, projects and other operations, for example.
Market outlook
We expect the market activity in Pulp and Paper projects to continue at a good level.
Market activity in Chemicals and Oil & Gas projects is expected to continue at a satis-
factory level, as it did during the second half of 2020. Postponements of projects and global
uncertainties continue to reduce visibility in the Chemicals and Oil & Gas project business.
Market activity for the Services and the customer Maintenance, Repair and Operations-
driven (MRO) businesses is expected to gradually improve during the second quarter of
2021 from the weak levels of the second half of 2020. Large shutdowns are still being
postponed due to the Covid-19 pandemic and customers’ tight cash management.
The ongoing Covid-19 pandemic continues to create uncertainties and risks of abrupt
changes in all markets important for Neles.
Market outlook reflects management’s expectation for the next six months unless
otherwise stated.
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ANNUAL REPORT 2020
Neles Non-financial Report 2020
Neles serves process industries which are characterized by strict safety procedures and
targets, continuously tightening environmental regulations for production processes
and end products, as well as demands for process reliability to maximize eciency and
minimize variances. Neles products, services and expertise support customers in achieving
these aims. Neles’ strategic aim is to be a long-term partner, working sustainably and in
accordance with the highest standards to reinvent reliability with its customers. Neles is
constantly working to ensure the sustainable development of its own operations, personnel,
suppliers and sales channel partners to meet these customer needs and oer solutions
to their challenges. Neles invests continuously in R&D to meet and exceed the tightening
sustainability requirements.
Neles is commied to the United Nations’ Global Compact Initiative, UN Sustainable
Development Goals and OECD Guidelines for Multinational Enterprises. Neles supports the
protection of internationally proclaimed human rights such as those described in the United
Nations (UN) Guiding Principles on Business and Human Rights and the International Labour
Organization’s (ILO) Declaration of Fundamental Principles and Rights at Work.
To ensure compliance with the non-financial management key topics, the Board of
Directors has reviewed Neles’ corporate governance model, policies and processes as
part of the preparation for the partial demerger on June 30, 2020. In addition, the Board
has reviewed Neles’ sustainability strategy, risk management and initiatives to implement
the Code of Conduct. There was also a focus on people and leadership topics as Neles
became independent.
Neles’ business model
Neles drives profitable growth and sustainable productivity across its customer industries to
create value for its shareholders and other stakeholders by oering a diverse, comprehen-
sive and competitive portfolio of reliable flow control solutions and services to all process
industries.
Neles has a presence in 38 countries, while its customers are in 115 countries. Neles
approaches its existing and new customers globally both through direct and third-party
sales channels. Neles’ supply chains are global and include a number of strategic
component suppliers.
Neles serves a large customer and installed base globally. Neles has no large single
transaction risks. Generally, the largest customer accounts for approximately 5%, and the
largest single sales contract for less than 2% of annual sales.
Non-financial informationCorporate Governance Statement
and Remuneration Report
The Corporate Governance Statement for 2020, which complies with the recommendations
of the Finnish Corporate Governance Code for listed companies and covers other central
areas of corporate governance, is published as part of Annual Report 2020. In addition,
Remuneration Report for 2020 is published as part of Annual Report 2020.
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Climate and environmental impact
Process industries face increasing energy costs, declining water resources and more
stringent environmental legislation. Neles’ valve solutions are mission-critical in terms of
process functionality. Neles’ product and services are designed with the intention of helping
customers operate safely with higher productivity and profitability, while reducing their
resource intensity. Innovating for sustainable solutions to help customers in their sustain-
ability work is a key driver for Neles’ research and development programs. Another key
driver in Neles’ R&D is product safety. The product safety principles and certificates cover
all aspects relevant to safe installation and operation, as well as servicing and maintaining
products in varying and challenging conditions.
Neles’ goal is to define sustainability targets for each new R&D project: 100% of the new
R&D projects in 2020 had environmental eciency and/or product safety innovation targets.
The R&D expenditure in 2020 was EUR 18 million (EUR 19 million in 2019).
Neles’ services portfolio, which ranges from spare parts to life cycle services, is an
important part of its total oering. Service centers close to customers ensure ecient and
timely service. Well-maintained equipment typically has a smaller environmental footprint.
In 2020, Neles set internal targets that include CO
2
emissions reduction for procurement,
production, and inbound and outbound transportation. The targets also include a reduction
of waste, water and energy for each factory, as well as increasing opportunities for the
circular economy and local supportive actions such as the environmental eciency of
oces and commuting.
Neles’ main KPIs are:
Zero harm for the environment: In 2020, there were 0 environmental incidents
Logistics: –20% CO
2
by 2025, 2020 reduction of emissions compared to baseline year
2019 4,879 tCO
2
(20%)
Production: –25% CO
2
by 2030, 2020 reduction of emissions compared to baseline year
2019 0.16 tCO
2
(1.6%).
Neles works to prevent environmental hazards by auditing its own operations, followed
by corrective actions. Neles HSEQ management system has the ISO14001 environmental
management system certificate for its manufacturing and is also audited regularly by a third
party. Additionally, Neles’ European plants have ISO50001 energy management system
certificates.
Personnel, social maers and respect for human rights
The performance and engagement of Neles employees are key contributors to value
creation. Engagement is supported and achieved by the safety and wellbeing of employees
and responsible employment. Health issues, discrimination and harassment are the most
significant human and labor rights-related risks. Sick leave absences may have a negative
cost impact and compromise customer deliveries. Low employee engagement may lead to
a loss of talent and competences.
Neles’ Code of Conduct sets the main principles for tackling the abovementioned risks.
The Code of Conduct outlines Neles’ approach to human rights: All employees are entitled
to be treated with respect, and there is zero tolerance of discrimination, harassment or
illegal threats. Any form of compulsory, forced or child labor is unacceptable. Neles respects
applicable national laws regarding working hours and employee compensation. All Neles
personnel are required to complete Code of Conduct training once every two years. Human
rights-related topics, including safety and labor rights, are regularly reviewed in Neles’ own
operations and the operations of its suppliers. In 2020, Neles assessed 11 suppliers internally
and one supplier using a third party in India. Based on the results, follow-up plans are being
prepared and improvements made; the assessments will be expanded in 2021.
Risks related to the engagement, safety and wellbeing of Neles’ and its suppliers’
employees are also mitigated by providing managers with tools in daily management
activities and through continuous leadership development. The Neles early support model is
an example of the focus on wellbeing and safety in Finland. It helps ensure that employees
receive appropriate support when needed.
Valuing diversity and providing equal opportunities is important. To advance work-related
human rights principles, Neles has an Equal Opportunity and Diversity Policy. The underlying
principle is Neles’ commitment to promoting equal opportunities for all employees,
regardless of gender, age, race, religion, caste or religious beliefs, ethnic or national origins,
marital/civil partnership status, union membership, political aliation, sexuality or disability.
Employees are selected based on merit and experience.
Continuous development and learning in everyone’s daily work is emphasized in
Neles’ learning approach, which is supported by our global people processes and tools.
Additionally, Neles aims for fair remuneration systems that take into consideration the
individual, team, business area and the Group’s performance, as well as the varying global
market practices. Excelling in leadership makes all the dierence from an employee
engagement perspective. Employee engagement is measured by the Neles’ global
employee survey, PeoplePulse, which was conducted in 2020 and showed that Neles
employees in a global comparison were highly commied, had a strong feeling of being able
to contribute and a good level of competences to perform their work.
The Covid-19 pandemic has triggered new kinds of management and leadership
challenges as remote working has become more usual. To support the managers’ work and
to build the new culture, Neles has started to oer new trainings, webinars and info sessions
on how to lead remotely, how to support the wellbeing of employees, and how to build
the sense of belonging in teams. These topics will also continue to feature strongly in the
agenda for 2021.
Neles’ main health and safety risks occur both in its own operations and at customer
sites. The most common risks in the company’s own operations are related to liing,
working at heights, machinery, hot work and road travel.
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These risks are mitigated with the help of work instructions, training, risk observations,
audits and the corrective actions these generate. Neles uses lost-time incident frequency
(LTIF) as the key indicator for safety both at its own premises and for the subcontractors
working at Neles’ and customers’ sites. Another important safety focus area is to ensure
that products are safe to use and maintain; thus, the safety of services is considered in
the early phase of product and service development. Neles has a safety system in place to
continuously improve its processes and culture for safety development. Key elements of the
Neles safety system are:
Common guidelines for a Health, Safety & Environmental policy and Neles minimum safety
standards
Individual safety target seing (number of Risk Observations and Safety Conversations)
for all employees
A safety audit process with follow-up plans for corrective actions
The Neles HSEQ management system has the ISO45001 occupational health and safety
management system certificate for its manufacturing and is also audited regularly by a
third party.
Employee safety, risk observations, safety discussions and safety training hours are
continuously measured and monitored. In 2020, the lost time incident frequency (LTIF) was
1.3 (1.5 in 2019). Annually, an external partner conducts site visits as part of sustainability
reporting assurance. In 2020, three sites were visited as part of the assurance process in
the USA, Finland and China.
Anti-corruption
The Code of Conduct is the highest standard that outlines what good corporate citizenship
means at Neles. The Code of Conduct includes topics such as compliance with the laws
and rules of society, fair employment practices, anti-corruption and fair competition. It
was approved by the Board and is available in eight languages. A new Code of Conduct
e-learning course was launched in December 2020. All employees are required to complete
Code of Conduct training, either as a classroom training or an e-learning course every two
years. By the given time limit 88% of Neles’ employees had completed Code of Conduct
training. The training is also part of the onboarding of all new employees.
In addition to the Code of Conduct, the Board has approved Neles’ Corporate
Anti-Corruption Policy, which demonstrates the company’s commitment to prevent
corruption in all its operations’ business activities. The purpose of the policy and related
training is to guide employees in recognizing situations which pose a heightened risk of
corruption and taking appropriate measures to ensure compliance with the law. In addition
to the policy, local rules for gis, entertainment and hospitality were prepared to support
employees in making the right decisions or escalating issues to management. These are
monitored through general management controls, as well as the company’s Internal Audit
function.
Third-party sales channel partners (distributors, resellers and agents) are an important
part of Neles’ sales strategy. Neles has a systematic process for evaluating, onboarding
and managing its channel partners to ensure they are commied to non-corrupt business
activities. Due diligence is conducted of channel partners to assess potential corruption
risks, and face-to-face training and e-learning courses are part of the onboarding and
ongoing support. Since the partial demerger, Neles has been in the process of developing a
new e-learning course for its channel partners, which it expects to launch in early 2021.
At Neles, each employee is responsible for integrity. All employees are therefore
encouraged to report any suspected wrongdoing or misconduct via the Speak Up channel,
a reporting tool maintained by an external service provider, or via internal reporting channels.
All reports are treated as confidential and anonymous. Retaliation against any individual who
reports suspected misconduct or participates in an investigation is strictly prohibited.
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Neles has one share series, and each share entitles its holder to one vote at a General
Meeting and to an equal amount of dividend. Neles’ shares are registered in the Finnish
book-entry system maintained by EuroClear.
Basic share information
Listed on Nasdaq Helsinki
Trading code NELES
ISIN code FI
Industry Industrials
Number of shares on December , ,,
Share capital on December , EUR ,,.
Market value on December , , excl. treasury shares EUR , million
Listing date July ,
Neles’ share capital was reduced by EUR 90,000,000.00 in accordance with the partial
demerger plan. Aer the transaction, Neles’ share capital was EUR 50,982,843.80, and the
number of shares was 150,348,256. This included 150,361 treasury shares held by the Parent
Company, which represented 0.1% of all Neles shares and votes.
On February 26, 2020, a total of 121,727 own shares were conveyed without consideration
to the 81 key individuals participating in the Performance Share Plan 2017–2019 under the
terms and conditions of the plan decreasing the number of treasury shares to 150,361. The
direct share issue was based on an authorization given by the Annual General Meeting 2019.
A total of 148,832,522 Neles shares was traded on Nasdaq Helsinki in July–December
2020, and the value of shares traded was approximately EUR 1,333 million. Neles’ market
capitalization at the end of December 2020, excluding shares held by the Parent Company,
was EUR 1,630 million.
A total of 92,128,115 Metso shares was traded on Nasdaq Helsinki in January–June 2020,
and the value of shares traded was EUR 2,523 million. Metso’s market capitalization at the
end of June 2020, before the demerger and excluding shares held by the Parent Company,
was EUR 4,381 million (EUR 5,280 million at the end of 2019).
In preparing for the demerger, Metso decided to terminate its American Depositary
Receipts (ADR) facility, which was traded on the International OTCQX market in the United
States under the ticker symbol MXCYY, with four ADRs representing one Metso share. The
closing price of the Metso ADR was USD 7.78 when termination became eective on May 21,
2020.
At the end of 2020, Neles had 49,125 shareholders in the book-entry system. The largest
shareholder was Valmet, with 44,415,207 shares and 29.54 percent of the share capital.
At the end of 2020, the members of the Neles Board of Directors and President and CEO
Olli Isotalo held a total of 23,762 Neles shares, corresponding to 0.016 percent of the total
number of shares and votes. More information about management holdings is available in
Note 5.3 of the Consolidated Financial Statements.
Share performance and trading on Nasdaq Helsinki July 1–December 31, 2020
EUR –/
Closing price, Dec , .
Highest share price .
Lowest share price .
Volume-weighted average trading price, all trades .
Volume-weighted average trading price, without contract trades .
Shares, trading and shareholders
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ANNUAL REPORT 2020
Share key figures 2016–2020
Share capital, at the end of year, EUR million
Number of shares, at the end of year
Number of outstanding shares ,, ,, ,, ,, ,,
Own shares held by the Parent Company , , , , ,
Total number of shares ,, ,, ,, ,, ,,
Average number of outstanding shares ,, ,, ,, ,, ,,
Average number of diluted shares ,, ,, ,, ,, ,,
Earnings/share, basic
)
, EUR . . . . .
Earnings/share, diluted, EUR . . . . .
Free cash flow/share
)
, EUR . . . . .
Dividend/share
)
, EUR . . . . .
Dividend
)
, EUR million
Dividend/earnings
)
, % . . . . .
Eective dividend yield, % . . . . .
P/E ratio
)
. . . . .
Equity/share, EUR . . . . .
)
In for continuing operations earnings per share was EUR ., dividend/earnings .% and P/E ratio ..
)
Share of continuing operations in .
)
Board proposal to the AGM.
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ANNUAL REPORT 2020
Largest shareholders December 31, 2020
Shareholders Shares % of shares
Valmet Oyj ,, .
Alfa Laval Ab (publ) ,, .
Ilmarinen Mutual Pension Insurance Company ,, .
Elo Mutual Pension Insurance Company ,, .
The State Pension Fund ,, .
OP Funds , .
OP-Finland , .
OP-Finland Index Fund , .
Nordea Funds , .
Nordea Pro Finland Fund , .
Nordea Finnish Passive Fund , .
Nordea Premium Varainhoito Tasapaino Fund , .
Nordea Premium Varainhoito Mali Fund , .
Nordea Säästö , .
Nordea Säästö Fund , .
Nordea Säästö , .
Nordea Premium Varainhoito Kasvu Fund , .
Sigrid Jusélius Foundation , .
Mandatum Life Insurance Company Ltd. , .
SEB Finland Small Cap Fund , .
largest shareholders total ,, .
Nominee registered ,, .
Others ,, .
Total ,, .
Breakdown of share ownership on December 31, 2020
Number of shares Shareholders
% of
shareholders
No. shares and
votes
% of share
capital and
voting rights
– , . ,, .
–, , . ,, .
,–, , . ,, .
,–, . ,, .
,–, . ,, .
> , . ,, .
Total , . ,, .
Nominee registered . ,, .
In the joint book-entry
account , .
Number of shares issued ,, .
Breakdown by shareholder category
Shareholders Shares
Sector No. of shares % No. of shares %
Foreign and nominee registered . ,, .
Households , . ,, .
Public sector organizations . ,, .
Financial and insurance institutions . ,, .
Non-profit institutions serving
households . ,, .
Private companies , . ,, .
In the joint book-entry account . , .
Number of shares issued , . ,, .
Flaggings
Under the provisions of the Finnish Securities Markets Act, shareholders of listed companies
have an obligation to notify both the Finnish Financial Supervision Authority and the
company of changes when their holdings reach, exceed or fall below a certain threshold.
Neles is not aware of any shareholders’ agreements regarding Neles shares or voting rights.
All flagging notifications that have been released as a stock exchange release are available
at www.neles.com/company/media/news/.
36
Board of Directors’ Report
ANNUAL REPORT 2020
EUR million
)
)
Orders received , ,
Order backlog, December , ,
Sales , ,
Exports from Finland and international operations , ,
% of sales . . . . .
Operating profit
% of sales . . . , .
Profit before taxes
% of sales . . . . .
Profit for the year, continuing operations
% of sales . . . . .
Profit for the year, discontinued operations , – –
Profit aributable to shareholders of the company ,
Amortization
Depreciation
Depreciation of right-of-use assets – – –
Depreciation and amortization, total
EBITA
% of sales . . . . .
EBITDA
% of sales . . . . .
Adjustment items
)
– –
EBITA, adjusted
% of sales . . . . .
EBITDA, adjusted
% of sales . . . . .
Financial expenses, net –
% of sales . . –. . .
Interest expenses n/a n/a
% of sales . n/a n/a . .
Interest cover (EBITDA) .× n/a n/a .× .×
Gross capital expenditure
% of sales . . . . .
Business acquisitions, net of cash acquired – – – –
Net capital expenditure
% of sales . . . . .
Net cash flow from operating activities
Free cash flow
Cash conversion, %
Research and development
% of sales . . . . .
Key figures
)
Key figures for years – are presenting
total Metso Group including discontinued
operations.
)
Adjustment items in were aributable to
advisory, brand, IT and other costs related to
the creation and rebranding of Neles as well as
establishing a new operating structure.
37
Board of Directors’ Report
ANNUAL REPORT 2020
EUR million
)
)
)
Balance sheet total
)
, , , ,
Equity aributable to shareholders
)
, , , ,
Total equity
)
, , , ,
Interest bearing liabilities
Net interest bearing liabilities –
Net working capital (NWC)
% of sales . . . . .
Capital employed , , ,
Return on equity (ROE)
)
, % . . . . .
Return on capital employed (ROCE) before taxes
)
, % . . . . .
Return on capital employed (ROCE) aer taxes
)
, % . . . . .
Equity to assets ratio
)
, % . . . . .
Gearing
)
, % . . . . –.
Debt to capital
)
, % . . . . .
Average number of personnel , , , , ,
Personnel, December , , , , ,
)
Key figures for years – are presenting total Metso Group including discontinued operations.
)
Key figure for year is presenting total Metso Group including discontinued operations.
The Income statement and Balance sheet of discontinued operations are presented in more
detail in the Note 5.5.
38
Board of Directors’ Report
ANNUAL REPORT 2020
Earnings before financial expenses, net, taxes and amortization, adjusted (adjusted EBITA)
Operating profit + adjustment items + amortization
Earnings per share, basic
Profit aributable to shareholders
Average number of outstanding shares during the period
Earnings per share, diluted
Profit aributable to shareholders
Average number of diluted shares during the period
Equity/share
Equity aributable to shareholders
Number of outstanding shares at the end of the period
Return on equity (ROE), %
Profit for the period
×
Total equity (average for the period)
Return on capital employed (ROCE) before taxes, %
Profit before tax + financial expenses
×
Capital employed (average for the period)
Return on capital employed (ROCE) aer taxes, %
Profit for the period + financial expenses
×
Capital employed (average for the period)
Net gearing, %
Net interest bearing liabilities
×
Total equity
Debt to capital, %
Interest bearing liabilities
×
Total equity + interest bearing liabilities
Equity to assets ratio, %
Total equity
×
Balance sheet total – advances received
Free cash flow
Net cash provided by operating activities – maintenance investments + proceeds from sale of
intangible and tangible assets
Free cash flow/share
Free cash flow
Average number of outstanding shares during the period
Cash conversion, %
Free cash flow
×
Profit for the period
Interest cover (EBITDA)
EBITDA (Earnings before financial expenses, net, taxes, depreciation and amortization
Financial income and expenses, net
Interest bearing liabilities
Interest bearing liabilities, non-current and current + lease liabilities, non-current and current
Net interest bearing liabilities
Interest bearing liabilities – Non-current financial assets – loan and other interest bearing
receivables (current and non-current) – cash and cash equivalents
Net working capital (NWC)
Inventories + trade receivables + other non-interest bearing receivables + customer contract
assets and liabilities, net – trade payables – advances received – other non-interest bearing
liabilities
Capital employed
Net working capital + intangible assets and tangible assets + right-of-use assets + non-cur-
rent investments + interest bearing receivables + cash and cash equivalents + tax receivables,
net + interest payables, net
Operative capital employed
Intangible and tangible assets + right-of-use assets + investments in associated companies +
inventories + non-interest bearing operative assets and receivables (external) – non-interest
bearing operating liabilities (external)
Return on operative capital employed for reporting segments (segment ROCE), %
Operating profit
×
Operative capital employed (month-end average)
Formulae for the key figures
39
Board of Directors’ Report
ANNUAL REPORT 2020
On December 31, 2020, the distributable equity of Neles Corporation was:
Invested non-restricted equity fund EUR ,,.
Retained earnings EUR ,,.
Distributable equity, total EUR ,,.
The Board of Directors proposes that a dividend of EUR 0.18 per share be paid based on the
balance sheet to be adopted for the financial year, which ended December 31, 2020.
Dividend payment EUR ,,.
Distributable equity aer dividend payment EUR ,,.
These financial statements were authorized for issue by the Board of Directors on February2,
2021 aer which, in accordance with Finnish Company Law, the financial statements are
either approved, amended, or rejected in the Annual General Meeting.
Board of Directors’ proposal on the use of profit
40
Board of Directors’ Report
ANNUAL REPORT 2020
Financial statements
41
Board of Directors’ Report
ANNUAL REPORT 2020
Financial statements
Notes to the Consolidated Financial Statements ......
Group performance ...............................
. Sales ............................................
. Selling, general and administrative expenses ........
. Other operating income and expenses .............
. Personnel expenses and the number of personnel ...
. Share-based payments ...........................
. Financial income and expenses ....................
. Income taxes .....................................
. Earnings per share ................................
Operational assets and liabilities .................
. Net working capital and capital employed ..........
. Trade receivables .................................
. Other receivables .................................
. Inventory ........................................
. Trade and other payables .........................
. Provisions ........................................
. Post-employment obligations ......................
. Deferred tax assets and liabilities ..................
Intangible and tangible assets ...................
. Goodwill and other intangible assets ...............
. Tangible assets ...................................
. Depreciation and amortization .....................
. Right-of-use assets ...............................
Capital structure and financial instruments ......
. Financial risk management ........................
. Financial assets and liabilities by category ..........
. Cash and cash equivalents ........................
. Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. Borrowings and lease liabilities .....................
. Interest bearing net debt reconciliation .............
. Contingent liabilities and other commitments .......
. Derivative instruments .............................
Consolidation .....................................
. Principles of consolidation .........................
. Subsidiaries ......................................
. Related party transactions .........................
. Acquisitions and business disposals ................
. Discontinued operations ..........................
. New accounting standards ........................
. Exchange rates used .............................
Other notes .......................................
. Audit fees ........................................
. Lawsuits and claims ..............................
Financial statements .......................
Consolidated Financial Statements ...................
Consolidated Statement of Income, IFRS .............
Consolidated Statement of Comprehensive Income ..
Consolidated Balance Sheet ..........................
Consolidated Statement of
Changes in Shareholders’ Equity ......................
Consolidated Statement of Cash Flows ...............
Notes to the Consolidated Financial Statements ......
Auditor’s Report ....................................
Financial Statements of the Parent Company, FAS .
42
Table of contents
ANNUAL REPORT 2020
Consolidated Financial Statements
Financial statements
EUR million Note
Continuing operations
Sales .
Cost of goods sold ., . – –
Gross profit
Selling and marketing expenses ., ., . – –
Administrative expenses ., ., . – –
Research and development expenses ., ., . – –
Other operating income and expenses, net . – –
Share in profits of associated companies .
Operating profit
Financial income .
Foreign exchange gains/losses . –
Financial expenses . – –
Financial income and expenses, net – –
Profit before taxes
Income taxes . – –
Profit from continuing operations
Profit from discontinued operations
)
,
Profit for the year
,
EUR million Note
Profit from continuing operations aributable to
Shareholders of the parent company
Non-controlling interests – –
Profit from discontinued operations aributable to
Shareholders of the parent company ,
Non-controlling interests –
Profit aributable to
Shareholders of the parent company ,
Non-controlling interests –
Earnings per share for continuing operations .
Basic, EUR . .
Diluted, EUR . .
Earnings per share for discontinued operations .
Basic, EUR . .
Diluted, EUR . .
Earnings per share .
Basic, EUR . .
Diluted, EUR . .
)
The result for the period from discontinued operations is described in more detail in the Note ..
Consolidated Statement of Income, IFRS
43
Consolidated Financial Statements
ANNUAL REPORT 2020
Consolidated Statement of Comprehensive Income, IFRS
EUR million Note
Continuing operations
Profit for the year
Other comprehensive income
Measurement at fair value ., . –
Currency translation on subsidiary net investments . –
Items that may be reclassified to profit or loss in subsequent periods –
Defined benefit plan actuarial gains and losses .
Tax from previous – –
Items that will not be reclassified to profit or loss
Other comprehensive income –
Total comprehensive income from continuing operations
Profit from continuing operations aributable to
Shareholders of the parent company
Non-controlling interests –
Discontinued operations
Profit for the year ,
Other comprehensive income –
Total comprehensive income from discontinued operations
,
Profit from discontinued operations aributable to
Shareholders of the parent company ,
Non-controlling interests –
Total comprehensive income
,
Aributable to
Shareholders of the parent company ,
Non-controlling interests –
44
Consolidated Financial Statements
ANNUAL REPORT 2020
EUR million Note
Non-current assets
Intangible assets ., .
Goodwill
Other intangible assets
Total intangible assets
Tangible assets ., .
Land and water areas
Buildings and structures
Machinery and equipment
Assets under construction
Total tangible assets
Right-of-use assets ., .
Other non-current assets
Investments in associated companies .
Non-current financial assets .
Deferred tax asset .
Other non-current receivables ., ., .
Total other non-current assets
Total non-current assets
Current assets
Inventories .
Trade receivables .
Derivative financial instruments .
Income tax receivables .
Other current receivables .
Cash and cash equivalents .
Total current assets
Discontinued operations, assets
)
– ,
TOTAL ASSETS
,
)
The assets of discontinued operations are described in more detail in the Note ..
Consolidated Balance Sheet
EUR million Note
Equity .
Share capital
Cumulative translation adjustments
Fair value and other reserves
Discontinued operations – –
Retained earnings ,
Equity aributable to shareholders ,
Non-controlling interests
Total equity
,
Liabilities
Non-current liabilities
Interest bearing liabilities ., .
Lease liabilities ., .
Post-employment benefit obligations .
Provisions .
Derivative financial instruments . – –
Deferred tax liability .
Other non-current liabilities .
Total non-current liabilities
Current liabilities
Interest bearing liabilities ., .
Lease liabilities ., .
Trade payables .
Provisions .
Advances received
Derivative financial instruments .
Income tax liabilities .
Other current liabilities .
Total current liabilities
Total liabilities
Discontinued operations, liabilities
)
– ,
TOTAL EQUITY AND LIABILITIES
,
)
The liabilities of discontinued operations are described in more detail in the Note ..
Consolidated Balance Sheet, IFRS – Assets Consolidated Balance Sheet, IFRS – Equity and Liabilities
45
Consolidated Financial Statements
ANNUAL REPORT 2020
EUR million Share capital
Cumulative
translation
adjustments
Fair value and
other reserves
Discontinued
operations
Retained
earnings
Equity
aributable to
shareholders
Non-controlling
interests Total equity
Jan , – , , ,
Profit for the year, continuing operations – – – – –
Profit for the year, discontinued operations – – – – , , ,
Other comprehensive income
Currency translation on subsidiary net investments – – – – – – –
Defined benefit plan actuarial gains and losses – – – – –
Tax eect from previous – – – – – – – –
Discontinued operations – – – – –
Total comprehensive income – – – , , ,
Dividends – – – – – – – –
Distributed assets in the demerger at fair value – – – – –, –, – –,
Eect of demerger – – – – – –
Share-based payments – – – – – – –
Tax eect from previous – – – –
Prior year corrections
)
– – – – –
Other items – – – –
Equity financing, Metso Group – – – – – – – –
Dec ,
–
)
Corrections to deferred taxes aer demerger.
Jan ,
– – , , ,
Profit for the year, continuing operations – – – –
Profit for the year, discontinued operations – – – – –
Other comprehensive income
Cash flow hedges – – – – –
Tax eect from previous – – – – – – – –
Measurement at fair value – – – – –
Currency translation on subsidiary net investments – – – –
Defined benefit plan actuarial gains and losses – – – – – – – –
Tax eect from previous – – – – –
Discontinued operations – – – – –
Total comprehensive income – – –
Dividends – – – – – – –
Share-based payments – – – – –
Tax eect from previous – – – – – – –
Other items – – – –
Changes in non-controlling interests – – – – – – – –
Dec ,
– , , ,
Consolidated Statement of Changes in Shareholders’ Equity, IFRS
46
Consolidated Financial Statements
ANNUAL REPORT 2020
EUR million Note
Operating activities
Profit for the year from continuing operations
Profit for the year from discontinued operations ,
Adjustments
Depreciation and amortization .
Gain / loss on sale of intangible and tangible assets, net .
Share of profits and losses of associated companies – –
Financial expenses, net .
Income taxes .
Fair value of distributed net asset in the demerger –, –
Other non-cash items –
Change in net working capital –
Net cash flow from operating activities before financial
items and taxes
Interest paid – –
Interest received
Other financial items, net – –
Income taxes paid – –
Net cash flow from operating activities
Investing activities
Capital expenditures on intangible and tangible assets ., . – –
Proceeds from sale of intangible and tangible assets ., .
Proceeds from financial assets –
Business acquisitions, net of cash acquired –
Proceeds from sale of business, net of cash sold –
Investments in associated companies – –
Net cash flow from investing activities
– –
EUR million Note
Financing activities
Dividends paid – –
Transactions with non-controlling interests – –
Investments in financial assets –
Increase in loan receivables .
Proceeds from / repayments of short-term debt, net . –
Proceeds from issuance of long-term debt .
Repayments of long-term debt . – –
Repayments of lease liabilities . – –
Equity financing, Metso Group – –
Net cash flow from financing activities
– –
Net change in cash and cash equivalents
–
Eect from changes in exchange rates –
Cash and cash equivalents transferred in demerger – –
Cash and cash equivalents at beginning of year,
continuing operations ., . –
Cash and cash equivalents at beginning of year, discon-
tinued operations . –
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year, continuing
operations ., . –
Cash and cash equivalents at end of year, discontinued
operations . –
Cash and cash equivalents at end of year
)
Discontinued operations’ cash flows are described in more detail in the Note ..
Consolidated Statement of Cash Flows, IFRS
47
Consolidated Financial Statements
ANNUAL REPORT 2020
Basic information
as one reporting segment.
under the trading symbol NELES. Neles Corporation is domiciled in Finland and the address
of the Group Head Oce is Vanha Porvoontie 229, 01380 Vantaa , Finland .
These financial statements have been prepared for the period from January 1 to
Neles Corporation’s Board of Directors on February 2, 2021, aer which, in accordance with
Finnish Companies Act, the financial statements are either approved, amended or rejected
at the next Annual General Meeting.
Basis of preparation
Financial Reporting Standards (IFRS) and IFRIC Interpretations as adopted by the European
Union. The consolidated financial statements have been prepared on a historical cost basis,
except for financial assets and liabilities classified as at fair value.
partial demerger of Minerals business became eective on June 30, 2020. Accordingly, the
profit of Minerals business for the period January–June, 2020 and the excess value over the
carrying value of the net assets distributed to shareholders on June 30, 2020, are shown in
the income statement in the line Profit for the year, discontinued operations.
rounded; consequently, the sum of individual figures might dier from the presented total
figure.
Neles’ more detailed accounting policies are disclosed in the relevant note to the
consolidated financial statements.
Critical accounting estimates and judgments by Management
The preparation of financial statements, in conformity with the IFRS, requires management
to make estimates and assumptions and to exercise its judgment in the process of applying
the Group’s accounting policies. These aect the reported amounts of balance sheet items,
the presentation of contingent assets and liabilities, and the income and expenses for the
financial year. Actual results may dier from the estimates made.
Implications of Covid-19
The ongoing Covid-19 pandemic has increased general risk on global markets. There were
and still are changes in customer demand, risks of supply chain and production disruptions,
workforce and travel restrictions and financial market factors fluctuations. These may
aect negatively Neles’ financial performance, liquidity, and cash flows projections. Neles’
financial statements for the year 2020 are prepared on going concern basis. Except for the
decreased orders and sales, no other significant risks have realized so far as a result of the
Covid-19. Neles liquidity is at a good level and Management took actions to ensure profit-
ability of the business despite the lower volumes. As the pandemic situation is expected
to continue in 2021, Management has re-evaluated all estimates and judgements used
in the Financial statements for the year 2020 to reflect the increased risk in the general
market conditions and possible future implications to Neles. Specific description of Covid-19
implications is disclosed in each relevant note.
The assets and liabilities involving a higher degree of judgment or complexity, or areas
where the assumptions and estimates are significant to Neles’ consolidated financial
statements, are the following:
Note 1.1 Sales
1)
Note 1.5 Share-based payments
Note 1.7 Income taxes
Note 2.2 Trade receivables
1)
Note 2.3 Other receivables
Note 2.4 Inventory
1)
Note 2.6 Provisions
Note 2.7 Post-employment obligations
Note 2.8 Deferred tax assets and liabilities
Note 3.1 Goodwill and other intangible assets
1)
Note 3.2 Tangible assets
Note 3.4 Right-of-use assets
Note 4.1 Financial risk management
)
Covid- implication disclosed
Notes to the Consolidated Financial Statements
48
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Reporting segment
Neles Group as one operating segment is based on its operational business model. The
Board of Directors is Neles’ chief operating decision-maker (CODM) and responsible
for allocating resources and assessing the performance of the operating segment and
business lines, deciding on strategy, selecting key employees, as well as deciding on major
development projects, business acquisitions, investments, organizational structure and
financing. The accounting principles applied to the operative reporting are the same as
those used in preparing the consolidated financial statements.
Neles’ performance is measured with operating profit (EBIT). In addition, Neles uses
several other alternative performance measures to reflect the underlying business perfor-
mance and to improve comparability between financial periods. Adjusting items comprise
of costs related to the demerger and seing up Neles business area as an independent
company, capacity adjustment costs, outcome of material intellectual property rights
disputes, gains and losses on business disposals, and other infrequent events. Alternative
performance measures, however, should not be considered as a substitute for measures of
performance in accordance with the IFRS.
Abbreviations used in the Financial Statements
AGM Annual general meeting
EGM Extraordinary general meeting
CGU Cash generating unit
EBIT Earnings before financial expenses, net and taxes
EBITA Earnings before financial expenses net, taxes and amortization
EBITDA Earnings before financial expenses net, taxes, amortization and depreciation
EMTN Euro Medium Term Note program
EPS Earnings per share
FAS Finnish accounting standards
HSE Health, safety and environment
IFRIC Interpretations of International financial reporting standards
IFRS/IAS International financial reporting standards
KPI Key performance indicator
LTIF Lost time incident frequency
NWC Net working capital
OCI Other comprehensive income
OTC Over the counter
P/E Price/earnings ratio
PSP Performance share incentive plan
R&D Research and development
ROCE Return on capital employed
ROE Return on equity
RSP Restricted share incentive plan
SGA Sales, general and administration expenses
TSR Total shareholder return
WACC Weighted average cost of capital
49
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Group performance ...............................
. Sales ............................................
. Selling, general and administrative expenses ........
. Other operating income and expenses .............
. Personnel expenses and the number of personnel ...
. Share-based payments ...........................
. Financial income and expenses ....................
. Income taxes .....................................
. Earnings per share ................................
1 Group performance
Sales, MEUR
576
Employees
2,840
EPS, continuing operations, EUR
0.32
50
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
1.1 Sales
Accounting policy
Neles applies IFRS 15 Revenue form Contracts with Customers standard. The principle
is that sales are recognized at an amount that reflects the consideration to which Neles
expects to receive in exchange for transferring goods or services to a customer. Sales are
recognized when the control of goods or services is transferred to a customer. The control
is transferred either at a point in time or over time.
Neles providing standardized valves equipment and wear or spare parts to customers,
sales are recognized at a point in time, when control for the goods is transferred, typically at
the delivery of the goods or aer commissioning. Sales to the distributors are recognized at
the delivery when the distributor is not acting as an agent. If the distributor is acting as an
agent, sales are recognized only when the goods are delivered to ultimate customer.
Neles providing services, the performance obligation is satisfied by rendering the
services, Sales from services are recognized when the performance obligation is satisfied
and customer has been invoiced. For short-term service contracts with hourly fee based on
valid price list, sales are recognized to the extent Neles has the right to invoice the customer,
and for service contracts with fixed hourly fee agreed in the contract, sales are recognized
based on invoicing.
Customer contracts may include promises such as volume-based rebates, late delivery
penalties or right to return delivered parts. The impact of these promises on the final consid-
eration will be estimated when revenue is recognized and systematically during the contract
period. Sales will be recognized to the extent that Neles is entitled to the consideration. Also,
creditworthiness of the client and collectability of the consideration is assessed through the
contract period. Extended warranties are treated as a separate performance obligation and
appropriate transaction price is allocated to them and recognized in sales when occurred.
Neles may require advance payments from customers. Applying IFRS 15, advances
received do not include a financing component, because the payment schedule of them
follows closely the timing of performance obligations to be satisfied.
A
A
Estimates and assessments by Management
Sales recognized at a point in time may require judgement on facts and circumstances
when the control is considered to have passed to the client, aecting on timing of sales to
be recognized. Transfer of the control is assessed mainly based on terms of delivery in the
contract and local legislation.
Customer contracts including clauses on rebates, late delivery penalties, right to return
promises or extended warranties requires management judgement on the probability of
such clauses to influence contracts sales. Judgements are based on earlier experience,
combined with current market outlook, when it is available.
Covid-19 impact
Decrease in Sales was caused mainly by lower orders for service and maintenance, repair
and operations driven business and some delays in deliveries. There were no other major
extraordinary impacts on revenue recognition during 2020 because of the Covid-19
pandemic situation.
Management has in place internal control measures for customer contract clauses on
rebates, late delivery penalties or right to return promises.
Risks on collectability of client considerations is managed through credit limit
management and enhanced collection measures.
Disaggregation of sales
External sales by category
Continuing operations
EUR million
Sales from services
Sales of equipment and goods
Total
Contract balances
Continuing operations
EUR million
Trade receivables
Advances received
When providing valves equipment, and wear or spare parts, invoicing takes place in general
at the delivery or aer commissioning. In long-term valves delivery and service contracts
invoicing is based on the client contracts. Short-term service contracts are invoiced when
service is rendered.
Trade receivables are based on the invoicing to customers and are generally on terms of
30–90 days. Information about provision for expected credit losses on trade receivables is
presented in note 2.2.
The performance obligation partial satisfied, and not yet invoiced is recognized in work in
progress and finished products in inventory.
E
E
51
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Advances received is the amount paid in advance to Neles by customers. Typically,
Neles receives advance payments in the long-term valves’ delivery and service contracts.
Advances received are annually recognized as sales mainly during the following year.
Major customers
In 2020 and 2019, Neles did not have a single customer whose sales would have exceeded
10 percent of the consolidated sales.
Geographical information
Neles monitors Sales by market areas.
External sales by destination
Continuing operations
EUR million
EMEIA
North America
South America
Asia-Pacific
Sales
1.2 Selling, general and administrative expenses
Continuing operations
EUR million
Marketing and selling expenses – –
Research and development expenses, net – –
Administrative expenses – –
Selling, general and administrative expenses
– –
Accounting policy
Research and development expenses are recorded in SGA and comprise salaries, admin-
istration costs, depreciation and amortization of tangible and intangible assets and are
mainly recognized as incurred. When material development costs meet certain capitalization
criteria under IAS 38, they are capitalized and amortized over the expected useful life
of the underlying technology. Possible grants received are deducted from research and
development expenses.
Research and development expenses
Continuing operations
EUR million
Research and development expenses, total – –
Capitalized development costs
Capital expenditure
Grants received
Depreciation and amortization
Research and development expenses, net
– –
A
A
Continuing
operations
Discontinued
operations
Neles
total
Neles
total
52
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
1.3 Other operating income and expenses
Accounting policy
Other operating income and expenses comprise income and expenses that do not directly
relate to the operating activity of businesses within Neles or which arise from unrealized and
realized changes in fair value of foreign currency denominated financial instruments related
to operations, including forward exchange contracts. Such items include costs related
to significant restructuring programs, gains and losses on disposal of assets, and foreign
exchange gains and losses, excluding those qualifying for hedge accounting and those,
which are reported under financial income and expenses, net. Additionally, non-recoverable
foreign taxes, which are not based on taxable profits, are reported in other operating income
and expenses, net. These include foreign taxes and such like payments not based on
double taxation treaties in force.
Continuing operations
EUR million
Other operating income
Gain on sale of intangible and tangible assets
Rental income
Foreign exchange gains
)
Other income
Other operating income, total
Other operating expenses
Loss on sale of intangible and tangible assets
Impairment of intangible and tangible assets
Foreign exchange losses
)
– –
Other expenses – –
Other operating expenses, total – –
Other operating income and expenses, net
– –
)
Includes foreign exchange gains and losses resulting from trade receivables and payables and related
derivatives.
1.4 Personnel expenses and the number of personnel
Personnel expenses
Continuing operations
EUR million
Salaries and wages – –
Pension costs, defined contribution plans – –
Pension costs, defined benefit plans
)
– –
Other post-employment benefits
)
Share-based payments
)
– –
Other indirect employee costs – –
Total
– –
)
For more information on pension costs, see note ..
)
For more information on share-based payments, see note ..
Number of personnel
At end of year Average At end of year Average
Continuing operations , , , ,
Discontinued operations – – , ,
Total , , , ,
1.5 Share-based payments
Accounting policy
Neles has share-based incentive plans for its key personnel.
The equity-seled share awards are valued based on the market price of Neles share as
of the grant date and recognized as an employee benefit expense over the vesting period
with corresponding entry in other reserves of the equity. The historical development of
Neles share and the expected dividends have been taken into account when calculating
the fair value. The entire share incentive, including the cash-for-taxes portion are recognized
in equity. Also, the value of the cash portion is based on the grant date value. As a market
condition, total shareholder return of the Performance Share Plans will be considered when
determining the fair value at grant and it will not be changed during the plan. The fair value
of the cost estimate of the Performance Share Plans will only be changed when service
condition and non-market conditions are concerned.
At each balance sheet date, Neles revises its estimates on the amount of share-based
payments that are expected to vest. The impact of the revision to previous estimate is
accrued as an employee benefit expense with corresponding entry to equity.
A
A
A
A
53
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Estimates and assessments by Management
At each balance sheet date, the management revises its estimates for the number of shares
that are expected to vest. As part of this evaluation, Neles takes into account the changes
in the forecasted performance of the Group, the expected turnover of the personnel
benefiting from the incentive plan and other pertinent information impacting the number of
shares to be vested.
Share-based payments, continuing operations
Aer the demerger on June 2020, Neles has two share-based long-term incentive
programs in operation: a Deferred Share Unit Plan (“DSUP”) for the senior management
and a Performance Share Plan (“PSP”) for the Neles executive team members. The plans
are designed to align the interest of Neles management with those of its shareholders to
increase the value of Neles in a long-term and to commit the key personnel to the company
by oering them a competitive reward plan. Continued employment to Neles is a basic
requirement in the plans, if an employment terminates during the plan the participant will
lose the right to the reward.
The rewards in the Deferred Share Plans have been initially earned from individual and
company level performance during the one-year performance periods in 2018 and 2019
in Metso group. In the demerger on June 30, 2020, each Metso share unit earned was
converted into Neles share unit based on the average share prices of July 2020 with the
objective that the value of the reward will not be aected by the conversion. The reward will
be paid aer a two-year retention period in 2021 and 2022, respectively in net shares and
as a cash payment for taxes arising from the reward to the employee. Board of Directors has
the right to decide to pay the reward in full in cash.
The Performance Share Plan 2020–2022 was launched by the Board of Directors of
Neles for Neles Executive Team in July 2020. The potential reward will be paid based on
the performance targets set for relative total shareholder return (TSR) of Neles’ share and
earnings per share (EPS) during the three-year performance period. Potential reward earned
will be paid aer the performance period in 2023 in net shares and as a cash payment for
taxes arising from the reward to the employee. Board of Directors has the right to decide to
pay the reward in full in cash.
The fair value of share-based incentives have been determined at grant date, recognized
in equity and expensed until vesting. Market condition (TSR) will be taken into account when
determining the fair value at grant and it will not be changed during the plan. The fair value
of the cost estimate of the Performance Share Plans will only be changed as far as service
condition and non-market conditions are concerned.
2020
Deferred Share
Unit Plan
Deferred Share
Unit Plan
PSP
–
Type of the plan Equity Equity Equity
Maximum amount of shares , , ,
Grant date Mar , Mar , Oct ,
Grant price . . .
Vesting date May , May , Mar ,
Share incentives granted Jan , –
Granted , , ,
Forfeited, released – – –
Share incentives granted Dec
, ,
,
Number of beneficiaries Dec
Neles Executive Team members
Other beneficiaries –
Share-based payments 2019 and until June 2020
Metso had the Performance Share Plans (PSP), PSP 2017–2019, PSP 2018–2020, PSP
2019–2021 and Restricted share plans for the periods 2018–2020 and 2019–2021 as a
long-term incentive program in operation in 2019 and until the demerger as at June 30,
2020. The plans were designed to align the interest of Metso management with those of its
shareholders to increase the value of on total Metso in a long-term and to commit the key
personnel to the company.
At the end of 2019, Neles Oyj (former Metso Oyj) had issued shares 150,348,256, treasury
shares 272,088 and outstanding shares 150,076,168. In March 2020, a total of 121,727
treasury shares were used to pay rewards to 81 participants in PSP 2017–2019 Plan. Aer to
the transaction Neles Oyj has 150,361 treasury shares and 150,197,895 outstanding shares at
the end of 2020.
In the carve out of Metso Minerals business, all the open long-term incentive obligations
were allocated to Metso Minerals business key personnel, except for Neles key persons
share in Deferred Share unit Plans in 2018 and 2019. In the demerger in June 2020, Neles
Corporation was released from liability related to remuneration in respect of the Minerals
busines key personnel.
E
54
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Costs recognized
2020
EUR thousand
Metso
PSPs until
June
Deferred
Share Unit
Plan
Deferred
Share Unit
Plan
PSP
–
Total
Total
Expenses for the financial
period
Neles Executive Team
members ,
Other beneficiaries –
Expenses for the financial
period, continuing operations ,
Expenses for the financial
period, discontinued operations , – – – , ,
1.6 Financial income and expenses
Continuing operations
EUR million
Financial income
Interest income on cash and cash equivalents
Other financial income
Gain from foreign exchange
Financial income total
Financial expenses
Interest expenses from financial liabilities at amortized cost – –
Interest expenses on leases – –
Other financial expenses –
Financial expenses total – –
Financial income and expenses, net
– –
1.7 Income taxes
Accounting policy
Income taxes in the consolidated income statement include taxes of subsidiaries based
on taxable income for the current period, tax adjustments for previous periods and the
changes in deferred taxes. The other comprehensive income statement (OCI) includes taxes
on items presented in OCI. Deferred taxes are determined for temporary dierences arising
between the tax base of assets and liabilities and their financial statement carrying amounts,
measured using substantially enacted tax rates.
Estimates and assessments by Management
Neles is subject to income tax in its operating countries. Neles’ management is required
to make certain assumptions and estimates in preparing the annual tax calculations for
which the ultimate tax consequence is uncertain. Annually, Neles has tax audits ongoing in
several subsidiaries and recognizes tax liabilities on for anticipated tax audit issues based
on estimate of whether additional taxes will be due. Where the outcome of these issues is
dierent from the estimated amounts, the dierence will impact the income tax in the period
in which such determination is made.
The components of income taxes
Continuing operations
EUR million
Income taxes for current year – –
Income taxes for prior years –
Change in deferred tax asset and liability
Income taxes
– –
The dierences between income tax expense computed at the Finnish statutory rate and
income tax expense provided on earnings
Continuing operations
EUR million
Profit before taxes
Income tax at Finnish statutory tax rate of .% – –
Eect of dierent tax rates in foreign subsidiaries – –
Non-deductible expenses – –
Tax exempt income or tax incentives
Foreign non-creditable withholding taxes –
Deferred tax liability on undistributed earnings
Eect of enacted change in tax rates
Income tax for prior years –
Other
Income taxes
– –
A
E
55
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
1.8 Earnings per share
Accounting policy
Basic
Basic earnings per share is calculated by dividing the profit aributable to shareholders of
the company by the weighted average number of shares issued and outstanding for the
year, excluding own shares held by the Parent company.
Diluted
The shares to be potentially issued in the future are treated as outstanding shares when
calculating the diluted earnings per share if they have a dilutive eect. The own shares held
by Neles are reissued within the terms of the share ownership plan to the key personnel
if the targets defined in the plan are met. Diluted earnings per share are calculated by
increasing the weighted average number of outstanding shares with the number of those
shares, which would be distributed to the beneficiaries based on the results achieved, if
the conditional earnings period ended at the end of the financial period in question. As at
December 31, 2020 Neles holds 150,361 own shares to be used as consideration under the
share ownership plans.
Basic
2020
Continuing
operations
Discontinued
operations Tota l
Profit aributable to shareholders of the company,
EUR million , ,
Weighted average number of shares issued and
outstanding (in thousands) , , ,
Earnings per share, basic, EUR
. . .
2019
Continuing
operations
Discontinued
operations Tota l
Profit aributable to shareholders of the company,
EUR million
Weighted average number of shares issued and
outstanding (in thousands) , , ,
Earnings per share, basic, EUR
. . .
Diluted
2020
Continuing
operations
Discontinued
operations Tota l
Profit aributable to shareholders of the company,
EUR million , ,
Weighted average number of shares issued and
outstanding (in thousands) , , ,
Weighted average number of diluted shares issued
and outstanding (in thousands) , , ,
Earnings per share, diluted, EUR
. . .
2019
Continuing
operations
Discontinued
operations Total
Profit aributable to shareholders of the company,
EUR million
Weighted average number of shares issued and
outstanding (in thousands) , , ,
Adjustment for potential shares distributed
(inthousands)
Weighted average number of diluted shares issued
and outstanding (in thousands) , , ,
Earnings per share, diluted, EUR
. . .
A
56
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Operational assets and liabilities .................
. Net working capital and capital employed ...........
. Trade receivables .................................
. Other receivables .................................
. Inventory .........................................
. Trade and other payables .........................
. Provisions ........................................
. Post-employment obligations ......................
. Deferred tax assets and liabilities. . . . . . . . . . . . . . . . . . .
2 Operational assets and liabilities
Net working capital, MEUR
144
Capital empoyed, MEUR
480
Return on capital employed,
before taxes %
15.6
57
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
2.1 Net working capital and capital employed
Net working capital, balance sheet value
Continuing operations
EUR million
Inventories
Trade receivables
Other non-interest bearing receivables
Trade payables – –
Advances received – –
Other non-interest bearing liabilities – –
Net working capital
Net working capital, cash flow eect
Continuing operations
EUR million
Inventories –
Trade receivables –
Other non-interest bearing receivables – –
Trade payables
Advances received
Other non-interest bearing liabilities –
Net working capital
–
More information on the cash flow statement from continuing operations can be found in
the note 4.3.
Capital employed
Continuing operations
EUR million
Net working capital
Intangible assets
Tangible assets
Right-of-use assets
Non-current investments
Cash and cash equivalents
Tax receivables, net
Interest payables, net
Capital employed
Continuing operations
EUR million
Total capital employed, average n/a
Profit before taxes + interest and other financial expenses
Profit aer taxes + interest and other financial expenses
Return on capital employed (ROCE) before taxes, % . n/a
Return on capital employed (ROCE) aer taxes, % . n/a
Longer time series is presented in Key figures section.
Non-current assets by location
Continuing operations
EUR million
Finland
Other European countries
North America
South and Central America
Asia-Pacific
Africa and Middle East
Non-allocated
Total
Non-current assets presented in the table above comprise intangible and tangible assets,
right-of-use assets, investments in associated companies and joint ventures, equity
investments and other non-interest bearing non-current assets. Non-allocated assets
include mainly goodwill and other assets arising from business acquisitions that have not
been pushed down to the subsidiaries’ books.
2.2 Trade receivables
Accounting policy
Trade receivables are invoiced receivables from customers related to Neles’ ordinary business
transactions. General payment terms are typically from 30 days to 90 days and they are
non-interest bearing receivables. Trade receivables are initially recognized at recoverable
value and subsequently valued at amortized cost. If exceptionally over 360 days payment
term has been oered to a client, the invoiced amount is discounted to its fair value.
Neles may enter an agreement to sell trade receivables. Trade receivable will be
derecognized when payment has been received and there is certainty that credit risk and
other risks and rewards have been transferred to a third party.
Customer contract assets are recognized receivables related to sales recognition over
time, at the time when performance obligation satisfied by Neles exceeds the amount
invoiced from the customer. Customer contract assets are related only to discontinued
operations.
A
58
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Neles applies the IFRS 9 simplified approach to measuring expected credit losses, which
uses a lifetime expected loss allowance to be assessed and recognized regularly.
Based on the analysis of previous year’s credit losses by aging category and nature, as
well as macroeconomic outlook in the near future, Neles recognizes a credit loss allowance
from 0.2% to 5% on undue or less than 180 days overdue trade receivables. For more than
180 days overdue trade receivables, the impairment is assessed individually, but without
any credit guarantee, collateral or similar assurance on the recoverability, a minimum credit
loss provision of 25% (over 180 days overdue) and 100% (over 360 days overdue) will be
recognized. Trade receivables are wrien o when there is no reasonable expectation
of recovery. Probability of bankruptcy, other financial reorganization or similar situation
indicating insolvency of the client trigger final write o.
Estimates and assessments by Management
Estimate on expected credit losses and credit loss provision to be recognized are based
on management’s best judgement. The judgement is based on earlier experience on
past years credit losses and current economic outlooks and client segment and location
information. Trade receivables are collected actively, and possible impairment analyzed
regularly by businesses and Neles legal units, and necessary actions to secure the
receivables are made by the management. When credit loss provision of a trade receivable
is assessed individually, collateral, credit guarantees, financial position of client and earlier
payment behavior are considered.
Covid-19 pandemic impact
There were no increases in realized credit losses in 2020 or major delays in payments
because of the Covid-19 pandemic situation. No changes to the payment terms have been
negotiated.
Management has increased internal control measures by monitoring public information
on clients’ creditworthiness and the aging of trade receivables and through intensive
collection. The method to recognize credit loss allowances in the expected credit loss
model was kept unchanged.
EUR million
Trade receivables
Provision on trade receivables by ageing category
EUR million Gross
of which
provided Gross
of which
provided
Undue
overdue – days
overdue – days
overdue – days
overdue days or more
Total
E
Write-os totaled EUR 0.2 million (EUR 0.1 million in 2019). Reservation percentage scale
used for expected credit loss provision made in 2020 were 0.4% for undue, 0.3% for
overdue 1–30 days, 6.0% for overdue 31–180 days, 33.1% for overdue 181–360 days and
95.0% for overdue 361 or more.
Provision for impairment of trade receivables
EUR million
Accumulated provision January
Accumulated provision January , discontinued operations – –
Impact in income statement
Currency rate dierences
Other change
Accumulated provision December
2.3 Other receivables
Accounting policy
Other non-interest bearing receivables are recognized in the balance sheet at fair value
which can be subsequently wrien down due to impairment. The impairment is expensed
under selling, general and administrative expenses.
Estimates and assessments by Management
Neles’ policy is to calculate an impairment loss based on the best estimate of the amounts
that are potentially uncollectable at the balance sheet date. Neles’ management actively
monitors the amount of receivables past due globally and initiates action as necessary.
EUR million
Non-
current Current Total
Non-
current Current Total
Loan receivables – – – –
Prepaid expenses and accrued
income – –
VAT, payroll tax and social charge
receivables – –
Pension assets – – – –
Other receivables
Non-interest bearing receivables
total
Other current non-interest bearing receivables included EUR 3 million in 2020 (EUR 2 million
in 2019) Brazilian tax credits arising from delivery of goods and transfer of services (ICMS)
recognized by a local subsidiary.
A
E
59
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
2.4 Inventory
Accounting policy
Inventories are valued at the lower of historical cost calculated or net realizable value. Costs
are measured on a weighted average cost basis and include purchase costs as well as
transportation and processing costs. The costs of finished goods include direct materials,
wages and salaries plus employer social contributions, subcontracting and other direct
costs, as well as a portion of production and project administration overheads. Net realizable
value is the estimated amount that can be realized from the sale of the asset in the normal
course of business less costs to sell.
Inventories are shown net of a provision for obsolete and slow-moving inventories. Neles’
policy is to maintain a provision for slow-moving and obsolete inventory based on the best
estimate of such amounts at the balance sheet date. An obsolescence provision is charged
to income statement in the period in which the obsolescence is determined. Estimates are
based on a systematic, on-going review and evaluation of inventory balance.
Trade-in equipment received is recorded as inventory at the lower of cost or net
realizable value.
Estimates and assessments by Management
Inventory valuation requires management to make estimates and judgements particularly
relating to obsolescence and expected selling prices.
Covid-19 impact
The Covid-19 pandemic situation caused some challenges in 2020 in the inventory
management through the lower than planned orders and delays in deliveries, that was
caused by lower demand as well as workforce and transportation restrictions. Lower
capacity utilization led to higher obsolescence provision relative to inventory value.
Neles has managed to keep its supply chains and manufacturing operations ongoing,
expect for certain temporary diculties. Neles has global supply chains and manufacturing
footprint, therefore it does not have major risk associated with concentration of production.
Management has increased internal controls on the inventory management with the aim
of optimizing the level of net working capital in a timely manner. The methods to recognize
obsolescence provision and scrapping were kept unchanged.
EUR million
Materials and supplies
Work in process
Finished products
Inventories
The cost of inventories recognized as expense totaled EUR 378 million in 2020 (EUR 426
million in 2019).
Changes in provision for inventory obsolescence
EUR million
Balance at beginning of year
Balance at beginning of year, discontinued operations – –
Impact of exchange rates
Additions charged to expense
Used reserve – –
Deductions / other additions – –
Balance at end of year
2.5 Trade and other payables
Accounting policy
The fair values and carrying amounts of trade and other payables are approximately the
same due to the short-term maturities. The maturities of the current non-interest bearing
liabilities rarely exceed six months. The maturities of trade payables are largely determined
by trade practices and individual agreements between Neles and its supplier.
Accrued personnel costs, including holiday pay, are accrued and seled in accordance with
local laws and regulations.
EUR million
Non-
current Current Total
Non-
current Current Total
Trade payables – –
Derivative instruments – –
Other payables
Accrued interests – –
Accrued personnel costs – –
Accrued project costs – –
VAT, payroll tax and social
charge payables – –
Other payables
Other payables
A
E
A
60
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
2.6 Provisions
Accounting policy
Provisions are recognized when the Group has a legal or constructive obligation as a
result of a past event, and it is probable that financial benefits will be required to sele the
obligation and a reliable estimate can be made of the amount of the obligation.
Provisions, for which selement is expected to occur more than one year aer the initial
recognition, are discounted to their present value and adjusted in subsequent closings for
the time eect.
Warranty and guarantee provisions
Neles issues various types of contractual product warranties under which it generally
guarantees the performance levels agreed in the sales contract, the performance of
products delivered during an agreed warranty period and services rendered for a certain
period or term. The provision for estimated warranty costs is based on historical realized
warranty costs for deliveries of standard products and services in the past. The typical
warranty period is 12 months from accepted delivery. The adequacy of provisions is
assessed periodically on a case by case basis.
Restructuring and capacity adjustment costs
A provision for restructuring and capacity adjustment costs is recognized only aer
management has approved, commied to and started to implement a formal plan.
Employee termination benefits are recognized aer the representatives of employees or
individual employees have been informed of the intended measures in detail and the related
compensation packages can be reliably measured. The costs included in a provision for
capacity adjustment are those costs that are either incremental or incurred as a direct result
of the plan or are as the result of a continuing contractual obligation with no continuing
economic benefit to Neles or a penalty incurred to cancel the contractual obligation.
Restructuring and capacity adjustment expenses are recognized in either cost of
goods sold or selling, general and administrative expenses depending on the nature of the
restructuring expenses. Restructuring costs can also include other costs incurred as a result
of the plan, which are recorded under other operating income and expenses, net, such as
asset write-downs.
Environmental remediation costs
Neles recognizes provisions associated with environmental remediation obligations when
there is a present obligation as a result of past events, an outflow of resources is considered
probable and the obligation can be estimated reliably. Such provisions are adjusted as
further information develops or circumstances change. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt is deemed
virtually certain.
A
Provision for loss making projects
A provision for loss making projects is booked when the costs needed to sele the perfor-
mance obligations of the contract exceed the consideration to be received. Such a provision
for the unrecognized portion of the loss is recognized immediately when these conditions
have been met and is revised according to the progress of the project. Provision for loss
making projects has applied only for the discontinued operations.
Estimates and assessments by Management
Provisions booked require management to estimate the future costs needed to sele the
obligations and to estimate the possible outcomes of claims or lawsuits. The outcome
depends on future development and events, so the final costs needed and timing to sele
the obligation may dier from the initial provision estimated.
Provisions
EUR million
Non-
current Current Total
Non-
current Current Total
Warranty and guarantee provision – –
Restructuring provision –
Environmental remedial provision – – –
Other provisions
)
Total
)
Includes provisions related to lawsuit and personnel liabilities.
E
61
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Changes in provisions
2020
EUR million
Warranty and
guarantee
provision
Restructuring
provision
Environmental
remediation
provision
Carrying value on January
Impact of exchange rates
Addition charged to expense
Used reserve – –
Reversal of reserve / other changes – – –
Carrying value on December
–
2019
EUR million
Warranty and
guarantee
provision
Restructuring
provision
Environmental
remediation
provision
Carrying value on January
Carrying value on January , discontinued operations – – –
Impact of exchange rates
Addition charged to expense
Used reserve –
Reversal of reserve / other changes – –
Carrying value on December
2.7 Post-employment obligations
Accounting policy
Neles has several dierent post-employment plans in accordance with local regulations
and practices in countries where it operates. In certain countries, the plans are defined
benefit plans providing retirement, disability, death, and other post-employment benefits,
termination and retirement lump sums. The retirement benefits are usually based on the
number of service years and the salary levels of the final service years. Neles has both
defined contribution and defined benefit pension plans. The pension plans are generally
funded through payments to insurance companies or to trustee-administered funds. Other
arrangements are unfunded with benefits being paid directly by Neles as they fall due. All
arrangements are subject to local tax and legal restrictions in their respective jurisdictions.
In the case of defined benefit plans, the net liability recognized from the plan is the
present value of the defined benefit obligation as of the balance sheet date less the fair
value of the plan assets. Independent actuaries calculate the defined benefit obligation by
applying the projected unit credit method under IAS 19R. The present value of the defined
benefit obligation is determined by discounting the estimated future cash flows using the
interest rates of high-quality corporate bonds that are denominated in the currency in which
the benefits will be paid, and having maturity approximating to the terms of the related
pension obligation. The cost of providing retirement and other post-retirement benefits to
personnel is charged to profit and loss concurrently with the service rendered by personnel.
Net interest is recorded through financial income and expenses in the income statement.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized through OCI in shareholders’ equity in the period in which they
arise. Past service costs, gains and losses on curtailments or selements are recognized
immediately in the income statement.
The contributions to defined contribution plans and multi-employer and insured plans are
recognized in the income statement concurrently with the payment obligations.
Estimates and assessments by Management
The present value of the pension obligations is based on annual actuarial calculations,
which use several assumptions such as the discount rate and expected return on assets,
salary and pension increases and other actuarial factors. As a result, the liability recorded
on Neles’ balance sheet and cash contributions to funded arrangements are sensitive to
changes. Where the actuarial experience diers from those assumptions gains and losses
result, which are recognized in OCI. Sensitivity analyses on the present value of the defined
benefit obligation have been presented in the tables. Assets of Neles’ funded arrangements
are managed by external fund managers. The allocation of assets is reviewed regularly by
those responsible for managing Neles’ arrangements based on local legislation, professional
advice and consultation with Neles, based on acceptable risk tolerances.
Neles’ pension and other post-employment plans
Neles’ most financially significant arrangements are the US pension plan and the German
pension plans which amount for 98% of Neles’ pension obligations and 99% of Neles’
pension assets. The US plan is closed to new entrants and to future accrual of benefits.
Annual funding valuations are carried out in accordance with local principles to determine if
cash funding contributions are required. As the plan has been in surplus over recent years,
no contributions have recently been required. Neles’ obligations in the US also include a
more modest unfunded pension plan and a deferred compensation arrangement. Neles’
defined benefit plans in other territories include modest pension plans, as well as lump sum
benefits payable on leaving service and retirement.
A
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62
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Movement in the net defined benefit liability
EUR million
Defined benefit
obligation
Fair value of plan
assets
Net defined benefit
liability
(asset–/liability+)
Defined benefit
obligation
Fair value of plan
assets
Net defined benefit
liability
(asset–/liability+)
January – –
Adjustments due to business combinations – – –
Change in consolidation scope – – – –
Included in income statement
Current service cost – –
Past service cost – – – –
Selements – – – – – –
Administration costs – – – – – –
Interests – – –
Total in Income statement – –
Included in Other comprehensive income
Remeasurement gains (–)/ losses (+)
Actuarial gains/losses arising from changes in financial assumptions – –
Actuarial gains/losses arising from changes in demographical assumptions – – – – – –
Actuarial gains/losses arising from experience adjustments – – – – – –
Return on plan assets (excluding amounts included in interest expenses) – – – – – –
Exchange rate dierences – –
Total in Other comprehensive income – – – – –
Contributions paid by the employer – – – –
Benefits paid by the employer
Benefits paid from plan assets – –
December
– –
Present value of funded defined obligation – –
Fair value of plan assets – – – – – –
Funded obligations, net – – – –
Present value of unfunded obligation – –
Defined benefit net liability
– –
of which in balance sheet assets – –
of which in balance sheet liabilities
Net liability in Germany amounted to EUR 11.2 million (EUR 10.2 million) and the net surplus
in the United States EUR 2.3 million (EUR 3.5 million). Average duration of defined benefit
obligation in Germany is 30 years and in US 10 years at the end of 2020.
Neles paid contributions of EUR 0.4 million to defined benefit plans in 2020. The
expected contributions to plans in 2021 are EUR 0.4 million.
Fair values of plan assets
63
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
EUR million
Quoted
Equity securities
Bonds
Unquoted
Property –
Insurance contracts –
Cash
Total
As at December 31, 2020 there were no plan assets invested in aliated or property
occupied by aliated companies.
The principal actuarial assumptions
% Germany US Germany US
Discount rate . . . .
Future salary increase . . . .
Future pension increase . . . .
Rate of inflation . . . .
The life expectancy used
Longevity at age 65 Germany US
Current age
years, male . .
years, female . .
years, male . .
years, female . .
Life expectancy is allowed for in the assessment of the Defined Benefit Obligation using
mortality tables which are generally based on experience within the country in which the
arrangement is located with an allowance made for anticipated future improvements in
longevity.
Sensitivity analyses
Impact to pension obligation, change in assumption, increase (+)/decrease (–)
EUR million Germany US
.% increase in discount rate –. –.
.% decrease in discount rate . .
.% increase in salary growth rate . .
.% decrease in salary growth rate –. .
.% increase in pensions . .
.% decrease in pensions –. .
One-year increase in the life expectancy . .
Sensitivity analyses presents the impact on the Defined Benefit Obligation when major
assumptions are changed while others held constant.
Maturity profile of the future benefit payments, nominal payments
EUR million
Maturity
year .
year .
year .
year .
year .
years – .
2.8 Deferred tax assets and liabilities
Accounting policy
The deferred tax asset or liability is determined for temporary dierences arising between
the tax bases of assets and liabilities and their financial statement carrying amounts using
the substantially enacted tax rates expected to apply in future years. Typical temporary
dierences arise from provisions, depreciation and amortization expense, inventory and
trade receivable valuation, defined benefit plans and tax loss carry forwards. Deferred tax
liabilities are recognized in the balance sheet in full, and the deferred tax assets are only
recognized if it is probable there will be taxable income in the future against which deferred
tax can be used. Deferred tax assets are set o against deferred tax liabilities if they relate to
taxes levied by the same taxation authority. Deferred tax assets are assessed for realizability
at the end of each reporting period. If it is no longer probable that sucient taxable profit
will be available to allow deferred tax asset utilization, carrying amount of deferred tax asset
is reduced.
A
64
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Estimates and assessments by Management
In determining the deferred tax assets and liabilities, Neles is required to make certain
assumptions and estimates on in particular future operating performance and the taxable
income of subsidiaries, recoverability of tax loss carryforwards and potential changes of tax
laws in jurisdictions where Neles operates. A deferred tax liability based on foreign subsid-
iaries undistributed earnings has been provided only where Neles management has elected
to distribute such earnings in the coming years and the distribution is subject to taxation.
Because the tax consequences are dicult to predict, the deferred tax asset and liabilities
may need to be adjusted in coming financial years, which will have an impact in the period in
which such determination is made.
Reconciliation of deferred tax balances, continuing operations
2020
EUR million January
Charged
to income
statement
Charged
to share-
holders’
equity
Translation
dierences
and Group
items
December
Deferred tax assets
Tax losses carried forward –
Intangible and tangible assets – – –
Inventory –
Provisions
Accruals
Pension related items –
Other – –
Total deferred tax assets –
Oset against deferred tax
liabilities – – – – –
Net deferred tax assets –
Deferred tax liabilities
Purchase price allocations – – –
Intangible and tangible assets –
Other –
Total deferred tax liabilities –
Oset against deferred tax
assets – – – – –
Net deferred tax liabilities
Deferred tax assets, net
2019
EUR million January
January,
discon-
tinued
operations
Charged
to income
statement
Charged
to share-
holders’
equity
Translation
dierences
and Group
items
December
Deferred tax assets
Tax losses carried forward – –
Intangible and tangible
assets – –
Inventory – –
Provisions – – –
Accruals – –
Pension related items – –
Other – –
Total deferred tax assets – –
Oset against deferred tax
liabilities – – – –
Net deferred tax assets – –
Deferred tax liabilities
Purchase price allocations – –
Intangible and tangible
assets – –
Other – –
Total deferred tax liabilities – –
Oset against deferred tax
assets – – – –
Net deferred tax liabilities – –
Deferred tax assets, net
– – –
Deferred tax liability on undistributed retained earnings in subsidiaries will be recognized
when the dividend distribution is probable in the near future and it will cause a tax impact.
At the end of year 2020 there are no substantial undistributed earnings in subsidiaries from
which deferred tax liability is not booked.
E
65
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Intangible and tangible assets ...................
. Goodwill and other intangible assets ...............
. Tangible assets ...................................
. Depreciation and amortization .....................
. Right-of-use assets ...............................
3 Intangible and tangible assets
Goodwill, MEUR
57
Other intangible assets, MEUR
17
Tangible assets, MEUR
62
Right-of-use asets, MEUR
51
Amortizations, MEUR
3
Depreciations, MEUR
21
66
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
3.1 Goodwill and other intangible assets
Accounting policy
Goodwill and other intangible assets with an indefinite useful life
Goodwill represents the excess of acquisition costs over the fair value of net identified
assets acquired and liabilities assumed and the fair values of previously owned interests and
non-controlling interests. Neles Group is one operating segment consisting of three cash
generating units (CGU), Equipment (VEQ), Service (VSE) and Valve Controls (VCO). In Neles
operational model, goodwill is contributing the future cash flows integrated to all of the
CGUs’ and is therefore allocated to group of these CGUs’ forming Neles Group. The carrying
value of goodwill is tested at least annually with the Neles Group value in use. Previously
recognized impairment losses on goodwill are not reversed.
Other intangible assets with an indefinite useful life, such as brand values, are not
amortized. Currently testing of such assets are included the annual impairment testing.
Previous losses on impairment are only reversed to the extent that the new carrying amount
of the assets does not exceed the carrying amount the asset would have had, if the asset
had not been impaired.
Other intangible assets
Other intangible assets with a definite useful life, mainly trademarks, patents, licenses, IT
soware or acquired order backlog are measured at costs less accumulated amortizations
and impairment losses.
Amortization of intangible assets
Amortization of intangible assets with a definite useful life is calculated on a straight-line
basis over the useful life of the assets as follows:
Patents and licenses 5–10 years
Computer soware 3–5 years
Technology 3–20 years
Customer relationships 3–20 years
Other intangible assets < 1–20 years
The probable useful lives of assets are reviewed annually. If material deviations from
previous estimates arise, the useful lives are reassessed. The carrying value of intangible
assets subject to amortization is reviewed for impairment whenever events or circum-
stances indicate that the carrying amount of an asset may not be recoverable. A previously
recognized impairment loss may be reversed if there is a significant improvement of the
circumstances having initially caused the impairment, but not to a higher value than the
carrying amount, which would have been recorded had there been no impairment in prior
years.
A
Research and development expenses comprise salaries, administration costs, depre-
ciation and amortization of tangible and intangible assets and they are mainly recognized
as incurred. When material development costs meet certain capitalization criteria under
IAS 38, they are capitalized and amortized during the expected useful life of the underlying
technology.
Goodwill and other intangible assets
2020
EUR million Goodwill
Patents and
licenses
Capitalized
soware
Other
intangible
assets
Intangible
assets total
Acquisition cost at beginning
of year
Translation dierences – – – –
Capital expenditure –
Reclassifications – – –
Eect of demerger – –
Acquisition cost at end of year
Accumulated amortization at
beginning of year – – – –
Translation dierences –
Amortization for the year – – – –
Other changes –
Accumulated amortization at
end of year – – – –
Net book value at end of year
67
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
2019
EUR million Goodwill
Patents and
licenses
Capitalized
soware
Other
intangible
assets
Intangible
assets total
Acquisition cost at beginning of
year, Metso total
Acquisition cost at beginning of
year, discontinued operations – – – – –
Translation dierences –
Business acquisitions – – – – –
Capital expenditure –
Reclassifications – – – –
Other changes
Acquisition cost at end of year
Accumulated amortization at
beginning of year, Metso total – – – – –
Accumulated amortization at
beginning of year, discontinued
operations –
Translation dierences –
Impairment losses – – – –
Amortization for the year – – – –
Other changes –
Accumulated amortization at
end of year – – – –
Net book value at end of year
Impairment testing
Accounting policy
Goodwill and other intangible assets with an indefinite useful life are tested for impairment
annually. The testing of goodwill and other intangible assets with an indefinite useful life is
performed at Neles Group level. If the carrying value of goodwill exceeds the recoverable
value, an impairment is recognized in the income statement under depreciations and
amortizations. Impairment losses on goodwill are not reversed. From July 1, 2020 Neles
Group allocates the goodwill to be tested to the Neles Group, formed by the aggregation of
three cash generating units (CGUs), Equipment, Service and Valve Controls.
The recoverable amounts are based on value in use calculations, where the estimated
future cash flows are discounted to their present value. The cash flows are derived from the
current year’s last quarter estimate, the following year’s budget and the approved strategy
for the next three years, beyond which cash flows are calculated using the terminal value
method. The terminal growth rate used is based on management’s judgment regarding the
average long-term growth. Cash flows include only normal maintenance investments and
exclude any potential investments that enhance Neles’ performance and acquisitions.
A
Estimates and assessments by Management
Value in use calculations is inherently judgmental and highly susceptible to change from
period to period because they require management to make assumptions about future
supply and demand related to its individual business units, future sales prices, profit margins
and achievable eciency savings over time. The value of benefits and savings expected
from the eciency improvement programs are inherently subjective. Neles management
estimates sales growth rate and EBITDA development for the testing period as well as the
discount factor used. The present value of the predicted cash flows is discounted using the
weighted average cost of capital (WACC) calculated by Neles. WACC calculations include
judgments on regarding, among other things, relevant beta factors, peer companies and
capital structure to use.
Neles performs impairment testing annually, or whenever there is an indication of
impairment. Typical triggering events are material and permanent deterioration in the
global economy or political environment, observed significant under-performance relative
to projected future performance and significant changes in Neles’ strategic orientations.
Expected useful lives and remaining amortization periods for other intangible assets are
reviewed annually by management. Acquisitions, disposals and restructuring actions
typically generate a need for the reassessment of the recoverable amounts and remaining
useful lives of the assets. When the other intangible assets are measured at fair value less
costs of disposal, the selling price, incremental costs and selling costs need to be estimated
by management.
Upon initial acquisition Neles uses readily available market values to determine the
fair values of acquired net assets to be allocated. However, when this is not possible,
the valuation is based on past performance of such an asset and expected future cash
generating capacity, which requires management to make estimates and assumptions
of the future performance and use of these assets. Any change in Neles’ future business
priorities may aect the recoverable amounts.
Covid-19 impact
As the Covid-19 pandemic has increased uncertainties and risks related to global economy,
predicting future long-term cash flows have become increasingly dicult. In 2020
impairment test, management has considered this increased estimation uncertainty by
adjusting the timing of estimated cash flows in the strategy periods.
Annual impairment test in 2020
As at December 31, 2020, goodwill totaled EUR 57 million. Given that the recoverable amount
significantly exceeded the carrying value of goodwill and other tested assets, no indication
of impairment was found in 2020. The value in use calculations were derived from estimates,
budgets and strategy figures reviewed by Neles’ management and approved by the Board
of Directors.
E
68
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
The key assumptions used in assessing the recoverable amount are the profitability and
growth rate for the estimate period, long-term average growth in the terminal period and
discount rate. The key values used were the following:
Sales growth in four years estimate period .% .%
EBITDA % range in four years estimate period .%–.% .%–.%
Growth rate in the terminal period .% .%
WACC aer tax .% .%
WACC before tax .% .%
Values assigned to key assumptions reflect past experience and the management’s
expectations on the future sales and production volumes, which are based on the current
structure and production capacity. In the 2020 testing, the increased risk in forecasting
future cash flows caused by the Covid-19 pandemic situation has been assessed.
Consequently, the timing of targeted cash flows for the strategy period has been adjusted.
Additionally, data on growth, demand and price development provided by various research
institutions have been utilized. The growth rate of 1.7% for the terminal period is based on
the long-term expectations on the growth in the Neles’ market environments considering
the current low interest rate environment and overall financial market situation.
WACC before tax is used as a discount factor in the calculations. It takes into account
the expected return on both debt and equity and has been derived from the WACC on
comparable peer industry betas, capital structure and tax rates. WACC is evaluated annually
for testing and business specific risk is incorporated through individual beta factors from the
market data of peer companies. Increase in WACC used in 2020 is reflecting the Covid-19
impact the market and manages the risk of estimating future cash flows.
Sensitivity analysis
The sensitivity to impairment was tested in the following scenarios:
Scenario 1: increasing WACC by 2.0 percentage points
Scenario 2: reducing the terminal growth rate from 1.7% to 1.2% and increasing WACC by
2.0 percentage points
The impact to the value in use of the CGUs in the sensitivity analysis
WACC increase by p.p. –%
Terminal growth from .% to .% and WACC increase by p.p. –%
The sensitivity analysis also includes several cash projections on break-even levels of
EBITDA %, WACC and sales growth based on reasonable change in the future performance.
However, the impact on the present value obtained is limited as long as there is no perma-
nent weakening expected for the business, which would aect the terminal value. Based on
these sensitivity analyses, the management believes that no reasonably possible change of
the key assumptions used would cause the carrying value exceed its recoverable amount. In
2020, the sensitivity analysis did not indicate risks of impairment.
3.2 Tangible assets
Accounting policy
Tangible assets are stated at historical cost, less accumulated depreciation and impairment
loss, if any. The tangible assets of acquired subsidiaries are measured at their fair value at
the acquisition date.
Depreciation is calculated on a straight-line basis over the expected useful lives of the
assets as follows:
Buildings and structures 15–40 years
Machinery and equipment 3–20 years
Land and water areas are not depreciated.
Expected useful lives are reviewed at each balance sheet date and if they dier signifi-
cantly from previous estimates, the remaining depreciation periods are adjusted accordingly.
Subsequent improvement costs related to an asset are included in the carrying value
of such asset or recognized as a separate asset, as appropriate, only when the future
economic benefits associated with the costs are probable and the related costs can be
separated from normal maintenance costs.
Neles reviews tangible assets to be held and used by the company for impairment
whenever events and changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Gains and losses on the disposal of tangible asset
and possible impairments are recognized in operating income and expenses. Previously
recognized impairment loss may be reversed if there is a significant improvement to the
circumstances having initially caused the impairment, however not to a higher value than the
carrying amount, which would have been recorded had there been no impairment in prior
years.
Capitalized interests
The interest expenses of self-constructed tangible assets are capitalized in Neles’ financial
statements. The capitalized interest expense is amortized over the estimated useful life
of the underlying asset. Capitalization of interests has been applied only in discontinued
operations.
Government grants
Government grants relating to additions to tangible assets are deducted from the acqui-
sition cost of the asset and they reduce the depreciation charge of the related asset. Other
government grants are deferred and recognized as profit concurrently with the costs they
compensate.
A
69
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Estimates and assessments by Management
Acquisitions, disposals and restructuring actions typically generate a need for the
reassessment of the recoverable values and remaining useful lives of the assets. When
tangible assets are valued at fair value less costs of disposal, selling price, incremental costs
and selling costs need to be estimated by management.
Tangible assets
2020
EUR million
Land and
water areas
Buildings
and
structures
Machinery
and
equipment
Assets
under
construction
Tangible
assets total
Acquisition cost at beginning
of year
Translation dierences – – –
Capital expenditure –
Reclassifications –
Other changes –
Acquisition cost at end of year
Accumulated depreciation at
beginning of year – – – – –
Translation dierences –
Other changes – – –
Impairment losses –
Depreciation for the year – – – – –
Accumulated depreciation at
end of year – – – –
Net book value at end of year
2019
EUR million
Land and
water areas
Buildings
and
structures
Machinery
and
equipment
Assets under
construction
Tangible
assets total
Acquisition cost at beginning of
year, Metso total
Acquisition cost at beginning
of year,
discontinued operations – – – – –
Translation dierences
Capital expenditure
Reclassifications – – –
Other changes – – – –
Acquisition cost at end of year
Accumulated depreciation at
beginning of year, Metso total – – – – –
Accumulated depreciation at
beginning of year,
discontinued operations – –
Translation dierences – – – –
Other changes – –
Impairment losses – – –
Depreciation for the year – – – – –
Accumulated depreciation at
end of year – – – – –
Net book value at end of year
E
70
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
3.3 Depreciation and amortization
Depreciation and amortization
EUR million
Intangible assets from acquisitions –
Other intangible assets – –
Tangible assets
Buildings and structures – –
Machinery and equipment – –
Right-of-use assets
Land areas
Buildings – –
Machinery and equipment – –
Total
– –
Depreciation and amortization by function
EUR million
Cost of goods sold – –
Selling, general and administrative expenses – –
Total
– –
3.4 Right-of-use assets
Accounting policy
Neles as a lessee
Neles applies a single recognition and measurement approach for all leases, except for
short-term leases and leases of low-value assets. Neles recognizes lease liabilities to make
lease payments and right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
Neles recognizes right-of-use assets at the date the underlying asset is available for
use. Right-of-use assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease liabilities. The cost
comprises of the lease liability, initial direct costs and lease payments made at or before the
commencement of the lease less any lease incentives received.
Lease contracts may include extension and termination options. Such options have been
considered when determining the lease term. A period covered by Neles’ option to extend
the lease is included in the lease term if such option is likely to be exercised. Further, a
period covered by Neles’ option to terminate the lease is included in the lease term if such
option is estimated not to be exercised.
Right-of-use assets are depreciated on a straight-line-basis over the shorter of
estimated useful life and the lease term, as follows:
Buildings 3–10 years
Vehicles and other equipment 3–5 years
Short-term leases and leases of low-value assets
Neles applies recognition exemption to leases that have a lease term less than 12
months (short-term-leases) and leases that are considered to low value contracts
(low-value-assets). Lease payments for leases of low value assets and short-term leases are
expensed in the income statement on a straight-line-basis over the lease term.
Lease liabilities
Lease liabilities are included in interest bearing liabilities, see Note 4.5. Borrowings and lease
liabilities.
Estimates and assessments by Management
The most significant management judgment relates to lease agreements that include
extension or early termination options for Neles. For these contracts, management needs to
assess the probability of exercising such option, which may significantly aect the estimated
length of lease term and consequently the amounts of right-of-use asset and lease liability
as well as the related depreciation and interest expense. Management judgment is also
applied in defining the incremental borrowing rate used to calculate the present value of the
future lease payments.
A
E
71
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Amounts recognized in right-of use assets
2020
EUR million
Land and
water areas Buildings
Machinery
and
equipment
Right-
of-use
assets total
Acquisition cost at beginning of year
Additions –
Derecognition – – – –
Acquisition cost at end of year
Accumulated depreciation at beginning of
year – – –
Translation dierences –
Derecognition –
Other changes –
Depreciation for the year – – –
Accumulated depreciation at end of year – – –
Net book value at end of year
2019
EUR million
Land and
water areas Buildings
Machinery
and
equipment
Right-of-use
assets total
Acquisition cost at beginning of year
Acquisition cost at beginning of year, discon-
tinued operations – – –
Additions –
Derecognition – – –
Acquisition cost at end of year
Translation dierences – –
Other changes –
Depreciation for the year – – –
Accumulated depreciation at end of year – – –
Net book value at end of year
Amounts recognized in profit and loss
Continuing operations
EUR million
Operating profit
Depreciation expense on right-of-use assets – –
Rental expense relating to leases of low-value assets – –
Rental expense relating to leases of short-term assets
Finance expenses
Interest expense on lease liabilities – –
Total amount recognized in profit and loss
– –
The total cash outflow for leases including short-term leases and leases of low value assets
in 2020 was EUR 13 million and in 2019 it was EUR 12 million.
Lease liabilities and maturity analysis of payments are presented in note 4.5.
72
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Capital structure and financial instruments ......
. Financial risk management ........................
. Financial assets and liabilities by category ..........
. Cash and cash equivalents ........................
. Equity ............................................
. Borrowings and lease liabilities .....................
. Interest bearing net debt reconciliation .............
. Contingent liabilities and other commitments ........
. Derivative instruments .............................
4 Capital structure and financial instruments
Net debt, MEUR
81
Gearing, %
30.9
Free cash flow, MEUR
69
73
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4.1 Financial risk management
As a global company, Neles is exposed to a variety of business and financial risks. Financial
risks are managed centrally by the Group Treasury under annually reviewed wrien policies
approved by the Board of Directors. Treasury operations are monitored by the CFO. Group
Treasury identifies, evaluates and hedges financial risks in close co-operation with the
operating units. Group Treasury functions as counterparty to the operating units, manages
external funding centrally and is responsible for the management of financial assets and
appropriate hedging measures. The objective of financial risk management is to minimize
potential adverse eects on Neles’ financial performance.
Sensitivity analysis
Sensitivity analysis figures presented in connection with dierent financial risks are based
on the risk exposures on the balance sheet date. The sensitivity is calculated by assuming
a change in one of the risk factors of a financial instrument, such as interest or currency. It
is not likely that the future volatility of a risk factor will develop in accordance with the test
assumptions and that only one factor would be impacted.
When calculating the sensitivity, Neles has chosen to use market conventions in
assuming a one percentage point (100 basis points) variation in interest rates, 10 percent
change in foreign exchange rates and in commodity prices because this provides beer
comparability from one period to another and information on the volatility to users of
financial statements. Neles is aware that such assumptions may not be realistic when
compared to past volatility and they are not intended to reflect the future. Neles has chosen
not to use past volatility as this could mislead the users of financial statements to assume
the analysis reflects management’s view on future volatility of the financial instruments.
Liquidity and refinancing risk and capital structure management
Liquidity or refinancing risk arises when a company is not able to arrange funding at terms
and conditions corresponding to its creditworthiness. Sucient cash, short-term invest-
ments and commied and uncommied credit facilities are maintained to protect short-
term liquidity. Diversification of funding among dierent markets and adequate number
of financial institutions is used to safeguard the availability of liquidity at all times. Group
Treasury monitors bank account structures, cash balances and forecasts of the operating
units and manages the utilization of the consolidated cash resources.
The liquidity position of the Group remained good supported by the available back up
credit facilities and maturity structure of the funding. During the year no bank loans were
withdrawn. At the end of 2020 cash and cash equivalents amounted to EUR 136 million (EUR
57 million in 2019), and there were no deposits or securities with maturity over three months
in years 2020 and 2019.
At the end of 2020 Neles had a fully drawn term loan of EUR 150 (EUR 36 million in 2019)
million which matures in 2022. Additionally, Neles has a commied syndicated revolving
credit facility of EUR 200 million (EUR 200 million in 2019) This syndicated revolving credit
facility is fully undrawn and matures in 2023 and has two one-year extension options.
Additionally, the uncommied Finnish Commercial Paper program totaling EUR 200 million
can be utilized for funding.
Neles’ refinancing risk is managed by balancing the proportion of short-term and
long-term debt as well as the average remaining maturity of long-term debt. The table
below analyzes the repayments and interests on Neles’ liabilities by the remaining maturities
from the balance sheet date to the contractual maturity date.
Maturities of debts
Dec , Dec ,
EUR million < year – years > years < year – years > years
Long-term debt
Repayments – – – –
Interests – –
Other liabilities – – – –
Short-term debt
Repayments – – – –
Interests – – – –
Trade payables – – – –
Other liabilities – – – –
Total
– –
Detailed information on balance sheet items is presented in other notes to consolidated
financial statements.
Capital structure is assessed regularly by the Board of Directors and managed
operationally by the Group Treasury. Capital structure management in Neles comprises
both equity and interest bearing debt. As of December 31, 2020, the equity aributable
to shareholders was EUR 258 million (EUR 1,516 million in 2019) and the amount of interest
bearing debt was EUR 166 million (EUR 56 million in 2019). The objectives are to safeguard
the ongoing business operations and to optimize the cost of capital.
Covenants included in some loan agreements refer to Neles’ capital structure. Neles is in
compliance with all covenants and other terms of its debt instruments.
Interest rate risk
Interest rate risk arises when changes in market interest rates and interest margins influence
finance costs, returns on financial investments and valuation of interest bearing balance
sheet items. Interest rate risks are managed by balancing the ratio between fixed and
floating interest rates and administrating duration of debt and investment portfolios. The
interest rate risk is managed and controlled by the Group Treasury and measured using
sensitivity analysis and maturity of long-term debt. The average maturity of long-term
interest bearing debt was 1.5 years as at December 31, 2020 (2.5 years in 2019).
At the end of 2020 the balance sheet items exposed to interest rate risk were interest
bearing assets of EUR 136 million (EUR 57 million in 2019) and interest bearing debt of
74
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
EUR 166 million (EUR 56 million in 2019). Of the total interest bearing debt 90 percent (65
percent in 2019) was denominated in EUR.
The basis for the interest rate sensitivity analysis is an aggregate group level interest
exposure, composed of interest bearing assets and interest bearing debt. For all interest
bearing current debt and assets to be fixed during next 12 months a one percentage point
move upwards or downwards in interest rates with all other variables held constant would
have an eect on Neles’ net interest expenses, net of taxes, of EUR +/– 1.7 million (EUR 0
million in 2019).
Foreign exchange risk
Neles operates globally and is exposed to foreign exchange risk in several currencies,
although the geographical diversity of operations decreases the significance of any
individual currency. About 74 percent of Neles’ sales originate from outside the euro zone;
the main currencies being euro, US dollar, SG dollar, Brazilian real and Chinese yuan.
Transaction exposure
Foreign exchange transaction exposure arises when an operating unit has commercial or
financial transactions and payments in other than its own functional currency, and when
related cash inflow and outflow amounts are not equal or concurrent.
In accordance with the Neles Treasury Policy, operating units are required to hedge in full
the foreign currency exposures on balance sheet and other firm commitments. Future cash
flows denominated in a currency other than the functional currency of the unit are hedged
with internal foreign exchange contracts with the Group Treasury for periods, which do
not usually exceed two years. Operating units also do some hedging directly with banks in
countries, where regulation does not allow corporate internal cross-border contracts.
Group Treasury monitors the net position of each currency and decides to what extent
a currency position is to be closed. Neles Treasury Policy defines upper limits on the open
currency exposures managed by the Group Treasury; limits have been calculated on the
basis of their potential profit impact. To manage the foreign currency exposure Group
Treasury may use forward exchange contracts and foreign exchange options. Neles does
not apply hedge accounting for foreign exchange derivatives.
Total amount of foreign currency exposures on December 31
Continuing operations
EUR million
Operational items aecting to operating profit
Financial items
Hedges – –
Total exposure
This aggregate group level currency exposure is the basis for the sensitivity analysis of
foreign exchange risk. This exposure, net of respective hedges, is composed of all assets
and liabilities denominated in foreign currencies, projected cash flows for unrecognized firm
commitments, both short- and long-term sales and purchase contracts and anticipated
operational cash flows to the extent their realization has been deemed highly probable and
therefore hedged. This analysis excludes net foreign currency investments in subsidiaries.
Assuming euro to appreciate or depreciate ten percent against all other currencies, the
impact on cash flows, net of taxes, derived from the year-end net exposure as defined
above, would be EUR +/– 0.2 million (EUR –/+ 0.1 million in 2019). Transaction exposure is
spread in about 27 currencies and as of December 31, 2020, the biggest open exposures
were in CNH, 19 percent, and USD, 18 percent.
A sensitivity analysis of financial instruments as required by IFRS 7, excludes following
items: projected cash flows for unrecognized firm commitments, advance payments, both
short- and long-term purchase contracts and anticipated operational cash flows. The next
table presents the eects, net of taxes, of a +/– 10 percent change in EUR foreign exchange
rates:
EUR million USD SGD Others Total USD ZAR Others Total
Eects in
Income statement +/– . +/– . –/+ . –/+ . +/– . –/+ . –/+ . –/+ .
Eect in income statement is the fair value change for all financial instruments exposed to
foreign exchange risk.
Translation or equity exposure
Foreign exchange translation exposure arises when the equity of a subsidiary is denom-
inated in currency other than the functional currency of the Parent Company. The major
translation exposures are in US Dollar and Chinese Yuan, which altogether comprise
approximately 82 percent of the total equity exposure. Neles is currently not hedging any
equity exposure.
Commodity risk
Neles is exposed to variations in prices of raw materials and of supplies. Neles units identify
their commodity price hedging needs and hedges are executed through the Group Treasury
using approved counterparties and instruments. Hedging is done on a rolling basis with a
declining hedging level over time.
To reduce its exposure to the volatility caused by the surcharge for certain metal alloys
(Alloy Adjustment Factor) comprised in the price of stainless steel charged by its suppliers,
Neles has entered into average-price swap agreements for nickel. The Alloy Adjustment
Factor is based on monthly average prices of its components of which nickel is the most
significant. As of December 31, 2020, Neles had outstanding nickel swaps amounting to 360
tons (336 tons in 2019).
75
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
The sensitivity analysis of the commodity prices based on financial instruments under
IFRS 7 comprises the net aggregate amount of commodities bought through forward
contracts and swaps but excludes the anticipated future consumption of raw materials.
A 10 percent change upwards or downwards in commodity prices would have eects,
net of taxes, of EUR +/–0.3 million to income statement in year 2020 (EUR +/–0.2 million to
income statement in year 2019).
Hedge accounting is not applied to nickel agreements, and the change in the fair value
is recorded through profit and loss. Other commodity risks are not managed using financial
derivative instruments.
Credit and counterparty risk
Credit or counterparty risk is defined as the possibility of a customer or a financial
counterparty not fulfilling its commitments towards Neles. The operating units of Neles are
primarily responsible for credit risks pertaining to sales and procurement activities. The units
assess the credit quality of their customers, by taking into account their financial position,
past experience and other relevant factors. When appropriate, advance payments, leers of
credit and third party guarantees, or credit insurance are used to mitigate credit risks. Group
Treasury provides centralized services related to customer financing and seeks to ensure
that the principles of the Treasury Policy are adhered to with respect to terms of payment
and required collateral. Neles has no significant concentrations of credit risks.
The maximum credit risk equals the carrying value of trade and loan receivables. The
credit quality is evaluated both on the basis of aging of the trade receivables and also on the
basis of customer specific analysis. The aging structure of trade receivables is presented in
note 2.2.
Counterparty risk arises also from financial transactions agreed upon with banks,
financial institutions and corporates. The risk is managed by careful selection of banks and
other counterparties, by counterparty specific limits determined in the Treasury Policy, and
neing agreements such as ISDA (Master agreement of International Swaps and Derivatives
Association). The compliance with counterparty limits is regularly monitored.
Credit risk exposure relates to carrying value of financial assets valued at amortized cost,
such as trade receivables, interest bearing receivables, other receivables, deposits and
security investments and cash and cash equivalents, and customer contract assets.
Impairment on cash at hand, bank accounts, deposits and interest bearing investments
is assessed regularly, but seen minor, because of their high investment grade and short
duration. Group Treasury makes a financial analysis of corporate counterparties regularly. In
addition, the investments are constantly monitored by Group Treasury and Neles does not
expect any future credit losses from these investments.
For trade receivables and customer contract assets Neles applies the IFRS 9 simplified
approach to measuring expected credit losses, which uses a lifetime expected loss
allowance to be assessed and recognized regularly, see note 2.2.
Fair value estimation
For those financial assets and liabilities which have been recognized at fair value in the
balance sheet, the following measurement hierarchy and valuation methods have been
applied:
Level 1
Quoted unadjusted prices at the balance sheet date in active markets. The market prices
are readily and regularly available from an exchange, dealer, broker, market information
service system, pricing service or regulatory agency. The quoted market price used for
financial assets is the current bid price. Level 1 financial instruments include fund invest-
ments classified as fair value through profit and loss.
Level 2
The fair value of financial instruments in Level 2 is determined using valuation techniques.
These techniques utilize observable market data readily and regularly available from an
exchange, dealer, broker, market information service system, pricing service or regulatory
agency. Level 2 financial instruments include:
Over-the-counter derivatives classified as financial assets/liabilities at fair value through
profit and loss or qualified for hedge accounting
Debt securities classified as financial instruments at fair value through profit and loss
Fixed rate debt under fair value hedge accounting
Level 3
A financial instrument is categorized into Level 3 if the calculation of the fair value cannot be
based on observable market data. Neles had no such instruments in 2020 or in 2019.
Financial assets and liabilities measured at fair value
EUR million Level Level Level Level Level Level
Financial assets and liabilities at fair value
through profit and loss
Derivatives not under hedge accounting,
assets – – – –
Derivatives not under hedge accounting,
liabilities – – – –
76
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Accounting policy
Under IFRS 9 Neles classifies financial assets and liabilities into measurement categories
according to contractual terms of the cash flows and Neles’ business model to manage
the investment at the inception. Reclassification of the categories will be made only, if
the business model for managing those assets changes. Financial assets and liabilities
are classified as non-current items, when the remaining maturity exceeds 12 months and
as current items, when the remaining maturity is 12 months or less. Financial assets and
liabilities are classified as follows:
A) At amortized cost
Financial assets
Financial assets valued at amortized cost are investments in debt instruments or receivables,
which are held end of maturity and for collection of contractual cash flows, where those
cash flows are solely payments of principal and/or interest. These are initially recognized
at fair value less transaction costs, and subsequently measured at amortized cost using
the eective interest method. Interest income is recognized as financial income in income
statement. Financial assets at amortized cost include deposit, commercial papers, interest
bearing loans and receivables, trade receivables and non-interest bearing receivables.
Impairment is assessed regularly and when the carrying value exceed the recoverable value
of discounted cash flows, appropriate impairment is recognized in income statement.
For trade receivables, Neles applies the simplified method in IFRS 9, which requires
expected lifetime losses to be recognized from initial recognition of the receivables. See
more in note 2.2.
Financial liabilities
Issued bonds and withdrawn loan facilities from financial institutions as well as trade and
other liabilities are initially recognized at fair value, net transaction costs, and subsequently
measured at amortized cost using the eective interest method. Trade and other receiv-
ables are non-interest bearing short-term unpaid debts.
The dierence, between the debt amount net transaction cost recognized of bonds
and loans from financial institutions and the redemption amount, is recognized in income
statement as interest cost over the period of the borrowings using the eective interest
method. Fees paid on the establishment of loan facilities are recognized in the income
statement as other finance expense over the period of the facility, or, if the withdrawn of the
loan is probable, as part of transaction cost.
B) At fair value through other comprehensive income (FVOCI)
Financial assets
Financial assets valued at fair value through other comprehensive income are debt
instruments or receivables, which are held for collection of contractual cash flows or held for
selling the assets, and where contractual cash flows are solely payments of principal and/
or interest. Interest income is recognized in income statement using the eective interest
method. Change in fair value is recognized in other comprehensive income (OCI). At the
derecognition, the cumulative previously booked gains and losses in OCI are released from
equity to income statement. Neles includes in this measurement category derivatives under
hedge accounting, trade receivables for sale and security investments with maturity less
than three months. Impairment is assessed regularly and when the carrying value exceeds
the recoverable value of discounted cash flows, appropriate impairment is recognized in
income statement. This financial asset measurement category has been applied only for
discontinued operations.
C) At fair value through profit and loss (FVPL)
Financial assets
Financial assets valued at fair value through profit and loss are equity investments, invest-
ments in funds and derivatives not under hedge accounting. Change in fair value and gain
or loss at the derecognition will be recognized in income statement. The change in the fair
value includes the valuation of the impairment risk as well. Fair value of listed equity shares
or investments in funds is the quoted market price on the balance sheet date. Unlisted
shares are valued at cost less impairment, if any.
Financial liabilities
Fixed rate debts covered by fair value hedges accounting and derivatives not under hedge
accounting are included in this measurement category. Change in fair value and gains or
losses at derecognition will be recognized in income statement.
A
4.2 Financial assets and liabilities by category
77
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Financial assets and liabilities by categories as of December 31
2020
EUR million
At fair value
through
profit and
loss
At fair value
through
other
comprehen-
sive income
At amor-
tized cost
Carrying
value Fair value
Non-current financial assets
Equity investments – –
Other receivables – –
Total
– –
Current financial assets
Trade receivables – –
Derivatives – –
Other receivables – –
Deposits and securities, maturity
three months or less – –
Cash at hand and on bank
accounts – –
Total
–
Non-current liabilities
Loans from financial institutions – –
Lease liabilities – –
Other liabilities – –
Total
– –
Current liabilities
Current portion of non-current
debt – – – – –
Lease liabilities – –
Loans from financial institutions – –
Trade payables – –
Derivatives – –
Other liabilities – –
Total
–
2019
EUR million
At fair value
through
profit and
loss
At fair value
through
other
comprehen-
sive income
At amor-
tized cost
Carrying
value Fair value
Current financial assets
Trade receivables – –
Derivatives – –
Other receivables – –
Deposits and securities, maturity
three months or less – –
Cash at hand and on bank
accounts – –
Total
–
Non-current liabilities
Loans from financial institutions – –
Lease liabilities – –
Other liabilities – –
Total
– –
Current liabilities
Current portion of non-current
debt – – – – –
Lease liabilities –
Loans from financial institutions – –
Trade payables – –
Derivatives – –
Other liabilities – –
Total
–
For more information on derivative financial instruments, see note 4.8.
78
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4 .3 Cash and cash equivalents
Accounting policy
Cash and cash equivalents consist of cash on hand and bank accounts, deposits and
interest bearing investments, which are easily convertible to known amount of cash within
the period of three months or less as well as bond fund investments, with the same risk
profile.
Cash on hand, bank accounts, deposits and interest bearing investments are measured
at amortized cost. The bond fund investments are measured at fair value through profit and
loss accounts.
Impairment on cash on hand, bank accounts, deposits and interest bearing investments
is assessed regularly, but seen minor, because of their high investment grade and short
duration. Impairment risk of bond fund investment is included in the change in fair value of
them.
EUR million
Cash and cash equivalents
Deposits and securities, maturity three months or less
Cash on hand and bank accounts
Cash and cash equivalents
Cash aributable for discontinued operations –
Cash and cash equivalents
Some of the Neles’ subsidiaries are located in countries, where the currency market is
restricted. Cash and cash equivalents located in these countries were EUR 15 million in year
2020 (EUR 38 million in 2019).
Average returns for deposits and securities
EUR million
With maturity three months or less .% .%
Analysis of Consolidated Statement of Cash Flows
Continuing operations, carve-out
EUR million
Operating activities
Profit for the year
Adjustments
Depreciation and amortization
Financial expenses, net
Income taxes
Other items –
Change in net working capital
)
–
Net cash flow from operating activities before financial items and
taxes
Financial income and expenses, net –
Income taxes paid – –
Net cash flow from operating activities
Investing activities
Capital expenditures on intangible and tangible assets – –
Proceeds from sale of intangible and tangible assets
Acquisitions/disposals, Metso group – –
Net cash flow from investing activities
– –
Financing activities
Dividends paid – –
Investments in financial assets –
Proceeds from / repayments of short-term debt, net –
Proceeds from/ repayments of long-term debt, net –
Net borrowing / payment, Metso Group
)
–
Repayments of lease liabilities – –
Net cash flow from financing activities
–
Net change in cash and cash equivalents
–
Eect from changes in exchange rates –
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
)
For the period –/ carve-out related items are excluded from Change in networking capital and
presented in Financing, Metso Group.
A
79
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4.4 Equity
Accounting policy
Issue of new shares and own shares
Transaction costs directly aributable to the issue of new shares or options are shown net of
their tax eect in equity as a deduction from the proceeds.
Own shares held by the Parent Company valued at the historical acquisition price are
deducted from equity. Should such shares be subsequently sold or reissued, the consider-
ation received, net of any directly aributable transaction costs and related income tax, is
recorded in equity.
Translation dierences
The translation dierences arising from subsidiary net investments and non-current
subsidiary loans without agreed selement dates are recognized through the Other
Comprehensive Income (OCI) to cumulative translation adjustments under equity. When
Neles hedges the net investment of its foreign subsidiaries with foreign currency loans and
with financial derivatives, the translation dierence is adjusted by the currency eect of the
hedging instruments which has been recorded, net of taxes, through OCI in equity. When
a foreign entity is disposed of, the respective accumulated translation dierence, including
the eect from qualifying hedging instruments, is reversed through OCI and recognized in
the consolidated statements of income as part of the gain or loss on the sale. If the equity
of a subsidiary denominated in a foreign currency is reduced by a return of capital, the
translation dierence relating to the reduction is reversed through OCI and recognized in the
consolidated statements of income.
Dividends
Dividends proposed by the Board of Directors are recognized annually aer the share-
holders’ approval in the Annual General Meeting.
Share capital and number of shares
Neles Corporation’s registered share capital, which is fully paid, was EUR 50,982,843.80 as
at December 31, 2020 (140,982,843.80 as at December 31, 2019).
A reduction of share capital of EUR 90,000,000.00 was recorded at the demerger on
June 2020.
As at December 31, 2020 the acquisition price of 150,361 own shares held by the Parent
Company was EUR 3,337,728.57 and was recognized in treasury stock.
A
Shares
Number of outstanding shares at beginning of year ,, ,,
Shares granted as share incentive reward , ,
Number of outstanding shares at end of year ,, ,,
Own shares held by the Parent Company , ,
Total number of shares on December
,, ,,
Dividends
The Board of Directors proposes that a dividend of EUR 0.18 per share be paid based on the
balance sheet to be adopted for the financial year, which ended December 31, 2020. These
financial statements do not reflect this dividend payable of EUR 27 million.
Fair value and other reserves
Share-based payments are presented within the fair value reserve. The legal reserve
consists of restricted equity, which has been transferred from distributable funds under the
Articles of Association, local company act or by a decision of the shareholders. The other
reserves consist of the distributable fund and the invested non-restricted equity fund held
by the Parent Company.
A reduction of fair value reserve EUR 7 million and of other reserves EUR 266 million were
recorded at the demerger on June 2020.
Changes in fair value and other reserves
EUR million
Treasury
stock
Hedge
reserve
Fair
value
reserve
Legal
reserve
Other
reserves Total
January , –
Share-based payments, net of tax – –
Other – –
Demerger – – –
December ,
–
EUR million
Treasury
stock
Hedge
reserve
Fair value
reserve
Legal
reserve
Other
reserves Total
January , – –
Cash flow hedges
Fair value gains (+) / losses (–),
netof tax – – – –
Transferred to profit and loss, netoftax
Sales – – – – – –
Interest income / expenses – – – – – –
Share-based payments, net of tax – – –
Other – – – – –
Discontinued operations – – – –
December ,
– –
80
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4 .5 Borrowings and lease liabilities
Accounting policy
Borrowings
Long-term debt is initially recognized at fair value, net of transaction costs incurred and
subsequently measured at amortized cost using the eective interest method. The
dierence, between the debt amount recognized and the redemption amount, is recognized
in income statement as interest expense over the period of the borrowings. A portion of
long-term debt is classified as short-term debt, when the selement of the liability is due
within 12 months from the balance sheet date. Borrowings are derecognized only if the
contractual obligation is discharged, cancelled, or expired.
Fees paid on the establishment of loan facilities are recognized in income statement
as other finance expense over the period of the facility, or, if the withdrawal of the loan is
probable, as part of transaction cost. Transaction costs arising from modification to debt
instruments are included in the carrying value of the debt and amortized using the eective
interest method over the remaining period of the modified liability provided that the new
conditions obtained through the modification do not substantially dier from those of the
original debt. Modification gain or loss will be recognized in income statement at the time of
non-substantial modification.
Lease liabilities
Neles recognizes lease liabilities to make lease payments for the right-of-use assets rented
to use in Neles operations.
On the commence date of the lease, Neles recognize lease liabilities measured at the
present value of lease payments to be made over the lease. Lease payments include fixed
payments less any lease incentives receivable, variable payments that depend on an index
or a rate and amounts expected payments under residual value guarantees. The lease
payments also include the exercise price of purchase options when exercise is estimated
to be reasonably certain and penalties for terminating the lease if the lease term reflects the
exercise of a termination option.
In calculating the present value of lease payments, Neles uses the incremental borrowing
rate at the commence date, because the implicit interest rate in the lease contracts cannot
be readily determined. Subsequently, lease liabilities are increased to reflect the accretion of
interest and reduced for the lease payments made. The carrying value of lease liabilities is
remeasured if there is a modification of the contract, a change in the lease term or a change
in the assessment of usage of an option.
EUR million
Carrying
values
Fair
values
Carrying
values
Fair
values
Loans from financial institutions
Lease liabilities
Total long-term interest bearing debt
Loans from financial institutions
Lease liabilities
Total short-term interest bearing debt
Total interest bearing debt
The average interest rate of total loans was 1.15% on December 31, 2020 (1.15% in 2019). The
average maturity of long-term interest bearing debt was 1.5 years on December 31, 2020
(2.5 years in 2019).
Short term loans from financial institutions consists of bank loans withdrawn by Neles
subsidiaries to fund local operations. The subsidiary loans are mainly Indian rupee and South
Korean won denominated. The weighted average interest rate applicable to the short-term
borrowing at December 31, 2020 was 4.3% (5.7% in 2019).
At the end of 2020 Neles had a fully drawn term loan of EUR 150 (EUR 36 million in 2019)
million which has maturity date in 2022. Additionally, Neles has a syndicated revolving
credit facility of EUR 200 million with four banks, maturing in 2023 (EUR 200 million in 2019)
with two one-year extension options. Neles also has a Finnish commercial paper program
amounting to EUR 200 million. Both revolving credit facility and commercial paper program
were undrawn at the end of 2020.
Contractual maturities of interest bearing debt
2020
EUR million
Repayments of
borrowings Of which interests
Repayments of lease
liabilities
)
– –
– –
Later – –
Total
)
Future lease payments at nominal value.
The maturities of derivative financial instruments are presented in note 4.8.
A
81
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4.6 Interest bearing net debt reconciliation
Net interest bearing liabilities
EUR million
Non-current interest bearing liabilities
)
Lease liabilities
Current interest bearing liabilities
Cash and cash equivalents – –
Net interest bearing liabilities
)
Including current portion of non-current liabilities.
Changes in net interest bearing liabilities
2020
EUR million
Balance at
beginning
of year
Cash
flows
Acquisi-
tions
Translation
dierences
Other
non-cash
move-
ments
Balance
at end of
year
Non-current interest bearing
liabilities – – –
Lease liabilities – –
Current interest bearing liabilities – – – –
Cash and cash equivalents – – – – –
Net interest bearing liabilities
–
2019
EUR million
Balance at
beginning
of year
Balance at
beginning
of year,
discon-
tinued
operations
Cash
flows
Translation
dierences
Other
non-cash
move-
ments
Balance
at end of
year
Non-current interest bearing
liabilities – – –
Lease liabilities – –
Current interest bearing liabilities – –
Loan and other interest bearing
receivables – – – – –
Cash and cash equivalents – – – –
Net interest bearing liabilities
– –
4.7 Contingent liabilities and other commitments
Accounting policy
Neles companies have guaranteed obligations arising in the ordinary course of business.
Typically, guarantees given to secure commercial contractual obligations, or received
advance payments.
Repurchase commitments represent engagements whereby Neles agrees to purchase
back equipment sold to customer. The conditions triggering the buy-back obligation are
specific to each sales contract.
Neles discloses contingent liabilities and commitments as o-balance sheet liabilities
and recognizes them only when the realization of them is probable.
EUR million
Guarantees
External guarantees given by parent and group companies
Other commitments
Repurchase commitments
Other contingencies
Total
For legal claims and related contingent liabilities, see Note 6.2.
A
82
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
4.8 Derivative instruments
Accounting policy
Derivatives are initially recognized in the balance sheet at fair value and subsequently
measured at their fair value at each balance sheet date. Derivatives are designated at
inception as derivatives at fair value through profit and loss that do not meet the hedge
accounting criteria.
Derivatives are classified as non-current assets or liabilities when the remaining matur-
ities exceed 12 months and as current assets or liabilities when the remaining maturities are
less than 12 months.
Derivatives at fair value through profit and loss
These instruments, which have been contracted to mitigate risks arising from operating and
financing activities, comprise foreign exchange forward contracts, currency and interest rate
options, interest rate swaps and swap agreements for nickel.
Changes in the fair value of interest rate swaps are recognized in interest expenses.
Changes in the fair value of foreign exchange forward contracts are mainly recognized
in other operating income and expenses. However, when the foreign exchange forwards
have been contracted to mitigate the exchange rate risks arising from foreign currency
denominated cash and from financial instruments used for cash management, the changes
in fair value of the derivatives are recognized in financial income and expenses. Changes in
the fair value of other derivative instruments such as commodity instruments are recognized
in other operating income and expenses.
Fair value estimation of derivative instruments
The fair value of the foreign currency forward contracts is determined using forward
exchange market rates at the balance sheet date. The fair value of the interest rate swaps
is calculated as the present value of the estimated future cash flows based on observable
yield curves. The fair value of the commodity forwards and swaps are based on quoted
market prices at the balance sheet date. The fair value of options is determined using
Black-Scholes valuation model.
Notional amounts and fair values of derivative financial instruments at end of year
2020
EUR million
Notional
amount
Fair value,
assets
Fair value,
liabilities
Fair value,
net
Forward exchange contracts –
Nickel swap contracts
)
Total
2019
EUR million
Notional
amount
Fair value,
assets
Fair value,
liabilities
Fair value,
net
Forward exchange contracts
Nickel swap contracts
)
Total
)
Notional amount in tons.
The notional amounts indicate the volumes in the use of derivatives, but do not indicate the
exposure to risk.
Derivative financial instruments recognized in balance sheet at end of year
EUR million Assets Liabilities Assets Liabilities
Forward exchange contracts – non-qualifying
hedges
Nickel swaps – non-qualifying hedges
Total
Maturities of financial derivatives as at December 31, 2020 (expressed as notional
amounts)
EUR million
Forward exchange contracts – – – –
Nickel swap contracts
)
– – –
)
Notional amount in tons.
A
83
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Consolidation .....................................
. Principles of consolidation .........................
. Subsidiaries ......................................
. Related party transactions .........................
. Acquisitions and business disposals ................
. Discontinued operations ..........................
. New accounting standards ........................
. Exchange rates used .............................
5 Consolidation
Neles subsidiaries in
34
countries
Metso partial demerger
effective on June ,
Metso Minerals business as
discontinued operations for the
period Jan – Jun ,
84
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
5.1 Principles of consolidation
Subsidiaries
The consolidated financial statements include the financial statements of the Parent
Company and each of those companies over which Neles exercises control. Control is
achieved when Neles is exposed, or has rights, to variable returns from the investee and can
aect those returns through its power over the investee. The companies acquired during the
financial period have been consolidated from the date Neles acquired control. Subsidiaries
sold or distributed to the owners have been included up to their date of disposal.
All intercompany transactions, balances and gains or losses on transactions between
subsidiaries are eliminated as part of the consolidation process. Non-controlling interests
are presented in the consolidated balance sheet within equity, separate from equity
aributable to shareholders. Non-controlling interests are separately disclosed in the
consolidated statement of income.
Acquisitions of businesses are accounted for using the acquisition method. The purchase
consideration of an acquisition is measured at fair value over the assets given up, shares
issued, or liabilities incurred or assumed at the date of acquisition. For each acquisition, the
non-controlling interest in the acquiree, if any, can be recognized either at fair value or at
the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess
acquisition price over the fair value of net assets acquired is recognized as goodwill (see
also intangible assets). If the purchase consideration is less than the fair value of the Group’s
share of the net assets acquired, the dierence is recognized directly through profit and loss
account.
When Neles ceases to have control, any retained interest in equity is re-measured to its
fair value at the date when control is lost, with the change in carrying amount recognized in
profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognized in other comprehensive income in respect of
that entity is accounted for as if the group had directly disposed of the related assets or
liabilities.
Non-controlling interest
Transactions with non-controlling interests are regarded as transactions with equity owners.
In the case of purchases from non-controlling interests, the dierence between any
consideration paid and the relevant share of the carrying value of net assets acquired in the
subsidiary is recorded in shareholders’ equity. Gains or losses on disposal to non-controlling
interests are also recorded directly in shareholders’ equity.
Non-current assets or disposal group held-for-sale
Neles classifies a non-current asset or disposal group as held for sale if it’s carrying amount
will be recovered principally through a sale transaction rather than through continuing use.
These assets are valued at the lower of it carrying value and fair value less costs to sell, and
assets subject to depreciation or amortization are no longer amortized. Assets related to
non-current assets or a disposal group classified a held-for-sale are disclosed separately
from other assets, but financial statements for prior periods are not reclassified.
Discontinued operations
Neles has classified assets, debts and liabilities belonging to Metso Minerals business
as discontinued operations, based on the approval of partial demerger of Metso by
Extraordinary General Meeting on October 29, 2019. The partial demerger of Metso and
disposal of the net assets became eective on June 30, 2020. From November 2019 valves
business has formed the continuing operations of the group. In the Neles’ income statement
for the year 2020, Metso Minerals business’ profit for the period has been included in line
Profit from discontinued operations for the period January 1–June 30, 2020. See more on
Note 5.5 Discontinued operations.
Foreign currency translation
Neles’ Financial Statements are presented in euros, which is the parent company’s func-
tional currency. Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of the transaction. At the end of the reporting period, unseled foreign
currency transaction balances are valued at the rates of exchange prevailing at the balance
sheet date. Trade related foreign currency exchange gains and losses are recorded in other
operating income and expenses, unless the foreign currency denominated transactions
are subject to hedge accounting, in which case the related exchange gains and losses are
recorded in the same line item as the hedged transaction. Foreign exchange gains and
losses associated with financing are entered as a net amount under financial income and
expenses.
The statement of income of a subsidiary with a functional currency dierent from the
presentation currency is translated into euros at the average of the month end exchange
rate for the financial year, and the balance sheet is translated at the exchange rate in eect
on the balance sheet date. This exchange rate dierence is recorded through other compre-
hensive income (OCI) within cumulative translation adjustments under equity.
Net investment hedge
The translation dierences arising from subsidiary net investments and long-term subsidiary
loans without agreed selement dates are recognized through OCI within cumulative
translation adjustments under equity.
Neles may hedge its net foreign investments in certain currencies to reduce the eect
of exchange rate fluctuations. The hedging instruments are mainly foreign currency loans
and foreign currency forward contracts. Both realized and unrealized exchange gains and
losses measured on these instruments are recorded, net of taxes, through OCI in a separate
component of equity against the translation dierences arising from consolidation to the
extent these hedges are eective. The interest portion of derivatives qualifying as hedges of
net investment is recognized under financial income and expenses.
85
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
When a foreign entity is disposed of, the respective accumulated translation dierence,
including the eect from qualifying hedging instruments, is reversed through OCI and
recognized in the consolidated statement of income as part of the gain or loss on the sale.
If the equity of a foreign currency denominated subsidiary is reduced by reimbursement of
invested funds, the translation dierence relating to the reduction is reversed through OCI
and recognized in the consolidated statement of income. Net investment hedges have not
been executed in 2020.
Company name and ownership
Dec ,
Australia
Neles Australia Flow Control Pty Ltd .%
Austria
Neles Austria GmbH .%
Brazil
Neles do Brazil Indústria e Comércio
Ltda .%
Canada
Neles Canada Ltd .%
Chile
Neles Chile SpA .%
China
Neles (China) Investment Co. Ltd .%
Neles Flow Control (Shanghai) Co. Ltd .%
Neles Flow Control (Jiaxing) Co. Ltd .%
Czech Republic
Neles Czech Republic s.r.o. .%
Finland
Neles Finland Oy .%
France
Neles France SAS .%
Germany
Neles Germany GmbH .%
India
Neles India Private Limited .%
Italy
Neles Italy SpA .%
Japan
Neles Japan Co. Ltd .%
Malaysia
Neles Flow Control Malaysia Sdn. Bhd. .%
Mexico
Neles Mexico SA de CV .%
Netherlands
Neles Netherlands B.V. .%
Peru
Neles Perú S.A.C .%
Company name and ownership
Dec ,
Poland
Neles Poland Sp zoo .%
Portugal
Neles Portugal, Unipessoal LDA .%
Qatar
Neles Automation WLL
)
.%
Romania
Neles Flow Control Romania S.R.L. .%
Russia
OOO Neles .%
Saudi Arabia
Neles Plant Saudi Arabia LLC .%
Singapore
Neles Asia Pacific Pte Ltd .%
South Africa
Neles South Africa Pty Ltd .%
South Korea
Neles Korea Co. Ltd .%
Spain
Neles Flow Control Spain, SL .%
Sweden
Neles Sweden AB .%
Taiwan
Neles Taiwan Co Ltd .%
Thailand
Neles (Thailand) Co. Ltd .%
Turkey
Neles Turkey Dis Ticaret A.S. .%
United Arab Emirates
Neles FZE .%
Neles Flow Control LLC
)
.%
United Kingdom
Neles UK Ltd .%
United States
Neles USA Inc. .%
Neles-Jamesbury Inc. .%
)
Has been % consolidated.
5.2 Subsidiaries
86
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
5.3 Related party transactions
Neles’ related parties include members of the Board of Directors, members of Neles execu-
tive team, their close family members, entities under their control or with significant influence
as well as subsidiaries and shareholders with significant influence. The subsidiaries are listed
in note 5.2. The related party transactions disclosed in this note are those not eliminated in
the consolidated financial statements.
Executive team remuneration
President and CEO
EUR
President and CEO Olli Isotalo
)
Salaries, bonuses and fringe benefits , –
Post-employment benefits , –
Share-based payments – –
Total
, –
President and CEO Pekka Vauramo
)
Salaries, bonuses and fringe benefits , ,
Post-employment benefits , ,
Share-based payments – –
Total
, ,
)
From July , onwards
)
Year for the period January –June ,
President and CEO, Olli Isotalo is eligible to retire at the age of 64, unless otherwise to be
agreed by the Company and the President and CEO, and belongs to a supplementary
defined contribution pension plan with 20% contribution of annual salary. The notice
period for both parties is six (6) months. Severance pay is full monthly salary multiplied by
twelve (12) if the agreement is terminated by the company. For year 2020 pension premium
payments for period July 1–December 31 for supplementary defined contribution pension
plan totaled approximately EUR 50 thousand.
President and CEO participates in the share-based incentive programs according to
the respective terms and conditions decided by the Board. More information in notes 1.5
Share-based payments and 5.3 Related party transactions as well as in Renumeration report
2020. Neles has subscribed supplementary pension plans for other Neles Executive Team
members for retirement. These pension premium payments totaled approximately EUR 50
thousand in 2020 (EUR 278 thousand in 2019).
Other executive team members
EUR
Neles executive team
)
Salaries, bonuses and fringe benefits , –
Post-employment benefits , –
Share-based payments – –
Total
,, –
Metso executive team
)
Salaries, bonuses and fringe benefits ,, ,,
Post-employment benefits , –
Share-based payments , ,
Total
,, ,,
)
From July , onwards
)
Year for the period January –June ,
Continuing and discontinued operations
EUR million
Executive remuneration, continued operations
Executive remuneration, discontinued operations
Total
87
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Remuneration of Board members
Board of Directors’
EUR thousand
January –June ,
July –December ,
Serving Board members
Jukka Moisio – – –
Mark Vernon – – –
Bria Giesen – – –
Anu Hämäläinen – – –
Niko Pakalén – – –
Teija Sarajärvi – – –
Peer Söderström – – –
Jukka Tiitinen – – –
Former Board members
Mikael Lilius – – –
Christer Gardell – – –
Peter Carlsson – – –
Lars Josefsson – – –
Ani Mäkinen – – –
Kari Stadigh – – –
Arja Talma – – –
Raimo Brand – – –
Nina Kopola – – –
Ozey K. Horton, Jr. – – –
Total
– – –
Board of Directors’ compensation disclosed on the table above on accrued basis, as
impacting in the consolidated income statement.
Continuing and discontinued operations
EUR million
Board remuneration, continued operations –
Board remuneration, discontinued operations –
Total
– –
In 2020, Board of directors accrued cost of continuing operations amounted to EUR 604
thousand.
Based to the decision of the Annual General Meeting of Metso on June 16, 2020, the
annual fees paid to the Neles Board members were: Chairman of the Board EUR 115,000,
Vice Chairman of the Board EUR 65,000 and other Board members EUR 50,000. An
additional annual remuneration is paid to the member of the Board elected in the position
of Chairman of the Audit Commiee EUR 15,000, members of the Audit Commiee
EUR7,500, Chairman of Remuneration and HR Commiee EUR 7,500 and members of the
Remuneration and HR Commiee EUR 3,750.
In addition, an aendance fee of EUR 800 per meeting aended, excluding commiee
meetings, is paid to members whose residence is in the Nordic countries, EUR 1,600 to
members whose residence is elsewhere in Europe and EUR 3,200 for those residing outside
Europe. Compensation for travel expenses and daily allowances are paid in accordance with
Neles’ travel policy.
According to the decision of the Annual General Meeting, 40 percent of the Board’s
annual fees were used to buy Neles shares from the market. The shares were acquired
within the two weeks following the publication of the first Interim Review for Neles aer the
demerger (Neles Interim review Q2/2020).
Transactions and balances with related parties
Valmet Plc, holding a 29.5% stake of Neles shares, has the ability to exercise a significant
influence over the company and is therefore a related party to Neles.
Transactions with related party are made on terms equivalent to other external
customers and on arm’s length basis.
Transactions and balances with the related party
EUR million
Sales
)
–
Rental income –
Receivables –
)
Valmet became a related party entity on August , , when its shareholding exceeded %. Sales reported
here for the period August , –December , and receivables as at December , .
5.4 Acquisitions and business disposals
Acquisitions
There were neither acquisitions nor business disposals in years 2020 and 2019.
5.5 Discontinued operations
Demerger on June 30, 2020
Metso’s Extraordinary General Meeting on October 29, 2019, approved the partial demerger
of the company. According to the demerger plan, the Metso Minerals businesses were
carved out from the Metso group and to be combined with Outotec Group. The registration
of the completion of the partial demerger was executed on June 30, 2020. From July 1, 2020,
valves business forms the continuing operations and Metso Group was renamed the Neles
Group.
88
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
The net result of Metso Minerals business is reported in the income statement under
“Profit from discontinued operations” separately from continuing operations for all periods
presented. Also, the gain, on the distribution of the Minerals net assets at fair value, are
reported in Profit from discontinued operations.
The demerger has been accounted for as a disposal to owners in accordance with IFRIC
17 Distribution of non-cash assets to owners. The dierence between the fair value of Metso
Minerals business and it’s carrying value in Metso’s consolidated balance sheet has been
recorded as a distribution gain.
In the transaction, Metso’s shareholders continued as shareholders of Neles Corporation.
Shareholders received 4.3 new Outotec shares for one old Metso share as consideration
for the distributed net assets of the Minerals business. Accordingly, the fair value of Metso
Minerals business at the demerger date has been calculated by multiplying share price
EUR 4.91 for Outotec Oyj on June 30, 2020 by the number of shares issued by Outotec,
645,850,948. The calculated fair value of Metso Minerals business amounted to EUR 3,171
million, the carrying value of distributed net assets EUR 1,150 million and consequently the
distribution gain EUR 2,022 million.
Result of discontinued operations
EUR million –/ –/
Sales , ,
Expenses –, –,
Result from operating activities
Income taxes – –
Result from operating activities, net of tax
Fair value gain from valuation of net assets of discontinued
operations , –
Profit from discontinued operations, net of tax
,
Earnings per share, EUR . .
Earnings per share, diluted, EUR . .
Profit from discontinued operations include demerger expenses of EUR 11 million in 1–6/2020
and EUR 22 million in 2019.
Profit from discontinued operations of EUR 2,150 million (EUR 230 million) is aributable
to the owners of the parent company.
Cash flows from discontinued operations
EUR million –/ –/
Net cash flow from operating activities
Net cash flow from investing activities – –
Net cash flow from financing activities –
Net cash flow for the period
–
Net assets of discontinued operations
EUR million /
Goodwill
Other intangible assets
Tangible assets
Right-of-use assets
Deferred tax assets
Investments
Loan receivables
Financial assets
Other non-current receivables
Inventories
Trade receivables
Customer contract assets
Income tax receivables
Other receivables
Cash and cash equivalents
Assets total
,
EUR million /
Borrowings
Lease liabilities
Deferred tax liabilities
Post-employment benefit obligations
Trade payables
Provisions
Advances received
Customer contract liabilities
Income tax liabilities
Financial liabilities
Other current liabilities
Liabilities total
,
Net assets and liabilities
,
89
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
5.6 New accounting standards
New and amended standards adopted in 2020
Neles has applied the following revised IFRS Standards that have been eective since
January 1, 2020.
Amendments to IFRS 3 Definition of a business
Amendments to IAS 1 and IAS 8 Definition of material
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform
Conceptual Framework for Financial reporting
These amendments to standards have not had a material impact on the Neles Group.
New and amended standards to be applied
At the date of authorization of these financial statements, Neles has not applied the
following new and revised IFRS Standards that have been issued but are not yet eective.
IFRS 17 Insurance Contracts
Amendments to IAS 1: Classification of Liabilities as Current or Non-Current
Amendment to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use
Amendment to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract
IFRS 9 Financial instruments – Fees in the 10 per cent test for derecognition of financial
liabilities
The amendments are not expected to have material impact on the Neles Group.
5.7 Exchange rates used
Average rates
Year-end rates
Average rates
Year-end rates
USD (US dollar) . . . .
BRL (Brazilian real) . . . .
INR (Indian rupee) . . . .
CNY (Chinese yuan) . . . .
SGD (Singapore dollar) . . . .
SEK (Swedish crown) . . . .
GBP (Pound sterling) . . . .
CAD (Canadian dollar) . . . .
90
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
6.1 Audit fees
EUR million
)
Audit services –. –.
Tax services . .
Other services . –.
Total
–. –.
)
Audit fee for include both the continuing and discontinued operations.
6. 2 Lawsuits and claims
There are a few legal proceedings, legal claims and disputes based on various grounds
against Neles in various countries. The legal proceedings, legal claims and disputes relate,
among others, to Neles’ products, projects, other operations and customer receivables.
Neles’ management assesses to the best of its understanding that the outcome of such
legal proceedings, claims and disputes would not have a material adverse eect on Neles
financial result in view of the grounds presented to them, provisions made, insurance
coverage in force and the extent of Neles’ total business activities. It should be noted
however that an outcome of the pending legal proceedings, legal claims and disputes are
beyond the direct influence of Neles’ management and may materially deviate from the
management’s current assessment.
Asbestos litigation
Since 1998, there has been a number of asbestos litigation cases filed in the United States
in relation to asbestos related health problems in which a Neles entity is one of the named
defendants. On December 31, 2020, the number of pending litigation cases filed was 138
(142 on December 31, 2019). Neles management’s understanding is that the risk caused by
the pending asbestos litigation cases in the United States is not material in the context of
Neles’ total business activities. Asbestos litigation risk is accounted for as contingent liability.
6 Other notes
91
Notes to the Consolidated Financial Statements
ANNUAL REPORT 2020
Statement of Income of the Parent Company
EUR Note
Sales ,,. ,,.
Other operating income ,. ,.
Personnel expenses –,,. –,,.
Depreciation and amortization –,. –,.
Other operating expenses –,,. –,,.
Operating profit/loss –,,. –,,.
Financial income and expenses, net ,,. ,,.
Profit before appropriations and taxes ,,. ,,.
Appropriations ,,. ,,.
Profit before taxes ,,. ,,.
Income taxes
Current tax expense –,. –,,.
Profit for the year
,,. ,,.
Financial Statements of the Parent Company, FAS
Balance Sheet of the Parent Company
Assets
EUR Note
Non-current assets
Intangible assets ,. ,.
Tangible assets ,. ,.
Investments
Shares in Group companies ,,. ,,,.
Other investments ,,. ,,.
Total non-current assets
,,. ,,,.
Current assets
Long-term receivables ,. ,,.
Short-term receivables ,,. ,,.
Bank and cash ,,. ,,.
Total current assets
,,. ,,.
Total assets
,,. ,,,.
Shareholders’ equity and liabilities
EUR Note
Shareholders’ equity
Share capital ,,. ,,.
Invested non-restricted equity fund ,,. ,,.
Retained earnings ,,. ,,.
Total shareholders’ equity
,,. ,,,.
Liabilities
Long-term liabilities ,,. ,,.
Current liabilities ,,. ,,.
Total liabilities
,,. ,,.
Total shareholders’ equity and liabilities
,,. ,,,.
92
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
EUR thousand
Cash flows from operating activities
Profit for the year , ,
Adjustments to operating profit (loss)
Depreciation and amortization
Financial income and expenses, net –, –,
Group contributions –, –,
Taxes ,
Other non-cash items –,
Total adjustments to operating profit (loss) –, –,
Increase / decrease in short-term non-interest bearing trade
receivables , –,
Increase / decrease in short-term non-interest bearing debt –, ,
Change in working capital , ,
Interest and other financial expenses paid –, –,
Dividends received , ,
Interest received
Income taxes paid , –,
Net cash provided by operating activities
, ,
EUR thousand
Cash flows from investing activities
Investments in tangible and intangible assets – –
Investments in subsidiary shares – –,
Long-term loans granted –, –,
Repayments of long-term loans , ,
Short-term loans granted –, –,
Purchase of other investments – ,
Interest received from investments , ,
Dividends received from investments
Net cash used in investing activities
, –,
Cash flows from financing activities
Investments in unrestricted equity , ,
Withdrawals and instalments of short-term loans, net – ,
Withdrawal of long-term loans , ,
Repayments of long-term loans – –,
Dividends paid –, –,
Financial transactions of the demerger –,
Change in Group pool accounts – –,
Group contributions , ,
Net cash provided by / used in financing activities
–, ,
Net increase / decrease in bank and cash , –,
Bank and cash at beginning of year , ,
Bank and cash at end of year
, ,
Cash Flow Statement of the Parent Company
93
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
1 Accounting principles
The parent company financial statements have been prepared in accordance with the
Finnish Generally Accepted Accounting Principles for the period January 1–December
31, 2020. The financial statements are presented in euros. The partial demerger of the
company took place on June 30, 2020, thus the financial information for the year 2020 is not
comparable with the previous year.
Foreign currency translations
Transactions in foreign currencies are recorded at the rates of exchange prevailing at the
date of the transaction. At the end of accounting period, monetary items are valued at the
rate of exchange prevailing at the end of period.
Tangible and intangible assets
Tangible and intangible assets are valued at historical cost, less accumulated depreciation
according to plan. Land and water areas are not depreciated.
Depreciation and amortization is calculated on a straight-line basis over the expected
useful lives of the assets as follows:
Computer soware 3–5 years
Other intangibles 10 years
Buildings and structures 20–25 years
Machinery and equipment 3–5 years
Other tangible assets 20 years
Financial Instruments
Neles’ financial risk management is carried out by a central treasury department (Group
Treasury) under the policies approved by the Board of Directors. Group Treasury functions in
co-operation with the operating units to minimize financial risks in both the Parent Company
and the Group.
Long-term debt is initially recognized at fair value, net of transaction costs incurred. In
subsequent periods, they are valued at amortized cost using the eective interest rate
method.
Forward exchange contracts are measured at fair value. The change in fair value is
recognized as income or expense in the income statement. The fair value of forward
exchange contracts is determined using forward exchange market rates at the balance
sheet date.
Bank and cash as well as securities consist of cash in the bank accounts and invest-
ments of liquid funds in interest bearing instruments. Financial assets are measured at
historical cost, less possible impairment loss.
Provisions
Provisions are unrealized costs, for which the company is commied, and which will not
provide any income in the future and which are likely to occur. Change in the provision are
included in the profit and loss.
Income taxes
Income tax expense includes taxes calculated for the financial year and adjustments to
prior year taxes. Company has made a change in its accounting policies not to recognize
deferred tax assets or liabilities for temporary dierences. This new accounting policy
applies for the first time to the financial statements for the financial period January 1–
December 31, 2020. The figures for the financial period January 1–December 31, 2019, have
been adjusted accordingly.
Notes to the Financial Statements of the Parent Company
94
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
2 Other operating income
EUR thousand
Other
Total
3 Personnel expenses
EUR thousand
Salaries and wages –, –,
Pension costs –, –,
Other indirect employee costs – –
Total
–, –,
EUR thousand
Fringe benefits , ,
Remuneration paid to CEO and Board members
EUR thousand
Chief Executive Ocer –, –
Board members
)
– –
Total
–, –,
)
Board remuneration is presented in note . for Consolidated Financial Statements.
Number of personnel
Personnel at end of year
Average number of personnel during the year
4 Depreciation and amortization
EUR thousand
Buildings and structures –
Machinery and equipment – –
Intangible assets – –
Total
– –
5 Audit fees
EUR thousand
Audit – –
Tax consulting
Other services – –,
Total
– –,
6 Financial income and expenses
EUR thousand
Dividends received from
Group companies , ,
Others
Total , ,
Interest income from investments from
Group companies , ,
Others
Total , ,
Other interest and financial income from
Others
Exchange rate dierences –
Interest and financial income, total , ,
Interest expenses to
Group companies – –
Others –, –,
Other financial expenses
Fair value change in derivatives –
Interest and other financial expenses, total –, –,
Financial income and expenses, net
, ,
7 Appropriations
EUR thousand
Group contributions received , ,
8 Income taxes
EUR thousand
Income taxes on operating activities – –,
Income taxes for prior years – –
Total
– –,
95
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
9 Fixed assets
EUR thousand Intangible assets Land areas
Buildings and
structures
Machinery and
equipment
Other tangible
assets
Tangible assets
total Total
Acquisition cost Jan , , ,
Additions – – – – –
Decreases – – – – – – –
Decreases/demerger –, – – – – –, –,
Acquisition cost Dec , ,
Accumulated depreciation Jan –, – – – –, –,
Accumulated depreciation of decreases – – –
Accumulated depreciation of decreases/demerger , – – , ,
Depreciation for the period – – – – – –
Accumulated depreciation Dec –, – – – – –,
Net carrying value Dec
EUR thousand Intangible assets Land areas
Buildings and
structures
Machinery and
equipment
Other tangible
assets
Tangible assets
total Total
Acquisition cost Jan , , ,
Additions – – –
Decreases – – – – – – –
Acquisition cost Dec , , ,
Accumulated depreciation Jan –, – – – –, –,
Depreciation for the period – – – – – –
Accumulated depreciation Dec –, – – – –, –,
Net carrying value Dec
,
96
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
10 Investments
EUR thousand
Shares in Group
companies Other shares
Receivables from
Group companies
Receivables from
other companies
Other investments
total
Acquisition cost at Jan ,, , , – ,
Additions , – , – ,
Decreases – – –, – –,
Decreases/demerger –, –, –, – –,
Acquisition cost at Dec
,
,
– ,
Acquisition cost at Jan , , , , ,
Additions , , – ,
Decreases –, –, –,
Acquisition cost at Dec
,, , , – ,
11 Shareholdings
Subsidiaries December 31, 2020
Subsidiary Domicile Ownership, %
Neles Canada Ltd Canada, St. Laurent .
Neles (China) Investment Co. Ltd China, Shanghai .
Neles Finland Oy Finland, Vantaa .
Neles-Jamesbury Inc. United States, Worcester .
12 Specification of receivables
Long-term receivables
EUR thousand
Derivatives ,
Long-term receivables from others
Long-term receivables total
,
97
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
Short-term receivables
EUR thousand
Trade receivables from
Group companies , ,
Others
Total , ,
Loan receivables from
Group companies , ,
Others – –
Total , ,
Prepaid expenses and accrued income from
Group companies , ,
Others , ,
Total , ,
Other receivables
Investments
VAT receivable ,
Other receivables ,
Total ,
Short-term receivables total
, ,
Specification of prepaid expenses and accrued income
EUR thousand
Prepaid expenses and accrued income from Group companies
Group contribution receivables , ,
Accrued interest income ,
Other accrued items –
Total
, ,
Prepaid expenses and accrued income from others
Accrued interest income
Accrued derivatives , ,
Other accrued items , ,
Total
, ,
13 Statement of changes in shareholders’ equity
EUR thousand
Share capital at Jan , ,
Decrease in demerger –, –
Share capital at Dec , ,
Invested non-restricted equity fund at Jan , ,
Change
Decrease in demerger –, –
Invested non-restricted equity fund at Dec , ,
Retained earnings at Jan , ,
Dividend distribution –, –,
Other change , ,
Profit for the year , ,
Decrease in demerger –, –
Retained earnings at Dec , ,
Total shareholders’ equity at Dec
, ,,
Statement of distributable funds at December 31
EUR
Invested non-restricted equity fund ,,. ,,.
Retained earnings ,,. ,,.
Total distributable funds ,,. ,,.
At the end of the year, Neles Oyj held , treasury shares, the acquisition price of which,
EUR,,. has been deducted from retained earnings.
98
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
14 Long-term liabilities
EUR thousand
Bonds from
)
Others ,
Loans from financial institutions , ,
Interest derivatives ,
Total
, ,
)
Specification of bonds and fair values in note . for Consolidated Financial Statements.
Debt maturing later than in five years
EUR thousand
Bonds
15 Short-term liabilities
EUR thousand
Short-term interest bearing debt
Bonds
Loans from financial institutions ,
Group companies , ,
Group pool accounts , ,
Total , ,
Trade payables to
Group companies , ,
Others , ,
Total , ,
Accrued expenses and deferred income to
Group companies
Others , ,
Total , ,
Other short-term non-interest bearing debt to
Others ,
Total ,
Short-term liabilities total
, ,
Short-term liabilities to Group companies total
, ,
Specification of accrued expenses and deferred income
EUR thousand
Accrued expenses and deferred income to Group companies
Accrued interest expenses
Other accrued items
Total
Accrued expenses and deferred income to others
Accrued interest expenses ,
Accrued derivatives , ,
Accrued salaries, wages and social costs , ,
Other accrued items , ,
Total , ,
16 Other contingencies
Guarantees and mortgages
EUR thousand
Guarantees on behalf of subsidiaries , ,
Lease commitments
EUR thousand
Payments in the following year ,
Payments later ,
Total
,
99
Financial Statements of the Parent Company, FAS
ANNUAL REPORT 2020
Vantaa, February 2, 2021
Jukka Moisio Mark Vernon
Chair of the Board Vice Chair of the Board
Bria Giesen Anu Hämäläinen Niko Pakalén
Member of the Board Member of the Board Member of the Board
Teija Sarajärvi Peer Söderström Jukka Tiitinen
Member of the Board Member of the Board Member of the Board
Olli Isotalo
President and CEO
The auditor’s note
Our auditor’s report has been issued today.
Vantaa, February 2, 2021
Ernst & Young Oy
Authorized Public Accountant Firm
Toni Halonen
APA
Signatures of the Board of Directors’ Report
and Financial Statements
100
Signatures of the Board of Directors’ Report and Financial Statements
ANNUAL REPORT 2020
Auditor’s Report
(Translation of the Finnish original)
To the Annual General Meeting of Neles Corporation
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of Neles Corporation (business identity code
1538032-5) (former Metso Corporation) for the year ended 31 December 2020. The financial
statements comprise the consolidated balance sheet, statement of income, statement of
comprehensive income, statement of changes in equity, statement of cash flows and notes,
including a summary of significant accounting policies, as well as the parent company’s
balance sheet, income statement, statement of cash flows and notes.
In our opinion
the consolidated financial statements give a true and fair view of the group’s financial
position as well as its financial performance and its cash flows in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU.
the financial statements give a true and fair view of the parent company’s financial
performance and financial position in accordance with the laws and regulations governing
the preparation of financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submied to the Audit Commiee.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsi-
bilities under good auditing practice are further described in the Auditor’s Responsibilities for
the Audit of Financial Statements section of our report.
We are independent of the parent company and of the group companies in accordance
with the ethical requirements that are applicable in Finland and are relevant to our audit, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided
to the parent company and group companies are in compliance with laws and regulations
applicable in Finland regarding these services, and we have not provided any prohibited
non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit
services that we have provided have been disclosed in note 6.1 to the consolidated financial
statements.
We believe that the audit evidence we have obtained is sucient and appropriate to
provide a basis for our opinion.
Key Audit Maers
Key audit maers are those maers that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These maers
were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these maers.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the
audit of the financial statements section of our report, including in relation to these maers.
Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial statements. The results
of our audit procedures, including the procedures performed to address the maers below,
provide the basis for our audit opinion on the accompanying financial statements.
We have also addressed the risk of management override of internal controls. This
includes consideration of whether there was evidence of management bias that repre-
sented a risk of material misstatement due to fraud.
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Key Audit Maer How our audit addressed the Key Audit Maer
Revenue recognition
We refer to note 1.1 of the consolidated financial statements .
Neles Group’s turnover in 2020 amounted to 576 million euros consisting of sale of
valves equipment and wear or spare parts and providing services to customers.
Revenue from sale of valves equipment and wear or spare parts is recognized at a
point in time, when control of the goods is transferred to customer, typically at the time of
delivery of the goods or aer commissioning. Revenue from services is recognized when the
services are rendered.
Revenue is a key performance indicator for Neles, which may be an incentive for
premature revenue recognition. Revenue recognition was a key audit maer and a signif-
icant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of
Article 10(2) due to the risk related to incorrect timing (cut-o) of revenue recognition.
Our audit procedures, which take into account the significant risk of material misstatement
in revenue recognition, included among others:
assessment of the compliance of Neles Group’s accounting policies over revenue
recognition and comparison with applicable accounting standards;
assessing the revenue recognition process and -methodologies and testing controls
where applicable;
obtaining confirmations of accounts receivable balances from customers and analyzed
credit invoices issued aer the balance sheet date;
testing revenue recognition including cut-o with analytical procedures and by substan-
tive sales transactions testing and;
assessment of the adequacy of disclosures related to revenues.
Valuation of inventories
We refer to note 2.4 of the consolidated financial statements
At the balance sheet date 31. 12. 2020, the value of inventories amounted to 160 million
euros representing 25% of total assets. Inventories are measured at historical cost or net
realizable value if lower. Costs are measured on a weighted average cost basis and include
purchase costs as well as transportation and processing costs. Net realizable value is the
sales price in the ordinary course of business less sales costs and the costs needed to
finish the production of the goods.
Impairment due to obsolescence is considered when assessing the valuation of inven-
tories. Obsolescence provision is based on the best estimate at the balance sheet date and
requires judgement from management.
Valuation of inventories is a key audit maer due to the size of the account balance and
because inventory valuation involves management judgement.
Our audit procedures, included among others:
assessment of the compliance of Neles Group’s accounting policies on inventory valuation
and comparison with applicable accounting standards;
assessment of the processes and practices related to inventory valuation;
testing of the controls related to processes where applicable;
test of details related to inventory costing;
evaluation of the analyses, calculations and judgement made by management with
respect to slow-moving and obsolete stock and;
assessment of the disclosures related to inventories.
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Key Audit Maer How our audit addressed the Key Audit Maer
Accounting for the partial demerger and discontinued operations
We refer to the consolidated financial statements’ accounting policies and to the note 5.5
In the partial demerger of Metso Corporation, the assets and liabilities of Metso Minerals
business were demerged from Metso Group using carrying values as of 30 June 2020. Until
the eective date of demerger, Metso Minerals was reported as a discontinued operation
in the consolidated financial statements. Valves business has formed the entire year 2020
Group’s continuing operations and from 1 July 2020, Metso Corporation was renamed as
Neles Corporation.
In the consolidated financial statements of Neles, the partial demerger has been
accounted for as a disposal to owners in accordance with IFRIC 17 Distribution of non-cash
assets to owners. The dierence between the fair value of Metso Minerals business and
it’s carrying value in the consolidated balance sheet at 30 June 2020 has been recorded
as a distribution gain in the consolidated statement of income as part of the result of the
discontinued operations. The total value of net assets transferred amounted to 1.150 million
euros and the distribution gain 2.022 million euros.
As a result of the partial demerger, parent company’s equity was reduced by 793 million
euros amounting to 414 million euros at 31. 12. 2020 (1.038 million euros at 31. 12. 2019).
The accounting for the partial demerger and discontinued operations was a key audit
maer because it had a significant impact on the statement of income and balance sheet
(including eect on equity) of Neles Group.
Our audit procedures in respect of the accounting for the partial demerger included, among
others:
assessment of the compliance of the accounting treatment of the partial demerger
against the Limited Liability Act and the demerger plan;
evaluation of the appropriateness of the transferred assets and liabilities by comparing
them to the demerger plan;
testing of the fair value determination of the transferred business and recorded distribu-
tion gain and;
evaluation of the appropriateness and adequacy of the disclosures related to the partial
demerger including presentation of discontinued operations
Responsibilities of the Board of Directors and the Managing Director for the
FinancialStatements
The Board of Directors and the Managing Director are responsible for the preparation
of consolidated financial statements that give a true and fair view in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial
statements that give a true and fair view in accordance with the laws and regulations
governing the preparation of financial statements in Finland and comply with statutory
requirements. The Board of Directors and the Managing Director are also responsible for
such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director
are responsible for assessing the parent company’s and the group’s ability to continue as
going concern, disclosing, as applicable, maers relating to going concern and using the
going concern basis of accounting. The financial statements are prepared using the going
concern basis of accounting unless there is an intention to liquidate the parent company or
the group or cease operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance on whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with good auditing
practice will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sucient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
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Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the eectiveness of the parent company’s or the group’s internal
control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s
use of the going concern basis of accounting and based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast signifi-
cant doubt on the parent company’s or the group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw aention in our
auditor’s report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may
cause the parent company or the group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events so that the financial statements give a true and fair view.
Obtain sucient appropriate audit evidence regarding the financial information of the
entities or business activities within the group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other maers,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and communicate with them
all relationships and other maers that may reasonably be thought to bear on our indepen-
dence, and where applicable, related safeguards.
From the maers communicated with those charged with governance, we determine
those maers that were of most significance in the audit of the financial statements of the
current period and are therefore the key audit maers. We describe these maers in our
auditor’s report unless law or regulation precludes public disclosure about the maer or
when, in extremely rare circumstances, we determine that a maer should not be commu-
nicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Other Reporting Requirements
Information on our audit engagement
We were first appointed as auditors by the Annual General Meeting on 29. 3. 2012, and our
appointment represents a total period of uninterrupted engagement of 9 years.
Other information
The Board of Directors and the Managing Director are responsible for the other information.
The other information comprises the report of the Board of Directors and the information
included in the Annual Report, but does not include the financial statements and our
auditor’s report thereon. We have obtained the report of the Board of Directors prior to the
date of this auditor’s report, and the Annual Report is expected to be made available to us
aer that date.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. With respect to report of the Board
of Directors, our responsibility also includes considering whether the report of the Board of
Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with
the information in the financial statements and the report of the Board of Directors has been
prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report in this
regard.
Opinions based on assignment of the Audit Commiee
We support that the financial statements and the consolidated financial statements should
be adopted. The proposal by the Board of Directors regarding the distribution of dividends is
in compliance with the Limited Liability Companies Act. We support that the Members of the
Board of Directors and the President and CEO of the parent company should be discharged
from liability for the financial period audited by us.
Helsinki 2
nd
February, 2021
Ernst & Young Oy
Authorized Public Accountant Firm
Toni Halonen
Authorized Public Accountant
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Investor Relations function and policies
The main task of Investor Relations is to support the correct valuation of Neles share by
providing correct, adequate and up-to-date information to all market participants on
maers concerning our operations, operating environment, strategy, objectives, financial
performance and market outlook. In our work, we aim for promptness, transparency, agility
and excellent service.
Investor Relations is responsible for all investor communications, including contacts
with representatives of the capital markets. All investor meeting requests are processed
by Investor Relations. In addition to financial reports and actively updated webpages our
investor communications include investor meetings and seminars in which corporate
executives actively participate. We also arrange Capital Markets Day events.
We are not in contact with capital market representatives during the 30-day period prior
to publication of the annual, half-year or interim financial results.
Market estimates and analyst reports
We actively monitor market expectations and will review, if requested so by an analyst, their
model against publicly available information. However, we do not comment on or take any
responsibility for estimates or forecasts published by capital market representatives and we
do not comment on the company’s valuation or share price development, give preference to
one particular analyst, or distribute analyst reports to the investment community.
We maintain a list of the analysts following Neles on a regular basis on our website at
hps://www.neles.com/investors/share/analysts/
Financial reporting schedule 2021
Financial statements review for 2020 February 3, 2021
Annual Report 2020 Week commencing March 1, 2021, at the latest
Interim review for January–March 2021 April 27, 2021
Half-year financial review 2021 July 23, 2021
Interim review for January–September 2021 October 27, 2021
Creation of Neles on June ,
Metso’s Extraordinary General Meeting on October 29, 2019, approved the partial demerger
of the company. The registration of the completion of the partial demerger was executed on
June 30, 2020. According to the demerger plan, the Metso Minerals businesses were carved
out and combined with Outotec Group. Metso’s valves business formed the continuing
operations and on July 1, 2020, Metso Group was renamed Neles Group. Metso’s share-
holders continued as shareholders of Neles Corporation. Additionally, shareholders received
4. 3 new Outotec shares for one old Metso share as consideration for the distributed net
assets of the Minerals business. The partial demerger of Metso was completed on June 30,
2020, with share trading continuing under the Neles name on Nasdaq Helsinki on July 1.
Annual General Meeting
Neles’ Annual General Meeting 2021 will be held on Friday, March 26, 2021.
Proposals have been published as a stock exchange release on February 3, 2021, which
is also available at www.neles.com/investors/governance/agm/2021.
IR contact
Rita Uotila
Vice President, Investor Relations
Tel. +358 400 954141
rita.uotila@neles.com
Investor information
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Corporate governance
Neles Corporation became
an independent company on
completion of the partial demerger
of Metso Corporation, registered on
June 30, 2020. Prior to the demerger,
Neles was Metso Corporation’s
Valves Business Area.
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Introduction
Neles Corporation (“Neles”) is a public company domiciled in Vantaa. It became an inde-
pendent company on completion of the partial demerger of Metso Corporation (“Metso”),
registered on June 30, 2020. Prior to the demerger, Neles was operating as the Valves
Business Area of Metso Corporation. Neles continued Metso’s listing in Nasdaq Helsinki.
Key events in governance in
Shareholders
Solidium Oy, the largest shareholder of Metso Corporation, sold its shares to Valmet
Corporation on July 1, 2020. Valmet Corporation’s shareholding was 29.5% on December
31, 2020. Cevian Capital Partners Ltd’s shareholding was 10.9% on September 1, 2020. In
the course of its voluntary public tender oer, Alfa Laval AB (publ) acquired 8.5% of Neles’
shares, becoming the third largest shareholder of Neles.
External Auditor
The Annual General Meeting re-elected Ernst & Young Oy (“Ernst & Young”) as the
company’s external auditor. Mr. Toni Halonen, APA, became the principal auditor of Neles.
Board of Directors
The Board composition changed in 2020 on the partial demerger of Metso Corporation and
Neles starting as an independent listed company on July 1, 2020.
Neles’ new strategy
From early January until June 30, 2020, the members-elect of Neles Board (“Sounding
Board”) worked intensively with Neles management to define the company’s new strategic
growth areas and financial targets for the 2020–2025 period. The strategy and financial
targets were formally approved by the Board on July 1, 2020.
Neles Executive Team
Upon the partial demerger, the Neles Executive Team was composed. The members
included the President and Chief Executive Ocer, Chief Financial Ocer, three Business
Lines, four Market Areas, Valve Operations, Human Resources, and Communications and
Marketing. Apart from running and developing the daily operations, the new Executive Team
focused on defining the company’s new values, strategy and brand.
Internal Audit
Neles outsourced the internal audit function to KPMG Oy Ab (“KPMG”) from July 1, 2020. The
audit plan for the H2/2020 was reviewed and approved by Neles’ Audit Commiee.
Neles Corporate Governance Statement
Corporate governance Corporate Governance Statement
Corporate Governance principles
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ANNUAL REPORT 2020
Regulatory framework
Neles complies with the Finnish Corporate Governance Code 2020, issued by the Securities
Market Association. Financial reports, including consolidated financial statements, are
prepared in accordance with the International Financial Reporting Standards, IFRIC
Interpretations as adopted by the European Union, as well as the Financial Supervisory
Authority’s regulations and Nasdaq Helsinki’s rules. This statement has been reviewed by
the Audit Commiee.
Updated information about our governance is available on our website.
The Finnish Corporate Governance Code 2020 is available on the website of the
Securities Market Association: hps://cgfinland.fi/en/corporate-governance-code/.
Regulatory framework for Corporate Governance at Neles
External framework Internal framework
Companies Act
Accounting Act
Securities Markets Act
Market Abuse Regulation (EU) No.
596/2014 (“MAR”)
Finnish Corporate Governance Code
2020, rules, regulations and guidelines
of Nasdaq Helsinki and the Finnish
Financial Supervisory Authority
Articles of Association
Code of Conduct
Board Charter and Board Commiee
Charters
Internal Audit Charter
Neles’ internal policies and instructions
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ANNUAL REPORT 2020
The management and control of Neles is divided between the shareholders’ General
Meeting, the Board of Directors (“Board”) and the President and Chief Executive Ocer
(“President and CEO”). The Annual General Meeting is the ultimate decision-making
authority. Every shareholder has the right to aend the General Meeting and participate
in decision making by voting. Each share entitles the holder to one vote. Decisions at the
General Meeting of shareholders are primarily made by a simple majority of votes, except
in certain specified cases defined by the Companies Act (e.g. amending the Articles of
Association).
Neles’ Annual General Meeting is to be held within six months from the close of the fiscal
year in Vantaa. The Annual General Meeting is usually held at the end of March.
Neles’ business is reported as one segment (the former Metso Corporation had two
external reporting segments, Minerals and Flow Control, until the partial demerger registered
on June 30, 2020). Neles’ three Business Lines with four Market Areas and Valve Operations
are responsible for the company’s business operations.
Neles’ Governance bodies
General Meetings of Shareholders
Two shareholders’ General Meetings were held in 2020.
Annual General Meeting 2020
The Annual General Meeting (“AGM”) 2020 was held at the Metso headquarters in Helsinki
on June 16, 2020. The AGM was held without the presence of the shareholders and their
proxy representatives at the meeting venue pursuant to the temporary legislative act to limit
the spread of the Covid-19 pandemic, as approved by the Finnish Parliament on April 24,
2020.
In view of the expected partial demerger of Metso Corporation, the AGM elected
Mr.Mikael Lilius as the Chair, Mr. Christer Gardell as the Vice Chair, and Mr. Lars Josefsson,
Mr. Ani Mäkinen, Mr. Kari Stadigh, Ms. Emanuela Speranza and Ms. Arja Talma as members
to the Board of Metso Corporation for a term of oce expiring on the registration of the
partial demerger of Metso Corporation. The AGM elected Mr. Jukka Moisio as the Chair,
Mr.Mark Vernon as the Vice Chair, and Dr. Bria Giesen, Ms. Anu Hämäläinen, Mr. Niko
Pakalén, Ms. Teija Sarajärvi and Mr. Peer Söderström as members to the Board of the
future Neles Corporation, for a term of oce commencing from the registration of the partial
demerger.
The minutes of the meeting are available on the Neles website.
Extraordinary General Meeting 2020
Neles’ Extraordinary General Meeting (“EGM”) was held on October 29, 2020, at Hilton
Helsinki Airport in Vantaa. The EGM resolved, in accordance with the proposals of its largest
shareholder, Valmet Corporation, that the number of members of the Board be eight, and
that for a term of oce expiring at the next Annual General Meeting, Mr. Jukka Tiitinen be
elected as a new member of the Board in addition to the previous members of the Board.
The minutes of the meeting are available on the Neles website.
Governance structure
Shareholders’ General Meeting
Board of Directors
External Audit
Risk Management
Internal Audit
Legal
President and CEO
Shareholders’ Nomination Board
Neles Executive Team
Audit Commiee Remuneration Commiee
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ANNUAL REPORT 2020
Shareholders’ Nomination Board
The Shareholders’ Nomination Board is a permanent governance body that was established
by the AGM in 2011. The purpose of the Shareholders’ Nomination Board is to prepare and
present to the General Meeting proposals on the composition and members of the Board,
and board remuneration.
The Shareholders’ Nomination Board consists of five members nominated annually.
Four members are appointed by the company’s four largest shareholders, who appoint
one member each. The Chair of the Neles Board serves as the fih member. The four
largest shareholders entitled to appoint members to the Shareholders’ Nomination Board
are determined on the basis of the registered holdings as of September 1 each year. The
Shareholders’ Nomination Board forwards its proposals for the AGM by January 31 each year.
The composition of the Shareholders’ Nomination Board on December 31, 2020 was as
follows:
Mr. Pasi Laine, President and CEO, Valmet Corporation
Mr. Philip Ahlgren, Vice President, Cevian Capital AB
Mr. Mikko Mursula, Deputy CEO, Ilmarinen Mutual Pension Insurance Company
Mr. Jukka Moisio, Chair of Neles Board
Mr. Risto Murto, President and CEO, Varma Mutual Pension Insurance Company, was a
member of the Shareholders’ Nomination Board until his resignation on October 23, 2020.
Varma Mutual Pension Insurance Company transferred more than half the shares it held in
Neles on September 1, 2020, and as a result was no longer among the ten largest share-
holders of Neles. Pursuant to the Charter of the Shareholders’ Nomination Board, a member
nominated by such a shareholder is obliged to resign from the Shareholders’ Nomination
Board.
The Shareholders’ Nomination Board held eight virtual meetings with aendance rate
of 100% except for Mr. Moisio who recused himself from one meeting. In addition, the
Shareholders’ Nomination Board held several virtual meetings to interview the Board
candidates. On December 22, 2020, the Shareholders’ Nomination Board submied its
proposals to the Board for the AGM 2021. The proposal is available on the Neles website.
The composition of Metso’s Shareholders’ Nomination Board prior to September 1, 2020
was as follows:
Mr. Peer Söderström, Investment Director, Solidium Oy
Mr Niko Pakalén, Partner, Cevian Capital AB
Mr. Mikko Mursula, Deputy CEO, Ilmarinen Mutual Pension Insurance Company
Mr. Risto Murto, President and CEO, Varma Mutual Pension Insurance Company
Mr. Mikael Lilius, Chair of Metso Board
Mr. Söderström resigned from the Shareholders’ Nomination Board on July 1, 2020
following Solidium Oy’s sale of shares to Valmet Corporation.
Metso’s Shareholders’ Nomination Board held one meeting in 2020, and the aendance
rate was 100%. On January 16, 2020, the Shareholders’ Nomination Board submied its
proposals to the Board for the AGM 2020 concerning the Metso Board until completion of
the partial demerger and the Neles Board from thereon. The proposal is available on the
Neles website.
The members of the Shareholders’ Nomination Board are not remunerated by Neles
for their representation. The members’ expenses are reimbursable in accordance with the
company’s expense policy. Costs incurred from using external experts are borne by the
company.
More information about the Nomination Board, including its Charter, is available on the
Neles website.
Board of Directors and Board commiees
The Chair and the members of the Board are elected by the shareholders’ General Meeting.
According to its Articles of Association, Neles shall have minimum five and maximum eight
Board members.
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ANNUAL REPORT 2020
Jukka Moisio, Chair of the Board
– nationality: Finnish
– born: 1961
– education: MBA, M.Sc.
– main occupation: Nokian Tyres plc, President and CEO
– key positions of trust: Chair of the Board of Directors of Paulig
Group (2020–) and Sulapac Oy (2019–); Member of the Board
of Directors of Atria Oyj (2014–) and Member of the Supervisory
Board of Suomen Messut (2008–)
– shareholding as of December 31, 2020: 13,027 shares
Niko Pakalén, Member of the Board
– nationality: Finnish and Swedish
– born: 1986
– education: M.Sc., Economics
– main occupation: Cevian Capital AB, Partner
– key positions of trust: Member of the Board of Directors of
TietoEVRY (2019-)
– shareholding as of December 31, 2020: 1,421 shares
Mark Vernon, Vice Chair of the Board
– nationality: U.S.
– born: 1953
– education: B.Sc. Physical Chemistry
– main occupation: board professional
– key positions of trust: Chair of the Board of Directors of LiqTech
International Inc. (2018–), Senior plc, Non-Executive Director
(2011–)
– shareholding as of December 31, 2020: 1,699 shares
Teija Sarajärvi, Member of the Board
– nationality: Finnish
– born: 1969
– education: MA
– main occupation: Huhtamäki Oyj, Executive VP, HR and Safety
– shareholding as of December 31, 2020: 1,328 shares
Bria Giesen, Member of the Board
– nationality: German
– born: 1966
– education: PhD (Tech.) Operations Research; Dipl.-Wirtsch.-Ing.
(Tech.) Mechanical Engineering; M.Eng (Tech.) Aerospace
Engineering, Aeronautics and Astronautics
– main occupation: Member of the Management Board of Pfeier
Vacuum Technology AG (until December 31, 2020); Chairwoman
of the Management Board and CEO of Pfeier Vacuum
Technology AG (starting January 1, 2021)
– shareholding as of December 31, 2020: 1,421 shares
Peer Söderström, Member of the Board
– nationality: Finnish
– born: 1976
– education: M.Sc., Economics
– main occupation: Solidium Oy, Investment Director
– shareholding as of December 31, 2020: 1,471 shares
Anu Hämäläinen, Member of the Board
– nationality: Finnish
– born: 1965
– education: M.Sc., Economics
– main occupation: Kesko Oyj, Vice President, Group Treasury and
Financial Services
– key positions of trust: Member of the Board of Directors of
Finnfund (2019-)
– shareholding as of December 31, 2020: 1,606 shares
Jukka Tiitinen, Member of the Board
– nationality: Finnish and U.S.
– born: 1965
– education: M.Sc., Engineering
– main occupation: Valmet Oyj, Area President, Asia-Pacific (until
March 31, 2021); Valmet Oyj, Area President, North America
(starting April 1, 2021)
– shareholding as of December 31, 2020: 924 shares
Neles Board (December , )
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Independence of the members of the Neles Board on December 31, 2020
The Board considered all its members to be independent of the company. The Board further
considered all members to be independent of major shareholders except:
Mr. Jukka Tiitinen, who is considered to be dependent on Valmet Corporation. Mr. Tiitinen
is the Area President, Asia-Pacific, of Valmet.
Mr. Niko Pakalén, who is considered to be dependent on Cevian Capital Partners Ltd. Mr.
Pakalén is a Partner of Cevian Capital AB.
Commiees and Steering Groups of the Board
The Board has delegated some of its functions to the Audit Commiee, Remuneration
Commiee (previously, the HR and Remuneration Commiee) and to temporary steering
groups tasked to assist the Board in specific maers. The Board appoints the members to
the Commiees and steering groups from among its members.
Each Commiee meets regularly and reports on its work to the Board. The Commiees
have no decision-making authority independent of the Board, except where expressly
authorized to do so by the Board.
Copies of the Board and Commiee Charters are available on the Neles website.
Metso and Neles Board and Commiee work in 2020
In addition to the duties specified in the Board Charter, Metso Board’s focus was on over-
seeing that the partial demerger of Metso Corporation was implemented successfully, in
that Metso’s Minerals business was merged with Outotec Oyj and the Flow Control business
continued as an independent listed company under Metso’s listing on Nasdaq Helsinki
under Neles name. Prior to the commencement of their term of oce, the members-elect
of the Neles Board (“Sounding Board”) supported Neles’ management in preparations for
the “new Neles”, e.g. in strategy development, seing financial targets and reviewing the
governance model. On assuming oce, the Board focused on assessing the public tender
oer announced by Alfa Laval AB (publ) on August 13, 2020, the merger proposal made
by Valmet Corporation on September 29, 2020, and convened the Extraordinary General
Meeting, pursuant to the request made by Valmet Corporation.
The Audit Commiee ensured that Neles organized resources appropriately to operate as
an independent company aer the partial demerger of Metso Corporation. In particular, the
Audit Commiee reviewed all the key operational policies relating to financial management
and reporting.
The Remuneration Commiee continued the implementation of remuneration policy and
incentive systems, both new plans and those inherited from Metso, and conducted a people
and talent management review.
Members of the Board of Directors, meeting aendance in 2020
Members on July 1–December 31, 2020 Board
Audit
Commiee
Remuneration
Commiee
Temporary
steering
groups
Jukka Moisio (Chair of the Board and
Remuneration Commiee) / – / /
Mark Vernon (Vice Chair of Board) / – / /
Bria Giesen / / – -
Anu Hämäläinen (Chair of Audit Commiee) / / – /
Niko Pakalén
)
/ / – –
Teija Sarajärvi / – / –
Peer Söderström
)
/ / – –
Jukka Tiitinen
)
/ / – –
)
Mr. Pakalén recused himself from four Board meetings
)
Mr. Söderström recused himself from three Board meetings
)
Mr. Tiitinen was elected to the Board on October ,
In addition, the Sounding Board had five meetings, the future renumeration commiee had
three meetings, and the future audit commiee had one meeting before July 1, 2020, all with
100% aendance.
Members on January 1–June 30, 2020 Board
Audit
Commiee
Remuneration
Commiee
Mikael Lilius (Chair of the Board, and HR and
Remuneration Commiee) / – /
Christer Gardell (Vice Chair) / – /
Peter Carlsson
)
/ – –
Lars Josefsson / – /
Ani Mäkinen / / –
Kari Stadigh / – –
Arja Talma (Chair of Audit Commiee) / / –
Emanuela Speranza
)
/ – –
)
Mr. Carlsson’s term ended on June ,
)
Ms. Speranza was elected to Metso Board on June ,
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Diversity of the Board of Directors
When planning Board composition, the Shareholders’ Nomination Board considers the
needs and development phases of Neles’ businesses, and the competence areas required
by the Board and its commiees. In addition, individuals must be qualified for the position,
be a good fit with the Board’s competence profile and be able to allocate sucient time
to carry out their responsibilities. To achieve a balanced representation of genders within
the Board, the Shareholders’ Nomination Board seeks to include representatives of both
genders in the Board candidate search and evaluation process. The status and progress
of diversity is monitored by the Shareholders’ Nomination Board in its self-assessment.
There is no specific order of appointment of Board members. In the nomination process,
the Shareholders’ Nomination Board also takes into consideration the requirements of the
Finnish Corporate Governance Code 2020 concerning the relevant and adequate compe-
tencies of Audit Commiee members. More about Board diversity is available on the Neles
website.
Age group
Nationality
Gender
Tenure
Board diversity (December 31, 2020)
30–50: 25%
Finnish: 75%
>50: 75%
German:
12.5%
Women: 37.5%
Less than 2 years:
100%
Men: 62.5%
US: 12.5%
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Corporate governance
ANNUAL REPORT 2020
President and CEO
The President and CEO is appointed by the Board and holds the position of Managing
Director under the Limited Liability Companies Act. The President and CEO manages the
company’s operations in accordance with the law, and the guidance and instructions given
by the Board. Under the law, the President and CEO is responsible for ensuring that the
accounts of the company comply with the applicable laws, and that its financial aairs have
been arranged reliably.
The Board determines the compensation and sets the short- and long-term incentive
targets for the President and CEO. The main terms of the President and CEO’s compen-
sation and benefits are set out in the Remuneration Report which is available on the Neles
website.
Mr. Olli Isotalo joined Metso as President, Valves Business Area on July 15, 2019. He
started as President and CEO of Neles on July 1, 2020. Mr. Isotalo has extensive experience
in leading a global engineering business.
Neles Executive Team
The Neles Executive Team is chaired by the President and CEO, and it comprises senior
management leading:
three Business Lines: Valves Equipment, Valve Controls & Actuators and Valves Services,
responsible for business strategy, product management, and research and development
four Market Areas: North America, South and Central America, EMEIA (Europe, Middle East,
India and Africa) and Asia-Pacific, responsible for customers and the competitive situation
in their respective market areas
Valve Operations, responsible for procurement, supply chain management and
manufacturing
the CFO Oce, responsible for financial and group control, treasury, tax, business
development, legal and compliance, investor relations and IT
Human Resources, responsible for developing all people maers in cooperation with the
Business Lines, Market Areas and group functions
Communications and Marketing, responsible for external and internal communications,
marketing and brand.
The Neles Executive Team assists the President and CEO in strategy implementation,
coordinates groupwide development projects and defines policies that guide the company’s
activities. The Neles Executive Team members report to the President and CEO, and their
main task is to lead the daily operations of their respective unit or group function. Neles
Executive Team members are approved by the Board.
Work of the Metso and Neles Executive Teams in 2020
The focus of the Metso Executive Team was on preparing the carve-out of the Metso
Minerals business and its integration with Outotec Oyj, as well as enabling the Flow Control
business to become an independent listed company. The Neles Executive Team developed
and began to implement the new group strategy. A new management model was estab-
lished to support agile business management and strategy execution, and the company’s
values and brand were defined. Ensuring employee safety, continuity of operations, a good
cash position and profitability were high on the agenda of the Neles Executive Team due to
the Covid-19 pandemic.
Metso Executive Team (from 1 January to 30 June 2020)
Prior to the partial demerger of Metso Corporation, the Metso management was as follows:
Vauramo, Pekka President and CEO
Sipilä, Eeva Chief Financial Ocer, Deputy to CEO
Hansen, Ue President, Recycling
Isotalo, Olli President, Valves
Järvistö, Hannele Interim Senior Vice President, Human Resources
Keto, Mikko President, Minerals Services and Pumps (until ..)
Campagnelli, Giuseppe President, Minerals Services and Pumps (from ..)
Kirsch, Stephan W. President, Mining Equipment
Puroranta, Jani Chief Digital Ocer
Simula, Markku President, Aggregates Equipment
Takaluoma, Sami President, Minerals Consumables
Neles Management
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ANNUAL REPORT 2020
Olli Isotalo, President and CEO
– born: 1959
– education: M.Sc., Engineering
– shareholding as of December 31,
2020: 865 shares
Sami Nousiainen, Head of Valves
Services
– born: 1972
– education:M.Sc.
– shareholding as of December 31,
2020: -
Fabio da Silva Maia, Head of
South and Central America Market
Area
– born: 1974
– education: MBA, Business
Management
– shareholding as of December 31,
2020: -
Simo Sääskilahti, CFO and Deputy
to CEO
– born: 1971
– education: M.Sc., Engineering,
M.Sc., Economics
– shareholding as of December 31,
2020: 4,387 shares
Jon Jested-Rask, Head of EMEIA
Market Area
– born: 1975
– education: M.Sc., Economics and
Business Administration
– shareholding as of December 31,
2020: 899 shares
Kevin Tinsley, Head of Global
Operations
– born: 1962
– education: MBA
– shareholding as of December 31,
2020: 3,178 shares
Timo Hänninen, Head of Valves
Equipment Business Line
– born: 1961
– education: B.Sc., eMBA
– shareholding as of December 31,
2020: -
Patrick Dunn, Head of North
America Market Area
– born: 1967
– education: BA, Social
Rehabilitation & Sociology
– shareholding as of December 31,
2020: 2,095 shares
Hanne Peltola, Head of HR
– born: 1969
– education: M.Soc.Sc., eMBA
– shareholding as of December 31,
2020: 1,021 shares
Kalle Suurpää, Head of Valve
Controls and Actuators Business
Line
– born: 1974
– education: M.Sc., Technology
– shareholding as of December 31,
2020: -
Hang Pheng Tan, Head of
Asia-Pacific Market Area
– born: 1968
– education: MBA, Bachelor of
Electrical Engineering
– shareholding as of December 31,
2020: -
Kaisa Voutilainen, Head of
Communications and Marketing
– born: 1982
– education: MA, International
Business Communication
– shareholding as of December 31,
2020: -
Neles Executive Team
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ANNUAL REPORT 2020
Main features of the internal control and risk management systems
Neles’ internal control and risk management operating model is designed to provide su-
cient assurance regarding the reliability of financial reporting, and to ensure that the financial
statements are prepared in accordance with applicable laws and regulations, generally
accepted accounting principles (IFRS) and other requirements for listed companies.
Risk management
The Board approves the Corporate Risk Management Policy that defines the objective,
main principles and features, and division of responsibilities for risk management. Risk
assessment related to financial reporting aims to identify and evaluate the most significant
threats in Neles and its Business Lines, Market Areas, group functions and process levels.
This includes risks related to fraud and unlawful activities, as well as the risk of loss or
misappropriation of assets. Risk assessments result in control targets through which Neles
seeks to ensure that the fundamental requirements placed on financial reporting are fulfilled.
Internal controls related to financial reporting
Neles’ control standards are regularly updated to be in line with the Commiee of
Sponsoring Organizations (COSO) framework and Neles’ business control environment. The
controls, including financial reporting controls, have been defined based on the main risks in
the process. Internal controls are one of the key elements of Neles’ compliance framework,
which also covers business ethics and regulatory compliance.
Control environment
Neles’ control activities are based on corporate standards, policies and instructions and
on Neles’ responsible leadership model which ensure that management directives are
carried out and that necessary action is taken to address risks related to the achievement
of financial reporting objectives. Neles’ compliance framework seeks to ensure the accuracy
of its financial reporting, as well as compliance with governance principles, business ethics
and regulatory compliance in all units. The framework is designed to create a coherent
control environment by implementing proper internal control mechanisms for dierent
business processes and sharing internal control related best practices.
The control standards define the minimum level for internal controls that all units must
achieve. All units are required to perform an annual self-assessment to ensure they are
compliant with the minimum control standards. In addition, Internal Audit is responsible for
evaluating the operating eectiveness of these controls according to the annual audit plan.
The Audit Commiee’s task is to ensure that the established principles for financial
reporting, risk management and internal control are followed. The President and CEO,
Independent from the
business processes
Objective assurance
Internal Audit
Board of Directors
External Audit
Audit Commiee
Neles-wide risk and control framework as well as
guidance on control activities
Training and control self-assessment
Business Lines and Market Areas manage risks and
controls of their daily operations
Report to Neles Executive Team
Policies, processes and instructions
Internal Control and Risk Management
Business Operations
with assistance from Internal Audit, is responsible for maintaining an eective control
environment and the ongoing work on internal control regarding financial reporting. Internal
Audit reports all relevant issues to the Audit Commiee, the President and CEO, the Chief
Financial Ocer and the responsible members of the Neles Executive Team.
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ANNUAL REPORT 2020
Information and communication
The CFO Oce is responsible for ensuring that the financial reporting manuals and
instructions are up-to-date, and that changes are communicated to the relevant units and
functions. The process owners of the main finance processes are responsible for informing
about upcoming changes in International Accounting Standards, new accounting principles
and other changes in reporting requirements, and organizing training as necessary.
Internal Audit reports the results of the evaluation of internal controls regularly to the Audit
Commiee. The results of the Audit Commiee’s work in the form of observations, recom-
mendations, and proposed decisions and measures are reported to the Board aer every
Audit Commiee meeting.
The Audit Commiee is regularly informed about the financial reporting control
environment, including:
information on the development of fundamental risk areas
activities planned and executed for these risk areas
other measures to mitigate risks.
Monitoring
The eectiveness of internal control related to financial reporting is monitored by the Board
and the Audit Commiee. The President and CEO, the CFO Oce, Internal Audit and the
Heads of the Business Lines and Neles subsidiaries are responsible for compliance and
maintaining an eective control environment. This includes follow-up of monthly financial
reports, review of monthly estimates and plans, and Internal and External Audit reports.
Internal Audit assesses the eectiveness of Neles’ operations and the adequacy of risk
management annually, and reports the risks and weaknesses related to the internal control
processes to the management and to the Audit Commiee.
Reporting of suspected financial misconduct
Neles’ policies and instructions on the prevention of financial and other misconduct define
how suspected misconduct should be reported, how it is investigated, and how it is solved.
All employees are encouraged to report suspected misconduct via the Speak Up or internal
reporting channels. The Speak Up channel is a reporting tool maintained by an external
service provider. The report can be submied anonymously in several languages via the
Internet or by email. Suspected misconduct is investigated confidentially without undue
delay. Legal & Compliance, in cooperation with Internal Audit, decides how the maer
will be investigated and reports the alleged misconduct to the Audit Commiee. Legal &
Compliance, with Human Resources, implements any measures consequential to possible
misconduct.
Neles Compliance
Program
Risk and
compliance
assessment
Internal reporting
channels,
including Speak
Up
People
resources
and
capabilities
Monitoring,
internal
audits and
investigations
Standards,
policies,
guidelines,
instructions
and internal
controls
Disciplinary
and
corrective
actions
Training and
communication
Continuous
Improvement
Reactive risk
management
Proactive risk
management
Corporate
Governance principles
Responsible
leadership model
Internal and external
audit
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Internal Audit
The role of Internal Audit is to provide independent objective assurance and consulting
services that add value by contributing to the improvement of operations. Internal Audit
oers a systematic and disciplined approach to evaluate and improve the eectiveness of
the organization’s governance, risk management and internal control.
The operating principles of Internal Audit have been defined in the Internal Audit Charter
approved by the Board. The Audit Commiee approves the annual internal audit plan, which
is developed taking into consideration the corporate risk assessment and plans and input of
Business Lines and Market Areas, the Neles Executive Team and other senior management.
Internal Audit reports functionally to the Audit Commiee and administratively to the Chief
Financial Ocer.
Internal audit in
Internal Audit was managed internally until the partial demerger on June 30, 2020. Neles
outsourced the internal audit function to KPMG from July 1, 2020. The audit plan for the
H2/2020 was reassessed and approved by Neles’ Audit Commiee.
During H1/2020 internal audits were conducted in eight Valves Business Area locations.
According to the Neles’ audit plan, internal audits in two locations and follow-up reviews in
nine locations were conducted during H2/2020. The main areas covered were compliance
in the sales, purchasing, inventory and credit management processes and controls in
reporting systems, as well as the internal control environment in the Neles organization. The
reliable transfer of the internal audit tasks to the outsourcing partner was also in focus.
External Audit
According to the Articles of Association, Neles has one auditor, which must be a firm of
authorized public accountants. The aggregate duration of the consecutive terms of a
principal auditor may not exceed seven years.
The auditor’s statutory obligation is to audit the company’s accounting, financial state-
ments and administration for the financial year. The parent company’s auditor is required
to audit the company’s consolidated financial statements. In conjunction with the annual
financial statements, the external auditor gives Neles’ shareholders an Auditor’s Report,
which is aached to the Neles’ financial statements.
The auditor reports primarily to the Audit Commiee, and at least once a year to the
Board. The Audit Commiee evaluates the performance and services of the independent
auditor and decides if there is a need to arrange an open tender process.
The Audit Commiee approves purchase of non-audit services from the auditor in
accordance with Neles’ Corporate Pre-approval Policy.
External Audit in
The 2020 Annual General Meeting elected the Authorized Public Accountant Ernst & Young
as the auditor, with Mikko Järventausta as principal auditor of Metso Corporation until the
partial demerger, and with Toni Halonen as the principal auditor of Neles aer the partial
demerger.
Auditors’ fees, EUR million
Audit services . .
Tax services . .
Other services . .
Total . .
In addition to Internal and External Audit, several other auditing measures are in place to
secure ecient risk management.
Audit
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Corporate governance
ANNUAL REPORT 2020
Neles maintains a list of its related parties (IAS24). Neles has adopted a monitoring process
to identify and evaluate transactions eventually concluded with its related parties. The Board
approves agreements and other transactions to be carried out with related parties if they
are not part of the ordinary course of Neles’ business or if they are not made at arm’s length.
Related party transactions are set out in the notes to the financial statements.
Related Party Transactions
Insider management
Neles manages its inside information maers in accordance with the Market Abuse
Regulation (MAR) and the Insider Guidelines of Nasdaq Helsinki. Neles’ Insider Management
Policy is based on this regulation.
Persons discharging managerial
responsibilities in the company
Persons discharging managerial responsibilities and their closely associated persons
have a duty to disclose transactions on Neles’ financial instruments. Since July 1, 2020, the
persons discharging managerial responsibilities at Neles are the members of Neles’ Board,
the President and CEO, and the Chief Financial Ocer (previously, they were the members
of the Metso Board and the Metso Executive Team). Aer the partial demerger, taking into
consideration the organizational responsibilities and internal instructions of Neles, it was
considered that the members of the Board, the President and CEO and the Chief Financial
Ocer have regular access to inside information relating to Neles and the power to take
managerial decisions aecting the future developments and business prospects of Neles.
Neles maintains a list of persons discharging managerial responsibilities and their closely
associated persons, and issues a stock exchange release of their transactions made on
Neles’ financial instruments in accordance with MAR.
In 2020, a total of 19 transaction notifications were published by the persons discharging
managerial responsibilities. They are available on the Neles website.
Closed Period
The Board, Neles Executive Team and selected employees with access to Neles’ sensitive
financial information may not trade on Neles’ financial instruments during a period of 30
days prior to the publication of interim reports and financial statements, nor on the date of
publication (“Closed Period”).
Silent Period
From July 1, 2020, Neles observed a 30-day silent period prior to the publication of its
interim reports and financial statements (“Silent Period”). During this time, Neles does not
comment on the financial performance, markets or outlook, nor does it meet with capital
markets representatives or the financial media. Until June 30, 2020 the duration of the Silent
Period was 21 days.
Insider Projects
Neles maintains only project-based insider lists. The identification of inside information
and decisions regarding the disclosure or delay of disclosure are made by the Board or the
President and CEO in consultation with the General Counsel. The coordination and control
of insider issues is the responsibility of the General Counsel.
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ANNUAL REPORT 2020
Remuneration Report
Due to the partial demerger of Metso Corporation
registered on June 30, 2020, the reporting
period from January 1 to June 30 is based on the
remuneration of Metso Corporation and from July 1
to December 31 based on the Neles Corporation.
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ANNUAL REPORT 2020
1. Introduction
Due to the partial demerger of Metso Corporation registered on June 30, 2020, the reporting
period from January 1 to June 30 is based on the remuneration of Metso Corporation
(“Metso”) i.e. including the Metso’s Minerals Business. The reporting period from July 1 to
December 31 is based on the remuneration in Neles Corporation (“Neles”). Accordingly, the
historical data on business performance and remuneration is based on Metso’s business
until June 30, 2020.
1.1. Remuneration principles and implementation
Adherence to Remuneration Policy. Neles has adhered to its Remuneration Policy during
the financial year 2020 with one temporary deviation only. The main remuneration principles
of Neles are to oer compensation which considers relevant market and industry practices
and support performance dierentiation. Variable pay programs are developed with these
principles in mind and in the best interest of the company and its shareholders. The aim is
to create a clear link between variable pay and company’s performance. This is achieved
through utilizing appropriate key performance indicators and ensuring that the targets are
set on levels which support the successful execution of the company strategy and reaching
the financial targets.
The aim of board remuneration is to aract and retain Board members who possess
relevant skills, competence and experience to exercise their duties and responsibilities in the
best interest of the company and its stakeholders.
Temporary deviation. According to Neles’ Remuneration Policy, deviations from the
policy may be made in connection with corporate transactions. Neles has temporarily
deviated from its Remuneration Policy by granting a customary one-o retention bonus to
the President and CEO in connection with the public tender oer made to the shareholders
of the company. Further details are set out below in section 3.1.
Contribution to cost savings. As part of the Covid-19 pandemic cash saving actions
Neles’ President and CEO and Metso’s President and CEO have contributed to the cost
savings eorts by giving up their holiday pay (equals to 50% of one month’s salary) and part
of their monthly salary.
1.2. Remuneration and company performance
The following historical evaluation data on the remuneration and the company performance
is based on the consolidated numbers of Metso from 2016 until June 30, 2020, and
therefore also includes Metso’s Minerals Business. The reported numbers do not include
other indirect employment costs. The performance metrics used in measuring the company
performance were also used in the company’s short-term incentive plans.
Neles Remuneration Report
Average compensation
Chairman of the Board, EUR ,
)
, , , ,
Board of Directors (total), EUR ,
)
, , , ,
CEO, EUR ,,
)
, , , ,
Employee, EUR ,
)
, , , ,
Orders, MEUR
)
, , , ,
Sales, MEUR
)
, , , ,
EBITA, MEUR
)
Free Cash Flow, MEUR
)
)
Includes Metso data from January
st
to June
th
and Neles data from July
st
to December
st
.
)
Company performance metrics of the continuing operations only.
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ANNUAL REPORT 2020
2. Remuneration of the Board of Directors
The remuneration of the Board of Directors of Neles and Metso was decided in Metso’s
Annual General Meeting on June 16, 2020 based on the proposal made by the Shareholders’
Nomination Board.
The board remuneration includes a fixed fee based on the role(s) in the Board and its
Commiees (e.g. chair, commiee member) and an additional meeting fee for each meeting
aended. The members of the Board are obliged to use 40% of the fixed remuneration
to purchase company shares. In anticipation of the completion of the partial demerger of
Metso, the Annual General Meeting decided that the fixed annual remuneration was to be
calculated pro rata to the length of the term of oce. Board of Directors’ remuneration does
not include the company’s bonus plans, share-based incentive schemes or pension plans.
2.1. Neles Board of Directors
Fixed annual remuneration
Pursuant to the decision of the Annual General Meeting to calculate the fixed annual
remuneration pro rata to the length of the term oce, the Board of Directors elected by the
Annual General Meeting were paid 75% of annual fixed remuneration. Mr Jukka Tiitinen, who
was elected to the Board by Extraordinary General Meeting on October 29, 2020, was paid
40% of the fixed annual remuneration.
Sounding Board
Prior to the commencement of their term of oce, the members-elect of the Neles Board
(“Sounding Board”) supported Neles’ management in preparations for the “new Neles”, e.g.
in strategy development, seing financial targets and reviewing the governance model. The
members-elect received a small fee based on a consultancy agreement to compensate for
their work as set out below.
Neles Board remuneration from July 1 to December 31, 2020
EUR Share reward Cash reward Meeting fees
)
Sounding
Board fees Total
Jukka Moisio, chair , , , , ,
Mark Vernon , , , , ,
Bria Giesen , , , , ,
Anu Hämäläinen , , , , ,
Niko Pakalén , , , , ,
Teija Sarajärvi , , , , ,
Peer Söderström , , , , ,
Jukka Tiitinen , , , – ,
Total , , , , ,
)
During the reporting period the Board had meetings but received meeting fees from meetings only, one
meeting being a short decision meeting only.
2.2. Metso Board of Directors
Metso’s Annual General Meeting 2020 decided that Metso Board of Directors are paid
the same fixed annual remuneration as in the previous term. However, the Metso Board of
Directors decided to waive their fixed annual remuneration and hence were paid meeting
fees only.
Metso Board remuneration from January 1 to June 30, 2020
EUR Annual fee
Amount
for share
acquisitions
Cash reward
portion Meeting fees Total
Mikael Lilius , ,
Christer Gardell , ,
Peter Carlsson , ,
Lars Josefsson , ,
Ani Mäkinen , ,
Kari Stadigh , ,
Arja Talma , ,
Raimo Brand
)
– – – – –
Total ,
)
Mr. Brand has aended meetings as a personnel representative, without voting right.
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ANNUAL REPORT 2020
3. Remuneration of the President and CEO
The compensation for President and CEO is decided by the Board of Directors in accor-
dance with the Remuneration policy. The compensation includes base salary, benefits,
supplementary pension, short- and long-term incentives paid during evaluation period.
3.1. Neles President and CEO from July 1 to December 31, 2020
Base salary and fringe benefits. The President and CEO, Mr Olli Isotalo was paid a base
salary including fringe benefits (mobile phone and medical insurance) without any variable
short-term or long-term incentives.
Supplementary contribution-based pension plans. The President and CEO’s supple-
mentary pension contribution amounts to 20% of his annual base salary. The President and
CEO’s retirement age is 64 years and 4 months.
Annual Bonus 2020. The short-term incentive measures were Orders Received, EBITA,
Free Cash Flow and individual performance targets. The President and CEO achieved 10.6%
of his targets which transforms to an annual bonus of 8.48% of his annual salary and will be
paid EUR 40,724 in April 2021.
One-o retention bonus. A customary one-o retention bonus was granted by the
Board of Directors to the President and CEO in connection with the public tender oer
for Neles and any potential competing bids arising therefrom, including any subsequent
corporate transactions. The retention bonus thresholds were linked to the announcement
of the tender oer, the commencement of the tender oer period and the completion of,
or ongoing assistance with, the tender oer or any competing bids including subsequent
corporate transactions arising therefrom until June 30, 2021.
The maximum amount that can be earned from the retention bonus is six months’ salary.
On December 31, 2020 the President and CEO had earned an amount equivalent to four
months’ salary. The retention bonus will be paid in July 2021 provided that the President and
CEO has not terminated his employment contract with the company on or before June 30,
2021. Whilst the retention bonus was a temporary deviation to the company’s Remuneration
Policy, the policy contemplates deviations in connection with corporate transactions..
Neles Performance Share Plans (“PSP”) 2020–2022 and 2021–2023 were decided
on in 2020. The key performance measures are relative TSR (weight 50%) and EPS (weight
50%). Performance periods of the plans will run until the end of 2022 and 2023 respectively.
No earnings were vested based on the plans in 2020. The possible earnings will be paid out
at the earliest in Q1 2023 (PSP 2020–2022) and in Q1 2024 (PSP 2021–2023). The maximum
allocation for the President and CEO in both plans is 75,750 Neles shares (value of 150% of
his annual base salary).
Cost saving contribution. As part of the Covid-19 pandemic cash saving actions the
President and CEO has given up his holiday pay for 2020 and taken a reduction of 10% of
his base salary during the months of August and September.
Neles President and CEO remuneration from July 1 to December 31, 2020
2020, EUR
Annual salary and
benefits
Short-term
incentive
Long-term
incentive in cash
Long-term
incentive in shares
Supplementary
contribution based
pension plan Total
Share of fixed
remuneration
Olli Isotalo, CEO , – – – , , %
3.2. Remuneration of the President and CEO of Metso, January 1 – June 30, 2020
In 2020, Metso’s President and CEO, Mr Pekka Vauramo, was paid an annual base salary
with fringe benefits (mobile, car and housing), the 2019 annual bonus (a short-term
incentive) and a supplementary pension plan contribution. No long-term incentives were
paid. Short-term incentive plan targets for 2019 were Operative Value Added (OVA), Orders
Received and Free Cash Flow. The targets achieved transformed to a bonus of 54% of his
annual salary.
Metso’s President and CEO accepted a 50% reduction of one month’s salary to
contribute in cash saving actions.
Metso President and CEO remuneration from January 1 to June 30, 2020
2020, EUR
Annual salary and
benefits
Short-term
incentive
Long-term
incentive in cash
Long-term
incentive in shares Pension plan Total
Share of fixed
remuneration
Share of variable
remuneration
Pekka Vauramo, CEO , , – – , , % %
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ANNUAL REPORT 2020
Sustainability
Neles’ Sustainability section presents the
company’s most material sustainability
view points.
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Sustainability
ANNUAL REPORT 2020
Sustainability agenda at Neles
Neles’ Sustainability report
presents the company’s most
material sustainability view points
following the materiality analysis
conducted as part of the previous
Metso organization.
Neles’ sustainability agenda with its action plans and
targets are aligned with the United Nation’s Sustainable
Development Goals (SDGs). The most relevant SDGs
contributing to our sustainable productivity in line with our
sustainability targets are below.
In , one of our greatest
achievements was our Lost
Time Incident Frequency (LTIF)
score improving to . (:
.) in December. Read more on
page .
Our goal within the sustainability sphere is to be a
reliable partner oering sustainable solutions. We protect
people, process performance and the planet by prioritizing
safety and sustainability in everything we do. We have set
our long-term sustainability targets to respond to global
megatrends, driving more focus on sustainable business
operations that impact all our stakeholders.
Neles’ sustainability agenda is embedded into everything
we do and integrated into our HSEQ management system
to ensure internal eciency and consistency. We set our
targets to drive for a brighter tomorrow in three focus areas:
Health and safety, Environment, Society and People.
Neles – reliable partner
oering sustainable solutions
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ANNUAL REPORT 2020
Sustainability and HSEQ targets
Topic Targets Progress in 2020
Health and safety
Accident rate Solid safety culture towards zero harm LTIF was . (in : .).
Half-year (July – December) without incidents leading to non-working days.
Safety part of everyday
work life
Individual HSE target of risk observations per employee
Safety conversations by managers
, risk observations in (+.% from ).
% of managers conducted safety conversations (a % increase from ).
Regular HSE audits and corrective actions % planned actions completed to prevent the injuries from recurring.
production plants and service locations were audited for HSE in .
Training and awareness hours of HSE training per employee HSE training framework based on both local and global regulations, industry standards and best
practices, as well requirements of employees, contractors, and customers in place. Meeting
minimum safety standards and completing the safety training are mandatory for all employees.
R&D Product safety always covered % of R&D projects had product safety included in .
Sustainable materials in use % of R&D projects had sustainability targets included.
Environment
Energy consumption Reduction of energy consumption for each factory Reduced energy consumption in own operations from TJ () to TJ due to Covid-
pandemic-related drop in use of energy.
Reduction of water and
waste
Reduction of water and waste for each factory Water consumption reduced by % from m () to m.
Hazardous waste reduced by % from .
Non-hazardous waste reduced by % from .
Reduction of emissions
( baseline)
Logistics: -% CO
by
Production: -% CO
by
Logistics: reduction of emissions compared to year , tCO
(%).
Production: reduction of emissions compared to year . tCO
(.%).
R&D Sustainability targets for R&D % of R&D projects had set sustainability targets.
Society and people
Supplier assessments and
audits
Long-term targets:
Sustainability assessments conducted on % of Suppliers in higher risk
areas by
supplier sustainability audit performed by a third-party organization, supplier sustainability
audits by Neles’ own, internal assessment team.
Supplier Code of Conduct Long-term target:
% of suppliers in terms of spend sign Supplier Code of Conduct by .
target:
% sign Supplier Code of Conduct
% signed Supplier Code of Conduct in .
Reduction of emissions % of suppliers set emission targets by Not available
Code of Conduct All employees trained biennially % of employees received Neles Code of Conduct training in December .
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We redefine sustainability and,
together with our customers,
create a business eco-system that
performs beyond the accepted
norms.
Global megatrends, such as growing demand for materials,
safe and reliable production, and tighter environmental
legislation, put pressure on more sustainable operations
within process industries. Industrial manufacturers face
the common challenge of how to produce more with less
and in an environmentally friendly and responsible way
while maintaining profitability. These megatrends have also
determined the key priorities of Neles’ sustainability agenda.
For years, Neles has developed its products, services,
and solutions that create value for its customers by
improving the eciency, safety, and quality of their
processes and help them to perform responsibly in terms of
process waste, emissions and maintenance.
The great results we have achieved in collaboration with
our customers benefit our customers and the local commu-
nities within their operating and production environments.
Sustainable solutions for
reliable customer experience
Klabin stabilizes its pulp mill production with Neles’ solution
Klabin’s Ortigueira mill is a large, complex industrial plant in Brazil that
simultaneously produces short-fiber pulp (eucalyptus), long-fiber pulp
(pine) and flu pulp (the basis for diapers and absorbents). With the help
of Neles’ performance solutions, process variabilities were reduced within
two years from the variable average of 25–30% to an average of 1.5%,
bringing the needed reliability and achieving the goal of chemical savings.
Read the full story at neles.com
SCA pulp and paper plant sets new standards
Sustainability and high plant availability are the main requirements of
the paper and pulp industry. This is true also SCA, which operates its
largest European integrated plant for the manufacture of tissue products
in Germany. To minimize potential component and system downtime,
SCA conducts scheduled system shutdowns twice a year. Neles’ valve
technology has extended the service life of valves from one year to
one-and-a-half years without damage or restrictions. Read the full story at
neles.com
Neles’ valve expertise secures Naantali
power plant’s reliability
The power plant process involves challenging conditions, and the plant
must remain on stream continuously. The customer Turun Seudun
Energiatuotanto Oy (TSE) has made a long-term plan to reduce emissions;
since 2019, the power plant has used biofuel as the main source of energy.
With Neles’ valve solutions, the customer is able to keep its power plant in
operation eciently and responsibly. Read the full story at neles.com
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Neles prioritizes the health and safety of its customers,
employees, and partners. Our goal is zero harm for
everyone, and we aim to build a solid safety culture, where
safety is embraced by everyone in their daily work. We
continuously improve our way of working by
observing potential risks
reporting near misses and following up with corrective,
and preventive actions to avoid incidents
learning from colleagues by having safety conversations
and sharing best practices
training employees on safety standards and providing
self-study materials on safety excellence
regularly auditing main production sites
In 2020, a total of 7,992 risk observations were reported,
an increase of 7.9% from the previous year. In addition, 62%
of Neles employees completed their risk observation target
in their annual review target seing.
We also care about how easy it is to install or service
our equipment in the process pipeline. We take our safety
approach further by innovating and developing solutions
that are future-proof, elevating the safety of our customer
operations and oering reliability. Product safety is always
one of the main drivers in all our R&D projects.
Health and safety
Building a solid safety culture
towards zero harm
One of our proudest accomplishments in
was a favorable trend in our Lost Time
Incident Frequency (LTIF), which was down to
. (: .) at the end of the year, topping
the global industry benchmarking companies.
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Neles’ manufacturing operations in Finland
recognized for long-term safety work
On April 16, 2020, Neles’ manufacturing operations in
Finland received recognition for its long-term safety work
from 445 peer companies belonging in Vision Zero Forum,
a network of Finnish companies aiming for continuous
health and safety improvements at work. The Forum is
coordinated by Finnish Institute of Occupational Health.
The member organizations are surveyed every year, and,
in 2020, Neles scored the highest in the category In the
World’s Forefront of Safety.
Safety comes first. Our supply center in Vadodara, India reached a
remarkable safety record of three accident-free years on August
12, 2020.
Hiing a safety record of three accident-
free years at Vadodara, India, amid
global Covid-19 pandemic challenges
August 12, 2020, marked the three-year milestone of zero
safety incidents at our supply center in Vadodara, India
corresponding to 1,095 days of zero Lost Time Incidents.
The common objective of zero harm is being embraced by
all employees who are making this approach a daily habit.
The Vadodara supply center serves the Indian domestic
market with top works production, and the center also has
assembly, services, spare parts, and warehouse opera-
tions. Even though the global Covid-19 pandemic caused
additional challenges to the normal daily work routines,
requiring more flexibility and new ways of working, and
leading to sudden changes in work priorities to maintain
our commitment to providing superior service and support
for our customers, our team treated safety as a top priority
with no compromises during these challenging times.
The Vision Zero Forum is a Finnish national network of workplaces that share a common vision of
becoming leaders in occupational health and safety and are willing to share their experiences for the
benefit of other members. Neles’ valve technology center in Vantaa, Finland, ranked the highest scores in
2020 and is commied to sharing best practices, ideas and learnings for the benefit of others.
Key conclusions
Safety success requires long-term dedication and
continuous eort to observe, audit, communicate and
train safety standards. Safety conversations and risk
observations are the most powerful tools to prevent
incidents from happening. With careful planning and
quick problem-solving skills we can overcome the
challenges caused by the Covid-19 pandemic.
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We care about our environmental footprint throughout the
product lifecycle. Our goal is to minimize the environmental
impact from our own operations and to ensure the same
from our suppliers and partners. Our ambition is to achieve
zero harm for the environment.
Our operations are at a good level in terms of energy
and water consumption and the amount of waste and
emissions. Still, we are improving our environmental
eciency with focused actions at non-production sites, and
by leveraging circular economy opportunities. Our aim is
to further reduce energy and water consumption as well
as the amount of waste at each manufacturing location.
We are aiming to reduce our carbon dioxide emissions in
logistics by 20% by 2025 and in our production by 25% by
2030.
We have also set sustainability targets for all our
research and development (R&D) projects to provide our
customers with environmental compliance; among the
sustainability targets are, e.g., using sustainable materials
and reducing process waste.
Environment
Minimizing the environmental load
In , Neles operations had
zero environmental incidents.
Recycling wood waste at the valve technology center in Vantaa, Finland
In 2020, our valve technology center in Vantaa, Finland achieved a 10% increase in its wood waste
recycling resulting in hundreds of tons of wood waste being recycled. Wood waste can be reused
as a raw material for particleboards. The carbon in the waste wood is sequestered in the final
product instead of being released into the atmosphere, as is the case when burning the wood.
The CO
2
dierence in favor of particleboard production is significant, i.e. more than 1,300
kgCO
2
e per ton of recycled wood chips. In addition, particleboard can still be recycled at the end
of its life cycle or used as fuel.
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Vantaa technology center in Finland has successfully recycled
wood waste.
The new painting line’s VOC and emission control system has so
far achieved an emission reduction of 27 mg/m
3
of the targeted 60
mg/m
3
Chinese standard.
Solar panels installed on the technology rooop have produced
26% of the total energy consumption, exceeding the planned
target output.
The Neles team gathered for the inauguration festivities in Jiaxing.
Jiaxing employs ~220 people
Investing in a more sustainable
environment at our new valve
technology center in Jiaxing, China
In July 2020, Neles opened its new, state-of-the-art valve
technology center in Jiaxing, China to further strengthen
production capabilities and increase availability to
customers across various process industries, in China
and globally. The Jiaxing manufacturing operations use
the latest technologies for ecient and environmental-
ly-friendly mass production of high-volume standard valve
products. The principle has been to ensure the most
reliable and emission-free production processes. For
example, the liquid recycling system at Jiaxing allows 95%
of the liquids used in machining or testing processes to
be reused, thereby minimizing the formation of hazardous
substances. With the Regenerative Thermal Oxidizer in
use, the painting process is up to 99% organic compound
free. The valve technology center also invested in a
new painting line with a Volatile Organic Compound
and emission control system to support the target of
emission-free production. To align with the company’s
policy on energy reduction, solar panels were installed.
The valve technology center produces more than 100,000
valves per year.
Fixing pressurized air leaks at the valve
technology center in Shrewsbury, USA
The valve technology center in Shrewsbury, USA, is a
central hub serving North American customers since 1954.
Air leakage in the manufacturing operations was noticed
in 2019; planning the corrective actions started in the first
quarter of 2020 by first identifying where the air leaks
were happening, such as hoses, fiings and equipment,
and then by the actual repair work. The investment to
increase the eciency of a compressed air system led to
a decrease in energy consumption totaling 114,757 kilowa
hours as well as reduced carbon emissions supporting
environmental objectives according to the ISO14001
management system.
Compressed air system
generators
Identified and tagged air leak
In , carbon dioxide
emissions in logistics
decreased by %
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Society and people
Making our mark in communities
In 2020, Neles joined the United Nations Global Compact
program and built our sustainability reporting to meet
legislative requirements. Within the UN Global Compact
program we are commied to compliance with the UN
Declaration of Human Rights and UN Guiding Principles
on Human Rights. We also support and operate according
to the principles described in the OECD Guidelines for
Multinational Enterprises and the International Labor
Organization’s (ILO) Declaration of Fundamental Principles
and Rights at Work.
Living by the Code
Neles’ Code of Conduct is a foundation for all employees to
work according to commonly accepted principles and with
integrity beyond what is mandated by laws and regulations.
Throughout December 2020, all employees and partners
were able to self-study key aspects of Neles’ Code of
Conduct via eLearning. By the end of the year, 88% of our
employees and partners had completed the online course.
The Code of Conduct is included in the onboarding
process of new employees, and it will be updated every
second year to reflect operating environment changes
impacting Neles’ businesses.
Learning and development
Learning and development at Neles consists of learning both
in formal and informal seings. We believe that curiosity
is key to our sustainable growth. We oer a wide range of
learning opportunities at Neles Learning, an online platform
providing self-study courses and materials for continuous
personal and professional growth and development.
We encourage our employees to discover their potential
by exploiting learning opportunities on the job and with
colleagues and managers. One of the most important tools
for steering an employee’s career aspirations is the annual
Performance and Development Discussions with one’s own
manager.
In , the participation rate
in Code of Conduct training
was %.
We conduct also formal development programs and
training on leadership, sales, and products, in addition to
safety training.
% of our employees
have conducted annual
performance and career
development discussions.
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Leadership development
Our extensive leadership development portfolio was
running throughout 2020 oering leaders formal and
informal ways to develop their skills. The portfolio consists
of opportunities for on-the-job learning, together with
others or through mentoring, coaching, work shadowing
and traditional classroom-based training. We believe that
developing leadership skills to match with our leadership
principles has a direct impact on employee engagement
and wellbeing at work.
A global survey, PeoplePulse, was done in 2020 to
measure employee engagement and to help teams identify
development areas. Approximately 62% of total personnel,
mainly those impacted by the partial demerger, were invited
to participate in the PeoplePulse survey. According to the
survey results, Neles employees were highly commied and
able to contribute to the work and team’s development with
a good level of competences for work performance.
The employee engagement
survey response rate was %
in (% in .)
Improving children’s education and
conditions in Indian schools with Plan India
A long-time beneficiary of donations has been the work
of Plan International in India providing schools with beer
sanity, fresh water, computers, and tools for children to
improve educational conditions. As part of the previous
Metso organization, Neles supported the work of Plan
India through the building and upgrading of school
facilities, including sanitation, the upgrading and equipping
of kitchens and dining facilities, seing up smart classes
to make the education more digital and interactive, and
installing solar panels to ensure regular power supply.
Seing up a smart class for digital learning at Ramgarh Girls Senior
Secondary school.
Neles employee net promoter
score (eNPS) was . in
(: Valves business area
.).
Responsible procurement
Neles’ responsible way of operating also extends to
suppliers through the Supplier Code of Conduct to ensure
quality and sustainability in our supply chain. Neles’ Supplier
Code of Conduct sets the standards that we expect our
suppliers to follow. It covers areas such as health and
safety, child and forced labor, human rights, anti-corruption,
compliance with laws and regulations, environment, and
climate change.
We audit our suppliers regularly, and have set a
long-term target of the top 90% of our suppliers in terms
of spend having signed our Supplier Code of Conduct. In
2020, 1 supplier sustainability audit was conducted by an
external auditor. We carried out 11 supplier sustainability
audits with the support of our own internal team and an
additional 10 supplier internal assessments. In cooperation
with our suppliers, we take part in developing their opera-
tions through knowledge sharing on, for example, seing
occupational safety performance indicators, developing
good chemical usage practices and radiation measurement.
Neles cooperates actively with non-governmental
organizations and local communities to build prosperity
and wellbeing, to protect the environment, and to support
science, research, and education. In 2020, Neles donated
a total of 32,000 euros to local communities all around the
world.
% of suppliers have signed
the Supplier Code of Conduct
( target: %).
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Neles head oce
Neles Corporation
POSTAL ADDRESS
PO Box 304, FI-01301, Vantaa, Finland
VISITING ADDRESS
Vanha Porvoontie 229, FI-01380, Vantaa
Finland
Tel: +358 10 417 5000