Nurminen Logistics Oyj : Financial Statements 2018

FINANCIAL STATEMENTS AND THE BOARD'S REPORT

ON OPERATIONS

2018

Head Office

Satamakaari 24, FI-00980 Helsinki, Finland Tel. [phone]www.nurminenlogistics.com

Contents

The Board's Report on Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Consolidated Statement Of Comprehensive Income, IFRS . . . . . . . . . . . . . . . . . . . . . . . 8

Consolidated Statement of Financial Position, IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Consolidated Cash Flow Statement, IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Consolidated Statement of Changes in Equity, IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Notes to the Consolidated Financial Statements, IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1. The accounting principles for the consolidated financial statements . . 12

2. Segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

3. Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4. Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5. Employee benefit expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

6. Depreciation, amortisation and impairment losses . . . . . . . . . . . . . . . . . . . . . . . . 19

7. Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

8. Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

9. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

10. Subsidiaries and associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

11. Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

12. Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

13. Carrying amounts of financial assets and financial

liabilities by category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

14. Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

15. Equity-accounted investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

16. Non-current receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

17. Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

18. Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

19. Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

20. Equity disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

21. Share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

22. Financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

23. Trade payables and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

24. Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

25. Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

26. Contingencies and commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

27. Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

28. Divested businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

29. Events after the balance sheet date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Parent Company's Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Parent Company's Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Parent Company's Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Notes to the Parent Company's Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Notes to the Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Notes to the Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Other notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Notes Regarding Personnel and Company Organs . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Signing of the Financial Statements and the Board's Report on Operations . 47

Group's Key Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Calculation of Key Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Distribution of ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

The Board's Report on Operations

The year 2018 was dualistic in nature for the company. Our turnover increased to 78.9 million euros, in which there was 4.1 % of growth from 2017, but the overall result was a disappointment for as the adjusted operating profit remained at 0.9 million euros.

The unanticipated challenges in the implementation of our new ERP-system and the launch of the new regular Helsinki-He-fei-Helsinki railway line connection required time intense partici-pation from the company leadership that had negative effect on the company financial result.

The railway transit connection to China launched by the company is the only regular rail connection to the Nordic countries, and its creation required intense amount of groundwork. This service creates very fast connection between Finland in China with considerably smaller carbon footprint compared to other modes of transport. This opens remarkable competitive edge for Finnish industries and trade. The route from China via Vuosaari harbor to Europe and east coast of United States is also interesting for international operators.

The volumes of forest industry in terminal services decreased from 2017 which resulted in decrease in operating result. Simultaneously good results were achieved in gaining variation on the customer base, which lays promising basis for 2019. Forwarding business developed well, even if notable legislation changes in custom's VAT collection for imported goods transferred to Tax Administration, which had negative impact on operating profit of forwarding business. The business operation in the Baltics developed well.

The company researched actively on possible acquisitions that would have supported company's strategy but decided not to pursue them due to high valuation levels. The research on possibilities of acquisitions will continue in 2019.

Nurminen Logistics sold its subsidiary in Russia in October 2018 with all the railway fleet and company will continue to operate with leased railway wagons in Russia. The transaction was executed in beneficial market situation which further enhanced company's financial position. This allows for further investments in continuing digitalization of business functions, traffic to China and possible acquisitions.

Our priority goal in 2019 is to improve business' profitability and to increase value-added of our services. Our strong financial position, new management, implemented ERP-system investment and opening of new businesses provide us with good standing for reaching our goals. In addition to this we will further improve our financial situation by releasing funds from non-business connected holdings.

The market situation in the review period and the future outlook

The economic growth of Finnish economy was slowing down towards the end of the review period. This manifested in fluctuation of import and export of goods on monthly level. The overall market situation was beneficial for the company's business operations.

The markets that are most relevant for the company's services are expected to develop positively in 2019, even if there is uncertainty considering the demand of forest industry products. Correspondingly the demand on fast railway connection to China is expected to be in high demand. This is indorsed by increasingly shortening order times of industry and growth of online commerce, which further encourages traditional businessesinto faster customer service and decision-making. We anticipate our customers to grow increasingly environmentally aware, which supports the competitive merits of low emission railway connection to and from China and in neighboring regions supply chains compared to other modes of transportation. The companies in commerce and industrial business are calculating their carbon footprint for consumers which will support our business when different companies are embracing their environmental undertakings.

Nurminen Logistics announced March 5, 2019 on launching a process to increase efficiency. The aim of this program is to improve company's profitability by estimation of one million euros from 2020 onwards. The program will streamline processes and overall actions by utilizing digitalization and improving on procurement. Simultaneously company announced the start of co-determination negotiations in order to improve efficiency.

Net sales increased. Operating result was negative due to non-cash nor balance effective translation difference recorded on sale of Russian subsidiary. Adjusted operating result was positive.

The Net sales for 2018 was 78.9 MEUR (2017: 75.8 MEUR), increasing 4.1% from 2017. Operating result decreased to EUR -6 046 thousand (2017: 1 691). Adjusted operating result was positive EUR 921 thousand.

The company sold its Russian subsidiary on 30 October 2018. Transaction has been recorded to affect EBIT. Net cash flow from sale was EUR 6.9 million. Group recorded EUR 4.4 million profit. In addition to the gain, translation difference from equity was assigned to the sale by EUR 7.6 million as well as group goodwill amounting EUR 3.0 million. This resulted to calculative loss of EUR 6.2 million on sale. Since translation differences have been recorded in earlier periods to equity, transaction has EUR 1.4 million positive effect on Group equity.

Translation difference has been recorded earlier periods due to devaluation of Russian RUB when subsidiary's equity has been translated into group currency. Translation differences recorded into group equity must be booked through income statement back to equity when subsidiary is sold.

THE GROUP ADJUSTED OPERATIVE PROFIT

1.1.-31.12.	1.1.-31.12.
EUR 1,000	2018	2017
OPERATIVE PROFIT	-6,046	1,691
(-) Net gain from the sale
of Russian subsidiary	-4,413	0
(+) Translation difference from
the sale of Russian subsidiary	7,638	0
(+) Goodwill assigned to the
sale of Russian subsidiary	3,000	0
(+) Other restructuring costs	329	0
(+) Development and ramp up
costs of new China train product	413	0
ADJUSTED OPERATIVE PROFIT	921	1,691

Turnover from forwarding services decreased during the review period due to legislation and regulation changes in customs duties.

Business profitability weakened but strong demand on importing, exporting and added value services and increased demand on extended service offers reduceds the impact of turnover decrease.

In contrast to comparison season the terminal services' turnover and profitability weakened. The developments in forest industry customer portfolio decreased utilization degree and profitability of the terminal at Vuosaari. The increase in low flow goods did not cover the volume changes in the goods flow from forest and metal industries. The development in low flow merchandise supported the train and terminal services for China that commenced on the second half of the year.

The terminal services on other locations had positive development in demand and profitability due to e.g. growth in chemical logistics and project services.

Turnover from railway logistics increased during the review period. Turnover gained from pulp train deliveries to China, export project deliveries and direct container train deliveries to Hefei in China. Major investments in research and development for new product, the container train deliveries from Vuosaari to China, pressed profitability down. Chemical deliveries had steady volume throughout the year.

Nurminen Logistics sold its subsidiary in Russia on October 30, 2018. The company has established a new subsidiary for continuing business operations in Russia. The business commenced at the beginning of 2019. The new concept is based on leasing railway wagons. Nurminen continues operating railway wagons for forest and chemical industry and project business customers.

Turnover of Baltic businesses grew, and profitability increased compared to previous review period. There was high demand for the services provided by the Baltic affiliated companies in 2018.

The development of the key financial, personnel and share indicators for 2016-2018 are included in the Financial Statements separately.

Financial position and balance sheet

The company's cash flow from operations was EUR -830 thousand.

Cash flow from investments was EUR 6,024 thousand, increased by sale of OOO Nurminen Logistics net amount EUR of 6.9 million. Cash flow from financing was EUR -1,512 thousand.

At the end of the review period, cash and cash equivalents amounted to EUR 11,514 thousand. The company have leasing liabilities from Ilmarinen with a buy-back liability of EUR 3.6 million. The liability is due in October 2019.The company's management estimates that the operating cash flow generated by the company covers the current business needs and current liabilities for the next 12 months.

The company has no bank loans at the present time. The company's current interest-bearing liabilities (EUR 5.3 million) comprise financial leasing debt of EUR 4.2 million and factoring debt of EUR 1.0 million. The company's non-current interest-bearing liabilities decreased to EUR 13.6 million. Long term loans to Ilmarinen amounting EUR 13.5 million are due in June 2023.

The Group's interest-bearing debt totaled EUR 18.9 million and net interest-bearing debt amounted to EUR 7.3 million. The company has an equity based hybrid loan from Ilmarinen, amounting EUR 1.5 million.

The balance sheet total was EUR 41.5 million, and the equity ratio was 31.7 %.

Capital expenditure

The Group's gross capital expenditure during the review period amounted to EUR 709 (1,624) thousand, accounting for 0.9% of net sales. Depreciation totaled EUR 1.8 (1.8) million, or 2.3% of net sales.

Group structure

nurminen Logistics Oyj sold its Russian subsidiary OOO Nurminen Logistics to Russian Transless LLC on 30 October 2018.

The Group comprises the parent company, Nurminen Logistics Plc, as well as the following subsidiaries and associated companies, owned directly or indirectly by the parent (ownership, %): RW Logistics Oy (100%), Nurminen Logistics Services Oy (100%), NR Rail Oy (51 %), Nurminen Maritime Latvia SIA (51 %), Pelkolan Terminaali Oy (20 %), ZAO Terminal Rubesh (100 %), UAB Nurminen Maritime (51%), Nurminen Maritime Eesti AS (51%) and Team Lines Latvia SIA (23 %).

Personnel and management

At the end of the review period, the Group had 172 employees, compared with 182 on 31 December 2017. The number of employees working abroad was 31.

Personnel expenses in 2018 totaled EUR 9.0 million (2017: EUR 8.9 million).

At year end Nurminen Logistics management group was Teppo Talvinko, interim CEO and CFO, Mike Karjagin, VP forwarding and railway logistics Finland, Risto Holopainen, VP terminal and valea added services.

Marko Tuunainen (former CEO) resigned 15 November 2018.

Markku Puolanne (former CFO) resigned 31 August 2018.

Shares and shareholders

Nurminen Logistics Plc's share has been quoted on the main list of Nasdaq Helsinki Ltd under the current company name since 1 January 2008. The total number of Nurminen Logistics Plc's registered shares is 44,254,174 and the registered share capital is EUR 4,214,521. The company has one share class and all shares carry equal rights in the company. The company name was Kasola Oyj until 31 December 2007. The company was listed on the Helsinki Stock Exchange in 1987.

The trading volume of Nurminen Logistics Plc's shares was 3,634,035 during the period from 1 January to 31 December 2018. This represented 8.2% of the total number of shares. The value of the turnover was EUR 1,812,124. The lowest price during the review period was EUR 0.24 per share and the highest EUR 0.60 per share. The closing price for the period was EUR 0.25 per share and the market value of the entire share capital was EUR 11,019,289 at the end of the period.

At the end of the 2018 financial year the company had 1,215 shareholders. At the end of 2017 the number of shareholders stood at 1,193.

At the end of 2018 the company held 2,760 of its own shares, corresponding to 0.01 % of votes.