It’s amazing how far a drop of oil can take you NYNAS ANNUAL REPORT 2014

ANNUAL REPORT CONTENTS

2014 in brief 4 Financial risk management 38 Nynas overview 6 Corporate governance 45 Message from the President 16 Board of Directors 49 Directors’ Report: Group Executive Committee 50 Economic environment 18 Content financial statements 51 Nynas’ strategy 19 Multi-year overview 52 Group result 21 Accounting policies 63 Financial position 22 Notes 72 Bitumen 24 Proposed distribution of profit 109 Naphthenics 25 Auditor’s report 110 Sustainability Glossary 112 Taking oil further 26 Definitions 113 Environment 28 Nynas history 114 Safety 32 Research and development 34 Human resources 35

NYNAS ANNUAL REPORT 2014 3 2014 i n b r e f

2014 IN BRIEF

 Total sales volume increased 9 percent.

 Operating result before depreciation (EBITDA) and excluding non-recurring items reached SEK 1,336 million (533).

 As a consequence of the dramatic fall in oil prices in the second half of 2014, unrealised hedge gains of SEK 510 million and an inventory write down of SEK -219 million are included in the EBITDA. .  Net income improved to SEK 279 million (-305).

 Return on average capital employed (12 months rolling), reached 13 percent.

 Successful launch of a four-year SEK 650 million corporate bond.

4 NYNAS ANNUAL REPORT 2014 2014 i n b r e f

FINANCIAL OVERVIEW 2014 2013 2012 2011 2010

Net sales 22,522 19,527 24,471 23,223 20,579

Operating result before depreciation (EBITDA)1 1,336 533 655 1,032 1,077

Net income before tax 466 -285 -52 454 610

Net income 279 -305 -34 313 421

Cash flow from operating activities 534 174 698 -454 218

Cash flow after financing activities -11 -31 353 -1,343 -322

Cash capital expenditures 546 227 477 907 522

Net debt 3,421 3,406 3,457 3,692 2,347

Working capital 3,654 3,606 3,720 4,236 3,289

Return on average capital employed 13 2 4 10 12 (12 months rolling), % 1

Return on equity, % 8 -12 -6 9 14

Equity to assets ratio, % 30 34 35 35 39

Number of full-time employees 854 872 881 871 866

1) Excluding non-recurring items

NYNAS ANNUAL REPORT 2014 5 significant progress towards strenghtening our bitumen and naphthenic specialty oil BUSINESSES position.

6 NYNAS ANNUAL REPORT 2014 NYNAS OVERVIEW

 First year of operation of Harburg base oil plant in Germany without any problems.

 NSP (naphthenic specialty products) Refinery reliability at all-time high, best ever in Nynäshamn at 97 percent.

 Record NSP sales in China..

 Singapore hub for NSP fully operational.

 Closing of loss-making Continental Europe bitumen business.

 Dundee refinery converted into bitumen depot.

 Nynas bitumen UK distribution outsourced.

 New bitumen supply terminal in Drammen, Norway.

NYNAS ANNUAL REPORT 2014 7 NYNAS OVERVIEW

 Nynas is a global company with a strong position in niche markets. The specialisation in NSP (naphthenic specialty products) and bitumen sets Nynas apart from most other oil companies, which offer oil as a source of energy.

 Nynas’ core competence is to refine heavy crude oil into a balanced mix of long lasting, high performance specialty products for sustainable use.

 Nynas is the leading brand and global market leader in NSP (naphthenic specialty products) and a market leader in bitumen in the European market where it operates.

 Nynas’ products support growth in infrastructure and touch the lives of nearly everyone every day through their presence in roads, roofs, running shoes, adhesives, rubber, paint, magazines and lubricants, which are just some of the thousands of everyday objects that contain Nynas oils.

8 NYNAS ANNUAL REPORT 2014 Nynas produces sustainable products outside the focus of major oil companies

NYNAS ANNUAL REPORT 2014 9 vi e w NYNAS o v er

NAPHTHENICS The range of NSP (naphthenic specialty products) include highly processed oils whose outstanding properties make them suitable for a wide range of applications. The oils are highly soluble, ideal for use at low temperatures and they comply with stringent environmental requirements.

Dissolving The high solubility of Nynas oils is an advan- tage when manufac- turing various types of synthetic rubber and compounds used to make car tyres.

Insulating and cooling Transformer oils are used in electrical applications, for insulation and cooling of power and distribution transformers.

10 NYNAS ANNUAL REPORT 2014 vi e w

PURIFYING NYNAS o v er Nynas’ ability to purify oils and attain a colourless product is in high demand for many chemical and technical applications such as for adhesives and printing inks.

Lubricating Nynas base oils are used as a component in cutting fluids for metal-working, hydraulic oils, greases and other industrial lubricants.

NYNAS ANNUAL REPORT 2014 11 NYNAS OVERVIEW

BITUMEN We are continuously developing bitumen and its performance in a wide range of applications. Our long-standing focus on bituminous binders has earned us the reputation of being the bitumen specialist.

BINDING Bitumen binders are used for asphalt applications in construction and main- tenance of motorways, runways and bridges.

12 NYNAS ANNUAL REPORT 2014 NYNAS OVERVIEW

Protecting Nynas’ bitumen products are used for roofing felt and various anti-corrosion applica- tions such as pipe insulation.

NYNAS ANNUAL REPORT 2014 13 vi e w

Naantali Partner refinery NYNAS o v er Nynäshamn refinery

Gothenburg refinery

ERL refinery 50 % ownership

Antwerpen Partner refinery

Harburg refinery

Curaçao Partner refinery

CLOSE TO OUR CUSTOMERS

14 NYNAS ANNUAL REPORT 2014 vi e w

Naantali Partner refinery NYNAS o v er

Nynas refineries Partner refineries Sale Offices Depots

 An own sales network established, with offices all around the world.

 Four refineries and access to additional supplies through long term supply agreements.

 Global distribution of naphthenic specialty oils through three hubs and 20 depots.

 15 own bitumen supply points plus access to another 18 third party supply points across northern Europe, each with its own blending facilities.

NYNAS ANNUAL REPORT 2014 15 m essa g e f ro t h pres id ent “2014 has been a good year for Nynas”

2014 has been a good year for Nynas. Following First of all, our hedging strategy, even though it comes two years with negative results, we managed to at a cost, was right last year. Without an appropriate turn around our business performance in 2014. hedging policy in place price changes of the magnitude The operational result before non-recurring items seen in recent years can not only destroy the operating amounted to SEK 1,336 million (533) whereby the result of many months but put the whole enterprise net profit was positive again with SEK 279 million at risk. (-305) – and this in a year where the overall economic Secondly, given the above mentioned positive conditions were far from ideal. EBITDA effect in 2014 and the corresponding neg- We did see some moderate growth in the western ative effect in our operational business that will economies but a significant slow-down in Asia. partially occur in 2015, the quarterly comparisons On top of that the various conflicts in the world when reporting our 2015 results will look somewhat negatively impacted on our sales. In the second half distorted. As a consequence we will aim to improve of the year crude oil prices fell from above 100 USD and upgrade our internal systems to move to hedge / bbl (Brent) to below 50 USD / bbl, a collapse similar accounting as per IAS39, and therefore mitigate the to the one experienced in 2008. This also did not profit and loss effect of using such derivatives. help demand as customers expecting falling product Having said this, 2014 was still a very successful prices postponed their purchases as much as possible. year and I would like to take this opportunity to Given the time lag from purchasing our feedstocks thank all of our staff for their commitment and con- to finally selling and invoicing the finished product tribution to this turnaround. to our customers, plus the additional delay with which raw material price changes translate to Contribution from our regions finished product price adjustments, we are carrying All businesses and regions contributed to this excellent a large price exposure on our inventory of feed- result, manufacturing once again had a year with high stocks, intermediate and finished products. As a availability and reliability of the production units and our consequence we have decided to consistently internal restructuring program delivered the targeted hedge this price exposure. The rules for reporting cost savings. The only area where we did not manage the financial impact of such derivate instruments to achieve an improvement in our performance was are governed by the IFRS. As our accounting and in the “Bitumen Continental” business. The Benelux reporting systems in 2014 did not yet allow us to use and northern French markets continue to be heavily what is called “hedge accounting”, last year’s 2014 oversupplied with correspondingly suppressed margins, earnings include the benefit of unrealised hedge and there is no improvement in the short-term outlook. effects, whilst the adverse effect in the operational We have therefore decided to close that business and a business will occur in 2015. The positive net effect social plan was agreed with the workforce and unions before tax of these hedges and corresponding in December last year. Nevertheless, we will endeavor inventory write-offs included per year end amounts to supply bitumen to those customers in the area to approximately SEK 290 million in 2014. who value Nynas’ superior bitumen quality. Other key Why am I spending so much time on this particular restructuring activities were the conversion of Dundee issue which might seem a bit “technical”? refinery into a depot as well as the outsourcing of our

16 NYNAS ANNUAL REPORT 2014 m essa g e f ro t h pres id ent

UK bitumen fleet to a specialist transport company. And pool. Also here Nynas will be well placed with its high last but not least on January 1st we finally took over quality bitumen. the base oil plant of the Shell refinery in Hamburg As a consequence the main focus in 2015 will lie and integrated it into our supply network. on improving our production units in terms of qual- ity and quantity. This year we will have two refinery Looking ahead shutdowns starting with Nynäshamn in late spring Looking ahead we see continued growth in Asia and with a turnaround lasting approximately 40 days. South America even though at a somewhat more During the autumn both parts of the Harburg site moderate pace. However, even in a mature Europe will commence their shutdowns, the base oil plant the competitive landscape is suddenly changing faster south of the river Elbe as well as the crude oil refinery than anticipated presenting new possibilities for on the north side of the river that will transfer from Nynas. There have been a number closures of so called Shell to Nynas on January 1, 2016. The conversion of simple “Group I” base oil refineries in previous years, the northern part from a fuel refinery into specialty but in 2014 alone 4 new closures were announced products refinery will mark a step change in Nynas’ with more rumored to come given the poor refinery production capacity and enhance the supply security economics in the light of heavy oversupply of for our customers. higher quality “Group II” and “Group III” base oils. Both projects in Nynäshamn and Harburg are sig- However, for a number of applications “Group I” nificantly improving our production footprint in terms quality attributes are needed, and Nynas’ naphthenic of quantity and quality for our NSP (naphthenic specialty specialties are well placed to fill that gap. The bitumen products) and bitumen businesses paving the way for competitive environment will also change in a number future growth in 2016 and beyond. of years following the announcement of at least two projects in Europe to build new cokers that will absorb Gert Wendroth, feedstock that today finds its way into the bitumen President and CEO

NYNAS ANNUAL REPORT 2014 17 DIRECTORS’ REPORT

ECONOMIC ENVIRONMENT

The world economy grew moderately during 2014 at 3.3 percent. The mature western markets developed quite unevenly with the US and UK economies gaining momentum while the Eurozone remained behind expectations. Asian growth was once again driven by China growing slightly lower than expected at 7.4 percent while Japan´s economy remained stagnant. Political unrest in several areas around the world had an additional negative impact on the overall economic recovery.

Unemployment was down slightly and is now at pre crisis levels around 5.5 percent, while global inflation was relatively moderate at 3.8 percent, as the recent decline in commodity prices kept inflation at low levels. In particular, the plummeting price of crude oil and consequently other oil products was unexpected for many. High crude oil prices of about USD 100 per barrel between 2011 and 2014 has led to a significant increase in unconventional oil and gas extraction methods. Extraction from shale formations and oil sands in the US and Canada has grown significantly, while at the same time the slowdown in economic activity reduced the demand for oil. As the leading OPEC member, Saudi Arabia was not prepared to reduce production crude oil prices halved between June 2014 and the end of the year. A significant strengthening of the US dollar in the second half of 2014 coincided with the fall in oil price. The improving economy in the US and continued overall weakness in Europe has accelerated the dollar’s strength against the euro, a trend that has continued into 2015.

Monthly Average crude oil prices of the OPEC basket from January 2014 to January 2015 The statistics illustrates the monthly aver- age crude oil prices of the OPEC (Organi- 120 zation of Petroleum Exporting Countries)

100 basket for the period between January 2014 and January 2015. The OPEC basket is 80 a weighted average of prices for petroleum blends produced by OPEC countries. It is 60 used as an important benchmark for crude 40 oil prices. In July 2014, the average price of the OPEC basket was at some 105.6 US 20 dollars per barrel.

0 Source: IMF, Reuters, Statista and the OPEC. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

18 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT DIRECTORS’ REPORT

Nynas’ strategy

Nynas refines heavy crude oil into two key product streams: NSP (naphthenic specialty products) and bitumen products.

More naphthenics and profitable bitumen

Reliable The market for NSP (naphthenic specialty prod- CUSTOMER ProDuct FOCUS Supply ucts) is truly a global one and Nynas is one of a few companies with its own extensive sales and distribu- Nynas Code of Conduct tion network around the world. This makes Nynas and policies the leading brand globally in NSP (naphthenic spe- cialty products), focusing on four key product areas: What does that mean for Nynas and its customers?  El ectrical: Transformer oils for insulation and The basis for this strategy consists of two key elements: cooling of transformers Customer focus:  C hemical: Process oils in the chemical and – Skilled sales and customer service staff in technical manufacturing industry all key markets Nynas operates in – Personalised contact: Nynas’ staff has  Lu bricant: Base oils for metal working and a face and a name industrial lubricants – Technical product and application  Ty re: Tyre oils to help tyre manufacturers meet support globally the highest environmental and technical standards. – Customer driven R&D

Demand for these products is expected to increase Reliable product supply: in the coming years due to economic development – Continued investments in existing production particularly in Asia and South America, and also due units to a shift in supply with producers of simple Group I – Acquisition of Harburg refinery to add new paraffinic products exiting the market. capacity and increase supply security Bitumen is a more local business, as it is not eco- – Well established and further growing global NSP nomical to transport the product longer distances. (naphthenic specialty products) supply network Therefore, Nynas concentrates on the key markets – Proximity to our bitumen customers (33 own around its bitumen refineries in Northern Europe, and third party supply points) where it enjoys a healthy market position. – Stable but flexible raw material supply Nynas’ current position and the outlook for both product groups translates into Nynas’ strategy: Nynas’ strategy is underpinned by the Nynas Code “More naphthenics and profitable bitumen”. of Conduct and a respective set of policies. These

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 19 DIRECTORS’ REPORT

govern the company’s approach to growing share- for short-term profitability and ROACE (return holder value whilst responding to all stakeholders’ on average capital employed) as an indicator for interests. longer-term profitability. Equally important is the monitoring of working capital development and Goals the net debt to equity ratio. The Nynas strategy translates into short- and medium- The operational KPIs focus primarily on the per- term business plans. The Group Executive Committee formance of our production units with reliability monitors progress using a number of financial and and off spec production measures, as well as on operational key performance indicators (KPIs). This is our HSSE performance. done through: In 2014 Nynas continued its efforts to improve reliability and cost efficiency in it´s manufacturing  meetings every second week with the Group operations. These efforts have paid off, with sever- Executive Committee al new production records set. Production reliability increased since 2005 from below 90 percent to 97  monthly reporting internally and to the Board percent in 2014. Reliability is defined as the per- of Directors centage of time the unit is operating and producing  “deep dive”sessions of the Group Executive on-spec products. Committee regarding individual topics such as Confirming an already established trend of con- HSSE, sustainability, human resources, tinuous improvements, 2014 was the third year in a investment projects, and risk management. row with very high reliability figures. The improved performance is the result of strong focus on pro- The financial KPIs include BE ITDA (earnings before duction performance by all staff and supported by interest, depreciation and taxes) as a key measure a major investment program.

Key GrOUP KPIs 2014 2013 2012 2011 2010

EBITDA (before non-recurring items) in SEK million 1,336 533 655 1,032 1,077 Return on average capital employed in % 10 -1 4 9 13 Return on average capital employed in %, rolling 12 months 1 13 2 4 10 12 Net debt/equity ratio in % 100 106 97 99 69 Net working capital in SEK million 3,654 3,606 3,720 4,236 3,289 NSP off spec production rate in % 3 4 5 13 13 Total recordable injuries (TRIF) 5.5 5.4 4.3 9.2 4.9

1) Excluding non-recurring items.

20 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT directors ’ report

GROUP RESULT

The year was characterised by stronger business activity resulting in increased operating profit.

Earnings The stronger business activity during 2014 resulted in increased operrev/op.pro t- NET SALES ating profit of SEK 775 million (-22). Better overall margins and higher AND OPERATING RESULT bitumen volumes compared to previous year are the main reasons for SEK million SEK million the improved performance. Results were impacted by a SEK -219 million 25,000 1,000

(0) inventory write down caused by the dramatic drop in oil prices which 20,000 800 was more than offset by SEK 510 (-14) million from unrealised market 15,000 600 valuation gains from oil and currency derivatives and SEK -172 million 10,000 400 (-157) for restructuring measures. The non-recurring charge for restructuring measures of SEK -172 million 5,000 200 relates mainly to the closure of the Nynas NV Continental Europe bitumen 0 0 2010 2011 2012 2013 2014 business and restructuring costs incurred by the internal efficiency program.  Net sales Net income improved and was positive with SEK 279 million (-305).  Operating result

Net financial items Net financial items for the year amounted to SEK -308 million (-264) of which SEK -224 million (-176) is related to net interest expenses. The higher net interest expenses are explained by unrealised market valua- Return on AVERAGE cap capital EMployed tion on interest rate swaps. and capital employed

SEK million % Taxes 8,000 16 Income taxes increased to SEK -188 million (-20). The effective tax rate 7,000 14 including non-deductible non-recurring items was 40 percent (-7). The 6,000 12 5,000 10 effective tax rate has been impacted by the restructuring reserve and 4,000 8 operational losses in Nynas NV, giving tax losses for the year of SEK 3,000 6 87 million without corresponding capitalisation of deferred tax assets. 2,000 4 1,000 2 0 0 Returns 2010 2011 2012 2013 2014 Return on average capital employed, (12 months rolling) was 13 percent  Capital Employed  Return on average capital employed (2) and return on equity was 8 percent (-12). (12 months rolling)

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 21 DIRECTORS’ REPORT

FINANCIAcashflow/investL POSITION SEK million

800 Nynas operates in an industry in which long-term value 600 creation is achieved through improvements in productivity, 400 cost control and investments in production200 capacity. 0 -200 cashflow/invest netdebt/WC -400 CASH FLOW from -600 NET DEBT AND operating activities INVESTMENTS WORKING CAPITAL

SEK million SEK million SEK million

800 1,000 5,000 600 800 4,000 400 200 600 3,000

0 400 2,000 -200 200 1,000 -400

-600 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

 Net Debt SEK million  Working Capital 1,000

800

600

400

200Cash flow Cash flow from operating activities amounted to SEK covenants. The covenants include the following key 0 534 million (174), positively impacted by the higher ratios: cash flow/interest payments, net debt/equity, EBITDA earning compared to previous year. Cash net debt/working capital and adjusted equity. At flow from investments, acquisitions and divestments year end all covenants were fulfilled. was SEK -545 million (-205) where the higher 2014 Long-term interest bearing liabilities includes defined investment level accounts for most of the deviation pension obligations of SEK 368 million. Due to the compared to previous year. drop in the discount rate an actuarial loss has been At the end of the year, cash and cash equivalents accounted for amounting to SEK 119 million which amounted to SEK 898 million (938). Net debt was less deferred tax of SEK 31 million has been rec- unchanged at SEK 3,421 million. ognised in other comprehensive income.

Financing Working capital In 2014 Nynas issued a corporate bond in the Nordic Management of working capital is a focus area since bond market, raising SEK 650 million with a four year Nynas’ bitumen activities are highly seasonal with duration. The bond is listed on Nasdaq Stockholm. In large working capital requirements during the sum- addition to this Nynas has a credit facility of EUR 750 mer months. Net working capital increased by SEK million and a USD 50 million bond facility. At year-end 48 million compared to year end 2013, explained by 52 percent of these facilities were utilised. The loan larger inventory and by higher current assets coming agreements include financial terms, called financial from unrealised gains on oil hedge derivates.

22 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT DIRECTORS’ REPORT

Equity Equity at year end amounted to SEK 3,425 million (3,218). The equity ratio was 30 percent (34).

Fixed assets Combined with the investment in the Harburg refinery in Hamburg, Nynas has undertaken significant investments to increase the reliability, productivity and flexibility of its manufacturing operations. Going forward Nynas has a strong platform to increase its supply of NSP (naphthenic specialty products) volumes, with the increased capacity com- ing from the Harburg Refinery. The Harburg Refinery gives Nynas increased control over production by reducing dependency on external suppliers.

Capital expenditures Total capital expenditures amounted to SEK 546 million (227). The investments in ongoing business totaled to SEK 368 million. This was an increase with SEK 141 million compared to previous year, increase mainly driven by the investments in a bitumen depot in Drammen, Norway and preparations for the maintenance stop in Nynäshamn scheduled for spring 2015 in line with the 4–5 year cycle presently required by the authorities. Cash acquisition expenditures during the year was SEK 178 million (0) and was related to the first payment of the southern part of the Harburg Refinery.

Acquisitions Nynas has entered into an agreement with Shell to acquire a major part of the Harburg refinery. The transaction comprises two phases. Phase one covers the sale of the southern part, Base Oil Manufacturing Plant (BOMP). Phase two covers the sale of the northern part of the refinery. The takeover of the southern part took place on January 1, 2014. From that date Nynas took full responsibility for the operations of the BOMP. At this point all relevant Shell staff working at the BOMP was transferred to Nynas (approx. 80 employees). The takeover of the northern part is currently scheduled to take place between December 31, 2015 and January 1, 2016, subject to fulfilment of terms and conditions by the parties, see note 31.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 23 DIRECTORS’ REPORT

BITUMEN

BITUMEN PRODUCTS BITUMEN SALES BY EXTERNAL NET SALES1 PRODUCT CATEGORY

SEK million Industrial applications 12,000 6% SEK 573 million

10,000

8,000

6,000

4,000

2,000

0 Binders for asphalt 2010 2011 2012 2013 2014 production 94% SEK 8,907 million 1) excluding sale of fuel

Overall demand in 2014 developed well and in who value Nynas’ quality product. Overall in the line with expectations for the competitive Nordic fourth quarter sales were favourably impacted by markets. Sales volume in Norway reached an all- the mild weather conditions, particularly in the time high and Denmark, Finland and the Baltics Nordic countries. In the UK the year started strong registered increased sales volumes compared to the and October, traditionally one of the busiest months previous year. Sales volumes in Sweden remained of the year, was no exception in 2014. almost unchanged. Sales in the UK and Ireland Net sales increased to SEK 11,342 million (11,101) increased overall, positively impacted by the general for the full year, reflecting the positive volume economic recovery. Upgraded products and in development more than offsetting the decline in particular emulsions showed strong performance sales seen in Continental Europe. EBITDA excluding as more customers look to use surface treatment non-recurring items for the year amounted to as a maintenance technique. Sales in Continental SEK 325 million (115), negatively impacted by the Europe declined as an effect of the decision to close operating loss in Continental Europe and year-end the bitumen business, which was announced in write down of inventory. The impact of the inventory September. Nynas will continue to supply bitumen write down was compensated by unrealised hedge to customers in the Continental European market gains from market valuation of derivatives.

24 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT DIRECTORS’ REPORT

NAPHTHENICS

NAPHTHENIC PRODUCTS NAPHTHENICS SALES EXTERNAL NET SALES 1 BY PRODUCT CATEGORY

SEK million Tyre oils 15.4% 8,000 SEK 1,086 million 7,000 6,000 Transformer 5,000 oils 43.7% SEK 3,076 million 4,000 Base oils 3,000 23.9% 2,000 SEK 1,682 million 1,000 0 2010 2011 2012 2013 2014 Process oils 17.0% 1) excluding sale of fuel SEK 1,194 million

Overall global sales volumes in 2014 remained showed good growth. Nynas increased its footprint in at the same level as in 2013, however there were Sub-Saharan Africa with increased sales in East and West important shifts between regions and countries. Africa. In terms of industry segment impact on volume While European total sales were flat in most countries, the most noteworthy was the increase in automotive with France and Spain impacted by the weak production, followed by chemicals. economic situation and Ukraine sharply down due to The sharp drop in oil prices in the fourth quarter the political situation, these were offset by increased led to sales declines in all three regions as customers German sales bringing the total for the region slightly postponed purchases in anticipation of further price above 2013 levels. The Americas experienced an reductions. overall decline with sales in South America negatively Net sales for the full year increased to SEK 11,828 impacted mainly by Brazil due to the World Cup and million (9,705) mainly due to the positive currency presidential election. North American sales declined impact from a weaker Swedish krona. EBITDA due to the cancelled supply agreement with the increased to SEK 961 million (564) explained mainly US Three Rivers refinery. In Asia-Middle East-Africa by currency and also margins. sales showed a healthy increase led by China that continued to grow at record rates and also Korea

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 25 SUSTAINABILITY

Taking oil further

Nynas differs from a typical oil company. More than 80 percent of its products are non-fuel products. Since oil is a finite resource Nynas focuses on manufacturing products, which deliver lasting value; promoted as ‘taking oil further’.

Our core business is to maximise the upgrading operational action. The ongoing development of spe- of crude oil to specialty long lasting naphthenic oils cific Group KPIs and business targets are intended to and bitumen products whilst minimising the volume facilitate delivery. of fuel products produced. Nynas’ holistic approach focuses on adopting work The backbone of Nynas’ approach to sustainable practices that make a positive contribution to sustain- development is its dedicated Policy for Sustainable able development so that together with our custom- Development introduced in 2012. The policy takes a ers and suppliers we can: holistic view, supporting Nynas’ existing social, envi- ronmental and economic policies while strengthen-  align on principles of sustainable development ing the focus on sustainability. The purpose of Nynas’ Policy for Sustainable  reduce use of natural resources Development is to facilitate a progressive approach  reduce GHG emissions towards “developing and implementing strategies, ensuring growth of shareholder value while proac-  improve the environmental, economic and social tively taking care of all stakeholder needs; specifi- aspects of our products and their use cally protecting and sustaining human and natural  promote transparency and open dialogue to resources for future generations”. stimulate engagement with all stakeholders, Our Policy for Sustainable Development strenght- specifically employees, customers, suppliers and ens the interdependance of our sustainability related local communities policies:  continuously improve the material aspects of  Economic: Procurement Policy, Competition our sustainable development performance Compliance Policy through the development of KPIs and operational target setting.  Social: People and Human Rights Policy, Global Anti-bribery & Anti-corruption Policy In the following sections Environment, Safety, R & D,  Environmental: HSSE & Q (Health, Safety, Human resources and Risk management we focus on Security, Environment & Quality Policy) the importance of competence, continuous training and providing career paths to our employees, our Policy implementation is supported by an internal approach to new product development and the Notes for Guidance document. This has been devel- importance we put on the environment, health and oped to support interpretation of policy intent into safety and overall risk management.

26 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT SUSTAINABILITY

NYNAS DEVELOPS PRODUCTS WITH LONG LASTING VALUE

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 27 Environmental ENTAL DATA EN V IRON M ENTAL measures throughout the year

Environmental legislation When the Industrial Emissions Directive (IED) came  The intention was to start covering the area into effect in 2013 new rules became applicable of Land Farm landfill, but the material had not regarding industrial emissions. The IED brought settled enough to initiate this action, which will stricter requirements regarding application of the be completed by 2016. best available technology and the reporting of pol- lutants. So-called BAT (Best Available Techniques) Previously implemented actions (steam generated conclusions are used when establishing permit stip- from biofuels and a shift to natural gas as a raw ulations and all operations must report annually on material for the production of hydrogen) have 2014

how they are complying with the BAT conclusions reduced the total CO2 emissions from the refinery by and on any actions that will be taken to meet the approximately 74,000 tonnes between 2004 and requirements in the event of non-compliance. 2014. Potential activities to achieve further reduc- The BAT conclusions are listed in the BREF (BAT ref- tions have been identified and are being evaluated. erence document) documents for various operations. Measurements are performed on an annual basis A new BREF document for refineries was adopted to estimate the magnitude of VOC emissions and and published in October 2014. Nynas must demon- to assess the potential need for measures to reduce strate compliance with this BREF document’s BAT emissions. Previous measurements have indicated conclusions within four years of publication. Any deficiencies in the seal of the floating roof in one tank. gaps will be identified during 2015 and necessary These deficiencies will be corrected during 2015. measures will be evaluated and planned accordingly. An energy plan for 2013–2015 was submitted to Another IED requirement is to produce a status the inspecting authority on December 30, 2012 (as report on pollutants in the ground and groundwater stipulated in the environmental permit). The plan for in the areas in which the operations are located. The 2014 includes for instance improvements regarding status report will subsequently serve as a benchmark the insulation of tanks and pipes, where two projects on the day that operations are closed down. A status for upgrading of insulation have been completed, report must be submitted by no later than four years as well as improved reporting of energy utilisation after the BAT conclusions are published. Efforts are for each facility. The energy plan also includes daily underway to ensure that Nynas is complying with operating activities, such as reducing the amount of the requirements stipulated in the BAT conclusions, fuel gas being flared and reducing boiler blowdown. and to draft documentation for the status report. In 2013, responses to the Land and Environment These efforts will continue in 2015. Court regarding the remediation of the J3/J4, P and E2 areas were submitted on several occasions. The Court NYNÄSHAMN REFINERY, SWEDEN hearings were held on December 4–5, 2013 and April The refinery in Nynäshamn manufactures bitumen 9, 2014. The court’s decisions were published on June and naphthenic oils. Environmental investments and 18, 2014 and appeals were submitted by the Swedish actions during 2014 were as follows: Agency for Marine and Water Management and a pri- vate individual. The Court of Appeal decided to accept the appeal regarding E2 and reject all other appeals.  Pressure-vacuum valves were installed on all As no appeals were submitted regarding the decision crude tanks to reduce VOC emissions. by the Court of Appeal, the decision by the Land and  New pumps with increased pumping capacity were Environment Court to allow Nynas to carry out the installed in the pump station of the wastewater remediation of J3/J4 and P according to the plan sub- treatment plant to ensure capacity to handle fire mitted by Nynas is now final and legally binding. water-runoff and exceptionally heavy rainfall. A new partial judgment regarding emissions to air

28 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT ENTAL DATA EN V IRON M ENTAL

(VOCs and sulphur) was received on April 10, 2013.  The company should assess potential energy con- The Swedish Environmental Protection Agency appealed servation measures and report on these by 2016. one of the sulphur stipulations (stipulation 9b, which pertains to the level of sulphur recovery efficiency A permit was obtained on March 18, 2014 to purify in the sulphur recovery facility). The decision by the water leaking from the caverns and then release the Court of Appeal was published on February 28, purified water into the rock between Nynas caverns 2014 and confirms the decision given by the Land A and B, provided that some new conditions, such as and Environment Court in April 2013 with a minor in-line oil in water measurements, are fulfilled. change in wording, but no change in the definition The soil in the ground around the caverns has or level. been remediated due to an overflow of crude oil, Proposals for stipulations and reports pertaining to which occurred in the late 1990s. emission levels to water and management of fire water runoff have been submitted to the Land and Environ- HARBURG REFINERY, GERMANY ment Court and the review process has been initiated. Nynas produces naphthenic and paraffinic special- ty oils at the Harburg refinery located in Hamburg Gothenburg Refinery, Sweden Germany. During 2014 activities were carried out to Nynas manufactures bitumen, specialised products run the refinery more efficiently and to reduce the containing bitumen, and various types of distillates amount of energy used. These are some examples: at the Gothenburg, Sweden refinery. An environ- mental permit was granted in a partial ruling in 2010  Temperatures are now regulated to the minimum to increase the throughput to 800 kilotons of crude necessary level. oil per year, including requirements on fulfilling and  Production is in defined design and operating investigating various environmental stipulations. windows. A number of investigations as well as actions have been carried out in recent years with the aim of re-  O2 value in the flue gas is controlled and regulated ducing various types of emissions to air, ground and water, and to minimise waste. The result of the inves-  Focus is on efficient use of steam. tigations is another partial ruling from 2013.  Process equipment was changed to more energy After some amendments a number of final stipula- efficient alternatives. tions as well as new investigations have been received such as:  Energy consuming equipment not in use is disabled

 Energy saving lamps have been installed.  Limiting the sulphur content in the fuel to a max- imum of 0.05 percent. This resulted in a signifi-  Regular maintenance and inspection of plants cant reduction in SO and NOx emissions. 2 and equipment have been carried out.  Reducing VOCs from the oil pumping and storage During 2014 Nynas invested in the installation of inde- in the A and B caverns. A project to install a pendent overfill protection on ten tanks in accordance vapour combustion unit for the reduction of gases with the Federal Control of Pollution Act. from the caverns has been started. The facility The main changes relating to Harburg’s environ- should be in operation by July 1, 2016 at the latest mental permit were as follows: and will reduce VOCs by more than 95 percent.

 Implementing environmental management of  export line for naphthenic distillates added in tanks including taking care of fire fighting water. accordance with § 15 BImSchG (Federal Control This will be compliant through the use of impervious of Pollution Act) surfaces and controlled ducts that run off to a reten- tion basin. The project is ongoing.  independent overfill protection installed at ten tanks in accordance with § 15 (Federal Control of  Performing additional studies including the toxicity Pollution Act). of the effluent water. A number of studies are ongoing.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 29 ENTAL DATA EN V IRON M ENTAL Environmental data Nynas refineries

The environmental data reported are part of the data the company reports to the authorities. More information on targets and outcome for previous years is also available on nynas.com.

Limits according to environmental Nynäshamn refinery Actual 2014 permits

Production 0.99 Mtonnes crude 1.8 Mtonnes Emission Oil to water 0.18 mg/l (total 0.25 tonnes) 5 mg/l

SO2 269 tonnes 500 tonnes

NOx 41 tonnes 125 tonnes VOCs ~1 180 tonnes (measured in 2011)* –

** CO2 137 441 tonnes Energy utilisation 17 010 tonnes of fuel oil 8 570 270 m3 of gas (internal gas) 61 911 MWh electricity 172 GWh steam (purchased) 127 GWh steam (produced)

*) Too few measurements to be able to report total emissions during 2014. Results for measurements during three days in 2014 was 107 kg/h.

**) CO2 emissions from trhe production units.

Limits according to environmental Gothenburg refinery Actual 2014 permits

Production 0.450 Mtonnes crude 0.800 Mtonnes crude Emission Oil to water (nonpolaric 1.2 mg/l 3 mg/l hydrocarbon) average

SO2 9 tonnes –

NOx 20 tonnes – VOCs ~ 70 tonnes –

** CO2 28 344 tonnes Energy utilisation 8 583 tonnes of fuel oil – 391 tonnes of gas 20 100 MWh electricity

**) CO2 emissions from the production units.

30 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT ENTAL DATA EN V IRON M ENTAL

Limits according to environmental HARBURG refinery Actual 2014 permits

Production 348 086 tonnes NSP + PSP – 33 253 tonnes slack wax 15 302 tonnes bitumen Emission Oil to water 0* –

SO2 7. 843 tonnes –

NOx 40. 852 tonnes – VOCs n/a –

** CO2 42 539 tonnes – Energy utilisation Fuel gas import 4 567 tonnes = 63 626 MWh Fuel gas export 189 tonnes = 2 968 MWh Fuel gas mass burned 16 386 tonnes = 269 436 MWh Fuel gas production 12 008 tonnes = 209 078 MWh HP steam import: 134 856 MWh Electricity 6 KV import 56 439 MWh Hot water consumption import 42 890 MWh

*) All oil containing wastewater has been routed to the wastewater treatment plant at the Shell site.

**) CO2 emissions from the production units.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 31 SAFETY

SAFETY Observe, think and act

While safety at Nynas remains as critical as ever, the 2014 results indicate that there is still a way to go to achieve top marks. In line with this, safety focus was elevated towards the end of the year.

Every single accident is one too many at Nynas. were also increased towards the end of the year to The group-wide Health, Safety, Security, Environment help improve the safety culture. & Quality (HSSE&Q) policy is designed to create a Such initiatives are designed to make Nynas a more strong internal culture that prevents and eliminates mindful organisation. risks in the workplace. Many safety improvement Nynas’ “Observe, think and act” programme focuses activities have been performed to reduce the number on safety behaviour, being observant of potential risks of injuries and accidents. and knowing how to mitigate them. In 2014, the total number of recordable injuries This safety programme will become compulsory per million working hours (TRIF) was 5.5. This was for every employee and contractor in 2015. above the 2014 target of 4.5 and slightly higher than In 2014, a leadership safety improvement project the 5.4 TRIF in 2013. was started to get all managers committed to safety. During the year, videos with important safety les- The project includes training activities for managers sons were made available to staff in multiple lan- and requires performing safety walks and holding guages. Line management safety walks and audits HSSE meetings.

32 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT SAFETY

In 2014, after an analysis of the process safety accidents (PSA) reporting, it was identified that Nynas had in the past incorrectly reported PSAs as Tier – 1 when they were in fact Tier – 2 accidents.

Process Safety Accidents (PSA) Transport accidents Total RECORDABLE Injuries

PER MILLION PER MILLION PER MILLION WORKING HOURS WORKING HOURS WORKING HOURS 2.0 25 10

20 8 1.5

15 6 1.0 10 4

0.5 5 2

0 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

The following types of accidents are tracked monthly Total Recordable Injuries (TRIs) include the following through Key Performance Indicators (KPIs): types of injuries:

 Personal injuries, Lost Time Accidents, Restricted  Lost Time Accidents (LTA) is an instantaneous Work cases and Medical Treatment cases bodily defect whereby the individual is physically or mentally unable to work on a scheduled day or  Process Safety Accidents (Loss of containment as shift resulting in at least one day off the job, not unwanted consequence) counting the day of the accident.  Transport Accidents (Accidents during loading,  Medical Treatment Case (MTC) is a work-related transport and unloading). injury, which requires the attention of a medical practitioner. Each accident is investigated, in many cases by spe- cially trained investigators. Direct and indirect causes  Restricted Workday Injury (RWI) is a work-related are determined and corrective and preventative actions injury which causes the injured person to be are taken. assigned to other work on a temporary basis or Nynas benchmarks personal injuries and process to work less than full time at his or her normal job. safety accidents (PSAs) with CONCAWE (Conserva- tion of Clean Air and Water in Europe). Transport Sick leave (excluding Harburg) was a relatively low accidents are benchmarked with ECTA (European 2.3 percent globally. Chemical Transport Association) Nynas also works in accordance with the OECD Corporate governance for process safety: Guidance for senior leaders in high hasard industries. This guid- ance, designed for senior decision makers in organi- sations, has been communicated to the Nynas board.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 33 R esearch and D e v elop m ent

RESEARCH AND DEVELOPMENT Raising the bar

Developing new oils and optimising products and applications to make them more sustainable are at the core of Nynas’ research and development. The company has a long tradition when it comes to bitumen and naphthenic specialty oils, with the expertise to deliver added value to customers.

Nynas has its own R&D unit and laboratories Already today, Nynas’ focus on sustainability has led to focused on product development, optimising Nynas more durable, long-life products. The recently devel- refineries and supporting the company’s long-term oped Endura D1 bitumen product helps reduce noise strategic goals. The R&D team consists of experts in and eliminate water on roads for a safer and quieter bitumen and naphthenic products, solutions, and user experience. applications. They regularly share their knowledge During the year Nynas successfully developed and in customer seminars and industry papers. About 20 launched several transformer oil grades adapted to such articles were published in 2014. meet local specifications, in addition to a high vis- The group also shares its expertise with a number cosity grade process oil for applications such as tyres. of universities and research institutions in the US and To optimise the use of new crude oils, perform Europe including the KTH Royal Institute of Technol- product development, support process design of ogy in Stockholm, where Nynas sponsors and men- investments and work with trouble shooting, highly tors PhD students. Supporting research initiatives qualified Nynas researchers carry out simulations in helps Nynas remain at the forefront when it comes the Nynas Protech laboratory. Located in Nynäshamn, to developments in the field. Sweden, this “mini refinery” has several small- In the KTH collaboration funding has been provid- scale distillation and hydrotreater units. In 2014 an ed for research into cold paving technology based on additional hydrotreater unit was added to the lab. bitumen emulsions. Bitumen binders are developed This will help with complex simulations including that can be used to lay asphalt at lower temperatures. the newly added Harburg production. Today Nynas This will make it possible to reduce energy utilisation, have access to seven full-scale hydrotreaters in three

lower CO2 emissions and offer a safer, cleaner work different locations. environment for those constructing roads. In 2014 the Product development within process oils is per- results of more than 20 years of road testing based formed at Nynas’ Technology Centre in Nynäshamn. on this Nynas cold paving technology were completed In 2014 a new application lab for adhesives was and published. The results demonstrate that the bitu- added to the centre. men binder has held up well, indicating that it is pos- sible to combine the sustainability targets of reduced energy demand and durable performance.

Nynas is a member of industry organisation CONCAWE, which documents all products and product groups in compliance with the EU’s REACH (Registration, Authorisation and Restriction of Chemicals) directive. Under this directive, all chemicals and sub- stances used in the EU must be registered, assessed for risk and authorised for the purpose of protecting human health and the environment. Nynas takes a very active role in promoting high standards by supporting the work of REACH through expertise.

34 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT H u m an R esources

HUMAN RESOURCES Opportunities to grow

Integrating the new Harburg site and developing leadership within the company were among the main priorities in 2014. Nynas managed to make headway in both of these areas. 854 Number of full time employees as of December 2014. Core Values Nynas aims to employ a diverse mix of people with various competences, ROW but one thing they should all share in common is the ability to contrib- 11% ute to and strengthen the Nynas culture. This is a culture of dedication, ROE cooperation and proactivity, stemming from the company’s heritage as 12% a family owned company. These are also Nynas’ three core values.

Germany  D edication: Doing one’s best in every situation and taking responsibility 11% Sweden 49% for customers, colleagues and society in general. Nynas employees never UK compromise on safety, health, the environment or quality. 16% Employees by geographical area  C ooperation: Cooperation, mutual trust and support, which creates for Sweden, UK, Germany, a corporate culture that encourages cross-border and cross-functional Rest of Europe (ROE) and Rest of meetings, job rotation and training. the World (ROW).

 P roactivity: By thinking ahead, being open to new ideas and contin- uously seeking new solutions and opportunities with, and for custom- Men Women 66% 34% ers, Nynas can continue to be at the forefront of developments.

An attractive workplace Nynas is a value-driven company where there is freedom to develop and many opportunities to work abroad. It comprises a very international group, with 51 percent of its employees outside of Sweden, of which Male-female ratio at Nynas. 11 percent are employed outside Europe. The company benefits from this diversity by gaining a better understanding of other cultures and behaviours. This in turn helps in communications with customers and Men Women others. The international environment, along with a flexible approach is 67% 33% one of the keys to the company’s high retention level.

Cooperation at the core when integrating Harburg To facilitate cooperation in the integration of Harburg, Human Resources conducted workshops in cross-cultural communication which was well received and allowed for a successful integration so far. Male-female ratio, top management.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 35 E M PLOYEES

employees tell their stories

Chian Yaw Today, I have another challeng- familiar and upfront which gives Head of TechDMS for the ing role as the Head of Technical employees the confidence to Electrical and Lubricants Development and Market Support express new ideas and improve- Industries, Singapore (TechDMS) for the Electrical and ments. I also think there is a Lubricants Industries, covering special ‘Nynas spirit’, a culture Asia Pacific. Developing and of working together and a will growing sales in Asia has helped to help each other out. I don’t me to nurture and grow too.” think you will find that in every workplace. After comparing workplaces Joakim Garpsater with friends from my time at uni- Maintenance versity I would say that Nynas is Coordination Manager a unique employer. The company Nynäshamn, Sweden gives you lots of responsibilities but at the same time a lot of opportunities. I would definitely recommend working at Nynas. Chian Yaw worked for British Here you will be given interesting and American multinationals in assignments, opportunities to the chemical and petrochemical develop and great colleagues.” industries, before starting at Nynas in 2008. He has a Bach- elor’s Degree in Chemical Engi- André zum Hingste, neering and a Master’s Degree in HR Manager Business Administration. Harburg, Germany “I was attracted to Nynas for three main reasons: Nynas’ spe- cialisation in naphthenic specialty Joakim Garpsater is a mechanical oils; its lean organisation with a engineer with a degree from the very flat management system; KTH, Stockholm’s Royal Institute and the opportunity to work for a of Technology. He began his Scandinavian corporation for the career at Nynas as a full-time first time. consultant in 2005 and has been When I started in Singapore, a Nynas employee since 2010. there were only three people in Today he works at the refinery in a shared service office. Today, we Nynäshamn, Sweden. have almost 13 people in our own “I liked Nynas right away and FOTO: K-G Z Fougstedt Singapore office and we are pro- the company’s friendly culture jected to grow and recruit more. and interesting assignments. With the acquisition of the Shell I like the diversified culture The time at Nynas has given me refinery in Harburg, Germany, within the organisation. In plenty of chances for personal Nynas began the task of hiring Singapore, we have a term called development and learning. I and integrating employees into ‘rojak’ which means ‘mixture’. started working at Nynas as a Nynas in 2014. These efforts will In fact, Nynas Singapore is like a mechanical designer but have continue in the coming years. melting pot with different people had the opportunity to develop Coming to Nynas from Shell from different backgrounds, into other areas such as project was a big adjustment, says HR cultural orientations and beliefs management, process know- Manager André zum Hingste, working under the same roof. ledge and maintenance strategy. adding that Nynas handled the When I first joined Nynas, I was I will now move on to a manage- processes in a very professional handling South East Asia (exclud- ment role and a role related to manner. “I very much appreciate ing Malaysia) sales within NSP work environment issues. the speed of handling tasks and (naphthenic specialty products). The culture here is really solving problems at Nynas,” he

36 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT E M PLOYEES

says, adding that they got off takeover. Since then, he has been to an excellent start with good nominated as a “Value Hero” for support from Swedish colleagues his good work with integrating and good preparation when it the Harburg refinery into Nynas. came to equipment, IT solutions “It was a difficult situation for and more. all Harburg employees after the “Our colleagues in Sweden Shell announcement in 2009 were very helpful and we always of the future options for the had the feeling that everyone Harburg refinery. This changed understood the challenges and however with the EU approval of wanted to make it a success. The Nynas and the new way forward welcome event in the second for the Harburg refinery. week was the perfect way to One of the challenges after- segments, before being relocated come into contact with the new wards was to convert the Shell to Singapore. colleagues and was a very good refinery into a Nynas refinery. I “I was relocated to Singapore opportunity to learn more about think we managed it in a good as a Technical Coordinator and Nynas and the Swedish culture.” way and the performance was in the beginning I covered all Among the other integra- what Nynas expected. We ful- four of our segments (Chemical tion efforts were workshops filled most of the requirements Industry/Tyres/Electrical Industry/ in intercultural training and from the first day onwards. Lubricants). After two years I English language training for the At Nynas you are, for the most became responsible for Electrical German-speaking staff. This par- part, directly involved in the pro- and Lubricants in the Asia and ticular initiative will be expanded cesses and in the changes. I like Pacific region. In 2014 I moved further in the near future. this way of working because you back to Sweden and took over “Good communication along have a direct influence on your the challenging role as Technical with the right skills, good rela- own future and in the growth Manager for the ELI group in tionships and strong motivation of the company. It is also an October. I think I will learn and from employees have been the open and flexible company with develop a lot from this role. key factors to making the inte- opportunities to grow. What I like about working gration successful,” says André. At the beginning of 2014 we at Nynas is the possibility to had a Swedish-Nynas culture and develop, the good colleagues, a German-Shell culture. Since and the very varying tasks. I also then I think we have all learned Thorsten Riebesehl like working at a global company Planning & Scheduling Lead from each other and now the and the fact that at Nynas you Harburg, Germany differences are not so big. The are trusted to do your work. result is from my point of view a As I mentioned it was after just really good mixture within Nynas. two years at the company that I moved to Singapore and it’s still a bit hard to believe that they trusted me that much! I think Linnéa Bergeld that Nynas puts a lot of effort Technical Manager into its personnel. Electrical Industry I would say that we live our Nynäshamn values of ‘Cooperation, Dedica- Linnéa Bergeld has a Master of tion and Proactivity’ very well, Science in Chemistry from Karl- while also having a lot of fun.” FOTO: K-G Z Fougstedt stad University in Sweden. She After 28 years at Shell, Thorsten started at Nynas in 2009, and for Riebesehl made the shift to the next couple of years learned Nynas on January 1, 2014, with a great deal about the compa- the Harburg South (Phase 1) ny’s naphthenic specialty oils

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 37 FINANCIAL RISK MANAGEMENT

FINANCIAL RISK MANAGEMENT

The Nynas group is exposed to financial risks. These risks are managed in accordance with the Group’s finance policy as defined by the Board of Directors.

Nynas Group Treasury department has been netting system and handles the Group’s cash man- established as the functional organisation in the agement. Treasury operations also conduct payment parent company where most of the Group’s financial advisory services and handle the Group’s credit risks are handled. The function conducts internal insurance. banking activities, with the primary task to control Nynas has an insurance to cover the Group’s property and manage the financial risks to which the company and liability risks. As a natural element of the Group’s is exposed as part of the company’s normal business different activities, continuous loss prevention work and activities, and to optimise the Group’s financial net. loss mitigation measures are conducted. This work sets The treasury department supports the subsidiaries the standards for the required levels of protection, in with loans, cash management, currency and hedge order to limit the probability of major claims. transactions. The reports on the following pages adhere to the The internal bank also operates the company’s reporting requirements laid down in IFRS.

38 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT FINANCIAL RISK MANAGEMENT

Liquidity and refinancing risk EXPOSURE

Liquidity and refinancing risk is the risk of difficulty Average terms to maturity of outstanding loans, size of programme in refinancing loans maturing, and the risk that and remaining maturity, nominal SEK payment obligations cannot be fulfilled as a conse- Average quence of insufficient funds. Recog- Pro- remaining nised gramme credit time 2014 Currency liabilities size (years) Bond issue SEK 638 650 3.6 Bond issue USD 465 465 1.8 Syndicated stand-by EUR 2,832 7,045 1.9 credit line Other bank loans Miscellaneous 16 – – TOTAL BORROWING 3,951 8,160 2.0

Average Recog- Pro- remaining nised gramme credit time 2013 Currency liabilities size (years) Bond issue USD 644 644 0.8 Bond issue USD 358 358 2.6 Syndicated stand-by EUR 3,142 6,644 3.0 credit line Other bank loans Miscellaneous 24 – – TOTAL BORROWING 4,169 7,647 2.8

COMMENT

At the turn of the year approximately 34 covered by long-term credit facilities. subject to seasonal fluctuations and the percent (approximately 44) of the Group’s In November 2011, a syndicated stand-by working capital increases significantly dur- assets were financed with external loans. credit line for EUR 750 million was signed. ing the summer months. The term of the credit facility is five years. To reduce financing risk, most of Nynas’ In 2014 Nynas issued a corporate bond in The loan agreements includes financial known credit requirement is covered by the Nordic bond market raising 650 million terms, called Financial Covenants. The cov- long-term credit facilities. Dependence SEK in borrowing for a four-year period. enants include the following key ratios, cash on individual financing sources, is actively The bond is listed on Nasdaq Stockholm. flow/interest payments, net debt/ equity, net reduced and a conservative approach on The management closely monitors the fore- debt/working capital and adjusted equity. counterparties for placement of any surplus casts for the Group’s net liabilities in order At the turn of the year all covenants were liquidity is applied. To reduce financing risk, to monitor the liquidity risk and covenants, fulfilled. most of Nynas’ known credit requirement is since Nynas’ bitumen activities are highly

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 39 FINANCIAL RISK MANAGEMENT

CURRENCY risk

Currency risk concerns the fluctuations  The result for the year is affected when when subsidiaries’ net assets denominat- in exchange rates that, in different ways, assets and liabilities are denominated in ed in different currencies are converted affect the result for the year, other com- different currencies (conversion risk). to Swedish kronor (conversion risk). prehensive income, and the company’s  The result for the year is affected when competitiveness: subsidiaries’ results denominated in Nynas handles the currency risks occurring  The result for the year is affected when different currencies are converted to in accordance with the descriptions given sales and purchasing are denominated Swedish kronor (conversion risk). in the following sections. There have been no changes in the handling of the currency in different currencies (transaction risk).  Other comprehensive income is affected risk compared to previous years.

CURRENCY risk EXPOSURE Transaction risk

Nynas’ transaction exposure, i.e. the Group’s net cur- Net flows in foreign currency, SEK million. rency flows, amounted to SEK 3,601 million in 2014 (SEK 4,852 million). AUD DDK EUR GBP NOK PLN USD OTHER 2,000 1,000 0 -1,000 -2,000 -3,000 -4,000 -5,000 -6,000 -7,000 -8,000

2014 2013

COMMENT, TRANSACTION RISK

Nynas has significant foreign currency currencies, and is thereby exposed to charged to customers. This reduces the flows, primarily in USD, EUR, GBP and fluctuations in exchange rates. It is in the currency risk, albeit with a certain time lag. NOK. For example, the Group buys crude nature of the oil industry that changes in This also applies to Nynas. oil in USD and sells products in other local exchange rates are passed on in the prices

40 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT FINANCIAL RISK MANAGEMENT

CURRENCY risk EXPOSURE CONVERSION risk

The equity of Nynas’ foreign subsidiaries must not Net assets in foreign currency, SEK million. normally entail any significant conversion risk as the 2014 2013 objective is to balance the subsidiary’s assets and liabilities in foreign currencies. The result of a foreign GBP 846 609 subsidiary is converted to Swedish kronor on the CHF 3 31 basis of the average exchange rate for the period in USD 130 125 which the result was achieved, which means that SGD 74 56 the Group’s result is exposed to conversion risk. BRL 126 82 The net assets, i.e. usually the subsidiary’s own capi- tal, are converted to Swedish kronor at the exchange PLN 52 48 rate on the balance sheet date. DKK 22 39 NOK 57 54 On December 31 the Group’s net assets in subsidiar- Other 8 222 ies denominated in foreign currency totalled SEK Total 1,317 1,266 1,317 million (SEK 1,266 million).

The Group’s borrowing by currency, SEK million

SEK USD EUR GBP OTHER 0 -400 -800 -1,200 -1,600 -2,000

-2,400 -2,800 -3,200 2014 2013

COMMENT, CONVERSION RISK

In order to avoid conversion risk in the sub- the help of various derivatives, in order contracts are predominantly used to hedge sidiaries’ balance sheets they are financed to minimise the conversion risk. Nynas’ net assets. Any impairment is recognised in in the local currency via the internal bank. policy is in significant respects to hedge the result for the year. The currency risk incurred by the internal net assets in foreign subsidiaries, excluding bank as a consequence is handled with the tax effect. Forward foreign exchange

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 41 FINANCIAL RISK MANAGEMENT

CURRENCY risk EXPOSURE CURRENCY SENSITIVITY

In order to gain the full picture of how currency fluctuations The most obvious exposure is in the inventory. The value of the affect the Group’s operating result account should be taken of specific inventory varies with the dollar price and in 2014 the both the transaction risk and the subsidiaries’ operating results inventory value on average was approximately SEK 3,926 million in the respective currencies, and the actual hedging. The Group’s (3,990), with the main part hosted in Nynas AB. A currency fluc- other comprehensive income has a currency exposure that relates tuation in the SEK/USD rate by SEK 0.10 would therefore affect to the size of the net assets. In addition to the net assets, other the result by approximately +/- SEK 40 million. comprehensive income is affected by currency risk since certain derivative contracts are subject to hedge accounting, which entails that the changes in the market value of these contracts are carried directly to other comprehensive income, instead of to the result for the year.

COMMENT, CURRENCY SENSITIVITY

Forward foreign exchange contracts are used to hedge obvious currency exposure. Nynas are not applying hedge accounting.

Interest rate risk EXPOSURE

Interest rate risk is the risk that The average borrowing during the year was approximately SEK 4,308 million (4,478). A 1 percent changes in market interest change in interest rates would therefore change the pre-tax profit/loss by +/- SEK 43 million (45). At rates will adversely affect the the close of the financial year borrowing totalled SEK 3,951 million (4,169). A 1 percent change in Group’s net interest income. interest rates would therefore change the pre-tax profit/loss by +/- SEK 39 million (42). How quickly an interest rate change affects net interest Fixed interest rate and fixed interest periods, SEK million. depends on the liabilities’ Excluding effects Including effects fixed interest period. Nynas of derivatives of derivatives measures the interest rate risk Fixed Fixed as the change in the next 12 Effective interest Effective interest Recog- months on a 1 percent change 2014 interest period, interest period, nised in interest rates. SEK million rate, % month rate, % month liabilities

Bond issue 7.2 20 4.0 21 465 Bond issue 8.0 3 8.0 3 638 Syndicated stand-by credit line 3.2 2 3.2 2 2,832 Other bank loans 1.5 – 1.5 – 16 Interest rate swaps – – 0.8 8 – Total borrowing 4.4 4 5.1 17 3,951

2013 SEK million

Bond issue 7.2 9 2.0 1 644 Bond issue 7.2 31 4.0 32 358 Syndicated stand-by credit line 3.4 3 3.4 3 3,142 Other bank loans 2.8 – 2.8 – 24 Interest rate swaps – – 1.7 7 – Total borrowing 4.2 6 3.8 9 4,169

42 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT FINANCIAL RISK MANAGEMENT COMMENT, INTEREST RATE RISK

The Group’s interest rate risk arises mainly cluding other loans and the effects of inter- The derivatives that are cash flow hedges via borrowing. Interest rate swap agree- est rate swap agreements, was 5.1 percent are subject to terms that match those of ments are used to achieve the required (3.8). Hedge accounting is applied when the loans, so that the cash flow effects of fixed interest periods. Nynas’ average fixed there is an effective link between hedged the loans and derivatives occur in the same interest period for the Group’s debt port- loans and interest rate swaps. Changes in period and cancel each other out. Changes folio must lie between 6 and 36 months. market interest rates can therefore also in the fair value of cash flow hedges are As the table shows, the average fixed affect other comprehensive income. Bond recognised directly in other comprehensive interest period for Nynas borrowing’ was loans in foreign currency are hedged with income. Any impairment is recognised in 17 months (9) at the close of the financial currency interest rate swaps, which are the result for the year. year, taking due account of the derivatives classified as cash flow hedges. used. The Group’s average interest rate, in-

CREDIT risk EXPOSURE

The Group’s commercial and financial transactions entail SEK million 2014 2013 credit risks in relation to Nynas’ counterparties. Credit risk or counterparty risk is the risk of losses if the counterparty Accounts receivable 1,593.1 1,574.8 defaults on its obligations. Cash and cash equivalents 898.0 937.6 Non-realised gains on derivates 688.7 47.1 Fixed interest rate and fixed interest periods, SEK million. The credit risk to which Nynas is exposed can be divided Non-realised losses on derivates -247.1 -79.8 into two categories: Total 2,932.7 2,479.7  Financial credit risk Fixed Fixed  Credit risk in accounts receivable Effective interest Effective interest Recog- 2014 interest period, interest period, nised SEK million rate, % month rate, % month liabilities

Bond issue 7.2 20 4.0 21 465 COMMENT, CREDIT RISK Bond issue 8.0 3 8.0 3 638 Syndicated stand-by credit line 3.2 2 3.2 2 2,832 With regard to the financial credit risk, the outstanding value was secured through approximately 90 percent of outstanding Other bank loans 1.5 – 1.5 – 16 Nynas has concluded an agreement with margin call. accounts receivable are covered by credit Interest rate swaps – – 0.8 8 – the Company’s most important banks insurance. Historically, losses on accounts Total borrowing 4.4 4 5.1 17 3,951 concerning, among other things, the right Via its ongoing sales Nynas is exposed to receivable have never exceeded SEK 15 to set off assets and liabilities arising as credit risk in outstanding accounts receiv- million per year on an overall basis. The a consequence of financial transactions, able. This risk is reduced with the help of total gross value of outstanding accounts 2013 SEK million called an ISDA agreement. This entails credit insurance. The terms of the credit receivable as of 31 December was SEK that the Company’s counterparty exposure insurance require well-established routines 1,593 million (1,575). These were written Bond issue 7.2 9 2.0 1 644 to the financial sector is limited to the to determine credit limits, follow-up and down by a total of SEK -18 million (-15). Bond issue 7.2 31 4.0 32 358 non-realised positive and negative result reporting of late payments. There are Age analyses of accounts receivable as of Syndicated stand-by credit line 3.4 3 3.4 3 3,142 occurring in derivative contracts. At the established internal routines to determine December 31 are presented in note 18. Other bank loans 2.8 – 2.8 – 24 close of the financial year the current net limits that are not granted by the insurance value of these contracts totalled SEK 442 company. No deliveries take place before Interest rate swaps – – 1.7 7 – million (-33) and by approx. 60 percent of a limit has been approved. On average, Total borrowing 4.2 6 3.8 9 4,169

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 43 FINANCIAL RISK MANAGEMENT

Commodity price risk EXPOSURE

Nynas’ financial and operative risks on commodities The commodity’s price risk is off-set by the impact on the result of any change are mainly crude oil delivery, crude oil price, fixed in commodity prices. The Group purchases crude oil at current market price. It price agreements and electricity. is in the nature of the oil industry that changes in world market prices for oil are passed on in the prices charged to customers, which reduces the oil price risk, The price risk on these is partly hedged by taking albeit with a certain time lag. This also applies to Nynas. out financial contracts. Nynas’ management of crude oil price exposure was changed in 2014, by significantly increasing the hedged inventory Inventory volume, ktonnes per month 2014 volumes. The oil price fluctuated during the year from an initial Brent price of USD 108/bbl, 1,000 its highest listing in June at USD 115/bbl, and a closing price of USD 55/bbl at year-end. 800

600

400

200

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Inventory value, SEK million per month 2014

5,000

4,000

3,000

2,000

1,000

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

COMMENT, COMMODITY PRICE RISK

Around 52 percent of the Group’s to increase the flexibility of supply of raw also concludes fixed price contracts with commodity and product requirement is material. Other important suppliers of raw customers. These fixed price contracts are imported from the Venezuelan state oil material and products are Chevron and hedged with oil price swaps and are classi- company Petroleos de Venezuela (PDVSA). Neste Oil. Inventory of oil products totalled fied as a non hedging relationship, which PDVSA has been a 50 percent owner 838 ktonnes at the close of the financial means that any changes in the value of of Nynas since 1986, and the business year (574 ktonnes). A USD 20/tonne price the derivative are recognised in the result relationship between the companies dates change would thus affect the profit/loss by for the year. At year end the fixed price back to the late 1920s. approximately +/- SEK 130 million. In order hedging totalled 50 ktonnes (49) and the to reduce price exposure, oil price swaps market value of the derivative contracts The existing crude oil agreement was are used, which are not classified as hedge was SEK 167 million (185). amended in December 2013 for a new accounting and totalled 417 ktonnes at period of five years. The cooperation is the close of the year, with a market value assessed to be stable, but work is ongoing of SEK -1,738 million (-1,325). Nynas

44 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT CORPORATE GOVERNANCE CORPORATE Corporate Governance

Governance structure of Nynas AB

SHAREHOLDERS via the AUDIT COMMITTEE ANNUAL GENERAL MEETING Monitors the Company’s financial The Company’s supreme decision- accounting and reporting. Reviews making authority. Adopts the the internal control system. approval of the Annual Report, discharge of responsibility, distribution of profit, changes to AUDITOR INCENTIVE Articles of Association and elects Audits the Company’s COMPENSATION COMMITTEE Board of Directors and Auditors. Annual Report, book- Monitors the terms of compensation keeping, management and employment of the CEO and and internal controls. senior executives. Reviews proposed BOARD OF DIRECTORS major personnel and organisational Considers and adopts decisions on changes. overall issues concerning the Group and oversees the work of the CEO. PROJECT REVIEW COMMITTEE Prepares decisions of the Board of CEO Directors concerning major strategic Manages the Company on the basis and structural projects and thereafter of the internal and external corporate monitors the implementation and governance instruments. achieved results of the projects.

BUSINESS AREAS/FUNCTIONS

Important external instruments Important internal instruments Policies adopted by the • Swedish Companies Act • Articles of Association Board of Directors • Swedish Book-keeping Act • Working procedures for the • Finance policy • Swedish Annual Accounts Act Board of Directors • HSSE&Q policy • IFRS • Internal management system • Environmental permits

Shareholders Nynas AB, company reg. no, 556029-2509, domiciled The total number of shares issued is 67,532, of which in Stockholm, is owned 49.999 per cent by Neste 33,765 are Class A shares and 33,767 are Class B Oil AB, company reg. no. 556232-3906, domiciled shares. The share capital is SEK million 67.5 and the in Stockholm, Sweden, and 50.001 percent by PDV listed value is SEK 1,000 per share. One share gives Europa B.V., company reg. no. 27133447 domiciled entitlement to one vote at annual and extraordinary in The Hague, the Netherlands. General Meetings. There are no restrictions to the Neste Oil AB is part of a Group in which Neste Oil Oyj, number of votes that each shareholder may cast at company reg. no. FI 18523029, Espoo, Finland, is the General Meetings. No share may be transferred to parent company. PDV Europa B.V, is part of a Group in any entity that is not already a shareholder in the which Petróleos de Venezuela S.A., company reg. no. company. The share must immediately be offered to 73023, Caracas, Venezuela, is the parent company. shareholders for redemption by written notice to the

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 45 CORPORATE GOVERNANCE CORPORATE

Company’s Board of Directors. In the same way, the and control of the Company’s activities, that there shareholders’ agreement stipulates that each share- are satisfactory internal control procedures, and that holder may as a maximum exercise the voting rights internal corporate governance instruments have for 33,765 shares. been determined. The responsibility also includes The shareholders’ right to adopt decisions concerning determining the objectives and strategy, deciding on Nynas’ affairs is exercised at the Annual General major acquisitions and divestments of companies, or Meeting, which is the Company’s highest decision- other major investments, deciding placements and making authority. The Annual General Meeting is loans, and to adopt the Company’s Finance Policy. usually held in the second quarter of the financial year. In addition to the constituent meeting the Board of If necessary, extraordinary General Meetings may be Directors holds at least three ordinary meetings per convened. The Annual General Meeting adopts the year. In 2014, seven Board meetings were held. In Articles of Association and the shareholders elect addition to approval of budgets and major invest- the members of the Board of Directors at the Annual ments projects, the work in 2014 focused on struc- General Meeting. tural issues. The Annual General Meeting also elects the au- The CEO presents issues to the Board of Directors ditors and decides their remuneration. The Annual and states the grounds for the proposed decisions. General Meeting adopts the resolutions to approve Other Group officers attend meetings of the Board the Income Statement and Statement of Financial of Directors as required in order to present particular Position, the distribution of the Company’s profits, issues. and the discharge of the members of the Board of In order to fulfil its obligations more effectively the Directors and the CEO of their responsibilities. Board of Directors has established three committees from among its members: the Audit Committee, the Board of Directors Incentive Compensation Committee and the Project The composition of the Board of Directors Review Committee. The Board of Directors shall consist of four to eight ordinary members, and two employee representa-  The objective of the Audit Committee is to represent tives. Each party also has the right to nominate the the Board of Directors and to monitor the Company’s same number of deputy members of the Board. Of financial reporting, and to monitor the effectiveness the ordinary members and deputy members, who of the Company’s internal controls, internal audit and shall be elected at a Shareholders’ Meeting, owners risk management. The Committee must keep itself in- of class A shares shall be entitled to appoint half the formed of the audit of the Annual Report and the Con- number and the owners of class B shares half the solidated Annual Report, review and monitor the im- number accordingly. The CEO is not member of the partiality and independence of the auditors, and assist Board of Directors. in the preparation of proposals for the Annual General Meeting’s decision on the election of auditors. The work and responsibility of The Audit Committee must also represent the Board the Board of Directors of Directors by supporting and monitoring the Group’s The Board of Directors is responsible for the manage- work on the overall coordination of the Group’s risk ment of the activities in the interests of the Company management. The results of the Audit Committee’s and all shareholders, in accordance with the external work in the form of observations, recommendations and internal corporate governance instruments. The and proposed decisions and measures must be report- framework is the documented working procedures of ed to the Board of Directors on an on-going basis. In the Board which are adopted annually by the Board 2014, three meetings were held. of Directors. Working procedures govern the work of the Board  The objective of the Incentive Compensation Com- of Directors, as well as the division of responsibility mittee is to represent the Board of Directors in matters between the Board of Directors and the CEO. The concerning the terms of compensation and employ- Board of Directors monitors the work of the CEO via ment of the CEO, and the executives reporting directly on-going follow-up of the activities during the year. to the CEO, on the basis of the principles adopted by It is the responsibility of the Board of Directors to en- the Annual General Meeting and the policies adopted. sure that effective systems are in place for follow-up The Committee also reviews proposed major

46 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT CORPORATE GOVERNANCE CORPORATE personnel or organisational changes. The Incentive of Directors, which also defines how responsibilities Compensation Committee must report on its work are divided between the Board and the Chief Executive to the Board of Directors on an on-going basis. In Officer. The CEO is responsible for and reports on 2014, five meetings were held. the development in the Company to the Board of Directors on an on-going basis. The CEO is assisted  The objective of the Project Review Committee is by a Group Executive Committee that consists of the to review proposals from the Company’s management executives responsible for the business areas and staff concerning major strategic and structural projects. The functions. Nynas has a structure with strong focus on Committee also follows up and approves the imple- business responsibility, combined with support from mentation of specific projects as determined by the clear shared Group functions and processes. The CEO Board of Directors. The Project Review Committee leads the work of the Group Executive Committee must report on its work to the Board of Directors on and adopts decisions in consultation with the other an ongoing basis. In 2014, three meetings were held. executives. At the close of 2014 there were ten members of the Group Executive Committee. The Auditors Group Executive Committee meets on a monthly basis External auditor to consider the Group’s financial development, Group At the 2012 Annual General Meeting the authorised development projects, management and competence public accounting firm Ernst & Young AB was elected provision, and other strategic issues. as the Company’s external auditor up to and includ- ing the 2015 Annual General Meeting. The auditor in Group Treasury charge is Authorised Public Accountant Jan Birgerson. Group Treasury is established as the functional The audit is reported to the shareholders as an organisation in the Parent Company where most of Auditors’ Report. This constitutes a recommendation the Group’s financial risks are handled. The function’s to the shareholders for their approval at the Annual primary task is to contribute to value creation by General Meeting to adopt the Income Statements managing the financial risks to which the Company and Statements of Financial Position of the Parent is exposed in its normal business activities. To support Company and the Group, the distribution of the the work of handling risk exposure the CEO has profit of the Parent Company, and the discharge of appointed a Hedging Committee. The Committee the members of the Board of Directors and the CEO is chaired by Nynas’ CFO and also includes other from their responsibilities. The audit is conducted in members with a good knowledge and understanding accordance with the Swedish Companies Act and of Nynas’ business model. good auditing practice, which means that the audit is planned and performed on the basis of knowledge External corporate governance instruments of the activities, current development and strategies The external corporate governance instruments of the Nynas Group. The audit services among other that determine the framework for Nynas’ corpo- things include inspection of compliance with the rate governance consist of the Swedish Companies Articles of Association, the Companies Act and the Act, Annual Accounts Act and other relevant acts. Annual Accounts Act, as well as the International The Swedish Code of Corporate Governance must Financial Reporting Standards (IFRS). be applied by Swedish limited liability companies The audit is furthermore reported on an on-going whose shares are listed in a regulated market. Nynas’ basis in the course of the year to the Board of respec- ownership structure therefore does not require the tive company and to the CEO and Executive Committee Company to observe the Code. Good corporate gov- of the Group. See note 7 concerning the remunera- ernance is fundamental to Nynas, and the objective is tion paid to the auditors. to ensure solid and adequate corporate governance of the Company. CEO and group executive committee Nynas AB is not a listed public limited company The Managing Director of Nynas AB, who is also the and therefore not required to comply with the Group President and CEO, manages Nynas’ activities Swedish Corporate Governance Code, however in in accordance with the external and internal corporate all material respects Nynas adheres to the Code governance instruments. The framework consists of with the following exceptions in section III, Rules the annually stated Working procedures for the Board for Corporate Governance:

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 47 CORPORATE GOVERNANCE CORPORATE

The shareholders’ meeting Information on corporate governance  Sub sections 1.3 and 1.4: Nynas does not have a  The rules in sub section 10 regarding information nomination committee as the two sole shareholders on corporate governance are only relevant to have agreed to discuss nominations and related mat- companies which shares are listed; hence the rules ters directly between themselves thereby performing are not applicable to Nynas. the same function, and participate with their appointed representatives at the annual general meeting. Internal corporate governance instruments The binding internal corporate governance instru-  Sub section 1.7: Minutes of the annual general ments are the Articles of Association adopted by the meeting and subsequent extraordinary meetings Annual General Meeting and the Working proce- are not posted on Nynas’ web site as the two dures for Nynas’ Board of Directors adopted by the shareholders agree they have sufficient access to all Board of Directors, the instructions for the CEO of minutes and further relevant information. Nynas, instructions for the financial reporting to the Board of Directors, the instructions for the commit- Appointment and remuneration of tees nominated by Nynas’ Board of Directors, as well the board and the statutory auditor as the Finance Policy.  Sub section 2: Nynas does not have a nomination In addition to these corporate governance instru- committee since the two sole shareholders have ments there is also an internal management system that agreed to discuss nominations and related matters includes a number of policies and binding rules stating directly between themselves thereby performing guidelines and instructions for the Group’s activities the same function. and employees. The most important policy document is Nynas Code of Conduct, which for instance includes The size and composition of the board regulations for compliance with competition legislation,  Sub section 4.6: As a consequence of the fact policies that prohibit bribery and corruption, policy on that Nynas does not have a nomination committee people and human rights, policy on information man- it cannot technically comply with this section that agement and policy on health, safety, security, environ- describes which information is to be provided to mental and quality. the nomination committee. Reporting structure Board procedures Nynas’ financial reporting system provides informa-  Sub sections 7.3 and 7.5: The audit committee is not tion for both the external and internal reporting of fully compliant as regards composition and meeting results. Reporting adheres to Swedish accounting structure. The shareholders have agreed to appoint legislation and the recommendations concerning members of the audit committee with relevant financial IFRS, the International Financial Reporting Standards. experience that represent the two shareholders. The financial results are followed up on a monthly basis and the accumulated result is compared to the Evaluation of the board of directors budget and the result for the previous year. There and the chief executive officer is follow-up at Group as well as business area and  Section 8: Regular and systematic evaluation of the function level. On an on-going basis throughout the performance of the board is not done. The evaluation year updated forecasts of the result for the full year of board members is carried out independently by are prepared. The reporting includes Income State- the respective shareholder. Subsequently, the (vice) ments and Statements of Financial Position, cash chairman of the board discusses the outcome with flow reports, sales statistics, key ratios and appro- the individual board members. priate KPIs. The Group publishes an Annual Report in accordance with both Swedish legislation and the Remuneration of the board and IFRS standards. executive management  Sub sections 9.7 and 9.8 are not applicable since Nynas does not have a share incentive scheme.

48 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT CORPORATE GOVERNANCE CORPORATE

BOARD OF DIRECTORS

Matti Lievonen Orlando Chacin Michiel Boersma Tuomas Hyyryläinen Born 1958. Chairman of the Born 1953. Vice Chairman of Born 1947. Independent Oil & Born 1977. Senior Vice President Board, President and CEO, Neste the board, Director of Internal Energy Professional. Strategy, Neste Oil. Oil. Elected in 2009. Chairman of PDVSA Board. Elected in 2015. Elected in 2014. Elected in 2012. the Board of Directors since 2014. Nationality: Venezuelan. Nationality: Dutch. Nationality: Finnish. Nationality: Finnish.

John Launiainen Ivan Orellana Antonio Suarez Torres Angel Martinez Born 1954. Director Born 1952. Head of PDV Europa Born 1955. Independent Oil Born 1959. Executive Director, Portfolio Development, B.V. Elected in 2013. & Energy Professional. PDVSA Commerce and Supply. Neste Oil. Elected in 2011. Nationality: Venezuelan. Elected in 2012. Elected in 2015. Nationality: Finnish. Nationality: Spanish. Nationality: Venezuelan.

Roland Bergvik Pia Ovrin Auditor Born 1967. Employee Born 1966. Employee Jan Birgerson representative. Appointed representative. Appointed Born 1954. Authorised Public in 2010. in 2013. Accountant at Ernst & Young AB. Nationality: Swedish. Nationality: Swedish. Auditor in charge of the Nynas Group since 2008. Board Member in Ernst & Young AB. Present and previous customer assignments include Svensk Exportkredit, ABB, Investor, Siemens, Adecco Group (Switzerland), Kinnevik, Nynas, Scania, Tetra Laval.

DIRECTORS’ REPORT NYNAS ANNUAL REPORT 2014 49 group executive committeE CORPORATE GOVERNANCE CORPORATE

Gert Wendroth Rolf Allgulander Bo Askvik Ewa Beskow Born 1958. President and CEO. Born 1962. Vice President Born 1958. CFO. Born 1957. Director Human Education: Master Degree in Manufacturing. Education: MBA in Business Resources. Economics, University of Hamburg Education: MSc Chemistry, MBA. Administration and Finance, Education: MSc Metallurgy. MBA, University of Bradford UK. Previous experience: Site Manager, Stockholm School of Economics. Previous experience: Director Human Previous experience: Chief Borealis, Kallo, Cracker Manager, Previous experience: CFO in Resources, SVP World wide, Director Executive Officer H&R AG, Borealis Portugal, Production Sapa, Intrum Justitia, Sanitec, PA Human Resources, VSM Group, Vice Managing Director, euroShell Manager, Borealis Stenungsund. Resources, and various finance President Human Resources, Volvo Car Deutschland GmbH, various Employed since: 2007. positions in Nordstjernan, Östgöta Corporation, Engine Division, Director positions in the Shell Group. In current position: 2007. Enskilda Bank, Neste, Borealis and Human Resources Uddeholm Tooling. Employed since: 2014. Nationality: Swedish. TeliaSonera. Employed since: 2006. In current position: 2014. Employed since: 2014. In current position: 2006. Nationality: German. In current position: 2014. Nationality: Swedish. Nationality: Swedish.

Peter Bäcklund Martin Carlson Jim Christie Simon Day Born 1956. Business Area Director Born 1950. Director Business Born 1960. Business Area Director Born 1967. Vice President Naphthenics. Bitumen Nordic. Development. Bitumen UK. Education: MSc Chemistry, MBA. Education: University degree in Education: MSc Chemistry. Education: HND Civil Engineering. Previous experience: Director Supply Economics, Business Administration Previous experience: Process Engineer, Previous experience: Sales Director Chain, CEO, Nynas US Inc, Head of & Marketing. Previous experience: Laboratory Manager, Project Director, Nynas UK, various commercial roles Marketing, Electrical Industry Naph- Managing Director, Nynas GmbH, Nynäshamn NSP2, Technical Director within Nynas, Sales Manager Colas. thenics, Head of Business Development Market Manager, Electrical Industry/ and Refining Director, Bitumen Employed since: 1994. and Planning Naphthenics, Head of Lubricant Industry, Manager Nynas Supply and Technical. In current position: 2008. Planning, Eastham, Nynas Bitumen UK, Insulating Oil Management. Employed since:1975. Nationality: British. Refinery engineer, Stanlow Employed since: 1986. In current position: 2007. Refinery, Shell UK. In current position: 2008. Nationality: Swedish. Employed since:1996. Nationality: Swedish. In current position: 2014. Nationality: British.

Anders Nilsson Hans Östlin Born 1968. Director Supply Chain. Born 1961. Director Communication. Education: MSc Mathematics, MBA Education: Berghs School of Commu- Industrial & Financial Economics. nication. IHM Business School. Previous experience: Sales Director Previous experience: Various posi- Europe, Naphthenics Supply Chain tions in marketing and communica- Manager, Naphthenics, Swedish tions at ITT Flygt and Nynas, Senior Railways, Lecturer in Mathematics, consultant at Rita Platzer PR. Technical University Luleå. Employed since: 2006 Employed since: 1985. In current position: 2006. In current position: 2014. Nationality: Swedish. Nationality: Swedish.

50 NYNAS ANNUAL REPORT 2014 DIRECTORS’ REPORT FINANCIAL REPORT

Financial reports PAGE

Group Income statement and statement of 52 comprehensive income Statement of financial positions 54 Statement of changes in equity 56 Cash flow statement 57

Parent Company Income statement and 58 statement of comprehensive income Balance sheet 59 Statement of changes in equity 61 Statement of cash flow 62 Accounting policies 63

NOTE GROUP PAGE NOTE PARENT COMPANY PAGE 1 Significant accounting policies 72 33 Information by geographical market and sales 96 and accounting estimates revenues by category 2 Segment information 73 34 Costs itemised by nature of expense 96 3 Costs itemised by nature of expense 74 35 Other operating income/expenses 96 4 Other operating income/expenses 74 36 Employees, personnel expenses and 97 remuneration of senior executives 5 Employees, personnel expenses and 75 remuneration of senior executives 37 Depreciation/amortisation of tangible and 97 intangible assets 6 Depreciation/amortisation of tangible 76 and intangible assets 38 Auditors’ fees and other remuneration 98 7 Auditors’ fees and other remuneration 76 39 Operating leases 98 8 Operating leases 76 40 Net financial items 98 9 Net financial items 77 41 Appropriations 99 10 Taxes 77 42 Taxes 99 11 Earnings per share 78 43 Intangible assets 100 12 Intangible assets 79 44 Tangible assets 100 13 Tangible assets 80 45 Investments in Group companies 101 14 Investments in Group companies 81 46 Inventories 101 15 Investments in associates and joint ventures 83 47 Accounts receivable 102 16 Other long-term receivables 83 48 Prepayments and accrued income 102 17 Inventories 83 49 Cash and cash equivalents 102 18 Accounts receivable 84 50 Equity 102 19 Prepayments and accrued income 84 51 Provisions for pensions 103 20 Cash and cash equivalents 84 52 Other provisions 104 21 Equity 85 53 Liabilities to credit institutions 105 22 Provisions for pensions 86 54 Accrued liabilities and deferred income 106 23 Other provisions 89 55 Financial assets and liabilities 106 24 Liabilities to credit institutions 90 56 Pledged assets and contingencies 107 25 Accrued liabilities and deferred income 91 57 Related party disclosures 108 26 Financial assets and liabilities 92 58 Adjustments for non-cash items 108 27 Financial risk management, supplementary information 93 28 Pledged assets and contingencies 94 29 Related party disclosures 94 30 Adjustments for non-cash items 95 31 Business combinations 95 32 Events after the reporting date 95

NYNAS ANNUAL REPORT 2014 51 MULTI-YEAR OVERVIEW i -YEAR OVE rvie w MULT

SEK million 2014 2013 2012 2011 2010

INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME Net sales 22,522 19,527 24,471 23,223 20,579 Operating expenses -21,368 -19,120 -23,886 -22,354 -19,602 Depreciation -404 -450 -338 -309 -306 Share of profit/loss of joint ventures 24 22 -10 26 10 OPERATING RESULT 775 -21 237 586 681

Net financial items -308 -264 -289 -132 -71 NET INCOME BEFORE TAX 466 -285 -52 454 610

Tax -188 -20 18 -141 -189 NET INCOME FOR THE YEAR 279 -305 -34 313 421

STATEMENT OF FINANCIAL POSITION Fixed assets 4,265 3,652 3,862 3,899 3,297 Inventories 3,548 3,039 3,426 4,060 3,622 Current receivables 2,828 1,926 2,042 2,507 1,751 Cash & cash equivalents and short-term investments 898 937 739 250 243 ASSETS 11,538 9,554 10,069 10,716 8,913

Equity 3,425 3,218 3,557 3,724 3,438 Long-term interest-bearing liabilities 4,303 3,675 187 3,840 2,335 Long-term non-interest-bearing liabilities 633 595 639 735 801 Current interest-bearing liabilities 16 669 4,010 102 256 Current non-interest-bearing liabilities 3,161 1,398 1,677 2,315 2,084 EQUITY AND LIABILITIES 11,538 9,554 10,069 10,716 8,913

STATEMENT OF CASH FLOWS Cash flow from operating activities 692 50 322 535 708 Changes in working capital -158 124 376 -989 -490 CASH FLOW FROM OPERATING ACTIVITIES 534 174 698 -454 218

Cash flow from investing activities -545 -206 -344 -889 -540 CASH FLOW AFTER INVESTING -11 -31 353 -1,343 -322 ACTIVITIES

Proceeds from borrowings, repayment of borrowings -29 230 136 1,368 278 Dividend 0 0 0 0 0 CHANGE IN CASH & CASH EQUIVALENTS -40 199 489 25 -44

CASH & CASH EQUIVALENTS AT END OF YEAR 898 938 739 250 225

KEY FINANCIAL RATIOS Operating result before depreciation (EBITDA) 1 1,336 533 655 1,032 1,077 Net debt 3,421 3,406 3,457 3,692 2,347 Working capital 3,654 3,606 3,720 4,236 3,289 Return on average capital employed 13 2 4 10 12 (12 months rolling), % 1 Return on average capital employed, % 10 -1 4 9 13 Return on equity, % 8 -12 -6 9 14 Equity to assets ratio, % 30 34 35 35 39 Number of full-time employees 854 872 881 871 866

1) Excluding non-recurring items

52 NYNAS ANNUAL REPORT 2014 Income statement AND STATEMENT OF COMPREHENSIVE INCOME GROUP FINANCIAL REPORT

SEK million Note 2014 2013

INCOME STATEMENT Net sales 2 22,522.3 19,527.0 Cost of sales 3 -19,636.3 -16,975.1 GROSS RESULT 2,886.1 2,551.9

Other income and value changes 3 509.7 -14.0 Distribution costs 3 -2,527.6 -2,371.8 Administrative expenses 3 -188.5 -201.9 Share of profit/loss of joint ventures 15 24.2 21.6 Other operating income 4 344.7 283.3 Other operating expenses 4 -274.1 -290.9 OPERATING RESULT 2, 3, 4, 5, 6, 7, 8 774.4 -21.8

Finance income 9 59.5 64.4 Finance costs 9 -367.6 -328.4 NET FINANCIAL ITEMS -308.1 -263.9

NET INCOME BEFORE TAX 466.4 -285.8

Tax 10 -187.5 -19.6 NET INCOME FOR THE YEAR 278.9 -305.3

STATEMENT OF COMPREHENSIVE INCOME Net income for the year 278.9 -305.3 Other comprehensive income: Items that will be reclassified to the income statement Translation differences 139.0 -45.8 Currency hedges -145.9 -7.3 Income tax associated with currency hedges 32.1 1.6 Cash flow hedges -11.1 -4.1 Income tax associated with cash flow hedges 2.4 0.9 Total amount that will be reclassified 16.5 -54.7 to the income statement

Items that will not be reclassified to the income statement Actuarial loss pensions -118.9 27.6 Income tax associated with actuarial loss pensions 30.8 -6.6 Total amount that will not be reclassified -88.2 21.0 to the income statement

Other Comprehensive Income for the year, net after tax -71.6 -33.7 COMPREHENSIVE INCOME 207.3 -339.0

Attributable to owners of the Parent 207.3 -339.0

EARNINGS PER SHARE The calculation of earnings per share is based on profit attributable to equity-holders of the Parent Company. The average number of shares in 2014 and 2013 was 67,532.

2014 2013

Profit for Numbers Per Profit for the Numbers Per the year of shares share year of shares share Earnings per share 278.9 67,532 4,130 -305.3 67,532 -4,521

As Nynas does not have, and did not have during the year, any outstanding convertible and subscription warrant programmes, no dilution effects arose during calculation of earnings per share.

NYNAS ANNUAL REPORT 2014 53 FINANCIAL REPORT statement OF FINANCIAL POSITION GROUP

SEK million Note 2014-12-31 2013-12-31

ASSETS

FIXED ASSETS INTANGIBLE ASSETS Goodwill 12 8.1 8.1 Supply contracts/customer lists 12 0.0 1.6 Computer software 12 47.4 63.7 TOTAL INTANGIBLE ASSETS 55.4 73.3

TANGIBLE ASSETS Land and buildings 13 298.1 252.0 Plant and machinery 13 2,892.4 2,689.8 Equipment 13 102.0 129.7 Construction in progress 13 490.3 256.1 TOTAL TANGIBLE ASSETS 3,782.8 3,327.6

FINANCIAL ASSETS Investments in associates 15 87.2 74.0 Derivative instruments 37.5 – Other long-term receivables 16 3.8 1.5 Deferred tax assets 10 298.3 175.5 TOTAL FINANCIAL ASSETS 426.8 251.0

TOTAL FIXED ASSETS 4,265.1 3,651.9

CURRENT ASSETS Inventories 17 3,547.7 3,038.9 Accounts receivable 18, 26 1,593.1 1,574.8 Receivables from joint ventures 29 0.3 0.3 Derivative instruments 26, 27 688.7 47.1 Tax receivables 52.0 47.5 Other current receivables 26 275.1 147.0 Prepayments and accrued income 19, 26 218.3 109.1 Cash and cash equivalents 20, 26 898.0 937.6 TOTAL CURRENT ASSETS 7,273.2 5,902.4

TOTAL ASSETS 11,538.3 9,554.3

54 NYNAS ANNUAL REPORT 2014 STATEMENT OF FINANCIAL POSITION FINANCIAL REPORT GROUP

SEK million Note 2014-12-31 2013-12-31

EQUITY AND LIABILITIES

EQUITY Share capital 67.5 67.5 Reserves -291.1 -219.4 Retained earnings, incl. net income for the year 3,648.4 3,369.5 TOTAL EQUITY 21 3,424.9 3,217.7

Interest-bearing liabilities Liabilities to credit institutions 24, 26 3,935.0 3,500.2 Provisions for pensions 22 368.1 174.3 Total long-term interest-bearing liabilities 4,303.1 3,674.5

Non-interest-bearing liabilities Other long-term liabilities 35.0 21.6 Derivative instruments 26, 27 35.3 76.6 Deferred tax liability 10 309.0 227.9 Provisions for pensions 22 2.6 3.5 Other provisions 23 251.5 265.6 Total long-term 633.4 595.2 non-interest-bearing liabilities

TOTAL LONG-TERM LIABILITIES 4,936.5 4,269.7

Interest-bearing liabilities Liabilities to credit institutions 24, 26 16.2 669.0 Total current interest-bearing liabilities 16.2 669.0

Non-interest-bearing liabilities Accounts payable 26 679.4 693.1 Liabilities to joint ventures 29 18.8 12.6 Derivative instruments 26, 27 247.1 79.8 Tax liabilities 78.2 71.4 Other current liabilities 26 373.8 117.2 Accrued liabilities and deferred income 25, 26 1,323.2 384.9 Other provisions 23 440.3 38.8 Total current 3,160.7 1,397.9 non-interest-bearing liabilities

TOTAL CURRENT LIABILITIES 3,176.9 2,066.9

TOTAL EQUITY AND LIABILITIES 11,538.3 9,554.3

For information on the Group’s pledged assets and contingent liabilities, see Note 28.

NYNAS ANNUAL REPORT 2014 55 FINANCIAL REPORT STATEMENT OF CHANGES IN EQUITY GROUP Defined Benefit Share Pension Cash flow Currency Translation Retained Total SEK million Capital Plans Hedges Hedges Reserve Earnings Equity

Equity at 31 Dec 2012 67.5 -95.4 -39.0 26.2 -77.4 3,674.8 3,556.7

Net income for the year – – – – – -305.3 -305.3

Other comprehensive income – 21.0 -3.2 -5.7 -45.8 – -33.7 Comprehensive income – 21.0 -3.2 -5.7 -45.8 -305.3 -339.0 Closing equity at 31 Dec 2013 67.5 -74.4 -42.2 20.5 -123.2 3,369.5 3,217.7

Net income for the year – – – – – 278.9 278.9

Other comprehensive income – -88.2 -8.7 -113.8 139.0 – -71.7 Comprehensive income – -88.2 -8.7 -113.8 139.0 278.9 207.2 Dividend paid – – – – – – – Closing equity at 31 Dec 2014 67.5 -162.6 -50.9 -93.3 15.8 3,648.4 3,424.8

56 NYNAS ANNUAL REPORT 2014 CASH FLOW STATEMENT FINANCIAL REPORT

GROUP

SEK million Note 2014 2013

OPERATING ACTIVITIES Profit after financial items 466.4 -285.7 Reversal of non-cash items 30 378.0 453.3 Taxes paid -152.4 -117.7 CASH FLOW FROM OPERATING ACTIVITIES BEFORE 691.9 49.9 CHANGES IN WORKING CAPITAL

WORKING CAPITAL Operating receivables -871.0 12.4 Inventories -404.7 359.7 Operating liabilities 1,118.1 -247.7 CHANGES IN WORKING CAPITAL -157.6 124.4

CASH FLOW FROM OPERATING ACTIVITIES 534.3 174.3

INVESTING ACTIVITIES Acquisition of intangible assets -8.7 -6.2 Acquisition of tangible fixed assets -537.0 -220.8 Investment in financial assets - 0.0 Disposal/reduction of financial assets 0.4 21.5 CASH FLOW FROM INVESTING ACTIVITIES -545.3 -205.5

FINANCING ACTIVITIES Proceeds from borrowings – 176.1 Change in pension liability 71.1 – Amortisations of borrowings -217.9 – CASH FLOW FROM FINANCING ACTIVITIES -146.8 176.1

CASH FLOW FOR THE YEAR -157.8 144.9

CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR 937.6 738.8 Exchange differences 118.3 53.9 CASH & CASH EQUIVALENTS AT END OF YEAR 20 898.0 937.6

NOTES TO THE CASH FLOW STATEMENT The Group received interest of SEK 59.5 (64.4) million and paid interest of SEK 283.1 (240.8) million during the year.

NYNAS ANNUAL REPORT 2014 57 FINANCIAL REPORT INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

PARENT COMPANY

SEK million Note 2014 2013

INCOME STATEMENT Net sales 33 18,401.3 14,799.6 Cost of sales 34 -17,003.9 -13,746.9 GROSS RESULT 1,397.4 1,052.7

Other income and value changes 34 509.7 -14.0 Distribution costs 34 -1,390.3 -1,260.3 Administrative expenses 34 -88.3 -118.2 Other operating income 35 332.2 172.3 Other operating expenses 35 -203.6 -175.1 OPERATING RESULT 33, 34, 35, 36, 37, 38, 39 557.0 -342.5

Finance income 40 328.2 413.7 Finance costs 40 -593.2 -363.6 NET FINANCIAL ITEMS -265.0 50.1

PROFIT/LOSS AFTER FINANCIAL ITEMS 292.0 -292.4

Appropriations 41 345.7 339.2 NET INCOME BEFORE TAX 637.8 46.8

Tax 42 -95.5 47.4 NET INCOME FOR THE YEAR 542.3 94.2

STATEMENT OF COMPREHENSIVE INCOME Net income for the year 542.3 94.2 Other comprehensive income: Cash flow hedges -11.1 -4.1 Income tax associated with cash flow hedges 2.4 0.9

Other comprehensive income for the year, net after tax -8.7 -3.2 COMPREHENSIVE INCOME 533.6 91.0

58 NYNAS ANNUAL REPORT 2014 BALANCE SHEET FINANCIAL REPORT

PARENT COMPANY

SEK million Note 2014-12-31 2013-12-31

ASSETS

FIXED ASSETS INTANGIBLE ASSETS Computer software 43 46.8 63.5 TOTAL INTANGIBLE ASSETS 46.8 63.5

TANGIBLE ASSETS Land and buildings 44 235.0 201.2 Plant and machinery 44 2,397.4 2,619.7 Equipment 44 73.3 95.9 Construction in progress 44 415.5 253.2 TOTAL TANGIBLE ASSETS 3,121.2 3,170.0

FINANCIAL ASSETS Investments in Group companies 45 1,022.6 1,054.4 Derivative instruments 37.5 – Other long-term receivables 2.1 0.0 Deferred tax assets 42 141.0 87.6 TOTAL FINANCIAL ASSETS 1,203.2 1 142.0

TOTAL FIXED ASSETS 4,371.2 4,375.5

CURRENT ASSETS INVENTORIES 46 2,553.1 2,137.4

CURRENT RECEIVABLES Accounts receivable 47, 55 749.4 696.9 Receivables from Group companies 55 1,487.3 1,186.7 Derivative instruments 27, 55 688.7 47.1 Tax receivables 16.3 17.1 Other current receivables 55 39.5 78.7 Prepayments and accrued income 48, 55 111.2 57.9 TOTAL CURRENT RECEIVABLES 3,092.3 2,084.4 CASH & CASH EQUIVALENTS 49, 55 670.3 690.2

TOTAL CURRENT ASSETS 6,315.7 4,912.0

TOTAL ASSETS 10,686.9 9,287.5

NYNAS ANNUAL REPORT 2014 59 FINANCIAL REPORT BALANCE SHEET

PARENT COMPANY

SEK million Note 2014-12-31 2013-12-31

EQUITY AND LIABILITIES

EQUITY Share capital 67.6 67.6 Statutory reserve 96.0 96.0 TOTAL RESTRICTED EQUITY 163.7 163.7

Retained earnings 1,482.5 1,396.9 Net income for the year 542.3 94.2 TOTAL UNRESTRICTED EQUITY 2,024.8 1,491.2

TOTAL EQUITY 50 2,188.4 1,654.8

UNTAXED RESERVES 41 618.7 964.9

LONG-TERM LIABILITIES Interest-bearing liabilities Liabilities to credit institutions 53, 55 3,935.0 3,500.2 Liabilities to Group companies 0.2 0.2 Provisions for pensions 51 152.6 142.9 4,087.8 3,643.4 Non-interest-bearing liabilities Other long-term liabilities 24.6 21.5 Derivative instruments 27, 55 35.3 76.6 Provisions for deferred taxes 42 145.0 0.3 Other provisions 52 239.2 239.2 Total long-term non-interest-bearing liabilities 444.1 337.6 TOTAL LONG-TERM LIABILITIES 4,531.9 3,981.0

CURRENT LIABILITIES Interest-bearing liabilities Liabilities to credit institutions 53, 55 13.8 646.9 Liabilities to Group companies 950.8 1,015.2 Total current interest-bearing liabilities 964.6 1,662.1

Non-interest-bearing liabilities Accounts payable 55 442.2 536.1 Liabilities to Group companies 55 281.2 106.0 Derivative instruments 27, 55 247.1 79.8 Tax liabilities 13.1 13.4 Other current liabilities 55 275.7 26.1 Accrued liabilities and deferred income 54, 55 1,072.5 255.9 Other provisions 52 51.4 7.3 Total current non-interest-bearing liabilities 2,383.2 1,024.7 TOTAL CURRENT LIABILITIES 3,347.8 2,686.8 TOTAL EQUITY AND LIABILITIES 10,686.8 9,287.5

MEMORANDUM ITEMS Pledged assets 56 – – Contingent liabilities 56 377.2 88.1

60 NYNAS ANNUAL REPORT 2014 STATEMENT OF CHANGES IN EQUITY FINANCIAL REPORT

PARENT COMPANY

Share Statutory Cash Flow Retained Total SEK million Capital Reserves Hedges Earnings Equity

Equity at 31 dec 2012 67.5 96.0 0.2 1,400.1 1,563.8

Net income for the year – – – 94.2 94.2

Other comprehensive income – – -3.2 – -3.2 Comprehensive income – – -3.2 94.2 91.0 Closing equity at 31 DEC 2013 67.5 96.0 -3.0 1,494.3 1,654.8

Net income for the year – – – 542.3 542.3

Other comprehensive income – – -8.7 – -8.7 Comprehensive income – – -8.7 542.3 533.7 Closing equity at 31 DEC 2014 67.5 96.0 -11.7 2,036.6 2,188.5

Share capital at 31 Dec 2014 consisted of 67,532 shares, including 33,765 Class A shares and 33,767 Class B shares. This is unchanged from the previous year. The Board proposes a dividend of SEK 0 (0) per share for the year 2014.

NYNAS ANNUAL REPORT 2014 61 FINANCIAL REPORT STATEMENT OF CASH FLOW

PARENT COMPANY

SEK million Note 2014-12-31 2013-12-31

OPERATING ACTIVITIES Profit after financial items 292.0 -292.4 Reversal of non-cash items 58 369.0 268.4 Taxes paid -0.9 36.8 CASH FLOW FROM OPERATING ACTIVITIES BEFORE 660.2 12.8 CHANGES IN WORKING CAPITAL

WORKING CAPITAL Operating receivables -1,071.4 -275.3 Inventories -415.6 301.1 Operating liabilities 1,908.0 -23.5 CHANGES IN WORKING CAPITAL 421.0 2.4

CASH FLOW FROM OPERATING ACTIVITIES 1,081.3 15.2

INVESTING ACTIVITIES Acquisition of intangible assets -8.2 -0.1 Acquisition of tangible fixed assets -249.7 -207.1 Investment in financial assets – -134.2 CASH FLOW FROM INVESTING ACTIVITIES -257.9 -341.4

FINANCING ACTIVITIES Proceeds from borrowings – 319.7 Amortisations of borrowings -907.2 – CASH FLOW FROM FINANCING ACTIVITIES -907.2 319.7

CASH FLOW FOR THE YEAR -83.9 -6.6

CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR 690.2 631.8 Exchange differences 63.9 65.0 CASH & CASH EQUIVALENTS AT END OF YEAR 49 670.3 690.2

NOTES TO THE CASH FLOW STATEMENT The Parent Company received dividends of SEK 242.3 million and interest income of SEK 85.9 (98.0) million, while interest expenses amounted to SEK 282.3 million (245.8).

62 NYNAS ANNUAL REPORT 2014 FINANCIAL REPORT ACCOUNTING POLICIES

General information Nynas Group comprises the Parent Company Nynas AB Preparation of financial statements in compliance with IFRS (publ), its subsidiaries and holdings in joint ventures. The requires management to make critical judgments, account- Parent Company is incorporated in Sweden and its reg- ing estimates and assumptions which affect the applica- istered office is in Stockholm. The address of the Head tion of the accounting policies and the carrying amounts of Office is Lindetorpsvägen 7, SE-121 63 Johanneshov. assets, liabilities, income and expense. The actual outcome Nynas AB is 49.999 percent owned by Neste Oil AB, may differ from these estimates and assumptions. reg. no. 556232-3906, registered office Stockholm, Estimates made by management during the appli- Sweden, and 50.001 percent by PDV Europa B.V., reg. cation of IFRS which have a significant effect on the no. 27133447, registered office The Hague, Netherlands. financial statements, and assumptions that may result Neste Oil AB is part of a group in which Neste Oil Oyj, reg. in material adjustments to the following year’s financial no. FI 18523029 with registered office in Espoo, Finland, statements are described in more detail in Note 1 Signif- is the ultimate parent. PDV Europa B.V. is part of a group icant accounting estimates. in which Petróleos de Venezuela S.A., reg. no. 73023, The accounting estimates and assumptions are reviewed registered office Caracas, Venezuela, is the ultimate parent. regularly. Changes in accounting estimates are recognised The annual accounts and consolidated annual finan- in the period of the change if the change only affects cial statements were approved for issue by the Board that period. Changes are recognised in the period of the on 28 April 2015. The consolidated income statement change and future periods if the change affects both. and statement of financial position and the Parent The policies below have been applied consistently for Company’s income statement and balance sheet will all presented years unless otherwise stated. be presented for adoption at the annual general meet- ing to be held on 28 April 2015. Changes in accounting principles New or amended IASB standards and IFRIC Basis of preparation interpretations which came into effect in 2014 The financial statements have been prepared in accor- are presented below. dance with International Financial Reporting Standards Following new and amended standards is used by the (IFRS) and interpretations issued by the IFRS Interpreta- Group as of January 1st 2014. tions Committee (IFRIC) as adopted by the EU. In addi- tion, RFR 1 Supplementary Accounting Rules for Groups,  IFRS 10 Consolidated Financial Statements. The stan- issued by the Swedish Financial Reporting Board, have dard concerns how to determine whether control been applied. exists and whether an entity should be consolidated. The Parent Company applies the same accounting IFRS 10 also includes a number of clarifications on policies as the Group, except in the cases described application of the new definition of control. IFRS 10 below in the section entitled “The Parent Company’s replaces the section of IAS 27 relating to the presen- Accounting Policies”. tation of consolidated financial statements. The rules The Parent Company’s functional currency is SEK, on presentation of consolidated financial statements which is also the reporting currency for the Parent Com- have not changed. The standard has not affected the pany and the Group. Consequently, the financial state- Group’s financial statements. ments are presented in Swedish kronor. All amounts are stated in SEK millions unless otherwise indicated.  IFRS 11 Joint arrangements. The standard deals with Assets and liabilities are measured at historical cost, the accounting for joint arrangements, defined as a apart from certain financial assets and liabilities, which contractual arrangement whereby two or more parties are measured at fair value. Financial assets and liabilities have joint control. The standard identifies two types measured at fair value consist of derivative instruments of joint arrangements: joint operations where owners classified as financial assets at fair value through profit have rights and obligations to assets and liabilities, as or loss and available-for-sale financial assets. well as joint ventures, where the owners have rights to

NYNAS ANNUAL REPORT 2014 63 FINANCIAL REPORT

the net assets. In joint operations, the partners report  IFRS 15 Revenue from Contracts with Customers. their respective assets, liabilities, income and expenses. The standard deals with the accounting for revenue In joint ventures, the equity method is applied. The stan- from contracts as well as sale of certain non-financial dard has not affected the financial statements of Nynas. assets. It will replace IAS 11 Construction Contracts and IAS 18 Revenue and related interpretations and  IFRS 12 Disclosure of Interests in Other Entities. Com- contains considerably more detailed guidance. The panies with holdings in subsidiaries, associates, joint standard shall be applied from 2017 but has not yet arrangements and unconsolidated structured entities been endorsed by EU. shall disclose such interests in accordance with IFRS12. The purpose of this information is to enable users of Nynas is currently evaluating the potential impact of financial statements to evaluate the effects of these the above resolved but not yet implemented, new and interests on the company’s financial statements and amended standards. the risks associated with these interests. The purpose No other of IFRS or IFRIC-interpretations, that not of the information is also to increase understanding have become effective yet, will be expected to have any of what impact it would have on the financial state- significant impact on the Nynas Group. ments if management were to change their opinion regarding consolidation of the entities in question. Basis of consolidation The standard has led to some additional disclosures. The consolidated financial statements cover the Parent Company and all subsidiaries. Subsidiaries are entities  IAS 27 Separate Financial Statements. The section in which the Parent Company directly or indirectly owns relating to the presentation of consolidated financial more than 50 percent of the voting power or has some statements has been moved to IFRS 10. other form of control. The consolidated financial statements are prepared  IAS 28 Holdings in associates; Investments in associ- using the acquisition method, which means the acqui- ates and Joint ventures describes application of the sition of a subsidiary is treated as a transaction through equity method regarding accounting of both associ- which the Group indirectly acquires the subsidiary’s ates and joint ventures. assets and assumes its liabilities. Identifiable acquired assets and assumed liabilities in a business acquisition  IAS 32 Financial instruments Classification – amend- are measured initially at their fair value on the acquisition ment. The amendment inserts a clarification in the date. Transaction costs attributable to the acquisition are “Application Guidance” regarding offsetting of finan- recognised as incurred. cial assets and financial liabilities. The amendment has With effect from the acquisition date, the acquiree’s not affected Nynas financial statements. income and expenses, identifiable assets and liabilities, and any intangible assets, such as supply contracts, New and amended standard and interpretations customer lists and goodwill, are included in the that are expected to have an effect on the group’s consolidated accounts. Subsidiaries are deconsolidated financial statements but are not yet effective. from the date on which control ceases. No new or changed standards or interpretations have The accounting policies for subsidiaries have been been applied early. adapted where necessary, in order to ensure consistent application of the Group’s policies.  FRS 9 Financial instruments. The standard will replace IAS 39 Financial Instruments: Recognition and Joint ventures Measurement. It contains rules for classification and Holdings in joint ventures, in which the Group has joint measurement of financial assets and liabilities where control, are accounted for using the equity method. today’s four categories will be replaced by three. This means that the carrying amount of the invest- Moreover the standard contains rules for impairment ment in a joint venture corresponds to the Group’s share of financial instruments, where future expected losses of the joint venture’s equity, and any residual value of shall be considered, and hedge accounting which will fair value adjustments. The Group’s share of the joint be more linked to the internal risk management. The venture’s profit after financial items, adjusted for any standard shall be applied from 2018 but has not yet amortisation or reversals of fair value adjustments, is been endorsed by EU. reported under Share of profit/loss of joint ventures in

64 NYNAS ANNUAL REPORT 2014 FINANCIAL REPORT

the consolidated income statement. Dividends from adjustment at the date on which the profit or loss on joint ventures are not included in the Group’s profit for the divestment is recognised. the year. Net investments in foreign currency Foreign branches The Parent Company has taken positions in foreign The functional currency is the local currency of the currencies in order to hedge the majority of its net country in which the branch operates. Translation into investments in foreign subsidiaries against exchange Swedish kronor takes place in accordance with IAS 21. rate changes. Exchange differences on these positions Balance sheet items are translated using the closing rate, have been recognised directly in the Group’s other while income statements items are translated using the comprehensive income for the year, taking into account average rate for the period in which the item occurred. the tax effect, to the extent that they correspond to translation differences recognised during the year Foreign currency Functional currency and reporting currency Reporting of operating segments and Items included in the financial statements of the various geographical market entities in the Group are reported in the currency used in Reporting of operating segments the economic environment in which the entity operates Nynas’s business is organised in a manner that allows the (functional currency). The consolidated financial state- Group’s chief operating decision maker, meaning the ments are presented in Swedish kronor, which is the CEO, to monitor results and capital employed generated Group’s reporting currency. by the various products in the Group. Each operating seg- ment has a Business Area Manager that is responsible for Foreign currency transactions day-to-day activities and who regularly reports to the CEO Foreign currency transactions are translated into the regarding the results of the operating segment’s work and functional currency using the exchange rates prevail- the need for resources. Since the CEO monitors the busi- ing at the transaction date. Foreign currency monetary ness’s result and decides on the distribution of resources assets and liabilities are translated at the closing rate. based on the products the Group manufactures and sells Exchange gains and losses on translation of these trans- and the services it provides, these constitute the Group’s actions are recognised in profit or loss. Exchange gains operating segments. and losses on operating receivables and liabilities are The Group’s operations are organised in two business reported under operating result, while gains and losses areas, Bitumen and Naphthenics based on products. on financial receivables and liabilities are reported under The market organisation also reflects this structure. In financial items. accordance with IFRS 8, segment information is pre- sented only on the basis of the consolidated financial Financial statements of foreign operations statements. The assets and liabilities of foreign operations, includ- Segment results, assets and liabilities include only ing goodwill and fair value adjustments arising on those items that are directly attributable to the segment consolidation, are translated from the foreign oper- and the relevant portions of items that can be allocated ation’s functional currency to the Group’s reporting on a reasonable basis to the segments. currency, SEK, at foreign exchange rates prevailing Group staff functions and Group-wide functions at the balance sheet date. Revenues and expenses of are allocated based on those items that are directly foreign operations are translated to SEK at average attributable to the segment and the relevant portion that rates that approximate the foreign exchange rates can be allocated on a reasonable basis to the segments, prevailing at each of the transaction dates. Transla- unallocated items for functions are reported under Other. tion differences arising from the translation of the Items where the accounting method differs between the net investment in foreign operations are recognised Business Areas and the Group are also reported under the in other comprehensive income and are accumulat- heading Other. The market valuation of some financial ed in a separate component of equity, a translation derivative instruments used to manage oil and currency reserve. When the foreign operation is divested, the risks are reported under, Other, until such time as the accumulated translation differences attributable to underlying flows are reflected in the Income Statement the divested foreign operation are reclassified from and distributed between the respective segments. equity to profit or loss for the year as a reclassification Unallocated items comprise interest and dividend

NYNAS ANNUAL REPORT 2014 65 FINANCIAL REPORT

income, gains on disposal of financial investments, in- fiscal regulations enacted or substantively enacted at the terest expense, losses on the disposal of financial invest- balance sheet date. Deferred tax assets relating to deduct- ments, income tax expense. ible temporary differences and tax loss carry-forwards are recognised only to the extent that it is probable they can be Reporting of geographical market utilised against future taxable profits. Sales figures are based on the country in which the cus- tomer is located. Assets and investments are reported in Tangible assets the location of the asset. Tangible fixed assets are recognised as an asset in the bal- ance sheet when it is probable that future economic ben- Revenue recognition efits associated with the asset will flow to the Company Recognised revenue is the fair value of the consider- and the cost can be measured reliably. Tangible fixed ation received or receivable from goods sold or services assets are recognised at cost less accumulated deprecia- rendered in the course of the Group’s ordinary activities, tion and impairment losses. Cost comprises the purchase excluding VAT, discounts and returns, and after elimi- price and any costs directly attributable to the asset. nation of intra-group transactions. Revenue is classified Parts of tangible fixed assets with different useful lives are as follows: treated as separate components of tangible fixed assets. The carrying amount of a tangible fixed asset is Sale of goods derecognised on its disposal, or when no future economic Revenue from the sale of goods is recognised when the benefits are expected from its use or disposal. The gain goods are supplied to the customer under the terms or loss arising from the disposal of a tangible fixed asset of sales, and therefore in the period in which the sig- is the difference between the selling price and the asset’s nificant risks and rewards of ownership of the product carrying amount less direct costs to sell. have transferred to the buyer. Basis of depreciation for tangible fixed assets Interest income Depreciation of tangible fixed assets is based on original Interest income is recognised over the relevant period cost less any residual value. Depreciation takes place on using the effective interest method. a straight-line basis over the useful life of the asset. The Group applies component depreciation, which means Dividend depreciation is based on the estimated useful lives of Dividend income is recognised when the right to receive components. The residual values and useful lives of payment is established. assets are reviewed annually.

Income taxes  Buildings over 20–50 years Income tax comprises current and deferred tax. Income  Land improvements over 20–25 years tax is recognised in profit or loss for the year except when the underlying transaction is recognised in other compre-  Plant & machinery and equipment hensive income. In these cases, the associated tax effects – Processing facilities over 10–20 years are recognised in other comprehensive income. Current – Tanks over 10–40 years tax is the expected tax payable on the taxable income – Plant & machinery and equipment over 5–20 years for the year, using tax rates enacted at the balance sheet  Equipment date, and any adjustment to tax payable in respect of pre- – Office equipment and computers over 3–10 years vious years. Current tax liabilities are offset against current – Other equipment over 5–10 years tax receivables and deferred tax assets are offset against deferred tax liabilities when the entity has a legal right to Leases offset these items. Deferred tax is recognised based on The Group applies IAS 17 when classifying leases as temporary differences between the carrying amounts of finance leases or operating leases. A lease is classified as assets and liabilities for financial reporting purposes and an operating lease when it does not transfer substantially their value for tax purposes. Deferred taxes are measured all the risks and rewards incidental to ownership. at their nominal amount and based on the expected man- Payments made under operating leases are recognised ner of realisation or settlement of the carrying amount of as an expense on a straight-line basis over the lease term. the underlying assets and liabilities, using tax rates and The Group does not have any significant finance leases.

66 NYNAS ANNUAL REPORT 2014 FINANCIAL REPORT

Intangible assets or whenever there is an indication that a particular Goodwill asset may be impaired. The Group’s depreciable assets A number of production and information systems have are reviewed at each reporting date to establish whether Goodwill arises when the cost of a business combination there is any indication of impairment. If any such indication exceeds the fair value of the acquired identifiable assets exists, the asset is tested for impairment. and liabilities according to the acquisition analysis. Good- An impairment loss is recognised if the asset’s recov- will has arisen from business combinations, resulting erable amount, i.e. the higher of value in use and net in increased profitability on integration into the Nynas realisable value, is lower than the carrying amount. Group. Goodwill has an indefinite useful life and is tested When calculating value in use, future cash flows are for impairment annually and when required. discounted using a pre-tax discount rate that reflects For impairment testing, goodwill is allocated to the the current market view of risk-free interest and risk cash generating units expected to benefit from the specific to the asset. business combination in which the goodwill item arose. Reversal of impairment losses Supply contracts/customer lists Impairment losses recognised for assets are reversed if Supply contracts and customer relationships acquired there is no longer an indication of impairment and there in a business combination are recognised at the acqui- has been a change in the assumptions on which the sition date fair value. Supply contracts and customer estimate of recoverable amount was based. However, relationships have a finite useful life and are recognised goodwill impairment is never reversed. at cost less accumulated amortisation and impairment. An impairment loss is only reversed to the extent Amortisation takes place on a straight-line basis over that the asset’s carrying amount after the reversal does the life of the supply contract or customer relationship. not exceed the carrying amount that would have been determined (net of depreciation) had no impairment Computer software loss been recognised for the asset. A number of production and information systems have been capitalised. Direct external and internal expenditure Financial instruments on the development of software for internal use is capi- Financial instruments reported under assets in the state- talised. Expenditure on pilot studies, training and regular ment of financial position include cash & cash equiva- maintenance is recognised as an expense as it is incurred. lents, accounts receivable, shares, loan receivables and The value of intangible assets is reviewed at least once a year. derivative instruments. Financial instruments reported If an asset’s carrying amount exceeds its recoverable amount, under liabilities and equity includes accounts payable, it is written down to the recoverable amount immediately. loan liabilities and derivative instruments. The useful life of information systems developed internally is between five and ten years. Software relating Recognition of financial assets and liabilities to production planning and logistics optimisation has A financial asset or liability is recognised in the state- an estimated useful life of ten years. ment of financial position when the Company becomes a party to the instrument’s contractual terms. Accounts Basis of amortisation for intangible assets receivable are recognised when an invoice has been Amortisation of intangible assets is based on original sent. A liability is recognised when the counterparty has cost less any residual value. Depreciation takes place on performed and there is a contractual obligation to pay, a straight-line basis over the useful life of the asset. even if an invoice has not yet been received. Accounts payable are recognised when invoices are received.  Goodwill – A financial asset is derecognised when the rights  Supply contracts/customer lists over 7–10 years to receive benefits have been realised, expired or the  Trademarks over 5 years Company loses control over them. The same applies to  Computer software over 3–10 years a component of a financial asset. A financial liability is derecognised when the contractual obligation has been Impairment of tangible fixed assets settled or extinguished in some other way. The same and intangible assets applies to a component of a financial liability. The carrying amounts of the Group’s goodwill and A financial asset and a financial liability may be off- depreciable assets are tested for impairment annually set and the net amount presented in the statement of

NYNAS ANNUAL REPORT 2014 67 FINANCIAL REPORT

financial position when, and only when, the Company sion for impairment of accounts receivable is recognised has a legally enforceable right to set off the recognised when there is objective evidence that the Group will not amounts and the Company intends either to settle on be able to collect all amounts due under the original a net basis, or to realise the asset and settle the liability terms and conditions of the receivables. simultaneously. The provision for doubtful debts is based on an individu- Purchases and sales of financial assets are recognised al assessment of each customer, taking into consideration on the trade date (the commitment date). the customer’s ability to pay, expected future risk and the value of security received. As accounts receivable have Classification and measurement short expected settlement terms, the value is recognised at Financial instruments are initially recognised at cost, a nominal amount without discounting. When a receivable namely the instrument’s fair value plus transaction cannot be collected, it is written off against the impairment costs, apart from derivatives for which transaction account for accounts receivable. Impairment of accounts costs are recognised immediately. A financial instru- receivable is reported under distribution costs. ment is classified according to the purpose for which it For loans and receivables, impairment is calculated as was acquired. The categories determine how a financial the difference between the asset’s carrying amount and instrument is measured subsequent to initial recogni- the present value of estimated future cash flows (exclud- tion, as described below. ing future credit losses that have not arisen), discounted at the financial asset’s original effective interest rate. Financial assets at fair value through profit or loss If, in a subsequent period, there is an indication This category consists of two sub-categories: financial that an impairment loss may have decreased and assets held for trading and other financial assets the this can be objectively related to an event occurring Company designated in this category on initial recogni- after the impairment loss was recognised (such as an tion. Nynas only has holdings in the first sub-category improvement in the debtor’s credit rating), the pre- and these are derivatives with a positive value that are viously recognised impairment loss is reversed and not used for hedge accounting under IFRS. Derivatives credited to Distribution costs. in this category are measured at fair value, with any changes in fair value recognised in profit or loss. Cash and cash equivalents These include derivatives used in financial hedging, Cash & cash equivalents consist of cash, demand depos- but which do not qualify for hedge accounting under its with banks and similar institutions and short-term IFRS, and consist of foreign exchange forward con- deposits with an original maturity of 3 months or less, tracts, oil forward contracts and interest rate swaps. which are subject to an insignificant risk of changes in value. Loans and receivables Loans and receivables are non-derivative financial Available for sale financial assets assets with fixed or determinable payments that are Available-for-sale financial assets are financial assets that not quoted in an active market. These assets are are either designated in this category or not classified measured at amortised cost. Amortised cost is calcu- in any of the other categories. Holdings of shares and lated based on the effective interest method used at participating interests are reported here. initial recognition. Financial assets in this category are measured at fair At each reporting date, Nynas assesses whether value, with any fair value changes recognised in other there is any objective indication that a loan is impaired. comprehensive income. Accumulated fair value chang- Loans are assessed individually. Objective evidence may es are recognised in a separate component of equity. include significant financial difficulties experienced by the However, changes relating to impairment, interest on issuer or debtor, a breach of contract, such as a default debt instruments, dividend income and exchange gains or delayed payment of interest or principal, and/or the or losses on monetary items are recognised in profit or probability that the borrower will enter into bankruptcy loss. On disposal of an asset, accumulated profit/loss is, or some other financial reconstruction. Impairment losses as previously, recognised in the statement of compre- on loans are recognised in operating expenses under hensive income under profit/loss for the year. If a reliable distribution costs. estimation of fair value is not possible, the holding is Receivables are recognised at original invoice amount measured at cost less any impairment. less an allowance for uncollectible amounts. A provi-

68 NYNAS ANNUAL REPORT 2014 FINANCIAL REPORT

Financial liabilities at fair value are recognised in profit or loss at the same time as through profit or loss gains or losses attributable to the hedged items. This category consists of two sub-categories: financial liabilities held for trading and other financial liabilities Recognition of derivative the Company designated in this category on initial instruments and hedging measures recognition. Nynas only has holdings in the first sub- Hedging of net investments category and these are derivatives with a negative value Investments in foreign subsidiaries (net assets including that are not used for hedge accounting under IFRS. goodwill) have been partially hedged by means of for- Derivatives in this category are measured at fair value, eign exchange forward contracts. The effective portion with any changes in fair value recognised in profit or loss. of changes in the fair value of derivative instruments These include derivatives not used in financial hedg- designated as hedges of a net investment is recognised ing, but which do not qualify for hedge accounting in other comprehensive income and accumulated in under IFRS, and consist of foreign exchange forward the translation reserve in equity. The ineffective por- contracts, oil forward contracts and interest rate swaps. tion is recognised directly in profit or loss. Cumulative gains and losses in equity are recycled into profit or loss Other financial liabilities through other comprehensive income on disposal of Accounts payable and loan liabilities are classified as other the foreign operation. financial liabilities. Accounts payable have short expected settlement terms and are measured at nominal amounts Cash flow hedges with no discounting. Loan liabilities are classified as other Cash flow hedges are used to hedge fixed-price trans- financial liabilities, which means they are recognised at actions, for which oil forward contracts are used, and amortised cost using the effective interest method. to hedge financial loan liabilities with variable interest rates, for which interest rate swaps are used. Derivatives and hedge accounting The effective portion of changes in the fair value of Derivatives include forward contracts (oil and foreign derivative instruments designated as cash flow hedges exchange forward contracts) and swaps (currency and is recognised in other comprehensive income and accu- interest rate swaps) to hedge the risks associated with mulated in a separate component of equity. interest rate and foreign currency fluctuations and The gain or loss attributable to the ineffective portion changing oil prices. Changes in the value of derivative is recognised immediately in profit or loss. Amounts financial instruments are recognised in profit or loss accumulated in equity are recycled into profit or loss based on the purpose for which the instruments were through other comprehensive income in the periods acquired. If hedge accounting is not applied, changes when the hedged item affects profit or loss (e.g., when in the fair value of derivatives are recognised as income the forecast sale that is hedged takes place). or expense in operating profit or loss or in net financial When a hedging instrument expires or is sold, or items based on the purpose for which the derivative when a hedge no longer meets the hedge accounting instrument was acquired and whether its use relates to criteria, amounts accumulated in equity are retained in an operating item or a financial item. equity and not taken to profit or loss until the forecast If hedge accounting is not applied when using transaction occurs and is recognised. If the forecast interest rate and currency swaps, the interest coupon transaction is no longer expected to occur, gains and is recognised as interest expense, while other value losses deferred in other comprehensive income must be changes are recognised as other finance income or taken to profit or loss immediately. other finance costs. To qualify for hedge accounting under IFRS, Nynas is Fair value hedges required is to formally designate the hedge at its incep- Interest rate swaps are used to hedge the exposure to tion, document the hedging relationship, the Company’s changes in the fair value of the Company’s fixed-inter- risk management objective and its strategy for under- est liabilities. With hedge accounting, the hedged risk in taking the hedge. Nynas also documents how it plans the hedged item is also remeasured at fair value. Gains to assess, at the inception of the hedge and on an or losses from remeasuring the hedging instrument, the ongoing basis, the hedging instrument’s effectiveness derivative and the change in value of the hedged risk in offsetting fair value or cash flow changes in the are recognised under net financial items. hedged item. Gains and losses attributable to hedges If the hedge no longer qualifies for hedge accounting,

NYNAS ANNUAL REPORT 2014 69 FINANCIAL REPORT

any adjustment to the carrying amount of a hedged item sion for employees in Sweden is covered partly by insur- for which the effective interest method is used shall be ance with Collectum. In accordance with the statement amortised to profit or loss over the remaining maturity. of the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force, UFR 10, this is a multi- Inventories employer defined benefit plan. For the 2014 financial Inventories are stated at the lower of cost and net re- year, the Company did not have access to sufficient infor- alisable value, with due consideration of obsolescence. mation to enable it to report this plan as a defined benefit Net realisable value is the estimated selling price in the plan. Consequently, the ITP pension plan insured through ordinary course of business, less the estimated costs of Collectum is reported as a defined contribution plan. completion and selling expenses. Cost is based on the first-in/first-out (FIFO) principle Provisions and includes expenditure incurred in acquiring the inven- A provision is recognised in the statement of financial tories and bringing them to their existing location and position when the Group has a present obligation condition. In the case of manufactured inventories and (legal or constructive) as a result of a past event and it is work in progress, cost includes an appropriate share of probable that an outflow of resources will be required overheads based on normal operating capacity. to settle the obligation, and a reliable estimate can be made of the amount. Where the effect of the time value Employee benefits of money is material, the amount of a provision shall Post-employment benefits be calculated as the present value of the expenditures The Group has defined contribution and defined ben- required to settle the obligation. The provisions are efit pension plans. Pension costs for defined contri- mainly related to restructuring and environmental bution plans are recognised in the income statement obligations. as employees render service. Pension obligations are measured on an undiscounted basis, as all these plans Restructuring fall due within twelve months. A provision for restructuring is recognised when the The Group’s net defined benefit obligation is Group has approved a detailed and formal restructur- determined separately for each plan, based on company- ing plan, and the restructuring has either commenced specific actuarial assumptions. These include assessments or has been announced publicly. No provision is posted of future salary increases, rate of inflation, mortality, for future operating costs. attrition rate and changes in the income base amount. Pension obligations are discounted to their present value. Onerous contracts Net actuarial gains and losses and the difference A provision for onerous contracts is recognised when between the actual return and the discount rate for the expected benefits to be derived by the Group are pension plan assets will be recognised in Other com- lower than the unavoidable cost of meeting its obliga- prehensive income. tions under the contract. The calculation of defined benefit pension plans has been done in accordance with the “Project Unit Cred- Contingent liabilities it method” by an independent external actuary. The A contingent liability is a potential undertaking that discount rate on first-rate corporate bonds is used in derives from events which have occurred and whose those countries where there is a functional market for incidence is only confirmed by one or more uncertain such bonds (in Sweden the rate is determined with ba- future events. A contingent liability can also be an ex- sis in the market rate of mortgaged-backed bonds as isting undertaking that has not been reported in the this is comparable with high quality corporate bonds). Balance Sheet because it is unlikely that an outflow of Other countries are using the Government bonds as resources will be required or because the size of the basis for the rate. undertaking cannot be calculated. See note 28. Defined benefit pension liabilities recognised in the statement of financial position are the present value Accounting policies – parent company of the defined benefit obligation at the reporting date The Parent Company prepares its financial statements in minus the present value of the plan assets. Special accordance with the Swedish Annual Accounts Act and payroll tax will be included in the pension provision. the Swedish Financial Accounting Standards Council’s The obligation for retirement pension and family pen- recommendation RFR 2, Accounting for Legal Entities.

70 NYNAS ANNUAL REPORT 2014 FINANCIAL REPORT

RFR 2 requires the Parent Company, as a legal entity, to Financial guarantees mean that the Company has an prepare its annual financial statements in compliance obligation to reimburse the holder of a debt instrument with all the IFRS and IFRIC interpretations adopted by for losses it incurs because a specified debtor fails to the EU, to the extent possible within the framework make payment when due under the contractual terms. of the Swedish Annual Accounts Act and the Swedish When reporting financial guarantees, the Parent Com- Pension Obligations Vesting Act, and taking into pany applies an exemption from the provisions of IAS account the relationship between tax income/expense 39 permitted by the Swedish Financial Reporting Board. and accounting profit. The exemption relates to financial guarantees issued Nynas AB applies the same recognition criteria and in favour of subsidiaries, associates and joint ventures. accounting policies as the Group, apart from the excep- The Parent Company reports financial guarantees as a tions described below. provision in the balance sheet when the Company has an obligation, and an outflow of resources is likely to be Employee benefits/defined benefit plans required to settle the obligation. When calculating the defined benefit pension plans, the Parent Company applies the rules contained in the Swed- ish Pension Obligations Vesting Act and the Swedish Finan- cial Supervisory Authority’s regulations to the extent that they are required for tax deductibility. The main differences from IAS 19 relate to determination of the discount rate and the fact that the defined benefit obligation is based on the present salary level, without taking into account future salary increases, and that all actuarial gains and losses are recognised immediately in profit or loss.

Taxes Untaxed reserves are recognised inclusive of deferred tax liability in the Parent Company. In the consolidated financial statements, untaxed reserves are divided into deferred tax liability and equity.

Group contributions and shareholder contributions The Company reports Group contributions and share- holder contributions in accordance with RFR 2. Share- holder contributions are recognised directly in the recipi- ent’s equity and capitalised in the contributor’s shares and participating interests, to the extent that no impairment has been identified. Group contributions received from subsidiaries are rec- ognised under finance income in the income statement. Group contributions paid to subsidiaries are recognised as an investment.

Investments in group companies Investments in Group companies are recognised at cost less any impairment losses. Dividends received are recognised as income, while repayments of con- tributed capital reduce the carrying amount.

Financial guarantees The Parent Company’s financial guarantees consist mainly of sureties in favour of subsidiaries.

NYNAS ANNUAL REPORT 2014 71 NOTES

NOTES TO THE FINANCIAL STATEMENTS – GROUP (AMOUNT IN TABLES IN sek MILLION, UNLESS OTHERWISE STATED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

Provision for future environmental programmes Assumptions in the calculation of pension provisions Nynas has two refineries and a number of bitumen terminals The actuarial assessment of pension obligations and pension requiring operating permits under Swedish environmental costs is based on the actuarial assumptions which are spec- law. The refineries in Dundee and Eastham – the latter jointly ified in note 22. A change to any of these assumptions may owned with another party – are operated under the United have a considerable effect on the estimated retirement benefit Kingdom’s national environmental laws. obligation and pension costs. The discount rate is determined Future restoration costs associated with the operations’ by reference to the return on a mortgage bond of a term con- environmental impacts may be difficult to establish, both in sistent with the Group’s average remaining term of the obliga- terms of size and timing. Changes in environmental legisla- tion, which for Nynas is 30 years. tion and the emergence of new cleaning up technology are The assumptions described in note 22 do not deviate factors that may affect the size of the provision. Consequent- significantly from what is perceived as normal practice in the ly, the provision may need to be adjusted in the future, which Swedish market. may have a material effect on future financial results. See also note 23. Disputes Nynas conducts domestic and international operations and is Measurement of tax loss carryforwards occasionally involved in disputes and legal proceedings arising The measurement of tax loss carryforwards in an entity is in the course of these operations. These disputes and legal based on an assessment of whether they can be utilised in the proceedings are not expected, either individually or collectively, foreseeable future. In particular, tax loss carryforwards have to have any significant not expected, either individually or been measured in Belgium. See the values reported in note 10. collectively, to have any significant negative impact on Nynas’s operating profits, profitability or financial position, over and Impairment of intangible assets above that detailed below. When Nynas calculates a cash generating unit’s recoverable amount when testing goodwill and supply contracts/customer lists for impairment, a number of assumptions regarding future conditions and estimates of parameters are made. These are described in note 12.

72 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 2. SEGMENT INFORMATION

2.1 Information on business segments For additional information, please refer to “General accounting principles” for segment reporting.

Naphthenics Bitumen Other Elimination Group

2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

NET SALES

External sales 9,875.5 7,628.5 10,494.8 10,298.6 2,151.9 1,600.0 – – 22,522.3 19,527.0 Internal sales 1,952.1 2,077.1 846.8 801.9 9,731.8 9,544.7 -12,530.8 -12,423.7 0.0 0.0 Net sales total 11,827.6 9,705.6 11,341.7 11,100.4 11,883.8 11,144.7 -12,530.8 -12,423.7 22,522.3 19,527.0 Operating result before 961.9 564.4 324.8 115.2 -121.7 -242.7 – – 1,165.0 436.8 depreciation Depreciation/amortisation -280.8 -279.7 -72.0 -77.0 -28.8 -95.4 – – -381.6 -452.0 and impairment Depreciation joint venture – – -8.9 -6.6 – – – – -8.9 -6.6

Operating result 681.1 284.7 243.9 31.6 -150.5 -338.2 – – 774.4 -21.8

Net financing costs -308.1 -263.9

Income tax for the year -187.3 -19.6

Net income for the year 278.9 -305.3

Other disclosures Fixed assets 3,238.2 2,748.7 595.9 652.2 430.9 251.0 – – 4,265.1 3,651.9 Inventory and current 4,776.9 3,382.7 1,755.3 1,576.4 -157.0 5.7 – – 6,375.2 4,964.8 receivables Assets in capital employeed 8,015.2 6,131.4 2,351.2 2,228.6 273.9 256.7 – – 10,640.3 8,616.7 Other liabilities incl provisions 2,185.6 1,283.5 1,593.9 713.2 14.6 -3.5 – – 3,794.1 1,993.2 Total capital employeed 5,829.6 4,847.9 757.3 1,515.4 259.3 260.3 – – 6,846.2 6,623.6

2.2 Information by geographical market and sales revenues by category

SALES REVENUES BY GEOGRAPHICAL MARKET 2014 2013

Nordic Region 5,516.3 5,528.0 Europe 12,846.1 9,812.3 Americas 1,444.4 1,611.7 Other 2,715.5 2,575.0 TOTAL 22,522.3 19,527.0

TOTAL ASSETS BY GEOGRAPHICAL MARKET 2014 2013

Nordic Region 8,126.1 7,008.4 Europe 1,959.4 1,583.2 Americas 559.3 480.6 Other 893.5 482.1 TOTAL 11,538.3 9,554.3

investments BY GEOGRAPHICAL MARKET 2014 2013

Nordic Region 246.5 211.0 Europe 298.5 13.4 Americas 0.5 1.2 Other 0.2 2.0 TOTAL 545.7 227.6

SALES REVENUES BY CATEGORY 2014 2013 Sale of goods, external 22,321.0 19 495,2 Revenue from services 201.3 31,8 TOTAL 22,522.3 19 527,0

NYNAS ANNUAL REPORT 2014 73 NOTES

NOTE 3. COSTS ITEMISED BY NATURE OF EXPENSE

2014 2013

Raw materials 17,555.4 15,147.5 Transport and distribution costs 1,759.8 1,696.9 Manufacturing expenses 1,559.5 1,412.2 Costs for employee benefits (note 5) 785.7 710.2 Depreciation, amortisation, impairment (notes 12, 13,) 381.6 437.5 Other income and value changes -509.7 14.0 Other expenses 310.4 144.4 TOTAL 21,842.7 19,562.7

During 2014 (2013) no realised gains and losses from cash flow- hedges (oil) were re-classified to raw materials in the income. Other income and value changes consists of unrealised gains and losses from oil and currency derivatives of 509.7 (-14.0).

NOTE 4. OTHER OPERATING INCOME AND EXPENSES

OTHER OPERATING INCOME 2014 2013

Exchange gains on 317.3 225.4 operating receivables/liabilities Insurance compensation – 10.9 Other service revenue 27.4 47.0 TOTAL 344.7 283.3

OTHER OPERATING EXPENSES 2014 2013

Costs related to fire in Nynäshamn – 10.9 Exchange losses on operating receivables/liabilities -274.1 280.0 TOTAL -274.1 290.9

In 2011 Nynas implemented its largest maintenance shut- insurance cover in place for both types of damage, and insurance down to date at the refinery in Nynäshamn. On resumption revenue of SEK 359 million was recognised at December 31, 2012 of operations, a fire broke out but did not cause any environ- and SEK 11 million at December 31, 2013. mental damage or personal injury. However, there was exten- The compensation is settled to 100 percent with the insur- sive material damage, and repair costs are estimated to be at ance companies during 2013. SEK 280 million. See also note 19. The Company was also affected by a loss of revenue and additional costs incurred as a direct result of the fire. Nynas has

74 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 5. EMPLOYEES, PERSONNEL EXPENSES AND REMUNERATION OF SENIOR EXECUTIVES

The average number of employees, with wages, salaries, other remuneration, social security contributions and pension costs, is shown in the tables below.

2014 2013 AVERAGE NUMBER OF EMPLOYEES Men Women Total Men Women Total

PARENT Sweden 303 134 437 316 137 453 TOTAL PARENT 303 134 437 316 137 453

INCOME Sweden 303 134 437 316 137 453 TOTAL SWEDEN 303 134 437 316 137 453

United Kingdom 122 20 142 157 23 180 Belgium 19 28 47 19 31 50 Poland 12 4 16 12 4 16 Estonia 14 3 17 17 3 20 Spain 3 3 6 3 3 6 Germany 83 17 100 7 6 13 France 9 3 12 10 3 13 Denmark 6 1 7 6 1 7 Finland 3 2 5 3 1 4 USA 3 4 7 8 3 11 Other countries 49 41 90 44 45 89 TOTAL OUTSIDE SWEDEN 323 126 449 286 123 409

TOTAL GROUP 626 260 886 602 260 862

EMPLOYEE BENEFIT COSTS, GROUP 2014 2013

Wages, salaries and other benefits 579.8 504.8 Pension costs, defined benefit (see also note 22) 32.0 40.2 Pension costs, defined contribution (see also note 22) 32.1 32.6 Other post-employment benefits 0.0 0.0 Social security contributions 141.8 132.6 TOTAL GROUP 785.7 710.2

2014 2013 REMUNERATION Other Other AND OTHER BENEFITS, President senior President senior SENIOR EXECUTIVES, group & CEO executives Total & CEO executives Total

Basic salary 5.3 14.6 19.9 5.7 11.8 17.5 Variable pay 0.0 0.7 0.7 0.0 1.0 1.0 Other benefits 0.1 0.5 0.6 0.2 0.5 0.7 Social security contributions 1.7 4.3 6.0 1.9 3.5 5.4 Pension costs 2.2 6.0 8.2 4.2 5.8 10.0 TOTAL 9.3 26.1 35.4 12.0 22.6 34.6

Nynas Group Management 2014 (not including CEO), Rolf Allgulander, Martin Carlson, Simon Day, Per Dahlstedt up to 2014-09-14, Dan Daggenfelt up to 2014-09-30, Bo Askvik from 2014-10-01, Anders Nilsson from 2014-09-15, Ewa Beskow, Jim Christie, Peter Bäcklund, Hans Östlin.

Nynas Group Management 2013 (not including CEO), Rolf Allgulander, Martin Carlson, Simon Day, Dan Daggenfelt, Per Dahlstedt, Ewa Beskow, Russell Childs, Hans Östlin.

No Board fees or other Board remuneration were paid.

NYNAS ANNUAL REPORT 2014 75 NOTES

> Cont. NOTE 5 Group president & CEO GENDER DISTRIBUTION From March 3, 2014 Nynas Group has appointed Gert IN MANAGEMENT 2014 2013 Wendroth as new President. Termination of employment in Female representation, % relation to the President requires 6 months notice by either Board 23.7 20.7 party. In the event of involuntary termination of employ- Group Management 10.0 11.1 ment, the President is entitled to termination benefits corres- ponding to 12 months’ salary.

NOTE 6. DEPRECIATION AND AMORTISATION OF TANGIBLE AND INTANGIBLE ASSETS

Intangible Tangible DEPRECIATION AND AMORTISATION BY FUNCTION 2014 2013 2014 2013

Cost of sales 4.1 5.5 309.1 317.0 Distribution costs 1.9 3.1 37.4 16.9 Administrative expenses 20.6 22.6 6.8 11.2 TOTAL 26.6 31.2 353.2 345.2

DEPRECIATION AND AMORTISATION BY TYPE OF ASSET 2014 2013

Supply contracts/customer lists 1.7 2.0 Computer software 24.9 29.2 Buildings 10.0 9.7 Land improvements 8.4 6.5 Plant and machinery 309.1 300.1 Equipment 25.8 29.0 TOTAL 379.9 376.6

TOTAL RECOGNISED DEPRECIATION 379.9 376.6

NOTE 7. AUDITORS’ FEES AND OTHER REMUNERATION

AUDIT FEES 2014 2013

Ernst & Young AB Annual audit 6.6 5.7 Other audit services 0.9 0.6 Tax advisory services 3.1 2.5 Other services 0.5 0.3 Other auditors Annual audit 0.2 0.1 Other audit services 1.2 0.6

NOTE 8. FEES FOR OPERATING LEASES

PAYMENTS UNDER NON-CANCELLABLE OPERATING LEASES 2014 2013

Payments during the financial year 357.0 347.3

Agreed future payments Within one year 341.9 315.1 2–5 years 635.7 508.9 6 years and thereafter 231.7 190.5

In 2014 Nynas AB had four bitumen carriers on bareboat char- leases relate mainly to tanks and leased premises. ters and two special oil carriers on time charters. The Group does not have any material agreements classified The leases have different conditions and include a right of as finance leases. extension. Tanker trucks are leased in the UK. Other operating

76 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 9. NET FINANCIAL ITEMS

2014 2013

Interest income, bank deposits 8.3 17.2 Interest income, associates 0.7 0.7 Interest income, derivative instruments (actual interest rates and changes in value) 50.5 46.5 TOTAL FINANCE INCOME 59.5 64.4

Of which total interest income attributable to items carried at amortised cost 9.0 17.9

Interest expense, loans and bank overdrafts -201.4 -214.3 Interest expense, derivative instruments (actual interest rates and changes in value) -72.6 -21.5 Interest expense, PRI pension obligations -8.5 -5.7 Net exchange differences 12.3 -16.3 Other finance costs* -97.5 -70.6 TOTAL FINANCE COSTS -367.6 -328.4

Of which total interest expense attributable to items carried at amortised cost -209.9 -220.0 TOTAL NET FINANCIAL ITEMS -308.1 -263.9

*) Mainly relates to up front fee.

NOTE 10. TAXES

2014 2013

Current tax -186.4 -119.1 Tax attributable to Joint Venture* -5.0 -2.9 Current tax prior years -0.1 -2.6 Deferred tax 4.0 105.1 TOTAL -187.5 -19.6 *) Refer to ERL note 15

Tax on the Group’s profit before tax differs from the theoretical figure that would have resulted from a weighted average rate for the results in the consolidated companies as follows: 2014 2013

Result before tax 466.4 -285.7 Tax according to Parent Company’s applicable tax rate -102.6 62.9 Effect of different tax rates for foreign subsidiaries 3.2 -4.4 Tax effect of: Other non-deductible expenses -5.6 -13.9 Other non-taxable income 3.0 1.7 Adjustment of current tax in respect of prior years -0.1 -2.6 Increase in loss carryforwards without corresponding capitalisation of deferred tax -87.2 -58.3 Tax attributable to Joint Venture 0.0 -2.9 Currency 0.0 0.6 Other 1.8 -2.7 Recognised tax expense -187.5 -19.6

Standard rate of income tax, % 22 22 Effective tax rate, % 40 -7

NYNAS ANNUAL REPORT 2014 77 NOTES

> Cont. NOTE 10

DEFERRED TAX ASSETS AND LIABILITIES Assets Liabilities Net 2014 2013 2014 2013 2014 2013

Land and buildings 0.0 0.0 10.2 1.4 -10.2 -1.4 Machinery and equipment 13.9 8.9 151.1 200.2 -137.2 -191.3 Inventories 13.3 0.0 2.6 26.2 10.7 -26.2 Other operating receivables/ 92.3 60.8 145.0 0.9 -52.7 59.9 liabilities Pension liabilities 47.2 20.9 0.0 0.0 47.2 20.9 Tax loss carryforwards 131.5 85.7 0.0 0.0 131.5 85.7 TOTAL 298.2 176.3 308.9 228.7 -10.7 -52.4 Offsets 0.1 -0.8 0.1 -0.8 – – TOTAL 298.3 175.5 309.0 227.9 -10.7 -52.4

CHANGE IN DEFERRED TAX Recognised Recognised ON TEMPORARY DIFFERENCES Opening in income directly in Exchange Closing DURING YEAR Balance statement equity differences Balance

Land and buildings -1.4 1.6 -10.4 – -10.2 Machinery and equipment -191.3 54.1 – – -137.2 Inventories -26.2 36.9 – – 10.7 Other operating receivables/liabilities 59.9 -115.5 2.4 0.5 -52.7 Pension liabilities 20.9 -18.8 45.1 – 47.2 Tax loss carryforwards 85.7 45.8 – – 131.5 TOTAL -52.5 4.0 37.1 0.5 -10.7

The Group did not recognise deferred tax assets of SEK 258 million (158) in respect of losses amounting to SEK 759 million (465), which can be utilised against future taxable profit. All of the SEK 258 million is available for use in the future indefinitely.

NOTE 11. EARNINGS PER SHARE

The calculation of earnings per share is based on profit attributable to equity-holders of the Parent Company. The average number of shares in 2014 and 2013 was 67,532.

2014 2013 Profit for Number of Profit for Number of the year shares Per share the year shares Per share

Earnings per share 278.9 67,532 4,130 -305.3 67,532 -4,521

As Nynas does not have, and did not have during the year, any outstanding convertible and subscription warrant programmes, no dilution effects arose during calculation of earnings per share.

78 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 12. INTANGIBLE ASSETS

Supply Other intang. Total contracts/ Computer assets/ Intangible 2014 Goodwill Customer lists software Trademarks Assets

Opening cost 275.4 333.5 375.4 1.6 985.8 Acquisitions – – 4.3 – 4.3 Reclassifications – – 4.4 – 4.4 Translation differences – 11.1 1.5 0.0 12.6 Closing cost 275.4 344.6 385.6 1.6 1,007.2

Opening regular depreciation -264.0 -202.6 -285.1 -1.6 -753.3 Translation differences – -14.5 -1.4 0.0 -16.0 Depreciation for the year – -1.7 -24.9 – -26.6 Closing regular depreciation -264.0 -218.8 -311.5 -1.6 -795.9

Opening impairment -3.3 -129.3 -26.7 – -159.3 Translation differences – 3.5 0.0 – 3.5 Closing impairment -3.3 -125.8 -26.7 – -155.8

Closing residual value 8.1 0.0 47.4 0.0 55.5

2013

Opening cost 275.4 331.9 363.5 1.6 972.3 Acquisitions – – 0.1 – 0.1 Reclassifications – – 11.6 – 11.6 Translation differences – 1.6 0.2 0.0 1.8 Closing cost 275.4 333.5 375.4 1.6 985.8

Opening regular depreciation -264.0 -197.4 -255.7 -1.6 -718.7 Translation differences – -3.2 -0.2 0.0 -3.4 Depreciation for the year – -2.0 -29.2 – -31.2 Closing regular depreciation -264.0 -202.6 -285.1 -1.6 -753.3

Opening impairment -3.3 -130.9 -26.7 – -160.9 Translation differences – 1.6 – – 1.6 Closing impairment -3.3 -129.3 -26.7 – -159.3

Closing residual value 8.1 1.6 63.7 0.0 73.3

Impairment testing of goodwill and customer lists/supply contracts Goodwill, customer lists and supply contracts are allocated to the Group’s cash generating units (CGUs) identified for each country in which the Group operates. Goodwill, customer lists/supply contracts are allocated as follows:

2014 2013 United Kingdom 0.0 1.6 Austria 3.7 3.7 Estonia 4.4 4.4 TOTAL 8.1 9.7

The recoverable amount for cash-generating units is deter- using an estimated growth rate. Beyond the forecast period, mined by calculating the value in use. These calculations use Nynas estimates a residual value: Gordon’s formula is used for estimated future cash flows, which are based on financial bud- projects over SEK 10 million, while for smaller projects a stan- gets/long-term plans that have been approved by manage- dard factor of six times the unrestricted cash flow for the final ment and which cover a five-year period. year of the forecast period is used. The cash-flows after this five-year period are extrapolated

NYNAS ANNUAL REPORT 2014 79 NOTES

> Cont. NOTE 12

Significant assumptions used to calculate the value in use: 2014 2013 Gross margin, %* 2.5 2.5 Rate of growth, %** 2.0 2.0 Discount rate, %*** 9.4 9.4

* Budgeted gross margin. ** Weighted average rate of growth used to extrapolate cash flows outside budget period. *** Pre-tax discount rate used in present value calculation of projected future cash flows.

These assumptions have been used to analyse each CGU. Man- ment. The weighted average rate of growth used corresponds agement have determined the budgeted gross margin based to the forecasts in sectoral reports. The discount rates used are on previous results and their expectations of market develop- pre-tax rates and reflect business-specific risks.

NOTE 13. TANGIBLE ASSETS

Total Plant and Construction Tangible 2014 Buildings machinery Equipment in progress assets

Opening cost 428.3 5,961.2 522.5 292.1 7,204.1 Adjusted cost – – -0.2 – -0.2 Acquisitions 13.6 475.8 7.0 287.3 783.8 Disposals 18.8 -0.5 -1.3 – 17.0 Reclassifications 47.0 15.5 -11.0 -55.9 -4.4 Translation differences 9.8 71.1 18.5 2.7 102.1 Closing cost 517.5 6,523.0 535.5 526.3 8,102.3

Opening regular depreciation -165.0 -3,200.1 -391.8 – -3,756.9 Depreciation adjustment – – 0.1 – 0.1 Disposals -19.6 3.0 0.9 – -15.7 Depreciation reclassifications 0.2 -0.6 0.4 – 0.0 Translation differences -3.2 -45.7 -14.3 – -63.2 Depreciation for the year -18.4 -309.1 -25.8 – -353.3 Closing regular depreciation -206.0 -3,552.5 -430.6 0.0 -4,189.0

Closing residual value 311.5 2,970.6 104.9 526.3 3,913.3

Opening impairment -11.8 -71.5 -0.8 -36.0 -120.2 Impairment for the year – 0.0 -1.8 – -1.8 Translation differences -1.6 -6.6 -0.3 0.0 -8.6 Closing impairment -13.4 -78.2 -2.9 -36.0 -130.5

Closing residual value 298.1 2,892.4 102.0 490.3 3,782.7 Of which carrying amount, Sweden 235.0

80 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 13 Total Plant and Construction Tangible 2013 Buildings machinery Equipment in progress assets

Opening cost 438.8 5,241.3 488.1 944.6 7,112.7 Adjusted cost – – 0.0 – 0.0 Acquisitions 0.4 9.0 4.4 211.4 225.2 Disposals -18.8 -103.8 -5.1 – -127.7 Reclassifications 5.6 811.6 34.8 -863.6 -11.6 Translation differences 2.3 3.1 0.3 -0.2 5.4 Closing cost 428.3 5,961.2 522.5 292.1 7,204.1

Opening regular depreciation -162.8 -3,003.7 -364.9 – -3,531.4 Depreciation adjustment – – -0.1 – -0.1 Disposals 15.9 103.5 4.3 – 123.8 Depreciation reclassifications – 1.8 -1.8 – 0.0 Translation differences -2.0 -1.7 -0.3 – -4.0 Depreciation for the year -16.1 -300.1 -29.0 – -345.2 Closing regular depreciation -165.0 -3,200.1 -391.8 0.0 -3,756.9

Closing residual value 263.4 2,761.0 130.7 292.1 3,447.2

Opening impairment – -22.3 1.3 -36.0 -57.0 Impairment for the year -11.8 - 47.2 -2.0 – -61.1 Translation differences – -2.0 -0.1 – -2.1 Closing impairment -11.8 -71.5 -0.8 -36.0 -120.2

Closing residual value 252.0 2,689.8 129.7 256.1 3327.6 Of which carrying amount, Sweden 207.4

NOTE 14. SHARES IN GROUP COMPANIES

2014 2013

Opening cost 1,054.3 920.1 Purchases – 179.8 Write down -31.7 -45.5 Closing cost 1,022.6 1,054.3

GROUP COMPANIES: Number of % Carrying (SEK thousands) Reg. no Reg’d office shares Holding Currency amount

Nynas UK AB, Sweden 556431-5314 Stockholm 1,000 100 SEK 625,176 Nynas Oil Import AB 556726-8841 Stockholm 1,000 100 SEK 100 Nynäs AB 1 556366-1957 Stockholm 1,000 100 SEK 100 Nynas Ltd, U.K 02359113 London 7,647,888 100 GBP 92,305 Nynas Insurance Company Ltd, #11005 Hamilton 91,800 100 SEK 8,349 Bermuda Nynas A/S, Denmark A/S 66679 Copenhagen 1,000 100 DKK 36,461 Nynas A/S, Norway 962022316 Drammen 5,400 100 NOK 9,397 AS Nynas, Estonia 10028991 Tallinn 13,600 100 EEK 5,891 Nynas SA, France 328o31232ooo49 Bobigny 10,994 99.95 EUR 2,872 Nynas Petroleo SA, Spain esa78474475 Madrid 49,916 100 EUR 4,534 Nynas Srl, Italy 1249541 Milan 50,000 100 EUR 1,850 Nynas GmbH, Germany DE121304433 Düsseldorf 1 100 EUR 2,105 Nynas (Hong Kong) Ltd, 473858 Hong Kong 5,000 100 HKD 44 Hong Kong Nynas (Australia) Pty Ltd, ACN076.139.029 Brisbane 10,000 100 AUD 54 Australia Nynas Sp. z o.o., Poland KRS:0000106219 Szczecin 430 100 PLN 1,614

1) dormant

NYNAS ANNUAL REPORT 2014 81 NOTES

> Cont. NOTE 14

Number of % Carrying (SEK thousands) Reg. no Reg’d office shares Holding Currency amount

Nynas (South Africa) (Pty) Ltd, 97/13041-07 Johannesburg 100 100 ZAR 0 South Africa Nynas do Brasil Ltda, Brasil 02331563/0001 São Paolo 10,000 100 BRL 584 Nynas Canada Inc, Canada 870209335 Toronto 10,000 100 CAD 1,001 Nynas Naphthenics Yaglari 632 011 3964 Istanbul 38,489 99.99 TRL 4,808 Ticaret Ltd Sti, Turkey Nynas Mexico SA, Mexico NME010316RF1 Mexico City 50,000 100 MXN 2,968 Nynas Servicios SA, Mexico NSE010316NM1 Mexico City 50,000 100 MXN 57 Nynas Argentina SA, Argentina 30707778209 Buenos Aires 15,000 100 ARS 191 Nynas Technol Handels GmbH, FN219950 Graz 1 100 EUR 323 Austria Nynas Petroleum Shanghai Co, 315137 Shanghai 1 100 CNY 2,071 Ltd, China Nynas Naphthenics (M) SDN BHD, 581235-V Malaysia 100,000 100 MYR 245 Malaysia Nynas Baltic Sweden AB, Sweden 556625- 4511 Stockholm 1,000 100 SEK 265 Nynas Belgium AB, Sweden 556613-4473 Stockholm 1,000 100 SEK 0 Nynas NV, Belgium 893.286.262 Zaventem 1 0.01 EUR 0 Nynas PTE, Ltd, Singapore 200723567N Singapore 36,720 100 SEK 217 Nynas AG, Switzerland CH-170.3.025.994-5 Zug 79,998 99.99 CHF 0 Nynas USA, Inc, USA 800197875 Delaware 100 100 USD 36,693 Nynas OY, Finland 1834987-6 Vantaa 100 100 EUR 125 PT Nynas Indonesia, Indonesia 21.069.383.4-417.000 Jakarta 150,000 100 IDR 1,258 Nynas Naphthenics US1109MH2009FTLI95149 Mumbai 1,000,000 100 INR 753 Private Ltd, India Nynas Co, Ltd, Korea 110111- 4222173 Seoul 10,000 100 KRW 314 Svensk Petroleum 556067-8459 Stockholm 109 10.9 SEK 0 Förvaltnings AB Nynas Germany AB 556858-4170 Stockholm 500 100 SEK 179,860 TOTAL INVESTMENTS IN GROUP COMPANIES 1,022,585

OPERATING GROUP COMPANIES OVER AND ABOVE THOSE DIRECTLY OWNED BY PARENT COMPANY: Number of % Carrying Reg. no Reg’d office shares Holding Currency amount

Nynas Naphthenics Ltd, U.K 2450786 Guildford 10,000 100 GBP 105 Nynas Limited Liability Company 1087746838464 Moscow 10,000 100 SEK 6,439 Nynas NV, Belgium 893.286.262 Zaventem 11,090 99.99 EUR 0 Nynas Bitumen Limited 982640 Cheshire 1,000,000 100 GBP 0 Highway Emulsions Limited 2643238 Cheshire 2 100 GBP 0 Nynas Verwaltungs GmbH HR A 117766 Hamburg 25,000 100 EUR 25 Nynas GmbH & Co KG HR A 114916 Hamburg 1 100 EUR 20,001

Nynas has three foreign branches. Nynas UK AB has a branch in the UK and Nynas NV in Belgium has branches in Germany and France.

82 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 15. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Number of % Carrying GROUP Reg. no Reg’d office shares Holding Currency amount

Eastham Refinery Ltd, UK 2205902 London 5,000,000 50 GBP 74.0 Share in equity of Eastham Refinery Ltd Accounted for using equity method 13.2 TOTAL INVESTMENTS IN ASSOCIATES 87.2

GROUP’S INTEREST IN THE ASSOCIATE ERL Assets Liabilities Income Profit

Eastham Refinery Ltd, UK 197.5 107.9 150.5 19.0

2014 2013

Opening balance 74.0 76.4 Profit for the year 19.0 17.1 Dividend -18.1 -21.3 Translation differences 12.3 1.8 Closing balance 87.2 74.0

NOTE 16. OTHER LONG-TERM RECEIVABLES

2014 2013

Opening balance 1.5 19.1 Amounts to be received 2.3 -17.6 Closing balance 3.8 1.5

NOTE 17. INVENTORIES

2014 2013

Raw materials 703.5 603.0 Semi-finished products 496.9 394.3 Finished products 2,347.4 2,041.6 TOTAL 3,547.7 3,038.9

Amounts relating to impairment losses on inventories are As price of oil fell sharply in the final quarter of 2014, some reported under costs of goods sold and are SEK 198,3 (0) million. of Nynas’s inventories have been remeasured at net realisable Inventories are stated at the lower of cost and net realisable value. The write-down relates mainly to goods for sale in the value, with due consideration of obsolescence. categories fuel and bitumen.

NYNAS ANNUAL REPORT 2014 83 NOTES

NOTE 18. ACCOUNTS RECEIVABLE

2014 2013

Accounts receivable, not due 1,148.3 1,187.6 Provision for impairment of accounts receivable -18.1 -15.0 NOT DUE ACCOUNTS RECEIVABLE, NET 1,130.2 1,172.5

Age analysis of past due accounts receivable 0–90 days 398.8 352.2 91–180 days 17.4 15.8 Over 180 days 46.7 34.3 TOTAL OVERDUE ACCOUNTS RECEIVABLES 462.9 402.3

TOTAL ACCOUNTS RECEIVABLES 1,593.1 1,574.8

Factoring Accounts receivable losses The Group have applied factoring for a limit part of the invoicing. The Group has recognised a loss of SEK 18.1 million (15) for At year end 2014, the part used as Factoring is approximately impairment of accounts receivable. The change relates mainly to 8 percent. a reduction in doubtful debts in Spain (SEK 7.6 million), the UK (SEK 3.0 million), Sweden (SEK 2.7 million) and Australia (SEK 1.3 million). The loss is reported under distribution costs in the income statement.

NOTE 19. PREPAYMENTS AND ACCRUED INCOME

2014 2013

Rent 7.1 5.7 Charter hire 63.5 29.8 Pension premiums 12.6 6.3 Forward contracts, currency – 0.2 Software licences 4.6 7.1 Other prepayments 130.3 60.1 TOTAL 218.1 109.1

Insurance compensation, please see Note 4.

NOTE 20. CASH AND CASH EQUIVALENTS

2014 2013

Cash and bank balances 898.0 792.3 Restricted cash account 0.0 145.3 Cash and cash equivalents recognised 898.0 937.6

The Group’s cash and cash equivalents comprise its deposits in a restricted cash account (Shell account). The amount referes the Group’s common bank accounts and other bank accounts, to the payment of the Harburg refinery. Take over occurred of including currency accounts and funds in transit. January 1, 2014. On December 31, 2013, SEK 145 million was transferred to

84 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 21. EQUITY

SPECIFICATION OF EQUITY ITEM ’RESERVES’ TRANSLATION RESERVE AND CURRENCY HEDGES 2014 2013

Opening translation reserve and currency hedges -102.7 -51.1 Translation reserve and currency hedges for the year 25.2 -51.6 Closing translation reserve and currency hedges -77.5 -102.7

HEDGING RESERVE AND ACTUARIAL RESULT PENSION Opening hedging reserve -116.6 -134.4 Actuarial gains and losses from pensions recognised in OCI -88.2 21.0 Cash flow hedges recognised in income statement, cost of sales 42.2 39.0 Cash flow hedges recognised in OCI -50.9 -42.2 Closing hedging reserve -213.5 -116.6

TOTAL RESERVES Opening reserves -219.3 -185.5 Changes in reserves during the year -71.7 -33.8 Closing reserves -291.0 -219.3

Reserves Retained earnings Translation reserve Retained earnings and net profit for the year include accumu- The translation reserve covers all exchange differences arising lated net profits of the Parent Company and its subsidiaries on the translation of the financial statements of foreign enti- and associates. ties which are presented in a currency other than the Group’s presentation currency. Share capital The Parent Company and Group present their financial state- In accordance with Nynas AB’s articles of association, share ments in Swedish kronor. capital shall amount to a minimum of SEK 52,000,000 and a maximum of SEK 208,000,000. All shares are fully paid and Hedging reserve carry equal voting power and an equal share in the Company’s The hedging reserve comprises the effective portion of the cumula- assets. Two classes of share are issued – A shares, maximum tive net change in the fair value of a cash flow hedging instrument SEK 103,999,000. and B shares, maximum SEK 104,001,000. attributable to hedged transactions that have not yet occurred. Share capital comprises SEK 33,765,000 in A shares and SEK 33,767,000 in B shares. The par value per share is SEK 1,000.

DISTRIBUTION OF SHARE CAPITAL 2014 2013

Change in total number of shares Opening number 67,532 67,532 Change during the year 0 0 CLOSING NUMBER 67,532 67,532

2014 2013 Number of Number of Class of share shares % shares %

Class A 33,765 50 33,765 50 Class B 33,767 50 33,767 50 TOTAL 67,532 100 67,532 100

A dividend is proposed by the Board in accordance with the amounted to SEK 3,425 million (3,218) at the end of the year. Swedish Companies Act and is adopted by the annual general The return on equity was 8 (-12) percent. meeting. The proposed, but not yet adopted, dividend for 2014 Nynas has defined a financial goal of securing long-term is SEK 0 (0) per share. Based on the number of shares at Decem- growth and maximising the value of its assets. The Board ber 31, 2014, this represents a total dividend of SEK 0 million. has given the Nynas management group scope for growth and development according to Nynas’s strategy by means of Capital management self-financing and payment of dividends to shareholders as The Group’s equity, which is defined as total recognised equity, adopted by the annual general meeting.

NYNAS ANNUAL REPORT 2014 85 NOTES

NOTE 22. PROVISIONS FOR PENSIONS

The Group’s employees, former employees and their survivors 2014 (as in 2013) the company did not have access to all infor- may be covered by defined contribution and defined benefit mation to be able to disclose their proportional share of the ob- plans relating to post-employment benefits. The defined bene- ligation of the plan, the plan assets and the cost of administra- fit plans cover retirement pension and survivors’ pension. tion, which result in that it has not been possible to account for For the defined contribution plans, continous payments to the plan as a defined benefit plan. The pension plan ITP2 which authority and to independent bodies is done therefore they is safeguarded through an insurance by Alecta is therefore take over the obligations towards the employees. accounted as a defined contribution plan. The premium for the The obligation reported in the balance sheet is derived from defined benefit age- and family pension is individual and cal- the defined benefit plans. The largest plans are in Sweden, the culated based on salary, earlier earned pension and expected United Kingdom, Belgium and Germany. The plans are covered remaining period of service. Expected fee for next reporting by a re-insured provision in the balance sheet and by pension period for ITP2 insurances that is effected in Alecta amount to benefit plans and funds. The calculations are based on the pro- SEK 7.4 million (7.3). jected unit credit method using the assumptions shown in the The collective consolidation level consist of the market value table on page 88. on the assets in Alecta, in percent of insurance obligations cal- Calculations of defined benefit plans have been done by an culated in accordance with the insurance technical methods and independent external actuary. assumptions by Alecta, which not correspond with IAS 19. The Nynas’s forecast payment of pensions in relation to defined collective consolidation level shall normally be allowed to vary benefit plans, both funded and unfunded, amounts to SEK between 125 and 155 percent. If the collective consolidation 36.3 million (35.8) for 2015. level in Alecta will be below 125 percent or exceed 155 per- The pension cost and other defined benefit remunerations is cent shall action be taken in purpose to make assumptions so to be find in the income statement under the headings Cost of the consolidation level will revert to the normal interval. At low Goods Sold SEK 32.1 million (31.5), sales cost SEK 19.9 million consolidation level one action can be to increase the agreed fee (19.7) and administration cost SEK 12.1 million (21.6). The inter- for new take out and / or increase of existing benefits. At high est part in the pension cost together with the part of the return consolidation level one action can be to implement premium on plan assets that not is accounted for in Other comprehen- reductions. At the end of the year, Alecta’s surplus, in the form sive income will be shown in the financial income/expenses. of a collective consolidation level, was 143 (148) percent.

Sweden UK Labourer comprise by the SAF / LO plan which is a defined The Nynas UK Pension Scheme is a career average defined contribution pension plan based on collective agreements and benefit plan which is a registered pension scheme under the is comprehended by several employers within several branches. Finance Act 2004. The Scheme operates under trust law and White-collar workers is comprises by the ITP plan, which also is is administered by the Trustees on behalf of the members in based on collective agreements and comprise several employers accordance with the terms of the Trust Deed and Rules and within several branches. The ITP plan have two parts, the ITP1, a relevant legislation. The Scheme´s assets are held by the trust. defined contribution pension plan which is valid for employees Annual increases on benefits in payment are dependent on born 1979 or later, as well as ITP2, a defined contribution pen- inflation so the main uncertainties affecting the level of benefits sion plan which is valid for employees born before 1979. The payable under the Scheme are future inflation levels (including major part of the ITP2 plan is managed by Nynas i their own the impact of inflation on future salary increases) and the actual management within the FPG / PRI system. The financing take longevity. place through a provision which is safeguarded by a credit in- The main risk the Company runs in respect of the Scheme surance in Försäkringsbolaget PRI Pension guarantee. One part is that additional contributions are required if the investment of the ITP2 plan is safeguarded through an insurance within returns are not sufficient to pay for the benefits (which will Alecta (see below). In Nynas AB, there is in excess of above be influenced by the factors mentioned above). The level of obligations other defined benefit obligations applied to indi- equity returns will be a key determinant of overall investment vidual pensions agreements to earlier employees and pensions return; the investment portfolio is also subject to a range of to senior executives. other risks typical of the asset classes held, in particular credit Some of the white-collar workers in Sweden is safeguarded risk on bonds. by the ITP2 plan defined benefit pension obligations for age- and family pension (alternative family pension) through an insurance by Alecta. According to a statement from Swedish Financial Reporting Board, UFR 3 the classification for ITP plans, which is financed by insurance by Alecta, is this a defined ben- efit plan that comprise several employers. For the financial year

86 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 22

REPORTED AS PROVISIONS FOR PENSIONS IN THE 2014 STATEMENT OF FINANCIAL POSITION Sweden UK Belgium Germany Total

Present value of funded obligations 55.8 864.7 50.6 – 971.0 Fair value of plan assets -76.1 -875.5 -49.5 – -1,001.2 Deficit/(surplus) of funded plans -20.4 -10.9 1.1 – -30.2 Present value of unfunded obligations 269.3 0.0 0.7 124.6 394.6 Total deficit/(surplus) in defined benefit plans 249.0 -10.9 1.7 124.6 364.4 Effects of minimum funding requirements/asset ceiling 0.0 3.6 0.0 0.0 3.6 NET LIABILITY RECOGNISED IN BALANCE SHEET 249.0 -7.2 1.7 124.6 368.1 Portion of pension liability recognised as 249.0 – 1.7 124.6 375.3 provisions for pensions Portion recognised as financial fixed asset 0.0 -7.2 – – -7.2

2013 Sweden UK Belgium Germany Total

Present value of funded obligations 53.7 691.8 55.0 – 800.4 Fair value of plan assets -82.5 -714.1 -44.9 – -841.6 Deficit/(surplus) of funded plans -28.8 -22.3 10.0 – -41.2 Present value of unfunded obligations 207.1 – 0.9 – 208.0 Total deficit/(surplus) in defined benefit plans 178.3 -22.3 10.9 – 166.9 Effects of minimum funding requirements/asset ceiling – 7.4 – – 7.4 NET LIABILITY RECOGNISED IN BALANCE SHEET 178.3 -14.9 10.9 – 174.3 Portion of pension liability recognised 207.1 – 10.9 – 218.0 as provisions for pensions Portion recognised as financial fixed asset -28.8 -14.9 – – -43.7

CHANGE IN PRESENT VALUE OF DEFINED BENEFIT OBLIGATION 2014 2013

Present value of defined benefit obligation at beginning of year 1,077.7 921.5 Current service cost 33.8 29.8 Interest cost/(credit) 46.4 37.7 (Gain)/loss on part service cost, curtailment and settlement -37.9 – Special payroll tax in income 3.5 3.7 (Gain)/loss on changes in demographic assumptions – 31.1 (Gain)/loss on changes in financial assumptions 150.5 15.9 Experience (gain)/loss 2.9 -0.4 Special payroll tax related to remeasurements 8.2 -7.0 Employee contributions 5.2 4.9 Benefits paid -32.1 -34.6 Payments of special payroll tax 0.2 -2.3 Exchange rate (gain)/loss 107.3 8.1 PRESENT VALUE OF DEFINED BENEFIT OBLIGATION AT END OF YEAR 1,365.6 1,008.4

COSTS RECOGNISED IN INCOME STATEMENT 2014 2013

Defined benefit pension plans: Current service cost 33.8 29.8 Interest cost/(credit) 8.8 5.5 (Gain)/loss on part service cost, curtailment and settlement -37.9 – Special payroll tax 3.5 3.8 Other 2.3 2.5 TOTAL COST OF DEFINED BENEFIT PAYMENTS 10.3 41.7 RECOGNISED IN INCOME STATEMENT Defined contribution pension plans: Costs for defined contribution plans 32.1 32.6 TOTAL PENSION EXPENSE RECOGNISED IN INCOME STATEMENT 42.4 74.3

NYNAS ANNUAL REPORT 2014 87 NOTES

> Cont. NOTE 22

EXPENSES RECOGNISED IN OTHER COMPREHENSIVE INCOME 2014 2013

Return on plan assets in excess of the amount -41.2 -58.1 included in interest cost/(credit) (Gain)/loss on changes in demographic assumptions – 31.1 (Gain)/loss on changes in financial assumptions 150.5 15.5 Experience (gain)/loss 2.9 -0.4 Change in assets ceiling in excess of the amount -4.5 -8.6 included in interest cost/(credit) Special payroll tax related to remeasurements 8.2 -7.0 TOTAL EXPENSES FOR DEFINED BENEFIT REMUNERATION 115.9 -27.5 RECOGNISED IN OTHER COMPREHENSIVE INCOME

The main actuarial assumptions used (in %) are as follows:

2014 2013 Sweden UK Belgium Germany Sweden UK Belgium Germany

Discount rate 2.8 3.8 2.3 2.3 4.1 4.4 3.5 3.7 Future salary 2.4 N/A 4.0 2.5 2.5 N/A 4.0 2.5 increases Future pension 1.4 3.1 2.0 1.8 1.8 3.4 2.0 1.8 increases Expected remain- 12.0 N/A 18.3 – 12.0 N/A 18.8 – ing service period

UK standard German UK standard German SAPS table Mortality SAPS table Mortality multiplied table multiplied table by 105% for Belgian Richttafeln by 105% Belgian Richttafeln Swedish men and Mortality Heubeck Swedish for men and Mortality Heubeck Life FFFS 108% for table 2005 G FFFS 108% for table 2005 G expectancy 2007:31 women MR/FR (statutory) 2007:31 women MR/FR (statutory)

Duration 18 20 16 32 17 20 17 –

CHANGE IN FAIR VALUE OF PLAN ASSETS DURING THE YEAR 2014 2013

Fair value of plan assets at beginning of year 841.6 749.6 Interest cost/(credit) 37.6 33.2 Return on plan assets in excess of the amount included in interest cost/(credit) 41.2 58.1 Administrative costs -2.3 -2.1 Employer contributions 14.9 19.8 Employee contributions 5.2 4.9 Benefits paid -40.2 -30.4 Exchange rate (gain)/loss 103.2 8.4 FAIR VALUE AT END OF YEAR 1,001.2 841.6

PLAN ASSETS 2014 2013

Shares and participating interests 559.3 465.6 Interest-bearing securities 325.3 263.0 Property Sweden 7.5 6.9 Insurance 49.5 – Cash and cash equivalents, bank deposit 59.5 61.1 FAIR VALUE OF PLAN ASSETS 1,001.2 796.6

Plan assets do not include any securities issued by Nynas AB or assets used by Nynas AB.

88 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 22

CHANGE OF ASSET CEILING 2014 2013

Opening balance, asset ceiling 7.4 14.7 Interest cost/(credit) 0.0 -2.2 Change in asset ceiling, other than Interest cost/(credit) -4.5 -5.3 Exchange rate (gain)/loss 0.7 0.3 Closing balance, asset ceiling 3.6 7.4

ACTUAL RETURN 2014 2013

Actual return on plan assets 78.8 91.4

SENSITIVITY ANALYSIS IMPACT OF THE BENEFIT OBLIGATION, 2014 (+Increase/-Decrease), country Sweden UK Belgium Germany Significant actuarial Present Sweden Present UK Present Belgium Present Germany assumptions Value % Value % Value % Value %

Discount rate +0.5% 294.6 -9 787.5 -9 46.9 -8 106.9 -14 Discount rate -0.5% 362.4 10 950.3 10 56.0 9 145.9 17 Life expectancy +1 year 341.8 5 891.2 3 0.0 0 127.3 2

Sensitivity analysis have been done on above actuarial changes between the assumptions, the estimations have not been taken since the Group consider that the changes can have major this into consideration. impact on the benefit obligation. The assumption of a decrease in life expectancy is seen as Further more it is very most likely that the changes of the limit and therefore it has not been estimated int he sensitivity assumptions occures. Estimations have been done by analys- analysis. ing every changes separately. If there should be any relation

NOTE 23. OTHER PROVISIONS

Provision for Provision environmental Provision for for other obligation restructuring obligations Total

Balance at 31 December 2013 254.8 49.6 – 304.4 Provisions made during the year 10.5 135.6 256.4 402.5 Provisions used during the year -4.0 -21.1 – -25.1 Unutilised provision reversed during the year – -6.9 – -6.9 Translation differences 0.2 8.9 7.6 16.8 Balance at 31 December 2014 261.5 166.1 264.1 691.7 of which current 11.6 166.1 262.6 440.3 of which non-current 249.9 – 1.5 251.4

Provision for restructuring ronmental remediation measures related to the Group’s sites, A provision for restructuring is recognised when the Group mainly in Sweden (Nynäshamn, Gothenburg), Wandre in Belgium, has approved a detailed and formal restructuring plan and the Köge in Denmark and Dundee in Scotland. restructuring has either commenced or has been announced The provision for Sweden is a contingent liability as defined publicly. Future operating costs are not provided for. The pro- in Chapter 10 of the Swedish Environmental Code, and relates vision made during 2014 relates mainly to the closing of Nynas to after-treatment costs for pollution resulting from refining NV and its Continental bitumen business. and depot operations. The provision in Nynäshamn consists of three parts – the Land Farm (SEK 22 million), Lagoon/Catch Other provisions basins (SEK 23 million) and J3/J4 (SEK 246 million). Other provisions include provisions for onerous contract within the scope of Nynas AB operations in Belgium of SEK 21 million The Land Farm the other part relates to the take over of the Harburg refinery, Remediation of the Land Farm area was completed at December committed consideration but not paid and to its amount still 31, 2010. Final covering of the permanent land fill is dependent preliminary and subject to fulfilment of terms and conditions by on subsidence in the area, but is expected to take place in 2016. the parties. The final cost of remediation was approximately SEK 151 mil- lion at December 31, 2013. The remaining cost for covering the Environmental related provisions land fill has been estimated at SEK 22 million. Environmental related provisions include provisions for envi-

NYNAS ANNUAL REPORT 2014 89 NOTES

> Cont. NOTE 23 Lagoon/Catch basins Remediation of the contaminated sediments in the lagoon To ensure a good working environment during removal of the and catch basins are planned to be completed in 2025. The materials, they are stabilised using a limestone vibration tech- sediments will be treated in the same treatment plant as the nique. They are then dug up using conventional methods and acid tar in J3/J4 using a combination of micro-organisms processed by adding water to form a liquid mixture. The mix- (archaea and bacteria). Remediation costs were calculated at ture is then treated biologically with archaea and bacteria. Over SEK 26 million partly by an external party, excluding costs for 90 percent of the organic contaminants are decomposed into the construction of the treatment plant. carbon dioxide and water. Remediation of J3/J4 is planned to be completed in 2025. The cost of remediation has been partly J3/J4 calculated by an external party at approx. SEK 246 million. The J3 and J4 areas contain acid tar. Similar materials are also found Other environment-related activities at Nynäshamn, Gothenburg,­ at a number of old refineries in Europe and around the world. They Dundee and terminals. See the environment section on page 26–31. are difficult to deal with due to their high acid content. The estab- Environment liabilities or other environment-related mea- lished method involves collection, neutralisation and transportation sures will be made as costs for planned measures become con- for disposal. The method is not problem-free, as, even after pro- crete and are quantified. cessing, the materials are unlikely to be released from regulatory All costs associated with the remediation project have been control. Incineration of the materials has been approved by the calculated using the present value method. Land and Environment Supreme Court.

NOTE 24. LIABILITIES TO CREDIT INSTITUTIONS

Nynas launched a corporate bond in 2014 in the Nordic bond A private placement bond from US investors was issued in Sep- market, borrowing 650 million SEK over a four-year period, with tember 2006. The outstanding bond total is USD 50 million the main purpose of replacing a USD 90 million private place- with a fixed-rate period of 10 years, that has been swapped ment bond. The bond is listed on Nasdaq Stockholm. to a fixed SEK interest rate. Currency interest rate swaps have In November 2011, a syndicated stand-by credit line of EUR 750 terms that exactly match the bonds’ maturities. million was arranged. The term of the credit facility is five years.

LONG-TERM LIABILITIES 2014 2013

Loans from credit institutions 3,935.0 3,500.2 TOTAL 3,935.0 3,500.2

CURRENT LIABILITIES Loans from credit institutions – 644.6 Overdraft facilities 16.2 24.4 TOTAL 16.2 669.0

GRAND TOTAL 3,951.2 4,169.2

Nominal Recognised 2014 amount amounts LONG-TERM LIABILITIES Description (local in SEK Year issued/maturity of loan Interest, % Currency currency) million

Variable-rate loans 2006/2016 Bond issue 3.92 USD 50.0 465.0 2014/2018 Bond issue 7.76 SEK 650.0 638.3 2011/2016 Stand-by credit line (€ 750) 3.30 EUR 70.0 647.8 2011/2016 Stand-by credit line (€ 750) 3.09 EUR 65.0 604.0 2011/2016 Stand-by credit line (€ 750) 3.15 EUR 40.0 372.5 2011/2016 Stand-by credit line (€ 750) 3.05 EUR 50.0 463.2 2011/2016 Stand-by credit line (€ 750) 3.15 EUR 50.0 463.2 2011/2016 Stand-by credit line (€ 750) 3.43 EUR 32.0 281.1 TOTAL 3,935.0

CURRENT LIABILITIES Year issued/maturity

Variable-rate loans 2013/2014 Overdraft 16.2 TOTAL 16.2

90 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 24

Nominal 2013 amount Recognised LONG-TERM LIABILITIES Description (local amounts in Year issued/maturity of loan Interest, % Currency currency) SEK million

Variable-rate loans 2006/2016 Bond issue 3.92 USD 50.0 358.2 2011/2016 Stand-by credit line (€ 750) 3.64 EUR 27.0 217.8 2011/2016 Stand-by credit line (€ 750) 3.22 EUR 35.0 305.5 2011/2016 Stand-by credit line (€ 750) 3.33 EUR 40.0 349.2 2011/2016 Stand-by credit line (€ 750) 3.25 EUR 40.0 349.2 2011/2016 Stand-by credit line (€ 750) 3.20 EUR 50.0 436.5 2011/2016 Stand-by credit line (€ 750) 3.34 EUR 85.0 741.9 2011/2016 Stand-by credit line (€ 750) 3.34 EUR 85.0 741.9 TOTAL 3,500.2

CURRENT LIABILITIES Year issued/maturity

Variable-rate loans 2006/2014 Bond issue 2.3 USD 90.0 644.6 2013/2014 Bank loans 8.0 RUB 12.0 2.3 2013/2014 Overdraft 22.1 TOTAL 669.0

MATURITY OF EXTERNAL INTEREST-BEARING LIABILITIES AT 31 DEC 2014

2015-12-31 16.2 2016 and thereafter 3,935.0 TOTAL 3,951.2

MATURITY OF EXTERNAL INTEREST-BEARING LIABILITIES AT 31 DEC 2013

2014-10-17 669.0 2015 and thereafter 3,500.2 TOTAL 4,169.2

THE GROUP HAS THE FOLLOWING UNUSED CREDIT FACILITIES: 2014 2013

Variable interest Uncommitted 602.6 473.8 Committed – expires within one year 0.0 0.0 – expires after one year 3,691.4 2,994.4 TOTAL 4,294.0 3,468.2

NOTE 25. ACCRUED LIABILITIES AND DEFERRED INCOME

2014 2013

Purchases of raw materials, semi-finished and finished goods 851.4 16.4 Accrued salaries/holiday pay 121.2 94.2 Accrued interest 28.2 34.0 Shipping costs 55.6 64.9 Discounts 1.7 8.9 Accrued investment costs 37.8 37.7 Other 227.4 128.7 TOTAL 1,323.2 384.9

NYNAS ANNUAL REPORT 2014 91 NOTES

NOTE 26. FINANCIAL ASSETS AND LIABILITIES

Financial assets and liabilities in the statement of financial posi- Measurement of fair value tion are measured at fair value, apart from loans and receivables Listed holdings and other financial liabilities not designated as hedged items. The fair value of instruments quoted in an active market is mea- Loans and receivables and other financial liabilities not designat- sured on the basis of the price of the holdings at the reporting date. ed as hedged items, are measured at amortised cost. Fair value disclosures are not required when the carrying Derivative instruments amount is an acceptable approximation of the fair value. This The fair value of foreign exchange contracts and oil contracts applies to other items in the categories loans and receivables is measured on the basis of quoted prices where available. If and other financial liabilities. quoted prices are not available, the fair value is measured by The Group’s long-term bond issues, nominal value USD 50 discounting the difference between the contracted forward million, carry fixed USD interest rates. However, this loan has rate and the forward rate that can be subscribed for on the been hedged with currency interest rate swap to a fixed SEK reporting date for the remaining contract period. This is done interest rate. The loan is included in hedge accounting, with using the risk-free rate of interest based on government bonds. cash flow hedging. The carrying amount and fair value amount The fair value of interest rate swaps is measured by discount- to SEK 465.2 million (1,002.8 ). The Group’s other long-term ing the estimated future cash flows according to the contract’s credit liabilities carry variable interest rates. Accordingly, the conditions and due dates based on the market rate. fair value corresponds to the carrying amount. Interest-bearing liabilities Fair value measurement The fair value is measured by discounting future cash flows of Fair value is determined based on a three-level hierarchy. principal and interest using the current market interest rate for Level 1 is based on quoted prices in active markets for iden- the remaining term. tical assets or liabilities. Level 2 is based on inputs other than quoted prices included Current receivables and liabilities in level 1 that are observable for the asset or liability, either For current receivables and liabilities with a remaining term of directly or indirectly. less than 12 months, the carrying amount is considered to rep- Level 3 is based on inputs for the asset or liability that are not resent a reasonable approximation of the fair value. Current based on observable market data. receivables and liabilities with a term of more than 12 months For Nynas, all financial instruments are measured according are discounted when the fair value is measured. to Level 2. The fair values and carrying amounts of financial assets and liabilities are shown in the table:

Derivatives Non- used in Derivatives Loans Other Total financial Total hedge held for and financial carrying assets and balance Fair 2014 accounting trading receivables liabilities amount liabilities sheet value

Long-term derivatives 37.5 – – – – – 37.5 37.5 Account receivablesre- – – 1,593.1 – 1,593.1 – 1,593.1 1,593.1 ceivables Short-term derivatives 0.0 688.7 – – 688.7 – 688.7 688.7 Other current – – – – 0.0 275.1 275.1 275.1 receivables Prepaid expenses and – – – – 0.0 218.3 218.3 218.3 accrued income Cash and cash – – 898.0 – 898.0 – 898.0 898.0 equivalents FINANCIAL ASSETS 37.5 688.7 2,491.1 0.0 3,217.3 493.4 3,710.7 3,710.7

Long-term liabilities to – – – 3,935.0 3,935.0 – 3,935.0 3,935.0 credit institutions Short-term liabilities to – – – 16.2 16.2 – 16.2 16.2 credit institutions Accounts payable – – – 679.4 679.4 – 679.4 679.4 Joint venture liabilities – – – 18.8 18.8 – 18.8 18.8 Long-term derivatives – 35.3 – – 35.3 – 35.3 35.3 Short-term derivatives 38.9 208.2 – – 247.1 – 247.1 247.1 Other current liabilities – – – – 0.0 373.8 373.8 373.8 Accrued liabilities and – – – – 0.0 1,323.2 1,323.2 1,323.2 deferred income FINANCIAL LIABILITIES 38.9 243.5 0.0 4,649.4 4,931.8 1,697.0 6,628.8 6,628.8

92 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 26

Derivatives Non- used in Derivatives Loans Other Total financial Total hedge held for and financial carrying assets and balance Fair 2013 accounting trading receivables liabilities amount liabilities sheet value

Accounts receivable – – 1,574.8 – 1,574.8 – 1,574.8 1,574.8 Short-term derivatives 13.4 33.8 – – 47.1 – 47.1 47.1 Other current receivables – – – – – 147.0 147.0 147.0 Prepaid expenses and accrued income – – – – – 109.1 109.1 109.1 Cash and cash equivalents – – 937.6 – 937.6 – 937.6 937.6 FINANCIAL ASSETS 13.4 33.8 2,512.5 0.0 2,559.6 256.1 2,815.7 2,815.7

Long-term liabilities to credit institutions – – – 3,500.2 3,500.2 – 3,500.2 3,500.2 Short-term liabilities to credit institutions – – – 669.0 669.0 – 669.0 669.0 Accounts payable – – – 693.1 693.1 – 693.1 693.1 Joint venture liabilities – – – 12.6 12.6 – 12.6 12.6 Long-term derivatives 76.6 – – – 76.6 – 76.6 76.6 Short-term derivatives 29.0 50.8 – – 79.8 – 79.8 79.8 Other current liabilities – – – – – 117.2 117.2 117.2 Accrued liabilities and deferred income – – – – – 384.9 384.9 384.9 FINANCIAL LIABILITIES 105.6 50.8 0,0 4,874.9 5,031.4 502.1 5,533.5 5,533.5

NOTE 27. FINANCIAL RISK MANAGEMENT, SUPPLEMENTARY INFORMATION

MARKET VALUATION OF DERIVATIVE FINANCIAL INSTRUMENTS (NET VALUES) 2014 2013

Interest rate swaps -23.1 -92.2 Currency swaps -112.4 0.4 Oil price swaps 579.2 -17.4 TOTAL DERIVATIVE ASSETS AND LIABILITIES 443.7 -109.3

NOMINAL VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate instruments Interest rate swaps Maturity of less than 1 year 1,800.0 1,555.8 Maturity of 2–4 years 2,514.4 864.4 Maturity of 5 or more years – – TOTAL 4,314.4 2,420.2

Currency instruments Forward exchange contracts -124.2 605,6* TOTAL -124.2 605,6

Commodity instruments Oil price swaps -1,571.5 -1,140.3 TOTAL -1,571.5 -1,140.3

* The figure for 2013 has been corrected.

NYNAS ANNUAL REPORT 2014 93 NOTES

NOTE 28. PLEDGED ASSETS AND CONTINGENCIES

2014 2013

FLOATING CHARGES Security for liabilities to credit institutions 0.0 0.0 TOTAL 0.0 0.0

Guarantees 430.2 148.9 Other guarantees and contingent liabilities 3.0 2.9 TOTAL 433.2 151.8

Disputes A future closure of operations within the Group may involve a Nynas UK AB received a decision from the Swedish Tax Author- requirement for decontamination and restoration works. How- ity 1 th December 2014 that pensions payments made to Nynas ever, this is considered to be well into the future and the future UK Pension Scheme during financial year 2008 don´t qualify as expenses cannot be calculated reliably. pension cost and cannot be seen as tax deductible. The deci- sion is appealed to a Swedish Administrative Court.

NOTE 29. RELATED PARTY DISCLOSURES

Information on remuneration of the Board and key manage- from PDVSA. Crude oil and base oil prices are governed by ment personnel can be found in note 5. formula based multi-year supply contracts. Petroleos the Venezuela S.A. (PDVSA) is the ultimate Prices reflect the prices that would be charged under a con- owner of 50 percent of the shares in Nynas AB. The Nynas tract with a non-related party. Group purchases approx. 84 percent of its crude oil volumes

2014 2013

Purchases, crude 8,088.0 7,906.5 Purchases, base oils 450.4 568.8 Sales revenue -0.4 20.9 Accounts receivable 19.3 22.0 Accounts payable 16.2 36.3

Neste Oil Oyj (Neste Oil) is the ultimate owner of 50 per- and services to Neste. All transactions are conducted at current cent of the shares in Nynas AB. The Nynas Group purchases market prices. bitumen and other oil products from Neste Oil. Nynas sells fuel

2014 2013

Purchases, bitumen 1,062.2 999.6 Purchases, base oils 98.0 66.0 Purchases, fuel/distillates 7.2 7.5 Purchases, leasing/services 41.5 26.7 Sales revenue 676.2 636.8 Accounts receivable 30.6 52.7 Accounts payable 7.5 9.7

Nynas UK AB purchases bitumen and distillates from Eastham From 1 of January, ERL acts as a tolling unit and the ownership Refinery Ltd (ERL) (50 percent of ERL’s total production). The of crude, bitumen and destillates remains within Nynas UK AB. purchase price for bitumen reflects the price that would be Nynas UK AB pays a tolling fee to ERL for this service based on charged under a term contract with an established bitumen re- a contractual price. Nynas UK AB also provides administration finer in North West Europe; prices for distillate products reflect and weighbridge operation services to ERL, which are charged the FOB prices for similar products delivered in bulk to non-re- at cost. lated customers in North West Europe (ARA area).

NYNAS UK AB 2014 2013

Purchases, leasing/services 157.3 135.7 Service revenue 3.6 3.0 Accounts receivable 0.6 0.3 Accounts payable 18.8 14.2

94 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 30. SUPPLEMENTARY INFORMATION TO THE CASH FLOW STATEMENT

2014 2013

Share of profit/loss of associates -22.9 -19.9 Dividends associates 16.4 – Depreciation and impairment of assets 388.8 456.6 Unrealised exchange differences and oil forward contracts -133.8 -36.1 Provisions for pensions – 9.0 Other provisions 129.4 43.7 TOTAL 378.0 453.3

NOTE 31. ACQUISITION AND DIVESTMENT OF OPERATIONS

Harburg Refinery Nynas has entered into an agreement with Shell to acquire transferred to Nynas (approx. 80 employees). Nynas made a majority of the Harburg refinery by way of an asset trans- cash payment of SEK 67 million at January 1, 2014 and then fer agreement. The project is significant improving Nynas further SEK 45 million during the year in relation to an amount production footprint in terms of quantity and quality for of products sold. our NSP (naphthenics specialty products) and bitumen busi- The takeover of the northern part is preliminary scheduled to ness. During 2014 total production out of Harburg Refinery take place on January 1, 2016, subject to fulfilment of terms and amounts to 396 ktonnes. conditions by the parties, if conditions being fulfilled payment of The scope of the transfer comprises two phases. Phase 1 the main remaining part will be performed. covers the sale of the southern section, Base Oil Manufac- turing Plant (BOMP). Phase 2 covers the sale of the north- Acquisitions-related expenses ern part of the refinery. The takeover of the southern section Acquisitions-related expenses amounted to EUR 6.8 million took place on January 1, 2014. At this time Nynas took full and relates to consultant fees in conjunction with mainly control and responsibility for the operations of the BOMP. At due diligence work. These expenses were recognised under the takeover all relevant Shell staff working at the BOMP was operating result.

Harburg Harburg Harburg PROFORMA 31 of December 2014, SEK million Refinery – South 1) Refinery – North 2) Refinery

COST OF COMBINATION Cash consideration 112 – 112 Commitment consideration 241 109 350 TOTAL COST OF COMBINATION 353 109 462

FAIR VALUE OF NET ASSETS ACQUIRED Property, plant and equipment 415 244 659 Deferred tax assets 15 – 15 Total assets acquired 430 244 674 Provisions for pensions -77 -135 -212 Total liabilities assumed -77 -135 -212

TOTAL FAIR VALUE OF NET ASSETS ACQUIRED 353 109 462 Goodwill – – –

1) Acquired on January 1, 2014. 2) Expected acquire date January 1, 2016.

NOTE 32. EVENTS AFTER THE REPORTING DATE

No important events has taken place after the reporting period.

NYNAS ANNUAL REPORT 2014 95 NOTES

NOTES TO THE FINANCIAL STATEMENTS – PARENT COMPANY

NOTE 33. INFORMATION BY GEOGRAPHICAL MARKET AND SALES REVENUES BY CATEGORY

SALES REVENUES BY GEOGRAPHICAL MARKET 2014 2013

Nordic Region 4,358.3 4,308.0 Europe 10,643.8 7,697.4 Americas 1,242.2 998.8 Other 2,157.0 2,457.4 TOTAL 18,401.3 14,799.6

PURCHASES AND SALES GROUP COMPANIES

Purchases, % 4 15 Sales, % 52 55

NOTE 34. COSTS ITEMISED BY NATURE OF EXPENSE

2014 2013

Raw materials 15,302.9 12,564.0 Transport and distribution costs 1,172.6 1,095.6 Manufacturing expenses 1,406.3 969.4 Costs for employee benefits (note 36) 415.5 426.1 Depreciation, amortisation, impairment (notes 43, 44) -323.1 -341.4 Other income and value changes -509.7 14.0 Other expenses 508.3 411.7 TOTAL 17,972.8 15,139.3

During 2014 (2013) no realised gains and losses from cash flow Other income and value changes consists of unrealised gains hedges (oil) were re-classified to raw materials in the Income and losses from oil and currency derivatives of 509.7 (-14.0) statement.

NOTE 35. OTHER OPERATING INCOME/EXPENSES

2014 2013

OTHER OPERATING INCOME Exchange gains on operating receivables/liabilities 308.0 132.9 Insurance compensation – 10.9 Other service revenue 24.2 28.5 TOTAL 332.2 172.3

OTHER OPERATING EXPENSES Costs related to fire in Nynäshamn – 10.9 Exchange losses on operating receivables/liabilities -203.6 164.2 TOTAL -203.6 175.1

96 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 36. EMPLOYEES, PERSONNEL EXPENSES AND REMUNERATION OF SENIOR EXECUTIVES

The average number of employees, with wages, salaries, other remuneration, social security contributions and pension costs is shown in the tables below. 2014 2013 AVERAGE NUMBER OF EMPLOYEES Men Women Total Men Women Total

PARENT Sweden 303 134 437 316 137 453 TOTAL PARENT 303 134 437 316 137 453

Senior Senior WAGES, SALARIES AND SOCIAL Executives Other Executives Other SECURITY CONTRIBUTIONS (7 individuals) Employees Total (7 individuals) Employees Total

PARENT Sweden Salaries and other benefits 18.1 265.7 283.8 15.6 264.8 280.4 (of which bonuses) 0.6 12.7 13.3 0.8 4.0 4.8 Social security contributions 13.2 118.5 131.6 14.7 131.1 145.7 (of which pension costs) 7.5 25.3 32.7 9.8 38.0 47.8 TOTAL PARENT 31.3 384.2 415.5 30.2 395.9 426.1

GENDER DISTRIBUTION IN MANAGEMENT PARENT 2014 2013

Board, female rep., % 0,0 0.0 Executive Board, female rep., % 12.5 14.3

NOTE 37. DEPRECIATION AND AMORTISATION OF TANGIBLE AND INTANGIBLE ASSETS

Intangible Tangible DEPRECIATION AND AMORTISATION BY FUNCTION 2014 2013 2014 2013

Cost of sales 4.1 5.5 278.1 290.4 Distribution costs 0.2 0.8 14.1 14.8 Administrative expenses 20.5 22.6 6.1 7.3 TOTAL 24.9 28.9 298.3 312.5

DEPRECIATION AND AMORTISATION BY TYPE OF ASSET 2014 2013

Computer software 24.9 28.9 Buildings 7.7 7.5 Land improvements 5.8 3.7 Plant and machinery 270.4 280.2 Equipment 14.4 21.0 TOTAL 323.1 341.3

Difference between recognised depreciation and regular depreciation: -282.1 -330.2 TOTAL RECOGNISED DEPRECIATION 41.1 11.2

NYNAS ANNUAL REPORT 2014 97 NOTES

NOTE 38. AUDITORS’ FEES AND OTHER REMUNERATION

AUDIT FEES 2014 2013

Ernst & Young AB Annual audit 2.7 2.7 Other audit services 0.6 0.5 Other auditors Other audit services 0.8 0.6

NOTE 39. FEES FOR OPERATING LEASES

PAYMENTS UNDER NON-CANCELLABLE OPERATING LEASES 2014 2013

Payments during the financial year 217.4 202.4

Agreed future payments Within one year 209.0 194.3 2–5 years 383.0 383.1 6 years and thereafter 229.2 187.8

In 2014 Nynas AB had four bitumen carriers on bareboat charters and two special oil carriers on time charters. The Parent Company does not have any material agreements classified as finance leases.

NOTE 40. NET FINANCIAL ITEMS

2014 2013

Interest income, bank deposits 1 35.3 51.5 Interest income, derivative instruments (actual interest rates and changes in value) 50.6 46.5 Dividends from Group companies 242.3 315.7 Total finance income 328.2 413.7

Of which total interest income attributable to items carried at amortised cost 35.3 51.5

Interest expense, loans and bank overdrafts 2 -201.7 -205.4 Interest expense, derivative instruments (actual interest rates and changes in value) -72.6 -21.5 Interest expense, pri pension obligations -8.5 -5.7 Net exchange differences -191.9 -7.3 Impairment of shares in subsidiary -31.4 -45.5 Other finance costs -87.1 -78.1 Total finance costs -593.2 -363.6

Of which total interest expense attributable to items carried at amortised cost -210.1 -211.1 Total net financial items -265.0 50.1

1) Parent’s interest income from Group companies is 31.3 (37.6) 2) Parent’s interest expense from Group companies is -5.2 (-7.7)

98 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 41. APPROPRIATIONS

APPROPRIATIONS 2014 2013

Change in obsolescence reserve 64.1 9.0 Difference between recognised depreciation and regular depreciation 281.6 330.2 Change in tax allocation reserve – – TOTAL 345.7 339.2

Untaxed reserves Accumulated accelerated depreciation 618.7 900.8 Inventory obsolescence reserve – 64.1 Total 618.7 964.9

NOTE 42. TAXES

2014 2013

Current tax – – Current tax, prior years -1.7 -2.2 Deferred tax -93.8 49.6 TOTAL -95.5 47.4

Tax on the Group’s profit before tax differs from the theoretical figure that would have resulted from a weighted average rate for the results in the consolidated companies as follows: 2014 2013

Result before tax 637.8 46.8 Tax according to Parent Company’s applicable tax rate -140.3 -10.3 Tax effect of: Dividends from subsidiaries 53.3 69.5 Impairment of shares in subsidiary -6.9 -10.1 Other non-deductible expenses -3.6 -1.4 Other non-taxable income 0.0 0.5 Adjustment of current tax in respect of prior years -1.7 -2.2 Other 3.7 1.3 Recognised tax expense -95.5 47.3

Standard rate of income tax, % 22 22 Effective tax rate, % 15 -101

DEFERRED TAX ASSETS Assets Liabilities Net AND LIABILITIES 2014 2013 2014 2013 2014 2013

Other operating receivables/liabilities 90.2 46.1 145.0 0.3 -54.8 45.8 Tax loss carryforwards 50.8 41.5 – – 50.8 41.5 TOTAL 141.0 87.6 145.0 0.3 -4.0 87.3

Recognised Recognised CHANGE IN DEFERRED TAX ON TEMPORARY Opening in income directly in Exchange Closing DIFFERENCES DURING YEAR balance statement equity differences balance

Other operating receivables/liabilities 45.8 -103.0 2.4 – -54.8 Tax loss carryforwards 41.5 9.3 – – 50.8 TOTAL 87.3 -93.7 2.4 – -4.0

Tax losses in the parent company are from fiscal year 2013 and 2014.

NYNAS ANNUAL REPORT 2014 99 NOTES

NOTE 43. INTANGIBLE ASSETS

Other Total Computer intang. assets/ Intangible 2014 Goodwill software Trademarks assets

Opening cost 14.2 357.3 1.5 373.0 Acquisitions – 3.8 – 3.8 Reclassifications – 4.4 – 4.4 Closing cost 14.2 365.4 1.5 381.1

Opening regular depreciation -10.9 -267.1 -1.5 -279.5 Depreciation for the year – -24.9 – -24.9 Closing regular depreciation -10.9 -291.9 -1.5 -304.3

Opening impairment -3.3 -26.7 0.0 -30.0 Closing impairment -3.3 -26.7 0.0 -30.0

Closing residual value 0.0 46.8 0.0 46.8

Other Total Computer intang. assets/ Intangible 2013 Goodwill software Trademarks assets

Opening cost 14.2 345.5 1.5 361.2 Acquisitions – 0.1 – 0.1 Reclassifications – 11.6 – 11.6 Closing cost 14.2 357.3 1.5 373.0

Opening regular depreciation -10.9 -238.1 -1.5 -250.5 Depreciation for the year – -28.9 – -28.9 Closing regular depreciation -10.9 -267.1 -1.5 -279.5

Opening impairment -3.3 -26.7 0.0 -30.0 Closing impairment -3.3 -26.7 0.0 -30.0

Closing residual value 0.0 63.5 0.0 63.5

NOTE 44. TANGIBLE ASSETS

Total Plant and Construction Tangible 2014 Buildings machinery Equipment in progress assets

Opening cost 316.6 5,440.9 374.8 266.5 6,398.9 Acquisitions 0.5 36.3 4.9 212.1 253.8 Reclassifications 46.8 11.8 -13.1 -49.9 -4.4 Closing cost 363.9 5,489.0 366.6 428.8 6,648.3

Opening regular depreciation -115.4 -2,796.3 -278.9 0.0 -3,190.6 Depreciation for the year -13.5 -270.4 -14.4 – -298.3 Closing regular depreciation -128.9 -3,066.7 -293.3 0.0 -3,488.9

Closing residual value 235.0 2,422.3 73.3 428.8 3,159.3

Opening impairment – -24.9 – -13.3 -38.2 Closing impairment 0.0 -24.9 0.0 -13.3 -38.2 Closing residual value 235.0 2,397.4 73.3 415.5 3,121.1 Of which carrying amount, Sweden 235.0

100 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 44 Total Plant and Construction Tangible 2013 Buildings machinery Equipment in progress assets

Opening cost 311.6 4,635.1 347.8 908.8 6,203.3 Acquisitions -0.6 8.4 0.9 198.4 207.2 Reclassifications 5.6 797.4 26.1 -840.7 -11.6 Closing cost 316.6 5,440.9 374.8 266.5 6,398.9

Opening regular depreciation -104.1 -2,516.0 -257.9 – -2,878.1 Depreciation for the year -11.3 -280.2 -21.0 – -312.5 Closing regular depreciation -115.4 -2,796.3 -278.9 0.0 -3 190.6

Closing residual value 201.2 2,644.6 95.9 266.5 3,208.2

Opening impairment – -24.9 – -13.3 -38.2 Closing impairment 0.0 -24.9 0.0 -13.3 -38.2 Closing residual value 201.2 2,619.7 95.9 253.2 3,170.0 Of which carrying amount, Sweden 201.2

Accumulated accelerated depreciation is accounted for under untaxed reserves in the Parent Company.

NOTE 45. SHARES IN GROUP COMPANIES

2014 2013

Opening cost 1,054.4 920.0 Purchases – 179.8 Write down -31.6 -45.5 Closing cost 1,022.7 1,054.2

List of Group Companies, see note 14.

NOTE 46. INVENTORIES

2014 2013

Raw materials 557.1 453.0 Semi-finished products 496.9 394.3 Finished products 1,499.2 1,290.2 TOTAL 2,553.1 2,137.4

Amounts relating to impairment losses on inventories are reported The price of oil fell sharply in the final quarter of 2014, this under costs of goods sold and are SEK 101.6 (0) million. meant that some of Nynas’s inventories have been remeasured Inventories are measured at the lower of costs, using the first at net realisable value. The write-down relates mainly to goods in/first-out method (FIFO), and net realisable value. for sale in the category fuel and bitumen.

NYNAS ANNUAL REPORT 2014 101 NOTES

NOTE 47. ACCOUNTS RECEIVABLE

2014 2013

Accounts receivable, not due 629.5 574.6 Provision for impairment of accounts receivable -2.7 -1.3 NOT DUE ACCOUNTS RECEIVABLE, NET 626.8 573.3

Age analysis of past due accounts receivable 0–90 days 92.4 107.2 91–180 days 3.6 5.4 Over 180 days 26.6 10.9 TOTAL OVERDUE ACCOUNTS RECEIVABLES 122.6 123.5

TOTAL ACCOUNTS RECEIVABLES 749.2 696.9

Factoring Account receivables losses The Parent company have applied factoring for a limit part of The Parent Company has recognised an impairment loss of SEK the invoicing. At year end 2014, the part used as Factoring is 2.7 million (1.3) on accounts receivable. The loss is reported approximately 5 percent. under distribution costs in the income statement.

NOTE 48. PREPAYMENTS AND ACCRUED INCOME

2014 2013

Rent 5.3 4.3 Charter hire 63.5 29.8 Pension premiums 5.7 6.3 Software licences 4.6 7.1 Other prepayments 32.1 10.4 TOTAL 111.2 57.9

NOTE 49. CASH AND CASH EQUIVALENTS

2014 2013

Cash and bank balances 670.3 609.7 Shells account – 80.5 Cash and cash equivalents recognised 670.3 690.2

The Parent Company’s cash and cash equivalents comprise its deposits in the Group’s common bank accounts and its own bank accounts.

NOTE 50. EQUITY

DISTRIBUTION OF SHARE CAPITAL 2014 2013

Change in total number of shares Opening number 67,532 67,532 Change during the year 0 0 CLOSING NUMBER 67,532 67,532

102 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 50

2014 2013 Number of Number of Class of share shares % shares %

Class A 33,765 50 33,765 50 Class B 33,767 50 33,767 50 TOTAL 67,532 100 67,532 100

Restricted reserves Restricted reserves may not be reduced by distribution of dividends. Retained earnings, net profit for the year and the fair value re- serve (if applicable) constitute total unrestricted equity, in other Unrestricted equity words the amount available for distribution to shareholders. Retained earnings comprises the previous year’s unrestricted equity after transfers to the statutory reserve and dividend payments.

NOTE 51. PROVISIONS FOR PENSIONS

The Parent Company’s employees, former employees and Company’s share in this plan, and the plan has been reported their survivors may be covered by defined contribution and as a defined contribution plan. In the Parent Company’s case, defined benefit plans relating to post-employment benefits. this relates to the ITP pension plan which is administered via The defined benefit plans cover retirement pension, survivor’s Collectum. However, the majority of the Swedish plan for sal- pension and healthcare. aried employees (ITP) is funded by pension provisions, which The obligation reported in the balance sheet is derived from are covered by credit insurance with Försäkringsbolaget Pen- the defined benefit plans. The plans are covered by a re-insured sionsgaranti (FPG) and managed by a Swedish multi-employer provision in the balance sheet and by pension benefit plans and institution, Pensionsregistreringsinstitutet (PRI). funds. The calculations are based on the projected unit credit The Parent Company’s forecast payment of pensions in relation to method using the assumptions shown in the table below. defined benefit plans, both funded and unfunded, amounts to SEK The rate used to discount should be determined by reference 13.0 million (12.2) for 2015. to market yields at the balance sheet date on high quality The Parent Company’s provisions for pensions mainly consist of corporate bonds. A premium for a longer duration have also ITP, and are covered via Försäkringsbolaget Pensionsgaranti (FPG) been added with basis in the pension obligation duration. or other insurance institutions. Payments have also been made Defined benefit pension plans are calculated by an independent to endowment insurance policies. The value of these insurance external actuary. policies at the end of the year was SEK 101.5 million (88.6), which In the case of a multi-employer defined benefit plan, suffi- corresponds to the value of the obligations. cient information cannot be obtained to calculate the Parent

RECONCILIATION OF REVISED PENSION LIABILITY 2014 2013

Present value of pension obligations, wholly or partly funded 0.0 0.2 Fair value of pension benefit plan assets 0.0 -13.4 Surplus in pension benefit plan 0.0 -13.3 Present value of obligations relating to unfunded pension plans 152.6 142.9 Unrecognised surplus in pension benefit plan 0.0 13.3 NET LIABILITY RECOGNISED 152.6 143.0

The amount allocated to the pension provision is calculated in or pension increases; instead, the calculation is based on the accordance with the Swedish Pension Obligations Vesting Act. salary or pension level on the reporting date. The discount rate This method differs from the IFRS project unit credit method, according to PRI is 5.8 percent (4.1). mainly in that it does not take into account expected salary

CHANGE IN NET DEBT 2014 2013

Net debt at beginning of year 142.9 135.8 Cost recognised in income statement 15.9 13.6 Pension payments -6.2 -6.4 NET DEBT AT END OF YEAR 152.6 142.9

Payments relating to defined benefit plans are expected to amount to SEK 6.3 million in 2015.

NYNAS ANNUAL REPORT 2014 103 NOTES

> Cont. NOTE 51

PENSION EXPENSE FOR THE PERIOD 2014 2013

Book reserve pensions 1.2 1.5 Interest expense (calc, discount effect) 8.5 5.7 COST OF BOOK RESERVE PENSIONS 9.7 7.2

Pensions through insurance: Insurance premiums 31.1 40.5 Recognised net cost arising from pensions excl. tax 40.8 47.7

Dividend tax on pension funds 0.4 0.3 Payroll tax on pension costs 10.5 10.4 PENSION EXPENSE FOR THE YEAR 51.7 58.4

Percentage return on pension benefit plan assets, % 0.0 1.7

Interest income is reported under net financial items, while other costs are reported under operating expenses.

FAIR VALUE OF PENSION BENEFIT PLAN ASSETS BY CLASS OF ASSET 2014 2013

Shares and participating interests – 8.7 Other interest-bearing securities – 3.7 Bank deposits – 0.9 Total 0.0 13.3

Pension benefit plan assets do not include any securities issued by Nynas AB or assets used by Nynas AB.

NOTE 52. OTHER PROVISIONS

Provision for Provision environmental Provision for for other obligation restructuring obligations Total

Balance at 31 December 2013 246.5 – – 246.5 Provisions during the year 8.2 18.5 21.5 48.2 Provisions used during the year -4.0 – – -4.0 Balance at 31 December 2014 250.7 18.5 21.5 290.7 of which current 11.4 18.5 21.5 51.4 of which non-current 239.3 – – 239.3

Provision for restructuring Environmental related provisions A provision for restructuring is recognised when the Group The provision for Sweden is a contingent liability as defined in has approved a detailed and formal restructuring plan and the Chapter 10 of the Swedish Environmental Code, and relates to restructuring has either commenced or has been announced after-treatment costs for pollution resulting from refining and publicly. Future operating costs are not provided for. The pro- depot operations. vision made during 2014 relates mainly to the Group internal The provision in Nynäshamn consists of three parts – the Land efficiency program. Farm (SEK 22 million), Lagoon/Catch basins (SEK 23 million) and J3/J4 (SEK 246 million), see note 23 for description. Other provisions All costs associated with the remediation project have been Other provisions include provisions for onerous contract within calculated using the present value method. the scope of Nynas AB operations in Belgium of SEK 21 million the other part relates to the take over of the Harburg refinery, committed consideration but not paid and to its amount still preliminary and subject to fulfilment of terms and conditions by the parties.

104 NYNAS ANNUAL REPORT 2014 NOTES

NOTE 53. LIABILITIES TO CREDIT INSTITUTIONS

Nynas launched a corporate bond in 2014 in the Nordic bond in September 2006. The outstanding loan total is USD 50 mil- market, borrowing SEK 650 million over a four-year period, with lion with a fixed-rate period of 10 years, swapped to a fixed the main purpose of replacining a USD 90 million private placing SEK interest rate. loan. The bond is listed on Nasdaq Stockholm. Currency interest rate swaps have terms that exactly match In November 2011, a syndicated stand-by credit line of EUR the bonds’ maturities. 750 million was arranged. The term of the credit facility is five years. A private placement bond from US investors was issued

2014 2013

LONG-TERM LIABILITIES Loans from credit institutions 3,935.0 3,500.2 TOTAL 3,935.0 3,500.2

CURRENT LIABILITIES Loans from credit institutions – 644.6 Overdraft facilities 13.8 2.3 TOTAL 13.8 646.9

GRAND TOTAL 3,948.8 4,147.1

2014 Nominal LONG-TERM LIABILITIES amount Recognised Description (local amounts in Year issued/maturity of loan Interest, % Currency currency) SEK million

Variable-rate loans 2006/2016 Bond issue 3.92 USD 50.0 465.0 2014/2018 Bond issue 7.76 SEK 650.0 638.3

2011/2016 Stand-by credit line (€ 750) 3.30 EUR 70.0 647.8 2011/2016 Stand-by credit line (€ 750) 3.09 EUR 65.0 604.0 2011/2016 Stand-by credit line (€ 750) 3.15 EUR 40.0 372.5 2011/2016 Stand-by credit line (€ 750) 3.05 EUR 50.0 463.2 2011/2016 Stand-by credit line (€ 750) 3.15 EUR 50.0 463.2 2011/2016 Stand-by credit line (€ 750) 3.43 EUR 32.0 281.1 TOTAL 3,935.0

CURRENT LIABILITIES Year issued/maturity Variable-rate loans 2013/2014 Overdraft 13.8 13.8

2013 Nominal LONG-TERM LIABILITIES amount Recognised Description (local amounts in Year issued/maturity of loan Interest, % Currency currency) SEK million

Variable-rate loans 2006/2016 Bond issue 3.92 USD 50.0 358.2

2011/2016 Stand-by credit line (€ 750) 3.64 EUR 27.0 217.8 2011/2016 Stand-by credit line (€ 750) 3.22 EUR 35.0 305.5 2011/2016 Stand-by credit line (€ 750) 3.33 EUR 40.0 349.2 2011/2016 Stand-by credit line (€ 750) 3.25 EUR 40.0 349.2 2011/2016 Stand-by credit line (€ 750) 3.20 EUR 50.0 436.5 2011/2016 Stand-by credit line (€ 750) 3.34 EUR 85.0 741.9 2011/2016 Stand-by credit line (€ 750) 3.34 EUR 85.0 741.9 TOTAL 3,500.2

NYNAS ANNUAL REPORT 2014 105 NOTES

> Cont. NOTE 53

CURRENT LIABILITIES Year issued/maturity Variable-rate loans 2006/2014 Bond issue 1.98 USD 90.0 644.6 2013/2014 Bank loans 8.0 RUB 12.0 2.3 2013/2014 Overdraft – 646.9

NOTE 54. ACCRUED LIABILITIES AND DEFERRED INCOME

2014 2013

Purchases of raw materials, semi-finished and finished goods 839.1 8.1 Accrued salaries/holiday pay 90.6 78.4 Accrued interest 28.2 34.0 Shipping costs 48.6 57.7 Accrued investment costs 36.9 37.3 Other 29.1 40.3 TOTAL 1,072.5 255.9

NOTE 55. FINANCIAL ASSETS AND LIABILITIES

See note 26 for a description of the measurement and calculation of fair value.

Derivatives Non- used in Derivatives Loans Other Total financial Total hedge held for and financial carrying assets and balance 2014 accounting trading receivables liabilities amount liabilities sheet Long-term derivatives 37.5 – – – 37.5 – 37.5 Account receivable – – 749.4 – 749.4 – 749.4 Receivables from Group – – 1,487.3 – 1,487.3 – 1,487.3 companies Short-term derivatives _ 688.7 – – 688.7 – 688.7 Other current receivables – – – – _ 39.5 39.5 Prepaid expenses and accrued – – – – _ 111.2 111.2 income Cash and cash equivalents – – 670.3 – 670.3 – 670.3 FINANCIAL ASSETS 37.5 688.7 2,907.0 _ 3,633.2 150,7 3,783.9

Long-term liabilities to credit – – – 3,935.0 3,935.0 – 3,935.0 institutions Short-term liabilities to credit – – – 13.8 13.8 – 13.8 institutions Long-term liabilities to Group – – – 0.2 0.2 – 0.2 companies Current i-b liabilities to Group – – – 950.8 950.8 – 950.8 companies Current non-i-b liabilities to – – – 281.2 281.2 – 281.2 Group companies Accounts payable – – – 442.2 442.2 – 442.2 Long-term derivatives – 35.3 – – 35.3 – 35.3 Short-term derivatives 38.9 208.2 – – 247.1 – 247.1 Other current liabilities – – – – - 275.7 275.7 Accrued liabilities and – – – – - 1,072.5 1,072.5 deferred income FINANCIAL LIABILITIES 38.9 243.5 – 5,623.3 5,905.7 1,348.2 7,253.9

106 NYNAS ANNUAL REPORT 2014 NOTES

> Cont. NOTE 55

Derivatives Non- used in Derivatives Loans Other Total financial Total hedge held for and financial carrying assets and balance 2013 accounting trading receivables liabilities amount liabilities sheet Accounts receivable – – 696.9 – 696.9 – 696.9 Receivables from Group – – 1,186.7 – 1,186.7 – 1,186.7 companies Short-term derivatives 13.4 33.8 – – 47.1 – 47.1 Other current receivables – – – – 0.0 78.7 78.7 Prepaid expenses and accrued – – – – 0.0 57.9 57.9 income Cash and cash equivalents – – 690.2 – 690.2 – 690.2 FINANCIAL ASSETS 13.4 33.8 2,573.8 0.0 2,621.0 136.6 2,757.5

Long-term liabilities to credit – – – 3,500.2 3,500.2 – 3,500.2 institutions Short-term liabilities to credit – – – 646.9 646.9 – 646.9 institutions Long-term liabilities to Group – – – 0.2 0.2 – 0.2 companies Current i-b liabilities to Group – – – 1,015.2 1,015.2 – 1,015.2 companies Current non-i-b liabilities to – – – 106.0 106.0 – 106.0 Group companies Accounts payable – – – 536.1 536.1 – 536.1 Long-term derivatives 76.6 – – – 76.6 – 76.6 Short-term derivatives 29.0 50.8 – – 79.8 – 79.8 Other current liabilities – – – – 0.0 26.1 26.1 Accrued liabilities and – – – – 0.0 255.9 255.9 deferred income FINANCIAL LIABILITIES 105.6 50.8 – 5,804.6 5,961.0 282.0 6,243.0

NOTE 56. PLEDGED ASSETS AND CONTINGENCIES

2014 2013

FLOATING CHARGES

Security for liabilities to credit institutions – – TOTAL 0.0 0.0

Sureties for Group companies 23.0 41.7 Guarantees 351.2 43.6 Other guarantees and contingent liabilities 3.0 2.9 TOTAL 377.2 88.1

A future closure of operations within the Group may involve a requirement for decontamination and restoration works. How- ever, this is considered to be well into the future and the future expenses cannot be calculated reliably.

NYNAS ANNUAL REPORT 2014 107 NOTES

NOTE 57. RELATED PARTY DISCLOSURES Information on remuneration of the Board and key manage- purchases approx. 84 percent of its crude oil volumes from ment personnel can be found in note 5. PDVSA. Crude oil and base oil prices are governed by formula Petroleos the Venezuela S.A. (PDVSA) is the ultimate based multi-year supply contracts. Prices reflect the prices that owner of 50 percent of the shares in Nynas AB. The Nynas Group would be charged under a contract with a non-related party.

2014 2013

Purchases, crude 8,088.0 7,906.5

Purchases, base oils 450.4 568.8 Sales revenue -0.4 20.9 Accounts receivable 19.3 22.0 Accounts payable 16.2 36.3

Neste Oil Oyj (Neste Oil) is the ultimate owner of 50 per- and services to Neste. All transactions are conducted at current cent of the shares in Nynas AB. The Nynas Group purchases market prices. bitumen and other oil products from Neste Oil. Nynas sells fuel

2014 2013

Purchases, bitumen 231.9 141.0

Purchases, base oils 98.0 66.0 Purchases, fuel/distillates 7.2 7.5 Purchases, leasing/services 23.1 8.6 Sales revenue 676.2 636.8 Accounts receivable 30.6 52.7 Accounts payable 7.0 7.4

NOTE 58. SUPPLEMENTARY INFORMATION TO THE CASH FLOW STATEMENT

2014 2013

Depreciation and impairment of assets 355.2 341.3 Unrealised exchange differences and oil forward contracts -39.9 -76.3 Provisions for pensions 9.6 7.2 Other provisions 44.1 -3.9 TOTAL 369.0 268.4

108 NYNAS ANNUAL REPORT 2014 NOTES

PROPOSED DISTRIBUTION OF PROFIT

The Group’s equity at the end of the financial year amounts to SEK 3,425 million. The Board proposes that the available profits of SEK 2,024,779,544 in the Parent Company be distributed as follows:

DIVIDEND TO SHAREHOLDERS:

Total dividend 0 Carried forward 2,024,779,544 SEK 2,024,779,544

The Annual Accounts have been prepared in accordance with generally accepted accounting principles in Sweden and that the Consolidated Accounts have been prepared in accordance with EU-approved International Financial Reporting Standards, IFRS. The Annual Accounts and the Consolidated Accounts give a true and fair view of the Parent Company’s and the Group’s financial position and results of operations. The Directors’ Report for the Group and the Parent Company give a true and fair overview of the Group’s and the Parent Company’s operations, position and results and describes the material risks and uncertainties faced by the Parent Company and the companies that make up the Group.

Stockholm, April 28, 2015

Orlando Chacin Matti Lievonen John Launiainen Chairman of the Board

Iván Orellana Tuomas Hyyryläinen Angel Martinez

Antonio Suarez Torres Michiel Boersma Pia Ovrin

Roland Bergvik

Gert Wendroth President and CEO

Our Audit Report was submitted on April 28, 2015 Ernst & Young AB

Jan Birgerson Authorised Public Accountant

NYNAS ANNUAL REPORT 2014 109 AUDITOR’S REPORT

Auditor’s report

To the annual meeting of the shareholders of Nynas AB (Publ) An audit involves performing procedures to obtain audit Reg. no 556029-2509. evidence about the amounts and disclosures in the annual accounts and consolidated accounts. Report on the annual accounts and The procedures selected depend on the auditor’s judgement, consolidated accounts including the assessment of the risks of material misstatement We have audited the annual accounts and consolidated accounts of the annual accounts and consolidated accounts, whether of Nynas AB (Publ) for the year 2014. The annual accounts and due to fraud or error. In making those risk assessments, the consolidated accounts of the company are included in the auditor considers internal control relevant to the company’s printed version of this document on pages 18–109. preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that Responsibilities of the Board of Directors are appropriate in the circumstances, but not for the purpose and the Managing Director for the annual of expressing an opinion on the effectiveness of the company’s accounts and consolidated accounts internal control. An audit also includes evaluating the appropri- The Board of Directors and the Managing Director are respon- ateness of accounting policies used and the reasonableness of sible for the preparation and fair presentation of these annual accounting estimates made by the Board of Directors and the accounts in accordance with the Annual Accounts Act and of Managing Director, as well as evaluating the overall presenta- the consolidated accounts in accordance with International tion of the annual accounts and consolidated accounts. Financial Reporting Standards, as adopted by the EU, and the We believe that the audit evidence we have obtained is suffi- Annual Accounts Act, and for such internal control as the Board cient and appropriate to provide a basis for our audit opinions. of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated Opinions accounts that are free from material misstatement, whether In our opinion, the annual accounts have been prepared in due to fraud or error. accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent com- Auditor’s responsibility pany as of 31 December 2014 and of its financial performance Our responsibility is to express an opinion on these annual ac- and its cash flows for the year then ended in accordance with counts and consolidated accounts based on our audit. We con- the Annual Accounts Act. The consolidated accounts have ducted our audit in accordance with International Standards on been prepared in accordance with the Annual Accounts Act Auditing and generally accepted auditing standards in Sweden. and present fairly, in all material respects, the financial position Those standards require that we comply with ethical require- of the group as of 31 December 2014 and of their financial per- ments and plan and perform the audit to obtain reasonable formance and cash flows for the year then ended in accordance assurance about whether the annual accounts and consolidated with International Financial Reporting Standards, as adopted by accounts are free from material misstatement. the EU, and the Annual Accounts Act. The statutory adminis-

110 NYNAS ANNUAL REPORT 2014 AUDITOR’S REPORT

tration report is consistent with the other parts of the annual circumstances of the company in order to determine whether accounts and consolidated accounts. any member of the Board of Directors or the Managing Director We therefore recommend that the annual meeting of share- is liable to the company. holders adopt the income statement and balance sheet for the We also examined whether any member of the Board of Parent Company and the income statement and the statement Directors or the Managing Director has, in any other way, of financial position for the Group. acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. Report on other legal and regulatory requirements We believe that the audit evidence we have obtained is suf- In addition to our audit of the annual accounts and consolidat- ficient and appropriate to provide a basis for our opinions. ed accounts, we have also audited the proposed appropriations of the company’s profit or loss and the administration of the Opinions Board of Directors and the Managing Director Nynas AB (Publ) We recommend to the annual meeting of shareholders that for the year 2014. the profit be appropriated in accordance with the proposal in the statutory administration report and that the members Responsibilities of the Board of Directors of the Board of Directors and the Managing Director be dis- and the Managing Director charged from liability for the financial year. The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss, and the Board Stockholm, April 28, 2015 of Directors and the Managing Director are responsible for administration under the Companies Act. Ernst & Young AB

Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company’s Jan Birgerson profit or loss and on the administration based on our audit. Authorised Public Accountant We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors’ proposed appropriations of the com- pany’s profit or loss, we examined whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and

NYNAS ANNUAL REPORT 2014 111 & DEFINITIONS G lossary Glossary

ASPHALT HYDROGEN GAS FACILITY REFINERY Asphalt is a mixture of aggregates A lot of hydrogen gas is required to Industrial facility where crude oil is (stone), sand, filler and bitumen, which manufacture naphthenic specialty oils. divided into different parts (fractions) is an oil-based binder. Traditionally The hydrogen needed for hydrotreat- through distillation and then further asphalt is produced in specialist pro- ment is produced in special hydrogen processed into finished products. A duction units at elevated temperatures production facilities. refinery consists of a certain range and is commonly referred to as hot mix of process units depending on what asphalt. Asphalt is a versatile material LUBRICANT type of products are intended to be and can be used for all paving applica- A substance used in machinery for produced. tions. However, the recipe of the asphalt lubrication between movable parts to mixture needs to be designed according reduce friction and wear. Lubricants TRANSFORMER to the type of application. also contribute to cooling, sealing, The task of transformers is to handle protection against corrosion and noise the transformation from one voltage BITUMEN reduction. to another. Most transformers are oil Bitumen is a dark brown or black cooled. In addition to transferring heat viscous mixture of various hydrocarbons MANAGEMENT SYSTEM from the transformer coil, transformer derived from the distillation of oil; it also A management system helps to guide oil act as an insulating liquid, thereby occurs naturally in geological deposits. the business towards present targets. stopping electrical discharges. Bitumen forms the asphalt ’glue’ or The most common international stan- binder and influences the performance dard is ISO, e.g., the ISO 9000 series TYRE OILS of the asphalt. for quality management. This includes Highly aromatic oils (HA oils) have tradi- processes, guidelines and job descrip- tionally been used for processing rubber BITUMEN EMULSION tions to ensure there is clear information compounds when manufacturing tyres. Bitumen is not soluble in water. Bitumen about what has to be done, when, how However, these contain carcinogenic emulsion is a fine dispersion of very small and by whom. hydrocarbons. The EU has banned all use bitumen droplets in water. The dispersion of HA oils in car tyres as from 2010. The is created using reagents and specialist NAPHTHENIC SPECIALTY OILS transition to environmentally sound tyre production equipment. Compared with Products that are highly refined from oils represents a total market of around normal bitumen, bitumen emulsion has heavy naphthenic crude oil, through 1.2 million tonnes. a low viscosity at ambient temperature hydrotreatment or solvent extraction. and can be applied warm or cold. The They offer good characteristics with VISCOSITY bitumen and water separate during regard to high solvency and excellent Viscosity is a property of liquids that application and this allows the bitumen low temperature properties. They are denotes their “thickness” or internal properties to develop. mainly used by electrical, lubricant and resistance to flowing and can be viewed chemical industries. as a measure of friction. Syrup, for CRUDE OIL example, has higher internal friction than Unprocessed oil is called crude oil. It is OIL water, i.e. it has higher viscosity. a mixture of thousands of hydrocarbons The oil used at the world’s refineries was and its chemical composition alters formed between 50 and 500 million VOC depending on the origin of the oil. years ago when sediments of dead Volatile Organic Compounds (VOC) is Consequently, the qualities of crude oil plants and animals were exposed to high a collective term for a large number of may vary, which in turn determines the pressure and heat deep in the earth. organic compounds that under ambient products that can be produced from it. conditions can be present in gaseous REACH form and may pose health or environ- The new European chemicals legislation, mental risks. Emissions arise from many which stipulates that all chemical sub- sources including factories, animals, stances manufactured and imported by industrial processes and storage of companies in the EU must be registered. organic compounds.

112 NYNAS ANNUAL REPORT 2014 & DEFINITIONS G lossary DEFINITIONS

Return on AVERAGE Return on equity capital employed Profit after net financial items less cur- Profit after financial items plus interest rent tax as percentage of average equity. expense as percentage of average total assets less non-interest-bearing Equity/assets ratio liabilities. Equity as a percentage of total assets at year-end. RETURN ON AVERAGE CAPITAL EMPLOYED (12 MONTHS ROLLING) Debt/equity ratio Operating result excluding non-recur- Interest-bearing liabilities, including ring items as percentage of average interest-bearing pension liabilities, total assets less non-interest-bearing less cash and cash equivalents divided liabilities, 12 months rolling. by equity.

NYNAS ANNUAL REPORT 2014 113 HISTORY

NYNAS THROUGH THE YEARS 1928 The refinery in Nynäshamn is built. In October 1928 the first vessel carrying crude oil docks, and in December they fire up the steam boilers. Even though the workforce has to wrestle 1931 with plenty of problems, in A new cracking plant the very first year they is built in Nynäshamn. deliver petrol, paraffin, This also marks the fuel oil and lubricating oil. beginnings of the national network of petrol stations that 1950s Nynas was to operate The network of petrol over the next 50 years. stations is expanded. Nynas is the first com- pany in Sweden to have catalytic reformation. 1956 This means that petrol The refinery in can be produced with Gothenburg is a significantly higher completed. octane level.

1967–1969 Major investments in increasing bitumen capacity at the refinery in Nynäshamn, e.g. new vacuum dis- tillation is commissioned for heavy Venezuelan crude. Several depots 1981 are built along the Swedish coast, Swedish Shell acquires all and two tankers are acquired to of the petrol stations as transport products to the depots. well as the subsidiaries that sell fuel oil. At the same time the work- force at Nynas declines 1985 from 2 000 to Nynas signs a crude oil agree- around 1 500. ment with Petroleos de Vene- zuela (PDVSA). This guarantees feedstock supplies, which is a prerequisite for managing the 1986 transition into an international The state-owned Venezuelan oil specialty oil company. company Petroleos de Venezuela acquires 50 percent of the shares. Nynas is now guaranteed the crude oil deliveries required to continue 1989 its international expansion. The Finnish group Neste acquires the shares held by Sveriges Investeringsbank and Axel Johnson AB – 50 percent of the shares in total. This means that Nynas now has two owners who are both focused on the oil industry. At the same time the founder, the Johnson Group, finally parts with the company it created.

114 NYNAS ANNUAL REPORT 2014 HISTORY

1992 Nynas acquires the British company Briggs Oil for around SEK 700 million. The acquisition gives Nynas two new refineries: one in Dundee and one in Eastham. 1990 The lubricant business is sold to Statoil. Nynas’ business is now based on two pillars: bitumen and 2002 naphthenic specialty oils. New crude oils are tested to increase feedstock flexibility. This gives opportunities for further product development 2003 as well as a more optimised To meet demand without supply chain. increasing production capacity, a partnership project is initiated with the oil company Petroplus. The agreement means that Petroplus buys the refinery in Antwerp while at the same time Nynas is 2003–2005 guaranteed continued bitumen An important stage in deliveries from Antwerp. Naphthenics’ global expansion is the partnership with the American refineries Three Rivers (2003–2013) and Houston Refining (2005– 2008). This results in increased capacity without expensive 2008–2009 investments, and the new volumes Growth in Asia really takes off, can also be integrated directly into while at the same time a global Nynas’ global supply systems. tyre oil campaign is launched. To achieve a better local presence, new sales offices are opened in Russia, South Korea and Indonesia.

2010 A new hydrogen plant is commis- sioned in Nynäshamn, an invest- ment of around SEK 800. million. 2012 The following year, the plant starts A modern sulphur recovery plant is opened in to be run on natural gas instead of Nynäshamn at a cost of SEK 600 million. This naphtha, cutting carbon dioxide marks an important step in improving the emissions by 20 000 tonnes a year. refinery’s reliability and reduces emissions from sulphur recovery to one fifth.

2013 Nynas received approval from the European Commission to take over production and responsibility for the base oil plant and associated production units at the Harburg refinery in Hamburg, Germany. The new production plant will be a core site for Nynas with an annual production of specialty oils up to 2014 350 000 tonnes. This represents a Nynas takes on full control and forty percent increase in the compa- responsibility for the base oil ny’s supply capability of naphthenic manufacturing plant at the Harburg specialty oils. refinery in Germany. The remaining part of the Harburg refinery will be transferred to Nynas 2016.

NYNAS ANNUAL REPORT 2014 115 P rodu C tion : STHLM KOMMUNIKATION & IR A & IR KOMMUNIKATION : STHLM b G06851505

Nynas AB Box 10700 • Visiting address: Lindetorpsvägen 7 • SE-121 29 Stockholm Sweden • www.nynas.com • Phone: +46 8 602 12 00