2005 Annual Report Contents Raute in brief Year 2005 Strategy Review by the President and CEO Competitive position Raute and operation environment Business operations summary Personnel and environment Financial Statements Board of Directors' report Financial Statements, Group Financial Statements, Parent Group key ratios Shares and shareholders Proposal for distribution of profits Board of Directors Executive Board Corporate Governance Raute globally Addresses Shareholder information 1 2 3 4 6 8 10 14 16 17 21 51 60 63 67 68 70 71 74 75 76 Leading expertise in wood products technology The technology leader in its sector Raute is a technology company serving the wood products industry worldwide. Its core expertise lies in manufacturing processes for selected wood products. Raute is the world market leader as a supplier of mill-wide projects to its customer industries. The company also holds a strong position in smaller projects and technology services. sources, i.e. forests. The most rapidly expanding areas are the plantation forests of the southern hemisphere. Collaboration throughout the investment's life cycle Raute's extensive technology offering covers customers' entire manufacturing processes from the handling of raw material to the finishing and packaging of the final product. Raute provides customers with business support throughout the entire life cycle of the investment with machinery and equipment deliveries and a wide range of services from raw material and marketing studies through to production line maintenance and modernization. Global market Raute's sales network covers markets worldwide. Most of Raute's customers are located close to their raw material Raute Agent Raute operates a global marketing network. The company's head office and main production unit are in Nastola, Finland. Other units are located in the Vancouver area in Canada and in Jyväskylä and Kajaani in Finland. Raute's customer industries are to a large extent dependent on trends in the building industry. As with investment activity in general, the building industry is normally at its busiest towards the end of the economic cycle. Because of the project nature of operations in the industry, fluctuations in sales volumes are part of business. Raute's customer industries are: - plywood and veneer industry - LVL (laminated veneer lumber) industry - particleboard and MDF industry - parquet industry - decorative veneer industry Vision Raute's vision is to be the world's leading supplier of technology and services in its field. Mission Raute generates added value for its customers' businesses by supplying state-of-the-art technology and services to facilitate the profitable and environmentally sustainable manufacture of wood products. 1 The year in brief · · · · · · · · Net sales up by 49% Operating profit up by 76% Order book strong The plywood industry invested early in the year in modernizations Three major project orders Technology services continued to grow Challenges in project execution Restructuring measures in full effect Key figures Sales, m Operating profit, m Profit before income taxes, m Order book at 31.12., m Earnings per share, Dividend per share, ROI, % ROE, % Equity ratio, % Personnel at 31 December *) The Board of Directors' proposal 2005 109 4.4 5.5 55 1.09 0.60 * 21 16 56 533 ) 2004 73 3.6 3.9 35 0.71 0.40 25 20 57 543 Net sales m 35 Net sales quarterly m 8 6 4 25 Operating profit m 120 100 30 80 20 60 15 40 10 20 2 0 -2 -4 -6 5 -8 0 2001 2002 2003 2004 2005 0 Q1 Q2 Q3 Q4 -10 2001 2002 2003 2004 2005 Distribution of net sales Net sales by market areas Equity ratio, % 60 Technology services 22% Plywood 65% Others 12% Asia 7% Europe 40% 50 40 30 LVL 13% Russia 14% 20 North America 27% 10 0 2001 2002 2003 2004 2005 2 Raute's formula for success Strategy Raute's goal is to be the world's leading supplier of technology and services in its field. Raute's three main strategic goals are continuous improvement in profitability, better adaptation to cyclical fluctuations, and controlled growth. The company's business concept is to offer products and services that meet customers' needs and boost their earning potential. Raute offers its customers the expertise required for the efficient, reliable and profitable manufacture of wood products. In-depth understanding of the customer's business and processes, leading technology and extensive project expertise are the company's strengths. Raute wants to be a long-term partner to its customers. Raute's full-service concept means customers can do all their business with just one partner. The technology and service offering is wide, giving customers the opportunity to work together with Raute throughout the entire life cycle of the investment. By offering technologies for selected customer industries covering all stages of the production process and by keeping at the forefront of development, Raute can help its customers to be successful and thus increase its own sales potential and to retain or achieve a leading position. The development of technology services is one of the strategic focus areas. Project deliveries to different parts of the world have expanded Raute's potential clientele. This provides a good foundation for the development of services. Demand for services is steadier than for projects and thus evens out fluctuations in project operations. Financial goals Raute's goals are - to improve profitability and retain good profitability over the entire economic cycle - to increase sales by around 10 per cent a year over the economic cycle - to maintain good financial solidity - to offer investors a competitive return. Values The customer We know and understand our customers' needs. We operate in such a way that our customers find us a reliable company with high-quality products and services. Our aim is to create lasting and profitable relationships with our customers and to be their preferred supplier. Trust in people All our employees are fully committed to attaining the common goals. We are responsible in our actions, we keep our promises, and we follow the agreed procedures. We show initiative, and we are open, honest and fair. Continuous development We want to be successful and enjoy our success. We do not hesitate to take new opportunities or the responsibility for our work and all our operations, for reaching our goals and for training and improving our skills to reach our goals. Our goal is to achieve results ­ today and tomorrow. The environment We operate globally as a good corporate citizen. We take into consideration the requirements of local cultures and societies in our operations. We develop our products and services towards greater environmental soundness based on the customer's needs. Our goal is a continuously improving and more profitable working environment. Dividend policy Raute exercises an active dividend policy and take special care that investors receive a competitive return on their invested capital. Due to the nature of business, the dividend is not directly tied to the annual result. The aim is to maintain the company's equity ratio at a healthy level. 3 A year of growth and growing pains behind ­ promising prospects ahead During 2005 we conducted a thorough reappraisal of our strategy. We incorporated into our strategy new elements, but in many respects we recognized that the principles followed previously continue to serve our goals in the best possible way. It is part of our strategy to continue developing our traditional strengths. We are seeking growth in those areas and markets where we have not so far been strong. Within the wood products industry we have chosen the plywood and veneer industry, the LVL industry, the particleboard and MDF industry, parquet industry and the decorative veneer industry as our customer industries. By helping our customers in these segments of the wood products industry to improve their operations through both our project deliveries and our technology services, we can ourselves achieve synergy benefits in technology development, in the application of expertise, and in the understanding of our customers' businesses. The customer industries we have chosen are at different stages of development and provide us with numerous opportunities and challenges. The plywood and veneer industry globally is growing fairly slowly, but restructuring in response to new raw materials and demand is maintaining demand for investments. The LVL industry is a fairly new and growing field. In these customer industries Raute already has a strong market position. Particleboard and MDF overlaying and production of multi-layer parquet and decorative veneer are growth areas in which Raute has plenty of opportunities to strengthen its market position. We have the opportunity to improve our position in several geographical areas, especially in Asia and North America, where we are working hard to develop our technology services business. The main success factor in our activities is our comprehensive, in-depth understanding of our customers' businesses. It is on this foundation that we develop technology that produces real improvements for our customers. And by supplying products of the right quality at the agreed time we play our part in promoting our customers' success during the initial stage of the investment's life cycle. Cooperation in this area continues in the form of systematic maintenance. Therefore the throughput time of our deliveries covers actually the entire life cycle of the production line. The cost-effectiveness of our own operations is vitally important for the competitiveness of our products and for maintaining and improving our profitability. Development 4 of the technology services we offer expands our activities and evens out fluctuations in the level of project activities. We ourselves are focusing on our core expertise and improving our ability to adapt to the fluctuations typical for our business by further developing our network of partners. From growth to improved profitability The outlook for 2006 is promising. Raute's order book is strong and demand for products and services is good. Market conditions for our customer industries are good. However, there is still some uncertainty due to the risks relating to future oil prices and the exchange rate for the US dollar. Investments by Raute's customer industries worldwide are likely to remain at the 2005 level. With the focus of demand having moved towards bigger projects, our order intake could vary from quarter to quarter more than it has done in the past couple of years. However, I believe that at least one mill-scale project in which Raute will be heavily involved will be started this year too. We shall also place much emphasis on further developing contract-based maintenance alongside modernizations. Last year we succeeded in increasing our market share, particularly within the plywood industry. While market conditions remain good we shall retain our leading position in Year of flexibility and growth For Raute, 2005 was a year of strong growth. Our net sales increased by almost half. Such a substantial change did not happen easily. Improving our processes, and finding new suppliers and other partners and embarking on cooperation at a time of increased workload required all Raute's employees and partners to show flexibility and a sense of responsibility. The good situation in the global economy continued in 2005, particularly in those sectors important to Raute's customers, and this maintained good demand and encouraged our customers to invest in the development of their operations. The focus of demand shifted during the year from fairly small replacement and improvement investments to Improved profitability the main goal for 2006 larger projects creating new capacity. This was already reflected in the order intake during the late part of the year. Demand for technology services also remained strong. We continued to place strong emphasis on the development of technology and products. Several of the results of our development work reached the stage of first deliveries to customers. The foothold gained on the Brazilian market towards the end of the year was thanks mainly to our technology development. During the year we extended our technology offering to a new area: the production technology for the manufacture of decorative veneer by slicing. Bringing onto the market new products based on this technology will be one of the challenges in 2006. Along with growth in net sales our profitability also improved. The biggest improvements in profitability were in technology services and in the North American operations, and in our machine vision and measuring technology unit Mecano. However, this fast growth gave rise to some additional costs, and the improvement therefore did not fully correspond with the strong market development. these areas. We are prepared for weaker market conditions in the plywood industry, and we are seeking growth from customer industries that have so far represented a smaller share of our activities and, in particular, from recovering Asian markets. The additional costs incurred in adapting to the rapid increase in the volume of business are now under control, and the way is open for an improvement in profitability. I want to thank our customers, our employees, our shareholders and all our other partners for their confidence and cooperation. I hope this cooperation will continue and further strengthen. Tapani Kiiski 5 Acclaimed expert in technology Wood products technology is a relatively narrow field, and many of the companies are small. Raute's leading position is based on strong technological expertise, a full understanding of customers' processes, an extensive range of quality products and services, and a proven track record in the management of project deliveries, however large. These are the factors that bring efficiency to customers' production processes and ensure that production runs smoothly. The results of a customer survey show that Raute - is at the forefront of technological development - has the capability to supply complete mills - understands its customers' production processes - is highly competent in process automation. end-products also imposes new requirements on technology. The focus of Raute's technology development is on those factors in customers' production processes whose development provides the best way to improve efficiency and profitability and thus create maximum benefit for the customer. The main benefits to the customer are higher raw material recovery, greater productivity, lower consumption of energy and chemicals, better end-product quality and smaller environmental loadings. Comprehensive offering Raute's technologies and services provide customers with efficient production processes featuring optimized use of raw materials and resources. Unlike many of its competitors, Raute operates globally and its offering is extensive. Most of the company's competitors are small or medium-sized businesses operating on a local or regional basis and focusing on just one or a few areas of wood products technology. Technology development Raute's customers operate in a very competitive business environment, where efficiency and quality demands are high. The increasing demands being placed on their Main factors behind customer's cost efficiency Life cycle management Recovery Quality Profitable production Projects Technology services Productivity Capacity Full-scope service offering Projects - Complete mill-scale deliveries, production lines and individual items of machinery and equipment - Automation, machine vision and measuring technology Technology services - Maintenance, modernizations and spare parts - Reconditioned machinery - Personnel training - Consulting and business development Raute enables customers profitable production through affecting the factors that matter most. 6 << Raute's full-service concept provides support for the customer throughout the life-cycle of the investment. Raute has a profound understanding of its customers' businesses and processes, and through its full-service concept can provide customer support throughout the investment's life cycle, while customers develop their own business operations. The life cycle of machinery used by the wood products industry varies from ten years up to as many as thirty years. Raute's technologies cover the customer's entire production process from raw material handling through to end-product finishing and packing. The company's project deliveries may involve individual machines, production lines or complete mills. The requirement for efficiency and quality is also reflected in the demand for services. Raute offers customers services ranging from raw material and market surveys through to production line maintenance and modernization. In particular, there has been growth in demand for preventive maintenance designed to boost the customer's production. Raute's greatest expertise is in mill-scale deliveries drying peeling layup pressing composing patching sawing repair sanding packing Plywood mill production lines The plywood production process consists of several separate production lines 7 Aiming to grow faster than the market Main factors affecting demand Changes in demand experienced by customers Raute's customer industries are largely dependent on market conditions in the construction industry, international trade, and the transport industry. Investment activity is generally greatest towards the end of the economic cycle. Technology development Increasing demands are being placed on technology as demands on customers grow. On the other hand, development of new technology means old equipment is no longer competitive and its useful life shortens. This in itself creates new demand. - Need for customers to make production more efficient and improve end-product quality Need to improve raw material recovery and production process productivity and to cut consumption of energy and additives. Change in the industry's quality standards. Outsourcing of technology services Efficiency and quality requirements are reflected in demand for services. Outsourcing of services in wood products technology is only just beginning. This market, too, has significant potential. - Location and quality of raw material Much of the present production capacity is unfavourably located with respect to suitable wood raw material, or is designed for the wrong wood raw material. The strongest growth in customers' production and thus in Raute's market is in the plantation forest areas of the southern hemisphere, where wood raw material is available on a sustainable basis. - Wood products industry - distribution of market Parquet industry 8% LVL industry 8% Particle board and MDF industry 10% Decorative veneer industry 11% Plywood and veneer industry 63% Raute's market share Plywood and veneer industry LVL industry Particle board and MDF industry Parquet industry Decorative veneer industry % 15 45 small small small Raute's customer industries Plywood and veneer industry LVL industry Particle board and MDF industry Parquet industry Decorative veneer industry Market growth*) 1% 10% 5% 8% 4% * Average annual market growth 2006­2008 ) 8 << Technology services help to even out fluctuations in the level of project activity. >> Development of new technology also creates new demand. Raute's aim: to grow faster than the market Growth in Raute's markets is moderate. Growth over the next 3 years is expected to be 3-4 per cent a year. By increasing its market share, Raute can achieve faster growth, especially in technologies relating to particleboard and MDF overlaying, and the manufacture of multi-layer parquet and decorative veneer. Changes in the market will be such that they will probably strengthen Raute's position. Raute has a wide clientele and works with its customers throughout the life cycle of each investment, and this provides information about customers' needs that is valuable in product development. Raute also works closely with its customers in the development of new technologies. Significant potential in technology services Customers' efforts to make their production more efficient are also visible in the demand for technology services. Raute works together with its customers to systematically develop their production processes, particularly in preventive maintenance services. New equipment is more versatile and demands a high level of maintenance expertise. According to several estimates, this, coupled with the drive towards greater efficiency, will lead to more customers outsourcing their maintenance in the future. Demand for modernization services is also growing. By modernizing their machines using the latest technology and automation, customers can exceed their previous level of production. New capacity Prompted by good economic growth, activity in both new construction and structural repairs has been brisk for a considerable time in several of Raute's market areas. This has supported demand for Raute's products. Construction of new production capacity is steered by demand for the end-product and by the availability and location of raw material. A large proportion of new capacity has been built in areas where raw material availability is secure and where there is little existing capacity. Growth is strongest in the plantation forest areas of the southern hemisphere and also in Russia, where there are still plentiful under-utilized wood reserves. Raute has a strong track record in mill-wide projects and enjoys a good position as a supplier to the rapidly-growing LVL industry. Raute also has plenty of technology expertise in the processing of small-diameter plantation wood raw material. Technology services even out fluctuations in project business Project deliveries and technology services support each other in several ways. In the case of projects, implementation and schedules are difficult to predict in advance, and these have a major impact of resource allocation and financial results. Demand for technology services is steadier than that for project deliveries, and technology services therefore even out fluctuations in Raute's project business. In the case of contract customers, plans for actions are usually made in advance. Raute's opportunities as a supplier of technology services are supported by a large potential clientele that has accumulated through project deliveries, successful equipment installations, and by familiarity with technology and a local presence in different market areas. Development of services is one of Raute's areas of strategic focus. Technology life cycles shorten along with new needs and technology development Customers are constantly seeking to make their production more efficient, and to improve productivity and end-product quality. Fierce competition and changing quality standards in the industry mean that technology has to cater for new needs. Development of new technology itself creates new demand, as in the new situation old equipment is no longer competitive, which in turn shortens its useful life. 9 Year of vigorous growth For Raute, 2005 was a successful year in many ways. Sales increased by 49 per cent on the previous year to EUR 109 million (73 m). Profitability improved and the operating profit was EUR 4.4 million, which, excluding non-recurring items, was 76 per cent higher than the comparable operating profit for 2004 (2.5 m). In arriving at operating profit for 2004 (3.6 m), a non-recurring capital gain of EUR 1.1 million relating to pension arrangements has been deducted. In the wood products industry, investment by Raute's customer industries showed a clear increase, while demand also rose for maintenance and modernization of machinery supplied previously. Apart from the growth in sales, reorganizations carried out in recent years to improve cost-effectiveness also contributed to the improved financial result. operation with subcontractors and other partners, and by continuing to make its own operations more efficient. Capacity was successfully increased, and deliveries were handled as agreed. The increase in workload was, however, reflected in the commissioning of a number of projects. The Finnish engineering industry in general experienced strong demand, and competition for subcontractors and other partners put pressure on both schedules and prices. Growth in construction and logistics Largely as a result of growth in the building industry and logistics markets worldwide, demand for the products of all Raute's customer industries strengthened. Prices for both plywood and LVL remained good. Demand and prices for multi-layer parquet, overlaid particleboard and MDF also developed positively. Different market areas developed differently, however. In Finland, the only increase in the production capacity of Raute's customer industries was in relation to LVL. Customers in the plywood industry concentrated largely on developing their existing production technology. Elsewhere in Europe, investments began to rise strongly, as customers decided to implement plans that had been under consideration for several years. Achieving a leading market position among customers using pop- Order book strengthened The value of Raute's order book increased by 57 per cent to EUR 55 million. The value of project orders received rose considerably to EUR 109 million. The most notable orders for project deliveries were the entire machinery for a softwood plywood mill in Chile, and the machinery for a new LVL mill in Finland. Demand for technology services also showed clear growth. Orders received were worth EUR 23 million. The clientele widened and the number of contract customers, in particular, increased. The substantial growth in orders required additional capacity, and the company achieved this by developing co- Business operations Project order intake by geographical region 60 Order book, m 50 Technology services Projects North America 27% 40 Finland 28% 30 20 Rest of Europe 12% Russia 14% 10 Asia 7% 0 2001 2002 2003 2004 2005 10 << Raute is focusing on its core expertise. Non-core activities were outsourced. >> Demand for modernization services was brisk and focused particularly on lathes. lar as raw material in southern Europe was especially gratifying. In Russia, demand was lively but deals were signed with only a small number of customers. In North America, plywood production is declining but demand for LVL is growing. Investment thus focused mainly on making production more competitive and reducing environmental impacts, and no new production capacity was built. The plywood and LVL industries of Oceania and South America, on the other hand, are developing strongly. These areas have extensive plantation forests, where growth is faster than in natural forests. Utilization of plantation forests has resulted in a number of large projects giving rise to new production capacity. Asia has been an important plywood producer, but production has recently declined because of instability in the region. Here, too, positive economic development has prompted preparations for the large-scale utilization of plantation forests. rotation among production personnel was stepped up to make activities more flexible. Multi-tasking allows workers to gain experience of different jobs and thus an overall grasp of Raute's operations. Project deliveries and technology services Wood products technology business operations comprise project deliveries and technology services. Project deliveries represent 78 per cent of sales and technology services 22 per cent. At the end of 2005, the order book was worth EUR 55 million. Project deliveries comprise complete mills, production lines and individual items of machinery and equipment. Technology services consist of maintenance, spare parts services, modernizations, consulting, training and the supply of reconditioned machinery. Change of emphasis In recent years, Raute has focused on its core expertise and changed the emphasis of its operations from traditional engineering to work involving a greater valueadded input. The company continued with this change in 2005 by outsourcing non-core activities and strengthening its cooperation network. Parts manufacture and machining, in particular, were entrusted to subcontractors. Raute focuses on heavy machining, assembly and test runs. In design, the emphasis is on master engineering, and important contracts were signed with partners regarding mechanical engineering and automation engineering. Expansion of the partner network allows peaks in workload to be evened out and permits more effective allocation of resources. It also offers a wider range of knowhow, as working with partners abroad provides expertise that is not available in Finland. This focus on core expertise has freed resources for the development of technology services. The division of work between Raute's units was further clarified and cooperation intensified. The biggest production-related investments were the CNC milling machine acquired for the Nastola plant and the expansion and refurbishment of the Jyväskylä assembly hall. Job Important project orders Raute is the market leader in mill-scale deliveries of wood products technology to its selected customer industries. The company's competitiveness is based on its position as the frontrunner in technology development, on an understanding of customers' businesses, and on long experience in project deliveries. Raute's technology offers the customer the opportunity to achieve optimum production efficiency and profitability. In the customer's production, technology has led to the further development of recovery, quality, productivity and capacity, which are the key factors behind the customer's competitiveness. Machine design is based on modules, which means they can be built to meet each customer's specific needs. The order book for project deliveries strengthened considerably in 2005. In February, Raute received an order from Finnforest to supply the machinery for a new LVL mill in Finland. The order included an automated LVL layup line, the first of its kind to be delivered anywhere in Europe. During the spring, Raute received orders worth over EUR 10 million to supply drying technology to the United States and Canada. In September, the 11 << Orders received in 2005 included the entire machinery for a new plywood mill in Chile. >> New concepts in panel handling technology were delivered to several customers. Chilean company Empresas CMPC S.A. ordered machines for its new plywood mill. The order comprised production machines, lines and processes. In November, orders were received for two peeling and camera-controlled grading lines for Brazil, which is a new market area for Raute. In December, Latvijas Finieris placed a EUR 9 million order for plywood machinery for Latvia. Positive outlook Raute's prospects for 2006 are good. The current order book is strong, and the projects currently under negotiation suggest that the positive development will continue. Thanks to measures undertaken in recent years, Raute's product range is now more competitive and the company's capacity can be increased in a more controlled way. Thanks to its greater competitiveness, Raute has good prospects for acquiring new customers and strengthening its present customerships. There is now greater demand for the construction of completely new capacity, and Raute's position as the market leader in millscale deliveries means it is equipped to accept orders for major projects. In its technology services, Raute uses its strong position among its present customers. Vigorous efforts to further develop preventive maintenance and contract customerships will continue. Growth potential in the market is being created by the fact that customers are increasingly outsourcing their service and maintenance operations. New technologies also create opportunities for growth. During 2005, Raute acquired technology for the machinery needed in the production of decorative veneers. By expanding into this new area of technology Raute is seeking sales of several million euros in the next few years. The new products brought onto the market as a result of product development are also creating growth opportunities. New contract customers for technology services Technology services complement Raute's offering, covering the customer's production technology over its entire life cycle. Technology services ensure that the customer's production runs as smoothly as possible without unnecessary breaks, and at the same time seek to predict maintenance requirements. Raute's strong emphasis on technology and on understanding the customer's business is also reflected in its services. Demand for technology services developed positively in 2005. Most of the growth came from Europe, Russia and Asia. The company's clientele expanded and the number of contract customers increased considerably. The number of modernizations, in particular, showed an increase on previous years. Raute further developed its service network by setting up a subsidiary in St. Petersburg and a service point in Jyväskylä. Growth in technology services was held back by the availability of experienced maintenance personnel. Additional resources were provided by transferring personnel internally, hiring new workers, and signing new cooperation agreements for the provision of services. A project to develop preventive maintenance was started alongside product development. Raute aims to continue expanding its cooperation with customers and to improve the standard of its services by developing resource management. Services were already being made into products in modernizations in 2004 and in maintenance work in 2005. Close collaboration with customers in Finland has yielded a number of best practices and tools that can be used to advantage in global operations. Growth potential in the south and east Demand is expected to level off following strong investment activity in 2005. The biggest growth potential lies in the plantation forest areas of the southern hemisphere and in Russia. The wood reserves of the plantation forests in South America, Oceania and Asia will becoming increasingly available over the next few years. Good prices for plywood, LVL, overlaid panels and multi-layer parquet are encouraging the construction of new production capacity. Signs of positive developments 12 << Raute's latest peeling technology was successful in the market. >> Machine vision technology has growth potential. In future it will be useful in an increasing number of processes. were seen towards the end of 2005, particularly in Asia. Russia has the world's largest under-utilized wood reserves, which will permit the construction of more new production capacity in the near future. In Finland, customers are expected to continue to focus on keeping their present production machinery efficient and competitive by replacing lines and modernizing existing machines. High production costs and limited wood reserves will make it difficult to increase competitive production capacity. In North America, the pace of investment is expected to level off following an exceptional year in 2005 and to focus on the development of existing production capacity. In China, plywood production is outdated and relies heavily on manual labour. A change to more modern technology is likely in the long term. Product development is often carried out together with the customer in order to achieve optimum results. Customers have clear goals for their projects and understand their own business best. Raute's contribution is technology expertise and a wealth of experience in its field. Projects may also involve other partners, research institutes, colleges and universities. Raute completed first deliveries of several new products during 2005. The new-generation peeling line brought onto the market the previous year was extremely well received. The block optimization system based on curtain laser technology came up to expectations. Three foam gluing lines were delivered, and development of this technology continues. Foam gluing reduces glue consumption and improves conditions in the customer's production facilities. An automated panel repair line featuring machine vision was also delivered. Machine vision will continue to be utilized as it can be applied to almost all processes. Product development distinguishes Raute from its competitors As the leading technology company in its field, Raute is heavily committed to the continuous development of its products. Product development expenditure is around 3 per cent of net sales. Raute is the frontrunner in the utilization of new technologies and the search for applications. Research work is conducted in the planning of new products, in making improvements to existing products, and in the development of technology services such as maintenance and modernizations. Maintenance and service operations yield important information for use in product development. Product development is always driven by customers' needs and with the aim of making their production more competitive. The keys to competitive production are recovery, i.e. the proportion of raw material converted into end-product, the quality of the end-product, worker productivity, and the efficiency of production in terms of factors such as energy and chemicals consumption. Environmental impacts are also considered in product development, and the use of new technology allows the environmental impacts of customers' production to be reduced. R&D m 5000 5 % of net sales 4000 4 3000 2000 3 1000 0 2001 2002 2003 2004 2005 2 13 Personnel and environment Focus on developing competence in technology, multi-tasking and service expertise Raute is the leading technology company in its field. Behind its success are highly skilled and innovative employees. Raute seeks to create a working atmosphere characterized by openness, trust and equality. This, the company believes, is the route to profitable operations and the way to develop each employee and the working community as a whole in line with the targets set. In 2005, Raute employed an average of 537 persons. The total number has fallen in recent years mainly due to the rationalization and outsourcing of non-core businesses. The company's operational focus has changed. Raute now concentrates on designing more demanding products and automation with greater emphasis in its own production on competitiveness and expertise. The change can be seen in the personnel structure: there are more salaried staff with a higher level of training. need for professional skills are constantly changing. The international nature of Raute's operations requires its employees to have good language skills and the ability to work together with people from different cultures. Raute has placed great emphasis on training, with the focus in 2005 on service expertise. Competition for skilled people Raute offers interesting work and good opportunities for advancement for the top people in wood products technology. In several areas of expertise there is a shortage of experienced workers. Most in demand are chief mechanical engineers, automation design engineers, project personnel for installation sites, and skilled maintenance people. Securing a sufficiently large workforce means offering not just interesting work but also competitive terms of employment. Raute's public profile and reputation as an employer have risen in recent years. The company is well known at educational institutes in this field and the company's strong emphasis on technology development has been noted. Raute works actively with colleges and universities and offers students both work experience and subjects for theses and dissertations. Encouraging multiple skills Raute's net sales rose considerably in 2005, while the number of its employees was almost the same as the year before. The reorganization and the training it required have boosted multiple skills, thus forming a platform for more effective operations. Efforts to raise the level of multiple skills will continue in the future. Understanding customers' needs and an in-depth knowledge of the wood products industry are vital if Raute is to design and produce the most effective solutions and services for its customers. Competence in wood products technology is a key priority area for Raute. Technological progress is rapid, and specialist expertise and the Open working atmosphere Employee turnover at Raute is low. Every effort is made to ensure the work is enjoyable as a means of maintaining good working capacity. Employees are encouraged to look after their health, especially their physical fitness. The company's occupational health care service is focused on preventative health care. Personnel *) Number of personnel Women, % Average age Years at Raute 2005 522 11 44 14 2004 536 11 45 14 35 New employment contracts 39 *) Current employment contracts at 31 Dec. 14 << Encouraging multi-tasking creates the foundations for more efficient operations. >> Saving valuable natural resources is a common goal shared by Raute and its wood-processing customers. Environmental and productivity targets complement each other The environment is one of the four values that steer Raute's activities. Raute follows the principles of good corporate citizenship by taking full account of the environment and its protection, and showing respect for local communities and local cultures. Raute works systematically to make its products and services more environmentally sound and to reduce the environmental impact of its own activities. Targets for reducing the company's environmental impacts, and the measures needed to achieve them, are incorporated into the environmental management programme each year. The results are monitored regularly. low reductions in environmental loadings and improve the safety of production. One example is Raute's veneer dryer, which is the most energy-efficient on the market. Better working conditions through product development Raute's products also translate into better working conditions for its customers. Product development provides automation that relieves workers of awkward and risky work stages, which in turn reduces accidents and absences from work. Efforts are also being made to reduce the use of chemicals in production. Examples of this are the first deliveries in 2005 of fully automatic plywood panel repair lines and plywood layup technology based on foam gluing. In foam gluing, the need for glue is greatly reduced. In its own production, too, Raute is constantly seeking to reduce energy consumption and waste, and at the same time to make the working environment a safer place. The aim is to create a good and productive working environment and to find the best and most effective working practices. Raute has developed its own manufacturing processes by investing in new technology and by reducing work stages that affect the environment. The company's plants at Nastola and Jyväskylä have both certified quality and environmental management systems. Raute also carries out systematic inspections of the activities and ethical principles of its partners and subcontractors. Increasing demands from customers The wood products industry and its customers are becoming increasingly aware of the relationship between product quality and the way products are manufactured. Raute devotes considerable resources to product development with the aim of making the production lines and machinery it manufactures more environmentally sound. Products manufactured using the latest Raute technology save raw materials, energy and additives. Saving valuable natural resources is an important goal both for Raute and for its customers. This goal can be achieved by improving recovery and quality and by making more use of fast-regenerating plantation forests. Raute has been successful in offering its customers solutions that cut production costs and at the same time al- Personnel*) 800 Personnel*) Others 5% Canada 20% Education*) Basic education 23% University12% 600 400 College 31% 200 Finland 75% 0 2001 2002 2003 2004 2005 Vocational school 34% *) Current employment contracts at 31 Dec. 15 Financial Statements 2005 Board of Directors' report Financial Statements, Group Consolidated income statement Consolidated balance sheet Consolidated cash flow statement Consolidated statement of changes in shareholders' equity Transition to IFRS reporting Notes to the Financial Statements Financial Statements, Parent Income statement Balance sheet Cash flow statement Notes to the Financial Statements Group key ratios Definition of key ratios Shares and shareholders Proposal for distribution of profits Auditor's report 17 21 21 22 23 24 25 31 51 51 52 53 54 60 62 63 67 67 16 Board of Directors' report The Group's net sales for the 2005 financial period were EUR 108.6 million, up 49 per cent on the previous year's figure of EUR 73.1 million. Operating profit was EUR 4.4 million (3.6 m). Financial income and expenses were EUR 1.1 million (0.3 m). Profit before taxes was EUR 5.5 million (3.9 m) and profit for the period was EUR 4.0 million (4.8 m). Earnings per share (undiluted) from continuing operations were EUR 1.09 (0.71). Due to high rates of capacity utilization in Raute's customer industries, intense competition and rising production costs, demand was brisk for systematic maintenance services designed to improve operations. NEW ORDERS AND MARKET POSITION Raute's wood products technology business operations comprise project deliveries and technology services. Project deliveries cover complete production plants, production lines and individual items of machinery and equipment. Technology services comprise maintenance, spare parts, modernizations, consulting, training and the supply of reconditioned machinery. Raute's project order intake during 2005 was EUR 109 million (68 m). The most notable new project orders were for machinery for a softwood plywood mill in Chile and an LVL mill expansion in Finland. Other orders mainly concerned modernizations of existing production capacity in the plywood industry. In 2005, Raute strengthened its position as market leader, particularly as a supplier to the plywood industry of southern Europe, where the main raw material is poplar. The company enjoyed a strong position as a supplier of machine vision and drying technology, notably on the west coast of North America, where plywood manufacturers invested in several drying lines. The new-generation peeling line placed on the market the previous year has been extremely well received. Peeling technology has also given the company a foothold in Brazil, where the plywood industry has so far relied mainly on local technology. The mill-scale order obtained from Chile was the latest indication of Raute's market leadership as full-service supplier of technology to the plywood industry. Raute has also strengthened its competitive position as a supplier of technology services. In 2005, the clientele for these services expanded and the number of contract customers increased. MARKETS Market conditions, capacity utilization rates, order books and product prices for the customer industries in the main market areas were good throughout the year. Activity in the building and transport industries, resulting mainly from growth in the global economy, kept demand good. Demand for investments in the plywood industry was brisk throughout 2005. Strong demand for modernization projects aimed at improving existing production capacity and optimization of production tailed off towards the end of the year and the emphasis shifted towards bigger projects to build new capacity. Demand for the latest plywood technology was lively in Europe. In North America, plywood producers invested in improving existing production capacity and the quality of their wood-based panels. In Russia, the planning of large projects continued, but no major projects were started during the year. Demand for investments in Southeast Asia showed signs of picking up during late 2005. In China, demand for modern technology remained quiet. A few projects were at the planning stage, but most wood products manufacture still relies on traditional production methods. In South America, a plywood mill project got under way in a plantation forest area of Chile. A number of mill-scale projects are still being planned in Australia and New Zealand, but their implementation and timing are uncertain. The LVL industry's production capacity is growing. Several projects to increase capacity have been at the planning stage for a long time in North America and also in plantation forest areas of the southern hemisphere. One important LVL mill expansion began in Finland during 2005. Demand for particleboard and MDF overlaying technology was brisk. Projects were at the planning stage, primarily in Europe. Demand for investments in the parquet industry was slack despite the good market for end-products. NET SALES AND ORDER BOOK The Raute Group's net sales for 2005 were EUR 108.6 million, 49 per cent up on the previous year (73.1 m). Finland accounted for 28 per cent of net sales (11%). Growth resulted from an LVL plant expansion delivery and from the first installations of new panel handling developments. Share of the rest of Europe fell to 12 per cent (18%) despite the strengthening of the company's market position 17 in the poplar area of southern Europe. Net sales in North America rose to 27 per cent of the total (21%) thanks to drying technology deliveries to the west coast. In Russia, deliveries consisted of individual production lines, and net sales there fell to 14 per cent of the total (21%). New orders received towards the end of the year began to show in Asia's contribution to total net sales, which was 7 per cent (5%). The mill-scale order received from Chile was not yet reflected in the 12 per cent contribution from other areas (24%). Net sales from technology services, EUR 23.5 million (17.4 m) developed in line with the targets. Growth was strongest in Finland (69%) and North America (51%). Good growth was also recorded in Europe (25%) and Russia (27%). The order book at the year-end was a strong EUR 55 million (35 m). Earnings per share from continuing operations were EUR 1.09 undiluted (0.71) and EUR 1.07 diluted (0.71). Return on capital employed was 21 per cent (including discontinued operations 25%) and return on equity was 16 per cent (including discontinued operations 20%). DEVELOPMENT OF OPERATIONS Raute's position as the leading technology supplier in its field was maintained through continuing emphasis on product development and expertise. The range of products for the wood products industry was expanded through the acquisition of technology needed for the machinery used to produce decorative veneers. Raute continued to focus on its core expertise. The division of work between Raute's network of partners and its own production units was further developed in order to respond to the increase in the level of business activity. At the main production unit in Nastola both profitability and competitiveness were improved by outsourcing detailed mechanical engineering, reducing Raute's own parts manufacture and devoting more attention to assembly, installation, commissioning and maintenance operations. Work continued to develop the Jyväskylä production unit as a technology centre for panel handling. The Jyväskylä unit was made part of Raute's certified quality and environmental management systems. Development of technology services also continued. A company was established in St. Petersburg, Russia under the name Raute Service LLC, and this company has supplied spare parts and maintenance services in Russia since May. The company's maintenance and modernization services in North America were also vigorously developed. RESULT AND PROFITABILITY The Board's period of operation starts at the Annual General Meeting, where the Board is elected. The Group's operating profit was EUR 4.4 million (3.6 m) and profit from continuing operations before tax was EUR 5.5 million (3.9 m), both well up on the previous year. Profit for the financial year was EUR 4.0 million (4.8 m). Profit for 2004 includes EUR 2.1 million in profit from discontinued operations and the capital gain relating to their sale, together with a non-recurring gain, before tax, of EUR 1.1 million relating to pension arrangements. Calculated on a comparative basis, profit from operations for 2005, excluding non-recurring items, was EUR 4.0 million, twice the previous year's figure (2.0 m). The improved financial result for 2005 is due mainly to growth in net sales, which in turn is attributable to good market conditions and also to the greater cost-effectiveness achieved through restructuring. The substantial growth in the volume of business in 2005 posed major challenges to the activities of both the company and its partners. Subcontracting prices rose as a result of the Finnish engineering industry's generally high order backlog. The rise in world market prices for raw materials, in particular for steel, pushed up production costs. In a small number of projects, product development-like finishing work carried out in conjunction with first deliveries reduced profitability towards the end of the year. The financial result of the company's North American operations improved despite the weakness of the US and Canadian dollars against the euro early in the year. Net sales and operating profit for the financial year were reduced by EUR 0.7 million relating to foreign currency hedging agreements under IFRS (+0.4 m) and improved by EUR 0.4 million in excess cover arising from the winding-up of the pension fund. CHANGES DURING THE REPORT PERIOD In March, Raute Corporation purchased 29 per cent of the shares of the real estate company Eloc Oy from its own pension fund, bringing its interest in the company up to 63 per cent. Eloc Oy's assets were liquidated during the year and the company has been placed into voluntary liquidation preparatory to its winding up. In accordance with a shareholders' agreement, in April Raute Corporation purchased the remaining 50 per cent of the shares of its associated company Mecano Group Oy. The share purchase has had no impact on the company's operations. Also in April, Raute Corporation transferred the voluntary supplementary pensions insured in its pension fund to an insurance company. The pension fund was placed into liquidation, and its final accounts were prepared as per 30 September 2005. FINANCING The Group's financial position remained strong. Gearing was -41.5 per cent (-30.6%) and the equity ratio 55.7 per cent (56.8%). Liquid assets at the end of the year were 18 EUR 11.4 million (9.5 m) and interest-bearing liabilities EUR 0.5 million (1.9 m). The balance sheet totalled EUR 55.4 million (46.2 m), the increase being due to the fact that advance payments from projects not completed were entered as prepayments and accrued income and also to the increase in prepayments received. The cash flow from operating activities was EUR 7.7 million (0.3 m) and the cash flow from investing activities -EUR 3.0 million (7.8 m). The cash flow from financing activities was -EUR 2.9 million (-12.1 m), of which dividends paid accounted for -EUR 1.5 million (-3.8 m). Raute Corporation has a EUR 10 million domestic commercial paper programme under which it may issue commercial papers with maturities of less than one year. The company also has a total of EUR 15 million in long-term bilateral credit facilities. During 2005, a total of 1,650 Series A shares were subscribed through exercise of B warrants pertaining to Raute Corporation's 1998 bond issue. The increase in share capital, EUR 3,300, corresponding to the shares subscribed, was entered in the Trade Register on 25 January 2006. Raute Corporation has signed a market making agreement with Nordea Bank Finland Plc in compliance with Helsinki Stock Exchange's Liquidity Providing (LP) requirements. DISTRIBUTION OF DIVIDEND The Annual General Meeting of 22 March 2005 approved the Board of Directors' proposal to distribute a dividend of EUR 0.40 per share, i.e. a total of EUR 1.5 million. Dividend was paid on 5 April 2005. AUTHORIZATION TO BUY BACK AND DISPOSE OF OWN SHARES The Annual General Meeting of 22 March 2005 authorized the Board of Directors to decide, within a period of one year, to buy back, using funds available for the distribution of profit, a maximum of 190,730 company Series A shares. The shares so purchased may be disposed of in the event of a pressing financial reason such as the financing of company acquisitions or other corporate restructuring. The authorization was not used during 2005. RESEARCH AND DEVELOPMENT COSTS AND INVESTMENTS Research and development costs remained high at EUR 3.6 million (3.1 m), 3.3 per cent of the Group's increased net sales (4.2%). Development and technology costs of EUR 0.2 million were capitalized (0.5 m). Capital expenditure totalled EUR 3.8 million (2.1 m), including EUR 0.8 million in subsidiary shares and EUR 0.6 million in product development investments. The most important investments designed to improve delivery capacity were the CNC milling machine acquired for the main production unit in Nastola, and the basic repair and expansion of the Jyväskylä assembly plant. Other investments mainly concerned the updating of information technology. AMENDMENT TO THE COMPANY'S ARTICLES OF ASSOCIATION The Annual General Meeting of 22 March 2005 decided to adopt Raute Corporation as the company's name in English and Raute Abp as the company's name in Swedish, and to amend Article 1 of the Articles of Association correspondingly. The Annual General Meeting of 22 March 2005 elected the following persons as members of the company's Board of Directors: Jarmo Rytilahti (Chairman), Sinikka Mustakallio (Vice-Chairman), Mika Mustakallio, Panu Mustakallio, Markku Nihti, Pekka Paasikivi and Heikki Lehtonen. Tapani Kiiski has been the company's President and CEO since 16 March 2004. In addition to Mr Kiiski, the Group's Executive Board in 2005 comprised Arja Hakala (Deputy to the President and CEO), Petri Strengell (Vice President, Technology and Operations), Timo Kangas (Vice President, Technology Services), and Bruce Alexander (Vice President, North American Business Operations). PERSONNEL The number of employees at the end of the year was 533 (543). Of these, 77 per cent were employed by the Group's Finnish companies (78%), 21 per cent by the North American companies (21%) and 2 per cent by the sales and service units elsewhere (1%). SHARES The total number of shares at the end of 2005 was 3,814,608, comprising 991,161 Series K shares and 2,823,447 Series A shares. The number of shareholders was 921 at the beginning of the year and 974 at the end. Series A shares are quoted on the main list of Helsinki Stock Exchange. Altogether 1,529,700 shares, total value 17.1 million, were traded during 2005. This represented 54 per cent of the total number of Series A shares. The average quotation for Series A shares was EUR 11.24 (8.14). The highest quotation was EUR 16.42 and the lowest EUR 7.60. The company's market capitalization at 31 December 2005 was EUR 54.3 million, with Series K shares valued at the closing price of Series A shares at 31 December 2005, i.e. EUR 14.24. AUDITORS Raute Corporation's Annual General Meeting of 22 March 2005 elected Kari Miettinen and Lotta Mäkelä, both authorized public accountants, as the company's auditors and the authorized public accountants PricewaterhouseCoopers Oy as deputy auditor. 19 BUSINESS RISKS Effect of economic cycle fluctuations Raute supplies technology and services for the wood products industry. This business is characterized by fluctuations in investment activity by Raute's customer industries worldwide. The impact on financial results of cyclical fluctuations in project deliveries is reduced by systematically increasing the proportion of technology services, developing the company's network of subcontractors and focusing on in-house core expertise. The Group's growth prospects are improved and the impact of economic cycle fluctuations evened out in the long term by promoting business in those customer industries in which Raute's present market share is small, and by developing products for completely new customer groups such the decorative veneer industry. The Group has prepared itself for fluctuations in the amount of working capital tied up in its project business by means of a domestic commercial paper programme and long-term bilateral credit facilities. subcontractors are also systematically inspected. In its own production, Raute is continuously seeking to reduce energy consumption and waste volumes and to further improve its working environment. Raute has developed its own manufacturing processes by investing in new technology and by cutting the number of operations that result in environmental loadings. The most notable investment relating to energy consumption in 2005 concerned a new HVAC and building automation system for the office premises in Nastola. BOARD OF DIRECTORS' PROPOSAL TO THE ANNUAL GENERAL MEETING The Board of Directors will propose to the Annual General Meeting to be held on 22 March 2006 that a dividend of EUR 0.60 per share be paid on Series A and K shares, i.e. a total of EUR 2.3 million. The date for payment is 3 April 2006 and the record date for dividend payment is 27 March 2006. Delivery and technology risks Raute's business operations consist largely of different types of project deliveries that always include solutions designed specifically for each customer's own end-product, manufacturing processes or raw materials. To manage the risks associated with projects and capacity, the company employs project management procedures complying with its certified quality system. Raute sustains a strong product development effort and continuously develops its technology solutions to meet its customers' growing needs. Full-scale testing of new solutions can only be performed under manufacturing conditions in conjunction with the first customer deliveries. The associated technology risk is limited in the terms contained in the delivery contract. OUTLOOK FOR 2006 The pace of modernization investment by Raute's customer industries is now levelling off following strong growth that peaked in 2005. Demand for investments in the plywood and LVL industries is forecast to shift towards large projects aimed at generating new production capacity and replacing old capacity. It is precisely in mill-scale projects that Raute is at its most competitive. However, the implementation and timing of major investment projects involves a greater degree of uncertainty than modernization projects. This could be reflected as a marked fluctuation in Raute's order intake. Growth in technology services will help to reduce the impact of these fluctuations. Investment activity by the plywood and LVL industries will be greatest in the southern hemisphere (South America, Oceania and Asia) where wood raw material reserves in plantation forest areas will become increasingly available in the next few years and where prices for wood products will encourage the construction of new production capacity. An increase in production capacity is also expected in the next few years in Russia, which has the world's largest unexploited fibre reserves. In North America, investment by the plywood industry will remain low, whereas LVL capacity will increase. The positive development in modernization investments forecast to begin in Asia's plywood industry will help to counteract the levelling-off in some other market areas. In view of the strong order book and continuing brisk demand for technology and services, the outlook for 2006 is promising. New products and services, a stronger network of partners, and continuous development of in-house expertise will further improve Raute's competitiveness and profitability. Net sales for 2006 are expected to be about the same as in 2005 and profit from operations to improve. SOCIETY AND THE ENVIRONMENT The environment is one of the four values that steer the company's operations. Raute seeks systematically to further develop the environmental soundness of its products and services and to reduce the environmental impact of its own activities. The Group follows the principles of good corporate citizenship by taking full account of the environment and its protection, and showing respect for local communities and local cultures. In Raute's view, its activities do not involve any significant risks to the environment that could have an immediate impact on either its business operations or its financial position. Environment-related affairs at the production units in Nastola and Jyväskylä are handled in accordance with the company's certified environmental management system. In Canada, the company's production unit is subject to regular environmental inspections by an outside assessor. The activities and ethical principles of partners and 20 Consolidated income statement EUR 1 000 Note 1.1.-31.12.2005 1.1.-31.12.2004 2,3,4 NET SALES 108 627 73 116 Increase (+) or decrease (-) in inventories of finished goods and work in progress 5 6 7 13 Other operating income Materials and services Personnel expenses Other operating expenses Total operating expenses OPERATING PROFIT 40 708 65 324 25 387 2 877 11 384 104 972 4 403 1 131 -73 -338 823 36 274 22 640 3 002 8 038 69 954 3 647 870 -558 -53 10,17,18 Depreciation, amortisation and impairment charges 14 14 Financial income Financial expense Share of results in associated companies PROFIT BEFORE TAX FROM CONTINUING OPERATIONS 5 461 -1 423 4 038 3 906 -1 167 2 739 2 071 15 Income taxes PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS 12 Profit from discontinued operations PROFIT FOR THE PERIOD 4 038 4 810 16 Breakdown Minority interest Share of profit that belongs to owners of the parent company -114 4 152 48 4 762 16 Earnings per share From continuing operations, eur From discontinued operations, eur 1,09 0,71 0,54 16 Diluted earnings per share From continuing operations, eur From discontinued operations, eur Shares Adjusted average number of shares Adjusted average number of shares diluted *) Diluted earnings per share is presented as equal to basic (undiluted). The effect of options to earnings per share in year 2004 has been antidilutive. 3 814 608 3 871 703 3 814 608 3 814 608 1,07 0,71*) 0,54*) F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 21 Consolidated balance sheet EUR 1 000 Note 31.12.2005 31.12.2004 ASSETS 17 18 19 20 21 29 Fixed assets and other non-current assets Intangible assets Tangible assets Investments in associated companies Available-for-sale investments Receivables Deferred tax assets Total Current assets Inventories Accounts receivable and other financial assets Financial assets at fair value through profit/loss Cash and cash equivalents Total Non-current assets held as available-for-sale TOTAL ASSETS 2 757 13 939 395 48 210 17 349 3 070 13 246 309 342 48 235 17 250 22 4,23 24 25 26 2 5 026 21 666 8 975 2 419 38 086 3 875 14 978 7 751 1 779 28 383 555 46 188 55 435 SHAREHOLDERS' EQUITY AND LIABILITIES 27 27 27 27 Shareholders' equity Share capital Reserve fund Share premium Other funds Retained earnings Profit / loss for the period Share of shareholders' equity that belongs to owners of the parent company Minority interest Total shareholders' equity Long-term liabilities Provisions Deferred tax liabilities Long-term interest-bearing liabilities Total Current liabilities Provisions Tax liabilities Pension obligations Short-term interest bearing liabilities Advance payments received Trade and other payables Total TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 7 629 5 429 14 8 699 4 152 25 923 224 26 147 7 629 5 429 6 866 4 762 24 686 353 25 039 28 29 30 475 1 300 357 2 132 1 927 105 380 176 8 500 16 068 27 156 55 435 654 1 552 186 2 392 692 1 085 76 1 674 2 136 13 094 18 757 46 188 28 34 32 33 33 22 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Consolidated cash flow statement EUR 1 000 1.1.-31.12.2005 1.1.-31.12.2004 CASH FLOW FROM OPERATING ACTIVITIES Proceeds from sales Proceeds from other operating income Payments of operating expenses Cash flow before financial items and taxes Interests and other operating financial expenses paid Interests and other income received Dividends received Income taxes paid NET CASH FROM (+) / USED IN (-) OPERATING ACTIVITIES (A) CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure in tangible and intangible assets Acquisition of subsidiary shares Proceeds from disposal of subsidiary shares Proceeds from sale of tangible and intangible assets Proceeds from other investments NET CASH FROM (+) / USED IN (-) INVESTING ACTIVITIES (B) CASH FLOW FROM FINANCING ACTIVITIES Repayment of short-term liabilities Increase of long-term liabilities Repayment of long-term liabilities Increase of long-term and short-term receivables Dividends paid NET CASH FROM (+) / USED IN (-) FINANCING ACTIVITIES (C) NET CHANGE IN CASH AND CASH EQUIVALENTS (A+B+C) increase (+) / decrease (-) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR *) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR *) 9 530 11 395 13 513 9 530 -1 526 -2 851 1 865 -1 537 278 -66 -998 -3 815 -12 108 -3 983 -7 255 -40 713 180 -2 965 -3 554 -304 7 385 611 1 462 7 829 -1 629 108 934 483 -99 840 9 577 -80 764 56 -2 636 7 681 73 167 494 -73 572 89 -750 1 378 219 -640 296 *) Cash and cash equivalents comprise of financial assets at fair value through profit/loss as well as cash and bank receivables F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 23 Consolidated statement of changes in shareholders' equity es Sh gs e a t qu re pa he ity of re ow th sh nt n at ar co ers be eh m of lo old M pa t n e in ny he gs rs' or to ity in te TO re TA st rn in m nd iu te nd ge ra s fu an l di ed ff e ta fu pi ca pr e em ea re nc rv er e e se th ch ar ar Re Sh Sh Re ta in EUR 1 000 TOTAL 31.12.2003 FAS Effect of adopting IFRS TOTAL 01.01.2004 IFRS Taxes related to items recognized in or derecognized from shareholders' equity Other increase / decrease TOTAL Profit / loss for the period TOTAL INCOME AND EXPENSES FOR THE PERIOD Acquisition of treasury shares Dividends paid TOTAL 31.12.2004 IFRS Taxes related to items recognized in or derecognized from shareholders' equity Other increase / decrease TOTAL Profit for the period Other increase / decrease TOTAL INCOME AND EXPENSES FOR THE PERIOD Acquisition of treasury shares Dividends paid TOTAL 31.12.2005 IFRS 7 629 7 629 5 429 5 429 0 0 O Ex 565 565 9 690 51 9 741 23 313 51 23 364 0 0 23 313 51 23 364 38 7 629 5429 0 337 902 9 779 4 762 14 541 -3 815 10 726 38 337 23 739 4 762 28 501 -3 815 24 686 305 305 48 353 38 642 24 044 4 810 28 854 -3 815 25 039 7 629 5 429 902 7 629 5 429 0 902 353 7 629 -5 429 0 5 429 5 429 14 14 -1 435 -533 32 10 758 4 152 -1 389 23 297 4 152 -15 338 -114 -1 404 23 635 4 038 7 629 0 5 429 14 -533 14 910 -1 526 13 384 27 449 -1 526 25 923 224 27 673 -1 526 26 147 7 629 0 5 429 14 -533 224 24 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P L Transition to IFRS reporting Raute Group started the reporting of its accounting and financial principles in accordance with International Financial Reporting Standards (IFRS) at 1 January 2005, and published a stock exchange release about the transition on 26 April 2005. The date of transition was 1 January 2004. The interim financial reports of 2005 have been prepared in accordance with the recognition and measurement principles of IFRS. Raute Group has applied the transitional standards of IFRS 1, which provides alternatives in the application of the standards, and IFRS 5 for the year of comparison. The largest positive impact on equity resulted from the recognition of development costs as assets and from a receivable of a defined benefit pension scheme in Raute Group's pension foundation. Equity was reduced by liabilities related to the defined benefit disability pension provided for by the Employees Pension Act (TEL), specification principles of revenue recognition, and depreciation on the revaluation of property. Measurement of forward contracts in connection with foreign currency denominated trade receivables in accordance with the IFRS requirements has since 2004 had an effect on the income statement of the Group. The transition to IFRS reduced the 2004 net sales by EUR 8.0 million and the operating profit by EUR 1.5 million compared to the Financial Statements prepared by Finnish Accounting Standards (FAS). The effect on net profit was EUR 0.8 million and EUR 1.0 million on total assets. The continuing operations presented in the 2004 IFRS-figures are comparable with Raute's current "wood products technology" operations. The 2004 net sales in accordance with IFRS amounted to EUR 73.1 million and operating profit to EUR 3.6 million. Operating profit in Q4, 2004, included a non-recurring profit item of EUR 1.1 million in connection with the pension plan. The net profit without aforementioned extraordinary item and taxes was EUR 2.8 million. The profit before taxes from continuing operations was EUR 2.9 million and profit after taxes EUR 2.7 million. The operation in weighing and dosing technology has been treated as a discontinued operation in the 2004 IFRS-figures, which reduced net sales by EUR 7.4 million and operating profit by EUR 3.0 million compared to the FAS-figures. The profit from discontinued operations was EUR 3.0 million before taxes and EUR 2.1 million after taxes. Main effects on the accounting policies applied when preparing the consolidated financial statements The following changes in accounting policies have an impact on Raute's reporting: 1. Intangible assets (IAS 38) Development expenditures due to the planning of new or more advanced products are recognized as soon as the product is technically feasible, it can be utilized commercially and the asset is expected to generate future economic benefit. The estimated useful life of the development expenditures is three years. The recognition of development expenditures has been introduced in the opening balance sheet in accordance with IAS 38. The remaining goodwill relating to the machine vision technology acquired in the Mecano Group Oy acquisition in 1999, and the wood products technology acquired in the Jymet Engineering Oy acquisition in 2000 comprises purchased technologies in compliance with the requirements for an intangible asset under IAS 38. Hence these items have been reclassified as intangible assets. 2. Property, plant and equipment (IAS 16) The historical cost of certain property includes revaluations recognized in accordance with Finnish Accounting Standards. Depreciation of the revaluation of buildings has been calculated retrospectively from the purchase date in accordance with IFRS 1. Some of the property has been classified as non-current assets held for sale. Depreciation ended when a classification as non-current assets held for sale was made. Shares in housing corporations have been reclassified as non-current assets held for sale. 3. Investments in associates (IAS 28) The associate Eloc Oy has been incorporated in the opening balance sheet at January 1, 2004, using the equity method. The same method of accounting has been applied since January 1, 2004, in the reporting in accordance with FAS. 4. Employee benefits (IAS 19) The Group has both defined contribution and defined benefit pension schemes. F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 25 Defined benefit schemes comprise the disability pension included in the Finnish TEL pension system and a voluntary pension scheme provided by the pension foundation of Raute Group. The pension arrangements of foreign subsidiaries have been classified in the IFRS as defined benefit schemes. Pension arrangements are reported in accordance with IAS 19. Obligations under defined benefit pension schemes increase the Group's liabilities. In the event that the assets of defined benefit pension schemes exceed the liabilities, the excess increases the Group's assets. Pension expenditures are recognized as an expense based on actuarial calculations. 5. Inventories (IAS 2) A portion of fixed and variable overheads incurred in proportion to the volume of production has been included in the cost of inventories. 6. Deferred tax assets and liabilities (IAS 12) Deferred taxes have been recognized in accordance with IAS 12. The largest temporary differences result from the recognition of development expenditures and defined benefit pension schemes. Deferred taxes have been calculated at a rate of 29% during 2004 and at a rate of 26% at 31 December 2004. In compliance with the principle of prudence, no deferred tax assets have been recognized on losses incurred by foreign subsidiaries. 7. Financial instruments (IAS 32, IAS 39) In accordance with the requirements of the IFRS, financial assets have been classified as financial assets at fair value through profit or loss, available-for-sale financial assets, and other loans and receivables. Derivatives have been measured at fair value through profit or loss. 8. Revenue (IAS 18) Since 2001, Raute has applied the percentage of completion method for long-term projects. The revenue recognition date (percentage of completion 100%) has been adjusted to match IAS 18. Projects are recognized as revenue in full when the risks and rewards related to ownership are transferred to the buyer. The adjustment of the revenue recognition date has an impact on the balance sheet, e.g. on the amount of provisions. 9. Non-current assets held for sale (IFRS 5) Raute divested the Raute Precision business on February 24, 2004. In the opening balance sheet at 1 January 2004, Raute Precision has been classified as a discontinued operation and its assets and liabilities have been presented separately from other assets and liabilities in the balance sheet. The operation profit and the profit from sales for Raute Precision are presented in the income statement under discontinued operations. 10. Segment reporting Raute's primary reporting segment is the business segment. After the sale of Raute Precision, the entire business belongs to the wood products technology segment. The secondary reporting segment is the geographical segment. A geographical segment consists of a market area accounting for over 10 % of the Group's turnover. 26 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Balance sheet 1 January 2004 EUR 1 000 Note ASSETS Fixed assets and other non-current assets 1 2 3 2 6 Intangible assets Goodwill Tangible assets Investments in associated companies Available-for-sale investments Receivables Deferred tax assets Total Current assets 5 Inventories Accounts receivable and 4,8 other financial assets Financial assets at fair value through 7 profit / loss Cash and cash equivalents Total Non-current assets held as available-for-sale TOTAL ASSETS FAS 1.1.2004 Discontinued operations IFRS effect IFRS 1.1.2004 769 779 17 883 2 103 535 48 -222 -111 -1 653 1 944 -668 -1 035 -73 -112 544 2 491 0 15 196 2 030 423 48 544 20 733 22 117 -1 985 601 5 728 22 153 11 500 2 012 41 393 -1 672 -9 833 228 -1 049 184 4 284 11 271 11 684 1 921 29 161 -91 -11 596 -636 9 13 581 63 510 0 671 635 14 252 64 145 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital Reserve fund Retained earnings Profit / loss for the period Total 7 629 5 429 12 958 -2 703 23 313 51 51 7 629 5 429 13 009 -2 703 23 364 Minority interest Non-current liabilities 6 8 Deferred tax liabilities Provisions Long-term interest-bearing liabilities Total Current liabilities 8 4 8 Trade and other payables Pension obligations Provisions Short-term interest-bearing liabilities Total Liabilities related to non-current assets held as available-for-sale Total liabilities TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 1 172 252 1 424 27 765 1 985 9 023 38 773 -135 584 477 1 622 477 252 2 351 17 289 1 197 1 535 9 023 29 044 9 387 -135 -8 811 -441 -9 252 9 387 1 061 -1 665 1 197 -9 -477 9 40 197 0 584 40 781 63 510 0 635 64 145 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 27 Balance sheet 31.1.2004 EUR 1 000 Note ASSETS Fixed assets and other non-current assets 1 2 3 2 6 Intangible assets Goodwill Tangible assets Investments in associated companies Available-for-sale investments Receivables Deferred tax assets Total Current assets 5 Inventories Financial assets at fair value through 7 profit / loss Cash and cash equivalents Total 9 Non-current assets held as available-for-sale TOTAL ASSETS FAS 31.12.2004 IFRS effect IFRS 31.12.2004 1 365 407 14 156 309 424 48 1 705 -407 -910 -82 235 3 070 0 13 246 309 342 48 235 17 250 16 709 541 3 650 15 304 7 712 1 779 28 445 225 -326 39 -62 555 3 875 14 978 7 751 1 779 28 383 555 46 188 4,8 Accounts receivable and other financial assets 45 154 1 034 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital Reserve fund Retained earnings Profit / loss for the period Total 7 629 5 429 6 815 3 945 23 818 353 51 817 868 7 629 5 429 6 866 4 762 24 686 353 Minority interest Non-current liabilities 6 8 Deferred tax liabilities Provisions Long-term interest-bearing liabilities Total Current liabilities 8 4 8 Trade and other payables Pension obligations Provisions Short-term interest-bearing liabilities Total Liabilities related to non-current assets held as available-for-sale Total liabilities TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 1 048 186 1 234 16 247 1 828 1 674 19 749 504 654 1 158 68 76 -1 136 -992 1 552 654 186 2 392 16 315 76 692 1 674 18 757 20 983 45 154 166 1 034 21 149 46 188 28 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Income statement 1.1. - 31.12.2004 EUR 1 000 NET SALES Other operating income Operating expenses Depreciation, amortisation and impairment charges OPERATING PROFIT / LOSS Financial income and expenses Share of results in associated companies PROFIT BEFORE TAXES Taxes PROFIT FROM CONTINUING OPERATIONS PROFIT FROM DISCONTINUED OPERATIONS Minority interest PROFIT / LOSS FOR THE PERIOD FAS 2004 81 166 3 775 -77 103 -2 712 5 126 651 Discontinued operations -7 398 -2 952 7 311 87 -2 952 35 IFRS effect -652 2 502 -377 1 473 -374 -53 1 046 -229 817 IFRS 2004 73 116 823 -67 290 -3 002 3 647 312 -53 3 906 -1 167 2 739 2 071 -48 817 4 762 5 777 -1 784 3 993 -2 917 846 -2 071 -48 3 945 Key ratios FAS 31.12.2004 Earnings per share from continuing operations: Undiluted, eur Diluted, eur Earnings per share from discontinued operations: Undiluted, eur Diluted, eur Equity to share, eur Return on investment %, ROI Return on equity %, ROE Equity ratio % Gearing % Order book, EUR 1 000 IFRS 31.12.2004 0.71 0.71 0.54 0.54 6.47 25.2 19.9 56.8 -30.6 35 417 6.24 22.0 16.8 56.2 -31.6 32 199 Consolidated statement of changes in shareholders' equity Share capital 7 629 7 629 Reserve fund 5 429 5 429 Exchange rate and translation differences 565 565 Retained earnings 9 690 51 9 741 4 762 -3 815 10 688 EUR 1 000 SHAREHOLDERS' EQUITY 1.1.2004 FAS Effects of adopting IFRS SHAREHOLDERS' EQUITY 1.1.2004 IFRS Profit / loss for the period Dividends paid Translation differences SHAREHOLDERS' EQUITY 31.12.2004 Total 23 313 23 364 7 629 5 429 375 940 24 686 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 29 Reconciliation of shareholders' equity Note Shareholders' equity according to FAS Effects of adopting IFRS Development costs Depreciations on buildings Pension plans Inventories Deferred tax assets and liabilities Financial instruments The change of date of full recognition of revenue Other IFRS-adjustments Adjustments in shareholders' equity, total Shareholders' equity according to IFRS 31.12.2004 23 818 1 2 4 5 6 7 8 3 1 299 -366 419 224 -318 462 -830 -22 868 24 686 30.9.2004 22 617 1 157 -352 -695 331 178 298 -1 352 -435 22 182 30.6.2004 22 335 1 185 -356 -688 308 165 181 -1 246 -451 21 884 31.3.2004 21 612 1 230 -408 -681 214 132 379 -1 235 -369 21 243 1.1.2004 23 313 1 276 -475 -673 228 -40 415 -607 -73 51 23 364 Reconciliation of profit / loss RECONCILIATION OF PROFIT / LOSS Profit / loss according to FAS Effects of adopting IFRS Development costs Depreciations on buildings Pension plans Inventories Deferred tax assets and liabilities Financial instruments The change of date of full recognition of revenue Other IFRS-adjustments Adjustments in profit / loss, total Profit / loss according to IFRS Note 2004 3 945 1 2 4 5 6 7 8 3 23 123 1 092 -4 -278 47 -223 37 817 4 762 1-9/2004 3 318 -119 123 -22 103 218 -117 -745 73 -486 2 832 1-6/2004 2 878 -91 119 -15 80 205 -234 -639 73 -502 2 376 1-3/2004 2 275 -46 67 -8 -14 172 -36 -627 73 -419 1 856 The development of quarterly profit / loss EUR 1 000 FAS 1.1. -31.12.2004 Net sales Operating profit / loss Profit / loss for the period IFRS 1.1. - 31.12.2004 Continuing operations Net sales Operating profit / loss Profit/loss from continuing operations Profit/loss from discontinued operations Profit / loss for the period Breakdown Minority interest Share of profit / loss that belongs to owners of the parent company 2004 81 166 5 126 3 945 2004 10-12 20 538 350 627 10-12 2004 7-9 18 708 683 440 7-9 2004 4-6 15 799 787 603 4-6 2004 1-3 26 121 3 306 2 275 1-3 73 116 3 647 2 739 2 071 4 810 +48 4 762 21 940 2 324 1 832 113 1 945 +15 1 930 18 053 569 448 448 -8 456 16 243 791 612 612 +92 520 16 880 -37 -153 1 958 1 805 -51 1 856 30 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Raute Group's notes to the Financial Statements GENERAL INFORMATION Raute Group (later 'Group') is a global technology group which core business areas include production processes of veneer based wood products. The project deliveries contain entire factories, production lines and single machines. The total service concept of technology services includes spare part, maintenance and modernization services as well as services related to business development of our clients. The parent company of the Group, Raute Oyj (Business ID FI1490726), is a public limited liability company organized under the laws of the Republic of Finland, domiciled in Lahti. The A-shares are quoted on the main list in the group of Industrial Products and Services on the Helsinki Stock Exchange. The principal executive offices of the Group are located at Rautetie 2, 15550 Nastola and the postal address is P.O.Box 69, FI-15551 NASTOLA, Finland. The consolidated financial statements have been prepared under the historical cost convention, except for revaluation of available-for-sale financial assets and financial assets and liabilities (including derivatives) at fair value through profit or loss. All amounts in the consolidated financial statements are in euro thousand unless otherwise stated. The preparation of financial statements in accordance with IFRS requires the management to make estimates and judgments in applying the Group's accounting policies. Information about the estimates and judgments that the management has used and which are most critical to the figures in the financial statements are presented under section "The Critical Accounting Estimates and Judgements". Segment reporting The Group's primary format for reporting segment information is business segments and secondary format is geographical segments. The business segments are based upon the Group's internal organizational, management and financial reporting structure. A geographical segment is identified as a reportable segment if its revenue is 10% or more of the Group's total revenue and if its risks and returns are different from those of components operating in other economic environments. For the financial years 2004 and 2005 the continuing operations as a whole are included in the Wood Product Technology segment. Consolidation principles The consolidated financial statements include the parent company Raute Corporation and its subsidiaries in which the parent company holds, directly or indirectly, more than 50 per cent of the voting rights or otherwise has the power to exercise control over the operations. The subsidiaries are accounted for by using the purchase method. Subsidiaries are consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. Accounting policies for foreign subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. All intra-group transactions, receivables, liabilities and unrealized margins, as well as distribution of profits within the Group, are eliminated. The profit or loss for the period is in the income NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING PRINCIPLES Basis of preparation These are the first financial statements of the Group that have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements have been prepared in accordance with the IFRS and IAS standards and SIC and IFRIC interpretations effective or issued and early adopted at December 31, 2005. With the IFRS are referred to the standards and interpretations upon these in the Finnish Accounting Act and regulations issued by virtue to it and endorsed in the EU in accordance with the procedure defined in the EU Regulation (EY) N:o 1606/2002. The notes to the consolidated financial statements have been prepared in conformity with the Finnish Accounting Legislation. In 2005 the Group adopted IFRS accounting principles and has in this context applied the IFRS 1, First Time Adoption of International Financial Reporting Standards. The transition date is January 1, 2004. Reconciliations and descriptions of the effect of the transition from Finnish Accounting Standards to IFRS are presented in the IFRS-reconciliations in consolidated Financial Statements. F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 31 statement allocated to the profit or loss attributable to equity holders of the parent and profit and loss attributable to minority interest. In the balance sheet the minority interest is presented as a separate item of equity. Associates, over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 per cent and 50 per cent of the voting rights, are accounted for by using the equity method. Unrealized gains on transactions between Group and its associates are eliminated to the extent of the Group's interest in the associates. The Group's investment in associates includes goodwill identified on acquisition. The Group has made use of the exemption available under IFRS 1 not to restate the acquisitions that took place prior to January 1, 2004. Foreign currency translation Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('functional currency'). The consolidated financial statements are presented in euro, which is the functional and presentation currency of the parent company. Advances paid and received are recognized in the balance sheet using the exchange rate prevailing at the date of the payment. Other foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions or at rates approximating the rate prevailing at the date of transaction. At the balance sheet date monetary assets and liabilities are translated at the average exchange rates on the balance sheet date. Gains and losses resulting from the settlement and translation of monetary assets and liabilities are recognized in the income statement above the operating profit or under financial income and expenses based on the nature of transactions. Income statements of foreign entities are translated into the Group's reporting currency at the weighted average exchange rates during the period and balance sheets are translated at the exchange rates on the balance sheet date. Exchange differences arising from the translation are recognized as a separate component of equity. Exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders' equity on consolidation. In accordance with the exemption allowed by IFRS 1 the previously accumulated translation differences are set to zero at January 1, 2004. The exchange rates used in the consolidation of subsidiaries are disclosed in the Note 39. Revenue recognition Sales of spare parts and other goods are recognized when the significant risks and rewards of ownership have been transferred to the purchaser. Revenue from services is recognized when the services are rendered. Revenue and costs from long-term contracts (projects) are recognized based on the percentage of completion method. Completion is measured by reference to the contract costs incurred up to the balance sheet date as a percentage of estimated total project costs for each contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Other operating income Revenue and gains not included in the net sales such as rental revenues and gains on disposal of fixed assets are included in other operating income. Assets held for sale and discontinued operations The Group has applied IFRS 5 to assets held for sale and discontinued operations. Assets held for sale and assets related to discontinued operations that are classified as assets held for sale are measured at the lower of their carrying amounts and fair value less costs to sell. Depreciations or amortizations of assets held for sale are ceased at the moment of the classification. Assets held for sale shall be disclosed separately in the balance sheet. A separate major line of business or geographical area of operations that has been either disposed or is classified as asset held for sale and is part of a single co-ordinated plan to dispose is presented as discontinued operation. Total of post-tax profit or loss for the discontinued operations and the gain or loss on disposal of the assets included in the discontinued operations are presented as a single amount on the face of the income statement. Income taxes The Group's income tax expense includes taxes of the Group's companies based on taxable profit for the period, together with tax adjustments for the previous periods and the change in deferred income taxes. Deferred tax assets and liabilities are determined for all temporary differences arising between the tax basis of assets and liabilities and their carrying values for financial reporting purposes using tax rates enacted by the balance sheet day. The principal temporary differences arise from the amortizations of tangible fixed assets. Deferred tax receivables are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. 32 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Financial assets and liabilities The Group classifies its financial assets and liabilities into the following categories: financial assets at fair value through profit and loss, loans and receivables and available-for-sale. Purchases and sales of financial assets and liabilities are recognized at the trade date. Financial assets at fair value through profit and loss include investments in equity securities, deposits with maturities over 3 months as well as investments in other securities intended to be held for less than 12 months . Available-for-sale investments are measured at fair value. Unrealized fair value changes are recognized directly in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses. Trade receivables are recognized initially at fair value. Trade receivables are assessed for credit loss risks and when there is objective evidence that the Group will not be able to collect all due amounts an impairment loss is recognized. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market and with no intention of trading. Loans and receivables are carried at amortized cost using the effective interest method and they are included in the noncurrent assets, unless they have a maturity of less than 12 months from the balance sheet date in which case they are included in the current assets. Cash and cash equivalents comprise cash in hand, shortterm bank deposits and other highly liquid investments with original maturity of three months or less. Bank overdrafts are included within the short term borrowings. Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost. Accounting for derivative financial instruments The Group does not apply hedge accounting. At the balance sheet date derivatives are valued at fair value and included in accruals. Changes in fair value are recognized in the income statement. Intangible assets Intangible asset is recognized in the balance sheet only if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. Otherwise the expenditure is expensed as incurred. Intangible assets include goodwill, capitalized development costs and other intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Research expenditure is recognized as an expense as incurred. Costs incurred on development projects relating to the design and testing of new or improved products are recognized as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Intangible assets with indefinite useful life are not subject to amortization and are tested annually for impairment. Intangible assets with definite useful life are amortized on a straight-line basis, as follows: Patents Capitalized development costs Computer programs Other intangible assets Property, plant and equipment All property, plant and equipment is valued at cost less subsequent depreciation and impairment. Ordinary repair and maintenance costs are recognized as an expense as incurred. Land is not depreciated. Other property, plant and equipment is depreciated using the straightline method over its estimated useful life, as follows: Buildings Plant and machinery Other property, plant and equipment 23-40 years 4-12 years 3-10 years 10 years 3 years 5 years 3-10 years The estimated useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The depreciation of property, plant and equipment is ceased when the asset is classified as an asset held for sale. Gains and losses on disposals of property, plant and equipment are included into the other operating income or expenses. Impairment of assets Assets with indefinite useful life are not subject to amortization and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortization are tested for impairment whenever events or changes in circumstance F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 33 indicate that the carrying amount may not be recoverable. The impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is higher of an assets fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Leases Leases where a significant portion of the risks and rewards of ownership are retained by the Group are classified as finance leases. Finance leases are capitalized at the lease's inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset's useful life and the lease term. The corresponding rental obligations, net of finance charges, are included in borrowings. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating lease are charged to the income statement on a straight-line basis over the period of the lease. Inventories Inventories are valued at the lowest of cost and net realizable value. Raw materials and supplies are valued at weighted average cost method. The cost of finished goods and work in progress comprises direct material and production costs and related production overheads including depreciation but excluding borrowing costs. The net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provision related to warranty obligation is recognized when revenue from construction contract, service or sale of spare part including a warranty clause is recognized. The unused provision is recognized as income at the end of the guarantee period. Restructuring provision is recognized when the Group has a detailed formal restructuring plan and the Group has started to implement the plan or has announced its main features to those affected by the plan. Provision for onerous contract is recognized when the unavoidable costs under the contract exceed the economic benefits expected to be received under it. Post-employment benefits: pension obligations The Finnish Statutory Employment Pension Scheme (`TEL') excluding the future disability benefit and the pension plans of the foreign subsidiaries are classified as defined contribution plans. The contributions to defined contribution plans are charged to the income statement in the year to which they relate. The future disability benefit of TEL as well as the supplementary retirement benefit scheme of Raute Corporation are classified as defined benefit plans. In 2005 the supplementary retirement benefit scheme was transferred from Group's pension fund to a pension company. The liabilities and expenses from the defined benefit plans are recognized on the basis of actuarial calculations prepared by authorized actuaries. In accordance with the exemption allowed by IFRS 1 all actuarial gains and losses have been recognized in the opening balance sheet at the day of transition January 1, 2004. Subsequent actuarial gains and losses exceeding the greater of 10% of the fair value of plan assets or 10% of the present value of the defined benefit obligation are recognized in the income statement over the employees' expected average working lives. Employment benefits: share-based payments Costs arising from share option plans made before November 7, 2002 are not recognized in the income statement. Dividends Dividends proposed by the Boards of Directors are not recorded in the financial statements until the shareholders have approved them at the General Meeting. Earning per share Earnings per share is calculated by dividing the net profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated using the treasury stock method. The weighted average number of ordinary shares in issue is adjusted as if the options were exercised. The assumption of exercise is not reflected in earnings per share when the exercise price of the options exceeds the average market price of the shares during the period. The options have a dilutive effect only if the average market price of the share during the period exceeds the exercise price of the options. The critical accounting estimates and judgements The preparation of financial statements in accordance with IFRS requires the management to make estimates and assumptions. In addition, the management makes judgements in applying the Group's accounting policies. These may have effect on the carrying amounts of assets 34 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P and liabilities, on disclosure of the contingent assets and liabilities and revenues and costs for the period. Actual results may differ from the estimates and assumptions. The intangible assets with indefinite useful life are tested annually for impairment. Assets that are subject to amortization are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations, which require the use of estimates. The percentage of completion method is based on the expected revenue and costs of the project, as well as reliable measurement of the proceeding of the project. If the estimates of the project outcome change, the revenue and profit will be affected in the period when the change is made. Warranty provisions are assessed based on past experience and attention is paid to the risks related to the specific product. Application of the standards The following standards and related interpretations are not relevant for the Group due to the nature of the business and financial transactions: IFRS 4 IAS 26 IAS 29 IAS 30 IAS 31 IAS 41 The amendments for the IAS 39 standard issued by IASB in years 2004 and 2005 will be adopted by Raute in year 2006. Raute estimates that the adoption will not have material impact to the future financial statements. The new standard IFRS 7 that issued by IASB in year 2005 will be adopted by Raute in year 2007. Raute estimates that adoption of this standard will only impact the format and extent of disclosures presented in the accounts. EUR 1 000 2005 % 2004 % 2 SEGMENT INFORMATION Raute's primary reporting segment is business segment. Continuing operations belong to wood products technology segment. The secondary reporting segment is geographical. Geographical segment consists of market areas accounting for over 10% of Group's net sales. Net sales to external clients by clients' geographical location Europe North-America Russia Asia Rest of the world TOTAL Assets by geographical location Europe North-America Russia Asia Rest of the world TOTAL 48 655 6 375 200 155 50 55 435 89 11 0 0 0 100 46 188 120 42 127 3 941 91 9 0 0 0 100 43 954 28 817 15 534 8 107 12 215 108 627 40 27 14 7 12 100 21 185 15 548 15 253 3 448 17 682 73 116 29 21 21 5 24 100 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 35 EUR 1 000 2005 % 2004 % Capital expenditure by geographical location Europe North-America Russia Asia Rest of the world TOTAL 3 PROCEEDS FROM SALES Main part of the net sales is comprised of project deliveries related to wood processing technology, which are handled as constructions contracts. Other part of net sales is comprised of technology services provided to wood products industry (spare parts, maintenance and modernization services as services provided to wood products industry) 3 654 142 1 1 3 798 96 4 0 0 0 100 2 000 55 5 2 060 97 3 0 0 0 100 Net sales by market area Finland North-America Russia Other Europe Asia South-America Oceania Others TOTAL 30 444 28 817 15 534 13 510 8 107 4 556 2 366 5 293 108 627 28 27 14 12 7 4 2 6 100 7 980 15 548 15 253 13 205 3 448 9 987 7 421 274 73 116 11 21 21 18 5 14 10 0 100 EUR 1 000 2005 2004 4 CONSTRUCTION CONTRACTS Net sales Net sales by percentage of completion Other net sales TOTAL 93 021 15 606 108 627 59 743 13 373 73 116 Project revenues entered as income from currently undelivered construction contracts recognized by percentage of completion Amount of construction contract revenues not yet entered as income (order book) Specification of combined asset and liability items Advances paid Advances wound up by percentage of completion Advance payments included in inventories Accrued income corresponding to revenues by percentage of completion Advances received from project customers Project receivables included in short-term receivables 45 578 34 181 53 691 33 145 1 342 1 342 46 501 -34 211 12 290 453 453 34 323 -26 000 8 322 36 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P EUR 1 000 2005 2004 5 OTHER OPERATING INCOME Capital gain on sale of fixed assets Other TOTAL 6 MATERIALS AND SERVICES 225 483 708 405 418 823 Materials and supplies - Purchases during the period - Change in inventories External services TOTAL 7 PERSONNEL EXPENSES 57 131 173 8 020 65 324 32 510 94 3 670 36 274 Personnel expenses in Income Statement Wages and salaries Pension contributions - Defined benefit plans - Defined contribution plans Other personnel costs TOTAL 8 PERSONNEL 21 137 -401 2 684 1 967 25 387 19 371 -1 092 2 416 1 945 22 640 Employed at 31.12. Workers Office staff TOTAL 191 342 533 124 208 335 543 123 - of which personnel working abroad Average Workers Office staff TOTAL 197 340 537 124 219 337 556 117 - of which personnel working abroad 9 RESEARCH AND DEVELOPMENT COSTS ENTERED AS EXPENSES FOR THE PERIOD Total research and development costs Recognized as assets in balance sheet Research and development costs entered as expenses for the period Research and development costs as per cent of net sales 10 DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES 3 616 -242 3 374 3,3 3 093 -523 2 570 4,2 Depreciations Intangible assets Tangible fixed assets - Buildings and structures - Machinery and equipment - Other tangible fixed assets TOTAL 516 1 210 2 877 510 1 314 6 3 002 1 151 1 172 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 37 EUR 1 000 2005 2004 11 ACQUISITIONS In March 2005 Raute Corporation acquired 29 percent of real estate holding company Eloc Oy's capital stock from Raute Corporation's Pension fund. After the acquisition Raute Corporation's shareholding of the company increased to 63 percentage. In April 2005 Raute acquired rest of the 50 percent in associated company Mecano Group. Mecano Group develops and delivers machine vision technology and measuring systems to wood products industry. Sales and marketing occurs mainly through Raute's sales network. Total cash flow from acquisitions in 2005 was EUR 304 thousand. No acquisitions were made during the corresponding year. 12 DISCONTINUED OPERATIONS Weighing and automation technology and its sale is handled as discontinued operation in year 2004 figures. Group disposed of the industry segment by selling the shares in Raute Precision Oy in February 2004. Intangible assets Tangible fixed assets Inventories Receivables 333 1 569 1 436 12 069 -10 974 4 433 2 952 7 385 Debts Total considerations Capital gains / losses Total considerations Cash flows Received as cash 7 385 -737 6 648 Subsidiaries' financial assets disposed Cash flow from disposals Development of profit / loss from discontinued operations Income Expenses 7 398 -4 481 2 917 -846 2 071 2 917 -846 2 071 Profit before taxes from available-for-sale asset Taxes Profit from available-for-sale asset Profit before taxes when assets are recognized in fair value Taxes Profit after taxes Cash flow from discontinued operations Cash flow from operating activities Cash flow from investing activities TOTAL 13 OTHER OPERATING EXPENSES 778 -41 737 Indirect production expenses Sales and marketing expenses 2 842 2 536 2 854 3 152 11 384 1 700 2 051 2 407 1 880 8 038 Administration expenses Other expenses TOTAL 38 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P EUR 1 000 2005 2004 14 FINANCIAL INCOME AND EXPENSES Interest expenses Interest income Dividend income Profit from sales of available-for-sale investments Exchange rate profit / loss Profit from sales of trading assets Change in fair value of trading assets Other financial expenses TOTAL -40 142 56 95 217 217 403 -33 1 058 -212 118 307 5 -268 -216 656 -78 312 Exchange rate differences entered in Income Statement Included in net sales Included in purchases and other expenses Included in financial income / expenses TOTAL 15 INCOME TAXES -518 32 217 -269 -439 -5 -268 -712 From operations, financial year From operations, previous years Change in deferred taxes TOTAL -1 653 3 227 -1 423 -967 78 -278 -1 167 Analysis of the relationship between realized tax expense and theoretical accounting result using Finnish tax rate of 26% (tax rate in the comparison year is 29%) Profit before taxes Accounted tax in year 2005, tax rate 26% / 2004 tax rate 29% Effect of changes in tax rates Effect of differences in taxes from other countries Tax free income Non-deductible costs Taxes from the previous financial years Unrecognized tax assets from the losses of foreign subsidiaries Other items Consolidated tax expense Taxes from the year 2004 include EUR 157 thousand of extraordinary tax benefit due to change in Finnish tax legislation. In 2004 tax expense related to discontinuing of the business of Raute Precision was EUR 800 thousand and tax expense from operating activities of discontinuing operations was EUR 47 thousand. 16 EARNINGS PER SHARE 5 461 -1 420 3 906 -1 133 157 -31 28 -194 1 190 -1 423 -199 77 -172 106 -1 167 Share of profit from continuing operations that belong to owners of the parent company Share of profit from discontinued operations that belong to owners of the parent company Weighted average number of shares, 1000 shares Effect of stock options issued in 1998, 1000 shares Diluted weighted average number of shares, 1000 shares Earnings per share from the continuing operations, EUR 4 152 2 691 2 071 3 815 57 3 872 1.09 3 815 3 815 0.71 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 39 EUR 1 000 2005 2004 Diluted earnings per share from the continuing operations, EUR Earnings per share from the discontinued operations, EUR Diluted earnings per share from the discontinued operations, EUR The effect of options to earnings per share in year 2004 has been antidilutive +0.01%. The effect is not included in diluted earnings per share. 17 INTANGIBLE ASSETS 1.07 0.71 0.54 0.54 EUR 1 000 Intangible assets 2004 Carrying amount at 1 January 2004 Exchange rate differences Additions Disposals Reclassifications of held-for-sale items Other reclassifications between items Carrying amount at 31 December 2004 Accumulated depreciation and amortisation at 1 January 2004 Exchange rate differences Accumulated depreciations on disposals Accumulated depreciations on reclassifications to held-for-sale items Accumulated depreciations on other reclassifications between items Depreciation for the financial period Accumulated depreciation and amortisation at 31 December 2004 Book value at 1 January 2004 Book value at 31 December 2004 Intangible assets 2005 Carrying amount at 1 January 2005 Exchange rate differences Additions Disposals Reclassifications to held-for-sale items Other reclassifications between items Carrying amount at 31 December 2005 Accumulated depreciation and amortisation at 1 January 2005 Exchange rate differences Accumulated depreciations on disposals Accumulated depreciations on reclassifications to held-for-sale items Accumulated depreciations on other reclassifications between items Depreciation for the financial period Accumulated depreciation and amortisation at 31 December 2005 Book value at 1 January 2005 Book value at 31 December 2005 Development costs Long-term expenses and intangible rights TOTAL 1 776 523 4 497 785 6 273 1 308 443 2 298 -500 5 725 -3 282 443 8 023 -3 782 19 -500 -1 000 1 276 1 298 -690 -3 953 1 215 1 772 19 -1 190 -4 953 2 491 3 070 2 298 242 -141 2 399 -1 000 5 725 745 8 023 987 -141 6 470 -3 953 8 870 -4 953 -500 -1 500 1 298 899 -660 -4 613 1 772 1 857 -1 160 -6 113 3 070 2 757 40 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 18 PROPERTY, PLANT AND EQUIPMENT Land and water Buildings and structures Machinery and equipment EUR 1 000 Property, plant and equipment 2004 Carrying amount at 1 January 2004 Exchange rate differences Additions Disposals Reclassifications of held-for-sale items Other reclassifications between items Carrying amount at 31 December 2004 Accumulated depreciation and amortisation at 1 January 2004 Exchange rate differences Accumulated depreciations on disposals Accumulated depreciations on reclassifications to held-for-sale items Accumulated depreciations on other reclassifications between items Depreciation for the reporting period Accumulated depreciation and amortisation at 31 December 2004 Book value at 1 January 2004 Book value at 31 December 2004 Property, plant, and equipment 2005 Carrying amount at 1 January 2005 Exchange rate differences Additions Disposals Reclassifications to held-for-sale items Other reclassifications between items Carrying amount at 31 December 2005 Accumulated depreciation and amortisation at 1 January 2005 Exchange rate differences Accumulated depreciations on disposals Accumulated depreciations on reclassifications to held-for-sale items Accumulated depreciations on other reclassifications between items Depreciation for the financial period Accumulated depreciation and amortisation at 31 December 2005 Book value at 1 January 2005 Book value at 31 December 2005 Assets in progress and Other advance tangible payments received assets TOTAL 1 180 -6 47 -47 15 265 -21 21 691 -65 414 3 552 229 39 102 -92 1 246 -1 721 300 -1 201 667 -473 69 1 174 14 412 269 22 089 417 -781 -443 38 092 0 0 -6 839 16 483 -16 703 62 310 -363 0 -23 905 78 793 -517 -1 289 -6 -1 812 0 552 0 -24 846 15 197 13 246 0 1 180 1 174 -6 857 8 426 7 555 -17 620 4 988 4 469 -369 51 48 1 174 105 5 -50 14 412 405 159 -128 22 089 1 135 1 462 -60 417 0 566 38 092 1 645 2 192 -243 -6 1 234 14 849 24 627 411 566 41 687 0 -6 857 -390 -17 620 -1 050 -369 0 -24 846 -1 440 256 256 -515 0 1 174 1 234 -7 506 7 555 7 342 -1 202 -19 872 4 469 4 755 -369 48 42 0 0 566 -1 717 -27 747 13 246 13 939 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 41 EUR 1 000 2005 2004 19 INVESTMENTS IN ASSOCIATED COMPANIES Book value at 1.1. Exchange rate differences Additions Share of the profit / loss for the period Disposals and other deductions *) Book value at 31.12. *) Reclassification of Mecano Group Oy's shares to subsidiary shares EUR 410 thousand and repayment of capital concerning Eloc Oy's shares EUR 1,321 thousand are included in deductions for the year 2004. Eloc Oy has become a subsidiary of Raute Corporation in 2005. Principal associated companies Eloc Oy (real estate holding company), domicile Lahti **) - share of ownership - assets - liabilities - net sales - profit / loss **) Consolidated in group accounts from 1.1.2005 with purchase method after the share of ownership increased to 63 per cent. 20 AVAILABLE-FOR-SALE ASSETS 309 2 030 -53 -309 0 -1 668 309 34 % 924 11 40 -1 173 Balance Sheet value at 1.1. Additions Deductions Balance Sheet value at 31.12. Available-for-sale assets include unquoted shares. These shares are recognized at cost deducted with possible impairments, since their fair value cannot be determined reliably. 21 LONG-TERM RECEIVABLES 342 81 -28 395 423 -81 342 Loan receivables TOTAL 22 INVENTORIES 48 48 48 48 Materials and supplies Work in progress Finished products / goods Advance payments TOTAL 2 456 1 154 74 1 342 5 026 2 589 586 247 453 3 875 Inventories, which are valued at net realisable value, are in total EUR 3 684 thousand (EUR 3 422 thousand). In the financial period, inventories were entered as expenses at net realisable value for a total of EUR 571 thousand (EUR 533 thousand). Inventories entered as expenses during the financial period are in total EUR 571 thousand (EUR 533 thousand). 42 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P EUR 1 000 2005 2004 23 TRADE RECEIVABLES AND OTHER RECEIVABLES Short-term receivables - Trade receivables - Loan receivables - Accrued income and prepaid expenses - Derivative receivables - Other receivables TOTAL Short-term receivables from associated companies - Trade receivables Balance Sheet values correspond best to the amount of money, which is the maximum amount of credit risk without taking into consideration the fair value of collaterals, in that case where other contract parties are not able to fulfill their obligations related to financial instruments. Receivables do not include significant credit risk clusters. Significant items included in accrued income and prepaid expenses - Project receivables recognized according to percentage of completion - Other accrued income and prepaid expenses TOTAL Impairments recognized from trade receivables are in total EUR 5 thousand (EUR 62 thousand). 24 FINANCIAL ITEMS AT FAIR VALUE THROUGH PROFIT / LOSS 7 021 1 050 13 091 504 21 666 3 954 1 000 9 191 78 755 14 978 6 12 290 801 13 091 8 322 869 9 191 Initially recognized as financial assets / liabilities through profit / loss Fair valuation of cash and cash equivalents Financial items at fair value through profit / loss at the end of the financial period 25 CASH AND CASH EQUIVALENTS Cash and bank accounts Bank deposits TOTAL LONG-TERM ASSETS HELD AS AVAILABLE-FOR-SALE Long-term assets held as available-for-sale comprise mainly of real estate investments not included in operating activities. 8 536 439 8 975 7 715 36 7 751 1 819 600 2 419 1 179 600 1 779 26 Long-term assets held as available-for-sale in the balance sheet Tangible fixed assets TOTAL 27 SHAREHOLDERS' EQUITY AND DISTRIBUTABLE FUNDS 0 0 555 555 Notes to shareholders' equity Shareholders' equity is divided as follows Volume, 1 000 shares Nominal value, EUR Total shareholders' equity, EUR thousand K-shares (20 votes/share), 1 000 shares A-shares (1 vote/share), 1 000 shares Maximum shareholders' equity is EUR 20 000 thousand (EUR 20 000 thousand). All issued shares are paid in full. Other funds include shares subscibed by warrants that have not yet been registered in trade register by the balance sheet date. 3 815 2.00 7 629 991 2 824 3 815 2.00 7 629 991 2 824 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 43 EUR 1 000 Share premium includes the value paid for shares in connection with rights issue that exceeds nominal value. Distributable funds Retained earnings at 31.12. Profit for the period Transfer of accumulated depreciation to equity Product development costs recognized as an asset Distributable shareholders' equity at 31.12. After balance sheet date, the Board of Directors has proposed to Annual General Meeting that a dividend of EUR 0.60 per share shall be paid from financial year 2005. 28 PROVISIONS 2005 2004 8 699 4 152 -2 297 -899 9 655 6 866 4 762 -2 305 -1 298 8 025 Warranty provisions Book value at the beginning of the financial year Additions Used Cancelled unused amounts Exchange rate differences Book value at the end of the financial year Negative project margins Provisions in total long-term and short-term Provisions at January 1, 2004 include EUR 704 thousand non-recurring expense due to restructuring of North-American operations. 1 346 2 387 -1 367 -646 21 1 741 661 2 402 475 1 927 1 308 1 410 -763 -578 -31 1 346 1 346 654 692 29 DEFERRED TAX LIABILITIES AND DEFERRED TAX ASSETS Items entered in income statement EUR 1 000 Deferred tax assets Depreciation differences and other provisions Changes in fair value Effects of Group consolidation Other taxable temporary differences Total Items recognized Acquisitions in and shareholders' Translation disposals of equity differences subsidiaries 31.12.2003 31.12.2004 0 0 21 523 544 31.12.2004 -21 -289 -310 0 0 0 0 235 235 31.12.2005 0 0 0 Depreciation differences and other provisions Changes in fair value Effects of Group consolidation Other taxable temporary differences Total 235 235 -25 -25 0 0 0 210 210 44 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Items Items recognized entered in in Acquisitions income shareand statement holders' Translation disposals of equity differences subsidiaries Deferred tax liabilities Depreciation differences and other provisions Changes in fair value Effects of Group consolidation Other taxable temporary differences Total 31.12.2003 658 -99 414 649 1 622 31.12.2004 -207 219 -21 -23 -32 -38 -38 0 0 31.12.2004 451 120 393 588 1 552 31.12.2005 1 -6 -4 -243 -252 0 0 0 452 114 389 345 1 300 Depreciation differences and other provisions Changes in fair value Effects of Group consolidation Other taxable temporary differences Total 451 120 393 588 1 552 Unrecognized tax assets from losses of foreign subsidaries are in total EUR 3,692 thousand (EUR 3,274 thousand). Deferred tax liability is not recognized from undistributed earnings of Finnish subsidiaries and associated companies, since in most cases these earnings are transfered to the company without tax implications. EUR 1 000 30 LONG-TERM INTEREST-BEARING LIABILITIES 2005 2004 Long-term interest-bearing liabilities - Loans from financial institutions TOTAL 357 357 186 186 Long-term interest-bearing liabilities are Tekes-loans and their repayment period is between the years 2005-2008. Interest on the loans is 1.0 per cent. 31 CARRYING VALUES AND FAIR VALUES OF LIABILITIES Majority of the Group's financial liabilities are short-term and their carrying value equals fair value. Fair value of long-term liabilities with the exeption of partial payments are EUR 357 thousand (EUR 186 thousand) and their carrying value is EUR 357 thousand (EUR 186 thousand). 32 SHORT-TERM INTEREST-BEARING LIABILITIES Partial payments of long-term debts Used credits in current accounts Other short-term interest-bearing debts Total short-term interest-bearing liabilities Distribution of Group's short-term loans by currencies - Euro - Canadian Dollar 33 ADVANCE PAYMENTS RECEIVED, TRADE AND OTHER PAYABLES Advance payments received EUR 8,500 thousand (EUR 2,136 thousand) comprise of advances received from projects in progress. 66 110 176 100% 26 1 528 120 1 674 9% 91% Short-term liabilities in Balance Sheet - Trade payables - Accrued expenses and prepaid income - Derivative liabilities - Other liabilities TOTAL 6 572 8 823 145 528 16 068 3 224 9 472 398 13 094 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 45 EUR 1 000 Substantial items included in accrued expenses and prepaid income - Periodizing of project costs - Periodizing of personnel costs - Other accrued expenses and prepaid income TOTAL 34 PENSION OBLIGATIONS 2005 2004 3 468 4 312 1 043 8 823 4 763 3 637 1 072 9 472 Disability pension included in Finnish TEL-pension plan and Raute Corporation's voluntary supplementary pension plan are treated as defined benefit plans. Raute Corporation's Pension Fund Voluntary supplement to pension coverage for those employees that have had long-term employment with Raute Corporation is managed in the Raute Corporation's Pension Fund that has been closed on October 1, 1992. During the year 2005, Raute Corporation has made an agreement to transfer the supplementary pensions insured in the Pension Fund to Sampo Life Insurance company. In the year 2005 overmargin of EUR 1.2 million has been refunded from the Pension Fund, which is distributed as income in IFRS financial statements among the years 2003-2005. Pension Fund has been set in liquidation starting from April 1, 2005 and final settlement has been prepared from the situation on September 30, 2005. Defined benefit pension plans Items recognized in Balance Sheet Present value of funded obligations Fair value of assets included in the plan Difference Present value of non-funded obligations Unrecognized actuarial losses Unrecognized costs based on retrospective work performance Net liabilities (receivables) in Balance Sheet (liability +/ receivable -) Amounts in Balance Sheet Liabilities Assets Net liabilities in Balance Sheet (liability +/ receivable -) Items entered in Income Statement Costs based on the work performance in the financial year Interest on obligation Expected income from the assets included in the plan Effect of changes in billing basis Net of recognized actuarial gains / losses in the financial year Costs based on retrospective work performance Profits / losses resulting from the reduction of the plan or fulfilling of the obligation Total, included in personnel expenses (expenses +/income -) Realized income from the assets included in the plan (expenses +/income -) Changes in net liabilities recognized in Balance Sheet Net liabilities at 1.1. Net amount of income / expenses entered in Income Statement Contributions from the plan Exchange rate differences from foreign plans Liabilities acquired from business combinations Net liabilities at 31.12. (liability +/receivable -) 380 -419 -419 -401 1 200 673 -1 092 14 -129 -346 -401 373 -1 092 -142 -95 -61 48 77 -64 181 254 -201 -1 170 380 380 76 -494 -419 154 143 380 -583 673 -419 335 -252 83 3 538 -4 046 -509 46 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P EUR 1 000 2005 2004 Key actuarial assumptions Discount interest - Finland Expected yield from the assets - Finland Yearly salary increase assumption - Finland Inflation assumption - Finland Personnel turnover assumption - Finland 35 RELATED PARTY TRANSACTIONS 4.5 - 5.0% 4.5% 3.0 - 3.5% 2.0% 1.0 - 2.0% 5.0% 5.0% 3.5% 2.0% 1.0 - 2.0% Raute Group's related party consists of associated companies, board members, President and CEO and Presidents of the subsidiaries Management's employee benefits Salaries and other short-term employee benefits Share-based payments TOTAL 894 0 894 823 6 829 Raute Corporation's Pension Fund See note number 34, Pension obligations Company's Board of Directors, President and CEO and Presidents of the subsidiaries owned a total of 82,338 A-shares and 96,990 K-shares. Management's ownership corresponds to 4.7 percentage of the shares in the company and 8.9 percentage of associated total voting rights. The figures include the holdings of their own, minor children and control entities. Warrants owned by the management correspond to 11.8 percentage of the total amount of B-warrants issued by Raute Corporation. A total of 25,000 A-shares may be subscribed on the basis of these warrants corresponding to 0.9 percentage of the voting rights of A-shares and 0.1 percentage of the total voting rights. Sickness fund Raute Corporation has an insurance fund, which pays its members additional benefits on top of compensations being paid according to Sickness Insurance Act. Raute's sickness fund's range of operations consists of personnel in Raute Corporation and its domestic subsidiaries as well as personnel in former subsidiary Raute Precision Oy. Raute's sickness fund has deposited its assets to Raute Corporation. The amount of deposits was EUR 110 thousand at 31.12. (EUR 120 thousand) and 1.75 per cent (2.0%) of interest was paid to it. No loans are granted to related parties. 36 PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledged assets Raute Group has long-term bilateral credit facilities to a total of EUR 15,000 (15,000) thousand, from which nothing was used during 2005. Raute Corporation has a ten million EUR domestic commercial paper plan, which is arranged by Nordea Bank Finland Oyj. Within the limits of the plan, the Corporation can issue commercial papers with maturity under one year. Debts and other contingent liabilities above have been secured by mortgages - Mortgages on real property - Business mortgages 1 134 10 000 1 151 10 000 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 47 EUR 1 000 2005 2004 Contingent liabilities and other liabilities On behalf of Group companies - Guarantees issued On behalf of other companies - Guarantees issued Leasing and rent liabilities - For the current accounting period - For subsequent accounting periods TOTAL Other lease obligations Under 1 year 1 - 5 years Over 5 years TOTAL 4 111 5 873 450 126 76 202 127 97 224 53 46 99 26 25 51 Forward exchange contracts - Nominal value - Market value The nominal value is the value of underlying instruments converted into euros using the exchange rate on the balance sheet date. Market value is the profit generated, if the derivatives position would have been closed at the market price on the balance sheet date. Other own obligations No money loans, pledges or other contingent liabilities have been given on behalf of the management, shareholders or associated companies. 9 901 -145 13 472 78 Financial risk management The fundamental financing risks of Raute's international business operations are liquidity, currency, and credit risks. The principles of the financing policy, which is approved by Raute's board, are cost efficient hedging and risk minimizing of such risk that negatively affects the Group's net income or cash flows. The financing policy defines the limiting values controlling the operation, the funding and hedging instruments, and the approvable counterparties. The parent company financing unit is responsible for the implementation of the financing risk management. It identifies, evaluates, and hedges finance risks in cooperation with the operative business units. In addition, the external fund-raising, asset management and required hedging are concentrated to the financing unit. Currency risks The major portion of Raute's turnover comes in outside euro zone currencies. In customer deliveries and inter-company transactions different currencies are used, of which the most important are the US and Canadian dollars. According to the financing policy, operative business units must hedge all foreign currency flows over EUR 100 000 based on committed delivery and purchase agreements. Foreign exchange clauses are used in order to minimize the tender period currency risk. Interest rate risks Interest rate risks are managed by keeping some of the loans by fixed rates. Investments in interest funds are made in money market funds. Credit and other counterparty risks Investments and derivative agreements are only made with counterparties that meet the credit rating criteria defined in the financing policy. When making investments, derivative and loans agreements, the Group applies counterparty specific limits in order to avoid risk concentrations. Trade-related credit risks are managed by demanding bank guarantees or confirmed letters of credit for customer receivables for project deliveries. 48 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Liquidity The minimum amount of cash, current investments and available credit liabilities are defined in the financing policy in order to ensure the Group's liquidity. In the long run, risks related to the availability and pricing of funding are managed by using different sources of funding. The parent company has a EUR 10 Million domestic commercial paper program, within which commercial papers maturing in less than one year can be issued. In addition, the company has noncurrent, private credit regulation agreements for a total of EUR 15 Million. Investment activities are mainly implemented through mutual funds. Good creditworthiness and sufficient liquidity is required of the funds. EUR 1 000 37 SHARE-BASED PAYMENTS 2005 2004 (1 000 shares) In the beginning of the financial year Options exercised Options expired Options available for exercise at the end of the financial year During the financial year 2005, a total of 1.650 Raute Corporation's B-warrants from 1998 were subscibed. The subscriptions are registered in trade register on January 25, 2006. As a result of subscriptions, the share capital increases by EUR 3.3 thousand and EUR 10.3 thousand is recognized in share premium. Exercise price as Exercise price as an weighted av- The amount of an weighted av- The amount of erage per share, options erage per share, options 1.09 212 500 0.60 0.24 3.56 212 500 1.09 425 000 -212 500 212 500 38 SHARES AND PARTICIPATIONS OWNED BY THE GROUP Group's ownership interest and voting power, % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 63.01 Parent company's ownership interest and voting power, % 100.00 100.00 0.00 100.00 100.00 100.00 50.00 100.00 0.00 100.00 63.01 Group companies Raute Wood Ltd., New Westminster, BC, Canada Raute Inc., Delaware, USA Raute Wood Inc., Rossville, Tennessee, USA RWS-Engineering Oy, Lahti Raute Group Asia Pte Ltd., Singapore Raute WPM Oy, Lahti Raute Wood Oy-Santiago Limitada, Chile Mecano Group Oy, Kajaani Mecano Group Inc, Oregon, USA Raute Service LLC, St. Petersburg, Russia Eloc Oy, Lahti F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 49 EUR 1 000 39 EXCHANGE RATES USED IN CONSOLIDATION OF THE SUBSIDIARIES Income statement USD CAD SGD CLP RUB Balance sheet USD CAD SGD CLP RUB 2005 2004 1.2448 1.5097 2.0711 698.9770 35.1860 1.1797 1.3725 1.9628 609.4000 33.92 1.2433 1.6170 2.1008 775.6396 1.3621 1.6416 2.2262 770.6155 50 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Parent company Income statement EUR 1 000 Note 1.1.-31.12.2005 1.1.-31.12.2004 2,3 NET SALES Increase (+) or decrease (-) in inventories of finished goods and work in progress 87 084 54 696 -127 2 220 54 931 17 938 1 720 9 059 83 648 5 529 -369 3 915 28 619 16 888 1 923 6 258 53 688 4 554 4 5 6 9 Other operating income Materials and services Personnel expenses Other operating expenses Total operating expenses OPERATING PROFIT Financial income and expenses 8,14,15 Depreciation, amortisation and impairment charges 10 10 10 10 Income from investments in other non-current assets Interest and other financial income Impairments from investments in non-current assets Interest and other financial expenses Total financial income and expenses PROFIT BEFORE EXTRAORDINARY ITEMS 56 1 206 -1 536 -76 -350 5 179 100 5 279 -32 -1 419 3 828 57 1 405 -1 900 -464 -902 3 652 128 3 780 553 -1 724 2 609 11 Extraordinary items PROFIT AFTER EXTRAORDINARY ITEMS 12 13 Appropriations Income taxes PROFIT FOR THE FINANCIAL YEAR F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 51 Parent company Balance sheet Eur 1 000 Note 31.12.2005 31.12.2004 ASSETS Fixed assets and other non-current assets 14 14 15 Intangible assets Tangible assets Investments Total Current assets 3,16 Inventories 17 18 Long-term receivables Investments held as current assets Cash and cash equivalents Total TOTAL ASSETS LIABILITIES Shareholders' equity 19 19 19 19 19 19 20 21 22 23 23 Share capital Equity issue Reserve fund Share premium Retained earnings Profit / loss for the financial year Total Appropriation reserve Provisions Liabilities Deferred tax liabilities Long-term liabilities Short-term liablities Total TOTAL LIABILITIES 130 277 21 067 21 474 55 577 12 184 12 427 43 550 243 5 429 13 322 3 828 30 222 1 740 2 141 12 561 2 609 28 228 1 709 1 186 7 629 14 5 429 7 629 3,17 Short-term receivables 2 011 124 20 076 8 975 1 580 32 766 55 577 1 969 88 11 830 7 712 1 167 22 766 43 550 1 625 11 122 10 064 22 811 1 363 11 149 8 272 20 784 52 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y Parent company Cash flow statement Eur 1 000 1.1.-31.12.2005 1.1.-31.12.2004 CASH FLOW FROM OPERATING ACTIVITIES Proceeds from sales Proceeds from other operating income Payments of operating expenses Cash flow before financial items and taxes Interests and other operating financial expenses paid Interests and other income received Dividends received Income taxes paid Cash flow before extraordinary items NET CASH FROM (+) / USED IN (-) OPERATING ACTIVITIES (A) CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure in tangible and intangible assets Acquisition of subsidiary shares Proceeds from disposal of tangible and intangible assets Proceeds from other investments Loans granted Interests received from investments NET CASH FROM (+) / USED IN (-) INVESTING ACTIVITIES (B) CASH FLOW FROM FINANCING ACTIVITIES Increase (+) / decrease (-) of short-term liabilities Increase (+) / decrease (-) of long-term liabilities Incerease (-) / decrease (+) of long-term and short-term receivables Dividends paid Group contributions, paid and received NET CASH FROM (+) / USED IN (-) FINANCING ACTIVITIES (C) NET CHANGE IN CASH AND CASH EQUIVALENTS (A+B+C) increase (+) / decrease (-) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 8 879 10 556 12 896 8 879 1 545 277 -20 -1 526 180 456 1 676 -3 154 -252 2 186 -3 815 150 -4 885 -4 017 -4 178 -2 753 -2 103 678 -1 523 -1 901 510 6 477 -1 134 122 2 551 -76 638 56 -2 529 5 398 5 398 -376 1 352 218 -681 -1 683 -1 683 85 360 1 788 -79 839 7 309 50 360 654 -53 210 -2 196 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 53 Parent company Notes to the financial statements 1 ACCOUNTING PRINCIPLES The accounting principles of the Parent Company's financial statements are presented only for those parts that differ from the accounting principles of the consolidated financial statements. Parent Company's financial statements have been prepared in accordance with the Finnish Accountancy Act (FAS). Foreign currency items Other than euro denominated transactions are recognized at the exchange rate effective on the transaction date. Receivables and liabilities denominated in other currencies are translated into euro at the average rate of the balance sheet date, except for hedged items that are valued at the agreed contract rate. Advances paid and received are entered in the balance sheet at the exchange rate effective on the payment date. The exchange rate gains resulting from the extension of protection contracts related to sales receivables will be capitalized into accrued expenses or receivables. Other exchange rate gains and losses are handled according to their impact on profit. Cash, cash equivalents and financial securities Cash and cash equivalents include cash, bank accounts, deposits with 3-months minimum maturity, and other cash equal assets. Financial securities include shares and participations, deposits with 3-month minimum maturity, and other securities with an intended holding period of less than one year. Starting on 1 January 2005, financial securities are measured at fair value through profit or loss. In the financial statements of the year of comparison, financial securities are assessed to their carrying cost or to a lower probable transfer price. Fixed assets and long-term investments Fixed assets are stated at cost less accumulated depreciation, with the exception for some property items and revaluated shares. Only variable costs arising from the acquisition and production of a product are included in the carrying amount. From the beginning of 2005, development expenditures arising from development related to the planning of new or more advanced products, are recognized as assets as soon as the product is technically feasible, it can be utilized commercially and the asset is expected to generate future economic benefit. Development expenditures previously entered as expenses, will not be recognized as assets at a later date. A product is depreciated ever since it is ready for use. The estimated useful life of development expenditures is three years, during which the products are depreciated based on the straight-line method. Depreciations of tangible and intangible assets are recorded with the straight-line method over the expected economic lives of the assets as follows: Goodwill Other intangible assets Consolidation differences Buildings and structures Machinery and equipment Other fixed assets 5 years 5-10 years 5 years 25 - 40 years 4 - 12 years 3 - 10 years Certain property and shares include, in addition to the non-depreciated acquisition cost, a maximum revaluation that equals the difference between the probable net realizable value and the non-depreciated acquisition cost. The probable realizable value is based on an assessment provided by an independent party. Extraordinary items Extraordinary items include significant and exceptional income and expenses that are not a part of the usual business operations. Group contributions received and paid are also recognized as extraordinary items. Pension plans Statutory pension coverage of the Group's Finnish personnel has been arranged through a pension insurance company. Voluntary supplementary pensions have been provided for the oldest staff members through Raute Group's Pension Fund, which was closed on 1 October 1992. In March 2005, Raute Group made an agreement to transfer the supplementary pensions insured in the Pension Fund to Sampo Life Insurance Company. In 2005, the Pension Fund has refunded the margin to Raute Group. The Pension Fund was set in liquidation starting on 1 April 2005 and a final settlement of the situation was prepared on 30 September 2005. Research and product development expenditures Research and development expenditures are recognized in the income statement as costs when incurred except 54 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y for development expenditures activated since 1 January 2005. Income taxes Income taxes recognized in the income statement include direct taxes for the period and tax adjustments for previous periods. Deferred tax assets and liabilities have not been recognized in the balance sheet for other than revaluations. The deferred tax liability included in the depreciation difference is presented in the notes. Changes in accounting principles on 1 January 2005 Revenue recognition The date of full revenue recognition (percentage of completion 100%) has been adjusted to match IAS 18. The adjustment of the revenue recognition date has an impact on the accrual of sales as well as on the balance sheet, e.g. on the amount of accrued income and prepaid expenses, and the amount of compulsory provisions. The effect of changes in revenue recognition has been adjusted in the income statement and balance sheet of the previous reporting period. Changes in valuation principles of financial securities Starting on 1 January 2005, financial securities are measured at fair value through profit or loss. In the previous reporting period the securities were assessed to their carrying amount or to a lower probable transfer price. Inventories Starting on 1 January 2005, a portion of the direct costs of production and depreciations without interest expenses has been included in the carrying amount. Previously only variable costs incurring from the acquisition and production of goods have been included in the cost of finished goods and work in progress. The effect of the changes in the valuation principles of inventories has been adjusted in the income statement and balance sheet of the previous reporting period. Recognition of R&D expenditures as assets Starting on 1 January 2005, development expenditures that accrue income for three years or more are recognized as other non-current expenses. Previously research and development expenditures have been assessed in the year of origination. The effect of the changes in the accounting principles on shareholders' equity is presented in Note 19. EUR 1 000 2 NET SALES BY MARKET AREA Finland Russia Other European countries North-America South-America Asia Oceania Other TOTAL 2005 % 2004 % 29 699 34 14 697 17 12 523 14 10 028 12 4 556 5 8 021 9 2 366 3 5 194 6 87 084 100 6 955 13 13 941 25 11 872 22 1 902 3 9 804 18 2 690 5 7 446 14 86 0 54 696 100 EUR 1 000 3 REVENUE RECOGNITION METHOD BASED ON PERCENTAGE OF COMPLETION Net sales by percentage of completion Other net sales TOTAL Project revenues entered as income from currently undelivered construction contracts recognized by percentage of completion Amount of construction contracts revenues not yet entered as income (order book) Specification of combined asset and liability items Advances paid Advances wound up by percentage of completion Advance payments included in inventories 2005 2004 78 595 8 489 87 084 45 729 8 967 54 696 36 662 32 689 49 716 26 697 759 445 759 445 Accrued income corresponding to revenues by percentage of completion Advances received from project customers Balance sheet project receivables included in non-current receivables 4 OTHER OPERATING INCOME Capital gain on sale of fixed assets Other TOTAL 5 MATERIALS AND SERVICES Materials and supplies - Purchases - Change in inventories External services TOTAL 36 662 -26 202 10 460 32 689 -24 050 8 639 439 1 781 2 220 3 248 667 3 915 47 292 146 7 493 54 931 25 207 267 3 145 28 619 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 55 EUR 1 000 6 PERSONNEL EXPENSES Personnel expenses in income statement Wages and salaries Pension costs Other statutory personnel contributions TOTAL SALARIES AND REMUNERATIONS OF DIRECTORS Kiiski, Tapani, CEO 16.3.2004Mäkitalo, Risto, CEO 1.1.-16.3.2004 Rytilahti, Jarmo, Chairman of the Board Mustakallio, Sinikka, Member of the Board Lehtonen, Heikki, Member of the Board Mustakallio, Mika, Member of the Board Mustakallio, Panu, Member of the Board Nihti, Markku, Member of the Board Paasikivi, Pekka, Member of the Board TOTAL 7 PERSONNEL Employed at 31 December Workers Office staff TOTAL - of which personnel working abroad Average Workers Office staff TOTAL - of which personnel working abroad 8 DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES Depreciation and amortisation from tangible and intangible assets 9 OTHER OPERATING EXPENSES Indirect production costs Sales and marketing costs Administration costs Other costs TOTAL 10 FINANCIAL INCOME AND EXPENSES Income from investments in other non-current assets Dividends 2005 2004 EUR 1 000 Other interest and financial income Group companies Dividends and yield on investment funds from others Other interest and financial income from others TOTAL Impairments from investments in non-current assets Group companies 2005 2004 251 140 287 14 651 2 324 963 17 938 13 779 2 090 1 020 16 888 955 1 206 979 1 405 1 536 1 900 237 127 70 22 12 12 10 12 12 12 289 33 17 17 17 17 17 17 372 Interest and other financial expenses Group companies Other than associates or Group companies TOTAL Total financial income and expenses Exchange rate gains (+) / losses (-) included in total financial items 11 EXTRAORDINARY ITEMS Extraordinary income Contributions from Group companies TOTAL Extraordinary expenses Tax impact of extraordinary items TOTAL Extraordinary items in income statement (net) 12 APPROPRIATIONS Difference in planned and taxed depreciations TOTAL 13 INCOME TAXES Current financial year Previous financial years Change in deferred taxes TOTAL 4 72 76 -350 2 463 464 -902 101 -17 135 135 180 180 146 229 375 4 163 227 390 4 35 35 52 52 100 128 152 227 379 4 179 230 409 4 -32 -32 553 553 -1 421 2 -1 419 -1 724 1 720 1 923 -1 724 2 761 2 184 2 294 1 820 9 059 1 627 1 690 1 621 1 320 6 258 56 57 56 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 14 NON-CURRENT ASSETS INTANGIBLE ASSETS Capitalized product development costs Other capitalized expenditure and intangible Goodwill assets TANGIBLE ASSETS Assets in progress and advance payments received TOTAL EUR 1 000 Carrying amount at 1 January 2005 Additions Disposals CARRYING AMOUNT AT 31 DECEMBER 2005 Accumulated depreciation at 1 January 2005 Accumulated depreciations on disposals Depreciation for the accounting period ACCUMULATED DEPRECIATION AT 31 DECEMBER 2005 Revaluations at 1 January Revaluations wound up REVALUATIONS AT 31 DECEMBER 2005 BOOK VALUE AT 31 DECEMBER 2005 Land and water Buildings Machinery and and structures equipment Other tangible assets 526 38 -526 38 0 3 569 599 0 4 168 462 5 -50 417 9 544 161 -489 9 216 15 821 1 312 -59 17 074 336 566 -6 330 566 30 258 2 681 -1 130 31 809 -526 526 -2 206 -3 927 256 -11 731 59 -1 021 -12 693 -293 -18 683 841 -1 720 -375 0 0 -2 581 0 13 -324 -3 995 923 -436 487 -293 0 -19 562 936 -436 0 0 0 13 0 0 0 500 38 0 1 587 430 5 708 4 381 37 566 12 747 15 INVESTMENTS IN FIXED AND OTHER NON-CURRENT ASSETS SHARES RECEIVABLES TOTAL EUR 1 000 Carrying amount at 1 January 2005 Additions Disposals Transfers between items CARRYING AMOUNT AT 31 DECEMBER Accumulated impairments at 1 January 2005 Additions 2005 Transfers between items ACCUMULATED IMPAIRMENTS AT 31 DECEMBER 2005 BOOK VALUE AT 31 DECEMBER 2005 Group companies 4 347 2 104 1 745 8 196 -4 029 -1 536 -601 -6 166 2 030 Associated companies 1 745 Others 414 -30 Group companies 6 396 1 254 12 902 3 358 -30 16 230 -4 630 -1 536 0 -1 745 0 -601 601 0 0 384 7 650 0 384 0 7 650 -6 166 10 064 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 57 EUR 1 000 16 INVENTORIES Materials and supplies Work in progress Finished products / goods Advance payments TOTAL 17 SPECIFICATION OF RECEIVABLES Non-current receivables Non-current receivables from Group companies - Loan receivables Non-current receivables from others - Loan receivables TOTAL 2005 2004 EUR 1 000 19 SHAREHOLDERS' EQUITY Share capital at 1 January and 31 December Share issue at December 31 Premium fund at 1 January Share premium fund Reserve fund at 31 December Share premium fund at 1 January Transfer from reserve fund Share premium fund at 31 December 2005 2004 1 018 234 0 759 2 011 1 164 160 200 445 1 969 7 629 14 5 429 -5 429 0 7 629 5 429 5 429 5 429 5 429 12 561 2 609 -1 526 -436 114 13 322 3 828 30 222 76 48 124 40 48 88 Retained earnings at 1 January Changes during the financial year - Profit from the previous year - Dividends - Reductions in revaluations - Change of deferred tax liabilities from revaluation Retained earnings at 31 December Profit for the financial year Shareholders' equity at 31 December The accounting principles have been changed in the 2005 financial statements regarding the date of full recognition of revenue and inventory valuation method. The effect of these changes has been presented in the comparative 2004 income statement and balance sheet. The retained earnings of the comparative year 2004 have not been adjusted, but the changes in accounting principles have been presented in the 2004 profit. The effect in the 2004 profit was -EUR 670 thousand. Corrected profit for the financial year of 2004 was EUR 2 609 thousand whereas the original approved profit was EUR 3 279 thousand. 15 744 655 -3 815 -71 49 12 561 2 609 28 228 Current receivables Current receivables from Group companies - Trade receivables - Accrued income and prepaid expenses Total from Group companies Current receivables from associates - Trade receivables Total from associates Current receivables from others - Trade receivables - Loan receivables - Accrued income and prepaid expenses - Other receivables Total from others TOTAL Substantial items included in accrued income and prepaid expenses - Contribution receivables from Group companies - Project receivables entered according to percentage of completion - Other items TOTAL 18 INVESTMENTS HELD AS CURRENT ASSETS Fair value Book value DIFFERENCE Marketable securities are measured at fair value through profit or loss in the 2005 financial statements. The change in value of marketable securities was EUR 439 thousand positive. Current assets in marketable securities at 31 December 2005 are public fund units. 1 567 136 1 703 661 1 515 2 176 6 6 5 765 1 050 11 407 151 18 373 20 076 385 1 000 7 633 630 9 648 11 830 135 10 460 948 11 543 180 8 639 329 9 148 Distributable funds Retained earnings at 1 January Profit for the financial year Capitalized development costs DISTRIBUTABLE FUNDS Share capital of parent company Shares, EUR 1 000 Nominal value, EUR Total nominal value, EUR 1 000 K-shares (ordinary shares, 20 votes/share), 1 000 pcs A-shares (1 vote/share), 1 000 pcs 13 322 3 828 -38 17 112 12 561 2 609 15 170 8 975 -8 975 0 7 751 -7 712 39 3 815 2.00 7 629 991 2 824 58 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y EUR 1 000 20 APPROPRIATION RESERVE The appropriation reserve consists of accumulated depreciation difference of EUR 1 740 thousand (EUR 1 709 thousand), including deferred tax liabilities for EUR 452 thousand (EUR 444 thousand). 21 PROVISIONS Estimated warranty accruals at 1 January Changes during the financial year Estimated warranty accruals at 31 December Loss from construction contracts in order book TOTAL 22 DEFERRED TAX LIABILITIES Non-current - From revaluations 23 SPECIFICATION OF LIABILITIES Non-current liabilities Non-current tax liabilities - Non-current deferred tax liabilities (specification in Note 22) Non-current liabilities to others TOTAL 2005 2004 EUR 1 000 Substantial items included in accrued expenses and prepaid income - Accrued project expenses - Accrued employee related expenses - Tax liabilities - Other TOTAL 2005 2004 2 843 3 443 571 6 857 1 809 2 934 1 059 757 6 559 1 182 298 1 480 661 2 141 1 828 -642 1 186 1 186 24 PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledged assets Debts secured by mortgages Raute Group has non-current bilateral credit facilities for a total of EUR 15 000 (15 000) thousand, from which none has been in use in 2005. Raute Corporation has a ten million EUR domestic commercial paper plan, which is arranged by Nordea Bank Finland Oyj. Within the limits of the plan, the Corporation can issue commercial papers with maturity under one year. Debts and other contingent liabilities above have been secured by mortgages - Real estate mortgages - Business mortgages Contingent liabilities and other liabilities On behalf of Group companies - Guarantees issued On behalf of other companies - Guarantees issued Leasing and rent liabilities - For the current financial year - For subsequent financial years Forward exchange rate contracts - Nominal value - Market value The nominal value is the value of underlying instruments converted into euros using the exchange rate of balance sheet date. The market value is the profit generated, if the derivatives position would have been closed to the market price on the balance sheet date. Other own obligations No money loans, pledges or other contingent liabilities have been given on behalf of the management, shareholders or associated companies. 130 243 130 277 407 243 1 134 10 000 1 151 10 000 243 Liabilities with a maturity of more than five years - Other liabilities TOTAL Current liabilities Current liabilities to Group companies - Accounts payable - Accrued expenses and prepaid income - Other current liabilities Total to Group companies Current liabilities to associated companies - Accounts payable Total to associated companies Current liabilities to others - Advances received - Accounts payable - Accrued expenses and prepaid income - Other current liabilities Total to others TOTAL 4 971 0 7 5 9 901 -145 8 462 450 5 8 14 109 88 46 46 0 368 64 1 907 2 339 174 90 352 615 0 7 665 3 718 6 794 551 18 728 21 067 34 34 2 112 2 415 6 469 539 11 535 12 184 Interest-bearing debt - Non-current - Current TOTAL 277 2 016 2 293 472 472 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / P A R E N T C O M P A N Y 59 Key ratios describing the financial development EUR 1 000 Net sales Overseas sales % of net sales Operating profit / loss % of net sales Profit / loss before income taxes, from continuing operations % of net sales Profit / loss attributable to equity holders of the parent company % of net sales Return on investment, % (ROI) Return on equity, % (ROE) Balance sheet total Interest-bearing net liabilities % of net sales Interest-free liabilities Equity ratio, % Quick ratio Gearing Gross capital expenditure in fixed assets % of net sales R&D costs % of net sales Order book Personnel 31 December Personnel, average Dividends 2005*) 108 627 78 183 72.0 4 403 4.1 5 461 5.0 4 152 3.8 20.7 15.8 55 435 -10 861 -10.0 28 755 55.7 2.0 -41.5 3 798 3.5 3 616 3.3 55 317 533 537 2 289**) 2004*) 73 116 65 136 89.1 3 647 5.0 3 906 5.3 4 762 6.5 25.2 19.9 46 188 -7 670 -10.5 19 289 56.8 1.5 -30.6 2 060 2.8 3 093 4.2 35 417 543 556 1 526 2003 97 608 84 419 86.5 -3 340 -3.4 -2 274 -2.3 -2 703 -2.8 -5.4 -10.7 63 510 -4 238 -4.3 30 922 41.3 1.2 -18.2 1 502 1.5 2 651 2.7 38 774 758 783 3 815 2002 88 908 73 708 82.9 -8 299 -9.3 -8 951 -10.1 -7 329 -8.2 -18.5 -22.8 58 903 -4 450 -5.0 21 504 50.1 1.3 -16.3 2 793 3.1 3 611 4.1 25 387 801 835 1 907 2001 136 106 85 264 62.6 7 485 5.5 10 764 7.9 8 333 6.1 19.1 15.5 80 430 -6 396 -4.7 32 064 51.0 1.6 -17.2 5 157 3.8 4 478 3.3 34 586 836 860 3 815 *) The years 2004-2005 have been reported according to International Financial Reporting Standards (IFRS) and the years 2001-2003 according to Finnish Accounting Standards (FAS) **) The Board of Directors' proposal SHARE RELATED DATA EUR 1 000 Earnings per share from continuing operations, EUR Earnings per share from discontinued operations, EUR Equity to share, EUR Dividend per share, EUR Dividend per profit, % Effective dividend return, % Price/earnings ratio (P/E ratio) 2005*) 1.09 2004*) 0.71 0,54 6.80 0.60**) 55.12 4.21 13.08 6.47 0.40 32.0 5.2 6.16 6.11 1.00 -141.1 12.5 -11.3 7.18 0.50 -26.0 6.4 -4.1 9.74 1.00 70.7 11.8 6.0 2003 -0.71 2002 -1.92 2001 1.41 60 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P EUR 1 000 Development in share price ( A-shares) Lowest, EUR Highest, EUR Average exchange rate for the accounting period, EUR Share price at 31 December, EUR Market value of capital stock, EUR 1 000***) Trading in the company's shares (A-shares) Shares traded during the fiscal year, thousand % of the number of A-shares Issue-adjusted number of share average Issue-adjusted number of share average at year-end 2005*) 2004*) 2003 2002 2001 7.60 16.42 11.24 14.24 54 320 7.10 8.90 8.14 7.70 29 372 6.20 9.50 8.12 8.00 30 517 7.80 10.30 9.18 7.80 29 754 7.15 9.70 7.95 8.50 32 424 1 530 54.2 3 814 608 3 814 608 569 20.1 3 814 608 3 814 608 323 11.5 3 814 608 3 814 608 845 30.5 3 814 608 3 814 608 74 2.7 3 814 608 3 814 608 The deferred tax liabilities have been included in the computation of the key ratios. *) The years 2004-2005 have been reported according to International Financial Reporting Standards (IFRS) and the years 2001-2003 according to Finnish Accounting Standards (FAS). **) The Board of Directors' proposal ***) K-shares valued at the value of A-shares DEVELOPMENT OF QUARTERLY RESULTS EUR 1 000 CONTINUING OPERATIONS NET SALES Other operating income Operating expenses Depreciation, amortisation and impairment charges OPERATING PROFIT % of net sales Financial income and expenses PROFIT BEFORE TAX % of net sales Taxes PROFIT FROM CONTINUING OPERATIONS % of net sales ALLOCATION OF PROFIT / LOSS Profit/loss attributable to minority interest Profit/loss attributable to equity holders of the parent company EARNINGS PER SHARE earnings per share from continuing operations - undiluted, EUR - diluted, EUR Equity issue-adjusted number of shares - weighted average - diluted 2005 Q4 2005 Q3 2005 Q2 2005 Q1 2005 108 627 708 -102 054 -2 877 4 403 4 1 058 5 461 5 -1 423 4 038 4 31 503 89 -30 184 -715 695 2 255 950 3 -32 918 3 29 494 94 -26 997 -705 1 887 6 243 2 129 7 -596 1 534 5 29 138 72 -27 132 -675 1 403 5 292 1 695 6 -531 1 164 4 18 492 453 -17 742 -784 419 2 268 687 4 -264 423 2 -114 4 152 3 915 -2 1 536 -141 1 305 26 397 1.09 1.07 0.24 0.24 0.40 0.40 0.34 0.34 0.10 0.10 3 815 3 872 3 815 3 872 3 815 3 861 3 815 3 834 3 815 3 822 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 61 Definition of key ratios Return on investment, % (ROI) = Profit before tax*) + interest expenses + other financial expenses Balance Sheet total ./. interest-free liabilities (average) x 100 Return on equity, % (ROE) = Profit before tax *) ./. taxes Equity + minority interests (average) Interest-bearing liabilities ./. cash and cash equivalents + financial assets at fair value through profit / loss Equity + minority interests Balance Sheet total ./. advances received Cash and cash equivalents + financial assets at fair value through profit / loss + current receivables Current liabilities ./. advances received x 100 Interest-bearing net liabilities = Equity ratio, % = x 100 Quick ratio = Earnings per share (EPS) = Profit / loss for the period **) Equity issue-adjusted average number of shares during the year Equity to share = Equity Equity issue-adjusted number of shares at the day of the Financial Statements Dividend per share = Distributed dividend for the year Equity issue-adjusted number of shares at the day of the Financial Statements Dividend per profit, % = Dividend per share Earnings per share x 100 Effective dividend return, % = Dividend per share Equity issue-adjusted share price at 31 December x 100 Price/earnings ratio (P/E ratio) = Equity issue-adjusted share price at 31 December Earnings per share Market value of capital stock = Number of shares at year end (A+K shares) x Share price on the last day of the year Interest-bearing liabilities ./. cash and cash equivalents + financial assets at fair value through profit / loss x 100 Equity + minority interest Gearing, % = *) 2001 - 2003: profit before extraordinary items **) 2001 - 2003: profit before extraordinary items and taxes ./. taxes +/- minority interest 62 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P Shares and shareholders SHARE CAPITAL AT 31 DECEMBER 2005 SHARES K-shares (Ordinary shares) A-shares TOTAL SHARES AT 31 DECEMBER 2005 Voting rights 20 votes/share 1 vote/share Nominal value EUR/share 2.00 2.00 2.00 Volume 1 000 shares 991 2 823 3 815 Total nominal value EUR 1 000 1 982 5 647 7 629 CHANGES IN SHARE CAPITAL FROM 1 JANUARY 1994 TO 31 DECEMBER 2005 Share capital at 1 January 1994 Issue of share capital 21 September 1994 Change of K-series shares into A-series shares 1998 Decrease of share capital (reserve fund) 30 June 2000 Increase of share capital, capitalization issue 30 June 2000 Change of K-series shares into A-series shares 2003 Change of K-series shares into A-series shares 2004 SHARE CAPITAL AT 31 DECEMBER 2005 Share capital EUR 5 359 073 1 069 285 K-shares pcs 1 054 600 -14 000 A-shares pcs 2 124 240 635 768 14 000 -12 648 1 213 506 -44 539 -4 900 7 629 216 991 161 44 539 4 900 2 823 447 During the period, Raute Corporation did not decide to issue shares, convertible bonds or stock options. The Corporation's Board of Directors does not hold any effective authorization to share issuing or issuing of convertible bonds and stock options. On 22 March 2005, the Annual General Meeting authorized the Board of Directors to decide whether to acquire A-class treasury shares with distributable retained earnings and to decide on the disposal of treasury shares. The Board of Directors may decide to acquire a maximum of 190,730 A-shares with a nominal value of EUR 2.00 taking the regulations of the Companies Act regarding the maximum amount of treasury shares held by a company into consideration. Market value of capital stock at 31 Dec. m 1 000 60 3 500 Trading in A-shares 1 Jan. - 31 Dec. 2005 1 000 pcs 300 50 3 000 240 2 500 40 2 000 30 1 500 20 1 000 10 60 500 120 180 0 2001 2002 2003 2004 2005 0 0 5 5 5 5 5 5 5 5 5 5 5 5 00 00 00 00 00 00 00 00 00 00 00 00 1/2 2/2 3/2 4/2 5/2 6/2 7/2 8/2 9/2 10/2 11/2 12/2 Trading 1 000 Trading 1 000 pcs F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 63 Share quotation Raute Corporation's A-shares are listed on the main list of the Helsinki Stock Exchange. The trading code is RUTAV. The maturity of the bonds was three years, and it was repaid as a single payment on 4 September 2001. The warrants are divided into A-warrants (212,500.00), that Share price development The highest price paid during the year was EUR 16.42 (EUR 8.90) and the lowest was EUR 7.60 (EUR 7.10). At the end of the year the share price was EUR 14.24 (EUR 7.70). During the year 1,529,700.00 shares (568,922.00 shares) were traded for a total value of EUR 17,1 million (EUR 4,6 m). Insider information policy Raute Corporation complies with the Helsinki Stock Exchange, the Central Chamber of Commerce and the Confederation of Finnish Industry and Employers insider information policies. The Corporation's public insiders are the Board of Directors, the President and CEO, the Members of the Executive Board, the Presidents of the subsidiaries and the auditors. Taxable value The taxable value of Raute Corporation's shares was EUR 9.91 (EUR 5.36) at 31 December 2005. BONDS WITH WARRANTS Raute Corporation's General Meeting of 16 June 1998 decided to issue a EUR 357,399.34 bond with warrants to the Group's personnel, to the members of the Board of Directors of Raute Group, and to a subsidiary company owned entirely by Raute Group. had an exercise period from 1 September 2001 to 30 September 2004, and B-warrants (212,500.00), with an exercise period from 1 September 2003 to 30 September 2006. The issuance of A-warrants on the main list of the Helsinki Stock Exchange began on 22 September 2001 and ended on 30 September 2004 and the issuance of B-warrants began on 1 September 2003. The warrants entitle their holders to subscribe a maximum of 212,500.00 A-shares, which represent 6 percent of the company's share capital and 1 percent of the votes. As a result of the warrants being exercised, the share capital may increase by no more than EUR 425,000.00. According to the terms of bonds with warrants, the original subscription price of the shares was EUR 13.29. The price is adjusted annually on the dividend record date. After the dividend payment for 2004, the new subscription price is EUR 8.22. The dividend payment for 2005 decreases the subscription price of the shares by the amount of dividend paid on the record date 27 March 2006. The highest price paid for a B-warrant during the year was EUR 9.20 (EUR 1.50) and the lowest EUR 1.00 (EUR 0.82). The number of B-warrants traded during the year totaled 197,900.00 (70,500.00), with a total value of EUR 701,207.00 (EUR 77,157.00). DISTRUBUTION OF SHARES BY SHARE TYPE AT 31 DECEMBER 2005 A- AND K-SHARES By shareholder groups Households Credit and insurance institutions Foreign shareholders Non-profit institutions Public institutions Companies Administrative registered TOTAL A-SHARES By shareholder groups Households Credit and insurance institutions Foreign shareholders Non-profit institutions Public institutions Companies Administratively registered TOTAL Shareholders 884 3 4 7 3 70 3 974 Shareholders 882 3 4 7 3 70 3 972 Voting rights 22 067 562 81 200 8 500 29 900 223 300 186 895 49 310 22 646 667 Voting rights 2 244 342 81 200 8 500 29 900 223 300 186 895 49 310 2 823 447 % 90.8 0.3 0.4 0.7 0.3 7.2 0.3 100.0 Shares 3 235 503 81 200 8 500 29 900 223 300 186 895 49 310 3 814 608 % 84.8 2.1 0.2 0.8 5.9 4.9 1.3 100.0 % 97.4 0.4 0.1 0.1 1.0 0.8 0.2 100.0 % 90.8 0.3 0.4 0.7 0.3 7.3 0.2 100.0 Shares 2 244 342 81 200 8 500 29 900 223 300 186 895 49 310 2 823 447 % 79.5 2.9 0.3 1.1 7.9 6.6 1.7 100.0 % 79.5 2.9 0.3 1.1 7.9 6.6 1.7 100.0 64 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P A-SHARES By size of holding 1 - 1 000 1 001 - 5 000 5 001 - 10 000 10 001 - 50 000 50 001 - 100 000 100 001 Total Shareholders 785 118 22 36 9 2 972 % 80.8 12.1 2.3 3.7 0.9 0.2 100.0 Shares 295 207 273 237 171 045 838 125 615 833 630 000 2 823 447 % 10.5 9.7 6.1 29.7 21.8 22.2 100.0 Voting rights 295 207 273 237 171 045 838 125 615 833 630 000 2 823 447 % 10.5 9.7 6.1 29.7 21.8 22.2 100.0 K-SHARES By shareholder groups Households TOTAL K-SHARES By size of holding 1 - 1 000 1 001 - 5 000 5 001 - 10 000 10 001 - 50 000 50 001 - 100 000 Total Shareholders 46 46 Shareholders 2 2 13 25 4 46 % 100.0 100.0 Shares 991 161 991 161 % 100.0 100.0 Voting rights 19 823 220 19 823 220 Voting rights 11 600 148 580 1 683 460 13 541 980 4 437 600 19 823 220 % 100.0 100.0 % 4.3 4.3 28.3 54.4 8.7 100.0 Shares 580 7 429 84 173 677 099 221 880 991 161 % 0.1 0.8 8.5 68.3 22.4 100.0 % 0.1 0.8 8.5 68.3 22.4 100.0 TEN LARGEST SHAREHOLDERS 31 DECEMBER 2005 Number of K-shares Number of Total number A-shares of shares 430 000 200 000 48 000 48 000 48 000 60 480 50 280 50 640 33 600 339 000 74 759 74 759 74 159 60 009 65 492 59 539 85 000 51 116 1 174 833 430 000 200 000 122 759 122 759 122 159 120 489 115 772 110 179 85 000 84 716 1 513 833 % of total Total number % of voting shares of votes rights 11.3 5.2 3.2 3.2 3.2 3.2 3.0 2.9 2.2 2.2 39,7 430 000 200 000 1 034 759 1 034 759 1 034 159 1 269 609 1 071 092 1 072 339 85 000 723 116 7 954 833 1.9 0.9 4.6 4.6 4.6 5.6 4.7 4.7 0.4 3.2 35.1 BY NUMBER OF SHARES 1 2 3 4 5 6 7 8 9 10 Sundholm Göran Keskinäinen Työeläkevakuutusyhtiö Varma Suominen Jussi Matias Suominen Tiina Sini-Maria Suominen Pekka Matias Mustakallio Kari Pauli Kirmo Kaisa Marketta Siivonen Osku Pekka Jaakonsaari Markus Keskiaho Leena TOTAL F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 65 BY NUMBER OF VOTES 1 2 3 4 5 6 7 8 9 10 Mustakallio Kari Pauli Särkijärvi Riitta Siivonen Osku Pekka Kirmo Kaisa Marketta Suominen Jussi Matias Suominen Tiina Sini-Maria Suominen Pekka Matias Mustakallio Ulla Sinikka Mustakallio Kai Henrik Mustakallio Risto Number of K-shares 60 480 60 480 50 640 50 280 48 000 48 000 48 000 47 240 47 240 42 240 502 600 Number of Total number A-shares of shares 60 009 22 009 59 539 65 492 74 759 74 759 74 159 25 862 12 362 35 862 504 812 120 489 82 489 110 179 115 772 122 759 122 759 122 159 73 102 59 602 78 102 1 007 412 % of total Total number % of voting shares of votes rights 3.2 2.2 2.9 3.0 3.2 3.2 3.2 1.9 1.6 2.0 26.4 1 269 609 1 231 609 1 072 339 1 071 092 1 034 759 1 034 759 1 034 159 970 662 957 162 880 662 10 556 812 5.6 5.4 4.7 4.7 4.6 4.6 4.6 4.3 4.2 3.9 46.6 TOTAL The number of administratively registered shares at 31 December 2005 was 49 310 (17 980). MANAGEMENT INTEREST AT 31 DECEMBER 2005 Company's Board of Directors, President and CEO and Presidents of the subsidiaries owned a total of 82 338 A-shares and 96 990 K-shares. Management's ownership corresponds to 4.7 per cent of the shares in the company and 8.9 per cent of associated total voting rights. The figures include the holdings of their own, minor children and entities under their control. Warrants owned by the management correspond to 11.8 per cent of the total amount of B-warrants issued by Raute Group. A total of 25 000 A-shares may be subscribed on the basis of these warrants corresponding to 0.9 per cent of the voting rights of A-shares and 0.1 per cent of the total voting rights. PUBLIC INSIDER OWNERSHIP AT 31 DECEMBER 2005 Public insiders owned a total of 82 338 A-shares and 96 990 K-shares. Management's ownership corresponds to 4.7 per cent of the shares in the company and 8.9 per cent of associated total voting rights. The figures include the holdings of their own, underage children and entities under their control. Warrants owned by public insiders correspond to 15.1 per cent of the total amount of B-warrants issued by Raute Group. A total of 32 000 A-shares may be subscribed on the basis of these warrants corresponding to 1.1 per cent of the voting rights of A-shares and 0.1 per cent of the total voting rights. Performance of Raute Corporation's A-shares 1 Jan. 2001 - 31 Dec. 2005, 20 15 10 5 12/2001 12/2002 12/2003 12/2004 12/2005 ­­­­­­ Raute ­­­­­­ Sectoral Index ­­­­­­ HEX Index ­­­­­­ Comparison Index 66 F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P The Board of Directors' proposal to the Annual General Meeting The Group's retained earnings and the profit for the period is 12 851 thousand euros from which 9 655 thousand euros is distributable. The distributable funds of the parent company is 17 112 thousand euros. The Board of Directors proposes to the Annual General Meeting that a per-share dividend of 0.60 EUR be paid on 3 of April 2006. Dividends paid in total 2 288 764.80 euros. Nastola, 8 February 2006 Jarmo Rytilahti Chairman of the Board Heikki Lehtonen Mika Mustakallio Panu Mustakallio Sinikka Mustakallio Markku Nihti Pekka Paasikivi Tapani Kiiski President and CEO Auditor's report To the shareholders of Raute Corporation We have audited the accounting records, the financial statements and the administration of Raute Corporation for the period 1.1. ­ 31.12.2005. The Board of Directors and the President and CEO have prepared the report of the Board of Directors and the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU and the parent company's financial statements prepared in accordance with prevailing regulations in Finland, that include the parent company's income statement, balance sheet, cash flow statement and the notes to the financial statements. Based on our audit, we express an opinion on the consolidated financial statements, the parent company's financial statements and on the administration of the parent company. We have conducted the audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial statement presentation. The purpose of our audit of administration is to examine that the members of the Board of Directors and the President and CEO of the parent company have complied with the rules of the Companies' Act. Consolidated financial statements In our opinion the consolidated financial statements give a true and fair view, as referred to in the International Financial Reporting Standards as adopted by the EU and defined in the Finnish Accounting Act, of the consolidated results of operations as well as of the financial position. The consolidated financial statements can be adopted. Parent company's financial statements and administration In our opinion the parent company's financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Finnish Accounting Act, of the parent company's result of operations as well as of the financial position. The financial statements can be adopted and the members of the Board of Directors and the President and CEO of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the distribution of retained earnings is in compliance with the Companies' Act. Nastola 10 February 2006 Kari Miettinen APA Lotta Mäkelä APA F I N A N C I A L S T AT E M E N T S 2 0 0 5 / G R O U P 67 Board of Directors Jarmo Rytilahti b. 1944, M.Sc. (Econ.) Chairman of the Board 2004Member of the Board 2003Principal occupation: President of Uponor Oyj (former Asko Oyj) 1991-2003 Main simultaneous positions of trust: Member of the Board: Kemppi Oy 2003-, Renor Oy 2003-, Lahden Polttimo Oy 2005Raute shares and warrants: no holding of shares and warrants Remuneration in 2005: 33 000 Sinikka Mustakallio b.1952 Vice-Chairman of the Board 2004Member of the Board 1998Chairman of Raute Corporation's Supervisory Board 1996-1998 Principal occupation: President, WoM Oy 2001Main simultaneous positions of trust: none Raute shares and warrants: 47 240 K-shares, 25 862 A-shares, holding of warrants to subscribe 5 000 A-shares Remuneration in 2005: 16 500 Heikki Lehtonen b.1959, M.Sc.(Eng.) Member of the Board 1997Principal occupation: President and CEO, Componenta Oyj 1993Main simultaneous positions of trust: Vice-Chairman of the Board of Directors: Jaakko Pöyry Group Oyj 2003-, The Family Business Network Finland 2004-, Member of the Board of Directors: Otava Books and Magazines Group Ltd 1991-, Confederation of Finnish Industries 2005Raute shares and warrants: 4 600 A-shares holding of warrants to subscribe 5 000 A-shares Remuneration in 2005: 16 500 68 Mika Mustakallio b. 1964, M.Sc. (Econ.), CEFA Member of the Board 2004Principal occupation: Vice President, Algorithmica Research AB 2000Main simultaneous positions of trust: none Raute shares and warrants: 37 750 K-shares 34 670 A-shares no holding of warrants Remuneration in 2005: 16 500 Panu Mustakallio b. 1971, M.Sc. (Eng.) Member of the Board 2003Principal occupation: Development Engineer, Halton Oy 2001-2005, Specialist, Indoor Climate Technology Halton Oy 2005 Main simultaneous positions of trust: none Raute shares and warrants: 12 000 K-shares 15 256 A-shares no holding of warrants Remuneration in 2005: 16 500 Markku Nihti b. 1945, M.Sc. (Eng.), MBA Member of the Board 1997Principal occupation: President, Elektroskandia Oy 1992-2005, Senior Advisor, Elektroskandia Group 2005Main simultaneous positions of trust: Chairman of the Board: Elektroskandia AB 2004-, Member of the Board: Duuri Oy 2003Raute shares and warrants: 900 A-shares holding of warrants to subscribe 5 000 A-shares Remuneration in 2005: 16 500 Pekka Paasikivi b. 1944, B.Sc. (Eng.) Member of the Board 2002Principal occupation: CEO, Oras Oy 1979-2001 Main simultaneous positions of trust: Chairman of the Board: Oraset Oy 1996-, Oras Oy 2005-, Oras Invest Oy 2005-, Uponor Oyj 1999-, Deputy Chairman of the Board: Hollming Oy 1993-2005, Deputy Chairman of the Supervisory Board: Varma Mutual Pension Insurance Company 2001-2005, Chairman of the Supervisory Board: Varma Mutual Pension Insurance Company 2005-, Member of the Board: Okmetic Oyj 1996-, Technology Industries of Finland, 1996-2005, Foundation of Economic Education, 2003-, Member of the Supervisory Board: Finpro, 2000-2005 Raute shares and warrants: no holding of shares holding of warrants to subscribe 5 000 A-shares Remuneration in 2005: 16 500 Auditors Holdings of Raute shares and warrants on 31 December 2005. The figures include the holdings of their own, underage children and entities under their control. Kari Miettinen, APA Lotta Mäkelä, APA Deputy Auditor PricewaterhouseCoopers Oy 69 Executive Board Tapani Kiiski b. 1962, Licentiate in Technology President and CEO, 16 March 2004With the Company since: 2002Member of the Executive Board since: 16 March 2004 Raute shares and warrants: 1 000 A-shares holding of warrants to subscribe 5 000 A-shares Arja Hakala b. 1957, M.Sc. (Econ.), MBA Chief Financial Officer, Deputy to President and CEO With the Company since: 1990Member of the Executive Board since: 1 January 2001 Raute shares and warrants: no holding of shares holding of warrants to subscribe 2 000 A-shares Petri Strengell b. 1962, M.Sc. (Eng.) Vice President, Technology and Operations With the Company since: 1987Member of the Executive Board since: 1 June 2004 Raute shares and warrants: no holding of shares holding of warrants to subscribe 5 000 A-shares Timo Kangas b. 1965, Engineer Vice President, Technology Services With the Company since: 2004Member of the Executive Board since: 22 September 2004 Raute shares and warrants: no holding of shares and warrants Bruce Alexander b. 1959, B.Sc. (For.), MBA Vice President, North American Business Operations, President of Raute Wood Ltd. With the Company since: 2000 Member of the Executive Board since: 1 June 2004 Raute shares and warrants: no holding of shares and warrants Holdings of Raute shares and warrants on 31 December 2005. The figures include the holdings of their own, underage children and entities under their control. 70 Corporate Governance Raute Corporation follows the Corporate Governance Recommendation for listed companies, issued by Hex Oyj, the Central Chamber of Commerce, and the Confederation of Finnish Industry and Employers (TT) on July 1, 2004. The central elements of Raute Corporation's governance are provided below. The principles and information defined as public in the recommendations are presented on the company's website. SHARES AND SHAREHOLDERS Raute Corporation's shares are divided into common shares (series K) and A shares (series A). Share series differ from each other so that K share entitles the holder to twenty (20) votes, A share to one (1) vote at the General Meeting. The A shares have been quoted on the Main List of the Helsinki Stock Exchange since 1994. statutory tasks and those defined in the Articles of Association, the Board confirms the company strategy and budget annually, and, on basis of the management's reports, monitors the Group's financial status monthly and provides interim reports. The Board evaluates the work of the Board members and the Chairman of the Board annually. Year 2005 Year 2005 Detailed information on Raute Corporation's shares and shareholders is provided on pages 63 of Annual Report. Raute Corporation's Annual General Meeting held on March 22, 2005 elected seven members to Raute Corporation's Board of Directors. Mr. Jarmo Rytilahti, M.Sc. (Econ. & Bus. Adm.), was re-elected Chairman of the Board, Ms. Sinikka Mustakallio, researcher, was re-elected Vice-Chairman, and Mr. Heikki Lehtonen, M.Sc. (Eng), Mr. Mika Mustakallio, M.Sc. (Econ. & Bus. Adm.), Mr. Panu Mustakallio, M.Sc. (Eng), Mr. Markku Nihti, M.Sc. (Eng) and Mr. Pekka Paasikivi, B.Sc. (Eng), were re-elected as Board members. All the Board members are independent of the company. Chairman (Jarmo Rytilahti) and three members (Heikki Lehtonen, Markku Nihti, and Pekka Paasikivi) are independent of the company's major shareholders. The remunerations for the Board members in 2005 were defined by the Annual General Meeting for the term in 2005 as follows: 36 thousand euros to the Chairman of the Board and 18 thousand euros to each Board member. In 2005, salaries and remunerations to the Chairmen and members of the Board totaled 144 thousand euros In 2005, the Board held 12 meetings, four of which were teleconferences. The attendance of the Board members at meetings was 94 percent on the average. The meetings dealt with the issues listed in the Charter of the Administrative Instructions. The Board's self-evaluation has taken place in June 2005. According to the plan for 2006, the Board of Directors will convene eight times, and teleconferences will be held as necessary. The Board members' personal data, holdings of shares and warrants on December 31, 2005, and remunerations for 2005 are presented on page 68. ANNUAL GENERAL MEETING Raute Corporation's Annual General Meeting is normally held in March, but not later than six months from the end of the fiscal year. The Annual General Meeting elects the Chairman of the Board, the Vice-Chairman and 3 - 5 Board members. Year 2005 Raute Corporation's Annual General Meeting was held on March 22, 2005. The Annual General Meeting adopted the financial statements for 2004 and resolved to distribute a dividend of 0,40 euro per share, elected the Board of Directors and the auditors, and decided on their remunerations. The Annual General Meeting authorized the Board of Directors to decide on acquiring the company's own series A shares using distributable funds, and to dispose of company's own shares. Further, the Annual General Meeting decided to change the company's name Raute Oyj to be Raute Corporation in English and Raute Abp in Swedish and that Article 1 of the Articles of Association be changed respectively. BOARD OF DIRECTORS The Board's period of operation starts at the Annual General Meeting, where the Board is elected, and ends at the following Annual General Meeting. The majority of the Board members shall be independent of the company and at least two members in the said majority shall be independent of the company's major shareholders. The Charter for the Board of Directors is described in the company's Administrative Instructions. In addition to 71 THE COMPANY'S ADMINISTRATIVE INSTRUCTIONS On June 21, 2004, Raute Corporation's Board of Directors issued Administrative Instructions for the company. They comprise the Charter for the decision-making bodies and instructions both on the division of responsibilities among the Board of Directors, the President and CEO, and the Executive Board, and on the organization of internal supervision and risk management to complement the provisions of the Companies Act and the company's Articles of Association. The Administrative Instructions are available on the company's website. PRESIDENT AND CEO Raute Corporation's Board of Directors appoints the President and CEO and confirms the terms of his or her employment. The Board evaluates the President and CEO's work annually. Raute Corporation's President and CEO also acts as the Group's President and CEO and as the Chairman of the Group's Executive Board. The President and CEO acts as the representative of the Group at the General Meetings of subsidiaries and affiliates, and as the Chairman of the subsidiaries' Boards of Directors, unless the Board decides otherwise in individual cases. BOARD COMMITTEES Raute Corporation's Board of Directors is responsible for the tasks of the Audit Committee. In this capacity, the Board shall meet the external auditor at least once a year without the presence of any members of the management employed by the company. In the capacity of the Audit Committee, the Board's responsibilities include reviewing the company's financial statements and interim reports, monitoring the internal supervision system, and seeing to internal and external audits. For the preparation of matters of major importance, the Board of Directors appoints annually from among its members a Working Committee comprising a Chairman, a Vice-Chairman, and one Board member. The Board elects annually an Appointments Committee, whose task is to prepare a proposal on Board members and auditors to the Annual General Meeting. The members of the Appointments Committee are Board members or representatives of major shareholders. The Board may also establish other separate committees as necessary. Year 2005 Mr. Tapani Kiiski, Licentiate in Technology was appointed President and CEO on March 16, 2004. Ms. Arja Hakala, M.Sc. (Econ), MBA, Chief Financial Officer, was appointed deputy to the President and CEO on 16 March 2004. According to the President and CEO Tapani Kiiski's executive contract, his annual salary and fringe benefits total approximately 174 thousand euros. In addition, he has the possibility to receive a profit-related bonus amounting to six months' salary at the most. The contract does not include any special conditions concerning retirement or the amount of retirement allowance. The term of notice is six months, and the severance pay equals six months' salary. The salaries and remunerations paid to Raute Corporation's President and CEO for his tasks in 2005 totaled 237 thousand euros The President and CEO's and his deputy's personal holdings of shares and warrants are presented on page 70. BUSINESS ORGANIZATION Raute Group's Executive Board consists of the President and CEO who acts as the Chairman, and of a variable number of members appointed by Raute Corporation's Board of Directors. The Executive Board prepares the Group's business strategy and is in charge of its implementation. The Executive Board deals with all major operational issues, and its decisions are confirmed by the President and CEO. The members of the Executive Board are in charge of the day-to-day management of the company in their respective areas of responsibility. Year 2005 The Appointments Committee and the Working Committee continued in the composition appointed in the fall 2004. Mr. Jarmo Rytilahti, Chairman of the Board, is the Chairman of the Working Committee and Ms. Sinikka Mustakallio, Vice-Chairman, and Mr. Heikki Lehtonen, Board member, are members of the Working Committee. The Working Committee convened two times during 2005. The Chairman of the Appointments Committee, Mr. Jarmo Rytilahti, Chairman of the Board, Ms. Sinikka Mustakallio, Vice-Chairman of the Board, and Mr. Ville Korhonen, a representative of a major group of shareholders, are members of the Appointments Committee. The Appointments Committee convened two times in 2005. Year 2005 The Group's Executive Board consists of: Mr. Tapani Kiiski, President and CEO (Chairman); Ms. Arja Hakala, Chief Financial Officer; Mr. Petri Strengell, Vice President, Technology and Operations; Mr. Timo Kangas, Vice President, Technology Services and Mr. Bruce Alexander, President of North American Operations. 72 The Executive Board members' personal data and holdings of shares and warrants are presented on page 70. SALARIES AND REMUNERATIONS The company's remuneration system is divided into three components: the basic salary, a profit- and performancerelated bonus system, and a long-term incentive scheme. Depending on the employee's position, different variations of the abovementioned elements are applied. The Board of Directors prepares a proposal on and determines the President and CEO's annual remuneration and, based in the President and CEO's proposal, approves the remunerations for the members of the Executive Board. An individual employee's remuneration is always approved by the superior of the employee's superior. The Chairman of the Board approves the remunerations for those of the President and CEO's immediate subordinates who are not members of the Executive Board. An employee is not entitled to a separate remuneration for being a member in a Board of Directors in Raute Group's subsidiaries. The Board of Directors determines the Group's general risk attitude and approves the risk management policy at a general level. The Executive Board determines the Group's general risk management principles and confirms various operating policies and boundaries of powers. The Chief Financial Officer is responsible for the coordination of risk management. The Group's President and CEO is responsible for the implementation of risk management in the entire Group, and the Presidents of the Group companies in their respective companies. The members of the Executive Board are responsible for their own fields across company boundaries. The responsibility of the Group's Controller function is to develop risk management procedures together with the operational management and to control the compliance with risk management principles and powers. The principal product and operation liability risks, and property and personal damage risks are covered by insurance. The absence of an internal auditing organization is taken into account when drawing up the contents of Group reporting and the internal audits of quality systems. The company's Board of Directors approves the auditing program. The management of financing risks is described in the notes to the Consolidated Financial Statements on page 48. INSIDER ISSUES Raute Corporation follows the Insider Rules provided by the Helsinki Stock Exchange, the Central Chamber of Commerce, and the Confederation of Finnish Industry and Employers (TT). In addition, the company applies separate insider instructions approved by the Board of Directors. The public insiders comprise the President and CEO, his or her deputy, the Board members, the auditors, the members of the Group's Executive Board, and the Presidents of Raute Group companies. The company-specific insiders are members of the Group's Executive Board and persons who regularly handle or receive non-disclosed information that affects the share price. In addition to the persons mentioned above, the company maintains a company-specific project register where project-specific insiders are listed. The Chief Financial Officer is in charge of insider issues in the company. The insider trading prohibition applies from the end of an interim reporting period or fiscal year up to the publication of the corresponding stock exchange release. The company tries to avoid investor communication meetings during insider trading prohibitions. The list of public insiders is available on the company's website. AUDITS According to the Articles of Association, the company shall elect two regular auditors with deputies. The General Meeting may exercise its legal right and elect a public accountant company instead of two deputy auditors. The Board of Directors approves the audit plan and supervises its implementation. When drawing up the contents of the audit, the absence of a separate internal auditing organizations shall be taken into account. In addition to tasks defined by regulations, the auditors report to the Chairman of the Board when necessary, and at least once a year to the Board of Directors on any issues arisen in connection with the audit. Year 2005 Mr. Kari Miettinen and Ms. Lotta Mäkelä, Authorized Public Accountants, were re-elected as auditors, and PricewaterhouseCoopers Oy, an authorized public accounting company, was elected as deputy auditor in the Annual General Meeting on 22 March 2005. The remunerations paid to PricewaterhouseCoopers Oy for the normal annual audit of year 2005 were 40 thousand euros. Other remunerations paid to PricewaterhouseCoopers Oy during 2005 were 50 thousand euros including expert services in connection with the transition to IFRS-based accounting standards. RISK MANAGEMENT The key risks related to Raute Group's international business are the financing, product liability, and contractual risks. The company applies a risk management policy approved by the Board. The President and CEO and the Chief Financial Officer report to the Board regularly on any major strategic and business risks. 73 Raute globally Kajaani Jyväskylä Nastola St. Petersburg Moscow Vancouver, BC Memphis, TN Beijing Singapore Jakarta Santiago Raute Agent 74 Addresses Raute Corporation Rautetie 2 P.O. Box 69 FI-15551 Nastola Finland Tel. +358 3 82911 Fax: +358 3 829 3200 firstname.lastname@raute.com www.raute.com RWS-Engineering Oy Tuhkamäentie 2 FI-15540 Villähde Finland Tel. +358 3 829 61 Fax: +358 3 762 2378 Raute Jyväskylä Hakkutie 3 FI-40320 Jyväskylä Finland Tel. +358 14 445 4400 Fax: +358 14 445 4429 Mecano Group Oy Syväojankatu 8 FI-87700 Kajaani Tel. +358 8 877 6700 Fax: +358 8 612 1982 info@mecanogroup.com Raute Wood Ltd. 5 Capilano Way New Westminster, B.C. Canada V3L 5G3 Tel. +1 604 524 6611 Fax: +1 604 521 4035 Raute Wood Inc. 50 Commercial Loop Way Suite A, Rossville, TN USA 38066 Tel. +1 901 853 7290 Fax: +1 901 853 4765 Raute Wood Santiago Ltda. Hernando de Aguirre 162 Of. 704 Providencia Santiago Chile Tel. +56 2 233 4812 Fax: +56 2 233 4748 Raute Group Asia Pte Ltd 35 Jalan Pemimpin # 06-02 Wedge Mount Industrial Building Singapore 577 176 Tel. +65 625 043 22 Fax: +65 625 053 22 Raute Wood Beijing Representative Office Office 969, Poly Plaza 14 Dongzhimen Nandajie Dongcheng District Beijing 100027 China Tel. +86 10 650 11698 Fax: +86 10 650 11798 Raute Wood Indonesia Representative Office Jl. Kelapa Tiga / Joe No. 75 Jagakarsa, Jakarta 12620 Indonesia Tel. +62 21 7888 6461 Fax: +62 21 7888 9867 Raute Wood Moscow Arkhangelski per., 1 101934 Moscow Russia Tel. +7 495 207 8794 Fax: +7 495 207 8794 Raute Service LLC V.O. Srednii prospect, 48 199178 St. Petersburg Russia Tel. +7 812 740 53 86 (87) Fax +7 812 740 53 87 75 Information on Raute Raute Corporation's Series A shares are quoted on the Helsinki Stock Exchange. Quotations for Series A shares can be found on the company's website, address www. raute.com, where a copy of the financial statements and the stock exchange releases published in 2005 may also be obtained Series A shares - trading code: RUTAV - number of shares: 2,823,447 - voting rights per share: 1 vote Series K shares - number of shares: 991,161 - voting rights per share: 20 votes Investor relations Tapani Kiiski President and CEO tel. +358 3 829 3560 Arja Hakala Chief Financial Officer tel. +358 3 829 3293 Dividend The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.60 per share be paid for both Series A and K shares in respect of the 2005 financial year. The date for dividend payment is 3 April 2006 and the respective record date is 27 March 2006. To receive dividend, shareholders must be registered in the shareholders' register held by Finnish Central Securities Depository Ltd on the above record date. Financial information This Annual Report is published in Finnish and English. In 2006, Raute Corporation will issue three Interim Reports as follows: 27 April 10 August 25 October January ­ March 2006 January ­ June 2006 January ­ September 2006 Information to shareholders Interim Reports are published in Finnish and English. Annual General Meeting Raute Corporation will hold its Annual General Meeting starting at 6.00 pm on Wednesday 22 March 2006 at Kongressikeskus Fellmanni, address Kirkkokatu 27, Lahti. To be entitled to attend the Annual General Meeting shareholders must be registered in the shareholders' register held by Finnish Central Securities Depository Ltd no later than 10 March 2006. Shareholders wishing to attend the Annual General Meeting must register for the meeting by 4.00 pm on Thursday 16 March 2006 by writing to Raute Corporation, P.O.Box 69, FI-15551 Nastola, Finland, or by fax to +358 3 829 3582 or by phone to Ms Sirpa Väänänen at +358 3 829 3302. Any proxies should be presented at the time of registration. The Annual Report, Interim Reports and other information on Raute Corporation are available in Finnish and English at www.raute.com Annual Reports and Interim Reports can also be ordered from: Raute Corporation P.O.Box 69 FI-15551 Nastola, Finland tel. +358 3 829 11, fax +358 3 829 3582, email: ir@raute.com 76 Annual Report 2005 Visuality: Onnion Oy Content and production: Viestintä Oy Virtuoosi Photos: Kimmo Häkkinen and Raute Printing house: Art-Print Pictured Raute employees: Ulla Hillu, Antero Hyvönen, Tomi Iivonen, Sari Kääriäinen, Seppo Leppänen, Sami Mattila, Janne Pelkonen, Tuomas Pitkänen and Mikko Vesterinen Raute Corporation Rautetie 2, P.O. Box 69, FI-15551 Nastola, Finland Tel. +358 3 82 911, fax +358 3 829 3200 www.raute.com