Annual Report 2011
80 years of solutions for the plywood industry
In 1908 the engineering works Lahden Rauta- ja Metalliteollisuustehdas Oy was founded. Initially, the company focused on building inland waterway vessels and manufacturing steam boilers and machines. In Finland, plywood production started at the end of the 1800s, and export began in 1912. Both production and export took off rapidly. Lahden Rautaja Metalliteollisuus identified an opportunity to develop and manufacture machines that would better meet the needs of the Finnish plywood industry. Raute started to manufacture veneer lathes in 1931. The first complete wood products factory was delivered to the Pellos plywood mill in Ristiina in 1968. In the same year an agreement on the delivery of a plywood mill's machinery to Bratsk in Russia was signed. The mill was completed in 1970. The company's international expansion began in the 1970s, when Raute founded its first sales offices in both the US and Ecuador. In the next decade Raute established operations in Canada and sales offices in Singapore, Germany and Brazil, and joined the first-ever joint venture between Finland and China in 1984. The 1980s were a time of strong growth for Raute. Export activities were stepped up and by mid-decade, exports had increased to 80 percent. In 1983 the name Raute Oy was officially adopted. By then the plywood machine brand name had already caught on in everyday use. In 1994, Raute's A shares were listed on the Helsinki Stock Exchange (nowadays NASDAQ OMX Helsinki Ltd.) and Raute became a public limited company. The founding family Mustakallio retained a considerable holding in the company. In the 2000s Raute has focused increasingly on wood products technology. The product range was reinforced with Mecano machine vision systems and Jymet's panel handling know-how. In 2006 Raute established a production facility in Shanghai, China. Internationalization continues in the growing and emerging markets. Raute strengthens its market leadership with new, innovative products and services.
Business review Raute in brief ............................................................. 4 Review by the President and CEO ........................... 6 Value chain ................................................................ 8 Strategy .................................................................... 18 Product development and technology ................... 22 Social responsibility................................................ 26 Business review ....................................................... 28 Financial review Financial review 2011 ............................................ 30 Corporate governance Risks and risk management.................................... 34 Corporate governance ............................................ 36 Board of Directors ................................................... 40 Executive Board ...................................................... 42 Information to shareholders ................................... 44 Stock exchange releases and announcements....... 46 Contacts.................................................................... 47
RAUTE IN BRIEF
Raute in brief
Raute serves the global wood products industry and is part of the wood-processing value chain. Raute adds value to its customers' business by supplying solutions for manufacturing wood products in a profitable and environmentally sustainable way.
Renewable raw materials increasingly popular
Raute's customers are companies operating in the wood products industry manufacturing veneer, plywood and LVL (Laminated Veneer Lumber). The increasing popularity of renewable raw materials and products, for example in construction, means growth for the wood products industry. The size of the global wood products industry market is approximately EUR 150 billion. Plywood production's focus is shifting towards the emerging markets: China and rest of Asia Russia South America. Production capacity in the developed markets of North America and Europe is not increasing. The total value of production technology investments in the global veneer, plywood and LVL industry is estimated at some EUR 500550 million a year in a normal economic environment.
Raute is the market leader
Raute operates in the international markets and is the global market leader in its largest customer sector, the plywood industry, with a 1520 percent market share. Raute's position in the LVL industry is also strong, as approximately half of the LVL manufactured in the world is produced on machines supplied by Raute. As a supplier of mill-scale projects Raute is a global market leader both in the plywood and LVL industries.
NET SALES BY MARKET AREA, EUR million
120 100 80 60 40 20 0
Raute's technology offering covers machinery and equipment for the customer's entire production process. Raute's full-service concept is based on product life-cycle management. As an expert in customer processes and operations, Raute is able to provide solutions that support customers throughout the lifecycle of their investment, enabling them to develop their own business.
2009 2010 2011
Europe Russia North America South America Asia-Pacific Others
NET SALES BY PRODUCT AREA, EUR million
120 100 80
Net sales, MEUR
Growth, % Earnings per share, EUR Balance sheet total, MEUR Equity ratio, % Interest-bearing net liabilities, MEUR Personnel, average
18.2 -0.27 52.7 46.9 -10.4 475
71.6 0.29 53.0 50.7 -9.7 512
60 40 20 0
2007 2008 2009 2010 2011
Project deliveries Technology services
The increasing use of wood as a renewable raw material boosts demand for wood products technology and services.
Solutions for a variety of customer needs
Raute's solutions consist of project deliveries and technology services. Project deliveries include complete production machinery for new mills, and individual production lines and machines and equipment. Additionally, Raute's fullservice concept includes comprehensive technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations. RautePro, RauteSelect and RauteSmart solutions serve different customer needs.
Favorable trends highly cyclical
The increasing use of wood as a raw material boosts demand for wood products technology and services. The use of wood, a renewable raw material, increasing environmental awareness and the growing role of emerging markets coupled with rising energy costs boost the attractiveness and competitiveness of Raute's solutions. Raute's project-focused business is characterized by investment decisions' sensitivity to cyclical economic fluctuations and the poor predictability of timing.
Raute close to the customer
Raute operates in the global markets. Our customers are served by some 500 Raute professionals in eight countries. Our production facilities are situated in Nastola and Kajaani in Finland, in the Vancouver area in Canada and in the Shanghai area in China. The company's sales network has a global reach. Maintenance and spare part services are increasingly being offered locally.
Raute as an investment
Raute is a financially sound Small Cap company with a family background. Its series A shares have been quoted on the NASDAQ OMX Helsinki Ltd since 1994.
RAUTE MISSION RAUTE VALUES
Continuous development The customer The environment Trust in people Raute generates added value for its customers' businesses by supplying solutions to facilitate profitable and environmentally sustainable production of wood products.
>> READ MORE about Raute's financial development on pages 30-33. Raute's consolidated financial statements are published on the company's website at www.raute.com.
REVIEW BY THE PRESIDENT AND CEO
Future success is in our own hands
The year 2011 began with expectations of continued recovery from the economic downturn of 2008 and 2009. As the year progressed, however, the outlook turned decidedly bleaker, above all due to the uncertainty caused by the debt problems of a few eurozone countries. 2011 began well for Raute also. The order book was satisfactory at the beginning of the year and we received new orders. Following the positive start to the year, the economic outlook began to grow more uncertain and our customers started to defer their investment decisions. After a six month wait, we finally received our first significant new orders in November from Estonia and in December from Chile. Our technology services did well throughout the year and their sales grew dramatically. Modernization products tapped into significant markets in Russia. In terms of new orders, Russia was our largest market area in 2011. Our operating profit improved from the previous year, however we fell short of our targets. The continued low order intake resulted in low net sales, bringing down the positive operating result achieved by the end of September into the negative for the whole of 2011. Our operating profit suffered significantly from fluctuations in demand and delays in the start-ups of certain projects. Therefore, there is still a need for us to enhance our operations and further their flexibility All of us here at Raute have worked hard to implement our strategy and we are already beginning to see results. In addition to the significant growth in technology services, the emerging markets now account for a larger share of our sales. Raute's traditional high technology solutions are still a significant part of our operations, however the highest relative growth was seen in our solutions directed at the emerging markets. We also started up new projects in order to serve this market segment. Both 2010 statistics concerning the wood product industry, and our own observations of our customer base from last year, support our perception that the shift in the markets' focus towards new production countries is continuing and even accelerating. Within the space of five years, China's plywood production has grown by a volume that equals the production of the world's second largest production area, North America, at its height. 2012 commenced with a satisfactory order book. With market demand development resting on an uncertain foundation, the new EUR 50 million order for plywood mill machinery to Chile which was received in the beginning of February will have a significant effect on our outlook for the year 2012.
All of us here at Raute have worked hard to implement our strategy and we are already beginning to see results.
Our cost structure and delivery ability are competitive and we will succeed on the markets once our customers' faith in the future is reinforced and they begin to implement their planned investments. We see the escalation of the eurozone debt crisis into a fullscale recession as a potential threat. I hope that political decision-makers have the courage to make bold decisions and have the determination to see them through. My strongest expectations for the rest of the year are focused on the emerging markets in Russia and Asia, as well as the continuation of the positive development in technology services.
Our continual efforts to understand our customers' needs and strengthen the factors affecting the success of their operations, as well as the development of our own operations and personnel, will bring us results even in uncertain times. During the new year we will make every effort to provide good customer service
and strive to further improve our result and end our cycle of loss. A heartfelt thank you to Raute's customers for your continued confidence in us and good cooperation, to our personnel for their outstanding work in the face of growing challenges and to all our shareholders and partners
for their role in furthering Raute's development.
Tapani Kiiski President and CEO
Raute's solutions part of the wood processing value chain
The wood products industry uses Raute's production technology to process wood into veneer, plywood and LVL, which are used mainly in construction and furniture and in the transport vehicle and packaging industries.
vesting height, for which they are looking for a profitable use, technological development. Investment activity is typically at its highest level at the end of a business cycle. The demand for maintenance and spare parts services is influenced by the outsourcing of maintenance and the production capacity utilization rate.
he wood products industry encompasses companies from large consolidated forest groups to small family-owned companies. New companies are enticed into the industry by plantations forests that are reaching harvesting height. The internationalization and integration of the wood products industry is still in its early stages. Besides the general economic situation, the profitability of the companies in the field is driven by the cyclical fluctuations in construction and the demand for investment commodities. The wood products industry is set to grow, and the role of emerging countries will increase in the future. The demand for wood products is influenced by the general increase in the
standard of living, construction regulations, availability and price of wood and economic cycles. Wood products are ecological, and the use of wood, a renewable raw material, is increasing. The wood products industry's investments in production technology are largely dependent on global economic cycles and cycles in the construction and transport industries. Central factors affecting investment decisions include: the need to increase production efficiency and improve end-product quality, new companies are enticed into the industry typically by unused forest resources that have grown to har-
Plywood as a product has retained its strong position in applications where structural strength and resistance to moisture, impact resistance and an attractive appearance are required.Various coatings add to the versatility of the applications. The unit price depends on product characteristics and quality and also on supply and demand in the global market. Plywood's quality is mainly determined by the surface veneer, which takes on external strain and to a large extent the mechanical load, and gives plywood its appearance.
Raute's position in the value chain
Hardwood plywood has excellent strength and stiffness and good resistance to creep. Its surface hardness and damage and wear resistance are also good. Typical end uses for birch plywood are concrete formwork panels, transport vehicle floors, container floors, walls and roofs, traffic signs and billboards, furniture and support strips for furnishings. The strength and stiffness of softwood plywood are also high, but it is softer and has more knots than hardwood plywood. On the other hand, softwood plywood is fairly light and easy to machine and nail. Typical end-uses include roof structures, floorings, walls and ceilings, non-visible structures in vehicles, packaging and boxes, construction site structures, fencing and shelters, and formwork with a limited number of concrete pourings. Softwood plywood with three thick veneer plies is also used as a wind barrier in construction thanks to its breathability and stiffness. A veneer product where the veneers are glued with the grains in the same direction is called LVL (Laminated Veneer Lumber). LVL's main end use is in construction, where it is an environmentally friendly alternative to steel and concrete. Load-bearing LVL struc-
tures that can withstand earthquakes offer special application possibilities. LVL is used to manufacture long and very strong beams used in load-bearing structures and large wood-based panel sheets.Various pine and spruce species are used as the raw material. LVL is also used in furniture, doors and windows. The use of wood from plantation forests as raw material will increase, requiring environmental soundness and traceability of end products, which poses challenges but also provides opporr tunities for the wood products industry.
PLYWOOD CONSUMPTION BY END-USE CATEGORY 2010 Total 81.0 million m3
Raute in competition
Raute is a global market leader as a machinery supplier for new capacity in the plywood and LVL industry. Our market share of all machine investments in the plywood industry is estimated at 1520 percent. Raute has a particularly strong market position in the LVL industry, as approximately half of the LVL manufactured in the world is produced with machines supplied by Raute. Raute's competitors are mainly small or medium-sized companies that operate locally or regionally and focus on only one or a few processes and technologies. One of Raute's competitive advantages is its strong commitment to serv-
Construction 47% Furniture 20% Packaging 11% Flooring 9% Transport 8% Others 5%
ing the wood products industry. The full-service concept encompasses the entire life-cycle of the customer's investment, which enables the company to offer customers unique competence for enhancing processes and generating added value. Raute's ability to solve the customer's problems with its comprehensive product and service offering and extensive experience help customers to increase their productivity, profitability and competitiveness.
PLYWOOD & LVL
FURNITURE CONSTRUCTION, INTERIOR DECORATION TRANSPORT, PACKAGING
Focus on emerging markets
Raute's primary opportunity for growth lies in meeting the opportunities and challenges of the emerging markets.
uring 2010, the total production of plywood increased by more than 10 percent. It is estimated that the growth continued in 2011, although at a much slower rate. The total production volumes rose especially due to plywood produced in emerging markets, mainly in China. Production capacity has diminished in the European and North American markets and the focus is now on developing the competitiveness of the remaining production capacity. The developed markets will continue to place more and more emphasis on improving the competitiveness of existing production capacity. In the emerging markets, valuations relating
to production technology and criteria for investment decisions are somewhat different than those in traditional developed markets.
PLYWOOD PRODUCTION IN EUROPE (1 000 m3) Finland Italy Spain France Latvia Poland Sweden Romania Bulgaria Estonia Other TOTAL
Europe and Africa
Plywood companies are a fragmentary group in Europe. However, the level of production technology is as a whole high. Birch, spruce, certain species of pine, poplar and beech are the major raw materials. Plywood producers are focused on producing high value-added, high-quality plywood for special applications. The markets for plywood are primarily in Europe, but special products are also exported to the US market, for example.
2005 1 308 390 360 389 211 144 92 98 36 43 260 3 331
2010 980 310 248 222 213 145 84 64 31 39 160 2 495
PLYWOOD PRODUCTION TREND BY MARKET AREA 2000, 2005 and 2010, million m3
50 45 40
PLYWOOD PRODUCTION BY MARKET AREA 2010 Total 81.5 million m3
35 30 25 20 15 10 5 0
China 56% Other APAC countries 16% North America 14% South America 5% Russia 4% Europe 3% Africa 2%
Europe and Africa Russia South America China Other APAC countries
The importance of ecological values is increasing, which opens up new possibilities for the growth of wood-based construction.
The Finnish and Baltic plywood industry uses birch and spruce as its raw material. Industrial processes are highly automated. The markets for produced plywood are global, but a significant share is used in Europe. Latvia's plywood industry has developed significantly over the past few years. Finland is the most significant LVLproducing country in Europe, and the markets for LVL made from spruce are worldwide. Finland's plywood and LVL industry has recovered since the economic downturn of 2008 and 2009 and is once again growing. The plywood industry in Eastern and Central Europe is made up of small companies which typically have production capacities which do not allow for, or on the other hand require, large investments. Several species of wood are utilized as raw material, including birch, aspen, spruce and beech. The central markets for high value-added end products are in Europe. A few larger plywood producers operate in Southern Europe, as well as several very small specialized producers of veneer and plywood. The central
raw materials used there are poplar and maritime pine. The central markets lie in Central and Southern Europe. Raute is the largest player in Europe, competing with Italian company Cremona especially in poplar and beech and with German supplier Grenzebach in drying technology. Europe is an important market for Raute. The company will meet the challenges presented by the European wood products industry in the near future by developing new high technology innovations for improving the efficiency of production processes together with its traditional partners. The recovery of construction in Europe may create the need for new production capacity in the markets. The importance of ecological values is increasing in construction and housing, which opens up new possibilities for the growth of wood-based construction alongside the more traditional concrete-based building. The challenge faced by the plywood, veneer and LVL industry in the near future is to be able to answer to the demands created by this new trend. A significant growth
opportunity is thus created for LVL products. Raute's strengths lie in its expertise in production technology suited to European conditions and raw materials and its recognizability in the Finnish markets. Raute is seeking growth in the European markets by strengthening its customer relationships, adding to the scope of its technology services and by helping its customers to capitalize on the growth in wood construction. Africa is a traditional supplier of round wood and the development of the plywood industry there has been slow. Raw material, mainly okoumé, is sourced from natural forests. Traditionally, the African markets have been dominated by European machine suppliers. The restrictions on wood exports in some important producer countries have increased the need for local further processing of wood. In a few West African countries (Gabon, Ghana, Cameroon), plantation forests will grow to become suitable for plywood production within the space of a few years and the competitive utilization of this raw material potential will require more
efficient and modern production processes. Raute's product offering has solutions which are also suitable for the technology level required by African conditions.
Russia's strength in terms of the wood products industry is its almost unlimited supply of raw material. Russia's share of the world's forest area is more than 20 percent and close to 18 percent of the annual forest growth, but only 6 percent of the world's industrial timber harvesting. Russia has long plywood production traditions. The availability of skilled labor is good and the costlevel is competitive. However, the lack of logging infrastructure and costs of logistics limit the growth of plywood production. Russian plywood manufacturers are mainly companies that have been operating for a long time in the industry. Established operators invest in developing their production and upgrading their production technology. Also new investors appear in the field who
make use of forest resources and build modern production facilities. Raute is the market leader in Russia. Russia's accession to the WTO will further Raute's business operations in Russia, however, this will also provide the same advantage to competitors, above all those from Japan. Competition in Russia will tighten in the future. The role of funding and various decisions by officials for the success of projects and their effect on timetables is much greater in Russia than in other market areas. As Russia's own economy develops, the demand for wood products will increase in domestic construction and housing-related consumption. The dependence of Russia's plywood producers on the European and North American markets will decline. The development of a modern and efficient softwood plywood industry in Russia will provide a significant opportunity for Raute. For LVL, it will probably take several years before changes in building regulations and practices begin to materialize. Wood construction based on modern
materials will also develop in Russia. The Russian government strives to promote the development of the national plywood industry through its own actions and e.g. by granting financial support for infrastructure development to local governments. Raute's strengths in Russia lie in its familiarity with local customs and practices as well as customer service in Russian. Key factors include a large installed equipment base and locally produced technology services as well as solutions catered to local conditions. During 2011, especially Raute's modernization products gained a foothold in the Russian markets. Good long-term customer relationships and a solid track record of successes are important references for new investors as well.
Most of the plywood manufactured in the Asia-Pacific area is used within the area. Plywood is exported to the Middle East, the U.S. and Europe, for example. Plywood production in Asia is based on the use of tropical wood species, such
Raute's strengths in Russia lie in its familiarity with local customs and practices.
as meranti and keruing, as raw materials. The use of small-diameter plantation trees, such as acacia and albizzia, is increasing. Various pine and eucalyptus species are used for plywood in the Pacific area. There are numerous plantation forests in Australia and New Zealand. Plantation forests also play an increasingly important role in China and South-East Asia. The development of plywood production in the APAC area has been twofold over the past few years: China's production has developed very strongly, but in other larger production countries production has declined. The area includes four distinctive market areas. Australia and New Zealand are similar to Europe and North America as a market area. The level of production technology and automation is high, the growth in plywood production is slow and companies in the industry are relatively established. Due to a high cost level, many of the operators in the industry find it difficult to justify new investments although goodquality and reasonably-priced raw ma-
terial is available from well-managed plantation forests. Following the 2011 floods, one relatively large plywood mill has shut down, but the construction of replacement capacity for the handling of the freed up wood raw material has not yet been initiated. Plywood production in South-East Asia declined in 2010 mostly due to raw material problems and production is estimated to have returned to the growth track during 2011. In both Malaysia and Indonesia, significant projects are being planned to make use of growing plantation forests. When these projects materialize, Raute will have the opportunity to capitalize on its traditional strength, i.e. the handling of small-diameter wood, in the markets dominated by Japanese competitors. China is by far the world's largest producer of plywood. Its plywood production has increased by almost 4.5 times during the past ten years. The growth has been implemented through manual labor, small investments and largely using imported wood. In the future, plywood production volumes
China is by far the world's largest producer of plywood.
cannot continue to grow so strongly. Instead the industry will develop technologically and a larger portion of the raw material used will be extracted from domestic plantation forests. Investments in the Chinese markets with targeted solutions and a local presence provide Raute with an excellent basis for future success in this market area. Raute's goal is to gain a standing among the leading companies as a supplier of key subprocesses in plywood production over the next few years.
PLYWOOD PRODUCTION IN ASIAPACIFIC COUNTRIES (1 000 m3) China Malaysia Indonesia Japan India Republic of Korea New Zealand Singapore Philippines Thailand Australia Others TOTAL
2005 25 965 5 006 4 534 3 212 2 130 680 405 280 314 110 156 347 43 139
2010 45 327 3 901 2 996 2 287 2 154 494 366 280 253 120 118 463 58 759
Arauco's Nueva Aldea plywood mill, which was destroyed in a fire at the beginning of 2012, will be rebuilt with Raute's machinery and equipment.
Japan and South Korea form a separate market area, which is characterized by the high price of raw materials, high level of production technology and dominant position of Japanese machinery suppliers. Although the general level of production technology is high, Raute has the opportunity of introducing technology to the market which is presently not in use there. These include machine vision and veneer sorting technology developed by Raute, areas into which Raute was already able to tap during 2011. Repairing of the damage to plywood mills caused by the earthquake and tsunami will start during 2012. Raute may be able to win some smaller deliveries within these projects from Japanese suppliers competing on their home ground.
South America's largest plywood suppliers are Chile and Brazil. Plantation-based plywood production is still growing in Chile with radiata pine as its main raw material. During their growing phase trees are pruned so that they are branchless up to 6 meters, resulting in knot-free logs,
providing raw material for good-quality plywood. The area's own consumption is increasing but the majority of the veneer is still exported to North America and Europe. The largest plywood manufacturers in the area are Raute's customers. The most significant transaction for Raute in 2011 was a machinery order for a new production facility in Chile. More plantation forests suitable for plywood production are growing in Chile and further production capacity will be built based on it. The Nueva Aldea plywood mill of Arauco, Chile's largest plywood manufacturer, was destroyed in a fire at the beginning of 2012 and will be rebuilt with Raute's machinery and equipment. Brazil's plywood industry has not been as successful as Chile's. Brazil's raw materials are not as high quality and investments have been smaller. The technology used by the plywood industry is largely out of date and based on simple local technology. Brazil does, however, have the inherent capacity to develop its plywood industry. Raute's solutions for the emerging markets are also suitable for Brazil's plywood industry.
Raute's most significant competitors in South America are Brazilian equipment manufacturers. European and American competitors are also present in the area. Raute's objective in South America is to maintain its leading position in constructing new capacity and to acquire new customers within the modernization and development projects of small and medium-sized plywood manufacturers.
Before China's powerful growth, North America was the world's number one plywood supplier. Within around a decade, plywood production has declined from almost 20 million cubic meters to some 11 million cubic meters. In softwood plywood and LVL North America is still the world's largest production area. The eastern continent also has a considerable veneer and plywood industry utilizing hardwood. With a few major players, consolidation among North America's wood products industry has clearly advanced further than in other market areas. 65 percent of the plywood and
85 percent of the LVL are produced by the five largest companies. Demand for plywood and LVL is primarily driven by the US economy, particularly housing construction. Due to the consolidation of the plywood industry and plunge in construction activity during 2007 and 2008, few investments have been made in plywood production. Small investments have been made to improve existing pro-
duction capacity. The consumption and production of LVL is not expected to grow in North America until economic growth restarts and construction revives. Also plywood production is expected to increase, but it will not return to its pre-2007 level. Raute has the opportunity to improve and further establish its position in the North American markets by delivering Raute's high technology-based
solutions as modernizations for equipment supplied by other manufacturers. Raute's most significant competitor and market leader in equipment deliveries in North America is the American company Coe Manufacturing belonging to the USNR Group. Competition with the small and specialized local operators for the small number of investments is also tough.
Appealing solutions for a variety of customer needs globally
The customers and their needs are the most important driver of our operations. Raute's goal is to become the preferred supplier in the eyes of a growing number of customers and in various market areas. This can only be achieved when the product offering genuinely meets the customers' needs and helps them develop their own operations. "A relationship of trust with the various levels of the customer organization creates a good basis for cooperation. We listen to our customers and develop new operating methods. We have taken into use the Account Manager approach which aims to guarantee high-quality, tailored services for our customers. Our aim is for every customer to be proud to be using Raute's machinery and equipment." Olga Harju Vice President, CIS
Global trends create opportunities for Raute
The challenges posed by sustainable development and other global trends create new requirements for the wood products industry and business opportunities for Raute.
Use of renewable wood as raw material on the rise
The use of wood as a raw material has positive impacts in terms of the climate and the environment. Construction and housing are the most important and natural uses for wood. The growing emphasis on ecological requirements will increase the use of wood and wood products in construction. Research on the climatic impact of using renewable wood is in its early steps. The use of higher value-added wood products, such as LVL, in building and the use of veneer-faced products and plywood in interior decoration are on the rise.
The increasing use of wood as a raw material boosts demand for suppliers of wood products technology.
Higher environmental awareness and tightening regulations
Consumers and customers alike require end products that are manufactured in an environmentally friendly manner, cause a minimal load on the environment, generate low levels of emissions, make efficient use of renewable raw materials and are suitable for recycling. The traceability of raw materials and end products requires standardized
production processes. The environmental impacts of the additives used in the manufacture of wood products, such as glue and coating agents, are being minimized. Higher quality demands placed on manufacturing create new business opportunities for the suppliers of wood products technology and related services.
More cost-efficient manufacturing methods necessary to face tightening competition
Demand for wood products is on the increase and they are manufactured in
The increasing use of wood as a raw material boosts demand for suppliers of wood products technology.
One of top three suppliers in selected emerging markets
The importance of the emerging markets is continually increasing in our business. Raute needs to be able to offer its customers not only high technology, but also solutions for conditions where automation has not yet become a significant competitive advantage. The emerging markets are not a single coherent entity, but their common denominator from Raute's viewpoint is the cost structure of wood products and their production machinery. "The emerging markets require machines and production lines which guarantee high quality end products and enable the profitable growth of production capacity, keeping investment costs on a level that corresponds with the investment capacity of local industry. We are actively striving to localize our operations and investing in local competence supported by Raute's strong know-how." Jukka Siiriäinen Vice President, APAC
larger mills whose competitiveness is based on more efficient use of raw materials and other production factors, as well as lower unit costs. The toughening competition between plywood suppliers leads to investments in new, efficient production processes. Increasing the efficiency of new processes also helps to minimize the load on the environment.
Energy prices up
The price of energy will reach new heights and the industry will demand energy efficient solutions for its production processes. The environmental impacts of the raw materials used in the manufacture of wood products, such as glue and coating agents, are minimized and attempts are made to better utilize the by-product streams, for example in energy production. Also the recovery and recycling of waste heat created during the various stages of the production process create new business opportunities.
Emerging markets to play a greater role
The increasing prosperity of the emerging markets will boost construction volumes. As the standard of living rises, more effort will be put into quality of life as well. There is a growing interest in occupational safety and ergonomics, leading to a higher automation level also in the emerging markets.
Profitable solutions for all customer needs
Raute focuses on serving its traditional customer industries the veneer, plywood and LVL industries.
aute's strategy boils down to the vision: Raute offers profitable solutions for all customer needs. Profitability is an essential condition for both Raute and its customers to be able to continue and develop their operations. The solutions integrate technology, equipment and the services necessary for their operation and development. As market focus is increasingly shifting towards emerging markets,
Raute must identify individual customer needs better than before and be able to offer, in addition to solutions based on state-of-the-art technology, solutions for conditions where automation is not yet the decisive factor creating a competitive edge. Demand for veneer-based wood products is stable and growing globally. The focus of demand is on the emerging markets. Part of the consumption
in the emerging markets is, however, directed towards the developed markets, for example as furniture. The greater emphasis being placed on environmental considerations favors the use of renewable resources in construction, for example, and, where applicable, also in transport vehicles. The attractiveness of veneer-based wood products is enhanced by the low amount of energy and chemicals needed for their manu-
Raute generates added value for its customer businesses by supplying solutions to facilitate profitable and environmentally sustainable production of wood products.
Profitable solutions for all customer needs.
HUNGER FOR SUCCESS
> Growth > Profitability > Adaptation to cyclical fluctuations
Reliable and local life-cycle partner in optimizing production processes
facture compared to many alternative materials. The rising standard of living and growth of a middle-class population in emerging nations are driving the demand for wood products related to construction and housing. We want to be a reliable partner for our customers throughout the lifecycle of their investment. The installed base delivered by Raute is not strong enough in all market areas to guarantee profitable aftermarket business. We will also focus on modernizing competitors' equipment with Raute's technology. "When we operate locally, near to the customer, we learn to better understand their needs and offer each one of our customers the technical solutions and services best suited to them. Local maintenance cooperation will ensure the equipment's high uptimes and continued good performance. Even small modernizations can bring Raute's customers significant economic advantages." Timo Reinikainen Vice President, LAM
Strategic choices based on two trend-like changes
The focus of the entire market continues to shift towards the emerging markets. The share of veneer-based products originating from China and the rest of Asia, Russia and South America in relation to global production will increase. On the other hand, the plywood and LVL industry's investments in the traditional western markets, with their high cost and price levels, will increasingly focus on projects to raise the efficiency of existing production capacity and improve competitiveness, while little new capacity is being constructed.
Profitability, adaptation to cyclical economic fluctuations and growth
Improving profitability, adjusting better to economic cycle variations and controlled growth remain Raute's main strategic goals. The financial goals are to improve profitability and maintain good profitability in all economic cycles, to grow faster than the markets while maintaining good financial solidity and to offer investors competitive returns. As the actual development is affected by the strong cyclic nature of demand, no time-bound target values are disclosed for the financial key figures.
ADAPTATION TO CYCLICAL ECONOMIC FLUCTUATIONS
Emphasis between the key strategic objectives varies according to changes in the market situation.
Strategy implementation by doing
The customers and their needs are the most important driver of operations. A better understanding of the needs of different customers and production bottlenecks must be gained. This understanding needs to be translated into solutions that truly help customers face their own competitors. Raute must become the preferred supplier in the eyes of a growing number of customers and in various market areas. This can only be achieved when the product offering genuinely meets the customers' needs and helps them develop their own operations. In order to improve its customer service Raute has taken into use the Account Manager approach. Its implementation has been promoted through comprehensive training during 2011. Technology services will gain a bigger share and play a more significant role as a result of both changes in the market and technology development. The new, constantly developing technology demands know-how, which, for many customers, is not worthwhile in-
vesting in themselves. Technology development also makes it possible to extend the life cycle of basic equipment through modernizations. Raute's goal is to be the trusted partner of its customers throughout the life cycle of the investment. In many market areas, Raute has not yet reached a position strong enough for the installed base as such to be sufficient to ensure profitable aftermarket business activities. In the future, Raute will also focus on modernizing competitors' equipment with Raute's technology. In 2011, the most significant achievement was tapping into the modernization products markets in Russia. Raute's large installed equipment base in Russia creates growth potential for the future. Emerging markets will have more weight in business operations. However, they do not form a coherent whole. In China and India, most of the plywood production remains highly manual and outdated. On the other hand, Russian and South American producers, for example, have reached a technological level that is quite near to
Technology services will gain a bigger share and play a more significant role as a result of both changes in the market and technology development.
that of developed markets. The common denominator of the emerging markets from Raute's viewpoint is the cost structure of wood products and their production machinery: labor costs are low but raw material costs are high. Operating according to local practices and cost structure is important in the emerging markets, especially China. During 2011, Raute's R&D work focused increasingly on the development of solutions to serve the emerging markets.
Constant improvement of competitiveness and the reorientation of product development put Raute in a good position to serve its customers profitably.
Overall operations must be costefficient and price-competitive. Raute focuses on areas of strong internal expertise and improves its service capability by building an efficient and flexible partner network. Successful implementation and management of such a network is an important goal. Raute provides an attractive workplace for people driven by a hun-
ger for success. Raute's employees, driven by a hunger for success and committed to the company's goals, create the conditions needed for the company to succeed. Even in difficult years, Raute has invested in the occupational well-being and commitment of its employees. The priorities of competence development lie in customer service capabilities, solutions,
emerging markets and cost-efficiency. These strategic action areas, coupled with the constant improvement of competitiveness and the reorientation of product development, put Raute in a good position to serve its customers profitably.
Cost-efficient, agile processes and high quality in a global network
Our overall operations need to be cost-efficient and price-competitive. Raute focuses on areas of strong internal expertise and improves its service capability by building an efficient and flexible partner network. "I, and other long-term Raute employees, have a lot of know-how which we now need to transfer to the younger generation. We're all links in an operating chain and responsible for the quality of our work. If we do our jobs well and on time, it's easy for others to carry on from there." Pentti Heinonen Machine Fitter
PRODUCT DEVELOPMENT AND TECHNOLOGY
High quality plywood created through process control
he plywood production process involves the following steps: log handling, peeling, drying, veneer handling, lay-up, pressing and panel handling. All these steps can be individually developed, modernized and reconstructed. Raute's strength lies in its know-how of the entire production process. In order to achieve the optimal balance on the mill level, each subprocess needs to take into account the requirements of the rest of the production chain. In addition to an overall understanding of the production process, strong know-how in automation and machine vision are required to achieve this goal.
On the log handling line, the logs are soaked, debarked and cut into blocks which are transferred onto the peeling line. The soaking temperature affects the quality of the veneer which is to be peeled.
The blocks are peeled into a veneer ribbon on the peeling line. The veneer ribbon is clipped into sheets and randoms, i.e. pieces of veneer smaller than a full sheet. The sheets are sorted according to size and moisture content in order to speed up the drying process.
The veneers are dried on the drying line and sorted according to size, technical and visual quality, moisture and strength. Some of the dried veneers are ready for lay-up, but some, usually around half, require further processing before they can be utilized for plywood.
The veneers are fed through the glue applicator in an order based on the plywood structure and then laid up in stacks. The volume of glue used significantly affects the quality of the plywood as well as the costs involved.
Short veneers are jointed if necessary into longer sheets. Narrow or defective veneers are composed into wider sheets according to the dimensions required for the plywood being produced. The appearance of knotted sheets is improved through patching, allowing them to be used as surface veneers. Knot-free and unblemished veneers can also be used as surface veneers when they are composed into large sheets.
The laid-up stacks are cold pressed in a pre-press. The pre-pressed panels are fed into a multi-daylight hot press where the glue cures. One panel is fed into each daylight and they are pressed into plywood panels under high pressure and heat.
The pressed panels are finished by puttying any defects, trimming the edges, and by sanding the surfaces to achieve smoothness and the required panel thickness tolerances. Following this, the panels are graded and packaged for transportation. In further processing, overlays can be pressed onto the panels' surface, depending on their end use, or the plywood can be sawn into specialty-sized panels.
VENEER is a thin, shee et-like wood produc peeled ct, or sliced from a block. m
PRODUCT DEVELOPMENT AND TECHNOLOGY
Raute's solutions for a variety of customer needs
Raute aims at close and long-term partnerships with its customers.
aute's extensive experience as a technology supplier for the wood products industry and profound understanding of customer needs are the foundation for both the development of its customers' processes and Raute's own product development. RautePro, RauteSelect and RauteSmart are Raute's solutions for various customer needs. RautePro solutions offer customers reliable technology suitable for industrial production. RautePro is the perr fect solution for emerging markets, in particular. Customer products include basic panels used in construction, furr niture and logistics. Investments remain moderate as no great flexibility is required from the production machinery. A typical RautePro product is a basic machine or line including separate automated functions and often also the possibility to modernize the machine later on. RauteSelect solutions are especially valued by customers who focus on high-quality products, flexibility in
production and efficient use of raw materials. RauteSelect solutions are the answer for customers with an annual production capacity of 20,00060,000 cubic meters using several wood species as raw materials and producing several panel sizes on the same production line. RauteSelect solutions can be retrofitted with new features and, through modernizations, they can be upgraded to the RauteSmart level. RauteSelect solutions include, e.g. semiautomatic lay-up lines where veneer handling is automated with the exception of the final positioning.
RauteSmart represents the industry's latest and most efficient state-ofthe-art technology. RauteSmart customers focus on producing large volumes of end products and make efficient use of the latest automation, identification and measuring technologies. The investments can be maintained through modernizations and upgrades with the latest features stemming from Raute's R&D activities. Raute's flagship product is the RauteSmart lathe with a peeling speed of up to nearly 400 meters of veneer per minute.
RautePro offers a professional, industrial
production process with reliable and proven technology.
RauteSelect allows a wide range of adjustability and flexibility in production, and is easily upgraded. RauteSmart offers the smartest and
latest in technology for focused and tailored production.
RautePro, RauteSelect and RauteSmart are Raute's solutions for various customer needs.
New Raute solutions also for the emerging markets
Raute's R&D investments amount to around 34 percent of net sales. R&D activities involve upgrading existing machinery and services or the creation of entirely new products and concepts. In addition to the development of the industry, R&D projects focus on occupational safety and ergonomics, the predictability and cost-efficiency of maintenance and the environmental friendliness of end products and their manufacturing processes. New technologies are tested in cooperation with customers in production conditions. As competition tightens, new products and services are being created to meet the customers' needs in terms of maximizing the use of wood, reducing the consumption of glue and additives and cutting energy and labor costs as well as improving the quality of the end products. R&D is being focused especially on minimizing energy consumption for every cubic meter of plywood produced. Products are also being modified and new ones created to meet typical customer needs in the emerging markets. In 2011 the focus of R&D projects was more than previously on developing solutions for the emerging markets, for example a new XY block charger and a veneer lay-up line for the RautePro product family. A new semiautomatic patching unit Patchpal P2 was developed for veneer patching. Additionally, a new TwinPeel peeling station was developed mainly for the Chinese markets.
Additionally, the strengths of the RauteSelect and RauteSmart product range were developed further. Newcomers to the RauteSmart product family are an automatic lay-up line and an automatic random feeder integrated into the jointing line, both of which utilize state-of-the-art automation technology. Improved and more efficient machine vision and moisture analysis solutions combined with enhanced process control, have helped to achieve significant capacity and quality improvements in plywood production. During the period of economic downturn, with customer investments at a low level, Raute's particular emphasis has been on development projects with a short payback time enabling the customers to improve the efficiency of their production processes without carrying out extensive investments. A central aspect of Raute's product development in 2011 was the productization of the new technology and automation solutions created through R&D work so that they can be widely utilized in the modernization of the current installed base. An example of a modernization would be the electrification of the hydraulic actuators of lathes.
able way by improving the efficiency of raw material use, reducing energy consumption and minimizing the use of chemicals, especially glue. During 2011, Raute has developed the one-sided liquid extruder gluing method for veneer and precise glue application. The new glue applicator provides a significant benefit for the customer as it minimizes the amount of glue in the end product. The equipment can be integrated into both new and existing machine lines. Automation also improves occupational safety and ergonomics. In 2011 Raute especially invested in developing remote monitoring for keeping track of the availability of automatic production lines. Remote monitoring helps to anticipate possible disruptions, allows quick access to Raute's entire knowhow and decreases the amount of travel needed in disruption situations. Information collected through remote monitoring also supports the development of the customer's operations.
Ensuring more sustainable production processes is the most important thing Raute can do for the environment
Raute takes into account the key environmental impacts of the wood products industry from the customers' point of view, and helps its customers to operate in a more environmentally sustain-
Good HR management supports strategy implementation
Project business combined with a wide product and service offering and an international operating environment creates a setting that calls for competent people, hungry for success.
e believe that success is a matter of will, and we know that our competent and ambitious employees are our most important resource. The main goal of HR management is to support the implementation of our strategy by ensuring sufficient levels of competence and by fuelling our employees' hunger for success. At the end of 2011, the Group had 464 employees (495), of which 116 employees (129) worked in altogether eight units outside Finland. Total personnel turnover in the Group was 12%. The average age of the employees in 2011 was 44 years. 67 percent of the employees worked in tasks related to project deliveries, 15 percent in technology services, 7 percent in sales and marketing, and 11 percent in management and administration. Raute rewards its employees for good performance. In addition to the Group's result, the personal component of the bonus plan for employees also depends on the achievement of the objectives of their own team. The objectives
for 2011 emphasized new orders and profitability. The objectives for 2012 additionally emphasize quality and costefficiency. In 2011, due to the Group's operating profit, profit-related bonuses for team-specific achievements were paid for the third quarter of the year. The focus points for training in 2011 were customer-focused management, engineering competence and information technology.
of Raute's partners and subcontractor network are assessed according to standardized criteria. Raute's objective is to further develop its working environment in terms of productivity, safety and environmental sustainability. In 2011, there were long periods of no work-related accidents at various production departments: the sheet department had a to-
Results through sustainable development
Raute's goal is to systematically decrease the environmental impacts of its operations. These goals are mainly related to waste management, energy use, chemical management and safety. The company follows an environmental management program to manage environmental risks. Raute's units in Nastola and Jyväskylä have ISO-certified quality and environmental management systems in place. Their principles also steer operations in the Group's other locations. The operations and ethical principles
AGE OF PERSONNEL
> 60 years 8.5% < 30 years 14.4%
5160 years 26.5%
4150 years 25.2%
3140 years 25.4%
RAUTE'S HR MANAGEMENT IS GUIDED BY FOUR MAIN PRINCIPLES:
1. Cooperation making things happen together 2. Openness and dialogue 3. Good supervisor-subordinate relationship 4. Continuous development
North America 11.4%
tal of 191 successive accident-free days and the assembly department 178 days, and the machining department did not have a single accident during the year. The machining department's accidentfree period had lasted for 986 successive days at the end of 2011. Raute is committed to reaching the energy savings objective of the Federation of Finnish Technology Industries by 2016, which was set at the time of joining the energy efficiency agreement in 2008. The objective corresponds to nine percent of the energy use reported when joining the agreement. At Raute, energy consumption varies annually as a result of the production load and the prevailing weather conditions, and
therefore reaching the energy savings objective should be reviewed for several successive years. At present we are fully on schedule to reach our energy savings objective. We continuously take various measures to save energy. Hourly observation triggers reports of leaks in
water pipes or higher consumption levels of electricity or heat in disruption situations, allowing repair measures to be started quickly. At the end of 2011, an energy efficiency analysis according to Motiva's model was started up at Raute and will be completed in spring 2012.
ENVIRONMENTAL FACTS IN NASTOLA, FINLAND VOC emissions Electricity consumption Heating consumption Water consumption Total waste (incl. recycled metal) Recycling rate
2010 < 5 000 kg 3.20 GWh 4.80 GWh 2 690 m3 450 t 88%
< 5 000 kg 3.24 GWh 3.76 GWh 2 550 m3 545 t 89%
HUNGER FOR SUCCESS
Competent people achieve great results together
We provide an attractive workplace for people driven by a hunger for success. Raute's employees, competent and committed to the company's goals, create the conditions needed for the company to succeed. Even in difficult years, Raute has invested in the occupational well-being and development of its employees. "Each member of the Raute community is part of a team. Mine is the financial administration specialist team. We work closely within our own team, as well as with other teams. Seamless cooperation creates a basis for success. Raute offers us all good opportunities for maintaining and improving personal competence and developing our own work. We invest in well-being at work an investment which will pay itself back many times over in the future." Mia Lippojoki Controller, Financial accounting
Technology services account for majority of growth in 2011
Raute's net sales in 2011 totaled EUR 74.3 million and increased by 18 percent on the previous year. 63 percent of net sales were generated by project deliveries and 37 percent by technology services. Technology services were up by more than a third.
he global markets in early 2011 promisingly continued the previous year's recovery from the economic downturn of 2008 and 2009. As the year progressed, however, the outlook turned decidedly bleaker, above all due to the uncertainty caused by the debt problems of a few eurozone countries.
Investment decisions reflect financial difficulties of eurozone countries
The slow improvement taking place in Raute's customer industries during 2010 and early 2011 leveled off and declined somewhat towards the end of the year. Most of the plywood and LVL manufacturers still, however, operated at normal utilization rates. The total volume of plywood production is expected to have continued its growth during 2011, but at a slower pace than the ten percent total growth achieved in 2010. The growth is largely attributable to plywood produced in emerging markets, mainly in China. Demand for wood products in North America continued to be very sluggish during the whole of 2011 as a result of the weak situation in the housing market and construction. Demand for wood products technology and technology services reflected the changes taking place in the mar-
ket situation of customer industries. The upswing in demand seen early in the year leveled out during the summer and in a few market areas demand fell again due to the risks relating to growing debt among European countries and in the United States. Demand focused on smaller projects and modernizations. The demand for spare parts and maintenance services was increased by improved capacity utilization rates. Several large projects encompassing single production lines and millscale deliveries under planning and negotiation were deferred. Customers will decide on and realize these projects only once they are confident that demand has recovered permanently and once financing for the projects can be arranged. Production capacity has diminished in the European and North American markets and the focus was on developing the competitiveness of the remaining production capacity. China's plywood production growth was achieved through local, largely manual production. An investment decision was made in South America for doubling the capacity of a large plywood mill. In Russia, demand focused on development projects and modernizations for existing capacity.
Russia accounts for large share of order intake
For Raute, the year 2011 reflected the market outlook for customer industries. The order intake for project deliveries focused on the first and final quarters of the year. The most significant orders received were a EUR 12 million order for plywood mill machinery to Russia received in January, a EUR 6 million order for machinery for a veneer mill in Estonia received in November and a EUR 16 million order for machinery for a plywood mill in Chile received in December. Other significant orders received were peeling and drying lines to Lithuania and two patching and peeling lines to Russia. The order intake increased by 8 percent in 2011. Russia became the largest market area. Technology services grew significantly. Modernization products tapped into significant markets in Russia.
Result suffered due to fluctuations in demand and additional costs
Raute's business operations are characterized by the sensitivity of investment demand to fluctuations in the global economy and the financing markets, and the cyclical nature of project business. Strong fluctuations in the order intake resulted in low net sales at the be-
ginning and end of the year. The strong growth in technology services throughout the year was not enough to compensate for the powerful fluctuations in project deliveries. The profitability of operations improved from the previous year, but the operating result remained negative largely due to additional costs incurred during the first quarter from the drawn-out implementation of some projects that were in the installation phase. Profitability was further weakened by costs resulting from the unevenly distributed order book.
vision. A new focus was on developing products aimed primarily at the emerging markets for the RautePro product family and the Chinese markets. New technology was introduced in modernization products.
Strategic focus points steered development
Development was strongly steered by Raute's strategy, also in its own operations. The customer-based operating model was developed further and the know-how related to it was extended through comprehensive training. IT systems were developed in order to support reporting within the organization. The entire organization's resources were put to use in order to meet the growth in project deliveries and technology services. Local service ability was strengthened in Russia, Chile and Australia.
Products also for emerging markets
In 2011, Raute continued to invest strongly in continuous research and development, particularly in plywood and LVL manufacturing technology and the supporting automation and instrumentation applications, especially machine
The majority of investments centered on the development and modernization of IT systems. Production operations at the Nastola main unit were further developed in order to boost productivity by taking into use the modernized key production machine and automatizing certain work stages. Operating methods and tools for implementing projects were developed at the Chinese unit. New features were taken into use within the ERP system and the same version as in the Finnish unit was taken into use throughout the company. Thanks to its strong financial and market position and implemented development efforts, Raute's ability to survive fluctuations in demand and respond to growing demand as markets recover is good. Business is more profitable than before, even in a difficult market situation.
For Raute, the year 2011 reflected the market outlook for customer industries.
FINANCIAL REVIEW 2011
Year 2011 in brief
NET SALES, EUR million
Operating environment and demand
Uncertainty concerning the development of the global economy continued. The upswing in demand for plywood seen early in the year leveled out during the summer and in a few market areas demand fell again at the end of the year. Utilization rates of customer mills remained mainly at a good level. Decisions on large pending projects deferred. Focus on smaller projects and modernizations.
100 80 60 40 20 0
2007 2008 2009 2010 2011
Majority of new orders received at the beginning and end of the year. Technology services grew dramatically. Russia became largest market area. Profitability improved, however operating profit remained negative. Profitability was weakened by additional costs of certain projects and strong fluctuations in demand.
OPERATING PROFIT, EUR million
10 8 6 4 2 0 -2 -4 -6 -8 -10
2007 2008 2009 2010 2011
2010 62.9 71.6 57.8 1.3 1.1 5.1 4.9 50.7 33 72 0.29 6.05 0.30 103.8 495 512
Net sales, MEUR 74.3 change, % 18.2 Exported portion of net sales, MEUR 65.4 Operating profit, MEUR -0.7 Profit (loss) before tax, MEUR -1.1 Return on investment (ROI), % -0.1 Return on equity (ROE), % -4.7 Equity ratio, % 46.9 Order book, MEUR 36 Order intake, MEUR 77 Earnings per share, EUR -0.27 Equity to share, EUR 5.51 Dividend per share, EUR 0.30 Dividend per profit, % -109.7 Personnel at Dec. 31 464 Personnel, average 475
*Board of Directors' proposal to the AGM.
EARNINGS/SHARE AND DIVIDEND, EUR
2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5 -2,0 -2,5
2007 2008 2009 2010 2011
Earnings per share
*Board of Directors' proposal to the AGM
Summary of financial statements
>> The complete consolidated statement of comprehensive income and balance sheet are presented in the financial statements which have been published as a separate electronic publication on the company's website at www.raute.com.
EUR 1 000 GROUP (IFRS) 188.8.131.521 74 323 168 -184 -75 045 -738 -388 -1 126 30 -1 095 31.12.2011 12 598 40 067 52 666 184.108.40.2060 62 867 4 580 351 -66 487 1 311 -189 1 122 36 1 158 31.12.2010 12 599 40 435 53 034 PARENT COMPANY (FAS) 220.127.116.111 64 444 267 -106 -64 637 -32 -247 -280 18 41 76 -145 31.12.2011 8 487 40 898 49 385 18.104.22.1680 54 542 2 229 -296 -55 920 555 -148 407 -41 -67 299 31.12.2010 8 821 37 643 46 464
NET SALES Other operating income Change in inventories of finished goods and work in progress Total operating expenses OPERATING PROFIT (LOSS) Financial income and expenses PROFIT (LOSS) BEFORE TAX Extraordinary items (FAS) Appropriations (FAS) Income taxes PROFIT (LOSS) FOR THE FINANCIAL YEAR
ASSETS Non-current assets Current assets TOTAL ASSETS SHAREHOLDERS' EQUITY AND LIABILITIES Total shareholders' equity Appropriation reserve (FAS) Total liabilities TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES
22 069 30 597 52 666 22.214.171.1241 2 531 -1 748 846 1 629
24 227 28 807 53 034 126.96.36.1990 -6 114 4 370 -2 316 -4 060
20 887 28 498 49 385 188.8.131.521 6 061 -1 482 -382 4 198
22 234 41 24 189 46 464 184.108.40.2060 -4 604 382 -2 979 -7 201
CASH FLOW STATEMENT
Operating activities Investing activities Financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS
ORDER INTAKE, EUR million
100 Project deliveries Technology services 60 50 40 30 40 20 20 10 0
2007 2008 2009 2010 2011
ORDER BOOK AT DEC. 31, EUR million
2007 2008 2009 2010 2011
FINANCIAL REVIEW 2011
EUR 1 000 Net sales Change in net sales, % Exported portion of net sales % of net sales Operating profit (loss) % of net sales Profit (loss) before tax % of net sales Profit (loss) for the financial year % of net sales Return on investment (ROI), % Return on equity (ROE), % Balance sheet total Interest-bearing net liabilities % of net sales Non-interest-bearing liabilities Equity ratio, % Gearing, % Gross capital expenditure % of net sales Research and development costs % of net sales Order book, EUR million Order intake, EUR million Personnel, at Dec. 31 Personnel, effective, on average Personnel, average 2011 74 323 18.2 65 432 88.0 -738 -1.0 -1 126 -1.5 -1 095 -1.5 -0.1 -4.7 52 666 -10 397 -14.0 15 320 46.9 -47.1 1 885 2.5 2 020 2.7 36 77 464 457 475 2010 62 867 71.6 57 773 91.9 1 311 2.1 1 122 1.8 1 158 1.8 5.1 4.9 53 034 -9 651 -15.4 14 368 50.7 -39.8 2 224 3.5 1 849 2.9 33 72 495 438 512 2009 36 638 -62.8 30 466 83.2 -9 695 -26.5 -9 890 -27.0 -8 141 -22.2 -21.6 -28.4 57 387 -9 366 -25.6 15 801 46.0 -40.6 1 095 3.0 2 470 6.7 22 35 524 419 542 2008 98 466 -11.1 82 666 84.0 6 341 6.4 6 880 7.0 4 723 4.8 19.4 14.0 60 180 -10 653 -10.8 15 402 60.5 -31.0 3 242 3.3 4 375 4.4 24 67 573 569 585 2007 110 799 4.3 96 759 87.3 8 607 7.8 8 976 8.1 6 601 6.0 29.2 21.1 54 800 -10 794 -9.7 21 116 70.3 -32.5 1 869 1.7 3 969 3.6 56 90 570 560 575
EQUITY RATIO AND GEARING, %
80 60 Equity ratio 40 20 Gearing
RETURN ON INVESTMENT (ROI) AND RETURN ON EQUITY (ROE), %
30 20 10
0 0 -20 -40 -60
2007 2008 2009 2010 2011
-10 -20 -30
2007 2008 2009 2010 2011
2011 Earnings per share, EUR Equity to share, EUR Dividend per share, EUR Dividend per profit, % Effective dividend yield, % Price/earnings ratio (P/E ratio) -0.27 5.51 0.30* -109.7* 4.8* -22.67 2010 0.29 6.05 0.30 103.8 3.1 33.55 2009 -2.03 5.76 0.00 0.0 0.0 -3.67 2008 1.18 8.57 0.70 59.4 10.9 5.43 2007 1.65 8.29 1.00 60.7 7.0 8.71
Development in share price (series A shares) Lowest share price for the financial year, EUR 6.05 Highest share price for the financial year, EUR 11.55 Average share price for the financial year, EUR 8.57 Share price at Dec. 31, EUR 6.20 Market value of capital stock at Dec. 31, EUR 1 000** 24 829 Trading in the company's shares (series A shares) Shares traded during the financial year, 1 000 shares % of the number of series A shares Total number of shares Issue-adjusted weighted average number of shares Issue-adjusted number of shares at the end of the financial year
7.24 10.10 8.21 9.70 38 846
6.50 8.90 7.29 7.47 29 916
6.24 15.20 12.37 6.40 25 630
12.40 15.45 13.85 14.35 57 468
4 004 758 4 004 758
4 004 758 4 004 758
4 003 183 4 004 758
4 004 758 4 004 758
4 004 758 4 004 758
The deferred tax liabilities have been included in the calculation of the key ratios.
*Board of Directors' proposal to the Annual General Meeting. **Series K shares valued at the value of series A shares.
CONSOLIDATED CASH FLOW, EUR million
% 3,5 3,0 2,5 3 2,0 1,5 1,0 0,5 0,0 0 -3 -6 -9 EUR million % of net sales 12 9 6
MEUR 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0
2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
RISKS AND RISK MANAGEMENT
Risks and risk management
he aim of risk management is to further the achievement of strategic and other objectives by foreseeing and limiting substantial risks and the negative effects of occurred risks on business. Preventive risk management ensures the continuity of operations. Risk management also includes recognizing, assessing and preparing for the risks related to business opportunities. The primary goal of crisis management is the safety of the personnel. At Raute, the key risk areas identified by management relate to the nature of the business, the operating environment, financing, and damage or loss. Risk management is carried out as part of the management system.
Deliveries and technology
The bulk of Raute's business operations consists of project deliveries, which expose the company to risks caused by customized solutions related to each customer's end product, production methods or raw materials. At the quotation and negotiation phase, the company has to take risks relating to the promised performance figures and make estimates of implementation costs. Raute invests heavily in product development. The developmental phase for new technologies involves the risk that the project will not lead to a technologically or commercially acceptable solution. The functionality and capacity of new solutions produced as a result of development work cannot be fully verified until the solutions can be tested under production conditions in conjunction with the customer deliveries. Contract, product liability, implementation, cost and capacity risks are managed using project management procedures that comply with the company's ISO-certified quality system. Technology risks are reduced by the conditions of delivery contracts and by restricting the number of simultaneous first deliveries.
Impact of economic cycles on business operations
Raute's business operations are characterized by the sensitivity of investment demand to fluctuations in the global economy and the financing markets, and the cyclical nature of project business. The impact of changes in demand on the Group's result is reduced by increasing the share of technology services, increasing operations in market areas with a small current market share, creating products for completely new customer groups and developing the subcontracting network.
Group's liquid assets are mainly held in banks in the Nordic countries. The Group's main currency is the euro. The most significant currency risks result from the following currencies: Canadian dollar (CAD), US dollar (USD), Russian ruble (RUB) and Chinese yuan (CNY). The main hedging instruments used are foreign currency forward contracts. Currency clauses are used to hedge against currency risks during the quotation period. Depending on the case, currency risks related to preliminary sales contracts are hedged with currency option contracts. The Group has braced for fluctuations in the working capital tied up in project operations and possible disturbances in the availability of money by taking out a long-term loan. The interest rate risk related to the company's variable interest rate loans is hedged with interest rate swaps. The Group's interest risks are mainly related to the return on liquid assets.
Competence retention and development and ensuring the sufficiency of human resources are particularly important in cyclical business. Continuity is ensured by monitoring the development of the age structure, implementing systematic human resources management and investing in well-being at work.
The most significant financing risks in the Group's international business operations are default risks and currency risks related to counterparties. The Group is also exposed to liquidity, interest and price risks. The default risk relating to customers' solvency is managed by covering the unpaid sum with bank guarantees, letters of credit or other securities. The
Raute's objective is to increase its local business in China and Russia, where, besides opportunities, companies face risks typical for emerging markets. Information security risks are managed according to a defined information security policy.
Risks of damage or loss
Raute's most significant single risks concerning material damage and business interruption loss are a fire or a serious machine or information system breakdown at the Nastola main unit, where the production, planning, financial, and ERP systems serving the
Risk management is carried out as part of the management system.
Group's key technologies are centrally located. Other risks of damage or loss include occupational safety risks, which are managed by means of active riskprevention measures, such as continuous personnel training and investigation of all near-miss situations. Occupational safety and ergonomics are under continuous development. Raute's production operations do not involve significant environmental risks. The main unit in Nastola has an ISO-certified environmental management program, whose principles are also adhered to in other units. The Group hedges against risks of damage or loss by assessing its facilities and processes in terms of risk management and by maintaining emergency plans. Global and local insurance programs are checked regularly as part of overall risk management. The objective is to use insurance policies to sufficiently hedge against all risks that are
reasonable to handle through insurance due to economical or other reasons.
Organizing risk management
Raute's risk management policy is approved by the Board of Directors. The Board is responsible for organizing internal control and risk management, and for monitoring their efficiency. The Executive Team defines the Group's general risk management principles and operating policies, and defines the boundaries of the organization's powers. The President and CEO and the CFO regularly report significant risks to the Board. The Group's President and CEO controls the implementation of the risk management principles in the entire Group, while the Presidents of the Group companies are responsible for risk management in their respective companies. The members of the Group's Executive Board are in charge of their own areas of responsibility across company boundaries.
Raute has no separate internal auditing organization. The Controller function oversees the annual internal control plan approved by the Board, develops internal control and risk management procedures together with the operative leadership, and monitors compliance with risk management principles, operational policies and powers.
Corporate Governance Statement
Raute Corporation's Board of Directors has handled Raute Corporation's Corporate Governance Statement according to chapter 2, section 6 of the Finnish Securities Markets Act and recommendation 54 of the Finnish Corporate Governance Code for listed companies issued by the Securities Market Association on June 15, 2010. The statement has been drawn up separately from the financial statements and is published on the company's website at www.raute.com.
>> The financing risks, as well as the risk management objectives and procedures, are described in more detail in the note number 2 to the financial statements.
Raute Corporation's operations are based on compliance with the legislation in effect, the standards covered by the legislation, and ethically acceptable operating methods.
holders' register on the record date, which is eight days before the Annual General Meeting, and that he registers for the meeting on the day stipulated in the summons to the meeting. Shareholders are entitled to have an issue included in the Annual General Meeting's agenda, provided that such an issue requires a decision by the Annual General Meeting according to the Finnish Companies Act. The request must be submitted in writing to the Board early enough so that the issue can be included in the meeting notice. The company will publish a date on its website by which the shareholder needs to state his request. The Annual General Meeting and Extraordinary General Meeting shall be called by a notice published, no later than 21 days before the General Meeting, in one national newspaper decided by the Board of Directors and in one newspaper appearing in the company's domicile Lahti and on the company's website. Raute Corporation's Annual General Meeting 2011 was held on April 13, 2011. The Annual General Meeting adopted the financial statements for 2010 and decided that a dividend of EUR 0.30 per share be paid for both series A and K shares. Dividends were paid on April 27, 2011 to shareholders who were registered in the shareholders' register maintained by Euroclear Finland Oy on the record date. In addition to other statutory decisions, the Meeting authorized the Board to decide on the acquisition of the company's own series A shares and the directed issue of a maximum of 400,000 shares.
he Parent company, Raute Corporation, is a Finnish public limited liability company which abides by the Finnish Companies Act, the Securities Markets Act, NASDAQ OMX Helsinki Ltd's rules, other regulations concerning publicly listed companies and Raute Corporation's Articles of Association in its decision-making and corporate governance. The company's Board of Directors has also issued Administrative Instructions for the company. Raute complies with the Finnish Corporate Governance Code 2010 for listed companies issued by the Securities Market Association on 1 October 2010, which can be read on the Internet at www.cgfinland.fi. Raute deviates from the Code's recommendation 22 on appointing members to the Appointments Committee in that one member to the Committee is elected from outside the Board of Directors, as per the company's Administrative Instructions, from among the representatives of major shareholders who have significant voting rights. The Board views this exception as justified, when taking into consideration the company's ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of electing members of the Board of Directors. Raute Corporation has drawn up a Corporate Governance Statement based on recommendation 54 of the Code and a remuneration statement based on recommendation 47. Raute Corporation's Articles of Association, Administrative Instructions, Corporate Governance Statement and other information related to the company's governance and investor relations are available on Raute's website, www.raute.com. Information concerning the Group's administration and risk
management are also included in the Report of the Board of Directors and Financial Statements.
Shares and shareholders
Raute Corporation's shares are divided into ordinary shares (series K) and A shares (series A). The difference between the series is that a series K share entitles the holder to twenty (20) votes and a series A share to one (1) vote at General Meetings. The series A shares have been quoted on the NASDAQ OMX Helsinki Ltd since 1994. The shares have a nominal value of EUR 2.00. Series K shares can be converted to series A shares under the terms described in section 3 of the Articles of Association. If a series K share is transferred to a new owner who has not previously held series K shares, other shareholders of the K series have the right to redeem the share under the terms described in section 4 of the Articles of Association. More detailed information on Raute Corporation's shares and shareholders on December 31, 2011 is provided on pages 4445.
Annual General Meeting
Raute's supreme decision-making body is the Annual General Meeting, where shareholders exercise their decisionmaking power and right to supervise and control the company's operations. Raute Corporation's Annual General Meeting is held in MarchApril, but no later than six months from the end of the financial year. The Annual General Meeting elects the Chairman and ViceChairman for the Board of Directors, and 35 Board members. Each Raute shareholder has the right to attend Annual General Meetings. Taking part in the Annual General Meeting requires that the shareholder be registered in the company's share-
Board of Directors
The term of office of Raute Corporation's Board begins at the Annual General Meeting that elects the Board, and ends at the following Annual General Meeting. The majority of the Board members must be independent of the company, and at least two members of said majority must be independent of the company's major shareholders.
The Board of Directors of Raute Corporation administers the company's operations in accordance with the applicable legislation and Raute Corporation's Articles of Association. The Board of Directors also acts as the Board for Raute Group, which handles and decides on all important issues that affect the entire Group or the operations of its units, regardless of whether the issue legally requires a decision from the Board of Directors. The Board of Directors may handle issues that concern any of the Group's companies if the Board or President and CEO of the Parent company deems it appropriate to do so. The Charter and tasks of the Board of Directors are described in the Administrative Instructions and Corporate Governance Statement available on the company's website. In addition to statutory tasks and those defined in the Articles of Association, the Board approves the company strategy and budget annually, and, based on management reports, regularly monitors the Group's financial status and draws up interim reports. The Board carries out an annual self-evaluation of the work of the Board members and the Chairman of the Board. In the Annual General Meeting on April 13, 2011, six members were elected to Raute Corporation's Board of Directors for the term of office 2011/2012. Mr. Erkki Pehu-Lehtonen was re-elected Chairman of the Board, Ms. Sinikka Mustakallio Vice-Chairman and Mr. Risto Hautamäki, Mr. Ilpo Helander, Mr. Mika Mustakallio and Mr. Pekka Suominen as Board members. Erkki Pehu-Lehtonen, Risto Hautamäki, Ilpo Helander, Mika Mustakallio and Pekka Suominen are independent of the company. Sinikka Mustakallio, who chaired Raute's Supervisory Board from 1996 to 1998 and has acted as a member of the Board since 1998, is dependent on the company. Erkki Pehu-Lehtonen, Risto Hautamäki and Ilpo Helander are independent of major shareholders. The Board held 13 meetings in 2011. The meetings handled the matters listed in the Charter for the Board
and Administrative Instructions. The Board carried out a self-evaluation of the term of office 2010 in spring 2011. The Annual General Meeting on April 13, 2011 decided that the remuneration paid to the Chairman of the Board for the term of office 2011/2012 will be EUR 40 thousand, and EUR 20 thousand to each Board member. Traveling expenses will be compensated according to the company's traveling policy. The salaries and fees paid to the Board during 2011 totaled 140 thousand euros.
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 decisionmaking bodies; instructions on the division of responsibilities among the Board of Directors, the President and CEO, and the Executive Board; as well as guidelines for organizing internal control and risk management to complement the provisions of the Companies Act and Raute's Articles of Association. The Administrative Instructions are reviewed annually and are available on the company's website.
Raute Corporation's Board has a Working Committee and an Appointments Committee which support the Board's
work. The Board approves the key contents of the committees' Charter, and the committees regularly report on their work at the Board meetings. The Audit Committee's tasks are handled by the Board of Directors. The Board of Directors can also establish other committees if needed. No extra remuneration is paid for work carried out in the committees. For the preparation of matters of major importance, the Board of Directors appoints a Working Committee from among its members, which includes the Chairman of the Board of Directors, the Vice-Chairman and one Board member. The Board elects an Appointments Committee, which includes the Chairman, the Vice-Chairman and one member from outside the Board who is appointed from among the representatives of major shareholders who have significant voting rights. The task of the Appointments Committee is to prepare a proposal concerning Board members for the Annual General Meeting. The Board views the appointment of a person from outside to the Appointments Committee as justified, when taking into consideration the company's ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of electing members of the Board of Directors. During the term of office 2010/2011, Chairman of the Board, Mr. Erkki Pehu-
Attendance in the meetings of the Board of Directors, Board's Working Committee and Appointments Committee 2011 MEMBER BOARD OF DIRECTORS Erkki Pehu-Lehtonen 13/13 Sinikka Mustakallio 11/13 Risto Hautamäki 13/13 Ilpo Helander 13/13 Mika Mustakallio 12/13 Pekka Suominen 13/13 Ville Korhonen Average attendance 96% WORKING COMMITTEE 2/2 2/2 2/2 100% APPOINTMENTS COMMITTEE 2/2 2/2 2/2 100%
>> The Board members' personal data and holdings on December 31, 2011 are presented on pages 4041. Up-to-date share and option holdings are presented on the company's website.
Lehtonen continued as the Chairman of the Working Committee and ViceChairman, Ms. Sinikka Mustakallio and Board member, Mr. Risto Hautamäki as its members. Chairman of the Board Mr. Erkki Pehu-Lehtonen continued to chair the Appointments Committee, and ViceChairman, Ms. Sinikka Mustakallio, and Mr. Ville Korhonen a representative of major shareholders acted as its members.
concerning retirement or the amount of retirement allowance. The term of notice is six months, and the severance pay equals six months' salary. The President and CEO is covered by the 2010 stock option plan. The company does not remunerate the President and CEO on any other grounds nor does it grant him loans or provide any guarantees for him.
Business organization and the Group's Executive Board
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 members of the Executive Board are in charge of the day-to-day management of the company in their respective areas of responsibility. The Group's Executive Board consisted of, in addition to Mr. Tapani Kiiski, President and CEO (Chair), the members Ms. Arja Hakala, CFO; Mr. Petri Strengell, Group Vice President, Technology and Operations; Mr. Timo Kangas, Group Vice President, Technology Services; Mr. Bruce Alexander, Group Vice President, North American Operations and, as of September 26, 2011, Mr. Petri Lakka, Group Vice President, Business Development. The remuneration for the Executive Board members consists of a fixed monthly salary including fringe benefits
President and CEO
Raute Corporation's President and CEO manages the tasks assigned to Presidents and CEOs in accordance with the Finnish Companies Act, and also serves as the President and CEO of the Group and as Chairman of the Group's Executive Board. The President and CEO ensures that the accounting of the company is in compliance with the law and that its assets are managed reliably. The President and CEO represents the Group at the shareholders' meetings of subsidiaries and associates, and acts as Chairman of the subsidiaries' Boards of Directors, unless the Board decides otherwise in individual cases. The President and CEO steers the Group's business operations via the Executive Board and the operative units. The persons who oversee the operative units report to the President and CEO. The President and CEO steers and controls the operations of the operative units with the assistance of the Executive Board and head office functions. Since March 16, 2004, Raute Corporation's President and CEO has been Tapani Kiiski (Licentiate in Technology). Kiiski is independent of major shareholders. Ms. Arja Hakala, M.Sc. (Econ.), MBA, Chief Financial Officer, was appointed deputy to the President and CEO on March 16, 2004. The remuneration for the President and CEO Tapani Kiiski consists of a fixed monthly salary and fringe benefits according to his executive contract and a profit-related bonus amounting to six months' salary at the most, depending on the achievement of targets set for each year. The executive contract does not include any special conditions
and a profit-related bonus amounting to a maximum of three months' salary, depending on the achievement of the targets set for each year. The Executive Board members are covered by the 2010 stock option plan. The Executive Board members serve according to an indefinite employment contract without entitlement to extra severance pay or other compensation. The additional pension benefits and terms of notice do not significantly differ from the statutory terms and conditions. The company does not remunerate the Executive Board members on any other grounds nor does it grant them loans or provide any guarantees for them.
Within Raute Group, remuneration consists of three components: the basic salary including fringe benefits, profit- and performance-related remuneration (bonuses), and long-term incentive plans. Depending on the employee's position, different combinations of the abovementioned elements are applied. The Board of Directors prepares a proposal on and determines the President and CEO's basic salary including fringe benefits and approves the basic salary including fringe benefits of the Executive Board members, based on the President and CEO's proposal. An individual employee's remuneration is always approved by the superior of the employee's superior. The Chairman of the Board approves the remunerations of the President and CEO's immediate subordinates who are not members of
Remunerations for President and CEO and other Executive Board members 2011
Fixed salary and fringe benefits, EUR 1 000 Profitrelated bonus, EUR 1 000 2011 total, EUR 1 000 2010 B options, pcs
President and CEO Other Executive Board members, total
>> President and CEO's and other Executive Board members' personal data and
holdings on December 31, 2011 are presented on pages 4243. Up-to-date share and option holdings are presented on the company's website.
the Executive Board. An employee is not entitled to separate remuneration for being a Board member in any of the Group's subsidiaries. Raute Group's profit- and performance-related bonus system includes separate systems for the President and CEO, the Group's Executive Board, key personnel, and the entire personnel. A person can receive bonuses from no more than one system at a time. The Board of Directors annually confirms the general principles, maximum amounts and calculation methods for the remuneration systems. Payment of bonuses within the bonus systems for the President and CEO, the rest of the Group's Executive Board and key personnel is dependent on the person's performance and taskrelated personal targets for the entire year. Profit-related bonuses are paid once a year after the Annual General Meeting has confirmed the financial statements. Payment of bonuses within the bonus system for the rest of the personnel is dependent on the Group's profit and the targets set for the team in question. Profit-related bonuses are paid out for each quarter year provided that the Group has made a positive cumulative profit. Long-term incentive plans include the 2010 stock option plan. The company has made available on its website a remuneration statement according to recommendation 47 of the Finnish Corporate Governance Code 2010 for listed companies.
scribed in more detail in note number 2 to the consolidated financial statements.
According to the Articles of Association, the company shall have at least one and at most two auditors and one deputy auditor. If an authorized public accounting company is elected, a deputy auditor does not need to be elected. If the auditor elected is other than an authorized public accounting company, two auditors and one deputy auditor are elected. The Board of Directors approves the audit plan and supervises its implementation. In addition to their tasks defined in the regulations, the auditor's report to the Chairman of the Board when necessary, and at least once a year to the Board of Directors on any issues that have arisen during the audit. In the Annual General Meeting on April 13, 2011, the authorized public accounting company PricewaterhouseCoopers was chosen as auditor with Authorized Public Accountant Janne Rajalahti as the principal auditor for the term of office 2011/2012. The Annual General Meeting decided that remuneration be paid to the auditors for the term of office 2011/2012 on the basis of reasonable invoicing.
Raute Corporation follows the Guidelines for Insiders issued by NASDAQ OMX Helsinki Ltd, the Central Chamber of Commerce, and the Confederation of Finnish Industries EK. In addition, the company applies separate insider instructions approved by the Board of Directors. The Chief Financial Officer is in charge of insider issues. Raute Corporation's insiders comprise public insiders, permanent company-specific insiders and project-specific insiders in accordance with the Finnish Securities Markets Act. The company's public insiders include the Board of Directors, the Group's President and CEO, the Executive Board, the Presidents of subsidiaries, and auditors. The company's permanent company-
specific insiders include those persons employed by the company or persons performing work for the company on the basis of some other contract who, by virtue of their positions or tasks, have access to insider information on a regular basis. A project-specific insider register is set up if the person responsible for the project considers that the publication of the project may have a significant impact on the value of the company's shares. The company's insider registers are maintained at the company's head office, which updates the information concerning insiders subject to disclosure requirements which need to be listed in a public insider register in Euroclear Finland Ltd's SIRE service. The public information on the insiders is available on Raute Corporation's website. The insider trading prohibition begins at the end of an interim reporting period or financial year and ends two hours after the publication of the corresponding stock exchange release. Raute organizes briefings in Helsinki in connection with the publication of the Financial Statements Review and Interim Reports in which analysts, investors and the media are given the opportunity to meet the President and CEO and the CFO in person. The company avoids investor communication meetings during insider trading prohibitions.
Raute's investor communications seek to support the correct valuation of Raute's share by providing sufficient and relevant information on the company and its business environment to different investor groups simultaneously and fairly in order to ensure that capital market actors can form a well-grounded assessment of Raute as an investment. Raute publishes its financial reports (Annual Report, Financial Statements and Interim Reports) and stock exchange releases and notifications in both Finnish and English. Raute's investor communication policy, financial reports, releases and other information concerning Raute can be found on Raute's website.
Organizing risk management and risks
The organizing of risk management and risks are presented on pages 3435. The management of financing risks is de-
Auditors' remunerations 2011, EUR 1 000 Regular annual audit Tax consultation Other services Total 45 11 2 59
BOARD OF DIRECTORS
Board of Directors
b. 1950, M.Sc. (Eng.) Chairman of the Board 2009 Member of the Board 2009 Chairman of the Board's Working Committee and Appointments Committee Independent of the company and of major shareholders Erkki Pehu-Lehtonen was Senior Adviser to the Board of Pöyry Plc in 20082010 and Pöyry Plc's President and CEO in 19992008. He was President of Jaakko Pöyry Oy, a subsidiary of Pöyry Plc, in 19961999 and Executive Vice President of the company in 19941996. Before joining the Pöyry Group, he held top management positions at, among others, Neles Jamesbury, Inc. and Valmet Paper Machinery Inc. Main simultaneous positions of trust: Member of the Board: Tekla Corporation 2006 Metso Corporation 2010 Raute shares: 1,000 pcs series A shares
b. 1952, Researcher Vice-Chairman of the Board 2004 Member of the Board 1998 Chairman of Raute Corporation's Supervisory Board 19961998 Member of the Board's Working Committee and Appointments Committee Dependent on the company and on major shareholders Sinikka Mustakallio has been President of WoM Oy since 2001. Main simultaneous positions of trust: None Raute shares: 47,240 pcs series K shares 30,862 pcs series A shares
b. 1945, M.Sc. (Eng.) Member of the Board 2009 Member of the Board's Working Committee Independent of the company and of major shareholders Risto Hautamäki was President of Metso Paper in 20052007, President and CEO of Tamfelt Corporation in 19952005 and President and CEO of Valmet Paper Machinery Inc. in 19901994. Main simultaneous positions of trust: None Raute shares: 1,000 pcs series A shares
>> Holdings of Raute shares on December 31, 2011. The figures include their own holdings as well as those of their minor children and control entities.
b. 1942, M.Sc. (Eng.) Member of the Board 2008 Independent of the company and of major shareholders Ilpo Helander was President and Chairman of the Board of Oy Electrolux Ab and Senior Vice President of Electrolux Europe in 19912004. His areas of responsibility were Russia, Belarus, the Baltic countries, the Ukraine, and Kazakstan. Main simultaneous positions of trust: Member of the Board: Neo Industrial Plc 2007 Reka Kumi Oy 2007 Teknos Oy 2007 CT-Logistics Oy 2008 Finndomo Oy 2010 Talent-Center Oy 2010 Raute shares: 1,000 pcs series A shares
b. 1964, M.Sc. (Econ.), CEFA Member of the Board 2004 Independent of the company, dependent on major shareholders Mika Mustakallio has been President of MORS Software Oy since 2006 and a bank risk management specialist. Since 2001, as an entrepreneur, he has been creating innovative real-time risk management systems for banks. Prior to this, in 19952000 he worked at Svenska Handelsbanken as the head of risk control and in 19911995 at Price Waterhouse as a consultant. Main simultaneous positions of trust: None Raute shares: 56,230 pcs series K shares 29,670 pcs series A shares
b. 1976, M.Sc. (Econ.), Member of the Board 2010 Independent of the company, dependent on major shareholders Pekka Suominen has been Business Manager of Talentum Events Oy since 2007. Main simultaneous positions of trust: None Raute shares: 48,000 pcs series K shares 62,429 pcs series A shares
Auditors PricewaterhouseCoopers Oy, with Mr. Janne Rajalahti (Authorized Public Accountant) as the principal auditor.
b. 1962, Licentiate in Technology, M.Sc. (Eng.) President and CEO, March 16, 2004 With the Company since: 2002 Member of the Executive Board since: March 16, 2004 Employment history: Raute Corporation 20022004: various positions such as Technology Director, Sales Director; KCI Konecranes International Plc 19942002: various positions, such as CIO; Kone Corporation, Kone Cranes 19851994: various positions, such as R&D Manager, R&D Director Raute shares and stock options: 4,500 pcs series A shares 21,000 pcs stock options 2010 A 10,000 pcs stock options 2010 B
b. 1965, Licentiate in Technology, M.Sc. (Eng.) Group Vice President, Technology Services, January 1, 2012 With the Company since: 2011 Member of the Executive Board since: September 26, 2011 Employment history: Raute Corporation 2011: Group Vice President, Business Development; Ramboll Finland Oy 20082011: Director, Industry and Energy Division; Metso Paper Oy 19962008: various positions, such as Metso Paper Service Vice President, R&D; Senior Vice President, Maintenance Services and Area Vice President, Board Machine Services North America: Jaakko Pöyry Oy 19941996, Process Engineer, Paper Making Raute shares and stock options: 5,000 pcs stock options 2010 B
b. 1965, Engineer Group Vice President, EMEA, January 1, 2012 With the Company since: 2004 Member of the Executive Board since: October 1, 2004 Employment history: Raute Corporation 20042011: various positions such as Group Vice President, Technology Services, Maintenance Service Manager; YIT Corporation, 19992004: various positions such as Key Account Manager, Area Manager Raute shares and stock options: 750 pcs series A shares 9,500 pcs stock options 2010 A 5,000 pcs stock options 2010 B
b. 1957, M.Sc. (Econ.), MBA Group Vice President, Finance, Chief Financial Officer, October 8, 2003 Deputy to President and CEO, March 16, 2004 With the Company since: 1990 Member of the Executive Board since: January 1, 2001 Employment history: Raute Corporation 19902003: Administrative Director; Luhta Oy 19851990: Controller Raute shares and stock options: 1,750 pcs series A shares 9,500 pcs stock options 2010 A 5,000 pcs stock options 2010 B
b. 1962, M.Sc. (Eng.) Group Vice President, Technology and Operations, October 11, 2004 With the Company since: 1987 Member of the Executive Board since: June 1, 2004 Employment history: Raute Corporation 19872004: various positions such as Engineering Manager, Production Director Raute shares and stock options: 2,750 pcs series A shares 9,500 pcs stock options 2010 A 5,000 pcs stock options 2010 B
b. 1959, B.Sc. (For.), MBA Group Vice President, North American Business Operations; President, Raute's North American companies, March 6, 2000 With the Company since: 2000 Member of the Executive Board since: June 1, 2004 Employment history: International Forest Products Ltd., 19882000: various positions, such as Corporate Development Manager, Divisional Manager Raute shares and stock options: 9,500 pcs stock options 2010 A 5,000 pcs stock options 2010 B >> Holdings of Raute shares and stock options on December 31, 2011. The figures include their own holdings, as well as those of their minor children and control entities.
INFORMATION TO SHAREHOLDERS
Information to shareholders
Raute is a financially sound small-cap company with a background of family ownership. Raute operates globally and is the leader in its field.
n all of its communication, Raute complies with the requirements for listed companies as defined by the Securities Markets Act and the rules of the NASDAQ OMX Helsinki Ltd regarding prompt and simultaneous disclosure of information.
instructions concerning registration in the Company's shareholders' register, letters of proxy, and registration at the meeting. Shareholders who wish to attend the Annual General Meeting must register for it by 4:00 p.m. on Wednesday, April 11, 2012
Raute publishes financial information (annual report, financial statements, and interim reports) and stock exchange releases and announcements in Finnish and English. The company publishes other investor information mainly in Finnish, and in English, when necessary. Read more on Raute's investor communication policy on Raute's website at www.raute.com. The printed Annual Report will be mailed to the 200 largest shareholders and to others by request. Financial publications can be ordered in print or as printouts by phone from +358 3 829 11 or by email from firstname.lastname@example.org. In 2012 Raute Corporation will publish three interim reports: 2012 2012 tober 30, 2012. Financial information materials and other information on Raute are available on Raute's website at www. raute.com.
Raute's investor relations strive for prompt, transparent and high-quality service. Investor contacts: Tapani Kiiski, President and CEO Arja Hakala, CFO tel. +358 3 829 11 email: email@example.com.
P.O. Box 69, FI-15551 Nastola, Finland,
or Salminen Any letters of proxy should be delivered as originals to the address Raute Corporation, Eija Salminen, P.O. Box 69, FI-15551 Nastola, Finland before the end of registration.
Raute Corporation has two series of shares. Series A shares have been quoted on the NASDAQ OMX Helsinki Ltd since 1994. Share quotations can be followed online at www.raute.com. Series A share
Raute exercises an active dividend policy. Its aim is to ensure competitive returns for its investors. Dividend payment takes into account future investment needs and the goal of maintaining a solid equity ratio. Due to the nature of the project business, the dividend is not directly tied to the annual result.
Series K share
SHARE OWNERSHIP BY SHAREHOLDER CATEGORY
Annual General Meeting
Raute Corporation's Annual General Meeting will be held on Monday, April 16, 2012 starting at 6:00 p.m. at Sibelius Hall, Ankkurikatu 7, Lahti, Finland. To be entitled to attend the Annual General Meeting, shareholders must be registered in the shareholders' register maintained by Euroclear Finland Ltd at the latest on April 2, 2012. Shareholders with nominee-registered holdings are encouraged to request from their trustees the necessary
Payment of dividend
The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.30 per share be paid for both series A and K shares. The date of payment is April 26, 2012 and the respective record date is April 19, 2012. Dividends will be paid to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date.
1. Households 82.3% 2. Financial and insurance institutions 9.8% 3. Companies 4.3% 4. Public institutions 1.5% 5. Nominee-registered 1.5% 6. Non-profit shareholders 0.5% 7. Foreign shareholders 0.1%
LARGEST SHAREHOLDERS AT DEC. 31, 2011 Number of series K shares Number of series A shares 624 798 181 900 142 628 74 759 58 000 62 429 62 316 53 539 41 826 29 670 51 116 22 009 30 862 65 000 63 489 18 162 43 256 43 256 24 110 27 964 1 721 089 Total number of shares 624 798 181 900 142 628 122 759 118 480 110 429 110 316 104 179 92 106 85 850 84 716 82 489 78 102 65 000 63 489 61 402 55 256 55 256 54 110 52 924 2 346 189 % of total shares 15.6 4.5 3.6 3.1 3.0 2.8 2.8 2.6 2.3 2.1 2.1 2.1 2.0 1.6 1.6 1.5 1.4 1.4 1.4 1.3 58.6 Total number of votes 624 798 181 900 142 628 1 034 759 1 267 600 1 022 429 1 022 316 1 066 339 1 047 426 1 153 270 723 116 1 231 609 975 662 65 000 63 489 882 962 283 256 283 256 624 110 527 164 14 223 089 % of voting rights 2.7 0.8 0.6 4.5 5.6 4.5 4.5 4.7 4.6 5.1 3.2 5.4 4.3 0.3 0.3 3.9 1.2 1.2 2.7 2.3 62.3
BY NUMBER OF SHARES
1. Sundholm, Göran 2. Mandatum Henkivakuutusosakeyhtiö 3. Sijoitusrahasto Alfred Berg Small Cap F. 4. Suominen, Jussi Matias 48 000 5. Mustakallio, Kari Pauli 60 480 6. Suominen, Pekka 48 000 7. Suominen, Tiina Sini-Maria 48 000 8. Siivonen, Osku Pekka 50 640 9. Kirmo, Kaisa Marketta 50 280 10. Mustakallio, Mika Tapani 56 180 11. Keskiaho, Kaija Leena 33 600 12. Särkijärvi, Anna Riitta 60 480 13. Mustakallio, Ulla Sinikka 47 240 14. Relander, Harald Bertel 15. Sijoitusrahasto Nordea Suomi Small Cap 16. Mustakallio, Marja Helena 43 240 17. Särkijärvi-Martinez, Anu Riitta 12 000 18. Särkijärvi, Timo 12 000 19. Kirmo, Lasse 30 000 20. Suominen, Jukka Matias 24 960 TOTAL 625 100
TRADING IN SERIES A SHARES
EUR 1 000 1 500 1 000 pcs 150 trading EUR 1 000 trading 1 000 pcs
DEVELOPMENT OF THE NUMBER OF SHARESHOLDERS
90 1 000
2007 2008 2009 2010 2011
DEVELOPMENT OF SHARE PRICE, EUR
MARKET VALUE OF CAPITAL STOCK AT DEC. 31, EUR million
Closing price at Dec. 31. Average share price 60 50 40 Series K shares appreciated to the value of series A shares.
9 30 6 20 3 10 0
2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
STOCK EXCHANGE RELEASES AND ANNOUNCEMENTS
Stock exchange releases and announcements 2011
The following list includes Raute Corporation's stock exchange releases and announcements published in 2011. Some of the information included in the releases might be out of date.
January 19 January 20 Raute's annual review 2010 Raute to have over EUR 12 million in orders from Russia
February 1 February 15 Appointments Committee's proposal regarding composition of Raute Corporation's Board of Directors Raute Corporation Financial statements January 1 December 31, 2010
March 14 March 21 Raute's Annual Report, Financial statements and Corporate Governance Statement for 2010 published Invitation to Raute Corporation's Annual General Meeting
April 13 April 13 Decisions of Raute Corporation's Annual General Meeting 2011 Raute Corporation's Board of Directors' independence and Board committees
May 4 Raute Corporation Interim report January 1 March 31, 2011
August 1 August 9 Invitation to Raute Corporation's interim report briefing Raute Corporation Interim report January 1 June 30, 2011
September 26 Petri Lakka appointed member of Raute Group's Executive Board
October 21 October 25 October 31 Invitation to Raute Corporation's interim report briefing Raute's profit outlook for the full year 2011 weakened Raute Corporation's financial releases in 2012
November 1 November 16 Raute Corporation Interim report January 1 September 30, 2011 Raute to have over EUR 6 million in orders from Estonia
December 16 Raute to have over EUR 16 million in orders from Chile
>> Up-to-date information for investors is available in the investor section of Raute's website at www.raute.com. The section contains information on the company as an investment, annual reports and stock exchange releases published by the company, as well as information on Raute's share and shareholdings.
Raute Corporation Head office and main production plant Rautetie 2 P.O. Box 69 FI-15551 Nastola Finland Tel. +358 3 829 11 Fax +358 3 829 3200 www.raute.com Raute Corporation Jyväskylä unit Laukaantie 4 FI-40320 Jyväskylä Finland Tel. +358 3 829 11 Fax +358 14 445 4429 Raute Corporation Mecano Business Syväojankatu 8 FI-87700 Kajaani Finland Tel. +358 3 829 11 Fax +358 8 612 1982 Raute Canada Ltd. 1633 Cliveden Avenue Delta, B.C. Canada V3M 6V5 Tel. +1 604 524 6611 Fax +1 604 521 4035 Raute US, Inc. c/o Barrett Distribution 4836 Hickory Hill Road Suite #128 Memphis, TN USA 38141 Tel. +1 800 448 8592 Fax +1 866 615 1379 Raute Chile 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 # 0602 Wedge Mount Industrial Building Singapore 577 176 Tel. +65 625 043 22 Fax +65 625 053 22 Raute (Shanghai) Machinery Co., Ltd 18 Building, No. 399, Xuan Zhong Road Nan Hui Industry Zone, Pudong District, Shanghai City, China P.C. 201300 Tel. +86 21 5818 6330 Fax +86 21 5818 6322 Raute (Shanghai) Trading Co., Ltd 17 Building, No. 399, Xuan Zhong Road Nan Hui Industry Zone, Pudong District, Shanghai City, China P.C. 201300 Tel. +86 21 5818 6330 Fax +86 21 5818 6322 Raute Service LLC Moskovsky prospekt, 212 A, Office 4011 196066 St. Petersburg Russia Tel. +7 812 363 20 33 Fax +7 812 363 20 59 Raute Service LLC Moscow Office Khoroskevskoe Shosse, 35, b. 1, Office 208 123007 Moscow Russia Tel. +7 499 195 83 90
Annual Report 2011