JOIN THE SMART REVOLUTION 2016 RAUTE OFFERS SOLUTIONS FOR PROFITABLE AND SUSTAINABLE PLYWOOD AND LVL PRODUCTION Raute is a technology and services company that serves the wood products sector worldwide. Raute is a part of the wood-processing value network by providing the wood products industry with veneer, plywood and LVL (Laminated Veneer Lumber) production processes and the services required for using and maintaining them. The company is the global market leader in its largest customer sector, the plywood industry. Raute’s position in the LVL industry is particularly strong: more than half of the LVL manufactured in the world is produced on machines supplied by Raute. Our customers are served by close to 650 Raute professionals around the world in ten countries. Raute's production plants are located in Finland, Canada and China. The company's sales and services network has a global reach. Raute is a financially sound Small Cap company with a strong family background. The company’s series A shares are listed on Nasdaq Helsinki Ltd. RAUTE'S OPERATING AREAS AND NUMBER OF PERSONNEL EUROPE CONTENTS 4 6 8 10 12 16 18 22 30 34 36 38 Review by the President and CEO Raute's value network Raute Smart Mill Megatrends Business environment Business, technology and product development Strategy Responsibility Financial review 2016 Board of Directors Executive Board Information for shareholders RUSSIA 464 13 NORTH AMERICA 81 ASIA-PACIFIC 81 SOUTH AMERICA 4 R AUTE SALES AGENT NET SALES MEUR 113.1 2015: MEUR 127.3 OPERATING PROFIT MEUR 8.6 2015: MEUR 8.1 ORDER INTAKE MEUR 162 2015: MEUR 145 ORDER BOOK MEUR 106 2015: MEUR 60 R A U T E 2 0 16 3 REVIEW BY THE PRESIDENT AND CEO WE BROKE LAST YEAR’S ORDER INTAKE RECORD 4 R A U T E 2 0 16 Following the record-breaking year 2015, some expected that 2016 would mark a lull for Raute. To the contrary. During the past year, we achieved a new order intake record. Due to the relatively low order intake beginning in summer 2015 and lasting approximately one year our order book fell, momentarily, in summer 2016 to a fairly low level. The situation changed entirely in the summer, however, when three major orders proceeded to the order phase and raised our order book to record levels. Despite this, we were not quite able to reach our targets in terms of net sales. We are, nevertheless, happy with 2016 as a whole and were able to start with a record-high order book for a second year running. Economic development in our main market areas was still not favorable. The worst of the crisis has passed in Europe but uncertainty, in particular in Europe’s banking sector, continues, impacting other areas as well. In North America, construction has begun to recover but still at a slower rate than expected. In South America, our key customers’ previous investments have now found their place on the markets and, although the focus is on the future, the weak demand in the domestic markets is slowing new investment plans. The uncertainty around the path taken by China’s economy and political tensions are resulting in concern in many market areas. In 2016, a few large, capacity-generating mill-scale projects took off in the plywood and LVL industry. We succeeded in winning the tenders in all of these. Each of the projects is being implemented by a familiar, long-term customer. We have our longrunning cooperation with our customers, their In 2016, a few large, capacity-generating mill-scale projects took off in the plywood and LVL industry. We succeeded in winning the tenders in all of these. success in business and confidence in the future to thank for these victories. for reaching these targets, in order to meet the needs of the emerging markets. Over the past year, we made significant investments in new development projects. In terms of product development, the most vital role was held by digital services, which help boost our customers’ operations and deepen our cooperation further. We also invested in improving our operations in production, information systems and office work. It is already clear that our business will take a positive trend in 2017 and we will achieve increased net sales and improve our operating profit. Our development projects to implement our strategy are moving forward and improving our operations even further. Demand is at a normal level, which is a good basis for growth in the current year. Our all-time highest order book provides us with the boost needed for a spectacular take-off. We have knowingly planned our work to ensure that we can provide our customers competitive delivery times also in 2017, both in terms of services and investments of various sizes. Our efforts are focused on strengthening our position particularly in projects involving individual production lines and machines and modernizations. We improved the capacity and service ability of our technology services by, for example, starting up two new service centers in connection with our customer mills. Our key personnel and competence development projects were the improvement of occupational safety and the setting in motion of a systematic mentoring program and business sustainability work. The advancement of the previous year’s major mill projects and being awarded more of these types of orders were our most important achievements in 2016. The positive development of our North American business and success of our machine vision technology with its new product launches were also particular causes for celebration. We succeeded in expanding our overall service concept by integrating services into our investment commodity deliveries. The abovementioned examples are an indication that we have made advances in achieving many of our strategic targets. We have developed new methods I would like to send out a heartfelt thank you for the past year: to Raute’s customers for their invaluable cooperation and trust, to our personnel for their outstanding work and flexibility under the strongly fluctuating workload, to our shareholders for their continued confidence in us, and to all our other partners for their participation in furthering Raute’s development and success. Tapani Kiiski President and CEO R A U T E 2 0 16 5 RAUTE IS PART OF A VALUE NETWORK CHEMICALS ENERGY Sustainable and environmentally friendly, wood is a renewable raw material which is constantly gaining popularity in construction, for example. Raute supplies the wood products industry with machinery and equipment for the profitable and environmentally sustainable production of wood products. RAUTE'S SOLUTIONS LOGS UP TO 15% HIGHER EFFICIENCY SUSTAINABLE FORESTRY SMART MILL TECHNOLOGY PULPWOOD Raute's customers produce veneer, plywood and LVL (Laminated Veneer Lumber), which are used mainly in construction, the manufacture of furniture and in the transport vehicle and packaging industries. By investing in Raute’s production technology, wood products industry operators can boost their production, reduce 6 R A U T E 2 0 16 their consumption of energy and chemicals and improve the quality of their end products. Raute’s solutions cover the entire production process for plywood and LVL: log handling, peeling, drying, pressing, lay-up, veneer handling and panel and billet handling. After their useful life is over, wood products can be recycled or used as raw material in energy production. The value of the global wood products industry market is approximately EUR 150 billion. Demand and profitability are influenced by the general increase in the standard of living, construction regulations, availability and price of wood and economic cycles. Investment activity is at its highest level at the end of a business cycle. WOOD PRODUCTS VENEER is a thin wood ribbon manufactured by peeling or slicing from a log. PLYWOOD is a panel made of glued veneers, laid-up cross-wise and hot pressed. END USE CIRCULAR ECONOMY • Construction • Furniture • Transport vehicle and packaging industry • Special uses LVL is a wood product made of veneers glued with their grains parallel and then hot pressed, used in load-bearing structures. R A U T E 2 0 16 7 RAUTE SMART MILL COLLECTION OF DATA RAUTE SMART MILL RAUTE'S SOLUTIONS Raute Smart Mill is a concept that enables mills to achieve maximum output, in which smart measuring equipment and digital services help to achieve a significantly improved raw material utilization ratio and production line usability. UP TO 15% HIGHER EFFICIENCY 4 DIGITAL SERVICES Digital tools and services ensure that the productivity of customers’ production processes corresponds with the set targets. 8 R A U T E 2 0 16 A real-time data collection system saves and analyses all of the production data. It enables a higher degree of optimization for individual machines and faster reaction times to defects. 5 1 MAXIMIZED VENEER PRODUCTION The largest possible amount of high-quality veneer ribbon is peeled from round wood. Automatic calibration takes care of the precision of the optimization. 2 G5 MEASURING EQUIPMENT GRADING 3 Analyzers control the clipping of the sheet and the quality grading based on the most sensible option for continuing the processing. This makes it possible to manufacture as much usable sheet of the desired quality as possible from raw material of various grades. New-generation machine vision and moisture analyzers measure the materials’ surface quality, moisture, roughness, knots, holes, splits and thin spots. R A U T E 2 0 16 9 MEGATRENDS CLIMATE CHANGE IMPACT ON RAUTE'S SECTOR ECONOMIC TRENDS • Increasing popularity of renewable raw materials and products • Urbanization increases construction in growth centers • Environmental awareness increasing • Focus of overall demand shifting towards the emerging markets • More focus on energy efficiency and emissions • Demands on processes’ environmental friendliness are growing • Rise in general standard of living increases consumption on housing • Quality, ergonomic and OHS demands and an increase in costs enhance the significance of automation • Increasing willingness to invest in more efficient and higher-capacity production processes RAUTE'S SOLUTIONS • End products made with Raute’s machines store the carbon dioxide captured by trees from the atmosphere for decades to come • High levels of automation minimize raw material waste and energy consumption in the customer’s production process • Modernization of old production lines with electric, silent and energyefficient solutions 10 R A U T E 2 0 16 • We offer solutions that suit the different needs of customers at different stages of development – globally • Dragon/Lite products increase automation and quality in emerging market production • Raute’s solutions focus especially on occupational safety and ergonomics AVAILABILITY OF NATURAL RESOURCES • Development of a circular economy offers opportunities for improved utilization of side streams • The competitiveness of construction materials based on renewable natural resources, such as wood-based materials, is improving TECHNOLOGICAL DEVELOPMENT • Digitalization enables new kinds of services and business models • More efficient use of raw material and other production factors • Demand for expert services grows as automation and digitalization increase • Use of plantation wood as raw material on the rise • Increasing use of highly processed wood products • Demands on increasing the efficiency of raw materials and additives use • Standardization and quality requirements for products increasing QUALITY, ERGONOMIC AND OHS DEMANDS AND AN INCREASE IN COSTS ENHANCE THE SIGNIFICANCE OF AUTOMATION. • Increasing requirements for improved utilization of by-products • Characteristics of new plantation wood species are studied and solutions developed for their processing • Maximization of the quality and strength of wood products using advanced grading technologies • Plywood and LVL lay-up and gluing solutions economize glue use • Comprehensive control and highly automated subprocesses ensure a consistent product quality and overall production process efficiency • Economic useful life of customers' production processes extended using life-cycle technology services enabled by digitalization • Highly developed measurement solutions and the measurement of the wood’s shape, visual quality, moisture and density enable the optimization of the customer’s raw material use DIGITALIZATION ENABLES NEW KINDS OF SERVICES AND BUSINESS MODELS. R A U T E 2 0 16 11 BUSINESS ENVIRONMENT INVESTMENTS IN INCREASING PRODUCTION CAPACITY CONTINUED Raute serves the veneer, plywood, and LVL industries worldwide. We estimate the total value of new equipment investments in these industries at approximately EUR 600 million a year in a normal economic situation. According to our estimates, new equipment investments in 2016 were at this level. Raute’s market share is around 15 to 20 percent of all of the investments in production process machinery in the industry. 12 R A U T E 2 0 16 MAJOR INVESTMENTS CONTINUED IN EUROPE RUSSIA’S ECONOMIC SITUATION SLOWING INVESTMENTS 2016 was the third consecutive exceptional year in which several major investment decisions were made in Europe to increase production capacity. In Poland, an investment in an LVL mill’s new line started up. An LVL line modernization started up in Finland and investments in birch veneer and plywood production lines started up in both Finland and Estonia. During 2016, the Russian economy took a turn for the better but remained weak all the same. Following several slow years, a new significant birch plywood mill project took off. Also the preparation of many other investments continued to be active. We do not, however, believe in a rapid normalization of the market situation. The low rouble supported the price competitiveness of local plywood manufacturers. The popularity of wood construction is driven by growing ecological demands, increasing demand for LVL in particular. New opportunities also spring from structural change in the mechanical forest industry and a shift towards higher-value-added products. SHARE OF RAUTE'S NEW ORDERS 2014–2016 63% 10 NINE NEW MAJOR CAPACITYGENERATING PROJECTS HAVE STARTED UP SINCE 2012. 8 6 Markkina-alueen osuus Rauten uusista tilauksista 2014–2016 Europe Africa 5.3 4 2 0 2000 2005 2010 2015 PLYWOOD PRODUCTION MILLION M3 PLYWOOD PRODUCTION MILLION M3 SHARE OF RAUTE'S NEW ORDERS 2014–2016 Raute is the biggest supplier of technology to its customer industries in Europe. The company’s strengths include expertise in production technology as well as its recognizability and good reputation. Despite the years-long investment boom, we estimate that very little new capacity will be built in the long term. The service business offers Raute growth opportunities. We seek growth by strengthening our customer relationships, adding to the scope of our technology services and helping our customers to capitalize on the growth in wood construction. Raute is the leading supplier of plywood industry machinery, equipment and services in the Russian market. We are the only operator capable of delivering complete production facilities on our own. Raute’s technology services have continued to grow in spite of the country’s weak economic development, and thanks to a large installed machine base, Raute’s technology services still have growth potential. At the end of 2016, our St. Petersburg unit moved to new premises, further improving our customer service ability and speed. 17% +6% COMPOUND ANNUAL GROWTH RATE (CAGR) 2000-2015 10 Markkina-alueen osuus Rauten uusista tilauksista 2014–2016 8 6 4 4.0 2 0 2000 2005 2010 2015 R A U T E 2 0 16 13 GROWTH IN CHINA’S PLYWOOD PRODUCTION LEVELLING OUT DECREASED ORDERS IN ASIA-PACIFIC AREA China is the world’s largest producer of plywood. Production has grown approximately six-fold during the past 15 years. According to the statistics for 2015, growth continued. However, the recent levelling out of growth in production volumes shows a deceleration of growth to a more sustainable level. In 2016, a slowing down of investment decision-making in several on-going projects was perceptible. T he economies of the key plywood manufacturing countries in Southeast Asia, Indonesia and Malaysia, are currently weak. With the proportion of domestic production in our key export market, Japan, simultaneously growing, 2016 was a tough year for Raute’s customers. Also raw material availability, the harvesting limitations on natural forests and problems linked to the quality of plantation wood limited the development of production. Raute was the first western company to develop modern plywood manufacturing in China. Technological development has not, however, been as fast as we earlier predicted and, as a result, Raute’s entry into the Chinese market has been slower than hoped for. In spite of this, investments in solutions targeted at the Chinese market and a local presence provide Raute with an excellent starting point, with development already taking place in other sectors. Raute received few orders in Southeast Asia in 2016. In the future, we believe that the growth of plantation forests and the resulting improvement in quality will open up new opportunities for Raute. SHARE OF RAUTE'S NEW ORDERS 2014–2016 SHARE OF RAUTE'S NEW ORDERS 2014–2016 0% In Australia and New Zealand, the plywood and LVL industry was successful in 2016, driven by the improvement in the local economy, construction markets and exports. No new major investments were started up but Raute managed to gain a few modernization orders. 4% 14 R A U T E 2 0 16 +12% COMPOUND ANNUAL GROWTH RATE (CAGR) 2000-2015 Markkina-alueen osuus 80 Rauten uusista tilauksista 70 2014–2016 60 50 40 30 16.9 20 10 0 2000 2005 2010 2015 PLYWOOD PRODUCTION MILLION M3 PLYWOOD PRODUCTION MILLION M3 Markkina-alueen osuus 80 Rauten uusista tilauksista 70 2014–2016 58.2 60 50 40 30 20 10 0 2000 2005 2010 2015 PROBLEMS LINKED TO RAW MATERIAL SUPPLY AND DEMAND RESTRICTED PLYWOOD PRODUCTION DEVELOPMENT. PLYWOOD PRODUCTION BY MARKET AREA 2015 DECLINE IN NORTH AMERICAN PLYWOOD PRODUCTION GROWTH OPPORTUNITIES IN SOUTH AMERICA In North America, investments in plywood production have been minimal in recent years, and mainly targeted at modernization projects. Economic recovery, which continued in 2016, has not impacted housing construction on the same scale either. In 2016, South America's local economy continued to be weak. The largest plywood producers are Chile and Brazil. In Chile, major mill-scale projects from a few years back achieved full operational capacity. The next major projects are expected to be launched in 2018, depending on demand. Meanwhile, production is being developed through modernizations. Raute is a major technology supplier in Chile. Local equipment manufacturers have a strong foothold on their domestic markets. Competition with the small and specialized local operators for the limited number of investments is also tough. Raute’s growth opportunities lie in the modernization of the existing machine base and in its automation expertise. 100.4 million m3 In Brazil, domestic demand for plywood is soft. Industry development and an increase in quality requirements create new potential. Europe and North America are important export destinations for Brazilian plywood. SHARE OF RAUTE'S NEW ORDERS 2014–2016 12% Markkina-alueen osuus Rauten uusista tilauksista 2014–2016 THE VOLUME OF PLYWOOD PRODUCTION HAS FALLEN DUE TO AN INCREASE IN SUBSTITUTE PRODUCTS AND A DECREASE IN HOUSING CONSTRUCTION. 30 20 10 11.2 0 2000 2005 2010 2015 PLYWOOD PRODUCTION MILLION M3 PLYWOOD PRODUCTION MILLION M3 SHARE OF RAUTE'S NEW ORDERS 2014–2016 Raute intends to maintain its leading position in building new capacity and to acquire new customers in modernizations and development. 4% China 58% APAC 17% NAM 11% EMEA 5% LAM 5% CIS 4% Source: Indufor PLYWOOD CONSUMPTION BY MARKET AREA 2015 96.9 million m3 China 49% APAC 18% NAM 16% EMEA 11% LAM +3% COMPOUND ANNUAL GROWTH RATE (CAGR) 2000-2015 Markkina-alueen osuus Rauten uusista tilauksista 2014–2016 30 20 10 4.8 0 2000 2005 2010 2015 3% CIS 2% Source: Indufor Read more about the business environment on Raute’s website at Information on plywood production and consumption: Indufor R A U T E 2 0 16 15 BUSINESS, TECHNOLOGY AND PRODUCT DEVELOPMENT RAUTE OFFERS TECHNOLOGY AND SERVICES FOR THE MANUFACTURE OF WOOD PRODUCTS Raute's core competence lies in selected wood products manufacturing processes. Using digitalization, Raute’s technology services can be scaled to meet every need from basic maintenance services all the way to full control of line productivity. 16 R A U T E 2 0 16 Our technology offering covers the customer’s entire production process. Project deliveries include the production processes of complete mills, including all of the production machinery, separate subprocess production lines and individual machines. Our service offering covers the entire lifecycle of the customer’s production process, including machines and equipment. Technology services include basic services from spare parts deliveries to regular maintenance and modernizations. We also modernize our competitors’ machines using Raute’s most up-to-date technology. Our expert services support the customer both in investment decisions and production development. Our customers include veneer, plywood and LVL mills, of which the majority are relatively small private family companies. Some of our customers are part of major consolidated forest groups that manufacture not only plywood and LVL, but also products such as pulp, paper and sawn timber. Digitalization enables change Raute’s new digital product family, Raute Insights, reached pilot production in 2016. The first products were released on the markets in early 2017. Digital service products complement the existing service offering and form an important part of Raute’s Smart Mill concept. The goal of Raute’s technology services is to optimize the customer’s production at every stage of its lifecycle. For this purpose, it is possible to add various digital components to Raute’s service packages. Raute has created a strong in-house digital service offering and a cooperation network needed for developing it, which guarantees that the main- tenance and development of digital services can continue also in the future. The cloud-based and location-independent solutions enabled by digitalization are also used in Raute’s customer training services. The information and skills required for safely operating production lines can also be learned online. Smart Mill concept saves up to 15% in raw materials Raute is a technology leader in its industry’s machine vision and moisture measurement systems. In 2016, Raute brought to the market the new G5 generation of veneer and sheet analyzers. In addition to greater speed and improved accuracy, the analyzers’ new architecture, combined with our digital service products, allows the efficiency and quality of wood product mill production to be ramped up to a whole new level. Digital services support the Smart Mill concept by producing information on several inter-connected process stages. Using this information, customers can monitor and ensure that the plywood and LVL production corresponds with their targets and react to defects in time. The architecture and performance of the G5 generation analyzers enable the combination of a larger number of measurement variables than before and simultaneous analysis. The analyzer’s memory contains data on the veneer sheet – which the human eye can only see as an image – for example on the sheet’s moisture, density and roughness. The analyzers can also be digitally linked to one another so that they have data concerning the previous and next production stages and so that the analysis and grading take these into account. In several cases we can even improve a mill’s raw material utilization ratio by as much as 15 percent. Development of machine base together with customer One of the opportunities offered in the future, and one of our investment targets, is the systematic development of the production processes of mills together with the customer. Several new modernization projects were introduced to the markets in 2016 to meet this customer need and a service concept was developed for boosting Raute’s leading position as a full-scope supplier. We offer our customers process efficiency based on comprehensive auditing of the production process and modernization solutions for significantly improving the ability to produce quality. In these solutions we also apply the new functionalities offered by the Internet of Things to machinery that has been in use for a long time. RAUTE IN A STRONG COMPETITIVE POSITION Raute’s competitive position has remained good thanks to competitive advantages, such as overall expertise in production processes and a broad and diverse technology offering. Raute’s strong financial position and long-term dedication to serving selected customer industries also enhance its credibility and improve its competitive position as a company that carries out long-term investment projects. R A U T E 2 0 16 17 STRATEGY PROFITABLE SOLUTIONS FOR ALL CUSTOMER NEEDS Raute's strategy boils down to its vision: Raute offers profitable solutions and services for all customer needs. Profitability is key for the continuation and development of operations. Raute offers its customers technology and services for using the technology, as well as production process development and optimization. 18 R A U T E 2 0 16 Emphasis between the key strategic objectives varies according to the market situation. ION PTAT ADA Raute generates added value for its customers’ businesses by supplying solutions to facilitate profitable and environmentally sustainable production of wood products. VALUES TY BILI FITA PRO WTH GRO CUSTOMER NEEDS COST-EFFICIENCY A ND QUALITY PERSONNEL AND HUNGER FOR SUCCESS Raute offers profitable solutions for all customer needs. CUS T O SUCC MER ES S Improving profitability, the ability to adjust to economic cycle variations and controlled growth are Raute’s strategic goals. The financial goal is to grow faster than the markets, to remain financially sound and to offer investors competitive returns. As the actualization of the company’s goals is strongly tied to the development of the global economy as well as the timing of customers’ individual investments, no time-bound target values are disclosed for the financial goals. TECHNOLOGY SERVICES A C HI E T O G E V IN G T HER EMERGING MARKETS IN T RUS T E EO P L P RESP O We aim to be the preferred supplier and life-cycle partner of customers The unique needs of customers form the core of our operations. We need to have an excellent understanding of production bottlenecks and investment criteria. We know how to transform this understanding into solutions that will make us the preferred supplier for a growing number of customers in more market areas. This position requires a product offering that meets customers’ needs and helps them succeed and develop their operations. NSIBIL IT Y Cooperation and mutual understanding evolve into a long-term partnership in which challenges are solved together. As the markets evolve and technology moves forward, the share and importance of services grow. Technological development enables the extension of equipment life cycles through machine base modernizations. Raute is the trusted partner of its customers throughout the investments' life cycle and also applies its technology to the modernization of competitors’ equipment. Digitalization brings with it new opportunities to further develop Raute’s service offering. R A U T E 2 0 16 19 STRATEGY IMPLEMENTING THE STRATEGY IN 2016 In 2016, the focus of strategic development projects was on improving sales. The goal was to increase the market share and service business. In 2017, the focus will shift to improving the competitiveness of the product and service offering. 20 R A U T E 2 0 16 CUSTOMER NEEDS Customer needs, growing technology services, operating on the emerging markets, cost-efficient and highquality operations and a personnel driven by a hunger for success are Raute's strategic cornerstones. The strategic choices are reviewed annually and the management sets the goals and the main themes for strategic development work. HR management ensures that the entire personnel understands the strategy and implements it in their work. COST-EFFICIENCY AND QUALITY In 2016, we improved, in particular, the production taking place at our main production facility in Nastola, Finland; we enhanced production management through a new information system, started up the introduction of LEAN methods and commissioned our largest machine investment in more than a decade. We also continued the implementation of a process for boosting reuse rates for solutions tried and tested in planning. We grew our contractual maintenance services and established two new local maintenance centers in the immediate vicinity of our customer mills in Estonia and Poland. In addition we strengthened our local resources in other maintenance centers. EMERGING MARKETS We continued our work to tap into the Chinese markets and initiated new measures. In Southeast Asia we increased our local resources in technology services. We started up a systematic process for gaining a foothold in the African markets which includes defining the product and service offering to suit the needs of this market and taking stock of parties interested in developing the plywood industry. TECHNOLOGY SERVICES In the fall of 2016, we brought to the markets our Smart Mill concept based on the latest G5 machine vision and moisture analysis technology. The overall optimization of the customer’s production process that it enables allows us to raise the efficiency and quality of the customer’s veneer, plywood and LVL production to a whole new level. We expanded our service offering to also include digital remote services that support the customer’s daily production. PERSONNEL AND HUNGER FOR SUCCESS We implemented an extensive mentoring program inside the company, which we will continue. We were also successful in strengthening our automation and engineering expertise. The development of our personnel focused on the advancement of a qualityoriented mindset. We modernized the office facilities at our main unit. We also started up a development project for managing business sustainability. Our first steps were to describe our company values in more detail, bring our Code of Conduct up to date and start up a project to improve health and safety. R A U T E 2 0 16 21 RESPONSIBILITY RESPONSIBILITY MANAGEMENT IS BASED ON VALUES AND STRATEGY Developing responsibility management In 2016, Raute initiated its responsibility management development program. The methods and tools created as a result both ensure and develop business responsibility and responsibility reporting. In addition the program controls misconduct risks impacting the company. The responsibility management development program was started up in the spring in connection with the strategy work through discussions on Raute’s values and their importance to the staff. These values are: the success of the customer, achieving together, trust in people and responsibility. A team of new, young Raute employees discovered a deeper meaning to the values by discussing their content, inter pretation and application to the work community. As a result, Raute's renewed values were confirmed at the end of the year, but the work will continue during the first part of 2017. In addition to the Nastola unit, the work involves both the Shanghai and Vancouver units. 22 R A U T E 2 0 16 Raute’s Code of Conduct During 2016, the company’s ethical principles were collected together, updated to correspond with the values and approved as Raute’s Code of Conduct. The purpose of the Code of Conduct is to tell our personnel, partners and other stakeholders about Raute’s requirements and expectations concerning responsible and ethical operations. In 2017, briefings will be held for the entire personnel on the contents of the Code of Conduct. Responsibility reporting In summer 2016, we also began developing Raute’s responsibility reporting. Responsibility reporting for the year 2016 has been integrated into this Annual Report, and environmental and occupational safety key figures are reported from the Finnish operations. We will increase the scope of the reporting over the next few years. Key responsibility topics The process to define Raute's key responsibility topics was started with the management's evaluation of the most important responsibility topics. In 2017, we will continue the materiality assessment together with our key stakeholders. RAUTE’S KEY RESPONSIBILITY TOPICS: 1. Life-cycle partnership with customers 2. Health and safety 3. Sustainable product and service solutions 4. Competence development 5. Sustainable supply chain 6. Business ethics 7. Environmentally efficient production 8. Stakeholder engagement 9. Local communities CUSTOMER SUCCESS ACHIEVING TOGETHER TRUST IN PEOPLE RESPONSIBILITY We help our customers succeed through our smart products and services. We are a reliable partner and we aim for longstanding business relations. We are ambitious, innovative and share information and expertise actively. We achieve our goals together through close cooperation with our customers and other stakeholders. We are experts in our own work. By meeting expectations, we achieve mutual trust. We do our best to achieve shared success and act responsibly by following common rules. We highlight the eco-friendliness of wood products. We develop and offer technologies that help reverse the direction of the environmental impacts of human activities. Responsibility is underscored in all our choices and tasks. ROOPE ESKOLA ANTTI KOMULAINEN LAURA SALMINEN DEVON BARKWAY Technology At Raute since 2015 Technology Services At Raute since 2015 HR At Raute since 2016 Technology At Raute since 2013 “Our most important goal should always be serving customers well and helping them success because it is also the foundation for Raute’s entire operations and existence. In the future, our success lies in how well we manage to embed intelligence in our products and services. However, what matters most is ensuring genuine encounters, interaction and communication between people.” “Achieving results in any matter requires hard work. New innovations are vital but the more traditional and competitive the sector, the rarer major upheavals are. More importance should be placed on actual work and its finalization than on individual ideas and initial impulses. The final result is what matters in the end and enables success.” “Trust is comprehensive and should make itself felt in all of our operations – both in working life and outside it. Trust creates a foundation for innovation, working together and improved work capacity. Each of us should remember to be worthy of trust so that our colleagues, customers and stakeholders can rely on us. Our value ‘Trust in people’ has endured, which illustrates the importance of trust in everything we do.” “Let’s make the benefits of technologies visible to customers. In addition we should increase awareness of wood products as storers of carbon dioxide and thus mitigators of humancaused environmental impacts. Responsibility must extend to all operations and choices throughout the organization.” R A U T E 2 0 16 23 RESPONSIBILITY RAUTE’S VALUE CREATION INPUT Financial/Financing • Shareholders equity: EUR 34.2 mill. • Loans: EUR 3.1 mill. • Cash and cash equivalents: EUR 23.8 mill. BUSINESS/STRATEGY Customer needs Infrastructure • Local business in 10 countries • 4 production plants and 8 sales and service units • R&D center • Audited supplier network Intellectual capital • Raute brand • Reference deliveries • Competence in technologies and customers’ businesses • Product portfolio • Research and development costs EUR 2.9 mill. • 26 patented inventions External relations • Customer events and surveys, meetings with investors, supplier events • Cooperation with schools, universities and research institutions • 20 memberships in associations and organizations • Partnerships with customers, suppliers and subcontractors • Cooperation with local communities 24 R A U T E 2 0 16 Products • Machinery, equipment • Production lines • Mill-scale production processes Services • Spare and wear parts • Servicing and maintenance • Production support services • Modernizations Natural resources • Energy consumption • Water consumption • Purchased raw materials and components (mainly metal-based) People • In-house personnel: 643 • Subcontractors and temporary workers • Investments in competence • Investments in occupational health and safety OUTPUT Technology services Cost-efficiency and quality By-products • Recyclable metal • Other materials for re-use Emissions and waste • Direct and indirect CO2 emissions • Volatile organic compounds (VOC) • Landfill waste IMPACT Financial impacts on stakeholders • Payments from customers: EUR 124 mill. • Salaries, wages and employee benefits with associated costs: EUR 37 mill. • Payments to suppliers: EUR 55 mill. • Paid taxes: EUR 0.4 mill. • Payments to shareholders and financiers: EUR 3.4 mill. Social • Direct and indirect employment • Development of employees’ competence • Direct and indirect health and safety impacts • Lost time incidents in Finland: 9 • LTIF* in Finland: 11.6 • Customer loyalty • Reliability and reputation Environment Emerging markets Quality and environmental management system LEAN methods * Lost time incident frequency: Incidents leading to absences lasting at least 1 day for every million working hours. • Wood products manufactured with Raute machines store carbon and help mitigate climate change. • Thanks to Raute’s technology and services, customers’ manufacturing processes consume less wood, other raw materials and energy. • Through modernizations based on the latest technology and life-cycle technology services the financial useful life of the installed machine base can be extended. • In Raute’s operations, the improvement of process efficiency and utilization of the IoT reduce natural resource consumption and carbon dioxide emissions. RESPONSIBILITY SUSTAINABLE WOOD PRODUCTS TECHNOLOGY 10–15 m3 8,300 kg -8,300 kg Wood products have positive climate impacts Profitability and environmental benefits through technology COMPARISON TO CARBON FOOTPRINT OF EUROPEANS From an environmental viewpoint, the attractiveness of wood products with a long lifetime arises from the renewability of the raw material and the fact that wood products continue to store the carbon dioxide captured by trees. The useful life of plywood and LVL can be as long as a hundred years. When the principles of sustainable forestry are applied, new forests grow in place of the harvested trees. This causes the volume of carbon dioxide in the atmosphere to decrease and the carbon storage enabled by a specified area of forest to grow. One of the key goals in Raute’s product development has been the reduction in customers’ raw material waste and need for additives. Raute also actively develops solutions that can help to enhance the energy efficiency of customers’ production processes and improve the utilization of by-products. The financial useful life of the installed machine base is extended through technology services that cover its entire life cycle and through modernizations based on the latest technology. Products based on the Internet of Things speed up service and can, in the future, significantly reduce the need for travel. In all of these cases, the same measures can achieve both environmental benefits and financial savings. The average carbon footprint of a European in an OECD country was around 8,300 kg of CO2 per person in 2014. If we conservatively assume that the fossil emissions from the supply chain are 380 kg/m3, one cubic meter of plywood would capture, during its useful life, around 570 kg of carbon dioxide (carbon dioxide stored by trees minus fossil emissions from production). In other words, 15 cubic meters of plywood or LVL would cover the carbon footprint of one European for one year. In an eco-efficient supply chain, fossil emissions can be even lower than in this calculation, and 10 m3 of plywood or LVL would cover the carbon footprint of one European. One cubic meter of plywood or LVL contains an amount of carbon corresponding to approximately 950 kilograms of CO2 captured by trees, depending on tree species and quality. In practice, this amount always exceeds the amount of fossil carbon dioxide emissions resulting from production. When forests are managed sustainably, plywood and LVL use results in increasing carbon storage instead of CO2 emissions, and helps to mitigate climate change. Many customers stress the importance of occupational safety. Raute impacts the safety of its products through its product development, in addition to which special attention is paid to line solutions at the planning stage. Automation also improves occupational safety and ergonomics. Wood products return to the natural cycle Plywood and LVL can be recycled and used as energy at the end of their life cycle. The end-of-life-cycle solutions impact the product's life-cycle emissions as does the final length of the product's life cycle. Eventually, the carbon stored in the wood product is released in combustion or due to some other form of decomposition into the atmosphere and back into the natural cycle. R A U T E 2 0 16 25 26 R A U T E 2 0 16 RESPONSIBILITY FOCUS ON HEALTH AND SAFETY Health and safety at our units and at customer premises when performing installation and commissioning work is one of Raute’s key responsibility topics. Our goal is to ensure a continuously improving, productive and safe working environment. Our strategic goal is an accident free work environment. In Finland, Raute has a joint employer-worker health and safety committee, which is based on legislation. Responsibilities and goals for the period 2016-2017 have been defined in our occupational health and safety programme. Organization and tidiness was improved at our Nastola main production facility, based on the Lean 5S principles. A project to improve the safety of working at height was implemented and new high altitude safety gear and work platforms were procured. The equipment was tested and found to function satisfactorily. During 2016, nine lost time incidents occurred among Raute's own staff in its Finnish operations. The number of lost time incidents decreased from the previous year, but was still too high compared to our goal. There were no fatal accidents in Raute's operations. Incidents and near-miss situations are investigated every time they occur and appropriate actions are taken to prevent similar situations in the future. The same approach is followed when machine and equipment failures have safety implications. When new equipment or machinery is procured, the suppliers are required to pay attention to safety features, and the possible safety impacts are examined in advance. The orientation period of new employees always includes safety training. In daily operations work safety is improved by making safety observations and by taking corrective actions. In Finland Raute has a digital platform for making safety observations and they can also be made with a mobile device. Safety observations made in 2016 provided important information for improving Raute's daily occupational safety in the future. RAUTE FINLAND Accidents leading to absences (number) LTIF * * Lost time incident frequency: Incidents leading to absences lasting at least 1 day for every million working hours. 2016 2015 9 12 11.6 16.4 PERSONNEL IN 2016 • The Group employed an average of 642 people. • Total employee turnover was 17.4%. • 62% of employees worked in tasks related to project deliveries, 18% in technology services, 11% in sales and marketing, and 9% in management and administration. Personnel creates the prerequisites for success. Competent personnel that are success-oriented and committed to the company’s targets enable Raute to implement its strategy. This is why we have made an effort to ensure that our personnel have the right job in terms of competence and motivation and that their competence is developed systematically. Our HR management is based on Raute’s values and responsible ways of operating. Raute’s product and service solutions as well as global project activities offer a variety of tasks for experts in both Finland and abroad. In order to secure its future competitiveness, Raute will require both new experts and experienced wood product and wood technology professionals with an understanding of the needs of our customers and their businesses. R A U T E 2 0 16 27 We assess the implementation of the personnel strategy regularly through performance and development discussions and personnel surveys. Nastola unit became smoke-free Our customers’ needs determine the direction and priorities of personnel development throughout our organization. We wish to offer our employees an equal work community, motivating and meaningful work and a safe work environment. Together with occupational health care services, we have identified the key work capacity risks and are focusing on work capacity management in these areas. tacit knowledge and accumulated competence to the younger employees in a systematic manner. Altogether 32 mentoring pairs took part in the program over altogether 6,295 working hours. Our goal is to strengthen our local customer AGE OF PERSONNEL service capability at our various units close to the customer. In Europe, North America and Asia, we increased the personnel resources of our service business. In our Chinese unit we developed local expertise in the areas of sales and production. EDUCATION OF PERSONNEL PERSONNEL GEOGRAPHICALLY The modernization and new look for Nastola’s office premises was completed at the end of 2016. As of summer 2016, Raute’s Nastola unit became a smoke-free workplace. Mentoring creates new experts < 30 years 19% Basic education Finland 72% In 2016, the focal point of personnel development was an extensive mentoring program where more experienced Raute employees passed on their 31–40 years 27% Vocational school 30% China 12% 41–50 years 23% College 22% North America 13% 51–60 years 26% University of applied sciences 32% Others University 11% 28 R A U T E 2 0 16 > 60 years 6% 6% 4% RESPONSIBILITY ENVIRONMENTAL IMPACT OF OUR OPERATIONS Raute's own operations have environmental implications mainly through energy use, factory waste management and safe management of chemicals. The goal is to continuously reduce energy and water consumption and the accumulation of waste. waste increased in 2016 due to cleanups at the factory and renovation at the office building. The majority of the non-hazardous waste is recyclable metal scrap and chip. The amount of landfill waste decreased significantly as mixed waste sorting was introduced in the waste management chain. Raute manages the environmental risks linked to its operations through its quality and environmental management systems. Raute’s main production unit in Nastola is certified according to the ISO 9001 quality management system and the ISO 14001 environmental management system. Other Raute units abide by the same key principles. The environmental indicators reported on this page concern Raute's Finnish operations. CO2 EMISSIONS tonnes 2,500 In Finland, energy efficiency measures have kept Raute's electricity consumption at the same level during recent years despite the growing production levels. Decline in CO2 emissions during the five year period is mainly caused by changes in emission factors of local energy production and the warm weather during winters 2014 and 2015. The amount of VOC EMISSIONS (non-methane), tonnes 7 2,372 2,133 2,000 6.1 6 5.0 5 1,500 1,163 1,000 1,138 4.7 5.2 4.7 4 1,223 3 2 WASTE DISPOSAL METHODS TOTAL WEIGHT OF WASTE BY CLASSIFICATION AND DISPOSAL METHOD, TONNES 2016 500 2015 0 12 HAZARDOUS Recycling 0.4 0.6 Regeneration and recovery 0.0 4.0 51.8 47.2 Waste to energy Landfill Total hazardous – Composting Waste to energy Landfill Total non-hazardous 13 14 15 16 12 13 14 15 16 Indirect CO2 emissions (Scope 2) 66% Direct CO2 emissions (Scope 1) recycled – 52.2 51.9 754.0 525.4 0.3 0.0 319.2 269.5 10.7 24.4 1,084.2 819.4 ENERGY CONSUMPTION, TJ 2016 2015 2014 2013 Electricity NON-HAZARDOUS Recycling 1 0 11.8 12.1 11.8 11.9 12.5 12.0 9.9 10.8 14.5 16.2 0.8 0.9 0.8 1.1 1.0 3,470 3,921 5,168 2,833 3,700 Recycling 66% District heat Energy 33% Fuel oil Landfill 2012 1% WATER USE, M3 Municipal water R A U T E 2 0 16 29 FINANCIAL REVIEW 2016 Business environment • The utilization rates of the plywood and LVL industry are good, although order books are short. • Few machine, line and modernization projects started up. • Demand for maintenance and spare parts remained good. • In spite of the general market situation, strategic investment decisions were made in plywood and LVL capacity in Europe and Russia. 200 150 127.3 100 30 R A U T E 2 0 16 101.3 83.3 113.1 94.0 50 0 12 Raute • The order intake was a record EUR 162 million. • Raute won all of the tenders for capacitygenerating projects that were started up. • Order intake in technology services up 8%. • Net sales fell by 11% due to the focus of the order intake on the late summer and autumn. • Operating profit improved to 7.6% of net sales. • The year-end order book amounted to a recordhigh EUR 106 million. An unusually large proportion of the order book was thus scheduled for 2018. • Products enabled by the new Raute Smart Mill concept on the markets: - new G5 generation of veneer and sheet analyzers - digital product family, Raute Insights, pilot deliveries. • The largest investment made was the commissioning of an NC boring machine at the main unit in Nastola. • The focal point of developing competence was on an extensive mentoring program. OPERATING PROFIT EUR million NET SALES BY PRODUCT AREA EUR million 13 14 15 10 9 8 7 6 5 4 3 2 1 0 8.1 5.0 1.8 12 16 8.6 13 2.6 14 15 16 Project deliveries, LVL Project deliveries, plywood Technology services ORDER INTAKE BY PRODUCT AREA EUR million ORDER BOOK EUR million 200 120 162 150 145 116 80 112 100 60 60 50 40 63 50 106 100 44 28 20 0 0 12 13 14 Project deliveries, LVL Project deliveries, plywood Technology services 15 16 12 13 14 15 16 SUMMARY OF FINANCIAL STATEMENTS EUR 1,000 INCOME STATEMENT Net sales Change in inventories of finished goods and work in progress Other operating income Total operating expenses Operating profit Financial income and expenses GROUP (IFRS) PARENT COMPANY (FAS) 1.1.–31.12.2016 1.1.–31.12.2015 1.1.–31.12.2016 1.1.–31.12.2015 113,130 127,278 97,714 112,450 150 -313 464 -653 1,103 393 1,393 1,365 -105,825 -119,238 -90,725 -104,903 8,558 8,120 8,846 8,258 INVESTING IN THE FUTURE EUR million 7.0 6% 6.1 6.0 5.0 5.4 5.1 5.0 5% 4% 4.0 -338 -1 1,355 888 8,220 8,118 10,201 9,147 3.0 – – – 36 2.0 Income taxes -1,536 -1,435 -1,500 -1,457 1.0 1% Profit for the financial year 6,684 6,684 8,702 7,725 0.0 0% Profit before tax Appropriations (FAS) BALANCE SHEET 31.12.2016 31.12.2015 31.12.2016 Non-current assets 11,848 10,799 9,158 57,918 50,960 54,059 69,767 61,760 63,217 56,879 Total shareholders' equity 34,217 29,700 32,632 26,705 Total liabilities 35,549 32,059 30,585 30,174 Total shareholders' equity and liabilities 69,767 61,760 63,217 56,879 Shareholders' equity and liabilities 14 15 16 Capital expenditure of net sales, % R&D expenditure 47,602 Total assets 13 R&D costs 9,278 Current assets 2% 12 31.12.2015 Assets 3% 3.2 R&D expenditure of net sales, % Capital expenditure OPERATING CASH FLOW EUR million 25 21.9 20 CASH FLOW STATEMENT 1.1.–31.12.2016 1.1.–31.12.2015 Investing activities -2,925 -2,329 250 -69 Financing activities -1,158 -3,052 -4,025 -3,052 17,154 2,096 19,778 1.1.–31.12.2015 21,237 Net change in cash and cash equivalents 7,477 1.1.–31.12.2016 Operating activities 16,003 5,602 2,481 15 10 7.5 5 0 1.9 3.7 -5 -1.9 12 13 14 15 16 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 R A U T E 2 0 16 31 FINANCIAL DEVELOPMENT EQUITY RATIO AND GEARING % EUR 1,000 2016 2015 2014 2013 2012 Net sales 113,130 127,278 94,021 83,274 101,273 -11.1 35.4 12.9 -17.8 36.3 88,612 97,113 88,696 78,436 95,099 78.3 76.3 94.3 94.2 93.9 8,558 8,120 2,605 1,828 5,022 30 7.6 6.4 2.8 2.2 5.0 10 8,220 8,118 2,810 1,589 4,766 0 Change in net sales, % Exported portion of net sales % of net sales Operating profit % of net sales Profit before tax 70 50 7.3 6.4 3.0 1.9 4.7 6,684 2,361 1,196 2,985 -30 5.9 5.3 2.5 1.4 3.0 Return on investment (ROI), % 25.3 28.5 10.9 7.3 15.0 Return on equity (ROE), % 20.9 24.7 9.8 5.0 13.1 56.6 % of net sales Profit for the financial year % of net sales Balance sheet total Interest-bearing net liabilities % of net sales Non-interest-bearing liabilities 69,767 61,760 52,646 48,783 -5,003 -1,669 -6,677 -3.9 -1.8 -8.0 -8.0 31,760 28,421 22,795 18,302 27,235 60.4 58.5 55.8 56.6 -60.3 -16.8 -6.9 -28.3 -33.5 Gross capital expenditure 3,224 2,506 1,675 3,189 3,529 60.4 -16.8 -28.3 -60.3 13 14 15 16 Equity ratio Gearing 48.0 Gearing, % -33.5 12 -8,087 -18.2 -6.9 -70 63,076 -20,633 -50 58.5 55.8 -10 6,684 48.0 Equity ratio, % 2.8 2.0 1.8 3.8 3.5 2,863 3,092 1,767 2,523 2,516 % of net sales 2.5 2.4 1.9 3.0 2.5 Order book, EUR million 106 60 44 28 50 Order intake, EUR million 162 145 112 63 116 Personnel at Dec. 31 643 646 587 534 503 Personnel effective, on average 631 614 530 515 480 Personnel, average 642 624 545 522 488 4,206 * 3,303 1,606 801 2,002 -* - 803 1,201 - % of net sales Research and development costs Dividend Repayment of equity * The Board of Directors' proposal to the Annual General Meeting. RETURN ON INVESTMENT (ROI) AND RETURN ON EQUITY (ROE) % 30 28.5 24.7 25.3 25 20.9 20 15 15.0 13.1 10 10.9 7.3 5 9.8 5.0 0 12 13 14 Return on investments (ROI) Return on equity (ROE) 32 R A U T E 2 0 16 15 16 SHARE-RELATED KEY FIGURES 2016 2015 2014 2013 2012 0.75 Earnings per share (EPS), undiluted, EUR 1.60 1.65 0.59 0.30 Earnings per share (EPS), diluted, EUR 1.59 1.64 0.59 0.30 0.75 Equity to share, EUR 8.13 7.26 6.06 5.90 6.03 Dividend per series A share, EUR 1.00 * 0.80 0.40 0.20 0.50 Dividend per series K share, EUR 1.00 * 0.80 0.40 0.20 0.50 Dividend per profit, % 62.5 * 48.4 68.0 66.7 66.4 6.0 * 5.7 5.5 2.9 5.6 8.55 12.42 23.28 0.20 0.30 – 2.0 Effective dividend return, % Price/earnings ratio (P/E ratio) Repayment of equity from invested non-restricted equity reserve, EUR 10.41 –* 1.7 1.5 11.95 – EARNINGS/SHARE AND DIVIDEND EUR 1.6 1.0 * 1.0 0.8 0.8 0.5 0.5 0.5 0.6 0.6 0.3 0 Development in share price (series A shares) Lowest share price for the financial year, EUR 12.06 7.17 6.90 6.88 12 6.18 13 14 15 Highest share price for the financial year, EUR 17.98 14.25 8.60 9.33 9.24 Earnings per share Average share price for the financial year, EUR 14.50 11.95 7.69 8.49 8.22 Dividend Share price at Dec. 31, EUR 16.70 14.12 7.30 6.95 9.00 * Board od Directors’ proposal to the AGM 70,248 58,057 29,311 27 ,833 36,043 Shares traded during the financial year, 1,000 shares 988 1,095 594 514 302 % of the number of series A shares 30.7 35.1 20.0 17.0 16 10.0 Market value of capital stock at Dec. 31, EUR 1,000 ** Trading in the company's shares (series A shares) Repayment of equity EFFECTIVE DIVIDEND RETURN % 10 Total number of shares (undiluted) Issue-adjusted weighted average number of shares 4,166,966 4,051,034 4,009,777 4,004,758 4,004,758 Issue-adjusted number of shares at the end of the financial year 4,206,462 4,111,708 4,015,228 4,004,758 4,004,758 8 6 The deferred tax liabilities have been included in the calculation of the key ratios. 5.5 5.6 5.7 6.0 * 14 15 16 4 2.9 2 * Board of Directors' proposal to the Annual General Meeting. ** Series K shares valued at the value of series A shares. 0 12 13 * Board od Directors’ proposal to the AGM R A U T E 2 0 16 33 BOARD OF DIRECTORS • No fewer than five and no more than seven members. • The term of office begins at the Annual General Meeting and ends at the following Annual General Meeting. • Majority of Board members independent of the company, of which members at least two must be independent of the company’s major shareholders. • Convenes, on average, ten times during the term of office. • 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. • Carries out an annual self-evaluation. • Handles the Audit Committee's tasks. • The activities of the Board of Directors are supported on a case-by-case basis by a project-specific Working Committee. Auditor The authorized public accountants PricewaterhouseCoopers with Authorized Public Accountant Markku Launis as the principal auditor. 34 R A U T E 2 0 16 Erkki Pehu-Lehtonen Mika Mustakallio Pekka Suominen b. 1950, M.Sc. (Eng.) Chairman of the Board 2009– b. 1964, M.Sc. (Econ.), CEFA Member of the Board 2004– b. 1976, M.Sc. (Econ.) Member of the Board 2010– Member of the Board 2009– Vice Chairman of the Board 2012– Chairman of the Board’s Working Committee and Appointments Committee Member of the Board’s Working Committee and Appointments Committee Member of the Board’s Appointments Committee Independent of the company and of major shareholders Dependent on the company, dependent on major shareholders Erkki Pehu-Lehtonen was Senior Adviser to the Board of Pöyry Plc in 2008–2010 and Pöyry Plc’s President and CEO in 1999–2008. He was President of Jaakko Pöyry Oy, a subsidiary of Pöyry Plc in 1996–1999 and Executive Vice President of the company in 1994–1996. Before joining the Pöyry Group, Erkki Pehu-Lehtonen held top management positions at, among others, Neles-Jamesbury, Inc. and Valmet Paper Machinery Inc. Mika Mustakallio has been President of MORS Software Oy since 2006 and a bank risk management specialist since 2001. Prior to this, in 1995–2000, he worked at Svenska Handelsbanken as the Head of Risk Control and in 1991–1995 at Price Waterhouse as a consultant. Simultaneous positions of trust: None Raute shares on December 31, 2016: 1,000 pcs series A shares Independent of the company, dependent on major shareholders Pekka Suominen was Business Manager of Talentum Events Oy in 2007–2012. Simultaneous positions of trust: FBN Perheyrityspalvelut Oy, member of the Board 2014– Family business delegation of the Finnish Family Firms Association, member 2015– Simultaneous positions of trust: None Finnish Family Firms Association, Interest representation working group, member 2015– Raute shares on December 31, 2016: 57,580 pcs series K shares 26,270 pcs series A shares Next Level successor activity working group, Chairman 2016– Raute shares on December 31, 2016: 48,000 pcs series K shares 62,429 pcs series A shares ELECTION OF BOARD MEMBERS Board members are elected annually at the Annual General Meeting. The Annual General Meeting elects the Chairman of the Board of Directors, the Vice Chairman and the members of the Board. The Board members do not have a special order of appointment. The Appointments Committee prepares and makes a proposal concerning the number of Board members and the composition of the Board of Directors. Joni Bask Päivi Leiwo Patrick von Essen b. 1975, M.Sc. (Eng.) Member of the Board 2012– b. 1964, LL.M., MBA Member of the Board 2014– b. 1963, M.Sc. (Eng.) Member of the Board 2016– Independent of the company, dependent on major shareholders Independent of the company and of major shareholders Independent of the company and of major shareholders Joni Bask has worked for Varian Medical Systems Finland Oy in product development and managerial roles as of 2003. Current main position: Systems Engineering Manager, Varian Medical Systems Finland Oy 2013–. Päivi Leiwo has held the position of Chairman of the Board of Directors for her family company Oilon Oy since 2009. Previously, she worked as Oilon Oy’s lawyer from 1989 through 2009. Patrick von Essen has held the position of Dovre Group Oyj’s President and CEO as of 2014. He has previously held senior business development and project management positions at Fiskars Corporation (2012–2014), Neste Jacobs Oy (2011–2012), Pöyry Group Oyj (1999–2011) and ABB Service Oy (1998–1999). Simultaneous positions of trust: None Raute shares on December 31, 2016: 17,250 pcs series K shares 4,450 pcs series A shares Simultaneous positions of trust: Federation of Finnish Technology Industries, member of the Board 2012– Finpro Oy, Chairman of the Board 2016– Central Chamber of Commerce, Vice Chairman 2016– Simultaneous positions of trust: Etteplan Oyj, member of the Board 2014– Raute shares December 31, 2016: No shares Raute shares December 31, 2016: 100 pcs series A shares The Appointments Committee strives to achieve a diverse Board composition that supports the achievement of strategic targets and development of the business. Diversity is examined through a variety of factors that include the Board’s age and gender distribution, the educational and professional backgrounds of the members, experience that is significant in terms of the position and personal characteristics. The purpose of the principles concerning diversity is to contribute to ensuring that the competence and experience of the Board, as a whole, and the diversity of its composition are sufficient to meet the needs of Raute’s business model and ownership structure. In terms of the gender distribution, the goal is for at least one member of each gender to be represented. The Board of Directors assesses the achievement of diversity in its self-evaluation. The Charter and tasks of the Board of Directors are described in more detail in the Administrative Instructions and Corporate Governance Statement available on the company’s website. R A U T E 2 0 16 35 EXECUTIVE BOARD PRESIDENT AND CEO Is responsible for the management of Raute’s business according to the Finnish Companies Act and the decisions and instructions of the Board of Directors. Reports to the Board of Directors on the business environment, such as on customers, the competitive and market situation as well as Raute’s financial standing and other important issues. Functions as the Chairman of the Group’s Executive Board and 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 Board evaluates the President and CEO’s work annually. GROUP’S EXECUTIVE BOARD Consists of the President and CEO, who acts as the Chairman, and of a variable number of members whose appointments are confirmed by Raute Corporation’s Board of Directors. Prepares the Group’s business strategy and is in charge of its implementation. Deals with all major operational issues, and its decisions are confirmed by the President and CEO. 36 R A U T E 2 0 16 Tapani Kiiski Arja Hakala Petri Strengell b. 1962, Licentiate in Technology, M.Sc. (Eng.) President and CEO, March 16, 2004– b. 1957, M.Sc. (Econ.), MBA Group Vice President, Finance, Chief Financial Officer, October 8, 2003– Deputy to President and CEO, October 16, 2004– b. 1962, M.Sc. (Eng.) Group Vice President, Supply Chain, October 1, 2013– With the company since: 2002– Member of the Executive Board since: March 16, 2004 Employment history: Raute Corporation 2002–2004: various positions such as Technology Director, Sales Director; KCI Konecranes International Plc 1994–2002: various positions, such as CIO; KONE Corporation, Kone Cranes 1985–1994: various positions, such as R&D Manager, R&D Director Simultaneous positions of trust: Helkama Bica Oy, member of the Board 2014–; Häme Chamber of Commerce, Chairman of the Board 2014–; Federation of Finnish Technology Industries, member of the Board 2016–; Technology Academy Finland, member of the Board 2016– Raute shares and stock options on December 31, 2016: 18,000 pcs series A shares 10,000 pcs stock options 2010 C With the company since: 1990– Member of the Executive Board since: January 1, 2001 With the company since: 1987– Member of the Executive Board since: June 1, 2004 Employment history: Raute Corporation 1990–2003; Administrative Director; Luhta Oy 1985–1990: Controller Employment history: Raute Corporation 1987–2013: various positions, such as Group Vice President, Technology and Operations; Engineering Manager, Production Director Raute shares and stock options on December 31, 2016: 1,750 pcs series A shares Raute shares and stock options on December 31, 2016: 5,250 pcs series A shares Timo Kangas Mika Hyysti Marko Hjelt Antti Laulainen b. 1965, Engineer Group Vice President, Market area EMEA, October 1, 2013– b. 1965, B.Sc. (Eng.) Group Vice President, Technology, October 1, 2013 b. 1969, M.Ed. Group Vice President, Human Resources, October 1, 2013– With the company since: 2004– With the company since: 1990– With the company since: 2013– b. 1967, M.Sc. (Eng.) Group Vice President, Technology Services and Sales Management, March 14, 2016– Member of the Executive Board since: October 1, 2004 Member of the Executive Board since: October 1, 2013 Member of the Executive Board since: October 1, 2013 Employment history: Raute Corporation 2004–2013: various positions, such as Group Vice President, Customer Care; Group Vice President, Technology Services; Maintenance Service Manager; YIT Corporation 1999–2004: various positions in maintenance and equipment sales in forest, paper and food industry projects Employment history: Raute Corporation 1990–2013: various positions, such as Automation Engineering Manager, R&D Manager and Technology Manager Employment history: Raute Corporation 2013: Group HR Manager; Go On Yhtiöt 2010–2012: Head of the unit in Lahti and Hämeenlinna, Finland; Mercuri Urval 1999– 2009: Senior Consultant. Raute shares and stock options on December 31, 2016: No shares or stock options Raute shares and stock options on December 31, 2016: 3,700 pcs series A shares 1,000 pcs stock options 2010 C Raute shares and stock options on December 31, 2016: 200 pcs series A shares 2,500 pcs stock options 2010 B 2,500 pcs stock options 2010 C With the company since: 2016– Member of the Executive Board since: March 14, 2016 Employment history: Independent consultant 2014–2016; Outotec Oyj 2010–2013: Vice President, Market Operations; NSN/Nokia Networks 1997–2009: different executive roles, for example, in service business, management of operations and customer operations. Raute shares and stock options on December 31, 2016: No share or stock options R A U T E 2 0 16 37 INFORMATION FOR SHAREHOLDERS Raute is a financially sound Small Cap company with a family background. Raute operates globally and is the leader in its field. Corporate governance The Parent company, Raute Corporation, is a Finnish public limited liability company which abides by the Finnish Companies Act, the Securities Markets Act, Nasdaq 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 and approved the Code of Conduct. 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, Information concerning the Group’s administration and risk management is also included in the Report of the Board of Directors and Financial Statements. Dividend policy 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. 38 R A U T E 2 0 16 Publishing of financial information Risks and risk management In all of its communications, Raute abides by the requirements of the Finnish Securities Markets Act and Nasdaq Helsinki Ltd’s rules and requirements targeting listed companies concerning accurate and simultaneous disclosure of information. The Group’s identified key risk areas relate to the nature of the business, the business environment, financing, and damage or loss. The fluctuation in demand resulting from economic cycles and delivery and technology risks have been identified as the Group’s most significant business risks. As the achievement of strategic targets and annual forecasts is strongly dependent on the performance of the global economy, the timing of customers’ individual investment projects and the precision of percentage of completion predictability, Raute does not publish time-bound numeric key figures for financial goals and earnings guidance. Raute publishes financial information (Annual Report, Financial Statements and Interim Reports) and stock exchange releases and notifications in both Finnish and English. Read more about Raute’s investor communications policy on the company’s website at Persons responsible for investor relations: Tapani Kiiski, President and CEO Arja Hakala, CFO tel. +358 3 829 11 email: 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. 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. Raute shares and stock options Series of shares Raute Corporation has two series of shares. Series A shares have been quoted on the Nasdaq Helsinki Ltd since 1994. SHARE Analysts monitoring Raute: Inderes Oy In addition, other analysis companies occasionally draw up reports on the company. Raute is not liable for the estimates presented in the analyses. A share RAUTE K share RAUTEK Total NUMBER DEC. 31, 2016 VOTES/ SHARE TOTAL VOTES 3,215,301 1 3,215,301 991,161 20 19,823,220 4,206,462 23,038,521 Share quotations can be followed online at Board of Directors’ proposal for the distribution of profit 2010 stock options Raute’s 2010 stock options began trading on Nasdaq Helsinki Ltd on April 27, 2015. STOCK OPTIONS SHARE SUBSCRIPTION PERIOD ENDS ORIGINAL EXERCISE PRICE EXERCISE PRICE DECEMBER 31, 2016 UNSUBSCRIBED STOCK OPTIONS DECEMBER 31, 2016 2010 B RAUTEEW210 Mar 31, 2017 EUR 9.83 EUR 7.13 16,449 2010 C RAUTEEW310 Mar 31, 2018 EUR 8.40 EUR 6.00 31,370 From the share subscription price shall be deducted the amount of the dividend or distribution of funds from the distributable equity fund decided after the beginning of the period for determination of the subscription price but before share subscription. Shareholders who are registered in the shareholders’ register maintained by Euroclear Finland Ltd on the record date for dividend payment, March 30, 2017, are entitled to dividends. The dividend payment date is April 6, 2017. LARGEST SHAREHOLDERS AT DECEMBER 31, 2016 BY NUMBER OF SHARES NUMBER OF SERIES K SHARES NUMBER OF SERIES A SHARES TOTAL NUMBER OF SHARES % OF TOTAL SHARES TOTAL NUMBER OF VOTES % OF VOTING RIGHTS Sundholm Göran – 622,942 622,942 14.8 622,942 2.7 Mandatum Life Unit-Linked – 131,196 131,196 3.1 131,196 0.6 Laakkonen Mikko The Board of Directors will propose to Raute Corporation’s Annual General Meeting for 2017, to be held on March 28, 2017, that a dividend of EUR 1.00 per share be paid for the financial year 2016, and that the remainder of distributable assets be transferred to equity. – 119,919 119,919 2.9 119,919 0.5 Suominen Pekka 48,000 62,429 110,429 2.6 1,022,429 Annual General Meeting Raute Corporation’s Annual General Meeting will be held on Tuesday, March 28, 2017 at 6 p.m. at Sibelius Hall, Ankkurikatu 7, Lahti, Finland. 4.4 Siivonen Osku Pekka 50,640 53,539 104,179 2.5 1,066,339 4.6 Kirmo Kaisa Marketta 55,680 48,341 104,021 2.5 1,161,941 5.0 Suominen Tiina Sini-Maria 48,000 53,816 101,816 2.4 1,013,816 4.4 – 85,000 85,000 2.0 85,000 0.4 Relander Harald, estate Keskiaho Kaija Leena 33,600 51,116 84,716 2.0 723,116 3.1 Mustakallio Mika Tapani 57,580 26,270 83,850 2.0 1,177,870 5.1 Särkijärvi Anna Riitta 60,480 22,009 82,489 2.0 1,231,609 5.3 Mustakallio Marja Helena 46,740 16,047 62,787 1.5 950,847 4.1 Mustakallio Kari Pauli 60,480 500 60,980 1.4 1,210,100 5.3 Särkijärvi Timo Juha 12,000 43,256 55,256 1.3 283,256 1.2 Särkijärvi-Martinez Anu Riitta 12,000 43,256 55,256 1.3 283,256 1.2 Suominen Jukka Matias 24,960 27,964 52,924 1.3 527,164 2.3 – 51,950 51,950 1.2 51,950 0.2 Mustakallio Ulla Sinikka 49,740 – 49,740 1.2 994,800 4.3 Suominen Jussi Matias 48,000 – 48,000 1.1 960,000 4.2 In 2017 Raute Corporation will publish a half-year report and two interim reports as follows: Keskinäinen työeläkevakuutusyhtiö Varma Keskiaho Ilta Marjaana Total 24,780 19,094 43,874 1.0 514,694 2.2 632,680 1,478,644 2,111,324 50.2 14,132,244 61.3 • January–March on Friday, April 28, 2017 • January–June on Tuesday, August 1, 2017 • January–September on Tuesday, October 31, 2017. The printed Annual Report will be mailed to the 200 largest shareholders and to others by request. Financial publications can also be ordered in print or as printouts by phone from +358 3 829 11 or by email from R A U T E 2 0 16 39 OWNERSHIP AND SHARES TRADING IN SERIES A SHARES 2016 SHARE OWNERSHIP BY SHAREHOLDER CATEGORY AT DEC. 31, 2016 EUR 1,000 2,000 NUMBER OF SHAREHOLDERS AT DEC. 31 1,000 pcs 200 4,000 3,625 1,500 100 2,000 500 Management 3,000 1,000 Households 150 50 1,000 0 0 0 81.2% 5.9% 01 02 03 04 05 06 07 08 09 10 11 12 /2016 Financial and insurance institutions 4.2% Companies 3.2% Nominee-registered 2.1% Public institutions 1.4% Non-profit shareholders 1,682 12 1,915 1,991 13 14 15 16 1.9% Foreign shareholders 2,623 0.1% Trading 1,000 pcs Trading EUR 1,000 DEVELOPMENT OF SHARE PRICE EUR 20 SHARE OWNERSHIP BY NUMBER OF SHARES AT DEC. 31, 2016 Shareholders, % MARKET VALUE OF CAPITAL STOCK AT DEC. 31 EUR million 80 70.2 16.70 15 10 60 14.12 9.00 6.95 40 7.30 58.1 36.0 27.8 5 0 1–1,000 92.2% 29.3 13 14 20 0 12 13 14 15 16 12 1,001–5,000 5.7% 5,001–10,000 0.6% Average share price Series K shares appreciated to 10,001–50,000 1.0% Closing price at Dec. 31 the value of series A shares. 50,000– 0.5% 40 R A U T E 2 0 16 15 16 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 Email FOLLOW US ONLINE Annual Report 2016 Content: Raute Corporation and Pohjoisranta Burson-Marsteller Oy Translation: Traduct Oy, Raute Corporation Graphic design: Pohjoisranta Burson-Marsteller Oy Photos: Tomi Parkkonen and Raute Corporation Printing house: Markprint Paper: Scandia White Twitter: @rautemachinery, @RauteOyj, @RauteCorp LinkedIn: Raute Oyj Facebook: Raute Corporation Instagram: @raute_corporation Youtube: Insta Printed matter 4041 0042 WOOD PRODUCTS MADE WITH RAUTE’S MACHINES WILL STORE THE CARBON DIOXIDE ABSORBED BY TREES FOR DECADES.