financial statements 2008 TILINPÄÄTÖS 2008 / KoNSerNI contents Board of Directors´ report FINaNcIaL STaTemeNTS financial statements, Group, ifRs consolidated income statement consolidated balance sheet consolidated cash flow statement consolidated statement of changes in shareholders´ equity notes to the consolidated financial statements financial statements, Parent company, fas Parent company´s income statement, fas Parent company´s balance sheet, fas Parent company´s cash flow statement, fas notes to the Parent company´s financial statements Key ratios describing the Group´s financial development share-related data calculation of key ratios shares and shareholders the Board of Directors´ proposal for distribution of profits, signatures for the Board of Directors´ report and financial statements auditor´s report Development of quarterly results corporate governance stock exchange releases and announcements 2008 3 9 10 11 12 13 39 40 41 42 50 51 52 53 57 58 59 60 63 2 BoaRD of DiRectoRs´ RePoRt the Group's net sales in 2008 totaled eUR 98.5 million (meUR 110.8), down 11.1 percent. the Group's operating profit was eUR 6.3 million (meUR 8.6). financial income and expenses totaled eUR 0.5 million (meUR 0.4). Profit before tax was eUR 6.9 million (meUR 9.0) and profit for the financial year eUR 4.7 million (meUR 6.6). earnings per share were eUR 1.18 (eUR 1.65), and return on equity was 14 percent (21%). in this report, figures in parentheses refer to corresponding figures for the previous years 2007 and 2006. the order intake, and technology services for eUR 23 million (meUR 29). on the whole, Raute's competitive position has remained strong. customers appreciate the supplier's comprehensive competence and strong technology development in their strategic investments aimed at ensuring their ability to deliver and provide service. the competitive edge provided by Raute's technology plays an important role when customers select their suppliers. marKeTS the financial crisis which expanded to global proportions, and the weakened outlook of the global economy made it more difficult to receive financing, and as a result, business in the construction and transport industries slowed down on a global scale during the latter part of 2008. after the summer, the plywood and lVl (laminated Veneer lumber) mills began to adapt their production levels to correspond with the lowered demand. in north america, the difficult market situation for the plywood and lVl industries continued throughout the year, as the level of construction activity remained low. the more difficult financing and the weakened market situation affected investment decisions of plywood and lVl industries, and reduced the demand for wood products technology. the low capacity utilization rates of the mills were also reflected in the demand for maintenance and spare parts services. NeT SaLeS aND orDer BooK the Group's net sales (ifRs) totaled eUR 98.5 million (2007: meUR 110.8; 2006: meUR 106.2), down 11.1 percent from 2007. the decline in net sales was due to the low order intake. the portion of project deliveries of the Group's net sales was 74 percent (74%). the plywood industry's share of the project deliveries was 99 percent (82%), while the lVl industry's share was 1 percent (16%). the portion of technology services of the Group's net sales was 26 percent (26%). europe took over as the biggest market area in 2008, accounting for 48 percent (31%) of net sales. Russia's share of net sales was 35 percent (35%). north america's share fell to 10 percent (22%) and the share of other market areas to 7 percent (12%). finland accounted for 16 percent (13%) of net sales. Due to the weakened market and demand situation, the order book decreased, totaling eUR 24 million (meUR 56) at the end of the year. In 2008, the net sales (FAS) of the Parent company Raute Corporation totaled EUR 87.7 million (2007: MEUR 93.0; 2006: MEUR 91.1). orDer INTaKe aND comPeTITIVe PoSITIoN Raute's business consists of project deliveries and technology services. Project deliveries encompass complete mills, production lines, and individual machines and equipment. technology services include maintenance, spare parts services, equipment modernization, consulting, training, and reconditioned machinery. the order intake in 2008 was only eUR 67 million (meUR 90) due to the weakened market situation and the postponement of large, mill-scale projects. Project deliveries accounted for eUR 44 million (meUR 61) of reSULT aND ProFITaBILITY the Group's operating profit (ifRs) fell to eUR 6.3 million in 2008 (2007: meUR 8.6; 2006: meUR 4.5), accounting for only 6 percent (2007: 8%; 2006: 4%) of net sales. the decline in net sales weakened the operating profit and the profit margin, despite the successful and improved cost management of projects. 3 in order to adapt to the strongly weakened market situation in north america, restructuring measures were taken in Raute's north american companies in april. a total of eUR 0.6 million of one-time costs relating to the restructuring was recorded in 2008. the Group's financial income and expenses totaled eUR 0.5 million (meUR 0.4) positive. the Group's profit before tax was eUR 6.9 million (meUR 9.0) and profit for the financial year eUR 4.7 million (meUR 6.6). earnings per share were eUR 1.18 (eUR 1.65). there were no dilutive items. Return on investment was 19 percent (29%) and return on equity 14 percent (21%). The operating profit (FAS) of the Parent company Raute Corporation was EUR 6.5 million (2007: MEUR 7.8; 2006: MEUR 4.0). The operating profit accounted for 7 percent (2007: 8%; 2006: 4%) of net sales. The profit for the financial year (FAS) was EUR 4.5 million (MEUR 7.4). The operating profit was weakened by a EUR 0.8 million write-off of receivables from a subsidiary. The financial items included a loss of EUR 1.0 million relating to the valuation of loans to a subsidiary. the merger will have no impact on mecano's product offering, customer service or personnel. A merger loss of EUR 150 thousand was recorded in the Parent company Raute Corporation due to the merger. The effect on Raute Corporation's balance sheet total was EUR 804 thousand. FINaNcING the Group's financial position remained strong. at the end of the financial year, the equity ratio was 60.5 percent (2007: 70.3%; 2006: 60.1%) and gearing -31.0 percent (2007: -32.5%; 2006: -80.3%). the Group's balance sheet totaled eUR 60.2 million (2007: meUR 54.8; 2006: meUR 68.5) at the end of 2008. the strong fluctuation in balance sheet items and the key figures based on them is a result of differences in the timing of customer payments and the cost accumulation from project deliveries, which is typical of project business. the Group's cash and cash equivalents, including financial assets recognized at fair value through profit or loss, stood at eUR 21.1 million (meUR 11.3) at the end of the financial year. operating cash flow was eUR 6.9 million positive (meUR -10.2), and cash flow from investment activities was eUR 3.1 million negative (meUR -0.7). cash flow from financing activities was eUR 6.0 million positive (meUR -1.8) and includes eUR 4.0 million (meUR 2.8) in dividend payments for 2007 and the new eUR 10 million tyel (pension) loans. the company made preparations for market disturbances caused by the financial crisis by raising a eUR 10 million tyel loan in november 2008. Due to the new loan, interest-bearing liabilities amounted to eUR 10.5 million (meUR 0.5) at the end of 2008. Raute corporation has a eUR 10 million domestic commercial paper program, which allows the company to issue commercial papers maturing in less than one year. the company also has unused bilateral non-current credit regulation agreements worth eUR 14 million with three different nordic banks. At the end of 2008, the equity ratio (FAS) of the Parent company Raute Corporation was 60.7 percent (2007: 72.2%; 2006: 59.0%). DeVeLoPmeNT oF oPeraTIoNS Raute corporation established a representative office in moscow in June 2008. the aim is to improve Raute's customer service and strengthen its local presence in Russia. the development of the subcontracting network continued. Raute's own ability to deliver was improved by investing in production equipment at the nastola main production plant and the chinese plant. in order to support the management of deliveries, the eRP information system already in place in the other Group units was introduced at the chinese unit. raUTe TUrNeD 100 YearS Raute turned 100 years on april 30, 2008. the company celebrated its 100-year journey together with its partners and employees in the various units. some 400 visitors visited the nastola unit during the open days organized in august. GroUP STrUcTUre mecano Group oy, a wholly-owned subsidiary of Raute corporation focusing on machine vision and analyzing applications, was merged with the parent company on December 31, 2008. the merger will clarify the Group structure and improve the efficiency of operations. reSearcH aND DeVeLoPmeNT coSTS aND caPITaL eXPeNDITUre Raute's goal is to be the leading technology supplier in its selected customer industries, and to invest strongly 4 in the continuous research and development of plywood and lVl manufacturing technology, in particular, and the supporting automation and instrumentation applications, such as machine vision. in 2008, the Group's research and development costs, eUR 4.9 million, remained at a high level, representing 5.0 percent of net sales (2007: meUR 4.3 / 3.9% of net sales; 2006: meUR 4.0 / 3.8% of net sales). investments totaled eUR 3.2 million, and were at a higher level than in the past few years (2007: meUR 1.9; 2006: meUR 1.9). the largest single investments involved the development of production at the plants in nastola and china. the investments made in 2008 included development costs in the amount of eUR 0.7 million (2007: meUR 0.2; 2006: meUR 0.5). other investments consisted of information system and replacement investments. In 2008, the research and development costs (FAS) of the Parent company Raute Corporation were EUR 3.7 million, representing 4.2 percent of net sales (2007: MEUR 3.1 / 3.3% of net sales; 2006: MEUR 3.2 / 3.5% of net sales). Investments totaled EUR 2.1 million (2007: MEUR 1.6; 2006: MEUR 1.8). detail in the section shares and shareholders of the financial statements. the Raute leader program was completed during the year to enhance the leadership skills of the Group's managers. a total of 16 middle-management managers and specialists completed the training program which coached them to meet future challenges. 1.0 percent (0.9%) of the payroll was invested in the training of personnel. Converted to full-time employees, the average number of personnel employed by the Parent company Raute Corporation in 2008 was 366 (2007: 393; 2006: 386). Salaries paid by the Parent company totaled EUR 17.0 million (2007: MEUR 16.3; 2006: MEUR 14.8). SHareS the number of Raute corporation's shares at the end of 2008 totaled 4,004,758, of which 991,161 were series K shares (ordinary share, 20 votes/share) and 3,013,597 series a shares (1 vote/share). series K and a shares grant equal rights to dividends and company assets. series K shares can be converted to series a shares under the terms described in article 3 of the articles of association. if a series K share is transferred to a new owner who does not previously hold series K shares, the new owner shall report this to the Board of Directors in writing and without delay. the other shareholders of the K series have the right to redeem the share under the terms described in article 4 of the articles of association. the company did not during 2008 possess company shares or hold them as security. Raute corporation's series a shares are listed on nasDaQ omX Helsinki ltd. a total of 392,693 shares worth eUR 4,854 thousand were traded in 2008. the number of shares traded represents 13 percent of all listed series a shares. the average price of a series a share was eUR 12.37 (eUR 13.85). the highest rate of the year was eUR 15.20 and the lowest eUR 6.24. the company's market capitalization at the end of 2008 totaled eUR 25.6 million, with series K shares valued at the closing price of series a shares, eUR 6.40, on December 31, 2008. Raute corporation has signed a market making agreement with nordea Bank finland Plc in compliance with the liquidity Providing (lP) requirements issued by nasDaQ omX Helsinki ltd. PerSoNNeL the Group's headcount at the end of 2008 was 573 (570). finnish Group companies accounted for 77 percent (76%) of employees, north american companies for 13 percent (18%), chinese companies for 7 percent (4%), and other sales and maintenance companies for 3 percent (2%). in april, the number of personnel in the north american units was adapted to the continued weak demand. in December, adaptation measures concerning the entire personnel in the Group's finnish companies were started due to the reduced order book and weakening market and demand situation. the implementation of the measures will continue in 2009. converted to full-time employees, the Group's average headcount in 2008 was 538 (2007: 566; 2006: 546). salaries paid by the Group totaled eUR 23.8 million (2007: meUR 24.0; 2006: meUR 22.0). the Group uses performance-based pay systems covering the entire personnel. in addition, the Group implemented a share-based incentive plan during the strategic period 2006­2008. the plan is described in more 5 aUTHorIZaTIoN oF rePUrcHaSe aND DISPoSaL oF oWN SHareS the annual General meeting held on april 2, 2008 authorized the Board of Directors to decide on the repurchase of a maximum of 400,000 Raute corporation series a shares with the company's distributable assets. Repurchased shares may be disposed for important financial reasons, such as funding acquisitions or other arrangements. the authorization was not exercised in 2008. Raute corporation's articles of association do not grant any unusual authorizations to the Board of Directors, or the President and ceo. any decisions on changes to the articles of association or an increase in share capital are made in compliance with the regulations of the effective companies act. oTHer maNaGemeNT mr. tapani Kiiski continued as chairman of the Group's executive Board, and the executive Board also included ms. arja Hakala, cfo; mr. Petri strengell, Vice President, technology and operations; mr. timo Kangas, Vice President, technology services; and mr. Bruce alexander, Vice President, north american Business operations and President of Raute's north american companies. LoaNS To reLaTeD ParTIeS aND oTHer LIaBILITIeS on December 31, 2008, the Parent company Raute corporation had loan receivables from its subsidiary Raute canada ltd. in the amount of caD 5,415 thousand. Raute corporation had a loan of eUR 110 thousand to the Raute sickness fund. other obligations are described in the notes to the financial statements. aUDITorS Raute corporation's annual General meeting held on april 2, 2008 elected ms. anna-maija simola and mr. antti Unkuri, authorized Public accountants, as auditors, and ernst & Young oy, an authorized public accounting company, as deputy auditor. DISTrIBUTIoN oF DIVIDeND on april 2, 2008, Raute corporation's annual General meeting decided to distribute a dividend of eUR 1.00 per share for 2007. the total amount of dividends paid on april 14, 2008 was eUR 4.0 million, series a shares accounting for eUR 3.0 million and series K shares for eUR 1.0 million. BUSINeSS rISKS Impact of economic fluctuations on business operations Raute supplies technology and services to the wood products industry. Business is characterized by sensitivity to economic fluctuations due to changes in the investment activity of customer industries. the impact that the cyclical nature of project deliveries has on the Group's performance is mitigated by systematically increasing the share of technology services, by developing the subcontracting network, and by focusing on core competencies in the company's own operations. in the long term, the Group's growth opportunities are increased and the impact of economic fluctuations balanced by developing operations in market areas where the company's market share is still small, and by creating products for new customer groups, such as the decorative veneer industry. the economic recession, which expanded to global proportions during 2008, the financial crisis, and the deepened uncertainty in the development of the global economy will increase near-future risks, and it is difficult to predict all of their implications. the financial crisis will make business financing more difficult and increase financing costs which will weaken the com- maNaGemeNT the annual General meeting elects the chairman and Vice-chairman for the Board of Directors, and 3­5 Board members. Raute corporation's annual General meeting held on april 2, 2008 re-elected mr. Jarmo Rytilahti as chairman of the Board, ms. sinikka mustakallio as Vice-chairman, and mr. mika mustakallio, mr. Panu mustakallio and mr. Jorma Wiitakorpi as Board members. mr. ilpo Helander was elected as a new Board member. the Board of Directors appoints the President and ceo and confirms the terms of his or her employment, including fringe benefits. mr. tapani Kiiski, licentiate in technology, continued as Raute corporation's President and ceo. He was appointed as Raute corporation's President and ceo on march 16, 2004. as agreed in the executive contract, the term of notice is six months, and the severance pay equals six months' salary. 6 pany's market outlook for the short term and affect the company's counterparty risk. the company's loans have fixed interest rates, and thus the company is not subject to interest rate risk. the liquid assets are mainly in finnish and swedish banks. the Group is prepared for fluctuations in the working capital tied up in project operations. Raute corporation has a eUR 10 million domestic commercial paper program, which allows the company to issue commercial papers maturing in less than one year. the company also has unused bilateral non-current credit regulation agreements worth eUR 14 million. Delivery and technology risks the bulk of Raute's business operations consist of different kinds of project deliveries, which always expose the company to risks caused by, for example, each customer's end product, production methods, or tailored solutions related to 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. contract, product liability, implementation, cost, and capacity risks are managed using project management procedures that comply with the company's certified quality system. Raute emphasizes product development and continuously develops new technology in order to offer solutions for customers' expanding needs. the functionality and capacity of new solutions cannot be fully verified until the solutions can be tested under production conditions in conjunction with the first customer deliveries. technology risks are reduced by the conditions of delivery contracts and by restricting the number of simultaneous first deliveries. Financing risks the main financing risks that Raute's international business operations are exposed to are liquidity, currency, and credit and counterparty risks. the financing risks, as well as the risk management objectives and procedures, are described in note number 36 to the financial statements. accident risks the production, planning, financial, and eRP systems serving the Group's key technologies are centrally located at the nastola main production plant. a fire or serious breakdown in machinery may result in considerable property or interruption loss. the Group hedges against such risks by assessing its facilities and process- es in terms of risk management and by maintaining emergency plans. it regularly reviews its insurance policies as part of overall risk management. the objective is to use insurance policies to sufficiently hedge all risks that are reasonable to handle through insurance due to economical or other reasons. the Group has no ongoing legal proceedings or other disputes in progress that might materially affect the continuity of business operations, nor is the Board of Directors aware of any other legal risks related to the Group's operations that might have such an effect. risk management policy and organization the Group has a risk management policy approved by the Board of Directors. the President and ceo and the chief financial officer report to the Board regularly concerning any major strategic and business risks, and financing risks. the Board of Directors determines the Group's general attitude to risk and approves the risk management policy on a general level. the executive Board determines the Group's general risk management principles and confirms various operating principles and boundaries of powers. the chief financial officer is responsible for the coordination of risk management. the Group's President and ceo controls the implemen-tation of risk management in the entire Group, while the Presidents of the Group companies are responsi-ble for risk management in their respective companies. the members of the executive Board are responsible for their own fields across company boundaries. the responsibility of the Group's controller function is to develop risk management procedures jointly with the operational management and to control compliance with the risk management principles and powers. the principal product and operation liability risks, and property and personal damage risks are covered by insurances. the absence of an internal auditing organization is taken into account when drawing up the content of the Group reporting and the internal audits of quality systems. the company's Board of Directors approves the auditing program. the risk assessment of business operations was updated in 2008. in addition, the coverage of contracts was assessed in technology services. the assessments identified and evaluated risks of different types, defined areas for development, and specified measures to be taken immediately. 7 SocIeTY aND THe eNVIroNmeNT the environment is one of the values that guide Raute's operations. Raute has been systematically developing the environmental sustainability of its products and services and aims to reduce the environmental impact of its operations. the Group abides by the principles of good corporate citizenship, taking into consideration nature and its protection, as well as the operating methods of the surrounding society, and by respecting local cultures. Raute's operations mainly affect the environment indirectly when the company's technology is used in the production processes of the wood products industry. Raute's technology enables the wood products industry to substantially reduce the environmental load caused by its operations through, for example, more efficient use of raw materials, additives, and energy. the Group's own operations do not involve considerable environmental risks that might have a direct impact on the Group's business operations or financial position. the nastola and Jyväskylä plants manage environmental matters in compliance with a certified environmental system. at the canadian plant, environmental surveys are carried out regularly by an external assessor. the operations and ethical principles of the partner and subcontractor networks are also subjected to systematic inspection. Raute aims to continuously reduce energy consumption, decrease the volume of waste, and develop the working environment. the Group's environmental management is described in more detail in the annual Report, under environment. annual General meeting of shareholders on april 2, 2008 to acquire the company's own series a shares. the shares are acquired to be used as part of the incentive plans for key personnel. the purchase of the shares will begin at earliest on february 19, 2009 and will end at latest on april 2, 2009. THe BoarD oF DIrecTorS' ProPoSaL For meaSUreS coNcerNING THe comPaNY'S ProFIT the Parent company's distributable assets total eUR 18,712 thousand, of which eUR 4,485 thousand stand for the period's profit. the Board of Directors will propose to Raute corporation's annual General meeting on april 2, 2009, that a dividend of eUR 0.70 per share be paid for series a and K shares, that is, a total of eUR 2.8 million. other distributable funds will be left in retained earnings. no essential changes have taken place in the company's financial position since the end of the financial year. the company has good liquidity, and according to the Board of Directors' view, the proposed dividend does not pose a risk to solvency. oUTLooK For 2009 Due to the financial crisis and global economic uncertainty, the market situation in Raute's customer industries is expected to remain difficult for the entire year 2009. investments and demand for services in the wood products industry are expected to remain weak in all market areas, with the exception of individual mill-scale projects, several of which are in the planning phase in the various market areas. Year 2009 will be a difficult year for Raute due to the low order book and weak continuing demand. the net sales and operating profit for 2009 are expected to decline significantly. achieving a positive result will be very challenging in the present market situation, despite the adaptation measures taken. thanks to its strong financial position, Raute is wellequipped to cope with the economic recession. the strong market position and development efforts made in operations and products ensure that Raute's ability to respond to the growing demand is excellent when the markets recover. eVeNTS aFTer THe rePorTING Year at the end of January 2009, negotiations in accordance with the act on co-operation within Undertakings were started in the Group's finnish units on additional adaptation measures relating to personnel and other arrangements to adapt operations to the continued weak market situation. the structural changes that the company has implemented in recent years to increase its ability to adapt to the normal fluctuations in demand typical of project business are not sufficient enough to enable the adaptation of the operations to the present exceptional market situation. the Board of Directors of Raute corporation has decided to utilize the authorization it was given by the 8 FINaNcIaL STaTemeNTS 2008 / GroUP consoliDateD income statement eUR 1 000 note 1.1.-31.12.2008 1.1.-31.12.2007 2, 3, 4 5 NeT SaLeS other operating income Increase (+) or decrease (-) in inventories of finished goods and work in progress materials and services expenses from employee benefits Depreciation, amortization and impairment charges other operating expenses Total operating expenses oPeraTING ProFIT 98 466 95 404 50 906 28 592 2 751 10 375 92 624 6 341 1 268 -729 6 880 -2 157 4 723 110 799 461 42 60 999 28 875 2 654 10 166 102 695 8 607 660 -291 8 976 -2 375 6 601 6 7 10, 16, 17 12 13 13 Financial income Financial expenses ProFIT BeFore TaX 14 Income taxes ProFIT For THe FINaNcIaL Year attributable to equity holders of the Parent company 4 723 1.18 1.18 6 601 1.65 1.65 15 15 Undiluted earnings per share, eUr Diluted earnings per share, eUr Shares adjusted average number of shares adjusted average number of shares, diluted 4 004 758 4 004 758 4 004 758 4 004 758 9 FINaNcIaL STaTemeNTS 2008 / GroUP consoliDateD Balance sHeet eUR 1 000 note aSSeTS Non-current assets intangible assets tangible assets other financial assets Deferred tax asset Total current assets inventories accounts receivables and other receivables financial assets at fair value through profit or loss cash and cash equivalents Total ToTaL aSSeTS SHareHoLDerS' eQUITY aND LIaBILITIeS equity attributable to equity holders of the Parent company share capital share premium other funds exchange rate differences Retained earnings Profit for the financial year Share of shareholders' equity that belongs to owners of the Parent company Total shareholders' equity Long-term liabilities Provisions Deferred tax liabilities long-term interest-bearing liabilities Total current liabilities Provisions Pension obligations short-term interest-bearing liabilities advance payments received current tax liabilities trade and other payables Total Total liabilities ToTaL SHareHoLDerS' eQUITY aND LIaBILITIeS 31.12.2008 31.12.2007 16 17 18 27 2 482 11 175 499 334 14 491 2 546 10 993 449 275 14 263 20 4, 21 22 23 4 310 20 270 0 21 109 45 689 60 180 4 515 24 739 2 144 9 140 40 537 54 800 24 24 8 010 6 498 287 283 14 520 4 723 34 321 34 321 8 010 6 498 125 36 11 924 6 601 33 194 33 194 26 27 28, 36 289 599 8 232 9 120 286 676 277 1 239 26 30 29, 36 31 31 2 251 173 2 225 3 475 79 8 536 16 739 25 859 60 180 971 260 213 7 590 851 10 481 20 367 21 605 54 800 10 FINaNcIaL STaTemeNTS 2008 / GroUP consoliDateD casH floW statement eUR 1 000 1.1.-31.12.2008 1.1.-31.12.2007 caSH FLoW From oPeraTING acTIVITIeS Proceeds from sales Proceeds from other operating income Payments of operating expenses cash flow before financial items and taxes interests and other operating financial expenses paid interests and other income received Dividends received income taxes paid NeT caSH From (+) / USeD IN (-) oPeraTING acTIVITIeS (a) 100 611 65 -90 988 9 688 -224 828 133 -3 522 6 903 96 117 114 -104 963 -8 732 -394 639 115 -1 843 -10 214 caSH FLoW From INVeSTING acTIVITIeS capital expenditure in tangible and intangible assets Purchases of assets-for-sale as investments Proceeds from sale of tangible and intangible assets NeT caSH From (+) / USeD IN (-) INVeSTING acTIVITIeS (B) -3 201 -50 171 -3 080 -1 964 -74 1 310 -728 caSH FLoW From FINaNcING acTIVITIeS Repayments of long-term and short-term loan receivables increase of short-term liabilities Repayments of short-term liabilities increase of long-term liabilities Repayments of long-term liabilities Dividends paid NeT caSH From (+) / USeD IN (-) FINaNcING acTIVITIeS (c) NeT cHaNGe IN caSH aND caSH eQUIVaLeNTS (a+B+c) increase (+) / decrease (-) caSH aND caSH eQUIVaLeNTS aT THe BeGINNING oF THe Year* caSH aND caSH eQUIVaLeNTS aT THe eND oF THe Year* 0 0 -63 10 069 0 -4 005 6 001 9 824 1 000 63 0 0 -40 -2 803 -1 780 -12 723 11 284 21 109 24 006 11 284 caSH aND caSH eQUIVaLeNTS IN THe BaLaNce SHeeT financial assets at fair value through profit or loss cash and cash equivalents ToTaL 0 21 109 21 109 2 144 9 140 11 284 *cash and cash equivalents comprise trading assets as well as cash and bank receivables, which will fall due within three months' period. 11 FINaNcIaL STaTemeNTS 2008 / GroUP consoliDateD statement of cHanGes in sHaReHolDeRs' eQUitY share of shareholders' equity that belongs to the owners of the Parent company share premium exchange rate differences share capital other funds Retained earnings minority interests eUR 1 000 eQUITY JaN. 1, 2007 8 010 exchange differences from net investments taxes related to items recognized in equity or transferred from equity exchange rate differences other increase/decrease Net income recognized directly in equity Profit for the financial year Total income and expenses recognized in the period Dividend equity-settled share-based transactions eQUITY Dec. 31, 2007 6 498 -201 264 12 274 14 726 29 309 264 12 -238 -48 0 29 309 264 12 -238 -48 -238 -48 0 0 228 -238 0 6 601 -10 6 601 0 0 6 601 0 0 228 -238 6 601 -2 803 6 591 -2 803 98 0 6 591 -2 803 98 33 194 8 010 6 498 98 125 36 18 524 33 194 0 8 010 eQUITY JaN. 1, 2008 exchange differences from net investments taxes related to items recognized in equity or transferred from equity exchange rate differences other increase/decrease Net income recognized directly in equity Profit for the financial year Total income and expenses recognized in the period Dividend equity-settled share-based transactions eQUITY Dec. 31, 2008 6 498 125 22 36 18 524 33 194 22 0 247 0 0 33 194 22 0 247 0 247 0 0 22 247 0 4 723 269 4 723 0 0 4 723 0 0 22 247 4 723 -4 005 4 992 -4 005 139 34 321 0 4 992 -4 005 139 34 321 8 010 6 498 139 287 283 19 242 0 12 ToTaL -10 269 FINaNcIaL STaTemeNTS 2008 / GroUP notes to tHe consoliDateD financial statements GeNeraL INFormaTIoN Raute Group (`Group') is a globally operating technology corporation, whose core business consists of the production processes of veneer-based wood products. Project deliveries include complete mills, production lines, and single machines. full-service technology services include spare part, maintenance, and modernization services, as well as services related to developing customers' businesses. the Group's Parent company, Raute corporation, is a finnish public limited liability company established in accordance with finnish law (Business iD fi01490726). its series a shares are quoted in nasDaQ omX Helsinki ltd, under industrials. Raute corporation is domiciled in lahti. the address of its registered office is Rautetie 2, fi-15550 nastola, and its postal address is P.o. Box 69, fi-15551 nastola. a copy of the consolidated financial statements is available online at www.raute.com or at the head office of the Parent company, Rautetie 2, fi-15550 nastola, finland. these financial statements were authorized for issue by Raute corporation's Board of Directors at its meeting on february 11, 2009. according to the finnish companies act, shareholders may approve or reject the financial statements at the shareholders' meeting arranged after the statements have been issued. the shareholders' meeting also has the opportunity to make changes to the financial statements. · available-for-sale investments · financial assets and liabilities recognized at fair value through profit or loss ·derivative financial instruments ·hedged items in fair value hedge · cash-settled share-based transactions. all of the figures presented in these consolidated financial statements are in thousand euro, unless otherwise stated. The Group has applied the following amended standards and their interpretations as of January 1, 2008, but they did not affect the profit or loss or the balance of the Group or the financial statement presentation: · IFRIC 11, IFRS 2 Group and treasury share transactions. the interpretation provides revaluation of share-based transactions in subsidiaries. · IFRIC 14, IAS 19 The limit and defined benefit assets, minimum funding requirements and their interaction. the interpretation provides guidance on post-employment benefit plans in ias 19 standard. · IFRIC 16, Hedges of a net investment in a foreign operation. the standard includes quidance on risk hedging treatment and what hedging instrument may be held. The Group has applied the following amended standards and their interpretations as of July 1, 2008, but they did not affect the financial statement 2008: · IAS 39, Financial instruments: recognition and measurement and IFRS 7, Financial instruments: Presentation of financial statements standard amendment. the amendments clarify reclassification of certain financial assets. the preparation of financial statements in conformity with ifRs requires management to make certain critical accounting estimates and to exercise its judgment in applying the Group's accounting policies. information about the estimates and judgment that the management has used and that are most critical to the figures in the financial statements are disclosed under "critical accounting judgments and key sources of estimation uncertainty". 1 accoUNTING PrINcIPLeS Basis of preparation the consolidated financial statements have been prepared in accordance with international financial statement standards (international financial Reporting standards, ifRs). Preparations have complied with the ias and ifRs standards, as well as sic and ifRic interpretations, effective on December 31, 2008. ifRs refer to the standards and their interpretations that have been approved for application in the eU in the finnish accounting act and regulations issued under it in accordance with the procedures laid down in the eU regulation (ec) 1606/2002 . the notes to the consolidated financial statements also comply with finnish accounting legislation. the consolidated financial statements have been prepared under the historical cost convention, except for the following items measured at fair value: 13 FINaNcIaL STaTemeNTS 2008 / GroUP Segment reporting the Group's primary reporting format is by business segments and its secondary format by geographical segments. the business segments are based on the Group's internal organization structure and internal financial reporting. a geographical segment is identified as reportable if the market area it forms accounts for more than 10 percent of the Group's net sales and if its business risks and profitability differ from those found in the economic environments of other market areas. in the report periods 2007 and 2008 the Group's continuing operations as a whole were included in the wood products technology segment. goodwill identified on acquisition. the Group did not include associates at December 31, 2008. the Group has made use of the exemption available under standard ifRs 1 not to restate the acquisitions that took place prior to January 1, 2004 . Foreign currency translation items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). the consolidated financial statements are presented in euro, which is the Parent company's functional and presentation currency. Foreign currency transactions foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. in practice the translation is often carried out using rates that approximately correspond to those prevailing at the dates of transactions. foreign currency non-monetary items measured at fair value are translated into the functional currency using the rates prevailing at the date of measurement. otherwise non-monetary items are measured using the rate prevailing at the date of transaction. exchange differences arising from transactions are recognized in the corresponding accounts in the income statement before operating profit. exchange differences arising from financial transactions are recognized in financial assets and liabilities, except for exchange differences arising from intra-Group loans which have been treated as net investments in foreign entities. such exchange differences are recognized in translation differences under equity, and they are recognized in financial liabilities in the income statement on full or partial disposal of the net investment. the income statements of foreign subsidiaries are translated into euro using the weighted average exchange rates during the report period and balance sheets are translated at the average rate on the balance sheet date. exchange differences arising from translation, as well as translation differences arising from equity, are recognized as a separate component of equity. on partial or full disposal of a subsidiary, the accumulated translation differences are recognized in the income statement as part of the gains or losses from disposal. according to the exemption allowed by standard ifRs 1, translation differences that have arisen prior to January 1, 2004, have been recognized in retained earnings, and the translation differences that have arisen after the transition date are presented as a separate component of equity. the exchange rates used for the consolidation of subsidiaries are presented in the notes to the consolidated income statement and balance sheet number 38. consolidated financial statements the consolidated financial statements include the Parent company Raute corporation and its subsidiaries in which the Parent company holds, directly or indirectly, over 50 percent of the votes or in which it exercises control otherwise. control means the right to decide on the company's financial and business principles to profit from the company's operations. mutual shareholding has been eliminated using the purchase method. subsidiaries are consolidated from the date on which control is transferred to the Group. they are de-consolidated from the date that control ceases. Raute corporation's subsidiary mecano Group oy was merged with the Parent company on December 31, 2008. the merger loss recognized through profit or loss in the Parent company is reversed in the consolidated financial statements. accounting policies of subsidiaries outside the euro zone have been changed where necessary to ensure consistency with the accounting policies adopted by the Group. all intra-Group transactions, receivables, liabilities and unrealized margins, as well as internal distribution of profit have been eliminated. the profit or loss for the period has been allocated to equity holders of the Parent company and to minority interest in the income statement. in the balance sheet the minority interest is presented as a separate item under equity. the minority interest's share of accumulated losses recognized in the consolidated financial statements may not exceed the invested amount. the consolidated financial statements at December 31, 2008 do not include minority interest. associates over which the Group has significant influence but not control, which generally means a holding of between 20 percent and 50 percent of the voting rights, are accounted for in the consolidated financial statements using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. the Group's investment in associates includes 14 FINaNcIaL STaTemeNTS 2008 / GroUP revenue recognition net sales include revenue from the sale of products and services, as well as raw materials and equipment, adjusted net of indirect taxes, discounts, and exchange differences from foreign currency sales. Revenue from the sale of spare parts and other goods, as well as small and short-term projects, are recognized in full when the significant risks and rewards have been transferred to the buyer. after this the Group no longer has control related to the product. this generally means the moment at which the goods have been delivered to the customer in accordance with the agreed delivery clause. Revenue from services are recognized in the period in which the service has been carried out. Revenue and costs from long-term projects (deliveries of project and modernization nature) are recognized based on the percentage of completion. Percentage of completion is measured on a cost-basis as the relation of actual project costs to the estimated overall project costs. When it is probable that the total costs needed to complete the contract will exceed total contract revenue, the expected loss is recognized as an expense immediately. if the result of a long-term project cannot be reliably estimated, the project costs have been recognized as an expenditure in the period in which they have incurred, and project revenue is recognized only to the extent of project costs that are likely to be recovered. long-term projects are recognized as revenue in full when the risks and benefits related to ownership are transferred to the buyer. costs related to projects that have not yet been recognized in revenue are recognized as long-term projects in progress under inventories. net sales recognized on the basis of percentage of completion are allocated to prepayments from customers. if such net sales exceed the prepayments received, the difference is presented under accounts receivables and other receivables in the balance sheet. less costs to sell. Depreciation of these assets has ended at the date of classification. assets held for sale are presented as separate items in the balance sheet. a separate major line of business which can be clearly distinguished from other operations in terms of property and result and which is part of a single disposal plan is treated as a discontinued operation. Income taxes the taxes in the income statement include the estimated taxes corresponding to the Group companies' taxable profit for the period, as well as tax adjustments for previous periods and the change in deferred taxes. current tax based on the taxable income is calculated on taxable income using the tax rate in force in each country. tax expenses are recognized in the income statement, except for items recognized directly in equity. Deferred taxes are calculated for all temporary differences in accounting and taxation using the tax rates enacted by the reporting date. the principal temporary differences arise from the amortization of tangible fixed assets. Deferred tax is recognized in balance sheet in its entirety. Deferred tax receivables are recognized to the extent that it is probable that taxable profits will be available against which temporary differences can be utilized. Financial assets and liabilities financial assets and liabilities are classified in accordance with standard ias 39, financial instruments: Recognition and measurement, into the following: · · · · financial assets at fair value through profit or loss loans and other receivables available-for-sale financial assets financial liabilities at fair value through profit or loss · other financial liabilities. all purchases and sales of financial assets are recognized on the transaction date. classification is made based on the purpose of acquisition in conjunction with the original acquisition. an item in financial assets is assigned to the financial assets at fair value through profit or loss group if it is held for trading. financial assets at fair value through profit or loss include shares and units, deposits with maturities under three months and other securities. financial assets held for trading have mainly been acquired to generate profit from short-term changes in market price. Derivatives that do not meet the conditions for hedge accounting provided for in standard ias 39 are classified as held for other operating income other operating income includes revenue not included in net sales, such as lease income, insurance compensations and gains on the disposal of fixed assets. Interests and dividends interest income is recognized as income in the period in which they have arisen. Dividend income is recognized when the company paying dividends pays it. Non-current assets held for sale and discontinued operations non-current assets held for sale and discontinued operations are treated in compliance with standard ifRs 5. assets held for sale and assets related to discontinued operations classified as held for sale are measured at the lower of the following: carrying amount or fair value 15 FINaNcIaL STaTemeNTS 2008 / GroUP trading. Derivatives held for trading, as well as financial assets maturing within 12 months, are included in current assets. the items in this group are measured at fair value. Realized and unrealized gains and losses from changes in fair value are recognized in the income statement in the period in which they have arisen. loan and other receivables are assets with fixed or determinable payments that are not quoted in an active market and which the company does not hold for trading. loan and other receivables are measured at amortized cost using the effective interest method. they are included in non-current financial assets under accounts receivables and other receivables in the balance sheet if they mature over 12 months from the balance sheet date. otherwise they are included in current financial assets. sales and other revenue are recognized in accounts receivables at the original receivable amount. the default risk related to overdue receivables is estimated on the basis of a comprehensive survey of receivables carried out at the balance sheet date, and estimated credit losses are recognized as an expense. available-for-sale financial assets are assets not included in derivatives that have been expressly assigned to this group or that have not been classified into any other group. they are included in non-current assets unless the intention is to hold them less than 12 months from the balance sheet date, in which case they are included in current assets. available-for-sale financial assets may consist of shares and interest-bearing investments. they are measured at fair value or, where fair value cannot be reliably determined, at cost of acquisition. impairment during ownership is directly recognized in the fair value reserve in equity, including the tax effects. When an investment is sold or disposed, the difference between the original cost and the realized price is recognized in the income statement. Permanent impairment of assets is always recognized directly in the income statement. the consolidated financial statements do not include available-for-sale financial assets at December 31, 2008. Cash and cash equivalents cash and cash equivalents comprise cash in hand, shortterm bank deposits and other highly liquid short-term investments with original maturities of three months or less. Bank overdrafts are included in short-term interest-bearing liabilities. credit accounts related to Group accounts are included in short-term interest-bearing liabilities and presented net if the Group has a contractual legal right of set-off concerning full or partial payment or elimination of an amount to the lender. financial assets are derecognized when the contractual right to cash flows expires or the Group has substantially transferred risks and income outside the Group. Financial liabilities financial liabilities are recognized at fair value based on the purchase consideration at the grant date less transaction costs. financial liabilities are included in current and long-term liabilities and they may be interest-bearing or non-interest-bearing. Measurement of financial instruments the fair values of all financial instruments in the balance sheet are based on market values. fair values are presented according to ias 39 standard in note number 37. Impairment of financial assets at each reporting date the Group assesses whether there is objective evidence of impairment of a financial asset or a group of financial assets. the Group recognizes impairment loss for trade receivables if there is objective evidence that the receivable cannot be recovered in full. the impairment loss recognized in the income statement is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the effective interest rate. if an in impairment loss decreases in a subsequent period, and the decrease can be objectively related to an event occurring after the impairment was recognized, the impairment is reversed through profit or loss. Derivative financial instruments Derivative financial instruments to which hedge accounting is not applied in compliance with standard ias 39 are measured at fair value at the reporting date. the fair values of derivative financial instruments are presented in deferred income or receivables in the balance sheet, and changes in fair value are presented in the income statement. impairment related to operating activities is presented as adjustments to net sales. Hedge accounting Derivative contracts hedging against currency risks are treated as either fair value hedges or economic hedges (excluded from the scope of hedge accounting). in fair value hedging, changes in the values of the hedged item and the hedging instrument are recognized in profit or loss. the result for economic hedges taken out against currency risks is recognized in net sales. When initiating hedge accounting, the relationship between the hedged item and the hedging instrument is documented, as are the objectives of the Group's risk management. the effectiveness of hedging is tested regularly and the effective portion is recognized in line with the hedged item against the change in its value in profit or loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, or the contract is terminated or exercised. the fair values of hedged derivative financial instruments are presented in non-current assets or liabilities in the balance sheet when the remaining hedged item is more than 12 months from the reporting date, 16 FINaNcIaL STaTemeNTS 2008 / GroUP and in current assets or liabilities otherwise. the Group did not have hedge accounting in compliance with standard ias 39 at December 31, 2008. Property, plant and equipment all property, plant and equipment is measured at original cost less accumulated depreciation and impairment. ordinary repair and maintenance costs are recognized through profit or loss as incurred. land is not depreciated. Depreciation of other assets is calculated using the straight-line method over their estimated useful lives: Buildings machinery and equipment other tangible assets 25­40 years 4­12 years 3­10 years. Intangible assets an intangible asset is recognized in the balance sheet only if it is probable that the expected future benefit attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. in other cases the expenditure from intangible assets is recognized as an expense when incurred. intangible assets include goodwill, capitalized development costs and other intangible assets. Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment. Goodwill is measured at original cost less impairment losses. the financial statements for 2008, including the comparison data, do not include goodwill. Research and development costs Research and development costs are recognized as an expense in the income statement. Development expenditure incurred in planning new or more advanced products are recognized as intangible assets in the balance sheet from the moment the product can be produced technologically, utilized commercially, and future financial benefit is expected from it. capitalized development costs include the material, work and testing expenditure incurred directly from completing the asset for the intended purpose. capitalized, in-progress development expenditure is tested annually for impairment. Development expenditure previously recognized as an expense is not capitalized at a later date. Development costs are depreciated from the time the product is ready for use. the useful life of development costs is three years, during which time capitalized assets are recognized as an expense on a straight line basis. Other intangible assets an intangible asset is recognized at original cost if the cost of the asset can be reliably measured and it is probable that the economic benefits attributable to the asset will flow to the entity. Depreciation is not recognized for intangible assets with an indefinite useful life. they are tested annually for impairment. intangible assets with a finite useful life are presented in the balance sheet and recognized as an expense based on the straight-line depreciation method over their useful life as follows: Patents computer software other intangible rights 10 years 5 years 3­10 years. the residual value of property, plant and equipment, and the remaining useful lives are reviewed at each balance sheet date. if needed, they are adjusted to reflect changes in expectations of economic benefit. the depreciation of property, plant and equipment ceases when the asset is classified as held for sale in accordance with standard ifRs 5 non-current assets Held for sale and Discontinued operations. Gains and losses on decommissioning and disposal of property, plant and equipment are presented in other operating income or expenses. Impairment of assets Tangible and intangible assets the Group's intangible assets with an indefinite useful life are tested annually for impairment. for other balance sheet assets, impairment is tested if there are indications of impairment. this involves measuring the recoverable amount of the asset. an impairment loss is recognized if the carrying amount exceeds the recoverable amount. the recoverable amount is the higher of an asset's fair value less costs to sell and value in use. for the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. an impairment loss is recognized immediately in income statement. an impairment loss recognized for an asset other than goodwill is reversed when a change has taken place in the figures used to measure the recoverable amount of the asset. However, reversal of impairment shall not exceed the asset's carrying amount less impairment loss. impairment loss for goodwill is not reversed. Leases Group as lessee leases in which a significant portion of the risks and rewards incident to ownership are retained by the lessor are treated as operating leases. Payments made under operating leases are recognized as an expense over the lease period. 17 FINaNcIaL STaTemeNTS 2008 / GroUP Group as lessor assets held under other than finance leases are included in property, plant and equipment. they are depreciated over the useful life, similar to equal property, plant and equipment in own use. Rental income is recognized in other operating income on a straight-line basis over the lease term. the finnish statutory employment pension scheme and the pension plans of foreign subsidiaries are classified as defined contribution plans. Defined benefit plans include Raute corporation's voluntary supplementary pension plan and the disability pension included in the finnish pension scheme tel, which was withdrawn in 2005. the voluntary supplementary pension plan was transferred from the Parent company's pension fund to an outside insurance company in 2005. the obligations from defined benefit plans are recognized as an expense separately for each plan based on calculations made by authorized actuaries. the discount rate used in the calculations is determined by reference to the market yields of high quality corporate bonds at the balance sheet date. the bonds are denominated in euro, and their term is the same as the estimated duration of the obligations resulting from the post-employment benefit. in accordance with the exemption allowed by standard ifRs 1, all actuarial gains and losses have been recognized in equity in the opening balance sheet on the date of transition January 1, 2004. subsequent actuarial gains and losses have been recognized in profit or loss over the employees' average remaining working lives where they exceed the greater of the following: 10 percent of the defined benefit obligation or 10 percent of the fair value of plan assets. Inventories inventories are measured at the lower of cost and net realizable value. Raw materials and supplies are measured using the weighted average cost method. the cost of finished goods and work in progress comprises direct material and production costs and the portion of indirect production costs and depreciation allocated to products at a normal capacity excluding interest expenses. the value of inventories includes impairment due to obsolescence. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provision related to warranty obligation is recognized when revenue from a long-term project, service or spare part including a warranty clause has been recognized. the amount of the warranty provision is estimated at the beginning of the project based on past experience from warranty costs. the unused provision is recognized as income at the end of the warranty period. Provision for contract is recognized when the unavoidable direct costs and estimated indirect production costs and depreciation under the contract exceed the benefits from the contract. Restructuring provision is recognized when the Group has drawn up a detailed plan for restructuring and has started to implement the plan or has announced its main features to those affected by it. the financial statements for 2008, including the comparison data, do not include restructuring provisions. employee benefits: Share-based payments the Group has applied the ifRs 2 standard to the sharebased incentive plan set up for key employees on march 22, 2006. the Group has a share-based incentive plan for the executive Board and other key employees, as well as performance-based share remuneration and contingent share remuneration. the Group measures granted share-based incentives in equity at the fair value at the grant date. share- and cash-based payments are recognized as an expense on a straight-line basis over the vesting period. the amount paid in shares is based on the management's latest estimate at the grant date and each balance sheet date of the number of shares expected to vest at the end of the commitment period. cash-settled payments are based on the latest estimate of outstanding shares and the fair value of shares at the balance sheet date. costs from option schemes set up prior to november 7, 2002 have not been recognized in the income statement. employee benefits: Pension obligations Pension plans are classified into defined benefit and defined contribution plans. Under a defined contribution plan the Group pays fixed contributions to a separate entity. the Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay retirement benefits. all other plans are defined benefit pension plans. contributions to defined contribution pensions plans are recognized in profit or loss in the period in which they are due. Share capital outstanding series K and series a shares are presented in share capital. 18 FINaNcIaL STaTemeNTS 2008 / GroUP expenditure related to own equity issues or acquisitions are presented as allowance for equity. if the Parent company repurchases own equity instruments, their acquisition cost is deducted from equity. Dividend the dividend proposed by the Board of Directors to the annual General meeting is recognized as a deduction from distributable equity, but not until approved by the annual General meeting. Intangible assets the Group's intangible assets are tested annually for impairment. other balance sheet assets are assessed for indications of impairment as explained in the accounting principles above. the recoverable amounts of cash-generating entities have been determined based on valuein-use calculations, which require the use of estimates. Long-term projects the percentage of completion method is based on estimates of expected project revenue and expenses, as well as on reliable measurement of project progress. should the estimates of the project outcome change, the recognized revenue and profit will be adjusted in the period in which the change first becomes known and can be estimated. Warranty provision Warranty provisions are estimated on the basis of experience, taking into consideration special product risks, as explained above. Receivables the management has estimated customers' ability to remit the payment of such trade receivables, about which the company has not received any securities. Group's companies ability to settle the trade receivables and payments related to the loans has been estimated by the management. Deferred taxes the management has also made estimates pertaining to deferred tax assets. Share-based remuneration costs the share-based remuneration costs have been calculated by using the closing price of series a share at the end of the financial year. operating profit standard ias 1 Presentation of financial statements does not define the concept of operating profit. the Group uses the following definition: operating profit is the net sum calculated by adding other operating income to net sales; deducting purchase expenses that have been adjusted by changes in inventories of finished goods and work in progress and by expenses from production for own use; and by deducting expenses, depreciation and possible impairment losses from employee benefits, as well as other operating expenses. all other income statement items are presented after operating profit. exchange differences and changes in the fair values of derivatives are included in operating profit if they have arisen from business-related items. in other cases they are recognized in financial items. earnings per share Undiluted earnings per share are calculated by dividing the period's profit attributable to Parent company equity holders by the weighted average of outstanding shares in the period. Diluted earnings per share are calculated using the treasury stock method. in addition to the weighted average of outstanding shares, the divisor includes additional shares from the presumed exercise of options. the exercise of options is not taken into account in the calculation of earnings per share if the exercise price of options exceeds the average market price of shares during the period. options have a dilutive effect if the average market price of shares exceeds the exercise price of options. the calculation of other key figures is presented on page 52. application of new or amended IFrS standards and IFrIc interpretations the following standards, interpretations, and their amendments have been published, but they are not yet in effect, or they will take effect on January 1, 2009 at the earliest, nor has the Group applied these provisions prior to their obligatory entry into force. the Group will adopt in 2009 or later the following new or amended standards and interpretations published by iasB: · ifRs 8, operating segments, effective on January 1, 2009. according to the standard, segment information should be based on internal reports submitted to the management and the calculation principles followed in the reporting. the adoption of the standard will affect the presentation of segment information. · ias 1, Presentation of financial statements: amendment to the standard, effective on January 1, 2009. critical accounting judgments and key sources of estimation uncertainty When preparing the consolidated financial statements in compliance with ifRs, the company management must make certain estimates and assumptions. in addition, the management must exercise its judgment in applying the accounting policies. these may affect the assets and liabilities in the balance sheet, the disclosure of commitments and possible assets in the financial statements, and income and expenses for the period. actual results may differ from the estimates. 19 FINaNcIaL STaTemeNTS 2008 / GroUP the amendment will mainly affect the presentation of the income statement and the statement of changes in equity as well as the terminology used in the financial statements. ·ias 23, Borrowing costs, effective on January 1, 2009, if the amendment is approved for application within the eU. the amended standard requires that the borrowing costs directly attributable to the acquisition, production or construction of a qualifying asset be capitalized as part of the cost of that asset. ·ifRs 3, Business combinations: amendment to the standard, effective on July 1, 2009. the amendment will affect the amount of goodwill recognized on acquisitions and the gain or loss recognized on disposals. the following standards and interpretations have taken effect during the financial year, but according to the management's view, they are not relevant to the Group's operations: ·ifRic 12 service concession arrangements ·ifRic 13 customer loyalty Programmes ·ifRic 15 agreements for the construction of real estate. eUR 1 000 2008 % 2007 % 2 SeGmeNT INFormaTIoN Primary reporting segment Raute's primary reporting segment is the business segment. continuing operations belong to the wood products technology segment. Secondary reporting segment the secondary reporting segment is geographical. the geographical segment consists of market areas accounting for over 10 percent of the Group's net sales. Secondary reporting segment information: Net sales to external clients by clients' geographical location europe Russia north america south america others ToTaL assets by geographical location europe Russia north america south america others ToTaL 47 709 34 359 9 832 4 311 2 255 98 466 48 35 10 4 3 100 34 117 38 314 24 047 11 485 2 836 110 799 31 35 22 10 3 100 55 616 782 2 730 36 1 016 60 180 92 1 5 0 3 100 48 822 1 048 3 275 34 1 621 54 800 89 2 6 0 3 100 20 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 capital expenditure by geographical location europe Russia north america south america others ToTaL 2008 % 2007 % 2 775 2 75 19 371 3 242 86 0 2 1 11 100 1 411 0 74 4 380 1 869 75 0 4 0 20 100 3 ProceeDS From SaLeS the main part of the net sales is comprised of project deliveries and modernization services related to wood processing technology that are handled as long-term projects. the rest of the net sales is comprised of technology services provided to the wood products industry (spare parts, maintenance and modernization services as well as services provided to the development of customers' business). Net sales by market area Russia Rest of europe finland north america south america asia oceania others ToTaL 34 359 31 909 15 800 9 832 4 311 1 241 701 313 98 466 35 32 16 10 4 1 1 1 100 38 314 20 077 14 040 24 047 11 485 915 979 942 110 799 35 18 13 22 10 1 1 1 100 4 LoNG-Term ProJecTS Net sales net sales by percentage of completion other net sales ToTaL Project revenues entered as income from currently undelivered long-term projects recognized by percentage of completion amount of long-term projects revenues not yet entered as income Specification of combined asset and liability items advances paid advances wounded up by percentage of completion advances paid included in inventories accrued income corresponding to revenues by percentage of completion advances received from project customers Project receivables included in current assets advance payments received at Balance sheet 80 749 17 717 98 466 94 905 15 894 110 799 85 487 22 817 120 722 53 474 448 0 448 85 328 -73 509 11 819 3 475 513 0 513 120 942 -102 601 18 341 7 590 5 oTHer oPeraTING INcome capital gain on sale of fixed assets other ToTaL 30 65 95 346 114 461 6 maTerIaLS aND SerVIceS materials and supplies - Purchases during the period - change in inventories external services ToTaL 45 832 155 4 919 50 906 54 993 -883 6 889 60 999 21 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 7 eXPeNSeS From emPLoYee BeNeFITS Wages and salaries Pension contributions - Defined contribution plans - Defined benefit plans share-based payments to be settled in shares share-based payments to be settled in cash other personnel costs ToTaL information about management's employee benefits and loans is presented in the notes to the financial statements number 32 Related party transactions. information about the share-based incentive plan is presented in the notes to the financial statements number 25 share-based payments. 23 846 3 359 -87 139 -28 1 362 28 592 24 028 3 161 -75 98 97 1 566 28 875 8 NUmBer oF PerSoNNeL employed at Dec. 31, persons Workers office staff ToTaL - of which personnel working abroad average, persons Workers office staff ToTaL - of which personnel working abroad 178 395 573 136 187 383 570 140 183 402 585 136 196 379 575 140 9 reSearcH aND DeVeLoPmeNT coSTS eNTereD aS eXPeNSeS For THe PerIoD total research and development costs Depreciation of previously capitalized development costs Recognized as assets in balance sheet Research and development costs entered as expenses for the period total research and development costs % of net sales Research and development costs have been recognized in operating expenses prior to operating profit. 4 375 549 -667 4 257 4 924 5.0 3 969 367 -233 4 103 4 336 3.9 10 DePrecIaTIoN, amorTIZaTIoN aND ImPaIrmeNT cHarGeS Depreciation and amortization by class of assets intangible assets - capitalized development costs - other intangible assets tangible assets - Buildings and structures - machinery and equipment - other tangible assets ToTaL 549 573 456 1 167 7 2 751 367 626 506 1 150 5 2 654 11 acQUISITIoNS no business acquisitions were made during the financial year 2008 and during the comparision year 2007. 22 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 12 oTHer oPeraTING eXPeNSeS indirect production expenses sales and marketing expenses administration expenses other expenses ToTaL auditors' remunerations annual audit, statutory other audit related services under audit law tax services other services ToTaL 2 225 2 436 2 339 3 374 10 375 1 570 2 222 2 517 3 857 10 166 59 0 91 4 153 56 2 45 18 121 13 FINaNcIaL INcome aND eXPeNSeS Financial income interest income on loans and receivables Dividend income of available-for-sale investments sales profit of financial assets through profit or loss change in fair value of financial assets through profit or loss other financial income ToTaL Financial expenses interest expenses on loans from financial institutions losses from sales of available-for-sale investments exchange rate losses of loans other financial expenses ToTaL Financial income and expenses exchange rate differences entered in income statement included in net sales included in purchases and other expenses included in financial income and expenses ToTaL 681 133 86 -100 469 1 268 276 115 446 -245 68 660 -43 -50 -505 -131 -729 539 -17 0 -198 -76 -291 369 4 -49 -38 -83 9 -12 -198 -201 14 INcome TaXeS current tax from operations, previous years change in deferred taxes ToTaL analysis of the relationship between realized tax expense and theoretical accounting result using Finnish tax rate of 26% Profit before taxes taxes calculated using the finnish tax rate, 26% effect of differences in taxes from other countries non-deductible income non-deductible costs taxes from the previous financial years Unrecognized tax assets from the losses of foreign subsidiaries other items consolidated tax expense effective tax rate, % 6 880 -1 789 16 35 -30 -180 -497 288 -2 157 31.3 8 976 -2 334 -111 -333 222 -27 173 36 -2 375 26.5 -2 114 -180 138 -2 157 -2 379 -176 180 -2 375 23 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 15 earNINGS Per SHare share of profit that belongs to owners of the Parent company Weighted average number of shares, 1 000 shares Diluted weighted average number of shares, 1 000 shares earnings per share, eUR Diluted earnings per share, eUR 4 723 4 005 4 005 1.18 1.18 6 601 4 005 4 005 1.65 1.65 16 INTaNGIBLe aSSeTS eUR 1 000 Intangible assets 2007 carrying amount at Jan. 1, 2007 exchange rate differences additions other reclassifications between items carrying amount at Dec. 31, 2007 accumulated depreciation and amortization at Jan. 1, 2007 exchange rate differences Depreciation for the financial period accumulated depreciation and amortization at Dec. 31, 2007 Book value at Jan. 1, 2007 Book value at Dec. 31, 2007 Intangible assets 2008 carrying amount at Jan. 1, 2008 exchange rate differences additions other reclassifications between items carrying amount at Dec. 31, 2008 accumulated depreciation and amortization at Jan. 1, 2008 exchange rate differences Depreciation for the financial period accumulated depreciation and amortization at Dec. 31, 2008 Book value at Jan. 1, 2008 Book value at Dec. 31, 2008 Development costs long-term expenses and intangible rights* ToTaL 2 938 236 3 174 -1 728 -367 -2 095 1 211 1 079 6 919 298 112 7 329 -5 206 -658 -5 864 1 713 1 465 9 857 0 534 112 10 503 -6 934 0 -1 025 -7 959 2 924 2 546 3 174 667 3 841 -2 095 -549 -2 644 1 079 1 197 7 329 22 351 33 7 735 -5 864 -13 -573 -6 450 1 465 1 285 10 503 22 1 018 33 11 575 -7 959 -13 -1 122 -9 094 2 546 2 482 *long-term expenditure and intangible rights include patents, computer software and product rights. 24 FINaNcIaL STaTemeNTS 2008 / GroUP 17 ProPerTY, PLaNT aND eQUIPmeNT eUR 1 000 Property, plant and equipment 2007 carrying amount at Jan. 1, 2007 exchange rate differences additions Disposals other reclassifications between items carrying amount at Dec. 31, 2007 accumulated depreciation and amortization at Jan. 1, 2007 exchange rate differences accumulated depreciations on disposals Depreciation for the financial year impairments accumulated depreciation and amortization at Dec. 31, 2007 Book value at Jan. 1, 2007 Book value at Dec. 31, 2007 Property, plant and equipment 2008 carrying amount at Jan. 1, 2008 exchange rate differences additions Disposals other reclassifications between items carrying amount at Dec. 31, 2008 accumulated depreciation and amortization at Jan. 1, 2008 exchange rate differences accumulated depreciations on disposals Depreciation for the financial year impairments accumulated depreciation and amortization at Dec. 31, 2008 Book value at Jan. 1, 2008 Book value at Dec. 31, 2008 land and water Buildings and structures machinery and equipment other tangible assets assets in progress and advance payments ToTaL 1 158 4 -122 1 040 14 708 130 -1 433 140 13 545 24 048 6 832 -3 3 24 886 377 -2 120 298 -255 162 375 40 411 4 1 263 -1 558 -112 40 008 0 -7 660 -50 -447 444 -7 714 7 047 5 830 -19 867 -341 2 -5 0 -1 122 33 33 1 158 1 073 -27 868 2 -50 -1 574 477 -29 014 12 542 10 993 -20 989 4 181 3 897 -344 36 31 0 120 162 1 040 -91 949 13 545 -422 63 -3 75 13 259 24 886 -974 989 0 830 25 731 375 2 8 0 0 385 162 1 111 -87 -1 062 124 40 008 -1 484 2 170 -90 -157 40 447 33 -7 714 395 -456 -20 989 980 -1 167 -344 0 -9 0 -29 014 1 375 0 -1 632 0 -29 272 10 993 11 175 33 1 073 982 -7 775 5 830 5 483 -21 176 3 897 4 555 -353 31 31 0 162 124 eUR 1 000 2008 2007 18 oTHer FINaNcIaL aSSeTS Publicly quoted share investments Unquoted share investments ToTaL 16 483 499 19 430 449 Realized sales losses of eUR 50 thousand have been recognized during the financial year from available-for-sale investments. Unquoted shares are recognized at cost deducted with possible impairments, since their fair value cannot be determined reliably. 25 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 19 LoNG-Term receIVaBLeS Deferred tax receivable ToTaL 334 334 275 275 20 INVeNTorIeS materials and supplies Work in progress finished products/goods advance payments ToTaL in the year ended, eUR 235 thousand (eUR 305 thousand) were recognized in expenses, reducing the carrying amount of inventories to correspond to the disposal price. 2 417 1 019 425 448 4 310 2 357 692 953 513 4 515 21 accoUNTS receIVaBLeS aND oTHer receIVaBLeS Short-term receivables - accounts receivables - accrued income from customers recognized according to percentage of completion - accrued income and prepaid expenses - other receivables ToTaL 4 743 11 819 919 2 790 20 270 4 449 18 341 687 1 262 24 739 the current values of receivables are presented in the notes to the financial statements number 37. Balance sheet values correspond best to the amount of money that is the maximum amount of credit risk without taking into consideration the fair value of collaterals, in such a case where other contract parties are not able to fulfill their obligations related to financial instruments. Receivables do not include significant credit risk clusters. losses of eUR 129 thousand have been recognized in accounts receivables during the financial year. there were no losses during the comparison year 2007. eUR 1 000 2008 2007 22 FINaNcIaL aSSeTS aT FaIr VaLUe THroUGH ProFIT or LoSS Held for trading fair valuation of cash and cash equivalents Financial assets at fair value through profit or loss at the end of the financial period 0 0 0 2 043 101 2 144 23 caSH aND caSH eQUIVaLeNTS cash and bank accounts Bank deposits ToTaL cash and cash equivalents in cash flow statement financial items at fair value through profit or loss cash and cash equivalents ToTaL 1 216 19 893 21 109 1 740 7 400 9 140 0 21 109 21 109 2 144 9 140 11 284 24 NoTeS To eQUITY reconciliation of the number of shares, 1 000 pcs number of shares Jan. 1 Number of shares Dec. 31 4 005 4 005 4 005 4 005 26 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 nominal value, eUR total shareholders' equity, eUR thousand series K shares (20 votes/share) series a shares (1 vote/share) the minimum share capital is eUR 5 000 000 and the maximum share capital is eUR 20 000 000. all issued shares are paid in full. the share premium includes the value paid for shares in connection with a rights issue that exceeds the nominal value. other reserves include granted share-based remuneration settled in shares. 2008 2.00 8 010 991 3 014 2007 2.00 8 010 991 3 014 exchange rate differences include exchange differences arising from translation of foreign subsidiaries' financial statements as well as gains and losses arising from hedging of net investments in subsidiaries. Dividend after the balance sheet date, the Board of Directors proposed to the annual General meeting that a dividend of eUR 0.70 per share be paid from the financial year 2008. 25 SHare-BaSeD PaYmeNTS SHare-BaSeD INceNTIVe PLaN the Board of Raute corporation has on march 22, 2006 resolved to implement a share-based incentive plan. the share-based incentive plan offers the target group a possibility to earn Raute's series a shares as reward for an earning period of three calendar years for attainment of the targets established for it. the earning period began on January 1, 2006 and ended on December 31, 2008. the amount of reward that shall be paid on the basis of the plan, has been bound to Raute's operating profit (weight 75%) and the evaluation of the Board of Directors on e.g. the materialization of the strategy (weight +/-25%). the maximum total reward is 65 000 Raute's series a shares and a cash payment equivalent to the value of the shares, in the maximum. the attainment of the targets established for the earning period will determine the amount to be paid out of the maximum reward. the reward from the plan shall be paid as a combination of shares and cash payment, after the end of the earning period. the reward shall be paid in april 2009 at latest. no reward shall be paid if a person's employment ends before the reward payment. in addition, a person must own the earned shares at least for two years from the reward payment. the basic information on the share-based incentive plan has been collected in the table below: - issue date: march 22, 2006 - instrument: share-based payment - number of shares, max*: 54 000 pcs - share price upon grant: eUR 17.28 - fair value of the share upon grant**: eUR 15.28 - share price at the end of financial year: eUR 6.40 - earning period began: January 1, 2006 - earning period ended: December 31, 2008 - earnings criteria: operating profit and Board's evaluation on e.g. the materialization of the strategy - Pay-out assumption of earnings criteria: 35% - Vesting date of shares: latest april 30, 2009 - share ownership obligation: 2 years from the grant date - Remaining binding period: at most 4 months - target group December 31, 2008: 17 Number of shares Jan. 1, 2008 shares granted shares returned shares distributed shares forfeited Shares total 58 000 -2 000 0 0 56 000 changes during financial year 0 -2 000 0 0 -2 000 Number of shares Dec. 31, 2008 58 000 -4 000 0 0 54 000 * the numbers of shares presented in the table describe the maximum numbers of shares to be distributed on the basis of the share ownership plan. in addition, the company is committed to pay a cash amount that corresponds to the value of the shares in the maximum (proportion for taxes). **from the share price on the grant date of the shares have been deducted the expected dividends 2.00 euros that the key people do not receive before the potential reward payment. 27 FINaNcIaL STaTemeNTS 2008 / GroUP Determination of the fair value Raute corporation has used alexander corporate finance oy as an advisor when determining the fair value of the reward. as the reward will be paid as a combination of shares and cash payment, the determining of the fair value of the reward is divided into two proportions, in accordance with ifRs 2 standard: a proportion settled in shares and a proportion settled in cash. the proportion to be settled in shares will be entered in the equity and the proportion to be settled in cash will be entered in liabilities. the fair value of the share-based payment on the grant date was the market price of the Raute's series a share, the dividends to be distributed before the reward payment deducted. the fair value of the share proportion was thus eUR 15.28 per share. correspondingly, the fair value of the proportion to be settled in cash will further be evaluated every reporting day until the end of the earning period, and the fair value of the debt will thus change in accordance with Raute's series a share price. at the end of the financial year, the fair value of the cash proportion was eUR 6.40 per share. the fair value of the rewards granted during the financial year was eUR 0.4 million in total. the effect of the rewards on the result of Raute corporation is eUR 0.1 million during the financial year 2008 (meUR 0.2). calculation of fair value of reward - shares granted: 54 000 pcs - share price upon grant: eUR 6.40 - assumed dividend before reward payment*: eUR 2.00 - fair value (proportion in shares): eUR 15.28 - share price December 31, 2008 (proportion in cash) eUR 6.40 - Pay-out assumption of earnings criteria: 35% - estimate of shares to be returned: 0% - fair value of reward December 31, 2008: eUR 395 129 *Dividend assumption is an estimate on distributed dividends before reward payment at the grant date. eUR 1 000 2008 2007 26 ProVISIoNS Warranty provisions Book value at the beginning of the financial year additions Used amounts cancelled unused amounts exchange rate differences Book value at the end of the financial year Losses from long-term projects in order book Book value at the beginning of the financial year additions Decreace Book value at the end of the financial year Provisions in balance sheet from which - long-term - short-term 1 080 1 775 -511 -220 -12 2 111 952 1 331 -886 -325 8 1 080 177 341 -90 429 2 540 289 2 251 666 0 -489 177 1 257 286 971 27 DeFerreD TaX LIaBILITIeS aND DeFerreD TaX aSSeTS eUR 1 000 Deferred tax assets changes in fair value effects on Group consolidation other taxable temporary differences ToTaL Deferred tax assets changes in fair value effects on Group consolidation other taxable temporary differences ToTaL Jan. 1, 2007 58 0 429 487 Jan. 1, 2008 0 0 275 275 items entered in income statement items recognized in shareholders' equity Dec. 31, 2007 0 0 275 275 Dec. 31, 2008 0 27 307 334 -58 -154 -212 0 27 32 59 0 28 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 items entered in income statement items recognized in shareholders' equity Dec. 31, 2007 507 25 93 51 676 Dec. 31, 2008 397 0 0 202 599 Deferred tax liabilities Jan. 1, 2007 Depreciation differences and other provisions 383 changes in fair value 90 effects of Group consolidation 326 other taxable temporary differences 285 ToTaL 1 084 Deferred tax liabilities Jan. 1, 2008 Depreciation differences and other provisions 507 changes in fair value 25 effects of Group consolidation 93 other taxable temporary differences 51 676 ToTaL 124 -65 -233 -104 -278 -130 -130 -110 -25 -93 151 -77 0 Unrecognized tax assets from losses of foreign subsidiaries are in total eUR 670 thousand (eUR 476 thousand). Deferred tax liability is not recognized from undistributed earnings of finnish subsidiaries and associated companies, since in most cases these earnings are transferred to the Parent company without tax implications. eUR 1 000 2008 2007 28 LoNG-Term INTereST-BearING LIaBILITIeS long-term interest-bearing liabilities recognized at amortized cost - Pension loans (tyel) - other liabilities ToTaL other liabilities are finnish funding agency for technology (tekes) loans. the Group's interest-bearing loans are in euros and have a fixed interest rate. the repayment period of the tekes loan is scheduled for 2009­2013 and the interest rate of the loan is 1.0%. the interest rate of pension loans is 2.95%. the repayment period of the pension loans is five years, with two equal installments each year starting from may 2009. the collaterals given for the loans are a credit guarantee granted by a credit insurance company without a counter guarantee requirement, or a bank guarantee. 8 000 232 8 232 0 277 277 29 SHorT-Term INTereST-BearING LIaBILITIeS Partial payments of long-term debts other short-term interest-bearing debts Total short-term interest-bearing liabilities Distribution of the Group's short-term loans by currencies - eUR, % the weighted averages of effective interest rates of short-term interest-bearing liabilities were: Repayment of long-term loans, % other short-term loans, % fair values of financial liabilities are presented in the notes to the financial statements number 37. 2 000 225 2 225 63 150 213 100 100 2.95 1.00 1.00 2.30 29 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 30 PeNSIoN oBLIGaTIoNS Raute corporation's voluntary supplement to pension coverage has been treated in accounting as a defined benefit plan. the current emplyees' voluntary supplementary pension insurance has been arranged through sampo life insurance company. Defined benefit pension plans Items recognized in balance sheet Present value of funded obligations fair value of assets included in the plan Difference Present value of non-funded obligations Unrecognized actuarial losses Unrecognized costs based on retrospective work performance net liabilities (receivables) in balance sheet (liability +/receivable -) amounts in balance sheet liabilities assets net liabilities in balance sheet (liability +/receivable -) Items entered in income statement costs based on the work performance in the financial year interest on obligation expected income from the assets included in the plan net of recognized actuarial gains/losses in the financial year costs based on retrospective work performance Profits/losses resulting from the reduction of the plan or fulfilling of the obligation total, included in personnel expenses (expenses +/income -) Realized income from the assets included in the plan (expenses +/income -) changes in net liabilities recognized in balance sheet net liabilities at Jan. 1 net amount of income/expenses entered in income statement net liabilities at Dec. 31 (liability +/receivable -) Key actuarial assumptions Discount interest, % - finland expected yield from the assets, % - finland Yearly salary increase assumption, % - finland inflation assumption, % - finland Personnel turnover assumption, % - finland 406 -394 12 161 0 173 353 -364 -11 232 39 260 173 0 173 260 0 260 4 14 -15 -20 -39 -31 -87 1 15 17 -15 -15 -52 -25 -75 -16 260 -87 173 335 -75 260 4.9 4.0 2.5 2.0 1.0 4.5 4.5 2.5 2.0 1.0 30 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 31 aDVaNce PaYmeNTS receIVeD, TraDe aND oTHer PaYaBLeS advance payments received eUR 3 475 thousand (eUR 7 590 thousand) comprise of advances received from projects in progress. Short-term liabilities in balance sheet - trade payables - accrued expenses and prepaid income - Derivative liabilities - other liabilities ToTaL Substantial items included in accrued expenses and prepaid income - Periodizing of project costs - Periodizing of personnel costs - other accrued expenses and prepaid income ToTaL 2 863 5 003 34 636 8 536 2 495 6 912 0 1 074 10 481 225 3 788 991 5 003 1 003 3 821 2 087 6 912 32 reLaTeD ParTY TraNSacTIoNS Raute Group's related parties consist of associated companies, Board members, President and ceo, Presidents of the subsidiaries and Raute corporation's sickness fund. Group companies Raute corporation, lahti, finland (Parent company) Raute canada ltd., new Westminster, B.c., canada Raute inc., Delaware, Usa Raute Us, inc., Rossville, tennessee, Usa RWs-engineering oy, lahti, finland Raute Group asia Pte ltd., singapore Raute WPm oy, lahti, finland Raute chile ltda., chile mecano Group oy, Kajaani, finland: merged with the Parent company Dec. 31, 2008 Raute service llc, st. Petersburg, Russia Raute (shanghai) machinery co., ltd, shanghai, china Raute (shanghai) trading co., ltd, shanghai, china Group's Parent company's ownership ownership interest and interest and voting power, % voting power, % 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 0 100 100 eUR 1 000 Group management's employee benefits salaries and other short-term employee benefits ToTaL Salaries and remunerations of the management of the Parent company President and ceo Kiiski, tapani, President and ceo members of the Board of Directors Rytilahti, Jarmo, chairman of the Board mustakallio, sinikka, Vice-chairman of the Board Helander, ilpo, member of the Board as of april 2, 2008 mustakallio, mika, member of the Board mustakallio, Panu, member of the Board Wiitakorpi, Jorma, member of the Board Paasikivi, Pekka, member of the Board until april 2, 2008 ToTaL 2008 2007 971 971 913 913 256 224 39 20 15 20 20 17 5 389 36 18 0 18 18 18 18 350 31 FINaNcIaL STaTemeNTS 2008 / GroUP the contracts of the management do not include any special conditions concerning retirement or the amount of retirement allowance. the company's Board of Directors, President and ceo and Presidents of the subsidiaries owned a total of 90 838 series a shares and 98 990 series K shares. management's ownership corresponds to 4.7 percent of the shares in the company and 9.1 percent of associated total voting rights. the figures include the holdings of their own, minor children and control entities. no loans are granted to the management. on December 31, 2008, the Parent company Raute corporation had loan receivables from its subsidiary Raute canada ltd. in amount of caD 5 415 thousand (caD 4 735 thousand). Raute corporation had eUR 110 thousand (eUR 110 thousand) liabilities to Raute corporation's sickness fund. no other pledges or other contigent liabilities have been given on behalf of the related parties of the company. Sickness Fund Raute Group's personnel has a voluntary insurance fund, which pays its members additional benefits on top of compensations paid according to the sickness insurance act. Raute's sickness fund covers personnel in Raute corporation and its domestic subsidiaries as well as personnel in the former subsidiary lahti Precision oy. Raute's sickness fund has deposited its assets in Raute corporation. the amount of deposits was eUR 110 thousand at Dec. 31 (eUR 110 thousand) and 4.0% (2.4%) of interest was paid to it. eUR 1 000 2008 2007 33 oTHer LeaSeS aND oPeraTING LeaSe LIaBILITIeS Group as lessee minimum rents paid on the basis of other non-cancellable leases: - Within 1 year - after the period of more than 1 and less than 5 years ToTaL the Group has rented in a part of office and production premises. the rental agreements are made for the time being or for the fixed-term. the agreements made for a fixed-term include an option to extend the rental period after the date of initial expiration. minimum direct leasing rents paid on the basis of non-cancellable direct leasing contracts are: - Under 1 year - 1­5 years ToTaL Group as lessor the Group has rented out the office and plant facilities that it does not need. the facilities have been classified as tangible fixed assets in the financial statements. Rent income has been recognized in other operating income in the financial statements and totaled eUR 21 thousand (eUR 77 thousand) in 2008. 273 464 737 127 370 497 12 2 14 60 60 120 34 cUrreNcY DerIVaTIVeS currency derivatives are used for hedging purposes. Nominal values of forward contracts in foreign currency economic hedging - Related to financing - Related to hedging of net sales Fair values of forward contracts in foreign currency economic hedging - Related to financing - Related to hedging of net sales 3 186 532 3 277 2 481 170 -8 -30 360 32 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 35 PLeDGeD aSSeTS aND coNTINGeNT LIaBILITIeS Pledged assets Debts and other contingent liabilities have been secured by mortgages - Real estate mortgages (Raute corporation's sickness fund) - Business mortgages (credit regulation agreements) contingent liabilities and other liabilities security for Parent company and subsidiaries - Bank guarantees other own liabilities leasing and rent liabilities - for the current accounting period - for subsequent accounting periods 134 10 000 134 10 000 8 928 17 584 285 466 187 430 no pledges have been given or other commitments made on behalf of the company's management or shareholders. no loans are granted to the company's management and shareholders. 36 maNaGemeNT oF FINaNcING rISKS the most significant financing risks that Raute Group is exposed to are liquidity, currency, and credit and counterparty risks. the Group may also be exposed to price and interest rate risks. the Group has a risk management policy approved by the Board of Directors. the Parent company's financing unit is responsible for practical risk management concerning financial risks. it identifies, assesses, and hedges financing risks in cooperation with operating units. the Group's written financing policy is based on the principle of cost-effective hedging against risks that have a negative effect on the Group's performance or cash flow. the financing policy defines the limiting values that guide operations, the adopted financial and hedging instruments, and the acceptable counterparties. Financial assets the items included in the Group's financial assets have been described by balance sheet item in note number 37. financial assets include the percentage of completion receivables of the balance sheet that have arisen from work performed related to binding sales contracts, and are a balance sheet item comparable to accounts receivables. Liquidity risks the minimum amounts of cash, current investments, and available credit liabilities have been defined to ensure the Group's liquidity. in the long term, risks related to the availability and pricing of funding are managed by using a variety of sources for financing. investments are required to exhibit good creditworthiness and sufficient liquidity. the Parent company has a eUR 10 million (meUR 10) domestic commercial paper program, which allows it to issue commercial papers maturing in less than one year. the company also has bilateral non-current credit regulation agreements worth eUR 17 million (meUR 15), of which eUR 14 million (meUR 15) could be used as credit limits on December 31, 2008. the main condition of the covenants included in the credit regulation agreements is to maintain the Group's equity ratio at more than 30 percent. During the financial year and the comparison year, the Group met the conditions of the covenants. the Group's financial liabilities consist of trade payables, derivative payables and interest-bearing debts. trade payables are due in less than a month on average. the interest-bearing debts are eUR 10 million tyel (employees Pensions act) loans and eUR 0.5 million loans from the finnish funding agency for technology (tekes). the tyel loans have a fixed annual interest rate of 2.95 percent. the repayment period of the loans is five years, with two equal installments each year starting from may 2009. the collaterals given for the loans are a credit guarantee granted by a credit insurance company without a counter guarantee requirement, or a bank guarantee. the repayment of the tekes loan is scheduled for 2009­ 2013, and the interest rate is 1.0 percent. foreign subsidiaries have no financial loans from outside the Group. currency risks the currency distribution varies yearly. in 2008, 50.1 percent (69.4%) of net sales was generated outside the euro zone. the main currency which is used in customer deliveries and in transactions between the Group companies is euro. other important currencies are the Us (UsD) dollar, 33 FINaNcIaL STaTemeNTS 2008 / GroUP the canadian (caD) dollar, the Russian rouble (RUB), and the chinese yuan (cnY). the Group hedges itself against currency exchange risks related to business payments by using each Group company's functional currency as the primary trading currency. as stated in the Group's financing policy, operating units hedge single currency items of over eUR 100,000 based on binding sales contracts and procurement contracts with the Group's financing unit when the contracts take effect. mainly forward contracts are used in external hedging related to the currency risk of sales contracts. the Group's unhedged currency flow and forward contracts are mainly used for hedging against currency risks related to procurement contracts. at the reporting and comparison date, there was no hedge accounting. the forward contract receivables and liabilities related to business payments and denominated in foreign currency, to which hedge accounting is not applied, arise the currency risk to the Group at reporting date. this currency risk is recognized in profit or loss when the value of the forward contracts exceeds the income recognition of the respective binding sales contracts. the measurement of the forward contracts and the percentage of completion receivables improved the company's net sales by eUR 10 thousand (eUR 300 thousand). 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 options. the Group's internal loans, other than equity loans, are hedged with forward contracts. forward contracts related to the economic hedging of the Group's internal financing in canadian dollars had a nominal value of eUR 3.3 million (meUR 3.2) at the end of the financial year. the coverage of currency risk hedging is verified quarterly by reviewing the Group's net currency position in the main currency pairs UsD/eUR, caD/eUR, UsD/ caD, cnY/eUR and RUB/eUR. currency flows related to binding contracts, and derivate contracts used for their hedging, are taken into account in the position from the reporting date onwards regardless of which year's profit or loss, or equity, the currency risk will effect. for the currency pair UsD/eUR, the net currency position at the reporting date was eUR -225 thousand (eUR -97 thousand), for the currency pair caD/eUR, eUR 231 thousand (eUR 11 thousand), for the currency pair UsD/caD, eUR 321 thousand (eUR 532 thousand), for the currency pair cnY/eUR, eUR 66 thousand (eUR 297 thousand), and for the currency pair RUB/eUR, eUR -681 thousand (eUR -1 005 thousand). for the currency pair UsD/eUR, the Group's net currency position in the assets at the reporting date was eUR 243 thousand (eUR 38 thousand), for the currency pair caD/eUR, eUR -119 thousand (eUR 76 thousand), for the currency pair UsD/caD, eUR 599 thousand (eUR 753 thousand), for the currency pair cnY/eUR, eUR 66 thousand (eUR 297 thousand), and for the currency pair RUB/eUR, eUR -681 thousand (eUR -1 005 thousand). the following table includes a sensitivity analysis on transaction risk, i.e. the effect of reasonable potential changes in the exchange rates on the Group's profit or loss before tax, and equity in the main currency pairs. accounts receivables and percentage of completion receivables, trade payables, internal loans, and derivative contracts have been taken into account when estimating the effect of the changes in the exchange rate. Sensitivity analysis of the transaction risk eUr 1 000 increase/decrease in caD/eUR, % effect on profit before tax increase/decrease in UsD/eUR, % effect on profit before tax increase/decrease in cnY/eUR, % effect on profit before tax increase/decrease in RUB/eUR, % effect on profit before tax 2008 +/- 20 -/+ 24 +/- 20 +/- 49 +/- 20 +/- 13 +/- 20 -/+ 136 2007 +/- 20 +/- 15 +/- 20 +/- 8 +/- 20 +/- 59 +/- 20 -/+ 201 34 FINaNcIaL STaTemeNTS 2008 / GroUP the Group has foreign subsidiaries and is exposed to translation risks. net investments and corresponding items in subsidiaries have not been hedged. the share capital of Group companies outside the euro zone was eUR 617 thousand (eUR 755 thousand) at the end of the financial year. net investments or corresponding items were eUR 2.0 million (meUR 1.9) in Us dollars, eUR -5.9 million (meUR -6.2) in canadian dollars and eUR 0.8 million (meUR 0.9) in chinese yuans. exchange rate differences for net investments, eUR 22 thousand (eUR 264 thousand), are recognized in equity. a loan, eUR 1.0 million, granted by the Parent company to a foreign subsidiary was turned into a capital loan during the financial year. at the reporting date, the Parent company estimated that the value of the loan had decreased, and an impairment loss of eUR 1.0 million was recognized in the Parent company's financial statements. the following table includes a sensitivity analysis on translation risks related to the possible changes in the exchange rate of Us and canadian dollars, Russian rouble, chinese yuan and euro and the effect of the changes on the Group's equity. the effects of +20/-20 percent changes in exchange rates on the fair values of foreign net investments have been taken into account in the sensitivity analysis. Sensitivity analysis on translation risk eUr 1 000 increase/decrease in caD/eUR, % effect on profit before tax effect on equity increase/decrease in UsD/eUR, % effect on profit before tax effect on equity increase/decrease in cnY/eUR, % effect on profit before tax effect on equity increase/decrease in RUB/eUR, % effect on profit before tax effect on equity 2008 +/- 20 +/- 201 +/- 815 +/- 20 -/+ 7 +/- 33 +/- 20 +/- 28 -/+ 168 +/- 20 -/+ 22 +/- 0 2007 +/- 20 +/- 8 +/- 742 +/- 20 +/- 6 +/- 32 +/- 20 -/+ 85 -/+ 171 +/- 20 +/- 0 +/- 17 credit and counterparty risks the most significant credit and counterparty risks are related to the counterparties of project business and financial investment activities. credit risks related to accounts receivables of project deliveries are managed by requesting bank guarantees or confirmed letters of credit for customer payments, and by accelerated payment terms with long-term customers approved by the Board of Directors. technology service related credit risks are managed by regularly following customer-specific payment behavior and credit limits at the time of order confirmation. securities. Received bank guarantees and letters of credit covered 32.8 percent (44.4%) of the accounts receivables and the percentage of completion receivables recorded in the balance sheet, and 22.8 percent (9.3%) of the order book at the end of the financial year. the age analysis of accounts receivables, and invoiced advance payments of binding sales contracts which are recorded in the percentage of completion receivables in the financial assets, is shown in the following table. the advance payments in the table are not included in the assets of the balance sheet at the balance sheet date. according to the management's best estimate, there were no overdue accounts receivables resulting from counterparties' permanent insolvency. a total of eUR 0.1 million (meUR 0) was recognized as credit losses during the financial year. the financial crisis, which expanded to global proportions towards the end of 2008, and the uncertainty in the development of the global economy affect the company's counterparty risk. the maximum counterparty risk relating to customers' solvency is the amount of receivables relating to binding sales contracts that are not covered by bank guarantees, letters of credit, or other 35 FINaNcIaL STaTemeNTS 2008 / GroUP accounts receivables eUR 1 000 Dec. 31, 2008 Dec. 31, 2007 age analysis of receivables eUR 1 000 Dec. 31, 2008 Dec. 31, 2007 accounts receivables 4 743 4 449 neither past due nor impaired 5 619 9 088 advances invoiced 4 746 6 048 total 9 489 10 497 < 30 days 543 1 205 30­60 days 564 125 > 60 days 2 763 79 investments and derivative agreements are only made with counterparties that meet the credit rating criteria defined in the financing policy. When making investments, or derivative and loan agreements, the Group applies counterparty-specific upper limits to avoid risk concentrations. at the balance sheet date, investments related to the Group's cash management were made to finnish and swedish banks. the liquid assets in financial institutions outside the euro zone were eUR 0.6 million (meUR 0.9). at the end of the financial year, the maximum amount of credit risk is the book value of financial assets eUR 21.1 million (meUR 11.3) at December 31, 2008. Price risk at the balance sheet date, there were no derivatives hedging price risk that would affect the profit or loss in the consolidated financial statements. no significant investments held for sale, the change of which in fair value price would essentially affect the Group's profit or loss, and equity. Interest risks Due to the strong financing position, the Group's interest risks are minor. the interest risk related to financial liabilities arises from the interest differences between derivative contract currencies, and from loans. at the balance sheet date, shortand long-term interest-bearing liabilities totaling eUR 10 456 thousand (eUR 490 thousand) had fixed interest rates. in a normal financial market situation, the Group's cash and cash equivalents are invested in interest-bearing investments in funds and deposits whose profit levels include an interest risk. at the balance sheet date, the financial assets included no interest risk. a total of eUR 19.9 million (meUR 7.4) was invested in market money deposits with fixed interest rate. capital structure management the objective of the Group's capital structure manage- the raw materials used by the Group are reprocessed steel products, other raw materials, components, and commodities; it is not possible to actively hedge against their market price risk with derivatives, and their price risk is a part of the business risk. the price risk of steel is managed by regularly analyzing and following the price fluctuation. the price risk of components is reduced by making blanket agreements with suppliers. the Group's production processes use electric power. the price risk of electric power is followed and managed through fixed-price contracts. the price risk of financial instruments is analyzed as part of fair value risk. at the balance sheet date, there were ment is an effective capital structure that secures the Group's operational preconditions on the capital market. soliditet finland ranked the Group's Parent company in the highest aaa ranking category throughout 2008. the Group's capital structure is followed by equity ratio, which has a strategic target value. During the financial year 2008 the target value of equity ratio was over 40 percent. equity ratio on December 31, 2008 was 60.5 percent (70.3%). 36 FINaNcIaL STaTemeNTS 2008 / GroUP 37 oTHer FINaNcIaL INSTrUmeNT DaTa the following table shows a comparision by category of carrying amounts and fair values, that are carried in the balance sheet. carrying carrying amount amount fair value fair value Dec. 31, 2008 Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2007 eUR 1 000 Financial assets financial assets at fair value through profit or loss Held for trading loans and other receivables trade and other receivables cash and cash equivalents available-for-sale financial assets ToTaL Financial liabilities financial liabilities at fair value through profit or loss Held for trading financial liabilities recognized at amortized cost Bank and other loans trade and other payables ToTaL aggregated by measurement category financial assets held for trading loans and receivables available-for-sale financial assets financial liabilities recognized at amortized cost note 22 21, 23 23 0 36 454 1 216 499 38 169 0 36 454 1 216 499 38 169 2 144 30 350 1 740 449 34 683 2 144 30 350 1 740 449 34 683 28-29 31 10 457 8 536 18 993 10 457 8 536 18 993 63 3 047 3 110 63 3 047 3 110 0 36 454 1 715 18 993 0 36 454 1 715 18 993 2 144 30 350 2 189 3 110 2 144 30 350 2 189 3 110 2008 2007 38 eXcHaNGe raTeS USeD IN coNSoLIDaTIoN oF THe SUBSIDIarIeS Income statement UsD caD sGD clP RUB cnY Balance sheet UsD caD sGD clP RUB cnY eUR 1.4706 1.5593 2.0761 761.6427 36.4231 10.2247 eUR 1.3917 1.6998 2.0040 870.6680 41.2830 9.2205 eUR 1.3706 1.4689 2.0636 714.9118 35.0199 10.4186 eUR 1.4721 1.4449 2.1163 727.6318 35.986 10.7404 37 FINaNcIaL STaTemeNTS 2008 / GroUP eUR 1 000 2008 2007 39 aDJUSTmeNTS To oPeraTING caSH FLoW non-cash transactions in operating activities: Depreciation and amortization employee benefits impairments exchange rate differences Profit or loss from change in fair value of financial assets through profit or loss ToTaL -2 751 -24 0 -83 -15 -2 873 -2 654 -120 477 -201 201 -2 298 40 eVeNTS aFTer THe BaLaNce SHeeT DaTe at the end of January 2009, negotiations in accordance with the act on co-operation within Undertakings were started in the Group's finnish units on additional adaptation measures relating to personnel and other arrangements to adapt operations to the continued weak market situation. the structural changes that the company has implemented in recent years to increase its ability to adapt to the normal fluctuations in demand typical of project business are not sufficient enough to enable the adaptation of the operations to the present exceptional market situation. the Board of Directors of Raute corporation has decided to utilize the authorization it was given by the annual General meeting of shareholders on april 2, 2008 to acquire the company's own series a shares. the shares are acquired to be used as part of the incentive plans for key personnel. the purchase of the shares will begin at earliest on february 19, 2009 and will end at latest on april 2, 2009. 38 financial statements 2008 / parent company Parent comPany's income statement, Fas eUr 1 000 note 2, 3 net sales increase (+) or decrease (-) in inventories of finished goods and work in progress other operating income materials and services Personnel expenses Depreciation, amortization and impairment charges other operating expenses total operating expenses operatinG profit financial income and expenses income from investments in other non-current assets interest and other financial income impairments from investments in non-current assets intrerest and other financial expenses total financial income and expenses profit Before eXtraorDinary items 11 extraordinary items profit Before appropriations anD taXes 12 13 appropriations income taxes profit for tHe financial year 1.1.­31.12.2008 1.1.­31.12.2007 87 713 92 977 4 5 6 8, 14 9 383 571 49 984 20 679 1 949 9 546 82 158 6 509 104 755 56 063 20 061 1 832 8 126 86 082 7 755 10 10 10 10 133 1 268 0 -1 659 -259 6 250 0 6 250 355 -2 120 4 485 114 700 0 -238 576 8 331 885 9 216 709 -2 541 7 385 39 financial statements 2008 / parent company Parent comPany's balance sheet, Fas eUr 1 000 note assets non-current assets intangible assets tangible assets investments non-current assets total current assets inventories long-term receivables short-term receivables investments held as current assets cash and cash equivalents current assets total total assets liaBilities shareholders' equity share capital share premium retained earnings Profit for the financial year shareholders' equity total appropriation reserve provisions liabilities long-term liabilities short-term liablities liabilities total total liaBilities 31.12.2008 31.12.2007 14 14 15 1 572 8 736 4 504 14 812 1 851 8 321 5 903 16 075 3,16 17 17 18 3 345 0 19 470 0 20 507 43 323 58 135 2 853 0 24 098 2 144 8 214 37 308 53 383 19 19 19 19 8 010 6 498 14 227 4 485 33 220 418 2 417 8 010 6 498 10 847 7 385 32 739 765 1 067 20 21 22 22 8 231 13 849 22 080 58 135 277 18 534 18 811 53 383 40 financial statements 2008 / parent company Parent comPany's cash Flow statement, Fas eUr 1 000 casH floW from operatinG actiVities Proceeds from sales Proceeds from other operating income Payments of operating expenses cash flow before financial items and taxes interests and other operating financial expenses paid interests and other income received Dividends received income taxes paid cash flow before extraordinary items net casH from (+) / UseD in (-) operatinG actiVities (a) casH floW from inVestinG actiVities Purchases in tangible and intangible assets Purchases of available-for-sale investments acquisition of subsidiary shares Proceeds from disposal of tangible and intangible assets repayments of loan receivables net casH from (+) / UseD in (-) inVestinG actiVities (B) casH floW from financinG actiVities increase of short-term liabilities repayments of short-term liabilities increase of long-term liabilities repayments of long-term liabilities Dividends paid Group contributions, paid and received net casH from (+) / UseD in (-) financinG actiVities (c) net cHanGe in casH anD casH eQUiValents (a+B+c) increase (+) / decrease (-) casH anD casH eQUiValents at tHe BeGinninG of tHe year casH anD casH eQUiValents at tHe enD of tHe year 355 -560 10 069 0 -4 005 885 6 744 10 149 0 -1 576 0 -163 -2 803 300 -4 243 -13 367 -1 688 -50 0 30 27 -1 681 -1 230 -74 -343 1 310 0 -337 90 078 541 -82 660 7 959 -250 801 133 -3 557 5 086 5 086 79 095 409 -87 224 -7 719 -347 743 114 -1 579 -8 788 -8 788 1.1.­31.12.2008 1.1.­31.12.2007 10 358 20 507 23 725 10 358 41 financial statements 2008 / parent company notes to the Parent comPany's Financial statements 1 accoUntinG principles the accounting principles of the Parent company's financial statements are presented only for those parts that differ from the accounting principles of the consolidated financial statements. the Parent company's financial statements have been prepared in accordance with the Finnish accountancy act (Fas). Gains and losses on decommissioning and disposal of property, plant and equipment are presented in other operating income or expenses. research and development costs research and development costs are recognized as expenses in the income statement in the year in which they are incurred. pensions statutory pension coverage of the Parent company has been arranged through an external pension insurance company. Pension expenses are recorded as expenses in the year in which they are incurred. foreign currency items other than euro denominated transactions are recognized at the exchange rate effective on the transaction date. receivables and liabilities denominated in other currencies are translated into euro at the average rate of the balance sheet date, except for hedged items that are valued at the agreed contract rate. advances paid and received are entered in the balance sheet at the exchange rate effective on the payment date. the exchange rate gains resulting from the extension of protection contracts related to sales receivables will be capitalized into accrued expenses or receivables. other exchange rate gains and losses are handled according to their impact on profit. extraordinary items extraordinary items include significant and exceptional income and expenses that are not a part of the usual business operations. Group contributions received and paid are also recognized as extraordinary items. income taxes income taxes recognized in the income statement include direct taxes for the period and tax adjustments for previous periods. current tax is calculated on taxable income using the tax rate that is in force. Deferred tax assets and liabilities have not been recognized in the balance sheet for other than revaluations. the deferred tax liability included in the depreciation difference is presented in the notes item appropriation reserve. fixed assets intangible and tangible assets are stated at cost less accumulated depreciation, with the exception for some property items and shares revaluated. only variable costs arising from the acquisition and production of a product are included in the carrying amount. Depreciations of tangible and intangible assets are recorded with the straight-line method over the expected economic lives of the assets as follows: Goodwill other intangible assets buildings and structures machinery and equipment other fixed assets 5 years 3­10 years 25­40 years 4­12 years 3­10 years. changes in subsidiary ownership raute corporation's subsidiary mecano Group oy was merged with the Parent company on December 31, 2008. a merger loss of eUr 150 thousand was recorded due to the merger as the difference between the book value of the subsidiary's shares and the equity of the subsidiary at the date of the merger. the merger loss is presented under other operating expenses in the receiving Parent company's income statement. eUr 1 000 2008 % 2007 % 2 net sales By marKet area Finland rest of europe russia south america north america asia 14 182 31 133 33 441 4 123 2 573 1 195 16 35 38 5 3 1 13 367 19 772 38 456 11 226 7 550 701 14 21 41 12 8 1 42 financial statements 2008 / parent company eUr 1 000 oceania others total 2008 786 280 87 713 % 1 0 100 2007 963 942 92 977 % 1 1 100 eUr 1 000 2008 2007 3 reVenUe recoGnition metHoD BaseD on percentaGe of completion net sales by percentage of completion other net sales total Project revenues entered as income from currently undelivered long-term projects recognized by percentage of completion amount of long-term project revenues not yet entered as income (order book of long-term projects) specification of combined asset and liability items advances paid advance payments recognized by percentage of completion advance payments included in inventories accrued income corresponding to revenues by percentage of completion advances received from project customers Balance sheet project receivables included in non-current receivables 76 765 10 948 87 713 82 218 10 759 92 977 83 687 105 898 22 778 52 718 427 0 427 83 788 -72 385 11 403 811 0 811 108 301 -91 245 17 056 4 otHer operatinG income capital gain on sale of fixed assets other total materials anD serVices materials and supplies during the period - Purchases - change in inventories external services total personnel eXpenses wages and salaries Pension costs other statutory personnel contributions total salaries and remunerations of the management Kiiski, tapani, President and ceo members of the Board rytilahti, Jarmo, chairman of the board mustakallio, sinikka, Vice-chairman of the board helander, ilpo, member of the board as of april 2, 2008 mustakallio, mika, member of the board mustakallio, Panu, member of the board wiitakorpi, Jorma, member of the board Paasikivi, Pekka, member of the board until april 2, 2008 total 30 541 571 346 409 755 5 45 118 -205 5 071 49 984 50 318 1 5 743 56 063 6 17 026 2 710 943 20 679 16 279 2 598 1 184 20 061 256 224 39 20 15 20 20 17 5 389 36 18 0 18 18 18 18 350 43 financial statements 2008 / parent company eUr 1 000 2008 2007 7 personnel employed at Dec. 31, persons workers office staff total - of which personnel working abroad average, persons workers office staff total - of which personnel working abroad 155 278 433 6 156 242 398 3 157 249 406 6 157 245 402 3 8 Depreciation, amortiZation anD impairment cHarGes Depreciation and amortization from tangible and intangible assets total 1 949 1 949 1 832 1 832 9 otHer operatinG eXpenses indirect production costs losses on Group companies' trade receivables sales and marketing costs administration costs other costs total auditor's remunerations annual audit, statutory other audit related services under audit law tax services other services total 1 348 754 2 638 1 729 3 077 9 546 1 285 0 2 142 1 704 2 995 8 126 39 0 57 5 100 31 2 8 10 51 10 financial income anD eXpenses income from investments in other non-current assets Dividends total other interest and financial income From Group companies Dividends and yield on investment funds from others other interest and financial income from others total impairments from investments in non-current assets Group companies interest and other financial expenses Group companies other than associates or Group companies total total financial income and expenses exchange rate gains (+) / losses (-) included in total financial items 133 133 114 114 141 85 1 141 1 368 166 201 333 700 968 0 22 770 791 33 205 238 -259 25 576 -51 11 eXtraorDinary items extraordinary income contributions from Group companies total 0 0 885 885 44 financial statements 2008 / parent company eUr 1 000 2008 2007 12 appropriations Difference in planned and taxed depreciations total 355 355 709 709 13 income taXes From operations, current financial year tax impact of extraordinary items From operations, previous financial years total -1 963 0 -157 -2 120 -2 251 -230 -59 -2 541 14 non-cUrrent assets eUr 1 000 intangible assets carrying amount at Jan. 1, 2008 additions Disposals intangible assets transferred in merger transfers between items carrying amount at Dec. 31, 2008 accumulated depreciation at Jan. 1, 2008 Depreciation for the financial year accumulated depreciation at Dec. 31, 2008 Book value at Dec. 31, 2008 Book value at Dec. 31, 2007 capitalized product development costs intangible rights other intangible assets total 5 468 237 0 121 33 5 859 -3 617 -671 -4 287 1 572 1 851 565 0 0 115 0 679 -20 -163 -183 496 545 983 64 0 0 0 1 047 -553 -123 -676 371 431 3 920 173 0 7 33 4 133 -3 044 -384 -3 428 705 876 eUr 1 000 tangible assets carrying amount at Jan. 1, 2008 additions Disposals tangible assets transferred in merger transfers between items carrying amount at Dec. 31, 2008 land and water buildings and structures machinery and equipment other tangible assets assets in progress and advance payments total 27 450 1 776 -3 78 -157 29 144 -19 129 -1 278 -20 407 8 736 8 321 301 0 0 0 0 301 0 0 301 301 8 879 63 -3 0 75 9 014 -4 477 -276 -4 753 4 261 4 402 17 859 602 0 78 830 19 368 -14 344 -998 -15 342 4 027 3 515 336 0 0 0 0 336 -308 -4 -313 23 28 75 1 111 0 0 -1 062 124 accumulated depreciation at Jan. 1, 2008 Depreciation for the financial year accumulated depreciation at Dec. 31, 2008 Book value at Dec. 31, 2008 Book value at Dec. 31, 2007 0 124 75 Book value for production machinery Dec. 31, 2008 Dec. 31, 2007 3 312 2 998 45 financial statements 2008 / parent company 15 non-cUrrent inVestments eUr 1 000 carrying amount at Jan. 1, 2008 exchange rate differences additions Disposals carrying amount at Dec. 31, 2008 revaluation at Jan. 1, 2008 additions revaluation at Dec. 31, 2008 Book value at Dec. 31, 2008 Book value at Dec. 31, 2007 sHares Group companies others receiVaBles Group companies total 8 318 0 0 -1 331 6 987 -6 166 0 -6 166 821 2 152 447 0 50 0 497 0 0 0 497 447 7 885 -256 1 132 -27 8 734 -4 581 -968 -5 549 3 186 3 304 16 650 -256 1 182 -1 358 16 218 -10 747 -968 -11 715 4 504 5 903 shares owned by the company are presented in the notes to the financial statemets number 24. eUr 1 000 2008 2007 16 inVentories materials and supplies work in progress Finished products / goods other inventories advance payments total 1 774 909 234 0 427 3 345 1 396 534 112 0 811 2 853 17 specification of receiVaBles long-term receivables long-term receivables from Group companies - loan receivables total from Group companies total short-term receivables short-term receivables from Group companies - accounts receivables - accrued income and prepaid expenses total from Group companies short-term receivables from others - accounts receivables - accrued income and prepaid expenses - other receivables total from others total substantial items included in accrued income and prepaid expenses - contribution receivables from Group companies - Project receivables entered according to percentage of completion - other accrued income total 3 186 3 186 3 186 0 0 0 1 165 24 1 213 1 911 1 103 3 013 3 778 12 852 1 650 18 281 19 494 3 262 17 193 630 21 085 24 098 0 11 403 1 449 12 852 885 17 056 355 18 295 46 financial statements 2008 / parent company eUr 1 000 2008 2007 18 inVestments HelD as cUrrent assets replacement cost book value Difference Financial assets are fund units held for trading. 0 0 0 2 144 2 043 101 19 sHareHolDers' eQUity share capital at Jan. 1 share capital at Dec. 31 premium fund at Jan. 1 premium fund at Dec. 31 retained earnings at Jan. 1 changes during the financial year - loss / profit from the previous year - Dividends - reductions in revaluations retained earnings at Dec. 31 profit / loss for the financial year sHareHolDers' eQUity at Dec. 31 Distributable funds retained earnings at Dec. 31 Profit / loss for the financial year Distributable funds at Dec. 31 shares of parent company shares, 1 000 pcs nominal value, eUr total nominal value, 1 000 eUr serie K shares (ordinary shares, 20 votes/share), 1 000 pcs serie a shares (1 vote/share), 1 000 pcs 8 010 8 010 6 498 6 498 10 847 7 385 -4 005 0 14 227 4 485 33 220 8 010 8 010 6 498 6 498 14 861 -854 -2 803 -357 10 847 7 385 32 740 14 227 4 485 18 712 10 847 7 385 18 232 4 005 2.00 8 010 991 3 014 4 005 2.00 8 010 991 3 014 20 appropriation reserVe the appropriation reserve consists of accumulated depreciation difference of eUr 418 thousand (eUr 933 thousand), including deferred tax liabilities of eUr 109 thousand (eUr 243 thousand). 21 proVisions estimated warranty accruals at Jan. 1 amendment during the financial year estimated warranty accruals at Dec. 31 provision for loss/overheads from long-term projects in order book at Jan. 1 amendment during the financial year provision for loss/overheads from long-term projects in order book at Dec. 31 total 890 1 098 1 988 782 108 890 177 251 428 2 416 666 -489 177 1 067 47 financial statements 2008 / parent company eUr 1 000 2008 2007 22 specification of liaBilities long-term liabilities long-term liabilities to others - Pension loans (tyel) - other loans total short-term liabilities short-term liabilities to Group companies - accounts payable - accrued expenses and prepaid income - other current liabilities total to Group companies short-term liabilities to others - Pension loans (tyel) - advances received - accounts payable - accrued expenses and prepaid income - other current liabilities total to others total interest-bearing debts - long-term - short-term total substantial items included in accrued expenses and prepaid income - accrued income taxes - accrued project expenses - accrued employee related expenses - other accrued expenses total 23 pleDGeD assets anD continGent liaBilities pledged assets Debts and other contingent liabilities have been secured by mortgages - real estate mortgages (raute corporation's sickness Fund) - business mortgages (credit Facilities) contingent liabilities and other liabilities on behalf of own and Group companies - Guarantees issued* leasing and rent liabilities - within one year - 1­5 years *the comparison year has been changed to correspond the presentation of the financial year 2008. 8 000 231 8 231 0 277 277 663 0 506 1 168 1 531 140 1 637 3 308 2 000 3 389 2 507 3 991 794 12 681 13 849 0 7 002 1 978 5 696 550 15 226 18 534 8 231 1 431 9 662 277 1 747 2 024 79 225 3 140 547 3 991 850 981 2 715 1 291 5 836 134 10 000 134 10 000 8 928 17 584 122 123 5 2 48 financial statements 2008 / parent company eUr 1 000 Forward contracts in foreign currency - nominal value of forward contracts, external - nominal value of forward contracts, internal - Fair value, external - Fair value, internal the nominal value is the value of underlying instruments converted into euros using the exchange rate of balance sheet date. the market value is the profit generated, if the derivatives position would have been closed to the market price on the balance sheet date. other own obligations letters of Guarantee engagements have been issued on behalf of certain subsidiaries. no other pledges or other contingent liabilities have been given on behalf of the management or shareholders. no loans are granted to the management and shareholders. 2008 2007 373 3 344 -4 166 1 914 3 845 360 -30 24 sHares oWneD By tHe company subsidiaries raute canada ltd., new westminster, b.c., canada raute inc., Delaware, Usa rws-engineering oy, lahti, Finland raute Group asia Pte ltd., singapore raute wPm oy, lahti, Finland raute chile ltda., chile mecano Group oy, Kajaani, Finland: merged with the Parent company Dec. 31, 2008 raute (shanghai) machinery co., ltd, shanghai, china raute (shanghai) trading co., ltd, shanghai, china Holding and voting right, % 100 100 100 100 100 50 Book value, eUr 1 000 84 17 203 0 9 15 100 100 number of shares 110 1 717 1 600 50 200 1 20 1 1 1 11 6 25 398 95 Book value, eUr 1 000 16 326 1 51 50 34 2 0 2 7 7 2 0 0 498 other shares PhP holding oy lahden seudun Puhelin oy Kainuun Puhelinosuuskunta electrosys oy Fimecc oy lahti science and business Park ltd lahti Fair ltd Finnish Fair cooperative lahden teollisuusseura ry messilä Golf oy (b) lahden Jäähalli oy Joutjärven Palloilu ja liikunta oy suomen Urheiluopiston Kannatus oy lahden työväentalo-osakeyhtiö total 49 financial statements 2008 Key ratios DescribinG the Financial DeVeloPment eUr 1 000 net sales change in net sales, % exported portion of net sales % of net sales operating profit / loss % of net sales 2008 98 466 -11.1 82 666 84.0 6 341 6.4 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 4 336 3.9 56 90 570 575 4 005 2006 106 206 -2.2 95 789 90.2 4 513 4.2 4 887 4.6 3 632 3.4 18.6 13.1 68 472 -23 539 -22.2 38 696 60.1 -80.3 1 852 1.7 3 993 3.8 77 132 540 547 2 803 2005 108 627 48.6 78 183 72.0 4 403 4.1 5 461 5.0 4 152 3.8 20.7 15.8 55 435 -10 861 -10.0 28 755 55.7 -41.5 3 798 3.5 4 257 3.9 55 132 533 537 2 289 2004 73 116 -25.1 65 136 89.1 3 647 5.0 3 906 5.3 4 762 6.5 25.2 19.9 46 188 -7 670 -10.5 19 289 56.8 -30.6 2 060 2.8 3 093 4.2 35 87 543 556 1 526 Profit / loss before income taxes, from continuing operations 6 880 % of net sales 7.0 Profit / loss attributable to equity holders of the Parent company 4 723 % of net sales 4.8 return on investment (roi), % return on equity (roe), % balance sheet total interest-bearing net liabilities % of net sales interest-free 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, average Dividend 19.4 14.0 60 180 -10 653 -10.8 15 402 60.5 -31.0 3 242 3.3 4 924 5.0 24 67 573 585 2 803** * comparison years 2004­2007 have been changed to correspond the presentation of the financial year 2008. **the board of Directors' proposal to the annual General meeting. 50 financial statements 2008 share-relateD Data 2008 earnings per share from continuing operations, eUr earnings per share from discontinued operations, eUr equity to share, eUr Dividend per share, eUr Dividend per profit, % effective dividend yield, % Price/earnings ratio (P/e ratio) Development in share price (series a shares) lowest, eUr highest, eUr average share price for the financial year, eUr share price at Dec. 31, eUr market value of capital stock at Dec. 31, eUr thousand** 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 issue-adjusted weighted average number of shares issue-adjusted number of shares at the end of the financial year 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 2006 0.94 7.32 0.70 74.5 5.5 13.68 2005 1.09 6.80 0.60 55.1 4.2 13.08 2004 0.71 0.54 6.47 0.40 32.0 5.2 6.16 6.24 15.20 12.37 6.40 25 630 12.40 15.45 13.85 14.35 57 468 11.60 17.60 14.03 12.85 51 461 7.60 16.42 11.24 14.24 54 320 7.10 8.90 8.14 7.70 29 372 393 13.0 4 004 758 4 004 758 981 32.5 4 004 758 4 004 758 1 088 36.1 3 866 561 4 004 758 1 530 54.2 3 814 608 3 814 608 569 20.1 3 814 608 3 814 608 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. 51 financial statements 2008 calcUlation oF Key ratios return on investment (roi), % = Profit before tax + financial expenses shareholders' equity + interest-bearing financial liabilities (average of the financial year) Profit/loss for the period shareholders' equity (average of the financial year) interest-bearing liabilities ./. (cash and cash equivalents + financial assets at fair value through profit or loss) shareholders' equity balance sheet total ./. advances received Profit for the financial year equity issue-adjusted average number of shares during the financial year Diluted profit for the financial year Diluted equity issue-adjusted average number of shares share of shareholders' equity belonging to the owners of the Parent company Undiluted number of shares at the day of the financial statements Distributed dividend for the financial year Undiluted number of shares at the day of the financial statements Dividend per share earnings per share Dividend per share closing share price at Dec. 31 closing share price at Dec. 31 earnings per share the trend in turnover of shares is given as the number of shares traded during the financial year and as the percentage of the average undiluted number of traded shares relative to issued share stock during the year. Undiluted number of shares at year end (series a + series K shares) x closing price of the share on the last day of the financial year interest-bearing net financial liabilities shareholders' equity x 100 x 100 x 100 x 100 return on equity (roe), % = x 100 interest-bearing net liabilities = equity ratio, % = earnings per share, undiluted, eUr = earnings per share, diluted, eUr = equity to share, eUr = Dividend per share, eUr = Dividend per profit, % = effective dividend return, % = x 100 Price/earnings ratio (P/e ratio) = trend in share turnover, in volume and percentage figures (series a shares) market value of capital stock = Gearing, % = 52 financial statements 2008 shares anD shareholDers Current information on Raute's shares and shareholders can be found on the company's website at www.raute.com. sHare capital at Dec. 31, 2008 shares series K shares (ordinary shares) series a shares total shares at Dec. 31, 2008 Voting rights 20 votes/share 1 vote/share nominal value eUr/share 2.00 2.00 2.00 number of shares 1 000 pcs 991 3 014 4 005 total nominal value eUr 1 000 1 982 6 027 8 010 changes in share capital from Jan. 1, 1994 to Dec. 31, 2008 share capital at Jan. 1, 1994 issue of share capital sept. 21, 1994 change of series K shares into series a shares 1998 Decrease of share capital (premium fund) June 30, 2000 increase of share capital, capitalization issue June 30, 2000 change of series K shares into series a shares 2003 change of series K shares into series a shares 2004 registration of shares with options Jan. 1. ­ Dec. 31, 2006 share capital at Dec. 31, 2008 number of number of share capital eUr series K shares series a shares 1 054 600 2 124 240 5 359 073 635 768 1 069 285 14 000 -14 000 -12 648 1 213 506 -44 539 44 539 -4 900 4 900 380 300 190 150 991 161 8 009 516 3 013 597 Board authorizations no decisions on share issues were made during the report period, nor were any convertible bonds or stock options issued. raute corporation's board of Directors has been authorized by the annual General meeting held on april 2, 2008 to decide on the repurchase of a maximum of 400,000 of the company's series a shares using the company's distributable assets. in addition, the annual General meeting authorized the board of Directors to decide on the directed issue of a maximum of 400,000 of the company's series a shares. the authorizations are effective until the next annual General meeting. the board of Directors has not exercised the authorization. shares and shareholders raute corporation's series a shares are listed on nasDaQ omX helsinki ltd. the trading code is rUtaV. raute corporation has signed a market making agreement with nordea bank Finland Plc in compliance with the liquidity Providing (lP) requirements issued by nasDaQ omX helsinki ltd. the number of shares at the end of the reporting year totaled 4,004,758, of which 991,161 were series K shares (ordinary share, 20 votes/share) and 3,013,597 series a shares (1 vote/share). 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 market value of capital stock at Dec. 31, eUr million 60 50 40 30 trading in series a shares eUr 1 000 1 000 1 000 pcs 50 800 40 600 30 400 20 20 200 10 10 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 0 2004 2005 2006 2007 2008 trading eUr 1 000 trading 1 000 pcs 12/08 0 0 53 financial statements 2008 new owner who does not previously hold series K shares, the 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. a total of 392,693 (981,095) shares were traded in 2008. the total value of trading was eUr 4.9 million (meUr 13.7). the highest share price was eUr 15.20 (eUr 15.45) and the lowest eUr 6.24 (eUr 12.40). at the end of the year, the share price was eUr 6.40 (eUr 14.35). the average price was eUr 12.37 (eUr 13.85). the company's market capitalization at the end of the report period was eUr 25.6 million (meUr 57.5), with series K shares valued at the closing price on December 31, 2008, of series a shares. the number of shareholders totaled 1,312 at the beginning of the year, and 1,528 at the end of the report period. series K shares were owned by 46 (46) private individuals. the management held 4.7 percent (4.7%) of company shares and 9.1 percent (9.1%) of votes. nominee-registered shares accounted for 2.4 percent (2.8%) of shares. the company did not during 2008 possess company shares or hold them as security. no flagging notifications were given to the company during 2008. in shares and partly in cash. Decisions on the rewards will be made in 2009. the cash portion is meant for the payment of taxes and tax-related costs. the shares are subject to a two-year transfer prohibition. Option scheme raute corporation has no valid option scheme. insider issues raute corporation follows the Guidelines for insiders issued by omX nordic exchange helsinki oy (now 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. raute corporation's chief Financial officer, ms. arja hakala, is in charge of insider issues in the company. 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 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 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 information on insiders subject to disclosure requirements is kept available to the public in the sire system maintained by euroclear Finland ltd. in addition, the public information on the insiders is also available on raute corporation's website at www.raute.com. incentive plans Share-based incentive plan on march 22, 2006, the board of Directors of raute corporation approved a share-based incentive plan for the strategy period 2006­2008. the potential reward from the plan will be based on the Group's operating profit for 2006­2008 and on the board of Directors' assessment of the success of the strategy. the incentive plan encompasses the Group's executive board, five members, and 12 other key employees. the rewards will be paid partly DistriBUtion of sHare oWnersHip By sHareHolDer cateGory at Dec. 31, 2008 series a and K shares number of by shareholder category shareholders households 1 399 Financial and insurance institutions 4 6 Foreign shareholders non-profit institutions 10 Public institutions 2 companies 104 3 nominee-registered total 1 528 % 91.6 0.3 0.4 0.7 0.1 6.8 0.2 100.0 number of shares 3 440 411 45 223 72 252 26 831 60 350 261 722 97 969 4 004 758 % 85.9 1.1 1.8 0.7 1.5 6.5 2.4 100.0 number of voting rights 22 272 470 45 223 72 252 26 831 60 350 261 722 97 969 22 836 817 % 97.5 0.2 0.3 0.1 0.3 1.1 0.4 100.0 DistriBUtion of series a sHare oWnersHip at Dec. 31, 2008 series a shares by sharenumber of holder category shareholders households 1 396 Financial and insurance institutions 4 % 91.5 0.3 number of shares 2 449 250 45 223 % 81.3 1.5 number of voting rights 2 449 250 45 223 % 81.3 1.5 54 financial statements 2008 series a shares by shareholder category Foreign shareholders non-profit institutions Public institutions companies nominee-registered total series a shares by number of shares 1­1 000 1 001­5 000 5 001­10 000 10 001­50 000 50 001­100 000 100 001­ total number of shareholders 6 10 2 104 3 1 525 number of shareholders 1 316 144 21 32 10 2 1 525 % 0.4 0.7 0.1 6.8 0.2 100.0 number of shares 72 252 26 831 60 350 261 722 97 969 3 013 597 number of shares 408 329 302 488 157 556 837 088 601 236 706 900 3 013 597 % 2.4 0.9 2.0 8.7 3.3 100.0 number of voting rights 72 252 26 831 60 350 261 722 97 969 3 013 597 number of voting rights 408 329 302 488 157 556 837 088 601 236 706 900 3 013 597 % 2.4 0.9 2.0 8.7 3.3 100.0 % 86.3 9.4 1.4 2.1 0.7 0.1 100,0 % 13.5 10.0 5.2 27.8 20.0 23.5 100.0 % 13.5 10.0 5.2 27.8 20.0 23.5 100.0 DistriBUtion of series K sHare oWnersHip at Dec. 31, 2008 series K shares by shareholder category households total number of shareholders 46 46 % 100.0 100.0 number of shares 991 161 991 161 % 100.0 100.0 number of voting rights 19 823 220 19 823 220 % 100.0 100.0 series K shares by number of shares 1­1 000 1 001­5 000 5 001­10 000 10 001­50 000 50 001­100 000 total number of shareholders 2 2 14 24 4 46 % 4.3 4.3 30.4 52.2 8.7 100.0 number of shares 400 7 429 92 653 668 799 221 880 991 161 % 0.0 0.8 9.3 67.5 22.4 100.0 number of voting rights 8 000 148 580 1 853 060 13 375 980 4 437 600 19 823 220 % 0.0 0.8 9.3 67.5 22.4 100.0 20 larGest sHareHolDers at Dec. 31, 2008 number of series K shares number of series a shares 525 000 181 900 74 759 60 009 64 052 64 159 62 316 53 539 51 116 22 009 42 670 35 862 30 862 63 042 20 662 26 200 43 256 43 256 6 994 27 964 1 499 627 total number of shares 525 000 181 900 122 759 120 489 114 332 112 159 110 316 104 179 84 716 82 489 82 420 78 102 78 102 63 042 62 902 56 200 55 256 55 256 54 414 52 924 2 196 957 % of total shares 13.1 4.5 3.1 3.0 2.9 2.8 2.8 2.6 2.1 2.1 2.1 2.0 2.0 1.6 1.6 1.4 1.4 1.4 1.4 1.3 54.9 total number of votes 525 000 181 900 1 034 759 1 269 609 1 069 652 1 024 159 1 022 316 1 066 339 723 116 1 231 609 837 670 880 662 975 662 63 042 865 462 626 200 283 256 283 256 955 394 527 164 15 446 227 % of voting rights 2.3 0.8 4.5 5.6 4.7 4.5 4.5 4.7 3.2 5.4 3.7 3.9 4.3 0.3 3.8 2.7 1.2 1.2 4.2 2.3 67.6 By number of shares 1 sundholm, Göran 2 hietala, Pekka tapani 3 suominen, Jussi matias 4 mustakallio, Kari Pauli 5 Kirmo, Kaisa marketta 6 suominen, Pekka matias 7 suominen, tiina sini-maria 8 siivonen, osku Pekka 9 Keskiaho, Kaija leena 10 särkijärvi, riitta 11 mustakallio, mika 12 mustakallio, risto 13 mustakallio, Ulla sinikka 14 sr arvo Finland Value 15 mustakallio, marja helena 16 Kirmo, lasse antti 17 särkijärvi, timo Juha 18 särkijärvi-martinez, anu riitta 19 mustakallio, Kai henrik 20 suominen, Jukka matias total 48 000 60 480 50 280 48 000 48 000 50 640 33 600 60 480 39 750 42 240 47 240 42 240 30 000 12 000 12 000 47 420 24 960 697 330 55 financial statements 2008 20 larGest sHareHolDers at Dec. 31, 2008 number of series K shares 60 480 60 480 50 280 50 640 48 000 48 000 48 000 47 240 47 420 42 240 42 240 39 750 33 600 30 000 24 960 12 000 12 000 number of series a shares 60 009 22 009 64 052 53 539 74 759 64 159 62 316 30 862 6 994 35 862 20 662 42 670 51 116 26 200 27 964 525 000 43 256 43 256 181 900 63 042 1 499 627 total number of shares 120 489 82 489 114 332 104 179 122 759 112 159 110 316 78 102 54 414 78 102 62 902 82 420 84 716 56 200 52 924 525 000 55 256 55 256 181 900 63 042 2 196 957 % of total shares 3.0 2.1 2.9 2.6 3.1 2.8 2.8 2.0 1.4 2.0 1.6 2.1 2.1 1.4 1.3 13.1 1.4 1.4 4.5 1.6 54.9 total number of votes 1 269 609 1 231 609 1 069 652 1 066 339 1 034 759 1 024 159 1 022 316 975 662 955 394 880 662 865 462 837 670 723 116 626 200 527 164 525 000 283 256 283 256 181 900 63 042 15 446 227 % of voting rights 5.6 5.4 4.7 4.7 4.5 4.5 4.5 4.3 4.2 3.9 3.8 3.7 3.2 2.7 2.3 2.3 1.2 1.2 0.8 0.3 67.6 By number of votes 1 mustakallio, Kari Pauli 2 särkijärvi, riitta 3 Kirmo, Kaisa marketta 4 siivonen, osku Pekka 5 suominen, Jussi matias 6 suominen, Pekka matias 7 suominen, tiina sini-maria 8 mustakallio, Ulla sinikka 9 mustakallio, Kai henrik 10 mustakallio, risto 11 mustakallio, marja helena 12 mustakallio, mika 13 Keskiaho, Kaija leena 14 Kirmo, lasse antti 15 suominen, Jukka matias 16 sundholm, Göran 17 särkijärvi, timo Juha 18 särkijärvi-martinez, anu riitta 19 hietala, Pekka tapani 20 sr arvo Finland Value total 697 330 the number of nominee-registered shares at Dec. 31, 2008 was 97 969 (93 025). management interest at Dec. 31, 2008 the company's board of Directors, the Group's President and ceo, and Presidents of subsidiaries owned a total of 90 838 series a shares and 98 990 series K shares. management's ownership corresponds to 4.7 percent of the company's shares and 9.1 percent of associated total voting rights. the figures include the holdings of their own, minor children and control entities. public insiders' interest at Dec. 31, 2008 the company's public insiders owned a total of 90 838 series a shares and 98 990 series K shares. Public insiders' ownership corresponds to 4.7 percent of the company's shares and 9.1 percent of associated total voting rights. the figures include the holdings of their own, minor children and control entities. EUR Performance of series A shares, EUR 30.00 25.00 20.00 15.00 10.00 5.00 0.00 12/2004 12/2005 12/2006 12/2007 12/2008 Raute OMX Helsinki Benchmark CAP Index OMX Helsinki Industrials Index OMX Helsinki Index 56 financial statements 2008 the boarD oF Directors' ProPosal For ProFit DistribUtion, siGnatUres For the boarD oF Directors' rePort anD Financial statements the Parent company's distributable funds total eUr 18 712 thousand, of which the profit for the financial year is eUr 4 485 thousand and the balance sheet amounts to eUr 58 135 thousand. the board of Directors proposes to the annual General meeting that the distributable funds be used in the following way: - eUr 0.70 per share distributed as dividend, i.e., a total of - retained in equity eUr eUr eUr 2 803 thousand 15 909 thousand 18 712 thousand no significant changes have taken place in the company's financial position after the end of the report period. the company has good liquidity, and the proposed profit distribution does not put liquidity at risk. nastola, February 11, 2009 Jarmo rytilahti chairman of the board of Directors mika mustakallio Panu mustakallio sinikka mustakallio ilpo helander Jorma wiitakorpi tapani Kiiski President and ceo 57 aUDitor's rePort to the annual General meeting of raute corporation we have audited the accounting records, the financial statements, the report of the board of Directors and the administration of raute corporation for the year ended on 31 December, 2008. the financial statements comprise the consolidated balance sheet, income statement, cash flow statement, statement of changes in equity and notes to the consolidated financial statements, as well as the Parent company's balance sheet, income statement, cash flow statement and notes to the financial statements. the responsibility of the Board of Directors and the president and ceo the board of Directors and the President and ceo are responsible for the preparation of the financial statements and the report of the board of Directors and for the fair presentation of the consolidated financial statements in accordance with international Financial reporting standards (iFrs) as adopted by the eU, as well as for the fair presentation of the Parent company's financial statements and the report of the board of Directors in accordance with laws and regulations governing the preparation of the financial statements and the report of the board of Directors in Finland. the board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the President and ceo shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner. auditor's responsibility our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the Parent company's financial statements, on the consolidated financial statements and on the report of the board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the report of the board of Directors are free from material misstatement and whether the members of the board of Directors and the President and ceo have complied with the limited liability companies act. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the board of Directors. the procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. in making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the board of Directors. the audit was performed in accordance with good auditing practice in Finland. we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion on the consolidated financial statements in our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the Group in accordance with international Financial reporting standards (iFrs) as adopted by the eU. opinion on the company's financial statements and the report of the Board of Directors in our opinion, the financial statements, together with the consolidated financial statements included therein, and the report of the board of Directors give a true and fair view of the financial performance and financial position of the company in accordance with the laws and regulations governing the preparation of the financial statements and the report of the board of Directors in Finland. the information in the report of the board of Directors is consistent with the information in the financial statements. nastola, February 11, 2009 anna-maija simola aPa antti Unkuri aPa 58 DeVeloPment oF QUarterly resUlts eUr 1 000 net sales other operating income increase (+) or decrease (-) in inventories of finished goods and work in progress materials and services expenses from employee benefits Depreciation, amortization and impairment charges other operating expenses total operating expenses operatinG profit % of net sales Financial income Financial expenses profit Before taX % of net sales income taxes profit for tHe perioD % of net sales attributable to equity holders of the Parent company earnings per share, eUr Undiluted earnings per share Diluted earnings per share shares, 1 000 pcs adjusted average number of shares adjusted average number of shares, diluted total 2008 98 466 95 404 50 906 28 592 2 751 10 375 92 624 6 341 6 1 268 -729 6 880 7 -2 157 4 723 5 Q4 2008 18 619 14 -108 8 218 7 062 692 2 347 18 318 206 1 550 -448 309 2 -131 177 1 Q3 2008 25 227 29 -65 13 735 6 541 699 1 988 22 962 2 228 9 75 26 2 329 9 -733 1 597 6 Q2 2008 30 710 26 381 17 293 7 858 720 2 543 28 413 2 704 9 190 22 2 916 9 -920 1 996 6 Q1 2008 23 910 27 196 11 661 7 131 641 3 497 22 931 1 202 5 453 -330 1 325 6 -373 952 4 4 723 177 1 597 1 996 952 1.18 1.18 0.04 0.04 0.40 0.40 0.50 0.50 0.24 0.24 4 005 4 005 4 005 4 005 4 005 4 005 4 005 4 005 4 005 4 005 59 corPorate GoVernance in 2008, raute corporation followed the corporate Governance recommendation for listed companies issued by the helsinki stock exchange (now nasDaQ omX helsinki ltd), the central chamber of commerce, and the confederation of Finnish industry and employers (now confederation of Finnish industries eK) on July 1, 2004. the main elements of raute's corporate governance are described below. the principles and information defined as public in the recommendation are presented on the company's website. confirms the company strategy and budget annually, and, based on management reports, monitors the Group's financial status monthly 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. Year 2008 raute corporation's annual General meeting on april 2, 2008 elected six members to the board of Directors. mr. Jarmo rytilahti was elected chairman of the board, ms. sinikka mustakallio Vice-chairman and mr. ilpo helander, mr. mika mustakallio, mr. Panu mustakallio and mr. Jorma wiitakorpi as board members. all board members are independent of the company. the chairman (Jarmo rytilahti) and two of the board members (ilpo helander and Jorma wiitakorpi) are independent of major shareholders. the annual General meeting of 2008 set the following remunerations for board members in 2008: eUr 40 thousand to the chairman of the board and eUr 20 thousand to each board member. the salaries and fees paid to the chairman and board members totaled eUr 134 thousand in 2008. the board held 11 meetings in 2008, two of which were teleconferences. the board members' average attendance at meetings was 89 percent. the attendance of individual members was as follows: Jarmo rytilahti 11/11, sinikka mustakallio 10/11, ilpo helander 9/9, mika mustakallio 10/11, Panu mustakallio 10/11, Pekka Paasikivi 2/2, and Jorma wiitakorpi 7/11. the meetings handled the matters listed in the charter for the board included in the administrative instructions. the board carried out a self-evaluation of the term of office 2007 in spring 2008. according to the plan for 2009, the board of Directors will convene nine times and hold additional meetings if necessary. the board members' personal data, share and option holdings on December 31, 2008, and remunerations for 2008 can be found on pages 30­31 of the annual report. 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 shareholders' meetings. the series a shares have been quoted on the nasDaQ omX helsinki ltd since 1994. Year 2008 Detailed information on raute corporation's shares and shareholders is provided in the financial statements section on pages 53­56 of the annual report. annual General meeting raute corporation's annual General meeting is held in april, but no later than six months from the end of the financial year. the annual General meeting elects the chairman and Vice-chairman for the board of Directors, and 3­5 board members. Year 2008 raute corporation's annual General meeting was held on april 2, 2008. the meeting adopted the financial statements for 2007 and resolved to distribute a dividend of eUr 1.00 per share, elected the board of Directors and the auditors, and decided on their remuneration. the meeting authorized the board to decide on the acquisition of the company's own series a shares and the repurchase of a maximum of 400,000 shares. Board of Directors the board's term of office starts at the annual General meeting where the board is elected, and ends at the following annual General meeting. the majority of the board members must be independent of the company and at least two members in the said majority must be independent of the company's major shareholders. the charter and tasks of the board of Directors are described in the administrative instructions available on the company's website. in addition to statutory tasks and those defined in the articles of association, the board the company's administrative instructions on June 21, 2004, raute corporation's board of Directors issued administrative instructions for the company. they comprise the charter for the decision-making bodies; 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 60 association. the administrative instructions are reviewed annually. the administrative instructions are available on the company's website. Board committees the audit committee's tasks are handled by raute corporation's board of Directors. in this capacity, the board meets the external auditor at least once a year without the presence of any members of the management employed by the company. in the capacity of the audit committee, the board's responsibilities include reviewing the company's financial statements and interim reports, estimating of additional auditing services, monitoring the internal control system, and seeing to internal and external audits. For the preparation of matters of major importance, the board of Directors appoints annually from among its members a working committee comprising the chairman, Vice-chairman, and one board member. the board annually elects an appointments committee, whose task is to prepare a proposal on board members to the annual General meeting. the members of the appointments committee are board members or representatives of major shareholders. the board may also establish other committees, if necessary. Year 2008 the chairman of the board, mr. Jarmo rytilahti, continued as the chairman of the working committee, and the Vice-chairman, ms. sinikka mustakallio, and board member mr. Jorma wiitakorpi acted as its members. the working committee convened once in 2008, and the committee members' attendance was 100 percent. the chairman of the board, mr. Jarmo rytilahti, continued as chairman of the appointments committee, and the Vice-chairman, ms. sinikka mustakallio, and mr. Ville Korhonen ­ a representative of major shareholders ­ acted as its members. the appointments committee convened twice in 2008, and the committee members' attendance was 100 percent. Year 2008 mr. tapani Kiiski, licentiate in technology, was appointed raute corporation's President and ceo on march 16, 2004. ms. arja hakala, m.sc. (econ.), mba, chief Financial officer, was appointed deputy to the President and ceo on march 16, 2004. according to the President and ceo tapani Kiiski's executive contract, his annual salary and fringe benefits total eUr 228 thousand. in addition, he has the possibility to receive a profit-related bonus amounting to six months' salary at the most. the contract does not include any special conditions concerning retirement or the amount of retirement allowance. the term of notice is six months, and the severance pay equals six months' salary. President and ceo, mr. tapani Kiiski, is covered by raute corporation's share-based incentive plan for key employees (2006). his share of the incentive plan may be a maximum of 10,000 series a shares. the salaries and fees paid to raute corporation's President and ceo in 2008 amounted to eUr 256 thousand, of which regular salaries accounted for eUr 224 thousand and profit-related bonuses for eUr 32 thousand. the personal data and option and share holdings of the President and ceo and his deputy on December 31, 2008 are presented on page 31 of the annual report. Business organization raute Group's executive board consists of the President and ceo, who acts as the chairman, and of a variable number of members appointed by raute corporation's board of Directors. the executive board prepares the Group's business strategy and is in charge of its implementation. the executive board deals with all major operational issues, and its decisions are confirmed by the President and ceo. the members of the executive board are in charge of the day-to-day management of the company in their respective areas of responsibility. Year 2008 the Group's executive board consists of mr. tapani Kiiski, President and ceo (chairman); ms. arja hakala, cFo; mr. Petri strengell, Vice President, technology and operations; mr. timo Kangas, Vice President, technology services; and mr. bruce alexander, Vice President, north american operations. the executive board members' personal data and share and option holdings on December 31, 2008 are presented on page 31 of the annual report. president and ceo raute corporation's board of Directors appoints the President and ceo and confirms the terms of his or her employment. the board evaluates the President and ceo's work annually. raute corporation's President and ceo also acts as the Group's President and ceo and as chairman of the Group's executive board. 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. salaries and fees the company's remuneration system is divided into three components: the basic salary, a profit- and performancerelated bonus system, and a long-term incentive plan. Depending on the employee's position, different varia- 61 tions of the above-mentioned elements are applied. the board of Directors confirms annually the principles of the remuneration systems, and determines the profit related bonuses of the President and ceo and other senior management. the board of Directors prepares a proposal on and determines the President and ceo's annual remuneration and approves the remunerations 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 those of the President and ceo's immediate subordinates who are not members of the executive board. an employee is not entitled to separate remuneration for being a board member in any of raute Group's subsidiaries. of powers. the chief Financial officer is responsible for the co-ordination of risk management. the Group's President and ceo controls the implementation of risk management in the entire Group, while the Presidents of the Group companies are responsible for risk management in their respective companies. the members of the executive board are responsible for their own fields across company boundaries. the responsibility of the Group's controller function is to develop risk management procedures jointly with the operational management and to control compliance with the risk management principles and powers. the principal product and operation liability risks, and property and personal damage risks are covered by insurances. the absence of an internal auditing organization is taken into account when drawing up the content of Group reporting and the internal audits of quality systems. the company's board of Directors approves the auditing program. the management of financing risks is described in the notes to the consolidated financial statements on pages 33­36 of the annual report. insider issues 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. Public insiders comprise the President and ceo, his or her deputy, the board members, the auditors, the members of the Group's executive board, and the Presidents of raute Group companies. company-specific insiders comprise individuals who, as part of their duties, regularly deal with or obtain unpublished information that influences the share price. raute also maintains a company-specific project register where project-specific insiders are entered. the chief Financial officer is in charge of insider issues in the company. the insider trading prohibition begins at the end of an interim reporting period or financial year and ends in two hours following the publication of the corresponding stock exchange release. the company aims to avoid investor communication meetings during insider trading prohibitions. the list of public insiders and their shareholding is published on the company's website. audits according to the articles of association, the company shall elect two regular auditors and deputies for them. the shareholders' meeting may exercise its legal right and elect a public accountant company instead of two deputy auditors. the board of Directors approves the audit plan and supervises its implementation. in addition to their tasks defined in regulations, the auditors report to the chairman of the board when necessary, and at least once a year to the board of Directors on any issues that have arisen during the audit. Year 2008 the annual General meeting held on april 2, 2008 elected ms. anna-maija simola and mr. antti Unkuri, authorized Public accountants, as auditors, and ernst & young oy, an authorized public accounting company, as deputy auditor. the remuneration paid to the auditors, elected by the annual General meeting, for the normal annual audit of year 2008 totaled eUr 59 thousand. other remuneration paid to the authorized public accounting company ernst & young oy amounted to eUr 94 thousand. risk management the main risks in raute Group's international business are financing, product liability, and contractual risks. the company has a risk management policy approved by the board of Directors. the President and ceo and the chief Financial officer report to the board regularly about any major strategic and business risks. the board of Directors determines the Group's general attitude to risk and approves the risk management policy on a general level. the executive board determines the Group's general risk management principles and confirms various operating principles and boundaries 62 stocK eXchanGe releases anD annoUncements 2008 february February 12 February 12 February 19 Financial statements January 1 ­ December 31, 2007 correction to raute corporation's financial statements release published on 12 February 2008 raute's year 2007 releases march march 10 march 17 summons to raute corporation's annual General meeting raute's annual report and financial statements for 2007 published april april 2 april 29 raute corporation's annual General meeting raute corporation ­ interim report January 1 ­ march 31, 2008 august august 5 august 22 raute corporation ­ interim report January 1 ­ June 30, 2008 notice of a subsidiary merger to raute corporation's shareholders september september 23 raute's net sales and profit development in 2008 will not reach targets october october 28 october 28 raute corporation ­ consolidated financial statements January 1 ­ september 30, 2008 raute corporation's financial releases in 2009 november november 18 raute corporation's employee negotiations concluded Up-to-date information for investors is available in the investor section of raute's website at www.raute.com. the section contains information about 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. 63 www.raute.com 64