Financial statements 2012 Contents Report of the Board of Directors Financial stetements, Group, IFRS Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of cash flows 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 Key ratios describing the Group's financial development Share-related data Calculation of key ratios Shares and shareholders The Board of Directors' proposal for profit distribution, signatures for the report of the Board of Directors and financial statements Auditor's note List of the Parent company's common document types, accounting journal types and means of storaging Development of quarterly results Auditor's report 65 66 67 57 58 59 60 45 46 47 48 9 10 11 12 13 3 64 64 (English translation of Financial statements 2012) 2 Report of the Board of Directors The Group's net sales for 2012 totaled EUR 101.3 million (MEUR 74.3), up by 36 percent from 2011. The growth in net sales was boosted by significant individual orders. The Group's operating profit was EUR 5.0 million positive (MEUR -0.7). The financial income and expenses totaled EUR -0.3 million (MEUR -0.4). The result before tax was EUR 4.8 million positive (MEUR -1.1). The comprehensive income totaled EUR 3.1 million positive (MEUR -1.1). Undiluted and diluted earnings per share were EUR +0.75 (EUR -0.27). Return on equity was 13.1 percent (-4.7%). In this report, figures in parentheses refer to corresponding figures for the previous years 2011 and 2010. BUSINESS ENVIRONMENT Market situation in customer industries Raute's customers in the veneer, plywood and LVL (Laminated Veneer Lumber) industries are engaged in the manufacture of wood products used in investment commodities and are thus highly affected by fluctuations in construction, housing-related consumption, international trade, and transportation. In 2012, the insecurity related to the development of the global economy and money markets was maintained by the threats connected to the indebtness of certain European countries and fears of a slowdown of economic growth in Asian countries. For Raute's customer industries, the market situation continued to be uncertain in several market areas. Demand for wood products technology and technology services In 2012, two significant new projects were launched among Raute's customers. A plywood mill that was destroyed in a fire in Chile at the beginning of January will be reconstructed and a new LVL mill, which will use beech as its raw material, will be constructed in Germany. Raute will be supplying the main machinery for both mills. The plywood and LVL industries' upgrade investments to ensure quality and cost competitiveness and to maintain market shares remained at a low level. Several large projects encompassing single production lines and mill-scale deliveries that are in the planning and negotiation phase are pending. Customers will decide on and realize these projects only once they are more confident that demand has recovered permanently and once financing for the projects can be arranged. The demand for maintenance and spare parts services remained at a good level throughout the year. This bears testimony to the fact that the utilization rates of Raute's customers' production facilities were mostly at a good level. Demand for technology services developed positively in North America, which is suffering from a difficult market situation. ORDER INTAKE AND ORDER BOOK Raute serves the wood products industry with a full-service concept based on service that encompasses the entire life cycle of the delivered equipment. Raute's business consists of project deliveries and technology services. Project deliveries comprise complete production machinery for new mills, production lines and individual machines and equipment. Additionally, Raute's full-service concept includes comprehensive technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations as well as consulting, training and reconditioned machinery. The order intake amounted to EUR 116 million (MEUR 77) during 2012. The order intake increased by 51 percent on the previous year. 48 percent of the new orders came from South America (26%), 31 percent from Europe (26%), 12 percent from Russia (38%), 6 percent from North America (8%) and 3 percent from Asia-Pacific (2%). The strong fluctuation in the distribution of new orders between the various market areas is typical for project-focused business. The order intake for project deliveries stood at EUR 89 million (MEUR 50) and increased on the previous year by 77 percent. The most significant transactions during 2012 consisted of an order that came into effect in February, amounting to more than EUR 50 million, for machinery and equipment for a plywood mill in Chile, and an order that came into effect in July, totaling EUR 14 million, for machinery for an LVL mill in Germany. The order intake for technology services stood at EUR 27 million (MEUR 27). A decline in modernization projects, especially in Russia, led the order intake to remain on the previous year's level. Maintenance and spare parts services increased by 10 percent on the previous year. COMPETITIVE POSITION Raute's competitive position is good. Raute's solutions help customers to secure their ability to deliver and provide service throughout the life cycle of the product. In such investments, the supplier's overall expertise and extensive and diverse technology offering play a key role. The competitive edge provided by Raute is also a major draw when customers select their cooperation partners. Raute's strong financial position and its long-term dedication to serving selected customer industries also enhance its credibility and improve its competitive position as a company that carries out longterm investment projects. NET SALES The Group's net sales (IFRS) totaled EUR 101.3 million (2011: MEUR 74.3; 2010: MEUR 62.9). Net sales grew by 36 percent on 2011. The growth in net sales was boosted by large individual orders. A large proportion of the net sales were generated during the third and fourth quarters. 3 Net sales were generated exclusively by project deliveries and technology services related to the wood products technology business. Net sales for project deliveries totaled EUR 73 million (MEUR 47), up 55 percent from the previous year. Project deliveries accounted for 72 percent of total net sales (63%). The plywood industry's share of the net sales of project deliveries was 93 percent (68%), while the LVL industry's share was 7 percent (32%). Net sales for technology services totaled EUR 28 million (MEUR 27). Net sales grew 4 percent from the previous year and accounted for 28 percent (37%) of total net sales. The growth of net sales remained low due to the decline in net sales from modernization projects. South America's share of total net sales in 2012 was 52 percent (6%), Europe's 22 percent (26%), Russia's 14 percent (35%), North America's 8 percent (8%), and Asia-Pacific's 4 percent (25%). 6 percent (12%) of the Group's net sales came from Finland. In 2012, the net sales (FAS) of the Parent company Raute Corporation totaled EUR 92.9 million (2011: MEUR 64.4; 2010: MEUR 54.5). RESULT AND PROFITABILITY The Group's operating profit (IFRS) for 2012 was EUR 5.0 million positive (2011: MEUR -0.7; 2010: MEUR +1.3 including a MEUR 4.4 gain from a real estate sale) and 5 percent of net sales (2011: -1%; 2010: +2%). The profitability of operations improved from the previous year due to the growth in net sales and a lighter cost structure resulting from earlier operational reorganization measures. The Group's financial income and expenses totaled EUR -0.3 million (MEUR -0.4). The Group's result before tax was EUR 4.8 million positive (MEUR -1.1) and the result for the financial year was EUR 3.0 million positive (MEUR -1.1). The Group's comprehensive income totaled EUR 3.1 million positive (MEUR -1.1). Undiluted and diluted earnings per share were EUR +0.75 (EUR -0.27). Return on investment was 15 percent (-0%) and return on equity +13 percent (-5%). The operating profit (FAS) of the Parent company Raute Corporation was EUR 6.0 million positive (2011: MEUR -0.0; 2010: MEUR +0.6). The operating profit accounted for 6 percent (2011: 0%; 2010: 1%) of net sales. The profit for the financial year (FAS) was EUR 2.8 million in the positive (MEUR 0.1 negative). The financial items included a loss of EUR 1.5 million relating to the valuation of loans to subsidiaries. CASH FLOW AND BALANCE SHEET The Group's financial position remained good throughout the year. At the end of the financial year, the Group's cash and cash equivalents exceeded interest-bearing liabilities by EUR 8.1 million (MEUR 10.4). At the end of the financial year gearing was -34 percent (2011: -47%; 2010: -40%) and equity ratio 48 percent (2011: 47%; 2010: 51%). The Group's cash and cash equivalents, including financial assets recognized at fair value through profit or loss, stood at EUR 19.5 million (MEUR 25.7) at the end of the financial year. The change in cash and cash equivalents in the financial year was EUR 6.2 million negative (MEUR 1.6 positive). Operating cash flow was EUR 1.9 million positive (MEUR 2.5 positive). Cash flow from investment activities totaled EUR 2.9 million negative (MEUR 1.7 negative). Cash flow from financing activities was EUR 5.2 million negative (MEUR 0.8 positive), including dividend payments of EUR 1.2 million (MEUR 1.2). The Group's balance sheet total at the end of the year stood at EUR 63.1 million (2011: MEUR 52.7; 2010: MEUR 53.0). Fluctuations in balance sheet working capital items and the key figures based on them are due to differences in the timing of customer payments and the cost accumulation from project deliveries, which is typical of the project business. Interest-bearing liabilities amounted to EUR 11.5 million (MEUR 15.2) at the end of the financial year, with current interest-bearing liabilities accounting for EUR 5.6 million (MEUR 4.3). The Parent company Raute Corporation has a EUR 10 million commercial paper program, which allows the company to issue commercial papers maturing in less than one year. The company also has unused bilateral short-term credit facilities totaling EUR 5 million with a Nordic bank. At the end of the financial year, the equity ratio (FAS) of the Parent company Raute Corporation was 45 percent (2011: 47%; 2010: 51%). LOANS TO RELATED PARTIES AND OTHER LIABILITIES On December 31, 2012, the Parent company Raute Corporation had loan receivables from its subsidiaries Raute Service LLC in the amount of EUR 355 thousand and Raute Canada Ltd in the amount of EUR 391 thousand. Raute Corporation had EUR 100 thousand in liabilities to the Raute Sickness Fund. Other liabilities are presented in the notes to the financial statements. RESEARCH AND DEVELOPMENT COSTS AND CAPITAL EXPENDITURE Raute's goal is to be the leading technology supplier in its field, and to invest strongly in continuous research and development, particularly in plywood and LVL manufacturing technology and the supporting automation and instrumentation applications, especially machine vision. In 2012, the Group's research and development costs totaled EUR 2.5 million (2011: MEUR 2.0; 2010: MEUR 1.8) and 2.5 percent of net sales (2011: 2.7%; 2010: 2.9%). In 2012, Raute continued to invest strongly in continuous research and development, particularly in plywood and LVL manufacturing technology and the supporting automation and instrumentation applications, especially machine vision. Additionally, the development of products designed for the emerging markets was continued. The Group's investments during the financial year totaled EUR 3.5 million (2011: MEUR 1.9; 2010: MEUR 2.2). The larg- 4 est single investments focused on technology acquisitions and product development in addition to acquisitions related to the new production plant in China. The investments include capitalized development costs worth EUR 1.0 million (2011: MEUR 0.2; 2010: MEUR 0.0). During the financial year, the research and development costs (FAS) of the Parent company Raute Corporation were EUR 2.4 million, representing 2.6 percent of net sales (2011: MEUR 2.0 / 3.1% of net sales; 2010: MEUR 1.8 / 3.4% of net sales). Investments totaled EUR 2.2 million (2011: MEUR 1.6; 2010: MEUR 0.5). DEVELOPMENT OF OPERATIONS The largest project in terms of developing production and delivery capabilities was the transfer of the Chinese plant into larger facilities at the end of the year. Increasing the company's own production capacity enables better control over the quality and delivery times of the components and equipment manufactured in China. A maintenance service center was established in Latvia, a key customer region, in order to improve the service capabilities of technology services. PERSONNEL The Group's headcount at the end of 2012 was 503 (464). Finnish Group companies accounted for 74 percent (75%) of employees, Chinese companies for 11 percent (10%), North American companies for 11 percent (11%), and other sales and maintenance companies for 4 percent (4%). Converted to full-time employees ("effective headcount"), the average number of employees during the financial year was 480 (2011: 457; 2010: 438). Salaries and remunerations paid by the Group totaled EUR 23.7 million (2011: MEUR 19.9; 2010: MEUR 19.5). The Group continued to develop the competence of its personnel and increase their commitment to the company. 2 percent (2%) of the payroll was invested in personnel training. The "Great Place to Work" project was used to develop Raute as a work community and work environment. The objective of the Särmä (Edge) project, started at the end of the year, is to get Raute's entire personnel to commit even more strongly to Raute's customer promise and the better quality of products, services and operations. Converted to full-time employees, the average number of personnel employed by the Parent company Raute Corporation in 2012 was 357 (2011: 338; 2010: 319). Salaries and remunerations paid by the Parent company totaled EUR 17.9 million (2011: MEUR 15.6; 2010: MEUR 14.7). REMUNERATION The Group has remuneration systems in place that cover the entire personnel. The Annual General Meeting held on March 31, 2010 resolved to issue a maximum of 240,000 stock options. In compliance with the authorization granted by the Annual General Meeting, the Board of Directors issued a total of 73,000 stock options marked with the symbol 2010C to the Group's key employees on June 21, 2012. The share subscription period for 2010C stock options will be from March 1, 2015 to March 31, 2018 and the exercise price EUR 8.40. On December 31, 2012, the Group's key employees held a total of 70,500 previously granted series A stock options and 75,000 series B stock options. SOCIETY AND THE ENVIRONMENT The environment is one of the values that guide Raute's operations. Raute strives to systematically develop the environmental soundness of its products and services and to reduce the environmental impacts of its operations. The Group abides by the principles of good corporate citizenship, taking into consideration nature and its protection, and how society as a whole operates, while 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 wood 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 main production units manage environmental matters in compliance with a certified environmental system. The operations and ethical principles of the partner and subcontractor network are also subjected to systematic inspection. Raute aims to continuously reduce energy consumption, decrease the volume of waste, and develop the working environment. RISKS AND RISK MANAGEMENT The Group's identified main risk areas relate to the nature of the business, the business environment, financing, and damage or loss. The fluctuation in demand resulting from economic cycles and delivery and technology risks have been identified as the Group's most significant business risks. Risks in the near term continue to be driven by the global economic situation and the uncertainty concerning the development of the financial markets. The most significant risks for Raute are related to the development of net sales and profitability. 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. Business risks Impact of economic cycles on business operations Raute's business operations are characterized by the sensitivity of investment demand to fluctuations in the global economy and the financing markets, and the cyclical na- 5 ture of project business. The impact of changes in demand on the Group's result is reduced by increasing the share of technology services, increasing operations in market areas with a small current market share, creating products for completely new customer groups and developing the partner network. Deliveries and technology The bulk of Raute's business operations consists of project deliveries, which expose the company to risks caused by customer-specific solutions related to each customer's end product, production methods or raw materials. At the quotation and negotiation phase, the company has to take risks relating to the promised performance figures and make estimates of implementation costs. Raute invests heavily in product development. The developmental phase for new technologies involves the risk that the project will not lead to a technologically or commercially acceptable solution. The functionality and capacity of new solutions produced as a result of development work cannot be fully verified until the solutions can be tested under production conditions in conjunction with the customer deliveries. Contract, product liability, implementation, cost and capacity risks are managed using project management procedures that comply with the company's ISO-certified quality system. Technology risks are reduced by the conditions of delivery contracts and by restricting the number of simultaneous first deliveries. Emerging markets Raute's objective is to increase its local business in China and Russia, among others, where, besides opportunities, companies face risks typical for emerging markets. Information security risks are managed according to a defined information security policy. Human resources Competence retention and development and ensuring the sufficiency of human resources are particularly important in cyclical business. Continuity is ensured by monitoring the development of the age structure, implementing systematic human resources management and investing in well-being at work. Financing risks The most significant financing risks in the Group's international business operations are default risks and currency risks related to counterparties. The Group is also exposed to liquidity, refinancing, interest rate and price risks. The default risk relating to customers' solvency is managed by covering the unpaid sum with bank guarantees, letters of credit or other securities. The Group's liquid assets are mainly held in banks in the Nordic countries. The Group's main currency is the euro. The most significant currency risks result from the following currencies: Chinese yuan (CNY), Russian ruble (RUB), Canadian dollar (CAD) and US dollar (USD). The main hedging instruments used are foreign currency forward contracts. Currency clauses are in- cluded in quotations to hedge against currency risks during the quotation period. Depending on the case, currency risks related to preliminary sales contracts are hedged with currency option contracts. The Group has braced for fluctuations in the working capital tied up in project operations and possible disturbances in the availability of money by taking out a long-term loan. The interest rate risk related to the company's variable interest rate loans is hedged with interest rate swaps. The Group's interest risks are mainly related to the return on liquid assets. The financing risks, as well as the risk management objectives and procedures, are described in more detail in note 2 to the financial statements. Risks of damage or loss Raute's most significant single risks concerning material damage and business interruption loss are a fire or a serious machine or information system breakdown at the Nastola main unit, where the production, planning, financial, and ERP systems serving the Group's key technologies are centrally located. Other risks of damage or loss include occupational safety risks, which are managed by means of active risk-prevention measures, such as continuous personnel training and investigation of all near-miss situations. Occupational safety and ergonomics are under continuous development. Raute's production operations do not involve significant environmental risks. The main unit in Nastola has an ISOcertified environmental management program, whose principles are also adhered to in other units. The Group hedges against risks of damage or loss by assessing its facilities and processes in terms of risk management and by maintaining emergency plans. Global and local insurance programs are checked regularly as part of overall risk management. The objective is to use insurance policies to sufficiently hedge against all risks that are reasonable to handle through insurance due to economic or other reasons. Organizing risk management Raute's risk management policy is approved by the Board of Directors. The Board is responsible for organizing internal control and risk management, and for monitoring their efficiency. The Executive Team defines the Group's general risk management principles and operating policies, and defines the boundaries of the organization's powers. The President and CEO and the CFO regularly report significant risks to the Board. The Group's President and CEO controls the implementation of the risk management principles in the entire Group, while the Presidents of the Group companies are responsible for risk management in their respective companies. The members of the Group's Executive Board are respon- 6 sible for their own areas of responsibility across company boundaries. Raute has no separate internal auditing organization. The Controller function oversees the annual internal control plan approved by the Board, develops internal control and risk management procedures together with the operative leadership, and monitors compliance with risk management principles, operational policies and powers. GROUP STRUCTURE No changes took place in the Group's legal structure during 2012. SHAREHOLDERS The number of shareholders totaled 1,667 at the beginning of the year and 1,682 at the end of the financial year. Series K shares were held by 49 private individuals (49) at the end of the financial year. Nominee-registered shares accounted for 3.3 percent (1.5%) of shares. No flagging notifications were given to the company in 2012. The Board of Directors and the Group's President and CEO held altogether 226,529 company shares, equaling 5.7 percent (7.0%) of the company shares and 11.2 percent (13.8%) of the votes. The figures include the holdings of their own, minor children and control entities. The distribution of ownership by sector and by size as well as the largest shareholders are presented in the financial statements under "Shares and shareholders". AUDITORS At Raute Corporation's Annual General Meeting on April 16, 2012, the authorized public accounting company PricewaterhouseCoopers was chosen as auditor with Authorized Public Accountant Janne Rajalahti as the principal auditor. CORPORATE GOVERNANCE Raute Corporation complies with the Finnish Corporate Governance Code 2010 for listed companies issued by the Securities Market Association on June 15, 2010. Raute deviates from the Code's recommendation 22 on appointing members to the Appointments Committee in that one member to the Committee is elected from outside the Board of Directors, as per the company's Administrative Instructions, from among the representatives of major shareholders who have significant voting rights. The Board views this exception as justified, taking into consideration the company's ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of selecting members of the Board of Directors. Raute deviates from recommendation 9 on the number, composition and competence of the directors in that the company does not have both genders represented on the Board. On April 16, 2012 the shareholders proposed and the Annual General Meeting elected as Board members a group of persons consisting only of men. CORPORATE GOVERNANCE STATEMENT Raute Corporation's Board of Directors has handled Raute Corporation's Corporate Governance Statement for 2012 according to chapter 2, section 6 of the Finnish Securities Markets Act and recommendation 54 of the Finnish Corporate Governance Code 2010 for listed companies issued by the Securities Market Association on June 15, 2010. The statement has been drawn up separately from the Report of the Board of Directors. BOARD OF DIRECTORS AND PRESIDENT AND CEO The Annual General Meeting elects the Chairman and ViceChairman for the Board of Directors, and 3­5 Board members. At Raute Corporation's Annual General Meeting on April 16, 2012, Mr. Erkki Pehu-Lehtonen was elected Chairman of the Board, Mr. Mika Mustakallio Vice-Chairman and Mr. Joni Bask, Mr. Risto Hautamäki, Mr. Ilpo Helander and Mr. Pekka Suominen as Board members. 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. Raute Corporation's Articles of Association do not grant any unusual authorizations to the Board of Directors, or to 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. EXECUTIVE BOARD The Group's Executive Board consists of Mr. Tapani Kiiski, President and CEO (Chairman); Ms. Arja Hakala, CFO; Mr. Timo Kangas, Group Vice President, EMEA; Mr. Petri Lakka, Group Vice President, Technology Services; Mr. Petri Strengell, Group Vice President, Technology and Operations and, up to October 24, 2012, Mr. Bruce Alexander, Group Vice President, North American Operations. As of October 24, 2012, the North American operations have been integrated with the Technology Services business segment, headed by Group Vice President Petri Lakka. SHARES The number of Raute Corporations shares at the end of 2012 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 2 euros. Series K and A shares confer equal rights to dividends and company assets. Series K shares can be converted to series A shares under the terms set out in section 3 of the Articles of Association. If an 7 ordinary share is transferred to a new owner who has not previously held series K shares, the new owner must notify the Board of Directors of this in writing and without delay. Other holders of series K shares have the right to redeem the share under the terms specified in Article 4 of the Articles of Association. Raute Corporation's series A shares are listed on NASDAQ OMX Helsinki Ltd. The trading code is RUTAV. During 2012, 302,096 shares were traded (522,287) worth altogether EUR 2.4 million (MEUR 4.3). The number of shares traded represents 10 percent (17%) of all listed series A shares. The average price of a series A share was EUR 8.22 (EUR 8.57). The highest closing price of the year was EUR 9.24 and the lowest EUR 6.18. The company's market capitalization at the end of 2012 totaled EUR 36.0 million (MEUR 24.8), with series K shares valued at the closing price of series A shares, EUR 9.00 (EUR 6.20), on December 31, 2012. 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. DIVIDENDS FOR THE 2011 FINANCIAL YEAR The Annual General Meeting held on April 16, 2012 decided to pay a dividend of EUR 0.30 per share for the financial year 2011. The dividends amounted to a total of EUR 1.2 million, of which series A shares accounted for EUR 904,079.10 and series K shares for EUR 297,348.30. AUTHORIZATION OF REPURCHASE AND DISPOSAL OF OWN SHARES The Annual General Meeting held on April 16, 2012 authorized the company's Board of Directors to decide on the repurchase of Raute Corporation series A shares with the company's distributable assets and to decide on a directed issue of a maximum of 400,000 shares. The Board of Directors did not exercise the authorization in 2012. The company did not possess company shares at the end of the financial period or hold them as security. ANNUAL GENERAL MEETING 2013 Raute Corporation's Annual General Meeting will be held in Lahti on Monday April 8, 2013. THE BOARD OF DIRECTORS' PROPOSAL FOR DIVIDEND DISTRIBUTION AND MEASURES CONCERNING THE RESULT According to the financial statements 2012, distributable assets total EUR 14,495 thousand. The Board of Directors will propose to Raute Corporation's Annual General Meeting, to be held on April 8, 2013, that a dividend of EUR 0.50 per share be paid for series A shares and series K shares, and that the remainder of distributable assets be transferred to equity. The proposed record date for dividend payments is April 11, 2013 and the dividend payment date is April 18, 2013. 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 in the Board of Directors' view, the proposed dividend does not pose a risk to solvency. OUTLOOK FOR 2013 Raute's business operations are characterized by the sensitivity of investment demand to cyclical fluctuations in the global economy and the financial markets. Significant uncertainty still surrounds the development of the global economy and financial markets due to the hazards of growing debt among a few European countries and the threats associated with the recovery of the US economy. Reports signaling a slowdown of economic growth in Asia, and in particular China, also add to the uncertainty. The market situation for Raute's customer industries is expected to remain uncertain. However, improvement investments in the plywood industry to ensure quality and cost competitiveness and to maintain market shares are expected to be at a reasonable level in the near future, provided that the economic uncertainty does not spiral into a new crisis. Also several production line and mill-scale investment projects are being planned. The implementation and timing of these projects will depend on prospective investors' confidence that the market for wood products will remain at a reasonable level and on the availability of financing for customer projects in some market areas. Thanks to its strong financial and market position and the development measures it has carried out, Raute is well positioned to respond to demand once the markets recover. Uncertainty concerning the development of the economy in 2013 will be reflected in the investment decisions of Raute's customers and in the volume of new orders. Based on a strong initial order book and projects in the negotiation phase, Raute's net sales and operating profit for 2013 are expected to remain at the same level as in 2012. 8 FINANCIAL STATEMENTS 2012 / GROUP Consolidated statement of comprehensive income EUR 1,000 Note 4, 5 NET SALES Change in inventories of finished goods and work in progress 6 7 8 11 12 Other operating income Materials and services Employee benefits expense Depreciation and amortization Other operating expenses Total operating expenses OPERATING PROFIT (LOSS) 13 13 Financial income Financial expenses PROFIT (LOSS) BEFORE TAX 15 Income taxes PROFIT (LOSS) FOR THE FINANCIAL YEAR Other comprehensive income items: Exchange differences on translating foreign operations Cash flow hedging Income tax related to cash flow hedges Other comprehensive income items for the financial year, net of tax COMPREHENSIVE PROFIT (LOSS) FOR THE FINANCIAL YEAR Profit (loss) for the financial year attributable to Equity holders of the Parent company Comprehensive profit (loss) for the financial year attributable to Equity holders of the Parent company Earnings per share for profit (loss) attributable to Equity holders of the Parent company, EUR Undiluted earnings per share Diluted earnings per share Shares, 1,000 pcs Adjusted average number of shares Adjusted average number of shares diluted 1.1­31.12.2012 1.1­31.12.2011 101,273 74,323 500 1 423 -55,725 -28,752 -1,968 -11,720 -98,165 5,031 482 -738 4,775 -1,759 3,016 -184 168 -39,404 -24,019 -2,128 -9,494 -75,045 -738 705 -1,093 -1,126 30 -1,095 80 80 3,096 23 19 -5 37 -1,058 3,016 -1,095 3,096 -1,058 16 16 0.75 0.75 -0.27 -0.27 4,005 4,008 4,005 4,005 9 FINANCIAL STATEMENTS 2012 / GROUP Consolidated balance sheet EUR 1,000 Note ASSETS Non-current assets Intangible assets Property, plant and equipment Other financial assets Receivables Deferred tax assets Total Current assets Inventories Accounts receivables and other receivables Income tax receivable Cash and cash equivalents Total TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to Equity holders of the Parent company Share capital Share premium Other reserves Exchange differences Retained earnings Profit (loss) for the financial year Share of shareholders' equity that belongs to the owners of the Parent company Total equity Non-current liabilities Provisions Deferred tax liabilities Non-current interest-bearing liabilities Pension obligations Total Current liabilities Provisions Pension obligations Current interest-bearing liabilities Advance payments received Income tax liability Trade payables and other liabilities Total Total liabilities TOTAL EQUITY AND LIABILITIES 10 31.12.2012 31.12.2011 18 19 20 21 29 3,204 7,892 789 60 11,944 1,433 8,226 789 549 1,601 12,598 22 23 23 24 7,130 24,427 37 19,548 51,143 63,087 5,059 9,298 37 25,674 40,067 52,666 25 25 25 25 8,010 6,862 103 6,150 3,016 24,141 24,141 8,010 6,498 187 23 8,447 -1,095 22,069 22,069 28 29 30 56 174 5,866 90 6,186 123 10,937 11,060 28 32 31 33 33 1,134 5,594 12,776 13,255 32,759 38,946 63,087 697 98 4,340 5,589 416 8,399 19,537 30,597 52,666 FINANCIAL STATEMENTS 2012 / GROUP Consolidated statement of cash flows 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 paid from operating activities Dividends received from operating activities Interests received from operating activities Other financing items from operating activities Income taxes paid NET CASH FLOW FROM OPERATING ACTIVITIES (A) CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets Proceeds from sale of property, plant and equipment and intangible assets Purchases of assets-for-sale as investments NET CASH FLOW FROM INVESTING ACTIVITIES (B) CASH FLOW FROM FINANCING ACTIVITIES Decrease of non-current and current receivables Increase of current borrowings Repayments of current borrowings Increase of non-current borrowings Repayments of non-current borrowings Dividends paid NET CASH FLOW FROM FINANCING ACTIVITIES (C) NET CHANGE IN CASH AND CASH EQUIVALENTS (A+B+C) increase (+) / decrease (-) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR* NET CHANGE IN CASH AND CASH EQUIVALENTS EFFECTS OF EXCHANGE RATE CHANGES ON CASH CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR* CASH AND CASH EQUIVALENTS IN THE BALANCE SHEET AT THE END OF THE FINANCIAL YEAR Cash and cash equivalents TOTAL -4,000 -1,201 -5,201 -6,159 1,000 163 -115 11,000 -10,000 -1,201 846 1,629 90,385 1,423 -89,379 2,429 -529 118 269 -275 -75 1,938 64,268 168 -62,322 2,113 -163 108 357 -183 298 2,531 1.1­31.12.2012 1.1­31.12.2011 -3,055 160 -2,895 -1,589 133 -293 -1,748 25,674 -6,159 33 19,548 24,090 1,629 -45 25,674 19,548 19,548 25,674 25,674 *Cash and cash equivalents comprise trading assets as well as cash and bank receivables, which will be due within the following three months' period. 11 FINANCIAL STATEMENTS 2012 / GROUP Consolidated statement of changes in shareholders' equity Invested non-restricted equity reserve To the owners of the Parent company Share premium EQUITY TOTAL 24,227 -1,095 -12 14 -1,093 137 -1,201 -1,065 22,069 22,069 3,016 80 3,096 177 0 -1,201 -1,024 24,141 Other reserves Exchange rate differences Share capital Retained earnings 9,648 EUR 1,000 EQUITY at Jan. 1, 2011 Comprehensive profit (loss) for the financial year Profit (loss) for the financial year Other comprehensive income items: Exchange differences on translating foreign operations Cash flow hedging, net of tax Total comprehensive profit (loss) for the financial year Transactions with owners Equity-settled share-based transactions 25, 27 Reclassification between items Dividends paid Total transactions with owners EQUITY at Dec. 31, 2011 Note 8,010 6,498 - 36 35 24,227 - - - - - -1,095 -1,095 - - - 14 14 -12 -12 -1,095 -12 14 -1,093 8,010 6,498 - 137 137 187 23 -1,201 -1,201 7,351 137 -1,201 -1,065 22,069 EQUITY at Jan. 1, 2012 Comprehensive profit (loss) for the financial year Profit (loss) for the financial year Other comprehensive income items: Exchange differences on translating foreign operations Cash flow hedging, net of tax Total comprehensive profit (loss) for the financial year Transactions with owners Equity-settled share-based transactions 25, 27 Reclassification between items 25 Dividends paid Total transactions with owners EQUITY at Dec. 31, 2012 8,010 6,498 - 187 23 7,351 22,069 - - - - - 3,016 3,016 - - - - 80 80 3,016 80 3,096 8,010 -6,498 0 6,498 6,498 177 177 364 103 -1,201 -1,201 9,166 177 0 -1,201 -1,024 24,141 12 FINANCIAL STATEMENTS 2012 / GROUP Notes to the consolidated financial statements 1. ACCOUNTING PRINCIPLES OF THE CONSOLIDATED FINANCIAL STATEMENTS General information Raute Group (`Group') is a globally operating technology and service company. Raute's customers are companies operating in the wood products industry that manufacture veneer, plywood and LVL. Raute's technology offering covers machinery and equipment for the entire production process. Raute's full-service concept is based on product life-cycle management. In addition to a broad range of machines and equipment, our solutions cover technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations. Raute's head office is located in Nastola, Finland. Its other production plants are in the Vancouver area in Canada, in the Shanghai area in China, and in Kajaani, Finland. The company's sales network has a global reach. Raute 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 on 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. These consolidated financial statements for the period between January 1 and December 31, 2012 were authorized for issue by Raute Corporation's Board of Directors at its meeting on February 12, 2013. 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. Raute Corporation's consolidated financial statement information is available online at www.raute.com or at the head office of the Parent company, Rautetie 2, FI-15550 Nastola, Finland. Basis of preparation Raute Corporation's consolidated financial statements for January 1­December 31, 2012 have been prepared in accordance with the International Financial Reporting Standards, IFRS, accepted for application in the EU. Preparations have complied with the IAS and IFRS standards, as well as SIC and IFRIC interpretations, effective on December 31, 2012. The notes to the consolidated financial statements also comply with Finnish accounting legislation. Raute Corporation's consolidated financial statements have been prepared under the historical cost convention, except for items measured at fair value, which are available-for-sale financial assets, financial assets and liabilities recognized at fair value through profit or loss and derivative contracts. All of the figures presented in these consolidated financial statements are in thousand euro, unless otherwise stated. Amendments to accounting principles of consolidated financial statements and information to be presented The consolidated financial statements have been prepared according to the same accounting principles as in 2011, with the exception of the following new standards, interpretations and amendments to existing standards which the Group has applied as of January 1, 2012: · Amendment IFRS 7 Financial Instruments: Disclosures (effective on financial periods beginning on or after July 1, 2011). The amendment will promote the transparency in the reporting of transfer transactions of financial instruments and improve users' understanding of the risks involved in the transfer of financial instruments and the effects of those risks on the entity's financial position, especially when the securitization of financial assets is involved. The amendment did not have any impact on the consolidated financial statements. 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. Because the forward-looking estimates and assumptions are based on management's best knowledge at the reporting date, they comprise risks and uncertainties. The actual results may differ from these estimates. 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". Preparation of consolidated financial statements The consolidated financial statements include the Parent company Raute Corporation and its subsidiaries in which the Group has the right to decide on the financial and operational principles. Control is usually based on share ownership that represents more than 50 percent of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has control in the other company. Subsidiaries are fully consolidated in the consolidated financial statements from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. 13 FINANCIAL STATEMENTS 2012 / GROUP Business combinations are entered using the acquisition method. The consideration paid for the acquisition of a subsidiary is determined as the fair value of the transferred assets, liabilities incurred and own equity shares issued by the Group. The consideration transferred contains the fair value of the asset or liability that results from the contingent consideration arrangement. Expenditure related to the acquisition is recognized as an expense when it is incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed by the business combination, have been measured at the acquisition-date fair value. Non-controlling interests acquired are recognized by acquisition either at fair value or at an amount that reflects non-controlling interest's proportionate share of the acquiree's net assets. Goodwill arising from the business combination is recognized to the amount by which the transferred consideration, the non-controlling interests acquired and the previously owned interests totaled, exceed the fair value of the acquired net assets. The consolidated financial statements do not include goodwill at the balance sheet date on December 31, 2012. Transactions, receivables and liabilities, and unrealized gains between Group companies are eliminated. Unrealized losses are also eliminated. Where necessary, the accounting principles of the subsidiaries have been changed to comply with the Group's principles. The allocation of the profit or loss for the financial year to the equity holders of the Parent company and to the noncontrolling interests has been presented in connection with the statement of comprehensive income. The consolidated financial statements do not include any non-controlling interests at the balance sheet date on December 31, 2012. Transactions in foreign currency The consolidated financial statements have been presented in euro, which is the Parent company's functional and presentation currency. The figures concerning the profit or loss and financial position of the companies combined under the consolidated financial statements have been measured in the currency of the economic environment in which that company mainly operates (functional currency). Foreign currency transactions have been 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. Monetary items in foreign currency have been translated into the functional currency using the rates prevailing on the last day of the reporting period. Foreign currency nonmonetary items measured at fair value have been translated into the functional currency using the rates prevailing at the date of measurement. Otherwise non-monetary items have been measured using the rate prevailing at the date of transaction. Gains and losses from foreign currency transactions and translation of monetary items have been recognized in the financial statements, except in the case of cash flow hedging, which is recognized in the other items of the comprehensive income items. Exchange rate gains and losses from transactions have been presented in the corresponding items above the operating profit or loss. Exchange rate gains and losses related to cash and cash equivalents, loans and other financial assets and liabilities have been presented in the income statement under financial income or expenses. The income statements of foreign subsidiaries have been translated into euro using the weighted average exchange rates during the financial year and balance sheets have been translated at the average rate on the balance sheet date. Translation of income and comprehensive income at different exchange rates in the income statement and in the balance sheet results in translation differences which have been recognized in the balance sheet under equity, the difference of which has been recognized in the items of the comprehensive income. The translation differences arising from the elimination of the acquisition cost of foreign subsidiaries and from the translation of equity items accumulated after the acquisition have been recognized in the other items of the comprehensive income. On partial or full disposal of a subsidiary, the accumulated translation differences have been recognized through profit or loss as part of the gains or losses from disposal. The exchange rates used for the consolidation of subsidiaries are presented in the notes to the consolidated income statement and balance sheet, note number 39 to the financial statements. 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. All components pertaining to each contractual entity have been treated as a whole and the same revenue recognition method is applied to them. Revenue and costs from long-term projects (project deliveries and modernizations in technology services) have been recognized based on the percentage of completion as soon as it has been possible to assess the end result reliably. Percentage of completion is measured on a cost basis as the relation of actual project costs to the estimated total project costs. When it is probable that the total costs needed to complete the contract will exceed total contract revenue, the expected loss has been 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 been incurred, and project revenue has been recognized only to the extent of project costs that are likely to be recovered. Costs related to projects that have not yet been recognized in revenue have been recognized as long-term projects in 14 FINANCIAL STATEMENTS 2012 / GROUP progress under inventories. If the incurred costs and recognized profits are larger than the amount invoiced for the project, the difference is recognized in the accounts receivables and other receivables balance sheet item. If the incurred costs and recognized profit are smaller than the amount invoiced for the project, the difference is recognized in the trade and other payables item. During the financial year 2012 and the comparison period, the Group had no financial costs allocated to the long-term projects entered in the balance sheet. Changes to the project, requirements concerning additional charges and incentives have been taken into account in the project income to the extent that can be reliably determined and which has been agreed upon with the customer. If a contractual entity (e.g. mill-scale delivery) includes subentities (e.g. production lines) with determined contract terms and conditions and with risks, rewards and control of ownership transferred to the buyer separately from the rest of the contractual entity, they have been treated as separate long-term projects. Revenues from the sale of spare parts and other goods, as well as small and short-term projects, have been recognized in full when the significant risks and rewards have been transferred to the buyer and the Group no longer has right of possession of and control over the product. This generally means the moment at which the goods have been delivered to the customer in accordance with the agreed delivery clause. The delivery conditions used in the Group are based on Incoterms 2010 delivery clauses which have been presented in the official rules published by the International Chamber of Commerce for the interpretation of trade terms. Revenues from time-based maintenance contracts have been recognized as income for the maintenance contract period and the costs incurred have been recognized as expenses on performance basis. Revenues from other services have been recognized in net sales for the period in which the service has been provided. Other operating income includes revenue not included in net sales, such as lease income, insurance compensations and gains on the disposal of fixed assets. Lease income has been recognized as income on a straight-line basis for the lease term. Interest income is recognized as income in the period in which it has arisen. Dividend income has been recognized when the company paying dividends pays it. Income taxes The taxes in the consolidated income statement include the taxes corresponding to the Group companies' taxable profit for the financial year, as well as tax adjustments for previous years 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. Taxes have been recognized in the income statement, except when they are related to other comprehensive income items or recognized directly in equity. In which case the tax has also correspondingly been recognized in other comprehensive income items or directly in equity. Deferred taxes have been 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 liabilities have been presented in full in the balance sheet. Deferred tax receivables have been presented to the extent that it is probable that taxable profits will be available against which temporary differences can be utilized. Financial assets Financial assets have been classified as financial assets at fair value through profit and loss, loans and other receivables and available-for-sale financial assets. Classification is made based on the purpose of acquisition in conjunction with the original acquisition. Financial assets are derecognized from the balance sheet when the contractual right to receive cash flows has expired or the Group has substantially transferred risks and income outside the Group. Financial assets at fair value through profit or loss An item in financial assets is assigned to the "Financial assets at fair value through profit or loss", if it is held for trading. All purchases and sales of financial assets have been recognized on the transaction date. Shares and units as well as other securities have been classified as financial assets at fair value through profit or loss. Financial assets held for trading have mainly been acquired to generate profit from short-term changes in market price. Derivatives which are used for hedging purposes, but hedge accounting is not applied, are classified as held for 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. Gains and losses from changes in fair value have been recognized in the income statement under item "Financial income and expenses" and in the period in which they have arisen. Loans and other receivables Loans 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. The Group's loans and other receivables also include the balance sheet's accounts receivables and other receivables as well as cash and cash equivalents. Loans and other receivables have been measured at amortized cost using the effective interest method and they have been presented in non-current assets if they mature over 12 months from the balance sheet date. Otherwise they have been presented in current assets. Only substantial transaction costs are counted for when measuring the acquisition cost. 15 FINANCIAL STATEMENTS 2012 / GROUP Sales and other revenue have been recognized in accounts receivables at the original receivable amount. Current accounts receivables have been measured at the original receivable amount. Accounts receivables are classified as noncurrent financial assets if they mature over 12 months from the balance sheet date. Cash and cash equivalents comprise cash in hand, current bank deposits and other highly liquid short-term investments with original maturities of three months or less. Bank overdrafts are included in current interest-bearing liabilities. Credit accounts related to Group accounts are included in current 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. Available-for-sale financial assets 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. Availablefor-sale financial assets may consist of shares and interestbearing investments. They have been measured at fair value or, where fair value cannot be reliably determined, at cost of acquisition. Changes in fair value of available-for-sale financial assets have been recognized in other items of the comprehensive income and they have been presented in the fair value reserve, including the tax effects. Accumulated changes in fair value are transferred from equity and recognized through profit or loss when the investment is sold or when its value has decreased in such a way that an impairment loss must be recognized for the investment. Permanent impairment of assets is always recognized directly in the income statement. Impairment of financial assets At the reporting date the Group assesses whether there is objective evidence of impairment of a financial asset or a group of financial assets. If the fair value of the Group's equity investment is significantly less than the acquisition cost and the time period defined by the Group, this is a sign of impairment of the available-for-sale share. If impairment has occurred, the losses accumulated in the fair value reserve are transferred to the income statement. Impairment losses of equity investments classified as available-for-sale assets have not been reversed through profit or loss, while the later reversal of impairment losses directed at interest-bearing instruments has been recognized through profit or loss. The default risk related to accounts receivables is estimated on the basis of a comprehensive survey of accounts receivables carried out at the balance sheet date. Factors indicating impairment of accounts receivables include repeated failures or delays to pay, imminent bankruptcy or debt restructuring as a result of major financial difficulties of the debtor. Estimated impairment losses have been recognized in the income statement as the difference between the carrying amount and the present value of estimated future cash flows discounted at the effective interest rate. If an 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 loss is reversed through profit or loss. Financial liabilities Financial liabilities are initially recognized at fair value. Transaction costs are included in the initial carrying amount of the financial assets at amortized cost. Later, financial liabilities, excluding derivative liabilities, have been measured at amortized cost using the effective interest method. Financial liabilities are included in non-current and current liabilities. Financial liabilities are classified as current unless the Group has the unconditional right to defer the payment of the debt to at least 12 months from the reporting date. All of the fair values of financial assets and liabilities in the balance sheet are based on market values at the reporting date. The fair values have been presented in the note number 38 to the financial statements. Derivative financial instruments and hedge accounting The Group uses currency derivative contracts hedging against currency risks of commercial transactions and currency derivative contracts hedging against currency risks of financing items to hedge against currency risks related to future transactions. The decision to apply hedge accounting is made separately for each contract at the contract date. In hedge accounting, the hedging relationship between the hedged item and the hedging instrument and risk management objectives and strategies for hedging transactions are documented when the hedging relationship is created. Each hedging derivative is set to hedge certain assets and liabilities, binding contracts or future transactions. Both when starting hedging and after hedging has begun the Group documents an estimate of whether the change in the fair value of the hedging instrument effectively corresponds to the changes in the fair values of the hedged cash flows or other hedged items. The derivative financial instruments have been recognized in the balance sheet at their fair value at the contract date and are later remeasured at fair value. The fair values of derivative contracts have been determined using the market values at the balance sheet date. Gains and losses from fair value measurement are treated as determined by the purpose of the derivatives. The effects on results of changes in the value of derivatives that are eligible for hedge accounting and that are effective hedging instruments are presented consistent with the hedged item. When derivative contracts are entered into, the Group assigns them to hedge against a certain risk which relates to an asset or liability recognized in the balance sheet or a highly probable forecast transaction (cash flow hedging). 16 FINANCIAL STATEMENTS 2012 / GROUP Changes in fair value in derivative contracts which meet the conditions of fair value hedging are recognized through profit or loss. Changes in the fair value of hedged asset or liability items, on the part of the hedged risk, are managed similarly. The Group does not have fair value hedged items at the reporting date. The effective portion of changes in the fair value determined as cash flow hedging has been recognized in the items of the comprehensive income and presented in the equity hedge reserve item `Other funds'. The gains and losses in equity resulting from the hedge instrument have been transferred and recognized in profit or loss when the hedged item affects the profit or loss. The gains and losses from derivatives hedging a predicted sale in foreign currency are recognized as sales adjustments when the sale materializes. The hedge instrument's ineffective portion of profit or loss is marked in the balance sheet item `Financial income and expenses' when it is incurred. When a cash flow hedge instrument matures, it is sold, or when the criteria of hedge accounting are no longer met, the profit or loss of the hedge instrument remains in equity until a predicted business transaction realizes. However, if the predicted hedged transaction is no longer expected to occur, the profit or loss in the equity is immediately recognized as profit or loss. The changes in the value of the derivatives to which hedge accounting is not applied have been presented in the income statement items before operating profit and the changes in financing derivatives have been presented in financing income or expenses. The fair values of financing derivatives have been set off against each other for the financing derivatives with a right of mutual set-off. The fair values of the derivatives used in hedging are presented in note number 36 to the financial statements. The changes in the hedge reserve that are included in equity, which have been recognized in the other items of the comprehensive income, are presented in note number 38 to the financial statements. The derivatives have been presented as accrued expenses or receivables in non-current assets or liabilities in the balance sheet when the remaining hedged item is more than 12 months from the reporting date. Otherwise the derivative has been presented as accrued expenses or receivables under current assets or liabilities in the balance sheet. Intangible assets An intangible asset has been recognized in the balance sheet when it is probable that the expected future financial benefit attributable to the asset will flow to the entity over a period of several years (amortization period) and the cost of the asset can be measured reliably. In other cases the expenditure from intangible assets has been recognized as an expense when incurred. Intangible assets include capitalized development costs and other intangible assets. Research and development costs Research costs have been recognized as an expense in the income statement. Development costs incurred in planning new or more advanced products and in manufacturing test machinery for testing them has been 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 product development costs include the material, work and testing expenditure incurred directly from completing the product for the intended purpose. Development costs previously recognized as an expense is not capitalized at a later date. Amortization of capitalized product development costs is started when the product is ready for use. The useful life of development costs is three years, during which time capitalized assets have been recognized as an expense on a straight-line basis. Capitalized costs for product development in progess are tested annually for impairment. If the carrying amount of an asset exceeds the estimated recoverable amount, it is immediately reduced to correspond to the recoverable amount. After they have been originally recognized, capitalized product development costs are measured at acquisition cost less accumulated amortization and impairment. Other intangible assets Other intangible asset has been recognized in the balance sheet at original cost when it is probable that the expected future financial benefit attributable to the assets will flow to the entity over a period of several years (amortization period) and the cost of the assets can be measured reliably. Intangible assets with a finite useful life have been recorded in the balance sheet and recognized in the income statement as an expense based on the straight-line depreciation method over their useful life as follows: Patents Computer software Other intangible assets 10 years 3­5 years 3­10 years. The expected useful lives of the items in the intangible assets in the balance sheet have been reviewed at each reporting date. If they differ considerably from previous estimates, the amortization plan is updated in accordance with the new expected useful lives. The carrying values of intangible assets with limited useful lives have been reviewed at each reporting date. If the value of an asset has decreased significantly the impairment is transferred to the income statement. A previously made impairment can be reversed if the circumstances can be shown to have improved considerably. Property, plant and equipment All property, plant and equipment is measured at acquisition cost less accumulated depreciation and impairment. The acquisition cost includes the purchase price, cash and other discounts, import duties and fixed taxes. When a property, plant or equipment is manufactured in-house, it 17 FINANCIAL STATEMENTS 2012 / GROUP also includes, in addition to the above-mentioned items, a share of the Group's fixed costs. Ordinary property, plant and equipment repair and maintenance costs have been recognized through profit or loss as incurred. Possible costs incurred in restoring to original state have been taken into account in IFRS accounting as part of the acquisition cost. Raute Corporation's consolidated financial statements of December 31, 2012, including the comparison data, do not include property, plant or equipment for which costs capitalized in the future should be taken into account. Depreciation of tangible assets is calculated using the straight-line method over their estimated useful lives as follows: Buildings 25­40 years Machinery and equipment 4­12 years Other fixed assets 3­10 years Land no depreciations are made. The residual value and useful lives of assets are reviewed at the last day of each reporting period and are changed if necessary. If the carrying amount of an asset exceeds the estimated recoverable amount, it is immediately reduced to correspond to the recoverable amount. Gains and losses on decommissioning and disposal of property, plant and equipment have been recognized through profit or loss. Public contributions Public contributions received as compensation for costs incurred have been recognized in the income statement in the period in which the right to receive the contribution arises. Contributions related to acquisitions of intangible and tangible fixed assets have been recognized as a decrease in the carrying amounts when the Group meets the eligibility criteria for the contribution and a decision granting the contribution is received. Impairment of non-financial assets Regular amortizations are not recognized for the Group's intangible assets with an indefinite useful life, but they are tested annually for impairment. Assets that are subject to the amortization are reviewed for impairment always when events or changes in circumstances provide indications that it may be impossible to recover the carrying amount of the assets. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. The value in use is the present value of the expected recoverable cash flows from the asset. For the assessment of impairment, the assets are classified at the lowest levels at which the cash flows can be separately identified. The amount by which the carrying amount of the asset exceeds the recoverable amount is recognized in the income statement as an impairment loss. An impairment loss recognized in previous periods for non-financial assets other than goodwill is reassessed at each balance sheet date. The recognition of an impairment loss is reversed when a change has taken place in the circumstances or in the estimates used to determine the recoverable amount of the asset. However, reversal of impairment shall not exceed the asset's carrying amount less impairment loss. Leases Leases in which a significant portion of the risks and rewards incident to ownership are retained by the lessor have been treated as operating leases. Payments made under other leases have been recognized as an expense based on the lease period. Inventories Inventories have been measured at the lower of cost and net realizable value. Raw materials and supplies have been 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 financial expenses. Net realizable value is the estimated selling price in the ordinary course of business, less costs of completion and sale. The value of inventories includes impairment due to obsolescence. Provisions Provisions have been 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 obligations has been recognized through profit or loss 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 has been recognized as income at the end of the warranty period and expiry of the warranty obligations. In long-term projects recognized on the basis of percentage of completion, the warranty provisions are included in the estimated total costs of the project. Provision for unprofitable contract has been recognized when the unavoidable direct costs and estimated indirect production costs and depreciation under the contract exceed the benefits from the contract. Employee benefits Pension obligations Pension plans have been classified into defined benefit and defined contribution plans. Under a defined contribution plan the Group pays fixed contributions to a separate insurance company, after which the Group has no other obligations to pay. In addition, 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 which do not meet these conditions have been classified as benefit pension plans. Contributions to defined contribution pensions plans have been recognized in the income statement as an expense in the period in which they were due. The Finnish statutory employment pension scheme and the pension plans of foreign subsidiaries have been classified as defined contribution plans. 18 FINANCIAL STATEMENTS 2012 / GROUP Raute Corporation's voluntary supplement to pension coverage has been treated in accounting as a defined benefit plan. Obligations arising from the voluntary supplement to pension coverage have been recognized as expenses in the income statement on the basis of actuarial calculations over the employees' average remaining working lives. Share-based payments The Group has a valid Stock Option Plan. In 2010, 2011 and 2012 Raute Corporation granted stock options to key persons separately determined by the Board of Directors and to a wholly-owned subsidiary of Raute Corporation for further delivery to the key personnel of Raute Group. The granted stock options are measured at fair value at their grant date. The granted options are measured at fair value at their grant date using the Black-Scholes option pricing model. The fair values of the options granted to the personnel are recognized as an expense in the statement of comprehensive income under social security costs on a straightline basis over the vesting period. The vesting period refers to a period of time during which all vesting conditions for achieving the right must be met. The counterpart entry of the expense entry is recognized in equity. The expense determined at the option grant date is based on the Group's estimate of the number of options expected to vest at the end of the vesting period. The estimated number of final options is estimated at each reporting date. Any changes to the estimates are entered in the income statement and in equity. When stock options are used, money payments received on the basis of share subscription are recognized in equity, adjusted for any transaction costs. Information on share-based payments is presented in the note number 27 to the financial statements. Obligations when making dismissals Items settled in the case of dismissals are recognized as expenses when the Group is set to irrevocably terminate workers' employment contracts. Other liabilities likely to arise on the basis of different codes relating to the benefits of dismissed persons have been estimated at the reporting date and recognized as an expense and liability. Restructuring provision has been recognized and presented in the income statement in the cost item in which the costs are expected to be incurred, when the Group has drawn up a detailed plan for restructuring and has started to implement the plan or has announced it. In the case of dismissals, a provision for future unemployment pension contributions has been recognized in the Group's Finnish companies for persons whose age may later give rise to the employer company's obligation to pay unemployment contributions. Share capital Series K and series A shares held by third parties have been presented in share capital. Expenditure related to issues or acquisitions of own equity instruments has been presented as allowance for equity. When the Parent company repurchases equity instruments, their acquisition cost has been deducted from equity. Dividend The dividend proposed by the Board of Directors to the Annual General Meeting has been recognized as a liability and a deduction from distributable equity for the period in which the dividend has been approved for distribution by the shareholders. Operating profit 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 from employee benefits, depreciation and possible impairment losses, as well as other operating expenses. All other income statement items are presented under operating profit before the profit for the financial year. Critical accounting judgments and key sources of estimation uncertainty When preparing the consolidated financial statements in compliance with International Financial Reporting Standards, the company management must make certain estimates and assumptions. In addition, the management must exercise its judgment in selecting and applying the accounting policies. These estimates and assumptions affect the assets and liabilities in the Group's balance sheet, the disclosure of commitments and possible assets in the consolidated financial statements, and income and expenses for the period. Because the estimates are based on management's best knowledge at the reporting date, actual results may differ from these estimates. The management is not, by the time the financial statements were to be published, aware of any major uncertainties concerning the estimates on the reporting date or any key assumptions concerning the future, on the basis of which there would be a considerable risk of a substantial change in the carrying values of assets and liabilities during the next financial year. The key items where the estimates have been used are as follows: Estimated impairment The Group's intangible assets have been tested for impairment. Other balance sheet assets have been assessed for indications of impairment as explained in the accounting principles above. The recoverable amounts of cash-generating entities have been determined based on value-in-use calculations, which require the use of estimates. Where the carrying amount of the asset exceeds the assets estimated recoverable amount or fair value, impairment has been recognized through profit and loss. 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 19 FINANCIAL STATEMENTS 2012 / GROUP profit is adjusted in the period in which the change first becomes known and can be estimated. Warranty provision The amount of warranty provisions is estimated on the basis of the management's experience from product costs in the warranty period, taking into consideration special product risks. Receivables The management has estimated customers' ability to remit the payment of such trade receivables, for which the company has not received any securities. The Group companies' ability to settle the trade receivables and payments related to the loans has been estimated by the management. Income taxes The management has also made estimates pertaining to the period's income taxes and deferred tax assets and liabilities. Criteria for recognition and measurement of deferred tax assets are estimated at the balance sheet date. The management estimates how likely it is for the Group's companies to have future recoverable taxable income against which unused tax losses can be utilized. The preparatory estimates used for the estimates at the balance sheet date can differ from the actual figures, in which case changes in tax assets have been recognized as expenses in the income statement. Employee benefits When calculating the Group's defined benefit pension plan, statistical and actuarial assumptions have been used, such as discount rate, expected income from the assets included in the pension plans and estimated future pay raises. The statistical assumptions used in the estimates can differ from the actual figures due to, among others, the general financial situation or the duration of the employees' working life. IFRS standards that have been published and will be valid in future financial periods The following are the standards, interpretations or amendments to the existing standards and interpretations that have been published by IASB but were not effective on the financial year starting on January 1, 2012. The Group will apply them beginning on the date that each standard and interpretation comes into effect, or, if the date of entry into force is a date other than the first day of the financial year, beginning at the start of the financial year following the date of entry into force. ·AmendmentIAS19EmploymentBenefits(effectiveonfinancial periods beginning on or after January 1, 2013). The amendments mean that actuarial gains and losses shall be immediately recognized in the statement of comprehensive income, in other words the so-called corridor method will be abandoned and financing costs will be classified based on net funding. ·IFRS 9 Financial Instruments (effective on financial periods beginning on or after January 1, 2015). IFRS 9 is the first phase of a larger project which aims at replacing IAS 39 with a new standard. The multiple classification and measurement methods have been retained, but simplified. Financial assets are classified into two main categories based on the measurement: those measured at amortized cost and those measured at fair value. Classification depends on the entity's business model and contractual cash flow characteristics. The IAS 39 guidelines concerning derecognition and hedge accounting will remain effective. The EU has not yet endorsed the standard for use in the EU. ·IFRS 10 Consolidated Financial Statements (effective on financial periods beginning on or after January 1, 2014). This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard also provides additional guidance to assist in determining control where this is difficult to assess. ·IFRS 11 Joint Arrangements (effective on financial periods beginning on or after January 1, 2014). This standard focuses on the rights and obligations of joint arrangements in accounting, rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. The standard additionally requires a single method for the reporting of joint ventures, the equity method, and proportional consolidation of joint ventures is no longer allowed. ·IFRS 12 Disclosure of Interests in Other Entities (effective on financial periods beginning on or after January 1, 2014). The standard includes the disclosure requirements for all forms of interests in other entities, including associates, joint arrangements, special purpose vehicles and other off balance sheet vehicles. ·IFRS 13 Fair Value Measurement (effective on financial periods beginning on or after January 1, 2013). This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements. The use of fair value accounting is not extended but guidance is provided on how it should be applied where its use is allowed or required by other standards. The new standard shall add the information in the notes to the financial statements, which the Group shall disclose on the asset items which are measured at fair value and unclassified in financial assets. ·IAS 27 (revised 2011) Separate Financial Statements (effective on financial periods beginning on or after January 1, 2014). This revised standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. ·IAS 28 (revised 2011) Associates and joint ventures (effective on financial periods beginning on or after January 1, 2014). Revised standard includes the requirements for 20 FINANCIAL STATEMENTS 2012 / GROUP associates and joint ventures that have to be equity accounted following the issue of IFRS 11. In the future, the above-mentioned standards, amended standards and interpretations may have an effect on the handling of future business transactions. 2 MANAGEMENT OF FINANCING RISKS The Group, in its operations, is exposed to financing risks which have been classified into market, counterparty and liquidity risks. The key risk areas of the Group's international business operations have been recognized as default risks of the counterparty risks and currency risks of the market risks. The Group is also exposed to liquidity and refinancing risks, as well as interest and price risks, which are part of market risks. The aim of the Group's financing risk management is to minimize the negative effects of the changes in the financial markets on the Group's financial performance and ensure sufficient liquidity in all market conditions. The Group implements a financing policy, which is approved by the Parent company's Board of Directors and defines the limiting values that guide operations, the adopted financial and hedging instruments, and the acceptable counterparties. The Parent company's financing unit is responsible for the management of financing risks, with a duty to identify, assess, and hedge financing risks in cooperation with operative units. The Board regularly monitors the extent of the financing risks based on, among others, the net currency position, the age distribution and the hedging of receivables as well as cash flow estimates and financial stress tests. Market risk Market risks include currency, interest and price risks. Currency risks are further divided into transaction and translation risks. Currency risks The Group operates in international markets and is thus exposed to currency risks resulting from changes in currency exchange rates. The Group's currency risks consist of foreign currency denominated sales and purchases as well as assets and liabilities recognized in the balance sheet (transaction risks) and investments in foreign subsidiaries (translation risks). The Group's main currency is the euro. The most significant currency risks result from the following currencies: - Chinese yuan (CNY) - Russian ruble (RUB) - Canadian dollar (CAD) - US dollar (USD). The distribution of the Group's sales varies annually according to market area. In 2012, 85 percent (74%) of net sales were generated outside the euro zone. The Group primarily uses each Group company's functional currency as the primary trading currency, of which the most important is the euro. The Group's operative units hedge foreign currency denominated accounts receivables based on binding sales contracts through the Parent company's financing unit when the contracts take effect. Currency forward contracts are used to hedge sales payments operatively. Primarily, cash flows accumulating from unhedged accounts receivables in the same currency are used in the hedging of currency risks related to procurement contracts. Future cash flows, which are not based on binding contracts, are usually not hedged with derivative contracts. Currency clauses are used to hedge against currency risks during the quotation period. Depending on the case, currency risks related to preliminary sales contracts are hedged with currency option contracts. The value of forward contracts used to hedge business operations was EUR 1.8 million (MEUR 0.6) at the balance sheet date. The Group can reduce the temporary effect on the operating profit related to the fair value of derivative contracts resulting from changes in exchange rates by applying hedge accounting to the derivatives connected to binding, fixedprice sales contracts. The Group's Parent company concludes, with an external counterparty, a derivative contract which is defined as a hedging instrument in hedge accounting. Subsidiaries use internal derivatives to hedge transactions defined as hedged items. The total amounts of the valuation gains and losses for derivatives have been presented in the note 36 to the financial statements. The internal loans taken out by the Group companies and their deposits are mainly in the functional currency of the subsidiary in question. The currency exchange risks of internal loans are hedged with forward contracts, with the exception of equity loans. Forward contracts related to the hedging of the Group's internal financing had a nominal value of EUR 2.1 million (MEUR 1.2) at the end of the financial year 2012. The Parent company Raute Corporation has a currencydenominated loan in the amount of SEK 35.3 million. The currency-denominated loan's currency risk is hedged with a currency swap agreement. The subsidiaries' loans from external financial institutions are in each company's functional currency. The forward contract receivables and liabilities related to business payments and denominated in foreign currency, to which hedge accounting is not applied, increase the currency risk to the Group at the balance sheet 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 had a EUR 12 thousand negative effect on the Group's operating profit (EUR -30 thousand) at the reporting date. The nominal values of derivatives related to financing are presented in the note 36 of the financial statements. 21 FINANCIAL STATEMENTS 2012 / GROUP Transaction risks The Group regularly monitors transaction risks in the main currency pairs. Currency flows related to binding contracts, and derivate contracts used for their hedging, are taken into account in the net currency position from the reporting date onwards regardless of which year's profit or loss the currency risk will effect. The aim of managing currency risks is to keep the open net currency positions of each Group currency pair at less than EUR 500 thousand for each currency pair other than for the Russian ruble, for which the aim is to keep the net currency position at less than EUR 1 million. The Group's net currency position and its portion included in the balance sheet at the reporting date (Net balance sheet risk) is presented in currency pairs in the following table: Net currency position 2012 2011 191 806 -1,193 -1,116 -801 37 191 -8 338 342 Net balance sheet risk 2012 2011 -1,384 35 -1,193 -1,116 -814 29 -34 -8 48 238 EUR 1,000 CNY RUB CAD USD +/- 20 % +/- 20 % +/- 20 % +/- 20 % Effect on profit after tax 2012 2011 +/- 37 +/- 59 +/- 7 +/- 9 +/- 312 +/- 204 +/- 2 +/- 1 Table: Sensitivity analysis All foreign currency receivables and liabilities as well as the currency derivative contracts, recognized in the balance sheet on the reporting date, have been taken into account in the sensitivity analysis. In the analysis, the change in exchange rate has been estimated to be +/-20 percent from the reporting date. Other factors are estimated to remain unchanged. Interest risk The Group's interest risk results from non-current liabilities. The Group's objective is to hedge against interest risks related to liabilities through fixed-interest rate loans, interest rate derivative instruments and sufficient liquid assets. The Group takes out loans with either fixed interest rates or floating interest rates. The floating interest rate loans expose the Group's cash flow to interest risk. The Group has a floating rate loan in Swedish krona. The Group has used an interest rate swap to hedge against the interest risk resulting from the floating interest rate loan. No hedge accounting has been applied to the interest rate swap hedging the loan. At the end of the financial year, 62 percent of the Group's loans were fixed-interest rate and 38 percent floating interest rate loans. On the last day of the financial year, the Group had an open interest rate swap, based on which the Group has received an average of 3.51 percent in fixed interest and paid 3.15 in floating interest. In the Group, the fluctuating interest level mainly influences the arising return level of liquid assets. In the uncertain financial market situation, the Group is avoiding investment instruments which involve significant interest or price risks. No investments in interest funds were included in the financial statements of December 31, 2012 or the comparison year. On the reporting date, cash and cash equivalents were invested in fixed interest rate accounts. Price risk 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 price risk of the electric power used in the Group's production processes is followed and managed through fixed-price contracts. At the balance sheet date, there were no derivatives hedging price risk that would affect the profit or loss in the consolidated financial statements. EUR 1,000 CNY/EUR RUB/EUR CAD/EUR USD/EUR USD/CAD Table: Group transaction risks Translation risks The Group is exposed to translation risks. The Group has foreign subsidiaries which have equities in currencies other than the Parent company's functional currency. The currency risks related to the conversion of the foreign subsidiaries' net investments to the Group's home currency, the euro, have not been hedged. The Group's subsidiaries' noneuro-denominated equities equaled altogether EUR -9,784 thousand on December 31, 2012 (EUR -8,536 thousand). Net investments are detailed according to currency in the following table: Net investments in subsidiaries 2012 2011 875 493 355 355 84 84 17 17 15 15 EUR 1,000 CNY RUB CAD USD Other Table: Net investments in subsidiaries by currency Sensitivity analysis A sensitivity analysis in the main currency pairs on the transaction risk, i.e. the effect of reasonable potential changes in the exchange rates on the Group's profit or loss before tax and on equity on December 31, 2012 and at the comparison date, is presented in the following table: 22 FINANCIAL STATEMENTS 2012 / GROUP In a normal financial market situation, the Group invests its cash and cash equivalents in equity funds as well as fixedinterest funds and is thus exposed to price risks arising from the changes in the market prices of listed funds. On the balance sheet date, there were no fund or other investments held for sale. Counterparty risk The Group's most significant counterparty risks are customer credit risks related to contractual counterparties in the project business and counterparty risks related to the Group's investment activities. Credit risk and other counterparty risks Credit risks or counterparty risks are realized when the customer or other counterparty is unable to fulfill its commitments to the Group. The maximum amount of credit risk at the balance sheet date is the book value of financial assets. At the end of the financial period on December 31, 2012 the maximum amount of credit risk was EUR 34.5 million (MEUR 35.0). Credit risks related to contractual counterparties in project deliveries are managed by expecting 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. Credit risks related to technology services are managed by regularly monitoring the customer-specific amounts of receivables and customers' payment behavior. As a result of the general uncertainty of the global economy and financial markets, in addition to European bank risk, the risk level for unhedged receivables is expected to be slightly higher than normal. The maximum credit 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 securities. Received bank guarantees and letters of credit covered 16 percent (28%) of the accounts receivables and the percentage of completion receivables recorded in the balance sheet and 25 percent (4%) of the order book at the end of the financial year. The credit losses recognized during the financial year amounted to EUR 1.6 million (MEUR 0.5) of which EUR 1.3 million had been hedged with the credit risk guarantee agreement. No significant credit risk clusters were recognized in the accounts receivables at the balance sheet date. The outstanding advance payments presented in the table "Customer receivables" are invoiced payments connected to binding contracts which are not included in the assets of the balance sheet at the balance sheet date. The combined age analysis of accounts receivables and invoiced advance payments of binding sales contracts is shown in the following table "Age distribution of accounts receivables". EUR 1,000 Accounts receivables in the balance sheet Invoiced outstanding advance payments TOTAL Table: Customer receivables EUR 1,000 Neither past due nor impaired Overdue 0­29 days Overdue 30­60 days Overdue more than 60 days TOTAL 2012 4,107 3,740 7,847 2011 5,540 1,811 7,350 2012 5,625 472 120 1,630 7,847 2011 6,116 565 100 569 7,350 Table: Age distribution of accounts receivables Counterparty risk for investment activities The financing instrument contracts that the Group has concluded with banks and financial institutions involve the risk that the counterparty is not able to fulfill its obligations according to the contract. In investment activities and when concluding derivative contracts, only those parties which have a good credit rating and which meet the other terms and conditions defined by the financing policy are accepted as counterparties. When making investments, or derivative and loan agreements, the Group applies counterpartyspecific upper limits to avoid risk concentrations. On the balance sheet date, the investments related to the Group's cash management were in Nordic banks. The liquid assets in financial institutions outside the euro zone were EUR 2.0 million (MEUR 1.3) at the balance sheet date. Liquidity risks Due to the nature of the Group's project business, required financing and the amount of liquid assets also fluctuate in the short term. Predicting working capital requirements is made especially challenging by new orders which have individual payment terms and involve uncertainties related to delivery schedules. The minimum amounts of cash and cash equivalents, current investments, and available credit liabilities have been defined in the Group's financing policy to ensure the Group's liquidity. Good liquidity is maintained primarily through efficient working capital and cash management. 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 sufficient liquidity. The Group did not have interest-bearing net liabilities in the consolidated financial statements of December 31, 2012 or in the comparison year. The cash and cash equivalents available to the Group are sufficient to cover the Group's shortterm financing needs. The Group's cash and cash equivalents totaled EUR 19.5 million (MEUR 25.7) at the end of the financial year. The Group has made preparations for fluctuating working capital requirements and possible disturbances in the availability of money with a loan portfolio, which is made up of EUR 9.4 23 FINANCIAL STATEMENTS 2012 / GROUP million in loans from financial institutions (MEUR 11) and a EUR 2 million TyEL loan (MEUR 4). Investments are made primarily in short-term deposits or marketable euro-denominated investments with good credit rating. The Group's financial liabilities include trade payables, derivative liabilities and interest-bearing liabilities. Trade payables are due within less than a month on average. Repayment of interest-bearing loans based on the Group's loan contracts and cash flows from financial expenses related to them and cash flows from other financial liabilities are presented in the table below. The items presented in the table are undiscounted cash flows. EUR 1,000 TyEL loans Repayments Financial expenses Total EUR 1,000 Loans from financial institutions Repayments Financial expenses Total EUR 1,000 Trade payables Repayments Financial expenses Total 2013 2,000 56 2,056 2014 - 2015 - 2016 - 2017 - Total 2,000 56 2,056 3,250 329 3,579 3,250 205 3,455 1,250 97 1,347 1,250 43 1,293 - 9,000 674 9,674 6,465 6,465 - - - - 6,465 6,465 EUR 1,000 Accrued expenses and prepaid income Repayments 5,189 Financial expenses Total 5,189 EUR 1,000 Derivatives Repayments Financial expenses Total Table: Maturity analysis In addition, bank credit limits and Raute Corporation's EUR 10 million (MEUR 10) domestic commercial paper program, which allows the Group to issue commercial papers maturing in less than one year, secure the Group's liquidity. Nordea Bank Finland Plc is the arranger of the program. The company has bilateral current credit regulation agreements worth EUR 5 million (MEUR 5), of which EUR 5 million (MEUR 5) could be used as credit limits on December 31, 2012. Capital structure management The objective of the Group's capital structure management is an effective capital structure that secures the Group's operational preconditions on the capital market. The Group's Parent company's credit ranking throughout 2012, as well as in the comparison year 2011, was good. The Group's capital structure is followed using the equity ratio, which has been set a strategic target value. During the financial year 2012 the target value of the equity ratio - - - - 5,189 5,189 33 33 - - - - 33 33 was over 40 percent. At the end of the financial year, the equity ratio was 48.0 percent (46.9%) and gearing -33.5 percent (-47.1%). The Group has set in its loan and credit contracts, as well as in the security agreements related to them, the following key covenants: - equity ratio to be over 31 percent and - gearing to be under +100 percent. The loan covenants are reported to the creditor on a quarterly basis. If the Group breaks the loan covenant conditions, the creditor may require expedited repayment of the loans. During the financial year 2012 and the comparison year, the Group met the conditions of the covenants and reached the set target value of equity ratio. 24 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 3 SEGMENT INFORMATION Operational segment Continuing operations of Raute Group belong to the wood products technology segment. Raute Corporation's Board of Directors is the chief operating decision maker that is responsible for assigning resources to the operating segment and assessing its result. The Board monitors profitability through the operating profit key figure. Due to Raute's business model, operational nature and administrative structure, the operational segment to be reported as wood products technology segment is comprised of the whole Group and the information on the segment is consistent with that of the Group. The division into operating segments is based on the Group's internal decision-making order and is consistent with the financial reports submitted to the chief operating decision maker. Segment reporting follows the principles of presentation of the consolidated financial statements. Wood products technology Net sales Operating profit (loss) Assets Liabilities Capital expenditure Assets of the wood products technology segment by geographical location Finland China North America Russia South America Others TOTAL Capital expenditure of the wood products technology segment by geographical location Finland China North America Russia South America Others TOTAL 2012 % 2011 % 101,273 5,031 63,087 38,946 3,529 74,323 -738 52,666 30,597 1,885 53,631 4,406 3,437 1,257 199 158 63,087 85 7 5 2 0 0 100 46,196 1,550 3,305 1,302 170 143 52,666 88 3 6 2 0 0 100 2,980 517 6 1 22 2 3,529 84 15 0 0 1 0 100 1,824 36 22 2 1 1,885 97 2 1 0 0 100 25 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 4 NET SALES The main part of the net sales is comprised of project deliveries related to wood products technology and modernizations in technology services, which are treated as long-term projects. The rest of the net sales is comprised of technology services provided to the wood products industry such as spare parts and maintenance services as well as services provided to the development of customers' business. Project deliveries and modernization related to technology services include both product and service sales, making it impossible to give a reliable presentation of the breakdown of the Group's net sales into purely product and service sales. Large delivery projects can temporarily increase the shares of various customers of the Group's net sales to more than ten percent. At the end of the financial year 2012, the Group had two (2) customers, whose share of the Group's net sales temporarily exceeded ten percent. The share of the other customer was 36 percent and the other's 14 percent. Net sales by market area LAM (South America) EMEA (Europe) CIS (Russia) NAM (North America) APAC (Asia-Pacific ) TOTAL Finland accounted for 6 percent (12%) of net sales. 5 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 project revenues not yet entered as income (order book) Balance sheet items of uncompleted projects Projects for which the value by percentage of completion exceeds advance payments invoiced - aggregate amount of costs incurred and recognized profits less recognized losses - advance payments received Gross amount due from customers Projects for which advance payments invoiced exceed the value by percentage of completionn - aggregate amount of costs incurred and recognized profits less recognized losses - advance payments received Gross amount due to customers 2012 % 2011 % 52,588 22,179 14,454 8,469 3,583 101,273 52 22 14 8 4 100 4,301 19,608 26,026 6,090 18,299 74,323 6 14 35 8 25 100 85,267 16,006 101,273 58,760 15,563 74,323 89,601 45,250 49,040 35,034 64,872 48,372 16,499 16,805 13,431 3,374 27,890 40,394 12,504 28,445 33,704 5,259 26 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 2012 2011 Specification of combined asset and liability items Advance payments paid Advance payments received included in inventories in the balance sheet Advance payments in the balance sheet Gross amount due to customers Other advance payments received, not under percentage of completion TOTAL 6 OTHER OPERATING INCOME Capital gain on sale of fixed assets Project guarantee compensation received Other TOTAL MATERIALS AND SERVICES Materials and supplies - Purchases during the financial year - Change in inventories External services TOTAL 8 EMPLOYEE BENEFITS EXPENSE Wages and salaries Stock options granted Pension contributions - Defined contribution plans - Defined benefit plans Other personnel costs TOTAL Information on management's employee benefits and loans is presented in the note number 34. Information on the share-based payments is presented in the note number 27. 9 NUMBER OF PERSONNEL Employed at Dec. 31, persons Workers Office staff TOTAL - of which personnel working abroad Effective, on average, persons Workers Office staff TOTAL - of which personnel working abroad Average, persons Workers Office staff TOTAL - of which personnel working abroad 1,021 1,021 101 101 12,504 272 12,776 5,259 330 5,589 21 1,246 156 1,423 71 97 168 7 -51,275 632 -5,082 -55,725 -36,246 719 -3,877 -39,404 -23,750 -177 -3,233 8 -1,601 -28,752 -19,907 -137 -2,817 -7 -1,151 -24,019 150 353 503 132 146 318 464 117 146 334 480 132 145 312 457 121 150 338 488 132 152 323 475 121 27 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 10 RESEARCH AND DEVELOPMENT COSTS Research and development costs for the financial year Amortization of previously capitalized development costs Development costs recognized as an asset in the balance sheet Research and development costs entered as expense for the financial year Total research and development costs % of net sales Research and development costs have been recognized in operating expenses prior to operating profit. 11 DEPRECIATION AND AMORTIZATION Depreciation and amortization by class of assets Intangible assets - Capitalized development costs - Other intangible assets Property, plant and equipment - Buildings and structures - Machinery and equipment - Other tangible assets TOTAL 2012 2011 -2,516 -126 1,024 -1,618 -2,516 2.5 -2,020 -262 209 -2,072 -2,020 2.7 -126 -348 -323 -1,144 -27 -1,968 -262 -338 -311 -1,191 -27 -2,128 12 OTHER OPERATING EXPENSES Indirect production expenses Renting expenses Sales and marketing expenses Credit losses Administration expenses Other expenses TOTAL Auditors' remunerations Authorized Public Accounting Company PricewaterhouseCoopers Annual audit Tax services Other services TOTAL -2,504 -1,144 -1,574 -1,564 -1,833 -3,101 -11,720 -2,500 -726 -1,548 -524 -2,044 -2,153 -9,494 -48 -22 -45 -115 -45 -11 -2 -59 13 FINANCIAL INCOME AND EXPENSES Financial income Interest income on receivables Dividend income from available-for-sale investments Exchange rate gains from financial liabilities, net Exchange rate gains from other financial items Other financial income TOTAL 248 118 47 36 32 482 277 108 63 182 75 705 28 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 Financial expenses Interest expenses on financing loans recognized at amortized cost Exchange rate losses from financing loans Interest rate swap agreements, fair value adjustments Exchange rate losses from other financial items Other financial expenses TOTAL Financial income and expenses, net Interest expenses have been adjusted by fair value changes related to the risk hedged with currency and interest rate swap agreements, total EUR 175 thousand. Other comprehensive income items Cash flow hedging Exchange rate differences TOTAL 14 EXCHANGE RATE GAINS AND LOSSES (NET) Included in net sales Included in operating expenses Included in financial income and expenses Included in other comprehensive income items TOTAL INCOME TAXES Consolidated income statement Current tax based on the taxable profit of the financial year Current tax of previous financial years Deferred taxes (note number 29) TOTAL Consolidated statement of comprehensive income Deferred tax related to items charged or credited directly to equity during the year: Hedge accounting TOTAL Reconciliation of the relationship between realized tax expense and theoretical accounting result using Finnish tax rate of 24.5 percent Profit before taxes Tax effects of following items: Taxes calculated using the Finnish tax rate, 24.5% Effect of differences in tax rates of foreign subsidiaries Non-deductible income Non-deductible costs in taxation Taxes from the previous financial years Utilization of previously unrecognized tax losses Adjustments from the previous financial years Unrecognized tax assets from the losses of foreign subsidiaries Re-measurement of deferred tax - change in the Finnish tax rate Other items Consolidated tax expense Effective tax rate, % 2012 2011 -498 -117 281 -331 -73 -738 -256 -385 -285 -239 -183 -1,093 -387 80 80 14 23 37 32 51 -364 80 -202 -47 -39 6 23 -57 15 -16 -14 -1,728 -1,759 -36 -28 94 30 - -5 -5 4,775 -1,170 -9 29 -52 3 -109 -397 -54 -1,759 -36.8 -1,126 276 84 27 -10 -5 6 -303 -1 -44 30 2.7 29 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 2012 2011 16 EARNINGS PER SHARE Undiluted earnings per share Undiluted earnings per share have been calculated based on the weighted average of outstanding shares during the financial year. Undiluted earnings per share is calculated by dividing the period's profit or loss attributable to equity holders of the Parent company by the weighted average of outstanding shares in the period. Share of profit that belongs to the owners of the Parent company, EUR 1,000 Weighted average number of shares, 1,000 pcs Earnings per share, EUR Diluted earnings per share Diluted earnings per share have been calculated by adjusting the average of outstanding shares by the dilutive effect of the share options. The exercise of options is not taken into account in the calculation of earnings per share if the exercise price of the options exceeds the average market price of shares during the period. Share options have dilutive effect if the exercise price of the share options is lower than the fair value of the share. For the calculation of diluted earnings per share, share options calculation is done to determine the number of shares that could have been acquired at fair value (the average annual market share price) based on the monetary value of the subscription rights attached to outstanding share options. This number of shares is compared with the number of shares that would have been issued assuming the exercise of the share options. At the balance sheet date, December 31, 2012, the stock options had a diluted effect of 3,628 pieces on calculating the diluted earnings per share. Share of profit that belongs to the owners of the Parent company, EUR 1,000 Diluted weighted average number of shares, 1,000 pcs Diluted earnings per share, EUR 3,016 4,008 0.75 -1,095 4,005 -0.27 3,016 4,005 0.75 -1,095 4,005 -0.27 17 DIVIDEND PER SHARE In the financial year 2012, Raute Corporation paid a dividend of EUR 0.30 per share, that is, a total EUR 1,201 thousand. The Board of Directors will propose to Raute Corporation's Annual General Meeting 2013, to be held on April 8, 2013, that a dividend of EUR 0.50 per share be paid for series A and series K shares for the financial year 2012, that is a total of EUR 2,002 thousand, and that the remainder, EUR 12,492 thousand be retained to the equity. 30 FINANCIAL STATEMENTS 2012 / GROUP 18 INTANGIBLE ASSETS Other intangible assets Development costs in progress and advance payments EUR 1,000 euroa Development costs TOTAL Intangible assets 2012 Carrying amount at Jan. 1, 2012 Exchange rate differences Additions Reclassifications between items Carrying amount at Dec. 31, 2012 Accumulated depreciation and amortization at Jan. 1, 2012 Exchange rate differences Accumulated depreciation and amortization of disposals and reclassifications Depreciation and amortization for the financial year Accumulated depreciation and amortization at Dec. 31, 2012 Book value at Dec. 31, 2012 Intangible assets 2011 Carrying amount at Jan. 1, 2011 Exchange rate differences Additions Reclassifications between items Carrying amount at Dec. 31, 2011 Accumulated depreciation and amortization at Jan. 1, 2012 Exchange rate differences Accumulated depreciation and amortization of disposals and reclassifications Depreciation and amortization for the financial year Accumulated depreciation and amortization at Dec. 31, 2011 Book value at Dec. 31, 2011 4,065 -587 3,478 8,260 7 1,056 45 9,368 123 1,142 -93 1,172 12,447 7 2,198 -634 14,019 -3,871 679 -126 -3,317 161 -7,144 -5 -348 -7,497 1,871 1,172 -11,014 -5 679 -474 -10,815 3,204 3,860 229 4,089 7,780 16 400 63 8,259 119 209 -229 99 11,759 16 609 63 12,447 -3,610 -262 -3,871 218 -6,808 -8 18 -342 -7,140 1,118 99 -10,420 -8 18 -604 -11,013 1,433 The carrying amount of a capitalized product development in progress is tested using the value-in-use calculations. The determinations of the value are sensitive to the assumptions related to the future expected profit and discount rates. The discount rate describes the estimated expected rate in the market including the time-value of money and the specific risks relating to relevant assets. Readjustments related to these risks have not been adjusted to the estimated cash flows. The discount rate has been estimated using the weighted average cost of capital and reflects the total cost of equity and liabilities including the specific risks relating to the relevant assets. The discount rate used for the calculations is 10.8 percent. During the financlal years 2012 and 2011, no impairment losses have been recognized. 31 FINANCIAL STATEMENTS 2012 / GROUP 19 PROPERTY, PLANT AND EQUIPMENT Land and water EUR 1,000 Property, plant and equipment 2012 Carrying amount at Jan. 1, 2012 Exchange rate differences Additions Disposals Reclassifications between items Carrying amount at Dec. 31, 2012 Buildings and structures Machinery and equipment Other tangible assets Assets in progress and advance payments TOTAL 386 386 13,075 15 4 -3,502 9,593 30,135 69 611 -370 2 30,447 645 4 648 223 716 -341 600 44,463 88 1,331 -370 -3,839 41,673 Accumulated depreciation and amortization at Jan. 1, 2012 Exchange rate differences Accumulated depreciation and amortization of disposals and reclassifications Depreciation and amortization for the financial year Accumulated depreciation and amortization at Dec. 31, 2012 Book value at Dec. 31, 2012 Property, plant and equipment 2011 Carrying amount at Jan. 1, 2011 Exchange rate differences Additions Disposals Reclassifications between items Carrying amount at Dec. 31, 2011 - -9,442 -15 3,722 -323 -6,060 3,532 -26,384 -53 299 -1,144 -27,282 3,165 -410 -2 -27 -439 209 600 -36,236 -70 4,019 -1,494 -33,782 7,892 386 399 -13 386 12,996 21 42 16 13,075 29,673 93 624 -54 -201 30,135 625 3 19 645 23 298 -98 223 43,714 117 983 -67 -285 44,463 Accumulated depreciation and amortization at Jan. 1, 2011 Exchange rate differences Accumulated depreciation and amortization of disposals and reclassifications Depreciation and amortization for the financial year Accumulated depreciation and amortization at Dec. 31, 2011 Book value at Dec. 31, 2011 - -9,111 -21 -311 -9 442 3,632 -25,304 -74 200 -1,203 -26,384 3,750 -386 -1 2 -28 -410 235 224 -34,801 -96 202 -1,541 -36,236 8,226 386 32 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 20 OTHER FINANCIAL ASSETS Available-for-sale investments Unquoted share investments TOTAL Realized sales losses have not been recognized from available-forsale investments during the financial year and comparison year 2011. Unquoted shares are recognized at cost deducted with possible impairments, since their fair value cannot be determined reliably. 21 NON-CURRENT RECEIVABLES Accounts receivables TOTAL INVENTORIES Materials and supplies Work in progress Other inventories Advance payments TOTAL During the financial year, EUR 478 thousand (EUR 218 thousand) were recognized in expenses, reducing the carrying amount of inventories to correspond to the disposal price. 23 ACCOUNTS RECEIVABLES AND OTHER RECEIVABLES Current receivables - Accounts receivables - Accrued income from customers recognized according to percentage of completion - Accrued income - Derivative contract recevables - Other receivables TOTAL Balance sheet values correspond 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. Accounts receivables of EUR 4,107 thousand are non-interest-bearing with average terms of payment of 30 days. Age analysis of accounts receivables is presented in the note number 2 to the financial statements. Accrued income from customers recognized according to percentage of completion relating to long-term projects with binding sales contracts, which is an item comparable to accounts receivables. Accounts receivables are presented as financial asset in the note numero 38 to the financials statements. EUR 1,000 Substantial items included in accrued income - Periodizing of personnel costs - Guarantee compensation receivables - Other accrued income and prepaid expenses TOTAL 2012 2011 789 789 789 789 - 549 549 22 3,461 1,982 666 1,021 7,130 2,860 1,831 267 101 5,059 4,107 16,499 2,170 17 1,671 24,464 4,990 3,374 283 688 9,335 Impairment of accounts receivables has been recorded, if there is evidence that the Group will not receive payment for overdue receivables. Impairment of accounts receivables of EUR 1,564 thousand (EUR 524 thousand) has been recognized during the financial year, of which amount EUR 1,246 thousand has been hedged with a credit risk guarantee agreement. Impairments are presented in the item "Other operating expenses" in income statement. The credit risks related to receivables at the balance sheet date are presented in the note number 2 to the financial statements. The fair values of receivables are presented in the note number 38 to the financial statements. 2012 52 1,246 872 2,170 2011 34 250 283 33 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 24 CASH AND CASH EQUIVALENTS Cash and bank accounts Bank deposits TOTAL Cash and cash equivalents in cash flow statement Cash and cash equivalents TOTAL 25 NOTES TO EQUITY Reconciliation of the number of shares, 1,000 pcs Number of shares at Jan. 1 Number of shares at Dec. 31 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. As a result of the share subscriptions made with the granted stock options, Raute Corporation's share capital can increase with a maximum of EUR 437,000. Share premium The share premium includes the value paid for shares in connection with a rights issue that exceeds the nominal value. Share premium at Jan. 1 Reclassifications between items Share premium at Dec. 31 Invested non-restricted equity reserve Invested non-restricted equity reserve includes other equity investments and the share subcription price unless not recognized to the equity based on an explicit resolution. The Annual General Meeting on April 16, 2012 decided to decrease the share premium fund as shown in the balance sheet on December 31, 2011 by EUR 6,498,341.93 by transferring all of the assets in the share premium fund into the invested non-restricted equity reserve. Invested non-restricted equity reserve at Jan. 1. Reclassifications between items Invested non-restricted equity reserve at Dec. 31. Other reserves Other reserves include granted share-based remuneration settled in shares and the effective portions of the changes in fair value of cash flow hedging instruments. Other reserves at Jan. 1 Equity settled share-based payments Cash flow hedging, hedge accounting Other reserves at Dec. 31 2012 2011 14,548 5,000 19,548 1,608 24,066 25,674 19,548 19,548 25,674 25,674 4,005 4,005 2.00 8,010 991 3,014 4,005 4,005 2.00 8,010 991 3,014 6,498 -6,498 0 6,498 6,498 0 6 498 6 498 - 187 177 364 36 137 14 187 34 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 Exchange rate differences 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. Exchange rate differences at Jan. 1 Exchange rate differences on translating foreign operations Exchange rate differences at Dec. 31 26 OWN SHARES The company did not purchase or repurchase own shares during the financial year and comparison year. The compa- 2012 2011 23 80 103 35 -12 23 ny did not hold own shares at the end of the financial year. 27 SHARE-BASED PAYMENTS The stock options were, in deviation from the shareholders' pre-emptive rights, offered to key personnel of Raute Group separately determined by the Board of Directors and to a wholly-owned subsidiary of Raute Corporation for further delivery to the key personnel of Raute Group. The stock options are intended to form a part of the incentive and commitment program of the key personnel. The stock options shall be issued free of charge. Each stock option entitles the subscription for or acquisition of one series A share of Raute Corporation at a price and time determined in the terms and conditions of the option plan. The option rights are marked with the symbols 2010 A, 2010 B and 2010 C, and each lot contains 80,000 option rights. The share capital of Raute Corporation may, as a result of the share subscriptions made with the stock options, increase by a maximum of EUR 480,000. In compliance with authorization by the Annual General Meeting, Raute Corporation's Board of Directors issued a total of 73,000 option rights marked with the symbol 2010 C to the Group's key personnel during the financial year 2012. 24 persons are covered by the option plan. Key terms and conditions of the granted option arrangement: - Arrangement 2010 C - Nature of arrangement stock options - Grant date June 21, 2012 - Number of stock options granted 73,000 - Price, EUR 8.40 - Share market value at grant date, EUR 7.55 - Term, years 3 - Subscription period March 1, 2015­March 31, 2018 - Realization in shares The option right ceases if the employment contract with the Group is terminated due to a reason specified in the terms and conditions of the option plan before the end of the earning period. A total of 14,500 options were returned to Raute Corporation during the financial year. The return is based on the terms of stock option plan. A fair value for the options issued during the financial year has been determined using the Black-Scholes model. The granted options are measured at fair value at their grant date. The fair value of an option right has been recognized as an expense in the comprehensive income statement during the earning period. During the financial year 2012 the impact of the options on the comprehensive income statement was EUR 177 thousand (EUR 137 thousand). The weighted average assumptions used in the pricing model in the financial years 2012 and 2011 are described in the table below. Variables used in the pricing model 2010 A 2010 B - Share price at grant date, EUR 7.90 10.50 - Price, EUR 7.64 7.33-9.83 - Volatility, % 30 30 - Employee departure estimate, % 0 0 - Expected period of validity of option, years 6 6 - Risk-free interest rate, % 2.07 2.07 - Number of persons 10 10 2010 C 7.55 8.40 30 0 6 2.07 24 Expected volatility has been determined on the basis of the Parent company's history of stock price changes using daily observations for a period corresponding to the option's six year maturity. The determined volatility has been changed, because, due to modest trading during the period, historic volatility is not considered to be fully reflected in the option's value. Due to modest trading, selling transactions have a negative influence on the share price. Option rights are intended for the Group's key persons. The employee departure estimate used in the pricing model is based on the average period of employment of the personnel group in question, until the condition is met. A risk-free interest rate has been determined for the term of the option on the basis of the interest at the estimated subscription date. 35 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 28 PROVISIONS Warranty provisions Book value at Jan. 1 Additions Decrease Book value at Dec. 31 Losses from long-term projects in order book Book value at Jan. 1 Additions Decrease Book value at Dec. 31 TOTAL from which - non-current - current 2012 2011 742 822 -630 934 558 674 -490 742 77 178 255 1 189 56 1 133 111 -34 77 819 123 697 29 DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES EUR 1,000 Deferred tax assets Intercompany inventory profit Provisions Employee benefits Tax losses and credits unused Other temporary differences Deferred tax assets, total Offset from deferred tax liabilities Deferred tax assets, net Deferred tax assets Intercompany inventory profit Provisions Employee benefits Tax losses and credits unused Other temporary differences Deferred tax assets, total Offset from deferred tax liabilities Deferred tax assets, net Jan. 1, 2011 23 55 24 1,720 38 1,859 -11 1,849 Jan. 1, 2012 40 44 26 1,806 0 1,917 -313 1,601 Entered through profit or loss Entered in comprehensive income statement Recognized in shareholders' equity Dec. 31, 2011 40 44 26 1,806 0 1,917 -313 1,601 Dec. 31, 2012 32 72 37 201 67 409 -347 59 17 -11 1 85 -32 60 -302 -242 -5 -5 -5 -9 29 11 -1 605 67 -1 508 -34 -1 542 - A deferred tax asset of EUR 397 thousand (EUR 303 thousand) is recognized from losses of foreign subsidiaries from the financial year 2012. A deferred tax asset of EUR 2,107 thousand is unrecognized from losses of foreign susbsidiaries. It is probable that no taxable income, against which the lossed can be utilized, shall be available to the Group before the expiry date of the losses. Deferred tax liability is not recognized from undistributed earnings of foreign subsidiaries. The assets are permanently reinvested. 36 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 Deferred tax liabilities Depreciation differences and other provisions Effects of Group consolidation Other temporary differences Deferred tax liabilities, total Offset to deferred tax assets Deferred tax liabilities, net Deferred tax liabilities Depreciation differences and other provisions Effects of Group consolidation Other temporary differences Deferred tax liabilities, total Offset to deferred tax assets Deferred tax liabilities, net Jan. 1, 2011 11 253 84 348 -11 337 Jan. 1, 2012 0 236 77 313 -313 0 Entered through profit or loss Entered in Recognized in sharecomprehenholders' sive income equity statement Dec. 31, 2011 0 236 77 313 -313 0 Dec. 31, 2012 0 219 302 521 -347 174 -11 -17 -7 -35 -302 -337 - 0 -17 225 208 -34 174 - Deferred tax liabilities and deferred tax assets are deducted from each other, if there is a right to set off tax liabilities from the taxable income of the financial year against tax assets from the taxable income of the financial year, if de- ferred taxes are related to the same tax juridiction. During the financial year 2012, a deferred tax liability of EUR 34 thousand (EUR 302 thousand) has been deducted from the unused tax losses and credits. EUR 1, 000 30 NON-CURRENT INTEREST-BEARING LIABILITIES Non-current financial liabilities recognized at amortized cost - Loans from financial institutions - Pension loan (TyEL) - Other loans TOTAL Maturities of the interest-bearing financial liabilities at Dec. 31, 2012 Financial liability - Loans from financial institutions - Pension loan (TyEL) - Other loans Total 2012 2011 5,866 5,866 8,937 2,000 10,937 Current 3,494 2,000 100 5,594 Non-current 5,866 5,866 The TyEL loans have a fixed interest rate and the annual interest rate is 2.95 percent (2.95%). 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 average interest rate of the loans form financial institutions is 3.77 percent (3.72%). Loans from financial institutions include a loan from financial institutions in the amount of SEK 35.3 million and a euro-based loan from financial institutions in the amount of EUR 5.0 million. The interest rate and currency risks of the currency-denominated loan are hedged with an interest rate and currency swap agreement. Partial payments of loans from financing institutions maturing during the following financial year are presented in current liabilities. A foreign subsidiary has a EUR 0.2 million financial loan from a financial institution approved by the Parent Company. The collateral given for the loan is a mortgage agreement given by the Parent company. Fair values of non-current financial liabilities have been presented in the note number 38 to the financial statements. 37 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 31 CURRENT INTEREST-BEARING LIABILITIES Partial payments of non-current loans Other current interest-bearing liabilities TOTAL Distribution of the Group's current loans by currencies - Swedish krona (SEK) - Euro (EUR) - Chinese yuan (CNY) The weighted averages of effective interest rates of current interest-bearing liabilities Partial payments of non-current loans Other current interest-bearing liabilities Fair values of current financial liabilities are presented in the note number 38 to the financial statements. 2012 2011 5,494 100 5,594 4,240 100 4,340 36% 60% 4% 46% 48% 6% 3.63% 1.50% 3.37% 1.25% EUR 1,000 32 PENSION OBLIGATIONS Raute Corporation's voluntary supplement to pension coverage has been treated in accounting as a defined benefit plan. The current employees' voluntary supplementary pension insurances have been arranged through the Sampo Life Insurance Company. The pension plan of foreign subsidiaries has been arranged according to the local legislation. The pension plans are defined as contribution plan. Defined benefit pension plans Items recognized in the balance sheet Present value of funded obligations Fair value of assets included in the plan Surplus (+) / deficit (-) Unrecognized actuarial gains and losses Net liabilities in the balance sheet Items entered in income statement, income (-) / expenses (+) Interest cost Expected return on plan assets Net acturial gains or losses recognized in the financial year Total, included in personnel expenses Realized income from the plan assets, expenses (+) /income (-) Changes in defined benefit pension plan obligation during the financial year Defined benefit obligation at Jan. 1 Interest cost Defined benefit obligation at Dec. 31 2012 2011 367 378 -11 101 90 358 370 -12 110 98 -8 -8 - 15 -16 -9 -10 - 358 9 367 343 16 358 38 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 Changes in fair value of plan assets during the financial year Opening fair value of plan assets at Jan. 1 Expected return on plan assets Employer contributions Fair value of plan assets at Dec. 31 2012 2011 370 18 -10 378 371 16 -17 370 Key actuarial assumptions: Finland - Discount rate, % - Expected rate of return on plan assets, % - Rate of future salary increases, % - Rate of Inflation, % - Employees turnover assumption, % 4.3 4.5 3.5 2.0 1.0 4.3 4.5 3.0 2.0 1.0 Financial position of pension plan during the financial year and previous four years EUR 1,000, Dec. 31 Present value of defined benefit obligation Fair value of plan assets Surplus (-) / deficit (+) in the plan Experience adjustments on plan liabilities Experience adjustments on plan on plan assets 2012 367 -378 -11 2011 358 -370 -12 2010 343 -371 -28 -23 -14 2009 333 -338 -5 -45 -5 2008 406 -394 12 63 -16 EUR 1,000 33 ADVANCE PAYMENTS RECEIVED, TRADE AND OTHER PAYABLES Advance payments received EUR 12,776 thousand (EUR 5,589 thousand) comprise of advance payments received from long-term projects. Current liabilities in the balance sheet - Trade payables - Accrued expenses and prepaid income - Derivatives - Other liabilities TOTAL Substantial items included in accrued expenses and prepaid income - Accrued project expenses related to long-term projects - Accrued employee related expenses - Financial expenses - Other accrued expenses and prepaid income TOTAL 2012 2011 6,943 5,189 33 1,087 13,253 2,507 4,852 317 722 8,399 52 4,816 33 288 5,189 867 3,630 60 295 4,852 39 FINANCIAL STATEMENTS 2012 / GROUP 34 RELATED PARTY TRANSACTIONS Raute Group's management consists of the Board of Directors, President and CEO and Executive Board. The Group's related parties consist of Raute Group's management, subsidiaries and Raute Corporation's Sickness Fund. Group's ownership Parent company's interest and voting ownership interest power, % and voting power, % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 Group companies Raute Corporation, Lahti, Finland (Parent company) Raute Canada Ltd., Delta, B.C., Canada Raute Land, Ltd., Delta, 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., Santiago, Chile Raute Service LLC, St. Petersburg, Russia Raute (Shanghai) Machinery Co., Ltd, Shanghai, China Raute (Shanghai) Trading Co., Ltd, Shanghai, China EUR 1,000 Salaries and remunerations of the President and CEO and Board of Directors of the Parent company President and CEO Kiiski, Tapani President and CEO TOTAL Members of the Board of Directors Pehu-Lehtonen, Erkki Chairman of the Board Mustakallio, Mika Vice-Chairman of the Board Hautamäki, Risto Member of the Board Helander, Ilpo Member of the Board Suominen, Pekka Member of the Board Bask, Joni Member of the Board as of April 16, 2012 Mustakallio, Sinikka Member of the Board until April 16, 2012 TOTAL The contracts of the members of the Board of Directors and the President and CEO do not include any special conditions concerning retirement or the amount of retirement. The President and CEO has a possibility to have a profit-related bonus amounting to a maximum of six months' salary. The President and CEO's term of notice is six months, and the severance pay equals six months' salary. Group management's employee benefits Salaries and other short-term employee benefits Share-based payments TOTAL Management's share-based payments Granted stock options, pcs of which exercisable, pcss Total amount of shares, to which the stock options held by the management are entitled, pcs 2012 2011 263 263 265 265 37 18 18 18 18 13 5 128 40 20 20 20 20 20 140 1,397 97 1,494 1,137 68 1,205 30,000 0 30,000 30,000 0 30,000 40 FINANCIAL STATEMENTS 2012 / GROUP The President and CEO and Executive Board members have been granted a total of 109,500 stock options marked with the symbols 2010 A, 2010 B and 2010 C entitling to subscribe or acquire a total of 109,500 shares. Members of the Board of Directors have not been granted stock options. The terms and conditions of the stock options have been described in the note number 27 of the financial statements. Management interest The company's Board of Directors, President and CEO and Executive Board members owned a total of 108,899 series A shares and 122,880 series K shares at December 31, 2012. Management's ownership corresponds to 5.8 percent of the shares in the company and 11.2 percent of associated total voting rights. The figures include the holdings of their own, minor children and control entities. Loans and guarantees on behalf of the related party No loans are granted to the company's management. On December 31, 2012 the Parent Company Raute Corporation had loan receivables from the subsidiary Raute Service LLC EUR 355 thousand (EUR 355 thousand) and from Raute Canada Ltd. EUR 391 thousand (EUR 1,774 thousand). Raute Corporation had a EUR 100 thousand (EUR 100 thousand) liability to Raute Corporation's Sickness Fund. Raute Corporation has given a counter guarantee of EUR 244 thousand for the loan of the foreign subsidiary. No pledges or other commitments have been given on behalf of the company's management and shareholders. Sickness Fund Raute's Sickness Fund is an insurance fund, which pays its members additional benefits on top of compensations paid according to the Sickness Insurance Act. Raute's Sickness Fund covers the personnel of Raute Corporation and the personnel of Lahti Precision Oy. Raute's Sickness Fund has deposited its assets in Raute Corporation. The amount of deposits was EUR 100 thousand at Dec. 31, 2012 (EUR 100 thousand) and 1.5 percent (1.25%) of interest was paid to it. EUR 1,000 35 OTHER LEASE AGREEMENTS Group as lessee Minimum rents paid on the basis of other non-cancellable leases: - Within one year - After the period of more than one and less than five years - More than five 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 the fixed-term include an option to extend the rental period after the date of initial expiration. 36 DERIVATIVES Nominal values of forward contracts in foreign currency Economic hedging - Related to financing - Related to the hedging of net sales Fair values of forward contracts in foreign currency Economic hedging - Related to financing - Related to the hedging of net sales Interest rate and currency swap agreements - Nominal value - Fair value The nominal value is the value of underlying instruments converted into euros using the exchange rate of the balance sheet date. The fair value is the profit generated, if the derivatives position would have been closed to the market price on the balance sheet date. 2012 2011 868 2,682 519 4,069 546 1,358 523 2,426 2,093 1,763 1,211 637 -8 18 -32 4 4,117 -4 5,937 -285 41 FINANCIAL STATEMENTS 2012 / GROUP EUR 1,000 37 PLEDGED ASSETS AND CONTINGENT LIABILITIES On behalf of the Parent company Loans from financial institutions - Business mortgages Pension loans (TyEL) - Business mortgages - Credit insurance agreements Other liabilities - Real estate mortgages 2012 2011 9,117 6,700 2,000 600 1,400 100 101 11,177 6,700 4,000 1,200 2,800 100 101 38 CARRYING AMOUNTS AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The table below shows the fair values and carrying amounts of each financial item as carried in the balance sheet. Balance sheet item "Accounts receivables and other receivables" includes accrued income of EUR 16,499 thousand from customers' long-term projects corresponding to revenues by percentage of completion (EUR 3,374 thousand). EUR 1,000 Financial assets Available-for-sale financial assets Unquoted share investments Loans and other receivables Derivative contracts Accounts receivables and other receivables Cash and cash equivalents TOTAL Financial liabilities Financial liabilities at fair value through profit or loss Derivate contracts Financial liabilities recognized at amortized cost Financial loans Trade payables and other liabilities Accrued expenses TOTAL Financial instruments by category Loans and receivables Available-for-sale financial assets Financial liabilities at fair value through profit or loss Financial liabilities recognized at amortized cost Note Carrying amount Dec. 31, 2012 Fair value Dec. 31, 2012 Carrying amount Dec. 31, 2011 Fair value Dec. 31, 2011 20 23 23 24 789 17 24,447 19,548 44,801 789 17 24,447 19,548 44,801 789 2 9,882 25,674 36,347 789 2 9,882 25,674 36,347 36 32 32 317 317 30-31 33 33 11,461 8,063 5,189 24,746 11,461 8,063 5,189 24,746 15,277 3,228 5,268 24,090 15,277 3,228 5,268 24,090 44,012 789 32 24,713 44,012 789 32 24,713 35,556 789 317 23,773 35,556 789 317 23,773 42 FINANCIAL STATEMENTS 2012 / GROUP The Group's principles of fair value determination related to financial instruments are described below. Other financial assets Available-for-sale financial assets mainly consist of investments in unquoted shares. Investments in unquoted shares have been valued at cost less potential impairment since their value cannot be determined reliably. There are no active market for unquoted shares and until further notice the Group has no intention to abandon these investment. Accounts receivables and other receivables The original carrying value of the accounts receivables and other receivables corresponds their fair value. Discounting has no material effect when maturity is taken into account. Accounts receivables in the balance sheet do not include significant concentration of risks at the balance sheet date. Derivatives The fair values of derivative instruments have been determined using the market values of the contract determined to the similar period at the balance sheet date. The nominal values of currency derivative contracts have been disclosed in the note number 36 to the financial statements. The quotation of the counterparty has been used to determine the fair value of interest rate swap agreement. The fair values correspond prices, which the Group should pay or receive, if the derivative contract was terminated at the balance sheet date. The nominal value of interest rate swap agreement have been disclosed in the note number 36 to the financial statements. The effective portions of changes in the fair values of derivative instruments determined as cash flow hedging have been recognized in the hedging reserve in equity and in other comprehensive income items. Gains and losses recognized in the hedging reserve in equity have been transferred to the comprehensive income statement when hedged, firm commitments are recognized to the income statement. Gains and losses from cash flow hedging, the amount derecognized from equity and presented to adjust sales revenue as well as the hedged result recognized to adjust the carrying amount of the balance sheet item are presented in changes in shareholder's equity. Loans from financial institutions and other loans Fair values of liabilities correspond the carrying value in the balance sheet. Trade payables and other liabilities The carrying value of trade payables and other payables corresponds their fair value. Discounting has no material effect when maturity is taken into account. Financial assets and liabilities that are measured at fair value Financial instruments at fair value are categorized according to standard IFRS 7. Instruments included in level 1 are traded in active markets. The fair values of these instruments are based on the quoted market prices at the balance sheet date. The fair value of the instruments included in level 2 is based on the price available from the market data but instruments are not traded in an active market. The fair value of the instruments included in level 3 is not based on the observable market data but is partly based on the measurement base which requires estimates and assumptions from the management. EUR 1,000 Available-for-sale financial assets Financial assets at fair value through profit or loss - Derivative contracts TOTAL Financial liabilities at fair value through profit or loss - Derivative liabilities TOTAL Level 1 - Level 2 - Level 3 789 Total 789 - 17 17 789 17 806 - 32 32 - 32 32 43 FINANCIAL STATEMENTS 2012 / GROUP 39 EXCHANGE RATES USED IN CONSOLIDATION OF THE SUBSIDIARIES 2012 EUR 8.1096 39.9238 1.2848 1.2856 1.6062 624.7032 2011 EUR 8.9958 40.8797 1.3756 1.3917 1.7491 672.0723 2012 EUR 8.1809 40.3295 1.3137 1.3194 1.6111 625.1146 2011 EUR 8.3499 41.7650 1.3215 1.2939 1.6819 680.1710 Income statement CNY RUB CAD USD SGD CLP Balance sheet CNY RUB CAD USD SGD CLP EUR 1,000 40 ADJUSTMENTS TO OPERATING CASH FLOW Non-cash transactions in operating activities Depreciations and amortizations Employee benefits Exchange rate differences Profit or loss from change in fair value of financial assets through profit or loss TOTAL 2012 2011 -1,968 -177 -234 272 -2,108 -2,128 -137 182 -317 -2,400 44 FINANCIAL STATEMENTS 2012 / PARENT COMPANY Parent company's income statement, FAS EUR Note 2, 3 NET SALES Change in inventories of finished goods and work in progress 4 5 6 8 9 Other operating income Materials and services Personnel expenses Depreciation, amortization and impairment charges Other operating expenses Total operating expenses OPERATING PROFIT (LOSS) 10 Financial income and expenses PROFIT (LOSS) BEFORE EXTRAORDINARY ITEMS 11 Extraordinary items PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 12 13 Appropriations Income taxes PROFIT (LOSS) FOR THE FINANCIAL YEAR 1.1­31.12.2012 1.1­31.12.2011 92,933,013.33 64,443,847.33 -570,022.00 1,552,554.59 -54,664,178.81 -21,887,193.41 -1,462,036.18 -9,941,885.85 -87,955,294.25 5,960,251.67 -1,520,346.37 4,439,905.30 4,439,905.30 -1,621,455.99 2,818,449.31 -106,037.65 266,896.71 -36,182,925.02 -19,077,145.27 -1,526,611.65 -7.850,477.47 -64,637,159.41 -32,453.02 -247,357.35 -279,810.37 18,000.00 -261,810.37 40,616.97 75,992.71 -145,200.69 45 FINANCIAL STATEMENTS 2012 / PARENT COMPANY Parent company's balance sheet, FAS EUR Note ASSETS Non-current assets Intangible assets Tangible assets Investments Total non-current assets Current assets Inventories Non-current receivables Deferred tax assets Current receivables Cash and cash equivalents Total current assets TOTAL ASSETS SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital Share premium Other reserves Retained earnings Profit (loss) for the financial year Total shareholders' equity 21 Obligatory provisions Liabilities Non-current liabilities Current interest-bearing liablities Current interest-free liabilities Total liabilities TOTAL LIABILITIES 31.12.2012 31.12.2011 14 15 16 1,705,001.79 5,645,517.64 1,991,935.50 9,342,454.93 1,056,299.28 5,820,981.47 1,609,847.77 8,487,128.52 5, 17 18 18 18 6,884,568.24 745,500.11 201,305.48 23,590,353.55 18,125,792.32 49,547,519.70 58,889,974.63 3,784,238.45 2,115,035.37 1,805,678.40 8,585,457.89 24,607,191.62 40,897,601.73 49,384,730.25 19 19 19 19 19 8,009,516.00 6,498,341.93 5,177,929.85 2,818,449.31 22,504,237.09 1,160,063.23 8,009,516.00 6,498,341.93 6,524,557.94 -145,200.69 20,887,215.18 810,948.63 22 22 22 5,867,201.43 5,761,254.55 23,597,218.33 35,225,674.31 58,889,974.63 10,937,051.17 4,449,154.28 12,300,360.99 27,686,566.44 49,384,730.25 46 FINANCIAL STATEMENTS 2012 / PARENT COMPANY Parent company's cash flow statement, FAS EUR 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 paid from operating activities Dividends received from operating activities Interests received from operating activities Other operating finance costs Income tax paid Cash flow before extraordinary items NET CASH FLOW FROM OPERATING ACTIVITIES (A) CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure in tangible and intangible assets Proceeds from sale of tangible and intangible assets Purchase of subsidiary shares Purchases of available-for-sale investments NET CASH FLOW FROM INVESTING ACTIVITIES (B) CASH FLOW FROM FINANCING ACTIVITIES Increase (+) / decrease (-) of current receivables Increase of non-current liabilities Repayments of non-current liabilities Dividends paid Group contributions, received and paid NET CASH FLOW FROM 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 NET CHANGE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 62,100.27 -4,000,000.00 -1,201,427.40 18,000.00 -5,121,327.13 -6,480,673.49 -180,420.33 11,000,000.00 -10,000,000.00 -1,201,427.40 -381,847.73 4,197,539.85 -1,478,370.17 40,300.00 -382,087.13 -1,820,157.90 -1,322,516.60 133,305.31 -292,500.00 -1,481,711.29 85,703,774.08 1,511,678.86 -86,546,771.97 668,680.97 -508,885.14 118,414.66 328,416.79 -128,866.01 -16,949.72 460,811.55 460,811.55 63,384,649.76 266,896.71 -62,628,093.56 6,023,452.91 -329,106.71 108,350.00 385,753.58 -117,952.81 -9,398.10 -6,061,098.87 -6,061,098.87 1.1­31.12.2012 1.1­31.12.2011 24,607,191.62 -6,480,673.49 -725,82 18,125,792,32 20,404,620.00 4,197,539.82 5,031.77 24,607,191.62 47 FINANCIAL STATEMENTS 2012 / 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 IFRS accounting principles of the consolidated financial statements. Basis of preparation The Parent company's financial statements have been prepared in accordance with the Finnish Accountancy Act (FAS). Foreign currency items Other than euro-denominated transactions have been recognized at the exchange rate effective on the transaction date. Receivables and liabilities denominated in other currencies have been translated into euro at the average rate of the balance sheet date, except for business operations where the associated currency risk is hedged by a currency derivative contract. These items have been measured at the value hedged through the derivative contract. Advances paid and received have been recognized in the balance sheet at the exchange rate effective on the payment date. The exchange rate gains or losses, resulting from the extension of forward exchange contracts, hedging accounts receivables against changes in currency exchange rates, have been capitalized into accrued expenses or receivables. Other exchange gains and losses related to changes in the exchange rates have been recognized through profit or loss. Non-current assets Tangible and intangible assets have been recognized in the balance sheet at original cost less accumulated depreciation, with the exception of some property items, which have been revaluated, and shares, which have been subject to impairment. Variable costs arising from the acquisition and production of a product have been included in the carrying amount. Depreciations of tangible assets and amortizations of intangible assets have been recorded with the straight-line method over the expected economic lives of the assets as follows: Other intangible assets Buildings Machinery and equipment Other assets 3­10 years 25­40 years 4­12 years 3­10 years. gible assets are presented in other operating income or expenses. Financial assets, financial liabilities and derivatives Financial assets have been measured at the lower of acquisition cost or likely disposal price. The Company's derivatives include currency derivative contracts. Currency derivatives are used for hedging related to changes in cash flows in foreign currency. Currency derivative contracts have not been measured at fair value in the Parent company. The fair values of currency derivative contracts have been presented in the note number 24 to the financial statements. Financial liablities include both currency-dominated and euro-based loans. The interest rate and currency risks of the currency-denominated loan are hedged with an interest rate and currency swap agreement. The euro-based loan has a fixed interest rate. Research and development costs Research and development costs have been 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 have been recognized as expenses according to accrual over time. Income taxes Income taxes presented in the income statement include direct taxes for the financial year and tax adjustments for previous years. Current tax based on the taxable income of the financial year is calculated on taxable income using the tax rate in force. On the financial year's unconfirmed tax loss, deferred tax receivables have been recognized to the extent that it is probable that taxable profits will be available against which temporary differences can be utilized. Depreciations and amortizations are recorded from the beginning of the month in which the asset was taken into use. Residual expenditures on decommissioning and disposal of tangible assets are presented under the item "Depreciation, amortization and impairment charges" in the income statement. Gains and losses on disposal of tan- 48 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 2 NET SALES BY MARKET AREA LAM (South America) EMEA (Europe) CIS (Russia) APAC (Asia-Pacific) NAM (North America) TOTAL Finland accounted for 7 percent (14%) on the Parent company's net sales. 3 LONG-TERM PROJECTS 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) Projects for which the value by percentage of completion exceeds advance payments invoiced - aggregate amount of costs incurred and recognized profits less recognized losses - advance payments received Gross amount due from customers Projects for which advance payments invoiced exceed the value by percentage of completion - aggregate amount of costs incurred and recognized profits less recognized losses - advance payments received Gross amount due to customers Specification of combined asset and liability items Advance payments paid Advance payments included in inventories Advance payments in the balance sheet Gross amount due to customers Other advance payments received, not under percentage of completion TOTAL 4 OTHER OPERATING INCOME Capital gain on non-current assets Other income from Group companies Project guarantee compensation received Other operating income TOTAL 2012 % 2011 % 52,388 22,209 14,290 2,851 1,195 92,933 56 24 15 3 1 100 4,064 19,865 25,013 15,022 480 64,444 6 30 39 23 1 100 81,034 11,899 92,933 53,429 11,015 64,444 87,025 41,550 47,875 32,654 59,111 43,146 15,965 13,277 10,332 2,945 27,914 40,330 12,416 28,273 33,335 5,062 3,120 3,120 16 16 12,416 33 12,449 5,062 527 5,589 21 158 1,246 127 1,553 71 115 81 267 49 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 5 MATERIALS AND SERVICES MATERIALS AND SERVICES Materials and supplies - Purcahsed during the financial year - Change in invetories External services TOTAL PERSONNEL EXPENSES Wages and salaries Pension costs Other personnel expenses TOTAL Salaries and remunerations of Directors President and CEO Kiiski, Tapani President and CEO TOTAL Members of the Board of Directors Pehu-Lehtonen, Erkki Mustakallio, Mika Hautamäki, Risto Helander, Ilpo Suominen, Pekka Bask, Joni Mustakallio, Sinikka TOTAL Chairman of the Board Vice-Chairman of the Board Member of the Board Member of the Board Member of the Board Member of the Board as of April 16, 2012 Member of the Board until April 16, 2012 2012 2011 -49,835 567 -5,396 -54,664 -33,030 857 -4,009 -36,183 6 -17,857 -2,978 -1,053 -21,887 -15,619 -2,621 -837 -19,077 263 263 265 265 37 18 18 18 18 13 5 128 40 20 20 20 20 20 140 Based on the authorization given by the Annual General Meeting, the Board of Directors of Raute Corporation has granted stock options to the Group's key personnel. The main information on the stock option system is presented in the note number 27 to the Raute Group's financial statements. 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 Effective, on average, persons Workers Office staff TOTAL - of which personnel working abroad 127 246 373 2 126 221 347 1 131 237 367 1 127 226 353 1 126 231 357 2 122 216 338 1 50 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 8 DEPRECIATION, AMORTIZATION AND IMPAIRMENT CHARGES Depreciation and amortization from intangible assets Depreciation and amortization from tangible assets TOTAL OTHER OPERATING EXPENSES Indirect production costs Sales and marketing costs Administration costs Credit losses Other costs TOTAL Auditor's remunerations Authorized Public Accountants PricewaterhouseCoopers Annual audit, statutory Tax services Other services TOTAL 10 FINANCIAL INCOME AND EXPENSES Dividend income TOTAL Other interest and financial income From Group companies From others TOTAL Total financial income Interest and other financial expenses To Group companies To others TOTAL Fair value of derivatives Total financial expenses Financial income and expenses, net Exchange rate gains (+) / losses (-) included in total financial income and expenses 11 EXTRAORDINARY ITEMS Extraordinary income Group contribution TOTAL APPROPRIATIONS Difference in planned and taxed depreciations TOTAL INCOME TAXES From operations, previous financial years Change in deferred tax liabilities and receivables TOTAL 2012 2011 -293 -1,170 -1,462 -328 -1,199 -1,527 9 -2,310 -1,957 -1,604 -1,561 -2,510 -9,942 -1,820 -1,860 -1,394 -487 -2,290 -7,850 -37 -22 -45 -104 -32 -11 -2 -45 118 118 108 108 92 331 423 542 47 472 519 628 -4 -2,058 -2,367 305 -2,062 -1,520 -239 -558 -558 -317 -875 -247 87 - 18 18 12 - 41 41 13 -17 -1,604 -1,621 -9 85 76 51 FINANCIAL STATEMENTS 2012 / PARENT COMPANY 14 INTANGIBLE ASSETS Development costs 679 0 -679 0 -679 679 0 0 0 Intangible rights 1,378 869 2,246 -909 -103 -1,011 1,235 469 Intangible assets 4,772 27 45 4,844 -4,185 -190 -4,375 470 587 TOTAL 6,829 896 -634 7,091 -5,773 679 -293 -5,386 1,705 1,056 EUR 1,000 Carrying amount at Jan. 1, 2012 Additions Reclassifications between items Carrying amount at Dec. 31, 2012 Accumulated depreciation at Jan. 1, 2012 Accumulated depreciation and amortization on disposals and reclassification Depreciation and amortization for the financial year Accumulated depreciation and amortization at Dec. 31, 2012 Book value at Dec. 31, 2012 Book value at Dec. 31, 2011 15 TANGIBLE ASSETS EUR 1,000 Carrying amount at Jan. 1, 2012 Additions Disposals Reclassifications between items Carrying amount at Dec. 31, 2012 Land and water 218 218 218 218 Buildings and structures 8,259 4 220 8,483 -5,531 -255 -5,786 2,697 2,727 Machinery and equipment 20,866 341 -22 75 21,261 -18,246 -912 -19,158 2,102 2,620 Other tangible assets 355 355 -323 -3 -326 29 32 Assets in progress and advance payments 224 716 -341 600 600 224 TOTAL 29,922 1,061 -22 -45 30,916 -24,101 -1,170 -25,271 5,646 5,821 Accumulated depreciation at Jan. 1, 2012 Depreciation for the financial year Accumulated depreciation at Dec. 31, 2012 Book value at Dec. 31, 2012 Book value at Dec. 31, 2011 Book value for production machinery Dec. 31, 2012 Dec. 31, 2011 16 NON-CURRENT INVESTMENTS 1,341 1,817 EUR 1,000 Carrying amount at Jan. 1, 2012 Additions Carrying amount at Dec. 31, 2012 Accumulated impairments at Jan. 1, 2012 Additions Accumulated impairments at Dec. 31, 2012 Book value at Dec. 31, 2012 Book value at Dec. 31, 2011 Shares, Group companies 6,987 382 7,369 -6,166 -6,166 1,203 821 Shares, others 789 789 789 789 TOTAL 7,776 382 8,158 -6,166 -6,166 1,992 1,610 Shares owned by the company are presented in the note number 25 to the financial statements. 52 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 17 INVENTORIES Materials and supplies Work in progress Other inventories Advance payments TOTAL SPECIFICATION OF RECEIVABLES Non-current receivables Non-current receivables from Group companies - Loan receivables Total from Group companies Non-current receivables from others - Accounts receivables - Deferred tax receivables Total from others TOTAL Current receivables Current receivables from Group companies - Accounts receivables - Accrued income and prepaid expenses - Other receivables Total from Group companies Current receivables from others - Accounts receivables - Accrued income - Other receivables, non-interest-bearing Total from others TOTAL Substantial items included in accrued income - Contribution receivables - Project receivables entered according to percentage of completion - Guarantee compensation receivables - Other accrued income TOTAL 19 SHAREHOLDERS' EQUITY Share capital at Jan. 1 Share capital at Dec. 31 Share premium at Jan. 1 Reclassifications between items Share premium at Dec. 31 Invested non-restricted equity reserve at Jan. 1 Reclassifications between items Invested non-restricted equity reserve at Dec. 31 2012 2011 2,909 760 95 3,120 6,885 2,332 1,324 112 16 3,784 18 746 746 1,566 1,566 201 201 947 549 1,806 2,355 3,921 1,638 28 32 1,699 936 141 2 1,079 2,942 17,979 970 21,892 23,590 3,940 3,057 509 7,506 8,585 15,965 1,246 768 17,979 18 2,945 236 3,199 8,010 8,010 6,498 -6,498 6,498 6,498 8,010 8,010 6,498 6,498 - 53 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 Retained earnings at Jan. 1 Changes during the financial year - Profit (loss) from the previous year - Dividends 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 Invested non-restricted equity reserve Distributable funds at Dec. 31 Shares of the company Shares, 1,000 pcs Nominal value, EUR Total nominal value, 1,000 EUR Series K shares (ordinary shares, 20 votes/share), 1,000 pcs Series A shares (1 vote/share), 1,000 pcs 20 APPROPRIATION RESERVE Raute Corporation's balance sheet included no accumulated depreciation difference at the balance sheet date December 31, 2012. OBLIGATORY PROVISIONS Warranty provisions Book value at Jan. 1 Additions Disposals Book value at Dec. 31 Estimated warranty costs include non-current provisions EUR 56 thousand (123 thousand). Losses from long-term projects in order book Book value at Jan. 1 Amendment during the financial year Book value at Dec. 31 Other obligatory provisions Book value at Jan. 1 Amendment during the financial year Book value at Dec. 31 TOTAL 22 LIABILITIES Non-current liabilities Non-current liabilities to others - Loans from financial institutions - Pension loans (TyEL) TOTAL Non-current liabilities presented in Raute Corporation's financial statements do not include items maturing after five years or later. 2012 6,525 -145 -1,201 5,178 2,818 22,504 2011 7,427 299 -1,201 6,525 -145 20,887 5,178 2,818 6,498 14,495 6,525 -145 6,380 4,005 2.00 8,010 991 3,014 4,005 2.00 8,010 991 3,014 21 733 793 -621 905 549 673 -489 733 37 55 92 32 5 37 40 123 163 1,160 78 -38 40 811 5,867 5,867 8,937 2,000 10,937 54 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 Current liabilities Current liabilities to Group companies - Advances received - Accounts payable - Accrued expenses and prepaid income - Other liabiliites Total to Group companies Current liabilities to others - Loans from financial institutions - Pension loans (TyEL) - Advance payments received - Accounts payable - Accrued expenses and prepaid income - Other current liabilities Total to others TOTAL Interest-bearing liabilities - Non-current - Current TOTAL Substantial items included in accrued expenses and prepaid income - Accrued project expenses - Accrued personnel expenses - Other accrued expenses TOTAL 23 OTHER LEASES Raute Corporation as lessee Minimum rents paid on the basis of other non-cancellable leases: - Within one year - After the period of more than one and less than five years TOTAL PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledges and contingent liabilities have been given to guarantee liabilities and commitments On behalf of Parent company Loans from financial institutions - Business mortgages Pension loans (TyEL) - Business mortgages - Credit insurance agreements Other liabilities - Real estate mortgages 2012 2011 94 254 3 411 762 133 349 482 3,250 2,000 12,355 5,951 4,469 571 28,596 29,358 2,000 2,000 5,175 2,296 3,770 1,026 16,267 16,750 5,867 5,761 11,628 10,937 4,449 15,386 38 4,161 270 4,469 253 3,220 297 3,770 230 300 530 165 365 530 24 9,117 6,700 2,000 600 1,400 100 101 11,177 6,700 4,000 1,200 2,800 100 101 55 FINANCIAL STATEMENTS 2012 / PARENT COMPANY EUR 1,000 Commercial bank guarantees on behalf of the Parent company and subsidiaries Mortgage agreements on behalf of subsidiaries Loans from financial institutions - Business mortgages Other lease agreements Forward contracts in foreign currency - Nominal value, internal forward contracts - Fair value, internal Interest rate and currency swap agreements - Nominal value - Fair value The nominal value is the value of underlying instruments converted into euros using the exchange rate of balance sheet date. The market value is the profit generated, if the derivatives position would have been closed to the market price on the balance sheet date. Other own obligations "Letters of Guarantee" engagements have been issued on behalf of certain subsidiaries. No other pledges or other ontingent liabilities have been given on behalf ot the management or shareholders. No loans are granted to the management and shareholders. 25 SHARES OWNED BY THE COMPANY Holding and voting right, % 100 100 100 100 100 100 100 50 2012 2011 39,600 17,526 244 244 530 240 240 634 2,093 -8 1,211 -32 4,117 -4 5,937 -285 Subsidiaries Raute (Shanghai) Machinery Co., Ltd, Shanghai, China RWS-Engineering Oy, Lahti, Finland Raute (Shanghai) Trading Co., Ltd, Shanghai, China Raute Canada Ltd., Delta, B.C., Canada Raute Inc., Delaware, USA Raute WPM Oy, Lahti, Finland Raute Group Asia Pte Ltd., Singapore Raute Chile Ltda., Santiago, Chile TOTAL Book value, EUR 1,000 780 203 95 84 17 9 0 15 1,203 Book value, EUR 1,000 326 293 51 50 19 10 41 789 Other shares Lahden Seudun Puhelin Oy Ahkera Smart Tech Ltd Esys Oy FIMECC OY PHP Holding Oy Finnish Wood Research Oy Others TOTAL Number of shares, pcs 1,717 143,914 600 50 112 10 56 FINANCIAL STATEMENTS 2012 / GROUP Key ratios describing the Group's 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 Profit (loss) before tax % of net sales Profit (loss) for the financial year % of net sales Return on investment (ROI), % Return on equity (ROE), % Balance sheet total Interest-bearing net liabilities % of net sales Non-interest bearing liabilities Equity ratio, % Gearing, % Gross capital expenditure % of net sales Research and development costs* % of net sales Order book, EUR million Order intake, EUR million Personnel at Dec. 31 Personnel, effective, on average Personnel, average Dividend 2012 101,273 36.3 95,099 93.9 5,031 5.0 4,775 4.7 3,016 3.0 15.0 13.1 63,087 -8,087 -8.0 27,235 48.0 -33.5 3,529 3.5 2,516 2.5 50 116 503 480 488 2 002** 2011 74,323 18.2 65,432 88.0 -738 -1.0 -1,126 -1.5 -1,095 -1.5 -0.1 -4.7 52,666 -10,397 -14.0 15,320 46.9 -47.1 1,885 2.5 2,020 2.7 36 77 464 457 475 1,201 2010 62,867 71.6 57,773 91.9 1,311 2.1 1,122 1.8 1,158 1.8 5.1 4.9 53,034 -9,651 -15.4 14,368 50.7 -39.8 2,224 3.5 1,849 2.9 33 72 495 438 512 1,201 2009 36,638 -62.8 30,466 83.2 -9,695 -26.5 -9,890 -27.0 -8,141 -22.2 -21.6 -28.4 57,387 -9,366 -25.6 15,801 46.0 -40.6 1,095 3.0 2,470 6.7 22 35 524 419 542 0 2008 98,466 -11.1 82,666 84.0 6,341 6.4 6,880 7.0 4,723 4.8 19.4 14.0 60,180 -10,653 -10.8 15,402 60.5 -31.0 3,242 3.3 4,375 4.4 24 67 573 569 585 2,803 *Comparison year 2008 has been changed to correspond the presentation used from the beginning of the financial year 2009. **The Board of Directors' proposal to the Annual General Meeting. 57 FINANCIAL STATEMENTS 2012 / GROUP Share-related data 2012 Earnings per share, 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 share price for the financial year, EUR Highest share price for the financial year, EUR Average share price for the financial year, EUR Share price at Dec. 31, EUR 0.75 6.03 0.50* 66.4* 5.6* 11.95 2011 -0.27 5.51 0.30 -109.7 4.8 -22.67 2010 0.29 6.05 0.30 103.8 3.1 33.55 2009 -2.03 5.76 0.00 0.0 0.0 -3.67 2008 1.18 8.57 0.70 59.4 10.9 5.43 6.18 9.24 8.22 9.00 6.05 11.55 8.57 6.20 24,829 7.24 10.10 8.21 9.70 38,846 6.50 8.90 7.29 7.47 29,916 6.24 15.20 12.37 6.40 25,630 Market value of capital stock at Dec. 31, EUR thousand** 36,043 Trading in the company's shares (series A shares) Shares traded during the financial year, 1,000 pcs % 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 302 10.0 4,004,758 4.004,758 522 17.3 4,004,758 4,004,758 646 21.4 4,004,758 4,004,758 455 15.1 4,003,183 4,004,758 393 13.0 4,004,758 4,004,758 The deferred tax liabilities have been included in the calculation of the key ratios. *Board of Directors' proposal to the Annual General Meeting. **Series K shares valued at the value of series A shares. 58 FINANCIAL STATEMENTS 2012 / GROUP Calculation of key ratios Return on investment (ROI), % = Profit (loss) before tax + financial expenses Shareholders' equity + interest-bearing financial liabilities (average of the financial year) Return on equity (ROE), % = Profit (loss) for the financial year Shareholders' equity (average of the financial year) Interest-bearing liabilities ./. (cash and cash equivalents + financial assets at fair value through profit or loss) Interest-bearing net financial liabilities Shareholders' equity Shareholders' equity Balance sheet total ./. advance payments received Profit (loss) for the financial year Equity issue-adjusted average number of shares during the financial year Diluted profit (loss) for the financial year Diluted equity issue-adjusted average number of shares during the financial year Share of shareholders' equity belonging to the owners of the Parent company Undiluted number of shares at the end of the financial year Distributed dividend for the financial year Undiluted number of shares at the end of the financial year Dividend per share Earnings per share Dividend per share Closing share price at the end of the financial year Closing share price at the end of the financial year 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 financial year. Undiluted number of shares at the end of the financial year (series A + series K shares) x closing price of the share on the last day of the financial year x 100 x 100 x 100 x 100 Interest-bearing net liabilities = Gearing, % = Equity ratio, % = x 100 Earnings per share, undiluted, euros = Earnings per share, diluted, euros = Equity to share, euros = Dividend per share, euros = 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 = 59 FINANCIAL STATEMENTS 2012 / GROUP Shares and shareholders >> Real-time information on Raute's shares and shareholders can be found on the company's website at www.raute.com. SHARE CAPITAL AT DEC. 31, 2012 Shares Series K shares (ordinary shares) Series A shares Total shares at Dec. 31, 2012 Voting rights 20 votes/share 1 vote/share Nominal value EUR/share 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, 2012 Share capital at Jan. 1, 1994 Issue of share capital Sep. 21, 1994 Conversion 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 Conversion of series K shares into series A shares 2003 Conversion of series K shares into series A shares 2004 Registration of shares with options Jan. 1. ­ Dec. 31, 2006 Share capital at Dec. 31, 2012 Share capital, Number of Number of EUR series K shares series A shares 5,359,073 1,054,600 2,124,240 1,069,285 635,768 -14,000 14,000 -12,648 1,213,506 -44,539 44,539 -4,900 380,300 8,009,516 991,161 4,900 190,150 3,013,597 Shares and share capital Raute Corporation's shares are registered in the book-entry securities system maintained by Euroclear Finland Ltd. As of December 31, 2012, Raute's paid up and registered share capital amounted to EUR 8,009,516.00. The capital stock totaled 4,004,758 shares, of which 991,161 were series K shares (ordinary share, 20 votes/share), and 3,013,597 were 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 new owner who does not previously hold series K shares, other shareholders of the K series have the primary right and the company has the secondary right to redeem the share under the terms described in section 4 of the Articles of Association. Market capitalization and trade Raute Corporation's series A shares are listed on the NASDAQ OMX Helsinki Ltd in the Industrials sector. 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. In 2012, a total of 302,096 Raute Corporation's series A shares were traded (522,287 pcs). The total value of trading was EUR 2.4 million (MEUR 4.3). The highest share price was EUR 9.24 (EUR 11.55) and the lowest EUR 6.18 (EUR 6.05). At the end of the year 2012, the share price was EUR 9.00 (EUR 6.20). The average price was EUR 8.22 (EUR 8.57). The company's market capitalization at the end of the financial year was EUR 36.0 million (MEUR 24.8), with series K shares valued at the closing price of series A shares on December 31, 2012. Shareholders The number of shareholders totaled 1,667 at the beginning of the year 2012 and 1,682 at the end of the financial year. Series K shares were owned by 49 (49) private individuals at the end of the financial year. Board authorizations The Annual General Meeting on April 16, 2012 authorized the Board to decide on the repurchase of a maximum of 400,000 of Raute Corporation's series A shares with assets from the company's non-restricted equity, such that the repurchase would reduce the company's distributable assets. The number of shares is less than ten percent (10%) of the company's overall shares. Under the authority granted to it, the Board may repurchase the company's own series A shares to be used for the development of the company's capital structure, as consideration for funding or carrying out acquisitions or other arrangements, or to be otherwise disposed of or cancelled. The consideration to be paid for the shares repurchased based on the authorization granted must be based on the public trading price of the company's series A share, such that the minimum price of the repurchased shares is the lowest listed market price in public trading during the validity of the authorization. Correspondingly, the maximum price is the highest listed market price in public trading during the validity of the authorization. The authorization includes the right to acquire shares other than in proportion to the holdings of the shareholders. A targeted repurchase of the company's own shares can 60 FINANCIAL STATEMENTS 2012 / GROUP take place, for example, by purchasing shares in public trading in markets where, according to the regulations, the company is permitted to engage in the trade of its own shares. Repurchasing shares in public trading as mentioned above or otherwise in a targeted way, requires that the company has a weighty financial reason to do so. Series K shares can be converted to series A shares, in accordance with Article 3 of Raute Corporation's Articles of Association. The Board of Directors will decide on the other conditions related to share repurchases. By the authority granted to the Board at the Annual General Meeting on April 16, 2012, the Board can decide on a directed issue of Raute Corporation's series A shares, as well as on all of the related terms and conditions, including the recipients and the sum of consideration to be paid. The Board of Directors may decide to issue either new shares or company shares held by Raute. The maximum number of shares that can be issued is 400,000 series A shares. As proposed, the authorization will be used to fund or carry out acquisitions or other arrangements or for other purposes decided by the Board of Directors. The authorizations are valid until the end of the next Annual General Meeting, at the latest until May 31, 2013. By the end of the financial year, the Board had not yet used the authorizations granted to it at the 2012 AGM. No decisions on share issues were made during the financial year, nor were any convertible bonds issued. The company did not possess company shares or hold them as security at the end of the financial year. As of December 31, 2012, the company had no valid share issues or share- or optionbased incentive plans. Option-based incentive plan 2010 The Annual General Meeting held on March 31, 2010 resolved to issue stock options to the key personnel of Raute Group. In deviation from the shareholders' pre-emptive rights, the stock options were offered to key personnel of Raute Group separately determined by the Board of Directors and to a wholly-owned subsidiary of Raute Corporation for further delivery to the key personnel of Raute Group. The maximum total number of stock options is 240,000. Stock options entitle the subscription for a total maximum of 240,000 of Raute Corporation's series A shares and the share capital of Raute Corporation may, as a result of the share subscriptions made with the stock options, increase with a maximum of EUR 480,000. Each stock option entitles the subscription for one (1) series A share. Of the stock options, a maximum of 80,000 shall be marked with the symbol 2010 A, a maximum of 80,000 shall be marked with the symbol 2010 B and a maximum of 80,000 shall be marked with the symbol 2010 C. The stock options shall be issued free of charge. The share subscription price for the stock options shall be determined based on the trade volume weighted average quotation of the share of Raute Corporation in continuous trading, rounded off to the nearest cent, on the NASDAQ OMX Helsinki Ltd. For stock options 2010 A the subscription price was determined during the two month period immediately following the announcement day of the financial statements for the year 2009, i.e. February 12, 2010 ­ April 11, 2010, and for stock options 2010 B during the two month period immediately following the announcement day of the financial statements for the year 2010, i.e. February 16, 2011 ­ April 15, 2011. For stock options 2010 C the subscription price was determined during the two month period immediately following the announcement day of the financial statements for the year 2011, i.e. February 15, 2012 ­ April 14, 2012. From the share subscription price shall be deducted the amount of the dividend or distribution of funds from the distributable equity fund decided after the beginning of the period for determination of the subscription price but before share subscription. Out of the share subscription price the amount equaling the nominal value of the share will be entered into the share capital and the exceeding amount into the invested non-restricted equity fund. The share subscription period for stock options 2010 A will be from March 1, 2013 to March 31, 2016, for stock options 2010 B from March 1, 2014 to March 31, 2017 and for stock options 2010 C from March 1, 2015 to March 31, 2018. The terms and conditions of the stock option system have been published on the Company's website at www.raute. com. 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. The Chief Financial Officer 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 insider register is set up if the person responsible for the project considers that the publication of the project may have a significant impact on the value of the company's shares. The information on insiders subject to disclosure requirements is kept available in the NetSire system maintained by Euroclear Finland Ltd. The insider registers of issuers are available for public display at Euroclear Finland Ltd, Urho Kekkosen katu 5 C, FI-00100, Helsinki. In addition, the public information on the insiders is available on Raute Corporation's website at www.raute.com. 61 FINANCIAL STATEMENTS 2012 / GROUP DISTRIBUTION OF OWNERSHIP BY SHAREHOLDER CATEGORY AT DEC. 31, 2012 Series A and series K shares Number of by shareholder category shareholders Households 1,570 Financial and insurance institutions 4 Foreign shareholders 4 Non-profit institutions 7 Public institutions 2 Companies 90 Nominee-registered 5 Total 1,682 Number of shares 3,232,540 349,504 6,000 20,301 60,350 203,079 132,984 4,004,758 Number of voting rights 22,064.599 349.504 6,000 20,301 60,350 203,079 132,984 22,836,817 % 93.3 0.2 0.2 0.4 0.1 5.4 0.3 100.0 % 80.7 8.7 0.2 0.5 1.5 5.1 3.3 100.0 % 96.6 1.5 0.0 0.1 0.3 0.9 0.6 100.0 DISTRIBUTION OF SERIES A SHARE OWNERSHIP AT DEC. 31, 2012 Series A shares Number of by shareholder category shareholders Households 1,552 Financial and insurance institutions 4 Foreign shareholders 4 Non-profit institutions 7 Public institutions Companies Nominee-registered Total 2 90 5 1,664 Number of shares 2,241,379 349,504 6,000 20,301 60,350 203,079 132,984 3,013,597 Number of voting rights 2,241,379 349,504 6,000 20,301 60,350 203,079 132,984 3,013,597 % 93.3 0.2 0.2 0.4 0.1 5.4 0.3 100.0 % 74.4 11.6 0.2 0.7 2.0 6.7 4.4 100.0 % 74.4 11.6 0.2 0.7 2.0 6.7 4.4 100.0 Series A shares by number of shares 1­ 1,000 1,001­ 5,000 5,001­10,000 10,001­ 50,000 50,001­100,000 100,001­ Total Number of shareholders 1,466 143 20 22 10 3 1,664 % 88.1 8.6 1.2 1.3 0.6 0.2 100.0 Number of shares 451,526 299,826 146,601 580,372 612,303 922,969 3,013,597 % 15.0 9.9 4.9 19.3 20.3 30.6 100.0 Number of voting rights 451,526 299,826 146,601 580,372 612,303 922,969 3,013,597 % 15.0 9.9 4.9 19.3 20.3 30.6 100.0 DISTRIBUTION OF SERIES K SHARE OWNERSHIP AT DEC. 31, 2012 Series K shares by shareholder category Households Total Number of shareholders 49 49 Number of shares 991,161 991,161 Number of voting rights 19,823,220 19,823,220 % 100.0 100.0 % 100.0 100.0 % 100.0 100.0 Series K shares by number of shares 1­ 1,000 1,001­ 5,000 5,001­10,000 10,001­ 50,000 50,001­100,000 Total Number of shareholders 8 6 6 23 6 49 % 16.3 12.2 12.2 46.9 12.2 100.0 Number of shares 3,650 17,286 32,100 605,425 332,700 991,161 % 0.4 1.7 3.2 61.1 33.6 100.0 Number of voting rights 73,000 345,720 642,000 12,108,500 6,654,000 19,823,220 % 0.4 1.7 3.2 61.1 33.6 100.0 62 FINANCIAL STATEMENTS 2012 / GROUP 20 LARGEST SHAREHOLDERS AT DEC. 31, 2012 Number of series By number of shares K shares 1. Sundholm, Göran 2. Mandatum Henkivakuutusosakeyhtiö 3. Mustakallio, Kari Pauli 60,480 4. Sijoitusrahasto Alfred Berg Small Cap F. 5. Suominen, Pekka 48,000 6. Suominen, Tiina Sini-Maria 48,000 7. Siivonen, Osku Pekka 50,640 8. Kirmo, Kaisa Marketta 50,280 9. Mustakallio, Mika Tapani 57,580 10. Keskiaho, Kaija Leena 33,600 11. Särkijärvi, Anna Riitta 60,480 12. Laakkosen Arvopaperi Oy 13. Relander, Harald Bertel 14. Mustakallio, Ulla Sinikka 53,240 15. Mustakallio, Marja Helena 43,240 16. Särkijärvi, Timo 12,000 17. Särkijärvi-Martinez, Anu Riitta 12,000 18. Kirmo, Lasse 30,000 19. Suominen, Jukka Matias 24,960 20. Mustakallio, Kai Henrik 47,420 Total 631,920 Number of series K shares 60,480 60,480 57,580 53,240 50,640 50,280 48,000 48,000 48,000 47,420 43,240 42,240 33,600 30,000 27,440 24,960 24,780 22,405 20,160 792,945 Number of series A shares 624,398 181,900 56,900 116,671 62,429 62,316 53,539 41,826 29,270 51,116 22,009 71,849 70,900 15,862 16,047 43,256 43,256 24,110 27,964 4,594 1,620,212 Number of series A shares 56,900 22,009 29,270 15,862 53,539 41,826 62,429 62,316 4,594 16,047 51,116 624,398 24,110 9,500 27,964 21,500 8,031 1,131,411 Total number of shares 624,398 181,900 117,380 116,671 110,429 110,316 104,179 92,106 86,850 84,716 82,489 71,849 70,900 69,102 59,287 55,256 55,256 54,110 52,924 52,014 2,252,132 Total number of shares 117,380 82,489 86,850 69,102 104,179 92,106 110,429 110,316 48,000 52,014 59,287 42,240 84,716 624,398 54,110 36,940 52,924 46,280 30,436 20,160 1,924,356 % of total shares 15.6 4.5 2.9 2,9 2.8 2.8 2.6 2.3 2.2 2.1 2.1 1.8 1.8 1.7 1.5 1.4 1.4 1.4 1.3 1.3 56.2 % of total shares 2.9 2.1 2.2 1.7 2.6 2.3 2.8 2.8 1.2 1.3 1.5 1.1 2.1 15.6 1.4 0.9 1.3 1.2 0.8 0.5 48.1 Total number of votes 624,398 181,900 1,266,500 116,671 1,022,429 1,022,316 1,066,339 1,047,426 1,180,870 723,116 1,231,609 71,849 70,900 1,080,662 880,847 283,256 283,256 624,110 527,164 952,994 14,258,612 Total number of votes 1,266,500 1,231,609 1,180,870 1,080,662 1,066,339 1,047,426 1,022,429 1,022,316 960,000 952,994 880,847 844,800 723,116 624,398 624,110 558,300 527,164 517,100 456,131 403,200 16,990,311 % of voting rights 2.7 0.8 5.5 0.5 4.5 4.5 4.7 4.6 5.2 3.2 5.4 0.3 0.3 4.7 3.9 1.2 1.2 2.7 2.3 4.2 62.4 % of voting rights 5.5 5.4 5.2 4.7 4.7 4.6 4.5 4.5 4.2 4.2 3.9 3.7 3.2 2.7 2.7 2.4 2.3 2.3 2.0 1.8 74.4 By number of votes 1. Mustakallio, Kari Pauli 2. Särkijärvi, Anna Riitta 3. Mustakallio, Mika Tapani 4. Mustakallio, Ulla Sinikka 5. Siivonen, Osku Pekka 6. Kirmo, Kaisa Marketta 7. Suominen, Pekka 8. Suominen, Tiina Sini-Maria 9. Suominen, Jussi 10. Mustakallio, Kai Henrik 11. Mustakallio, Marja Helena 12. Mustakallio Risto Knut kuolinpesä 13. Keskiaho, Kaija Leena 14. Sundholm, Göran 15. Kirmo, Lasse 16. Keskiaho, Juha-Pekka 17. Suominen, Jukka Matias 18. Keskiaho, Marjaana 19. Kultanen, Leea Annikka 20. Molander, Sole Total MANAGEMENT'S AND PUBLIC INSIDERS' SHAREHOLDING AT DEC. 31, 2012 AND NOMINEE-REGISTERED SHARES AT DEC. 31, 2012 Number Number Total % of Total % of of series of series number total number voting K shares A shares of shares shares of votes rights Management's holding at Dec. 31, 2012 Board of Directors, the Group's President and CEO and Executive Board 122,880 108,899 231,779 5.8 2,566,499 11.2 Public insiders's holding at Dec. 31, 2012 122 880 114,487 237,367 5.9 2,572,087 11.3 The figures include the holdings of their own, minor children and control entities Nominee-registered shares at Dec. 31, 2012 132,984 132,984 3.3 132,984 0.6 63 FINANCIAL STATEMENTS 2012 / GROUP The Board of Directors' proposal for profit distribution, signatures for the report of the Board of Directors and financial statements and the Auditor's note The Parent company's distributable funds total EUR 14,494,721.09, of which the profit for the financial year is EUR 2,818,449.31 and the balance sheet amounts to EUR 58,889,974.63. The Board of Directors proposes to the Annual General Meeting 2013 that the distributable funds be used in the following way: - EUR 0.50 per share distributed as dividend, i.e. total of EUR 2,002,379.00 - Retained in equity EUR 12,492,342.09 EUR 14,494,721.09 No material changes have taken place in the company's financial position after the end of the financial year. The company has good liquidity, and the proposed profit distribution does not pose a risk to solvency. Nastola, February 12, 2013 Erkki Pehu-Lehtonen Chairman of the Board Mika Mustakallio Joni Bask Risto Hautamäki Ilpo Helander Pekka Suominen Tapani Kiiski President and CEO Auditor's note The Auditor's report has been issued today. Nastola, February 12, 2013 PricewaterhouseCoopers Oy Authorized Public Accountants Janne Rajalahti Authorized Public Accountant 64 List of the Parent company's common document types, accounting journal types and means of storaging FINANCIAL STATEMENTS DECEMBER 31, 2012 Common document types used Balance sheet book General journal and general ledger Accounts payable and accounts receivable Description of accounting journals Bank and cash vouchers Purchase invoices Sales invoices Transactions of purchase and sales invoices Fixed asset register Salary entries Memo vouchers Automatic contra entries of memo vouchers Imputed and entries of cost accounting Accounting journal 10-11 and 15 81 and 85 30, 31 and 34 70-72 and 80 65-68 6, 19-22, 24 and 25 97 and 98 28 and 29 Documents' means of storaging Separately bound, in paper In electronic format In electronic format Journal's means of storaging In paper In electronic format In paper In electronic format In paper In paper In paper In electronic format In electronic format and in paper (28) 65 Development of quarterly results EUR 1,000 NET SALES Change in inventories of finished goods and work in progress Other operating income Materials and services Employee benefits expense Depreciation and amortization Other operating expenses Total operating expenses OPERATING PROFIT (LOSS) % of net sales Financial income Financial expenses PROFIT (LOSS) BEFORE TAX % of net sales Income taxes TOTAL PROFIT (LOSS) 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 Q1 2012 15,109 Q2 2012 22,365 Q3 2012 29,886 Q4 2012 33,914 Total 2012 101,273 464 46 -6,806 -6,635 -501 -2,227 -16,168 -549 -4 208 -195 -536 -4 72 -464 -3 226 60 -12,055 -6,997 -495 -2,467 -22,014 637 3 181 -150 669 3 -406 263 1 -742 61 -17,475 -7,083 -482 -2,346 -27,386 1,818 6 130 -267 1,680 6 -451 1,229 4 551 1,256 -19,388 -8,038 -491 -4,680 -32,597 3,125 9 -37 -126 2,962 9 -973 1,989 6 500 1,423 -55,725 -28,752 -1,968 -11,720 -98,165 5,031 5 482 -738 4,775 5 -1,759 3,016 3 -464 263 1,229 1,989 3,016 -0.12 -0.12 0.07 0.07 0.31 0.31 0.50 0.50 0.75 0.75 4,005 4,005 4,005 4,005 4,005 4,007 4,005 4,008 4,005 4,008 66 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 31 December, 2012. The financial statements comprise the consolidated statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows, 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. 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 consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view 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 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 express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about 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 of the parent company or the President and CEO are guilty of an act or negligence which may result in liability in damages towards the company or whether they have violated the Limited Liability Companies Act or the articles of association of the company. 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, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. 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. 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 and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company's financial performance and financial position 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, 12 February 2013 PricewaterhouseCoopers Oy Authorised Public Accountants Janne Rajalahti Authorised Public Accountant 67 RAUTE CORPORATION Rautetie 2 P.O. Box 69, FI-15551 Nastola Tel. +358 3 829 11 Fax +358 3 829 3200 ir@raute.com