VACON DRIVEN BY DRIVES

Cleantech is fun!

ANNUAL REPORT 2009

Vacon – promoting clean technology

Electric motors consume about 30% of the electric energy in the entire world. Full use of AC drives and energy-efficient motors in industry and civil engineering would provide savings of up to 30% in the energy consumption of electric motors. This equals 10% of electricity in the entire world. During their lifespan, Vacon’s AC drives save many times more energy than it takes to manufacture them.

Using renewable energy such as wind or solar power more effectively is just one solution among many in the battle against climate change – but it is a clean one. AC drives are widely used in the generation of renewable energy.

Approximately 1.1 billion people in the world lack clean water. AC drives are a key tool in the production of clean water as well.

Vacon | Annual Report 2009
3

CORPORATE OVERVIEW

Vacon in brief ... 4
Review by the President and CEO ... 6
Business environment ... 8
Strategy ... 10

BUSINESS OVERVIEW

Research and development ... 14
Manufacturing and logistics ... 16
Sales and marketing ... 18
Product portfolio ... 20
Industry segments and applications ... 21

CORPORATE RESPONSIBILITY

Ecological responsibility ... 24
Financial responsibility ... 25
Social responsibility ... 26

ADMINISTRATION AND MANAGEMENT

Corporate governance statement ... 30
Board of directors ... 36
Group management team ... 37

FINANCIAL STATEMENTS

... 39

VACON IN BRIEF

Driven by drives

Vacon's operations are driven by a passion to develop, manufacture, and sell the best AC drives in the world – and nothing elseAC drives are used in the control of electric motors and in the generation of renewable energy. Vacon has product development and production units in Finland, the USA, China and Italy. The company has sales offices in 27 countries. In 2009, Vacon's revenues were EUR 272.0 million and the company employed an average of 1,231 people around the world. Vacon Plc's shares (VAC1V) are listed on NASDAQ OMX Helsinki.

An AC drive is a device that is used to control the speed of an electric motor in all industry segments and civil engineering. Furthermore, an AC drive is a key product in the generation of renewable energy. AC drives can provide significant energy savings and generate clean energy from renewable sources.

Vacon was established in Vaasa in 1993. It was founded by 13 bold entrepreneurs who shared a passion to develop and manufacture the best AC drives in the world. The year 2009 was the company's 16th year of operation.

Global presence

Vacon has product development and production units in Finland, the USA, China, and Italy. The company has sales offices in 27 countries, and it uses all sales channels to sell its products. Vacon's sales channels are OEMs, system integrators, brand label customers, distributors, and direct sales to end users.

Vacon supplies AC drives to nearly all industry segments and to civil engineering. Typical customer sectors include machine building, water treatment, construction engineering, marine and offshore industry, renewable energy generation, and mining. AC drives are used, for example, in pumps, fans, elevators, escalators, conveyors, wind power plants, and compressors. Vacon's largest customers include Eaton, Honeywell, Konecranes, Rockwell Automation, Schindler, and The Switch.

Vacon is the seventh largest manufacturer of AC drives in the world and the largest company concentrating solely on AC drives. Vacon estimates that its share of the global AC drive market (USD 8.3 billion) is almost 5% (IMS 2009).

YEAR 2009 IN BRIEF

Jan 8	Jun 24	Jun 26
Vacon opens a subsidiary in South Korea	Vacon to deliver two 4.4-MW AC drives for main propulsion units	Vacon opens an office in Canada

Vacon | Annual Report 2009

Vacon | Annual Report 2009 5

Financial targets and shareholders

Vacon's goal is to achieve revenues of EUR 500 million in 2014. Its profitability target is an operating profit margin of 14% and a return on equity of more than 30%. Vacon's shares are listed on NASDAQ OMX Helsinki. At the end of 2009, Vacon had 5,114 shareholders, of which 71.1% were institutions or private investors operating in Finland and 28.9% were foreign owners. The closing price of Vacon's share on the last day of 2009 was EUR 26.70, and the company's market capitalization was EUR 406.1 million.

Revenues, MEUR

Operating profit, MEUR

Equity ratio, %

Order book, MEUR

Number of personnel at the end of the year

Sep 30	Oct 7	Oct 22
Vacon supplies AC drives to the Kama paper mill in Russia	Vacon equips the world's first diesel-electric main propulsion on river cruise vessel with AC drives	Vacon extends services in Latin America through the expansion of its office in Brazil

REVIEW BY THE PRESIDENT AND CEO

Cleantech at its cleanest

Vacon's products, AC drives, represent the cleanest of cleantech. They help improve the energy-efficiency of industry and civil engineering significantly, help clean water, and generate energy from renewable sources. In addition, AC drives leave practically no ecological footprint since they help save significantly more energy than it takes to manufacture them.

Vacon's AC drives help provide answers to two issues the world is struggling with: global warming and the shortage of clean water. Vacon is a listed company with the central objective of increasing its value. Providing positive solutions for the society around us and thus having an impact on the future of the entire world are reasons why we are so passionate and driven in our work – cleantech is fun!

Energy-efficiency has increased in importance in decision-making and continues to do so. Vacon's customers make their procurement decisions more and more on the basis of energy-efficiency as they develop the energy and cost efficiency of their own operations. At the same time, an AC drive is becoming an every day commodity. I believe that one day, nearly all electric motors will be equipped with AC drives.

Political decision-makers are also doing their part to promote energy-efficiency and the generation of renewable energy. Examples of this include the new EU directive regulating the energy-efficiency of electric motors, and similar acts of legislation in China and the USA.

Our market share grew

At the beginning of 2009, we estimated that investments in developing energy-efficiency would remain at a high level despite the general downturn in the economy. This, however, proved untrue. Instead, the entire AC drive market declined more than we estimated, and this also forced us to lower our profit targets in the middle of the year.

In spite of this, in my opinion, Vacon's performance in 2009 was at least reasonable – if not good. While the global AC drive market declined by about 16%, our own revenues only decreased by 7.2%, to EUR 272.0 million. We also acquired new customers. Our sales personnel around the world deserve thanks for this.

Due to decreased revenues, our operating profit declined to EUR 22.5 million (EUR 34.6 million in 2008). A central factor contributing to this was the fact that we had planned our fixed costs with growth in mind. During the year, we controlled our growth investments and adjusted the cost structure to the reduced volume. Nevertheless, we did not want to reduce our operations too much since we want to be ready when growth takes off again.

Vacon | Annual Report 2009

New products to the market

In 2010, our strategic focus will be on developing our product leadership. We will bring to market increasingly versatile, high-quality, and cost-effective products. In R&D, we will take advantage of the full scale of our global expertise. We have already divided R&D responsibility between our country units in Finland, China, Italy, and the USA, and this trend will continue.

During recent years, we have effectively developed our global manufacturing, R&D, and sales organization. We will continue our deliberate expansion of our operations to new, promising market areas in the future. In 2010, however, we will concentrate on taking advantage of our global position and, in particular, on developing the operations of our recently established subsidiaries.

I believe that the worst is over for Vacon. Nevertheless, it is difficult to estimate how soon recovery will begin. Vacon estimates that revenues will grow in 2010 and that the company's profitability will remain at the 2009 level.

I wish to express my thanks to Vacon's personnel, customers, and shareholders. The year 2009 put everyone to the test, but I think we weathered the year well and came out as winners.

President and CEO

Vesa Laisi

Vacon | Annual Report 2009

BUSINESS ENVIRONMENT

Asia is the engine of business growth

In 2009, Vacon's business operations were significantly affected by the global recession that had started in 2008. Despite the reduced revenues, Vacon was able to increase its market shares and establish its position as the world's leading company solely focused on AC drives.

General discussion on the state of the environment and improvement of energy-efficiency was lively in 2007 and 2008. Everyone assumed that the recession would not have much of an impact on the AC drive market. This, however, proved untrue. Various assessments forecasted that the market would shrink by about 5% in 2009, but the reality was significantly gloomier. The global AC drive market shrank by approximately 16% in 2009

[IMS 2009]. Vacon's revenues declined by 7.2%, to EUR 272.0 million, in 2009. Despite the reduced revenues, Vacon increased its market share worldwide.

According to market surveys, the global AC drive market was worth approximately EUR 5.7 billion in 2009. Vacon estimates that its share of this market is about 5%. Measured by revenue, Vacon is among the nine largest manufacturers in the world, as shown by a study carried out by IMS. Vacon estimates that measured by equipment production volumes, it is one of the seven largest AC drive manufacturers in the world. Of these manufacturers, Vacon is the only one that focuses solely on the manufacture of AC drives. Vacon's main competitors are global conglomerates for which AC drives are simply one product among many others.

Customers in EMEA (Europe, the Middle East, and Africa) generated 70.1% of Vacon's revenues in 2009. In this region, Vacon performed better than the market overall, and despite the recession, Vacon's revenues remained at the 2008 level. Vacon's revenues in North and South America were affected by the overall declining trend in this market, and the share of this market area in Vacon's entire revenues was 17.0%. In contrast, in the Asia-Pacific region, Vacon's revenues increased significantly, by nearly 30.2% from the previous year. Vacon's investments in the Asian market in particular have generated growth, and in 2009, the share of this market in Vacon's revenues climbed to 12.8%.

8 Vacon | Annual Report 2009

In 2009, Vacon's focus was three-fold: new customer acquisition, the Asian market, and the generation of renewable energy. AC drives are used all over the world and in many different industry segments. As a result, the risk from the operations is also spread over a vast area. In a difficult economic situation, Vacon was able to shift the focus of its operations to different geographical areas and to business areas that have been showing growth. One of these growth areas is, for example, wind power, which increased in importance especially in Asia during 2009.

Since its beginnings, Vacon has been a company providing clean technology. According to forecasts, in 2020 cleantech will, for example, in Germany be a bigger

business than automobiles or the market for industrial products. An AC drive is an ideal example of a product representing clean technology. The energy consumed to manufacture an AC drive is minimal compared to the savings it can generate. Vacon estimates that AC drives manufactured by Vacon and currently in use create annual energy savings worth EUR 5 billion.

Development of new products continued according to plans in 2009. The company's objective was to develop its product offering in a new family of AC drives in 2009. R&D focused on improving cost efficiency, functionality, use of space, visual features, user-friendliness, and energy-efficiency. The new products will be introduced to the market during 2010.

Despite the current economic situation, the basic foundation of the AC drive market has not changed. Market growth is still based on energy price increases, improvements in the energy-efficiency of machinery and equipment, growth in the generation of renewable energy, and increased use of automation in industry. From the technological standpoint, there is no technology that can replace AC drives. Therefore, Vacon's view is that the market will inevitably grow in the future.

Vacon | Annual Report 2009

STRATEGY

Strategy – objectives, choices and competence

Vacon’s goal is to achieve revenues of EUR 500 million in 2014. Its long-term profitability target is an operating profit of 14% and a return on equity of more than 30%. Vacon’s operations are based on four strategic choices: product leadership, 100% focus on AC drives, a multi-channel sales network and global presence.

Product leadership

In 2010, the main strategic focus will be on strengthening product leadership. The company is currently in the process of developing and introducing to the market its newest third generation products, of which the Vacon 10 and Vacon 100 HVAC have already been launched. In 2010, Vacon will launch new products with features, quality and competitiveness that guarantee favorable growth opportunities as the market recovers.

Focus on AC drives

Vacon continues to be the world’s largest company exclusively designing and manufacturing AC drives, and it plans to maintain its position. This focus offers a clear competitive edge for Vacon since it provides Vacon’s customers with the best expert service in the industry every time, whether related to sales, customer service or service and maintenance.

Multi-channel sales

Multi-channel sales have always been the core of Vacon’s sales and marketing strategy. The company sells its products to original equipment manufacturers (OEMs), system integrators, brand label customers, distributors and end clients. Utilizing several different sales channels in each geographical area or industry segment offers Vacon a true competitive edge. This has benefited the company in the economic downturn since sales have not relied on one channel only.

Global presence

During the past few years, Vacon has increased its global presence significantly. The company operates production and R&D units in four countries and sales offices in a total of 27 countries. Extensive presence on different continents enables the company to place manufacturing close to the customer, thus hedging against currency risks. An extensive sales network offers sales the local touch it needs. The company’s own recently established sales companies managed to acquire a large number of new customers in 2009. This balanced the decline in orders experienced with other customers.

Strategic know-how

In recent years, Vacon has invested heavily in the development of information and communications technology, building tools shared by nearly its entire global organization. Vacon’s other strategic areas of expertise include a common hardware and software platform for AC drives, product portfolio management, customer relationship management, mass customization and global sourcing. Each area of expertise is continually developed and monitored in order to ensure the company has the required competence for implementing its strategy.

Vacon | Annual Report 2009

Vacon | Annual Report 2009 11

Goals for 2014

Profitable growth
500 MEUR
EBIT > 14%
ROE > 30%

Strategic choices

100% focus on AC drives
Product leadership
Multi-channel sales network
Global presence and international operations

Strategic core competencies

AC drives know-how
Common product platform design & product portfolio management
Customer relationship management
Mass customization & global sourcing
Global ICT infrastructure and applications

Vacon is a truly global company

Vacon operates production and R&D units in Finland, China, Italy, and the USA. It has sales offices in 27 countries. In addition, partners sell Vacon's products in approximately one hundred countries.

Vacon | Annual Report 2009 13

50%

An AC drive may save up to 50% of the electricity an individual application needs.

RESEARCH AND DEVELOPMENT

> Product leadership

Power from new products and renewable forms of energy

Despite the economic recession, Vacon's R&D operations were very active in 2009. Development and design of next generation products, improvements to the existing product range and development of products utilizing renewable forms of energy were among the focus areas in 2009.

In recent years, Vacon has allocated 5-7% of revenues to research and development, and this year was no exception. In 2009, the majority of R&D investments were used to develop and design next generation equipment. In 2010, a number of new products will be introduced to the market: products utilizing new and eco-friendly technology which supplement Vacon's extensive product offering.

The cornerstone of Vacon's business strategy is product leadership. We engage in ongoing, close collaboration with our customers and listen to their needs. These needs are the foundation on which we design and build a better and more versatile AC drive, says Stefan Standberg, Vacon's Senior Drives Expert.
Also in 2009 we further developed and added many new features to the selection of our existing Vacon NX product family. At the same time, we developed products that are new in Vacon's product portfolio.

In 2009, there was extensive interest in technologies utilizing renewable sources of energy. In Vacon's product development unit in Finland, this interest generated intensive projects which refined Vacon's liquid-cooled AC drive technology and applied it to increasingly demanding environments. Vacon's technology is used, for example, in megawatt-class wind power plants, and the goal is to also use the same technology in other manufacturing systems based on renewable energy.

Responsibility for R&D was distributed in 2008 to Vacon's various R&D units in Finland, China, Italy, and the USA. Vacon's global operations are based on shared hardware and software technology and advanced motor speed control solutions. This is a common foundation on which the different R&D units can build their own special solutions that suit their markets. This means each unit has a clear role and competence which is available to Vacon as a whole, Strandberg explains.

The number of product developers increased slightly in Vacon's units in Finland, the USA, and Italy during 2009. Significantly more product developers were hired in the unit in China in 2009. The number of product developers employed by Vacon globally is currently approximately 170.

Feeding high-quality power into the grid

As early as 15 years ago, Vacon was developing a method that uses AC drive technology to feed power into the grid. Vacon's Jaakko Ollila is one of the pioneers in the sector.

Traditionally, AC drives have been used in industry and civil engineering to control the rotational speed of electric motors. Growing demand for wind power has made technology enabling power to be fed into the grid an increasingly important aspect of wind power plant technology, among others, in recent years. The same technology also has applications in other energy production systems, such as solar power plants.

Jaakko Ollila (D. Tech.) is a pioneering researcher at Vacon's unit in Tampere, studying the use and tuning of technology for generating power into the grid. He designed a solution for this in Vacon's AC drives in 1996.

Vacon's solution for power generation into the grid is interesting in that it is capable of very rapidly and dynamically responding to changes taking place in the manufacturing process, such as quick fluctuations in wind speed. Technology developed by Ollila provides very high quality low-harmonic electricity. This is one of the most important criteria when power is fed into the public electricity distribution network in which requirements in terms of the voltage, frequency, and interruptions are high.

Vacon | Annual Report 2009

10%

Only approximately 10% of the world's electric motors are equipped with an AC drive.

MANUFACTURING AND LOGISTICS

> Global presence

Strong boost to Vacon's factory operations

Vacon's factories are located on three continents: Europe, Asia, and North America. Although the factories are located far apart, their collaboration is seamless and practices are harmonized. All of Vacon's production is characterized by customer-orientation, excellent quality, efficiency, and flexibility.

Vacon continuously develops its production on a global scale in order to provide efficient and high-quality services to its customers. Currently, Vacon's AC drive factories are located in Finland, China, Italy, and the USA.

Despite the challenging situation in the world market, Vacon invested in its production activities in a number of ways in 2009. For example, Vacon implemented a new production control system, which supports the company's shared manufacturing process model and product structure, in the factories in Finland, China, and the USA. The new control system makes the tracking and testing of products easier. In addition, quality control becomes more effective and product management is easier.

New products for harnessing renewable sources of energy

Vacon's AC drives are used in many energy production solutions that use renewable sources of energy. Vacon's factory in China is a trailblazer in the serial production of Vacon's first enclosed drive solutions.

Serial production of the Vacon NXC and Vacon 8000 Wind enclosed drive models is new territory for Vacon and thus interesting. For example, the Vacon 8000 Wind used in wind power plants must be able to withstand extreme weather conditions, which highlights the importance of quality. Bringing new products into production is a very important stage that needs to be planned and implemented carefully to ensure quality. We focus particularly on working methods, orientation, follow-up, and feedback, says Shen Yuan, Director of Vacon's factory in China.

In addition to new products, the factory in China is preparing to commission new factory premises, which will be completed in 2010.

The new factory was designed on the basis of the Lean management philosophy that Vacon applies in manufacturing. The goal is to focus on doing things that give value for the customer's money. In addition, it is characterized by openness and flexibility. We keep an open mind for reforms and are ready to develop ourselves and find new and efficient ways of working by comparing our operations to others in the field and by familiarizing ourselves with the latest research results, says Shen Yuan.

New green factory opens in the USA

In November 2009, Vacon's new factory was inaugurated in Chambersburg, Pennsylvania, the USA. The new factory premises enable Vacon to nearly double its production capacity in the United States.

All of Vacon's operations in Chambersburg were moved under the same roof, which is very important for teamwork and communication. The design of the premises concentrated on the smooth flow of materials and clarity in the division of space. This allows the factory to flexibly adapt the production lines to meet customer needs at any given time. In addition, the proximity of the factory to the I-81 highway improves the distribution logistics for the products. An area on the plot is reserved for a possible expansion of the factory.

The new factory was designed and built in accordance with the LEED certification system of the US Green Building Council. An application has been filed for the official certification. LEED certification is issued for environmentally conscious construction and operations.

Vacon highlights the energy-efficiency of operations. This enables Vacon to apply its own AC drive technology at its best in its own production and its factory buildings.

Renewed product packaging

Vacon switched to new product packaging in 2009. The new packaging has been meticulously designed to meet the dimensions and durability requirements of Vacon's products, improving the efficiency of volume utilization by 35–50%. More equipment can be fitted in the same delivery thanks to the new packaging sizes, and the amount of packaging materials has been reduced.

Even larger products can now be packaged in recyclable cardboard boxes, eliminating the need for wooden crates. The extremely durable cardboard packaging saves space and makes it possible to stack large pieces of equipment on top of each other, making transports more efficient as well.

Vacon | Annual Report 2009

5%

Vacon has a market share of approximately 5%.

SALES AND MARKETING

> Multi-channel sales

Multi-channel sales give Vacon a competitive edge

In 2009, Vacon continued to apply its strategy of multiple sales channels in sales and marketing. The demanding market situation highlighted the importance of new customer acquisition, extensive customer coverage, and clean technology.

Multi-channel sales is a strategic choice

Vacon's own sales network consists of sales offices in 27 countries. Vacon sells its products to approximately 100 countries. In accordance with its strategy based on multiple sales channels, Vacon takes advantage of its partner network in countries where it has no sales offices. Partners, in other words original equipment manufacturers, system integrators, distributors, and brand label customers sell Vacon's products to end users and provide maintenance services. OEMs and system integrators are Vacon's most important distribution channels.

A company focusing on AC drives, Vacon has developed its strategy of multiple sales channels further than its competition. Our strengths include customer-orientation and speed of response. Customers value the fact that Vacon is an independent product company and does not compete with their business, says Tom Doring, CEO of Vacon's subsidiary in the USA.

Extensive investment in acquiring new customers

For the past ten years, Vacon has been systematically building a professional sales and marketing organization and a strong customer service organization parallel to its powerful product portfolio. During 2009, Vacon focused on directing sales strategies and measures to those industry segments and customer groups in which the company is competitive. In addition, Vacon systematically developed large global customer relationships by building a separate organization for them.

Successful new customer acquisition shows that our efforts are bearing fruit. In 2009, Vacon increased its market shares in selected market areas. Our own organization now operating on three continents enables us to provide our global customers excellent service. This creates lots of opportunities for us in the future, says Heikki Hiltunen, Vacon's Executive Vice President and VP, Products and markets.

Importance of extensive customer coverage and clean technology highlighted

Thanks to its extensive customer coverage and clear focus, Vacon did not suffer from price competition as much as its competitors did in 2009. In Europe, recession hit the company's revenues hardest in Central Europe and in certain industry segments such as the marine and offshore industry in particular. Revenues from Asia increased and the development in North America stabilized.

Vacon's customer coverage is extremely large. It covers all industry segments, and we have operations on all continents. Vacon's competitive edge is based on its focus on AC drives, global operations, good customer service, extensive customer coverage, and the team spirit and motivation of its personnel. The relative share of clean technology in our revenues has been increasing continually, and we believe that investments in this area offer Vacon good opportunities in 2010 as well, Hiltunen says.

Revenues by market area 2009

- Europe, the Middle East and Africa … 70.1%
- North and South America … 17.0%
- Asia and the Pacific … 12.8%

Revenues by distribution channel 2009

- End customers … 57.1%
- Distributors … 9.0%
- Original equipment manufacturers … 19.0%
- Brand label customers … 14.9%

Vacon | Annual Report 2009

PRODUCT PORTFOLIO

For distributors and end users

Vacon NXL ... 0.75–30 kW
Vacon NXS ... 0.75–200 kW
Vacon NXS standalone ... 200–560 kW
Vacon 50X (Vacon X4) ... 0.75–132 kW
Vacon 500X (Vacon X5) ... 0.75–132 kW
Vacon 100 HVAC ... 1.1–55 kW

Vacon 100 HVAC

For system integrators

Vacon NXP, air-cooled ... 0.75–3,250 kW
Vacon NXP, liquid-cooled ... 5.5–5,500 kW
Vacon NXC, enclosed ... 110–3,250 kW
Vacon Common DC bus products ... up to 5,300 kW

Vacon NXP, liquid-cooled

For original equipment manufacturers

Vacon 10 ... 0.25–5.5 kW
Vacon NXP ... 0.75–200 kW

Vacon 10

Vacon | Annual Report 2009

INDUSTRY SEGMENTS AND APPLICATIONS

Industrial segments using AC drives

Building automation
Chemical industry
Food and beverage
Machine building
Marine and offshore
Mining
Motor industry
Oil and gas industry
Power stations
Pulp and paper
Renewable energy resources
Rubber and plastics
Water and waste water

AC drive applications

Compressors
Conveyors
Cranes
Elevators and escalators
Fans
Heaters and dryers
Mixers
Packaging machines
Paper machines
Pumps
Test equipment
Textile machines
Wind power plants
Winders

Vacon | Annual Report 2009

Responsibility brings success

Vacon examines corporate responsibility from three perspectives: the ecological, social, and financial. Clear and transparent communication promotes corporate responsibility and sustainable development.

Vacon | Annual Report 2009 23

CORPORATE RESPONSIBILITY

Ecological responsibility

Vacon genuinely operates in accordance with the principles of sustainable development. The energy consumed in the manufacture of an AC drive and its components is significantly smaller than the energy that the device saves during its lifecycle. Companies and society can also use Vacon's AC drives to curb emissions, in particular, carbon dioxide emissions.

AC drives are used in all industry segments and civil engineering, for example, in water treatment processes. AC drives also play an important role in the processes of renewable energy production. Furthermore, AC drives improve process management and reduce mechanical stress on electric motors. These are significant benefits in many developing countries where the infrastructure is being developed. AC drives help make many technologies that improve the standard of living more accessible to developing countries.

Vacon strives to increase the eco-friendliness of its products throughout their lifecycle and manufacture them as efficiently as possible while also considering the environment. Vacon is committed to identifying and complying with the environmental legislation and regulations that apply to its operations. Vacon aims in all its activities to choose raw materials, working methods, and processes that cause the minimum level of harm to the environment. Subcontractors are also required to manage environmental matters appropriately.

Environmental management system

Vacon has an environmental management system certified by SGS-FIMKO that meets the requirements of the ISO 14 001 standard. This environmental system standard is widely used throughout the world and is the most important tool for Vacon to ensure that its environmental performance is effective and of even quality.

The company arranges regular training to maintain the environmental awareness of personnel. Environmental considerations are part of the annual evaluation the company carries out. The development managers who belong to the evaluation team are responsible for ensuring that the operations within their own business processes meet these objectives.

Eco-friendliness starts with product design

Vacon uses the Design for Environment check list in the concept phase of product design, which helps make more efficient use of materials and resources, and minimize the use of substances that harm the environment. AC drives are made of plastic, steel, aluminum, electronic components, cables, and circuit boards.

Vacon complies with the EU's RoHS directive regarding the restriction on certain hazardous substances in the manufacture of electrical and electronic equipment. All of Vacon's new products have been RoHS-compliant since 2000.

Manufacturing takes the environment into consideration

The company's manufacturing process does not pollute the air, water, or soil. The production model is modern: only the final assembly and testing of the product takes place in Vacon's facilities. The manufacturing stage which consumes the most energy is the testing of completed products. Energy generated in testing is in part fed back into the grid by means of Vacon's own AC drive technology, which helps reduce the environmental impact of manufacturing. Vacon Group's manufacturing processes consumed about 14,215 MWh of energy during 2009 (2008: 12,413 MWh).

Recycling of various types of waste is organized efficiently at the company's locations. In 2009, no environmental accidents or cases of exceeded reference values were reported in any phase of production. Production did not release any emissions into the air or water systems either. Sorting and recycling is an important aspect of waste management.

Key figures for the Vacon Group's production process

	2009	2008	2007
Consumption of electric power, MWh	14,215	12,413	10,800
Electricity fed back into the test grid, MWh	20,000	16,000	14,000
Recycling of electronics waste, tonnes	27.6	17.3	15.0
Other recyclable material, tonnes	315	315	218
Hazardous waste, tonnes	2.9	5.9	4.7

Subcontractors are also required to act responsibly

Vacon requires its subcontractors, suppliers, and partners to carry out responsible operations and comply with environmental regulations. Compliance with environmental regulations is monitored regularly in connection with supplier assessments.

24 Vacon | Annual Report 2009

Financial responsibility

The operations of a sustainably developing company are based on sensible economic development and performance. Vacon's financial responsibility is built on profitable growth. Only a profitable company can develop and create jobs and well-being. Vacon aims to ensure profitability with a long-term growth strategy, by complying with good corporate governance practice in its business activities, and by regularly assessing its risks. Since there is demand for products that promote energy-efficiency and are sustainable and eco-friendly, Vacon focuses on developing products for these needs.

Financial objectives

The company's long-term financial goal is to achieve revenues of EUR 500 million and an operating profit (EBIT) of 14% in 2014. Vacon has set an annual target for return on equity (ROE) of more than 30%.

Review of the financial year 2009

Despite the challenges in the world economy, the year 2009 was favorable for Vacon. The company increased its market shares through determined development efforts and maintaining competitiveness. Many of Vacon's customers had to respond to the changes in the global economy. Vacon Group's revenues declined by 7.2% from the year before, amounting to EUR 272.0 million (EUR 293.2 million in 2008, EUR 232.2 million in 2007). Operating profit for the financial year was EUR 22.5 million (EUR 34.6 million), or 8.3% of the revenues. Profit before taxes was EUR 22.0 million, or 8.1% of the revenues. This was 32.5% less than in the previous year. Profit for the financial year was EUR 16.1 million (EUR 23.9 million), showing a decrease of 32.6% compared to the year before. The amount of Vacon Group's liquid assets was EUR 17.2 million (EUR 15.7 million in 2008, EUR 34.4 million in 2007). Gross capital expenditure was EUR 18.2 million (EUR 11.2 million in 2008, EUR 9.1 million in 2007).

The greatest growth was experienced in the Asia-Pacific region where revenues grew by 30.2% compared to the previous year, to EUR 34.9 million (EUR 26.8 million). In Europe, the Middle East, and Africa, revenues declined by 9.4% to EUR 190.8 million (EUR 210.5 million). Revenues from North and South America decreased by 17.2% to EUR 46.3 million (EUR 55.9 million).

The Group's overall performance suffered from the development projects in progress in the company and the decline in revenues. Exchange rate development also had a negative impact on financial performance. The US dollar had the most significant effect.

	2009	2008	2007
Revenues, MEUR	272.0	293.2	232.2
Operating profit, MEUR	22.5	34.6	29.2
R&D expenses, % of revenues	6.5	5.8	6.2
Income taxes, MEUR	5.9	8.7	7.4
Wages, salaries and bonuses MEUR	42.9	42.4	31.2
Pension costs, MEUR	6.6	6.3	4.6
Other indirect personnel expenses, MEUR	4.1	4.0	3.1

Key figures

	2009	2008	2007
Return on equity, %	20.5	34.3	36.5
Return on capital employed, %	23.1	37.0	41.2
Equity ratio, %	56.5	51.1	52.9
Earnings per share, EUR	1.01	1.51	1.37

R&D expenses for the financial year were EUR 17.6 million (EUR 17.0 million in 2008, EUR 14.3 million in 2007), or 6.5% of the Group's revenues.

Salary and wages in the company are based on local collective and individual agreements, performance, and the required skill level. The basic compensation is supplemented by performance-based bonus schemes that cover the entire personnel of the company. The total amount of salaries and wages paid in 2009 was EUR 42.9 million (EUR 42.4 million).

Vacon | Annual Report 2009

CORPORATE RESPONSIBILITY

Social responsibility

Stakeholders

Vacon understands its responsibility towards its stakeholders, or people and communities its operations affect. The company strives to engage its stakeholders in dialog that benefits all parties with the aim of developing the company's operations and supporting society.

Personnel policies and working conditions

Vacon promotes the development of safe working conditions and a motivating work environment in every way. Job satisfaction is monitored annually through a job satisfaction survey.

Human rights

Vacon's activities relating to social responsibility are governed by universal employees' and children's rights and principles. The company complies with laws and regulations in all operations and acts ethically and honestly, carries out its work to a high degree of quality, takes responsibility for the environment, and respects human rights principles with business partners everywhere.

The Vacon Group is committed to complying with universally accepted human rights, children's rights, and employees' rights. This means that Vacon is committed to:

providing a healthy and safe working environment and preventing risks relating to health and safety
respecting freedom of association, and the freedom of being a member of a trade union
not discriminating against job applicants and employees in any way. In line with this, the company does not discriminate against minorities on the basis of race, gender, social status, origin, religion, or political or other membership in compensation, recruiting, access to training, and promotion.
complying with laws and industry norms in terms of working hours and compensation
refraining from the use of child labor (children under 14 years of age), forced labor, or any kinds of punishment
prohibiting corruption and bribery in all operations. Vacon and its employees do not pay or accept bribes or unlawful payments.

Vacon builds a strong winning team

Vacon builds and promotes a strong team spirit and wants to be the best AC drive provider on the market. Vacon has always strived to create conditions in which individuals are committed to long-term development and growth as employees of the company.

In 2009, the number of Vacon personnel grew by 31 people. The majority of new recruitment was carried out in Asian countries where the market continued to grow and the recession did not have as extensive an impact as elsewhere in the world.

Increased focus on career development

At the beginning of 2009, Vacon launched a project to develop and streamline career advancement opportunities for Vacon's personnel. The project examined, among other issues, career paths for specialists and personnel mobility between different business areas or different countries. It generated a process model that helps all Vacon employees plan their careers and development better, and supports competence at Vacon as a whole. One way to advance one's career is, for example, to accept a posting in another country, reinforcing global teamwork and international competence. Career development will also be covered more extensively in annual development discussions.

Competence under development

At Vacon, competence development is planned on the basis of the personnel's competence needs and the company's strategy. Systematic measures are taken to develop and strengthen strategic competence. Development planning is based on accurate mapping of gaps between existing competence and competence needs. Development takes place through learning on the job, coaching, job rotation, self-study, and organized training. In 2009, training focused on global and intra-company leadership and collaboration: specifically, on coaching and sales management as well as on a mindset highlighting collaboration and dialog.

Proactive management of well-being at work

Vacon takes determined measures to develop occupational health and safety issues. In 2009, Vacon's operations in Finland implemented a 'Työkuntoon' program based on proactive management of well-being at work. The program focuses on providing adequate and timely support for the personnel's well-being at work, identifying signs of reduced well-being in a timely manner as well as effectively addressing development needs relating to one's duties and work arrangements.

Occupational safety is developed by means of risk assessments and by increasing personnel awareness of safety and environmental issues.

Vacon | Annual Report 2009

Vacon | Annual Report 2009 27

Meetings and training go online

Vacon has operations on three continents and across different time zones, which sometimes makes real-time communication a challenge. In 2009, the company implemented new online tools for organizing the majority of the internal meetings, briefings, and training sessions in Vacon's internal IT network. Presentations are often recorded and available online for later viewing and listening. This creates savings in travel expenses and supports sustainable development.

The theme: social well-being

The efforts in 2009 to support the overall well-being of Vacon's personnel focused on social well-being. Social well-being is based on, among other things, good relationships with co-workers, family, and friends, and interesting hobbies. Vacon's personnel were provided with opportunities to participate in various events and leisure time activities to promote this.

Society

Vacon wants to be a good corporate citizen. Sponsorship has always been one of Vacon's marketing methods. Vacon supports young, emerging collaboration partners who succeed in their own sector and share similarities with Vacon.

Vacon participates in efforts to protect the Baltic Sea, becoming a supporter and collaboration partner of the Baltic Sea Action Group (BSAG) in 2009.

Vacon is the main cooperation partner of the Sail Training Association Finland (STAF). In particular, Vacon supports the Sails for Environment environmental protection program of STAF. The program aims to work for the environment in collaboration with several other parties.

Personnel in figures 2009

Group employees, average	1,231 persons
Average age of personnel	36.1 years
Average years of service	5.6 years
Proportion of women	27.5%
Proportion of men	72.5%

Personnel by functions 2009

Products and markets 39.6%
Production 41.6%
R&D 13.8%
Administration 5.0%

Level of education 2009

Secondary school 22.8%
Vocational education 25.5%
Bachelor's degree or engineering qualification 34.3%
Master's degree 15.6%
Licentiate or doctoral degree 1.8%

The project consists of, among other things, training and awareness campaigns on the impact of climate change and pollutants on the ecosystem and various kinds of theme sailings.

Personnel by region 2009

Europe, the Middle East, and Africa 71.2%
Asia and the Pacific 22.2%
North and South America 6.6%

New recruitment by region 2009

Europe, the Middle East, and Africa 51.3%
Asia and the Pacific 44.9%
North and South America 3.8%

In sports, Vacon supports the Finnish Alpine Ski Team's pursuit of success through a sponsorship agreement. Vacon also partners with Hockey-Team Vaasan Sport Oy. The objective of this partnership is to develop the local hockey team and to provide Vacon with new ideas for customer events and personnel training.

Good corporate governance boosts Vacon's success

Vacon complies with the Corporate Governance Code for listed companies in Finland in its entirety. Vacon strives for transparency and openness in both corporate governance principles and information provided to investors.

Vacon | Annual Report 2009 29

ADMINISTRATION AND MANAGEMENT

Corporate governance statement

Vacon Plc adheres to the Finnish Corporate Governance Code for listed companies, effective as of January 1, 2009, in its entirety.

This statement of the management and governance system has been compiled in accordance with Recommendation 51 of the Corporate Governance Code. The Code is available on the Securities Market Association website at www.cgfinland.fi. The company's statement on its corporate governance principles is available on the company's website at www.vacon.com > Investors > Corporate governance. Vacon Plc's shares are listed on NASDAQ OMX Helsinki.

Monitoring systems

Vacon Plc's Board of Directors monitors the appropriateness of management and operations of the Vacon Group. Vacon Plc's President and CEO is, with the support of the Group's Management Team, responsible for arranging the monitoring mechanisms for internal monitoring, risk management, internal audit, accounting, and financial administration. The guidelines cover the entire Vacon Group.

Vacon Group's financial performance is monitored monthly through a group-wide system. The system covers the income statements, balance sheet figures, and key figures of the Group, parent company, and subsidiaries, and also production indexes for the factories. The orders received by the factories and invoicing are monitored on a daily basis. Comparison figures used in all monitoring are the budget, the actual figures from the previous year, and the current year's forecasts.

The Group's annual strategy process determines the strategy and also Vacon Group's targets, main actions, and budget for the next financial year. Vacon Plc's Board of Directors approves the strategy and the annual business plan. The Group's Management Team meets monthly, and regularly covers the monitoring of the Group's financial situation and the implementation of the business plan. Vacon Plc's Board of Directors receives weekly reports on Group-level orders, and the monthly performance is covered in Board meetings. In the Board meetings, Vacon Plc's President and CEO presents the key financial figures and the most significant events and trends affecting the Group's business operations and its development in his monthly report.

Internal audit

The task of the internal audit is to analyze Vacon Group's business operations, processes, the standard of risk management, and the effectiveness and quality of monitoring. One particular task of the internal audit is to introduce to the subsidiaries tried and tested ways of working and processes used in Group companies. Vacon seeks to carry out an internal audit in the major subsidiaries once a year and in the sales companies at three-year intervals.

The Group does not have a separate internal audit department, due to the relatively simple structure of the Group and only one business area. The parent company's internal resources and, when necessary, third-party resources are used for the internal audit tasks. The parent company's Group Controller is responsible for and reports on the Group's internal audit function in practice.

The internal audit prepares an annual program within which it carries out audits independently in different parts of the Group, but it can also conduct special audits. The annual program is approved by Vacon Plc's Board of Directors, to which the internal audit also reports the results of its audits.

Risk management

Vacon Group's risk management is part of Vacon Plc's business operations management. It is proactive and aims to take all fundamental risks into account. Risk management aims to ensure that business objectives are met and the continuity of business operations is secured.

The risk management function assesses the risks to which the business operations of the Vacon Group are exposed, defines the risk management principles for the

Vacon | Annual Report 2009

whole Group, and develops risk management procedures and insurance schemes. Vacon has defined the following objectives in its risk management policy, and in all decision-making, they aim to

ensure the safety of Vacon Group's personnel, customers, and third parties
ensure the safety and high quality of Vacon's products and operating methods
comply with local and international law, regulations and recommendations
ensure that risks are identified and taken into account in decision-making
ensure the continuity of business operations and sustainable growth
protect Vacon's brand and reputation.

As part of Vacon Group's annual strategy process, the Group's risk survey is updated. Risks are assessed and ranked in priority on the basis of three main criteria: the seriousness of the risk, the likelihood of the risk, and the current level of risk management for each identified risk. When updating the survey, the risks are classified as external or internal risks and as strategic, operational, asset, or financing risks. Possible risks that may have an impact on future profitability and development are defined in Vacon's risk survey. More detailed observations of the

Group's risks are given in the notes to the consolidated financial statements.

The underlying principle is that risk management is spread throughout all levels of the organization. Vacon Plc's Board of Directors approves the risk management policies and is aware of the key risks to the company. Vacon Group's Management Team assesses risk management, revises risk reporting, if necessary, and reports to the Board of the parent company on the company's key risks. The parent company's CFO develops risk management methods, supports the implementation of risk management, monitors risk reporting, and the compliance of Vacon's risk management with the Group's Corporate Governance principles. Every employee is encouraged to identify risks, assess them, and report them. Employees are expected to report any risks either to their immediate supervisor or to Vacon Plc's CFO.

Vacon Group's risk policy is explained to all personnel and it is also included in the induction of new employees. More information about risk management is available to employees, for example, on the Group's intranet. Vacon Plc describes the significant near-term risks and uncertainties associated with business operations in its Interim Reports and Board of Directors' report.

Insiders

Vacon Plc observes the guidelines for insiders for listed companies approved by the NASDAQ OMX Helsinki. In addition, Vacon Plc applies its own insider guidelines, which in some parts set stricter requirements for handling insider information than those of NASDAQ OMX Helsinki.

Vacon Plc maintains a public register of insiders in the SIRE system of Euroclear Finland Oy. The company's public permanent insiders, based on their position as stated in the Securities Market Act, comprise the Board of Directors, the President and CEO, and the auditor. In addition to these, under a decision of the parent company's Board of Directors, other public permanent insiders are the Group Management Team, the secretary to the parent company's Board of Directors, as well as the spouses or registered partners of all the above, minors and other family members who have lived in the same household for at least one year. Vacon Plc's company-specific insiders include personnel in the treasury and communications departments and the executive assistants of senior management. The Group also maintains insider registers for individual projects.

Vacon | Annual Report 2009
31

The duration of Vacon Plc's silent period is 21 days. The silent period ends at the publication of an Interim Report or financial statements release. During the silent period, Vacon Plc's permanent insiders are not allowed to trade in the company's securities. The company does not comment on the market outlook and does not meet financial market or media representatives during the silent period. Also, Vacon Plc does not purchase its own shares during this period.

Audit

In accordance with Vacon Plc's Articles of Association, the company has a minimum of one and a maximum of two auditors and at a maximum the same number of deputy auditors. The auditors must be public accountants or accounting firms authorized by the Central Chamber of Commerce of Finland. The auditors elected by Vacon Plc's Annual General Meeting are the authorized public accountants KPMG Oy Ab and the principal auditor appointed by KPMG for the financial year was Pekka Pajamo, APA. In addition to the duties in accordance with current regulations, he also reports on his observations in the audit to Vacon Plc's management. The scope and contents of the audit are defined to take into account the fact that the company does not have its own internal audit organization.

Composition and term of office of Board of Directors

According to the Articles of Association, Vacon Plc's Board of Directors has at least five and at most seven members chosen by the Annual General Meeting of Shareholders. The members of Vacon Plc's Board are elected by the Annual General Meeting of Shareholders for a term of one year at a time. The Articles of Association do not stipulate a maximum age limit for Board members nor do they limit the number of terms of office. The Board elects a chairman and deputy chairman for one term of office from among its members.

Vacon Plc's Annual General Meeting held on April 1, 2009, decided that the Board of Directors has seven members. Pekka Ahlqvist, Jari Eklund, Mauri Holma, Jan Inborr, Veijo Karppinen, and Riitta Viitala were re-elected as Board members. Mika Vehviläinen was elected as a new member of the Board. Jan Inborr was re-elected Chairman and Veijo Karppinen was re-elected Vice Chairman of the Board of Directors at the organization meeting of the Board.

Duties of the Board of Directors

The tasks and duties of Vacon Plc's Board of Directors are defined in the Limited Liability Companies Act, the company's Articles of Association, and in the Board of Directors' rules of procedure. The Board of Directors

attends to the company's administration and the arrangement of its operations. The Board is responsible for overseeing the proper supervision of accounting and control of financial matters. The company's Board of Directors has approved written rules of procedure on the duties of the Board, matters to be discussed, as well as meeting and decision-making procedures. The Board revises its rules of procedure each year so that they conform to good principles of corporate governance at all times. According to the rules of procedure, the parent company's Board:

confirms Vacon Plc's and Vacon Group's long-term objectives and strategy
approves the Group's business plan, budget and financial plan, and monitors how these are implemented
decides on individual major and strategically important investments and approves the investment programs of Group companies
monitors the Group's financial performance and how its goals are being met
appoints Vacon Plc's President and CEO, Executive Vice President, and the members of the Group Management Team, and decides on the composition of the subsidiaries' Boards of Directors
decides on the principles for bonus and incentive schemes

Vacon | Annual Report 2009

reviews and adopts the Interim Reports, Group's and parent company's financial statements, and Board of Directors' report
confirms Vacon Group's values.

Evaluation of independence

Vacon Plc's Board of Directors has evaluated the independence of Board members in relation to the company in accordance with Recommendation 15 of the Corporate Governance Code for Finnish listed companies.

Based on this evaluation, the Board declares that all members of the Board, apart from Veijo Karppinen, are independent of Vacon Plc and that all Board members are independent of major shareholders of the company.

Decision-making

Vacon Plc's Board of Directors shall always act in the interests of the company and in such a way that its operations are not liable to result in an unjustified advantage for any shareholder or other party at the expense of the company or another shareholder. A Board member is disqualified from being present when the Board considers matters involving the Board member in question and the company. The chairman of the Board of Directors is responsible for convening Board meetings and for the meeting procedures. When votes are taken, the majority opinion is the Board's decision and, in the case of a tie, the chairman has a casting vote. In an election of persons, a tie is decided by drawing lots.

Meeting practice and self-assessment

Vacon Plc's Board of Directors convenes approximately ten times per year. In addition to the Board members, the parent company's President and CEO and CFO attend Board meetings. The Board of Directors has not allocated special areas of focus for its members to monitor business operations. Matters are presented at meetings by the President of Vacon Plc or, at his request, by another member of the Group Management Team. According to the Board of Directors' rules of procedure, the President ensures that the Board obtains sufficient information to assess the operations and financial situation of the Group. In addition, the parent company's President also supervises the implementation of the Board's decisions and reports to the Board on any deficiencies or problems in implementation.

The Board regularly evaluates its work and procedures by carrying out a self-assessment once a year.

The Board had ten full meetings in 2009. The average attendance percentage illustrating the participation of members in the work of the Board was 100% in 2009.

Attendance of the members of the Board of Directors in meetings:

Jan 1 – Dec 31, 2009	Board of Directors	Nomination and audit committee
Members of the Board of Directors December 31, 2009
Jan Inborr	10/10	4/4
Veijo Karppinen	10/10	4/4
Pekka Ahlqvist	10/10	4/4
Jari Eklund	10/10
Mauri Holma	10/10
Riitta Viitala	10/10
Mika Vehviläinen	8/8
Former members of the Board:
Kalle Heikkinen	2/2
Total		100%

Board of Directors' fees and other benefits

Vacon Plc's Annual General Meeting decides each year on the fees and principles for reimbursing expenses to the members of the Board of Directors. Fees to the Board members are paid as monetary compensation.

Vacon | Annual Report 2009 33

The fees paid to the members of Vacon Plc's Board of Directors in accordance with the 2009 Annual General Meeting were as follows:

monthly fee for the Chairman EUR 2,500
monthly fee for each Board member EUR 1,250
bonus depending on the company's result. May be a maximum of EUR 2,500/month for a Board member and EUR 5,000/month for the Chairman.

Board members are entitled to per diem allowances and reimbursement of travel expenses in accordance with the general travel rules of Vacon Plc.

Committees

Vacon Plc's Board of Directors has set up a combined Remuneration and Nomination Committee, made up of three members of the Board. The committee prepares matters and makes recommendations for the Annual General Meeting and the Board to decide on. The Board of Directors has confirmed the central duties and operating principles of the Remuneration and Nomination Committee in written rules of procedure.

The duties of the Remuneration and Nomination Committee include, among other things, creating forms of remuneration that boost motivation and also take into account the special characteristics of Vacon. The committee also prepares proposals for Vacon Plc's Annual General Meeting concerning the election of members to the Board of Directors and compensation for the Board of Directors. It identifies successor candidates for the members of the Board and proposes members for the Board of Directors to the Annual General Meeting.

The committee members in 2009 were Jan Inborr, Veijo Karppinen, and Pekka Ahlqvist. The Remuneration and Nomination Committee held four full meetings in 2009. The average attendance percentage illustrating the participation of members in the work of the committee was 100% in 2009.

Vacon Plc has a Corporate Governance working group that meets once a year to review and develop matters controlled by the Corporate Governance Code in the company. The Board of Directors approves the report on Corporate Governance principles prepared by the working group. The working group comprises one member of the Board, the Board's secretary, President and CEO, CFO, and a representative of IR.

The Board has not established a separate audit committee. The Board carries out the duties of an audit committee.

President and CEO

Vacon's Board of Directors appoints the parent company's President and CEO and defines the terms of service of the President in writing. The President and CEO prepares matters to be decided at the meetings of Vacon Plc's Board of Directors and is responsible for executing the Board's decisions. The President and CEO is responsible for Vacon Plc's administration and is Chairman of the Group Management Team. In 2009, the company's President and CEO was Vesa Laisi.

If Vacon Plc terminates the President's employment contract, the company will pay the President severance compensation equivalent to the salary for the six-month period of notice and 18 months' salary.

The retirement age for the President and CEO is 60 years. The company has taken out pension insurance for the President and CEO, on the basis of which the pension to be paid is 60% of the salary that the pension is based on. The pension ends when the President and CEO turns 65. The salary that the pension is determined on is based on the average monthly salary calculated from the TyEL employee pension earnings basis from the last four years. The members of the Management Team have an equivalent pension age and pension insurance.

Vacon | Annual Report 2009

Vacon | Annual Report 2009 35

Group Management Team

The Board of Directors has appointed the Vacon Group Management Team which supports the President and CEO in the preparation of strategic issues, handling of significant and by nature fundamental operative matters as well as ensuring internal communications.

Vacon Group's Management Team prepares and guides the development of the Group's processes and business areas and the Group's shared functions. The Management Team handles, in particular, the company's strategy, budget, major procurement and projects, Group structure and organization as well as major policies of administration and human resources policies.

The Management Team consists of the parent company's President and CEO and Group-level senior management. The Management Team is not an administrative body as stipulated by the Limited Liability Companies Act. The subsidiaries report to the Executive Vice President of the parent company, except for the Vacon company in China which reports to the Group's Vice President, Production.

In 2009, the Vacon Group Management Team consisted of:

Vesa Laisi, President and CEO
Heikki Hiltunen, Executive Vice President
Tuula Hautamäki, Vice President, Human Resources
Jari Koskinen, Vice President, Production
Jukka Kasi, Vice President, Business Development
Timo Kasi, Vice President, R&D
Eriikka Söderström, CFO as of September 15
Mika Leppänen, CFO until September 14

Salaries and other benefits paid to the President and senior management

Vacon Plc's Board of Directors approves the salaries, bonuses, and other benefits of the parent company's President and CEO and the Group Management Team annually. The total remuneration of the President and the Management Team consists of a fixed monthly salary and a bonus. The basis on which the bonus is determined is the same for the President and the Management Team. The bonus amount depends on the meeting of the revenues, operating profit, and working capital objectives set for the Group. The performance based bonus may be an amount equivalent of six months' salary at a maximum. The President and CEO and the Management Team participate in Vacon Plc's share-based incentive system.

The incentives for Vacon Plc's President and CEO for the years 2008-2010 are as follows:

the bonus amount equals four months' salary when revenues, operating profit, and turnover of working capital in each year are in accordance with the company's strategy
the share-based bonus is 7,200 shares per year when revenues, operating profit, and turnover of working capital in each year are in accordance with the company's strategy.

The President and CEO's annual salary including the monthly salary and bonuses, was EUR 479,000 in 2009. The Executive Vice President's annual salary was EUR 388,000 in 2009.

Salaries and other benefits paid to the Management Team

EUR thousand	2009	2008	2007
Salaries and other short-term benefits	1,616	1,570	1,380
Share-based payments	522	1,015	1,059
Total	2,138	2,585	2,439

Bonus scheme for personnel

Vacon Plc's Board of Directors approves the bonus for all personnel in the parent company every year. In 2009, a total of approximately EUR 1,439,000 was paid to personnel in bonuses, most of which had been earned in 2008.

BOARD OF DIRECTORS

Jan Inborr

chairman
Born 1948, B.Sc. (Econ.). Board member since 2002

Previous positions:
Previously worked in various positions in the A. Ahlström Group in 1972-2008

Board member at:
Enics AG (chair), Ahlström Corporation, BaseN Oy, Heavycast Karlstad Oy, Mervento Oy, Pricasting Oy, Stiftelsen för Åbo Akademi, Symbicon Oy (chair), Uudenkaupungin Rautavalimo Oy, Soldino Oy

No Vacon Plc's shares

Veijo Karppinen

vice chairman
born 1950, M.Sc. (Eng.) Board member since 1993

Previous positions:
Vacon Plc's President and CEO 1993-2002, Vice President R&D at ABB's Research Centre 1993, ABB's Small AC Drives profit center, Profit Centre Manager 1989-1993 and Development Manager 1987-1989, Oy Strömberg Ab's Electronics Factory, Development Manager 1980-1986 and Development Engineer 1974-1979

Board member at:
EpiCrystals Oy (chair), Mervento Oy, Sustainable Energy Asset Management (chair), The Switch Engineering Oy (chair), Vaasa Engineering Oy (chair), VNT Management Oy (chair), Wapice Oy (chair)

Vacon Plc's shares: 209,349

Pekka Ahlqvist

board member
born 1946, M.Sc. (Eng.), MBA
Board member since 2004

Previous positions:
Vice President, Power Plants, Wärtsilä Corporation and President of Wärtsilä NSD Finland Oy 1999-2001. Various positions in ABB since 1987. Managerial positions in Kymi-Stromberg Oy, Instrumentarium Oy, Oy Stromberg Ab and Teollisuussääti Oy in 1972-1985.

Board member at:
Pemamek Oy

No Vacon Plc's shares

Jari Eklund

board member
born 1963, M.Sc. (Econ.) Investment Director, Tapiola Insurance Group. Board member since 2001

Previous positions:
Investment Director, Tapiola Insurance Group 1998-. Various positions in the Tapiola Group since 1993. Research Manager at Kansallis-Osake-Pankki 1988-1993, Assistant at University of Vaasa 1987-1988.

Board member at:
Saligson & Co Oyj, Ilkka-Yhtymä Oyj (member of supervisory board), Mortgage Society of Finland

No Vacon Plc's shares

Mauri Holma

board member
born 1950, B.Sc. (Eng.) President and CEO, Vaasa Engineering Oy
Board member since 1993

Previous positions:
Managing Director of Vaasa Switchgears Oy, Managing Director of Vaasa Service Oy, ABB Strömberg Industry Oy Head of Department 1987-1989 and Sales Manager 1986-1987, and Oy Strömberg Ab Project Manager 1981-1986 and Project Engineer 1975-1980

Board member at:
BIB Plaza Oy, Wapice Oy, Vaasa Engineering Oy, Vaasa Switchgears Oy, Vaasa Service Oy

Vacon Plc's shares: 347,171

Riitta Viitala

board member
born 1959, PhD. (Econ.) Professor, Head of Department of Management, University of Vaasa Board member since 2008

Previous positions:
Positions at University of Vaasa since 1999, Training Manager, Chydenius Institute of University of Jyväskylä 1997-1998, education and development positions at the Central Ostrobothnia and Hela Universities of Applied Science 1989-1996, Personnel Development Manager at the Finnish Postal Service 1983-1989, Administration Manager, Tapio Laakso Oy 1982-1983

Board member at:
I-Mediat Oy, Vaasan Sähkö Oy, Board member at the Vaasa division of the Ostrobothnia Chamber of Commerce

No Vacon Plc's shares

Mika Vehviläinen

board member
born 1961, M.Sc. (Econ.) Finnair Oyj
CEO
Board member since 2009

Previous positions:
Several positions at Nokia 1991-2009, several management positions in sales, marketing, strategy, and business development in Asia, North America, and Europe.

Board member at:
Board member at the Federation of Finnish Technology Industries

No Vacon Plc's shares.

Stefan Wikman

secretary
born 1956, lawyer, LL.M. (Law)
Partner of Roschier Attorneys Ltd.

Previous positions:
KWH Plast Ltd, Managing Director 1991-1994, member of the group management in KWH Group Ltd 1990-1994, general counsel of KWH Group Ltd 1986-1989. Lawyer in the Union Bank of Finland, lawyer and partner of the law firm V. Niinikangas Ky.

Board member at:
Harry Schaumanns Stiftelse (chair), delegation memberships: Stiftelsen för Åbo Akademi, Stiftelsen för Österbottens högskola

No Vacon Plc's shares

Vacon | Annual Report 2009

GROUP MANAGEMENT TEAM

Vesa Laisi

President and CEO
born 1957, M.Sc. (Eng.), M.Sc. (Econ.)
Employed by the company since 2002.

Previous positions:
Director, Sales and Marketing of Vaisala Corporation 2000-2002, Vice President of ABB Industry Oy 1995-2000, Profit Center Manager at ABB Industry Oy 1993-1995, Director, Sales and Marketing at ABB Industry Oy 1988-1993, Product Engineer at Stromberg UK Ltd 1986-1988, and Development Engineer at Strömberg Electronics factory 1982-1986

Board member at:
Finnfacts (chair), Teknologiateollisuus ry, The Switch Engineering Oy, VNT Management Oy

Vacon Plc's shares:
12,466

Heikki Hiltunen

Executive Vice President, Products and Markets, and Deputy CEO
born 1962, B.Sc. (Eng.)
Employed by the company since 2002.

Previous positions:
Managing Director of Tellabs Oy and Vice President & General Manager for Europe, the Middle East, and Africa (EMEA) of Tellabs International 2000-2002. Sales, marketing and R&D director at Honeywell Industrial Automation in Finland, the USA, and Germany 1992-2000. Various positions in project, R&D and product marketing at Ahlstrom 1986-1992

Board member at:
Aspectum Oy, Sevecon Group Oyj, Hockey-Team Vaasan Sport Oy (chair)

Vacon Plc's shares:
9,543

Tuula Hautamäki

Vice President, Human Resources, Information Technology and Process Development
born 1964, M.Sc. (Eng.), M.Sc. (Econ.)
Employed by the company since 2000.

Previous positions:
Process Development Manager at ABB Substation Automation Oy 1996-2000, Quality Manager at ABB Transmit Oy 1994-1996, Product Manager at ABB Power Oy 1991-1994, and Design Engineer at ABB Voimansiirto Oy 1989-1991

Vacon Plc's shares:
10,253

Jukka Kasi

Vice President, Corporate Development
born 1966, M.Sc. (Eng.)
Employed by the company since 1997.

Previous positions:
Vacon Suzhou Drives Co. Ltd Managing Director 2006-2008, Vacon Plc Vice President, Component Customers 2003-2006, Vacon Plc Vice President, R&D 1999-2003, Vacon Plc Project Manager 1997-1998, Product Development Manager at ABB Transmit Oy 1996-1997, Project Manager at ABB Power 1994-1996, USA: frequency converter designer 1992-1994, ABB Small AC drives: product design 1990-1992

Vacon Plc's shares:
55,233

Timo Kasi

Vice President, R&D
born 1966, M.Sc. (Eng.)
Employed by the company since 1999.

Previous positions:
Various positions at ABB Substation Automation, including R&D Manager 1990-1998.

Vacon Plc's shares:
7,812

Jari Koskinen

Vice President, Production
born 1960, M.Sc. (Econ.), MBA
Employed by the company since 1994.

Previous positions:
Vacon Suzhou Drives Co. Ltd Managing Director 2005-2007, Business Controller of ABB Corporate Research Finland Oy 1993-1994, Business Controller of ABB's Small AC Drives profit center 1989-1993, and ADP Programmer and System Planner at Tietobotnia Oy 1981-1989

Vacon Plc's shares:
362,088

Eriikka Söderström

Vice President, Finance and Control and CFO
born 1968, M.Sc. (Econ.)
Employed by the company since September 15, 2009

Previous positions:
Various financial management positions at Nokia Networks, including CFO and Controller of the Nokia Siemens Networks Group. Nautor Oy Chief Financial Officer

Vacon Plc's shares:
1,000

Shareholdings on December 31, 2009.

Vacon | Annual Report 2009

FINANCIAL STATEMENTS

Board of Directors' Report ... 40

CONSOLIDATED FINANCIAL STATEMENTS

Key figures ... 46
Calculation of key figures ... 47
Consolidated income statement (IFRS) ... 48
Consolidated statement of financial position (IFRS) ... 49
Consolidated statement of cash flows (IFRS) ... 50
Consolidated statement of changes in equity ... 51
Notes to the consolidated financial statements ... 52

PARENT COMPANY'S FINANCIAL STATEMENTS

Income statement of the parent company (FAS) ... 77
Balance sheet for the parent company (FAS) ... 78
Cash flow statement for the parent company (FAS) ... 79
Notes to the financial statements of the parent company ... 80
Signature for the Board of Directors' report and financial statements ... 87
Auditor's report ... 88
Shares and shareholders ... 89
Stock exchange releases and press releases in 2009 ... 92
Investor information ... 93

BOARD OF DIRECTORS' REPORT

JANUARY 1 - DECEMBER 31, 2009

General review of 2009

According to market surveys, the market for AC drives decreased in 2009 by approximately 16% worldwide. The downward turn in the global economy weakened the demand for AC drives in most market segments. Investments in AC drives with the aim of improving energy efficiency and producing renewable energy continued actively in Asia in particular, but they were not able to compensate for the decline in sales in other market segments and market areas. Vacon is not expecting the AC market to weaken further during 2010.

The Group's order volume decreased by 16.4% to EUR 256.1 million in 2009 (EUR 306.5 million in 2008). The Group's order book stood at EUR 32.0 million at the end of 2009 (EUR 48.0 million). The order book declined by EUR 16.0 million from the beginning of the year.

Vacon's revenues decreased by 7.2% to EUR 272.0 million in 2009 (EUR 293.2 million). The impact of the global recession was visible in revenues in the second half of 2009 when revenues declined by 13.3% compared to the first half.

According to market surveys, the global AC drive market decreased by 16% in 2009. Since the company's revenues concurrently declined by 7.2%, it can be concluded that the company's market share grew during the year. Vacon's sales development was supported by new customer acquisition and demand for applications associated with the generation of renewable energy.

Vacon's profitability weakened in 2009, and operating profit was EUR 22.5 million (EUR 34.6 million). The decline in operating profit was attributable to the decrease in revenues and depreciations in ITC projects, manufacturing investments for new products, and R&D for new products. In addition, new subsidiaries increased the company's expenses compared to the previous year. During the year, Vacon launched measures to adjust expenses to the current level of operations.

Nevertheless, long-term outlook for the demand of AC drives is good. Several trends that are shaping the world and our environment are creating this demand, including development of energy prices, the sufficiency of energy, global warming, investments in renewable energy generation, and the increase in automation. Electric motors consume about 30% of the electricity used in the world. As much as nearly a third of this consumption could be saved if AC drives were fully applied in industry and civil engineering.

Result development

The Group's revenues declined by 7.2% in 2009 to EUR 272.0 million in 2009 (EUR 293.2 million in 2008). Revenues of the parent company Vacon Plc totaled EUR 206.3 million (EUR 227.3 million). Consolidated operating profit was EUR 22.5 million (EUR 34.6 million) and profit for the period was EUR 16.1 million (EUR 23.9 million). Earnings per share (EPS) decreased to EUR 1.01 (EUR 1.51). The downward turn in the global economy weakened the demand for AC drives in most market segments.

The Group's cash flow from operations was EUR 37.1 million (EUR 21.9 million). The consolidated balance sheet total was EUR 145.6 million (EUR 149.1 million). Vacon's equity ratio remained strong at 56.5% (51.1%). Net gearing was 2.0% (16.3%). Return on investments was 23.1% (37.0%) and return on equity was 20.5% (34.3%).

Key figures:

	2009	2008	2007
Revenues, MEUR	272.0	293.2	232.2
Operating profit, MEUR	22.5	34.6	29.2
Operating profit, % of revenues	8.3	11.8	12.6
Return on equity, %	20.5	34.3	36.5
Equity ratio, %	56.5	51.1	52.9

Global position

Vacon estimates that it reinforced its position in all major market areas during 2009. Based on market surveys, the company estimates that its global market share is approximately 5%.

Vacon's revenues by region were as follows in 2009: Europe, the Middle East, and Africa in total 70.1% (71.8% in 2008), North and South America 17.0% (19.1%), Asia and the Pacific 12.8% (9.1%).

Vacon's 2009 revenues by distribution channel were as follows: direct sales 57.1% (49.9%), distributors 9.0% (11.7%), OEMs 19.0% (20.5%), and brand label customers 14.9% (17.9%). The Group received orders totaling EUR 256.1 million (EUR 306.5 million) in 2009. The Group's order book at the end of the year stood at EUR 32.0 million (EUR 48.0 million).

Business strategy

AC drives are a key product in production automation, in increasing energy-efficiency, and in utilizing renewable energy sources. This creates a solid base for long-term growth of the AC drives business. By focusing solely on AC drives, Vacon aims to grow profitably and much faster than the average growth rate in the sector.

Vacon's goal is to achieve revenues of EUR 500 million in 2014. Its long-term profitability target is an operating profit of 14% and a return on equity of more than 30%. Vacon's operations are based on four strategic choices: product leadership, 100% focus on AC drives, a multi-channel sales network, and global presence.

In 2010, the main strategic focus will be on strengthening product leadership. The company is currently in the process of developing and introducing to market its third generation products of which the Vacon 10 and Vacon 100 HVAC have already been launched. In 2010, Vacon aims to launch to market new products with features, quality, and competitiveness that guarantee favorable growth opportunities as the market recovers.

Vacon | Annual Report 2009

Vacon continues to be the world's largest company designing and manufacturing AC drives only, and it plans to maintain its position. This focus offers a clear competitive edge for Vacon since it provides Vacon's customers with the best expert service in the industry every time, whether related to sales, customer service, or service and maintenance.

Multi-channel sales are at the core of Vacon's sales and marketing strategy. The company sells its products to OEMs, system integrators, brand label customers, distributors, and end clients. Utilizing several different sales channels in each geographical area or industry segment offers Vacon a true competitive edge. This has benefited the company in the economic downturn since sales have not relied on one channel only.

During the past few years, Vacon has increased its global presence significantly. The company operates production and R&D units in four countries (Finland, China, Italy, and the USA) and sales companies and branch offices in a total of 27 countries. Extensive presence on different continents enables the company to place manufacturing close to the customer, thus hedging against currency risks. An extensive sales network offers sales the local touch it needs. The company's own sales companies managed to acquire a large number of new customers in 2009. This helped balance the decline in orders experienced with other customers.

In recent years, Vacon has invested heavily in the development of information and communications technology, and has succeeded in building tools shared by nearly its entire global organization. Vacon's other strategic areas of expertise include a common hardware and software platform for AC drives, product portfolio management, customer relationship management, mass customization, and global sourcing. Each area of expertise is continually monitored and developed in order to ensure the company has the required competence for implementing its strategy.

Changes in corporate structure

In 2009, Vacon established subsidiaries in Brazil and Canada. At the end of 2009, Vacon's own sales network comprised 23 subsidiaries as well as branch offices in Romania, Ukraine, the United Arab Emirates, and Thailand.

Investments

The Group's gross expenditure was EUR 18.2 million (EUR 11.2 million). Expenditure focused mainly on increasing and maintaining production capacity, expanding the sales network, and on standardizing and developing information systems. During 2009, a new factory was completed in the USA, and the construction of a new factory was started in China.

Research and development

R&D expenditure during the year totaled EUR 17.6 million (EUR 17.0 million), of which EUR 5.4 million (EUR 2.3 million) was capitalized as development costs. The share of research and development costs of the Group's revenues was 6.5% (5.8%). Depreciation of product development capitalization was EUR 1.0 million (EUR 0.6 million) in 2009.

During 2009, Vacon increased the number of personnel in its R&D units in Finland, China, and Italy. In addition to these countries, Vacon also has R&D operations in the USA.

Vacon's goal is to revamp the majority of its product offering by the end of 2010. Work on developing products continued in accordance with the company's plans in 2009. New generation products are increasingly competitive.

Financial instruments valued at fair value

In the financial statements, forward exchange contracts are valued at fair value. The principles used are described in more detail in the accounting principles and notes to the financial statements.

Personnel

Vacon's human resources policy is based on the company's values, which stress taking customer needs into account, focusing on people, entrepreneurship, and a passion for excellence. Vacon is an international company but also stresses the importance of local practices and management. Personnel are encouraged to continually develop their skills in many ways. Particular attention is paid to developing the core skills listed in the strategy. Skills are developed not just through training but also, for example, through job rotation and international work assignments.

Vacon's personnel increased by 31 people during 2009. At the end of December, the Group employed 1,228 people (1,197), of whom 627 (639) were in Finland and 601 (558) in other countries. The number of personnel by function is as follows: sales and marketing 39% (38%), production 42% (44%), R&D 14% (13%), and administration 5% (5%). The average age of personnel was 36.1 (35.5) years. The average length of employment was 5.6 (4.8) years. 27.5% (29%) of the employees were women and 72.5% (71%) were men.

Personnel key figures:

	2009	2008	2007
Average number during the year	1,231	1,131	772
Salaries and wages during the year, MEUR	42.9	42.4	31.2

In the fall, Vacon Plc completed statutory labor negotiations with its office personnel in Finland, examining the available methods to adjust to the weakened market situation. As a result of the negotiations, Vacon temporarily laid off 160 office employees for a fixed period of time.

Vacon | Annual Report 2009

Bonus scheme

Vacon has created a bonus scheme covering the entire personnel and entitling employees at least to one month's extra salary if the set targets are met. The criteria used include both corporate targets and individual or team targets.

The Group management and some of Vacon's personnel are also covered by a long-term share bonus scheme.

Employee well-being

Vacon aims at proactive prevention of accidents in the work place. Monthly reports are made of accidents and near miss situations. During the year, no serious accidents occurred. Vacon also requires suppliers and subcontractors to observe occupational health and safety regulations. The operations of partners are monitored regularly.

Vacon conducts a personnel survey every year. The results of the survey are used to select areas for development, and progress in these areas is monitored. The equal opportunities plan is updated in the company annually.

In 2009, occupational health matters were developed by, among other things, implementing a well-being model based on proactive management of well-being at work in Vacon's operations in Finland. Vacon's program focuses on providing adequate and timely support for the personnel's well-being at work, identifying signs of weakened well-being in a timely manner as well as effectively addressing development needs in work and work arrangements.

Environment

The amount of energy used in the manufacture of an AC drive is considerably less than the energy it saves during its life span. Vacon's goal is to improve the eco-friendliness of its products throughout their lifecycle and to manufacture them as efficiently as possible. Vacon is committed to identifying and complying with the environmental legislation and regulations that apply to its operations. Vacon aims to choose raw materials, working methods, and processes that cause the minimum harm to the environment in all its activities. Subcontractors are also required to manage environmental matters appropriately.

Vacon has an environmental management system certified by SGS-FIMKO that meets the requirements of the ISO 14 001 standard. AC drives are made of plastic, steel, aluminum, electronic components, cables, and circuit boards.

The company arranges regular training to maintain the environmental skills of personnel. The company carries out annual assessments of environmental aspects. The development managers belonging to the working group are responsible for the action taken to meet these targets within their own business processes.

Major environmental aspects and improvements accomplished

Vacon uses the Design for Environment check list in the concept phase of product design, which helps make more efficient use of materials and resources and minimize the use of substances that harm the environment. Vacon also complies with the EU's RoHS directive (on the restriction of the use of certain hazardous substances in electrical and electronic equipment) and manufactures AC drives that meet the requirements of the directive.

Vacon also requires its subcontractors, suppliers and partners to have responsible operations and comply with environmental regulations. Compliance with environmental regulations is monitored regularly in connection with supplier assessments.

Level of environmental protection considering the nature and scope of operations

Vacon's manufacturing process does not pollute the air, water, or soil. The part of the production process that consumes most energy is product testing. Some of the electricity taken from the power grid in product testing is fed back into the grid using Vacon's own AC drive technology. Vacon Group's manufacturing process consumed about 14,215 MWh (12,413 MWh) of energy in 2009. The recycling of various types of waste is organized efficiently at Vacon's business locations. During the past year, no accidents or cases of exceeded reference values were reported in any phase of production.

No emissions were released from production into the air or the water system. In waste management, the focus was on sorting and recycling materials. In 2009, about 27.6 (17.3) tonnes of electronic waste from manufacturing were recycled, and about 315 (315) tonnes of other recyclable material such as paper and wood. In addition, 2.9 (5.9) tonnes of hazardous waste were recycled.

Vacon | Annual Report 2009 43

Board of Directors' Report in relation to other environmental reporting

The Annual Report published by the company contains a corporate responsibility section that includes a section on the environment.

Company ownership and corporate governance

Shares and shareholders

Vacon's share capital is EUR 3,059,000, divided into 15,295,000 fully paid shares. Vacon has one share series with the trading code VAC1V. Each share entitles the holder to one vote at the General Meeting of shareholders.

In April 2009, the parent company paid dividends of EUR 9.9 million, or EUR 0.65 per share (43% of the earnings per share in the 2008 financial year). A total of 4,493,871 Vacon shares (29.4% of the shares) were traded during 2009, or in monetary terms, EUR 97.0 million. The highest share price during the year was EUR 28.90 and the lowest EUR 15.30. The closing price on the last day of 2009 was EUR 26.70 and the company's market capitalization was EUR 406.1 million. Vacon had 5,114 registered shareholders according to the shareholder register dated on December 31, 2009. The number of nominee registered shares and those registered by foreigners totaled 28.9% of the shares.

Own shares

On December 31, 2009, Vacon Plc held a total of 85,011 of its own shares which it had acquired at an average price of EUR 21.01. This corresponds to 0.6% of the share capital and voting rights, so it has no major impact on the distribution of ownership or voting rights in the company.

Board of Directors and Presidents

The members of the Board of Directors until the Annual General Meeting were Pekka Ahlqvist, Jari Eklund, Kalle Heikkinen, Mauri Holma, Jan Inborr, Veijo Karppinen, and Riitta Viitala. Pekka Ahlqvist, Jari Eklund, Mauri Holma, Jan Inborr, Veijo Karppinen, and Riitta Viitala were re-elected as Board members, and Mika Vehvilainen was elected as a new Board member. Jan Inborr was re-elected Chairman and Veijo Karppinen was re-elected Vice Chairman of the Board of Directors at the organization meeting of the Board of Directors. The term of office for Board members continues until the end of the following Annual General Meeting of Shareholders.

Vacon's President and CEO throughout the financial year was Vesa Laisi and Executive Vice President was Heikki Hiltunen.

Auditors

In accordance with the decision of the Annual General Meeting, the company's auditors are the authorized public accountants KPMG Oy Ab and the principal auditor appointed by them is Pekka Pajamo, APA.

Risk management

The Vacon Group's risk management is part of the management process for the company's business operations. Risk management aims to ensure that the risks relating to business operations have been thoroughly surveyed and are effectively controlled. The goal is to minimize any damage arising from the risks and to identify the risks related to managing the business. Risk management activities aim to ensure profitable growth for the company. More information about key risks and risk management principles at Vacon are provided in the notes to the financial statements and the risk management section of the Annual Report.

Dividend policy

The dividend policy adopted by Vacon's Board of Directors is to propose the Annual General Meeting that a dividend that is in line with the company's financial performance be distributed. The goal is to distribute approximately 50% of the period's net profit in dividends. The financing required for growth in operations is taken into account when deciding on the dividend.

Risks and factors causing uncertainty in the near future

The most significant risks for Vacon in the near future are the uncertainty in general demand and intensified price competition. Vacon's order book is traditionally short in terms of time and therefore it is not associated with significant risks relating to scheduling or cancellations of deliveries. Worldwide, Vacon has thousands of customers. The share of the ten largest customers in Vacon's revenues is less than 50%. Vacon does not fund customer projects. The company continually evaluates its customers' creditworthiness and ability to fulfill their commitments.

Vacon is capable of adapting its production capacity to market demand. The company estimates that its financial assets and withdrawable credit commitments are at a sufficient level for safeguarding liquidity.

Vacon's balance sheet includes EUR 8.1 million of goodwill, which is mainly attributable to the acquisition completed at the beginning of 2008. Goodwill is tested annually in order to detect possible impairment.

Price changes, availability, and the quality of raw materials and components may affect the company's profitability and scope of operations. Purchase agreements for raw materials and components are mainly annual agreements that contain price and exchange rate clauses relating to changes in the global market prices for raw materials and other materials. The cyclical changes in the

global economy may restrict the business opportunities for certain component suppliers.

The most significant financial risks affecting the company's profit are currency risks. Exchange rate fluctuations may impact the business operations, although internationalizing operations reduce the relative importance of individual currencies. The most significant currency risks in relation to the euro are associated with the US dollar and the Chinese renminbi. The Group applies IAS 39 compliant hedge accounting for cash flow hedging with respect to operative currency exposure.

Outlook for 2010

Vacon is not expecting the AC drive market to weaken further in 2010. Vacon's market share is approximately 5%. The global sales network, varied customer base, renewal of the product offering, and the relatively small market share, coupled with a flexible organization support the development of Vacon's business even in a difficult market situation. For the time being, Vacon is reducing its growth investments in order to safeguard profitability in the current market situation.

Vacon estimates that revenues for 2010 will increase from the 2009 level. Profitability is expected to remain at the 2009 level, and earnings per share are estimated to improve from the 2009 level

Vacon's goal is to achieve revenues of EUR 500 million in 2014. Its long-term profitability target is an operating profit of 14% and a return on equity of more than 30%. Earlier, Vacon's goal was to reach these objectives in 2012, but the global recession and subsequent reduction in the AC drive market has lead the company to update its targeted schedule.

Most of this growth will be organic, but Vacon does not exclude the possibility of further acquisitions. Organic growth will be financed by cash flow from operations. In the case of further acquisitions, gearing can be increased to a maximum of 60%.

Board proposal for distribution of profit

At the end of the financial year the distributable equity of the parent company stands at EUR 50.5 million. The Board of Directors proposes to the Annual General Meeting of Shareholders to be held on March 23, 2010, that a dividend of EUR 0.70 per share be paid from the parent company's profit of EUR 11.8 million for the financial year 2009 and that the remainder of the profit for the year be transferred to retained earnings. According to this proposal, a total of EUR 10.6 million would be paid in dividend.

Vacon | Annual Report 2009

CONSOLIDATED FINANCIAL STATEMENTS

Vacon | Annual Report 2009 45

KEY FIGURES

	IFRS	IFRS	IFRS	IFRS	IFRS
	2009	2008	2007	2006	2005
Per share data
Earnings per share, EUR	1.01	1.51	1.37	1.04	0.79
Equity per share, EUR	5.25	4.88	4.13	3.42	2.78
Dividend per share, EUR *)	0.70	0.65	0.75	0.65	0.41
Dividend payout ratio, % *)	69.02	42.94	54.59	62.57	52.12
Effective dividend yield, % *)	2.6	3.5	2.7	2.5	2.3
Price/earnings ratio	26.3	12.1	20.4	25.1	22.2
Share price development
Lowest during the year, EUR	15.30	17.00	24.60	17.70	11.85
Highest during the year, EUR	28.90	32.44	38.00	26.99	17.50
Closing price at end of year, EUR	26.70	18.30	28.00	26.10	17.50
Average price for the year, EUR	21.51	26.65	30.01	22.60	14.68
Market capitalization, MEUR	406.11	278.00	426.50	397.10	266.00
Trading volume, share	4,493,871	4,915,722	8,241,357	4,439,458	5,693,881
Trading volume, %	29.6	32.3	54.1	29.2	37.5
Adjusted average number of shares during the financial year **)	15,204,263	15,238,236	15,226,997	15,209,303	15,203,147
Number of shares at end of year **)	15,209,989	15,193,188	15,232,188	15,213,428	15,199,740
Own shares	85,011	101,812	62,812	81,572	95,260
	IFRS	IFRS	IFRS	IFRS	IFRS
---	---	---	---	---	---
	2009	2008	2007	2006	2005
Group's financial ratios
Revenues, MEUR	272.0	293.2	232.2	186.4	149.9
Change in revenues, %	-7.2	26.3	24.6	24.3	16.6
Operating profit, MEUR	22.5	34.6	29.2	23.1	18.1
Change in operating profit, %	-35.0	18.5	26.4	27.6	13.8
Operating profit, % of revenues	8.3	11.8	12.6	12.4	12.1
Profit before taxes, MEUR	22.0	32.6	28.8	22.7	17.7
Profit before taxes as % of revenues	8.1	11.1	12.4	12.2	11.8
Return on equity, %	20.5	34.3	36.5	33.7	30.5
Return on investments, %	23.1	37.0	41.2	45.1	40.8
Interest-bearing net liabilities, MEUR	1.6	12.3	-11.0	-8.8	-7.9
Net gearing, %	2.0	16.3	-17.1	-16.6	-18.3
Operating working capital, MEUR	31.2	42.5	27.2	21.8	14.2
Equity ratio, %	56.5	51.1	52.9	61.7	56.8
Gross capital expenditure, MEUR ***	18.2	11.2	9.1	8.5	6.6
Gross capital expenditure, % of revenues	6.7	3.8	3.9	4.6	4.4
Research and development costs, MEUR	17.6	17.0	14.3	12.6	10.8
Research and development costs as % of revenues	6.5	5.8	6.2	6.7	7.2
Personnel at the end of the period	1,228	1,197	869	675	577
Order book, MEUR	32.0	48.0	34.8	29.7	18.8

) The 2009 dividend is the Board of Directors' proposal to the Annual General Meeting.
*) The average number of shares in the financial period was 15,204,263. The number of shares outstanding is 15,209,989.
*** The 2008 figure for gross capital expenditure does not include the acquisition of the AC drives business of TB Wood's.

46 Vacon | Annual Report 2009

CALCULATION OF KEY FIGURES

Earnings per share =	Profit for the financial year attributable to equity holders of the parent company
	Adjusted average number of shares
Equity per share =	Equity attributable to the equity holders of the parent company
	Adjusted number of shares at the end of the year
Dividend per share =	Dividend for the financial year
	Adjusted number of shares at the end of the year
Dividend payout ratio, % =	Dividend for the financial year x 100
	Profit for the financial year attributable to equity holders of the parent company
Effective dividend yield, % =	Dividend per share x 100
	Adjusted closing share price at end of year
Price/earnings ratio =	Adjusted closing share price at end of year
	Earnings per share
Return on equity, % =	Profit for the financial year x 100
	Shareholders' equity, average of the beginning and end of the year
Return on investments, % =	(Profit before taxes + interest and other financial expenses) x 100
	Balance sheet total – non-interest-bearing liabilities, average of the beginning and end of the year
Equity ratio, % =	Shareholders' equity x 100
	Balance sheet total – advances received
Net gearing, % =	(Interest-bearing liabilities – cash, bank balances, and financial assets) x 100
	Equity
Operating working capital =	Inventories + non-interest-bearing short-term receivables - non-interest-bearing short-term liabilities
Research and development costs =	Research and development costs recorded in the income statement (including costs covered with subsidies) and capitalized development expenses
Market capitalization =	Number of shares outstanding at end of year x closing share price
Trading volume, % =	Number of shares traded during the year x 100
	Adjusted average number of shares

Vacon | Annual Report 2009

CONSOLIDATED INCOME STATEMENT (IFRS)

Consolidated income statement (IFRS)

EUR thousand	Note	Jan 1–Dec 31, 2009	%	Jan 1–Dec 31, 2008	%
Revenues	3.4	272,036	100.0	293,237	100.0
Other operating income	5	276		211
Change in inventories of finished goods and work in progress		-961		223
Materials and services	6	-138,141		-150,779
Employee benefit related expenses	8	-53,558		-52,745
Depreciation/amortization	9	-9,604		-7,327
Other operating expenses	7	-47,507		-48,215
Operating profit		22,541	8.3	34,605	11.8
Financial income	12	949		726
Financial expenses	12	-1,513		-2,718
Profit before taxes		21,977	8.1	32,613	11.1
Income taxes	13	-5,923		-8,704
Profit for period		16,054	5.9	23,909	8.2
Attributable to:
Equity holders of the parent company	14	15,420		23,065
Minority interest		634		844
Earnings per share calculated on profit belonging to the equity holders of the parent company:	14
Basic earnings per share, EUR		1.01		1.51
Diluted earnings per share, EUR		1.01		1.51

Consolidated statement of comprehensive income (IFRS)

EUR thousand
Profit for period	16,054	23,909
Other items in the statement of comprehensive income:
Cash flow hedging	-73	25
Translation difference	-63	432
Comprehensive income total	15,918	24,366
Attributable to:
Equity holders of the parent company	15,284	23,522
Minority interest	634	844

48 Vacon | Annual Report 2009

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IFRS)

Assets

EUR thousand	Note	Dec 31, 2009	%	Dec 31, 2008	%
Non-current assets
Goodwill	15	8,140		8,272
Development costs	15	9,134		4,797
Other intangible assets	15	13,282		14,858
Property, plant and equipment	16	18,473		16,327
Financial receivables	19	173		158
Deferred tax assets	13	3,340		2,585
Other financial assets	20	5,307		3,340
		57,849	39.7	50,337	33.8
Current assets
Inventories	21	19,287		21,343
Trade and other receivables	22	51,285		61,723
Cash and cash equivalents	23	17,172		15,715
		87,744	60.3	98,781	66.2
Total assets		145,593	100.0	149,118	100.0

Equity and liabilities

EUR thousand	Note	Dec 31, 2009	%	Dec 31, 2008	%
Equity attributable to equity holders of the parent company
Share capital	24	3,059		3,059
Share premium		4,966		4,966
Other reserves		51		51
Own shares		-2,646		-2,646
Retained earnings		74,401		68,713
		79,831	54.8	74,143	49.7
Minority interest		1,512	1.0	1,351	0.9
Shareholders' equity, total		81,343	55.9	75,494	50.6
Non-current liabilities
Deferred tax liabilities	13	4,623		3,531
Employee benefits	26	1,495		1,409
Interest-bearing liabilities	27	12,408		15,807
		18,526	12.7	20,747	13.9
Current liabilities
Trade and other payables	28	36,092		37,614
Income tax liabilities		1,328		1,465
Provisions	29	1,920		1,555
Interest-bearing liabilities	27	6,384		12,243
		45,724	31.4	52,877	35.5
Total liabilities		64,250	44.1	73,624	49.4
Total equity and liabilities		145,593	100.0	149,118	100.0

Vacon | Annual Report 2009 49

CONSOLIDATED STATEMENT OF CASH FLOWS (IFRS)

EUR thousand	Jan 1-Dec 31, 2009	Jan 1-Dec 31, 2008
Cash flow from operating activities
Profit for period	16,054	23,909
Adjustments:
Depreciation/amortization	9,604	7,327
Financial income and expenses	564	1,992
Taxes	5,923	8,705
Other adjustments	547	502
	32,692	42,435
Changes in working capital
Change in inventories	2,076	-1,066
Change in non-interest-bearing receivables	9,681	-13,029
Change in non-interest-bearing liabilities	-792	3,972
	10,965	-10,123
Interest received	215	701
Interest paid	-935	-1,477
Other financial items	-115	19
Taxes paid	-5,679	-9,613
Cash flow from operating activities	37,143	21,942
EUR thousand	Jan 1-Dec 31, 2009	Jan 1-Dec 31, 2008
---	---	---
Cash flow from investing activities
Acquisition of subsidiary	0	-20,377
Investments in tangible and intangible assets	-16,129	-9,164
Proceeds from the disposal of tangible and intangible assets	1,382	-140
Other investments	-2,326	-1,724
Proceeds from the divestiture of other investments	583	559
Cash flow from investing activities	-16,490	-30,846
Cash flow from financing activities
Repayments on long-term loans	-3,291	-3,920
Proceeds from short-term borrowings	0	7,884
Repayments on short-term loans	-5,794	0
Purchase of own shares	0	-1,475
Dividends paid	-10,416	-11,872
Cash flow from financing activities	-19,501	-9,383
Change in liquid funds	1,152	-18,287
Liquid funds at the beginning of the period	15,715	34,373
Translation differences for liquid funds	305	-371
Liquid funds at the end of the period	17,172	15,715

Vacon | Annual Report 2009

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

EUR thousand	Equity attributable to equity holders of the parent company
	Share capital	Share premium	Other reserves	Own shares	Translation difference	Fair value reserve	Retained earnings	Total	Minority interest	Shareholders' equity, total
Shareholders' equity on Dec 31, 2007	3,059	4,966	51	-1,171	-475	22	56,470	62,922	1,084	64,006
Change in the accounting policy					475	-22	-453
Adjusted shareholders' equity Dec 31, 2007	3,059	4,966	51	-1,171	0	0	56,017	62,922	1,084	64,006
Dividends paid							-11,129	-11,129	-577	-11,706
Purchase of own shares				-1,475				-1,475		-1,475
Comprehensive result for the financial period							23,522	23,522	844	24,366
Share bonuses							305	305		305
Other changes							-2	-2		-2
Shareholders' equity Dec 31, 2008	3,059	4,966	51	-2,646	0	0	68,713	74,143	1,351	75,494
Dividends paid							-9,989	-9,989	-476	-10,465
Comprehensive result for the financial period							15,284	15,284	634	15,918
Share bonuses							277	277		277
Other changes							116	116	3	119
Shareholders' equity on Dec 31, 2009	3,059	4,966	51	-2,646	0	0	74,401	79,831	1,512	81,343

Vacon | Annual Report 2009

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Company information

The Vacon Group is a global company providing a comprehensive set of AC drives and related services. Vacon Plc and its subsidiaries focus exclusively on AC drives.

Vacon Plc is a Finnish public limited corporation that has been established in accordance with the laws of Finland. The company's registered office is in Vaasa, and its registered address is Runsorintie 7, 65380 Vaasa, Finland. Copies of the consolidated financial statements are available at www.vacon.com or from the Vacon Plc headquarters.

Vacon Plc's Board of Directors approved these financial statements for publication at its meeting on February 3, 2010. According to the Finnish Limited Liability Companies Act, the shareholders at the Annual General Meeting have the option to approve or reject the financial statements after they have been published. The Annual General Meeting may also decide on amending the financial statements.

2. Accounting principles for the consolidated financial statements

Accounting principles for the financial statements

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), applying the IAS and IFRS standards in force on December 31, 2009, as well as the SIC and IFRIC interpretations. International Financial Reporting Standards refer to the standards and their interpretation to be applied in the community as provided in the Finnish Accounting Act and the provisions issued on the basis of this act, and in regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards. Notes

to the consolidated financial statements have also been prepared in accordance with Finnish legislation regarding accounting and limited liability companies.

Vacon adopted the IFRS standards on January 1, 2004, until which date the reporting was conducted in accordance with the Finnish Accounting Standards (FAS). For the transition, Vacon applied the First-Time Adoption of the IFRS standard, which allows certain transitional exceptions for the retrospective application of individual standards. The most significant exception applied was using the FAS-compliant financial statement carrying amounts as the consolidated goodwill carrying amounts in the IFRS transition balance sheet.

Financial statement information is presented in thousands of euros and it is based on the original acquisition cost unless otherwise stated in the accounting principles below.

Estimates

When preparing the IFRS-compliant consolidated financial statements, the company's management is required to make estimates and assumptions. These affect the amount of assets, liabilities, income, and expenses to be recorded. The estimates and assumptions are based on historical experience and other justifiable assumptions that are believed to be reasonable under the circumstances that serve as the foundation for assessing the items entered in the financial statements. The final figures may differ from these estimates. The estimates concern the feasibility of realizing certain assets, the period of useful economic life for tangible and intangible assets, the setting of provisions relating to the business operations, goodwill and deferred tax assets. For goodwill, the anticipated income and interest rate used in testing for impairment contain estimates. The estimate of future taxable income creates a basis for stating deferred tax assets.

Principles of consolidation

The consolidated financial statements include the parent company and all companies in which the parent company has the majority of votes or other controlling interest. The financial results of subsidiaries acquired or established during the year are consolidated from the date of acquisition or establishment. The consolidated financial statements have been prepared using the acquisition cost method. The identifiable assets and liabilities of acquired companies have been measured at fair value at the time of acquisition. The difference between the price paid for the company and its net assets measured at fair value constitutes goodwill. As allowed by IFRS 1, acquisitions made before the adoption of IFRS have not been adjusted to comply with IFRS principles; instead, they remain at the FAS compliant values at the time of adoption.

Intra-group business transactions, receivables, liabilities, non-realized margins, and intra-group profit distribution have been eliminated in the consolidation. The allocation of profit or loss from the financial period to the shareholders of the parent company and the minority interest is presented in the income statement, and the allocation of the comprehensive result to the shareholders of the parent company and the minority interest is presented in the comprehensive statement of income. Minority interest is presented as an individual item under shareholders' equity. In the consolidated financial statements, the changes in group companies' accumulated depreciation have been divided into change in deferred taxes and profit for the period. In the consolidated balance sheet, accumulated depreciation difference has been divided into deferred taxes and non-restricted equity.

Foreign currency items

The figures concerning the financial performance and position of the Group's business units are measured in the currency of the main business environment of each unit ("business currency"). The consolidated financial

Vacon | Annual Report 2009

statements are presented using the euro, which is the business and presentation currency of the Group's parent company.

Separate companies' transactions carried out in foreign currencies are recorded in the business currency at the exchange rate of the transaction date. On the balance sheet date, monetary items denominated in foreign currencies are valued at the exchange rate at the year-end. Translation differences from business transactions are presented in the sales and purchases translation differences. Translation differences from interest-bearing liabilities and receivables are presented in their net amounts in financial income and expenses.

The income statements of Group companies whose business currency or financial statement currency is not the euro are translated into euros using the average rate for the financial year, and balance sheets using the rate on the balance sheet date. Translation differences arising from the different exchange rates used in the income statement and balance sheet have been recorded in the Group's shareholders' equity. Translation differences arising from applying the acquisition cost method and the resulting currency exchange rates have also been recorded as a separate item in the Group's shareholders' equity.

The cash flows of foreign subsidiaries have been translated into euros at the average monthly exchange rates.

Financial assets and liabilities

Financial assets

The Group's financial assets are classified according to the IAS 39 Financial Instruments: Recognition and Measurement standard into the following categories: financial assets at fair value through profit and loss, loans and other receivables, and available-for-sale financial assets. Financial assets are classified according to their purpose when acquired and at the time of their acquisition. Purchases and sales of financial assets are recognized on the transaction date.

An item in financial assets is classified in the category 'financial assets at fair value through profit and loss' if it has been acquired for trading purposes or if it is classified as recognized at fair value through profit and loss when originally booked. Derivatives that do not fulfill the conditions for hedge accounting as stated in IAS 39 are presented in this category.

'Loans and other receivables' are assets other than derivative assets that involve fixed or definable payments, are not quoted on the active markets, and that the Group does not hold for trading purposes. They are valued at amortized acquisition cost. On the balance sheet, they are included in short-term or long-term assets according to their nature. They are long-term assets if they mature in over 12 months.

Available-for-sale financial assets are assets other than derivative assets that have been specifically allocated to this category or have not been classified in any other category. They are included under long-term assets. Available-for-sale financial assets comprise shares and holdings in investment funds. The are measured at fair value if the fair value can be reliably determined.

Cash and cash equivalents

Cash and cash equivalents comprise cash and bank deposits. The credit limit for the Group's cash pooling is included under current interest-bearing liabilities, if the net limit is in use.

Financial liabilities

Financial liabilities are entered in the accounts initially at fair value. Transaction costs are included in the original carrying amount of financial liabilities. Subsequently, all financial liabilities are measured using the effective interest rate method at amortized cost. Financial liabilities are included under current and long-term liabilities.

Derivative instruments and hedge accounting

Derivative contracts are originally booked at acquisition cost, which matches their fair value. In subsequent financial statements, derivative contracts are measured at fair value. Publicly quoted market prices and rates as well as generally used measurement models are used to define the fair value of derivatives. The information and assumptions used in the measurement models are based on verifiable market prices and values. The fair values of derivative contracts expiring within a year are shown on the balance sheet under short-term receivables or liabilities, and contracts with longer maturity under long-term receivables or liabilities.

The Group applies IAS 39 - compliant hedge accounting for cash flow hedging with respect to operative currency exposure. In this case, the Group, when initiating hedge accounting, documents the relationship between the item to be hedged and the hedging instrument, the method used to measure effectiveness, and the hedging strategy in accordance with the Group's risk management policy, so that these meet all IAS 39 requirements for hedge accounting. The hedging instruments used are foreign exchange forwards. For those hedging relationships that meet the hedge accounting criteria, the effective portion of the change in the fair value of the hedging instrument is recorded in shareholders' equity and any remaining ineffective portion is recognized through profit and loss. The cumulative change in fair value, which is entered in shareholders' equity, is recognized in the income statement at the moment the anticipated cash flow is recognized in the income statement.

The Group does not apply hedge accounting to interest rate swaps and foreign currency denominated loans that hedge foreign currency denominated net investments in foreign business units. Changes in the fair value of hedging instruments are recorded in financial items in the income statement.

Vacon | Annual Report 2009
53

If the derivative instruments do not meet the criteria for hedge accounting specified in IAS 39, the change in the fair value of the derivative instrument is recognized immediately in the income statement.

Goodwill and other intangible assets

The goodwill generated from business acquisitions consists of the difference between acquisition cost and identifiable net assets measured at fair value. Goodwill has been allocated to cash generating units. Goodwill and intangible assets with an unlimited economic life, if there are any, are tested annually for impairment.

Testing for impairment is done by comparing the amount of recoverable cash to its carrying amount. A unit's recoverable amount is determined from cash flow predictions discounted to their present value. The discount rate used in the calculation is based on the business unit's return on equity requirement. The ROE requirement comprises three components: the risk-free interest in each country, the general risk premium in the share market, and the beta coefficient, which measures the level of risk of operations. The discount rate used is defined so that the equity structure is debt-free. The discount rate used in calculation is also defined before taxes. More information about the sensitivity of the amount of recoverable cash to changes in the assumptions used is given in Note 15.

Other intangible assets include software licenses, computer programs, subscription fees, customer relationships and technology developed. They are valued at historical cost and are amortized on a straight-line basis over their expected useful lives.

The depreciation periods for intangible assets are:

Software licenses, computer programs and subscription fees...3-5 years
Customer relationships and technology developed...3-7 years

Any subsequent expenses associated with intangible assets are capitalized only if it is likely that the future financial benefit will flow to the company and if the acquisition cost can be reliably determined. Otherwise the costs are recognized as expenses as they are incurred.

Research and development costs

Research and development costs are recognized as expenses as they are incurred. Development costs that meet the criteria specified in IAS 38 are recorded in intangible assets and amortized over their effective life span, but no later than in five years. Capitalized expenses include direct material costs, labor costs and related overheads.

A product designed to replace an existing product remains in the research stage until it has been tested and found feasible in prototype testing and is therefore likely to become available for sale later. After that, it moves on to the development stage and the expenses are capitalized on the balance sheet.

Expenses related to products developed for new product ranges are not capitalized since the future benefits of such products are difficult to estimate. The expenses for products developed for a specific customer are also not capitalized.

Property, plant and equipment

Machinery and equipment represent the largest component of property, plant, and equipment. On the balance sheet these are measured at original acquisition cost less accumulated depreciation.

Ordinary maintenance and repair costs are booked as expenses as incurred. Significant modernization and improvement investments are capitalized and depreciated over the remaining economic life of the related main asset.

Property, plant and equipment are depreciated on a straight-line basis over their economic useful life.

The depreciation schedule for property, plant, and equipment is as follows:

Machinery and equipment ...3-15 years
Other tangible assets ...5-10 years

Gains or losses from the sale or disposal of property, plant, and equipment are recorded in the income statement.

Impairment

The carrying amount of assets is assessed on each balance sheet date to identify potential impairment. If there are any indications of impairment, the recoverable amount of the asset is estimated to be the higher of the net sales price or the value in use. Impairment is recognized if the carrying amount exceeds the recoverable amount.

Leases

Leasing agreements where the Group has an essential part of the risks and benefits inherent in ownership are classified as finance leases. At the commencement of the lease, they are entered on the balance sheet at an amount that equals the fair value of the leased property at the commencement of the lease or a lower present value of the minimum lease payments. The leasing fees are divided into financial expenses and loan repayment. Financial expenses are allocated to financial periods during the leasing period so that the interest rate for the remaining debt will be the same for each financial period. The corresponding leasing liabilities less financial expenses are included in interest-bearing liabilities. The interest rate portion of financing is recognized in the income statement during the leasing period. Assets leased under a financial leasing agreement are depreciated according to plan over their economic life.

Leasing agreements that are not finance leases constitute operating leases. These fees will be recognized as expenses in equal amounts over the leasing period.

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Vacon | Annual Report 2009 55

Inventories

Inventories are entered on the balance sheet at the lower of the acquisition cost or the net realizable value using the FIFO method.

The acquisition cost of finished goods and work in progress includes raw materials, direct salaries, and other direct expenses as well as the appropriate share of indirect production costs, excluding interest expenses. Net realizable value is the estimated sales price in ordinary activities less the costs associated with the sale of products.

Trade and other receivables

Trade and other receivables are recognized at original value. Uncertain receivables are assessed on the basis of the risk involved in individual items. Credit losses are recorded as expenses in the income statement, and on the balance sheet the amount is deducted from the value of receivables.

Pension schemes

In Group companies, pension schemes are arranged in different ways depending on the pension legislation and practices of the country in question. As a rule, the pension arrangements represent contribution plans. In addition, the pension schemes of some foreign subsidiaries represent defined benefit plans.

Payments for contribution plans are recorded as expenses for the period to which they are allocated. The present value of defined benefit plans is determined using a method based on an anticipated benefit unit, and the assets covered by the arrangement have been measured at fair value on the balance sheet date. Actuarial gains and losses are recorded in the income statement during the average remaining years of employment of the personnel participating in the plan to the extent that it exceeds 10% of the present value of the defined benefit plan or the higher fair value of the assets covered by the plan. At the time of transition on January 1, 2004, all actuarial gains and losses were recorded under shareholders' equity.

Revenues

Sales are recognized in connection with the transfer of ownership-related risks and benefits to the buyer. Generally, the risks and benefits are transferred at delivery. Sales adjustment items include cash discounts as well as exchange rate profits and losses on sales.

In accordance with IAS 11, long-term projects are partially recognized as income for the financial period in cases that involve fixed-price contracts and the outcome of the contract can be reliably assessed. The percentage-of-completion required in long-term projects is measured from the share of the to-date costs of the estimated total costs of the project, i.e. using the cost-to-cost method. If it is likely that the overall costs of the project will exceed the overall income, the expected losses are immediately recognized as expenses. At the end of the financial period, the company did not have projects considered long-term.

Operating profit

The concept of operating profit is not defined in IAS 1: Presentation of Financial Statements. The Group has defined it as follows: Operating profit is the net sum of revenues plus other operating income less purchase costs adjusted with the change in inventories of finished goods and work in progress and the expenses arising from production for own use, less employee benefit costs, depreciation, amortization, and any impairment losses, and other operating costs. All other income statement items except those mentioned above are shown beneath operating profit. Exchange differences are included in the operating profit provided that they originate in items related to business operations; otherwise, they are recorded under financial items.

Subsidies

Subsidies received from the State or other parties are recognized as income in the income statement, with matching expenses recorded. Subsidies are recorded as deductions from the corresponding expenses. Subsidies associated with tangible and intangible assets are deducted from the asset acquisition price and the net acquisition cost is capitalized on the balance sheet.

Equity compensation benefits

The Group has a share bonus scheme that offers key personnel the opportunity to receive company shares in three earning periods of one calendar year as a reward for achieving their personal targets. The earning periods are the calendar years 2007, 2008 and 2009. The share bonus has been recorded as an expense and as an increase in shareholders' equity. The amount recorded as expenses during the earning period has been determined on the basis of market values on the day the shares were awarded. The terms of the share bonus scheme are given in more detail in Note 25 'Share-based payments'.

Provisions

Items related to contracts and other effective obligations that are likely to require financial resources are recorded on the balance sheet as provisions, if their amount can be reliably assessed. These items currently include only warranty provisions and any negative project margins. The anticipated future warranty costs of delivered products are recorded as warranty provisions. Realized warranty costs, with changes in warranty liability taken into account, are recorded in the income statement in the period during which they are incurred.

Income taxes

Taxes in the consolidated income statement include the Group companies' taxes paid and accrued corresponding to the financial result for the period on the basis of taxable

income calculated in accordance with each company's local tax regulations, adjustments to taxes from previous financial periods, and changes in deferred taxes.

The recorded deferred tax receivables and liabilities include the temporary differences between the Group companies' taxes and the balance sheet, as well as differences arising in connection with Group elimination. To calculate deferred tax assets and liabilities, the tax rate used is the following year's tax rate approved for the country in question on the balance sheet date. The most significant tax assets and liabilities consist of tax losses carried forward, appropriations, fixed assets, financial instruments, and Group eliminations.

Deferred tax assets from tax losses carried forward are recorded in cases where it is likely that the loss can be used against the taxable income in future financial years. Deferred tax liabilities are recorded in full.

Applying revised and amended IFRS standards and interpretations in 2009 or later

In 2009, the Group adopted the standard IFRS 8 Operating Segments, published in 2006. Vacon's business is based on one operating segment, the AC drive segment, and the figures for this segment are identical with the figures for the whole Group. Reporting to management [Board of Directors and Management Team] is based on this one operating segment, in addition to reporting by the separate companies.

In 2009, the Group also adopted the revised standard IAS 1 Presentation of Financial Statements, which mainly affected the presentation of the statement of comprehensive income and the statement indicating changes in equity. The accounting principle of the 'Earnings per share' key figure remained as before. The standard IAS 23 Borrowing Costs did not have a significant impact on the figures to be reported.

Amendments to the standard IFRS 7: Financial Instruments: Disclosures – Improving the notes concerning financial instruments: The amendments were issued in March 2009 due to the international financial crisis. The amendments introduced a three-level hierarchy in the presentation of fair values of financial instruments, which increased the number of notes included in the financial statements.

Contrary to what was previously announced, the revised IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements will be adopted in the fiscal year starting on January 1, 2010.

3. Segment information

Vacon has one business segment, which is AC drives. Figures for the segment are equal to the figures for the entire Group. Vacon's operations are organized into the following functions: Products and Markets, Production, Research & Development, Finance and Administration, Human Resources, and IT and Process Development and Business Development. To ensure that the organization is customer-oriented, operations are controlled by sales channels: distributors, system integrators, end clients, OEM customers, and brand label customers.

Geographical details

The Group operates in three geographic areas: EMEA (Europe, the Middle East and Africa), the Americas (North and South America), and APAC (Asia and the Pacific). Revenues are presented by customers' locations and assets by location. Non-current assets are presented without financial instruments, deferred tax assets, assets related to benefits arrangements following the end of employment, and rights arising from insurance contracts.

Geographical areas, revenue from external customers

EUR thousand	2009	2008
EMEA	190,837	210,565
Americas	46,308	55,891
APAC	34,891	26,781
Total	272,036	293,237
2009, EUR thousand	Revenues from external customers	Non-current assets
---	---	---
Finland	57,975	29,789
Other countries	214,061	24,720
Total	272,036	54,509
2008, EUR thousand	Revenues from external customers	Non-current assets
---	---	---
Finland	56,759	24,433
Other countries	236,478	23,319
Total	293,237	47,752

Vacon | Annual Report 2009

Vacon | Annual Report 2009 57

4. Long-term projects

Consolidated revenues include EUR 45,000 in income recognized from long-term projects in 2009 (EUR 91,000 in 2008).

Income from long-term projects in progress is EUR 0 on December 31, 2009 (EUR 567,000 on December 31, 2008).

The balance sheet includes advance payments of EUR 0 for long-term projects in progress on December 31, 2009 (EUR 552,000 on December 31, 2008).

5. Other operating income

EUR thousand	2009	2008
Rental income	252	140
Other	24	71
Total	276	211

6. Materials and services

EUR thousand	2009	2008
Materials and consumables
Purchases during the financial year	134,329	147,571
Change in inventories	1,095	-432
External services	2,717	3,640
Total	138,141	150,779

7. Other operating expenses

EUR thousand	2009	2008
Delivery costs and commissions	6,370	8,768
Sales and marketing expenses	8,757	9,270
Rents	7,750	6,447
Administrative expenses	12,900	11,821
Other costs	11,730	11,909
Total	47,507	48,215

8. Employee benefit related expenses

EUR thousand	2009	2008
Salaries	42,198	41,341
Share bonuses granted paid in shares	252	305
Share bonuses granted paid in cash	462	775
Pensions
Defined benefit plans	359	387
Contribution plans	6,224	5,888
Other indirect personnel costs	4,063	4,049
Total	53,558	52,745
Office personnel	763	687
Factory personnel	468	444
Average number of personnel	1,231	1,131

9. Depreciation and impairment

EUR thousand	2009	2008
Depreciation by asset group
Intangible assets
Development costs	979	552
Intangible rights	3,986	3,102
Other intangible assets	309	134
Total	5,274	3,788
Property, plant, and equipment
Machinery and equipment	4,330	3,539
Total	4,330	3,539
Total depreciation, amortization, and impairment charge	9,604	7,327

10. Auditor's fees

EUR thousand	2009	2008
Audit fees	136	170
Tax consulting	16	7
Other services	22	103

11. Research and development costs

The income statement includes research and development costs recorded as expenses of EUR 12.2 million in 2009 (EUR 14.7 million in 2008).

58 Vacon | Annual Report 2009

12. Financial income and expenses

EUR thousand	2009	2008
Interest income from loans and other receivables	186	406
Exchange rate gains on loans and other receivables	305	800
Exchange rate gains on financial loans measured at amortized acquisition cost	-159	-547
Other financial income	617	67
Total	949	726
Interest expenses on financial loans measured at amortized acquisition cost	-667	-2,163
Exchange rate losses on loans and other receivables	-804	0
Losses on sale of financial assets held for sale	0	-472
Other financial expenses	-42	-83
Total	-1,513	-2,718
Financial income and expenses, total	-564	-1,992

Items above the operating profit include exchange rate differences of EUR 118,000 from hedge accounting derivative contracts and of EUR -312,000 from trade receivables (in 2008, EUR -680,000 from derivative contracts and EUR 172,000 from trade receivables).

13. Income taxes

EUR thousand	2009	2008
Taxes based on the taxable income for the financial year	-5,518	-9,197
Taxes on the previous year	-50	48
Deferred taxes	-355	445
Total	-5,923	-8,704
Calculation of taxes
Profit before taxes	21,976	32,613
Taxes calculated in accordance with domestic tax rate	5,714	8,479
Impact of foreign subsidiaries' differing tax rates	-121	53
Tax-free income	-3	-8
Non-deductible expenses	294	305
Taxes on the previous year	-50	-48
Other items	89	-77
Taxes in the income statement	5,923	8,704
Deferred tax assets and liabilities
---	---	---
EUR thousand	2009	2008
Net deferred tax liability is allocated on the balance sheet as follows:
Deferred tax assets	3,340	2,585
Deferred tax liability	-4,623	-3,531
	-1,283	-946
Gross change in deferred taxes recorded on balance sheet:
Deferred taxes Jan 1	-946	-74
Items entered in income statement	-355	445
Translation differences	-8	18
Items entered in shareholders' equity	26	143
Acquired business operations	0	-1,478
Deferred taxes Dec 31	-1,283	-946

Change in deferred tax assets and liabilities during financial year:

2009, EUR thousand	Jan 1	Items entered in income statement	Items entered in shareholders' equity	Translation differences	Acquired business operations	Dec 31
Deferred tax assets:
Employee benefits	52	-25				27
Tax losses carried forward	1,299	824				2,123
Internal margin from inventories	1,051	-146				905
Other temporary differences	183	102				285
Total	2,585	755	0	0	0	3,340
Deferred tax liabilities:
Property, plant, and equipment	51	-41				10
Capitalized intangible assets	2,438	878				3,316
Accumulated depreciation difference	999	271		8		1,278
Other temporary differences	43	2	-26			19
Total	3,531	1,110	-26	8	0	4,623
Deferred taxes, net	-946	-355	26	-8	0	-1,283
2008, EUR thousand	Jan 1	Items entered in income statement	Items entered in shareholders' equity	Translation differences	Acquired business operations	Dec 31
---	---	---	---	---	---	---
Deferred tax assets:
Employee benefits	34	18				52
Tax losses carried forward	432	867				1,299
Internal margin from inventories	1,043	8				1,051
Other temporary differences	38	-8	153			183
Total	1,547	885	153	0	0	2,585
Deferred tax liabilities:
Property, plant, and equipment	92	-41				51
Capitalized intangible assets	775	185			1,478	2,438
Accumulated depreciation difference	747	270		-18		999
Other temporary differences	7	26	10			43
Total	1,621	440	10	-18	1,478	3,531
Deferred taxes, net	-74	445	143	18	-1,478	-946

Vacon | Annual Report 2009

60 Vacon | Annual Report 2009

14. Earnings per share

Basic earnings per share are calculated by dividing the profit for the financial period attributable to the equity holders of the parent company by the weighted average number of shares outstanding during the year. At the end of financial years 2008 and 2009, the Group had no diluting instruments.

EUR thousand	2009	2008
Profit for the financial year attributable to equity holders of the parent company	15,420	23,065
Number of shares
Weighted average number of shares during the year	15,204,263	15,238,236
Basic earnings per share, EUR	1.01	1.51
Diluted earnings per share, EUR	1.01	1.51

15. Intangible assets

EUR thousand	Goodwill	Development costs	Other intangible rights	Other intangible assets	Total 2009	Total 2008
Acquisition cost, Jan 1	8,272	10,830	20,557	1,677	41,336	18,721
Increases		5,355	2,054	743	8,152	21,609
Decreases			-452		-452	0
Transfers between items		-47	45		-2	510
Translation differences	-132	-6	-137	-37	-312	496
Acquisition cost, Dec 31	8,140	16,132	22,067	2,383	48,722	41,336
Accumulated amortization, Jan 1	0	-6,033	-6,862	-514	-13,409	-9,081
Accumulated amortization on decreases and transfers		14	440		454	-468
Amortizations for the financial year		-979	-3,985	-309	-5,273	-3,788
Translation differences			45	18	63	-72
Accumulated amortization, Dec 31	0	-6,998	-10,362	-805	-18,165	-13,409
Carrying amount, Dec 31, 2009	8,140	9,134	11,705	1,578	30,557
Carrying amount, Dec 31, 2008	8,272	4,797	13,695	1,163		27,927

Capitalized development costs refer to such development costs that meet the criteria specified in the IAS 38 standard. Other intangible assets include software licenses, computer programs, subscription fees, customer relationships, and technology developed.

Impairment testing of goodwill in cash-generating units

Goodwill is tested annually in accordance with IFRS. Vacon Group goodwill has been allocated to seven cash-generating units. Allocating and testing goodwill at the level of cash-generating units also helps to plan and monitor the Group's operations.

Impairment of goodwill is tested by comparing the recoverable amount of cash of a cash-generating unit with its balance sheet value. A unit's recoverable amount is determined from cash flow predictions discounted to their present value. The cash flows in turn are based on the five-year forecast drawn up by the unit's management. The forecast takes into account only the unit's organic growth. The basis used for calculating long-term growth is an annual growth of two per cent, except for India where three per cent is used due to a higher inflation rate than in Western countries.

The Group's goodwill is divided among seven business units (the Netherlands, Spain, Italy, Sweden, Germany, the USA, and India). According to the annual impairment tests, the recoverable amount of cash of the cash generating units exceeds their carrying amounts, so the impairment tests have not resulted in impairment losses being recorded.

Sensitivity analysis

Decline in forecasted operating profit

Management estimates of the future profitability of operations have a key impact on the results of impairment testing. The estimated growth in business operations and the operating profit margin affect profitability. The reduction in forecasted operating profit that would result in the recoverable amount of the subsidiaries corresponding to the carrying amount of net assets, varies from unit to unit between -18% and -81%.

Rise in discount rate

The discount rate used in calculations also has a major impact when determining the recoverable amount. Calculations show that depending on the unit, the subsidiaries can withstand a rise of 3.9–32.0 percentage points in the discount rate before taxes before their recoverable amount corresponds to the carrying amount of net assets.

Goodwill has been allocated to the following cash-generating units:

EUR thousand	2009	2008
Subsidiaries	8,140	8,272

Main assumptions used in impairment testing:

	2009	2008
Growth in revenues on average (p.a., five-year forecasts)	5–35%	4–24%
Pretax discount rate	9.03–17.10%	9.48–17.32%
Long-term growth	2–3%	2%
Goodwill allocated, EUR thousand	8,140	8,272
Carrying value, EUR thousand	38,749	45,279
Result of impairment test (recoverable amount vs. carrying value)	Exceeds	Exceeds

Changes in the company's markets, the global economy, and interest rates are reflected in the growth and profitability forecasts for the business units and in the related risk and requirements for returns. The assumptions made for the impairment tests are based on the management view of the coming financial periods on the closing date. The forecasts and assumptions have been drawn up to carry out impairment tests. The forecasts and other assumptions are reviewed constantly and can change.

16. Property, plant and equipment

EUR thousand	Land and water areas	Machinery and equipment	Advance payments and construction in progress	Other tangible assets	Total 2009	Total 2008
Acquisition cost, Jan 1	132	37,760	1,100	70	39,062	31,976
Increases		6,316	1,152	50	7,518	8,202
Decreases		-123	-883		-1,006	-3,351
Transfers between items		-19		-3	-22	1,843
Translation differences		-175	-6	4	-177	392
Acquisition cost, Dec 31	132	43,759	1,363	121	45,375	39,062
Accumulated amortization, Jan 1	0	-22,735	0	0	-22,735	-17,280
Accumulated amortization on decreases and transfers		102		-8	94	-1,833
Amortizations for the financial year		-4,323			-4,323	-3,540
Translation differences		62			62	-82
Accumulated amortization, Dec 31	0	-26,894	0	-8	-26,902	-22,735
Carrying amount, Dec 31, 2009	132	16,865	1,363	113	18,473
Carrying amount, Dec 31, 2008	132	15,025	1,100	70		16,327

Property, plant and equipment include assets acquired through financial leasing agreements.

2009, EUR thousand	Machinery and equipment	Total	2008, EUR thousand	Machinery and equipment	Total
Acquisition cost	1,160	1,160	Acquisition cost	1,160	1,160
Accumulated depreciation	-1,120	-1,120	Accumulated depreciation	-964	-964
Carrying amount	40	40	Carrying amount	196	196

Vacon | Annual Report 2009

17. Breakdown of financial assets and liabilities by measurement category

2009 Balance sheet item, EUR thousand	Financial assets/liabilities recognized at fair value through profit and loss	Loans and other receivables	Available-for-sale financial assets	Financial liabilities measured at amortized acquisition cost	Carrying amounts of balance sheet items	Fair value	Note
Non-current financial assets
Financial receivables		173			173	173	19
Other financial assets		1,935	3,372		5,307	5,307	20
Current financial assets
Trade and other receivables		49,213			49,213	49,213	22
Derivative contracts in hedge accounting	43				43	43	22
Cash and cash equivalents		17,172			17,172	17,172	23
Carrying amount by measurement category	43	68,493	3,372	0	71,908	71,908
Non-current financial liabilities
Interest-bearing liabilities				12,408	12,408	12,408	27
Current financial liabilities
Interest-bearing liabilities				6,384	6,384	6,384	27
Derivative contracts in hedge accounting	292				292	292	28
Trade and other payables				22,884	22,884	22,884	28
Carrying amount by measurement category	292	0	0	41,676	41,968	41,968

62 Vacon | Annual Report 2009

2008 Balance sheet item, EUR thousand	Financial assets/liabilities recognizedat fair value throughprofit and loss	Loans and otherreceivables	Available-for-salefinancial assets	Financial liabilitiesmeasured atamortizedacquisition cost	Carrying amounts ofbalance sheet items	Fair value	Note
Non-current financial assets
Financial receivables		158			158	158	19
Other financial assets		245	3,095		3,340	3,340	20
Current financial assets
Trade and other receivables		58,217			58,217	58,217	22
Derivative contracts in hedge accounting	841				841	841	22
Cash and cash equivalents		15,715			15,715	15,715	23
Carrying amount by measurement category	841	74,335	3,095	0	78,271	78,271
Non-current financial liabilities
Interest-bearing liabilities				15,807	15,807	15,807	27
Current financial liabilities
Interest-bearing liabilities				12,243	12,243	12,243	27
Derivative contracts in hedge accounting	122				122	122	28
Trade and other payables				22,303	22,303	22,303	28
Carrying amount by measurement category	122	0	0	50,353	50,475	50,475

The carrying amount of the financial receivables correspond to the maximum credit risk on the balance sheet date.

18. Fair value hierarchy of financial assets and liabilities measured at fair value

EUR thousand	Fair values at the end of the financial period
	Dec 31, 2009	Level 1	Level 2	Level 3
Financial assets recognized at fair value through profit and loss
Forward exchange contracts	49		49
of which in cash flow hedge accounting	43		43
Available-for-sale financial assets
Share investments	3,372			3,372
Total	3,464	0	92	3,372
Liabilities measured at fair value
Interest rate swaps	479		479
Forward exchange contracts	333		333
of which in cash flow hedge accounting	292		292
Total	1,104	0	1,104	0

Fair values at hierarchy level 1 are based on the quoted prices of completely identical asset items or liabilities in an active market.

The fair values of level 2 instruments are to a significant extent based on inputs other than quoted prices included in level 1; however, they are based on information that is observable for the asset item either directly or indirectly. The Group uses market value reports compiled by Nordea Bank and Sampo Bank in determining the fair value of these instruments.

The fair values of level 3 instruments are based on acquisition cost since their fair value cannot be reliably determined.

Vacon | Annual Report 2009

64 Vacon | Annual Report 2009

19. Financial receivables

EUR thousand	2009	2008
Long-term loans receivables
At the beginning of period, Jan 1	158	158
Increases	580	0
Decreases	-565	0
At the end of period, Dec 31	173	158

20. Reconciliation of other financial assets measured at fair value in accordance with level 3

EUR thousand	2009	2008
Available-for-sale
Investment funds:
At the beginning of period, Jan 1	1,441	1,544
Increases	259	426
Decreases	0	-529
At the end of period, Dec 31	1,700	1,441
Other unquoted holdings:
At the beginning of period, Jan 1	1,654	357
Increases	18	1,297
At the end of period, Dec 31	1,672	1,654

Available-for-sale financial assets are investments in unquoted shares and they are measured at acquisition cost, since their fair value cannot be determined reliably.

Other receivables:

At the beginning of period, Jan 1	245	275
Increases / decreases	1,690	-30
At the end of period, Dec 31	1,935	245

21. Inventories

EUR thousand	2009	2008
Materials and consumables	8,483	9,578
Finished goods	10,804	11,765
Total	19,287	21,343

Inventories have been written down by EUR 173,000 to accommodate for non-marketable assets in 2009 (2008: EUR 435,000). Non-marketability deductions primarily cover spare parts and replacement units.

22. Trade and other receivables

EUR thousand	2009	2008
Loans and other receivables
Trade receivables	45,460	54,486
Other loan receivables	1,097	1,197
Other receivables	2,656	2,534
Total	49,213	58,217
Financial assets recognized at fair value through profit and loss
---	---	---
Derivative contracts in hedge accounting	43	841
Total	43	841
Accrued income and prepayments	2,030	2,580
Total	2,030	2,580

23. Cash and cash equivalents

EUR thousand	2009	2008
Cash and bank	17,172	15,715
Total	17,172	15,715

Notes relating to shareholders' equity

	Number of shares	Number of own shares	Share capital, EUR	Own shares, EUR	Share premium reserve, EUR	Total, EUR
Jan 1, 2008	15,295,000	-62,812	3,059,000	-1,171,012	4,966,488	6,854,476
Shares issued as share bonuses April 8, 2008		19,500
Purchase of own shares Oct 31–Nov 19, 2008		-60,000		-1,475,003		-1,475,003
Shares issued as share bonuses Dec 23, 2008		1,500
Dec 31, 2008	15,295,000	-101,812	3,059,000	-2,646,015	4,966,488	5,379,473
Shares issued as share bonuses April 22, 2009		15,801
Shares issued as share bonuses Dec 3, 2009		1,000
Dec 31, 2009	15,295,000	-85,011	3,059,000	-2,646,015	4,966,488	5,379,473

Vacon's share capital is EUR 3,059,000, divided into 15,295,000 fully paid shares. As stated in the Articles of Association, the minimum capital is EUR one million (1,000,000) and maximum capital is EUR four million (4,000,000). Vacon has one share series. Each share has a nominal value of EUR 0.20 and each share confers one vote at the shareholders' meeting.

Under the authorization given at the shareholders' meeting on March 25, 2004, the company has repurchased 95,260 of its own shares, and under the authorization given at the shareholders' meeting on March 26, 2008, it repurchased 60,000 of its own shares. 13,688 shares were issued as a share bonus on April 21, 2006, 18,760 shares on April 12, 2007, 19,500 shares on April 8, 2008, and 1,500 shares on December 23, 2008, 15,801 shares on April 22, 2009, and 1,000 shares on December 3, 2009, after which the company holds 85,011 of its own shares.

The Board of Directors' valid authorizations are presented in the section Shares and shareholders on page 89.

Vacon | Annual Report 2009 65

Vacon | Annual Report 2009

25. Share-based payment

Share bonus scheme 2008, 2009 and 2010

The Board of Directors of Vacon Plc decided at its meeting in February 2008 on a new share bonus scheme as part of the incentive scheme for Vacon Group key personnel. The goals of the bonus scheme are to bring together the goals of owners and key personnel to raise the value of the company, to commit key personnel to the company, and to offer them a competitive bonus system based on ownership.

The share bonus scheme offers the target group the opportunity to receive a bonus of company shares for three earnings periods of one calendar year by achieving targets set for these periods. The earnings periods are the calendar years 2008, 2009 and 2010.

The Board of Directors decides each year on which key personnel belong to the target group and on their maximum bonus. The maximum bonus is stated as a number of shares. The number of Vacon Plc shares to be given under the incentive scheme is altogether a maximum of 135,000 shares for the three earnings periods and, in addition, an amount will be paid in cash that is required for taxes and similar expenses on the shares when the shares are given. The recipients of the share bonus are also entitled to any dividends accumulated during the earnings period. The extent to which the targets set for the earnings period are met determines how much of the maximum bonus is paid to the key personnel. The targets set are linked to indicators for the Group's strategic goal of profitable growth, which are revenues, operating profit, and working capital in proportion to revenues.

Any bonuses paid under the share bonus scheme are paid by the end of April in the year after the end of the earnings period as a combination of shares and cash. Shares paid as a bonus must be held for two years after the end of the earnings period. If the employment relationship of the recipient of the bonus ends during this two year period, the shares must be returned to the Group. An exception may be made to this rule by a decision of the Board of Directors of Vacon Plc. If a bonus of shares is paid under the scheme, members of the Management Team must hold half of the shares earned under the scheme until the holding equals the value of their gross annual salary. This number of shares must be held until the employment relationship ends.

Those belonging to the target group are Vacon Group key personnel decided on by the Board of Directors. All those belonging to the target group must have a current ongoing employment relationship at a company belonging to the Vacon Group. Belonging to the target group for the share bonus scheme does not affect other terms of employment.

The share bonus scheme has three earnings periods of one calendar year, which begin on January 1, 2008, January 1, 2009, and January 1, 2010, and end on December 31, in the respective year. The amount of the bonus to be paid is determined after the end of the earnings period by the end of April based on the extent to which the targets have been met. Should the fiscal year for the company change before December 31, 2010, the Board has the right to change the earnings period correspondingly.

Share bonus scheme 2005, 2006 and 2007

The Board of Directors of Vacon Plc decided at its meeting in January 2005 for the first time to introduce a share bonus scheme as part of the incentive scheme for Vacon Group key personnel. The goals of the bonus scheme are to bring together the goals of owners and key personnel to raise the value of the company, to commit key personnel to the company, and to offer them a competitive bonus system based on ownership.

The Board of Directors decides each year on which key personnel belong to the target group and on their maximum bonus. The maximum bonus is stated as a number of shares. The number of Vacon Plc shares to be given under the incentive scheme is altogether a maximum of 80,400 shares for the three earnings periods and, in addition, an amount will be paid in cash that is required for taxes and similar expenses on the shares when the shares are given. The recipients of the share bonus are also entitled to any dividends accumulated during the earnings period. The extent to which the targets set for the earnings period are met determines how much of the maximum bonus is paid to the key personnel. The targets set are linked to indicators for the Group's strategic goal of profitable growth, which are revenues, operating profit, and working capital in proportion to revenues.

Any bonuses paid under the share bonus scheme are paid in the year after the end of the earnings period as a combination of shares and cash. Shares paid as a bonus must be held for two years after the end of the earnings period. If the employment relationship of the recipient of the bonus ends during this two year period, the shares must be returned to the Group. An exception may be made to this rule by a decision of the Board of Directors of Vacon Plc.

The 2005, 2006 and 2007 earnings periods for the share bonus scheme have ended and the final two year commitment period will finish at the end of 2009.

Nature of the arrangement: Share bonus scheme

Date of issue	2009-2011	2008-2010	2007-2009
	2009	2009	2009
	Feb 19, 2008	Feb 19, 2008	Jan 28, 2005
Implementation	Shares and cash	Shares and cash	Shares and cash
Maximum number of shares offered as share bonus during the earning period, share	44,100	35,100	29,200
Share price at time of issue, EUR	26.01	26.01	12.25
Agreed earning period (no. of years)	1	1	1
Agreed period (years) for prohibition on transfer after the earning period	2	1	0
Share price on valuation date, EUR	26.70	20.30	28.72
Assumed participation	91%	100%	100%
Realization of profit-based terms and conditions in the earning year	10%	45%	65%
No. of shares issued under the scheme	4,416	15,801	19,500
Value of shares being issued on valuation date, EUR thousand	118	321	560
Share to be paid in cash (for taxes) calculated with the value on balance sheet date and assumed dividend, EUR thousand	151	425	899
Total cost of shares issued based on value at the time of issue, EUR thousand	115	411	239
Total cost of the share bonus scheme, EUR thousand	266	836	1,138
Share value adjusted with anticipated participation, EUR thousand	105	411	239
Consolidated income statement includes 1/3 of the sum in employee benefits and increase in shareholders' equity, EUR thousand	35	137	80
Remaining amount to be recognized in future financial years after taking the anticipated participation into consideration, EUR thousand	70	137	0
Amount to be paid in cash adjusted with anticipated participation, EUR thousand	138	425	932
Consolidated income statement includes 1/3 of the sum in employee benefits and liabilities, EUR thousand	52	130	280
Remaining amount to be recognized in future financial years after taking the anticipated participation into consideration, EUR thousand	87	130	0
Costs from the share bonus system recorded during the period as employee benefits, EUR thousand	87	267	360

The amount recognized as cost from the share bonus scheme during the financial year was based on real financial profit and the probability at which the conditions based on the result will be met. During the year, these conditions were met. The amount payable in cash changes until the handover of the shares, after which the allocations on remaining years will be final.

Vacon | Annual Report 2009

26. Employee benefits

The Group has different pension arrangements to cover employee pension security in different parts of the world. Pension security is based on each country's local legislation and standard practices. In Finland, pension security is largely provided in accordance with the Employees' Pensions Act (TyEL). In some countries, supplementary pensions increase the pension security.

EUR thousand	2009	2008
Reconciliation of employee benefit-related assets and liabilities
Current value of unfunded obligations	1,155	1,085
Current value of funded obligations	1,157	900
Fair value of assets	-800	-666
Non-recorded actuarial gains (-) or losses (+)	-17	90
Net liabilities on the balance sheet	1,495	1,409
Distributed on the balance sheet as follows:
Employee benefit assets	-817	-576
Employee benefit liabilities	2,312	1,985
Net liabilities on the balance sheet	1,495	1,409
Defined benefit pension costs in the income statement are determined as follows:
Labor costs during the year	-286	-336
Interest expenses	-84	-60
Expected income from assets covered by the arrangements	20	9
Total	-350	-387
Changes in the current value of the liability are as follows:
Liability at start of year	1,985	1,689
Current service cost	170	322
Interest expenses	68	49
Actuarial gains (-) and losses (+)	89	-75
Total	2,312	1,985
EUR thousand	2009	2008
---	---	---
Changes in the fair values of plan assets are as follows:
Fair value of plan assets at start of year	-576	-521
Anticipated return	-19	-9
Actuarial gains (-) and losses (+)	-89	87
Payments by employer to scheme	-133	-133
Fair value of plan assets at end of year	-817	-576

Plan assets are invested in bonds.

Key actuarial assumptions, Dec 31	2009	2008
Discount rate, %	4.25-5.25	5.72-6.25
Expected return on assets, %	5	5
Assumed future pay raise, %	2-3.5	2-3
Assumed increase in pensions, %	0.25-2	0.25-2

The Group forecasts that it will pay EUR 0.5 million to defined benefit pension plans in 2010.

68 Vacon | Annual Report 2009

Vacon | Annual Report 2009 69

27. Interest-bearing liabilities

Non-current financial liabilities measured at amortized acquisition cost

EUR thousand	2009	2008
Bank loans	12,408	15,807
Total	12,408	15,807

Interest-bearing non-current liabilities by currency

EUR thousand	2009	2008
EUR-denominated	8,012	8,095
USD-denominated	4,396	7,712
Total	12,408	15,807

Current financial liabilities measured at amortized acquisition cost

EUR thousand	2009	2008
Repayment of bank loans in following year	3,054	3,269
Other loans	3,330	8,974
Total	6,384	12,243

Interest-bearing current liabilities by currency

EUR thousand	2009	2008
EUR-denominated	1,838	7,817
USD-denominated	3,016	3,714
CNY-denominated	1,525	0
CZK-denominated	5	712
Total	6,384	12,243

28. Trade and other payables

EUR thousand	2009	2008
Financial liabilities measured at amortized acquisition cost
Trade payables	20,771	19,411
Other current liabilities	2,113	2,892
Total	22,884	22,303
Financial liabilities recognized at fair value through profit and loss
Derivative contracts in hedge accounting	292	123
Total	292	123
Advance payments received	1,695	1,450
Salary and personnel expenses	6,453	8,538
Other accrued expenses	4,768	5,200
Total	12,916	15,188

29. Provisions

EUR thousand	Warranty provision
Jan 1, 2009	1,555
Increase in provisions	1,920
Used provisions	-1,555
Dec 31, 2009	1,920

The Group issues a warranty for its products. Any defects discovered during the warranty period will be repaired at the company's expense or the customer will be provided with a corresponding product. The warranty provision is based on experience of faulty products in earlier years. The warranty provision is expected to be used during the following year.

30. Risks and risk management

Risk management supports Vacon's growth

The Vacon Group's risk management is part of the management process for the company's business operations. Risk management aims to ensure that business objectives are met and the continuity of business operations is secured. The risk management function assesses the risks to which the business operations of the Vacon Group are exposed, defines the risk management principles for the whole Group, and develops risk management procedures and insurance schemes.

The company's Board of Directors approves the risk management operating policies to be used and is aware of the key risks to the company. Vacon's Management Team assesses risk management, revises, if necessary, risk reporting, and reports to the Board on the company's key risks.

The company's VP, Finance and Control, monitors and develops risk management procedures. In addition, he supports the introduction of risk management and monitors risk reporting. He is also responsible for ensuring that Vacon's risk management complies with the company's corporate governance principles.

Vacon Group's risk management is proactive and aims to take all fundamental risks into account. The underlying principle is that risk management is spread throughout all levels of the organization. Every employee is encouraged to identify risks, assess them, and report them. Employees are expected to report any risks either to their immediate superior or to the Group's Vice President, Finance and Control.

The company's risk policy is explained to the entire personnel and also forms part of the initial training for new employees. More information about risk management is available for employees on, for example, the Group's intranet site.

Vacon has defined six objectives in its risk management policy, and all decision-making aims to achieve them:

Ensuring the safety of Vacon's personnel and customers and third parties.
Ensuring the safety and high quality of the company's products and operating methods.
Complying with local and international laws, regulations, and recommendations.
Ensuring awareness of risks and that they are taken into account in decision-making.
Ensuring the continuity of business operations and sustainable growth.
Protecting Vacon's brand and reputation.

As part of the annual strategy process, the risk survey is updated. Risks are assessed and ranked in priority on the basis of three main criteria: the seriousness of the risk, the likelihood of the risk, and the current level of risk management for each identified risk. When updating the survey, the risks are classified as external or internal risks and as strategic, operational, asset, or financing risks.

In 2005, Vacon Plc carried out an extensive survey of risks, led by an expert in risk management, and on the basis of this survey the company revised its risk management policy. In accordance with this policy, the risk survey is updated as part of the strategy process. The most recent update was carried out in 2008. Vacon has defined several potential risks that may have an impact on future profitability and development. The most significant of these are:

The risk that Vacon's products or operations cause injury to its personnel or damage to the property of customers or third parties and thus endanger the continuation of their business operations.
The risk that Vacon's R&D fails or development projects for new products are delayed or products fail to meet customer requirements in terms of performance or price/quality ratio.
The risk that an unexpected accident endangers the delivery capability of Vacon's factories.
The risk that, due to an unexpected accident, financial situation or problems with capacity, Vacon's main suppliers, component and software suppliers are unable to deliver their products on time and in accordance with agreed quality criteria.
The risk that, during the manufacturing process and testing of a product, its components or software, a quality defect is not noticed resulting in a major increase in quality costs or the recall of all the supplied products.
The risk that continuous competition and R&D investments by competitors in the AC drive market cause greater selling price erosion than anticipated or even the loss of key Vacon customer accounts.
The risk that as demand rises, the global market prices for certain materials and components rise more sharply than expected.
The risk that exchange rates change strongly in relation to each other.

A few risks are examined and analyzed separately below.

Management of business risks

Administrative risk

Vacon has operations worldwide. It has subsidiaries, branch offices, or representatives in 27 countries and manufacturing operations in Finland, China, the USA, and Italy. For this reason, it is important that the Group has clear administrative guidelines. The company has defined the Group's administrative guidelines with different functions that have different tasks and duties.

The objective of these is to ensure that all major matters and decisions are consistent and in line with the company's objectives.

Risks relating to business operations, sales, and result

The risks relating to markets, products, customers, goods suppliers, and components are monitored regularly as part of normal business processes. These risks are also assessed and monitored as part of the Group's strategy processes.

Supplier risk

Vacon is dependent for its materials and components on its suppliers and their ability to supply products at the right time and in accordance with agreed quality criteria. On average, 55% of the Group's total costs are for components and materials: see the table 'Breakdown of costs and revenues'. This and the ability of suppliers to expand their own capacity may create a risk for Vacon.

For the sake of efficient logistics and the investments made, it is essential that suppliers are able to meet quality and environmental requirements and supply goods at the right time. For this reason, suppliers, their products, and other services are monitored regularly. All the company's suppliers are audited at least once every two years.

Breakdown of costs and revenues Jan 1 – Dec 31, 2009

	% of total costs	% of revenues
Materials	54.66%	50.13%
Services	1.09%	1.00%
Delivery costs and commissions	2.55%	2.34%
Employee benefit related expenses	21.47%	19.69%
Sales and marketing expenses	3.51%	3.22%
Rents	3.11%	2.85%
Administrative expenses	5.17%	4.74%
Other income and expenses	4.59%	4.21%
Depreciation/amortization	3.85%	3.53%
Total	100.00%	91.71%

Vacon | Annual Report 2009

Asset and liability risks

Vacon Plc aims to prevent damage with proactive risk management actions. It is particularly important to protect production plants. Vacon Plc has taken out global insurance schemes against property, business interruption, transport, and liability risks. The Group's parent company administers all the global insurance schemes relating to the company's operations. Management of other insurance is spread among the different companies.

Management of financial risks

The Group is exposed to several financial risks in its normal business operations. The objective of risk management in the Group is to minimize the harmful impact of changes on the Group's financial result. The Board of Directors of the parent company approves the Group's general principles for risk management, and the finance function at the Group's parent company is responsible for their practical implementation. The finance function identifies and assesses risks and obtains the instruments required to protect against the risks. Hedging transactions are carried out in accordance with the written risk management principles approved by Group management. The Group uses foreign exchange forwards, foreign currency loans, and interest rate swaps in its risk management. Derivative contracts are signed for hedging purposes, and hedge accounting, as defined in IFRS, is applied to them when they hedge the cash flow from operations. Hedge accounting is not applied to derivative contracts that protect net investments.

Foreign exchange risk

The company has business operations in 27 countries. The Group supplies its products and services directly and through partners to a total of more than 100 countries. This means that the Group is exposed to foreign exchange risks arising from exports and imports, from internal transactions, financing for non-Finnish subsidiaries, and currency-denominated shareholders' equity.

The Group's biggest currency risks, however, arise from exports and imports. The Group's biggest invoicing currency, apart from the euro, is the US dollar, which accounts directly or indirectly for some 17.0% of the Group's invoicing. The other invoicing currencies are the Swedish krona, the Norwegian krone, the Danish krone, the British pound, the Russian rouble, the Czech koruna, the Chinese renminbi, the Indian rupee, the Australian dollar, the Canadian dollar, the Mexican peso, and the Arab Emirates dirham. Of these, the Asian currencies account for approximately 12.8% of the Group's invoicing and the European non-euro currencies for 11.4%. Invoicing directly related to the euro thus accounted for 58.8% in 2009. Currency-linked purchases in the Group account for approximately 26% of revenues.

In accordance with the Group's finance policy, money transactions between the Group's parent company and subsidiaries are made in the subsidiary's unit of accounting. This being the case, transaction risk focuses almost entirely on the Group's parent company, and thus the Group's non-Finnish subsidiaries are not exposed to any significant transaction risk. In accordance with the Group's finance policy, binding delivery and purchase contracts are hedged in full. In addition, forecasted currency-denominated cash flows in the parent company are hedged for six months for about 70% of the estimated cash flow. Vacon has foreign currency denominated assets and liabilities on the balance sheet, such as foreign currency loans, trade receivables and payables, and cash flows in currencies other than the Group's unit of accounting. The main principle is to hedge in full against this balance sheet risk. The hedging instruments used are foreign exchange forwards.

The tables below show the transaction positions in the Group's main currencies.

2009, EUR thousand	USD	GBP	SEK	NOK	AUD	CZK	DKK	CNY
Forecast items	6,688	1,016	2,033	458	214	664	1,189	-353
Assets	15,887	1,203	750	307	2,188	1,467	593	-3,160
Liabilities	-7,217	-7	-34	-2	-3	-5	-0	2,337
Hedging	-9,093	-1,782	-1,853	-506	-2,280	-1,858	-1,209	0
Net position	6,264	429	896	258	119	268	573	-1,176
2008, EUR thousand	USD	GBP	SEK	NOK	AUD	CZK
---	---	---	---	---	---	---
Forecast items	5,099	870	1,943	409	16	464
Assets	15,991	1,757	1,088	151	1,209	323
Liabilities	-11,404	-89	-1	-6	0	0
Hedging	-8,623	-1,893	-2,208	-422	-811	-327
Net position	1,063	645	822	132	413	460

Vacon | Annual Report 2009

The table below shows the effect of the euro strengthening or weakening by 10% against the US dollar, British pound, Swedish krona, Norwegian krone, Australian dollar, Czech koruna, Danish krone, and Chinese renminbi when all other factors remain unchanged. The sensitivity analysis is based on the foreign currency denominated assets and liabilities on the balance sheet date. The sensitivity analysis also takes into account the effect of foreign currency derivatives that net the impact of changes in exchange rates.

Transaction risk	Strengthening of euro, 10%		Weakening of euro, 10%
Dec 31, 2009, EUR thousand	Equity	Profit for period	Equity	Profit for period
USD	72	-33	-87	40
GBP	53	19	-64	-1
SEK	89	15	-108	-18
NOK	18	0	-22	0
AUD	8	0	-10	0
CZK	36	0	-43	-1
DKK	49	7	-60	-9
CNY	0	75	0	-91
Transaction risk	Strengthening of euro, 10%		Weakening of euro, 10%
---	---	---	---	---
Dec 31, 2008, EUR thousand	Equity	Profit for period	Equity	Profit for period
USD	68	299	-83	-365
GBP	16	6	-19	-6
SEK	92	10	-112	-12
NOK	19	7	-23	-8
AUD	0	-36	0	44
CZK	0	0	0	0

The translation position consists of investments in non-Finnish subsidiaries. The general principle is not to hedge the translation position, but Vacon may try to reduce the variation in the amount of the Group's shareholders' equity as a result of the translation risk with hedging transactions. The Group's Board of Directors decides on the hedging policy. The most significant exchange rate risks relating to foreign net investments come from the equity of the subsidiaries in the USA and China.

The table below shows the Group's most significant translation position.

EUR thousand	Translation position Dec 31, 2009, USD	Translation position Dec 31, 2008, USD
Capital invested	7,774	8,048
Net position	7,774	8,048

Interest rate risk

Changes in the level of market interest rates can affect the Group's financing costs, the revenue from financial investments, and the valuation of financial derivative instruments. The Group's gearing and balance sheet structure are such that interest rate risk is low. The Group hedges against interest rate risks through its choice of interest rate periods for loans. The Group's Board of Directors decides on the hedging policy and this is implemented by the finance function.

The total amount of credit on the balance sheet date was EUR 17.0 million, and this was 100% variable interest rate (December 31, 2008: EUR 19.1 million and 100% variable interest rate). Loans have been converted to fixed interest rate loans with interest rate swaps. On the balance sheet date, the Group had open euro- and dollar-denominated interest rate swaps to the value of EUR 11.9 million. Hedge accounting is not applied to interest rate swaps.

The average interest rate for the loans is 0.8%. The loan agreements contain normal covenant terms.

The table below shows the impact on the result of a one percentage point change in interest rates.

Interest rate sensitivity, EUR thousand	Dec 31, 2009	Dec 31, 2008
Interest rate rises, 1%-point
Variable interest loans	-154	-189
Interest rate swaps	119	149
Net impact on result	-35	-40
Interest rate falls, 1%-point
Variable interest loans	59	189
Interest rate swaps	-38	-149
Net impact on result	21	40

72 Vacon | Annual Report 2009

Customer credit risks

Credit risks relating to commercial operations are primarily the responsibility of the operative units. A credit policy has been defined for the sales organization that governs the delivery and payment terms granted to customers, how these are monitored, and the collection of payment. The parent company's finance function is to act as a centralized provider of services relating to customer finance and to monitor payment terms and the security demanded to ensure they comply with the principles of the finance policy.

Country risk is continuously monitored and limits are set for granting credit in areas where the political or financial situation is unstable. The risk is also reduced by using letters of credit and payments in advance. Some 87% of the Group's receivables are from OECD countries, which represent a low country risk. This figure is expected to fall by a few percentage points in the next few years as new sales companies are set up.

The Group has no major concentrations of credit risk for receivables since it has an extensive, geographically distributed customer base, and no single customer or customer group is significant for the Group. During the financial year, credit losses recognized in the income statement totaled EUR 0.9 million (EUR 0.2 million in 2008). The credit losses were due to an unexpected change in a customer's financial environment.

Breakdown of trade receivables by due date, EUR thousand	2009	2008
Not yet due	36,186	38,189
1–90 days after due date	8,569	11,753
91–180 days after due date	569	4,104
181–270 days after due date	71	301
271–365 days after due date	65	82
Over 365 days after due date	0	56
Total	45,460	54,486

When the Group invests cash funds and enters into derivatives contracts, it only accepts as counterparty partner banks that are specified in the finance policy, meet creditworthiness terms, and are approved by the Board of Directors.

Liquidity risk

The Group continually assesses and monitors the amount of financing required by operations so that the Group has sufficient liquid funds to finance operations and to repay

loans as they mature. The Group maintains immediate liquidity with cash management solutions such as Group accounts and bank credit facilities. The amount of unused committed credit facilities on December 31, 2009, was EUR 27.9 million. Surplus liquid funds are invested in partner banks. Liquid funds on December 31, 2009, totaled EUR 17.2 million.

The following table shows a maturity analysis based on the contracts made. The figures are not discounted and include interest payments and repayment of capital.

Dec 31, 2009, EUR thousand	Carrying amount	Cash flow	Less than 1 year	1–2 years	2–5 years
Bank loans	17,042	-17,317	-4,746	-2,783	-9,788
Trade payables and other short-term debts	22,884	-22,884	-22,884
Financial commitments		-266	-150	-116
Check credit facility	1,750	-1,750	-1,750
Total	41,676	-42,217	-29,530	-2,899	-9,788
Foreign exchange forwards in hedge accounting
- Payable cash flows		-18,583	-18,583
- Receivable cash flows		18,260	18,260
Interest rate swaps	479	-641	-416	-165	-60
Total	479	-964	-739	-165	-60
Contracts of suretyship		-2,442	-2,442
Dec 31, 2008, EUR thousand	Carrying amount	Cash flow	Less than 1 year	1–2 years	2–5 years
---	---	---	---	---	---
Bank loans	19,077	-20,615	-3,753	-3,770	-13,092
Trade payables and other short-term debts	22,303	-22,303	-22,303
Financial commitments		-526	-150	-150	-226
Check credit facility	8,974	-8,974	-8,974
Total	50,354	-52,418	-35,180	-3,920	-13,318
Foreign exchange forwards in hedge accounting
- Payable cash flows		-14,284	-14,284
- Receivable cash flows		15,086	15,086
Interest rate swaps	711	-799	-355	-266	-178
Total	711	3	447	-266	-178
Contracts of suretyship		-387	387

Vacon | Annual Report 2009

74 Vacon | Annual Report 2009

Equity management

The purpose of the Group's capital management is to support business operations through an optimal capital structure by ensuring normal conditions and increasing shareholder value with the aim of the best possible profits. The optimal equity structure also ensures the small cost of capital. Most of the Group's growth is organic, but Vacon does not exclude the possibility of acquisitions. Organic growth is financed by cash flow from operations and, in the case of further acquisitions, the gearing target is a maximum of 60%.

The Group's equity structure is monitored continuously with gearing, for which a strategic target level has been set. The Group's interest-bearing net liabilities at the end of 2009 totaled EUR 1.6 million (December 31, 2008: EUR 12.3 million) and gearing was 2.0% (16.3%). Gearing is calculated by dividing interest-bearing liabilities by shareholders' equity. Net liabilities include interest-bearing liabilities less cash in hand and at bank.

Gearing was as follows:

EUR thousand	2009	2008
Interest-bearing liabilities	18,792	28,051
Cash and cash equivalents	-17,172	-15,715
Net liabilities	1,620	12,336
Shareholders' equity, total	81,343	75,494
Net gearing, %	2.0	16.3

31. Operating leases

EUR thousand	2009	2008
Minimum rents for irrevocable operating leases:
In one year	7,096	6,188
In more than one and less than five years	23,164	18,046
In more than five years	18,898	12,504
Total	49,158	36,738

32. Collateral and contingent liabilities

EUR thousand	2009	2008
For own debt/commitment
Guarantees	2,442	387

33. Other commitments

EUR thousand	2009	2008
Financial commitment in capital investment funds	266	643

34. Transactions with related parties

Vacon Group has a related party relationship with its associated companies, Board members, the parent company's President and CEO, the Management Team and their immediate families, and companies in which the said persons have a controlling interest or in which they exercise significant control.

The Group's control in its parent company and subsidiaries is as follows:

Parent company Vacon Plc, Vaasa, Finland	Group holding [%]	Group votes [%]
Vacon GmbH, Essen, Germany	100.00	100.00
Vacon Benelux B.V., Gorinchem, the Netherlands	100.00	100.00
Vacon SpA, Reggio Emilia, Italy	100.00	100.00
Vacon Drives Ibérica S.A., Terrassa, Spain	100.00	100.00
Vacon Drives (UK) Ltd, Leicestershire, UK	70.00	70.00
Vacon AB, Solna, Sweden	100.00	100.00
Vacon AT Antriebssysteme GmbH, Leobersdorf, Austria	70.00	70.00
ZAO Vacon Drives, Moscow, Russia	100.00	100.00
Vacon France SAS, Saint Pierre du Perray, France	70.00	70.00
Vacon AS, Holmestrand, Norway	80.00	80.00
Vacon Benelux NV/Sa, Heverlee, Belgium	100.00	100.00
Vacon Suzhou Drives Co. Ltd., Suzhou, China	100.00	100.00
Vacon Drives & Control Pvt Ltd, Chennai, India	100.00	100.00
Vacon Pacific Pty Ltd, Melbourne, Australia	92.50	92.50
Vacon Inc., Chambersburg, PA, USA	100.00	100.00
Vacon s.r.l., Naturns, Italy	100.00	100.00
TB Woods (India) Pvt. Ltd., Bangalore, India	100.00	100.00
Vacon s.r.o., Prague, Czech Republic	100.00	100.00
Vaasa Control de Mexico, Mexico City, Mexico	100.00	100.00
Vacon Drives A/S, Sønderborg, Denmark	100.00	100.00
Vacon Korea Ltd, Seoul, South Korea	100.00	100.00
Vacon Canada Inc, Stratford, Ontario, Canada	100.00	100.00
Vacon America Latina Ltda, São Paulo, Brazil	100.00	100.00

Management cash-based employment benefits:

EUR thousand	2009	2008
Salaries and other short-term benefits	2,059	2,069
Benefits to be paid on dismissal	1,538	1,326
Post-employment benefits	598	365
Share-based benefits	566	1,214
Total	4,761	4,974

Management salaries and fees:

EUR thousand	2009	2008
Laisi Vesa, President and CEO	479	613
Hiltunen Heikki, Executive Vice President	388	491
Board members:
Inborr Jan, Chairman	57	66
Ahlqvist Pekka	28	33
Eklund Jari	28	33
Heikkinen Kalle	17	33
Holma Mauri	28	33
Karppinen Veijo, Vice Chairman	28	33
Vehviläinen Mika	11	0
Viitala Riitta	28	11
Total	1,092	1,346

The retirement age of the parent company's President and CEO is 60 years. The company has taken out a pension insurance for the President and CEO, on the basis of which the pension to be paid is 60% of the salary that the pension is based on. The pension ends when the President and CEO turns 65. The salary that the pension is determined on is based on the average monthly salary calculated from the TyEL employee pension earnings basis from the last four years. The members of the Management Team have an equivalent pension age and pension insurance.

Vacon | Annual Report 2009 75

PARENT COMPANY'S FINANCIAL STATEMENTS

76 Vacon | Annual Report 2009

INCOME STATEMENT OF THE PARENT COMPANY (FAS)

EUR thousand	Note	Jan 1–Dec 31, 2009	%	Jan 1–Dec 31, 2008	%
Revenues	2	206,272	100.0	227,291	100.0
Change in inventories of finished goods and work in progress		-738		28
Other operating income	3	264		192
Materials and services
Materials and consumables
Purchases during the financial year		-115,424		-131,068
Change in inventories		-1,110		1,158
External services		-2,097		-3,023
		-118,631	-57.5	-132,933	-58.5
Personnel expenses	4	-32,238		-31,697
Depreciation/amortization	7	-4,988		-3,552
Other operating expenses		-38,063		-36,941
Operating profit		11,879	5.8	22,388	9.8
Financial income and expenses	9	3,907		1,193
Profit before appropriations and taxes		15,786	7.7	23,581	10.4
Appropriations	10	-998		-853
Income taxes	11	-2,998		-5,479
Profit for period		11,790	5.7	17,250	7.6

Vacon | Annual Report 2009

BALANCE SHEET FOR THE PARENT COMPANY (FAS)

Assets, EUR thousand	Note	Dec 31, 2009	%	Dec 31, 2008	%
Fixed assets
Intangible assets	12
Intangible rights		5,310		5,762
Other long-term expenditure		1,008		861
		6,318	5.7	6,623	5.7
Tangible assets	13
Land and water areas		132		132
Machinery and equipment		10,396		9,666
Other tangible assets		42		42
Construction in progress		1,178		994
		11,748	10.7	10,834	9.4
Investments	14
Investments in Group companies	15	14,655		13,617
Receivables from Group companies		18,067		18,506
Other shares and investments		3,280		3,021
Other receivables		196		191
		36,197	32.9	35,335	30.6
Total fixed assets		54,263	49.3	52,792	45.8
Current assets
Inventories
Materials and consumables		3,911		5,021
Finished goods		3,031		3,769
		6,942	6.3	8,790	7.6
Short-term receivables	16
Trade receivables		37,899		45,129
Loan receivables		1,612		1,580
Other receivables		1,813		1,573
Prepaid expenses and accrued income	17	991		2,184
		42,315	38.4	50,465	43.8
Cash and cash equivalents		6,654		3,253
Total current assets		55,911	50.7	62,509	54.2
Assets		110,174	100.0	115,301	100.0
Equity and liabilities, EUR thousand	Note	Dec 31, 2009	%	Dec 31, 2008	%
---	---	---	---	---	---
Equity	18,19
Share capital		3,059		3,059
Share premium		4,966		4,966
Retained earnings		38,686		31,312
Profit for period		11,790		17,250
		58,502	53.1	56,587	49.1
Accumulated appropriations
Depreciation difference	20	4,361	4.0	3,363	2.9
Liabilities	21
Long-term liabilities
Loans from financial institutions		12,296		15,612
		12,296	11.2	15,612	13.5
Short-term liabilities
Loans from financial institutions		4,553		11,068
Advance payments received		1		137
Trade payables		17,365		16,846
Other current liabilities		4,433		1,547
Provisions		1,609		1,211
Accrued expenses and deferred income	22	7,054		8,930
		35,015	31.8	39,738	34.5
Total liabilities		47,312	42.9	55,350	48.0
Total equity and liabilities		110,174	100.0	115,301	100.0

Vacon | Annual Report 2009

CASH FLOW STATEMENT FOR THE PARENT COMPANY (FAS)

EUR thousand	Jan 1-Dec 31, 2009	Jan 1-Dec 31, 2008
Cash flow from operating activities
Profit for period	11,790	17,250
Adjustments:
Depreciation/amortization	4,988	3,552
Financial income and expenses	-3,907	-1,193
Appropriations	998	853
Taxes	2,998	5,479
Other adjustments	317	57
	17,184	25,996
Changes in working capital
Change in current receivables	7,881	-8,786
Change in inventories	1,848	-1,186
Change in non-interest-bearing liabilities	-717	2,890
	9,013	-7,082
Interest received	475	1,130
Interest paid	-835	-1,364
Dividends received	3,647	2,368
Other financial items	108	-50
Taxes paid	-3,187	-6,150
Cash flow from operating activities	26,406	14,848
EUR thousand	Jan 1-Dec 31, 2009	Jan 1-Dec 31, 2008
---	---	---
Cash flow from investing activities
Investments in tangible and intangible assets	-5,596	-5,274
Proceeds from the disposal of tangible and intangible assets	0	429
Loans granted	-1,492	-7,817
Other investments	-2,191	-3,271
Repayments on loan receivables	2,209	9,084
Proceeds from the divestiture of other investments	579	529
Cash flow from investing activities	-6,492	-6,319
Cash flow from financing activities
Withdrawals (+) and instalments (-) of long-term loans	-3,076	-3,735
Increase (+) or decrease (-) in short-term financing	-3,562	7,379
Purchase of own shares	0	-1,475
Dividends paid	-9,876	-11,424
Cash flow from financing activities	-16,514	-9,255
Change in liquid funds	3,400	-726
Liquid funds at the beginning of the period	3,253	3,979
Liquid funds at the end of the period	6,654	3,253

Vacon | Annual Report 2009

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

1. Accounting principles for financial statements

General accounting principles

The financial statements of Vacon Plc have been prepared and presented in accordance with the Finnish Accounting Standards (FAS) and other laws and regulations in force in Finland.

When preparing the financial statements, the company's management is required by the regulations in force and good accounting practice to make assessments and assumptions that affect the valuation and allocation of the financial statement items. Although the assessments are based on the latest available information, the final figures may differ from these assessments.

Revenues

Sales are recognized in connection with the transfer of ownership-related risks and benefits to the buyer. Usually, sales are recognized at the date of delivery. Sales adjustment items include cash discounts as well as exchange rate gains and losses on sales.

Long-term projects are partially recognized as income for the financial period in cases that involve fixed-price contracts the outcome of which can be reliably assessed. The percentage-of-completion required in long-term projects is measured from the share of the to-date costs of the estimated total costs of the project, i.e. using the cost-to-cost method. If it is likely that the overall costs of the project will exceed the overall income, the expected losses are immediately recognized as expenses.

Other operating income

Items booked as other operating income are gains on the sale of assets, subsidies received, and other regular income not related to sales of goods, or services such as rents.

Foreign currency items

Business transactions in foreign currencies are recorded at the exchange rates on the transaction date. Receivables and payables on the balance sheet date are measured at the average exchange rate on the balance sheet date. Exchange rate differences associated with sales and purchases are recorded as adjustments to these items. Exchange rate gains and losses related to financial operations are recorded under financial income and expenses.

Derivative contracts

Foreign currency items are hedged with forward contracts. Open hedging instruments for foreign currency items are measured at fair value on the balance sheet date and recorded under sales adjustment items or financial items, based on the item to be hedged, in the income statement. Interest rate derivatives are used to manage interest rate exposure. Interest swaps are measured on the basis of the interest rates of the balance sheet date. The accounting principles for the consolidated financial statements contain more details about the use of financial instruments.

Pension arrangements

Statutory and any supplementary pension obligations are covered through payments to pension insurance companies and recorded as determined by periodical actuarial calculations prepared by those institutions.

Leasing and rental liabilities

Leasing payments are treated as rent expenses. Unpaid leasing and rental fees are recorded under leasing and rental liabilities in the notes to the parent company financial statements.

Income taxes

The company's taxes include taxes paid and accrued corresponding to the financial result for the period on the basis of taxable income calculated in accordance with Finnish tax regulations, and adjustments to taxes from previous financial periods.

Research and development costs

Research and development costs are recorded under expenses. R&D grants received are entered as deductions under the relevant items. The accounting principles for the consolidated financial statements have more details about capitalizing R&D expenses.

Fixed assets and depreciation

Fixed assets are measured on the balance sheet at their original acquisition cost less accumulated planned depreciation. Planned depreciation is calculated on a straight-line basis on the original acquisition cost, based on the estimated useful economic life. The depreciation schedule in accordance with the consolidated accounting principles is as follows:

Intangible assets ...3–8 years
Machinery and equipment ...3–15 years
Other tangible assets ...5–10 years

Investments

Long-term investments are measured at acquisition cost. When disposing of a long-term asset, the difference between sales price and current balance sheet value is recognized as an expense or income.

Investments in subsidiaries are measured at acquisition cost on the balance sheet. Investments in associated companies are presented as other long-term investments on the balance sheet. Associated companies are companies in which Vacon has 20–50% of the voting rights or in which Vacon has a significant but not controlling interest. During the 2009 financial year, Vacon had no investments in associated companies.

Vacon | Annual Report 2009

Vacon | Annual Report 2009 81

Inventories

Inventories are measured at the acquisition cost or the net realizable value, whichever is lower. The acquisition cost has been determined using the FIFO method. The acquisition cost of finished goods and work in progress includes raw materials, direct salaries, and other direct expenses as well as the appropriate share of indirect production costs, excluding interest expenses. When applying the lowest value principle, the value is based on the estimated sales price in ordinary activities less the costs associated with the sale of products.

Provisions

Dividends and own shares

Dividends proposed by the Board of Directors are not recorded in the financial statements until they have been approved by the Annual General Meeting.

When purchasing the company's own shares, the amount paid for them and the direct purchase costs are recorded as a decrease in shareholders' equity.

2. Revenues

Revenues are divided into three geographical market areas: EMEA (Europe, the Middle East and Africa), the Americas (North and South America), and APAC (Asia and the Pacific). Revenues are divided according to the location of customers.

EUR thousand	2009	2008
Revenues by market area
EMEA	149,223	164,934
Americas	37,152	45,938
APAC	19,897	16,418
Total	206,272	227,291
Projects recognized using the percentage-of-completion method
Revenue recognized as income	45	91
Accumulated revenue from uncompleted projects	0	567
Amount not recognized as income from uncompleted projects	0	45

3. Other operating income

EUR thousand	2009	2008
Rental income	252	140
Damages income	0	26
Other	12	26
Total	264	192

4. Personnel expenses

EUR thousand	2009	2008
Wages, salaries and bonuses	-26,182	-25,602
Pension costs	-4,266	-4,078
Other personnel costs	-1,789	-2,017
Total	-32,238	-31,697
Management salaries and fees
President and his deputy	-867	-1,105
Members of Board of Directors	-227	-243
Total	-1,095	-1,348

Salaries and fees of the President and CEO, his deputy and Board members are presented in Note 34 to the Consolidated Financial Statements.

5. Average number of personnel

	2009	2008
Office personnel	326	313
Factory personnel	340	318
Total	666	631

6. President and CEO's pension commitments

The retirement age of the parent company's President and CEO is 60 years (see page 75).

82 Vacon | Annual Report 2009

7. Depreciation and impairment

EUR thousand	2009	2008
Intangible assets	-2,246	-1,425
Tangible assets	-2,743	-2,126
Total planned depreciation	-4,988	-3,552

8. Auditor's fees

EUR thousand	2009	2008
Audit fees	35	29
Tax consulting	16	7
Other services	14	25

9. Financial income and expenses

EUR thousand	2009	2008
Dividend income from Group companies	3,647	2,368
Interest and other financial income
From Group companies	436	944
From others	278	186
Total	715	1,130
Reversal of impairment loss of long-term investments	579	0
Interest income and financial income, total	4,941	3,497
Interest expenses and other financial expenses
From Group companies	0	-266
From others	-1,034	-2,038
Total	-1,034	-2,304
Financial income and expenses, total	3,907	1,193
The item 'Interest income and financial income' includes exchange rate gains (net)	240	35

10. Appropriations

EUR thousand	2009	2008
The difference between planned depreciation and depreciation presented for taxation	-998	-853

11. Income taxes

EUR thousand	2009	2008
Direct taxes for current year	-2,762	-5,407
Direct taxes for previous years	-162	-48
Other taxes and similar payments	-74	-24
Total	-2,998	-5,479

12. Intangible assets

EUR thousand	Intangible rights	Other long-term expenditure	Total 2009	Total 2008
Acquisition cost, Jan 1	10,262	1,032	11,294	7,688
Increases	1,666	274	1,940	3,606
Acquisition cost, Dec 31	11,929	1,306	13,234	11,294
Accumulated amortization, Jan 1	-4,500	-171	-4,671	-3,246
Amortization for the financial year	-2,119	-127	-2,246	-1,425
Accumulated amortization, Dec 31	-6,619	-298	-6,917	-4,671
Carrying amount, Dec 31, 2009	5,310	1,008	6,318
Carrying amount, Dec 31, 2008	5,762	861		6,623

Intangible assets

EUR thousand	Land and water areas	Machinery and equipment	Advance payments and construction in progress	Other tangible assets	Total 2009	Total 2008
Acquisition cost, Jan 1	132	26,320	994	42	27,488	25,821
Increases		3,472	1,061		4,533	4,879
Decreases			-877		-877	-3,212
Acquisition cost, Dec 31	132	29,792	1,178	42	31,144	27,488
Accumulated amortization, Jan 1		-16,654			-16,654	-14,528
Amortization for the financial year		-2,743			-2,743	-2,126
Accumulated amortization, Dec 31	0	-19,396	0	0	-19,396	-16,654
Carrying amount, Dec 31, 2009	132	10,396	1,178	42	11,748
Carrying amount, Dec 31, 2008	132	9,666	994	42		10,834
Carrying amount of production machinery and equipment Dec 31, 2009		9,954
Carrying amount of production machinery and equipment Dec 31, 2008		9,048

Investments

EUR thousand	Investments in Group companies	Other shares and investments	Total 2009	Total 2008
Shares, Jan 1	13,617	3,021	16,637	14,290
Increases	1,052	259	1,311	3,250
Decreases	-14		-14	-902
Carrying amount, Dec 31	14,655	3,280	17,935	16,637
EUR thousand	Receivables from Group companies	Other receivables	Total 2009	Total 2008
---	---	---	---	---
Receivables, Jan 1	18,506	191	18,697	19,537
Increases	1,492	580	2,072	7,791
Decreases and transfers between items	-1,932	-575	-2,506	-8,631
Carrying amount, Dec 31	18,067	196	18,263	18,697
Total investments at end of year			36,197	35,335

Vacon | Annual Report 2009 83

84 Vacon | Annual Report 2009

15. Shareholdings

	Parent company holding (%)	Parent company votes (%)
Group companies
Vacon GmbH, Essen, Germany	100.00	100.00
Vacon Benelux B.V., Gorinchem, the Netherlands	100.00	100.00
Vacon SpA, Reggio Emilia, Italy	100.00	100.00
Vacon Drives Ibérica S.A., Terrassa, Spain	100.00	100.00
Vacon Drives (UK) Ltd, Leicestershire, UK	70.00	70.00
Vacon AB, Solna, Sweden	100.00	100.00
Vacon AT Antriebssysteme GmbH, Leobersdorf, Austria	70.00	70.00
ZAO Vacon Drives, Moscow, Russia	100.00	100.00
Vacon France SAS, Saint Pierre du Perray, France	70.00	70.00
Vacon AS, Holmestrand, Norway	80.00	80.00
Vacon Benelux NV/Sa, Heverlee, Belgium	99.00	99.00
Vacon Suzhou Drives Co. Ltd., Suzhou, China	100.00	100.00
Vacon Drives & Control Pvt Ltd, Chennai, India	100.00	100.00
Vacon Pacific Pty Ltd, Melbourne, Australia	92.50	92.50
Vacon Inc., Chambersburg, PA, USA	100.00	100.00
Vacon s.r.l., Naturns, Italy	100.00	100.00
TB Woods (India) Pvt. Ltd., Bangalore, India	100.00	100.00
Vacon s.r.o., Prague, Czech Republic	100.00	100.00
Vaasa Control de Mexico, Mexico City, Mexico	100.00	100.00
Vacon Drives A/S, Sønderborg, Denmark	100.00	100.00
Vacon Korea Ltd, Seoul, South Korea	100.00	100.00
Vacon Canada Inc, Stratford, Ontario, Canada	100.00	100.00
Vacon America Latina Ltda, São Paulo, Brazil	100.00	100.00

16. Current receivables

EUR thousand	2009	2008
Receivables from Group companies
Trade receivables	18,033	20,493
Loan receivables	515	382
Total	18,548	20,875
Receivables from others
Trade receivables	19,866	24,636
Short-term loan receivables	1,097	1,197
Other receivables	1,813	1,573
Prepaid expenses and accrued income	991	2,184
Total	23,768	29,590
Short-term receivables, total	42,315	50,465

17. Key items included in prepaid expenses and accrued income

EUR thousand	2009	2008
Foreign currency hedging	43	841
Subsidies	156	392
Share bonus receivables	130	280
Advances paid	654	655
Other	8	16
Total	991	2,184

Vacon | Annual Report 2009 85

18. Equity

EUR thousand	2009	2008
Share capital, Jan 1	3,059	3,059
Share capital, Dec 31	3,059	3,059
Share premium, Jan 1	4,966	4,966
Share premium, Dec 31	4,966	4,966
Retained earnings, Jan 1	48,562	44,212
Dividends paid	-9,876	-11,424
Purchase of own shares	0	-1,475
Retained earnings, Dec 31	38,686	31,312
Profit for period	11,790	17,250
Shareholders' equity, total	58,502	56,587

19. Calculation of distributable funds

EUR thousand	2009	2008
Retained earnings	38,686	31,212
Profit for period	11,790	17,250
Total	50,476	48,462

20. Accumulated appropriations

In the parent company, accumulated depreciation difference accounts for the accumulated appropriations.

21. Liabilities

EUR thousand	2009	2008
Long-term liabilities
Interest-bearing
Loans from financial institutions	12,296	15,612
Total	12,296	15,612
Long-term liabilities, total	12,296	15,612
Short-term liabilities
Interest-bearing
Loans from financial institutions	4,553	11,068
Liabilities to Group companies	3,870	917
Total	8,424	11,986
Non-interest-bearing
Advance payments received	1	137
Trade payables	15,157	15,088
Trade payables to Group companies	2,208	1,757
Other current liabilities	562	629
Warranty provisions	1,609	1,211
Accrued expenses and deferred income	6,987	8,881
Accrued debts to Group companies	67	49
Total	26,591	27,752
Short-term liabilities, total	35,015	39,738
Interest-bearing liabilities	20,720	27,598
Non-interest-bearing liabilities	26,591	27,752
Total liabilities	47,312	55,350

22. Key items included in accrued expenses and deferred income

EUR thousand	2009	2008
Salaries including social security costs	4,248	5,536
Taxes	43	96
Interest	485	756
Materials and consumables allocated to period	1,977	2,366
Others	301	126
Total	7,054	8,881

23. Currency derivatives

EUR thousand	2009	2008
Forward contracts
Changes in value entered in income statement	-249	719
Nominal amount	18,260	15,086
Interest rate swaps
Changes in value entered in income statement	-479	-711

Derivative contracts are used for hedging against currency and interest risks. The contracts mentioned above were open on the balance sheet date and mature during the financial period starting on January 1, 2010.

24. Collateral and contingent liabilities

EUR thousand	2009	2008
Guarantees
On behalf of Group companies	3,503	1,788
Amounts payable under leasing agreements
Payable in the following financial year	720	935
Payable later	856	516
Total	1,576	1,451
Payable amounts on rental agreements
Payable in the following financial year	2,814	2,902
Payable later	21,684	19,468
Total	24,498	22,370
Other commitments
Commitment on a subsidiary's debts	1,352	313
Financial commitments	266	643
Total	1,619	956

Vacon | Annual Report 2009

Vacon | Annual Report 2009 87

SIGNATURE FOR THE BOARD OF DIRECTORS' REPORT AND FINANCIAL STATEMENTS

Vaasa, February 3, 2010

Jan Inborr
Chairman

Pekka Ahlqvist

Jari Eklund

Mauri Holma

Veijo Karppinen

Mika Vehviläinen

Riitta Viitala

Vesa Laisi
President and CEO

AUDITOR'S REPORT

To the Annual General Meeting of Vacon Plc

We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Vacon Plc for the year ended on December 31, 2009. The financial statements comprise the consolidated balance sheet, consolidated income statement, statement of comprehensive income, statement of changes in equity, cash flow statement and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.

The Responsibility of the Board of Directors and the President and CEO

The Board of Directors and the President and CEO are responsible for the preparation of the financial statements and the report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company's financial statements and the report of the Board of Directors in accordance with laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the President and CEO shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.

Auditors' Responsibility

Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company's financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the report of the Board of Directors are free from material misstatement and whether the members of the Board of Directors of the parent company and the President and CEO have complied with the Limited Liability Companies Act.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements or of the report of the Board of Directors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements and the report of the Board of Directors in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.

The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion on the Consolidated Financial Statements

In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

Opinion on the Company's Financial Statements and the Report of the Board of Directors

In our opinion, the financial statements 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.

Opinion on the discharge from liability and disposal of distributable funds

The consolidated financial statements and the parent company's financial statements can be adopted and the members of the Board of Directors and the President and CEO of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is in compliance with the Limited Liability Companies Act.

Vaasa, February 3, 2010

KPMG OY AB

(signed)

Pekka Pajamo

Authorized Public Accountant

Vacon | Annual Report 2009

SHARES AND SHAREHOLDERS

Listing, trading and share capital

Vacon has one share series. The share is listed on the Mid Cap list of NASDAQ OMX Helsinki in its sector Industrials. At the end of 2009, Vacon Plc's market value was EUR 406.1 million excluding own shares owned by the company.

During 2009, a total of 4,493,871 company shares with a value of EUR 97.0 million were traded on the stock exchange. The highest share price during the year was EUR 28.90 and the lowest EUR 15.30. The closing price of December 31, 2009, was EUR 26.70.

Vacon's share capital is EUR 3,059,000, divided into 15,295,000 fully paid shares. Each share entitles the holder to one vote at the Annual General Meeting of shareholders.

Authorizations held by the Board of Directors

The Annual General Meeting held on April 1, 2009, authorized the Board of Directors to decide on the purchase of the company's own shares. The number of shares that may be purchased and disposed of shall be no more than 1,529,500, which corresponds to 10% of the total number of shares in the company. The shares will be repurchased in deviation from the shareholders' pre-emptive rights (directed repurchase of shares) as the repurchase of shares is executed by purchasing shares through public trading. Shares can be repurchased by the company at the market price prevailing at the time of the repurchase through such public trading. Shares may be purchased for the purpose of developing the capital structure of the company, implementing incentive programs for the company's key personnel, paying salaries or fees, financing potential corporate acquisitions or other transactions, or for such other purposes as the Board of Directors decides. The Board of Directors shall be authorized to decide on the manner and other conditions for the repurchase of the company's own shares. The authorization will be valid for eighteen (18) months from the date of the decision of the Annual General Meeting of Shareholders.

The Annual General Meeting held on March 28, 2007, authorized the Board of Directors to resolve to dispose of shares in the company held by the same in one or several installments through share issue. The maximum amount of own shares to be disposed of on the basis of the authorization is 1,529,500 shares. The authorization shall include the right of the Board of Directors to decide on all terms and conditions on which the shares shall be disposed of and the shares can, thus, be disposed of by derogation from the pre-emptive rights of the shareholders (directed share issue). The authorization will be valid for five (5) years from the date of the decision of the Annual General Meeting of Shareholders.

Treasury shares

At the end of 2009, the Vacon Group held a total of 85,011 treasury shares (101,812 at the end of 2008), corresponding to 0.6% of the total number of shares. At the end of 2009, the market value of these treasury shares was EUR 2.3 million.

Notices of changes

Vacon issued a notice of change in shareholding in accordance with Section 2, Article 10 of the Securities Market Act on February 23, 2009. The company announced that the holding of Ameriprise Financial, Inc. and companies it owned had grown to more than 5% of the total number of shares and votes in Vacon Plc.

Vacon issued a notice of change in shareholding in accordance with Section 2, Article 10 of the Securities Market Act on March 9, 2009. The company announced that the holding of Ameriprise Financial, Inc. and companies it owns had fallen below 5% of the total number of shares and votes in Vacon Plc.

Vacon issued a notice of change in shareholding in accordance with Section 2, Article 10 of the Securities Market Act on December 8, 2009. The company announced that the holding of Ahlström Capital Oy exceeded 20% of the total number of shares and votes in Vacon Plc.

No other notices of changes in shareholding were received in 2009.

Incentive schemes

Vacon's Board of Directors decided in January 2005 to introduce a share bonus scheme as part of the Group's program to motivate and commit key personnel. The earnings periods were the calendar years 2005, 2006, and 2007. The set targets were related to the strategic, sustainable growth objectives of the company, including revenues, operating profit (EBIT), and turnover of working capital. The earning periods of the share bonus scheme have ended and the last two-year long holding period ended at the end of 2009. Based on the incentive scheme, a total number of 51,948 Vacon Plc shares were handed out during three earning periods.

In February 2008, Vacon's Board of Directors decided to set up a new share bonus scheme to ensure the long-term motivation and commitment of the Group's management and key personnel. The duration of the share bonus scheme is three years, from 2008 to 2010. The Board of Directors will annually set the revenue, profit, and working capital turnover objectives that will determine the amount of the reward in accordance with the terms and conditions of the stock option scheme.

Additionally, Vacon has a bonus scheme for all personnel.

Vacon | Annual Report 2009

90 Vacon | Annual Report 2009

Dividend policy

The dividend policy adopted by Vacon's Board of Directors is to propose a dividend that is in line with the company's financial performance. The goal is to distribute approximately 50% of the period's net profit in dividends. When determining the dividend, the financing required for the growth of operations is taken into consideration. Vacon's Board of Directors has decided to propose to the Annual General Meeting to be held on March 23, 2010, that a dividend of EUR 0.70, or 69.0% of the Group's earnings per share, be paid for 2009.

Shareholders

On December 31, 2009, Vacon had a total of 5,114 shareholders. The number of shares owned by nominee registered investors decreased by 4.2 percentage points during the period under review. At the end of 2009, 28.9% of the company's shares was owned by nominee registered and foreign shareholders. Private persons owned 32.8% of the shares. Up-to-date information on Vacon's share price and ownership structure is available on Vacon's website at www.vacon.com.

Distribution of shareholding

Share distribution

Number of shares	Number of shareholders	% of shareholders	Number of shares	% of shares
1 – 50	857	16.8	26,889	0.2
51 – 100	933	18.2	84,931	0.6
101 – 500	2,401	46.9	623,869	4.1
501 – 1000	458	9.0	363,215	2.4
1001 – 5000	331	6.5	748,777	4.9
5001 – 10000	48	0.9	368,819	2.4
10001 – 50000	54	1.1	998,513	6.5
50001 –	32	0.6	12,079,987	79.0
Total	5,114	100.0	15,295,000	100.0

By shareholder category

	Number of shares	% of shares
Corporations	3,859,010	25.2
Banks and insurance companies	522,721	3.4
Nominee-registered and foreign shareholders	4,421,015	28.9
Non-profit and public sector institutions	1,475,927	9.6
Households	5,016,327	32.8
Total	15,295,000	100.0

Major shareholders on December 31, 2009

	Number of shares	% of shares
Ahlström Capital Oy Group	3,059,715	20.0
Tapiola Mutual Pension Insurance Company	584,500	3.8
Ilmarinen Mutual Pension Insurance Company	563,230	3.7
Vaasa Engineering Oy	424,433	2.8
Koskinen Jari	362,088	2.4
Holma Mauri	347,171	2.3
Ehrnrooth Martti	333,000	2.2
Tapiola Group Companies	325,300	2.1
Niemelä Harri	271,939	1.8
Karppinen Veijo	209,349	1.4
Nominee-registered and foreign shareholders	4,421,015	28.9
Own shares	85,011	0.6
Other	4,308,249	28.2
Total	15,295,000	100.0
Number of shares outstanding	15,209,989

Shareholdings of the Board of Directors and Management Team

On December 31, 2009, members of the Board of Directors of Vacon Plc held a total of 556,520 shares, or 3.6% of the company's share stock. The President and CEO and other members of the Management Team held a total of 458,395 shares, or 3.0% of the company's share stock and voting rights.

Share information

Listing	NASDAQ OMX Helsinki
Listing start date:	December 14, 2000
List:	Mid Cap
Sector:	Industrials
ISIN code:	FI0009009567
Trading code:	VAC1V

Earnings per share, EUR

Dividend per share, EUR

Market capitalization, MEUR

Vacon | Annual Report 2009

STOCK EXCHANGE RELEASES AND PRESS RELEASES IN 2009

January

1/8 Press release: Vacon opens a subsidiary in South Korea

February

2/5 Stock exchange release: Vacon Plc Financial Bulletin January 1 – December 31, 2008
2/19 Stock exchange release: Notice of Annual General Meeting of Vacon Plc
2/23 Stock exchange announcement: Notice of change in shareholding under Chapter 2, section 10 of the Finnish Securities Markets Act
2/27 Stock exchange announcement: Vacon's summary of year 2008 releases published

March

3/9 Stock exchange announcement: Notice of change in shareholding under Chapter 2, section 10 of the Finnish Securities Markets Act
3/11 Stock exchange announcement: Vacon's Annual Report 2008 published

April

4/1 Stock exchange release: Vacon Plc's Annual General Meeting of Shareholders
4/22 Stock exchange release: Vacon Plc Interim Report January 1 – March 31, 2009
4/22 Stock exchange release: Assignment of Vacon's own shares – share bonus scheme 2008–2010

June

6/24 Press release: Vacon to deliver two 4.6-MW AC drives for main propulsion units
6/26 Press release: Vacon opens an office in Canada

August

8/5 Stock exchange release: Vacon Plc Interim Report January 1 – June 30, 2009

September

9/7 Stock exchange release: Vacon to begin personnel negotiations with office staff in Finland
9/14 Stock exchange release: New CFO for Vacon
9/29 Stock exchange release: Vacon completes negotiations concerning office personnel in Finland
9/30 Press release: Vacon supplies AC drives to Kama paper mill in Russia

October

10/7 Press release: Vacon equips the world's first diesel-electric main propulsion on river cruise vessel with AC drives
10/22 Press release: Vacon to extend services in Latin America
10/27 Stock exchange release: Vacon Plc Interim Report January 1 – September 30, 2009

November

11/30 Stock exchange announcement: Vacon Plc Financial Calendar for 2010

December

12/4 Stock exchange release: Vacon Plc conveyance of own shares
12/8 Stock exchange announcement: Ahlström Capital holding in Vacon Plc

Vacon | Annual Report 2009

INVESTOR INFORMATION

Annual General Meeting

The Annual General Meeting of Vacon Plc will be held at 3:00 pm on Wednesday, March 23, 2010, on the Åbo Akademi premises at Academill, Rantakatu 2, Vaasa, Finland. Shareholders wishing to attend the Annual General Meeting must be registered no later than March 11, 2010, in the company's shareholder register maintained by the Euroclear Finland Oy and shall notify the company of their attendance no later than 4:00 pm (GMT+2) on March 16, 2010.

Shareholders are requested to give their name, address, telephone number, and date of birth when informing the company of their attendance. This can be done at the company website at www.vacon.com/agm2010, by telephone calling Johanna Koskinen on +358 0201 2121, by fax +358 201 212 208, by e-mail [email protected] or by mail to Vacon Plc, Johanna Koskinen, Runsorintie 7, 65380 Vaasa, Finland.

If a shareholder wishes to attend the Annual General Meeting by proxy, he or she should provide this information when notifying the company of their attendance. Any letters of authorization should be sent to the above address by the date for notification.

Share register

The company's shares are entered in a book-entry securities system. A shareholder must notify the party maintaining his or her book entry account of address changes, changes to bank information provided for dividend payments, and other matters relevant to shareholding.

Payment of dividends

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.70 per share be paid for the 2009 financial year. The dividend approved by the AGM will be paid to those shareholders who are registered on the record date in the company's share register maintained by Euroclear Finland Oy.

Reconciliation date: March 26, 2010
Dividend payment date: April 6, 2010

Financial overviews and reports in 2010

Financial statements release: February 3, 2010
Annual Report 2009: week 9/2010
Interim Report January-March: April 27, 2010
Interim Report January-June: August 4, 2010
Interim Report January-September: October 27, 2010

Vacon's Annual Report and Interim Reports are published in English and Finnish. The Annual Report is available in PDF format on the company's website and also as a hard copy. The hard copy is sent to shareholders upon request (please submit your order through the company's website or by sending e-mail to [email protected]). All press releases and stock exchange bulletins are available on the company's website. You may also subscribe to our bulletins so you receive them at your e-mail address by registering as a subscriber at www.vacon.com. You may also order the Annual Report by mail from:

Vacon Plc
Investor relations
Runsorintie 7
65380 Vaasa, Finland
Telephone: +358 (0)201 2121
Fax: +358 (0)201 212 208
E-mail: [email protected]
Internet: www.vacon.com

Investor relations

The objective of Vacon's investor communications is to provide the financial markets with information about Vacon's strategies, operations, and business environment so as to form as accurate a picture as possible of Vacon as an object for investment. The Vacon Group follows the principle of transparent, reliable, and up-to-date communications. The goal is to provide accurate and consistent information on a regular basis and objectively to all parties in the market.

Responsibility for investor relations at Vacon:

Vesa Laisi, President and CEO
Tel. +358 (0)201 212 510
Fax +358 (0)201 212 208
[email protected]

Eriikka Söderström, CFO
Tel. +358 (0)201 212 445
Fax +358 (0)201 212 208
[email protected]

Johanna Koskinen, Investor Relations
Tel. +358 (0)201 212 528
Fax +358 (0)201 212 208
[email protected]

Vacon | Annual Report 2009

94 Vacon | Annual Report 2009

Analyst coverage

To Vacon's knowledge, at least the following brokers and financial analysts monitor Vacon's development. They have analysed Vacon and drawn up reports and comments at their own initiative, and they are able to evaluate the company as an investment. Vacon takes no responsibility for the opinions expressed in the analyses.

Name	Company	Telephone
Timo Heinonen	Carnegie Investment Bank AB	+358 (0)9 6187 1234
Karan Khemani	Cazenove Equities	+44 (0)20 7155 6209
Antti Karessuo	Enskilda Securities AB Helsinki	+358 (0)9 616 28 729
Michael Schröder	FIM	+358 (0)50 551 4351
Malcolm Monteiro	Goldman Sachs	+44 20 7774 1363
Tom Skogman	Handelsbanken Securities	+358 (0)10 444 2752
Pasi Väisänen	Nordea Bank Ab	+358 (0)9 165 59 943
Hannu Rauhala	Pohjola	+358 (0)10 252 4392
Tomi Tiilola	Swedbank	+358 (0)40 721 2245

Vacon Plc
Headquarters
Vaasa, Finland
Sales offices
Australia, Belgium, Brazil, Canada, China, Czech Republic
Denmark, France, Germany, India, Italy, Mexico, Netherlands, Norway, Romania, Russia, Slovakia, South Korea, Spain, Sweden, Thailand, Ukraine, United Arab Emirates, United Kingdom, USA
Production plants
China, Finland, Italy, USA

Vacon Plc
Headquarters
Runsorintie 7, 65380 Vaasa, Finland
Tel. +358 (0)201 2121
Fax +358 (0)201 212 205
[email protected]

Worldwide contact information is available at www.vacon.com

AI assistant

NACON — Annual Report 2009

1539_rns_2010-03-02_c3a0fd8d-b0fa-4c53-887d-24d82d1a81e6.pdf

Cleantech is fun!

Vacon – promoting clean technology

CONTENTS

CORPORATE OVERVIEW

BUSINESS OVERVIEW

CORPORATE RESPONSIBILITY

ADMINISTRATION AND MANAGEMENT

FINANCIAL STATEMENTS

Driven by drives

Global presence

Financial targets and shareholders

Cleantech at its cleanest

Our market share grew

New products to the market

Asia is the engine of business growth

Strategy – objectives, choices and competence

Product leadership

Focus on AC drives

Multi-channel sales

Global presence

Strategic know-how

Goals for 2014

Strategic choices

Strategic core competencies

Vacon is a truly global company

50%

Power from new products and renewable forms of energy

Feeding high-quality power into the grid

10%

Strong boost to Vacon's factory operations

New products for harnessing renewable sources of energy

New green factory opens in the USA

Renewed product packaging

5%

Multi-channel sales give Vacon a competitive edge

Multi-channel sales is a strategic choice

Extensive investment in acquiring new customers

Importance of extensive customer coverage and clean technology highlighted

For distributors and end users

For system integrators

For original equipment manufacturers

Industrial segments using AC drives

AC drive applications

Responsibility brings success

Ecological responsibility

Environmental management system

Eco-friendliness starts with product design

Manufacturing takes the environment into consideration

Key figures for the Vacon Group's production process

Subcontractors are also required to act responsibly

Financial responsibility

Financial objectives

Review of the financial year 2009

Key figures

Social responsibility

Stakeholders

Personnel policies and working conditions

Human rights

Vacon builds a strong winning team

Increased focus on career development

Competence under development

Proactive management of well-being at work

Meetings and training go online

The theme: social well-being

Society

Personnel in figures 2009

Personnel by functions 2009

Level of education 2009

Personnel by region 2009

New recruitment by region 2009

Good corporate governance boosts Vacon's success

Corporate governance statement

Monitoring systems

Internal audit

Risk management

Insiders

Audit

NACON Annual Report 2009