Raute Oyj — Annual Report 2010

Mar 14, 2011

Annual Report 2010

Raute's route to the global market

In 1908 the engineering works Lahden Rauta- ja Metalliteollisuustehdas Oy was founded and the company began building inland waterway vessels and manufacturing steam boilers and machines. Frame saws marked the start of the company's venture into the production of wood processing machinery.

The first complete wood products factory was delivered to the Pellos plywood mill in Ristiina in 1968. In the same year an agreement on the delivery of a plywood mill to Bratsk in Russia was signed. The mill was completed in 1970. Today, Raute has delivered close to 70 mills around the world.

The company's international expansion began in the 1970s, when Raute founded its first sales office in both the US and Ecuador. In the next decade Raute established operations in Canada and sales offices in Singapore, Germany and Brazil, and joined a co-operative business venture in China.

The 1980s were a time of strong growth and internationalization for Raute. Export activities were stepped up and by mid-decade, exports had increased to 80 percent. The name Raute Oy was officially adopted, having already been caught on in everyday use.

In 1994, Raute's series A shares were listed on the Helsinki Stock Exchange (nowadays NASDAQ OMX Helsinki Ltd) and Raute became a public limited company. The Mustakallio (formerly Schwartzberg) family retained a considerable holding in the company. In the 2000s Raute has focused increasingly on the wood products technology, through, for example, acquisitions of companies such as the Mecano Group and Jymet-Engineering.

Today Raute is a technology company serving the wood products industry worldwide. Its most important customers are the plywood and LVL industries. Globalization continues in the growing and emerging markets. Raute strengthens its market leadership with new, innovative products and services based on the company's enthusiastic and skilled personnel and a strong focus on product development.

Raute in brief 4
Review by the President and CEO 6
Business environment 8
Strategy 16
Environment 19
Product development 20
Personnel 22
Business review 24

Financial review 2010 26

Risks and risk management 30
Corporate governance 32
Board of Directors 36
Executive Board 38
Information to shareholders 40
Stock exchange releases and
announcements 42

Raute in brief

Raute is a technology company serving the wood products industry worldwide. Its most important customers are the plywood and LVL industries.

Raute's customers are companies operating in the wood products industry manufacturing veneer, plywood and LVL (Laminated Veneer Lumber). The increasing popularity of renewable raw materials and products, for example in construction, means growth for the wood products industry. The size of the global wood products industry market is approximately EUR 150 billion.

The total value of the production technology investments in the global veneer, plywood and LVL industry is estimated at some EUR 500–550 million a year in a normal economic situation.

Raute is the global market leader in its largest customer sector, the plywood industry, with a 15–20 percent market share. Raute's position in the LVL industry is also strong, as approximately half of the LVL manufactured in the world is produced with machines supplied by Raute. As a supplier of millscale projects Raute is a global market leader both in the plywood and LVL industries.

Raute's technology offering covers machinery and equipment for the customer's entire production process. Additionally, Raute's full-service concept includes services ranging from repairs and spare part deliveries to regular maintenance and equipment modernizations. Typical aspects of project-focused business are sensitivity to cyclical economic fluctuations and poor predictability of timing.

Our customers are served by some 500 Raute professionals in eight countries. Our production facilities are situated in Nastola and Kajaani in Finland, in the Vancouver area in Canada and in the Shanghai area in China. The company's sales network has a global reach. Maintenance and spare part services are increasingly offered locally.

The company's series A shares have been listed on the NASDAQ OMX Helsinki Ltd since 1994.

KEY FIGURES	2010	2009
Net sales, MEUR	62.9	36.6
Growth, %	71.6	-62.8
Earnings per share, EUR	0.29	-2.03
Balance sheet total, MEUR	53.0	57.4
Equity ratio, %	50.7	46.0
Interest-bearing net liabilities, MEUR	-9.7	-9.4
Personnel, average	512	542

>> READ MORE about Raute's financial development on pages 26–29. Raute's consolidated financial statements are published on the company's website at www.raute.com.

Project deliveries and technology services

Veneer and plywood, made from wood, have their established uses in the construction and transport industries and in a large number of other applications.

Plywood is used as forms for concrete casting and as a diverse interior decoration material in construction. The uses in transport vehicles, are as interior fittings of trailers and in the tanks of LNG tankers, among other things. The primary end use of LVL is in construction, particularly in load-bearing structures.

Raute is a part of the wood-processing value chain by providing the wood products industry with production machinery required for manufacturing veneer, plywood and LVL as well as services required for maintaining and further developing them. Raute creates added value for its customers by improving the competitiveness and profitability of their production process. Raute's solutions consist of project deliveries and technology services.

Project deliveries consist of complete production machinery for new mills, separate production lines, and individual machines and equipment. Raute's versatile technology offering ranges from simple basic production technology to highly automated processes.

Technology services comprise maintenance, spare part services, consultation and training, as well as modernization projects. The development of technology in itself and Raute's large installed machine base create demand for technology services. The primary users of these services are customers with Raute production machinery.

Raute aims at close partnerships in customer cooperation, developing the customer's production process and end products together with the customer for the long term. Raute's extensive experience as a technology supplier for the wood products industry and its profound understanding of customer needs are the basis for both the development of its customers' processes and Raute's own product development.

RAUTE'S MISSION

Raute generates added value for its customers' businesses by supplying solutions to facilitate profitable and environmentally sustainable production of wood products.

>> IN THIS ANNUAL REPORT, Raute's business is described primarily from the point of view of the plywood industry, while also touching on the key special features of the smaller veneer and LVL industries.

Growth through reviewed strategy

Dear shareholders,

In 2010 the world economy clearly started recovering from the previous year's deep recession. Our customers' business also started to improve. We received a few significant orders, in terms of both size and reference value. Further, sales of technology services picked up towards year-end. Net sales increased particularly in the Asia-Pacific area. And last but not least profitability improved, too.

Besides increased sales, our adaptation measures carried out in 2009 and 2010 further contributed to our improved result. During 2010, we completed a considerable structural change in our North American operations. Later in 2010 we also carried out a similar arrangement in Finland. Raute Group's result was positive, thanks to the profit from a real estate sale in North America.

Even in the difficult market situation we did not lose faith in the recovery of demand for plywood, veneer and LVL and, consequently, in our customers' success. We have continued to invest in product development and our personnel. We have increasingly focused our product development efforts on both the modernization and service solutions aimed at improving the efficiency of existing production capacity, serving the developed markets, and on technologies to improve our competitiveness of the emerging markets.

As a result of the adaptation measures carried out, we start off this year with a lighter cost structure and are thus able to operate more profitably also in a demanding market situation. The significant order we received from China at the end of 2010 contributes to the continued importance of the Eastern Hemisphere in our operations.

I believe that the market will continue to improve this year, albeit slowly. New, capacity-increasing projects will be launched in several market areas. In particular, I believe that Russia, Eastern Europe and South America will take their positions alongside Asia as growth areas in Raute's customer base. I also believe that the European and North-American markets will grow stronger, particularly through the start-up of fairly small projects.

We have recently reviewed our strategy. We are seeking growth both in our current business in the emerging markets and by increasing the share of technology services in our traditional, developed markets. We want to operate closer to our customers and boost our service ability so that we can profitably

New, capacity-increasing projects will be launched in several market areas.

meet all customer needs. The most important factor for success is our competent personnel, driven by a hunger for success.

Raute's strategic investments in processing technology for plantation trees, energy savings and decreasing emissions in our customers' production processes improve our competitiveness in the recovering markets. With a decent order book and an increasingly positive outlook we are more optimistic

We are seeking growth in the emerging markets and by increasing the share of technology services.

in our pursuit of both increased sales and improved profit in 2011, although we maintain a humble attitude, keeping in mind the continued uncertainty in the markets.

I extend my warmest thanks to our customers for the excellent cooperation in challenging times, to our employees for their outstanding resilience during the continuous changes and to Raute Corporation's shareholders for the trust you have shown us.

Tapani Kiiski President and CEO

Raute as a part of the wood-processing value chain

The wood products industry uses Raute's production machinery to process wood into veneer, plywood and LVL, which are used mainly in construction and furniture as well as in the transport vehicle and packaging industries.

Veneer is a thin panel that is either peeled as a uniform ribbon from a rotating block or sliced. Peeled veneer is used for producing plywood and LVL and as a surface for furniture. Sliced veneer is mainly used for the decorative surfaces of furniture and interior decoration elements.

Production technology depends on the application and wood raw material

Plywood is made by gluing veneers to each other with the grains crosswise. Thanks to its strength properties and the appearance provided by a continuous wood pattern, plywood can be used for a wide range of applications. The use and strength of plywood depends

Source: Indufor

mostly on surface veneers, which take on the surface stress and a large part of the mechanical stress. Plywood has retained its strong position in applications where structural strength and resistance to moisture, impact resistance and an attractive appearance are required.

Various coatings add to the versatility of the applications. The sizes and thicknesses of plywood panels vary according to use. The thinnest plywood product in the world is a 0.4 mm thick decorative veneer, while the largest seamless birch plywood panels can be up to 2,000 x 4,000 mm.

Birch is the most common hardwood raw material for plywood, and various types of pines and spruce are suitable softwood raw materials. Poplar, eucalyptus and many tropical wood species are also used. By combining hard broadleaved and light and inexpensive conifer species, it is possible to produce combi plywood, which has the good qualities of both raw materials.

Hardwood plywood has excellent strength and stiffness and good resistance to creep. Its surface hardness and damage and wear resistance are also good. Typical end uses for birch plywood are concrete formwork panels, transport vehicle floors, container floors, walls and roofs, traffic signs and billboards, furniture and support strips for furnishings.

The strength and stiffness of softwood plywood are also high, but it is softer and has more knots than hardwood plywood. On the other hand, softwood plywood is fairly light and easy to machine and nail. The typical enduses include roof structures, floorings, walls and ceilings, non-visible structures in vehicles, packaging and boxes, construction site structures, fencing and shelters, as well as formwork with a limited number of concrete pourings. Softwood plywood with three thick veneer plies is also used as a wind barrier in construction thanks to its breathability and stiffness.

A veneer product where the veneers are glued with the grains in the same direction is called LVL (Laminated Veneer Lumber). LVL's main end use is in construction, where it is an environmentally friendly alternative to steel and concrete. Load-bearing LVL structures that can withstand earthquakes offer special application possibilities. LVL is used to manufacture long and very strong beams used in load-bearing structures and large wood-based panel sheets. Various pine and spruce species are used as raw material. LVL is also used in furniture, doors and windows.

Economic cycles make the greatest difference

Besides the general economic situation, the demand for wood products and the profitability of the companies in the field are driven by the cyclical fluctuations in construction and the demand for investment commodities. Other factors that influence demand are the increasing standard of living, construction regulations and the availability and

Raute's position in the value chain

CONSTRUCTION & INTERIOR FURNITURE

TRANSPORT & PACKAGING

Raute is able to offer customers unique competence for enhancing processes and generating added value.

price of wood. Wood products are ecological and the use of wood, a renewable raw material, is increasing.

The unit price for plywood depends on its product characteristics and quality, but also on the supply and demand in the global market. The challenges and also opportunities of the wood products industry include cost-efficient and ecological production methods, the increasing use of plantation trees as raw material, increasing quality requirements for and standardization of end-products and reducing emissions in production. The leading operators in the field are also actively developing new applications for plywood. New mills tend to be larger than the traditional ones.

Internationalization and integration between market areas has not progressed very efficiently in the plywood industry. A typical Raute customer is a veneer, plywood or LVL mill, the smallest of which are private family businesses, while the largest are a part of large consolidated forest groups manufacturing not only plywood and LVL, but also e.g. pulp, paper and sawn timber. New companies are enticed to the industry typically by unused to harvesting height grown forest resources for which they are looking for a profitable use.

Raute is a global market leader as a machinery supplier for new capacity in the plywood and LVL industry. Our market share of all machine investments in the plywood industry is estimated at 15–20 percent. Raute has a particularly strong market position in the LVL industry, as approximately half of the LVL manufactured in the world is produced with machines supplied by Raute.

Raute's competitors are mainly small or medium-sized companies operating locally or regionally and focus on only one or a few processes and technologies.

Raute's competitive advantage lies in its strong commitment on serving the wood products industry, which enables the company to offer customers unique competence for enhancing processes and generating added value. Raute's ability to solve customers´ problems with its comprehensive product and service offering and extensive experience help customers to increase their productivity, profitability and competitiveness.

The whole world as market area

As the focus of general economic activity is shifting, the construction of new capacity for the plywood industry is also moving to the new emerging markets with new challenges.

The developed markets are placing more and more emphasis on improving the competitiveness of the existing production capacity. The valuations relating to production technology and criteria for investment decisions are somewhat different in the emerging markets than those in the traditional markets.

Europe and Africa

Europe is an important market area for Raute, but the European companies operating in the field form a nonuniform customer base. The European plywood manufacturers are focusing on producing high value-added, highquality end products. A high number of small manufacturers operate particularly in southern Europe.

The Finnish plywood industry is traditionally strong, which has helped Raute in establishing its current position. During the past few years, the investment focus has shifted from Finland to the Baltic countries and Russia. The plywood industry continues to develop also in many other countries like France and Poland.

The European technological level is as a whole high. Birch, spruce, certain pine species and poplar are the major raw materials. The produced plywood is primarily marketed in Europe, but special products are also exported to the US market. The spruce LVL markets are worldwide. Finland is the most significant LVL-producing country in Europe.

Raute is the largest player in Europe, competing with the Italian company Cremona in poplar plywood region and with the German supplier Grenzebach in drying technology.

The challenges of the wood products industry will lie in developing the production capacity in the coming years. The recovery of European construction may also bring new capacity to the market.

Raute's strengths are being a highly recognizable company and having a reputation as a long-term partner. Raute is seeking growth by intensifying customer cooperation and by expanding the service offering towards long-term development to improve quality, efficiency and competitiveness.

Africa is a traditional supplier of round wood. The restrictions on wood exports in some important producer countries have increased the need for local further processing of wood. The African markets have traditionally been

PLYWOOD PRODUCTION
IN EUROPE (1 000 m3 )	2009
Finland	779
Italy	310
France	265
Spain	251
Latvia	155
Poland	145
Sweden	80
Romania	60
Bulgaria	23
Estonia	22
Czech Republic	22
Portugal	19
Greece	17
Lithuania	16
Germany	16
Slovenia	13
Belgium	10
Swizerland	8
Others	45

Source: Indufor

dominated by the European machine suppliers. In the future, the customers and investors will adopt more efficient process technologies – a trend that will open up new opportunities for Raute.

Raute's strengths are being a highly recognizable company and having a reputation as a long-term partner.

Russia

A quarter of the world's forests is located in Russia. Other strengths of the plywood industry are the availability of skilled workforce and low labor costs. Plywood is primarily an export product in Russia, but as the country's economy has developed, the domestic market has also gained strength. Birch is the primary raw material, but also spruce, pine and larch are used. The plywood industry's situation is similar to that of Russia in other ex-Soviet countries like Belarus and Ukraine.

The Russian plywood manufacturers are mainly companies that have been operating for a long time in the industry. These well-established players have, in recent years, invested in developing their production and upgrading their production technologies in response to the stiffening competition. New investors with newly constructed modern production facilities have also emerged to exploit the forest resources.

Raute is the market leader in Russia. Raute's competitors are also interested in Russia, and the Japanese machine suppliers are particularly active. Local competitors are improving their know-how and the technical level of their products and strengthening their competitive position. Foreign players need to be prepared for fast changes in the trade policies and other business risks typical for Russia.

The exportation of and domestic demand for plywood are expected to rise and the plywood industry is on the lookout for new innovative products and markets. The growing demand and increasing exploitation of forest resources are activating new mill investments. The Russian government strives to promote the development of the national plywood industry through its own actions e.g. by granting financial support for infrastructure development to local governments.

Raute's strengths in Russia are its long-term experience of the local operating practices, customer service in Russian and a large installed machine base. Reliable state-of-the-art technology, good long-term customer relationships and a solid track record of successes are important references for new investors as well.

The Russian extensive forest resources and developing economy create Raute a good position for growth in Russia. Raute also develops its customer relationships by expanding local maintenance activities and by strengthening maintenance cooperation with the customers. In the future, machine deliveries will be complemented by modernization business operations and product solutions adapted to local needs.

Asia-Pacific area

Most of the plywood manufactured in the Asia-Pacific area is used within the area. Plywood is exported e.g. to the Middle East, the U.S. and Europe. The Asian plywood production is based on the use of tropical wood species, such as meranti and keruing, as raw materials. The use of small diameter plantation trees, such as acacia and albizzia, is increasing. Various pine and eucalyptus species are used for plywood in the Pacific area. There are numerous plantation forests in Australia and New

The volumes of wood produced by the plantation forests continue to increase, creating business opportunities for Raute.

Zealand. Plantation forests play an increasingly important role also in China and South-East Asia.

Raute operates in this area in four different business environments.

Australia and New Zealand are developed, high-technology areas where plywood production is growing slowly. The availability of raw materials is based on well-managed plantation forests. There is a relatively small number of medium-sized and large plywood manufacturers in the area. Raute

PLYWOOD PRODUCTION IN APAC COUNTRIES (1 000 m3 )	2009
China	36 220
Malaysia	9 207
Indonesia	3 353
Japan	2 586
India	2 154
Republic of Korea	667
New Zealand	416
Singapore	280
Philippines	235
Pakistan	174
Australia	130
Thailand	120
Myanmar	116
Others	177

Source: Indufor

is one of the leading machine suppliers. Raute's competitors in the area are Japanese and American companies and local engineering shops. Efforts to develop and streamline the exploitation of plantation wood will continue in the area also in the future.

The South-East Asian plywood production (Malaysia, Indonesia and Papua New Guinea) has declined in the 2000s as a result of the depletion of the natural raw material and the scarcity of logging rights. This development has been strengthened by environmental awareness and actions to protect the environment. The use of plantation wood is expected to improve the situation and increase plywood production during the next 2 to 5 years. The Japanese machinery suppliers hold a strong position. Raute's business opportunities stem from the conversion of existing production facilities for new plantation wood species and the construction of new mills to exploit the plantation wood resources. Further processing of plywood plays an important role in building competitiveness and reorganizing the markets after the economic crisis. Raute capitalizes on its position as a forerunner in handling small-diameter wood.

The world's largest plywood producing country, China, is an emerging market where plywood industry enjoyed strong growth in the early 2000s. The local raw material reserves do not have the required quantity or quality to cater to the needs of the country's growing plywood industry, which means that a large part of the higher-quality raw material is based on imported wood from, among others, Russia and the Pacific area. The plywood production machinery is simple and the manufacturing methods are labor-intensive. The Chinese plywood production will develop gradually, driven by the quality requirements placed on plywood. Raute's competitors in China are local engineering shops and equipment manufacturers. Raute's strategic goal is to become a major player in renewing the Chinese plywood industry.

The fourth business environment is made up of the developed markets of Japan and South Korea in the North-East Asia, where the limited supply of wood and high plywood manufacturing costs are creating obstacles to growth. The machine markets are dominated by the Japanese manufacturers. Raute monitors the development in the area closely and participates, as a challenger, in new investments and development projects involving automation and automatic quality control.

North America is the world's biggest area producing softwood plywood and LVL.

South America

Plantation-based plywood production has increased greatly in the 2000s in South America. Raute is the market leader in terms of project deliveries related to the construction of new plywood production capacity. The largest plywood manufacturers in the area are Raute's customers.

Thanks to good forest management and a favorable climate, high-quality wood, mostly pine and eucalyptus species, is highly available for use by the plywood industry. Moderate labor costs also constitute a strength. Most of the plywood produced is exported to North America and Europe, but the area's own consumption of plywood is also on the increase. The utilization rates of the biggest plywood mills have been high, even during the economic downturn, which is proof of the mills' competitiveness in the global market.

Raute's major competitors in the area are Brazilian equipment manufacturers. European and American competitors are also present in the area.

The volumes of wood produced by the plantation forests continue to increase, creating business opportunities for Raute. Even smaller mills are shifting their investment focus to increasingly modern production technology. The plywood manufacturers in the area will develop their production and increase their production capacity. Raute's objective is to maintain its leading position in constructing new capacity and to acquire new customers within the modernization and development projects of small and medium-sized plywood manufacturers.

North America

North America is the world's biggest area producing softwood plywood and LVL. The area also has a considerable veneer and plywood industry utilizing hardwood. The market area is wide and production is strongly concentrated with major forestry industry corporations. 65 percent of the plywood and 85 percent of the LVL are produced by the five largest companies. Demand for plywood and LVL is primarily driven by the US economy, particularly housing construction.

The economic recession and financial crisis have greatly affected the area, and construction activity has plunged by more than 70 percent from the 2006 level. The investment activity has been very low and nearly exclusively focused on production machinery modernizations. Construction is not expected to revive and positively affect demand for wood products until 2011 or 2012.

Raute's most significant competitor and market leader in equipment deliveries in North America is the American company Coe Manufacturing belonging to the USNR Group. A number of small local equipment manufacturers and companies concentrating on streamlining plywood production processes operate in the area. Raute aims at improving and establishing its position in North America by capitalizing on its automation know-how, together with Raute's high-capacity, state-of-the-art technology and modernization expertise.

PLYWOOD PRODUCTION BY MARKET AREA 2009 Total 78.2 million m3

Source: Indufor

Changes as opportunities

Changing and emerging needs along with an investment-friendly climate create favorable setting for a pioneer company.

Together with its customers, Raute invests in manufacturing methods based on new technology and perceives change as an opportunity to further strengthen its leading position as a provider of new solutions.

Renewable wood as raw material on the rise

Wood construction has a positive impact in terms of climate and environment. The increasing popularity of ecological construction promotes the use of wood and wood products. Research on the climatic impact of using renewable wood is in its early steps. The use of higher value-added wood products, such as LVL, in building and the use of veneer-faced products and plywood in interior decoration are on the rise. All this contributes to a high demand for wood products technology.

Higher environmental awareness and tightening regulations

Consumers and customers require end products that are manufactured in an environmentally friendly manner, cause a minimal load on the environment, generate low levels of emissions and make efficient use of renewable raw materials. The traceability of raw materials and end products requires standardizing of production processes. Higher quality demands placed on manufacturing create new business opportunities for the suppliers of wood products technology and related services.

More cost-efficient manufacturing methods necessary to face tightening competition

The demand for wood products is on the increase. They are manufactured in larger mills whose competitiveness is based on a more efficient use of raw materials and lower unit costs than ever before. The toughening competition between plywood suppliers leads to investments in new, efficient production processes.

The growing use of wood as raw material increases the demand for Raute's products.

The customer as a value

We listen to our cus-

tomers and strive to create long-term customer relationships built on trust. We understand our customers' needs and cooperate to find profitable solutions. We operate in a way that ensures our customers to consider us a reliable and attractive supplier with highquality services and products.

"We must know and understand the customers' needs. We work in different cultural settings with different customers, but wherever we operate, we listen to our customers. We keep our promises to the full"

Juhani Löfberg, Machine Fitter and Installation Supervisor

Energy prices up

The price of energy needed for the manufacturing of wood products will reach new heights, and customers will demand energy-efficient solutions for their production processes. The environmental impacts of the raw materials, such as glue and coating agents, are minimized and attempts are made to better utilize the streams of by-product generated.

Emerging markets to play a greater role

The increasing prosperity of the emerging markets will boost construction volumes. As the standard of living rises, more effort will be put into quality of life. There is a growing interest in occupational safety and ergonomics leading to a higher automation level also in the emerging markets.

FROM LOG TO PLYWOOD

The plywood production process involves following steps: log handling, peeling, veneer handling, lay-up, pressing and panel handling. All these steps can be individually upgraded, modernized and replaced with new.

On the log handling line, the logs are debarked and cut into blocks, which are transferred onto the peeling line. Each block is centered to optimize wood recovery and peeled into a veneer ribbon. The veneer ribbon is clipped into sheets and randoms, i.e. pieces of veneer smaller than a full sheet.

The veneers are dried and sorted on the drying line. For the best wood recovery, the veneers are jointed in the grain or cross-grain direction and cut into required sizes.

On the pressing line, the veneers are applied with glue and laid up. The layups are cold pressed in a pre-press and then pressed into plywood panels in a hot press. The panels are sawn, sanded and graded. In further processing, an overlay can be pressed onto the plywood surface.

Profitable solutions for all customer needs

Raute focuses on serving its traditional customer industries – the veneer, plywood and LVL industries.

Raute generates added value for its customers' businesses by supplying solutions to facilitate profitable and environmentally sustainable production of wood products.

The strategy boils down to the revamped vision: Raute offers profitable solutions for all customer needs. Profitability is an essential condition for both Raute and its customer to be able to continue and develop their operations. The solutions integrate technology, equipment and the services necessary for their operation and development. As market focus is increasingly shifting towards the emerging markets, Raute must identify individual customer needs better than before and be able to offer, in addition to solutions based on state-of-the-art technology, solutions for conditions where automation is not yet the decisive factor creating a competitive edge.

Profitability is an essential condition for both Raute and its customers to be able to continue and develop their operations.

Demand for veneer-based wood products is stable and growing globally. The greater emphasis being placed on environmental considerations favors the use of renewable resources in construction, for example, and, where applicable, also in transport vehicles. The attractiveness of veneer-based wood products is enhanced by the low amount of energy and chemicals needed for their manufacture compared to many alternative materials. The rising standard of living and growth of a middle-class population in the emerging nations are driving the demand for wood products related to construction and housing.

Raute's strategic choices are based on two trend-like changes that will continue to shape the markets in the coming years. Firstly, the focus of the entire market continues to shift towards emerging markets. The share of veneerbased products originating from China and the rest of Asia, Russia and South America in relation to global production will increase. On the other hand, the plywood and LVL industries' investments in the traditional western markets, with their high cost and price levels, will increasingly focus on projects to raise the efficiency of existing production capacity and improve competitiveness, while little new capacity is being constructed.

Improving profitability, adjusting better to economic cycle variations and controlled growth remain Raute's main strategic goals. The financial goals are to improve profitability and maintain good profitability in all economic cycles, to grow faster than the markets while maintaining good financial solidity and to offer investors competitive returns. As the actual development is affected by the strong cyclic nature of demand, no target values are disclosed for the financial key figures.

Continuous development as a value

We want to be successful and enjoy our successes. We boldly take on new challenges and assume responsibility for the development of our own work and our overall operations, of the achievement of goals along with training and learning to support it. Our objective is to achieve results today and tomorrow.

"We must embrace change with an open mind and continuously develop ourselves, because there is no such thing as being over-prepared. In 2010, the new Account Management was one of the things that gave me new challenges and opportunities to develop myself."

Teuvo Holopainen, Project Manager

Raute focuses on the following areas to achieve itsvision:

The customers and their needs are the most important driver of operations. A better understanding of the needs of different customers and production bottlenecks must be gained. This understanding must be translated into solutions that truly help customers face their own competitors. Raute must become the preferred supplier in the eyes of a growing number of customers and in various market areas. This can only be achieved if the product offering genuinely meets the customers' needs and helps them develop their own operations.

Technology services will gain a bigger share and play a more significant role as a result of both changes in the market and development of technology. The new, constantly developing technology demands know-how, which, for many customers, is not worthwhile investing in themselves. Technology development also makes it possible to extend the life cycle of basic equipment through modernizations. Raute's goal is to be the trusted partner of its customers throughout the life cycle of the investment. In many market areas, Raute has not yet reached such a strong position that the installed base as such would be sufficient to ensure profitable aftermarket business activities. In future, Raute will also focus on modernizing competitors' equipment with Raute's technology.

Emerging markets will have more weight in business operations. However, they do not form a coherent whole. In China and India, most of the plywood production remains highly manual and old-fashioned. On the other hand, Russian and South American producers, for example, have reached a technology level that is quite near to that of developed markets. The common denominator of the emerging markets from Raute's viewpoint is the cost structure of wood products and their production machinery: labor costs are low but raw material costs are high.

Overall operations must be costefficient and price-competitive. Raute focuses on areas of strong internal expertise and improves its service capability by building an efficient and flexible partner network. Successful implementation and management of such a network is an important goal.

Raute wishes to provide an attractive workplace for people driven by a hunger for success. Driven by a hunger

Raute wishes to provide an attractive workplace for people driven by a hunger for success.

for success and committed to the company's goals, Raute's employees create the conditions needed for the company to succeed. Even in difficult years, Raute has invested in the occupational well-being and commitment of its employees. In future, priorities of competence development will lie in customer service capabilities, solutions, emerging markets and cost-efficiency.

These strategic action areas, coupled with the structural changes carried out during 2009 and 2010 and the reorientation of product development, put Raute in a good position to serve its customers profitably.

Results through environmentally sustainable operations

Environmental sustainability is one of Raute's basic values. The environmental impacts of Raute's operations are analysed systematically. These impacts are mainly related to waste management, energy use, chemical management and safety. The company follows an environmental management program to manage environmental risks.

Raute's units in Nastola and Jyväskylä have ISO-certified quality and environmental management systems in place. Their principles also steer operations in the Group's other locations. The operations and ethical principles of Raute's partners and subcontractor network are assessed according to standardized criteria.

Raute's objective is to further develop its working environment in terms of productivity, safety and environmental sustainability. In 2010, there were long periods of no work-related accidents at various production departments: the sheet department had a total of 314 successive accident-free days and the assembly department 463 days, and the machining department did not have a single accident during the year.

Raute is committed to reaching the energy savings objective of the Federation of Finnish Technology Industries by 2016, which was set at the time of joining the energy efficiency agreement in 2008. The objective corresponds to nine percent of energy use reported when joining the agreement. At Raute, energy consumption varies annually as a result of the production load and the prevailing weather conditions, and therefore reaching the energy savings objective should be reviewed for several successive years.

We continuously take various measures to save energy. In 2010, we started hourly observations of electricity, heat and water consumption in order to optimize consumption and detect any leaks.

ENVIRONMENTAL FACTS IN NASTOLA, FINLAND	2010	2009
VOC emissions	< 5 000 kg	< 5 000 kg
Electricity consumption	3.2 GWh	2.9 GWh
Heating consumption	4.8 GWh	4.0 GWh
Water consumption	2 690 m3	3 000 m3
Total waste (incl. recycled metal)	450 t	300 t
Recycling rate	88%	87%

The environment as a value

We are pioneers in developing and promoting new environmentally sustainable technology. We take into consideration the demands the local culture and society place on our operations. We develop the environmental sustainability of our products and services based on our customers' viewpoints. Our goal is to create a continually improving and productive work environment.

"For Raute, it is not enough to meet the existing environmental regulations – we want to actively develop new solutions in the field of environmental technology. As an example, I could mention the development of greenhouse gas emissions cleaning and energy recovery technology for dryers. This work has increased our environmental awareness and makes us question our personal choices as well."

Jukka Horelli, Product Manager, Drying

Added value for customers through R&D

Raute's R&D investments amount to around 3–4 percent of the net sales. The R&D activities involve upgrading of the existing machinery and services or the creation of entirely new products and concepts.

The R&D projects focus in addition to the development of the industry on occupational safety and ergonomics, the predictability and cost-efficiency of maintenance and the environmental friendliness of end products and their manufacturing processes. New technologies are tested in cooperation with customers in production conditions.

As competition tightens, new products and services are being created to meet the customers' needs in terms of maximizing the use of wood, reducing the consumption of glue and additives and cutting energy and labor costs as well as improving the quality of the end products. The R&D is being focused especially on minimizing energy consumption for every cubic meter of plywood produced. Products are also being modified and new ones created to meet typical customer needs in the emerging markets.

Raute's particular emphasis has been during the period of economic downturn with customer investments at a low level, on development projects with a short payback time enabling the customers to improve the efficiency of their production processes without carrying out extensive investments. The latest solutions can be installed as upgrades in machines delivered previously by Raute. Raute's solutions can also be used to modernize competitors' machinery.

Ensuring more sustainable production processes is the most important thing Raute can do for the environment

Raute takes into account the key environmental impacts of the wood products industry from the customers' point of view, and helps its customers to operate in a more environmentally sustainable way by improving the efficiency of raw material use, reducing energy consumption and minimizing the use of chemicals, especially glue. Automation

Raute's flagship product is the RauteSmart lathe, with a peeling speed of up to nearly 400 meters of veneer ribbon per minute.

Raute's technology

RautePro offers a professional, industrial production process with reliable and proven technology.

RauteSelect allows a wide range of adjustability and flexibility in production, and is easily upgraded.

RauteSmart offers the smartest and latest in technology for focused and tailored production.

RauteSmart RauteSelect

also improves the occupational safety and ergonomics.

RautePro, RauteSelect and RauteSmart – Raute's solutions for various customer needs

The RautePro solutions provide customers with reliable technology suited to industrial production applications. RautePro is the perfect solution for the emerging markets, in particular. The end products include basic panels used in construction, furniture and logistics. Investments remain moderate as no great flexibility is required from the production machinery. A typical RautePro product is a basic machine or line including separate automated functions and often also the possibility to modernize the machine later on.

The RauteSelect solutions are especially valued by customers whose objectives include a high quality rating for their products, flexibility in production and efficient use of raw materials. The RauteSelect solutions are the answer to customers with an annual production capacity of 20,000–60,000 cubic meters using several wood species as raw materials and producing several panel sizes on the same production line. The RauteSelect solutions can be retrofitted with new features and, they can be upgraded to the RauteSmart level by modernizations. The RauteSelect solutions include, e.g. semiautomatic layup lines where veneer handling is automated with the exception of the final positioning.

RauteSmart represents the industry's latest and most efficient state-ofthe-art technology. The RauteSmart customers focus on producing large volumes of end products and make efficient use of the latest automation, identification and measuring technologies. The investments can be maintained through modernizations and upgrades with the latest features stemming from Raute's R&D activities. Raute's flagship product is the RauteSmart lathe, with a peeling speed of up to nearly 400 meters of veneer ribbon per minute.

INVESTMENT IN R&D

Good leadership and HR support success

The year 2010 continued to be marked by efforts to adapt to a market situation that remained uncertain.

Temporary lay-offs concerning the entire personnel were continued and a total of 24 persons were permanently laid off. The personnel again showed exemplary flexibility and commitment in the implementation of the working and temporary lay-off arrangements.

At the end of 2010, the Group had 495 employees (524), 129 (120) of which worked in eight units outside Finland. In addition to the lay-offs, the number of employees in Finland was reduced by the retirement of 15 people. New employees were recruited for the shop floor at Nastola and for various tasks in the Shanghai unit. The total personnel turnover in the Group was 11.8 percent.

The average age of the employees in 2010 was 45 years. 62.5 percent of the employees worked in tasks related to project deliveries, 21.5 percent in technology services, 8.2 percent in sales and marketing, and 7.8 percent in management and administration.

The profit-related bonus system for the entire personnel was reviewed at the beginning of 2010. In addition to the Group's result, the personal component of the bonus plan for employees now also depends on the achievement of the objectives of their own team. The earning period for the profit-related bonus is a quarter year. The objectives for 2010 emphasized new orders and profitability. Due to the Group's operating profit, no profit-related bonuses were paid in 2010, even though several teamspecific objectives were exceeded. The objectives for 2011 remain focused on new orders and profitability.

Good HR management supports strategy implementation

Project business combined with a wide product and service range and an international operating environment creates a setting that calls for competent people, hungry for success. We believe that success is a matter of will, and we know that our competent and ambitious employees are our most important resource. The main goal of HR management is to support the implementation of our strategy by ensuring sufficient levels of competence and by fuelling our employees' will to succeed.

PERSONNEL GEOGRAPHICALLY

EDUCATION OF PERSONNEL

Raute's HR management is guided by four main principles:

Cooperation – making things happen together

We know that cooperation is the only way to make things happen. The seamless cooperation of various functions and persons is the driving force behind Raute's operations. Succeeding in one's own tasks requires an understanding of the entire operation chain and smooth communication.

Openness and dialogue

We want matters to be discussed openly. By asking questions we can learn from one another; by listening we can better understand different points of view; by discussing we can find new solutions. Part of the openness is to provide feedback, to present development proposals and to boldly tackle issues.

Good superior-subordinate relationship

We believe that good supervisory work is the backbone of HR management. A good superior-subordinate relationship is built on cooperation where both parties assume their share of the responsibility. As an employer, we see to it that every Raute employee has the competence, tools and support necessary for their own tasks and for a smooth cooperation.

Continuous development

Our goal is to be a successful employer for both our current and future employees. That is why we also want to continuously improve our HR management practices. Development is facilitated through feedback received from personnel, personnel representatives, supervisors and management. HR management practices are developed, implemented and monitored on the basis of an annual action plan.

Trust in people
as a value

We do our best to achieve the common goals that we have set for ourselves together. We live up to our mutual trust, keep our promises and act in a responsible manner by following our common ground rules. We take initiative and do what we promise.

"We have highly experienced and skilled employees doing their best for our shared success – even in a challenging situation of change. Trust also implies openness, honestly and fairness."

Anne Aaltonen, HR Manager

PERSONNEL	2010	2009	2008	2007	2006
Personnel at Dec. 31*	488	524	550	548	540
Average age	45	45	45	47	45
Women, %	12	12	12	12	12
Years of experience at Raute	14	14	14	14	14
New employment contracts	39	13	53	71	44
Personnel turnover, %	12	8	11	13	8
Training days/employee	1	1	2	3	2

*Current employment contracts.

2010 – A year of slow recovery and adaptation

Raute's net sales in 2010 were EUR 62.9 million, up by 72 percent from the previous year. 70 percent of the net sales were generated by project deliveries and 30 percent by technology services.

During 2010, the world economy already emerged from the downturn, even though permanent recovery from the economic crisis has been slow and burdened by uncertainty. Demand for wood products used in investment commodities continued to suffer from the weak situation and poor outlook for construction, housing-related consumption, international trade and transportation.

Challenges still prevailing in the business environment

The demand for the wood products manufactured by Raute's customers – veneer, plywood and LVL producers – remained at a relatively low level in all market areas important to Raute. However, the demand picked up from the previous year. The most successful mills managed to improve their capacity utilization rates, whereas some mills were still adjusting their production volumes to the lower demand, particularly during the early half of the year, by shortening their workweek and implementing shutdowns of varied duration. The mills with the poorest profitability and the lowest efficiency remained shut down.

Raute will see only after a delay the effects of a recovering global economy on the demand for Raute's products and the company's net sales. Due to the low demand for wood products and the uncertain market outlook, investment activity in the plywood industry remained at a low level in all market areas. Negotiations and investment decisions on projects under planning were further deferred. Investments in the LVL industry dependent on the activity of the construction industry, remained at a low level in all market areas, with the exception of Asia. The challenges of the financing markets in the emerging markets important to Raute and the conditions of long-term financing continued to restrict the investments of Raute's customers.

The demand for the technology services picked up towards the end of the year, but still remained at a lower level than normal as a result of a decline in the production capacity utilization ratio.

Asia-Pacific new number one market area

As the market situation for customer industries improved, Raute benefited from a higher order intake, which fell short of the level reached before the economic crisis but was double compared to the very difficult year 2009.

All three mill-scale orders received by Raute in 2010 came from the Asia-Pacific area, which became the largest market area in terms of order intake. These orders include almost all of the production lines of a plywood mill in the Asia-Pacific area, the machinery of an LVL line in Malaysia and all of the production lines of an LVL mill in China.

The investments of the European plywood and LVL industry remained at a low level. However, the demand for the technology services picked up. The most significant orders received by Raute were a veneer drying line to Latvia and a peeling line to Romania.

The investment slump in the plywood and LVL industries continued in North America. The demand for the technology services, however, already showed signs of modest growth. The most significant new order was a veneer dryer to the US.

Russia and the rest of the ex-Soviet Union remained at an exceptionally low level as a result of the deferral of the planned investments. The largest single order was a peeling line to be delivered to Russia.

The South American demand focused on modernizations and other technology services.

Adaptation and streamlining

Raute's business operations are characterized by the sensitivity of the investment demand to fluctuations in the global economy and financing markets, as well as the cyclical nature of the project business.

Raute continued the measures to adapt to the prolonged difficult market situation in spite of doubling its order intake. Temporary lay-offs of varying duration and other adaptation measures involved the entire personnel

of the Group. In addition, permanent structural changes were carried out to streamline operations and improve profitability as well as to ensure more profitable operations even at a lower level of activity.

The reorganization of the North American operations was completed to respond to the present market situation as well as future growth and development possibilities. Raute's Canadian unit operating in the Vancouver area moved during the summer to new facilities that are better in line with the current operational model. In conjunction with the relocation, production investments were carried out to improve productivity and shorten delivery times. The property acquired in the late 1980s was transferred to a new owner at the end of September.

The production of the Jyväskylä unit was transferred to the main production unit in Nastola in Finland. At the end of the year, permanent personnel adjustment measures were carried out in the Finnish units.

R&D for different customer needs

During 2010, Raute continued its investments in the research and development of advanced plywood and LVL manufacturing technology and supporting automation, machine vision and instrumentation. The R&D efforts were targeted, more strongly than before, on customer needs in the emerging markets.

The major projects included the development of a plywood puttying line utilizing machine vision and robot technology, making it ready for the first-delivery phase. In addition, various solutions were developed to improve the energy efficiency of the equipment e.g. by increasing electrical drives and introducing heat recovery. New modernization solutions were developed for the RauteSmart and RauteSelect product families. New RautePro technology was also developed.

Preparing for market recovery

The organization and operating methods were also developed further to respond to the new challenges posed by the changed operating environment. The know-how and customer service capability related to the new customer-based operating model were developed through training.

In addition, the local service ability of the Russian unit and the capabilities of the Chinese unit to implement project deliveries were developed.

Operating processes were devel-

As the market situation improved, Raute benefited from a higher order intake, which was double compared to the very difficult year 2009.

oped to meet the new customer service model and the updated quality management system was awarded a quality certificate according to the latest ISO 2001:2008 standard in September. The new version of the Enterprise Resource Planning (ERP) system adopted in the Finnish units mainly improves project planning.

Thanks to its strong financial and market position as well as the implemented development efforts, Raute's capacity to survive the economic slowdown and respond to the growing demand as markets recover is excellent. The implemented adaptation measures have led to a lighter cost structure and business is more profitable than before even in a difficult market situation.

Year 2010 in brief

OPERATING ENVIRONMENT AND DEMAND

• World economy recovered clearly from the previous year.
• Demand for plywood, veneer and LVL picked up from the previous year, but remained at a lower level than before the recession.
• Investments for new capacity were few.
• Availability and terms of financing continued limiting investments.
• Towards the end of the year, demand for small and medium-sized projects strengthened.

net sales, EUR million

Raute

• Recovery from recession started.
• Order intake at a good level considering the market situation.
• Three significant orders to the Asia-Pacific region.
• Profitability improved; operating result was, however, negative.
• Income before taxes positive 4.4 MEUR gain from real estate sale in Canada.
• Continued investments in product development and personnel.

KEY FIGURES	2010	2009
Net sales, MEUR	62.9	36.6
change, %	71.6	-62.8
Exported portion of net sales, MEUR	57.8	30.5
Operating profit, MEUR	1.3	-9.7
Profit (loss) before tax, MEUR	1.1	-9.9
Return on investment (ROI), %	5.1	-21.6
Return on equity (ROE), %	4.9	-28.4
Equity ratio, %	50.7	46.0
Order book, MEUR	33	22
Order intake, MEUR	72	35
Earnings per share, EUR	0.29	-2.03
Equity to share, EUR	6.05	5.76
Dividend per share, EUR	0.30	0.00
Dividend per profit, %	103.8	0.0
Personnel at Dec. 31	495	524
Personnel, average	512	542

*Board of Directors' proposal to the AGM

operating profit, EUR million

EARNINGS / SHARE AND DIVIDEND, EUR

Summary of financial statements

>> The complete consolidated statement of comprehensive income and balance sheet are presented in the financial statements, which have been published as a separate electronic publication on the company's webpage at www.raute.com.

EUR 1 000		GROUP (IFRS)	PARENT COMPANY (FAS)
INCOME STATEMENT	1.1–31.12.2010	1.1–31.12.2009	1.1–31.12.2010	1.1–31.12.2009
NET SALES	62 867	36 638	54 542	31 356
Other operating income	4 580	153	2 229	431
Change in inventories of
finished goods and work in progress	351	795	-296	683
Total operating expenses	-66 487	-47 281	-55 920	-39 242
OPERATING PROFIT (LOSS)	1 311	-9 695	555	-6 771
Financial income and expenses	-189	-195	-148	-3 842
PROFIT (LOSS) BEFORE TAX	1 122	-9 890	407	-10 613
Appropriations (FAS)	-	-	-41	418
Income taxes	36	1 749	-67	1 851
PROFIT (LOSS) FOR THE FINANCIAL YEAR	1 158	-8 141	299	-8 343
BALANCE SHEET	31.12.2010	31.12.2009	31.12.2010	31.12.2009
ASSETS
Non-current assets	12 599	15 325	8 821	11 715
Current assets	40 435	42 062	37 643	43 388
TOTAL ASSETS	53 034	57 387	46 464	55 103
SHAREHOLDERS' EQUITY AND LIABILITIES
Total shareholders' equity	24 227	23 053	22 234	21 935
Appropriation reserve (FAS)	-	-	41	-
Total liabilities	28 807	34 334	24 189	33 169
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	53 034	57 387	46 464	55 103
CASH FLOW STATEMENT	1.1–31.12.2010	1.1–31.12.2009	1.1–31.12.2010	1.1–31.12.2009
Operating activities	-6 114	5 619	-4 604	6 586
Investing activities	4 370	-955	382	-2 640
Financing activities	-2 316	2 134	-2 979	2 995
NET CHANGE IN CASH AND CASH EQUIVALENTS	-4 060	6 798	-7 201	6 941

ORDER INTAKE,

ORDER BOOK, EUR million

Financial development

EUR 1 000	2010	2009	2008	2007	2006
Net sales	62 867	36 638	98 466	110 799	106 206
Change in net sales, %	71.6	-62.8	-11.1	4,3	-2.2
Exported portion of net sales	57 773	30 466	82 666	96 759	95 789
% of net sales	91.9	83.2	84.0	87.3	90,2
Operating profit (loss)	1 311	-9 695	6 341	8 607	4 513
% of net sales	2.1	-26.5	6.4	7.8	4.2
Profit (loss) before tax	1 122	-9 890	6 880	8 976	4 887
% of net sales	1.8	-27.0	7.0	8.1	4.6
Profit (loss) for the financial year	1 158	-8 141	4 723	6 601	3 632
% of net sales	1.8	-22.2	4.8	6.0	3.4
Return on investment (ROI), %	5.1	-21.6	19.4	29.2	18.6
Return on equity (ROE), %	4.9	-28.4	14.0	21.1	13.1
Balance sheet total	53 034	57 387	60 180	54 800	68 472
Interest-bearing net liabilities	-9 651	-9 366	-10 653	-10 794	-23 539
% of net sales	-15.4	-25.6	-10.8	-9.7	-22.2
Non-interest bearing liabilities	14 368	15 801	15 402	21 116	38 696
Equity ratio, %	50.7	46.0	60.5	70.3	60.1
Gearing, %	-39.8	-40.6	-31.0	-32.5	-80.3
Gross capital expenditure	2 224	1 095	3 242	1 869	1 852
% of net sales	3.5	3.0	3.3	1.7	1.7
Research and development costs	1 849	2 470	4 375	3 969	3 765
% of net sales	2.9	6.7	4.4	3.6	3.5
Order book, EUR million	33	22	24	56	77
Order intake, EUR million	72	35	67	90	132
Personnel at Dec. 31	495	524	573	570	540
Personnel, effective, on average	438	419	569	560	546
Personnel, average	512	542	585	575	547

RETURN ON INVESTMENT (ROI) AND RETURN ON EQUITY (ROE), %

Share-related data

	2010	2009	2008	2007	2006
Earnings per share, EUR	0.29	-2.03	1.18	1.65	0.94
Equity to share, EUR	6.05	5.76	8.57	8.29	7.32
Dividend per share, EUR	0.30*	0.00	0.70	1.00	0.70
Dividend per profit, %	103.8	0.0	59.4	60.7	74.5
Effective dividend yield, %	3.1	0.0	10.9	7.0	5.5
Price/earnings ratio (P/E ratio)	33.55	-3.67	5.43	8.71	13.68
Development in share price (series A shares)
Lowest share price for the financial year, EUR	7.24	6.50	6.24	12.40	11.60
Highest share price for the financial year, EUR	10.10	8.90	15.20	15.45	17.60
Average share price for the financial year, EUR	8.21	7.29	12.37	13.85	14.03
Share price at Dec. 31, EUR	9.70	7.47	6.40	14.35	12.85
Market value of capital stock at Dec. 31, EUR 1 000**	38 846	29 916	25 630	57 468	51 461
Trading in the company's shares (series A shares)
Shares traded during the financial year, 1 000 shares	646	455	393	981	1 088
% of the number of series A shares	21.4	15.1	13.0	32.5	36.1
Total number of shares
Issue-adjusted weighted average
number of shares	4 004 758	4 003 183	4 004 758	4 004 758	3 866 561
Issue-adjusted number of shares
at the end of the financial year	4 004 758	4 004 758	4 004 758	4 004 758	4 004 758

The deferred tax liabilities have been included in the calculation of the key ratios.

*Board of Directors' proposal to Annual General Meeting. **Series K shares valued at the value of series A shares.

CAPITAL EXPENDITURE CONSOLIDATED CASH FLOW, EUR million

Risks and risk management

The aim of risk management is to further the achievement of strategic and other objectives by foreseeing and limiting substantial risks and the negative effects of occurred risks on business. Preventive risk management ensures the continuity of operations.

Risk management also includes recognizing, assessing and preparing for the risks related to business opportunities. The primary goal of crisis management is the safety of the personnel.

At Raute, the key risk areas identified by management relate to the nature of the business, the operating environment, financing, and damage or loss. Risk management is carried out as part of the management system.

Impact of economic cycles on business operations

Raute's business operations are characterized by the sensitivity of investment demand to fluctuations in the global economy and the financing markets, and the cyclical nature of project business. The impact of changes in demand on the Group's result is reduced by increasing the share of technology services, increasing operations in market areas with a small current market share, creating products for completely new customer groups and developing the subcontracting network.

Emerging markets

Raute's objective is to increase its local business in China and Russia, where, besides opportunities, companies face risks typical for emerging markets. Information security risks are managed according to a defined information security policy.

Deliveries and technology

The bulk of Raute's business operations consists of project deliveries, which expose the company to risks caused by customized solutions related to each customer's end product, production methods or raw materials. At the quotation and negotiation phase, the company has to take risks relating to the promised performance figures and make estimates of implementation costs. The functionality and capacity of new solutions produced as a result of development work cannot be fully verified until the solutions can be tested under production conditions in conjunction with the customer deliveries.

Contract, product liability, implementation, cost and capacity risks are managed using project management procedures that comply with the company's ISO-certified quality system. Technology risks are reduced by the conditions of delivery contracts and by restricting the number of simultaneous first deliveries.

Financing risks

The most significant financing risks in the Group's international business operations are default risks and currency risks related to counterparties. The Group is also exposed to liquidity, interest and price risks.

The default risk relating to customers' solvency is managed by covering the unpaid sum with bank guarantees, letters of credit or other securities. The Group's liquid assets are mainly held in banks in the Nordic countries.

The Group's main currency is the euro. The most significant currency risks result from the Canadian dollar (CAD) and US dollar (USD). Other currencies that are monitored are the Russian rouble (RUB) and the Chinese yuan (CNY). The main hedging instruments used are foreign currency forward contracts. Currency clauses are used to hedge against currency risks during the quotation period. Depending on the case, currency risks related to preliminary sales contracts are hedged with currency option contracts.

The Group has braced for fluctuations in the working capital tied up in project operations and possible disturbances in the availability of money by taking out a non-current TyEL loan. The company's loans have fixed interest rates. The Group's interest risks are mainly related to the return on liquid assets.

Human resources

Competence retention and development and ensuring the sufficiency of human resources are particularly important in cyclical business. Continuity is ensured by monitoring the development of the age structure, implementing systematic human resources management and investing in well-being at work.

Risks of damage or loss

Raute's most significant single risks concerning material damage and business interruption loss are a fire or a serious machine or information system breakdown at the Nastola main unit, where the production, planning, financial, and ERP systems serving the Group's key technologies are centrally located.

Other risks of damage or loss include occupational safety risks, which are managed by means of active riskprevention measures, such as continuous personnel training and investigation of all near-miss situations. Preventive risk management ensures continuity.

Occupational safety and ergonomics are under continuous development.

Raute's production operations do not involve significant environmental risks. The main unit in Nastola has an ISO-certified environmental management program, whose principles are also adhered to in other units.

The Group hedges against risks of damage or loss by assessing its facilities and processes in terms of risk management and by maintaining emergency plans.

Global and local insurance programs are checked regularly as part of overall risk management. The objective is to use insurance policies to sufficiently hedge against all risks that are reasonable to handle through insurance due to economical or other reasons.

Organizing risk management

Raute's risk management policy is approved by the Board of Directors. The Board is responsible for organizing internal control and risk management, and for monitoring their efficiency.

The Executive Board defines the Group's general risk management principles and operating policies, and defines the boundaries of the organization's powers. The President and CEO and the CFO regularly report significant risks to the Board.

The Group's President and CEO controls the implementation of the risk management policy in the entire Group, while the Presidents of the Group companies are responsible for risk management in their respective companies. The members of the Group's Executive Board are responsible for their own areas of responsibility across company boundaries.

Raute has no separate internal auditing organization. The Controller function oversees the annual internal control plan approved by the Board, develops internal control and risk management procedures together with the operative leadership, and monitors compliance with risk management principles, operational policies and powers.

Corporate Governance Statement

Raute Corporation's Board of Directors has handled Raute Corporation's Corporate Governance Statement according to chapter 2, section 6 of the Finnish Securities Markets Act and recommendation 54 of the Finnish Corporate Governance Code for listed companies issued by the Securities Market Association on June 15, 2010. The statement has been drawn up separately from the financial statements and is published on the company's website at www.raute.com.

>> The financing risks, as well as the risk management objectives and procedures, are described in more detail in the note number 38 to the financial statements.

Corporate governance

Raute Corporation's operations are based on compliance with the legislation in effect, the standards covered by the legislation, and ethically acceptable operating methods.

The Parent company, Raute Corporation, is a Finnish public limited liability company which abides by the Finnish Companies Act, Raute Corporation's Articles of Association and other regulations concerning publicly listed companies in its decision-making and corporate governance. The company's Board of Directors has also issued Administrative Instructions for the company.

Raute Corporation is a listed limited liability company, subject to the rules of NASDAX OMX Helsinki Ltd. Raute complies with the Finnish Corporate Governance Code 2010 for listed companies issued by the Securities Market Association on June 15, 2010, which can be read on the Internet at www. cgfinland.fi. Raute deviates from the Code's recommendation 22 on appointing members to the Appointments Committee in that one member to the Committee is elected, as per the company's Administrative Instructions, from outside the Board of Directors, from among the representatives of major shareholders who have significant voting rights. The Board views this exception as justified, when taking into consideration the company's ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of electing members of the Board of Directors.

Raute Corporation's Articles of Association, Administrative Instructions, Corporate Governance Statement and other information related to the company's governance and investor relations are available on Raute's website, www.raute.com. Information concerning the Group's administration and risk management are also included in the Board of Directors' report and Financial statements.

Shares and shareholders

Raute Corporation's shares are divided into ordinary shares (series K) and A shares (series A). The difference between the series is that a series K share entitles the holder to twenty (20) votes and a series A share to one (1) vote at General Meetings. The series A shares have been quoted on the NAS-DAQ OMX Helsinki Ltd since 1994. The shares have a nominal value of EUR 2.00. Series K shares can be converted to series A shares under the terms described in section 3 of the Articles of Association. If a series K share is transferred to a new owner who has not previously held series K shares, other shareholders of the K series have the right to redeem the share under the terms described in section 4 of the Articles of Association.

More detailed information on Raute Corporation's shares and shareholders on December 31, 2010 is provided on pages 40–41.

General Meeting

Raute's supreme decision-making body is the General Meeting, where shareholders exercise their right to control the company's operations. Raute Corporation's Annual General Meeting is held in March–April, but no later than six months from the end of the financial year. The Annual General Meeting elects the Chairman and Vice-Chairman for the Board of Directors, and 3–5 Board members.

The Annual General Meeting and Extraordinary General Meeting shall be called by a notice published, no later than 21 days before the General Meeting, in one national newspaper decided by the Board of Directors and in one newspaper appearing in the company's domicile Lahti and on the Company's website.

A shareholder who wishes to exercise his share-based voting rights at the General Meeting shall notify the Company thereof no later than on the day stipulated in the meeting notice.

Raute Corporation's Annual General Meeting 2010 was held on March 31, 2010. It approved the financial statements for 2009 and decided that no dividend shall be distributed for 2009. In addition to other statutory decisions, the Annual General Meeting authorized the Board to decide on the acquisition and directed issue of a maximum of 400,000 of the company's own series A shares and on the issuance of a maximum of 240,000 stock options.

Board of Directors

The term of office of Raute Corporation's Board begins at the Annual General Meeting that elects the Board, and ends at the following Annual General Meeting. The majority of the Board members must be independent of the company, and at least two members of said majority must be independent of the company's major shareholders.

The Board of Directors of Raute Corporation administers the company's operations in accordance with the applicable legislation and Raute Corporation's Articles of Association. The Board of Directors also acts as the Board for Raute Group, which handles and decides on all important issues that affect the entire Group or the operations of its units, regardless of whether the issue legally requires a decision from the Board of Directors. The Board of Directors may handle issues that concern any of the Group's companies if the Board or President and CEO of the Parent company deems it appropriate to do so.

The Charter and tasks of the Board of Directors are described in the Administrative Instructions and Corporate Governance Statement available on the company's website. In addition to statutory tasks and those defined in the Articles of Association, the Board approves the company strategy and budget annually, and, based on management reports, regularly monitors the Group's financial status and draws up interim reports. The Board carries out an annual self-evaluation of the work of the Board members and the Chairman of the Board.

In the Annual General Meeting on March 31, 2010, six members were elected to Raute Corporation's Board of Directors for the term of office 2010/2011. Mr. Erkki Pehu-Lehtonen was re-elected Chairman of the Board, Ms. Sinikka Mustakallio Vice-Chairman and Mr. Risto Hautamäki, Mr. Ilpo Helander and Mr. Mika Mustakallio as Board members. Mr. Pekka Suominen was elected to the Board as a new member.

Erkki Pehu-Lehtonen, Risto Hautamäki, Ilpo Helander, Mika Mustakallio and Pekka Suominen are independent of the company. Sinikka Mustakallio, who chaired Raute's Supervisory Board from 1996 to 1998 and has acted as a member of the Board since 1998, is dependent on the company. Erkki Pehu-Lehtonen, Risto Hautamäki and Ilpo Helander are independent of major shareholders.

The Board held 12 meetings in 2010, one of which was a teleconference. The Board members' average attendance at the meetings was 94.4 percent. The meetings handled the matters listed in the Charter for the Board included in the Administrative Instructions. The Board carried out a selfevaluation of the term of office 2009 in spring 2010.

The Annual General Meeting on March 31, 2010 decided that the remuneration paid to the Chairman of the Board for the term of office 2010/2011 will be EUR 40 thousand, and EUR 20 thousand to each Board member. Traveling expenses will be compensated according to the company's traveling policy.

The salaries and fees paid to the Board during 2010 totaled 140 thousand euros.

The Board members' personal data and holdings on December 31, 2010 are presented on pages 36–37. Up-to-date share and option holdings are presented on the company's website.

The company's Administrative Instructions

On June 21, 2004, Raute Corporation's Board of Directors issued Administrative Instructions for the company. They comprise the Charter for the decisionmaking bodies; instructions on the division of responsibilities among the Board of Directors, the President and CEO, and the Executive Board; as well as guidelines for organizing internal control and risk management to complement the provisions of the Companies Act and Raute's Articles of Association. The Administrative Instructions are reviewed annually. The Administrative Instructions are available on the company's website.

Board Committees

Raute Corporation's Board has a Working Committee and an Appointments Committee which support the Board's work. The Board approves the key contents of the committees' Charter, and the committees regularly report on their work at the Board meetings. The Audit Committee's tasks are handled by the Board of Directors. The Board of Directors can also establish other committees if needed. No extra remuneration is paid for work carried out in the committees.

For the preparation of matters of major importance, the Board of Directors appoints a Working Committee from among its members, which includes the Chairman of the Board of Directors, the Vice-Chairman and one Board member. The Board elects an Appointments Committee, which includes the Chairman, Vice-Chairman and one member from outside the Board who is appointed from among the representatives of major shareholders who have significant voting rights. The task of the Appointments Committee is to prepare a proposal concerning Board members for the Annual General Meeting. The Board views the appointment of a person from outside to the Appointments Committee as justified, when taking into consideration the company's ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of electing members of the Board of Directors.

During the term of office 2010/2011, Chairman of the Board, Mr. Erkki Pehu-Lehtonen continued as the Chairman of the Working Committee and Vice-Chairman, Ms. Sinikka Mustakallio and Board member, Mr. Risto Hautamäki as its members. The Working Committee convened twice in 2010, and the Committee members' attendance was 83 percent.

Chairman of the Board Mr. Erkki Pehu-Lehtonen continued to chair the Appointments Committee, and Vice-Chairman, Ms. Sinikka Mustakallio, and Mr. Ville Korhonen – a representative of major shareholders – acted as its members. The Appointments Committee convened twice in 2010, and the Committee members' attendance was 100 percent.

President and CEO

Raute Corporation's President and CEO manages the tasks assigned to Presidents and CEOs in accordance with the Finnish Companies Act, and also serves as the President and CEO of the Group and as Chairman of the Group's Executive Board. The President and CEO ensures that the accounting of the company is in compliance with the law and that its assets are managed reliably. The President and CEO represents the Group at the shareholders' meetings of subsidiaries and associates, and acts as Chairman of the subsidiaries' Boards of Directors, unless the Board decides otherwise in individual cases.

The President and CEO steers the Group's business operations via the Executive Board and the operative units. The persons who oversee the operative units report to the President and CEO. The President and CEO steers and controls the operations of the operative units with the assistance of the Executive Board and head office functions.

Since March 16, 2004, Raute Corporation's President and CEO has been Mr. Tapani Kiiski (Licentiate in Technology). Kiiski is independent of major shareholders. Ms. Arja Hakala, M.Sc. (Econ.), MBA, Chief Financial Officer, was appointed deputy to the President and CEO on March 16, 2004.

The remuneration for President and CEO Tapani Kiiski consists of a fixed monthly salary and fringe benefits according to his executive contract and a profit-related bonus amounting to six months' salary at the most, depending on the achievement of the targets set for each year. The executive contract does not include any special conditions concerning retirement or the amount of retirement allowance. The term of notice is six months, and the severance pay equals six months' salary. The President and CEO is covered by the share-based incentive plan 2006–2008 and the 2010 stock option plan. The company does not remunerate the President and CEO on any other grounds nor does it grant him loans or provide any guarantees for him.

The salaries and fees paid to Raute Corporation's President and CEO, Mr. Tapani Kiiski, in 2010 amounted to EUR 225 thousand, which consists of regular salaries including fringe benefits. On May 5, 2010, the President and CEO received 21,000 of the company's 2010 A options from the Board of Directors.

The personal data and option and share holdings of the President and CEO and his deputy on December 31, 2010 are presented on page 38. Up-todate share and option holdings are presented on the company's website.

Business organization and the Group's Executive Board

Raute Group's Executive Board consists of the President and CEO, who acts as the Chairman, and of a variable number of members appointed by Raute Corporation's Board of Directors. The Executive Board prepares the Group's business strategy and is in charge of its implementation. The Executive Board deals with all major operational issues, and its decisions are confirmed by the President and CEO. The members of the Executive Board are in charge of the dayto-day management of the company in their respective areas of responsibility.

The Group's Executive Board consisted of, in addition to Mr. Tapani Kiiski, President and CEO (Chair), the members Ms. Arja Hakala, CFO; Mr. Petri Strengell, Group Vice President, Technology and Operations; Mr. Timo Kangas, Group Vice President, Technology Services; and Mr. Bruce Alexander, Group Vice President, North American Operations.

The remuneration for the Executive Board members consists of a fixed monthly salary including fringe benefits and a profit-related bonus amounting to a maximum of three months' salary, depending on the achievement of the targets set for each year. The Executive Board members are covered by the share-based incentive plan 2006–2008 and the 2010 stock option plan. The Executive Board members serve according to an indefinite employment contract without entitlement to extra severance pay or other compensation. The additional pension benefits and terms of notice do not significantly differ from the statutory terms and conditions. The company does not remunerate the Executive Board members on any other grounds nor does it grant them loans or provide any guarantees for them.

The salaries including fringe benefits and fees paid to the other members of the Group's Executive Board in 2010 amounted to EUR 604 thousand, which consisted entirely of regular salaries including fringe benefits. On May 5, 2010, the other members of the Group's Executive Board received 38,000 of the company's 2010 A options from the Board of Directors.

The Executive Board members' personal data and holdings on December 31, 2010 are presented on pages 38– 39. Up-to-date share and option holdings are presented on the company's website.

Remuneration

Within Raute Group, remuneration consists of three components: the basic salary including fringe benefits, profit- and performance-related remuneration (bonuses), and long-term incentive plans. Depending on the employee's position, different combinations of the abovementioned elements are applied.

The Board of Directors prepares a proposal on and determines the President and CEO's basic salary including fringe benefits and approves the basic salary including fringe benefits of the Executive Board members, based on the President and CEO's proposal. An individual employee's remuneration is always approved by the superior of the employee's superior. The Chairman of the Board approves the remunerations of the President and CEO's immediate subordinates who are not members of the Executive Board. An employee is not entitled to separate remuneration for being a Board member in any of the Group's subsidiaries.

Raute Group's profit-related bonus system includes separate systems for the President and CEO, the Group's Executive Board, key personnel, and the entire personnel. A person can receive bonuses from no more than one system at a time. The Board of Directors annually confirms the general principles, maximum amounts and calculation methods for the remuneration systems.

Payment of bonuses within the bonus systems for the President and CEO, the rest of the Group's Executive Board and key personnel is dependent on the person's performance and task-related personal targets for the entire year. Profit-related bonuses are paid once a year after the Annual General Meeting has confirmed the financial statements.

Payment of bonuses within the bonus system for the rest of the personnel is dependent on the Group's profit and the targets set for the team in question. Profit-related bonuses are paid out for each quarter year provided that the Group has made a positive cumulative profit.

Long-term incentive plans include the share-based incentive plan for 2006– 2008 and the 2010 stock option plan.

The Company has made available on its website a remuneration statement according to recommendation 47 of the Finnish Corporate Governance Code 2010 for listed companies.

Insider issues

Raute Corporation follows the Guidelines for Insiders issued by NASDAQ OMX Helsinki Ltd, the Central Chamber of Commerce, and the Confederation of Finnish Industries EK. In addition, the company applies separate insider instructions approved by the Board of Directors. The Chief Financial Officer is in charge of insider issues.

Raute Corporation's insiders comprise public insiders, permanent company-specific insiders and project-specific insiders in accordance with the Finnish Securities Markets Act. The company's public insiders include the Board of Directors, the Group's President and CEO, the Executive Board, the Presidents of subsidiaries, and auditors. The company's permanent company-specific insiders include those persons employed by the company or persons performing work for the company on the basis of some other contract who, by virtue of their positions or tasks, have access to insider information on a regular basis. A project-specific insider register is set up if the person responsible for the project considers that the publication of the project may have a significant impact on the value of the company's shares. The company's insider registers are maintained at the company's head office, which updates the information concerning insiders subject to disclosure requirements which need to be listed in a public insider register in Euroclear Finland Ltd's SIRE service. The public information on the insiders is available on Raute Corporation's website.

The insider trading prohibition begins at the end of an interim reporting period or financial year and ends two hours after the publication of the corresponding stock exchange release. Raute organizes press conferences in Helsinki in connection with the publication of the Financial Statements Review and Interim Reports in which analysts, investors and the media are given the opportunity to meet the President and CEO and the CFO in person. The company avoids other investor communication meetings during insider trading prohibitions.

Communications

The central objective of Raute Corporation's investor communications is to produce reliable, timely and consistent information concerning the Group's business operations and finances. Raute Corporation publishes all of its investor information on its website. The releases are published in Finnish and English.

Organizing risk management and risks

The organizing of risk management and risks are presented on pages 30– 31. The management of financing risks is described in more detail in the note number 38 to the consolidated financial statements.

Auditing

According to the Articles of Association, the Company shall have at least one and at most two auditors and one deputy auditor. If an authorized public accounting company is elected, a deputy auditor does not need to be elected. If the auditor elected is other than an authorized public accounting company, two auditors and one deputy auditor are elected. The Board of Directors approves the audit plan and supervises its implementation. In addition to their tasks defined in the regulations, the auditors report to the Chairman of the Board when necessary, and at least once a year to the Board of Directors on any issues that have arisen during the audit.

In the Annual General Meeting on March 31, 2010, the authorized public accounting company PricewaterhouseCoopers was chosen as auditor with Authorized Public Accountant Mr. Janne Rajalahti as the principal auditor for the term of office 2010/2011. The Annual General Meeting decided that remuneration be paid to the auditors for the term of office 2010/2011 on the basis of reasonable invoicing.

In 2010, the fees booked as costs for the regular annual audit paid to the auditors elected by the Annual General Meeting amounted to EUR 74 thousand, the fees for tax consultation to EUR 39 thousand and the fees for other services to EUR 7 thousand.

Board of Directors

Erkki Pehu-Lehtonen

b. 1950, M.Sc. (Eng.) Chairman of the Board 2009– Member of the Board 2009– Chairman of the Board's Working Committee and Appointments

Committee Independent of the company and of major shareholders

Erkki Pehu-Lehtonen was Senior Adviser to the Board of Pöyry Plc in 2008–2010 and Pöyry Plc's President and CEO in 1999–2008. He was President of Jaakko Pöyry Oy, a subsidiary of Pöyry Plc, in 1996–1999 and Executive Vice President of the company in 1994–1996. Before joining the Pöyry Group, he held top management positions at, among others, Neles Jamesbury, Inc. and Valmet Paper Machinery Inc.

Main simultaneous positions of trust:

Member of the Board: Tekla Corporation 2006– Metso Corporation 2010– Raute shares: No holding of shares

Sinikka Mustakallio

b. 1952, Researcher Vice-Chairman of the Board 2004– Member of the Board 1998– Chairman of Raute Corporation's Supervisory Board 1996–1998 Member of the Board's Working Committee and Appointments Committee Dependent on the company and on major shareholders Sinikka Mustakallio has been President of WoM Oy since 2001. Main simultaneous positions of trust: None

Raute shares:

47,240 pcs series K shares 30,862 pcs series A shares

Risto Hautamäki

b. 1945, M.Sc. (Eng.) Member of the Board 2009– Member of the Board's Working Committee

Independent of the company and of major shareholders

Risto Hautamäki was President of Metso Paper in 2005–2007, President and CEO of Tamfelt Corporation in 1995–2005 and President and CEO of Valmet Paper Machinery Inc. in 1990–1994.

Main simultaneous positions of trust: None

Raute shares: No holding of shares

Ilpo Helander

b. 1942, M.Sc. (Eng.) Member of the Board 2008– Independent of the company and of major shareholders

Ilpo Helander was President and Chairman of the Board of Oy Electrolux Ab and Senior Vice President of Electrolux Europe in 1991–2004. His areas of responsibility were Russia, Belarus, the Baltic countries, the Ukraine, and Kazakstan.

Main simultaneous positions of trust:

Member of the Board: Neo Industrial Plc 2007– Reka Kumi Oy 2007– Teknos Oy 2007– CT-Logistics Oy 2008– Finndomo Oy 2010– Talent-Center Oy 2010– Raute shares: No holding of shares

Mika Mustakallio

b. 1964, M.Sc. (Econ. & Bus. Adm.), CEFA

Member of the Board 2004– Independent of the company,

dependent on major shareholders Mika Mustakallio has been President of MORS Software Oy since 2006 and a bank risk management specialist. Since 2001, as an entrepreneur, he has been creating innovative real-time risk management systems for banks. Prior to this, in 1995–2000 he worked at Svenska Handelsbanken as the head of risk control and in 1991–1995 at Price Waterhouse as a consultant.

Main simultaneous positions of trust: None

Raute shares:

49,230 pcs series K shares 34,670 pcs series A shares

Pekka Suominen

b. 1976, M.Sc. (Econ. & Bus. Adm.), Member of the Board 2010– Independent of the company,

dependent on major shareholders Pekka Suominen has been Project Manager of Talentum Events Oy since 2007.

Main simultaneous positions of trust: None

Raute shares:

48,000 pcs series K shares 62,429 pcs series A shares

Auditors

PricewaterhouseCoopers Oy, with Mr. Janne Rajalahti (Authorized Public Accountant) as the principal auditor.

>> Holdings of Raute shares on December 31, 2010. The figures include their own holdings as well as those of their minor children and control entities.

Executive Board

Tapani Kiiski

b. 1962, Licentiate in Technology, M.Sc. (Eng.) President and CEO, March 16, 2004– With the Company since: 2002– Member of the Executive Board since: March 16, 2004 Employment history: Raute Corporation 2002–2004: various positions such as Technology Director, Sales Director; KCI Konecranes International Plc 1994–2002: various positions, such as CIO; Kone Corporation,

Kone Cranes 1985–1994: various positions, such as R&D Manager, R&D Director

Raute shares and stock options: 4,500 pcs series A shares 21,000 pcs stock options 2010 A

Arja Hakala

b. 1957, M.Sc. (Econ.), MBA Chief Financial Officer, Deputy to President and CEO, October 8, 2003– With the Company since: 1990– Member of the Executive Board since: January 1, 2001 Employment history: Raute Corporation 1990–2003: Administrative Director; Luhta Oy1985–1990: Controller Raute shares and stock options:

1,750 pcs series A shares

9,500 pcs stock options 2010 A

Petri Strengell

b. 1962, M.Sc. (Eng.) Group Vice President, Technology and Operations, October 11, 2004– With the Company since: 1987– Member of the Executive Board since: June 1, 2004 Employment history: Raute Corporation 1987–2004: various positions such as Engineering Manager, Production Director Raute shares and stock options:

1,750 pcs series A shares

9,500 pcs stock options 2010 A

Timo Kangas

b. 1965, Engineer Group Vice President, Technology Services, October 1, 2004 With the Company since: 2004– Member of the Executive Board since: October 1, 2004 Employment history: Raute Corporation 2004: Maintenance Service Manager; YIT Corporation, 1999– 2004: various positions such as Key Account Manager, Area Manager Raute shares and stock options: 1,750 pcs series A shares 9,500 pcs stock options 2010 A

Bruce Alexander

b. 1959, B.Sc. (For.), MBA Group Vice President, North American Business Operations; President, Raute's North American companies, March 6, 2000– With the Company since: 2000– Member of the Executive Board since: June 1, 2004 Employment history: International Forest Products Ltd., 1988–2000: various positions, such as Corporate Development Manager, Divisional Manager Raute shares and stock options: 1,750 pcs series A shares 9,500 pcs stock options 2010 A

>> Holdings of Raute shares and stock options on December 31, 2010. The figures include their own holdings, as well as those of their minor children and control entities.

Information to shareholders

Raute is a financially sound small-cap company with a background of family ownership. The company operates globally and is the leader in its field.

In all of its communication, Raute complies with the requirements for listed companies as defined by the Securities Markets Act and the rules of the NASDAQ OMX Helsinki Ltd regarding prompt and simultaneous disclosure of information.

Investor relations

Raute's investor relations strive for prompt, transparent and high-quality service.

Investor contacts:

Tapani Kiiski, President and CEO Arja Hakala, CFO tel. +358 3 829 11 email: ir@raute.com

Raute shares

Raute Corporation has two series of shares. Series A shares have been quoted on the NASDAQ OMX Helsinki Ltd since 1994. Share quotations can be followed online at www.raute.com.

Series A share

• Trading code: RUTAV
• Number of shares: 3,013,597 pcs
• Votes/share: 1 vote
• Series K share
• Number of shares: 991,161 pcs
• Votes/share: 20 votes.

Annual General Meeting

Raute Corporation's Annual General Meeting will be held on Wednesday, April 13, 2011 starting at 6:00 p.m. at Sibelius Hall, Ankkurikatu 7, Lahti, Finland.

To be entitled to attend the Annual General Meeting, shareholders must be registered in the shareholders' register maintained by Euroclear Finland Ltd at the latest on April 1, 2011.

Shareholders with nominee-reg-

istered holdings are encouraged to request from their trustees the necessary instructions concerning registration in the Company's shareholders' register, letters of proxy, and registration at the meeting.

Shareholders who wish to attend the Annual General Meeting must register for it by 4:00 p.m. on Thursday, April 7, 2011

• by writing to Raute Corporation, P.O. Box 69, FI-15551 Nastola, Finland,
• by email to eija.salminen@raute.com,
• by sending a fax to +358 3 829 3582 or
• by calling +358 3 829 3302, Ms. Eija Salminen

Any letters of proxy should be delivered as originals to the address Raute Corporation, Eija Salminen, P.O. Box 69, FI-15551 Nastola, Finland before the end of registration.

Dividend policy

Raute exercises an active dividend policy. Its aim is to ensure competitive returns for its investors. Dividend payment takes into account future investment needs and the goal of maintaining a solid equity ratio. Due to the nature of the project business, the dividend is not directly tied to the annual result.

Payment of dividend

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.30 per share be paid for both series A and K shares. The date of payment is April 27, 2011 and the respective record date is April 18, 2011. Dividends will be paid to shareholders who are registered in the shareholders' register maintained by Euroclear Finland Ltd on the record date.

Financial information

Raute publishes financial information (Annual Report, Financial Statements, and Interim Reports) and Stock exchange releases and announcements in Finnish and English. Financial information materials and other information on Raute are available on Raute's website at www.raute.com. The printed Annual Report will be mailed to the 200 largest shareholders and to others by request. Financial publications can be ordered in print or as printouts by phone from +358 3 829 11 or by email from ir@raute.com.

In 2011 Raute Corporation will publish three interim reports:

• January–March on Wednesday May 4, 2011
• January–June
• on Tuesday August 9, 2011
• January–September
• on Tuesday November 1, 2011

SHARE OWNERSHIP BY SHAREHOLDERS CATEGORY

1. Households 83.7% 2. Financial and insurance institutions 5.5% 3. Companies 4.3% 4. Foreign shareholders 2.3% 5. Nominee-registered 2.1% 6. Public institutions 1.5% 7. Non-profit shareholders 0.5%

LARGEST SHAREHOLDERS AT DEC. 31, 2010

	BY NUMBER OF SHARES	Number of series K shares	Number of series A shares	Total number of shares	% of total shares	Total number of votes	% of voting rights
1.	Sundholm, Göran		601 433	601 433	15.0	601 433	2.6
2.	Suominen, Jussi Matias	48 000	74 759	122 759	3.1	1 034 759	4.5
3.	Mustakallio, Kari Pauli	60 480	60 009	120 489	3.0	1 269 609	5.6
4.	Suominen, Pekka	48 000	62 429	110 429	2.8	1 022 429	4.5
5.	Suominen, Tiina Sini-Maria	48 000	62 316	110 316	2.8	1 022 316	4.5
6.	Siivonen, Osku Pekka	50 640	53 539	104 179	2.6	1 066 339	4.7
7.	Mandatum Henkivakuutusosakeyhtiö		96 900	96 900	2.4	96 900	0.4
8.	Kirmo, Kaisa Marketta	50 280	41 826	92 106	2.3	1 047 426	4.6
9.	Lisboa De Castro Palacios Hietala, M.		85 000	85 000	2.1	85 000	0.4
10.	Keskiaho, Kaija Leena	33 600	51 116	84 716	2.1	723 116	3.2
11.	Mustakallio, Mika Tapani	49 180	34 670	83 850	2.1	1 018 270	4.5
12.	Särkijärvi, Anna Riitta	60 480	22 009	82 489	2.1	1 231 609	5.4
13.	Mustakallio, Ulla Sinikka	47 240	30 862	78 102	2.0	975 662	4.3
14.	Sijoitusrahasto Alfred Berg Small Cap F.		76 000	76 000	1.9	76 000	0.3
15.	Mustakallio, Marja Helena	43 240	20 162	63 402	1.6	884 962	3.9
16.	Relander, Harald Bertel		61 350	61 350	1.5	61 350	0.3
17.	Kirmo, Lasse	30 000	26 200	56 200	1.4	626 200	2.7
18.	Särkijärvi-Martinez, Anu Riitta	12 000	43 256	55 256	1.4	283 256	1.2
19.	Särkijärvi, Timo	12 000	43 256	55 256	1.4	283 256	1.2
20.	Suominen, Jukka Matias	24 960	27 964	52 924	1.3	527 164	2.3
TOTAL		618 100	1 575 056	2 193 156	54.8	13 937 056	61.0

DEVELOPMENT IN SHARE PRICE, EUR

DEVELOPMENT OF THE NUMBER OF SHAREHOLDERS

MARKET VALUE OF CAPITAL STOCK AT DEC. 31, EUR million

Series K shares appreciated to the value of series A shares.

Stock exchange releases and announcements 2010

January

January 20	Raute's annual review 2009
January 25	Raute to receive a significant order for a plywood mill in the Asia-Pacific region
February
February 4	Appointments Committee's proposal regarding composition of Raute Corporation's Board of Directors
February 11	Raute Corporation – Financial statements January 1 – December 31, 2009
February 16	Raute plans to concentrate production activities to the Nastola plant
March
March 9	Raute's Annual Report, Financial statements and Corporate Governance Statement for 2009 published
March 9	Invitation to Raute Corporation's Annual General Meeting
March 30	Raute to concentrate production activities to Nastola
March 31	Decisions of Raute Corporation's Annual General Meeting 2010
April
April 1	Raute Corporation's Board of Directors' independence and Board committees
April 22	Disclosure under chapter 2, section 10 of the Finnish Securities Market Act
April 29	Raute Corporation – Interim report January 1 – March 31, 2010
August
August 3	Raute Corporation – Interim report January 1 – June 30, 2010
October
October 1	Raute to have an EUR 4 million profit from the sale of its factory facility in Canada – operating result for 2010 to be positive
October 8	Raute continues adaptation to market situation and initiates employee negotiations on new measures
October 27	Raute Corporation's financial releases in 2011
October 28	Raute Corporation – Interim report January 1 – September 30, 2010
November
November 3	Raute to receive an order for machinery and equipment for an LVL plant in China
November 19	Raute Corporation's employee negotiations concluded

December

December 27 Raute to have an EUR 15 million order to China

>> UP-TO-DATE INFORMATION for investors is available in the investor section of Raute's website at www.raute.com. The section contains information on the company as an investment, annual reports and stock exchange releases published by the company, as well as information on Raute's share and shareholdings.

Contacts

Raute Corporation

Head office and main production plant Rautetie 2 P.O. Box 69 FI-15551 Nastola Finland Tel. +358 3 829 11 Fax +358 3 829 3200 www.raute.com

Raute Corporation

Jyväskylä unit Laukaantie 4 FI-40320 Jyväskylä Finland Tel. +358 3 829 11 Fax +358 14 445 4429

Raute Corporation

Mecano Business Syväojankatu 8 FI-87700 Kajaani Finland Tel. +358 3 829 11 Fax +358 8 612 1982

Raute Canada Ltd.

1633 Cliveden Avenue Delta, B.C. Canada V3M 6V5 Tel. +1 604 524 6611 Fax: +1 604 521 4035

Raute US, Inc.

c/o Centrepot Int'l 5265 Hickory Hill, Ste 104 Memphis, TN USA 38141 Tel. +1 901 853 7290 Fax +1 901 853 4765

Raute Chile Ltda.

Hernando de Aguirre 162 Of. 704 Providencia Santiago Chile Tel. +56 2 233 4812 Fax +56 2 233 4748

Raute Group Asia Pte Ltd.

35 Jalan Pemimpin # 06–02 Wedge Mount Industrial Building Singapore 577 176 Tel. +65 625 043 22 Fax +65 625 053 22

Raute (Shanghai) Machinery Co., Ltd

18 Building, No. 399, Yuan Zhong Road Nan Hui District, Shanghai City, China P.C. 201300 Tel. +86 21 5818 6330 Fax +86 21 5818 6322

Raute (Shanghai) Trading Co., Ltd

17 Building, No. 399, Yuan Zhong Road Nan Hui District, Shanghai City, China P.C. 201300 Tel. +86 21 5818 6330 Fax +86 21 5818 6322

Raute Corporation

Moscow Representative Office ul. Raspletina, d. 28, Office 8 123060 Moscow Russia

Tel. +7 499 272 47 20 Fax +7 499 272 47 31

Raute Service LLC

Moskovsky prospekt, 212 A, Office 4011 196066 St. Petersburg Russia Tel. +7 812 363 20 33 Fax +7 812 363 20 59

www.raute.com