Rautaruukki is a listed company that manufactures value ... 700 employees. Boosting sales revenue...

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Rautaruukki is a listed company that manufactures value-addedsteel products and provides tailored service for its customers.

YEAR 2002 IN BRIEF

Turnover by marketarea 2002

External turnoverby division 2002

Turnover

1 Finland 27%2 Scandinavia 28%3 Other EU-countries 32%4 Other parts of Europe 10%5 Other countries 3%

1 Rautaruukki Steel 30%2 Metform 12%3 Steel Structure Div. 11%4 Fundia 25%5 Steel Service 22%

• Average prices of steel products were lower than in 2001

• Rautaruukki reported a pre-tax loss of EUR 46 million

• Earnings were burdened by high non-recurring costs

• A programme of measures was launched to improve profitability

• Prices of steel products have risen since the second quarter of 2002

• The fourth-quarter result swung to profit

2002 2001

Turnover, M€ 2,884 2,906

Operating profit, M€ 6 93% of turnover 0,2 3.2

Profit/loss before extraordinary items, M€ –46 41% of turnover –1.6 1.4

Profit/loss before taxes, M€ –46 41% of turnover –1.6 1.4

Interest bearing net debt, M€ 1,092 1,087

Return on net assets, % 0.6 5.0

Return on equity, % –4.3 3.4

Equity ratio, % 31.1 33.3

Earnings per share, € –0.26 0.22

Equity per share, € 5.81 6.21

Personnel on average 13,325 13,678

Rautaruukki 20022

The year 2002 was difficult for Rauta-ruukki and we posted a loss. Theweakening in our result was due main-ly to the loss-making operations ofFundia Wire and to a decline in Rauta-ruukki Steel’s earnings. It wasn’t untilthe last quarter of 2002 that our operat-ing result swung clearly into the black,paving the way for a positive earningstrend in 2003.

In assessing last year’s result, itmust be borne in mind that non-recur-ring costs were exceptionally high.

Fundia Wire’s result was still deepin the red. The main factors affectingthe result were low prices and a lowlevel of production, which was due tothe disruptions caused by carrying outthe investments for the restructuringand development programme and tostart-up difficulties. Completion of theprogramme will improve the division’searnings this year, but it will not feedthrough to the full extent until 2004.The effects of the restructuring anddevelopment programmes at Fundia’sother business units have alreadyshowed up last year in the form of pos-itive earnings growth.

Last year Rautaruukki Steel fellshort of its earnings objective owing tolower prices, higher costs and produc-tion problems. The 2.8 million tonnerate of steel output that was targetedfor the investments was achieved inthe last quarter of the year. This yearthe objective is an annual output of 2.8million tonnes. Rautaruukki Steel’s op-erational result in the last quarter of2002 was already moderately good,and the positive trend is estimated tocontinue.

Of our divisions, Metform and theSteel Service Division improved theirearnings last year. The Steel StructureDivision maintained the previousyear’s earning level.

Improving competitivenessRautaruukki is carrying out forcefulmeasures aiming at improving theprofitability of its flat products.

Reducing fixed costs is the objec-tive that we can reach fastest in ourdrive to restore competitiveness. To-

STATEMENT BY THE PRESIDENT

Dear shareholders

wards the end of 2002, measures werelaunched at the Group’s integrated flatproducts divisions in order to lowerfixed costs by 50 million euros. Themeasures will be carried out during2003 and they will kick in partially in2003 and to the full extent in 2004.

Cutting fixed costs will be carriedout mainly at Rautaruukki Steel, Met-form and the Steel Service Division aswell as within Group Administration.

Three-quarters of the reduction in

fixed costs will come from lower per-sonnel costs. A provision for the costshas been entered as a charge to earn-ings in 2002. As a consequence of thestaff downsizing, Rautaruukki’s per-sonnel strength will fall by a total ofabout 700 employees.

Boosting sales revenueDuring 2002 we initiated measuresaiming to improve the product mix.This means increasing market shares in

Rautaruukki 2002 3

core markets and boosting the propor-tion of good-margin products, primari-ly speciality products, in our deliver-ies. At the integrated flat productsunits, speciality products presently ac-count for a quarter of the deliveries,and this proportion will be raised overthe next few years to a third of totaldeliveries. Part of the speciality prod-ucts are marketed as brands: Laser,Optim, Litec, Silver and Hiarc. Lastautumn Rautaruukki set new andmore sharply defined objectives for itsoverall brand policy.

Reducing production costsIn 2002 we set in motion stepped-upmeasures for reducing the productioncosts of the integrated flat productsunits. A number of production lineswere modernised as part of Rauta-ruukki Steel’s investment programmethat was completed a couple of yearsago. As early as the second half of 2002we achieved good results in improvingthe capacity utilisation rates and out-puts of the lines calling for new typesof skills and we succeeded in loweringerror-related costs. We are pushingahead with this work. The improve-ment of delivery reliability and preci-sion will also support achievement ofour objective.

We are furthermore seeking costsavings in our purchasing operationsas well as by reducing specific energyconsumption.

The profitability of rolling produc-tion will also be improved by the in-crease in Rautaruukki Steel’s own steeloutput by more than 200,000 tonnes in2003, bringing a corresponding de-crease in the use of purchased slabs.

Closed steel marketsThe import tariffs which the UnitedStates imposed on steel products inMarch 2002 placed the world’s steelmarkets in a new kind of situation. Asa consequence of these measures, anumber of countries, including the EU,imposed their own import tariffs orprotective measures which sought tolimit imports of steel products. In this

way, the world market for steel prod-ucts shifted in part towards regulatedtrade.

In April of last year the EuropeanUnion imposed its own protectivemeasures, extending them in Septem-ber by 2.5 years.

The partial closing up of the worldsteel market initially led to a sharp risein product prices in the United States,but thereafter product prices headedinto a marked decline. Concurrently,the good demand for steel products inthe markets of China and South-EastAsia and the strengthening in productprices have helped to restore the bal-ance of the global steel markets.

Last autumn the United States re-laxed its protective measures to someextent. There would thus seem to besome signs of a normalisation in thesituation in the steel market, but it willprobably take time before we return tothe regime that prevailed prior to theUnited States’ import tariff decision.

2003 fraught with uncertaintyAccording to forecasts at the presenttime, economic growth in Europe in2003 is estimated to be at the previousyear’s level. Factors of uncertainty re-lating to international politics maynevertheless lead to a worldwide slow-down in the economic trend.

The rise in the prices of steel prod-ucts that got under way in Europe inthe second quarter of 2002 has contin-ued in the first quarter of 2003. Howwell the supply and demand of steelproducts are in balance is of essentialimportance for the price trend in theEuropean market. It is important thatEuropean steel companies’ own outputdoes not grow faster than the demandfor steel products.

The level of imports to westernEurope is a factor that also affects thetrend in product prices. Owing to theEU’s protective measures, the supplyof steel products is estimated to remainmoderate despite import pressures.

Providing that the factors of eco-nomic uncertainty do not materialise,we estimate that the operating envi-

ronment for the steel industry will besomewhat better than it was last year.This, coupled with the implementationof our own measures, offers the poten-tial for a continuance, across Rauta-ruukki’s units, of the positive earningstrend that was reached towards theend of 2002.

Warm thanks for these yearsThis survey of 2002 is the last which Iwill write as Rautaruukki’s president,because I am retiring at the beginningof 2004. I have worked in different po-sitions with Rautaruukki since 1967and have been president since 1982.Sakari Tamminen has been elected asmy successor as from the beginning ofnext year. I know that Rautaruukki willremain in the hands of an experienced,skilful and able leader.

The steel business is an interestingindustry. My time at Rautaruukki hasspanned the company’s pioneer phaseand the years of growth and interna-tionalisation. The steel business is char-acterised by sharp fluctuations in thebusiness cycle, and Rautaruukki toohas had very good years but also diffi-cult ones. Rautaruukki has been devel-oped with an eye to the long term,across the ups and downs of the busi-ness cycle.

In business, change is the onlything that is certain. Major changeshave taken place in the steel industryover the past years. Rautaruukki ischanging too and I am convinced thatthe change – which will unfold in theform of growth and improved profita-bility – will accrue to the benefit of ourshareholders and all of Rautaruukki’sstakeholders.

I wish to thank our shareholders,customers and all other stakeholdersfor your co-operation during theseyears. An especially warm vote ofthanks goes to all my co-workers –Rautaruukki men and women – for myyears at Rautaruukki.

Helsinki, 10 March 2003Mikko Kivimäki

Rautaruukki 20024

STRATEGY AND GOALS

Financial goalsIt is our goal that the total return on a Rautaruukki share makes it a competitive investment. This means deliberate balanced development in the areas of profitability, growth and cash flow.• Return on net assets on average ≥ 15 %• Equity ratio over 40 %• Gearing ratio down to a level of 50 %• Return on assets and share price development better than the average

of the comparison group of steel companies

Dividend policyRautaruukki follows a competitive and stable dividend policy, which also takes into account the Group’s earnings trend and the need to strengthen the company’s equity ratio.

Rautaruukki’s objectiveThe company’s value is being raised on a long-term basis taking into account various stakeholdergroups and the principles of sustained development.

VisionTomorrow's Rautaruukki is a leading company on its main market, the Nordic countries, and nearby emerging markets delivering value added steel products combined with comprehensivecustomer service and based mainly on its own cost-efficient steel production.

Main principles in strategyThe starting point for the strategy is to further strengthen the company’s market position in itsmain market areas. This will be achieved through our indepth knowledge of customer needs,which forms the basis for building advanced service that is superior to that of our competitors,and through a customer-oriented, tailored and diverse product range.

The foundations for building an permanent competitive edge are effective managementand utilization of knowledge and skills.

The strategy is at the same time based on cost-effective integrated production chains,stretching from raw materials to added value products, and on flexibility in production and in themarkets so that the company is better able to withstand economic fluctuations than its competitors.

Basic values• We help our customers to succeed• We develop our skills through working together• Our keys to success are profitability and quality• We respect the environment

Ethical values• Reliability• Openness• Sense of responsibility• Respect for the individual

Rautaruukki 2002 5

Rautaruukki has implemented pur-posefully its strategy based on a highdegree of upgrading, good customerservice, a strong position in its coremarkets and cost-effectiveness. TheGroup’s profitability trend in recentyears has nevertheless not been in linewith objectives. Accordingly, in 2002 anearnings improvement programmewas launched at the integrated flatproducts units, i.e. Rautaruukki Steel,Metform, the Steel Structure Divisionand the Steel Service Division.

Forceful measures to improve competitiveness

Rautaruukki’s paramount near-term objective is to achieve a sub-stantial improvement in competitiveness. The ongoing measuresbegan to kick in during the last quarter of 2002, and they willimprove Rautaruukki’s competitiveness in 2003. The measureswill feed into earnings to the full extent in 2004.

RAUTARUUKKI’S NEAR-TERM OBJECTIVE

FUNDIA

METFORM

RAUTARUUKKI STEEL

Rautaruukki’s steel production and upgrading

C U

S T

O M

E R

S

HOT ROLLED PRODUCTSCOLD ROLLED PRODUCTS

COATED PRODUCTSPREFABRICATED PRODUCTS

STEEL ROOFINGLOAD BEARING SECTIONS

FACADE ELEMENTS

STRUCTURAL TUBESLINE PIPES

UPGRADEDPRODUCTS

STEELWORKS

MO I RANA

STEEL WORKSSMEDJEBACKEN

STEEL WORKSKOVERHAR

STEEL STRUCTUREDIVISION

MANUFACTUREOF COMPONENTS

MANUFACTURE OFWELDED TUBES

HOT STRIPROLLING

STRIP ROLLING

PLATE ROLLINGSTEEL

PRODUCTIONRAAHE COLD

ROLLINGHOT DIPGALVAN.

COLOURCOATING

STEE

L SE

RV

ICE

REINFORCINGBARS, WIRES

UPGRADED PRODUCTSREINFORCING

UPGRADING

SPECIAL BAR WIRE

UPGRADING

Flat products

Long products

At Fundia, which manufactureslong products, the restructuring pro-gramme initiated at the end of 2000was also completed at Fundia Wire.The planned production level is ex-pected to be reached early in 2003. Thecarrying through of the programmewill improve Fundia’s profitability in2003.

The earnings-improvement pro-gramme for the integrated flat prod-ucts units consists of a number of sep-arate projects, the central objectives of

which are:• To lower fixed costs• To improve the margin on materi-

als, i.e. a better costs to sales in-come ratio

• To reduce the amount of capitaltied up in operations and to im-prove its yield.

The most important earnings benefitsfrom the programme are estimated tocome from an improvement in themargin on materials. This will be ac-complished by developing the productmix and lowering production costs.

Trimming fixed costsIn autumn 2002, measures were startedat Rautaruukki Steel, Metform and theSteel Service Division with the aim ofcutting fixed costs. The objective is tolower fixed costs by 50 million euros,

Rautaruukki 20026

three quarters of which will come fromlower personnel costs. Decisions onreducing the personnel by 700 employ-ees have already been taken.

The lowering of fixed costs willaffect the Group’s earnings right to-wards the end of 2003. The cost savingswill feed into earnings to the full extentas from the beginning of 2004.

Improving the product mixThe product mix for the Group’s flatand tubular products will be improvedby selling products to the most profit-able markets and by boosting sales ofhighly upgraded and speciality prod-ucts, which yield better margins. Thedevelopment of the product mix willbe aided significantly by the new ac-counting system, which allows costs tobe allocated more precisely to differentproducts and customers across the en-tire manufacturing chain for flat prod-ucts. Businesses that do not meet theprofitability targets set will be devel-oped further or else peeled off, if feasi-ble.

Rautaruukki’s integrated flatproducts units have also placed in usethe RADAR system (Rautaruukki Ac-curate Demand and Response), whichimproves the ability to forecast thetrend in demand for steel products andto adapt sales and production tochanges in the market situation. TheRADAR system also improves co-oper-ation between the divisions, enhancesproduction and logistics functions andoptimises operations across the entireupgrading chain.

With the aim of implementing thenew operational model, outlays havebeen made on developing the skills ofthe sales and production staff. Saleswork has been reorganised in order toincrease cost-effectiveness. The salescompanies for flat products and longproducts were combined outside Fin-land. Metform made its plants central-ly responsible for sales functions out-side Finland.

Rautaruukki’s electronic tradingsystem is up and running, and thenumber of customers who use it isgrowing gradually. Farthest along in

exploiting the electronic trading sys-tem is the Steel Structure Division,whose Rannet system is used to handlethe daily sales functions of Rannila’sown subsidiaries and resellers.

Increasing productioncost-effectivenessProduction efficiency is being steppedup by improving the capacity utilisa-tion rates and outputs of productionlines as well as by reducing error-relat-ed costs. These measures will bringabout lower material, energy, and la-bour costs per tonne manufactured.Specialised programmes have been putin place to enhance purchasing and lo-gistics.

Rautaruukki Steel’s steel output isestimated to rise to the planned 2.8million tonne level in 2003. This willreduce significantly the use of pur-chased slabs and thereby lower themanufacturing costs of rolled prod-ucts. In 2002 production was down byjust over 200,000 tonnes owing to inter-im repairs to Blast Furnace No. 1 andbecause of unexpected operational dis-turbances.

With the aim of decreasing thecapital that is tied up in the Group’soperations and employing capitalmore efficiently, the divisions carry outtheir own action programmes. The ob-jective is to lower working capital as a

proportion of turnover by several per-centage points from the present 26 percent level. Over the next few years cap-ital expenditures will be at a level thatdoes not exceed depreciation.

Leveraging strategic success factorsRautaruukki’s success factors, apartfrom cost-effectiveness, are strong cus-tomer service, a focus on our naturalcore markets and products with a highdegree of upgrading and added value.

Customer service is centred on aknowledge of the customer, which isthe starting point for developing arange of products and services tailoredto customers’ needs. Compared withits competitors, Rautaruukki operatesflexibly and to short delivery times.The near-term objective is to improvecustomer service by getting the mostout of the entire range of the Group’sproducts and services.

Rautaruukki has a strong positionin its natural core markets in the Nor-dic countries and elsewhere in the Bal-tic Rim. Rautaruukki is seeking busi-ness growth in the fast-growing mar-kets of eastern central Europe and east-ern Europe. At present, about 10 percent of the Group’s sales go to thesemarkets, but the objective is to raise theshare to 15 per cent. The focus ofgrowth will be on the businesses of the

Rautaruukki’s near-term objective

Rautaruukki’s galvanised LITEC steels have been developed for the needs of thevehicle industry. Ultra high-strength steels are used in the side impact beams andsafety beams of cars and in many other applications.

Rautaruukki 2002 7

Steel Structure Division and the SteelService Division.

Rautaruukki’s production has ahigh degree of upgrading. More thanhalf of the turnover comes from thesales of colour-coated strip products,tubular products, construction prod-ucts, Fundia’s upgraded products orprefabricated plate products. Withinflat and tubular products, the propor-tion of speciality products and relatedservices is growing continually. Speci-ality products mean grades of steel thatexceed standard characteristics as wellas value-added products manufac-tured from them or products having avery high degree of customised servicefor a specific customer or application.

Speciality productsto be marketed as brandsRautaruukki is investing heavily inspeciality products that are sold asbrand products. The Group has re-vamped its brand management policythat supports sales and marketing.Rautaruukki is seeking to develop intoone of the leading marketers of brandproducts in the steel industry.

The Group has a hierarchicalbrand structure. Highest up is theGroup brand, Rautaruukki, whose cen-tral tenets are to provide added valuefor customers, to ensure a close link be-tween customer relationships andprofitability and to operate in compli-ance with the principles of sustainabledevelopment. The strategic strengthsof the Group brand are customer

know-how, a commitment to co-opera-tion with our customers and the policyof acting as a valued partner in co-op-eration.

On the second level are offeringbrands, which are often extensive inte-grated packages of products and serv-ices.

The offering brands are:• LASER for laser cutting• strong and easily formable OPTIMfor the engineering industry• LITEC, which makes possiblelightweight and strong structures forthe needs of the automotive industry• SILVER tubular steel products thatare well suited to bending and form-ing, and• colour-coated HIARC, which hasbeen developed for facade solutions

The third brand level comprises thebusiness area brands Fundia, Asva,Rannila and Gasell. Fundia is thebrand for long steel products. Asva isthe brand for the steel service business.Rannila is the brand for constructionand system products, especially in Fin-land as well as in eastern and centralEurope. Gasell is the correspondingbrand in Scandinavia. Fundia, Rannilaand Gasell have their own brands.

Rautaruukki 20028

FIVE-YEAR STATISTICS

2002 2001 2000 1999 1998

Turnover M€ 2,884 2,906 2,708 2,388 2,579Personnel on average 13,325 13,678 13,176 13,219 13,409

FINANCEOperating profit M€ 6 93 156 57 186

% of turnover % 0.2 3.2 5.8 2.4 7.2Profit/loss before extraordinary items M€ –46 41 106 –6 127

% of turnover % –1.6 1.4 3.9 –0.2 4.9Profit/Loss before taxes M€ –46 41 81 –6 109

% of turnover % –1.6 1.4 3.0 –0.2 4.2Return on net assets % 0.6 5.0 8.7 3.3 10.4Return on equity % –4.3 3.4 8.2 –2.0 9.7Equity ratio % 31.1 33.3 34.1 34.6 36.9Gearing ratio % 138 129 118 121 109Gross investments M€ 142 162 176 197 235

% of turnover % 4.9 5.6 6.5 8.2 9.1Research and development M€ 17 19 20 20 18

% of turnover % 0.6 0.7 0.7 0.8 0.7Net interest expenses M€ 50 49 50 50 61

% of turnover % 1.7 1.7 1.8 2.1 2.4Interest-bearing net debt M€ 1,092 1,087 1,017 1,014 954Total assets M€ 2,561 2,559 2,523 2,432 2,402

SHARE BASED KEY FIGURESEarnings per share, EPS € –0.26 0.22 0.51 –0.13 0.64– diluted € –0.26 0.21 0.49 –0.13 0.63Equity per share € 5.81 6.21 6.23 6.02 6.44Dividend per share € 0.00* 0.20 0.25 0.20 0.30Dividend per earnings % 0,0* 91.9 49.4 –154.6 47.3Price per earnings, P/E –13.2 18.8 7.6 –53.7 8.6Share trading thousands 33,902 39,038 34,318 41,116 68,150Stock turnover % 25 29 25 30 51Share trading M€ 145 162 166 254 443Average price of share € 4.26 4.16 4.83 6.18 6.50Lowest price of share € 3.36 3.59 3.45 5.10 4.29Highest price of share € 5.30 4.85 7.20 7.30 8.16Average adjusted number of shares thousands 135,616 136,132 138,462 135,109 133,228– diluted thousands 136,016 138,947 142,183 138,699 134,939Adjusted number of shares at year end thousands 138,886 138,886 138,886 138,886 133,228Number of shares at year end thousands 138,886 138,886 138,886 138,886 133,228– not counting own shares thousands 135,616 135,616 137,540 138,886 133,228– diluted thousands 136,016 138,431 141,355 142,476 135,779Share price at year end € 3.44 4.10 3.82 6.95 5.53Market capitalisation at year end M€ 478 569 531 965 737Effective dividend yield % 0.0* 4.9 6.5 2.9 5.5

* Board proposal

Rautaruukki 2002 9

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Flat steel products, prices in Germany, €/tSource: CRU, basis transaction prices

Long steel products, prices in Germany, €/tSource: CRU, basis transaction prices

GROUP REPORT

Business environment and marketDemand for steel products in Europewas slightly lower than in 2001, whiledemand in the United States remainedat the same level. Demand for steelproducts grew in China, SoutheastAsia and Eastern Europe.

In March the United States im-posed 8–30 per cent import tariffs onimported steel products. Since then theUnited States has exempted some steelproducts from the import tariffs, butthe tariffs still apply to the bulk of steelproducts imported into the UnitedStates.

At the end of March the EuropeanUnion imposed protective measuresthat were in force for six monthsagainst the import of steel productsinto the EU countries. According tothese measures, imports can exceed bya maximum of 10 per cent the averagevolume of imports during 1999–2001,the amount in excess of this being sub-ject to a 15–26 per cent tariff. At the endof September the EU decided to contin-ue the protective measures for another2.5 years. Excluded from the protectivemeasures so far are, among other prod-ucts, bar steels and heavy plates, forwhich any protective measures will bedecided by the end of February 2003.

Due to the protective measures,imports of steel products into the EUwere lower than in 2001. The exportand import of steel products were bal-anced in the EU area. Stocks of steelproducts in Europe were at normal lev-els at the end of the year.

In Europe prices of steel productswere very low at the beginning of theyear but they began to strengthen assupply and demand reached a balancefrom the second quarter onwards. Av-erage prices for the year were, howev-er, lower than the previous year.

In the United States the prices ofsteel products, which rose sharply atthe beginning of the year due the con-traction of the supply, declined signif-icantly as supply increased in the sec-

ond half of the year. Average prices forthe year were, however, higher thanthe previous year. In the countries ofSoutheast Asia the prices of steel prod-ucts strengthened.

World steel output grew by 6 percent compared with 2001, of which asignificant contribution came from in-creased production in China. Steel out-put in European Union countries wasat the previous year’s level, and in therest of Europe it grew by 3 per cent.

A swing to profit in the fourth quarter –full year in the red

Turnover by division, EUR million

2002 2001

Rautaruukki Steel 1308 1316Metform 367 351Steel Structure Division 321 311Fundia 731 724Steel Service 646 702Other units 171 150less internal invoicing – 660 – 648

Consolidated turnover 2884 2906

Operating profit/loss by division, EUR million

2002 2001

Rautaruukki Steel 9 83Metform 17 12Steel Structure Division 12 10Fundia – 17 – 4Steel Service 23 9Other units and internal items – 36 – 16

Consolidated operating profit 6 93

Coldrolledcoils

Hotrolled coils

Hot rolled plates

Rebars

Merchant bars

Wire rod

Medium sections

Hot dip galvanized

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Iron scrap, €/tCoking coal, USD/tIron ore, USD/t/Fe %

Source: Metal Bulletin, LKAB Kiruna B fines Source: Coal Week International, US Hampton Roads Source: Metal Bulletin, HMS1 fob Rotterdam

Rautaruukki in the marketRautaruukki Steel’s output was2,562,000 tonnes (2,565,000). Because ofoperating disturbances and interim re-pairs made to Rautaruukki Steel’s BlastFurnace No.1 in July, steel productionfell more than 200,000 tonnes short ofthe target level. Since the interim repairof the blast furnace, steel productionhas been at the target level of 2.8 mil-lion tonnes per year.

Fundia’s steel output was1,688,000 tonnes (1,604,000). Interimrepairs to the Fundia Koverhar blastfurnace were carried out in August.

The Group’s deliveries of flat andtubular products were 3 per cent great-er than in 2001. The average price ofdeliveries was 3 per cent lower thanthe previous year. In the final quarterof the year, the average price of deliv-eries was 1 per cent higher than in theprevious quarter.

Deliveries of long steel productsfell by 2 per cent. Deliveries of rebarsteels and bar products grew. Deliver-ies of wire products and hot-rolled pro-files declined. The average price oflong steel products was 1 per centhigher than in 2001. In the final quarterof the year, the average price of deliv-eries was 1 per cent lower than in theprevious quarter.

The average price of deliveries isinfluenced by product mix and marketarea changes as well as by the generaltrend in prices.

Turnover and financial resultConsolidated turnover was EUR 2,884million (2,906).

Prices of iron raw materials wereon average 6 per cent lower and theprice of coking coal was 1 per centhigher than in 2001. The price of elec-tricity was 9 per cent higher and theprice of scrap used by Fundia was 8per cent higher than in 2001.

Operating profit was EUR 6 mil-lion (93). The lower prices of Rautaruu-kki Steel’s deliveries and the loss onoperations at Fundia Wire contributedto the weakening of the operating prof-it. Fundia Wire’s financial performancewas influenced by production prob-lems and higher costs resulting fromthe implementation of the restructur-ing and development programme aswell as the low prices for wire rods.

Non-recurring costs totalled EUR27 million, of which the most signifi-cant was a provision of EUR 20 millionarising from agreed reductions in per-sonnel numbers at Rautaruukki Steeland Metform. Another EUR 7 millionin non-recurring costs resulted fromwrite-downs on Fundia’s fixed assetsand provisions made for certain re-structuring measures.

Contributions to the RautaruukkiPension Fund were EUR 12 millionhigher than last year, mainly as a resultof the slide in share prices.

Operating profit for the final quar-ter of 2002 was EUR 17 million

(–12), which includes non-recurringcosts of EUR 20 million and capitalgains amounting to EUR 7 million.

The Group’s other operating in-come was EUR 15 million (17). The lossbefore extraordinary items and taxeswas EUR 46 million (+41). Return onnet assets was 0.6 per cent (5.0).

The loss before taxes and minorityinterest was EUR 46 million (+41). Theloss for the financial year was EUR 35million (+30).

FinancingRautaruukki’s gearing ratio was 138per cent (129) and equity ratio was 31.1per cent (33.3). Equity per share at theend of the year was EUR 5.81 (6.21).Total assets were EUR 2,561 million(2,559).

Working capital declined by EUR3 million. Cash flow from operationswas EUR 152 million (141) and cashflow before financing EUR 23 million(–9). The Group’s interest-bearing netdebt stood at EUR 1,092 million (1,087).The short-term position of interest-bearing loans was EUR 205 million(216) and the long-term position EUR943 million (912).

On 25 September 2002 Rauta-ruukki issued two callable subordinat-ed notes with a total nominal value ofEUR 104 million.

The Group’s liquidity was goodthroughout the year. The ratio of finan-cial assets and inventories to short-

Group report

Rautaruukki 2002 11

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Gearing ratio

Operating profit Profit / loss beroreextraordinary items

Equity ratioGross investments

Return on net assets

term liabilities at the end of the yearwas 1.9 (1.8). At the end of 2002 theGroup had uncommitted revolvingcredit facilities with banks totallingEUR 284 million.

Net interest expenses were EUR 50million (49) and their proportion of netsales was 1.7 per cent (1.7). Financialexpenses totalled EUR 52 million (52).Financial expenses include a gain onforeign exchange of EUR 1 million (–1).The operating result includes a loss onforeign exchange of EUR 12 million(+6). The average interest on theGroup’s net debt at the end of the yearwas 4.9 per cent (4.6).

Capital expenditureGross expenditure on fixed assets to-talled EUR 142 million (162) and netcapital expenditure EUR 129 million(150).

Outlook for 2003In the EU countries demand for steelproducts is forecast to grow slightly.

The prices of strip products and certainlong steel products have strengthenedin the first quarter of 2003. During thelatter part of the year, the price devel-opment of steel products will be influ-enced substantially by the level of theEU countries’ own production and thelevel of imports into the EU.

In the United States demand forsteel products is expected to growslightly. Prices of steel products mayweaken due to growth in the UnitedStates’ own production and higher ex-ports. In the countries of SoutheastAsia, demand for steel products is ex-pected to increase.

Prices of raw materials for steelproduction will be agreed at the begin-ning of 2003. Prices of raw materials ineuros are not expected to change sub-stantially. The price of electricity, how-ever, is expected to be higher than in2002.

Rautaruukki’s financial perform-ance will be improved by an increasein its own steel output and by meas-

ures already implemented and underway to improve profitability.

Rautaruukki Steel’s output is ex-pected to rise to the target level of 2.8million tonnes. As a result, the use ofpurchased slabs will decline, whichwill in turn reduce the manufacturingcosts of rolled products. Profitabilitywill be improved by the completedFundia Wire restructuring programmeand by the action programme underway in integrated flat product opera-tions.

To improve cash flow, the level ofcapital expenditure will be kept belowthe level of depreciation and measuresto accelerate capital turnover will beenhanced.

Consolidated turnover is forecastto be around EUR 3 billion in 2003. Thedevelopment of steel product priceswill have a substantial impact on finan-cial performance. The operating envi-ronment for the steel industry in Eu-rope is expected to be slightly morefavourable.

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Rautaruukki Steel manufactures and markets steel plate and stripproducts as well as related services. The division’s competitivenessis based on customer-oriented operations and fast and reliabledeliveries coupled with cost-effective manufacturing.

Demand for strip products recoveredin the second quarter of the year andremained satisfactory for the rest of theyear. Demand for heavy plates was sat-isfactory throughout the year. Prices ofstrip products began to pick up in thesecond quarter and continued to risefor the remainder of 2002. The pricelevel of heavy plates remained stable.Average prices for the year were lowerthan in 2001.

Deliveries of Rautaruukki Steelproducts totalled 2,790,000 tonnes(2,683,000). Deliveries of hot-rolled andcolour-coated strip products increased.

Rautaruukki Steel’s sales opera-tion was organised into six businessareas at the beginning of the year.

In the Automotive business area,deliveries of galvanized and ultra-strength products increased, despite afall in automotive industry production.

External salesby region 2002

1 Finland 26%2 Other EU countries 57%3 Other parts of Europe 10%4 Other countries 7%

Key figures 2002 2001

Turnover, M€ 1308 1316Operating profit, M€ 9 83Return on net assets, % 1.0 7.3Steel production, 1000 t 2562 2565Personnel at year end 5178 5185

Operating profitTurnover

RAUTARUUKKI STEEL

In the Building business area, deliver-ies of colour-coated products increasedin the Nordic countries and Russia.

In the Construction business area,deliveries declined in Finland due to areduction in capital expenditure. De-mand for steel used in the constructionof towers for wind energy plants con-tinued strongly in the main marketarea, Denmark.

In the Electro business area, deliv-eries of hot-rolled products fell in Fin-land due to a weaker order book in theelectricity and electronics industry.

A contraction of output in the en-gineering industry in Finland cut de-liveries of hot-rolled products in theEngineering business area.

In the Marine business area, deliv-eries of heavy plates were boosted byhigh demand from the off-shore indus-try and the Finnish shipbuilding in-

dustry. Demand weakened in Finland,however, at the end of the year.

Weaker resultThe division’s turnover was EUR 1,308million (1,316) and operating profitwas EUR 9 million (83). Turnover wasweakened by the low price of deliver-ies and the steel production lost due tothe interim repair of Blast Furnace No.1 and to production disruptions.Theoperating result includes a non-recur-ring provision of EUR 18 million, aris-ing from the decision at the beginningof 2003 to cut personnel numbers, aswell as a contribution to the Rauta-ruukki Pension Fund which was EUR11 million higher than last year.

Rautaruukki Steel’s result im-proved in the last quarter of the yearand operating profit excluding non-re-curring expenses was EUR 31 million.

Steel output was 2,562,000 tonnes(2,565,000). Output was lower than thetarget level owing to the interim repairof the blast furnace and to a number ofproduction disruptions. Since the finalquarter of the year, steel output hasbeen at the target level of 2.8 milliontonnes per year.

Profitability improvesAt Rautaruukki Steel an action pro-gramme was initiated to improve thematerial margin and to lower fixedcosts. To improve the material margin,the structure of sales will be enhancedand material, energy and transportcosts will be lowered. Fixed costs willbe lowered by EUR 40 million. In ac-cordance with the codetermination ne-

Earnings begin to improvein the last quarter of the year

Rautaruukki 2002 13

gotiations, Rautaruukki Steel’s work-force will be reduced by around 600employees.

Investing in special productsRautaruukki Steel expanded its rangeof speciality products marketed asbrand products and enhanced theirmarketing. Deliveries increased, partic-ularly in Laser products, developed forlaser cutting, Optim products, intend-ed for engineering use, and Litec prod-ucts, developed for automotive indus-try safety components. During theyear, the division launched its Hiarcproduct, which is intended for build-ing facades.

Outlook for 2003Demand for strip products is forecastto grow slightly. Prices of strip prod-ucts have continued to rise in the firstquarter of the year. Demand and pric-es for plates in the first quarter of yearhave remained at the levels prevailingat the end of 2002. Steel output is ex-pected to rise to 2.8 million tonnes,which will lower the production costsof rolled products. The intended reduc-tions in personnel numbers will reducefixed costs partly in 2003, but to the fullextent from the beginning of 2004.

Manufacturers oftruck cranes have

adopted OPTIM steelswhole-heartedly.

Colour-coated HIARC sheetsteel that changes colourdepending on the angle ofviewing is well suited tomodern facades.

The side impact beams of theVolkswagen Polo are made ofultra-strength formable gal-vanised LITEC RAGAL steel.

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Turnover, M€ 367 351Operating profit, M€ 17 12Return on net assets, % 11.9 8.3Personnel at year end 1403 1415

Demand for steel tubes and pipes wasbetter than the previous year and pric-es strengthened.

In the Automotive business area,deliveries increased, despite a fall inautomotive industry production. Thiswas helped by the launch of new prod-ucts and higher demand for makes ofcar important to Metform.

Deliveries also grew in the Build-ing business area. Delivery volumes offoundation engineering products inparticular grew due to a pick-up inrenovation work. In addition, replen-ishment of customers’ inventoriesboosted delivery volumes.

In the Household business area,deliveries were at the previous year’slevel. Since late 2002, demand has beenweakened by low demand for furni-ture industry products in the Nordiccountries.

Rautaruukki Metform develops, manufactures and markets weldedsteel tubes and value-added tubular products. The division’s compe-titiveness is based on customer-oriented operations and service aswell as cost-effective production.

Operating profit



METFORM

Deliveries in the Industry businessarea remained at the previous year’slevel, despite a weakening in engineer-ing industry demand.

In the Pipelines business area, de-mand for large-diameter gas pipes wasgood. Market situation for small-diam-eter pipes, however, was weak.

Metform’s deliveries totalled580,000 tonnes (552,000). The division’sturnover was EUR 367 million (351)and operating profit was EUR 17 mil-lion (12). Higher delivery volumes,growth in the proportion of specialproducts and improved work produc-tivity had a positive impact on operat-ing profit.

Increased production capacityfor special productsCarl Froh GmbH increased its produc-tion capacity of airbag components by

opening a new automatic productionline. The Oulainen plant’s second gaspipe production line was modernisedand the investment programme at theHämeenlinna tube works was extend-ed to improve efficiency. The invest-ments increased Metform’s productioncapacity for speciality products.

A new foundation system for resi-dential buildings, based on pile pipesand hollow sections, was launched atthe beginning of the year, as were RST4003 tubes made of ferrite stainlesssteel. The dimensional range of ultra-strength Optim hollow sections wasextended. Sales operations were en-hanced by rearranging areas of respon-sibility and by strengthening sales ef-forts in central and eastern Europe.

Outlook for 2003Demand for steel tubes is expected toremain at the level reached at the endof 2002. The proportion of deliveriesaccounted for by speciality products isexpected to increase further. Prices oftubular products have for the mostpart risen during the first quarter of theyear. Costs will be increased by a like-ly rise in the price of steel used as rawmaterial and by adjustments to inter-nal pricing principles. It has been de-cided to cut the workforce by 50 em-ployees in order to reduce fixed costs.

Profitability improves substantially

Rautaruukki 2002 15

Rautaruukki supplies high-strength steel tubesfor the rear axle stabilisers of the new RenaultMégane.

Rautaruukki delivered heat-insulated linepipes for a district cooling project in thecentre of Helsinki.

Rautaruukki’s new RR Steel Foundation Systembrings cost-effectiveness to construction becauseit can be laid down in all seasons of the year.

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The Steel Structure Division manufactures and markets steelproducts for construction as well as systems based on them.The division’s brands are Rannila and Gasell. Gasell Industryalso develops and manufactures light engineering products.

Operations continue to expand

Demand for the Steel Structure Divi-sion’s products was satisfactory in themost important market areas. The divi-sion increased its sales in Finland, theBaltic states and Russia. In the Nordiccountries, sales stayed at the previousyear’s level. In central Europe, the divi-sion’s sales fell short of the 2001 figuresdue to intensified competition. The di-vision’s installation service operationswere expanded in Finland and theneighbouring region.

The Steel Structure Division’sturnover totalled EUR 321 million (311)and operating profit was EUR 12 mil-lion (10). To improve the division’sprofitability, cost control was enhancedand sales were directed more towardsprofessional building. The improve-

ment in profitability was slowed by thestrengthening of the euro against theUS dollar.

New products launchedThe Steel Structure Division openednew plants in Kazakhstan and in cen-tral Russia. Both plants manufactureroofing system products. Customerproduct training was enhanced byopening the Maxi Akademia Trainingand Technology Centre in Poland.

In residential construction, Ran-nila and Gasell strengthened their po-sitions by expanding their servicerange and developing new products.Gasell launched the new ClassicModul roofing system. Rannila devel-oped a new roof renovation fastener

STEEL STRUCTURE DIVISION



Turnover Operating profit



for the refurbishment of old roofs. Thefastener speeds up roof installationwork considerably and reduces costs.

Product development for profes-sional building focused on facadeproducts. The Rannila Design productrange was expanded and changesmade to the Rannila Panel system ex-panded the product’s area of applica-tion and improved its technical charac-teristics.

Outlook for 2003In the division’s markets, demand forbuilding products is expected by andlarge to grow. In the central Europeanmarket, construction is expected toslow, which will intensify price compe-tition. The Steel Structure Division willcontinue to develop its sales and pro-duction network.

Rautaruukki 2002 17

One of the most popular exhibitionsat home owners’ fairs in Finland wasRautaruukki’s Loiste (Shine) single-family house, which makes versatileuse of steel.

The venerable UppsalaCastle was given a newGasell Kultur steel roof

that harmonises withits style.

Rannila supplied the facade panelsfor Megaone, Moscow’s largestshopping centre.

Rautaruukki 200218

FUNDIA

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Fundia is the leading Nordic manufacturer of long steel products.The most important products are bar and wire for the engineeringindustry and reinforcing for the building industry. Fundia is increas-ing the deliveries of low-alloyed special steels and different kinds offurther-processed products.

Restructuring programmeseen to completion

Demand for long steel productsstrengthened during 2002. The compet-itive climate was affected by somecompetitors discontinuing their opera-tions during the year. New owners arepartly restarting production at theclosed plants.

Demand for reinforcing productswas satisfactory in Finland, Norwayand Denmark, but weaker Sweden.Fundia’s market position improved,particularly in the UK and in Ireland.Deliveries of Fundia’s reinforcingproducts increased and prices rosefrom the previous year.

After a weak start to the year, themarket for bar products clearly im-proved in the latter half of the year.Deliveries of Fundia’s bar steel prod-

ucts grew and prices strengthened.Demand for wire products

strengthened during the year. Theprice level remained low, but it beganto pick up at the end of the year. Deliv-eries of Fundia’s wire products de-clined owing to production disrup-tions caused by the development pro-gramme.

The market climate for processedbar products remained satisfactory butdemand for processed wire productswas weak. Fundia’s deliveries of proc-essed products remained slightly be-low the previous year’s level.

Fundia’s deliveries totalled1,827,000 tonnes (1,815,000). The aver-age price of deliveries was 1 per centhigher than in 2001.


Turnover, M€ 731 724Operating loss, M€ –17 – 4Return on net assets, % neg. neg.Steel production, 1000 t 1688 1604Personnel at year end 2952 3018

Turnover Operating profit/loss



Wire depresses resultFundia’s turnover was EUR 731 mil-lion (724) and it reported an operatingloss of EUR 17 million (4). The operat-ing loss included EUR 7 million in non-recurring write-downs on fixed assetsas well as provisions made for the re-structuring of certain operations.

Fundia Special Bar and FundiaReinforcing improved their perform-ance and returned clearly positive re-sults. Fundia Bar & Wire Processingrecorded a slight loss due to non-recur-ring costs. Fundia Wire’s loss was at-tributable to production problems andhigher costs resulting from the imple-mentation of the restructuring and de-velopment programme as well as lowprices for wire rods.

Degree of upgrading increasesThe extensive restructuring pro-gramme initiated at the end of 2000was completed with the conclusion ofthe Fundia Wire restructuring pro-gramme at the end of 2002. The re-structuring programmes of Fundia’sother divisions had been completedearlier. Personnel numbers have beenreduced by around 500.

Fundia Wire Nedstaal’s entire roll-ing production was centralised in a sin-gle rolling line, replacing the formertwo lines. Interim repairs to the Kover-har blast furnace were carried out inAugust.

At the end of the year, the divisionachieved its objective for the produc-tion structure of wire products, whichmakes it possible to significantly in-

Rautaruukki 2002 19

crease the degree of upgrading. It hastaken longer than expected, however,to introduce the modernised produc-tion lines. The planned production lev-el is expected to be reached early in2003.

At the beginning of the year,the Bar & Wire Processing Divisionstrengthened its position as Europe’sleading manufacturer of hard chromedbars by acquiring an Italian company,which will continue operating underthe name Fundia Cromax S.p.A.

Outlook for 2003Demand for long steel products is ex-pected to firm up slightly. Prices ofproducts have for the most part risenin the first quarter of the year. Prices ofelectricity and of scrap used as a rawmaterial have also risen, which willprobably be reflected in product prices.The implemented restructuring pro-grammes are expected to improve Fun-dia’s result in 2003.

Spring steels are agrowing product groupfor Fundia Nedstaal.

Fundia Bar’s strong micro-alloyed and boron steelsare used in the manufac-ture of conveyor chains.

Fundia’s bar steel is used in thebucket and caterpillar tracks ofpower shovels, and hard-chromedbars go into making the hydraulicequipment.

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1 Finland 56%2 Other EU countries 20%3 Other parts of Europe 24%


Rautaruukki Steel Service markets the Group’s steel products prefab-ricated to the customer’s order. The division also markets steel pro-ducts of other manufacturers as well as other materials such asaluminium and stainless steel.

Earnings head upwards

In Finland, demand for the Steel Serv-ice Division’s products was weakthroughout the entire year. Total salesof the steel wholesale and service cen-tre sector fell short of the previousyear’s level by around six per cent.Demand weakened, particularly in theelectronics industry, in steel con-struction and in the shipbuilding in-dustry. Prices of steel products rose.The steady rise in stainless steel prices,on the other hand, faltered in the latterhalf of the year and prices of alumini-um products were exceptionally lowthroughout the year.

In Sweden, too, the difficulties ofthe electronics industry weakened de-mand. In the automotive industry de-mand was good. In Norway, the strongkrone and high interest rates have had

a negative impact on economic pros-pects. The Steel Service Division’s mar-ket share increased, however, due to anacquisition completed in 2001.

In the Baltic states, the division’ssales increased. In Poland, sales contin-ued to be satisfactory, despite the pres-sure on the country’s economy. In Rus-sia, the division’s sales organisationwas strengthened during the autumnand sales have gradually started togrow.

The Steel Service Division deliv-ered a total of 450,000 tonnes (471,000)of steel products manufactured withinthe Group.

Profitability improvesThe Steel Service Division’s turnoverwas EUR 646 million (702). Some 44

STEEL SERVICE



Operating profit

per cent of turnover came from sales ofthe Group’s own steel products. Rauta-ruukki Stahlservice GmbH, which op-erates in Germany, was transferred tothe Rautaruukki Steel organisation atthe beginning of the year. Asva AB,which operates in Sweden, joined thedivision in April 2001.

The Steel Service Division’s oper-ating profit was EUR 23 million (9).Operating profit includes a capital gainof EUR 7 million arising from a real-estate sale. To improve profitability,costs were cut by adjusting operationsto weaker demand.

Outlook for 2003The market climate is expected to re-main weak in Finland and the otherNordic countries in the first half of theyear. In the Baltic states and Russia, thegrowth in sales is expected to continue.

Rautaruukki 2002 21

Laser cutting allows steel tubes to becut precisely to dimension.

Asva AB’s cutting line enables steelstrips to be cut exactly to customers’needs.

The Steel Service Division’s prefabrication servicesare growing at a good clip in step with customers’increasing preference for outsourcing.

Rautaruukki 200222

ISO 14 001 EnvironmentalCertifications of the Group

Rautaruukki SteelRaahe Steel Works, 1997 (EMAS 1997)Hämeenlinna Works, 1998Rautaruukki Profiler AS, 1999Kankaanpää Works, 2000Halikko Works, 2000Oy JIT-Trans Ltd, 1999SKJ companies, 2000

MetformPulkkila Works, 1999Oulainen Works, 1999Hämeenlinna Tube Works, 1999Lappohja Works, 1999Nordisk Simplex A/S, 1999Carl Froh GmbH, 2000Wirsbo Stålrör, 2000Froh HouseTech GmbH&Co.KG, 2002

Steel Structure DivisionRannila Steel Oy, 1988Gasell Profil AB, 1999Rautaruukki Polska, 1999Stelform A/S, 1999AS Rannila Profiil, 2000Rautaruukki Toijala Works, 2000Rannila Slovakia, 2002Gasell Profil Polska, 2002Rannila Steel Vilnius, 2002

FundiaFundia Armeringsstål, 1996Fundia Wire, 1999Fundia Hjulsbro, 1999Fundia Special Bar, 2000Fundia Mandal Stål, 2000Fundia Dalwire, 2002

Steel ServiceAsva Oy, 2001

Rautaruukki’s goal is to increase the company’s value over the longterm through a balanced approach to the needs of different stake-holders and the principles of sustainable development. The Sustai-nability Report which the Group publishes tells how economic,social and environmental matters are dealt with at Rautaruukki.

SUSTAINABLE DEVELOPMENT

In November 2001 Rautaruukki pub-lished its Sustainability Report both onits website and in a printed edition.The data in the report have been up-dated with the figures for 2002 and areavailable on the Group’s website. Thenext printed Sustainability Report willcome out in 2004.

Reducing dust emissionsAt Rautaruukki Steel’s Raahe Works,an extractor for the sintering plant’sflue gases was placed in use towardsthe end of the year, enabling the sinter-ing plant’s dust emissions to be low-ered by an estimated amount of nearlyone third. The bulk of the recovereddust is reused as a raw material in themanufacture of iron.

At Fundia’s Koverhar Steel Worksa dust treatment method is being de-veloped with the aim of recycling thedust generated by the steel works andreusing it as a raw material for the steelworks. The equipment required fortreating the dust is in the pilot usestage.

Preparations for carbondioxide emissions tradingThe EU Commission’s proposed direc-tive on carbon dioxide emissions trad-ing will be submitted to the EU Parlia-ment during 2003. It is not yet possibleto estimate the effects of the proposalon Rautaruukki’s operations. Whilethe proposal was in the drafting stage,Rautaruukki presented to the authori-ties its views on essential matters thatshould be taken into account from thestandpoint of Rautaruukki’s opera-tions.

Emissions reduced in NorwayThe Norwegian authorities have setnew emission limits for mercury andother heavy metals at Fundia’s Mo iRana Works. The new limits will comeinto force on 1 December 2006. Negoti-ations on the measures which the newemission limits will necessitate are be-ing continued with the Norwegian au-thorities.

Mercury is released from the scrapthat is used as a raw material in electricsteel melting. The Mo i Rana steelworks uses grades of scrap that aretypical for electric melting plants, andits electric arc furnace process does notdiffer from others that are in usearound the world. Rautaruukki is notaware of corresponding mercury emis-sions limits in other steel meltingplants of a similar kind.

The mercury that ends up in anelectric arc furnace along with steelscrap is vaporised in the flue gases andthis means that it is not extracted inconventional dust separation. The sep-aration of mercury has been studiedboth theoretically and by means oftests of the treatment of flue gases. Re-ducing the emissions of other heavymetals is not a problem.

Ongoing energy savingEnergy saving is continuing at all theGroup’s locations in accordance withthe plans set out in the energy-savingprogramme. The Raahe Steel Works it-self produces about 60 per cent of theelectricity it needs by means of proc-ess-generated waste gases.

The utilisation of waste heat wasstepped up. A rebuild of the waste heat

Sustainable development underpins operations

recovery equipment of one line of thesintering plant at the Raahe SteelWorks resulted in a tripling of the heatthat is available for process and otheruse. The power plant began to makeuse of lower pressure steam than be-fore. At the plant and in the city of Raa-he an amount of waste heat corre-sponding to about 30,000 tonnes of fueloil is now being utilised annually.

Rautaruukki 2002 23

RESEARCH AND DEVELOPMENT

The aim of Rautaruukki’s research and development is to improvethe Group’s competitiveness by developing productivity and pro-duction methods as well as new products and services. The ope-rational emphasis in 2002 was on developing the productivity ofprocesses and new speciality products.

Boosting productivityby developing processesThe most important focus of processdevelopment was raising the steel out-put at the Raahe Steel Works to the tar-get level of 2.8 million tonnes a year. Adynamic control system for the con-verters was placed in use as well as adirect tapping method that enables thetap-to-tap time to be shortened signif-icantly.

Oil wetting of the blended coalwas started at the coking plant. Thisallows more coal to be charged into thecoke oven. Thanks to oil wetting, thecold strength of coke improves so thatless small-diameter coke is producedand this also increases the output ofblast furnace coke. According to pre-liminary results, the output of blastfurnace coke can be raised by about 3per cent by means of oil wetting.

A wider range offlat product brandsRautaruukki Steel expanded its rangeof hot-rolled Optim structural steels by

adding higher strength grades of steelas well as softer grades that have betterformability. Optim steels are used,among other applications, in the motorvehicle industry, where lighter weightstructures make possible bigger pay-loads.

The Dual Phase product family ofgalvanised steels that are used espe-cially in the side impact absorbers ofvehicles was expanded by developingnew grades, improving the characteris-tics of present grades and widening thedimensional range.

Speciality products from MetformMetform brought out on the market anew pile pipe based foundation systemfor residential buildings as well astubes that are made of ferritic stainlesssteel. The dimensional range of ultra-strength Optim hollow sections wasexpanded.

Metform saw to completion thedevelopment of gas pipeline steels inthe API X60 and X70 class and themanufacturing practice is being fine-

tuned in connection with commercialdeliveries that are now in progress.Furthermore, HIC resistant strips andtubes were developed up to the X60strength class and marketing of themwas started.

New constructioncomponent systemsAn important research priority forconstruction products was the devel-opment of complete product systems.A new product launch was the Drytecconstruction system. Drytec is basedon lightweight steel structures andconstruction methods which reducethe moisture that accumulates in abuilding during construction. The Dry-tec system is also ecologically efficientbecause its components are based onrecyclable steel, and the joints can beeasily dismantled.

A number of new products wereadded to the product range for facadesystems. For roofing needs, a new ren-ovation fastener system was devel-oped that is especially useful in reno-vating roofs.

Fundia teams up with customersFundia Special Bar started pilot deliv-eries of SBM steels that have goodmachinability, and their characteristicswere developed in co-operation withcustomers. The development emphasisnow is on optimising manufacturingpractice and expanding the productfamily.

At Fundia Wire, developmentwork on the Dual Phase product fami-ly was continued jointly with end-us-ers. The material is well suited, for ex-ample, as the raw material for makingbolts because it need not be annealedand the completed bolts no longerneed to be heat-treated. This speeds upthe manufacture of the end productand lowers costs.

Speciality products boost profitability

The unique characteristics of OPTIM steel are imparted by means of a special rollingand cooling technique. Lighter weight structures make possible bigger payloads.

Rautaruukki 200224

PERSONNEL

During 2002 the development of waysof working, management and the or-ganisational structure were continuedwith the aim of improving the compa-ny’s earnings ability and cutting costs.Concurrently, active efforts were madeto maintain and develop the person-nel’s competence and well-being.

The number of employees grew atthe Steel Structure Division owing tothe expansion of operations. At otherunits the headcount was reduced. Thenumber of employees will be reducedfurther in order to improve cost-effec-tiveness. In accordance with the deci-sions taken, the Group’s personnelstrength will be reduced by about 700employees. Owing to the reduction inpersonnel, the Group carried out moreinternal transfers and rearrangementsof tasks than customarily.

The objective of Rautaruukki’s personnel policy is motivated staffthat have an excellent level of knowledge and skills and are pre-pared to undertake continuous development of their competence.The staff are also committed to the Group’s business objectivesand act in accordance with Rautaruukki’s basic values.

Training builds efficiencyThe Group continued to develop in-tranet-based applications that makedaily work routines easier. Promoting acustomer-oriented way of working andsupporting supervisors’ work were theprimary emphases within human re-sources development.

Adopting a customer-orientedway of working calls for the person-nel’s deep understanding of both theirown and the customer’s business. Tothis end, Rautaruukki developed asimulation model that illustrates howdynamic markets operate, providespractice in business decision-makingand helps the staff learn to understandhow a large international Group oper-ates across all its units and functions.The simulation model is used in inter-

nal training, such as in the Rautaruuk-ki Excellence programme, which is atraining programme targeted at keyemployees who work in differentcountries.

A new training programme wasprepared for middle management withthe aim of offering practical tools andcapabilities for developing the opera-tions of a manager’s own workplace.Rautaruukki has long made use of per-formance development discussionsbetween supervisors and their staff.These aim at developing both the indi-vidual’s skills and the performance ofworkplaces. Development discussionsare also a good means of motivatingstaff and offering them incentives.

Improved accident preventionThe positive trend in the number ofaccidents continued. At the Group’sunits in Finland the accident frequencydeclined by 20 per cent on the previousyear. The best results were obtained atRautaruukki Steel and the Steel Struc-ture Division.

The fundamental premise of Rau-taruukki’s labour protection is a “zeroaccidents” approach. The measures in-troduced have included risk surveys ofjob stations, an analysis of “closeshave” situations, labour protectionmeetings headed by supervisors andregular labour protection tours of in-spection by management.

Actions aiming at maintainingworking ability were continued in Fin-land and at certain units abroad. Theobjective is to develop the employees’working ability, workplace vigour andworking conditions. The starting pointfor these actions is the workplace at-mosphere surveys that are carried outat regular intervals and by means ofwhich timely development needs canbe identified at any given time. Raisingthe personnel’s physical fitness is sup-ported in a number of different ways.

At Rautaruukki Steel, a new innovation model was developed in working groupswhose members came from different functions across the organisation.

Fully committed to competence development

Rautaruukki 2002 25

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1990 2002

Personnel at year end

by division 2002 2001

Rautaruukki Steel 5,178 5,185Metform 1,403 1,415Steel Structure Division 1,798 1,709Fundia 2,952 3,018Steel Service 1,204 1,320Other units 269 328

Total 12,804 12,975

by country

Finland 7,433 7,609Sweden 1,759 1,745Norway 961 1,061Germany 586 580Netherlands 519 559Russia 266 260Denmark 241 238Poland 189 169Estonia 170 144Ukraine 141 142Slovakia 110 139Great Britain 89 79Lithuania 88 85Latvia 86 76Other countries 166 89

Total 12,804 12,975

Accident rate(number of accidents permillion working hours)

Personnel age brackets, %

Personnel incentive systemsRautaruukki’s profit-related bonussystem is based primarily on theGroup’s financial result, but it also in-cludes separate criteria. In Finland thebonuses are paid into a personnelfund, whereas at the units abroad pay-outs go directly to the employees.

During 2002 the profit target ofthe Rautaruukki bonus system wasnot reached. The separate criterion in-volving lowering of the accident fre-quency was reached in part, whichmeans that bonuses of about EUR 0.4

million will be paid to the employeesof the divisions that lowered their acci-dent frequency.

The bonus systems in use at the di-visions have criteria based not only onthe performance of the division or unitbut also on various indicators of pro-duction volume, quality and othergauges of performance.

The long-term incentive system forGroup management is a share bonussystem that was started in 2000 andcovers just over a hundred persons.

Rautaruukki’s units in Finland;Fundia and Asva included from 2000

Rautaruukki 200226

Rautaruukki Corporation’s corporategovernance conforms to the FinnishCompanies Act, other related legisla-tion and the Articles of Association ofRautaruukki Corporation. The organi-zation of Rautaruukki’s managementtakes into account the recommenda-tions on good corporate governanceissued by the Finnish Central Chamberof Commerce and the Confederation ofFinnish Industry and Employers in1997 and by the Organization for Eco-nomic Cooperation and Development(OECD) in 1999.

Rautaruukki is managed in ac-cordance with sound business princi-ples by raising the Group’s sharehold-er value on a long term basis. Manage-ment of the Group’s activities takesinto account its stakeholders and theprinciples of sustainable development.

Overall responsibility for the man-agement and operations of Rautaruuk-ki Group lies with the administrativebodies of the parent company, Rauta-ruukki Corporation. These are theGeneral Meetings of Shareholders, theSupervisory Board, the Board of Direc-tors and the President.

Supervisory Board

Election and compositionThe Supervisory Board is elected for aterm of one year by the Annual Gener-al Meeting. The Supervisory Board has5–12 members. The Ministry of Tradeand Industry is entitled to appoint oneof these and the company’s foundingshareholders appoint three. Four repre-sentatives of personnel groups partici-pate in the work of the SupervisoryBoard in accordance with its standingrules. Personnel representatives areentitled to be present and to speak atmeetings of the Supervisory Board ex-cept in matters connected with the ap-pointment and remuneration of topmanagement and with collective bar-gaining agreements. The SupervisoryBoard meets as required, normally 4–6times a year.

The Supervisory Board has aWorking Committee, which preparesmatters that are to be brought beforethe Supervisory Board. The membersof the Working Committee are thechairman and vice chairman of the Su-pervisory Board and a member of theSupervisory Board elected from thefounding shareholders. The Chairmanof the Board of Directors and the com-pany’s President participate in themeetings of the Supervisory Board andthe Working Committee.

Duties and responsibilityThe duties and responsibility of theSupervisory Board are defined in theCompanies Act and in the Articles ofAssociation of Rautaruukki Corpora-tion. The principle duties of the Super-visory Board are:1. to ensure that the company’s affairsare managed in accordance with soundbusiness principles, aiming at profita-bility, and in compliance with the Arti-cles of Association and the resolutionsof the General Meetings of Sharehold-ers;2. to decide on issuing instructions tothe Board of Directors in matters ofwide scope or fundamental impor-tance, and3. to submit to the Annual GeneralMeeting its statement on the annualfinancial statements, the consolidatedfinancial statements and the auditors’report.

Board of Directors

Election and compositionThe Annual General Meeting elects thecompany’s Board of Directors for aone-year term. The Board of Directorscomprises the chairman, vice chairmanand from two to six ordinary members.The Board of Directors meets as re-quired, normally 8–12 times a year.

Duties and responsibilityThe Board of Directors is responsiblefor the Group’s business management

together with the President and CEO.It is also the task of the Board of Direc-tors to carry out the administrativeduties that have not been reserved forthe Supervisory Board or expresslyentrusted to the President and CEO.

The Board of Directors forms theAudit Committee. This committee,chaired by the Chairman of the Board,meets twice a year by inviting the audi-tor elected by the Annual GeneralMeeting ant the internal auditor to twomeetings of the Board of Directors.

The Chairman and Vice Chairmanof the Board of Directors with the Pres-ident and CEO form the CompensationCommittee, which makes proposals tothe Board of Directors concerningmanagement salaries and remunera-tion systems.

Principal tasks of the Board of Di-rectors are:1. to attend to the Group’s administra-tion and to the due organization of itsoperations, and to ensure that the ac-counting and management of fundsare controlled in an appropriate man-ner;2. to prepare the matters to be dealtwith at General Meetings and meetingsof the Supervisory Board and to ensurethat the decisions taken by these areimplemented;3. to set long-term targets for theGroup and the industrial divisions soas to achieve economic value added,and to approve general strategies tomeet these targets;4. to approve the annual plans of theGroup and the industrial divisions;5. to attend to the due arrangement offinancial and operational reportingand control, so that it is possible to con-tinuously monitor how these targetsare being met and when necessary toreact quickly to exceptional situations;6. to decide on the Group’s total levelof capital expenditure and on the larg-est individual items;7. to prepare the Group’s annual finan-cial statements and interim reports;8. to decide on the company’s dividendpolicy and to make a proposal to theAnnual General Meeting for the divi-dend to be paid;9. to define and approve the Group’score values and operational policies forthe most important areas for manage-ment and control, such as risk manage-

CORPORATE GOVERNANCE

The Annual General Meeting in 2002 approved certain amendmentsto the Articles of Association, of which the most significant werethe transfer of the election of the company’s Board of Directors tothe Annual General Meeting and the transfer of the appointment ofthe President & CEO to the Board of Directors.

Rautaruukki 2002 27

ment, financing, internal audit, datasecurity, and personnel and environ-mental matters;10. to decide on the Group’s organiza-tion;11. to appoint and dismiss the Presi-dent and CEO and to determine hisremuneration;12. on the proposal of the Presidentand CEO, to appoint and dismissmembers of the executive staff and todetermine their remuneration. Execu-tive staff refers to corporate executivesthat report to the President and thosein charge of the industrial divisions.13. to decide on the principles for theGroup’s incentive and bonus schemes;14. to decide on other matters that donot fall within the sphere of daily activ-ities and are significant in relation tothe size of the company, such as theexpansion or curtailment of operationsor on any other significant changes inthe company’s operations, the raisingof long-term loans and the sale andpledging of properties, and15. to decide on convening GeneralMeetings of shareholders.

The Board of Directors sets targetsfor profitability and the equity ratio asbenchmarks for producing economicvalue added.

The Board of Directors monitorshow these principles of corporate gov-ernance are implemented and assessesits own working procedures.

Duties of the PresidentThe President and CEO is responsiblefor Rautaruukki’s industrial and com-mercial operations and for attending toits day-to-day administration in ac-cordance with the instructions and di-rections given by the Board of Direc-tors.

The Board of Directors chooses thedeputy for the President.

The Group’s Management GroupThe Management Group comprises thePresident, other corporate executivesappointed to the management groupby the Board of Directors at the propos-al of the President, and the senior vicepresidents at the industrial divisions.

The meetings of the managementgroup are chaired by the President. Themanagement group considers corpo-rate strategic issues, annual plans, cap-

ital expenditure, company acquisi-tions, corporate structure and other is-sues that are important in managingthe Group, and monitors the Group’soperations. The management groupalso prepares matters to be consideredby the Board of Directors.

The Group’s business organizationOperationally, the Rautaruukki Groupis divided into Group Managementand the industrial divisions. The seniorvice presidents at the divisions reportto the President and CEO and are re-sponsible for developing the opera-tions of their divisions, for their earn-ings and balance sheets, and for ar-ranging the administration of the com-panies belonging to their divisions.

Control and reporting at the divi-sions is based on their own balancesheets and profit and loss accounts.

Group Management comprises thePresident and CEO and the vice presi-dents in charge of Group functions.The duties of Group Management in-clude Group-level strategic planningand business development, communi-cations, marketing, coordinating pro-duction and sales, research and devel-opment, risk management and invest-ment policy, development of humanresources, finance, treasury, legal af-fairs and investor relations. Functionsthat provide Group services to the divi-sions and their units also report toGroup Management.

Boards and monitoring groupsat the industrial divisions

Appointment and compositionThe parent company appoints Boardsof Directors or similar supervisorygroups for the industrial divisions atthe proposal of the President from ex-ecutives in Corporate Managementand in the business divisions. At theproposal of the President and with theapproval of the Board of Directors ofthe parent company, the Boards of Di-rectors may also include external ex-perts and a maximum of four person-nel representatives. The President ofthe parent company shall be chairmanof the Board of Directors or similar su-pervisory group at the industrial divi-sions, unless the parent company’sBoard of Directors decides otherwise.

DutiesThe main duties of the divisionalBoards and monitoring groups are:1. to review strategic and annual plans,2. to supervise operations and finance,3. to review capital expenditure, com-pany acquisitions, and plans to expandor curtail operations that have a majorimpact on the division.

Monitoring systemThe control and monitoring of the op-erations of Rautaruukki Group is as-sured by the management system de-scribed above. The Group employs thereporting systems necessary for moni-toring operations effectively. Overallresponsibility for the due arrangementof accounting and the supervision ofthe management of funds rests withthe Board of Directors. The Presidentand CEO is responsible for seeing thatthe accounting complies with legal re-quirements and that the managementof funds is arranged in a reliable man-ner.

The Rautaruukki Group’s InternalAudit reports to the President andCEO. The Internal Audit examines andassesses the appropriateness and effec-tiveness of the Group’s internal moni-toring system, the relevance and effi-ciency of functions, the reliability of fi-nancial information and reporting, andcompliance with rules, operating prin-ciples and guidelines. The reports ofthe Internal Audit are also sent to theChairman of the Board of Directors,and the examination plans are intro-duced to the entire Board of Directors.The Group’s auditor evaluates the ef-fectiveness of internal controls as partof his legal oversight.

Rautaruukki’s Board of Directorshas approved insider dealing regula-tions for the company that correspondto those of the Helsinki Exchanges.

The Group’s audit is organized sothat the authorized public accountantfirm elected by the Annual GeneralMeeting as responsible for the parentcompany carries out its audit throughits global organization throughout theRautaruukki Group and is responsiblefor auditing the entire Group.

Rautaruukki 200228

Board of Directors: (from the left) Maija-Liisa Friman, Pekka Timonen,Georg Ehrnrooth, Vice Chairman, Jukka Viinanen, Chairman, Mikko Kivimäki,Carita Putkonen and Christer Granskog.

GROUP MANAGEMENT

Supervisory Board

ChairmanTuro Bergman*, b. 1946Deputy Head of Departement,Central Organisation of FinnishTrade Unions, SAK

Deputy ChairmanJouko Skinnari*, b. 1946Member of Parliament

Members:Tuula Haatainen, b. 1960Member of Parliament

Timo Ihamäki, b. 1939Member of Parliament

Ole Johansson, b. 1951President and CEO, Wärtsilä Oyj Abp

Seppo Kanerva, b. 1941Member of Parliament

Kyösti Karjula, b. 1952Member of Parliament

Inkeri Kerola, b. 1957Member of Parliament

Bertel Langenskiöld*, b. 1950President and CEO, Fiskars Oyj Abp

Tauno Matomäki, b. 1937Mining Counsellor

Employee representatives:Kari JokinenPauli KurikkaJouko LuttinenEero Raivio

* Supervisory Board Working CommitteeThe Chairman of the Board and thecompany’s President participate inthe meetings of the SupervisoryBoard and the Working Committee.

AuditorKPMG WIDERI OY ABHannu Niilekselä,Authorised Public Accountant

Board of Directors

Chairman:Jukka Viinanen, b. 1948President and CEO,Orion Corporation

Deputy Chairman:Georg Ehrnrooth, b. 1940former President and CEO,Metra CorporationRautaruukki shares: 1,902

Members:Maija-Liisa Friman, b. 1952Vice President, General Manager,Vattenfall OyRautaruukki shares: 3,000

Christer Granskog, b. 1947President and CEO,Kalmar Industries AB

(Share holdings at 1 March 2003)

Carita Putkonen, b. 1948Finance Counsellor,Ministry of Finance

Pekka Timonen, b. 1960Senior Advisor,Ministry of Trade and Industry

Mikko Kivimäki, b. 1939President and CEO,Rautaruukki OyjRautaruukki shares: 12,000

Emoluments of theBoard of DirectorsThe monthly emolument paid to theChairman of the Board is EUR 3000,that of the Vice Chairman EUR 2350,and the emoluments of the othermembers of the Board are EUR 1850per month. A meeting fee of EUR 250is paid. The company’s President andCEO is not paid a separate emolu-ment for his membership of theBoard of Directors.

Rautaruukki 2002 29

Management Group

The Management Group comprises of the following Group executives and senior vice presidents of the divisions:

Group executives:Chaiman of the Management GroupPresident & CEOMikko Kivimäki, b. 1939– corporate management– communications and corporate imageRautaruukki shares: 12,000

Deputy Chaiman of theManagement GroupSenior Executive Vice PresidentLauri Mannerkoski, b. 1944– marketing– co-ordination of production and salesRautaruukki shares: 2,000

Gösta Engman, b. 1945– personnel– other administration– information securityRautaruukki shares: 2,179

Jorma Lukkari, b. 1948– business development– information management– investments– purchasing and logisticsRautaruukki shares: 816

Seppo Sahlman, b. 1948– finance– treasury– legal affairs– risk managementRautaruukki shares: 2,848

Peter Sandvik, b. 1953,– research and development– personnel development– energy and environment

Senior vice presidentsof the divisions:Matti Arteva, b. 1945Steel ServiceRautaruukki shares: 402

Markku Koljonen, b. 1951Steel Structure DivisionRautaruukki shares: 759

Lauri Rautala, b. 1954Rautaruukki Steel

Heikki Rusila, b. 1949,MetformRautaruukki shares: 4,516

Jarmo Tonteri, b. 1952Fundia AB

Sakari Tamminen, b. 1953, has been ap-pointed President & CEO as from 1 Jan-uary 2004. Mr Tamminen will take overfor Mikko Kivimäki who, will retire on1 January 2004. Tamminen will becomeSenior Executive Vice President anddeputy to the President at the latest on1 May 2003.

Rautaruukki 200230

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The share capital did not changeduring the year. The paid-in share cap-ital of Rautaruukki Oyj on 31 Decem-ber 2002 was EUR 236,106,956.50 andcomprised 138,886,445 Series K shares,each carrying ten votes at the GeneralMeeting of Shareholders. The account-ing countervalue of the share is EUR1.70. The share has no par value.

The company's minimum sharecapital is EUR 200,000,000 and its max-imum share capital is EUR 800,000,000,within which limits the share capitalmay be raised or lowered withoutamending the Articles of Association.

Convertible bonds 1998In 1998 Rautaruukki Oyj floated aFIM 20 million issue of convertiblebonds targeted at the Group’s person-nel and the Rautaruukki EmployeeFund. The bonds can be exchanged fora maximum total of 400,000 Rauta-ruukki Series K shares at a conversionprice of EUR 8,41 per share until15 May 2003. As a consequence of theconversions, the share capital can beincreased by a maximum of EUR680,000.

Stock bonus planUnder the share bonus system thatRautaruukki launched in 2000, theGroup’ key employees have the possi-bility of obtaining, after three-year longincentive periods, a bonus equivalentto a maximum of half a year’s salary.

More than 100 people are covered bythe system. Of the bonus amount, 40per cent is given in Rautaruukki sharesand 60 per cent in cash to cover taxeson the bonus. The employee can sellthe shares given as a bonus no earlierthan two years after the end of the in-centive period.

It is a condition for receiving themaximum bonus that the RautaruukkiGroup’s average return on assets dur-ing the three-year incentive period isamong the best three companies in apeer group. The peer group comprisesRautaruukki and ten steel other com-panies. The other companies in thepeer group for the incentive periodsthat have begun annually from thestart of 2001 are Arcelor, Corus, FeralpiGroup, Ispat International, Outokum-pu, Salzgitter, SSAB, Stelco, US Steeland VA Stahl.

Treasury sharesBy 31 December 2002, Rautaruukki Oyjhad bought back a total of 3,270,000 ofits own shares (treasury shares), repre-senting 2.35 per cent of the company’sentire shares outstanding. The compa-ny has paid EUR 14,737,093 in consid-eration for them.

The company’s own shares are be-ing purchased for the purpose of trans-ferring them to the Group’s key em-ployees as part of the incentive systemor otherwise to be transferred on orcancelled. The transfer or cancellation

of the shares requires a resolutionpassed by a general meeting of theshareholders. The company does nothave a valid authorisation from theAnnual General Meeting to buy back,transfer or cancel its own shares.

Management’s share holdingsThe members of the Supervisory Boardand the Board of Directors owned atotal of 15,128 shares at 31 December2002, or 0.01 per cent of the votingrights conferred by all the company’sshares. In addition, the members of theBoard of Directors owned the compa-ny’s convertible bonds entitling themto subscribe for a maximum of 1,000Series K shares, representing 0.0007 percent of the voting rights conferred byall the company’s shares.

InsidersRautaruukki Group applies the Regu-lations on Insider Trading approved byHelsinki Exchanges. In addition to themembers of the Supervisory Board andthe Board of Directors , the Group’sinsiders include

• members of the Management Group,• vice presidents reportingto the President and CEO• Senior vice presidents of thedivisions• the secretary to the SupervisoryBoard,

SHARE INFORMATION

1 Finnish state 40.1%2 Private households 13.3%3 Other Finnish owners 33.8%4 Foreign owners 12.8%

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AnalystsRautaruukki is analysedby following companies:

CommerzbankConventum SecuritiesCredit Lyonnais SecuritiesCredit Suisse First BostonD. CarnegieDanske BankDeutsche BankEnskilda SecuritiesEvli SecuritiesFIM SecuritiesGoldman Sachs InternationalHandelsbanken Capital MarketsHSBC / CCF SecuritiesING BaringsMandatum StockbrokersMerrill Lynch InternationalNordea SecuritiesOpstockSociété GénéraleUBS Warburg

Market capitalisationRautaruukki share price,monthly high–low

Rautaruukki share monthly tradingvolume, millions of shares

• the secretary to the Boardof Directors,• the secretaries to the above men-tioned company executives,• the vice president, Treasury,• the vice president, Group Controller,• the vice president, Communications,• the deputy director, Investor Relations

At 31 December 2002, insiders held atotal of 18,482 shares, representing 0.01per cent of the voting rights conferredby all the company’s shares. In addi-tion, insider members owned the com-pany’s convertible bonds entitlingthem to subscribe for a maximum of4,800 Series K shares, or 0.003 per centof the voting rights conferred by all thecompany’s shares.

State ownershipThe Finnish State’s holding in Rauta-ruukki Oyj was 40.1 per cent at 31 De-cember 2002. On the basis of authori-zations obtained from Parliament, theCouncil of State can reduce the state'sholding in Rautaruukki Oyj in such away that the holding is nevertheless atleast 20 per cent of the company'sshares outstanding and the votingrights they confer.

As a shareholder, the state has notgiven guarantees or otherwise madecommitments to assume responsibilityfor the company’s debts and obliga-tions.

Pre-emption clauseAccording to the Articles of Associa-tion a shareholder whose proportion ofthe company's entire shares outstand-ing or the votes they confer reaches orexceeds 331/3 or 50 per cent, is boundby the obligation, upon a demand ofthe other shareholders, to exercise pre-emption on their shares and warrants.

AuthorisationsRautaruukki Oyj’s Board of Directorsdoes not have a valid authorisation toissue convertible bonds or bonds withwarrants, to increase the company’sshare capital or to buy back the compa-ny’s own shares.

DividendsThe Board of Directors proposes to theAnnual General Meeting that no divi-dend be distributed for 2002.

Share price trendDuring 2002 the highest share price ofRautaruukki's share was EUR 5.30 andthe lowest price was EUR 3.36. Theclosing price of the year was EUR 3.44.Market capitalisation of RautaruukkiOyj was EUR 478 million. The shareturnover during the year was 34 mil-lion representing a total value of EUR145 million. The average price of theshare trades during the year was EUR4.26.

Rautaruukki 200232

The biggest shareholders of Rautaruukki Oyjaccording to the share register at 31.12.2002

Shareholder Shares, % Shares

1. The Finnish State 40.1 55,656,6992. Mutual Pension Insurance Company Varma-Sampo 4.01 5,563,5873. Odin Norden 3.42 4,746,9004. Rautaruukki Oyj 2.35 3,270,0005. OP-Delta Investment Fund 1.18 1,644,0006. Rautaruukki Pension Foundation 1.14 1,585,4557. Federation of Finnish Metal, Engineering

and Electronical Industries 0.92 1,272,0008. Finnish State Pension Fund 0.86 1,200,0009. Mutual Life Insurance Company Suomi 0.83 1,153,00010. Nordea Life Insurance Finland Ltd 0.82 1,143,84611. Esa Rannila 0.70 978,00012. Finnish Local Government Pension Foundation 0.62 858,91713. Sampo Life Insurance Company Ltd 0.58 800,00014. Mutual Insurance Company Tapiola 0.54 750,70015. Investment Fund Conventum Finland Value 0.54 750,00016. Fortum Pension Foundation 0.51 710,90017. Investment Fund Sampo Finland Equity 0.47 649,83718. Onnenmäki Foundation 0.44 616,25719. OP-Profit Investment Fund 0.43 602,00020. The Finnish National Fund for R&D, Sitra 0.42 587,700Administrative registrations 8.88 12,335,332Other foreign owners 3.96 5,504,130Other owners 26.29 36,507,185

Total 100.00 138,886,445

Shareholders by share ownership accordingto the share register at 31.12.2002

Shareholders SharesNumber of shares No. %Thousands %

1–100 2,168 10.74 131 0.09101–1 000 14,031 69.48 6,760 4.871 001–10 000 3,567 17.66 9,958 7.1710 001–100 000 343 1.70 9,653 6.95100 001– 84 0.42 112,384 80.92

20,193 100.00 138,886 100.00

Shareholders by sector according tothe share register at 31.12.2002

Shareholders SharesNumber of shares No. %Thousands %

Companies 787 3.90 11,880 8.56Banks and insurance companies 101 0.50 13,981 10.07Public institutions 68 0.34 71,472 51.46Non-profit institutions 255 1.26 5,223 3.76Private households 18,887 93.53 18,491 13.31Nominee registrations 9 0.04 12,335 8.88Other foreign owners 86 0.43 5,504 3.96

20,193 100.00 138,886 100.00

Share issues 1998–2002Number of Increase in

K Shares share capital, € Share capital, €

Share capital 31.12.1997 133,228,416 224,074,110.33Share issue 1.9.1999 + 5,658,029 9,516,121.65 233,590,231.98Bonus issue 30.3.2000 2,516,724.52 236,106,956.50Share capital 31.12.2002 138,886,445 236,106,956.50

Share information

Rautaruukki 2002 1

F I N A N C I A L S T A T E M E N T S 2 0 0 2

Rautaruukki 20022

Turnover by division, EUR million

2002 2001

Rautaruukki Steel 1308 1316Metform 367 351Steel Structure Division 321 311Fundia 731 724Steel Service 646 702Other units 171 150less internal invoicing – 660 – 648

Consolidated turnover 2884 2906

REPORT OF THE BOARD

Rautaruukki’s consolidated turnoverin 2002 was EUR 2,884 million(2,906). The result before taxes was aloss of EUR 46 million (+41). The re-sult in Rautaruukki Steel deteriorat-ed and Fundia Wire again recorded asignificant loss.

Non-recurring costs totalledEUR 27 million, of which the mostsignificant was a provision of EUR 20million arising from agreed reduc-tions in personnel numbers at Rauta-ruukki Steel and Metform.

Contributions to the Rautaruuk-ki Pension Fund were EUR 12 millionhigher than last year, mainly as a re-sult of the slide in share prices.

The profit before taxes for the fi-nal quarter was EUR 2 million (–22).Excluding non-recurring costs, the fi-nal quarter profit was EUR 22 mil-lion.

The Board of Directors proposesto the Annual General Meeting thatno dividend be distributed for 2002.

Business environment and marketDuring 2002 economic growth con-tinued to be very slow in WesternEurope, North America and Japan. InChina, Southeast Asia and the coun-tries of Eastern Europe, economicgrowth was faster than in the rest ofthe world.

Demand for steel products in Eu-rope was slightly lower than in 2001,while demand in the United Statesremained at the same level. Demandfor steel products grew in China,Southeast Asia and Eastern Europe.

In March the United States im-posed 8–30 per cent import tariffs onimported steel products. Since thenthe United States has exempted somesteel products from the import tariffs,but the tariffs still apply to the bulk ofsteel products imported into theUnited States.

At the end of March the Europe-an Union imposed protective meas-ures that were in force for six monthsagainst the import of steel productsinto the EU countries. According tothese measures, imports can exceed

by a maximum of 10 per cent theaverage volume of imports during1999–2001, the amount in excess ofthis being subject to a 15–26 per centtariff. At the end of September theEU decided to continue the protec-tive measures for another 2.5 years.Excluded from the protective meas-ures so far are, among other prod-ucts, bar steels and heavy plates, forwhich any protective measures willbe decided by the end of February2003.

Due to the protective measures,imports of steel products into the EUwere lower than in 2001. The exportand import of steel products werebalanced in the EU area. Stocks ofsteel products in Europe were at nor-mal levels at the end of the year.

In Europe prices of steel prod-ucts were very low at the beginningof the year but they began tostrengthen as supply and demandreached a balance from the secondquarter onwards. Average prices forthe year were, however, lower thanthe previous year.

In the United States the prices ofsteel products, which rose sharply atthe beginning of the year due thecontraction of the supply, declinedsignificantly as supply increased inthe second half of the year. Averageprices for the year were, however,higher than the previous year. In thecountries of Southeast Asia the pric-es of steel products strengthened.

World steel output grew by 6 per

cent compared with 2001, of which asignificant contribution came fromincreased production in China. Steeloutput in European Union countrieswas at the previous year’s level, andin the rest of Europe it grew by 3 percent.

Rautaruukki in the marketRautaruukki Steel’s output was2,562,000 tonnes (2,565,000). Becauseof operating disturbances and inter-im repairs made to RautaruukkiSteel’s Blast Furnace No.1 in July,steel production fell more than200,000 tonnes short of the target lev-el. Since the interim repair of the blastfurnace, steel production has been atthe target level of 2.8 million tonnesper year.

Fundia’s steel output was1,688,000 tonnes (1,604,000). Interimrepairs to the Fundia Koverhar blastfurnace were carried out in August.

The Group’s deliveries of flatand tubular products were 3 per centgreater than in 2001. The averageprice of deliveries was 3 per cent low-er than the previous year. In the finalquarter of the year, the average priceof deliveries was 1 per cent higherthan in the previous quarter.

Deliveries of long steel productsfell by 2 per cent. Deliveries of rebarsteels and bar products grew. Deliv-eries of wire products and hot-rolledprofiles declined. The average priceof long steel products was 1 per centhigher than in 2001. In the final quar-

Rautaruukki 2002 3

Operating profit by division, EUR million

2002 2001

Rautaruukki Steel 9 83Metform 17 12Steel Structure Division 12 10Fundia – 17 – 4Steel Service 23 9Other units and internal items – 36 – 16

Consolidated operating profit 6 93

ter of the year, the average price ofdeliveries was 1 per cent lower thanin the previous quarter.

The average price of deliveries isinfluenced by product mix and mar-ket area changes as well as by thegeneral trend in prices.

Turnover and financial resultConsolidated turnover was EUR2,884 million (2,906).

Prices of iron raw materials wereon average 6 per cent lower and theprice of coking coal was 1 per centhigher than in 2001. The price of elec-tricity was 9 per cent higher and theprice of scrap used by Fundia was 8per cent higher than in 2001.

Operating profit was EUR 6 mil-lion (93). The lower prices of Rauta-ruukki Steel’s deliveries and the losson operations at Fundia Wire contrib-uted to the weakening of the operat-ing profit. Fundia Wire’s financialperformance was influenced by pro-duction problems and higher costsresulting from the implementation ofthe restructuring and developmentprogramme as well as the low pricesfor wire rods.

Non-recurring costs totalledEUR 27 million, of which the mostsignificant was a provision of EUR 20million arising from agreed reduc-tions in personnel numbers at Rauta-ruukki Steel and Metform. AnotherEUR 7 million in non-recurring costsresulted from write-downs on Fun-dia’s fixed assets and provisionsmade for certain restructuring meas-ures.

Contributions to the Rautaruu-kki Pension Fund were EUR 12 mil-lion higher than last year, mainly as aresult of the slide in share prices.

Operating profit for the finalquarter of 2002 was EUR 17 million(–12), which includes non-recurringcosts of EUR 20 million and capitalgains amounting to EUR 7 million.

The Group’s other operating in-come was EUR 15 million (17). Theloss before extraordinary items andtaxes was EUR 46 million (+41). Re-

turn on net assets was 0.6 per cent(5.0).

The loss before taxes and minor-ity interest was EUR 46 million (+41).The loss for the financial year wasEUR 35 million (+30).

Improving profitabilityIn 2002 an action programme was in-itiated in Rautaruukki’s integratedflat product operations (RautaruukkiSteel, Metform and Steel Service Di-vision) to improve the material mar-gin and to lower fixed costs. The ma-terial margin means the differencebetween the sales income and thematerial, energy and transport costsof production.

To improve the sales income, thecustomer structure will be enhancedand the proportion of high-marginspecial products within sales will beincreased. The introduction of a newcontrol system will improve controlover the product stream of flat prod-ucts to the market along the mostprofitable processing and sales route.

Production costs will be cut byimproving the utilisation rate of pro-duction lines and by reducing specif-ic energy costs, procurement costsand quality costs.

Fixed costs will be lowered bythe end of 2003 by a total of EUR 50million, of which personnel costs willaccount for three quarters. In accord-ance to the codetermination negotia-tions conducted with personnel theGroup’s workforce will be reduced

by around 700 employees, mostlyduring 2003.

The extensive restructuring pro-gramme initiated in Fundia at theend of 2000 was completed with theconclusion of the Fundia Wire re-structuring programme at the end of2002. The restructuring programmesin Fundia’s other subdivisions werecompleted earlier and the full bene-fits of them were obtained during2002. Except for Fundia Wire, Fun-dia’s subdivisions recorded a clearlypositive result.

FinancingRautaruukki’s gearing ratio was 138per cent (129) and equity ratio was31.1 per cent (33.3). Equity per shareat the end of the year was EUR 5.81(6.21). Total assets were EUR 2,561million (2,559).

Working capital declined byEUR 3 million. Cash flow from oper-ations was EUR 152 million (141) andcash flow before financing EUR 23million (–9). The Group’s interest-bearing net debt stood at EUR 1,092million (1,087). The short-term posi-tion of interest-bearing loans wasEUR 205 million (216) and the long-term position EUR 943 million (912).

On 25 September 2002 Rauta-ruukki issued two callable subordi-nated notes with a total nominal val-ue of EUR 104 million.

The Group’s liquidity was goodthroughout the year. The ratio of fi-nancial assets and inventories to

Rautaruukki 20024

short-term liabilities at the end of theyear was 1.9 (1.8). At the end of 2002the Group had uncommitted revolv-ing credit facilities with banks total-ling EUR 284 million.

Net interest expenses were EUR50 million (49) and their proportionof net sales was 1.7 per cent (1.7). Fi-nancial expenses totalled EUR 52 mil-lion (52). Financial expenses includea gain on foreign exchange of EUR 1million (–1). The operating result in-cludes a loss on foreign exchange ofEUR 12 million (+6). The average in-terest on the Group’s net debt at theend of the year was 4.9 per cent (4.6).

Rautaruukki Oyj’s SupervisoryBoard and Board of DirectorsRautaruukki’s Annual General Meet-ing, held on 26 March 2002, approvedcertain amendments to the Articles ofAssociation, of which the most signif-icant were the transfer of the electionof the company’s Board of Directorsto the Annual General Meeting andthe transfer of the appointment of thePresident & CEO to the Board of Di-rectors.

The Annual General Meeting re-elected Turo Bergman Lic. (Pol. Sc.)as Chairman of Rautaruukki’s Super-visory Board and Member of Parlia-ment Jouko Skinnari as Vice Chair-man. Re-elected to seats on the Su-pervisory Board were Members ofParliament Tuula Haatainen, TimoIhamäki, Seppo Kanerva and InkeriKerola as well as Tauno Matomäki,former President & CEO, UPM-Kymmene Corporation, Ole Johans-son, President & CEO, Wärtsilä Cor-poration, and Bertel Langenskiöld,President & CEO, Fiskars Corpora-tion. Member of Parliament KyöstiKarjula was elected to the Superviso-ry Board as a new member.

The Annual General Meetingelected Rautaruukki’s Board of Direc-tors, re-electing Jukka Viinanen, Pres-ident & CEO, Orion Group, as Chair-man of the Board of Directors andGeorg Ehrnrooth, former President &CEO, Metra Corporation, as Vice

Chairman. Re-elected as memberswere Christer Granskog, President &CEO, Kalmar Industries AB, CaritaPutkonen, Finance Councillor, Minis-try of Finance, Pekka Timonen, Sen-ior Advisor, Ministry of Trade andIndustry, and Mikko Kivimäki,Rautaruukki’s President & CEO.Maija-Liisa Friman, Vice President,General Manager, Vattenfall Oy, waselected as a new member.

Mikko Kivimäki, Rautaruukki’sPresident & CEO, will retire on 1 Jan-uary 2004. Rautaruukki’s Board ofDirectors has appointed Sakari Tam-minen, M.Sc. (Econ.), as the compa-ny’s President & CEO as of 1 January2004. Tamminen will become SeniorExecutive Vice President and deputyto the President at the latest on 1 May2003.

Rautaruukki is administered inaccordance with the prevailing legis-lation, the company’s Articles ofAssociation and the principles of cor-porate governance laid down in thecompany’s annual report.

The Supervisory Board has aWorking Committee, which preparesmatters that are brought before theSupervisory Board. The Chairman ofthe Board of Directors and the Presi-dent and CEO attend meetings of theSupervisory Board and the WorkingCommittee.

The Board of Directors and theauditors form an Audit Committee,which meets twice a year. The Chair-man and Vice Chairman of the Boardof Directors, together with the Presi-dent and CEO, form the Compensa-tion Committee of the Board of Direc-tors.

Share capital, sharesand shareholdersThe share capital did not changeduring the year. The share capitalas at 31 December 2002 was EUR236,106,956.50. Rautaruukki Oyj’sBoard of Directors has no valid au-thorisation to increase the share cap-ital.

The company has purchased a

total of 3,270,000 of its own shares,which is 2.35 per cent of the138,886,445 shares outstanding. Thecompany has paid a total of EUR14,737,093 for these shares.

The company’s own shares arepurchased for the purpose of trans-ferring them to the Group’s key em-ployees as part of the incentive sys-tem that was decided by the compa-ny’s Supervisory Board or otherwiseto be transferred on or cancelled. Thetransfer or cancellation of the sharesrequires a resolution passed by a gen-eral meeting of the shareholders.

The convertible bonds issued in1998 can be exchanged for a maxi-mum total of 400,000 RautaruukkiSeries K shares at a conversion priceof EUR 8.41 per share up to 15 May2003. As a consequence of the conver-sions, the share capital can be in-creased by a maximum of EUR680,000.

Rautaruukki currently has nooption programmes. A share bonusscheme, launched in 2000, has actedas an long-term incentive to key em-ployees. The minimum bonus is paidwhen Rautaruukki’s average returnon assets in a three-year incentiveperiod is at least at the median levelin a comparison group of elevencompanies in the sector. Bonuses, ex-cluding taxes, are paid in the form ofcompany shares, which can be sur-rendered at the earliest two years af-ter the end of the incentive period.

The lowest trading price of Rau-taruukki Oyj’s Series K share duringthe year was EUR 3.36 and the high-est price was EUR 5.30. The last tradeof the year was done at a price ofEUR 3.44. Rautaruukki Oyj’s marketcapitalisation at the end of the yearwas EUR 478 million (569).

The share turnover during theyear was 34 million (39) representinga total value of EUR 145 million (162).The number of registered sharehold-ers at the close of the year was 20,093(19,824). The Finnish State’s holdingwas 40.1 per cent, and foreigners held12.8 per cent (13.6) of the company’s

Report of the Board

Rautaruukki 2002 5

shares outstanding.It is proposed that no dividend

be distributed for 2002.

Capital expenditureGross expenditure on fixed assets to-talled EUR 142 million (162) and netcapital expenditure EUR 129 million(150).

Interim repairs to the Raahe SteelWorks’ Blast Furnace No. 1 and theKoverhar Works’ blast furnace werecarried out in July–August. At Fun-dia Nedstaal, a modernised rollingline was brought into service in No-vember, replacing the previous twolines. At the beginning of 2002, Fun-dia Cromax acquired the Italian com-pany Fluid S.p.A, which manufac-tures hard chromed bars. The SteelStructure Division opened newplants in Kazakhstan and in centralRussia. Other capital expendituresconsisted of normal developmentand replacement investments.

Research and developmentIn line with the strategy, the focus ofresearch and development was ondevelopment projects to improve theGroup’s profitability. The main em-phasis was on improving the produc-tivity of processes and on developingspecial products. Greater attention isbeing paid to tightening environmen-tal protection requirements and toquestions relating to the life-cycle ofproducts. The Rautaruukki Groupspent a total of EUR 17 million (19),namely 0.6 per cent of turnover (0.7),on research and development.

One of the most important proc-ess development projects was raisingthe steel output of the Raahe SteelWorks to the target level of 2.8 mil-lion tonnes per year. A dynamic con-trol system and a direct tappingmethod were installed in the convert-ers, enabling the tap-to-tap time to beshortened significantly.

Rautaruukki Steel expanded itsrange of hot-rolled Optim structuralsteels with harder steel grades andalso with softer grades that possess

better formability. The range of gal-vanized Dual Phase steels used in ve-hicle side impact absorbers was ex-panded. The colour-coated Hiarcsheet steel, which changes its hue de-pending on the angle of viewing andis suitable for modern façade solu-tions, was launched on to the market.

Metform brought to the market anew foundation system for residen-tial buildings based on hollow sec-tions as well as tubes made of ferritestainless steel. The dimensionalrange of extra high-strength Optimhollow sections was extended.

In steel structure products, thedevelopment of total product sys-tems was an important priority. TheDrytec construction system waslaunched on to the market. The sys-tem is based on lightweight steelstructures and construction methodsthat eliminate moisture damage aris-ing during construction. The façadesystem product range was expandedwith new products.

Fundia expanded its selection ofproducts with new machinable steels,and it also developed alloy steels forthe needs of Fundia Nedstaal’s prod-uct range.

Sustainable developmentRautaruukki is committed to increas-ing the value of the company whiletaking the principles of sustainabledevelopment into account. In No-vember 2001 the Group published a

sustainable development report,which states how financial, socialand environment-related matters arehandled within Rautaruukki. An up-dated version of the report will beposted on the Group’s website inFebruary 2003. The next printed sus-tainable development report will bepublished in 2004.

A new flue gas cleaning unit wasbrought into service in the sinteringplant at Rautaruukki Steel’s RaaheSteel Works, enabling dust emissionsto be cut to nearly a third. Most of thedust recovered is reused as a rawmaterial in the production of iron.

A dust processing method is be-ing developed at Fundia’s KoverharWorks. The objective is to recycle theprocess dust generated and to reuseit as a raw material in the steel works.The equipment needed in processingthe dust is currently undergoing test-ing.

The Norwegian authorities haveset new emission limits for mercuryand other heavy metals at Fundia’sMo i Rana Works. The new limits willcome into force on 1 December 2006.Negotiations on the measures whichthe new emission limits will necessi-tate are being continued with theNorwegian authorities.

The EU Commission’s proposedCarbon Dioxide Emissions TradingDirective will be discussed in the EUParliament during 2003. The impactof the proposal on Rautaruukki’s op-

Gross capital expenditure by division, EUR million

2002 2001

Rautaruukki Steel 68 55Metform 12 26Steel Structure Division 12 11Fundia 42 45Steel Service 6 21Other units 2 3

142 162

Rautaruukki 20026

erations cannot be assessed at thisstage. Rautaruukki has presented tothe officials preparing the proposalits views on the essential aspects tobe taken into account in terms ofRautaruukki’s operations.

PersonnelThe Group’s payroll at the close ofthe year consisted of 12,804 people(12,975) and the parent company em-ployed 5,472 people (5,599). Duringthe year the Group employed an av-erage of 13,325 (13 678) people andthe parent company 5,794 (5,990). Anexpansion of operations increasedthe payroll in the Steel StructureDivision. Personnel numbers de-creased, however, in all of the otherdivisions.

The payroll will be further cut toachieve improvements in cost-effec-tiveness. Decisions made will lead toa decrease in personnel numbers ofaround 700. As a result of the reduc-tion in personnel, there were moreinternal transfers than normal andposts have been reorganised.

During 2002, Rautaruukki con-tinued to develop its working prac-tices, management and organisation-al structure with the objective of im-proving its earning power and cut-ting costs. At the same time, activitiesaimed at maintaining and enhancingthe well-being and expertise of per-sonnel were practised throughout theGroup.

On the Group’s intranet networkthe development of applications tofacilitate efficient daily working rou-tines continued. In personnel devel-opment the promotion of customer-oriented working practices and su-pervisor support had a prominentrole. A new middle managementtraining programme was preparedwith the aim of providing the practi-cal tools and skills to improve the

functioning of the working commu-nity. The Rautaruukki Excellence Pro-gramme, a training programme formanagement and experts of unitsoperating in different countries, wasrevamped.

The number of accidents has de-clined. Accident frequency in Finnishunits, for example, fell by 20 per cent.Rautaruukki has a occupational safe-ty target of zero accidents. An activeeffort is under way to reduce acci-dents by surveying workplace risksand by arranging training courses forpersonnel.

Activities to maintain workingcapacity continued in all Finnishunits and in some units abroad.Working climate surveys were con-ducted to identify aspects of workingconditions that need improvement.Activities to boost the physical fitnessof personnel were supported in manydifferent ways.

Outlook for 2003Economic forecasts for 2003 containmany uncertainties. Forecasts indi-cate that world economic growth willimprove slightly during 2003, butwill continue to be sluggish. Econom-ic growth is forecast to occur mainlyin the second half of the year.

In Western Europe economicgrowth is expected to continue atroughly the same level as in 2002. Inthe countries of eastern Central Eu-rope and Eastern Europe economicgrowth is expected to be faster thanin the rest of Europe. Economicgrowth is also expected to pick up inthe United States and the countries ofSoutheast Asia.

In the EU countries demand forsteel products is forecast to growslightly. The prices of strip productsand certain long steel products havestrengthened in the first quarter of2003. During the latter part of the

year, the price development of steelproducts will be influenced substan-tially by the level of the EU countries’own production and the level of im-ports into the EU.

In the United States demand forsteel products is expected to growslightly. Prices of steel products mayweaken due to growth in the UnitedStates’ own production and higherexports. In the countries of SoutheastAsia, demand for steel products is ex-pected to increase.

Prices of raw materials for steelproduction will be agreed at the be-ginning of 2003. Prices of raw materi-als in euros are not expected tochange substantially. The price ofelectricity, however, is expected to behigher than in 2002.

Rautaruukki’s financial perform-ance will be improved by an increasein its own steel output and by meas-ures already implemented and underway to improve profitability.

Rautaruukki Steel’s output is ex-pected to rise to the target level of 2.8million tonnes. As a result, the use ofpurchased slabs will decline, whichwill in turn reduce the manufactur-ing costs of rolled products. Profita-bility will be improved by the com-pleted Fundia Wire restructuringprogramme and by the action pro-gramme under way in integrated flatproduct operations.

To improve cash flow, the levelof capital expenditure will be keptbelow the level of depreciation andmeasures to accelerate capital turno-ver will be enhanced.

Consolidated turnover is forecastto be around EUR 3 billion in 2003.The development of steel productprices will have a substantial impacton financial performance. The oper-ating environment for the steel in-dustry in Europe is expected to beslightly more favourable.

Report of the Board

Rautaruukki 2002 7

CONSOLIDATED PROFIT AND LOSS ACCOUNT

M€ Note 1.1.–31.12.2002 % 1.1.–31.12.2001 %

TURNOVER 1) 2884 100.0 2906 100.0Variation in stocks of finished goods and work in progress –4 –14Production for own use 7 8Other operating income 3) 15 17Share of results in associated companies 2 2Raw materials and services 4) 1746 1738Staff expenses 5) 593 550Depreciation and reduction in value 6) 177 172Other operating charges 7) 382 –2898 366 –2826OPERATING PROFIT / LOSS 2) 6 0.2 93 3.2Financial income and expenses 8)

Income from other investments held as non-current assets 0 0Other interest and financial income 7 5Interest and other financial expenses –59 –52 –57 –52

PROFIT / LOSS BEFORE EXTRAORDINARY ITEMS –46 –1.6 41 1.4Extraordinary items 0 0PROFIT / LOSS BEFORE APPROPRIATIONS –46 –1.6 41 1.4Income taxes

Taxes for the year 10) –2 –5Taxes from the previous years 0 6Change in deferred tax 12 11 –13 –12

PROFIT / LOSS BEFORE MINORITY INTEREST –35 –1.2 29 1.0Minority interest of the profits 0 0GROUP PROFIT / LOSS FOR THE FINANCIAL YEAR –35 –1.2 30 1.0

Rautaruukki 20028

CONSOLIDATED BALANCE SHEET

M€ Note 31.12.2002 % 31.12.2001 %

ASSETS

NON-CURRENT ASSETS 11–13)Intangible assets

Intangible rights 6 7Goodwill 19 25Other capitalised long-term expenses 17 20Advance payments 18 60 9 61

Tangible assetsLand and waters 26 24Buildings 347 353Machinery and equipment 926 948Advance payments and construction in progress 49 1348 55 1381

InvestmentsAssociated company shares 23 23Long term loans receivable from associated companies 1 1Other shares and similar rights of ownership 10 11Own shares or similiar rights of ownership 11 45 13 49

1453 56.7 1490 58.2CURRENT ASSETSStocks 14)

Raw materials and consumables 141 136Finished products/Goods 363 367Other stocks 5 4Advance payments 1 511 0 507

Debtors 15)Long-term

Loans receivable 6 2Loans receivable owed by associated companies 1 2Non-interest bearing receivables 9 11Deferred tax assets 20) 33 50 14 30

Short-termTrade debtors 413 401Amounts owed by associated companies 4 6Loans receivable 1 1Other debtors 41 54Prepayments and accrued income 32 491 29 491

540 521Cash in hand and at banks 57 41

1108 43.3 1068 41.82561 100.0 2559 100.0

Rautaruukki 2002 9

M€ Note 31.12.2002 % 31.12.2001 %

LIABILITIES

CAPITAL AND RESERVES 16)Share capital 236 236Share premium account 220 220Revaluation reserve 23 24Fund for own shares 11 13Translation adjustment 12 4Retained earnings 333 330Profit / loss for the financial year –35 297 30 360

799 31.2 856 33.5MINORITY INTEREST 3 0.1 3 0.1

OBLIGATORY PROVISIONS 18)Provisions for pensions 38 14Provisions for taxation 0 1Other provisions 20 58 2.3 9 23 0.9

CREDITORS 19)Non-current creditors

Interest bearingBonds and debenture loans 237 131Convertible bonds 0 3Loans from credit institutions 607 664Pension loans 76 88Other creditors 23 943 26 912

Non interest bearingPension loans 10 10Deferred tax liability 20) 166 161Other creditors 0 177 8 179

1120 1092Current creditors

Interest bearingLoans from credit institutions 106 183Pension loans 6 5Other creditors 93 205 28 216

Non interest bearingAdvance payments 9 9Trade creditors 184 184Accruals and deferred income 23) 125 119Amounts owed to associated companies 22) 2 4Other creditors 55 375 52 369

580 5851700 66.4 1676 65.5

2561 100.0 2559 100.0

Rautaruukki 200210

CONSOLIDATED CASH FLOW STATEMENT

M€ 1.1.–31.12.2002 1.1.–31.12.2001

Cash flow from operationsProfit / loss before extraordinary items –46 41Adjustments

Depreciation 177 172Financial income and expenses 52 52Share of associated companies’ results –2 –2Other adjustments 14 –2

Cash flow before working capital changes 196 261

Change in working capitalChange in current non-interest bearing debtors 2 22Change in inventories –1 –5Change in current non-interest bearing creditors 3 –42

Change in working capital 3 -26

Cash flow before financing items and taxes 199 235

Interest and other financing items on business operations paid –51 –55Taxes paid 7 –16Cash flow before extraordinary items 155 164Cash flow from extraordinary items –3 –22

Cash flow from operations 152 141

Cash flow from investing activitiesInvestments in tangible and intangible assets –140 –153Proceeds from sale of tangible and intangible assets 13 10Other investments –2 –9Proceeds from sale of other investments 2 2Change in unpaid investments –1 –1

Cash flow from investing activities –129 –150

Cash flow before financing 23 –9

Cash flow from financing activitiesBuyback of own shares 0 –8Change in current loans receivable 0 0Change in non-current loans receivable –1 3Change in current loans payable –11 41Change in non-current loans payable 31 1Dividends paid –27 –34

Cash flow from financing activities –7 3

Change in liquid assets according to the calculation 16 –6

Cash and cash equivalents at beginning of period 41 46Cash and cash equivalents at end of period 57 41

16 –6

Rautaruukki 2002 11

RAUTARUUKKI OYJ’S PROFIT AND LOSS ACCOUNT

M€ Note 1.1.–31.12.2002 % 1.1.–31.12.2001 %

TURNOVER 1) 1303 100.0 1285 100.0Variation in stocks of finished goodsand work in progress –25 19Production for own use 5 5Other operating income 3) 9 9Raw materials and services 4) 742 742Staff expenses 5) 302 267Depreciation and reduction in value 6) 106 109Other operating charges 7) 149 –1299 139 –1257OPERATING PROFIT / LOSS –8 –0.6 60 4.7Financial income and expenses 8)

Income from other investmentsheld as non-current assets 2 5Other interest and financial income 37 38Revaluations of investments in non-current assets –20Interest and other financial expenses –57 –38 –59 –16

PROFIT / LOSS BEFORE EXTRAORDINARY ITEMS –46 –3.5 44 3.4Extraordinary items 9)

Extraordinary income 17Extraordinary expenses 0 –27 –10

PROFIT / LOSS BEFORE APPROPRIATIONS AND TAXES –46 –3.5 33 2.6Appropriations

Change in depreciation reserve 1 –26PROFIT / LOSS BEFORE TAXES –44 –3.4 7 0.6Income taxes 10)

Taxes for the year 0 –2Taxes from the previous years 0 0 0 –2

PROFIT / LOSS FOR THE FINANCIAL YEAR / LOSS –44 –3.4 5 0.4

Rautaruukki 200212

RAUTARUUKKI OYJ’S BALANCE SHEET

M€ Note 31.12.2002 % 31.12.2001 %

ASSETS

NON-CURRENT ASSETS 11–13)Intangible assets

Intangible rights 2 2Goodwill 5 12Other capitalised long-term expenses 12 15Advance payments 17 37 9 38

Tangible assetsLand and water 6 6Buildings 236 237Machinery and equipment 628 660Advance payments and construction in progress 37 907 37 941

InvestmentsShares in Group companies 256 272Receivables from Group companies 0 12Shares in associated companies 7 7Receivables from associated companies 1 1Other shares 4 6Own shares 11 280 13 311

1224 53.0 1290 55.0CURRENT ASSETSInventories 14)

Raw materials and consumables 72 78Finished products and goods 86 158 111 189

Debtors 15)Long-term

Amounts owed by Group companies 344 426Amounts owed by associated companies 1 2Loan receivables 6 1Other debtors 0 1

Short-termTrade debtors 132 123Amounts owed by Group companies 85 73Amounts owed by associated companies 3 5Loan receivables owed by Group companies 239 138Other debtors 20 29Prepayments and accrued income 16 847 14 812

Cash in hand and at banks 82 551086 47.0 1056 45.0

2310 100.0 2345 100.0

Rautaruukki 2002 13

M€ Note 31.12.2002 % 31.12.2001 %

LIABILITIES

CAPITAL AND RESERVES 16)Share capital 236 236Share premium reserve 220 220Revaluation reserve 33 33Fund for own shares 11 13Retained earnings 129 151Profit / loss for the financial year –44 85 5 156

584 25.3 658 28.0

APPROPRIATIONS 17)Depreciation reserve 412 17.8 413 17.6

PROVISIONS 18)Provisions for pensions 25 6Other provisions 4 29 1.2 0 6 0.3

CREDITORSNon-current creditors

Interest bearingBonds and debenture loans 19) 237 131Convertible bonds 3Loans from credit institutions 606 662Pension loans 58 66Other creditors 20 921 22 885

Non-interest bearingAmounts owed to Group companies 2 2

923 40.0 887 37.8Current creditors

Interest bearingLoans from credit institutions 97 169Pension loans 6 5Other creditors 92 196 27 201

Non-interest bearingAdvances received 1 1Trade creditors 62 56Amounts owed to Group companies 21) 7 35Amounts owed to associated companies 22) 2 4Accruals and deferred income 23) 78 70Other creditors 17 167 14 180

362 15.7 381 16.3

1286 55.6 1268 54.1

2310 100.0 2345 100.0

Rautaruukki 200214

RAUTARUUKKI OYJ’S CASH FLOW STATEMENT

M€ 1.1.–31.12.2002 1.1.–31.12.2001

Cash flow from operationsProfit / loss before extraordinary items –46 44Adjustments

Depreciation 106 109Financial income and expenses 38 16Other adjustments 15 2

Cash flow before working capital changes 113 171

Change in working capitalChange in current non-interest bearing debtors –13 17Change in inventories 31 –37Change in current non-interest bearing creditors –21 19

Change in working capital –2 0

Cash flow before financing items and taxes 110 171

Interest and other financing items on business operations paid –18 –23Taxes paid 8 –22Group contributions 0 –9Cash flow before extraordinary items 101 116Cash flow from extraordinary items

Cash flow from operations 101 116

Cash flow from investing activities –55 –102

Cash flow before financing 45 14

Cash flow from financing activitiesBuyback of own shares 0 –7Change in current loans receivable –101 13Change in non-current loans receivable 79 –68Change in current loans payable –5 43Change in non-current loans payable 36 30Dividends paid –27 –34

Cash flow from financing activities –18 –23

Change in liquid assets 27 –8

Cash and cash equivalents at beginning of period 55 63Cash and cash equivalents at end of period 82 55

27 –8

Rautaruukki 2002 15

NOTES TO THE ACCOUNTS

ACCOUNTING PRINCIPLES

Accounting principles for the financial statementsThe consolidated financial statements and those of the parentcompany Rautaruukki Oyj have been prepared in accordancewith Finnish Accounting Act.

The consolidated financial statements include the financialstatements of Rautaruukki Oyj plus those of those companies inwhich the parent company, either directly or through its subsid-iaries, holds over 50 per cent of the voting rights conferred bystocks or shares.

Investments in associated companies (holding 20–50 percent) are included in the consolidated financial statements usingthe equity method. The Group's share in the associated compa-nies' profits for the accounting period, according to the Group'sholding in these companies, is given on a separate line in the prof-it and loss account.

The consolidated financial statements do not include subsid-iary or associated housing corporations, real estate corporationsand dormant companies which do not make a significant contri-bution.

Companies acquired during the accounting period are in-cluded in the consolidated financial statements from the date ofacquisition, and the sold companies are included up to the saledate. The same principles were applied when Group companieswere merged or wound up during the accounting period.

All intra-Group transactions, unrealized profits of internaldeliveries, internal receivables and debts, and internal dividendpayments were eliminated when the consolidated financial state-ments were drawn up.

The past-equity method has been used when eliminatingmutual share ownership. If the current value of a subsidiary'sfixed assets exceeds its book value, goodwill is allocated to thesubsidiary's fixed asset items. This allocated portion is depreciat-ed in accordance with the planned depreciation for the fixed as-set in question. The remainder of the goodwill is treated as good-will of the subsidiary or associated company, which is depreciatedover its effective period (no more than 10 years). The same allo-cation principles are also applied if the acquisition cost calculationyields a negative difference. In this case, the part that is consid-ered to be allocated to fixed assets is subtracted from the value offixed assets and credited to earnings by reducing the depreciationof the specific fixed assets.

The goodwill of associated companies is included in the bal-ance sheet value of associated companies and the depreciation onit is deducted from the associated companies' profit in the profitand loss account.

Dividends received from associated companies have beeneliminated from the consolidated financial statements.

Minority interests have been separated from the Group'sshareholders' interests, from optional reserves and from the profit,and they are shown as a separate item in the consolidated balancesheet and the profit and loss account.

Amounts in foreign currencyItems in foreign currency have been entered at the exchange rateon the transaction date. Balance sheet items at the end of the fi-nancial year have been valued at the exchange rate on the balancesheet date. Exchange rate differences related to ordinary business

operations are treated as items adjusting turnover and purchases.Exchange rate differences related to financing are stated in theprofit and loss account in financial income and expenses.

In the consolidated financial statements balance sheet itemsof foreign companies have been converted into euros at the ex-change rate on the balance sheet date. The profit and loss accountsof subsidiaries have been converted into euros at the average ex-change rate during the financial year. The translation differencecaused by the difference in exchange rate on the date of acquisi-tion and on the balance sheet date as well as the difference arisingfrom translating the profit and loss account and balance sheet atdifferent rates are included in consolidated capital and reserves.Foreign exchange differences arising from the hedging of theshareholders’ equity items of foreign companies have been en-tered in the consolidated balance sheet against translation differ-ences.

Foreign currency derivative contractsOpen external exchange contracts and currency swaps have beenvalued at the exchange rate on the balance sheet date. Exchangerate differences are entered in financial income and expenses inthe profit and loss account. The interest rate difference of forwardcontracts has been entered as accrued interest expense accordingto the maturity of the agreements. Premiums on foreign exchangeoptions have been entered in advance payment receivables or li-abilities. Currency options that are open at the end of the financialyear have been marked to market and booked as a credit or chargeto earnings. Premiums on options that have fallen due are includ-ed in financial income and expenses.

Interest rate derivative contractsInterest rate swaps used to hedge the Group’s long-term interest-bearing loans are not valued in the financial statements. Intereston interest rate swaps is periodised over the contract period andbooked in a net amount as an adjustment to interest expenses.

Commodity derivativesCommodity derivatives taken out to hedge the Group’s raw ma-terial purchases (zinc and electricity) are not valued in the annualaccounts. The realised results of commodity derivatives are boo-ked as an item adjusting hedged raw material purchases.

Covering pension expenses and pension liabilitiesThe Group companies apply different pension systems in eachcountry according to local conditions and conventions. Pensionexpenses are calculated on the basis of time and they are enteredin the profit and loss account. Pensions are normally arrangedthrough pension insurance companies or pension funds.

StocksStocks are valued at the acquisition price, or at the probable sell-ing price (if lower). Materials and supplies held for use in produc-tion are written down to their replacement value only if the priceof the product for sale is below the actual cost determined accord-ing to the weighted average cost formula. The costs are defined ona FIFO basis.

In addition to the direct cost, an appropriate proportion ofpurchasing and production overheads is included in the value ofstocks.

Rautaruukki 200216

Fixed assets and depreciationThe values of fixed assets are based on the original acquisitioncost, with the exception of the revaluation of certain land areasand buildings. Wearing assets are depreciated according to a planbased on the estimated economic useful life of the asset.

Gains and losses on the sale of fixed assets are included in theprofit and loss account, in the operating profit.

Fixed assets obtained through leasing and other rental agree-ments are treated in the annual accounts in accordance with theregulations in force in each country. As a rule, assets obtained onfinancial lease terms are also treated as a rental agreement underContingent liabilities, whereby their value is not stated underfixed assets in the balance sheet.

Extraordinary income and expensesExtraordinary income and expenses include exceptional businesstransactions and events that are of material importance.

In 2000, extraordinary expenses included EUR 25 million tocover the Group’s forecast non-recurring restructuring expenses,of which EUR 22 million had been realised during 2001 and EUR3 million during 2002.

The parent company’s extraordinary income and expensesalso include group contributions as well as the merger differenc-es resulting from intra-Group mergers.

TaxesThe consolidated financial statements include direct taxes basedon Group companies' taxable profits for the year, and they havebeen calculated according to local tax legislation.

Deferred tax resulting from appropriations, temporary differ-ences and consolidation has been taken into account in the consol-idated financial statements.

Research and development expensesResearch and development expenses are booked as an expense ofthe year in which they arise.

Rounding off of figures in the annual accountsIndividual figures and grand totals presented in the annual ac-counts have been rounded off to full thousands or millions ofeuros from exact figures, which means that when added togetheror subtracted they will not always tally.

Foreign exchange ratesThe main foreign exchange rates applied in the annual accountsduring the years 1998–2002:Average rates 2002 2001 2000 1999 1998USD 0.946 0.896 0.924 1.066 1.113GBP 0.629 0.622 0.610 0.659 0.672SEK 9.161 9.255 8.447 8.808 8.846NOK 7.509 8.048 8.113 8.310 8.400DKK 7.431 7.452 7.454 7.436 7.454

Year-end rates 2002 2001 2000 1999 1998USD 1.049 0.881 0.931 1.005 1.167GBP 0.651 0.609 0.624 0.622 0.705SEK 9.153 9.301 8.831 8.563 9.487NOK 7.276 7.952 8.234 8.077 8.872DKK 7.429 7.437 7.463 7.443 7.449

1. External turnover by division and by market areaTurnover is calculated by deducting VAT and rebates from salesof products and services.

Group Rautaruukki OyjM€ 2002 2001 2002 2001

Turnover by divisionRautaruukki Steel 795 818 1066 1067Metform 333 315 216 196Steel Structure Division 312 300 21 19Fundia 638 632Steel Service 636 691Other units 171 149 0 2

2884 2906 1303 1285Turnover by market areaFinland 784 858 410 451Other EU-countries 1506 1432 689 625Other Europe 499 508 156 164Other countries 95 108 47 45Total external turnover of which 2884 2906 1303 1285 - Exports from Finland 725 738 893 834 - International operations 1401 1337

2. Operating profit by divisionGroup

M€ 2002 2001

Rautaruukki Steel 9 83Metform 17 12Steel Structure Division 12 10Fundia –17 –4Steel Service 23 9Other units and internal items –36 –16

6 93

3. Other operating incomeGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Gains on the sale of fixed assets 9 3 8 0Other 6 14 1 9

15 17 9 9

4. Raw materials and servicesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Materials, supplies and goodsPurchases during theaccounting period 1558 1580 636 665Change in inventories 3 –17 6 –18External services 186 175 100 96

1746 1738 742 742

Notes to the accounts

Rautaruukki 2002 17

5. Personnel expensesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Wages and salaries 433 425 207 204Profit-related bonus paidto the personnel fund 1 1Pension insurance premiumsand pensions 94 61 72 42Other indirect personnel expenses 65 65 22 21Total 593 550 302 267

Salaries and emolumentsof directorsof the members of theSupervisory Board 0.1 0.1 0.1 0.1of the members of the Board andof Managing Directors 5.9 6.1 0.5 0.7including results-basedbonuses to Management 0.0 0.1

The Group’s average payroll by divisionGroup Rautaruukki Oyj

2002 2001 2002 2001

Rautaruukki Steel 5470 5539 4923 5071Metform 1445 1510 611 628Steel Structure Division 1790 1767 90 91Fundia 3060 3221Steel Service 1270 1279Other units 290 361 170 200Total 13325 13678 5794 5990

The pension commitments of the Members of the Boardand Managing Directors and loans to insidersIt has been agreed that the president of the Group’s parent com-pany will retire at the age of 65. The group has no loans to insid-ers.

6. Depreciation and reduction in valueDepreciation according to plan is based on the original acquisitioncost of the fixed asset and the estimated economic life which inthe case of buildings and structures is 10–40 years, 20 years forprocess machinery and equipment as well as vessels, 5 years forcomputer equipment and software, and 5–10 years for other ma-chinery and equipment.

Licence fees included in intangible rights, establishing andorganizing expenses and other long-term expenses are depre-ciated on the straightline basis over a 5–10 year period.

Depreciation is calculated from the beginning of the monthafter the item is taken into use.

In the case of international subsidiaries, the depreciationaccording to plan used is in accordance with local accountingpractice, which is not significantly different from the principlesapplied to depreciation by the parent company.

Depreciation according to plan by the balance sheet line:Group Rautaruukki Oyj

M€ 2002 2001 2002 2001

Goodwill 7 9 6 9Other long-term expenses 9 9 5 5Buildings and structures 20 20 12 12Machinery, equipment andother material goods 136 132 82 83Total 172 170 106 109Reductions in value 6 2Depreciation and reductionsin value, total 177 172 106 109

7. Other operating chargesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Sales freights 193 190 98 94Rents 47 51 5 4Other 141 125 47 41

382 366 149 139

8. Financial income and expensesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Income from other investmentsheld as non-current assetsDividend income from group companies 1 2Dividend income fromassociated companies 1 3Dividend income from other companies 1

0 0 2 5Other interest and financial incomeInterest income from group companies 33 36Interest income from other companies 4 4 2 1Exchange gains 2 1 1Other financial income 1 1

7 5 37 38Write-downs on investmentsheld in non-current assetsWrite-downs on the valuesof group companies –20

–20Interest and otherfinancial expensesInterest expenses to group companies –2 –2Interest expenses to other companies(see also Note 10) –55 –53 –53 –54Exchange losses –1 –2 0 –2Other financing expensesto other companies –3 –2 –2 –1

–59 –57 –57 –59

Total financing income and expenses –52 –52 –38 –16

Rautaruukki 200218

9. Extraordinary itemsGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Extraordinary incomeGroup contributions 17Extraordinary expensesGroup contributions –26Group restructuring –1Extraordinary items, total 0 0 0 –10

10. Income taxesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Taxes for the year –2 –5 0 –2Taxes from the previous years 6Change in deferred tax 12 –13

11 –12 0 –2

The Group’s total tax rate was 24% (29% in the previous year).The Group’s total tax rate is lower than Rautaruukki Oyj’s taxrate, because foreign subsidiaries’ losses for the previous years,among other things, could have been utilized during the account-ing period.

In 2001, the crediting to income of taxes for previous yearswas due to the discharge of the tax provision booked in Swedenin 1996. Sweden’s Kammarrätten (Fiscal Court of Appeal) has de-livered its judgement on the tax appeal in favour of the company.The judgement nevertheless does not yet have force of law be-cause the tax recipient has applied for a permit to submit an ap-peal to the Högsta Domstolen, which is Sweden’s Supreme Court.

The amount of the discharged tax provision was EUR 6 mil-lion. At the same time, accrued interest liabilities of EUR 5 mil-lion were credited to income by deducting them from interestexpenses.

The company believes that with a very great probability apermit to submit an appeal will not be granted because in twoother similar cases, appeal permit applications were rejected,whereby the judgement of the lower court received force of law.

11. Intangible assetsGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Intangible rightsAcquisition cost 1.1. 17 16 6 6Increases 1.1.-31.12. 2 1Decreases and adjustment 1.1.-31.12. –1Acquisition cost 31.12. 18 17 6 6Accumulated depreciationaccording to plan 1.1. –10 –8 –4 –4Accumul. depreciation of decreases andadjustment acc. to plan 1.1.-31.12 1Depreciation accordingto plan 1.1.-31.12 –2 –2Book value 31.12. 6 7 2 2

GoodwillBook value 1.1. 25 40 12 21Increases 1.1.-31.12. –5Depreciation accordingto plan 1.1.-31.12 –7 –9 –6 –9Book value 31.12. 19 25 5 12


Other capitalisedlong-term expensesAcquisition cost 1.1. 69 67 58 56Increases 1.1.-31.12. 4 3 3 2Decreases and adjustment 1.1.-31.12. –8 –1 –8Acquisition cost 31.12. 65 69 52 58Accumulated depreciationaccording to plan 1.1. –49 –43 –43 –38Accumul. depreciation of decreases andadjustment acc. to plan 1.1.-31.12. 8 8Depreciation accordingto plan 1.1.-31.12. –7 –7 –5 –5Book value 31.12. 17 20 12 15

Advance paymentsBook value 1.1. 9 2 9 2Changes 1.1. - 31.12. 8 7 8 7Book value 31.12. 18 9 17 9

Intangible assets, total 31.12. 60 61 37 38

12. Tangible assetsGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Land and water areasBook value 1.1. 24 25 6 6Increases 1.1.-31.12 2 1Decreases and adjustment 1.1.-31.12. –1 –1Book value 31.12. 26 24 6 6

Revaluations included in thebook values of land areas1

Revaluations 1.1. 2 2 2 2Revaluations 31.12. 2 2 2 2Book value 31.12. 2 2 2 2

BuildingsAcquisition cost 1.1. 621 584 405 400Increases 1.1.-31.12 18 29 12 6Decreases and adjustment 1.1.-31.12. –22 8 –2Acquisition cost 31.12. 618 621 415 405Accumulated depreciationaccording to plan 1.1. –268 –226 –168 –156Accumul. depreciation of decreases andadjustment acc. to plan 1.1.-31.12. 18 –22Depreciation according to plan –20 –20 –12 –12Book value 31.12. 347 353 236 237

Revaluations included in thebook value of buildings1

Revaluations 1.1. 30 30 30 30Revaluations 31.12. 30 30 30 30


Rautaruukki 2002 19

1 Revaluations made in 1970’s are based on replacement values.


Machinery and equipmentAcquisition cost 1.1. 2301 2205 1588 1571Translation adjustment 13 –4Increases 1.1.-31.12. 108 96 50 35Decreases andadjustment 1.1.-31.12. –66 5 –52 –18Acquisition cost 31.12. 2356 2301 1586 1588Accumulated depreciationaccording to plan 1.1. –1354 –1252 –928 –861Translation adjustment –9 3Accumul. depreciation of decreasesand adjustment accordingto plan 1.1.-31.12. 68 30 52 17Depreciation accordingto plan 1.1-31.12. –136 –135 –82 –83Book value 31.12. 926 948 628 660

Book value of machinery 31.12. 912 933 624 655

Advance payments andconstruction in progressAcquisition cost 1.1. 55 49 37 22Changes 1.1.-31.12. –6 6 0 15Book value 31.12. 49 55 37 37

Tangible assets, total 31.12. 1348 1381 907 941

13. InvestmentsGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Shares in Group companiesBook value 1.1. 272 245Increases 1.1.-31.12. 6 30Decreases 1.1.-31.12. –1 –3Revaluations 1.1.–31.12. –21Book value 31.12. 256 272

Receivables from Group companiesBook value 1.1. 12 5Changes 1.1.-31.12. –12 7Book value 31.12. 0 12

Shares in associated companiesBook value 1.1. 23 25 7 7Transfer between balance sheet rows –1Share of the profit for the year –1Book value 31.12. 23 23 7 7Acquisition cost includes Goodwill 0 0

Long-term receivables fromassociated companiesBook value 1.1. 1 1 1 1Book value 31.12. 1 1 1 1

Other shares andsimilar rights of ownershipBook value 1.1. 11 13 6 6Decreases 1.1.-31.12. –1 –2 –2Book value 31.12. 10 11 4 6

Own sharesBook value 1.1. 13 6 13 6Increases 1.1.-31.12. 8 8Change in value –2 –1 –2 –1Book value 31.12. 11 13 11 13

On 31.12.2002 the company possessed 3,270,000 pieces of K-Shares with the accounting countervalue EUR 5.6 million.

Total investments 31.12. 45 49 280 311

Rautaruukki 200220


Stocks and shares 31.12.2002

Group share (%) of Book values, 1000 €Number share voting Nominal value held by held by other

Country Domicile of shares capital rights currency thousands Rautaruukki Oyj Group companies

Subsidiaries of Rautaruukki Oyj:Asva Oy FI Helsinki 98500 100.0 100.0 EUR 16567 78755August Lindberg Oy FI Raahe 5 100.0 100.0 EUR 42 616Carl Christensen og Brødre AS NO Oslo 66 100.0 100.0 NOK 2310 20674DCA-instruments Oy FI Turku 990 97.2 71.0 EUR 167 167Etnarör Ab FI Oulu 100 100.0 100.0 EUR 8 8Finnsteel Inc US Northbrook 3000 100.0 100.0 USD 30 996Fundia Acier S.A.R.L FR Paris 100 100.0 100.0 EUR 15 253Oy JIT-Trans Ltd FI Raahe 150 100.0 100.0 EUR 252 925Kiinteistö Oy Pakilantie 61-63 FI Helsinki 27000 100.0 100.0 EUR 4541 6567OAO NPO-SPU RU St Petersburg 1235 100.0 100.0 RUB 40029 3699OOO Stalpark RU St Petersburg 1 100.0 100.0 RUB 32550 1273Presteel Oy FI Raahe 2365 55.0 55.0 EUR 398 2128Rannila Slovakia s.r.o. SK Kosice 139630 51.0 51.0 SKK 139630 3101Rannila Steel Oy FI Vimpeli 1500 100.0 100.0 EUR 2523 16819Rautaruukki(Benelux) B.V. NL Almelo 40 100.0 100.0 EUR 18 123Rautaruukki Holding AB SE Stockholm 570000 100.0 100.0 SEK 57000 37215Rautaruukki Holding B.V. NL Amsterdam 40 100.0 100.0 EUR 18 14Rautaruukki Holding Danmark A/S DK Vallensbæk Strand 1000 100.0 100.0 DKK 16000 7009Rautaruukki Holding GmbH DE Düsseldorf 1 100.0 100.0 EUR 2071 48414Rautaruukki (UK)Ltd GB Solihull 2501000 100.0 100.0 GBP 2501 4611Rautaruukki (Norge) A/S NO Oslo 200 100.0 100.0 NOK 200 44Rautaruukki Polska Sp.zo.o. PL Zyrardow 23173 100.0 100.0 PLN 2317 952Rautaruukki Profiler AS NO Mo i Rana 70000 100.0 100.0 NOK 70000 18000Rautaruukki Sales Ltd GB London 10000 100.0 100.0 GBP 10000 14SKJ-yhtiöt Oy FI Raahe 1000 100.0 100.0 EUR 84 141 8Star Tubes (UK) Ltd. GB Birmingham 2780000 100.0 100.0 GBP 2800 3289 36

255806 45Subsidiaries not eliminated from consolidated accounts:

Housing and real estate corporations, 1 company 526Other subsidiaries of Rautaruukki Group (non-trading) 3 companies 100.0 100.0 120 10 50

Non-eliminated subsidiaries, total 536 50256343 95

Subsidiaries of Asva Oy:Asva StalSerwis Sp.zo.o PL Zyrardow 7022 100.0 100.0 PLN 7022 1 765Kiinteistö Oy Alpinus FI Kuusamo 450 100.0 100.0 EUR 8 109Mittalevy Oy FI Helsinki 150 100.0 100.0 EUR 3 7Asva Eesti AS EE Tallinn 9450 100.0 100.0 EEK 945 89SIA Asva Latvija LV Riga 37 100.0 100.0 LVL 37 56UAB Asva Lietuva LT Vilnius 150 100.0 100.0 LTL 150 201ZAO Asva Stal RU Moscow 12 100.0 100.0 RUB 120 19OOO Asva Stalservis RU St Petersburg 1 100.0 100.0 RUB 20 781ZAO Stal Ross RU St Petersburg 100 100.0 100.0 RUB 100 9OOO Rautaruukki RU Moscow 1 100.0 100.0 RUB 5500 171

3206Subsidiary of A/S Carl Christensen og Brødre:

CCB Stål AS NO Oslo 600 100.0 100.0 NOK 600 1736

Rautaruukki 2002 21



Subsidiaries of Rannila Steel Oy:Alamentti Oy FI Alajärvi 100 100.0 100.0 EUR 17 79Rannila Kattopalvelu Oy FI Karkkila 2000 100.0 100.0 EUR 7 928ZAO Rannila Sankt-Petersburg RU St Petersburg 7900 100.0 100.0 RUB 7900 1066ZAO Rannila Taldom RU Taldom 28800 100.0 100.0 RUB 2880 751AS Rannila Profiil EE Pärnu 1500 100.0 100.0 EEK 4395 339Rannila Steel Export Oy FI Vimpeli 5 100.0 100.0 EUR 8 8Rannila Steel Latvia S.I.A LV Riga 1800 100.0 100.0 LVL 180 290Rannila Steel Vilnius U.A.B LT Vilnius 30 100.0 100.0 LTL 30 6Rannila CZ s.r.o. CZ Velvary 100.0 100.0 CZK 30000 1057ZAT Rannila Ukraina UA Kiev 5481 100.0 100.0 UAH 2192 539ZAO Rannila Minsk BY Minsk 520 100.0 100.0 BYR 52000TOO Rannila Kazakshtan KZ Alma-Ata 90.0 90.0 KZT 15074 106ZAO Rannila Marketing RU Moscow 50 100.0 100.0 RUB 50

5169Subsidiaries of Rannila Slovakia s.r.o:

Rannila Kft. Hungary HU Budapest 100.0 100.0 HUF 484 12Rannila Romania r.t.l RO Brasov 100.0 100.0 ROL 359 9

20Subsidiary of Rautaruukki Holding B.V:

Rautaruukki Finance B.V. NL Amsterdam 40 100.0 100.0 EUR 18 18

Subsidiaries of Rautaruukki Holding Danmark A/S:Nordisk Simplex A/S DK Vallensbæk Strand 2 100.0 100.0 DKK 25000 8707Stelform A/S DK Fredericia 3 100.0 100.0 DKK 25000 1347Asva A/S DK Glostrup 500 100.0 100.0 DKK 500 222

10276Subsidiaries of Rautaruukki Holding GmbH:

Carl Froh GmbH DE Sundern 1 100.0 100.0 EUR 3477 37569Fundia GmbH DE Mülheim 1 100.0 100.0 EUR 4607 6854Rautaruukki Rohr GmbH DE Sundern 1 100.0 100.0 EUR 102 113Rautaruukki Stahl GmbH DE Düsseldorf 1 100.0 100.0 EUR 27 307Rautaruukki Stahlservice GmbH DE Duisburg 1 100.0 100.0 EUR 26 3830Schmacke Rohr GmbH DE Sundern 1 100.0 100.0 EUR 2045 47 2674

47 51347Subsidiary of Carl Froh GmbH:

Froh House Tech GmbH & Co KG DE Sundern 1 100.0 100.0 EUR 2000 2000

Subsidiary of Fundia GmbH:Groth Eisenhandel GmbH & Co KG DE Monheim 1 100.0 100.0 EUR 383 415

Subsidiaries of Rautaruukki Holding AB:Asva AB SE Halmstad 70000 100.0 100.0 SEK 7000 9208Fundia AB SE Stockholm 1320000 100.0 100.0 SEK 350000 127266Gasell Profil AB SE Trelleborg 162000 100.0 100.0 SEK 16200 5659Rautaruukki Rör AB SE Surahammar 9000 100.0 100.0 SEK 90 104Wirsbo Stålrör AB SE Surahammar 50000 100.0 100.0 SEK 5000 2185

144422

Rautaruukki 200222

Subsidiaries of Gasell Profil AB:Gasell Profil A/S DK Herlev 500 100.0 100.0 DKK 500 162Gasell Profil AS NO Frogner 500 100.0 100.0 NOK 50 67Gasell Profil Polska Sp.zo.o. PL Warsaw 40 100.0 100.0 PLN 4 845Gasell Profiles Ltd. GB Maisemore 1000 100.0 100.0 GBP 1 1U.A.B. Gasell Profil LT Kaunas 10 100.0 100.0 LTL 10 2ZAO Gasell Profil Moscow RU Moscow 770 100.0 100.0 RUB 770 24Gasell Profil S.R.L RO Bucharest 1005 100.0 100.0 ROL 1000 55

1157Subsidiaries of Fundia AB:

Fundia Bar & Wire Processing AB SE Gävle 40000 100.0 100.0 SEK 40000 20263Fundia Special Bar AB SE Smedjebacken 106000 100.0 100.0 SEK 10600 10926Fundia Wire Oy Ab FI Dragsfjärd 200 100.0 100.0 EUR 3364 20759Fundia Reinforcing AS NO Oslo 579901 100.0 100.0 NOK 57990 70055

122003Subsidiaries of Fundia Bar & Wire Processing AB:

Fundia Cromax AB SE Smedjebacken 1000 100.0 100.0 SEK 100 5670Fundia Dalwire Oy Ab FI Dragsfjärd 120000 100.0 100.0 EUR 2018 1044Fundia Hjulsbro AB SE Linköping 80000 100.0 100.0 SEK 8000 3360Fundia Mandal Stål AS NO Mandal 16358 100.0 100.0 NOK 16358 2254Fundia Steelservice AB SE Gävle 60000 100.0 100.0 SEK 6000 3469Fundia SWL AB SE Smedjebacken 8000 100.0 100.0 SEK 800 869

16666Subsidiaries of Fundia Reinforcing AS:

Fundia Armeringstål AS NO Mo i Rana 230001 100.0 100.0 NOK 128111 56628Fundia Armering AS NO Oslo 440000 100.0 100.0 NOK 44000 9896Fundia Betoniteräkset Oy FI Dragsfjärd 1570 100.0 100.0 EUR 2893 3082Fundia Armering AB SE Halmstad 600000 100.0 100.0 SEK 60000 10052Robocon International AS NO Oslo 500 100.0 100.0 NOK 50SNJ Gesellschaft für Walzhandel GmbH DE Mülheim 500 100.0 100.0 EUR 13 19

79677Subsidiaries of Fundia Armering AB:

Fundia Welbond BV NL Raamdonksveer 499 100.0 100.0 EUR 227 261Fundia Armering A/S DK Ølstykke 38 100.0 100.0 DKK 1000 697

958Subsidiaries of Fundia Cromax AB:

Fundia Bright Bar AB SE Hallstahammar 50000 100.0 100.0 SEK 5000 3682Fundia Cromax S.p.A IT Molinella 1000000 100.0 100.0 EUR 520 2247Fundia Mora AB SE Mora 38500 100.0 100.0 SEK 3850 1214Fundia Redon S.A. FR Redon 25050 100.0 100.0 EUR 382 875Fundia Twente B.V. NL Almelo 5000 100.0 100.0 EUR 2269 0

8019Subsidiary of Fundia Special Bar AB:

Fundia Tankoteräs Oy FI Helsinki 150 100.0 100.0 EUR 3 3

Subsidiaries of Fundia Wire Oy Ab:Asunto Oy Lappohjan Kerrostalot FI Hanko 34556 100.0 100.0 EUR 100 590Fastighets Ab Järnstången FI Hanko 10100 100.0 100.0 EUR 1 1Fastighets Ab Lapphyddan FI Hanko 810 81.0 81.0 EUR 14 14Fundia Nedstaal B.V NL Alblasserdam 4545455 100.0 100.0 EUR 7947 7947Fundia Tråd AB SE Borlänge 500 100.0 100.0 SEK 100 938

9490

Stocks and shares in subsidiaries, total 256390




Rautaruukki 2002 23



Associated companies, share of voting rights 20–50%:BuildForum Oy FI Helsinki 100000 35.3 35.3 EUR 1445 9 818ACH Aluminium AB SE Halmstad 12 20.0 20.0 SEK 600AB Järnbruksförnödenheter SE Stockholm 623 41.5 41.5 SEK 100 11Bet-Ker Oy FI Ylivieska 120 44.4 44.4 EUR 224 202Ekometall AOZT UA Jenakievo 1000 50.0 50.0 USD 25Helens Rör AB SE Halmstad 4500 25.0 25.0 SEK 4500 6694Kiinteistö Oy Teknocent FI Oulu 1916 47.9 47.9 EUR 322 322It Barents Region AS NO Tromsö 4000 33.3 33.3 NOK 4000Kings Lynn Steel (Holdings) Ltd. GB Peterborough 5000 50.0 50.0 GBP 500Mofjellet Berghaller AS NO Mo i Rana 600 40.0 40.0 NOK 1000 201Norsk Jern Eiendom AS NO Mo i Rana 3600 30.3 30.3 NOK 22500 11306Osuuskunta Teollisuuden Romu FI Helsinki 2 33.3 33.3 EUR 3 2 2PPTH Steelmanagement Oy FI Peräseinäjoki 11660 22.0 22.0 EUR 10 10Raahen Kauppaklubin Kannatus Oy FI Raahe 15 33.3 33.3 EUR 25 25Rannila Centrostal Bydgoszcz Sp.zo.o. PL Torun 1 49.0 49.0 PLN 660

7062 1254019601

Associated companies’ profits and goodwill 3616Associated companies’ value in balance sheet 23217

Other stocks and shares, share of voting rights less than 20%:Ancofer Stahlhandel GmbH DE Mülheim 1 10.0 10.0 EUR 732 3219Brödrene Sundt Verktöimaskinfabrikk A/S NO Oslo 2939 15.4 15.4 NOK 73 27Oy Datacity Center Ab FI Turku 1000 7.0 7.0 EUR 17 17Ekokem Oy Ab FI Riihimäki 230 1.3 1.3 EUR 77 77Hangöudds Utvecklingsbolag Ab FI Hanko 800 10.0 10.0 EUR 135 137Hex Oy FI Helsinki 24400 0.6 0.6 EUR 17 25Buc Smedjebacken AB SE Smedjebacken 125 12.5 12.5 SEK 13 1Metalplast-Oborniki Sp.zo.o PL Obornik 149903 16.9 16.9 PLN 141 910Odda Recycling AS NO Odda 83 8.3 8.3 NOK 500 10Raahen Tietotekniikka Oy FI Raahe 10 2.3 2.3 EUR 2 8Skandinavian Link Finska Oy FI Helsinki 100 7.7 7.7 EUR 3 17Tammet Oy FI Tammisaari 900 15.0 15.0 EUR 54 747

Shares in housing and real estate companies 1921 614Other stocks and shares 1082 416Other stocks and shares, total 4056 5171Other stocks and shares and non-eliminated subsidiary shares, total 9813

Own shares 11249Stocks and shares owned by Rautaruukki Oyj, total 278756

Rautaruukki 200224

14. InventoriesInventories are valued at the acquisition price or at the probableselling price, if it is lower. Raw material costs are determined ona FIFO basis.

15. DebtorsLong-term receivables include receivables due for repayment inone year or later.


Short-term non-interest bearingamounts owed by Group companiesTrade debtors 49 30Other non-interest bearing debtors 36 43

85 73Short-term amounts owedby associated companiesTrade debtors 4 5 3 5Other non-interest bearing debtors 1 1

4 6 3 5Essential items in prepaymentsand accrued incomeInterest receivables 1 1Tax receivables 1 2Insurance compensation receivables 1 2 0 1Prepaid personnel expenses 1Currency hedgings 8 10 11 10Insurance compensation receivables 20 14 4 3Total accruals 32 29 16 14

16. Capital and reservesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Share capital 1.1. 236 236 236 236Share capital 31.12. 236 236 236 236

Share premium reserve 1.1. 220 220 220 220Share premium reserve 31.12. 220 220 220 220

Revaluation reserve 1.1. 24 24 33 33Change 0Revaluation reserve 31.12. 23 24 33 33

Fund for own shares 1.1. 13 6 13 6Transfer from retained earnings 8 8Write-down on own shares –2 –1 –2 –1Fund for own shares 31.12. 11 13 11 13

Profit from previous years 1.1. 360 373 156 193Transfer to fund for own shares –8 –8Dividend –27 –34 –27 –34Profit from previous years 31.12. 333 330 129 151Profit / loss for the year –35 30 –44 5Translation difference 12 4Capital and reserves, total 31.12. 799 856 584 658


Distributable earningsProfit from previous years 333 330 129 151+ Profit / loss for the year –35 30 –44 5+ Translation difference of distributable earnings 15– Accumulated depreciation difference and other appropriations shown under capital –331 –320= Distributable earnings –19 39 85 156

The biggest shareholders of Rautaruukki Oyjaccording to the share register as on 31.12.2002

Shares NumberShareholder % of shares

1. The Finnish State 40.1 55 656 6992. Mutual Pension Insurance Company

Varma-Sampo 4.01 5 563 5873. Odin Norden 3.42 4 746 9004. Rautaruukki Oyj 2.35 3 270 0005. OP-Delta Investment Fund 1.18 1 644 0006. Rautaruukki Pension Foundation 1.14 1 585 4557. Federation of Finnish Metal, Engi-

neering and Electronical Industries 0.92 1 272 0008. Finnish State Pension Fund 0.86 1 200 0009. Mutual Life Insurance Company Suomi 0.83 1 153 00010. Nordea Life Insurance Finland Ltd 0.82 1 143 84611. Rannila Esa 0.70 978 00012. Finnish Local Government Pension Foundation 0.62 858 91713. Sampo Life Insurance Company Ltd 0.58 800 00014. Mutual Insurance Company Tapiola 0.54 750 70015. Investment Fund Conventum Finland Value 0.54 750 00016. Fortum Pension Foundation 0.51 710 90017. Investment Fund Sampo Finland Equity 0.47 649 83718. Onnenmäki Foundation 0.44 616 25719. OP-Profit Investment Fund 0.43 602 00020. The Finnish National Fund for R&D, Sitra 0.42 587 700Administrative registrations 8.88 12 335 332Other foreign owners 3.96 5 504 130Other owners 26.29 36 507 185Total 100.00 138 886 445

The total number of shares held by members of the SupervisoryBoard and the Board of Directors was 15,128, which represent0.01 % of the voting right conferred by all the company's shares.In addition the members of the Board of Directors held companyconvertible bonds which confer entitlement to subscribe at mosta total of 1,000 K Shares, i.e. 0.0007 % of the voting right.

Share capital of Rautaruukki Oyj by share series:accounting

number countervalue, €

Series K (10 votes per share) 138,886,445 236,106,957Series A shares, as defined in the Articles of Association, have notbeen issued.


Rautaruukki 2002 25

Shareholders by share ownership accordingto the share register as on 31.12.2002

Shareholders SharesOsakkeiden lukumäärä No. % Thousands %

1–100 2,168 10.74 131 0.09101–1 000 14,031 69.48 6,760 4.871 001–10 000 3,567 17.66 9,958 7.1710 001–100 000 343 1.70 9,653 6.95100 001– 84 0.42 112,384 80.92

20,193 100.00 138,886 100.00

Shareholders by sector according tothe share register as on 31.12.2002

Shareholders SharesNo. % Thousands %

Companies 787 3.90 11,880 8.56Banks and insurance companies 101 0.50 13,981 10.07Public institutions 68 0.34 71,472 51.46Non profit institutions 255 1.26 5,223 3.76Private households 18,887 93.53 18,491 13.31Administrative registrations 9 0.04 12,335 8.88Other foreign owners 86 0.43 5,504 3.96

20,193 100.00 138,886 100.00

17. AppropriationsIn the consolidated annual accounts, the depreciation reserve hasbeen transferred in part to capital and reserves and in part to thedeferred tax liability. For the parent company Rautaruukki Oyj,the deferred tax liability, which would have been EUR 119 milli-on, has not been separated out from appropriations.

Rautaruukki OyjM€ 2002 2001

Accumulated depreciation difference 1.1. 413 387Change in profit and loss account –1 26Accumulated depreciation difference 31.12. 412 413

Appropriations, total 31.12. 412 413

18. ProvisionsObligatory provisions include provisions for pensions, guaran-tees, restructuring and other similar contingencies, which repre-sent the setting aside of funds to cover future losses.


Pension liabilities 1.1. 14 12 6 5Change in staff expensesin the profit and loss account 21 2 19 2Transfer from interest bearingpensions loans 3Pension liabilities 31.12. 38 14 25 6

Tax provisions 1.1. 1 8Change (see also Note10) 0 –7Tax provisions 31.12. 0 1

Other obligatory provisions 1.1 9 26Transfer from non-interest bearing loans 9Changes in theprofit and loss account 2 –17 4Other obligatory provisions 31.12. 20 9 4 0

Obligatory provisions, total 58 23 29 6

19. Interest bearing long-term creditorsCreditors denominated in foreign currency have been valued in the balance sheet at the rate on the balance sheet date.

The currency mix and repayment schedule of the Group’s long-term debt as of 31.12.2002

Repayments % of totalM€ Currency 2003 2004 2005 2006 2007 2008 2009– Total debt

Convertible bonds EUR 3 3 0Bonds and debenture loans EUR 64 71 104 238 23Loans from credit institutions EUR 81 156 257 40 93 5 15 647 61

SEK 16 3 3 3 33 57 5Pensions loans EUR 6 6 6 3 1 1 42 65 6

SEK 17 17 2NOK 1 1 0

Others EUR 4 5 5 5 5 4 27 3110 234 269 121 131 10 178 1,054 100

The average interest rate on long-term loans was 4.9 %

Rautaruukki 200226

M€ interest rate currency 2002 2001Bonds (nominal value)1999–2004 4.0 % EUR 65 651999–2006 4.5 % EUR 71 71

135 135Callable subordinate notes(nominal value)2002–2009 7.5 % EUR 542002–2009 5.9 % EUR 50

104Convertible bonds1998–2003 5.0 % EUR 3 3On the basis of equity warrants, 400 000 Series K shares can besubscribed for.

20. Deferred tax assets and liabilitiesGroup Rautaruukki Oyj1

M€ 2002 2001 2002 2001

Deferred tax assetsIn the companies’ accounts 8 5From consolidation 5 5From temporary differences 20 4

33 14Deferred tax liabilitiesIn the companies’ accounts 3 3From appropriations 133 124 1191 1201

From consolidation 8 8From temporary differences 22 26

166 161 119 1201 For the parent company, the deferred tax liability from the de-preciation difference in the balance sheet is shown. This deferredtax liability is not booked to Rautaruukki Oyj´s balance sheet.

21. Current non-interest bearing creditorsowed to Group companies


Trade creditors 7 7Other creditors 1 27

1 35

22. Current non-interest bearing creditorsowed to associated companies


Trade creditors 2 4 2 42 4 2 4

23. Current creditorsEssential items in accruals and deferred income


Tax liability 4 5Interest debts 11 10 11 10Personnel expenses 63 65 39 37Currency hedgings 17 12 17 12Other accruals 30 27 11 11Total accruals 125 119 78 70

24. Contingent liabilities and other liabilities

Given securitiesGroup Rautaruukki Oyj

M€ 2002 2001 2002 2001

Mortgage backed liabilitiesPensions loans 40 40Loans from financial institutions 12 3 12 2

52 3 52 2Collateral in valueMortgaged real estates 86 71 79 69

Collateral given on behalf ofGroup companiesGuarantees 47 55Debit balance of Group bank accounts 81 73

128 128Collateral given on behalf ofassociated companiesGuarantees 2 2 2 2

Collateral given onbehalf of othersGuarantees 5 8 4 7

Contingent and other liabilitiesLeasing and rental liabilities Due next year 36 37 11 11 Due later 139 142 69 78

176 179 88 88Other financial liabilitiesRepurchase liabilities 14 14 12 12

Letter of Comfort liabilities*for Group companies 12 13*Letter of Comfort liabilities do not constitute a legal guarantee.

Other liabilitiesBy a decision issued on 4 February 2003, the Norwegian authori-ties imposed on Fundia’s Mo i Rana steel mill new emission limitsfor mercury and other heavy metals. The new limits will comeinto force on 1 December 2006. The new emission limit for mer-cury will be 30 kg a year. The company is examining the effects ofthis decision together with the Norwegian authorities, but it is notyet possible to estimate its economic impact.

25. Financing and the management of financial risksThe Rautaruukki Group’s financing operations and the manage-ment of financial risks are handled centrally by the parent com-pany’s Corporate Treasury in accordance with the financial pol-icy approved by the Group’s Board of Directors. The divisionsand subsidiaries are responsible for their own financial result andcarry out their financial transactions within the Group. The ob-jective of the Group’s management of financial risks is to mini-mise the unfavourable effects of financial risks on the Group’searnings, shareholders’ equity and liquidity.

Rautaruukki 2002 27

Foreign exchange riskThe Group’s foreign exchange risk is managed via three separatepositions: the balance sheet, equity and cash flow positions. Thebalance sheet position was on average completely hedged during2002. The foreign exchange risk for the shareholders’ equityamounts of foreign shareholdings was not hedged.

The bulk of the Group’s foreign exchange surplus is in Brit-ish pounds and Danish kroner. In 2002, Danish kroner amountswere not hedged and amounts in British pounds were hedged forabout six months of cash flow. The prices of the most importantraw materials are set in United States dollars, which means thatthe Group has a substantial dollar deficit. Of this, an amountcorresponding on average to 4–5 months flow was hedged.

Estimated annual net cash flow risk against euroM€

USD – 300GBP + 150SEK + 50NOK – 90DKK + 140PLN + 25RUB + 25Other currencies + 50Total + 50

Interest rate riskThe Group’s interest-bearing net debt at 31 December 2002 wasEUR 1092 million and the average interest rate was 4.9 per cent.The euro represents about 80 per cent of the interest rate risk andthe Swedish krona about 20 per cent.

Interest rate risk is monitored and managed in terms of inter-est flow risk and price risk. At 31 December 2002 the interest flowrisk impact over the next 12 months of a one percentage point risein the interest rate was EUR 2.4 million. Taking into account de-rivatives, the duration of the net liabilities exposure at the end ofthe year was 1.5 years. A change of one percentage point in theinterest rate curve would have led to a change of about EUR 16million in the market value.

Estimated effect of a percentage point change in the interestrate curve on the sensitivity of net debt and net interest expenses

interest flowM€ sensitivity risk (12 months)EUR 15.1 2.3Other currencies 0.4 0.1Total 15.5 2.4

Liquidity riskTo minimise refinancing risks, the Group strives to achieve a bal-anced maturity distribution of its loans and to make use of anumber of different sources of financing. To ensure liquidity theGroup had, at the end of 2002, committed revolving credit facil-ities totalling EUR 523 million, of which EUR 284 million wasunused.

The Group has several uncommitted short-term credit linesas well as an EUR 250 million commercial paper programme, ofwhich EUR 165 million was unused at the end of the year.

Credit riskWith a view to minimising credit risks in financing, agreementsand commitments are made only with leading and financiallysolid banks and other counterparties. Financial credit risks didnot result in losses during the financial year. Rautaruukki doesnot have major long-term delivery or trade debtors from custom-ers, or large individual customer risks. The major part of unse-cured trade receivables is covered by credit risk insurance.

Commodity price risks

ZincThe raw materials used by the Group involve price risks, forwhich the established derivatives markets provide only for hedg-ing the price risk of zinc. Approximately 40,000 tonnes of zincwas purchased in 2002. At the end of the year, 50 per cent of theestimated zinc purchases for 2003 and 20 per cent for 2004 hadbeen hedged.

ElectricityThe price risk for electricity is monitored and managed in accord-ance with the risk policy approved by Group management. Forthe Group’s functions in Finland, risk management is centralisedwithin the parent company. In other countries, risk managementis handled locally. Of the Group’s total use of electric power,about half is self-generated and half is purchased electricity. Theamount of purchased electricity in 2002 was about 1,400 GWh, ofwhich about half was purchased in Finland. At the end of theyear, electricity derivatives had been employed to hedge 80 percent of the purchases in Finland for 2003, 60 per cent for 2004 and30 per cent for 2005.

Derivative contracts as at 31.12.2002The following table shows the nominal values and fair values ofthe Group’s financing instruments and commodity derivatives.The calculation of fair values is based on the available marketprices or a price given by a bank. For options, general valuationmodels are used. The nominal amounts do not correspond to themoney payments exchanged by the parties and they also includeclosed contracts.

M€ Nominal value Fair value

Interest rate derivatives Interest rate swaps 652 –6.6Foreign currency derivativesForward contracts 309 0.2 Options* Bought 215 –3.3 Bought 215 –4.6Zinc derivatives Forward contracts** 30,200 –2.3Electricity derivatives Forward contracts*** 1,343 22.5*Risk reversal**Nominal amounts in tonnes***Nominal amounts in GWh

Rautaruukki 200228


26. Financial and share based key figures2002 2001 2000 1999 1998

Turnover M€ 2,884 2,906 2,708 2,388 2,579Personnel on average 13,325 13,678 13,176 13,219 13,409

FINANCEOperating profit M€ 6 93 156 57 186

% of turnover % 0.2 3.2 5.8 2.4 7.2Profit/Loss before extraordinary items M€ –46 41 106 –6 127

% of turnover % –1.6 1.4 3.9 –0.2 4.9Profit/Loss before taxes M€ –46 41 81 –6 109

% of turnover % –1.6 1.4 3.0 –0.2 4.2Return on net assets % 0.6 5.0 8.7 3.3 10.4Return on equity % –4.3 3.4 8.2 –2.0 9.7Equity ratio % 31.1 33.3 34.1 34.6 36.9Gearing ratio % 138 129 118 121 109Gross investments M€ 142 162 176 197 235

% of turnover % 4.9 5.6 6.5 8.2 9.1Research and development M€ 17 19 20 20 18

% of turnover % 0.6 0.7 0.7 0.8 0.7Net interest expenses M€ 50 49 50 50 61

% of turnover % 1.7 1.7 1.8 2.1 2.4Interest bearing net debt M€ 1,092 1,087 1,017 1,014 954Balance sheet total M€ 2,561 2,559 2,523 2,432 2,402

SHARE BASED KEY FIGURESEarnings per share, EPS € –0.26 0.22 0.51 –0.13 0.64– diluted € –0.26 0.21 0.49 –0.13 0.63Equity per share € 5.81 6.21 6.23 6.02 6.44Dividend per share € 0.00* 0.20 0.25 0.20 0.30Dividend per earnings % 0,0* 91.9 49.4 –154.6 47.3Price per earnings, P/E –13.2 18.8 7.6 –53.7 8.6Share trading thousands 33,902 39,038 34,318 41,116 68,150Stock turnover % 25 29 25 30 51Share trading M€ 145 162 166 254 443Average price of share € 4.26 4.16 4.83 6.18 6.50Lowest price of share € 3.36 3.59 3.45 5.10 4.29Highest price of share € 5.30 4.85 7.20 7.30 8.16Average adjusted number of shares thousands 135,616 136,132 138,462 135,109 133,228– diluted thousands 136,016 138,947 142,183 138,699 134,939Adjusted number of shares at year-end thousands 138,886 138,886 138,886 138,886 133,228Number of shares at year-end thousands 138,886 138,886 138,886 138,886 133,228– not counting own shares thousands 135,616 135,616 137,540 138,886 133,228– diluted thousands 136,016 138,431 141,355 142,476 135,779Share price at year-end € 3.44 4.10 3.82 6.95 5.53Market capitalization at year-end M€ 478 569 531 965 737Effective dividend yield % 0.0* 4.9 6.5 2.9 5.5

* Board proposal

Rautaruukki 2002 29

Principles governing the calculation of key figures

Return on net assets =

Return on equity =

Equity ratio =

Gearing ratio =

Interest bearing net debt =

Earnings per share (EPS) =

Equity per share =

Dividend per share =

Dividend per earnings =

Price per earnings (P/E) =

Average share price =

Market capitalization =

Effective dividend yield =

profit before extraordinary items + interest expenses ± exchange rate differences + other financial expenses1

[balance sheet total2 – obligatory provisions – non-interest bearing debt] (average of the beginning and end of the year)

profit before extraordinary items – taxes3

[capital and reserves2 + minority interest] (average of the beginning and end of the year)

capital and reserves + minority interestbalance sheet total2 – current advanced payments received

interest bearing net debtcapital and reserves2 + minority interest

interest bearing debt – cash and other liquid current assets

profit before extraordinary items – minority interests – taxes3

adjusted average number of shares2

capital and reserves2

adjusted number of shares at year-end2

dividends paidadjusted number of shares at year-end2

dividend per shareearnings per share

share price at year-endearnings per share

total EUR trading of the shareadjusted number of shares traded

number of shares x share price at year-end

dividend / shareshare price at year-end

1 Excluding depreciation of short-term investments2 The own shares in the company’s possession are not included in the number of shares,

shareholders’ equity or total assets in the key ratio calculations.3 Taxes have been stated without taxes related to extraordinary items.

Rautaruukki 200230

The consolidated distributable capital and reserves, in which the net loss for the financialyear was 35 million euros, was 19 million euros negative at the end of the 2002 financialyear. The parent company’s distributable shareholders’ equity was made up as follows:

Net loss for the year EUR –44,221,418.70Retained earnings from previous years EUR 128,786,049.39Total EUR 84,564,630.69

The Board of Directors proposes to the Annual General Meeting that no dividend bepaid out and that the loss for the financial year be transferred to the retained earningsaccount.

Helsinki, 5 February 2003

BOARD OF DIRECTORS

Jukka Viinanen

Georg Ehrnrooth Maija-Liisa Friman Christer Granskog

Carita Putkonen Pekka Timonen Mikko Kivimäki

BOARD PROPOSAL FOR THE DISPOSAL OF DISTRIBUTABLE FUNDS

Rautaruukki 2002 31

To the shareholders of Rautaruukki OyjWe have audited the accounting, the financial statements,and the administration of Rautaruukki Oyj for the yearended 31 December 2002. The financial statements, whichinclude the report of the Board of Directors, consolidatedand parent company income statements, balance sheetsand notes to the financial statements, have been preparedby the Board of Directors and the Managing Director.Based on our audit we express an opinion on these finan-cial statements and on administration of the parent com-pany.

We have conducted the audit in accordance with Finn-ish Standards on Auditing. Those standards require thatwe perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material mis-statement. An audit includes examining on a test basisevidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principlesused and significant estimates made by the managementas well as evaluating the overall financial statement pres-

entation. The purpose of our audit of administration is toexamine that the members of the Supervisory Board andthe Board of Directors and the Managing Director of theparent company have legally complied with the rules ofthe Finnish Companies Act.

In our opinion, the financial statements have been pre-pared in accordance with the Finnish Accounting Act andother rules and regulations governing the preparation offinancial statements. The financial statements give a trueand fair view, as defined in the Accounting Act, of both theconsolidated and parent company’s result of operations, aswell as of the financial position. The financial statementswith the consolidated financial statements can be adoptedand the members of the Supervisory Board and the Boardof Directors and the Managing Director of the parent com-pany can be discharged from liability for the period audit-ed by us. The proposal by the Board of Directors on howto deal with the result is in compliance with the FinnishCompanies Act.

Helsinki, 5 February 2003

KPMG WIDERI OY ABHannu Niilekselä

Authorized Public Accountant

AUDITORS’ REPORT

STATEMENT BY THE SUPERVISORY BOARD

Having today considered the company’s financial state-ments and consolidated financial statements for 2002, aswell as the Auditors’ Report, the Supervisory Board ofRautaruukki Oyj proposes to the 2003 Annual General

Meeting of shareholders that the profit and loss accountsand the balance sheets of the company and the Group beapproved. The Supervisory Board concurs with the Boardof Directors’ proposal concerning the disposal of profit.

Helsinki, 4 March 2003

SUPERVISORY BOARD

Turo Bergman

Jouko Skinnari Tuula Haatainen Timo Ihamäki

Tauno Matomäki Seppo Kanerva Inkeri Kerola

Ole Johansson Bertel Langenskiöld Kyösti Karjula

(translation)

Rautaruukki 200232

TURNOVER BY QUARTER(EUR million) I/2001 II/2001 III/2001 IV/2001 I/2002 II/2002 III/2002 IV/2002Rautaruukki Steel 351 357 314 295 304 328 331 345Metform 97 95 80 80 90 102 83 92Steel Structure Division 58 80 94 79 58 83 93 88Fundia 199 195 158 172 178 195 169 189Steel Service 156 192 182 172 162 168 157 159Other units 31 39 40 41 41 44 36 50– internal invoicing – 161 – 182 – 164 – 142 – 147 – 176 – 167 – 170Consolidated turnover 731 774 703 697 686 743 703 753

OPERATING PROFIT/LOSS BY QUARTER(EUR million) I/2001 II/2001 III/2001 IV/2001 I/2002 II/2002 III/2002 IV/2002Rautaruukki Steel 38 30 10 5 2 – 10 4 13Metform 1 6 3 1 5 9 2 1Steel Structure Division – 3 3 10 0 – 4 4 10 2Fundia 2 4 – 5 – 6 – 1 1 – 18 1Steel Service 6 3 2 – 3 2 5 5 10Other units and internal items 0 – 5 – 2 – 10 – 4 – 8 – 15 – 10Consolidated operating profit/loss 46 42 17 – 12 1 1 – 12 17

EXTERNAL DELIVERIES BY QUARTER(1000 t) I/2001 II/2001 III/2001 IV/2001 I/2002 II/2002 III/2002 IV/2002Hot rolled plates, sheets and coils 269 259 255 260 269 278 267 292Cold rolled sheets and coils 48 55 41 43 51 44 48 50Coated sheets and coils 178 191 161 172 167 166 178 179Tubular products 147 151 127 126 139 166 128 147Profiled sheets and sections 58 66 71 63 50 69 75 67Long steel products 559 519 423 469 473 516 441 502

FIGURES BY QUARTER

Rautaruukki is a listed company that manufactures value ... 700 employees. Boosting sales revenue...

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