2009 - PKC Group · 2014. 6. 9. · 10 PKC GROUP | ANNUAL REPORT 2009 PKC’s vision is to be a customer-oriented, proactive contract manufacturer and product development partner

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P K C G R O U P | A N N U A L R E P O R T 2 0 0 9

2009Annual Report

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PKC Group

is a global provider of design and contract

manufacturing services for wiring harnesses

and electronics. The Group’s products

and services are delivered mainly to the

automotive, telecommunications and

electronics industries.

We are here

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annual report 2009

BuSIneSSpkc in Brief

review by the president and ceo Strategic outlines

Business areas

corporate Governance corporate Governance Statement

remuneration Statementrisk Management

FInancIal StateMentSreport by the Board of Directorsconsolidated Income Statement

consolidated Balance Sheetconsolidated cash Flow Statements

Statement of changes in equitynotes to the consolidated accounts

parent company’s Income Statementparent company’s Balance Sheet

parent company’s cash Flow Statementnotes to the parent company’s account

Shares and Shareholderskey Indicators

calculation of key IndicatorsSignatures

auditor’s report

Information for Shareholderscontact Information

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Business

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OSiOn nimi tänne

TIeToa oSakkeenoMISTajIlle

pkc lyhyeSTI

ToIMITuSjohTajan kaTSauS

STraTeGISeT lInjaukSeT

lIIkeToIMInTa

rISkIen hallInTa

6 PKC in Brief8 Review by the President and CEO 10 Strategic Outlines 12 Business Areas

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• elecTronIcS unIT • WIrInG harneSS unIT

USA • Green valley, arizona

meXiCO • nogales

BRAZiL • curitiba, paraná

RUSSiA •• kostomuksha, karelia

POLAnD • Starachowice

CHinA • Suzhou

FinLAnD•• kempele (Group Management) • raahe

eStOniA • haapsalu • keila

We are here

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PKC IN BRIEF

The Group has production facilities in Finland, Brazil, China, Mexico, Poland, Estonia and Russia employing about 4,100 people in total. PKC Group Oyj’s net sales amounted to EUR 201.8 million in 2009. PKC Group Oyj is listed on NASDAQ OMX Helsinki Ltd.

History

• In1969,PohjolanKaapeliOy,asubsidiaryofNokiaOy,established a wiring harness production facility in Kempele.

• Intheearly1990s,thecompanybeganco-operationwith subcontractors in Estonia and Russia.

• In1994,PKCablesOywasestablished.Itwasthefirstcompany from northern Finland to be listed on the Helsinki Stock Exchange, in 1997.

• Attheendofthe1990s,theGroupopenedafactoryin Brazil, and acquired its Electronics business.

• Intheearly2000s,theEstonianandRussiansubcontracting operations were bought.

• Inthesecondhalfofthe2000s,NorthAmericanoperationswere acquired, and a factory was opened in China.

• In2008,Polishoperationswereacquired.

Key events in 2009

• TheGroup’snetsalesdecreasedascustomers’production volumes declined and the demand for design and manufacturing services fell.

• OperationswereadjustedinallGroup’sunitsinordertoimproveprofitability.

• Expertisewasstrengthened,particularlyinChina,Poland and Estonia.

• ThePolishwiringharnessfactorywasfullyintegratedinto the PKC Group.

• TheGroup’sERPsystemwasimplementedinthefactories in Mexico and Poland.

• TheWiringHarnessesbusinesswasreorganisedinto a separate subgroup.

• IntheElectronicsbusiness,deliveriestotheautomotiveindustry were started, and in the Finnish factory, a quality system compliant with the automotive industry’s ISO/TS 16949 standard was built.

• Electronicsbusiness‘salesorganisationfortheRussianinternal market was strengthened.

PKC Group is a global provider of design and contract manufacturing services for wiring harnesses and electronics. Its products and services are delivered mainly to the automotive, telecommunications and electronics industries.

GROUP KeY FiGUReS 2009 2008 2007 2006 2005Net sales, EUR million 201.8 311.7 288.6 228.9 198.8

Operating profit, EUR million 0.7 21.0 28.2 24.2 26.7

Profit before taxes, EUR million 1.1 15.2 25.6 22.8 27.3

Return on investment (ROI), % 6.4 20.8 22.6 22.8 33.8

Equity ratio, % 49.2 41.9 47.2 48.0 55.6

Gross capital expenditure, EUR million 3.9 27.4 10.8 20.0 11.4

Earnings per share, EUR 0.13 0.31 0.98 0.88 1.07

Dividend per share, EUR 0.40 0.15 0.45 0.45 0.45

(* Board’s proposal

(*

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REVIEW BY THE PRESIDENT AND CEO

Thepastyearwillgodownasoneofthemostsignificantyears of change in the history of our Group. Whilst demand for our products and services fell sharply, we succeeded in adapting and reorganising our operations inamannerthatledtosatisfactoryprofitabilityinthelastquarter.

Manufacture of commercial vehicles decreased in Europe to almost a third of the previous year’s levels. At the start of the year, we took over the MAN Nutzfahrzeuge AG wiring harness factory located in Poland. Taking account ofthisunit’sprevioussales,theGroup’spro-formasalesalmosthalvedfromthepreviousfinancialperiod.With this successful acquisition, we were able to increase our market share, and PKC’s supplies in Europe fell only by around a third. In Brazil and North America, supplies halved.

At the beginning of November, we revised the Group structure by organising the Wiring Harnesses business into a subgroup. The subgroup’s parent company is PKC Wiring Systems Oy, whose function is to manage and support the business units that are located in Estonia, Poland, Brazil and North America. The manufacture of wiring harnesses in Finland, China and Russia (Pskov) was discontinued duetoreasonsrelatedtocost-competitiveness.Therecruitment of a Managing Director for our Wiring Harnesses business was completed in January 2010.

During 2009, the global economic recession also affected the Group’s operations and results. As a consequence of the fall in customers’ production levels, operations were cut back so that we could achieve a positive result. By revising the Group structure and by strengthening expertise, we will create a strong foundation for meeting the challenges of the future and taking advantage of any opportunities that arise.

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Demand for and supplies of electronics design and manufacturingservicesfellbyaroundonefifthfromthe previous year. PKC’s Electronics business exhibited commendable growth despite the market decline. We succeededinmaintainingprofitabilitywhentheoperationswere strengthened in China. The Chinese unit achieved a positiveoperatingresultinthefinancialperiod.

Asaresultofcut-backsintheoperations,streamliningofthecoststructureandsalesreceivablesfinancing,theneedfor working capital reduced, and cash flow was strong. Thefinancialpositionimprovedduringthepastyear.

Duringthefinancialperiod,thenumberofpersonnelworking for the group fell by around two thousand. The reduction was proportionately greatest in the wiring harness unit in Kempele. Fixed costs, as a proportion of sales, rose exceptionally high due to a pronounced weakeningofsales.Thereductionofthefixedcostsis the key aim of rationalisation during the current year.

Early signs of growth in national product and consumer demand are already visible, but it is uncertain how especially the European economies that are key to our operations will develop as government support reduces.

Idonotbelievetherewillbesignificantrecoveryininvestment demand during 2010, and I do not expect very significantgrowthinourprincipalmarketareas.Signsofa gradual recovery in the market are reflected in the fact that in the last quarter there was an increase in orders for new trucks received by our main customers in Europe and Latin America that exceeded the average production levels of 2009. We will take advantage of the low utilisation rate of our factories by investing in staff expertise, so that we can react quickly when growth begins again. In the currentfinancialperiod,specialattentionwillbepaidtothe further development of service for current customers and to the acquisition of new customers.

I would like to thank Group personnel and other stakeholders for their contribution to our success.

Harri Suutari

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PKC’svisionistobeacustomer-oriented,proactivecontract manufacturer and product development partnerprovidingcost-competitive,high-qualityservicesand products. In practice, this means being a flexible partnerwhileworkingincloseco-operationwithourcustomers. We actively seek solutions that will ensure the competitiveness of our products and services on an ongoing basis. The guiding principle behind our operationsistoprovideourcustomerswithsignificantaddedvalue,whilestrivingforhighproductivityandcost-effectiveness throughout our operations.

Strategic measures in 2009

• Cost-savingmeasuresforensuringfutureprofitability• ReorganisingthegroupstructurebyWiringHarnesses

subgroup formation and by reducing the number of wiring harness factories

• Strengtheningofcustomersynergiesbyextendingtheco-operationbetweenbusinessareas

• Integrationanddevelopmentofthewiringharnessfactory in Poland

• Transferofexpertisetoprofitcentres• Developmentofbestqualitypractices,andimproving

Six Sigma expertise • IncreasingElectronics’productdevelopmentexpertise

in China• Strengtheningofdesignandmanufacturingservices

in automotive electronics

In 2009, the production volumes of commercial vehicles weresignificantlylowerthaninthepreviousyear,ascould be seen from the drop in the number of orders received by PKC. The demand for electronics design and manufacturingservicesanddeliveriesfellbyaboutafifth.Swiftmeasureswereneededtomaintainprofitability.

In 2009, extensive adjustment measures were implemented in all group units. The Group’s operations were reorganised, and expertise was increased particularly inthefactoriesinEstonia,PolandandChina.Profitabilitywas also improved by internal development projects, whichwillincreasecustomersatisfactionandcost-effectiveness and strengthen PKC’s competitiveness as demand begins to increase anew.

the Group’s strategic objectives

PKC’saimistogrowinaprofitableway.Profitablegrowthis sought by deepening existing customer relationships and expanding clientele in current and new customer segments. Our aim is to strengthen our position particularly in Central Europe, South America and Asia. We are also investigating possibilities for geographical expansion.

In all our operations, we strive for high customer satisfactionbyprovidinghigh-quality,competitiveproductsand services, whilst exceeding customer expectations. Close customer collaboration enables provision of services generating additional value and an effective supply chain management.

STRATEGIC OUTLINES

The recession and changes in the global market have presented PKC with both challenges and opportunities. The strategic measures implemented have proven successful, and the Group’s operationsbecameprofitableagaininthelatterpartoftheyear.

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The rationalisation of operations, improvement of production methods and global sourcing operations ensure the competitiveness of our products and services. In addition to our core expertise, we provide customers with services that reduce the overall costs of customer products.

Byimprovingallofourfunctionsandco-operationbetweenthem,wecreateasustainablebasisforprofitablebusiness operations. We will also ensure the success and realisation of the Group strategy through our competent personnel, who are familiar with the operational environment and understand the customers’ requirements.

In order to ensure the realisation of the Group’s strategic goals, we utilise our core strengths and competitive advantages:• Closeco-operationwithcustomers• Long-term,confidentialcustomerrelationships• Acomprehensivedesignandmanufacturingservice

package in both business areas• Innovativeproductdevelopmentoperations• Servicesimprovingproductqualityandcost-

effectiveness• Worldwideexpertiseandextensiveexperienceof

operating in lower cost countries • Acost-effectiveandflexibleproductionnetworkthat

operates in accordance with uniform quality and environmental standards and operating principles

• Anorganisationthatquicklyadaptstocustomerrequirements and changes in the operating environment.

ValuesPKC Group’s values support implementation of the strategy and guide our daily operations:

COmmitment

We commit to the promises we make to customers,partnersandco-workers.

QUALitY

We acknowledge our responsibility for the quality of our services and products and aspire tojointlymakingouroperationsmoreefficientand flawless. We take responsibility for our operating environment and strive to minimise any harm caused to the environment.

PROFitABiLitY

Werunprofitableandproductiveoperations,usecapitalefficiently,andmaintainthesolvency of our company at a high level.

CO-OPeRAtiOn

Our openness, appreciation of each other and equal treatment lay the foundation for fruitful co-operation.

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Wiring Harnesses businessdesigns, develops and manufactures

wiring harnesses and cabling for the

automotive, telecommunication and

electronics industries.

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The Wiring Harnesses business area develops and manufactures wiring harnesses and cabling for demanding, customised solutions. Our Wiring Harnesses business’s customers operate in the automotive, telecommunications and electronics industries. Our expertise covers customers’ wiring harness needs from designtomanufactureandmanagementoftheorder-supply chain.

The Electronics business provides design and contract manufacturing services to the telecommunications and electronics industries as well as, increasingly, to the commercial vehicle industry. Our service covers the whole

productlife-cyclefromdesigntomanufactureandaftersalesservices.Ourorganisationmanufactureshigh- quality,reliableandcost-effectiveproductstailoredto the customers’ needs.

Choosingtherightco-operativepartnerisaprerequisitefor a successful business. We wish to ensure this on our part by providing competitive expert services that release customers’ own resources and expedite the introduction of products to the market. For us, it is essential that our customers can concentrate on their business operations andcorecompetenciesandimprovetheirprofitability.

BUSINESS AREAS

PKC Group has two business areas: Wiring Harnesses and Electronics.Ourserviceconceptcomprisescost-effectivecontractmanufacturing and expert product development and design services.Theglobalsourcingorganisationandefficientlogisticschain supplement our service concept.

DeveLOPment OF tHe nUmBeR OF PeRSOnneL, 2005 tO 2009

PeRSOnneL BY COUntRY At tHe enD OF 2009

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Byutilisingco-operationbetweenourbusinessareas,we provide our customers with a comprehensive service package. Our operating principle is to be close to the customer, throughout the world.

Personnel and expertise

Skilled and professional staff is the most important factor for PKC’s competitiveness. Therefore, we develop knowhow systematically. In 2009, we strengthened our expertise particularly in design, product development and sourcing, and we initiated many internal development projects and Six Sigma projects to improve operations.

During 2009, the Group launched the SaQu tool, which is used to observe and develop effectiveness, productivity, safety and quality in the working environment. The tool wasdevelopedincollaborationwithoccupational-healthexperts, and use of the SaQu system will be advanced during 2010.

The adjustment measures implemented during the year reducedstafflevelsbyaboutafifth.ThenumberofGroup’s personnel was 4077 at the end of the year.

Quality management supports business functions

Quality is one of our Group’s values. High customer satisfactionistheresultofhigh-qualitydailyoperations.Our operations are based on ISO 9001 and ISO 14001 quality and environmental standards and the automotive industry’s ISO/TS 16949 quality standard. In our business, we anticipate changes in the business environment and the increasing requirements of our customers.

We actively conduct internal audits, and we make use of best quality practices within the Group. Feedback obtained from internal audits and customers is utilised in developing operations. Professionally skilled personnel formanimportantpartofourquality-capability.

BUSINESS AREAS

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PKC’S CeRtiFiCAteS At tHe enD OF 2009

Quality environmental Quality management management system

management management system for the for occupational

system system automotive industry health and safety

Unit iSO 9001 iSO 14001 iSO/tS 16949 OHSAS 18001

WiRinG HARneSSeS

Kempele (Finland) • • •

Keila ja Haapsalu (Estonia) • • •

Kostomuksha (Russia) • • •

Curitiba (Brazil) • • • •Starachowice (Poland) • • •

Nogales (Mexico) • • •

Green Valley (USA) •

eLeCtROniCS

Raahe (Finland) • • •

Kostomuksha (Russia) • • •

Suzhou (China) • • •

(1 Audit performed at the end of 2009, certificate at the beginning of 2010(2 Certification process started in 2009 and will be completed during 2010

Best quality practices also include Six Sigma, which is used in the Wiring Harness business in the implementation of stratecally important development projects. During the period under review, the Electronics business embarked upon a best quality practices project as part of its own operation.

environmental responsibility

The Group’s Environmental Policy guides our operations, as we wish to take responsibility for the environment. We develop our operations and design products in a manner that enables us to minimise our use of energy and

materials. Manufacture takes place close to the customer, and we have focused on sourcing materials from as close as possible to the production units so that we reduce the environmental burden arising from logistics. By sorting waste and recycling more effectively, we minimise the burden on the environment.

Inco-operationwithourcustomerswedevelopandmanufacture products that reduce emissions and save energy.Asanimportantpartofco-operationwithsuppliers, we set requirements for them to minimise environmental impact.

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WiRinG HARneSSeS

The Wiring Harnesses business designs, develops and manufactures wiring harnesses and cabling for customers in the automotive, telecommunications and electronics industries. In 2009, the Wiring Harnesses business accounted for 74% of consolidated net sales.

Key events for the Wiring Harnesses business in 2009:

• Cost-savingmeasurestoimprovecompetitiveness• Adaptingoperationsinallunitsinresponsetothe

changing market conditions• IntegrationofthePolishfactoryintotheGroup’s

Wiring Harnesses business • ImplementationoftheGroup’sERPsystemtothe

Mexican and Polish factories • Strengtheningofexpertiseinproductionunits,

particularly in Brazil, Mexico, Poland and Estonia• Developmentofbestqualitypracticesand

strengthening Six Sigma expertise• SeparatingtheWiringHarnessesbusinessintoitsown

subgroup and reducing the number of wiring harness factories

Operating environment

The downturn in the world’s economy that began in 2008 has been reflected strongly in PKC’s operations. Customer ordersfellsignificantly.Wereactedquicklytochangesin the market and the fall in order intake. Despite the challengingoperatingenvironment,PKC’sprofitabilityhas returned to an upward trend due to the executed rationalisation measures. Forecasting was challenging for the industrial sector throughout the year.

The prices of raw materials began to rise at the start of the year, and this trend continued for the whole year. Active competitive bidding for materials and components led to a beneficialtrendinpurchaseprices.Inthelatterhalfoftheyear, the availability of components presented challenges when demand started to rise slightly.

The change in the market is creating a new competitive situation as customers seek alternative, more inexpensive products and services. The rationalisation measures implemented by PKC and inputs in product development are strengthening the position of the Wiring Harnesses business. Due to the market situation, the supplier base for the commercial vehicle industry is going through changes, and this provides PKC with new opportunities.

BUSINESS AREAS

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Wiring harnesses

are used in demanding conditions. The

Wiring harnesses business develops and

manufactures high-quality, reliable and

cost-efficient products tailored to the

customer requirements.

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Reorganisation and adjustment of operations

Customers’ production volumes declined particularly in the commercial vehicle industry, which was directly visible in PKC’s production volumes. Operations were rationalised at all levels of the organisation. In connection with the rationalisation of operations, expertise was transferred to production units with a lower cost level. We improved cost-effectivenessofproduction,lookedfornewtechnicalsolutions for the construction of wiring harnesses and sourcedlower-costmaterials.Competitivenesswasalsosought by a closer collaboration between customers, sales and product development.

In order to improve our competitiveness and strengthen our operations, we implemented the Group’s enterprise resource planning (ERP) system to our units in Mexico and Poland.

TheGroupstructurewasclarifiedbyseparatingtheWiringHarnesses business as a separate subgroup in line with Electronicssubgroup.Onaccountofthecost-savingmeasures in the Wiring Harnesses business, the number of production units was reduced. The shutdown of the wiring harness factories in Kempele (Finland), Pskov (Russia) and Suzhou (China) was carried out as planned.

integration of the Polish factory

The Polish wiring harness factory, acquired at the end of 2008, was integrated into the Group’s business during the past year. Areas of focus for the integration were introduction of the Group’s ERP system, constant improvement of quality, and development of the quality and environmental systems. We strengthened expertise inPolandparticularlyinthequotation-orderprocess,inmaterial management and in sourcing operation. We unifiedoperationalmodelsincloseco-operationwithother Group’s units, and we implemented operating methodsfoundtobebeneficialtoPKC.

In the Polish factory, we have started to develop a quality system in compliance with automotive industry’s ISO/TS 16949standard,andouraimistoobtaincertificationduringthefirsthalfofthecurrentyear.ISO9001andISO14001sertificationauditsweresuccessfullycarriedoutatthe end of the year 2009.

Development of operations

Our most important competitive factor is an organisation that has strong knowledge of the industry, the market and the customers. We have improved expertise by internal traininganddevelopmentprojects.Atrainingofwhite-

BUSINESS AREAS

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collar staff in production was started in Russia. During 2010, training will be extended to all wiring harness units. Sourcing organisation was strengthened, which will improve the comparison and selection processes for materials and components.

Following best quality practices is part of PKC’s strategy. The practices selected are tried and tested quality tools and procedures, by which manufacturing processes, methodsandproductsaredevelopedandunifiedasfar as possible irrespective of the location. Best quality practices enable the close participation of all employees in daily quality work and in the continuous development of quality. The implementation and development of practices is tracked regularly by internal assessments and by monitoring the operating environment.

The aim of Six Sigma projects is to select essential business developmenttargets,whichwillleadtosignificantimprovement in operations by making processes more effective, by raising quality and by reducing the quality costs. In the wiring harness factories, Six Sigma experts are constantly trained.

Bydevelopingco-operationbetweenWiringHarnessesand Electronics businesses, PKC is able to utilise customer synergies and combine expertise into comprehensive package, which will provide additional value to customers and gain a competitive advantage.

the strengths of the Wiring Harnesses business are:

• Solidcustomerandindustryexperience• Long-termcustomerrelationshipswithmajor

manufacturersinthefield• Alargecorporation’svolumescombinedwiththesmall

company’s flexibility • Worldwideproductionnetworkclosetocustomers• Strongexpertiseintailoringproductvariationswith

short delivery times • Professionallyskilledandcommittedpersonnel

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eLeCtROniCS

The Electronics business provides electronics contract design (ODM) and manufacturing (EMS) services for the telecommunications, electronics and automotive industries. In 2009, the Electronics business accounted for 26% of consolidated net sales.

Our service concept comprises design and product developmentoperationsinFinlandandChinaandcost-effective volume production in Russia and China. The manufacture of smaller production series, as well as productsthatareatthebeginningoftheirlife-cycleorrequire very quick delivery times, has been concentrated at the Raahe factory in Finland.

Key events for the electronics business in 2009:

• Strengtheningofproductdevelopmentanddesignservices particularly in China

• Developmentofnewproductconcepts• Automotiveindustry’sISO/TS16949certification

for the Finnish electronics factory and initiating the certificationprocessinthefactoriesinChinaandRussia

• Strengtheningofexpertiseinautomotiveelectronicsand increasing deliveries to the automotive industry

• Boostingglobalsourcingofmaterials• StrengtheningsalesorganisationfortheRussian

internal market• Co-operationwithnew,growingcustomers• Optimisinganddevelopingoperationalprocesses


Weakening of the global economics and market uncertainty manifested themselves in the Electronics business as a declining demand for services and increased unpredictability. Except for the Asian market, industrialinvestmentsfellsignificantly,asaconsequenceof which customer orders in the electronics industry decreased. Operations were adjusted to correspond to the weakened demand. Thanks to our quick reaction and animprovementincost-effectiveness,wemanagedtokeepprofitabilityatareasonablygoodlevelinspiteofthechallenging economic conditions.

Strong globalisation and the partial outsourcing of operations, which had characterised the whole decade, continued. Globalisation of the Electronics business and the downswing in the economy have lead to ever tighter competition and increased downward pressure on customer prices, which is manifested in the transfers ofproductionandproductdevelopmenttolower-costcountries. The internationalisation of customers has furtherincreasedthesignificanceoflocalservices;production and product development services must be close to the customer throughout the world. Rising logistics costs and companies’ green values are also steering suppliers’ services closer to customers.

BUSINESS AREAS

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Electronics business provides original design manufacturing

(oDM) and electronics manufacturing

services (eMS) for telecommunications,

electronics and automotive industries.

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BUSINESS AREAS

new customers and product concepts

During 2009, many new product projects were initiated in the Electronics business for both new and existing customers. The results of the projects will, especially, be seen over the next few years. By focusing resources on design and product development, we were able to offer existing customers new product concepts and more effective solutions.

Development work for automotive electronics products and services continued strongly and supplies to new customers began. Customer synergies for the Electronics and Wiring Harnesses businesses in the automotive industrywereutilisedmorethanpreviously,andco-operation will be developed further.

Services designed to reduce the total cost of customer’s product were productised, and the service contents was developed into even more systematic direction. As a result, we launched a new service package that can be customised according to customer and product needs.

Supplies to the automotive industry

In all of the Electronics business’s factories, the certificationprocessforthequalitysystemincompliance

with the automotive industry’s ISO/TS 16949 standard was initiated in 2009. In Finland, at the Raahe factory, an audit was successfully completed at the end of 2009. CertificationshallbeperformedattheunitsinChinaandRussia during 2010.

Thecertificationwillenabledirectsuppliestoautomotiveindustry’s customers and thus expands the market area oftheElectronicsbusinesssignificantly.Bycombiningthe design and production services of the Electronics and Wiring Harnesses businesses into comprehensive package, PKC will provide additional value to customers and gain a competitive advantage.

Development of operations

We strengthened design and product development expertise, and we increased resources, especially at our factory in China. At the same time, the number of staff in global sourcing operation in China was increased and operations were developed. The development of operationsandunificationofsystemsraisedthestatureof the Chinese factory in the Electronics business, and brought the comprehensive service concept close to the customer in Asia too.

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The Russian internal market is seen as a more important opportunity for developing the Electronics business than before.In2009,workbeganonbuildingIT-systemsandoperational models that support the Russian internal market. The strengthening of sales organisation and the active acquisition of new customers in the Russian market brought promising results.

Through several projects aimed at developing the business and by new working methods, we achieved savings in manufacturing, product and sourcing costs. Among the key development projects were reorganisation of processes to unify global operations and make them more efficient,theintroductionofnewproductiontechnologiesand systems, and the improvement of quality control.

the strengths of the electronics business are:

• Long-termcustomerrelationshipsandstrongunderstanding of the market

• Innovativeandproactiveproductdevelopmentoperations and new product concepts

• Productisedservicesforreducingtheoverallcostofthecustomer’s product

• Efficientsourcingofmaterialsglobally• Servicepackagesfromelectronics-,mechanical-and

testing-designtoproductionandfinaltesting• Theabilitytoundertakeproductdevelopmentprojects

includingdesign,prototypesandpre-production,andvolume production in countries with a lower cost level

• Professionallyskilledandcommittedpersonnel

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Corporate Governance

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OSiOn nimi tänne

TIeToa oSakkeenoMISTajIlle

pkc lyhyeSTI

ToIMITuSjohTajan kaTSauS

STraTeGISeT lInjaukSeT

lIIkeToIMInTa

rISkIen hallInTa

26 Corporate Governance Statement 37 Remuneration Statement 39 Risk Management

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CORPORATE GOVERNANCE STATEMENT

This corporate governance statement hs been prepared in accordance with recommendation 51 of the Finnish Corporate Governance Code, and it also covers other key corporate governance areas. This corporate governance statement is issued separately from the Board of Director’s report. It is included in our Annual Report, which is available on our website.

PKC Group Oyj complies with the Finnish Corporate Governance Code 2009.The Finnish Corporate Governance Code is publicly available from, for example, the website of the Finnish Securities Market Association, www.cgfinland.fi.Thecompany’sCorporateGovernanceGuidelines and a regularly updated report on corporate governance are published on the company’s website.

Deviations from the Code’s recommendations

The company deviates from the Finnish Corporate Governance Code’s recommendation concerning the minimum number of members in the Audit Committee, because, taking into account the number of members on the Board and the scope and nature of the company’s operations, the Audit Committee is able to handle matters effectively with just two members.

General MeeTInG oF ShareholDerS

The highest power of decision is vested in the General Meeting, which resolves the issues stipulated in the Companies’ Act and Articles of Association.

The Annual General Meeting is held, upon completion ofthefinancialstatements,onthedayspecifiedbytheBoard of Directors, no later than the end of June, either atthecompany’sregisteredofficeinKempeleorinHelsinki. The Annual General Meeting handles the issues belonging to the Annual General Meeting according the Articles of Association as well as any other proposals to the meeting. Moreover, the company can, if necessary, call an Extraordinary General Meeting. A shareholder has the right to put items falling within the competence of the general meeting by virtue of the Limited Liability Companies Act on the agenda of the general meeting, iftheshareholdersonotifiestheboardofdirectorsinwriting well in advance of the general meeting so that the item can be added to the notice of the general meeting.

Shareholders must be invited to the meeting, in accordance with the company’s Corporate Governance guidelines, no earlier than two (2) months and no laterthantwenty-one(21)daysbeforethemeeting.ThenoticeshallbepublishedinoneHelsinki-basednewspaperandoneOulu-basednewspaper,asastock-exchange announcement, and it shall be published on the company’s website. Normally, newspaper announcements are published in Helsingin Sanomat and Kaleva.

A shareholder is entitled to attend the meeting if he or she is listed as a shareholder in the company’s shareholder register at Euroclear Finland Ltd on the record date indicatedinthenoticeofthemeetingandhasconfirmedhisorherattendanceinthemannerspecifiedinthenoticeofthemeetingandbythedeadlinespecified.

In 2009, the Annual General Meeting was held in Kempele on 27 March 2009.

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BoarD oF DIrecTorS

The Board of Directors is responsible for the company’s administration and the due organisation of operations. The Board of Directors has drafted a written charter for itsoperations,whichdefinesthekeytasksandoperatingprinciples of the Board. The charter is published in its entirety on the company’s website.

TheBoard’smaindutiesincludeconfirmingthecompany’sstrategy and budget, approving the principles of risk management and ensuring the functioning of the management system. The Board shall decide on matters thatareunusualorthathavefar-reachingeffectsinlightof the scope and quality of the company’s operations andtheframeworkofitsfieldofbusiness.Thesemattersinclude the following, among others:• todecideonacquisitions,mergersandother

reorganisations that affect the structure of the Group and on strategically important expansions of the business and equity investments,

• todecideonthedevelopmentofinvestmentsaandsignificantindividualinvestments,

• toapproveincentiveschemesandremunerationsystems relating to the whole group.

The Annual General Meeting elects, in accordance with the Articles of Association, 5–7 members to the Board for a term that expires at the end of the next Annual General Meeting. Board members are elected such that they have the required competence for the task and the abilitytodevoteasufficientamountoftimetothework.Both genders shall, when possible, be represented on the boardfromthefirstAnnualGeneralMeetingheldafter1January 2009. The majority of the Board members must be independent of the company, and at least two of the said majoritymustbeindependentofthecompany’ssignificantshareholders. The Board of Directors evaluates the independence of its members annually. The Board elects from among its members a Chairman, who according to the Articles of Association cannot be the company’s President. The duties and responsibilities of the Chairman and other Board members have not been designated specifically.

The Board independently evaluates, on an annual basis, the effectiveness of its performance and working methods withaneyeondevelopmentopportunities.Thefirsttimesuch an evaluation was performed was for the year 2004. TheBoardperformsaself-evaluationviaaquestionnaire,which the President and all other Board members must complete.

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matti Ruotsala b.1956•ChairmansinceApril3,2008•MemberoftheBoardofDirectors

from 2006 •M.Sc.(Eng.)•ExecutiveVicePresident,Fortum

Corporation Power Division•PreviouslyPresidentFortum

Generation of Fortum Corporation (2007–2009), AGCO Corporation’s Vice President and Valtra Oy Ab’s Managing Director (2005–2007), KCI Konecranes Plc´s Chief Operating OfficerandDeputyCEO(2001–2004),KCI Konecranes Plc´s Technical Director and Commercial Director (1995–2000) and Kone Corporation´s crane business’AsiaPacificAreaDirector(1991–1994)

•ChairmanoftheBoardofDirectorsat Kemijoki Oy, Member of the Board of Directors at Larox Oyj, Oy Halton Group Ltd, OKG AB, Forsmarks Kraftgrupp AB, and Teollisuuden Voima Oy.

•Independentofthecompanyandofitssignificantshareholders.

Outi Lampela b.1949•MemberoftherBoardofDirectors

since March 27, 2009•M.Sc.(Eng.)•OutotecOyj´sSeniorVicePresident -CorporateController

•Previously,LuvataOy´sDirector-Business Development (2005 –2006), Outokumpu Heatcraft USA LLC´s CFO – Business Control and Finance (2002–2005), Outokumpu Oyj´s Vice President-BusinessDevelopment(2000–2002), Outokumpu Technology Oy´sVicePresident-BusinessControl, Finance and Administration (1991–2000) and prior to this in other businesscontrol,financeandbusinessdevelopment duties.

•ManagingDirectoratInternationalProject Services Ltd. Oy. Member of the Board of Directors at Outotec (Kil) AB, MP Metals Processing Engineering Oy and Outotec Minerals Oy.


endel Palla b.1941•MemberoftheBoardofDirectors

from 1994•ElectronicsEngineer•AHarjuElekterLtd´sChairmanofthe

Supervisory Board and Development Director

•WithASHarjuElekterfrom1983, latest as Development Director (1999–), Managing Director (1991–1999), Technical Director (1983–1991) and before that in management duties of electrotechnical division at AS Harju KEK

•Chairmanortheboardmemberofthe Supervisory Boards of AS Harju Elekter and its subsidiaries and affiliatedcompanies(ASHarjuElekterElektrotehnika, AS Eltek, Satmatic Oy, UAB Rifas, AS Draka Keila Cables) as well as member of the Supervisory Boards of AS Harju KEK and AS Laagri Vara. Member of the Board of Directors of the Council of the Estonian Chamber of Commerce and Industry

•Notindependentofthecompany(Chairman of the Supervisory Board and Development Director in AS Harju Elekter that is a lessor of PKC’s subsidiaryandPKC’ssignificantshareholder).

BOARD OF DIRECTORS ON 31 DECEMBER 2009


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Olli Pohjanvirta b .1967•MemberoftheBoardofDirectors

from 2007•LL.M•HeadofHannesSnellmanAttorneys

Ltd’s operations in Russia•HannesSnellmanAttorneysLtd’spartner(2006–2009),ETLLawOfficesLtd’s partner (1993–2006), practising law related to Russia and the rest of the CIS countries since 1993

•MemberoftheBoardofDirectorsatOOO Aurinkomatkat, Avelon Group Oy, HS Holding Ab, ZAO Vepsäläinen, Nurminen Logistics Oyj, Matkayhtymä Oy, and OOO IBI Investin ja Russian Capital Management Ltd.

•Independentofthecompanyandof

itssignificantshareholders.

Jyrki tähtinen b.1961•Vice-ChairmansinceSeptember1,

2005 •MemberoftheBoardofDirectors

from 1999•LL.M,MBA,AttorneyatLaw•AttorneysatLawBorenius&

Kemppinen Ltd´s Chairman of the Board of Directors

•PreviouslyAttorneysatLawBorenius&KemppinenLtd´sPresidentandCEO (1997–2008), partner (1991–), and before that practising law at the employofotherlawfirmsandCityofHelsinki since 1983

•MemberoftheBoardofDirectorsat JSH Capital Oy, Girasole Oy, Oy Nordgolf Ab, Dexus Oy, and Dexus Group. Chairman of the Board of Directors at Muoviura Oy


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meetings of the Board in 2009

On average, the Board meets on a monthly basis and also on other occasions as necessary. In 2009, the Board held 17 meetings, of which 7 were telephone meetings.

AttenDAnCe OF BOARD memBeRS At tHe meetinGS

meetings Attendance%Matti Eestilä 5/6 83

Outi Lampela 11/11 100

Jaakko Niemelä 6/6 100

Endel Palla 17/17 100

Olli Pohjanvirta 17/17 100

Matti Ruotsala 16/17 94

Jyrki Tähtien 17/17 100Average attendance of all Board members 98

* Eestilä and Niemelä were members of the Board until

27 March 2009, and Lampela joined the Board on 27 March 2009

coMMITTeeS oF The BoarD

Audit Committee

In 2009, the Board of PKC Group Oyj resolved to establish among its members an Audit Committee, which shall assist the Board by concentrating particularly on matters pertainingtofinancialreportingandcontrol.TheBoardof Directors has drafted a written charter for the Audit Committee,whichdefinesthekeytasksandoperatingprinciples of the Audit Committee. The charter is published in its entirety on the company’s website.

The Board elects the members and Chairman of the Committee from among its members at the organisation meeting. In 2009, Outi Lampela was elected as Chairman of the Audit Committee and Olli Pohjanvirta as a member.

Themembersmusthavethequalificationsnecessarytoperform the responsibilities of the Audit Committee, and atleastonemembershallhaveexpertisespecificallyinaccounting, bookkeeping or auditing. The Committee shallhavesufficientexpertiseinaccounting,bookkeeping,auditing,internalauditorpracticesrelatedtofinancialstatements, as the Committee deals with matters pertainingtothefinancialreportingandcontrolofthecompany. The expertise may be based on, e.g. experience in corporate management.

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The members of the Audit Committee must be independent of the company, and at least one member mustbeindependentofsignificantshareholders.IftheAudit Committee has only two members, both must beindependentofsignificantshareholders.Takingintoaccount the number of members on the Board and the scope and nature of the company’s operations, the Audit Committee is able to deal with matters effectively with just two members.

The Board has not deemed it necessary to establish other committees, as, taking into account the scope and nature of the company’s operations as well as the Board’s working methods, the Board is able to handle matters effectively without such committees.

meetings of the Audit Committee in 2009

The Audit Committee convenes at least four times a year beforepublicationofthefinancialresultsandwhenevernecessary. In 2009, the Audit Committee held four meetings, of which two were telephone meetings.

AttenDAnCe OF COmmittee memBeRS At tHe meetinGS

meetings Attendance%Outi Lampela 4/4 100

Olli Pohjanvirta 4/4 100Average attendance of all members 100

preSIDenT anD eXecuTIve BoarD

President

The Board appoints the company’s President, who is also the Group CEO. The President supervises the operations and administration of the whole group in accordance with the Companies’ Act, the Articles of Association, the directions of the Board as well as the company’s Corporate Governance Guidelines and other internal guidelines. The President’s service contract has been prepared in writing and shall remain valid until further notice. The President operates as the Chairman of the Executive Board.

executive Board

The Executive Board supports the President and CEO in managing the Group, but it does not have any authority based on legislation or the Articles of Association. The tasks of the Executive Board are to improve operations, carry out strategic work, monitor the realisation of the objectives and action plans set in strategic work, and deal with other matters of vital importance to the operations. The Executive Board comprises the President and CEO (Chairman) and persons appointed by the Board upon President and CEO’s proposal.

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Harri Suutari b.1959•President&CEOsinceApril3,2008•Engineer•PreviouslyPresidentandCEOatPKC

Group Oyj (March 13, 2002–August 31, 2005), Ponsse Oyj (1994–2000) and Kajaani Automatiikka Oy (1984–1996)

•MemberoftheBoardofDirectorsatAlma Media Oyj, and Sunit Oy

Jarkko Kariniemi b. 1970•Director,HR&RiskManagement•B.Sc.•Withthecompanyfrom1999and

member of the Executive Board from 13th of January 2009.

•PreviouslyPKCGroupOyj´sGroupRisk Manager (2008), Group Safety and Security Manager (2004–2008) and production management and development duties (1999–2004).

Jyri Kontio b.1974•VicePresident,WiringHarnesses

(sourcing, quality and technology)•L.Sc.(Tech.)•Withthecompanyfrom1998and

member of the Executive Board from 15.4.2008.

•PreviouslyPKCGroupOyj´stechnicaland quality director (2006–2008), business unit director (2005–2006) and earlier in production management and development duties.

EXECUTIVE BOARD ON 31 DECEMBER 2009


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Sanna Raatikainen b. 1972•GeneralCounsel•LL.M.withcourttraining•Withthecompanyfrom1999and

member of the Executive Board from 16th of June, 2008

•PreviouslyPKCGroup´sLegalCounsel (1999–2008), court training at district court of Oulu (1997–1998)

Jarmo Rajala b.1962•VicePresident,Electronics•M.Sc.(Econ.)•MemberoftheExecutiveBoard

from 2005•PKCGroup’sBusinessUnitDirector

(2005–2006). Previously Suomen 3C Oy’s Business Unit Director (2005), Cybelius Software Oy´s Sales Director (2003–2005), Tammerneon Oy´s Hungarian subsidiary´s Managing Director (1998–2003), Finland Trade Center Budapest, Trade Commissioner (1997), Vaasa University´sLiaisonOfficer/ProjectManager (1991–1996).

marja Sarajärvi b.1963•CFO•M.Sc.(Econ.)•Withthecompanyfrom1995and

Member of the Executive Board from 16 July 2008.

•PKCGroup´sFinancialManager(2001–2008), Plant Manager (2000), PKC Electronics´ Director of Administration and Finance (1999), RaahenTH-Elektroniikka´sManagingDirector (1998), Financial Director (1995–1998). Previously Financial Manager of Kone Oy Raahe plant (1988–1993).

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orGanISaTIon oF The BuSIneSS anD Group coMpanIeS

The Group’s operations and ownership of the subsidiaries is divided into two business areas corresponding to the core competence areas:: wiring harnesses and electronics. The operations of these business areas are managed centrallybytheparentcompanyofeachbusiness-areasub-group.WiringharnessbusinessismanagedbyPKCWiring Systems Oy and the electronics business by PKC Electronics Oy, which direct, control and manage the operations of their subsidiaries.

The managing directors of the parent companies of thesub-groupsaremembersoftheExecutiveBoard.Supporting the managing directors of each business is a management board whose task is to deal with the strategy and operations of the business in question.

The managing directors and Boards or equivalent governing bodies of the group companies shall decide on policies and strategies relating to the business within the framework approved by PKC’s Board. The Board or an equivalent body, the general managers and other management of the group companies are elected by theparentcompanyPresident&CEOinaccordancewith the principles approved by the Board. The terms and conditions of service are also decided on by the parentcompanyPresident&CEOinaccordancewiththeprinciples approved by the Board. The Boards or equivalent bodies of the group companies largely comprise representatives of PKC’s management. The general managers of the group companies are responsible for the operations of the group companies, the development of the businesses, invested assets, return on equity and cash flow. The Boards or equivalent bodies of the group companies are responsible for the the duties belonging

totheboardspecifiedbythelegislationandregulationsof the relevant country: responsibility for operations lies with the group company. The other management of group companies are responsible for operations in their own area, subject to the limits of their mandate.

auDIT

The Annual General Meeting elects an auditor approved by the Finnish Central Chamber of Commerce as the company’s auditor. In 2009, the authorised public accountingfirmErnst&YoungOywaselectedasthecompany’s auditor, with Juhani Rönkkö, Authorised Public Accountant, acting as the principal auditor. The auditor’s term expires after the conclusion of the next Annual General Meeting following the election.

InSIDer ISSueS

The company complies with the Insider Guidelines of the NASDAQ OMX Helsinki Ltd. The company’s public insider register includes the President and CEO, the deputy CEO, Board members, the auditor and the employee oftheauthorisedpublicaccountingfirmwiththemainresponsibility for the audit. In addition, the company has definedthemembersoftheExecutiveBoardaspersonssubject to the disclosure requirement under the public insider register. The company’s public insider register has been presented in its entirety on the company’s website. Thecompany’sinternal,non-public,company-specificinsiders include persons who regularly handle insider information during the performance of their duties. Whenmajorprojectsareongoing,project-specificinsiderregisters are also used.


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The company recommends that the insiders acquire the company’ssharesaslong-terminvestmentsanddonotparticipate in active trading. It is also recommended to schedule the trading within 30 days after the publication offinancialreports,whilsttakingintoaccounttherestrictions that possible insider information imposes. The insiders may not trade in the company’s shares or share-relatedrightswithinthe30-dayperiodpriortothe publication of the company’s interim reports or the financial-statementbulletins,andthisclosedwindowendsonthedayfollowingthepublicationoffinancialresults.

DeScrIpTIon oF The MaIn FeaTureS oF The InTernal conTrol anD rISk ManaGeMenT SySTeMS perTaInInG To The FInancIal reporTInG proceSS

internal control

The Board is responsible for internal control, and the President is responsible for practical arrangement of control procedures. The Board shall ensure that the company has determined operating principles for internal control and monitors the effectiveness of control procedures. Moreover, it shall ensure that planning, information and control systems for risk management aresufficientandsupportthebusinessobjective.TheBoard of PKC Group Oyj has approved the internal control guidelines for the whole group.

The aim of internal control and risk management is toensurethatthecompany’soperationsareefficientand productive, that information is reliable and that

regulations and operating principles are followed throughout the Group. The aims of internal control include the following, among others:• thecleardefinitionofresponsibilities,powersand

reporting relationships • thepromotionofanethicalatmosphereandhonesty• theaccomplishmentofstatedgoalsandobjectivesand

Economic and effective use of resources• appropriatemanagementofrisk• reliabilityandcorrectnessoffinancialdataandother

management information• separationofthefunctionsthatinvolvemaking

commitments, disbursement of funds, and accounting for assets and liabilities as well as reconciliation of these processes

• thesafeguardingofoperations,dataandassets• ensuringthatinformationflowsthroughthebusiness

as required• ensuringthatexternalrulesandregulationsaswellas

standards for operational are complied with. Internal control is an essential part of all group operations at all levels of the organisation. Internal control methods include internal guidelines, reporting, various technical systems and procedures relating to operations. They help ensure that management directives are carried out and necessary actions are taken to address risks to achievement of the Group’s objectives. Since the Group does not have a separate internal auditing organisation, special attention has been paid to the organisation of functions, the professional skills of personnel, operating instructions, reporting and the scope of audit.

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Risk management

Risk management is an integral part of internal control. Risk management refers to the recognition, assessment, measurement, limiting and monitoring of risks involved in or essentially related to the business. The objective of risk management is to identify risks relevant to business operations, and to determine the measures, responsibilities andschedulesrequiredforefficientriskmanagement.Riskmanagementprocessesgohand-in-handwithstrategicprocess, and achieved results are systematically utilized as part of annual planning. Risk evaluation is carried out in accordance with risk management guidelines.

PKCGrouphasinuseagroup-wideriskmanagementpolicy, which the parent company’s Board of Directors hasconfirmed.Riskmanagementiscarriedoutandrisksare reported in accordance with the Risk Management Policy, Risk Management Guidance, RM Annual Clock and Enterprise Risk Management Process. For the management offinancialrisks,theBoardoftheparentcompanyhasconfirmedtheGroup’sfinancialriskmanagementpolicy.TheaimoffinancialriskmanagementistoprotecttheGroupagainstadversechangesinthefinancialmarketsandtherebytosafeguardtheGroup’sfinancialresults,equityandliquidity.TheGroup’sfinancingandfinancialrisk management have been centralised within the parent company’sfinancefunction.Theaimsofcentralisingthesefunctions are effective risk management, cost savings and optimisation of cash flow.

Financial reporting

It is necessary to provide adequate and comprehensive information for decision making. The information shall be reliable, relevant, timely, and provided in agreed format. Theinformationincludesinternalfinancialandoperationaldata and data on compliance with external regulations and internal procedures as well as external data on the

business environment and market developments. PKC Group’sparentcompanygivesinstructionsoffinancialreporting and reporting schedule and content. Group companies General Managers, Financial Managers and chief accountants are responsible for the adequate of financialreportingaccordingtolocallegislationandinstructions received from PKC Group.

Information systems produce reports, containing operational,financialandcompliance-relatedinformationthat make it possible run and control the business. The monthlyconsolidatedfinancialreportincludesresultsatagroup-,businesssegment-andsubsidiary-level,development and growth relative to the previous year, a comparison against forecasts, and forecasts for the current financialperiod.Short-termfinancialplanningfortheGroupisbasedon12-monthforecastsupdatedmonthly.The required rate of return on equity is determined annually based on market conditions, and in the required rateofreturnindustry-andcountry-specificrisk-relateddifferences have been taken into account. Information ontheGroup’sfinancialsituationispublishedininterimreportsandfinancialstatementbulletins.

Audit

Theauditshallbeperformedbyanauthorisedfirmofauditors. The parent company is responsible for selecting theauditfirm.TheauditfirmselectedbyPKCGrouphasoverall responsibility for coordination of audits for the whole group (audit plans for each group company) and theircost,togetherwiththeChiefFinancialOfficerofPKC Group Oyj and the management of the subsidiaries. Moreover,ifrequired,alocalauthorisedauditfirmcanbeselected to carry out the audit required by local legislation. In the scope of the audit, it is taken into account that the company does not have its own separate internal audit organisation.


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REMUNERATION STATEMENT

BoarD oF DIrecTorS

Remuneration

The Annual General Meeting resolves the remuneration paid to the Board of Directors.

According to the resolution made in 2009, remuneration of EUR 25,000 per term will be paid to members of the Board, EUR 37,500 per term to the Vice Chairman of the Board, and EUR 50,000 per term to the Chairman of the Board, along with travel and accommodation expenses relating to Board meetings. In 2009, the Board of PKC Group Oyj resolved to establish an Audit Committee from among its members, and according to the resolution of the Annual General Meeting, the Chairman and members of the Committee will be paid additional annual remuneration of EUR 5,000. The remuneration is paid in four equal instalments on a quarterly basis.

Board members are not included in the company’s 2006 or 2009 Stock Option Schemes. The company has not granted Board members shares or other share related rights as compensation. The company does not pay the Board members fees on any other basis, nor does it grant them loans or give guarantees on their behalf.

preSIDenT anD eXecuTIve BoarD

President

The Board of Directors decides the President’s salary andotherbenefits.ThePresidentisincludedinthemanagement’s bonus system, with the annual bonus being a maximum of six months’ salary, depending on the achievement of the objectives set for each year. The President’s service contract has provision for a notice period of three months on the President’s part and six months on the company’s part without separate severance payments. The retirement age is statutory, and no voluntary pension insurance policies have been taken.

The President is included in the 2006 and 2009 Stock Option Schemes. The President has not otherwise been granted shares or other share related rights as compensation. The company does not pay the President fees on any other basis, nor does it grant him loans or give guarantees on his behalf.

executive Board

TheBoardofDirectorsconfirmsthesalariesandbenefitsof the members of the Executive Board upon President’s proposal. The members of the Executive Board are included in the management’s bonus system. The bonus is dependent on the achievement of the objectives set for each year, and the maximum bonus is six months’ salary. The members of the Executive Board have employment contractsvalidforanindefiniteperiod,witha3-monthnoticeperiodonthedirector’spartanda6-monthnoticeperiod on the company’s part, without separate severance payments or other compensation. The retirement age is statutory, and no voluntary pension insurance policies have been taken.

The members of the Executive Board are included in the 2006 and 2009 Stock Option Schemes. The company has not granted shares or other share related rights to members of the Executive Board as compensation. The company does not pay the members of the Executive Board fees on any other basis, nor does it grant them loans or give guarantees on their behalf.

auDITor

The Annual General Meeting resolves the remuneration and the ground for compensation of travelling expenses of the auditor. In 2009, the Annual General Meeting resolved to pay auditors’ fees and travel expenses in accordance with reasonable invoice.

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REMUNERATION STATEMENT

tHe RemUneRAtiOn PeR teRm ReSOLveD BY tHe AnnUAL GeneRAL meetinG in YeARS 2007–2009

eUR 1,000 2009 2008 2007

Chairman of the Board 50 50 50

Vice Chairman of the Board 37.5 37.5 37.5

Members of the Board 25 25 25

Chairman of the Audit Committee 5 0 0

Members of the Audit Committee 5 0 0

tHe RemUneRAtiOn PAiD FOR tHe YeAR 2009 tO tHe BOARD memBeRS FOR BOARD AnD AUDit COmmittee WORK:

Remuneration for Remuneration for

eUR 1,000 Board work Committee work total

Matti Eestilä (1 6 0 6

Outi Lampela (1,2 19 4 38

Jaakko Niemelä (1 6 0 6

Endel Palla 25 0 25

Olli Pohjanvirta (2 25 4 29

Matti Ruotsala (3 50 0 50

Jyrki Tähtinen (4 38 0 38

(1 Eestilä and Niemelä Board members until 27 March 2009, Lampela joined the Board on 27 March 2009 (2 Lampela Chairman of the Audit

Committee, and Pohjanvirta member of the Audit Committee (3 Ruotsala Chairman of the Board (4 Tähtinen Vice Chairman of the Board

SALARieS AnD FeeS PAiD tO tHe PReSiDent AnD OtHeR eXeCUtive BOARD memBeRS FOR tHe YeAR 2009

eUR 1,000 Salaries Bonuses total

Harri Suutari 149 43 192

Other Executive Board 775 134 909

OPtiOnS GRAnteD tO tHe PReSiDent AnD OtHeR eXeCUtive BOARD memBeRS in 2009

Pcs. 2006A 2006B 2006C 2009A

Harri Suutari 0 0 0 20,000

Other Executive Board 8,900 8,200 8,350 50,000

OPtiOn HeLD BY tHe PReSiDent AnD OtHeR eXeCUtive BOARD memBeRS On 31 DeCemBeR 2009

Pcs. 2006A 2006B 2006C 2009A

Harri Suutari 30,000 30,000 30,000 20,000

Other Executive Board 50,000 55,000 55,000 50,000

Total 80,000 85,000 85,000 70,000

FeeS PAiD tO tHe AUDitOR in 2009

eUR 1,000 Audit Assignments tax services Other services total

Ernst&Young 122 0 27 15 164

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R ISK MANAGEMENT

The objective of risk management is to identify risks relevant to business operations, and to determine the measures, responsibilities and schedules required for efficientriskmanagement.ThePKCGroup’sBoardofDirectors approves the risk management policy, and bears responsibility for the continuous supervision of risk management results and measures. Risk management processesgohand-in-handwiththestrategicprocess,and achieved results are systematically utilised as part of annual planning.

The PKC Group’s Board of Directors approves the risk management policy and the internal supervision guidelines, and bears responsibility for the continuous supervision of risk management results and measures.

Development of risk management

Development of risk management is primarily based on PKC’s own business needs. PKC develops its processes and itspersonnel’sknow-howinordertopreventrisksfrommaterialising. Risk management is an essential component of internal control that is described in the Corporate Governance Statement.

key rISkS

PKC’srisksareclassifiedintostrategic,operationalandfinancialrisks.Financialrisksandtheirmanagementaredescribedinthenotestothefinancialstatements.Adescription of the main features of the internal control andriskmanagementsystemspertainingtothefinancialreporting process is included in the Corporate Governance Statement.

STraTeGIc rISkS

Successfulimplementationofthestrategyisasignificantfactor in the continuity of the business operations. Management of strategic risks is an essential part of comprehensive risk management, and all strategically importantprojectscanbeassessedonacase-by-casebasisusingaseparateprojectrisk-analysismodel.

operaTIonal rISkS

Operational environment risks and business fluctuations

Fluctuations in the world economy and developments in the automotive, electronics and telecommunications industries impact on demand for PKC’s products and the Group’sfinancialstatusintheshortterm.Majordecreaseindemandposesasignificantrisktotheprofitabilityofbusiness operations. In order to reduce this risk, PKC has initiated measures to adapt and reorganise its production operations.

market and customer risks

The Group’s operations depend greatly on agreements concluded with a few international customers, as well as on the development of their business operations. In order to reduce the risk resulting from this narrow customer base, PKC focuses on its core areas of expertise and their development, selecting such a course of action in order to ensure that its current customer relationships are maintained and deepened. In addition, the Group seeks further expansion by expanding its clientele in current and new customer segments and by investigating possibilities for geographical expansion.

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Typically, PKC’s customer sectors are subject to a continuousdownwardtrendinprices.Cost-efficiencyisimproved by means of product development, rationalising operations, seeking out new and more flexible operating methods, inviting competitive bids from suppliers of materials, and by aiming to lower production costs.

Purchasing and logistics risks

Raw materials account for an important share in the overall costs of end products, and trends in the world economy impact on the prices and availability of raw materials. Risks related to copper prices can be hedged through purchasing agreements, raw material futures and options, and sales agreements. Similarly, changes in the prices of oil and metals can indirectly hamper the Group’s operations, if price fluctuations lead to a drop in demand for its customers’ products. Fluctuations in the price of electricalenergydonothaveasignificantimpactonfinancialperformance.

Any disruptions in the delivery or transportation of raw materials which are due to goods suppliers can cause interruptions to both PKC’s and its customers’ production operations. Indeed, alternative suppliers cannot be quickly found for all components. The company seeks to limit this risk by means of identifying alternative suppliers, supplier audits and optimised buffer stocks, through good co-operationwiththecustomsauthorities,anddevelopingthe professional skills of its logistics employees. Risks connected to interruptions and transportation have been hedgedwithGroup-wideinsuranceprogrammesandsupplementary local insurance policies.

Rapid changes in forecasts submitted by customers, short delivery times, suppliers’ comparatively long delivery times, as well as the short life cycles of products pose challenges to inventory management. Material flow control is performed using an ERP system covering the entire production network.

Liability risks

PKC may face demands arising from the defectiveness of its products. PKC is prepared for property and liability risks (incl. product liability, operational liability, and the management’s liability) by means of insurance programmes covering the entire Group and through supplementary local insurance policies. Despite the preventive and restrictive measures taken in this respect, PKC may be obligated to pay damages that are not covered by insurance policies, due to the extent or nature of such damages. The scope of insurance coverage is actively monitored and developed together with experts in the industry.

Written agreements with major customers, suppliers and partners are used to specify the operating procedures and conditions required for the division of responsibility and minimisation of any damages that may occur.

Quality and environmental risks

Investment in the quality of products and operations is a cornerstone of, and an absolute precondition for, the company’s operations. Potential quality risks affecting customers’ operations can be eliminated through the systematic development of the quality of products and operations. Particular attention is paid to ensuring quality when launching new units and products, as well as transferringproductionforthewholeorder-supplychain.

RISK MANAGEMENT

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Although the environmental impact of its business operations is slight, the Group strives to continuously minimise such effects by, for instance, recycling materials, minimising material loss, and localising production. Environmental impact is annually assessed by the Group’s management.

Labour protection and corporate security risks

The Group’s labour protection and occupational safety encompasses both the physical and psychosocial working environment. Effective labour protection is systematic and based on the assessment of working environment risks, jointly formulated plans, and security practices. Labour protection, which aims at maintaining the health of employees, preventing accidents and sickness, and the safe and ergonomic operation of production machinery, is a key element in supporting the Group’s business operationsandtheimprovementofquality,efficiencyanddelivery accuracy.

Safetyplans,whicharespecifictobusinesslocations,aim at achieving operational conditions in which the company’s safety risks are at an acceptable level, and the prevention of damage and accidents is effective. Such safetyplansincludebusinesslocation-specificdescriptionsof operational models for different types of emergencies and disturbances, as well as the means for limiting such situations.

The state of the work environment and its development are monitored throughout the Group using the SaQu system.

information security and information system risks

The Group’s information security policy and guidelines specifyminimum-levelproceduresandworkinginstructionsforensuringandmaintainingGroup-wideinformationsecurity.Efficientinformationsystemsandtelecommunicationsconnectionsaswellasreal-timeinformation transfer between customers, suppliers and the Group’s various manufacturing units, are absolutely critical in terms of business operations.

New business locations and companies are integrated into the same production and logistics control system (ERP), covering the entire production network. PKC endeavours to ensure that the information security of applications and systems remains at an acceptable level, by means ofmonitoringandseekingmoreefficientsolutionsthatprovide greater information security. Recovery plans have been drafted for cases of failure or damage.

Other risks

Other risks include those related to the personnel, technology and the production processes, as well as political, cultural and legislative risks. These risks and their management methods can be perused on the Group’s website, in the Corporate Governance guidelines.

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Financial Statements

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44 Report by the Board of Directors50 Consolidated Income Statement51 Consolidated Balance Sheet52 Consolidated Cash Flow Statements53 Statement of Changes in Equity 54 Notes to the Consolidated Accounts88 Parent Company’s Income Statement 89 Parent Company’s Balance Sheet90 Parent Company’s Cash Flow Statement92 Notes to the Parent Company’s Accounts100 Shares and Shareholders103 Key Indicators105 Calculation of Key Indicators106 Signatures107 Auditor’s Report

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The Wiring Harness business

The deliveries of heavy-duty trucks and new orders for them fell significantly in all our markets compared with the previous year. The number of registrations halved in our main market, Europe. Sales of agricultural tractors in Europe went down by about a quarter on the previous year. Signs of a gradual recovery in the market are reflected in the fact that in the last quarter there was an increase in orders for new trucks received by our main customers in Europe that exceeded the average production levels of 2009.

Deliveries to the machine construction industry in Europe remained at about two-fifths of what they had been a year before.

The number of deliveries and new orders in South America fell by approximately a third on the previous year. A sign of recovery in the South American markets is reflected in the fact that the number of orders for trucks received by our customers there exceeded the number of deliveries in the second half of the year.

In North America deliveries of recreational commodities and the value of new orders received by our customers were down by around 50% on the previous year.

The Electronics business

Weakening of the global economics and market uncertainty manifested themselves in the Electronics business as a declining demand for services and increased unpredictability. Apart from in the Asian markets, industrial investments fell substantially, which in turn

cut the number of the Group’s deliveries of industrial electronics by about a fifth.

Net sales and financial performance

Consolidated net sales in the financial year totalled EUR 201.8 million (311.7 million), down by 35.3% on the previous year. Consolidated operating profit totalled EUR 0.7 million (21.0 million), accounting for 0.3 % of net sales (6.7%). Profitability was burdened by non-recurring expenses of around EUR 4.3 due to rationalisation. Depreciation amounted to EUR 11.0 million (9.4 million). Financial income and expenses were EUR 0.4 million (-5.8 million). Profit before taxes was EUR 1.1 million (15.2 million). Profit for the financial year totalled EUR 2.3 million (5.6 million). Earnings per share were EUR 0.13 (0.31).

Net sales generated by the Wiring Harnesses business during the report year fell by 39.4% to EUR 149.4 million (246.5 million). The segment’s share of consolidated net sales was 74.0% (79.1%). The Wiring Harnesses business reported an operating profit of EUR -3.9 million (9.7 million), or -2.6% of the segment’s net sales (4.0%).

The Electronics business segment’s net sales fell by 19.5% to EUR 52.5 million (65.2 million), accounting for 26.0% of consolidated net sales (20.9%). It generated an operating profit of EUR 4.6 million (11.3 million), equivalent to 8.7% of the segment’s net sales (17.3%).

Deferred tax assets of EUR 1.7 million were recorded on losses in previous financial periods by companies in the Group. As the group’s reorganisation costs recognised in 2009 were smaller than had been estimated, the full-year operating profit turned positive.

REPORT By THE BOARD OF DIRECTORS

45


NET salEs, EUR milliON

300

250

200

150

100

50

2005 2006 2007 2008 2009

OpERaTiNg pROfiT, EUR milliON

30

25

20

15

10

5

2005 2006 2007 2008 2009

EqUiTy RaTiO, %

60

50

40

30

20

10

2005 2006 2007 2008 2009

EaRNiNg pER sHaRE (Eps), EUR

1,20

1,00

0,80

0,60

0,40

0,20

2005 2006 2007 2008 2009

RETURN ON iNvEsTmENT (ROi), %

35

30

25

20

15

10

5

2005 2006 2007 2008 2009

gEaRiNg, %

80

70

60

50

40

30

20

10

2005 2006 2007 2008 2009

46



Balance sheet and financing

Consolidated total assets at 31 December 2009 amounted to EUR 159.9 million (187.4 million). Interest-bearing liabilities totalled EUR 43.6 million at the close of the report period (72.0 million). The Group’s equity ratio was 49.2% (41.9%). Net liabilities totalled EUR 28.2 million (59.5 million) and gearing was 35.9% (75.7%).

Inventories amounted to EUR 36.1 million (51.8 million). Current receivables totalled EUR 43.5 million (62.0 million). Cash flows after investments during the report period were EUR 38.3 million (-6.2 million). Cash in hand and at bank amounted to EUR 15.3 million (12.5 million). In order to ensure financing flexibility, PKC has available credit facilities.

Capital expenditure

During the report period, the Group’s gross capital expenditure totalled EUR 3.9 million (27.4 million), representing 1.9% of net sales (8.8%). Capital expenditure involved the acquisition of production machinery and equipment as well as information systems.

Research and development

Research and development costs totalled EUR 5.5 million (5.8 million), representing 2.7% (1.9%) of consolidated net sales. At the end of the financial year, 114 (101) staff were employed in product development.

personnel

During the period under review, the Group had an average payroll of 4,478 employees (5,588). At the end of the financial year, the Group employed 4,077 staff (5,652), of whom 3,617 (4,951) worked abroad and 460 (701) worked in Finland.

Staff cuts were made in various units within the Group. A total of EUR 2.9 million was recorded in non-recurring costs in respect of layoffs in the period under review.

As a result of the co-determination negotiations concluded in January 2009, almost the entire staff of PKC Group Oyj in Kempele, i.e. 250 employees, were temporarily laid off for periods of a week or longer, and 60 staff were laid off at PKC Electronics Oy’s Raahe factory for a maximum period of three months.

As a result of the co-determination negotiations concluded in May 2009, it was decided permanently to lay off 128 staff in stages from PKC Group Oyj, Kempele.

As a result of the co-determination negotiations concluded in June 2009, it was decided temporarily to lay off approximately 45 staff from PKC Group Oyj’s Kempele unit. The layoffs were a continuation of those agreed at the negotiations concluded in January and were set to last from one to six weeks.

As a result of the co-determination negotiations concluded in August, PKC Electronics temporarily laid off 60 staff. The layoffs were implemented in stages by the end of December.

quality and the environment

The Group’s Wiring Harnesses business, with the exception of the Polish unit, is certified in accordance with the ISO/TS 16949 and ISO 9001 quality standards as well as the ISO 14001 environmental management standard. The Curitiba production unit also has OHSAS 18001 occupational health and safety management system certification. In December 2009 ISO9001 and ISO14001 certification audits were carried out at the wiring harness factory in Poland. The building of the ISO/TS 16949 quality management system in Poland is progressing as planned and the certification process will be completed during the first half of 2010.

The Group’s Electronics business is certified in accordance with the ISO 9001 and ISO 14001 standards. An ISO/TS 16949 certification audit was carried out at the factory in Raahe during the last quarter. Preparations for ISO/TS 16949 quality management system certification have continued as planned at the units in China and Kostomuksha.

Best quality practices are part of PKC’s strategy. The selected practices are tried and tested quality tools and procedures that aid the development and standardisation of production processes, methods and products, ensuring that they are as uniform as possible, regardless of production site. Best quality practices also include Six Sigma, which is used in the Wiring Harness business in the implementation of strategically important development projects. Best quality practices are a way to encourage

47


every employee to be closely involved in quality work and to improve quality continuously. During the period under review, the Electronics business embarked upon a best quality practices project as part of its own operation. Progress will be closely monitored at the Executive Board and as part of external system audits.

management and the group structure

The Annual General Meeting on 27 March 2009 resolved to pay a dividend of EUR 0.15 per share, i.e. a total of around EUR 2.7 million. The dividend was paid out on 8 April 2009.

The Annual General Meeting re-elected Endel Palla, Olli Pohjanvirta, Matti Ruotsala and Jyrki Tähtinen to the Board of Directors. Outi Lampela was elected as a new member to the Board. At its organisation meeting, the Board of Directors elected Matti Ruotsala Chairman and Jyrki Tähtinen Vice Chairman.

On 30 April 2009 PKC Group Oyj’s Board of Directors resolved to appoint an Audit Committee from among its members. Outi Lampela was elected Chairman of the Audit Committee and Olli Pohjanvirta was elected as a member.

PKC Group Oyj’s Executive Board member’s, Pekka Korkala’s, Vice President responsible for the production and marketing of Wiring Harnesses, employment relationship ended on 8 September 2009. Since then, the members of the Executive Board have been Harri Suutari, President and CEO (Chairman), Jarmo Rajala, Vice President (Electronics), Jyri Kontio, Vice President (Wiring harnesses: Sourcing, Quality and Technology), Sanna Raatikainen, General Counsel, Marja Sarajärvi, CFO, and Jarkko Kariniemi, Director of HR & Risk Management.

Harri Ojala, Master of Science (Technology), MBA, aged 50, has been appointed Managing Director of PKC Wiring Systems Oy. In deviation to the previously published information, he will start on 15 March 2010. When Ojala takes up his position on the Executive Board, he will be

responsible for the Group’s Wiring Harnesses business, at which point Jyri Kontio, Vice President, Wiring Harnesses, will cease to be a member of the Executive Board, while his employment relationship continues.

On 1 November 2009 PKC reorganise its wiring harness business into a separate subgroup. The aim is to streamline the operations and to improve its opportunities for continued development.

The Corporate Governance statement is issued separately from the Board of Director’s report. It is included in the annual report, which is available on our website.

auditors

The authorised public accounting firm Ernst & young Oy carried out PKC Group Oyj’s audit, with Juhani Rönkkö, Authorised Public Accountant, acting as the principal auditor.

shares and shareholders

PKC Group Oyj’s share turnover on NASDAQ OMX Helsinki Ltd. from 1 January to 31 December 2009 was 8,655,356 shares (12,940,819 shares), representing 48.7% of the average number of shares (72.8%). Shares were traded to a total value of EUR 37.8 million (85.9 million). The low during the period in review was EUR 2.70 (2.82) and the high was EUR 6.83 (9.48). The closing price on the last trading day in the period under review was EUR 6.60 (3.25) and the average price during the period was EUR 4.38 (6.56). The company’s market capitalisation at 31 December 2009 was EUR 117.4 million (57.8 million).

Shares held by Board members, their closely associated persons and corporations in which they have a controlling interest, accounted for 2.3% (3.2%) of the total number of shares at the close of the period under review. PKC Group Oyj had 7,336 (7,648) shareholders at the end of the report period. The proportion of shares held by foreigners and by way of nominee registrations at 31 December 2009 was 15.5% of the shares outstanding (25.8%).

48


The Board’s authorisations

The Board of Directors was granted authorisation by the Annual General Meeting on 29 March 2007 to decide on one or more share issues and the granting of special rights as defined in Chapter 10, Section 1 of the Companies Act and on all the terms and conditions thereof. A maximum total of 3,500,000 shares may be issued or subscribed for on the basis of the authorisation. This authorisation includes the right to decide on a directed share issue. The authorisation will remain in force for five years from the date of the resolution of the Annual General Meeting. The authorisation may be used at the Board’s discretion for financing corporate acquisitions, for carrying out inter-company co-operation or similar arrangements, or for strengthening the company’s financing and capital structure.

The Board of Directors does not have a valid authorisation to acquire the company’s own shares, and the company does not hold any own shares (treasury shares).

stock option schemes

In 2006, PKC launched a stock option scheme according to which the maximum total number of stock options to be issued is 697,500. They are divided into A, B and C warrants. At the close of the financial year, the group’s key personnel held a total of 202,500 2006A warrants, 193,520 2006B warrants and 219,840 2006C warrants.

The subscription period for shares through the exercise of the 2006 stock options is 2009–2013. The share subscription price for stock options is the volume-weighted average price of the PKC Group Oyj share on NASDAQ OMX Helsinki, with dividend adjustments, as defined in the stock option terms (at present, EUR 10.49 for the 2006A, 2006B and 2006C warrants). Through

the exercise of the 2006 stock options, the share capital of PKC Group Oyj may be increased by a maximum total of 697,500 new shares and EUR 234,673.67. The 2006 stock options are subject to a share ownership plan. Key personnel are obliged to subscribe for or purchase the company’s shares with 20% of the gross income earned from stock options and to own these shares for two years. The company’s President and CEO is obliged to own these shares for the duration of his managerial contract.

The Annual General Meeting on 27 March 2009 decided to issue stock options to key personnel in the company and its subsidiaries. The maximum total number of stock options issued will be 600,000 and they are divided into A, B and C options. At the close of the financial year, the group’s key personnel held a total of 151,500 2009A warrants.

The subscription price for shares through the exercise of the 2009 stock options will be the volume-weighted average price of the PKC Group Oyj share on NASDAQ OMX Helsinki for April 2009, 2010 and 2011 +20% (at present, EUR 3.85 for the 2009A warrants). The amount of the dividend decided after the period for the determination of the share subscription price, but before shares are subscribed for, shall be deducted from the share subscription price of the stock options on each dividend record date. The subscription price for shares will be recorded in the invested non-restricted equity fund. The stock options entitle their owners to subscribe to a maximum total of 600,000 new shares in the company or existing shares held by the company. The share subscription period for 2009A warrants will be 1 April 2012–30 April 2014, for 2009B warrants 1 April 2013–30 April 2015 and for 2009C warrants 1 April 2014–30 April 2016.


49


short-term risks and uncertainties

The development of investments in the near future in Europe has especially significant effect on PKC’s result. The start of growth requires positive and stable increase of Pan European national income. Other main uncertainties include price pressures on our final products, the significant fluctuation of currency exchange rates and the availability of components.

The principles, objectives and organisation of the company’s risk management as well as key risk areas are described in the risk management section of the Corporate Governance guidelines, which are available on the company’s website at www.pkcgroup.com.

Outlook for the future

There is cautious optimism in the European truck market. Signs of a gradual recovery in the market are reflected in the fact that in the last quarter there was an increase in orders for new trucks received by our main customers in Europe and Latin America that exceeded the average production levels of 2009. The production volumes of commercial vehicles are clearly increasing in Brazil.

We also estimate that demand for electronics design and manufacturing services in the market will strengthen compared with last year. PKC’s Electronics business will probably see its most substantial growth this year in China.

We predict that the full-year net sales will increase moderately and that the operating result will improve substantially on the previous year.

PKC’s balance sheet, liquidity and good customer relationships will enable improvement in PKC’s relative competitive position.

The Board of Director’s proposal for the disposal of profits

The parent company’s distributable funds are EUR 50.9 million, of which the net profit for the financial year is EUR 5.4 million. The Board of Directors will propose to the Annual General Meeting to be held on 31 March 2010 that a dividend of EUR 0.40 per share be paid for a total of EUR 7.1 million and that the remainder of the distributable funds be transferred to shareholders’ equity. The record date for the dividend payout is 7 April 2010 and the payment date is 14 April 2010. In the view of the Board of Directors, the proposed dividend payout will not put the company’s liquidity at risk.

50


EUR 1,000 Note 2009 2008

NET salEs 2, 4 201,814 311,713

Other operating income 5 2,253 1,304

Increase / decrease in stocks of finished goods and work in progress -9,319 71

Materials and services 6 106,346 172,198

Employee benefits expenses 7 53,384 76,049

Depreciation 8 10,982 8,177

Impairment loss for goodwill 0 1,197

Other operating expenses 9 23,355 34,427

OpERaTiNg pROfiT 2 682 21,039

Financial income 8,078 9,655

Financial expenses 10 -7,657 -15,466

pROfiT BEfORE TaxEs 1,103 15,228

Income tax 11 1,246 -9,661

pROfiT fOR THE fiNaNCial yEaR 2,349 5,567

Other comprehensive income:

Exchange differences of foreign operations 443 -1,500

Total comprehensive income for the financial year 2,792 4,067

Attributable to:

Shareholders of the parent company 2,349 5,519

Minority interest 0 47

TOTal 2,349 5,566

From profit attributable to shareholders of the parent company 12

Basic earnings per share (EPS), EUR 0.13 0.31

CONSOLIDATED INCOME STATEMENT

51


EUR 1,000 Note 31.12.2009 31.12.2008

assETs

NON-CURRENT assETs

Tangible assets 13 34,378 34,929

Goodwill 14, 15 13,794 9,481

Other intangible assets 14 11,955 14,694

Receivables 16 64 453

Deferred tax assets 17 4,804 1,623

Non-current assets total 64,995 61,179

CURRENT assETs

Inventories 18 36,066 51,815

Trade receivables and other receivables 19 43,460 61,973

Cash and cash equivalents 15,326 12,468

Current assets total 94,852 126,256

assETs TOTal 159,847 187,435

EqUiTy aND liaBiliTiEs

Share capital 20 5,983 5,983

Share Premium Account 4,862 4,862

Reserve fund 370 370

Translation differences -1,253 -1,841

Share-based payments 21 1,052 808

Retained earnings 67,612 68,073

Equity attributable to shareholders of the parent company 78,626 78,256

minority interest 0 328

EqUiTy TOTal 78,626 78,584

NON-CURRENT liaBiliTiEs

Deferred tax liabilities 17 3,103 3,461

Provisions 22 376 216

Financial liabilities 23 34,630 40,120

Non-current liabilities total 38,110 43,797

CURRENT liaBiliTiEs

Current trade payables and other non interest bearing liabilities 24 34,171 33,188

Current financial liabilities 25 8,940 31,866

Current liabilities total 43,111 65,055

liaBiliTiEs TOTal 81,221 108,851

EqUiTy aND liaBiliTiEs TOTal 159,847 187,435

CONSOLIDATED BALANCE SHEET

52


CONSOLIDATED CASH FLOW STATEMENTS

EUR 1,000 2009 2008

CasH flOWs fROm OpERaTiNg aCTiviTiEs

Cash receipts from customers 213,077 326,650

Cash receipts from other operating income 2,693 1,304

Cash paid to suppliers and employees -166,597 -289,969

Cash flows from operations before financial income and expenses and taxes 49,173 37,985

Interest paid -3,880 -5,644

Interest received and other financial income 0 233

Income taxes paid -2,817 -7,275

Net cash from operating activies (a) 42,476 25,299

CasH flOWs fROm iNvEsTiNg aCTiviTiEs

Purchase of tangible and intangible assets -3,989 -9,906

Proceeds from sale of tangible and intangible assets 253 4

Acquisitions of subsidiaries -453 -21,589

Loans granted -2 -9

Received amortisations of loans 38 44

Dividends received 0 1

Net cash used in investment activities (B) -4,153 -31,455

Cash flow after investments 38,323 -6,156

CasH flOWs fROm fiNaNCiNg aCTiviTiEs

Drawing of credits 0 37,313

Amortisation of credits -32,723 -21,011

Dividends paid -2,709 -8,104

Net cash used in financial activities (C) -35,432 8,198

Net increase in cash and cash equivalents (a+B+C) 2,891 2,042

53


STATEMENT OF CHANGES IN EQUITy

EUR 1,000 share capital

share

premium

account

Other

reserves

Retained

earnings

Equity

attributable to

shareholders

of the parent

company

minority

interest Total

shareholders' equity 1.1.2008 5,983 4,862 239 71,107 82,191 789 82,980

Translation difference 0 0 0 341 341 80 421

Transfer from unrestricted to restricted capital 0 0 131 -131 0 0 0

Translation difference of net investment to foreign

subsidiary 0 0 0 -1,841 -1,841 0 -1,841

Net income recognised directly in equity 0 0 131 -1,631 -1,500 80 -1,420

Profit for the financial year 0 0 0 5,519 5,519 47 5,566

Total recognised income and expenses

for the period 0 0 0 5,519 5,519 47 5,566

Dividends 0 0 0 -8,002 -8,002 -102 -8,104

Share-based payments 0 0 0 50 50 0 50

Acquisition of minority interest 0 0 0 0 0 -487 -487



Translation difference 0 0 0 -145 -145 0 -145

Translation difference of net investment

to foreign subsidiary 0 0 0 588 588 0 588

Net income recognised directly in equity 0 0 0 443 443 0 443

Profit for the financial year 0 0 0 2,349 2,349 0 2,349

Total recognised income and expenses

for the period 0 0 0 2,349 2,349 0 2,349

Dividends 0 0 0 -2,667 -2,667 -27 -2,694

Share-based payments 0 0 0 244 244 0 244

Acquisition of minority interest 0 0 0 301 0 -301 -301


Dividend of EUR 0.15 per share was paid in 2009 according to annual general meeting’s decision and EUR 0.45 per share in 2008.

54


CORPORATE INFORMATION

The PKC Group offers design and contract manufacturing services for wiring harnesses, cabling and electronics to the automotive, telecommunications and electronics industries. The Group has production facilities in Finland, Estonia, Poland, Russia, Brazil, Mexico and China and employs about 4,000 people.

The parent company of the Group, PKC Group Oyj, is a public listed company domiciled in Kempele. The Group’s visiting address is Vihikari 10, FI-90440 Kempele, Finland. The consolidated financial statements were approved by the board of directors on 17 February 2010.

1. ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED ACCOUNTS

general

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared in compliance with the IAS and IFRS standards as well as the SIC and IFRIC interpretations in force on 31 December 2009. The notes to the consolidated financial statements have also been prepared according to Finnish GAAP and company legislation supplementing the IFRS standards.

The consolidated financial statements have been prepared on a historical cost basis unless otherwise indicated. Available-for-sale investments and financial assets and liabilities held for trading as well as derivative financial instruments are measured at fair value. The financial statement information is principally presented in thousand euros.

Basis of consolidation

The consolidated financial statements include the parent company and all of its subsidiaries. Subsidiaries are companies in which the parent company holds, directly or indirectly, over 50 per cent of the voting rights or which it otherwise controls at the end of the financial period. Divested companies are included in the income statement until the parent company’s control of them ceases. Subsidiaries are fully consolidated from the date of acquisition, which is the date when the Group has obtained control. The Group had no holdings in any associates or joint ventures in the financial period under review.

Acquisitions of subsidiaries have been accounted for using the acquisition cost method. In the acquisition cost method the assets acquired and liabilities assumed in the business combination are measured at fair value at the date of acquisition. Any excess of the cost of acquisition over the fair values is recorded as goodwill.

In accordance with the exemption permitted under IFRS 1, business combinations prior to the date of transition to IFRS (1 January 2004) are not restated to comply with IFRS but are instead treated at deemed cost, valued in accordance with the Finnish GAAP.

All intra-group transactions, receivables and liabilities, intra-group margins and dividends have been eliminated in full. Profit for the financial period has been divided between profit for the financial period attributable to shareholders of the parent company and minority interest. Minority interest is presented as a separate item in equity.

On 1 January 2009, the Group applied the following new and revised standards and interpretations:

•IAS1PresentationofFinancialStatements.Therevised standard changed the presentation of financial statements, mainly the income statement and the statement of changes in equity. No changes were made in the principle of calculating the earnings per share ratio.

•AmendmenttoIFRS7FinancialInstruments:Disclosures.Improvements to notes regarding financial instruments. The amendments were issued in March 2009 due to the global financial crisis and introduced a three-level hierarchy that facilitates assessment of the relative reliability of the fair values of financial instruments. In addition, the amendments clarify and expand earlier requirements regarding presentation of information on liquidity risk. These amendments have increased the amount of information on these issues to be included in the notes to financial statements.

•IAS23BorrowingCosts.IntheGroup’sview,thechangein the accounting treatment under the revised standard has no effect on the financial statements.

•AmendmenttoIFRS2Share-basedPayment–Vestingconditions and cancellations. The amendment clarifies the definition of vesting conditions. It also clarifies the instructions on the treatment of cancellations. These changes did not affect the consolidated financial statements.

•ImprovementstoIFRSs(amendmentsissuedonMay2008). The Annual Improvements project consists of gathering minor and less urgent amendments to the

NOTES TO THE CONSOLIDATED ACCOUNTS

55


standards into a whole. These amendments relate to a total of 34 standards. While the effects of the amendments vary between the standards, none of them have had a significant effect on the consolidated financial statements.

•IFRIC13CustomerLoyaltyProgrammes.AstheGroupdoes not maintain any customer loyalty programmes referred to in the interpretation, the interpretation has not had any effect on the consolidated financial statements.

•IFRIC15AgreementsfortheConstructionofRealEstate. The interpretation has not had any effect on the consolidated financial statements as the Group does not operate in construction business.

•AmendmentstoIAS1PresentationofFinancialStatements and IAS 32 Financial Instruments: Presentation – Puttable financial instruments and obligations arising on liquidation. The Group does not have any financial instruments referred to in the standard.

•AmendmentstoIFRIC9ReassessmentofEmbeddedDerivatives and IAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives. The Group has no embedded derivatives.

•IFRIC16HedgesofaNetInvestmentinaForeignOperation. The interpretation has no effect on the consolidated financial statements.

•IFRS8OperatingSegments.UnderIFRS8,informationon segments must be based on internal reports submitted to the management and the principles applied to preparing the reports. Implementation of IFRS 8 has not caused any significant change in information on the segments, as earlier information published by the Group was already based on an internal reporting system; instead, it has mostly affected the way information on the segments is presented in the notes to the financial statements.

foreign subsidiaries and foreign currency items

The consolidated income statement and balance sheet are presented in euros, which is the functional currency of the parent company. The functional currency of Group companies in Finland, Brazil, Russia, Estonia and China in both the period under review and the previous period has been the euro. The functional currency of each of the other companies in the Group is their local currency.

Foreign currency transactions are recorded in functional currency at the exchange rate at the date of the transactions. Foreign currency monetary items are translated at the rate at the balance sheet date. Any translation differences are recorded in the income statement.

The income statements of those subsidiaries whose functional currency is other than the euro are translated to euro amounts using the weighted average exchange rate of the transaction month and balance sheet items are translated at the exchange rate at the balance sheet date. Any translation differences are recognised in equity.

Cumulative translation differences that have arisen before the date of the transition to IFRS are recognised in retained earnings in accordance with the exemption permitted under IFRS 1. The amount of cumulative translation differences at the date of transition to IFRS was insignificant.

Translation gains and losses arising from foreign transactions and foreign monetary items are recognised in the income statement. Exchange rate gains and losses on foreign currency loans are included in financial income and expenses, except for the exchange differences arising from loans which are designated as effective hedges for net investments in foreign operations. These exchange differences are recognised in items under the comprehensive income statement, and exchange differences accrued are recognized under equity until the partial or full disposal of a foreign operation.

intangible assets

Intangible assets are recorded in the balance sheet at acquisition cost if their cost can be determined reliably and it is probable that they will bring economic benefits for the Group.

Intangible assets that have limited useful lives are amortised on a straight-line basis in the income statement during their known or estimated financial useful lives. Intangible assets with indefinite useful lives are not amortised but tested annually for impairment.

Amortisation periods for intangible assets are:

Purchased software licences 4–5 yearsCustomer relationships 5 years.

goodwill

Goodwill is recognised as the amount of the excess of the cost of a business combination over the net fair value of assets and allocated to cash-generating units. Goodwill is tested annually for impairment with a discounted cash-flow model according to IAS 36. Impairment losses are recognised in the income statement of the year in which they arose. Goodwill is not amortised in the income statement.

56


Research and development costs

Research costs are expensed as they are incurred. Development costs are capitalised when they meet the criteria for development cost capitalisation set out in IAS 38. All the Group’s development costs are expensed as there is insufficient indication of future economic benefits in the development phase of projects.

Tangible assets

Tangible assets are initially recorded in the balance sheet at acquisition cost. Following initial recognition, tangible assets are carried at cost less any depreciations and impairment losses. Subsequent expenses are added to the carrying amount of the assets only if there is sufficient evidence that they bring future economic benefits for the Group and if their cost can be determined reliably.

Assets are depreciated on a straight-line basis during their estimated lives. Land areas are not depreciated. Depreciation periods for tangible assets are:

Buildings and constructions 5–20 yearsMachinery and equipment 3–10 yearsOther tangible assets 5–10 years.

leases

Leases that substantially transfer all the risks and rewards incidental to ownership to the Group are classified as finance leases and recognised in the balance sheet at the lower rate of its fair value at the inception date and the present value of minimum lease payments, and depreciated over the economic life or over the lease term, whichever is shorter. Commitments of lease payments are recognised as interest-bearing liabilities.

Leases in which assets are leased out by the Group and that substantially transfer all the risks and rewards incidental to ownership to the lessee are classified as finance leases and recognised as receivables in the balance sheet. These receivables are measured at present value and recognised as rental income over the lease term.

Leases in which risks and rewards incidental to ownership are not transferred to the lessee are classified as operating leases. Lease payments related to them are recognised as other income or expenses in the income statement on a straight-line basis.

The Group had no finance leases in the comparison period.

investment properties

The Group had no assets that could be classified as investment properties either in the period under review or comparison periods.

impairments of assets

The Group assesses annually whether there is any indication that an asset may be impaired. If any such indication exists, the asset’s recoverable amount is estimated. In addition, goodwill, other intangible assets with indefinite useful lives and unfinished intangible assets are tested for impairment annually regardless of any indication of impairment.

An impairment loss is recognised when an asset’s carrying amount exceeds its recoverable amount. An impairment loss is recognised in the income statement. The impairment loss of a cash-generating unit is recognised first as a reduction in the carrying value of the goodwill and then proportionally as a reduction in the other assets. Details of impairment testing are presented in note 15.

A previously recognised impairment loss for assets other than goodwill is reversed only if there has been a significant positive change in the estimates used to determine an asset’s recoverable amount. An impairment loss can be reversed to the amount that would have been the carrying value of the asset, had no impairment loss been recognised. An impairment loss for goodwill is not reversed under any circumstances.

inventories

Inventories are measured at acquisition cost or the probable net realisable value, whichever is lower. The cost of an inventory is determined on the basis of the weighted average cost formula and includes all direct costs and a proportional amount of indirect manufacturing costs. The net realisable value is the selling price less estimated costs of finishing and selling the product.

financial assets, liabilities and derivative financial instruments

Financial assets and liabilities are initially measured at acquisition cost, which is the value of the received or divested consideration on the transaction date. Financial assets are divided into four categories: financial assets at fair value through profit and loss, held-to-maturity investments, available-for-sale investments, and loans and receivables. Transaction costs are included in the initial carrying amount of the financial asset when the assets are not recognised at fair value through profit and loss.


57


Financial assets are classified in the category of financial assets at fair value through profit and loss, if they are held for trading. In the consolidated balance sheet all derivative financial instruments are included in this category. There are no items in the consolidated balance sheet that would be classified in initial recognition on the basis of IAS 39 fair value option to this category or which would be classified in this category on the basis of continuous trading. Realised and unrealised gains and losses from changes in the fair values are included in the income statement for the period in which they arise. Depending on their nature, they are included either in current assets or in current liabilities on the balance sheet.

Available-for-sale investments are measured at fair value with gains and losses being recognised in equity. The gain or loss previously recognised in equity is recognised in the income statement when the available-for-sale investment is sold. Those available-for-sale investments whose fair value cannot be determined reliably are measured at acquisition cost less any impairments. Unrealised gains and losses on available-for-sale investments are recognised in equity until the investments are sold, at which time the cumulative gains and losses are recognised in the income statement.

Trade receivables and other receivables with fixed or determinable payments are not quoted in active markets. Trade receivables and other receivables are included in receivables in the balance sheet. Trade receivables are recognised initially at invoice value. Impairment of trade receivables is recognised when there is reasonable evidence that the Group will not receive all receivables on original terms. Impairment of receivables is recognised in other operating expenses in the income statement.

Derivatives financial instruments to which hedge accounting is not applied are classified as financial assets at fair value through profit and loss. Currency forwards are measured at fair value on the basis of the difference between the contractual rate and the rate at the balance sheet date. Currency options are measured at fair value using the Black-Scholes valuation model. At the balance sheet date, the Group held no derivatives to which hedge accounting was applied.

Financial liabilities are classified as financial liabilities at fair value through profit and loss and as other financial liabilities. Derivative financial instruments are classified as held-for-sale and valued at fair price through profit and loss. Other financial liabilities are recognised at amortised cost and any difference between net proceeds and

redemption value is recognised as interest cost over the loan period, using the effective interest method. Credit limits are shown in current financial liabilities on the balance sheet.

The group evaluates potential impairments of financial assets and liabilities at each balance sheet date and recognises impairment losses as financial expenses in the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and at bank and highly liquid investments with an original maturity of three months or less.

Treasury shares

Purchases of treasury shares (own shares) and direct costs related thereto are deducted from equity. No treasury shares were purchased in the period under review.

interest-bearing liabilities

Interest-bearing liabilities are measured at amortised cost using the effective interest method, in which gains and losses arising from differences between amortised cost and the initially recognised acquisition cost are recognised in net profit or loss throughout the amortisation process. Credit limits in use are included in current interest-bearing liabilities.

pension arrangements

According to IFRS, pension arrangements are classified either as defined benefit pension plans or defined contribution pension plans. Pension plans at all Group companies are defined contribution plans. For defined-contribution plans, the Group pays fixed contributions to a separate unit. The Group has no obligation to pay supplementary contributions if the recipient of the contributions is unable to meet the payment of said pension benefits.

share-based payments

The Group has applied IFRS 2 Share-Based Payments to the option schemes approved by the Annual General Meetings held on 30 March 2006 and 27 March 2009. Expenses of previous option schemes have not been presented in the income statement, in accordance with transitional provisions of the standard. Options are measured at fair value at the time they are granted and entered as an expense in the income statement in even instalments during the vesting period. The expenditure determined at the grant date is based on the estimate of the amount of options expected to vest at the end

58


of the vesting period. The fair value of the options is determined on the basis of the Black-Scholes pricing model. The Group updates the assumptions concerning the final amount of stock options at each balance sheet date. Changes in the estimates are recorded in the income statement. When options are exercised, the cash payments received on the basis of share subscriptions, adjusted for any transaction expenses, are entered in equity.

provisions

Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation arising as a result of a past event, the obligation is likely to entail future expenses, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of the costs necessary to settle the obligation.

A restructuring provision is recognised in the balance sheet only if a detailed and formal plan has been prepared and those affected by it have been informed of its main features. A provision is not booked on expenditure connected with the Group’s continuing operations.

A warranty provision is recognised when a product, which contains a warranty clause, is sold. The warranty provision is estimated on the basis of past experience of warranty costs. The warranty cost history in the period under review and in the comparison period does not require a recognition of a guarantee provision.

Revenue recognition policies

Revenue (net sales) is presented as the total invoiced value of products sold and services rendered, measured at fair value and adjusted for indirect taxes and discounts given.

Revenue from the sale of goods is recognised when the significant risks, rewards and actual control connected with ownership of the goods have been transferred to the buyer. As a rule, sales are recognised as income when products are supplied in accordance with the terms of sale. Revenue from services is recognised for the period when the service is rendered.

Revenue and expenses for long-term projects are recorded as income and expenses on the basis of the stage of completion if the outcome can be estimated reliably. If the outcome cannot be estimated reliably, the margin on the transaction is not recorded as income. In determining the stage of completion of a long-term project, the work input applied to the project is compared to the estimated total work input.

Other operating income and expenses

Other operating income comprises gains from sales of tangible assets and other income not related to actual operations. Other operating expenses comprise losses from sales of tangible assets and other indirect costs, such as research and development expenses.

interest and dividend income

Interest income is recognised using the effective interest method. Dividend income is recognised when the Group’s right to receive payment has been established.

Borrowing costs

Borrowing costs are recognised as an expense when incurred.

government grants

Received government grants are recognised as income over the period necessary to match the costs that they were meant to compensate for.

income taxes

Income taxes recognise the Group companies’ taxes on current net profit and deferred taxes. They are recognized as profit or loss unless where directly connected with equity or items recognised in the comprehensive income statement.

Deferred tax assets and liabilities are recognised on all of the temporary differences between the carrying amounts and taxable values of balance sheet items. The amount of deferred tax assets and liabilities is measured using the tax rate that will probably be in force at the time of payment.

Deferred tax assets are recognised to the extent that it is probable that it can be utilised against future taxable profits. Deferred tax assets and liabilities are presented in more detail in note 18.

Non-current assets held for sale and discontinued operations

Non-current assets (or a disposal group) and assets and liabilities relating to discontinued operations are classified as held for sale, if their carrying amount will be recovered principally through the disposal of the assets rather than through continuing use. For this to be the case, the sale must be highly probable, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary, the management must be committed to selling and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.


59


A non-current asset held for sale and assets included in the disposal group classified as held for sale are disclosed separately in the balance sheet. Profit from sales of discontinued operations is presented separately from continuing operations in the income statement without tax effect. The Group had no assets included in the disposal group classified as held for sale or operations that were discontinued in the financial period under review.

Operating profit

IAS 1 Presentation of Financial Statements does not define the concept of operating profit. According to the definition used by the Group, operating profit is the net amount formed when other operating income is added to the net sales, and the following items are then subtracted from the total: materials and services adjusted for the change in inventories of finished goods and work in progress; the employee benefits expenses; depreciation, possible impairment losses, and other operating expenses. Any other items in the income statement not mentioned above are shown under operating profit.

Use of estimates

The preparation of financial statements in accordance with IFRS has required the management to make assumptions and estimates. These assumptions and estimates are based on historical experience and the circumstances and outlook prevailing at the balance sheet date.

The execution of the annual impairment test has required management to make assumptions and estimates to measure the recoverable amount of cash-generating units (note 15). On the basis of the impairment testing, there is no need for write-downs. Other intangible and tangible assets show no indication of impairment.

The management’s judgement has also been used in the application of IFRS3 Business Combinations to the period under review and the comparison period and to the future outlook of the Group companies in connection with IAS12 Income Taxes.

Any assumptions and estimates related to the comparison period are based on the circumstances and outlook that prevailed at the balance sheet date of that period.

While all estimates are based on management’s best knowledge of current events and actions, the actual results may differ from the estimates.

application of new or revised ifRs standards

In 2010, the Group will apply the following standards and IFRIC interpretations published by the IASB:

•RevisedIFRS3BusinessCombinations.Thescopeofthe revised standard is broadened. The revised standard includes several material changes to the Group. Changes will have an impact on the amount recognised as goodwill and gain or loss resulting from the sale of business. The revised standard will also impact the items recognised in the income statement both when the business combination is carried out, and in the subsequent periods during which an additional purchase price is paid or additional acquisitions are made.

•AmendmenttoIAS27ConsolidatedandSeparateFinancial Statements. According to the amendment the effects, arising from changes in subsidiary ownership, are recognized directly in the Group’s equity when the parent company remains in control. When the Group loses the control in a subsidiary, the remaining investment is recognized at fair value through the income statement.

•AmendmenttoIAS39FinancialInstruments:Recognition and Measurement – Eligible Hedge Items. The amendments refer to hedge accounting and have no impact on the Group’s forthcoming financial statements.

•IFRIC17DistributionsofNon-CashAssetstoOwners.The interpretation has no effect on the Group’s forthcoming financial statements.

•IFRIC18TransfersofAssetsfromCustomers.Theinterpretation has no effect on the Group’s forthcoming financial statements.

•ImprovementstoIFRSs.TheAnnualImprovementsproject consists of gathering minor and less urgent amendments to the standards into a whole. These amendments relate to a total of 12 standards. While the effects of the amendments vary between the standards, none of them have a significant effect on the forthcoming financial statements.

•AmendmentstoIFRS2Share-basedPayment–GroupCash-Settled Share-Based Payment Transactions. The amendments have no effect on the Group’s forthcoming financial statements.

In 2011, the Group will adopt the following amendments:•AmendmentstoIAS32FinancialInstruments:

Presentation – Classification of Rights Issues. The amendments have no significant effect on the Group’s forthcoming financial statements.

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2. SEGMENT INFORMATION

The Group’s primary reporting segments are business segments, with the secondary information reported on geographical areas. Transfer prices between business segments are based on market prices. Assets and liabilities for the segments include only those assets and liabilities that can be directly allocated to the respective segments. Common items for the business segments, such as administration, are included in unallocated assets and liabilities.

Business segments

Wiring Harnesses

The Wiring Harnesses business designs, develops and manufactures a wiring harnesses and cabling for the automotive, telecommunications and electronics industries.

Electronics

The Electronics business provides original design manufacturing (ODM) and electronics contract manufacturing services (EMS) to the telecommunications, electronics and automotive industries.

geographical segments

The net sales by geographical segments are based on customers’ geographical locations. The segments are Finland, other Europe, North America, South America, and other countries. The assets and investments of geographical segments are based on the locations of the assets, i.e., Finland, Estonia, Russia, Brazil, Mexico, and other countries.


61


sEgmENT iNfORmaTiON

Business segments

Wiring Unallocated and group

EUR 1,000 Harnesses Electronics eliminations Total

2009

Sales to external customers 149,316 52,497 0 201,814

Sales to other segments 227 107 -334 0

NET salEs 149,544 52,604 -334 201,814

Depreciation 9,011 1,947 24 10,982

OpERaTiNg pROfiT -3,894 4,575 0 682

Goodwill 12,585 1,209 0 13,794

Segment’s other assets 87,606 42,497 11,146 141,249

Deferred tax assets 4,804

assETs TOTal 100,191 43,706 11,146 159,847

Segment's liabilities 48,319 20,299 9,500 78,118

Deferred tax liabilities 0 0 0 3,103

liaBiliTiEs TOTal 48,319 20,299 9,500 81,221

Capital expenditure 7,316 910 0 8,226

2008

Sales to external customers 246,487 65,226 0 311,713

Sales to other segments 193 671 -864 0

NET salEs 246,680 65,897 -864 311,713

Depreciation 6,532 1,645 0 8,177

Impairment loss 1,197 0 0 1,197

OpERaTiNg pROfiT 9,744 11,295 0 21,039

Goodwill 8,222 1,209 0 9,431

Segment’s other assets 144,543 36,835 -4,994 176,383

Deferred tax assets 0 0 0 1,623

assETs TOTal 152,765 38,044 -4,994 187,437

Segment's liabilities 96,676 13,645 -4,930 105,391

Deferred tax liabilities 0 0 0 3,461

liaBiliTiEs TOTal 96,676 13,645 -4,930 108,851

Capital expenditure 26,310 1,116 0 27,426

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geographical segments

EUR 1,000 2009 2008

Net sales

by market areas

Finland 40,494 58,621

Other Europe 99,928 151,701

North America 18,870 33,427

South America 26,526 48,510

Other countries 15,995 19,453

Total 201,814 311,713

assets

by location of assets

Finland 29,650 95,464




Other countries 9,518 9,759

Total 159,847 187,434

Capital expenditures

by location of assets

Finland 1,157 14,131


North America 896 0

South America 884 1,129

Other countries 0 9,578

Total 4,108 27,426


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3. BUSINESS COMBINATIONS

On 31 December 2008, the PKC Group acquired MAN Nutzfahrzeuge AG’s cable harness business from MAN Star Trucks & Buses Spółka z o.o. in Poland. The purchase price was EUR 21.6 million. The acquisition cost included the fees of legal counsels and other counsellors amounting to the total sum of EUR 0.2 million. The acquisition was financed through inter-nal funding and debt financing. No interest bearing liabilities were transferred to PKC with the acquisition.

PKC’s Polish subsidiary, PKC Group Poland Sp. z o.o., is responsible the cable harness operations. The acquired business has been included in PKC’s consolidated financial statements as of 31 December 2008 using the acquisition cost method. If the business had been integrated at the start of 2008, the PKC Group’s net sales would have amounted to EUR 377.5 million and the operating profit to EUR 32.1 million. The goodwill includes synergy and other benefits, which include additional sales and materials sourcing benefits expected from the integration of funds and functions. The preliminary acquisition cost calculation presented in the 2008 financial statements has not changed materially after the final fair value revision.

The values of the acquired assets and assumed liabilities on the date of the acquisition were the following:

EUR million

final fair values

booked at the

combination 2009

Carrying amounts prior to

the acquisition

Intangible rights, agreements with customers 11.5 0.0

Tangible assets 2.7 1.0

Inventory 5.8 5.9

Total 20.0 6.8

Deferred tax liability 2.2 0.0

Finance lease liability 4.6 0.0

Total 6.8 0.0

Net assets 13.2 6.8

Goodwill 8.3 14.8

Total purchase cost 21.6 21.6

No businesses were acquired in 2009.

4. LONG TERM PROJECTS

No revenues from long-term projects have been recognised during the financial period and comparison period. No substantial revenues or advance payments from uncompleted long term projects were recognized during the financial period and comparison period.

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EUR 1,000 2009 2008

5. OTHER OpERaTiNg iNCOmE

Income from sales of non-current assets 133 21

Grants 129 177

Other income 1,991 1,105

Total 2,253 1,304

6. maTERials aND sERviCEs

Purchases during the financial period 96,979 171,393

Change in inventories 6,998 -4,388

Raw materials and consumables 103,977 167,005

Outsourced services 2,370 5,193

Total 106,346 172,198

7. EmplOyEE BENEfiTs ExpENsEs

Wages and salaries 42,375 59,500

Defined pension contribution plans 3,511 5,547

Other personnel expenses 7,254 10,952

Share-based payments 244 50

Total 53,384 76,049

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EUR 1,000 2009 2008

salaries and fees to management

parent company’s president

Suutari Harri from 3.4.2008

Salaries and fees 192 210

Share-base payments, note 21 42 39

Total 235 249

Kari Mika until 3.4.2008

Salaries and fees, including salary for the period of notice 0 367


Total 0 367

Other members of the Executive Board

Salaries and fees 909 606


Total 1,008 735

fees to members of the Board of Directors *

Eestilä Matti, member until 27.3.2009 6 25

Lampela Outi, member from 27.3.2009 23 0

Niemelä Jaakko, member until 27.3.2009 6 25

Palla Endel 25 25

Pohjanvirta Olli 29 25

Ruotsala Matti 50 44

Suutari Harri, member until 3.4.2008 0 13

Tähtinen Jyrki 38 38

Total 176 194

* Harri Suutari was appointed PKC Group Oyj's President and CEO as from 3.4.2008. At the same time

Matti Ruotsala has been apppointed Chairman of the Board

salaries and fees to management total 1,419 1,546

66


salaries, remuneration and other benefits

In 2009 the AGM resolved to pay the Chairman EUR 50,000 per term, the Vice Chairman EUR 37,500 per term and the other members EUR 25,000 per term, as well as travel and accommodations expenses related to the meetings. The Chairman and members of the Committee will be paid additional annual remuneration of EUR 5,000.

In 2008, it had been resolved that the Chairman would be paid EUR 50,000 per term, the Vice Chairman EUR 37,500 per term and the other members EUR 25,000 per term as well as travel and accommodations expenses related to the meetings.

Harri Suutari was appointed PKC Group Oyj’s President and CEO as of 3 April 2008. Harri Suutari’s service contract has provision for a notice period of three months on the President’s part and six months on the company’s part without separate severance payments. The retirement age is statutory, and no voluntary pension insurance policies have been taken.

In 2009, Harri Suutari’s salaries and other benefits totalled EUR 192,265 of which bonuses accounted for EUR 43,200 (22.5% of the total salary).

The salaries and other benefits paid to the other members of the Executive Board, excluding the President and CEO, totalled EUR 908,820 of which bonuses accounted for EUR 133,822 (14,7% of the total salaries). The members of the Executive Board have employment contracts valid for an indefinite period, with a 3-month notice period on the director’s part and a 6-month notice period on the company’s part, without separate severance payments or other compensation. The retirement age is statutory, and no voluntary pension insurance policies have been taken.

The members of the Executive Board are included in the year 2006 and 2009 Stock Option Schemes. At the end of the financial year 2009, the Executive Board held a total of 320,000 stock options.

Number of personnel 2009 2008

personnel at the end of period 4,077 5,311

average number of personnel

Clerical employees 859 1,177

Employees 3,619 4,411

Total 4,478 5,588

personnel by business segments at the end of period

Wiring Harnesses 3,501 5,096

Electronics 576 556

Total 4,077 5,652

personnel by reginons at the end of period

Brazil 507 729

Canada 2 1

China 139 158

Mexico 633 744

Poland 758 839

Finland 460 701

USA 4 4

Russia 717 1,408

Estonia 857 1,068

Total 4,077 5,652


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EUR 1,000 2009 2008

8. DEpRECiaTiON aND impaiRmENT lOss fOR gOODWill

intangible assets

Intangible assets 951 841

Customer relationships 2,502 202

Impairment loss for goodwill 0 1,197

Total 3,453 2,241

Tangible assets

Buildings and constructions 983 734

Machinery and equipment 5,692 6,053

Other tangible assets 854 346

Total 7,529 7,133

Total 10,982 9,374

9. OTHER OpERaTiNg ExpENsEs

Benefits to accountans 163 324

Rents 6,026 6,259

Other operating expenses 17,166 27,844

Total 23,355 34,427

audit fees

Authorized Public Accountant Firm Ernst&young

Audit fees 121 134

Assignments 0 37

Tax services 27 48

Other services 15 105

Total 163 324

10. fiNaNCial iNCOmE aND ExpENsEs

financial income

Profit on exchange 7,629 9,417

Dividend yields 0 1

Other interest and financial income 449 237

Total 8,078 9,655

financial expenses

Exchange loss -5,130 -12,300

Other interest and financial expenses -2,527 -3,166

Total -7,657 -15,466

financial income and expenses total 421 -5,811

income statement includes exchange differences (net) as follows

Net sales -2,981 73

Raw materials and services -212 30

Raw material derivates 608 -721

Financing 5,085 -2,266

Total 2,499 -2,883

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EUR 1,000 2009 2008

11. iNCOmE TaxEs

Income taxes from actual operations 2,812 6,790

Income taxes from previous year -205 90

Deferred taxes -3,853 2,782

Total -1,246 9,661

income taxes from actual operations

Profit before taxes 1,103 15,228

Income taxes at Finnish tax rate 287 3,957

Effects of different tax rates of foreign subsidiaries 853 1,626

Impairment of goodwill 0 307

Tax-free income and non-decuctible costs 1,332 2,579

Other changes from temporary differences 247 -357

Deferred tax assets -3,853 1,460

Taxes from previous years -205 89

Other items 95 0

Total -1,246 9,661

12. EaRNiNgs pER sHaRE

Basic

Profit for the financial year 2,349 5,519

Average share issue-adjusted number of shares 1,000 shares 17,782 17,782

Basic earnings per share (Eps), EUR 0.13 0.31

Diluted

Profit for the financial year 2,349 5,519

Average share issue-adjusted number of shares 1,000 shares 17,782 17,782

Diluting effects of options 1,000 shares Negative Negative

Diluted average share issue-adjusted number of shares, 1,000 shares 17,782 17,782

Diluted earnings per share (Eps), EUR 0.13 0.31


69


13. TaNgiBlE assETs

EUR 1,000 land areas

Buildings and

constructions

machinery

and

equipments

Other

tangible

assets

advance

payments and

acquisitions

in progress Total

acquisition cost 1.1.2009 119 14,459 57,404 3,258 286 75,526

+/- Translation difference 1.1 0 5 -60 0 0 -55

+ Increases 2 61 1,013 123 1,775 2,974

- Decreases 0 -108 -9,215 -455 0 -9,778

+/- Transfers 0 14 1,471 1,623 -2,430 678

+/- Other changes 0 3,333 -1,051 888 1,257 4,427

acquisition cost 31.12.2009 121 17,763 49,561 5,437 888 73,772

accumulated depreciation and impairments 1.1.2009 0 3,907 35,119 1,571 0 40,597

+/- Translation difference 1.1 0 1 -6 0 0 -4

- Accumulated depreciation of decreases and transfers 0 -21 -8,611 -94 0 -8,726

+ Depreciation 0 983 5,690 854 0 7,527

accumulated depreciation and impairments 31.12.2009 0 4,871 32,193 2,330 0 39,395

Book value 31.12.2009 121 12,892 17,368 3,107 888 34,378

Book value 31.12.2008 119 10,551 22,285 1,687 286 34,929

Tangible assets include assets leased under

finance leases as follows:

Buildings and

constructions

machinery

and

equipments Total

acquisition cost 1.1.2009 0 0 0

Acquisition cost 3,333 1,244 4,577

Accumulated depreciation -242 -188 -430

Book value 31.12.2009 3,091 1,056 4,147

14. iNTaNgiBlE assETs

EUR 1,000

intangible

assets goodwill

Customer

relationships

advance

payments Total

acquisition cost 1.1.2009 5,663 13,886 12,506 171 32,226

+/- Translation difference 1.1 0 0 0

+ Increases 543 4,313 0 168 5,024

- Decreases -101 0 0 0 -101

+/- Transfers 293 0 0 -338 -45

+/- Other changes 64 0 0 0 0

acquisition cost 31.12.2009 6,462 18,199 12,506 0 37,167

accumulated depreciation and impairments 1.1.2009 3,103 4,404 545 0 8,052

- Accumulated depreciation of decreases and transfers -85 0 0 0

+ Depreciation 951 0 2,500 0 3,451

accumulated depreciation 31.12.2009 3,969 4,404 3,045 0 11,418

Book value 31.12.2009 2,493 13,794 9,461 0 25,749

Book value 31.12.2008 2,560 9,481 11,963 171 24,174

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15. IMPAIRMENT TESTING

The Group has allocated goodwill to cash-generating units (GSU). Apart from goodwill, the Group did not have any other intangible assets with indefinite useful lives on the date of impairment test on 30 September 2009.

The table below presents the distribution of goodwill between the Electronics and Wiring Harnesses business segments, where a single segment may consist of one or several cash-generating units. Goodwill, EUR 1,000 2009 2008

Electronics 1,209 1,209


Total 13,794 10,328

The impairment of a cash-generating unit is tested by comparing its recoverable amount to its carrying amount. The recoverable amounts from the cash-generating units are determined by their values-in-use, which are based on discounted future cash flows. The estimates of the cash flows are based on 5-year financial forecasts made by the business management. The net sales and profitability estimates used in the forecasts are based on customer-specific estimates, future outlooks and previous experience. Estimates related to long-term profitability aim to take into account a normalized, solid level of profitability. Long-term growth used in the calculations reflects both expected growth and inflation of each area in the long term.

Discount rates are determined separately for each cash-generating unit, reflecting the effects of different business and different countries on the expected return of equity. The borrowing cost is determined on the basis of the current credit portfolio. In the determination of the weighted average cost of capital (WACC), the target equity ratio and the effect of indebtedness to the cost of equity have been taken into account.

The following table presents a summary of the assumptions used in the cash flow analysis.

Assumptions used in the cash flow analysis, % 2009 2008

Net sales growth 2009–2013 8.7–30.4 Net sales growth 2009–2013 5.5–11.6

Long term growth 2014– 2.0 Long term growth 2017– 2.0–4.5

Average EBIT 2009–2013 1.1–16.6 Average EBIT 2009–2013 1.4–14.9

WACC (after tax) 7.8–11.3 WACC (after tax) 7.8–11.0

WACC (IFRS) 10.1–13.7 WACC (IFRS) 10.2–12.7

The group structure changed in 2009 and, therefore, only some of the tested cash-generating units are comparable with the year 2008 test situation. Changes in the cash-generating units caused changes in the discount rates used in the testing in comparison to previous year. In addition, changes in the information sources used in the determination of WACC’s particulars caused changes in the discount rate.

On the basis of the impairment testing, there is no need for write-downs.

Key assumptions of the recoverable amount relate to expected profitability (EBIT) and the discount rate used.

The reasonably possible change in the key parameters of the North Europe unit could create a situation where the carrying amount would exceed the recoverable amount. The unit’s recoverable amount is 119% of the carrying amount. In the other cash-generating units, no reasonably possible change in the assumptions will cause impairment. On average, the recoverable amount of the cash-generating units corresponds to 209% of the carrying amount.

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EUR 1,000 2009 2008

16. NON-CURRENT RECEivaBlEs

interest-bearing

Loan receivables 32 67

Total 32 67

Non-interest-bearing

Other receivables 17 371

Total 17 371

Available-for-sale investments 15 15

Total 64 453

Deferred tax assets 4,804 1,623

Non-current receivables total 4,868 2,076

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17. DEfERRED Tax assETs aND liaBiliTiEs

EUR 1,000 1.1.2009

Recognised in

income statement

acquisitions of

subsidiaries 31.12.2009

Deferred tax assets from

Accumulated depreciation differences 166 384 0 550

Unused tax-deductible losses from previous periods 1,249 2,695 0 3,945

Provisions 53 58 0 111

Other items 155 43 0 198

Total 1,623 3,181 0 4,804

Deferred tax liabilities from

Undistributed unrestricted capital 225 -95 0 130


Depreciation differences of intangible assets recognised in

business combination 3,120 83 -1,031 2,172


Total 3,461 673 -1,031 3,103

1.1.2008

Recognised in

income statement

acquisitions of

subsidiaries 31.12.2008

Deferred tax assets from

Accumulated depreciation differences 735 -570 0 166

Unused tax-deductible losses from previous periods 2,747 -1,498 0 1,249

Depreciation differences of goodwill recognised 0 0 0 0

Provisions 252 -199 0 53


Total 2,486 -2,181 0 1,623

Deferred tax liabilities from

Undistirbuted unrestricted capital 225 0 0 225


Depreciation differences of intangible assets recognised in

business combination 82 851 2,186 3,120

Other items 149 -263 114 0

Total 560 601 2,300 3,461


73


EUR 1,000 2009 2008

18. iNvENTORiEs

Raw materials and supplies 26,127 34,374

Work in progress 3,215 4,243

Finished goods 6,243 13,001

Advance payments 481 196

Total 36,066 51,815

19. CURRENT RECEivaBlEs

Trade receivables 35,170 47,025

Other receivables

interest-bearing


Total 0 1

Non-interest-bearing

Other receivables 3,073 8,562

Prepayments and accrued income 5,218 6,385

Total 8,291 14,947

Current other receivables total 8,291 14,948

Current trade receivables and other receivables total 43,460 61,973

prepayments and accrued income

From employee benefits 319 1,006

From investments 0 31

From net sales 284 0

From other operating income 306 0

From others 1,127 2,418

From financial items 0 18

From taxes 3,182 2,912

Total 5,218 6,385

20. sHaRE CapiTal

Number of

shares,

1,000 pcs.

share Capital,

EUR 1,000

share premium

account,

EUR 1,000

Reserve fund,

EUR 1,000

1.1.2008 17,782 5,983 4,862 239

Transfer from restricted to unrestricted capital 0 0 0 130

31.12.2008 17,782 5,983 4,862 370

1.1.2009 17,782 5,988 4,862 370

31.12.2009 17,782 5,983 4,862 370

74


2006a 2006a 2006B

Grant date 20.4.2006 29.3.2007 29.3.2007

Number of instruments granted, 1,000 pcs. 180 22.5 221

Exercise price at the grant date, EUR 11.54 11.09 11.09

Exercise price, EUR 10.49 10.49 10.49

Share price at the grant date, EUR 12.25 10.01 10.01

Remaining vesting period, years 5.1 4.1 5.2

Expected volatility, % 39 35 35

Risk-free interest rate, % 3.66 4.10 4.10

Fair value of the instrument (at grant date), EUR 5.19 3.03 3.48

2006a 2006B 2006C

Grant date 27.3.2008 27.3.2008 27.3.2008

Number of instruments granted, 1,000 pcs. 5.9 9.6 146.7









21. SHARE BASED PAYMENTS

The Board of Directors of PKC Group Oyj distributed stock options to the key personnel of the Group and to PKC Wiring Systems Oy Oy, a wholly-owned subsidiary of the company, in accordance with the Annual General Meeting’s decision on stock options on 30 March 2006. The Group’s key personnel holds a total of 205,500 stock options 2006A, 208,360 stock options 2006B and 207,600 stock options 2006C (taking into account the later returns). The remainder of the stock options 2006B and 2006C were granted to PKC Wiring Systems Oy to be distributed further to the Group’s present and future key personnel. The Board of Directors of PKC Group Oyj distributed stock options to the key personnel of the Group and to PKC Wiring Systems Oy Oy, a wholly-owned subsidiary of the company, in accordance with the Annual General Meeting’s decision on stock options on 27 March 2009. The Group’s key personnel holds a total of 140,500 stock options 2009A (taking into account the later returns). The remainder of the stock options 2009A, 2009B and 2009C were granted to PKC Wiring Systems Oy to be distributed further to the Group’s present and future key personnel. A share ownership plan, which obliges the key personnel to subscribe for the company’s shares with 20% of the gross income earned from their stock options and hold these shares for two years, is incorporated to the stock options 2006. The options are forfeited if the employee leaves the company before the end of the vesting period. The Company’s President and CEO must hold his shares for as long as he remains in the Group’s service. The fair values of the options have been calculated using the Black-Scholes share pricing model. The expected volatility has been estimated on historic volatility using the actual price developments, taking into account the remaining terms of the options. Calculation of the fair values of the options was based on the following parameters used for to all incentives: expected dividend yield 0%, expected forfeited options 0%.

stock option plan stock options granted to the key personnel of the group

75


2006a 2006B 2006C

Grant date 14.4.2008 14.4.2008 14.4.2008

Number of instruments granted, 1,000 pcs. 30 40 40








2006a 2006B 2006C

Grant date 14.7.2008 14.7.2008 14.7.2008

Number of instruments granted, 1,000 pcs. 14.6 16.1 14








2006a 2006B 2006C

Grant date 3.10.2008 3.10.2008 3.10.2008

Number of instruments granted, 1,000 pcs. 25.3 41.4 38








2006a 2006B 2006C

Grant date 22.1.2009 22.1.2009 22.1.2009

Number of instruments granted, 1,000 pcs. 19.3 18.7 23.9








stock option plan stock options granted to the key personnel of the group

76


stock options granted to the

key personnel of the group

2009a

Grant date 29.4.2009

Number of instruments granted, 1,000 pcs. 161.5

Exercise price at the grant date, EUR 3.85

Exercise price, EUR 3.85

Share price at the grant date, EUR 3.64

Remaining vesting period, years 5

Expected volatility, % 36

Risk-free interest rate, % 2.86

Fair value of the instrument (at grant date), EUR 1.25

2009 2009 2008 2008

Weighted

average

exercise price

per share, EUR

Number of

options

1,000 pcs

Weighted

average

exercise price

per share, EUR

Number of

options

1,000 pcs

Outstanding at start of year 10.64 651.7 11.09 423.5

Granted during the year 5.68 209.2 10.64 421.6

Forfeited during the year 9.91 -125.0 10.64 -193.4

Outstanding at end of year 9.22 736.0 10.64 651.7

Exercisable at end of year 9.22 736.0 10.64 651.7

The range of exercise prices and the weighted average exercise price for the remaining contractual life for options outstanding at 31 December 2009

is presented below.

Exercise price,

EUR

Contractual life,

years

Number of

options,

1,000 pcs

Exercisable options at 31 December 2009 3.85–10.49 2.72 736.0


stock option plan

77


EUR 1,000

22. pROvisiONs

provisions for pension expenses

1.1.2008 114

Decreases 102

31.12.2008 216

1.1.2009 216

Increases 160

31.12.2009 376

Provision are recognised from the presumable unemployment pension liabilities concerning

the persons dismissed by co-determination negotiations 2007-2009.

23. fiNaNCial liaBiliTiEs 2009 2008

interest-bearing

Loans from financial institutions 20,668 27,941

Pension loans 9,909 12,179

Finance lease liabilities 4,053 0

Total 34,630 40,120

maturities of finance lease liabilities

Minimum lease payments

Within one year 1,405 0

Between one and five years 6,983 0

Total 8,388 0

present value of minimum lease payments

Within one year 255 0

Between one and five years 4,053 0

Total 4,308 0

Future finance and other charges concerning lease payments 4,080 0

Total amount of finance lease payments 8,388 0

78


EUR 1,000 2008 2009

24. CURRENT TRaDE payaBlEs aND OTHER liaBiliTiEs

Trade payables 16,059 14,907

Current other liabilities

Advances received 5 14

Other liabilities 2,850 3,321

Accruals and deferred income 15,257 14,947

Total 18,112 18,281

Current trade payables and other liabilities total 34,171 33,188

accruals and defeffed income

To others

From employee benefits 5,434 7,901

From financial items 177 1,017

From taxes 3,092 2,535


From investments 0 9

Total 15,257 14,947

25. CURRENT fiNaNCial liaBiliTiEs

interest-bearing



Finance lease liabilities 255 0

Total 8,940 31,866



79


EUR 1,000 2008 2009

26. DERivaTEs

Nominal values

Currency derivates

Forward agreements 0 3,307

Raw material derivates

Forward agreements 1,187 757

Total 1,187 4,063

fair values

Currency derivates

Forward agreements 0 -195

Raw material derivates

Forward agreements 83 -328

Total 83 -523

Derivates are used only in hedging currency and changing copper prices. PKC Group does not apply

hedge accounting to derivate instruments according to IAS 39. Fair values of the derivates are recognised

through profit and loss account.

27. OTHER liaBiliTiEs

group as a lessee

0–1 years 1,107 2,471

1–5 years 1,920 11,166

Total 3,027 13,637

80


EUR 1,000

liabilities and

receivables

available-

for-sale

financial

assets

financial

liabilities

measured at

amortised cost

Carrying

amounts of

balance sheet

items

fair values of

balance sheet

items2009

Non-current financial assets

Non-current interest-bearing receivables 32 0 0 32 32

Other non-current financial assets 17 15 0 32 32

Non-current financial assets total 49 15 0 64 64

Current financial assets

Trade receivables and other receivables 43,460 0 0 43,460 43,460

Current financial assets total 43,460 0 0 43,460 43,460

financial assets total 43,509 15 0 43,525 43,525

Non-current financial liabilities

Non-current interest bearing liabilities 0 0 34,630 34,630 34,494

Non-current financial liabilities total 0 0 34,630 34,630 34,494

Current financial liabilities

Current interest bearing liabilities 0 0 8,940 8,940 9,392

Trade payables and other liabilities 0 0 34,171 34,171 34,171

Current financial liabilities total 0 0 43,111 43,111 43,562

financial liabilities total 0 0 77,742 77,742 78,056


28. CARRYING AMOUNTS AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT CATEGORIES

measurement principles of financial assets and liabilities

Available-for-sale financial assets consist entirely of investments in unquoted stocks; these are measured at acquisition cost, since their fair value cannot be determined reliably with valuation models. The carrying amounts of trade receivables and other receivables correspond to their fair values, as the effect of discounting is not material taking into account their short maturity. The fair values of currency forwards are measured by using the market prices at the balance sheet date. The fair values of interest-bearing liabilities are based on discounted cash flows. The discount rate used is based on the group’s interest rate for corresponding interest-bearing liabilities at the balance sheet date. The total interest rate consists of a risk-free interest rate and a company-specific margin. The carrying amounts of trade payables and other liabilities correspond to their fair values, as the effect of discounting in not material with regard to their short maturity.

At the closing of the accounts for 2009, the Group held no financial instruments that could be measured at fair value, except for minor available-for-sale share investments. There have been no changes in the fair value determination calculations or valuation principles during the financial period. The valuation of available-for-sale shares is based on the acquisition cost (level 3, IFRS 7.27A) as the fair value of the shares cannot be determined reliably. There is no functional market for unquoted shares. For the time being, the Group does not intend to dispose of these share investments.

81


EUR 1,000 financial assets

and liabilities

at fair value

through profit

and loss

liabilities and

receivables

available-

for-sale

financial

assets

financial

liabilities

measured at

amortised cost

Carrying

amounts of

balance sheet

items

fair values of

balance sheet

items2008

Non-current financial assets

Non-current interest-bearing receivables 0 67 0 0 67 67

Other non-current assets 0 371 15 0 386 386

Non-current financial assets total 0 437 15 0 453 453

Current financial assets

Trade receivables and other receivables 0 61,960 0 0 61,960 61,960

Derivatives financial instruments 14 0 0 0 14 14

Current financial assets total 14 61,960 0 0 61,973 61,973

financial assets total 14 62,397 15 0 62,426 62,426

Non-current financial liabilities

Non-current interest bearing liabilities 0 0 0 40,120 40,120 49,233

Non-current financial liabilities total 0 0 0 40,120 40,120 49,233

Current financial liabilities

Current interest bearing liabilities 0 0 0 31,866 31,866 23,133

Derivatives financial instruments 209 0 0 0 209 209

Trade payables and other liabilities 0 0 0 32,979 32,979 32,979

Current financial liabilities total 209 0 0 64,846 65,055 56,321

financial liabilities total 209 0 0 104,966 105,175 105,554

82


group’s valuation exposure by currency

EUR 1,000

2009

Net investment

2008

Net investment

BRL 9,229 15,703

RUB 3,048 6,223

CAD -2,711 -459

MXN 452 595

CNy 1,126 537

USD 6,217 3,715

EEK 5,207 4,864

PLN 6,898 2,638

Total 29,466 33,817


29. RELATED PARTY DISCLOSURES

A party is related to an entity if it controls, is controlled by, or is under common control with, the entity or has an interest in the entity that gives it significant influence over the entity or has joint control over the entity. The Group’s related party comprises of the Group companies, the parent company’s Board of Directors and the Executive Board. There were no related party transactions in the current or previous period. The employee benefits to the management are presented in Note 7.

30. FINANCIAL RISK MANAGEMENT

The company’s Board of Directors has approved the Group’s financial risk management policy. The objective of the policy is to protect the Group against unfavourable changes in the financial markets and thereby safeguard the Group’s earnings trend, equity and liquidity. The Group’s financing and financial risk management have been centralised within the parent company’s finance function. The aims of centralising these functions are effective risk management, cost savings and optimisation of cash flow.

Currency risk

Because the Group operates in international markets, it is exposed to currency risks caused by exchange rate fluctuations. Sales and purchases in foreign currencies (transaction risk) as well as balance sheet items investments in and loans to foreign subsidiaries (valuation risk) create currency risk. Currency risks are hedged by using internal netting out, foreign currency loans, currency forwards and currency options. However, currency options may not be used in more than half of the derivative financial instruments. Derivatives are used only for hedging purposes. Currency risks are also hedged by currency clauses in sales agreements. A majority of product sales and purchases of materials are conducted in euros. The equity of the Group’s subsidiaries at the close of the financial period was EUR 29.5 million (2008: EUR 33.8 million).

All of the Group’s interest-bearing liabilities are in euros. The Group has not used derivative instruments to hedge valuation risk.

83


The group’s interest rate maturities at the balance sheet date

EUR 1,000 Under 6 mon. 6–12 mon. Total

Variable interest-rate financial instruments

Loans from financial institutions 5,600 21,484 27,084

Fixed-rate financial instruments

Pension loans 0 12,179 12,179

Total 5,600 33,663 39,263

average effect on operating profit net of hedging effects

EUR million 2009 2008

10 % change in the price of copper +/- 0.8 +/- 1.1-1.3

10 % change in foreign exchange rate between the euro and the dollar (USD) +/- 1.0 +/- 0.8

10 % change in foreign exchange rate between the euro and the Swedish krona (SEK) +/- 0.6 +/- 2.0

10 % change in foreign exchange rate between the euro and the Brazilian real (BRL) +/- 1.3 +/- 1.8

Commodity risk

Trends in global economy may affect the prices and availability of raw materials. Copper price risks can be hedged with purchase agreements and raw materials futures and options. Changes in the prices of oil and metals can interfere with the Group’s operations indirectly if they reduce demand for the customers’ products. Changes in energy prices have no substantial effect on profit. According to the Group’s risk management policy, a maximum of 50 percent of the copper position can be hedged.

interest risk

Interest risk is involved mainly in interest-bearing liabilities in the balance sheet. The financing function monitors the interest risk of the loan portfolio and, if necessary, changes the interest rate maturity by means of forward rate agreements, options and interest rate swaps. At the end of 2009: 31.0% of the loan portfolio of the Group consisted of fixed-interest loans. The counterpart risk involved in loans has been minimised by entering into loan agreements with at least three accepted parties.

sensitivity to market risk

sensitivity of operating profit to market risks connected with the group’s operations

The following table describes how changes in the main market risk factors from the Group’s standpoint could affect the Group’s operating profit. These calculations are based on assumptions relating to ordinary market and business conditions. The effect of hedging has not been taken into account.

84


sensitivity to market risks arising from financial instruments, referred to in ifRs 7

EUR million

2009 income

statement

2009

Equity

2008 income

statement

2008

Equity

10 % change in the price of copper +/- 0.0 +/- 0.0 +/- 0.1 +/- 0.1

10 % change in foreign exchange rate between the euro

and the dollar (USD) - - +/- 0.2 +/- 0.2

10 % change in foreign exchange rate between the euro and

the Swedish krona (SEK) - - +/- 0.2 +/- 0.2

1 % change in market interest rates +/- 0.4 +/- 0.4 +/- 0.7 +/- 0.7


sensitivity to market risks a m financial instruments, referred to in ifRs 7

The sensitivity analysis presented below, which is required by IFRS 7, illustrates the sensitivity of the Group’s operating profit and equity to changes in the price or copper, to foreign exchange rates between the euro and the US dollar, and the euro and the Swedish krona, as well as to interest rates. In accordance with the IFRS definition, this sensitivity is due to the financial instruments, financial assets and liabilities as well as derivative financial instruments that are included in the balance sheet for the financial period. Financial instruments that are sensitive to the above-mentioned market risks include working capital items such as trade receivables and other receivables, trade payables and other liabilities, financial liabilities, deposits, cash and bank receivables and derivative financial instruments.

85


age distribution of trade receivables

Credit –

recorded as

a loss

Credit –

recorded as

a lossEUR 1,000 2009 Net 2009 2008 Net 2008

Not yet overdue 30,265 0 30,265 34,620 0 34,620

Falling due in 30 days or less 3,422 0 3,422 7,902 0 7,902

Due 31–60 days ago 819 0 819 2,326 0 2,326

Due 61–90 days ago 222 0 222 1,044 0 1,044

Due over 90 days ago 824 -382 442 1,134 0 1,134

Total 35,552 -382 35,170 47,025 0 47,025

liquidity risk

Liquidity risk means the risk involved in obtaining financing at any given time. The parent company’s finance function is res-ponsible for the Group’s liquidity and the adequacy of its financing. Sufficient liquidity is maintained by means of efficient cash management. At the balance sheet date, the Group had a total of EUR 15 million of credit and financing facilities, of which EUR 15 million has remained unused. Most of the parent company’s interest-bearing liabilities contain a covenant requiring that the equity ratio indicated in the audited consolidated balance sheet be a minimum of either 30% or 35%, depending on the agreement.

Credit risk

Credit risk associated with investments in the financial markets is minimised by making agreements with a sufficiently large number of leading and financially sound banks, financial institutions and other parties. Customers are granted standard payment terms only. No loans are granted to parties outside the Group, nor are collateral, contingent liabilities or other obligations assumed as security for their liabilities. The same applies to related parties of said companies. Impairment of trade receivables is recognised where there is reasonable evidence that the Group will not receive all receivables on the original terms. Impairment of receivables is recognised under other operating expenses in the income statement.

86



maturity analysis based on liability agreements

EUR 1,000

31.12.2009 2010 2011 2012 2013 2014 2015– Total

Loans from financial institutions

Repayments 6,916 6,416 5,916 7,479 357 0 27,084

Financing costs 475 355 238 130 2 0 1,200

Total 7,391 6,771 6,154 7,609 359 0 28,285

Pension loans

Repayments 2,270 2,269 2,268 2,268 607 2,497 12,179

Financing costs 625 506 388 269 171 389 2,349

Total 2,895 2,776 2,656 2,537 779 2,885 14,527

Finance lease liabilities 50

Repayments 259 337 437 3,275 0 0 4,308

Financing costs 1,146 1,067 968 899 0 0 4,080

Total 1,405 1,405 1,405 4,174 0 0 8,388

Deferred tax liabilities 3,480 0 0 0 0 0 3,480

Current non-interest bearing liabilities 78,586

Trade payables 16,059 0 0 0 0 0 16,059

Others 18,112 0 0 0 0 0 18,112

Total 34,171 0 0 0 0 0 34,171

Total 47,936 9,546 8,810 10,146 1,138 2,885 88,850

31.12.2008 2009 2010 2011 2012 2013 2014 – Total

Loans from financial institutions

Repayments 29,595 7,487 6,702 5,916 7,479 358 57,537

Financing costs 1,939 1,212 875 571 298 10 4,905

Total 31,534 8,699 7,576 6,487 7,777 368 62,442

Pension loans

Repayments 2,270 2,270 2,269 2,268 2,268 3,104 14,449

Financing costs 746 628 509 390 271 570 3,114

Total 3,017 2,897 2,778 2,658 2,539 3,674 17,563

Deferred tax liabilities 3,461 0 0 0 0 0 3,461

Current non-interest bearing liabilities

Trade payables 14,907 0 0 0 0 0 14,907

Others 18,281 0 0 0 0 0 18,281

Total 33,188 0 0 0 0 0 33,188

Total 71,200 11,597 10,354 9,145 10,316 4,042 116,654

87


gearing

EUR 1,000 2009 2008

Interest-bearing liabilities 43,571 71,986

Cash and cash equivalents 15,326 12,468

Net liabilities 28,245 59,518

Equity total 78,626 78,586

Gearing, % 35.9 75.7

Capital management

Equity shown in the consolidated balance sheet is managed as capital. External capital demands are not applied in the Group. The objective of managing capital is to support the Group’s business by ensuring normal operating conditions and to increase the owner’s value with a target of gaining maximum return. The optimal capital structure also ensures the lowest capital costs. The capital structure can be affected by dividend distributions or share issues, for example. The capital structure is continuously monitored by using the gearing ratio. The Group’s bank loans contain covenants which are common conditions. The equity ratio, for example, has to be a minimum of either 30% or 35%, depending on the agreement. During the financial periods 2009 and 2008, the company fulfilled the terms of the covenants. The Group’s gearing ratio in the current period and previous period was as follows:

88


EUR 1,000 Note 2009 2008

NET salEs 1 74,726 185,882

Increase (+) or decrease (-) in stocks of finished goods and work in progress -7,832 -115

Other operating income 2 2,688 2,284

Raw materials and services 3 57,102 145,509

Staff expenses 4 9,853 19,643

Depreciation and value adjustments 5 1,137 1,283

Other operating expenses 6 13,204 9,686

OpERaTiNg pROfiT -11,713 11,930

Financial income and expenses 7 12,487 -13,656

pROfiT/lOss BEfORE ExTRaORDiNaRy iTEms 774 -1,726

Group contributions 8 4,600 2,500

pROfiT/lOss BEfORE TaxEs 5,374 774

Income taxes 9 61 -2,351

pROfiT/lOss fOR THE fiNaNCial yEaR 5,435 -1,577

PARENT COMPANy’S INCOME STATEMENT

89


EUR 1,000 Note 31.12.2009 31.12.2008

assETs

NON-CURRENT assETs

Intangible assets 10 604 2,393

Tangible assets 11 556 1,163

Investments 12

Other investments 235 235

Holdings in group companies 61,822 34,559

NON CURRENT assETs TOTal 63,218 38,350

CURRENT assETs

Inventories 13 0 18,698

Non-current 14



Current 14

Trade receivables 6,645 32,626


Short-term receivables total 11,104 37,216

Cash and cash equivalents 4,583 969

Current assets total 19,676 111,659

assETs TOTal 82,894 150,010

liaBiliTiEs

shareholders equity 15

Share capital 5,983 5,983

Share Premium Account 4,862 4,862

Other Reserves 166 166

Retained Earnings (loss) 16 45,425 49,670

Profit / loss for the financial year 5,435 -1,577

shareholders equity total 61,872 59,104

provisions 17 0 203

Creditors 18

Non-current 19



Current liabilities

Trade payables 3,960 7,485



Creditors total 21,022 90,703

liaBiliTiEs TOTal 82,894 150,010

PARENT COMPANy’S BALANCE SHEET

90


EUR 1,000 2009 2008

CasH flOWs fROm OpERaTiNg aCTiviTiEs

Cash receipts from customers 81,887 204,941

Cash receipts from other operating income 2,243 2,175

Cash paid to suppliers and employees -55,870 -187,596

Cash flows from operations before financial income and expenses and taxes 28,261 19,520

Interest paid -3,058 -4,627

Interest received and other financial income 4,943 4,830

Income taxes paid 2,084 -2,852

Net cash from operating activities (a) 32,230 16,870

CasH flOWs fROm iNvEsTiNg aCTiviTiEs

Purchase of tangible and intangible assets -352 -737

Proceeds from sale of tangible and intangible assets 383 152

Loans granted -2 -42,360

Received amortisations of loans 1,082 17,049

Investments to subsidiaries -8,218 -11,276

Dividends received 10,318 799

Net cash used in investing activities (B) 3,211 -36,374

CasH flOWs fROm fiNaNCial aCTiviTiEs

Drawing of credits 0 37,053

Amortisation of credits -31,660 -14,998

Dividends paid -2,667 -8,002

Group contributions received 2,500 5,000

Net cash used in financial activities (C) -31,827 19,053

Net increase (+) or decrease (-) in cash and cash equivalents (a+B+C) 3,614 -450

PARENT COMPANy’S CASH FLOW STATEMENT

91


Comparability with the previous period

In comparison to the previous financial period it should be taken into account that the Wiring Harnesses business has in its entirety been transferred to PKC Wiring Systems Oy on 1 November 2009, which is the main reason for the decrease in the number of personnel and assets.

foreign currency items

Foreign currency transactions have been entered during the financial period by using the exchange rate on the transaction date. Balance sheet items open on the closing date of the financial period have been valued using the average rate on the date of closing the accounts. The exchange rate differences have been stated in the profit and loss account.

Non-current assets

Non-current assets are recognised at cost less any depreciation and any impairment losses. Assets are depreciated on a straight-line basis during their estimated lives. Land areas are not depreciated. The depreciation periods are as follows:

Intangible rights 4–5 yearsOther long-term expenditures 3–10 yearsBuildings and constructions 5–20 yearsMachinery and equipment 3–10 yearsOther tangible assets 5–10 years .

inventories

Inventories are measured at acquisition cost or the probable net realisable value, whichever is lower. The cost of an inventory is determined on the basis of the weighted average cost formula and includes all direct costs and a proportional amount of indirect costs. The net realisable value is the selling price less estimated costs of finishing and selling the product.

financial instruments

Financial instruments are carried at fair value which has been determined as follows: forward rate agreements, currency options and commodity derivatives are carried at market prices at the balance sheet date, while the fair values of currency forwards are based on the prices of currency forwards at the balance sheet date.

Net sales

Net sales include the revenue obtained from products and services sold, which are valued at fair value and, and adjusted for discounts and indirect taxes. Revenue from the sale of goods is recognised when the products are supplied in accordance with the terms of sale. Revenue from services is recognised for the period when the service is rendered.

Research and Development Costs

Research and development costs have been recognised as expenses for the financial period during which they incurred.

Rent for leased assets

Rent for leased assets has been recognised as a cost in the income statement.

pension Costs

The retirement plans for employees are provided by external insurance companies. Pension contributions and expenses for the financial period are based on actuarial calculations. Pension costs are recognised as expenses on the year of accrual. Direct Taxes

Direct taxes for the financial period have been entered in the profit and loss account on accrual basis.

ACCOUNTING PRINCIPLES FOR THE PARENT COMPANy’S ACCOUNTS

92


EUR 1,000 2009 2008

1. NET salEs By BUsiNEss sEgmENTs aND maRKET aREas

Net sales by business segments


Total 74,726 185,882

Net sales by market areas

Finland 10,660 24,632




Others 1,994 3,132

Total 74,726 185,882

2. OTHER OpERaTiNg iNCOmE

income from sales of non-current assets 196 131

Grants 60 111

Other income 2,432 2,041

Total 2,688 2,284

Other income

From Group companies 1,987 1,704

From others 445 337

Total 2,432 2,041

3. maTERials aND sERviCEs

Raw materials and consumables

Purchases during the financial period 29,934 100,263

Outsourced services 17,491 41,700

Increase (+) or decrease (-) in stocks 9,677 3,547

Total 57,102 145,509

4. sTaff ExpENsEs

Wages and salaries 8,046 16,079

Defined pension contribution plans 1,373 2,625

Other social expenses 433 939

Total 9,853 19,643

Salaries and fees to Board and management are presented in note 7 in consolidated financial statement

personnel

Average number of personnel

Clerical employees 99 158

Employees 148 268

Total 247 426

personnel at the end of period 14 384

NOTES TO THE PARENT COMPANy´S ACCOUNTS

93


EUR 1,000 2009 2008

5. DEpRECiaTiON aND impaiRmENTs

Depreciation according to plan 1,137 1,283

Total 1,137 1,283

6. OTHER OpERaTiNg ExpENsEs

Audit fees 102 188

Rents 3,423 1,775

Other operating expenses 9,679 7,722

Total 13,204 9,686

audit fees

Authorized Public Accounting Firm Ernst&young

Audit fees 70 70

Assignments 0 3

Tax consultation 15 33

Other services 16 82

Total 102 188

7. fiNaNCial iNCOmE aND ExpENsEs

Dividend yields

From Group companies 10,318 798

Total 10,318 798

income from other investments held as fixed assets

From others 0 1

Total 0 1

financial income


From others 24 15

Exchange profit 862 666

Total 3,846 2,806

financial expenses

Reduction in value of receivables from Group companies 0 -7,700

Other interest and financial expenses from others -1,597 -3,058

Exchange loss -80 -6,503

Total -1,677 -17,261

financial income and expenses total 12,487 -13,656

Financial income and expenses total includes net exchange rate differences 782 -5,837

aggregate exchange differences included in income statement

Net sales -6 76

Raw materials and services 90 247

Raw material derivates 633 -936

Financing 66 -5,224

Total 782 -5,837

94


EUR 1,000 2009 2008

8. gROUp CONTRiBUTiONs


Total 4,600 2,500

9. iNCOmE TaxEs

Income taxes from actual operations -119 -2,287

Taxes from the previous year 180 -64

Total 61 -2,351

PARENT COMPANy’S F INANCIAL STATEMENTS

10. iNTaNgiBlE assETs intangible

rights

Other long term

expenditures

advance

payments Total

acquisition cost 1.1.2009 4,421 484 171 5,075

+ Increases 112 0 168 279

- Decreases -3,280 -325 0 -3,605

+/- Transfers 293 0 -338 -45


accumulated depreciation and impairments 1.1.2009 2,465 217 0 2,682

+ Accumulated depreciation of deductions and transfers -2,078 -318 0 -2,396

+ Depreciation for the period 587 228 0 815

accumulated depreciation and impairments 31.12.2009 974 126 0 1,100

Book value 31.12.2009 572 33 0 604

Book value 31.12.2008 1,956 267 171 2,393

11. TaNgiBlE assETs Buildings and

constructions

machinery and

equipments

Other tangible

assets Total

acquisition cost 1.1.2009 1,552 9,167 209 10,929

+ Increases 0 43 0 43

- Decreases 0 -8,307 0 -8,307

+/- Transfers 0 45 0 45


accumulated depreciation and impairments 1.1.2009 988 8,569 209 9,766

- Accumulated depreciation of decuctions 0 -7,934 0 -7,934

+ Depreciation for the period 78 244 0 322

accumulated depreciation and impairments 31.12.2009 1,066 879 209 2,154

Book value 31.12.2009 486 70 0 556

Book value 31.12.2008 565 598 0 1,163

95


12. iNvEsTmENTs

Holdings in

group companies Other shares

Other

receivables TotalEUR 1,000


+ Increases 56,298 0 0 56,298

- Decreases -29,034 0 0 -29,034


Book value 31.12.2009 61,822 188 48 62,058

Book value 31.12.2008 34,559 188 48 34,794

Holdings in group companies

group companies Registered office

group's

holding %

parent's

holding %

parent's

votes %

Wiring Harnesses

PKC Wiring Systems Oy Kempele, Finland 100 100 100

PKC Eesti AS Keila, Estonia 100 0 0

PK Cables do Brasil Industria e Comercio Ltda. Curitiba, Brazil 100 0 0

PKC Group Poland Sp. z o.o. Starachowice, Poland 100 0 0

TKV-sarjat Oy Kempele, Finland 100 0 0

Carhatest Oy Kempele, Finland 100 0 0

OOO Karhakos Kostomuksha, Karelia, Russia 100 0 0

OOO AEK Kostomuksha, Karelia, Russia 100 0 0

OOO PKC Group Pskov Kostomuksha, Karelia, Russia 100 0 0

OOO PKC Group Northwest Kostomuksha, Karelia, Russia 100 0 0

PKC Group Canada Inc. Brampton, Ontario, Canada 100 0 0

PKC Group Mexico S.A. de C.V. Nogales, Mexico 100 0 0

PKC Group USA Inc. Green Valley, Arizona, USA 100 0 0

Electronics

PKC Netherlands Holding B.V. Eindhoven, The Netherlands 100 100 100

PK Cables Nederland B.V. Eindhoven, The Netherlands 100 0 0

PKC Electronics Oy Raahe, Finland 100 0 0

OOO Elektrokos Kostomuksha, Karelia, Russia 100 0 0

OOO Elektromeka Kostomuksha, Karelia, Russia 100 0 0

PKC Wiring Harness & Electronics

(Suzhou) Co., Ltd. Suzhou, China 100 0 0

96


EUR 1,000 2009 2008

13. iNvENTORiEs

Raw materials and supplies 0 10,863

Work in progress 0 1,294

Finished goods 0 6,538

Advance payments 0 3

Total 0 18,698

14. RECEivaBlEs

Non-current

Other receivables

From Group companies

Loan receivables 3,957 54,710

Total 3,957 54,710

From others


Total 32 67

Non-current other receivables total 3,989 54,777


Current

Trade receivables



Total 6,645 32,626

Other receivables

From Group companies

Prepayments and accrued income 3,851 1,266

Total 3,851 1,266

From others


Other receivables 359 1,237

Prepayments and accrued income 249 2,086

Total 608 3,324

Current other receivables total 4,459 4,590

Current receivables total 11,104 37,216


97


EUR 1,000 2009 2008

prepayments and accrued income

from group companies

Of financial items 3,850 1,266

Of other operating income 0 0

Total 3,851 1,266

from Others

Of other operating income 249 0

Of staff expenses 0 116

Of financial items 0 4

Of taxes 0 1,904

Of others 0 62

Total 249 2,086

Repayments and accrued income total 4,099 3,352

15. sHaRE CapiTal

Share capital 1.1 5,983 5,983

share capital 31.12 5,983 5,983

Share premium account 1.1 4,862 4,862

share premium account 31.12 4,862 4,862

Reserve fund 1.1 166 166

Reserve fund 31.12 166 166

Retained earnings 1.1 48,093 57,671

Dividend distribution -2,667 -8,002

Retained earnings 31.12 45,425 49,670

profit for the financial year 5,435 -1,577

Total shareholders' equity 61,872 59,104

16. CalCUlaTiON Of DisTRiBUTaBlE fUNDs

Retained earnings 45,425 49,670

Profit for the financial year 5,435 -1,577

Distributable funds 31.12 50,861 48,093

17. pROvisiONs

Provisions for pensions 0 203

Total 0 203

Deferred tax assets related to provisions 0 53

98


EUR 1,000 2009 2008

18. CREDiTORs

Non-current liabilities

Non-current other liabilities

To group companies

Loans 179 1,040

Total 179 1,040

To others



Total 6,853 39,080


Current liabilities

Trade payables

To Group companies 3,777 1,815

To others 183 5,670

Total 3,960 7,485

Current other liabilities

To group companies

Accruals and deferred income 247 4


Total 7,060 6,017

To others


Pension loans 462 2,010

Accruals and deferred income 753 4,642

Other liabilities 279 833

Total 2,970 37,082

Current other liabilities total 10,029 43,099


accruals and deferred income

To group companies

Of financial items 0 4

Total 247 4

To others

From staff expenses 457 3,416

From financial items 177 1,017

From taxes 119 0

From others 0 209

Total 753 4,642


99


EUR 1,000 2009 2008

Other liabilities

To group companies

Intra-Group loans 6,813 6,013

Total 6,813 6,013

To others

Staff expenses 41 830

Taxes 238 0

Others 0 3

Total 279 833

Loans falling due later than five years from now

Loans from financial institutions 0 357


Total 1,242 3,461

19. COmmiTmENTs aND OTHER liaBiliTiEs

Other liabilities

Given behalf of Group 12,479 0

amount to be paid for leasing commitments

For the current financial period 22 90

Falling due at a later date 0 54

Total 22 144

liabilities related to current premises

For the current financial period 1,032 1,464

Falling due at a later date 1,911 5,247

Given behalf of Group 252 252

Total 3,194 6,711

loans for which business mortgages have been given as collateral

Loans from credit institutions 6,229 0

Business mortgages 31,693 0

Contingent liabilities

Liabilities for currency derivates

Liabilities for raw material derivates 1,187 757

Nominal values 0 2,529

Fair value 83 -328

Derivates are used only in hedging currency and changing copper prices.

100


shares and shareholders

PKC Group Oyj’s share turnover on NASDAQ OMX Helsinki Ltd. from 1 January to 31 December 2009 was 8,655,356 shares (12,940,819 shares), representing 48.7% of the average number of shares (72.8%). Shares were traded to a total value of EUR 37.8 million (85.9 million). The low during the period in review was EUR 2.70 (2.82) and the high was EUR 6.83 (9.48). The closing price on the last trading day in the period under review was EUR 6.60 (3.25) and the average price during the period was EUR 4.38 (6.56). The company’s market capitalisation at 31 December 2009 was EUR 117.4 million (57.8 million).

Shares held by Board members, their closely associated persons and corporations in which they have a controlling interest, accounted for 2.3% (3.2%) of the total number of shares at the close of the period under review. PKC Group Oyj had 7,336 (7,648) shareholders at the end of the report period. The proportion of shares held by foreigners and by way of nominee registrations at 31 December 2009 was 15.5% of the shares outstanding (25.8%).

The Board’s authorisations

The Board of Directors was granted authorisation by the Annual General Meeting on 29 March 2007 to decide on one or more share issues and the granting of special rights as defined in Chapter 10, Section 1 of the Companies Act and on all the terms and conditions thereof. A maximum total of 3,500,000 shares may be issued or subscribed for on the basis of the authorisation. This authorisation includes the right to decide on a directed share issue. The authorisation will remain in force for five years from the date of the resolution of the Annual General Meeting. The authorisation may be used at the Board’s discretion for financing corporate acquisitions, for carrying out inter-company co-operation or similar arrangements, or for strengthening the company’s financing and capital structure.

The Board of Directors does not have a valid authorisation to acquire the company’s own shares, and the company does not hold any own shares (treasury shares).

stock option schemes

In 2006, PKC launched a stock option scheme according to which the maximum total number of stock options to be issued is 697,500. They are divided into A, B and C warrants. At the close of the financial year, the group’s key personnel held a total of 202,500 2006A warrants, 193,520 2006B warrants and 219,840 2006C warrants.

The subscription period for shares through the exercise of the 2006 stock options is 2009–2013. The share subscription price for stock options is the volume-weighted average price of the PKC Group Oyj share on NASDAQ OMX Helsinki, with dividend adjustments, as defined in the stock option terms (at present, EUR 10.49 for the 2006A, 2006B and 2006C warrants). Through the exercise of the 2006 stock options, the share capital of PKC Group Oyj may be increased by a maximum total of 697,500 new shares and EUR 234,673.67. The 2006 stock options are subject to a share ownership plan. Key personnel are obliged to subscribe for or purchase the company’s shares with 20% of the gross income earned from stock options and to own these shares for two years. The company’s President and CEO is obliged to own these shares for the duration of his managerial contract.

The Annual General Meeting on 27 March 2009 decided to issue stock options to key personnel in the company and its subsidiaries. The maximum total number of stock options issued will be 600,000 and they are divided into A, B and C options. At the close of the financial year, the group’s key personnel held a total of 151,500 2009A warrants.

The subscription price for shares through the exercise of the 2009 stock options will be the volume-weighted average price of the PKC Group Oyj share on NASDAQ OMX Helsinki for April 2009, 2010 and 2011 +20% (at present, EUR 3.85 for the 2009A warrants). The amount of the dividend decided after the period for the determination of the share subscription price, but before shares are subscribed for, shall be deducted from the share subscription price of the stock options on each dividend record date. The subscription price for shares will be recorded in the invested non-restricted equity fund. The stock options entitle their owners to subscribe to a maximum total of 600,000 new shares in the company or existing shares held by the company. The share subscription period for 2009A warrants will be 1 April 2012–30 April 2014, for 2009B warrants 1 April 2013–30 April 2015 and for 2009C warrants 1 April 2014–30 April 2016.

Dividends for the 2009 financial year

The Annual General Meeting held on 27 March 2009 passed a resolution to pay a dividend of EUR 0.15 per share for the year 2008, or a total about 2.7 million. The dividend was paid out on 8 April 2009.

SHARES AND SHAREHOLDERS

101


3 000 000

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0

14,00

12,00

10,00

8,00

6,00

4,00

2,00

0,00

01/0

4

06/0

4

11/0

4

04/0

5

09/0

5

02/0

6

07/0

6

12/0

6

05/0

7

10/0

7

03/0

8

08/0

8

01/0

9

06/0

9

11/0

9

Price,

EUR

Monthly trading

volume, PCS.

sHaRE pRiCE aND mONTHly TRaDiNg vOlUmE 2.1.2004–31.1.2009

maJOR sHaREHOlDERs ON 31.12.2009

pcs.

% of shares and

votes

1. AS Harju Elekter 1,480,003 8.3

2. Takanen Jorma 1,277,598 7.2

3. Ilmarinen Mutual Pension Insurance Company 848,535 4.8

4. Laakkonen Mikko 625,198 3.5

5. OP-Finland Small Firms Fund 392,559 2.2

6. Ravaska Veikko 345,200 1.9

7. Varma Mutual Pension Insurance Company 334,083 1.9

8. Special Mutual Fund Avenir (non-UCITS) 310,000 1.7

9. Eestilä Matti 301,603 1.7

10. Suutari Harri 286,948 1.6

10 major holders total 6,201,727 34.9

Nominee registered

Nordea Bank Finland Plc 855,436 4.8

Other nominee registered 290,048 1.6

Others 10,434,311 58.7

Total 17,781,522 100.0

102


DisTRiBUTiON Of sHaRE OWNERsHip By siZE Of sHaREHOlDiNg ON 31.12.2009

shares shareholders shares votes

pcs. % pcs. % pcs. %

1–100 1,001 13.6 71,504 0.4 71,504 0.4

101–500 3,158 43.0 944,042 5.3 944,042 5.3

501–1 000 1,549 21.1 1,186,857 6.7 1,186,857 6.7

1 001–5 000 1,336 18.2 2,926,096 16.5 2,926,096 16.5

5 001–10 000 169 2.3 1,242,180 7.0 1,242,180 7.0

10 001–50 000 90 1.2 1,800,114 10.1 1,800,114 10.1

50 001–100 000 9 0.1 661,662 3.7 661,662 3.7

100 001–500 000 19 0.3 3,862,297 21.7 3,862,297 21.7

500 001– 5 0.1 5,086,770 28.6 5,086,770 28.6

Total, 7,336 100.0 17,781,522 100.0 17,781,522 100.0

of which nominee registered 7 1,145,484 6.4

SHARES AND SHAREHOLDERS

sHaREs aND OpTiONs HElD By THE BOaRD aND maNagEmENT ON 31.12.2009

Number of

shares and

votes, pcs.

shares

and votes, %

Ownership of

close persons

and controlled

corporations,

pcs. Options, pcs.

Board of Directors

Pohjanvirta Olli 9,350 0.0 4,950 0

Palla Endel 112,000 0.6 0 0

Executive Board

Kontio Jyri 0 0 0 40,000

Kariniemi Jarkko 0 0 0 40,000

Raatikainen Sanna 0 0 0 40,000

Rajala Jarmo 0 0 0 50,000

Sarajärvi Marja 0 0 0 40,000

Suutari Harri 286,948 1.6 0 110,000

DisTRiBUTiON Of sHaRE OWNERsHip By OWNER CaTEgORiEs ON 31.12.2009

% of shares and votes

Domestic companies 9.7

Financial institutions and insurance companies 6.9

Public institutions 7.1

Non-profit organisations 2.4

Households and private investors 58.4

Foreign investors (including nominee registered shares) 15.5

Total 100.0

103


gROUp’s KEy iNDiCaTORs 2009 2008 2007 2006 2005

Net sales, EUR 1,000 201,814 311,713 288,649 228,928 198,789

Change in net sales, % -35.3 8.0 26.1 15.2 11.9

Operating profit, EUR 1,000 682 21,039 28,171 24,249 26,728

% of net sales 0.3 6.7 9.8 10.6 13.4

Profit before taxes, EUR 1,000 1,103 15,228 25,642 22,751 27,258

Net profit, EUR 1,000 2,349 5,566 17,374 15,552 18,813

% of net sales 1.2 6.7 6.0 6.8 9.5

Return on equity (ROE), % 3.0 6.7 22.6 22.8 33.8

Return on investment (ROI), % 6.4 20.8 22.6 22.8 33.8

Gearing, % 35.9 75.7 54.5 50.9 31.6

Equity ratio, % 49.2 41.9 47.2 48.0 55.6

Quick ratio 1.3 1.1 1.1 1.2 1.5

Current ratio 2.2 1.9 1.8 1.8 2.3

Gross capital expenditure, EUR 1,000 3,894 27,426 10,791 20,018 11,410

% of net sales 1.9 8.8 3.7 8.7 5.7

R&D expenses, EUR 1,000 5,518 5,812 5,511 4,906 3,800

% of net sales 2.7 1.9 1.9 2.1 1.9

Personnel, average 4,478 5,588 4,971 4,013 3,506

gROUp’s KEy iNDiCaTORs fOR sHaREs

Earnings per share (EPS), EUR 0.13 0.31 0.98 0.88 1.07

Earnings per share (EPS), diluted, EUR 0.13 0.31 0.98 0.87 1.06

Shareholders' equity per share, EUR 4.42 4.41 4.62 4.04 3.64

Dividend per share, EUR (1 0.40 0.15 0.45 0.45 0.45

Dividend per earnings, % (1 307.7 48.4 45.9 51.1 42.1

Effective dividend yield, % (1 6.1 4.6 5.2 3.7 4.1

Price/earnings ratio (P/E) 50.8 10.5 8.9 13.9 10.2

Share price at the end of the year, EUR 6.60 3.25 8.70 12.25 10.90

Lowest share price during the year, EUR 2.70 2.82 8.55 10.02 9.21

Highest share price during the year, EUR 6.83 9.48 12.4 14.08 12.25

Average share issue-adjusted number of shares, 1,000 shares 17,782 17,782 17,764 17,756 17,607

Share issue-adjusted number of shares at the end

of the financial year, 1,000 shares 17,782 17,782 17,782 17,782 17,689

Market capitalisation, EUR 1,000 117,358 57,789 154,699 217,824 192,815

Dividend, EUR 1,000 (1 7,113 2,667 8,002 8,002 7,971

(1 The figures of 2009 are based on the Board of Director’s proposal.

F INANCIAL KEy INDICATORS

104


EUR 1,000 2009 2008 2007 2006 2005

CONsOliDaTED iNCOmE sTaTEmENT

Net sales 201,814 311,713 288,649 228,928 198,789

Operating profit 682 21,039 28,171 24,249 26,728

Profit before taxes 1,103 15,228 25,642 22,751 27,258

Profit for the financial year 2,349 5,519 17,374 15,552 18,813

CONsOliDaTED BalaNCE sHEET

ASSETS

Non-current assets 64,995 61,009 48,393 43,647 33,687

Current assets 94,852 126,428 127,556 107,369 83,347

Total assets 159,847 187,437 175,949 151,016 117,034

LIABILITIES

Shareholders' equity 78,626 78,586 82,980 72,544 65,036

Minority interest 0 328 789 646 593

Non-current creditors 38,110 43,797 21,752 19,941 15,487

Current creditors 43,111 65,055 71,217 58,531 36,510

Total liabilities 159,847 187,437 175,949 151,016 117,034

105


Return on equity (ROE), % =

Return on investments (ROI), % =

Gearing, % =

Equity ratio, % =

Quick ratio =

Current ratio =

Earnings per share (EPS), EUR =

Shareholders’ equity per share, EUR =

Dividend per share, EUR =

Dividend per earnings, % =

Effective dividend yield, % =

Price per earnings, (P/E) =

Market capitalisation =

Profit / lossShareholders equity (average)

Profit / loss + taxes + financial expensesShareholders Equity + interest bearing liabilities (average)

Interest-bearing liabilities – cash and cash equivalents and investmentsShareholders equity + minority interest

Shareholders equity + minority interest Balance sheet total – advance payments received

Receivables and cash and cash equivalentsCurrent liabilities– advance payments received

Receivables and cash and cash equivalents + inventoriesCurrent liabilities

Profit/loss +/- minority interestAverage share issue-adjusted number of shares

Shareholders equityShare issue-adjusted number of shares on the date of the financial statement

Dividend paid for financial yearShare issue-adjusted number of shares on the date of the financial statement

Dividend per shareEarnings per share

Share issue-adjusted dividend per shareShare issue-adjusted average share price at the closing date

Share issue-adjusted average share price at the closing dateEarnings per share

Number of shares at the end of the financial year x the last trading price of the financial year

100 x

100 x

100 x

100 x

100 x

100 x

CALCULATION OF KEy INDICATORS

106


Kempele, 17 February 2010

Matti Ruotsala Outi Lampela Endel Palla

Chairman of the Board Board Member Board Member

Olli Pohjanvirta Jyrki Tähtinen Harri SuutarI

Board Member Board Member President and CEO

SIGNATURES

107


AUDITOR’S REPORT

To the annual general meeting of pKC group Oyj

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

The responsibility of the Board of Directors and the president and CEO

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

auditor’s responsibility

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

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

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

Opinion on the consolidated financial statements

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

Opinion on the company’s financial statements and the report of the Board of Directors

In our opinion, the financial statements, together with the consolidated financial statements included therein, and the report of the Board of Directors give a true and fair view of the financial performance and financial position of the company in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.

We recommend that the Members of the Board of Directors and the President and CEO should be discharged from liability for the financial period audited by us.

In Oulu, February 17, 2010

Ernst & young OyAuthorized Public Accountant Firm

Juhani RönkköAuthorized Public Accountant

108


Information for Shareholders and Contact Information

109


110 Information for Shareholders111 Contact Information

110


INFORMATION FOR SHAREHOLDERS

GENERAL MEETING OF SHAREHOLDERS

The Annual General Meeting of PKC Group Oyj will be held on 31 March 2010, at 4.00 p.m., at the parent company’s offices at Vihikari 10, Kempele.

A shareholder is entitled to attend the meeting if he or she is listed as a shareholder in the company’s shareholder register at Euroclear Finland Ltd, on the record date of 19 March 2010, (holders of nominee registered shares have to be entered on the termporary shareholders’ register by 10.00 a.m. on 26 March 2010) and confirms his or her attendance by 10.00 a.m. on 26 March 2010.

Notice of the Annual General Meeting has been given in a Stock Exchange Announcement 5 March 2010 and in the Helsingin Sanomat and Kaleva newspapers 6 March 2010.

DIVIDENDS

The Board of Directors proposes that a dividend of EUR 0.40 per share be paid for the financial year 2009. The record date for dividends is 7 April 2010, while the payment date for dividends is 14 April 2010.

FINANCIAL REPORTS FOR 2010

PKC Group Oyj will publish its Interim Reports for 2010 as follows:• 1–3/2010onThursday6May2010at8.15a.m.• 1–6/2010onThursday5August2010at8.15a.m.• 1–9/2010onThursday4November2010at8.15a.m.

The Interim Reports and Stock Exchange Bulletins will be published in Finnish and English on the company’s website at www.pkcgroup.com. The Interim Reports and financial bulletins can also be found on the website in PDF format. The Annual Report is available on the website in PDF format.

CHANGE OF ADDRESS

Shareholders are kindly requested to notify the book-entry register, at which their book-entries are kept, of any changes in their contact information.

111


CONTACT INFORMATION

www.pkcgroup.com

GROUP MANAGEMENT

Head OfficeVisiting Address:PKC Group OyjVihikari 10FI-90440 KempeleTel. +358 20 1752 111Fax +358 20 1752 211

Postal address:PKC Group OyjP.O. Box 174FI-90401 Oulu

WIRING HARNESSES

FINLANDHead officeVisiting address:PKC Wiring Systems OyVihikari 10FI-90440 KempeleTel. +358 20 1752 111Fax +358 20 1752 211

Postal address:PKC Wiring Systems OyP.O. Box 174FI-90401 Oulu

BRAZIL Wiring Harness factoryPK Cables do Brasil LtdaRua Estrada da Graciosa803 - Atuba82840 - 360 - Curitiba - PR - BrazilTel. + 55 41 2109 9778Fax + 55 41 2109 9780

MEXICO Wiring Harness factory PKC Group Mexico S.A. de C.V.Prolongacion Avenida Hidalgo 16Parque Industrial San CarlosNogales, Sonora 84094MexicoTel. +52 631 311 3550 Fax +52 631 311 3557

POLANDWiring Harness factory PKC Group Poland Sp. z o.o.ul. 1 Maja 1227-200 StarachowicePoland Tel. +48 41 260 88 00Fax +48 41 260 88 01

USA Sales, North AmericaPKC Group USA Inc.101 South La Canada DriveSuite 38Green Valley, Arizona 85614USATel. +1 520 393 8290Fax +1 520 393 8142

RUSSIAWiring Harness factoryOOO AEK Shosse Gornjakov 34186930, KostomukshaKarelia, RussiaTel./Fax + 7 814 59 72 354

ESTONIAWiring Harness factoryPKC Eesti ASPaldiski mnt. 3176606 Keila, EstoniaTel. +372 639 0100Fax +372 674 7432

Wiring Harness factoryPKC Eesti ASTööstuse 990506 Haapsalu, EstoniaTel. +372 47 20 890Fax +372 47 20 880

ELECTRONICS

FINLANDHead office and Electronics factory PKC Electronics Oy Pajuniityntie 43 FI-92120 Raahe Tel. +358 8 2103 111 Fax +358 8 2103 201

CHINA Electronics factory PKC Wiring Harness & Electronics (Suzhou) Co., Ltd.Building 13CDSuchun Industrial Square428 Xinglong StreetSuzhou Industrial Park, 215024ChinaTel. +86 512 6265 2025 Fax +86 512 6265 2008

RUSSIAElectronics factory OOO ElektrokosShosse Gornjakov 34186930, KostomukshaKarelia, RussiaTel./Fax + 7 814 59 53 019

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Documents

2009 - PKC Group · 2014. 6. 9. · 10 PKC GROUP | ANNUAL REPORT 2009 PKC’s vision is to be a customer-oriented, proactive contract manufacturer and product development partner