Annual Report 2004

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...... Finnlines Finnlines 2

...... Annual 2004 report This Annual Report hasbeentranslated AnnualReport This Fax: +358(0)103434425 Tel.: +358(0)10 3434402 P.O. Box 197 ,FI-00181Helsinki, Finland Finnlines Plc/Corporate Communication To orderany of thesepublications, please contact: on Finnlines’ website at andotherimpor The Annual interimreports Report, andother fi reports Finnlines’ Annual Report is published inFinnish, English andGerman. Interim Financial publications book-entry account. Please senddetails of any address chan changes Address on +358(0)103434425. tele phone on+358(0)103434409,by email at IR@fi to Finnlines Plc,Osakerekisteri, P.O. Box 197,FI-00181Helsinki, Finland, by to attendthemeetingmust register by 4p.m. on15March 2005,eitherinwriting Oy by 7March 2005have theright to holders registered intheshareholder 17 March 2005at thePalace Hotel,Eteläranta 10(10thfl Finnlines Plc’s Annual General Meetingwi Registering for attendance at theAGM January-September 2005published on Wednesday 26October2005 January-June 2005published on Tuesday 2August 2005 January-March 2005published on Thursday 28April 2005 Interim reports Start dateforpayment of dividends: 31March 2005. Dividend record date:22March 2005. Annual General Meeting:17March 2005. Registrations forAnnual General Meeting:by 15March 2005. Record dateforAnnual General Meeting:7March 2005. Finnlines’ fi In case of discrepancies theFinnish version shall prevail. Information for shareholders nancial reports andkey events in2005: nancial arepublished reports inFinnish andEnglish. www.fi nnlines.fi attendthemeeting. Shar list maintained by Suomen Arvopaperikeskus into EnglishfromtheFinnish version. . ges tothebank where you hold your ll beheldfrom10a.m.on Thursday tant arealsopublished reports nnlines.fi oor), Helsinki. All share- eholders whowish orby fax Annual report 2004 ...... 3

Content

Information for shareholders...... 2

Content ...... 3 Finnlines in brief ...... 4 The year in brief...... 5 Business concept, values and goals...... 6 Chief Executive Offi cer’s review...... 8 Business environment ...... 10 Shipping and sea transport services ...... 12 Port operations...... 14 Responsible business operations...... 16 Environmental report...... 17 Human resources ...... 20

Financial statements Board of Directors’ report...... 22 Consolidated profi t and loss account...... 25 Quarterly fi gures...... 25 Consolidated balance sheet...... 26 Consolidated cash fl ow statement...... 27 Profi t and loss account, Parent company...... 28 Balance sheet, Parent company...... 29 Cash fl ow statement, Parent company ...... 30 Accounting principles ...... 31 Notes to the fi nancial statements ...... 33 Group shares and holdings...... 42 Shares and shareholders ...... 44 Proposal of the Board of Directors...... 46 Auditors’ report...... 46

Corporate governance...... 47 Board of Directors...... 50 Executive Management Team...... 51 Five years’ fi gures ...... 52 Calculation of key ratios ...... 53 Development of Finnlines’ Baltic fl eet...... 54 The fl eet...... 56 Addresses...... 58 Operating area ...... 59

Finnlines ...... Finnlines 4

...... Annual 2004 report Finnlines inbrief

...... FINNLINES 2004 by effi TurkuHelsinki, andKotka. These two core business areas are supported Baltic Sea andNorthSea areas, Finnlines provides port services mainly in liner cargo services. Inaddition to pro Finnlines is oneof the largest Eur ern tcoeo eid 7 68 1.25 41 76 0.59 0.75* 42 0.94 701 698 *) Board’s proposal Gearing at closeof period,% 103 2.54 Equity ratio at closeof period,% Dividend pershare, EUR 95 2.39 Cash earnings fromoperating activities pershare, EUR Earnings pershare, EUR Profi Operating profi amortisation andwrite-downs, EURmillion Earnings beforedepreciation, Revenue, EURmillion agents located throughout Europe. Britain, Sweden, Norway, RussiaandPoland, The company has subsidiaries or sales offi off) andcontainer vessels, specifi The Finnlines fl t beforeextraordinar cient, extensiveandfl cient, t U ilo 5 60 54 t, EURmillion eet consists ofro-pax (roro-passenger), ro-ro (roll-on, roll- tm,ERmlin 6 40 46 y items,EURmillion exible informationmanagemen cally designed for northern conditions. opean shipping companiesopean shipping in specialised viding sea transport servicesin the ces inGermany, Belgium,Great as well as anetwork of sales 2004 2003 t services. Annual report 2004 ...... 5

sioned in February. One of these will begin operating in The year in brief autumn 2006 and the other one in early 2007. The total cost of the investment in all fi ve vessels is approximately Main events in 2004 EUR 500 million. Three of the new ro-pax vessels will be In February Finnlines ordered three ro-pax (ro-ro/ assigned to Finnlines’ Finland-Germany route and two to passenger) vessels from the Italian shipyard Fincantieri. Sweden-related traffi c. Smaller ro-pax vessels will then The vessels will be completed between November 2005 become available for new, growing routes. This investment and June 2006. The contract also included options for two will increase Finnlines’ ro-ro/ro-pax vessel capacity by additional vessels. The vessels are the largest ro-pax approximately 25%. vessels ever built, and the fastest in their size class. Each vessel’s cargo capacity is 4,200 lane metres, and they A decision on a bonus issue was made at an Extraordinary have 500 passenger berths. Their service speed will be General Meeting held on 28 October 2004. The bonus 25 knots. issue doubled the number of shares in the company, which will increase their liquidity on the market. A total In April Finnlines and the City of Helsinki signed a fi nal of 19,978,979 new shares were issued. A sum equivalent agreement regarding the transfer of land owned by to the share capital increase was transferred from the Strömsby-Invest Oy to the City of Helsinki in accordance premium fund to the share capital fund. with an agreement made in January 1997. According to the agreement, Finnlines would be granted the right to build Finnlines’ port operations subsidiary Finnsteve Oy Ab 8,500 m2 of offi ce buildings in the Kamppi business centre started offering container terminal services at in exchange for ceding the land owned by its subsidiary the port of Mussalo in Kotka at the end of 2004. Strömsby-Invest Oy Ab in Kantvik, Kirkkonummi. Finnlines Finnsteve is one of Finland’s largest port renounced its right to build in Kamppi in benefi t of a operators, whose operations have until now company called Helsingin Kamppi Center Oy established focused on the ports of Helsinki and Turku. by SRV Viitoset Oy. Jukka Laaksovirta, MSc (Eng), was appointed The company continued to increase the effi ciency of its Finnlines’ Deputy CEO on 1 January 2004. operations, restructuring its organisation in May. The main He was previously director of the Shipping unit changes affected the Finnlines Cargo Services division and at Fortum Oil and Gas Oy. the Group’s Ship Management function. Finnlines Plc’s President and CEO Antti In October, Finnlines exercised the options related to its Lagerroos was on sick leave between November agreement with Fincantieri and ordered another two 2003 and 1 March 2004. vessels in addition to the three ro-pax vessels commis-

Revenue, EUR million Operating profit, EUR million Equity ratio, %

750 70 60

60 600 50 50 40 450 40 30 300 30 20 20 150 10 10

0 0 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004

Finnlines ...... Finnlines 6

...... Annual 2004 report Business concept, values andgoals

...... capital structure, future outlook andinvestment anddevelopment needs. The Boardof Directors of emergingbusiness opportunities. controlled growthanddevelopment of business risks andeconomic fl healthy capital structure. Astrongba through high-quality operations, togenerate added value andtomaintain a Finnlines’ principal fi goals Financial commercial andtransport sectors. services,and port mainly tomeet the Finnlines promotes international Business concept nancial objectives aretoguarantee long-termprofi bases its annual dividend pr uctuations inthesector. It alsoenables the commerce by providing effi lance sheet helps thecompany withstand requirements of theEu the company as well as theutilisation oposal onthecompany’s cient sea transport ropean industrial, tability Annual report 2004 ...... 7

Values Strategic goals

Customer focus Maintaining the company’s market position in Our customers choose us thanks to our expertise. Satis- Finland-related traffi c fi ed customers are the basis for Finnlines’ enduring - We will maintain our competitiveness by focusing on success. By identifying its customers’ needs, Finnlines will increasing the effi ciency of our sea transport services be able to continue developing its service products and to and port operations generate concrete added value for its customers. A stronger position in Russian freight traffi c Profi tability - We will be the leading shipping company in transit traffi c We achieve our objectives. Through the quality of our - We will actively develop and market direct transport business operations, we are able to guarantee long-term routes between Central Europe and Russian Baltic ports profi tability and generate added value. Confi dence in the company is based on our ability to generate a steady A stronger position in non-Finland-related growth in profi ts, which in turn creates the necessary traffi c in the Baltic Sea and North Sea conditions for increased share value and an attractive - We will invest in the operational effi ciency of dividend policy. our current transport areas - We will open new routes according to market Responsibility opportunities We adhere to the principles of sustainable development. - We will actively participate in the consolidation Environmental responsibility forms part of our company’s processes taking place in our sector everyday operations. We take safety issues into considera- tion in all our operations. Increased profi tability through - improved productivity Employee satisfaction - more effi cient operational management and Finnlines is a reliable and motivating employer, which information technology treats its employees with fairness and equality. - effi cient handling of environmental and safety issues - increasingly competent personnel.

Finnlines ...... Finnlines 8

...... Annual 2004 report Chief Executive Offi

...... the year andadefi enced by the weak economy inGermany, the accident at the beginningof portation sector was in turn affected negatively by highoilprices. profi legislation. Even though the company didnot reach its main targets, Finnlines’ to the sale ofFinnlines’construction rights revenue was at the previous year’s level.Theincrease inprofi year, eveninCentral Europe. Finnlines’profi fairly weakly, but the market reco 2004 was another challenging year for tability levelremains oneof the best in the sector. Revenues were infl cer’s review cit inour passenger capacity inGerman traffi vered somewhat towardsof the end the shipping companies. The year began inKamppi and to changes in tax t for the year grew even though ts was partly due c. The trans- u- Annual report 2004 ...... 9

The cargo market in the Baltic Sea region is expected to The economy continues to show some signs of recovery. grow constantly in the coming years. Finnlines believes Finnlines is in a good position to make use of the growth, in its own prospects for maintaining its position as the with its excellent product concept – constantly improved leading cargo shipping company in Northern Europe. This with new vessels and routes – and stable customer is evident in the company’s strong investment programme, relationships. The company’s fi nancial situation is good, which will increase effi ciency on routes between Finland with a solid balance sheet and cash fl ow statement, and Germany and add new, competitive capacity to although the return on capital is not yet at a satisfactory Sweden-related traffi c. Our newly ordered vessels will be level. The keys to achieving our targets will be the know- delivered in a tight schedule, with the fi rst of fi ve vessels how and skills of our staff and the continuous develop- being taken into use in late 2005, and the last one in early ment of our operations. 2007. They are the largest ro-pax vessels ever built, and the fastest in their size class. The total cost of this invest- During the year under review, Finnlines embarked on ment will be approximately EUR 500 million. Part of the a project to boost the effi ciency of sales, marketing and investment may be fi nanced by selling some of the older customer service processes (ProLink), which will be put vessels owned by the company. Any vessels that are sold into practice from 2005. The aim of the new operating will continue operating in Finnlines’ traffi c on time-charter models is to deepen our understanding of the needs basis. The new vessels will help Finnlines strengthen its of our customers, to strengthen our customer relationships market-leading position in its core business – cargo traffi c and to reach new clients. Customers will reap the benefi ts – and increase its share of passenger traffi c in the Baltic of reliable and fl exible services, a long-term commitment Sea region. from the company and specialised know-how focusing on their needs. With the new models, Finnlines aims to A recently published study estimates that transports of encourage the creation of an entrepreneurial atmosphere, Russian exports through Finland may increase at a rate thus enhancing effi ciency, profi tability and sales fi gures. of eight per cent per annum thanks to the growth of the Russian economy. A large part of Russian exports is I wish to thank our customers, personnel and other transported in containers, and Finland is expected to have interest groups for the year. Thanks are also due to our two internationally competitive container ports in future: shareholders for the confi dence they have shown in us the new port of Vuosaari, being constructed in Helsinki, and our work. and Mussalo in Kotka. Finnlines intends to retain a strong presence in both sea transports and port operations in these two locations. In accordance with this strategy, Finnsteve, which is in charge of the Group’s port opera- Helsinki, 10 February 2005 tions, expanded its operations at Mussalo towards the end Antti Lagerroos of the year, its fi rst customer being the Group’s own container shipping unit, TeamLines.

There were few acquisitions and mergers in 2004, particu- larly in shipping. Finnlines’ strategy still includes growth through acquisitions and mergers when these actions fulfi l the fi nancial criteria set for them.

Finnlines ...... Finnlines 10

...... Annual 2004 report Business environment

...... on non-Finland-related ro-pax ing areas in the southern Baltic Sea ar main market. In the past few years the company has sought new operat- services are especia case ofprocessed products, modern, frequent andregular liner traffi Bay ofBiscay. Sea transport is vital to Finland’s foreign trade. In the Finnlines’ business areas include the Baltic Sea, the NorthSea and the sector. has c remained fairly weak andtheconstantly highprice of oil competition. The economic situation International shippingcontinues to multi-purpose vessels inthemarket. a constant shortage of thesekinds of ice-strengthened passengers inad in theBaltic Sea regionforro-pax vessels able tocarry the newEUmemberstates andRussia. There is demand continue growing strongly, particularly due totheeffect of The volume of unitised cargo transports is expectedto lly important.Finlandco ontributed totheincreaseofcosts in thetransport andcontainer traffi dition togener ea andgrowth has focused mainly ntinues to beFinnlines’ al cargo. c operations. besubject tointense in Central There has Eur ope has been c Annual report 2004 ...... 11

The Finnlines fl eet is Lübeck/Travemünde, which is the most important port Finnlines maintained an average of 73 vessels in service for both the Finnish and Swedish routes. The main ports in 2004, consisting mainly of ro-ro freight vessels (28 for feeder container traffi c (Team Lines) are Hamburg and vessels), ro-ro passenger (ro-pax) vessels (12) and Bremerhaven, which are used as a base for managing container vessels (22). At the beginning of 2005, the total traffi c services to and from 26 different ports in the Baltic capacity of the ro-ro vessels in liner service was approxi- Sea area. (See the map on page 59). mately 80,000 lane metres and the container fl eet’s capac- ity was 12,200 TEU. At year-end, the Group’s own fl eet had Group-wide management system development an average age of 11 years. The Group owns 12 of the ro- Since the beginning of 2005, all of the Group’s business ro/ro-pax vessels, which is equal to approximately 40% of units are customers of the centralised fi nancial manage- its ro-ro capacity. These 12 vessels are managed by the ment Shared Service Centre. The Shared Service Centre Group. operates from Helsinki and its objective is to increase the effi ciency of the entire Group’s fi nancial Operating areas management and reporting processes. Finnlines’ route network covers all major Finnish ports as well as approximately 30 ports abroad. In 2004 there The ProLink project, designed to boost the were 100 weekly departures from Finland. The main effi ciency of sales, marketing and customer general cargo traffi c ports in Finland are Helsinki, Turku service processes from 2005 onwards, was and Naantali. Other main liner traffi c ports in Finland launched in 2004. A large part of these units’ are Kotka, Hamina, Hanko, Uusikaupunki, Rauma, Oulu staff were involved with the project during the and Kemi. Finnlines’ ro-ro liner traffi c ports in Sweden year. are Kapellskär and Malmö. In Germany, the main port

Finnlines ...... Finnlines 12

...... of 43 vessels inservice duringthe year. Finnlines’ ro-pax and traffi St. Petersburg theGroup’s tosupport Western European In 2004Finnlines linertraffi started customers’ needs. provided door-to-door andterminal services based onits between Finland andtheBay of Biscay. Finnlines also inGreatports Britain, Belgium andtheNetherlands; and Scandinavian intheNorth Sea between Finland ports; and the Baltic Sea between Finland andCentral European and Finnlines offeredregular ro-ro Finnlines ro-pax andro-ro traffi ...... Annual 2004 report c. ro-ro services maintained anaverage Shipping andsea transport services and ro-pax linerservices in c ...... c betweenHelsinki and tya n tepoe 1,264staff. employed at yearitend traffi and ro-pax, FinnLink,Team Lines, and seaShipping transport servic c. In2004, the division’s revenue amounted to EUR 627.6 million and market, maintaining FinnLink’s marketmarket, share at 44%. of FinnLink traffi of moresome6%compared to FinnLink rosetoover 111,000u The numberof trucks, lorries andtrailers transported by tained thecompetitiveness of theroute. tailored totheneeds of thefreight customers,have main- vessels. The fast connection andschedule of this service, (Finland) andKapellskär (Sweden)with three ro-pax freight traffi FinnLink continued tooffersix daily departures forunitised FinnLink between Finland andCentral Europe. concept inthemarket andthehighest frequency of traffi accordance with its strategy, by offering thebest product managed tomaintain its position as market leader, in their services lowerthan theirproductioncosts. Finnlines competition, duetosomecompetitors partly pricing Finland-related traffi es divisioninclude the Finnlines ro-ro Nordö-Link andTransRussiaExpress c onthemaritime routebetweenNaantali c was c continued tobesubject tostrong equivalent tothatof the overall the previous year. The growth nits, representingagrowth c Annual report 2004 ...... 13

During the year under review, passenger traffi c services the Baltic Sea and North Sea area. The division’s operating continued on all FinnLink departures. The principal areas were Finland, Russia, Sweden, Norway, Poland, objective of this service was to attract touring car and Latvia, Estonia, Lithuania and Ireland. Team Lines main- caravan passengers and, at the same time, to prepare tained 22 container vessels in service during the year, with for the structural changes expected to affect the competi- a capacity ranging between 348 and 822 TEU. Team Lines tors’ tax-free traffi c in coming years. is one of the largest container feeder operators in the Baltic Sea area, and its main customers are transatlantic MS Finnclipper was transferred from FinnLink traffi c to shipping companies. Nordö-Link traffi c between Sweden and Germany in early 2005. The vessel was replaced by MS Finnarrow, which, In addition to its feeder operations, Team Lines is involved together with MS Finneagle and MS Finnclipper, provides in intra-European container traffi c, mainly between excellent year-round capacity for both freight customers Germany, Finland, the Baltic states and Russia, also using and passengers. A total of some 126,000 passengers were the Group’s roro-lines. transported by FinnLink. In autumn 2004, Team Lines opened a new route in the A new Bookit system designed to manage passenger North Sea, between Rotterdam and the west coast of bookings and check-ins was purchased for FinnLink. Ireland. Team Lines’ capacity was adapted to the growing The Bookit system and its online booking version will market by replacing small container vessels with larger be brought into use in early 2005. ones.

Nordö-Link During the year under review new, effi cient The Swedish shipping company Rederi AB Nordö-Link systems was adopted in operations and has been owned by Finnlines since 2002. Nordö-Link has administration. provided ro-ro services between Sweden (Malmö) and Germany (Travemünde) since 1982. In early 2004, a new Other traffi c operations ro-pax vessel was transferred to Nordö-Link traffi c from Small-tonnage traffi c services were provided elsewhere in the Group, which meant that the division between ports in Finland and some inland operated four ro-pax vessels providing four daily depar- ports in Russia to various parts of Europe tures in both directions. The Nordö-Link service is based (Inter carriers). on an effi cient concept tailored to meet international freight transport needs. Finnlines acted as the main agent in Finland for the Swedish company Svenska Orient Linien AB and the Despite the tough competition in the South Baltic, Nordö- Greek company Scan Orient Shipping Co. Ltd for eastern Link transported some 220,000 cargo units during the year Mediterranean traffi c. These operations are marketed and increased its market-leading position on the Lübeck/ under the name SolNiver Lines. The company also acts Travemünde-Southern Sweden route to a 49% market as a general agent in Finland for the Polish POL-LEVANT share. Shipping Lines Ltd in its traffi c services to the eastern Mediterranean. TransRussiaExpress Finnlines provided transport services from Lübeck Passenger services (Germany) to Baltijsk (Kaliningrad) and St. Petersburg During 2004, Finnlines provided places for passengers (Russia) under the TransRussiaExpress name. The two- unrelated to its freight operations on four ro-ro passenger vessel service operated two to three times a week. vessels operating on the route between Helsinki and Finnlines owns 75% of this traffi c, while its Russian Travemünde. The overall passenger capacity of these partner Baltic Transport Systems (BTS) owns 25%. vessels was some 500 berths. A total of some 44,000 A new route via Finland (Hub Helsinki) was added to passengers were transported between Germany and Finnlines’ direct route from Germany to St. Petersburg via Finland, including freight-related passengers. Baltijsk (Kaliningrad). A private travel agency, Nordic Ferry Center Oy, is responsi- Traffi c on direct connections between Central Europe and ble for the sale and marketing of the passenger services in St. Petersburg continued to increase, largely thanks to the Finnlines German traffi c. stabilisation of the Russian market. The development of internal Russian traffi c between Kaliningrad (Baltijsk) and St. Petersburg was also positive.

Team Lines Under the Team Lines name, Finnlines provided regular container traffi c services mainly from Hamburg and Bremerhaven to 26 different ports in

Finnlines ...... Finnlines 14

...... Annual 2004 report Port operations

...... employed anaver employed Finnlines’ Port Operations generated tant ports in terms of general cargo andliner traffi port ofKantvik. Helsinki, Turku and ports ofHelsinki,Turku, NaantaliandKotka as well as in the industrial Finnlines engages inport operation age of837people. traffi chains, as well as companies which operate inthetransit companies involved in that unitised orexport import goods toorfromFinland, services. Finnsteve’s customers includecompanies clearance as well as warehousing andcontainer depot unitised cargo traffi ing services tooperators of transit, regular andplanned to general cargo traffi Finnsteve is Finland’s leading operator port whenit comes c sector. Naantali are Finland’s most impor- s under the nameFinnsteve in the c: stevedoring,terminal services, ship arevenue ofEUR 103.1million and c. Finnsteve is specialised inprovid- the aforementionedtransport c services. In2004, Annual report 2004 ...... 15

The Port of Helsinki is Finland’s most important port. It is machine resources, has been developed further and specialised in providing unitised cargo traffi c services for its use extended to include Turku. During the year, Finnish companies engaged in foreign trade. The strengths the Edifact data transfer system also underwent further of the port of Helsinki include a regular and frequent liner development. Consequently, a new containerisation service combined with effi cient stevedoring services. system was introduced in port terminals. This system Helsinki is also Finland’s busiest passenger traffi c port, enables the quick transfer of container and railferry- providing a variety of links with the cities of Tallinn, specifi c loading list information to customers. Stockholm and Travemünde. The port operations revenue fi gure also includes the A new, modern unitised cargo handling port is being Group’s stevedoring and terminal operations in the port of constructed in Vuosaari, Helsinki. The freight traffi c Oslo, which are carried out under the name of Norsteve A/S. currently being handled in Helsinki’s West Harbour and the In order to increase the effi ciency of its container traffi c and port of Sörnäinen will be transferred to Vuosaari in 2008. improve related services, an information system The construction project is a joint effort by the Port of designed to support container fi eld planning and Helsinki, the Finnish Maritime Administration, the Finnish container handling will be brought into use in Rail Administration and the Finnish Road Administration. 2005 in the port of Oslo. Finnsteve is actively involved in the port’s operational planning. The International Maritime Organisation (IMO) and the EU have established new requirements A total of 694,700 units or more than 9.8 million tons of concerning the safety of ports and vessels. freight passed through the Port of Helsinki in 2004. The The new regulations entered into force in July corresponding fi gure for the previous year was 9.3 million 2004 and have had an effect on Finnsteve’s tons. In order to improve customer service, the unitised operations. cargo terminals of Helsinki began providing round-the- clock services during 2004. Finnsteve started offering stevedoring services at the port of Mussalo in Kotka from the end of 2004. The After Helsinki, Turku is Finland’s second most important port of Mussalo is seen to be the second container port of unitised cargo and general cargo harbour. It is also Finland in the future besides the port of Vuosaari in Finland’s only railferry harbour. The modern and Helsinki. sheltered Port of Turku is equipped to develop into a signifi cant distribution centre covering all of Scandinavia, In order to maintain the profi tability of the port operations Northern Europe, the Baltic area and Russia. there is a continuous need to improve utilisation of existing resources. Also product development and marketing A total of 161,900 units passed through the Port of Turku, will be used to minimise the effects of increasing cost which is equivalent to 3.3 million tons of freight. pressures. The corresponding fi gure for the previous year was 3.1 million tons. A new resource management system (REHA), aimed at the improved targeting of human and

Finnlines ...... Finnlines 16

...... Annual 2004 report Responsible business operations

...... responsibility. structure are the requirements for assumingenvironmental and social business operations. Goodprofi fi There is a strong link betweenre principles ofresponsible business operations. issues or people.Thecompany’s va whetherdevelopment, it concerns fi high-quality business operations. Highquality is based on sustainable Finnlines’ objectiveis to guarantee long-termprofi nancial success. Financialresponsibility tability anda strong balance sheet sponsible operating procedures and nances,environment, the safety lues andgoals are based on the is the cornerstone ofresponsible tability through Annual report 2004 ...... 17

Environmental report

Environment and safety • Regularly measures the results of its environmental Environmental responsibility forms part of Finnlines’ efforts. everyday operations, and safety aspects are always taken into consideration in all of our activities. The company Organisation and system invests in continuous long-term development based on The Board of Directors of Finnlines Plc reinforces the high-quality know-how and knowledge of environmental objectives and guidelines of the company’s environmental effects and the means to reduce them. policy and environmental work. The President and CEO It is diffi cult to compare the environmental impacts of bears practical responsibility for the Group’s environmen- different transport modes, but sea transportation can be tal management activities. Environmental and safety considered the least harmful, as ships reduce congestion managers in Finnlines’ offi ces in Germany, Sweden and and noise on roads. Finnlines focuses on optimising the Finland are responsible for environmental and safety transport and routes to achieve a highest possible capacity management systems, preventive measures and reporting utilisation level on ships both on southbound and systems. Finnlines Plc has a certifi ed environmental northbound voyages. This will decrease the environmental management system based on the ISO 14001 standard. stress per transported cargo unit. All Finnlines vessels have an environmental and safety organisation headed by the master of the vessel, who is Environmental policy responsible for the practical environmental and Finnlines’ environmental policy defi nes the goals and safety measures adopted on board. All vessels principles underlying the company’s environmental have been certifi ed in accordance with the protection activities. The company’s objectives in environ- International Safety Management Code. A mental matters are: number of the vessels also have the ISO 14001 • To rank among the leading companies in the industry certifi cate. regarding focus on the environment. • To provide safe, top-quality services while taking into Legislation account their environmental impact in every aspect of The International Maritime Organisation (IMO) operations. manages international legislation on safety and • To use natural resources responsibly. environmental matters. The MARPOL 73/78 This means that Finnlines: Convention contains, among other things, • Places high priority on the environmental aspects of its regulations on the disposal of garbage and sewage water operations in keeping with the requirements of sustain- into the sea. Maritime safety matters are regulated through able development. the SOLAS Convention. The vessels are regularly inspected • Observes existing environmental legislation uncondi- and audited by the relevant maritime authorities, classifi - tionally. cation societies and certifi cation institutions. In addition • Continuously focuses on environmental and safety to IMO regulations, the EU and the HELCOM agreement on matters. the protection of the Baltic Sea have issued their own • Integrates environmental programmes and operations directives on shipping. The company’s port operations into its management system. comply with national legislation. • Seeks continuously to improve its environmental MARPOL Annex VI has been ratifi ed and will enter into programmes while considering the needs of technical force in May 2005. In the Baltic, the maximum sulphur development, its customers and partners, as well as content of our ships’ fuel will be 1.5% after a transition the demands imposed by society. period of one year. • Trains its employees and encourages them to be In accordance with the EU directive on ship-generated environmentally responsible. waste, solid waste and sewage generated onboard are • Revises contingency plans for accidents that involve included in the ”no special fee” system. The aim is to stop environmental risks. illegal discharges at sea by requiring all ships to deliver • Promotes environmental responsibility in sea transport their waste to port reception facilities. All ships calling at a and port operations in general and follows develop- port must pay for waste reception costs whether they have ments in this fi eld. • Insists that its suppliers and subcontractors comply with the same environmental requirements. • Promotes environmental awareness both within the company and outside it. • Is committed to the 1996 Business Charter for Sustain- able Development by the International Chamber of Commerce.

Finnlines ...... Finnlines 18 emphasis To avoid accidents, thecompany risk performs analyses, Safety is Finnlines’ most important environmental issue. Safety andsecurity wastewater. air em create common practices inthe Baltic forreducing ships’ Sustainable Ports andCities project. The project aims to In 2004,Finnlines intheNewHansa participated of in environmental matters. with national andinternational organisations supervisory certifi number of thesehave beenawarded theISO 14001 management companies operators. andport Asignifi Group’s most important s areas. Interms of envir tors, as well as theinhabitants of harbour andfairway administration, customers,shareholders andsubcontrac- important stakeholders arethefl In environmental andsafety Stakeholders years. dent contracts with waste management companies for competent companies. Finnlines hashadits ownindepen- directive, if they have made traffi anything todeliverornot. Ship vessels intheFinnlines fl passenger ships already in2003.In2004theremaining An automatic identifi cargo. dangerous The company provides regul carrying dangerous IMDGcargo on vessels andinports. Finnlines emergency andrescueauthorities. in 2004Finnlines heldjoint emergency simulations with rehearsed on vessels andinpor of personnel.Emergency situation procedures areregularly in thecontinuous training andpr ...... IMO growing. The inland sea, wheresea transportation is continuously The Baltic Sea can be considered theEuropean Union’s and near misses. have proved tobeeffi Voyage data recorders (VDRs),installed onships in2003, of the vessel, its call lett shore-based Vessel Traffi system, which enables other vessels inthearea as well as ...... Annual 2004 report c with frequent calls port may beexempted fromthis cate fortheiroperations. Finnlines alsocooperates issions, forh has s es safety in trict operatinginstructionsforhandling and has classifi andling wasteand cation system(AIS) cient tools foranalysing accidents operational onmental andsafety issues, the ers, position, speedandcourse. c services thename toidentify eet werefi ubcontractors areshipownerand matters, Finnlines’ most ar training onthehandling of alternative arrangements with ed theBaltic as aParticularly s engaged inscheduled ts. As inprevious years, ag andhost state ofessional development procedures, andengages tted with theAIS for managing was installed on cant electric forklift trucks, machines andequipment,useof electrical heating and emissions includeregular maintenance, renewal of the content less than toreduce 0.2%).Otherefforts port auxiliary engines running onlow-sulphurfuel oil (sulphur When vessels poweris areinport, generated using used by ships was2%. ed to29,900tons. The average sulphurcontent of thefuel of training fordrivers. 20,400 to In 2004,Finnlines’sulphurdiox Helsinki and Turku, theincrease being3.5%. 2,200 tons, which includes theGroup’s operations in consumption of thecompany’s operations port totalled of 2%compared totheprev of heavy fuel oil anddiesel In 2004,Finnlines’ vessel traffi engines or using more effective exhaust gaspurifi engines orusing moreeffectiveexhaust through theuseof cleaner (ISPS Code) wasimplementedduring2004. The Code The International Ship andPort Facility Security Code and informof situations affectingsafe navigation. totheGOFREPoperator,report whowill monitorthe vessel in theGulf of Finland andonleaving vessels aport, must monitor theinternational waters incooperation. Onarrival insummer2004.Finland,started EstoniaandRussia Finland’s mandatory Ship Reporting System (GOFREP) passenger traffi increased – parti and Russia from cularly transports oil in theBaltic. In cause severedamage tothe vulnerable marine ecosystems Sensitive Sea Area (PSSA). Amaritime accident could Exhaust gasemissions can bereduced inthreeways: bons, sulphurandnitrogen oxides, andfi that contain carbon dioxide, carbon monoxide, hydrocar- Fuel combustion indieselenginescreatesexhaustgases has beentested oils. Inthepast few years, theu In additiontofuel oils,ship MS during2004. Finnpartner wasintrial useon a special route-planningprogramme conditioning heat. toreduce Inaneffort fuel consumption, boilers andsystems forreco of newmaritimeequipmentand adopting anumberof measu has increased effi Reductions infuel consumption can beachieved through Energy consumption and injuries ordamage tothemarine environment. Kapellskär. The accident didnot cause any personal in the Stockholm archipelago, northeast of theisland of Naantali, Finland andKapellskär, Sweden, ran aground 2004,MSIn January Finnclipper concerns ships ininternational traffi cient design work andeconomic operation. Finnlines ns andoverallnitrogen the effi c betweenFinland and Estonia. The Gulf of the Gulf of Finland, traffi and theuse will beextended. ciency of its consumption energy by production planningand atmospheric em oil,representinganincrease fuels, with morefuel-effi s uselubricating andhydraulic ious year. In2004,thefuel vering cooling water andair res, includingtheacquisition c consumed 536,000tons se of organic hydraulic oils ide emissionstotalled , which plies between the useof exhaustgas oxide emissionsamount- c facilities. andport c hasgreatly ne particles. ission provision s cation. cient Annual report 2004 ...... 19

Other environmental aspects toxic substances into the sea. The under-water hulls are The water used on Finnlines vessels is acquired by brushed and cleaned at regular intervals. vaporising seawater or taken from shore. Oily bilge water Many ports are located close to residential and recrea- and black water, i.e. toilet water, is either pumped ashore tional areas. In port, noise emissions are mainly caused or purifi ed onboard the vessels and then discharged. by the clatter of ramps, by vehicles and by cargo handling. Waste oils are sorted by type and delivered ashore, where Onboard, noise is generated by ventilators in the cargo the recipients use them for energy production. holds and auxiliary engines as they generate power. MS Finnclipper is trialling the use of a wastewater manage- However, ships seldom stay overnight at ports. The noise ment system. The target is effi cient purifi cation that levels of some of the ships in Finnlines’ fl eet was measured exceeds the international and national requirements. The in Helsinki and Turku. Measures to reduce noise pollution system is expected to be reliable and cost-effi cient. included technical adjustments. Solid waste is sorted into recyclable waste, hazardous waste and other waste, and collected for appropriate Targets for 2005 treatment. Hazardous waste materials are separated and • Renewal of the ISO 14001 environmental certifi cate for forwarded to collection stations, where they are collected MS Transeuropa. for disposal. In 2004, efforts were made to increase waste • To develop and implement effi cient safety and security recycling in hotel and restaurant services on ships. arrangements and systems for new buildings. Micro-organisms attached to the ship’s hull slow the ship • Measurement of air emissions in Malmö–Travemünde down, increasing fuel consumption. An EC regulation from traffi c. 2003 prohibits the use of organotin compounds on ships. • To create and implement a uniform Safety As a rule, the underwater hulls of Finnlines’ own vessels Management System for all Finnlines Ship are painted with epoxy-based paints that do not give off Management Units.

Development of nitrogen oxide, sulphur oxide and carbon dioxide emissions, and the energy consumption of ro-ro traffic vessels in relation to transport performance

140 120 100 80 60 40 20 SO2 CO2 Energy consumption Nox 0 2000 2001 2002 2003 2004

Sea traffi c Port operations*) (In tons) 2004 2003 2004 2003 Fuel 536,000 525,000 2,200 2,100

Carbon dioxide emissions (CO2) 1,672,400 1,653,000 6,800 6,600 Sulphur dioxide emissions (SO2) 20,400 20,500 Nitrogen oxide emissions (NOx) 29,900 30,600 *) Figures include port operations in Helsinki and Turku.

Finnlines ...... Finnlines 20

...... improving theemployees’ basic health andfi events wereandcontinue tobe the occupational health care system. Fitness evaluation implemented inco-operation with service providers and lifestyle changes. Measures re work by teaching lifemanagement skills andsuggesting have taken incourse part programme company’s employees.Ouroccupational health care physical, mental andsocial work ability andhealth of the Several measures have beentaken topromotethe Mental areas. many in results quite positive, with clear improvements onthe2002 Finland, Germany, theUK andBelgium. The results were surveys werecarried out among shore-based personnel in nications andcompetence. The success of The maintargets for2004wastoimprove internal commu- Ship Management function. took place intheFinnlines Cargo Services unit andthe reforming its organisation inMay 2004. The main changes The company continued toimprove its operations, tion, safety, work development, policy areleadership, motivated. The central issues inourhuman resources the company’s employees continue tobecompetent and systematic handling of human and thebasisofc Skilled, enthusiastic peopleformanimportant resource Skilled, developingstaff Human resources ...... Annual 2004 report and physi During the year under review, job satisfaction of theirskills, andcompetence. expertise fairly thecontinuous andsupports development motivating employerthat treats its employees of its employees by beingareliable and The company strives toachieve thesatisfaction Job satisfaction is oneof Finnlines’ main values. Job satisfaction surveys year-end. in awork environment carried survey out at the humanresources policywasevaluated has been improved,andsomeemployees cal work ompany’s competitiveness. Aproper, recruitment, training andorienta- s which promotewell-being at ability lated towork ability are resources guarantees that arranged formapping and work ability andhealth. tness tness levels. The compan performance andtarget The importance of development discussions as atool for leadership training andtools suffi various busine The company sought theoperation tosupport of the the humanresources wasenhanced department in2004. Co-operation betweenthecompany’s business units and ofSupport business units for productionmanagers. tions wereimproved throughbasic training andfurther were trained inthesale of solutions. Leadership opera- and productionmanagers insales whoparticipate work focusing andactivating the group’s ment groupreceived teamwork coaching with theaimof training intheformof asix-month course. The manage- Staff incharge of document machine operators organised maintenance of basic skills as well as onusertraining for With regard operations, toport training focusedonthe programme. ofan important part thecompany’s sea personnel training ally with external trainers. Guidedpractical training forms voluntary safety drills ar training inthesubject forits staff. Regular compulsory and implemented inJuly 2004,and was Code (ISPS)ofthe International MaritimeOrganisation ment. The International Ship andPort Facility Security areas c With regard tosea personnel,themost important training Additionally, ITandlanguag within theframework of theFinnlines Training Programme. Leadership coaching andinternal employees take inorientation part programmes. pendent studies areencouraged andsupported. The new are toimprove operations andincrease Inde- expertise. The aims of thecompany’s Competence development in2004 theemployees’leisuresupport andrecreation activities. more comfortable andfunctional. Staff associations nomically favourable ways andtomake existing offi Job circulation processes have been improved tohelp its opportunities toemploy st Finnlines uses various recruitment channels tomaximise Recruitment cient, competent staff. Managers wereoffered ontinued tobesafety andcompetence develop- y hasstrivento ss unitsbyensuringth e arranged on vessels, occasion- management wasemphasised. employee training programme designnewoffi ation received professional e training wereoffered. aff with top-level expertise. for theirday-to-day activities. by machine manufacturers. the company arranged training werearranged work.Marketing staff at each unithas ces inergo- ces ces Annual report 2004 ...... 21

employees receive a variety of skills and an overall Employee categories: 2004 2003 understanding of the company’s operations. New employ- Offi ce staff 30% 28% ees have been recruited to manage the vessel construction Sea personnel 33% 34% work ordered by Finnlines and to handle terminal opera- Stevedores and supervisors 37% 38% tions in Mussalo, Kotka.

Gender distribution: Key fi gures 2004 2003 Offi ce Port Sea Average no. of employees 2,101 2,161 staff operations personnel Revenue/employee, EUR 1,000 332,271 324,589 Female 47% 8% 18% Personnel expenses/employee, EUR 52,982 49,730 Male 53% 92% 82% Operating profi t/employee, EUR 21,454 26,048 Employee turnover, % 30 25 Training days/employee, total 4,209 4,200 Personnel by business region: 2004 2003 Absences of personnel, change % –2 –14 Finland 61% 62% Germany 13% 15% Sweden 19% 16% Average no. of employees per Other 7% 7% business area: 2004 2003 Shore-based personnel The average age of Finnlines’ employees was 43 (43) years. Shipping and Sea Transport Services 589 612 The average duration of employment was approx. 11 (11) years. Port operations 837 836 Sea personnel Personnel profi t and Shipping and Sea Transport Services 675 713 loss account (EUR 1,000) 2004 2003 Total 2,101 2,161 Revenue 698,100 701,436 Personnel expenses As of 31 December 2004, there were Real working time expenses 83,595 82,832 1,384 shore-based personnel and Personnel renewal 682 sea personnel, a total of 2,066 (holidays, recruitment) 16,292 15,300 Personnel development 1,020 805 Personnel benefi ts and obligations 10,410 8,531 Personnel expenses, total 111,317 107,468 Other operating expenses 541,708 537,678 Profi t before other operating income (operating profi t) 45,075 56,290 Other operating income 8,661 3,407 Operating profi t 53,736 59,697

Finnlines ...... Finnlines 22 vessel wasfound to replace iton the Germanroute. This Finland-Germany routeto Swedish traffi the right tobuild8,500m According totheagreement,Finnlines wouldbegranted with apreliminary agreement made 1997. inJanuary Strömsby-Invest Oy to agreement regarding thetran In April Finnlines andtheCity of Helsinki signed afi mately EUR300million. of this investment deal, closed inFebruary, is approxi- metres andthey have 500passenger berths. The total cost two vessels. Each vessel’s cargo capacity is 4,200lane June 2006. The contract includedoptions toaddanother vessels will becompleted betweenNovember 2005and ger) vessels fromtheItalian shipyard Fincantieri. The In February Finnlines orderedthr Main events in2004 in economic development. whole transport sector, contributing to aslowdown service. Highoil prices caused cost pressures inthe tocountriespartly towhich Finnlines does not have Finnish exports increased during the year, although year, eventhough growthwasstillslowinCentral Europe. Economic prospects improved towards theendof the Germany. passengers inbothdirections betweenFinland and on, thecompany will offerdaily for500 departures newly orderedro-pax ves improve signifi well below2003levels. The passenger traffi caused revenues andprofi for morethan400p six weeks duetoanaccident. Aro-pax vessel with capacity the fact that This was partly duetotheweakThis waspartly Germaneconomy andto of the year wassignifi The amount of cargo transported inthefi Market conditions Board of Directors’ report ...... Center Oy established by SRV Viitoset Oy. Kamppi inbenefi Kirkkonummi. Finnlines renounced its right tobuild in owned by itssubsidiary Ström Kamppi business centre inexch ...... Annual 2004 report one vessel wastaken out cantly at thelatest insummer2006when t of acompany ca assengers wastr cantly smaller than theprevious year. the City ofHelsinki inaccordance sels areinoperation. Fromthen 2 ts frompassenger traffi of offi sfer of lands ownedby sby-Invest Oy Ab in ange forceding theland ce buildings inthe ee ro-pax (ro-ro/passen- lled Helsingin Kamppi ansferred fromthe of Swedish traffi of Swedish c, but nosuitable rst fewmonths c situation will c to fall fall c to Kantvik, nal nal c for EUR 101,357,958. increased throughnewshare issues toamaximum of updated such that thecompan was by theAnnualGeneral Meetingof 17March 2004 share issue authorisation granted to share capit bonus issue, themaximum limit of EUR60,000,000for As thecompany’s sharecapital wasdoubledthroughthe need tochange of theArticles Association. may beraised orloweredwithin theselimits without the maximum is EUR200million. The amount of share capital ny’s minimumshare capital is EUR50million andthe of Articles In ordertocarry out thebonus issue, Section 3of the Finnlines Plc shares instead of one. issue, each optionwill entitleits holdertosubscribe two issues must remain unchan share capital of newshares subscribed as of part bonus by thecompany out in2001,therelative of proportion the market. According totheterms of theoptionrights issued the company, which will increase theirliquidity onthe fund. The bonus issue doubled thenumberof shares in transferred fromthepremium fu A sumequivalenttothesh shares wereissued. nominal value of EUR2.Atotal of 19,978,979new share could beexchanged foronenewshare with a EUR 79,915,916.As of part thebonus issue, oneold capital wouldbedoubled fromEUR39,957,958to share share issue. Itwasdecided that thecompany’s in October, wherea Finnlines heldanExtraordin ofon theports Helsinki and Turku. 2004. Until nowthegroup’s operations port have focused services at of theport Mussalo inKotka at theendof expanded its business by offeringcontainer terminal Finnlines’ operation port subsidiary Finnsteve Oy Ab Finnlines’ ro-ro/ro-pax vessel ofon delivery the vessels. The investment will increase is someEUR500million, most of which will bepaid 2007. The total cost of theinvestment inall fi begin operating inautumn 2006andtheotheroneinearly and orderedanothertwo In October, Finnlines exercised theFincantieri options Association al wasexc decision wasmade on abonus eeded was changed ro-pax vessels. Oneof thesewill are capital increase was ged. Therefore, ary Generalary Meeting by thebonusissue. Thus the capacity by approx. 25%. y’s share capital may be nd totheshare capital theBoardof Directors such thatthecompa- after thebonus ve ve vessels Annual report 2004 ...... 23

Financial developments Investments and divestments Investments in 2004 totalled EUR 68.8 (88.5) million. Revenue and profi t They mainly consisted of advance payments for the ro-pax The Finnlines Group’s revenue totalled EUR 698.1 million vessels ordered from Italy. The most important divestment (EUR 701.4 million in 2003). The revenue of the Shipping of property was the transfer of lands carried out with the and Sea Transport Services division came to EUR 627.6 City of Helsinki and the related sale of construction rights (632.0) million and the revenue of the Port Operations to Kamppi Center Oy for EUR 13.5 million. division amounted to EUR 103.1 (97.9) million. Other operating income totalled EUR 8.7 (3.4) million, which Personnel included EUR 6.7 million in income from land transfer and The Group had 2,066 (2,188) employees on 31 December the sale of construction rights (at Kamppi). 2004. During the year under review, the number of employees decreased by 122. The average number of Operating profi t amounted to EUR 53.7 (59.7) million. employees for the year was 2,101 (2,161), which was Dividend income totalled EUR 4.7 (1.2) million. Interest 60 less than during 2003. expenses (net) amounted to EUR 11.0 (13.3) million and other fi nancial expenses, which were mainly the result IFRS of currency exchange differences, totalled EUR 1.0 (7.1) Finnlines will adopt the IFRS system so that the fi rst IFRS million. Profi t before extraordinary items amounted to fi nancial statements will be published for the whole year EUR 46.4 (40.4) million and pre-tax profi t to EUR 46.4 2005. The IFRS valuation project, which was started in (40.4) million. The Group’s exceptional taxation level was 2003 has proceeded as planned. a result of changes in Finnish corporate tax legislation. Return on shareholders’ equity (ROE) was 10.0 (6.1)% Board of Directors and auditors and return on investment (ROI) 8.1 (8.3)%. Earnings The Annual General Meeting convened on 17 March 2004 per share amounted to EUR 0.94 (0.59) and net cash appointed the following persons to serve on the Finnlines fl ow from operating activities per share totalled Board of Directors until the date of the next Annual General EUR 2.39 (2.54). Meeting: Mr Pertti Laine, President and CEO of Veikko Laine Oy; Mr Jukka Härmälä, Chief Executive Offi cer of Financing Stora Enso Oyj; Mr Peter Fagernäs, CEO of Hermitage & Co. The Group’s net cash fl ow from operations amounted to Oy; Mr Timo Jouhki, CEO of Buag, A.G.; and Mr Antti EUR 64.9 (78.6 ) million. Net cash fl ow from operations Lagerroos, President and CEO of Finnlines Plc. From among after investments totalled EUR 33.3 (31.2) million. At the its members, the Board selected Pertti Laine to serve as end of the year, net interest-bearing debt amounted to Chairman and Jukka Härmälä to serve as Debuty Chairman. EUR 279.3 (255.4) million, or EUR 23.9 million more than Authorised Accountants PricewaterhouseCoopers Oy were at the beginning of the year. The Group’s liquidity was chosen as Finnlines Plc’s external auditors. good, with cash, cash equivalents and investments amounting to EUR 60.1 (140.0) million. The Group’s equity Shares and share capital ratio was 41.5 (40.6)% and gearing stood at 76.3 (67.5)%. At year-end, Finnlines Plc’s capital stock totalled Shareholders’ equity per share was EUR 9.23 (9.58). 39,957,958 shares. The company held 556,000 of these At year-end nearly 75% of the Group’s long-term loans shares. Repurchased shares accounted for 1.4% of the were denominated in euros. Of the loans, 90% were company’s share capital and voting rights. The Group’s fl oating interest rate loans and the remainder fi xed interest total shareholders’ equity stood at EUR 363.9 (380.4) rate loans. At year-end, the amortisation period for the million. Shareholders’ equity per share was EUR 9.23 Group’s interest-linked debts was 9 months. The average (9.58). The shares’ market capitalisation on the Helsinki interest rate on loans amounted to 3.5% and the average Exchanges was EUR 504.3 million on 31 December 2004. maturity of the loan portfolio was about 5 years. The net The book-entry value of issued Finnlines shares amounted profi t for the year includes net exchange rate differences to EUR 79.9 million. of EUR 1.0 (6.2) million.

Finnlines ...... Finnlines 24

...... supply, which is anindication of thepositive development Demand forthelatest ro-ro/ro-p at ahigherrate than theEUaverage. economy. The Finnish economy alsocontinues togrow thanks totheexpansion of theEUandRussian experiencing thestrongest growthof thewholeof Europe, the outset of 2005than one year ago. The Baltic region is Economic conditions appear tobemorefavourable at Outlook for 2005 General Meeting. The authorisations are valid forone year fromtheAnnual purchased duringtheperiodunder review. purchase shares inFinnlines Plc,of which 331,000were on 17March 2004,theBoard of purchases anddivestments.Inameetingheld of Directorswas public trading ontheHels the total share capital and votes of thecompany through distributable equity torepurchase amaximum of 5%of shares. The Board wasauthorisedtousethecompany’s shares inFinnlines Plc andthedivestment of purchased of Directorstomake decisionsregardingthepurchase of The Annual General Meeting been usedby 31December 2004. a total of EUR101,357,958. The authorisation had not the share capital by amaximum of EUR18,642,042to loans.convertible The Board wasauthorisedtoincrease or several instalments and/ortoraise oneormore autho rised theBoardtoraise theshare capital inone The Annual General Meetingheldin March 2004 Authorisations totheBoard of Directors the periodunder review. capital, weretraded ontheHelsinki Exchanges during 30.7 million Finnlines shares, or76.9%of theshare one Finnlines share wasquotedatEUR12.80.Atotal of 14.75 andthelowest EUR11.0.Onthebalance sheet date wasEUR the HelsinkiExchanges for theFinnlines share During theperiodunder review, thehighest quotation on ...... Annual 2004 report authorised todecideontheotherterms inki Exchanges. The Board also authorised theBoard of Directors decided to ax vessels clearly exceeds Proposals totheAnnua Helsinki. at 10a.m.on Thursday 17March 2005at Hotel Palace in The Annual General Meetingof Finnlines Plc will beheld Annual Gene year, assuming that operating conditions remain stable. Finnlines’ operating profi February, andtherenegotiatio current agreement forstev labour agreement made inautumn 2004inFinland. The Stevedoring operations were 2006 and2007,with thenew vessels orderedin2004. off increasingitscapacity, bu of themarket. In2005thecompany will betaking a year The Boardproposes Central Securities Depository Ltd. in theshareholder register maintained by theFinnish no later than thedividend record date,22March 2005, distributed on31March 2005to If theBoard’s proposal out forthefi Meeting that adividend of EUR0.75pershare bepaid The Boardof Directors pr Finnlines shareholders. repurchased shares, derog authorisation will alsoincludetheright todispose of these a maximum of 5%of all shares and votes. The proposed the prevailing share price. The repurchase may comprise shares inpublic trading ontheHelsinki Exchanges at for aperiodof one year torepurchase thecompany’s own The Boardproposes that shareholders’ equity. fund. This decrease inshare capital wouldnot affect the in share capital, i.e. EUR1,112,000,intothepremium be doneby transferring asum the own556,000shares heldby thecompany. This would decrease thecompany’s share nancial year endingon31December 2004. ral M eeting that theAGMmake is approved, thedividend will be l General l General t is forecast tobehigherthan last theAGMauthorise theBoard oposes totheAnnual General edoring operations expires in ating thepre-emptiverights of t will continue doingsoin not includedinthecollective ns areexpectedtobetough. equivalent tothedecrease capital inordertocancel shareholders registered Meeting adecis ion to Annual report 2004 ...... 25

Consolidated profi t and loss account

EUR 1,000 Note 2004 2003 Revenue 1 698,100 701,436

Share of associated companies’ results -209 Other operating income 2 8,661 3,407

Materials and services 3 187,574 191,949 Staff costs 4 108,360 105,086 Depreciation, amortisation and write-downs 5 41,520 43,718 Other operating expenses 6 315,571 304,184 Operating profi t 53,736 59,697

Financial income and expenses 7 -7,359 -19,324 Profi t before extraordinary items 46,377 40,373

Extraordinary items 8 Profi t before appropriations and taxes 46,377 40,373

Income taxes 11 -8,820 -16,675 Minority interest -535 -493 Net profi t 37,022 23,205

Quarterly fi gures

Year 2004 I/2004 II/2004 III/2004 IV/2004 Revenue, EUR million 163.2 180.3 172.7 182.0 Operating profi t, EUR million 8.7 21.8 8.6 14.7 Profi t before extraordinary items, EUR million 6.4 19.2 9.9 10.9 Earnings per share (EPS), EUR 0.12 0.57 0.19 0.06 Shareholders’ equity/share, EUR 8.44 8.99 9.17 9.23 Net interest-bearing debt (end of period), EUR million 316.4 302.5 288.9 279.3 Return on investment, % 5.4 12.2 7.5 8.4 Return on equity, % 5.4 24.5 8.0 2.8 Gearing, % 93.8 84.9 79.5 76.3 Average no. of employees 2,175 2,196 2,126 2,101

Finnlines ...... Finnlines 26 urn iblte 2 20 Current liabilities ogtr iblte 1 1,999 82,603 83,405 2,049 19 1,405 18 262,127 53,731 39,958 1,405 231,749 13,773 79,916 16 Long-term liabilities Deferred tax liabilities Liabilities Minority interests Note Net profi Retained earnings Legal reserve Share premium Share capital Capital andreserves EUR 1,000 Consolidated balance sheet ...... 17,734 122,264 4,744 11,873 48,207 90,298 8,513 7,724 104,240 575,219 15 8,380 14 118,213 584,606 112,138 12 Shareholders’ equity andliabilities Cash andbank balances Marketable securities receivablesShort-term Long-term receivables Inventories 13 Current Financial assets Tangible assets Intangible assets assets Non-current assets Assets ...... 4,101 3,821 Annual 2004 report Other Interest-bearing 301,113 11,437 318,946 5,317 Other Interest-bearing 38,307 81,093 76,425 75,090 t 702 23,205 37,022 t

881,269 940,806 119,400 151,515 312,550 324,263 363,865 380,426 881,269 940,806 176,145 238,861 705,124 701,945 2004 2003 Annual report 2004 ...... 27

Consolidated cash fl ow statement

EUR 1,000 2004 2003 Cash fl ow from operating activities Operating profi t 53,736 59,697 Depreciation, amortisation and write-downs 41,520 43,718 Undistributed earnings in associated companies 209 Gain on disposals -7,251 -2,090 Other 88,005 101,534 Change in working capital Decrease (+)/increase (-) in current receivable 581 1,076 Decrease (+)/increase (-) in inventories -280 1,671 Decrease (-)/increase (+) in current other liabilities 6,003 -3,495 6,304 -748 Cash fl ow from operating activities 94,309 100,786

Interest expenses -13,319 -14,981 Interest received 1,639 2,062 Realised exchange gains and losses -51 -5,762 Income taxes -17,650 -3,474 -29,381 -22,155 Net cash fl ow from operating activities 64,928 78,631

Cash fl ow from investing activities Proceeds from sale of tangible assets 31,364 39,788 Investments in tangible assets -67,665 88,512 Increase in investments in fi nancial assets 171 Dividends received 4,685 1,155 Net cash used in investing activities -31,616 -47,398

Cash fl ow before fi nancing activities 33,312 31,233

Cash fl ow from fi nancing activities Own shares acquired -3,728 Change in minority interests, increase (+)/decrease (-) 50 200 Payment of long-term liabilities -86,091 -70,050 Borrowings 30,000 132,170 Granted long-term loans -2,980 -4,744 Dividends paid -49,666 -29,800 Other -815 -151 Net cash fl ow from fi nancing activities -113,230 27,625

Change in cash and cash equivalents, increase (+)/decrease (-) 1) -79,918 58,858 Cash and cash equivalents 1 January 139,998 81,140 Cash and cash equivalents 31 December 60,080 139,998

1) Cash and bank deposits and marketable securities

The items in the cash fl ow statement cannot be directly derived from the balance sheets due e.g. to the acquisition and sale of subsidiary companies and exchange rate differences during the fi nancial year.

Finnlines ...... Finnlines 28 U ,0 Note EUR 1,000 Profi tf ot 4 040 22,538 20,480 170,439 33,606 4 137,305 4,935 50,289 6 4,540 3 2 Operating profi Other operating expenses Depreciation, amortisation Staff costs Materials andservices Other operating income Revenue 1 231,280 246,358 ...... -17,735 -2,307 9,435 11 -10,878 9 8 -3,584 23,117 7 Net profi Income taxes Appropriations 10 Group contribution Profi Extraordinary items Profi Financial income andexpenses 9,113 ...... 34,862 Annual 2004 report t beforeappropriatio t beforeextraordin t andloss account, Parent company t 469 27,189 34,649 t t 564 4,211 15,604 t r tm 3,2 627 38,721 itemsary sadtxs 871 627 38,721 ns andtaxes n rt-on 5 212 20,499 12,142 5 and write-downs 2004 2003 Annual report 2004 ...... 29

Balance sheet, Parent company

EUR 1,000 Note 2004 2003 Assets Non-current assets 12 Intangible assets 7,561 5,552 Tangible assets 275,680 230,789 Financial assets 238,743 239,377 521,984 475,718 Current assets Inventories 13 882 842 Long-term receivables 14 94,386 96,704 Short-term receivables 15 208,688 242,674 Marketable securities 48,208 122,264 Cash and bank balances 1,735 3,328 353,899 465,812 875,883 941,530 Shareholders’ equity and liabilities Capital and reserves 16 Share capital 79,916 39,958 Share premium 13,773 53,731 Legal reserve

Retained earnings 24,535 50,740 Net profi t 34,649 27,189 152,873 171,618

Accumulated appropriations 17 219,187 228,300

Liabilities Long-term liabilities 19 Interest-bearing 301,113 318,751 Other 335 422 301,448 319,173

Current liabilities 20 Interest-bearing 176,329 191,399 Other 26,046 31,040 202,375 222,439 875,883 941,530

Finnlines ...... Finnlines 30 Operating profi Cash fl 1) Cash andbank deposits andmarketable securities Change inworking capital EUR 1,000 Cash fl ahadcs qiaet aur 1552 65,448 125,592 49,943 125,592 Cash andcash equivalents 31December Cash andcash equivalents 1January Cash fl Cash fl Net cash fl ...... 137,391 -25,923 Change incash andcash equivalents, increase (+)/decrease (-) Net cash fl Cash fl Cash fl Net cash usedininvesting activities ...... erae()ices - nivnois 4 46 -41 -184,160 43,107 Decrease (-)/increase (+)inc Decrease (+)/increase (-)in inventories Decrease (+)/increase (-)incurrent receivable noetxs 1,5 -3,473 8,153 -17,650 -16,818 2,202 -4,450 -14,336 637 Income taxes Realised exchange gains andlosses Interest received Interest expenses iied ad 4,6 -29,800 -49,666 -3,727 -69,233 5,047 -86,178 Other Group contributions Dividends paid Accrued longterm Repayments of long-termreceivables Borrowings Payment of long-termliabilities Own shares acquired Annual 2004 report ano ipsl -6 17,045 -663 Other Gain ondisposals Depreciation, amortis iied eevd 182 10,293 31,822 Dividends received netet ntnil ses 5,0 -82,609 -59,107 209,129 1,362 Increase ininvestments infi Investments intangible assets Proceeds fromsale of tangible assets o rmoeaigatvte 8,8 -99,373 87,984 ow fromoperating activities ow frominvestingactivities ow fromfi ow beforefi o rmoeaigatvte ow from operating activities o rmoeaigatvte 5,3 -115,961 58,837 ow fromoperating activities ow fromfi ow statement, Parent company t nancing activities nnigatvte 3,1 21,430 32,914 nancing activities nnigatvte -0,6 38,714 -108,563 nancing activities liabilities -3,247 -3,959 to n rt-on 1,4 20,499 12,142 ation andwrite-downs nnilast 578 nancial assets retohrlaiiis 785 42,986 17,835 urrent otherliabilities 1) -75,649 60,144 -29,147 -16,588 27,083 41,755 15,604 4,211 60,901 -141,128 30,000 132,170 2004 -792 101 9,435 2003 Annual report 2004 ...... 31

Accounting principles

The consolidated statements are prepared in conformity Materials and external services with the Finnish Accounting Act and other regulations and provisions in force in Finland. Materials This item includes fuel oil purchases, the purchase of food, Consolidation products sold on the vessels and the purchase of materi- The consolidated fi nancial statements include the parent als and supplies for port operations. company Finnlines Plc as well as all the companies in which Finnlines Plc directly or indirectly holds more than External Services 50 per cent of the voting rights. The consolidated fi nancial This item includes the expenses relating to cargo handling statements are prepared using the acquisition cost and terminal operations. method. Foreign currency items The difference between the acquisition cost of a subsidiary Receivables and payables denominated in foreign and its shareholders’ equity at the time of acquisition, currencies are valued at the exchange rates prevailing on arising from the elimination of mutual shareholdings, is the balance sheet date. Exchange rate differences on allocated, whenever possible, to fi xed assets at the time of accounts receivable are entered under net sales and acquisition to the extent that their fair value exceeds their exchange rate differences on accounts payable under ope- book value at the time of acquisition. Items allocated to rating expenses. Exchange rate differences on fi nancing fi xed assets are depreciated according to plan correspon- operations are entered under fi nancial items. ding to the underlying asset. The remainder of the difference is entered as goodwill on consolidation, which Conversion differences arising from the conversion of the is amortised over its estimated lifetime, however within a shareholders’ equity of foreign subsidiaries during maximum of 20 years. Unless otherwise agreed, subsidi- consolidation are entered under retained earnings. aries acquired during the year are consolidated from their date of acquisition. The profi t and loss accounts of subsidiaries located outside the euro zone are converted into euros using the Intra-group transactions, receivables, liabilities, internal average of the end-of-month exchange rates. The subsid- margins and the internal distribution of profi t are elimi- iaries’ balance sheets are converted into euros at the nated. Minority interests are presented separately in the exchange rate prevailing on the balance sheet date. The profi t and loss account and in the balance sheet. Associ- conversion difference between the profi t and loss account ated companies in which the Group holds 20–50 per cent and balance sheet is shown under retained earnings. of voting rights are consolidated using the equity method. In accordance with the equity method, the Group’s share Derivative fi nancial instruments of the associated companies’ results and its share of other The gains or losses arising from derivative fi nancial changes in shareholders’ equity, excluding the write-off of instruments such as forward foreign exchange and option goodwill on consolidation, are entered in the profi t and contracts and currency swaps are entered under fi nancial loss account and added to the value of the shares. items. The interest received or payable under derivative Dividends received are then deducted from the balance fi nancial instruments used to cover the company against sheet value of the shares. interest rate risks is accrued over the duration of the contract and recorded as an adjustment to the interest Revenues income or expense of the designated asset or liability. Revenues comprise sales income and exchange rate differences related to sales, excluding discounts and Finnlines also covers itself against changes in fuel prices indirect sales taxes such as VAT. by including a so-called bunker clause in its freight contracts and by using commodity derivative instruments. Other operating income The gains or losses arising from the commodity derivative Other operating income includes profi ts on the sale of instruments used to cover the company against fl uctu- property and other fi xed assets as well as other regular ations in fuel prices are entered under operating income not directly related to the company’s sales, such expenses. as rents and leases.

Finnlines ...... Finnlines 32 or lowerprobable net realisable value. on afi and sale items areentered Vessel stocks of fuel, lubric Stocks the formof ...... Leasing Leasing 3–5 years 10–20 years fi 30–32 years Second-hand vessels aredeprec Other machinery andequipment 5–15 years Railway wagons (until 2002) 5–10 years 5–20 years Stevedoring machinery andequipment Vessels andshipshares Constructions 5–10 Buildings 10–40 Other long-termexpenditure Goodwill onconsolidation Depreciation periods: value. estimated salvage value as well as theestimated residual plan based ontheeconomic lifespanof theasset andits Fixed assets subject towear years capitalised totheacquisition cost of the vessels. years Financial items falling dueduringshipconstruction are any revaluations allowed by local accounting practices. excluding depreciation Fixed assets arecapitalised totheirdirect acquisition cost Fixed assets anddepreciation nancial service life...... Annual 2004 report rst-in, fi payments arerecorded asexpensesregardless of leasing. rst-out basis at and otherdeductions, alongwith ating oil, materials, ating oil,materials, under stocks. Stocks are valued are depreciated according to their direct acquisition cost iated over theirestimated provisions the profi can reasonably be assessed committed orobliged tosettleandwhosemonetary value revenues intheforeseeable future andthat theGroupis Expenses andlosses that no Provisions forward. deferred tax receivables arising fromlosses carried deferred tax liability also and deferredtax liabi divided betweenshareholders’ equity, retained earnings provisio voluntary The accumulated deprec Deferred tax liability from thetermination of operations. business activities, such as income andexpenses arising recurring events unrelated Extraordinary income andexpen Extraordinary items as anexpense and liability. tion. The entireunsecured pension according tothelocal practice ineach country of opera- Pension costs arecharged totheprofi Pension costs the lowermarket value at thebalance sheet date. more than one year arecarried at theiracquisition cost or the balance sheet.Marketable securities with amaturity of term marketable securities of theGroup’sThe portion cash investedinshort- reserves Securities in thebalance sheet. t andloss account, andincludedas aprovision ns intheconso lity. 1999,the From1January iation difference andother includes theeffect of any to thecompany’s regular is enteredunder securities in are enteredas expenses in longer accrue corresponding ses areessential andnon- lidated acco liability is recorded t andloss account unts are Annual report 2004 ...... 33

Notes to the fi nancial statements

Group Parent company EUR 1,000 2004 2003 2004 2003 1. Revenue By division Shipping and Sea Transport Services 627,574 631,999 231,280 246,358 Port Operations 103,069 97,943 Eliminations -32,543 -28,506 Total 698,100 701,436 231,280 246,358

Intragroup revenue 61,264 57,908

2. Other operating income Gain on disposals 4,359 2,090 698 4,660 Rental income 662 471 592 274 Other 3,640 846 3,250 1 Total 8,661 3,407 4,540 4,935

3. Materials and services Purchases during period Bunker 79,222 80,403 17,312 12,712 Other 2,358 2,979 240 425 Variation in inventories -266 1,363 -41 52 Total 81,314 84,745 17,511 13,189

External services 106,260 107,204 32,778 20,417

Materials and services, total 187,574 191,949 50,289 33,606

4. Staff and staff expenses Staff Average number of employees 2,101 2,161 412 483 Shipping and Sea Transport Services 1,264 1,325 412 483 Port Operations 837 836

Staff expenses Wages and salaries 93,397 95,894 19,298 21,925 Social security costs Pension costs 12,643 12,406 2,930 3,594 Other 15,002 10,202 1,860 2,290 State subsidies *) -12,682 -13,417 -3,608 -5,271 Total 108,360 105,085 20,480 22,538 *) previously booked under Other operating expenses

Salaries and remunerations to Presidents 2,034 1,705 545 537 Board of Directors 155 115 145 115

5. Depreciation, amortisation and write-downs Depreciation and amortisation according to plan 41,520 43,718 12,142 20,499

Finnlines ...... Finnlines 34 oGopudraig Total -354 Other -354 To Groupundertakings -1,142 -1,142 -1,042 -1,042 -856 -856 neetepne -1,876 -2,618 Other fi Total -12,540 Other -12,540 From Groupundertakings Interest expenses Interest andotherfi Total -1,030 Losses -2,724 Gains 1,694 Other Losses Gains From Groupundertakings Exchange gains andlosses Total 292 Other 292 -15,420 From Groupundertakings -15,420 -6,234 -9,545 3,311 -15,475 -12,857 -385 -2,246 863 -552 1,550 250 250 -17,257 -15,381 -9,616 -5,352 3,311 -279 957 957 1,232 rmGopudraig 491 6,227 4,981 9,644 28,848 Other fi Total 1,347 Other 1,347 From Groupundertakings Other interest andfi Total 241 Other 241 From Groupundertakings Long-term interest income Total 4,685 Other From Groupundertakings Dividends 4,685 Income from fi 2,161 2,161 EUR 1,000 156 156 1,155 1,155 6,174 1,193 241 241 4,506 Group 33,354 7,911 1,684 268 268 1,101 10,745 Parent company ...... 48,498 59,036 135,802 145,820 7. Financial income andexpenses Total 315,571 Other 169,751 Time-charters of vessels 6. Otheroperating expenses ...... 304,184 168,382 78,269 137,305 121,941 170,439 Annual 2004 report nancial expenses nancial income nnilast nancial assets nancial expenses nancial income

2004 2003 2004 2003 Annual report 2004 ...... 35

Group Parent company EUR 1,000 2004 2003 2004 2003 Financial income and expenses, total -7,359 -19,324 23,117 -3,584

Interest income and expenses, total Interest income, total 1,588 2,317 6,415 8,179 Interest expenses, total -12,540 -15,420 -15,475 -17,257

8. Extraordinary items Extraordinary income Extraordinary expenses Total

9. Group contributions Group contributions (+) 13,380 9,435 Group contributions (-) -24,258 -10,878 9,435 10. Appropriations Change in difference between actual and planned depreciation 9,113 34,862

11. Taxes Taxes on operations -8,820 -16,675 -5,462 -14,999 Taxes on extraordinary items 3,155 -2,736 Total -8,820 -16,675 -2,307 -17,735

Taxes for the period -6,591 -16,085 -2,060 -15,708 Taxes from previous periods -1,426 -4,227 -247 -2,027 Change in deferred tax liability 1) -803 3,637 Total -8,820 -16,675 -2,307 -17,735

1) Includes calculated tax liabilities and receivables incurred through appropriations, accruals and consolidation procedures.

Finnlines ...... Finnlines 36 12.1 Intangible rights, Group 12. Non-current assets )Cptlsditrs 24ERmlin 575,219 15,225 536,306 1) Capitalised interest 12.4EURmillion. 15,333 Balance sheet total on31December 2003 8,355 rnfr ewe aeois 23 -223 ...... -31,898 711 -208,112 -4,802 -183,542 -223 -25,450 -45,381 andpurchases -1,646 equipment -137,042 shipshares -19,259 -44,660 498,148 711 Total -1,569 constructions 792,718 -6,430 -114,639 752,331 5,552 13,846 52,511 Machinery and Advance -17,813 payments Balance sheet total on31December 2004 1,925 -1,569 Vessels 7,561 and writedowns 31December 2004 5,552 63,557 -6,430 Accumulated depreciation and Buildings and Landandwater Depreciation intheperiod 635,190 7,561 Accumulated depreciation 59,885 on Transfers 15,170 betweencategories 33,105 650,945 writedowns 2004 1January 11,591 Accumulated depreciation and 8,355 15,170 33,146 Acquisition cost on31December 2004 Decreases 11,591 8,355 Increases Transfers betweencategories Acquisition cost 2004 on1January -9,621 12.2 Tangible assets, Group 118,213 -1,785 112,138 6,207 Balance sheet total on31December-420 2003 379 7,968 Balance sheet total on31December 2004 Accumulated depreciation 161,446 Depreciation intheperiod -7,836 Accumulated depreciation ondecreases 158,804 18,883 Accumulated depreci 112,006 Acquisition cost on31December 2004 16,241 Decreases 104,170 Increases -20,791 Acquisition cost 2004 on1January 4,325 12.1 Intangibles rights, Parent company 142,563 Balance sheet total on31December 2003 142,563 Balance sheet total on31December 2004 Accumulated depreciation and writ Depreciation intheperiod Accumulated depreciation Accumulated depreciation and -4,169 7,841 Acquisition cost on31December 2004 Decreases 3,579 Increases Acquisition cost 2004 on1January 52,511 ...... -1,088 3,730 -25,380 3,579 in 65,056 -1,088 3,730 progress Annual 2004 report to n1Jnay20 -,4 -6,040 -6,040 2004 ation on1January

n3 eebr20 -,0 -7,609 -7,609 904 904 on 31December 2004 on decreases

erae 0 320401 7,551 3,270 4,081 200 decreases rtdws1Jnay20 -057 1,3 -40,591 -10,034 -30,557 writedowns 2004 1January dws3 eebr20 -833 1,1 -49,308 -10,915 -38,393 edowns 31December 2004 odil te o-urn ses Total Othernon-current assets Goodwill 1) 1,7 52,511 584,606 18,176 te o-urn ses Total Other non-current assets Annual report 2004 ...... 37

12.2 Tangible assets, Parent company Buildings and Vessels and Machinery and Advance payments Total constructions ship shares equipment and purchases in progress Acquisition cost on 1 January 2004 4,794 246,870 6,549 258,213 Increases 3,717 543 51,268 55,528 Decreases -74 -504 -578 Acquisition cost on 31 December 2004 4,794 250,513 6,588 51,268 313,163 Accumulated depreciation on 1 January 2004 -2,261 -19,919 -5,244 -27,424 Accumulated depreciation on decreases 71 442 513 Depreciation in the period -251 -9,810 -511 -10,572 Accumulated depreciation 31 December 2004 -2,512 -29,658 -5,313 -37,483 Balance sheet total on 31 December 2004 2,282 220,855 1,275 51,268 275,680

Balance sheet total on 31 December 2003 2,533 226,951 1,305 230,789

12.3 Financial assets, Group Participating Other shares Total interest and holdings Acquisition cost on 1 January 2004 2,714 5,799 8,513 Increases 1 1 Decreases -115 -19 -134 Transfers between categories Balance sheet total on 31 December 2004 2,599 5,781 8,380

Balance sheet total on 31 December 2003 2,714 5,799 8,513

12.3 Financial assets, Parent company Shares in Group Participating Other shares Total undertakings interest and holdings Acquisition cost on 1 January 2004 232,933 1,565 4,879 239,377 Decreases -570 -51 -13 -634 Balance sheet total on 31 December 2004 232,363 1,514 4,866 238,743

Balance sheet total on 31 December 2003 232,933 1,565 4,879 239,377

Finnlines ...... Finnlines 38

...... 1,616 3,422 1,151 3,813 1,568 2,250 1,618 1,249 2,213 3,422 1,307 5,054 3,847 1,568 2,250 3,728 1,249 5,105 8,522 7,342 7,187 31,229 Other 9,849 Taxes 11,469 6,654 Interest expenses Insurance compensations Time-charter of vessels 60,365 State subsidies Main prepaidexpense andacc 65,669 Total 104,240 38,571 Prepaid expenses andac Other receivables Loan receivables Receivables interests fromparticipating 452 10,504 21,411 Group receivables Accounts receivable receivables15. Short-term 90,298 29,933 Group receivable Accounts receivable 14. Long-term receivables 11,469 2,419 Total 4,101 Other 838 20,751 Bunker 3,263 13. Inventories 208,688 ...... 24,479 452 1,373 3,821 860 2,961 12,244 242,674 Group 17,298 882 249 633 572 842 270 Parent company Annual 2004 report te eevbe 3,1 36,124 173,753 5,439 31,013 140,074 4,769 92,745 87,699 3,959 6,687 4,744 7,724 Total Prepaid expenses andac Other receivables Loan receivables Accounts receivable Total 7,724 Prepaid expenses Group receivables Loan receivables Receivables interests fromparticipating 4,744 177,555 94,386 218,189 96,704

and accrued income re noe 129 141 071 12,244 20,751 21,411 31,229 crued income

re noe ,9 2,873 1,699 crued income udicm tm rued income items 2004 2004 2003 2003 Annual report 2004 ...... 39

Group Parent company 2004 2003 2004 2003 16. Capital and reserves Share capital on 1 January 39,958 39,958 39,958 39,958 Bonus issue 39,958 39,958 Shareholders’ equity on 31 December 79,916 39,958 79,916 39,958 Share premium on 1 January 53,731 53,731 53,731 53,731 Bonus issue -39,958 -39,958 Share premium on 31 December 13,773 53,731 13,773 53,731 Legal reserve 1 January 1,405 1,405 Legal reserve 31 December 1,405 1,405

Retained earnings on 1 January 285,332 292,642 77,929 80,540 Dividend distribution -49,666 -29,800 -49,666 -29,800 Acquired own shares -3,728 -3,728 Currency exchange difference -189 -715 Net profi t for the fi nancial year 37,022 23,205 34,649 27,189 Non-restricted equity 31 December 268,771 285,332 59,184 77,929 363,865 380,426 152,873 171,618 Calculation of distributable funds

Retained earnings on 31 December 268,771 285,332 Accumulated shareholders’ equity of appropriations -202,420 -174,952 Group’s distributable funds on 31 December 66,351 110,380

17. Accumulated appropriations Accumulated depreciation in excess on plan 219,187 228,300

18. Deferred tax liability Deferred tax receivables From appropriations From consolidation From accruals 366 7,118 Total 366 7,118

Deferred tax liabilities From appropriations 77,981 80,859 From consolidation 992 1,413 From accruals 4,798 7,449 Total 83,771 89,721 Total deferred tax liabilities 83,405 82,603

19. Long-term liabilities Bonds and notes Loans from fi nancial institutions 291,913 307,344 291,913 307,344 Pension loans 9,200 11,602 9,200 11,407 Other long-term loans 11,437 5,317 335 422 Total 312,550 324,263 301,448 319,173 of which interest-bearing 301,113 318,946 301,113 318,751

Finnlines ...... Finnlines 40

andfre noeies 4,929 1,132 ...... 3,789 1,266 2,491 3,065 4,936 2,726 2,030 2,856 3,789 115,333 5,811 4,447 13,604 2,892 138,161 5,922 191,399 11,383 5,861 897 176,329 6,012 76,425 9,692 35,000 2,207 38,307 15,041 2,207 43,841 Other 16,560 115 Taxes 437 2,207 5,750 Interest expenses Travel 35,000 expenses 1,711 Cargo handling expenses 2,207 4,600 Personnel expenses Main deferredincome items 3,989 5,750 58,282 of which interest-bearing 17,490 Total 119,400 4,600 Accrued expenses andpr 78,383 22,211 debtOther short-term 58,282 Total 60,518 Other debts Accrued 78,383 expenses andpr 12,898 Accounts payable 47,908 Debts toGroupundertakings 9,297 Other debts Accounts payable andagent accounts Pension loans Loans fromfi Bonds andnotes 20. Current liabilities 78,383 151,515 Pension loans Loans fromfi Long-term loans dueafterfi 93,915 Total 339,306 2010 andlater 4,482 2009 22,486 2008 76,489 2007 88,931 14,423 2006 34,824 2005 38,193 2004 Year Maturity of loans 202,375 80,735 ...... 394,842 181,940 2,098 22,453 76,456 5,857 88,560 34,807 38,193 19,572 76,091 222,439 78,383 Group 339,306 196,945 22,486 76,489 88,931 34,824 38,193 80,735 394,842 22,453 76,456 88,560 34,807 38,193 76,091 Parent company Annual 2004 report nnilisiuin 3,8 3,1 3,8 38,884 35,986 39,218 74,985 35,985 73,783 74,985 73,783 nancial institutions nancial institutions

pi noe 0 918 19,572 700 14,423 47,908 43,841 epaid income epaid income v er ve years 2004 2004 2003 2003 Annual report 2004 ...... 41

Group Parent company 2004 2003 2004 2003 Pledges and other contingent liabilities

Pledges and commitments given on own account

Debt Value of Debt Value of Debt Value of Debt Value of collateral collateral collateral collateral

Ship mortgages Loans from fi n. institutions 156,220 279,572 189,479 312,858 156,220 201,000 189,479 201,000 156,220 279,572 189,479 312,858 156,220 201,000 189,479 201,000

Pledges given to cover other own commitments Pledges 8,523 1 6,113 1,513 1,513 Mortgages 113 543 8,636 1 6,656 1,513 1,513

Pledges given on behalf of others Pledges 2,353 712 447 Mortgages 2,353 712 447 Pledges, total 156,220 290,561 190,192 319,961 202,513 202,513

Other contingent liabilities 399,901 564 399,600 336 Other own liabilities Pension liability Others

Leasing liabilities Due in following fi nancial year 1,460 976 484 537 Due in later years 4,766 1,710 417 588 Leasing liabilities, total 6,226 2,686 901 1,125

Pledges and commitments, total 696,688 323,211 603,014 203,974

Liabilities on derivate instruments on 31.12. Group Parent company Nominal value Market value 1) Nominal value Market value 1) Currency forward contracts 41,426 -449 14,641 -91 Interest rate swaps 100,000 -450 135,000 -1,986 Total 141,426 -899 149,641 -2,077

1) Net profi t/loss, if these derivatives had been sold at market price at year-end.

Finnlines ...... Finnlines 42 oseeAS owy 0 100 80 66.7 100 100 100 100 100 Sweden Belgium 100 100 100 Belgium Germany 100 100 Belgium Norway 100 Norway Sweden Norway 100 Sweden Germany 100 100 100 Sweden 100 100 100 100 100 Great Britain 100 Team 100 Lines Sverige AB 100 Great Britain Team Lines GmbH&Co. KG Great Britain Great Britain Verwaltungsgesellschaft Team 100 Lines GmbH Great Britain Great Britain Germany 100 Germany Finnwest 20 N.V. Finnlines Belgium N.V. 100 Germany 100 Norbalt N.V. Germany 100 Norsteve Drammen A/S 100 51 Norsteve Filipstad A/S 100 100 100 Cyprus Norsteve A/S 100 100 Ropax 39.5 IAktiebolaget Clipper 100 Finnlink AB Germany Germany AB Finnlines Ltd 100 100 Finland London Terminal Ltd Helsinki 51 Helsinki Finncarriers Limited Helsinki Helsinki Finncarriers (UK)Limited Kittilä 100 Helsinki Finanglia Ferries Ltd Finnlines UK Limited Finnlines Limited Helsinki 100 Hansa Link GmbH Helsinki Finnlines GmbH Kirkkonummi FG-Shipping GmbH Finncarriers GmbH MSPartenreederei RailshipIII Kirkkonummi Finnlines (Cyprus) Ltd Finnlines Deutschland AG Foreign HanseaticOy Shipping Team Lines Finland Oy Kiinteistö Oy LevinTuvat Oy Wind North Finncare Oy Railship Oy Ab Kantvikin SatamaOy Oy Intercarriers Ltd Metropolitan Port Oy Ab Optar Oy ...... 100 holding(%) 100 100 holding(%) 100 100 100 Helsinki Naantali Helsinki Strömsby-Invest Oy Ab Finnsteve Oy Ab Finnfellows Oy Ltd Oy Finnlink Ab Domestic Subsidiaries Group shares andholdings ...... Annual 2004 report

oiie ru Parent company Group Domicile ikoum 0 80 Kirkkonummi 100 Annual report 2004 ...... 43

Domicile Group Parent company holding (%) holding (%) Team Lines Norge A/S Norway 100 Road to Sea Transport GmbH Germany 100 Finnlines Holland B.V. Holland 100 100 Rederi AB Nordö-Link Sweden 100 Finnlines Shipmanagement AB Sweden 100 Skandinavien-Link GmbH Germany 100

Patricipating interests Domicile Group Parent company holding (%) holding (%) Domestic Simonaukion Pysäköinti Oy Helsinki 50 50

Foreign MS “Pinta” Interscan GmbH & Co. Germany 21 MS “Patriot” Interscan GmbH & Co. Germany 21 RosEuroTrans Russia 50

Other investments Domestic Steveco Oy Hamina 19.1 19.1 Other companies (22)

Foreign Total of 7 companies

Finnlines ...... Finnlines 44 EUR 511.9million. The dateofrecording of the share capital fund. capital increasewastransferredfromthepremiumfundto new shares wereissued. Asumequivalent totheshare share with anominal value of EUR2.Atotal of 19,978,979 issue, oneoldshare could beexchanged foronenew EUR 39,957,958to79,915,916.As of part thebonus capital by EUR39,957,958throughabonus issue, from Directors regarding anincrea held inOctober2004approved a through abonus issue. AnExtraor Finnlines’ market capitalisation 30.7 million Finnlines shares weretraded duringthe year. waschanged sothat thecompany’s ofAssociation Articles In ordertocarry out thebonus issue, Section 3of the date of recording. related totheshares will apply tothecompany fromthe fi new shares will beentitledtofull dividends forthe book-entry accounts on2November 2004.Holders of the 2004. The newshares wererecorded onshareholders’ The company’s share capital Bonus Issue 39,957,958 shares. EUR 79,915,916.Finnlines’ entirecapital stock totalled registered share capital on31December 2004totalled within theselimits. The company’s paid-upand The amount of share capital may beraised orlowered EUR 50,000,000andthemaximum is EUR200,000,000. Association, thecompany’s minimumshare capital is dividend rights.As outlinedin Finnlines’ of Articles vote at general shareholder meetings andconfers identical Finnlines Plc General information Shares andshareholders ...... year wasEUR14.75andthelowest 12.70. Atotal of The highest quotedprice of theFinnlines share duringthe Finnlines Plc shares arelist Share price andtrading in2004 to change of theArticles Association. be raised orloweredwithin theselimits without theneed mum is EUR200million. The amount of share capital may minimum share capital is EUR50million andthemaxi- nancial year 2004.Otherrights beginning1January ...... Annual 2004 report has one share series.Each the bonus ed ontheHelsinki Exchanges. was doubled se of thecompany’s share at theendof year was proposal by theBoardof dinary General Meeting issue was share carries one in autumn2004 2 November during the year under review. No newshares wereissued throughoptionschemes The options must beexercised by 26March 2006. annually and30November. between2January the dividend recording date. The options can beexercised share is deductedfromthesh EUR 9.975for Type B options. The annual dividend per calculated pershare is EUR9.42for Type Aoptions and and 350,000with theletterB. The subscription price share options, 350,000aremarked with theletterA each option maximum of 1,400,000Finnlines Plc shares such that share options, which entitletheirh management, launched in2001. It Finnlines hasoneshareoptionscheme fortheGroup’s Share optionschemes by 31December 2004. from theAnnual General Meeting.It had not beenused pre-emptive rights. The authorisation is valid forone year could beissued with theright to amount, 3,995,795shares EUR7,991,950) (worth EUR 18,642,042toatotal of EUR101,357,958.Of this shares, meaning amaximum share capital increase of authorisedtoissue amaximumof9,321,021new was and/or toraise oneormoreconvertible loans. The Board to raise theshare capital inoneorseveral instalments The Annual General Meetingauthorised theBoard Share issue authorisation EUR 10.73. 556,000 ownshares, with anaverage purchase price of Annual General Meeting.At amount. The authorisations are valid forone year fromthe and similarly todispose of amaximum of thesame of 5%of thetotal share capital and votes of thecompany, company’s distributable equity torepurchase amaximum March 2004,authorised theBoardof The Annual General Meetingof Finnlines Plc,convened in Authorisations Finnish, while18%werenominee-registered. the company shares. Some 82%of shareholders. The tenlargest At theendof 2004,Finnlines had approximately 4,800 Shareholders has the right tosubscribetw year-end, thecompany held shareholders owned46%of are subscription price on derogate shareholders’ consists theshareholders were olders tosubscribe a Directors tousethe o shares. of 700,000 Of these Annual report 2004 ...... 45

Finnlines’ share ownership structure on 31 December 2004 % of shares

Private companies 36.4 Financial and insurance companies 18.3 Public entities 9.3 Non-profi t associations 7.3 Households 10.7 Nominee registered 17.7 Other 0.3 Total 100.0

Principal shareholders on 31 December 2004 Number of shares % of shares

Thominvest Group 4,395,760 11.00 % Veikko Laine Oy 4,247,872 10.63 % Stora Enso Plc 2,209,340 5.53 % Svenska Handelsbanken AB 2,200,000 5.51 % Pension Insurance Company Ilmarinen 1,608,000 4.02 % Dreadnought Finance Oy 1,090,640 2.73 % Sampo Life Insurance Company 920,050 2.30 % Svenska Litteratursällskapet i Finland 690,000 1.73 % Nordea Life Assurance Finland Ltd 600,600 1.50 % Finnlines Plc 556,000 1.39 % Nominee registered 7,088,299 17.74 % Other 14,351,397 35.92 % Total 39,957,958 100.00 % Group management direct holding 154,000 0.39 %

Monthly share price development and trading volumes, 2000-2004 Number (mill.) €

10 Number (mill.) 20 9 EUR 8 15 7 6 5 10 4 3 5 2 1 0 0 2000 2001 2002 2003 2004

Finnlines ...... Finnlines 46 ioJuk AnttiLagerroos Jukka Härmälä 59,184,406.94 TimoJouhki Peter Fagernäs paid out of thedistributable funds. The Boardof Directors Non-restricted equity, total o-etitdeut,ttl 268,771,260.15 Profi Acquisition of ownshares According totheparent compan Non-restricted equity, total Profi and parent company profi December1 January–31 2004. The fi We have auditedtheaccounting, thefi Auditors’ report -189,271.25 Profi Currency exchange difference Purchase of ownshares Profi According totheconsolidated Proposal of theBoard of Directors The fi fi defi In ouropinionthefi complied with therules of theFinnish Companies’ Act. examine that themembers of theBoard of evaluating theoverall fi statements, assessing theaccounting principles usedandsignifi ment. Anauditment. includesexaminingona theaudit toobtainperform reasonable assurance about whetherthefi We have conducted ouraudit inaccordance with Finnish St statements andoncorporate governanc by theBoardof Directors of Directors andthe Companies’ Act. by us. The proposal of theBo ...... regulations governing thepreparation of fi nancial position...... ned intheAccounting Act,of boththe consolidated andparent company’s result of operations as well as of the Annual 2004 report t fromthefi tfo rvosyas 235,666,179.10 t fromprevious years t fromthefi t fromprevious years nancial statements with the consolidated fi fwihdsrbtbe 66,351,000.00 of which distributable nnilya 34,649,115.36 nancial year nnilya 37,021,876.30 nancial year nancial statements have beenpreparedinacco Chief Executive Offi proposes that adividend of 0.75oneach of the39,401,958shares, i.e. EUR29,551,468.50be nancial statement presentation. The purposeof t andloss accounts, balance sheets andnotes tothe fi and theChief Executive Offi ard of Directors regarding aac he n3 eebr20 EUR balance sheet on31December 2004 y’s balance sheet on31December 2004 nancial statements, which of includethereport nancial statements andthecorporate governance of Finnlines Plc fortheperiodof cer of theparent company can bedi e of theparent company. test basisevidence nancial statements. The fi Directors and Chief Executive Offi Authorised Public Accountants Authorised Public Accountant PricewaterhouseCoopers Oy Helsinki, 10February 2005 Helsinki, 10February 2005 nancial statements can bea President and CEO cer. Based onouraudit weexpress anopiniononthesefi Antti Lagerroos Kari Miettinen the distributable assets is incompliance with theFinnish Pertti Laine Pertti andards onAuditing. Those stand supporting theamounts and disclosuresinthefi supporting cant estimates made by themanagement as well as rdance with theAccounting Act andotherrules and nancial statements giveatrueandfair view, as nancial statements arefreeof material misstate- ouraudit of thecorporate governance is to scharged fromliability fortheperiodaudited cer of theparent company have legally dopted andthemembers of theBoard nacial statements, have beenprepared theBoardof Direct ards requirethat we ors, consolidated 28,262,815.58 -3,727,524.00 -3,727,524.00 nancial nancial nancial Annual report 2004 ...... 47

Corporate governance

General background Candidates for membership of the Board of Directors must Finnlines complies with the Recommendation for have the qualifi cations required for the post and suffi cient Corporate Governance of Listed Companies, valid from time to complete the tasks required by the post success- 1 July 2004. fully. A majority of the Board of Directors must consist of persons who are independent of the company. At least The duties and responsibilities of Finnlines’ various two of these must be independent also of the major governing bodies are founded on the provisions of the shareholders. The company will decide which of the Finnish Companies Act and other applicable legislation. members can be considered to be independent. Finnlines is governed by its Board of Directors and the President and CEO. The company’s other administrative Due to the current number of Board members, the Board units assist and support these bodies. Finnlines prepares handles all issues in the presence of the entire Board. The its Financial Statements in accordance with the Finnish Board does not have any separate committees. Accounting Act and applicable Finnish provisions and regulations. The Financial Statements are published in The duties and responsibilities of the Board of Directors Finnish, English and German. are based on the provisions of the Finnish Companies Act and other applicable legislation. The Board of Directors is Annual General Meeting responsible for the company’s administration and for The General Meeting of Shareholders of Finnlines Plc is making the required operative arrangements. The Board held annually and convenes no later than the end of June oversees Finnlines’ operative management, appoints and each year. The General Meeting of Shareholders has dismisses the Chief Executive Offi cer, approves the exclusive authority over certain important functions such company’s strategic goals and risk management princi- as amending the Articles of Association, approving the ples, and ensures the functioning of the company’s Financial Statements, determining the amount of divi- management system. The Board of Directors is responsible dends to be paid, appointing members to the Board of for ensuring that the company approves the values to Directors and selecting the company’s auditors. adhere to in its operations. The company provides shareholders with advance information on the AGM in the invitation to attend the It is the duty of the Board of Directors to promote the AGM, in other communiqués and on its website. The interests of the company and all its shareholders. The invitation to attend the AGM and the agenda are published members of the Board do not represent the persons who in a national newspaper chosen by the Board and on the put their name forward for membership of the Board. company’s website, at the earliest two months and at the The Board of Directors has joint authority in all matters latest one week before the AGM tallying date as stipulated concerning the company that are not stipulated by law or in the Finnish Accounting Act. the Articles of Association as being within the sphere of The Annual General Meeting is attended by the President authority of other bodies. and CEO, the Chairman of the Board, a suffi cient number of Board members and any persons nominated for the fi rst The Board of Directors of Finnlines Plc consists of at least time to be Board members, unless there is a pressing fi ve (5) and at most eleven (11) members. The members of reason for their absence. the Board are appointed by the Annual General Meeting for one year at a time. The Board selects the Chairman and Board of Directors the Deputy Chairman from among its members. In 2004, The names of candidates for membership of the Board of the Board consisted of fi ve members. The present Presi- Directors put forward by the Board of Directors or by dent and CEO of the company is also a member of the shareholders with a minimum holding of 10 per cent of the Board of Directors. With the exception of the President and company’s voting rights are published in the invitation to CEO, the members of the Board are not employed by attend the AGM, if the candidates have agreed in writing to Finnlines. The President and CEO cannot be appointed the their name being put forward. Any candidates put forward Chairman of the Board. after the publication of the invitation to attend the AGM will be published separately.

Finnlines ...... Finnlines 48 management performance-based compensation plans. President. The Boardof Director remuneration of Directors Board, thePresident andCEO appoints anddecides onthe their remuneration. Together with theChairman of the the President andCEO andtheDeputy CEO andapproves ment share optionplans. The Bo The Annual General Meetingalso Directors andapproves The Annual General Meeting Management Contracts, Remuneration andBenefi month andwhenevernecessary. resources, forGroupcommunication andforinvestor investments, fi President bears responsibility fortheGroup’s strategy, guaranteeing reliable fi ensuring thelegality of thecompany’s accounts and Board of Directors. The Pres in accordance with theguidelines andregulations of the ble formanaging thecompan approved by theBoard. The President andCEO is responsi- CEO’s employment aredet Directors. The terms andconditions of thePresident and The President andCEO is appointedby theBoardof President andCEO was90%. meetings 2004. The average attendance assessment process. The Boardconvened 8times in working methods annually for its operations. The Boardreviews its operations and The Boardof Directors prepares writtenrules of procedure sit the assists charge of Legal Affairs. The Executive Management Team Information Technology andExecutive Vice President in and Administration, Executive Vice President incharge of Executive Vice President incharge of Financial Control Vice President incharge of Finance andCommunication, tional functions, theHead of Port Operations, Executive the Team consists of the Deputy President andCEO. InadditiontothePresident andCEO, The Executive Management Team is appointedby the Executive Management Team has onedeputy...... operative de relations. Inaddition,thePresident oversees all important ...... Annual 2004 report President inhis duties,andconvenes twice a cisions. nancing, administration andhuman Since 2004,thePresident 1January nancial administration. The the Boardmembers’remuneration. who report directlywho report tothe ermined inawrittencontract through aninternal self- ident is alsoresponsible for appoints theBoardof y’s day-to-day administration level at theseBoard s decides onany separate COrsosbeforopera- CEO responsible ard of Directors appoints decides onany manage- ts shares. Oftheoptions, 350,000 right tosubscribe amaximum of 1,400,000Finnlines Plc managers areinvolved intheplan. The plan grants the options granted tomanagement in2001. Some 20key of 700,000 Finnlines hasoneshareoptionplan consisting compensation plan Management share optionplans andperformance-based CEO’s salary andremunerations totalled EUR570,361. is terminated by theemployer. In2004,thePresident and compensation equivalent to12months’pay if his contract of 58.However, he hasagreedwiththeBoard toextend pension equalling 66%of his salary) onreaching theage and CEO had theright totake full retirement (with a According tohis contract, thecompany’s present President President’s contract based compensation systems inplace. The Boardof Direct EUR 25,000. Deputy Chairman EUR30,000andothermembers the following annual remuneration: Chairman EUR40,000, In 2004themembers of theBoard Remuneration of Board members est exposureis reviewed by the Board of Directors. accordance with thefi andhedgesreserves theGroup’s risk exposures in The Corporate Finance unit controls theGroup’s cash management, cost savings andcash fl of centralisation is toachieve effi have beencentralised toCorporate Finance unit. The aim The Group’s fi assessment process. assessed. Risk management forms of part thecompany’s company andthat theeff internal auditingprinciples have beenestablished inthe The Boardof Director Risk management maximum bonus equalling threeorsix months’pay. are includedunder theplan have conditional rights toa the business units’ budgeted results andROI. Those who other key managers. The plan is linked totheGroup’s and Management Team, theleaders of thebusiness units and performance-based compens notice period his contract until theendof 2007. The President andCEO’s In spring2004theBoar the Helsinki Exchange. November until 26March 2006. The options arelisted on subscribe options annually and30 between2January are Class Boptions. These nancing andliquidity management activities is six andinter ors does not have share- orderivative- The Group’s foreignexchange andinter- months andhe s is responsible forensuring that nancing policy approved by the d ofDirectorsma ectiveness of theauditingis options givetherightto nal ation plan fortheExecutive audits Board of Direct cient fi are Class has the of Directors received ow optimisation. nancial risk de a A and350,000 right toreceive ors foreach cision on a Annual report 2004 ...... 49

budgeting period. The Group’s external long-term loan Insider issues arrangements are submitted to the Board of Directors for Finnlines Plc complies with the insider guidelines of the approval. Helsinki Exchanges. Members of Finnlines’ Board of Directors, the company’s President and CEO, and the The Group aims to maintain adequate liquidity in all company’s auditors are always considered to be Finnlines circumstances. Its cash reserve investments are short-term insiders. In addition, the President has included the Execu- and are only made with counterparts with a high credit tive Management Team, the heads of the business units as rating. Derivative contracts are only made with fi nancially well as key sales and accounting personnel on the list of solid banks and credit institutions. permanent insiders. Insider administration is the responsi- bility of the Corporate Finance Unit. Fuel risks have mainly been covered using fuel clauses in customer contracts. The Board of Directors decides on any Auditors additional protection measures in conjunction with annual The company’s auditors are appointed by the Annual budgeting. The Corporate Finance unit co-ordinates fuel General Meeting on the basis of a proposal made by the risks and hedges the risks using derivative instruments in Board of Directors. The Board’s proposal for auditors is accordance with the policies approved by the Board of published in the invitation to attend the AGM. Directors. In 2004, PricewaterhouseCoopers Oy were Finnlines Plc’s external auditors, with APA Kari Miettinen as responsible The Corporate Legal Affairs and Insurance unit is responsi- auditor. The Board of Directors invites the auditors to ble for risks associated with the company’s fi xed assets present a report at a minimum of two Board meetings and any interruptions in operations as well as for the per year. In 2004 the total remuneration paid to the management and co-ordination of the Group’s insurance auditors by Finnlines group was EUR 500,000 of which policies. EUR 290,000 was based on auditing and EUR 210,000 due for other services from PricewaterhouseCoopers. The majority of the Group’s invested capital consists of its fl eet. The fl eet is always insured to its full value. Accidents Communications and engine damage can result in interruptions to opera- The Corporate Management is responsible for corporate tions, which are covered by loss-of-earnings insurances. communication. Each unit is responsible for its internal communication. The units are also responsible for their The fi nancial position and creditworthiness of the Group’s external marketing communication in accordance with customers are monitored continuously in order to mini- principles approved by the Corporate Management. mise the risk of customer credit losses. The proper functioning of Finnlines’ information systems is guaran- teed through extensive and thorough security programs and emergency systems.

The Group’s internal auditing is organised through a controller system, by which each business unit is appoint- ed a responsible controller who reports to the Chief Controller.

The Directors of Finnlines’ business units are responsible for the profi t and working capital of their business units. They set the operational targets for their units and ensure that resources are used effi ciently and that operations are evaluated and improved.

Responsibility for the Group’s investment assets, working capital, investments, fi nancing, fi nances, human resources, communications and information systems is centralised to the Corporate Management. Since 1 January 2004 the Group’s payment transactions, external accounting and internal accounting have been centralised to a Financial Management Shared Service Centre, which reports to the Corporate Management.

Finnlines ...... Finnlines 50 Board of Directors ...... Länsiauto Oy, Chairman 1989– United Bankers Ab,Chairman 1986– Evox Rifa Oyj, BoardMember2002– Other positions: (wholly ownedby Laine) Pertti Veikko LaineOy 4,247,872 Laine144,000 Pertti Number of Finnlines shares: Chairman of Veikko LaineOy. Born 1941.BSc (Econ). 1994. Member of Finnlines Boardsince Chairman PERTTI LAINE ...... Annual 2004 report Trigon Capital Estonia,BoardMember A.S., Board Member Cygate AB, Sweden, Thominvest Oy & Thom Other positions: 2002. CEO of BuagA.G., Switzerland since Born 1951.MSc (Econ). 2002. Member of Finnlines Boardsince TIMO JOUHKI ETLA, BoardMember2005– ETLA, The Research Institute of theFinnish Economy Member 2005– Finnish Business andPolicy Forum EVA, Board European Round Table Member 1999– Finnish Forest Industries Federation, Board Vice-Chairman of Board1998– Supervisory Varma Mutual Pension Insurance Company, Other positions: Oyj since 1999. CEO andBoardMemberof StoraEnso Hon PhD(Tech andEcon). Born 1946.BSc (Econ), Independent BoardMember. 1989. Member of Finnlines Boardsince Vice-Chairman JUKKA HÄRMÄLÄ of Industrials,Member2001– art Oy,art Chairman Fortum Corporation, Chairman since 2004 Other positions: Number of Finnlines shares: CEO of Hermitage &Co Oy. Born 1952.Master of Law. Independent BoardMember. 2002. Member of Finnlines Boardsince PETER FAGERNÄS Member since 2002 Wärtsilä Oyj Abp,Chairman since 2003,Board since 1990, Assoc Finnish Shipowners’ BoardmembersinceSupervisory 1996 Ilmarinen Mutual Pension Insurance Company, Fortum Corporation, BoardMembersince 2002 Other positions: since 1990. President andCEO of Finnlines Ltd Born 1945.Licentiate inLaw. 1999. Member of Finnlines Boardsince ANTTI LAGERROOS iation, BoardMember 10,000 Annual report 2004 ...... 51

Executive Management Team

ANTTI LAGERROOS JUKKA LAAKSOVIRTA CHRISTER ANTSON President and CEO of Finnlines Plc Chief Operating Offi cer and Deputy CEO Executive Vice President, Financial since 1990 and Executive Management Team Accounting and Administration, and Born 1945. member since 2004. Born 1961. Chief Controller. Executive Manage- Licentiate in Law. MSc in Technology, Industrial Econom- ment Team member since 1999. ics and Management Born 1958. Number of Finnlines options: MSc (Econ), Authorised Public 2001 A 15,000, B 15,000 Accountant Number of Finnlines shares: 2,000

HANS MARTIN SEPPO MIKONSAARI LARS TRYGG President, Finnsteve Oy Ab. Executive Vice President, Information Executive Vice President, Legal Executive Management Team Technology. Affairs member since 1991. Executive Management Team member Executive Management Team Born 1945. since 2002. member since 1989. Business School Graduate Born 1955. Born 1951. Number of Finnlines options: Bachelor’s degree in social insurance Master of Law. 2001 A 20,000, B 20,000

SEIJA TURUNEN Executive Vice President, Finance and Communication, and CFO. Executive Management Team member since 1993. Born 1953. MSc (Econ)

The Group Management’s ownership of shares and Finnlines options as per March 1, 2005.

Finnlines ...... Finnlines 52 aotrto 7. 240 87 71 77.1 6.5 11.8 87.1 39,958 6.5 0.59 13.2 39,958 39,958 98.7 9.65 0.75 359.6 13.5 7.3 39,958 39,958 39,958 214.0 9.93 39,958 9.00 459.5 39,958 0.75 0.77 24.7 8.7 39,958 39,958 45.7 39,958 39,958 79.8 409.6 9.76 11.50 39,958 39,734 1.25 13.6 0.87 39,958 2.4 5.9 47.4 571.2 39,734 4.8 39,734 10.25 9.58 0.75 0.59 1.68 8.2 8.0 2000 2002 2001 20042003 39,734 6.5 39,402 504.3 4.0 43.6 14.38 Number of shares on31December (1,000) 5.8 9.23 Average numberof shares (1,000) 39,402 0.59 2.49 Adjusted numberof shares on31December 9.1 (1,000) 8.9 12.80 40.6 7.7 18.3 Adjusted average numberof shares (1,000) 3.4 0.94 Market capitalisation at the year end,EUR 1,937 2.39 Share price onstock exchange at 41.5 year-end, EUR 7.1 6.1 12.6 4.9 Price/earnings ratio (P/E) 1,981 Effective dividend yield, 3.3 % 2.54 0.93 Payout ratio, % 9.9 63.2 65.4 50.0 76.367.5 8.3 6.1 2,096 Dividend pershare, EUR 5.8 2.39 Share capital pershare, EUR 846.0 5.3 892.8 840.2 881.3940.8 Cash earnings fromoperating activities pershare, EUR 2,161 8.1 10.0 Earnings pershare less warrant dilution,EUR 6.6 Earnings pershare (EPS), EUR 2,101 Average numberof employees duringthe year Gearing, Equity ratio, % Total % Return oninvestment,%(ROI) Return onequity, %(ROE) assets % of revenue Total investments as percash fl % of revenue Profi % of revenue ...... 7.8 10.5 7.7 9.7 18.8 4.9 6.7 17.2 5.8 12.7 0.8 8.5 13.6 6.6 3.8 2000 0.7 14.7 7.7 2001 100.2 7.5 0.1 13.7 2002 103.1 3.4 -0.2 2003 94.4 8.7 0.0 2004 103.4 532.1 693.0 601.0 698.1701.4 Profi 95.3 % of revenue Profi %of revenue Operating profi %of revenue amortisation andwrite-downs (EBITDA) Earnings beforethedepreciation, Other operating income Participating interests Revenue EUR million Five years’fi ...... Annual 2004 report tfrteya 3. 2. 2. 3. 25.5 34.7 23.5 23.2 37.0 t forthe year t before provisions t beforeextraordinar t (EBIT) 53.7 59.7 46.2 58.3 55.8 46.2 58.3 53.759.7 t (EBIT) gures n ae ET 4. 4. 3. 4. 34.6 46.3 33.8 40.4 46.4 and taxes(EBT) y items 46.4 40.4 33.8 46.3 41.6 33.8 46.3 46.440.4 y items o ttmn 88 85 2. 2. 12.8 24.1 126.5 88.5 68.8 ow statement Annual report 2004 ...... 53

Calculation of key ratios

Profi t before extraordinary items – taxes for the fi nancial year – Return on equity (ROE), % = change in deferred tax liabilities x 100 Share capital + minority interests (average)

Profi t before extraordinary items + interest expenses + Return on investment (ROI), % = other expenses under liabilities x 100 Balance sheet total – non-interest bearing loans (average)

Share capital + minority interests Equity ratio, % = x 100 Balance sheet total – advances received

Interest-bearing debt – cash and bank equivalents Gearing, % = x 100 Shareholders’ equity + minority interest

Earnings per share (EPS) = Profi t before extraordinary items +/– minority interests in Group profi t +/– change in deferred tax liabilities – taxes for the fi nancial year, from which the effect of extraordinary income and charges has been eliminated Average number of shares adjusted for share issue

Earnings per share (EPS) = Profi t before extraordinary items +/– minority interest in consolidated less warrant dilution profi t +/– change in deferred tax liability – taxes for the fi nancial year less effect of extraordinary income Issue-adjusted number of shares + number of shares to be received on full exercise of options – (number of shares to be received on full exercise of options x share issue price)/share market value

Cash fl ow from operating Cash fl ow from operating activities = activities per share Average number of shares

Share capital Share capital per share = Number of shares on 31 December adjusted for share issue

Dividend paid for the year Dividend per share = Number of shares on balance sheet date

= Dividend paid for the year Payout ratio, % x 100 Profi t before extraordinary items +/– minority interests of Group profi t +/– change in deferred tax liabilities – taxes for the fi nancial year, from which the effect of extraordinary income and charges has been eliminated

Dividend per share Effective dividend yield, % = x 100 Share price quoted on stock exchange on 31 December adjusted for share issue

Share price quoted on stock exchange on 31 December Price/earnings ratio (P/E) = Earnings per share

Finnlines ...... Finnlines 54

...... NB 1–5 ...... Annual 2004 report (2005–2007 )4,200lanemetres, 500passenger (2005–2007 berths, speed Construction 25knots. ongoinginItaly. Purchased from Denmark,where it hadbeenbuilt in1916. 6,435 DWT, 12passenger berths, speed 15knots. MS Finnclipper(I) MS Finntrader (I) 11,200 DWT, speed 16knots. 6,800 DWT, speed 9.5knots. SS Tornator Built in the Netherlands. Built inGermany. The development of Finnlines’ Baltic fl , (1947–1954) , (1951–1970) , (1962–1978) ...... Its subsidiary was Oy Finnlines Ltd. company called Merivienti Oy to handle underdirectionof thestate-owned the In 1947, some of the companies incharge ofFinnishimports andexports, steamers weredec and MS Finnsailor –began operating in1953. The old a series of three vessels – was extended with the new and powerful MSwas extendedwiththenewandpowerful Finneagle, offered weekly departures totheUS.In1960fl respectively, Finnlines had afl and MS Finnboardhad begun operating in1956and1958 ofpart theconstruction project.Once MS Finnmerchant uligwascompleted in building country’s transport demands. The company’s fi The vessels weretooold,however, tocope with the with aloadof 5,667tons of pulpandpaper. began operating inFebruary 1948,crossing theAtlantic the largest one, Six second-hand steamers werepurchased thesame year; small thefollowing andit winter, waslengthened the beginningitwasapparentthat Travemünde (Germany) via Gotland (Sweden).Right from and began operating between Hanko (Finland) and HansaExpress wasorderedin1962 ferry strengthened to Central Europehad togo through Sweden. The fi Until theearly 1960s,all car traffi andlorry MS Finnclipper forest industry, established a shipping sea transportsStates.United tothe andMS Finnforest. SS Tornator ommiss eet MS Finntrader ioned fromAtl the Netherlandsin1951,and , came fromDenmark and eet of seven vessels and the vessel was too was the vessel , MS Finnpulp antic rou c fromFinland rst new- tes as eet rst ice- Annual report 2004 ...... 55

increasing passenger capacity from 133 to 179 berths. and MS Oihonna for traffi c to Britain. Later the same Hanko was also found to be too small and too distant, design was adopted for the Baltic fl eet in the form of so in 1963 the route was changed to Helsinki–Kalmar- MS Finnsailor and MS Antares. Travemünde. Finnjet, a new kind of gas turbine vessel, was built in the The fi rst passenger ferries built in Finland, Finnhansa mid-1970s for passenger traffi c. The original aim was that and Finnpartner, began operating in 1966 on the Hansa the ship would travel between Helsinki and Travemünde route (Helsinki-Travemünde). In addition to transporting in 22 hours at a speed of 30 knots. The oil crisis affected passengers, the vessels offered an excellent alternative the vessel’s cost-effectiveness, and diesel engines were to lorry traffi c between Finland and Germany. added to it for use in quieter periods. Finnlines’ passenger traffi c in the Baltic Sea ended in 1986, when Enso-Gutzeit As passenger traffi c was limited to the summer season, sold the Finnjet to Effoa. the expensive car ferries must at other times be put to effective use in cargo transports. This, however, required Just before the recession in the early 1990s, Finnlines swift loading and unloading procedures, which led to invested in three new “combi ro-ro” vessels – MS Finnhan- Finnlines developing its own Finnfl ow cargo handling sa, MS Finnpartner and MS Finntrader – built in Poland. system on wheels. This in turn caused the development Each have a capacity of 3,200 lane metres and 114 of new kinds of ro-ro vessels, the prototype being passenger berths. Together with MS Transeuropa, which MS Finncarrier, built in 1969. Its sister vessels, was ordered later, these vessels began operating between MS Hans Gutzeit and MS Finnfellow, included slight Finland and Germany in 1994–1995. improvements in design and were completed in 1972–73. In the late 1990s the company commissioned In the early 1980s, Finnlines designed the new-generation two new ro-pax (ro-ro/passenger) vessels with “jumbo ro-ro” vessels MS Arcturus, MS Finnmerchant capacity for over four hundred passengers. These vessels, MS Finnclipper and MS Finn- eagle, were joined in 2003 by sister vessel MS Finnfellow.

In 2004, Finnlines ordered fi ve new-generation ro-pax vessels from the Italian shipbuilder MS Finnhansa (I), (1966–1978) Fincantieri. These will be the largest ro-pax Passenger ferry vessels ever built, and the fastest in their size class. Each 2,510 DWT, 1,700 passenger berths, speed 20 knots. Built in Finland. vessel’s cargo capacity will be 4,200 lane metres and they will have capacity for 500 passengers. They will travel at a speed of 25 knots. Three of the new ro-pax vessels will be placed on Finnlines’ Finland-Germany route, while two will operate in Sweden-related routes.

MS Finncarrier, (1969–1975) In 2007 after the delivery of all new vessels Finnlines will Ro-ro/passenger vessel have a multi-purpose fl eet of some 80 vessels. 17 of these 1,000 lane metres, 36 passenger berths, speed 18 knots. Built in Finland. will be ro-pax vessels especially designed into the Baltic circumstances.

MS Finnhansa (II), (1994– Combi ro-ro 3,200 lane metres, 114 passenger berths, speed 20 knots. Built in Poland.

MS Finnclipper (II), (1999– Ro-pax vessel 2,500 lane metres, 440 passenger berths, speed 21 knots. Built in Spain.

Finnlines ...... Finnlines 56

...... Annual 2004 report FINNARROW VASALAND, BALTICA BALTIC EIDER,MERCHANT, AMBER, FINNOAK FINNCLIPPER, FINNEAGLE,FINNFELLOW ASTREA FINNSAILOR ANTARES The fl INIC 409210 1978 1996 14,059/2,100 1990 25,996/2,400 21,224/2,170 1984 1982 FINNBIRCH 20,203/2,170 1991/98 1991 FINNARROW 21,195/2,170 7,953/1,593 BALTICA 6,719/1,260 VASALAND 1999 MERCHANT 1991 FINNOAK 1999 29,841/2,459 AMBER 29,841/2,459 9,528/827 FINNFELLOW 33,769/2,918 1987/96 1988 FINNEAGLE 2000 20,783/1,350 19,963/2,090 FINNCLIPPER ASTREA FINNSAILOR ANTARES eet 2005 on1January rs ong/aemte Year of delivery Gross tonnage/Lane metres Annual report 2004 ...... 57

Gross tonnage/Lane metres Year of delivery

FINNFOREST 15,525/2,100 1978 FINNBIRCH, FINNFOREST FINNKRAFT 11,530/1,890 2000

FINNKRAFT, FINNMASTER, FINNREEL, FINNMASTER 11,530/1,890 2000 FINNHAWK FINNREEL 11,530/1,890 2000

FINNHAWK 11,530/1,890 2001 FINNMILL, FINNPULP FINNMILL 25,654/2,680 2002

FINNPULP 25,654/2,680 2002 FINNHANSA, FINNPARTNER, FINNTRADER, TRANSEUROPA FINNHANSA 32,531/3,200 1994

FINNPARTNER 32,534/3,200 1995

LÜBECK-LINK, MALMÖ-LINK FINNTRADER 32,534/3,200 1995

TRANSEUROPA 32,533/3,200 1995

FINLANDIA LÜBECK-LINK 33,163/2,650 1980/90

MALMÖ-LINK 33,163/2,650 1980/90

FINLANDIA 19 524/2,240 1981 TRANSLUBECA TRANSLUBECA 24,727/2,100 1990

INOWROCLAW INOWROCLAW 14,786/1,403 1980

POLARIS 7,950/540 1988

POLARIS RIDER 20,077/1,950 1984

RUNNER 20,729/1,975 1990 RIDER BIRKA CARRIER 12,251/1,690 1998

BIRKA EXPRESS 12,251/1,690 1997 RUNNER BIRKA TRADER 12,251/1,690 1998

NORCLIFF 8,407/1,132 1995 BIRKA CARRIER , BIRKA EXPRESS, BIRKA TRADER FORTE 3,998/- 1989

NORCLIFF LARGO 3,998/- 1990 NESS 3,999/- 1996

FORTE, LARGO BAUMWALL 3,999/- 1995

NESS, BAUMWALL

Team Lines operated on average 22 container vessels whose capacity was between TEU 348-822.

Finnlines ...... Finnlines 58

...... Annual 2004 report Addresses

...... www.fi Telefax +358(0)103434425 Phone +358(0)1034350 FI-00181 Helsinki P.O.Box 197 00180 Helsinki Porkkalankatu 20A Finnlines Plc www.nordoe-link.com Telefax +46(0)40176801 Phone +46(0)40176800 SE-20121 Malmö P.O. Box 106 SE-21120 Malmö Grim Rederi ABNordö-Link www.fi Telefax +358(0)104367680 Phone +358(0)104367620 FI-21100 Naantali Satamatie 11 Oy Finnlink Ab Telefax +44(0)2075360255 Phone +44(0)2075197300 GB-London E14 4JB 8 HeronQuay Finnlines UK Ltd. Telefax +32(0)35709550 Phone +32(0)35709530 BE-9130 Kallo (Beveren) Land van Waaslaan-Kaai1213 Finnlines Belgium N.V. www.fi Telefax +49(0)4511507222 Phone +49(0)45115070 DE-23527 Lübeck P.O.Box 1022 23554 Lübeck Einsiedelstraße 43-45 Finnlines Deutschland AG sbygat nnlines.fi nnlink.fi nnlines.de an 8 Telefax +358(0)22303115 Phone +358(0)102337555 FI-20101 Turku P.O.Box 38 20200 Turku Huolintakatu 5 www.fi Telefax +358(0)96857253 Phone +358(0)1056560 FI-00181 Helsinki P.O.Box 225 00180 Helsinki Saukonkuja 5 Finnsteve Oy Ab www.teamlines.fi Telefax +358(0)105775775 Phone +358(0)105775700 FI-00181 Helsinki P.O.Box 197 00180 Helsinki Porkkalankatu 20A Team Lines Finland Oy www.teamlines.de Telefax +49(0)4037602192 Phone +49(0)40376020 D-20433 Hamburg P.O. Box 113343 DE-20459 Hamburg 3 Baumwall Team Lines GmbH&Co. KG Telefax +49(0)45022560 Phone +49(0)450280520 DE-23524 Lübeck-Travemünde P.O. Box 150228 DE-23570 Lübeck-Travemünde Skandinavienkai Skandinavien-Link GmbH nnsteve.fi Annual report 2004 ...... 59

Operating area on 1 January 2005

Kemi Oulu

Rauma Naantali Turku Helsinki Gävle Kotka Oslo Hanko Hamina St. Petersburg Brevik Moss Kapellskär Kristiansand Stockholm Tallinn Norrköping Gothenburg

Foynes Aarhus Helsinborg Riga Åhus Hull Moscow Copenhagen Malmö Klaipeda

Sassnitz Baltijsk (Kaliningrad) Felixstowe Hamburg Gdynia Bremerhaven Rostock Lübeck Szczecin Amsterdam Travemünde Rotterdam Antwerp Zeebrügge

La Pallice

El Ferrol

Mediterranean (Agents)

Bilbao

Finnlines’ route network covers all major Finnish ports as well as approximately 30 ports abroad.

Finnlines ...... www.fi Telefax +358(0)103434425 phone +358(0)1034350 FI-00181 Helsinki P.O.Box 197 00180 Helsinki Porkkalankatu 20A Finnlines Plc nnlines.fi