annual report 2002 HONKARAKENNE OYJ The World Leader in Log Homes HONKARAKENNE 45 YEARS – ROOTS IN FINLAND, GROWTH IN WORLD MARKETS onkarakenne has grown from a domestic manufacturer of summer cottages into a networking and globally known Hforerunner as designer, manufacturer and marketer of individually designed wooden houses. In 1958, four Saarelainen brothers, Viljo, Nestori, Arvo, Eino and Reino started producing log cottages and sau- nas and developing machine tools in Lieksa, Finland. Honkarakenne Oy was founded as a sales company. New factories were established in Ikaalinen and Karstula, and exports to Austria and Japan started in the 1970s. Intensive development activity strengthened Honka’s position, and in 1987 the company was listed on the stock exchange to get capital needed for invest- ments and international expansion. Honka’s internationalization process began under the management of the second generation of the Saarelainen family. Subsidiaries were established abroad, exports exceeded domestic sales in the 1990s, and most of Honka’s growth today is gene- rated in international markets. Honka’s vision is to be the industry leader and the best brand of massive wooden houses in its principal markets Finland, Germany, Japan and Russia. 2 Honkarakenne Oyj 2002 CONTENTS Honkarakenne 45 years....................................... 2 To shareholders ................................................... 3 Year 2002 in brief................................................ 4 President’s review................................................. 5 Report by the Board of Directors ........................ 6 Income statement ................................................ 9 Balance sheet....................................................... 10 Cash fl ow statement ............................................ 12 Notes to the fi nancial statements......................... 13 Proposal of the Board of Directors ...................... 20 Auditor’s report ................................................... 20 Key indicators ..................................................... 21 Major shareholders .............................................. 22 Market review ..................................................... 23 Business areas...................................................... 23 Administration and management ........................ 26 Business locations and export network ................ 27 Information to shareholders onkarakenne Oyj’s Annual General Meeting will be held at the corporate headquarters in Tuusula, address Lahden- Htie 870, Järvenpää, Finland, on Friday 11 April 2003 starting at 15:00 hours. Notifi cations of attendance should be made by 4 April 2003, tel. +358 205 757 00. The interim reports will be published as follows: - January - March 2003 Wednesday 14 May 2003 - January - June 2003 Wednesday 13 August 2003 - January - September 2003 Wednesday 12 November 2003 The Annual Report and interim reports are published in Finnish and English and can also be read on the company’s web- site www.honka.com. The hard copy can be ordered by tel. +358 205 757 00. The World Leader in Log Homes 3 The most important construction project of the year and the second largest Honka house ever built was a house for the American football champion Steve Young. Year 2002 in brief - Domestic deliveries by the Finnish log construction industry increased by 6 % from the previous year and exports grew by 1 %. Honkarakenne’s domestic deliveries increased by 8 % and international operations by 11 %. - Honkarakenne’s net sales totaled EUR 86 million, and international business accounted for 64 % of this fi gure. Result before extraordinary items and taxes was a loss of EUR 2.9 million. Honkarakenne’s equity ratio remained good at 42 %. - Sales of leisure residences represented 32 %, detached family houses 62 % and other sales (sawn goods, by-products) 6 % of total sales. - The average number of personnel was 472. - The order book grew by 8 % from the previous year. - Honkarakenne reduced its holding in the window factory in Ikaalinen to 15 %. - Honkarakenne purchased its own shares representing 3 % of the share capital. - The show house network in continental Europe was complemented by building a Design Center in Rheinau-Linx. Net sales by product group Consolidated net sales by country 2002 (2001), % 2002 (2001), % Others 5.8 % (6.7) Others 8.7 % (9.0) USA 1.7 % (3.9) Garden buildings and Vacation homes saunas 6.2 % (6.1) 25.9 % (24.8) Russia 8.2 % (7.6) Finland France 3.3 % (3.3) 36.1 % (37.5) Japan 17.5 % (19.3) Single-family homes 62.0 % (62.3) Germany 24.5 % (19.5) 4 Honkarakenne Oyj 2002 President’s Report onkarakenne’s net sales Hincreased to EUR 86 mil- lion but its result remained unprofi table at EUR -2.9 million. Economic situation in three of our four main markets, Finland, Germany and Japan, was subdued throughout the year. The construction industry developed positively only in Russia. These four markets form over 80 % of Honkarakenne’s markets. Our net- work is strong and effi cient in all these four countries. The log construction sector was anticipated to grow. However, the expected economic upturn did not materialize. Deliveries from the industry grew only slightly. Price competition in Finland is extremely harsh. Many companies operating in the log construction sector survive on subsidies, thus distorting competition; consequently, the need for a ration- alization of the industry is overdue. Few companies possess the resources required for improvement. We concentrate investments 2003. The Honka brand is based on attritions required by the structural in four countries Honkarakenne’s superior design and program have not been suffi cient in services. Together with Innoteam the the light of the real market situation. Honkarakenne’s principal market areas Model, Architecture and Design Team Confi dence in a market recovery had are Finland, Germany, Japan and Rus- will help development take a quantum been kindled in the summer season, sia. There has been no growth in the leap forward. Design and form are and no more structural measures were domestic market for several years, and increasingly important and this shows undertaken during the latter part of the industry suffers from overcapacity. in Honka’s activities and offerings. the year, although a subsequent review Honka will therefore invest resources We will introduce our new operating of the situation afterwards has shown to exports where the potential for concept, the Honka Way, in May 2003 that they would have been necessary. growth and profi tability is better. to further consolidate our position as a We see ourselves forced to take more pioneer of the industry. energetic action this year. In 2002, Honkarakenne exported log houses actively to 20 countries. We Construction services are steadily This year will be very challenging as are prepared to reduce our network in increasing their share of operations. regards our ability to improve opera- countries where growth potential is The quality and effi ciency will be tions and profi tability. Production vol- likely to remain modest. enhanced, to ensure customers the umes of the fi rst year-half will remain quality characteristic of Honka brand modest but profi tability will improve. Personnel resources directed to also in erection of buildings. The peak of current orders will be even brand and design development more predominantly weighted towards Outlook the second and third quarters, promis- The structural program initiated in ing record production volumes for the 2001 has now been completed. No At the date of this review Honkarak- high season. lay-offs of personnel were neces- enne’s book of current orders is 15 % sary during the winter season 2002 bigger than in the previous year, which I wish to present my thanks to our – 2003 and personnel resources were is an indication of the steady demand entire personnel and all stakeholders. transferred especially from design and for log houses. Especially in export Our new operating concept together planning to the new Innoteam. One markets the general values of consum- with investments in Honka Design task of the team was to develop pro- ers favor log construction and single- will further strengthen the Honka duction-friendly well-selling Design family houses. Today 64 % of Honka brand. Focusing on our main markets components and prepare harmonized Group’s total sales are generated from in accordance with our adopted strat- international guidelines for structure international operations. egy as well as more effi cient operations and design. will improve profi tability. We have left behind us another We will continue dedicating signifi - unprofi table year that was diffi cult Mauri Saarelainen cant resources to development also in also for our personnel. However, the The World Leader in Log Homes 5 REPORT BY THE BOARD OF DIRECTORS 1 January – 31 December 2002 onkarakenne Oyj’s net sales accounted for EUR 54.7 million (EUR tored. The volume and profi tability Hincreased by 9 % from the 48.8 million), or 63.9 % (62.6 %) of targets were not met in other Euro- previous year to EUR 85.6 total sales. pean countries, and the local networks million. Thanks to the winter market- The growth of Honkarakenne’s net will be adapted to improve effi ciency. ing campaign the capacity utilization sales was mainly generated from inter- during the fi rst part of the year was national operations as well as services, good, although business was carried mainly consisting of installation activi- Result and profi tability