A N N U A L R E P O R T 1 9 9 6

2

4 A Year of Change6 Tamrock Today7 Group Management8 CEO’s Message10 Business Operations in 199618 Report by the Board of Directors22 Consolidated Income Statement1January–31 December 199623 Source and Application of Funds1996 Tampella Group24 Consolidated Balance Sheet 31December 199626 Parent Company Income State-ment1 January–31 December 199627 Source and Application of Funds1996 Parent Company28 Parent Company Balance Sheet 31December 199630 Accounting Principles31 Consolidated Financial Statementsin Accordance with International Ac-counting Standards (IAS)32 Notes to the Financial Statements38 Proposal of the Board of Directors38 Auditors’ Report39 Tampella Group in Figures40 Business Groups in Figures41 Calculation of Key Indicators42 Share Capital and Shareholders46 Tamrock Worldwide

Contents

4 A Year of Change

6 Tamrock Today

7 Group Management

8 CEO’s Message

10 Business Operations 1996

18 Financial Statements

38 Proposal of the Board of Directors

38 Auditors’ Report

39 Tampella Group in Figures

40 Business Groups in Figures

41 Calculation of Key Indicators

42 Share Capital and Shareholders

46 Tamrock Worldwide

Annual General Meeting

The Annual General Meeting of Tamrock Corp. will take place at the corporateoffices, address Kelloportinkatu 1, Tampere, Finland, on Wednesday, 9 April 1997at 2.00 p.m.

Book-entry securities systemThe company has transferred its shares to the book-entry securities system. Theshareholder register is maintained by The Finnish Central Securities Depository Ltd,address Eteläesplanadi 20, FIN-00130 HELSINKI, Finland, tel. +358 9 686 200.

MarketplaceThe Tamrock Corp. shares are listed on the Helsinki Stock Exchange.

Financial reviewsIn addition to the annual report, Tamrock will publish three interim reports in 1997:January–March in the first week of May, January–June in the second week ofAugust and January–September in the first week of November.

This annual report is a translation of the original Finnish document.

3

Tampella Corp. was

renamed Tamrock Corp.

on 28 February 1997.

The company’s operations

continue under the

internationally established

Tamrock name.

4

A Year of Change

Key financial indicators

1996 1995

Net sales, MFIM 4,520 4,460

Operating profit/loss, MFIM 199 – 115

Profit before extraordinary items, provisions and taxes, MFIM 141 – 188

Net interest, MFIM – 52 – 53

Interest-bearing net debt, MFIM 1,328 1,071

Balance sheet total, MFIM 4,007 4,001

Solvency ratio, % 19.2 16.0

Personnel on 31 Dec. 5,224 5,315

1992 1993 1994 1995 1996

6,546

4,5204,083

3,282

4,460

Net sales, MFIM

Exports and foreign operationsFinland

The most visible event in the compa-ny’s operations during 1996 was thedecision to change its name. Underly-ing this, however, were a number of far-reaching changes to the company’sstructure.

Sale of Tampella Power

The heavily loss-making TampellaPower was sold in March 1996 to theNorwegian Kvaerner Group for FIM110 million. This divestment substan-tially strengthened Tampella’s balancesheet and solvency as well as simpli-fied its business structure.

Ownership changes

Large numbers of Tampella’s shareswere traded during April and May. TheSwedish company Svedala made anoffer for Tampella shares, but withdrewafter it became apparent that anotherlarge Swedish company, Sandvik AB,had obtained a significant holding inTampella. At the same time the FinnishRauma Corporation acquired a 14 %stake in Tampella. Sandvik AB’s holdingeventually rose to approximately 49 %.

To simplify its ownership and corpo-rate structure, Tampella acquiredSandvik’s 25 % holding in Tamrock inJune. In part payment Sandvik re-

ceived FIM 322 million in convertiblebonds issued by Tampella. Full conver-sion of these bonds would raise Sand-vik’s holding in the new Tamrock to ap-proximately 58 %.

Internal organization

Changes in the company’s ownershipstructure also led to internal reorgani-zation. The divestment of TampellaPower put Tamrock’s businesses in adominant position. This prompted thedecision in June to tighten up the cor-porate structure by merging Tampella’ssubsidiaries Tamrock Oy, Detec Inter-national Oy and Bretec Oy, as well asTamrock’s subsidiary Tamrock LoadersOy and Detec’s subsidiary Rammer Oy,

Tamrock and theAustrian companyVoest-AlpineBergtechnik makean excellent match,both in products andmarket coverage.

with Tampella. These mergers werecarried out in early 1997.

It was also decided to combine theresources of Tampella’s and the formerTamrock Group’s corporate manage-ments with effect from 1 September1996.

VAB acquisitionIn June the company reached agree-ment with the Austrian companyÖsterreichische Industrieholding AGto acquire Voest-Alpine BergtechnikGesmbH (VAB). VAB manufacturesequipment for coal mining, tunnel ex-cavation and bulk materials handling.Its integration with Tamrock strength-ens the Group’s competitive position

5

substantially. The acquisition’s great-est significance is for the company’scoal mining machinery business. VABwas consolidated in the Group ac-counts for the period September toDecember 1996.

Change of nameFollowing these structural changes thenext logical step was to rename thecompany. The Tamrock name waschosen since it reflects the Group’scurrent structure and business opera-tions. The change was confirmed bytwo extraordinary shareholders’ meet-ings, on 9 December 1996 and on 17January 1997, and it took effect on 28February 1997.

ResultThe company’s result moved clearlyinto profit. The result before extraordi-nary items, provisions and taxes in-creased to a profit of FIM 141 million(1995: a loss of FIM 188 million). Netsales totaled FIM 4,520 million (4,460).

Profit/loss before extraordinaryitems, provisions and taxes,

MFIM

–549

141

11

–198 –188

1992 1993 1994 1995 1996

Solvency ratio, %

1992 1993 1994 1995 1996

16.4

19.2

25.426.8

16.0

Tamrock Today

Operative structure

Customers

Regions

Europe CIS Canada USA + Latin Far East Australia AfricaMexico America

Hard Rock Mining Construction Coal Roxon Tamrotor

Product Companies

Tamrock Corp.

6

Legal Structure

Tamrock Corp.

Foreign Roxon Oy Oy Tamrotor Absubsidiaries Finland Finland

Roxon´sforeign subsidiaries

Tamrock (formerly Tampella) is an inter-national mechanical engineering cor-poration founded in 1856. Its globalnetwork includes 50 subsidiaries in 24countries and a large number of localdistributors. Tamrock Corp. has pro-duction plants in Australia, Austria,Canada, Finland, France, Germany,Great Britain, Indonesia, Poland, SouthAfrica, Sweden and the USA. Tam-rock’s consolidated net sales totaledFIM 4,520 million and it had 5,224employees at the end of 1996. TheTamrock share is listed on the HelsinkiStock Exchange.

Tamrock’s brand names are Tam-rock, Alpine Westfalia, Driltech,EIMCO, EJC, EM-Franceloader,Gurtec, KOPO, Prok, Rammer, Roxon,Rox´n Roll, Secoma, Tamrotor, Toroand Voest Alpine.

Tamrock derives approximately twothirds of its annual revenue from ma-chinery and equipment for the miningindustry. Drilling and excavation equip-ment and excavator attachments forcivil engineering and construction pur-poses account for some 20 % of thenet sales, and other products for about15 %.

Tamrock’s product portfolio and corresponding customer groups:

Equipment and services for hard rock excavation(Base and precious metal mines and mine contractors)

Equipment and services for soft mineral excavation(Coal, potash and salt mines and mine contractors)

Construction machinery, equipment and services(International and local civil engineering and excavation contractors,demolition and recycling contractors, quarries, and machine rental compa-nies)

Bulk materials handling equipment and conveyor components(Mines and construction companies, quarries, power plants, portsand conveyor plant manufacturers)

Industrial compressors(Industry, shipbuilding and compressor manufacturers)

Group Management

Tamrock Executive Board(from left):Matti Kotola,Seppo Kivimäki,Juha Seppälä,Ilkka Hakala,Jouko M Jaakkola,Veli Kronqvist,Jarmo Juntunen,Timo Koskinen,Kai Miesmäki,Raimo Lind,Pekka Heikkonen,Göran Anderssonand Eero Immonen.

Board of Directors

ChairmanClas Åke Hedström, 57President and CEOSandvik AB

Deputy ChairmanStig-Erik Bergström, 56Deputy Managing DirectorOY Stockmann AB

Heikki Hakala, 55President and CEORauma Corporation

Johan Horelli, 57Managing DirectorAktia Savings Bank Ltd

Kari Kolu, 40President and CEOSponda Oy

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Executive Board

President and CEOJouko M Jaakkola, 52 *)

Executive Vice President andCOOIlkka Hakala, 41 *)

Executive Vice President,Company SecretaryKai Miesmäki, 49 *)

Senior Vice President,TechnologyGöran Andersson, 52

President, ConstructionPekka Heikkonen, 49

Senior Vice President,Business DevelopmentEero Immonen, 52 *)

President, Roxon OyJarmo Juntunen, 40 *)

President, Hard Rock MiningSeppo Kivimäki, 43

Senior Vice President,Management DevelopmentTimo Koskinen, 48

Senior Vice President,Product CompaniesMatti Kotola, 46

Senior Vice President,Corporate TreasurerVeli Kronqvist, 42

President, CoalRaimo Lind, 43

Senior Vice President,Corporate ControllerJuha Seppälä, 40 *)

*) Members of the Board ofCorporate Management, whichalso includes two personnelrepresentatives,

Chief Shop StewardTarmo Silander, 41

Materials TechnicianKauko Kivelä, 58.

Auditors

KPMG Wideri Oy AbAuthorized Public Accountants

Mauri PalviAuthorized Public Accountant

Deputy auditors

Markku SohlmanAuthorized Public Accountant

Tapani HuopainenAuthorized Public Accountant

CEO’s Message

With major restructuring now completed,Tamrock is an internationally competitiveindustrial group.

8

A new and unique corporationDuring 1996 our company recordedmore major events in the pages of itshistory than for a long time. Signifi-cantly, however, all the changes wereof a positive nature.

When I joined the Tampella Group inFebruary 1996, the first matter requir-ing a decision was the future of Tam-pella Power. We decided to sell it andthe divestment took place in thespring. It had a dynamic impact on theentire Group’s financial position. In

practice the Tampella Group became acompany with a single business focus,its core expertise comprising excava-tion equipment for mining and con-struction; almost all the Group’s otheroperations relate to and support thisbusiness. The changes, actions andacquisitions we made during the finan-cial year all support this strategy of fo-cusing on one business, consolidatingand developing it to serve our custom-ers more effectively.

Another fundamental decision wasto strengthen our coal mining machin-ery sector through the acquisition ofthe Austrian Voest-Alpine BergtechnikGroup (VAB), which made coal miningequipment an important business forthe Group.

Once the strategic decisions weremade, we modified the Group’s inter-nal structure to correspond with thenew situation. We initiated the mergersof several subsidiaries in Finland withthe parent company and reorganized

the corporate management to conformwith the Group’s new structure. Wealso decided to change the company’sname to Tamrock Corp. Although theTampella name has a long history oftradition and is very well known in Fin-land, more important still for theGroup’s current operations is the factthat Tamrock is known worldwide as aleading manufacturer of excavationequipment.

The year’s highlights also undoubt-edly include the “fight” for Tampella onthe stock market. The result, in whichSandvik AB and Rauma Corporationbecame major shareholders, strength-ened the already close collaborationwe enjoyed with Sandvik Rock Toolsand Rauma Corporation’s Nordberg di-vision. Later on, the parent companyacquired Sandvik’s 25 % holding inTamrock, which clarified our corporatestructure and cleared the way for fur-ther development of Tamrock’s opera-tions.

Looking to the future, a significantpotential lies with intensifying the co-operation with Sandvik Rock Tools andNordberg. Sandvik Rock Tools’ exper-tise in drilling and excavation tools andNordberg’s knowhow in rock crushingand processing offer considerablescope for synergic benefits with Tam-rock’s businesses.

A significant challenge involvescompleting the integration of VAB.When we acquired this Austrian com-pany we knew it was loss-making; alsoits result for the last four months of1996 was weaker than expected. Thecompany’s production facilities andtechnology, however, are in goodshape and its products and marketingnetwork mesh well with our own. Ourgoal is to mold VAB and Tamrock’sEimco units into a strong and compet-itive group in the coal mining machin-ery sector.

9

Despite the pressure from the year’sstructural changes, we still reached anacceptable result. Tampella Power,which was heavily loss-making, wasno longer a burden on our perform-ance. Furthermore, both Tamrock andRoxon posted their best results ever.

One year ago I stated my belief inTampella’s future, though fully aware ofits difficult recent history. The 1996 fig-ures demonstrate that my confidencewas not unfounded. We have made itover the worst at a creditable pace andwe are headed in the right direction.

The new Tamrock Group is not with-out its challenges, however. Itsfinancial performance is still not suffi-ciently strong, and we must further in-crease the company’s solvency. Thus,an additional challenge for the near fu-ture is to raise the Group’s internal effi-ciency.

We are directing more efforts andresources than ever towards opera-tions and services that benefit our cus-tomers. Essential to our operations isknowing and enhancing our custom-ers’ processes and helping them raisetheir profitability.

The new and unique Tamrock is in-ternationally competitive in all its mainbusiness areas. With the large organi-zational issues now resolved, Tamrockcan launch itself forward from an en-tirely new base. The market outlook for1997 is still positive especially inSoutheast Asia, Australia and SouthAmerica, which are becoming increas-ingly important for us. We predict thatour net result for 1997 will improve onlast year’s. The largest uncertainty fac-tor that we are aware of is the possibil-ity of punitive damages being leviedagainst the Driltech subsidiary in a pat-ent dispute.

Jouko M Jaakkola

10

11

Tamroc

Pr

Sales and

Join

Business Operations in 1996

A good year in the hard rock mining sector

Level of construction demand satisfactory, but large variationsin geographical regions and product groups

Consolidation of Voest-Alpine Bergtechnik Group (VAB) thebiggest challenge for the coal mining machinery business

Roxon posted the largest relative increase in profits

Tamrotor performed well due to better internal efficiency

Tamrock’s solidexpertise coversdifferent drilling andexcavation solutionsfor construction andcivil engineeringcontracts.

k worldwide

oduction

service

t venture

Business environmentMost of Tamrock’s businesses areclosely linked to large infrastructureprojects, mining investments and thediverse construction sector. Economicactivity in the major markets in thesesectors is essential to the Group’s suc-cess. Growth in energy demand is di-rectly reflected, for example, in coalmining investments; increases in in-dustrial production volumes have animmediate impact on demand for met-als and on investments of metal mines.

Growth was slow in the Europeaneconomy during 1996. Average growthin the EU countries remained belowtwo per cent, mainly as a result of adownturn in the German economy. Theeconomies in the Nordic countriesshowed more positive development,as was the case in some eastern Euro-pean markets, notably Poland, theCzech Republic and Hungary. Severallarge infrastructure projects were start-ed up in Italy during the year, and ac-tivity was also fairly lively in Spain andFrance.

Vigorous economic growth in NorthAmerica generated, among otherthings, decisions on several large high-way upgrading projects. Latin America,except for a couple of countries, alsoremained on a strong growth track.

12

Driltech manufac-tures blasthole drfor open pit minesand quarries, andwell drilling rigs.

ills

Metal pricesGold

1992 1993 1994 1995 1996

USD/oz

400

300

200

100

0

Nickel

1992 1993 1994 1995 1996

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

USD/ton

Copper

1992 1993 1994 1995 1996

USD/ton

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Zinc

1992 1993 1994 1995 1996

1,200

1,000

800

600

400

200

0

USD/ton

In South Africa the political situationhas settled down and business is rap-idly opening up to new opportunities.The country’s economy is growing fast,which is having a positive effect on de-velopment throughout the southernpart of the continent. South Africanmining companies are seeking to ex-pand beyond the country’s borders,and the major international miningcompanies are active in all of southernAfrica. In Zimbabwe, for example, mineinvestment volumes increased manytimes over during the year.

The pace of growth in East Asia didnot slow down, although considerabledifferences were visible between indi-vidual countries. China’s new five-yearplan began last year, but its implemen-tation did not yet get up to speed. Onthe other hand, countries such as Viet-nam and Laos are opening their doorsto foreign investment.

Mining was particularly buoyant in

Australia, which boosted the country’seconomy in general. The value of theAustralian dollar also rose in relation toother major currencies.

Development of metal pricesThe Tamrock Group’s largest businessarea is linked to hard rock mining, ie.production of base and precious met-als. Mining investments depend onmetal prices and the long-term expec-tations of mining companies.

Gold represents the most importantmetal for Tamrock. The gold price didnot meet expectations since a short-lived rise early in the year turned into adownward trend, which strengthenedtowards the end of the year. During thefirst few weeks of 1997 the gold pricedropped below 350 US dollars/oz, duemainly to uncertainty, which arose af-ter sales of gold by several Europeancentral banks. Gold consumption ishigher than current production levels,

and most mining companies have se-cured a large part of their revenue forthe year by selling their production inadvance.

Most base metals reached theirpeak price levels for recent years al-ready in 1995. Base metal prices at theend of 1996 were on average slightly

The new Ranger 70track drill, launchedin 1996, has rapidlygained in popularity

lower than one year earlier, but the de-velopment of individual metals variedconsiderably. The price of copper wasthe most volatile, having fallen from2,800 dollars per ton at the start of theyear to below 2,000 dollars per ton. Itrallied to reach 2,200 – 2,400 dollarsper ton at the year end. The price ofcopper is forecast to fall again during1997.

Nickel fell during the year from 8,000dollars per ton to below 7,000 dollars,which is, nevertheless, only 20 % low-er than its peak value in recent years.Zinc rose slightly, while lead reachedits highest level in recent years, but re-turned to its initial level by the end ofthe year. Nickel and lead prices are ex-pected to remain unchanged in 1997,whereas zinc is forecast to rise.

Business areas1996 was a favorable year for sales ofTamrock’s drilling and excavation ma-

13

chinery for hard rock mining, whichwere driven by still reasonably strongmetal prices and a generally high levelof economic growth. Several large or-ders were gained especially at the endof the year.

Considerable regional and productvariations were evident in sales of con-struction equipment. Economic growthwas vigorous in East Asia, but delaysin projects expected to start up in Chi-na reduced sales volumes substantial-ly. Sales increased in the USA and,with the exception of Germany, in Eu-rope as well.

The machinery and equipment formechanized soft rock and minerals ex-cavation became a substantial busi-ness area for the company with theVAB acquisition. Tamrock became oneof the world’s technology leaders inequipment for underground coal, pot-ash and salt operations. Demand forcoal mining equipment was strong

throughout the year with activity par-ticularly lively in the South African andAustralian markets. VAB’s long sellingprocess hampered its business per-formance, which was also visible in itsresult and orderbook.

Roxon, the Tamrock Group’s bulkmaterials handling and conveyor com-ponent business, improved in perform-ance. Demand in Australia remainedstrong and the company entered newmarkets in East Asia. A new conveyorcomponent factory was opened in In-donesia. Projects sales in Finland grewstrongly after two quiet years. Demandwas buoyant also in Sweden, butweaker elsewhere in Europe. The vol-ume of this business will increasewhen the VAB bulk materials handlingoperation is fully integrated in the Rox-on Group. Two large projects won byVAB in China will give Roxon a footholdin a significant new market. The oper-ations of Mecakone, which produces

0

.

Net sales by geographic region

Finland 6 %

The Americas 28 %

Asia andAustralia31 %

Africa andthe

Middle East7 %

Rest of Europeand the

CIS 28 %

Business by customer group

Mining industry65 %

Construction20 %

Others 15 %

Roxon delivered aconveyor system foiron ore and pellethandling at Luleåport, Sweden. Theequipment includesthe most powerfulbelt conveyors inScandinavia.

product lines for concrete mixingplants, was sold to the Finnish build-ing materials company Partek.

Tamrotor’s compressor productionremained at the previous year’s level.Improved productivity compensatedfor the effects of fierce competition onprices.

ProductsDemand for large open pit blastholedrilling equipment was favorable dur-ing the review year. Driltech completedits program of production investmentsduring the year, which eliminated bot-tlenecks in production and enabled anincrease in delivery volumes of blast-hole drilling rigs.

Demand for Secoma percussivedrilling rigs to mines rose substantiallyon the previous year. Growth was alsoevident in sales of Tamrock drilling rigsfor mines and civil engineering con-tractors. Sales of loading and haulingequipment increased strongly duringthe year and delivery volumes exceed-ed targets.

Sales of hydraulic breakers startedthe year well, but a decline in demandat the end of the year caused a markedreduction in delivery volumes. For the

14

full year, the hydraulic breaker busi-ness reached the volume of the previ-ous year.

Deliveries of coal mining equipmentfrom the Bluefield plant in the USA in-creased substantially. The most signif-icant single order comprised threelarge machines for a potash mine inBrazil. Sales of Tamrock’s coal miningequipment virtually doubled in Austral-ia. The most important VAB-brandedcoal and soft rock excavation equip-ment are the Alpine Miner (AM) road-header and the Alpine Bolter Miner(ABM).

Net sales and resultConsolidated net sales totaled FIM4,520 million, compared to FIM 4,460million in the previous year. Eliminatingthe figures for Tampella Power, VABand the other structural changes, thecomparable growth in net sales wasapproximately 14 %. The Group’s re-sult after net financial items rose to aprofit of FIM 141 million, compared tothe previous year’s loss of FIM 188 mil-lion. VAB was expected to return asmall loss. The actual loss for the lastfour months of the year was larger thanexpected.

Operating profit/loss, MFIM

1992 1993 1994 1995 1996

168199

95

–166

–115

r

Orderbook 31 Dec., MFIM

1992 1993 1994 1995 1996

2,389

1,143

1,401 1,394

1,675

ThepresentGroup

Thedivestedbusinesssectors

Capital expenditure, MFIM

1992 1993 1994 1995 1996

233

468

186 181

378

Interest-bearing net debt, MFIM

1992 1993 1994 1995 1996

4,656

1,328

817450

1,071

15

The air end is the heart ofTamrotor’s efficient industrialcompressors.

Capital expenditure

Group capital expenditure amountedto FIM 468 million. The most significantinvestment was the acquisition of theVoest-Alpine Bergtechnik Group, butits largest investment was the ac-quisition of Sandvik AB’s 25 % holdingin Tamrock for FIM 325 million. Thecompany also repurchased the manu-facturing and distribution rights forToro loading machines in South Africafrom Bateman, a local licensed manu-facturer.

The most important production in-vestments were a new hammer hous-

EIMCO continuous minersare at the top of their leaguein productivity.

Rammer is the leading global brandin excavator attachments.

ing and cutter-crusher factory in Lahti,Finland, to support the excavator at-tachments business; an expansion toDriltech’s factory in Florida; and a newconveyor component factory in Indo-nesia for Roxon’s Australian subsidiaryProk Group Ltd.

Altogether FIM 50 million will be in-vested in raising productivity at theTampere drilling equipment factoryduring 1997 and 1998. The first phaseof the investment will be completed inSeptember 1997, and will help reducelead times, remove production bottle-necks and increase flexibility.

Research and developmentThe Group’s most important R&D op-portunity is to deepen the collaborationwith Sandvik Rock Tools and RaumaCorporation’s Nordberg division.

VAB and Sandvik Rock Tools begancooperation over a year ago with cer-tain customers to raise the productivi-ty of mechanized rock excavation to anew level. The EU has granted re-search and development financing forthis project.

One of the most important newproducts launched during the year wasDriltech’s electrically driven D1190Eblasthole drill for open pits, and thefirst order for this type of rig wasreceived from South Africa. Anotherintroduction was the Ranger 700 trackdrill for surface hard rock operations,which rapidly gained in popularity. TheToro 2500, the world’s largest under-ground loader, was further developedin cooperation with the Swedish min-ing company LKAB, which orderedmore such units during the year. Thefirst order in Australia for this unit wasreceived as well. The year also sawthe introduction of the new series ofEIMCO continuous miners for softmineral excavation. This series isequipped with a controlled water spray

16

In hard rock underground mining, Tamrock isthe leading global supplier of equipment,

services and fleet management.

The latest inTamrock’s loaderrange, the Toro 2500is the largest of itstype in the world.

Tamrock Secomadrilling and boltingequipment isdesigned for efficientmining in narrowundergroundopenings.

system to suppress sparking and dust.New products were developed for

rock breaking and concrete demolitionincluding a cutter-crusher series andthe Rammer G80 City Pro hammer withadjustable impact energy. Tamrotor in-troduced its new integrated Tempest12 industrial compressor. Closer co-operation with Nordberg in conveyortechnology and in crushers and feed-ers will open considerable scope fornew product development by Roxon.

OrderbookThe year-end orderbook stood at FIM1,143 million including about FIM 240million in orders for VAB products,mainly bulk materials handling machin-ery. The orderbook at the end of theprevious year, excluding TampellaPower, totaled FIM 877 million. Thelargest increase was in orders for hardrock excavation equipment.

All in all the Group’s year-end order-book was good. The order backlog forhard rock mining and constructionequipment was strong, and for Roxonequipment normal. The orderbook for

Training and product support providedby Tamrock are key elements in raising

customers’ productivity.

coal mining equipment was only satis-factory, and VAB’s share was stillsmall. The backlog of orders for hy-draulic hammers was also short. Tam-rotor’s orderbook has remained good.

Prospects for 1997The situation at the start of 1997 isalmost identical with the previous year.The Group’s backlog of orders is highalthough rather unevenly distributed.Market expectations vary considera-bly.

Several large deals raised the hardrock mining sector’s orderbook torecord high level at the end of the year,which gives reason to be cautiouslyoptimistic for the first half of 1997.Metal prices are clearly down, com-pared to one year ago, but a generaldecline is no longer forecast. Consid-erable variation is evident in the out-look for individual metals, however.The low gold price is a major uncer-tainty factor.

The construction sector looks likelyto grow steadily. The EU economiesare growing in strength, but economic

17

growth in Germany would appear toremain weak. Growth should be goodin the USA, and the rapid pace of de-velopment in East Asia, though slowerthan one year earlier, will continue.

Coal production will grow steadily atabout 2 – 3 % per year and demandfor equipment is stable. The outlook inSouth Africa and Australia is bright.Demand in the USA is forecast to re-main at 1996 levels. India is embarkingon an extremely large coal mining pro-gram, which aims to double the coun-try’s production capacity in five years.No firm decision has been made onthis program’s schedule. Another sig-nificant market is China, but the start-up times of major projects continue tobe unclear.

Demand for bulk materials handlingsystems and conveyor componentsshould remain at 1996 levels. The geo-graphical center of gravity will shift in-creasingly to Asia and Australia, wherethe markets are growing steadily.

The industrial compressor marketappears stable. Demand for large com-pressors is picking up. On the otherhand, price levels have fallen and fiercecompetition will probably continue in1997.

As a summary, market prospects forthe Group in 1997 are cautiously hope-ful, but uncertainty abounds. A greatuncertainty relates to metal prices,which could have a decisive impact onmining companies’ investment deci-sions. Disappointments in Europeangrowth prospects could postpone in-frastructure projects.

1992 1993 1994 1995 1996

7,903

5,2244,592

4,193

5,315

Personnel

Personnel by geographic region

Finland 29 %Asia andAustralia 16 %

Rest of Europeand the CIS 27 %

TheAmericas24 %

Africa and the Middle East 4 %

18

Report by the Board of Directors

Changes to the Group’s structure

On 20 March 1996 Tampella Corp. soldall the shares of Tampella Power Inc.to the Norwegian Kvaerner Group forapproximately FIM 110 million. Tam-pella recorded a gain of about FIM 13million on this disposal, but the salehad no other impact on the Group’s1996 result.

In June the Roxon subgroup’s Finn-ish subsidiary Mecakone Oy agreed tosell its operations to Partek ConcreteEngineering, part of the Partek Group.Tampella decided to divest this opera-tion since it was not part of Tampella’score business and did not serve theGroup’s principal customer groups.

An extraordinary shareholders’meeting on 20 June 1996 approved theissue of a FIM 322 million convertiblebond to Sandvik AB in part payment ofTampella’s acquisition of Sandvik’s25 % holding in Tamrock Oy. The Tam-rock shares were acquired for a totalprice of FIM 325 million on 25 June1996, after which Tamrock Oy becamea wholly owned Tampella subsidiary.

The acquisition of the Tamrockshares cleared the way for a decision,made in June, to merge TampellaCorp.’s subsidiaries Tamrock Oy,Detec International Oy and Bretec Oy,as well as Tamrock’s subsidiary Tam-rock Loaders Oy and Detec’s subsidi-ary Rammer Oy, with Tampella. TheDetec, Bretec and Rammer mergerswere completed on 1 January 1997,and it is aimed to complete the mergerof the Tamrock companies on 28 Feb-ruary 1997.

Extraordinary meetings of TampellaCorp. shareholders in December 1996and January 1997 approved the pro-posal to rename the company to Tam-rock Oy in Finnish and Tamrock Corp.in English. The new name will take ef-fect when Tamrock Oy has beenmerged with Tampella Corp. The Tam-

rock name was chosen since Tamrockis globally well established in the com-pany’s core business areas.

Tampella Corp. and the AustrianÖsterreichische Industrieholding AG(ÖIAG) reached agreement at the endof July on the transfer of the Voest-Alpine Bergtechnik Group (VAB) toTampella. The deal was confirmed inNovember after approval was receivedfrom the merger and competition au-thorities in the various countries,ÖIAG’s Supervisory Board and theBoard of Directors of Tampella Corp.Tampella acquired the share stock ofthe parent company Voest-AlpineBergtechnik GesmbH for a nominal1,000 Austrian shillings (FIM 430). Atthe same time, ATS 520 million (FIM220 million) of VAB’s interest-bearingliabilities and commitments becamepart of Tampella Group’s consolidatedliabilities. At the effective date the VABGroup’s balance sheet total was ATS1,481 million (FIM 630 million). Nogoodwill was capitalized in Tampella’sbalance sheet as a result of the trans-action. VAB was consolidated in theannual accounts of Tampella Corp. forthe period 1 September – 31 Decem-ber 1996.

Market conditionsThe Group’s orderbook was high at thebeginning of 1996, but the market out-look was becoming uncertain. Pricesof several base metals had exceededtheir previous record levels of 1995and were expected to fall. In the con-struction sector, the EU was headingfor a recession, but conditions werepromising in the USA and East Asia.

Demand in the hard rock miningsector declined slightly at the begin-ning of the year, but rallied again for theremainder of the year even thoughprices of the major base metals fell, asexpected, and the price of gold began

to decline at the year end.Almost all markets in the hard rock

mining sector developed better thanforecast. Strongest growth was evi-dent in Australia. The only exceptionwas East Asia, where volume failed tomeet expectations.

Demand for construction equipmentand excavator attachments developedon the whole as predicted, although itwas not as lively as in the mining in-dustry. Regional differences were pro-nounced as well.

In Western Europe the most positivemarket growth was evident in Finland,Norway, France and Spain. Demandwas weak in Germany, nor did it comeup to expectations in most of southernEurope. Economic growth was good inthe USA, where the construction mar-ket was quite active.

In East Asia rapid economic growthcontinued to maintain a strong volumeof construction. Projects in China’sfive-year plan made a slow start, anddelays in securing foreign loans con-tributed to this.

Demand for drilling equipment re-mained fairly stable in the constructionsector during the year, and the year-end orderbook was strong. Lively de-mand for hydraulic hammers and oth-er excavator attachments weakenedtowards the end of the year. The Ger-man market was very sluggish and un-certainty entered the US market.

Demand for underground coal min-ing equipment was reasonably goodand changed very little during the year.Positive exceptions were South Africaand Australia, where a large number ofnew projects started up.

Roxon was successful in its projectsales in the Nordic countries, whereactivity in this sector continued to behigh. Demand was also brisk for con-veyor components in the Nordic coun-tries, but clearly less so in Continental

19

Europe. The boom in the Australianmining industry made itself felt alsothroughout the materials handling sec-tor.

Demand for industrial compressorswas stable in Tamrotor’s main markets,the Nordic countries and the rest ofEurope. Growth was minimal, though,and pressure on prices was hard.

Net sales and orderbook

The Tampella Group’s consolidated netsales rose 1 % on the previous year toFIM 4,520 million (1995: 4,460). The1996 figures include Tampella Power’snet sales of FIM 234 million for Janu-ary–March and VAB’s net sales of FIM219 million for September–December.Excluding the impact of Tampella Pow-er, VAB and other structural changes,the increase in consolidated net saleswould have been 14 %.

Consolidated net sales broke downgeographically as follows: Finland 6 %,the rest of Europe and the CIS coun-tries 28 %, Africa and the Middle East7 %, the Americas 28 %, and Asia andAustralia 31 %. Exports and interna-tional operations amounted to FIM4,261 (3,770) million, ie. 94 % (85 %)of net sales. Exports from Finland wereFIM 1,734 (1,757) million, which was89 % (72 %) of the net sales of theFinnish units.

The Group’s year-end orderbookstood at FIM 1,143 (1,675) million.Tampella Power’s share of the 1995year-end orderbook was FIM 798 mil-lion. Correspondingly, VAB’s share ofthe 1996 year-end orderbook was FIM274 million.

ResultThe Tampella Group posted an operat-ing profit of FIM 199 million (1995: lossFIM 115 million). The major factor con-tributing to this FIM 314 million im-provement was Tampella Power’s Jan-

uary–March result, which was FIM 242million better than the result for theprevious full year. Tampella Power wasconsolidated in the Group accounts forthe period 1 January – 31 March 1996.VAB contributed a loss of FIM 11 mil-lion to the Group’s operating profit. Theother units improved their operatingprofits compared to the previous yearby an aggregate FIM 83 million.

The Group’s depreciation amountedto FIM 168 (203) million. The decreasewas due to the Tampella Power divest-ment and to the fact that depreciationin 1995 included an extra FIM 19 mil-lion goodwill writedown by Roxon.

The total of financial income and ex-penses was FIM –57 (–73) million, thechange on the previous year beingcaused mainly by more favorable ex-change rate differences for financialitems. Net interest remained more orless at the previous year’s level andwas FIM –52 (–53) million.

The Group showed a profit beforeextraordinary items, provisions andtaxes of FIM 141 (–188) million. Theparent company Tampella Corp. re-turned a profit before extraordinaryitems, provisions and taxes of FIM 13(–54) million.

Extraordinary income and expenseswere FIM 14 (–196) million and includ-ed a gain of FIM 13 million on the di-vestment of Tampella Power.

FIM 166 million of an earlier writeoffof Tamrock Oy shares was reversed inthe parent company accounts. This re-versal had no impact on the consoli-dated accounts.

The consolidated profit before pro-visions and taxes was FIM 155 (–383)million and the net profit for the periodtotaled FIM 65 (–434) million.

Capital expenditure

Group capital expenditure amountedto FIM 468 (378) million. The most im-

portant strategic investment was theVAB acquisition, although the largestitem of capital expenditure was the ac-quisition of the Tamrock shares fromSandvik for FIM 325 million. This shareacquisition added FIM 142 million tothe Group’s goodwill.

Other notable investments includedthe repurchase of the licensed manu-facturing rights and distributorship forToro products in South Africa, a newcutter-crusher and hammer body fac-tory in Lahti, Finland, an expansion ofDriltech’s factory in Florida, and a newfactory for Roxon components in Indo-nesia.

Research and development coststotaling FIM 105 (107) million werecharged to the income statement.

Financing and capital adequacy

Liquidity remained good. Cash andbank deposits totaled FIM 454 (701)million at the year end.

The increase in Tamrock ownershipfrom 75 % to 100 % reduced the com-puted solvency ratio by about five per-centage points with the consequentremoval of Sandvik’s minority interestin Tamrock, which was previouslytreated as shareholders’ equity. Thesolvency ratio was also weakened bythe addition of the VAB Group’s bal-ance sheet to Tampella’s consolidatedbalance sheet.

However, the Group’s balance sheetstructure was improved by the Tampel-la Power divestment and associateddirected share issue. Capital adequa-cy was also boosted by the positiveresult.

The Tampella Group’s shareholders’equity and voluntary provisions totaledFIM 746 (415) million at the year-end.The solvency ratio rose to 19 % (16 %).

Interest-bearing net debt was FIM1,328 (1,071) million, which was 29 %(24 %) of consolidated net sales. The

20

change in net debt was mainly attrib-utable to the Tampella Power divest-ment, and the acquisition of the Tam-rock shares and VAB Group.

Excess cash and bank deposits to-taling approximately FIM 440 millionwere used to prepay long-term loans.

In December 1996 Solidium Oytransferred all Tampella shareholderloans and associated collateral grant-ed by it to Tampella Corp. to FinnishExport Credit Ltd. On the transfer datethe loan totaled about FIM 540 million.

PersonnelThe Group had an average of 4,768(5,284) employees during the year. TheTampella Power Group sold in Marchhad at that time 1,025 employees andthe VAB Group acquired in Septemberhad 915 employees at the end of theyear. The parent company had 25 (31)employees on average. At the end ofthe year Group personnel totaled 5,224(5,315) and parent company personnel18 (30); 1,487 (2,332) employeesworked in Finland and 3,737 (2,983) inother countries.

Share issues and share capital

As part of the sale of Tampella Powerto the Kvaerner Group, an extraordi-nary shareholders’ meeting on 20March 1996 approved the issue of 35million Tampella shares to Kvaerner forFIM 7.60 per share, ie. altogether FIM266 million. The issue was fully sub-scribed and Tampella’s share stockrose from about 98.3 million to about133.3 million shares. The KvaernerGroup gained a 26.3 % holding in Tam-pella. In April of the same year theKvaerner Group sold all its Tampellashares to the Sandvik Group.

Tampella Corp.’s Annual GeneralMeeting on 15 April 1996 authorizedthe Board of Directors for one yearfrom the meeting to raise the share

capital by offering existing sharehold-ers at most approximately 27 millionordinary new shares for a subscriptionprice of FIM 7.60 and on other termsto be decided by the Board. Holderswould be entitled to subscribe for onenew share in exchange for five existingshares. The Board of Directors has nottaken any decision to exercise this au-thorization.

An extraordinary shareholders’meeting on 20 June 1996 approved anamendment to Article 3, Clause 1 ofthe articles of association making theminimum share capital FIM 500 millionand the maximum share capital FIM2,000 million. The same meeting ap-proved the FIM 322 million convertiblebond issue to Sandvik AB in part pay-ment for Tampella’s acquisition ofSandvik’s 25 % holding in Tamrock Oy.This subscription took place on 25June 1996. The convertible bonds is-sued to Sandvik AB bear annual inter-est of 0.25 % and have a maturity ofthree years. During this time they maybe converted into shares for FIM 11.50per share. Shares received throughconversion of bonds entitle the holderto a dividend for the financial year dur-ing which the conversion took place.On conversion of all the bonds, Sand-vik would subscribe for 28 million Tam-pella Corp. shares with a nominal val-ue of FIM 5.00 per share. This wouldincrease Sandvik’s ownership to 58 %.

Court actions and tax disputesThe claim for compensation broughtby the Catelli family against Tampella’sformer board members in the Tamperedistrict court in October 1992 was de-cided in the board’s favor. The Turkucounty court upheld this decision andthe Supreme Court did not grant leaveto appeal the Turku court’s decision.The Catellis had claimed compensa-tion for damages from the members of

Tampella Corp.’s Board of Directorsbetween 1988 and 1990 for allegedbad management of the company.

In October 1992 Messrs Dino, Marioand Fabio Catelli sued Tampella Corp.in a Swiss court of arbitration for com-pensation of approximately USD 20million. This litigation was in connec-tion with the sale by the Catellis toTampella of their Italian packagingcompanies and the Tampella sharesreceived in payment for them. Thecourt of arbitration rejected all theclaims made by the Catellis and or-dered them to pay the court’s costs.

In January 1997 a lower court in theUSA ruled that Driltech Inc., a Tampel-la company, is liable to pay 10.2 mil-lion US dollars as compensation forpatent infringements. Driltech intendsto appeal the decision. The companymanagement considers that the provi-sions made in the 1996 accounts aresufficient. It has not been considerednecessary to make provisions to coverpossible punitive damages and courtcosts.

The province of Uusimaa’s districtcourt rejected a demand made by theHäme county tax office concerning thetreatment of sales tax following the in-corporation of Tampella’s businessgroups on 1 January 1991. The countytax office had ordered Tampella to paytax in arrears totaling approximatelyFIM 36 million, including penalty costs.The district court’s decision is final.

The Häme county tax office upheldTampella Corp.’s right to use con-firmed but so far non-deducted lossesfor the years 1991-1995 as deductionsagainst taxable income in future years,despite the ownership changes whichtook place in 1996.

Board of Directors’ proposal

Since distributable funds are negativeno dividend can be paid.

21

Prospects

The situation at the beginning of 1997was characterized by two features:the Group’s orderbook was good, al-though rather unevenly distributed, butthe market outlook is variable.

On the whole, global economicgrowth is expected to be positive, butthe German economy is still weak.

Base metal prices are altogetherslightly lower than one year ago. Onaverage the trend is flat. The gold pricehas dropped noticeably in recentmonths and is now below 350 US dol-lars/oz.

In the hard rock mining sector, themost important one for Tamrock, activ-ity is still brisk in Africa, Australia andLatin America, but the outlook in Can-ada and Europe has already begun todeteriorate.

In construction, prospects for exca-vation machinery appear promising,but large regional differences are ex-pected.

Demand for coal mining machineryin general is not expected to grow, butAustralia is showing good activity. TheVAB orderbook was low at the begin-ning of the year.

Sales of Roxon’s conveyor compo-nents and bulk materials handling sys-tems will increase. Most of this is com-ing from the integration of VAB’s bulkmaterials handling operation in Roxon.

All in all, the Group’s sales volume isexpected to be only slightly higher thanin 1996, but the inclusion of VAB forthe whole year will raise net sales. The1997 result before extraordinary items,provisions and taxes is expectedto stay at least on the 1996 level, butthe net result is estimated to show animprovement on the previous year dueto lower direct taxes and minorityinterest.

The first months of the year areclearly weaker than during the same

period in 1996 due to VAB’s low order-book and integration costs. The larg-est uncertain factor on the horizon,apart from overall economic trends, isthe possible levy of punitive damagesagainst Driltech in the patent infringe-ment dispute.

22

Consolidated Income Statement1 January–31 December 1996

MFIM Ref. 1996 1995

NET SALES 1, 2 4,519.8 4,459.9

Change in inventories of finished goods 1.1 78.4Manufacture for own use 4.9 18.2Share of associated companies’ profit 4.7 4.6Other income from business operations 18.4 43.8

ExpensesMaterials and supplies 2,103.2 2,338.2Change in inventories of materials and supplies –32.0 –176.1External services 474.4 627.3Personnel costs 3 1,101.4 1,145.5Rents and leases 65.4 75.7Other expenses on business operations 3 469.6 –4,182.0 506.7 –4,517.3

Planned depreciation 4Depreciation on fixed assetsand other long-term expenses 137.4 160.0Depreciation on goodwill 30.9 –168.3 42.8 –202.8

OPERATING PROFIT / LOSS 198.6 –115.2

Financial income and expensesDividend income 0.5 0.5Interest income on long-term investments 0.7 0.9Interest income on short-term investments 70.3 77.3Other financial income 4.1 2.6Exchange rate differences 6.1 –6.4Interest expenses –123.3 –131.0Other financial expenses –15.6 –57.2 –16.5 –72.6

PROFIT / LOSS BEFORE EXTRAORDINARY ITEMS,PROVISIONS AND TAXES 141.4 –187.8

Extraordinary income and expensesExtraordinary income 7 14.1 26.8Extraordinary expenses 8 –0.1 14.0 –222.4 –195.6

PROFIT / LOSS BEFORE PROVISIONS AND TAXES 155.4 –383.4

Change in depreciation difference 10,11,13,16,17,18 –1.1 –2.4Change in voluntary provisions 9 0.4 4.7Direct taxes –72.3 –24.2

PROFIT / LOSS BEFORE MINORITY INTEREST 82.4 –405.3

Minority interest –17.6 –29.1

NET PROFIT / LOSS FOR THE YEAR 64.8 –434.4

23

Source and Application of Funds 1996Tampella Group

MFIM 1996 1995

SOURCE OF FUNDS

Income financingProfit/loss for the year +64.8 –434.4Depreciation +168.3 +202.8Change in provisions +0.7 –2.3

Income financing, total 233.8 –233.9

Corrective items 1) –60.7 +173.5

From long-term securities – 32.0Sales of fixed assets 120.2 15.7From increase in long-term debt 461.8 396.2Share issue 266.0 126.0

1,021.1 509.5

APPLICATION OF FUNDS

On long-term securities 37.9 –On investments 467.8 377.8On other long-term investments 35.5 –On reducing long-term debt 601.7 219.7Dividend distribution – 0.8

1,142.9 598.3

Change in net working capital –121.8 –88.8

ANALYSIS OF CHANGE INNET WORKING CAPITAL(assets, increase +/decrease –)(liabilities, increase –/decrease +)

Cash and bank deposits –81.6 –266.6Current assets +31.9 +126.6Inventories –196.6 –74.7Current liabilities +124.5 +125.9

–121.8 –88.8

1) Includes mainly exchange rate differences.

24

Consolidated Balance Sheet31 December 1996

MFIM Ref. 1996 1995

ASSETS

FIXED ASSETS AND OTHERLONG-TERM INVESTMENTS

Intangible assetsEstablishing and acquisition costs 10 0.1 0.2Intangible rights 10 10.1 9.8Goodwill 11 42.5 62.0Group goodwill 12 207.7 89.2Other long-term expenditure 13 9.8 14.4Advance payments 14 2.6 272.8 1.3 176.9

Tangible assetsLand and water areas 15 44.5 45.9Buildings and structures 16 185.1 183.0Machinery and equipment 17 417.3 387.9Other tangible assets 18 6.2 16.9Advance payments andprojects in progress 19 8.9 662.0 16.2 649.9

Securities in fixed assets andother long-term investments

Shares in associates 42.3 36.3Other shares and holdings 5.1 9.3Loans receivable 32.7 –Other long-term investments 25.6 105.7 – 45.6

Fixed assets and other long-terminvestments, total 1,040.5 872.4

CURRENT ASSETSInventories

Materials and supplies 359.5 255.1Work in progress 269.7 240.3Finished goods 623.8 573.6Advance payments 6.1 1,259.1 4.0 1,073.0

ReceivablesAccounts receivable 22 831.8 767.4Loans receivable 22, 24 222.4 215.1Prepaid and deferred expenses 25 138.8 351.0Other receivables 22 60.8 1,253.8 21.3 1,354.8

SecuritiesShares 0.3 0.3Other securities 1.0 1.3 135.7 136.0

Cash and bank deposits 452.7 565.0

4,007.4 4,001.2

25

MFIM Ref. 1996 1995

SHAREHOLDERS’ EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITY 26

Restricted equityShare capital 666.3 491.3Non-disposable funds 93.3 759.6 507.1 998.4

Non-restricted equityDisposable funds –94.1 –177.6Net profit / loss for the year 64.8 –29.3 –434.4 –612.0

730.3 386.4

MINORITY INTEREST 6.2 194.6

PROVISIONS 27

Accumulated depreciation difference 14.7 23.3

Voluntary provisionsTransfer provisions 0.3 3.8Other provisions 0.4 0.7 1.2 5.0

Obligatory provisions 346.4 356.3

LIABILITIESLong-term

Convertible bonds 28 472.0 150.0Loans from financial institutions 30 912.7 1,103.7Pension loans 30 95.6 100.3Advances received 2.0 0.2Trade accounts payable – 3.0Other long-term debt 29, 30 104.9 1,587.2 340.7 1,697.9

CurrentLoans from financial institutions 311.7 208.3Pension loans 4.8 5.0Advances received 32 80.1 189.3Trade accounts payable 331.7 400.7Notes payable 7.8 27.1Accrued liabilities 507.2 467.8Other current liabilities 78.6 1,321.9 39.5 1,337.7

4,007.4 4,001.2

26

Parent Company Income Statement1 January–31 December 1996

MFIM Ref. 1996 1995

NET SALES 1 36.1 32.0

Other income from business operations 12.0 5.6

ExpensesExternal services 25.9 12.2Personnel costs 3 10.9 11.6Rents and leases 3.4 4.4Other expenses on business operations 3 21.5 –61.7 59.8 –88.0

Planned depreciation 4 –1.4 –1.8

OPERATING LOSS –15.0 –52.2

Financial income and expensesDividend income 5 1.2 1.6Interest income on short-term investments 5 74.9 109.8Other financial income 4.2 2.1Exchange rate differences 18.8 –28.2Interest expenses 6 –65.0 –81.1Other financial expenses –5.7 28.4 –5.8 –1.6

PROFIT/LOSS BEFORE EXTRAORDINARY ITEMS,PROVISIONS AND TAXES 13.4 –53.8

Extraordinary income and expensesExtraordinary income 7 194.6 –Extraordinary expenses 8 – 194.6 –450.0 –450.0

PROFIT/LOSSBEFORE PROVISIONS AND TAXES 208.0 –503.8

Direct taxes –0.2 –0.6

NET PROFIT/LOSS FOR THE YEAR 207.8 –504.4

27

Source and Application of Funds 1996Parent Company

MFIM 1996 1995

SOURCE OF FUNDS

Income financingProfit/loss for the year +207.8 –504.4Depreciation +1.4 +1.8Corrective items 1) –177.2 +449.2

Income financing, total +32.0 –53.4

From long-term securities 7.3 210.2Sales of fixed assets 110.9 2.8From increase in long-term debt 435.5 4.4Share issue 266.0 126.0

851.7 290.0

APPLICATION OF FUNDS

On investments 352.9 640.6On other long-term investments 31.9 –On reducing long-term debt 260.3 64.5

645.1 705.1

Change in net working capital +206.6 –415.1

ANALYSIS OF CHANGE INNET WORKING CAPITAL(assets, increase +/decrease –)(liabilities, increase –/decrease +)

Cash and bank deposits –139.8 –269.7Current assets +16.6 +21.3Current liabilities +329.8 –166.7

+206.6 –415.1

1) Includes write–downs of subsidiary share values, reversal of writedown,and profits/losses arising from sales of fixed assets.

28

Parent Company Balance Sheet31 December 1996

MFIM Ref. 1996 1995

ASSETS

FIXED ASSETS AND OTHERLONG-TERM INVESTMENTS

Intangible assetsIntangible rights 10 0.3 0.5Other long-term expenditure 13 0.3 0.6 0.4 0.9

Tangible assetsLand and water areas 15, 20 3.8 3.8Buildings and structures 16,20,21 6.2 6.2Machinery and equipment 17, 21 1.7 11.7 2.3 12.3

Securities in fixed assets and otherlong-term investments

Shares in subsidiaries 20 1,255.7 837.7Shares in associates 20 17.5 17.5Other shares and holdings 20 3.7 3.1Loans receivable 31.9 1,308.8 – 858.3

Fixed assets and otherlong-term investments, total 1,321.1 871.5

CURRENT ASSETSReceivables

Accounts receivable 23 4.0 6.1Loans receivable 22, 23 678.9 557.9Prepaid and deferred expenses 23 101.2 82.9Other receivables 6.4 790.5 5.9 652.8

SecuritiesOther securities 1.0 129.3

Cash and bank deposits 281.1 421.0

2,393.7 2,074.6

29

MFIM Ref. 1996 1995

SHAREHOLDERS’ EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITY 26

Restricted equityShare capital 666.3 491.3General reserve 93.3 759.6 506.7 998.0

Non-restricted equityNet profit/loss for the year 207.8 207.8 –504.4 –504.4

967.4 493.6

PROVISIONS 27Obligatory provisions 134.6 150.9

LIABILITIESLong-term

Convertible bonds 28 472.0 150.0Loans from financial institutions 30 634.5 799.8Pension loans 30 73.0 59.6Other long-term debt 29, 31 2.1 1,181.6 0.8 1,010.2

CurrentLoans from financial institutions 47.1 41.0Pension loans – 0.1Advances received 31 7.1 6.6Trade accounts payable 31 7.1 9.0Accrued liabilities 31 24.2 41.3Other current liabilities 31 24.6 110.1 321.9 419.9

2,393.7 2,074.6

30

Accounting Principles

The Tampella Group’s financial state-ments have been prepared in accord-ance with Finnish legislation and theguidelines issued by the Helsinki StockExchange on the preparation of finan-cial statements by listed companies.The figures in the statements are inFinnish markka based on original ac-quisition costs.

ConsolidationThe consolidated accounts comprisecompanies in which Tampella Corp.holds, directly or indirectly, more than50 % of the share stock at the end ofthe financial period, and over whichTampella Corp. has the right of control.Companies acquired during the ac-counting period are consolidated fromthe effective date of acquisition. Termi-nated or divested companies are con-solidated until the date of terminationor divestment. The consolidated finan-cial statements do not include certainreal estate and housing companies aswell as small subsidiaries which haveonly a minor effect on the Group’s re-sult and shareholders’ equity.

The consolidated accounts havebeen prepared using the purchasemethod. The difference between theacquisition cost of shares in subsidiar-ies and the shareholders’ equity inthese subsidiaries at the time of acqui-sition has been allocated in part to cor-responding fixed asset items and theremainder to goodwill in the balancesheet. Intragroup transactions, divi-dends, receivables, payables and theunrealized margins on intragroup deliv-eries have been eliminated.

Associated companies are consoli-dated using the equity method. Asso-ciated companies are those in whichthe parent company, directly or indi-rectly, holds 0–50 % of the votes car-ried by the shares and a direct or indi-rect holding of at least 20 % of theshares. The consolidated income state-ment includes the Tampella Group’sshare of associated companies’ prof-its or losses. Dividends received from

associated companies are not consol-idated. The share of the associatedcompany’s shareholders’ equity at thetime of acquisition and correspondingto the Group’s holding, adjusted forchanges to shareholders’ equity sub-sequent to the acquisition of theshares, is recorded under shares in thebalance sheet.

A list of the subsidiaries appears atthe end of the Notes to the FinancialStatements.

Foreign currency items andderivative contracts

Transactions denominated in foreigncurrency are entered in the accountsat the rates prevailing on the transac-tion date. Accounts receivable andpayable in foreign currency have beentranslated into Finnish markka at theBank of Finland’s average rate on thebalance sheet date with the exceptionof accounts receivable and payablehedged by forward contracts, whichare translated into Finnish markka attheir contract rates. Exchange rate dif-ferences arising from sales and pur-chases have been treated as additionsor subtractions respectively in the in-come statement. Realized and unreal-ized exchange rate differences relatedto loans and loan receivables havebeen taken to other financial incomeand expenses in the income state-ment.

Forward contracts made to coverforeign exchange risks are translatedat the Bank of Finland’s average rateon the balance sheet date. Premiumsof purchased currency options are en-tered under advance payments in thebalance sheet and premiums of soldcurrency options under advances re-ceived. The outcome of matured cur-rency options, including premiums, areincluded in the exchange rates. Opencurrency option agreements are valuedin the annual accounts at their marketvalue.

All financial statements of foreignsubsidiaries are translated into Finnish

markka at the Bank of Finland’s aver-age rate on the balance sheet date.Translation differences arising from theelimination of share ownership are en-tered at their net value under non-re-stricted shareholders’ equity in the bal-ance sheet.

Long-term foreign currency loansare used to hedge the shareholders’equity of subsidiaries denominated inforeign currency. The exchange rategains and losses from these loans arecharged against the translation differ-ence arising from the translation ofsubsidiary shareholders’ equity in theconsolidated financial statements.

Net salesWhen computing net sales indirect tax-es, discounts and exchange rate differ-ences from receivables are deductedfrom revenue from goods sold.

Sales revenues are recorded as in-come at their hand-over date. Howev-er, revenues from projects supplied bythe Prok Group Ltd are recorded ac-cording to their degree (%) of comple-tion since these projects require signif-icantly long manufacturing periods.

Fixed assets and depreciationFixed assets have been capitalizedprincipally at direct acquisition costless planned (straight-line) deprecia-tion.

Planned depreciation has been cal-culated from the original acquisitioncost based on the estimated econom-ic life of the asset as follows:

Buildings 20–40 yearsHeavy machinery 15–20 yearsLight machineryand equipment 4–15 yearsOther long-termexpenses 3–10 yearsGoodwill 5–10 yearsThis practice also applies to assets

held by foreign subsidiaries.

Other long-term expensesDevelopment expenditure related tomajor product development projects

has been entered as costs. No R&Dcosts have been capitalized in the bal-ance sheet.

InventoriesIn the Finnish and foreign subsidiariesof Tamrock, Detec, Voest-AlpineBergtechnik and Roxon’s componentbusiness group, the balance sheet val-ue of inventories is the direct andindirect acquisition and manufacturingcost, or the market value if this islower.

In the Roxon companies manufac-turing bulk materials handling systems,the balance sheet value of inventoriesis the lower of direct acquisition andmanufacturing cost or market value.

Obligatory provisionsObligatory provisions are cost itemswhich the Group companies are com-mitted to covering and from which cor-responding income will not accrue.Also, future losses which are expectedto be realized are booked as a reduc-tion in income under obligatory provi-sions.

Voluntary provisionsFinnish legislation permitted a reduc-tion in taxable income by making vari-ous provisions in the annual accounts.According to new legislation intro-duced in Finland at the beginning of1993, companies are not permitted tomake new untaxed provisions, and ex-isting provisions must be reversed orused to cover the acquisition cost offixed assets by the end of 1997. Theseaccumulated untaxed reserves areshown separately in the balance sheet,undivided into shareholders’ equityand deferred tax liability.

Pension commitmentsStatutory employee pension benefits(TEL) for employees in the parent com-pany, Tamrock Oy, Roxon Oy andBretec Oy are arranged through theCompany’s own pension fund. TheTEL benefits for employees in the oth-

31

er Finnish companies are arrangedthrough Mutual Insurance CompanyEläke-Varma. Voluntary pension bene-fits applying to Business Group em-ployees are covered by Personal Insur-ance Company Nova. The supplemen-tary voluntary pension benefits of em-ployees who retired before 1 January1991 (Business Groups) and before 1July 1991 (parent company) are theresponsibility of the Company’s pen-sion fund.

The statutory pension commitmentsof the Parent Company are covered infull, with the exception of an obligatoryTEL deficit; this deficit is due to achange in the Finnish Employees’ Pen-sion Act which temporarily reducedemployers’ insurance contributions in1994. Commitments to discretionary

benefits are partly covered. Discretion-ary benefits are available only to thosesalaried employees in the Parent Com-pany who joined the Company before1 January 1984 and whose employ-ment with the Company continues un-interrupted until they retire. Discretion-ary pension benefits do not include so-called premium-free policy benefits.The unsecured liabilities related to dis-cretionary benefits, the obligatory TELdeficit and the Company’s liability aris-ing from its pension commitments areshown in the Notes to the BalanceSheets; they are not shown as a sepa-rate item under long-term liabilities orin valuation items.

Voluntary pension benefits will grad-ually decrease as the number of individ-uals entitled to receive a pension falls.

Consolidated Financial Statements in Accordancewith International Accounting Standards (IAS)

IAS is a set of instructions prepared and published by the International Accounting Stand-ards Committee (IAS). Its purpose is to standardize international accounting principles toallow comparison between financial accounts prepared in different countries.

No financial statements were prepared in accordance with International Accounting

Standards (IAS) for the Tampella Group since the accounting principles defined in the newFinnish Accounting Act correspond in all essential respects with IAS practice. The majordifferences in Tampella’s consolidated financial statements apply to differences in the treat-ment of uncovered pension liabilities and voluntary provisions.

The table below presents the differences applying to the result for the year and share-

holders’ equity computed according to both official Finnish (FAS) and IAS accounting prin-ciples.

Comparison between Finnish (FAS) and IAS accounting

1996 1995

Net profit/loss for the year, FAS 64.8 –434.4Change in depreciation difference 1.1 2.4Change in voluntary provisions –0.4 –4.7Change in pension and related contingent liabilities 30.4 6.2

Net result for the year, IAS 95.9 –430.5

Shareholders’ equity, FAS 730.3 386.4Uncovered pension liabilities –78.3 –108.6Voluntary provisions 15.4 28.3

Shareholders’ equity, IAS 677.4 306.1

32

Notes to the Financial Statements

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995Notes to the income statements

1. NET SALES BY BUSINESS GROUPTamrock Group 3,690.8 2,965.5 – –Tampella Power Group 233.8 1,043.4 – –Roxon Group 564.2 444.0 – –Tampella Corp./Other 31.0 7.0 36.1 32.0

Total 4,519.8 4,459.9 36.1 32.0

Tamrock Group includes net sales of Tamrock and Detec groups, andVAB for the period 1 Sept .- 31 Dec. 1996.

2. RECORDING OF REVENUE (TAMPELLA POWER GROUP)Revenue recorded under thepercentage-of-completion methodaccounted for – 749.6 – –of net salesThe orderbook was MFIM 1.674,5 (1995) –of which – 561.3 – –will be recorded as revenue accordingto the percentage-of-completion method

3. PERSONNEL COSTS AND FRINGE BENEFITSWages and salaries 830.0 893.0 7.8 10.5Fringe benefits 4.2 2.8 0.3 0.3Pension costs 80.9 91.0 – –Other personnel costs 190.5 161.5 3.1 1.1

Total 1,105.6 1,148.3 11.2 11.9

Due to a reduction in statutory pension payments and income frompension fund investments, Tampella Corp. was not required to payTEL contributions in 1995 and 1996.

Salaries to Board of Directorsand Presidents (incl. fees) 23.0 25.6 2.9 2.8Share of profits in above 1.1 0.4 – –Part of this figure is included under “Other Expenses on BusinessOperations”. The Parent Company has no pension commitments withrespect to the Directors of the Board. The President of the ParentCompany is entitled to retire at the age of 62.

4. PLANNED DEPRECIATION

Intangible rights 3.2 8.6 0.2 0.2Goodwill 30.9 42.8 – –Other long-term expenses 3.2 5.0 0.1 0.1Buildings and structures 11.4 15.0 0.2 0.2Machinery and equipment 117.4 126.6 0.9 1.3Other tangible assets 2.2 4.8 – –Total 168.3 202.8 1.4 1.8

5. OTHER FINANCIAL INCOMEFrom subsidiariesInterest income from short-terminvestments – – 15.8 45.5From associated companiesDividend income – – 1.2 1.6

6. FINANCIAL COSTS PAIDTo subsidiariesInterest expenses – – 3.9 4.9

7. EXTRAORDINARY INCOMEGroup contribution – – 28.4 –Reversal of writedown of Tamrock Oyshares – – 165.5 –Minority shareholder’s share ofPower group’s restructuring costs – 26.8 – –Profit on fixed assets disposal 12.9 – –Other 1.2 – 0.7 –

Total 14.1 26.8 194.6 –

8. EXTRAORDINARY EXPENSES

Writedowns of shares – – – 450.0Tampella Power Group’srestructuring costs – 213.9 – –Other – 8.5 – –Total – 222.4 – 450.0

9. CHANGE IN VOLUNTARY PROVISIONSChange in investment provisions – 0.1 – –Change in other voluntary provisions –0.4 –4.7 – –

Total –0.4 –4.6 – –

Notes to the balance sheet

FIXED ASSETS

10. ESTABLISHMENT AND REORGANIZATION COSTS,

RESEARCH AND DEVELOPMENT COSTS,

AND INTANGIBLE RIGHTSAcquisition cost, 1 Jan. 28.5 105.5 2.2 2.2Share of companies acquiredduring year, 1 Jan. – 3.3 – –Share of companies sold during year–17.0 – – –Increases during year 6.1 5.5 – –Decreases during year – –83.1 – –

Acquisition cost, 31 Dec. 17.6 31.2 2.2 2.2Accumulated planned depreciation –7.4 –21.2 –1.9 –1.7Book value, 31 Dec. 10.2 10.0 0.3 0.5

Difference between total and planneddepreciation, 1 Jan. 0.1 0.1 – –Share of companies acquiredduring year, 1 Jan. – – – –Share of companies sold during year – – – –Increase in depreciation difference – – – –

Difference between total and planneddepreciation, 31 Dec. 0.1 0.1 – –

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995

11. GOODWILLAcquisition cost, 1 Jan. 92.3 20.7 – –Share of companies acquiredduring year, 1 Jan. – 20.9 – –Share of companies sold during year –7.4 –Increases during year – 51.1 – –Decreases during year –7.9 – – –

Acquisition cost, 31 Dec. 77.0 92.7 – –Accumulated planned depreciation –34.5 –30.7 – –Book value, 31 Dec. 42.5 62.0 – –

Difference between total and planneddepreciation, 1 Jan. 0.5 – – –Share of companies acquiredduring year, 1 Jan. – 0.3 – –Increase in depreciation difference – 0.2 – –Decrease in depreciation difference –0.5 – – –

Difference between total and planneddepreciation, 31 Dec. 0.0 0.5 – –

12. GROUP GOODWILL

Acquisition cost, 1 Jan. 132.6 26.9 – –Share of companies acquiredduring year, 1 Jan. – 105.8 – –Share of companies sold during year –4.1 – – –Increases during year 141.9 – – –Decreases during year –0.4 – – –Acquisition cost, 31 Dec. 270.0 132.7 – –Accumulated planned depreciation –62.3 –43.5 – –

Book value, 31 Dec. 207.7 89.2 – –

13. OTHER LONG-TERM EXPENDITUREAcquisition cost, 1 Jan. 27.9 17.8 0.6 0.3Share of companies acquiredduring year, 1 Jan. – 1.2 – –Share of companies sold during year–17.0 – – –Increases during year 5.6 9.7 0.1 0.3Decreases during year –0.5 – – –Acquisition cost, 31 Dec. 16.0 28.7 0.7 0.6Accumulated planned depreciation –6.2 –14.3 –0.4 –0.2

Book value, 31 Dec. 9.8 14.4 0.3 0.4

Difference between total and planneddepreciation, 1 Jan. – – – –Increase in depreciation difference – – – –Decrease in depreciation difference – – – –Difference between total and planneddepreciation, 31 Dec. – – – –

14. ADVANCE PAYMENTSAcquisition cost, 1 Jan. 1.4 1.1 – –Increases during year 1.2 0.4 – –Decreases during year – –0.2 – –

Book value, 31 Dec. 2.6 1.3 – –

GROUP PARENT COMPANYMFIM 1996 1995 1996 1995

33

15. LAND AREASAcquisition cost, 1 Jan. 47.0 35.6 3.8 3.9Share of companies acquiredduring year, 1 Jan. 2.2 9.8 – –Share of companies sold during year –4.2 – – –Increases during year 0.2 2.2 – 0.1Decreases during year –0.7 –1.7 – –0.2

Book value, 31 Dec. 44.5 45.9 3.8 3.8

16. BUILDINGS AND STRUCTURESAcquisition cost, 1 Jan. 285.3 235.2 11.9 11.9Share of companies acquiredduring year, 1 Jan. 107.1 83.2 – –Share of companies sold during year–39.6 – – –Increases during year 17.1 9.8 0.2 –Decreases during year –6.8 –44.5 – –

Acquisition cost, 31 Dec. 363.1 283.7 12.1 11.9Accumulatedplanned depreciation –178.0 –100.7 –5.9 –5.7Book value, 31 Dec. 185.1 183.0 6.2 6.2

Difference between total and planneddepreciation, 1 Jan. 18.4 17.4 – –Share of companies acquiredduring year, 1 Jan. – 3.1 – –Share of companies sold during year–15.4 – – –Increase in depreciation difference 0.1 0.2 – –Decrease in depreciation difference – –2.3 – –

Difference between total and planneddepreciation, 31 Dec. 3.1 18.4 – –

17. MACHINERY AND EQUIPMENTAcquisition cost, 1 Jan. 889.6 687.7 9.0 8.8Share of companies acquiredduring year, 1 Jan. 226.2 169.3 – –Share of companiessold during year –172.7 – – –Increases during year 191.3 205.5 0.4 0.9Decreases during year –116.4 –179.2 –0.2 –0.8

Acquisition cost, 31 Dec. 1,018.0 883.3 9.2 8.9Accumulatedplanned depreciation –600.7 –495.4 –7.5 –6.6Book value, 31 Dec. 417.3 387.9 1.7 2.3

Difference between total and planneddepreciation, 1 Jan. 29.8 18.9 – –Share of companies acquiredduring year, 1 Jan. – 6.8 – –Share of companies sold during year –9.4 – – –Increase in depreciation difference 3.4 14.5 – –Decrease in depreciation difference –2.0 –10.2 – –Difference between total and planneddepreciation, 31 Dec. 21.8 30.0 – –

Share of production machinery andequipment in book value, 31 Dec. 177.5 217.8 – –

GROUP PARENT COMPANYMFIM 1996 1995 1996 1995

18. OTHER TANGIBLE ASSETSAcquisition cost, 1 Jan. 11.9 13.6 – –Share of companies acquiredduring year, 1 Jan. – 15.2 – –Share of companies sold during year –1.4 – – –Increases during year 2.9 12.3 – –Decreases during year –0.3 –19.4 – –

Acquisition cost, 31 Dec. 13.1 21.7 – –Accumulated planned depreciation –6.9 –4.8 – –Book value, 31 Dec. 6.2 16.9 – –

Difference between total and planneddepreciation, 1 Jan. – – – –Share of companies acquiredduring year, 1 Jan. – 0.2 – –Share of companies sold during year – – – –Increase in depreciation difference 0.1 – – –Decrease in depreciation difference – –0.2 – –

Difference between total and planneddepreciation, 31 Dec. 0.1 0.0 – –

19. ADVANCE PAYMENTS AND PROJECTS IN PROGRESSAcquisition cost, 1 Jan. 16.8 7.7 – –Share of companies acquiredduring year, 1 Jan. 4.9 3.2 – –Increases during year 16.4 24.8 – –Decreases during year –29.2 –19.5 – –

Book value, 31 Dec. 8.9 16.2 – –

Due to exchange rate differences and transfers between fixed assetsgroups, acquisition costs and accumulated depreciation differenceson 31 Dec.1995 and 1 Jan. 1996 differ.

20. TAXATION VALUES IN MOST RECENT TAX RETURN– Land and water areas 7.2 7.2– Buildings and structures 24.0 24.3– Shares and holdings 575.5 408.3

21. FIRE INSURANCE VALUE OF FIXED ASSETS 68.6 65.9

22. CURRENT ASSETS

Current assets include receivables duefor payment after one year or longerAdvance payments on inventories 0.2 – – –Accounts receivable 8.3 24.7 – –Loans receivable 156.3 210.0 583.2 261.9Other receivables 3,0 3.4 – –Total 167.8 238.1 583.2 261.9

23. RECEIVABLES FROM GROUP COMPANIES

Accounts receivable – – 0.2 2.2Loans receivable – – 470.6 351.4Prepaid and deferred expenses – – 14.9 9.8Total – – 485.7 363.4

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995

34

24. LOANS RECEIVABLEMonetary loans to management ofGroup companies 0.5 0.4 – –

25. NETTED ITEMS IN PREPAID AND DEFERRED EXPENSES

RELATED TO INCOME RECEIVED ON LONG-TERM PROJECTS

(TAMPELLA POWER GROUP)Accumulated total project receivables – 655.5 – –Accumulated advances received, net – –486.5 – –

Project receivables, net 31 Dec. – 169.0 – –

26. SHAREHOLDERS’ EQUITY

Share capital, 1 Jan. 491.3 456.3 491.3 456.3Directed issue 175.0 35.0 175.0 35.0Share capital. 31 Dec. 666.3 491.3 666.3 491.3

General reserve. 1 Jan. 506.7 686.9 506.7 686.9Emission premium 91.0 91.0 91.0 91.0Covering of losses from previousperiods –504.4 –271.2 –504.4 –271.2

General reserve. 31 Dec. 93.3 506.7 93.3 506.7

Other non-disposable funds, 1 Jan. 0.4 0.4 – –Structural changes –0.4 – – –Other non-disposable funds, 31 Dec. 0.0 0.4 – –

Non-disposable funds, 31 Dec. 93.3 507.1 93.3 506.7

Total restricted equity, 31 Dec. 759.6 998.4 759.6 998.0

Non-restricted equity, 1 Jan. –612.0 –438.2 –504.4 –271.2Dividend payment – –0.8 – –Covered from general reserve 504.4 271.2 504.4 271.2Translation changes 13.5 –9.8 – –Profit/loss for the year 64.8 –434.4 207.8 –504.4

Total non-restricted equity, 31 Dec. –29.3 –612.0 207.8 –504.4

27. PROVISIONSAccumulateddepreciation difference, 1 Jan. 49.1 36.4 – –Share of companies acquiredduring year, 1 Jan. – 10.3 – –Share of companies sold during year–25.1 – – –Increase/decrease 1.0 2.4 – –

Accumulateddepreciation difference, 31 Dec. 25.0 49.1 – –Minority interest and eliminationof intragroup ownership –10.3 –25.8 – –In Group balance sheet, 31 Dec. 14.7 23.3 – –

Investment provisions, 1 Jan. – – – –Share of companies acquiredduring year, 1 Jan. – 0.1 – –Increase/decrease – –0.1 – –Investment provisions, 31 Dec. – 0.0 – –

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995

Other voluntary provisions, 1 Jan. 26.9 13.7 – –Share of companies acquiredduring year, 1 Jan. – 17.9 – –Share of companies sold during year –9.7 – – –Increase/decrease –0.4 –4.6 – –

Other voluntary provisions,31 Dec. 16.8 27.0 – –Minority interest and eliminationof intragroup ownership –16.1 –22.0 – –In Group balance sheet, 31 Dec. 0.7 5.0 – –

Deferred tax liabilities correspondingto Group voluntary provisions 4.5 8.1 – –

Obligatory provisionsProvisions for guarantee costs 49.6 102.7 – –The EU Commission’sboard cartel fine 41.7 41.7 41.7 41.7The tax and other disputes 119.7 61.2 61.1 61.2Other obligatory provisions 135.4 150.7 31.8 48.0

Total 346.4 356.3 134.6 150.9

28. CONVERTIBLE BONDS

Interest %

1988–98 Convertible bond 4,0 150.0 150.0 150.0 150.01996–99 Convertible bond,unsecured 0,25 322.0 – 322.0 –Total 472.0 150.0 472.0 150.0

29. BOND WITH WARRANTS TO COMPANY EXECUTIVES Interest %

1995-2000 5 – 0.3 – 0.3

30. LONG-TERM LIABILITIES INCLUDING LIABILITIES

DUE TO MATURE IN FIVE OR MORE YEARS

Loans from financial institutions 83.0 49.3 – –Pension loans 17.0 32.4 1.8 1.4Other long-term debt – 256.5 – –Total 100.0 338.2 1.8 1.4

31. LOANS TO GROUP COMPANIESOther long-term debt – – – 0.6Advances received, short-term – – – 0.1Trade account payable – – 2.4 2.4Accrued liabilities – – – 5.4Other current liabilities – – 21.9 318.7

Total – – 24.3 327.2

32. NETTED ITEMS IN ADVANCES RECEIVED

RELATED TO INCOME RECEIVED ON LONG-

TERM PROJECTS (TAMPELLA POWER GROUP)Total advances received – 500.5 – –Accumulated prepaid anddeferred expenses, net – –486.5 – –Advances received, net 31 Dec. – 14.0 – –

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995

35

33. CONTINGENT LIABILITIESPension commitmentsLiability from pension and othercommitments 30.7 33.6 30.7 33.6Unsecured liabilities from pensionfunds relating to discretionarybenefit commitments 45.0 72.0 45.0 72.0Obligatory unsecured liabilitiesfrom pension funds relating tostatutory benefit commitments 2.5 3.0 0.2 0.2

Other contingent liabilitiesFor own liabilities

Pledges 340.2 710.8 314.6 708.0Real estate mortgages 273.5 266.5 7.1 7.1Business mortgages 13.7 70.6 10.0 10.0

For subsidiariesGuarantees 32.2 32.3 182.4 785.6

For associated companiesGuarantees 10.0 10.6 10.0 10.6

For othersGuarantees 13.2 17.6 13.2 17.6Bill liabilities 17.2 14.6 – –

Other own liabilitiesGuarantees 176.9 410.9 – –Leasing liabilities 69.2 55.0 0.4 –Buy-back guarantees 12.4 – – –

Total 958.5 1,588.9 537.7 1,538.9

The presentation of the Group’s other contingent liabilities waschanged on 31 August 1996. Comparable figures for 31 Dec. 1995have been adjusted appropriately.

Commitments of purchase 19.0 – – –

Derivatives in the Parent CompanyDec. 31 1996 Dec. 31 1995

Value of the Market Value of the Marketunderlying value underlying value

currency currency

Currency derivativesForward contracts 247.4 256.1 362.9 371.1Options

Bought 52.7 2.9 102.0 2.6Sold 139.3 5.4 79.9 3.8

SWAP – – – –

The main objective of forex management is to secure the profitabilityof the underlying business by reducing the sensitivity against curren-cy risk. Forex hedging activities relate to commercial exposure arisingfrom the Group’s business. Foreign exchange management is han-dled centrally by the Parent Company.

Acceptable hedging instruments are options and forward con-tracts. The main instrument for hedging the order backlog and receiv-ables is the forward contract. Both options and forwards can be usedfor hedging estimated cash flows.

The market value of currency options is calculated by using theBlack and Scholes model for forex options. The value of underlyingcurrency is the delta value of the open option positions.

GROUP PARENT COMPANY

MFIM 1996 1995 1996 1995

Shareholdings owned by Group Subsidiaries, 31 Dec. 1996

Number of Share- Nominal Book value Subgroupshares holding value result

% 1,000 units 1,000 units FIM 1,000

SUBSIDIARIES

Tampella Corp.

Tamrock Oy 3,690,000 100.00 369,000 FIM 1,000,000 89,332Bretec Oy 19,000 100.00 19,000 FIM 110,463Detec International Oy 1,500 100.00 1,500 FIM 1,308Roxon Companies Oy 20,000 100.00 20,000 FIM 75,620 7,162PennPower Inc. 100 100.00 USD 41,726 –3,336

Tampella Services Inc.Mid-Atlantic Energy of PA, Inc.Bruin Power Corp.Bruin Power Partners Limited Partnership

VOEST ALPINE Bergtechnik Gesellschaft mbH 100.00 50,000 ATS 21,340VAB Beteiligungsverwaltung GmbHVOEST-ALPINE Mining & Tunnelling (Australia) Pty Ltd VOEST-ALPINE Control System Pty LtdVOEST-ALPINE Mining & Tunnelling Pty LtdVOEST-ALPINE Mining & Tunnelling Corp.VOEST-ALPINE Technika Górnicza, Tunelova Spolka z.o.o.VOEST-ALPINE Tunneltechnik Gesellschaft mbH Alpine Westfalia Berg- und Tunneltechnik GmbH & Co

Tamrock OyEstron Oy 160 100.00 22 FIM 608Tamcorp Australia Holding Ltd. 6,053,002 100.00 32,500 AUD 111,529

Tamrock Pty Ltd.Tamrock Coal Australia Pty Ltd.

Tamcorp Inc. 100 100.00 0.1 USD 101,463Driltech Inc.Eimco Coal Machinery Inc. Eimco Coal do Brasil LimitadaEJC U.S. Inc.Tamrock HRM Western Hemisphere, Inc.Tamrock USA, Inc.

Tamcorp Japan K.K. 500 100.00 50,000 JPY 1Tamrock A/S 5,000 100.00 500 DKK 420Tamrock Austria GesmbH 100.00 10,000 ATS 0Tamrock Canada Ltd. 2,450,000 100.00 3,500 CAD 13,215Tamrock Deutschland GmbH 100.00 7,000 DEM 0Tamrock Espana S.A. 210,000 100.00 210,000 ESP 7,812Tamrock Europe GmbH 100.00 500 DEM 1,019Tamrock Far East Ltd. 1,499,999 100.00 15,000 HKD 10,549

Tamrock (China) Ltd.Tamrock Great Britain Holdings Ltd. 1,000,000 100.00 1,000 GBP 6,964

Eimco Great Britain Ltd.Tamrock Loaders Inc. 11,199,893 100.00 1,220 CAD 50,049

Tamrock EJC Ltd Sucursal del Peru Citemin S.A. 60.00

Tamrock Loaders Oy 600,000 100.00 60,000 FIM 60,000Tamrock Norge A/S 25,000 100.00 25,000 NOK 4,262Tamrock (Schweiz) AG 500 100.00 500 CHF 0Tamrock Secoma S.A. 540,294 100.00 81,044 FRF 92,780

Tamrock Loaders S.A.Tamrock S.A.

Tamrock Svenska AB 50 100.00 50 SEK 0Strömnes ABTamrock AB

*) This figure includes the results of the Tamrock and Detec groups for the whole year and the result of VAB group for 1 September–31 December 1996.

*)

36

Number of Share- Nominal value Book valueshares holding % 1,000 units 1,000 units

Tamrock World Corporation B.V. 6,000 100.00 6,000 NLG 11,305EJC-Secoma Africa Ltd.Tamrock Africa (Pty.) Ltd.Tamrock Argentina S.A.Tamrock Chile S.A.Tamrock de Mexico S.A. de C.V.Tamrock Zimbabwe (Pvt) Ltd.

Oy Tamrotor Ab 9,000 100.00 9,000 FIM 9,000

Bretec OyBretec Inc. 50 100.00 0.5 USD 217Winkelkamp AG 297 99.00 147 CHF 516

Winkelkamp B. V.

Detec International OyRammer Oy 1,500 100.00 1,500 FIM 8,000

Rammer Deutschland GmbHRammer Inc.Rammer Norge A/SRammer Svenska AB

Roxon Companies Inc.Bet-Mec Oy 2,100 100.00 2,100 FIM 0Kopo AB 1,626 90.33 1,626 SEK 6,968Roxon AB 3,000 100.00 300 SEK 656Roxon GmbH 50 100.00 50 DEM 30,000

Gurtec GmbHJoba Kunststofftechnik GmbH & CoVerwaltungs - KGJoba Kunststofftechnik GmbH

Roxon Komponentit Oy 5,500 100.00 1,100 FIM 5,553Roxon Oy 5,000 100.00 5,000 FIM 5,000Roxon Pty Ltd. 2,890,019 100.00 2,890 AUD 18,163

Prok Group Ltd.Prok International (Canada) Inc.Prok International (USA) Inc.PT Prok Indonesia

OTHER SUBSIDIARIES

Non-trading companies, 3 in all 100.00 37 FIM 136Housing and real estate companies, 2 in all 100.00 334 FIM 5,107

ASSOCIATED AND OTHER COMPANIES

Oy Tampella Corp.The Finnish Central Securities Depository Ltd. 6 420 FIM 420Svartså Vattenverk AB 7 20.00 70 FIM 275TVW S.A. 81,963 24.62 82 BRC 0Vammas Oy 17,500 22.30 17,500 FIM 17,500

Tampella Group’s share of the shareholders’ equity of Vammas Group is FIM 34,788,800

Tamrock OyEimco Elecon (India) Ltd. 25.10 9,652 INR 1,834Mitsui Zosen Eimco Inc. 50.00 50,000 JPY 233Tamrock Service Korea Ltd 65.00 1 KRW 2,795

Bretec OyPäijät-Häme Telephone Company 46 FIM 164

Housing and real estate companies, 7 in all 2,718

The Company owns 26 other lots of shares with a total nominal and book value of less than FIM 100,000

37

38

Proposal of the Board of Directors

Group non-restricted shareholders’ equityon 31 December 1996 FIM –29,374.669.56

Parent company non-restricted shareholders’ equityon 31 December 1996 FIM 207,788.054.52

of which retained earnings FIM –profit for the year FIM 207,788 054.52

total FIM 207,788 054.52

Since the Group’s non-restricted shareholders’ equity is negative, no dividendpayment is possible.

The Board of Directors proposes that the parent company’s profit for the yearFIM 207,788,054.52 be carried forward to the retained earnings account and thatno dividend be distributed.

Helsinki, 20 February 1997

Clas Åke Hedström Stig-Erik Bergström

Heikki Hakala Johan Horelli Kari Kolu

Jouko M JaakkolaPresident and CEO

Auditors’ Report

We have audited the accountingrecords and the financial statements,as well as the administration by theBoard of Directors and CEO of Tampel-la Corp. for the financial year ended 31December 1996. The