GS-Hydro Offshore Marine Land

Offshore Marine Land

GS-Hydro in Brief GS-Hydro is the world s leading supplier of non-welded piping systems. We began operations in 1974 with the commercialization of an innovative flange which allowed the rapid and secure connection of pipes without the need for welding. Investing in continuous product and systems development, we now offer the broadest range of non-welded piping solutions on the market. Our core technology has been validated in thousands of applications for over three decades and has been taken to virtually every corner of the globe. The main application for our technology is in hydraulics, where the high pressures place stringent requirements on pipe connections. However, we also meet the needs of all markets where customer requirements demand any one of the many benefits our technology provides over welding, such as high cleanliness, serviceability, pre-fabrication, rapid installation or zero-fire hazard. Our main markets today are in the offshore and marine areas, but we also derive substantial revenues from the pulp and paper, mining, metals, automotive, aerospace and defence industries. Significant customers for GS-Hydro are, for example, oil rig yards, shipyards and heavy industry. As automation has become pervasive throughout the offshore and marine industries, our solutions for hydraulic piping can today be found in vessels ranging from the size of oil tankers to customized sailing-boats. We operate directly through our own subsidiaries in 17 countries, which cover the key markets from Asia to North America. In addition to our own direct operations, we also use selected agents and distributors to complete our sales channel. With over 500 piping system specialists, GS-Hydro is able to deliver complete high-pressure piping systems to customers virtually anywhere in the world. GS-Hydro Oy is a fully owned subsidiary of Sweden-based Ratos AB, a listed private equity company. Ratos business concept is to generate, over time, the highest possible return through professional, active and responsible exercise of its ownership role. GS-Hydro is committed to developing its products to meet or exceed customer demands. 2007 saw the introduction of our new chromium(vi)-free coating, designed to replace the yellow passivated (A3C) coating. The new coating is the result of development co-operation with a plating company and external test laboratories. The result is a coating which not only offers better corrosion resistance, but is also environment-friendly. 2

Otsikko CONTENTS 2 GS-Hydro in Brief 4 Year 2007 in Review 6 Key Customer Wins 2007 8 Letter from the President & CEO 10 Markets, Customers and Strategy 12 Technology and R&D 14 Personnel 16 Board of Directors Report 18 Financial Statements 26 Notes to Financial Statements 50 Auditors Report 51 Corporate Governance 52 Board of Directors 53 Executive Committee 54 Market Insight 55 History and Milestones 3

Year 2007 in Review Key figures EUR million 2007* 2006 2005 Revenues 141,9 106,2 69,0 EBITDA 18,4 13,0 5,6 EBITA 16,3 11,4 4,1 EBT 13,0 9,7 2,9 ROCE 28,7% 22,6% 9,6% *Figures for 2007 do not include the capital gain of EUR 3,6 million related to the sale of property and land in Norway. Revenues by type of business, 2007 48% 45% 7% n Projects and prefabrication n Services and machines n Material packages and components, mostly frame agreements and customer specified materials Revenues by segment, 2007 Construcion and Mobile Equipment 24% Other 44% land-based 32% n Offshore n Marine n Land-based 4

Financial highlights Revenues of EUR 141.9 million, an increase of 33% over 2006 Profit (EBITDA) of EUR 18.4 million, an increase of 41% over 2006 Offshore sales grew 76% Marine sales grew 34% Land-based sales grew 13% Operational highlights In Singapore, new subsidiary opened In Spain, significant expansion into marine market In Norway, acquired Slangeservice Stord AS operating in marine market In Asia, developed operations in China and South Korea In India, new agency agreement made Strengthened Group with new HQ office in Helsinki and new key hires Growth in revenues 2003 2007, by segment 150 120 90 60 30 0 55 30 15 10 10 53 28 14 11 69 35 18 16 106 2003 2004 2005 2006 2007 49 28 29 142 62 34 46 Segment CAGR 03 07 n Offshore 46% n Marine 23% n Land-based 20% Total 27% 5

Key Customer Wins 2007 6

Offshore Segment Complete, non-welded hydraulic piping packages supplied to the world s first cylindrical Floating Production Storage and Offloading facilities (FPSOs) Marine Segment Largest Norwegian hoses and joints contract ever awarded Land-based Segment Emergency exits for Madrid motorway M30 tunnel project During 2007, GS-Hydro Benelux BV secured a contract for complete non-welded hydraulic piping packages for Sevan Marine ASA, a Norway-based company that constructs, owns and operates floating offshore installations. Sevan is constructing the world s first three cylindrical Floating Production Storage and Offloading facilities (FPSOs) Sevan Piranema and Sevan Hummingbird as well as Sevan Voyageur. The Sevan Piranema was completed in early 2007, the Sevan Hummingbird in early 2008 and the third vessel, the Sevan Voyageur, is expected to be completed in the summer of 2008. All three projects were assigned by Keppel Verolme BV to GS-Hydro. In FPSOs, extracted hydrocarbons are stored in tanks in the hull of the platform for later transport by shuttle tankers or pipeline to on-shore refineries. FPSO vessels also have processing plants for hydrocarbons installed on deck for handling the oil, gas, and water. These vessels are designed for ultra-deep water fields, whose harsh conditions are best met by GS-Hydro s high-pressure piping technology. The size of the projects is illustrated by the vessel capacity. Sevan Voyageur, for example, has an oil storage capacity of 300,000 barrels and an oil processing capacity of 30,000 barrels/day. During 2007, GS-Hydro Norge AS won the largest hoses and joints contract ever awarded in Norway and solidified GS- Hydro s role as the market leader within its segment in Norway. The customers were Aker Kværner ASA, Bjørge ASA and Aker Yards AS. In all, 42 Aker sites across Norway will be taking advantage of the agreement which includes hydraulic- and industrial hoses, flanges, fittings, valves, quick disconnect couplings and services. Our track-record, industry expertise and high product quality, as well as the ability to offer the exact package required, were the key criteria behind Aker s decision to select GS-Hydro. The size of the deal is reflected in the fact that GS-Hydro Norge has opened several new branch offices near the Aker sites, and GS-Hydro Norge has expanded its facilities at its main office in Frogner, with two new production lines for hoses, an additional set-up for pressure testing, and a major increase in storage facilities. GS-Hydro S.A. won a major contract for emergency exits in the new Madrid M30 tunnel in Spain during 2007. The M30 project is designed to reduce traffic congestion in Madrid by routing traffic through a 40 kilometre tunnel. The additional demands on security posed by the tunnel were addressed by installing hydraulic exits to allow the rapid and safe evacuation of people in potential emergency situations. The emergency exits were designed with two cylinders connected to a hydraulic power unit able to lift up to a 6300 kg load. The project required a total of 85 hydraulic emergency exits to be constructed in less than a year. GS-Hydro won the contract largely due to our ability to reduce the on-site work time through prefabrication of 80% of the components required. The Madrid motorway tunnel project is a show-case for GS-Hydro to take advantage of global market opportunities in security installations to evacuate people in tunnels or buildings underground. 7

Letter from the President & CEO 8

For GS-Hydro, 2007 was another year of strong growth in revenues and improved operating profitability. Both revenue growth and profitability were higher than we had anticipated at the beginning of the year and we therefore exceeded internal targets for both revenue and profit. We increased revenues to EUR 142 million in 2007, from EUR 106 million in 2006, which represents growth of 33%. According to industry sources we track on a regular basis, the market grew by a healthy 20% in 2007. GS-Hydro therefore clearly grew sales at a rate significantly faster than growth in the overall market. Strong revenue growth was one of the main drivers of positive development in profitability for the year, profit (EBITDA) improved from EUR 13.0 million in 2006 to EUR 18.4 million in 2007, representing 41% growth compared to 2006. Overall, we can be pleased with our achievements at GS-Hydro during 2007. In our strategy planning for 2007 we had concluded that the best path to profitable growth lay in forming genuine partnerships with our most important global customers and suppliers. In practise this meant formulating solutions which create value for both parties. The execution of this strategy has already brought initial positive results in our cooperation both with our customers and with our suppliers. With 2008 in mind, we have also initiated actions to further improve our offering towards our most important customer segments. Each of our business segments, Offshore, Marine and Land-based, contributed to revenue growth during the year and GS-Hydro won a number of large orders from around the world. Our successes demonstrate customers keen interest in non-welded piping and their commitment to GS-Hydro solutions. These new wins, together with our other established customer references, are our best sales arguments when facing competition. Because of the many advantages they offer, non-welded piping solutions are beginning to become an increasingly popular technology, especially in Europe. In North America and Asia, market penetration has been relatively low until now and these markets offer significant growth potential for GS-Hydro in the future. 2007 was a year of global expansion of the GS-Hydro global footprint. We ramped up operations in Western Canada, where we established GS-Hydro in December 2006. Western Canada is a very attractive area of potential growth for us and we will invest more in our operations there to serve both global and local customers in the area. In the beginning of 2007 we re-organized our operations in Spain and focused the company more towards the Marine Segment. The turnaround was very successful and the Spanish company showed growth and profit improvement in 2007. During the year we signed an agreement to acquire Slangeservice Stord AS in Norway (consolidated from January, 2008) to strengthen our service towards the local Marine Segment, already a key market for GS-Hydro. In November, 2007 we opened our own subsidiary in Singapore. GS-Hydro will continue investments in Asia to ensure that we can benefit from the regional growth, especially in the Offshore and Marine Segments. Organization and efficiency improvement actions were initiated in certain markets. Both in China and in Korea operations were focused towards strategic customers in the Offshore and Marine Segments and internal reorganization was made. Internal efficiency actions were taken in the USA. Our internal work to become a unified global company continued in 2007. We improved many of our internal processes and developed new, harmonized solutions for more efficiently handling customers projects. Further efforts in implementation will help to improve our operating effectiveness in the future. In 2008 we will be developing new procedures to manage our working capital more efficiently and to improve our internal reporting and communications infrastructure. There is still work to be done in order for GS-Hydro to become a harmonized global company, but we took a significant step forward along the right path in 2007. During the last two years, we have doubled the number of employees at GS-Hydro. With growth of this magnitude, organizational competence has become an important part of our future commitment to developing the business. As a consequence, we opened a new office in Helsinki, Finland during the year, and strengthened our support from headquarters to the field by recruiting to several new positions in marketing, human resources and demand chain management. During 2007, we implemented a global demand management concept for our most important suppliers in order to safeguard the availability of key components and material. This proved to be the right action in light of the global raw material price increases and the decreased availability of components. Our development of this concept will continue in 2008, emphasizing a global approach and the further development of our relationships with our most important suppliers. In 2007, approximately half of our revenues came from project sales. Our customers projects typically involve engineering and sourcing of material, piping installations, pressure-testing, flushing and commissioning of complete high-pressure, non-welded piping systems. Due to the critical importance of this revenue stream, GS-Hydro started a Group-wide training program for delivering project solutions to our organizations around the world. In the coming years we will be continuing these investments in training people and raising competence levels. In order for GS-Hydro to continue on its path of positive development in growth and profitability, we have to recognize that our markets, and the competition we face, are constantly changing, and that we have to react fast to any changes in our business environment. I want to thank all employees for making 2007 a successful year. At GS-Hydro we are now moving into the next phase of our development. 9

Markets, Customers and Strategy Our market GS-Hydro s market is substantially more than non-welded technologies. We have the ability to serve potentially vast global markets for complete turn-key piping projects in multiple segments. Today, GS- Hydro is the world s leading piping technology and engineering supplier, delivering proven value through the supply chain. We conduct business in three basic categories: projects, materials and services. In project sales, which includes pre-fabrication, we offer turn-key non-welded piping systems to exact customer needs, with project complexity ranging from the engineering of customer-specified piping systems to the commissioning of complete hydraulic systems. Project sales account for approximately half of our annual revenues. Material packages and component sales are primarily revenues derived from longerterm frame agreements and customer specification of GS-Hydro non-welded materials. We source and supply only the highest quality certified components and materials for our customers piping systems and we take the responsibility that our own strategic suppliers are reliable, global companies. In services, we primarily supply or rent our machinery specifically designed for pipe bending, cutting, end preparation, and cleaning to exacting customer requirements. Market growth Although we have opportunities to increase our market share in the non-welded piping segment, our primary growth opportunity is the conversion of the vast traditional welded piping solutions to modern, non-welded techniques. Given Our strategy Our strategy is to be the leading global full-service provider of non-welded piping solutions and engineering. We aim to do this by offering a superior value proposition throughout the customer s supply chain, leveraging our historical core expertise in non-welded technology. Our competitive edge GS-Hydro s expertise, combined with clients expectations, constitutes our value creation. We believe our business relationships are fundamentally built on trust; and our goal is to create healthy, long term partnerships based on that trust. Business is something we at GS- Hydro regard as a process which gives us the opportunity to work together with our clients and suppliers. What sets us apart from our competitors is our ability to consistently deliver on our promises. Our vision We envision GS-Hydro to be the preferred vendor of non-welded piping solutions to the offshore and marine industries and one of the leading suppliers to testing, pulp & paper and metals & mining industries (steel), as well as to hydraulic companies. 10

that the piping and welding industries turn over tens of billion euros annually, there are no practical limits to growth for non-welded technologies in the near term. Importantly, non-welded solutions allow for more outsourcing of whole piping projects, since the work can be planned and prefabricated off-site. On-site work is correspondingly reduced, and the remaining steps at the site are cheaper, safer and more environmentally sound. The markets for our products have grown rapidly during the last few years on the back of strong global growth in industrial output, world trade and, in particular, new investments into oil extraction and exploration. In summary, our growth prospects are based on four factors: Overall growth in world economy and world trade Growth in market for non-welded technology Conversion of traditional welding to superior non-welded solutions Outsourcing of complete piping projects and management Market Segments To facilitate marketing and sales we focus our operations on customers in three segments: Offshore, Marine and Land-based. Offshore Segment The Offshore Segment mainly comprises customers building and modernizing oil drilling rigs and the special support vessels needed offshore. The Offshore Segment has experienced significant growth in investment during the last three years, largely due to the rise in demand for crude oil in a tight market, and the consequent rise in the market price for oil. As long as oil demand remains high, the price of crude oil will likely also remain high, ensuring the economics of exploiting oil deposits in difficult environments. As long as the current level of oil pricing holds, we believe the offshore market will continue to benefit from significant additional investment. At the beginning of 2008, oil prices are hovering around the USD100 per barrel mark, which is significantly above the level that most oil and gas companies have been using to evaluate their projects. Current plans for deepwater oil field exploration and development are, therefore, relatively immune to even fairly sizeable fluctuations in the price of oil. Increasingly, new investments in offshore markets will demand ever deeper water drilling rigs which will call for new technological innovations to be practical. The functionality of any rig is fundamentally dependent to a large extent on its hydraulic, and electrical, systems. The deeper an oil field is located, the higher the degree of functionality required from the rigs. The technology developments in oil rigs represent a large future market for highpressure piping systems and an excellent growth opportunity for GS-Hydro. There is also a large opportunity in repair and maintenance of the existing installed base of more than 1400 offshore rigs in use around the world today. Approximately one in ten rigs undergoes modernization annually, and each rig contains up to tens of kilometres of piping. Marine Segment With the growth in the global market economy, the amount of goods transported from Asia to Europe and the USA has been increasing rapidly. This demand has created a situation where ship yards today have large order books for car transportation ships, container ships, tankers, as well as other ships carrying cargo. All ships include hydraulics, for cranes and hoists for example, and thus require high-pressure piping. In the Marine Segment, as in the Offshore Segment, customer needs are generally very demanding and sophisticated. Only high quality, certified material is acceptable and companies undertaking the piping work need to understand the special requirements of marine environments. This market is attractive for GS-Hydro, since we offer best-in-class materials and components together with high quality workmanship. Land-based Segment The Land-based Segment includes the pulp and paper industry, mechanical wood industry, mining industry, steel mills, crushers and special vehicles, amongst others. Our sales into this segment have enjoyed steady growth during last few years and we believe they will continue to do so. Due to the multitude of market opportunities, if one large customer segment were to reduce its investments, there are remarkable growth opportunities in the remaining segments to allow us to achieve our growth objectives. In addition to new projects, the modernizing of existing plants, such as pulp and paper machinery or steel mills also provide business opportunities for GS- Hydro. Today s industrial projects involve vast amounts of piping. For example a steel mill can have in excess of 15 kilometres of piping, and a nuclear power plant over a hundred kilometres of piping. Customers We do a large part of our business with large global companies which, in turn, have their own international networks serving end-user customers needs. These global customers expect from their partner suppliers the same high-quality project, material and service offerings, in all the markets they operate in. In our customer relationships we, in turn, are committed to think and act globally as a system integrator, and as part of a wider value chain. Many of our large, global customers also have strategic goals to reduce their number of suppliers and build deeper partnerships with existing critical suppliers, including GS-Hydro. We are well placed to serve these clients because we offer broad geographical coverage and complete project, material and service offerings. Operating globally through our own subsidiaries, we have the ability to fine tune our total offering to optimally meet customers local needs. To be successful in our strategy, we need to communicate to our potential customers the advantages of non-welded technology: overall cost efficiency, improved work safety and better environmental protection. We are therefore making substantial investments in sales and marketing activities. In light of our growing sales opportunities, we initiated a specific Strategic Customer Management program in 2007. The goal of this program is to provide us with better visibility into the business opportunities these clients can offer us, and hence allow us to develop our internal capabilities in tune with their evolving needs. 11

Technology and R&D 12

Non-welded technology Our non-welded technology offers a higher quality, more reliable and, overall, a more cost efficient alternative to conventional welding. It is proven technology with over three decades of use. The benefits our solutions offer include: leak-free, reliability highest level of cleanliness pre-fabrication enables fast and easy on-site installations safe, no hot work small space requirement simplifies repair and maintenance suitable for a wide range of materials Using non-welded solutions can substantially reduce the overall piping system cost and dramatically reduce the life-cycle cost compared to traditional welded piping, although the initial cost of the products is naturally higher. Since there is no welding involved, there is also no need for timeconsuming and costly X-ray imaging inspections of welds. GS-Hydro piping systems are also fundamentally environmentally friendly. For example, no acid cleaning is required, and no toxic waste is created. Due to the inherent cleanliness of nonwelded piping, flushing time and associated costs are reduced to a minimum. New chromium(vi)-free component coating developed GS-Hydro is committed to developing its products to meet or exceed customer demands. 2007 saw the introduction of our new chromium(vi)-free coating, designed to replace the yellow passivated (A3C) coating. The new coating is the result of development co-operation with a plating company and external test laboratories. The result is a coating which not only offers better corrosion resistance, but is also environment-friendly. The new material also improves working conditions during installations, as staff no longer have to operate with chrome plating processes and coatings. New higher pressure retain ring solution introduced During the year GS-Hydro added to its range of non-welded connections with a new high-pressure retain ring solution. The new patented connection continues the success of our GS-Piping without Welding -branded technology and provides improved features with numerous benefits, in line with GS-Hydro s technology development principles. Partner development projects During the year, GS-Hydro continued to contribute to several development projects together with its suppliers and partners. These projects aim to provide improved performance and more advanced piping materials and solutions to both existing and new GS-Hydro customers and market areas. 13

Personnel With the rapid growth in operations, the number of employees at GS-Hydro has significantly increased over the last few years, roughly doubling in number in the last two years alone. At year-end 2007, the Group employed 527 people in 17 countries, an increase in personnel of 26% from 2006. Developing our human resources will be a crucial factor in the company s future success. Our strategy to become a bigger partner in the supply chains of our key customers will require us to actively increase the project part of our overall offering. Increasing project sales will, in turn, entail a commensurate increase in the number of personnel employed. In order to meet these future challenges, GS-Hydro aims to continuously develop the competence and experience of its workforce. During 2007, we established a Global Human Resources function at our head office in Helsinki. The objective of the Human Resources function is to work with subsidiary management to provide shared guidelines, services and support in order to ensure that GS-Hydro achieves its strategic objectives. To continue the rapid growth of recent years will require that we ensure that our competence and long-term experience in non-welded innovative piping technology is efficiently and effectively shared among all our personnel worldwide. Working to this end, we are developing a shared platform for systematic development of professional standards, and dissemination of best internal practices. GS-Hydro places strong emphasis on raising competence levels in sales, project delivery, and management. At management level, performance reviews are conducted and documented at a minimum of once a year. We recognize that our people, their knowledge and competence, are our strongest asset through which we can add value to our customers businesses. 14

Company values and principles GS-Hydro recognizes that satisfaction of our customers requirements and expectations is the key to realizing our value proposition. The cornerstone of our company quality policy is the continuous improvement of our processes and services. The company ensures all employees understand the requirements of our quality policy and are provided with the necessary resources for compliance. Management is responsible for ensuring individual employees within the organization are aware of their responsibility for the quality of their own work and its development. We also monitor the performance of our suppliers in understanding and supporting our quality policy. A Code of Ethics was approved by the Board of Directors and has been communicated and shared with all GS-Hydro operations. Management is responsible for enforcing the Code of Ethics. Health & Safety Policy GS-Hydro is committed to providing a safe and healthy working environment for employees, customers and associates. The company accepts responsibility for customers and visitors who may be affected by our operations and ensures that statutory duties and obligations to them are met at all times. It is a Company principle that every employee is provided with all information, instructions and training necessary to carry out their duties safely and efficiently. Management has the responsibility to ensure that all processes and systems of work comply with all relevant Health & Safety legislative requirements. GS-Hydro encourages healthy lifestyles, both within work and outside activities, with the aim of minimizing absenteeism due to illness or other reasons. 15

Board of Directors Report The Board of Directors and President & CEO of GS-Hydro Oy hereby submit their report for the fiscal year ending December 31, 2007. Ownership structure GS-Hydro Oy has been a wholly owned subsidiary of Sweden-based Ratos AB since 2004. Ratos is listed on the Stockholm Stock Exchange in the Large Cap segment. Operations GS-Hydro delivers complete, non-welded piping projects, materials (packages and components) and services to its customers. The business mix by sales is approximately half as materials and half as projects. The main application for non-welded technology is in hydraulics, where the highpressure sets demanding requirements on pipe connection quality. GS-Hydro operates directly through its own subsidiaries in 17 countries, covering the main markets of Europe, Asia and North America, supported by selected agents and distributors in certain markets. Markets GS-Hydro divides its markets into three segments: Offshore, Marine and Land-based. The latter segment comprises customers in the paper, mining, metals, automotive, aerospace and defence industries. Significant customers for GS-Hydro are, for example, operators of oil drilling rigs, shipyards and heavy engineering companies. In 2007, the Offshore Segment accounted for 32% of sales, the Marine Segment for 24% of sales and the Land-based Segment for 44% of sales. The markets for our products have grown rapidly during the last few years on the back of strong global growth in industrial output, world trade and, in particular, new investments into oil extraction and exploration. In 2007, the economies in most of GS-Hydro s geographical market areas developed strongly and this was also evidenced in the strong demand for GS- Hydro s projects, materials and services in all market segments. In 2007, GS-Hydro established its own subsidiary in Singapore, mainly in order to take advantage of growth in the Asian offshore and marine markets. During the year GS-Hydro signed an agreement to acquire Slangeservice Stord AS in Norway to strengthen customer service in the Marine Segment in Norway. Under the agreement, the acquisition will be consolidated into GS-Hydro in 2008. Sales and financial result GS-Hydro s sales in 2007 totalled EUR 141.9 million (2006: EUR 106.2 million), an increase of 33% from 2006. All three market segments contributed to the growth of the company. Operating profit (EBITDA) before taxes for 2007 improved significantly compared to 2006 and was EUR 18.4 million (2006: EUR 13 million), an increase of 41% from 2006. In 2007, the positive profit development was attributable to the increased volume of sales and successful project execution. For 2007, the return on capital employed improved to 28.7% (2006: 22.6%). Balance sheet, financing and cash flow Net cash flow from operating activities for 2007 was positive and improved over 2006 to EUR 5.350 million (2006: EUR -4.597 million). The main reasons for the improvement were the improved operating results and the gain on the sale of real estate. These factors were offset by higher accounts receivable, an increase in inventories and an increase in interest paid on debt. Working capital was EUR 38 million in 2007 (2006: EUR 30 million). The cash position improved to EUR 7.196 million (2006: EUR 3.532 million), largely due to the sale of land and buildings amounting to EUR 6.438 million. Inventories increased to EUR 34.983 million in 2007 (2006: EUR 23.685 million). The increase in inventory was due to a business decision to increase the inventory of finished goods during a period of turbulent market demand, in order to facilitate ontime customer deliveries. Investments, amortization and depreciation Acquisition of property, plant and equipment amounted to EUR 3.253 million in 2007 (2006: EUR 1.978 million), the increase was largely due to acquisition of machinery and equipment. Depreciation and amortization totalled EUR 2.132 million in 2007 (2006: EUR 1.644 million). Liquidity and debt Liquid funds were EUR 7,196 million (2006: EUR 3.532 million) at the year end 2007 and interest-bearing liabilities totalled EUR 36.097 million (2006: EUR 34.813 million). Net debt amounted to EUR 28.901 million (2006: EUR 31.281 million). Interest-bearing liabilities consist of interest-bearing bank loans and check overdrafts. Special financial items In 2007, the Group recorded a EUR 3.601 million gain in sales of property, plant and equipment that arose from the sale of a building in Norway. Orders received and order book Orders received in 2007 totalled EUR 143 million (2006: EUR 114 million), an increase of 26% from 2006. At the end of 2007 the order book totalled EUR 30 million. All three market segments contributed to the increase in orders in 2007. Quality and certificates Quality Management System GS-Hydro operates under a Quality Management System, conforming to the International Standard ISO 9001:2000. The company s Leadership System also complies with ISO 9001:2000. Quality of operations, products and customer solutions are critical business factors for GS-Hydro. The company manufactures, sources and delivers only components and materials which have all the relevant certificates needed in different customer segments. In project sales, the Quality Management System also covers projects and services for piping system implementations. In 2007, the company introduced a customer satisfaction measurement system to monitor the effectiveness of its operations. Certification GS-Piping System products have undergone rigorous test programs and have been certified by leading global oil companies, amongst others. The GS-Piping Systems are also approved to be used offshore by NOR- SOK (piping specifications IS70, IS80, GS70 and JS80). In 2007, GS-Hydro as a manufacturer of piping systems was audited by DNV according to Directive 97/23/EC on Pressure Equipment. With a certificate of compliance to these PED requirements, GS-Hydro 16

is now capable of providing piping system deliveries according to Module D1 and is allowed to affix a CE-mark followed by the DNV identification number. Risk Management Business risks can be allocated to three categories: Financial Risks, Business Risks related to projects deliveries and Raw Material Risks related to material availability and cost variability. Financial Risks: Currency exchange rate risk and other financial risks are covered centrally at GS-Hydro Group level. Receivables collection has high importance to mitigate risks related to account receivables outstanding. Business Risks: These risks relate to project deliveries around the world. Successful project deliveries not only secure profitability and growth, but are also the corner stone of customer satisfaction with GS-Hydro. Senior management has a system in place to have a specific risk review for all customer projects bigger than EUR 250 thousand. Raw Material Risks: These risks relate to the availability and cost of raw materials and are addressed by working in close collaboration with strategic suppliers. GS-Hydro management is responsible for continuous assessment of potential business risks and their impact on operations. Personnel At year-end 2007, GS-Hydro employed 527 people in 17 countries, an increase in personnel of 26% over 2006. The number of employees at GS-Hydro has significantly increased over the last two years, and based on our strategy to expand project sales, the company expects to continue to increase the number of personnel employed. During 2007 developing human resources was included as a strategic priority for the company and a Global Human Resources function was established at the head office in Helsinki. Health and Safety GS-Hydro is responsible for ensuring the health, safety and welfare of its employees and their working environment. Company management has the responsibility to ensure that all processes and systems of work are designed to comply with all relevant Health and Safety legislative requirements. Environmental Sustainability GS-Hydro believes its product innovations are in the interest of environmental safety, economical use of resources and environmental sustainability. The company s environmental system complies with legal obligations, identification of environmental aspects and risk. The company aims for continuous improvement of environmental performance when developing operations, processes and products. Competition GS-Hydro operates in a competitive environment. The company s non-welded offering is a relatively recent innovation and competes mainly with traditional welded solutions, which represent the bulk of the market. GS-Hydro also competes with other small companies specialized in non-welded piping. In materials and components, the company also competes with diversified companies, for example the Parker Hannifin Corporation, USA. Non-welded solu- tions compete favourably with traditional welding on criteria such as high cleanliness, serviceability, pre-fabrication, rapid installation, and zero-fire hazard. The material costs for non-welded solutions are higher than for welded solutions, but GS-Hydro s solutions compete favourably on overall project costs, maintenance costs and lifecycle cost. Outlook for 2008 The world market demand for raw materials, metals, minerals and energy is expected to remain strong. At the beginning of 2008, oil supply and demand remains tight and oil prices are therefore at record levels. In the Offshore Segment, oil prices have remained at a significantly higher level than what large oil exploration companies have historically considered attractive for new investments. In the Marine Segment, shipyard orders were very strong in 2007 and although softening in orders is anticipated in 2008, shipyards will be working at near capacity for several years. In the oil transportation market, the phasing out of single-hull tankers and the construction of new twin-hull vessels, together with high oil prices, will keep up demand for oil tankers. The Land-based Segment is more sensitive to slowing global economic growth. However, raw material processing industry is expected to increase investments and late-cyclical infrastructure investments are still strong. Our overall assessment is therefore that GS-Hydro will experience favourable development in demand in the near term. The prospects for GS-Hydro to maintain good growth and profitability in 2008 are good. For additional information on the company s performance and financial position, please refer to the following income statements, balance sheets and cash flow statements. Global presence through frontline offices and selected agents Corporate HQ Frontline GS Supply Agents Number of employees: 527 17

Financial Statements CONSOLIDATED INCOME STATEMENT, EUR thousand Note 1 Jan 31 Dec 2007 1 Jan 31 Dec 2006 3. NET SALES 141 944 106 197 4. Other operating income 3 601 4 Changes in inventories of finished goods and work in progress -102 2 680 Materials and services -71 926-58 640 5. Employee benefit expenses -28 881-21 205 6. Depreciation, amortisation and impairment losses -2 094-1 644 7. Other operating expenses -22 655-16 016 4. OPERATING PROFIT (EBITDA) 21 981 13 020 OPERATING PROFIT (EBITDA), excl. capital gain on sale of property and land 18 380 - OPERATING PROFIT (EBITA) 19 887 11 376 8. Finance income 297 578 8. Finance expenses -3 602-2 212 PROFIT BEFORE INCOME TAXES 16 582 9 742 9. Income taxes -5 587-2 474 PROFIT FOR THE PERIOD 10 995 7 268 18

Financial Statements cont. CONSOLIDATED BALANCE SHEET, EUR thousand Note 31 Dec 2007 31 Dec 2006 ASSETS Non-current assets 2.,10. Goodwill 15 137 15 039 10. Other intangible assets 688 841 11. Property, plant and equipment 6 455 7 721 17. Non-current receivables 440 356 12. Deferred tax assets 881 1 403 Total non-current assets 23 601 25 360 Current assets 13. Inventories 34 983 23 685 14. Trade and other receivables 35 608 28 685 Current tax receivables 112 102 15. Cash and cash equivalents 7 196 3 532 Total current assets 77 899 56 004 TOTAL ASSETS 101 500 81 364 EQUITY AND LIABILITIES 16. Equity Share capital 4 528 4 528 Other reserves 6 325 6 325 Translation reserve 49-258 Retained earnings 23 426 12 504 Total equity 34 328 23 099 Non-current liabilities 12. Deferred tax liabilities 694 345 18. Provisions 177 332 19. Interest-bearing liabilities 3 397 5 404 Total non-current liabilities 4 268 6 081 Current liabilities 20. Trade and other payables 29 446 22 168 Current tax liabilities 758 607 19. Interest-bearing liabilities 32 700 29 409 Total current liabilities 62 904 52 184 Total liabilities 67 172 58 265 TOTAL EQUITY AND LIABILITIES 101 500 81 364 19

Financial Statements cont. CONSOLIDATED CASH FLOW STATEMENT, EUR thousand Note 1 Jan 31 Dec 2007 1 Jan 31 Dec 2006 Cash flows from operating activities Profit for the period 10 995 7 268 Adjustments: Depreciation, amortisation and impairment losses 2 094 1 644 Gains on sales of property, plant and equipment 3 601 - Finance income and expenses 3 305 1 634 Income taxes 5 587 2 474 Other adjustments 276 54 Change in working capital: Change in trade and other receivables -8 108-13 168 Change in inventories -11 298-6 774 Change in trade and other payables 6 332 6 370 Change in provisions -155 69 Interests paid -3 247-1 632 Interests received 272 320 Income taxes paid -4 304-2 856 Net cash flow from operating activities 5 350-4 597 Cash flows from investing activities 2. Acquisition of subsidiaries, net of cash at the acquisition date - -1 985 Acquisition of property, plant and equipment -3 253-1 978 Proceeds from sale of investments - 4 Net cash flow from investing activities 3 253-3 959 Cash flows from financing activities Proceeds (+) / repayment (-) of non-current liabilities -1 658-2 372 Proceeds (+) / repayment (-) of current liabilities 3 323 11 212 Payment of finance lease liabilities -19-13 Net cash flow from financing activities 1 646 8 827 Change in cash and cash equivalents 3 743 271 Cash and cash equivalents at the beginning of the financial period 3 532 3 406 Effect of foreign exchange rate fluctuations -79-145 Cash and cash equivalents at the end of the financial period 7 196 3 532 20

Financial Statements cont. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY, EUR thousand Equity Share capital Other reserves Translation reserve Retained earnings Total Equity at 31 Dec, 2005 4 528 6 325 214 5 755 16 822 Change in translation differences -472-472 Profit for the period 7 268 7 268 Recognised income and expenses for the period 0 0-472 7 268 6 796 Other adjustments -519-519 0 0 0-519 -519 Equity at 31 Dec,2006 4 528 6 325-258 12 504 23 099 Equity at 1 Jan, 2007 4 528 6 325-258 12 504 23 099 Change in translation differences 334 334 Profit for the period 10 995 10 995 Recognised income and expenses for the period 0 0 334 10 995 11 329 Other adjustments 0 0 0-100 -100 Equity at 31 Dec, 2007 4 528 6 325 76 23 399 34 328 21

Financial Statements cont. INCOME STATEMENT FOR THE PARENT COMPANY, EUR thousand Note 1 Jan 31 Dec 2007 1 Jan 31 Dec 2006 3. NET SALES 21 236 16 123 4. Other operating income 2 340 1 977 Changes in inventories of finished goods and work in progress 751 652 Materials and services -13 675-8 543 5. Employee benefit expenses -2 497-1 887 6. Depreciation, amortisation and impairment losses -307-323 7. Other operating expenses -12 399-3 104 OPERATING PROFIT -4 552 4 895 8. Finance income 2 205 802 8. Finance expenses -2 279-1 436 PROFIT BEFORE INCOME TAXES -4 626 4 261 9. Income taxes -81-773 LOSS/PROFIT FOR THE PERIOD -4 707 3 488 22

Financial Statements cont. BALANCE SHEET FOR THE PARENT COMPANY, EUR thousand Note 31 Dec 2007 31 Dec 2006 ASSETS Non-current assets 10. Goodwill 12 376 12 376 10. Other intangible assets 212 305 11. Property, plant and equipment 369 471 25. Investments 5 912 8 884 12. Deferred tax assets 301 360 Total non-current assets 19 170 22 396 Current assets 13. Inventories 4 625 3 873 14. Trade and other receivables 13 642 18 948 15. Cash and cash equivalents 1 482 967 Total current assets 19 749 23 788 TOTAL ASSETS 38 920 46 184 EQUITY AND LIABILITIES 16. Equity Share capital 4 528 4 528 Other reserves 6 325 6 325 Retained earnings -1 162 3 545 Total equity 9 692 14 399 Non-current liabilities 19. Interest-bearing liabilities 2 440 996 Total non-current liabilities 2 440 996 Current liabilities 20. Trade and other payables 4 469 8 483 19. Interest-bearing liabilities 22 319 22 306 Total current liabilities 26 788 30 789 Total liabilities 29 228 31 785 TOTAL EQUITY AND LIABILITIES 38 920 46 184 23

Financial Statements cont. CASH FLOW STATEMENT FOR THE PARENT COMPANY, EUR thousand Note 1 Jan 31 Dec 2007 1 Jan 31 Dec 2006 Cash flows from operating activities Profit for the period -4 707 3 488 Adjustments: Depreciation, amortisation and impairment losses 307 323 Finance income and expenses 74 634 Income taxes 81 4 773 Dividend received -1 688-234 Other adjustments 7 765 Change in working capital: Change in trade and other receivables 5 206-5 150 Change in inventories -751-572 Change in trade and other payables -4 004 3 070 Interests paid -1 159-941 Interests received 227 568 Income taxes paid -22-22 Net cash flow from operating activities 1 329 1 937 Cash flows from investing activities 2. Acquisition of subsidiaries, net of cash at the acquisition date -482-3 8876 Acquisition of property, plant and equipment -103-136 Acquisition of intangible assets -36-104 Loans granted -1 612-2 049 Proceeds from sale of investments 0 0,170 Net cash flow from investing activities -2 233-6 174 Cash flows from financing activities Proceeds (+) / repayment (-) of non-current liabilities 1 444-2 593 Proceeds (+) / repayment (-) of current liabilities -6 7 806 Payment of finance lease liabilities -19-13 Net cash flow from financing activities 1 420 5 200 Change in cash and cash equivalents 515 962 Cash and cash equivalents at the beginning of the financial period 9677 4 Cash and cash equivalents at the end of the financial period 1 482 967 24

Financial Statements cont. STATEMENT OF CHANGES IN PARENT COMPANY EQUITY, EUR thousand Equity Share capital Other reserves Retained earnings Total Equity FAS at 31 Dec 2005 4 528 6 325 684 11 537 Transition to IFRS 1 632 Equity at 31 Dec 2005 4 528 6 325 2 315 13 169 Profit for the period 3 488 3 488 Recognised income and expenses for the period 0 0 3 488 3 488 Other adjustments -2 258-2 258 0 0-2 258-2 258 Equity at 31 Dec 2006 4 528 6 325 3 545 14 399 Equity at 1 Jan 2007 4 528 6 325 3 545 14 399 Profit for the period -4 707-4 707 Recognised income and expenses for the period 0 0-4 707-4 707 Equity 31 Dec 2007 4 528 6 325-1 162 9 692 25

Notes to Financial Statements Reporting entity GS-Hydro Oy delivers complete, non-welded piping systems, prefabricated piping modules, separate piping components and after-sales services to its customers. GS-Hydro Oy is the parent company of the GS-Hydro Group, which is a part of the Ratos Group. The parent company of the Ratos Group is Ratos AB which is domiciled in Stockholm, Sweden. Copies of the consolidated financial statements of GS-Hydro Oy are available at the GS-Hydro Oy s main office, Lautatarhankatu 4, 13110 Hämeenlinna, Finland. The Board of Directors of GS-Hydro Oy approved the financial statements to be published at its meeting on 14 April, 2008. 1. Significant accounting policies Basis of preparation These are the first consolidated financial statements of GS-Hydro Oy prepared in accordance with the International Financial Reporting Standards (IFRS), complying with the IAS and IFRS standards, as well as the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) interpretations effective on 31 December, 2007. In the Finnish Accounting Act and ordinances based on the provisions of the Act, IFRS refer to the standards and to their interpretations adopted in accordance with the procedures laid down in the regulation (EC) No. 1606/2002 of the European Parliament and of the Council. The notes to the financial statements are also in accordance with the requirements of Finnish Accounting and Companies Act supporting the IFRS requirements. The parent company GS-Hydro Oy applies the same accounting principles as the GS-Hydro Group. GS-Hydro Oy s date of transition to IFRS was 1 January, 2006 and IFRS 1 First-time Adoption of International Financial Reporting Standards was applied in the transition. The Group applies the exemption provided in IFRS 1, which states that if a subsidiary becomes a first-time adopter later than its parent, the subsidiary may measure its assets and liabilities at the transition date at those amounts that were used in the Group reporting prior to the transition date. Ratos AB s transition date to IFRS reporting was 1 January, 2004. The consolidated financial statements have been prepared on the historical cost basis except for those financial instruments that are measured to their fair value with changes in their value shown in the profit and loss statement. The consolidated financial statements are presented in thousands of euro (EUR thousand). Principles of consolidation The consolidated financial statements include the parent company GS-Hydro Oy and all subsidiaries under the parent s control. Control exists when over 50% of the voting rights are held directly or indi rectly by the parent company, or the parent company has otherwise the power to govern a subsidiary s financial and operating policies. The mutual shareholding has been eliminated by the purchase method. The financial statements of acquired subsidiaries are includ ed in the consolidated financial statements from the date that control commences, until the date that control ceases. Intra-Group transactions, receivables, liabilities and unrealised gains, as well as intra-group distribution of profits, are eliminated. Unrealised losses are eliminated only to the extent that there is no evidence of impairment. Items denominated in foreign currencies The consolidated financial statements are presented in euro, which is the Group s functional and presentation currency. The foreign currency transactions are translated into the functional currency using the exchange rate at the transaction date in practice, a rate corresponding to approximately the transaction date exchange rate used in the translation. Receivables and liabilities denominated in foreign currency are translated into the functional currency using the exchange rate at the balance sheet date. The foreign exchange gains and losses relating to operating activities are included in the items above the operating profit, while foreign exchange gains and losses relating to financing activities are included in the finance income and expenses. The income statements of those Group companies, whose functional currency is other than euro, are translated into euro by using the average exchange rate for the period and the balance sheets are translated at the exchange rate prevailing on the balance sheet date. The translation difference arising from such translations is recognised as a separate component of equity. Respectively, translation differences arising from the elimination of foreign subsidiaries acquisition cost and post-acquisition retained equity components are recognised as translation differences in equity. When a subsidiary is disposed of, the cumulative translation differences are recognised in the income statement as part of the gain or loss on the sale. Translation differences that have arisen before the adoption of IFRS in the Group reporting have been recognised in retained earnings and such translation differences will not, on disposal of the subsidiary, be recognised in the income statement in the future. From the IFRS transition date of the Ratos Group, 1 January 2004, the translation differences arising from the consolidation are presented as a separate component of equity in the financial statements of GS-Hydro Oy. 26

Notes to Financial Statements cont. Intangible assets Goodwill Goodwill represents the excess of the acquisition cost over the Group s share of the fair values of the identifiable assets, liabilities and contingent liabilities on the acquisition date. In respect of business combinations carried out prior to the IFRS transition date of the Ratos Group, i.e. 1 January 2004, the carrying amount of goodwill is the carrying amount under FAS (Finnish Accounting Standards) on the date of transition, according to the transition rules in IFRS 1. Goodwill is not amortised, but it is tested annually for impairment. Goodwill is carried at acquisition cost, less accumulated impairment losses. Other intangible assets Other intangible assets are recognised in the balance sheet at cost if they can be reliably measured and it is probable that the future economic benefits will flow to the Company. Other intangible assets are amortised on a straight-line basis over their useful lives which are 4 10 years. Property, plant and equipment Items of property, plant and equipment are measured at acquisition cost less accumulated depreciation and impairment losses. Normal maintenance costs are expensed as incurred. Depreciation on property, plant end equipment is calculated on a straight-line basis over their estimated useful lives. Land areas are not depreciated. The estimated useful lives are as follows: Buildings Structures Machinery and equipment Other tangible assets 25 40 years 5 10 years 3 10 years 5 years The residual value and the useful life of the items of property, plant and equipment are reviewed on each balance sheet date and adjusted when necessary to reflect any changes in expected economic benefits. Gains and losses on disposal of property, plant and equipment are included in either other operating income or other operating expenses. Impairment On each balance sheet date the Group assesses whether there are indications of impairment of assets. If such indications exist, the assets recoverable amount is estimated. Goodwill is tested annually irrespective of whether any indications exist. The recoverable amount is the higher of an asset s fair value (less the costs to sell) and its value in use. Value in use represents the present value of the discounted future net cash flows expected to be derived from the asset or a cash-generating unit. The discount rate used is a pre-tax interest rate. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. When the impairment loss is recognised, the Group also reassesses the useful life of the asset. An impairment loss, other than an impairment loss in respect of goodwill, is reversed if there is a change in the estimates used to determine the recoverable amount of an asset. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior periods. An impairment loss in respect of goodwill is never reversed. Inventories Inventories are measured at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and costs to sell. Inventories are measured using the FIFO method (first-in, first-out). The cost of finished goods and work in progress consists of raw materials, direct labour and other direct costs, as well as an appropriate share of production overheads. Leases The Group has leased items of machinery and equipment under finance and operating lease agreements. Those leases, which transfer substantially all the risks and rewards incidental to ownership of an asset to the lessee, are classified as finance leases. Assets acquired under finance leases are capitalised at the lower of their fair value or present value of minimum lease payments at the beginning of the lease period. Lease payments are divided into reduction of the lease liability and the interest charge for the period, so that a constant rate of interest is recognised on the outstanding balance of the lease liability. The lease liability is included in interestbearing liabilities on the balance sheet. Leases, which do not transfer the risks and rewards incidental to ownership of an asset to the lessee, are classified as operating leases. Rental payments made under operating leases are expensed as incurred. 27

Notes to Financial Statements cont. Employee benefits The Group s pension plans are classified as defined contribution plans or defined benefit plans. Under defined contribution plans, the Group pays fixed contributions into a separate entity and these payments are recognised as expenses in the period to which they relate. In respect of defined contribution plans, the Group does not have any legal or constructive obligation to pay further contributions if the entity, which receives the payments, does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. In respect of each defined benefit plan, the pension liability presented in the balance sheet is calculated using the projected unit credit method. The pension costs are recognised as expense in the income statement over the working lives of the employees based on actuarial calculations. The discount rate used in calculating the present value of the pension obligation is the yield on high quality corporate bonds or government bonds with a similar maturity to the obligation. The present value of the pension obligation to be recognised as a liability in the balance sheet is derived from the pension plan assets (measured at fair value on the balance sheet date), the proportion of unrecognised actuarial gains and losses, and the past service costs. Actuarial gains and losses arise from the changes in actuarial assumptions used, or differences between the actuarial assumptions and actual outcomes. All accumulated actuarial gains and losses were recognised in retained earnings in the opening balance sheet at 1 January 2004 when GS-Hydro adopted IFRS-standards in its Group reporting to Ratos Group. Subsequently, the Group applied the corridor method, according to which the actuarial gains and losses are recognised in the income statement over the average remaining working lives of the employees to the extent that they exceed, by 10 %, the greater of the present value of the defined benefit obligation or the fair value of the plan assets. Past service costs are recognised as an expense, in equal portions, over the period during which the benefits vest. In case the benefits vest immediately, they are also recognised immediately in the income statement. Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. Research and development expenditure Research expenditure is recognised in the income statement as an expense as incurred. The Group has no such expenditure on development activities that would qualify under the capitalisation criteria set out in IAS 38 Intangible Assets. Provisions A provision is recognised when, as a result of a past event, the Group has a present legal or constructive obligation, whose realisation is probable and which can be measured reliably. The settlement of the obligation requires an outflow of economic benefits from the Group. The provisions consist mainly of the guarantee provisions. Income taxes Income tax expense consists of current and deferred taxes. Current taxes include taxes of the Group companies for the period in accordance with local tax regulations. The taxes are adjusted by possible prior periods taxes. Excluding the items that are recognised directly in equity, the income tax expense is recognised in the income statement. Deferred taxes are calculated on all temporary differences between the carrying amounts and the tax bases of assets and liabilities. The most significant temporary differences arise from losses, pensions, accumulated depreciation in excess of plan and intangible assets in business combinations. The deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available, against which the deductible temporary differences can be utilised. The deferred taxes have been calculated by using the enacted tax rates on the balance sheet date. Financial assets and liabilities The financial assets and liabilities of the Group are classified in accordance with IAS 39 Financial Instruments: Recognition and Measurement to the following categories: financial assets and liabilities at fair value through profit or loss, loans and receivables and other financial liabilities. The classification is made at initial recognition and it is determined by the nature of the item. The purchases and sales of financial assets and liabilities are accounted for on trade dates. All financial assets and liabilities are included in the balance sheet as current assets or current liabilities when their maturities are less than 12 months. Financial assets and liabilities at fair value through profit or loss The category of financial assets and liabilities through profit or loss includes financial assets and liabilities that are acquired for trading purposes or are designated on initial recognition to be measured as one. Derivatives are included in this category when they do not qualify as hedging instruments in accordance with IAS 39. 28

Notes to Financial Statements cont. Derivatives are initially recognised on the balance sheet at cost, which equals the instrument s fair value. Subsequently, the derivative instruments are measured to market value based on market quotations at the balance sheet date. Realised and unrealised changes in the fair value of the foreign exchange forward contracts relating to operating items are recognised immediately in the income statement in the net sales or materials and services that they relate to. Changes in the fair value of the foreign exchange forward contracts relating to liabilities are recognised in income, respectively. Synthetic options granted are measured using the Black-Scholes pricing model. Changes in fair value of the synthetic options are recognised through the income statement. Loans and receivables This category includes current trade and other receivables. They are not quoted on an active market and are not kept for trading purposes. Payments from loans and receivables are fixed or determinable. Loans and receivables are measured at amortised cost. For trade receivables the Group assesses at each balance sheet date if there is any objective evidence that any trade receivable is impaired. If such evidence exist, the amount of the impairment loss is determined, based on the individual risks related to this trade receivable. Other financial liabilities Other financial liabilities comprise loans from financial institutions, trade payables and other financial liabilities. Financial liabilities are initially measured at fair value, which is based on the consideration received. Transaction costs associated with financial liabilities are included in the initial measurement. Subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, cash held in bank accounts and highly liquid investments with original maturities of three months or less at the date of acquisition. Bank overdrafts are included in the other financial liabilities. Derivative instruments and hedge accounting The Group does not apply the hedge accounting in accordance with IAS 39 even though the Group may have derivatives with hedging purposes. Accordingly, derivatives are measured at fair value and recognised through profit or loss. Revenue recognition principles Most of the revenue arises from the sale of goods. The sale of goods is recognised when the significant risks and rewards of ownership are transferred to the buyer and there is no continuing management involvement with the goods. Revenue from services is recognised in the period, in which the service is rendered to the customer. Constructing contracts are specifically negotiated contracts for construction of an asset or a combination of assets that are closely interrelated. For a constructing contract the revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the balance sheet date, when the outcome of the contract can be estimated reliably. The outcome of a transaction can be estimated reliably, when the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the company; the stage of completion of the transaction on the balance sheet can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Net sales include the revenue from the sales of goods and services and from constructing contracts, after deducting indirect taxes and discounts given. Operating profit IAS 1 Presentation of Financial Statements does not define the concept of operating profit. The Group has defined it as follows: the operating profit is the net amount of net sales, other operating income, change in inventories of finished goods and work in progress, materials and services, employee benefit expenses, depreciation, amortisation and possible impairment losses and other operating expenses. Operating profit includes foreign exchange differences if they relate to normal business operations. Accounting policies requiring management s judgment, future estimates and key sources of estimation uncertainty In preparing the financial statements the management of the Group makes estimates and assumptions, whose actual outcome may differ from the estimates and assumptions made. In addition, management s judgment is required in applying the accounting policies. Estimates are based on management s experience of past events and developments, as well as the likely impact of management strategies. Any changes in estimates and assump tions are accounted for in the financial period in which the estimate or the assumption is changed, as well as in all subsequent financial periods. 29

Notes to Financial Statements cont. In management s opinion, the following accounting policies are those in which management s judgment and key sources of estimation uncertainty are believed to have the strongest effect on the amounts presented in the consolidated financial statements. Impairment testing During each financial period the Group s management assesses if there exists any indication of impairment of goodwill or other intangible assets. Goodwill is tested for impairment annually even if no indication of impairment exists. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is based on management s estimations of future cash flows and discount rates. These estimations require management s judgment. Income taxes A deferred tax asset is recognised in tax losses carried forward and temporary differences between the carrying amounts and the tax bases of assets and liabilities. A deferred tax asset is recognised only when the estimations show that enough taxable profit will be generated for utilising the temporary difference, otherwise prior tax losses are carried forward. The estimates made by the management concerning the taxable income in future financial periods have been taken into account in estimating the amount of deferred tax assets. A change in tax legislation or tax practice can affect estimations made by the management. Revenue recognition Revenue recognition requires management estimations of whether significant risks and rewards have been transferred to the buyer. When the stage of completion method is used in constructing contract services, management needs to use its judgement on whether the outcome of the transaction can be reliably estimated, and if all recognition conditions have been fulfilled. Adoption of new or amended IFRS standards and interpretations The following new or amended standards and interpretations published by the International Accounting Standards Board. (IASB) will be adopted by the Group: To be adopted in 2008: - IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction (effective in the financial period beginning on 1 January, 2008). The interpretation is applied to defined benefit plans according to IAS 19. In the interpretation the recognition requirements of the defined benefit asset are specified. The Group is currently estimating the possible effects of the interpretation. The interpretation has not yet been approved by the EU. To be adopted in 2009: - IAS 1 (Amendment) Presentation of Financial Statements (effective in the financial period beginning on 1 January, 2009), affecting mainly the Income statement and the Statement of changes in equity. - IAS 23 (Amendment) Borrowing Costs (effective in the financial period beginning on 1 January, 2009), which requires the capitalisation of the borrowing costs that are attributable to constructing, building or producing certain assets defined in the standard. According to the Group s preliminary estimate these amended standards will not have a material effect on the financial statements of the Group or the parent company. The amended standards have not yet been approved by the EU. 2. BUSINESS COMBINATIONS, EUR thousand On July 1, 2006, the Group acquired the shares of Norwegian Seth Service AS via GS-Hydro Norge AS for EUR 1,260 thousand in cash. Seth Services AS is a strong player in industrial hose business. After the business combination the Group has an ownership of 100 % in Seth Services AS. The acquisition cost includes also the legal expenses relating to the acquisition. The net sales of the acquired company for the period July 1, 2006 - December 31, 2006 totalled EUR 745 thousand and the EBIT for the same period amounted to EUR 173 thousand. If the company had been acquired at the beginning of 2006, the net sales would have been EUR 1,640 thousand and EBIT EUR 315 thousand. 30

Notes to Financial Statements cont. The following assets and liabilities were recognised for the acquisition: Seth Service AS, Norway Note Recognised fair values on the acquisition Pre-acquisition carrying amounts Property, plant and equipment 10. 17 17 Intangible assets 11. 469 - Deferred tax assets 12. 6 6 Inventories 409 409 Trade receivables 211 211 Current receivables 0 0 Cash and cash equivalents 247 247 Total assets 1360 891 Deferred tax liabilities 12. 131 - Interest-bearing liabilities 97 97 Other liabilities 439 439 Total liabilities 666 535 Net assets 694 356 Acquisition cost 1260 Goodwill on acquisition 10. 567 Consideration paid in cash 1 260 Acquired cash and cash equivalents -247 Net cash outflow 1 013 The assets acquired and liabilities assumed in the business combination were measured to their fair value at the acquisition date. The intangible assets acquired were recognised separately from the goodwill. The Group estimates that the goodwill of EUR 567 thousand results from the synergy benefits in the industrial hose business. On December 15, 2006 the Group acquired the assets of Canadian TD Pipefitting & Hydraulics Ltd. via GS-Hydro (North America) Ltd. for EUR 916 thousand in cash. TD Pipefitting & Hydraulics Ltd. has a good market presence in the Alberta area in non-welded piping. The acquisition did not have any effect on net sales or EBIT in 2006. The following assets and liabilities were recognised for the acquisition: TD Pipefitting & Hydraulics Ltd., Canada Note Recognised fair values on the acquisition Pre-acquisition carrying amounts Property, plant and equipment 10. 196 196 Total assets 196 196 Net assets 196 196 Acquisition cost 916 Goodwill on acquisition 10. 720 Consideration paid in cash 916 Net cash outflow 916 The assets acquired and liabilities assumed in the business combination were measured to their fair value at the acquisition date. The Group estimates that the goodwill of EUR 720 thousand results from the synergy benefits in the non-welded project business. 31

Notes to Financial Statements cont. 3. DISTRIBUTION OF NET SALES EUR thousand Group Parent Products 136 079 97 148 21 236 16 123 Services 5 865 9 049 - - Total 141 944 106 197 21 236 16 123 4. OTHER OPERATING INCOME EUR thousand Group Parent Gain on sales of property, plant and equipment 3 601 4 - - Service fees - - 2 340 1 977 Total 3 601 4 2 340 1 977 The gain on sales of property, plant and equipment in 2007 arose from the sale of property and land in Norway. 5. EMPLOYEE BENEFIT EXPENSES EUR thousand Group Parent Wages and salaries 23 435 17 233 1 963 1 455 Pension expenses Defined contribution plans 1 113 855 318 264 Defined benefit plans 252 123 - - Other personnel expenses 4 081 2 994 216 168 Total 28 881 21 205 2 497 1 887 Average number of personnel during the financial period White-collar 318 265 7 18 Blue-collar 209 139 15 14 Total 527 404 22 32 Employee benefits for the management personnel are presented in note 24. Related parties. Disclosures about the synthetic shares and options are presented in note 19. Carrying amounts of financial noncurrent and current liabilites. 32 GS-Hydro GS-Hydro Annual Annual Report Report 2007 2007

Notes to Financial Statements cont. 6. DEPRECIATION, AMORTISATION AND IMPAIRMENT LOSSES EUR thousand Group Parent Depreciation and amortisation by asset item Intangible assets Intangible rights 171 172 129 154 Other intangible assets - 21 - - Total 171 193 129 154 Property, plant and equipment Buildings 72 120 - - Machinery and equipment 1 748 1 316 178 169 Other tangible assets 141 15 - - Total 1 961 1 451 178 169 Total depreciation and amortisation 2 132 1 644 307 323 Impairment losses by asset item Goodwill -38 - - - Total -38 - - - 7. OTHER OPERATING EXPENSES EUR thousand Group Parent Selling and administration expenses 14 663 10 717 2 963 2 256 Rental expenses 3 108 2 157 465 385 Other expenses 4 884 3 142 8 971 463 Total 22 655 16 016 12 399 3 104 Other expenses of parent company in 2007 include EUR 7,765 thousand writedowns of shares in Group companies. 8. FINANCE INCOME AND EXPENSES EUR thousand Group Parent Finance income Foreign exchange gains on financial liabilities measured at amortised cost 81 526 - - Interest income on loans and receivables 207 42 517 568 Dividend income - - 1 688 234 Other finance income 9 10 - - Total 297 578 2 205 802 Finance expenses Foreign exchange losses on financial liabilities measured at amortised cost 357 580 16 476 Interest expenses on financial liabilities measured at amortised cost 1 794 1 364 1 107 907 Other finance expenses 1 451 268 1 156 53 Total 3 602 2 212 2 279 1 436 Foreign exchange gains and losses amounting to EUR 211 thousand in 2006 and EUR 30 thousand in 2007 are included in net sales of product and services. 33

Notes to Financial Statements cont. 9. INCOME TAXES Group EUR thousand Current tax 4 717 2 757 Deferred taxes 870-283 Total 5 587 2 474 Reconciliation between the income tax expense recognised in the income statement and the income tax expense calculated using the parent company s domestic tax rate: EUR thousand Profit before taxes 16 582 9 742 Income tax calculated using the parent company s domestic tax rate (26 %) 4 311 2 533 Effect of changed tax rates for foreign subsidiaries 427 172 Utilisation of previously unrecognised tax losses -459-298 Unrecognised deferred tax assets from losses in taxation 1 238 146 Other 70-79 Income tax expense in the consolidated income statement 5 587 2 474 Parent EUR thousand Current tax 22 815 Deferred taxes 59-42 Total 81 773 Reconciliation between the income tax expense recognised in the income statement and the income tax expense is calculated using the domestic tax rate: EUR thousand Profit before taxes -4 626 4 261 Income tax calculated using the domestic tax rate (26 %) -1 203 1 108 Tax exempt income -439-52 Non-deductible expenses 1 847 1 Utilisation of previously unrecognised tax losses -141-298 Other 17 15 Income tax expense in the income statement of the parent company 81 773 34

Notes to Financial Statements cont. 10. INTANGIBLE ASSETS Group EUR thousand Goodwill Intangible rights Other intangible assets Total Acquisition cost at 1 Jan 2007 15 039 1 953 152 17 144 Additions -4-18 14 Effect of fluctuations in foreign exchange differences 64 0-64 Acquisition cost at 31 Dec 2007 15 099 1 953 170 17 222 Accumulated amortisation and impairment losses at 1 Jan 2007 0-1 112-152 -1 264 Amortisation for the period - -171 - -171 Impairment losses 38 - - 38 Accumulated amortisation and impairment losses at 31 Dec 2007 38-1 283-152 -1 397 Carrying amount at 1 Jan 2007 15 039 841 0 15 880 Carrying amount at 31 Dec 2007 15 137 670 18 15 825 Acquisition cost at 1 Jan 2006 13 774 1 366 232 15 372 Business combinations 1 287 469-1 756 Additions - 171-171 Reclassifications - - -80-80 Disposals - -53 - -53 Effect of fluctuations in foreign exchange differences -22 - - -22 Acquisition cost at 31 Dec 2006 15 039 1 953 152 17 144 Accumulated amortisation and impairment losses at 1 Jan 2006 0-940 -62-1 002 Amortisation for the period - -172-21 -193 Disposals and reclassifications - - -69-69 Accumulated amortisation and impairment losses at 31 Dec 2006 0-1 112-152 -1 264 Carrying amount at 1 Jan 2006 13 774 426 170 14 370 Carrying amount at 31 Dec 2006 15 039 841 0 15 880 Parent EUR thousand Goodwill Intangible rights Other intangible assets Total Acquisition cost at 1 Jan 2007 12 376 743 75 13 194 Additions - 36-36 Acquisition cost at 31 Dec 2007 12 376 779 75 13 230 Accumulated amortisation and impairment losses at 1 Jan 2007 0-438 -75-513 Amortisation for the period - -129 - -129 Accumulated amortisation and impairment losses at 31 Dec 2007 0-567 -75-642 Carrying amount at 1 Jan 2007 12 376 305 0 12 681 Carrying amount at 31 Dec 2007 12 376 212 0 12 588 Acquisition cost at 1 Jan 2006 12 376 653 155 13 184 Additions - 104-104 Reclassifications - - -80-80 Disposals - -14 - -14 Acquisition cost at 31 Dec 2006 12 376 743 75 13 194 Accumulated amortisation and impairment losses at 1 Jan 2006 0-315 -55-370 Amortisation for the period - -127-27 -154 Disposals and reclassifications - 4 7 11 Accumulated amortisation and impairment losses at 31 Dec 2006 0-438 -75-513 Carrying amount at 1 Jan 2006 12 376 338 100 12 814 Carrying amount at 31 Dec 2006 12 376 305 0 12 681 35

Notes to Financial Statements cont. Impairment testing The goodwill is tested annually for impairment. For the impairment testing purposes the goodwill is allocated to the Group s cash-generating units (CGUs), which are Group, Austria, Canada, Finland sales and Seth Service. Impairment testing is performed also when indications of impairment of assets exist. In the impairment tests of goodwill the recoverable amounts of the CGUs were based on value in use. The value in use was based on discounted forecast cash flows. The management s budget for the first year and budget estimates for the following four years were taken into account in calculating the value in use. The most significant assumptions used in the value in use calculations were discounted cash flow forecast for the coming four years and the discount rate. Discounted cash flow forecast were based on Corporate goal setting and average growth rate of 4% p.a. The discount rate rate was determined to be 13,0 % based on business risk analysis. The pre-tax discount rate used in the calculations was 4,60 % and it was determined using the Group s weighted average cost of capital (WACC). Sensitivity analysis of impairment testing The key elements of business success for GS-Hydro are related to the Group s ability to globally manage its key customers and its strategic suppliers, as well as its ability to maintain and develop its core competences. 11. PROPERTY, PLANT AND EQUIPMENT Group EUR thousand Land areas Buildings Machinery and equipment Other tangible assets Total Acquisition cost at 1 Jan 2007 519 3 172 15 613 250 19 554 Additions - 124 3 251-3 375 Disposals -537-2 204 - - -2 741 Effect of fluctuations in foreign exchange differences 18 73-30 - 61 Acquisition cost at 31 Dec 2007 0 1 165 18 834 250 20 249 Accumulated depreciation and impairment losses at 1 Jan 2007 0-945 -10 779-109 -11 833 Depreciation for the period - -72-1 748-141 -1 961 Accumulated depreciation and impairment losses at 31 Dec 2007 0-1 017-12 527-250 -13 794 Carrying amount at 1 Jan 2007 519 2 227 4 834 141 7 721 Carrying amount at 31 Dec 2007 0 148 6 307 0 6 455 Acquisition cost at 1 Jan 2006 535 3 168 13 480 237 17 420 Business combinations - - 213-213 Additions - 74 1 957-2 031 Reclassifications - - 5 13 18 Effect of fluctuations in foreign exchange differences -16-70 -42 - -128 Acquisition cost at 31 Dec 2006 519 3 172 15 613 250 19 554 Accumulated depreciation and impairment losses at 1 Jan 2006 0-825 -9 463-10 382-94 Depreciation for the period - -120-1 316-15 -1 451 Accumulated depreciation and impairment losses at 31 Dec 2006 0-945 -10 779-109 -11 833 Carrying amount at 1 Jan 2006 535 2 343 4 017 143 7 038 Carrying amount at 31 Dec 2006 519 2 227 4 834 141 7 721 36

Notes to Financial Statements cont. Property, plant and equipment include machinery and equipment leased under finance lease agreements as follows: EUR thousand Machinery and equipment 2007 Machinery and equipment 2006 Acquisition cost 70 65 Accumulated depreciation -32-14 Carrying amount 38 51 Parent EUR thousand Buildings Machinery and equipment Other tangible assets Total Acquisition cost at 1 Jan 2007 13 1 685 11 1 709 Additions - 76-76 Acquisition cost at 31 Dec 2007 13 1 761 11 1 785 Accumulated depreciation and impairment losses at 1 Jan 2007-13 -1 214-11 -1 238 Depreciation for the period - -178 - -178 Accumulated depreciation and impairment losses at 31 Dec 2007-13 -1 392-11 -1 416 Carrying amount at 1 Jan 2007 0 471 0 471 Carrying amount at 31 Dec 2007 0 369 0 369 Acquisition cost at 1 Jan 2006 13 1 598 11 1 622 Business combinations 0 0 0 0 Additions - 57-57 Reclassifications - 30-30 Disposals 0 0 0 0 Effect of fluctuations in foreign exchange differences 0 0 0 0 Acquisition cost at 31 Dec 2006 13 1 685 11 1 709 Accumulated depreciation and impairment losses at 1 Jan 2006-13 -1 045-11 -1 069 Depreciation for the period - -169 - -169 Accumulated depreciation and impairment losses at 31 Dec 2006-13 -1 214-11 -1 238 Carrying amount at 1 Jan 2006 0 553 0 553 Carrying amount at 31 Dec 2006 0 471 0 471 Property, plant and equipment include machinery and equipment leased under finance lease agreements as follows: EUR thousand Machinery and equipment 2007 Machinery and equipment 2006 Acquisition cost 70 65 Accumulated depreciation -32-14 Carrying amount 38 51 37

Notes to Financial Statements cont. 12. DEFERRED TAX ASSETS AND LIABILITIES Group EUR thousand 1 Jan 2007 Recognised in the income statement 31 Dec 2007 Changes in deferred taxes in 2007 Deferred tax assets Provisions 322-206 116 Intra group margin in inventory 207 112 319 Tax losses carried forward 475-48 427 Employee benefits 357-338 19 Other 42-42 0 Total 1 403-522 881 Deferred tax liabilities Accumulated depreciation in excess of plan 119 1 120 Financial assets at fair value through profit or loss 102 387 489 Other 124-39 85 Total 345 348 694 EUR thousand 1 Jan 2006 Recognised in the income statement Subsidiaries acquired / disposed of 31 Dec 2006 Changes in deferred taxes in 2006 Deferred tax assets Provisions 19 303 322 Intra group margin in inventory 142 65 207 Tax losses carried forward 606-131 475 Employee benefits 225 132 357 Other 0 42 42 Total 992 411 0 1 403 Deferred tax liabilities Accumulated depreciation in excess of plan 122-3 119 Intangible assets at fair value in business combinations 0-23 125 102 Other 95 29 124 Total 217 3 125 345 The group has unused tax losses amounting to EUR 7,594 thousand for which no deferred tax asset is recognised in the balance sheet, because it is not probable that future taxable profit will be available against which the tax losses could be utilized. These tax losses expire in 2013. Parent EUR thousand 1 Jan 2007 Recognised in the income statement 31 Dec 2007 Changes in deferred taxes in 2007 Deferred tax assets Tax losses carried forward 306-33 273 Other 55-26 29 Total 360-59 301 38

Notes to Financial Statements cont. EUR thousand 1 Jan 2006 Recognised in the income statement 31 Dec 2006 Changes in deferred taxes in 2006 Deferred tax assets Tax losses carried forward 306-306 Other 13 42 55 Total 318 42 360 13. INVENTORIES EUR thousand Group Parent Materials and supplies 3 471 2 669 3 471 2 669 Work in progress 2 165 1 267 122 250 Semi-finished and finished goods 29 347 19 749 1 032 954 Total 34 983 23 685 4 625 3 873 GS-Hydro Oy recognised write-downs of inventories totalling EUR 234 thousand in 2006 and EUR 213 thousand in 2007. 14. TRADE AND OTHER RECEIVABLES EUR thousand Group Parent Trade receivables (loans and receivables) 33 683 27 099 7 783 6 851 Prepaid expenses and accrued income 1 278 903 265 341 Other receivables (loans and receivables) 647 683 5 594 11 756 Total 35 608 28 685 13 642 18 948 The analysis of the age of the trade receivables that are past due but not impaired: Past 0 30 days 29 682 13 654 3 423 3 403 Past 31 60 days 1 710 7 111 395 197 Past 61 90 days 716 3 926 573 727 Past 91 120 days 257 1 226 172 147 Past more than 120 days 1 318 1 182 3 220 2 377 Total 33 683 27 099 7 783 6 851 In 2006, a total of EUR 168 thousand and in 2007 EUR 406 thousand were recognised as bad debts. Due to short maturity, the carrying amounts of trade and other receivables are considered to correspond to their fair values. The receivables do not carry significant concentrations of credit risk, thus the maximum credit risk equates to the carrying amounts. 39

Notes to Financial Statements cont. 15. CASH AND CASH EQUIVALENTS EUR thousand Group Parent Cash and bank accounts 7 196 3 532 1 482 967 Total 7 196 3 532 1 482 967 The cash and cash equivalents in the statement of cash flow is equal to the cash and bank accounts above. The carrying amounts equate to the maximum credit risk and fair value. 16. CAPITAL AND RESERVES EUR thousand Number of shares (in thousands) Share capital Other reserves 1 Jan 2006 28 302 4 528 6 325 31 Dec 2006 28 302 4 528 6 325 1 Jan 2007 28 302 4 528 6 325 31 Dec 2007 28 302 4 528 6 325 The maximum number of shares at 31 December, 2007 was 28,301,900. All the shares issued have been totally paid. The nominal value of each share is EUR 0,16. The translation reserve includes all foreign exchange differences arising from the translation of the financial statements of foreign operations. After the balance sheet date, the Board of Directors proposed that no dividend be distributed in 2007. 17. PENSION OBLIGATIONS The Group has primarily defined contribution plans, wheras the subsidiary in Norway has two defined benefit plans. As of 31 December, 2006, the plans had 50 active members and 4 retirees. The following applies to the GS-Hydro Norwegian pension plan: The main condition is a pension of 66% of the final salary when retiring at 67 years of age, given full vesting period of 30 years. After turning 77 years of age, the pension contribution is halved. The plan also includes contributions to retirement pension and disability pensions. The pension payment includes a pension from the life insurance company Folketrygden in Norway. The actual total pension may differ from 66 %, based on total vesting period. The Managing Director of GS-Hydro Norway has an additional pension plan giving him an early retirement option from 66 years. The Managing Director s pension will not be halved after turning 77 years. The plans are organized through the life insurance company Vital AS. Amounts recognised in the balance sheet: EUR thousand Present value of funded obligations 1 824 1 866 Fair value of plan assets -1 550-1 682 Deficit / surplus 274 184 Unrecognised actuarial gains (+) and losses (-) -707-531 Other changes 0-9 Net liability (receivable) -433-356 40

Notes to Financial Statements cont. Expense recognised in the income statement: EUR thousand Current service cost 186 111 Interest on obligation 85 62 Expected return on plan assets -102-91 Actuarial gains (+) and losses (-) 20 0 Administration costs 15 14 Other employer costs 48 26 Total 252 123 The actual return on plan assets amounted to EUR 90 thousand in 2006. Changes in the present value of the defined benefit obligations: EUR thousand Opening defined benefit obligation 1 961 1 347 Service cost 186 111 Interest cost 85 62 Actuarial gains (+) and losses (-) -390 351 Exchange differences on foreign plans -1-13 Equity adjustment 0 24 Benefits paid -17-17 Closing defined benefit obligation 1 824 1 866 Changes in the fair values of plan assets: EUR thousand Opening fair value of plan assets 1 770 1 586 Expected return 102 91 Actuarial gains (+) and losses (-) -566-47 Contributions by employer 263 71 Exchange differences on foreign plans -2-2 Benefits paid -17-17 Closing fair values of plan assets 1 550 1 682 The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: Bonds 21 % 20 % Hold to maturity bonds 28 % 30 % Money marked 7 % 4 % Equity instruments 25 % 30 % Real Estate 16 % 13 % Other 3 % 3 % Actuarial assumption at year end: Discounting rate 4,35 % 4,50 % Yield on pension assets 5,40 % 5,50 % Wage growth 4,50 % 3,00 % G-regulations 4,25 % 3,00 % Social security 14,10 % 14,10 % Average turnover (< 40 years/> 40 years) 2% / 0% 2% / 0% 41

Notes to Financial Statements cont. In calculating the pension costs and net pension liabilities, the assumptions above have been made. The discount rate is based on government bonds in Norway adjusted for the duration of the pension obligation. Salary rates, pension adjustments, and G-regulations, is based on historical observations and an expected future inflation of 2,5 %. The actuarial assumptions are based on assumptions of demographic factors normally used within the insurance industry. The amounts for the current and previous financial periods are the following: Present value of the obligation 1 824 1 866 Fair value of plan assets -1 550-1 682 Surplus (+) / Deficit (-) 274 184 The Group expects to contribute EUR 250 thousand to its defined benefit plans in 2008. 18. PROVISIONS Group EUR thousand Guarantee provisions Other provisions Total Carrying amount at 31 Dec 2006 243 89 332 Provisions used -92-63 -155 Carrying amount at 31 Dec 2007 151 26 177 The Group gives a guarantee to certain products. During the guarantee period, defects found in the products are repaired at the Group s expense or the customer is given a similar new product. The guarantee provision is based on an estimate, which is based on historical guarantee data associated with similar products. Other provisions include provisions relating to pensions and taxation. All the provisions are long-term provisions. 19. CARRYING AMOUNTS OF FINANCIAL NON-CURRENT AND CURRENT LIABILITIES Group EUR thousand 2007 Carrying amount 2006 Carrying amount Non-current Loans from financial institutions (financial liabilities measured at amortised cost) 938 4 390 Finance lease liabilities 20 34 Other non-current liabilities (financial liabilities measured at amortised cost) 2 439 980 Total 3 397 5 404 Current Loans from financial institutions (financial liabilities measured at amortised cost) 32 681 29 392 Finance lease liabilities 19 17 Total 32 700 29 409 42

Notes to Financial Statements cont. Parent EUR thousand 2007 Carrying amount 2006 Carrying amount Non-current Finance lease liabilities 20 34 Other non-current liabilities (financial liabilities measured at amortised cost) 2 420 962 Total 2 440 996 Current Loans from financial institutions (financial liabilities measured at amortised cost) 22 300 22 289 Finance lease liabilities 19 17 Total 22 319 22 306 The Group s interest-bearing non-current liabilities consist mainly of variable rate bank loans and finance lease liabilities. The average interest rate of the Group s bank loans was 4,5%. In calculating the finance lease liabilities the incremental borrowing rate of interest has been used as the interest rate. It is considered that the incremental borrowing rate of interest has not changed significantly and therefore the fair values of the finance lease liabilities correspond substantially their carrying amounts. Bank loan agreements have ordinary loan covenants. The carrying amounts of the liabilities are measured at amortised cost using the effective interest rate method. Fair values of liabilities have been calculated by using discounted cash flow method and the market interest rates at the balance sheet date. Fair values of the liabilities correspond substantially their carrying amounts. Maturity schedule of current and non-current interest-bearing liabilities Group 2007, EUR thousand 2008 2009 2010 2011 Total Bank overdraft 3 364 - - - 3 364 Trade payables 14 909 - - - 14 909 Loans from financial institutions 30 391 525 251 126 31 293 Other liabilities 2 465 5 - - 2 470 Finance lease liabilities 20 10 8 4 42 Total 51 149 540 259 130 52 078 Group 2006, EUR thousand 2007 2008 2009 2010 2011 Later Total Bank overdraft 3 274 - - - - - 3 274 Trade payables 13 241 - - - - - 13 241 Loans from financial institutions 27 245 771 526 243 121 2 671 31 577 Other liabilities 7 969 5 - - - 981 Finance lease liabilities 19 18 8 7 4-56 Total 43 786 1 758 539 250 125 2 671 49 129 43

Notes to Financial Statements cont. Parent 2007, EUR thousand 2008 2009 2010 2011 Total Trade payables 2 584 - - - 2 584 Loans from financial institutions 23 355 - - - 23 355 Other liabilities (incl. Synthetic option) 2 420 5 - - 2 425 Finance lease liabilities 20 10 8 4 42 Total 28 379 15 8 4 28 406 Parent 2006, EUR thousand 2007 2008 2009 2010 2011 Total Bank overdraft 268 - - - - 268 Trade payables 1 720 - - - - 1 720 Loans from financial institutions 23 358 - - - - 23 358 Other liabilities (incl. synthetic option) 7 969 5 - - 981 Finance lease liabilities 19 18 8 7 4 56 Total 25 372 987 13 7 4 26 383 The average maturity of liabilities is one year. Other liabilities include the debt part of the synthetic option. Liabilities by currencies, excluding trade payables: Thousand EUR 25 651 21 277 NOK 4 464 6 360 USD 1 615 1 447 PLN 3 992 1 175 KRW 1 344 919 GBP 442 929 DKK 0 161 CAD 694 0 Total 35 657 34 813 Finance lease liabilities are payable as follows: Group EUR thousand Minimum lease payments Less than one year 20 19 Between one and five years 21 37 Total minimum lease payments 41 56 Present value of minimum lease payments Less than one year 19 17 Between one and five years 20 34 Total present value of minimum lease payments 39 51 Future finance charges 2 5 Total finance lease liabilities 41 56 44

Notes to Financial Statements cont. Parent EUR thousand Minimum lease payments Less than one year 20 19 Between one and five years 21 37 Total minimum lease payments 41 56 Present value of minimum lease payments Less than one year 19 17 Between one and five years 20 34 Total present value of minimum lease payments 39 51 Future finance charges 2 5 Total finance lease liabilities 41 56 20. TRADE AND OTHER PAYABLES EUR thousand Group Parent Trade payables (other liabilities) 14 909 13 241 2 584 1 720 Accrued wages, salaries and related costs 508 328 508 328 Interest payable 6 21 6 21 Other accrued expenses and deferred income 9 054 5 890 1 314 6 362 Other liabilities (other liabilities) 4 969 2 688 57 52 Total 29 446 22 168 4 469 8 483 The carrying amounts of trade and other payables are considered to correspond to their fair values. 21. FINANCIAL RISK MANAGEMENT GS-Hydro Group is exposed to several financial risks in its business operations. The objective of the financial risk management is to minimise the financial market s unfavourable impact on the profit and loss of the Group and to minimise financial expenses, foreign exchange risk exposures and the amount of net debt. The most important financial risks are market risks and liquidity risk. The Group executes its financial risk management policy with effective cash management, profitable operative contracts and derivative contracts. The general principles of the financial risk management in the Group are approved by the Board of Directors, and the finance function in the parent company is responsible for the implementation of the policy. Market risks Foreign exchange risk The Group operates internationally and is thus exposed to foreign exchange risks. The objective of the foreign exchange risk management is to limit the effect of uncertainty caused by changes in foreign exchange rates in cash flows and result. The most important currencies in the Group are euro (EUR) and Norwegian crown (NOK). Foreign exchange risks arise from commercial transactions, monetary items in the balance sheet and net investments in foreign subsidiaries. In the GS-Hydro Group the main foreign exchange risks arise through the net investments in foreign subsidiaries which are not hedged in accordance with the Group s financial risk management policy. Transaction risks are minimised by using netting of operative cash flows per currency and, when necessary, with foreign exchange forward contracts. First, when cash flow in foreign currency arises, the Group assesses the applicability of cash flow netting. If cash flow netting is not possible, the contractual cash flows are hedged through forward contracts according to the Group s financial risk management policy. Hedge accounting in accordance with IAS 39 is not applied to derivatives hedging, foreign currency sales or purchases. Interest rate risk The majority of the Group s liabilities consist of floating-rate bank loans and overdraft limits. The financial liabilities expose the Group to interest rate risks, but the extent of the risk is not significant in its entirety. 45

Notes to Financial Statements cont. Therefore the Group has not used interest rate derivatives for hedging against the rise of interest rates, as stated also in the financial risk management policy. The Group s liabilities are mainly fixed to the six months euribor rate, so changes in the market interest rates have an almost immediate impact on the Group s future interest payments. A change of one percentage unit would have caused an impact of EUR 335 (2006: 305) thousand in the Group s result after taxes at the balance sheet date. Liquidity risk GS-Hydro Group intends to continuously evaluate and monitor operational cash flows and profitability in order to secure the sufficiency of funding and liquidity in the Group. The liquidity of the group is secured with overdraft limits that amounted to EUR 3,364 (2006: 4,738) thousand at the balance sheet date. The Group s payment transfers and financial contracts are centralised in the Group s house bank in order to minimise financial expenses and to ensure the availability of financing. The long-term finance is secured with short-term loans which are renewable with maturity of six months. These loans are a part of a larger master agreement with the house bank. In total, the master agreement amounted to EUR 60,000,000 at 31 December, 2007. Credit and counterparty risk The main objective in credit risk management is to ensure that a counterparty fulfills its payment obligations. The Group s risk management policy determines creditworthiness of customers. GS-Hydro Group has no significant concentrations of credit risks because of its broad customer base, that has extended globally and because the Group gives credit only to customers with good credit rating. Realised bad debts have historically been insignificant. The maximum credit risk equates to the carrying amounts of the financial assets. 22. CAPITAL MANAGEMENT The objective of the Group s capital management is to ensure an efficient capital structure. The Group monitors its capital structure by equity ratio, which needs to be higher than 30%. In addition, the Group monitors Working Capital development and efficiency closely. EUR thousand Equity 34 328 23 099 Total equity and liabilities 101 500 81 364 Equity ratio (equity/total equity and liabilities, %) 33,8 % 28,4 % 23. OPERATING LEASES Non-cancellable operating lease rentals are payable as follows: EUR thousand Group as lessee Parent as lessee Less than one year 447 322 82 86 Between one and five years 601 433 57 133 Total 1 048 755 139 219 The Group has leased its production and office premises. The lease periods are from 1 to 5 years in average and normally they include an option to continue the lease agreement after the original date of expiration of the lease. 46

Notes to Financial Statements cont. 24. RELATED PARTIES The Group has a related party relationship with Ratos, subsidiaries and Group management. The parent company and subsidiaries of GS-Hydro Group are as follows: Domicile ownership interest (%) Share of the voting rights (%) The parent company GS-Hydro Oy Finland 100 Other Group companies GS-Hydro Finland Oy Finland 100 GS-Hydro Ab Sweden 100 GS-Hydro Austria GmbH Austria 100 GS-Hydro Benelux B.V. The Netherlands 100 GS-Hydro Danmark AS Denmark 100 GS-Hydro Korea Ltd South Korea 100 GS-Hydro Norge AS Norway 100 GS-Hydro (North America) Ltd. Canada 100 GS-Hydro Piping Systems Ltd. China 100 GS-Hydro S.A. Spain 100 GS-Hydro Singapore PTE Ltd. Singapore 100 GS-Hydro Sp. Zo.o Poland 100 GS-Hydro Systems GmbH Germany 100 GS-Hydro UK Ltd. United Kingdom 100 GS-Hydro U.S. Inc. USA 100 Parent EUR thousand Shares in Group companies Acquisition cost 1.1. 8 501 4 614 Increase 4793 3 887 Decrease -7 765 - Acquisition cost 31.12 5 529 8 501 Assets from Group companies Acquisition cost 1.1. 383 383 Acquisition cost 31.12. 383 383 Investments total 5 912 8 884 The related party transactions were as follows: Sales of goods and services to subsidiaries 9 021 7 191 Purchases of goods and services from subsidiaries 4 214 644 Receivables from subsidiaries 10 628 17 213 Liabilities to subsidiaries 2 518 5 332 25. COMMITMENTS AND CONTINGENT LIABILITIES EUR thousand Group Parent Collaterals given for own liabilities Bank loans 7 695 3 406 7 695 3 406 47

Notes to Financial Statements cont. 26. EVENTS AFTER THE BALANCE SHEET DATE After the balance sheet date, the Board of Directors proposed that no dividend will be distributed in 2007. 27. TRANSITION TO IFRS The following tables illustrate the reconciliations of GS-Hydro Oy s retained earnings and income statement in the transition from the Finnish Accounting Standards (FAS) to International Financial Reporting Standards (IFRS). Reconciliation of the income statement for the period 1 January 31 December 2006. EUR thousand FAS 1 Jan 31 Dec 2006 Effect of transition IFRS 1 Jan 31 Dec 2006 Notes to reconciliation NET SALES 16 258-135 16 123 1 Other operating income 1 977 1 977 Changes in inventories of finished goods 1 and work in progress 617 35 652 Materials and services -8 543-8 543 Employee benefit expenses -1 887-1 887 Depreciation, amortisation and impairment losses -1 164 841-323 2, 4 Other operating expenses -6 088 2984-3 104 3, 4 Operating profit 1 170 3 725 4 895 Finance income 802 802 Finance expenses -1 434-2 -1 436 4 Profit before income taxes 538 3 723 4 261 Income taxes -22-751 -773 5 Profit for the period 516 2 972 3 488 Notes to the reconciliation; effect of transition: 1) Revenue recognition 2) Goodwill depreciation 3) Group contribution 4) Financial leases 5) Deferred taxes The effect of transition to IFRS on retained earnings: EUR thousand 1 Jan 2006 31 Dec 2006 Retained earnings under FAS 684 1 200 IFRS adjustments: IFRS 3 Business Combination / Goodwill 1 669 2 503 IAS 18 Revenue recognition - -100 IAS 12 Income Taxes 13 42 Other adjustments -50-100 Total IFRS adjustments 1 632 2 345 Retained earnings under IFRS 2 316 3 545 48

Notes to Financial Statements cont. Synthetic shares and options in non-current liabilities In November 2006, GS-Hydro Group granted 1,470,000 synthetic shares and 588,000 synthetic options to its key personnel and members of Board of Directors. Synthetic shares and options have been valued at fair value at the grant date. The Group has received a corresponding cash amount which has been recognised as debt. At each balance sheet date, synthetic shares and options are valued at fair value and changes in their fair value are recognised in the income statement and correspondingly in debt. In August 2007, GS-Hydro Group granted an additional 277,500 synthetic shares and 111,000 synthetic options to its key personnel. In 2007, the carrying amount of the debt was EUR 2,420,173 and the change of debt recognised in the income statement was EUR 1,105,978. As the Group has received the cash amount corresponding to the fair value of the options, the program is classified as a financial instrument and not as a share-based payment under IFRS 2. The fair value of the synthetic options is determined on the basis of Black-Scholes option pricing model. The Group updates the estimation of the fair value at each balance sheet date. Each synthetic option gives the option holder the right to subscribe to one synthetic share. The subscription price was EUR 0.63 per synthetic share and EUR 0.04 per synthetic option during 2006. In 2007, the respective values were EUR 1.24 per synthetic share and EUR 0.08 per synthetic option. For each subsequent calendar year, the subscription price will be increased by fifteen (15) percent. The synthetic options may only be exercised to subscribe synthetic shares in specific events. Both synthetic shares and options give the holder the right to receive cash payment upon the repurchase of all the synthetic shares and synthetic options. The repurchase is exercised by the company. In a specific rare event, the synthetic shares give the owner the right to receive an equivalent number of ordinary shares of the company. The option program is effective until 31 December, 2016, or until the occurrence of a specific rare event. Hämeenlinna, 14 April, 2008 Anders Lindblad Chairman Leif Johansson Rolf Ahlqvist Eli Vassenden Magdalena Aniansson Staffan Paues Thomas Rönnholm President & CEO Our audit report was submitted on 25 April, 2008. 49

Auditors Report 50

Corporate Governance Shareholders Meeting The Shareholders Meeting is the highest decision-making body in GS-Hydro and the forum where the company s owner, Ratos AB, exercises its formal influence. In the Shareholders Meeting, which is governed by the Companies Act and company s Articles of Association, the owner decides, among other things, the composition of the Board of Directors and the capital structure of the company. Board of Directors The Board of Directors is the company s highest decision-making body between the Shareholders Meetings. The Board of Directors task is governed by the Articles of Association and the Companies Act. In addition, the work of the Board of Directors is regulated by the formal work plan. The work plan also governs the duties between the Board of Directors, the Chairman of the Board and the President & CEO. The Board of Directors has, among other responsibilities, the task of determining the Group s overall strategy, organization and policies, as well as approval of investment decisions, budgets and interim and annual reports. The Board of Directors also appoints and dismisses the President & CEO, monitors the President & CEO s work and monitors the company s development and controls. The Board of Directors elects its officers in the first Board meeting after the Annual Shareholders Meeting. The formal work plan and the instructions for the President & CEO are also defined in this meeting. The Chairman of the Board plans and leads the work of the Board. He is responsible for ensuring that the Board members continuously receive the information required for the work of the Board to be exercised with good quality and in accordance with the Companies Act. The Chairman is also responsible for preparing the President & CEO s conditions of employment. President & CEO and the Executive Committee The President & CEO of GS-Hydro Group manages the operations of the Group in accordance with the guidelines decided by the Board including the implementation of the company s strategy. The President & CEO also presents a report in Board meetings and is responsible for ensuring that the Board receives the necessary information and supporting documents for decision making. GS-Hydro Group s Chief Financial Officer, participates in Board meetings and takes the minutes. During the year, the President & CEO informs the Board monthly on the company s financial development and other important matters. An Executive Committee, formed with representation from all functions in the company, is tasked with leading the execution of strategy. Audit GS-Hydro s auditors are elected by the Annual General Meeting for a period of one year. This assignment has been carried out through regular auditing and the audit of the annual accounts. The company s auditor reports annually the findings of the audit to the Board of GS-Hydro and to Ratos AB. In addition to the ordinary audit assignment, the auditor may assist with advice on tax and accounting matters. This advice is of limited scope and is not considered to constitute a conflict of interest. Audit Committee The Board of Directors established an Audit Committee in September 2007 in order to oversee the following issues in more detail on its behalf: audit procedure, audit fees, audit coverage, review of audit work and the company s internal controls, as well as reviewing the company s risk management. The Audit Committee members and chairman are appointed by the Board of Directors. The Audit Committee comprises a minimum of three board members. The majority of the Audit Committee members are required to be independent of the company. At least one of the audit committee members needs to be independent of the major owner. The Audit Committee may have company management, external auditor or other suitable person represented in the Audit Committee s work. Audit Committee Matters 2007 In 2007 the Audit Committee had two meetings. Members of the Audit Committee were Anders Lindblad (Chairman), Staffan Paues, Thomas Rönnholm, and Jyrki Pihlava. Corporate Governance Matters 2007 The Annual Shareholders Meeting was held on April 30, 2007 and the present Board of Directors was re-elected in the meeting. Anders Lindblad was re-elected Chairman of the Board in the Board meeting held on May 30, 2007. During 2007, the Board of Directors held 6 meetings. The main items in these meetings were the President & CEO s report on the current situation, confirmation of results, investment decisions, organizational development and decisions about the Group s overall strategy and policies. KPMG Oy AB was elected as auditor for 2007, with authorized public accountant Markku Sohlman bearing the main responsibility. KPMG has had the main responsibility for the audit since 2000 and Markku Sohlman since 2004. 51

Board of Directors GS-Hydro Board of Directors, from the left Eli K. Vassenden, Thomas Rönnholm, Leif Johansson, Anders Lindblad, Rolf Ahlqvist, Magdalena Aniansson, Jyrki Pihlava (Secretary of the Board) and Staffan Paues. Anders Lindblad Born 1950 Chairman of the Board of GS-Hydro since 2001. Magdalena Aniansson Born 1967, MSc. Economics Member of the Board of GS-Hydro since 2005. Eli K.Vassenden Born 1962, Business Economics Member of the Board of GS-Hydro since 2005. Senior Advisor (Ratos AB). Board member of: Chairman of the Board of Compare AB, Hägglunds Drives AB, ITH, Jötul AS and MCC Intressenter AB. Member of the Board of Allehanda Media AB, Lidan Marine AB, Nordhydraulic AB and Pressmaster AB. Rolf Ahlqvist Born 1948, Phil. (Cand.) Member of the Board of GS-Hydro since 2005. Employed by Scana Industrier ASA, and has served as CEO since 1987. Board member of: Chairman of the Board and Partner in Procom Venture AS, Chairman of the Board of IOR Chemco AS, Member of the Board of IOR Aqua AS, Chairman of the Board of Badger Explorer ASA, Member of the Board of Whitefish Qualitech AS, and Member of the Board of Bonitera AS. Employed by Ratos AB and has served as Senior Investment Manager since 2004. Board member of: Member of the Board of Arcus A/S, Contex AS and Medifiq Healthcare Oy. Leif Johansson Born 1947 Member of the Board of GS-Hydro since 2005. Employed by Ratos AB as Investment Director. Board member of: Member of the Board of Inwido AB, Arcus A/S, Contex AS, and MCC AB. Staffan Paues Born 1941, MSc. Engineering Member of the Board of GS-Hydro since 2006. Employed by Grieg Shipping Group and has served as Chief Operating Officer since 2006. Board member of: 2nd Chairman / Member of the Board of Incentra AL. Thomas Rönnholm Born 1954, MSc. Economics Member of the Board of: GS-Hydro since 2006. Employed by GS-Hydro and has served as President & CEO since 2006. 52

Executive Committee GS-Hydro Executive Committee, from the left, Heikki Pennanen, Christopher Hargreaves, Lauri Leskinen, Thomas Rönnholm, Jyrki Pihlava, Harri Jokinen, Jan Tollet, Terho Hoskonen and Bjørn Morten Olesen. Thomas Rönnholm President & CEO Born 1954, MSc. Economics Employed by GS-Hydro and has served as President & CEO since 2006. Previously served as Senior Vice President, Global Marketing of Kone Corporation 2003 2006, as Managing Director, Finland, Eastern Europe, Middle East and Africa of Kone Corporation 2001 2003, President, Canada of Kone Corporation 1998 2001, Senior Vice President, Business Development and Information Systems of Kone Corporation 1995 1998, Managing Director, Denmark of Kone Corporation 1993 1995, Executive Vice President (Finance) of Kone Americas 1988 1993, and various roles with Primo Oy 1978 1988. Jyrki Pihlava Chief Financial Officer (CFO) Born 1963, MSc. Economics Employed by GS-Hydro and has served as CFO since 2002. Previously served as Financial Manager of Sandvik Tamrock Oy 2000 2002, Manager, Central Accounting of Sandvik Tamrock Oy 1999 2000, Manager, Financial Systems of Tamrock Oy 1998 1998, Financial Manager of Tamrock Coal Australia Pty Ltd. 1995 1998, Northern Europe Regional Business Controller of Tamrock Oy 1994 1995, Business Controller of Väinö Paunu Oy 1992 1994, Controller of Tamrock Oy 1991 1992 and Planning Manager Oy Tampella Ab / Tamrock Oy 1988 1991. Christopher Hargreaves Managing Director, UK Born 1969, ONC & HNC diploma in Production Plant Engineering Employed by GS-Hydro since 1992 and has served as Managing Director, UK since 2000. Previously served as General Manager and Sales & Contracts Manager of GS- Hydro UK Ltd, 1992 2000 and has served in various roles with MGN Hydraulics Terho Hoskonen Sales & Marketing Director Born 1956, BSc. Telecommunication Engineer, Executive MBA Employed by GS-Hydro and has served as Sales & Marketing Director since 2007. Previously served as Director of Sales, EMEA Distributor Markets of Spacelabs Medical Finland 2004 2007, Director, Strategic Marketing and Global Channel Relationships of Spacelabs Medical 2002 2004, Marketing Director, Patient Monitoring Business Area of Datex-Ohmeda, Instrumentarium Corporation 2000 2002, Director, Critical Care Market Management of Datex-Ohmeda, Instrumentarium Corporation 1998 2000, Manager, AS/3 Anesthesia Monitoring of Datex-Engstrom, Instrumentarium Corporation 1997 1998, Product Line Manager, Anesthesia Information Management of Datex, Instrumentarium Corporation 1991 1997. Harri Jokinen Technology Director Born 1961, MSc. Mechanical Engineering Employed by GS-Hydro and has served as Technology Director since 2003. Previously served as Production & Development Manager of Abloy Oy 1993 2003, Production Manager of Tamglass Tempering Oy 1992 1993, and various roles with Tamrock Oy 1985 1992. Heikki Pennanen Managing Director, Finland Born 1961, Machine Automation Engineer Employed by GS-Hydro since 1991 and has served as Managing Director, Finland since 2004. Previously served as Designer of JOT- Automation 1989 1991 and Designer of Kuopion Energialaitos 1988 1988. Lauri Leskinen Director, Sourcing & Logistics Born 1967, MSc. (officer s degree), Executive MBA Employed by GS-Hydro and has served as Sourcing & Logistics Director since 2007. Previously served in various Management roles with Nokia as Director, Sourcing & Logistics since 2007. Previously served in various Management roles with Nokia, Group and Networks 2000 2007, and in various roles with the Defence Forces of Finland 1990 2000. Bjørn Morten Olesen Managing Director, Norway Born 1960, MSc. Mechanical Process Fluid dynamics, Hydraulics Employed by GS-Hydro and has served as Managing Director, Norway since 2004. Previously served as Managing Director of Fläkt Woods 2002 2004, Technology & Marketing Manager of ABB Building Systems 1999 2001, Division Manager in ABB Miljø Norsk Viftefabrikk Offshore 1995 1999,Various Engineering roles in Kværner Engineering 1987 1995. Jan Tollet Director Asia Region Born 1966, Executive MBA, MSc. Engineering Production Technology Employed by GS-Hydro and has served as Director Asia since 2007. Previously served as Director, Account Management of Enics Group 2006 2007, Director, Sales & Account Management of Elcoteq Asia Pacific Ltd. 2005 2006, various management roles with Beijing Elcoteq Electronics Co., Ltd., 2001 2004, various management roles with Elcoteq in Finland and Hungary 1997 2001, Production Manager of GE Procond Oy 1995 1997, and Production Manager of Lindström Lainatekstiili Oy 1994 1995. 53

Market Insight Hydraulics efficiently controlling high power Hydraulics, or fluid power, is a motion control technology that is used to transfer and control force and power through fluids under pressure. Hydraulic systems are typically comprised of pumps, valves, manifolds and actuators. Pumps are used to move fluid from one location to another. Pressure is generated when the fluid encounters resistance. Valves and manifolds control the flow of fluids, and actuators, such as cylinders and rotary motors, convert pressure into mechanical energy. To be useful, however, that force and power has to be transferred to where it is required requiring high-pressure piping and creating a major business opportunity for GS-Hydro. Hydraulic systems offer significant advantages over mechanical or electrical systems, including efficiency and space-saving. Hydraulics can provide the force to move and position materials and equipment weighing several tons as well as the precision to move very light loads with a high degree of accuracy. As a result, hydraulic systems are integral to a wide variety of industrial, marine, offshore and mobile applications. Virtually every production process uses hydraulic power, as does almost every machine, vehicle and aircraft. And, in principle, each of these markets and products generates an opportunity for non-welded piping solutions from GS-Hydro. The hydraulic pump and valve market is a multi-billion dollar worldwide industry, although highly fragmented. The highend specialty segment comprises highlyengineered, high-performance hydraulic products. These products, which are generally more complex, are used in demanding applications and place high requirements on their piping systems. Specialty markets for pumps and piping, for example, tend to be less price sensitive, generally have higher margins and are more likely to utilize servicing and maintenance. Growth in different application sectors of the hydraulics industry is ultimately governed by economic factors. Offshore sales are largely impacted by the price of oil. Sales of civilian marine systems have largely been influenced by growth in global cargo trade. The industrial sector of the hydraulics industry has typically followed the cyclicality of the overall economy. Sales of mobile hydraulic systems and components have been driven by infrastructure development. The increasing market for hydraulic system preventative service and maintenance is also increasing demand in each of the Offshore, Marine and Land-based Segments. 54

History and Milestones GS-Hydro was founded in 1974, in Finland, based on innovations in pipe jointing technology. Over the past three decades, the company has developed into an established, global piping systems specialist. Initial sales successes were primarily in the marine industry. Reliability and cleanliness combined with flexible engineering and fast installation were recognized as significant benefits when building complex hydraulic machinery to tight schedules. GS-Hydro s first foreign subsidiary was established in Norway, in 1982, to serve the growing marine industry. As the North Sea oil industry expanded rapidly during the 1980 s, the offshore industry became another important customer segment. Our ability to pre-fabricate all piping and jointing components on land is of great value to the offshore industry, where work at sea is far more expensive and potentially more dangerous. Additional subsidiaries in Europe were established in rapid succession during the 1980 s in Sweden, Denmark, the Netherlands, and Germany. During this period, sales to land-based industries such as the metals & mining, construction & mobile equipment and pulp & paper started to increase significantly, and the first sales to testing applications in the automotive and aerospace industries were made. During the 1990 s, growth continued from global expansion, with acquisitions and new subsidiaries being established in Spain, the UK, Poland, Russia, the USA and Korea. The first subsidiary of the new millennium was established in Shanghai, China. Renewed focus and investments in marketing and sales, together with favourable changes in market demand, sparked a period of rapid growth in the second half of this decade. Major Milestones: 1974 GS-Hydro Oy established in Finland 1978 GS-Retain Ring System introduced 1982 First subsidiary founded (Norway), GS-37 Flare Flange System introduced 1983 GS-Hydro Sweden established, GS-Hydro Denmark established 1984 GS-Hydro acquired by KONE Oy, GS-90 Flare Flange System introduced 1994 Management buy-out 2000 Merger of GS-Hydro and Hägglunds Drives 2002 Ratos, Sweden (77%) and 3i, UK (23%) acquire GS-Hydro and Hägglunds Drives 2004 GS-Hydro and Hägglunds Drives demerge. GS-Hydro became wholly owned by Ratos along with Hägglund Drives 2006 Annual sales pass the EUR 100 million landmark 2007 International expansion increases personnel to over 500 piping specialists 55