2010-08-05 08:00:00 CEST
2010-08-05 08:01:44 CEST
REGULATED INFORMATION
Outotec Oyj - Interim report (Q1 and Q3)
Interim Report January-June 2010
OUTOTEC OYJ INTERIM REPORT AUGUST 5, 2010 AT 9:00 AM
INTERIM REPORT JANUARY-JUNE 2010
Increased market activity continued resulting in high order intake
January - June 2010 in brief (Q1-Q2/2009):
* Order intake: EUR 769.1 million (EUR 245.1 million)
* Order backlog: EUR 1,310.1 million (EUR 966.6 million)
* Sales: EUR 410.8 million (EUR 469.2 million)
* Operating profit before one-time items and purchase price allocation (PPA)
amortizations: EUR 14.9 million
* Operating profit: EUR -4.6 million (EUR 30.2 million)
* One-time costs related to restructuring: EUR 16.1 million
* PPA amortizations related to acquisitions: EUR 5.6 million
* Profit before taxes: EUR -4.6 million (EUR 31.6 million)
* Earnings per share: EUR -0.07 (EUR 0.53)
* Net cash flow from operating activities: EUR 42.0 million (EUR 12.6
million)
Q2/2010 in brief (Q2/2009):
* Order intake: EUR 349.7 million (EUR 105.8 million)
* Sales: EUR 223.8 million (EUR 237.6 million)
* Operating profit before one-time items and PPA amortizations: EUR 11.3
million
* Operating profit: EUR 5.5 million (EUR 13.9 million), clearly improving from
the first quarter of 2010 (Q1/2010: EUR -10.1 million)
* Profit before taxes: EUR 5.7 million (EUR 13.6 million)
* Net cash flow from operating activities: EUR 34.6 million (EUR 23.4
million)
New Segment reporting started on April 1, 2010.
Financial guidance for 2010 reiterated
President and CEO Pertti Korhonen:"The market sentiment in the mining and metals industry continued to improve
during the second quarter. The optimism in the industry was seen in increased
customer negotiation activity with many good prospects. Our first half year
order intake was strong supported by the positive long-term outlook for metals
demand in the emerging economies, accumulated investment needs and increased
production utilization rates, which drive services business growth.
Profitability improved also clearly from the first quarter of 2010. In April, we
launched our new unified global operational model to accelerate growth, to
improve cost efficiency and to increase global operational leverage and
flexibility. Due to our global footprint and way of operating, we have been able
to participate in the strong growth of emerging economies and have been less
exposed to the sluggishness of the European and North American markets. During
the first half of 2010 we completed our acquisitions of Larox, Ausmelt, Millteam
and Edmeston and we are making good progress in the integration of customer
offerings and internal operations. We continued the structural cost savings
measures to achieve the targeted EUR 25 million annualized savings in fixed
operational costs by the end of 2010."
Summary of key figures Q2 Q2 Q1-Q2 Q1-Q2 Last 12 Q1-Q4
2010 2009 2010 2009 months 2009
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Sales, EUR million 223.8 237.6 410.8 469.2 819.3 877.7
Gross margin, % 25.5 18.3 25.0 19.3 24.6 21.7
Operating profit, EUR million 5.5 13.9 -4.6 30.2 23.8 58.6
Operating profit margin, % 2.4 5.9 -1.1 6.4 2.9 6.7
Profit before taxes, EUR million 5.7 13.6 -4.6 31.6 24.6 60.9
Net cash from operating activities, 34.6 23.4 42.0 12.6 0.6 -28.8
EUR million
Net interest-bearing debt at the
end of period, -166.8 -278.3 -166.8 -278.3 -166.8 -191.0
EUR million
Gearing at the end of period, % -51.8 -127.1 -51.8 -127.1 -51.8 -55.8
Working capital at the end of -107.8 -150.7 -107.8 -150.7 -107.8 -62.8
period, EUR million
Return on investment, % 5.6 30.8 -2.9 30.9 8.9 20.9
Return on equity, % 5.1 17.9 -2.0 19.6 6.4 14.9
Order backlog at the end of period, 1,310.1 966.6 1,310.1 966.6 1,310.1 867.4
EUR million
Order intake, EUR million 349.7 105.8 769.1 245.1 1 081.1 557.1
Personnel, average for the period 3,171 2,540 3,168 2,569 2,911 2,612
Earnings per share, EUR 0.09 0.22 -0.07 0.53 0.41 1.01
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INTERIM REPORT JANUARY-JUNE 2010
NEW OPERATIONAL MODEL AND REPORTING SEGMENTS
As of April 1, 2010 Outotec's businesses were re-organized into four business
areas, three of which are reporting segments. The new reporting segments are:
- Non-ferrous Solutions, consists of businesses related to the processing of
copper, nickel, zinc, lead, gold, silver and platinum group metals as a full
process chain from ore to metal. The acquired Larox, Ausmelt and Millteam
businesses are included in the business area;
- Ferrous Solutions, consists of businesses related to the processing of iron
ores and other ferriferous materials to produce concentrates, pellets, sinter,
direct reduced and hot briquette iron, ferroalloys and titanium feedstock;
- Energy, Light Metals and Environmental Solutions, consists of businesses
related to energy (including oil shale, oil sands and biomass materials),
alumina, aluminum and light metals processing. Business area's environmental
solutions include sulfuric acid plants, applications for gas cleaning and heat
recovery systems, as well as industrial water treatment. The acquisition of
Edmeston is included in the business area.
Service business sales
The Services business is included in the figures of the three reporting
segments; however, its sales volume is also reported separately. Services
business area is focusing on developing and growing the service business
globally and providing life cycle services to customers.
The business areas are supported by a global matrix structure including sales
and delivery operations in geographical market areas as well as shared support
functions. Globally shared support functions enable a flexible use of company
technologies, capabilities and resources.
Reflecting the new operational model, Outotec published restated comparison
figures with allocations of the one-time items by business area on June
30, 2010 for the reporting periods January-December 2009 and January-March 2010.
The Group's cost allocation principles in the new reporting segment structure
have not been changed and the company continues to apply the same accounting
principles as before.
OPERATING ENVIRONMENT
The overall market conditions continued to improve in the reporting period. The
mining and metals industry showed signs of recovery supported by a positive
long-term outlook for metals demand in the emerging economies. Metals demand
continued to grow and inventory levels declined. Following the recession,
companies had an accumulated need to invest in their existing operations and
also investment plans were revitalized. As the production utilization rates
increase, the need for various equipment, plant and maintenance services grows.
Despite intensive competition, Outotec has been able to win new orders with
healthy gross margins and customary payment terms because it offers advanced
technological solutions and helps its customers minimize their processes'
life-time operating costs. The company's asset-light operating model also helps
to maintain a healthy gross margin level even in tight market conditions.
ORDER INTAKE
Order intake in the reporting period amounted to EUR 769.1 million (Q1-Q2/2009:
EUR 245.1 million) including large plant deliveries, technology transfer
packages, equipment deliveries and services. In the reporting period, orders
from South America represented roughly one-third of the total and from Southern
Africa about one-fourth of the order intake. The remainder of the orders has
come from various market areas such as Asia, Europe, Australia and North
America. The orders received in the second quarter of 2010 totaled EUR 349.7
million (Q2/2009: EUR 105.8 million).
Major new orders in the second quarter:
* Copper solvent extraction and electrowinning plant for Minera Lumina Copper,
Chile (EUR 65 million);
* Flotation technology for First Quantum Minerals, Finland and Zambia (EUR 20
million);
* Chromite sintering technology for Xstrata Merafe, South Africa (EUR 17
million); and
* Kaldo furnace technology for Boliden's Rönnskär copper smelter, Sweden
(value not disclosed).
Major new orders in the first quarter:
* Sinter plant for Kalagadi Manganese, South Africa (EUR 119 million);
* Copper roasting and sulfuric acid plants for Codelco, Chile (EUR 116
million);
* Copper smelter technology for Tongling Non-Ferrous Metals Group, China (EUR
15 million);
* Precious metal plant for Baiyin Non Ferrous Group, China (EUR 6 million);
* Pelletizing technology for Bhushan Power & Steel Plant, India (value not
disclosed) ; and
* Sintering technology for JSW Steel Limited, India (value not disclosed).
ORDER BACKLOG
The order backlog at the end of the reporting period totaled EUR 1,310.1 million
(June 30, 2009: EUR 966.6 million), representing a 36% increase from the
comparison period, and a 51% increase from the year-end (December 31, 2009: EUR
867.4 million).
At the end of the reporting period, Outotec's order backlog included 25 projects
with an order backlog value in excess of EUR 10 million, accounting for 65% of
the total backlog. Management estimates that roughly 40% (approximately EUR 530
million) worth of orders of the current backlog will be delivered in 2010 and
the rest in 2011 and beyond. The order backlog at the end of the period included
roughly EUR 60 million (March 31, 2010: EUR 70 million) in suspended projects.
SALES AND FINANCIAL RESULT
Outotec's sales in the reporting period totaled EUR 410.8 million (Q1-Q2/2009:
EUR 469.2 million), which was 12% lower than in the comparison period. Sales for
the second quarter were EUR 223.8 million (Q2/2009: EUR 237.6 million). The
decline in sales was due to the low starting order backlog at the beginning of
the year, and because there were fewer projects in a phase where major
deliveries take place and therefore revenue recognition was lower. In addition,
in some large projects execution schedules were delayed primarily due to reasons
outside Outotec's delivery scope.
The Services business, which is included in the sales figures from the three
business areas, totaled EUR 112.5 million in the reporting period (Q1-Q2/2009:
EUR 73.4 million), up 53% from the comparison period and accounted for 27% of
sales. The sales volume of the Services business in the second quarter totaled
EUR 62.0 million (Q2/2009: EUR 42.5 million). The increase came from acquired
businesses. Supported by the Larox and Millteam acquisitions, Outotec remains on
track in terms of achieving its service business sales target of EUR 250-300
million by the end of 2010.
In the reporting period, the operating profit before one-time items and PPA
amortizations was EUR 14.9 million, represents 3.6% of sales (Q1-Q2/2009:
6.4%). The decrease in operating profit before one-time items and PPA
amortizations resulted from a lower sales volume and higher fixed costs due to
acquisitions compared to the comparison period. One-time costs in the reporting
period amounted to EUR 16.1 million, more than half of which came from fixed
asset write-offs and the remaining costs from provisions related to personnel
reductions mainly in Finland. Purchase price allocation (PPA) amortizations for
the reporting period were EUR 5.6 million. Operating profit was EUR -4.6 million
(Q1-Q2/2009: EUR 30.2 million). The result for the reporting period also
included EUR 2.2 million net positive effect from acquisition costs and the
revaluation of Ausmelt shares.
In the second quarter of 2010, the operating profit before one-time items and
PPA amortizations was EUR 11.3 million, representing 5.1% (Q2/2009: 5.9%) of
sales. The operating profit in the second quarter of 2010 was EUR 5.5 million
(Q2/2009: EUR 13.9 million).The Group's profitability clearly improved from the
first quarter of 2010 (Q1/2010: EUR -10.1 million).
In the reporting period, Outotec's fixed costs were EUR 92.3 million
(Q1-Q2/2009: EUR 63.9 million). The increase was primarily due to the fixed
costs of acquired companies. In the reporting period, Outotec's fixed costs with
comparable exchange rates, excluding acquisitions, were EUR 2.6 million higher
than in the comparison period of 2009. The increase came from higher selling and
marketing expenses reflecting the increased tendering and quotation activity.
Outotec's profit before taxes for the reporting period was EUR -4.6 million
(Q1-Q2/2009: EUR 31.6 million). It included net finance income of EUR 0.0
million (Q1-Q2/2009: EUR 1.4 million). The net finance income decreased
primarily due to low interest rates and reduced net cash position. Profit for
the period was EUR -3.2 million (Q1-Q2/2009: EUR 21.8 million). Taxes totaled
EUR 1.4 million positive (Q1-Q2/2009: EUR -9.8 million) since deferred tax
assets were booked from the losses. Earnings per share were EUR -0.07
(Q1-Q2/2009: EUR 0.53).
Outotec's return on equity for the reporting period was -2.0% (Q1-Q2/2009:
19.6%), and return on investment was -2.9% (Q1-Q2/2009: 30.9%).
Sales and Operating Profit by Segment Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2010 2009 2010 2009 2009
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Sales
Non-ferrous Solutions 141.3 132.2 254.8 262.1 482.6
Ferrous Solutions 32.9 34.2 52.9 61.9 146.7
Energy, Light Metals and Environmental Solutions 52.6 74.3 107.2 151.1 258.7
Unallocated items*) and intra-group sales -3.0 -3.1 -4.0 -5.8 -10.3
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Total 223.8 237.6 410.8 469.2 877.7
Operating profit
Non-ferrous Solutions 4.8 7.3 -10.6 17.7 35.1
Ferrous Solutions 1.4 0.2 -1.1 1.8 9.5
Energy, Light Metals and Environmental Solutions 1.9 9.2 11.9 16.2 27.6
Unallocated**) and intra-group items -2.6 -2.7 -4.8 -5.5 -13.5
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Total 5.5 13.9 -4.6 30.2 58.6
*) Unallocated items primarily include invoicing of group management and
administrative services.
**) Unallocated items primarily include group management and administrative
services.
Major Non-recurring Items in Operating Profit Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2010 2009 2010 2009 2009
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One-time costs related to restructuring
Non-ferrous Solutions -1.9 - -13.2 - -
Ferrous Solutions -1.0 - -1.2 - -
Energy, Light Metals and Environmental Solutions -0.8 - -1.1 - -
Unallocated items - - -0.6 - -
Net effect from acquisition costs and revaluation
of Ausmelt Ltd. Shares
Non-ferrous Solutions - - 2.2 - -
Impairment loss from Pacific Ore Ltd's shares
Unallocated items - - - - -2.5
Arbitration settlement
Non-ferrous Solutions - 2.5 - 2.5 2.4
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PPA amortizations related to acquisitions were EUR 5.6 million in the reporting
period and EUR 2.2 million in Q2 2010. These amortizations are mainly affecting
the operating profit of Non-ferrous Solutions business area.
Non-ferrous Solutions
Sales in the Non-ferrous Solutions business area during the reporting period
decreased by 3% from the comparison period and totaled EUR 254.8 million
(Q1-Q2/2009: EUR 262.1 million). Operating profit before one-time items and PPA
amortizations was EUR 5.9 million and operating profit was EUR -10.6 million
(Q1-Q2/2009: EUR 17.7 million). Fixed costs related to acquisitions were the
main reasons for the business area's lower operating profit before the one-time
items and PPA amortizations. The decrease in sales was primarily due to a lower
starting order backlog. The second quarter sales of EUR 141.3 million were
higher than in the comparison period (Q2/2009: EUR 132.2 million) due to
acquired businesses and good order intake.
Ferrous Solutions
Sales in the Ferrous Solutions business area during the reporting period
decreased by 15% from the comparison period and totaled EUR 52.9 million
(Q1-Q2/2009: EUR 61.9 million). The decrease in sales was primarily due to fewer
projects in delivery phase. The operating profit before one-time items was EUR
0.1 million and operating profit was EUR -1.1 million (Q1-Q2/2009: EUR 1.8
million). The lower sales and increased fixed costs due to higher selling and
marketing expenses and one-time items related to the savings program were the
main reasons for the business area's operating loss.
Energy, Light Metals and Environmental Solutions
Sales in the Energy, Light Metals and Environmental Solutions business area
during the reporting period decreased 29% from the comparison period to EUR
107.2 million (Q1-Q2/2009: EUR 151.1 million). The decline in sales was mainly
due to a low order intake in 2009 and that in the reporting period, only a few
projects were in a phase where major deliveries are carried out and therefore
revenue recognition was lower. In addition, in some large projects execution
schedules were delayed primarily due to reasons outside Outotec's delivery
scope. Operating profit before one-time items and PPA amortizations was EUR
13.0 million. Operating profit was EUR 11.9 million (Q1-Q2/2009: EUR 16.2
million). The decrease in operating profit was due to lower sales; however,
operating profit margin remained on a high level at 11% due to successful
project completions.
BALANCE SHEET, FINANCING, AND CASH FLOW
The net cash flow from operating activities in the reporting period was EUR
42.0 million (Q1-Q2/2009: EUR 12.6 million). The net cash flow was positive
because of advance payments, which related to the high order intake.
Outotec's working capital amounted to EUR -107.8 million at the end of the
reporting period (June 30, 2009: EUR -150.7 million). The change in working
capital resulted from low order intake and subsequently lower advance payments
in 2009, but due to large orders received in the reporting period, working
capital developed positively.
At the end of the reporting period, Outotec's cash and cash equivalents totaled
EUR 220.9 million (June 30, 2009: EUR 281.6 million). The change in cash and
cash equivalents was also affected by the dividend payment of EUR 32.0 million
in April 2010 (March 2009: EUR 42.0 million). The company invests its excess
cash in short-term money market instruments such as bank deposits and corporate
commercial papers.
Outotec's financing structure remained strong. Net interest-bearing debt at the
end of the reporting period was EUR -166.8 million (June 30, 2009: EUR -278.3
million). The advance payments received at the end of the reporting period
totaled EUR 166.5 million (June 30, 2009: EUR 248.3 million), representing a
decrease of 33% from the comparison period. Outotec's gearing at the end of the
reporting period was -51.8% (June 30, 2009: -127.1%) and its equity-to-assets
ratio was 42.9% (June 30, 2009: 40.2%). The changes in net interest-bearing debt
and gearing were also caused by the net cash effect of EUR 36.9 million related
to acquisitions in 2010 and Larox's EUR 34.6 million interest-bearing liability
at the time of its acquisition in 2009.
The company's capital expenditure in the reporting period was EUR 80.7 million
(Q1-Q2/2009: EUR 9.2 million), of which EUR 74.2 million was related to the
acquisitions. Other capital expenditure included investments in information
technology, machinery and intellectual property rights.
Guarantees for commercial commitments, including advance payment guarantees
issued by the parent and other Group companies, increased from the comparison
period due to higher order intake and were EUR 335.7 million (June 30, 2009: EUR
328.2 million) at the end of the reporting period. At the end of the reporting
period, the total volume of pledges and mortgages was EUR 2.6 million (June
30, 2009: EUR 1.8 million). The reduction since the year-end (December
31, 2009: EUR 33.4 million) was due to the repayment of most Larox's external
credit facilities.
On April 23, 2010, Outotec established a continuous commercial paper program for
domestic investors consisting of a principal amount of EUR 100 million. By the
end of the reporting period, Outotec had emitted EUR 10.0 million of commercial
papers.
COST SAVINGS PROGRAM
Outotec's aim is to achieve EUR 25 million annualized savings in operational
fixed costs, including fixed costs of sales, by the end of 2010 compared to the
fourth quarter of 2009 with full effect in 2011. Savings will be achieved
through the implementation of the new operational model and synergy benefits
from acquisitions. To achieve these savings, one-time costs are expected to be
in the range of EUR 20-25 million. The one-time costs related to the integration
of the acquired businesses are estimated to be recorded in the third quarter of
2010.
In the reporting period, the one-time items related to the cost savings program
totaled EUR 16.1 million resulting in an annualized savings of EUR 10 million.
More than half of these items came from fixed asset write-offs and the remaining
costs were from provisions related to personnel reductions mainly in Finland. In
February, 2010, the company announced that it would reduce the number of its
global personnel by 170 during 2010.
In the first quarter of 2010, Outotec concluded employee negotiations in
Finland. The outcome of these negotiations was that 84 people were made
redundant in April within Outotec's corporate management, support functions,
research center and business units in Finland.
In the reporting period, the realized cost savings from operational fixed costs
and one-time items totaled EUR 4.6 million.
EXPANSION OF BUSINESS NETWORK AND ACQUISITIONS
Larox acquisition
In January 2010 Outotec announced the final outcome of its tender offer,
according to which Larox shares in Outotec ownership represented 98.5% of all
Larox shares and 99.7% of all the votes attached to Larox shares. The
acquisition was closed on June 10. Larox develops and delivers industrial
filters for separating solids from liquids and its filtration solutions are
primarily used in the mining and metallurgical industries worldwide as well as
in chemical processing. Following the acquisition, Outotec can now provide
complete solutions covering all technologies and services for the entire value
chain from ore to metal. Larox recorded sales in 2009 of EUR 150 million; the
company had about 550 employees and operated in over 40 countries. The
acquisition price was approximately EUR 90 million, which was paid mostly with
shares.
Ausmelt acquisition
In March 2010 Outotec announced that it had successfully completed the
acquisition of the Australian-listed company Ausmelt Ltd and now owns 100% of
all of the company's shares and votes. Ausmelt develops, designs, and supplies
the Top Submerged Lance (TSL) smelting technology for the production of metals
and processing of industrial wastes. Ausmelt's TSL technology complements
Outotec's smelting technology portfolio. As a result of the acquisition, Outotec
now has the industry's strongest smelting solutions portfolio covering both
primary smelting from small to large-scale plants using a variety of feed
materials, such as copper, nickel, ferrous metals, zinc, lead and tin
concentrates and zinc-bearing residues as well as the smelting of various
secondary and waste materials. An additional benefit of Ausmelt technology is
that it allow for the recovery of valuable metals from by-products. Ausmelt
sales in 2009 were approximately EUR 10 million and it had 40 employees based
mainly in Australia and Asia. The acquisition price paid in cash was
approximately EUR 30 million.
Edmeston acquisition
In May 2010 Outotec acquired all shares in Edmeston AB, a Swedish company which
has unique know-how of special stainless steel grades suitable for use in a
highly corrosive environment. This acquisition further strengthens Outotec's
position especially in sulfuric acid plant solutions. Edmeston's sales in 2009
were approximately EUR 10 million and the company employed 10 professionals. The
acquisition price, which was paid in cash, was not disclosed.
Millteam acquisition
In March 2010 Outotec acquired Millteam Sweden's service business. Millteam
offers maintenance services, complete installations, installation supervision,
maintenance inspections and service of equipment for mining companies and it has
special expertise in grinding mill service. The Millteam acquisition supports
Outotec's strategy to expand its service offerings. With its new service center
in Sweden, Outotec can now provide better life cycle services for its customers
in Europe and the CIS region. The terms and conditions related to the
acquisition were realized on April 1, 2010. Millteam's sales in 2009 were
approximately EUR 4 million and the company employed 35 professionals. The
acquisition price, which was paid in cash, was not disclosed.
RESEARCH AND TECHNOLOGY DEVELOPMENT
In the reporting period, Outotec's research and technology development expenses
totaled EUR 13.7 million (Q1-Q2/2009: EUR 10.9 million), representing 3.3% of
sales (Q1-Q2/2009: 2.3%). Outotec filed 32 new priority patent applications
(Q1-Q2/2009: 31), and 81 new national patents were granted (Q1-Q2/2009: 95).
Outotec and Brazilian alumina producer Alunorte S.A. received an energy
efficiency award at the Hannover Messe in April 2010. Alunorte was presented
with the "Special Recognition" award for using optimization processes in its
cyclones to improve heat transfer and cut down on pressure losses thus resulting
in energy savings and more stable operation. Alunorte uses Outotec® calcining
technology in its production.
PERSONNEL
At the end of the reporting period, Outotec had a total of 3,199 employees (June
30, 2009: 2,549). Approximately 646 of these employees are from acquisitions.
Outotec had on average 3,168 employees (Q1-Q2/2009: 2,569). The average number
of personnel increased by 598 from the comparison period mainly through the
latest acquisitions. Temporary personnel accounted for about 8% of the total
number of employees.
In the first quarter, Outotec concluded employee negotiations in Finland to seek
alternative options and measures to cut down on costs and to minimize the need
for redundancies. The outcome of these negotiations was that 84 individuals were
made redundant in April within Outotec's corporate management, support
functions, research center and business units in Finland. In 2010, the total
personnel reduction will be approximately 170 globally, with the final reduction
of personnel in Finland reaching120, when taking into account retirements and
the termination of temporary contracts.
Distribution of Personnel by Country June 30, June 30, Dec 31,
2010 2009 change % 2009
-----------------------------------------------------------------------
Finland 1,116 909 22.8 1,145
Germany 455 400 13.8 472
Rest of Europe 333 240 38.8 283
Americas 748 643 16.3 740
Australia 280 199 40.9 239
Rest of the world 267 158 69.0 249
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Total 3,199 2,549 25.5 3,128
At the end of the reporting period, the company had, in addition to its own
personnel on Outotec's payroll, approximately 250 (March 31, 2010: 230)
full-time equivalent, contracted professionals working in project execution. The
number of contracted workers at any given time changes with the active project
mix and project commissioning, local legislation and regulations as well as
seasonal fluctuations.
In the reporting period, salaries and other employee benefits totaled EUR 106.8
million (Q1-Q2/2009: EUR 80.4 million).
CHANGES IN TOP MANAGEMENT
On February 9, 2010 Outotec announced that a new executive board had been
appointed to replace its executive and management committees. The new executive
board took charge when Outotec shifted into the new operational model on April
1, 2010. The members of the executive board with responsibility areas are:
Pertti Korhonen, president and Chief Executive Officer, chairman of the
executive board
Vesa-Pekka Takala, chief financial officer (until July 31, 2010)
Jari Rosendal, Non-ferrous Solutions business area
Pekka Erkkilä, Ferrous Solutions business area (as of April 12, 2010)
Peter Weber, Energy, Light Metals and Environmental Solutions business area
Kalle Härkki, Services business area
Martti Haario, Market Operations
Tapio Niskanen, Business Infrastructure
Ari Jokilaakso, Human Capital
In April, Mika Saariaho, Ph.D. (Technology) was appointed chief strategy officer
and member of the executive board starting August 1, 2010. In May, Michael Frei,
Ph.D. (technical science) was appointed senior vice president of Supply and
member of the executive board starting September 1, 2010.
Outotec began a recruitment process in April for a new chief financial officer
following CFO Vesa-Pekka Takala's announcement of his resignation. Outotec's
Corporate Controller Ms Outi Lampela is in charge of the finance and treasury
functions for the interim period and CEO Pertti Korhonen is in charge of
investor relations.
SHARE-BASED INCENTIVE PROGRAMS AND EXECUTIVE BOARD SHARE OWNERSHIP PLAN
Outotec has two share-based incentive programs: Share-based incentive program
2008-2010 (announced on March 3, 2008) and Share-based Incentive Program
2010-2012 (announced April 23, 2010).
Share-based Incentive Program 2008-2010
No shares were allocated for the 2009 earnings period. The board of directors
also decided not to select individuals or earning criteria for the 2010 earning
period since the Incentive Program 2010-2012 replaces the old program.
Share-based Incentive Program 2010-2012
Outotec's board of directors decided to adopt a new share-based incentive
program for the company's key personnel. The program comprises three earning
periods: calendar years 2010, 2011 and 2012. The board determines the amount of
the maximum reward for each individual, the earning criteria and the targets
established for them separately on an annual basis.
The board approved 71 individuals in the scope of the Incentive Program
2010-2012 for the 2010 earning period, which began on January 1, 2010. The
reward is based on the achievement of the targets set for cost savings, order
intake and earnings per share. The reward will be paid in 2011 in the company's
shares and as a cash payment which equals income taxes. The person must hold the
earned shares for at least two years following the end of the earning period. If
the person's employment ends during this engagement period, (s)he has to return
all or part of the earned shares to the company without compensation.
The maximum total reward for 2010 earning period of the Incentive Program
2010-2012 is equal to the value of 361,750 Outotec shares, and the maximum value
of the rewards of the entire Incentive Program 2010-2012 is equal to
approximately 1,000,000 shares, including the cash payment.
Executive Board share ownership plan
On May 21, 2010 Outotec's board of directors decided on a new share ownership
plan directed to the members of the Outotec executive board. As part of the
plan, the executive board members established Outotec Management Oy company,
whose entire share capital is owned by them. The purpose of the plan is to
commit executive board members to Outotec by encouraging them to acquire and
hold Outotec shares and thus increase the company's shareholder value in the
long run. They invest a considerable amount of their own funds in Outotec shares
and partly through a loan provided by Outotec. The company's board of directors
granted to Outotec Management Oy an interest-bearing loan at the maximum amount
of EUR 4,980,000 to finance the acquisition of the Outotec shares. After the
plan has been implemented in full, executive board members will hold
approximately 0.34% of the Outotec shares through the company.
Outotec has consolidated Outotec Management Oy into the Group's balance sheet.
At the end of the reporting period, Outotec Management Oy held 35,273 (August
5, 2010: 191,211) Outotec shares which have been accounted as treasury shares in
Outotec's balance sheet. This has decreased the Group's equity by EUR 1.0
million. More detailed information regarding the plan's effects to the Group's
equity are presented in the Consolidated Statement of Changes in Equity table.
RESOLUTIONS OF THE 2010 ANNUAL GENERAL MEETING
Outotec Oyj's annual general meeting was held on March 18, 2010, in Espoo,
Finland. The meeting was opened by the chairman of the board of directors, Mr.
Risto Virrankoski, and chaired by Mr. Tomas Lindholm, attorney-at-law.
Financial Statements
The annual general meeting approved the parent company and the consolidated
financial statements, and they also discharged the board of directors members
and the CEO from liability for the financial year 2009.
Dividend
The annual general meeting participants decided that a dividend of EUR 0.70 per
share be paid for the financial year ended December 31, 2009. The dividends, EUR
32.0 million, were paid on April 8, 2010.
The Board of Directors
The annual general meeting participants decided on the number of board members,
including chairman and vice chairman, to be six (6). Mr. Carl-Gustaf Bergström,
Mr. Karri Kaitue, Mr. Hannu Linnoinen and Mr. Anssi Soila were re-elected as
members of the board of directors and Ms. Eija Ailasmaa and Mr. Tapani Järvinen
were elected as new board members for the term expiring at the end of the next
annual general meeting. The annual general meeting elected Mr. Carl-Gustaf
Bergström as the Chairman of the Board of Directors.
The annual general meeting participants confirmed the remunerations to the board
members as follows: chairman EUR 5,000 per month and other board members EUR
3,000 per month each, vice chairman and chairman of the audit committee an
additional EUR 1,000 per month each, and each board member EUR 500 for
attendance at each board and committee meeting as well as reimbursement for
direct costs stemming from board work.
Auditors
KPMG Oy Ab, Authorized Public Accountants, was re-elected as the company's
auditor, with Mauri Palvi as auditor in charge.
Board's authorizations
The annual general meeting participants authorized the board of directors to
resolve upon the repurchase of the company's own shares as follows:
- The company may repurchase the maximum number of 4,578,037 shares using free
equity and deviating from the shareholders' pre-emptive rights to the shares,
provided that the number of own shares held by the company will not exceed ten
(10) percent of all shares of the company.
- The shares are to be repurchased in public trading at the NASDAQ OMX Helsinki
at the price established in the trading at the time of acquisition.
The authorization shall be in force until the next annual general meeting. This
authorization has not been executed as of August 5, 2010.
The annual general meeting participants authorized the board of directors to
resolve upon issues of shares and other special rights entitling to shares as
follows:
- The authorization includes the right to issue new shares, distribute own
shares held by the company, and the right to issue special rights referred to in
Chapter 10, Section 1 of the Companies Act. This authorization to the board of
directors does not, however, entitle the board of directors to issue share
option rights as an incentive to the personnel.
- The total number of new shares to be issued and own shares held by the company
to be distributed under the authorization may not exceed 4,578,037 shares.
- The board of directors is entitled to decide on the terms of the share issue,
such as the grounds for determining the subscription price of the shares and the
final subscription price as well as the approval of the subscriptions, the
allocation of the issued new shares and the final amount of issued shares.
The authorizations shall be in force until the next annual general meeting. This
authorization has not been executed as of August 5, 2010.
The annual general meeting participants amended Section 9 of the Articles of
Association so that the notice to convene the general meeting shall be issued no
later than 28 days prior to the general meeting.
Participants also authorized the board of directors to decide on a donation to
Finnish Universities of its choice from the distributable assets of the company.
The amount is not to exceed EUR 600,000.
In its assembly meeting the Board of Directors elected Mr. Karri Kaitue as the
vice chairman of the board of directors. In addition, the board elected Ms. Eija
Ailasmaa, Mr. Anssi Soila and Mr. Hannu Linnoinen as members of the audit
committee. Mr. Linnoinen acts as the chairman of the audit committee.
SHARES AND SHARE CAPITAL
Outotec's shares are listed on the NASDAQ OMX Helsinki (OTE1V). At the end of
the reporting period, Outotec's share capital was EUR 17,186,442.52 consisting
of 45,780,373 shares. Each share entitles its holder to one vote at the
company's general shareholder meetings.
TRADING, MARKET CAPITALIZATION AND SHAREHOLDERS
In the reporting period, the volume-weighted average price for a share in the
company was EUR 25.45; the highest quotation for a share was EUR 30.23 and the
lowest EUR 18.85. The trading of Outotec shares in the reporting period exceeded
54 million shares, with a total value of over EUR 1,375 million. At the end of
the reporting period, Outotec's market capitalization was EUR 1,178 million and
the last quotation for the share was EUR 25.73. At the end of the reporting
period, the company did not hold any treasury shares for trading purposes.
Outotec has an agreement with a third-party service provider concerning
administration and hedging of the share-based incentive program for key
personnel. These shares are accounted as treasury shares in Outotec's
consolidated balance sheet. At the end of the reporting period, the amount of
these treasury shares was 332,534. There have been no purchases of Outotec
shares based on this agreement during the reporting period.
Outotec has consolidated Outotec Management Oy (incentive plan for Outotec
executive board members) into the Group's balance sheet. At the end of the
reporting period, Outotec Management Oy held 35,273 (August 5, 2010: 191,211)
Outotec shares which have been accounted as treasury shares in Outotec's balance
sheet. This has decreased the Group's equity by EUR 1.0 million. More detailed
information regarding the Plan's effects to the Group's equity are presented in
the Consolidated Statement of Changes in Equity table.
At the end of the reporting period, Outotec had 16,282 shareholders. Shares held
in 16 nominee registers accounted for 53% and Finnish households held roughly
16% of all Outotec shares.
EVENTS AFTER THE REPORTING PERIOD
Outotec announced in August a contract with RB Met Engineering (Pty) Ltd and
Xstrata Merafe PSV on the delivery of chromite sintering technology to Xstrata
Merafe's ferrochrome plant located in Rustenburg, South Africa. The contract
value is approximately EUR 17 million. The order is included in Outotec's 2010
second quarter order intake and backlog.
SHORT-TERM RISKS AND UNCERTAINTIES
Risks related to global operating environment
Outotec's global business operations are subject to various political, economic
and social conditions. Operations in global markets may present risks related to
economic and political instability. Conditions may rapidly change and create
delays in order placement.
Risks related to Outotec's business
In the project risk assessment during the reporting period, all unfinished
projects were evaluated and provisions for performance guarantees and warranty
period guarantees were updated. There were no material changes in the Group's
project risk provisions.
Due to the international project business, different interpretations of
international and local tax rules and regulations may cause additional direct or
indirect taxes for Outotec, which would reduce the company's net result.
At the end of the reporting period, Outotec's order backlog included roughly EUR
60 million in suspended projects (March 31, 2010: EUR 70 million). Some of the
suspended projects may be cancelled or renegotiated. In any market situation,
there is a risk of postponement and delays in project business.
Acquisitions are an integral part of Outotec's growth strategy. There is a risk
that the estimated synergy benefits will not materialize as planned.
Outotec has a cost savings program targeting EUR 25 million annualized savings
in operational fixed costs, comprising also fixed costs of sales, by the end of
2010 compared to the fourth quarter of 2009. There is a risk that the targeted
savings will not materialize. Part of these cost savings is estimated to come
through the new operational model and there are risks related to its global
launch.
Outotec is involved in a few arbitral and court proceedings. Outotec management
expects that these cases and their outcome will have no material effect on
Outotec's financial result.
The global economic uncertainty may reduce the demand for Outotec's products and
services. Outotec's gross margin is impacted by project mix. Particularly orders
which include license fees have a major impact on the gross margin.
Financial risks
There is a risk that customers and suppliers may experience financial
difficulties and a lack of financing may result in bankruptcies, which can also
result in losses for Outotec. These risks are reduced by advance and milestone
payments and letters of credit. In the reporting period, there were no material
credit losses related to payments by Outotec's counter-parties.
Outotec's business model is based primarily on customer advance payments and
on-demand guarantees issued by Outotec's relationship banks. Changes in advance
payments received have an impact on the liquidity of Outotec. Exposure to
on-demand guarantees has remained high. Cash held by Outotec is primarily
invested in short-term bank deposits and in Finnish corporate short-term
commercial papers. The lower interest rate levels reduce the interest income
generated from these investments.
More than half of Outotec's total cash flow is denominated in euros. The rest is
divided among various currencies, including the US dollar, Australian dollar,
Brazilian real, Canadian dollar, and South African rand. The weight of any given
currency in new projects can fluctuate substantially, but most cash-flow-related
risks are hedged in the short and long term. In the short-term, currency
fluctuations may create volatility in the operating profit. The forecasted and
probable cash flows are selectively hedged and are always on the basis of
separate decisions and risk analysis. Natural hedging is used as widely as
possible and the remaining open foreign exchange exposures related to committed
cash flows are fully hedged using derivative instruments. The cost of hedging is
taken into account in project pricing.
MARKET OUTLOOK
The overall market sentiment is supported by growing metals demand in the
emerging economies. China alone is expected to represent nearly 50% of the
growth in 2010. Metals demand outside China also shows signs of recovery. In
addition, there is a continuous need for modernizing and debottlenecking at mine
sites and metals processing plants as well as for building more energy-efficient
and sustainable plants. According to several mining and metals companies'
announcements, their investments will increase in 2010 compared to 2009.
Following the recession, there have been many active sales projects, but
industry lead times tend to be long, especially in large investments.
Non-ferrous Solutions
The activity in the Non-ferrous market is picking up. Gold, copper and zinc
projects are becoming especially active. Investments in concentrator
technologies are progressing faster than in smelting, refining and solvent
extraction/electro-winning technologies. Competition continues to be intensive
for new projects. Long-term fundamentals are strong and are improving as ore
grades decline and more processing capacity and advanced technology solutions
will be needed. At the same time, environmental regulations tighten and the cost
of energy and water increases. Thus, new technologies and modern solutions are
needed. Outotec's leading market position in providing complete solutions to the
ore-to-metal value chain is further strengthened by the acquisitions of Larox,
Ausmelt and Millteam.
Ferrous Solutions
There are strong signs that the demand for raw materials used in steel making,
iron ore and coking coal will continue at record levels. The demand for
stainless steel raw materials shows strong growth and the activity in ferroalloy
projects is picking up. Brazil, India and South Africa continue to rapidly
develop their infrastructure and to utilize their large natural resource base.
There are several steel plant expansions and new investments under development
in Brazil and India, catering particularly to the Chinese market where
concentrates and pellets are in continuous demand. Outotec's sustainable
solutions - both in ferroalloys as well as in iron ore sintering and pelletizing
technologies - are in strong demand because of their energy efficiency and
environmental aspects.
Energy, Light Metals and Environmental Solutions
The demand for aluminum is growing. Consequently, alumina and bauxite projects
are revitalizing, particularly in China and in regions which cater to the
Chinese market. The Middle East is also focusing more on building their refining
capacity.
The business area's environmental solutions include sulfuric acid plants,
applications for gas cleaning and heat recovery systems and coke as well as
industrial water treatment. Based on the continuous need for metals, and thus
the processing of concentrates, the outlook for the sulfuric acid market remains
positive as sulfuric acid is needed in hydrometallurgical processes and is
produced as a by-product in the pyrometallurgical processes. The sulfuric acid
market is also driven by the continuous need from the fertilizer industry. In
addition to sulfuric acid plants, pyrometallurgical processes require off-gas
cleaning and effluent and water treatment technologies. Outotec's market
position as a supplier of advanced sulfuric acid plants is further strengthened
following its acquisition of Edmeston.
New opportunities in environmental technologies, such as materials recycling,
are continuously increasing. Energy technology markets include the utilization
of alternative energy resources, such as oil shale, oil sands and biomass. The
Enefit technology developed for Eesti Energia's oil shale plant under
construction in Narva, Estonia, can be applied globally. The world's recoverable
oil shale and oil sand resources are many times greater than those of
conventional oil reserves, with large deposits found in the US, Canada, Brazil,
China, Jordan, Russia and Estonia.
Services business
Outotec's Services business is driven by capacity utilization levels,
modernizations, upgrades and new capital investment projects. Customer needs for
spare parts, services and modernizations are increasing due to re-commissioning
of production lines. Customers have various needs for services ranging from
single spare parts to completely outsourced service agreements. This industry
trend gives growth opportunities on many levels and supports the company's goal
to be a life cycle partner for its customers. The acquired businesses will
further strengthen Outotec's service offering and capabilities globally.
FINANCIAL GUIDANCE FOR 2010
Based on the order intake in the reporting period, management expects that in
2010:
- order intake will be significantly higher compared to 2009
- sales will grow to approximately EUR 1 billion due to acquisitions, and
- operating profit, which includes EUR 10 million purchase price allocation
amortizations, will remain on the same level as in 2009, excluding one-time
items.
In 2010, one-time costs, which are included in one-time items, are estimated to
be in the range of EUR 20-25 million. One-time costs related to the integration
of the acquired businesses are estimated to be recorded in the financial results
of the third quarter.
Operating profit is dependent on exchange rates, product mix, timing of new
orders and project completions.
FINANCIAL REPORTING SCHEDULE FOR 2010
Outotec will publish the following interim report in 2010:
Interim Report for January-September 2010: Friday, October 22
INTERIM REPORT JANUARY-JUNE 2010 BRIEFING
Date: Thursday, August 5
Time: 2.00-3.00 pm (EEST)
Venue: Hotel Scandic Simonkenttä, Simonkatu 9, Helsinki
JOINING VIA WEBCAST
You may follow the briefing via a live webcast at www.outotec.com. The webcast
will be recorded and published on Outotec's website for on demand viewing.
JOINING VIA TELECONFERENCE
You may also join the briefing by telephone. To register as a participant for
the teleconference and Q&A session, please dial in 5 to 10 minutes before the
beginning of the event:
FI/UK: +44 20 7162 0025
US/CANADA: +1 334 323 6201
Password: Outotec/869848
In addition, an instant replay service of the conference call will be available
for 5 days until August 10, 2010 midnight on the following numbers:
UK: +44 20 7031 4064
US: +1 954 334 0342
Access code: 869848
The contact information is gathered for registration purposes only and it is not
used for commercial purposes.
Espoo, August 5, 2010
Outotec Oyj
Board of Directors
For further information, please contact:
Outotec Oyj
Pertti Korhonen, President and CEO
tel. +358 20 529 211
Rita Uotila, Vice President - Investor Relations
tel. +358 20 529 2003, mobile +358 400 954141
Eila Paatela, Vice President - Corporate Communications
tel. +358 20 529 2004, mobile +358 400 817198
Format for e-mail addresses: firstname.lastname@outotec.com
INTERIM FINANCIAL STATEMENTS (unaudited)
Consolidated Statement of Comprehensive Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
Income
EUR million 2010 2009 2010 2009 2009
--------------------------------------------------------------------------------
Sales 223.8 237.6 410.8 469.2 877.7
Cost of sales -166.8 -194.1 -308.3 -378.5 -687.5
--------------------------------------------------------------------------------
Gross profit 57.0 43.5 102.5 90.7 190.1
Other income 0.3 3.6 2.9 4.2 4.1
Selling and marketing expenses -21.4 -13.1 -42.2 -26.3 -56.5
Administrative expenses -18.8 -13.5 -36.4 -26.7 -54.6
Research and development expenses -6.6 -5.8 -13.7 -10.9 -20.5
Other expenses -5.0 -0.8 -17.5 -0.8 -3.9
Share of results of associated companies -0.1 - -0.3 - -0.2
--------------------------------------------------------------------------------
Operating profit 5.5 13.9 -4.6 30.2 58.6
Finance income and expenses
Interest income and expenses 0.6 1.4 1.1 3.2 5.2
Market price gains and losses 0.5 -0.7 0.6 0.3 0.6
Other finance income and expenses -0.9 -1.1 -1.6 -2.2 -3.5
--------------------------------------------------------------------------------
Net finance income 0.2 -0.3 0.0 1.4 2.2
Profit before income taxes 5.7 13.6 -4.6 31.6 60.9
Income tax expenses -1.6 -4.3 1.4 -9.8 -18.6
--------------------------------------------------------------------------------
Profit for the period 4.0 9.3 -3.2 21.8 42.3
--------------------------------------------------------------------------------
Other comprehensive income
Exchange differences on translating foreign 8.3 7.5 17.6 11.1 19.5
operations
Cash flow hedges -0.3 2.5 -0.4 1.4 2.7
Income tax relating to cash flow hedges 0.1 -0.6 0.1 -0.1 -0.3
Available for sale financial assets 0.0 -0.0 0.0 -0.2 2.4
Income tax relating to available for sale - - - - -0.0
financial assets
--------------------------------------------------------------------------------
Other comprehensive income for the period 8.2 9.4 17.4 12.3 24.3
Total comprehensive income for the period 12.2 18.7 14.2 34.1 66.6
--------------------------------------------------------------------------------
Profit for the period attributable to:
Equity holders of the parent company 4.0 9.3 -3.2 21.8 42.3
Non-controlling interest - - - - -
Total comprehensive income for the period
attributable to:
Equity holders of the parent company 12.2 18.7 14.2 34.1 66.6
Non-controlling interest - - - - -
Earnings per share for profit attributable to
the equity
holders of the parent company:
Basic earnings per share, EUR 0.09 0.22 -0.07 0.53 1.01
Diluted earnings per share, EUR 0.09 0.22 -0.07 0.53 1.01
All figures in the tables have been rounded and consequently the sum of
individual figures may deviate from the sum presented. Key figures have been
calculated using exact figures.
Condensed Consolidated Statement of Financial June 30, June 30, December 31,
Position
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
ASSETS
Non-current assets
Intangible assets 215.3 82.9 170.2
Property, plant and equipment 54.1 32.1 52.1
Non-current financial assets
Interest-bearing 2.0 0.4 5.1
Non interest-bearing 35.0 23.3 37.2
--------------------------------------------------------------------------------
Total non-current assets 306.3 138.7 264.6
Current assets
Inventories *) 105.0 102.2 93.2
Current financial assets
Interest-bearing 0.4 0.5 0.7
Non interest-bearing 285.5 269.8 292.7
Cash and cash equivalents 220.9 281.6 258.5
--------------------------------------------------------------------------------
Total current assets 611.8 654.2 645.0
TOTAL ASSETS 918.2 792.9 909.6
--------------------------------------------------------------------------------
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the 321.3 219.0 315.0
parent company
Non-controlling interest 0.9 - 27.4
--------------------------------------------------------------------------------
Total equity 322.2 219.0 342.4
Non-current liabilities
Interest-bearing 32.0 2.3 41.2
Non interest-bearing 103.7 72.3 98.2
--------------------------------------------------------------------------------
Total non-current liabilities 135.7 74.6 139.4
Current liabilities
Interest-bearing 24.5 1.9 32.0
Non interest-bearing
Advances received **) 166.5 248.3 150.9
Other non interest-bearing liabilities 269.3 248.9 244.9
--------------------------------------------------------------------------------
Total current liabilities 460.3 499.2 427.8
Total liabilities 595.9 573.8 567.2
TOTAL EQUITY AND LIABILITIES 918.2 792.9 909.6
--------------------------------------------------------------------------------
*) Of which advances paid for inventories amounted to EUR 25.8 million at June
30, 2010 (June 30, 2009: EUR 25.3 million and December 31, 2009 EUR 17.0
million).
**) Gross advances received before percentage of completion revenue recognition
amounted to EUR 1,107.5 million on June 30, 2010 (June 30, 2009: EUR 1,070.0
million, December 31, 2009 EUR 1,041.2 million).
Condensed Consolidated Statement of Cash Flows Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2010 2009 2009
---------------------------------------------------------------------------
Cash flows from operating activities
Profit for the period -3.2 21.8 42.3
Adjustments for
Depreciation and amortization 10.5 5.8 12.1
Other adjustments 7.5 10.9 21.4
Decrease (+) / increase (-) in working capital 40.2 -16.3 -75.0
Interest received 2.0 3.7 6.1
Interest paid -0.7 -0.4 -0.7
Income tax paid -14.3 -13.0 -34.9
---------------------------------------------------------------------------
Net cash from operating activities 42.0 12.6 -28.8
Purchases of assets -6.5 -9.0 -17.0
Acquisition of subsidiaries, net of cash -34.7 -2.8 -1.9
Acquisition of business operations -2.2 - -
Acquisition of shares in associated companies - - -10.4
Proceeds from sale of assets 3.9 0.4 0.0
Change in other investing activities - -0.0 -0.2
---------------------------------------------------------------------------
Net cash used in investing activities -39.5 -11.5 -29.5
Cash flow before financing activities 2.5 1.1 -58.3
Repayments of non-current debt -12.3 -0.1 -0.2
Borrowings of non-current debt - - 30.6
Decrease in current debt -18.1 - -
Increase in current debt 10.3 0.7 1.7
Purchase of treasury shares - -3.3 -3.3
Related party net investment to Outotec Oyj shares *) -0.1 - -
Dividends paid -32.0 -42.0 -42.0
Change in other financing activities 0.5 0.1 -0.2
---------------------------------------------------------------------------
Net cash used in financing activities -51.7 -44.6 -13.4
Net change in cash and cash equivalents -49.2 -43.5 -71.7
Cash and cash equivalents at the beginning of the period 258.5 317.8 317.8
Foreign exchange rate effect on cash and cash equivalents 11.6 7.4 12.5
Net change in cash and cash equivalents -49.2 -43.5 -71.7
---------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 220.9 281.6 258.5
---------------------------------------------------------------------------
*) Consolidation of Outotec Management Oy (incentive plan for Outotec executive
board members). At the end of the reporting period, Outotec Management Oy held
35,273 (August 5, 2010: 191,211) Outotec shares which have been accounted as
treasury shares in Outotec's consolidated statement of financial position.
Consolidated Statement of Changes in Equity
A = Share capital
B = Share premium fund
C = Other reserves
D = Fair value reserves
E = Treasury shares
F = Reserve for invested non- restricted equity
G = Cumulative translation differences
H = Retained earnings
I = Non-controlling interest
J = Total equity
Consolidated Statement of Changes in Equity
-------------------------------------------------
Attributable to the equity holders of the
parent company
-------------------------------------------------
EUR million A B C D E F G H I J
--------------------------------------------------------------------------------
Equity at January
1, 2009 16.8 20.2 0.1 -3.7 -9.4 - -16.0 218.5 - 226.4
--------------------------------------------------------------------------------
Dividends paid - - - - - - - -42.0 - -42.0
Purchase of treasury
shares - - - - -3.3 - - - - -3.3
Treasury shares
issued to key - - - - 8.1 - - -4.8 - 3.3
employees
Share-based payments:
value of received
services - - - - - - - -0.1 - -0.1
Total comprehensive
income for the period - - - 1.1 - - 11.1 21.8 - 34.1
Other changes - - - - - - - 0.6 - 0.6
--------------------------------------------------------------------------------
Equity at June 30,
2009 16.8 20.2 0.1 -2.6 -4.6 - -4.9 193.9 - 219.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Equity at January
1, 2010 16.8 20.2 0.3 1.1 -4.6 63.4 3.5 214.3 27.4 342.4
--------------------------------------------------------------------------------
Dividends paid - - - - - - - -32.0 - -32.0
Share issue 0.4 - - - - 24.3 - - - 24.7
Management incentive
plan for Outotec
Executive Board *) - - - - -1.0 - - - 0.9 -0.1
Share-based payments:
value of received
services - - - - - - - 0.2 - 0.2
Total comprehensive
income for the period - - - -0.2 - - 17.6 -3.2 - 14.2
Non-controlling
interest related to
Larox Group - - - - - - - - -27.4 -27.4
acquisition
Other changes - - 0.0 - - - - 0.2 - 0.3
--------------------------------------------------------------------------------
Equity at June
30, 2010 17.2 20.2 0.4 0.9 -5.6 87.7 21.1 179.5 0.9 322.2
--------------------------------------------------------------------------------
*) Consolidation of Outotec Management Oy (incentive plan for Outotec executive
board members). At the end of the reporting period, Outotec Management Oy held
35,273 (August 5, 2010: 191,211) Outotec shares which have been accounted as
treasury shares in Outotec's consolidated statement of financial position.
Key figures Q2 Q2 Q1-Q2 Q1-Q2 Last 12 Q1-Q4
2010 2009 2010 2009 months 2009
--------------------------------------------------------------------------------
Sales, EUR million 223.8 237.6 410.8 469.2 819.3 877.7
Gross margin, % 25.5 18.3 25.0 19.3 24.6 21.7
Operating profit, EUR million 5.5 13.9 -4.6 30.2 23.8 58.6
Operating profit margin, % 2.4 5.9 -1.1 6.4 2.9 6.7
Profit before taxes, EUR million 5.7 13.6 -4.6 31.6 24.6 60.9
Profit before taxes in relation to 2.5 5.7 -1.1 6.7 3.0 6.9
sales, %
Net cash from operating activities, 34.6 23.4 42.0 12.6 0.6 -28.8
EUR million
Net interest-bearing debt at the
end of period, -166.8 -278.3 -166.8 -278.3 -166.8 -191.0
EUR million
Gearing at the end of period, % -51.8 -127.1 -51.8 -127.1 -51.8 -55.8
Equity-to-assets ratio at the end 42.9 40.2 42.9 40.2 42.9 45.1
of period, %
Working capital at the end of -107.8 -150.7 -107.8 -150.7 -107.8 -62.8
period, EUR million
Capital expenditure, EUR million 27.0 4.5 80.7 9.2 169.5 98.0
Capital expenditure in relation to 12.1 1.9 19.6 2.0 20.7 11.2
sales, %
Return on investment, % 5.6 30.8 -2.9 30.9 8.9 20.9
Return on equity, % 5.1 17.9 -2.0 19.6 6.4 14.9
Order backlog at the end of period, 1,310.1 966.6 1,310.1 966.6 1,310.1 867.4
EUR million
Order intake, EUR million 349.7 105.8 769.1 245.1 1,081.1 557.1
Personnel, average for the period 3,171 2,540 3,168 2,569 2,911 2,612
Profit for the period in relation 1.8 3.9 -0.8 4.7 2.1 4.8
to sales, %
Research and development expenses, 6.6 5.8 13.7 10.9 23.3 20.5
EUR million
Research and development expenses 2.9 2.4 3.3 2.3 2.8 2.3
in relation to sales, %
Earnings per share, EUR 0.09 0.22 -0.07 0.53 0.41 1.01
Equity per share, EUR 7.08 5.26 7.08 5.26 7.08 7.09
Dividend per share, EUR - - - - 0.70 0.70
--------------------------------------------------------------------------------
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
These interim financial statements are prepared in accordance with IAS 34
Interim Financial Reporting. The same accounting policies and methods have been
applied in these interim financial statements as in the recent annual financial
statements and also the following revised standards have been applied which have
been effective from the beginning of 2010. These interim financial statements
are unaudited.
Adoption of new and revised IFRS standards and IFRIC -interpretations
Outotec has applied the following revised standards since the beginning of 2010:
* IFRS 3 Business Combinations. The revised standard allows entity to measure
non-controlling interest at fair value or at proportionate share of the
underlying net assets. In business combinations achieved in stages,
previously held equity interest shall be measured at fair value at
acquisition date and the result of the fair valuation shall be recognized in
profit or loss. Costs related to an acquisition shall be expensed when
incurred. The revised standard has been applied to the acquisition of
Ausmelt Ltd. The shares acquired in 2009 have been measured at fair value
and the fair value change has been recognized in profit or loss. In
addition, costs related to Ausmelt Ltd acquisition have been recognized in
profit or loss when incurred.
* IAS 27 Consolidated and Separate Financial Statements. Accounting for
changes in a parent's ownership interest in a subsidiary depends on whether
the change results in a loss or gain of control. Changes that do not result
in a loss or gain of control are accounted for as equity transactions and
when changes result in loss or gain of control transaction is recognized in
profit or loss. The revised standard has been applied to the acquisition of
Ausmelt Ltd. The acquired shares were valued at fair value when Outotec
reached the majority ownership and the result was recognized in profit or
loss.
* IFRS Annual improvements
Outotec has also applied the following revised standards since the beginning of
2010 which are not expected to have an impact on the Group's interim financial
statements or financial statements:
* IFRS 2 Group Cash-Settled Share-Based Payment Transactions (effective date
for annual periods beginning on or after January 1, 2010)
* IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged
Items (effective date for annual periods beginning on or after July
1, 2009).
Outotec will estimate the impacts of the following standards and will apply the
new standards from the financial period beginning January 1, 2011 onwards:
* IAS 24 Related Party Disclosures (effective date for annual periods
beginning on or after January 1, 2011). IAS 32 Financial Instruments:
Presentation: Classification of Rights Issues (effective date for annual
periods beginning on or after February 1, 2010).
* IFRIC 14 - Prepayments of a Minimum Funding Requirement (effective date for
annual periods beginning on or after January 1, 2011).
* IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
(effective date for annual periods beginning on or after July 1, 2010).
New operational model and reporting segments
Reflecting the new operational model announced in February 2010, Outotec's
business structure has changed. Financial reporting according to the new
structure began on April 1, 2010. The new reportable operating segments
according to IFRS 8 are Non-ferrous Solutions, Ferrous Solutions, and Energy,
Light Metals and Environmental Solutions. For more information regarding new
reporting segments, please see the Interim Report January-June 2010, section"New Operational Model and Reporting Segments".
Outotec published the 2009 comparison figures related to change in operating
segments in a stock exchange release on June 30, 2010.
Use of Estimates
IFRS requires management to make estimates and assumptions that impact the
reported amounts of assets and liabilities the disclosure of contingent assets
and liabilities at the date of the financial statements as well as the reported
amounts of income and expenses during the reporting period. Accounting estimates
are employed in the financial statements to determine reported amounts,
including the verification of certain assets, the useful lives of tangible and
intangible assets, income taxes, provisions, pension obligations and impairment
of goodwill. These estimates are based on management's best knowledge of current
events and actions; however, it is possible that the actual results may differ
from the estimates used in the financial statements.
Major Non-Recurring Items in Operating Profit Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
One-time costs related restructuring -16.1 - -
Net effect from acquisition costs and revaluation 2.2 - -
of Ausmelt Ltd. shares
Impairment loss from Pacific Ore Ltd's shares - - -2.5
Arbitration settlement - 2.5 2.4
--------------------------------------------------------------------------------
Income Tax Expenses Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
Current taxes -4.8 -9.0 -13.7
Deferred taxes 6.2 -0.8 -4.9
--------------------------------------------------------------------------------
Total income tax expenses 1.4 -9.8 -18.6
Property, Plant and Equipment June 30, June 30, December 31,
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
Historical cost at the beginning of the period 117.8 87.6 87.6
Translation differences 4.1 1.9 3.3
Additions 3.6 5.3 14.9
Disposals -0.6 -0.6 -0.9
Acquired subsidiaries 2.3 - 12.9
Reclassifications -0.0 0.0 -0.0
--------------------------------------------------------------------------------
Historical cost at the end of the period 127.1 94.3 117.8
Accumulated depreciation and impairment at the -65.7 -58.1 -58.1
beginning of the period
Translation differences -2.3 -1.0 -1.8
Disposals 0.3 0.2 1.0
Reclassifications -0.0 0.0 0.2
Impairment during the period -0.5 - -
Depreciation during the period -4.9 -3.3 -7.0
--------------------------------------------------------------------------------
Accumulated depreciation and impairment at the -73.1 -62.2 -65.7
end of the period
Carrying value at the end of the period 54.1 32.1 52.1
--------------------------------------------------------------------------------
Commitments and Contingent Liabilities June 30, June 30, December 31,
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
Pledges and mortgages 2.6 1.8 33.4
Guarantees for commercial commitments 192.6 192.7 218.2
Minimum future lease payments on operating leases 60.3 66.1 64.4
--------------------------------------------------------------------------------
The pledges and mortgages are used to secure credit facilities in Outotec
(Shanghai) Co. Ltd. and Outotec Ausmelt Pty Ltd. The total volume of pledges and
mortgages was reduced during the reporting period due to the repayment of most
Larox's external credit facilities..
This value of commercial guarantees does not include advance payment guarantees
issued by the parent or other group companies. The total amount of guarantees
for financing issued by group companies amounted to EUR 45.7 million on June
30, 2010 (June 30, 2009: EUR 4.9 million and at December 31, 2009: EUR 47.1
million) and for commercial guarantees including advance payment guarantees EUR
335.7 million on June 30, 2010 (June 30, 2009: EUR 328.2 million and on December
31, 2009: EUR 321.3 million).
Derivative Instruments
Currency Forwards June 30, June 30, December 31,
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
Fair values, net -5.5 *) -6.0**) -1.9***)
Nominal values 331.6 345.5 319.3
--------------------------------------------------------------------------------
*) of which EUR -0.7 million designated as cash
flow hedges.
**) of which EUR -2.8 million designated as cash
flow hedges.
***) of which EUR 1.4 million designated as cash
flow hedges.
Related Party Transactions
Transactions and Balances with Associated Q1-Q2 Q1-Q2 Q1-Q4
Companies
EUR million 2010 2009 2009
--------------------------------------------------------------------------------
Sales 0.0 - 0.1
Purchases -0.1 - -
Trade and other receivables 0.0 - 0.1
Current liabilities - - 0.4
Loan receivables 1.1 - -
--------------------------------------------------------------------------------
Business Combinations
---------------------------
Acquisition of Larox Group
Outotec completed the acquisition of control in Larox through directed share
issue on December 21, 2009 and made a mandatory public tender offer for the
remaining Larox shares. On January 27, 2010 Outotec announced the final result
of the tender offer, according to which the Larox shares in Outotec ownership
represented approximately 98.5% of all the Larox shares and approximately 99.7%
of all the votes attached to the Larox shares. On June 10, 2010 the Arbitral
Tribunal confirmed that Outotec had gained title to all the Larox shares by
lodging security for the payment of the redemption price and the interest
accruing thereon.
The total purchase price of the Larox shares was EUR 94.2 million including
capitalized transaction costs of EUR 3.8 million and liability related to
non-controlling interest. Most of the consideration for the Larox shares
purchased was paid in the form of 3,780,373 new Outotec shares, which totaled
EUR 88.1 million.
The following purchase price allocation listed below is preliminary because it
is subject to adjustments in fair values of intangible assets and property,
plant and equipment. The final purchase price allocation will be completed
during year 2010. In the preliminary purchase price allocation, the purchase
price has been allocated to intangible assets such as technologies, trademarks
and customer relationships. The goodwill is primarily based on the synergy
benefits that have been estimated to be at least EUR 7 million annually.
Fair values recorded on Carrying amounts prior
EUR million acquisition to acquisition
--------------------------------------------------------------------------------
Intangible assets 41.0 17.4
Property, plant and equipment 12.9 12.9
Inventories 26.3 22.8
Trade and other receivables 41.0 39.0
Cash and cash equivalents 1.5 1.5
--------------------------------------------------------------------------------
Total assets 122.9 93.8
Interest-bearing liabilities 34.6 34.6
Deferred tax liabilities 8.7 1.7
Trade and other payables 32.0 32.0
--------------------------------------------------------------------------------
Total liabilities 75.3 68.3
Net assets 47.6 25.5
Acquisition cost (equity) 88.1
Acquisition cost (cash) 4.7
Liability related to 1.4
non-controlling interest
--------------------------------------------------------------------------------
Goodwill 46.6
Cash and cash equivalents in 1.5
subsidiaries acquired
Acquisition cost paid in cash 2.7
at June 30, 2010
Acquisition cost paid at 2.0
December 31, 2009
--------------------------------------------------------------------------------
Cash flow effect at June 2.7
30, 2010
Effect of Larox acquisition on Outotec Group sales and profit for the period in
2009
Outotec's sales for January 1, 2009- December 31, 2009 would have been EUR
1,027.9 million and profit for the period EUR 31.8 million if the acquisition
carried out during the period had been completed by January 1, 2009.
Acquisition of Ausmelt Limited
On March 23, 2010 Outotec successfully completed the acquisition of the
Australian-listed company Ausmelt Ltd and now owns 100 percent of all the
company's shares and votes. The acquisition price of the shares was
approximately AUD 49 million (approximately EUR 33 million). Due to IFRS 3
requirements, all shares of Ausmelt Ltd were valued at fair value when Outotec
reached the majority ownership which increased the value of the shares of
Ausmelt Ltd by approximately EUR 3.3 million. In addition, transaction costs
were recognized under Other Expenses in the Statement of Comprehensive Income.
Ausmelt's principal activities are the development, design, engineering and
supply of Top Submerged Lance (TSL) smelting technology for the production of
metals and processing of industrial wastes. Ausmelt's TSL technology complements
Outotec's smelting technology portfolio. Outotec currently has flash smelting
technology for copper and nickel primary smelting in large scale plants, while
Ausmelt's TSL technology is suitable for small to mid-size plants as well as a
variety of other feed materials, such as ferrous metals, zinc, lead and tin
concentrates, zinc-bearing residues, and various secondary and waste materials.
An additional benefit of the technology is that it allows for the recovery of
valuable metals from by-products.
The following purchase price allocation is preliminary because it is subject to
adjustments in fair values of intangible assets and property, plant and
equipment. The final purchase price allocation will be completed during year
2010. In the preliminary purchase price allocation, the purchase price has been
allocated to intangible assets (technology, order backlog, customer relations)
and property, plant and equipment. The goodwill is mainly based on the synergy
benefits that are expected to come from Ausmelt's better growth opportunities as
part of Outotec. Purchase price allocation was updated during the second quarter
of 2010. There were only minor adjustments to fair values of intangible assets
and property, plant and equipment compared to purchase price allocation
presented in the interim report for January - March 2010. These adjustments did
not have any effect on profit or loss.
Fair values recorded on Carrying amounts prior to
EUR million acquisition acquisition
--------------------------------------------------------------------------------
Intangible assets 10.4 0.5
Property, plant and 1.7 0.2
equipment
Inventories 0.6 0.6
Trade and other receivables 2.2 2.2
Cash and cash equivalents 4.4 4.4
--------------------------------------------------------------------------------
Total assets 19.3 8.0
Deferred tax liabilities 3.4 -
Trade and other payables 7.5 7.5
--------------------------------------------------------------------------------
Total liabilities 10.8 7.5
Net assets 8.5 0.5
Acquisition cost 33.7
IFRS fair valuation of 3.3
shares
Translation differences -0.5
--------------------------------------------------------------------------------
Goodwill 28.1
Cash and cash equivalents 4.4
in subsidiaries acquired
Acquisition cost paid in 23.3
cash at June 30, 2010
Acquisition cost paid in 10.4
cash at December 31, 2009
Exchange differences -0.6
--------------------------------------------------------------------------------
Cash flow effect at June 18.3
30, 2010
Other acquired businesses
Outotec completed the acquisition of Millteam Sweden's service business on March
18, 2010.
Outotec has strengthened its service business with its acquisition of Millteam
Sweden's businesses. Millteam offers maintenance services, complete
installations, installation supervision, maintenance inspections and service of
equipment for mining companies and has special expertise in grinding mill
service. The annual sales volume of the Millteam business is approximately EUR
4 million and it employs 35 professionals. The Millteam acquisition supports
Outotec's strategy to expand and enhance its service business. With its new
service center in Sweden, Outotec can now provide better life cycle services to
customers in Europe and the CIS region.
Outotec complemented its sulfuric acid production technologies with the
acquisition of all Edmeston AB shares on May 17, 2010.
Edmeston AB is a Swedish, Gothenburg-based company specializing in engineering
and supply of process equipment used primarily in sulfuric acid plants. Edmeston
has unique know-how of special stainless steel grades suitable for use in a
highly corrosive environment. Edmeston's annual revenues are approximately EUR
10 million and it employs around a dozen professionals. The acquisition of
Edmeston strengthens Outotec's position as the leading provider of sulfuric acid
production technology. Edmeston complements Outotec's offerings to sulfuric acid
plant operators allowing Outotec to enhance its service level particularly in
terms of equipment refurbishments and upgrades.
The following purchase price allocation is combined and preliminary because it
is subject to adjustments in fair values of intangible assets and property,
plant and equipment. The final purchase price allocation will be completed
during year 2010. In the preliminary purchase price allocation, the purchase
price has been allocated to intangible assets such as technologies, trademarks
and customer relationships. In addition, property, plant and equipment have been
adjusted to fair value. The goodwill is primarily based on the synergy benefits.
Fair values recorded on Carrying amounts prior to
EUR million acquisition acquisition
--------------------------------------------------------------------------------
Intangible assets 5.4 -
Property, plant and 0.4 0.1
equipment
Inventories 3.1 3.1
Trade and other receivables 0.3 0.3
Cash and cash equivalents 0.9 0.9
--------------------------------------------------------------------------------
Total assets 10.1 4.4
Deferred tax liabilities 1.3 -
Trade and other payables 2.2 2.2
--------------------------------------------------------------------------------
Total liabilities 3.5 2.2
Net assets 6.6 2.3
Acquisition cost 17.3
Acquisition cost as 0.7
liability at June 30, 2010
--------------------------------------------------------------------------------
Goodwill *) 11.3
Cash and cash equivalents 0.9
in subsidiaries acquired
Acquisition cost paid in 17.3
cash at June 30, 2010
Exchange differences -0.5
--------------------------------------------------------------------------------
Cash flow effect at June 15.9
30, 2010
*) of which EUR 0.8 million is deductible for tax purposes.
Effect of acquired business combinations on Outotec Group's sales and profit for
the period in Q2 2010.
Outotec's sales for January 1, 2010- June 30, 2010 would have been EUR 415.7
million and profit for the period EUR -2.3 million if the acquisition of
Millteam business operations and Edmeston AB would have been completed on
January 1, 2010. Larox Group and Ausmelt have been consolidated into Outotec
Group since the beginning of 2010.
Segments' Sales and Operating Profit by Quarters
EUR million Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/2010
--------------------------------------------------------------------------------
Sales
Non-ferrous Solutions 129.9 132.2 104.6 115.9 113.5 141.3
Ferrous Solutions 27.7 34.2 34.9 49.9 20.0 32.9
Energy, Light Metals and Environmental 76.8 74.3 51.3 56.3 54.6 52.6
Solutions
Unallocated items *) and intra-group sales -2.7 -3.1 -2.2 -2.3 -1.0 -3.0
--------------------------------------------------------------------------------
Total 231.6 237.6 188.7 219.8 187.0 223.8
Operating profit
Non-ferrous Solutions 10.5 7.3 9.4 7.9 -15.4 4.8
Ferrous Solutions 1.6 0.2 2.6 5.1 -2.5 1.4
Energy, Light Metals and Environmental 7.0 9.2 4.6 6.8 10.0 1.9
Solutions
Unallocated **) and intra-group items -2.7 -2.7 -1.5 -6.5 -2.2 -2.6
--------------------------------------------------------------------------------
Total 16.3 13.9 15.1 13.3 -10.1 5.5
*) Unallocated items primarily include invoicing of group management and
administrative services.
**) Unallocated items primarily include group management and administrative
services.
Definitions for Key Financial Figures
--------------------------------------------------------------------------------
Net interest-bearing debt = Interest-bearing debt -
interest-bearing assets
Gearing = Net interest-bearing debt × 100
----------------------------------------
Total equity
Equity-to-assets ratio = Total equity × 100
----------------------------------------
Total assets - advances received
Return on investment = Operating profit + finance income × 100
----------------------------------------
Total assets - non interest-bearing
debt (average for the period)
Return on equity = Profit for the period × 100
----------------------------------------
Total equity (average for the period)
Research and development expenses = Research and development expenses in
the statement of comprehensive income
(including expenses covered by grants
received)
Earnings per share = Profit for the period attributable to
the equity holders of the parent
company
----------------------------------------
Average number of shares during the
period, as adjusted for stock split
Dividend per share = Dividend for the financial year
----------------------------------------
Number of shares at the end of the
period, as adjusted for stock split
----------------------------------------
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