2007-07-24 12:01:43 CEST
2007-07-24 12:01:43 CEST
REGULATED INFORMATION
Outokumpu Oyj - Quarterly report
Outokumpu second quarter 2007 interim report - good profitability complemented by inventory gains and non-recurring items
Stock Exchange Release
July 24, 2007 at 1.00 pm
Second quarter highlights
- Operating profit totaled EUR 406 million including nickel-related
inventory gains in the order of EUR 100 million and a EUR 25 million
gain on the sale of the Hitura mine.
- Underlying end-user demand for stainless steel continued strong.
The distribution sector kept on de-stocking and the order intake by
mills for standard grades slowed markedly.
- According to CRU, average stainless steel base prices declined by
21% quarter-on-quarter.
- Production of standard volume products was cut as planned due to
weak order intake.
- Substantial non-recurring gains in financial income, EUR 142
million from the sale of Outotec Oyj shares and EUR 110 million from
the participation in the Talvivaara project, boosted earnings per
share to EUR 3.11.
Group key figures
II/07 I/07 II/06 2006
Sales EUR million 2 092 2 129 1 392 6 154
Operating profit EUR million 406 424 149 824
Non-recurring items
in operating profit EUR million 25 - - 1
Profit before taxes EUR million 652 416 141 784
Non-recurring items
in financial income EUR million 252 - - -
Net profit for the period
from continuing operations EUR million 553 311 112 606
Net profit for the period EUR million 565 307 133 963
Earnings per share
from continuing operations EUR 3.04 1.71 0.62 3.34
Earnings per share EUR 3.11 1.69 0.73 5.31
Return on capital employed % 35.5 38.8 16.5 20.7
Net cash generated from
operating activities EUR million 132 85 33 -35
Capital expenditure,
continuing operations EUR million 75 25 34 187
Net interest-bearing debt
at end of period EUR million 1 119 1 189 1 509 1 300
Debt-to-equity ratio at
end of period % 30.8 37.3 69.5 42.3
Stainless steel deliveries 1 000 tons 399 430 467 1 815
Stainless steel
base price 1) EUR/ton 1 518 1 930 1 342 1 470
Personnel at the
end of period,
continuing operations 2) 8 783 8 098 9 115 8 159
1) Stainless steel: CRU - German base price (2 mm cold rolled 304
sheet)
2) End-June figures include summer trainees.
SHORT-TERM OUTLOOK
Underlying demand for stainless steel still continues strong.
End-user demand and demand for special grades and project deliveries
continues to be healthy, but distributor demand is very weak and is
expected to remain weak over the summer period. Outokumpu will
continue to cut production of standard grade volume products in the
third quarter and is continually adjusting its actions according to
market developments. Mills that produce specialty products are
running at full capacity. The holiday season and maintenance breaks
will, however, reduce production volumes at all Group's mills in the
third quarter.
The marked decline in nickel prices that began in June gave
distributors a further impetus to reduce their inventories of
standard products and they are extremely reluctant to place any new
orders. The increase in the alloy surcharge in July added pressure on
base prices. In August, however, the alloy surcharge will turn to a
decline, but any significant pick-up in distributor demand is not
expected until after the holiday season. Group management expects
markets for standard products to be back to normal during the fourth
quarter at the latest.
Slowdown in demand during the holiday season and the postponement of
orders in expectation of lower transaction prices, as well as
production cuts and maintenance breaks at the Group's mills will
reduce Outokumpu's delivery volumes and deteriorate third quarter
results. Also, since the downward trend in nickel prices has
continued in July, nickel-related inventory gains will turn into
significant inventory losses during the autumn.
Outokumpu's underlying operational result for the third quarter is
estimated to be clearly positive, but nickel-related inventory losses
are expected to turn the operating profit negative, even
substantially, depending on the nickel price development. While
Outokumpu's underlying operational result for the whole year will be
substantially better than in 2006, current estimates indicate that
significant inventory losses during the coming months bring, however,
2007 operating profit to the level of 2006. At the same time, the
decline in nickel prices will release working capital and generate
strong cash flow during the second half of 2007.
CEO Juha Rantanen:"While the significant drop in nickel price will create short-term,
one-time financial losses, this is a positive development in the
longer term as these price reductions support the competitiveness of
nickel-containing stainless material and releases working capital for
both us and our customers.
The latest market developments also highlight how important it is for
Outokumpu to develop a more stable business model by strengthening
our ferritic and specialty product ranges and by increasing sales to
end-users. Some investment decisions that will drive this development
have already been taken and several new ones are being prepared. The
latest development in this respect is our decision to build a service
center in India.
The attachments present Management analysis of the second quarter
operating result and the Interim review by the Board of Directors for
January-June 2007, the accounts and notes to the interim accounts.
This interim report is unaudited.
For further information, please contact:
Kari Lassila, SVP - IR and Communications, tel. +358 9 421 2555
kari.lassila@outokumpu.com
Eero Mustala, SVP - Corporate Communications, tel. +358 9 421 2435
eero.mustala@outokumpu.com
Esa Lager, CFO, tel +358 9 421 2516
esa.lager@outokumpu.com
News conference and live webcast today at 3.00 pm
A combined news conference, conference call and live web-cast
concerning the second-quarter 2007 financial results will be held on
July 24, 2007 at 3.00 pm Finnish time (8.00 am US EST, 1.00 pm UK
time, 2.00 pm CET) at Swing Life Science Center, auditorium, address:
Keilaranta 14, main entrance, 02150 Espoo.
To participate via a conference call, please dial in 5-10 minutes
before the beginning of the event:
UK +44 20 7162 0125
US & Canada +1 334 323 6203
Password Outokumpu
The news conference can be viewed live via Internet at
www.outokumpu.com.
Stock exchange release and presentation material will be available
before the news conference at www.outokumpu.com -> Investors ->
Downloads
An on-demand web-cast of the news conference will be available at
www.outokumpu.com as of July 24, 2007 at around 6.00 pm.
An instant replay service of the conference call will be available
until Friday, July 27, 2007 on the following numbers:
UK replay number +44 20 7031 4064, access code: 754776
US & Canada replay number +1 954 334 0342, access code: 754776
OUTOKUMPU OYJ
Corporate Management
Ingela Ulfves
Vice President - Investor Relations
tel. + 358 9 421 2438, mobile +358 40 515 1531, fax +358 9 421 2125
e-mail: ingela.ulfves@outokumpu.com
www.outokumpu.com
MANAGEMENT ANALYSIS - SECOND-QUARTER OPERATING RESULT
Group key
figures
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Sales
General
Stainless 1 013 1 066 1 130 1 561 4 770 1 700 1 670
Specialty
Stainless 650 638 614 821 2 723 1 003 1 028
Other
operations 87 93 97 85 361 64 63
Intra-groupsales -342 -405 -394 -560 -1 700 -638 -669
The Group 1 408 1 392 1 447 1 907 6 154 2 129 2 092
Operating
profit
General
Stainless 43 91 166 236 536 245 188
Specialty
Stainless 22 65 81 171 338 182 196
Other
operations 2 -8 -13 -16 -35 1 19
Intra-group
items -0 1 -3 -13 -15 -4 2
The Group 67 149 231 378 824 424 406
Stainless
steel
deliveries
1 000 tons I/06 II/06 III/06 IV/06 2006 I/07 II/07
Cold rolled 286 239 200 211 936 220 186
White hot
strip 104 103 80 103 390 94 94
Quarto plate 44 44 35 39 162 39 41
Tubular
products 20 20 16 18 74 20 17
Long products 14 15 14 16 59 16 15
Semi-finished
products 43 47 47 58 195 40 46
Total
deliveries 510 467 393 445 1 815 430 399
Market prices
and
exchange rates
I/06 II/06 III/06 IV/06 2006 I/07 II/07
Market prices
1)
Stainless
steel
Base price EUR/t 1 127 1 342 1 572 1 840 1 470 1 930 1 518
Alloy
surcharge EUR/t 844 1 020 1 437 2 064 1 341 2 277 2 913
Transaction
price EUR/t 1 971 2 362 3 009 3 904 2 811 4 207 4 432
48
Nickel USD/t 14 810 19 925 29 154 33 129 24 254 41 440 055
35
EUR/t 12 318 15 836 22 878 25 707 19 317 31 619 646
Ferrochrome
(Cr-content) USD/lb 0.63 0.70 0.75 0.78 0.72 0.77 0.82
EUR/kg 1.16 1.23 1.30 1.33 1.26 1.30 1.34
Molybdenum USD/lb 23.38 25.01 26.47 25.56 25.10 26.69 30.97 EUR/kg 42.86 43.82 45.79 43.73 44.08 44.90 50.65
Recycled steel USD/t 200 238 243 239 230 278 287
EUR/t 167 189 191 185 183 212 213
Exchange rates
EUR/USD 1.202 1.258 1.274 1.289 1.256 1.311 1.348
EUR/SEK 9.352 9.298 9.230 9.135 9.254 9.189 9.257
EUR/GBP 0.686 0.688 0.680 0.673 0.682 0.671 0.679
1) Sources of market prices:
Stainless steel: CRU - German base price, alloy surcharge and
transaction price (2 mm cold rolled 304 sheet), estimates for
deliveries during the period
Nickel: London Metal Exchange (LME) cash quotation
Ferrochrome: Metal Bulletin - Ferrochrome lumpy chrome charge, basis
52% chrome
Molybdenum: Metal Bulletin - Molybdenum oxide - Europe
Recycled steel: Metal Bulletin - Steel scrap HMS 1&2 fob Rotterdam
Nickel price volatility put severe pressure on base prices
Global apparent consumption of stainless steel flat products rose by
4% from the previous quarter. In Europe, demand in stainless steel
markets continued to be fragmented. Mills suffered from low demand
for standard grades as distributors continued to reduce inventories
because of record high nickel prices, nickel price volatility and the
expectation of lower transaction prices following the marked decline
in nickel prices in June-July. In the short-term, the decline in
nickel price deteriorates the profits of stainless steel producers
through inventory losses, but in the long-term, lower transaction
prices will promote demand and improve the competitiveness of
stainless steel. Both end-user demand and demand for special grades
and project deliveries remained firm in the second quarter. However,
uncertainty about nickel price development is encouraging customers
to reduce their reliance on austenitic grades by switching to grades
of stainless steel with lower nickel content and to ferritic
stainless steel. To meet this demand, Outokumpu has begun to produce
both ferritic and some new low-nickel grades.
Base prices for standard products declined month-on-month during the
second quarter. According to CRU, the average base price for 304 cold
rolled stainless steel sheet in Germany fell to 1 518 EUR/ton in the
second quarter, down by 21% from I/2007. At the end of June, the base
price was 1 390 EUR/ton and it will decline further in July. The
alloy surcharge continued to increase month-on-month as a result of
record high nickel prices. According to CRU, the average alloy
surcharge for 304 cold rolled stainless steel sheet in Germany was 2
913 EUR/ton in the second quarter, 28% higher than in the previous
quarter. This resulted in stainless steel transaction prices reaching
new records. The average transaction price in the quarter was 4 432
EUR/ton, up by 5%. The difference in price between Chinese and
European stainless steel further narrowed in the period, and Chinese
imports to the European market are slowing.
Of the alloying elements, the price of nickel set successive records
in the period and peaked at 54 200 USD/ton in mid-May. The average
price in the second quarter was 48 055 USD/ton, up 16% on I/2007 and
141% higher than in II/2006. In June, the price of nickel started to
fall steeply. At the end of June the price was 35 850 USD/ton and the
downward trend has continued, falling below 32 000 USD/ton in
mid-July. This decline is mainly attributable to softer demand from
stainless steel producers. Demand for ferrochrome remained at
previous quarter level and markets continued to be undersupplied,
hence the average price rose by 7% to 0.82 USD/lb. The contract price
for III/2007 was agreed at 1.00 USD/lb. The supply of molybdenum was
restricted in the period and the average price increased by 16% to
30.97 USD/lb. The price of recycled steel rose by 3% to 287 USD/ton.
Operating profit boosted by significant nickel-related inventory
gains
Group sales in the second quarter totaled EUR 2 092 million, 2% lower
than in I/2007. Deliveries were down by 7% to 399 000 tons (I/2007:
430 000 tons). Operating profit totaled EUR 406 million, including
some EUR 100 million nickel-related inventory gains and a
non-recurring gain of EUR 25 million from the sale of the Hitura
mine. General Stainless' operating profit turned into decline while
Specialty Stainless' operating profit improved further. Despite the
downward trend in base prices during the second quarter, Outokumpu
continued to benefit from favorable average base price levels, which
together with significant nickel-related inventory gains and internal
improvement measures maintained operating profit at a high level. The
amount of inventory gains was distinctly higher than the respective
gains in the previous quarter. Return on capital employed was 35.5%
(I/2007: 38.8%).
Net cash generated from operating activities was EUR 132 million even
though a further EUR 216 million was tied up in working capital
primarily due to record high nickel prices. Following the decline in
nickel prices in June-July, it is expected that cash flow will
accelerate as working capital is released during the second half of
2007.
General Stainless' sales fell by 2% to EUR 1 670 million and
deliveries were 9% lower than in I/2007. Operating profit totaled EUR
188 million (I/2007: EUR 245 million), of which Tornio Works posted
EUR 143 million (I/2007: EUR 227 million). The decline in distributor
demand for standard products affected especially General Stainless'
performance. A shortened order book resulted in production at Tornio
Works being cut back in the period. The excess time in the production
was utilized to further develop production of ferritic and some new
low nickel grades as well as for training and the promotion of
Production Excellence projects. In the third quarter, General
Stainless' profit continues to suffer from low delivery volumes and
declining base prices for standard products.
Specialty Stainless' good performance continued. Sales totaled EUR 1
028 million, up by 2% on the previous quarter even though deliveries
fell by 4%. Supported by significant nickel-related inventory gains,
operating profit totaled EUR 196 million (I/2007: EUR 182 million).
In the third quarter, Specialty Stainless' profit will be affected by
seasonality and nickel-related inventory losses.
In May, Outokumpu acquired Swedish Sandvik's 11.6% minority
shareholding in OSTP AB (Outokumpu Stainless Tubular Products) for
EUR 22 million. Full ownership in OSTP enables Outokumpu to further
develop the business in line with its strategy of increasing the
proportion of the more value-added special products.
Other Operations' operating profit of EUR 19 million (I/2007: EUR 1
million) included a EUR 25 million gain from the sale of the Hitura
mine, the last remaining asset in Outokumpu's Exit Mining program.
Excellence programs on track
The Commercial and Production Excellence programs are progressing
well. The combined profit improvements targeted by these programs are
expected to total EUR 40 million in 2007, EUR 80 million in 2008 and
EUR 160 million on an annual basis thereafter. Based on the tangible
results achieved to date, management is confident that the targeted
benefits of EUR 40 million will be achieved in 2007.
Outokumpu to expand to India
India is experiencing strong economic growth which is forecast to
remain robust. Currently, the country has a low per capita stainless
consumption and estimates indicate this will grow strongly in coming
years. India's western region is today the major stainless steel
consuming area in India and the consumption there is forecast to
remain dominant.
The Outokumpu Board has today approved plans to build a green field
stainless steel service center in India's western region and
Outokumpu has also initiated a feasibility study for the building of
a new cold rolling mill in the country. The new service center and
the planned cold rolling mill are the first important steps in
widening the geographical coverage of Outokumpu's operations.
With an annual capacity to stock and process some 50 000 tons of
stainless steel coil, the new service center will significantly
enhance the services that Outokumpu's Indian sales office has been
providing to customers in India. The investment is some EUR 30
million and the service center is scheduled to be in operation in the
first half of 2009.
An initial study to build a green field stainless steel cold rolling
mill in India has been completed, and a more detailed project
feasibility study is under way with finalization expected in I/2008.
This study will include an evaluation of the possibility of utilizing
some of the equipment from Outokumpu's cold rolling mill in Sheffield
(closed in 2006). The new mill in India is expected to have an annual
capacity of some 250 000 tons of cold rolled stainless steel coil.
INTERIM REVIEW BY THE BOARD OF DIRECTORS - JANUARY-JUNE 2007
(Unaudited)
Stainless steel transaction prices at record high level
The strong increase in demand that characterized stainless steel
markets during 2006 slowed pace during the first half of 2007. Global
apparent consumption of stainless steel flat products was 5% higher
than in I-II/2006. According to CRU, the German base price for 304
2mm sheet rose to 2 020 EUR/ton in January, but fell thereafter
month-on-month to 1 390 EUR/ton in June. The average base price of 1
724 EUR/ton in I-II/2007 was still 40% higher than in I-II/2006.
Record prices for nickel resulted in transaction prices for stainless
steel continuing to rise throughout the first half of the year,
averaging 4 319 EUR/ton, double the level of 2 166 EUR/ton in the
corresponding period in 2006.
Excellent operating profit, significant non-recurring gains in
financial income
Group sales for the first half of 2007 totaled EUR 4 221 million
(I-II/2006: EUR 2 801 million), up by 51% on the previous year. Sales
increased as a result of significantly higher transaction prices,
even though stainless steel deliveries declined by 15% to 829 000
tons (I-II/2006: 978 000 tons). This decline is partly attributable
to Asian imports into Europe and to the closure of the Sheffield coil
products unit in the UK in April 2006.
Operating profit was at an all-time high of EUR 830 million
(I-II/2006: EUR 215 million). The excellent figure resulted from
higher base prices, significant nickel-related inventory gains and
internal improvement measures. Operating profit also included a
non-recurring gain of EUR 25 million from the sale of the Hitura
mine.
Financial income included a EUR 142 million non-recurring gain from
the sale of Outotec Oyj shares and a EUR 110 million gain recognized
in the Talvivaara transaction. Net financial expenses, excluding
non-recurring gains, totaled EUR 20 million (I-II/2006: EUR 17
million). Net profit for the period from continuing operations
totaled EUR 864 million (I-II/2006: EUR 154 million) and net profit
from discontinued operations was EUR 9 million (I-II/2006: EUR 35
million). Earnings per share from continuing operations totaled EUR
4.75 and from discontinued operations EUR 0.05. Return on capital
employed rose to 36.4% (I-II/2006: 11.8%).
Even with the excellent result, net cash generated from operating
activities totaled just EUR 217 million (I-II/2006: EUR 70 million).
EUR 565 million was tied up in working capital during January-June
primarily as a consequence of record high nickel prices. Net
interest-bearing debt fell by EUR 181 million to EUR 1 119 million
(Dec. 31, 2006: EUR 1 300 million). In May, Outokumpu issued a EUR
150 million domestic bond targeted at institutional investors. The
maturity of the bond is five years and it carries a variable interest
rate. Proceeds from the bond issue were used to finance maturing
debt. Gearing improved to 30.8% (Dec. 31, 2006: 42.3%).
New investment projects support Group strategy
Capital expenditure totaled EUR 101 million (I-II/2006: EUR 68
million). Approved operational investment projects for 2007-2009 all
fall within the capital expenditure frame of EUR 175 million for
2007. The EUR 22 million acquisition of the minority stake in OSTP
and the EUR 32 million investment in Talvivaara shares are both on
top of the capital expenditure frame for 2007.
Production at the EUR 55 million expansion in Kloster, Sweden, has
been ramped up. This investment expanded the mill's annual production
capacity from 25 000 tons to 45 000 tons and enables the production
of thinner (0.12 mm) and wider (1 050 mm) products.
Replacement of one of the five annealing and pickling lines at Tornio
Works will provide additional production capacity for 75 000 tons of
cold rolled products. It will also improve the Group's ability to
produce brighter ferritic steel grades and enhances Outokumpu's
flexibility in meeting customer needs. This replacement project is
the second step in entering the ferritic market and complements the
EUR 13 million investment in batch annealing furnaces in the hot
rolling mill, which commenced ferritics production in I/2007. The new
line will be capable of producing austenitic and ferritic products
with minimum set-up times and will increase Tornio Works' nominal
annual cold rolling capacity to more than 1 250 000 tons by the end
of 2009. The total amount of this investment is EUR 90 million,
spread over three years.
To increase capacity in stainless steel special grades, an investment
in surface grinding and automatic storage and retrieval equipment is
being made at Thin Strip Nyby in Sweden. This EUR 27 million
investment will increase the share of special grade sales at the
expense of standard grade products and will enable the plant to
increase its annual special grades capacity in cold rolled stainless
steel products from 34 000 to 64 000 tons. Full production capacity
is scheduled to be operational by the end of 2008.
To better serve growing markets in Eastern Europe, a new stainless
steel service center is being established near Katowice in the south
of Poland. This operation will be a combined coil and plate service
center. The total investment is some EUR 20 million and the new
center is scheduled to be operational by the end of 2008.
To gain presence in growing Asian markets, Outokumpu's Board of
Directors has today approved plans to build a new stainless steel
service center in western part of India. The new service center will
have an annual capacity to stock and process some 50 000 tons of
stainless steel coil. The investment is some EUR 30 million and the
service center is scheduled to be in operation in the first half of
2009.
A feasibility study on a green field cold rolling mill in India has
been initiated and is expected to be finalized in I/2008. The
possibility to utilize some of the equipment from the cold rolling
mill in Sheffield (closed in 2006) will be evaluated. The planned
mill would have an annual capacity of some 250 000 tons of cold
rolled stainless steel coil.
Acquisitions and divestments
In February, Outokumpu agreed to sell the Hitura nickel mine in
Finland to Belvedere Resources Ltd. of Canada. Hitura produces some 2
200 tons of nickel in concentrate annually and employs 90 people. The
transaction was completed in June and the total consideration of EUR
25 million, was in Belvedere shares and warrants entitling to
subscribe for additional Belvedere shares, resulting in a maximum
19.2% ownership in Belvedere, on a fully-diluted basis. Outokumpu
recognized a non-recurring gain of EUR 25 million on the transaction
and this has been included in the Group's operating profit. The
Hitura mine was the last remaining asset in Outokumpu's Exit Mining
program.
In March, OSTP (Outokumpu Stainless Tubular Products) sold its flange
business in order to focus on pipes, tubes, butt-welded and threaded
fittings. The purchaser is a subsidiary of Shree Ganesh Forgings Ltd,
an Indian company. This divestment had no significant impact on Group
results.
In April, Outokumpu sold its remaining 12% shareholding in Outotec
Oyj to institutional investors. The net proceeds from the sale
totaled EUR 158 million and a tax-free non-recurring gain of EUR 142
million was recognized in the Group's financial income.
In May, Outokumpu acquired Swedish Sandvik's 11.6% minority
shareholding in OSTP for EUR 22 million. Full ownership in OSTP
enables Outokumpu to further develop the business in line with its
strategy of increasing the share of the more value-added special
products.
Outokumpu divested the Talvivaara exploration project in 2004 as part
of its Exit Mining program, and held an option to subscribe for
shares with a 20% discount in a possible initial public offering
(IPO), representing up to 5% ownership in the company. The IPO of
Talvivaara Mining Company Ltd. was carried out and the company's
shares were listed on the London Stock Exchange on May 30, 2007.
Outokumpu subscribed for 10.9 million shares for a total
consideration of EUR 32 million, acquiring a 4.9% stake in the
company on a fully-diluted basis. Outokumpu also exercised its
option, part of the divestment agreement, to acquire a 20% stake in
the Talvivaara nickel mining project company (Talvivaara Project
Ltd.) owned by Talvivaara Mining Company Ltd., for a total
consideration of one euro.
The Talvivaara mine is estimated to start production of nickel and
other metals at the end of 2008. Its target is to gradually ramp up
its nickel output to some 33 000 tons annually.
Outokumpu supports and endorses the Talvivaara project for strategic
reasons as it increases the availability of nickel on the world
market and therefore improves the market balance. Nickel is an
integral and currently the most expensive alloying element in
stainless steel. The participation can also be seen as partial nickel
hedge. Outokumpu does not have any managerial involvement in the
operations of the Talvivaara project.
Talvivaara Project Ltd. is consolidated in the Group's income
statement as an associated company reflecting Outokumpu's 20% stake.
The fair valuation of Outokumpu's 20% stake resulted in a tax-free
non-recurring gain of EUR 110 million, which has been recognized in
financial income. The Group's holding in the listed company
Talvivaara Mining Company Ltd is classified as an available-for-sale
financial asset with changes in fair value recognized directly in
equity.
In June, Outokumpu announced its participation in a new Finnish power
company Fennovoima Oy, a consortium consisting of Outokumpu, Boliden,
Rauman Energia, Katternö and E.ON. Fennovoima's aim is to construct a
new 1 000 - 1 800MW nuclear power plant to meet Finland's increasing
need for electricity. Operation of the plant is planned to start
between 2016 and 2018. Fennovoima will produce electricity for its
owners' needs at production cost. Each owner will be allocated a
share of the plant's capacity that is proportional to its ownership
in the company. By participating in Fennovoima, Outokumpu's aim is to
secure a significant portion of its electricity needs in years to
come. The target is to have up to 150MW of the new nuclear power
plant's capacity. This translates into some 1.2TWh of electrical
energy per annum, more than half the Tornio Works' current annual
requirement.
Environment, health and safety
As participants in the European Union Greenhouse Gas emissions
trading system, the Tornio integrated plant in Finland and the melt
shops and casting plants in Avesta and Degerfors in Sweden have
verified the actual carbon dioxide emissions in 2006 and
corresponding allowances have been surrendered to the authorities.
Preparations for emissions trading in the Kyoto- period 2008-2013 are
ongoing and the Group's operations in Sheffield operations are also
now part of the emissions trading system. In the UK, however, the
scope covers only steel making and casting, whereas in Finland and
Sweden combustion installations, such as reheating and annealing
furnaces are also included. The national allocation of allowances in
the UK has already been settled and it appears that the allowances
for the Sheffield operation are adequate. The Commission cut Swedish
allowances by 9.5% Finnish allowances by 5.2% and national
reallocations have not yet been finalized.
The new European regulation concerning chemicals (REACH) came into
effect on June 1, 2007. All substances manufactured in or imported
into the European Union in quantities that exceed one ton per year
must be registered. For amounts that exceed ten tons per year, a
safety assessment has to be performed. Different industrial
associations are planning voluntary consortia to share the burden of
testing and evaluating substances. EUROFER (European Confederation of
Iron and Steel Industries), for example, has presented a REACH
implementation plan for iron and some iron compounds.
At Outokumpu sites, emissions to air and discharges to water in the
review period remained mostly within permitted limits and the
breaches that occurred were temporary, were identified quickly and
caused only minimal environmental impact.
During January-June 2007, the lost-time injury rate (i.e. lost-time
accidents per million working hours) was 10 (I-II/2006: 15) an
improvement in line with achieving an annual target of less than 12
in 2007. Achievement of the target is included in the Group's
incentive schemes and is an integral part of the Production
Excellence program. No major accidents were reported during the first
half of 2007.
Personnel
During the first half of 2007, the Group's continuing operations
employed an average of 8 285 people (I-II/2006: 8 784) and there were
8 783 employees at the end of June (Dec. 31, 2006: 8 159). The end of
June figure includes some 800 summer trainees employed in the Group's
units.
Customs investigation on Outokumpu Tornio Works' exports to Russia
In March, the Finnish Customs Authorities initiated a criminal
investigation into the Group's Tornio Works' export practices to
Russia. Customs authorities searched the Tornio Works premises,
seized a large quantity of documentation from its offices and
questioned eleven Outokumpu employees. According to information
received from the Customs authorities, seven of the people concerned
have been interrogated under suspicion of gross forgery and gross
accounting offence. The preliminary investigation is connected with
another preliminary investigation concerning a forwarding agency
based in South-Eastern Finland. It is suspected that defective and/or
forged invoices have been prepared at the forwarding agency as
regards export of stainless steel to Russia. The preliminary
investigation is focused on the complicity of Outokumpu Stainless in
the preparation of defective and/or forged invoices by the forwarding
agency in question.
Following the start of the investigation, Outokumpu has co-operated
fully with the Customs authorities and has volunteered any additional
documentation requested and granted electronic access to any
databases pertinent to the inquiry. The investigation is estimated to
last until end of 2007.
Immediately after the start of the investigation by Finnish Customs,
Outokumpu initiated its own investigation into the trade practices of
stainless steel exports from Tornio to Russia. Roschier Attorneys
Ltd., a leading law firm based in Helsinki, was retained to carry out
an independent investigation, which was completed in June. As a
result of the investigation, Roschier has concluded that it has not
found evidence that any of Tornio Works employees or the company
would have committed any of the crimes, alleged by the Customs.
Class actions related to the divested fabricated copper products
business
The fabricated copper products business sold in 2005, comprised among
others Outokumpu Copper (USA), Inc. This company has been served with
several complaints in cases filed in federal district courts and
state courts in US by various plaintiffs. The complaints allege
claims and damages under US antitrust laws and purport to be class
actions on behalf of all direct and indirect purchasers of copper
plumbing tubes and ACR tubes in the US. Outokumpu believes that the
allegations in these cases are groundless and will defend itself in
any such proceeding. In connection with the transaction to sell the
fabricated copper products business to Nordic Capital, Outokumpu has
agreed to indemnify and hold harmless Nordic Capital with respect to
these class actions.
Appointments in Corporate Management
Bo Annvik has been appointed Executive Vice President - Specialty
Businesses and he is a member of Outokumpu's Group Executive
Committee. He took up his position on June 1, 2007. Mr. Annvik's
portfolio in the Group Executive Committee includes supervision of
Avesta Works, Hot Rolled Plate, Thin Strip and OSTP business units.
Päivi Lindqvist has been appointed Outokumpu's new SVP - IR and
Communications as of October 1, 2007. Ms. Lindqvist is currently
TietoEnator's EVP - Communications and Investor Relations. She will
join Outokumpu on August 13, 2007 and will report to CEO Juha
Rantanen.
Annual General Meeting of March 28, 2007
The Annual General Meeting (AGM) approved a dividend of EUR 1.10 per
share for 2006. Dividends totaling EUR 199 million were paid on April
11, 2007.
The AGM authorized the Board of Directors to repurchase the Company's
own shares. The maximum number of shares to be repurchased is 18 000
000. The AGM authorized the Board of Directors to decide to issue
shares and grant share entitlements. The maximum number of new shares
to be issued under a share issue and/or by exercising share
entitlements is 18 000 000, currently representing 9,93% of the
Company's issued and outstanding shares and, in addition, the maximum
number of treasury shares to be transferred is 18 000 000, currently
representing 9,93% of the Company's issued and outstanding shares.
These authorizations are valid until the Annual General Meeting in
2008, however no longer than May 31, 2008. As of July 24, 2007, the
authorizations had not been exercised.
The Annual General Meeting approved amendments to the Articles of
Association: removing references to the minimum and maximum capital
and maximum number of shares, revising the matters to be included on
the agenda of the Annual General Meeting and removing the provision
concerning redemption liability. Minor changes of a technical nature
to the Articles of Association were also approved.
The AGM decided on the number of the Board members, including the
Chairman and Vice Chairman, to be eight. For the term expiring at theclose of the following AGM, Evert Henkes, Jukka Härmälä, Ole
Johansson, Anna Nilsson-Ehle, Leena Saarinen and Taisto Turunen were
re-elected as members of the Board of Directors, and Victoire de
Margerie and Leo Oksanen were elected as new members. Mr. Härmälä was
re-elected as Chairman of the Board of Directors and Mr. Johansson as
Vice Chairman. The AGM also resolved to form a Shareholders'
Nomination Committee to prepare proposals on the composition and
remuneration of the Board of Directors for presentation to the next
AGM.
KPMG Oy Ab, Authorized Public Accountants, was re-elected as the
Company's auditor for the term ending at the close of the next AGM.
At its first meeting, the Board of Directors appointed two permanent
committees consisting of board members. Mr. Johansson (Chairman), Ms.
Saarinen and Mr. Turunen were re-elected as members of the Board
Audit Committee. Mr. Härmälä (Chairman), Mr. Henkes and Ms.
Nilsson-Ehle were re-elected as members of the Board Nomination and
Compensation Committee.
Short-term outlook
Underlying demand for stainless steel still continues strong.
End-user demand and demand for special grades and project deliveries
continues to be healthy, but distributor demand is very weak and is
expected to remain weak over the summer period. Outokumpu will
continue to cut production of standard grade volume products in the
third quarter and is continually adjusting its actions according to
market developments. Mills that produce specialty products are
running at full capacity. The holiday season and maintenance breaks
will, however, reduce production volumes at all Group's mills in the
third quarter.
The marked decline in nickel prices that began in June gave
distributors a further impetus to reduce their inventories of
standard products and they are extremely reluctant to place any new
orders. The increase in the alloy surcharge in July added pressure on
base prices. In August, however, the alloy surcharge will turn to a
decline, but any significant pick-up in distributor demand is not
expected until after the holiday season. Group management expects
markets for standard products to be back to normal during the fourth
quarter at the latest.
Slowdown in demand during the holiday season and the postponement of
orders in expectation of lower transaction prices, as well as
production cuts and maintenance breaks at the Group's mills will
reduce Outokumpu's delivery volumes and deteriorate third quarter
results. Also, since the downward trend in nickel prices has
continued in July, nickel-related inventory gains will turn into
significant inventory losses during the autumn.
Outokumpu's underlying operational result for the third quarter is
estimated to be clearly positive, but nickel-related inventory losses
are expected to turn the operating profit negative, even
substantially, depending on the nickel price development. While
Outokumpu's underlying operational result for the whole year will be
substantially better than in 2006, current estimates indicate that
significant inventory losses during the coming months bring, however,
2007 operating profit to the level of 2006. At the same time, the
decline in nickel prices will release working capital and generate
strong cash flow during the second half of 2007.
Espoo July 24, 2007
Board of Directors
CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
Condensed income statement
Jan- Jan- April- April- Jan-
June June June June Dec
EUR million 2007 2006 2007 2006 2006
Continuing operations:
Sales 4 221 2 801 2 092 1 392 6 154
Other operating income 49 21 40 10 44
Costs and expenses -3 431 -2 603 -1 717 -1 251 -5 364
Other operating expenses -9 -3 -9 -2 -11
Operating profit 830 215 406 149 824
Share of results in
associated companies 7 2 4 2 8
Financial income and expenses
Interest income 12 11 7 6 26
Interest expenses -43 -45 -22 -22 -88
Market price gains and losses 2 13 4 2 12
Other financial income 263 6 254 6 8
Other financial expenses -3 -2 -1 -1 -5
Profit before taxes 1 068 201 652 141 784
Income taxes -205 -47 -100 -29 -178
Net profit for the period
from continuing operations 864 154 553 112 606
Discontinued operations:
Net profit for the period
from discontinued operations 9 35 12 20 357
Net profit for the period 872 189 565 133 963
Attributable to:
Equity holders of the Company 868 189 563 132 962
Minority interest 4 -0 2 0 2
Earnings per share
for profit attributable
to the equity
holders of the Company:
Earnings per share, EUR 4.80 1.04 3.11 0.73 5.31
Diluted earnings per share, EUR 4.77 1.04 3.09 0.73 5.29
Earnings per share from
continuing operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 4.75 0.85 3.04 0.62 3.34
Earnings per share from
discontinued operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 0.05 0.19 0.07 0.11 1.97
Condensed balance sheet
June 30 June 30 Dec 31
EUR million 2007 2006 2006
ASSETS
Non-current assets
Intangible assets 485 568 493
Property, plant and equipment 2 010 2 093 2 069
Non-current financial assets
Interest-bearing 457 274 375
Non interest-bearing 82 67 77
3 033 3 002 3 014
Current assets
Inventories 2 298 1 220 1 710
Current financial assets
Interest-bearing 62 58 55
Non interest-bearing 1 431 1 064 1 314
Cash and cash equivalents 82 176 85
3 873 2 517 3 164
Assets held for sale 239 266 235
Total assets 7 146 5 785 6 414
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 3 634 2 155 3 054
Minority interest 0 15 17
3 634 2 170 3 071
Non-current liabilities
Interest-bearing 1 222 1 530 1 293
Non interest-bearing 350 366 337
1 572 1 897 1 630
Current liabilities
Interest-bearing 668 667 685
Non interest-bearing 1 203 966 955
1 871 1 633 1 640
Liabilities related to
assets held for sale 68 85 73
Total equity and liabilities 7 146 5 785 6 414
Consolidated
statement
of changes in equity
Attributable to the equity holders of the
company
Share Unregister- Share Other Fair
value
capital ed Share premium reserves reserves
EUR million capital fund
Equity on
December 31, 2005 308 - 701 11 23
Cash flow hedges - - - - 4
Fair value changes on
available-for-sale
financial assets - - - - 6
Net investment hedges - - - - -
Change in translation
differences - - - - -
Items recognised
directly in equity - - - - 9
Net profit for the
period - - - - -
Total recognised
income and expenses - - - - 9
Dividend distribution - - - - -
Management stock
option program:
value of received
services - - - - -
Equity on June 30,
2006 308 - 701 11 33
Equity on
December 31, 2006 308 0 701 11 144
Cash flow hedges - - - - 1
Fair value changes on
available-for-sale
financial assets - - - - 12
Available-for-sale
financial assets
recognized through
P&L - - - - -99
Net investment hedges - - - - -
Change in translation
differences - - - -
Items recognised
directly in equity - - - - -85
Net profit for the
period - - - - -
Total recognised
income and expenses - - - - -85
Transfers from
unregistered
share capital 0 -0 - - -
Dividend distribution - - - - -
Shares subscribed
with options 0 - 0 - -
Management stock
option program:
value of received
services - - - - -
Purchase of minority
in OSTP - - - - -
Equity on June 30,
2007 308 - 701 11 59
Attributable to the equity holders of the
Company
Treasury Cumulative Retained Minority Total
shares translation earnings interest equity
EUR million differences
Equity on
December 31, 2005 -2 -38 1 044 15 2 062
Cash flow hedges - - - - 4
Fair value changes on
available-for-sale
financial assets - - - - 6
Net investment hedges - 0 - - 0
Change in translation
differences - -9 - 0 -9
Items recognised
directly in equity - -9 - 0 0
Net profit for the
period - - 189 0 189
Total recognised
income and expenses - -9 189 0 189
Dividend distribution - - -81 - -81
Management stock
option program:
value of received
services - - 1 - 1
Equity on June 30,
2006 -2 -47 1 152 15 2 170
Equity on
December 31, 2006 -2 -35 1 927 17 3 071
Cash flow hedges - - - - 1
Fair value changes on
available-for-sale
financial assets - - - - 12
Available-for-sale
financial assets
recognized through
P&L - - - - -99
Net investment hedges - 2 - - 2
Change in translation
differences - -8 - 0 -8
Items recognised
directly in equity - -6 - 0 -91
Net profit for the
period - - 868 4 872
Total recognised
income and expenses - -6 868 4 781
Transfers from
unregistered
share capital - - - - -
Dividend distribution - - -199 - -199
Shares subscribed
with options - - - - 0
Management stock
option program:
value of received
services - - 2 - 2
Purchase of minority
in OSTP - - - -21 -21
Equity on June 30,
2007 -2 -41 2 598 0 3 634
Condensed statement of cash flows
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Net profit for the period 872 189 963
Adjustments
Depreciation and amortization 101 106 229
Impairments 2 4 12
Gain on the sale
of Outotec shares -142 - -328
Gain on the
Talvivaara transaction -110 - -
Other adjustments 220 71 215
Increase in working capital -565 -213 -975
Dividends received 11 6 7
Interests received 5 7 17
Interests paid -44 -47 -89
Income taxes paid -134 -52 -87
Net cash from
operating activities 217 70 -35
Purchases of assets -60 -80 -183
Purchase of Talvivaara shares -32 - -
Purchase of minority in OSTP -22 - -
Proceeds from the sale
of subsidiaries 1 20 338
Proceeds from the sale of
shares in associated companies - 9 9
Proceeds from the sale
of other assets 2 6 20
Net cash from other
investing activities 2 -1 14
Net cash from
investing activities -109 -46 198
Cash flow before
financing activities 108 24 163
Borrowings of long-term debt 150 46 174
Repayment of long-term debt -267 -90 -380
Increase in current debt 48 75 3
Dividends paid -199 -81 -81
The sale of the shares of Outotec 158 - -
Other financing cash flow 0 -4 -2
Net cash from
financing activities -110 -54 -286
Adjustments 0 0 0
Net change in cash
and cash equivalents -2 -30 -123
Cash and cash equivalents at
the beginning of the period 85 212 212
Foreign exchange rate effect -0 -7 -5
Net change in cash
and cash equivalents -2 -30 -123
Cash and cash equivalents
at the end of the period 82 176 85
Key figures
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Operating profit margin, % 19.7 7.7 13.4
Return on capital employed, % 36.4 11.8 20.7
Return on equity, % 52.0 17.8 37.5
Return on equity from
continuing operations, % 51.5 14.5 23.6
Capital employed at end of period 4 753 3 679 4 371
Net interest-bearing
debt at end of period 1 119 1 509 1 300
Equity-to-assets ratio
at end of period, % 50.9 38.4 47.9
Debt-to-equity ratio
at end of period, % 30.8 69.5 42.3
Earnings per share, EUR 4.80 1.04 5.31
Earnings per share from
continuing operations, EUR 4.75 0.85 3.34
Earnings per share from
discontinued operations, EUR 0.05 0.19 1.97
Average number of shares
outstanding, in thousands 1) 181 055 181 032 181 033
Fully diluted earnings
per share, EUR 4.77 1.04 5.29
Fully diluted average number
of shares, in thousands 1) 182 117 181 683 181 758
Equity per share at end
of period, EUR 20.07 11.91 16.87
Number of shares outstanding
at end of period,
in thousands 1) 181 082 181 032 181 032
Capital expenditure,
continuing operations 101 68 187
Depreciation,
continuing operations 101 101 221
Average personnel for the
period, continuing operations 8 285 8 784 8 505
1) The number of own shares repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim financial report is prepared in accordance with IAS 34
(Interim Financial Reporting). The same accounting policies and
methods of computation have been followed in the interim financial
statements as in the annual financial statements for 2006.
Use of estimates
The preparation of the financial statements in accordance with IFRS
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial
statements, and 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
realizability of certain assets, the useful lives of tangible and
intangible assets, income taxes, provisions, pension obligations,
impairment of goodwill and other items. Although these estimates are
based on management's best knowledge of current events and actions,
actual results may differ from the estimates.
Shares and share capital
The total number of Outokumpu Oyj shares was 181 300 967 and the
share capital amounted to EUR 308.2 million on June 30, 2007.
Outokumpu Oyj held 218 603 treasury shares on June 30, 2007. This
corresponded to 0.1% of the share capital and the total voting rights
of the Company on June 30, 2007.
The Annual General Meeting held in 2003 passed a resolution on a
stock option program for management (2003 option program). The stock
options have been allocated as part of the Group's incentive programs
to key personnel of Outokumpu. Trading with Outokumpu Oyj's stock
options 2003A has commenced on the Main List of the Helsinki Stock
Exchange as of September 1, 2006. On June 30, 2007 a total of 50 412
Outokumpu Oyj shares had been subscribed for on the basis of 2003A
stock option program. An aggregate maximum of 608 890 Outokumpu Oyj
shares can be subscribed for with the remaining 2003A stock options.
In accordance with the terms and conditions of the option program,
the dividend adjusted share price for a stock option was EUR 8,45 on
June 30, 2007. The share subscription period for the 2003A stock
options is September 1, 2006 - March 1, 2009. The current amounts
that Outokumpu Oyj shares could be subscribed for with the 2003B and
2003C stock options are as follows: 2003B 1 028 820 shares and 2003C
97 500 shares. The subscription period for shares with stock option
2003B is from September 1, 2007 to March 1, 2010 and with stock
option 2003C it is from September 1, 2008 to March 1, 2011. As a
result of the share subscriptions with the 2003 stock options,
Outokumpu Oyj's share capital may be increased by a maximum of EUR 2
949 857 and the number of shares by a maximum of 1 735 210 shares.
This corresponds to 1.0% of the Company's shares and voting rights.
Outokumpu's Board of Directors confirmed on February 2, 2006 a
share-based incentive program for years 2006-2010 as part of the key
employee incentive and commitment system of the Company. If persons
to be covered by the first earning period 2006-2008 and the second
earning period 2007-2009 of the program were to receive the number of
shares in accordance with the maximum reward, currently a total of
612 680 shares, their shareholding obtained via the program would
amount to 0.3% of the Company's shares and voting rights.
The detailed information of the 2003 option program and of the
share-based incentive program for 2006-2010 can be found in the
annual report 2006.
Non-current assets held for sale and discontinued operations
Outokumpu Copper Tube and Brass
The assets and liabilities of Outokumpu Copper Tube and Brass are
presented as held for sale. Outokumpu Copper Tube and Brass business
comprises European sanitary and industrial tubes, including
air-conditioning and refrigeration tubes in Europe, as well as brass
rod. Outokumpu is implementing a vigorous improvement project in this
business and it is Outokumpu's intention to divest the tube and brass
business.
Outotec
Outokumpu Oyj sold 88% of Outotec (former Outokumpu Technology) by a
sale of shares through an Initial Public Offering (IPO) in September
2006. In April, Outokumpu sold its remaining 12% shareholding in
Outotec Oyj to institutional investors. The net proceeds from the
sale totaled EUR 158 million and a tax-free non-recurring gain of EUR
142 million was recognized in financial income.
In the following tables Outokumpu Tube and Brass is referred as TB
and Outotec as OT.
Specification of non-current
assets held for sale
and discontinued operations
Income statement
Jan-June Jan-June
2007 2006
EUR million Total OT TB
Sales 332 678 321 357
Expenses -318 -628 -306 -321
Operating profit 13 51 15 36
Net financial items -3 -1 2 -3
Profit/(loss) before taxes 10 49 17 33
Taxes -1 -12 -8 -3
Profit/(loss) after taxes 9 38 9 29
Gain on the sale of Outotec - - - -
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities -1 -2 - -2
Taxes - - - -
After-tax result from the
disposal and impairment loss 9 35 9 27
Minority interest - 0 0 -
Net profit/(loss) for the
period from discontinued operations 9 35 9 27
Income statement
Jan-June Jan-Dec
2007 2006
EUR million Total OT TB
Sales 332 1 178 501 678
Expenses -318 -1 124 -470 -654
Operating profit 13 54 31 23
Net financial items -3 -2 5 -7
Profit/(loss) before taxes 10 53 36 17
Taxes -1 -17 -14 -3
Profit/(loss) after taxes 9 35 22 14
Gain on the sale of Outotec - 328 328 -
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities -1 -6 - -6
Taxes - - - -
After-tax result from the
disposal and impairment loss 9 322 328 -6
Minority interest - 0 0 -
Net profit/(loss) for the
period from discontinued operations 9 357 349 8
Balance sheet
June 30 June 30 Dec 31
EUR million 2007 2006 2006
Assets
Intangible and tangible assets 6 6 6
Other non-current assets 3 4 4
Inventories 117 127 122
Other current non
interest-bearing assets 113 129 104
239 266 235
Liabilities
Provisions 2 6 3
Other non-current non
interest-bearing liabilities 5 6 6
Trade payables 47 57 46
Other current non
interest-bearing liabilities 15 16 18
68 85 73
Cash flows
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Operating cash flows 3 -38 -13
Investing cash flows -1 -4 -145
Financing cash flows -5 40 80
Total cash flows -4 -2 -77
Acquisitions and disposals
Acquisitions
In May, Outokumpu acquired from Swedish Sandvik its 11.6% minority
shareholding in OSTP for EUR 22 million. Goodwill of EUR 1 million
was recognized from the acquisition. Full ownership in OSTP enables
Outokumpu to develop the business further in line with its strategy
to increase the share of the more value-added special products.
Outokumpu divested the Talvivaara exploration project in 2004 and
held an option to subscribe shares with a 20% discount in a possible
Initial Public Offering (IPO), representing up to 5% ownership in the
company. The IPO of Talvivaara Mining Company Ltd. was carried out
and the listing of the shares started on the London Stock Exchange on
May 30, 2007. Outokumpu participated in the IPO by subscribing 10.9
million shares, resulting in a 4.9% ownership in the company on a
fully diluted basis, with a total consideration of EUR 32 million.
Outokumpu also exercised its option, part of the divestment
agreement, to acquire a 20% stake in the Talvivaara nickel mining
project company (Talvivaara Project Ltd.) owned by Talvivaara Mining
Company Ltd., for a total consideration of one euro.
Talvivaara Project Ltd. will be consolidated in the Group's income
statement as an associated company reflecting Outokumpu's 20%
holding. The fair valuation of Outokumpu's 20% stake resulted in a
tax-free non-recurring gain of EUR 110 million, which has been
recognized in financial income. The shareholding in the listed
Talvivaara Mining Company Ltd. has been classified as an
available-for-sale financial asset with changes in fair value
recognized directly in equity.
The purchase price allocation is preliminary and subject to the Q2/07
interim report of Talvivaara Mining Company Ltd being published in
August/September. The preliminary assumption is that the majority of
the excess value will be allocated to the nickel ore reserves
according to the fair value and amortized using the
units-of-production method based on the depletion of ore reserves in
Talvivaara. The Talvivaara mine is estimated to start production of
nickel and other metals at the end of 2008. Its target is to
gradually ramp up its nickel output to some 33 000 tons annually.
Disposals
In March, OSTP (Outokumpu Stainless Tubular Products) sold its flange
business in order to focus on pipes, tubes, butt-welded and threaded
fittings. The purchaser is a subsidiary of Shree Ganesh Forgings Ltd,
an Indian company. The sale had no significant impact on Group's
results.
In February, Outokumpu agreed to sell the Hitura nickel mine in
Finland to Belvedere Resources Ltd. of Canada. The Hitura mine was
the last remaining asset in Outokumpu's Exit Mining program. Hitura
produces some 2 200 tons of nickel in concentrate annually and
employs 90 people. The transaction was completed in June and the
total consideration of EUR 25 million, is in Belvedere shares and
warrants entitling to subscribe for additional Belvedere shares,
resulting in a maximum 19.2% ownership in Belvedere, on a
fully-diluted basis. Outokumpu recognized a non-recurring gain of EUR
25 million on the transaction, which has been included in the
operating profit. The shareholding in Belvedere is classified as an
available-for-sale financial asset with changes in fair value
recognized directly in equity and the warrants as derivative
instruments with changes in fair value recognized in financial income
and expenses.
Major non-recurring items
in operating profit
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Gain on the sale of
Hitura mine in Finland 25 - -
Gain on the sale of
real estate in the UK - - 9
OSTP Fagersta closure - - -8
25 - 1
Major non-recurring
items in financial income
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Gain on the sale
of Outotec shares 142 - -
Gain on the
Talvivaara transaction 110 - -
252 - -
Income taxes
Jan-June Jan-June Jan-Dec
EUR million 2007 2006 2006
Current taxes -188 -25 -156
Deferred taxes -17 -22 -22
-205 -47 -178
Property, plant
and equipment
Jan 1, Jan 1, Jan 1,
2007 - 2006 - 2006 -
June 30, June 30, Dec 31,
EUR million 2007 2006 2006
Historical cost at the
beginning of the period 4 009 4 188 4 188
Translation differences -26 3 37
Additions 47 61 179
Disposal of subsidiaries -20 -0 -0
Disposals -2 -6 -299
Reclassifications 0 -8 -8
Discontinued operations - - -88
Historical cost at
the end of the period 4 007 4 237 4 009
Accumulated depreciation at
the beginning of the period -1 939 -2 063 -2 063
Translation differences 14 3 -21
Disposal of subsidiaries 19 0 0
Disposals 2 4 296
Reclassifications 0 8 8
Depreciation -94 -95 -204
Impairments - 0 -3
Discontinued operations - - 48
Accumulated depreciation at
the end of the period -1 998 -2 143 -1 939
Carrying value at
the end of the period 2 010 2 093 2 069
Carrying value at the
beginning of the period 2 069 2 125 2 125
Commitments
June 30 June 30 Dec 31
EUR million 2007 2006 2006
Mortgages and pledges
Mortgages on land 132 129 126
Other pledges 0 4 0
Guarantees
On behalf of subsidiaries
For commercial commitments 88 128 97
On behalf of associated
companies
For financing 5 4 5
Other commitments 56 62 59
Minimum future lease
payments on
operating leases 63 118 93
Group's major off-balance
sheet investment commitments
were EUR 36 million on
June 30, 2007 ( Dec 31,
2006: EUR 15 million).
Fair values and nominal
amounts of
derivative instruments
June 30 June 30 June 30
2007 2007 2007
Positive Negative Net
EUR million fair value fair value fair value
Currency and interest
rate derivatives
Currency forwards 10 13 -3
Interest rate swaps 12 - 12
Stock options
Belvedere Resources Ltd. 4 - 4
Metal derivatives
Forward and futures
copper contracts 1 0 1
Forward and futures
nickel contracts 14 8 6
Forward and futures
zinc contracts 0 0 0
Emission allowance
derivatives - 0 0
Electricity derivatives
Publicly traded
electricity derivatives - - -
Other electricity
derivatives 21 10 12
62 32 30
Fair values and nominal
amounts of
derivative instruments
Dec 31 June Dec
2006 2007 2006
Net Nominal Nominal
EUR million fair value amounts amounts
Currency and interest
rate derivatives
Currency forwards -9 2 733 2 139
Interest rate swaps 10 282 283
Number of Number of
shares, shares,
million million
Stock options
Belvedere Resources Ltd. - 3.7 -
Tons Tons
Metal derivatives
Forward and futures
copper contracts -1 5 000 6 000
Forward and futures
nickel contracts 9 4 902 3 636
Forward and futures
zinc contracts 0 1 150 2 150
Emission allowance
derivatives - 80 -
TWh TWh
Electricity derivatives
Publicly traded
electricity derivatives - - 0.0
Other electricity
derivatives 8 3.2 4.1
16
Segment information
General Stainless
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Sales 1 013 1 066 1 130 1 561 4 770 1 700 1 670
of which Tornio Works 652 740 781 1 142 3 316 1 206 1 038
Operating profit 43 91 166 236 536 245 188
of which Tornio Works 37 70 120 213 440 227 143
Operating capital at
the end of period 2 397 2 404 2 602 2 847 2 847 3 047 3 007
Average personnel
for the period 3 926 3 940 3 857 3 529 3 735 3 506 3 794
Deliveries of main
products (1 000 tons)
Cold rolled 246 206 172 180 805 187 151
White hot strip 74 85 62 84 305 81 82
Semi-finished products 128 144 126 154 551 117 118
Total deliveries
of the division 448 434 360 419 1 661 386 350
Specialty Stainless
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Sales 650 638 614 821 2 723 1 003 1 028
Operating profit 22 65 81 171 338 182 196
Operating capital at
the end of period 1 173 1 240 1 350 1 594 1 594 1 668 1 871
Average personnel
for the period 4 317 4 377 4 329 4 201 4 289 4 146 4 188
Deliveries of main
products (1 000 tons)
Cold rolled 56 54 39 47 196 51 52
White hot strip 49 41 33 42 166 43 38
Quarto plate 44 44 36 39 162 41 43
Tubular products 20 20 16 18 74 20 17
Long products 14 15 14 16 59 16 15
Total deliveries
of the division 182 173 139 162 656 170 164
Other operations
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Sales 87 93 97 85 361 64 63
Operating profit 2 -8 -13 -16 -35 1 19
Operating capital at
the end of period 133 239 188 138 138 -125 101
Average personnel
for the period 504 505 479 457 481 477 459
Income statement by quarter
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Continuing operations:
Sales
General Stainless 1 013 1 066 1 130 1 561 4 770 1 700 1 670
of which intersegment
sales 205 277 273 389 1 144 421 430
Specialty Stainless 650 638 614 821 2 723 1 003 1 028
of which intersegment
sales 94 92 82 129 397 169 193
Other operations 87 93 97 85 361 64 63
of which intersegment
sales 44 36 38 41 159 48 45
Intra-group sales -342 -405 -394 -560 -1 700 -638 -669
Total sales 1 408 1 392 1 447 1 907 6 154 2 129 2 092
Operating profit
General Stainless 43 91 166 236 536 245 188
Specialty Stainless 22 65 81 171 338 182 196
Other operations 2 -8 -13 -16 -35 1 19
Intra-group items -0 1 -3 -13 -15 -4 2
Total operating profit 67 149 231 378 824 424 406
Share of results
in associated companies 0 2 1 4 8 2 4
Financial income and
expenses -7 -10 -18 -13 -48 -10 242
Profit/(loss) before
taxes 60 141 214 369 784 416 652
Income taxes -18 -29 -48 -83 -178 -105 -100
Net profit/(loss)
for the period
from continuing
operations 41 112 166 286 606 311 553
Net profit/(loss)
for the period
from discontinued
operations 15 20 6 317 357 -4 12
Net profit/(loss)
for the period 56 133 172 603 963 307 565
Attributable to:
Equity holders of the
Company 56 132 171 603 962 305 563
Minority interest -0 0 1 1 2 2 2
Major non-recurring
items in operating profit
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
General Stainless
Gain on sale of real
estate in the UK - - - 9 9 - -
Specialty Stainless
OSTP Fagersta closure - - - -8 -8 - -
Other operations
Gain on sale of
Hitura mine in Finland - - - - - - 25
- - - 1 1 - 25
Major non-recurring
items in financial income
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07
Gain on the sale of
Outotec shares - - - - - - 142
Gain on the
Talvivaara transaction - - - - - - 110
- - - - - - 252
Key figures by
quarter
EUR million I/06 II/06 III/06 IV/06 I/07 II/07
Operating profit
margin, % 4.7 10.7 16.0 19.8 19.9 19.4
Return on
capital employed, % 7.5 16.5 24.3 36.5 38.8 35.5
Return on equity, % 11.0 25.2 30.4 89.0 39.3 66.2
Return on equity,
continuing
operations, % 8.1 21.4 29.4 42.3 39.8 64.8
Capital employed
at end of period 3 513 3 679 3 910 4 371 4 377 4 753
Net interest-bearing
debt at end of period 1 483 1 509 1 560 1 300 1 189 1 119
Equity-to-assets
ratio
at end of period, % 37.4 38.4 37.7 47.9 47.2 50.9
Debt-to-equity ratio
at end of period, % 73.0 69.5 66.4 42.3 37.3 30.8
Earnings per share,
EUR 0.31 0.73 0.94 3.33 1.69 3.11
Earnings per share
from
continuing
operations, EUR 0.23 0.62 0.91 1.58 1.71 3.04
Earnings per share
from discontinued
operations, EUR 0.08 0.11 0.03 1.75 -0.02 0.07
Average number
of shares
outstanding,
in thousands 1) 181 032 181 032 181 032 181 037 181 061 181 082
Equity per share
at end of period, EUR 11.14 11.91 12.89 16.87 17.51 20.07
Number of shares
outstanding at end of
period, in thousands
1) 181 032 181 032 181 032 181 032 181 082 181 082
Capital expenditure,
continuing operations 33 34 45 74 25 75
Depreciation,
continuing operations 50 50 68 52 51 50
Average personnel
for the period,
continuing operations 8 746 8 822 8 665 8 187 8 129 8 441
1) The number of own shares repurchased is excluded.
Definitions of key
financial figures
Total equity + net interest-bearing
Capital employed = debt
Operating capital = Capital employed + net tax liability
Net profit for the period
Return on equity = _____________________________ × 100
Total equity
(average for the period)
Operating profit
Return on capital = _____________________________ × 100
employed (ROCE) Capital employed
(average for the period)
Net interest- Total interest-bearing debt
bearing debt = - total interest-bearing assets
Total equity
Equity-to-assets ratio = _____________________________ × 100
Total assets - advances received
Net interest-bearing debt
Debt-to-equity ratio = _____________________________ × 100
Total equity
Net profit for the period
attributable to the equity holders
Earnings per share = _____________________________
Adjusted average number
of shares during the period
Equity attributable to
the equity holders
Equity per share = _____________________________
Adjusted number of shares
at the end of the period
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