2012-03-09 13:45:00 CET
2012-03-09 13:45:08 CET
REGLERAD INFORMATION
Outokumpu Oyj - Company Announcement
Outokumpu - Publication of the Finnish language Prospectus relating to the Rights Offering of Outokumpu
STOCK EXCHANGE RELEASE
9 March 2012 at 2.45 pm EET
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR
INTO THE UNITED STATES, CANADA, AUSTRALIA, HONG KONG, SOUTH AFRICA OR JAPAN OR
ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.
Outokumpu Oyj will publish today the Finnish language prospectus related to the
rights offering of 1,274,020,027 new shares in Outokumpu. The Finnish language
prospectus approved by the Finnish Financial Supervisory Authority will be
available on Outokumpu's website www.outokumpu.com/osakeanti as of today and,
on or about 14 March 2012, at the subscription places for the rights offering.
The terms and conditions of the rights offering were published in a separate
stock exchange release on 7 March 2012.
The Finnish language prospectus contains following previously unpublished
information (terms used in this document shall have the meanings assigned to
them in the prospectus):
EUR 400 million Revolving Credit Facility
Outokumpu has signed a commitment letter with a syndicate banks (Nordea Bank
Finland Plc; J.P. Morgan Limited; Merchant Banking, Skandinaviska Enskilda
Banken AB (publ); Danske Bank A/S, Helsinki Branch; Pohjola Bank plc; Svenska
Handelsbanken AB (publ), Branch Operation in Finland and BNP Paribas) relating
to a EUR 400 million committed multicurrency revolving credit facility that is
for working capital purposes and will mature in June 2013. The commitment
letter includes the principal terms of the credit facility, including customary
covenants, customary events of default and a customary change of control
clause. The commitment letter also includes a financial covenant based on
gearing (as defined in the agreement), which requires Outokumpu to maintain a
level of gearing that is equal to or lower than 115 percent. Documentation
relating to the credit facility is scheduled to be finalized by the end of
April 2012.
Combined Group's Key Strengths
Outokumpu believes that the Combined Group would have various strengths
resulting from the Inoxum Transaction and integration of Inoxum into
Outokumpu's existing stainless steel business, including the following:
Creating a New Global Leader in Stainless Steel with Operations Across Five
Continents
The Inoxum Transaction would create a new global leader in stainless steel in
terms of annual cold rolling production capacity. The Combined Group would have
more than 150 percent of the annual cold rolling production capacity of its
next closest competitor (taking into account the anticipated capacity of the
Calvert integrated production facility, which is scheduled to be completed by
the end of 2012 and ramped up to full production capacity in 2014) (source:
CRU, November 2011). The Combined Group would have a production base and
distribution network across five continents in Europe, North and South America,
Asia and Australia and is expected to benefit from the combination of
Outokumpu's and Inoxum's complementary product offerings and customer bases.
For the fiscal year ended December 31, 2011, the Combined Group would have had
pro forma sales of EUR 11.6 billion and as at December 31, 2011, the Combined
Group would have had approximately 19,000 employees and an annual cold rolling
capacity of 3.4 million tonnes.
The following table sets forth annual cold rolling capacities by stainless
steel producer:
Annual cold rolling capacity
-----------------------------
(tonnes in thousands)
Outokumpu and Inoxum(1) 3,445
Inoxum(1) 2,490
POSCO 2,225
Acerinox, S.A. 2,063
APERAM, S.A. 1,710
Taiyuan Iron & Steel (Group) Co., Ltd. (TISCO) 1,510
Yieh United Steel Corporation (YUSCO) 1,350
Baosteel Co., Ltd 1,260
Outokumpu and Inoxum(1) 955
Allegheny Technologies Incorporated (ATI) 801
Source: CRU, November 2011. The capacity currently being built at the Calvert
production facility has been added to the CRU data. The information above does
not take into account additional capacity potentially announced by the other
producers and also does not take into account any announced capacity
reductions.
(1) Includes the Calvert integrated production facility (annual cold rolling
capacity of 350,000 tonnes), which is scheduled to be completed by the end of
2012 and ramped up to full production capacity in 2014.
The Combined Group would have production operations on three continents,
providing it with a platform for expansion into forecasted growth markets and
enabling it to serve customers globally.
In Europe, the Combined Group would have significant capacity for producing
standard stainless steel products in the two countries that are the largest
consumers of stainless steel in the EU (source: CRU, November 2011). In the
Nordic region, the Combined Group's main facility would be the Tornio Works
integrated production facility in Finland. The Combined Group's European
production of specialty stainless steel products would be concentrated in
Sweden and the United Kingdom.
In North America, the Combined Group would have standard stainless steel
production capacity at the Calvert integrated production facility in the United
States (scheduled to be completed by the end of 2012 and ramped up to full
production capacity in 2014) and the cold rolling facility in Mexico. Outokumpu
expects that upon completion, the Calvert integrated production facility,
combined with the cold rolling facility in Mexico, would provide the Combined
Group with a platform from which to expand sales to certain Latin American
countries. The Combined Group would also have specialty stainless steel
production facilities in the United States, primarily producing quarto plate,
long products and tubes.
In Asia, the Combined Group would have a cold rolling facility joint venture
with SPS and an established distribution network, which Outokumpu expects would
provide the Combined Group with a platform for growing sales in Asia in line
with Outokumpu's strategy to expand in the region.
Improving Global Production Efficiency and Capacity Utilization
Outokumpu believes that the Combined Group would be well positioned to
strategically improve the utilization of production capacities, production
locations and supply routes among utokumpu's and Inoxum's production
facilities, especially for the production of standard stainless steel products.
In recent years, each of Outokumpu and Inoxum has experienced low capacity
utilization levels, primarily resulting from its excess melting and hot rolling
capacity in relation to cold rolling capacities. As customer demand has
primarily been for cold rolled products and white hot band, Outokumpu and
Inoxum have been unable to fully utilize their melting and hot rolling
capacities, which has had a negative effect on their profitability. The planned
closures of the Bochum and Krefeld melt shops in Germany and the planned
termination of Nirosta's hot rolling agreement with ThyssenKrupp at Bochum
would reduce the Combined Group's underutilized melting and hot rolling
capacities without affecting product offerings or the production capacity of
saleable products as production volumes from the closed melt shops are expected
to be transferred to the Tornio Works and Terni integrated production
facilities. Outokumpu, ThyssenKrupp and the German employee representatives
have reached an agreement regarding the production facilities and employment
protection in Germany. According to the agreement, the Krefeld melt shop will
be shut down by the end of 2013 and it is envisaged that the Bochum melt shop
will be closed by the end of 2016. The economic viability of the Bochum melt
shop will be reviewed prior to the final decision regarding its closure.
In addition, the Combined Group would have two integrated stainless steel
production facilities with among the lowest per unit production costs in
Europe: the Tornio Works integrated production facility in Finland and the
Terni integrated production facility in Italy. These production facilities have
been operating at less than optimum capacity utilization levels and Outokumpu
expects to transfer production there following the planned closures of the
Bochum and Krefeld melt shops. This is expected to result in cost savings from
the use of these more cost efficient facilities and their higher capacity
utilization levels. With the expected lower production costs, Outokumpu expects
that the Combined Group would be better positioned to compete with stainless
steel imports from Asia.
Outokumpu also expects that the Combined Group would reorganize its European
cold rolling operations, including potentially closing thin cold rolling
capacity in Sweden, in order to reduce costs. By transferring cold rolling
production from Sweden to the Krefeld and Dillenburg cold rolling facilities,
Outokumpu expects that the Combined Group would be able to increase
profitability by increasing capacity utilization levels at its larger and more
specialized facilities.
In North America, Outokumpu expects that the Calvert integrated production
facility would enable the Combined Group to reduce production costs at its cold
rolling facility in Mexico. When Inoxum's new Calvert integrated production
facility is ramped up to full production capacity in 2014, Outokumpu expects
that Inoxum's cold rolling facility in Mexico will be supplied with feedstock
from Calvert rather than from Italy, which is expected to significantly reduce
transportation and overall production costs as well as working capital.
Complementary Broad Product Offering Across All Stainless Steel Grades, with
Further Revenue Diversification from HPAs
The Combined Group would benefit from Outokumpu's and Inoxum's complementary
broad product offering as Outokumpu is a leading producer of austenitic and
high value added duplex grades while Inoxum is a leading producer of ferritic
grades and high value added HPA products. Annual stainless steel delivery
volumes for the Combined Group would have been approximately 73 percent
austenitic grades, approximately 23 percent ferritic grades, approximately 3
percent duplex grades and approximately 1 percent other grades (based on
Outokumpu's deliveries for the year ended December 31, 2011 and Inoxum's
deliveries for the fiscal year ended September 30, 2011). As the Combined Group
would have a more diversified stainless steel product offering than either
Outokumpu or Inoxum, Outokumpu expects that the Combined Group would be in a
better position to address any potential changes in market demand.
In addition, the Combined Group's revenue base would be further diversified
with the addition of Inoxum's HPA product offering, which primarily serves
customers in the oil and gas, chemical processing, automotive, energy
production and distribution, electronics, medical and aerospace industries. For
the fiscal year ended September 30, 2011, 18 percent of Inoxum's net sales were
derived from HPAs, which generally have higher margins than stainless steel
products.
Greater Revenue Diversification from Complementary End Markets and Greater
Access to End Users
For the year ended December 31, 2011, approximately 64 percent of Outokumpu's
sales were to distributors and processors and approximately 36 percent were
directly to end users. The Combined Group is expected to have a greater
percentage of direct sales to end users as Inoxum has historically had greater
direct exposure to end users and, accordingly, a greater percentage of
long-term sales contracts, than Outokumpu, which Outokumpu expects would
improve earnings visibility and facilitate the planning of production and
deliveries. In addition, the Combined Group's greater percentage of direct
sales to end users and the resulting direct contact with end users is expected
to improve the Combined Group's ability to monitor market demand.
The Combined Group's end user customer base is expected to be more diverse than
that of either Outokumpu or Inoxum. The majority of Outokumpu's deliveries to
end users are to capital goods serving industries, such as the process and
resources equipment manufacturing, chemicals, petrochemicals and energy, and
transport sectors (approximately 68 percent for the year ended December 31,
2010), while a majority of Inoxum's deliveries to end users are to more
consumer driven industries, such as automotive, household goods and white goods
(approximately 50 percent for the fiscal year ended September 30, 2010). The
resulting exposure of the Combined Group is expected to be better balanced
between the capital goods and consumer driven industries, with capital goods
driven industries representing approximately 45 percent of deliveries to end
users (excluding deliveries to distributors and processors) and consumer driven
industries representing approximately 40 percent of deliveries to end users on
a combined basis (based on Outokumpu deliveries for the year ended December 31,
2010 and Inoxum deliveries for the fiscal year ended September 30, 2010). In
addition, the Combined Group is also expected to be less exposed to more
cyclical industries than Outokumpu and to be well positioned to take advantage
of forecasted growth in certain industries, such as chemical, petrochemicals,
energy and transportation (source: SMR, January 2012).
Customer Benefits from Enlarged Sales Force, Distribution Network and Service
Center Capability While Reducing the Combined Group's Costs
The Combined Group would have one of the largest stainless steel distribution
networks in the world, including countries in which only Outokumpu or Inoxum
have operations, such as Spain, Mexico, Turkey and Argentina. Through this
global network, the Combined Group would be able to offer customers a larger,
more diverse product offering due to the complementary broad product offerings
of Outokumpu and Inoxum. The Combined Group would also have a global HPAs
distribution network with three stock and service centers, 14 subsidiaries,
four representative and sales offices and sales agents operating in more than
40 countries, including sales agents in growth markets such as China, India,
the Middle East and Russia.
The Combined Group would also have strong research and development capabilities
to serve its customers' needs, with facilities in Finland, Germany, Italy and
Sweden and a research and development team that has a strong track record in
developing stainless steel and HPA products, grades and applications.
Greater Geographic Diversification with a Platform that is Well Positioned to
Take Advantage of Strategic Opportunities in North and South America and Asia
The Combined Group's Calvert integrated production facility in the United
States would have the potential to increase the Combined Group's sales in the
United States, particularly to the automotive industry. Outokumpu expects that
upon its completion, the Calvert integrated production facility, combined with
the cold rolling facility in Mexico, would provide the Combined Group with a
platform from which to expand sales to Latin America. The Combined Group's
sales and distribution network in North and South America, which would include
a service center in Argentina, is also expected to put the Combined Group in a
favourable position to increase sales to Latin American markets.
The Inoxum Transaction and integration of Inoxum into Outokumpu's existing
stainless steel business would promote Outokumpu's strategic focus on APAC. The
Combined Group would have a cold rolling facility joint venture with SPS in
China; service centers in Australia and China; and sales offices in China,
Vietnam and Thailand. Outokumpu expects that the Combined Group's operations in
Asia would provide a platform to take advantage of forecasted growth in certain
Asian markets, particularly in China, where SMR forecasts stainless steel
consumption will grow at an average annual rate of 5.6 percent (CAGR) between
2011 and 2015.
Growth Opportunities in Existing Operations Across Geographies
The Combined Group would be well positioned to take advantage of multiple
growth opportunities in existing operations and geographies provided by
Outokumpu's and Inoxum's ongoing investment programs. The ongoing investment
programs are:
- Outokumpu's ongoing EUR 440 million investment program (EUR 137 million spent
as at December 31, 2011) to double the annual ferrochrome production of its
Tornio Works ferrochrome production facility to 530,000 tonnes as well as
increase the production capacity of the Kemi chromite mine. The increased
production capacity resulting from this investment is scheduled to be completed
in 2013, with operations scheduled to be ramped up to full production capacity
in 2015. It is expected that the Combined Group would consume a significant
portion of the additional ferrochrome production volumes, which would reduce
sales costs and risks associated with expanded external sales as well as allow
the Tornio Works integrated production facility to continue to benefit from the
reduced energy and transportation costs resulting from its integrated
ferrochrome production. It is also expected that the Combined Group would
continue to sell its surplus ferrochrome volumes on the global market. Based on
ferrochrome prices, the U.S. dollar/euro foreign exchange rate and electricity
prices as at June 2010 when the investment decision was made, Outokumpu
estimated that the investment to double its annual ferrochrome production
capacity would result in additional annual operating profit of approximately
EUR 150 million once the full production capacity is reached.
- Inoxum's ongoing EUR 1.2 billion investment (EUR 801 million spent as at
December 31, 2011) in the Calvert integrated production facility in the United
States. Outokumpu expects that upon its completion, the Calvert integrated
production facility, combined with the cold rolling facility in Mexico, would
provide the Combined Group with a platform from which to expand sales to Latin
America.
- Inoxum's ongoing approximately EUR 244 million investment program (EUR 2
million spent as at December 31, 2011) in the Krefeld cold rolling production
facility. The investment program, which is scheduled to be completed by 2015,
is expected to increase the total ferritic grades cold rolling capacity at the
Krefeld production facility by relocating cold rolling equipment from the
Düsseldorf-Benrath cold rolling facility in Germany to the Krefeld production
facility as well as upgrading or replacing certain equipment used in the cold
rolling process. This investment program has the potential to expand the
Combined Group's established position in the European ferritic stainless steel
market.
- Inoxum's ongoing approximately EUR 93 million investment program (no
expenditure as at December 31, 2011) in HPA production in Germany. Inoxum is in
the process of expanding its HPA bar production capacity and Inoxum intends to
upgrade its HPA plate production equipment in order to offer additional and
larger volumes of products for power plants and gain access to new polysilicone
applications markets, such as solar energy. Inoxum also plans to install a
second electron beam melting furnace at its Essen HPA production facility in
Germany to increase titanium production capacity.
- Outokumpu's ongoing EUR 104 million investment program (approximately EUR 40
million spent as at December 31, 2011) to expand quarto plate production
capacity and capability at the Degerfors quarto plate production facility in
Sweden. This investment program is expected to enable the Combined Group to
broaden its product offering in higher margin special grades. The annual quarto
plate production capacity of the Degerfors production facility is expected to
increase to 150,000 tonnes in 2014, bringing Outokumpu's total annual quarto
plate production capacity to 220,000, including the New Castle production
facility in the United States.
Strengthened Financial Profile
The Inoxum Transaction is expected to strengthen the financial profile of the
Combined Group. The estimated EBITDA impact of cost synergy benefits, together
with the benefits of Outokumpu's and Inoxum's current restructuring and
investment programs, the Offering and the Private Placement, are expected to
improve the future gearing ratio of the Combined Group compared to Outokumpu as
well as to improve and have the potential to facilitate the Combined Group's
ability to secure capital markets financing. Outokumpu estimates that as at
December 31, 2011, the pro forma gearing of the Combined Group would have been
59.2 percent (as compared to Outokumpu's gearing of 82.5 percent), which is
below Outokumpu's target maximum gearing level of 75 percent.
The Inoxum Transaction and the integration of Inoxum into Outokumpu's existing
stainless steel business are estimated to create cash cost synergy benefits of
between EUR 225 million and EUR 250 million annually in 2017. It is expected
that the synergy benefits would start to be realized in 2014, with
approximately 45 percent run-rate expected to be achieved in 2014 and
approximately 70 percent in 2015. It is estimated that the Combined Group would
incur up to EUR 160 million in implementation and nonrecurring cumulative cash
costs between 2013 and 2017. The cash cost synergy benefits are expected to
arise from actions being taken within the following four main categories:
- Production relocation and facility closures in Europe. It is estimated that
the Combined Group has significant potential to increase profitability by
closing the Bochum and Krefeld melt shops and terminating Inoxum's hot rolling
agreement with ThyssenKrupp in Bochum and relocating the current production
from these two facilities to the Tornio Works and Terni integrated production
facilities. Outokumpu, ThyssenKrupp and the German employee representatives
have reached an agreement regarding the production facilities and employment
protection in Germany. According to the agreement, the Krefeld melt shop will
be shut down by the end of 2013 and it is envisaged that the Bochum melt shop
will be closed by the end of 2016. For more information on the agreements
between Outokumpu, ThyssenKrupp and the German labor representatives, see
“Material Contracts—Inoxum Transaction—German Labor Agreements.” In addition,
the option of reducing thin cold rolling capacity in Sweden, with the
production volumes being relocated to the Krefeld and Dillenburg production
facilities, is being considered. It is estimated that the closures would lead
to a reduced cost base in Germany and Sweden. The estimated potential cost
savings from Production relocation and facility closures in Europe represent
approximately 40 percent of the total estimated cash cost synergy benefits.
The overall global restructuring efforts are expected to result in a reduction
of approximately 1,500 jobs between 2013 and 2016, out of which up to 850 jobs
would be in Germany. As part of the Inoxum Transaction, Outokumpu has agreed
with the labor unions that represent Inoxum's employees in Germany that no
compulsory labor redundancies would take place among the workforce at Inoxum's
German production facilities until the end of 2015. To assist with the
implementation of the necessary reorganizations, ThyssenKrupp has committed to
offer alternative jobs within ThyssenKrupp for up to 600 current Inoxum
employees in Germany in connection with the planned closures of the Bochum and
Krefeld melt shops, which is expected to allow the Combined Group to realize
cost savings associated with reducing its workforce without incurring the
associated costs and without having a negative impact on the employees of the
Combined Group in Germany.
- Improved Capacity Utilization and Production Optimization. As a result of
relocating melting production and hot rolling production volumes from Bochum
and Krefeld, it is expected that the Combined Group would increase capacity
utilization levels at two integrated stainless steel production facilities with
among the lowest per unit production costs in Europe: the Tornio Works
integrated production facility in Finland and the Terni integrated production
facility in Italy. In the recent past, both of these integrated production
facilities have been operating at below optimum capacity utilization levels. It
is expected that the transfer of melting volumes and hot rolling volumes to the
Tornio Works and Terni integrated production facilities would result in cost
savings from the lower unit production costs in these relatively more efficient
facilities as well as from higher capacity utilization levels, further reducing
unit costs from current levels.
In addition to increased capacity utilization levels at the Tornio Works and
Terni integrated production facilities, it is estimated that the relocation of
select standard stainless steel grade production and optimization of product
responsibilities between the Tornio Works, Terni and other of the Combined
Group's European production facilities would further reduce unit costs at the
Tornio Works and Terni integrated production facilities through improved
production efficiency resulting from fewer required changes in production
setups and larger production runs. For example, the production of certain
ferritic stainless steel grades is expected to be transferred from the Tornio
Works integrated production facility to the Terni integrated production
facility, which is increasingly specializing in ferritic stainless steel
grades. Conversely, production of certain austenitic stainless steel grades is
expected to be transferred from the Terni and other of the Combined Group's
European production facilities to Tornio Works integrated production facility,
which is primarily designed for austenitic stainless steel grade production. It
is also expected that black hot band produced at the Tornio Works and Terni
integrated production facilities would be supplied to other of the Combined
Group's production facilities in Germany for further processing for the
production of cold rolled finished products, thus further optimizing capacity
utilization levels at the Tornio Works and Terni integrated production
facilities and reducing unit production costs. The estimated potential cost
savings from higher capacity utilization and production optimization represent
approximately 20 percent of the total estimated cash cost synergy benefits.
These potential savings resulting from production relocation and increased
capacity utilization are estimated to start in 2014 following the planned
closure of the Krefeld melt shop by the end of 2013, and continue ramping up to
the full estimated range with planned closure of the Bochum melt shop by the
end of 2016. It is currently envisaged that the Combined Group's European melt
shops will supply feedstock to the Calvert integrated production facility until
the melt shop at the Calvert integrated production facility is ramped up to
full production capacity, which is expected in 2014.
- Optimizing the Sales and Service Center Network in Europe. As at December 31,
2011, the Combined Group's sales and service center network in Europe would
have consisted of 19 facilities. It is estimated that optimizing the Combined
Group's European service centers by reducing overlapping activities and
optimizing sales company resourcing would result in cash cost savings. In
addition, the combination of Outokumpu's and Inoxum's complementary product
offerings would enable the Combined Group to offer an expanded product range
through its service center and sales network, which, it is estimated, would
provide additional revenue synergies that have not been quantified and
represent additional benefits from the Inoxum Transaction. The estimated
potential cost savings from optimizing the sales and service center network in
Europe represent approximately 10 percent of the total estimated cash cost
synergy benefits. In addition, the Combined Group is expected to benefit
further from cross-selling opportunities across its global sales and service
center network resulting from the Combined Group's broad product offering
platform.
- Optimizing Procurement Operations, Raw Materials Sourcing and General
Administrative Costs. It is estimated that the Combined Group would benefit
from bulk discounts when purchasing certain raw materials. In addition, it is
estimated that the comparison of procurement needs, simplification of delivery
logistics, reduced number of production sites and ability to make bulk
purchases would provide additional cost savings. It is estimated that the
reduction of IT expenses through the elimination of overlap and volume
discounts on shared applications would also provide cost savings. Further, it
is estimated that there are potential cost savings from the implementation of a
unified organizational model and integration of functions and head office cost
savings. The estimated potential cash cost savings from optimizing procurement
operations, raw material sourcing and general administrative costs represent
approximately 30 percent of the total estimated cash cost synergy benefits.
The estimated implementation and non-recurring cumulative cash costs of up to
EUR 160 million that the Combined Group would incur between 2013 and 2017
consist primarily of redundancy and environmental costs associated with
facility closures, costs associated with optimization of the European sales and
service center network, some function restructuring costs (such as IT and
headquarters) and general implementation contingencies. The cost estimate
includes reduced labor redundancy costs resulting from ThyssenKrupp's
commitment to offer alternative jobs within ThyssenKrupp for up to 600 current
Inoxum employees in Germany in connection with the planned closures of the
Bochum and Krefeld melt shops, which is expected to allow the Combined Group to
realize cost savings associated with labor force reduction while reducing the
impact of the reduction on the employees of the Combined Group in Germany.
Estimates relating to cost reductions and other benefits expected to arise from
the Inoxum Transaction and the integration of Inoxum into Outokumpu's existing
stainless steel business as well as related costs to implement such measures
are based on a number of assumptions made in reliance on the information
available to Outokumpu and management's judgments based on such information.
Such estimates present the expected future impact of the Inoxum Transaction and
the integration of Inoxum into Outokumpu's existing stainless steel business on
the business, financial condition and results of operations of the Combined
Group. However, the assumptions about these estimated synergy benefits are
inherently uncertain and are subject to a wide variety of significant business,
economic, and competitive risks and uncertainties that could cause actual
results to differ materially from those contained in the synergy benefit
estimates.
The above statements regarding synergy benefits and related costs may
constitute forward-looking statements. Prospective investors should not unduly
rely on these forward-looking statements. Numerous factors may cause actual
results, realized revenues or performance to differ materially from the
results, revenues and performance expressed or implied in the forward-looking
statements.
Pro Forma Financial Information
The following tables present unaudited pro forma financial information giving
effect to the Inoxum Transaction as if the Inoxum Transaction had been
completed on (i) January 1, 2011 for purposes of the unaudited pro forma
statement of income and comprehensive statement of income and (ii) December 31,
2011 for purposes of the unaudited pro forma statement of financial position.
The unaudited pro forma financial information below has been prepared on a
basis consistent with IFRS (International Financial Reporting Standards) as
adopted by the EU and has been based on (a) financial information derived from
the audited consolidated financial statements of Outokumpu as of and for the
year ended December 31, 2011; (b) financial information derived from the
audited combined financial statements of Inoxum as of and for the fiscal year
ended September 30, 2011; and (c) financial information derived from the
unaudited combined interim financial statements of Inoxum as of and for the
three months ended December 31, 2011 and December 31, 2010 respectively.
The unaudited pro forma statement of income and comprehensive statement of
income, the unaudited pro forma statement of financial position as well as pro
forma key figures have been prepared in a manner consistent with the accounting
principles applied in Outokumpu's 2011 audited consolidated financial
statements, except for the accounting policies related to post-employment
benefit arrangements (pensions). Outokumpu applies the corridor method for the
recognition of actuarial gains and losses arising from pension arrangements
while Inoxum recognizes such gains and losses in other comprehensive income.
Inoxum classifies interest expenses related to pension plans as well as the
expected return on pension plan assets as financial expenses and financial
income, respectively, whereas Outokumpu treats these interest expenses and the
expected return on plan assets as part of the employee benefit expenses.
The unaudited pro forma adjustments also give effect to events that are
directly attributable to the acquisition, and the proposed financing thereof.
The unaudited pro forma statement of financial position presents the
acquisition as being accounted for under the acquisition method in accordance
with IFRS 3 Business Combinations. Under the acquisition method, assets and
liabilities are recorded at their fair values on the date of acquisition and
the purchase price is allocated to the tangible and intangible assets acquired
and liabilities and contingent liabilities assumed. The acquisition remains
subject to the satisfaction or waiver of certain conditions, including
regulatory approvals, and thus the presented pro forma adjustments relating to
the acquisition are hypothetical at this stage. The Inoxum Transaction is
expected to be completed by the end of 2012. The unaudited pro forma statement
of income and comprehensive statement of income as well as the unaudited pro
forma statement of financial position are based on the historical figures set
out therein and therefore the final purchase price allocation may significantly
differ from the presented hypothetical allocation in this unaudited pro forma
information.
The unaudited pro forma statement of income and comprehensive statement of
income, the unaudited pro forma statement of financial position as well as pro
forma key figures have been prepared for illustrative purposes and, because of
their nature, address a hypothetical situation and do not, therefore, represent
Outokumpu's actual financial position or results. The unaudited pro forma
financial information does not purport to represent what Outokumpu's financial
position and results would have been if the acquisition had been completed on
the dates indicated nor do they purport to represent Outokumpu's or the
Combined Group's results for any future period or financial position at any
future date. The unaudited pro forma financial information does not reflect the
effect of anticipated synergies and efficiencies associated with the
acquisition of Inoxum.
Outokumpu will recognize the identifiable assets acquired and the liabilities
assumed as of the acquisition date. The provisional amounts recognized at the
acquisition date, based on the purchase price allocation including the
determination of fair values, may be adjusted within 12 months after the
acquisition date, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date.
Unaudited
pro forma
statement
of income
EUR in Outokum Inoxum, Differe Differ PPA Impact Reversa Pro
millions pu, Jan 12 nces in ences adjus of l of forma
1 to months accoun in tments Loan Inoxum Combine
Dec 31, ended ting prese Note intra-g d Group
2011 Dec 31, polici ntatio roup
(audite 2011 es n financ
d) (unaudi ing
ted) with
Thysse
nKrupp
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Notes [1] [2] [3] [4] [5] [7] [8]
--------------------------------------------------------------------------------
Sales 5 009 6 572 (17) 11 564
Cost of (4 882) (6 275) 2 10 1 (11 144)
sales
--------------------------------------------------------------------------------
Gross 127 297 2 (7) 1 - - 420
margin
Other 47 23 83 295 448
operating
income
Selling (147) (208) 4 (26) (377)
and
marketing
expenses
Administra (153) (163) 3 1 (312)
tive
expenses
Research (21) (14) (35)
and
developme
nt
expenses
Other (113) (337) (61) (37) (548)
operating
expenses
--------------------------------------------------------------------------------
Operating (260) (388) 9 (25) 260 - - (404)
profit /
(loss)
Share of (5) 1 (4)
results
of
associate
d
companies
Financial
income
and
expenses
Interes 13 34 21 (31) 37
t
income
Interes (77) (84) (21) (3) (43) 66 (162)
t
expens
es
Market (120) (120)
price
gains
and
losses
Other 248 248
financ
ial
income
Other (52) (23) (75)
financ
ial
expens
es
--------------------------------------------------------------------------------
Total 12 (73) 0 - (3) (43) 35 (72)
financial
income
and
expenses
Profit (253) (460) 9 (25) 257 (43) 35 (480)
before
taxes
Income 67 20 (2) 8 (38) 11 (11) 55
taxes
--------------------------------------------------------------------------------
Net profit (186) (440) 7 (17) 219 (32) 24 (425)
/ (loss)
for the
period
--------------------------------------------------------------------------------
Unaudited pro forma statement
of comprehensive income
EUR in millions Outokum Inoxum Differen Other Pro forma
pu, Jan , ces pro forma Combined
1 12 in adjustme Group
to month accounti nts
Dec 31, s ng to
2011 ended policie statement
(audite Dec s of income
d) 31,
2011
(unaud
ited)
--------------------------------------------------------------------------------
Notes [1] [2] [3] [4]-[8]
--------------------------------------------------------------------------------
Net profit / (loss) for the (186) (440) 7 194 (425)
period
--------------------------------------------------------------------------------
Other comprehensive income
Exchange differences on 12 (5) 7
translating foreign operations
Available-for-sale financial
assets
Fair value changes during (23) (23)
the period
Reclassification adjustments (65) (65)
from other comprehensive
income to profit or loss
Income tax relating to 11 11
available-for-sale
financial assets
Actuarial gains / (losses) from
pensions and similar
obligations
Change in actuarial gains / (1) (5) (6)
(losses), net
Income tax relating to 1 2 3
actuarial gains / (losses)
Cash flow hedges
Fair value changes during (4) (14) (18)
the period
Reclassification adjustments 1 3 4
from other comprehensive
income to profit or loss
Income tax relating to cash 1 7 8
flow hedges
Share of other comprehensive (2) (2)
income of associated companies
Other comprehensive income for (69) (9) (3) - (81)
the period, net of tax
--------------------------------------------------------------------------------
Total comprehensive income (255) (449) 4 194 (506)
--------------------------------------------------------------------------------
Pro forma unaudited statement
of financial position
EUR in Outoku Inoxum Differ Differ PPA Impact Impact Reversa
Share Pro
milli mpu, , ences ences adjus of of l of
issue forma
ons Dec Dec in in tments the Loan Inoxum
to Combi
31, 31, accoun prese Offer Note 's
Thyss ned
2011 2011 ting ntatio ing intra-g
enKrup Group
(audi (unau polic n roup
p
ted) dited) ies financ
ing
with
Thysse
nKrupp
--------------------------------------------------------------------------------
--------------
Notes [1] [2] [3] [4] [5] [6] [7] [8]
[9]
--------------------------------------------------------------------------------
--------------
ASSETS
Non-current
assets
Intangible 554 70 (35)
589
assets
Property, 2 005 2 329 17
4 351
plant and
equipment
Investment 12 3
15
property
Investments 39 16
55
in
associated
companies
Available-for 16 2
18
-sale
financial
assets
Derivative 12
12
financial
instruments
Loans 163
163
recei
vable,
inter
est-be
aring
--------------------------------------------------------------------------------
--------------
Loan 230 18 - - - - - -
- 248
receivables
and other
interest-bea
ring assets
Other 61 2 (38)
25
receivables
Deferred tax 63 144 4 (144)
67
assets
--------------
------------------------------------------------------------------------
--------
Total 2 913 2 576 (34) - (159) - - -
- 5 295
non-current
assets
Current
assets
Invent 1 264 1 892
3 156
ories
Available-for 7
7
-sale
financial
assets
Investments 105
105
at fair
value
through
profit or
loss
Derivative 26 58
84
financial
instruments
Trade 2
2
receivables,
interest-bea
ring
Loans 1 421 (1 310)
111
recei
vables
--------------
------------------------------------------------------------------------
--------
Loan 140 1 479 - - - - - (1 310)
- 309
receivables
and other
interest-bea
r. assets
Trade and 761 740
1 501
other
receivables
Cash and cash 168 71 (25)
214
equivalents
--------------------------------------------------------------------------------
--------------
Total current 2 333 4 182 - - - (25) - (1 310)
- 5 180
assets
TOTAL ASSETS 5 247 6 756 (34) - (159) (25) - (1 310)
- 10 477
--------------------------------------------------------------------------------
--------------
EUR Outoku Inoxum Differ Differ PPA Impact Impact Reversa
Share Pro
milli mpu, , ences ences adjus of of l of
issue forma
on Dec Dec in in tments the Loan Inoxum
to Combi
31, 31, accoun prese Offer Note 's
Thyss ned
2011 2011 ting ntatio ing intra-g
enKrup Group
(audi (unau polic n roup
p
ted) dited) ies financ
ing
with
Thysse
nKrupp
--------------------------------------------------------------------------------
--------------
Note [1] [2] [3] [4] [5] [6] [7] [8]
[9]
-------------------------------------------------------------------------
--------------
-------
EQUITY AND
LIABILITIES
Equity
attributable
to the
equity
holders of
the Company
Share 311
311
capit
al
Premium fund 714
714
Share 975
823 1 798
issue
Other 26
26
reserves
Retained 1 200 (33)
1 167
earnings
Net profit / (181)
-181
(loss) for
the period
Equity of 466 (171)
295
Inoxum
--------------------------------------------------------------------------------
--------------
Equity 2 070 466 (33) - (171) 975 - -
823 4 130
attributable
to the
equity
holders of
the Company
Non-controlli 14 17
31
ng interests
--------------------------------------------------------------------------------
--------------
Total 2 084 483 (33) - (171) 975 - -
823 4 161
equit
y
Non-current
liabilities
Non-current 1 161 359 62 656 (305)
1 933
debt
Derivative 35
35
financial
instruments
Deferred tax 38 117 (12) 3
146
liabilities
Pension 62 281 11
354
obligations
Provis 22 104 6
132
ions
Trade and 45
45
other
payables
--------------
------------------------------------------------------------------------
--------
Total 1 364 861 (1) - 71 - 656 (305)
- 2 646
non-current
liabilities
Current
liabilities
Curren 998 3 690 1 (3 565)
1 124
t debt
Derivative 46 55
101
financial
instruments
Trade 17 - 23
40
and
other
payab
les,
inter
est-be
aring
Provis 42 59 (23)
78
ions
Income tax 1 18
19
liabilities
Trade 694 1 589 23
2 306
payab
les,
non
inter
est-be
aring
--------------
------------------------------------------------------------------------
--------
Total current 1 799 5 411 - 0 24 - - (3 565)
- 3 669
liabilities
TOTAL EQUITY 5 247 6 756 (34) - (76) 975 656 (3 870)
823 10 477
AND
LIABILITIES
--------------------------------------------------------------------------------
--------------
Notes
[1] This column reflects Outokumpu's audited consolidated statement of income
and audited consolidated statement of comprehensive income for the year ended
December 31, 2011 and the audited consolidated statement of financial position
as of December 31, 2011. Outokumpu's financial year is the calendar year.
[2] This column reflects Inoxum's unaudited combined statement of income and
statement of comprehensive income for the twelve months ended December 31,
2011. As Inoxum's fiscal year-end is September 30 and in order to present
unaudited pro forma financial information on comparable periods, Inoxum's
combined audited statement of income and statement of comprehensive income for
the fiscal year October 1, 2010 - September 30, 2011 has been adjusted by (i)
adding the income and expenses for the unaudited combined statement of income
and for the statement of comprehensive income for the three months period ended
December 31, 2011 and (ii) subtracting the income and expenses for the
unaudited combined statement of income and for the statement of comprehensive
income for the three months period ended December 31, 2010. The Inoxum's
unaudited combined statement of income and the statement of comprehensive
income have been derived as follows:
EUR in millions Inoxum Inoxum Inoxum Inoxum
Oct 1, 2010 - 3 months 3 months 12 months
Sept 30, 2011 ended ended ended
(audited) Dec 31, Dec 31, Dec 31,
2010 2011 2011
(unaudite (unaudite (unaudited
d) d) )
--------------------------------------------------------------------------------
Net Sales 6 739 1 605 1 438 6 572
Cost of sales (6 363) (1 517) (1 429) (6 275)
Gross profit 376 88 9 297
Other operating income 22 3 4 23
Selling expenses (206) (48) (50) (208)
General and administrative (155) (39) (47) (163)
expenses
Other operating expenses (325) (7) (19) (337)
--------------------------------------------------------------------------------
Income/(loss) from (288) (3) (103) (388)
operations
Income from companies 3 2 0 1
accounted for using the equity method
Financial income and
expenses
Interest income 27 2 9 34
Interest expenses (59) (13) (38) (84)
Other financial expense, (25) (6) (4) (23)
net
Financial expense, net (54) (15) (33) (72)
--------------------------------------------------------------------------------
Loss before taxes (342) (18) (136) (460)
Income tax benefit 2 5 23 20
--------------------------------------------------------------------------------
Net loss (340) (13) (113) (440)
--------------------------------------------------------------------------------
Other comprehensive income
Foreign currency translation
adjustment
Change in unrealized (1) 13 9 (5)
gains/(losses),net
Actuarial gains/(losses)
from pensions and similar
obligations
Change in actuarial gains 28 21 (8) (1)
/ (losses), net
Tax effect (9) (7) 3 1
Unrealized (losses)/gains on
derivative financial
instruments
Change in unrealized (27) (1) 12 (14)
gains/(losses), net
Net realized 5 2 0 3
(gains)/losses
Tax effect 7 0 0 7
Other comprehensive income 3 28 16 (9)
--------------------------------------------------------------------------------
Total comprehensive income (337) 15 (97) (449)
--------------------------------------------------------------------------------
An impairment loss on goodwill, amounting to EUR 290 million, was recognized in
the Inoxum's combined statement of income within other operating expenses for
the fiscal year October 1, 2010 - September 30, 2011.
[3] This column reflects the impact of accounting policy alignment of
historical financial information between Outokumpu and Inoxum. In this column
adjustments have been made to arrive at comparable figures.
Post-employment benefit arrangements (pensions)
Outokumpu applies the corridor method for recognizing actuarial gains and
losses arising from pension benefit arrangements, while Inoxum recognizes such
actuarial gains and losses in other comprehensive income. In preparation of the
pro forma financial information, Inoxum's accounting policy has been applied to
follow the IAS 19 Employee Benefits principles which will come effective
January 1, 2013, to reflect the impact of this future requirement. This
amendment decreases Outokumpu's other receivables, amounting to EUR 38 million,
increases pension obligations, amounting to EUR 11 million and has an aggregate
negative impact on retained earnings, amounting to EUR (49) million. The
related impact on deferred taxes has been taken into account, the decrease in
deferred tax liabilities being EUR 12 million and the increase in deferred tax
assets being EUR 4 million. Consequently, the net effect on equity amounts to
EUR (33) million.
The recognition of actuarial gains and losses in other comprehensive income
instead of the application of the corridor method has a positive effect of EUR
9 million on the statement of income. The impact of the amendment is EUR 2
million on cost of sales, EUR 4 million on selling and marketing expenses and
EUR 3 million on administrative expenses. The related income tax effect is EUR
2 million. The positive effect resulted mainly from certain curtailments. When
actuarial gains and losses are recognized in other comprehensive income, such
gains and losses are not reclassified to profit or loss in subsequent periods.
The impact of the reversal of the actuarial losses recognized as part of the
curtailments carried out in the financial year 2011 amounts to EUR 8 million.
The interest expenses of EUR 21 million and the expected return on plan asset
of EUR 21 million have been transferred from operating functions to interest
expenses and interest income, respectively, in accordance with the adopted
principle of presenting the interest expense and expected return on plan assets
within the financial items.
The actuarial losses recognized in other comprehensive income amount to EUR 5
million and the related tax effect is EUR 2 million.
[4] This column reflects the differences in presentation of financial statement
items, thus adjustments have been made to present Inoxum's figures in a manner
consistent with the Outokumpu figures. This column also reflects the transfer
of the re-charge for the utilization of ThyssenKrupp trade name from equity to
the statement of income in Inoxum.
Adjustments regarding pro forma statement of income for the period January 1 -
December 31, 2011
Reclassifications of line items in the unaudited pro forma statement of income
include the following major items:
- Impact of the fair value changes arisen from derivatives not under hedge
accounting: Inoxum recognizes these in sales and cost of sales that they relate
to, whereas Outokumpu treats them as adjustments to other operating income and
other operating expenses. The reclassification of the fair value changes arisen
from derivatives not under hedge accounting has an impact of EUR (17) million
on sales, EUR 10 million on cost of sales, EUR 83 million on other operating
income and EUR (75) million on other operating expenses.
- The re-charge for the utilization of the ThyssenKrupp trade name: this item
was accounted for by Inoxum as an equity transaction with ThyssenKrupp. In the
unaudited pro forma statement of income the re-charge for the right to use of
ThyssenKrupp trade name is presented according to the Outokumpu's accounting
policy, i.e. it is expensed. The resulting effect on the unaudited pro forma
statement of income on selling and marketing expenses amounts to EUR (26)
million. The related income tax effect is EUR 8 million.
- Research and development (R&D) expenses: Inoxum recognizes these in other
operating expenses, whereas Outokumpu presents such expenses as a separate line
item in the statement of income. These expenses, amounting to EUR 14 million,
have been reclassified from other operating expenses to be presented as part of
research and development expenses.
Adjustments regarding pro forma statement of financial position as of December
31, 2011
Reclassification of the line items in the unaudited pro forma statement of
financial position include the following:
- Certain employee benefit obligations: In the historical financial position of
Inoxum as of December 31, 2011, certain employee benefit obligations amounting
to EUR 23 million have been recognized in other provisions. Such obligations
have been reclassified to other payables in accordance with Outokumpu's
accounting policy.
[5] This column reflects the acquisition of Inoxum and the provisional purchase
price allocation (PPA) on the unaudited pro forma statement of financial
position as of December 31, 2011. The final purchase price allocation may
significantly differ from the hypothetical allocation below which is presented
for illustrative purposes only.
Consideration to be transferred for Inoxum and liabilities to be assumed
The total consideration to be transferred for lnoxum and the liabilities to be
assumed comprise the following items (EUR in millions):
Consideration to be transferred
Consideration in cash
1,000
Consideration Shares to ThyssenKrupp
823(1)
Loan Note to be issued to ThyssenKrupp
656(2)
Liabilities to be assumed
Inoxum's pension obligations
281
Inoxum's net external financial debt
109
Total Consideration and liabilities to be assumed
2,869
(1) Based on Outokumpu share price of EUR 5.07 as of March 1, 2012.
(2) The principal amount of the Loan Note will be subject to change and will
mainly depend on changes in Inoxum's cash flow and capital expenditure before
the completion of the Inoxum transaction. The consideration will also be
adjusted (through a reduction of the principal amount of the Loan Note) for (i)
interest paid by Inoxum to ThyssenKrupp on certain borrowings and (ii) any
divestment necessary to obtain Regulatory approvals.
The Total Consideration of the Inoxum Transaction and liabilities to be assumed
amount in aggregate to EUR 2,869 million and consists of EUR 1.0 billion cash
consideration, Consideration Shares of EUR 823 million to ThyssenKrupp (based
on share price as of March 1, 2012), the Loan Note of EUR 656 million as well
as assumption of Inoxum's pension obligations of EUR 281 million and net
external financial debt of EUR 109 million. Outokumpu acquires ThyssenKrupp's
outstanding receivables against Inoxum in return for (i) EUR 1.0 billion in
cash and (ii) the subordinated Loan Note. See note [7] for more information on
the Loan Note.
Following the completion of the Inoxum Transaction, ThyssenKrupp will hold 29.9
percent of Outokumpu's issued and outstanding Shares. EUR 823 million
Consideration Shares is calculated in this provisional purchase price
allocation based on Outokumpu's share price as of March 1, 2012 (5.07 €/share).
For more detailed information see “Material Contracts—Inoxum
Transaction—Business Combination Agreement.”
Outokumpu's share price as well as adjustments to the Loan Note will have an
impact on the final amount of the Consideration, see the note [9] for the
effect of the share price on the consideration. The Loan Note will be adjusted
based on the change in interest-bearing financial debt of Inoxum and
ThyssenKrupp from September 30, 2011 until the completion of the Inoxum
Transaction. Thus, changes in Consideration to be transferred impact the final
purchase price allocation and resulting negative goodwill. As the Inoxum
Transaction is estimated to result in a gain from a bargain purchase,
i.e.negative goodwill, changes in consideration impact other operating income
in the pro forma financial information.
Provisional purchase price allocation
The provisional purchase price allocation as of December 31, 2011, is
hypothetical as the Inoxum Transaction has not yet been completed. The final
purchase price allocation will be prepared based on the fair values of Inoxum's
identifiable assets, liabilities and contingent liabilities at the acquisition
date, when Outokumpu will gain control over Inoxum. Therefore, the total
consideration as well as the final purchase price allocation at the acquisition
date may significantly differ from the hypothetical allocation presented in
this unaudited pro forma financial information.
The hypothetical purchase price allocation has been prepared relying on
high-level assessment of potential intangible assets based on December 31, 2011
financial information and material available at the preparation of the pro
forma financial information. Based on the high-level analysis, customer-based,
marketing-related and contract-based intangible assets were identified. The
fair value of these intangible assets identified is estimated to amount to EUR
8 million. The remaining high level useful life of the intangible assets
recognized is estimated to be two years.
The Inoxum Transaction is estimated to result in a gain from a bargain
purchase, i.e. negative goodwill. Currently it is presented under other
operating income in the pro forma financial information. Outokumpu's share
price as well as adjustments to the Loan Note will impact the final amount of
the consideration and the final purchase price allocation will be prepared
based on the fair values of Inoxum's identifiable assets, liabilities and
contingent liabilities at the acquisition date, when Outokumpu will gain
control over Inoxum. Therefore, the resulting negative goodwill is provisional
and the consideration as well as the resulting residual at the acquisition date
may significantly differ from that presented in this unaudited pro forma
financial information.
Consideration to be transferred for lnoxum is comprised of as follows (EUR in
millions, as of December 31, 2011, according to IFRS 3):
Consideration in cash
1,000
Consideration Shares to ThyssenKrupp
823(3)
Loan Note to be issued to ThyssenKrupp
656(4)
Total consideration to be transferred
2,479
(3) Based on Outokumpu share price of EUR 5.07 as of March 1, 2012
(4) The principal amount of the Loan Note will be subject to change and will
mainly depend on changes in Inoxum's cash flow and capital expenditure before
the completion of the Inoxum transaction. The consideration will also be
adjusted (through a reduction of the principal amount of the Loan Note) for (i)
interest paid by Inoxum to ThyssenKrupp on certain borrowings and (ii) any
divestment necessary to obtain Regulatory approvals.
Indicative fair values of Inoxum's identifiable assets and liabilities assumed
Indicative fair values of Inoxum's identifiable assets and liabilities to be
assumed (EUR in millions, as of December 31, 2011):
Intangible assets
35
Property, plant and equipment
2,346
Investment property
15
Investments in associated companies
16
Available-for-sale financial assets
2
Other non-current receivables
2
Deferred tax assets
0
Derivative financial instruments
58
Inventory
1,892
Loans receivables
111
Trade and other receivables
740
Cash and cash equivalents
71
Non-controlling interest
(17)
Long-term debt
(116)
Deferred tax liabilities
(120)
Pension obligations
(281)
Provisions (non-current)
(104)
Contingent liabilities
(6)
Current debt
(126)
Derivative financial instruments
(55)
Trade and other payables (interest-bearing)
(23)
Provisions (current)
(59)
Income tax liabilities
(18)
Trade payables (non-interest-bearing)
(1,589)
Identifiable net assets
2,774
Gain from bargain purchase (negative goodwill)
(295)
Total
2,479
Adjustments to the pro forma statement of financial position as of December 31,
2011
The major adjustments regarding the pro forma unaudited statement of financial
position as of December 31, 2011 include the following:
- Intangible assets: The goodwill included in Inoxum's statement of financial
position, amounting to EUR 45 million, has been derecognized in the
acquisition. In the hypothetical preliminary purchase price allocation a
write-down of EUR 12 million on intangible assets has been recognized.
Additionally, customer-based, marketing-related and contract-based intangible
assets have been identified. The fair value of these intangible assets
identified is estimated to total EUR 8 million and their useful lives are
estimated to be two years. Furthermore, a right of use agreement that is to be
taken over in the acquisition has been capitalized as an intangible asset,
amounting to EUR 14 million. The corresponding liability is presented under
trade and other payables. The aggregate net impact of these adjustments
discussed above on intangible assets amounts to EUR (35) million.
- Property, plant and equipment: In the hypothetical preliminary purchase price
allocation a writedown of EUR 55 million on property, plant and equipment has
been recognized. The write-down relates to the certain European operations of
Inoxum. Sufficient information to carry out a thorough valuation on property,
plant and equipment was not available at the preparation of the hypothetical
preliminary purchase price allocation. Thus, the fair value adjustment to
property, plant and equipment in the purchase price allocation at the
acquisition date may significantly differ from the hypothetical allocation
presented in this unaudited pro forma financial information. In respect of
property, plant and equipment some assets are also to be taken over in the
acquisition, mainly consisting of real estate assets, amounting to EUR 9
million. The corresponding liability is presented under trade and other
payables. In the acquisition also certain assets are to be taken over, mostly
consisting of land areas and buildings, which are accounted for as assets
acquired under finance leases assuming Outokumpu will exercise its option to
enter into these lease contracts. The resulting increase in property, plant and
equipment amounts to EUR 63 million. In respect of the operations of the
Duisburg hot rolling facility, a Memorandum of Understanding has been entered
into for, inter alia, business service agreement. For more detailed information
see “Material Contracts—Inoxum Transaction—Inoxum Separation
—Duisburg—Memorandum of Understanding”
- Deferred tax assets and deferred tax liabilities: Deferred tax assets of
Inoxum, totaling EUR 144 million, are written down in the purchase price
allocation due to the review and evaluation of the tax and financing strategies
post the combination of Outokumpu and Inoxum. The amount of the deferred tax
assets will be evaluated after the completion of the Inoxum Transaction based
on the estimates of the taxable income in the foreseeable future and on the
intra-group financing strategies of the company. A deferred tax liability
amounting to EUR 3 million (net) is recorded on the difference between the fair
values and the tax bases of the acquired assets as well as liabilities and
contingent liabilities assumed. The accounting treatment of deferred tax assets
may significantly change when the final purchase price allocation will be
prepared.
- Provisions: Provisions are adjusted by recognizing contingent liabilities
amounting to EUR 6 million.
- Interest-bearing liabilities: of the finance lease liabilities related to the
assets to be taken over in the acquisition (property, plant and equipment), EUR
62 million is non-current and EUR 1 million current.
- Items related to Inoxum's intra-group financing with ThyssenKrupp: The major
adjustment items related to ThyssenKrupp are associated with Inoxum's
intra-group financing with ThyssenKrupp. The adjustments have been made to
align the remaining amount of liabilities with the amount agreed upon to be
taken over as part of the Inoxum Transaction, see note [8].
Based on the latest information available, Outokumpu is not aware of
environmental obligations that would not have been provided for appropriately.
Regarding closure costs no reliable estimation of such expenditure can
currently be made.
Adjustments to the pro forma statement of income for the period January 1 -
December 31, 2011
The major adjustments regarding the unaudited pro forma statement of income for
the period January 1 - December 31, 2011 are as follows:
- Other operating income: The Inoxum Transaction is estimated to result in a
gain from a bargain purchase, i.e. negative goodwill, amounting to EUR 295
million. Currently it is presented under other operating income.
- Acquisition-related costs: The estimated acquisition-related costs amount to
EUR (21) million and are presented under other operating expenses. Other
operating expenses also include other expenditure arising from the acquisition
totaling EUR (16) million. In aggregate these amount to EUR 37 million.
- Depreciation and amortization: The impact on depreciation and amortization
arising from the fair value adjustments to the carrying amounts of intangible
assets and property, plant and equipment, from the assets to be taken over in
the acquisition relating to property, plant and equipment and from the
write-downs on intangible assets and property, plant and equipment, amount in
aggregate to EUR (1) million (net). The largest sub-item, EUR (4) million,
arises from the amortization of the intangible assets identified in the
acquisition. The effect of the finance lease accounting for certain leases on
operating functions is EUR 2 million on costs of goods sold and EUR 1 million
to administrative expenses. The total net impact of these adjustments on costs
of goods sold is EUR 1 million.
- Interest expenses: interest expenses related to the finance lease liabilities
arising from assets to be taken over in the acquisition amount to EUR (3)
million.
- Deferred taxes: Deferred tax assets of Inoxum, totaling EUR 144 million, are
written down in the acquisition due to the review and evaluation of the tax and
financing strategies post the combination of Outokumpu and Inoxum. The
resulting impact on income taxes in the unaudited pro forma statement of income
amounts to EUR (38) million that reverses the increase of deferred tax assets
recognized in the statement of income in the 12 months period.
[6] This column reflects the impact arising from the Offering to partly finance
the Inoxum Transaction. Outokumpu intends to pay part of the acquisition
through the net proceeds of the Rights Issue which are estimated to amount to
EUR 975 million, after deduction of the estimated Offering costs of EUR 31
million. The rest of the consideration is planned to be financed through the
Loan Note, see note [7], and a directed share issue to ThyssenKrupp, see note
[9].
The adjustment to cash for the Offering proceeds has been calculated as follows
(EUR million):
Gross proceeds from the Rights Issue
1,006
Transaction costs relating to the Rights Issue
(31)
Net proceeds from the Rights issue
975
To be paid to ThyssenKrupp
(1,000)
Adjustment to cash
(25)
[7] This column reflects the impact of the Loan Note, which is part of the
consideration. Outokumpu will acquire ThyssenKrupp group's outstanding
receivables against Inoxum in return for (i) EUR 1.0 billion in cash and (ii)
the Loan Note, the principal amount of which will be the amount by which the
balance of ThyssenKrupp's receivables against Inoxum and Inoxum's receivables
against ThyssenKrupp as at the completion of the Inoxum Transaction exceeds the
EUR 1.0 billion cash consideration. The principal amount of the Loan Note will
be subject to change and will mainly depend on changes in Inoxum's cash flow
and capital expenditure before the completion of the Inoxum Transaction. In
general, if Inoxum's cash flow from operations is negative and it requires
financing from ThyssenKrupp, this will increase the principal amount of the
Loan Note. For example, the principal amount of the Loan Note as at September
30, 2011 was EUR 235 million and as at December 31, 2011 EUR 656 million. The
final principal amount of the Loan Note will only be known at the time of
completion of the Inoxum Transaction. The consideration will also be adjusted
(through a reduction of the principal amount of the Loan Note) for (i) interest
paid by Inoxum to ThyssenKrupp on certain borrowings and (ii) any divestment
necessary to obtain the Regulatory Approvals (as defined under “—Regulatory
Approvals” below). For more information on the Regulatory Approvals, see
“—Regulatory Approvals” below.
Pursuant to the Business Combination Agreement, the parties will negotiate the
Loan Note based on an agreed term sheet. Interest will accrue on the principal
of the Loan Note at a rate of three-month EURIBOR plus a margin (between 4.0
percent per annum and 9.5 percent per annum) that increases at specified times
during the maturity of the Loan Note. Interest is payable every three months.
During the first 24 months, Outokumpu will have the option to capitalize up to
100 percent of the interest. For months 25 through 36, Outokumpu will have the
option to capitalize up to 50 percent of the interest. After month 36,
Outokumpu will not have the option to capitalize interest. The loan note will
be contractually subordinated to certain specified current and future debt of
Outokumpu. The Loan Note will mature on the ninth anniversary of the completion
of the Inoxum Transaction. Further terms and conditions related to the Loan
Note please see “Material contracts—Inoxum Transaction—Loan Note Term Sheet”.
The interest expense adjustment, EUR (43) million, has been determined based on
the loan amount as specified in the “Material contracts—Inoxum Transaction—Loan
Note Term Sheet”. The related tax effect amounts to EUR 11 million.
[8] This column reflects the reversal of Inoxum's intra-group financing with
ThyssenKrupp as these financial assets and financial liabilities, net, will not
be taken over in the Inoxum Transaction to the Combined Group.
Adjustments to the pro forma statement of financial position as of December 31,
2011
In this pro forma financial information EUR 1,310 million of non-current
financial assets (receivables) from ThyssenKrupp have been deducted from
assets. Inoxum's current financial debt of EUR 3,690 million consists of both
intra-group financing of EUR 3,565 million from ThyssenKrupp, which has been
deducted from the financial debt, and financial debt from financial
institutions and finance lease liabilities, totaling EUR 125 million. Inoxum's
non-current financial debt of EUR 359 million consists of intra-group financing
from ThyssenKrupp, amounting to EUR 305 million, which has been deducted from
the non-current financial debt, and financial debt from financial institutions
and finance lease liabilities, totaling EUR 54 million. Consequently,
subsequent to the acquisition, Inoxum will continue having only those
liabilities that have been specifically agreed upon as part of the Inoxum
transaction.
Adjustments to the pro forma statement of income for the period January 1 -
December 31, 2011
An adjustment amounting to EUR (35) million (net) has been made to financial
items. This relates to Inoxum's intra-group financing with ThyssenKrupp, both
to liabilities and receivables. The adjustment to both intra-group interest
income (EUR (31) million) and intra-group interest expenses (EUR 66 million) is
based on the assumption that in the acquisition these receivables and
liabilities will be settled. The related tax effect is EUR (11) million.
[9] This column reflects Outokumpu's new share issue to ThyssenKrupp, in the
aggregate, 29.9 % of its issued and outstanding shares calculated based on
Outokumpu's share price of EUR 5.07 per share as of March 1, 2012 totaling EUR
823 million. As the amount of new share issue will be dependent on Outokumpu's
share price, it is subject to changes.
Consideration Shares to ThyssenKrupp
Number of Outokumpu shares (no. of shares)
182.002.861
Share price (EUR per share)
5.07
Pre-issue market capitalization (EUR in millions)
923
Outokumpu's shareholders' share in the Combined Group
70.1%
ThyssenKrupp's share in the Combined Group
29.9%
Post-issue market capitalization (EUR in millions)(5)
2,752
./. Pre-issue market capitalization (EUR in millions)
923
./. The Offering (EUR in millions)
1,006
Consideration Shares to ThyssenKrupp (EUR in millions)
823
(5) Post-issue market capitalization calculated by dividing current market
capitalization added with rights issue with the %-ownership of 70.1% of current
Outokumpu shares.
In case the share price would be EUR 4.70 per share or EUR 7.00 per share, the
Consideration Shares to ThyssenKrupp would amount to EUR 794 million or EUR 973
million, and the gain (negative goodwill) arising from the Transaction EUR 324
million or EUR 145 million, respectively.
[10] Key financial figures of the Combined Group
(EUR in millions, except where otherwise indicated)
Pro forma 2011
Key financial figures of the Combined Group
Capital employed as at December 31
6,623
Operating profit
(401)
in relation to sales, percent
(3.5)
Debt-to-equity ratio (gearing)
59.2
Profit before taxes
(477)
in relation to sales, percent
(4.1)
Net profit for the financial year
(422)
in relation to sales, percent
(3.6)
Net interest-bearing debt
2,462
Definitions of key financial figures of the Combined Group
Capital employed Total equity + net
interest-bearing debt(1)
Operating profit
in relation to sales, percent Operating profit / Sales
Debt-to-equity ratio (gearing) Net interest-bearing
debt(1) / Total equity
Profit before taxes
in relation to sales, percent Profit before taxes /
Sales
Net profit for the financial year
in relation to sales, percent Net profit for the
financial year / Sales
(1) = Net interest-bearing debt =
Interest-bearing liabilities + net derivative financial instruments + other
interest-bearing payables - investments in associated companies - available for
sale financial assets - investment at fair value through profit or loss - other
interest-bearing receivables - cash and cash equivalents
For more information, please contact:
Kari Tuutti, SVP - Communications, Investor Relations and Marketing
Tel. +358 9 421 2432, Mobile +358 40 717 0830
Ingela Ulfves, VP - Investor Relations and Financial Communications
Tel. +358 9 421 2438, Mobile +358 40 515 1531
OUTOKUMPU OYJ
Outokumpu is a global leader in stainless steel with the vision to be the
undisputed number one. Customers in a wide range of industries use our
stainless steel and services worldwide. Being fully recyclable,
maintenance-free, as well as very strong and durable material, stainless steel
is one of the key building blocks for sustainable future. Outokumpu employs
some 8 000 people in more than 30 countries. The Group's head office is located
in Espoo, Finland. Outokumpu is listed on the NASDAQ OMX Helsinki.
www.outokumpu.com
DISCLAIMER
The information contained herein is not for publication or distribution,
directly or indirectly, in or into the United States, Canada, Australia, Hong
Kong, South Africa or Japan. These written materials do not constitute an
offer of securities for sale in the United States, nor may the securities be
offered or sold in the United States absent registration or an exemption from
registration as provided in the U.S. Securities Act of 1933, as amended, and
the rules and regulations thereunder. There is no intention to register any
portion of the offering in the United States or to conduct a public offering of
securities in the United States.
The issue, exercise or sale of securities in the offering are subject to
specific legal or regulatory restrictions in certain jurisdictions. The
Company assumes no responsibility in the event there is a violation by any
person of such restrictions.
The information contained herein shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of the securities
referred to herein in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration, exemption from registration or
qualification under the securities laws of any such jurisdiction. Investors
must neither accept any offer for, nor acquire, any securities to which this
document refers, unless they do so on the basis of the information contained in
the applicable prospectus published or offering circular distributed by
Outokumpu.
Outokumpu has not authorized any offer to the public of securities in any
Member State of the European Economic Area other than Finland and Sweden. With
respect to each Member State of the European Economic Area other than Finland
and Sweden and which has implemented the Prospectus Directive (each, a
“Relevant Member State”), no action has been undertaken or will be undertaken
to make an offer to the public of securities requiring publication of a
prospectus in any Relevant Member State. As a result, the securities may only
be offered in Relevant Member States (a) to any legal entity which is a
qualified investor as defined in the Prospectus Directive; or (b) in any other
circumstances falling within Article 3(2) of the Prospectus Directive. For the
purposes of this paragraph, the expression an “offer of securities to the
public” means the communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be offered so as to
enable an investor to decide to exercise, purchase or subscribe the securities,
as the same may be varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC (and amendments thereto, including the
2010 PD Amending Directive, to the extent implemented in the Relevant Member
State), and includes any relevant implementing measure in the Relevant Member
State and the expression “2010 PD Amending Directive” means Directive
2010/73/EU.
This communication is directed only at (i) persons who are outside the United
Kingdom or (ii) persons who have professional experience in matters relating to
investments falling within Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 (the “Order”) and (iii) high net
worth entities, and other persons to whom it may lawfully be communicated,
falling within Article 49(2) of the Order (all such persons together being
referred to as “relevant persons”). Any investment activity to which this
communication relates will only be available to and will only be engaged with,
relevant persons. Any person who is not a relevant person should not act or
rely on this document or any of its contents.
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